India's Blue-Chip Stocks To Shift To World's Fastest Settlement Cycle T+1 This Week

Starting January 27, stocks from RIL to TCS and Adani Enterprises — comprising 80 per cent of equity market — will be settled on a ‘trade-plus-one-day’ timeline versus the earlier two-day process

T+1 was introduced for 100 stocks (with the lowest market cap) on February 25, the next 500 from March, and since then 500 stocks each every month.

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Shares of about 200 of India’s biggest listed companies are set to move to a faster settlement cycle, reported by news agency Bloomberg. This move, according to the report, will make India the second market after China to switch to the so-called T+1 system.

Starting January 27, stocks from Reliance Industries to Tata Consultancy Services and Adani Enterprises— together comprising 80 per cent of the country’s equity market — will be settled on a ‘trade-plus-one-day’ timeline versus the earlier two-day process.

Prashant Vagal, executive vice-president at National Securities Depository, said that the yearlong changeover gave market intermediaries time to prepare.

Bloomberg said that this last step in the transition will be closely watched by foreign investors who have expressed concern over time zone differences and consequent trade-matching failures. Supporters of the move say faster settlement reduces counterparty risk and trading costs.

What is T+1 settlement?

T+1 was introduced for 100 stocks (with the lowest market cap) on February 25, the next 500 from March, and since then 500 stocks each every month. The bottom stocks with fewer traders were chosen first so that they could be adopted quickly. From January, even F&O settlement will happen in T+1 cycle. This will allow buyers and sellers to get shares and money, respectively, in their accounts one working day after they trade on the exchanges.

The shift will boost operational efficiency as rolling of funds and stocks will be faster, said Suresh Shukla, joint president at Kotak Securities Ltd.

The US Securities And Exchange Commission (SEC) has sought stakeholder views on moving to a one-day settlement cycle and an industry body in Europe is discussing the same.

“Shortening the settlement cycle should reduce the amount of margin that counterparties would need to post with clearinghouses,” SEC Chairperosn Gary Gensler said. "As the old saying goes, time is money," he noted.