Issues prior to trading on NSE
 Dealing
through NSE trading member/SEBI registered sub-broker
Registering
as a client
Trading related issues
Giving
purchase /sale instructions
Price
at which trade executed
Documents
to be given by trading member
Contract
or purchase/sale notes
Brokerage
and other charges
Clearing and Settlement related issues
Types
of Settlement
Pay-in/Pay-out
of securities and funds
Demat
Settlement
Settlement
Guarantee Fund
Auction
of shares
Good/Bad
delivery of shares
Company
Objections
Issues prior to trading on NSE
Dealing through NSE trading member/SEBI registered sub-broker
 Whom should I approach for buying/selling shares on the NSE?
To buy or sell securities you could approach either:
1. SEBI registered trading member of the NSE, or
2. SEBI registered sub-broker of a trading member of the NSE
Why should I deal only with a trading member of NSE/SEBI registered sub-broker of NSE trading member?
The Exchange can ensure settlement and handle disputes/claims arising out of only those trades which are executed
on NSE through registered trading members /registered sub-brokers. Hence for all trades done on NSE through an entity
who is not registered, the investor has no recourse through the Exchange in case of non settlement or a claim/dispute
arising out of the same.
How do I verify whether the entity is a NSE trading member (TM)/SEBI registered sub-broker?
You may ask the person to furnish documents such as SEBI registration certificate, registration with NSE, etc to verify
the antecedents of the person. You can also approach the Exchange to countercheck whether the person holds a valid
registration.
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Registering as a client
What are the formalities for registering as a client of a NSE trading member/SEBI registered sub-broker?
All investors should register themselves with registered trading members/sub-brokers by:
1. Filling a Client Registration Form, and
2. Signing a Member-Constituent Agreement (copy available with all NSE trading members)
The Member-Constituent Agreement contains the terms and conditions including order/trade confirmation, brokerage charged
by a trading member, delivery of securities and funds and therefore helps reduce the chances of disputes in respect of the
same. This Agreement is mandatory for all persons registering as a new client of a NSE trading member/SEBI registered
sub-broker
What precautions should I take before signing the Member-Constituent Agreement?
You should read the various terms and conditions carefully and understand their implications before entering into this
agreement with your trading member.
1. Check whether it is on a Stamp Paper of requisite value and whether the Stamp Paper is valid (for e.g. Validity in
Maharashtra is for 6 months from the date of issue of the stamp paper). Ensure that the date of agreement is not prior to
the date mentioned on the stamp paper.
2. Check whether your name and the name of the trading member are clearly mentioned in the agreement.
3. Ensure that the trading member and you have signed on all the pages of the agreement. Also, check that the witnesses
have signed and put their names against their signature.
4. Check whether the trading member or their representatives have the authority (such as Board Resolution, Power of
Attorney, etc.) to sign the Member-Constituent Agreement
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Trading related Issues
Giving purchase /sale instructions
How should I give my purchase/sale instructions to my trading member/sub-broker?
A trading member/client relationship is one of trust. However, it is very important that all your order instructions are given
in writing and are duly acknowledged by the trading member. The order instructions should clearly indicate the scrip name,
whether order is for buy or sell, the quantity for each of the scrips, rate specifications if any, and other relevant instructions.
This reduces chances of miscommunication between you and your trading member/sub-broker at the time of placing deals
on your behalf.
Price at which trade executed
What is price-time priority?
The system arranges all orders in the priority of price and within price by time. You have, let us say,placed a buy
order for 100 shares of company A at Rs. 285 and another investor has placed a buy order at Rs.290. So,anyone
who places a sell order in company A will be first matched with the buy order of second investor as he has given
a better price. This is price priority. Let us say both of you have quoted Rs. 285 as the price at which you want
to buy shares of company A, then sell order which comes into the system at this price will be matched against the
order which was placed first.
How do I know my trading member has given me the best price?
The NSE trading system matches orders in such a way that the order gets executed at a price which is either equal to
or better than the specified price but never worse than it. Therefore, if you have given an order for selling 100 shares
at the rate of Rs.50, your order will be traded in the system in such a way that you will get a sale price of Rs.50 or more
but never less. Similarly, if you have given an order for buying 100 shares at the rate of Rs.50, your order will be traded
in the system in such a way that you will get a buy price of Rs.50 or less but never more.
How do I ascertain the correct rate at which my deal has been executed?
The NSE trading system (NEAT) generates and maintains an audit trail of the orders entered on the system by assigning
a unique order number to all the orders placed on the NEAT system. You should therefore ask your trading member to
give you the unique order number that the system has assigned to your order.
Further, as soon as your order is executed, a trade confirmation slip is generated which displays the trade number,
trade time,quantity and price at which your trade took place and the corresponding order number. Trading members are
obligated to give their clients a trade confirmation slip the moment a trade takes place. By looking at the trade slip,
you can actually verify the rate at which your order was traded.
At the end of the day, the trading member should give you a contract note.
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How do I ensure that the trading member does not give me trade price pertaining to some other client or
trade prices for deals executed in his personal account?
You can verify this by checking that the price given to you pertains to the unique order number provided to you by the
trading member. The Exchange maintains details of the order/trade number and other details pertaining to the transaction
for a period of eight years and the investor can countercheck these details with the Exchange.
Documents to be given by trading member
What are the documents I should receive from my NSE trading member/registered sub-broker
pertaining to my trade and when should I get them?
Order confirmation slip - After the order has been placed.
Trade confirmation slip - After the trade has been executed.
Contract note - Within 24 hours of the trade being executed.
Purchase/sale note where deal is routed through a registered sub-broker of a NSE trading
member - Within 24 hours of the trade being executed
You should always insist on getting your contract notes or purchase/sale note from your trading member
or sub-broker respectively.
Contract or purchase/sale notes
What if the details contained in the contract/purchase/sale notes are incorrect or the notes include some
transactions not pertaining to my orders/trades?
You should countercheck the details contained in the contract/purchase/sale notes with those on the order and
trade confirmation slip. Check whether the order number, trade number and other details on the trade confirmation
slip match with those on the contract/purchase/sale notes.
In case of any discrepancy, you should bring the same to the notice of the trading member/sub-broker immediately by
way of written communication duly acknowledged by the trading member/sub-broker, clearly mentioning the deals
(in dispute) which do not pertain to you.
What is a contract note and why is it essential?
Contract note is a confirmation of trade(s) done on a particular day for and on behalf of a client. A contract note
issued in the format and manner prescribed by NSE establishes a legally enforceable relationship between the
trading member and client in respect of settlement of trades executed on the Exchange as stated in the contract
note. Contract notes are made in duplicate, and the member and client both keep one copy each.
The said contract notes should be signed by a trading member or by an authorised signatory of the trading member.
After verifying the details contained therein, the second copy of contract note should be returned to the
trading member duly acknowledged by you.
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Why should I insist on getting contract/purchase/sale notes for trades executed?
These documents are very important to enforce the deals transacted through the trading member/sub-broker. In case of
disputes/claims/differences, these documents would help you to prove that the transactions have been executed on the
Exchange through NSE TM/registered sub-broker.
These documents are a prerequisite for filing a complaint or arbitration proceeding against TM/registered sub-broker.
Will I get a contract note even if I have dealt with a registered sub-broker?
In case you have dealt through a registered sub-broker, the sub-broker is required to issue purchase/sale notes to you.
However, the trading member would issue to your sub-broker back-to-back contract notes giving details of all the
transactions done by the sub-broker through the trading member's terminal.The said notes should be signed by an
authorised signatory of the registered sub-broker.
After verifying the details contained therein, the second copy of purchase /sale notes should be returned to the
sub-broker duly acknowledged by you.
What are the points to be checked by an investor to check the validity of a contract note?
To ensure that the contract note issued to you by the trading member is a valid one, you must verify the following details:
1. The contract note should be in prescribed format
2. Name and address of the trading member.
3. The SEBI registration number of the trading member
4. Details of trade viz. Order number, trade number, trade time, security name, quantity, rate, brokerage, settlement
number, details of other levies
5. The trade price should be shown separately from the brokerage charged.
6. Signature of authorised signatory and the arbitration clause stating that the trade is subject to the jurisdiction of
Mumbai must be present on the face of the contract note.
What are the points to be checked by an investor to check the validity of a purchase/sale note?
1. The purchase/sale note should be in prescribed format
2. Name, address and SEBI registration number of the registered sub-broker
3. Name, address and SEBI registration number of the affiliated trading member
4. Details of trade viz. order number, trade number, trade time, security name, quantity, rate, brokerage, settlement
number, details of other levies.
5. The trade price should be shown separately from the brokerage charged.
6. Signature of authorised signatory and the arbitration clause stating that the trade is subject to the jurisdiction of
Mumbai must be present on the face of the contract note.
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Brokerage and other charges
What is the maximum brokerage that a NSE trading member/registered sub-broker can charge?
As stipulated by SEBI, the maximum brokerage that can be charged is 2.5% of the trade value. This maximum brokerage is
inclusive of the brokerage charged by the sub-broker (sub-brokerage cannot exceed 1.5% of the trade value).
What are the additional charges other than brokerage that can be levied on the investor?
The trading member can charge:
1. Service tax @ 5% of the brokerage
2. Transaction charges levied by NSE
3. Penalties arising on behalf of client (investor)
The brokerage and service tax is indicated separately in the contract note.
Clearing and Settlement related Issues
Types of Settlement
What is an Account Period Settlement?
An account period settlement is a settlement where the trades pertaining to a period stretching over more than one day
are settled. For example, trades for the period Monday to Friday. The obligations for the account period are settled on a
net basis. Account period settlement has been discontinued since January 1, 2002, pursuant to SEBI directives.
What is an Account Period Settlement? In a Rolling Settlement trades executed during the day are settled based on the net obligations for the day.
In NSE, the trades pertaining to the rolling settlement are settled on a T+2 day basis where T stands for the trade day.
Hence trades executed on a Monday are typically settled on the following Wednesday (considering 2 working days from
the trade day).
The funds and securities pay-in and pay-out are carried out on T+2 day.
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Pay-in and Pay-out of funds and securities
If I have sold securities when do I deliver them to the trading member?
You have to deliver the securities to the trading member immediately upon getting the contract note for sale but in any
case, before the prescribed securities pay-in day.
If I have bought securities when do I pay money to the trading member?
If you have bought securities, you have to pay the amount to the trading member in such a manner that the amount paid is
realised before the funds pay-in day.
When can I expect to receive funds/securities from the trading member?
The securities and the funds are paid out to the trading member on the pay-out day. The NSE regulations stipulate that
the trading member should pay the money or securities to the investor within 48 hours of the pay-out.
What are the prescribed pay-in and pay-out days for funds and securities for Normal Settlement ?
The pay-in and pay-out days for funds and securities are prescribed as per the Settlement Cycle. A typical Settlement
Cycle of Normal Settlement is given below:
| |
Activity |
Day |
| Trading |
Rolling Settlement Trading |
T |
| Clearing |
Custodial Confirmation |
T+1 working days |
| |
Delivery Generation |
T+1 working days |
| Settlement |
Securities and Funds pay in |
T+2 working days |
| |
Securities and Funds pay out |
T+2 working days |
| Post Settlement |
Valuation Debit |
T+2 working days |
| |
Auction |
T+3 working days |
| |
Bad Delivery Reporting |
T+4 working days |
| |
Auction settlement |
T+5 working days |
| |
Close out |
T+5 working days |
| |
Rectified bad delivery pay-in and pay-out |
T+6 working days |
| |
Re-bad delivery reporting and pickup |
T+8 working days |
| |
Close out of re-bad delivery |
T+9 working days |
|