From UPSC perspective, the following things are important :
Prelims level: T+0 Settlement Cycle
Mains level: NA
Why in the news?
India’s stock market will begin the with a ‘beta version’ of T+0 settlement system (same day settlement) from today. This is the world’s fastest stock settlement system.
About T+0 Settlement Cycle
- SEBI has planned to introduce the shorter cycle in two phases:
- T+0 Settlement Details: In Phase 1, trades executed until 1:30 PM will be settled by 4:30 PM on the same day.
- Instant Settlement Mechanics: Phase 2 envisages immediate trade-by-trade settlement, with trading continuing until 3:30 PM.
Features of the T+0 Settlement Mechanism
- Early Pay-In Trend: A large percentage of retail investors already make early pay-ins of funds and securities, indicating readiness for instant settlement.
- Instant Receipt Benefits: The mechanism enables instant receipt of funds and securities, reducing settlement shortages and enhancing investor control.
- Investor Protection: Direct crediting of funds and securities into investors’ accounts, especially for UPI clients, strengthens investor protection.
Settlement Cycle: A Quick History
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Scope and Implementation of T+0
- Initially, the T+0 settlement will be available for the top 500 listed equity shares based on market capitalization, implemented in three tranches.
- The same surveillance measures applicable in the T+1 cycle will apply to the T+0 cycle.
- Trade-for-trade settlement securities will NOT be eligible for T+0.
Rationale behind T+O Cycle
- Market Growth and Efficiency: With the significant growth in market volumes and participants, SEBI aims to enhance market efficiency and safety, especially for retail investors.
- Technological Advancements: The evolution of payment systems like UPI and the sophistication of market infrastructure support the feasibility of shorter settlement cycles.
- Investor Attraction: Faster transactions, reliability, and low costs are key factors that attract investors, making Indian securities a more appealing asset class.
Benefits of the New Mechanism
- Flexibility for Clients: The new mechanism offers faster payouts of funds to sellers and securities to buyers, providing greater flexibility and control.
- Market Ecosystem Advantages: The faster settlement cycle is expected to enhance the operational efficiency of the securities market, benefiting the entire ecosystem.
PYQ:2017: The term ‘Digital Single Market Strategy’ seen in the news refers to a) ASEAN b) BRICS c) EU d) G20
Practice MCQ: With reference to the T+0 Settlement Cycle, consider the following statements: 1. Trades executed until 1:30 PM will be settled by 4:30 PM on the same day. 2. Trade-for-trade settlement securities will also be eligible for T+0. Which of the given statements is/are correct? a) Only 1 b) Only 2 c) Both 1 and 2 d) Neither 1 nor 2 |
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