Clearing and settlement process in the Indian Share market

The process of clearing and settlement is highly essential in grasping how money and assets transfer between you and the share market. For example, if you purchase 100 Marico shares, it is important to comprehend how much time it takes for the broker to send them to your Demat account. This concept can also be applied when selling stocks.

A thorough comprehension of the clearing and settlement process is essential to truly understand the market structure. Therefore, we will take a closer look at the mechanics behind buying a stock and subsequently receiving it in your DEMAT account.

What happens when you buy a stock? 

Let’s assume on Monday, you purchased 100 shares of Reliance Industries for Rs.1,000/- each – the sum total amounting to Rs.1,00,000/- (100 * 1000). 

This day is referred to by brokers as the ‘T Day’. If you intend to place the stock in your Demat account for an extended period of time rather than an intraday trade, the broker will check if you possess enough funds to cover the cost; in this instance, they’ll need Rs.1,00,000/- stored in your trading account. The order will not go through unless these resources are available.

Let’s assume the trading day is executed by Stoxbox (please confirm if there are same steps. In the original article, the assumptions are based on Zerodha. If not, delete the text)  

On T day, the broker sends a contract note to your registered email id. It is like a bill outlining every one of your daily transactions, including the trade reference number and breakdown of fees charged by the broker – information you may want to save for future reference.

Day 2 – Trade Day + 1 (T+1 day, Tuesday)

Brokers refer to the day after the transaction day as T+1 day. On this day, traders have the option of selling the stocks they bought the previous day, and this is known as Buy Today, Sell Tomorrow (BTST) or Acquire Today, Sell Tomorrow (ATST). 

A word of caution here is that since the stock isn’t transferred to your DEMAT account yet, there is a risk factor involved, and you may find yourself in hot water if you are caught selling something that isn’t yours. This doesn’t always happen and usually occurs when dealing with stocks that are not very liquid. 

As a newcomer to the market, I would suggest you not engage in BTST trades unless you comprehend the associated risk. Let’s continue with the example. From your point of view, nothing will occur on T+1 day.

In conclusion, you placed an order to purchase 1L worth of Reliance shares, and the broker validated your funds. Then, the amount needed to pay for them was blocked in the broker’s ledger. Ultimately, after completion of post-trade processing, you can view the shares in your trading terminal – with a ‘T+1’ tag. It is possible for you to sell these immediately, but please bear in mind that this will result in a T+1 or BTST transaction, which carries risks.

Day 3-  Trade Day + 2 (T+2 day, Wednesday)

On the third day, which is referred to as T+2, the exchange of funds occurs. If the customer and seller are operating via two distinct brokers, the clearing corporation will extract cash from the buyer’s broker’s pool account and credit it to the vendor’s pool account. Simultaneously, the purchaser’s DEMAT account will reflect that they own 100 shares of Reliance.

Since you buy a share on day T, they will effectively be fully settled in your Demat account by the end of T+2. In other words, it should take two days for the transaction to be completed.