Capital Markets: Challenges and Developments

New T+1 Settlement Cycle comes into effect


From UPSC perspective, the following things are important :

Prelims level: Account settlement, T+1

Mains level: Not Much


After China, India will become the second country in the world to start the ‘trade-plus-one’ (T+1) settlement cycle in top-listed securities today.

What’s the T+1 settlement plan?

  • The T+1 settlement cycle means that trade-related settlements must be done within a day, or 24 hours, of the completion of a transaction.
  • For example, under T+1, if a customer bought shares on Wednesday, they would be credited to the customer’s demat account on Thursday.
  • This is different from T+2, where they will be settled on Friday.
  • As many as 256 large-cap and top mid-cap stocks, including Nifty and Sensex stocks, will come under the T+1 settlement from Friday.

What was the earlier settlement system?

  • Until 2001, stock markets had a weekly settlement system.
  • The markets then moved to a rolling settlement system of T+3, and then to T+2 in 2003.
  • In 2020, Sebi deferred the plan to halve the trade settlement cycle to one day (T+1) following opposition from foreign investors.

What are the benefits of T+1?

  • T+1 system brings operational efficiency, faster fund remittances, share delivery, and ease for stock market participants.
  • In the T+1 format, if an investor sells a share, she will get the money within a day, and the buyer will get the shares in her demat account also within a day.
  • The shorter trade settlement cycle augurs well for the Indian equity markets from a liquidity perspective.
  • This will also help investors in reducing the overall capital requirements with the margins getting released on T+1 day, and in getting the funds in the bank account within 24 hours of the sale of shares.
  • The shift will boost operational efficiency as the rolling of funds and stocks will be faster.

Issues with T+1 system

  • T+1 is being implemented despite opposition from foreign investors.
  • The United States, United Kingdom and Eurozone markets are yet to move to the T+1 system.

Why are foreign investors opposed?

  • Foreign investors have some operational issues as they operate from different geographies.
  • Among the issues raised by them were time zone differences, information flow processes, and foreign exchange problems.
  • Foreign investors said they would also find it difficult to hedge their net India exposure in dollar terms at the end of the day under the T+1 system.


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