In a significant move that could revolutionise India’s stock exchanges, Madhabi Puri Buch, Chairperson of the Securities and Exchange Board of India (SEBI), announced efforts to introduce instantaneous settlement mechanisms. By leveraging advanced technology, SEBI aims to enable trades to be settled instantly, granting entities immediate access to funds and securities.
Chairperson Buch highlighted the successful shift of Indian securities markets from T+2 to T+1, reducing settlement cycles. Building on this progress, SEBI is actively collaborating with multiple stakeholders to develop quick settlement mechanisms. The potential benefits of technology-driven regulatory measures have already proven substantial, saving investors an estimated Rs 3,500 crore on an annual basis, according to Chairperson Buch.
One such technological measure implemented by SEBI is the Application Supported Blocked Amount (ASBA) mechanism in the primary market, which has already freed up Rs 260 crore in interest value in the current financial year. However, the true value released to the market is even more significant, with the benefits expected to be nearly ten times greater when ASBA is applied to trading in the secondary market.
To facilitate the instant settlement process, SEBI recently approved an ASBA-like facility for the stock market. This system ensures that investors’ funds are only transferred upon successful settlement. If all clients opt for this mechanism across various segments, it could potentially free up an impressive Rs 2,300 crore during the fiscal year, considering the reported Rs 58,000 crore in margin for qualified stock brokers alone.
Chairperson Buch emphasized that the benefits extend beyond the equity cash segment. The introduction of the T+1 settlement mechanism, which was launched on an optional basis in February 2022 and completed in January 2023, has already released Rs 700 crore annually in interest value for an amount involved worth Rs 9,900 crore.
Additionally, investors in the mutual fund segment have reaped rewards from SEBI’s efforts to reduce the redemption period to T+3. It is estimated that investors have gained an annual benefit of Rs 230 crore, assuming an amount of Rs 24 lakh crore involved in equity and hybrid schemes for the financial year 2023.
SEBI’s visionary initiatives have positioned India’s securities market at the forefront of technological advancement in the financial industry. As Chairperson Buch aims to implement instant settlement mechanisms, investors and stakeholders can anticipate unparalleled speed, efficiency, and liquidity in the market.
The potential introduction of instant settlement holds promising implications for market participants, further reinforcing SEBI’s commitment to fostering a dynamic and investor-friendly environment. As the securities market continues to embrace technology-driven innovations, investors can look forward to enhanced trust, transparency, and financial security.
