T+0 settlement cycle

Why in news: BSE and NSE commenced trading in T+0 rolling settlement cycle in the equity segment on an alternative basis. The beta version of the optional T+0 settlement cycle, or same-day settlement, was launched for a set of 25 stocks and with a limited set of brokers.

Introduction:

The Securities and Exchange Board of India (SEBI) recently released operational guidelines for initiating a shortened settlement cycle known as T+0, where trades will be settled on the same day they are executed, following the close of the T+0 market session.

What is the T+0 trading settlement cycle?

• In December last year, capital markets regulator SEBI announced plans to introduce a same-day clearing and settlement facility, known as the T+0 settlement along with the existing T+1 cycle.
• This initiative allows an alternative, instant settlement process where financial transactions for buying and selling shares can be completed on the same day the trade is made.
• This means that sellers receive payment and buyers get possession of their purchased shares in their demat accounts on the trading day itself.
• SEBI also indicated plans to introduce an alternative instant settlement mechanism in the future.

What are the benefits of T+0 trade settlement?

• The T+0 trade settlement cycle is anticipated to offer several advantages, such as improving the efficiency of both costs and time, increasing transparency regarding investor charges, and enhancing the risk management frameworks of clearing corporations as well as the entire securities market infrastructure.
• This more rapid settlement cycle is designed to offer sellers quicker access to funds from their sold securities and buyers expedited receipt of securities for their paid funds, granting investors more immediate control over their financial assets.
• Furthermore, by shortening the settlement period, the T+0 cycle will help to release capital more swiftly within the securities market, thereby boosting overall market functioning.
• It also aims to improve the risk management practices of Clearing Corporations by ensuring trades are supported by immediate availability of funds and securities.

Which securities are available for trading in the T+0 settlement cycle?

• Stock exchanges have identified a list of 25 stocks eligible for the T+0 settlement cycle.
• This list includes major companies such as Ambuja Cements Ltd, Ashok Leyland Ltd, Bajaj Auto Ltd, and Bank of Baroda, among others, spanning various sectors from cement and automotive to banking and pharmaceuticals.
• Other notable companies in this selection are Bharat Petroleum Corporation Ltd, Birlasoft Ltd, Cipla Ltd, and more, to enhance trading flexibility and efficiency. Additionally, the list encompasses firms like LTIMindtree Ltd, Samvardhana Motherson International Ltd, MRF Ltd, and Nestle India, extending to a wide range of industries including technology, automotive components, tire manufacturing, and food processing.
• This move is geared towards facilitating faster transactions, allowing both sellers to receive funds and buyers to obtain shares on the day of the trade, thus streamlining the investment process and potentially reducing market risk.

Who can participate in the T+0 settlement cycle?

• All investors have the opportunity to engage in the T+0 trade settlement cycle, provided they can adhere to the specific timelines, processes, and risk mandates established by Market Infrastructure Institutions (MIIs).
• The trading schedule for the T+0 settlement cycle will consist of a single continuous session from 09:15 AM to 1:30 PM. Subsequently, the clearing and settlement of both funds and securities are set to be concluded by 4:30 PM on the same day.
• Regarding price fluctuations, the T+0 segment will maintain a price band set at +100 basis points relative to the prevailing price in the regular T+1 market.
• This band will undergo adjustments following every 50 basis points shift observed in the T+1 market, ensuring a dynamic and responsive trading environment.

Securities and Exchange Board of India (SEBI)

Establishment and Purpose

• Formed under the Securities and Exchange Board of India Act, 1992.
• Began operations on April 12, 1992.
• Aims to protect investors’ interests in securities markets and ensure the markets function smoothly and orderly.

Historical Context

Predecessor: Controller of Capital Issues, under the Capital Issues (Control) Act of 1947.

SEBI was initially established as a non-statutory body in April 1988 by a Government resolution.

Statutory Powers

• Transitioned from non-statutory to statutory status with the SEBI Act in 1992.
• Granted autonomy and regulatory authority over the securities market.
• Headquarters in Mumbai, India’s financial capital.
• Regional offices in Ahmedabad, Kolkata, Chennai, and Delhi.

Structure of SEBI

• The Securities and Exchange Board of India (SEBI) has a structured governance structure consisting of a Chairman as well as a number of full-time and part-time members to oversee its operations.
• Additionally, SEBI forms various committees to address specific concerns or issues as they arise.
• Key to SEBI’s structure is the Securities Appellate Tribunal (SAT), which has been set up to hear complaints against SEBI decisions. The SAT is headed by a Presiding Officer and consists of two other members.
• It has the same legal authority as a civil court, which enables it to decide cases effectively. Parties dissatisfied with SAT decisions have the option to take their appeal to the Supreme Court.

Powers and Functions of SEBI: SEBI acts as a quasi-legislative body, able to draft its own rules, and a quasi-judicial body, with the ability to investigate, issue judgments, and impose penalties.

Its operations cater to three main groups within the securities market:

Issuers: SEBI facilitates a favorable market environment for issuers to raise financial capital.

Investors: It ensures the protection of investor interests through the dissemination of accurate and reliable market information.

Intermediaries: The organization promotes a competitive environment for market intermediaries while maintaining fair market practices.

Following the Securities Laws (Amendment) Act of 2014, SEBI’s regulatory domain was expanded to include monitoring of any collective investment scheme aggregating funds exceeding Rs. Rs 100 crore with additional power to attach property in case of non-compliance.

The Chairman of SEBI has the authority to conduct “search and seizure operations” and the Board has the prerogative to request data such as telephone records related to any securities investigation.

Additionally, SEBI is entrusted with the registration and regulatory oversight of venture capital funds and collective investment schemes, including mutual funds. It plays an important role in supporting and regulating self-regulatory organizations, and it enforces rules against fraudulent and unfair trading practices within the securities markets.