Here's how the T+1 system of settlement is better both for buyers & sellers

#Expert Columns, #Market news

There was a time, few decades back, when the settlement of Buy / Sell of shares used to be done in several days. In the year 2003, it was reduced from T+3 rolling settlement to T+2 rolling settlement period. “T” being the date on which the trade was done, the buyer of the shares gets the delivery of the shares in two days from the date of its purchase & seller of the shares gets the funds in two days from the date of its selling, subject to meeting pay-in obligations. This was a marked improvement over the previous system.

Now to further strengthen the system, the settlement period has been proposed to be reduced to T+1, for the specified scrips which are opted for T+1 settlement by the exchanges and this shall happen by January 2022, which is still better for the stock market because this is beneficial for the seller as well as for the buyer. It is always better to close any transaction in the smaller period.

When a buyer buys the shares it will get the delivery of the shares in one day and can sell them immediately. This is very useful for the investors who are buying the shares today and want to sell them urgently. Now the uncertainty of not getting the delivery for the bought shares is reduced to one day. Currently there is the risk for the investors who do BTST (Buy today, Sell tomorrow).

For example if the investor buys the shares today and for some reason does not get the delivery of the shares from the seller on T+2 and investor sells the shares next day of buying it will not be able to give delivery of the shares sold by it and the investor’s share will be auctioned. But after the implementation of T+1 cycle this risk will be mitigated for specified scrips because the delivery period will be reduced to one day. Investor need not to wait for two days.

The seller of the specified shares will also able to get the funds next day, since the settlement of funds & securities will get completed on T+1. This will benefit the client immensely who has sold his shares for want of funds. Similarly the requirement of the margin is also reduced.

On the flip side, the investors who are buying shares after paying only the margin and is making the balance payment in next 2 working days, will have to make the balance payment one day earlier after the implementation of T+1 cycle.

On the whole, the change in the system of settlement is better both for the buyer as well as the seller and should be better for the stock market too.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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