Stock exchanges to roll out T+1 settlement cycle from Friday

India's stock exchanges and other market-related institutions will switch to trade date plus one day (T+1) settlement cycle in a phased manner from February 25 (Friday). Once the T+1 system comes into force, the trade-related settlements will require to be cleared within a day of the actual transaction.

Currently, trades are settled in two working days (T+2).

"The settlement cycle will be implemented in a phased manner and will apply only to the bottom 100 companies starting February 25, and from March 2022 onwards, the next bottom 500 stocks will be available for introduction to T+1 settlement, the exchanges had stated.

In September last year, the Securities and Exchange Board of India (SEBI) had allowed exchanges to introduce the T+1 cycle. The market regulator had last shortened the settlement duration from T+3 to T+2 in April 2003.

"Settlement marks the official transfer of securities to the buyer's account and cash to the seller's account. Indian stock exchanges follow T+2 days settlement. For example, a trade executed on Monday would typically settle on Wednesday," said Anupam Agal, Head Operations and Legal, Motilal Oswal Financial Services.

"T+1 should be a good move making settlement cycle shorter reducing margin requirement for clients with margin blocked for just 1 day, thereby increasing retail participation and investments coming to equity markets," he added.

Agal also said the T+1 settlement system will reduce the "risk of pay-in/pay-out defaults, lower margin requirements and give investors more liquidity with the availability of funds and securities."

(With inputs from PTI)