What is meant by ‘X’ Settlement or Cash Settlement?

What is meant by ‘X’ Settlement or Cash Settlement?

Cash settlement occurs when a client has purchased equity shares in delivery, but the exchange failed to deliver the shares on T+1 day. There are two ways settlements happen if there is a delivery shortage:

  1. Internal Settlement: Internal settlement happens when the equity shares are internally settled between the clients of a particular brokerage.

For instance, Mr. X, a client of FYERS, sold his 21 shares of HDFC Ltd. Mr. Y, a client of FYERS, bought 17 shares of HDFC Ltd. Finally, Mr. Z bought 4 shares of HDFC Ltd. (Assuming all have been bought and sold at the same price). Therefore, FYERS will do an internal settlement by delivering the shares of Mr. X to Mr. Y and Mr. Z.  

  1. Cash Settlement: Cash settlement happens when the cash is given instead of crediting the shares to the client’s account for Buying shares.

For instance, Ms. L, a client of FYERS, bought 20 shares of MRF Ltd. however, the exchange failed to deliver the shares to Ms. L’s Demat in T+1 Day. There are no shares available to enforce an internal settlement. As a result, Ms. L will be given cash as the shares couldn’t be delivered.

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