Good News For Investors! Share Trading Cycle To Be Reduced To Just One Hour By Next Year

Nine months after India became the world¡¯s first country to shift to the T+1 trading cycle, India¡¯s stock market regulator SEBI is planning to further shorten this period.

SEBI¡¯s Plan To Make Trading Cycle Instantaneous For Investors

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In good news for stock market investors, SEBI will introduce one-hour trade settlements by the end of this financial year (i.e. by March 2024), a top official has said.

This move will enable investors to get their money (in case of selling) or shares (in case of buying) within just one hour of trade.

Securities and Exchange Board of India further aims to ultimately make the trading cycle instantaneous by next year's end. SEBI has adopted a roadmap towards realising its aim of making trade settlements instantaneous, the official said, as per PTI.

"From one day to one hour to instantaneous is the roadmap," the official said, adding that one-hour settlements are much quicker to implement than instantaneous. The official said technology for one-hour trade settlements already exists and the regulator is confident about the same, while the instantaneous settlements need more technology development.

At present, SEBI is thinking of rolling out the one-hour trade settlement for all investors by March next year and is looking at a time frame of six to eight months more for the instantaneous settlements.

The Application Supported by Blocked Amount (ASBA)-like facility for secondary markets will start by January for all investors and it will take another couple of months for the one-hour cycle to set in after that, the official said.

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Investors Can Opt Out If They Want

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Amid concerns raised by certain foreign portfolio investors on the shortening of the settlement cycles citing forex-related worries, the SEBI official made it clear that faster settlements are optional and investors can opt out.

The official said the early settlement facility will be optional for investors and they can opt out of it and stressed that data analysis does not indicate any problems on the trading side if some investors were to opt out.

"If the FPIs don't want to do that (instantaneous), they're free to do that. And we've looked at the matching data (on) whose trade matches with whom. So, our belief based on that data is that it will not be a problem for anybody," the official said.

Elaborating on the recently issued proposals to tackle the menace of financial influencers, the official said SEBI is acting keeping the future in mind and its intent is only to get into a situation if a regulated entity comes into the picture.

Separately, SEBI is also keeping tabs on activities with the help of states' law enforcement agencies, the official said.

Now let us explain to you what a trade settlement cycle is and how India¡¯s settlement cycle compares to other countries.

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What Is A Settlement System?

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The settlement marks the official transfer of shares to the buyer's account and cash to the seller's account. Indian stock exchanges currently follow T+2 days settlement, i.e., settlement of funds and securities happens two business days after the order is executed. For example, if you buy shares on Wednesday, they will be credited to your Demat account only by Friday as per the T+2 settlement.

Before SEBI introduced the T+2 settlement system in April 2003, as per an ET report, India followed the T+3 settlement system, meaning it took three days for shares and money to be credited to the account. Currently, with the T+1 settlement system, investors expect credit for shares and money within 24 hours only.

Further, this trading cycle time will be shortened to just one hour by early next year, with SEBI ultimately aiming to make it instantaneous by year end.

Example scenario for T+1 (equities)

Buying shares: On Monday (T day), shares are purchased. The shares are credited to the demat account on the following day, Tuesday (T+1 day).
Selling shares: On Monday (T day), shares are sold. On Tuesday (T+1 day), the funds are credited to the trading account. These funds can be withdrawn from the trading account only after Tuesday evening.

Trade Settlement Time In Different Countries

Unlike the Indian equities market which is set to further shorten its trading cycle from T+1 to just one hour, and ultimately instantaneous, most stock exchanges around the world currently work on the T+2 settlement system, which means the settlement occurs two business days after the day the order executes, i.e.T+2 (trade date plus two days). So, for example, if you placed an order for sale/purchase of on Monday, it would typically be settled by Wednesday.

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