Home / Markets / Stock Markets /  Stock market update: New T+1 settlement rule kicks in from this week. What it means for investors

The new T+1 Stock Settlement Rules will be implemented in a phased manner starting from this week on Friday, 25th February, 2022. The settlement cycle in stock markets refers to the time between the trade date, when an order is executed in the market, and the settlement date, when participants exchange cash for securities or shares.

Settlement marks the official transfer of securities to the buyer's account and cash to the seller's account. Currently, Indian stock exchanges follow T+2 days settlement i.e. settlement of funds & securities happens on two business days after the day the order executes, or T+2 (trade date plus two days). For example, trade executed on Monday, would typically settle on Wednesday.

Earlier in 2003, the regulator had shortened the settlement cycle from T+3 rolling settlement to T+2. Now regulator plans to reduce it further to T+1 settlement cycle for completion of share transactions to enhance market liquidity.T+1 should be a good move making settlement cycle shorter reducing margin requirement for clients with margin blocked for just 1 day, thereby increasing retail participation & investments coming to equity markets.

“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 a 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.

The stock exchanges have informed of implementing T+1 settlement cycle in a phased manner, starting with bottom 100 stocks in terms of market value, from February 25, 2022. 

"Thereafter, 500 more stocks will be added based on the same market value criteria from the last Friday of March 2022 and every following month. Those transacting in stocks falling under T+1 settlement cycle will get their money or shares delivered in less than 24 hours. T+1 settlement system will shorten the settlement cycle by a day reducing risk of pay-in/pay-out defaults, lower margin requirements and give investors more liquidity with availability of funds and securities," said Anupam Agal, Head Operations & Legal, Motilal Oswal Financial Services.


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