New T+1 settlement cycle: FPIs’ forex concerns may be addressed by June-July

The exchanges, clearing corporations and the Reserve Bank of India (RBI) are working together to resolve issues related to foreign exchanges and confirmation of trade raised by foreign portfolio investors (FPIs) within the new T+1 settlement cycle. The authorities have met several FPIs in the last couple of weeks and the matter is expected to be resolved before June-July, a senior official told FE on Wednesday. “Clearing corporations are working with them (FPIs) to find a solution which is acceptable to everybody. There are obvious FX-related issues and talks with the RBI are also going on. It is expected to get resolved by June-July,” a person familiar with the matter told FE.

According to FPIs, the process becomes difficult for the custodian for confirmation of trades and then to arrange money on the same evening, as the forex markets get dried up by evening. “For a trade which is almost 2-3% of your fund, generating that much cash becomes a problem. There is a bigger problem for smaller funds, while larger funds can still manage to do the same,” said an FPI.

In the meetings held with officials, suggestions were made to allow FPIs to do the process early in the morning on the T+1 day, said sources. They said a working committee is likely to be formed, and after several discussions, the point has boiled down to clearing corporations reducing the processing time for paying out from 5-6 hours at present to 3-3.5 hours. “A working committee is being made to take this forward and now it is in the hands of ICCL and NCL to work out the crunching of processing time,” said a person aware of the development.

The T+1 settlement cycle was rolled out on February 25 this year to shorten the trade settlement and allow buyers and sellers to receive securities and funds on the next day of execution of trade. The process will be carried out in a phased manner and the entire transition of nearly 5,300 stocks will be completed by January 27, 2023.