Rohit wanted to buy 200 shares of a tech company. He contacted a stock exchange broker to buy the said shares. The broker opened his DEMAT account and placed an order to buy shares. He then went online to connect to the main stock exchange and matched the shares and the best price available. When the shares can be bought at the mentioned price, it will be communicated to the broker’s terminal and the order will be executed electronically. The next step involved in the trading and settlement procedure would be:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → To issue contract note.
Option (1) To pay cash for the shares bought. — Incorrect. Payment is the last step. The investor pays only after he receives the contract note.
Option (2) To issue contract note. — Correct. Rohit’s order has just been executed electronically. The next step in the trading procedure is that, within 24 hours, the broker must issue a contract note. It records the number of shares, the price, the date and time of the deal, and the brokerage. It is a legal document, so it can be used to settle any dispute between the investor and the broker.
Option (3) To open a DEMAT account. — Incorrect. This is an early step. The demat account must exist before any order is placed, and Rohit’s broker has already opened it.
Option (4) Delivery of shares — Incorrect. Like payment, delivery happens at settlement, after the contract note has been issued.
Note 1: Although the chapter ‘Financial Markets’ was dropped from the NCERT textbooks during rationalisation, it has stayed in the NTA syllabus every year since 2022, except for 2025, and it is part of the syllabus again from 2026. This question is therefore based on the pre-rationalised NCERT, an extract from which is given below. Note 2: In the original question, both Option (2) and Option (3) were correct as per the NTA Answer Key. The paper printed Option (2) as To issue contract note. and Option (3) as To issue unique order code number. For the benefit of students and to ensure a single answer, Option (3) has been changed to To open a DEMAT account.
NCERT (Pre-rationalised Edition): “Steps in the Trading and Settlement Procedure … 2. The investor has to open a ‘demat’ account or ‘beneficial owner’ (BO) account with a depository participant (DP) for holding and transferring securities in the demat form. …” “4. The broker then will go on-line and connect to the main stock exchange and match the share and best price available. |