Buy today, sell tomorrow not feasible

One of the questions that has been often asked at the investor seminars is whether the shares bought today can be sold tomorrow. Prima facie, the answer to this question is a big No. They can not be. However, some stock brokers are offering the ‘buy-today-sell-tomorrow’ (BTST) facility to clients.

In order to understand the facility, it is imperative to first understand the T+2 settlement system. If an investor buys shares, say on a Monday, as per T+2 rule, the broker ought to credit the shares to the investor’s demat account by Wednesday, i.e., within two days of purchase. T+2 of course is a general rule. In view of practical difficulties faced by brokers, Securities and Exchange Board of India (SEBI) has granted them an additional day for the purpose.

Accordingly, the broker would have to credit the shares by end of business close on Thursday, rather than on Wednesday. Therefore, the T+2 system operates as T+3 in reality. However, there can be no complaints against this, since SEBI itself permits this. Coming back to the example quoted above, shares (purchased on Monday and) sold on Tuesday will, therefore, have to be delivered into the broker’s account by 4 p.m. on Wednesday evening by the investor. How can this happen?

Since shares purchased on Monday will only be credited to the investor’s demat account by Thursday. Also, shares which go into auction, will only be credited on Thursday. This example indicates that BTST is not feasible. Yet, some brokers are offering this facility, under which shares sold by the investor on Tuesday will be delivered to the broker on Thursday morning (before the ‘pay-in’ at 10.30 a.m.), instead of Wednesday evening.

However, as mentioned above, shares coming from auction will not be credited to investor’s demat account by Thursday morning. Since the investor can not give delivery of shares sold, these shares will in turn, go into auction. The investor has to carry this risk.

Obviously, not all the shares sold, but only the shortfall of shares coming from the ‘pay-out’, will go into auction.

These issues are mentioned in the trading account opening documents. However, most investors sign these documents, without bothering to read the entire terms and conditions.

In investor seminars, many investors state that they carry out purchase and sale transactions in shares in spite of not having demat accounts.

However, they are stating this out of ignorance, since their broker is also their DP (depository participant). Investors do not realise that they signed the demat account opening forms at the time of opening of trading account itself.

In any case, since they are receiving the demat account statement every month, they cannot say they do not have demat account.

In addition, investors invariably provide ‘power of attorney’ to the broker, to operate their demat account, but are not aware of the same. The tendency of signing documents without understanding contents or implications, is the root-cause of all this!

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