T+1 settlement like a sci-fi movie unfolding in India, rest of the world is watching: Ashishkumar Chauhan

Ashishkumar Chauhan took charge as NSE chief on July 26, 2022

Real time settlement of trades is now a possibility as India's payments system has become real-time, said Ashishkumar Chauhan, managing director and chief executive officer of National Stock Exchange on August 26.

On the sidelines of an event hosted by Business Today, Chauhan said: "On one side you have the payment and banking system, and on other side is the depository. As and when the regulations (for real time settlement) come in, the two sides must be able to do it simultaneously. I think the implementation will be easy."

Recollecting how trades were being settled in over 60 days back in the 90s, Chauhan said that we have come a long way. "What is happening in India is like a sci-fi movie, while the rest of the world is watching," he said.

In January 2023, Indian stock exchanges shifted to a shorter and faster ‘trade-plus-one’ (T+1) settlement cycle, marking a significant milestone in capital markets. Prior to that, India was following the T+2 rolling settlement principle.

The T+1 settlement rule simply means that all trade-related settlements must be finished within a day or 24 hours. For example, if you are an investor and bought 50 shares on Monday, these should reflect in your Demat account on Tuesday.

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"Investors have adapted well to the T+1 settlement. And I am sure buyers and sellers will also be able to adapt quickly to real time settlement, whenever it happens," Chauhan said.

Lauding the transition to T+1 cycle, MSCI said in June that a shorter settlement cycle brings numerous benefits such as enhanced investor protection, risk reduction in the financial system, and increased operational and capital efficiency while heightening resiliency in the securities market.

Earlier this year, the US and Canada also announced that the transition to T+1 will take place in May 2024. MSCI believes EU, UK and Japan should also follow suit as alignment across developed markets would be beneficial during global index rebalances, to reduce frictions and prevent overdrafts, particularly considering current high interest rates.