In a circular dated September 7, 2021, the Securities and Exchange Board of India (SEBI) has provided the stock exchanges (NSE and BSE) the flexibility to offer T+1 or T+2 settlement cycles for the delivery of stocks. This is expected to be enforced from February 25, 2022 onwards starting with bottom 100 stocks by market cap.
This will not impact intraday traders.
Read on to find out more about what is t+1 settlement and how will this impact you.
Trading in the stock market is a function of buying and selling equities and derivative instruments. A transaction is said to be successful when every buy/sell order is executed and matched with a sell/buy order. It is finally settled when the stocks are credited to your demat account after you buy that stock. In the case of a sell transaction, the transaction is settled once the stock is debited from your demat account.
Until now, it used to take 2 days for the stock to be credited to your demat account after you bought the stock. Similarly, in the case of sell transactions, it took 2 days for the stock to actually leave your demat account.
As per the recent SEBI circular (September 7, 2021), the stock exchanges are offered the flexibility to either have a T+1 or T+2 settlement cycle. So, stock exchanges may choose to offer a T+1 settlement cycle on any of the scrips after providing advance notice of at least one month about the same to all the stakeholders including the public. Furthermore, the circular also states that the stock exchanges can switch back to T+2 trading days, provided one-month advance notice is given to the market participants. Also, if the stock exchange chooses to adopt the T+1 settlement cycle it has to mandatorily continue with the same for a minimum period of six months before switching to T+2 days of settlement and vice-versa.
The SEBI T+1 settlement option for security shall be applicable to all types of transactions in the stock exchanges. For instance, if security is placed under T+1 settlement on a stock exchange, the regular market deals, as well as block deals, will follow the T+1 settlement cycle.
The optional settlement cycle is expected to come into force by January 1, 2022.
A shorter settlement cycle means quicker completion of trades. It also means that currently, you can withdraw money after T+2 once the trade is settled. In a T+1 settlement cycle, you user can withdraw money a day earlier.
However, SEBI has kept this regulation optional. Exchanges may choose to keep the settlement cycle as T+1 or T+2. If one exchange opts for T+1 for one stock and the other opts for T+2 for the same stock, we will have to watch out for operations between the two exchanges.