Unit study guide · NISM Series VII

Settlement Process

21 questions in this unit

What this unit covers

A clearing member has a funds pay-in obligation in NSE Clearing’s cash-market T+1 cycle. By when must clear funds be available in its primary clearing account on settlement day?
For a normal T+1 purchase eligible for direct client payout, what is the final securities-payout deadline under the revised NSE Clearing process? Assume a verified client demat account and no custodian or failed-instruction exception.
A normal T+1 equity trade is executed on Thursday. Friday is a trading and settlement holiday. Saturday and Sunday are non-settlement days, and Monday is a working settlement day. When is the trade settled?
A normal-market delivery shortage is not bought in at auction. The highest NSE price from trade day to auction day is ₹236 and the official auction-day closing price is ₹210. With no special corporate-action rule, what is the close-out price per share?
A clearing member delivers 400 shares short at pay-in. The official closing price is ₹155 on the immediately preceding trading day and ₹162 on pay-in day. Under NSE Clearing’s ordinary valuation-debit rule, what is the initial debit?
A normal-market short delivery under the T+1 cycle goes to a buy-in auction on T+1. On which day is that auction settled under NSE Clearing’s process?
A clearing member has a funds shortage of ₹9,00,000 for one chargeable day. At the stated penal rate of 0.07% per day, what is the monetary charge for that day, excluding other consequences?
Which settlement exposure is delivery versus payment primarily designed to prevent?
An investor holds 150 shares priced at ₹800 each. Every ₹10-face-value share is split into five ₹2-face-value shares. Assuming only a value-preserving mechanical adjustment, what holding and theoretical price result?
A member's correct net funds payable for a settlement is ₹53,250. It has ₹47,000 of clear funds in its clearing account by the cut-off. Another ₹8,000 transfer will arrive only after the cut-off. How much more clear funding is needed by the cut-off?
A client sells 1,000 shares. Accepted early pay-in is specifically allocated to 600 shares of that sale. With no other early pay-in, how many sold shares remain outside the early-pay-in-based margin exemption?
A stock-option contract has a ₹800 strike and a 500-share market lot. The underlying announces one bonus share for every four held. Using NSE’s bonus adjustment method, what strike and market lot result, with no rounding issue?
A cash-settled index settles at 18,650 at expiry. A client holds 2 long calls at strike 18,500, 1 short call at strike 18,800 and 1 short put at strike 18,700. Each contract is 40 units. Excluding premiums, what is the client's net exercise settlement?
A client has written a cash-settled index put with strike 18,700. At expiry the index settles at 18,650, and in-the-money options are exercised automatically. What is the client's position?
For an otherwise normal securities payout, no verified primary demat account is available for the client. Under NSE Clearing’s specified exception process, where is that payout credited?
An eligible investor holds 240 shares with face value ₹5 each. A dividend of 60% of face value is declared. The market price is ₹80. What gross dividend is due, before any tax deduction?
A client buys 3 index futures contracts at 20,000. Each contract is 25 index units. The day's settlement price is 19,920. What is the day's mark-to-market cash flow?
A client is long 3 index futures of 25 units each, marked at yesterday's settlement price of 19,920. Today the client sells 1 contract at 19,960. Today's settlement price is 20,040. What is today's total mark-to-market receipt?
Two cash-market trades are assigned the same settlement number and date. One order was placed by telephone and the other online. No amendment or exception applies. Which settlement treatment is appropriate?
In a settlement, client B owes a net delivery of 400 shares and client C owes 250. By the pay-in cut-off, the clearing corporation has received 250 shares from B and 250 from C. What shortage remains?
A shortage of 150 shares is bought in at auction at ₹312 a share. The member has already paid a valuation debit of ₹45,000 for this shortage. Ignoring charges, what further debit arises?

Key ideas

From the practice bank · 1

A clearing member has a funds pay-in obligation in NSE Clearing’s cash-market T+1 cycle. By when must clear funds be available in its primary clearing account on settlement day?

10:30 am is the specified latest time for these clear funds. The inspected funds-settlement instruction requires clear funds on or before 10:30 am on the day. The question concerns the member’s primary clearing account, not when a client sees a credit. Remember: Keep funds pay-in, funds payout and securities payout separate.

Hint Common mistake: Using a payout time to answer a pay-in question.

VII-027

From the practice bank · 2

For a normal T+1 purchase eligible for direct client payout, what is the final securities-payout deadline under the revised NSE Clearing process? Assume a verified client demat account and no custodian or failed-instruction exception.

The revised final deadline is 3:30 pm. The direct-client payout process uses a final securities-payout deadline of 3:30 pm on settlement day. This is the prescribed payout stage. It should not be converted into a guarantee that every exceptional or failed credit is visible by that exact minute. Remember: For the stated direct-payout process, use the revised securities deadline.

Hint Common mistake: Reusing the former 1:30 pm securities-payout deadline.

VII-028

From the practice bank · 3

A normal T+1 equity trade is executed on Thursday. Friday is a trading and settlement holiday. Saturday and Sunday are non-settlement days, and Monday is a working settlement day. When is the trade settled?

Monday is the next eligible settlement day after Thursday. Thursday is T. Friday cannot count because it is a settlement holiday. Saturday and Sunday are also excluded under the stated assumptions. Monday is therefore T+1. Remember: Skip non-settlement days when counting T+1.

Hint Common mistake: Treating the plus one as one calendar day.

VII-029

From the practice bank · 4

A normal-market delivery shortage is not bought in at auction. The highest NSE price from trade day to auction day is ₹236 and the official auction-day closing price is ₹210. With no special corporate-action rule, what is the close-out price per share?

₹252 is the higher of the two correctly calculated benchmarks. Benchmark 1 is the stated highest price from trade day through auction day: ₹236 per share. Benchmark 2 is 20% above the auction-day official close: ₹210 × 1.20 = ₹252 per share. Close-out price = max(₹236, ₹252) = ₹252 per share. This is a price, not the total debit for an unstated quantity. Remember: Apply the uplift to the auction-day close, then compare it with the period high.

Hint Common mistake: Adding 20% to the highest price rather than to the closing price.

VII-030

From the practice bank · 5

A clearing member delivers 400 shares short at pay-in. The official closing price is ₹155 on the immediately preceding trading day and ₹162 on pay-in day. Under NSE Clearing’s ordinary valuation-debit rule, what is the initial debit?

400 shares multiplied by ₹155 gives ₹62,000. Use the official close of the trading day immediately before pay-in: ₹155 per share. Valuation debit = short quantity × valuation price = 400 × ₹155 = ₹62,000. This is the initial valuation debit. It is not a calculation of the ultimate auction cost or a normal-market close-out price. Remember: Use the correct reference date before multiplying the shortage quantity.

Hint Common mistake: Confusing valuation debit with a subsequent close-out charge.

VII-031

From the practice bank · 6

A normal-market short delivery under the T+1 cycle goes to a buy-in auction on T+1. On which day is that auction settled under NSE Clearing’s process?

The auction settles on T+2 relative to the original trade. The current securities-settlement process identifies the shortage auction on T+1 and completion of auction settlement on T+2. Here T is the date of the original trade. The labels count eligible settlement days. Remember: Anchor both auction dates to the original trade day.

Hint Common mistake: Mixing a legacy T+2 trade-settlement schedule with the T+1 process.

VII-032

From the practice bank · 7

A clearing member has a funds shortage of ₹9,00,000 for one chargeable day. At the stated penal rate of 0.07% per day, what is the monetary charge for that day, excluding other consequences?

₹630 applies 0.07% for one day. 0.07% = 0.07 ÷ 100 = 0.0007. Charge = shortage × daily rate × days = ₹9,00,000 × 0.0007 × 1 = ₹630. The calculation gives only the monetary charge. It does not mean a member can cure every default consequence by paying that amount. Remember: Divide a percentage by 100 before multiplication.

Hint Common mistake: Using 0.07 as the decimal equivalent of 0.07%.

VII-033

From the practice bank · 8

Which settlement exposure is delivery versus payment primarily designed to prevent?

This answer describes losing the delivered principal because the other settlement leg does not occur. The securities leg should not be completed without the corresponding payment leg. That linkage addresses principal risk. It is not a guarantee against later market movements, funding needs or every cost of a failed trade. Remember: DvP protects the exchange of principal. It does not eliminate every trading risk.

Hint Common mistake: Treating linked settlement as protection against all losses connected with a trade.

VII-065

From the practice bank · 9

An investor holds 150 shares priced at ₹800 each. Every ₹10-face-value share is split into five ₹2-face-value shares. Assuming only a value-preserving mechanical adjustment, what holding and theoretical price result?

This answer multiplies quantity by five and divides price by five. New quantity = 150 × 5 = 750 shares. Theoretical price = ₹800 ÷ 5 = ₹160 per share. Value check: 150 × ₹800 = ₹1,20,000 and 750 × ₹160 = ₹1,20,000. Actual market trading may differ from this mechanical benchmark. Remember: For the stated mechanical split, multiply quantity and divide price by the same factor.

Hint Common mistake: Treating extra shares from a split as an automatic increase in investment value.

VII-066

From the practice bank · 10

A member's correct net funds payable for a settlement is ₹53,250. It has ₹47,000 of clear funds in its clearing account by the cut-off. Another ₹8,000 transfer will arrive only after the cut-off. How much more clear funding is needed by the cut-off?

Only money that is clear by the cut-off counts. ₹53,250 − ₹47,000 = ₹6,250. The ₹8,000 that arrives later does not help meet this cut-off. Remember: Funding readiness depends on clear money at the required time, not on a transfer being initiated.

Hint Common mistake: Counting an incoming payment before it is usable for settlement.

VII-075

From the practice bank · 11

A client sells 1,000 shares. Accepted early pay-in is specifically allocated to 600 shares of that sale. With no other early pay-in, how many sold shares remain outside the early-pay-in-based margin exemption?

The exemption covers 600 of the 1,000 sold shares, leaving 400 uncovered. Total sold quantity = 1,000 shares. Confirmed and allocated early pay-in = 600 shares. Quantity outside that exemption = 1,000 − 600 = 400 shares. This identifies the scope of EPI relief, not the final rupee requirement. Remember: Apply EPI relief to the covered quantity, not automatically to every sale or position.

Hint Common mistake: Confusing partial completion with a full-position exemption.

VII-088

From the practice bank · 12

A stock-option contract has a ₹800 strike and a 500-share market lot. The underlying announces one bonus share for every four held. Using NSE’s bonus adjustment method, what strike and market lot result, with no rounding issue?

The factor is 1.25. The divides by it and the multiplies by it. Adjustment factor = (new bonus shares + existing shares) ÷ existing shares = (1 + 4) ÷ 4 = 1.25. Adjusted strike = ₹800 ÷ 1.25 = ₹640. Adjusted market lot = 500 × 1.25 = 625 shares. Check: ₹800 × 500 = ₹640 × 625 = ₹4,00,000 of strike-value exposure. Remember: For a bonus, divide strike by the factor and multiply contract quantity by the same factor.

Hint Common mistake: Using the bonus ratio itself rather than the total-shares adjustment factor.

VII-089

From the practice bank · 13

A cash-settled index settles at 18,650 at expiry. A client holds 2 long calls at strike 18,500, 1 short call at strike 18,800 and 1 short put at strike 18,700. Each contract is 40 units. Excluding premiums, what is the client's net exercise settlement?

Settle each option at its value at . Long calls: 150 × 2 × 40 = ₹12,000 to receive. The short call is . Short put: 50 × 40 = ₹2,000 to pay. Net = ₹10,000 to receive. Remember: Calculate each leg’s , apply its buy/sell direction, then net the expiry cash flows.

Hint Common mistake: Confusing exercise proceeds with trading profit after premiums.

VII-097

From the practice bank · 14

A client has written a cash-settled index put with strike 18,700. At expiry the index settles at 18,650, and in-the-money options are exercised automatically. What is the client's position?

The index is below the strike, so the put is in the money and is exercised. The writer must pay the difference in cash. The premium received earlier does not cancel this. Remember: For an in-the-money cash-settled put, the writer owes cash upon assignment.

Hint Common mistake: Assuming premium receipt allows the seller to refuse exercise settlement.

VII-098

From the practice bank · 15

For an otherwise normal securities payout, no verified primary demat account is available for the client. Under NSE Clearing’s specified exception process, where is that payout credited?

This is the specified destination for the exception. NSE Clearing lists absence of a verified primary demat account as a reason for credit to the clearing member’s pool account. That processing route does not convert the client’s securities into the member’s proprietary investment. Remember: Distinguish an exception-processing account from beneficial ownership.

Hint Common mistake: Assuming a failed direct-credit prerequisite cancels the client’s entitlement.

VII-113

From the practice bank · 16

An eligible investor holds 240 shares with face value ₹5 each. A dividend of 60% of face value is declared. The market price is ₹80. What gross dividend is due, before any tax deduction?

This answer applies the declared rate to face value and then to the eligible quantity. Dividend per share = ₹5 × 60% = ₹3. Total gross entitlement = 240 × ₹3 = ₹720. The ₹80 market price is not the stated dividend base. No tax deduction is calculated. Remember: Use the dividend base expressly stated in the declaration.

Hint Common mistake: Applying a face-value dividend percentage to market price.

VII-114

From the practice bank · 17

A client buys 3 index futures contracts at 20,000. Each contract is 25 index units. The day's settlement price is 19,920. What is the day's mark-to-market cash flow?

A long position loses when the price falls. The fall is 80 points on 3 × 25 = 75 units. 80 × 75 = ₹6,000, which the client pays. Remember: Apply the price change to both contract count and contract multiplier.

Hint Common mistake: Calculating one contract’s MTM when several contracts are open.

VII-121

From the practice bank · 18

A client is long 3 index futures of 25 units each, marked at yesterday's settlement price of 19,920. Today the client sells 1 contract at 19,960. Today's settlement price is 20,040. What is today's total mark-to-market receipt?

Measure today's gains from yesterday's 19,920. The contract sold gains 40 × 25 = ₹1,000. The two still open gain 120 × 50 = ₹6,000. Total = ₹7,000. Remember: Use the previous settlement price for carried futures, and the actual closing price for a contract closed during the day.

Hint Common mistake: Reusing the original entry price after the prior day’s MTM has already settled.

VII-122

From the practice bank · 19

Two cash-market trades are assigned the same settlement number and date. One order was placed by telephone and the other online. No amendment or exception applies. Which settlement treatment is appropriate?

This answer preserves the two stated settlement assignments. Both trades have the same assigned settlement number and date. Neither a telephone instruction nor an online instruction is an amendment to that assignment. With no stated exception, both remain in the assigned settlement. This does not claim that every market category has the same cycle. The settlement category and assignment are already fixed in the question. Remember: Use the trade’s settlement assignment rather than infer a cycle from its communication channel.

Hint Common mistake: Treating online execution as automatic eligibility for a different settlement cycle.

VII-139

From the practice bank · 20

In a settlement, client B owes a net delivery of 400 shares and client C owes 250. By the pay-in cut-off, the clearing corporation has received 250 shares from B and 250 from C. What shortage remains?

Check each client. B owed 400 and gave 250, so B is short 150. C owed 250 and gave 250. The shortage is 150 shares. Remember: Use accepted clearing deliveries, not intended deliveries, when measuring the shortage.

Hint Common mistake: Confusing delivered quantity with the amount still missing.

VII-148

From the practice bank · 21

A shortage of 150 shares is bought in at auction at ₹312 a share. The member has already paid a valuation debit of ₹45,000 for this shortage. Ignoring charges, what further debit arises?

The auction cost is 150 × ₹312 = ₹46,800. ₹45,000 is already paid. The further debit is ₹1,800. Remember: Reconcile auction cost against the valuation debit already charged before reporting an additional amount.

Hint Common mistake: Counting a previously paid valuation debit as a separate extra cost again.

VII-149

Read the related lesson

T+1 Settlement

T+1 settlement is the Indian cash-market rolling settlement convention.

Margin

Margin is the money a participant must keep in place to carry a leveraged position.

Strike Price

The strike price is the level at which an option can be exercised.

Lot Size

Lot size is the number of units of the underlying that one derivatives contract stands for.

Expiry Day

Expiry day is the last day on which a derivative contract can be traded.

Moneyness (ITM, ATM, OTM)

Moneyness describes where an option's strike sits relative to the current level of the underlying.

Intrinsic Value

Intrinsic value is the part of an option's premium that would survive if the contract expired at this instant.