India will become the second largest country in the world in settling T+1
Mumbai: T plus one settlement cycle will be implemented in all listed stocks and shares in Indian stock exchanges from next Friday, January 27, 2023. In this T+1 settlement cycle implemented in phases, T+1 settlement will be implemented in 256 shares in the last batch from Friday. Experts have expressed confidence that the T+1 agreement will be smoothly implemented in this last batch without any disruption to the stock markets. With this, India will be the second country in the world after China to implement T+1 settlement cycle for all securities. The T plus two settlement cycle is still applicable in markets such as the US, Europe and Japan.
It is worth noting that all index stocks and stocks trading in derivatives market are shifting to T+1 settlement from January 27. This T plus one settlement cycle means that the purchased shares will be credited to the demat account of the investor a day after the purchase or sale of the shares.
Till now trade settlement in India was done on T+2 basis i.e. on the day the shares were bought or sold by the investor, deposits and withdrawals were made two days after trading.
Exchanges were permitted by SEBI to offer T+1 or T+2 settlement following requests by various stakeholders for a shorter settlement cycle. Following which it was decided by the exchanges to move towards short settlement cycles on a phased basis as brokers make necessary changes to their trading infrastructure and obtain necessary approvals as well as allow foreign institutional investors to trade in individual stocks. It takes time to complete the process. Time zones in different countries.
The stock exchanges then implemented the T plus one settlement cycle in February 2022 for at least 100 stocks with market capitalization in the first phase, with new stocks being added in phases every month thereafter. Now T+1 settlement cycle is going to be implemented in the final batch of 256 shares. Which will include Nifty 50 Index and Sensex shares like Reliance Industries, Infosys, Tata Motors, Dr. Reddy’s Laboratories, State Bank of India. Along with this, Dabur India, Ambuja Cements, Tata Chemicals, PB Fintech, FSN E-Commerce, Delhivery, One97 Communications will also be included.
The implementation of the T+1 settlement cycle will benefit investors by providing better liquidity and increasing trade and public participation. Of course against this advantage will be the challenges of trade settlement for a bank or a large bank as some of the risks are reduced settlement days. Also, settlement will be a challenge in case of extraordinary volatility in the stock markets.
What is T+1 settlement?
T plus one settlement means that the stock trade has to be settled within a day or 24 hours on the day the stock is bought and sold. For example, if an investor bought 50 shares on Monday, these shares should be credited to his demat account on Tuesday. When according to the seller of these shares money comes in his account.