SEBI to offer T+1 settlement cycle from 2022 to exchanges | Basan Online

The Indian stock market will soon be able to transfer stocks and funds to customer accounts within 24 hours. SEBI will initiate the settlement cycle of stock trading T + 1 (plus one today) from January 1, 2022.

Now, on a purchase transaction, it takes 48 hours or more to transfer shares to the customer's account. This means the seller will not be able to request payment for at least two days as India follows the T + 2 settlement cycle. SEBI stated that after at least one month of announcing the change to all stakeholders, including the public, and posting it on its website, the exchange may decide to provide a T + 1 settlement cycle for each stock.

The SEBI statement states: “Exchanges, clearinghouses, and custodians are instructed to take the necessary measures to put in place appropriate systems and procedures to smoothly introduce the T + 1 settlement cycle on an optional basis, including reviewing the relevant Rules and regulations.” Utilize your knowledge of the best mutual funds platforms for investing in mutual funds to be benefitted from the SEBI T+1 settlement cycle. Be ready with your free Demat accounts to invest and explore more about T+1 settlement in this blog.

What does “settlement cycle” mean?

Trading in the stock market is the function of buying and selling stocks and derivatives. A trade is considered successful when each buy/sell order is executed and associated with a sell / buy order.

It was finally settled when the stock was credited to your Demat account after you bought it. In the case of a sale transaction, the transaction is settled after the debit of the securities from your Demat account.

So far, it usually takes 2 days for the stock to be credited to your Demat account after purchasing the stock. Likewise, in the case of a sell transaction, it takes 2 days for the stock to leave your Demat account.

What's changing for the public?

According to the latest SEBI announcement (September 7, 2021), the exchange can flexibly adapt the T + 1 or T + 2 settlement cycle. Therefore, after notifying all stakeholders including the public at least one month in advance of approximately the same time, the exchange may choose to provide a T+1 settlement cycle for each note. The notice also stipulates that the stock exchange can switch back T+2 trading days under the premise of an announcement to market participants one month in advance. If the exchange chooses the T+1 settlement period, it must maintain it for at least six months before switching to the T+2 settlement date, and vice versa.

SEBI T + 1 securities settlement option is suitable for all types of transactions on the exchange. For example, when securities of T + 1 are settled on an exchange, regular market transactions and block trades follow the T + 1 settlement cycle.

How does this affect you?

A shorter settlement cycle means faster transaction completion. This also means that you can currently withdraw money after completing the transaction according to T + 2. During the T + 1 accounting period, you can withdraw funds one day earlier.

SEBI retained the freedom of choice for this provision. The exchange can choose to keep the settlement cycle as T+1 or T+2. If one exchange chooses T+1 for stock and another chooses T+2 for the same stock, we need to pay attention to the operations between the two exchanges.

Stock traders said that a shorter settlement cycle would be very convenient because it can speed up capital turnover.

Issues associated with T+1 settlement

Before implementing the T + 1 billing system, some operational and technical challenges need to be resolved. It found that the current infrastructure available to market infrastructure agencies cannot effectively meet the requirements for the timely issuance of payments and payments, as well as the timely delivery of documents. In addition to operational and technical challenges, the introduction of the new system will increase the working capital requirements for brokers and extend the working hours of banks and deposit participants