India becomes the second country after China to move into the T+1 (trade + 1) settlement cycle from 27 January 2023. SEBI has implemented this new cycle to bring operational efficiency, quicker fund remittances, share delivery, and easy trading for stock market investors. This article discusses what is T+1 settlement in detail.
What Is T 1 Settlement?
T+1 settlement cycle means any trade-related settlements must be completed within one day from the day of the transaction. For instance, if you have brought a share on Tuesday, it will be credited to your Demat account by Wednesday. This is different from the previous settlement cycle of T2 where a settlement took a maximum of 2 days to complete from the day of the transaction.
Indian stock market used to have a weekly settlement system till 2001. The market then moved to another settlement cycle of T+3. It further moved to the T+2 cycle in 2003.
What Are The Benefits Of The T+1 Cycle?
The T+1 settlement cycle aims to make the stock market more efficient and faster at trading. This system has already minimised the period of cycle from 2 days to 1 day, which helps both buyers and sellers save time and increase the trading volume.
This will also help traders reduce the overall capital requirement as the margin will be released on T+1 day, and they will receive the fund within 24 hours of selling the shares. This will make rolling funds and stocks easier in the market.
Why Are Foreigners Against The New T+1 Settlement?
Foreign investors opposed the new T+1 settlement for various reasons, but the main factor among them was the difference in time zones. The other reasons for opposing SEBI’s proposal are the information flow system and foreign exchange issues.
According to foreign investors, they might find it difficult to hedge their net exposure in India at the end of a day under T+1. They have submitted their concerns in writing to the Finance Ministry and SEBI. In 2020, SEBI postponed this idea due to the same reason.
Will The New T+1 Settlement Cycle Make The Market Safer?
SEBI has stated that there are multiple ways in which this new cycle will help the Indian stock market and one of them is safety. In a report published by the regulator, it has stated that T+1 not only saves time but also increases capital flow and decreases the capital required to collateralise the risk.
The reason behind this logic is solid. A reduced settlement cycle will reduce the number of unsettled trades at any time. This shortens the number of unsettled exposure to Clearing Corporation by 50%. The shorter the settlement cycles, the smaller the timeframe for a counterparty bankruptcy to affect the trade cycle.
T+1 Settlement Stocks List
As the Indian market geared to move into the new settlement cycle, many stocks were moved to the new settlement on 25 February 2022. Here is a list of stocks that made it to the new system in the first batch:
- Tirth Plastic Limited
- Rita Finance And Leasing Limited
- Govind Poy Oxygen Limited
- Steel Strips Limited
- Shikhar Leasing & Trading Ltd.
- Tirupati Fin-Lease Limited
- Datasoft Application Software
- Jyot International Marketing Ltd.
- Transoceanic Properties Ltd.
- Satyam Silk Mills Limited
- Ridhi Synthetics Ltd.
- Hindustan Housing Co. Limited
- Mather & Platt Fire Systems Ltd.
- Swastik Safe Deposit & Investm
- Sunrise Agro Products Limited
- Mirch Technologies (India) Ltd
- Terraform Magnum Limited
- Unijolly Investments Co.Ltd.
- Vardhan Capital & Finance Limi
- Sagar Soya Products Limited
- Alirox Abrasives Limited
- Vinayak Vanijya Ltd.
- Sree Maruthi Marine Ind Limited
- Healthy Investments Ltd.
- Buckingham Industries Limited
- Mayurbhanj Trd & Agen Ltd
- Supra Industrial Res Limited
- Morning Glory Lsng Fin Ltd.
- Kusam Electrical Industries Ltd.
- Western Ministil Limited
- Alstone Textiles (India) Ltd
- Gulmohar Invt & Hold Limited
- Noble Polymers Limited
- Siyaram Poddar Finance & Trading
- Super Domestic Machines Limited
- Balgopal Holding & Traders Ltd
- Efficient Indus Fin Limited
- Suryaa Knitwear Limited
- Mercury Trade Links Limited
- Saumya Capital Limited
- Sfl International Limited
- Sunrise Industrial Traders Ltd
- Vidarbha Iron & Steel Corporate
- Anshuni Commercials Limited
- Regency World Consul. Ltd
- Varun Mercantile Limited
- Shivkamal Impex Limited
- Pervasive Commodities Limited
- Shree Krishna Jute Prod Ltd.
- India Radiators Ltd.
- Shyamal Holdings & Trading Limited
- Champion Commercial Co L
- Coromandel Agro Products & Oil
- Vardhaman Laboratories Limited
- Frick India Limited
- Tej Infoways Limited
- Bajaj Global Ltd.
- Shantnu Invst (India) Ltd
- Nilkanth Engineering Limited
- Softrak Venture Investment Ltd
- Oxemberg Apparels Ltd.
- Pb Global Limited
- Ph Trading Limited
- Peoples Investments Ltd.
- G-Tech Info-Training Ltd.
- Rose Merc. Ltd.
- Sharpline Broadcast Limited
- Magnanimous Trade & Finance Ltd
- Indo Gulf Industries Limited
- Ttl Enterprises Limited
- Parab Infra Limited
- Procal Electronics India Ltd.
- G.D. Trading & Agencies Limited
- Mrugesh Trading Ltd.
- Spa Capital Services Limited
- Sobhagya Merchantile Limited
- Infraquest International Ltd.
- Leena Consultancy Limited
- Parmeshwari Silk Mills Limited
- M Lakhamsi Industries Limited
- Shinewell Leasing Limited
- Antariksh Industries Limited
- Real Growth Commercial Enterprise
- Chemiesynth (Vapi) Limited
- Winmore Silk Mills Ltd.
- Purity Flex Pack Ltd.
- Sanchana Trading & Finance Ltd
- Raideep Industries Limited
- Budge Budge Company Limited
- Citizen Yarns Limited
- Arco Leasing Ltd.
- Jeet Machine Tools Ltd.
- Viksit Engineering Ltd.
- Abhijit Trading Co. Limited
- Vishvakirti Investment Ltd.
- Laser Diamonds Ltd.
- Hem Holdings & Trading Limited
- Sriyansh Steel Ltd.
- Springform Technology Limited
- Cromakem Limited
- Sriyansh Steel Ltd.
- Meenakshi Steel Industries Limited
- Ardi Investment & Trading Ltd.
A total of 5300 stocks were expected to be shifted to the T+1 cycle by 27 January 2023.
Conclusion
T+1 settlement brings many advantages, such as higher liquidity and more trades. But it also has its drawbacks. Unexpected downtimes in banks, especially large ones, can challenge the system. Many international markets, such as the USA, UK, and Japan, still follow the T+2 settlement system.
In the realm of financial markets and trading, the shift to a T+1 settlement cycle is a significant move, and I'm well-versed in the intricacies of this transition. Allow me to delve into the key concepts mentioned in the article and shed light on the evidence that supports the information provided.
T+1 Settlement Cycle: The T+1 settlement cycle, as outlined in the article, signifies that trade-related settlements must be completed within one day from the day of the transaction. This departure from the previous T+2 cycle demonstrates a commitment to operational efficiency and expeditious fund remittances. The evidence for this lies in the announcement by SEBI (Securities and Exchange Board of India), the regulatory authority, on January 27, 2023, making India the second country after China to adopt this cycle.
Evolution of Settlement Cycles in India: The historical context is essential to understanding the significance of T+1. The article mentions that the Indian stock market had a weekly settlement system until 2001, later transitioning to T+3 and eventually to T+2 in 2003. This evolution showcases the adaptive nature of the market to enhance efficiency and align with global standards.
Benefits of T+1 Cycle: The benefits of the T+1 settlement cycle are multifaceted, aiming to make the stock market more efficient and faster. The reduction of the settlement cycle from 2 days to 1 day saves time for both buyers and sellers, ultimately increasing trading volume. The article provides evidence of this by emphasizing the release of margin on T+1 day and the receipt of funds within 24 hours of selling shares, reducing overall capital requirements.
Foreign Investors' Opposition: Foreign investors' concerns, particularly related to time zone differences, information flow, and foreign exchange issues, are highlighted. The article mentions that these concerns were communicated to the Finance Ministry and SEBI, resulting in the postponement of the T+1 settlement idea in 2020. This attests to the challenges associated with the global adoption of such a system.
Safety and SEBI's Perspective: SEBI asserts that the T+1 settlement cycle enhances safety by reducing the number of unsettled trades at any given time. A shorter settlement cycle minimizes exposure to Clearing Corporation, decreasing the impact of counterparty bankruptcy on the trade cycle. The evidence for this is found in SEBI's published report, emphasizing the regulatory perspective on safety and risk mitigation.
T+1 Settlement Stocks List: The article provides a list of stocks that moved to the new T+1 settlement cycle on February 25, 2022. This list includes a diverse range of companies, indicating the widespread implementation of the new cycle across sectors.
Conclusion and Drawbacks: The conclusion highlights the advantages of T+1 settlement, such as higher liquidity and increased trade, while acknowledging potential drawbacks. The mention of unexpected downtimes in banks and the adherence of international markets like the USA, UK, and Japan to the T+2 system underscores the complexities and challenges associated with this shift.
In summary, the T+1 settlement cycle is a transformative step for the Indian stock market, driven by a commitment to efficiency, reduced settlement periods, and regulatory efforts to enhance safety and liquidity.
