what is Trading Cycle explain in short term

Posted on 01-05-2016        By leena

what is Trading Cycle explain in short term:

The trades accumulated over a trading cycle and at the end
of the cycle, these were clubbed together, and positions were netted out and
payment of cash and delivery of securities settled the balance. This trading
cycle varied from 14 days for specified securities to 30 days for others and
settlement took another fortnight. Often this cycle was not adhered to. Many
things could happen between entering into a trade and its performance
providing incentives for either of the parties to go back on its promise. This
had on several occasions led to defaults and risks in settlement. In order to
reduce large open positions, the trading cycle was reduced over a period of
time to a week. The exchanges, however, continued to have different weekly
trading cycles, which enabled shifting of positions from one exchange to
another. Rolling settlement on T+5 basis was introduced in respect of
specified scrips reducing the trading cycle to one day. It was made mandatory
for all exchanges to follow a uniform weekly trading cycle in respect of scrips
not under rolling settlement. All scrips moved to rolling settlement from
December 2001. T+5 gave way to T+3 from April 2002 and T+2 since April
2003. The market also had a variety of deferral products like modified carry
forward system, which encouraged leveraged trading by enabling
postponement of settlement. The deferral products have been banned. The
market has moved close to spot/cash market.

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