{"id":32994,"date":"2023-01-27T09:47:17","date_gmt":"2023-01-27T04:17:17","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=32994"},"modified":"2025-04-19T17:46:00","modified_gmt":"2025-04-19T12:16:00","slug":"t1-settlement-system","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/t1-settlement-system\/","title":{"rendered":"T+1 Settlement System"},"content":{"rendered":"<h3><strong>What\u2019s in today\u2019s article?<\/strong><\/h3>\n<ul>\n<li><strong>Why in News?\u00a0<\/strong><\/li>\n<li><strong>What\u2019s the T+1 Settlement Plan?\u00a0\u00a0<\/strong><\/li>\n<li><strong>What are the Benefits of T+1?\u00a0<\/strong><\/li>\n<li><strong>Will T+1 Format make Markets Safer?\u00a0<\/strong><\/li>\n<li><strong>Why are Foreign Investors Opposed?<\/strong><\/li>\n<\/ul>\n<p><strong>\u00a0<\/strong><\/p>\n<h2><strong>Why in News?<\/strong>\u00a0\u00a0<\/h2>\n<ul>\n<li>After China, India will become the second country in the world to start the \u2018<strong>trade-plus-one\u2019 (T+1) settlement cycle<\/strong> in top listed securities from January 27.\u00a0<\/li>\n<li>This will help in bringing operational efficiency, faster fund remittances, share delivery, and ease for stock market participants.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>What\u2019s the T+1 Settlement Plan?\u00a0<\/strong><\/h2>\n<ul>\n<li>The T+1 settlement cycle means that <strong>trade-related settlements must be done within a day, or 24 hours, of the completion of a transaction<\/strong>.\u00a0\n<ul>\n<li>For example, under T+1, if a customer bought shares on Wednesday, they would be credited to the customer\u2019s demat account on Thursday. This is different from <strong>T+2<\/strong>, where they will be settled on Friday.\u00a0<\/li>\n<\/ul>\n<\/li>\n<li>As many as 256 large cap and top mid-cap stocks, including Nifty and Sensex stocks, will come under the T+1 settlement from Friday.<\/li>\n<li>Until 2001, stock markets had a weekly settlement system.\u00a0<\/li>\n<li>The markets then moved to a rolling settlement system of T+3, and then to T+2 in 2003.\u00a0\n<ul>\n<li>The <strong>United States, United Kingdom and Eurozone markets are yet to move to the T+1 system<\/strong>.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>What are the Benefits of T+1?<\/strong><\/h2>\n<ul>\n<li>In the T+1 format, <strong>if an investor sells a share, she will get the money within a day, and the buyer will get the shares in her demat account also within a day<\/strong>.<\/li>\n<li>This shorter trade settlement cycle augurs well for the Indian equity markets from a liquidity perspective, and it shows how well we have grown on the digital journey to ensure seamless settlements within 24 hours.<\/li>\n<li>This will also help investors in reducing the overall capital requirements with the margins getting released on T+1 day, and in getting the funds in the bank account within 24 hours of the sale of shares.\u00a0<\/li>\n<li>The shift will boost operational efficiency as the rolling of funds and stocks will be faster.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>Will T+1 Format make Markets Safer?<\/strong><\/h2>\n<ul>\n<li>According to a paper published by the Securities and Exchange Board of India (SEBI), <strong>a T+1 settlement cycle not only reduces the timeframe but also reduces and frees up capital required to collateralize that risk<\/strong>.\u00a0<\/li>\n<li>A shortened settlement cycle also reduces the number of outstanding unsettled trades at any point of time, and thus decreases the unsettled exposure to Clearing Corporation by 50 per cent.\u00a0<\/li>\n<li>The narrower the settlement cycle, the narrower is the time window for a counterparty insolvency\/ bankruptcy to impact the settlement of a trade.<\/li>\n<li>Further, the capital blocked in the system to cover the risk of trades will get proportionately reduced with the number of outstanding unsettled trades at any point of time.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>Why are Foreign Investors Opposed?\u00a0<\/strong><\/h2>\n<ul>\n<li>Foreign investors were against the SEBI\u2019s T+1 proposal, and had written to the regulator and the Finance Ministry about the operational issues faced by them.<\/li>\n<li>Among the issues raised by them were \u2013\u00a0\n<ul>\n<li><strong>Time zone difference<\/strong>,\u00a0<\/li>\n<li><strong>Information flow process<\/strong>, and\u00a0<\/li>\n<li><strong>Foreign exchange problems<\/strong>.<\/li>\n<\/ul>\n<\/li>\n<li>Foreign investors said they would also find it difficult to hedge their net India exposure in dollar terms at the end of the day under the T+1 system.\u00a0<\/li>\n<li>In 2020, SEBI had deferred the plan to halve the trade settlement cycle to one day (T+1) following opposition from foreign investors.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<hr \/>\n<h3><strong>Q1) What is a Demat Account?<\/strong><\/h3>\n<p>A demat account is a necessary account that holds financial securities digitally and to trade shares in the share market. In India, demat accounts are maintained by two depository organizations: the National Securities Depository Limited and the Central Depository Services Limited.<\/p>\n<p>&nbsp;<\/p>\n<h3><strong>Q2) What is SEBI?<\/strong><\/h3>\n<p>SEBI stands for Securities and Exchange Board of India. It is a statutory regulatory body that was established by the Government of India in 1992 for protecting the interests of investors investing in securities along with regulating the securities market.<\/p>\n<p>&nbsp;<\/p>\n<hr \/>\n<p><strong>Source:\u00a0<\/strong><a href=\"https:\/\/www.business-standard.com\/article\/markets\/india-to-move-to-t-1-settlement-from-friday-here-s-what-experts-say-123012600583_1.html\" target=\"_blank\" rel=\"nofollow noopener\"><u>India to move to T+1 Settlement System<\/u><\/a>\u00a0|\u00a0<a href=\"https:\/\/indianexpress.com\/article\/explained\/explained-economics\/t1-settlement-cycle-comes-into-effect-on-january-27-8406168\/\" target=\"_blank\" rel=\"nofollow noopener\"><u>Indian Express<\/u><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The T+1 settlement cycle means that trade-related settlements must be done within a day.<\/p>\n","protected":false},"author":5,"featured_media":32995,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[],"class_list":{"0":"post-32994","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/32994","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=32994"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/32994\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/32995"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=32994"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=32994"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=32994"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}