Foreign Investors Oppose India's Same-Day Settlement Plan

India's plan to allow same-day settlement of equity market trades is facing opposition from foreign investors who believe it will lead to a fragmented system and increase trading costs. The Securities and Exchange Board of India (SEBI) implemented T+1 settlement in January, but offshore investors are concerned about the liquidity and systemic risks associated with having two different settlement cycles. SEBI argues that instant settlement will benefit Indian retail investors and is working to reduce fragmentation risk. The regulator is collaborating with exchanges and clearing houses to ensure sufficient trades on both settlement systems, and market arbitrators will address any liquidity inconsistencies. Foreign investors will need to pre-fund all transactions with same-day settlement, which is more expensive and exposes them to foreign exchange risk. Additionally, the opportunity for intra-day trades would be reduced. Despite these concerns, global hedge funds are increasingly interested in setting up operations in India due to its growing depth and liquidity, as well as its potential as an alternative investment destination to China. [2faed13a]