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1
CONTENTS
CHAPTER 1: SECURITIES MARKET IN INDIA–AN OVERVIEW
......................10
 
1.1 INTRODUCTION
............................................................................................................................10
 
1.2 PRODUCTS, PARTICIPANTS AND FUNCTIONS
......................................................................11
 
1.3 SECURITIES MARKET AND FINANCIAL SYSTEM
...................................................................14
 
1.4 SECURITIES MARKET & ECONOMIC DEVELOPMENT
...........................................................16
 
1.5 DERIVATIVES MARKET
...............................................................................................................18
 
1.6 REGULATORY FRAMEWORK
......................................................................................................19
 
1.6.1 Legislations
..........................................................................................................................19
 
1.6.2 Rules Regulations and Regulators
.........................................................................20
 
1.6.3 Reforms Since 1990s
.....................................................................................................21
 
1.7 ROLE OF NSE IN INDIAN SECURITIES MARKET
...................................................................33
 
CHAPTER 2: PRIMARY MARKET
..............................................................................................39
 
2.1 INTRODUCTION
............................................................................................................................39
 
2.2 MARKET DESIGN
..........................................................................................................................39
 
2.2.1 DIP Guidelines, 2000
.....................................................................................................39
 
2.2.2 Merchant Banking
............................................................................................................45
 
2.2.3 Credit Rating
.......................................................................................................................46 
 
2.2.4 Demat Issues
......................................................................................................................46 
 
2.2.5 Private Placement
............................................................................................................47 
 
2.2.6 Virtual Debt Portal
...........................................................................................................47 
 
2.2.7 ADRs/GDRs
..........................................................................................................................47 
 
2.3 COLLECTIVE INVESTMENT VEHICLES
.....................................................................................49
 
2.3.1 Mutual Funds
.......................................................................................................................49
 
2.3.2 Venture Capital Funds
...................................................................................................63
 
2.3.3 Collective Investment Schemes
..............................................................................64
 
CHAPTER 3: SECONDARY MARKET
......................................................................................68
 
3.1
 
INTRODUCTION
............................................................................................................................68
 
3.2
 
MARKET
 
DESIGN
...........................................................................................................................68
 
3.2.1 Stock Exchanges
...............................................................................................................68
 
3.2.2 Membership in NSE
.........................................................................................................72
 
3.2.3 Listing of securities
.........................................................................................................75
 
3.2.4 Delisting of Securities
....................................................................................................76 
 
3.2.5 Listing of Securities on NSE
.......................................................................................78
 
3.2.6 Dematerialisation
.............................................................................................................81
 
3.3 TRADING
........................................................................................................................................83
 
3.3.1 Trading Mechanism
.........................................................................................................83
 
3.3.2 Order Management
.........................................................................................................91
 
3.3.3 Trade Management
.........................................................................................................97 
 
3.3.4 Auction
....................................................................................................................................98
 
3.3.5 Internet Broking
.............................................................................................................100
 
3.3.6 Wireless Application Protocol
.................................................................................100
 
 
2
3.3.7 Trading Rules
...................................................................................................................101
 
3.4 CLEARING AND SETTLEMENT
.................................................................................................104
 
3.4.1 Clearing and Settlement Mechanism
.................................................................104
 
3.4.2 Rolling Settlement
........................................................................................................111
 
3.5 RISK MANAGEMENT
..................................................................................................................117
 
3.5.1 Capital Adequacy Requirements
.........................................................................117 
 
3.5.2 Margins
..............................................................................................................................119
 
3.5.3 On-Line Exposure Monitoring
...............................................................................128
 
3.5.4 Off-line Monitoring
......................................................................................................128
 
3.5.5 Index-based Market-wide Circuit Breakers/ Price Bands forSecurities
.........................................................................................................................................129
 
3.5.6 Settlement Guarantee Mechanism
....................................................................130
 
3.5.7 Investor Protection Fund
.........................................................................................135
 
3.6 MARKET INDEX
...........................................................................................................................136
 
3.6.1 Understanding the index number
......................................................................137 
 
3.6.2 Understanding S&P CNX NIFTY
.............................................................................141
 
3.6.3 India Index Services & Products Ltd. (IISL)
.................................................144
 
CHAPTER 4: GOVERNMENT SECURITIES MARKET
...............................................147
 
4.1 INTRODUCTION TO INDIAN DEBT MARKETS
......................................................................147
 
4.1.1 Market Subgroups
.........................................................................................................149
 
4.1.2 Instruments
......................................................................................................................150
 
4.1.3 Participants
.......................................................................................................................151
 
4.2 PRIMARY MARKET
......................................................................................................................154
 
4.2.1 Issuance Process-Government securities
.......................................................154
 
4.2.2 Issuance Process–Treasury Bills
..........................................................................156 
 
4.2.3 Participants
.......................................................................................................................157 
 
4.3 SECONDARY MARKET
...............................................................................................................158
 
4.3.1 Trading of Government Securities on Stock Exchanges
........................158
 
4.3.2 Repo and Reverse Repo
............................................................................................159
 
4.3.3 Negotiated Dealing System
.....................................................................................161
 
4.3.4 Wholesale Debt Market of NSE
.............................................................................163
 
4.3.5 Clearing and Settlement
...........................................................................................169
 
4.3.6 Retail Debt Market
........................................................................................................175
 
4.3.7 Interest Rate Derivatives
.........................................................................................177 
 
4.3.8 Zero Coupon Yield Curve
..........................................................................................178
 
4.3.9 FIMMDA-NSE MIBID/MIBOR
...................................................................................181
 
4.3.10 NSE-VaR System
........................................................................................................182
 
4.3.11 Bond Index
.....................................................................................................................182
 
CHAPTER 5: DERIVATIVES MARKET
................................................................................186
 
5.1 DERIVATIVES
..............................................................................................................................186
 
5.1.1 Introduction
....................................................................................................................186 
 
5.1.2 Products, participants and functions
.................................................................187 
 
5.1.3 Types of Derivatives
....................................................................................................188
 
5.1.4 Derivatives Market in India
.....................................................................................189
 
 
3
5.1.5 Membership of NSE
......................................................................................................190
 
5.2 FUTURES AND OPTIONS
..........................................................................................................191
 
5.2.1 Forward Contract
...........................................................................................................191
 
5.2.2 Futures
.................................................................................................................................192
 
5.2.3 Options
................................................................................................................................194
 
5.2.4 Pricing of Derivatives
..................................................................................................197 
 
5.3 TRADING SYSTEM
......................................................................................................................200
 
5.3.1 Introduction
......................................................................................................................200
 
5.3.2 Trading mechanism
.....................................................................................................200
 
5.3.3 Adjustments for corporate actions
.....................................................................205
 
5.3.4 Eligibility criteria for securities/indices traded in F&O
............................205
 
5.3.5 Products and Contract specifications
................................................................208
 
5.4 CLEARING AND SETTLEMENT
.................................................................................................212
 
5.4.1 Introduction
......................................................................................................................212
 
5.4.2 Clearing mechanism
....................................................................................................213
 
5.4.3 Settlement mechanism
..............................................................................................213
 
5.4.4 Risk management
.........................................................................................................218
 
CHAPTER 6: REGULATORY FRAMEWORK
.....................................................................233
 
6.1 SECURITIES CONTRACTS (REGULATION) ACT, 1956
.......................................................233
 
6.2 SECURITIES CONTRACTS (REGULATION) RULES, 1957
..................................................237
 
6.3 SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992
...........................................238
 
6.4 SEBI (STOCK BROKERS & SUB-BROKERS) REGULATIONS, 1992
.................................241
 
6.5 SEBI (PROHIBITION OF INSIDER TRADING) REGULATIONS, 1992
...............................249
 
6.6 SEBI (PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING TOSECURITIES MARKETS) REGULATIONS, 2003
................................................................................253
 
6.7 THE DEPOSITORIES ACT, 1996
.............................................................................................256
 
6.8 INDIAN CONTRACT ACT, 1872
..............................................................................................259
 
6.9 THE COMPANIES ACT, 1956
...................................................................................................260
 
6.10 GOVERNMENT SECURITIES ACT 2006
................................................................................264
 
6.11 INCOME TAX ACT, 1961
..........................................................................................................266
 
6.12 MONEY LAUNDERING ACT, 2002
..........................................................................................277
 
6.13 SECURITIES TRANSACTION TAX
..........................................................................................279
 
CHAPTER 7 : MATHEMATICS AND STATISTICS
......................................................288
 
7.1 MEASURES OF CENTRAL TENDENCY
.....................................................................................288
 
7.1.1 Mean
......................................................................................................................................288
 
7.1.2 The weighted Arithmetic mean.
...........................................................................288
 
7.1.3 Geometric Mean
.............................................................................................................289
 
7.1.4 Variance and Standard Deviation
........................................................................289
 
7.1.5 Coefficient of Variation
..............................................................................................290
 
7.1.6 Covariance
.........................................................................................................................291
 
7.1.7 Coefficient of Correlation
..........................................................................................291
 
7.1.8 Normal Distribution
......................................................................................................292
 
7.2 RETURN AND RISK
.....................................................................................................................292
 
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