Q. 5

Lalita wants to buy shares of Akbar Enterprises, through her broker Kushvinder. She has a Demat Account and a bank account for cash transactions in the securities market. Discuss the subsequent steps involved in the screen-based trading for buying and selling of securities in this case.

Answer :

The subsequent steps involved in the screen-based trading for buying and selling of securities in this case are as follows

1. If an investor wishes to buy or sell any security he has to first approach a registered broker or sub-broker and enters into an agreement with him. The investor has to sign a broker-client agreement and a client registration form before placing an order to buy or sell securities. He has also to provide certain other details and information. These include:


• PAN number


(This is mandatory)


• Date of birth and address.


• Educational qualification and occupation.


• Residential status (Indian/ NRI).


• Bank account details.


• Depository account details. Etc


2. The investor has to open a ‘Demat’ account or ‘beneficial owner’ (BO) account with a depository participant (DP) for holding and transferring securities in the Demat form. He/She will also have to open a bank account for cash transactions in the securities market.


3. The investor then places an order with the broker to buy or sell shares. Clear instructions have to be given about the number of shares and the price at which the shares should be bought or sold. An order confirmation slip is issued to the investor by the broker.


4. The broker then will go on-line and connect to the main stock exchange and match the share and best price available.


5. When the shares can be bought or sold at the price mentioned, it will be communicated to the broker’s terminal and the order will be executed electronically. The broker will issue a trade confirmation slip to the investor.


6. After the trade has been executed, within 24 hours the broker issues a Contract Note. This note contains details of the number of shares bought or sold, the price, the date and time of deal, and the brokerage charges. This is an important document as it is legally enforceable and helps to settle disputes/claims between the investor and the broker. A Unique Order Code number is assigned to each transaction by the stock exchange and is printed on the contract note.


7. Now, the investor has to deliver the shares sold or pay cash for the shares bought. This should be done immediately after receiving the contract note or before the day when the broker shall make payment or delivery of shares to the exchange. This is called the pay-in day.


8. Cash is paid or securities are delivered on pay-in day, which is before the T+2 day as the deal has to be settled and finalized on the T+2 day. The settlement cycle is on T+2 day on a rolling settlement basis.


9. On the T+2 day, the exchange will deliver the share or make payment to the other broker. This is called the pay-out day. The broker then has to make payment to the investor within 24 hour of the pay-out day since he has already received payment from the exchange.


10. The broker can make delivery of shares in Demat form directly to the investor’s Demat account. The investor has to give details of his Demat account and instruct his depository participant to take delivery of securities directly in his beneficial owner account.


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