As the T 1 settlement cycle kicks in India on February 27, Nithin Kamath, co-founder of Zerodha, shared his two cents on the updated settlement cycle.
India will be the first major market to move to a T 1 settlement cycle. China is partially T 1 It is crazy how far ahead we are in terms of market infrastructure and safety, even though the developed world is a part of the story, Kamath said in his LinkedIn post.
If you buy a stock, you will have the funds by the next day, and if you sell it will be in your demat the next day. This used to take T 2 days. Since February 2022, the transition to T 1 has happened in batches based on market cap small to big.
It will be a trailblazing moment for the country. The T 1 settlement cycle, also known as the trade date plus the one-day settlement cycle, refers to the process by which securities transactions are settled on the business day following the trade date.
The cycle is designed to provide a balance between the need for timely and efficient settlement of securities transactions and the need to manage risk in the securities markets. The date on which the buyer and seller agree to the terms of the transaction is the trade date, and the settlement date is the date on which the securities are delivered and payment is made.
Kamath said that instant settlement isn't a thing in the stock market and why isn't instant settlement possible. Most trading volumes on the exchange are from intraday traders who buy and sell stocks without taking delivery or have the stocks to deliver immediately. The process of the T 1 settlement cycle is called the process by which securities transactions are completed one day after the trade date. If a trade is executed on Monday, it will be settled i.e. The transfer of cash and securities will be completed on Tuesday.
The cycle is important for a number of reasons. One of the most important things is that it helps to ensure that securities transactions are settled in a timely and efficient manner. This is important for market participants as it allows them to manage their positions and liquidity more effectively.
The T 1 settlement cycle helps to reduce the risk of counterparty default, as it gives more time for market participants to assess the creditworthiness of their counterparty before they settle the transaction.
The T 1 settlement is important for regulators because it helps to ensure that securities transactions are settled in a manner that is consistent with the overall stability and integrity of the securities markets. This is done by requiring market participants to manage their positions and liquidity in a way consistent with the T1 settlement cycle, and by giving regulators more time to monitor and manage any potential risks that may arise from securities transactions.
The settlement cycle is typically T 2 and T 3 for most countries around the world, or trade date plus two three days. This allows for additional days for market participants to manage their positions and liquidity, and for regulators to monitor and manage any potential risks that may arise from securities transactions.
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