Lesson 10 of 13 · Free
Contents
- 1 Clearing & Settlement
- 1.1 From trade to settled shares
- 1.2 What happens when you buy a stock
- 1.3 What happens when you sell a stock
- 1.4 Margin and what it covers
- 1.5 Short delivery and auctions
- 1.6 The T+0 pilot
- 1.7 Charges that come with settlement
- 1.8 T+1 Settlement — What Actually Happens in 24 Hours
- 1.9 What Happens When Settlement Fails
- 1.10 FAQs — Settlement and Capital Cycle
Clearing & Settlement
T+1 mechanics. How money and shares change hands, margin, short-delivery auctions, the upcoming T+0, every charge on your contract note.
You buy 10 shares of Reliance at ₹2,840 on Monday. By Tuesday evening, those 10 shares appear in your demat account and ₹28,400 has been debited from your bank. The mechanism that makes this happen is called clearing and settlement, and it operates on a strict daily cycle.
India moved to T+1 settlement in phases between February 2022 and January 2023, becoming one of the world’s first major markets to do so. T+1 means trade-day-plus-one-business-day. Before that we ran on T+2; the US still does T+1 (since May 2024); most of Europe is still T+2 but transitioning.
What happens when you buy a stock
T (Trade day). You place an order; it gets matched at the exchange; you receive a contract note. Money is blocked in your bank account (or auto-debited at end of session, depending on your broker setup). No shares in your demat yet.
T+0 (end of trade day). The exchange sends trade data to the clearing corporation (NSCCL for NSE, ICCL for BSE). The clearing corp nets your obligations against everyone else trading the same security — if 100 brokers each bought and sold the same 100 shares of a stock during the day, the net obligations are much smaller than the gross.
T+1 (settlement day). Two things happen in parallel. (a) Funds: the clearing corp debits your broker’s settlement account; your broker debits your bank linked account. (b) Securities: the clearing corp instructs the depository (NSDL/CDSL) to credit the shares to your demat. Both happen by end of T+1.
What happens when you sell a stock
T. You place a sell order; it matches; contract note generated. Shares are blocked in your demat (you can’t sell them again).
T+0. Clearing corp accounts for the obligation.
T+1. Shares move from your demat to the counterparty’s; funds move from the buyer’s account to yours.
One quirk: until T+1 settlement completes, the cash from your sell isn’t fully “free”. You can use it to buy other stocks the same day (intraday rotation), but you can’t withdraw it to your bank until settlement happens.
Margin and what it covers
The clearing corp collects upfront margin from every broker — and brokers in turn from every client. The margin sits as collateral against the obligation. Margin requirements depend on stock volatility — VaR margin (Value at Risk), ELM (Extreme Loss Margin), and special margin for specific stocks.
SEBI has tightened margin collection over the past few years. As of late 2020, brokers must collect upfront margin even for delivery-based trades, and peak-margin reporting is enforced four random times during the trading day.
Short delivery and auctions
If a seller can’t deliver shares on T+1 (because they were doing short-selling without intending to deliver, or their broker is short), the exchange runs an auction on T+2 to buy the missing shares in the open market and deliver them to the buyer. The seller pays the auction cost plus penalties — often well above the original sale price. This is why short-selling without proper securities lending arrangements is risky.
The T+0 pilot
SEBI launched a T+0 settlement pilot in March 2024, covering a small set of stocks for same-day settlement. As of 2025, T+0 is voluntary and limited but expanding. The endgame is instant settlement — trade, clear, and settle in seconds, the same way UPI moved money. India is at the frontier here.
Charges that come with settlement
Every trade attracts:
- Brokerage — what you pay the broker (₹20 flat for discount brokers; 0.3-0.5% for full-service).
- STT (Securities Transaction Tax) — 0.1% on delivery purchases and sales; 0.025% on intraday; varying for F&O.
- Exchange transaction charge — 0.00322% NSE, 0.00375% BSE (approximate, changes occasionally).
- GST — 18% on brokerage + exchange + SEBI charges.
- Stamp duty — 0.015% on delivery purchases (state-level since 2020 harmonisation).
- SEBI charge — ₹10 per crore of turnover.
- DP charges — typically ₹13-25 per scrip per sell, charged by your DP.
For a ₹1,00,000 delivery buy on Zerodha, total charges land around ₹120-150. Not free, but trivial compared to the bid-ask spread on most stocks.
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T+1 Settlement — What Actually Happens in 24 Hours
India became the first major market to mandate T+1 settlement for all stocks (since 27 January 2023). The compressed cycle means your sale proceeds are usable the next trading day, dramatically improving capital efficiency. Here is the day-by-day choreography:
| Time | Event | Who acts |
|---|---|---|
| Day T, 9:15 AM-3:30 PM | Trade executed on exchange | You + matching counterparty |
| Day T, evening | Trade confirmation, contract notes generated | Broker |
| Day T+1, morning | Pay-in obligation calculated; funds/shares pooled | Clearing corporation |
| Day T+1, afternoon | Pay-out: funds credited to seller, shares to buyer | NSE Clearing / ICCL |
| Day T+2 onwards | Proceeds usable for fresh trades | You |
What Happens When Settlement Fails
If a seller fails to deliver shares by Day T+1, the clearing corporation conducts an “auction” on Day T+2 to buy shares from the open market and deliver to the original buyer. The defaulting seller bears the auction cost plus a penalty (~20% of contract value). Settlement default is rare for retail (you cannot sell shares you don’t hold under SEBI 2020 rules) but happens for short-deliveries in F&O and bulk corporate trades. The CCP’s Settlement Guarantee Fund (₹15,000+ crore at NSE Clearing) ensures every counterparty is made whole — Indian retail has not lost money to a settlement default in over 20 years.
FAQs — Settlement and Capital Cycle
When does T+0 come?
SEBI launched a voluntary T+0 settlement cycle for a select list of 25 stocks in March 2024, expanding to 100+ by 2025. Full T+0 may be standard by 2026. Capital efficiency gains will be substantial.
What is the “BTST” trade (Buy Today Sell Tomorrow)?
Buying delivery (CNC) today and selling before the shares actually arrive in your demat. Allowed because the system credits “expected delivery”. Avoids the short-delivery penalty since you actually own the shares paid for. Useful for momentum strategies but watch for short-delivery from the original seller’s side.
Why do I sometimes see “T+1 funds blocked”?
For BTST or rapid round-trip trades, brokers temporarily block 100% of sale proceeds until T+1 confirmation. Once cleared, the funds are released.
How to Verify Your Holdings Independently
Trust but verify — even with the strongest CCP architecture, monthly verification of your demat holdings catches discrepancies early. NSDL and CDSL both provide free “Consolidated Account Statement” (CAS) services. CDSL’s CAS Portal (mycas.cdslindia.com) and NSDL’s SPEED-e (eservices.nsdl.com) email a monthly statement showing every holding across all your demat accounts. Cross-check against your broker’s holdings report. Discrepancies — even minor ones like missing dividends or unclaimed bonus shares — should be raised with the broker within 7 days. Annual reconciliation against IT department’s AIS (Annual Information Statement) catches mismatches in dividend income, mutual fund redemptions, and TDS credits. Both checks together take 15 minutes per month but prevent the kind of disputes that took years to resolve in the pre-digital era.
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