The Securities and Exchange Board of India (SEBI) has recently proposed an instant settlement plan, aiming to enhance the efficiency of the country’s financial markets. However, this initiative has faced significant pushback from foreign investors, who have raised concerns about the practicality and implications of such a system.
Understanding SEBI’s Instant Settlement Plan
SEBI’s instant settlement plan is designed to facilitate same-day settlement of trades, a move that is expected to significantly reduce the time it takes for investors to receive the proceeds from their trades. This is in line with global best practices and is aimed at making India’s financial markets more attractive to both domestic and international investors.
Key Concerns Raised by Foreign Investors on Instant Settlement Plan
- Operational Challenges:
- Foreign investors have pointed out that the instant settlement plan would pose significant operational challenges, particularly for those based in different time zones.
- The need to align with multiple market timings and the lack of a global settlement system could result in operational inefficiencies.
- Regulatory Hurdles:
- The plan could also face regulatory hurdles, as foreign investors are subject to different regulations in their home countries.
- Compliance with these regulations, while also adhering to SEBI’s instant settlement requirements, could prove to be a complex and burdensome process.
- Potential for Increased Costs:
- The implementation of an instant settlement system could result in increased costs for foreign investors, who may need to upgrade their systems and processes to comply with the new requirements.
- These costs could potentially outweigh the benefits of faster settlement times.
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How SEBI Could Address The Concerns?
While SEBI’s instant settlement plan is a step in the right direction towards modernizing India’s financial markets, it is crucial for the regulator to address the concerns raised by foreign investors. This includes:
- Engaging with Stakeholders:
- SEBI should engage in dialogue with foreign investors and other stakeholders to understand their concerns and work collaboratively to find solutions.
- Conducting a Pilot Program:
- Before rolling out the instant settlement plan nationwide, SEBI could consider conducting a pilot program to identify and address any potential issues.
- Providing Flexibility:
- SEBI could also explore the possibility of providing some flexibility in the implementation of the instant settlement plan, allowing foreign investors to opt-in or opt-out based on their preferences and capabilities.