SEBI Aims for Instantaneous Settlements in Secondary Market Trades, Explores New Regulatory Design

Eye on investor: SEBI chairperson Madhabi Puri Buch unveiled norms to mitigate credit risk and protect investors’ funds. File.
| Photo Credit: PTI

The Securities and Exchange Board of India (SEBI) is working to implement instantaneous settlements in secondary market trades, and is likely to complete the process next fiscal year.

“instantaneous settlement on stock exchanges is not far off,” said Madhabi Puri Buch, chairperson, SEBI on Monday. “We are currently working on that. We are engaged with the ecosystem. We believe that in future we will have a mechanism which will facilitate instantaneous settlement of transactions on stock exchanges,” she added.

“The technology stack which we have and UPI facility provided by banks gives an opportunity that if someone wants to settle trades instantaneously, it can be done,” she said

“On instantaneous settlement, we need a little more work. If ASBA goes smoothly, then the next step is instantaneous settlement. I am not sure if this can happen this financial year, it may spill over to the next financial year.

The trade settlements have now reduced from T+10 days a few decades ago to T+1 day, which has resulted in faster release of funds to investors, which used to get blocked with brokers who retained the interest income from holding such funds.

SEBI, the markets regulator, is also going to implement a new regulatory design wherein the industry and professional bodies have been asked to set standards that can be followed in the implementation of the regulations.

“We have said what the regulations are and the industry bodies need to suggest how the regulations will be implemented and what those set standards are,” Ms. Buch said.

For example, SEBI has come out with regulations on rumour verification and now the industry bodies would have to spell out how to implement it by using the available resources for adherence to guidelines.

“The standards set by the trade/ professional bodies have to be accepted across the board and this is an architectural shift that SEBI wants to see,” Ms. Buch added.

She said this experiment would be tried on a pilot basis before being scaled up. “The new mechanism is to assist in implementation of the regulations.

Ms. Buch said SEBI would come out with Delisting Regulations to enable listed companies to delist their stocks easily.

An advisory committee under the leadership of Keki Mistry has been set up to recommend methods and then it would be made available for public discussion. The consultation paper on this will come out before December. “This will help companies which do not want to be listed,” she said.

To curb insider trading, SEBI is working on a Trading Plan that officials concerned of listed companies must adhere to. A committee will be looking into it and a consultation paper will be floated by the end of August, 2023. Regulatory norms would then be put out.

The SEBI chairperson said that in the last one and a half years, the pendency and aging of fund-raising applications had reduced from 6 months to about 3 months in the case of equity. These have been ‘drastic’ improvements in the case of Mutual Fund scheme applications and for AIF schemes, too.

She said one of the key tasks of SEBI is to ensure capital formation and there was no better time than now, she said. “We are at a really good place as a country. The appetite is there and there needs to be capital formation,” Ms. Buch said.