What does 'X' settlement or cash settlement mean in trading?
In trading, settlement refers to the process by which securities are transferred from the seller to the buyer. However, there are times when the delivery of these securities faces disruptions. Here's a look at how 'X' or Cash Settlement comes into play:
Internal Settlement: This settlement happens within a brokerage. If, within the same brokerage, a client is selling shares while another is buying, the brokerage can manage the delivery of shares internally.
For instance, Mr. X sells 21 shares of HDFC Ltd. On the same platform, Mr. Y buys 17 of these shares, while Mr. Z gets the remaining 4. Here, FYERS ensures the smooth transfer of shares from Mr. X to Mr. Y and Mr. Z.
Cash Settlement: In situations where the expected delivery of shares doesn't materialize on T+1 day post-purchase, cash settlement steps in. Here, instead of receiving the purchased shares, the buyer is compensated with cash.
Let's say, Ms. L, while trading on FYERS, decides to buy 20 shares of MRF Ltd. Due to certain hindrances, the shares don't get delivered to her demat account on T+1 day. With no internal settlement possible, FYERS compensates Ms. L with cash for her undelivered shares.
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