Instant settlement is a proposed new settlement cycle for the Indian stock market. Under the current T+1 settlement cycle, trades are settled within 24 hours of the transaction. Under instant settlement, trades would be settled instantaneously, meaning that the buyer would receive the shares and the seller would receive the money immediately.
The Securities and Exchange Board of India (SEBI) is currently working on implementing instant settlement. The regulator has set a target of implementing one-hour settlement by March 2024 and instantaneous settlement by October 2024.
Instant settlement would have a number of benefits for investors, including:
- Reduced risk of settlement failures: Under the current T+1 settlement cycle, there is a risk that a trade may not be settled on time. This could happen due to a number of factors, such as a broker’s default or a technical glitch. Instant settlement would eliminate this risk, as trades would be settled immediately.
- Increased liquidity: Instant settlement would increase liquidity in the market, as investors would be able to buy and sell shares more quickly. This would make it easier for investors to enter and exit the market, and it would also make the market more attractive to foreign investors.
- Lower costs: Instant settlement would lower the costs of trading, as there would be no need to hold funds in escrow for a day. This would benefit both investors and brokers.
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The implementation of instant settlement is a complex process, and there are a number of challenges that need to be addressed. However, the potential benefits are significant, and SEBI is committed to making it happen.
Here are some of the challenges that need to be addressed in order to implement instant settlement:
- Technology: The infrastructure for instant settlement needs to be in place. This includes the development of a new settlement system and the upgrade of existing systems.
- Risk management: The risks associated with instant settlement need to be managed. This includes the risk of settlement failures, market manipulation, and cyber attacks.
- Regulatory framework: The regulatory framework for instant settlement needs to be developed. This includes rules on the eligibility of securities for instant settlement and the responsibilities of market participants.
Despite the challenges, the potential benefits of instant settlement are significant. If implemented successfully, it would make the Indian stock market more efficient, liquid, and attractive to investors.