What are the criteria for transferring shares to T2T segment?

Without becoming too technical, here are some of the critical factors for transferring shares into the T2T segment:

Only equities that are not available for trading in the F&O segment are considered for transfer T2T. That is, equities that are available for F&O trading will not be transferred to the T2T section.

Shifting shares to the T2T segment is generally done on a fortnightly basis, whereas the exchange determines to shift to and from the T2T sector on a quarterly basis. This decision is made by the exchanges in collaboration with SEBI.

The decision to transfer a stock to the T2T sector will be made based on a combination of three different criteria, with each of these criteria being utilized conditionally.

The first criterion for moving to the T2T sector is P/E overvaluation. In the case of the BSE, if the Sensex P/E is in the 15-20 range and the stock has a P/E of more than 30, the stock will be evaluated for T2T. The EPS used to calculate the P/E will be the trailing EPS from the previous four quarters.

The price variation criterion is the second. If the price variance of the stock is roughly 25% more than the Sensex or the particular sectoral index to which it is benchmarked, the stock will be evaluated for T2T. The movement must be in the same direction as the Sensex.

The stock market capitalization is the third requirement. If the market cap falls below Rs.500 crore, the company would be assessed for a move to the T2T category. The goal here is to limit speculation in equities that may be prone to price manipulation due to their tiny size. IPOs are typically excluded from the T2T criteria.

Remember, just as companies can be switched to the T2T segment, they can also be shifted back to the conventional market. This is part of the quarterly assessment review conducted by the exchange and the regulator.

What happens to a stock when it is shifted to the T2T segment?

When a stock is transferred to the T2T sector, only delivery trades are permitted. Because intraday trading does not imply delivery of the stock, no intraday squaring will be authorized. Here are five things you should know about trading T2T stocks.

1. When you purchase a stock that is subject to T2T trading and are required to take delivery of the stock. That means you must pay the stock value at the end of the day. Otherwise, the broker will be forced to sell your shares on the market on T+2 and credit the loss to you. The broker may also penalize you.

2. It is more crucial to confirm that you already have delivery in your demat account when selling a T2T stock. After you sell the shares, you cannot buy them again because intraday trading is not authorized in these T2T equities. If you are unable to deliver on the T+2 date, the item is auctioned off, and the losses, in addition to penalties, could be substantial.

3. Keep in mind that intraday trading is not authorized in T2T stocks. Normally, broker trading algorithms will alert you to T2T stocks, but if you buy or sell one, there is no way to cover your position. You must always take or provide delivery.

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4. BTST and STBT are extremely widespread in the brokerage industry. Basically, you buy today and sell tomorrow, or you sell today and buy tomorrow. You are essentially taking an overnight risk on the stock in both circumstances. However, because all T2T trades must fundamentally result in delivery, there is no room for BTST or STBT trades.

Finally, T2T equities differ from Z-group stocks. While both of these stocks are merely dependent on delivery, Z group stocks have a broader fundamental issue in that they have not complied with the listing agreement. T2T stocks outperform Z group stocks.

When a stock is transferred to the T2T section, the circuit filters are set to 5%. This ensures that the volatility in these equities is automatically reduced to a certain extent. That is, after all, the main reason for changing to the T2T segment.

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