The market regulator has shortened the rolling settlement cycle for stock trading on an optional basis as it looks to streamline the process.
The Securities and Exchange Board of India said in a notification on Tuesday that exchanges can offer T+1 or the already existing T+2 rolling settlement cycles from Jan. 1, 2022.
Rolling settlement is the process of settling security trades on successive dates based on the specific date of the original trade. A T+2 rolling settlement means that the settlement will take place on the second working day after the day of executing the transaction.
The market regulator had previously shortened settlement cycles from T+3 to T+2 in April 2003.
“Stock exchanges, clearing corporations and depositories are directed to take necessary steps to put in place proper systems and procedures for smooth introduction of T+1 settlement cycle on an optional basis, including necessary amendments to the relevant bye-laws, rules, and regulations,” the circular said.
A stock exchange, the circular said, can choose to offer a T+1 settlement cycle on any share after giving advance notice of at least one month to all stakeholders, including the public. The exchange must also publish the change in settlement cycle on its website.
After opting for T+1 settlement cycle for any scrip, the bourse will have to mandatorily continue with the same for a minimum period of six months. If the exchange intends to switch back to T+2 settlement cycle, it can do so by giving one-month advance notice to the market.
Any subsequent switch will be subject to minimum period of six months and a notice period of one month.
The chosen settlement option on a scrip will be applicable to all types of transactions in the scrip on that stock exchange. For example, if security is placed under T+1 settlement, regular market deals and block deals will follow the T+1 settlement cycle on that exchange.
There shall be no netting between T+1 and T+2 settlements, the circular said.