clearing and settlement process

 

stock market, nifty50, sensex, settlement, moneycontrol



 Friends, today we will talk about the clearing and settlement process in the stock market.


 The stock market is such a huge platform that buyers and sellers are always available.  So when an investor buys a number of shares, another investor sells the shares.  This process is completed only when the buyer gets the shares and the seller gets the money.


 There are three phases of stock market transactions.


 1. Trading


 2. Clearing


 3. Settlement

 Trading


 A large amount of trading takes place in the stock market simultaneously.  Stock exchanges use an electric matching system to match the buy and sell orders of different investors.


 For example, if the stock of Reliance is trading in the stock market, then buying and selling in the stock market is like this.


 In the stock market, expensive purchases are matched with the cheapest selling prices, matching whenever the purchase price is less than or equal to the selling price.


 If the seller does not have sufficient stock available with the buyer, the trade order will not be fulfilled.


 Any trade is carried out by a brokerage, who collects orders from various investors and sends them to the stock exchange, in the process the brokerage acts as a broker between the investors and the market.


 You all will know that there are two popular stock exchanges in India, one is the Bombay Stock Exchange and the other is the National Stock Exchange.

 Clearing


 The clearing is a process when two orders are reconciled, so clearing confirms that there are no dues on the buyer and seller.  This process is done by the clearinghouse.  It works as an independent organization.


 The job of the clearinghouse is to complete the financial process, after that the buyer gets the security and the seller gets the money, then the transaction is settled.


 Settlement


 type of settlement


 There are two types of settlement


 spot settlement


 In spot settlement, two days after the settlement is done immediately following the rolling settlement principle.


 forward settlement


 This settlement occurs when you agree to settle the business later i.e. in five to seven days, it is called forward settlement.


 What is rolling settlement?


 Rolling settlement is that settlement in which if you do business on today's date then that business will be settled after two days, which means if you buy any share today then this share will come in your Demat account in two days.


 It should be two days excluding holidays.  If you buy a share on Friday, then this share will come in your Demat on Tuesday, it will not be added to the day of Sunday, but you will have to pay the same on the day you have placed the order for the share.


 Rules of rolling settlement in BSE


 All shares in the Bombay Stock Exchange are traded within two days.  Not on the same day that you bought the share, that means if you buy the share today, then that share will appear in your Demat in two days.


 Rules of Rolling Settlement in NSE


 Activity


 Working day


 rolling settlement


 first day


 Custodial confirmation and delivery generation clearing


 second day


 settlement pay in and payout by securities and funds


 third day


 auction after settlement


 fourth day


 auction settlement


 fifth day


 Reporting for bad delivery


 seventh day


 Pay in and payout for bad delivery


 ninth days


 Re-reporting bad delivery


 eleventh day


 stop bad delivery again

 Clearing rules


 Clearing rules are one of the major participants in the clearing and settlement process in the stock market.  The clearing and settlement of trading in the Stock Exchange are at National Securities Clearing Corporation Limited (NSCCL).


 It is also in charge of the Risk Manager and is bound to complete all the settlements irrespective of the default of the member.


 Clearing Rules Manager in the stock exchange When trading members trade on the stock exchange, the same is transferred to NSCCL, which is then transferred to the clearing members.  The clearing member is in charge of determining the position of the shares in line with the trade.


 Clearing bank


 The clearing bank is responsible for the settlement of funds.  There are 13 clearing banks in total, and each clearing member has to open a clearing account with any one of them.  They have to provide money for payment, for receipt of money in the account, and in case of payment.

 Depository


 There is two depository work in India, one National Securities Depository Limited (NSDL) and the other Central Depository Services Limited (CDSL).  Both of them maintain depository Demat accounts, and clearing members also have to maintain the relationship with them.


 I hope you have understood about clearing and settlement.  thank you

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