Daily Current Affairs : 26-July-2023
The securities market regulator, the Securities and Exchange Board of India (SEBI), has recently announced its plans to introduce real-time settlement of trades in India’s stock exchanges. This move aims to further enhance the efficiency of trade settlements and streamline the process for investors and stock market participants.
Understanding Trade Settlement:
Before delving into the specifics of SEBI’s latest announcement, it is essential to grasp the concept of trade settlement. Settlement refers to the final step in a trade where the transfer of funds and securities occurs on the settlement date. In the current system, there is a time lag between the trade date and settlement date, commonly known as the ‘T+1’ cycle. This means that trade-related settlements happen within one day or 24 hours of the actual transaction.
Benefits of T+1 Cycle:
The T+1 cycle offers several advantages, including operational efficiency, faster fund remittances, quicker share delivery, and ease for stock market participants. India became the second country after China to adopt the T+1 settlement cycle for top-listed securities.
SEBI’s Announcement: Moving towards Real-Time Settlement:
SEBI’s recent announcement signifies its commitment to further improve the settlement process. The regulator is working on implementing instantaneous settlement of trades in the securities market. This would mean the transition from the T+1 cycle to the T+0 cycle, where trade settlements occur on the same day as the actual transaction.
The Technology Stack:
To achieve T+0 settlement, SEBI plans to leverage the real-time payment system known as the Unified Payments Interface (UPI). This online payment platform facilitates instant fund transfers, making it suitable for swift trade settlements. Additionally, the use of online depositories and advanced technology will play a vital role in enabling real-time transactions.
Implications of T+0 Settlement:
If SEBI successfully implements the T+0 settlement cycle, it will have significant implications for investors and the overall stock market ecosystem. Some key points to consider include:
- Instantaneous Fund Crediting: Under T+0, investors who sell securities will receive the money in their accounts immediately after the trade, eliminating the waiting period of one day.
- Swift Share Transfer: Buyers will receive the shares they purchased in their demat accounts on the same day, promoting faster and more efficient share delivery.
SEBI: The Market Regulator:
SEBI, the Securities and Exchange Board of India, is the statutory body responsible for overseeing the securities market in the country. Its primary functions are to protect the interests of investors in securities and regulate the securities market. The board consists of a Chairman and several whole time and part-time members, including representatives from the finance ministry and the Reserve Bank of India.
Historical Background:
Before SEBI’s establishment, the regulatory authority for capital markets was the Controller of Capital Issues, operating under the Capital Issues (Control) Act, 1947. SEBI came into existence in 1988 as the regulator of capital markets but initially lacked statutory powers. However, after the passage of the SEBI Act in 1992, it gained autonomous and statutory powers.
Important Points:
- SEBI, the Securities and Exchange Board of India, is the market regulator responsible for overseeing the securities market in India.
- Settlement in the stock market involves the transfer of funds and securities on the settlement date, which currently has a time lag known as the ‘T+1’ cycle.
- T+1 settlement cycle means trade-related settlements occur within one day or 24 hours of the actual transaction.
- India became the second country after China to adopt the T+1 settlement cycle for top-listed securities.
- SEBI has announced its plans to introduce real-time settlement of trades in the securities market, transitioning from the T+1 cycle to the T+0 cycle.
- T+0 settlement would enable same-day settlement of trades with instantaneous fund crediting and swift share transfers.
- SEBI aims to achieve T+0 settlement using the real-time payment system Unified Payments Interface (UPI), online depositories, and advanced technology.
- The move towards T+0 settlement is expected to bring operational efficiency, faster fund remittances, quicker share delivery, and ease for stock market participants.
- SEBI’s role is to protect the interests of investors in securities and to promote and regulate the securities market in India.
- SEBI’s board consists of a Chairman and several whole time and part-time members, including representatives from the finance ministry and the Reserve Bank of India.
- SEBI was established in 1988 initially without statutory powers but gained autonomous and statutory powers after the passage of the SEBI Act in 1992.
Why In News
The securities market regulator has made a groundbreaking announcement, revealing its commitment to implementing a cutting-edge system for real-time settlement of transactions in India’s stock exchanges. This forward-looking initiative is expected to revolutionize the financial landscape, enhancing efficiency and transparency in the trading process.
MCQs about SEBI’s Move Towards Real-Time Settlement
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What is the current settlement cycle in India’s stock exchanges?
A. T+0
B. T+1
C. T+2
D. T+3
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SEBI’s plan for real-time settlement of trades involves the use of which technology?
A. NEFT
B. UPI
C. RTGS
D. IMPS
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What are the potential benefits of implementing T+0 settlement?
A. Slower fund remittances
B. Delayed share delivery
C. Operational efficiency
D. Increased trade settlement time
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Which organization is responsible for overseeing the securities market in India?
A. RBI – Reserve Bank of India
B. NSE – National Stock Exchange of India
C. BSE – Bombay Stock Exchange
D. SEBI – Securities and Exchange Board of India
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