MUMBAI: Heralding a new era for Indian investors, the stock market will shift to a shorter and swifter ‘trade-plus-one’ (T+1) settlement cycle from January 27. From Friday onwards, all the blue-chip and large-cap stocks in India (constituting 80% of market capitalisation) will be settled on T+1 cycle.
Shorter settlement cycle will not only benefit the retail investors but will also help stock brokers and other stake holders. The introduction of T+1 cycle will reduce transaction cost, increase liquidity in the market, shorten the trade cycle.
In the present T+2 settlement cycle, if an investor buys a share on Tuesday, the share is credited to the account on Thursday. Under the new system, the shares and the money will be credited to the account on next working day.
Praising the news system, the stakeholders have termed it as a major milestone. “We believe T+1 should sail through smoothly. This will be a major achievement and it will put India as first major market to implement T+1 settlement for cash market,” Kamlesh Shah, President, Association of National Exchanges Members of India (ANMI) told TNIE. “This will also help reduce margin requirements and thereby reduce transaction costs. It will be helpful to investors as they will get payout next day. It will ensure overall risk reduction for the market,” added Shah.
According to the experts, introduction of T+1 cycle will increase the liquidity in the system and will free up the cash for all the stakeholders in the market.
“Broking operations are getting efficient day by day with the whole industry working together and getting most out of the available technology. T+1 settlement will help sellers get their money and buyers get their stocks one day earlier than before. Which means, the trade cycles are reduced and the liquidity is increased,” Yuvraj Thakker, MD, StoxBox- a brokerage firm, told TNIE.
“It’s a positive development for brokers as it will help them to manage the margins better and reduce the operating costs. Changes welcoming at this pace, we hope to see settlements happening as fast as IMPS or at least like NEFT, very soon in the broking industry,” said Thakker.