Zerodha's Nithin Kamath Analyzes Differences Between US And Indian Markets' Settlement Systems

Nithin Kamath, co-founder of Zerodha, a prominent Indian financial services company, took to social media to share the news, expressing a sense of accomplishment. He credited SEBI for its proactive stance in driving such crucial reforms in the Indian stock market.
Nithin Kamath Foresees Instant Settlement Challenge in US Markets Post T1 Transition

Nithin Kamath Foresees Instant Settlement Challenge in US Markets Post T1 Transition (Image Source: Twitter, iStockphoto)

In a significant development, the US markets have finally transitioned to T+1 settlement, trailing behind India by two years. This move, propelled by regulatory initiatives like SEBI, marks a notable synchronization between the two global financial giants.
Nithin Kamath, co-founder of Zerodha, a prominent Indian financial services company, took to social media to share the news, expressing a sense of accomplishment. He credited SEBI for its proactive stance in driving such crucial reforms in the Indian stock market.
He wrote on X, "Last week, the US markets finally moved to the T+1 settlement, two years after the Indian markets did (thanks to SEBI) ?. Now, the next thing is moving to instant settlement. The tricky bit is that ~75% of trades are intraday speculative trades. So they would neither have the cash nor the stock with them for instant settlement. If you create another segment for only delivery-based trades, the impact cost due to lower liquidity will be quite high. So yeah, only time will tell. Crypto exchanges work differently. You must first borrow to short-sell, but the position can be kept forever once you've done that. In the Indian markets, you can only short-sell equities for intraday."
However, while celebrating this milestone, attention swiftly shifts to the next frontier: instant settlement. This transition poses a unique set of challenges, particularly in a market landscape where approximately 75% of trades are intraday speculative ventures.
The intricacy lies in the fact that such speculative trades often lack the necessary cash reserves or stock holdings required for instant settlement. Creating a separate segment exclusively for delivery-based trades seems plausible but raises concerns about increased impact costs due to reduced liquidity.
Comparatively, the realm of crypto exchanges operates under a distinct paradigm. Short-selling necessitates borrowing initially, but once executed, positions can be perpetually maintained. In contrast, India's equity markets limit short-selling to intraday transactions.
Arjit Saxena author

Arjit Saxena is a Senior Correspondent at ET NOW and Times NOW Business Section. He writes on Stock Market, Economy, Startups, Corporates, and Persona...View More

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