What is Settlement Procedure?
5paisa Research Team
Last Updated: 15 Jun, 2022 06:11 PM IST
![banner banner](/themes/custom/fivepaisa/images/banner-img.png)
![demat demat](/themes/custom/fivepaisa/images/demat-img.png)
Want to start your Investment Journey?
Content
- Introduction
- Define Settlement Procedure
- What Are the Different Types of Settlements in the Stock Market?
- What Is Rolling Settlement?
- What Are the Rules of Settlement in BSE and NSE?
- Conclusion
Introduction
Investments are made to yield profit or generate cash flows. There are various kinds of investments depending on the risk one is willing to take on. However, not all of these yield returns at the same time. Most of them have time frames for their returns. Different investment types have different procedures to be followed for their settlement and also vary in time. This blog will look at the various settlement procedure based on the investment type.
Define Settlement Procedure
In the financial market, settlement is the process of delivering and transferring securities from one account to another. This process involves the buyer, the seller, and the custodian. The responsibilities of the custodian include:
a) Receiving securities from the buyer.
b) Sending securities to the seller.
c) Distributing the funds to the buyer and the seller.
The settlement must be in cash and can also be done through a "set-aside" arrangement. There are different types of settlement processes: the traditional settlement and the net settlement. The traditional settlement involves settlement with the delivery of securities and payment on trade date. The net settlement involves cash settlement and settlement with the delivery of securities.
What Are the Different Types of Settlements in the Stock Market?
Cash settlement is the type of settlement that occurs when a trader is trying to sell stock that they don't have. There are four main types of settlements in the stock market. They are as follows: cash settlement, net settlement, gross settlement, and delivery versus payment (DVP).
Net settlement is the settlement process that occurs when a trader is trying to sell a stock, and they do have it. Gross settlement occurs when a trader is trying to sell a stock, and they do not have it. DVP settlement is the process of receiving stock that you have sold. It's a way of getting the cash and the stock at the same time. Even though DVP settlement is commonly used, it takes nearly a month for the settlement to process.
What Is Rolling Settlement?
Rolling settlement is when a trader is able to enter a trade before the futures contract settles. This is very common for futures contracts that are highly traded, like soybeans and corn. Since the price is constantly fluctuating, traders are able to see the new price and adjust their trades accordingly. This is different from the traditional futures contract, where the trader waits until the end of the month to see the outcome.
What Are the Rules of Settlement in BSE and NSE?
Settlement is the moment at which the buyer and supplier of stock exchange a stock for payment and the ownership of the shares. In the case of the National Stock Exchange (NSE), settlement is at the end of the trading day. In the case of the Bombay Stock Exchange (BSE), settlement is the end of the business day.
Conclusion
The Indian stock market is one of the most popular in the world. It has become easier for anyone to trade stocks in the last decade. The internet has provided investors with easy access to information and a wide range of investment opportunities. In this blog, we tried our best to cover the details of the Indian stock market trading and settlement process. We hope you found it useful. If you have further questions, comments, or concerns, do mention them in the comments section. We will try our best to answer them at the earliest.
More About Derivatives Trading Basics
- Notional Value
- Guidance to Futures and Options Trading in the Stock Market
- Covered Call
- What Is Put Writing?
- Delta Hedging
- Credit Spread
- Currency Options
- Options Hedging Strategy
- Options And Futures: Understand The Functioning, Types and Other Factors
- Options Trading for Beginners: A Comprehensive Guide For You
- Best Options Trading Courses: Things To Know About
- Short Strangle: How Does It Work In 2023
- Butterfly Option Strategy
- Options Selling
- What Are Stock Options: A Complete Guide 2023
- What is the Call and Put Option?
- What are Futures and Options?
- What is Implied Volatility?
- Open Interest in Options
- What is Strike Price?
- What Is a Call Option?
- What is a Put Option?
- How to Choose Best Stocks for Option Trading?
- Options Trading Tips
- How to Trade Options?
- Types of Options
- Understanding Various Options Trading Strategies
- What are Options?
- What is Put-Call Ratio?
- What is Margin Money?
- What is an Open Interest?
- Call Options Basics and How it Works?
- The Simplest Guide to Futures Pricing Formula
- What are Bullish Option Strategies?
- What are the Various Types of Derivatives?
- What is Bermuda Option?
- What are Swaps Derivatives?
- What is an Index Call? Overview of Index Call Options
- What is Forward Market?
- What is Option Volatility & Pricing Strategies for Advanced Trading
- What is Settlement Procedure?
- What is Margin Funding?
- Derivatives Trading in India
- Difference Between Equity and Derivatives
- What are Currency Derivatives?
- Derivatives Advantages & Disadvantages
- What are Forward Contracts?
- Difference Between Forward and Futures Contract
- How to Trade in Futures and Options?
- What is Meant by Futures in Trading?
- Stock Index Futures
- Stocks vs Futures
- What Are Exchange Traded Derivatives?
- Futures Contract: Meaning, Definition, Pros & Cons
- What is Options Trading?
- What is Derivative Trading?
- What is Futures Trading?
- What are Derivatives?
- Straddle Strategy
- Options Strategies
- Hedging Strategy
- Difference Between Options and Futures
- Derivatives Trading Strategies Read More
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing. For detailed disclaimer please Click here.
Open Free Demat Account
Be a part of 5paisa community - The first listed discount broker of India.