question_answer

Mr A is a teacher, having a reputed job with good earnings. He wants to trade on a stock exchange. Enumerate the steps involved for purchase and sale of securities in a stock exchange.

Answer:

The procedure for purchase and sale securities in a stock exchange involves the following steps: Step 1 Selection of a Broker The first step is to select a broker, who will buy/sell securities on behalf of the investor/speculator. Brokers may be individuals, partnership firms or corporate bodies. Selection of broker is compulsory as trading can only be done by SEBI registered brokers, who are members of a stock exchange. Step 2 Opening of a Demat Account with Depository Dematerialised (Demat) account refers to an account which an individual must open with the depository participant (banks, stock brokers) to trade in the listed securities in electronic form. Step 3 Placing the Order The next step is to place the order with the broker, which can be done through telephone, cell phone, e-mail, etc. Instruction regarding which securities and how many securities are to be bought or sold should be clearly given to the broker. Step 4 Executing the Order According to the instructions, the broker executes the order and buys or sells the required securities. The broker then issues a contract note. A copy of contract note specifies the name and the price of securities, names of parties, brokerage charges, etc which is signed by the broker. Step 5 Settlement This is the last stage in the trading of securities done by brokers on behalf of their clients. The mode of settlement depends upon the nature of contract. Equity spot markets follow a T+ 2 rolling settlement. This means a trade taking place on Monday gets settled by Wednesday. Trading times on stock exchange are between 9:55 am and 3:30 pm IST, from Monday to Friday. Each exchange has its own clearing house, which assumes all settlement risk.