Explain the following: trading of security, clearing of security and settlement of security
Dear student
A security is financial instrument ,typically a financial asset that can be traded.
Trading of security refers to buying of financial securities and sell them in near future ( within one year) to earn profits out of trading .
Clearing of security is a process of identification of obligations arose after entering the trade which gets discharged by settlement of securities.
Settlement of security is actual exchange of money and securities where securities are delivered to buyer against the payment of money to fulfill contractual obligations arising due to the trade.
Eg: Mr A purchased 10 shares of reliance @2000 each on NSE ( trading of security)
In this case , buyers obligation is to pay 20000 Rs to seller and sellers obligation is to transfer 10 shares to buyer. Identification of obligation by buyer and sellers is clearing of security.
In settlement of security there is actual exchange of this security from seller to buyer's account and exchange of money from buyer's to seller's account.
Regards
A security is financial instrument ,typically a financial asset that can be traded.
Trading of security refers to buying of financial securities and sell them in near future ( within one year) to earn profits out of trading .
Clearing of security is a process of identification of obligations arose after entering the trade which gets discharged by settlement of securities.
Settlement of security is actual exchange of money and securities where securities are delivered to buyer against the payment of money to fulfill contractual obligations arising due to the trade.
Eg: Mr A purchased 10 shares of reliance @2000 each on NSE ( trading of security)
In this case , buyers obligation is to pay 20000 Rs to seller and sellers obligation is to transfer 10 shares to buyer. Identification of obligation by buyer and sellers is clearing of security.
In settlement of security there is actual exchange of this security from seller to buyer's account and exchange of money from buyer's to seller's account.
Regards
