Blog Details

Placing of order & Clearing and Settlement of traded securities

  • By: Ronit Roy (Financial Planner)
  • 30 Apr, 2020

Placing of order
The Broker accepts orders from the client and sends the same to the Exchange after
performing the risk management checks. Clients have the option of placing their orders
through various channels like internet, phone, direct market access (DMA) (for institutional
clients), etc.
Once the orders are received by the broker, it is confirmed with the client and then entered
into the trading system of the Exchange. The Exchange gives confirmation of the order and
time stamps it. An order generally comes with certain conditions that determine whether
it is a market order, limit order, etc ). These specify the terms and conditions at which the client wants his/her order to get executed. Once the trade is executed on the Exchange, the details are passed on to the clearing corporation, to initiate the clearing and settlement of those executed trades. Based on the trade details from the Exchange, the Clearing Corporation determines the obligations of the members. It then notifies the consummated trade details to the clearing members/custodians who affirm back. Based on the affirmation, the clearing corporation applies multilateral netting and determines obligations. The settlement process begins as soon as member’s obligations are determined through the clearing process.

Clearing and Settlement
The settlement process is carried out by the clearing corporation with the help of clearing
banks and the depositories. The clearing corporation provides a major link between the
clearing banks and the depositories. This link ensures the actual movement of funds as well as
securities on the prescribed pay?in and pay?out day.

Instructions are given to the depositories and the clearing banks for the pay?in of securities and
funds and pay?out of securities and funds. The clearing members have to ensure that they
make available the securities/funds to the clearing corporation before pay?in day and time.
Once the pay?in activities are carried out the clearing corporation carries out the pay?out of
funds and securities.

In India, we follow the T+2 Rolling Settlement, which means that the brokers settle the
transactions on the second working day from the trading day. To give an example, a trade
executed on Wednesday, has to be settled on Friday (provided Thursday and Friday are
working days), with pay?in and pay?out of funds and securities being completed on that day.