Secondary market notes pdf contains topic of electronic settlement of trade, purchase and sale of dematerialized securities.
QUESTION: What do you understand by electronic settlement of trade? Discuss the procedure for purchasing and selling of dematerialized securities?
ANSWER: ELECTRONIC SETTLEMENT OF TRADE: Electronic settlement is the actual exchange of money and securities between the parties of the trade on the settlement date electronically after agreeing earlier on the trade.
Most settlement of the securities trading nowadays is done electronically.
Stock trades are settled in 2 business days (T+2) while government bonds and options are settled on the next business day (T+1).
The (T+3) time for settlement was prevalent before the 2018 but not it has been shortened to T+2 by securities and exchange commission.
Foreign exchange transactions where the currencies are from north American countries have T+1 settlement date, while trade involves currencies outside of North America have T+2 settlement date.
REQUIREMENTS FOR DEMATERIALISATION:
Dematerialization is a process by which the physical share certificates of an investor are taken back by the Company and an equivalent number of securities are credited in electronic form at the request of the investor. An investor will have to first open an account with a Depository Participant and then request for the dematerialization of his share certificates through the Depository Participant so that the dematerialized holdings can be credited into that account.
With effect form April 1, 2006, SEBI has made PAN Card compulsory for all categories of investors for opening a Demat Account. Existing Demat Account holders would not be able to operate the accounts if they do not produce the PAN card or do not resolve discrepancies, if any, in the PAN details by Dec 31, 2006. Such account would be “Suspended from Debit” until PAN details are verified and updated by the depository participants (DP). In case of Demat accounts held jointly, all account holder need to provide their PAN cards. Original PAN Cards need to be produce to be DP for verifying the photocopy.
PROCEDURE OF PURCHASING DEMATERIALISED SECURITIES:
STEP1: Choose a broker who can facilitate the purchase of the securities.
STEP2: Make a payment to the broker who will then arrange for the payment to the clearing corporation on the pay-in-day.
STEP3: The securities are credited to the broker’s clearing account on the pay out day.
STEP4: The broker will give instructions to its depository participant to debit the clearing account and credit the same to your account.
STEP5: The depository will then confirm the dematerialization of shares to the depository participant. Once this is done, a credit in the holding of shares will reflect in the investor’s account accordingly.
STEP6: You will receive shares into your account. In order to receive the credit, you will need to give ‘Receipt Instructions’ to the DP if you did not give standing instructions during the opening of your account.
PROCEDURE OF SELLING DEMATERIAISED SECURITIES:
STEP1: Choose a broker and sell the securities in the stock exchange linked to NSDL i.e. National Securities Depository Limited.
STEP2: The depository participant need to be instructed to debit to your account with the number of securities sold and credit the broker’s clearing account.
STEP3: You need to send the delivery instruction to your depository participant using the delivery instruction slips.
STEP4: Once the request is approved, the share certificates in the physical form will be destroyed and a confirmation of dematerialization will be sent to depository.
STEP5: The broker will give instructions to the depository participant for delivery to the clearing corporation before the pay in day.
STEP6: You will receive the payment from the broker for the sale of the securities.