SEBI has created a structure to ensure optimum performance and maximum control over Demat accounts by creating Depositories – entities that hold your Demat accounts.Īll participants including investors, brokers, and clearing members need to have a Demat account to trade in the stock exchange. Hence, a Demat account is mandatory for share transactions. While traditionally shares were held in a physical certificate format, today it is mandatory to hold them in the electronic or dematerialized form. Entities Involved in the Clearing and Settlement Process Depository To ensure that this process is smooth, the Securities and Exchanges Board of India ( SEBI) has created several entities as described below. Though it is yet to be implemented, this speeds the process to a whole new level. SEBI, the market regulator, has recently introduced T+1 settlement cycle. At present, all equity trades are settled on a T+2 basis where investors receives the shares two days after purchase. While this is the theoretical aspect, in real time, the settlement, however, happens much quicker. This is the core clearing and settlement process in a stock exchange. Settlement – where the shares are moved from the seller’s account to the buyer’s account and the money is moved from the buyer to the seller.It also determines the obligation of all parties and assesses risk. Clearing – where the responsible entity identifies the number of shares that the seller owes and the amount of money that the buyer owes for every trade.Trade Execution – where the buy or sell order is executed by you.The clearing and settlement process is divided into three:
On Day 03 (T+2 Day), you receive funds in your banking account post deduction of all charges.On Day 02 (T+1 Day), the broker gives the shares to the exchange.Hence, you cannot sell the same shares on the same day. The shares are blocked in your Demat account immediately. Using the example cited above, sale of shares process is as follows: Clearing and Settlement Process When You Sell a Share So, in a nutshell, when you buy shares, on T Day, the money gets debited on the same day and you receive the shares on T+2 Day. On the same day, the money that was debited from your banking account is credited to the seller’s banking account. Your broker credits them to your Demat account by the end of the day.
On the T+2 Day, the shares are debited from the Demat account of the person who sold them and credited to your broker’s account. The second day after you purchase the shares is known as Trade Day + 2 or T+2 Day. The stock exchange collects the purchase amount and charges from the broker on T+1 Day. This is a high-risk transaction and is usually not recommended to investors who are new to stock trading. The money is still debited from your banking account but you haven’t received the shares yet.Įven if you don’t have the shares in your account, you can sell the ones that you bought yesterday called the BTST or Buy-Today-Sell-Tomorrow trade. The day after you purchase the shares is known as Trade Day + 1 or T+1 Day. This is like a bill that you need to preserve for future reference. This along with the details of the breakup of charges made by your broker. The broker also shares a contract note that details all the transactions done during the day.
However, the stocks are yet to reach your Demat account.
#Micro cap stocks take 2 days to settle plus#
Once the trading day ends, your broker debits Rs.50,000 plus the brokerage and all associated charges from your linked bank account. The day you purchase the shares is known as the Trade Day or T Day. Therefore, the total purchase price is Rs.50,000. Let’s say that you buy 100 shares of HDFC Bank Ltd. To buy or sell shares, you need a Demat account where your shares are stored as well as for trading, and a bank account for monetary transactions. Clearing and Settlement Process When You Buy a Share Here is what you should know about the clearing and settlement process in the stock market. However, it is important that you understand the working. As an investor, you don’t need to get into the technical details of these processes. To ensure smooth operations and minimal risk, regulators have designed a trading cycle, as well as, a clearing and settlement process. Same way, for sale transactions, shares are debited from your Demat account while the selling price is credited to your banking account. The process of buying or selling of stocks online has been made smooth and seamless.Īmount is debited from your account and you receive the shares in your Demat account.