Process of Buying Selling Shares

PROCEDURE OF BUYING AND SELLING OF SHARES

There are following three steps of buying and selling of shares in the stock exchange:

1.         Inquiry about the prices.

2.         Preparation of contract note.

3.         Settlement of transaction.

1.       Inquiry about the prices

Stock exchange is the market where shares, debentures or securities are brought for dealing. This place appears in no way to be different from the Bazar. The person who wants to buy or sell at the stock exchange must approach to a broker who is one of members of the exchange. When a broker receives an order from a client, be enters the Hall. It should be noted that non-member is not allowed to go to the Hall of the exchange and transact business on his own behalf. He then approaches one or more Jobbers dealing in particular shares. He enquires him about the prices without letting him know whether he is to buy or sell. The jobbers state two prices the higher one (OFFER PRICE) at which he can dispose of his shares, the lower one (BID PRICE) at which he can purchase. The difference between two prices is called jobber's term.

2.       Contract note

The broker then prepares contract note on the prescribed form and signs it himself. This note is also known as bought note or sold note.

Contents of the contract note

The contract note includes the following information:

(i)         The name and address of the jobber.

(ii)        The prices and particulars of shares or stock.

(iii)             The name and address of client.

(iv)             The date of settlement.

(v)        The amount of brokerage.

Generally three copies of contract note are prepared. One copy is sent to the client, second is forwarded to the selling dealer and third he retains himself for record. On the following day, both the parties compare their contract notes. If, on comparison, the contract notes are found to be corrected, each checking clerk will sign to it. The specimen signature of the checking clerks are noted on the cards which they must carry with them when they enter the contract hall All errors in the contract notes are naturally settled by both the parties and thus client does not suffer.

Settlement of transaction

There are two following basis of dealing in every stock exchange:

(a)        Cash Basis;

(b)        Account Basis;

(a)     Cash basis

This is also known as Ready Delivery basis. Under this method, the parties intend to take delivery of the securities and pay for them. Contracts are to be settled either on the same day or within a short period of time. Usually, period, allowed for its settlement is three days or five days but not more than seven days. In such cases each day is called a settlement day.

(b)     Accounts basis

On this basis, contracts are settled on fixed settlement days occurring at fortnight intervals. Such contracts can be settled in the next settlement period if both parties agree between themselves. In other words, there can be a postponement of the date of settlement of such contracts. In some stock exchanges settlements are made through the stock exchange clearing house.