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Stock Market

Stock Market

India blue chips set to shift to world's fastest settlement cycle

24 Jan 2023 Zinkpot 151

Money Control -  Shares of about 200 of India's biggest listing companies are set to move to a fastest settlement cycle, making the South Asian nation the second market after China to switch to the so called T+1 system. Read more

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  • T+1, T+2, T+3 are acronyms referring to the settlement date of the equity transaction. Here, T stands for transaction day which means the day when transaction takes place. Numerals 1, 2, 3 symbolises the number of days after which the transaction will be settled.
  • To illustrate, T+I means if a transaction is processed on a Monday, settlement must occur by Tuesday i.e. within 24 hours. Likewise, T+3 means that the transaction that has occurred on a Monday will be settled by Thursday.
  • Only those days are taken into consideration on which the stock market is functional which doesn’t include Saturdays and Sundays or any other public holidays.
  • Settlement dates are altered according to the type of security. Generally, all stocks and most mutual funds are currently T+2 while bonds and some money market funds differ between T+1, T+2 and T+3.
  • Trade as per T+1 settlement on Indian stock exchanges has begun from February 25, 2022 in a phased manner. Initially, only 100 stocks, placed at the bottom as per their market cap, were brought under the new system of settlement. 
  • Starting to January 27th, 2023, stocks from Reliance Industries Ltd. to Tata Consultancy Services Ltd and Adani Enterprises Ltd. -  together comprising 80% of the countries equity market, will be settled on a 'trade-plus-one-day' timeline versus the earlier two-day process.
  • T+1 settlement has cut short the settlement process which will facilitate reduction in the risk of defaults and it also escalate the liquidity in the market through the availability of funds.
  • Foreign investors are likely to face functional issues in adapting to the new regime of settlement due to the difference in time zones, specifically, for the US and European investors.
  • China is the only market of the notable size and scale which operates on T+1/T0 settlement. The US market is also in the process of moving to T+1 settlement cycle in upcoming months.
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