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
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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