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28th March 2024 (12 Topics)

T+0 settlement system

Context

India's stock market is set to usher in the T+0 settlement system, making it among the handful of countries to implement the shorter trade settlement cycle. 

What is T+0 system?

  • In the T+0 system (T refers to the day of the trade and 0 is the day of settlement), trades done in shares will be settled on the same day.
  • This means shares will be transferred to the buyer's account and the funds will be deposited in the seller's account on the same day of the trade.
  • Impact:A shorter settlement cycle on full implementation is aimed at making the system more dynamic. Since funds will be available on the same day of selling, it is expected to improve liquidity, allowing traders to use cash better.
  • Evolution:Currently, India follows the T+1 cycle, which means trades are settled by the next day.
    • After following a T+5 settlement cycle, India moved to T+3 in 2002 and further reduced it to T+2 in 2003.
    • In 2021, Sebi introduced the T+1 system before making it the norm in 2023. The regulator has also set its sights on instant trade settlement.

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