Indian stocks on Friday made a complete transition to a shorter settlement cycle or T+1 regime, a move that will bring significant capital efficiency to investors and improve risk mitigation across the sector.

T+1 (trade plus one) means that settlements related to market transactions must be cleared within one day of the actual transaction. Previously, trades on Indian stock exchanges were settled within two business days (T+2) of trade completion.

In a statement, the National Stock Exchange (NSE) said all equity tranche securities trades executed from January 27 would be settled on a T+1 basis.

The journey to shorten the settlement cycle started on September 7, 2021, when capital market regulator Sebi allowed stock exchanges to introduce a T+1 settlement cycle for any securities available in the equities section from January 1, 2022.

Subsequently, various market infrastructure institutions, exchanges, clearing companies, and depository institutions jointly determined a roadmap for implementing the T+1 settlement cycle in stages.

The first batch of securities will be converted to T+1 settlement on February 25, 2022, and about 500 securities will be converted to T+1 settlement monthly.

From January 27, stocks include SME stocks, exchange-traded funds (ETFs), real estate investment trusts (REITs), infrastructure investment trusts (InvITs), sovereign gold bonds (SGBs), government bonds and corporate bonds. All securities shares in the equity portion will now only be settled on a T+1 basis.

Most developed and emerging global markets stock exchanges follow the T+2 settlement system.

The exchange said the achievement is significant given the size of the NSE and the scale of operations in the equities sector.