market regulator Securities and Exchange Board of India Exchanges have introduced an option of T+1 trade settlement, currently all exchanges in India follow T+2 trade settlement cycle. SEBI extended this option after several requests made by market participants and various stakeholders to shorten the business cycle. Currently, developed countries like the US follow a T+2 settlement cycle for equities, corporate bonds, municipal bonds, unit investment trusts (UITs) and money market instruments and T+0 or T+1 for government securities.
“SEBI Requests are being received from various stakeholders to further shorten the settlement cycle. Based on discussions with market infrastructure institutions (stock exchanges, clearing corporations and depositories), it has been decided to provide flexibility to stock exchanges to offer either T+1 or T+2 settlement cycles,” the press release said. has gone.
Earlier, the market regulator had shortened the trade settlement cycle from T+3 to T+2 in 2003. As of now this option of T+1 settlement cycle is optional and any stock exchange can choose to offer T+1 settlement cycle on any stock after giving notice period of one month. “After opting for the T+1 settlement cycle for the scrip, the stock exchange has to mandatorily continue the same for a minimum period of 6 months. Thereafter, if the stock exchange intends to go back to the T+2 settlement cycle, it will do so by giving one month advance notice to the market,” the press release read.
Simply put, T+1 settlement cycle means that after buying the shares, the shares will be credited to the demat account exactly one day after the trading day. In case of sale transactions, the money will be credited on the next day. This used to happen in the first 2 days. The idea of adopting T+1 was first put forward in a discussion paper in 2013. At that time, the proposal faced several challenges from both foreign and domestic investors. In 2020, the Securities Industry and Financial Markets Association (ASIFMA) wrote a letter to market watchdog Securities and Exchange Board of India (SEBI), highlighting operational difficulties for foreign investors, if the settlement cycle is extended to T+1. is reduced to half.
The association said that since working hours in Europe and the US were not aligned with APAC markets, the current T+2 market cycle was already effectively a T+1 settlement cycle. “U.S. or European custodians will often set a time frame that is Settlement Date-1 (SD-1). Investors are required to arrange funds for their transactions and settle trades during their pre-daylight hours a day before. Settlement matching needs to be arranged,” said the note to the regulator. The letter, written in 2020, also mentioned that China is the only major market that is currently in a T0 or T+1 settlement cycle. SEBI allows T+1 settlement for shares. Now we are among the first few countries in the world to allow it. So when you buy you can get your demat stock or current I can get money for the stock sold on the next day (T+1) instead of 2 days (T+2).
“SEBI allows T+1 settlement for shares. We are now among the first few countries in the world to allow it. Hence you can get your demat stock when you buy or get funds for the stock sold the next day (T+1) instead of 2 days (T+2) at present,” said Nitin, CEO, Zerodha Kamath said.
The market watchdog in the circular asked the stock exchanges, clearing corporations and depositories to take necessary steps to put in place proper systems and procedures for smooth commencement of the T+1 settlement cycle on an alternate basis, including the relevant bye-laws. Contains necessary amendments. Rules and Regulations.
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