What is T 2 Settlement? - Here's All You Need To Know | Espresso

What is T 2 Settlement?

Purchasing and selling shares has become as easy as pushing a button with the online Demat account process. We often think that when we purchase shares, they will be transferred to our Demat account instantaneously.

Published on 09 June 2022

However, this is certainly not the case. Indian stock exchanges use the T 2 settlement cycle to process the shares in the Demat account.

In the T2 settlement cycle, the DP(Depository Participant) transfers the shares to the Demat account of the trader in T+2 trading days. However, in some cases, the shares do not appear in the buyer’s account even after T+2 days have passed.

Let us understand what is T 2 settlement and why the shares do not sometimes come into your Demat account even after T+2 days.

T 2 Settlement Definition

Well, you might wonder that in this era of online processes where everything is completed with the touch of a button, the process of transferring the shares takes T+2 days. The major reason for this is that some of the depository participants do not make use of the internet. Many depository participants still continue to use physical ways of taking cheques and then transferring the shares using the Delivery Instruction Slip.

This is the main reason why DPs need a maximum of T+2 days to transfer the shares to the Demat account of the buyer. T+2 means two trading days after the transaction has been initiated. Therefore, if you have initiated the transaction on Friday, the delivery of shares to your Demat account will happen on Tuesday because Saturday and Sunday are off days. It is essential to understand that this is the maximum time your DP can take to transfer the shares to your Demat account. Many times the transfer of shares takes place before the given T 2 settlement time.

But, in some cases, buyers do not receive their shares even after the T+2 trading days have passed. So let’s understand the reason why it takes more than T 2 settlement days for the transfer of shares to the Demat account.

Reasons for Non-Transfer of Shares Even After T+2 Days

Even after T+2 days are over, there are some reasons why your shares have not been transferred; these include:

  • Your stockbroker is waiting for the clearance of your dues

You have to pay small fees to your depository participant for trading using your Demat account. In most cases, the DP does not hinder the transfer of shares to your Demat account if the overdue is small. But, as time passes, these charges might pile up, and your DP might obstruct the transfer of shares to your Demat account till you pay off these charges. Some of these charges include yearly account maintenance charges, market to market losses, and margins that have not been paid. In such a case, you must contact your stockbroker or DP and clear all the charges that might have piled up.

  • Insufficient amount of shares bought

Sometimes it might happen that you buy a certain number of shares, but those shares are accessible for sale at that given point in time. In this case, there will be no credit of shares to your Demat account until the seller of these shares makes them accessible for sale.

Although this rarely happens with large-cap stocks because their liquidity is higher due to more trading volumes, it can happen with mid-cap or low-cap stocks where there are liquidity problems with such shares because of lower trading volumes.

In this case, the number of shares that the seller has failed to deliver gets auctioned and either you receive the shares within 5 to 6 days or you get your money back. All this information is provided to you by your DP. In case you do not get your shares within T+2 days, contacting your DP is essential.

  • Regular BTST activity by the intraday traders

If you participate in intraday trading regularly, there is a chance that you will place a lot of BTST orders. BTST means Buy Today Sell Tomorrow. With this kind of order, you are allowed to sell off your shares on T+1, even though the delivery takes place on T+2. There is an understanding that you will deliver once you have the stocks with you. In case you have sold off your stock on T+1 itself, then there is hardly a question of getting the delivery on T+2.

But, in case you sell off another stock on T+1, and this stock goes on to get auctioned, then, in that case, your DP might put a temporary stop to other shares getting credited in your Demat account. But once the auction gets over, the stocks will be delivered to your account.

  • There is no valid reason

In rare cases, your DP might not transfer the shares to your Demat account due to any of the reasons listed above. If that is not the case, then the issue must be escalated with the DP, and you must seek an answer. Furthermore, in some cases, brokers can misuse the shares while holding on to them. Therefore, it is essential to know the reason for the delay in the delivery of shares to your Demat account.

Conclusion

Typically, the shares that you buy using your Demat account are delivered to your account within T+2 trading days. However, there can be some delays in the delivery of shares due to outstanding charges, insufficient shares bought, or regular BTST activity. If anything like this happens, you must contact your DP on T+3 days and escalate the issue.

 

Chandresh Khona
Team Espresso

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