Top FPI association welcomes India's new T+1 settlement timelines

Staggered shift leaves more time for market players to evolve solutions to meet shortened T+1 cycle without triggering pre-funding by investors in US and Europe which are 10-15 hours behind India time

The Asia Securities Industry & Financial Markets Association (ASIFMA), an industry body of top foreign portfolio investors, has welcomed the announcement this Monday by the two Indian stock exchanges and their clearing corporations and depositories that they will coordinate on the move to T+1 settlement in a phased manner starting from 25 February 2022.  

"The two stock exchanges are acting in concert, avoiding any fragmentation of the market which we had feared. Also, the start date has been pushed back by two months and will apply initially to only 100 stocks that have the lowest average daily market capitalisation," said Asifma in a note on Tuesday.

"Since 500 stocks based on the next lowest market capitalisation will be added to T+1 settlement each month thereafter, most FPIs will not be impacted until October/November 2022 when the stocks that they tend to trade in will move to T+1 settlement," the industry body observed.

This leaves more time for market participants, from FPIs to their custodians and brokers, and the stock exchanges and regulators to come up with solutions to meet the shortened T+1 settlement cycle without triggering pre-funding by investors that are based in the US and Europe, some of which could be up to 10-15 hours behind India time, the industry body said.  

"There is a lot of work ahead so our members want to start the dialogue with the relevant parties onshore as soon as possible," Asifma said.

FPIs had earlier urged Sebi to defer the January 1 deadline so that all stakeholders get sufficient time to identify and test the operational processes required to safely implement the T+1 model.

They had also raised concerns that a compressed confirmation deadline due to time zone differences could result in more failed trades. Additional trade failures would lead to higher costs for FPIs, including regulated funds and their investors, besides making India a pre-funding market.