T+1, high margin beneficial for investors: Sebi – Times of India
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MUMBAI: Markets regulator Sebi’s move to a shorter settlement cycle (T+1) and imposition of higher margin are both aimed at making the Indian market safer and are in the interest of investors, chairman Ajay Tyagi said on Thursday.
He also said that it was easy liquidity and low interest rates that were among the prime reasons for the current bull rally in the stock market.
“Early settlement will be good for all market participants. It is in the interest of everyone,” Tyagi said while interacting with the media at an event organised by industry trade body CII.
Recently, a brokers’ body and some foreign portfolio investors (FPIs) had raised concerns about implementation of the T+1 settlement cycle that Sebi intends to introduce from 2022.
Currently, India follows a T+2 settlement cycle, meaning trades on the bourses are settled in two working days after the day of trade. With T+1 cycle, trades will be settled on the next working day. However, the T+1 cycle will initially be optional in stocks selected by each of the exchanges.
Tyagi pointed out that the Indian market moved from T+3 to T+2 in 2003. In the last 18 years, there have been significant technological developments in the banking system, especially payments and settlement systems. Hence, there is a need to crunch the settlement cycle further. Investors have the right to receive what they purchase as fast as possible and a “shorter settlement cycle is something which is desirable to everyone”, he said.
Speaking about the market’s move towards stricter margin norms, Tyagi pointed out that FPIs have been trading in the derivatives segment since 1999, where upfront payment of margins are the norms. And while investing in IPOs, foreign funds have to keep their money blocked for seven-eight days.
The Sebi chief said that the new margin norms were in everyone’s interest. For the regulator, one of the main reasons for moving towards stricter margin norms was that it wants to ensure an investor’s money should not be used for paying margins for others or for proprietary trading by brokers.
Earlier, during his speech at the conference, the Sebi chairman had said that a robust margining system was a must for ensuring a fair, transparent and reliable trading and, in recent months, the regulator had progressively further strengthened the margining provisions. “These improvements have held the trading and clearing system in good stead in the present scenario of tremendous increase in turnover and individual investors’ participation in the market.”
Asked about his reaction to RBI’s comments in its annual report that there was a bubble in the Indian stock market, mainly because valuations were going haywire, the Sebi chief indicated that a record amount of liquidity and very low interest rates were the major driving forces for this unabated bull rally globally.
“How excess liquidity in the system would be managed by the central banks, including the timing and pace of unwinding? The level of inflation is another factor to watch,” Tyagi said. In India, managing liquidity and the rate of interest are the responsibility of the central bank and not of Sebi.
He also said that it was easy liquidity and low interest rates that were among the prime reasons for the current bull rally in the stock market.
“Early settlement will be good for all market participants. It is in the interest of everyone,” Tyagi said while interacting with the media at an event organised by industry trade body CII.
Recently, a brokers’ body and some foreign portfolio investors (FPIs) had raised concerns about implementation of the T+1 settlement cycle that Sebi intends to introduce from 2022.
Currently, India follows a T+2 settlement cycle, meaning trades on the bourses are settled in two working days after the day of trade. With T+1 cycle, trades will be settled on the next working day. However, the T+1 cycle will initially be optional in stocks selected by each of the exchanges.
Tyagi pointed out that the Indian market moved from T+3 to T+2 in 2003. In the last 18 years, there have been significant technological developments in the banking system, especially payments and settlement systems. Hence, there is a need to crunch the settlement cycle further. Investors have the right to receive what they purchase as fast as possible and a “shorter settlement cycle is something which is desirable to everyone”, he said.
Speaking about the market’s move towards stricter margin norms, Tyagi pointed out that FPIs have been trading in the derivatives segment since 1999, where upfront payment of margins are the norms. And while investing in IPOs, foreign funds have to keep their money blocked for seven-eight days.
The Sebi chief said that the new margin norms were in everyone’s interest. For the regulator, one of the main reasons for moving towards stricter margin norms was that it wants to ensure an investor’s money should not be used for paying margins for others or for proprietary trading by brokers.
Earlier, during his speech at the conference, the Sebi chairman had said that a robust margining system was a must for ensuring a fair, transparent and reliable trading and, in recent months, the regulator had progressively further strengthened the margining provisions. “These improvements have held the trading and clearing system in good stead in the present scenario of tremendous increase in turnover and individual investors’ participation in the market.”
Asked about his reaction to RBI’s comments in its annual report that there was a bubble in the Indian stock market, mainly because valuations were going haywire, the Sebi chief indicated that a record amount of liquidity and very low interest rates were the major driving forces for this unabated bull rally globally.
“How excess liquidity in the system would be managed by the central banks, including the timing and pace of unwinding? The level of inflation is another factor to watch,” Tyagi said. In India, managing liquidity and the rate of interest are the responsibility of the central bank and not of Sebi.
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