Clearing & Settlement Basics

You clicked "Buy" on Zerodha. But who ensures that:

1. You get the shares.
2. The seller gets the money.
3. Nobody cheats.

This is the job of Clearing & Settlement.

1. The Players

• You (Buyer via Broker A).
• Seller (via Broker B).
• Stock Exchange (NSE/BSE): Where the trade happens.
• Clearing Corporation (NSCCL/ICCL): The middleman who guarantees settlement.
• Depositories (NSDL/CDSL): Where shares are stored electronically.

2. T+1 Settlement Cycle

T = Trade Date. T+1 = Settlement happens 1 day after trade (since Oct 2023).

Example:

• Monday (T): You buy 10 Reliance shares at ₹2,500 on NSE.
• Tuesday (T+1):
  • Shares are credited to your Demat account.
  • Money is debited from your trading account.

Old System: T+2 (Settlement took 2 days).

3. The Process (Simplified)

Trade Day (T):

1. 9:15 AM: Market opens.
2. You place order: Buy 10 Reliance at ₹2,500.
3. Broker A sends order to NSE.
4. NSE matches your buy with someone's sell.
5. Trade Executed at ₹2,500.
6. 3:30 PM: Market closes.

After Market Closes:

1. Clearing Corporation (NSCCL) steps in.
2. It becomes the Central Counterparty (CCP).
   • For you, NSCCL is the seller.
   • For the actual seller, NSCCL is the buyer.
3. This eliminates Counterparty Risk (What if the seller doesn't deliver shares?).

Settlement Day (T+1):

1. Seller's Broker delivers shares to NSCCL.
2. Your Broker pays money to NSCCL.
3. NSCCL transfers:
   • Shares to your Demat account (via NSDL/CDSL).
   • Money to seller's account.

4. Rolling Settlement

In India, we have Rolling Settlement. Every day is a new T+0, and settlement happens T+1.

Old Days (Pre-2001): Badla System (Weekly settlement). Huge speculation and defaults.

5. Margin & Collateral

To ensure smooth settlement, NSCCL collects Margin from brokers:

• Initial Margin: Upfront deposit.
• Mark to Market (MTM): Daily settlement of profits/losses.

If you trade F&O, you must maintain margin. If market moves against you, you get a Margin Call.

7-Day Action Plan

Day 1: Check your Demat account statement. See when shares were credited after your last purchase.
Day 2: Understand "POA" (Power of Attorney). Did you give it to your broker? (Zerodha doesn't need it).
Day 3: Read about "Auction Settlement". What happens if a seller fails to deliver shares?
Day 4: Check the website of NSCCL. See the daily settlement reports.
Day 5: Learn about "Short Delivery". If you sell shares but don't have them, you face a penalty.
Day 6: Understand "Early Pay-In". You can give shares before T+1 to get early credit.
Day 7: Appreciate the system. In the 1990s, physical share certificates took weeks to transfer!

Quiz

💡 Final Wisdom: You don't see it, but billions of rupees move seamlessly every day. This is financial infrastructure at its best.