Have you ever wondered what happens when you buy or sell a stock? Today, you buy a stock and it lands in your DEMAT account the next day. Seems simple, right? But behind this simple action is a complex web of processes, entities, and technologies working seamlessly to ensure your transaction is executed smoothly and securely.
We will walk you through the entire journey from the moment you click the buy button till the stock lands in your DEMAT account. Let's get started.
When you buy a stock…
Consider that you are placing an order to buy a hundred shares of Asian paint stock, which is trading at around ₹3000. Consider this day to be T-Day, which is the trading day on which you place the order.
The broker checks if you have the required funds to buy 100 shares, which is Rs. 3 lakhs. If you don't have the funds, the order is rejected. If you have the funds, the order is placed and the money is blocked from your account.
Your order details, including the stock name, quantity and price are sent to the stock exchange. In India, the two main exchanges are the NSE and BSE. Once your order reaches the exchange, it's matched with a corresponding sell order. After a match is found, the trade is confirmed. The buyer and seller are intimated and the transaction details are recorded.
By the close of trading on T Day, the broker will debit the purchase value, brokerage, and other statutory charges to your trading account and it will reflect in your ledger.
A contract note, which is proof of your trade, is also generated and sent through email by your broker. It is like a bill and confirmation by the broker that specified shares have been bought on your behalf at the said price and relevant charges debited. But the stock doesn't come to your DEMAT account immediately on T Day.
This is where the clearing and settlement process begins. In India, the National Securities Clearing Corporation Limited, NSCCL for NSE, and the Indian Clearing Corporation Limited, ICCL for BSE handle this. They act as the central counterparty, guaranteeing the completion of transactions. That is, they ensure that the seller has the stock and the buyer has the funds.
Once the settlement is completed, the purchased stocks are transferred to the buyer's DEMAT account the next day, that is, T+1 day. The DEMAT account is held with a depository participant, usually your stockbroker registered with either of India's two depositories, the National Securities Depository Limited, NSDL, or the Central Depository Services Limited, CDSL.
That's the entire process of buying a stock in India. From clicking the buy button to seeing the stock in your DEMAT account.
When you sell a stock…
Now at some point in time, you would want to sell your shares as well.
The day you place a sell order is again referred to as T-Day. The stock gets blocked when you sell the stock from your DEMAT account.
And by the end of the day, the stocks are earmarked by your broker for settlement.
On T Day, the earmarked shares are delivered to the depository.
On settlement day or T+1 day, the blocked shares are debited from your DEMAT account and moved to the clearing corporation for payment. Against the sale of shares, you would have received a credit after deducting all charges.
You will receive 80 per cent of the funds on T day and the remaining 20 per cent on T+1 day.
Share Transactions in India are settled on a T+1 Day. If you are a buyer, you will get the shares on T+1 day. And if you are a seller, the funds are credited on T+1 day.
That's the entire behind-the-scenes process that happens when you buy or sell a stock in India.