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Settlement is an important process that occurs after the successful completion of a security transaction. It is the process of transferring the ownership of securities after the trade is concluded and ensures that the buyer and seller have fulfilled their obligations under the respective security agreement.

The settlement process can be pided into two stages: pre-settlement and post-settlement. All the activities related to pre-settlement start from the moment a securities trade is made and end with the notice of completion of the trade. During pre-settlement, the seller and buyer are informed of their respective obligations regarding the securities trading and the associated payment. The next stage is post-settlement, where the actual transfer of securities and payment occurs.

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The pre-settlement process consists of several steps. First, after a trade is agreed upon, the seller and buyer inform the broker-dealer about the details of the trade. Then, the broker-dealer records the details of the trade and sends out the settlement instruction to both parties, including the settlement date. The settlement date is the actual date when the securities are transferred from the seller to the buyer and the payment is made from the buyer to the seller.

The post-settlement process is usually conducted by the broker-dealer in collaboration with the custodian of the buyer and the seller. For the account of the buyer, the custodian transfers the securities from the seller. Meanwhile, for the account of the seller, the custodian securely transfers the payment (cash or other equivalent) from the buyer. After the transfer of both securities and payment is finished, the parties are notified of the successful completion of their transaction.

After the completion of the settlement process, both parties will have acquired the ownership of the securities they had agreed to trade in the original security transaction. Settlement is essential to the smooth functioning of the financial market and is a critical part of the trading process. It protects the rights of both parties in a security transaction and ensures that any agreement reached between them is properly enforced and fulfilled.