Zerodha's Nithin Kamath poses question on T+1 settlement for stocks
After market regulator Sebi allowed stock exchanges to offer T+1 settlement cycle for all stocks, Zerodha co-founder pointed out complications for scrips with interoperability.
“I guess the confusing bit now is, if one exchange opts for T+1 and the other for T+2, how will settlements happen. Today the same stocks trade on both the exchanges and there is interoperability (bought on one can be sold on another, and vice versa). We will have to wait and see how this works out," Kamath said.
Securities and Exchnage Board of India (SEBI) allowed stock exchanges to choose between T+1 and T+2 settlement cycles. The decision came after the market regulator received request from various stakeholders to further shorten the settlement cycle. The option will come into effect from January 1, 2022.
Security transactions are not settled the same day they are initiated. T+1 means stock exchanges will now have to settle these transactions within one working day after the actual date of transaction. Earlier, this was done within two days.
A stock exchange may choose to offer T+1 settlement cycle on any of the scrips, after giving an advance notice of at least one month, regarding change in the settlement cycle, to all stakeholders. The same has to be conveyed to the public at large, and also disseminated on the exchange's website.
After opting for T+1 settlement cycle for a scrip, the stock exchange will have to mandatorily continue with the same for a minimum of 6 months. If the stock exchange intends to switch back to T+2 settlement cycle, it can do so by giving 1-month advance notice to the market.
There shall be no netting between T+1 and T+2 settlements, said Sebi.
The settlement option for security shall be applicable to all types of transactions in the security on that stock Exchange. For example, if a security is placed under T+1 settlement on a stock exchange, the regular market deals as well as block deals will follow the T+1 settlement cycle on that stock exchange.
The market watchdog has directed stock exchanges, clearing corporations and depositories to take necessary steps to put in place proper systems and procedures for smooth introduction of T+1 settlement cycle on optional basis, including necessary amendments to the relevant bye-laws, rules and regulations.