Indian Stock Market Trading & Settlement Process

Posted on Aug 5, 2025 in Business Administration and Management (BAM)

Indian Stock Exchange Trading & Settlement

The trading and settlement procedure on the Indian Stock Exchange involves several key steps:

  1. Trading information is sent from the Exchange to NSCCL (real-time and end-of-day trade files).
  2. The NSCCL notifies clearing members and custodians who have affirmed the trades of the details of the completed trade. NSCCL applies multilateral netting and establishes obligations based on the affirmation.
  3. Downloading of obligation and pay-in advice for funds/assets.
  4. Directing clearing banks to release funds by the pay-in deadline.
  5. Directing depository institutions to make securities available by pay-in time.
  6. Pay-in of securities: NSCCL advises the depository to credit its account and debit the pool account of custodians/CMs; the depository follows this advice.
  7. Funds are paid in: NSCCL advises clearing banks to credit its accounts and debit the custodians’/CMs’ accounts.
  8. Security payout: NSCCL advises the depository to credit the pool account and debit its own account, which the depository does on behalf of custodians/CMs.
  9. Funds are paid out: NSCCL advises clearing banks to credit custodians’/CMs’ accounts and debit its own accounts.
  10. The Depository notifies Custodians/CMs through Depository Participants (DPs).
  11. Clearing banks inform Custodians/CMs.

Defining the Indian Financial System

The financial system refers to a set of institutions, markets, instruments, and services that facilitate the flow of money and credit in an economy. It helps in mobilizing savings, allocating capital, facilitating investment, and enabling financial transactions between various economic entities such as individuals, businesses, and the government.

Key Components of the Indian Financial System

1. Financial Institutions

These act as intermediaries between savers and borrowers.

a) Banking Institutions

  • Commercial Banks (e.g., SBI, ICICI)
  • Cooperative Banks
  • Regional Rural Banks (RRBs)

b) Non-Banking Financial Companies (NBFCs)

Provide financial services like loans, leasing, investment, etc.
Examples: Bajaj Finance, Shriram Finance

c) Development Financial Institutions (DFIs)

Provide long-term finance for industrial and infrastructural development.
Examples: NABARD, SIDBI, EXIM Bank

2. Financial Markets

Markets where financial instruments are traded.

a) Money Market

For short-term funds (less than 1 year)
Instruments: Treasury Bills, Commercial Paper, Call Money

b) Capital Market

For long-term funds (more than 1 year)
Divided into:

  • Primary Market (new securities issued)
  • Secondary Market (existing securities traded)

Instruments: Shares, Debentures, Bonds

c) Foreign Exchange Market

Deals with currency exchange for trade and investment.

d) Derivatives Market

Includes futures, options, swaps for hedging and speculation.

3. Financial Instruments

These are assets that can be traded in the financial market.

Types:

  • Equity Shares
  • Debentures
  • Bonds
  • Treasury Bills
  • Mutual Fund Units
  • Derivatives (futures, options)

4. Financial Services

These are services that help in the smooth functioning of financial markets.

Examples:

  • Banking services (loans, deposits)
  • Insurance services (life & general)
  • Mutual fund services
  • Investment advisory