India’s equity markets are entering a new era with the launch of T+0 settlement, a system where trades are settled on the same day they are executed. This landmark change promises to make the market faster, more liquid, and more efficient.
The country’s stock market journey dates back to the 19th century, with the Bombay Stock Exchange (BSE)—founded in 1875—playing a pivotal role in shaping the financial landscape. Today, the Securities and Exchange Board of India (SEBI) has taken a bold step by introducing T+0 settlement, pushing the market closer to real-time trade completion.
Key Highlights:
- T+0 settlement marks a major shift in India’s equity market operations.
- Stock trading in India traces its origins to the 1850s, evolving through major reforms.
- SEBI has been central to regulating and modernising the markets.
- Less than 5% of India’s population actively participates in equity trading.
- Financial literacy remains critical to boosting participation.
- Technology adoption is at the heart of improving market efficiency.
Evolution of India’s Equity Markets
From informal trading in Mumbai’s streets to a structured marketplace, India’s equity markets have undergone significant transformation.
Historical Milestones:
- 1875: Formation of the Native Share and Stock Broker’s Association with 318 members marking the birth of BSE.
- 1956: Introduction of the Securities Contracts Regulation Act, ensuring transparency and investor protection.
- 1988: Establishment of SEBI to oversee investor interests.
- 1992: Launch of the National Stock Exchange (NSE), ushering in automated trading.
- 1996: Introduction of the Nifty 50 index as a benchmark for market performance.
Understanding T+0 Settlement
What It Means:
T+0 settlement ensures trades are completed on the same day they are placed, replacing the traditional multi-day process. Until January 2023, settlements took two days (T+2).
How It Works:
Trades executed before 1:30 PM are settled by 4:30 PM the same day. Compared to T+2, which locked funds for 48 hours, T+0 allows immediate access to shares or cash, significantly improving liquidity.
India’s Path to Same-Day Settlement
India’s settlement cycles have steadily shortened—from T+5 to T+3, then T+2, followed by T+1 in January 2023. The T+0 pilot began on March 28, 2024, starting with the 100 smallest companies by market capitalisation, with 100 more added each month.
Investor Insights
While the system offers unmatched speed, adoption has been gradual. Market participants recognise its benefits but remain cautious due to operational adjustments. Financial literacy campaigns are expected to play a big role in driving participation.
Impact on Investors
Advantages:
- Lower Counterparty Risk: Same-day settlement reduces the risk of trade defaults.
- Faster Reinvestment: Investors can deploy funds immediately into new opportunities.
- Increased Participation: Greater efficiency could attract more retail and institutional investors.
Challenges:
- Readiness: Some brokers and institutions may take time to adjust.
- Liquidity Requirements: Investors must have sufficient funds available for instant settlement.
- Market Volatility: Faster cycles could trigger sharper price movements.
Technology’s Role in T+0
The success of T+0 depends heavily on advanced online trading systems that provide:
- Real-time market data.
- Sophisticated analytics tools.
- Instant fund transfer capabilities.
These innovations enable traders to respond to market shifts quickly and with better insight.
Market Response and Trends
Initial trading volumes for T+0-eligible securities have been modest, as investors adapt to the change. However, with India’s digital payments growing 58% year-on-year in FY 2022–23 and UPI accounting for 75% of retail payments, the shift towards faster transactions is clear.
Regulatory Support
SEBI has been instrumental in implementing T+0, ensuring robust frameworks and aligning market regulations with global best practices.
Global Comparisons
Countries like the United States, United Kingdom, and Japan have successfully implemented same-day settlements, benefiting from improved liquidity, reduced risk, and greater market stability. India aims to adapt these models to its unique market conditions.
Conclusion
The T+0 settlement system marks one of the most significant reforms in India’s financial history. While the pilot phase is starting small, the move signals a strong commitment to creating a faster, safer, and more transparent trading environment.
If adopted widely, T+0 could transform India’s equity markets bringing them in line with the world’s most advanced trading systems and opening the door to greater investor participation.