Order Flow: What Happens After You Press the Button

An order goes from the client to the broker, from the broker to Kaveri Stock Exchange Limited under the broker's membership, and into the book until something matches it. The exchange matches and finishes there. Its clearing corporation, a separate company, then becomes the party each side faces, and only after that do money and securities actually move.

The word that causes all the trouble is executed. The word sounds like an ending. The screen prints it, the price stops moving, and something in the reader's head files the whole thing as done. The trade is not done. Agreeing a price settles what is going to happen; it does not move anything at all. Everything that makes the trade real happens after the match, at a different company from the one that did the matching. A summary hides exactly that, so the path is worth following station by station.

So one order gets followed from the button to the moment a holding changes, and at every stage the same two questions get asked: who is holding it now, and what could stop it here. By the end, any moment on that path can be pointed at and the party responsible for it named. Naming the party is worth far more than a definition. Naming the party is what makes a sensible question possible on the day something looks wrong.

Here is the shape in an everyday form, and it is closer than it looks. A filled-in form goes across the counter at a courier office. For a while that form is on the counter and nowhere else. Then the details go into the courier's own system, and the parcel travels on the courier's account with a transport line that has never heard the sender's name. Then it moves. Only at the far end does anybody's cupboard actually change. Four different parties are in charge of four different stretches, and if the parcel goes missing the first useful question is which stretch it stopped on. A stock order is arranged exactly that way.

Where is an order one second after the button is pressed?

Inside the broker's own system, and nowhere else. No venue has seen it. Nobody on the other side of the market knows it exists. Nothing has been agreed with anybody, and no obligationSomething a party is committed to hand over or pay once a trade has been agreed. An obligation is created by the agreement and discharged only when the thing actually moves. has been created for the client or for anybody else. At this moment the order is a written instruction sitting inside one company, and if it goes no further than that, nothing whatsoever has happened.

Most people picture the opposite, and the difference is worth sitting with. The mental image is of the order shooting out of the phone and arriving somewhere public within a blink, joining a crowd of other orders. The order in that first second is a record inside a broker: the client's identity attached to a quantity, a security and a price condition, waiting to be looked at.

The everyday version is the note across the counter. The note is on the counter. The note is not in the warehouse, nothing has been set aside for anybody, and the person who took it has not yet decided whether to accept it. A note on a counter can be torn up at no cost to anybody. An order that has not been released costs nobody anything either.

What does the broker check before anything leaves?

The broker checks the order against what the client actually has. Money to pay with, if the client is buying. The security to deliver, if the client is selling. Or an existing positionWhat somebody is left holding in a security after earlier trades. An order can be opening one or closing one, and borrowing against a position is covered separately. that this order would be closing rather than opening. If the check fails, the order stops right here, and this is the first of four places in this guide where the path can end.

Almost everybody has the next part backwards. The broker runs this check to protect itself, and the client is protected as a side effect. Recall what the arrangement is: as far as the venue is concerned the broker is the party to the trade. The moment an order is released it becomes an obligation of the broker's, whatever happens to the client afterwards. An order a client cannot honour is therefore the broker's problem, not the venue's and not, in the first instance, the client's.

The everyday version. A shopkeeper who has known a customer for fifteen years will still not load fifty sacks of rice onto that customer's lorry on a word alone. The shopkeeper is the one who has to pay the mill on Friday. He is not doubting the customer. He is standing between the customer and the mill, and the mill will come to him.

The exact content of that check, and what has to be collected from the client at this stage, is set by the Securities and Exchange Board of India (SEBI) at sebi.gov.in. Where the check sits on the path does not change. What the check contains does.

How does the order reach the venue, and under whose name?

The order travels on the broker's membership. Membership carries a consequence readers are rarely told outright, so here it is in plain words. Kaveri Stock Exchange Limited does not know that the client exists. It sees an order arriving from a party it has admitted to its own rules, and it will hold that party answerable for everything that follows. The client's name lives in the broker's records and in the client's depository accountThe account in which a person's securities are recorded against their own name. A purchase shows up as a change to a record; no paper moves anywhere., and nowhere in the venue's matching at all.

Two records exist, they carry different things, and confusing them is what makes the rest of the path feel arbitrary. The broker's record has the client's name on it, the quantity, the price condition, the money sitting with the broker and the account the securities will end up in. The venue's record has a member, an order and a time of arrival. The venue was never given a client name and would have no use for one, so the venue's record does not contain one.

An everyday version, and this one comes up at weddings. A household ordering vegetables for four hundred guests does not walk into the wholesale market. The household orders through the caterer, who buys in the market under his own standing there. The market's books show the caterer bought two hundred kilos of onions. The caterer's book shows whose onions they are. Nobody in the market has ever heard of the wedding, and nothing about the arrangement is dishonest.

What does the venue do with it once it arrives?

Two outcomes, and there is no third. Either something already waiting agrees with the order, in which case the two are matched at once. Or nothing does, in which case the order joins the order bookThe list of unfilled buy and sell orders a venue is holding at a given moment. The contents of an order book, and how a book is arranged, are worked through separately. and waits there until something agrees with it or until it is taken back out.

The two outcomes are the whole of this station. Which one is likely belongs to a different subject. How a price forms, what a queue of waiting orders does to it, what happens when a large order arrives, and how long anything sits are each a separate subject taught under its own name. The contents of the book are worked through separately as well. Here it is one station out of five.

A path is a durable thing: it is arranged the same way on a quiet afternoon and on the noisiest day of the year. Which of the two outcomes an order gets is not durable at all, and mixing the two would leave a reader unable to tell which half could be relied on.

At what exact moment does the exchange finish?

At the match, and not one instant later. Two orders agree, and Kaveri Stock Exchange Limited has now done the entire whole of its job. The exchange ran the place where the orders met. The exchange applied the rule that decides which of several orders is served first, a rule set by SEBI at sebi.gov.in and not stated here. And the exchange recorded that a trade happened at a price.

The exchange has promised nobody anything. It will not deliver a single share and it will not pay a single rupee. Take the exchange away one instant after the match and nothing further is lost, because nothing further was ever coming from it. The exchange's name is very often the only name on the screen in front of a client, so the limit of what the exchange owes is the hardest thing on this path to hold on to.

An exchange is a place with a rule about who gets served first, not a party to anything that happens in it. A wholesale market hall is a place with rules about who may set up a pitch. The hall does not become a party to a sack of rice changing hands inside it, and nobody expects the hall to deliver the rice.

Who becomes the counterparty, and when does the swap happen?

The counterparty swap is the moment the whole path is built around. Before the swap, the buying client's trade is with a stranger: somebody whose name they will never learn, whose ability to deliver they cannot check and whose intentions are entirely unknown to them. After the swap, the clearing corporation of Kaveri Stock Exchange Limited, which is a separate company from the exchange, stands between the two sides and becomes the party each of them faces. The buying client owes the clearing corporation. The selling client is owed by the clearing corporation. The two clients no longer have anything between them at all.

The swap buys the ability to agree a price with somebody never heard of before, without first finding out whether they can pay. That is a strange thing to sit with. Money has just been committed to a person who cannot be named, on the strength of nothing that has been checked. In most other dealings that would be reckless. Here it is ordinary, and the reason it is ordinary is that a company most people have never thought about stepped into the gap a fraction of a second after the match.

Run the standard test on it: remove the middle and see what fails. The matching does not fail: the matching already happened before the clearing corporation arrived. The willingness to have agreed a price with a stranger is what fails. Take the clearing corporation out and the matching still works perfectly, and nobody sane would use it.

The everyday version is a shop counter used by two strangers who have arranged to swap a second-hand phone for cash. Neither wants to hand over first. So the shopkeeper takes the phone from one and the money from the other, and hands each of them the thing they came for. The arrangement is not identical to the one described here, and the idea is the same one: a party in the middle who faces both sides removes the need for either side to trust the other.

A party that takes on obligations to both sides of every matched trade has to be able to meet them, and that is not a matter of good intentions. The clearing corporation of Kaveri Stock Exchange Limited holds marginsAmounts put up in advance against obligations that have not yet been settled, held by the party that would otherwise carry the loss. The amount to be put up, and the party it goes to, sit with the authority named further down. of Rs 11,000 crore collected from its members, and a settlement guarantee fundA pooled resource a clearing corporation keeps against what could go wrong on settlement, held separately from what it collects member by member. The rules on drawing from such a fund, and the sequence they set, sit with the authority named further down. of Rs 2,750 crore. Divide the first by the second: Rs 11,000 crore over Rs 2,750 crore is 4.00 times the fund. Both of those amounts sit at the clearing corporation, and neither of them sits at the exchange.

The multiple is worth reading carefully rather than collecting. The multiple compares two resources that are held in completely different ways. Margins are collected member by member against each member's own obligations, so a member's margin is reached for that member's own failure. The fund is pooled, so it is reached for a failure that has already got past the first resource. The order in which they are reached when a member fails is a written order, fixed in advance, and every step and every threshold in it is set by SEBI at sebi.gov.in. Such an order has to be written in advance. In the hour a member fails, every party would argue for the sequence that spares them, and nobody could agree one.

What still has to happen after a price is agreed?

Three things, none of which has happened yet at the instant the screen printed that word. The obligations get worked out, and each party learns what it is handing over and what it is receiving. Money moves one way and securities move the other. And the holding in the client's depository account changes. Only then is anything about the position different.

Nothing has moved until that last step, and a matched trade is a promise about the near future rather than a completed exchange. The screen will keep saying otherwise.

When it happens is set by SEBI at sebi.gov.in, and it moves. A reader who memorised a timing would be carrying something wrong on the day it changed, with no way of finding out. The durable fact is worth keeping instead. The timing is fixed in advance and published, and every party arranges itself around it.

An everyday version, and it is the one that makes people wince because they have lived it. A wedding hall is agreed on the phone. The date is settled in every practical sense, people are told, plans are made around it. The hall is not yet anybody's. The money has not gone across and the keys have not either, and everybody involved knows the difference between the agreement and the handover even though the conversation felt final.

What does one order of Rs 1,00,000/- carry along the way?

A path is not an amount, so few figures appear here, and burying a path under arithmetic would teach the arithmetic instead. The worked case is one purchase of Rs 1,00,000/-. The order value is a round number chosen to make the arithmetic easy to follow, and so is each broker charge below it. A broker's own charges are the figure to go and ask that broker for.

Two shapes of broker charge get worked here, and they are worked as shapes rather than as a comparison of anybody's arrangements. Which arrangement carries which shape, and what else sits inside each one, is covered separately: a price means nothing until what it contains has been written out.

Check the small one yourself. Most people never work that line out. The exchange's rate is 0.00325 per cent of turnoverThe value of the trades passing through a venue across a stated period. Turnover is a base that rates are struck on, and not an amount anybody takes home., which on Rs 1,00,000/- comes to Rs 3.25/-. The same rate across the venue's stated year, on turnover of Rs 48,00,000 crore, produces Rs 156 crore of fee revenue. The rate is identical in both places, and the two answers differ only because the base does. That is why every rate here is written with its base in the same sentence: the number alone says nothing.

Two absences get named here rather than filled. No settlement timing is stated, and no count of days, sessions or anything else appears at any point. And other charges do arise on an order in practice, set by authorities named below, so the two lines above are the two that can be worked honestly here and not a complete bill.

Where can the path stop, and what happens at each point?

Four points, named rather than warned about. A reader who knows where a path can break can ask a useful question on the day it does. The path can stop at the broker's check, before anything is released to anybody. The path can stop in the book, by never being matched and then being taken back out. The path can stop at settlement, if one side does not deliver what it owes, and settlement is precisely the case the clearing corporation exists for and the point at which the written order of loss-bearing starts to matter. And it can stop in the client's own records, if the account the securities are meant to move into is not in order.

Only one of those four is about the market at all. The other three are about paperwork and money, and that is where most orders that go wrong actually go wrong. That finding is worth more than it looks. Readers expect trouble to arrive from the market and prepare for that, and the market accounts for a single one of the four. When an order does not go through, the odds favour a boring answer.

How often any of the four is reached varies by broker, by security and by year, and no single frequency holds across them.

Who sets the conditions on the checks, the margins and the timing?

Four conditions were touched here and not one of them was stated. The sheet below is what a reader should leave with: four labelled rows, the authority printed inside each one, and the value column empty. Taken to the source, the whole thing can be filled in one sitting, and it cannot go stale in the meantime.