Capital Structure
117
Capital Market - Clearing and Settlement
IS M R
Capital Market - Clearing and Settlement
Introduction
The transactions in secondary market pass through three distinct phases, viz., trading, clearing and settlement. While the stock exchanges provide the platform for trading, the clearing corporation determines the funds and securities obligations of the trading members and ensures that the trade is settled through exchange of obligations. The clearing banks and the depositories provide the necessary interface between the custodians/clearing members for settlement of funds and securities obligations of trading members. Several entities, like the clearing corporation, clearing members, custodians, clearing banks, depositories are involved in the process of clearing. The role of each of these entities is explained below: a. Clearing Corporation: The clearing corporation is responsible for post-trade activities such as risk management and clearing and settlement of trades executed on a stock exchange. The first clearing corporation to be established in the country and also the first clearing corporation in the country to introduce settlement guarantee is the National Securities Clearing Corporation Ltd. (NSCCL), a wholly owned subsidiary of NSE. NSCCL was incorporated in August 1995. It was set up with the objectives of bringing and sustaining confidence in clearing and settlement of securities; promoting and maintaining short and consistent settlement cycles; providing counter-party risk guarantee, and operating a tight risk containment system. b. Clearing Members: Clearing Members are responsible for settling their obligations as determined by the clearing corporation. They do so by making available funds and/or securities in the designated accounts with clearing bank/ depositories on the date of settlement. c. Custodians: Custodians are clearing members but not trading members. They settle trades on behalf of trading members, when a particular trade is
Capital Market - Clearing and Settlement
IS M R
Capital Market - Clearing and Settlement
Introduction
The transactions in secondary market pass through three distinct phases, viz., trading, clearing and settlement. While the stock exchanges provide the platform for trading, the clearing corporation determines the funds and securities obligations of the trading members and ensures that the trade is settled through exchange of obligations. The clearing banks and the depositories provide the necessary interface between the custodians/clearing members for settlement of funds and securities obligations of trading members. Several entities, like the clearing corporation, clearing members, custodians, clearing banks, depositories are involved in the process of clearing. The role of each of these entities is explained below: a. Clearing Corporation: The clearing corporation is responsible for post-trade activities such as risk management and clearing and settlement of trades executed on a stock exchange. The first clearing corporation to be established in the country and also the first clearing corporation in the country to introduce settlement guarantee is the National Securities Clearing Corporation Ltd. (NSCCL), a wholly owned subsidiary of NSE. NSCCL was incorporated in August 1995. It was set up with the objectives of bringing and sustaining confidence in clearing and settlement of securities; promoting and maintaining short and consistent settlement cycles; providing counter-party risk guarantee, and operating a tight risk containment system. b. Clearing Members: Clearing Members are responsible for settling their obligations as determined by the clearing corporation. They do so by making available funds and/or securities in the designated accounts with clearing bank/ depositories on the date of settlement. c. Custodians: Custodians are clearing members but not trading members. They settle trades on behalf of trading members, when a particular trade is