The stock market regulator SEBI must be praised for expanding the scope of same day settlement cycle, technically known as T+0 settlement. If you sell your shares under T+0 settlement cycle, money will be credited same day into your account. But this settlement cycle will be optional. If you opt for it, brokers will charge more brokerage from you. SEBI has permitted them to charge differential brokerage. If you can’t afford higher brokerage, you have no choice except T+1 cycle. Under T+1 cycle, proceeds from sale of share would be credited into account the next day. By introduction and expansion of scope of T+0 cycle, SEBI has created a class divide among investors: those who can afford more brokerage will opt for T+0 and those who can’t afford will be left with T+1. Let us discuss its pros and cons.
Shorter the settlement cycle, lower the risk of settlement. T+0 settlement cycle is more than welcome. Since Mutual funds and Foreign Portfolio Investors (FPIs) have been permitted to avail of the facilities of optional T+0 settlement cycle, the brokers will be benefited the most due to higher brokerage structure. Mutual Funds and FPIs have plenty of money and they can easily afford and avail T+0 settlement cycle. Even HNI would go for T+0. Retail investors will be left out. Most of them would have to satisfy themselves with T+1. They have already lost almost Rs. 2 lakh Crore in F&O segment during last two years. By opting for T+1, they will further lose opportunities of buying the very next day. Who cares? SEBI must think of the eATM facility offered by some brokers, wherein the client can get sale proceeds up to Rs 1 Crore same day without incurring any extra cost. The regulator who has introduced facility like Basic Services Demat Account (BSDA) for retail investors could have gifted them T+0 settlement cycle without any extra cost.
T+0 means more liquidity: SEBI has expanded the list of stocks under optional T+0 settlement cycle from 25 stocks to 500 stocks. These stocks will enjoy more liquidity and higher volume. The stocks under T+0 settlement list will qualify for F&O segment. Presence of stock in derivative segment will infuse more liquidity into these stocks due to arbitrage opportunity and hedging facility. Qualified Stock Brokers (QSB) and custodians have been asked to create seamless mechanism for the implementation of T+0 settlement cycle. Who is QSB and what is difference between QSB and regular stock broker? Stock brokers with large number of clients, mammoth trading volume, huge client asset and robust pay-in obligation system are classified as QSB. ICICI Direct, HDFC Securities, Zerodha, Globe Capital etc. have been classified as QSB. Therefore, the responsibility of seamless implementation of T+0 has been given to QSBs. If QSBs fail, T+0 is bound to fail.
Block Deal anomaly: SEBI is going to introduce an optional Block Deal window mechanism under T+0 settlement cycle between 8.45 am to 9.00 am, alongside the existing block windows under T+1 settlement cycle. If you can pay for it, get sale proceeds of Block deal the very same day. Otherwise go for T+1. If there are two block deals of the same stock on the same day through two different settlement cycles T+0 and T+1, the settlement price of T+0 is bound to influence the price of T+1 because of the time slot allotted to them. T+0 will run between 8.45 to 9 am and T+1 will run from 9.15 am to 9.50 am. The 8.45 am block deal price may influence and manipulate the price of 9.15 block deal. It’s worth mention that the minimum order quantity for a block deal is 5 lakh shares or a minimum value of Rs. 5 crores. Therefore, the optional T+0 could be made mandatory for block deals of those stocks which fall in the list of T+0 settlement. If this is difficult to implement, block deal of same stock in two different settlement cycles on a particular day should be prohibited.
The capital market regulator has shelved the proposal of optional instantaneous settlement cycle for the time being. It’s commendable. SEBI is taking one step at a time. It had rolled out beta version of T+0 settlement cycle in March 2024 for just 25 stocks. After successful drill of beta version, it has expanded the scope of T+0 to 500 stocks. No doubt, we may usher into an era of instantaneous settlement in the days to come.
