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How to trade in T2T stocks?

28 Nov 2022 0 COMMENT

Introduction

Trade-to-trade stocks or T2T stocks refer to securities that must be compulsorily delivered for successful trading (T+2 settlement). Investors cannot trade these equities intraday or with the Buy Today Sell Tomorrow method. Once you acquire T2T stocks, you cannot sell them till the completion of the T+2 settlement. If you attempt to sell these stocks the same day or before their delivery into your demat account, your order will get rejected.

Criteria for shifting a company’s stock to the T2T segment

Transferring shares to the T2T segment is a fortnightly practice, while every quarter, the exchange decides to transfer to and from the T2T segment. The stock exchanges decide only after consulting SEBI.

A stock transfer is not based on one criterion but a mix of three separate criteria. Each criterion is used conditionally.

P/E overvaluation

In BSE, if the stock’s P/E ratio is over 30 and the Sensex P/E is between 15 and 20, the stock is considered for shifting to the T2T segment. To calculate the P/E, experts use the trailing EPS of the last four quarters.

Price variation

The second criterion for making the stock ready for a transfer to the T2T segment is price variation. It must be around 25% more than the Sensex or the specific sectoral index to which it is benchmarked. The direction of the variation should be the same as Sensex.

Market capitalisation

A company having a market capitalisation below Rs 500 crores is considered a fit for the T2T segment. Generally, IPOs are not considered for transferring to T2T.

A company can be shifted to the T2T segment and also shifted back to the regular segment at any time. This process of shifting is a quarterly assessment review performed by the exchange and the regulator.

How to identify T2T stocks?

Although you understand what a trade-to-trade stock is, how do you recognise it on the stock exchange?

After consulting SEBI, exchanges categorise scrips into different series based on the type of instrument and settlement. T2T stocks belong to a different series. You can check these stocks on the official website of NSE and BSE. The purpose of the classification is to protect the interests of investors and traders.

T2T refers to delivery-based settlement only. There is no option for intraday. You buy the stock by paying for the trade.

How to trade in T2T stocks?

The steps mentioned below can help you complete a T2T trade.

  • To buy a T2T stock, you must pay the entire amount and take the trade on delivery.
  • To sell the stock, you must ensure that you have the stock’s delivery in your demat account. If you don’t, you cannot sell the stock.
  • After selling the share, this segment does not allow intraday or netting off. Thus, investors must ensure delivery in the demat account and give it on the T+2 date. Without completion of the T+2 period, the shares will go directly into the auction, resulting in significant losses for the investor and penalisation for the broker.
  • The T2T segment mandates the payment of the amount and delivery of shares. Every trade has to end in delivery. There is no option for Sell Today and Buy Tomorrow (STBT), Buy Today and Sell Tomorrow (BTST), or covering the investor’s position.

T2T trade example

A regular trade in the stock market allows traders to purchase and sell the shares of a company on the same day. So, you buy 1,000 shares of company X at Rs 17 each and sell them at Rs 20 each on the same day. You gain a profit of Rs 3,000 based on intraday trading.

However, if the shares of company X are in the T2T segment, you will first pay the broker Rs 17,000 for purchasing the shares. Then, you will wait for the delivery of the shares. You can sell the shares only after their delivery in your demat account.

Things to remember while trading in T2T stocks

Now that you understand what a trade-to-trade stock is and its trading, here are some things to keep in mind while trading.

  1. These stocks are compulsorily delivered.
  2. You cannot execute intraday or BTST trades.
  3. If you try to sell T2T stocks from your portfolio before the completion of the T+2 settlement period, the order will get rejected.

Make sure you consider these points while buying a T2T stock.

Takeaway

The T2T segment can appear complex, but it has its advantages. Trading in the T2T segment can protect investors from price fluctuations and complete speculations.

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. Name of the Compliance officer (broking): Ms. Mamta Shetty, Contact number: 022-40701022, E-mail address: complianceofficer@icicisecurities.com. Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.