US wants to follow India, in stock market settlement cycle


Indian stocks are set to move to a faster settlement cycle in a switch to the T+1 system. Starting from Friday, January 27, Indian stocks will be settled on a ‘trade-plus-one-day’ timeline versus the earlier two-day (T+2) process. T+1 means that market trade-related settlements will need to be cleared within one day of the actual transactions taking place.

India is among the firsts in the world to go for such a faster trading settlement cycle, putting itself ahead of the US. The T+1 settlement was proposed recently with implementation timelines of 24 months by the US Securities Exchange Commission (SEC).

The US SEC has sought stakeholder views on moving to a one-day settlement cycle and a Bloomberg report suggests that an industry body in Europe is discussing the same.

The Securities and Exchange Commission (SEC) last year voted to propose rule changes to reduce risks in the clearance and settlement of securities, including by shortening the standard settlement cycle for most broker-dealer transactions in securities from two business days after the trade date (T+2) to one business day after the trade date (T+1). The proposed changes are designed to reduce the credit, market, and liquidity risks in securities transactions faced by market participants and U.S. investors, the regulatory body said in a paper.

“Shortening the settlement cycle should reduce the amount of margin that counterparties would need to post with clearinghouses,” SEC Chair Gary Gensler said in a paper last year. “As the old saying goes, time is money.”

Indian capital markets regulator Securities and Exchange Board of India (SEBI), on September 07, 2021, permitted Stock exchanges to introduce T+1 settlement cycle from January 01, 2022 on any of the securities available in the equity segment. The transition to T+1 has been happening in batches based on market cap (small to big) since February 2022. 

All large-cap and blue-chip companies will switch to the T+1 system on January 27. The switch to T+1 settlement is coming 20 years after the capital market regulator SEBI in 2003 had reduced the settlement period from T+3 days to T+2 days.

(With inputs from agencies)

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