Clearing Members Archives - Stocksbaazigar

Settlement Agencies

9th February 2019 by stocksbaazigar

Several entities are involved in the process of clearing. These are clearing corporation, clearing members, custodians, Clearing banks, Depositories etc. Lets study the roles of each of these entities. Clearing Corporation The clearing corporation is responsible for post-trade activities such as risk management and clearing and settlement of trades executed on a stock exchange. The National Securities Clearing Corporation Ltd (NSCCL) while Clearing House of BSE called Bank of India Shareholding Ltd (BOISL) handles the clearing and settlement operations on behalf of respective exchanges. Clearing Corporations clear all trades, determine obligations of members, arranges for pay-in of funds/securities, receives funds/securities, processes for shortages in funds/securities, arranges for pay-out of funds/securities, guarantees settlement, and collects and maintains margins/collateral/base capital/other funds. Clearing Member Clearing members are responsible for settling their obligations as determined by the clearing corporation. They have to make available funds/or securities in the designated accounts with clearing bank/depositories, as the case may be, to meet the obligations on the settlement day. In the capital market segment, all trading members of the Exchange are required to become the Clearing Member of the Clearing Corporation. Custodians Custodians are clearing members but not trading members. They settle trades on behalf of trading members when a particular trade is assigned to them for settlement. The custodian is required to confirm whether he is going to settle the trade or not. If he confirms to settle the trade, then clearing corporation assigns that particular obligation to him. If he rejects the trade, the obligation is assigned back to the trading/clearing member. Custodians empanelled by NSCCL are: Deutshe Bank A.G. ,HDFC Bank Ltd ,HSBC Ltd ,ICICI Bank Ltd ,Standard Chartered bank Ltd ,Axis bank Ltd ,Stock Holding Corporation of India Ltd ,DBS Bank Ltd ,J P Morgan Chase Bank ,Kotak Mahindra Bank Ltd ,SBI,Citibank N.A.,Obris Financial Corporation Ltd. ,IL&FS Ltd Clearing Banks Clearing Banks are a key link between the Clearing Member and Clearing Corporation to effect settlement of funds. Every clearing member is required to open a dedicated clearing account with one of the designated clearing banks. Based on the clearing member’s obligations as determined through clearing, the clearing member makes funds available in the Clearing account for the pay-in and receives funds in case of pay-out. Designated Clearing Banks: Axis Bank Ltd ,Bank of India Ltd ,Canara Bank Ltd ,Citibank N.A. ,HSBC Ltd ,HDFC Bank Ltd,ICICI Bank Ltd, IDBI Bank Ltd,Indusind Bank Ltd ,Kotak Mahindra Bank ,Standard Chartered Bank, State Bank of India Union Bank of India Depositories Depositories hold securities in dematerialized form for the investors in their beneficiary accounts. NSDL & CDSL are the two depositories of India Each clearing member is required to maintain a clearing pool account with the depositories. He is required to make available the required securities in the designated account on settlement day. The depository runs an electronic file of transfer of securities from accounts of custodians/clearing member of NSCCL and visaversa as per the schedule of allocation of Securities. Professional Clearing Member NSCCL admits a special category of members known as professional clearing members (PCMs). PCMs may clear and settle trades executed for their clients (individuals, institutions etc.) In such cases, the functions and responsibilities of the PCM are similar to that of custodians. PCMs also undertake clearing and settlement responsibilities of the trading members. The PCM in this case has no trading rights, but has clearing rights i.e. he clears the trades of his associate trading members and institutional clients

Clearing and Settlement

8th February 2019 by stocksbaazigar

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 State-of-art information technology, Compression of Settlement Cycle, Dematerialization and electronic transfer of securities, Securities lending and borrowing, Professionalization of trading members, Fine-tuned risk management system, Emergence of clearing corporations to assume counterparty risk etc. 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. Step 1: Decision to trade Step 2: Placing Order Step 3: Trade Execution Step 4: Clearing of trades Step 5: Settlement of trades Step 6: Funds/Securities 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 Why Clearing? 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 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. Core Functions Involved in Settlement Process Trade recording: Key details about the trades Trade Confirmation: Counterparties agree upon the terms of trade Determination of Obligation: determine what they owe/dues Pay-in of Funds and Securities: Funds/securities are brought in to NSCCL/CH Pay-out of funds and Securities: Release of pay-out out of funds/securities Risk Management: For an efficient settlement system.

How to open an account with Depository Participants?

25th January 2019 by stocksbaazigar

Any investor who wishes to avail depository services must first open an account with depository participants of NSDL and CDSL The investor can open an account with any depository participant of NSDL and CDSL. An Investor may open an account with several DPs or he may open several accounts with a single DP. The investor has the freedom to choose a DP based on criteria like convenience, comfort, service level, safety, reputation, and charges. After exercising the choice, the investor has to enter into an agreement with the DP. Types of accounts with DP Types of depository account depend on the operations to be performed. There are three types of demat accounts which can be opened with a depository participants wiz. 1. Beneficiary Account 2.Clearing Member Account 3.Intermediary Account A DP may be required to open three categories of accounts for clients – Beneficiary account, clearing member account and intermediary account. A beneficiary account is an ownership account. The holder/s of securities in this type of account own those securities. A Clearing Member Account and Intermediary Accounts are transitory accounts. The securities in these accounts are held for a commercial purpose only. A Clearing Member Account is opened by a Broker or a Clearing Member for the purpose of settlement of trades. An Intermediary account can be opened by a SEBI registered intermediary for the purpose of stock lending and borrowing. Documents for Verification For the purpose of verification, all investors have to submit the following documents along with the prescribed account opening form. Proof of Identity – A beneficiary account must be opened only after obtaining proof of identity of the applicant. The applicant’s signature and photograph must be authenticated by an existing account holder by the applicant’s bank or after due verification made with the original of the applicant’s valid passport, voter ID, driving license or PAN Card with a photograph Proof of Address – The account opening form should be supported with proof of address such as verified copies of ration card/ passport/ voter ID/ PAN card/driving license/ bank passbook. An authorized official of Participants, under his signature, shall verify the original documents. In case any account holder fails to produce the original documents for verification within the aforesaid period 0f 30 days, it must be immediately brought to the notice of NSDL. Failure to produce the original documents within the prescribed time would invite appropriate action against such account holder, which would even include the freezing of their accounts Client Types in Depository System There are several client types in the depository system and different codes are allotted to them. These are listed below. 1)Resident – Ordinary and HUF 2)Financial Institutions – Govt sponsored FI, State FCs, other 3)FIIs – Mauritius-based, Others 4)NRI –Repatriable, Non-Repatriable, Depository Receipts 5) Body Corporate – Domestic Company, Overseas Corporate Body, Repatriable, Govt company, Central Govt, State Govt, Co-operative body, NBFC, Non- NBFC, Broker, Foreign Bodies, Group companies, others, OCB – Non-repatriable, Depository Receipt 6) CM (Clearing Member) 7) Foreign National – Foreign National/Depository Receipt 8) Mutual Fund – Foreign National/ Depository Receipt 9) Trust 10) Bank – Foreign Bank, Co-operative bank, Nationalized bank, Other 11) Intermediary These are several client types in the depository system and different codes are allotted to them as above. No minimum balance is required for opening a depository account. After verifying the form and the documents DP opens the account of their clients.