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Introduction:

The Indian stock market is about to witness a significant change with the introduction of the T+0 settlement cycle. Currently, the settlement cycle is T+1, which means it takes a day for trading and settlement to occur. However, with T+0, shares will be visible in the demat account and money will be available instantly. This shift will have a profound impact on retail traders, brokers, and major investors like FPIs and DIIs. Let’s explore the details of this new settlement rule and its implications.

What is T+0 settlement cycle?

The T+0 settlement cycle refers to the process in which trades settle on the same day, providing instant availability of margins for traders. Previously, traders had to wait for 2 days (T+2) for their trades to settle. With T+0, traders can sell shares and receive funds on the same day, enabling them to utilize the received funds for new shares or other trading activities. This eliminates the need to arrange additional funds when there is an opportunity to buy shares but the money is stuck in holdings.

Benefits for retail traders

The introduction of T+0 settlement cycle brings several benefits for retail traders. First and foremost, it allows for instant settlement, providing access to funds and shares on the same day. This enhances liquidity and enables quick decision-making. Moreover, the counterparty risk is reduced as both the buyer and seller parties have to settle on the same day, minimizing the chances of fraud. Additionally, the role of Clearing Corporation becomes crucial in facilitating swift settlements, ensuring a smooth transaction process.

Impact on SEBI’s new settlement rule

SEBI’s new settlement rule regarding T+0 settlement cycle will have a significant impact on the market. The efforts of clearing corporations, such as CDSL and NSDL, will increase as they need to ensure accurate and timely settlements. This will require efficient coordination and management of trades. While the move aims to streamline the settlement process, investors may experience short-term losses due to the change in settlement time. However, in the long run, the reduced settlement time will contribute to a more efficient and robust market ecosystem.

Comparison with other countries

India stands out as one of the few countries adopting the T+0 settlement cycle, whereas countries like the US and China are yet to implement it. India’s market turnover is around 8 billion dollars per day, significantly higher than China’s market turnover of around 65000 crores. The introduction of T+0 settlement will further strengthen India’s position in the global stock market landscape and foster investor confidence.

Conclusion:

The arrival of the T+0 settlement cycle in the Indian stock market marks a turning point for retail traders, providing instant availability of funds and shares. It eliminates the waiting period for settlements and reduces counterparty risk. While SEBI’s new settlement rule may pose initial challenges, it is a step towards a more efficient and secure market system. As India takes the lead in adopting T+0 settlement, it sets an example for other countries to consider this beneficial change. The future of retail trading in India looks promising with T+0 settlement.