Clearing & Settlement

An overview by
Amrith Coutinho

What is the Role of Stock Exchange ?

The Exchange provides ONLINE ANONYMOUS
SCREEN BASED TRADING PLATFORM for
buyers and sellers to deal in the
LISTED/PERMITTED securities listed on the
Exchange at a FAIR PRICE (MARKET DRIVEN).
The Exchange ensures settlement of trades
between buyers and sellers at the appointed
time.

Participants of the Secondary

Market: Members
Members can trade:
In their OWN Account
on behalf of the Investors:

Individual
NRI
FII
DFI
MF
Bank
Insurance

Participants of the Secondary Market

(contd)
Members is CAST THE RESPONSIBILITY OF
SETTLING ALL THE FUNDS AND SECURITIES
OBLIGATIONS FOR ALL THE TRADES EXECTUTED
THRU ITS TWSs across the country.
Members can do transactions for the clients of their
sub-brokers for which he has to issue the contract
notes/bills.

Participants of the Secondary

Market: Other Players
Designated Clearing Banks:
Settles the Trading Member Pay-in obligations of
FUNDS with the CLEARING HOUSE.

Custodians:
Settles the Client Settlement Obligations of Funds
and Securities with the CLEARING HOUSE.

Depositories
CLEARING HOUSE
Exchange
SEBI (Regulator)

Segments
CASH
Equity, Preference Shares, Debentures/Bonds and
Warrants
Corporate Debt Instruments
Government Securities

DERIVATIVES

Stock Options
Stock Futures
Index Options
Index Futures

Cash Market Timings

Continuous Trading Session: 9.55 a.m. to 3.30 p.m.

Block Deals: first 35 minutes from the start of market hours
(I.e. generally from 9.55 a.m. to 10.30 a.m.)
Computation of the Closing Price of all the scrips traded on thr
Exchange (Between 3:30 to 3:40 p.m.):
Closing price of scrip is the weightage average price of the
scrip of last half an hour in the Continuous Trading Session.
If the scrip is not traded during the last half an hour than the
last trade price of the scrip before that period shall be the
closing price of the scrip.
Post Closing Session: 3.40 p.m. to 4.00 p.m.
INVESTORS can do Transactions in this session at the CLOSING
PRICE of the scrip.
Members can change the CLIENT CODE in the post closing
session. However they cant change CLIENT TYPE.

Sun Outage:
1) BSE trading is ON.
2) Change in Closing Session Timings in order to
tune with the other Exchange.

Groups
Equity

A Group
B1 Group
B2 Group
S Group (INDO NEXT)
T Group (Surveillance Action)
TS Group (Surveillance Action)
Z Group
Companies Non-Complying with various clauses of Listing
Agreement
Not signing with both the Depositories etc.

Debentures/Bonds: F Group
Government Securities: G Group

Scrip Codes for CASH MARKET

Check for Scrip Group
Equity:
before placing the order
Fully paid up code series:
Fully paid up shares Normal code: 5 Lakh series
FII only SELLER and
BUYER any INSTITUTION: 6 Lakh series
Permitted Securities: 590001 to 598999
Partly Paid-up shares: 890001 to 900000

Preference Shares: 700001 to 720000

Right Renunciation Form: 750001 to 790000 series
Corporate Bonds/Debentures: 9 Lakh series
Government Securities: 800001 to 850000

Types of Orders

Limit Order
Market Order
Hit/Take Order
Stop Loss Order
Odd Lot
Buy Back (Physical/Demat)
Block Deal
It is also a Compliance Requirement.

Bulk Deal

Bulk Deal is not a Type of Order

but a Compliance Requirement

BLOCK DEAL:
(implemented w.e.f. 14-11-2005)
Execution Time: first 35 minutes from start of market hours

(normally 9:55 a.m to 10:30 a.m.)

Order Size: Minimum of
- 5,00,000 shares or
-Rs. 5 Crore Order Value (Order Qty * Order Rate).
Valid Price Range: within +/-1% from the ruling market price (i.e.
last traded price) or the previous closing price (subject to the applicable
circuit filter limits).
Order Matching Logic: The block deal orders in a scrip will be
matched against the counter order with same quantity and price on a
time priority basis.

BULK DEAL
(implemented w.e.f. 17-2-2004)

BULK DEAL: If Qty Bought/sold by an Investor in

Single Transaction or Multiple Transactions on
PURCHASE SIDE or SELL SIDE exceeds 0.5% of the
LISTED CAPITAL OF THE COMPANY then the
Trading Member has to upload this information thru
DUS software (Data Upload Software).

Settlement Process

Settlement On Net Basis

(at Member Level)
NORMAL
SETTLEMENT

Settlement on Gross Basis

(at Member Level)
Trade to Trade
SETTLEMENT

T and T+1 Day Activity

T Day
Trading in Continuous and Post Closing Session.
Client Code Rectification.
Trading Members can enter 6A-7A entries for Custodians Confirmations
(mostly for Institutional Clients).

T+1 Day
Trading Members can modify the unconfirmed 6A-7A entries upto 11:00
a.m..
Custodians can confirm the entries upto 1:00 p.m..

Note: The Trading Members are required to download the

Settlement obligations reports (money statement, balance
Sheet etc.) on T+1 Day (generally after 2:30 p.m.).

Trading Members - Settlement of Pay-in / Payout

(Funds and Securities) with the Clearing House
For Securities:
Demat Pool Account/ Principal Account with
NSDL
CDSL

For Funds:
One Designated Clearing Bank account with any
one of the 15 Recognised Clearing Bank.

Pay-in / Pay out

Securities

Pay-in (Securities)
(T+2 Day Activity)

Pay-in (Demat Shares): The Trading Members and

Custodians are required to have the securities in their POOL or
Principal A/c with NSDL/CDSL (respectively) by 10:30 a.m. on
pay-in day.
Pay-in (Physical Shares): To be delivered by the
Delivering Trading member to the Clg House on T+2 Day
between 9:30 a.m. to 10:30 a.m.
The Depositories send the Pay-in FILE to the Clearing House at
11.00 a.m. after sweeping of balances available in the said demat
accounts.

Securities Shortage
(T+2 Day Activity)

Computation of Shortages: Value of securities delivered short is

computed after the receipt of pay-in file from the depositories after 11.00
a.m.

Amount Recovered:
For Members having Pay-in (funds) Obligations: The amount is
debited to the bank account.
For Members having Pay-Out (funds) Obligations: In case the
Trading Member is having the Pay-out (funds) obligations in that
case the Pay-out amount is reduced to that extent.

SELF AUCTION: If one of the client of the Trading member has not
delivered the securities at the time of Pay-in, the Trading member can
inform Clearing House by 3:00 p.m. on T+2 Day and request Clearing
House to include the shortages in Auction Session conducted for the
settlement.

Auction Tender is issued on T+2 Day EVENING.

Note: Securities Shortages for Trade to Trade Scrips (i.e. scrips in T, TS, Z
group scrips) or for BLOCK DEAL TRANSACTIONS or for 6 Lakh series
codes IT SHALL NOT GO FOR AUCTION BUT IT SHALL BE Directly
CLOSEOUT.

Pay-Out (Securities)
(T+2 Day Activity)

Pay-out (Demat Shares): The Pay-out file shall be forwarded

by the Clearing House to both the Depositories and Depositories
shall credit the securities in the POOL/PRINCIPAL A/c of the
Trading Member.
Pay-Out (Physical Shares): to be collected by Receiving
Trading Members from Clg House on T+2 Day between
1:30 p.m. to 2:30 p.m.
Direct Payout (for Clients): If the client wants the shares
directly in his/her Demat Account then it has to give standing
instructions to his/her Trading Member. Trading Member will
have to give this information to the Exchange scripwise clientwise
FOR EACH SETTLEMENT. In that case the shares shall directly
be credited to the Purchasing Clients Demat Account.

Auction Session

Offer Type: CLOSED TENDER SYSTEM.

ON T+3 Day: Auction Session is Conducted

Session Timings: 11.00 a.m. to 12.00 noon.

Auction Report: 12.30 a.m.

OFFER PRICE RANGE:

a)
Floor Price (Lower band): T+2 Closing Price of Scrip Less - 20%.
b)
Cut off Rate (Upper band): Close Out Rate.
PLEASE TAKE CARE WHILE AUCTION IS FOR CUM-BENEFITS and
Scrip is already EX-BENEFITS.
c) OFFER ACCEPTANCE: Ascending Rates wise.
On T+4 Day

Auction Pay-in: 12 noon

Auction Pay-out: 1.30 p.m.

NOTE: If NO/PART offers are received in Auction session or the Offeror/s fails
to deliver securities at the time of Auction Pay-in (Securities): IT SHALL
RESULT INTO CLOSE OUT

Note:
1) Defaulting Seller member cant participate for
auction in that scrip.
2) Loss (if any) is recovered from the Defaulting
Selling Member.
3) Profit is transferred to IPF.

Close Out
If NO/PART offers are received in Auction
session or the Offeror/s fails to deliver securities
at the time of Auction Pay-in (Securities) IT
SHALL RESULT INTO CLOSE OUT.
Note: Securities Shortages for Trade to Trade
Scrips (i.e. scrips in T, TS, Z group scrips) or for
BLOCK DEAL TRANSACTIONS or for 6 Lakh
series codes IT SHALL NOT GO FOR AUCTION
BUT IT SHALL BE Directly CLOSEOUT.

Close Out (Formula)

Highest price recorded in the scrip from the trading day on which
the transaction took place upto a day prior to the day of auction
(i.e. pay-in Day).
OR
20% above the closing price on the day prior to the day of
auction (i.e. pay-in day).
WHICH EVER IS HIGHER
------------------------------------------------------------------10%: Scrips settled on T2T (T, TS, Z Group Scrips), Patawat
Objection
5%: Bonds/Govt. Securities

Example of Close Out (Normal)

Scrip A (Scrip Code: 500000)

Pay-in / Pay out

Funds

Pay-in (funds)/Pay-out (Funds)

Pay-in (Funds) T+2 Day 10:30 a.m:
The funds are required to be deposited/kept in the Designated Bank
Account by the Trading Members before 10:30 a.m. on settlement
day (i.e. T+2 Day), if they are having a Pay-in (funds)
obligations for that Settlement or their value of securities
short delivered is more than the Pay-Out (Funds)
obligation for that Settlement.
The Designated Clearing Banks submits the fate to the Clearing
House by 11:00 a.m..
The Exchange debits this Designated Bank Account at the
time of NORMAL PAY-IN, RECOVERING THE VALUE OF
SECURITIES SHORT DELIVERED AT THE TIME OF
NORMAL PAY-IN and at the time of AUCTION PAY-IN.

Pay-out (Funds) declared by the Exchange - T+2 Day at

1:30 p.m.

Funds Shortage

Funds Shortage
Upto Rs.10 Lakh:
BOLT TWSs will not be deactivated.
PAYOUT OF SECURITIES and FUNDS OF THE
MEMBER IS WITHELD.
Member has an option to borrow the money from BCF
(Brokers Contigency Fund).

Funds Shortage
contd

More than Rs.10 Lakh:

BOLT TWSs will be immediately deactivated.
PAYOUT OF SECURITIES and FUND of the
member is WITHELD.
Equivalent FUNDS SHORTAGE COLLATERAL
is also recovered from the Member as Additional
Money and is kept aside for 10 settlements.

T+2 Settlement Process Flow

T+2 Settlement Process Flow

Trading
Day
Mon

T+1
Day
Tue

T+2
Day
Wed

T+3
Day
Thu

T+4
Day
Fri

T+2 Settlement Regime

contd

REMEMBER:
1) PAY-in/Pay-out will be conducted at the Schedule
Time.
2) NO TWO SETTLEMENT OBLIGATIONS WILL BE
MERGED.
3) IN CASE OF BANK HOLDIDAYS THERE
COULD BE 2 SETTLEMENT PAY-IN/PAY-OUT
CONDUCTED (IN A DAY) ONE AFTER
ANOTHER AS PER SCHEDULE TIME.

T+5 to T+3 to T+2 Settlement

T+5 introduced w.e.f. 31-12-2001

T+3 introduced w.e.f. 1-4-2002
T+2 introduced from 1-4-2003
Plans: T+1
Banking RTGS has to EXPAND to MAJOR
CENTRES.

Bad Delivery Cell (BDC)

Buying member can lodged BDC claim as per BDC
cycle.
Entry to be made in BDC Module

Bad Delivery to be given/collected to/from CLG

House by the Buying/Introducing Selling
Member respectively.
21 Day Cycle for RECTIFICATION.
BDC Auction/Close Out
REFER BDC Settlement Calendar
and Auction Notices.

RISK MANAGEMENT

Members have to maintain

Base Minimum Capital
Trade Guarantee Fund
Additional Capital

TYPES OF MARGIN

Value at Risk (VaR) margin

Extreme Loss (ELM) margin
Mark to Market (MTM) margin
Special margin (Surveillance action)
Charged on CLIENT LEVEL NET
BASIS on T Day

Margin Collection
Margins at client portfolio level
VaR and ELM BLOCKED UPFRONT on real time basis from
TOTAL LIQUID ASSETS.
VaR and ELM RELEASED on real time basis when the client
reverses position IN THE SAME SCRIP.
Mark to Market (MTM) and Special margin COLLECTED at
End Of Day.
SPECIAL MARGIN are levied by Surveillance
Department @ 25% or 50% or 75% on Purchase Side or
on Sell Side or both the sides (Clientwise Outstanding
position in a scrip).
ALL MARGINS ARE AT CLIENT LEVEL.

Collateral Management

Collateral Deposits/Withdrawals
Collateral Deposits
Cash (ONLINE UPDATION).
Pledge Securities (T+1Day UPDATION).
BG/FDRs (T+1 Day UPDATION).

Collateral Withdrawal
Cash, BG, FDR & Securities (T+1 Day Release
Before Start of Market Hours).

Thank You