Market regulator SEBI (Securities and Exchange Board of India) last week introduced T+1 settlement cycle for share transactions. Notably, the settlement cycle was shortened from T+3 to T+2 in April 2003.
Also, if the exchange brings a scrip under T+1 settlement cycle, it must remain so mandatorily for a period of six months. Thereafter, if the exchange wants to shift back to T+2, it is permitted with an advance notice of one month. But if one exchange opts for T+1 cycle and another exchange offers only T+2 settlement for the same stock, liquidity can move towards the one offering T+1 settlement. However, there will be challenges with respect to readying the necessary infrastructure by all stakeholders.
Nevertheless, this can be a boost for retail traders as the new measure is expected to improve liquidity. Simply put, the liquidated stock that would be supplied on the second day (with existing set-up) will be available to the market on the next day if someone sells. Importantly, netting between T+1 and T+2 shall not be allowed.
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