Securities and Exchange Board of India (SEBI), the apex regulatory authority for the capital markets, is gearing up for a groundbreaking shift in its settlement mechanism. Madhabi Puri Buch, the Chairperson of SEBI, recently announced at the Global Economic Policy Forum in Delhi's Bharat Mandapam that the regulator aims to implement a same-day settlement system, commonly known as T plus zero (T+0) settlement, by the end of the current financial year 2023-24.
As things stand, trades in the Indian stock market are settled on a T+1 basis, indicating that transactions are finalized one day after initiation. The proposed T+0 settlement would revolutionize the process, allowing trades to be settled on the very same day, ushering in a new era of instantaneous settlements. This move places India on the precipice of becoming the second country, following China, to operate on such a short settlement cycle.
In elucidating the timeline for this transformative shift, Buch emphasized that SEBI envisions the T+0 settlement norm to be in place by March-end 2024, with instantaneous settlement becoming a reality within the subsequent 12 months. The Chairperson noted that the implementation of the T+0 settlement system is part of a well-structured roadmap, indicating a strategic approach toward achieving this ambitious goal.
In a notable development, Buch highlighted that the significance of technology, co-creation, and trust in the system played a pivotal role in managing the T+1 settlement cycle. She revealed that SEBI is considering the introduction of ASBA (Application Supported by Blocked Amount) for the secondary market, enabling funds to sit in the account and accrue interest until the actual trade occurs, demonstrating a forward-thinking approach to enhance efficiency.
Moreover, Buch underscored that discussions at the International Organization of Securities Commissions (IOSCO) frequently revolved around India's successful management of the T+1 settlement cycle. She expressed confidence that the proposed changes would not only streamline processes but also contribute to bolstering trust in the financial system.
The regulatory chief also took the opportunity to commend the collaborative efforts of the government and the Reserve Bank of India (RBI). Buch asserted that due to their concerted efforts, Indian sovereign bonds are poised to be included in global indices. This development is deemed crucial for the country as it will facilitate the government in raising resources. Additionally, she anticipates that the establishment of the Indian yield curve in the global market will attract significant attention from global investors to the corporate bond market.
In the final segment of her address, Buch shed light on the increased adoption of automation by SEBI and the integration of technology in decision-making processes. She outlined the two key aspects of this technological evolution: compliance and supervisory technology. Emphasizing the shift towards a more automated approach, Buch envisioned a future with increased XBRL reporting and algorithmic supervision, rendering human examination less relevant in certain contexts.
In conclusion, SEBI's ambitious move towards T+0 settlement represents a paradigm shift in India's capital markets, underscoring the regulator's commitment to technological innovation and efficiency enhancement. As the roadmap unfolds, the Indian financial landscape is poised for transformation, with potentially far-reaching implications for market participants and global investors alike.
