by India’s financial markets have undergone significant reforms in recent years to enhance efficiency, transparency, and investor protection. With increasing participation from retail and institutional investors, there has been a growing need to modernize market infrastructure. Regulatory bodies like SEBI and RBI have introduced technological innovations and policy changes to reduce systemic risks and improve settlement cycles. Two such major reforms are the T+1 settlement cycle and the ASBA (Application Supported by Blocked Amount) system. These changes aim to streamline trading and IPO application processes while boosting investor confidence and aligning India’s markets with global best practices.
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T+1 Settlement:
The T+1 settlement reform, introduced by SEBI, shortens the trade settlement cycle from T+2 (trade date plus two days) to T+1. Implemented in phases starting in February 2022, the reform was fully operational by January 2023. Under T+1, funds and securities are exchanged one day after the trade date, reducing counterparty risk, improving liquidity, and enhancing capital efficiency. This move has positioned India among the fastest-settling markets globally, boosting investor confidence, especially among retail traders. For institutional investors, it enhances fund rotation speed and portfolio rebalancing capabilities. However, T+1 also requires upgraded systems, real-time processing, and greater operational discipline from brokers, depositories, and custodians. Despite initial resistance from foreign investors due to time zone and currency conversion constraints, the transition has largely been smooth, marking a significant leap in market modernization and efficiency.
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ASBA (Application Supported by Blocked Amount):
ASBA is a payment mechanism introduced by SEBI in 2008 to improve the IPO application process. Under this system, investors apply for IPO shares without transferring funds upfront. Instead, the application amount is blocked in the applicant’s bank account and is debited only if the shares are allotted. This reform eliminates the need for refunds in case of non-allotment, reducing delays and errors. ASBA improves transparency, minimizes misuse of funds, and ensures fair allocation. It is mandatory for all retail investors applying through the book-building process. Over the years, it has been integrated with UPI for faster and more seamless transactions. By keeping the funds in the investor’s account till allotment, ASBA also allows interest earnings and greater control over personal finances. The system has significantly increased investor trust in the IPO process, streamlined operations for bankers and registrars, and modernized the primary market infrastructure in India.
