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Trade settlement is the final step in a transaction that involves the exchange of securities, where the buyer receives them and the seller's account receives the payment. The trade date (T) marks the day when the trade is executed, while the settlement date (T+1) signifies the actual transfer of ownership.
Since 2023, India has led the worldwide adoption of T+1 settlement for all equity securities, with optional T+0 settlement available for certain securities under SEBI's framework. However, as of January 2026, implementation deadlines had been delayed, and broad availability was still in progress rather than universal. These innovative clearing methods provide reduced counterparty risk, quick liquidity, and a safe environment for all investors.
Key Takeaways
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Since 2023, all equity stocks in India have been subject to mandatory T+1 settlement.
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Counterparty risk and margin needs are decreased by shorter settlement cycles.
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To ensure trade completion, clearing corporations act as central counterparties.
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For compliance purposes, the Securities Transaction Tax (STT) is automatically deducted at settlement.
What is Trade Settlement?
Trade settlement is the final step in a financial transaction, in which the buyer receives the securities and the seller receives the money. Although the agreement is made on the Trade Date (T), the legal transfer takes place on the next business day (T+1).
T+1 (one working day after trade) is now required in India and other major markets. This rolling settlement improves market liquidity while reducing counterparty risk. To protect the exchange and reduce transaction delays, clearing organisations act as intermediaries throughout the process.
What is Rolling Settlement?
Rolling settlement is a system of trading that allows settlement to be continuous, on a fixed number of days after the transaction. This system differs from the old "account period" system, which settled trades in batches weekly. In the current scenario, daily trades are "rolled" into their respective delivery cycle.
In India, the market has adopted a mandatory T+1 rolling settlement cycle. It means:
Trade (T): The day on which an order was executed.
Settlement (T+1): On the next business day (excluding weekends/holidays) , funds and shares are transferred.
Types of Trade Settlement
While T+1 is the mandatory standard, other mechanisms exist to manage liquidity and specific trade types:
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Rolling Settlement (T+1): The standard for almost all stocks. One day after the trade, the money and the shares are transferred to the respective parties, greatly reducing counterparty risk.
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T+0 & Instant Settlement: India introduced an optional same-day T+0 settlement cycle for select stocks under SEBI’s framework. As of January 2026, its implementation remains conditional and dependent on broker readiness, with SEBI extending timelines for full rollout. T+0 settles trades on the same day for eligible orders.
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Trade-for-Trade (T2T): Used for speculative or volatile stocks (often in the "Z" group). These trades require 100% delivery, meaning intraday netting (buying and selling the same stock on the same day) is not allowed.
Clearing Process and Settlement Process of Trades
Trade settlement is the process that legalises the transfer of ownership by confirming the trade done digitally. The method followed in India is through two stages:
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The clearing phase - After the trade has been executed, the Clearing Corporation (such as NSE Clearing/NSCCL) checks it. It applies multilateral netting to determine final obligations. (e.g., if you purchase 10 and sell 5 shares, you net settle 5). This leads to fewer funds and securities being moved around, thereby improving the market's efficiency.
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The settlement phase - This is when the final assets are delivered. The funds and securities are moved to the next business day in India's T+1 cycle. By 2026, many equities will also have T+0 (Same Day) settlement, which brings about immediate liquidity.
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Risks: The system uses a Settlement Guarantee Fund to minimise settlement risk (the risk that one party fails to honour the deal).
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Costs: STT and brokerage fees are charged to your account automatically during this phase.
Read More About: What is STT Tax?
Entities Involved in the Clearing and Settlement Process
Trade completion depends on a strong, well-coordinated network of intermediaries capable of ensuring transaction finality.
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Clearing Corporation (CC): It acts as the CCP, becoming the buyer to the seller and the seller to the buyer. Trades are guaranteed to be settled, no matter what, even in the case of a party's default.
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Depositories (NSDL/CDSL): They are facilities where securities are stored in electronic form and enable the electronic transfer of shares between accounts.
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Clearing Members & Custodians: These are the entities that handle the "pay-in" of funds and securities by the T+1 deadline (typically large brokers or banks).
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Clearing Banks: This is a consortium of banks authorised by SEBI that facilitates the transfer of money among the clearing members and the corporation.
Also Read About: NSDL VS CDSL
How Trades are Cleared and Settled in the Stock Market
In the Indian stock market, the entire trade settlement process is complex but well organised, with synchronisation among exchanges, clearing corporations, and banks. This system primarily follows a T+1 cycle, thereby confirming transactions within one day.
Step-by-Step Process
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Trade Data (T-Day): The exchange sends the trade details to the Clearing Corporation (CC).
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Validation and Netting: The Clearing Corporation (CC) reconciles the information with the custodians. It performs multilateral netting to calculate the total amount of cash or shares each member owes, thereby reducing the actual volume of transfers enormously.
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Pay-in (T+1):
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Money: The buyers' banks deposit the entire amount into the Clearing Corporation's account.
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Shares: The sellers' shares are moved from their Demat accounts to the CC's pool.
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Pay-out (T+1): The clearing corporation balances out the assets by giving shares to the buyer and cash to the seller.
Settlement cycle on the NSE:
The cycle for rolling settlements on the National Stock Exchange (NSE) is given below:
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Activity |
Working days |
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Rolling settlement trading |
T |
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Clearing, including custodial confirmation and delivery generation |
T+1 |
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Settlement through securities and funds pay-in and pay-out |
T+1 |
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Post settlement auction |
T+1 |
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Auction settlement |
T+2 |
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Reporting for bad deliveries |
T+4 |
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Pay-in-pay-out of rectified bad deliveries |
T+6 |
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Re-reporting of bad deliveries |
T+8 |
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Closing of re-bad deliveries |
T+9 |
What is pay-in and pay-out:
Pay-in is the time on T+1 when buyers send the funds to the clearing corporation via members, and the seller sends the securities. Pay-out is on T+1, when the clearing corporation delivers the funds to the seller and the shares to the buyer.
What is a bad delivery?
A bad delivery is when the share transfer is not completed because of the lack of compliance with the norms of the exchange. In the modern electronic era, "Bad Delivery" (damaged physical papers) is rare. The common issue is Short Delivery.
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Short Delivery: Occurs when a seller sells shares but fails to deliver them to the Clearing Corporation on T+1 (e.g., they didn't actually hold the shares).
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Consequence: The exchange conducts an Auction to buy the shares from the open market and deliver them to the buyer. The defaulting seller is charged a penalty and the difference in price.
Conclusion
Trade settlement ensures that all stock market transactions result in the verified, legally authorised transfer of securities and funds. With India employing a T+1 cycle and exploring potential T+0 settlement, the procedure promotes market efficiency and decreases counterparty risk. Knowing how clearing and settlement function allows participants to understand how deals are conducted securely and on schedule.
