In this blog we shall talk about BTST/ATST which stands for Buy Today / Sell Tomorrow or Acquire Today / Sell Tomorrow.
This is a facility offered by most of the stock brokers in India (including Zerodha) where you can buy stock today and sell it tomorrow before you get the delivery of the shares. Using this facility has its own merits and demerits and you will need to understand the equity settlement cycle before we go ahead with the topic.
In India, we follow a T + 2 settlement cycle when trading stocks (please note we are talking about only stock/equity trading).
What this means is that if you buy 100 shares of Reliance on Monday, you will get delivery of it (get delivery means it will be credited to your demat account) only on Wednesday evening (Monday is T day, Tuesday T + 1 day and Wednesday T + 2 day). Similarly if you sell shares on Monday, you will receive the funds into your trading account on Wednesday (T + 2 day). Please note that Saturday/Sunday/Public holidays will not be considered for delivery, so if you buy some stock on Friday, you will get it in your demat account only on Tuesday evening (Friday is T day, Monday is T + 1 day and Tuesday T + 2 day).
Another query people usually have is what is a trading and demat account, what is the difference? Demat account is basically an account where your stocks sit in a dematerialized format and this is the only use of the demat account. It is very similar to a safety locker in the bank where you keep your valuables, in the bank locker you keep the valuables in physical form and in a demat account you keep your stocks in an electronic form. Trading account is where all the action happens, trading account is where you keep your funds, trading account is where you buy/sell stocks/F&O, trading account is where your futures and options contract stays, where the intraday position stays. In case you buy a stock for delivery in your trading account, after 2 days the stock is credited to your demat account mapped with your trading account and when you sell stocks the same is debited from your demat account. For trading F&O, you don’t require a demat account as F&O are contracts and they stay in your trading account till the end of expiry.
Getting back to the main topic,
When you buy a stock, ideally you should sell it only once you get delivery to your demat. So if you buy some stock on Monday, you should ideally sell it only on Thursday onwards. But this is not an ideal world and sometimes opportunities arise much before that and people would want to take an exit decision before getting delivery. At Zerodha we let you buy and sell before getting delivery. What this means is that if you buy a stock for delivery on Monday, you can sell it on Monday, on Tuesday , on Wednesday and Thursday onwards. A common phrase used in the stock markets today is BTST/ATST and used for trades when you buy stock for delivery and sell the immediate next day.
At Zerodha, If you want to buy a particular stock for delivery, the product type that you need to use while purchasing is CNC – Cash & Carry (you need to have a demat account for taking delivery of stocks, otherwise this option will not be enabled).
Assume you bought 100 shares of Reliance on Monday using the product type CNC and the present price of Reliance is Rs. 800. To purchase as CNC, you will need Rs. 80000 in your trading account (Rs. 800 x 100).
First Scenario: You bought at Rs. 800 in the morning and by 3 PM you saw the price is Rs. 810. You decided to book the profit and you sold the Reliance as CNC. Though you have bought and sold as CNC, this will be considered as an intraday trade and all taxes/brokerage will be according to intraday charges.
Second Scenario: You bought on Monday and Tuesday the price of Reliance was Rs 810. You decide to sell the shares, so you choose the option CNC and sell it (you are doing a BTST/ATST trade). On ZT, we show all these positions as T1 Holdings. T1 Holdings will show you the stocks that you have bought the previous day.
Third Scenario: You bought on Monday and the price of Reliance went to Rs. 810 on Wednesday. You haven’t still got the delivery as it happens only on Wednesday evening. You can still sell using the CNC option. Again, if you want to see such holdings you will have to click on T1 Holdings as shown in the above picture.
Fourth Scenario: You bought Reliance on Monday and on Wednesday evening you get the delivery of stock, if you want to sell these shares anytime after Wednesday you can sell it using the CNC option. If you want to view shares which are in your demat account, click on the Holdings link as shown in the above picture.
Merit of having an option to do BTST/ATST (sell before getting delivery of the stock to your demat account) is that you have the flexibility of exiting anytime after buying the stock. Also when you do BTST/ATST, you don’t have to pay any DP charge. DP charge is what you pay when stocks are debited from your demat account (IL&FS charges Rs. 8 + NSDL charges Rs. 5), for every stock/scrip sold at the end of day, no matter how many times you sell during the day. And because you are selling the stock before it hits your demat account, you don’t have to pay any DP charges.
Update: BTST transactions are settled by first crediting shares to your account on the day it is received from the Clearing Corporation. On the same day, your shares will be earmarked for delivery against the sell leg of the transaction you would have already carried out. By transferring the shares to your account, subsequently earmarking and then debiting for sale settlement, you will be ensured of getting credit for all corporate actions like dividends, bonus directly in your name. Similarly, if any TDS was deducted for dividends, the same would be filed against your PAN and would reflect in your 26AS instead of it being passed on from the Broker’s PAN. Since the shares get credited to your demat account and then debited for BTST transactions, there will be DP charges that will be applicable like normal delivery transactions.
Demerits: If traders are looking to convert intraday positions to delivery, you need to keep in mind that STT (Securities Transaction Tax) will go up almost 10 times if you decide to keep your intraday positions overnight.
Stocks sometimes are moved to T2T Segment(Trade to Trade Segment) by the exchanges to curb speculative interest. When a stock is moved to T2T, you will have to compulsory take delivery if you buy and give delivery when you sell. When a stock is moved to this segment, you will not be able to do intraday trading or BTST/ATST trading.
How do you know if a stock is moved to T2T segment? : If you look for the stock in either of the exchange websites, you will see if it is in normal market or T2T. Also another way to know this is, while adding the stock on the marketwatch, you get an option to choose EQ or BE, EQ is for normal market and BE for T2T. If the stock is trading as BE and not EQ, it means the stock is in T2T.
The most important thing to know about BTST/ATST is:
RISK OF BTST/ATST( Selling shares before you have received delivery of the shares to your demat account):
Let me explain with an analogy:
You have deposited a cheque into your bank account for Rs. 10000 and are expecting the cheque to be cleared by Wednesday evening, you write a cheque in favor of a friend on Tuesday. You know that your friend will present the cheque to his bank on Wednesday and by the time it reaches your bank, the other cheque would have cleared. Ideally, if the cheque you deposited gets cleared on Wednesday, the cheque you have given to your friend also clears. But we are not in an ideal world, what happens if the cheque you deposited into your bank account bounces on Wednesday? Yes the person who gave you the cheque is penalized by his bank, but you are also penalized now because your cheque would have also bounced on Thursday.
Similarly when you buy shares and sell it before delivery, what happens if you don’t get the delivery?
This is called short delivery (could be partial/complete), this would happen when the person who sold you shares doesn’t deliver stocks to you, this could be because the other person had shorted for intraday and didn’t cover his positions, stocks hitting upper circuits and similar reasons. The role of the exchange is to ensure that when you buy stocks, you get it!!! So what the exchange does is that on T+2 day(between 2pm to 2.45pm), it conducts an auction and purchases the stock which the other person defaulted to give you and this is credited to your demat account on T+3. The other person is then charged with the auction penalty which can sometimes be as high as 20% of the stock price or more.
So when there is a short delivery, the stocks that you bought on Monday, instead of you getting delivery on Wednesday (T +2) you will now get it only on Thursday (T+3).
Here is the problem that can arise when you do a BTST/ATST trade and there is a short delivery.
You bought shares on Monday and you sold them on Tuesday, so you assumed that the person selling you shares on Monday will deliver it to you on Wednesday evening and what you are selling on Tuesday will be adjusted with stocks you receive on Wednesday. But unfortunately you had a short delivery, so on Wednesday evening you don’t have any stocks, so what happens is that on Thursday when you are supposed to deliver the stocks, you don’t have any (stocks from auction will come to you only on Thursday evening, but what you sold on Tuesday has to be given to the exchange latest by Thursday morning). In such a case, similar to the cheque bounce example, you default. When you default, the exchange will now put that auction penalty on you.
Basically what you need to remember is that when doing ATST/BTST trading, try trading only on liquid A group stocks, because the short delivery risk is reduced and hence chances of you having to face an auction penalty. The auction risk goes up quite a bit when you trade ATST/BTST on illiquid stocks. Please note that whenever you decide to sell stocks before taking delivery, you are taking the onus of any auction penalty that may arise because of short delivery.
Hoping that none of you have to ever face an auction penalty,