Context:
SEBI plans to introduce One-Hour Settlement of trades by March 2024 to improve trade settlement efficiency. Additionally, they will introduce an Application Supported by Blocked Amount (ASBA)-like facility for Secondary Market trading by January 2024.
Relevance:
GS III: Indian Economy
Dimensions of the Article:
- Application Supported by Blocked Amount (ASBA)
- Trade Settlement
- SEBI’s Groundbreaking Real-Time Trade Settlement Plan
- Benefits of One-Hour Trade Settlement
Application Supported by Blocked Amount (ASBA):
ASBA is a system introduced by SEBI to simplify the application and allotment process for various securities offerings, including IPOs and rights issues.
- Efficiency and Investor-Friendly: ASBA aims to streamline and enhance the application process, making it more efficient and user-friendly for investors.
- Deferred Payment: With ASBA, investors don’t need to transfer the full application amount upfront; the amount is only debited once shares are allotted.
Trade Settlement:
- Trade Settlement Essence: Trade settlement is a pivotal procedure within financial markets facilitating the transfer of funds and securities between trading parties.
- Finalizing Transactions: This process ensures the completion of transactions in securities trading, guaranteeing that buyers obtain the securities they’ve purchased, while sellers receive the agreed-upon funds.
T+1 Settlement Cycle Unveiled:
- Introduction in January 2023: India embraced the T+1 settlement cycle at the beginning of 2023, where “T” signifies the trade date.
- One Business Day Settlement: Under this system, trade settlements occur swiftly, within a single business day or 24 hours from the actual trade.
- India’s Second Implementation: India followed China as the second country to institute the T+1 settlement cycle, initially in top-listed securities.
- Favorable Outcomes: This transition delivered various benefits, encompassing heightened operational efficiency, accelerated fund transfers, prompt share delivery, and enhanced convenience for stock market participants.
SEBI’s Groundbreaking Real-Time Trade Settlement Plan:
One-Hour Trade Settlement:
- Swift Settlement Scheme: This pioneering initiative aims to complete trade settlement processes at an unprecedented pace.
- Seller’s Benefit: When an investor sells a share, the sale proceeds will be promptly credited to their account within a mere one-hour timeframe.
- Buyer’s Acquisition: Simultaneously, buyers will have the purchased shares transferred into their demat accounts within the same rapid one-hour interval.
- Remarkable Time Reduction: This marks a substantial reduction in settlement duration compared to the existing T+1 cycle.
Instantaneous Trade Settlement:
- Acknowledgment of Complexity: SEBI recognizes that achieving instantaneous settlement is a more complex endeavor, necessitating additional technological advancements.
- Stepwise Approach: Consequently, SEBI plans to first implement the one-hour trade settlement system and subsequently progress towards achieving instantaneous settlement.
- Targeted Timeline: The envisioned timeframe for the launch of instantaneous settlement is set to be realized by the conclusion of 2024.
Benefits of One-Hour Trade Settlement:
- Expedited Access: Investors will encounter substantially shortened settlement durations, allowing for more rapid access to both funds and securities.
- Enhanced Liquidity: The expedited settlement process can contribute to improved market liquidity. With funds becoming available for reinvestment at a faster pace, the market can experience heightened trading activity.
- Risk Mitigation: The reduction in settlement time plays a pivotal role in mitigating counterparty and market risks. By accelerating the transfer of funds and securities, it bolsters overall market stability.
- User-Friendly Experience: Investors will benefit from the accelerated access to their funds and securities, creating a more user-friendly and efficient trading environment.
-Source: The Hindu
