S T O C K Ex C H A N G E

Securities provide for investor. Tax Benefits planning and exemption. Optimum return on investment. Cautious Approach. Knowledge of Market. Exchange of Securities Transacted. Cyclopedia of Listed Companies. High Yield. Authentic Information New Entrepreneur encouraged. Guidance of Investor & Company. Equity

INDIAN FINANCIAL SYSTEM The financial system or the financial sector of any country consists of:(a) specialized & non specialized financial institution (b) organized &unorganized financial markets and (c) Financial instruments & services which facilitate transfer of funds. Procedure & practices adopted in the markets, and financial inter relationships are also the parts of the system. These parts are not always mutually exclusive. For example, the financial institution operates in financial market and are, th erefore a part of such market. The word system in the term financial system impl ies a set of complex and closely connected or inters mixed institution, agents pr actices, markets, transactions, claims, & liabilities in the economy. The financ ial system is concerned about money, credit, & finance the terms intimately rela ted yet some what different from each other. Money refers to the current medium of exchange or means of payment. Credit or Loan is a sum of money to be returne d normally with Interest it refers to a debt of economic unit. Finance is a mone tary resources comprising debt & ownership fund of the state, company or person. FEATURES OF FINANCIAL SYSTEM -: 1. It provides an Ideal linkage between depositors savers and Investors The refore it encourages savings and investment. 2. Financial system facilitates expansion of financial markets over a perio d of time. 3. Financial system should promote deficient allocation of financial resour ces of socially desirable and economically productive purpose. 4. Financial system influence both quality and the pace of economic develop ment. ROLE OF FINANCIAL SYSTEM: The role of the financial system is to promote savings & investments in the econ omy. It has a vital role to play in the productive process and in the mobilizati on of savings and their distribution among the various productive activities. Sa vings are the excess of current expenditure over income. The domestic savings ha s been categorized into three sectors, household, government & private sectors.

The savings from household sector dominates the domestic savings component. The savings will be in the form of currency, bank deposits, non bank deposits, life insurance funds, provident funds, pension funds, shares, debentures, bonds, unit s & trade debts. All of these currency & deposits are voluntary transactions & p recautionary measures. The savings in the household sector are mobilized directl y in the form of units, premium, provident fund, and pension fund. These are the contractual forms of savings. Financial actively deals with the production, dis tribution & consumption of goods and services. The financial system will provide inputs to productive activity. Financial sector provides inputs in the form of cash credit & assets in financial for production activities. The function of a financial system is to establish a bridge between the savers a nd investors. It helps in mobilization of savings to materialize investment idea s into realities. It helps to increase the output towards the existing productio n frontier. The growth of the banking habit helps to activate saving and underta ke fresh saving. The financial system encourages investment activity by reducing the cost of finance risk. It helps to make investment decisions regarding proje cts by sponsoring, encouraging, export project appraisal, feasibility studies, m onitoring & execution of the projects. An overview of Financial System and Financial Markets in India

BACK DROP OF INDIAN FINANCIAL SYSTEM

FINANCIAL MARKET Money Market Call Money Market Commercial Paper Certificate of Deposit Treasury Bill Market Money Market Mutual Fund Capital Market International Capital Market MONEY MARKET AND GOVT. SECURITIES MARKET Money market deal with short term monetary assets and claims, which are generall y from one day to one year duration. Govt. securities on the other hand are also called dated securities to denote th at they are generally long term in nature and are issued by state and central go vt. under their borrowing programmes and duration of more than one year, general ly of 5 years and above. These securities being long term in nature are also traded in govt. securit ies market between institution and banks also on the stock exchanges- debt segments. MONEY MARKET One of the important function of a well developed money market is to channelize saving into short term productive investments like working capital. Call money m arket, treasury bills market and markets for commercial paper and certificate of deposit are some of the example of money market. CALL MONEY MARKET The call money markets form a part of the national money market, where day to- da y surplus funds, mostly of banks are traded . The call money loans are very shor t term in nature and the maturity period of this vary from 1 to 15 days. The mon ey which is lent for one day in this market is known as call money, and if it exce eds one day (but less than 15 days), is referred as notice money in this market an y amount could be lent or borrowed at a convenient interest rate . Which is acc eptable to both borrower and lender .these loans are consider as highly liquid a s they are repayable on demand at the option of ether the lender or borrower. PURPOSE Call money is borrowed from the market to meet various requirements of commerci al bill market and commercial banks. Commercial bill market borrower call money for short period to discount commercial bills. Banks borrower in call market to: 1:- Fill the temporary gaps, or mismatches that banks normally face. 2:- Meet the cash Reserve Ratio requirement. 3: - Meet sudden demand for fund, which may arise due to large payment and remit tance. Banks usually borrow form the market to avoid the penal interest rate for not me

eting CRR requirement and high cost of refinance from RBI. Call money helps the banks to maintain short term liquidity position at comfortable level. LOCATION In India call money markets are mainly located in commercial centers and big industrial centers and industrial center such as Mumbai, Calcutta, Chenn ai, Delhi and Ahmedabad. As BSE and NSE and head office of RBI and many other ba nks are situated in Mumbai; the volume of funds involved in call money market in Mumbai is far bigger than other cities. PARTICIPANTS Initially, only few large banks were operating in the bank market. however the m arket had expanded and now scheduled , non scheduled commercial banks foreign b anks ,state , district, and urban cooperative banks , financial institution such as LIC,UTI,GIC, and its subsidiaries , IDBI, NABARD, IRBI, ECGC, EXIM Bank, IFC I, NHB , TFCI, and SIDBI, Mutual fund such as SBI Mutual fund . LIC Mutual funds . And RBI Intermediaries like DFHI and STCI are participants in local call money markets. However RBI has recently introduced restriction on some of the partici pants to phase them out of call money market in a time bound manner. Participant in call money market are split into two categories 1:- BORROWER AND LENDER:This comprises entities those who can both borrower and lend in this market, suc h as RBI, intermediaries like DFHI, and STCI and commercial banks. 2:- ONLY LENDER: This category comprises of entities those who can act only as lender, like finan cial institution and mutual funds CALL RATES The interest paid on call loan is known as the call rates. Unlike in the case of other short and long rates. The call rate is expected to freely reflect the day to day availability and long rates. These rates vary highly from day to day. Of ten from hour to hour. While high rates indicate a tightness of liquidity positi on in market. The rate is largely subject to be influenced by sources of supply and demand for funds. The call money rate had fluctuated from time to time reflecting the seasonal var iation in fund requirements. Call rates climbs high during busy seasons in relat ion to those in slack season. These seasonal variations were high due to a limit ed number of lender and many borrowers. The entry of financial institution and m oney market mutual funds into the call market has reduced the demand supply gap and these fluctuations gradually came down in recent years. Though the seasonal fluctuations were reduced to considerable extent, there a re still variations in the call rates due to the following reason: 1:- large borrower by banks to meet the CRR requirements on certain dates cause a gate demand for call money. These rates usually go up during the first week to meet CRR requirements and decline afterwards. 2:- the sanction of loans by banks, in excess of their own resources compel the bank to rely on the call market. Banks use the call market as a source of funds for meeting dis-equilibrium of inflow and out flow of fund s. 3:- the withdrawal of funds to pay advance tax by the corporate sector leads to steep increase in call money rates in the market. COMMERCIAL PAPER Commercial paper are short term, unsecured promissory notes issued at a discount to face value by well- known companies that are financial strong and carry a h igh credit rating . They are sold directly by the issuers to investor, or else p laced by borrowers through agents like merchant banks and security houses the fl exible maturity at which they can be issued are one of the main attraction for b orrower and investor since issues can be adapted to the needs of both. The CP ma rket has the advantage of giving highly rated corporate borrowers cheaper fund t han they could obtain from the banks while still providing institutional investo rs with higher interest earning than they could obtain form the banking system t he issue of CP imparts a degree of financial stability to the systems as the iss uing company has an incentive to remain financially strong.

THE FEATURES OF CP 1. They are negotiable by endorsement and delivery. 2. They are issued in multiple of Rs 5 lakhs. 3. The maturity varies between 15 days to a year. 4. No prior approval of RBI is needed for CP issued. 5. The tangible net worth issuing company should not be less than 4 lakhs 6. The company fund based working capital limit should not less than Rs 10 crore. 7. The issuing company shall have P2 and A2 rating from CRISIL and ICRA. CERTIFICATE OF DEPOSIT Certificate of Deposits,. Instruments such as the Certificates of Deposit (CDs introduced in 1989), Commercial Paper (CP introduced in 1989), inter-bank partic ipation certificates (with and without risk) were introduced to increase the ran ge of instruments. Certificates of Deposit are basically negotiable money marke t instruments issued by banks and financial institutions during tight liquidity conditions. Smaller banks with relatively smaller branch networks generally mob ilise CDs. As CDs are large size deposits, transaction costs on CDs are lower t han retail deposits FEATURES OF CD 1. All scheduled bank other than RRB and scheduled cooperative bank are eli gible to issue CDs. 2. CDs can be issued to individuals, corporation, companies, trust, funds a nd associations. NRI can subscribe to CDs but only on a non- repatriation basis. 3. They are issued at a discount rate freely determined by the issuing bank and market. 4. They issued in the multiple of Rs 5 lakh subject to minimum size of each issue of Rs is 10 lakh. 5. The bank can issue CDs ranging from 3 month t 1 year , whereas financia l institution can issue CDs ranging from 1 year to 3 years. TREASURY BILLS MARKET: Treasury bills are the main financial instruments of money market. These bills a re issued by the government. The borrowings of the government are monitored & co ntrolled by the central bank. The bills are issued by the RBI on behalf of the c entral government. The RBI is the agent of Union Government. They are issued by tender or tap. The bills were sold to the public by tender method up to 1965. Th ese bills were put at weekly auctions. A treasury bill is a particular kind of f inance bill. It is a promissory note issued by the government. Until 1950 these bills were also issued by the state government. After 1950 onwards the central g overnment has the authority to issue such bills. These bills are greater liquidi ty than any other kind of bills. They are of two kinds: a) ad hoc, b) regular Ad hoc treasury bills are issued to the state governments, semi government depar tments & foreign ventral banks. They are not marketable. The ad hoc bills are no t sold to the banks & public. The regular treasury bills are sold to the general public & banks. They are freely marketable. These bills are sold by the RBI on behalf of the central government. The treasury bills can be categorized as follows:1) 14 days treasury bills:The 14 day treasury bills has been introduced from 1996-97. These bills are nontransferable. They are issued only in book entry system they would be redeemed a t par. Generally the participants in this market are state government, specific bodies & foreign central banks. The discount rate on this bill will be decided a t the beginning of the year quarter. 2) 28 days treasury bills:These bills were introduced in 1998. The treasury bills in India issued on aucti on basis. The date of issue of these bills will be announced in advance to the m arket. The information regarding the notified amount is announced before each au ction. The notified amount in respect of treasury bills auction is announced in advance for the whole year separately. A uniform calendar of treasury bills issu ance is also announced. 3) 91 days treasury bills:-

The 91 days treasury bills were issued from July 1965. These were issued tap bas is at a discount rate. The discount rates vary between 2.5 to 4.6% P.a. from Jul y 1974 the discount rate of 4.6% remained uncharged the return on these bills we re very low. However the RBI provides rediscounting facility freely for this bil l. 4) 182 days treasury bills:The 182 days treasury bills was introduced in November 1986. The chakravarthy co mmittee made recommendations regarding 182 day treasury bills instruments. There was a significant development in this market. These bills were sold through mon thly auctions. These bills were issued without any specified amount. These bills are tailored to meet the requirements of the holders of short term liquid funds . These bills were issued at a discount. These instruments were eligible as secu rities for SLR purposes. These bills have rediscounting facilities. 5) 364 days treasury bills:The 364 treasury bills were introduced by the government in April 1992. These in struments are issued to stabilise the money market. These bills were sold on the basis of auction. The auctions for these instruments will be conducted for ever y fortnight. There will be no indication when they are putting auction. Therefor e the RBI does not provide rediscounting facility to these bills. These instrume nts have been instrumental in reducing, the net RBI credit to the government. Th ese bills have become very popular in India. Money Market Mutual Funds (MMMFs) The benefits of developments in the various in the money market like cell money loans. Treasury bills, commercial papers and certificate of deposits were availa ble only to the few institutional participants in the market. The main reason fo r this was that huge amounts were required to be invested in these instruments, the minimum being Rs. 10L, which was beyond the means of individual money market s to small investors. MMMFs are mutual funds that invest primarily in money market instruments of very high quality and of very short maturities. MMMFs can be set up by very high qua lity and of very short maturities. MMMFs can be set up by commercial bank, RBI a nd public financial institution either directly or through their existing mutual fund subsidiaries. The guidelines with respect to mobilization of funds by MMMF s provide that only individuals are allowed to invest in such funds. Earlier these funds were regulated by the RBI. But RBI withdrew its guidelines, with effect form March 7, 2001 and now they are governed by SEBI. The schemes offered by MMMfs can either by open ended or close-ended. In case of open- ended schemer, the units are available for purchase on a continuous basis and the MMMFs would be willing to repurchase the units. A close ended scheme is available for subscription for a limited period and is redeemed at maturity. The guidelines on the on MMMfs specify a minimum lock in period of 15 days durin g which the investor cannot redeem his investment. The guidelines also stipulate the minimum size of the MMMF to be Rs. 50 crore and this should not exceed 2% of the aggregate deposits of the latest accounting year in the case of banks and 2% of the long-term domestic borrowings in the case of public financial institu tions. CAPITAL MARKET Capital market is market for long term securities. It contains financial instrum ents of maturity period exceeding one year. It involves in long term nature of t ransactions. It is a growing element of the financial system in the India econom y. It differs from the money market in terms of maturity period & liquidity. It is the financial pillar of industrialized economy. The development of a nation d epends upon the functions & capabilities of the capital market. Capital market is the market for long term sources of finance. It refers to meet the long term requirements of the industry. Generally the business concerns nee d two kinds of finance:1. Short term funds for working capital requirements. 2. Long term funds for purchasing fixed assets. Therefore the requirements of working capital of the industry are met by the mon ey market. The long term requirements of the funds to the corporate sector are s

upplied by the capital market. It refers to the institutional arrangements which facilitate the lending & borrowing of long term funds. IMPORTANCE OF CAPITAL MARKET Capital market deals with long term funds. These funds are subject to uncertaint y & risk. Its supplies long term funds & medium term funds to the corporate sect or. It provides the mechanism for facilitating capital fund transactions. It dea ls I ordinary shares, bond debentures & stocks & securities of the governments. In this market the funds flow will come from savers. It converts financial asset s in to productive physical assets. It provides incentives to savers in the form of interest or dividend to the investors. It leads to the capital formation. Th e following factors play an important role in the growth of the capital market: A strong & powerful central government. Financial dynamics Speedy industrialization Attracting foreign investment Investments from NRIs Speedy implementation of policies Regulatory changes Globalization The level of savings & investments pattern of the household sectors Development of financial theories Sophisticated technological advances. PLAYERS IN THE CAPITAL MARKET Capital market is a market for long term funds. It requires a well structured ma rket to enhance the financial capability of the country. The market consist a nu mber of players. They are categorized as:1. Companies 2. Financial intermediaries 3. Investors. I. COMPANIES: Generally every company which is a public limited company can access the capital market. The companies which are in need of finance for their project can approa ch the market. The capital market provides funds from the savers of the communit y. The companies can mobilize the resources for their long term needs such as pr oject cost, expansion & diversification of projects & other expenditure of India to raise the capital from the market. The SEBI is the most powerful organizatio n to monitor, control & guidance the capital market. It classifies the companies for the issue of share capital as new companies, existing unlisted companies& e xisting listed companies. According to its guidelines a company is a new company if it satisfies all the following:a) The company shall not complete 12 months of commercial operations. b) Its audited operative results are not available. c) The company may set up by entrepreneurs with or without track record. A company which can be treated as existing listed company, if its shares are lis ted in any recognized stock exchange in India. A company is said to be an existi ng unlisted company if it is a closely held or private company II. FINANCIAL INTERMEDIARIES: Financial intermediaries are those who assist in the process of converting savin gs into capital formation in the country. A strong capital formation process is the oxygen to the corporate sector. Therefore the intermediaries occupy a domina nt role in the capital formation which ultimately leads to the growth of prosper ous to the community. Their role in this situation cannot be. The government sho uld encourage these intermediaries to build a strong financial empire for the co untry. They are also being called as financial architectures of the India digita l economy. Their financial capability cannot be measured. They take active role in the capital market. The major intermediaries in the capital market are:a) Brokers. b) Stock brokers & sub brokers

c) Merchant bankers d) Underwriters e) Registrars f) Mutual funds g) Collecting agents h) Depositories i) Agents j) Advertising agencies III. INVESTORS: The capital market consists many numbers of investors. All types of investors bas ic objective is to get good returns on their investment. Investment means, just parking ones idle fund in a right parking place for a stipulated period of time. Every parked vehicle shall be taken away by its owners from parking place after a specific period. The same process may be applicable to the investment. Every f und owner may desire to take away the fund after a specific period. Therefore sa fety is the most important factor while considering the investment proposal. The investors comprise the financial investment companies & the general public comp anies. Usually the individual savers are also treated as investors. Return is th e reward to the investors. Risk is the punishment to the investors for being wro ng selection of their investment decision. Return is always chased by the risk. An intelligent investor must always try to escape the risk & attract the return. All rational investors prefer return, but most investors are risk average. They attempt to get maximum capital gain. The return can be available to the investo rs in two types they are in the form of revenue or capital appreciation. Some in vestors will prefer for revenue receipt & others prefer capital appreciation. It depends upon their economic status & the effect of tax implications. STRUCTURE OF THE CAPITAL MARKET IN INDIA The structure of the capital market has undergone vast changes in recent years. The Indian capital market has transformed into a new appearance over the last fo ur & a half decades. Now it comprises an impressive network of financial institu tions & financial instruments. The market for already issued securities has beco me more sophisticated in response to the different needs of the investors. The s pecialized financial institutions were involved in providing long term credit to the corporate sector. Therefore the premier financial institutions such as ICIC I, IDBI, UTI, and LIC & GIC constitute the largest segment. A number of new fina ncial instruments & financial intermediaries have emerged in the capital market. Usually the capital markets are classified in two ways:A. On the basis of issuer B. On the basis of instruments On the basis of issuer the capital market can be classified again two types:a) Corporate securities market b) Governments securities market On the basis of financial instruments the capital markets are classifieds into t wo kinds:a) Equity market b) Debt market Recently there has been a substantial development of the India capital market. I t comprises various submarkets. Equity market is more popular in India. It refers to the market for equity share s of existing & new companies. Every company shall approach the market for raisi ng of funds. The equity market can be divided into two categories (a) primary ma rket (b) secondary market. Debt market represents the market for long term finan cial instruments such as debentures, bonds, etc. PRIMARY MARKET To meet the financial requirement of their project company raise their capital t hrough issue of securities in the company market. Capital issue of the companies were controlled by the capital issue control act 1947. Pricing of issue was determined by the controller of capital issue the mai n purpose of control on capital issue was to prevent the diversion of investible resources to non- essential projects. Through the necessity of retaining some s

ort of control on issue of capital to meet the above purpose still exist. The CC I was abolished in 1992 as the practice of government Control over the capital issue as well as the overlapping of issuing has lost it s relevance in the changed circumstances. SECURITIES & EXCHANGE BOARD OF INDIA INTRODUCTION: It was set up in 1988 through administrative order it became statutory body in 1992. SEBI is under the control of Ministry of Finance. Head office is at Mumbai and regional offices are at Delhi, Calcutta and Chennai. The creation of SEBI i s with the objective to replace multiple regulatory structures. It is governed b y six member board of governors appointed by government of India and RBI. OBJECTIVES OF SEBI: 1. To protect the interest of investors in securities. 2. To regulate securities market and the various intermediaries in the mark et. 3. To develop securities market over a period of time. POWERS AND FUNCTIONS OF SEBI: (1) ISSUE GUIDELINES TO COMPANIES:SEBI issues guidelines to the companies for disclosing information and to protec t the interest of investor. The guidelines relates to issue of new shares, issue of convertible debentures, issue by new companies, etc. After abolition of capi tal issues control act, SEBI was given powers to control and regulate new issue market as well as stock exchanges. (2) REGULATION OF PORTFOLIO MANAGEMENT SERVICES:Portfolio Management services were brought under SEBI regulations in January 199 3. SEBI framed regulations for portfolio management keeping securities scams in mind. SEBI has been entrusted with a job to regulate the working of portfolio ma nagers in order to give protections to investors. (3) REGULATION OF MUTUAL FUNDS:The mutual funds were placed under the control of SEBI on January 1993. Mutual f unds have been restricted from short selling or carrying forward transactions in securities. Permission has been granted to invest only in transferable securiti es in money market and capital market. (4) CONTROL ON MERCHANT BANKING:Merchant bankers are to be authorized by SEBI, they have to follow code of condu ct which makes them responsible towards the investors in respect of pricing, dis closure of/ in the prospectus and issue of securities, merchant bankers have hig h degree of accountability in relation to offer documents and issue of shares. (5) ACTION FOR DELAY IN TRANSFER AND REFUNDS:SEBI has prosecuted many companies for delay in transfer of shares and refund of money to the applicants to whom the shares are not allotted. These also gives p rotection to investors and ensures timely payment in case of refunds. (6) ISSUE GUIDELINES TO INTERMEDIARIES:SEBI controls unfair practices of intermediaries operating in capital market, su ch control helps in winning investors confidence and also gives protection to in vestors. (7) GUIDELINES FOR TAKEOVERS AND MERGERS:SEBI makes guidelines for takeover and merger to ensure transparency in acquisit ions of shares, fair disclosure through public announcement and also to avoid un fair practices in takeover and mergers. (8) REGULATION OF STOCK EXCHANGES FUNCTIONING:SEBI is working for expanding the membership of stock exchanges to improve trans parency, to shorten settlement period and to promote professionalism among broke rs. All these steps are for the healthy growth of stock exchanges and to improve their functioning. (9) REGULATION OF FOREIGN INSTITUTIONAL INVESTMENT (FIIS):SEBI has started registration of foreign institutional investment. It is for eff ective control on such investors who invest on a large scale in securities. TYPES OF ISSUE A company can raise its capital through issue of share and debenture by means of

:PUBLIC ISSUE :Public issue is the most popular method of raising capital and involves raising capital and involve raising of fund direct from the public . RIGHT ISSUE:Right issue is the method of raising additional finance from existing members by offering securities to them on pro rata basis. A company proposing to issue securities on right basis should send a letter of offer to the shareholders giving adequate discloser as to how the additional amo unt received by the issue is used by the company. BONUS ISSUE:Some companies distribute profits to existing shareholders by way of fully paid up bonus share in lieu of dividend. Bonus share are issued in the ratio of exist ing share held. The shareholder do not have to nay additional payment for these share . PRIVATE PLACEMENT:private placement market financing is the direct sale by a public limited compan y or private limited company of private as well as public sector of its securiti es to a limited number of sophisticated investors like UTI , LIC , GIC state fin ance corporation and pension and insurance funds the intermediaries are credit rating agencies and trustees and financial advisors such as merchant bankers. A nd the maximum time frame required for private placement market is only 2 to 3 m onths. Private placement can be made out of promoter quota but it cannot be mad e with unrelated investors. SECONDARY MARKET The secondary market is that segment of the capital market where the outstanding securities are traded from the investors point of view the secondary market imp arts liquidity to the long term securities held by them by providing an aucti on market for these securities. The secondary market operates through the medium of stock exchange which regulat es the trading activity in this market and ensures a measure of safety and fair dealing to the investors. India has a long tradition of trading in securities going back to nearly 200 years. The first India stock exchange established at Mumbai in 1875 is the old est exchange in Asia. The main objective was to protect the character status and interest of the native share and stock broker. BOMBAY STOCK EXCHANGE Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage, now spanning three centuries in its 133 years of existence. What is now popular ly known as BSE was established as "The Native Share & Stock Brokers Associatio n" in 1875. BSE is the first stock exchange in the country which obtained permanent recognit ion (in 1956) from the Government of India under the Securities Contracts (Regul ation) Act 1956. BSE s pivotal and pre-eminent role in the development of the In dian capital market is widely recognized. It migrated from the open outcry syste m to an online screen-based order driven trading system in 1995. Earlier an Asso ciation of Persons (AOP), BSE is now a corporatised and demutualised entity inco rporated under the provisions of the Companies Act, 1956, pursuant to the BSE (C orporatisation and Demutualisation) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI). With demutualisation, BSE has two of world s bes t exchanges, Deutsche Brse and Singapore Exchange, as its strategic partners. Over the past 133 years, BSE has facilitated the growth of the Indian corporate sector by providing it with an efficient access to resources. There is perhaps n o major corporate in India which has not sourced BSE s services in raising resou rces from the capital market. Today, BSE is the world s number 1 exchange in terms of the number of listed com panies and the world s 5th in transaction numbers. The market capitalization as on December 31, 2007 stood at USD 1.79 trillion. An investor can choose from mor e than 4,700 listed companies, which for easy reference, are classified into A, B, S, T and Z groups.

The BSE Index, SENSEX, is India s first stock market index that enjoys an iconic stature , and is tracked worldwide. It is an index of 30 stocks representing 12 major sectors. The SENSEX is constructed on a free-float methodology, and is sensitive to market sentiments and market realities. Apart from the SENSEX, BSE offers 21 indices, including 12 sectoral indices. BSE has entered into an index cooperation agreement with Deutsche Brse. This agreement has made SENSEX and othe r BSE indices available to investors in Europe and America. Moreover, Barclays G lobal Investors (BGI), the global leader in ETFs through its iShares brand, has c reated the iShares BSE SENSEX India Tracker which tracks the SENSEX. The ETF en ables investors in Hong Kong to take an exposure to the Indian equity market. BSE has tied up with U.S. Futures Exchange (USFE) for U.S. dollar-denominated fu tures trading of SENSEX in the U.S. The tie-up enables eligible U.S. investors t o directly participate in India s equity markets for the first time, without req uiring American Depository Receipt (ADR) authorization. The first Exchange Trade d Fund (ETF) on SENSEX, called "SPIcE" is listed on BSE. It brings to the invest ors a trading tool that can be easily used for the purposes of investment, tradi ng, hedging and arbitrage. SPIcE allows small investors to take a long-term view of the market. BSE provides an efficient and transparent market for trading in equity, debt ins truments and derivatives. It has a nation-wide reach with a presence in more tha n 450 cities and towns of India. BSE has always been at par with the internation al standards. The systems and processes are designed to safeguard market integri ty and enhance transparency in operations. BSE is the first exchange in India an d the second in the world to obtain an ISO 9001:2000 certification. It is also t he first exchange in the country and second in the world to receive Information Security Management System Standard BS 7799-2-2002 certification for its BSE Online Trading System (BOLT). BSE continues to innovate. In recent times, it has become the first national lev el stock exchange to launch its website in Gujarati and Hindi to reach out to a larger number of investors. It has successfully launched a reporting platform fo r corporate bonds in India christened the ICDM or Indian Corporate Debt Market a nd a unique ticker-cum-screen aptly named BSE Broadcast which enables informat ion dissemination to the common man on the street. In 2006, BSE launched the Directors Database and ICERS (Indian Corporate Electro nic Reporting System) to facilitate information flow and increase transparency i n the Indian capital market. While the Directors Database provides a single-poin t access to information on the boards of directors of listed companies, the ICER S facilitates the corporates in sharing with BSE their corporate announcements. BSE also has a wide range of services to empower investors and facilitate smooth transactions: Investor Services: The Department of Investor Services redresses grievances of investors. BSE was the first exchange in the country to provide an amount of Rs.1 million towards the investor protection fund; it is an amount hi gher than that of any exchange in the country. BSE launched a nationwide investo r awareness programme- Safe Investing in the Stock Market under which 264 prog rammes were held in more than 200 cities. The BSE On-line Trading (BOLT): BSE On-line Trading (BOLT) facilitates on-line s creen based trading in securities. BOLT is currently operating in 25,000 Trader Workstations located across over 450 cities in India. BSEWEBX.com: In February 2001, BSE introduced the world s first centralized exch ange-based Internet trading system, BSEWEBX.com. This initiative enables investo rs anywhere in the world to trade on the BSE platform. Surveillance: BSE s On-Line Surveillance System (BOSS) monitors on a real-time b asis the price movements, volume positions and members positions and real-time measurement of default risk, market reconstruction and generation of cross marke t alerts. BSE Training Institute: BTI imparts capital market training and certification, i n collaboration with reputed management institutes and universities. It offers o ver 40 courses on various aspects of the capital market and financial sector. Mo

re than 20,000 people have attended the BTI programmes Awards The World Council of Corporate Governance has awarded the Golden Peacock Global CSR Award for BSE s initiatives in Corporate Social Responsibility (CSR). The Annual Reports and Accounts of BSE for the year ended March 31, 2006 and Mar ch 31 2007 have been awarded the ICAI awards for excellence in financial reporti ng. The Human Resource Management at BSE has won the Asia - Pacific HRM awards for i ts efforts in employer branding through talent management at work, health manage ment at work and excellence in HR through technology Drawing from its rich past and its equally robust performance in the recent times, BSE will continue to rem ain an icon in the Indian capital market. NATIONAL STOCK EXCHANGE - The National Stock Exchange of India Limited has genes is in the report of the High Powered Study Group on Establishment of New Stock E xchanges, which recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Fin ancial Institutions at the behest of the Government of India and was incorporate d in November 1992 as a tax-paying company unlike other stock exchanges in the c ountry. On its recognition as a stock exchange under the Securities Contracts (Regulatio n) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Marke t (WDM) segment in June 1994. The Capital Market (Equities) segment commenced op erations in November 1994 and operations in Derivatives segment commenced in Jun e 2000. NSE s mission is setting the agenda for change in the securities markets in India. The NSE was set-up with the main objectives of: establishing a nation-wide trading facility for equities, debt instruments and h ybrids, ensuring equal access to investors all over the country through an appropriate c ommunication network, providing a fair, efficient and transparent securities market to investors using electronic trading systems, enabling shorter settlement cycles and book entry settlements systems, and Meeting the current international standards of securities markets. The standar ds set by NSE in terms of market practices and technology have become industry b enchmarks and are being emulated by other market participants. NSE is more than a mere market facilitator. It s that force which is guiding the industry towards new horizons and greater opportunities. The logo of the NSE symbolizes a single nationwide securities trading facility e nsuring equal and fair access to investors, trading members and issuers all over the country. The initials of the Exchange viz., N, S and E have been etched on the logo and are distinctly visible. The logo symbolizes use of state of the art information technology and satellite connectivity to bring about the change wit hin the securities industry. The logo symbolizes vibrancy and unleashing of crea tive energy to constantly bring about change through innovation. CORPORATE STRUCTURE - NSE is one of the first de-mutualized stock exchanges in t he country, where the ownership and management of the Exchange is completely div orced from the right to trade on it. Though the impetus for its establishment ca me from policy makers in the country, it has been set up as a public limited com pany, owned by the leading institutional investors in the country. From day one, NSE has adopted the form of a demutualized exchange - the ownership, management and trading is in the hands of three different sets of people. NSE is owned by a set of leading financial institutions, banks, insurance companies and other fi nancial intermediaries and is managed by professionals, who do not directly or i ndirectly trade on the Exchange. This has completely eliminated any conflict of interest and helped NSE in aggressively pursuing policies and practices within a public interest framework. The NSE model however, does not preclude, but in fac t accommodates involvement, support and contribution of trading members in a var iety of ways. Its Board comprises of senior executives from promoter institution

s, eminent professionals in the fields of law, economics, accountancy, finance, taxation, and etc, public representatives, nominees of SEBI and one full time ex ecutive of the Exchange. While the Board deals with broad policy issues, decisions relating to market ope rations are delegated by the Board to various committees constituted by it. Such committees include representatives from trading members, professionals, the pub lic and the management. The day-to-day management of the Exchange is delegated t o the Managing Director who is supported by a team of professional staff. Servi ce of a Exchange - A well organized and regulated stock exchange renders valuabl e services to the company, investors and the community at large. The following b enefits accrue to a company when there are well established and recognized stock exchanges in a country: 1. The credit standing of the company is increased. 2. The market for the company s securities is widened. 3. There is usually a good response to public issue of shares. 4. The price fluctuations of securities are kept to a minimum. 5. The listed securities command a good price over the unlisted ones. 6. The company is able to enjoy several tax advantages by listing its shares. The investors are benefited as they are ensured of safety and fair dealings in l isted securities. The daily quotation service enables them to constantly review their investment portfolio and make suitable adjustments. They are also assured of liquidity and negotiability of their investments in securities. The listed se curity serve as a gods collateral with banks and other credit institutions. The investor takes less risk by buying a listed security. The community gains in the form of increased savings and capital formation, dive rsion of funds form unproductive to productive channel and the growth of industr ies in the economy as a whole. Listing Listing means admission of securities to dealings on a recognized stock exchange . The securities may be of any public limited company, Central or State Governme nt, quasi governmental and other financial institutions/corporations, municipali ties, etc. The objectives of listing are mainly to: provide liquidity to securities; mobilize savings for economic development; Protect interest of investors by ensuring full disclosures. The BSE Limited has a dedicated Listing Department to grant approval for listing of securities of companies in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956, Securities Contracts (Regulation) Rules, 1957, Companies Act, 1956. BSE has set various guidelines and forms that need to be adhered to and submitte d by the companies. These guidelines will help companies to expedite the fulfill ment of the various formalities and disclosure requirements that are required at various stages of Public Issues o Initial Public Offering o Further Public Offering Preferential Issues Indian Depository Receipts Amalgamation Qualified Institutions Placements Listing Listing means admission of securities to dealings on a recognized stock exchange . The securities may be of any public limited company, Central or State Governme

nt, quasi governmental and other financial institutions/corporations, municipali ties, etc. The objectives of listing are mainly to: provide liquidity to securities; mobilize savings for economic development; protect interest of investors by ensuring full disclosures. A company, desirous of listing its securities on the Exchange, shall be required to file an application, in the prescribed form, with the Exchange before issue of Prospectus by the company, where the securities are issued by way of a prospe ctus or before issue of Offer for Sale , where the securities are issued by way of an offer for sale. Delisting of securities means permanent removal of securities of a listed compan y from the stock exchange where it was registered. As a result of this, the comp any would no longer be traded at that stock exchange. SEBI Guidelines. A company is required to complete the allotment of securities offered to the pub lic within 30 days of the date of closure of the subscription list and approach the designated stock exchange for approval of the basis of allotment. Issuer Company to complete the formalities for trading at all the stock exchange s where the securities are to be listed within 7 working days of finalization of the basis of allotment. Companies making public/rights issues are required to deposit 1 % of the issue a mount with the designated stock exchange before the issue price. Stock Exchange guidelines. In addition to all these rules, regulation and compliance every stock exchange h ave a set of guidelines of its own for the companies to be listed on them. For e xample they may provide for the minimum issue size and market capitalization of the company A company has to enter into a listing agreement before being given permission to be listed on the exchange. Under this agreement the company undertakes amongst other things, to provide facilities for prompt transfer, registration, sub-divis ion and consolidation of securities: to give proper notice of closure of transfe r books and record dates, to forward 6 copies of unabridged Annual reports, bala nce sheets and profit & loss accounts, to file shareholding patters and financia l results on quarterly basis and to intimate promptly to the exchange the happen ings which are likely to materially affect the financial performance of the comp any and its stock price and to comply with the conditions of Corporate governanc e. The companies are also required to pay to the exchange some listing fee as presc ribed by the exchange every financial year. A company not complying with these requirements are may face some disciplinary a ction, including suspension/ delisting of their securities. In case the exchange does not give permission to the company for listing of secu rities, the company cannot proceed with the allotment of shares. However the com pany may file an appeal before SEBI under S. 22 of SCRA, 1956. A company delisted by a stock exchange and seeking relisting at the same exchang e is required to make a fresh public offer and comply with the extant guidelines of the exchange A stock exchange is a corporation or organization that provides trading faciliti es for stockbrokers and traders. Instruments traded on stock exchanges include s tocks, investment trusts, commodities, options, mutual funds, unit trusts and bo nds. Only members can trade on an exchange Specialists A stock specialist is a member of a stock exchange who provides several services . They make a market in stocks by providing the best bid and best ask during tra ding hours. Specialists also maintain a fair and orderly market. Floor Brokers

 Floor brokers trade on the floor on the major exchanges. Floor brokers buy and s ell securities in their own account. Floor brokers are required to take and pass written tests in order to trade. They must abide by exchange rules, and they mu st be a member of the exchange on which they trade. Stockbrokers/Financial Advisers Stockbrokers, financial advisers, certified financial planners and registered re presentatives buy and sell stocks on behalf of their clients and customers. They must pass certain written exams in order to carry out trades and adhere to ethi cal standards. Day Traders Day traders are individuals who buy and sell securities for their own accounts. Day traders will trade quickly--making purchases and sales on the same day. Casual Traders A casual trader is a person who tries to build up a portfolio by buying and sell ing securities for his own account over a period of time. Technology has simplif ied the process and given the casual trader much of the same information and too ls available to professional traders. Online Trading Online trading is available to any person that has an account at an online tradi ng firm. A person can enter trades from a personal computer and set price limits and targets. Commissions are often much less than at a full-service brokerage f irm. S Securities provide for investor. T Tax Benefits planning and exemption. O Optimum return on investment. C Cautious Approach. K Knowledge of Market. Ex Exchange of Securities Transacted. C Cyclopedia of Listed Companies. H High Yield. A Authentic Information N New Entrepreneur encouraged. G Guidance of Investor & Company. E Equity STOCK TRADING OVERVIEW The marketing of the securities on the stock exchange can be done thro ugh member of the stock exchange. This member can be either individuals or corpo rate bodies. For the process of trading in stock exchange there is the basic nee d for a transaction between an individual and the broker execute customers order to buy or sell on the stock exchange trading ring. The exchange of scrip between the member of the exchange in from of buying or selling is called tradingBroker is the member of recognized stock exchange and helps the customers in buying or selling the securities for the brokerage that he receives. Trading Method Listing securities are traded on the floor of recognized stock ex change where its member traded. An investor is not permitted to enter the floor of stock exchange and he has trust the broker to: *. Negotiate the best price for the trade. *. Settle the account, i.e. payment for securities sold on due date. *. Take delivery of securities purchase. TYPES OF TRADING Trading in stock exchange is conducted in two ways: Ready delivery contract. Forward delivery contract. BASKET TRADING SYSTEM The Basket Trading System provides the arbitrageurs an opportunity to take advan tage of price differences in the underlying Sensex and Futures on the Sensex by simultaneous buying and selling of baskets comprising the Sensex scrips in the Ca sh Segment and Sensex Futures. This is expected to provide balancing impact on t

he prices in both cash and futures markets. The Exchange has commenced trading i n the Derivatives Segment with effect from June 9, 2000 to enable the investors to, inter-alias, hedge their risks. Initially, the facility of trading in the De rivatives Segment was confined to Index Futures. Subsequently, the Exchange has introduced the Index Options and Options & Futures in select individual stocks. The investors in cash market had felt a need to limit their risk exposure in the market to movement in Sensex. To participate in this system, the member-brokers need to indicate number of Sen sex basket(s) to be bought or sold, where the value of one Sensex basket is arri ved at by the system by multiplying Rs.50 to prevailing Sensex. For e.g., if the Sensex is 4000, then value of one basket of Sensex would be 4000 x 50= i.e., Rs . 2,00,000/-. The investors can also place orders by entering value of Sensex po rtfolio to be brought or sold with a minimum value of Rs. 50,000/- for each orde r. PROCEDURE OF TRADING 1.Select of broker The first step is buying or selling of share is to select a b roker for transaction business on behalf of the investor. The trading of securit ies on the stock exchange can be done through members of the exchange. An investor prefers to select a broker who shall. Act with due skill. Care and diligence in the conduct of all his business. Not create false market either singly or in concert with other. 2.Opening An Account With The Broker The next step to open account with the brok er. It helps the investor to provide his credit worthiness, if the clients were not to do margin money with the broker. 3.Selection Of Securities This is application for buying securities. The investo r may be consulted with broker and take advise for selection of securities. 4.Selection Of Time For Trading This is important to get the best advantage fro m buying or selling the securities. 5. Placing An Order Various method of placing an order with the broker has been evolved to give the broker leverage when he is on the floor of the stock exchan ge. 6. Preparation Of Contract Note SEBI circular of 4th Feb. 1991 requires that al l member of the recognized stock exchange issue contract note to the investors on the execution of trade. Brokers, therefore issue contract note to the client, which gives the name of the company, price of trade, brokerage, time of executi on, provision regarding arbitration etc. in term of the bye-laws of stock exchan ge, this is statutory requirement and mandatory. 7. Settlement The settlement is the process where by payment is made by brokers who have made purchase and share delivery by those brokers who have made sales. BASIC REQUIREMENTS FOR STOCK BROKERS Trading will be on existing stock exchange s through order routing system for execution of trades. Therefore, stockbrokers are to comply with the following before the start of trade on Internet. 1. The broker must have a net worth of Rs. 50 lakh if he wants to avail the facility of Internet for his own. 2. Provision for maintenance of adequate back up system. 3. The software system to be used by him should be secured and reliable. 4. To employ the qualified staff for this purpose. 5. To send order/trade confirmation to the client also through e-mail. 6. The contract notes must be issued to the clients as per existing regulat ion within 24 hours of the execution of trades. 7. The broker and his client should use authentication technologies. The above are some of the important pre-requisites for the stockbroker should in tend to take benefits of trading on Internet. However, detailed guidelines issue d by the SEBI for the stock exchange KIND OF STOCK BROKERS 1. Commission Broker. Near about all the brokers buy and sell securities for earning a commission for investor point of view he is the most important p erson and responsibility is to buy and sell stoke for his customer. It means tha t he acts as an agent of investor and earns commission for his services rendered . The broker is also an independent dealer in securities. He purchases and sell

securities in his own name but he is not allowed to deal with non-member. 2. Jobber He is a professional speculator who works for a profit called turn he makes a continuous auction in the market in the stoke in which he special ized. He trades in the market evens for small difference in the prices and help s to maintain liquidity in the stoke exchange. 3. Floor Broker The floor broker buy and sell shares for the other broke r on the floor of the exchange. He is an individual member owns his seat and rec eives his own commission on the orders he execute. He helps other brokers when t hey are buy and as compensation receives a portion the broker. 4. Odd lit dealer For trading in stock exchange there a certain number of share a fixed to be transacted in a lot, this is known as round lat which is usually a, 100 share a. Any thing less than the round lot are add lot. If a pers on is in possession of add lot of share i.e. 10, 20, 30, 40 etc. They he will ha s to look for the add lot dealer. 5. Budliwala He is the person who finance or provide credit facilities t o the market for this service he charges a fees called contango or backwardatio n charges. The budliwala gives a fully secured loan for period of 2 to 3 weeks. 6. Arbitrageur A person who is specialist in dealing with securities in different stoke exchange centers at the same time. He makes a profit by the dif ference in the piece prevailing in different centers of the market activity. For example the rte of a certain scrip is higher in some stoke exchange than other on. In this case the broker will buy the scrip from the marked lower price and w ill sell the scrip in the market at higher price. The profit of the arbitrageur depends on the ability to get the prices from different centers before trading i n other stoke exchanges. Depository services. Depository Services What is a Depository A Depository is an organization which holds investors securities in electronic form. The depository also provides services related to various transactions in s uch securities. A depository interfaces with its investors through Depository Pa rticipants. Depository Participants maintain investors accounts (demat accounts ) which are similar to Savings Bank/Current accounts with a Bank. Purchase and s ale of securities can be done through demat account. Presently there are two de positories in India viz., NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Ltd). Key Features of the Depository System in India 1. Multi-Depository System: The depository model adopted in India provides for a competitive multi-depository system. There can be various entities providing de pository services. A depository should be a company formed under the Company Act , 1956 and should have been granted a certificate of registration under the Secu rities and Exchange Board of India Act, 1992. Presently, there are two depositor ies registered with SEBI, namely: National Securities Depository Limited (NSDL), and Central Depository Service Limited (CDSL) 2. Depository services through depository participants: The depositories can pro vide their services to investors through their agents called depository particip ants. These agents are appointed subject to the conditions prescribed under Secu rities and Exchange Board of India (Depositories and Participants) Regulations, 1996 and other applicable conditions. 3. Dematerialisation: The model adopted in India provides for dematerialisation of securities. This is a significant step in the direction of achieving a comple tely paper-free securities market. Dematerialization is a process by which physi cal certificates of an investor are converted into electronic form and credited to the account of the depository participant. 4. Fungibility: The securities held in dematerialized form do not bear any notab

le feature like distinctive number, folio number or certificate number. Once sha res get dematerialized, they lose their identity in terms of share certificate d istinctive numbers and folio numbers. Thus all securities in the same class are identical and interchangeable. For example, all equity shares in the class of fu lly paid up shares are interchangeable. 5. Registered Owner/ Beneficial Owner: In the depository system, the ownership o f securities dematerialized is bifurcated between Registered Owner and Beneficia l Owner. According to the Depositories Act, Registered Owner means a depository wh ose name is entered as such in the register of the issuer. A Beneficial Owner mean s a person whose name is recorded as such with the depository. Though the securi ties are registered in the name of the depository actually holding them, the rig hts, benefits and liabilities in respect of the securities held by the depositor y remain with the beneficial owner. For the securities dematerialized, NSDL/CDSL is the Registered Owner in the books of the issuer; but ownership rights and li abilities rest with Beneficial Owner. All the rights, duties and liabilities und erlying the security are on the beneficial owner of the security. 6. Free Transferability of shares: Transfer of shares held in dematerialized for m takes place freely through electronic book-entry system. CLEARING AND SETTLEMENT The transactions in secondary market pass through three distinct phases, viz., t rading, clearing and settlement. While the stock exchanges provide the platform for trading, the clearing corporation d etermines the funds and securities Obligations of the trading members and ensures that the trade is settled through exchange of obligations. The clearing banks and the depositories provide the necessary interface between the custodian s/clearing members for settlement of Funds and securities obligations of trading members. Several entities, like the clearing corporation, clearing members, custodians, c learing banks, depositories are involved in the process of clearing. The role of each of these entities is explained belo w: a. Clearing Corporation: The clearing corporation is responsible for post-trade activities such as risk management and clearing and settlement of trades executed on a stock exchange. The fi rst clear ing corporation to be established in the country and also the fi rst clearing co rporation in the country to introduce settlement guarantee is the National Secur ities Clearing Corporation Ltd. (NSCCL), a wholly owned subsidiary of NSE. NSCCL was incorporated in August 1995. It was set up with the objectives of bringing and sustaining confi dence in clearing and settlement of securities; promoting a nd maintaining short and consistent settlement cycles; providing counter-party r isk guarantee, and operating a tight risk containment system. b. Clearing Members: Clearing Members are responsible for settling their obligat ions as determined by the clearing corporation. They do so making available fund s and/or securities in the designated accounts with clearing bank/ depositories on the date of settlement. c. Custodians: Custodians are clearing members but not trading members. They set tle trades on behalf of trading members, when a particular trade is assigned to them for settlement. The custodian is required to confi rm whether he is going t o settle that trade or not. If he confirms to settle that trade, then clearing c orporation assigns that Particular obligation to him. As on date, there are 13 c ustodians empanelled with NSCCL. They are Deutsche Bank A.G., HDFC Bank Ltd., Ho ngkong Shanghai Banking Corporation Ltd., Infrastructure leasing and Financial S ervices Ltd., ICICI Bank Ltd., Standard Chartered Bank Ltd., Stock Holding Corpo

ration of India Ltd. , Axis Bank Ltd., DBS bank Ltd., JP Morgan Chase Bank N.A., Kotak Mahindra Bank Ltd. State Bank of India and Citibank N.A and Orbis Financi al Corporation Ltd. d. Clearing Banks: Clearing banks are a key link between the clearing members an d Clearing Corporation to effect settlement of funds. Every clearing member is r equired to open a dedicated clearing account with one of the designated clearing banks. Based on the clearing members obligation as determined through clearing, the clearing member makes funds available in the clearing account for the pay-in and receives funds in case of a pay-out. There are 13 clearing banks of NSE, vi z., Axis Bank Ltd, Bank of India Ltd., Canara Bank Ltd., Citibank N.A, HSBC Ltd. , HDFC Bank Ltd., ICICI Bank Ltd IDBI Bank Ltd., Indusind Bank Ltd., Kotak Mahindr a Bank, Standard Chartered Bank, State Bank of India and Union Bank of India e. Depositories: Depository holds securities in dematerialized form for the inve stors in their benefi ciary accounts. Each clearing member required to maintain a clearing pool account with the depositories. He is required to make available the required securities in the designated account on settlement day. The deposi tory runs an electronic fi le to transfer the securities from accounts of the cu stodians/clearing member to that of NSCCL and visa-versa as per the schedule of allocation of securities. The two depositories in India are the National Securit ies Depository Ltd (NSDL) and Central Depository Services (India) Ltd (CDSL). f. Professional Clearing Member: NSCCL admits special category of members known as professional clearing members (PCMs). PCMs may clear and settle trades execut ed for their clients (individuals, institutions etc.). In such cases, the functi ons and responsibilities of the PCM are similar to that of the custodians. PCMs also undertake clearing and settlement responsibilities of the trading members. The PCM in this case has no trading rights, but has clearing rights i.e. he clea rs the trades of his associate trading members and institutional clients. The core processes involved in clearing and settlement include: a. Trade Recording: The key details about the trades are recorded to provide bas is for settlement. These details are automatically recorded in the electronic tr ading system of the exchanges. b. Trade Confirmation: The parties to a trade agree upon the terms of trade like security, quantity, price, and settlement Date, but not the counterparty which is the NSCCL. The electronic system automatically generates confirmation by Dire ct participants. c. Determination of Obligation: The next step is determination of what counter-p arties owe, and what counterparties are due to receive on the settlement date. T he NSCCL interposes itself as a central counterparty between the counterparties to trades and nets the positions so that a member has security wise net obligati on to receive or deliver a security and has to either pay or receive funds. The settlement process begins as soon as members obligations are determined throu gh the clearing process. The settlement process is carried out by the Clearing C orporation with the help of clearing banks and depositories. The Clearing Corpor ation provides a major link between the clearing banks and the depositories. Thi s link ensures actual movement of funds as well as securities on the prescribed pay-in and pay-out day. d. Pay-in of Funds and Securities: This requires members to bring in their funds /securities to the clearing corporation. The CMs make the securities available i n designated accounts with the two depositories (CM pool account in the case of NSDL and designated settlement accounts in the case of CDSL). The depositories m

ove the securities available in the pool accounts to the pool account of the cle aring corporation. Likewise CMs with funds obligations make funds available in t he designated accounts with clearing banks. The clearing corporation sends elect ronic instructions to the clearing banks to debit designated CMs accounts to the extent of payment obligations. The banks process these instructions, debit accounts of CMs and credit accounts of the clearing corporation. This constitutes pay-in of funds and of securities. e. Pay-out of Funds and Securities: After processing for shortages of funds/secu rities and arranging for movement of funds from surplus banks to defi cit banks through RBI clearing, the clearing corporation sends electronic instructions to the depositories/clearing banks to release pay-out of securities/funds. The depo sitories and clearing banks debit accounts of the Clearing Corporation and credi t accounts of CMs. This constitutes pay-out of funds and securities. Settlement is deemed to be complete upon declaration and release of pay-out of funds and se curities. Electronic trading : It is sometimes called Etrading. It is a method of trading securities (such as s tocks and bonds), foreign currency, and exchange traded derivatives electronical ly. It uses information technology to bring together buyers and sellers through electronic media to create a virtual market place. Etrading is widely believed t o be more reliable than older methods of trade processing. Conversion to electronic trading: Nasdaq became the worlds first electronic stock market in 1971 The London Stock Exchange moved to electronic trading in 1986 Impact of Etrading: The increase of eTrading has had some important implications: Reduced cost of transactions - By automating as much of the process as possible (often referred to as "straight-through processing" or STP), costs are brought d own. The goal is to reduce the incremental cost of trades as close to zero as po ssible, so that increased trading volumes don t lead to significantly increased costs. This has translated to lower costs for in vestors. Greater liquidity - electronic systems make it easier to allow differen t companies to trade with one another, no matter where they are located. This le ads to greater liquidity (i.e. there are more buyers and sellers) which increase s the efficiency of the markets. Greater competition - While etrading hasn t nec essarily lowered the cost of entry to th financial services industry, it has rem oved barriers within the industry and had a globalisationstyl competition effect . For example, a trader can trade futures on Eurex, Globex or LIFFE at the click of a button - he or she doesn t need to go through a broker or pass orders to a trader on the exchange floor. Increased transparency - Etrading has meant that the markets are less opaque. It s easier to find out the price of securities wh en that information is flowing around the world electronically. Tighter spreads - The "spread" on an instrument is the difference between the best buying and se lling prices being quoted; it represents the profit being made by the market mak ers. The increased liquidity, competition and transparency means that spreads ha ve tightened. Some definitions: Clearing: the process of transmitting, reconciling and, in some cases, confirmin g payment orders or security transfer instructions prior to settlement, possibly including the netting of instructions and the establishment of final positions for settlement.

Settlement: the completion of a transaction, wherein the seller transfers securi ties or financial instruments to the buyer and the buyer transfers money to the seller. Central Securities Depository (CSD) : a facility (or an institution) for holding securities, which enables securities transactions to be processed by book entry . Physical securities may be immobilized by the depository or securities may be dematerialized (ie so that they exist only as electronic records). In addition t o safekeeping, a central securities depository may incorporate comparison, clear ing and settlement functions.