What is Market Trade & Off Market Trade

Trade in the stock market is carried out in two forms, one which involves the stock exchange and another which is settled between two parties without the involvement of the clearing corporation or the exchange. While the former is known as market trade, the latter is termed as off-market trade. Let’s learn more about these two forms of trades.

As said, trading through the stock exchange is known as market trade. Here’s how it takes place:

Trading

Once you decide to buy or sell a particular stock, you opt for the trading mechanism of the stock exchange, available with all brokers.

Clearing

The orders for buying and selling are accumulated, matched and executed by depositories through depository participants, following a pre-determined cycle. The two depositories are the National Securities Depositories Limited (NSDL) and Central Depositories Services Limited (CDSL). The depository participants include brokers, banks and investors. This process is known as clearing.

Settlement

The money received from buyers of securities is collected by the Clearing Corporation of India Ltd, which in turn distributes it to the sellers. The monetary transactions are routed through the Clearing Corporation of India Ltd to bring down chances of fraud.

Off-market trade doesn’t follow the procedure mentioned above and is done without the involvement of the stock exchange. The base of off-market trade is the mutually agreed terms of both parties. One party is the transferor, while the other is the transferee. This type of trade is generally done for legacy transfer, share transfer between two Demat accounts and transactions in unlisted securities among others.
The process involves:

Issue of delivery instruction slip (DIS)

The transferor needs to give a signed DIS to his depository participant, requesting the transfer of securities in the name of the transferee.

Receipt instruction

The transferee will need to give an instruction to credit the transferred securities into his/her Demat account to his DP. This instruction need not be given, if the DP of the transferee already has standing instruction.

Details of the securities

The details of the securities being transferred, like their unique ISIN (identification) number, the issuing company, total number of shares etc. must be clearly recorded in the DIS. In case of joint holders, the signatures must in order of the respective names in the account.

Details of the DP

The transferor must furnish the details of the transferee, including the name of the DP, DP ID and the purpose of transfer.Thus, through off-market trade you can easily bequeath or gift the shares held by you to family members and near and dear ones.{E666408B-2B8A-4A88-BBBE-B58FB0CE4429}

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.