Settlement

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Online trades (buy and sell) requires the transfer of money and shares between a buyer and a seller. Exchange performs these transactions (settlement) on the T+2 basis.

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.

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