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Clearing and

settlement of stock
exchange

by:
S . HARIBABU
MBA
What is a Stock
Exchange?

Stock exchange is that place


where trading of shares is done
in terms of sale and purchase.
BSE: The Bombay Stock
Exchange
There are 23 stock exchanges in the India.
Mumbai's (earlier known as Bombay), Bombay
Stock Exchange is the largest, with over 6,000
stocks listed. The BSE accounts for over two
thirds of the total trading volume in the country.
Established in 1875, the exchange is also the
oldest in Asia. Among the twenty-two Stock
Exchanges recognized by the Government of
India under the Securities Contracts (Regulation)
Act, 1956, it was the first one to be recognized
and it is the only one that had the privilege of
getting permanent recognition ab-initio.
Scrip’s at BSE
• ACC
• MARUTI
• AIRTEL • MAHINDRA & MAHINDRA
• BHEL • NTPC
• DLF • ONGC
• GRASIM • RANBAXY
• GUJRAT AMBUJA • RELIANCE COMMUNICATION
• HDFC • RELIANCE INFRASTRUCTURE
• HDFC BANK • RIL
• HINDALCO • STERLITE INDUSTIES LTD
• HUL • SBI
• ICICI BANK • TCS
• INFOSYS • TATA MOTERS
• • TATA STEEL
SUN Pharma IND. LTD
• ITC • TATA POWER COMPANY LTD
• L&T • WIPRO
NSE: National Stock
Exchange
The National Stock Exchange (NSE), located in
Bombay, is India's first debt market. It was set
up in 1993 to encourage stock exchange reform
through system modernization and
competition. It opened for trading in mid-1994.
It was recently accorded recognition as a stock
exchange by the Department of Company
Affairs. The instruments traded are, treasury
bills, government security and bonds issued by
public sector companies
How are the SENSEX 30
Stocks are selected?
• Listing History
• Trading Frequency
• Rank based on the Market Cap (Should be
Among top 100)
• Market Capitalization weight
• Industry / sector they belong
• Historical Record
NIFTY

The National Stock Exchange (NSE) is associated


with NIFTY and it is also calculated by the same
methodology but with two key differences.
1. Base year is 1995 and base value is 1000.
2. NIFTY is calculated based on 50 stocks.

Everything else remains the same in NIFTY Index


calculation as well.
Clearing and settlement
 Once you have bought or sold shares, the transaction is complete
only when you have got the shares you purchased, or received money
for the shares you sold.
 This is called settlement in stock market parlance.
 The stock exchanges have a complex mechanism in place to ensure
that every trade is properly matched, and shares are received or
delivered properly.
 In case of a shortfall of securities, an auction is resorted to close out
the difference.
 The mechanism through which all parties to a transaction get their
receivables i.e. either funds or shares is known as ‘clearing and
settlement’ or simply ‘settlement’.
Settlement agents
• On each of the exchanges, thousands of orders
get matched with each other during the course
of a trading cycle.
• Even though for each trade there is a buyer
broker and a seller broker, they never interact
with each other for the settlement of that trade.
• Their interaction is only with the settlement
agency of their exchange.
• When an investor enters into a transaction with
a broker, either the shares or funds have to be
delivered to the broker.
• In turn, the broker delivers these to the settlement
agent on ‘pay-in day’ (explained in the next
section).
• Having made sure that it has received shares and
funds from all brokers, it processes the deliveries
and earmarks the shares for delivery to the buyer
broker.
• For trades on BSE, the settlement agent is called
as ‘Clearing House (CH)’ while on NSE it is
‘National Securities Clearing Corporation Ltd.
(NSCCL)’
Clearing House – Settlement Agent
of the BSE
• The clearing and settlement operations of
the BSE is managed by a company called
BOI Share Holding, which is a subsidiary
of Bank of India and BSE and is known as
ClearingHouse.
• All settlements for securities are through
the ClearingHouse on a delivery versus
payment (DVP) basis.
National Securities Clearing
Corporation – Settlement Agent of NSE
• The clearing and settlement operations of the
NSE are managed by its wholly owned
subsidiary, the National Securities Clearing
Corporation Limited, also known as Clearing
Corporation.
• Common settlement processes on both
exchanges
• The broker directly carries out settlements of
physical securities with the ClearingHouse/
Clearing Corporation.
Settlement Cycle on the BSE
• The settlement cycle on the BSE is Trade plus two
days, or T+2, as per a Sebi directive implementing
this new cycle from April 1, 2003.
• Under rolling settlement, trades done on one day
are settled after a certain number of days.
• So, T+2 will mean that the final settlement of
transactions done on the Trade day, will be settled
by exchange of money and securities on the
second business day (excluding Saturday,
Sundays, Bank and Exchange Trading Holidays).
• Pay-in and Pay-out for 'A', 'B1', 'B2', ‘T’,
‘S’, ‘TS’, 'C', "F", "G" & 'Z' group of
securities
Settlement is done on a T+2 basis. The pay-
in/pay-out process will be settled on the T+2
day.
THANK YOU