T+0 settlement extension: Market participants say it is only a matter of time before it catches on

The Securities and Exchange Board of India’s (Sebi’s) decision to extend the same day or T+0 (trading plus zero days) settlement mechanism from 25 stocks at present to 500 based has received mixed responses from market participants. Some have welcomed the move, but others have pointed to the tepid response that the beta version received.

In March, the Indian stock markets became the first in the world to launch same day settlement. The settlement cycle would provide sellers access to 100% of their funds on the same day as against 80% in the T+1 cycle. 

But about six months since its launch, data from the NSE shows that only one broker, Geojit Financial Services, had participated for all 24 weeks since its launch till September. Among the Top 10 brokers who had used the mechanism, no other brokerage house had participated for more than 6 weeks.

Market participants indicated that this could be because of the limited amount of stocks that were available, which meant lesser liquidity. Amar Ambani, Executive Director, YES Securities, said, “T+O settlement is an excellent initiative by the regulators and exchanges. Being early days, only a handful of brokers have participated in the T+O settlement window so far. Furthermore, there were only 25 scrips, and even from the brokers that participated, almost all did so only for a few trading sessions. As a result, the volume of T+O represents less than 1% of the total volume and weak retail engagement thus far.”

He also added that what is needed is the active participation of top brokers along with strong support from major institutional clients, custodians, and back and front office system vendors. Eventually, clients will move to T+O to benefit from stock and fund settlement on the same day.

Gaurang Shah, Senior VP, Geojit, said T+0 hadn’t received much traction initially, and it would take some time for investors and brokers to adopt it. Echoing his views, Gaurav Dua, SVP, Head, Capital Market Strategy, Sharekhan, said brokers will take some time to provide enough liquidity to investors for T+0 settlement.

Others have welcomed Sebi’s move. Aurelia Menezes, Partner, King Stubb & Kasiva, Advocates and Attorneys, said the T+0 settlement cycle will help investors and traders make use of available liquidity when the stock market is volatile. He said, “This initiative will enable retail investors to maintain liquidity and boost the confidence of investors by reducing the settlement cycle.”

Shrey Jain, Founder & CEO, SAS Online, said there would be less confusion for market participants now, especially first-timers. “Investors can plan their money moves better; allowing brokers to offer differentiated products along with differential pricing using T+0 settlement should also help the investors with facilities such as instant payouts,” he said. But he added that since T+0 would be implemented in a phased manner, investors would need to keep track of settlement cycles if they are dealing in multiple securities following different cycles.

Under the expanded scheme, T+0 settlement will be available for trades executed between 9.15 am and 1.30 pm. An optional window will be introduced from 8.45 am to 9 am for settlement. This is optional, and investors can also opt for the T+1 settlement cycle if they so desire.

(Table source: NSE)