SEBI seeks for optional T+O and instant settlement cycle

The market exchange authority has recently proposes to begin the implementation of the T+O settlement cycle with the top 500 listed companies as per market capitalisation.

SEBI seeks for optional T+O and instant settlement cycle

Market regulator controlling authority, SEBI, has proposed a consultation paper for the implementation of optional T+O and instant settlement cycle of trades in the equity cash segment. This is proposed to be done in three phases of 200, 200, and 100 companies. The proposal has seeks stakeholder's reviews for the same.

The proposal has been settled for two phases, where in phase 1, the regulator has proposed an optional T+O settlement cycle for trades till 1;30 pm, with settlement of funds and securities to be completed on the same day by 4:30 pm. The firstly recommended phase of T+O settlement will be availaible for the first top 500 listed equity shares in three tranches, from the lowest to the highest market capitalization. 

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For the second phase, an optional immediate trade by trade settlement would be carried till 3:30 pm. After phase 2 is implemented, Phase1 of optional T+O will be discontinued, this will be in addition to T+1 settlement cycle which is already existing in equity cash segment. SEBI has introduced the T+3 settlement cycle in 2002, the T+2 settlement cycle in 2003 while  current T+1 settlement cycle in 2021 and was fully implemented by January 2023.

It should be noted that securities under trade-for-trade settlement and those traded in periodic call auction sessions will not be permitted for T+O. Custodial clients will be executed in phase1.

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Some stock market observers are favouring this move envisaging that it will enable faster pay-outs of securities and funds to investors, improve overall market efficiency along with enhancing the overall risk management of clearing corporations[CCs].

However, there is some rising concerns that different segments for order placement - the T+O or instant settlement cycle and the T+1 settlement cycle- may lead to liquidity fragmentation, affect efficient price discovery, and increase the cost of trading as funds and securities shall have to be made available upfront before placing the orders.


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