SCREEN-BASED TRADING PROCEDURE

Screen-based trading is an electronic system where buying and selling of securities takes
place through computer terminals, replacing the old floor-based open outcry system.

1. Client Approaches a Broker

An investor who wants to buy/sell securities must approach a registered broker or sub-
broker.

The broker must be registered with SEBI and a member of an exchange (NSE/BSE).

Documents required: KYC form ,PAN card ,Aadhaar, Bank account details, Demat account
details

2. Placing the Order

The investor gives a buy or sell order to the broker.

Order includes: Type of security (e.g., shares, bonds), Quantity, Price type (market order /
limit order), Duration of the order (day order / IOC order)

The broker enters this order into the exchange’s electronic trading system.

3. Order Entry into the Trading System

The broker enters the order through the exchange’s trading platform (e.g., NSE’s NEAT,
BSE’s BOLT).

Features:

Orders are matched anonymously

No physical presence required

Fast execution

4. Order Matching
The trading system automatically matches: Best buy order with best sell order, based on
price-time priority.

Price-time priority means:

Highest buy price gets preference

Lowest sell price gets preference

If price is the same, the order entered earlier gets priority

Once matching occurs → a trade is executed.

5. Trade Confirmation

After matching: The investor gets a trade confirmation message from the broker

It shows details like: Price, Quantity, Time of trade, Brokerage charges

6. Clearing Process

After the trade:

Clearing involves calculating obligations of buyers and sellers. Clearing corporations (like
NSCCL for NSE) determine: How much money the buyer must pay, How many shares the
seller must deliver

7. Settlement Process

Settlement is the actual exchange of securities and money.

T+2 Settlement Cycle

T = Transaction day

Settlement takes place on T+2 days (2 working days after trade)

For buyers:

Shares are credited to their Demat account.

For sellers:

Money is credited to their bank account.

The broker issues a contract note to the investor within 24 hours.

Contents: Trade details, Price, Time, Brokerage, GST, STT, Unique Order Number

This acts as a legal proof of the transaction.

Meaning of Clearing Process

In simple words:

✔ Clearing = Deciding “who has to pay how much” and “who has to deliver how many
shares.”

“Clearing is the post-trade process of determining and confirming the obligations of

It ensures that:

The buyer gets the correct quantity of securities

The seller receives the correct amount of money

Clearing Mechanisms
Clearing mechanism refers to the system and process used to ensure that trades executed
on the stock exchange are validated, matched, risk-managed, and made ready for
settlement.

It is mainly carried out by the Clearing Corporation (e.g., NSCCL for NSE).

1. Trade Matching / Trade Confirmation

Trade matching is the process of verifying that the buy order and sell order in a trade have
the same details.

In simple words:
Trade matching means checking whether the buyer’s order and seller’s order match
correctly.

Trade Confirmation - After matching, the exchange confirms the trade to both parties.

In simple words: Trade confirmation means informing both parties that the trade is
successfully executed and recorded.

2. Novation (Central Counterparty – CCP)

Novation is the process by which the Clearing Corporation (CC) becomes the central
counterparty to every trade. This eliminates counterparty risk.

This means:

The CC becomes the buyer to every seller, and

The CC becomes the seller to every buyer.

3. Determination of Obligations

The clearing corporation calculates:

a) Securities Obligation

How many shares sellers must deliver

How many shares buyers will receive

b) Funds Obligation

How much money buyers must pay

How much money sellers will receive

This is called clearing or settlement obligation.

4. Margin Collection

Margin collection refers to the process where the clearing corporation collects certain
deposits (margins) from traders and brokers to protect the market from default risk.
Margins act as security money.
Types of margins may include: Initial margin, Mark-to-market (MTM) margin, Exposure
margin, Delivery margin

5. Netting of Trades

Netting is the process of offsetting multiple buy and sell trades to calculate the net
obligation of a trader.

Instead of settling each trade separately, all trades are combined to find:

• Net securities to deliver or receive

• Net amount to pay or receive

Example:

If a trader: Buys 200 shares and Sells 150 shares

Net position = 50 shares to receive

Netting means combining all buy and sell trades to find the final net quantity of shares or
money to settle.

6. Pay-in Mechanism

Sellers deliver securities to the clearing corporation via depositories (NSDL/CDSL). Buyers
transfer funds to the clearing corporation through clearing banks.

7. Pay-out Mechanism

Clearing corporation transfers securities to buyers’ demat accounts.

Clearing corporation transfers funds to sellers’ bank accounts.

8. Risk Management Mechanisms

Clearing corporation constantly monitors: Margins, Exposure limits, Settlement guarantee

Settlement
Settlement means completing a trade. It is the final step where the buyer gets the
securities (shares) and the seller gets the money.

In other words:
Settlement = Delivery of shares + Payment of money

Mechanism of Settlement

1. Trade Execution

You buy or sell shares on the stock exchange (NSE/BSE).

2. Trade Confirmation

The exchange confirms the trade and records the details (who bought, who sold, quantity,
price).

3. Clearing

Before settlement, the clearing corporation checks:

How many shares must be delivered?

How much money must be paid?

This step ensures both buyer and seller are ready.

4. Settlement

On the settlement day (T+1 in India for equities):

Shares move from seller’s demat account to buyer’s demat account

Money moves from buyer’s bank account to seller’s bank account

5. Settlement Completion

After both share transfer and money payment are done, the trade is officially completed.