Procedure of buying and selling
Any purchase of shares through a stock exchange needs to be routed through brokersregistered with the exchange. Hence, for buying and selling shares on a regular basis, youneed to register with a broker. This can be done by approaching a broker and signing up aclient agreement form. It is also essential for a person to open a demat account throughwhich securities are delivered and received. This demat account can be opened with adepository participant which again is a Sebi-registered intermediary. A broker asks hisclient to deposit money with them and then buys shares for you. The shares you buy fromthe broker will be transferred to your demat account after which you own the shares.Similarly, when a person sells shares, he has to transfer shares to the broker's accountthrough his demat account.
What is a settlement cycle?
Whatever shares you buy, you need to get delivery of those shares. While if you sellshares, you need to get payment or cash for the same. The time taken to conclude bothlegs of the transaction is called a settlement cycle.In India, stock exchanges follow a T+2 days settlement cycle. Trading of securitieshappen on the first day while the settlement of the same happens in two working daysafter that. This means that a security bought on Monday will be received by the clientearliest on Wednesday, which is called a payout day by the exchange. If a person has bought security, he is supposed to pay money to the broker before paying on deadline,which is two days after the trading day, but the second day is considered till 10:30 a.m.
How does a broker identify which shares are to be transferred to his client?
Brokers identify their clients by a unique code assigned to a client. After the transactionis done by a client, the broker issues him a contract note which provides details of transaction such as time and date of the trade. Apart from the purchase price of security, aclient is also supposed to pay brokerage, stamp duty and securities transaction tax. In caseof a sale transaction, these costs are reduced from the sale proceeds and then theremaining amount is paid to the client. Settlement of securities is done by the clearingcorporation of the exchange. Settlement of funds is done by a panel of banks registeredwith the exchange. Clearing corporation identifies payable/receivable position of brokers based on which the obligation report for brokers is created. On T+2 days, all the brokerswho have transacted two days before receive or give shares to the clearing corporation of exchange. This is an automated process undertaken by the depository which is either the NSDL and CDSL.
Is my trade guaranteed by the exchange?