Stock brokers' association Anmi has raised concern on the proposal to lower the settlement cycle for completion of share transactions to T+1.
In its letter to Sebi, Anmi said the implementation of the new system would increase working capital requirements for brokers and enhance the work load on the banks and depository participants (DPs).
Currently, trades are settled two working days after the transaction is done (T+2).
In addition, the proposal discourages FPIs, which are critical to Indian markets' success, to invest efficiently as they would need to bring in money on the trade day itself which may not be feasible due to different time zones, Anmi said.
Sebi Chairman Ajay Tyagi, last month, proposed to the stock exchanges to gradually move towards real-time settlement of trades in the capital market.
"Presently, the Indian banking system is not geared up to fully clear the cheques in one day. Clients staying in remote villages /district towns even today prefer using cheque facility instead of net banking for transferring funds from their bank accounts.
"Funds transferred after 7 pm and through payment gateways are mostly credited on the next day in the recipient's account. Needless to say at broker's end working capital requirements will double, it will be broker that will need to make pay-in and pay-out," Anmi said in the letter.
It further said banks and DP associated with capital markets would need to extend their working hours so that clients can move funds and securities on 'T' day or trading day itself. "There are lots of clients whose trading account and DP a/c are with different bankers. Such clients will suffer hardship in giving instruction by slip for transferring securities pay-in," it added.
The association said trading members could have connectivity issues due to natural calamities like cyclone, moderate to heavy rains network connectivity issues, among others. "As of now members have time to meet this emergency situation but once we move to T+1 (trade plus one day) settlement cycle there could be hardships when we may not be able to meet the pay-in / pay-out timeline," the letter noted.
According to Anmi, the implementation of new T+1 settlement system will put the entire broking industry in jeopardy and cause undue hardships. Hence, Anmi requested Sebi not to implement the new T+1 settlement system till the time operational issues are resolved.
Also, it has requested Sebi to set up a joint committee representing officials from exchanges and Anmi to deliberate on concerns of members in the matter.
The Association of National Exchanges Members of India (Anmi) is a grouping of over 900 stock brokers across the country.