Module: 3 - Investment Basics - Procedure for Placing an Order and Buying Securities &
Safeguards To be Observed by the Investor - More about Rolling Settlement
( Page 2 of 4)

In a Rolling Settlement trades executed during the day are settled based on the net obligation for the day. In NSE, the trades pertaining to the rolling settlement are settled on a T + 5 day basis where T stands for the Trade day. (Since modified to T+3)

The Investor who had sold securities should deliver the securities to the trading member immediately upon getting the contract note for sale but in any case, before the prescribed securities pay-in day. If he has bought securities he has to pay the amount of trading member in such a manner that the amount paid is realized before the funds pay-in day. The securities and the funds are paid out to the trading member on the pay-out day. The NSE regulations stipulate that the trading member should pay the money or the securities to the investor within 48 hrs of the pay-out.

The Clearing Corporation has set up the settlement guarantee fund (SGF) through contributions of its trading members. The SGF is intended primary to guarantee the completion of settlement upto the normal pay-out for trade executed in the regular market and will not act as guarantee for company objection basis i.e. replacement of bad paper or payment of its equivalent financial value. The SGF therefore ensures that the settlement is not held upon account of failure of trading member to meet their obligations and all market participants (TM, custodians, investors etc.) who have completed their part of obligations ore not affected in any manner whatsoever.

SEBI has formulated uniform guidelines for good and bad deliveries for documents. An exhaustive list of instances of good or bad delivery of documents- transfer deeds and share certificate is included in the said guidelines. All bad deliveries have to be reported to the clearinghouse by the buying trading member within 48 hrs of pay-out day i.e. generally by Friday.

After buying the shares, the investors' sends the certificate along with the transfer deed to the company for transfer and registration in their names. In certain cases the company for reasons such as signature difference or fake/forged/stolen shares or court injunction preventing transfer rejects the registration. In such cases the company may return the share certificate and transfer deed along with the letter termed as objection memo. All such cases are identified as Company objections.

Stop transfer is the process whereby the company under grounds provided for in the companies' act 1956 stops the transfer of shares. Company on the strength of a copy of FIR generally affects the stop transfer or court order when some securities are reported missing/lost/stolen by the holder of the securities.

The procedure for holding shares and settling trades in scrip less form is very simple and similar to operating a bank account. A dep. Agency reaches the investors through DP's. Banks, custodians of securities and stockbrokers are some of the entities who are DP's. One can start by opening an account with depository agency through a DP. On completion of account opening procedure, he will be allotted an account no. He is then ready to acquire and sell shares in the scrip less form and to demat share certificates, which he already holds.

In case of complaint against a trading member/registered sub-broker The investor should address the complaints to the Mumbai office or the regional offices of NSE based on the dealing office where the deals are executed. In case of complaint against company traded on NSE, these should be addressed to: Investor Grievance Cell

NSE of India Ltd
1st floor, Trade World, Senapati Bapat Marg, Lower Parel Mumbai-400013
Tel: 4972950; 4914269
Fax: 4972996
e-mail-ignse@nse.co.in

Complaints received from the investor if accompanied by all the relevant documents as mentioned above are forwarded investor grievance Cell to the respective TM/sub-broker asking them to provide their comments or for resolving the case. The TM, sub-broker are expected to file their replies during 21 days. In case the TM/registered sub-broker disputes the claim of the investor, the response of the team is forwarded to the investor. If required, both the parties are called for joint meeting. Most of the complaints are resolved in this manner. In cases where the disputes remain resolved in Investor Grievance Cell, the parties may refer the manner to arbitration if they so desire.

Complaints received from investors are forwarded to the respective companies/STAs for necessary action at their end. In case no response is received from the company/STAs within 21 days, a follow up by way of letter, telephone calls and personal meetings is undertaken to expedite their replies.

Investor should immediately write to the company reporting the loss of shares and instruct company to stop transfer of the shares. He should comply with the formalities intimated by the company for stop transfer or issue of duplicate share certificates. Simultaneously he should lodge a police complaint/FIR reporting the loss or misplacement.

BSE, the oldest Stock Exchange of Asia, had an open outcry trading system till mid 1990s where brokers used to assemble in a trading ring for doing transactions in securities. It had switched over to a fully automated computerized mode of trading known as BOLT (BSE on Line Trading) System with effect from March 14, 1995. Through the BOLT system the members now enter orders for purchase or sale of securities from Trader WorkStations (TWSs) installed in their offices instead of assembling in the trading ring. This system, which was initially both order and quote driven, is currently only order driven. The facility of placing of quotes has been removed w.e.f., August 13, 2001 in view of lack of market interest and to improve system-matching efficiency. The system, which is now only order driven, facilitates more efficient in putting of orders, processing, automatic order matching and faster execution of orders in a transparent manner.

To facilitate the market participants to trade in securities of the companies which are actively traded at other regional Stock Exchanges but are not listed on BSE, the Exchange has since decided to permit trading in such securities of companies listed on other Stock Exchanges as " Permitted Securities" provided they meet the relevant norms specified by the Exchange.

With a view to introduce the best international trading practices and to achieve higher settlement efficiency, trades in all the equity shares listed on the Exchange in CRS Segment, as mandated by SEBI, were required to be settled on T+5 basis w.e.f. December 31, 2001. SEBI had further directed the Stock Exchanges that trades in all Scrips w.e.f. April 1, 2002 should be settled on T+3 basis. Accordingly, all transactions in all groups of securities in the equity segment and fixed income securities listed on the Exchange are settled on T+3 basis w.e.f. April 1, 2002.

Under a rolling settlement environment, the trades done on a particular day are settled after a given number of business days rather than settling all trades done during an 'account period' of a week or fortnight. A T+3 settlement cycle means that the final settlement of transactions done on T, i.e., trade day by exchange of monies and securities between the buyers and sellers respectively occurs on third business day after the trade day.

The transactions in securities of companies which are in compulsory demat are settled in demat mode on T+3 on netting basis unless a scrip is in trade to trade basis for surveillance actions and the transactions in Scrips of companies, which have not made arrangements for dematerialization of their securities by the stipulated date or are in "Z" group for non-compliance with clauses of listing agreement or investor complaints are settled on trade to trade basis on T+3 either in demat or physical mode. The transactions in 'F' group securities representing Fixed Income Securities are also settled at the Exchange on T+3 basis.

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 (ISD) of the Exchange generates Delivery and Receive Orders for transactions done by the members in A, B1, B2 and F group Scrips after netting purchase and sale transactions in each scrip whereas Delivery and Receive Orders for "C", "Z" group Scrips and Scrips on trade to trade basis are generated on gross basis, i.e., without netting of purchase and sell transactions in a scrip.

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 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., Indusland 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.

The securities, as per the delivery orders issued by the Exchange, are required to be delivered by the members in the Clearing House on the day designated for securities pay-in, i.e., on T+3 day. In case of the physical securities, the members have to deliver the securities in special closed pouches (supplied by the Exchange) along with the relevant details (distinctive numbers, scrip code, quantity, and receiving member) on a floppy. The data submitted by the members on floppies is matched against the master file data on the Clearing House computer systems. If there are no discrepancies, then a scroll number is generated by the Clearing House and a scroll slip is issued. The members can then submit the securities at the receiving counter in the Clearing House. The Clearing House arranges and tallies the securities received against the receiving member-wise report generated on the Pay-in day.

This process of receiving securities from the members against their sale obligations is called securities pay-in. Once this reconciliation is complete, the bank accounts of members with nine clearing banks having pay-in obligations are debited on the scheduled pay-in day. This procedure is called Pay-in of Funds.

Once the pay-in of securities and funds is complete, the Clearing House arranges for pay-out of securities and funds. As regards pay-out of securities, in case of demat securities, the same are credited in the Pool Account of the members or the beneficiary accounts of the clients as per the details submitted by the members. 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 is called pay-out of securities. The bank accounts of the members 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 of Rolling Settlements, pay-in and pay-out of both funds and securities, as stated earlier, is completed on the same day.

At BSE, members are required to make payment for securities sold and/ or deliver securities to their clients within one working day (excluding Saturday, Sunday & Bank holidays) after the pay-out of the concerned settlement is done by the Exchange. SEBI requirement in this regard is two working days. This time frame is the minimum time permitted to the members to settle their obligations with their clients.

The settlement calendar, which indicates the dates of the various settlement activities, is drawn by the Exchange in advance on a quarterly basis and circulated to 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 six years.

The Exchange is also maintaining a database of fake/forged, stolen, lost and duplicate securities in physical form with the Clearing House so that distinctive numbers submitted by members 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 members so that delivering and receiving members can check the entry of fake, forged and stolen shares in the market.

An Auction Tender Notice is issued by the Exchange to the members informing them about the names of the Scrips, quantity slated for auction and the date and time of the auction session on the BOLT. The auction for the undelivered quantities is conducted on T+4 day between 11:00 a.m. and 12 noon for all the Scrips under Compulsory Rolling Settlements except those on trade to trade basis which are directly closed-out. The auction offers received in batch mode are electronically matched with the auction quantities so as to award the 'best price'. The members, who participate in the auction session, can download the delivery orders in respect of the auction obligations on the same day, if their offers are accepted. The members are required to deliver the shares in the Clearing House on the auction pay-in day, i.e., T+5. Pay-Out of auction shares and funds is also done on the same day, i.e., T+5. The various auction sessions relating to shortages and bad deliveries are now conducted during normal trading hours on BOLT. Thus, it is possible to schedule multiple auction sessions on a single trading day.

In auction, the highest offer price is allowed upto the close-out rate of a scrip and the lowest offer price can be 20% below the closing price of a scrip on a day prior to day of auction. A member who has failed to deliver the securities of a particular company on the pay-in day is not allowed to offer the same in auction. He can, however, participate in auction of other Scrips.

In case no or partial offers are received in auction for a particular scrip, then the entire or balance quantity of shortage respectively is closed-out at a close-out price, determined by higher of the following: -

• Highest price recorded in the scrip from the settlement in which the transaction took place upto a day prior to the day of the auction, OR

• 20% above the closing price on a day prior to the day of auction.