On Friday, Indian stock market makes move to adopt T+1 settlement cycle in India. Foreign investors oppose the move because of geographical hassle. Originally, the proposal SEBI or Securities and Exchange board of India presents the proposal. However, in 2020, the plan was deferred.
The history of settlement cycles in India
Before introducing a settlement cycle change, any regulator issues a one month prior notice of the enforcement to investors and public. After enforcement, a settlement must continue for at least 6 months.
In 2003, the Indian regulator changes the then T+3 settlement cycle to T+2 settlement cycle. Now, it changes to T+1 settlement cycle in India from T+2 cycle.
What is T+1 settlement cycle?
Firstly, in T+2 settlement cycle, an investor receives an amount from transaction in trade by broker in a cycle of three days.
On change, T+1 cycle is not likely to bring about any technical changes in the way investors make transactions. As per SEBI, a shorter settlement cycle reduces risks. It releases capital or risk on it that is taken as collateral. Further, it also reduces the risk of default.
Now, it will take 24 hours to credit money to investors. It will eventually make the market more effective.
Motilal Oswal Financial Services are of opinion that this move will increase retail investors’ participation and inflow of investments to equity markets. It will give investors more liquidity.
