What is T+1 Settlement Cycle for Stocks in India?

Short Answer

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.

Detailed Answer

What is T+2 Settlement in India?

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.

What will T+1 settlement mean?

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’.

How will the T+1 cycle be implemented?

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.

Tagged With: t+1 settlementindian stock marketnational stock exchangebombay stock exchangesebistock tradingstock settlement
Categories: Stock Market
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Related FAQs

How will the T+1 settlement cycle affect Indian stock markets?

The T+1 settlement cycle is set to bring in many advantages to traders as investors as there will be an increase in liquidity and trading volume. There will be a subsequent reduction in the brokerage defaults and settlement auctions. On the other hand, there could be some problems like mismatch in liquidity among exchanges, FPI complications, etc.

Can I trade or invest Rs 100 in the share market of India?

You can definitely trade or invest Rs 100 in Indian stock markets. There are no monetary requirements to enter the stock market hence you can buy any share that is trading under Rs 100. Apart from direct stock investing/ trading, there are some indirect ways to own shares over Rs 100. This can be done through Mutual Funds.

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The operating hours for the Indian stock market is from 9 AM to 4 PM while remaining off on government holidays and weekends.

Can I trade when markets are closed or shut?

No, it is not possible to trade when stocks markets are closed. However, you can place an After Market Order(AMO), which will be executed after the markets open on the consecutive trading day. These orders can be modified any number of times until they get executed,

Can I do stock trading in India without a broker?

To buy and sell stocks in the Indian stock market, you will need a demat and trading account. A stockbroker is necessary to trade stocks because the broker will provide the trading account through which you will place your trades.

Is online trading safe in India?

Trading in India is completely safe as all the online brokers are registered by SEBI, which is the regulating body that regulates all the trading activities in the country. Apart from this, there are certain external risks involved in trading like Market Risks, Volatility risks, and over-leveraging, etc. These types of risks can be minimised to some extent by hedging but cannot be eliminated completely.

What is the role of FII and DII in the Indian Share market

FII and DII are two influential participants in the Indian share market. FII are foreign investors who are not located in India whereas DII constitute domestic investors who are housed within India. These investors consist of Mutual Funds, Pension Funds, and other investors who determine the direction of the Indian stock market in the short term.

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