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

Trading and Settlement Cycle Basics: T+1 Rolling Settlement

Updated 11 October 2026 · Fact-checked

The trading and settlement cycle is the sequence from a trade on the exchange to the final exchange of securities and money. In India, equity trades follow T+1 rolling settlement: a trade done on day T is settled on the next working day. The clearing corporation guarantees and completes the settlement.

Understand Trading and Settlement Cycle Basics

When you buy a share on an exchange, you do not get the share at once. The trade is only an agreement. Settlement is when the buyer receives the securities and the seller receives the money.

Trades are done on the exchange trading system, such as that of NSE or BSE. The exchange matches buy and sell orders electronically. Trades are then passed to a clearing corporation, which works out what each member must pay or deliver. The clearing corporation also acts as the counterparty to the trades and guarantees settlement. This removes the risk that one side defaults on the other.

In a rolling settlement, every day's trades are settled after a fixed number of working days. The day of the trade is called T. Under T+1, settlement happens on the next working day after T. Each trading day has its own settlement, so settlements keep rolling from day to day. This is different from an old account-period system, where trades over a week were settled together.

Settlement has two legs. Pay-in is when members give funds and securities to the clearing corporation. Pay-out is when the clearing corporation gives funds and securities back to the members who are due to receive them. Securities move through the depository: the seller's DP account is debited and the buyer's DP account is credited.

A clearing member is a member authorised by the clearing corporation to clear and settle trades. Some trading members clear their own trades. Others use another clearing member. Your DP's role is to carry out the delivery of securities in your demat account so that pay-in and pay-out happen on time.

Key formulas to remember

Rolling settlement timing
Settlement day = T + 1 working day
T is the trading day. Count working days only. Weekends and exchange holidays are not counted.
Pay-in
Pay-in = members give funds and securities to the clearing corporation
The seller's securities and the buyer's funds go in. Securities are delivered from the demat account.
Pay-out
Pay-out = clearing corporation gives funds and securities to members entitled
The buyer's demat account is credited with securities and the seller receives funds.
Role of clearing corporation
Clearing corporation = counterparty to trades + settlement guarantee
It determines obligations and manages settlement risk. Check the workbook wording for the exact term used.
Trade flow
Order → Trade → Clearing → Settlement (pay-in, pay-out)
Use this sequence to place any term in the right stage.

How to solve Trading and Settlement Cycle Basics questions

Most questions test the sequence, a definition, or who does what. Use the same method each time.

  1. 1Read the question and mark the stage: trading, clearing, or settlement.
  2. 2Identify the key term: T, rolling settlement, pay-in, pay-out, clearing member or clearing corporation.
  3. 3Recall the matching rule. T+1 means the next working day after the trade day.
  4. 4For date questions, count only working days. Skip weekends and exchange holidays.
  5. 5For role questions, ask who guarantees settlement, who executes the trade, and who holds securities.
  6. 6Eliminate options that mix up pay-in with pay-out or the exchange with the clearing corporation.
  7. 7Pick the option that matches the rule exactly and check for words like only, always or never.

Quickest way: Stage-and-role shortcut

When to use it: Use this for definition and role questions when time is short.

  1. Trade matching happens on the exchange.
  2. Obligation calculation and guarantee belong to the clearing corporation.
  3. Clearing members settle through the clearing corporation.
  4. Securities move through the depository and DPs.
  5. For dates, add one working day to T.

Common mistakes in Trading and Settlement Cycle Basics

  • Counting calendar days instead of working days for T+1.

    Students forget that weekends and holidays are not settlement days.

    Fix: Always count only working days. A Friday trade settles on the next working day, normally Monday.

  • Confusing pay-in with pay-out.

    Both words sound like money movement.

    Fix: Pay-in means giving to the clearing corporation. Pay-out means receiving from it. Both apply to funds and securities.

  • Thinking the stock exchange settles the trade.

    The exchange is the visible trading venue.

    Fix: The exchange matches trades. The clearing corporation determines obligations and guarantees settlement.

  • Believing settlement happens on the trade day.

    Trading screens show instant execution.

    Fix: Execution is only the trade. Settlement is the later transfer of securities and funds, at T+1 here.

  • Mixing rolling settlement with account-period settlement.

    Older material describes weekly settlement cycles.

    Fix: In rolling settlement each day's trades are settled separately after a fixed number of working days.

Worked examples

Example 1

A trade in an equity share is done on Tuesday. There are no holidays that week. Under T+1 rolling settlement, on which day is it settled?

Show the solution
  1. T is the trading day, which is Tuesday.
  2. T+1 means one working day after T.
  3. The next working day after Tuesday is Wednesday.

Answer: Wednesday

Example 2

Which entity determines the obligations of members after trades are executed on the exchange and guarantees their settlement?

Show the solution
  1. Trade matching is done on the exchange, so the exchange alone is not the answer for settlement.
  2. Calculating member obligations and acting as counterparty is the work of the clearing corporation.
  3. A depository only holds and transfers securities, and a DP only serves investors.

Answer: The clearing corporation

Exam tips

  • Know T+1 exactly: next working day after the trade day. Watch for holiday traps in date questions.
  • Learn the difference between pay-in and pay-out as both funds and securities movements.
  • Separate roles: exchange for trading, clearing corporation for obligations and guarantee, depository for holding securities.
  • Questions on this paper carry negative marking of 25% of the marks for a question, so skip an option you cannot defend rather than guess blindly.

Practice questions from Functions of Depository Participant - Trading and Settlement

Trading and Settlement Cycle Basics in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Trading and Settlement Cycle Basics: frequently asked questions

What is rolling settlement?

In rolling settlement, each day's trades are settled after a fixed number of working days. Every trading day has its own settlement. In India equity settlement is T+1.

What does T+1 mean in the stock market?

T is the day the trade is done. T+1 means settlement takes place on the next working day. Holidays and weekends are not counted.

What does a clearing corporation do?

It works out what each clearing member must pay or deliver and acts as counterparty to trades. It guarantees settlement, which lowers default risk.

What is the role of a clearing member?

A clearing member is authorised by the clearing corporation to clear and settle trades. It may clear its own trades or those of other trading members.