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BY
RAMESH CHAND
FOURTH SEMESTER
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Disclosures and listing norms.
Computerized trading.
Future developments.
National Stock Exchange.
Introduction.
Locations.
Listing.
Constitution.
Trading members. Trading mechanism.
Market types.
Order books.
Order matching rules.
Order conditions.
Quantity conditions.
Trading workstation.
Computer to computer links facility.
National Securities Clearing Corporation Limited.
Badla trading.
Substitutes for Badla.
Financial derivatives.
Trading options.
Bibliography.
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EXECUTIVE SUMMARY
The project is an attempt to working of stock exchanges in
detail. It provides thorough knowledge of different aspects
of trading in stock exchanges. The focus is basically with
Indian context. The report is divided in three parts. The
first dealing with the theory, i.e, introduction of securities
market, concept of stock exchanges, their role in
economy, their characteristics, role of SEBI etc.
The second part is the study made of different methods of
trading and In all they offer 9 different avenues for
investing, which have been explained in length in the
pages to come.
The third part is the Case Study RELIANCE DHERUBHAI
AMBHANI
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invest in such partnerships in the first place, since once
invested, their savings would be very difficult to convert
into cash. And most people have lots of reasons, such as
better investment opportunity, marriage, education,
death, health and so on for wanting to convert their
savings into cash. Clearly then, big enterprises will be able
to raise capital from the public at large only if there were
some mechanism by which the investors could purchase
or sell their share of business as ands they wished to do
so. This implies that ownership in business has to bebroken up into a lager number of small units, such that
each unit may be independently & easily bought and sold
without hampering the business activity as such. Also,
such breaking of business ownership would help mobilize
small savings in the economy into entrepreneurial
ventures. This end is achieved in a modern business through the
mechanism of shares.
What is a share?
A share represents the smallest recognized fraction of ownership in a publicly held business. Each such fraction
of ownership is represented in the form of a certificate
known as a share certificate. The breaking up of total
ownership of a business into small fragments, each
fragment represented by a share certificate, enables them
to be easily bought and sold.
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What is a stock exchange?
The institution where this buying and selling of
shares essentially takes place is the Stock
Exchange.
In the absence of stock exchanges, ie. Institutions where
small chunks of businesses could be traded, there would
be no modern business in the form of publicly held
companies. Today, owing to the stock exchanges, one canbe part owners of one company today and another
company tomorrow; one can be part owners in several
companies at the same time; one can be part owner in a
company hundreds or thousands of miles away; one can
be all of these things. Thus by enabling the convertibility
of ownership in the product market into financial assets,namely shares, stock exchanges bring together buyers
and sellers (or their representatives) of fractional
ownerships of companies. And for that very reason,
activities relating to stock exchanges are also
appropriately enough, known as stock market or security
market. Also a stock exchange is distinguished by aspecific locality and characteristics of its own mostly a
stock exchange is also distinguished by a physical location
and characteristics of its own. In fact, according to
H.T.Parekh, the earliest location of the Bombay Stock
Exchange, which for a long period was known as the
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native share and stock brokers association, was probably
under a tree around 1870!
The stock exchanges are the exclusive centers for the
trading of securities. The regulatory framework
encourages this by virtually banning trading of securities
outside exchanges. Until recently, the area of operation/
jurisdiction of exchange was specified at the time of its
recognition, which in effect precluded competition among
the exchanges. These are called regional exchanges. Inorder to provide an opportunity to investors to invest/
trade in the securities of local companies, it is mandatory
foe the companies, wishing to list their securities, to list on
the regional stock exchange nearest to their registered
office.
Characteristics of Stock Exchanges in India
Traditionally, a stock exchange has been an
association of individual members called memberbrokers (or simply members or brokers), formed for
the express purpose of regulating and facilitating
buying and selling of securities by the public and
institution at large.
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A stock exchange in India operates with due
recognition from the government under the
Securities and Contracts (Regulations) Act, 1956. the
member brokers are essentially the middlemen who
carry out the desired transactions in securities on
behalf of the public(for a commission) or on their own
behalf. New membership to a Stock Exchange is
through election by the governing board of that stock
exchange.
At present, there are 23 stock exchanges in India, the
largest among them being the Bombay Stock
Exchange. BSE alone accounts for over 80% of the
total volume of transactions in shares.
Typically, a stock exchange is governed by a board
consisting of directors largely elected by the member
brokers, and a few nominated by the government.
Government nominee include representatives of the
ministry of finance, as well as some public
representatives, who are expected to safeguard the
public interest in the functioning of the exchanges. Apresident, who is an elected member, usually
nominated by the government from among the
elected members, heads the board. The executive
director, who is usually appointed by the by the stock
exchange with the government approval is the
operational chief of the stock exchange. His duty is to
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ensure that the day to day operations the Stock
Exchange are carried out in accordance with the
various rules and regulations governing its
functioning.
The overall development and regulation of the
securities market has been entrusted to the
Securities and Exchange Board of India (SEBI) by an
act of parliament in 1992.
All companies wishing to raise capital from the public
are required to list their securities on at least one
stock exchange. Thus, all ordinary shares, preference
shares and debentures of the publicly held
companies are listed in the stock exchange.
Exchange management
Made some attempts in this direction, but this did not
materially alter the situation. In view of the less than
satisfactory quality, of administration of broker-managed
exchanges, the finance minister in march 2001 proposed
demutualisation of exchanges by which ownership,management and trading membership would be
segregated from each other. The regulators are working
towards implementing this. Of the 23 stock exchanges in
India, two stock exchanges viz., OTCEI and NSE are
already demutualised. Board of directors, which do not
include trading members, manages these. Theses are
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purest form of demutualised exchanges, where ownership,
management and trading are in the hands of three sets of
people. The concept of demutualisation completely
eliminates any conflict of interest and helps the exchange
to pursue market efficiency and investors interest
aggressively.
Role of SEBI
The SEBI, that is, the Securities and the Exchange Board
of India, is the national regulatory body for the securitiesmarket, set up under the securities and Exchange Board of
India act, 1992, to protect the interest of investors in
securities and to promote the development of, and to
regulate the securities market and for matters connected
therewith and incidental too.
SEBI has its head office in Mumbai and it has now set up
regional offices in the metropolitan cities of Kolkata, Delhi,
and Chennai. The Board of SEBI comprises a Chairman,
two members from the central government representing
the ministries of finance and law, one member from the
Reserve Bank of India and two other members appointedby the central government.
As per the SEBI act, 1992, the power and functions of the
Board encompass the regulation of Stock Exchanges and
other securities markets; registration and regulation of the
working stock brokers, sub-brokers, bankers to an issue (a
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public offer of capital), trustees of trust deeds, registrars
to an issues, merchant bankers, under writers, portfolio
managers, investment advisors and such other
intermediaries who may be associated with the stock
market in any way; registration and regulations of mutual
funds; promotion and regulation of self- regulatory
organizations; prohibiting Fraudulent and unfair trade
practices and insider trading in securities markets;
regulating substantial acquisition of shares and takeover
of companies; calling for information from undertkinginspection, conducting inquiries and audits of stock
exchanges, intermediaries and self- regulatory
organizations of the securities market; performing such
functions and exercising such powers as contained in the
provisions of the Capital Issues (Control) Act,1947 and the
Securities Contracts (Regulation) Act, 1956, levyingvarious fees and other charges, conducting necessary
research for above purposes and performing such other
functions as may be prescribes from time to time.
SEBI as the watchdog of the industry has an important and
crucial role in the market in ensuring that the marketparticipants perform their duties in accordance with the
regulatory norms. The Stock Exchange as a responsible
Self Regulatory Organization (SRO) function to regulate
the market and its prices as per the prevalent regulations.
SEBI and the Exchange play complimentary roles to
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enhance the investor protection and the overall quality of
the market.
Membership
The trading platform of a stock exchange is accessible
only to brokers. The broker enters into trades in
exchanges either on his own account or on behalf of
clients. The clients may place their order with them
directly or a sub-broker indirectly. A broker is admitted tothe membership of an exchange in terms of the provisions
of the SCRA, the SEBI act 1992, the rules, circulars,
notifications, guidelines, etc. prescribed there under and
the byelaws, rules and regulations of the concerned
exchange. No stockbroker or sub-broker is allowed to buy,
sell or deal in securities, unless he or she holds acertificate of registration granted by SEBI. A broker/sub-
broker compiles with the code of conduct prescribed by
SEBI.
The stock exchanges are free to stipulate stricter
requirements for its members than those stipulated by
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SEBI. The minimum standards stipulated by NSE for
membership are in excess of the minimum norms laid
down by SEBI. The standards for admission of members
laid down by NSE stress on factors, such as, corporate
structure, capital adequacy, track record, education,
experience, etc. and reflect the conscious endeavors to
ensure quality broking services.
Listing
Listing means formal admission of a security to the tradingplatform of a stock exchange, invariably evidenced by a
listing agreement between the issuer of the security and
the stock exchange. ; Listing of securities on Indian Stock
Exchanges is essentially governed by the provisions in the
companies act, 1956, SCRA, SCRR, rules, bye-laws and
regulations of the concerned stock exchange, the listingagreement entered into by the issuer and the stock
exchange and the circulars/ guidelines issued by central
government and SEBI.
Index services
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Stock index uses a set of stocks that are representative of
the whole market, or a specified sector to measure the
change in overall behavior of the markets or sector over a
period of time. India Index Services & Products Limited
(IISL), promoted by NSE and CRISIL, is the only specialized
organization in the country to provide stock index
services.
Trading Mechanism
All stock exchanges in India follow screen-based trading
system. NSE was the first stock exchange in the country to
provide nation-wide order-driven, screen-based trading
system. NSE model was gradually emulated by all other
stock exchanges in the country. The trading system at
NSE known as the National Exchange for Automated Trading (NEAT) system is an anonymous order-driven
system and operates on a strict price/time priority. It
enables members from across the countries to trade
simultaneously with enormous ease and efficiency. NEAT
has lent considerable depth in the market by enabling
large number of members all over the country to tradesimultaneously and consequently narrowed the spreads
significantly. A single consolidated order book for each
stock displays, on a real time basis, buy and sell orders
originating from all over the country. The bookstores only
limit orders, which are orders to buy or sell shares at a
stated quantity and stated price. The limit order is
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executed only if the price quantity conditions match. Thus,
the NEAT system provides an open electronic consolidated
limit order book (OECLOB). The trading system provides
tremendous flexibility to the
users in terms of kinds of orders that can be placed on the
system. Several time-related (Good-Till-Cancelled, Good-
Till-Day, Immediate-or-Cancel), price related (buy/sell limit
and stop-loss orders) or volume related (All-or-None,
Minimum Fill, etc.) conditions van be easily built into an
order. Orders are sorted and match automatically by thecomputer keeping the system transparent, objective and
fair. The trading system also provides complete market
information on-line, which is updated on real time basis.
The trading platform of the CM segment of NSE is
accessed not only from the computer terminals from the
premises of brokers spread over 420 cities, but also fromthe personal computers in the homes of investors through
the internet and from the hand-held devices through WAP.
The trading platform of BSE is also accessible from 400
cities.
Internet trading is available on NSE and BSE, as of now.SEBI has approved the use of Internet as an order routing
system, for communicating clients orders to the
exchanges through brokers. SEBI- registered brokers can
introduce internet-based trading after obtaining
permission from the respective Stock Exchanges. SEBI has
stipulated the minimum conditions to be fulfilled by
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trading members to start internet-based trading and
services.
NSE was the first exchange in the country to provide web-
based access to investors to trade directly on the
exchange. It launched Internet trading in February 2000. It
was followed by the launch of Internet trading by BSE in
March 2001. The orders originating from the personal
computers (PCs) of investors are routed through the
Internet tot eh trading terminals of the designated brokerswith whom they have relations and further to the
exchange of trade execution. Soon after these orders get
matched and result into trades, the investors get
confirmation about them on their PCs through the same
Internet routes.
SEBI approved trading through wireless medium or WAP
platform. NSE is the only exchange to provide access to its
order book through the hand held devices, which use WAP
technology. This serves primarily retail investors who are
mobile and want to trade from any place when the market
prices for st0ocks of their choice are attractive.
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2000, it has been observed that India has achieved a very
high level of dematerialization in less than three years
time, and currently more than 99%of trades settle in
demand form. Competition and regulatory developments
facilitated reduction in custodial charges and
improvements in qualities of service standards. The
paper observes that one imminent and apparent
immediate benefit of competition between the two
depositories is fall in settlement and other charges.
Competition has been driving improvement inservice standards. Depository facility has effected
changes in stock market microstructure. Breadth and
depth of investment culture has further got extended to
interior areas of the country faster. Explicit transaction
cost has been falling due to dematerialization.
Dematerialization substantially contributed to theincreased growth in the turnover. Dematerialization
growth in India is the quickest among all emerging
markets and also among developed markets excepting for
the U.K and Hong Kong.
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the investors by making available necessary informative
inputs and conducting investor education programmes.
A Governing Board comprising of 9 elected directors (one
third of them retire every year by rotation), two SEBI
nominees, a Reserve Bank of India nominee, six public
representatives and an Executive Director is the apex
body, which decides the policies and regulates the affairs
of the Exchange.
The Executive Director as the Chief Executive Officer is
responsible for the day-to-day administration of the
Exchange.
The average daily turnover of the Exchange during the
year 2000-2001 (April-March), was Rs.3984.19 crores andaverage number of daily trades was 5.69 lakhs. However,
the average daily turnover of the Exchange during the
year 2001- 2002 has declined to Rs. 1244.10 crores and
number of average daily trades during the period to 5.17
lakhs. The ban on all deferral products like BLESS and
ALBM in the Indian capital Markets by SEBI w.e.f. July 2,2001, abolition of account period settlements, introduction
of Compulsory Rolling Settlements in all scrips traded on
the Exchanges w.e.f. December 31, 2001, etc. have
adversely impacted the liquidity and consequently there is
a considerable decline in the daily turnover at the
Exchange.
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Telephone Nigam Limited with the market capitalization of
Rs.11, 700 crores.
BSE SENSEX
The BSE SENSEX , short form of Sensitive Index, first
compiled in 1986 is a market Capitalization-Weighted
index of 30 component stocks representing a sample of
large, well-established and financially sound companies.
The index is widely reported in both, the domesticinternational, print electronic media and is widely used to
measure the used to measure the performance of the
Indian stock markets.
The BSE SENSEX is the benchmark index of the Indian
capital market and one, which has the longest socialmemory. In fact the SENSEX is considered to be the
pulse of the Indian stock markets. It is the oldest index in
India and has acquired a unique place in collective
consciousness of the investors. Further, as the oldest
index of the Indian Stock Market, it provides time series
data over a fairly long period of time. Small wonder thatthe SENSEX has over the years has become one of the
most prominent brands of the Country.
Objectives of SENSEX
The BSE SENSEX is the benchmark index with wide
acceptance among individual investors, institutional
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Companies represented in the SENSEX
Company name
(As on 15.06.01)
Sector
Hindustan lever FMCGReliance limited Chemicals and
petrochemicalsInfosys technologies Information technologyReliance petroleum Oil and gas
ITC FMCGState bank of India Finance
MTNL TelecomSatyam computers Information technology
Zee telefilms MediaRanbaxy labs Healthcare
ICICI FinanceLarsen & toubro Diversified
Cipla HealthcareHindalco Metals and mining
HPCL Metal and mining TISCO Metal and mining
Nestle FMCG
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Trading System
Till Now, buyers and sellers used to negotiate face-to-face
on the trading floor over a security until agreement was
reached and a deal was struck in the open outcry system
of trading, that used to take place in the trading ring. The
transaction details of the account period (called
settlement period) were submitted for settlement by
members after each trading session.
The computerized settlement system initiated the netting
and clearing process by providing on daily basis
statements for each member, showing matched and
unmatched transactions. Settlement processing involves
computation of each member's net position in each
security, after taking into account all transactions for the
member during the settlement period, which is 10 working
days for group 'A' securities and 5 working days for group
'B' securities.
Trading is done by members and their authorized
assistants from their Trader Work Stations (TWS) in their
offices, through the BSE On-Line Trading (BOLT) system.
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BOLT system has replaced the open outcry system of
trading. BOLT system accepts two-way quotations from
jobbers, market and limits orders from client-brokers and
matches them according to the matching logic specified in
the Business Requirement Specifications (BRS) document
for this system.
The matching logic for the Carry-Forward System as in the
case of the regular trading system is quote driven with the
order book functioning as an "auxiliary jobber".
TRADING
The Exchange, which had an open outcry trading system,
had switched over to a fully automated computerized
mode of trading known as BOLT (BSE on Line Trading)
System. Through the BOLT system the members nowenter orders from Trader Work Stations (TWSs) installed in
their offices instead of assembling in the trading ring. This
system, which was initially both order and quote driven,
was commissioned on March 14, 1995. However, the
facility of placing of quotes has been removed w.e.f.,
August 13, 2001 in view of lack of market interest and toimprove system-matching efficiency. The system, which is
now only order driven, facilitates more efficient
processing, automatic order matching and faster
execution of orders in a transparent manner.
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Earlier, the members of the Exchange were permitted to
open trading terminals only in Mumbai. However, in
October 1996, the Exchange obtained permission from
SEBI for expansion of its BOLT network to locations outside
Mumbai. In terms of the permission granted by SEBI and
certain modifications announced later, the members of the
Exchange are now free to install their trading terminals at
any place in the country. Shri P. Chidambaram
inaugurated the expansion of BOLT network the then
Finance Minister, Government of India on August 31, 1997.
In order to expand the reach of BOLT network to centers
outside Mumbai and support the smaller Regional Stock
Exchanges, the Exchange has, as on March 31, 2002,
admitted subsidiary companies formed by 13 Regional
Stock Exchanges as its members. The members of theseRegional Stock Exchanges work as sub-brokers of the
member-brokers of the Exchange.
The objectives of granting membership to the subsidiary
companies formed by the Regional Stock Exchanges were
to reach out to investors in these centers via the membersof these Regional Exchanges and provide the investors in
these areas access to the trading facilities in all scrips
listed on the Exchange.
Trading on the BOLT System is conducted from Monday to
Friday between 9:55 a.m. and 3:30 p.m. The scrips traded
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meet the relevant norms specified by the Exchange.
Accordingly, to begin with the Exchange has permitted
trading in scrips of five companies listed on other Stock
Exchanges w.e.f. April 22, 2002/
Computation of closing price of scrips in the Cash
Segment:
The closing prices of scrips are computed on the basis of
weighted average price of all trades in the last 15 minutesof the continuous trading session. However, if there is no
trade during the last 15 minutes, then the last traded
price in the continuous trading session is taken as the
official closing price.
A) Compulsory Rolling Segment (CRS):
Compulsory Rolling Settlement (CRS) Segment:
With a view to introduce the best international trading
practices and to achieve higher settlement efficiency, as
mandated by SEBI, trades in all the equity shares listed on
the Exchange in CRS Segment were to be settled on T+5basis w.e.f. December 31, 2001. SEBI has further directed
the Stock Exchanges that trades in all scrips w.e..f. April 1,
2002 should be settled on T+3 basis. Accordingly, all
transactions in all groups of securities in the equity
segment and fixed income securities listed on the
Exchange are settled on T+3 basis w.e.f. April 1, 2002
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Under a rolling settlement environment, the trades done
on a particular day are settled after a given number of
business days rather than settling all trades done during a
period at the end of an 'account period'. A T+3 settlement
cycle means that the final settlement of transactions done
on T or trade day by exchange of monies and securities,
occurs on fifth business day after the trade day.
The transactions in securities of companies which have
made arrangements for dematerialization of theirsecurities by the stipulated date are settled only in Demat
mode on T+3 on net basis, i.e., buy and sale positions in
the same scrip are netted and the net quantity is to be
settled. However, transactions in securities of companies,
which have failed to make arrangements for
dematerialization of their securities or /are in "Z" group,are settled only on trade to trade basis on T+3 i.e., the
transactions are settled on a gross basis and the facility of
netting of buy and sale transactions in a scrip is not
available. For example, if one buys and sells 100 shares of
a company on the same day which is on trade to trade
basis, the two positions will not be netted and he will haveto first deliver 100 shares at the time of pay-in of
securities and then receive 100 shares at the time of pay-
out of securities on the same day. Thus, if one fails to
deliver the securities sold at the time of pay-in, it will be
treated as a shortage and the position will be auctioned/
closed-out.
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In other words, the transactions in scrips of companies
which are in compulsory demat are settled in demat mode
on T+3 on netting basis and the transactions in scrips of
companies, which have not made arrangements for
dematerialization of their securities by the stipulated date
or are in "Z" group for other reasons, are settled on trade
to trade basis on T+3 either in demat mode or in physical
mode.
The settlement of transactions in 'F' group securities
representing Fixed Income Securities is also on Rolling
Settlement Cycle of T+3 basis.
The following tables summarizes the steps in the trading
and settlement cycle for scrips under CRS:
DAY ACTIVITY:
Trading on BOLT and daily downloading of statements
showing details of transactions and margins at the end of
each trading day.
6A/7A entry by the member-brokers.
T+1
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Statements giving details of the daily transactions entered
into by the members.
Statements giving details of margins payable by the
members in respect of the trades executed by them.
The settlement of the trades (money and securities) done
by a member on his own account or on behalf of his
individual, corporate or institutional clients may be either
through the member himself or through a SEBI registeredCustodian appointed by him or the respective client. In
case the delivery/payment is to be given or taken by a
registered Custodian, he has to confirm the trade done by
a member on the BOLT System through 6A-7A entry. For
this purpose, the Custodians have been given connectivity
to BOLT System and have also been admitted as membersof the Clearing House. In case a transaction is not
confirmed by a registered Custodian, the liability for pay-in
of funds or securities in respect of the same devolves on
the concerned member.
The introduction of settlement on T+3 basis has resultedin reduction in settlement risk, provided early receipt of
securities and monies to buyers and sellers respectively
and brought Indian Capital Markets at the international
standard of settlements
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basis, i.e., without netting of purchase and sale
transactions in a scrip.
The Delivery Orders provide information like scrip,
quantity and the name of the receiving member to whom
the securities are to be delivered through the Clearing
House. The Money Statement provides scrip wise/item
wise details of payments/receipts for the settlement. The
Delivery/Receive Orders and money statements can be
downloaded by the members in their back offices
The bank accounts of members maintained with the eight
clearing banks, viz., Bank of India, HDFC Bank Ltd., Global
Trust Bank Ltd., Standard Chartered Bank, Centurion Bank
Ltd., UTI Bank Ltd., ICICI Bank Ltd., and Indusind Bank Ltd.,
are directly debited through computerized posting for theirsettlement and margin obligations and credited with
receivables on accounts of pay-out dues and refund of
margins.
The securities, as per the Delivery Orders issued by the
Exchange, are required to be delivered by the members inthe Clearing House on the day designated for securities
pay-in, i.e., on T+3 day. In case of the physical securities,
the members have to deliver the securities in special
closed pouches (supplied by the Exchange) along with the
relevant details (distinctive numbers, scrip code, quantity,
and receiving member) on a floppy. The data submitted by
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the members on floppies is matched against the master
file data on the Clearing House computer systems. If there
are no discrepancies, then a scroll number is generated by
the Clearing House and a scroll slip is issued. The
members can then submit the securities at the receiving
counter in the Clearing House
Auto D.O. facility:
Instead of issuing Delivery Out instructions for their
delivery obligations in a settlement /auction, a facility hasbeen made available to the members of automatically
generating Delivery-Out (D.O.) instructions on their behalf
from their CM Pool A/cs by the Clearing House w.e.f.,
August 10, 2000. This Auto D.O. facility is available for
CRS (Normal & Auction) and for trade-to-trade
settlements. This facility is, however, not available fordelivery of non-pari passu shares and shares having
multiple ISINs. The members wishing to avail of this facility
have to submit an authority letter to the Clearing House.
This Auto D.O facility is currently available only for
Clearing Member (CM) Pool accounts/Principal Accounts
maintained by the members with National SecuritiesDepository Ltd. (NSDL) and Central Depositories Services
Ltd. (CDSL)
Demat pay-in:
The members can effect demat pay-in either through
Central Depository Services (I) Ltd. (CDSL) or National
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Members collect securities from the Clearing House on the
payout day and the accounts of the members having
payout are credited on Friday. This is referred to as
Payout. In case of the Rolling Settlements, pay-in and
payout of both funds and securities is on the same day, in
case of Weekly settlements, pay-in of funds and securities
is on Thursday and payout is on Friday.
The auction is conducted for those securities which
members fail to deliver/short deliver during the Pay-in. Incase the securities are not received in an auction, the
positions are closed out as per the closeout rate fixed by
the Exchange in accordance with the prescribed rules. The
close out rate is calculated as the highest rate of the scrip
recorded in the settlement in which the trade was
executed and in the subsequent settlement upto the dayprior to the day of auction, or 20% above the closing price
on the day prior to the day of auction, whichever is higher.
However, in case of close-out for shares under objection or
traded in "C" group, 10% instead of 20% above the closing
price on the day prior to the day of auction and the
highest price recorded in the settlement in which tradetook place upto a day prior to auction is considered.
The Exchange has strictly adhered to the settlement
schedules for various groups of securities and there has
been no case of clubbing of settlements or postponement
of pay-in and pay-out during the last six years.
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However, in case of the close-out of the shares under
objection and shortages in "C" or "Z" group, 10% above
the closing prices of the scrips on the pay-out day of the
respective settlement are considered instead of 20%.
Further, if the auction price/close-out price of a scrip is
higher than the standard price of the scrip in the
settlement in which the transaction was done, the
difference is recovered from the seller who failed to
deliver the scrip. However, in case, auction/ close-outprice is lower than standard price, the difference is not
given to the seller but is credited by the Exchange to the
Customers Protection Fund. This is to ensure that the
seller does not benefit from his failure to meet his delivery
obligation. Further, if the offeror member fails to deliver
the shares offered in auction, then the transactions isclosed-out as per the normal procedure and the original
selling member pays the difference below the standard
rate and offer rate and the offeror member pays the
difference between the offer rate and close-out rate.
Self Auction
As has been discussed in the earlier paragraphs, the
Delivery and Receive Orders are issued to the members
after netting off their purchase and sale transactions in
scrips where netting of purchase and sale positions is
permitted. It is likely in some circumstances that a selling
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Death Certificate (in cases where one or more of the
transferors are deceased) is missing.
A penalty at the rate of Rs.100/- per Delivery Order is
levied on the delivering member for delivering shares,
which are not in order. In the event a receiving member
misuses the facility of submitting shares under objection
without "Chukada", a penalty of Rs.500/- per case is
charged and the penalty of Rs.100/- per Delivery Order
levied on the delivering member is refunded to him bydebiting the receiving member's account
Close Out:
There are cases when no offer for particular scrip is
received in an auction or when members who offer the
scrips in auction, fail to deliver the same. In the formercase, the original seller member's account is debited and
the buyer member's account is credited at the closeout
rate. In the latter case, the offeror member's account is
debited and the buyer member's account is credited at the
close-out rate. The closeout rates for closing the positions
in different segments are as under:
For 'A' + 'B1' + 'B2' + 'Z', 'Rolling demat' and 'F'
group
The closeout rate is higher of the following rates:
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The highest rate of the scrip from the first day (trading
day in case of Rolling demat segment) to the day prior
to the day on which the auction is conducted for the
respective settlement.
20% above the closing rate as on the day prior to the
day of auction of the respective settlement.
For 'C' group segment
The close-out rate is higher of the following rates :
The highest rate of the scrip from the first day to the
day prior to the day of auction of 'A', 'B1', 'B2, and 'Z'
group segment of the respective settlements; or
10% above the closing rate as on the day prior to the
day of auction of 'A', 'B1', 'B2, and 'Z' group; or
Transaction price.
In the 'C' group, i.e., Odd Lot Segment, no auction session
is conducted. The shortages are directly closed out.
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The highest rate of the scrip from the first day to the
day prior to the day of auction of 'A', 'B1', 'B2, and 'Z'
group segment of the respective settlements; or
10% above the closing rate as on the day prior to the
day of auction of 'A', 'B1', 'B2, and 'Z' group; or
Transaction price.
In the 'C' group, i.e., Odd Lot Segment, no auction session
is conducted. The shortages are directly closed out.
BASKET TRADING SYSTEM
The Exchange has commenced trading in the Derivatives
Segment with effect from June 9, 2000 to, enable the
investors to hedge their risks. Initially, the facility of
trading in the Derivatives Segment has been confined to
Index Futures. Subsequently, the Exchange has since
introduced the index options and options & futures in
select individual stocks. The investors in cash market had
felt a need to limit their risk exposure in the market to
movement in Sensex.
With a view to provide investors with this facility of
creating Sensex linked portfolios and also to create a
linkage of market prices of the underlying securities of
Sensex in the Cash Segment and Futures on Sensex, the
Exchange has provided the facility of Basket Trading
System on BOLT. In Basket Trading System, the investors
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Sensex basket is arrived at by the system by multiplying
Rs.50 to prevailing Sensex.
SETTLEMENT SYSTEMSecurities traded on BSE are classified into three groups,
namely, specified shares or 'A' group and non-specified
securities that are sub-divided into 'B1' and 'B2' groups.
Presently, equity shares of thirty-two companies are
classified as specified shares. These companies typically
have a large capital base with widespread shareholding, asteady dividend, good growth record and a large volume
of business in the secondary market. Contracts in this
group are allowed to be carried over to subsequent
settlements upto a maximum permissible period of 75
days.
495 relatively liquid securities are placed in a category
called 'B1' group. The remaining securities-about 5800 as
on May 31, 1996 are placed in the 'B2' group. All newly
listed securities are placed in the 'B2' group.
Settlement of transactions is done on an 'Account Period'basis. The period is a calendar week in the case of 'A' and
'B1' groups and 14 calendar days in the case of 'B2' group
During an account period, buy or sell positions in a
particular security can be either squared up by entering
into contra transactions or can be further accumulated by
entering into more buy or sell transactions.
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Clearing System
The Clearing House of the Exchange handles the share
and the money parts of the settlement process in the caseof 'A' and 'B1' groups. The Clearing House handles only
the money part of 'B2' group while securities are
physically exchanged between the brokers.
Opportunities available for foreign investors
1. Direct investment:
Foreign Companies are now permitted to have a
majority stake in their Indian affiliates except in a few
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III. A registered FII is required to buy or sell only for
delivery. It should not offset a deal. It is also not
allowed to sell short.
3. Investment in Euro Issues/Mutual Funds Floated
Overseas:
Foreign investors can invest in Euro issues of Indian
companies and in India-specific funds floated abroad.
4. Broking Business: Foreign brokers upon registration with the SEBI are now
allowed to route the business of registered FIIs.
Guideline for the purpose have been issued by SEBI.
However, foreign brokers at present are not allowed
membership in India Stock Exchanges.
5. Asset Management Companies/Merchant
Banking:
Foreign Participation in Asset Management Companies
and Merchant Banking Companies is permitted.
TRANSFER OF OWNERSHIP
Transfer of ownership of securities in effected through a
date stamped transfer-deed, which is signed, by the buyer
and the seller. The duly executed transfer-deed along with
the share certificate has to be lodged with the company
for change in the ownership. A nominal duty becomes
payable in the form of stamps to be affixed on the
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transfer-deeds. Transfer-deeds remain valid for twelve
months or the next book closure following the stamped
date whichever occurs later.
SAFEGUARDS
1. Margins are collected from the brokers on buying and
selling positions at the end of the day. The total
outstanding position is further subject to capital
adequacy norms laid down from time to time.2. A comprehensive insurance cover for the Exchange
and the members is about to be put in place.
3. Guaranteeing trades is the cornerstone of a mature
clearing and settlement process. BSE is in the
process of establishing a Clearing Corporation that
will guarantee trades.4. Companies are required to publish half-yearly
unaudited results and other price sensitive
information. This imparts greater transparency to the
stock market operations.
5. Insider Trading Regulations have been laid down and
a 'Take-Over' code has been created.
ARBITRATION MACHINERY
There exists three level arbitration machinery. The first
two levels, which are adjudicated by member brokers,
comprise of a two-member bench and a full bench that is
to comprise of at least sixteen members respectively. The
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highest arbitrator in the Exchange is the Governing Board.
Disputes unresolved in the Exchange are taken to the
Court of Law.
CUSTOMER PROTECTION FUND
The objective of this fund is to provide insurance to
investors in case of default by a member. The investor is
indemnified from default to the extent of Rs.1, 00,000.
The corpus of the fund is created by depositing 2.5% of the listing fees and a levy on turnover at the rate or Re.1
for Rs. 1 million of turnover. It is further augmented by
50% of the interest accrued on 1% of the issue amount
which is deposited by companies at the time of their
public and rights issues for a three month period as a
safeguard against non-refund of excess subscription.
GRIEVANCE REDRESSAL
The Investor's Services Cell redresses investors'
grievances against listed companies and stockbrokers.
However, the Exchange does not have power to take
penal action against listed companies, except delisting for
specified periods.
DISCIPLINARY ACTION
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The Exchange has an eight member Disciplinary Action
Committee (DAC) which decides on punitive action in
disciplinary cases referred to it by the Surveillance and
inspection departments of the Exchange Administration.
INDICES
The Exchange compiles four indices, which are based on
market capitalization. The first index to be compiled wasthe BSE Sensitive Index with 1978-79 as the base year. It
comprises of equity shares of 30 companies from both
specified and non-specified securities groups. The
companies have been selected on the basis of market
activity. Subsequently, a more broad based index, BSE
National Index with 1983-84 as base year, was compiled. This index is made up of 100 scrips, 98 of which are
quoted on Bombay. This index also includes prices on the
other major stock exchanges of Delhi, Calcutta,
Ahmedabad and Madras. If scrip is actively quoted on
more than one Exchange the average price of the scrip is
used in the compilation of the index.
It was felt that the sensitive index-the most popular
indicator of market movement-had become oversensitive
to a handful of scrips. With divestment of Public Sector
Unit (PSU) equity by government and a sharp increase in
the number of companies listed over the last few years, itwas felt that a new index, which is more representative of
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the recent changes and is more balanced is necessary.
The BSE-200, which was introduced in May 1994, consists
of equity shares of 200 companies, which have been
selected on the basis of market capitalization, volume of
turnover and strength of the companies' fundamentals.
1989-90 has been chosen as the base year for BSE-200.
As the presence of the foreign investors grew, a need was
felt to express the index values by taking into account the
Rupee-Dollar conversion rate. Consequently, dividing thecurrent Rupee market value by Rupee-Dollar modifies the
BSE-200 conversion rate in the base year. This index,
which indicates the movement of the market in dollar
values, is called the Dollex.
DISCLOSURE & LISTING NORMS
Companies who wish to raise money from capital market
follow guidelines relating to disclosure, laid down by the
Securities and Exchange Board of India. Some of the
disclosure norms are:
Details of other income if it constitutes more than tenpercent of total income.
All adverse event affecting the operations of the
company. Any change in key managerial personnel.
Risk factors specific to the project and those which
are external to the company.
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The listing requirements with the Exchange call for further
disclosure by companies to promote public confidence.
Important disclosures are: The company is required to furnish unaudited half-
yearly financial results in the prescribed Performa. The company must explain to the Stock Exchange
any large variation between audited and unaudited
results in respect of any item. When any person or an institution acquires or agrees
to acquire any security of a company which would
result in his holding five percent or more of the
voting capital of the company, including the existing
holding the Exchange must be notified within two
days of such acquisition by the company or by
authorized intermediary or by the acquirer. Any take-over offer made either voluntarily or
compulsorily to a company requires a public
announcement by both the offeror and the offeree
company.
Computerized Trading
BSE computerized its trading and settlement activities by
following a three-phased approach.
Phase I: The primary objective of this phase was the real
time dissemination of price data through the Display
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Information Driver System (DIDS). DIDS was
commissioned in November 1992 to disseminate bids,
offers, actual rates of transactions and indices on a real
time basis.
Phase II: In 1994, settlement related daily transactions
inputs and outputs were uploaded and downloaded from
the TWS in the brokers offices.
Phase III: Commissioned on March 14, 1995. Although,screen based trading started with 818 scrips, by the 70th
day of its commissioning, all scrips-exceeding 5000 had
been put on the BOLT system. The BOLT system was
commissioned with the Himalya K 10,000 central trading
computer hardware. Since then the hardware has been
upgraded to the Himalya K 20,000 system. The systemprovides for a response time of two seconds and can
handle more than two hundred thousand trades in a day.
Stock Market Indicators1991-
92(Apr.Mar)
1992-
93(Apr.Mar)
1993-
94(Apr.Mar)
1994-
95(Apr.Mar)
1995-96(Apr.Ma
r)
No. of ListedCompanies 2061 2861 3585 4702 5603
Market Capitalization(In Rs.Billion) 3059.87 1881.46 3680.71 4354.81 5264.76
(In US $Billion) 97.13 59.72 116.85 138.37 153.27
Annual Turnover
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(In Rs.Billion) 717.77 456.96 836.29 677.49 500.64(In US $Billion) 22.78 14.50 26.55 21.51 14.57
Velocity 0.23 0.24 0.24 0.16 0.10Average Daily Turnover
(In Rs.Billion) 3.32 2.38 3.84 1.78 2.16(In US $Billion) 0.10 0.07 0.12 0.06 0.06
No. of SharesTraded
(In MillionNos.)
6,35,5153,50,3137,42,792 1,07,24.8 7,71,850
AverageNumber of Daily Deals
75,000 65,535 63,786 85,010 73,855
BSE SensitiveIndex
(Year End)4285.00 2280.52 3778.99 3260.95 3366.61
BSE NationalIndex
(Year End)1967.71 1021.40 1829.53 1605.57 1549.25
BSE 2000(Year End) 585.19 234.35 450.07 365.97 345.40
Dollex (YearEnd) 261.25 124.89 238.86 194.67 168.54
No. of Registered
Flls- - 145 308 366
Fll Net investment(In Rs. Billion) - - 29.85 21.24 31.63
(In US $Billion) - - 0.95 0.67 0.92
No. of Members
(Year End)558 558 628 636 641
No. of CorporateMembers
(Year End)
4 4 4 26 63
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Future Developments
In 1995, the President of India promulgated an Ordinance,
which allowed for establishment of depositories.
BSE in collaboration with Bank of India (BOI) will shortly
establish a depository. BSE has applied for permission
from SEBI to expand BOLT to other centres. Expansion of
BOLT would bring more investors into the ambit of the
capital market and consequently add depth to it.
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INTRODUCTION
The National Stock Exchange (NSE) is India's leading stock
exchange covering around 400 cities and towns all over
India. NSE introduced for the first time in India, fully
automated screen based trading. It provides a modern,
fully computerized trading system designed to offer
investors across the length and breadth of the country a
safe and easy way to invest or liquidate investments in
securities.
Sponsored by the industrial development bank of India,
the NSE has been co-sponsored by other development/
public finance institutions, LIC, GIC, banks and other
financial institutions such as SBI Capital Market,
Stockholding corporation, Infrastructure leasing andfinance and so on. India has had a history of stock
exchanges limited in their operating jurisdiction to the
cities in which they were set up.
NSE started equity trading on November 3, 1994 and
within a short span of 1 year became the largest exchangein India in terms of volumes transacted. Trading volumes
in the equity segment have grown rapidly with average
daily turnover increasing from Rs.7 crores in November
1994 to Rs.6797 crores in February 2001 with an average
of 9.6 lakh trades on a daily basis. During the year 2000-
2001, NSE reported a turnover of Rs.13, 39,510 crores in
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the equities segment accounting for 45% of the total
market.
The NSE represented an attempt to overcome the
fragmentation of regional markets by providing a screen-
based system, which transcends geographical barriers.
Having operationalised both the debt and equity markets,
the NSE is planning for a derivative market, which will
provide futures and options in equity. Its main objectives
has been to set up comprehensive facilities for the entirerange of securities under a single umbrella, namely,
To set up a nation wide trading facility for equities,
debt instruments and
hybrids;
To ensure equal access to investors across the
country through an appropriatecommunication network;
To provide a fair, efficient and transparent securities
market to investors using the electronic
trading system;
To ensure shorter settlement cycles and book entry
settlement systems; and
To meet the current international standards
prevalent in the securities
Industry/markets.
Locations
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One of the objectives of NSE was to provide a nationwide
trading facility and to enable investors spread all over the
country to have an equal access to NSE. NSE uses
sophisticated telecommunication technology through
which members can trade remotely from their offices
located in any part of the country. NSE trading terminals
are present in around 400 cities and towns all over India.
Listing
The prime objective of admission to dealings on the
Exchange is to provide liquidity and marketability to
securities as also to provide a mechanism for effective
management of trading.
Securities listed on the Exchange are required to fulfill thelisting eligibility criteria. Various types of securities of a
company are traded under a unique symbol and different
series. This section provides a direct link to the web site of
companies traded on the Exchange.
Constitution
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Pursuant to SEBI guidelines, NSE introduced a new market
called Limited Physical Market to provide a facility to small
investors to trade and settle physical shares in those
securities where compulsory dematerialized trading and
settlement is enforced by SEBI. In this segment quantities
not exceeding 500 shares of each security held in the
name of the investor can be traded.
3. Institutional Segment
Trading in this market segment is available for
institutional investors only. In order to ensure that the
overall FII ceiling limits are not violated, trading members
are allowed to enter sell orders in this market segment
only for their FII clients. However, members can enter buy
orders on behalf of FII/FI clients. The settlement of
transactions in this segment is in demat mode only.
4. Trade for Trade Segment
Trading in this segment is available only for those
securities, which have not established connectivity with
both the depositories as per SEBI directive. The list of
these securities is notified by SEBI from time to time.
5. Trading System
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NSE operates on the 'National Exchange for Automated
Trading' (NEAT) system, a fully automated screen based
trading system, which adopts the principle of an order
driven market. NSE consciously opted in favour of an order
driven system as opposed to a quote driven system. This
has helped reduce jobbing spreads not only on NSE but in
other exchanges as well, thus reducing transaction costs.
Till the advent of NSE, an investor wanting to transact in a
security not traded on the nearest exchange had to routeorders through a series of correspondent brokers to the
appropriate exchange. This resulted in a great deal of
uncertainty and high transaction costs. NSE has made it
possible for an investor to access the same market and
order book, irrespective of location, at the same price and
at the same cost.Market Types
The NEAT system in NSE has four types of market. They
are:
Normal Market
All orders which are of regular lot size or multiples thereof
are traded in the Normal Market. For shares, which 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
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Orders and Stop Loss orders depending on their order
attributes.
Odd Lot Market
All 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.
Spot Market
Spot orders are similar to the normal market orders
except that spot orders have different settlement periods
vis--vis normal market. These orders do not have any
special terms attributes attached to them. Currently theSpot Market is being used for the Automated Lending &
Borrowing Mechanism (ALBM) session.
Auction Market
In the Auction Market, the Exchange on behalf of trading
members for settlement related reasons initiatesauctions.
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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 is called a Competitor.
Solicitor
The party who enters orders on the opposite side
as of the initiator is called a Solicitor.
Order Books
The NSE trading system provides complete flexibility to
members in the kinds of orders that can be placed by
them. Orders are first numbered and time-stamped on
receipt and then immediately processed for potential
match. Every order has a distinctive order number and a
unique time stamp on it. If a match is not found, then the
orders are stored in different 'books'. Orders are stored in
price-time priority in various books in the following
sequence:
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3. Negotiated Trade Book
The Negotiated Trade book contains all negotiated
order entries captured by the system before they have
been matched against their counterparty trade entries.
These entries are matched with identical counterparty
entries only. It is to be noted that these entries contain
a counter party code in addition to other order details.
4. Stop-Loss Book Stop 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.
The stop loss condition is met under the followingcircumstances:
Sell order - A sell order in the Stop Loss book gets
triggered when the last traded price in the normal market
reaches or falls below the trigger price of the order.
Buy order - A buy order in the Stop Loss book getstriggered when the last traded price in the normal market
reaches or exceeds the trigger price of the order.
5. Odd Lot Book
The Odd lot book contains all odd lot orders (orders
with quantity less than marketable lot) in the system.
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The system attempts to match an active odd lot order
against passive orders in the book. Currently, pursuant
to a SEBI directive the Odd Lot Market is being used
for orders which has a quantity less than or equal to 500
(Qty more than the market lot) for trading. This is
referred as the Limited Physical Market (LPM).
6. Spot Book
The Spot lot book contains all spot orders (orders having
only the settlement period different) in the system. Thesystem attempts to match an active spot lot order
against the passive orders in the book. Currently the
Spot Market book type is being used for conducting the
Automated Lending & Borrowing Mechanism (ALBM)
session.
7. Auction Book
This 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.
Order Matching Rules
The best buy order is matched with the best sell order. An
order may match partially with another order resulting in
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multiple trades. For order matching, the best buy order is
the one with the highest price and the best sell order is
the one with the lowest price. This is because the system
views all buy orders available from the point of view of a
seller and all sell orders from the point of view of the
buyers in the market. So, of all buy orders available in the
market at any point of time, a seller would obviously like
to sell at the highest possible buy price that is offered.
Hence, the best buy order is the order with the highest
price and the best sell order is the order with the lowestprice.
Members can proactively enter orders in the system,
which will be displayed in the system till the full quantity is
matched by one or more of counter-orders and result into
trade(s) or is cancelled by the member. Alternatively,members may be reactive and put in orders that match
with existing orders in the system. Orders lying
unmatched in the system are 'passive' orders and orders
that come in to match the existing orders are called
'active' orders. Orders are always matched at the passive
order price. This ensures that the earlier orders getpriority over the orders that come in later.
Order Conditions
A Trading Member can enter various types of orders
depending upon his/her requirements. These conditions
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are broadly classified into three categories: time related
conditions, price-related conditions and quantity related
conditions. For example
Time Conditions
DAY - A Day order, as the name suggests, is an order
which is valid for the day on which it is entered. If the
order is not matched during the day, the order gets
cancelled automatically at the end of the trading day.
GTC - A Good Till Cancelled (GTC) order is an order
that remains in the system until the Trading Member
cancels it. It will therefore be able to span trading
days if it does not get matched. The Exchange
notifies the maximum number of days a GTC order
can remain in the system from time to time.
GTD - A Good Till Days/Date (GTD) order allows the
Trading Member to specify the days/date up to which
the order should stay in the system. At the end of
this period the order will get flushed from the system.
Each day/date counted is a calendar day andinclusive of holidays. The days/date counted are
inclusive of the day/date on which the order is
placed. The Exchange notifies the maximum number
of days a GTD order can remain in the system from
time to time.
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IOC - An Immediate or Cancel (IOC) order allows a
Trading Member to buy or sell a security as soon as
the order is released into the market, failing which
the order will be removed from the market. Partial
match is possible for the order, and the unmatched
portion of the order is cancelled immediately.
AON - All or None orders allow a Trading Member to
impose the condition that only the full order should
be matched against. This may be by way of multiple
trades. If the full order is not matched it will stay in
the books till matched or cancelled.
Note: Currently, AON and MF orders are not available on
the system as per SEBI directives.
Price Conditions
Limit Price/Order
An order, which allows the price to be specified while
entering the order into the system.
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Market Price/Order
An order to buy or sell securities at the best price
obtainable at the time of entering the order.
Stop Loss (SL) Price/Order
The one which allows the Trading Member to place an
order which gets activated only when the market price of
the relevant security reaches or crosses a threshold price.
Until then the order does not enter the market.
Sell order
A sell order in the Stop Loss book gets triggered when the
last traded price in the normal market reaches or falls
below the trigger price of the order.
Buy orderA buy order in the Stop Loss book gets triggered when the
last traded price in the normal market reaches or exceeds
the trigger price of the order.
e.g. If for stop loss buy order, the trigger is 93.00, the limit
price is 95.00 and the market (last traded) price is 90.00,then this order is released into the system once the
market price reaches or exceeds 93.00. This order is
added to the regular lot book with time of triggering as the
time stamp, as a limit order of 95.00
Quantity Conditions
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Disclosed Quantity (DQ)- An order with a DQ condition
allows the Trading Member to disclose only a part of the
order quantity to the market. For example, an order of
1000 with a disclosed quantity condition of 200 will mean
that 200 is displayed to the market at a time. After this is
traded, another 200 is automatically released and so on
till the full order is executed. The Exchange may set a
minimum disclosed quantity criteria from time to time.
MF - Minimum Fill (MF) orders allow the Trading Member to
specify the minimum quantity by which an order should be
filled. For example, an order of 1000 units with minimum
fill 200 will require that each trade be for at least 200
units. In other words there will be a maximum of 5 trades
of 200 each or a single trade of 1000. The Exchange maylay down norms of MF from time to time.
Trading Workstation
The trader workstation is the terminal from which the
member accesses the trading system. Each trader has aunique identification by way of Trading Member ID and
User ID through which he is able to log on to the system
for trading or inquiry purposes. A member can have
several user IDs allotted to him by which he can have
more than one employee using the system concurrently.
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The ticker displays information about a trade as and when
it takes place. The user has the option to set-up the
securities, which appear in the ticker.
Market Watch Window
The Market Watch window is the main area of focus for a
Trading Member. The purpose of Market Watch is to view
market information of pre-selected securities, which are of interest to the Trading Member.
To monitor various securities, the trading member can set
them up by typing the Security Descriptor consisting of a
Symbol field and a Series field. Invoking the Security List
and selecting the securities from the window can also setup securities. The Symbol field incorporates the Company
name and the Series field captures the
segment/instrument type. A third field indicates the
market type.
For each security in the Market Watch window, marketinformation is dynamically updated on a real time basis.
The market information displayed is for the current best
price orders available in the regular lot book. For each
security, the corporate action indicator (e.g., Ex or cum
dividend, interest, rights etc.), the total buy order quantity
for the best buy price, best sell price, total sell order
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quantity for the best sell price, the Last Traded Price (LTP),
the last traded price change indicator ('+' if last traded
price is better than the previous last traded price and '-' if
it is worse) and the no delivery indicators are displayed. If
the security is suspended, "SUSPENDED" appears in front
of the security.
On line index and Index Inquiry
With every trade in a security participating in Index, theuser has the information on the current value of the Nifty.
This value is displayed at the extreme right hand corner of
the ticker window.
Index Inquiry gives information on Close, Open, High, Low
and current index values at the time of invoking thisinquiry screen.
Inquiry Window
In this window, the inquiries such as Market by Order,
Market by Price, Previous Trades, Outstanding Orders,Activity Log, Order Status and Market Inquiry can be
viewed.
Market By Order (MBO)
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The purpose of Market by Order is to enable the user to
view outstanding orders in the trading books in the order
of price/time priority. The information is displayed for each
order. Stop Loss orders, which are not triggered will not be
displayed on the window. Buy orders are displayed on the
left side of the window and Sell orders on the right side.
The orders are presented in a price/time priority with the
"best priced" order at the top.
Market by Price (MBP)
The purpose of Market By Price is to enable the Trading
Member to view aggregate orders waiting in the book at
given prices.
Previous Trades (PT)
The purpose of this window is to provide information to
users for their own trade.
Outstanding Orders (OO)
The purpose of Outstanding Orders is to enable a Trading
Member to view his/her own outstanding buy or sell orders
for a security. An outstanding order will be an order that
was entered by the user, but is not yet completely traded
or cancelled.
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Activity Log (AL)
The Activity Log shows the activities, which have been
performed on any order of the Trading Member such as
whether, the order has been traded against fully or
partially, it has been modified or has been cancelled. It
displays information only of those orders in which some
activity has taken place. It does not display orders, which
have entered the books but have not been matched (fully
or partially) or modified or cancelled.
Order Status (OS)
Order Status enables the user to look into the status of a
specific order. Current status of the order and other order
details are displayed. In case the order is traded, the tradedetails are also displayed.
Market Inquiry (MI)
Market Inquiry enables the user to view the market
statistics like Open, High, Low, Previous close, Last traded
price change indicator, Last traded quantity, date and
time etc. A user may find inquiry screens like Market
Movement, Most Active Securities and Net Position useful.
These are available in the supplementary menu.
Market Movement (MM)
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The Market Movement screen provides information to the
user regarding the movement of a security for the current
day. It gives details of the movement of the scrip for a
time interval. The details include total buy and sell order
quantity value, Open, High, Low, Last traded price etc.
Most Active Securities
This screen gives a list of the securities with the highest
traded value during the day and the quantity traded foreach of them.
Net Position
This functionality enables the user to interactively view hisnet position for all securities in which he has traded.
Snap Quote
The Snap Quote feature allows a Trading Member to get
instantaneous market information on any desired security. This is normally used for securities which are not already
on display in the Market Watch window. The information
presented is the same as that of Market Watch window.
Order/Trade Window
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On line back up
An on line back up facility is provided which the user can
invoke to take a back up of all order and trade related
information. There is an option to copy the file to any drive
of the computer or on a floppy diskette. Trading members
find this convenient in their back office work.
Off Line Order Entry
A member is able to make an order entry in the batch
mode.
Computer-to-Computer Link (CTCL) Facility
NSE offers a facility to its trading members by which
members can use their own trading front-end software in
order to trade on the NSE trading system. This Computer-
to-Computer Link (CTCL) facility is available only to trading
members of NSE.
Through CTCL facility Trading Members can use their own
software running on any suitable hardware/software
platform of their choice. This software would be a
replacement of the NEAT front-end software that is
currently used by members to trade on the NSE trading
system. Members can use software customised to meet
their specialized needs like provision of on-line trade
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undertakes settlement of transactions on other stock
exchanges like, the Over the Counter Exchange of India.
NSCCL assumes the counter-party risk of each member
and guarantees settlement through a fine-tuned risk
management system and an innovative method of on-line
position monitoring. It operates a well-defined settlement
cycle and there are no deviations or deferments from this
cycle. It aggregates trades over a trading period, nets the
positions to determine the liabilities of members and
ensures movement of funds and securities to meetrespective liabilities. It provides a facility for multiple
settlement mechanisms including, account period
settlement for dealings in physical securities and
dematerialized securities, rolling settlement (T+5 basis) in
dematerialized segment etc.
NSCCL has empanelled 9 clearing banks to provide
banking services to trading members and has established
connectivity with both the depositories for electronic
settlement of securities.
BADLA TRADING
Badla is a complex system that contains many a pitfall for
the uninitiated and the unwary. Investors need to be
aware of the problems, especially when brokers on BSE
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and other regional stock exchanges are marketing vyaj
badla schemes to their clients aggressively.
Before an investor start believing in the stories of
superlative returns (in excess of 20 per cent), coupled with
liquidity, safety and flexibility, it is imperative that one
takes a hard, rational look at the entire mechanism. This is
so because financing badla is a definite no-no for the first-
time investor in the stock market and also for those who
don't have the time to constantly monitor the status of his/her investments and fluctuations in the market returns
Vyaj Badla
In the vyaj badla system, there was a very high chance
that an investor may end up with an average annual
return of 14-18 per cent or sometimes even higher. But
having said that, unfortunately, the returns were not
guaranteed. This rosy picture could well be a reality during
a bull run, but when the market was under a bear hug,
returns could diminish to just around 6-8 per cent a year.
Comparing it with a steady 12 per cent annual return
offered by a bank fixed deposit or any AAA rated corporate
bandit seemed that The high-risk and uncertain return of
vyaj badla would start looking like a bad investment
option.
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And then the taxman cometh! Vyaj badla transactions
began to be treated as purchase and sale of shares, thus
getting subjected to capital gains tax of 30 per cent. Thus,
an investors final returns get lopped off to that extent.
Although nay Sayers might feel that vyaj badla provides
an investor with an opportunity to maximize his earnings
in a bull market, the fact remains that it is a good option
for the experienced investor. Else, the nerve-wracking
tension that accompanies stock market fluctuations may
well take its toll.
How did the Badla function?
Assume that there had been 12 trades of 100 shares each
in "ABC" stock, and there are 12 separate buyers and
sellers respectively. Among the buyers, while six wantedto carry forward their positions, six want to take delivery.
Of the sellers, eight wished to deliver the shares while four
were keen on carrying their positions forward. Now six
buyers made the payment for their purchases, while eight
sellers effect delivery. Six buyers and six sellers got
squared off. Four "buy" carry-forward positions getmatched against four "sell" carry-forward positions.
To ensure payment to the remaining two sellers for their
200 shares, vyaj badla financiers came in. This financier
charged interest (badla) for the money paid on behalf of
the two buyers for them. The demand and supply of funds
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constantly keep flashing the best badla rate and the best
annual yield for each stock on offer for a particular
quantity. A constant fluctuation in these values during the
two-and-a-half hour session is due to the constant change
in demand and supply, and also market perception. The
broker would give the financier a badla bill or informal
contract note, which would have two entries. One would
show a purchase of 100 shares at Rs 69 per share, while
the other would show a sale of 100 shares at Rs 69.26 per
share. The difference will be the financiers earning for thatweek. With the next trading cycle ending, the financier
can either receive the difference or roll over his/her
money to a new badla transaction.
Who can participate?
Not all brokers can participate in the badla process.
Memberships on BSE are split between type-I and type-II
brokers. Only the former can carry out badla trades, for
they maintain higher margins with the exchange. Hence, if
you are keen on becoming a vyaj badla financier, you
should approach the type-I broker.
Most brokers don't accept anything less than Rs 1 lakh per
client for badla financing. And the stock selection too is at
their discretion. But it would be prudent for you to know
the basis of allocation of stocks to you, as you would be
one among a lot of clients whose money has been
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collectively invested in vyaj badla. Badla rates vary
between stocks, depending upon their demand and
supply. These rates fluctuate considerably throughout the
session.
Ideally, brokers using the discretionary allocation of stocks
to the badla account should pay a weighted average
return to each client. This should be reflected in the badla
bills. For getting the weighted average return on badla
finance, it is advisable to look for brokers who haveautomated this process.
As in any other market transaction, one cannot avoid
brokerage in a vyaj badla transaction too. Brokerage for
such deals could range between 1-2.5 per cent, trimming
down your annual yield further. It is advisable to enter intoa firm brokerage percentage prior to the commencement
of the relationship.
Are investors safe?
What is the investors safeguard in times of default? If the
forward buyer defaults, he got the shares held in theexchange's clearinghouse against his brokers name, on
which he had a lien through his Badla bill. But his risk
erosioned in the value of the share during the days that it
takes to release the shares.
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In the recent history of BSE, there have been instances of
brokers (having large carry-forward positions in highly
speculative stocks) defaulting. Although these shares were
enjoying very high badla rates at the time of the default,
the prices had dipped sharply by the time the financiers
got their shares.
If the broker defaults, the financier is in a larger mess.
Apart from the large institutional brokers, most brokers on
BSE have a net worth of Rs 1-2 crore. Badla positionstaken by them sometimes go up to 15-20 times their net
worth. Even a 10 per cent downward shift in their position
would wipe out the broker's entire net worth. And then
you could bid goodbye to your money too. The BSE's
Trade Guarantee Fund could be of some succour and
solace in these situations, but just that.
Failure to cash in on your interest gain at the end of the
trading cycle gives the confidence to your broker to
automatically roll over your investment to the next cycle.