Rajandran R Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, USDINR and High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in and Co-Creator of Algomojo (Algorithmic Trading Platform for DIY Traders)

T+1 Settlement Cycle Explained

1 min read

On January 27, India’s NSE and BSE stock exchanges will switch to a T+1 settlement cycle, which means that when you buy or sell shares, the transaction will be settled one day after the trade date instead of the previous 2 days. This change will make it easier for buyers and sellers to receive shares and any related actions like dividends and bonus shares in their accounts faster. This change will apply to all large-cap and blue-chip companies and this was decided by SEBI (Securities Exchange Board of India).

T+1 settlement cycle refers to the time frame in which securities transactions are settled. The “T” stands for the trade date, and the “+1” refers to the fact that the settlement takes place one day after the trade date.

SEBI (Securities and Exchange Board of India) has given stock exchanges permission to start using the T+1 settlement cycle from January 1, 2022. On November 8, 2021, the exchanges discussed their plan for implementing the T+1 settlement cycle. They ranked all stocks based on market capitalization and starting with the lowest, they made the bottom 100 stocks available for T+1 settlement on February 25, 2022. Then, every last Friday of the month, they added the next 500 lowest-ranked stocks to the T+1 settlement cycle until January 2023. For stocks with derivatives (futures and options), the transition to T+1 settlement will be done in two separate batches, in December 2022 and January 2023.

T+1 settlement cycle is not a common practice in many countries and most countries have their own settlement cycle. Here are a few examples of countries that have adopted a T+1 settlement cycle:

  • Hong Kong
  • Singapore
  • Taiwan

It’s important to note that even within a country the T+1 settlement cycle may not be applied to all securities and some securities may have different settlement cycles. In addition, some countries may have different settlement cycles for different types of securities (e.g. equities vs. bonds).

How does T+1 Settlement cycle work?

Let’s say you’re an investor and on Monday, January 25th, you decide to buy 100 shares of Reliance stock on the National Stock Exchange (NSE) of India. Under the T+2 settlement cycle, the trade date would be Monday and the settlement date would be Wednesday, January 27th. The shares would be transferred from the seller’s account to your account, and the money would be transferred from your account to the seller’s account on the same day.

However, with the T+1 settlement cycle, the trade date is still Monday, January 25th, but the settlement date is now Tuesday, January 26th. The shares would be transferred from the seller’s account to your account, and the money would be transferred from your account to the seller’s account on the next day.

In this example, the investor will get the shares in their account one day earlier than before and also the money will be transferred from their account on the next day. This will reduce the risk of default and failed trades as the process of trade, clearance and settlement of funds will be done much faster.

Rajandran R Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, USDINR and High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in and Co-Creator of Algomojo (Algorithmic Trading Platform for DIY Traders)

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