Read and download CBSE Class 12 Introducing and Understanding Transaction Cycle chapter in NCERT book for Class 12 Other Subjects. You can download latest NCERT eBooks chapter wise in PDF format free from Studiestoday.com. This Other Subjects textbook for Class 12 is designed by NCERT and is very useful for students. Please also refer to the NCERT solutions for Class 12 Other Subjects to understand the answers of the exercise questions given at the end of this chapter
NCERT Book for Class 12 Other Subjects Introducing And Understanding Transaction Cycle
Class 12 Other Subjects students should refer to the following NCERT Book chapter Introducing And Understanding Transaction Cycle in standard 12. This NCERT Book for Grade 12 Other Subjects will be very useful for exams and help you to score good marks
Introducing And Understanding Transaction Cycle NCERT Book Class 12
Chapter 5 Introducing and Understanding
After reading this chapter, you should be able:
1. To identify the parties involved in the process of clearing and settlement.
2. To understand the functions of the relevant parties.
3. To understand the procedure of settlement of trades.
4. To know the types of risks that an investor is exposed to.
Your guide engine to learning:
5.2 Transaction Cycle
5.3 Settlement Agencies
5.3.1 National Securities Clearing Corporation Limited (NSCCL)
5.3.2 Clearing Members
5.3.4 Clearing Banks
5.3.6 Professional Clearing Members (PCM’s)
5.4 Settlement Process
5.5 Risks in Settlement
5.5.1 Counterparty Risk
220.127.116.11 Replacement Cost Risk
18.104.22.168 Principal Risk
22.214.171.124 Liquidity Risk
126.96.36.199 Third Party Risk
5.5.2 System Risk
188.8.131.52 Operational Risk
184.108.40.206 Legal Risk
220.127.116.11 Systemic Risk
Earlier we used to follow account period settlement for settling all the trades in the stock market. Account period in NSE was from Wednesday to the following Tuesday. This means trades done on Wednesday, Thursday, Friday, Monday and Tuesday will be paid-in on Tuesday and paid-out on the following Wednesday.
This was a time consuming process. An investor who had bought the shares will have to wait till the following Wednesday to get the delivery of shares, so he will be unable to reap the benefit of rising prices during the period. Also, the shares being in physical form created a lot of problem for the buyer as they had to be sent to the company or their R&TA (Registrar & Transfer Agent) for getting the ownership changed of the securities. While on BSE, the cycle commenced on Monday and ended on Friday. At the end of this period, the net obligations of all the brokers were calculated and the brokers Introducing and Understanding Transaction Cycle settle their respective obligations as per the rules, bye-laws and regulations of the clearing corporation.
Account period is a system that encourages liquidity in the market because people can buy and sell without having to pay immediately - almost like using a credit card. But the flip side of the system is that the longer it takes between a trade (a buy or sell) and actual settlement, the riskier the system is.
Nowadays, the scenario has totally changed. The clearing and settlement system has become very transparent and therefore, people have also started having faith in the market and its operations. The use of super computers to carry out the trades and to maintain their records has actually made the market operations crystal clear. Apart from the state of art information technology, the latest innovations include:
- Emergence of clearing corporation to assume counterparty risks; we will be discussing this later in this chapter.
- Replacement of account period settlement by rolling settlement system leading to shorter settlement cycles,
- Dematerialization of securities has been adopted in place of physical securities; we will be discussing this later in this unit.
- Electronic transfer of securities through book entry system; we will be discussing this later in this unit.
- Fine tune risk management system, etc.; we will be discussing this later in this unit.
Though many of these have not been implemented fully as they are yet to reach the masses and penetrate the whole market.
Please refer to the link below for - CBSE Class 12 Introducing and Understanding Transaction Cycle