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Clearing and Settlement Process In The Stock Market.. In the stock market, either you buy or sell stock from your demat account. When you purchase a stock, the amount is debited from your bank account and shares are credited to your demat account. Similarly, when you sell shares, the shares are debited from your demat account and money is credited into the bank. This process seems simple but it is not as easy as it looks. To ensure that the whole process is completed smoothly and without any fraud, the regulators have devised a trading cycle along with a clearing and settlement process. Clearing and Settlement Process When You Purchase a Stock The basic requirement for purchasing a stock is having a demat account for holding it electronically and having a bank account for financial transactions. So when you purchase a stock the following activities take place. · Day 1 The day on which you purchase a stock is called Trade Day or T Day. On this day the broker gives you the contract note of the transaction along with the charges. The contract note is like a bill for the purchase of stock. The money is debited from your bank account and the shares are not yet credited to your demat account. · Day 2 It is the second day after your purchase. It is also known as Trade Day + 1 or T + 1 Day. On this day, the stock exchange collects the amount for shares purchased along with the charges from your broker. Shares purchased by you are not yet credited to your demat account. However, you can sell the stock purchased yesterday as Buy Today Sell Tomorrow or BTST trade. Before doing so, you must know the risk attached to the BTST trade. · Day 3 This is the second day of your purchase. It is also known as Trade Day + 2 or T + 2 Day. On this day the shares are debited from the demat account of the seller and credited to the broker’s account. The broker then credits those shares into your demat account. The money that was debited from your bank account for the purchase of shares gets credited to the bank account of the seller. Clearing and Settlement Process When You Sell a Stock The share selling process is similar to the share purchase process. It is as follows; · The shares are sold on Day 1 or T Day. The shares sold by you get blocked in your account so that you cannot resale them again. · On the second day or T+1 Day, your broker will give the shares to the stock exchange. · On the third day or T+2 Day, money would be credited to your bank account after deduction of all the charges. Participants Involved in Clearing and Settlement Process · Depository A demat account holds your shares electronically. This facility of holding your shares electronically is provided by the depository. It is responsible for maintaining the ownership records and facilitating trading in electronic or dematerialised form. · Clearing Corporation A clearing corporation plays the role of transferring every trade to the custodian or the clearing member. It ensures that the settlement cycle is risk-free and short. · Clearing Members and Custodians All the trades are transferred by clearing corporation passes to a clearing member or custodian. They have the responsibility of transferring shares and funds on T+2 days to the respective holder's account. ·Clearing Banks SEBI has made a list of 13 banks that will help in the movement of money. Every clearing member needs to open a bank account with one of the listed banks. The clearing banks have the responsibility of smooth movement of funds between the buyer and seller of shares. Hope this article helped you in learning something new about the stock market. If you are looking to open a demat account, you may consider Indira Securities. We are one of the fastest growing broking firms in India. We offer a wide range of financial services and that too at affordable rates.