1.6 Clearing and settlement
Motivation
Settlement decides when money and shares actually move. It determines when you can sell shares you bought, when dividends are yours, and how much counterparty risk the system carries. Its failure is the subject of the Harshad Mehta case in 1.11.
1.6.1Settlement cycles#
T+1 India moved all equities to T+1 rolling settlement in phases, completed on 27 Jan 2023 (SEBI circular of 7 Sep 2021 enabled it). A trade on day T settles on the next trading day.
T+0 (optional) SEBI introduced an optional same-day settlement in beta from 28 Mar 2024 for 25 stocks and a limited set of brokers (SEBI circular of 21 Mar 2024; Business Standard, 28 Mar 2024). Obligations in T+0 and T+1 are not netted against each other. A SEBI circular of 10 Dec 2024 widened eligibility to the top 500 stocks by market capitalisation, phased in from January 2025, with broker participation optional (Business Standard, 10 Dec 2024). Current 2026 adoption could not be verified; T+0 volumes are believed to be small. Treat T+1 as the operating regime.
What T+1 implies
- Buy today, sell tomorrow (BTST). Shares bought on T are credited on T+1. If you sell them on T+1 before credit, you are selling shares not yet in your account; brokers allow this with a short-delivery risk.
- Intraday netting. A buy and sell of the same quantity on the same day net to zero delivery. That is why intraday trades carry no delivery STT (1.7) and why they are taxed as speculative (1.8).
- Corporate-action dates. To receive a dividend, bonus or split you must be the holder in the depository records on the record date. Under T+1, a purchase settles the next day, so the last day to buy and still be on record is the trading day before the record date. Brokers' explanations state that the ex-date now equals the record date under T+1; buying on the ex-date does not give you the benefit. A few sources still describe a one-day gap; NSE's corporate-actions page for a given stock is the authority.
1.6.2Netting, margins and default#
Clearing mechanics (brief) The CC nets each member's obligations across all trades in a security, so only net quantities move. It collects margins: for cash-market positions, VaR-based margins plus extreme-loss margins; for F&O, SPAN-style scenario margins plus exposure margins (M07 covers derivatives margins). If a member defaults, the CC uses that member's margins, then its own resources and the settlement guarantee fund. Your broker is the only member you deal with, which is why broker risk (not exchange counterparty risk) is the relevant non-market risk.
Practitioner notes
- Delivery-versus-payment (DvP) means the security moves if and only if the cash moves. Every modern settlement design aims for this. The 1992 securities scam was possible because the government-securities market was not DvP (1.11).
- Short selling in the cash market must be covered intraday unless you borrow stock through the securities lending and borrowing (SLB) mechanism. A short you cannot cover by the close goes into the exchange's auction for short deliveries, with penalties.