All You Need To Know About The T+1 Settlement Cycle Starting Feb. 25
Nearly 5,300 stocks will transition to the T+1 settlement cycle between February 2022 and January 2023 in 12 phases.
Stock exchanges, clearing corporations and depositories will start rolling out a shortened equity trading settlement cycle from Feb. 25.
The complete transition to the next-day rolling settlement, or T+1 regime, will take place by Jan. 27, 2023.
The T+1 settlement cycle will see nearly 5,300 stocks transition to the curtailed cycle between February 2022 and January 2023, in 12 phases, according to the schedule. Most large-cap companies will shift in January 2023.
The market regulator on Sept. 7 had allowed exchanges to introduce T+1. The Securities and Exchange Board of India last shortened the settlement period from T+3 to T+2 in April 2003.
By July 29, nearly 2,500 stocks from the BSE and 285 stocks listed on the NSE will move to T+1. Majority of the stocks that belong to the indices and account for nearly 90% of the volumes on the exchanges will move on Jan. 27, 2023.
In the initial phase, the transition is unlikely to impact any institutional investors such as foreign portfolio investors, mutual funds, AIFs or any other domestic institutions. That, since the stock under transition are illiquid and are at the bottom of the market cap rank. Investors who deal with penny stocks or illiquid stocks will have to ensure the payout happens end of the day for the delivery to take place the next day.
Institutional investors will have to make changes by July-August as stocks with higher market cap and liquidity will start entering into T+1. All stocks that are a part of the key benchmark indices will enter T+1 in January 2023.
The schedule of securities to be transitioned to T+1 will be decided on key parameters:
All listed stocks shall be ranked in descending order based on daily market cap averaged for October 2021. For companies listed on multiple exchanges, the market cap will be calculated based on the price at the stock exchange with the highest trading volume.
Based on the ranking arrived, the bottom 100 stocks shall be available for introduction of T+1 settlement from Feb. 25.
From March 2022, on the last trading Friday of every month, the next bottom 500 stocks from the list shall be available for introduction to T+1. If Friday is a holiday, the next immediate trading day will be considered.
Any new stock listed after October will be added based on the market cap calculated on the basis of average trading price of 30 days after the commencement of trading.
Preference shares, warrants, right entitlements, partly paid shares and DVR shares to be transitioned to T+1 along with the parent stock.
Closed-ended mutual funds, debt securities (including corporate bonds), sovereign gold bonds, government securities, Treasury bills and state development loans, REITs, InvITs, ETFs, depository receipts and all other existing securities will be transitioned along with the last scheduled batch of securities.