Hyderabad: Since stock trading first began back in 1855 in the country, a lot has changed. With the advent of technology, people can now easily trade stocks online from the comfort of their homes or offices. The Securities & Exchange Board of India (SEBI), the market regulator, has been working to smoothen the settlement cycle amidst the rising interest of retail investors in the stock markets. India has seen the number of demat accounts grow from 4 crore in 2020 to 14.39 crore in January 2024.
In January 2023, India shifted to a T+1 settlement cycle for all the top-listed securities. The National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) started implementing the plan in February 2022. In the T+1 system, trades are settled within 24 hours. From tomorrow, the regulator will introduce T+0 trade settlement on an optional basis -beta version now- for 25 selected stocks.
What is T+ 0 trade settlement?
Indian stock market currently operates on a T+1 settlement cycle. Under the new regime, trades made till 1:30 pm will be settled on the same day. This means that the transaction will be reflected immediately in the accounts of investors.
The T+0 settlement cycle will be executed in two phases. In phase 1, trades taken till 1:30 pm will be considered for the settlement which needs to be completed by 4:30 pm.
The second phase will see trading time extend till 3:30 pm and the first phase will be discontinued. Top 500 stocks by market capitalisation will be eligible for the new settlement cycle which will transition in three tranches of 200, 200 and 100.
The chosen 25
A day before the much-awaited T+0 settlement cycle takes off, BSE has released the list of 25 stocks that will be available for trading and settlement in the T+0 mechanism.
According to a circular issued by BSE, the 25 companies whose shares would be available for trading in the same day settlement mechanism would include Ambuja Cements, Ashok Leyland, Bajaj Auto, Bank of Baroda, Bharat Petroleum Corporation, Birlasoft, Cipla, Coforge, Divis Laboratories, Hindalco Industries, Indian Hotels Company, JSW Steel, LIC Housing Finance, LTIMindtree, MRF, Nestle India, NMDC, Oil And Natural Gas Corporation, Petronet LNG, Samvardhana Motherson International, State Bank Of India, Tata Communications, Trent, Union Bank Of India and Vedanta.
How the retail investors benefit:
“Moving to T+0 will improve liquidity since cash is made available on the same day of trade. This will enhance market efficiency." V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
Let’s say you buy 100 shares of a stock at 10:00 AM today. In a T+0 cycle, you would immediately become the owner of those 100 shares, and the seller would immediately receive the payment for the shares. This would contrast to a traditional T+1 settlement cycle, where you would not become the owner of the shares until the next business day after the trade date, and the seller would not receive the payment until then.
The T+0 settlement will help the retail investor, who is in immediate need of cash, instantly have liquidity.
T+0 settlement facilitates efficient liquidity management by enabling investors to access funds and securities immediately after trade execution. This allows them to reinvest proceeds or deploy capital into new opportunities without waiting for settlement cycles, maximizing portfolio liquidity and agility.
T+0 settlement will also help in reducing counterparty risk, as trades would settle on the same day that they are executed. This would mean that there would be less time for a counterparty to default before the trade settles and bring in more transparency in the country’s stock market.
Counterparty risk, also known as default risk, is the chance that a party involved in the contract will fail to fulfil obligations or make payments in a monetary arrangement or purchase arrangement.
The shorter the settlement cycle, the lower the exposure and probability of such risk. The instant settlement will also reduce operational risk arising from errors or failures in processing or settling trades.
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