Settlement number
A 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.
In plain language
Every trading day produces its own set of obligations, and the market may run more than one settlement type at once. Something has to label which settlement a trade belongs to, or a depository could apply a delivery against the wrong day's obligation.
That label is the settlement number. The workbook describes it as a unique identifier that tags a specific transaction or batch of transactions to a particular settlement cycle. It links a trade to a specific settlement date, so that pay-in and pay-out of funds and securities happen on the correct day.
It travels with the settlement type / market type, which says under which category the trade was executed (for example normal or auction) and so which settlement rules apply.
How it works
What it does (Chapter 6, section 6.4.1)
- Brokers, clearing corporations and depositories use it to reconcile their records and confirm each member's cumulative obligations for that cycle.
- With the settlement/market type, it is one of the "crucial identifiers" in equity settlement, used for accurate matching, processing and finalisation of trades.
- The market type decides whether trades settle in demat or physical form (the latter now rare, for limited physical markets) and whether settlement is gross (trade-for-trade) or netted.
- Clearing corporations periodically publish settlement numbers and settlement/market types.
Why it matters for margins (Chapter 4, section 4.1.1.1). VaR and extreme loss margins are collected on the member's gross open position, and there is no netting of positions across different settlements. MTM positions are likewise not netted across two settlements such as T+1 and T+0. Positions are therefore grouped by settlement number before being grossed.
Net settlement of cash and F&O (Chapter 6). When physical settlement obligations of expiring stock derivatives are netted with Capital Market obligations, the net obligation is settled in the settlement/market type and settlement number of the Capital Market segment.
A worked example
This is the workbook's own illustration in Chapter 4 (values in Rs).
| Client | Security | Settlement No. | Net value |
|---|---|---|---|
| A | X | 2005001 | −100 |
| A | Y | 2005002 | 450 |
| B | Z | 2005001 | −150 |
| B | Y | 2005002 | 1,350 |
| C | X | 2005001 | 2,100 |
| C | Z | 2005002 | −3,450 |
| Proprietary | Y | 2005001 | −950 |
| Proprietary | Z | 2005002 | 1,050 |
The member's gross position is built security by security and settlement number by settlement number, adding absolute values:
- X, 2005001: 100 + 2,100 = 2,200
- Y, 2005001: 950
- Z, 2005001: 150
- Y, 2005002: 450 + 1,350 = 1,800
- Z, 2005002: 3,450 + 1,050 = 4,500
- X, 2005002: 0
Security Z appears in both settlements (150 and 4,500). Because positions are not netted across settlement numbers, both count in full: 4,650 in total, not 4,500 − 150.
Why NISM asks about it
Chapter 6, section 6.4.1 (Settlement through the Depository Clearing System) defines the settlement number and settlement/market type. Chapter 4 (section 4.1.1.1) uses settlement numbers in the gross open position table for VaR margin, and Chapter 6 (sections 6.4.1 and 6.6.3) says the net cash/F&O obligation settles under the Capital Market segment's settlement number. Expect a definition question and the "no netting across settlements" rule.
Common exam traps
- Settlement number = which cycle/date. Settlement type/market type = which category and rules (normal, auction, gross or netted). They are different identifiers.
- No netting across different settlements when computing VaR, ELM or MTM on gross open positions.
- Net cash/F&O obligations use the Capital Market segment's settlement number, not an F&O settlement number.
- Clearing corporations publish settlement numbers periodically; members do not create them.
Where this is taught
- Series VI · Chapter 8: Functions of DP- Trading and Settlementintroduced here
- Series VII · Chapter 6: Settlement Processintroduced here
Related terms
- Gross settlementA settlement method where transactions in a security are not netted: a member's security pay-in equals cumulative sell quantity and pay-out equals cumulative buy quantity, trade by trade.
- Net Settlement of cash and F&OSEBI's mechanism, from November 30, 2022, of netting cash-segment obligations with physical-settlement obligations of expiring stock derivatives into one settlement.
- Open positionAn outstanding, unsettled long (buy) or short (sell) position in a contract; margins, exposure limits, daily MTM and corporate-action adjustments are all applied to open positions.
- Settlement cycleThe time window, fixed by the exchange, within which securities and funds for a trade must be delivered — T+1 in Indian secondary markets since 27 January 2023, meaning one trading day after the trade.
- 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.
- Delivery Instruction SlipThe signed form on which a beneficial owner instructs the DP to debit the demat account — no beneficiary account can be debited without one, whether the transfer is on-market or off-market.
- 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.
- Market transactionSettlement of a trade executed on a stock exchange, moving through a Clearing Corporation/House and the seller's and buyer's clearing member accounts — as opposed to an off-market transaction settled person-to-person.
- Inter-settlement transferAn 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.