SEBI to roll out beta version of T+0 settlement from March 28

With the shorter settlement cycles, there is expected to be lower counterparty risk and increased liquidity in the market.

The market regulator will roll out the beta version of the T+0 settlement on an optional basis from March 28.

On March 15, after a meeting with its Board, the Securities and Exchange Board of India (Sebi) announced the new, optional settlement cycle.

The press release said, "The Board approved the launch of a Beta version of optional T+0 settlement, for a limited set of 25 scrips, and with a limited set of brokers. In parallel, SEBI shall continue to do further stakeholder consultation, including with the users of the Beta version. The Board shall review the progress at the end of three months and six months from the date of this implementation, and decide on further course of action."

T+0 settlement means that the funds and securities for a transaction will be settled on the day the trade was entered into.

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Until now the Indian securities markets have been operating at a T+1 settlement cycle. The regulator had shortened the settlement cycle to T+3 from T+5 in 2002 and subsequently to T+2 in 2003. It introduced T+1 in 2021 and implemented in phases, with the final phase completed in January 2023.

The T+0 settlement cycle will now be made available as an option alongside T+1.

With the shorter settlement cycles, there is expected to be lower counterparty risk and increased liquidity in the market.

As the consultation paper released on December 22, 2023, said, the shorter settlement cycle is expected to provide more flexibility to clients in terms of faster pay-out and give them more control over their funds. It added that it will free up capital and thereby enhance market efficiency, and enhance overall risk management for clearing corporations (CCs).

Although the T+0 settlement system is not as common as T+1 or T+2 settlement cycles, there are a few countries and markets that have adopted T+0 settlement. The Moscow Exchange (MOEX) and Korea Exchange (KRX) offer T+0 settlements for certain securities in Russia and South Korea.

Taiwan's Taiwan Stock Exchange (TWSE) offers T+0 settlement for certain types of trades, particularly for government bonds and certain Exchange-Traded Funds (ETFs).

In Hong Kong, while the standard settlement cycle for most securities is T+2, the Hong Kong Stock Exchange (HKEX) offers T+0 settlement for certain transactions, particularly for bonds and other fixed-income securities. In the US certain types of transactions, particularly those involving government securities and certain money market instruments, may be settled on a same-day basis. However, this is not the standard practice for most equity transactions, which typically follow a T+2 settlement cycle.