Sebi Paves Way For T+2 System With Riders

The Securities and Exchange Board of India (Sebi) has decided in-principle that the T+2 settlement can be introduced on the bourses from April 1, 2003, subject to a host of other processes being put in place.

According to sources, the Sebi committee which met on Thursday took stock of the trading environment currently in place and whether the infrastructure was sufficiently advanced to facilitate moving to a shorter settlement period.

Straight through processing, which allows any information generated at one end to reach its destination uninterrupted without any manual inputs in between, has reduced the time between various market intermediaries.

At present on T+1 settlement, custodial confirmation and determination of obligation takes place. While on the fourth day securities and funds are both paid in and paid out.

With T+2, confirmation and determination of obligation would take place on T+1 date, while pay-in and pay-out would be on T+2.

The only hurdle in the entire process could come from electronic funds transfer not being introduced in which case quicker settlement could be difficult to achieve. Sources said that the migration to a shorter settlement period would be done in phases so that the funds transfer could take place in the stipulated time.

At present, only banks which fall within the circle of the main clearing house can undertake to transfer funds within the shortest possible time, while those which are further away take a longer time. Real Time Gross Settlement (RTGS) is also an issue in this case.

Meanwhile, Sebi chairman G N Bajpai today said at an Investment India Foundation seminar that the markets regulator was working on a margin trading system which would be unveiled shortly.

He refused to go into the specifics of the scheme but said that it would be ready within the next few days. Margin trading is essential for physical settlement of contracts in the derivatives segment. At present in the absence of any such schemes, derivatives contracts are settled in cash.