Do Not Call
India’s shift to a T+1 settlement cycle makes it one of the fastest markets globally. Introduced by SEBI, this reform shortens trade settlement by a day. The T+1 settlement cycle marks a bold step toward a more efficient and liquid Indian stock market, offering faster settlements, reduced capital requirements, and enhanced safety. This article explains how the T+1 system works and its impact on traders, investors, and brokers.
Trade settlement refers to the process of transferring securities from the seller to the buyer and the corresponding funds from the buyer to the seller after a trade is executed.
T = Trade Date
T+1 = Settlement is completed one working day after the trade date
T+2 = Settlement used to happen two working days after trade date
So, under the T+1 system, if you buy shares on Monday, the transaction is settled by Tuesday (assuming no holidays in between).
Initially, India followed a T+5 settlement cycle, meaning trades were settled five days after the transaction date. Over time, this was shortened to T+3 in 2002 and T+2 in 2003 to improve efficiency. In 2023, the market moved to a T+1 cycle, where settlement happens the next trading day, enhancing liquidity and reducing counterparty risk.
SEBI’s move to T+1 was driven by multiple strategic objectives aimed at improving market speed, safety, and global competitiveness:
Shortening the settlement cycle frees up capital and securities sooner, allowing investors to reinvest or withdraw faster.
It reduces the time for counterparty risk, especially in volatile markets, where delays in settlement can increase financial exposure.
It aligns with modern trading systems and ensures that India keeps pace with global best practices.
India became the first large market in the world to fully implement a T+1 cycle for all listed securities.
SEBI rolled out T+1 in a phased manner, starting from February 2022:
Feb 2022: Bottom 100 stocks (by market cap) shifted to T+1
Each month thereafter: More stocks added to the T+1 list
Jan 2023: All listed equities moved to T+1, completing the migration
Here’s how the process unfolds step by step:
Day |
Action |
|---|---|
T (Trade Day) |
Trade is executed on the stock exchange |
T+1 |
Shares and funds are exchanged between buyer and seller via clearing corporations and custodians |
NSCCL (NSE Clearing Ltd)
ICCL (Indian Clearing Corporation Ltd for BSE)
These entities ensure the smooth transfer of securities and funds, reducing settlement risk.
The shift to T+1 settlement affects each market participant differently. Here's how key stakeholders are impacted:
Faster credit of shares and money
Increased flexibility in using funds for the next trade
Better alignment with short-term trading strategies
Required backend adjustments for processing trades quicker
Shorter window to resolve trade mismatches or settlement issues
FIIs initially raised concerns over timezone differences and currency settlement, but systems have now adapted
Reduced capital lock-in
Easier compliance with shorter settlement cycles in portfolios
Many developed markets like the US, UK, and Japan still follow the T+2 settlement system. India’s early shift to T+1 has now encouraged others—the US SEC plans to move to T+1 by May 2024, acknowledging India’s leadership in execution.
The T+1 settlement cycle brings multiple advantages to the market ecosystem, as outlined below:
Benefit |
Description |
|---|---|
Liquidity |
Funds and securities are freed faster for re-use |
Efficiency |
Lower exposure and operational risk for all parties |
Trust |
Builds confidence among domestic and foreign investors |
Market Resilience |
Better handling of volatility with quick clearance |
T+1 introduces certain operational challenges, particularly for intermediaries and foreign investors:
Foreign investors had to realign their trade processing timelines due to India's T+1 schedule, especially for trades settled across different currencies.
Brokers and custodians had to upgrade their technology systems to process trades within tighter windows.
A shortened cycle reduces the time available to detect and correct trade mismatches, putting pressure on accuracy.
The T+1 settlement cycle offers several practical benefits for retail investors, such as:
Faster credit of bought shares means you can sell them the next day if required
Sale proceeds will be credited to your account one day after the trade
It improves capital efficiency for short-term delivery-based strategies like swing trading, though intraday trades remain unaffected.
Improves your ability to act quickly in fast-moving markets
SEBI’s T+1 settlement reform positions India among the world’s fastest markets. It offers quicker fund access, improved capital efficiency, and greater investor trust. Despite initial challenges, especially for foreign investors, the transition has been smooth and well-received.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
Yes, all listed equity shares on NSE and BSE are now settled on a T+1 basis.
It enables quicker capital rotation and can help execute trades more efficiently, especially in short-term strategies.
No. The process is automatic. Your broker and clearing house handle the transition.
India completed the shift to T+1 for all stocks before any other major economy, setting a benchmark for global markets.
.jpeg)
250 Views
| 1min read
Posted on 18 Aug
Geetanjali Lachke
27689
Navigate the tax maze with ease! Uncover Income Tax 101, demystify jargon with Terms for Beginners, and choose between Old or New Regimes.
49315
Unlock the world of credit! From picking the perfect card to savvy loan management, navigate wisely.
28930
Money Management and Financial Planning covers personal finance basics, setting goals, budgeting...
13402
Explore the investment cosmos! From beginner's guides to sharp-witted strategies, explore India's treasure trove of options.
2959
Discover essential insights on various types of insurance in India.
4289
Welcome to Tech in Finance, where we explore the exciting intersection of technology and finance...
.webp "Download"){kind=icon}
.jpeg "authour img")
