It has been made compulsory to settle all trades within 2 days of the trade, i.e. on a T+2 basis, since 2003. Prior to the reforms, the securities were traded and all positions in the stock market were settled on a _______ settlement cycle whether it was delivery of securities or payment of cash.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Weekly / fortnightly
Option (1) Weekly / fortnightly — Correct. Before the reforms, all trades were settled together on a weekly or fortnightly cycle, for both delivery of shares and payment of cash. Settling on fixed dates encouraged speculation, and share prices rose and fell suddenly. So rolling settlement was brought in, under which each day’s trades are settled a fixed number of days later. Since 2003 this has been T+2.
Option (2) Daily — Incorrect. Trades were not settled every day. They were collected and settled together at the end of the week or fortnight.
Option (3) T+4 days — Incorrect. Any T+ cycle is a rolling settlement. Rolling settlement came only with the reforms.
Option (4) T+3 days — Incorrect. This is also a rolling cycle, which again belongs to the reformed system and not to the one before it.
Note: Although the chapter ‘Financial Markets’ was dropped from the NCERT textbooks during rationalisation, it has stayed in the NTA syllabus every year since 2022, except for 2025, and it is part of the syllabus again from 2026. This question is therefore based on the pre-rationalised NCERT, an extract from which is given below. This chapter left the book and came back to the syllabus, a proper plot twist. One relaxed read of it is enough.
NCERT (Pre-rationalised Edition): “Steps in the Trading and Settlement Procedure It has been made compulsory to settle all trades within 2 days of the trade date, i.e., on a T+2 basis, since 2003. Prior to the reforms, securities were bought and sold, i.e., traded and all positions in the stock exchange were settled on a weekly/fortnightly settlement cycle whether it was delivery of securities or payment of cash. …” |