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AsiaTalks: Taking the Lead – T+1 Innovation in India’s settlement ecosystem
30 Plays2 years ago
Hear how India transformed into a T+1 market along with a discussion on the benefits, challenges and solutions associated with these changes.
Gabriela Tennhard, Global Head of Market & Strategic Insights Markets & Securities Services, HSBC and Anuj Rathi, Head of Securities Services, HSBC India, discuss how the change to a T+1 settlement is revolutionising how trades are settled in India now.
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Transcript
Introduction to HSBC Global Viewpoint
00:00:02
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Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:13
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Make sure you're subscribed to stay up to date with new episodes.
00:00:16
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Thanks for listening, and now onto today's show.
Focus on India as T+1 Market
00:00:24
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Welcome to the latest edition of the HSBC Asia Talks podcast series.
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We will be speaking on how India transformed into a T plus one market, along with the discussion on the benefits, challenges, and solutions created as a pioneer country that has paved the way for other markets to follow suite.
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Joining me to discuss this is Anuj Rathi, Head of Security Services, HSBC India.
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Anush, thanks for joining.
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We'll be focusing on India today and how the change to a T plus one settlement cycle is revolutionizing how trades are set out in India now.
What is T+1?
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Firstly, what does T plus one mean?
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I know India is taking the lead in the T plus one settlement cycle, but what exactly has changed on the ground?
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Thanks, Gabriela.
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So in essence, T refers to the trade date.
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and T plus one settlement cycle means the funds and the securities are received by the investor one day after trading.
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Indian equity markets have operated on a T plus two settlement cycle since 2003, and this is indeed a significant market development.
Implementation of T+1 in India
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The securities market regulated in India, which is SEBI, assured in a transformative reform with the introduction of the T plus one settlement cycle in a market-friendly staggered manner from February 2022.
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Accounting for the phase-wise approach wherein approximately 500 stocks meeting the prescribed criteria move to the new settlement cycle every month.
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And by Jan 2023, the entire equity segment is on a T plus one settlement cycle.
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So it seems to me that the staggered approach along with the transparent lines of communication with the regulator, SEBI, was critically in the seamlessness towards T plus one.
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Could you tell me more about the overall pathway and the readiness for India?
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Sure.
Transition Process and Market Impact
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I would say instead of a big bank approach, stocks were introduced in the T plus one cycle based on the market cap rankings.
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The bottom 100 stocks moved to T plus one settlement on the 25th, February 2022.
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And thereafter, from March 22 onwards, on the last Friday of every month, the next bottom 500 moved to T plus one settlement cycle and so on.
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The exchanges announced the list of securities moving to a shortened cycle well before the scheduled date of movement so that the investors and the intermediaries are well aware of the same.
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SEBI has been very data-driven in their analysis on the confirmation and settlement timelines, performing a fine balancing of multiple stakeholders, which ultimately led to the readiness of all the market participants to meet these timelines.
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You mentioned investors.
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Just how does the shortened settlement cycle benefit the investors?
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And what is the driver of this movement to T plus one?
Benefits of T+1 Transition
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This progressive action by SEBI places India at the forefront of global reforms.
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And many other markets are known to be evaluating shortening the settlement cycle to T plus one.
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And we may see some of them following suit in the coming years.
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The one big driver for SEBI was, of course, the retail investors.
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And if I
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highlight some of the benefits.
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They are, of course, improving market efficiency, reduction in the credit and settlement risk, improved liquidity, and of course, an overall reduction in the transaction costs.
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What has been the general feedback from your clients on the T plus one roadmap?
00:03:46
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I would say the feedback has largely been positive considering the whole consultative process and the clients have been happy with the overall smooth landing of the T plus one.
HSBC's Role in T+1 Transition
00:03:56
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HSBC has led the advocacy efforts with the market regulator and played an instrumental role in channeling the feedback from the foreign portfolio investors and the global custodians to the regulator, including gathering some key data points from the global custodians, which ultimately helped substantiate the ask for a custodian confirmation deadline on T plus one morning.
00:04:18
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This was a very positive step, providing the FPI and global custodians more time to send the instructions, arrange the funding,
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And as a result, the number of failed trades has really not spiked up since moving to T plus one.
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Great.
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So as we know, the SEC has announced the U.S. has movement towards a T plus one settlement cycle by 2024 and with the other nations following suit.
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Could you tell us some of the learnings India took in order to help these markets out?
India's Collaborative Approach
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I would say that the transformation of this nature requires a very collaborative and consultative approach to be taken by the regulator with the market intermediaries, and they do need to incorporate the feedback from the multiple stakeholders.
00:05:02
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Given the multiple geographies involved, our other critical component was to ensure that the FX solution is agreed upon with the end investor, global custodian, and the sub-custodian in India.
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A phased approach
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I would highly recommend can also be evaluated by other markets as well.
00:05:19
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Great.
00:05:20
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Anoush, in your view, how has cross-border stakeholders assisted in this change and the role played by HSBC?
Global Stakeholder Contributions
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Cross-border stakeholders like foreign portfolio investors and the global custodians have been an integral part of this consultative process, sharing their vast experiences in other markets.
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They participated in multiple meetings with the regulators and the exchanges,
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sharing the feedback, the challenges, and some of the solutions which could be progressed by the regulators.
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We played a part in the entire process, keeping the interest of the investors and the objectives laid down by SEBI at the heart of all the discussions, navigating the varied viewpoints and helping drive consensus to assist in the rollout of the change of this magnitude.
00:06:03
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Great, thank you.
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Lastly, what's next after T plus one?
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Do we have any more innovations from India in the pipeline?
Future Market Innovations
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Overall, there has been a massive explosion on the fintech evolution in India, and we do expect some more innovation from the depositories as well, which will also ease the entry requirements in India.
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There are already advanced talks of extending the trading hours for the equity derivatives market, and one must note that the National Stock Exchange is the world's largest exchange for derivatives.
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It is also expected that the connect between Singapore and GIF City will go live later this year.
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Gift City, as we all know, is a recently established financial service center at Gandhi Nagar.
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And at some point in the near future, we may see India getting included in the bond indices as well.
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So surely very interesting times ahead for the Indian capital markets and for the foreign investors accessing India.
00:06:58
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Thanks so much, Anoush, for the insightful sharing of experience and thoughts.
Conclusion and Future Outlook
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I would like to thank all of you for listening to HSBC Asia Talks.
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We hope that you enjoyed learning about the latest market developments and investment opportunities in India.
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Stay tuned for more from HSBC Asia Talks as we explore more market trends in the coming months.
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We hope you enjoyed the discussion.
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