Trading and Settlement Process in the Indian Stock Market

The trading and settlement process forms the backbone of the stock market. It covers everything from placing an order to receiving shares and funds in your Demat and bank accounts. By understanding each stage—order execution, clearing, settlement, pay‑in/out, and post‑settlement activities—you can better manage your investments, timing, and liquidity.

India’s stock market involves several players and regulatory bodies, each with defined responsibilities:

Stock Exchanges (NSE, BSE)

The National Stock Exchange and Bombay Stock Exchange match buy and sell orders and execute trades electronically, ensuring transparency and efficiency.

Regulators (SEBI, Depositories)

SEBI regulates market practices. Depositories like NSDL and CDSL hold securities electronically and manage the transfer of shares during settlement.

Before a trade can settle, it must first be executed.

Placing an Order

An investor places a buy or sell order through a broker using trading platforms. Orders can be market or limit types and include quantity, price, and validity.

Trade Matching and Confirmation

The exchange matches orders when a counterparty is found. Once matched, a contract note is issued by the broker, confirming the trade legally.

Clearing converts executed trades into settlement obligations by offsetting positions.

Clearing Corporation Functions

Entities like NSE Clearing act as central counterparties, managing netting of trades, margin requirements, and counterparty risk.

Earmarking of Shares and Funds

Clearing members earmark the requisite securities and funds with depositories and banks to ensure settlement proceeds smoothly.

This section explains how securities and funds move between T Day and settlement.

Understanding T+1 Rolling Settlement

India shifted from T+2 to T+1 in January 2023, meaning trades settle one working day after execution. Weekends and holidays are excluded.

Same‑Day (T+0) Optional Settlement

SEBI launched a beta version of T+0 settlement in March 2024 for select securities. It expanded to 500 stocks by January 2025; optional participation continues into November 2025.

Settlement Timeline Table

Trades follow a timely pattern under T+1 and optional T+0 cycles:

This table illustrates the flow from trade execution to final settlement under T+1.

Even after settlement, there are critical tasks to complete.

Pay‑in/Pay‑out Process

Securities and funds are transferred to and from brokers and clearing corporations according to settlement obligations.

Handling of Short Deliveries/Buy‑in

If a seller fails to deliver shares on T+1, a buy‑in auction is triggered. The buyer then receives shares or compensation as per exchange rules.

Reporting and Rectification

Exchanges allow reporting of issues like bad deliveries or trade errors, which are resolved within SEBI‑mandated timelines.

Grasping settlement mechanics helps investors:

• Access funds faster
  

• Ensure dividend eligibility
  

• Plan trades with clarity
  

• Reduce default and counterparty risk

A glossary of key terms used above:

• T Day: Day of trade execution
  

• T+1: One working day after trade when settlement occurs
  

• Clearing Member: Broker responsible for settlement obligations
  

• Pay‑in/Pay‑out: Transfer of securities/funds to/from clearing houses
  

• Contract Note: Document confirming a trade
  

• Demat: Electronic holding of securities
  

Grasping the trading and settlement process equips investors to manage liquidity, meet corporate action deadlines, and reduce risks. India’s move to T+1 and optional T+0 cycles enhances market efficiency and fund availability. While it may feel complex initially, knowing each phase empowers you to plan trades and understand how and when your assets move.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.