Welcome change but T+0 settlement cycle continues to face challenges, say brokers

The beta version of T+0 was introduced in March 2024 even as the Indian stock markets have been operating on a T+1 settlement cycle.

The Securities and Exchange Board of India (SEBI) may well have enhanced the scope of T+0 settlement cycle by increasing the number of stocks among other things, but market participants currently do not appear too optimistic on the road ahead for the shorter settlement cycle.

The beta version of T+0 was introduced in March 2024 even as the Indian stock markets have been operating on a T+1 settlement cycle.

T+0 settlement cycle refers to a mechanism wherein the shares are credited in the investor’s account on the day of trade itself. In a sell transaction, the money would be credited in the account on the same day.

On Monday, the board of the capital markets watchdog announced an increase in the number of scrips eligible for trading under the optional T+0 settlement cycle from the current 25 to include the top 500 stocks based on market capitalisation.

Secondly, all qualified stock brokers (QSBs), which include the largest broking firms in terms of volume and client funds, will have to offer the T+0 settlement cycle to their clients and can even charge differential brokerage fees for the shorter settlement cycle.

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While T+0 is a global first among leading economies, making India one of the fastest markets in terms of settlement cycle, most broking firms do not see much impact as despite the fanfare in launch of T+0 it has failed to effectively pick up.

The minimal participation though, some suggest, could have been due to its optional status and the limited selection of just 25 stocks. The latest SEBI announcement could enhance participation though one needs to wait and watch, say experts.

“A fundamental concern lies in how T+0 will affect the intraday trading community, which historically hasn’t taken delivery on the same day. If T+0 becomes compulsory, it could drastically reduce intraday volumes, negatively impacting brokers,” says Trivesh D, COO, Tradejini.

Concerns regarding T+0 have been communicated to broker associations, yet key issues remain unresolved, particularly around the mechanics of trading, he says while adding that the option to charge differential brokerage for T+0 doesn't add value especially in a price-sensitive market like India as clients may prefer the lower costs of T+1 settlements, regardless of the availability of T+0 facility.

Similarly, Samir Shah, head - online business, Axis Securities, said that while SEBI introduced the T+0 Settlement a few months ago, it is yet to work as expected.

“There are several reasons why investors are not opting for same-day payouts. First, the returns they get are usually lower than usual. Also, even if the funds are added to their ledger by 6 pm the same day, many brokers take an extra day to deposit the money into their accounts,” he explains.

The additional costs of setting up the systems is another challenge, say market participants, especially when a clear RoI is not visible given the lacklustre acceptance level.

Mohit Mehra, VP - Primary Markets and Payments, Zerodha says that while the T+0 settlement cycle lets investors get their money or stocks on the same day a trade is made, it increases costs since the settlements will be conducted separately, and stockbrokers and other market intermediaries will need to make changes to their systems and these additional costs could result in increased brokerage charges.

Meanwhile, in order to facilitate seamless participation in the optional T+0 settlement cycle, SEBI has mandated that QSBs must establish systems to accommodate their clients effectively. Additionally, these QSBs must meet a minimum threshold of active clients to qualify, it said.

“If T+0 is made compulsory, it could lead to increased liquidity. For FPIs, trading on the T+0 platform allows them to access their funds the same day, which could offer a competitive edge against cryptocurrencies, which provide instant transactions. While T+0 won’t offer immediate settlements, it may help align traditional exchanges more closely with crypto trading," says Ashish Rathi, whole-time director, HDFC Securities.

Tejas Khoday, co-founder and CEO of discount broking firm FYERS, also adds that T+0 settlement won't really affect discount brokerages since the brokerages collect the payment upfront on the very day that the trade is placed.

“This has been the practice for nearly a decade. Therefore, there won't be any difficulty in managing the cash flows or in setting up processes,” he says, adding that the only challenge would come maybe from the operational or technical side in case the files are delayed or the settlement does not come through.

On the whole, it is a good development for the entire ecosystem, says Khoday.

“The T+0 system is expected to create a more efficient market, reduce short deliveries, and streamline the settlement process, ultimately simplifying clients' experiences by eliminating concerns about payout timing," says Atul Parakh, CEO, Bigul.

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