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UNDERSTANDING THE TRADE SETTLEMENT CYCLE IN THE STOCK MARKET
Stock Market Basics

So friends, I know after reading all the previous blogs and understanding all the do’s and don’ts in the stock market, you must be raring to trade now. Sincere apologies from us for being a spoil sport. Here’s another topic which is extremely important, and which must be covered, read and understood first before you could start trading In the Stock Market.
You need to understand when you can get shares in your Demat account after purchasing them and when you can get your money once you have sold your stocks. If you were thinking that the process was instantaneous, than Sir, we regret to inform that you were wrong.
So how and when do we get our money or stocks? The answer to the question lies in understanding the Settlement Cycle and other terms related with it. So let’s take them up one by one.

WHAT IS SETTLEMENT?
Settlement is a process through which:
a. Buyer receives the stocks for which he has made the payment
b. Seller receives his honey for the sold stocks

WHAT IS SETTLEMENT CYCLE?
Settlement Cycle is a duration in which the settlement has to take place. To place it in more simple terms, the duration in which the buyer gets the stocks for which he paid and the seller receives the money for the stocks that he sold.

WHAT IS ROLLING SETTLEMENT?
Rolling Settlement is the process of settling trades in the stock market on successive dates so that trades executed today will have a settlement date one business day later than trades executed yesterday. In context of Indian stock market, the trades in rolling settlement are settled on T+2 days.
If we consider T as the current trading day, T+2 would be the Trading day which is two days after today. Let’s say if today is Monday, T+2 would be Wednesday. But if today is Friday, T+2 would be on Tuesday as Saturday and Sunday are not Trading days.
It is also important to note that all intervening holidays, which include bank holidays, exchange holidays, Saturdays and Sundays, are not counted as trading days.
This means, if you sell shares, the money is received by your broker on the third day. If you buy shares, your broker gets them on the third day.
The table below makes it much simpler for us to understand:

ACTIVITY SUB ACTIVITY DAY
TRADING ROLLING SETTLEMENT T
CLEARING DELIVERY GENERATION T+1
SETTLEMENT SECURITIES AND FUNDS PAY IN AND PAY OUT T+2
POST SETTLEMENT AUCTION T+3

SHORT DELIVERY REPORTING T+4

AUCTION SETTLEMENT T+5

PAY IN AND PAYOUT FOR SHORT DELIVERY WHICH WAS REVISED T+6

UNDERSTANDING THE PAY IN AND PAY OUT DATE

What is Pay-in?
In Pay-in of securities all the shares’ obligations are picked up from the client’s beneficiary account and transferred to Broker’s pool account. All the shares are then delivered to the clearing corporation as per obligation with Exchanges.
In Pay-in of funds, the funds are transferred from a client’s bank account to Broker bank account. All the funds are then transferred to the clearing corporation as per obligation.

What is Pay-out?
In Pay-out of securities, shares are received from the Clearing House and the same is transferred to Broker pool account. All the shares are then transferred to the client beneficiary account.
In Pay-out of funds, funds are transferred from the Clearing House to Broker Bank a/c. All the funds are then transferred to the client’s bank a/c.

We hope, that after this hard-core but extremely important session you will now have a clear understanding of when you can receive the stocks in your account after purchasing them and when you can receive the money after selling your stocks.

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At Moneypalm, it is our constant endeavour to enlighten our clients, so they take better decisions which allows their investments to grow, because we always believe that “Together We Grow”

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Pratyush DixitConsultant - Digital Marketing and Content

Pratyush is a Post Graduate in Marketing Management and has a leadership experience of nearly a decade in diversified industry including Stock Broking. Having headed companies for over half a decade, Pratyush brings with him, rich Marketing and....

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