Stock exchanges are all set to introduce the beta version of ‘T+0’ or same-day trade settlement in a handful of stocks in the cash segment from Thursday.

Exchanges will introduce the shorter trade cycle for 25 scrips initially and with a limited number of brokers. Capital market regulator SEBI will review the progress at the end of three months and six months, and decide on the next course of action.

The T+0 settlement will run parallel to the existing T+1 settlement cycle.

“The transition towards T+0 not only enhances the efficiency and flexibility of market operations but also stands to substantially mitigate transactional risks, offering an immediate and tangible value to both traders and investors alike,” said Vamsi Krishna, CEO of StoxBox.

India’s transition to ‘T+1’ from ‘T+2’ happened in three phases, with the last one in March 2023. This is because moving into a shorter settlement cycle required changes to the infrastructure of trading operations for brokers, and also getting necessary approvals and procedural completions for foreign institutional investors who are trading from different countries in different time zones.

Within a year of moving fully into the T+1 cycle, the market is now looking at same-day settlement of trades. While most of the provisions applicable to the T+1 cycle, including the transaction charges, will also be applicable for T+0 trades, the current ecosystem still needs some improvement for the functionality of same-day settlement of trades, believe some experts. Experts, therefore, see chances of increased market volatility with the introduction of T+0 trade settlement, which could make things a bit more unpredictable in the short term.

Challenges

A transition to same-day settlement and eventually to instantaneous settlement of trades could be a potential game changer, but there are hurdles in the way of successful implementation of the same.

“Implementing this change would necessitate a comprehensive overhaul of the current market infrastructure, systems, and processes, entailing complex and potentially costly modifications to be made promptly,” said Rakeshh Mehta, chairman of Mehta Group – Mehta Equities.

The current ecosystem might require improvements for T+0 functionality, such as margin reporting standardization, risk management strategies, settlement guidelines, and price differential arbitrage protection, said Trivesh D, chief operating officer of Tradejini.

Trivesh also believes that unless participation in T+0 is made mandatory, the impact will
be miniscule.

“Given the already declining cash market volumes compared to F&O, implementing this change could potentially skew the ratio of F&O volumes to cash market trades even further,” he said.

If implemented across the board, India will be only the second country after China to introduce shorter trade settlements. It remains to be seen whether we taste success in the first step itself.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)