T+1 Settlement: Stock Exchanges To Start Rollout From Feb. 25; FPIs Drop Opposition

Stock exchanges, clearing corporations and depositories have finalised the road map for T+1 settlement.

<div class="paragraphs"><p>A person looks at a screen outside the BSE building in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)</p></div>
A person looks at a screen outside the BSE building in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Stock exchanges, clearing corporations and depositories have finalised the road map to roll out the next-day rolling settlement cycle for equity trading from Feb. 25.

The T+1 settlement cycle will be implemented in a phased manner, the market infrastructure institutions said in a joint statement on Monday. More than 5,000 stocks will be transitioned to the shortened cycle between February 2022 and January 2023, according to the schedule. Most large-cap companies will be moved to the new cycle in January 2023.

The Securities and Exchange Board of India had on Sept. 7 allowed exchanges to introduce T+1. The market regulator last shortened the settlement period from T+3 to T+2 in April 2003.

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 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 settlement. 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 settlement 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.

SEBI’s T+1 Option Has Left The Market Divided

This coordinated approach seems to have soothed fears of foreign portfolio investors who had earlier opposed the move to T+1.

Asia Securities Industry & Financial Markets Association said the two Indian stock exchanges "are acting in concert avoiding any fragmentation of the market which we had feared".

Most foreign portfolio investors won't be impacted until August, September or October 2022 when the stocks that they tend to trade in will move to T+1 settlement, the statement said.

"This leaves more time for market participants, from FPIs to their custodians and brokers, and the stock exchanges and regulators to come up with solutions to meet the shortened T+1 settlement cycle without triggering pre-funding by investors that are based in the U.S. and Europe which are 10-15 hours behind India time."

BSE CEO Ashishkumar Chauhan Says Time For T+1 Has Come

(Updates an earlier version to add ASIFMA comment)