T+1 Settlement Cycle
When an investor is buying or selling shares he uses Depository organizations. There are two depository organizations in India. They are NSDL and CDSL. The investors shall buy or sell their shares through these organizations. A bank acts as an intermediate between the investor and these organizations. Say an investor sells 1000 Jio shares on January 27, 2023. It may take one or two days for the money to be credited to his account. In the T+1 settlement cycle, this time is one day. NDSL is National Depository Securities Limited. CDSL is Central Depository Service Limited.
About T+1 Settlement Cycle
India is the second biggest economy to move towards a T+1 settlement cycle after China. Here, the T refers to Trading Day. What is settlement? During a settlement, the funds are transferred to the seller’s account and securities are transferred to the buyer’s account.
Pros and Cons
- Pros: Quick fund remittances, improved operational efficiency, and easy delivery of shares
- Cons: Time Zone differences, foreign exchange problems, and information flow processes
Till 2001, the stock markets used weekly settlements. Then T+3 was introduced. In 2003, T+2 was introduced.
What is SEBI saying about T+1?
According to SEBI, the T+1 settlement cycle will free up capital. This will increase the availability of funds to collateralize the risks.
Category: Economy & Banking Current Affairs - 2022