The Securities Exchange Board Of India (SEBI) has proposed a new 'T+1' settlement cycle, under which shares will be settled/transferred from the sellers' Demat account to the buyers' Demat account in one day or under 24 hours. This will be implemented on an optional basis on the exchanges from January 1, 2022. Exchanges like NSE and BSE will have the liberty to select any script that they want to shift into the new regime.
The 'T+2' settlement, which is currently being followed in the Indian Stock markets signifies (T) as Trading Day or Transaction Day. The other ‘2’ defines the number of days that it takes to get transferred.
Right now India follows a T+2 settlement cycle. Under this cycle, if you buy the shares of let's say ‘SBI’, on Monday, then you will get your shares delivered to your Demat account after two trading days which is on Wednesday. In the following two days, the shares that you purchased are collected from the seller by the depository and delivered to you.
There are two depositories in India. The NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited), which are responsible for transferring the shares from the seller’s Demat account to the Buyer’s Demat account.
The following process happens in two trading days. Earlier we used to follow a T+3 settlement cycle, which got converted to the T+2 cycle in April 2003.
The interesting part is that Market regulator SEBI (Securities Exchange Board Of India) has proposed the T+1 settlement cycle, which will be effective from January 1, 2022.
As the T+1 settlement cycle will be implemented, you don’t have to wait for your shares for two days. Instead, you will get the delivery of your shares within 24 hours. This will be beneficial to many traders as well as investors as many scripts listed on the Indian Exchanges are listed as ‘Trade-To-Trade’, which means you can only sell or short the stock if you already have them in your Demat account.
With the new implementation, If you buy the shares of any company, on a ‘Monday’, you will get them in your Demat account by ‘Tuesday’.
SEBI will keep the T+1 settlement cycle optional. This means exchanges like National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) will have the liberty to include or exclude this new cycle on any script.
In order to include any script in the new settlement regime, exchanges will have to serve a one-month advance notice before including any stock in the T+1 settlement cycle. And once the waiting period of 1 month is served, the script will be traded with the T+1 settlement cycle.
But, wait!! There is another catch to this new rule. Once a particular stock is shifted to the new scheme, it cannot be reverted back to the T+2 settle cycle before completing six months. Similar to the shifting into the T+1 cycle, the exchange will have to give a one-month notice to the SEBI in order to bring back the script to the original settlement cycle.