SEBI's Optional T+0 Settlement Plan May Face Limited Demand, High Fees, Operational Costs Hiccups

T+0 settlement aims to settle trades on the same day, which means that the seller of stocks will receive money on the day of sale. While the T+1 cycle means that the funds are settled by the next day of trade.

While the T+0 rolling settlement benefits the investors, there are currently very few takers, as per Nilesh Sharma, president and executive director at SAMCO Securities.

T+0 settlement aims to settle trades on the same day, which means that the seller of stocks will receive money on the day of sale. While the T+1 cycle means that the funds are settled by the next day of trade.

While the T+0 rolling settlement benefits the investors, there are currently very few takers, as per Nilesh Sharma, president and executive director at SAMCO Securities.

On the other hand, as per Ashish Rathi, whole time director at HDFC Securities, it remains to be seen how beneficial the T+0 settlement cycle will be in terms of revenue and whether the costs of technological upgrades and operational changes will be justified. 

Brought forth as a beta version at first in March 2024, the T+0 settlement cycle will now be extended to a broader set of securities, beginning Jan. 31, 2025. 

While it started with only 25 selected scrips for trading and was made available to non-custodian clients, the settlement cycle will now be available for the top 500 scrips by market capitalisation, beginning with the bottom 100 companies.

Qualified stock brokers will set up the systems needed for smooth investor participation within three months of their designation.

By making participation mandatory for qualified stock brokers, we can be sure that the major players in the market will be on board with this offering, according to Samir Shah, head of online business, Axis Securities.

All stock brokers will be allowed to participate and charge differential brokerage fees for T+0 and T+1 settlement cycles, within the regulatory limit. Offering differential brokerage rates may spark healthy competition among brokers, driving them to innovate and improve their services, Shah said.

Market infrastructure institutions and custodians will also need to ensure their systems are ready for investors to participate in the T+0 settlement cycle.

Furthermore, a block deal window will be introduced for T+0 trades during the morning session (8:45 a.m. to 9:00 am), alongside existing windows for T+1 settlements. Trades in this window will settle on the same day, in line with the T+0 settlement cycle.

However, challenges for MIIs also include seamless coordination for foreign institutional investors operating across time zones, pointed out Narinder Wadhwa, chief executive officer and managing director of SKI Capital.

SEBI has also asked MIIs to put out guidelines, including mechanisms for trading, clearing, and settlement, on their respective websites. MIIs will also provide fortnightly reports on activities related to the T+0 settlement cycle.

As per Bhavik Gandhi, head of operations at Mirae Asset Capital Market, the operational challenges are considerable, especially for brokers who have to manage both T+0 and T+1 scrips under the same International Securities Identification Number or ISIN. 

Moreover, institutional clients might not participate in optional T+0 scrips, causing liquidity issues in that counter, said Gandhi. However, in the long run, these issues will be resolved when the entire country adopts a mandatory T+0 settlement cycle, he said.

The participation in this cycle will depend on exchange and DP infrastructure, readiness to handle operational complexities, and the associated costs of providing this service, said Vamsi Krishna, chief executive officer of StoxBox.

The T+0 settlement data from exchanges revealed that as of Dec. 10, 2024, there were no trades recorded on either exchange for the day, indicating that the system had seen almost no activity for months. The last trade on the NSE occurred on Sept. 5, 2024, while the BSE’s last recorded trade was even earlier, on June 21, 2024.

Over the span of 173 days since the inception of T+0 settlement, the NSE had trading activity on 15 days, compared to just six days on the BSE. The total traded value on the NSE amounted to Rs 5.75 lakh, almost double the BSE’s Rs 2.98 lakh. The number of trades executed by NSE stood at 72, while those of BSE were at 53.

This data reflects the limited and sporadic use of the T+0 settlement system. Despite showing initial promise, participation dwindled significantly, with very few trading days recorded over the 173-day period and no activity in the later months. It suggests that the system has not yet gained widespread acceptance or utility in the markets.