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What is T+1 settlement?
T+1 (trading+1day) means settlement of equity transactions in less than 24 hours from the day of transaction. It will make India the fastest stock market in the world to settle equity trades. Currently, India follows T+2 cycle, where it takes 48 hours or even more for the shares to be transferred into the client account in case of purchases.
In what way is it better than the current system?
Under the current system, a seller of shares cannot demand payment from the purchaser for at least two days. The purchaser too has to wait at least 24 hours to 48 hours for delivery of shares in his account. T+1 will ensure same-day delivery of shares into the buyer’s account and money into the seller’s account. For example, even if shares are bought or sold at around 3.25 pm (just before the market closes), payment and delivery of share settlement in most cases will happen the same day in the evening, thereby making the market more efficient.
How is it being implemented?
The National Stock Exchange and the BSE have declared that they will implement the T+1 settlement cycle in a phased manner, starting with bottom 100 stocks in terms of market value, from February 25, 2022. Thereafter, 500 more stocks will be added based on the same market value criteria from the last Friday of March 2022 and every following month. Those transacting in stocks falling under T+1 settlement cycle will get their money or shares delivered in less than 24 hours.
Why has SEBI opted for a phased roll-out of the new settlement?
There was tremendous opposition from foreign portfolio investors (FPIs) against the implementation of T+1 settlement. Since FPIs invest in India from different countries and time zones, it could be difficult for them to obtain permissions for stock transfers and other procedures from their custodians or head offices. For them it could become like a real time process of stock and money transfers. Domestic brokers argued against it since it involves the high cost of changing their back office and front office operations. Both of them wanted more time, hence SEBI and exchanges opted for a phased manner.
What is the settlement system followed in other developed markets?
Most large stock markets, like in the US, Europe, Japan, still follow T+2 settlement cycle of trade settlement. India will become the first country in the world to go for T+1 settlement.
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