If you open the Notices page on the BSE or the NSE you will find a list of companies that have been transferred to the Trade-to-Trade Segment. This is also referred to as the T2T segment and this decision to transfer shares to the T2T segment is normally taken by the exchanges in consultation with SEBI. The normal idea behind the shifting to T2T is to curb unnecessary speculation in the stock. SEBI is always wary of volatile stocks as retail investors are vulnerable to getting caught in the erratic price movements. So what is a trade to trade stock? Trade to trade stocks (T2T) represents a segment where any purchase or sale has to result in compulsory delivery. That means intraday squaring of positions are not permitted on T2T stocks as that could increase speculation in these stocks.
What are the criteria for transferring shares to T2T segment?
Without getting too much into the technicalities, some of the key parameters for transferring shares into the T2T segment are as under:
Only stocks that are not available for trading in the F&O segment are considered for transfer T2T segment. That means; stocks that are available for F&O trading will not be shifted to the T2T segment.
Shifting of shares to the T2T segment is normally done on a fortnightly basis while on a quarterly basis the exchange decides to shift to and from the T2T segment. This decision is taken by the exchanges in consultation with SEBI.
The decision to transfer a stock to the T2T segment will not be done based on any one criterion but by the combination of 3 different criteria and each of these criteria will be used conditionally.
The first criteria for shifting to T2T segment is P/E overvaluation. In the case of the BSE, if the Sensex P/E is in the range of 15-20 and if the stock has a P/E of over 30, then the stock will be considered for shifting to T2T. The EPS considered for calculating the P/E will be the trailing EPS of the last four quarters.
The second criterion is price variation. If the price variation of the stock is nearly 25% more than the Sensex or the particular sectoral index to which it is benchmarked then stock will be considered for shifting to T2T. The variation must be in the same direction as the Sensex.
The third criterion is the market capitalization of the stock. If the market cap falls below Rs.500 crore then it will be considered for shifting to the T2T segment. The idea here is to curb speculation in stocks that could be vulnerable to price manipulation due to their small size. IPOs are normally excluded from these T2T criteria.
Remember, just as companies can be shifted to the T2T segment, companies can also be shifted back from the T2T segment to the normal segment. This is part of the quarterly assessment review done by the exchange along with the regulator.
What happens to a stock when it is shifted to the T2T segment?
When a stock is shifted to the T2T segment, only delivery trades are permitted on the stock. No intraday squaring will be permitted since intraday does not entail delivery of the stock. Here are 5 things you need to know about dealing in T2T stocks..
1. When you buy a stock that is under T2T trading, and then you have to compulsorily take delivery of the stock. That means you have to pay the stock value by EOD. Otherwise, the broker will have to sell your shares on T+2 in the market and debit the loss to you. You may also be penalized by the broker.
2. When you sell a T2T stock, it is more important to check that you already have delivery in your demat account. Once you have sold the shares you cannot even buy it back as intraday is not permitted in these T2T stocks. If you are unable to give delivery on T+2 date then it goes into auction and losses could be quite large, apart from penalties.
3. Remember, intraday trading is not permitted in T2T stocks. Normally broker trading systems will warn you about T2T stocks but once you buy or sell a T2T stock there is no scope for covering your position. You have to necessarily take or give delivery.
4. In the broking industry, BTST and STBT are quite common. You essentially buy today and sell tomorrow or you sell today and buy tomorrow. In both the cases, you are essentially taking an overnight risk on the stock. But in case of T2T since all trades have to essentially result in delivery, there is no scope for you to do either BTST or STBT trades.
5. Lastly, T2T stocks are different from Z-group stocks. While both these stocks are only delivery based, Z group stocks have a larger fundamental problem in the sense that they have not complied with the listing agreement. T2T stocks are better than Z group stocks.
When a stock is shifted to T2T segment, 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. That is the core purpose behind shifting to T2T segment anyways.