{"id":2539,"date":"2020-10-30T11:55:14","date_gmt":"2020-10-30T11:55:14","guid":{"rendered":"https:\/\/goldenpi.com\/blog\/?p=2539"},"modified":"2026-02-24T11:21:12","modified_gmt":"2026-02-24T11:21:12","slug":"clearing-settlement-of-corporate-bonds","status":"publish","type":"post","link":"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/clearing-settlement-of-corporate-bonds\/","title":{"rendered":"Clearing & Settlement of Corporate Bonds in India"},"content":{"rendered":"

Investors appreciate bonds and debentures<\/a> and decide to invest. When they are asked to transfer the amount to a clearinghouse, they get a little confused. They know NSE\/ BSE where bonds are listed, and they know GoldenPi as an online marketplace but are unaware of the clearinghouse.<\/p>\n

This blog is about \u201cClearing and Settlement in Corporate Bonds in India.\u201d Firstly, we shall understand what does clearinghouse means and its role. To understand clearinghouse, we will take an example from our day to day life.<\/p>\n

You are at a restaurant for dinner. You order the waiter to get your preferred dishes. After that, you sit back in your chair and relax. The waiter goes to the restaurant kitchen and passes on your order to the cook. Your order is in a queue; you need to wait for your turn. After a few minutes, your food is served. Before leaving the restaurant, you pay the bill.<\/p>\n

In this scene, you see a time gap between placing the order and the order getting fulfilled. Also, there is a time gap between the restaurant fulfilling your order and receiving the amount. But both of you, i.e., you and the restaurant, are ok with this because you are in close proximity to one another, and the amount involved is in hundreds of Rupees.<\/p>\n

Imagine a scenario where you have to pay lakhs of Rupees to an unknown and unseen person on another side to buy goods. The mode of operation is: you transfer the money to the person\u2019s account. The other person sends over the goods to you. All this is done in good faith that each party will keep its promise. Now, in the real world, there is a chance of default by either party.
\nCase 1: The other party can take the money and not deliver the goods.
\nCase 2: The person, i.e., you, can take the delivery of goods and renege on payment. This is called the default risk in a transaction. Clearing Houses are built to eliminate exactly this risk.<\/p>\n

\"Corporate<\/p>\n

Say a buyer wants to buy Rs 10 Lac worth of Bond papers of State Bank of India (from the secondary market). A seller is willing to sell the Bond papers to him. They sign a contract for this called the \u2018Deal Sheet.\u2019 The buyer then transfers the exact fund amount to the Clearing House. The seller transfers the exact Bond papers to Clearing House. Once it has received both the exact amount of money and Bond papers (as per the details in the Deal Sheet), it will swap the assets. It will transfer the Bonds to the buyer\u2019s Demat Account and remit the funds to the Seller\u2019s Bank Account. In case any party fails to fulfill its promise, the funds\/ bond papers are returned to the respective party.<\/p>\n

We believe that you are now convinced with the role a clearinghouse plays. Now let\u2019s look into the specifics of how clearing and settlement of Corporate Bonds in India<\/a> happen in reality.<\/p>\n

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A new bond investor may get confused by some of the jargon associated with the <\/span>bond investment. We bring you a brief list of the most important bond jargon that you should understand and evaluate while making your investment decision.<\/a><\/strong><\/p>\n

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