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