The Indian market is planning to change the way it settles trades for around 200 of its largest publicly traded companies. This new system, known as T+1, will require trades to be settled on the next business day after they are executed, which is faster than the previous system where trades were settled two business days after execution. India will become the second market after China to adopt this T+1 system, which aims to increase efficiency and decrease risk in the settlement process
Starting January 27, a large portion of the Indian stock market, including major companies like Reliance Industries, Tata Consultancy Services, and Adani Enterprises, will be settling their trades on a "trade plus one day" basis, rather than the previous two-day process. This change applies to stocks that make up 80% of the country's equity market. The transition has been in the works for a year, giving market intermediaries time to prepare for the change, according to Prashant Vagal, an executive at National Securities Depository Ltd.
This last step in the transition will be closely watched by foreign investors who have expressed concern over timezone differences and consequent trade-matching failures. Supporters of the move say faster settlement reduces counterparty risk and trading costs.
The move to T+1 settlement system is expected to bring operational efficiencies, as the rolling of funds and stocks will be faster according to Suresh Shukla, Joint President at Kotak Securities Ltd. This will help to increase the speed of the trading process and make the market more efficient and less risky. The faster settlement cycle will also help to reduce the time and cost of the process for both buyers and sellers.
The shift to T+1 settlement system is not limited to India and China, other countries and regions are also considering this change. The US Securities and Exchange Commission (SEC) has solicited feedback from stakeholders on the possibility of moving to a one-day settlement cycle. Similarly, an industry body in Europe is also discussing the possibility of adopting T+1 settlement system. The potential benefits of faster settlement, such as improved operational efficiency and reduced counterparty risk, are encouraging other countries and regions to consider making the change.
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