Indian stock market to shift to a shorter trading cycle T+1 settlement on Jan 27

Market


On January 27, T+1 settlement is scheduled to launch on the NSE and BSE of India. The market will have more liquidity as the settlement cycle is shortened to T+1, and as a result, buyers and sellers will be able to receive shares and corporate actions like dividends and bonus shares in their accounts one day after the market closes. All large-cap and blue-chip companies will switch to the T+1 system on January 27. Previously, in 2003, SEBI (Securities Exchange Board of India) reduced the settlement period from T+3 days to T+2 days and hence the decision to switch to T+1 settlement has been made 20 years after the Indian market switched the settlement phase from T+3 to T+2 settlement cycle on April 1, 2003.

“To bring in operational efficiency and ease for market participants, it has been now decided that all stocks on which derivatives contracts are available will be transitioned to T+1 settlement in a single batch i.e., in January 2023 instead of two separate batches. Accordingly, Exchanges will revise the original schedule for transition of stocks to T+1 settlement and issue the circular informing the list of stocks to be transitioned in December 2022 and January 2023,” a statement reads.

From September 7, 2021, the Securities and Exchange Board of India (SEBI) gave stock exchanges permission to start using the T+1 settlement cycle on January 1, 2022. In a joint press statement on November 8, 2021, the MIIs discussed the plan for implementing the T+1 settlement cycle. “Accordingly, all listed stocks, across stock exchanges (BSE, NSE & MSE), were ranked in descending order based on daily market capitalization averaged for month of October 2021. Based on the ranking arrived, the bottom 100 stocks were made available for introduction of T+1 settlement, from trade date February 25, 2022. Thereafter, from March 2022 onwards, on the last Friday (trade day) of every month, the next bottom 500 stocks from the list of stocks ranked, are being made available for introduction to T+1 settlement every month till January 2023. As per the schedule, stocks on which futures and options (derivatives) are available are to be transitioned to T+1 settlement in two batches – December 2022 and January 2023,” stock exchanges confirmed.

Ravi Singh, Vice-President and Head of Research at Share India said “The T+1 settlement move is definitely a good move in order to revive the investors confidence and giving a boost to the capital market. It will not only reduces the risk of non-payment or non-delivery of shares by the broker, also will provide liquidity to the investors as they get their funds 1 day earlier. In this way, the market turnover may increase on possibility of increased transactions, hence benefiting the brokers also.”

As a result, all equity settlements on the Indian stock market will take place on a T+1 basis after Republic Day 2023. To determine the settlement day, all intervening holidays—including bank holidays, NSE holidays, Saturdays, and Sundays—are excluded.


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