A Project Report

ON
A STUDY OF STOCK EXCHANGE WITH REFERENCE
TO BSE AND NSE
SUBMITTED BY
FREDON RODRIGUES
11B443
T.Y.B.M.S-A
2012-13
SUBMITTED TO
VIDYALANKAR SCHOOL OF INFORMATION
TECHNOLOGY
(AFFILIATED TO UNIVERSITY OF MUMBAI)
VIDYALANKAR MARG, WADALA (E),
MUMBAI 400 037
UNDER THE GUIDANCE OF
PROF. SANTOSH GUPTA
IN PARTIAL FULFILLMENT OF
BACHELORS OF MANAGEMENT STUDIES DEGREE
COURSE
UNIVERSITY OF MUMBAI
MUMBAI-400 032
1.Title:
A study of stock exchange.
2.Objective of the study:
To implement my learning..
To understand the stock exchange market
To study the changing trends in the markets.
To give apt description of the stock exchange for the understanding of the
common man.
To solve misconceptions relating to stock markets
3.Literature review
A stock exchange is a corporation or mutual organization which provides "trading"
facilities for stock brokers and traders, to trade stocks and other securities. Stock
exchanges also provide facilities for the issue and redemption of securities as well as
other financial instruments and capital events including the payment of income and
dividends. The securities traded on a stock exchange include shares issued by
companies, unit trusts, derivatives, pooled investment products and bonds. To be able
to trade a security on a certain stock exchange, it has to be listed there. !sually there
is a central location at least for recordkeeping, but trade is less and less linked to such
a physical place, as modern markets are electronic networks, which gives them
advantages of speed and cost of transactions. Trade on an exchange is by members
only. The initial offering of stocks and bonds to investors is by definition done in the
primary market and subse"uent trading is done in the secondary market. A stock
exchange is often the most important component of a stock market. Supply and
demand in stock markets is driven by various factors which, as in all free markets,
affect the price of stocks.
There is usually no compulsion to issue stock via the stock exchange itself, nor must
stock be subse"uently traded on the exchange. Such trading is said to be off exchange
or over#the#counter. This is the usual way that derivatives and bonds are traded.
$ncreasingly, stock exchanges are part of a global market for securities.
4.Hypothesis:
Analysis of the stock market can be done by anyone
5.Chapter plan:
Serial
No
Topics
% $ntroduction
& 'istory
( Stock exchange and services
) *se
+ ,se
- .onclusion
/ *ibliography
6.Limitations:
.onstraint on time
0rimary data and secondary data too vast to sort
As there are many experts in the matter the data given here may not be entirely
correct considering difference in opinion
1ue to confidentiality matters offices of the *S2 did not give
acknowledgement letter
The respondents were not disclosing the facts 3 figures due to confidentiality
could only get information from some of the articles, 4ournals, magazines,
guides 3 friends
7:Important terms
Stocks
*onds
1erivative
2xchange
Trading
8 Methodology
8.1:Nature of study
The pro4ect is an attempt to working of stock exchanges in detail. $t provides thorough
knowledge of different aspects of trading in stock exchanges.
8.2:Method of data collection
Primary data-
Survey with close ended
Secondary data -
Sources#
# 5ournals,
# 6overnment reports,
# 7eports collected by institutions,
# ,ewspapers,
# 7eference books,
# 8agazines,
# 9ebsites.
9:Biblography
Security Analysis and 0ortfolio 8anagement by 1onald 2. :ischer, 7onald 5.
5ordan ;+
th
2dition, 0rentice 'all $ndia<
Security Analysis by 6raham and 1odd
:inancial 8anagement by 0rasanna .handra ;(
rd
2dition, Tata 8c6raw#'ill<
6lobal :inancial System A compilation of 'arvard *usiness School
%. 2xecutive summary.
&. $ntroduction.
(. =ight on stock exchange and it services.
). 7ole of S2*$.
+. Terminologies associated with stock exchanges.
6. Bombay Stock Exchange.
a. $ntroduction.
b. .apital listed and market capitalization.
c. *S2 Sensex.
d. Trading system.
e. Settlement and clearing.
f. 1emat pay in.
g. .omputation of closing price.
h. Shortages and ob4ections.
i. *asket trading system.
4. Settlement system.
k. .losing system.
l. >pportunities for foreign investors.
m. Transfer of ownership.
n. Safeguards.
o. Arbitration machinery.
p. .ustomer protection fund.
". 6rievances redressal.
r. 1isciplinary actions.
s. $ndices.
t. 1isclosures and listing norms.
u. .omputerized trading.
v. :uture developments.
7. National Stock Exchange.
a. $ntroduction.
b. =ocations.
c. =isting.
d. .onstitution.
e. Trading members.
f. Trading mechanism.
g. 8arket types.
h. >rder books.
i. >rder matching rules.
4. >rder conditions.
k. ?uantity conditions.
l. Trading workstation.
m. .omputer to computer links facility.
i. ,ational Securities .learing .orporation =imited.
ii. *adla trading.
%. Substitutes for *adla.
iii. :inancial derivatives.
iv. Trading options.
-. *ibliography.
VIDYALANKAR SCHOOL OF INFORMATION TECHNOLOGY
(Affiliated to Mumbai University)
Certificate
This is to certify that
Mr./Ms. _________________________________ of B.M.S
Semester _____ has undertaken & completed the
project work titled ______________________________
during the academic year __________ under the
guidance of Mr./Ms. _______________ submitted on
_________ to this college in fulfillment of the
curriculum of Bachelor of Management Studies
!ni"ersity of Mumbai.
This is a bonafide project work & the
information presented is True & original to the
best of our knowledge and belief.





DECLARATION
Vidyalankar School of Information Technology
(Affiliated to University of Mumbai)
Vidyalankar Marg, Wadala (E),
Mumbai 400 037
$ ,:redon 7odrigues of @idyalankar School of $nformation Technology, T.A.*.8.S
Semester @ hereby declare that $ have completed the pro4ect on Stock exchange in
the academic year &B%(#%).The information submitted is true and original to the best
of my knowledge.
Signature of the Student,
:redon 7odrigues
ACKNOWLEDGMENT
$ hereby acknowledge all those who directly or indirectly helped me to draft the
pro4ect report. $t would not have been possible for me to complete the task
without their help and guidance
:irst of all $ would like to thank the principal 1r. 7ohini Celkar and the
coordinator 0rof. @i4ay 8. 6awde who gave me the opportunity to do this
pro4ect work. They also conveyed the important instructions from the
university from time to time. Secondly, $ am very much obliged of 0rof.
Santosh 6upta for giving guidance for completing the pro4ect
Then $ must mention the person who co#operated with me 8r. .hetan
0todar, :reelance trader. 'e not only rendered time out of their busy scheduled
but also answered my "ueries without hesitation. 'e gave me information on
working of stock exchange.
=ast but not the least, $ am thankful to the !niversity of 8umbai for
offering the pro4ect in the syllabus. $ must mention my hearty gratitude towards
my family, other faculties and friends who supported me to go ahead with the
pro4ect.
$ntroduction
>f all the modern service institutions, stock exchanges are perhaps the most crucial
agents and facilitators of entrepreneurial progress. After the industrial revolution, as
the size of business enterprises grew, it was no longer possible for proprietors or
partnerships to raise colossal amount of money re"uired for undertaking large
entrepreneurial ventures. Such huge re"uirement of capital could only be met by the
participation of a very large number of investorsD their numbers running into
hundreds, thousands and even millions, depending on the size of business venture.
$n general, small time proprietors, or partners of a proprietary or partnership firm, are
likely to find it rather difficult to get out of their business should they for some reason
wish to do so. This is so because it is not always possible to find buyers for an entire
business or a part of business, 4ust when one wishes to sell it. Similarly, it is not easy
for someone with savings, especially with a small amount of savings, to readily find
an appropriate business opportunity, or a part thereof, for investment. These problems
will be even more magnified in large proprietorships and partnerships. ,obody would
like to 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. .learly 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 be Ebroken upF into a lager number of
small units, such that each unit may be independently 3 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. 2ach 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.
What is a stock exchange?
The institution where this buying and selling of shares essentially takes place is
the Stock Exchange.
$n the absence of stock exchanges, ie. $nstitutions 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 can be part owners of one
company today and another company tomorrowD one can be part owners in several
companies at the same timeD one can be part owner in a company hundreds or
thousands of miles awayD 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 a specific locality and
characteristics of its own, mostly a stock exchange is also distinguished by a physical
location and characteristics of its own. $n fact, according to '.T.0arekh, the earliest
location of the *ombay Stock 2xchange, which for a long period was known as Ethe
native share and stock brokersG associationF, was probably under a tree around %-HBI
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. !ntil recently, the area of operationJ 4urisdiction of exchange was
specified at the time of its recognition, which in effect precluded competition among
the exchanges. These are called regional exchanges. $n order to provide an
opportunity to investors to investJ 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 member brokers ;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.
A stock exchange in $ndia operates with due recognition from the government
under the Securities and .ontracts ;7egulations< Act, %/+K. 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.
,ew membership to a Stock 2xchange is through election by the governing
board of that stock exchange.
At present, there are &( stock exchanges in $ndia, the largest among them
being the *ombay Stock 2xchange. *S2 alone accounts for over -BL 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. 6overnment 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. A president, 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. 'is duty is to ensure that the day to
day operations the Stock 2xchange 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 2xchange *oard of $ndia ;S2*$< by an act of
parliament in %//&.
All companies wishing to raise capital from the public are re"uired 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
8ade some attempts in this direction, but this did not materially alter the situation. $n
view of the less than satisfactory "uality, of administration of broker#managed
exchanges, the finance minister in march &BB% proposed demutualisation of
exchanges by which ownership, management and trading membership would be
segregated from each other. The regulators are working towards implementing this.
>f the &( stock exchanges in $ndia, two stock exchanges viz., >T.2$ and ,S2 are
already demutualised. *oard of directors, which do not include trading members,
manages these. Theses are 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 S2*$, that is, the Securities and the 2xchange *oard of $ndia, is the national
regulatory body for the securities market, set up under the securities and 2xchange
*oard of $ndia act, %//&, to Eprotect the interest of investors in securities and to
promote the development of, and to regulate the securities market and for matters
connected therewith and incidental too.F
S2*$ has its head office in 8umbai and it has now set up regional offices in the
metropolitan cities of Colkata, 1elhi, and .hennai. The *oard of S2*$ comprises a
.hairman, two members from the central government representing the ministries of
finance and law, one member from the 7eserve *ank of $ndia and two other members
appointed by the central government.
As per the S2*$ act, %//&, the power and functions of the *oard encompass the
regulation of Stock 2xchanges and other securities marketsD registration and
regulation of the working stock brokers, sub#brokers, bankers to an issue ;a 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 wayD registration and regulations
of mutual fundsD promotion and regulation of self# regulatory organizationsD
prohibiting :raudulent and unfair trade practices and insider trading in securities
marketsD regulating substantial ac"uisition of shares and takeover of companiesD
calling for information from,undertking inspection, conducting in"uiries and audits of
stock exchanges, intermediaries and self# regulatory organizations of the securities
marketD performing such functions and exercising such powers as contained in the
provisions of the .apital $ssues ;.ontrol< Act,%/)H and the Securities .ontracts
;7egulation< Act, %/+K, levying various fees and other charges, conducting necessary
research for above purposes and performing such other functions as may be prescribes
from time to time.
S2*$ as the watchdog of the industry has an important and crucial role in the market
in ensuring that the market participants perform their duties in accordance with the
regulatory norms. The Stock 2xchange as a responsible Self 7egulatory >rganization
;S7>< function to regulate the market and its prices as per the prevalent regulations.
S2*$ and the 2xchange play complimentary roles to enhance the investor protection
and the overall "uality 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 to the membership of an exchange in terms of the provisions of the S.7A,
the S2*$ act %//&, the rules, circulars, notifications, guidelines, etc. prescribed there
under and the byelaws, rules and regulations of the concerned exchange. ,o
stockbroker or sub#broker is allowed to buy, sell or deal in securities, unless he or she
holds a certificate of registration granted by S2*$. A brokerJsub#broker compiles with
the code of conduct prescribed by S2*$.
The stock exchanges are free to stipulate stricter re"uirements for its members than
those stipulated by S2*$. The minimum standards stipulated by ,S2 for membership
are in excess of the minimum norms laid down by S2*$. The standards for admission
of members laid down by ,S2 stress on factors, such as, corporate structure, capital
ade"uacy, track record, education, experience, etc. and reflect the conscious
endeavors to ensure "uality broking services.
Listing
=isting means formal admission of a security to the trading platform of a stock
exchange, invariably evidenced by a listing agreement between the issuer of the
security and the stock exchange. D =isting of securities on $ndian Stock 2xchanges is
essentially governed by the provisions in the companies act, %/+K, S.7A, S.77,
rules, bye#laws and regulations of the concerned stock exchange, the listing
agreement entered into by the issuer and the stock exchange and the circularsJ
guidelines issued by central government and S2*$.
Index services
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. $ndia $ndex Services 3 0roducts =imited ;$$S=<, promoted by
,S2 and .7$S$=, is the only specialized organization in the country to provide stock
index services.
Trading Mechanism
All stock exchanges in $ndia follow screen#based trading system. ,S2 was the first
stock exchange in the country to provide nation#wide order#driven, screen#based
trading system. ,S2 model was gradually emulated by all other stock exchanges in
the country. The trading system at ,S2 known as the ,ational 2xchange for
Automated Trading ;,2AT< system is an anonymous order#driven system and
operates on a strict priceJtime priority. $t enables members from across the countries
to trade simultaneously with enormous ease and efficiency. ,2AT has lent
considerable depth in the market by enabling large number of members all over the
country to trade simultaneously and conse"uently 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 "uantity and stated price. The limit
order is executed only if the price "uantity conditions match. Thus, the ,2AT system
provides an open electronic consolidated limit order book ;>2.=>*<. 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 ;6ood#Till#.ancelled, 6ood#Till#1ay,
$mmediate#or#.ancel<, price related ;buyJsell limit and stop#loss orders< or volume
related ;All#or#,one, 8inimum :ill, etc.< conditions van be easily built into an order.
>rders are sorted and match automatically by the computer keeping the system
transparent, ob4ective and fair. The trading system also provides complete market
information on#line, which is updated on real time basis. The trading platform of the
.8 segment of ,S2 is accessed not only from the computer terminals from the
premises of brokers spread over )&B cities, but also from the personal computers in
the homes of investors through the internet and from the hand#held devices through
9A0. The trading platform of *S2 is also accessible from )BB cities.
$nternet trading is available on ,S2 and *S2, as of now. S2*$ has approved the use
of $nternet as an order routing system, for communicating clientsG orders to the
exchanges through brokers. S2*$# registered brokers can introduce internet#based
trading after obtaining permission from the respective Stock 2xchanges. S2*$ has
stipulated the minimum conditions to be fulfilled by trading members to start internet#
based trading and services.
,S2 was the first exchange in the country to provide web#based access to investors to
trade directly on the exchange. $t launched $nternet trading in :ebruary &BBB. $t was
followed by the launch of $nternet trading by *S2 in 8arch &BB%. The orders
originating from the personal computers ;0.s< of investors are routed through the
$nternet tot eh trading terminals of the designated brokers with 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 0.s
through the same $nternet routes.
S2*$ approved trading through wireless medium or 9A0 platform. ,S2 is the only
exchange to provide access to its order book through the hand held devices, which use
9A0 technology. This serves primarily retail investors who are mobile and want to
trade from any place when the market prices for stBocks of their choice are attractive.
Demat Trading
A depository holds securities in dematerialized form. $t maintains ownership records
of securities in a book entry form and also effects transfer of ownership through book
entry. S2*$ has introduced some degree of compulsion in trading and settlement of
securities in dematerialized form. 9hile the investors have a right to hold securities in
either physical or demat form, S2*$ has mandated compulsory trading and settlement
of securities in dematerialized form. This was initially introduced for institutional
investors and was later extended to all investors. Starting with %& scrips on 5anuary
%+, %//-, all investors are re"uired to mandatorily trade in dematerialized form in
respect of &,((+ securities as at end#5une, &BB%.
Since the introduction of the depository system, dematerialization has progressed at a
fast pace and has gained acceptance among the participants in the market. All actively
traded scrips are held, traded and settled in demat form. The details of progress in
dematerialization in two depositories, viz., ,S1= and .1S=., are presented as below
$n a S2*$ working paper titled M1ematerialization A Silent 7evolution in the $ndian
.apital 8arketG released in April &BBB, it has been observed that $ndia has achieved a
very high level of dematerialization in less than three yearsG time, and currently more
than //Lof trades settle in demand form. .ompetition and regulatory developments
facilitated reduction in custodial charges and improvements in "ualities 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 in service standards.
1epository facility has effected changes in stock market microstructure. *readth and
depth of investment culture has further got extended to interior areas of the country
faster. 2xplicit transaction cost has been falling due to dematerialization.
1ematerialization substantially contributed to the increased growth in the turnover.
1ematerialization growth in $ndia is the "uickest among all emerging markets and
also among developed markets excepting for the !.C and 'ong Cong.

Bombay Stock Exchange :
INTRODUCTION
The Stock 2xchange, 8umbai, popularly known as "*S2" was established in %-H+ as
"The ,ative Share and Stock *rokers Association", as a voluntary non#profit making
association. $t has evolved over the years into its present status as the premier Stock
2xchange in the country. $t may be noted that the Stock 2xchanges is the oldest one in
Asia, even older than the Tokyo Stock 2xchange, which was founded in %-H-.
The 2xchange, while providing an efficient and transparent market for trading in
securities, upholds the interests of the investors and ensures redressal of their
grievances, whether against the companies or its own member#brokers. $t also strives
to educate and enlighten the investors by making available necessary informative
inputs and conducting investor education programmes.
A 6overning *oard comprising of / elected directors ;one third of them retire every
year by rotation<, two S2*$ nominees, a 7eserve *ank of $ndia nominee, six public
representatives and an 2xecutive 1irector is the apex body, which decides the policies
and regulates the affairs of the 2xchange.
The 2xecutive 1irector as the .hief 2xecutive >fficer is responsible for the day#to#
day administration of the 2xchange.
The average daily turnover of the 2xchange during the year &BBB#&BB% ;April#
8arch<, was 7s.(/-).%/ crores and average number of daily trades was +.K/ lakhs.
'owever, the average daily turnover of the 2xchange during the year &BB%# &BB& has
declined to 7s. %&)).%B crores and number of average daily trades during the period
to +.%H lakhs. The ban on all deferral products like *=2SS and A=*8 in the $ndian
capital 8arkets by S2*$ w.e.f. 5uly &, &BB%, abolition of account period settlements,
introduction of .ompulsory 7olling Settlements in all scrips traded on the 2xchanges
w.e.f. 1ecember (%, &BB%, etc. have adversely impacted the li"uidity and
conse"uently there is a considerable decline in the daily turnover at the 2xchange.
CAPITAL LISTED AND MARKET CAPITALIZATION.
The Stock 2xchange, *ombay ;*S2< is the premier Stock 2xchange in $ndia. The
*S2 accounted for )K per cent of listed companies on an all $ndia basis as on (%st
8arch %//). $t ranked first in terms of the number of listed companies and stock
issues listed. The capital listed in the *S2 as on (%st 8arch %//) accounted for +BL
of the overall capital listed on all the stock exchanges. $ts share of the market
capitalization was around H)L as on the same date. The paid#up capital of e"uity,
debenturesJbonds and preference were H(L, (%L, ))L respectively of the overall
capital listed on all the Stock 2xchanges as on the same date.
>n the *S2, the Steel Authority of $ndia had the largest market capitalization of
7s.%/, /B- crores as on the (%st 8arch, %//) followed by the State *ank of $ndia
with the market capitalization of 7s.%K, HB& crores and 8ahanagar Telephone ,igam
=imited with the market capitalization of 7s.%%, HBB crores.
BSE SENSEX
The BSE SENSEX, short form of Sensitive $ndex, first compiled in %/-K is a Emarket
.apitalization#9eightedF index of (B component stocks representing a sample of
large, well#established and financially sound companies. The index is widely reported
in both, the domestic international, print electronic media and is widely used to
measure the used to measure the performance of the $ndian stock markets.
The *S2 S2,S2N is the benchmark index of the $ndian capital market and one,
which has the longest social memory. $n fact the SENSEX is considered to be the
pulse of the $ndian stock markets. $t is the oldest index in $ndia and has ac"uired a
uni"ue place in collective consciousness of the investors. :urther, as the oldest index
of the $ndian Stock 8arket, it provides time series data over a fairly long period of
time. Small wonder that the SENSEX has over the years has become one of the most
prominent brands of the .ountry.
Objectives of SENSEX
The BSE SENSEX is the benchmark index with wide acceptance among individual
investors, institutional investors, foreign investors, foreign investors and fund
managers. The ob4ectives of the index are
To measure market movements
6iven its long history and its wide acceptance, no other index matches the BSE
SENESX in the reflecting market movements and sentiments. SENSEX is widely
used to describe the mood in the $ndian stock markets.
Benchmark for funds performance
The inclusion of blue chip companies and the wide and balanced industry
7epresentation in the SENSEX makes it the ideal benchmark for fund managers
to compare the performance of their funds.
For index based derivatives products
$nstitutional investors, money managers and small investors, all refer to the BSE
SENSEX for their specific purposes. The BSE SENSEX is in effect the proxy for
the $ndian stock markets. Since SENSEX comprises of the leading companies in
all the significant sectors in the economy, we believe that it will be the most li"uid
contract in the $ndian market and will garner a predominant market share.
Companies represented in the SENSEX
Company name
(As on 15.06.01)
Sector
'industan lever :8.6
7eliance limited .hemicals and petrochemicals
$nfosys technologies $nformation technology
7eliance petroleum >il and gas
$T. :8.6
State bank of $ndia :inance
8T,= Telecom
Satyam computers $nformation technology
Oee telefilms 8edia
7anbaxy labs 'ealthcare
$.$.$ :inance
=arsen 3 toubro 1iversified
.ipla 'ealthcare
'indalco 8etals and mining
'0.= 8etal and mining
T$S.> 8etal and mining
,estle :8.6
Trading System
Till ,ow, 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 a daily basis statements for each member, showing matched and
unmatched transactions. Settlement processing involves computation of each
memberPs net position in each security, after taking into account all transactions for
the member during the settlement period, which is %B working days for group PAP
securities and + working days for group P*P securities.
Trading is done by members and their authorized assistants from their Trader 9ork
Stations ;T9S< in their offices, through the *S2 >n#=ine Trading ;*>=T< system.
*>=T system has replaced the open outcry system of trading. *>=T system accepts
two#way "uotations from 4obbers, market and limit orders from client#brokers and
matches them according to the matching logic specified in the *usiness 7e"uirement
Specifications ;*7S< document for this system.
The matching logic for the .arry#:orward System as in the case of the regular trading
system is "uote driven with the order book functioning as an "auxiliary 4obber".
TRADING
The 2xchange, which had an open outcry trading system, had switched over to a fully
automated computerized mode of trading known as *>=T ;*S2 on =ine Trading<
System. Through the *>=T system the members now enter orders from Trader 9ork
Stations ;T9Ss< installed in their offices instead of assembling in the trading ring.
This system, which was initially both order and "uote driven, was commissioned on
8arch %), %//+. 'owever, the facility of placing of "uotes has been removed w.e.f.,
August %(, &BB% in view of lack of market interest and to improve 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.
2arlier, the members of the 2xchange were permitted to open trading terminals only
in 8umbai. 'owever, in >ctober %//K, the 2xchange obtained permission from S2*$
for expansion of its *>=T network to locations outside 8umbai. $n terms of the
permission granted by S2*$ and certain modifications announced later, the members
of the 2xchange are now free to install their trading terminals at any place in the
country. Shri 0. .hidambaram inaugurated the expansion of *>=T network the then
:inance 8inister, 6overnment of $ndia on August (%, %//H.
$n order to expand the reach of *>=T network to centers outside 8umbai and support
the smaller 7egional Stock 2xchanges, the 2xchange has, as on 8arch (%, &BB&,
admitted subsidiary companies formed by %( 7egional Stock 2xchanges as its
members. The members of these 7egional Stock 2xchanges work as sub#brokers of
the member#brokers of the 2xchange.
The ob4ectives of granting membership to the subsidiary companies formed by the
7egional Stock 2xchanges were to reach out to investors in these centers via the
members of these 7egional 2xchanges and provide the investors in these areas access
to the trading facilities in all scrips listed on the 2xchange.
Trading on the *>=T System is conducted from 8onday to :riday between /++ a.m.
and ((B p.m. The scrips traded on the 2xchange have been classified into PAP, P*%P,
P*&P, P:P and POP groups. The number of scrips listed on the 2xchange under PAP, P*% P,
P*&P and POP groups, which represent the e"uity segment, as on 8arch (%, &BB& was
%H(, +KB,%/(B and (B)) respectively. The P:P group represents the debt market ;fixed
income securities< segment wherein H)- securities were listed as on 8arch (%, &BB&.
The POP group was introduced by the 2xchange in 5uly %/// and covers the companies
which have failed to comply with listing re"uirements andJor failed to resolve investor
complaints or have not made the re"uired arrangements with both the 1epositories,
viz., .entral 1epository Services ;$< =td. ;.1S=< and ,ational Security 1epository
=td. ;,S1=< for dematerialization of their securities by the specified date, i.e.,
September (B, &BB%. .ompanies in "O" group numbered (B)) as on 8arch (%, &BB&.
>f these, %)&/ companies were in "O" group for not complying with the provisions of
the =isting Agreement andJor pending investor complaints and the balance %K%+
companies were on account of not making arrangements for dematerialization of their
securities with both the 1epositories. %K%+ companies have been put in "O" group as a
temporary measure till they make arrangements for dematerialization of their
securities. >nce they finalize the arrangements for dematerialization of their
securities, trading and settlement in their scrips would be shifted to their respective
erstwhile groups.
The 2xchange has also the facility to trade in "." group which covers the odd lot
securities in PAP, P*%P, P*&P and POP groups and 7ights renunciations in all the groups of
scrips in the e"uity segment. The 2xchange, thus, provides a facility to market
participants of on#line trading in odd lots of securities and 7ights renunciations. The
facility of trading in odd lots of securities not only offers an exit route to investors to
dispose of their odd lots of securities but also provides them an opportunity to
consolidate their securities into market lots.
The P.P group can also be used by investors for selling upto +BB shares in physical
form in respect of scrips of companies where trades are to be compulsorily settled by
all investors in demat mode. This scheme of selling physical shares in compulsory
demat scrips is called as 2xit 7oute Scheme.
9ith effect from 1ecember (%, &BB%, trading in all securities listed in e"uity segment
of the 2xchange takes place in one market segment, viz., .ompulsory 7olling
Settlement Segment.
Permitted Securities
The 2xchange has since decided to permit trading in the securities of the companies
listed on other Stock 2xchanges under " 0ermitted Securities" category which meet
the relevant norms specified by the 2xchange. Accordingly, to begin with the
2xchange has permitted trading in scrips of five companies listed on other Stock
2xchanges w.e.f. April &&, &BB&J
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 %+ minutes of the continuous trading session. 'owever, if there is no
trade during the last %+ 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:
9ith a view to introduce the best international trading practices and to achieve higher
settlement efficiency, as mandated by S2*$, trades in all the e"uity shares listed on
the 2xchange in .7S Segment were to be settled on TQ+ basis w.e.f. 1ecember (%,
&BB%. S2*$ has further directed the Stock 2xchanges that trades in all scrips w.e..f.
April %, &BB& should be settled on TQ( basis. Accordingly, all transactions in all
groups of securities in the e"uity segment and fixed income securities listed on the
2xchange are settled on TQ( basis w.e.f. April %, &BB&
!nder 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 Paccount periodP. A TQ( 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 their securities by the stipulated date are settled only in 1emat
mode on TQ( on net basis, i.e., buy and sale positions in the same scrip are netted and
the net "uantity is to be settled. 'owever, transactions in securities of companies,
which have failed to make arrangements for dematerialization of their securities or
Jare in "O" group, are settled only on trade to trade basis on TQ( 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. :or example, if one buys and sells %BB 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 have to first deliver %BB shares at the time of pay#in of securities and then
receive %BB 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 auctionedJ closed#out.
$n other words, the transactions in scrips of companies which are in compulsory
demat are settled in demat mode on TQ( 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 "O" group for other reasons, are settled on
trade to trade basis on TQ( either in demat mode or in physical mode.
The settlement of transactions in P:P group securities representing :ixed $ncome
Securities is also on 7olling Settlement .ycle of TQ( basis.
The following tables summarizes the steps in the trading and settlement cycle for
scrips under .7S
1AA A.T$@$TA
Trading on *>=T and daily downloading of statements showing details of
transactions and margins at the end of each trading day.
KAJHA entry by the member#brokers.

TQ%
.onfirmation of KAJHA data by the .ustodians. 1ownloading of securities and funds
obligation statement by members.

TQ(
0ay#in of funds and securities by %%BB a.m. and pay#out of funds and securities by
&BB p.m

TQ)
Auction on *>=T.

TQ+
Auction pay#in and pay#out.

R KAJHA A mechanism whereby the obligation of settling the transactions done by a
member#broker on behalf of a client is passed on to a custodian based on his
confirmation.
Thus, the pay#in and pay#out of funds and securities takes places on the (rd working
day of the execution of the trade.
The $nformation Systems 1epartment of the 2xchange generates the following
statements, which can be downloaded by the members in their back offices on a daily
basis.
Statements giving details of the daily transactions entered into by the members.
Statements giving details of margins payable by the members in respect of the trades
executed by them.
The settlement of the trades ;money and securities< done by a member on his own
account or on behalf of his individual, corporate or institutional clients may be either
through the member himself or through a S2*$ registered .ustodian appointed by
him or the respective client. $n case the deliveryJpayment is to be given or taken by a
registered .ustodian, he has to confirm the trade done by a member on the *>=T
System through KA#HA entry. :or this purpose, the .ustodians have been given
connectivity to *>=T System and have also been admitted as members of the
.learing 'ouse. $n case a transaction is not confirmed by a registered .ustodian, the
liability for pay#in of funds or securities in respect of the same devolves on the
concerned member.
The introduction of settlement on TQ( basis has resulted in reduction in settlement
risk, provided early receipt of securities and monies to buyers and sellers respectively
and brought $ndian .apital 8arkets at the international standard of settlements
Settlement
Pay-in and Pay-out for 'A', 'B1', 'B2', 'C', "F" & 'Z' group of securities
As discussed earlier, the trades done by members in all the securities in .7S are now
settled by payment of money and delivery of securities on TQ( basis. All deliveries of
securities are re"uired to be routed through the .learing 'ouse, except for certain off#
market transactions which, although are re"uired to be reported to the 2xchange, may
be settled directly between the members concerned.
The .learing 'ouse is an independent company promoted 4ointly by *ank of $ndia
and Stock 2xchange, 8umbai for handling the clearing and settlement operations of
funds and securities on behalf of the 2xchange. :or this purpose, the .learing 3
Settlement 1ept. of the 2xchange liaises with the .learing 'ouse on a day to day
basis.
The $nformation Systems 1epartment ;$S1< of the 2xchange generates 1elivery and
7eceive >rders for transactions done by the members in A, *%, *& and : group scrips
after netting purchase and sale transactions in each scrip whereas 1elivery and
7eceive >rders for "." and "O" group scrips are generated on trade to trade basis, i.e.,
without netting of purchase and sale transactions in a scrip.
The 1elivery >rders provide information like scrip, "uantity and the name of the
receiving member to whom the securities are to be delivered through the .learing
'ouse. The 8oney Statement provides scrip wiseJitem wise details of
paymentsJreceipts for the settlement. The 1eliveryJ7eceive >rders 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., *ank
of $ndia, '1:. *ank =td., 6lobal Trust *ank =td., Standard .hartered *ank,
.enturion *ank =td., !T$ *ank =td., $.$.$ *ank =td., and $ndusind *ank =td., are
directly debited through computerized posting for their settlement and margin
obligations and credited with receivables on accounts of pay#out dues and refund of
margins.
The securities, as per the 1elivery >rders issued by the 2xchange, are re"uired to be
delivered by the members in the .learing 'ouse on the day designated for securities
pay#in, i.e., on TQ( day. $n case of the physical securities, the members have to
deliver the securities in special closed pouches ;supplied by the 2xchange< along with
the relevant details ;distinctive numbers, scrip code, "uantity, and receiving member<
on a floppy. The data submitted by the members on floppies is matched against the
master file data on the .learing 'ouse computer systems. $f there are no
discrepancies, then a scroll number is generated by the .learing 'ouse and a scroll
slip is issued. The members can then submit the securities at the receiving counter in
the .learing 'ouse
Auto D.O. facility:
$nstead of issuing 1elivery >ut instructions for their delivery obligations in a
settlement Jauction, a facility has been made available to the members of
automatically generating 1elivery#>ut ;1.>.< instructions on their behalf from their
.8 0ool AJcs by the .learing 'ouse w.e.f., August %B, &BBB. This Auto 1.>. facility
is available for .7S ;,ormal 3 Auction< and for trade#to#trade settlements. This
facility is, however, not available for delivery of non#pari passu shares and shares
having multiple $S$,s. The members wishing to avail of this facility have to submit
an authority letter to the .learing 'ouse. This Auto 1.> facility is currently available
only for .learing 8ember ;.8< 0ool accountsJ0rincipal Accounts maintained by the
members with ,ational Securities 1epository =td. ;,S1=< and .entral 1epositories
Services =td. ;.1S=<
Demat pay-in:
The members can effect demat pay#in either through .entral 1epository Services ;$<
=td. ;.1S=< or ,ational Securities 1epository =td. ;,S1=<. $n case of ,S1=, the
members are re"uired to give instructions to their 1epository 0articipant ;10<
specifying settlement no., settlement type, effective pay#in date, "uantity, etc. The
securities are transferred to the 0ool Account. The members are re"uired to give
delivery#out instructions so that the securities are considered for pay#in.
As regards .1S=, the members give pay#in instructions to their 10. The securities
are transferred to .learing 8ember ;.8< 0rincipal Account. The members are
re"uired to give confirmation to their 10, so that securities are processed towards
pay#in obligations. Alternatively, members may also effect pay#in from clientsP
beneficiary accounts for which member are re"uired to do break#up on the front#end
software to generate obligation and settlement $1.
The .learing 'ouse arranges and tallies the securities received against the receiving
member wise report generated on the 0ay#in day. >nce this reconciliation is complete,
the bank accounts of members with seven clearing banks having pay#in positions are
debited on the scheduled pay#in day. This procedure is called :unds 0ay#in. $n case of
the demat securities, the securities are credited in the 0ool Account of the members or
the .lient Accounts as per the client details submitted by the members. $n case of
0hysical securities, the 7eceiving 8embers collect securities from the .learing 'ouse
on the payout day and the accounts of the members having payout are credited on
:riday. This is referred to as 0ayout. $n case of the 7olling Settlements, pay#in and
payout of both funds and securities is on the same day, in case of 9eekly settlements,
pay#in of funds and securities is on Thursday and payout is on :riday.
The auction is conducted for those securities which members fail to deliverJshort
deliver during the 0ay#in. $n case the securities are not received in an auction, the
positions are closed out as per the closeout rate fixed by the 2xchange 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 subse"uent
settlement upto the day prior to the day of auction, or &BL above the closing price on
the day prior to the day of auction, whichever is higher. 'owever, in case of close#out
for shares under ob4ection or traded in "." group, %BL instead of &BL above the
closing price on the day prior to the day of auction and the highest price recorded in
the settlement in which trade took place upto a day prior to auction is considered.
The 2xchange 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.
The 2xchange is also maintaining a database of fakeJforged, stolen, lost and duplicate
securities with the .learing 'ouse so that distinctive numbers submitted by members
on delivery may be matched against the database to weed out bad paper from
circulation at the time of introduction of such securities in the market. This database
has also been made available to the members so that delivering and receiving
members can check the entry of fake, forged and stolen shares in the market
SHORTAGES AND OB1ECTIONS
Shortages & conse#uent actions
The members download 1eliveryJ7eceive >rders based on their netted positions for
transactions entered into by them during a settlement in PAP, P*%P, P*&P, and P:P group
scrips and on trade to trade basis, i.e., without netting buy and sell transactions in
scrips in "." 3 POP groups and scrips in *% and *& groups which have been put on
trade to trade basis as a surveillance measure.
The seller members have to deliver the shares in the .learing 'ouse as per the
1elivery >rders downloaded. $f a seller member is unable to deliver the shares on the
0ay#in day for any reason, his bank account is debited at the standard rate ;which is
e"ual to the closing price of the scrip on the day of trading< fixed by the 2xchange for
the "uantity of shares short delivered. The .learing 'ouse arrives at the shortages in
delivery of various scrips by members on the basis of their delivery obligations and
actual delivery.
The members can download the statement of shortages on TQ( in 7olling Settlements.
After downloading the shortage details, the members are expected to verify the same
and report discrepancy , if any, to the .learing 'ouse by %BB p.m. $f no discrepancy
is reported within the stipulated time, the .learing 'ouse assumes that the shortage of
a member is in order and proceeds to auction the same. 'owever, in P.P group, i.e.,
>dd =ot segment the members are themselves re"uired to report the shortages to the
.learing 'ouse.
The 2xchange issues an Auction Tender ,otice to the members informing them about
the names of the scrips, "uantity slated for auction and the date and time of the
auction session on the *>=T. The auction for the undelivered "uantities is conducted
on TQ) for all the scrips under compulsory 7olling Settlements. The auction offers
received in batch mode are electronically matched with the auction "uantities so as to
award the Pbest priceP. The members who participate in the auction session can
download the 1elivery >rders on the same day, if their offers are accepted. The
members are re"uired to deliver the shares in the .learing 'ouse on the auction 0ay#
in day, i.e, TQ+. 0ay#>ut of auction shares and funds is also done on the same day,
i.e., TQ+. The various auction sessions relating to shortages, and bad deliveries are
now conducted during normal trading hours on *>=T. Thus, it is possible to schedule
multiple auction sessions on a single trading day.
$n auction, the highest offer price is allowed upto the close#out rate and the lowest
offer price can be &BL below the closing price on a day prior to day of auction. A
member who has failed to deliver the securities of a particular company on the pay#in
day is not allowed to offer the same in auction. 'e can, however, participate in
auction of other scrips.
$n case no offers are received in auction for a particular scrip, the sale transaction is
closed#out at a close#out price, determined by higher of the following#
# 'ighest price recorded in the scrip from the settlement in which the transaction took
place upto a day prior to the day of the auction.
>7
# &BL above the closing price on a day prior to the day of auction.
'owever, in case of the close#out of the shares under ob4ection and shortages in "."
or "O" group, %BL above the closing prices of the scrips on the pay#out day of the
respective settlement are considered instead of &BL.
:urther, if the auction priceJclose#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. 'owever, in case, auctionJ
close#out price is lower than standard price, the difference is not given to the seller but
is credited by the 2xchange to the .ustomers 0rotection :und. This is to ensure that
the seller does not benefit from his failure to meet his delivery obligation. :urther, if
the offeror member fails to deliver the shares offered in auction, then the transactions
is closed#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 1elivery and 7eceive >rders are
issued to the members after netting off their purchase and sale transactions in scrips
where netting of purchase and sale positions is permitted. $t is likely in some
circumstances that a selling client of a member has failed to deliver the shares to him.
'owever, this did not result in a memberPs failure to deliver the shares to the .learing
'ouse as there was a purchase transaction of some other buying client of the member
in the same scrip and the same was netted off for the purpose of settlement. 'owever,
in such a case, the member would re"uire shares so that he can deliver the same to his
buying client, which otherwise would have taken place from the delivery of shares by
the seller. To provide shares to the members, so that they are in a position to deliver
them to their buying clients in case of internal shortages, the members have been
given an option to submit floppies for conducting self#auction ;i.e., as if they have
defaulted in delivery of shares to the .learing 'ouse<. Such floppies are to be given to
the .learing 'ouse on the pay#in day. The internal shortages reported by the members
are clubbed with the normal shortages in a settlement and the .learing 'ouse for the
combined shortages conducts the auction. A member after getting delivery of shares
from the .learing 'ouse in self#auction credits the shares to the *eneficiary account
of his client or hand over the same to him in case securities received are in physical
form and debits his seller client with the amount of difference, if any, between the
auction price and original sale price
B) Objections
9hen receiving members collect the physical securities from the .learing 'ouse on
the 0ayout day, the same are re"uired to be checked by them for good delivery as per
the norms prescribed by the S2*$ in this regard. $f the receiving member does not
consider the securities good delivery, he has to obtain an arbitration award from the
arbitrators and submit the securities in the .learing 'ouse on the following day of the
0ay#>ut ;TQ)<. The .learing 'ouse returns these securities to the delivering members
on the same day, i.e., ;TQ)<. $f a delivering members feels that arbitration awards
obtained against him is incorrect, he is re"uired to obtain arbitration award for invalid
ob4ection from the members of the Arbitration 7eview .ommittee. The delivering
members are re"uired to rectifyJreplace the ob4ections and return the shares to the
.learing 'ouse on next day ;TQ+< to have the entry against them removed. The
rectified securities are delivered by the .learing 'ouse to the buyer members on the
same day ;TQ+<. The buyer members, if they are not satisfied with the rectification,
are re"uired to obtain arbitration awards for invalid rectification from the *ad
1elivery .ell on TQK day and submit the shares to the .learing 'ouse on the same
day.
$f a member fails to rectifyJreplace the ob4ections then the same are closed#out. This is
known as ">b4ection .ycle" and the entire process takes ( days.
The following table summarizes the activities involved in the Patawat Objection
Cycle of CRS.
1AA A.T$@$TA
T Q ( 0ay#out of securities of 7olling Settlement
T Q ) 0atawat Arbitration session
Arbitration awards to be obtained from officials of the *ad 1elivery .ell.
Securities under ob4ection to be submitted in the .learing 'ouse
Arbitration awards for invalid ob4ection to be obtained from members of the
Arbitration 7eview .ommittee

T Q +
8embers and institutions to submit rectified securities, confirmation forms and
invalid ob4ections in the clearing house
7ectified securities delivered to the receiving members

T Q K
Arbitration Awards for invalid rectification to be obtained from officials of the *ad
1elivery .ell
Securities to be lodged with the clearing house

The un#rectified and invalid rectification of securities are directly closed#out by the
.learing 'ouse instead of first inviting the auction offers for the same.
The shares in physical form returned under ob4ection to the .learing 'ouse are
re"uired to be accompanied by an arbitration award ;.hukada< except in certain cases
where the receiving members are permitted to submit securities to the .learing 'ouse
without ".hukada".
These cases are as follows
Transfer 1eed is out of date.
.he"ues for the dividend ad4ustment for new shares where distinctive numbers are
given in the 2xchange ,otice is not enclosed.
Stamp of the 7egistrar of .ompanies is missing.
1etails like 1istinctive ,umbers, TransferorsP ,ames, etc. are not filled, in the
Transfer 1eeds.
1elivering brokerPs stamp on the reverse of the Transfer 1eed is missing.
9itness stamp or signature on Transfer 1eed is missing.
Signature of the transferor is missing.
1eath .ertificate ;in cases where one or more of the transferors are deceased< is
missing.
A penalty at the rate of 7s.%BBJ# per 1elivery >rder is levied on the delivering
member for delivering shares, which are not in order. $n the event a receiving member
misuses the facility of submitting shares under ob4ection without ".hukada", a
penalty of 7s.+BBJ# per case is charged and the penalty of 7s.%BBJ# per 1elivery >rder
levied on the delivering member is refunded to him by debiting the receiving
memberPs 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. $n the former case,
the original seller memberPs account is debited and the buyer memberPs account is
credited at the closeout rate. $n the latter case, the offeror memberPs account is debited
and the buyer memberPs 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
The highest rate of the scrip from the first day ;trading day in case of 7olling
demat segment< to the day prior to the day on which the auction is conducted for
the respective settlement.
&BL 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 PAP, P*%P, P*&, and POP group segment of the respective settlementsD or
%BL above the closing rate as on the day prior to the day of auction of PAP, P*%P,
P*&, and POP groupD or
Transaction price.
$n the P.P group, i.e., >dd =ot Segment, no auction session is conducted. The
shortages are directly closed out.
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. $n the former case,
the original seller memberPs account is debited and the buyer memberPs account is
credited at the closeout rate. $n the latter case, the offeror memberPs account is debited
and the buyer memberPs 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
The highest rate of the scrip from the first day ;trading day in case of 7olling
demat segment< to the day prior to the day on which the auction is conducted for
the respective settlement.
&BL 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 PAP, P*%P, P*&, and POP group segment of the respective settlementsD or
%BL above the closing rate as on the day prior to the day of auction of PAP, P*%P,
P*&, and POP groupD or
Transaction price.
$n the P.P group, i.e., >dd =ot Segment, no auction session is conducted. The
shortages are directly closed out.
BASKET TRADING SYSTEM
The 2xchange has commenced trading in the 1erivatives Segment with effect from
5une /, &BBB to, enable the investors to hedge their risks. $nitially, the facility of
trading in the 1erivatives Segment has been confined to $ndex :utures. Subse"uently,
the 2xchange has since introduced the index options and options 3 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.
9ith 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 .ash Segment and :utures on Sensex, the 2xchange has provided the facility of
*asket Trading System on *>=T. $n *asket Trading System, the investors are able to
buyJ sell all (B scrips of Sensex in the proportion of their respective weights in the
Sensex, in one go. The investors need not calculate the "uantity of Sensex scrips to be
bought or sold for creating Sensex linked portfolios and this function is performed by
the system. The investors are also allowed to create their own baskets by deleting
certain scrips from the Sensex basket of (B scrips.
:urther, the *asket Trading System provides the arbitrageurs an opportunity to take
advantage of price differences in the underlying securities of Sensex and :utures on
the Sensex by simultaneous buying and selling of baskets covering the Sensex scrips
and Sensex :utures. This is expected to have balancing impact on the prices in both
cash and futures markets.
The *asket Trading System would, thus, meet the needs of investors and also boost
the volumes and depth in cash and futures markets.
The *asket Trading System has been implemented by the 2xchange w.e.f. 8onday,
the %)th August &BBB. The trades executed under the *asket Trading System are
sub4ect to intra#day tradingJgross exposure limits and daily margins as are applicable
to normal trades.. To participate in this system the member indicates number of
Sensex basket;s< to be bought or sold, where the value of one Sensex basket is arrived
at by the system by multiplying 7s.+B to prevailing Sensex.
SETTLEMENT SYSTEM
Securities traded on *S2 are classified into three groups, namely, specified shares or
PAP group and non#specified securities that are sub#divided into P*%P and P*&P groups.
0resently, e"uity shares of thirty#two companies are classified as specified shares.
These companies typically have a large capital base with widespread shareholding, a
steady dividend, good growth record and a large volume of business in the secondary
market. .ontracts in this group are allowed to be carried over to subse"uent
settlements upto a maximum permissible period of H+ days.
)/+ relatively li"uid securities are placed in a category called P*%P group. The
remaining securities#about +-BB as on 8ay (%, %//K are placed in the P*&P group. All
newly listed securities are placed in the P*&P group.
Settlement of transactions is done on an PAccount 0eriodP basis. The period is a
calendar week in the case of PAP and P*%P groups and %) calendar days in the case of
P*&P group 1uring an account period, buy or sell positions in a particular security can
be either s"uared up by entering into contra transactions or can be further
accumulated by entering into more buy or sell transactions.
Clearing System
The .learing 'ouse of the 2xchange handles the share and the money parts of the
settlement process in the case of PAP and P*%P groups. The .learing 'ouse handles only
the money part of P*&P group while securities are physically exchanged between the
brokers.
Opportunities available for foreign investors
%. 1irect investment
:oreign .ompanies are now permitted to have a ma4ority stake in their $ndian
affiliates except in a few restricted industries. $n certain specific industries,
foreigners can even have holding upto %BB per cent.
&. $nvestment through Stock 2xchanges
:oreign $nstitutional $nvestors ;:$$< upon registration with the Securities and
2xchange *oard of $ndia ;S2*$< and the 7eserve *ank of $ndia ;7*$< are allowed
to operate in $ndian Stock 2xchanges sub4ect to the guidelines issued for the
purpose by S2*$.
$mportant re"uirements under the guidelines are as under
$. 0ortfolio investment in primary or secondary markets will be sub4ect to a
ceiling of &) per cent of issued share capital for the total holding of all registered
:$$s in any one company. The holding of a single :$$ in any one company is
sub4ect to a ceiling of + per cent of the total issued capital.
'owever, in applying the ceiling of &) percent the following are excluded
:oreign investment under a financial collaboration ;1:$<, which is,
permitted upto +% per cent in all priority areas.
$nvestment by :$$s through following alternative routesD >ffshore
SingleJ7egional funds, 617Ps and 2uro convertibles.
$$. 1isinvestments will be allowed only through a broker of a Stock 2xchange.
$$$. A registered :$$ is re"uired to buy or sell only for delivery. $t should not
offset a deal. $t is also not allowed to sell short.
(. $nvestment in 2uro $ssuesJ8utual :unds :loated >verseas
:oreign investors can invest in 2uro issues of $ndian companies and in $ndia#
specific funds floated abroad.
). *roking *usiness
:oreign brokers upon registration with the S2*$ are now allowed to route the
business of registered :$$s. 6uideline for the purpose have been issued by S2*$.
'owever, foreign brokers at present are not allowed membership in $ndia Stock
2xchanges.
+. Asset 8anagement .ompaniesJ8erchant *anking
:oreign 0articipation in Asset 8anagement .ompanies and 8erchant *anking
.ompanies 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 transfer#deeds. Transfer#deeds remain valid for twelve months or the next book
closure following the stamped date whichever occurs later.
SAFEGUARDS
%. 8argins are collected from the brokers on buying and selling positions at the
end of the day. The total outstanding position is further sub4ect to capital
ade"uacy norms laid down from time to time.
&. A comprehensive insurance cover for the 2xchange and the members is about
to be put in place.
(. 6uaranteeing trades is the cornerstone of a mature clearing and settlement
process. *S2 is in the process of establishing a .learing .orporation that will
guarantee trades.
). .ompanies are re"uired to publish half#yearly unaudited results and other
price sensitive information. This imparts greater transparency to the stock
market operations.
+. $nsider Trading 7egulations have been laid down and a PTake#>verP code has
been created.
ARBITRATION MACHINERY

There exists three level arbitration machinery. The first two levels, which are
ad4udicated by member brokers, comprise of a two#member bench and a full bench
that is to comprise of at least sixteen members respectively. The highest arbitrator in
the 2xchange is the 6overning *oard. 1isputes unresolved in the 2xchange are taken
to the .ourt of =aw.
CUSTOMER PROTECTION FUND
The ob4ective 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 7s.%, BB,BBB. The
corpus of the fund is created by depositing &.+L of the listing fees and a levy on
turnover at the rate or 7e.% for 7s. % million of turnover. $t is further augmented by
+BL of the interest accrued on %L 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 $nvestorPs Services .ell redresses investorsP grievances against listed companies
and stockbrokers. 'owever, the 2xchange does not have power to take penal action
against listed companies, except delisting for specified periods.
DISCIPLINARY ACTION
The 2xchange has an eight member 1isciplinary Action .ommittee ;1A.< which
decides on punitive action in disciplinary cases referred to it by the Surveillance and
inspection departments of the 2xchange Administration.
INDICES
The 2xchange compiles four indices, which are based on market capitalization. The
first index to be compiled was the *S2 Sensitive $ndex with %/H-#H/ as the base year.
$t comprises of e"uity shares of (B companies from both specified and non#specified
securities groups. The companies have been selected on the basis of market activity.
Subse"uently, a more broad based index, *S2 ,ational $ndex with %/-(#-) as base
year, was compiled. This index is made up of %BB scrips, /- of which are "uoted on
*ombay. This index also includes prices on the other ma4or stock exchanges of 1elhi,
.alcutta, Ahmedabad and 8adras. $f scrip is actively "uoted on more than one
2xchange the average price of the scrip is used in the compilation of the index.
$t was felt that the sensitive index#the most popular indicator of market movement#
had become oversensitive to a handful of scrips. 9ith divestment of 0ublic Sector
!nit ;0S!< e"uity by government and a sharp increase in the number of companies
listed over the last few years, it was felt that a new index, which is more
representative of the recent changes and is more balanced is necessary. The *S2#&BB,
which was introduced in 8ay %//), consists of e"uity shares of &BB companies,
which have been selected on the basis of market capitalization, volume of turnover
and strength of the companiesP fundamentals. %/-/#/B has been chosen as the base
year for *S2#&BB.
As the presence of the foreign investors grew, a need was felt to express the index
values by taking into account the 7upee#1ollar conversion rate. .onse"uently,
dividing the current 7upee market value by 7upee#1ollar modifies the *S2#&BB
conversion rate in the base year. This index, which indicates the movement of the
market in dollar values, is called the 1ollex.
DISCLOSURE & LISTING NORMS
.ompanies who wish to raise money from capital market follow guidelines relating to
disclosure, laid down by the Securities and 2xchange *oard of $ndia. Some of the
disclosure norms are
1etails of other income if it constitutes more than ten percent of total income.
All adverse event affecting the operations of the company.
Any change in key managerial personnel.
7isk factors specific to the pro4ect and those which are external to the
company.
The listing re"uirements with the 2xchange call for further disclosure by companies
to promote public confidence. $mportant disclosures are
The company is re"uired to furnish unaudited half#yearly financial results in
the prescribed 0erforma.
The company must explain to the Stock 2xchange any large variation between
audited and unaudited results in respect of any item.
9hen any person or an institution ac"uires or agrees to ac"uire 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 2xchange
must be notified within two days of such ac"uisition by the company or by
authorized intermediary or by the ac"uirer.
Any take#over offer made either voluntarily or compulsorily to a company
re"uires a public announcement by both the offeror and the offeree company.
Computerized Trading
*S2 computerized its trading and settlement activities by following a three#phased
approach.
Phase I: The primary ob4ective of this phase was the real time dissemination of price
data through the 1isplay $nformation 1river System ;1$1S<. 1$1S was
commissioned in ,ovember %//& to disseminate bids, offers, actual rates of
transactions and indices on a real time basis.
Phase II: $n %//), settlement related daily transactions inputs and outputs were
uploaded and downloaded from the T9S in the brokersG offices.
Phase III: .ommissioned on 8arch %), %//+. Although, screen based trading started
with -%- scrips, by the HBth day of its commissioning, all scrips#exceeding +BBB had
been put on the *>=T system. The *>=T system was commissioned with the
'imalya C %B,BBB central trading computer hardware. Since then the hardware has
been upgraded to the 'imalya C &B,BBB system. The system provides for a response
time of two seconds and can handle more than two hundred thousand trades in a day.
National Stock Exchange
INTRODUCTION
The ,ational Stock 2xchange ;,S2< is $ndiaPs leading stock exchange covering
around )BB cities and towns all over $ndia. ,S2 introduced for the first time in $ndia,
fully automated screen based trading. $t 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 li"uidate investments in securities.
Sponsored by the industrial development bank of $ndia, the ,S2 has been co#
sponsored by other developmentJ public finance institutions, =$., 6$., banks and
other financial institutions such as S*$ .apital 8arket, Stockholding corporation,
$nfrastructure leasing and finance and so on. $ndia has had a history of stock
exchanges limited in their operating 4urisdiction to the cities in which they were set
up.
,S2 started e"uity trading on ,ovember (, %//) and within a short span of % year
became the largest exchange in $ndia in terms of volumes transacted. Trading
volumes in the e"uity segment have grown rapidly with average daily turnover
increasing from 7s.H crores in ,ovember %//) to 7s.KH/H crores in :ebruary &BB%
with an average of /.K lakh trades on a daily basis. 1uring the year &BBB#&BB%, ,S2
reported a turnover of 7s.%(, (/,+%B crores in the e"uities segment accounting for
)+L of the total market.
The ,S2 represented an attempt to overcome the fragmentation of regional markets
by providing a screen#based system, which transcends geographical barriers. 'aving
operationalised both the debt and e"uity markets, the ,S2 is planning for a derivative
market, which will provide futures and options in e"uity. $ts main ob4ectives has been
to set up comprehensive facilities for the entire range of securities under a single
umbrella, namely,
To set up a nation wide trading facility for e"uities, debt instruments and
hybridsD
To ensure e"ual access to investors across the country through an appropriate
communication networkD
To provide a fair, efficient and transparent securities market to investors using
the electronic trading systemD
To ensure shorter settlement cycles and book entry settlement systemsD and
To meet the current international standards prevalent in the securities
$ndustryJmarkets.
Locations
>ne of the ob4ectives of ,S2 was to provide a nationwide trading facility and to
enable investorsG spread all over the country to have an e"ual access to ,S2. ,S2
uses sophisticated telecommunication technology through which members can trade
remotely from their offices located in any part of the country. ,S2 trading terminals
are present in around )BB cities and towns all over $ndia.
Listing
The prime ob4ective of admission to dealings on the 2xchange is to provide li"uidity
and marketability to securities as also to provide a mechanism for effective
management of trading.
Securities listed on the 2xchange are re"uired to fulfill the listing eligibility criteria.
@arious types of securities of a company are traded under a uni"ue symbol and
different series. This section provides a direct link to the web site of companies traded
on the 2xchange.
Constitution
The ,S2 has two segments for trading in securities 9holesale 1ebt 8arket ;918<
and .apital 8arket ;.8<. Separate membership is re"uired for each segment.
Trading members
They are recognized members of ,S2. The persons eligible to become T8s are body
corporates, subsidiaries of banks and financial institutions. They are selected on the
basis of a comprehensive selection criterion. The whole time directorsJdealers of thess
Trading mechanism
Rolling Settlement
$n a rolling settlement, each trading day is considered as a trading period and trades
executed during the day are settled based on the net obligations for the day.
$n ,S2, the trades in rolling settlement are settled on a TQ+ basis i.e. on the +th
working day. :or arriving at the settlement day all intervening holidays, which
include bank holidays, ,S2 holidays, Saturdays and Sundays are excluded. Typically
trades taking place on 8onday shall be settled on the next 8onday, TuesdayPs trades
shall be settled on the next Tuesday and so on.
Limited Physical Market
0ursuant to S2*$ guidelines, ,S2 introduced a new market called =imited 0hysical
8arket 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 S2*$. $n this segment "uantities not exceeding +BB shares of each security held in
the name of the investor can be traded.
Institutional Segment
Trading in this market segment is available for institutional investors only. $n order to
ensure that the overall :$$ ceiling limits are not violated, trading members are allowed
to enter sell orders in this market segment only for their :$$ clients. 'owever,
members can enter buy orders on behalf of :$$J:$ clients. The settlement of
transactions in this segment is in demat mode only.
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 S2*$ directive. The list of
these securities is notified by S2*$ from time to time.
Trading System
,S2 operates on the P,ational 2xchange for Automated TradingP ;,2AT< system, a
fully automated screen based trading system, which adopts the principle of an order
driven market. ,S2 consciously opted in favour of an order driven system as opposed
to a "uote driven system. This has helped reduce 4obbing spreads not only on ,S2 but
in other exchanges as well, thus reducing transaction costs.
Till the advent of ,S2, an investor wanting to transact in a security not traded on the
nearest exchange had to route orders through a series of correspondent brokers to the
appropriate exchange. This resulted in a great deal of uncertainty and high transaction
costs. ,S2 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 ,2AT system in ,S2 has four types of market. They are
Normal Market
All orders which are of regular lot size or multiples thereof are traded in the ,ormal
8arket. :or shares, which are traded in the compulsory dematerialised mode the
market lot of these shares, is one. ,ormal market consists of various book types
wherein orders are segregated as 7egular lot orders, Special Term orders, ,egotiated
Trade >rders and Stop =oss 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. $n an odd#lot
market, both the price and "uantity of both the orders ;buy and sell< should exactly
match for the trade to take place. .urrently the odd lot market facility is used for the
=imited 0hysical 8arket as per the S2*$ directives.
Spot Market
Spot orders are similar to the normal market orders except that spot orders have
different settlement periodGs vis#S#vis normal market. These orders do not have any
special terms attributes attached to them. .urrently the Spot 8arket is being used for
the Automated =ending 3 *orrowing 8echanism ;A=*8< session.
Auction Market
$n the Auction 8arket, the 2xchange on behalf of trading members for settlement
related reasons initiatesG auctions.
There are ( 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
.ompetitor.
Solicitor
The party who enters orders on the opposite side as of the initiator is called a
Solicitor.
Order Books
The ,S2 trading system provides complete flexibility to members in the kinds of
orders that can be placed by them. >rders are first numbered and time#stamped on
receipt and then immediately processed for potential match. 2very order has a
distinctive order number and a uni"ue time stamp on it. $f a match is not found, then
the orders are stored in different PbooksP. >rders are stored in price#time priority in
various books in the following se"uence
*est 0rice# 0rice priority means that if two orders are entered into the system, the
order having the best price gets the higher priority.
9ithin 0rice, by time priority#Time priority means if two orders having the same
price are entered, the order that is entered first gets the higher priority.
The Capital Market segment has following types of books:
1. Regular Lot Book
The 7egular =ot *ook contains all regular lot orders that have none of the
following attributes attached to them.
a< All or ,one ;A>,<
b< 8inimum :ill ;8:<
c< Stop =oss ;S=<
2. Special Terms Book
The Special Terms book contains all orders that have either of the following terms
attached
a< All or ,one ;A>,<
b< 8inimum :ill ;8:<
,ote .urrently, special term orders i.e A>, and 8: are not available on the
system as per the S2*$ directives.
3. Negotiated Trade Book
The ,egotiated 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. $t is to be noted
that these entries contain a counter party code in addition to other order details.
4. Stop-Loss Book
Stop =oss orders are stored in this book till the trigger price specified in the order
is reached or surpassed. 9hen the trigger price is reached or surpassed, the order
is released in the 7egular lot book.
The stop loss condition is met under the following circumstances:
Sell order # A sell order in the Stop =oss 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 =oss book gets triggered when the last traded
price in the normal market reaches or exceeds the trigger price of the order.
5. Odd Lot Book
The >dd lot book contains all odd lot orders ;orders with "uantity less than
marketable lot< in the system. The system attempts to match an active odd lot
order against passive orders in the book. .urrently, pursuant to a S2*$ directive
the >dd =ot 8arket is being used for orders which has a "uantity less than or
e"ual to +BB ;?ty more than the market lot< for trading. This is referred as the
=imited 0hysical 8arket ;=08<.
6. Spot Book
The Spot lot book contains all spot orders ;orders having only the settlement
period different< in the system. The system attempts to match an active spot lot
order against the passive orders in the book. .urrently the Spot 8arket book type
is being used for conducting the Automated =ending 3 *orrowing 8echanism
;A=*8< 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 multiple trades. :or 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. 'ence, the best buy order
is the order with the highest price and the best sell order is the order with the lowest
price.
8embers can proactively enter orders in the system, which will be displayed in the
system till the full "uantity 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. >rders lying
unmatched in the system are PpassiveP orders and orders that come in to match the
existing orders are called PactiveP orders. >rders are always matched at the passive
order price. This ensures that the earlier orders get priority over the orders that come
in later.
Order Conditions
A Trading 8ember can enter various types of orders depending upon hisJher
re"uirements. These conditions are broadly classified into three categories time
related conditions, price#related conditions and "uantity related conditions. :or
example
Time Conditions
1AA # A 1ay order, as the name suggests, is an order which is valid for the
day on which it is entered. $f the order is not matched during the day, the order
gets cancelled automatically at the end of the trading day.
6T. # A 6ood Till .ancelled ;6T.< order is an order that remains in the
system until the Trading 8ember cancels it. $t will therefore be able to span
trading days if it does not get matched. The 2xchange notifies the maximum
number of days a 6T. order can remain in the system from time to time.
6T1 # A 6ood Till 1aysJ1ate ;6T1< order allows the Trading 8ember to
specify the daysJdate up to which the order should stay in the system. At the
end of this period the order will get flushed from the system. 2ach dayJdate
counted is a calendar day and inclusive of holidays. The daysJdate counted are
inclusive of the dayJdate on which the order is placed. The 2xchange notifies
the maximum number of days a 6T1 order can remain in the system from
time to time.
$>. # An $mmediate or .ancel ;$>.< order allows a Trading 8ember 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. 0artial match is possible for the
order, and the unmatched portion of the order is cancelled immediately.
A>, # All or ,one orders allow a Trading 8ember to impose the condition
that only the full order should be matched against. This may be by way of
multiple trades. $f the full order is not matched it will stay in the books till
matched or cancelled.
,ote .urrently, A>, and 8: orders are not available on the system as per S2*$
directives.
Price Conditions
Limit Price/Order
An order, which allows the price to be specified while entering the order into the
system.
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 8ember to place an order which gets activated
only when the market price of the relevant security reaches or crosses a threshold
price. !ntil then the order does not enter the market.
Sell order
A sell order in the Stop =oss 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 =oss book gets triggered when the last traded price in the
normal market reaches or exceeds the trigger price of the order.
e.g. $f for stop loss buy order, the trigger is /(.BB, the limit price is /+.BB and the
market ;last traded< price is /B.BB, then this order is released into the system once the
market price reaches or exceeds /(.BB. This order is added to the regular lot book
with time of triggering as the time stamp, as a limit order of /+.BB
Quantity Conditions
1isclosed ?uantity ;1?<# An order with a 1? condition allows the Trading 8ember
to disclose only a part of the order "uantity to the market. :or example, an order of
%BBB with a disclosed "uantity condition of &BB will mean that &BB is displayed to the
market at a time. After this is traded, another &BB is automatically released and so on
till the full order is executed. The 2xchange may set a minimum disclosed "uantity
criteria from time to time.
8: # 8inimum :ill ;8:< orders allow the Trading 8ember to specify the minimum
"uantity by which an order should be filled. :or example, an order of %BBB units with
minimum fill &BB will re"uire that each trade be for at least &BB units. $n other words
there will be a maximum of + trades of &BB each or a single trade of %BBB. The
2xchange may lay down norms of 8: from time to time.
Trading Workstation
The trader workstation is the terminal from which the member accesses the trading
system. 2ach trader has a uni"ue identification by way of Trading 8ember $1 and
!ser $1 through which he is able to log on to the system for trading or in"uiry
purposes. A member can have several user $1s allotted to him by which he can have
more than one employee using the system concurrently.
The 2xchange may also allow a Trading 8ember to set up a network of dealers in
different cities all of whom are provided a connection to the ,S2 central computer. A
Trading 8ember can define a hierarchy of users of the system with the .orporate
8anager at the top followed by the *ranch 8anager and 1ealers.
Trader Workstation Screens
The Trader 9orkstation screen of the Trading 8ember is divided into several ma4or
windows
Title Bar
The title bar displays the current time, Trading system name and date.
Tool Bar
A window with different icons which provides "uick access to various functions such
as 8arket *y >rder, 8arket *y 0rice, 8arket 8ovement, 8arket $n"uiry, Auction
$n"uiry, Snap ?uote, 8arket 9atch, *uy order entry, Sell order entry, >rder
8odification, >rder .ancellation, >utstanding >rders, >rder Status, Activity =og,
0revious Trades, ,et 0osition, >nline *ackup, Supplementary 8enu, Security =ist
and 'elp. All these functions are also available on the keyboard.
Ticker Window
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 8arket 9atch window is the main area of focus for a Trading 8ember. The
purpose of 8arket 9atch is to view market information of pre#selected securities,
which are of interest to the Trading 8ember.
To monitor various securities, the trading member can set them up by typing the
Security 1escriptor consisting of a Symbol field and a Series field. $nvoking the
Security =ist and selecting the securities from the window can also set up securities.
The Symbol field incorporates the .ompany name and the Series field captures the
segmentJinstrument type. A third field indicates the market type.
:or each security in the 8arket 9atch window, market information 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. :or each security, the corporate action
indicator ;e.g., 2x or cum dividend, interest, rights etc.<, the total buy order "uantity
for the best buy price, best sell price, total sell order "uantity for the best sell price,
the =ast Traded 0rice ;=T0<, the last traded price change indicator ;PQP if last traded
price is better than the previous last traded price and P#P if it is worse< and the no
delivery indicators are displayed. $f the security is suspended, "S!S02,121"
appears in front of the security.
On line index and Index Inquiry
9ith every trade in a security participating in $ndex, the user has the information on
the current value of the ,ifty. This value is displayed at the extreme right hand corner
of the ticker window.
$ndex $n"uiry gives information on .lose, >pen, 'igh, =ow and current index values
at the time of invoking this in"uiry screen.
Inquiry Window
$n this window, the in"uiries such as 8arket by >rder, 8arket by 0rice, 0revious
Trades, >utstanding >rders, Activity =og, >rder Status and 8arket $n"uiry can be
viewed.
Market By Order (MBO)
The purpose of 8arket by >rder is to enable the user to view outstanding orders in the
trading books in the order of priceJtime priority. The information is displayed for each
order. Stop =oss orders, which are not triggered will not be displayed on the window.
*uy orders are displayed on the left side of the window and Sell orders on the right
side. The orders are presented in a priceJtime priority with the "best priced" order at
the top.
Market by Price (MBP)
The purpose of 8arket *y 0rice is to enable the Trading 8ember 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 >utstanding >rders is to enable a Trading 8ember to view hisJher
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.
Activity Log (AL)
The Activity =og shows the activities, which have been performed on any order of the
Trading 8ember such as whether, the order has been traded against fully or partially,
it has been modified or has been cancelled. $t displays information only of those
orders in which some activity has taken place. $t does not display orders, which have
entered the books but have not been matched ;fully or partially< or modified or
cancelled.
Order Status (OS)
>rder Status enables the user to look into the status of a specific order. .urrent status
of the order and other order details are displayed. $n case the order is traded, the trade
details are also displayed.
Market Inquiry (MI)
8arket $n"uiry enables the user to view the market statistics like >pen, 'igh, =ow,
0revious close, =ast traded price change indicator, =ast traded "uantity, date and time
etc. A user may find in"uiry screens like 8arket 8ovement, 8ost Active Securities
and ,et 0osition useful. These are available in the supplementary menu.
Market Movement (MM)
The 8arket 8ovement screen provides information to the user regarding the
movement of a security for the current day. $t gives details of the movement of the
scrip for a time interval. The details include total buy and sell order "uantity value,
>pen, 'igh, =ow, =ast traded price etc.
Most Active Securities
This screen gives a list of the securities with the highest traded value during the day
and the "uantity traded for each of them.
Net Position
This functionality enables the user to interactively view his net position for all
securities in which he has traded.
Snap Quote
The Snap ?uote feature allows a Trading 8ember to get instantaneous market
information on any desired security. This is normally used for securities which are not
already on display in the 8arket 9atch window. The information presented is the
same as that of 8arket 9atch window.
Order/Trade Window
>rder entry mechanisms enable the Trading 8ember to place orders in the market.
The system will re"uest re#confirmation of an order so that the user is cautioned
before the order is finally released into the market. >rders once placed on the system
can be modified or cancelled till they are matched. >nce orders are matched they
cannot be modified or cancelled.
There is a facility to generate online orderJtrade confirmation slips as soon as an order
is placed or a trading is done. The order confirmation slip contains among other
things, order no., security name, price, "uantity, order conditions like disclosed or
minimum fill "uantity etc. The trade confirmation slip contains the order and trade
no., date, trade time, price and "uantity traded, amount etc. >rders and trades are
identified and linked by uni"ue numbers so that the investor can check his order and
trade details.
Systems Message Window
This window is used to view messages from the 2xchange to all specific Trading
8embers.
Supplementary Menu
Some of the supplementary features in the ,2AT system are
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
,S2 offers a facility to its trading members by which members can use their own
trading front#end software in order to trade on the ,S2 trading system. This
.omputer#to#.omputer =ink ;.T.=< facility is available only to trading members of
,S2.
Through .T.= facility Trading 8embers can use their own software running on any
suitable hardwareJsoftware platform of their choice. This software would be a
replacement of the ,2AT front#end software that is currently used by members to
trade on the ,S2 trading system. 8embers can use software customised to meet their
specialized needs like provision of on#line trade analysis, risk management tools,
integration of back#office operations etc. The dealers of the member may trade using
the software remotely through the memberPs own private network, sub4ect to
approvals from 1epartment of Telecommunication etc. as may be re"uired in this
regard.
National Securities Clearing Corporation Limited
,ational Securities .learing .orporation =td. ;,S..=<, a wholly owned subsidiary
of ,S2, was incorporated in August %//+ and commenced clearing operations in
April %//K. $t has been set up with a philosophy to sustain confidence in clearing and
settlement of securitiesD promoting and maintaining, short and consistent settlement
cyclesD to provide counter#party risk guarantee, and to operate a tight risk containment
system. $t assumes the counter#party risk of each member and guarantees financial
settlement. $t has successfully brought about an up#gradation of the clearing and
settlement procedures and has brought $ndian financial markets in line with
international markets.
,S..= carries out the clearing and settlement of the trades executed in the 2"uities
and 1erivatives segments and operates Subsidiary 6eneral =edger ;S6=< for
settlement of trades in government securities. $t also undertakes settlement of
transactions on other stock exchanges like, the >ver the .ounter 2xchange of $ndia.
,S..= 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. $t operates a well#defined settlement cycle and there are no
deviations or deferments from this cycle. $t aggregates trades over a trading period,
nets the positions to determine the liabilities of members and ensures movement of
funds and securities to meet respective liabilities. $t provides a facility for multiple
settlement mechanisms including, account period settlement for dealings in physical
securities and dematerialized securities, rolling settlement ;TQ+ basis< in
dematerialized segment etc.
,S..= has empanelled / clearing banks to provide banking services to trading
members and has established connectivity with both the depositories for electronic
settlement of securities.
BADLA TRADING
*adla is a complex system that contains many a pitfall for the uninitiated and the
unwary. $nvestors need to be aware of the problems, especially when brokers on *S2
and other regional stock exchanges are marketing vyaj ad!a schemes to their clients
aggressively.
*efore an investor start believing in the stories of superlative returns ;in excess of &B
per cent<, coupled with li"uidity, 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
donPt have the time to constantly monitor the status of hisJher investments and
fluctuations in the market returns
Vyaj Badla
$n the vyaj ad!a system, there was a very high chance that an investor may end up
with an average annual return of %)#%- per cent or sometimes even higher. *ut 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 4ust around K#- per cent a year. .omparing it with a steady %& 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 vya4 badla would start looking like
a bad investment option.
And then the taxman comethI @ya4 badla transactions began to be treated as purchase
and sale of shares, thus getting sub4ected to capital gains tax of (B per cent. Thus, an
investorGs final returns get lopped off to that extent. Although nay Sayers might feel
that vya4 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. 2lse,
the nerve#wracking tension that accompanies stock market fluctuations may well take
its toll.
How did the Badla function?
Assume that there had been %& trades of %BB shares each in "A*." stock, and there
are %& separate buyers and sellers respectively. Among the buyers, while six wanted
to carry forward their positions, six want to take delivery. >f the sellers, eight wished
to deliver the shares while four were keen on carrying their positions forward. ,ow
six buyers made the payment for their purchases, while eight sellers effect delivery.
Six buyers and six sellers got s"uared off. :our "buy" carry#forward positions get
matched against four "sell" carry#forward positions.
To ensure payment to the remaining two sellers for their &BB shares, vya4 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 and shares
determined this rate. Shares delivered by the seller were kept by the exchange in the
clearing#house and allocated to the financierPs broker in a special account, forming the
financierPs collateral.
>n the *S2, brokers who were sure of taking or making delivery of shares mark their
respective "for delivery" positions. This helped the exchange to arrive at the net
outstanding positions on :riday evening ;the last day of the settlement on *S2<, by
deducting them from the brokerPs weekly out standings. The difference is threw open
to the marketPs badla trading session on Saturday. 0rior to the commencement of this
session, the base price ;hawala rate< is fixed, which was normally the closing price of
the scrip on :riday. An outstanding "buy" position in a stock sees a "seedha badla"
where the financiers participate. An outstanding "sell" position in the stock sees an
"ulta" or "undha badla" where the stock lenders participate. Specified "uantities of the
stock on offer are bought and sold at the financierPs desired interest rate # the badla
rate.
$n this case, letPs assume the hawala rate to be 7s K/. $f the financier wants to pay for
%BB shares at &B per cent per annum and the trade gets matched, the interest rate is
converted into a weekly figure. $n this case, it would be B.(- per cent. >n the hawala
rate of 7s K/, this B.(- percent works out to &K paise. The terminals would constantly
keep flashing the best badla rate and the best annual yield for each stock on offer for a
particular "uantity. 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. >ne would show a purchase of %BB shares at 7s K/ per
share, while the other would show a sale of %BB shares at 7s K/.&K per share. The
difference will be the financiers earning for that week. 9ith the next trading cycle
ending, the financier can either receive the difference or roll over hisJher money to a
new badla transaction.
Who can participate?
,ot all brokers can participate in the badla process. 8emberships on *S2 are split
between type#$ and type#$$ brokers. >nly the former can carry out badla trades, for
they maintain higher margins with the exchange. 'ence, if you are keen on becoming
a vya4 badla financier, you should approach the type#$ broker.
8ost brokers donPt accept anything less than 7s % lakh per client for badla financing.
And the stock selection too is at their discretion. *ut 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 collectively invested in vya4 badla. *adla rates vary
between stocks, depending upon their demand and supply. These rates fluctuate
considerably throughout the session.
$deally, 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. :or getting the weighted average return on badla finance, it is advisable to
look for brokers who have automated this process.
As in any other market transaction, one cannot avoid brokerage in a vya4 badla
transaction too. *rokerage for such deals could range between %#&.+ per cent,
trimming down your annual yield further. $t is advisable to enter into a firm brokerage
percentage prior to the commencement of the relationship.
Are investors safe?
9hat is the investorGs safeguard in times of defaultT $f the forward buyer defaults, he
got the shares held in the exchangePs clearinghouse against his brokerGs name, on
which he had a lien through his *adla bill. *ut his risk erosioned in the value of the
share during the days that it takes to release the shares.
$n the recent history of *S2, there have been instances of brokers ;having large carry#
forward positions in highly speculative stocks< defaulting. Although these shares were
en4oying very high badla rates at the time of the default, the prices had dipped sharply
by the time the financiers got their shares.
$f the broker defaults, the financier is in a larger mess. Apart from the large
institutional brokers, most brokers on *S2 have a net worth of 7s %#& crore. *adla
positions taken by them sometimes go up to %+#&B times their net worth. 2ven a %B
per cent downward shift in their position would wipe out the brokerPs entire net worth.
And then you could bid goodbye to your money too. The *S2Ps Trade 6uarantee
:und could be of some succour and solace in these situations, but 4ust that.
:ailure 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.
9hile opting out, always time your exit. *y virtue of the exchangePs settlement cycle,
your money gets released within a ten#day period. This further reduces your yield.
As in the case of defaults, the delay in the release of your money can be detrimental.
So factor in those extra days while calculating your actual return. Although vya4 badla
is considered to be an effective short#term instrument, as is the case with all such
instruments, the delay can really eat into your returns. 6iven the "uirks of the vya4
badla transactions and the inherent risks involved, it can be concluded that amateurs
should stay away # it is strictly for the pro and the strong hearted.
Substitutes to Badla
Financial derivatives
*y far the most significant event in finance during the past decade has been the
extraordinary development and expansion of financial derivatives...
These instruments enhance the ability to differentiate risk and allocate it to those
investors most able and willing to take it ## a process that has undoubtedly improved
national productivity growth and standards of living. ## :ed .hairman Alan
6reenspan
:ollowing the introduction of index futures, the Securities and 2xchange *oard of
$ndia ;S2*$< permitted the *S2 and the ,S2 to introduce more derivatives, such as
options on indices and individual stocks. *ut an instrument that may be more in line
with the domestic market structure ## single#stock futures ## is not under
consideration.
Single#stock futures are a way to reap the benefits of a stockPs performance without
actually owning the stock. Theoretically, they offer the benefits of ownership, of
leveraging the stock or its underlying asset. *ut a similar opportunity is not available
to the speculator#investor to sell options in the underlying scrip. As delivery of futures
contracts is on a future date, the investor has to put up only the margin money. 'ence,
he can leverage on the margins to buy more units of the underlying security.
>ne of the advantages en4oyed by single#stock futures is that they are cheaper to trade
and easier to use for hedging strategies than options. .heaper, because margins in
futures trading are lower than in options. *ut the valuation of futures contracts are not
as complicated as that of options. 'ence, small investors find them relatively easy to
understand and use.
Trading options:
Trading options are riskier than futures. This is purely from the options#writerPs
perspective. 8arket making in options depends to a great extent on institutions
willing to write the contracts. Since the buyer of an option contract is not under any
obligation to exercise his right, his risk is limited to the premium paid for purchasing
the right.
'owever, the writer is under an obligation to deliver. This means the risk borne by the
option#writer is enormous. 2xchanges normally guarantee the writerPs position.
'ence, to limit default in the market, the margin re"uirements are "uite high. :or
instance, in international markets, while the margin rate for index futures contracts is
around + per cent, that for index options works out to the commission received plus
around %+ per cent of the contractPs notional value.
Thus, in this situation, there is excessive risk for the options#writer and transactions
costs could be high. .urrently, the regulations prevent funds from taking speculative
positions in the spot market. So, they may not be allowed to write options. A market
exists only if there is a writer and a buyer. *ut given that there are few takers for the
futures market, it is difficult to foresee a lot of interest in the options market.