Trading, Clearing and Settlement
- The trading in securities is buying and selling of securities listed on the recognized stock exchanges.
- The clearing is a process of determination of obligations of member-brokers by the stock exchanges after which the same are discharged by the concerned parties by settlement.
- The settlement is a process of settling of transactions in securities between buyers and sellers by exchange of money and securities respectively.
- The trading on stock exchanges in India was in open outcry manner till mid 1990s.
- In order to provide efficiency, liquidity and transparency, NSE introduced, a nationwide, on-line, fully-automated Screen based trading system (SBTS) in November 1994 known as National Exchange for Automated Trading (NEAT) system.
- BSE online trading (BOLT) by BSE started in March 1995
Screen based trading system
- NEAT and BOLT are state-of-the-art client-server based applications where at the server end all trading information is stored in in-memory databases to achieve minimum response time and maximum system availability for users.
- A member, broker enter orders from the Trader Work Stations (TWSs) installed in their offices.
- A client of these broker can place orders through phone/internet for which he should enter Model Agreement with brokers first.
Internet based trading
- There are many brokers who provide internet based trading facility to their clients.
- Investors can buy/sell securities through Trader Terminals downloaded on their computers, Trading Apps on their mobiles etc.
- Both NSE and BSE systems run on ‘Order driven’ systems
What is ‘order-driven’ system?
- In an order-driven system, the traders only put their orders for buying or selling of securities whereas, in ‘quote-driven’ system, the jobbers put buy as well as sell quotes in the same scrip with a price difference.
- The order-driven system ensures faster processing, matching and execution of orders in a transparent manner.
- NSE system, is order driven from the beginning while BSE system turned completely order-driven after 13th August 2001. Till then it was both order and quote driven.
- Regular Trading in equities on the NEAT and BOLT systems are conducted from Monday to Friday between 9:15 a.m. to 3:30 p.m. Thus uniform trading hours are followed by both the stock exchanges.
- Pre-open session : 9:00 to 9:08
- Block deal sessions: 8:45 a.m – 9:00 a.m and 2:05 p.m. – 2:20 p.m
- Closing session: 15:40 hrs to 16:00 hrs
Why trade on recognized stock exchanges only?
- Investors do not get any protection if he trades outside a stock exchange.
- Investors gets best prices prevailing in the market on Stock Exchanges
- No counter-party risk involved
- Access to investor grievance and redressal mechanism of stock exchanges
- Protection up to a prescribed limit from the Investor protection fund
How to know if the broker or sub broker is registered?
- Investor should check the Registration Certificate issued by SEBI
- A broker’s registration number begins with letters ‘INB’ and that of a sub-broker with the letters ‘INS’
- The maximum brokerage that can be charged by a broker from his clients as commission cannot be more than 2.5% of the value mentioned in the respective purchase or sale note.
What is contract note?
- Contract Note is a confirmation of trades done on a particular day on behalf of the client by a trading member.
- It imposes a legally enforceable relationship between the client and the trading member with respect to purchase/sale and settlement of trades.
- It also helps to settle the disputes/claims between the investor and trading member.