{"id":4504,"date":"2021-09-14T15:42:20","date_gmt":"2021-09-14T10:12:20","guid":{"rendered":"https:\/\/www.tickertape.in\/blog\/?p=4504"},"modified":"2022-02-10T15:59:09","modified_gmt":"2022-02-10T10:29:09","slug":"clearing-and-settlement","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/clearing-and-settlement\/","title":{"rendered":"Clearing and Settlement Process in Stock Market \u2013 2022 Comprehensive Guide"},"content":{"rendered":"\n<p>Stock trading involves two parties &#8211; a buyer and a seller. When you place an order to buy a share, it is not credited to your <a href=\"https:\/\/www.tickertape.in\/blog\/how-to-transfer-shares-from-one-demat-account-to-another-complete-process\/?utm_source=blog&amp;utm_medium=article\">Demat<\/a> account immediately. Similarly, when you sell your shares, the amount does not reflect in your account instantly. It takes a while as your trade order may or may not match with the opposite order of other parties. The process of matching the orders and effecting the transfer of funds is termed clearing and settlement, and it takes upto two days in India. Let us understand the different aspects of the process of clearing and settlement in the <a href=\"https:\/\/www.tickertape.in\/blog\/how-to-invest-in-shares\/\">stock market<\/a>.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/clearing-and-settlement\/#This-article-covers\" title=\"This article covers :\">This article covers :<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/clearing-and-settlement\/#What-is-the-clearing-and-settlement-process\" title=\"What is the clearing and settlement process?\">What is the clearing and settlement process?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/clearing-and-settlement\/#How-does-the-clearing-and-settlement-process-in-the-stock-market-work\" title=\"How does the clearing and settlement process in the stock market work?\">How does the clearing and settlement process in the stock market work?<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/clearing-and-settlement\/#Day-1-T-day\" title=\"Day 1 (T day)\">Day 1 (T day)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.tickertape.in\/blog\/clearing-and-settlement\/#Day-2-T1-day\" title=\"Day 2 (T+1 day)\">Day 2 (T+1 day)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.tickertape.in\/blog\/clearing-and-settlement\/#Day-3-T2-day\" title=\"Day 3 (T+2 day)\">Day 3 (T+2 day)<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.tickertape.in\/blog\/clearing-and-settlement\/#Aspects-to-consider-as-an-investor\" title=\"Aspects to consider as an investor\">Aspects to consider as an investor<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.tickertape.in\/blog\/clearing-and-settlement\/#Demat-account-requirement\" title=\"Demat account requirement\">Demat account requirement<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.tickertape.in\/blog\/clearing-and-settlement\/#Knowledge-about-brokerages\" title=\"Knowledge about brokerages\">Knowledge about brokerages<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.tickertape.in\/blog\/clearing-and-settlement\/#Basic-knowledge-of-stock-trading\" title=\"Basic knowledge of stock trading\">Basic knowledge of stock trading<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.tickertape.in\/blog\/clearing-and-settlement\/#Advantage-and-importance-of-clearing-and-settlement-process\" title=\"Advantage and importance of clearing and settlement process\">Advantage and importance of clearing and settlement process<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/www.tickertape.in\/blog\/clearing-and-settlement\/#Clearing-houses-in-India\" title=\"Clearing houses in India\">Clearing houses in India<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/www.tickertape.in\/blog\/clearing-and-settlement\/#Bottom-line\" title=\"Bottom line\">Bottom line<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"This-article-covers\"><\/span><strong>This article covers :<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul><li><a href=\"#what\">What is the clearing and settlement process?<\/a><\/li><li><a href=\"#how\">How does the clearing settlement process in the stock market work?<\/a><\/li><li><a href=\"#aspects\">Aspects to consider as an investor<\/a><\/li><li><a href=\"#and\">Advantage and importance of clearing and settlement process<\/a><\/li><li><a href=\"#in\">Clearing houses in India<\/a><\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"what\"><span class=\"ez-toc-section\" id=\"What-is-the-clearing-and-settlement-process\"><\/span><strong>What is the clearing and settlement process?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In the Indian <a href=\"https:\/\/www.tickertape.in\/blog\/how-to-invest-in-shares\/?utm_source=blog&amp;utm_medium=article\">stock market<\/a>, the trading between the buyer and the seller is completed on a \u2018T+2 days\u2019 basis. T-day or trade day (or trading day) is the day on which the trade is executed. The \u2018T+2 days\u2019 is the time it takes for the broker and the <a href=\"https:\/\/www.tickertape.in\/blog\/stock-exchange\/?utm_source=blog&amp;utm_medium=article\">stock exchanges<\/a> to match the order, facilitate the debit of shares and credit of money and reflect these in the respective account of the buyer and seller. This process of balancing the books is called clearing and settlement in the stock market, and it enables the proper transfer of funds and securities from one party to another.&nbsp;<\/p>\n\n\n\n<p>In clearing, the security that is owed to the buyer is identified and the amount of money that is owed to the seller is calculated. While this sounds simple, we are bound by our example of two people &#8211; a buyer and a seller. In reality, there are many traders, each effecting multiple trades throughout the market sessions. This is why it takes T+2 days.&nbsp;<\/p>\n\n\n\n<p>A clearing house which is an independent entity manages this whole process of clearing the trades on behalf of stock exchanges.&nbsp;<\/p>\n\n\n\n<p>The clearing process leads to the next step &#8211; Settlement<\/p>\n\n\n\n<p>The \u2018settlement\u2019 is the actual exchange of securities and funds between the two parties of a transaction, completing the financial obligation. The individual accounts are updated for the shares received and the money received, and the trade is considered \u2018settled.\u2019<\/p>\n\n\n\n<p>Generally, a stock trade in India gets settled on a \u2018T+2\u2019 days basis. Bonds, <a href=\"https:\/\/www.tickertape.in\/blog\/government-securities\/\">government securities<\/a>, and money market instruments settle on a \u2018T+1\u2019 basis.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"how\"><span class=\"ez-toc-section\" id=\"How-does-the-clearing-and-settlement-process-in-the-stock-market-work\"><\/span><strong>How does the clearing and settlement process in the stock market work?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Here you will understand the trade settlement process for both the buyer and the seller.&nbsp;<\/p>\n\n\n\n<p>Let us take an example. A buyer bought ten shares from a company for Rs 1,000 each. The date of buying the shares is known as a trade day or T-day.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Day-1-T-day\"><\/span><strong>Day 1 (T day)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>On this day, the broker will debit the amount from the buyer\u2019s <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-a-trading-account\/\">trading account<\/a> or linked bank account for buying the shares and credit it to a clearing house account. The broker will charge a brokerage fee, transaction charges, and other fees to the buyer\u2019s account.<\/p>\n\n\n\n<p>Likewise, the broker will block the shares in the Demat account of a matched seller and credit the shares to the clearing house account. The seller would not be able to sell the shares again after blocking the shares.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Day-2-T1-day\"><\/span><strong>Day 2 (T+1 day)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>On this day, the broker does not perform transactions. If the buyer wants to sell back the <a href=\"https:\/\/www.tickertape.in\/blog\/intrinsic-value-of-shares\/?utm_source=blog&amp;utm_medium=article\">shares<\/a>, they may (and this will trigger another round of clearing and settlement). The seller however cannot buy back the same shares that they sold on \u201cT day.\u201d The clearing house, on&nbsp; T+1 day, transfers the shares and funds to the broker.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Day-3-T2-day\"><\/span><strong>Day 3 (T+2 day)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The \u2018T+2\u2019 is the final day for the settlement of the transactions. On this day, the final exchange of securities and funds transfer takes place between the buyer and seller. At the end of the day, the broker credits the funds in the seller&#8217;s bank account. Similarly, in case of our example, it would add 10 shares to the Demat account of the buyer.<\/p>\n\n\n\n<p>After crediting the shares and funds in the account of buyer and seller, respectively, the trade stands settled.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"aspects\"><span class=\"ez-toc-section\" id=\"Aspects-to-consider-as-an-investor\"><\/span><strong>Aspects to consider as an investor<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>If you are dealing with the stock market as an investor, you will encounter a clearing and settlement process. Therefore, you need to consider the following things:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Demat-account-requirement\"><\/span><strong>Demat account requirement<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Before trading, you are required to open a Demat account with a registered stockbroker. Most brokers offer an online Demat account at low brokerage charges.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Knowledge-about-brokerages\"><\/span><strong>Knowledge about brokerages<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The buyers and sellers cannot trade in the stock market without brokers. Different brokers charge different brokerage fees from the investors and traders. You should compare the charges of different brokers while opening your Demat and trading account.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Basic-knowledge-of-stock-trading\"><\/span><strong>Basic knowledge of stock trading<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The settlement process only facilitates the exchange between the seller and buyer. To trade in the market, you must know the trading fundamentals.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"and\"><span class=\"ez-toc-section\" id=\"Advantage-and-importance-of-clearing-and-settlement-process\"><\/span><strong>Advantage and importance of clearing and settlement process<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Under the new trading system, the <a href=\"https:\/\/www.tickertape.in\/blog\/stock-market-participants\/\">stock market participants<\/a> are enabled to&nbsp; digital buying and selling. The advantages for the investors are as follows:<\/p>\n\n\n\n<ul><li>It allows you to buy and sell shares and stocks at a secure and fast pace.<\/li><li>Ownership of securities transfer immediately and in accounts within a short period.<\/li><li>It ensures smooth trading for market participants.<\/li><li>The digital trade settlement reduces the time and effort while trading.<\/li><li>It does not require visiting any broker physically.<\/li><li>The digital clearing and settlement eliminates the paperwork.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"in\"><span class=\"ez-toc-section\" id=\"Clearing-houses-in-India\"><\/span><strong>Clearing houses in India<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Following are few clearing houses in Indian stock market for providing trade settlement services to the buyer and sellers:<\/p>\n\n\n\n<ul><li>Metropolitan Clearing Corporation of India Ltd.<\/li><li>India International Clearing Corporation Ltd.<\/li><li>National <a href=\"https:\/\/www.tickertape.in\/blog\/commodity-in-economy\/\">Commodity<\/a> Clearing Ltd.<\/li><li>Multi Commodity Exchange clearing Corporation Ltd.<\/li><li>Indian clearing corporation Ltd.<\/li><li>NSC IFSC Clearing Corporation Ltd.<\/li><li>National Securities Clearing Corporation Ltd.<\/li><\/ul>\n\n\n\n<p>These are some important clearing and settlement agencies in India that operate under the registered exchanges.&nbsp;<\/p>\n\n\n\n<p>The clearing houses do not have a direct link with the investors. These agencies interact with the brokers only. The brokers facilitate the transaction between the clearing corporations and the buyer or seller of the <a href=\"https:\/\/www.tickertape.in\/blog\/fixed-income-securities\/?utm_source=blog&amp;utm_medium=article\">securities<\/a>.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Bottom-line\"><\/span><strong>Bottom line<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Stock trading and its settlement process has undergone mammoth changes in the past few decades. Today, India is home to the advanced clearing and settlement procedures that enable a fast and smooth trading experience for investors. <a href=\"https:\/\/www.tickertape.in\/blog\/securities-and-exchange-board-of-india-functions-powers-and-regulations-of-sebi\/\">SEBI<\/a> and the stock exchanges, in partnership with the clearing houses, are constantly striving to make the process even faster, aiming for a T+1 day settlement.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Want to know what is trade settlement? Click here for latest information on clearing and settlement process, its importance, advantages and things to consider as an investor.<\/p>\n","protected":false},"author":54,"featured_media":4307,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[9,1749],"tags":[753],"acf":[],"modified_by":"Ayushi Mishra","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2021\/09\/Informative-2-1.png?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/4504"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/54"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=4504"}],"version-history":[{"count":3,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/4504\/revisions"}],"predecessor-version":[{"id":6889,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/4504\/revisions\/6889"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/4307"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=4504"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=4504"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=4504"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}