Instant settlement in Indian capital markets is not very far off, says Sebi chief

There might soon come a time when trades in the Indian stock market may be settled instantly – a tad quicker than the current mechanism of T+1, which means it takes one day for the trades to be settled. 

This assumes significance as with the current T+1 mechanism, the Indian stock market is already among the fastest among all leading equity markets globally.  

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Simply, put, instant settlement refers to a mechanism wherein the stocks would be credited to the buyer’s account instantly, with the seller getting the cash instantly as well. 

Sebi chairperson Madhabi Puri Buch said that the regulator is already working on the mechanism and the day is "not very far off". 

“… one of the things that we think is not very far off is an instantaneous settlement on the stock exchanges. We are currently working on that; we are engaged with the ecosystem and we believe that not in the very far future we will have a mechanism which will facilitate instantaneous settlement of transactions on the stock exchange," she said while addressing the media on Monday. 

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She further highlighted the fact that while the Indian markets are already among the fastest globally in terms of settlement, the technology is already available to take it to the next level. 

“Our markets moved from T+2 to T+1 but the technology stack that we have makes it possible to bring in a mechanism wherein trades can be settled instantaneously with entities getting money and the securities. We believe that in the cash equity segment where T+1 exists, instant settlement can be done,” she added. 

Incidentally, the eureka moment came when Sebi was working on an ASBA-like mechanism for the secondary markets for faster settlement.  

ASBA refers to Application Supported by Blocked Amount mechanism that is used to bid for shares in initial public offers (IPOs). ASBA has been one of the biggest factors in bringing down the overall public issue timeline from the earlier T+6 to T+3. 

“When we were working on ASBA-like mechanism for secondary markets, we thought that since both security and cash are blocked, then why not can the trade be settled immediately," said Buch, the first female chairperson of the regulatory watchdog. 

Incidentally, as per a Sebi analysis, investors were able to save as much as ₹3,500 crore annually due to investor and market-friendly measures like faster settlement – both in the secondary markets and mutual funds -- and quicker allotment in public issues.