RISING STOCK

Recent initiatives by SEBI have made capital markets a better place for investors

- NACHIKET KELKAR

January 27, 2023, was a significant day in the history of India's capital markets-they fully transitioned to T+1 settlements, which meant if you sold shares you would get the money in your account the next day.

They went one better on March 25, 2024, as the stock exchanges debuted T+0 settlement for 25 scrips, which meant sellers would get their money on the same day. The plan is to move to instantaneous settlements next year.

The journey towards shorter settlement had begun when the Securities and Exchange Board of India allowed exchanges to move from T+2 to T+1 settlement cycle in January 2022. It was done in phases and took a year for complete switching. There were hiccups. The custodians of foreign institutional investors resisted it citing some difficulties. But, SEBI chairperson Madhabi Puri Buch ensured that all of them were ironed out.

Quicker settlements offer many benefits, notably the reduction of counterparty risk (the probability that the other party may not fulfil the contractual obligations) and the bolstering of market efficiency, said Rakeshh Mehta, chairman of Mehta Equities. "Furthermore, it is anticipated to substantially lower operational expenses for market participants and reduce the funding costs that brokers face," he said.

There are, however, many challenges and concerns. A shorter settlement cycle would necessitate an overhaul of the market infrastructure, systems and processes. Also, it may contribute to an increase in market volatility. SEBI says it will continue consultations with stakeholders and the board will review the progress periodically.