In an open letter, the Asia Securities Industry & Financial Markets Association (ASIFMA), Trader Forum Asia and the Investment Association pushed back on India’s timeline for a move to a T+1 settlement cycle announced in early September by the Securities and Exchange Board of India (SEBI).
The industry group represents foreign portfolio investors (FPIs) from around the world whose investments account for $655 billion or roughly 20% of India’s market capitalization.
According to the letter: “It is important to bear in mind risks not only to investors but also to brokers, custodians and other market participants arising from failed trades or failed settlement that may impact the market as a whole due to the shortened settlement timeframe.”
The letter stated that migration to a T+1 settlement would require changes that are significantly more complex and costly requiring among other things end-to-end process redesign and substantial technology investments and enhancements to support near real-time processing capabilities and necessitating an extended migration timeline.
“FPIs are ready to work with SEBI, other regulatory authorities and market participants to identify and find solutions to the numerous operational (such as cut-off times for trade confirmations, funding, and securities borrowing and lending facilities to avoid failed trades or failed settlements) and business challenges (such as pre-funding, allocation and tracking error) that come with a shorter settlement cycle to ensure that India’s migration to a T+1 settlement can be achieved with little disruption or risk to the market and to preserve the market’s attractiveness to FPIs. Therefore, we strongly urge SEBI to delay the coming into effect of the Circular that is scheduled for January 1, 2022 so that all stakeholders have sufficient time to identify, come up with, test and implement the operational processes and procedures required to safely implement a T+1 settlement model in India,” according to the letter.