Stock exchanges and other market infrastructure institutions on Monday came out with a roadmap for the implementation of T+1 (trade plus one day) settlement cycle whereby the mechanism will be introduced in a phased manner from February 25.
T+1 means that market trade-related settlements will need to be cleared within one day of the actual transactions taking place. Currently, trades on the Indian stock exchanges are settled in two working days after the transaction is done (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, according to a joint statement.
The decision has been taken by market Infrastructure Institutions or MIIs — stock exchanges, clearing corporations and depositories. This comes after markets regulator Sebi in September permitted stock exchanges to introduce T+1 settlement cycle from January 1, 2022 on any of the securities available in the equity segment. As per the statement, all listed stocks, across stock exchanges (BSE, NSE and MSEI), will be ranked in descending order based on daily market capitalization averaged for month of October 2021. Where a stock is listed on multiple exchanges, the market capitalization will be calculated based on the price of stock at the stock exchange with highest trading volume during the period under review.
The list of stocks and exchanges where they are available for trading will be published on website of all exchanges. Based on the ranking arrived, the bottom 100 stocks will be available for introduction of T+1 settlement, from February 25, 2022. Thereafter, from March 2022 onwards, on the last Friday (trade day) of every month, the next bottom 500 stocks from the list of stocks ranked will be available for introduction to T+1 settlement. In case Friday is a trading holiday, the same will be introduced on immediate next trading day.
Any new stock getting listed after October 2021, will be added to list, based on the market capitalization calculated on the basis of average trading price of 30 days after commencement of trading. In case, based on market capitalization, if the stock falls under the category (in terms of market capitalization) of stocks already under T+1 settlement then that stock also becomes eligible for T+1 settlement and will be introduced in T+1 settlement cycle on the last Friday (trade day) of next month.
This will also apply to new stock getting listed on account of initial public offering (IPO), corporate action or any other reason and the date of transition will be announced jointly by all exchanges on which the stock is available for trading.
Securities such as preference shares, warrants, right entitlements, partly paid shares and securities issued under differential voting rights (DVR) will be transitioned to T+1 settlement along with the stock of parent company.
Further, more than 5,000 securities listed by the exchanges in the equity segment of bourses will be transitioned to T+1 settlement cycle along with the last scheduled batch of securities as determined by the exchanges.
Any security getting listed post the trade date of last scheduled batch of securities based on the ranking arrived will be directly introduced with T+1 settlement cycle.
Eqwires Research Analyst
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