One-Hour Trade Settlement

September 6, 2023

The Securities and Exchange Board of India (SEBI) has announced plans to introduce one-hour trade settlement by March 2024, a significant development in the country’s financial market infrastructure. Currently operating on a T+1 settlement cycle, where trade-related settlements occur within 24 hours, this move aims to enhance operational efficiency and expedite fund remittances and share deliveries for market participants.

While the technology for one-hour settlement is already available, the move towards instantaneous settlement requires additional technology development and is expected to be implemented by the end of 2024. The new system will enable investors to have funds credited and shares delivered within just one hour of a trade.

What is trade settlement?

Trade settlement is the process of transferring funds and securities on the settlement date. It is essential as it ensures that purchased securities are delivered to the buyer, and the seller receives the money.

How does the current T+1 settlement cycle benefit India’s stock market?

The T+1 cycle provides operational efficiency, faster fund remittances, share delivery, and convenience for stock market participants. India adopted this cycle in January, following China’s lead, becoming the second country to do so.

Why is SEBI planning to introduce one-hour trade settlement before moving to instantaneous settlement?

SEBI believes that implementing one-hour trade settlement is quicker due to the existing technology, while instantaneous settlement requires additional technological development, which may take more time. One-hour settlement is seen as a more immediate solution.

What are the benefits of one-hour trade settlement for investors and the stock market?

In a one-hour settlement, when an investor sells a share, the money is credited to their account within an hour, and the buyer receives the shares in their demat account within the same timeframe. This significantly speeds up the trade settlement process.

What are the challenges and complexities associated with transitioning to instantaneous trade settlement?

Instantaneous trade settlement requires advanced technology and infrastructure, making it a more complex and time-consuming process compared to the one-hour settlement. SEBI anticipates implementing it by the end of 2024.

What is the impact of one-hour trade settlement?

The introduction of one-hour trade settlement is likely to encourage more trading activity as investors can access funds and shares faster. This increased liquidity may affect market dynamics and trading strategies.

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