Trading Holiday Vs Settlement Holiday

Today, 29 September 2023, is an unusual day in the financial markets. It is a trading day for all financial instruments but a settlement holiday for some. Quarter-end has added to the confusion. Why so?

The Government of Maharashtra moved the public holiday for Eid-e-Milad from 28th September to 29th September. So, the Clearing Corporation moved the settlement holiday for Equity and F&O as well. Note that trading will be allowed on both days.

Let’s first break down the difference between a trading holiday and a settlement holiday. Then, we will identify the instruments that have a settlement holiday from those that don’t.

When you trade in a security, its settlement happens on the T+1 day. Meaning –

• When you buy a security, it is credited to your demat account on the next working day.
• When you sell a security, the funds are credited to your trading account to withdraw on the next working day.

A trading holiday is when you cannot buy or sell stocks. A settlement holiday is when regular trading persists, but the settlement of an Equity and/or F&O trade does not take place, i.e., stocks or funds due from/to you are not debited/credited to your respective accounts.

Trading and settlement holidays may or may not coincide. Confusion arises when they do not coincide. In the current situation, we have settlement holidays on 29th September and 2nd Oct. We have a trading holiday only on 2nd October. 30th September and 1st Oct are a weekend.

What are the implications of this? The trades you place on 28th September and 29th September will all be settled on 3rd October. But hey, the financial quarter will change over the weekend. Executed but unsettled trades could be a reporting issue.

Therefore, the RBI has decided to keep settlement activities functional today. To sum it up, it is a settlement holiday for Equity and F&O transactions of September 28, but not for the Currency derivative segment. The RBI’s primary market operations of government securities, money market securities, and rupee interest rate derivatives are also open for settlement.

As an investor/trader, you must be abreast of the settlement dates to ensure your strategy plays out. You do not want to plan a stock sale before it is credited to your account. You also do not want to plan a purchase before you have funds.