T+2 to T+1 Settlement Transition
India transitioned from T+2 to T+1 equity settlement in a phased rollout completed in January 2023, becoming the first major market globally to implement T+1 and significantly reducing counterparty risk, margin requirements, and the capital tied up in the settlement cycle.
A settlement cycle defines how many business days elapse between a trade execution and the actual exchange of securities and funds. Under T+2, a trade done on Monday was settled on Wednesday. Under T+1, that same trade settles on Tuesday. Shorter cycles reduce the period during which a buyer is exposed to the risk that the seller might default, and vice versa, thereby reducing systemic risk in the financial system.
SEBI announced the phased introduction of T+1 settlement in January 2022, starting with the smallest stocks by market capitalisation and progressively expanding to larger stocks. The rationale for a phased rollout was to allow market participants — especially foreign portfolio investors whose operational processes, time zones, and custodian chains required adjustment — to adapt without disruption. Each phase added more securities to T+1 until the top 500 stocks by market cap, including the Nifty 50 and Nifty 500 constituents, moved to T+1 in January 2023.
From an investor perspective, T+1 means that sale proceeds are available one day sooner, improving the cash flow management of active traders and institutions. For retail investors using margin trading facilities, the faster cycle reduces the period for which brokers hold collateral. For the system as a whole, clearing corporations carry lower open positions overnight, reducing stress scenarios in the event of a major market disruption.
Foreign portfolio investors initially expressed concern about T+1, arguing that their custodians in different time zones could not confirm trades and pre-fund foreign exchange requirements within one day. SEBI worked with FPIs and the RBI to develop an optional pre-funding and foreign exchange solution that allowed FPIs to participate in T+1 without operational failure. Most large FPIs had adapted successfully by the time the top-500 rollout occurred.
India's T+1 implementation was watched closely by other markets. Several global exchanges and regulators cited India's successful transition when evaluating their own move from T+2 to T+1. The US SEC mandated a shift to T+1 for US markets in May 2024. India's early mover status positioned its market infrastructure as a benchmark for settlement efficiency, a significant credential for a market that aspired to global inclusion in major bond and equity indices.