Arrange the following steps of the trading and settlement procedure i…

Arrange the following steps of the trading and settlement procedure in the correct order:

(A) The investor delivers the shares sold or pays cash for the shares bought.

(B) The investor opens a demat account for holding and transferring securities.

(D) The broker opens a trading account in the name of the investor.

(E) The broker issues a contract note to the investor.

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → (D), (B), (C), (E), (A)

(D) The broker opens a trading account in the name of the investor. — First. After the broker-client agreement and the client registration form, the broker opens a trading account for the investor.

(B) The investor opens a demat account for holding and transferring securities. — Second. The investor then opens a demat account with a depository participant, and a bank account for cash.

(C) The broker goes on-line and matches the share and the best price available. — Third. Once the order is placed, the broker goes on-line to the main stock exchange for the best price.

(E) The broker issues a contract note to the investor. — Fourth. Within 24 hours of the trade, the broker issues the contract note.

(A) The investor delivers the shares sold or pays cash for the shares bought. — Fifth. The investor delivers the shares or pays cash immediately after receiving the contract note, on the pay-in day.

NCERT (Pre-rationalised Edition): “Steps in the Trading and Settlement Procedure … The broker then opens a trading account in the name of the investor.
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. He will also have to open a bank account for cash transactions in the securities market.
3. 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. The broker will then go ahead with the deal at the above mentioned price or the best price available. An order confirmation slip is issued to the investor by the broker.
4. The broker then will go on-line and connect to the main stock exchange and match the share and best price available.
5. 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. The broker will issue a trade confirmation slip to the investor.
6. After the trade has been executed, within 24 hours the broker issues a Contract Note. This note contains details of the number of shares bought or sold, the price, the date and time of deal, and the brokerage charges. This is an important 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.
7. 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.”