Introduction
We have already discussed what is a circuit filter on the stock market. Almost the same kind of restriction is taken on certain stocks that fall under the T2T segment. In this article, we will discuss what the trade-to-trade segment meaning is.
Why are some stocks put in the Trade to Trade segment?
We also know trade to trade segment as the T2T segment in short. Let’s take a real-life example. Jack is a small child who is very naughty. So his parents try to confine him inside the room with a steel guard wall. They partition the room so that he can’t come out of the room and start messing up. Once Jack grows up, he becomes more patient and his parents take him out of the confinement and set him free.
Trade to trade segment meaning is just the same. It’s like putting some stocks in jail who are very naughty and shows unpredictable move.
Definition of circular trading
If there is too much speculation inside a stock or the stock exchange notes that there can be some circular trading in a stock, the authority bans the stock for the time being. Here, before moving on let me clear the concept of circular trading. If a few people or a group of people start trading a low-volume stock among themselves and thus increasing volume and price in an unnatural and fraudulent way, this is what we call as circular trading.
Trading restrictions in the T2T segment
So excessive speculation or circular trading in a stock leads to a temporary ban on the stock. This banning means the exchange put the stock in the T2T segment or trade-to-trade segment. Once it is in the T2T segment you can only buy the share for delivery trading. This is because the exchange does not allow intraday trading in the stock. So you can not buy and sell the stock on the same day as you can in other stocks.
Consequences of trading in the Trade to Trade segment
So trade to trade segment means if you buy a stock in that particular segment, you must take delivery of the same by any means. Similarly, if you are a seller of the stock you must deliver the stock to the buyer by any means. If you don’t have the share with you and sell, you need to pay the penalty and buy the share from the auction market and still make the delivery.
Restrictions on the T2T Segment help ensure fair and orderly trading
The T2T segment has been introduced to control the shares where too much speculation is going on. The exchange does so to save retail traders from circular trading and stock market operator traps. Whenever the behavior of the stock is once again back to normal it is taken out of the trade-to-trade segment. This is the same as Jack’s parents took him out of confinement only after he becomes patient.
FAQs on Trade to Trade Segment
A stock can remain on the Trade-to-trade (T2T) segment for an indefinite period unless delisted by the exchange or requested to be moved back to normal trading.
All trades done in the Trade-to-Trade (T2T) segment are on a ‘Sell’ basis only. No intraday positions are allowed and all orders need to be squared off within three days of execution, else they will be auto-squared off at the end of the day. The participants have to follow certain rules like spot payment and delivery guidelines as prescribed by SEBI while transacting through this particular trading platform.
The T2T segment of the Indian stock market consists of stocks that are available for transfer on a day-to-day basis. You can buy these stocks and sell them quickly, as they are highly liquid. In this segment, you’ll find some of India’s leading companies such as Reliance Industries Limited (RIL), Axis Bank, Maruti Suzuki, and Tech Mahindra among others.
While trading security through ‘T1’, investors benefit from curtailed markup charges, and mandated margins requirements prior to executing trades coupled with restrictions over manipulation associated with derivatives market speculations caused due by excessive speculative routing by non-retail players hence there has merit associated with investing into this segment of securities.
Conclusion
The T2T segment or trade-to-trade segment is a tool used by stock exchanges to control speculation and maintain stability in the market. The restrictions on intraday trading and the requirement for delivery of shares ensure that trading in these stocks is more rational and less prone to manipulation.
