What is Trade to Trade and how to deal in such stocks?

Last Updated: 28 Feb 2024

There are two series of equity stocks that are available to retail investors on the NSE; the EQ series and the BE series. The EQ segment includes stocks on rolling settlement. Such stocks can be squared off on the same day (both longs and shorts), but if these are not squared up, they will compulsorily result in delivery on the T+2 day. On the other hand, the BE series stocks are better known as Trade-to-Trade stocks or T2T stocks.

Unlike the EQ series stocks, the BE series T2T stocks are not available for intraday square off. This means that if you buy T2T stocks, you have to necessarily take delivery on the T+2 date. If you sell the T2T stock, you must have the stock in your demat account, and therefore, be able to give delivery on T+2 date. The whole idea of classifying stocks as T2T is to reduce speculation and price manipulation by barring such stocks from intraday trading.

On what basis do stocks get classified as T2T?

The basic intent of classifying stocks under the T2T category is to prevent too much volatility and price manipulation. This is a pronounced risk where the floating stock is small and the liquidity is controlled by a handful of traders. Here are some facts you need to know about classifying stocks into the T2T category.

Only non-F&O stocks are considered for transfer to the T2T segment. The decision to shift shares into the T2T segment is taken every 15 days, while decisions to shift in and out of T2T are taken every 3 months. Shifting decisions are made by exchanges in consultation with SEBI.

The shifting to T2T is done based on a combination of three criteria. The first criterion is the relative P/E ratio. In case of the BSE, if Sensex P/E is in the range of 15-20 and stock P/E is over 30, the stock will be considered for shifting to T2T. Trailing 4 quarters’ EPS is considered and even negative P/E stocks are included in this list.

Secondly, if the price variation (representing volatility) of the stock is 25% more than the Sensex or the particular sectoral index to which it is benchmarked, the stock will be considered for shifting to T2T. The variation must be in the same direction as the Sensex.

Thirdly, if the market cap falls below Rs500cr, the stock will be considered for shifting to the T2T segment. The idea is to curb speculation in stocks that are vulnerable to price manipulation due to small size. IPOs are excluded from these

What does shifting to T2T mean for me as an investor?

As stated earlier, when a stock is shifted to the T2T segment only delivery trades are permitted on the stock. You cannot square up your position intraday; so, every purchase has to result in taking delivery and every sale has to result in giving delivery of shares. Here are five interesting things about T2T stocks that matter to you.

When you buy a T2T stock, ensure that you have the funds to take 100% delivery of the stock. Similarly, when you sell a T2T stock, check that you already have delivery in your demat account. Once you sell the shares, you cannot buy them back as intraday square-off is not permitted in T2T stocks. Inability to give delivery on the T+2 day means auction losses for the trader.

The broker with whom you trade normally has an in-built warning system in case of T2T stocks. However, the onus of checking for the T2T status of stocks rests on the trader, and hence, it is best to double-check funds and delivery before getting into T2T stocks.

In BTST or STBT, you essentially buy today and sell tomorrow or you sell today and buy tomorrow. In both the cases, you are taking an overnight risk on the stock. In case of T2T because all trades have to essentially result in delivery, there is no scope for BTST or STBT trades.

T2T stocks are distinct from Z-group stocks. While both these stocks are only-delivery based, Z group stocks have a larger fundamental problem as they have not complied with the listing agreement. T2T stocks are better than Z group stocks.

When a stock is shifted to the T2T segment in the stock market app, the circuit filters are pegged in the range of ±5%. This ensures that the volatility in these stocks is automatically curbed up to a level. This is the core purpose behind shifting to the T2T segment.