Difference Between Trading Holiday and Settlement Holiday

A settlement holiday is a day when there are no settlements and no deliveries of stocks, whereas a trading holiday is a day when stock exchanges are closed and no trading is permitted.

The SEBI has declared these holidays to ensure that there is no market volatility due to any unusual situation that may occur these days. On a trading holiday, all secondary transactions will be suspended on that day. But on a settlement holiday, only delivery transactions or transactions pertaining to the delivery of securities will be suspended, not secondary market transactions.

What Is a Trading Holiday?

A trading holiday is when the stock exchanges are closed for trading, and no transactions can be done. The exchanges declare NSE holidays and BSE holidays as per India's Securities and Exchange Board (SEBI). A trading holiday is when the exchange will operate the stock market as usual, but no settlement will occur these days.

In the Indian derivatives market, commodity market holidays, also called MCX holiday, include a day when you can trade contracts but not settle them. This means that you cannot buy or sell options for the underlying security on that day.

What Is a Settlement Holiday?

A settlement holiday is a day when the stock markets are closed, but you can trade-in your investments through an online platform. Settlement holidays are also called transfer holidays because you can move your shares from one broker to another if you have invested in mutual funds or stocks. Settlement dates in India also include bank holidays and public holidays.

A settlement holiday is when the stock market is closed for trading, but the settlement of trades on that previous day will occur as usual. No settlement will take place on these days. As per SEBI mandate, a settlement on weekends/public holidays shall be carried out on the next banking working day. Regarding partial holidays, settlements would be done one day before the declaration of partial holidays, subject to no intervening.

Check: What is Settlement Holidays

What Is the Difference Between the Trading Holiday and the Settlement Holiday?

In India, the settlement of trade happens on a T+2 basis. When you trade a stock, the settlement actually happens two days later. So, if you were to buy a stock on Monday, the transaction would be settled by Wednesday. Similarly, if you were to sell a stock on Monday, the actual settlement will happen on Wednesday.

This is different from other markets around the world, where stock settlement happens immediately after the trade is made. The reason for this difference can be attributed to our banking system in India. There is at least one day of delay before the money reaches our bank accounts from the time we make a transaction from our trading accounts. This is called the T+1 banking system or same-day settlement.

The advantage of settling trades using T+2 is that you have time to make corrections before your money is actually locked in with your transaction by the time it settles. Suppose you bought a stock for Rs 100, and then shortly after you bought it, you came to know that the company has suffered losses, and analysts will downgrade its stock price. You can cancel your purchase and not lose your money since the actual settlement does not happen until two days later. 

There are certain days like the MCX holiday when the stock markets do not function because of festivals and religious holidays. So if you buy a share today at 2 PM, you can sell it back at 2 PM itself for cash consideration. This settlement is swift, but it is prone to errors since it does not prepare before the actual settlement.

Wrapping Up

Trading or stock market holidays is a day when no business is carried out in the stock exchange. It means that any outstanding orders will not be executed on holidays like NSE holidays and BSE holidays.

An entity (e.g., a brokerage firm, bank, or clearing corporation) may designate a trading or market holiday for itself and any other entities it regularly conducts business with. The designated holiday(s) must be specified in the entity's instructions to its customers, including its communications with members of an organized exchange.