Sebi: Dual settlement plan may trigger arbitrage bets


Mumbai: The capital markets regulator’s plan to introduce a dual stock trade settlement system could create a peculiar situation rarely seen elsewhere in the world. According to brokers, one stock could see two prices depending on the timeframe opted by the market participant for settlement.

The Securities and Exchange Board of India (Sebi) has embarked on an ambitious plan to introduce a same-day settlement system, popularly known as T+0, for stock trades. This means stocks and funds will change hands on the same day, making the settlement process shorter. Currently, India follows the T+1 system, settlement happens by the next day of the trade. This was implemented in January. Brokers said Sebi wants both systems to co-exist as same-day trade settlement could face resistance from institutional investors – mainly foreign.

The parallel settlement systems will, however, lead to price variations in stocks. For instance, a stock getting settled on the same day of the trade could trade at lower prices compared to it getting settled the next day as early payments must factor in the higher cost of funds for the buyer, who must cough up money on the same day to settle the trade. This could result in some quick money-making opportunities for traders looking to benefit from price differentials.

“The introduction of two sets of settlement windows could generate distinctive arbitrage opportunities, where the same-day settlement price of a stock is expected to be slightly lower, accounting for the interest associated with early payment,” said Vijay Bhushan, former president of the Association Of National Exchanges Members Of India (ANMI). “Additionally, higher impact costs are anticipated in instances of low liquidity in one of the settlement windows.”

Currently, traders are not permitted to buy and sell the same stock on different exchanges on the same day. They are allowed to sell across exchanges only if they hold the stock in their demat accounts.

Last week, Sebi chairperson Madhabi Puri Buch indicated the introduction of same-day settlement could happen by March 2024. The regulator is yet to detail its plans.


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