Indian Stock Market Moves Fully to T + 1 Settlement from 27Jan2023 - vrk100 - 16Jan2023

Indian Stock Market Moves Fully to T + 1 Settlement from 27Jan2023

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In an interesting development, all stocks in Indian stock market will fully move, effective 27th of January, 2023, toward T+1 settlement cycle from the earlier T+2 settlement. The process of moving, in a phased manner, toward T+1 settlement cycle started in February 2022 as per norms laid out by India's capital market regulator Securities and Exchange Board of India (SEBI).

This is a  positive step for all financial market participants as they will be able to get access to their money within one day of trade. Similarly, you can get access to the shares you bought within one day of trade.

T+1 settlement cycle means if you buy a stock today, the particular stock would be credited to your demat account one trading day later, that is, tomorrow; while your bank account would be debited on the trading day, that is, today, for the amount traded.  T+1 simply means trading day plus one day.

 

(Don't miss to read the related blog mentioned below to know about implications of the new settlement cycle on ex-date and record date) 

 

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Related blog:

New Rules on Ex-date and Record date 06Jan2023

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Likewise, if you sell a stock today under T+1 settlement, the particular stock would be debited to your demat account today; while your bank account would be credited one day after the trading day, that is, tomorrow, for the amount traded. 

 

In the old system of T+2 settlement, it used to take two days to settle the trade. For example, if you sell a stock under T+2 settlement, it used to take two days to receive cash for the shares you sold -- under the new T+1 system, it would take just one day to receive funds for the shares sold.

The following is the timeline for the introduction of T+1 Settlement cycle:

08Nov2021:

 

In a joint press release on 08Nov2021, India's market infrastructure institutions (MIIs) laid out a roadmap for introduction of T+1 rolling settlement in equity market. MIIs are stock exchanges, clearing corporations and depositories -- like, BSE, NSE, MSE, NSE Clearing, ICCL India, CDSL and NSDL. 

As per the press release, the T+1 settlement would be introduced in a phased manner, with the first phase starting from 25Feb2022. 

In the first phase, bottom 100 stocks ranked by market capitalisation (or market cap) moved to T+1 settlement on 25Feb2022.  

 

Thereafter, from March 2022 onwards, on the last Friday of every month, the next bottom 500 stocks from the list of stocks ranked by market cap moved to T+1 settlement. 

 

A screenshot of the above press release > 

 

 

23Feb2022:

 

As per circular NSE/CMTR/51414 dated 23Feb2022, National Stock Exchange of India Ltd (NSE) released the list of securities / stocks available for trading on T+1 settlement. So did the other stock exchanges.

 

A screenshot of the circular >

 

23Nov2022:

 

In another joint press release on 23Nov2022, MIIs stated that stocks under futures and options (F&O or derivatives) segment would move to T+1 settlement in two batches -- December 2022 and January 2023. A screenshot of the press release >

 

28Nov2022:

 

As per circular NSE/CMTR/54622 dated 28Nov2022, NSE released the list of securities / stocks additionally transitioned to trading on T+1 settlement effective 30Dec2022. A screenshot of the circular >

 

 

 

26Dec2022:

 

As per circular NSE/CMTR/54992 dated 26Dec2022, NSE stated all the remaining securities / stocks as on 25Jan2023 which were in T+2 settlement cycle and all securities in F&O segment would be transitioned to T+1 settlement cycle effective from 27Jan2023. 

NSE further stated that there would be no further circulars about the list of securities for T+1 settlement in the equity segment. A screenshot of the circular >

 

 

Summing up:

 

Indian stock market moving completely toward T+1 settlement cycle effective 27Jan2023 is a pivotal moment in the history of India's capital market. To the best of my knowledge, no major stock market globally follows T+1 settlement -- as such, India is unique. 

 

Indian stock market moved to T+2 settlement from T+3 settlement in April of 2003. The transition from T+2 to T+1 signifies the rapid strides India has made in capital markets.

 

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References:

List of securities available for trading -- T+1 settlelment

SEBI amendments of Oct2022 moving all stocks from T+2 Settlement to T+1 Settlement  effective 01Jan2023

Article 16Jan2023 on Blue Chips move to T+1 Settlement from 27Jan2023

Article 14Dec2022 on T+1 Settlement cycle introduction

Article 23Nov2022 on transition of all F&O stocks to  T+1 settlement

Article 23Nov2022 on T+1 settlement for F&O stocks

SEBI (LODR) Regulations, 2015 

SEBI amendments in 2015 for record date

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New Rules on Ex-date and Record date

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BSE Broad and Sector Indices Market Cap 31Dec2022

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Disclosure:  I've vested interested in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.

Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets. 

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He blogs at:

https://ramakrishnavadlamudi.blogspot.com/

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Twitter @vrk100

Contrasting Forwards and Futures - VRK100 - 31Aug2012

Contrasting Forwards and Futures

In financial markets across the globe, trillions of dollars of derivative transactions take place on a daily basis round the clock – right from New York, Chicago, London, Shanghai, Bombay, Hong Kong, to Singapore.

Forwards and futures are important building blocks of derivative transactions. The following easy-to-understand table describes the important differences between forward and futures contracts. And later, the article briefly explains their general uses, types and salient features.

	Forwards	Futures
1	They are customized products	They are standardized products
	to suit individual needs - they	dealt on stock exchanges
	serve specialized clientele
2	In general, there is no mark-to-	Mark-to-market is done on a
	market of contracts	daily basis providing interim
		cash flows
3	No cash changes at the start	A small margin needs to be paid
	of a transaction	at the start of a transaction
4	The contract size depends on	The contract size is fixed and
	the needs of clients	uniform
5	Counterparty risk exists in	The stock exchange bears the
	forwards (credit risk exists)	counterparty risk (no credit risk)
6	They are bilateral contracts,	They are multiparty contracts,
	that is, between two parties	involving many parties
7	They are lightly regulated	They are well regulated

Definition and Salient Features

A forward contract (or simply a forward) is a financial contract between two parties in which one party, the buyer, agrees to buy an underlying asset from the other party, the seller, an underlying asset at a rate agreed at the start of the contract and to be settled on a future date.

In contrast, a futures contract is a financial contract traded on a recognized stock exchange to buy or sell an underlying asset, at a price determined on the starting date of the contract, and to be settled on a specified future date, but does not include a forward contract.

The underlying asset can be an equity share or an equity index, a commodity or a commodity index, a currency, or an interest rate like the LIBOR that is London inter-bank offered rate.

The salient features of a futures contract include maturity date, size or amount of the contract, the currency in which the contract is denominated, settlement price and the method of settlement.

As described in the above table, forward contracts are not traded on stock exchanges, but futures are. In a futures contract, the stock exchange acts a central counterparty to all the deals and as such the parties have no counterparty or credit risk. On the other hand, forwards carry credit risk as the counter party may default at the maturity date of the contract.

Uses and benefits of forwards and futures

Multi-national companies and many other corporates are exposed to various types of risks, ranging from volatile currency movements, ever-changing interest rates, to oscillating commodity prices. Such companies undertake derivative transactions to hedge, that is, especially to reduce or mitigate an existing identified risk using derivatives, such as, futures, forwards, swaps or options.

In addition, there are market-makers who can undertake derivative transactions to act as counterparties in derivative transactions with users and also amongst themselves. They would try to exploit the market movements and provide quotes.

Forward and futures contracts serve the purpose of risk management, facilitate efficient price discovery, enable better counterparty credit risk management and reduce transaction costs. Futures are used by speculators also to exploit arbitrage opportunities in markets. Globally, futures markets are more transparent and their volumes are much higher compared to forward markets.

Main types of forward or futures contracts

There are various kinds of forwards and futures, the important types being the underlying assets based on currencies, commodities, equities and interest rates.

The important types of forward contracts include interest rate forward contracts or forward rate agreements; equity forwards; currency forwards; and fixed-income forward contracts. A forward rate agreement (FRA) is a specialized type of forward contract used to hedge an exposure to interest rates or to exploit a view on future interest rates.

Currency futures, stock futures, index futures, bond futures, and interest rate futures are major types of futures contracts and are traded on stock exchanges.

Forwards and futures are important building blocks, in the sense that understanding them well will help us in knowing well other types of derivatives, such as swaps, swaptions and options.

A derivative is basically a financial instrument whose value changes in response to the change in an underlying asset and is settled at a future date as agreed between the parties involved. There are two types of derivative contracts, OTC derivatives and exchange-traded derivatives. Over-the-counter derivatives are contracts that are traded directly between two parties, but not through an exchange. In contrast, exchange-traded derivatives are derivative products that are traded on an exchange. For more, please read the relevant articles:

1. Currency futures:

http://ramakrishnavadlamudi.blogspot.in/2009/12/currency-futures-status-check-after-one.html

2. Interest Rate Futures:

http://ramakrishnavadlamudi.blogspot.in/2009/12/interest-rate-futures-irfs-nse.html

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Disclaimer: The author is an investment analyst and writer. His views are personal. He has a vested interest in the stock/bond markets. He may change his views very fast without any notice depending on the market and economic conditions. His views should not be construed as investment recommendation. There is a risk of loss in equity/bond investments. Investors need to consult their certified financial adviser before making any investment decisions.

For author’s articles on financial markets, just click: www.scribd.com/vrk100