Background
Back in September 2021, SEBI introduced the concept of T+1 settlement. Following the phased implementation by the exchanges, all the instruments that are traded on the exchanges like stocks, ETFs, bonds, etc. are now settled on T+1 day from January 2023.
SEBI’s idea for the introduction of T+0 settlement
Following the successful implementation of the T+1 settlement cycle. SEBI has now published a consultation paper for the introduction of T+0 settlement, i.e., instant settlement on an optional basis in the equity segment. SEBI plans to implement this proposal in two phases:
In Phase 1 of the optional T+0 settlement cycle (for trades till 1:30 PM). The settlement of funds and securities will be completed on the same day by 4:30 PM. While in Phase 2 of the optional immediate trade-by-trade settlement, trading will be carried out till 3.30 pm.
After the implementation of phase 2, the mechanism of optional T+0 settlement implemented under phase 1 will be discontinued.
Summary of phase 1 and phase 2
| Particulars | Phase 1: Optional T+0 Settlement | Phase 2: Optional Instant Settlement |
|---|---|---|
| Trading period | Trading will be up to 1:30 PM. | Trading will be up to 3.30 PM. |
| Obligation | For UPI Clients: Net obligation at client level. | Each trade settled separately. |
| For other Clients and Proprietary: Net obligation at member level across clients. | ||
| Trades settled through Custodians | Not permitted. | Permitted. |
| Risk Management | Based on margin, as per existing mechanism. | Order level risk management system and mandatory prefunding of funds and securities. |
| Trading | Exchange shall create a separate series/group/scrip code | Exchange shall create a separate series/group/scrip code |
| Funds Settlement | For UPI Clients: UPI block debit to CC Pay-out account to Client’s account. | For UPI Clients: UPI block debit to CC Pay-out account to Client’s account. |
| For non-UPI Clients and Proprietary: pay-in and pay-out at member (broker) level with CC. | For non-UPI Clients and Proprietary: pay-in and pay-out at member (broker) level with CC. | |
| Participation | All clients (including TM proprietary trading), excluding clients settling through custodians. | All clients (including TM proprietary trading). |
| Order Type | - | Limit order |
| Securities Settlement | Early pay-in by 01:45 PM. | Early pay-in mandatory before trading. |
| Securities pay-out to client’s demat account for UPI Clients. | Securities pay-out to client’s demat account for UPI Clients. | |
| Securities pay-out to member pool account for non-UPI clients and proprietary. | Securities pay-out to member pool account for non-UPI clients and proprietary. | |
| Pay-in validation will be done by CCs. | Pay-in validation will be done by CCs. | |
| Approach | Settlement completion by 4:30 PM on T day. | Settlement at the earliest and it will be trade-by-trade settlement i.e. each trade settled separately. |
Phase 1: Optional T+0 settlement:
Eligible Investors
All clients excluding clients who settle through custodians.
Eligible Securities
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To begin with, the T+0 settlement will be made available in the top 500 listed equity shares based on the market capitalization. This will be done in three tranches of 200, 200, and 100 from lowest to highest market cap.
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The surveillance measures applicable in the T+1 settlement cycle will apply to securities in the T+0 settlement cycle.
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Securities under the trade-for-trade settlement and periodic call auction will not be permitted for T+0.
Trading
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The exchange shall create a separate series/group/scrip code for T+0.
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Price Band: A price band will be of +100 basis points, which will be re-calibrated after a 50 basis points movement in the underlying securities in the regular T+1 market.
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There will be only one continuous session from 09:15 AM to 1:30 PM. There won’t be any pre-open/special pre-open/block/auction/post-close sessions in this segment.
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Along with this, there will be no trading on settlement holidays and the ex-date of the corporate action.
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T+0 prices are not to be considered in index calculation/settlement price.
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There will be no separate close price for securities based on trading in the T+0 segment.
Phase 2: Optional Instant Settlement
Eligible Investors
- All clients including clients settling through custodians.
Eligible Securities
- To begin with, all securities available under Phase 1 will be available under Phase 2.
Trading
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In case of instant settlement, only limit orders will be allowed, so that the adequacy of prefunding can be validated by the CC against the limit price.
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Trading hours will be from 09:15 AM to 03:30 PM.
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Other rules under Phase 1 will continue to be applicable.
Settlement timelines for Phase 2
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Trades will be settled on a trade-by-trade basis as soon as possible for settlements. For inter-Clearing Corporation (CC) settlements, it can take longer due to the additional leg of settlement.
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Clearing Corporations (CCs) ensure guaranteed settlement of trades. There are two CCs i.e., NSE Clearing Limited and Indian Clearing Corporation (ICCL) which are wholly owned subsidiaries of the NSE and BSE respectively.
You can read the full SEBI consultation paper on the instant settlement here: https://www.sebi.gov.in/reports-and-statistics/reports/dec-2023/consultation-paper-on-introduction-of-optional-t-0-and-optional-instant-settlement-of-trades-in-addition-to-t-1-settlement-cycle-in-indian-securities-markets-_80204.html