Sebi plans to usher in the era of 1-hour trade settlement by early 2024

Instant settlement may come into effect by 2024-end

The Securities and Exchange Board of India (Sebi) plans to usher in the era of one-hour trade settlement by early next year, which will be a precursor to settling trades instantaneously, Chairperson Madhabi Puri Buch indicated on Tuesday.

“India is the first jurisdiction in the world that has moved to T+1 (trade date plus one day) settlement. We are now talking about a one-hour settlement and that will be a stepping stone to instantaneous settlement. This will be in a reasonably short period of time,” the Sebi chief said at the Global Fintech Fest in Mumbai.

The market regulator is aiming to implement the one-hour settlement cycle by March 2024, while instantaneous trade settlement could come into effect by the end of next year.

“Technology already exists to launch up to one-hour settlement; we just have to make it happen,” Puri Buch said on the sidelines of the event.

 “For instantaneous settlement, the system needs some more technological developments, which could take another 6-8 months,” she added.

India transitioned to T+1 settlement from T+2 in a phased manner, starting with bottom companies in terms of market capitalisation. Top companies were moved to the shorter settlement cycle only at the end of January.

Under T+1 settlement, the transfer of securities and funds takes place the following day of the trade. In the one-hour settlement system, shares will be credited to the demat account within an hour. Many countries, including the US, still have a T+2 settlement cycle.

Sebi is also planning to launch the ASBA (Application Supported by Blocked Amount)-like model for the secondary market by January. The regulator had given the nod for the same in its March board meeting.

However, as there have been some apprehensions from foreign portfolio investors, the chairperson said the initial phase of ASBA-like mechanism for the secondary market would be optional for overseas funds.

She also backed the usage of artificial intelligence (AI) for granular supervision and reducing the information overload of disclosures on regulated entities like stock exchanges, mutual funds, portfolio management services, and wealth management firms, among others.

Buch said the data disclosures being made available to the public could act like a “goldmine for AI to do analysis and monetise on it”.

At present, Sebi is using around 80 algorithms for supervision of mutual funds and is generating a periodical report on non-compliance and other issues. The market regulator plans to extend the mechanism with the help of AI to all other regulated entities.

Further, Sebi plans to use AI to identify mis-selling of mutual funds and other products.

“We are trying to develop an inbuilt intelligence system to identify mis-selling. This will happen through the layering of AI over data with intelligence,” said Puri Buch.

She said that while regulations had moved from 'one size fits all' to a risk-based and segmented approach towards supervision, AI would help take it to the 'custom-fit' stage.

Asked about the muted response to the innovation sandbox, she said that most of the proposals received were not on any new idea or product but on products or services that already existed in the ecosystem and did not require a sandbox. She added that the regulator would increase its outreach to fintechs for such ideas and participation in the sandbox.