In a significant step towards modernizing India’s financial markets, the Securities and Exchange Board of India (Sebi) is planning to introduce a one-hour settlement cycle for trades as early as March 2024, followed by instantaneous squaring up by October 2024.
This announcement was made by SEBI Chief Madhabi Puri Buch during the sidelines of the Global Fintech Fest 2023.
She said the technology for implementing the one-hour settlement cycle already exists, but for instantaneous settlement, the system requires further technological advancements, which may take another 6–8 months.
SEBI successfully implemented the T+1 (Trade Day + One day) settlement earlier this year, making India the first jurisdiction in the world to adopt such a short settlement cycle.
Under this, clients receive their securities and funds in their demat accounts the next day, and with the introduction of the new settlement cycle in March 2024, this process will now happen within an hour.
Furthermore, she also highlighted SEBI’s efforts to leverage artificial intelligence (AI) to enhance regulatory oversight. The regulator is currently using around 80 algorithms for supervising mutual funds and generating periodic reports on non-compliance and other issues.
SEBI plans to extend this mechanism to all other regulated entities with the help of AI. The regulator intends to utilize AI to detect misselling of mutual funds and other products.
She added that “SEBI is trying to develop an in-built intelligence system to identify misselling by leveraging AI and data.”
Shravan, an intraday trader for the last 4 years, said, “The implementation of a one-hour settlement cycle and eventual instantaneous settlement will significantly reduce the time gap between trading and finalization of deals, probably increasing the number of transactions. This will make capital market investments even more attractive by freeing up a significant chunk of margin money that brokers maintain with the clearing corporation, thereby minimizing risks and increasing efficiency in the financial markets.”
However, Rishi Agrawal, CEO and Co-Founder of Teamlease RegTech, speaking to our BW Correspondent, expressed his concerns, stating that “regulatory reporting obligations of key market participants, such as brokers, clearing corporations, depository institutions, and fund houses, will be affected. They must modify their technology systems from an end-of-day batch processing mode to hourly processing. Trade reporting, commission calculations, prices, balances, and portfolio reporting must be done in sync with the settlement cycle. Fund houses will also need to speed up their redemption and purchase processing. IT systems’ performance, availability, and capacity benchmarks will need to be recalibrated.
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