By : Dr Pooja Malhotra

Dyal Singh College,

Karnal
 Trading Mechanism
• It is an order driven system which matches
buying and selling orders of investors.
• Orders can be placed with stock exchange
through brokers, sub brokers or through
internet trading allowed by banks or brokers
• System automatically matches buy and sell
orders of a particular security on the basis of
price and quantity entered.
 Screen Based Trading
• Using information technology (Computer,
internet and satellites) for buying and selling
of securities. Traders have to enter name and
quantity of share, price at which they are
ready to buy/sell, their trading a/c id etc.
• Stock exchanges’ software process the order
as soon as the price, quantity details entered
by one party matches with details of
counterparty.
 Benefits of screen based trading
• Efficient processing
• Faster execution of trades
• Increases trading capacity of stock exchange
• Reduces operational inefficiencies
• Improves transparency
• Smooth market operations
• Better control
• Provides data and information backup.
• Improved liquidity
• Fair price.
 Trading Mechanism at BSE
• Known as BOLT – BSE Online Trading established in
1995. and first exchange to be set up in Asia.
• Trading on the BOLT System is conducted from Monday
to Friday between 9:15 a.m. and 3:30 p.m.
• BOLT Plus new online trading platform introduced in
2013. it includes derivative as well as equity segments.
computers are connected through VSATs. Has nearly
200 microseconds latency and has a capacity of
5,00,000 orders per second. More than 900 broker
members with more than 1,00,000 branches are
working through this platform.
 Types of securities
• Listed securities: listed on BSE.
• Permitted securities: are the securities of such
cos which are actively traded at other stock
exchanges but are not listed on BSE. Trading of
such securities are done under “Permitted
securities” after meeting relevant norms.
 Types of transactions
• Cash transactions: that require delivery and
payments as per compulsory rolling
settlement (T+2).
• Futures and Options or Derivatives Trading
Transactions: a derivative is a contract
between two or more parties with a price that
is derived from one or more underlying assets
(stock, bond, commodity, currency etc).
Settlement is done as per terms of contract.
 Group of Securities
• “A”: highly liquid stocks of highly rated
companies, high volumes and with CRS.
Nearly 200 companies are at present in A
Category.
• “B”: which are not included in any other
category. These have normal volumes and
settled under CRS. Have less market
capitalization as compared to A category.
• “F”: fixed income securities, it represent debt
market segment. Also settled at CRS.
• “G”: Govt securities for retail investors also
settled at CRS.
• “S”: securities listed on BSE Indo Next
platform. It consists of small and medium
enterprise which are listed on RSE .
• “T”: represents Securities which are settled on a
trade-to-trade basis. means not available for
Intraday.
• Suppose you buy 1,000 shares of SUZLON at
Rs.25 per share and sold these 1,000 shares for
Rs.30 per on the same day (before the close of
trading). You have gained Rs.5 per share (less
brokerage/Other Expenses). This is the amount
you will receive from your broker in the normal
rolling settlement system.
• But, if the same stock is under trade-for-trade
segment, you will have to pay Rs.25,000 to
take delivery of the shares you bought.
Similarly, the quantity you have sold will have
to be presented for delivery in Demat A/C. The
Trade-for-Trade segment considers each
transaction individually.
• “TS”: scrips of BSE IndoNext segment and also on
trade to trade basis.
• “Z”: The 'Z' group was introduced by BSE in July
1999 and includes companies which have failed
to comply with its listing requirements and/or
have failed to resolve investor complaints and/or
have not made the required arrangements with
both the depositories, viz., Central Depository
Services (I) Ltd. (CDSL) and National Securities
Depository Ltd. (NSDL) for dematerialization of
their securities.
• “D”: companies which would apply for listing
on exchange through direct listing norms.
• “DT”: trade to trade and direct listing.
 TRADING PROCESS AT BSE
Placing of order

Matching of Prices

Electronic communication at screen or at brokers’ terminal

Trade confirmation through mail or issued by broker

Issuance of contract note

Pay-in of securities and funds

Pay-Out of securities and funds

 Placing of order
Types of orders
• Market order: An order to trade (Buy/Sell)
securities at current market price. Trader
doesn’t enter the price of security.
•
• Limit order: at Specified price of selling or
buying
• Stop Order: in which a threshold limit is set by
investor.

• Market protection order: order will specify the

deviation upto which the order can be
executed from the current price.
• 2. Matching of Price: the system matches the best
price available on price-time basis.
• The orders can be placed with conditions:
– Time condition: day orders, immediate, good till
cancelled.
– Price condition: Best buy order is that which quotes
highest price. And best sell order is that which quotes
lowest price.
– Quantity condition: particular quantity to be bought
and sold.
• Confirmation of order: as soon as order is
executed, it will be displayed on screen. Order
confirmation email will be generated if trade
done online, or broke will issue a confirmation
slip.
• Contract note: legal record of transaction
carried out through a broker. It provides
details of transactions in writing.
• Delivery of shares or payment to brokers: both
to be done before pay-in-day.
• Pay-in-of securities: the day when brokers
make payment or deliver the securities to the
exchange
• Pay-Out : the day on which exchange makes
the payment to seller and transfer the
securities to the buyer.
 FASTTRADE OMS (order mgt system)
FASTRADE is a terminal based and Internet based Market
access solution developed by Marketplace Technologies
Pvt. Ltd, a 100% subsidiary of BSE Limited.
• FASTRADE is a powerful real time trading solution which
allows the user to watch market prices and execute orders
in multiple exchanges and markets instantaneously by real
time price streaming.

• Only OMS to be empanelled with ALL EXCHANGE

(BSE/USE/NSE/MCX/NCDEX) SEGMENTS –
(Equity/Derivative/Commodity/Currency)
• Integrated with leading Banks/DPs/BOs
 Access Modes of FASTRADE
• EXE – For High Speed Traders/Arbitrageurs
Administrators/Internet Clients
• Web Based Trading through browser ,
compatible with all the leading browsers
• Trade On The Move - Allows users to place
orders/watch Live Quotes on their Mobiles
 Some important terms
• Tick Size: Tick size is the minimum difference
in rates between two orders on the same side
i.e., buy or sell, entered in the system for
particular Security. Trading in Securities listed
on BSE is done with the tick size of 5 paise.
And reduced to 1 paise in case of units of
mutual funds and securities in “F” group.
 Basket trading system
• BSE has provided to the investors as well as to its Members
a facility of Basket Trading System on BOLT with effect from
August 14, 2000. In the Basket Trading System, the
investors through the Members are able to buy/ sell all 30
Securities of S&P BSE SENSEX in one go in the proportion of
their respective weights in the S&P BSE SENSEX. The
investors need not calculate the quantity of S&P BSE
SENSEX Securities to be bought or sold for creating S&P BSE
SENSEX-linked portfolios and this function is performed by
the system. The investors can also create their own baskets
by deleting certain Securities from 30 Securities in the S&P
BSE SENSEX. Further, the investors can alter the weights of
securities in such profiled baskets and enter their own
weights.
• To participate in this system, the Members need
to indicate the number of S&P BSE SENSEX
basket(s) to be bought or sold, where the value of
one S&P BSE SENSEX basket is arrived at by the
system by multiplying Rs.50 to the prevailing S&P
BSE SENSEX. For example, if the S&P BSE SENSEX
is 15,000, the value of one basket of S&P BSE
SENSEX would be 15000 x 50= i.e., Rs. 7,50,000/-.
The investors can also place orders by entering
value of S&P BSE SENSEX portfolio to be brought
or sold with a minimum value of Rs. 50,000 for
each order.
• Bid Price: Price quoted by traders who are
willing to buy securities is called bid price.
• Ask Price: Price quoted by traders who are
willing to sell their securities is called ask
price.
 Short selling
• A "short" position is generally the sale of a
stock you do not own. Investors who sell
short believe the price of the stock will
decrease in value.
• Short selling involves a three-step process.
• 1) Borrow shares of the security, typically from a broker.
• 2) Sell the shares immediately at the market price.
• 3) Repurchase the shares (hopefully at a lower price) and return them to whoever
you borrowed them from. After all this, you will pocket the difference if the share
price has fallen, but will have lost money if the price went up.

We'll illustrate the process with an example:

• Mr. Johnson believes that the stock of ABC Corp. will fall in the future. He calls his
broker and asks him to find 100 shares of ABC that he (Mr. Johnson) can borrow
for a short sale. ABC's current price is Rs 25 per share. Mr. Johnson receives
a cash inflow of Rs 2,500 after he sells the shares he has borrowed.
• Two weeks later, the price has indeed dropped, and shares of ABC now trade for Rs
20 each. Mr. Johnson buys back the shares (known as covering his short position)
for Rs 20 each. He spends Rs 2,000 to repurchase the shares and returns the
shares to the person he borrowed them from.
• Mr. Johnson's profit on the trade is Rs 500 (Rs 2,500 received from the sale of the
stock minus Rs 2,000 paid to repurchase the stock).
• Using this same calculation, we see that if the shares had risen to Rs 27 during
his holding period, then he would have lost Rs 200 (Rs 2,500 received from the
sale of the stock minus Rs 2,700 paid to repurchase the stock).