What is Clearing and settlement process
-
Introduction
- Once you buy/sell a stock, what happens next? Well, the entire process from the time your order gets confirmed on the exchange to the time your account gets credited with (funds/securities) is called the Clearing and Settlement Process.The clearing is a process through which the obligation is determined and this obligation is discharged through the way of settlement. Â
To understand this process, let’s take an exampleÂ
-
What happens when you buy shares?
You purchase 10 shares of Asian Paints on 27/01/2021. Â
- At the end of that day, a contract note will be generated and sent to you by the broker which will give you the following details
-
- Security purchased
- Order number
- Quantity purchased
- Price at which the share has been purchased
- Date of purchase
- Settlement number ( these numbers are issued by exchanges and are unique)
- Brokerage
- On the same day, your bank account which is linked to the DEMAT account is debited with the amount for the stocks purchased along with the brokerage and other associated charges
- The next day(28/01/2021), you don’t have to do anything but rather the custodians, DP and clearing banks have to work and ensure that the money and securities are delivered to the clearing corporations.Â
- On the day after (29/01/2021) i.e T+2 day, the actual transfer of the money and securities takes place.  The account through which you have purchased the security will be credited with the shares.
What happens when you sell shares?
Now let’s take another case where you have sold shares of a company.
- On the Trade day(27/01/2021) shares are blocked in your DP account immediately so that the same shares can not be sold again and again
- The next day (28/01/2021), the broker delivers these shares to the stock exchange
- On the 3rd day(29/01/2021) the shares in your account are debited and your bank account gets credited with the funds.
If you have decided to transact in the stock market you need to understand the clearing and settlement process so that you can understand when the shares/funds will be credited/debited to/from your DP/Bank accounts.
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What is Clearing and settlement process
-
Introduction
- Once you buy/sell a stock, what happens next? Well, the entire process from the time your order gets confirmed on the exchange to the time your account gets credited with (funds/securities) is called the Clearing and Settlement Process.The clearing is a process through which the obligation is determined and this obligation is discharged through the way of settlement. Â
To understand this process, let’s take an exampleÂ
-
What happens when you buy shares?
You purchase 10 shares of Asian Paints on 27/01/2021. Â
- At the end of that day, a contract note will be generated and sent to you by the broker which will give you the following details
-
- Security purchased
- Order number
- Quantity purchased
- Price at which the share has been purchased
- Date of purchase
- Settlement number ( these numbers are issued by exchanges and are unique)
- Brokerage
- On the same day, your bank account which is linked to the DEMAT account is debited with the amount for the stocks purchased along with the brokerage and other associated charges
- The next day(28/01/2021), you don’t have to do anything but rather the custodians, DP and clearing banks have to work and ensure that the money and securities are delivered to the clearing corporations.Â
- On the day after (29/01/2021) i.e T+2 day, the actual transfer of the money and securities takes place.  The account through which you have purchased the security will be credited with the shares.
What happens when you sell shares?
Now let’s take another case where you have sold shares of a company.
- On the Trade day(27/01/2021) shares are blocked in your DP account immediately so that the same shares can not be sold again and again
- The next day (28/01/2021), the broker delivers these shares to the stock exchange
- On the 3rd day(29/01/2021) the shares in your account are debited and your bank account gets credited with the funds.
If you have decided to transact in the stock market you need to understand the clearing and settlement process so that you can understand when the shares/funds will be credited/debited to/from your DP/Bank accounts.
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