Trade life cycle

 

Trade life cycle

1.     Placing order – to begin the trade life cycle one must place the order in the Exchange, either it might be a buy or sell order by stock broker / trader / investor itself.

Trader workstation – TWS terminal where the member can access the trading system in exchange to place orders. 

It has two kinds of info 

Trading members	Market information’s
order entered Order modified Outstanding order Order log Trade details	Order book Securities price Securities info Additional info

Every trading member has its own trading platform that in-turn connects with the exchange trading system.          

Another trading feature is introduced in India stock exchange. 

Algorithmic trading	Frequency trading
Order placed using pre-coding, which triggers when the market meets the conditions and order is placed automatically.	Order placed in high volume, the broker gets confirmation before placing a order and enters in TWS

 

2.    Trade Execution – all orders which is entered into TWS is matched with the counter trades in exchange and all this activity is in electronic mode only.

Order matching is done on price basis only, as the order placed meet the criteria the number of shares will be executed simultaneously. 

3.   Trade Confirmation - As soon the trade is matched and executed, a confirmation message will be sent to the broker or trader itself whoever placed the order by end of the day.

The confirmation / contract note contains the order details, such as stock name, no of shares bought / sold and price of the shares being bought/ sold.

4.   Clearing and settlement - once the trade is executed on the exchange, the trade details is passed to the clearing corporation to initiate the settlement of those trades as per the obligations.

     The settlement process is carried out by the clearing corporations with the help of clearing banks and depositories. Which ensures the funds pay-in and funds pay-out to fulfil the trader’s obligations.

    Settlement cycle is T+1 and T+2 rolling settlement

T+1: Settlement occurs one business day after the trade date.

T+2: Settlement occurs two business days after the trade date.

 

5.  Receive funds/ Securities in and out - The pay-in and pay-out involves 2- sided transaction one on buyer side and other on seller side.

*clearing members for Buy and SELL orders are different, clearing corporations acts a link here*

BUYER PERSPECTIVE
Pay-in	Pay-out
Clearing corporation advises the depository to pool securities from seller to meet the obligations	Clearing corporations advises the clearing bank to credit the buy account and debit the sell account

 

SELLER PERSPECTIVE
Pay-in	Pay-out
Clearing corporation advises the depository to credit pool securities to buyers account to meet the obligations	Clearing corporations advises the clearing bank to debit the seller account and credit the buyer account