Podcast
Questions and Answers
What is the primary purpose of the pay-in day?
What is the primary purpose of the pay-in day?
- To ensure payment of funds by the investor to the broker
- To settle trades executed on T+2 day
- To provide a buffer period for investors to make payment
- To facilitate delivery of securities from the broker to the stock exchange (correct)
If an investor buys shares on a Thursday, when can they expect to receive the shares in their Demat account?
If an investor buys shares on a Thursday, when can they expect to receive the shares in their Demat account?
- Tuesday of the next week
- Friday of the same week
- Monday of the next week
- Wednesday of the next week (correct)
What is the benefit of early pay-in option for an investor?
What is the benefit of early pay-in option for an investor?
- Flexibility to adjust the payment amount
- Avoidance of interest payments on borrowed money (correct)
- Priority settlement of trades
- Higher leverage on their investment
On which day does the stock exchange make payment of funds to the broker in a sale of shares transaction?
On which day does the stock exchange make payment of funds to the broker in a sale of shares transaction?
What is the time frame within which the broker must pay-out funds to the client?
What is the time frame within which the broker must pay-out funds to the client?
What is the term used to describe the percentage of the stock's price paid upfront?
What is the term used to describe the percentage of the stock's price paid upfront?
What is the purpose of a margin pledge?
What is the purpose of a margin pledge?
Which of the following can be used as a form of margin?
Which of the following can be used as a form of margin?
Who can accept securities as collateral?
Who can accept securities as collateral?
In what form can securities be held in a client's demat account?
In what form can securities be held in a client's demat account?
Study Notes
Trading Days and Trading & Settlement Cycle
- 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.
Trading & Settlement Cycle
- 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 and 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
- 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.
Margin and Pledging / Re-pledging of Securities
- 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.
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Description
Learn about the trading days and settlement cycle in the stock market, including payment and demat account procedures.
