Question -
Answer -
The following steps are involved and is discussed in a sequential manner
1. Investor wishing to buy or sell any type of security has to approach a broker or sub broker and make an agreement. The investor needs to sign broker-client agreement and fill client registration form prior to start trading in securities. Also, some essential details need to be filled which include the following:
i. PAN number
ii. Date of birth and address
iii. Educational qualification and the occupation
iv. Residential status
v. Bank account details
vi. Depository account details
2. The next step is opening of Demat account or Beneficial owner account with a depository participant for transferring of securities in Demat form also a bank account needs to be opened for performing cash transactions in the market.
3. An order is placed by the investor with the broker for buying and selling shares. Information should be provided about the number of shares and price of shares that need to be bought. Broker issues a order confirmation slip to investor once the order is placed.
4. Broker goes online and connects with the stock exchange for matching share and the prices which are available for the share.
5. When shares can be either bought or sold as per the price mentioned by investor, the broker will be notified about that and order will be processed electronically. On transaction being done, broker will issue a trade confirmation slip for the investor.
6. Once the trade is executed a Contract note will be issued by the broker in 24 hours. The contract note contains details of the shares that are bought or sold, it’s price, time and date of the deal and finally the brokerage charges. It is an important document which can be produced in court of law for settling disputes. Each transaction is assigned unique order code number by the stock exchange. This number is printed on the contract note.
7. After this step, the investor on receiving the contract note needs to pay for the shares that were bought and deliver shares that are sold. The broker will make payment or deliver the shares to the exchange. It is known as pay in day.
8. Cash gets paid or securities are delivered during the pay in day. This is done before T+2 day as deal gets settled and finalized on the T+2 day. Settlement follows the rolling settlement basis which is on T+2 day. T refers to the trade date.
9. Exchange delivers the shares or make payments to the broker on T+2 day. The broker has to make payment to the investor within 24 hours of pay out as already the payment is received by the broker from the exchange.
10. Delivery of shares by brokers can be in the form of Demat which is added directly to investor’s account or in the case of securities purchase the amount is transferred electronically in the Demat account of the investor.
Concepts covered in this chapter –
Meaning of financial market
Functions of financial market
Classification of financial market
Methods of floatation
Stock exchange