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T+0 SETTLEMENT SYSTEM: DETAILS AND IMPACTS



  Apr 01, 2024

T+0 SETTLEMENT SYSTEM: DETAILS AND IMPACTS



What is the T+0 Settlement System?

The T+0 settlement system in India’s stock market is a groundbreaking advancement allowing for the settlement of trades within the same day they are conducted. This system departs from the existing T+1 cycle, where transactions settle the following day. By facilitating immediate transfer of shares and funds, the T+0 system aims to enhance market liquidity and efficiency.

How Does the ‘Beta’ Version Operate?

The ‘beta’ version of the T+0 settlement system serves as a pilot phase, wherein the system operates alongside the current T+1 cycle in the cash market. This phase includes a selection of 25 stocks available for same-day settlement and restricts trading hours to 9:15 AM to 1:30 PM. It allows for a limited number of brokers to participate, ensuring a controlled and smooth transition to the new system.

What Benefits Does the T+0 System Offer?

Key benefits include increased liquidity and dynamism in the market, as the availability of funds from sales becomes immediate. This immediacy is particularly beneficial for retail traders who require quick access to funds for trading activities. Moreover, the system could potentially reduce funding needs for brokers, allowing them to allocate resources more efficiently and enhance service offerings to clients.

What Are the Challenges Associated with T+0?

Institutional and foreign investors might face challenges adjusting to the T+0 system due to the necessity for advance preparation and the risks associated with same-day currency conversions. The system’s requirement for immediate settlement may also complicate transactions involving multiple intermediaries and time zones.

Which Stocks Are Included in the T+0 System?

The initial phase includes a diverse range of 25 stocks, encompassing various sectors and industries. This list is intended to test the system’s efficacy across different market segments and trading volumes.

Global Context

While India moves towards the T+0 system, it joins a minority of global markets with such a rapid settlement cycle. Most international markets operate on a T+2 cycle, with some planning shifts towards T+1. India’s move places it at the forefront of settlement efficiency, alongside countries like China, which already offers a T+0 settlement option.

Conclusion

India’s transition to the T+0 settlement system marks a significant milestone in the evolution of its stock market, offering the promise of greater efficiency and liquidity. However, the shift also necessitates adjustments from investors and brokers alike, highlighting the importance of flexibility and adaptation in the dynamic world of stock trading.


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