New Delhi:
Indian stock markets will begin a shorter settlement cycle or T+1 regime for the final list of major stocks from Friday, a move that will help reduce margin requirements for clients and boost retail investment.
T+1 (trade plus one) means that market trade related settlements must be approved within one day of the actual trades taking place. In the past, transactions on the Indian exchanges were settled within two business days of the transaction (T2).
The exchanges – NSE and BSE – announced in a joint statement in November 2021 that they will implement the T+1 settlement cycle in phases from February 25, 2022 with the bottom 100 stocks by market value.
Thereafter, 500 shares were added based on the same market value criteria from the last Friday in March, and so on, each subsequent month.
As of January 27, all transactions in the equity cash segment (including futures and equity options) will be executed on a T+1 basis.
The latest batch of securities — including stocks, ETFs, debt instruments, real estate investment trusts (REITs) and infrastructure investment funds (InvITs) — will move into the T+1 settlement cycle starting Friday, information available on the Zerodha website showed.
This is not the first time that market regulator Sebi has chosen to shorten the settlement cycle. Earlier in 2002, the capital markets regulator had reduced the number of days in the settlement cycle from T+5 days to T+3 days, and in 2003 it was reduced to T2 days.
Market experts believe that the T+1 settlement system will speed up the money cycle without waiting an extra day.
Upside AI co-founder Atanuu Agarrwal said most markets around the world operate on a T+1 basis. T+1 settlement even gives India an edge over the US, the destination of choice when it comes to capital markets. “This is a fantastic milestone and a new feather in India’s financial ecosystem. These changes are sure to bolster overall liquidity due to faster rollover and are a major positive for all stakeholders i.e. issuers, investors and intermediaries,” he added please.
“As Indian markets enter T+1 for the final list of major stocks from January 27, the question is whether the systems are robust enough. The T+1 system was enabled by solid technological advances.
“Fast bank transfers, the emergence of UPI as a payment mechanism, superior bandwidth and the dominance of online and app-based commerce have contributed to this,” said Gagan Singla, MD at blinkX, a JM Financial initiative.
The shift from physical to digital in mediating communication, dissemination, execution and risk management has largely catalyzed the progression to T+1, he added.
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