What is a settlement cycle?

Settlement cycle is the accounting period for the securities traded on the Exchange. On the NSE the cycle begins on Wednesday and ends on the following Tuesday, while on the BSE the cycle commences on Monday and ends on Friday. At the end of this period, the obligations of each broker is calculated and the brokers settle their respective obligations as per the rules, bye-laws and regulations of the Clearing Corporation.

NSE settlement cycle at a glance

BSE settlement cycle at a glance

If a transaction is entered on the first day of the settlement, i.e.Monday, the same will be settled on the eighth working day excluding the day of transaction. However, if the same is done on the last day of the settlement, i.e., Friday, it will be settled on the fourth working day excluding the day of transaction.

Settlement cycle is the accounting period for the securities traded on the exchange. On the NSE the cycle begins on Wednesday and ends on the following Tuesday, while on the BSE the cycle commences on Monday and ends on Friday. At the end of this period, the obligations of each broker is calculated and the brokers settle their respective obligations as per the rules, bye-laws and regulations of the clearing corporation.

What is a rolling settlement?

The rolling settlement ensures that each day’s trade is settled by keeping a fixed gap, between a trade and its settlement, of a specified number of working days. At present this is five working days after the trading day. The waiting period is uniform for all trades.

When does one deliver the shares/pay the money to broker?

In order to ensure smooth settlement one should deliver the shares to your broker immediately after getting the contract note for sale but in any case before the pay-in day. Similarly on the purchase of securities, one should pay immediately on the receipt of the contract note for purchase but in any case before the pay-in day.

When does one get shares/money from the broker?

The shares and the funds are paid out to the broker on pay-out day. The trading member should pay the money or securities to the investor within 48 hours of the pay-out.

What is short selling?

It is a sale of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short selling is a legitimate trading strategy. Short sellers assume the risk that they will be able to buy the stock at a more favourable price than the price at which they sold short.

What is an auction?

Auction is conducted for those securities that members fail to deliver/short deliver during pay-in.

Is there a separate market for auction?

The buy/sell auction for a capital market security is managed through the auction market. As opposed to the normal market where trade matching is an on-going process, the trade matching process for auction starts after the auction period is over.

What factors give rise to an auction?

There are three factors which primarily give rise to an auction:

• short Deliveries
• un-rectified bad deliveries
• un-rectified company objections

What happens if the shares are not bought in the auction?

If the shares are not bought at the auction i.e. if the shares are not offered for sale, the Exchange squares up the transaction as per SEBI guidelines. The transaction is squared up at the highest price from the relevant trading period till the auction day or at 20 per cent above the last available closing price whichever is higher. The pay-in and pay-out of funds for auction square up is held along with the pay-out for the relevant auction.

What is bad delivery?

SEBI has formulated uniform guidelines for good and bad delivery of documents. Bad delivery may pertain to transfer deed being torn, mutilated, overwritten, defaced, or if there are spelling mistakes in the name of the company or the transfer. Bad delivery exists only when shares are transferred physically. In “Demat” (SEE DEMAT) bad delivery does not exist.

What are company objections?

A list documenting reasons by a company for not transfering a share in the name of an investor is called company objections. Rejection occurs due to a signature difference, or fake shares, forged, or if there is a court injunction preventing the transfer of the shares.

What should one do with company objections?

The broker must immediately be notified. Company objection cases should be reported within 12 months from the date of issue of the memo for the original quantity of share under objection.

Who has to replace the shares in case of company objections?

It is the responsibility of the member who has sold the shares first on the Exchange to replace the shares within 21 days of the Exchange being informed. Company objection cases that are not rectified/ replaced are normally auctioned.

What is a stop transfer case?

Stop transfer is the process whereby the transfer of securities is stopped by the company for valid reasons as provided in the Companies Act, 1956. The process is effected by a company on the strength of a copy of a First Information Report (FIR) or a Court order, when the securities are reported as missing/lost/ stolen by the holder of the securities.

How does transfer of physical shares take place?

After a sale, the share certificate along with a proper transfer deed duly stamped and complete in all respects is sent to the company for transfer in the name of the buyer. Once the transfer is registered in the share transfer register maintained by the company, the process of transfer is complete.

What is a complete transfer deed?

A deed of transfer is considered proper if it is :

• in the prescribed format dated by the prescribed authority (eg. Registrar of Companies) and its validity period has not expired.
• must be duly stamped @0.50 per cent of the trade value of the shares as on the date of execution of the transfer deed.
• duly signed by or on behalf of the transferor and the transferee.