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T+2 settlement from April

Mumbai, Jan. 3: The Securities and Exchange Board of India (Sebi) today announced its plan to introduce T+2 settlement on stock exchanges from April 1.

The move is the latest in the series of steps taken to make markets safer. To start with, T+5 rolling settlement was introduced in July 2001 and T+3 from April 2002.

To pave the way for the T+2 cycle, Sebi said it intends to widen the scope of straight-through processing (STP) by using the electronic funds transfer facility and allowing electronic contract notes.

“Having gained the experience of T+3 and STP, it is now felt that the time is appropriate to reduce settlement cycle to T+2. This will reduce the risk in the market and help protect interest of investors,” Sebi added.

Dealers were worried whether traded volumes on the bourses will fall again as they did when rolling settlement was first introduced.

“The market regulator should now prod stock exchanges to expand the list of shares traded in the derivatives segment. If it remains at the level of 31 stocks, volumes are likely to dry up again,” a BSE broker said.

Meanwhile, Sebi has sought support from market intermediaries to facilitate the move to shorten trading cycles. “The shortening of the settlement cycle to T+2 needed co-operation, co-ordination and active support of various market entities and intermediaries such as stock exchanges, clearing corporations/houses, depositories, depository participants, FIIs, custodians, fund managers and brokers,” it said.

The regulator explained that the move towards T+2 was done after much debate, consultation and negotiations with market participants. “Sebi held several rounds of consultations with market participants and based on the consensus, decided to introduce the T+2 rolling settlement in Indian equity markets from April 1.”

Indicating how T+2 would work, Sebi said the confirmation of institutional trades by the custodians will have to come latest by 11.00 a.m. on T+1.

An exception window would be available for late confirmations, but the time limit and additional charges for the exception window would be decided by the bourses.

The exchange/clearing house/clearing corporation would process and download the obligation files to the brokers’ terminals latest by 1.30 p.m. on T+1.

Depository participants (DPs) will accept instructions for pay-in of securities by investors in physical form at least up to 4 p.m. and in electronic form by 6 p.m. on T+1. The depositories would accept requests from DPs till 8:00 p.m. for ‘same-day processing’. The depository will permit downloading of the pay-in files of securities and funds till 10:30 a.m. on T+2 from broker pool accounts. It would process the pay-in requests and transfer consolidated pay-in files to the clearing house/clearing corporation by 11:00 a.m. on T+2.

The exchange/clearing house/clearing corporation would execute the pay out of securities and funds latest by 1:30 p.m. on T+2 to the depositories and clearing banks who would in turn complete the process by 2:00 p.m. on T+2.

Sebi said it was going public with plans to introduce T+2 at this point primarily to give sufficient advance notice to market participants.

“The money cycle will become shorter. The markets will welcome the new settlement cycle but Sebi has to ensure that cheque clearance by banks and depository participants for making deliveries also move in tandem,” said Arun Kejriwal of Kejriwal Research & Investment Services.

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