Capital markets regulator SEBI Introduces T+1 (Trade day plus 1 day) Settlement Cycle for Share Transactions

Stock exchanges will have flexibility to either offer T+1 or T+2 settlement cycle for share transactions

Capital markets regulator Sebi has introduced an optional T+1 (Trade day plus 1 day) settlement cycle for completion of share transactions “to enhance market liquidity.” Under the T+1 rule, stock transactions will be settled on the very next day and not after two days as is the current norm. Stock exchanges will, however, have the flexibility to either offer T+1 or T+2 settlement cycle for completion of share transactions. The new rule will come into force on January 1, 2022.

The market regulator decided to shorten the settlement cycle on the basis of requests from various stakeholders. “Based on discussions with market infrastructure institutions (stock exchanges, clearing corporations and depositories), it has been decided to provide flexibility to stock exchanges to offer either T+1 or T+2 settlement cycle,” Sebi said in a press release.

A T+1 settlement cycle will mean that, in case of share purchases, the shares will be credited into the demat account a day after the trade day. In case of sale transactions, the money will be credited into the account on the very next day. Under the aegis of the T+2 settlement cycle, which is currently in vogue, the shares or the money are credited after two days.

Stock exchanges can switch to the T+1 settlement cycle on any shares after giving an advance notice of at least a month to all stakeholders, including the investing community, Sebi said in the circular. SEBI further mandated that after the switchover, the stock exchanges will have to continue with the T+1 settlement cycle for a minimum period of six months.

If the stock exchanges wish to revert to the T+2 settlement cycle, they will again have to give a one-month notice to all stakeholders.

Sebi also asked the stock exchanges, clearing corporations and depository participants to put systems and procedures in place for smooth roll-out of the T+1 settlement cycle and make necessary amendments to relevant bye-laws, rules and regulations.