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In the simplest words, share trading refers to buying and selling of shares of different companies. But sometimes, you may come across various jargon, especially in the parlance of the stock market, which is very difficult to understand. Without a proper understanding of this jargon, you may find yourself in choppy waters while dealing with the complex nature of stock market trading.
Published on 05 April 2022
One such term with which many rookie traders are not familiar is a trade to trade or T2T stock. When you open the website of the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), you will see a list of the companies that are classified as T2T stocks. So, what exactly are these trade to trade stocks? Let’s discuss.
Trade to trade stocks are those stocks that can be traded only on a delivery basis. It means that you cannot take the delivery of these stocks on the same day. As per the Securities and Exchange Board of India (SEBI) guidelines, all delivery stocks are transferred to the Demat accounts of investors on T+2 days.
This is the reason why T2T stocks are neither eligible for intraday trading nor BTST (Buy Today Sell Tomorrow).The idea behind the shifting of stocks to the T2T segment is to prevent any unnecessary speculations in them. This decision is mostly taken by the stock exchanges in consultation with the SEBI to protect investors from erratic price movements.
After knowing what is a trade to trade stock, you must be wondering what can be the criteria for classifying a stock as a T2T stock. So, below are some key parameters that are taken into consideration before transferring a share into the T2T segment:
The P/E or price-to-earnings ratio of stocks is one of the crucial parameters for shifting them to the T2T segment. If the P/E ratio of a stock is continuously greater than the P/E ratio of its index, it can be considered for moving to the T2T segment.
For example, if the Nifty50 P/E at a given point in time is within 15 to 20, a stock with a P/E ratio of more than 30 at that time can be moved to the T2T segment.
The second important parameter that is considered for moving stock into the T2T segment is the variation in its price. If the value of a stock is varying too much as compared to its benchmark index, the exchange can consider moving it to the T2T segment.
For example, if a stock has shown a price variation of more than 20% in a day, but the Sensex has moved by only 2%, it can be shifted to the T2T segment.
The third criterion for moving stock to the T2T segment is its market capitalisation. If the market cap of a stock is below ₹500 crores, then the exchanges might consider moving to the T2T segment. The idea behind this is to control unnecessary speculation in stocks that could be at a risk of price manipulation owing to their small sizes.
It is crucial to note that a stock is considered for shifting to the T2T segment only if it is not available for trading in the Futures and Options (F&O) segment.It means that stocks that are available for F&O trading cannot be shifted to the T2T segment. Also, Initial Public Offerings or IPO shares are typically excluded from the T2T rules.
As we’ve mentioned before, when a stock is moved to the T2T segment, it can be traded only on a delivery basis. It means that no intraday and BTST trades are allowed on T2T stocks. Here are a few crucial points that you should know about the T2T stocks:
1. If you want to trade in a stock that is classified as a T2T stock, you need to take its delivery. As per the SEBI rules, these stocks will be transferred to your Demat account only after the T+2 days, and hence, no intraday and BTST trading is allowed on them.
2. In case you try to buy and sell these stocks on the same day or the day after, your order will get rejected by the exchange. You can sell a T2T stock only after the delivery settlement after the T+2 trading day.
3. T2T stocks are unlike Z-group stocks. Although both of them are delivery based, Z-group stocks are those stocks that are fundamentally problematic. T2T stocks are much better prospects as compared to the Z-group stocks.
4. A stock that has been shifted to the T2T segment can be shifted back to the normal segment after the quarterly review. This decision is taken by the exchanges in consultation with the SEBI.
Some stocks are shifted to the T2T segment by the exchanges to shield the investors from erratic price movements. A T2T stock gets an upper or lower circuit filter of five per cent,which means that its price cannot move beyond 5% on a single trading day. Therefore, the volatility is such stocks get controlled automatically up to a certain level.
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