SEBI Introduces Beta Version of T+0 Rolling Settlement Cycle in Equity Cash Markets

Monisha Chaudhary

30 Mar, 2024

The Securities and Exchange Board of India has recently, on 21^st March 2024, vide circular no SEBI/HO/MRD/MRD-PoD-3/P/CIR/2024/20, issued a circular on a subject introduction of the beta version of the T+0 rolling settlement cycle on an optional basis in addition to the existing T+1 settlement cycle in equity cash markets. However, this Circular introduces an optional system settlement in addition to the existing T+1 settlement cycle in the equity cash market, specifying a limitation of 25 scrips and a limited number of brokers.

Earlier SEBI vide circular No. SEBI/HO/MRD2/DCAP/P/CIR/2021/628 dated 7^th September 2021 has introduced a settlement with a beta version of T+1 and was fully implemented with effect from 27^th January 2023.

Overview of the Circular

This transition or addition of a settlement option of T+0 with the existence of T+1 settlement was possible because of the significant evolution of technology, architecture, and capacity of market Infrastructure Institutions (MIIs) for robust risk management frameworks such as stock exchanges, clearing corporations, and depositors. Moreover, this decision to introduce an additional settlement option of T+0 was considered or approved by SEBI only after careful consideration of the recommendations given by the working group, such as MIIs, public comments, and inputs from the SEBI risk management review committee. Additionally, shortening the settlement cycle to T+0 results in cost savings, efficiency with time, and transparency among investors, as well as enhances the risk management system.

Let’s Take a Closer View of Circular

Given below are the guidelines provided by the SEBI in this Circular:

Investors Eligibility

All investors are eligible to participate in the settlement option of T+0 if they fulfil the requirements according to the MIIs, such as timelines, procedures, and various other risk requirements.

Surveillance Measures

Just like the surveillance measures taken in T+1, the same is also applicable in T+0 settlement cycles.

Trade timings

The timings of the trading shall continue from 9:15 am to 1:30 pm.

Price Band

T+0 segment price movement will operate under the price band of +/-100, a basic point from the T+1 market price, with recalibration after every 50-basis point movement in the underlying T+1 market.

Index Calculation and settlement price computation

These T+0 prices will not hinder the index calculations or settlement price computation. However, there is no extra closing price on securities based on the T+0 trading segment.

Netting of obligations

There is no permission for the netting of obligations between the T+1 and T+0 settlement cycle options.

Insights key take of the Circular

Here are the insights and key take away from the Circular:

1. MIIs must facilitate a smooth transition by uploading their official websites and publishing guidelines on operations on such settlement options, along with FAQs with a list of 25 scrips on the T+0 beta version of the settlement cycle.
2. MIIs shall also periodically update a list of brokers participating in the T+0 beta version cycle on their official websites and also a fortnightly report on the progress of the activities connected to the T+0 beta version settlement cycle on their official websites.
3. Lastly the Circular has specifically mentioned that SEBI shall take an initiative to conduct a stakeholder consultation including with users of the T+0 beta version settlement cycle option.

Conclusion

Thus, this Circular is an instruction given to the MIIs to take a necessary step in implementing this new instruction on the settlement cycle in the equity cash market, which shall come into effect from 28^th March 2024. With this notification, a new settlement option for the T+0 beta version has been introduced along with the previous settlement option for the T+1 option, which involves a restricted number of brokers by focusing on a limited set of securities. The concerned authority with these circulars aims to check the feasibility of such a settlement option by evaluating the impact of T+0 before a potentially wider option is made available to investors. Thus, SEBI has introduced this to protect the interests of investors in the securities market.