The Hindu Business Line : T+2 system will put India in a select band

THE SEBI Chairman, Mr G.N. Bajpai's dream to have the T+1 trading system in the Indian stock exchanges may take time. But the market will surely go in for a shorter settlement cycle from next fiscal. And the Indian equity market will join the list of a select few in the world that already have a short trading and settlement cycle.

Some of the stock exchanges that have already moved towards T+2 settlement are the Korea Stock Exchange and the Toronto Stock Exchange. The Taiwan Stock Exchange that claims to be the first exchange in the world to move towards T+1, however, has not been able to successfully implement it and for all practical purpose settlement takes place on T+2 basis, traders said.

"SEBI's decision to move towards T+2 settlement is a bold decision as some of the developed markets like the US, Japan and Britain are still functioning on T+3 settlement. US is planning to move towards T+1, but is not able to do so due to difficulty in implementing the Straight Through Processing (STP), a key system for T+1 settlement," said a leading broker.

But looking at the Indian perspective, moving from weekly settlement to T+2 in just 20 months is a great achievement. This has been achieved without affecting the trading volume.

Even though market players still complain that the rolling settlement had led to fall in volumes, actual volume over the last 18 months does not show this. In fact, the volume is almost same and the liquidity in top 10 securities has increased.

The turnover before the introduction of rolling settlement was averaging around Rs 5,000-6,000 crore daily (combined for BSE and NSE). The turnover in the last few months is around Rs 6,500 crore and this includes the turnover on the derivatives segment, which cannot be ignored as the same players are in both the markets. According to stockbrokers, moving from T+3 to T+2, from April 1 is expected to improve the trading volumes

This is because more securities would be introduced for derivatives trading and this, in turn, would further increase the volume on the cash market. Another reason for increase in the volume is that SEBI's initiative to implement a market-friendly margin trading and securities lending. The concept paper is already for public comment and going by the SEBI's own estimates, it is should be in place over the next six months.

There has been a smooth transition from weekly to T+3 and moving towards T+2 would not be troublesome, but the biggest task for the SEBI Chairman would be to implement T+1 by 2004.

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