Stock brokers express concern over proposed T+1 settlement

The association of securities brokers Anmi said that the T+1 settlement system should not be implemented without facing many operational and technical challenges. Currently, trades on Indian exchanges are settled within two business days after trade (T+2). The development comes amid reports that Sebi has assembled an expert panel to look at moving the settlement cycle in the securities market from T+2 to T+1 to improve market liquidity.

In a letter to Sebi, the Association of National Exchanges Members of India (Anmi), a group of more than 900 stockbrokers across the country, raised concerns over issues related to the implementation of the T+1 settlement system.

He said the implementation of the new system would increase working capital requirements for brokers and increase the workload for banks and depository (DP) participants.

“Currently, the Indian banking system is not suited to fully clear checks within a day. Customers staying in remote villages/district towns still today prefer to use check facility instead of online banking to transfer funds from their bank accounts. Due to which, the working capital requirement of the broker will increase and it will be the broker who will have to make the installments and remittances,” the brokers association said.

“Banks and development partners associated with capital markets would need additional working hours for clients to move funds and securities on ‘T’ day or the trading day itself. There are many clients whose trading account and DP a/c are with different entities. These customers will have difficulty giving instructions by waybill for securities payment transfer,” he said.

The association said that the infrastructure available from Market Infrastructure Institutions (MIIs) is not able to effectively respond to the timely issuance of payments and payments and sending files on time. .

Elaborating on the challenges, Anmi said, “Whenever there is more than one settlement, there is a delay in payment/payment for the second settlement. The delay is sometimes noticed at the custodian level and sometimes at the Clearing Corporation (CC) level”.

“Operational difficulties are not specific to ITNs, they have industry dependencies i.e. back-office vendors/front-office software vendors etc,” the association states, adding that the Time compression of all operational delays can only result in an inefficient and chaotic system.

Also, the window will be too short for securities lending and borrowing to practically work and it could boil over, he added.

Anmi also noted that REIT securities settlement is operationally very complex, involving coordination between multiple entities such as fund managers, global and local custodians, brokers, clearing members and exchanges.

A move to the T+1 system could “create unnecessary settlement costs and risks for global investors and trade matching failures could result in brokers having to settle,” he said. said, adding that Taiwan, which had previously moved from T+2 settlement cycle to T+1 settlement cycle, had to revert to T+2 settlement cycle after foreign investors encountered problems.

“The move to T1 settlement would make India a pre-funding market and global institutional investors will face multiple problems with this structure,” the brokers’ association said.

Apart from that, global investors could face tax issues, the brokers’ association said. Tax advisers usually calculate the tax on T2 and T3 days, which may lead to a situation where payment is received on T1 day, but clients should hold their funds in Indian rupees for a day or two for payment. pending tax. calculation.

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Dolores W. Simon