Q.Describe the trading and settlement procedure on a stock exchange.

Every trade a student sees quoted as a single index number is actually the outcome of a multi-step order-to-settlement process behind the scenes.

The modern trading procedure on a stock exchange has three broad stages:

1. Placing the order — an investor who wishes to buy or sell securities places an order with a registered stock broker (a member of the exchange), specifying the security, quantity, and price (or instructing a trade at the best available market price).
2. Order matching and execution — the broker keys the order into the exchange's electronic, screen-based trading system, where it is automatically matched against a corresponding buy or sell order from another investor, and the trade is executed.
3. Settlement — once executed, the trade must be settled: the buyer must actually receive the securities (credited to their demat account) and the seller must receive the sale proceeds. Indian exchanges follow a rolling settlement cycle, completing settlement within a fixed, short number of working days, through the exchange's clearing corporation, which guarantees settlement so that neither party is exposed to the other's default. …

Believing settlement happens instantly at the moment of trade execution — execution and settlement are two separate steps, with settlement c …