FPIs write to Sebi seeking more time for migrating to T+1 cycle

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Perturbed by the T+1 settlement norm, which will kick in from January 1, foreign portfolio investors (FPIs) have written to the Securities and Exchange Board of India (Sebi) asking it to defer the plan. Asking for sufficient time to migrate to the new model, FPIs have said a good majority of them investing in India come from outside Asia and a shorter settlement would hit them hard.

The Business Standard quoted a note jointly written by the Asia Securities Industry & Financial Markets Association, Asia Trader Forum, and The Investment Association: “FPIs are ready to work with Sebi, other regulatory authorities, and market participants to identify and find solutions to the numerous operational and business challenges that come with a shorter settlement cycle to ensure that India’s migration to T+1 settlement can be achieved with little disruption or risk to the market.”

They stated that migration to the new settlement cycle would require end-to-end redesign, substantial technology investments, the news report said.

They stressed the need for an extended timeline by pointing out that investors in the US and Europe operate in different time zones.

The US had earlier announced plans to move to a T+1 settlement cycle. It has, however, set a 2023 deadline for this so that market participants get sufficient time for a smooth migration.

The T+1 settlement cycle norm was announced by the regulator earlier this month. The new rule would mean that trade will have to be settled within one day of the actual transactions.

The new norm may benefit domestic investors as it increases the market liquidity and trading turnover and reduces settlement risk and broker defaults.

Foreign portfolio investors (FPIs), however, are piqued as they would face operational challenges of the difference in time zones.

“Sebi has been receiving requests from various stakeholders to further shorten the settlement cycle. Based on discussions with the stock exchanges, clearing corporations, and depositories, it has been decided to provide flexibility to the stock exchanges to offer either T+1 or T+2 settlement cycle,” the regulator had said earlier.