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 Rolling settlement cycle: SEBI means business

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Burnette Norm

Posts : 1
Join date : 2010-10-06

PostSubject: Rolling settlement cycle: SEBI means business   Wed Oct 06, 2010 3:25 am

The Securities and Exchange Board of India (SEBI) introduced the rolling settlement cycle in the stock exchanges from 10 January 2000. The rationale for its introduction was the necessity to ensure the growth of a healthy and safe market. In a safe market, there will be phenomenal reduction of risks and it will also help to lower the transaction cost in the long run.

The rolling settlement is always on a T + 5 basis. T represents the trade day and T + 5 implies the settlement on the 5th trading day. Under this pattern, the settlement cycle starts and ends on the same day, and the settlement takes place on the 5th business day from the date of the transaction, that is a transaction conducted on Monday will be settled on the following Monday and a transaction of Tuesday will be settled on the following Tuesday and so on.

SEBI has stipulated that while this is the minimum, any stock exchange is welcome to introduce rolling settlements with shorter rolling period. The rolling settlement is required to be introduced by all the stock exchanges having connectivity with both the depositories. For a well managed commodity trading firm rolling settlement cycle offers a breather in situations wherein transactions are fewer in number.

The highest volume of transactions in shares takes place at the Bombay Stock Exchange (BSE). But this is not the case with stock markets in other parts of the country. When compared to the developments at the BSE, very few commodity trading firms have made their presence felt in the other stock exchanges that are spread out all over the country.

To succeed in commodity trading, a trader must be thorough with the various nuances of the trade and also the market vagaries. In the globalized economy, a development in a far off destination may impact the local market within a short span of time, often leaving the small players with no escape option. To cite an example, the developments in the American economy have resulted in major changes in the Indian financial sector.
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