What is a settlement holiday and its impact?

What is a settlement holiday and its impact?

Settlement holidays are when the markets are operational, but the depositories, NSDL and CDSL, are not. These days, auction markets are closed. You can find a list of upcoming settlement holidays on the 5paisa holiday calendar.

A settlement holiday can have a significant impact and affect many parts of trading and investment.

1. A settlement holiday suspends clearing and settlement: It affects trades made on that day. The depositories are not working, so, securities cannot move between buyer and seller accounts. Also, funds cannot move between trading accounts. 

2. Trades settle on the trading day before the holiday: They may pay late. Investors may need to wait an extra day for the settlement process to restart. This will lead to a brief hold on accessing funds or securities from completed trades.

3. Settlement holidays may make investors face a market risk for longer: If trades are not settled fast, investors may face longer market exposure. This may raise the risk of price moves hurting their positions.

4. Impact on trading strategies: Traders need quick trades for strategies like arbitrage or hedging. They may need to adjust their plans or positions due to a settlement holiday. Strategies dependent on quick settlement may need to be temporarily halted or modified.


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