The T+1 Stock Settlement Rules will be implemented in stages beginning today, i.e., Friday, February 25, 2022. 

In stock markets, the settlement cycle refers to the period of time between the trading date, when an order is executed in the market, and the settlement date when participants exchange cash for securities or shares. 

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When the T+1 system is implemented, trade-related settlements must be cleared within one day after the transaction. Trades are now settled in two working days (T+2).

“The settlement cycle will be implemented in a phased manner and will apply only to the bottom 100 companies starting February 25, and from March 2022 onwards, the next bottom 500 stocks will be available for introduction to T+1 settlement,” the exchanges had stated. 

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The Securities and Exchange Board of India (SEBI) approved the T+1 cycle for exchanges in September of last year. In April 2003, the market regulator reduced the settlement length from T+3 to T+2.

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“All listed stocks, across stock exchanges, shall be ranked in descending order based on daily market capitalization averaged for the month of October 2021. Where stock is listed on multiple exchanges, the market capitalization shall be calculated based on the price of the stock at the stock exchange with highest trading volume during the above-mentioned period,” stock exchanges BSE and NSE had said in a circular last year.

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“Settlement marks the official transfer of securities to the buyer’s account and cash to the seller’s account. Indian stock exchanges follow T+2  settlement. For example, a trade executed on Monday would typically settle on Wednesday,” said Anupam Agal, Head Operations and Legal, Motilal Oswal Financial Services.

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“T+1 should be a good move making the settlement cycle shorter, reducing margin requirement for clients with margin blocked for just 1 day, thereby increasing retail participation and investments coming to equity markets,” he added.

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Mr Agal also said the T+1 settlement system will reduce the risk of pay-in/pay-out defaults, lower margin requirements and give investors more liquidity with the availability of funds and securities.