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P. 1
Capital Market Basic

Capital Market Basic

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Published by Prajot Morajkar

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Published by: Prajot Morajkar on May 07, 2012
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1
LIST OF ABBREVIATIONS.....................................................................................................................................5
 
CHAPTER 1: AN OVERVIEW OF THE INDIAN SECURITIES MARKET............................................8
 
1.1
 
M
ARKET
S
EGMENTS
.........................................................................................................................................9
1.1.1 Primary Market...........................................................................................................................................9
 
1.1.2 Secondary Market.......................................................................................................................................9
 
1.2
 
K
EY
I
NDICATORS OF
S
ECURITIES
M
ARKET
................................................................................................9
1.2.1 Index..............................................................................................................................................................9
 
1.2.2 Market Capitalisation.................................................................................................................................9
 
1.2.3 Market Capitalisation Ratio....................................................................................................................10
 
1.2.4 Turnover.....................................................................................................................................................10
 
1.2.5 Turnover Ratio...........................................................................................................................................10
 
1.3
 
P
RODUCTS AND
P
ARTICIPANTS
...................................................................................................................10
1.3.1 Products......................................................................................................................................................10
 
1.3.2 Participants................................................................................................................................................10
 
1.4
 
M
ARKET
S
EGMENTS AND THEIR
P
RODUCTS
............................................................................................11
1.5
 
R
EFORMS IN
I
NDIAN
S
ECURITIES
M
ARKETS
...........................................................................................12
CHAPTER 2: TRADING MEMBERSHIP..........................................................................................................15
 
2.1
 
S
TOCK
B
ROKERS
.............................................................................................................................................15
2.2
 
NSE
 
M
EMBERSHIP
.........................................................................................................................................15
2.2.1 New Membership.......................................................................................................................................16 
 
2.2.2 Eligibility Criteria for Membership at NSE..........................................................................................17 
 
2.2.3 Admission Procedure for New Membership.........................................................................................24
 
2.3
 
S
URRENDER OF
T
RADING MEMBERSHIP
....................................................................................................25
2.4
 
S
USPENSION
 
E
XPULSION OF
M
EMBERSHIP
........................................................................................27
2.4.1 Basis of Suspension of Membership.......................................................................................................27 
 
2.4.2 Suspension of Business.............................................................................................................................28
 
2.4.3 Removal of Suspension.............................................................................................................................29
 
2.4.4 Consequences of Suspension...................................................................................................................29
 
2.4.5 Consequences of Expulsion.....................................................................................................................29
 
2.5
 
D
ECLARATION OF
D
EFAULTER
.....................................................................................................................30
2.6
 
A
UTHORISED
P
ERSONS
.................................................................................................................................31
2.7
 
S
UB
-B
ROKERS
.................................................................................................................................................31
2.7.1 Eligibility....................................................................................................................................................32
 
2.7.2 Registration................................................................................................................................................32
 
2.7.3 Cancellation of Registration...................................................................................................................32
 
2.8
 
B
ROKER
-C
LIENTS
R
ELATIONS
.....................................................................................................................33
2.8.1 Client Registration Documents...............................................................................................................33
 
2.8.2 Unique Client Code (UCC).....................................................................................................................34
 
2.8.3 Margins from the Clients.........................................................................................................................34
 
2.8.4 Execution of Orders..................................................................................................................................34
 
2.8.5 Contract Note.............................................................................................................................................34
 
2.8.6 Payments/Delivery of Securities to the Clients....................................................................................35
 
2.8.7 Brokerage...................................................................................................................................................35
 
2.8.8 Segregation of Bank Accounts................................................................................................................35
 
2.8.9 Segregation of Demat (Beneficiary) Accounts.....................................................................................35
 
2.9
 
S
UB
-B
ROKER
-C
LIENTS
R
ELATIONS
..........................................................................................................36
2.9.1 Relationship with clients..........................................................................................................................36 
 
2.9.2 Contract notes............................................................................................................................................36 
 
2.9.3 Securities/ Funds.......................................................................................................................................36 
 
2.10
 
I
NVESTOR
S
ERVICE
C
ELL AND
A
RBITRATION
.......................................................................................37
2.11
 
C
ODE OF
A
DVERTISEMENT
........................................................................................................................37
CHAPTER 3: TRADING..........................................................................................................................................40
 
 
2
3.1
 
I
NTRODUCTION
................................................................................................................................................40
3.2
 
NEAT
 
S
YSTEM
.................................................................................................................................................42
3.3
 
M
ARKET
T
YPES
................................................................................................................................................42
3.4
 
T
RADING
S
YSTEM
U
SERS
H
IERARCHY
......................................................................................................43
3.5
 
L
OCAL
D
ATABASE
...........................................................................................................................................43
3.6
 
M
ARKET
P
HASES
.............................................................................................................................................44
3.7
 
L
OGGING
O
N
....................................................................................................................................................46
3.8
 
L
OG
O
FF
 /E
XIT FROM THE
A
PPLICATION
...................................................................................................48
3.9
 
NEAT
 
S
CREEN
................................................................................................................................................49
3.10
 
I
NVOKING AN
I
NQUIRY
S
CREEN
...............................................................................................................51
3.10.1 Market Watch..........................................................................................................................................51
 
3.10.2 Security Descriptor.................................................................................................................................52
 
3.10.3 Market by Price.......................................................................................................................................53
 
3.10.4 Previous Trades......................................................................................................................................54
 
3.10.5 Outstanding Orders................................................................................................................................55
 
3.10.6 Activity Log..............................................................................................................................................56 
 
3.10.7 Order Status.............................................................................................................................................57 
 
3.10.8 Snap Quote...............................................................................................................................................58
 
3.10.9 Market Movement...................................................................................................................................58
 
3.10.10 Market Inquiry.......................................................................................................................................59
 
3.10.11 Auction Inquiry......................................................................................................................................60
 
3.10.12 Security/Portfolio List..........................................................................................................................61
 
3.10.13 Multiple Index Broadcast and Graph................................................................................................62
 
3.10.14 Online Backup.......................................................................................................................................63
 
3.10.15 Basket Trading......................................................................................................................................63
 
3.10.16 Buy Back Trades...................................................................................................................................65
 
3.10.17 Supplementary Functions....................................................................................................................66 
 
3.11
 
O
RDER
M
ANAGEMENT
.................................................................................................................................81
3.11.1 Entering Orders ......................................................................................................................................81
 
3.11.2 Order Modification.................................................................................................................................86 
 
3.11.3 Order Cancellation.................................................................................................................................86 
 
3.11.4 Order Matching.......................................................................................................................................87 
 
3.12
 
T
RADE
M
ANAGEMENT
..................................................................................................................................90
3.12.1 Trade Cancellation.................................................................................................................................90
 
3.13
 
A
UCTION
....................................................................................................................................................91
3.13.1 Entering Auction Orders........................................................................................................................92
 
3.13.2 Auction Order Modification..................................................................................................................93
 
3.13.3 Auction Order Cancellation..................................................................................................................93
 
3.13.4 Auction Order Matching........................................................................................................................93
 
3.14
 
L
IMITED
P
HYSICAL
M
ARKET
......................................................................................................................94
3.14.1 Salient Features of Limited Physical Market.....................................................................................94
 
3.15
 
B
LOCK
T
RADING
S
ESSION
........................................................................................................................94
3.16
 
R
ETAIL
D
EBT
M
ARKET
(RDM)
.................................................................................................................95
3.16.1 Members eligible for trading in RDM segment.................................................................................95
 
3.16.2 Trading Parameters................................................................................................................................95
 
3.16.3 Market Timings and Market Holidays.................................................................................................95
 
3.16.4 Trading System........................................................................................................................................95
 
3.16.5 Trading Cycle..........................................................................................................................................97 
 
3.17
 
T
RADING INFORMATION DOWNLOADED TO
M
EMBERS
.......................................................................97
3.18
 
I
NTERNET
B
ROKING
....................................................................................................................................98
3.19
 
C
O
-LOCATION
...........................................................................................................................................99
3.20
 
W
IRELESS
A
PPLICATION
P
ROTOCOL
(WAP)
...........................
E
RROR
!
 
B
OOKMARK NOT DEFINED
.
 
CHAPTER 4: CLEARING, SETTLEMENT AND RISKMANAGEMENT..........................................100
 
 
3
4.1
 
I
NTRODUCTION
..............................................................................................................................................100
4.2
 
K
EY TERMINOLOGIES USED IN
C
LEARING AND
S
ETTLEMENT
P
ROCESS
.........................................100
4.3
 
T
RANSACTION
C
YCLE
...................................................................................................................................101
4.4
 
S
ETTLEMENT
A
GENCIES
..............................................................................................................................102
4.5
 
C
LEARING AND
S
ETTLEMENT
P
ROCESS
...................................................................................................103
4.5.1 Clearing Process....................................................................................................................................103
 
4.5.2 Settlement Process.................................................................................................................................104
 
4.5.3 Settlement Cycle.....................................................................................................................................10
 
4.6
 
S
ECURITIES AND
F
UNDS
S
ETTLEMENT
....................................................................................................108
4.6.1 Securities Settlement..............................................................................................................................108
 
4.6.2 Funds Settlement....................................................................................................................................111
 
4.7
 
S
HORTAGES
H
ANDLING
..............................................................................................................................112
4.7.1 Valuation Prices.....................................................................................................................................113
 
4.7.2 Close-out Procedures...........................................................................................................................113
 
4.8
 
R
ISKS IN
S
ETTLEMENT
................................................................................................................................116
4.9
 
R
ISK
M
ANAGEMENT
......................................................................................................................................117
4.9.1 Capital Adequacy Requirements.........................................................................................................11
 
4.9.2 Margins....................................................................................................................................................118
 
4.9.3 On-Line Exposure Monitoring.............................................................................................................12
 
4.9.4 Off-line Monitoring................................................................................................................................12
 
4.9.5 Index-based Market-wide Circuit Breakers/ Price Bands for Securities.....................................127 
 
4.9.6 Settlement Guarantee Mechanism.......................................................................................................12
 
4.10
 
I
NTERNATIONAL
S
ECURITIES
I
DENTIFICATION
N
UMBER
.................................................................127
4.11
 
D
ATA AND
R
EPORT
D
OWNLOADS
..........................................................................................................129
4.11.1 Obligation Reports...............................................................................................................................129
 
4.11.2 Custodial Trade Reports.....................................................................................................................129
 
4.11.3 Deliveries Reports................................................................................................................................130
 
4.11.4 Funds Reports.......................................................................................................................................130
 
4.11.5 Auction Reports....................................................................................................................................131
 
4.11.6 Margin Reports....................................................................................................................................131
 
4.11.7 Miscellaneous Reports........................................................................................................................131
 
CHAPTER 5: LEGAL FRAMEWORK............................................................................................................133
 
5.1
 
SEBI
 
(I
NTERMEDIARIES
)
 
R
EGULATIONS
,
 
2008
.................................................................................134
5.2
 
SEBI
 
(P
ROHIBITION OF
I
NSIDER
T
RADING
)
 
R
EGULATIONS
,
 
1992
..............................................135
5.2.1 Prohibition on Dealing, Communicating or Counseling (Chapter II)..........................................136 
 
5.2.2 Investigation (Chapter III)....................................................................................................................13
 
5.2.3 Disclosures and Internal Procedure for Prevention of Insider Trading (Chapter IV).............137 
 
5.3
 
SEBI
 
(P
ROHIBITION OF FRAUDULENT AND
U
NFAIR
T
RADE
P
RACTICES RELATING TOSECURITIES MARKET
)
 
R
EGULATIONS
,
 
2003
.................................................................................................138
5.3.1 Prohibition of Certain Dealings in Securities...................................................................................139
 
5.3.2 Prohibition of Manipulative, Fraudulent and Unfair Trade Practices........................................140
 
5.4
 
T
HE
D
EPOSITORIES
A
CT
,
 
1996
...............................................................................................................141
5.5
 
I
NDIAN
C
ONTRACT
A
CT
,
 
1872
................................................................................................................143
5.6
 
I
NCOME
T
AX
A
CT
,
 
1961
..........................................................................................................................144
CHAPTER 6: FUNDAMENTAL VALUATION CONCEPTS...................................................................148
 
6.1
 
T
IME
V
ALUE OF
M
ONEY
...............................................................................................................................148
6.1.1 Future Value of a Single Cash Flow...................................................................................................148
 
6.1.2 Future Value of an Annuity..................................................................................................................148
 
6.1.3 Present Value of a Single Cash Flow.................................................................................................149
 
6.1.4. Present Value of an Annuity................................................................................................................149
 
6.2
 
U
NDERSTANDING
F
INANCIAL
S
TATEMENTS
...........................................................................................149
6.2.1 Comparative Financial Statements.....................................................................................................150
 
6.2.2 Common Size Statements......................................................................................................................150
 

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