Market regulator Securities and Exchange Board of India (SEBI) is hoping to move towards a one-hour settlement cycle as early as March next year and instantaneous settlement by October, SEBI chief Madhabi Puri Buch said on Tuesday at the sidelines of the Global Fintech Fest 2023.

India completed the transition to the T+1 settlement cycle in January this year. For instance, a client buying shares on Tuesday under T+1 system gets his shares credited to his demat account on Wednesday. Under the one-hour settlement, this transaction would take place within an hour.

“The technology for implementing the one-hour settlement cycle already exists. The industry is working on a new technology for instantaneous settlement,” said Buch.

To boot, the ASBA-like settlement mechanism for secondary trades will go for pilot testing in December and will be up and running in January. This is similar to the Application Supported by Blocked Amount (ASBA)-like facility that is operational in the primary market which ensures that investor money moves only when allotment happens.

Cyber security

SEBI is also beefing up systems to deal with broker and exchange or clearing corporation (CC) failures. The exchanges and CCs have implemented a software-as-a-service model in order to ensure that trading continues in the event one exchange or CC goes down.

Data of one exchange will now physically reside on the premises of the second exchange and will be instantaneously updated in real time.

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“So if one clearing corporation or exchange goes down, that data is taken and actually uploaded into the software system of the second exchange,” the SEBI chief said

The regulator is also working on a mechanism that will allow clients of a broker to have direct access to the exchange in order to manage and close out his positions, in case the broker goes down.

Buch referred to these two mechanisms as non-classical approach to cyber security.

Backing AI usage

The regulator will turn to artificial intelligence and algorithmic alerts to identify mis-selling in the financial ecosystem. “We have built algos but haven’t applied AI. We are hoping that some of our young colleagues are able to develop it in-house,” said Buch.

The existing financial players are undergoing massive transformation and morphing more and more into fintech companies, Buch said.

Also read: SEBI to set up body to vet performance claims of intermediaries

“To us, a stock exchange is a fintech company. Mutual fund platform MF Central is nothing but a fintech in terms of its substance. This morphing of incumbents has a huge advantage. They have the cash flows, manpower, and the stability of the traditional businesses. Yet, when they put their minds to it and apply the principles of modern technology, they transform into this new rocket ships,” she said.

According to her, technology allowed one to optimise all the three areas which are critical in the market — risk, convenience and cost.

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