Clearing And Settlement in Stock Market

The clearing and settlement mechanism in Indian Securities market has witnessed significant changes and several innovations during last decade. These include use of the state-of-art information technology, emergence of clearing corporations to assume counterparty risk, shorter settlement cycle, dematerialization and electronic transfer of securities, fine tuned risk management system. T+2 rolling settlement has now been introduced for all securities. The members receive the funds/securities in accordance with the pay-in/ pay-out schedules notified by respective exchanges. Two depositories are National Securities Depositories Ltd. (NSDL) and Central Depositories Services Ltd. (CDSL) The securities are transferred on the pay-out day by the depositories from the settlement account of the clearing agency to the pool accounts of members/custodians. The pay-in and pay-out of securities is affected on the same day for all settlements. Pay-in of Funds and Securities: the Members bring in their funds/securities to the NSCCL. They make available required securities in designated accounts with the depositories by the prescribed pay-in time. The depositories move the securities available in accounts of members to the account of NSCCL. Likewise members with funds obligations make available required funds in the designated accounts with clearing banks by the prescribed pay-in time. The NSCCL sends electronic instructions to the clearing banks to debit member’s accounts to the extent of payment obligations. The banks process these instructions, debit accounts of members and credit accounts of the NSCCL. Pay-out of Funds and Securities: After processing the shortage of funds/securities and arranging for movement of funds from surplus banks to deficit banks through RBI clearing, the NSCCL sends electronic instruction to the depositories/clearing banks to release pay-out of securities/funds. The depositories and clearing banks debit the accounts of NSCCL and credit settlement accounts of members. Settlement is complete upon release of payout of funds and securities to custodians/members.