Clearing and Settlement - Stocksbaazigar

Spread the love

Clearing refers to the process of comparing trades before settlement date or the determination of the net obligation of the broker participants (for both securities and cash)
The settlement process refers to the exchange of cash and securities on the contractual settlement date. The settlement date can be agreed upon at trade execution or can be prescribed by local trading conventions

Clearing and Settlement mechanism in India has witnessed several innovations wiz

Transaction Cycle

A transaction cycle depicts the steps followed by a client in order to execute a trade wherein a buy order matches with a sell order.

DAY	Timings	Job Performed
T (Trade Day)	9:55 a.m to 3:30 p.m	Buy/Sell securtities
T+1	By 11:00 a.m.	Confirmation of all trades
	By 1:30 p.m.	Processing and downloading of files to brokers/custodians
T+2	By 11:00 a.m.	Pay-in of securities and funds
	By 1:30 p.m.	Pay-out of Securities and Funds

Clearing is necessary for the matching of all buy and sell orders in the market. It provides smoother and more efficient markets.

Parties can make transfers to the clearing corporation, rather than to each individual party with whom they have transacted.
The agency reports discrepancies to traders in case the reports do not match, who then try to resolve them.
It ensures that trades are settled in accordance with market rules by managing past trading and pre-settlement credit exposures.

Settlement takes place once clearing process in performed.

The settlement agency receives cash from buyers and securities from sellers and, at the end of the process, gives the securities to the buyer and the cash to the seller.
The timing of payment will depend on the settlement time of the transaction. The buyer must make payment within the settlement period, while the seller must deliver the purchased security within this period.