Mr. Ravi Narain, 9th July 2010.

Managing Director and CEOs

The National Stock Exchange of India Limited
Mumbai
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At the outset, we at ANMI would like to congratulate the entire team of NSE under the
leadership of MD and CEO Shri Ravi Narain for the successful launch of two new
segments namely, Currency Derivatives and Mutual Fund Service System. We believe
that these initiatives shall go a long way in furthering larger national interests and shall
provide newer opportunities to our members for the growth of their businesses. We would
also like to take a note of the smooth and successful migration of technology from X.25
to IP, overcoming the major bottleneck relating to systems performance. We are pleased
to note the multi fold improvement in the systems performance particularly the price
broadcasts and order confirmation along with the head room for scalability and smooth
change over between the primary and secondary connectivities.

We place on record our gratitude towards all the senior officials of NSE for their graceful
presence, encouragements and guidance on the various occasions and programmes
organised by ANMI during the last year.

Upon reviewing the issues on which the presentation were made in the past, it has been
observed that majority of the important and significant issues have largely been addressed
by the NSE in line with the past presentations and we are very thankful to the
management for their prompt and favourable responses to our presentations.

However, with a view to further improve our services to the investors and to improve the
efficiency in our day-to-day operations, surveillance and risk management, we have listed
out several issues in Annexure 1 as enclosed which we wish to put up before you for your
favourable consideration. Apart from this, we shall continue our interaction with the
Exchange on an on-going basis as and when we come across any such issues.

In time to come, we look forward to strengthen ANMI further, to continue working in

tandem with the NSEIL with a desire to contribute in the growth and development of the
market place, to serve the investor community and the nation, by facilitating the much-
needed process of capital formation to achieve the widely proclaimed national agenda of
‘Inclusive Growth’.

We thank you once again for providing your valuable time and patient hearing. We look
forward for your continued support and guidance in strengthening ANMI as an
Institution.

Warmest Regards

For Association of national Exchanges Members of India

Anil Bagri
President - ANMI
 Priority Items:

1. Efforts to improve liquidity and efficiency of brokers Funds

We take note of the number of positive steps taken by the exchange with regard to the
early pay-in of funds and securities. We have also noticed that pay-out of funds / Page | 2
margins is now taking place at about 11:00 a.m. on most days along with the
settlement of accounts. We request that system may further be improved to mark the
funds for early pay-in of funds towards settlement may be allowed from more than
one bank account and only the balance may be picked up from the primary designated
bank, as is prevalent in the case of ABC. The requirement of minimum commitment
of a quarter for T+0 pay-in in F&O may be reconsidered and made flexible (needs to
be defined).

We also request that fungibility of collateral deposits between the Cash, F&O and
Currency segments be made online. We request the exchange to make it more flexible
and permit fungibility of Bank Guarantees and Collaterals between the Cash and F&O
Segments and reduce the time lag to effect the movements.

It may be noted that currently, in case of Bank Guarantee, the formats for Bank
Guarantee which are being used are same except the segment is being mentioned on
Bank Guarantee. If the segment will not be mentioned in the Bank Guarantee, the
same may be used for any segment subject to letter send by the member. It will make
operationally easy to make bank guarantee fungible.

2. Increase the choices of Order types in the trading system.

Without compromising with the performance of the system, the additional order type
like ‘One Cancels Other’ or ‘Trailing Stop Loss’ Orders may be made available in the
system as tools to curtail losses and improve the volumes.

3. Pay-out of securities to the specifically designated depository a/c.

At present the pay-out of securities are allocated as per the availability of balance
within the respective depositories to NSCCL. If in the pay-out break-up file a client’s
account is NSDL and the NSCCL does not have balance in NSDL, the instruction of
direct pay-out to client fails and the delivery lands in the broker’s CDSL pool a/c. The
remaining deliveries also come in both the NSDL and CDSL pool accounts of the
broker according to the availability with NSCCL. For the operational convenience at
brokers’ end, this may be avoided by inter-dp transfer at the NSCCL end and all
payouts may be given in one preferred depository, though the pay-in may be made
from any depository.

4. Debarred entities without PAN information.

It has been observed that of late almost all SEBI action orders contain the PAN of the
entities against whom action is being initiated. In cases where the PAN isn’t available
initially, it is also being given by supplementary circulars. There continue to be cases,
however, of orders without PANs by SEBI, or in cases of Orders, of some other
authorities, which do not contain PAN. In such cases, the violations by members, if
 any, may be treated leniently due to the practical difficulties of implementation. We
may also suggest some mechanism of scanning existing UCC database at Exchange
level for any such new order and rejection of new UCC upload and intimation to the
respective brokers.

5. Additional Features in F&O Corporate Id

Page | 3
Facility to control code modification rights of dealer terminals may be provided in
NEAT Corporate ID. This is required for effective control and monitoring over the
client code modifications. Also, at present there is no mechanism to get or keep a
record of such code modification in F&O. A facility of end of day code modification
log file download may be provided.

6. Ad-Hoc Margins.

It is noticed that in times of high volatility or when a member takes a position, even
with adequate collateral, higher than his normal position size, the Exchange imposes
Ad Hoc Margins on the member. While we understand and appreciate that this is only
done as a risk mitigating measure, we would appreciate the exchange defining broad
guidelines on why such margins are imposed so that members may plan accordingly.
In most of the times, it turns out that the members themselves end up funding such
margins charged.

7. F&O-like admin terminal in CM / Currency segment.

In the wake of increasing requirements of compliance and surveillance, the online

trade updation in risk management system is very essential. We request the exchange
to re-look at the possibility of providing F&O-like admin Id in Cash / Currrency
segment also.

8. Support for ANMI’s Initiatives for the development of Self-Regulation

We at ANMI intend to continue taking various initiatives, like organising Seminars

and Programmes, preparing and publishing literatures and creating awareness to
develop the culture of self-regulations amongst the capital market participants in
India.

Towards this, we are in the process of increasing our association with similar
International bodies like Japan Securities Dealers Association (JSDA) with whom we
have already established some association and we are in talk with the organisations
like the Korea Financial Investment Association (KOFIA) to associate with them and
gain the benefits of their knowledge and experiences in self regulation.

ANMI is also a member of the Asian Securities Forum (ASF). In 2011, ANMI will
host the Annual General Meeting of ASF in Mumbai. This will help us to raise
important regulatory discussions with world counter parts.

While discussing these initiatives with the SEBI Chairman during our meeting with
him, he encouraged us to carry it forward in association with the Exchanges like NSE
and BSE. We are in the process of gearing up our organisational resources to further
this objective and we request you to extend your support, knowledge resources and
guidance in our efforts towards this objective.
 Other Items:

9. Disclosure of MF/DII/Promoters positions in derivatives segments.

The purchases and sales made in the cash market segment by Mutual Funds
/Domestic institutions are disclosed by the Exchange/SEBI. The positions in Page | 4
Derivative markets taken by Mutual Funds / Domestic institutions promoters are not
made available to the investors in the daily data provided by Stock Exchanges and
SEBI. It is suggested that these data be made available because in the absence of it,
only cash market data may prove to be misleading for the investors.

10. Rationalisation of Charges.

The connectivity mediums like Leased Lines, VSATs, C2N facilities etc. are integral
and essential requirements for carrying out the main activities of executing
transactions on the exchange and its monitoring. Therefore, the provision of these
ancillary services may not be linked to its individual set-up costs but may be viewed
as part of the business as a package and their charges may be rationalised in line with
the changing business conditions of the broker members. In view of the increased
competition and falling brokerage rates and revenues at the brokers end, the existing
charges structure of these ancillary services seems on higher side and be rationalised.

11. Relaxation in User Certification requirements.

Admin/View only terminals of CTCL/NOW may be allowed without certification

requirements. As such we are reporting the location details of these terminals.

12. Self Clearing members in CFX segment

It is suggested that a system of Self clearing members with lower Net Worth be
introduced in CFX segment. At present, a lot of members are not able to trade
frequently on the exchange due to clearing costs. This will go a long way to increase
volumes and bring efficiencies in the market. The exchange may take up the issue
with relevant authorities.

13. Additional Strike Prices.

We believe that the current strike prices are very far apart given the fact that
volatilities are much lower than what they were after the Lehman crisis. As are a
result of this, there are very low volumes in the deep out-of-the-money stock options.
Further, volumes that could be generated if the strike prices were tighter are lost.

For example, in the case of IDBI (price around Rs. 100 – Rs. 115), the strike price is
almost 10% apart. The stock usually does not move so much within a month. Assume
someone has written 3 Calls of 120 strike at the beginning of the expire and bought a
future at Rs. 114. Let’s assume that the price falls to Rs. 112.50 4 days before expiry
and he needs to hedge his position. He is unable to sell a Call of 120 strike because
the premium would be too low. He would, however, be able to protect himself if a
strike of Rs. 115 Call is available to him. For the same reason, a person engaged in
 Delta arbitrage would require strike prices at intervals of Rs. 50 to protect himself
closer to expiry.

As per the circular, the following is the methodology adopted by the exchange to
determine strike prices:
Step % to Page | 5
Closing Price Value Average No. of Scrips

STOCK OPTION (196 Scrips Covers)

0 50 25 2.5 10.00% 11
50 100 75 5 6.67% 30
100 250 175 10 5.71% 51
250 500 375 20 5.33% 36
500 1000 750 20 2.67% 35
1000 & Above 1000 50 5.00% 33

INDEX OPTION (5 Index Cover)

0 2000 1000 50 5.00% 0
2000 4000 3000 100 3.33% 1
4000 6000 5000 100 2.00% 3
6000 &above 6000 100 1.67% 1
Total 201
We propose the following methodology be adopted:

Strike Prices suggested by ANMI

Strike Price Step Value % to Average No. of Scrips

0 25 12.5 1.25 10.00% 2

25 75 50 2.5 5.00% 27
75 150 112.5 5 4.44% 34
150 300 225 10 4.44% 43
300 600 450 20 4.44% 32
600 1000 800 30 3.75% 25
1000 4000 2500 50 2.00% 34
5000 &
above 5000 100 2.00% 4
Total 201

Nifty Options: We need the stike prices at intervals of 50.

Note: The lower band is taken as average and the % calculated

on that.
14. Report of One UCC with Multiple Brokers.

The KYC format requires self-declaration by the clients about their dealings with
other brokers. However, very rarely does any client do so. As the information about
clients dealings with other brokers is a vital input for certain regulatory compliances, Page | 6
a report may be given for such client having registration with more than one broker.
Such report may or may not contain the other broker’s name, it may only contain
information on whether the client is registered with other brokers without the name of
other broker being given, or it may only contain the number i.e. one, two or three as
the number of UCC registration available in the Exchange database. In case this is not
possible to be given, the requirement of the declaration by the client to disclose which
other broker he is registered with should be withdrawn.

15. Setting up of SME Platform

As SEBI has already allowed setting up of a trading platform for having nation-wide
trading terminals for SME, there is no guideline available from the Exchange in this
regard. It is requested that this beimplemented at the earliest as it will give a good
opportunity to all participants of the capital market.

16. Mutual Fund trading

It is a matter of great concern, that in spite of being such a good concept, trading in
the MFSS segment is not picking up as desired. A task force should be set up to
identify the problem areas, be it clearing and settlement issues, and proper training be
provided to members in marketing of of mutual fund products and operation of the
MFSS, registration with AMCs, upfront and trailing commissions, etc.

17. Interest on deposits

It is a very long time since the exchange came into being and all setup costs have long
been absorbed. It is now requested that interest at FDR rates be allowed to members
on their cash deposits with the exchange.

18. Pledge of Securities

It is requested that securities may be allowed to be pledged from any DP since
custodians appointed by NSE are charging exhorbitant amounts for pledging the
securities.

19. Frequent Inspections

It is felt that ever since the SEBI directive of annual inspections, members are under
inspection / internal audits all year round. It is requested that the exchange may take
up the issue with the regulator to rationalise the same. Inspection of all segments
should at least be covered in one go so that the frequency can be reduced.