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NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Introduction to Securities Markets

Trading, Clearing and Settlement in Indian Securities Markets

Updated 11 October 2026 · Fact-checked

Trading is matching a buy and a sell order on an exchange. Clearing is working out what each member owes, with the clearing corporation becoming the counterparty. Settlement is the actual delivery of securities and payment of funds. Equity shares in India settle on a rolling T+1 basis, with securities held in demat form at depositories.

Understand Trading, Clearing and Settlement

Every share trade has three stages. First comes trading: you place a buy or sell order through a broker, and the exchange's electronic system matches it with an opposite order. Matching follows price-time priority. The best price gets first preference. At the same price, the earlier order goes first.

Next comes clearing. After trades are done, the clearing corporation of the exchange works out what each broker (clearing member) must pay or deliver. It nets the obligations. It also becomes the central counterparty. This means it guarantees the trade, so the buyer and seller do not face each other's default risk. Margins and a settlement guarantee fund support this guarantee.

Then comes settlement. The seller's securities move to the buyer, and the buyer's money moves to the seller. Settlement is on a rolling settlement basis: every trading day's trades settle after a fixed number of working days. Here T is the trade day. In T+1, settlement happens on the next working day after the trade. Exchanges have also made optional T+0 settlement available for a limited set of securities in a phased way. For your exam, remember T+1 as the standard cycle for equity.

Securities are held in dematerialised form. Two depositories operate in India: NSDL and CDSL. A depository participant (DP) is your agent to the depository, like a bank branch. You open a demat account through a DP. On settlement, the shares move electronically from the seller's demat account to the buyer's. Money moves through the clearing banks. For PMS, the portfolio manager executes trades for the client, and securities sit in the client's own demat account or a custodian account, depending on the arrangement.

Key formulas to remember

Settlement date under rolling settlement
Settlement day = T + n working days (equity: n = 1)
T is the trade day. Count only working days. Exchange holidays and weekends are excluded.
Three stages of a trade
Trading → Clearing → Settlement
Order matters. Questions often ask which stage a given activity belongs to.
Order matching priority
Price priority first, then time priority
Best price wins. At equal price, the earlier order is matched first.
Central counterparty role
Buyer ↔ Clearing Corporation ↔ Seller
Also called novation. The clearing corporation guarantees performance of the trade.
Depositories in India
NSDL and CDSL
Investors reach them through depository participants (DPs), not directly.

How to solve Trading, Clearing and Settlement questions

Use this method for any question on how a trade flows from order to ownership.

  1. 1Read the question and decide which stage it is about: trading, clearing or settlement.
  2. 2Identify the entity named: exchange, broker, clearing member, clearing corporation, depository, DP or clearing bank.
  3. 3Recall that entity's single core job. Exchange matches. Clearing corporation nets and guarantees. Depository holds and transfers securities.
  4. 4If a settlement date is asked, mark the trade day as T and count only working days to T+1.
  5. 5Check for holidays and weekends between the trade day and the settlement day.
  6. 6Eliminate options that give an entity another entity's job, such as the depository guaranteeing trades.
  7. 7Pick the option that matches the exact term used in the workbook.

Quickest way: Match the entity to its one job

When to use it: Use for definition and role questions where you have under a minute per question.

  1. Exchange = platform and order matching.
  2. Broker = places orders for you and is a trading member.
  3. Clearing corporation = netting, guarantee, risk management.
  4. Depository = holds securities in electronic form.
  5. DP = your gateway to the depository.
  6. For dates: T+1 means the next working day. Skip weekends and holidays.

Common mistakes in Trading, Clearing and Settlement

  • Saying the exchange guarantees settlement.

    The exchange and its clearing corporation are seen as one body.

    Fix: The clearing corporation is the central counterparty and guarantees settlement. The exchange provides the trading platform.

  • Counting Saturday and Sunday in T+1.

    Students treat days as calendar days.

    Fix: Count working days only. A trade on Friday settles on Monday, if Monday is a working day.

  • Thinking investors deal directly with NSDL or CDSL.

    The depositories are named in every demat discussion.

    Fix: You deal with a depository participant. The DP links you to the depository.

  • Mixing up clearing and settlement.

    Both happen after the trade and sound similar.

    Fix: Clearing is calculating and netting obligations. Settlement is the actual transfer of securities and funds.

  • Believing shares move physically between sellers and buyers.

    Old share certificates are still in people's minds.

    Fix: Listed securities trade in demat form. Transfer is an electronic entry between demat accounts.

Worked examples

Example 1

A trade in equity shares is executed on Tuesday. Assuming no holidays, on which day does it settle under the T+1 rolling cycle?

Show the solution
  1. Trade day T is Tuesday.
  2. T+1 means one working day after the trade day.
  3. The next working day after Tuesday is Wednesday.
  4. No holiday intervenes, so no adjustment is needed.

Answer: Wednesday.

Example 2

Which entity becomes the counterparty to both the buyer and the seller after a trade is executed on an exchange, guaranteeing its completion?

Show the solution
  1. Identify the function described: acting as counterparty and guaranteeing the trade.
  2. This is novation, done by the clearing corporation.
  3. The exchange only matches orders. The depository only holds securities. A DP only serves as an agent to the depository.
  4. So the answer is the clearing corporation.

Answer: The clearing corporation of the exchange.

Exam tips

  • Expect direct questions on which entity performs which function. Learn the one-line job of each.
  • Know that the standard equity cycle is T+1 and that T+0 is limited and optional.
  • Watch for weekend and holiday traps in date questions.
  • Remember the depositories by name: NSDL and CDSL. A DP is the investor's access point.
  • For PMS questions, remember the portfolio manager trades on behalf of the client, while securities belong to the client.

Practice questions from Introduction to Securities Markets

Trading, Clearing and Settlement in other exams

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

Trading, Clearing and Settlement: frequently asked questions

What is T+1 settlement?

It means a trade settles one working day after the trade day. Securities and funds are exchanged on that day. Weekends and exchange holidays are not counted.

What is the difference between clearing and settlement?

Clearing is the calculation and netting of what each member owes, with the clearing corporation guaranteeing the trade. Settlement is the actual delivery of securities and payment of money.

What does a depository do?

A depository holds securities in electronic form and records transfers between demat accounts. In India these are NSDL and CDSL. Investors access them through depository participants.

Why does the clearing corporation matter to investors?

It becomes the counterparty to every trade, so you do not bear the default risk of the other party. It manages this risk through margins and a settlement guarantee fund.