BSE to switch to 3-day stock cycle


A payments default crisis in March last year wiped $47 billion from the BSE's market capitalization

Staff and wire reports

MUMBAI, India -- Beginning next month, all securities traded on the Bombay Stock Exchange (BSE) in Mumbai will switch to a shorter settlement cycle in an effort to make the system more efficient and limit risk.

The BSE announced Monday that trades would be settled on a T+3 basis from April 1, replacing the current five-day settlement cycle known as T+5.

This means all transactions will be closed three trading days after the deal is made, instead of five days later.

Analysts favor the shorter trade cycle, saying it will reduce speculation, as well as risks from financial problems because of the need to pay the trades immediately.

"By decreasing settlement risk, you'll encourage money managed professionally to increase their exposure in the market," Core Pacific-Yamaichi Assistant Director Gerardo Pablo told CNN.

An expert panel recommended the change following a payment default crisis in March last year that rocked the bourse and wiped $47 billion from the BSE's market capitalization.

It prompted the Securities and Exchange Board of India to tighten several market regulations, including the ban on carry-forward trading.

But this caused a sharp decline in trading activity until internationally accepted futures and options trading was introduced in the following months.