Settlement Of Trades-txc.cc

Prior to 1990s the transactions were settled between the brokers directly at the floor of the exchange. There was no guarantee that if a trade is executed then the same will be definitely settled. In case a particular broker defaults in meeting his .mitment the loss due to that will be borne by his counter part brokers depending on their exposure against the default broker. To over .e this lacuna and to ensure orderly growth in the secondary market volumes one of the measure taken was setting up of clearing corporation (hence forth referred to as CC). The main role of CC was to ensure smooth settlement of trades both fund as well as delivery part. In line with this it was decided that for every transactio n of a broker CC would act as counter party. What this means is if broker A buys 100 shares of ACC and Broker B sells the same then it will be deemed as Broker A has purchased from CC and like wise Broker B has sold to CC. CC will be responsible to .plete the settlement irrespective of any broker defaulting. There are two .ponents to settlement. One is fund as well as delivery part. In line with this it was decided that for every transaction of a broker CC would act as counter party. What this means is if broker A buys 100 shares of ACC and Broker B sells the same then it will be deemed as Broker A has purchased from CC and like wise Broker B has sold to CC. CC will be responsible to .plete the settlement irrespective of any broker defaulting. There are two .ponents to settlement. One is fund .ponent and another is delivery of shares. Currently the settlement has to be done on T+2 day i.e. second working day from the trade date. For example if the transaction has taken place on Monday then the same will be settled on Wednesday. In case of Cash market the deliveries are netted out for the broker at exchange level and netted out for the client at broker level and settled in the CC. Let me exp lain this with an example. Broker A has 3 clients a, b and c. Client a purchases 100 ACC, Client b sells 50 ACC and Client c purchases 75 ACC and sells 50 ACC. In the books of the broker it will be client a + 100, client b 50 and client c +25 and if we total all the client position for broker A it will be + 75 ACC. The broker A will receive from CC 75 ACC. He will also receive 50 ACC from his client b. This he will deliver 100 to client a and 25 to client c. In the above example there are two scenarios where in the transaction can be in.plete. One on CC fail ing to deliver 75 ACC in part or in full and secondly the client b failing to deliver 50 shares in part or in full. CC will fail to deliver only if it receives short from opposite single or multiple brokers. In such case on the next day of the settlement day (T+3) CC will buy shares received short from the delivering brokers through auctioning process and deliver it to the broker A who is supposed to receive originally. The default broker will be charged penalty and any loss arising due to auction. With regards to second scenario of client b not delivering the shares normally the broker buy back from the market and deliver the shares to the client. The loss on account of buyback will be recovered from defaulting client in this case client b. In the Trade for Trade group category the transaction are settled at trade level. The .ting of buy and sell at the client level and .ting of all clients at broker level is not allowed. In case a client purchases 100 shares and sell 50 shares then he needs to deliver 50 shares sold by him prior to payin on T+2. Irrespective of his sale delivery he will be given 100 shares received from the CC on his behalf. In case a client fails to deliver then the same will be closed out as per the predefined formula, which can be as high as 20% above the current price. This is called auction. The loss will be debited to the defaulting client. We have seen how shares are settled in cash segment. Now we will look into the fund part of it. The funds are .ted out at the client level by the broker and at the broker level at exchange level and the mode of settlement for EQ and BE group are same. This statement can be better understood with an example. Client a has purchased ACC for Rs. 10000/ – and sold Tisco for Rs. 5000/-. Client b has purchased Telco for Rs. 8000/-, purchased L&T for Rs. 9000/ – and sold Maruti for Rs. 20000/ -. Client c has sold Reliance for Rs. 9000/-. When we . out at the client level then Client a will have to pay Rs. 5000/-, client b will have to receive Rs. 3000/ – and client c will have to receive Rs. 9000/ -. When we . out at the broker level it will work out to broker receiving Rs. 7000/- from CC. (9000+3000-5000). In short from the above example it can be seen that broker will receive Rs. 7000/ – from CC and Rs. 5000/- from client a and will in turn pay Rs. 3000/- and Rs. 9000/- to client b and c respectively. Now let us understand how the trades are settled in derivative segment. In derivative segment the trades are cash settled. By the very meaning of cash settle we imply there will not be any delivery of shares involved. The purchaser will not receive delivery against his purchase and seller will not deliver shares against his sale. The transaction can be settled by squaring off within the expiry or will be closed out and difference settled by paying or receiving cash. The new contract cycle in derivative segment will start at the beginning of the last Friday of the month and will expire on the last Thursday of the month. In case for any reason last Thursday is a holiday then the same will expire one day prior that is on last Wednesday of the month. The settlement of futures contract and option contracts are handled differently. In futures contract an investor can buy or sell the share as per the predefined market lot by paying initial margin. Having entered into a transaction he can close the transaction on the same day or any day prior to expiry by entering into a reverse trade. If the transaction is closed on the same day then his initial margin is released and the difference is settled on T+1 basis. On the other hand the transaction is not closed on the same day then the mark to market based on the closing price of the share is worked out and paid or received on T+1. This way it goes on till the closure of the trade. If the trade is not closed till the last day of the expiry then the trade is deemed to be closed at the closing price of the cash segment of the underlying share In case of option purchase the investor is required to pay upfront the premium amount.The transactio n is closed once the premium amount is paid. However if at a later timeframe before the contract expiry the price of the share goes up and correspondingly the premium for that contract also increases then he can sell the same. The sale will be settled on T+1 day. If the position is not sold and is alive till the expiry date and on expiry date if the closing price of the underlying is more than the strike price he will stand to get the difference between the closing price and strike price. On the contrary if the closing price is less than the strike price then his contract will expire and he will lose the premium paid at the time of purchase. Stock markets are only markets in India which have a perfect settlement record. Over Rs. 50,000 crorers worth of trades are settled day in and day out without any default for the past 10 years. There has not been even an hours delay in payouts of the stock exchange. Money and shares are both available at scheduled times every day. Hope the knowledge about the settlement systems gives retail investors the confidence to invest in stock markets. 相关的主题文章: