Q. Which of the following is/are benefits of a T+1 settlement cycle introduced by SEBI?
1. Frees up capital for risk collateralization
2. Provides liquidity to investors
3. Decreases unsettled exposure to clearing corporation
Select the correct answer from the codes given below:

[A] 1 and 2 only

[B] 2 and 3 only

[C] 1 and 3 only

[D] 1, 2 and 3

Answer: D

All statements are correct. 

  • T+1 means settlements will have to be cleared within one day after the actual transaction takes place. This means the trades executed on Monday gets settled on Tuesday, the next working day. 

What are the benefits of T+1 Settlement? 

  • Firstly, a shortened cycle not only reduces settlement time but also reduces and frees up the capital required to collateralise that risk. 
  • Secondly, it will provide liquidity to the investors as they get their funds for the shares sold/ credited to their account earlier.  
  • Thirdly, it reduces the number of outstanding unsettled trades at any instant, and thus decreases the unsettled exposure to Clearing Corporation by 50%.  
  • Lastly, a shortened settlement cycle will also help in reducing systemic risk. 

Source: Article