Indian stock markets: Final phase of Migrating to T+1 Settlement cycle
The final and the major phase of migration to T+1 settlement cycle begins with January 27 2023,. All trades executed in stock exchanges wrt any securities in the equity segment are to be settled on T + 1 basis.
With this, India has become the second major economy in the world to move to the T + 1 settlement cycle.
At present, all stock markets both NSE and BSE currently follow T +2 settlement cycle, which is being followed since April 2003.
Background information: It is pertinent to note that SEBI through its circular dated September 7, 2021, had provided stock exchanges with an option to follow T+1 rolling settlement basis.
According to the circular,
- Any stock exchange opting to follow T+1, can do so, after giving an advance notice of at least 1 month regarding this change in settlement cycle, to all stakeholders including the public and also required to publish the information on its website.
- Once the T+1 cycle is adopted, the concerned stock exchange shall have to continue with the same for a minimum period of 6 months.
- This option once adopted shall be applicable to all type of transactions in that SE (whether it is regular market deals or block deals)
- Post that, in case the SEs wishes to switch back to T+2 it shall do so, by giving 1 month’s advance notice to the market.
- All subsequent switch, if any shall also follow the same minimum period and advance note requirements.
- Through the circular, all SEs, Depositories, Clearing Corporations were directed to take necessary steps/ systems and procedures for smooth transition to T+1 cycle.
Subsequent Developments:
Following this, the stock exchanges both NSE and BSE had announced in their joint statement In November 2021, that they would implement the T+1 settlement cycle in a phased manner, starting from Feb 2022, starting with Bottom 100 Stocks in terms of market value.
Thereafter 500 stocks were added every following month based on the same market value criteria since March 2022.
In the Final phase, Starting January 27 2023 all large cap and blue chip companies, that are part of NIFTY 50 & SENSEX, are switching toT+1 system, which means all the securities including stocks,debt instruments, real estate investment trusts, Infrastructure investment trusts, Exchange traded funds, which were earlier under T+2 settlement cycles, are to migrate
to T+1, meaning the transactions will be settled within 1 day of the actual transaction taking place..
What is settlement: Settlement refers to the process in which the funds are transferred from the buyer and security is transferred from the seller, to each other respectively. Shares would be transferred to demat account of the buyer with 2 days after the transaction and funds from the buyer would be made available to the seller 2 days after completing the transaction.