Indian Stock Market Gears For Complete Shift To T+1 Settlement Cycle Tomorrow: What It's All About

The Indian stock exchanges, on Friday will completely move to the shorter settlement cycle of T+1 from the current T+2 cycle. Here's a deep dive into the shift.

What Is The T+1 Cycle?

After 2003, the Indian stock exchanges followed the T+2 cycle, which meant that any transfer of shares from one Demat account to another took two days. For instance, if you bought a share on Monday, it would get credited to your account by Wednesday. With the new T+1 cycle, the transfer of stock will happen within 24 hours of the trade.

Why Did We Need A New Settlement Cycle?

India's capital markets regulator SEBI said that the shift was made as it received several requests for a short settlement cycle from various stakeholders. A shorter cycle is expected to bring more liquidity to the investors and lessen the risk of default.

The Implementation

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As SEBI allowed the exchange to introduce the new cycle from Jan. 1, 2022, both the NSE and BSE decided to go with a phased rollout. The first phase saw the bottom 100 stocks by market capitalisation being moved to the  T+1 settlement, from Feb. 25, 2022. The last phase will see the new settlement cycle being implemented for the top 256 stocks on Jan. 27, 2023.

The Apprehensions

Domestic brokers and foreign portfolio investors (FPIs) expressed concerns after the shift was announced. FPIs were worried about the shift due to differing time zones and initially complained of not being consulted by SEBI. The FPIs also put forth the huge cost and time required to make the shift.

Domestic brokers also reiterated the concerns regarding the cost and time required and argued that the Indian banking system was not equipped. These woes seem to have been soothed to some extent by the phased rollout. SEBI also believes that the growth of UPI will complement the shorter cycle.

With the completion of the last phase, India will become the second largest market behind China to implement the T+1 cycle.

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Posted In: Bombay Stock Exchange SENSEXDay TradersFinancial RegulationsRetail TradingSEBI