The equity market (also known as the stock market) has several segments that are controlled by the SEBI such as rolling settlement, institutional segment, qualified foreign investor segment, etc. One of these many unique segments is Trade to Trade Segment.
Before we get into the subject of what makes the Trade to Trade segment so unique, let’s dive in and understand what it is and why it was introduced.
Trade to Trade (T2T) is a stock segment where shares are traded only on a delivery basis which means that the delivery of the stock cannot be taken on the same day. T2T stocks are not eligible for intraday trading. Intraday trading is buying and selling stocks within the trading hours of the same day.
One of the main criteria for shifting the shares in the Trade to Trade Stock Segment is P/E over-valuation. For example, in BSE, if the Sensex P/E is within 15-20 and if the stock has a P/E of more than 30, the stock may be considered for moving to T2T.
The Earnings per share (EPS) considered for computing the P/E will be the following EPS of the last four quarters.
The second one is the price variation. Let us assume the value of the stock is almost 25% more than the Sensex or the specific sectoral record to which it is benchmarked. In this case, the stock may be considered for moving to T2T. The value should not vary a lot when compared to the benchmark index (Sensex or Nifty)
The third criterion is the market capitalisation of the stock. If the market cap falls below Rs.500 crore, it will be considered for moving to the T2T segment. The idea here is to control hypotheses in stocks that could be powerless against value control because of their small size. Initial public offerings are typically barred from these T2T rules.
Moving of shares to the T2T segment is regularly done on a fortnightly basis. Every quarter, the trade chooses to move to and from the T2T segment.
Whenever a stock is moved to the T2T segment, the price filter bands are fixed in the scope of ±5% for at least 22 trading days. This guarantees stability in these stocks. If it does not match the criteria, it cannot be moved to the ‘T2T’ segment.
You can trade in the T2T segment by following the steps that are mentioned below-
In a standard scenario of the stock market, let us assume a trader purchases 5000 shares of Yes Bank at Rs 19 and sells them on the same day at Rs 20 each. Here, the trader has gained a profit of Rs. 5000 based on Intraday trading.
On the other hand, if Yes Bank was in the ‘T2T’ Segment, the trader will firstly pay the sum of Rs 95,000 to the broker to get the delivery and after that, he cannot sell it until he gets the delivery of shares in his Demat account. He can sell those shares only after he gets the delivery.
If any deal is executed in the T2T segment and the clearing member drops it, at that point, the trader will have to give a penalty. The penalty charge for abrogation is Rs. 1000. Assuming the clearing member is engaged with purchasing as well as selling, the penalty for such trade cancellation is Rs. 2000.
If the member can’t settle the trade because of a few unavoidable reasons, he is expected to take the earlier endorsement of NSSCL to look for augmentation of the settlement date.
T2T Segment might be a complicated segment but it has its own set of advantages. The investor can stay protected by price variations and complete speculations by taking trades in the T2T segment.