Now, settlement in equity shares to take place within 24 hours. How does T+1 helps market?

According to NSE, from January 27, 2023, all securities, i.e. equity shares including SME shares, exchange-traded funds (ETFs), Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), Sovereign gold bonds, government bonds, and corporate bonds trading in the equity segment will now be settled only on ‘T+1’ basis.

Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said, “The Indian capital market has been in the forefront of modernisation and best practices for many years now, thereby becoming a model worthy of emulation for emerging markets. Now with the initiation of the shorter settlement cycle of T+1, which no other country except China has, the Indian stock market is becoming a trend setter for even developed countries.”

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

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

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

NSE pointed out that they witnessed transactions by over 2.7 crore investors (unique PANs) in the equity segment in the fiscal year 2022, and the number has already surpassed 2.3 crore in the financial year as well.

In value terms, a healthy mix of participation has been recorded across investors — with individual investors accounting for 36%, followed by proprietary desks at 27%, foreign institutional investors at 15%, and domestic institutional investors holding around 15%.

Vijayakumar said, “Since the change to T+1 is in a phased manner the transition will be smooth. Quicker liquidity and reduction of the possibility of default under T+1 will improve market efficiency.”

Ashishkumar Chauhan, MD & CEO of NSE believes the shortening of the settlement cycle to ‘T+1’ will bring in significant capital efficiencies to the investors and improve risk mitigation for the entire industry.

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

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