Procedure for purchase and sale of securities in a stock exchange – CBSE Class 12 Business Studies
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Procedure for purchase and sale of securities in a stock exchange
- Selection of broker: – The first step is to select a broker who will buy/sell securities on behalf of the investor. This is compulsory because trading of securities can only be done through SEBI registered brokers who are the members of a stock exchange. Brokers may be individuals, partnership firms or corporate bodies. The investor has to assign a broker-client agreement and a client registration form before placing an order to buy or sell securities. He has also to provide certain other details and information. These include:
- PAN number (This is mandatory)
- Date of Birth and Address
- Educational qualification and Occupation
- Bank account details
- Depository account details
- Name of any other broker with whom registered.
- Client code number in the client registration form.
The broker then opens a trading account with the name of the investor.
- Opening Demat account: – The investor has to open a demat account or beneficial owner (BO) account with a depository participant for holding and transferring securities in the demat form. He will also have to open a a bank account for cash transactions in the securities market.
- Placing the order:- The investor then places an order with the broker to buy or sell shares. Clear instructions have to be given about the number of shares and the price at which the shares should be bought or sold. An order confirmation slip is issued to the investor by the broker.
- Executing the order:- The broker then will go on-line and connect to the main stock exchange and match the share and best price available. When the shares can be bought or sold at the price mentioned, it will be communicated to the broker’s terminal and the order will be executed electronically. After the trade has been executed, the broker issues a Contract Note within 24 hours. This note contains details of the number of shares bought or sold, the price, the date and time of deal, and the brokage charges. This is a valuable document as it is legally enforceable and helps to settle disputes/claims between the investor and the broker. A Unique Order Code number is assigned to each transaction by the stock exchange and is printed on the contract note.
- Settlement:- Now, the investor has to deliver the shares sold or pay cash for the shares bought. This should be done immediately after receiving the contract note or before the day when the broker shall make payment or delivery of shares to the exchange. This is called the pay-in-day. Then the broker has to make payment to the investor within 24 hours of the payout day since he has already received payment from exchange. The broker will make delivery of shares in demat form directly to the investor’s Demat account.
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