Settlement

Exchange settles all the trades done by clients on the T+2 basis (T is for Trading Day). It means that if you buy a delivery then you have to make payment within 2 days of buying and you will get the delivery of the stock after 2 days.

Why does it take T+2 days to settle a transaction in the stock exchange?

Two individual and at least of 7 companies are involve in handling an equity delivery trade transaction. The parties involved in a trade include:

• Buyer
• Seller
• Broker (of the buyer and the sellers)
• Clearing Agency (of the buyer and the seller)
• Depository (CDSL or NSDL) (of the buyer and the seller)
• Stock Exchange

Sequence of a trade transaction

Following are high-level transactions happen when a customer buys shares.

• Buyer brings the margin money in the trading account.
• Buyer places an order with the broker.
• Broker sends the order to the exchange.
• Exchange finds the seller and executes the order.
• Order execution detail is sent to the broker and to the client.
• Broker pays the money to clearing agent within 2 days of the trade.
• Shares are transferred from the seller’s demat account to the buyer's demat account by the depository.
• The buyer gets the share in T+2 days.
• Sellers get the money in T+2 days.

There are many underlying processes in each step mentioned above. The process is complex and thus requires T+2 days to settle.

Answered on 2018-11-25