Clearing and Settlement Process in Stock Markets

https://groww.in/blog/clearing-and-settlement-process-in-stock-market

20 May 2024

The process of Buying or Selling Stocks online has been made smooth and seamless. The amount is debited from your account and you receive the shares in your DEMAT Account. Same way, for sale transactions, shares are debited from your DEMAT Account while the selling price is credited to your banking account.

To ensure smooth operations and minimal risk, regulators have designed a Trading Cycle, as well as, a Clearing and Settlement Process. As an investor, you do not need to get into the technical details of these processes. However, it is important that you understand the work.

It is to be noted that according to a recent SEBI announcement, all F&O equities and remaining stocks in the T+2 Settlement Cycle will switch to the T+1 Settlement Cycle starting on January 27, 2023. All equities will now gradually transition to a T+1 Cycle.

In this blog, we will look at everything that you should know about the Clearing and Settlement Process in the Stock Market.

Clearing and Settlement Process When You Buy a Share

You require a DEMAT Account, where your shares are held and used for trading, as well as a bank account for financial transactions, in order to purchase or sell shares.

T-Day

Trade Day, often known as T-Day, is the day that you buy a stock.

The contract note for the transaction and the costs are given to you by the broker on this day. The contract note resembles a stock purchase bill. Your bank account has been debited, but the shares have not yet been credited to your DEMAT Account.

Trade Day + 1

The day after your buy is day two. It is often referred to as T + 1 Day or Trade Day + 1. On this day, your broker's fees, and the amount for the acquired shares are paid to the stock exchange. Additionally, the shares are credited to the broker's account and debited from the seller's DEMAT Account on this day.

Your DEMAT Account is subsequently credited by the broker with those shares. The seller's bank account is credited with the funds that were deducted from yours to acquire the shares.

Due to the T+1 settlement cycle, trade-related settlements must be made a day, or 24 hours, after a transaction is completed. According to T+1, for instance, if a consumer purchased shares on Wednesday, they would be deposited to their DEMAT Account on Thursday.

Simply, if an investor sells a share using the T+1 format, she will get the payment within a day and the buyer will receive the shares in her DEMAT Account the next day.