Hand delivery trades refer to transactions where brokers take up delivery of shares on behalf of Foreign Institutional Investors (FIIs) and local funds for which they collect a charge.

"It has been decided that effective from January 15, 2000, all orders executed on behalf of FIIs and mutual funds must necessarily be settled directly by custodians through the clearing house," Sebi said.

It said transactions costs were higher in hand delivery trades and it did not have the security of clearing house and settlement guarantee funds.

However, hand delivery mechanism will be allowed if there is a discrepancy in quantity or price between the order executed by the broker and the confirmation by the institutions.