Stock exchanges have decided to deploy the T+1 settlement cycle in stages

On Monday, stock exchanges and other market infrastructure organisations released a roadmap for the implementation of the T+1 (trade plus one day) settlement cycle, which will be phased in beginning on February 25.

T+1 denotes that market trade-related settlements must be completed within one day of the actual transactions.

Currently, trades on Indian stock exchanges are resolved within two working days of the transaction (T+2).

According to a joint statement, the settlement cycle will be phased in and will apply exclusively to the bottom 100 businesses beginning February 25, and from March 2022 onwards, the next bottom 500 stocks will be accessible for introduction to T+1 settlement.

The decision was made by market Infrastructure Institutions (MIIs), which include stock exchanges, clearing firms, and depositories.

This comes after market regulator Sebi granted stock exchanges permission in September to use a T+1 settlement cycle on any equity securities accessible on January 1, 2022.

According to the announcement, all listed equities across stock exchanges (BSE, NSE, and MSEI) would be ranked in descending order for the month of October 2021 based on daily market capitalization averaged throughout the month.

When a stock is listed on multiple exchanges, the market capitalization is computed based on the price of the stock at the exchange with the highest trading volume during the time period under consideration.

The list of stocks and the exchanges where they can be traded will be published on the websites of all exchanges.

Based on the ranking, the bottom 100 equities will be available for the implementation of T+1 settlement beginning February 25, 2022.

Following that, beginning in March 2022, the following bottom 500 stocks from the list of stocks ranked will be ready for introduction to T+1 settlement on the last Friday (trading day) of each month. If Friday is a trading holiday, it will be implemented on the next trading day.

Any new stock that is listed after October 2021 will be included to the list based on the market capitalization determined on the basis of the average trading price of the first 30 days of trading.

If, based on market capitalization, the stock falls into the category of stocks already subject to T+1 settlement, it becomes eligible for T+1 settlement and will be included in the T+1 settlement cycle on the last Friday (trading day) of the following month.

This will also apply to new stock that is listed as a result of an initial public offering (IPO), corporate action, or any other reason, and the date of transition will be published jointly by all exchanges on which the stock is accessible for trade.

Securities such as preference shares, warrants, right entitlements, partially paid shares, and securities with differential voting rights (DVR) will be converted to T+1 settlement with parent company stock.

Furthermore, along with the last scheduled batch of securities as selected by the exchanges, over 5,000 securities listed by the exchanges in the equity segment of bourses will be migrated to the T+1 settlement cycle.

Any security that is listed after the trade date of the last scheduled batch of securities based on the rating received will be introduced directly into the T+1 settlement cycle.