Trading Mechanics of Securities in Secondary Market
1. Selection of a broker:
The buying and selling of securities can only be done through SEBI registered brokers who are members of the Stock Exchange. The broker can be an individual, partnership firms or corporate bodies. So the first step is to select a broker who will buy/sell securities on behalf of the investor or speculator. Trading Mechanics of Securities in Secondary Market.
2. Opening Demat Account with Depository:
Demat (Dematerialized) account refer to an account which an Indian citizen must open with the depository participant (banks or stock brokers) to trade in listed securities in electronic form. Second step in trading procedure is to open a Demat account.
3. Placing the Order:
After opening the Demat Account, the investor can place the order. The order can be placed to the broker either (DP) personally or through phone, email, etc.
4. Executing the Order:
As per the Instructions of the investor, the broker executes the order
i.e. he buys or sells the securities. Broker prepares a contract note for the order executed. The contract note contains the name and the price of securities, name of parties and brokerage (commission) charged by him. Contract note is signed by the broker.
This means actual transfer of securities. This is the last stage in the trading of securities done by the broker on behalf of their clients. There can be two types of settlement.
The pay-in and pay-out days for funds and securities are prescribed as per the Settlement Cycle. A typical Settlement Cycle of Normal Settlement is given below:
|Trading||Rolling Settlement Trading||T|
|Clearing||Custodial Confirmation||T+1 working days|
|Delivery Generation||T+1 working days|
|Settlement||Securities and Funds pay in||T+2 working days|
|Securities and Funds pay out||T+2 working days|
The above is a typical settlement cycle for normal (regular) market segment. The days prescribed for the above activities may change in case of factors like holidays, bank closing etc. You may refer to scheduled dates of pay-in/pay-out notified by the Exchange for each settlement from time-to-time.