Capital markets regulator Sebi on Tuesday introduced T+1 settlement cycle for the completion of share transactions on an optional basis in a move to enhance market liquidity.

At present, trades on stock exchanges are settled in two working days after the transaction is done (T+2).

The regulator has decided to provide flexibility to offer either T+1 or T+2 settlement cycle for the completion of share transactions, according to a Sebi circular.

The stock exchange may choose to offer T+1 settlement cycle on any of the scrips, after giving an advance notice of at least one month, regarding change in the settlement cycle, to all stakeholders, including the public at large, and also disseminating the same on its website.

After opting for T+1 settlement cycle, the stock exchange will have to mandatorily continue with the same for at least six months.

Thereafter, in case the stock exchange intends to switch back to T+2 settlement cycle, it will do so by giving one-month advance notice to the market.

Any subsequent switch (from T+1 to T+2 or vice-versa) will be subject to a minimum period and notice period as mentioned by the regulator. The decision has been taken based on discussions with market infrastructure institutions such as stock exchanges, clearing corporations and depositories.

“There shall be no netting between T+1 and T+2 settlements,” Sebi said.

The settlement option for security will be applicable to all types of transactions in the security on that stock exchange. For example, if a security is placed under T+1 settlement on a stock exchange, the regular market deals as well as block deals will follow the T+1 settlement cycle on that bourse.

The new framework will come into force with effect from January 1, 2022, the regulator said.