NISM-Series-VI: Depository Operations · Functions of Depository Participant - Trading and Settlement

Pay-in and Pay-out of Securities in a Depository

Updated 11 October 2026 · Fact-checked

Pay-in is the delivery of securities by the selling client's DP account to the clearing corporation's account on settlement day. Pay-out is the delivery of securities from the clearing corporation to the buying client's account. Both happen through electronic debits and credits in the depository system, with no physical movement.

Understand Pay-in and Pay-out of Securities

When you trade on an exchange, the trade is only an agreement. Settlement is when the seller actually gives securities and the buyer actually gives money. The clearing corporation sits in the middle. It becomes the counterparty to both sides, so the buyer and seller do not deal with each other directly.

On the settlement day the seller must deliver the shares. This is pay-in. The securities move from the seller's demat account to the clearing corporation's pool account. Funds work the same way in the other direction: the buyer pays money in on pay-in day.

After the clearing corporation has received securities and funds, it sends securities to the buyer. This is pay-out. The securities are credited to the buyer's demat account. The seller receives money at the same stage.

The depository does the movement. The clearing member gives instructions, and the depository debits and credits the accounts electronically. A client's securities normally reach the clearing member's pool account first; the clearing member then passes them on to the client's account. Do not confuse these two steps. Pay-in and pay-out are between the clearing member and the clearing corporation, and the client-level credit comes after.

For the exam, remember the direction: pay-in means securities go IN to the clearing corporation, and pay-out means securities go OUT of it to the buyer. Do not memorise any settlement cycle timing from older material. Use the cycle given in your current NISM workbook.

Key formulas to remember

Pay-in: Seller's demat account → Clearing corporation; Securities are debited from the seller's side (via the clearing member's pool account) and delivered to the clearing corporation.
Pay-out: Clearing corporation → Buyer's demat account; Securities are credited to the buyer, via the clearing member's pool account, then to the client account.
Role of the clearing corporation: Counterparty to every trade (buyer to seller, seller to buyer); This is why the seller delivers to it and the buyer receives from it.
Who moves the securities: Clearing member instruction → Depository debit and credit; Movement is electronic. No physical delivery takes place.

How to solve Pay-in and Pay-out of Securities questions

Use this method for any question on pay-in or pay-out. It keeps direction and party straight.

1Identify whether the question is about the seller or the buyer.
2If the seller delivers securities, it is pay-in. If the buyer receives them, it is pay-out.
3Name the parties: client, clearing member, clearing corporation, and depository.
4Remember the clearing corporation is the counterparty, so delivery goes to it, not to the other client.
5Check the account involved: the clearing member's pool account sits between the client and the clearing corporation.
6Match the answer to one option. Eliminate options with reversed direction or with physical delivery.

Quickest way: Direction check: IN to the clearing corporation, OUT to the buyer

When to use it: Use it when options look alike and the question asks which activity or party applies.

Ask: who gives securities? Seller, so pay-in.
Ask: who gets securities? Buyer, so pay-out.
Tie both to the clearing corporation in the middle.
Reject any option where the seller delivers directly to the buyer.

Common mistakes in Pay-in and Pay-out of Securities

Reversing pay-in and pay-out
Students think of money from the buyer's view and securities from the seller's view.
Fix: For securities: pay-in is delivery into the clearing corporation by the seller, pay-out is delivery out to the buyer.
Thinking the seller delivers directly to the buyer
Students ignore the clearing corporation's role as counterparty.
Fix: Remember all delivery goes via the clearing corporation.
Ignoring the clearing member's pool account
Students picture a direct move between client and clearing corporation.
Fix: Include the pool account as the intermediate step between the client and the clearing corporation.
Believing securities move physically
Older habits of share certificates carry over.
Fix: In a depository, all movement is by electronic debit and credit.
Memorising an old settlement timeline
Settlement cycles have changed over time and old notes still circulate.
Fix: Use the cycle in your current NISM workbook and focus on the direction of movement.

Worked examples

Example 1

Ravi sold 100 shares through a broker. On settlement day, what does the term pay-in mean for these shares?
A. Credit of shares to the buyer's demat account
B. Delivery of the shares to the clearing corporation
C. Delivery of the shares directly to the buyer
D. Conversion of the shares to physical form

Show the solution

Ravi is the seller, so his securities are being delivered.
Delivery by the seller on settlement day is pay-in.
The receiver is the clearing corporation, which is counterparty to the trade.
Option A describes pay-out. Option C ignores the clearing corporation. Option D is not part of settlement.

Answer: B. Delivery of the shares to the clearing corporation

Example 2

Meera bought 50 shares. Which describes the pay-out of these shares?
A. Debit of shares from Meera's account to the clearing corporation
B. Delivery of shares by the seller to the clearing member
C. Credit of shares from the clearing corporation to the buyer's account
D. Issue of a physical share certificate

Show the solution

Meera is the buyer, so she is receiving securities.
Receipt by the buyer from the clearing corporation is pay-out.
Option A is the wrong direction. Option B describes pay-in. Option D is physical delivery, which is not how depository settlement works.
Option C matches the definition.

Answer: C. Credit of shares from the clearing corporation to the buyer's account

Exam tips

Questions are mostly definitional. Learn the direction: seller to clearing corporation is pay-in, clearing corporation to buyer is pay-out.
Watch for options that swap the two terms. These are the usual trap.
If an option mentions physical delivery or a direct seller-to-buyer transfer, it is almost always wrong.
On negative-marked papers, skip a question if you cannot recall a timeline. Do not guess a number.

Practice questions from Functions of Depository Participant - Trading and Settlement

Pay-in and Pay-out of Securities: frequently asked questions

What is the difference between pay-in and pay-out of securities?

Pay-in is the delivery of securities by the seller to the clearing corporation. Pay-out is the delivery of securities from the clearing corporation to the buyer. One is on the seller side and the other is on the buyer side.

How does pay-in and pay-out work in a demat account?

The depository debits the seller's side and credits the clearing corporation on pay-in. On pay-out it debits the clearing corporation and credits the buyer. The client's demat account is credited after the clearing member passes the securities on.

Who is the counterparty in settlement?

The clearing corporation is the counterparty to both buyer and seller. Neither side delivers directly to the other.

Do I need to memorise settlement timings for this topic?

Use the settlement cycle in your current NISM workbook. Do not rely on old notes, since cycles have changed over time.