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T+1 Trade settlement

July 26, 2023

GS Paper III Indian Economy

Context:

  • The SEBI recently shortened the settlement cycle to trade-plus-one (T+1) from T+2.

T+1 Trade settlement:

  • The current cycle of ‘T+1’ in India means trade-related settlements happen within a day, or within 24 hours of the actual transaction. The migration to the T+1 cycle came into effect in January this year.
  • Under the current T+1 settlement cycle, if an investor sells securities, the money gets credited into her account the following day.
  • Status of India: India became the second country to start the T+1 settlement cycle in top listed securities after China, bringing operational efficiency, faster fund remittances, share delivery, and ease for stock market participants.

T+0 Trade settlement:

  • Under the T+0 settlement cycle, if investors sell shares, they will get the money in their account instantaneously, and the buyers will get the shares in their demat accounts the same day.

What is meant by trade settlement?

  • A trade settlement is said to be complete once purchased securities of a listed company are delivered to the buyer, and the seller gets the money.
    • Settlement is a two-way process that involves the transfer of funds and securities on the settlement date. As of now, there is a lag between trade and settlement — the settlement date is different from the trade date. 

News Source: Indian Express 

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