Decreased margin period in T + 1 system is expected to boost retail investment

MUMBAI: An alternative T + 1 settlement system introduced by the Securities and Exchange Board of India (SEBI) for the market has led to a decline in consumer margins and an increase in retail investments in the equity market, experts said.

T + 1 means the original transaction must be settled within one day. Currently, Indian stock markets have to settle within two days of trading, known as the T + 2 system.

In a circular issued on Tuesday, the Securities and Exchange Board of India (Sebi) has given exchanges the option to adopt the Tiplus 1 settlement cycle system. The new system will come into effect from January 1.

Experts believe that the T + 1 settlement system will speed up the money cycle without having to wait another day, according to a PTI report.

At present, it is too early to say anything about the benefits of this system as many stakeholders are involved in completing the entire settlement cycle and other factors are also at work, which could pose challenges for exchanges, said a stock market expert.

The new system will benefit consumers as the margins they have to pay will be blocked for one day instead of two days, said Jaideep Arora of BNP Paribas, who welcomed SEBI's decision. He claimed that more retail investment would come into the market as margins fall.

The new system will speed up the money cycle by one day, which is welcome for every market participant, said another expert.

SEBI has left it up to the exchanges to decide which stocks to keep in the T + 1 settlement. This means that following the T + 1 settlement process is not mandatory for both exchanges. However, this arrangement is likely to be confusing, as it will be necessary to clarify which stock exchange has a settlement standard for a stock before trading, a stock broker said.