What is the Meaning of Trade to Trade (T2T) in the Share Market?
If you check out the Notices Page on National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), you will notice a list of companies that have been transferred to the Trade-to-Trade segment. This is also known as the T2T segment and both NSE and BSE decide to transfer the shares to the T2T segment after consulting the Securities and Exchange Board of India (SEBI).
The purpose behind shifting the companies to T2T is to prevent unnecessary speculation in the stock. SEBI is cautious about volatile stocks as retail investors are vulnerable to getting caught in unpredictable price movements.
What is Trade to Trade (T2T) Stock?
Trade to Trade (T2T) stocks represent a segment where any selling or buying has to result in compulsory delivery. This means that intraday squaring of positions will not be permitted on T2T stocks as this could lead to a rise in speculation in these types of stocks.
What are the Criteria for transferring the Shares to the T2T segment?
Following are the criteria for transferring the shares to the T2T segment:
- Stocks that are available for F&O trading will not be shifted to the T2T segment. In other words, only the stocks that are not available for trading in the F&O segment can be considered for transfer to the T2T segment.
- Shifting stocks to and from the T2T segment are decided jointly by the stock exchanges in consultation with SEBI. The process of identification of securities moving to the Trade-to-Trade segment is done on a fortnightly basis. On the other hand, the securities moving to/from Trade to Trade is done quarterly.
- The decision to transfer stock to the T2T segment will not be done based on one criterion but by the combination of 3 different criteria. Each of these criteria will be used conditionally and are explained below:
- The 1st criterion is P/E overvaluation. In the case of the BSE, if the P/E of stock is over 30 and if the Sensex P/E is in the range of 15-20, then the stock will be considered for transfer to T2T. The EPS considered for calculating the P/E is the trailing EPS of the last 4 months.
- The 2nd criterion is the price variation. If the price variation of the stock is nearly 25% more than the Sensex, then the stock will be considered for transfer to T2T. The variation must be in the same direction as the Sensex.
- The 3rd criterion is the market capitalization of the stock. If the market cap falls below Rs 500 crore, then it will be considered for shifting to the T2T segment. The aim is to prevent the speculation in stocks that could be vulnerable to price manipulation given their small size. IPOs are generally not included in the T2T criteria.
- Keep in mind that just as stocks can be shifted to the T2T segment, they can also be moved back from the T2T segment to the normal segment. This is a part of the quarterly assessment review that is done by the exchanges along with the regulator.
What Happens to the Stock When it is Shifted to the T2T Segment?
When the stock is moved to the T2T segment, only the delivery trades are allowed on the stock. Intraday squaring will not be permitted as intraday does not entail the delivery of the stock. Once a stock is moved to a T2T segment, the circuit filters are pegged in the range of ±5%. This helps in curbing the volatility in these stocks up to a level. This is the main purpose behind shifting to the T2T segment.
Frequently Asked Questions
- What happens when I buy a stock that is under T2T trading?
When you purchase a stock that is under T2T trading, then you will have to take delivery of the stock compulsorily. This means that you have to pay the stock value by EOD. Otherwise, the broker will have to sell the shares on T+2 in the market and the loss will be debited to you. You may also end up getting penalized by the broker.
- What happens when I sell a T2T stock?
When you sell a T2T stock, it is essential to check that you have delivery in your Demat account. Once you sell the shares, you will not be able to buy them back as intraday is not allowed in these T2T stocks. If you are not able to give delivery on the T+2 date, then it goes into auction and there may be huge losses along with the penalties.
- Is Intraday Trading permitted in T2T stocks?
No, Intraday Trading is not permitted in T2T stocks. Generally, broker trading systems will warn you about T2T stocks but once you sell or buy a T2T stock, there is no scope for covering your position. You will have to give or take delivery.
- What is the difference between T2T and normal stock?
In the broking industry, Buy Today Sell Tomorrow (BTST) and Sell Today Buy Tomorrow (STBT) are very common. You buy today and sell tomorrow or you sell today and buy tomorrow. In both cases, you are taking an overnight risk on the stock. But in the case of T2T, as all the trades have to result in delivery, there is no scope for either BTST or STBT trades.
- What is the difference between the T2T stocks and Z-group stocks?
T2T stocks are different from Z-group stocks. While both these stocks are only delivery-based, Z group stocks have a larger fundamental problem that they have not complied with the listing agreement. T2T stocks are better than the Z-group stocks.