India can smoothly implement T+1 settlement cycle, says BSE chief Ashishkumar Chauhan

The proposed T+1 settlement system can be implemented in India without any hindrance as different segments of the market are already following various settlement cycles and still functioning smoothly, says BSE MD and CEO Ashishkumar Chauhan.

According to the BSE honcho, the opposition to the proposed settlement cycle by a section of market participants will not hamper the transition as and when it happens since the technology or the systems are already in place.

"We are not new to this (T+1) as we already do real time (settlement)," says Chauhan.

"Offer for sale happens pretty much in the same way. Even auctions happen on T+1 basis. So, in some ways India is already doing it in some areas. We are already equipped to switch to T+1, and that too on a massive scale. We are doing it today in other areas,” explains Chauhan.

If there is consensus and the regulator wants to implement T+1, then BSE as a frontline regulator will support the move, he adds.

In September, capital markets regulator Securities and Exchange Board of India (SEBI) gave its go-ahead for exchanges to switch to T+1 settlement cycle from January 1, 2022, though it has not made it mandatory. In other words, it is up to the exchanges to decide whether they want to continue with the current T+2 settlement cycle or switch to the shorter one.

Simply put, under the T+1 settlement cycle, a buy transaction will see the shares credited in the demat account just a day after the trade day. In case of a sale transaction, the money would be credited the next day. The existing settlement cycle of T+2 was introduced on April 1, 2003, prior to which the stock market operated on a T+3 cycle.

More importantly, the BSE chief said that even if there is a scenario wherein one exchange shifts to T+1 cycle while the other continues with the current T+2 system, it would not affect the functioning of the markets.

"The way it works is that both the clearing houses will have to be ready on the same day because we have interoperability. The clearing houses have to be at the same level of implementation. And that is why SEBI has given some time for both of them to coordinate and integrate and be ready with the technology," says Chauhan.

This assumes significance as soon after the capital markets watchdog allowed the shorter settlement cycle to be introduced from next year, there were reports that the smooth functioning of the market could be disturbed if one exchange opts for T+1 while the other decides to stay with the current T+2 cycle.

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