Now settlement in equity shares will be done in 1 day. How does T+1 help?

As per NSE, all securities from January 27, 2023, ie common share including SME shares, exchange-traded funds (ETFs), real estate investment trusts (REITs), infrastructure investment trusts (InvITs), sovereign gold bondGovernment bonds and corporate bonds traded in the equity segment will now be settled on ‘T+1’ basis only.

Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said, “The Indian capital market has been at the forefront of modernization and best practices for many years, becoming a role model for emerging markets. Now with its small a settlement T+1 cycle, which is not possessed by any other country except China, Indian stock market is becoming a trend setter for developed countries as well.”

The ‘T+1′ settlement cycle is not a new phenomenon. Indian markets’ journey to shorten the settlement cycle began on September 7, 2021, when market regulator SEBI allowed stock exchanges to start ‘T+1’ from January 1, 2022.

All market infrastructure institutions such as stock exchanges, clearing corporations and depositories jointly finalized the roadmap for implementation of ‘T+1’ settlement cycle and executed it in a phased manner.

NSE disclosed that the first batch of securities were converted to ‘T+1’ cycle on February 25 last year, and thereafter, every month a batch of around 500 securities were converted to this settlement option.

NSE informed that they saw transactions by more than 2.7 crore investors (unique PAN) in the equity segment in FY2022, and the number has already crossed 2.3 crore in the financial year as well.

In terms of value, a healthy mix of investor participation has been registered— individual investors account for 36%, followed by proprietary desks at 27%, foreign institutional investors at 15% and domestic institutional investors at around 15%.

Vijayakumar said, “Since the transition to T+1 is in a phased manner, the transition will be smooth. The faster liquidity and reduced probability of default under T+1 will improve market efficiency.”

Ashish Kumar Chauhan, MD & CEO, NSE believes that shortening the settlement cycle to ‘T+1’ will bring significant capital efficiency for investors and improve risk mitigation for the entire industry.

Notably, globally, most of the stock exchanges in developed as well as emerging markets follow the ‘T+2’ settlement cycle.

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