A regular stock market trader or investor would have, at some point, come across the notice section on BSE or NSE webpages. Under this, one can find the list of stocks that have been moved to the Trade-to-Trade section. Also known as the T2T segment, shares are often moved into this by the exchange after consulting the stock market regulator SEBI.
Shifting of shares to T2T is often done to control unwanted speculation around it. This is to protect the interests of retail investors who may be trapped in sudden and severe stock price movements. So, what is the meaning of trade to trade? Let’s understand this concept in detail.
What are trade to trade (T2T) stocks?
Trade to trade stocks (T2T) are:
- Stocks which require mandatory delivery if bought or sold.
- Stocks that have to be settled on a gross basis, not on a net basis.
- Shares that cannot be traded intraday since squaring off is not permitted.
- Delivered by paying the full amount.
- Delivered separately .
Stock exchanges may shuffle shares in and out of T2T from time to time as per discussions with the market regulator SEBI.
The stock identification process for moving into T2T is done every fortnight, while the actual movement into the Trade-to-Trade segment is done once every quarter. Many criteria come into play during stock selection for T2T, including the company’s price to earnings ratio, market capitalisation and price variation.
Once a stock is moved to the T2T segment, the stock exchange sets the circuit filters to range around ±5%. This curbs the price volatility of such stocks and helps achieve the purpose of shifting the shares to this segment.
How are stocks identified for T2T segment transfer?
Mentioned below are the key parameters for identifying stocks to be transferred to the T2T segment. All these three put together are used to identify and determine stock movement to T2T:
a. P/E overvaluation
If the P/E or price to earnings of BSE Sensex is in the range of 15-20, while a stock’s P/E is above 30, the stock may be shifted to T2T. The trailing earnings per share of the previous 4 quarters is taken into account while calculating the P/E.
b. Price variation
In case the price variation of a stock is about 25% higher than the BSE Sensex or that of the sectoral index that the stock is benchmarked to then the stock could be shifted to T2T. For a stock to be shifted to T2T, its price variation must be in the same direction as the BSE Sensex.
c. Market capitalization
If a company’s market cap drops below Rs. 500 crore, then its stock can be shifted to the T2T segment. This helps in managing speculation of such stocks, as these could be vulnerable to significant price manipulation because of their small size. IPOs are mostly not included in T2T analysis.
It is important to note that only those stocks that cannot be traded in the F&O segment are identified for transfer to the T2T segment.
Once a stock is moved to the T2T segment, the stock can only be traded for delivery and no intraday trading or squaring of positions is permitted. Here are some of the aspects that investors should know about such shares:
- Intraday trading is not permitted in T2T stocks. Although the broker trading systems may provide warnings about such stocks, if these are bought or sold, there is no way to cover the position and the investor must compulsorily take or give delivery.
- Buying a stock that is part of T2T trading requires the buyer to take delivery of the stock and pay towards the stock’s value by the end of the same trading day. Failure to do so will result in the broker selling such shares on T+2 in the market and debiting the loss from the buyer’s account. There can also be penalties in such cases.
- Selling a T2T stock requires the seller to check about having the delivery of the stock in his/her demat account. After selling such shares, they cannot be bought back as part of intraday since the same is not permitted in T2T stocks. In case of non-delivery on T+2, the share is auctioned and the seller may have to incur losses along with penalties.
- The concepts of buy today, sell tomorrow and sell today buy tomorrow are very commonly used in the stock trading world. However, since T2T trades must result in delivery, BTST or STBT trades cannot be used in T2T shares.
Just as stocks can be moved to the T2T segment, they can also be shifted out into the normal segment. Every exchange does this as a part of its quarterly review in partnership with the market regulator. The shares in the NSE Trade-to-Trade segment are available for trading under BE or Book Entry series.
No, a stock exchange cannot independently decide on T2T segment transfers as it has to consult the market regulator SEBI for the same.
Since the review of stocks for the T2T segment is done every quarter, a stock exchange can switch shares out of the T2T segment only once in a quarter and after consultation with market regulator.
No, T2T stocks are not the same as Z-group stocks. Z-group stocks are the ones that have broken listing agreement and are therefore classified as so. On the other hand, T2T stocks are safe to trade in.
An investor can check the list of stocks in the T2T segment on websites of SEBI or the stock exchange.
The liquidity levels of T2T stocks are lower as compared to normal categories since the stock exchange does not allow intraday trading on the same. Also, due to high price fluctuations, most investors may want to avoid investing in these.