Daily Current Affairs : 6-September-2023

In recent news, the Securities and Exchange Board of India (SEBI) has announced its intention to revolutionize the way trade settlements are conducted by implementing a one-hour settlement process. This significant step aims to streamline and expedite the transfer of funds and securities in the Indian financial market. In this essay, we will delve into the concept of trade settlement, the existing T+1 settlement cycle, and the potential benefits of transitioning to a one-hour settlement system.

Understanding Trade Settlement

Trade settlement is a crucial aspect of financial markets. It refers to the intricate process of transferring both funds and securities between buyers and sellers on a specific settlement date. This process is essential to ensure that transactions are accurately completed and that the ownership of securities changes hands smoothly.

T+1 Settlement: The Current System

Currently, India operates under a T+1 settlement cycle, meaning that trade-related settlements are processed within one day or 24 hours from the time of the actual transaction. Interestingly, India stands as the second country globally, following China, to introduce the T+1 settlement cycle for top-listed securities.

The Move Towards One-Hour Settlement

SEBI’s proposal for a one-hour settlement system is a bold and progressive step in the world of financial transactions. This revolutionary change aims to replace the existing T+1 settlement cycle with a much quicker and more efficient mechanism.

Benefits of One-Hour Trade Settlement

The shift from T+1 to one-hour settlement holds numerous advantages, which include:

  1. Immediate Liquidity: With the current T+1 system, investors have to wait until the next day to access the money from their sold securities. However, under the one-hour settlement, the funds will be credited to the investor’s account within just an hour of the sale, providing immediate liquidity.
  2. Faster Share Ownership Transfer: In addition to quicker access to funds, buyers will also benefit from faster ownership of the purchased shares. Within one hour of the transaction, the shares will be transferred to the buyer’s demat account, reducing delays and uncertainties.
  3. Risk Mitigation: The shorter settlement period reduces the exposure of market participants to market risks. This can help in mitigating the impact of market fluctuations on the transaction.
  4. Enhanced Market Efficiency: One-hour settlement is expected to enhance market efficiency by reducing settlement risks and ensuring a smoother trading experience.
  5. Competitiveness: Implementing such an advanced settlement system will boost India’s competitiveness in the global financial market, attracting more investors and potentially increasing trading volumes.

Important Points:

  • SEBI aims to introduce a one-hour settlement process to modernize trade settlements in India.
  • Trade settlement involves transferring funds and securities between buyers and sellers on a specified settlement date.
  • India currently operates under a T+1 settlement cycle, completing trade-related settlements within 24 hours.
  • India is the second country after China to implement the T+1 settlement cycle for top-listed securities.
  • The shift to one-hour settlement offers several benefits, including:
    • Immediate liquidity for investors, with funds credited within an hour of selling securities.
    • Faster ownership transfer of purchased shares to the buyer’s demat account.
    • Reduced exposure to market risks due to shorter settlement periods.
    • Enhanced market efficiency and smoother trading experiences.
    • Increased competitiveness in the global financial market.
  • SEBI’s move towards one-hour settlement represents a significant step in India’s financial market modernization efforts.
Why In News

The Securities and Exchange Board of India (SEBI) is now actively considering the implementation of one-hour settlement of trades to enhance market efficiency and reduce settlement risks. This initiative aims to streamline the trading process and bolster investor confidence in the Indian securities market.

MCQs about SEBI’s Pursuit of One-Hour Trade Settlements

  1. What is the current settlement cycle for trade-related transactions in India?
    A) T+7 settlement
    B) T+1 settlement
    C) T+3 settlement
    D) T+30 settlement
    Correct Answer: B. T+1 settlement
    Explanation: The India currently operates under a T+1 settlement cycle, where trade-related settlements happen within 24 hours.
  2. What is the primary benefit of transitioning from T+1 to one-hour trade settlemen?
    A) Lower transaction costs
    B) Reduced exposure to market risks
    C) Extended trading hours
    D) Higher interest rates
    Correct Answer: B. Reduced exposure to market risks
    Explanation: The one-hour settlement reduces exposure to market risks due to the shorter settlement period.
  3. What does SEBI’s plan for one-hour trade settlement aim to enhance?
    A) Trading volume
    B) Ownership transfer time
    C) Market efficiency
    D) Trading hours
    Correct Answer: C. Market efficiency
    Explanation: The one-hour settlement is expected to enhance market efficiency by reducing settlement risks and ensuring a smoother trading experience.

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