Valuation of the Financial Instruments (Bonds/Equities)

Valuation of the Financial Instruments (Bonds/Equities)

Bond valuation Zero coupon bond valuation and introduction to interest

rate/bond price changes. Valuation of coupon paying bonds, annual and semiannual Yield-to-Maturity (YTM) calculation

Bond terms and types Basics concerning stock valuation Valuation of constant growth (mature) stocks. Valuation of nonconstant growth stocks. Corporate value or Free Cash Flow model Functioning of the stock market (Secondary Market)

Sources of Finance Shares (Shareholders are part owners of a company)

Bonds and Debentures(Unsecured Bonds) Ordinary Shares (Equities):

Ordinary shareholders have voting rights on important corporate matters (Directors)

Dividend can vary depending on the performance of the company Last to be paid back in event of collapse/liquidation of the firm Share price varies with trade on stock exchange (more liquid)

Preference Shares: Paid before ordinary shareholders are paid the dividends Fixed rate of return irrespective of the performance Cumulative preference shareholders – have right to dividend carried

over to next year in event of non-payment

Bond basics A bond is a debt (fixed income) security, where money/capital

is borrowed and is to be paid back along with interest/coupon. Bonds are known as fixed income securities as all of the future

payments to be made on the bond are fixed or predetermined, as stated in the bond contract.

The current value of a bond is defined as the Present Value of all the future cash flows to be received by the bondholder.

A bond promises to pay a predetermined stream of future cash flows.

Components

The issuer (Corporate, Government) Principal amount (Face Value) Specified interest rate (also known as the

coupon rate) Date of maturity (Time)

Types of Bond

Types and terms of bonds…. Callable bond: the issuer has right to retire the bond

before maturity, at a predetermined price that is always specified in the bond contract. Almost all corporate bonds are callable. If interest rates fall

in the future, firms can retire these existing bonds and replace them with new lower rate bonds.

Callable bonds will command a higher interest rate or yield (lower price) than a comparable non-callable bond.

Mortgage (Secured) bond : bond is secured or collateralized by some physical asset in case the issuer defaults.

Types and terms of bonds… Convertible bond: bond can be converted into a

predetermined number of shares of common stock. Investors are willing to accept a lower yield on such bonds. The right to convert may become very valuable. A convertible bond thus has the opportunity to become an

exciting investment if the firm does unexpectedly well. Debenture (Unsecured bond): bond is backed by the

issuer’s ability to generate future cash flow to make the promised payments. There is no collateral.

Types and terms of bonds, continued

Subordinated bonds: the bond’s claim on the issuer is junior to one or more senior bond issues. The more senior bonds have the higher priority in bankruptcy and/or liquidation.

Sinking fund provision: issuer may be required to retire a certain amount of an issue each year. For example, having to retire 10% of a 20 year bond issue each year from year 11 to year 20.

Bond contract (indenture/deed)): a legal contract between the issuer and bondholders that specifies all of the terms and conditions of the bond issue.

CREDIT RATINGS Each of the agencies assigns its ratings based on an in-depth analysis of the issuer's financial

condition and management, economic and debt characteristics, and the specific revenue sources securing the bond.

Variables that Effect Value

Maturity (Short term, Medium or Long term) Redemption Features (Callable, Convertible) Credit Quality (AAA, BB…) Interest Rate Price Yield Tax Status (Tax free/exemption)

Example of a three-year zero coupon bond

Years ago, a 10-year bond was issued which is going to mature in 3 years. The par value is Rs.100. Currently, this bond sells for Rs.84.17 in the market. What annual rate of return do investor’s currently require on this three year bond? This bond must be competitively priced in the market with

similar bonds. This bond’s time line appears below:

t=0

FV3 = 100 par

t=2

PV0 = 84.17

t=1 t=3

Example of a two-year zero coupon bond, continued

Using, the time value of money formulas that relate the PV0 and FVn for multi period applications: PV0 = FVn/(1+r)n, rearrange as → r = [FVn/PV0]1/n – 1

For this example, PV0=84.17, FVn=100, and n=3

r = [FVn/PV0]1/n – 1 = [100/84.17]1/3 – 1 = 0.06 or 6.0% On a financial calculator, enter FV=100, PV=-84.17, N=3,

P/Y=1, and compute the I/Y=6%.

Example of a 10 year bond that pays annual coupons

Assume that 10 years ago, a 20-year bond was issued and will mature in 10 years. The par value is Rs.1000. It promises to pay the owner 9% (fixed rate) coupon interest each year. What is today’s bond price?

This bond will pay (0.09)(Rs.1000) = Rs.90 coupon interest each year, and will also pay off the Rs.1000 par value at t=10 years from today.

Currently, let’s assume that the 10 year market required rate of interest or return on this and comparable bonds is r=8.5% per year. Anyone that buys this bond today will expect to earn this rate over the next 10 year. The bond’s time line appears below:

t=0

1000 par+ 90 coupon=1090

t=1

PV0 = ?

kD=8.5%t=9 t=10

90 coupon 90 coupon

Example of a 10 year bond that pays annual coupons, continued

The bond’s current price or value is thus the PV of all the promised future cash flows, discounted at r=8.5% per year.

To calculate this bond’s current price, add together the PVs of the annuity of coupons and the PV of the par value lump sum.

The coupon stream annuity PV0=590.52 and the lump sum PV0=442.29, and both sum up to 1032.81, which is therefore the bond’s current value or price. The TVM formulas are shown below:

1010nn0085.01

1000

0.085 1085.0

1 -

0.085

190

r1

PAR

r 1r

1 -

r

1C PV

Bond prices and market interest rate changes, using the ten year bond

Interest rates (yields) and bond prices will change as time passes and economic conditions change.

What will happen to this ten year bond’s price if the one year market required yield suddenly either (1) decreases to r=8.0% or (2) increases to r=9.0%? When market interest rates or yields decrease, the price of

all existing fixed rate coupon bonds will rise.

When market interest rates or yields increase, the price of all existing fixed rate coupon bonds will fall.

If coupon rate (c) < kd, discount.

If coupon rate (c) = kd, par bond.

If coupon rate (c) > kd, premium.

If kd rises, price falls.

Price = par at maturity.

At maturity, the value of any bond must equal its par value.

The value of a premium bond would decrease to Rs.1,000.

The value of a discount bond would increase to Rs.1,000.

A par bond stays at Rs.1,000 if kd remains constant.

Bond Values Over Time

$870.10Rs.863.73

Rs.1,167.68

800.00

900.00

1,000.00

1,100.00

1,200.00

12 11 10 9 8 7 6 5 4 3 2 1 0

Time to Maturity

Bo

nd

Va

lue

k = 10%

k = 8%

k = 6%

YTM (Yeild to Maturity) Current Yeild

What is the bond’s return over this year?

Total Rate of Return = Current Yield + Capital Gains Yield (C.G.Y)

Beg. V = 863.73, End V = 870.10

Current yield = Current Yld = Rs.80/863.73 = 9.26% Capital gains yield = C.G.Y.=(870.10-863.73)/863.73= 0.74% Total Return = 9.26% + 0.74% = 10%

Annual coupon pmtCurrent price

Change in priceBeginning price

Finding a bond’s expected rate of return?

In the marketplace, we know a bond’s current price(PV), but not its return.

Yield to Maturity (YTM) = the rate of return the bond would earn if purchased at today’s price and held until maturity. Also called “promised yield.”

Yield to Call (YTC) = the rate of return the bond would earn if purchased at today’s price and held until could be called.

Bond DetailsBond

Details

Order BookOrder Book

Common stock basics Common stock represents the ownership of a corporation.

The holders of debt or bonds have a senior claim on the firm. Stockholders have a residual claim, what remains after other

obligations met, including any new asset investment in the firm. Stocks are risky investments; therefore the question is how to

price the risk. Current stock prices reflect today’s expectations of future cash flow

performance of firms and the risk of these cash flows. Hardly there is any concrete theory to prove the expectations

concerning future performance. Firms pay out excess (residual) cash to shareholders primarily

as: (1) cash dividends and (2) share repurchases.

Common stock basics

The value of the stock depends on Intrinsic Value. Intrinsic Value is the Present Value of all future forecasted cash flows. We define Free Cash Flow to Equity (FCFE) as the firm’s

excess cash flow that can be paid out through both dividends and stock repurchases.

We calculate the PV of all future forecasted FCFE at a discount rate or cost of equity capital r.

Common stock basics Many tend to either overcomplicate the mechanics of stock

valuation or unfortunately insert misconceptions and/or pseudoscience into the analysis.

For simplicity here, we will assume that all the FCFE is paid as a cash dividend, and thus the stock’s intrinsic value today (V0) is the PV of all future forecasted dividends. The timeline and TVM valuation equation always resembles the following.

t=0 t=1

V0 = ?

t=9

D1

t=2 t=10 t=11

D2 D9 D10 D11

......

r 1

D .. ...

r 1

D

r 1

D

r 1

D V t

t3

32

21

10

Intrinsic value (V) versus actual market prices (P)

Intrinsic values are usually privately obtained estimates of value, here using discounted cash flow (DCF) analysis. The term V (usually designated as V0) is used extensively

here since stock valuation is a private effort. V0 is thus something we can estimate but not prove.

In efficient capital markets, on average, the market value or price P0 should equal the intrinsic value V0.

Note: the total value of any firm’s equity is always the value per share times the total number of shares. Most of our analysis here is done on a per share basis.

Valuation of a Constant Growth common stock

The term constant growth indicates that a firm is mature and is expected to grow at an assumed constant rate g throughout the future. The term growth rate typically refers to the growth of the

firm’s cash dividends; however, everything associated with the firm is also assumed to grow at the same rate g.

If a firm is expected to have a variable rate of growth in the coming years, then constant growth valuation is not appropriate. However, we will always assume that constant growth does begin somewhere out in the future.

Example: valuation of a Constant Growth common stock

A mature firm just paid a dividend of D0=Rs.5 per share today and is expected to have a constant growth rate of g=5% per year forever. Based on the stock’s perceived risk, the stock has a required return of r=14% per year.

Example: valuation of a Constant Growth common stock, continued

Given the dividend growth rate g=5% per year, now forecast the dividends for the following years: D0 = Rs.5.00 (given with example) D1 = D0(1+g) = (5.00)(1+0.05) = Rs.5.25 D2 = D0(1+g)2 = (5.00)(1+0.05)2 =Rs.5.5125 Dn = D0(1+g)n

The D0=Rs.5.00 per share has already been paid out and is no longer part of the firm.

The intrinsic value V0 of the stock will be the Present Value of all the future forecasted dividends, beginning with D1.

Example: valuation of a Constant Growth common stock, continued

We use the Constant Growth model (introduced in Chapter 4) to calculate the Present Value. The intrinsic value of any currently assumed constant growth stock or investment is: V0=D1/(k-g), plugging in the numbers we have:

V0=D1/(r-g) = 5.25/(0.14 – 0.05) = 5.25/0.09 = Rs. 58.33 If D0=Rs. 5 has not yet been paid out, then the stock value

would be 58.33 + 5.00 =Rs.63.33 per share (cum dividend). Thus this stock should be worth Rs.58.33 today if the firm is

expected to have a permanent growth rate of 5% per year and next year’s dividend at t=1 years is Rs.5.25 per share.

The constant growth model A more general form of the constant growth model is

given below: Vt=Dt+1/(r-g); assuming that capital markets are efficient

we often reexpress this relation as Pt=Dt+1/(r-g) For the equation to work: (1) r must exceed g and (2) all

dividends following the dividend in the equation’s numerator must grow at a constant rate g.

This equation above will always give you the stock value, exactly one year before the dividend that you plug into the model. If you plug in the dividend expected at t=30 years, then the equation gives you the value at t=29 years.

What will be the value of this stock exactly one year from today?

From previously, we know that r=14%, g=5%, and D0=Rs.5, D1=Rs.5.25, and D2=Rs.5.5125.

The constant growth equation, Vt=Dt+1/(r-g), calculates the stock’s value, exactly one year before the dividend that is plugged into the equation. The dividend exactly two years from today is estimated to be D2=Rs.5.5125 at t=2 years. V1 = D2/(r-g) = 5.5125/(0.14-0.05) =Rs.61.25

This stock is predicted to rise in value (or perhaps price) from Rs.58.33 today to Rs.61.25 in exactly one year (t=1 years). We thus forecast that in one year (t=1), the stock will be

worth Rs.61.25 per share just after it pays out D1=Rs.5.25.

What will be the stock’s estimated value in exactly one year? A second approach.

An alternate method to estimate the future price of a constant growth stock: Everything associated with the firm is expected to grow at the rate g=5% per year forever, including the stock’s value! Therefore, V1 = V0(1+g) = 58.33(1+0.05) =

Rs.61.25

The two components of a stock’s total return on investment

The return on the stock comes in two components: Cash dividends The change in stock price (capital gain or loss)

Let’s assume efficient markets for this case (where on average, P0=V0,): for any constant growth stock we have the following relation: P0 = D1/(r-g).

Rearrange the equation to yield the following relation in terms of total return, we have: r = (D1/P0) + g The first part is D1/P0, the dividend yield The second part is g, the capital gains yield

The two components of a stock’s total return: r = (D1/P0) + g

We have the following (previously): D1=Rs.5.25, P0=Rs.58.33, and g=5%. Solving the above equation, we have a known result: k = (D1/P0) + g = (5.25/58.33) + 0.05 = 0.09 + 0.05 = 14%

If we pay Rs.58.33 today for this stock, then the expected 14% return comes to us as: (1) a 9% dividend yield and (2) a 5% capital gains yield,

which is a 5% increase in stock price from Rs.58.33 to Rs.61.25.

How today’s stock values (or stock prices) can change

Example 1: Assume that r increases from 14% to 16% because investors demand a higher risk premium from the stock. V0=D1/(r-g) = 5.25/(0.16 – 0.05) = Rs.47.73

Example 2: Assume that r decreases from 14% to 12% because investors demand a lower risk premium from the stock. V0=D1/(r-g) = 5.25/(0.12 – 0.05) = Rs.75.00

What really changed above? It was not the future cash flow amounts, but rather the required return, due to risk premium changes.

The valuation of nonconstant growth stocks (most stocks!)

Most stock analysts using an Intrinsic Value analysis will forecast the following for most stocks that they cover:

Ten (10) future years of individual cash flows that can be paid out to stockholde Refer to the valuation model at bottom of slide.

A terminal value, i.e., what the stock will be worth in exactly 10 years (V10), assuming constant growth (maturity) at rate g following year 10.

The stock’s intrinsic value is then the sum of the PVs of D1 through D10 and the PV of the terminal value V10=D11/(r-g).

A good approximation for the constant growth g (at maturity) for a firm is expected future inflation plus the real expected rate of economic growth in GDP.

r 1

1

g -r

D

r 1

D .. ...

r 1

D

r 1

D

r 1

D V 10

1110

103

32

21

10

An example of nonconstant growth valuation

Cirrus Corp. is expected to pay out the following dividends, per share: D0=D1=D2=D3=Rs.0, D4=Rs.0.50, D5=Rs.0.65, D6=0.80,

D7=Rs.0.90, ad D8=Rs.1.00. Timeline appears on next slide.

All dividends following year 8 or D8 will grow at g=6% per year forever. This means that D9 = D8(1+g) = 1.00(1+0.06) = Rs.1.06, although this amount won’t be needed. We are also simplifying the example by assuming that maturity begins at t=8 years.

Let’s just assume here that the firm’s stock has r=10% per year.

An example of nonconstant growth valuation, continued

A timeline of the stock’s dividends is shown below. The salient item here is D8, since all dividend growth

after t=8 years will be at g=6% per year forever. We can use this information to forecast the stock’s value exactly three years from now (at t=7 years). V7 = D8/(r-g) = 1.00/(0.10 – 0.06) = Rs.25.00

t=0 t=1 t=3

D1=0

t=2 t=4 t=5

D2=0 D3=0 D8=1.00D5=0.65

g=6%

t=6 t=7 t=8

D4=0.50 D6=0.80 D7=0.90

An example of nonconstant growth valuation, continued

The current intrinsic value V0 will be the Present Value of D1, D2, D3, D4, D5, D6, D7 and V7 (Terminal Value). As given previously, V7 = D8/(r-g) = 1.00/(0.10-0.06) = Rs.25.00

r 1

1

g -r

D

r 1

D

r 1

D

r 1

D

r 1

D V 7

87

76

65

54

40

shareper $14.49 V

2)(25)(0.513 0.0.4618 0.4516 0.4036 0.3415 V

0.1 1

1

0.06 - 0.1

1.00

0.1 1

0.90

0.1 1

0.80

0.1 1

0.65

0.1 1

0.50 V

0

0

776540

Nonconstant growth: another example

XYZ Corp. currently pays no dividends. XYZ’s first forecasted dividend is 18 years from

today at t=18 years, and is expected to be D18=Rs.6.00 per share. Note that D0 through D17 are all forecasted to be zero. All dividends past t=18 years are forecasted to grow at g=7% per year.

The stock has a required return r=14%.

t=0 t=1 t=17

D1=0

t=2 t=18 t=19

D2=0 D17=0 D18=6.00

g=7%

D19

Nonconstant growth: another example, continued

XYZ pays the first dividend at t=18 yea Using the constant growth formula, we can estimate the value of XYZ shares at t=17 years, since constant growth occurs following year 18. Step 1: V17 = D18/(k-g) = 6.00/(0.14 – 0.07) = Rs.85.7143

Step 2: V0 = V17/(1+k)17 = 85.7143/(1+0.14)17 = Rs.9.24

The stock is forecasted to be worth Rs.85.71 per share exactly 17 years from today (t=17). Today’s PV0 of this year 17 value of Rs.85.71 is Rs.9.24

The Corporate Valuation Model or Free Cash Flow (FCF) Model

Most financial analysts use the FCF model. FCF is the cash that can be paid out to the firm’s investors, both the debt and equity holde

The FCF model will give a value that is the total value of the firm’s capital, i.e., the sum of both debt and equity. Note the following items:

Earnings before interest and taxes: EBIT = Revenues - Costs Net operating profit after tax: NOPAT = EBIT(1 - Tax Rate) FCF = NOPAT - net new investment in operating capital.

The appropriate TVM discount rate is the firm’s total cost of capital – both debt and equity. In Chapter 12, we will cover the Weighted Average Cost of Capital or WACC.

The Corporate Valuation Model or Free Cash Flow (FCF) Model

......

wacc 1

FCF .. ...

wacc 1

FCF

wacc 1

FCF

wacc 1

FCF V t

t3

32

21

10

The above model looks very similar to the dividend model we covered. However, the V0 estimated here is the total firm value or enterprise value of the firm. To obtain the equity value, the debt value (and preferred

stock value) must then be subtracted from the total value. To obtain value per share, divide by the number of shares.

Many assumptions enter into valuation, so equity estimates using the FCF method may differ from those using the FCFE/Dividend model we covered.

How new stock is usually issued in the Indian capital markets

Primary Market:Initial Public Offering (IPO): a privately held firm issues publicly traded stock for the first time. Private PlacementRights OfferThe firm usually goes to an Investment Banker such as ICICI Bank, HDFC Bank. The investment banker usually underwrites the issue – purchasing the entire stock issuance from the firm and reselling it to the initial investors.Secondary Market

NSE, BSE, Regional Stock Exchanges.

Functioning of Capital Market Segment

securitiessecuritiessecuritiessecurities

IndividualFirmsFI & FFI Broker Broker

Depositories (DP)Depositories(DP)

IndividualFirmsFI & FFI

Clearing Banks

Central Depository Services (India) Limited (CDSL)& National Securities Depository Ltd. (NSDL)

Axis Bank Ltd., Bank of India, Canara Bank, Citibank N.A, HDFC Bank, Hongkong & Shanghai Banking Corporation Ltd., ICICI Bank, IDBI Bank, IndusInd Bank, Kotak Mahindra Bank, Standard Chartered Bank, SBI and Union Bank of India.

The order matching in an exchange is done based on price-time priority. The best price orders are matched first.

If more than one order arrives at the same price they are arranged in ascending time order.

Best buy price is the highest buy price amongst all orders and similarly best sell price is the lowest price of all sell orders.

•Capital Market (CM)

•Wholesale Debt Market (WDM)

•Derivative Segment (FO)

•Retail Debt market (RDM)

Types of Settlement

Account Period Settlement Rolling Period Settlement

Account Period Settlement: An account period settlement is a settlement where the trades pertaining to a

period stretching over more than one day are settled e.g. trades for the period Monday to Friday.

The obligations for the account period are settled on a net basis. Account period settlement has been discontinued since January 1, 2002, pursuant to SEBI directives.

Rolling Settlement: In a Rolling Settlement trades executed during the day are settled based on the

net obligations for the day.

In NSE, the trades pertaining to the rolling settlement are settled on a T+2 day basis.

Types of Market

Normal MarketAll orders which are of regular lot size or multiples thereof are traded in the Normal Market. For shares that are traded in the compulsory dematerialised mode the market lot of these shares is one. Normal market consists of various book types wherein orders are segregated as Regular lot orders, Special Term orders, Negotiated Trade Orders and Stop Loss orders depending on their order attributes.

Odd Lot MarketAll orders whose order size is less than the regular lot size are traded in the odd-lot market. An order is called an odd lot order if the order size is less than regular lot size. These orders do not have any special terms/attributes attached to them. In an odd-lot market, both the price and quantity of both the orders (buy and sell) should exactly match for the trade to take place. Currently the odd lot market facility is used for the Limited Physical Market as per the SEBI directives.

Auction MarketIn the Auction Market, auctions are initiated by the Exchange on behalf of trading members for settlement related reasons. There are 3 participants in this market

Initiator - the party who initiates the auction process is called an initiator Competitor - the party who enters orders on the same side as of the initiator the party who enters orders on the opposite side as of the initiator

Normal MarketAll orders which are of regular lot size or multiples thereof are traded in the Normal Market. For shares that are traded in the compulsory dematerialised mode the market lot of these shares is one. Normal market consists of various book types wherein orders are segregated as Regular lot orders, Special Term orders, Negotiated Trade Orders and Stop Loss orders depending on their order attributes.

Odd Lot MarketAll orders whose order size is less than the regular lot size are traded in the odd-lot market. An order is called an odd lot order if the order size is less than regular lot size. These orders do not have any special terms/attributes attached to them. In an odd-lot market, both the price and quantity of both the orders (buy and sell) should exactly match for the trade to take place. Currently the odd lot market facility is used for the Limited Physical Market as per the SEBI directives.

Auction MarketIn the Auction Market, auctions are initiated by the Exchange on behalf of trading members for settlement related reasons. There are 3 participants in this market

Initiator - the party who initiates the auction process is called an initiator Competitor - the party who enters orders on the same side as of the initiator the party who enters orders on the opposite side as of the initiator

Order Books

Regular Lot BookThe Regular Lot Book contains all regular lot orders that have none of the following attributes attached to them.- All or None (AON), Minimum Fill (MF), Stop Loss (SL)

Special Terms BookThe Special Terms book contains all orders that have either of the following terms attached:- All or None (AON), Minimum Fill (MF)

Negotiated Trade BookThe Negotiated Trade book contains all negotiated order entries captured by the system before they have been matched against their counterparty trade entries.

Stop-Loss BookStop Loss orders are stored in this book till the trigger price specified in the order is reached or surpassed. When the trigger price is reached or surpassed, the order is released in the Regular lot book.

Auction BookThis book contains orders that are entered for all auctions. The matching process for auction orders in this book is initiated only at the end of the solicitor period.

Trading System - Order Conditions

Price Bands

Daily price bands are applicable on securities as below: Daily price bands of 2% (either way) on specified securities

Daily price bands of 5% (either way) on specified securities

Daily price bands of 10% (either way) on specified securities

No price bands are applicable on:scrips on which derivative products are available or scrips included in indices on which derivative products are available.*

Price bands of 20% (either way) on all remaining scrips (including debentures, warrants, preference shares etc).

Circuit Breakers

The Exchange has implemented index-based market-wide circuit breakers in compulsory rolling settlement with effect from July 02, 2001.

Index-based Market-wide Circuit Breakers The index-based market-wide circuit breaker system applies at 3 stages of the index movement, either way viz. at 10%, 15% and 20%. These circuit breakers when triggered, bring about a coordinated trading halt in all equity and equity derivative markets nationwide.

In case of a 10% movement of either of these indices, there would be a one-hour market halt if the movement takes place before 1:00

p.m. In case after 1:00 p.m. but before 2:30 p.m. there would be trading halt for ½

hour. after 2:30 p.m. there will be no trading halt at the 10% level and market shall

continue trading.

In case of a 15% movement of either index, there shall be a two-hour halt if the movement takes place before 1 p.m. after 1:00p.m. but before 2:00 p.m., there shall be a one-hour halt. If the 15% trigger is reached on or after 2:00 p.m. the trading shall halt for

remainder of the day. In case of a 20% movement of the index, trading shall be halted for the remainder

of the day.

The pay-in and pay-out days for funds and securities are prescribed as per the Settlement Cycle. A typical Settlement Cycle of Normal Settlement is given below:

  Activity Day

Trading Rolling Settlement Trading T

Clearing Custodial Confirmation T+1 working days

  Delivery Generation T+1 working days

Settlement Securities and Funds pay in T+2 working days

 Securities and Funds pay out  

T+2 working days 

Post Settlement   Valuation Debit T+2 working days

  Auction T+3 working days

  Bad Delivery Reporting T+4 working days

  Auction settlement T+5 working days

  Close out T+5 working days

 Rectified bad delivery pay-in and pay-out

T+6 working days

 Re-bad delivery reporting and pickup

T+8 working days

  Close out of re-bad delivery T+9 working days