From Today, Indian stock markets will use a shorter settlement cycle or T+1 regime for the final list of large stocks, which will help reduce margin requirements for clients and boost retail investment.
T+1 (trade plus one) means that market trade-related settlements must be cleared within one day of the transactions. Previously, trades on Indian stock exchanges were settled two working days after the transaction (T+2).
The stock exchanges, NSE and BSE, announced in November 2021 in a joint statement that they will phase in the T+1 settlement cycle beginning February 25, 2022, with the bottom 100 stocks in terms of market value.
Following that, 500 stocks were added based on the same market value criteria on the last Friday of March, and so on each month thereafter.
All trades in the equity cash segment (including futures and options on stocks) will be conducted on a T+1 basis beginning January 27.
According to information available on the Zerodha website, the final batch of securities, which includes stocks, ETFs, debt instruments, real estate investment trusts (REITs), and infrastructure investment trusts (InvITs), will move to the T+1 settlement cycle on Friday.
Sebi, the markets regulator, has chosen to shorten the settlement cycle before. 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.
Market experts believe that the T+1 settlement system will allow the money cycle to move more quickly without the need for an extra day.
According to Upside AI co-founder Atanuu Agarrwal, most markets around the world operate on a T+2 basis. T+1 settlement puts India ahead of even the United States, which is the preeminent destination for capital markets.
"This is a fantastic milestone and another feather in the cap of India's financial ecosystem. These changes will definitely bolster overall liquidity due to faster rollover and are a big positive for all stakeholders i.e., issuers, investors, and intermediaries," he added.
"As Indian markets embark on T+1 for the final list of large stocks from 27th January, the question is if the systems are robust enough. In fact, the T+1 system was enabled by solid strides in technology.
"Rapid bank transfers, the rise of UPI as a payment mechanism, superior bandwidth and the predominance of online and app-based trading have helped this cause," Gagan Singla, MD at blinkX, which is an initiative by JM Financial, said.
He added that the transition from physical to digital in broking communication, dissemination, execution, and risk management has largely accelerated the transition to T+1.