Your Money: The Settlement Cycles of Negotiable Securities


Negotiable or non-negotiable securities are available. Negotiable equity shares are available. Negotiable debt securities include Treasury Bills and Treasury Bonds.

Fixed deposits, for example, are not. As an example, let’s say you hold a Rs 2,00,000 ICICI Bank FD and owe me that amount. You can’t write “transferred to someone else” on the FD receipt. You’ll need to close the FD, deposit the funds into your savings account, and then make an internet transfer or write a check.

This is because a standard FD receipt is non-negotiable. In the money markets, certain large denomination FD receipts can be traded. Negotiable Certificates of Deposit, or NCDs, are what they’re called.

Bearer or registered securities

There are two types of securities: registered and bearer. There is a record of the number of units held by a holder as well as the holder’s identity in the case of the former. The register is updated every time a transaction occurs. Bearer securities, on the other hand, have no record of ownership. It’s the equivalent of having a banknote. If you drop a Rs 500 note on the floor, you have no way of proving that it is yours. Eurobonds, which are bonds issued in a currency other than the country’s own, are usually bearer bonds.

There is a settlement cycle for securities. This is the time it takes for the buyer to acquire the securities and for the seller to receive the monies after the transaction is completed. The Indian stock market operates on a T+2 settlement cycle. That is, if a party in Bangalore sells shares to a party in Mumbai on Monday, the former will receive the cash on Wednesday and the latter would receive the securities on Wednesday, assuming no market holidays occur between the two dates.

Cycle of Settlement

The settlement cycle varies from market to market and from product to product within the same market. T-bills, for example, may have a T+1 settlement cycle, whereas T-bonds could have a T+3 settlement cycle. Because certain markets are so small, they have a T+0 settlement, which means that everything is settled by the end of the trading day. Regardless of the magnitude of N, T+N settlement is referred to as Rolling Settlement.

The terms “buy-side” and “sell-side” are used to describe market participants. Institutional participants such as mutual funds, pension funds, hedge funds, and insurance firms are referred to as the “buy-side.”

The term “sell-side” refers to the brokers and dealers who arrange market exchanges. The implication is that the former is looking to buy exchange services, while the latter is looking to sell exchange services. It’s important to note that the terms “buy-side” and “sell-side” have nothing to do with the purchase and sale of securities.

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