Inter-settlement transfer
An instruction by a clearing member to move securities within its CM account from one market type-settlement number bucket to another from which pay-in is actually to be effected.
In plain language
A clearing member's account is not one single pool of securities. It is organised into separate buckets, each tied to a specific market type and settlement number. Sometimes securities land in the wrong bucket for the pay-in the clearing member actually needs to make.
Rather than leaving them stuck there, the clearing member can instruct its DP to move them across — from one bucket to another. That instruction is an inter-settlement transfer.
How it works
From Chapter 8, section 8.3.1: "In a clearing member account, the securities are always kept in a bucket of specific market type and settlement number." A clearing member "may have to move securities from one bucket with a different market type-settlement number combination to another bucket from where pay-in is to be effected" — and the instruction to do this is called an 'inter-settlement' transfer.
Clearing Members are required to give inter-settlement instructions to the Participants — not to the exchange, the clearing house, or the depository directly. This is distinct from an inter-depository transfer, which moves securities between NSDL and CDSL rather than between buckets of the same CM account at one depository.
A worked example
A broker's clearing member account holds 1,200 shares credited against a settlement number for the auction market, but the broker's actual pay-in obligation for the day sits in the normal market bucket.
The broker instructs its DP to move the 1,200 shares from the auction-market bucket into the normal-market bucket carrying the correct settlement number for pay-in — an inter-settlement transfer. Once moved, the shares are available to meet the pay-in obligation the broker actually needs to fulfil that day.
This instruction goes from the clearing member to its Participant (DP) — not to the stock exchange or the Clearing Corporation, which have no role in this particular movement.
Why NISM asks about it
Chapter 8, section 8.3.1, introduces inter-settlement transfers immediately after defining market type and settlement number, as the mechanism for moving securities between buckets within one CM account. A workbook review question asks specifically who gives this instruction — the Clearing Member, to the Participant.
Common exam traps
- Inter-settlement transfers move securities within one CM account, between market type-settlement number buckets — not between two different clearing members, and not between depositories.
- The Clearing Member gives the instruction to its Participant (DP) — not to the exchange, clearing house, or depository.
- Do not confuse this with an inter-depository transfer, which moves holdings between NSDL and CDSL entirely.
Check yourself
1.A beneficial owner wishes to tender shares in a company's buy-back offer. How must the securities be transferred out of his BO account?
- a)By an ordinary off-market transfer to the broker's pool account
- b)Only to the respective CM's early pay-in account through the early pay-in mechanism
- c)By normal pay-in from the BO account directly to the Clearing Corporation
- d)By an inter-settlement transfer within the BO account
Show the answer
Answer: (b) Only to the respective CM's early pay-in account through the early pay-in mechanism
The rule is stated as an exclusive one: in case of Buyback and Tender Offer transactions, transfers from the BO account are permitted only to the respective CM's early pay-in account through the early pay-in mechanism.
This follows from what early pay-in is for — availing margin exemptions and other applicable benefits including Buy-back and Tender Offer transfers.
Option A fails because the route is prescribed. Option C describes a facility that exists for ordinary sales but not for buy-backs. Option D is a category error — inter-settlement transfers apply within a clearing member account, moving securities between market-type/settlement-number buckets, and have nothing to do with a BO account.
2.A clearing member buys shares on behalf of a sub-broker, who in turn bought them for his own client, Ms. Pooja Rane. After pay-out, how do the shares reach Ms. Rane's demat account?
- a)The Clearing Corporation credits Ms. Rane directly, since a sub-broker is involved
- b)The clearing member moves them to Ms. Rane by an inter-settlement transfer
- c)The sub-broker gives an on-market delivery instruction through the Clearing Corporation
- d)The CC credits the CM account on pay-out, the CM transfers them to the sub-broker, and the sub-broker transfers them to Ms. Rane using the off-market route
Show the answer
Answer: (d) The CC credits the CM account on pay-out, the CM transfers them to the sub-broker, and the sub-broker transfers them to Ms. Rane using the off-market route
The workbook lists the pay-out steps: the CC credits the buying CM account immediately on pay-out; the CM / broker transfers securities from its CM settlement account to the accounts of the buyer; and "if the buying client is a sub-broker, such sub-broker will transfer securities to the final client using the off-market route."
- A — a CC can credit clients directly, but only if the broker gives the pay-out breakup of his clients to the CC/CH, subject to the necessary procedures. The sub-broker's presence does not trigger it.
- B — an inter-settlement transfer moves securities between settlement pockets within a CM account. It never moves them to a client.
- C — the trade has already settled through the CC. The transfer from sub-broker to his client is person-to-person, which is off-market by definition.
Where this is taught
Free preparation for NISM Series VIRelated terms
- Settlement numberA unique identifier tagging a trade or batch of trades to a particular settlement cycle and date, used by brokers, clearing corporations and depositories to match and reconcile obligations.
- Clearing member accountThe special demat account a broker or custodian opens to settle exchange trades, through which clients' sold shares go to the clearing corporation and bought shares arrive; also called the pool account.
- Inter-depository transferA transfer of securities from an account in one depository (NSDL or CDSL) to an account in the other, possible because SEBI regulations require the two depositories to be inter-connected.
- Market typeThe code identifying which market segment or settlement type a trade belongs to — normal, auction, and so on — that must be recorded on the DIS alongside the stock exchange name and settlement number.