T+1 Settlement Cycle in India

The Securities and Exchange Board of India (SEBI) has chosen to shorten the settlement cycle for the second time. Earlier in 2002, the capital markets regulator reduced the number of days in the settlement cycle from T+5 to T+3 days, and then to T+2 days in 2003.

  • What is the meaning of T + Day Settlement - T+1, T+2, T+3?


When you buy or trade a share, bond, or other security, there are two important aspects to remember: the transaction date, abbreviated as T, and the settlement date. As a result, the abbreviations T+1, T+2, and T+3 refer to the settlement dates of security transactions that take place one day, two days, and three days after the transaction date, respectively.


The transaction date, as the name implies, represents the precise date on which the transaction was completed. If you buy 70 shares today, for example, todayʹs date becomes the transaction date, which is T. This date does not change because it is always the date of the transaction.


  • What is the purpose of a T+1 settlement cycle?


The T+1 settlement cycle means that trade-related settlements will take place within 24 hours of a transactionʹs completion. For example, if a customer purchases shares on Tuesday, the shares will be credited to the customerʹs demat account on Wednesday under the T+1 settlement cycle. This is in contrast to T+2, where they would be settled on Friday.


After China, India is the second largest stock market to implement the T+1 settlement cycle. Most international markets, including the United States, Europe, and others, are still in the T+2 settlement cycle. This means that when you buy a stock or any security it will appear in your demat account after two days. Also, when you sell it, it will take two days for the transaction to be reflected in your system.


Hereʹs what the press release statement from the exchanges said. It states that beginning February 25th, 2022, 100 stocks (beginning with the smallest market cap) will transition to the T+1 settlement cycle on both exchanges at the same time. Starting in March 2022, the bottom 500 stocks will be moved to the T+1 settlement cycle.


According to market experts, a shorter trade cycle benefits investors and fosters trust. From a liquidity standpoint, the shorter trade settlement cycle bodes well for Indian equity markets. Also, it will improve operational efficiency, fund remittances, stock delivery, and ease of use for stock market investors.

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