Stock Market: SEBI Allows T+1 Settlement Cycle On Optional Basis From January 1

Stock markets will have the option to transfer shares and money into client accounts in less than 24 hours after T+1 settlement cycle for equity transactions gets implemented from January 1, 2022.

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New Delhi: After almost a year of consideration, capital markets regulator Sebi has finally introduced the T+1 settlement cycle for completion of share transactions on an optional basis in a move to enhance market liquidity.

At present, trades on the Indian bourses are settled in two working days after the transaction is done (T+2). It meant a seller cannot demand payment for at least two days because of the T+2 settlement cycle.

What does it mean?

It means that stock markets will have the option to transfer shares and money into client accounts in less than 24 hours after the T+1 (today plus one) settlement cycle for equity transactions gets implemented from January 1, 2022.

A stock exchange may choose to offer a T+1 settlement cycle on any scrip, after giving a notice of at least one month on the change to all stakeholders, including the public, and also disseminating it on its website.

“Sebi has been receiving requests from various stakeholders to further shorten the settlement cycle. Based on discussions with Market Infrastructure Institutions (stock exchanges, clearing corporations, and depositories), it has been decided to provide flexibility to stock exchanges to offer either T+1 or T+2 settlement cycle,” the market regulator said, according to Hindu report.

“Stock exchanges, clearing corporations, and depositories are directed to take necessary steps to put in place proper systems and procedures for a smooth introduction of the T+1 settlement cycle on an optional basis, including necessary amendments to the relevant bye-laws, rules, and regulations,” added Sebi.

There were demands from discount brokers and online new-age tech trading firms for a quicker settlement cycle since the majority of online stock brokers rely on a few staff and heavily depend on technology that enables contactless trading and settlement. Most trading, post-trading query, and settlement of transactions by such brokers are executed through mobile applications where clients punch their own trades and transfer money to various accounts online.