What are T2T stocks? How to trade in T2T stocks?

The SEBI regulates numerous areas of the equities market (also known as the stock market), including rolling settlement, institutional segment, qualified foreign investor segment, and so on. Trade to Trade Segment is one of these many distinct segments.

Before we get into what makes the Trade to Trade sector so special, let’s first define what it is and why it was created.

What exactly is the Trade to Trade (T2T) Stock Segment?

Shares that are highly speculative and susceptible to price manipulation are transferred to the T2T or Trade to Trade section. This section does not enable intraday or BTST (Buy Today – Sell Tomorrow) – trading. When trading in this category, delivery of the shares is mandatory. The shares are delivered to the investors account via the T+2 delivery mechanism. This is a section created to limit speculation and preserve a market free of volatile price changes.

Criteria for Transferring Shares in the Trade Stock Segment (T2T)

Only shares that cannot be traded in the F&O or derivatives segments can be transferred to the T2T section. As a result, derivatives shares can never be moved to the T2T segment.

Shifting of shares to the T2T segment is normally done on a fortnightly basis, while the NSE and BSE assess the shares for shifting to and from the T2T sector on a quarterly basis based on three particular criteria. And each of these factors is employed on a case-by-case basis.

1.    P/E Overvaluation

Assuming the Nifty’s P/E multiple is about 20-25, and the stock under consideration has a P/E multiple of 50, it will be regarded as overvalued on the NSE. Depending on the other two factors, such expensive stocks may be reclassified as T2T.

2.    Market Capitalization

If a stock’s market capitalization falls below 500 crores, it may be considered for inclusion in the T2T category. Allowing intraday trading on such shares, with the exception of new IPOs, might result in significant volatility in the stock, as well as capital erosion and price manipulation.

3.    Price Variation

If the price variation of a certain stock is roughly 25% greater than the price variation of the Sensex or the Benchmark index of the particular stock, it will be considered for transfer to the T2T sector. The variation must be in the Sensex direction. As on the review date, the security should have been in the 5% price filter band for at least 22 trading days. If a stock does not meet these criterion, it cannot be moved to the “T” segment.

How frequently are stocks transferred to the T2T segment?

On a fortnightly basis, shares are transferred to the T2T section. Every quarter, the trade decides to shift to and from the T2T segment.

When a stock is moved to the T2T sector, the price filter bands are locked at 5% for at least 22 trading days. This ensures the stability of these equities. It cannot be shifted to the ‘T2T’ segment if it does not meet the criteria.

How to Trade the T2T shares in stock market?

An investor can trade in the T2T section by following the instructions below:

If the investor wants to buy shares, he must pay the whole price and accept the trade on delivery.

It is vital to note that before selling shares, the investor must ensure that he hasdelivery in your Demat account; otherwise, he will be unable to sell shares.

After the shares are sold, no netting off or intraday trading is permitted in this segment. As a result, it is critical to guarantee that the investor has delivery in their Demat account and can provide it on the T+2 date (Trade day + 2 days). Without T+2, the shares will be auctioned directly, resulting in significant losses for investors in addition to the broker being penalised.

Payment of the sum and delivery of the shares are required in this section, and each trade must result in delivery at the conclusion. There is no scope for covering an investor’s position, nor for Buy Today and Sell Tomorrow (BTST) or Sell Today and Buy Tomorrow (STBT).

T2T Transaction Example

Assume, in a typical stock market scenario, a trader buys 5000 shares of ABC Company for Rs 50 and sells them the same day at Rs 51 each. Based on intraday trading, the trader made a profit of Rs. 5000.

If, on the other hand, ABC Company’s stock was in the ‘T2T’ Segment, the trader would first pay Rs 2,50,000 to the broker to obtain the delivery, and he would then be unable to sell it until he received the delivery of shares in his Demat account. He can only sell such shares after he receives the delivery.

The NSE and BSE websites both have a list of stocks that have been shifted to the T2T section. Before dealing in such companies, many trading platforms give a disclaimer. So be cautious while purchasing a T2T stock so that you do not get sucked in and incur unnecessary losses and financial injury.

T2T is a difficult segment, but it offers its own set of benefits. By trading in the T2T segment, the investor can avoid price fluctuations and compete speculations.

 

About the Author

Ketan Sonalkar (SEBI Rgn No INA000011255)

Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.

Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice

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