In July, the Securities and Exchange Board of India (SEBI) announced that it was actually trying to launch real-time settlement of trades. Now the Board is ready to execute the one-hour trading calculation.
SEBI aims to move the one-hour trading settlement to the month of March next year, SEBI Chairman Madhabi Puri Buch said on Tuesday. The Chairman also stated that a feature similar to the Application Supported Blocked Amount (ASBA) for secondary market trading is likely to be introduced in January next year.
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Understanding trade settlement
Settlements are two-way. Such a process includes the transfer of securities and funds on the settlement date. Only when the purchased securities of the listed company are actually delivered to the buyer, and the seller receives the money in return, is the time when the trade settlement is said to be successfully completed.
The current T+1 cycle implies that trade-related settlements take place within 24 hours of actual transactions. In January 2023, there was a transition to the T+1 cycle. India has successfully become the second nation in the world to initiate a T+1 settlement cycle in top listed securities. The first nation in the world to do so is China. The cycle brings faster remittances, operational efficiency and simplicity for stock exchange participants, and operational efficiency.
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SEBI’s words
Buc expresses that it is believed that a one-hour trade settlement can be implemented much more quickly than the current one. Therefore, in the event that it currently takes another 6 to 7 months, the body will conduct a one-hour trade settlement before then.
While the technology required to implement one-hour trade settlement is present, the system requires additional technological development in the case of instant trade settlement, which would additionally require additional time. The current trade settlement is expected to be in place by the end of 2024.
Advantages of one-hour trade settlement
Under the current T+1 settlement cycle, in case an investor sells securities, the money is credited to the individual’s account the next day. In the case of a one-hour settlement, if the investor sells the share, the money will be credited to his account only after an hour. This means that the buyer will get the shares in the demat account within an hour.
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Categories: Trends
Source: HIS Education