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Chapter 16: Trading Days and Trading & Settlement of Trades

Indian stock exchanges operate from Monday through Friday, excluding declared public holidays. A standard trading day in the equity segment is structured into distinct sessions:

  1. Pre-Open Session (09:00 AM – 09:15 AM):
    • Order Entry & Modification (09:00 AM – 09:08 AM): Investors can enter, modify, or cancel orders.
    • Order Matching & Discovery (09:08 AM – 09:12 AM): The system runs a call auction algorithm to determine the equilibrium opening price by maximizing matched volume. No order modifications are permitted.
    • Buffer Period (09:12 AM – 09:15 AM): Facilitates smooth transition into the regular market.
  2. Continuous Trading Session (09:15 AM – 03:30 PM): The core trading window where orders are continuously matched on a price-time priority basis.
  3. Closing Session (03:30 PM – 03:40 PM): The official closing price of an equity share is calculated as the volume-weighted average price (VWAP) of all trades executed during the final 30 minutes (03:00 PM – 03:30 PM).
  4. Post-Closing Session (03:40 PM – 04:00 PM): Investors can place buy and sell orders that execute strictly at the predetermined closing price, provided matching counterparties exist.

Settlement is the process through which securities are transferred from the seller to the buyer and funds are transferred from the buyer to the seller.

Workflow & Structure Diagram
Trade Day (T)  =============>  Settlement Day (T+1)
[ Trade Execution ]            [ Funds & Securities Pay-in by 11:00 AM ]
                               [ Final Pay-out by Clearing Corp ]

1. T+1 Rolling Settlement Cycle

India became the first major global economy to fully transition its entire equity market from a T+2 cycle to a T+1 Rolling Settlement Cycle (completed January 2023).

  • Mechanism: A trade executed on Monday (T) is settled on Tuesday (T+1).
  • Pay-in Deadline: On T+1 morning, the selling broker must deliver securities and the buying broker must deliver funds to the clearing corporation (typically by 11:00 AM).
  • Pay-out: The clearing corporation processes the net settlement and completes the pay-out of securities and funds to brokers by early afternoon on T+1.
  • Benefits: Reduces systemic settlement risk, lowers capital requirements, and releases margin and capital back to investors within 24 hours.

2. The Optional T+0 and Instant Settlement Framework

In 2024, SEBI introduced a phased beta implementation of T+0 Same-Day Settlement for a select basket of liquid stocks alongside the existing T+1 cycle. Under T+0, trades executed up to 1:30 PM are settled on the same day by 4:30 PM, with eventual progression toward instantaneous, trade-by-trade UPI and demat settlement.

When an investor sells shares that they do not actually hold in their demat account and fails to arrange delivery by the T+1 pay-in deadline, a Short Delivery occurs.

To protect the innocent buyer:

  • The clearing corporation does not permit the trade to default. Instead, it conducts an Auction Session on T+1 afternoon.
  • The clearing house purchases the required shares from the auction market at prevailing market prices and delivers them to the buyer.
  • Any financial loss arising from the auction (purchasing shares at an auction price higher than the original trade price) plus exchange penalty fees are debited directly to the defaulting seller.
  • If the stock cannot be acquired in the auction (e.g., due to an upper circuit), the trade is settled through financial close-out at a penalty price prescribed by the exchange.
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