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MUMBAI : Top stock exchanges on Monday said they will introduce the T+1 settlement cycle for trading equity shares and other instruments in a phased manner, starting 25 February.

A joint statement issued by the National Stock Exchange of India Ltd and BSE Ltd confirmed a 3 November Mint report that said the Securities and Exchange Board of India (Sebi) has agreed to recalibrate its trade settlement circular and may implement T+1 in a phased manner.

The change will make India one of the first countries to move to a complete T+1 cycle by 2022. The US also plans to shift to a one-day settlement cycle over two years. India’s phased implementation comes after the proposed switch to T+1 unsettled some market participants, especially foreign portfolio investors.

“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," the statement from the exchanges said.

Based on the ranking as per the above calculations, the bottom 100 stocks shall be available for the introduction of T+1 settlement from 25 February, it added.

Thereafter, from March, on the last Friday (trade day) of every month, the next bottom 500 stocks from the list of stocks shall be available for introduction to T+1 settlement.

“Any new stock getting listed after October 2021 shall be added to the list based on the market capitalization calculated on the basis of the average trading price of 30 days after commencement of trading. In case, based on market capitalization, if the stock falls in the category (in terms of market capitalization) of stocks already under T+1 settlement, then that stock also becomes eligible for T+1 settlement and will be introduced in the T+1 settlement cycle on the last Friday (trade day) of next month," the exchanges said.

Securities such as preference shares, warrants, right entitlements, partly paid shares and securities issued under differential voting rights (DVR) will move to T+1 settlement along with the stock of the parent company.

All other securities such as closed-ended mutual funds, debt securities, including corporate bonds, government securities, REITs and InvITs, will be transitioned to the T+1 settlement cycle, along with the last scheduled batch of securities, the exchanges said.

Given the phased implementation approach adopted by the stock exchanges, some market observers do not foresee a disruption in the markets in the near term.

“While all the current Nifty 50 constituents will only move to T+1 cycle in the last batch (w.e.f 27 January 2023). Thus the T+1 settlement will be a gradual process (mainly lower to higher market capitalization), and because of the adoption of the new settlement cycle, we expect no near term impact," said Edelweiss Alternative Research in a note.

“Going by our understanding of methodology, the key stocks (NSE and BSE 500 constituents) will be part of the T+1 settlement cycle only after the end of November 2022. As per the calculations, the first constituents from NSE or BSE 500 to move from T+2 (currently) to T+1 settlement cycle will be from Nov 25, 2022," it added.

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