The changeover to the shorter cycle will be in a phased manner, starting with stocks with lowest market capitalisation moving in before those with higher market value, according to a joint release from the NSE, the BSE and other market intermediaries.
Currently, the market follows a T+2 system for all stocks in the cash segment. Under the T+2 system, a buyer gets the shares that he bought in his demat account on the third working day, including the day of trade. Similarly, a seller receives the money for selling his shares on the third working day.
Under the T+1 system, stocks and money will be credited by next evening which will give investors the option to trade more by rolling the funds and shares faster.
The move to a T+1 system will be made nearly 19 years after the Indian market had moved to the T+2 settlement cycle from T+3 cycle.
Currently, most markets around the world follow the T+2 system, but technological advancements are pushing bourses to shorten the settlement cycles. On September 7 this year, despite strong resistance from some sections of market players, Sebi had decided to move to the T+1 cycle.
The rule that decides which stocks will move to the T+1 cycle, and in what order, will first rank all the listed stocks according to their market capitalisation. The last 100 in this list will move to T+1 cycle first on February 25, 2022. Thereafter, on every last Friday of the month, the next bottom 500 stocks will be added to the list, the release said.
As things stand now, lesser-known stocks like Steel Strips and Coromandel Agro Products will enter the T+1 cycle in the first batch, a list release by the bourses showed. On the other hand, blue-chips like Reliance Industries, TCS and HDFC Bank will move to the shorter trading & settlement cycle in the last (12th) batch on January 27, 2023.
Listed instruments like closed-ended mutual fund schemes, debt securities including corporate bonds, sovereign gold bonds, government securities, treasury bills, state development loans, REITs, InvITs, ETFs, IDRs, etc, will also be moved to the new system from January 27, 2023.
The release further said that the newly listed stocks will have a 30-day cooling period before being added to the list. Preference shares, warrants, right entitlements, DVRs, etc, will be added to the list along with the parent company’s stock.
On September 7, Sebi had asked all the market infrastructure institutions (MIIs) to take necessary steps to put in place proper systems and procedures for the smooth introduction of the T+1 settlement cycle. MIIs, which are on track to put all the necessary processes in place, on Monday said that they had set the road map for the transition to a shorter trading & settlement cycle.
According to industry sources, under the T+1 cycle, tech-driven discount brokerages will be at an advantage over those that are yet to embrace technology in a big way for regular operations.