Indian Stock Market to move to T+1 Settlement Cycle in a phased manner

The Indian Stock Exchanges NSE and BSE will be implementing the T+1 settlement cycle in a phased manner starting from today i.e. 25th Feb 2022. This means that trade settlements will be done within one day of the transaction completion. Currently, trades on the Indian Stock Exchange are settled within two days i.e. T+2 settlement cycle is followed. However, from 25th February 2022, the Indian stock Exchange will move from the “T+2 settlement cycle” to the “T+1 settlement cycle” in a phased manner.

For Example: If you buy shares on Wednesday then as per the current T+2 settlement cycle, the shares you bought will get credited to your account on Friday. But now, with the new settlement cycle of T+1, the shares will be credited to your account on Thursday itself.

Before SEBI introduced the T+2 settlement cycle in April 2003, India followed the T+3 settlement cycle. Now, with the T+1 settlement cycle, the shares will get credited to your account within 24 hours.

Initially, this trade settlement cycle will be implemented for the bottom 100 stocks in terms of Market Valuation. Later, 500 more stocks will be added every last Friday of the subsequent month, until every stock is placed under the new settlement system. 

If the stock Exchange opts for a T+1 settlement cycle for a particular scrip/stock, the exchange will have to continue with the same for a minimum period of six months. After that, the stock can be moved to the T+2 settlement cycle by giving a months’ notice to the market. Once a particular stock is placed under the T+1 settlement cycle, the regular market deals, as well as block deals, will follow the same cycle. Preference shares, warrants, right entitlements, partly paid shares, and DVR shares to be transitioned to T+1 settlement along with the parent stock.

Closed-ended Mutual Funds, Debt-Securities (including corporate bonds), Sovereign Gold Bonds(SGBs), Government Securities, Treasury Bills and State Development Loans, Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), Exchange Traded Funds (ETFs), Depository Receipts and all other existing securities will be transitioned along with the last schedule batch of securities.

T+1 settlement system will shorten the settlement cycle and increase liquidity in the stock market. It will reduce the margin requirement for the clients with margins blocked for just one day. It will result in faster and efficient trade execution. The trading volumes are expected to increase as the funds will be available for use within a day. This will increase the retail participation & investments in the equity market. It will also reduce the risk of default. 

This transition will increase the responsibility of the brokerage firms who will have to gear up their systems and operational process to handle seamless settlements smoothly.