The way trades are settled in the financial industry has changed over time. In the past, it used to take weeks for transactions to be completed. But now, thanks to improvements in technology and how things are done, settlements happen much faster. Here is history of how trade settlements took time:
- Pre-2001 (exact year unknown): T+5 settlement for most stocks in India.
- December 2001: T+5 settlement applies to all stocks in India.
- April 2002: Settlement cycle reduces to T+3 for stocks in India.
- April 2003: T+2 settlement becomes the standard for stocks in India.
- January 2022 (optional): Stock exchanges in India allowed to offer T+1 settlement for certain securities.
Now, regulators like the Securities and Exchange Board of India (Sebi) are pushing for even faster settlements, like "T+0," where transactions are settled on the same day as the trade. This change will start with a test run for a small number of stocks and brokers. Overall, these improvements make trading smoother, safer, and more efficient for everyone involved.
What is Trade Settlement?
Trade Settlement is like closing a deal in the world of trading. When you buy or sell stocks, bonds, or other financial assets, the trade isn't finalized immediately. Trade settlement is the process of making sure everything is squared away and both parties involved in the trade have fulfilled their obligations.
What is T+0?
Normally, when you buy a stock, it takes a few days (usually 2 days, hence T+2) for the settlement to happen. This means you can't sell the stock or access the money until then. T+0 changes this! With T+0 trades, the settlement happens on the same day, allowing you to receive the money and trade the stock freely by the end of the trading session.
How does T+0 trading work?
T+0 trades happen during a shorter trading session in the morning (9:15 am - 1:30 pm). There are no pre-opening sessions or special auctions for these stocks. To identify T+0 stocks, look for a "#" symbol added to the stock code.
What about price limits?
T+0 stocks have price bands to manage volatility. The price can only move up or down by 1% compared to the previous day's closing price of the regular (T+2) stock. This band adjusts throughout the day based on price movements.
How will it be implemented?
SEBI has proposed that the new settlement process will be implemented in two phases in the first phase an optional t plus 0 settlement cycle is proposed for trades until 1:30 p.m. with the settlement of funds and securities to be completed on the same day by 4:30 p.m
In the second phase an optional immediate trade settlement for funds and securities will be introduced allowing trading until 3:30 p.m. after the implementation of this phase 1
Which stocks can I trade with T+0?
List of securities for Trading in T+0 rolling settlement cycle in Equity Segment
The introduction of T+0 settlement in India is a significant development for the stock market. Here's a breakdown of the potential impacts, both positive and negative:
Potential Benefits:
Faster Trades: T+0 settlements mean money moves quickly, so we can react faster to changes in the market. This helps things run smoother.
- More Money Available: With T+0, cash that was tied up in trades becomes available sooner. This means there's more money flowing around, which can make it easier to buy and sell stuff like stocks.
- Less Risk: Since trades settle on the same day, there's less chance of someone not being able to pay up. This makes the whole system safer. Good for Quick Traders: If you're someone who buys and sells stocks on the same day, T+0 is great for you. It lets you move fast and maybe make more money.
- Get Your Money Quicker: Instead of waiting for T+2 to get your cash from trades, you get it on the same day with T+0. This makes it easier to manage your money and maybe invest more.
Potential Challenges:
- More Ups and Downs: Because T+0 stocks have tighter price limits, they can jump around more during the day. This might be scary for people who aren't used to it.
- Stuff Might Go Wrong: Brokers and stock exchanges might have trouble handling all the extra trades and faster settlements with T+0. There could be some bumps in the road as they figure it out.
- Not Many Choices: Right now, there aren't a lot of stocks available for T+0 trading. So, your options might be limited at first, even though more choices should come later.
- Watch Out for Tricks: Faster settlements might make it easier for people to cheat the system, like with pump-and-dump schemes. We need to make sure everyone plays fair.
Overall, the impact of T+0 is likely to be positive for the Indian stock market in the long run. However, careful monitoring and adjustments might be necessary to address potential challenges and ensure a smooth transition.
It's important to note that T+0 is a new feature, and its full impact will become clearer over time. Investors and traders should carefully consider their risk tolerance and trading strategies before participating in T+0 trades.
Who Should Consider T+0 Trading?
T+0 trading can be beneficial for:
- Active Traders: If you frequently trade stocks and look for short-term opportunities, T+0's flexibility and faster settlements can be advantageous.
- Day Traders: The ability to buy and sell stocks within the same day aligns perfectly with a day trader's strategy.
- Investors Seeking Faster Liquidity: If you need quicker access to your funds after selling stocks, T+0 settlements can be a welcome change.
Are there any other things to know?
- There's no separate closing price for T+0 stocks. They use the closing price of the corresponding T+2 stock at the end of the day.
- Block deals (large trades between two parties) are not allowed for T+0 stocks.
- T+0 trades are not included in index calculations.
How can I learn more?
This is a new feature, so talk to your broker for more details and any specific requirements they might have.
.webp)
.png)
.png)
