SEBI gives exchanges option to move to T+1 settlement

Come January 1, 2022, and an investor could get the shares credited in the demat account just one day after executing the trade. Currently, the shares or the funds are credited on the second day from the day of the transaction.

The capital market regulator has given its go-ahead to a shorter settlement cycle -- known in market parlance as T+1 -- that stock exchanges can offer from January 1, 2022.

"SEBI has been receiving requests from various stakeholders to further shorten the settlement cycle. Based on discussions with Market Infrastructure Institutions (Stock Exchanges, Clearing Corporations and Depositories), it has been decided to provide flexibility to Stock Exchanges to offer either T+1 or T+2 settlement cycle," stated a SEBI circular issued on Tuesday.

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Simply put, under the T+1 settlement cycles, a buy transaction will see the shares credited in the demat account just a day after the trade day. In the case of a sale transaction, the money would be credited the next day.

The existing settlement cycle of T+2 was introduced on April 1, 2003, prior to which the stock market operated on a T+3 cycle.

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The new settlement cycle, however, is not mandatory and the regulator has left it for the exchanges to decide whether they want to switch to the shorter cycle. Once opted, however, the exchange will have to continue with it for at least six months.

Any change in the settlement cycle can be done only after giving a month's advance notice to all stakeholders, including the general public at large.

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