Settlement Cycle & Clearing Process of Shares In India

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In this post I will give you some details about the settlement cycle of shares in India and the Clearing Process of Shares & Securities in India.

What is Settlement Cycle?

Settlement Cycle refers to the process of settlement of the trades executed in the stock exchange. Since April 01, 20003 the settlement is done on T+2 basis, where T stands for the trading day.

Let’s learn it practically…

Suppose if you have bought shares using your trading account with the broker today, then you will get those shares in your DEMAT account after two days (T+2 i.e. Day after tomorrow.)

Similarly, if you have sold your shares using your trading account today, then those shares will be debited from your DEMAT account on T+2 and you will get your funds after successful delivery of shares.

  • Trading = T Day
  • Clearing = T+1 Day
  • Settlement = T+2 Day

So this was some information about the settlement cycle of shares in India, now let’s learn about…

What Is Clearing Process of Shares In India?

Clearing is the process of determination of obligations, after which the obligations are discharged by the settlement. Thus, clearing is the first step before the respective shares and the consideration involved is transferred to the parties of the contract.

NSCCL has two categories of clearing members: Trading Members and Custodians. The trading members can pass on its obligation to the custodians if the custodian confirms the same to NSCCL. All the trades whose obligation a trading member proposes to pass on to the custodian are forwarded to the custodian by NSCCL for their confirmation. The custodian is required to confirm these trades on a T+1 basis. Which is nothing but the day after the trade is executed.

When To Pay for Shares Bought, When to Give Shares that are Sold?

NSCCL uses the concept of multi-lateral netting for determining the obligations of counter parties. Accordingly, a clearing member would have either PAY-IN or PAY-OUT obligations for funds and securities separately. Thus, members PAY-IN and PAY-OUT obligations for funds and securities are determined latest by T+1 day and are forwarded to them so that they can settle their obligations on the settlement day (T+2).

How Clearing Mechanism Works In India?

Trades in rolling segment are cleared and settled on a netted basis. Trading and settlement periods are specified by the Exchange/Clearing Corporation from time to time. Deals executed during a particular trading period are netted at the end of that trading period and settlement obligations for that settlement period are computed. A multilateral netting procedure is adopted to determine the net settlement obligations. In a rolling statement, each trading day is considered as a trading period and trades executed during the day are netted to obtain the net obligations for the day. Trade-for-Trade deals and Limited Physical Market deals are settled on a trade to trade basis and settlement obligations arise out of every deal.

So, you have just learned about the settlement cycle and clearing process of shares & securities in India.

If you have any query related to settlement cycle tweet me @gurpreet_saluja.

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