The Hindu Business Line : Nuts and bolts of settlement and payment

Financial Daily from THE HINDU group of publications Sunday, Sep 11, 2005

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Nuts and bolts of settlement and payment

What is an Account Period Settlement?

An account period settlement is a settlement where the trades pertaining to a period stretching over more than one day are settled.

For example, trades for the period Monday to Friday are settled together.

The obligations for the account period are settled on a net basis.

Account period settlement has been discontinued since January 1, 2002, pursuant to SEBI directives.

What is a Rolling Settlement?

In a Rolling Settlement, trades executed during the day are settled based on the net obligations for the day.

At present the trades pertaining to the rolling settlement are settled on a T+2 day basis where T stands for the trade day.

Hence, trades executed on a Monday are typically settled on the following Wednesday (considering 2 working days from the trade day).

The funds and securities pay-in and pay-out are carried out on T+2 day.

What is the pay-in day and pay-out day?

Pay in day is the day when the brokers shall make payment or delivery of securities to the exchange.

Pay out day is the day when the exchange makes payment or delivery of securities to the broker.

Settlement cycle is on T+2 rolling settlement basis w.e.f. April 1, 2003.

The exchanges have to ensure that the payout of funds and securities to the clients is done by the broker within 24 hours of the payout.

The Exchanges will have to issue press release immediately after pay out.

What are the prescribed pay-in and pay-out days for funds and securities for Normal Settlement?

The pay-in and pay-out days for funds and securities are prescribed as per the Settlement Cycle.

A typical Settlement Cycle of Normal Settlement is given in the accompanying table. This is a typical settlement cycle for normal (regular) market segment.

The days prescribed for the above activities may change in case of factors such as holidays, bank closing etc.

You may refer to scheduled dates of pay-in/pay-out notified by the Exchange for each settlement from time-to-time.

In the case of purchase of shares, when do I make payment to the broker?

The payment for the shares purchased is required to be done prior to the pay in date for the relevant settlement or as otherwise provided in the Rules and Regulations of the Exchange.

In the case of sale of shares, when should the shares be given to the broker?

The delivery of shares has to be done prior to the pay in date for the relevant settlement or as otherwise provided in the Rules and Regulations of the Exchange and agreed with the broker/sub broker in writing.

How long it takes to receive my money for a sale transaction and my shares for a buy transaction?

Brokers were required to make payment or give delivery within two working days of the payout day.

However, as settlement cycle has been reduced fromT+3 rolling settlement to T+2 w.e.f. April 01, 2003, the payout of funds and securities to the clients by the broker will be within 24 hours of the payout.

Is there any provision where I can get faster delivery of shares in my account?

The investors/clients can get direct delivery of shares in their beneficiary accounts.

To avail of this facility, you have to give details of your beneficiary account and the DP-ID of your DP to your broker along with the Standing Instructions for `Delivery-In' to your Depository Participant for accepting shares in your beneficiary account.

Given these details, the Clearing Corporation/Clearing House shall send pay out instructions to the depositories so that you receive pay out of securities directly into your beneficiary account.

Source: www.sebi.gov.in

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