What are T2T (Trade to trade) stocks?

There are various segments in the equity market (AKA the stock market) like the rolling settlement, institutional segment, etc. These segments are overseen by the Security Exchange Board of India (SEBI). One such segment is the Trade to Trade segment (t2t) which we will be discussing today. There are many segments in the equity market similarly there is a T2T segment. Stocks that are not available for intraday trading fall under this category. The delivery of T2T stocks cannot be taken on the same day. Settlement of t2t stock takes place on a t + 2-day basis.

How to identify T2T stocks?

Shares that fall under the category of T2T stock have a symbol of BE attached to them at the end. For instance, let’s take an example of the Vodafone idea. When the share is not in the T2T category the script name is given like IDEA. When the share is in the T2T category the script mane is given like IDEA BE. 

Criteria for shifting stocks into the T2T segment.

P/E ratio- 

In the case of NSE if the p/e of the nifty50 index is 15-20 and the P/E of the share is above 30, then the stock may be considering moving into the T2T segment
The P/E ratio is a price-to-earnings ratio that shows for every rupee that you are giving to the company how much earning they can make out of it.  Remember that the P/E ratio is a significant measure to analyse a stock and its fair value.
However, the P/E ratio is not the only deciding factor in whether or not to move stock into the T2T segment.

Price variation-

When the price of a stock is very volatile i.e. the movement in the share price is very large. The price filter bands or the price circuit are fixed in the scope of positive and negative 5% of the share value for at least 22 trading days. 
Also, T2T is not the set category group of shares that you can find in BSE.

Market capitalisation-

If the market capitalization of a company is under 500 Crore And the above criteria are also full filling then that share is likely to be moved into the t2t segment.
The stocks are monitored on a fortnightly basis, or quarterly basis to decide whether to move them to/from the T2T segment.
The reason these criteria have been set is that many times when the Market capitalisation is low, volume is high, and price variation is high there are high probabilities of manipulation in the stock so to protect the investor’s interest, these stocks are moved into the T2T segment.

Need for creating a separate segment. 

1. Avoid speculative trading-

The ultimate aim behind the formation of a new segment was to avoid speculative trading in the market. Speculative trading is when the trader buys or sells the share to gain profit from the short-term price movement. Speculative trading is highly risky because the trader does not take into consideration the fundamentals of the underlying asset. He is only concerned with the change in the price movement in the short term.

2. To safeguard the investor risk-

The ultimate aim behind the formation of a new segment was to avoid speculative trading in the market. Speculative trading is when the trader buys or sells the share to gain profit from the short-term price movement. Speculative trading is highly risky because the trader does not take into consideration the fundamentals of the underlying asset. He is only concerned with the change in the price movement in the short term.

3. To prevent high volatility

Volatility is the degree of variation in the price movement. The stock market is very volatile, i.e. it reacts aggressively to certain news. And trading in such a market can sometimes be very risky especially when some stocks are being manipulated.
Historic volatility measures a time series of past market prices. Apart from manipulation market volatility can be happened because of various other factors Which are discussed below –

• Economic factors- These are generally controlled by the RBI and fall under this category namely interest rate, repo rate, CRR, SLR etc. 
• Political factor– Changes in any kind of government policy, new laws, or a new type of tax issued by a government affect the stock market. 
• Technical factors- Technical analysis is the study of historical price movements to identify patterns that can be used to predict future price movements.

4. To prevent manipulation 

The T2t segment was created so that manipulation of stock can be avoided. Whenever the regulator Security Exchange Board of India suspects that a stock is being manipulated it is shifted to the T2T segment. So that the manipulation can be avoided. For the record stock price manipulation is an illegal activity.

5. Kind of surveillance mechanism-

The decision to shift the stocks into the T2T segment, if any kind of manipulation is noticed, acts as a surveillance mechanism that ensures the smooth and uninterrupted functioning of the stock exchanges.

How to trade T2T stocks?

If any person wishes to trade in the T2T segment then they had to pay the full amount. The concept of margin is not applicable in the t2t segment.

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Let’s take an example

If you want to buy 5000 shares of Yes Bank @15 each but it is in the T2T segment. 

So you need to have 75000 rupees in your A/C to successfully execute the trade.

• Take the trade as delivery, you cannot do intraday trading in the T2T segment i.e. buying and selling the shares on the same day but still if you put an intraday trade in stock that is in the T2T segment then the exchange will cancel your order. And you might even have to pay some penalty fees.

• You can only place delivery orders for t2t segment stock and it takes t + 2 days for the settlement of the stock. It takes 2  trading days for the stock that you have purchased to be reflected in your Demat account.

• While selling you have to check whether the delivery has come to your Demat account or not Without any delivery you cannot sell T2T shares. Also once the shares are sold you cannot buy them back on the same day.

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Who does it?

• Stock exchanges do it with the market regulator SEBI.
•  The process of identifying the security is moving to the treated segment is done on a fortnightly basis.
• Security moving from flash to the t2t segment is done every quarter.

 What should investors do to trade in the T2T segment?

• Ensure 100% payment-make sure that you have the entire amount if you want to place a purchase order in the segment.
• To sell you should have delivery in your team at.
• One cannot buy the shares again after selling them intraday.

Conclusion 

After reading this article you will be able to know everything that you need to in order to start trading or investing in t2t stocks. T2T stocks are not for intraday trading you can only place delivery orders in the T2T segment. The T2t segment was created to protect the investor’s interest as the stocks that show signs of price manipulation are moved to this segment. Because they have a market capitalization of below 500 cr. The P/E ratio is also higher as compared to the indexes. And the price variation is also very high. 
So, an investor can trade into the t2t segment, they just need to be a little more careful and know that they should have the whole amount in their account before placing the order. Because the margin is not available for t2t stocks. Start trading T2T stocks today, open a demat account with Pocketful.

FAQs (Frequently Asked Questions)