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Foreign investors ask Indian regulator to delay quicker trade settlement plans

FE Team | Published: October 01, 2021 11:42:51 | Updated: October 05, 2021 21:48:12

The logo of the Securities and Exchange Board of India (SEBI) is pictured on the premises of its headquarters in Mumbai, India on March 1, 2017 — Reuters/Files

Foreign investors in India are pushing the country's market regulator to delay its plans to implement a quicker settlement of trades by bourses - a "complex and costly" move they say poses several operational as well as business challenges.

The Asia Securities Industry & Financial Markets Association (ASIFMA) along with two other industry bodies sent an open letter to the Securities and Exchange Board of India (SEBI) on Thursday asking for a consultation before the new regime comes in next year, reports Reuters.

Despite objections from Indian brokers, SEBI this month allowed stock exchanges the option to shorten the time to clear trades to 24 hours after execution from the current 48-hour cycle.

A quicker settlement - the actual transfer of shares and money after a trade - will help increase liquidity for traders, reduce market risks and cut margin requirements.

But ASIFMA along with Asia TraderForum and the Investment Association, that represents investment managers in the UK, said the move will be especially challenging for foreign investors due to time zone differences and the involvement of global and local custodians and forex banks in different jurisdictions.

"It is important also 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," they said in the letter.

SEBI did not immediately respond to a request for comment.

The lobby groups said they represent foreign portfolio investors with investments worth $655 billion or roughly 20 per cent of India's market capitalisation.

The associations said it would take longer to migrate to the new system with process redesign, substantial investments in technology and better real-time processing capabilities.

In February, global securities settlement house DTCC proposed a two-year timetable for introducing one-day settlement to cut risk in securities transactions in the United States.

SEBI this month allowed bourses the option to shift to the new cycle from Jan. 1, 2022, with a one-month notice to the market.

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