Settlement at BSE - System & Procedure

Pay-in and Pay-out for 'A', 'B1', 'B2', 'C', "F", "G" & 'Z' group of securities

As discussed earlier, the trades done by members in all the securities in CRS are now settled by payment of money and delivery of securities on T+3 basis. All deliveries of securities are required to be routed through the Clearing House, except for certain off-market transactions which, although are required to be reported to the Exchange, may be settled directly between the members concerned.

The Clearing House, is an independent company called Bank of India Shareholding Ltd. (BOISL), This company was promoted jointly by Bank of India and Stock Exchange, Mumbai for handling the clearing and settlement operations of funds and securities on behalf of the Exchange. For this purpose, the Clearing & Settlement Dept. of the Exchange liaises with the Clearing House on a day to day basis.

The Information Systems Department of the Exchange generates Delivery and Receive Orders for transactions done by the member-brokers in A, B1, B2, F and G group scrips after netting purchase and sale transactions in each scrip whereas Delivery and Receive Orders for "C" & "Z" group scrips and scrips which are traded on the Exchange on "trade to trade" basis are generated on gross basis, i.e., without netting of purchase and sell transactions in a scrip. However, the funds obligations for the member-brokers are netted for transactions across all groups of securities.

The Delivery Order provides information like scrip, quantity and the name of the receiving member to whom the securities are to be delivered through the Clearing House. The Money Statement provides scrip wise/item wise details of payments/receipts for the settlement. The Delivery/Receive Orders and money statements can be downloaded by the members in their back offices.

The securities, as per the Delivery Orders issued by the Exchange, are required to be delivered by the member-brokers in the Clearing House on the day designated for securities pay-in, i.e., on T+2 day.

The bank accounts of members maintained with the nine clearing banks, viz., Bank of India, HDFC Bank Ltd., Global Trust Bank Ltd., Standard Chartered Bank, Centurion Bank Ltd., UTI Bank Ltd., ICICI Bank Ltd., Indusind Bank Ltd., and Hongkong Shanghai Banking Corporation Ltd. are directly debited through computerized posting for their settlement and margin obligations and credited with receivables on accounts of pay-out dues and refund of margins.

Demat pay-in

The member-brokers can effect pay-in of demat securities to the Clearing House either through the National Securities Depository Ltd. (NSDL) or Central Depository Services (I) Ltd. (CDSL). In case of NSDL, the member-brokers are required to give instructions to their respective Depository Participants (DPs) specifying settlement no., settlement type, effective pay-in date, quantity, etc. As regards CDSL, the member-brokers give pay-in instructions to their respective DPs. The securities are transferred by the DPs to the Clearing Member (CM) Principal Account. The member-brokers are required to give confirmation to their DPs, so that securities are processed towards pay-in obligations. Alternatively, the member-brokers may also effect pay-in from the clients' beneficiary accounts. For this, the clients are required to mention the settlement details and clearing member-broker ID of the member-broker through whom they have sold the securities. Thus, in such cases the Clearing Members are not required to give any delivery instructions from their accounts.

Auto D.O. facility

Instead of issuing Delivery instructions for their securities delivery obligations in demat mode in various scrips in a settlement /auction, a facility has been made available to the member-brokers of automatically generating Delivery instructions on their behalf from their CM Pool accounts maintained with NSDL and CM Principal Accounts maintained with CDSL. This auto delivery facility is available for CRS (Normal & Auction) and for trade to trade settlements. This facility is, however, not available for delivery of non-pari passu shares and shares having multiple ISINs. The member-brokers wishing to avail of this facility have to submit an authority letter to the Clearing House. This auto delivery facility is currently available for Clearing Member (CM) Pool accounts and Principal accounts maintained by the member-brokers with National Securities Depository Ltd. (NSDL) and Central Depositories Services (I) Ltd. (CDSL) respectively.

Pay-in of securities in physical form

In case of delivery of securities in physical form, the member-brokers have to deliver the securities to the Clearing Hose in special closed pouches along with the relevant details like distinctive numbers, scrip code, quantity, etc., on a floppy. The data submitted by the member-brokers on floppies is matched against the master file data on the Clearing House computer systems. If there is no discrepancy, then a scroll number is generated by the Clearing House and the securities are accepted. The Clearing House arranges and tallies the securities received against the receiving memberwise report generated on the Pay-in day.

This process of receiving securities from the member-brokers against their sale obligations either in demat or physical mode is called securities pay-in.

Funds Pay-in:

Once the reconciliation of securities is completed by the Clearing House, the bank accounts of member-brokers maintained with the nine clearing banks, viz., Bank of India, HDFC Bank Ltd., Global Trust Bank Ltd., Standard Chartered Bank, Centurion Bank Ltd., UTI Bank Ltd., ICICI Bank, Indusind Bank Ltd., and Hongkong Shanghai Banking Corporation Ltd. are directly debited through computerized posting for their funds settlement obligations. Once the pay-in of securities and funds is complete, the Clearing House arranges for the pay-out of securities and funds.

In case of those members, whose funds pay-in obligations are returned by their clearing banks on account of insufficient funds in their bank accounts at the time of pay-in, their BOLT TWSs are now immediately de-activated during the trading hours itself, on receipt of such intimation from the clearing banks as against the earlier practice of de-activating their BOLT TWSs at the end of trading on that day. BOLT TWSs of such members remain de-activated till the pay-in obligations are cleared by them.

Securities Pay-out:

In case of demat securities, the same are credited by the Clearing House in the Pool/Principal Accounts of the member-brokers. The Exchange has also provided a facility to the member-brokers for transfer of pay-out securities directly to the clients' beneficiary owner accounts without routing the same through their Pool/Principal accounts in NSDL/ CDSL. For this, the concerned member-brokers are required to give a client wise break up file which is uploaded by the member-brokers from their offices to the Clearing House. Based on the break up given by the member-brokers, the Clearing House instructs depositories, viz., CDSL & NSDL to credit the securities to the Beneficiary Owners (BO) Accounts of the clients. In case delivery of securities received from one depository is to be credited to an account in the other depository, the Clearing House does an inter depository transfer to give effect to such transfers.

In case of physical securities, the Receiving Members are required to collect the same from the Clearing House on the pay-out day.

This process of passing on delivery of securities purchased by the member-brokers to them by the Clearing House is called pay-out of securities.

Funds Pay-out:

The bank accounts of the member-brokers having pay-out of funds are credited by the Clearing House with the Clearing Banks on the same day. This process is referred to as Pay-out of Funds.

In case, if a member-broker fails to deliver the securities, then the value of shares delivered short is recovered from him at the standard/closing rate of the scrips on the trading day.

In case of Rolling Settlements, pay-in and pay-out of both funds and securities , as stated earlier, is completed on the same day.

The member-brokers are required to make payment for securities sold and/ or deliver securities purchased to their clients within one working day (excluding Saturday, Sunday, bank & Exchange trading holidays) after the pay-out of the funds and securities for the concerned settlement is completed by the Exchange. This is the timeframe permitted to the member-brokers of the Exchange to settle their funds/ securities obligations with their clients as per the Bye laws of the Exchange.

The settlement calendar, which indicates the dates of the various settlement related activities, is drawn by the Exchange in advance on a quarterly basis and is circulated among the market participants. The settlement calendars so drawn have been strictly adhered to by the Exchange and there has been generally no case of clubbing of settlements or postponement of pay-in and/ or pay-out during the last over seven years.

The Exchange maintains database of fake/forged, stolen, lost and duplicate securities in physical form with the Clearing House so that distinctive numbers submitted by member-brokers in case of physical securities on delivery may be matched against the database to weed out bad paper from circulation at the time of introduction of such securities in the market. This database has also been made available to the member-brokers so that both delivering and receiving member-brokers can check the entry of fake, forged and stolen shares in the market.