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On 27 January, India’s stock exchanges completed what is arguably one of the most far-reaching changes in the country’s capital markets.

Despite resistance from many foreign investors, the Securities and Exchange Board of India (Sebi), the country’s markets regulator, stood its ground to transition to the T+1 (trade-plus-one) settlement system—where buyers would get the delivery of the stocks, and sellers, their money in the bank account just one day after the trade is done—from the two days under the T+2 (trade-plus-two) system earlier.

This one-day crunch may seem trivial, but it has profound implications: quicker trade settlement not only cuts risk but also improves cash flows for market participants, among other gains. With this, India has become the second major equity market in the world after mainland China to move to the T+1 system.

A month since the completion, the switch has not faced any hitches—contrary to apprehensions. “The transition to T+1 settlement has gone smoothly, and globally, investors have digested the changes well. We have also seen very few issues on trade failures,” said Gautam Shroff, managing director and head of Institutional Clients Group (ICG) at Nuvama Group (formerly Edelweiss Broking).

But the journey, thus far, has not been smooth. Foreign investors—considered the Indian market’s movers and shakers—were sceptical about the transition, and understandably so. Sebi, to its credit, gave concessions where needed and softened the resistance.

This also marks an early win for Sebi’s chairperson Madhabi Puri Buch, who completed one year in office this week.As one media commentary puts puts Business Standard Speeding up reforms: Madhabi Puri Buch's first year as Sebi chief Read more it, Buch has made “foreign portfolio investors (FPIs) chew the bitter pill on T+1 implementation”.

And T+1 settlement’s early success in India offers a prototype for other major markets—including the US—to follow. “It was not just the practical benefits, but optically also, it is a big win for India,” reasoned a local brokerage head who didn’t want to comment on the matter publicly.

Still, in its early days, T+1 has not yet faced its largest stress tests—the upcoming US holidays, and large index rebalance index rebalance index rebalance Index Rebalancing refers to the process of readjusting the weights of the composition of index portfolios. days by entities such as the American finance company MSCI and the UK’s benchmark index Financial Times Stock Exchange (FTSE) 100 that happen on a quarterly basis, when market turnover is huge.

Smooth show, thus far

Feedback from market participants in a month since transition suggests things are working well—for now, at least.

Pre-rollout, trade-failure risk was a concern for all participants, both foreign foreign The Economic Times FPI’s letter to Sebi on T+1 settlement Read more and domestic domestic The Hindustan Times Stock brokers’ body worry shift to T+1 system may impact foreign investors Read more .


Andrew Peretti

Andrew is a freelance journalist and consultant based in the UK. Previously he spent over 6 years in Mumbai working in the Indian stock market at Edelweiss and Macquarie. More recently, he worked for Fidelity Investments in Hong Kong as an Equity Trader. Always open for a chat!

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