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SEBI will introduce an alternative arrangement of ‘T+1’ (trade and next day) settlement arrangement for trading and trading of shares from January 1 next year. Currently, it takes two (T+2) days after trading to complete a transaction in the stock exchanges. Exclusive conversation with Amit Pamnani, CEO of Swastika Investments, on what will change with the implementation of the new system
Question: How is T+1 different from the current settlement cycle?
Answer: If you buy shares of any company in BSE or NSE today, then that share will be transferred in your demat account in the next two working days (T+2) of trading. Obviously, only after that you can sell that share. The shares will be transferred to your demat account from January 1 on the very next day of trading (T+1). Till 2003 the T+3 settlement cycle was in vogue. The T+1 cycle is optional, so from January 1, if a stock exchange wants to continue with T+2 settlement, it will have to give one month’s notice.
Question: What is the intention behind implementing the new settlement system?
Answer: The intention of the market regulator SEBI behind reducing the settlement cycle is to increase the agility of trading in the market. This decision is also in the interest of the investors. Shortening the settlement cycle will reduce operational risk and reduce liquidity requirements.
Question: What does T+1 mean to individual investors?
Answer: T+1 is very beneficial for those looking to buy and sell a large amount of shares. With the settlement done a day in advance, they will be comfortable in terms of cash and the margin requirement will also be less. This new settlement arrangement will not have much impact on small or retail investors.
Question: What are the disadvantages of a new settlement cycle investor?
Answer: There is no direct disadvantage to the new settlement cycle. There may be some constraints, such as the settlement of the deal on the very next day will not give the investor time to make payment arrangements.
Question: What effect could the new regime have on market volatility?
Answer: There will definitely be volatility in the market. Investors have to be more careful. However, given that returns are always available in volatile markets, it should be considered positive.