Stock Market Trading Days and Settlement Cycle

Study Notes

Trading on the stock exchange takes place on all days of the week, except Saturdays, Sundays, and holidays declared by the Stock Exchange in advance.

In case of purchase of shares, investors need to make payment to the bank account of their stock broker prior to the pay-in day for the relevant settlement.
After payment is made, the broker credits the shares in the Demat account of the investor after the pay-out day.
In case of sale of shares, investors need to deliver the shares to the Demat account of the broker prior to the pay-in day for the relevant settlement.
After shares are delivered, the broker credits the funds in the bank account of the investor after the pay-out day.

Pay-in day is the day when the brokers make payment of funds (in case of purchase of shares) or delivery of securities (in case of sale of shares) to the stock exchange.
Pay-out day is the day when the stock exchange makes payment of funds (in case of sale of shares) or delivery of securities (in case of purchase of shares) to the broker.

Settlement cycle is on T+2 rolling settlement basis, effective from April 01, 2003.
Trades executed on a Monday are typically settled on the following Wednesday (considering 2 working days from the trade day).
Funds and securities pay-in and pay-out are carried out on T+2 day.

When buying a stock, investors have two options: to pay the entire price upfront (early pay-in) or to pay only a certain percentage of the price and borrow money from the broker to finance the rest.
The percentage of the price of the stock paid upfront is called margin.
Margin can be provided in the form of cash or instruments like fixed deposits, bank guarantee, securities, units of mutual funds, government securities, and treasury bills in demat form.
Margin is provided in the form of securities, in favour of the broker only in the form of pledge.
A pledge is a deposit of some personal property as collateral for a debt.
Stock Brokers can accept securities (viz shares) as collateral only in the form of margin pledge created on the securities held in the client's demat account.