What is the meaning of Trade to trade (T2T) in share market?

Share market is full of speculation. The Securities and Exchange Board of India (SEBI) is the governing body that regulates the stock market. It looks after the interest of the traders and investors. It often happens that the traders and investors suffer a good amount of loss due to speculation activities in the stock market.

In order to protect the interest of the shareholders, the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) after consulting the SEBI, moved the stocks to “Trade-to-Trade” or “T2T” or “T” segment.

Let us understand what is Trade To Trade.

What is the meaning of trade to trade?

Trade to Trade is a segment of shares in which intraday trading of shares is prohibited. The investor can purchase the shares only on delivery basis. While purchasing the shares, the trader/investor needs to pay the amount in full for the shares he purchased. Similarly, he cannot sell the shares till he receives the delivery of the shares in his demat account. On receiving the delivery, he can sell the shares. So the script settlement is done on Trade to Trade basis and netting off is not allowed for the day. In simple words, Trade to Trade does not give the opportunity to trade in intraday. 

Let us take an example to understand Trade to Trade in a better way

Example of Trade to Trade

In regular rolling settlement, a trader can indulge in intraday trading. He can buy and sell the same security on the same day. However, this is not the case with securities in Trade to Trade segment. Suppose a trader buys 1,000 shares of GMR Infra at Rs.17 and sells them on the same day at Rs.18. Here, the trader has gained the profit of Rs.1 on 1,000 shares in intraday trading.

If the same stock i.e. GMR Infra falls under Trade to Trade segment, the trader will have to first take the delivery of shares by paying Rs.17,000 to the broker. Further, the trader cannot sell the shares until the delivery of shares come in his demat account. Only when the delivery of shares gets reflected in the demat account, the trader is allowed to sell his holdings in the market.

The National Securities Clearing Corporation Ltd (NSCCL) does not take any case of clearing or settlement of trade executed on Trade to Trade basis on the exchange. But there may be circumstances when the trader may take a contra position in case of Trade to Trade securities. In such cases, the transaction gets cancelled.

Let us look at the cancellation of trade process and penalty thereon.

Cancellation of Trade

If any deal is executed in the T2T segment and the clearing member cancels it, then the trader shall be charged with a penalty. The penalty charge for cancellation is Rs. 1000. If the clearing member is involved in buying as well as selling, the penalty for such trade cancellation is Rs. 2000.

In case the member is unable to settle the trade due to some unavoidable reasons, he is required to take the prior approval of NSSCL for seeking an extension of the settlement date.

Now it is important to learn whether trading in Trade to Trade segment is safe or not.

Is Trade to Trade Segment Safe for Trading?

A stock is good for investment if it has the interest of buyers. One can find this out by looking at the volumes in the stock. However, the higher volume can lead to speculation. This led to introduction of Trade to Trade segment. When the stock becomes the part of this segment, it becomes very safe for investment. The reason is very simple; it gives protection to the investors against erratic price movement and speculation.

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