WHAT IS THE T+0 TRADING SETTLEMENT CYCLE?

India will be only the second country after China to be operating on a short settlement cycle. Currently, trade settlement in most other major economies is completed within two days.

What is the T+0 Trading Settlement Cycle?

1. Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) have recently introduced T+0 trading settlement cycle in the equity segment on an optional basis.
2. This new settlement cycle differs from the existing T+1 settlement cycle by allowing same-day settlement of trades.

Understanding the T+0 Trading Settlement Cycle

1. Under the T+0 trading settlement cycle, also known as same-day settlement, clearing and settlement of funds and securities takes place on the same day as the trade.
2. This process enables investors to receive funds credited to their accounts on the same day of transaction and buyers to receive shares in their demat accounts.

Benefits of the T+0 Trade Settlement

The T+0 trade cycle offers several advantages to investors and the securities market ecosystem:

1. Cost and time efficiency: The shortened settlement cycle reduces the time and costs associated with settling trades.
2. Transparency in charges: Investors have better visibility of the charges associated with their trades.
3. Stronger risk management: The T+0 cycle enhances risk management at clearing corporations and the overall securities market ecosystem.
4. Flexibility for investors: Investors experience faster pay-out of funds for sellers and faster pay-out of securities for buyers, providing better control over their investments.
5. Enhanced market efficiency: Shorter settlement cycles free up capital in the securities market, thereby improving overall market efficiency.

Eligible Securities for Trading in the T+0 Settlement Cycle

1. Stock exchanges have designated 25 stocks that are allowed to trade on the T+0 settlement cycle.
2. These include major companies like Ambuja Cements Limited, Bajaj Auto Limited, Bank of Baroda, Cipla Limited, Divi's Laboratories, Hindalco Industries, JSW Steel Limited, LIC Housing Finance, Nestle India and Vedanta Limited.

Eligibility for Participation in the T+0 Settlement Cycle

All investors can participate in the T+0 trade settlement cycle if they meet the timelines, process, and risk requirements prescribed by the Market Infrastructure Institutions (MIIs).

Market Infrastructure Institutions: (MIIs) are financial institutions that provide the infrastructure for the daily operations of the stock market. These include stock exchanges, clearing corporations and depositories. MIIs are also known as first-line regulators as they are involved in almost all transactions taking place in the securities market.

What’s the T+1 settlement plan?

1. The T+1 settlement cycle means that trade-related settlements must be done within a day, or 24 hours, of the completion of a transaction.
2. For example, under T+1, if a customer bought shares on Wednesday, they would be credited to the customer’s demat account on Thursday.
3. This is different from T+2, where they will be settled on Friday.
4. As many as 256 large-cap and top mid-cap stocks, including Nifty and Sensex stocks, will come under the T+1 settlement from Friday.

What was the earlier settlement system?

1. Until 2001, stock markets had a weekly settlement system.
2. The markets then moved to a rolling settlement system of T+3, and then to T+2 in 2003.
3. In 2020, Sebi deferred the plan to halve the trade settlement cycle to one day (T+1) following opposition from foreign investors.

Trade Timings and Price Band

For the optional T+0 settlement cycle, there will be a continuous trading session from 09:15 AM to 1:30 PM. The settlement of funds and securities will be completed on the same day by 4:30 PM.

Future Plans

The Securities and Exchange Board of India (SEBI) has plans to introduce optional instant settlement at a later stage, further shortening the settlement cycle and improving market efficiency.

The Securities and Exchange Board of India: (SEBI) is a statutory body that regulates the securities market and protects investor interests. It was established by the Government of India in 1992 and has its headquarters in Mumbai. SEBI's regulatory authority extends to various segments of the financial market, including stock exchanges, mutual funds, portfolio managers, investment advisers, and other intermediaries. SEBI's functions include: Protecting investor interests, Promoting the development of the securities market, Regulating the securities market, Conducting investigations and enforcement action, and Passing rulings and orders.

Must Check: Best IAS Coaching In Delhi