Introduction

Of all the modern service institutions, stock exchanges are

perhaps the most crucial agents and facilitators of
entrepreneurial progress. After the industrial revolution, as the
size of business enterprises grew, it was no longer possible for
proprietors or partnerships to raise colossal amount of money
required for undertaking large entrepreneurial ventures. Such
huge requirement of capital could only be met by the
participation of a very large number of investors their numbers
running into hundreds, thousands and even millions, depending
on the size of business venture.
!n general, small time proprietors, or partners of a proprietary or
partnership firm, are likely to find it rather difficult to get out of
their business should they for some reason wish to do so. "his is
so because it is not always possible to find buyers for an entire
business or a part of business, #ust when one wishes to sell it.
Similarly, it is not easy for someone with savings, especially
with a small amount of savings, to readily find an appropriate
business opportunity, or a part thereof, for investment. "hese
problems will be even more magnified in large proprietorships
and partnerships. $obody would like to invest in such
partnerships in the first place, since once invested, their savings
would be very difficult to convert into cash. And most people
have lots of reasons, such as better investment opportunity,
marriage, education, death, health and so on for wanting to
convert their savings into cash. %learly then, big enterprises will
be able to raise capital from the public at large only if there were
some mechanism by which the investors could purchase or sell
their share of business as ands they wished to do so. "his
implies that ownership in business has to be &broken up' into a
lager number of small units, such that each unit may be
independently ( easily bought and sold without hampering the
business activity as such. Also, such breaking of business
ownership would help mobilize small savings in the economy
into entrepreneurial ventures.
"his end is achieved in a modern business through the
mechanism of shares.
What is a share?
A share represents the smallest recognized fraction of ownership
in a publicly held business. )ach such fraction of ownership is
represented in the form of a certificate known as a share
certificate. "he breaking up of total ownership of a business
into small fragments, each fragment represented by a share
certificate, enables them to be easily bought and sold.
What is a stock exchange?
The institution where this buying and selling of shares
essentially takes place is the Stock Exchange.
!n the absence of stock exchanges, ie. !nstitutions where small
chunks of businesses could be traded, there would be no modern
business in the form of publicly held companies. "oday, owing
to the stock exchanges, one can be part owners of one company
today and another company tomorrow one can be part owners
in several companies at the same time one can be part owner in
a company hundreds or thousands of miles away one can be all
of these things. "hus by enabling the convertibility of ownership
in the product market into financial assets, namely shares, stock
exchanges bring together buyers and sellers *or their
representatives+ of fractional ownerships of companies. And for
that very reason, activities relating to stock exchanges are also
appropriately enough, known as stock market or security
market. Also a stock exchange is distinguished by a specific
locality and characteristics of its own, mostly a stock exchange
is also distinguished by a physical location and characteristics of
its own. !n fact, according to ,.".-arekh, the earliest location of
the .ombay Stock )xchange, which for a long period was
known as &the native share and stock brokers/ association', was
probably under a tree around 01234
"he stock exchanges are the exclusive centers for the trading of
securities. "he regulatory framework encourages this by
virtually banning trading of securities outside exchanges. 5ntil
recently, the area of operation6 #urisdiction of exchange was
specified at the time of its recognition, which in effect precluded
competition among the exchanges. "hese are called regional
exchanges. !n order to provide an opportunity to investors to
invest6 trade in the securities of local companies, it is mandatory
foe the companies, wishing to list their securities, to list on the
regional stock exchange nearest to their registered office.
Characteristics of Stock Exchanges in India
"raditionally, a stock exchange has been an association of
individual members called member brokers *or simply
members or brokers+, formed for the express purpose of
regulating and facilitating buying and selling of securities
by the public and institution at large.
A stock exchange in !ndia operates with due recognition
from the government under the Securities and %ontracts
*7egulations+ Act, 089:. the member brokers are
essentially the middlemen who carry out the desired
transactions in securities on behalf of the public*for a
commission+ or on their own behalf. $ew membership to a
Stock )xchange is through election by the governing
board of that stock exchange.
At present, there are ;< stock exchanges in !ndia, the
largest among them being the .ombay Stock )xchange.
.S) alone accounts for over 13= of the total volume of
transactions in shares.
"ypically, a stock exchange is governed by a board
consisting of directors largely elected by the member
brokers, and a few nominated by the government.
>overnment nominee include representatives of the
ministry of finance, as well as some public representatives,
who are expected to safeguard the public interest in the
functioning of the exchanges. A president, who is an
elected member, usually nominated by the government
from among the elected members, heads the board. "he
executive director, who is usually appointed by the by the
stock exchange with the government approval is the
operational chief of the stock exchange. ,is duty is to
ensure that the day to day operations the Stock )xchange
are carried out in accordance with the various rules and
regulations governing its functioning.
"he overall development and regulation of the securities
market has been entrusted to the Securities and )xchange
.oard of !ndia *S).!+ by an act of parliament in 088;.
All companies wishing to raise capital from the public are
required to list their securities on at least one stock
exchange. "hus, all ordinary shares, preference shares and
debentures of the publicly held companies are listed in the
stock exchange.
Exchange management
?ade some attempts in this direction, but this did not materially
alter the situation. !n view of the less than satisfactory quality, of
administration of broker@managed exchanges, the finance
minister in march ;330 proposed demutualisation of exchanges
by which ownership, management and trading membership
would be segregated from each other. "he regulators are
working towards implementing this. Of the ;< stock exchanges
in !ndia, two stock exchanges viz., O"%)! and $S) are already
demutualised. .oard of directors, which do not include trading
members, manages these. "heses are purest form of
demutualised exchanges, where ownership, management and
trading are in the hands of three sets of people. "he concept of
demutualisation completely eliminates any conflict of interest
and helps the exchange to pursue market efficiency and
investors interest aggressively.
ole of SE!I
"he S).!, that is, the Securities and the )xchange .oard of
!ndia, is the national regulatory body for the securities market,
set up under the securities and )xchange .oard of !ndia act,
088;, to &protect the interest of investors in securities and to
promote the development of, and to regulate the securities
market and for matters connected therewith and incidental too.'
S).! has its head office in ?umbai and it has now set up
regional offices in the metropolitan cities of Aolkata, Belhi, and
%hennai. "he .oard of S).! comprises a %hairman, two
members from the central government representing the
ministries of finance and law, one member from the 7eserve
.ank of !ndia and two other members appointed by the central
government.
As per the S).! act, 088;, the power and functions of the .oard
encompass the regulation of Stock )xchanges and other
securities markets registration and regulation of the working
stock brokers, sub@brokers, bankers to an issue *a public offer of
capital+, trustees of trust deeds, registrars to an issues, merchant
bankers, under writers, portfolio managers, investment advisors
and such other intermediaries who may be associated with the
stock market in any way registration and regulations of mutual
funds promotion and regulation of self@ regulatory
organizations prohibiting Craudulent and unfair trade practices
and insider trading in securities markets regulating substantial
acquisition of shares and takeover of companies calling for
information from,undertking inspection, conducting inquiries
and audits of stock exchanges, intermediaries and self@
regulatory organizations of the securities market performing
such functions and exercising such powers as contained in the
provisions of the %apital !ssues *%ontrol+ Act,08D2 and the
Securities %ontracts *7egulation+ Act, 089:, levying various
fees and other charges, conducting necessary research for above
purposes and performing such other functions as may be
prescribes from time to time.
S).! as the watchdog of the industry has an important and
crucial role in the market in ensuring that the market participants
perform their duties in accordance with the regulatory norms.
"he Stock )xchange as a responsible Self 7egulatory
Organization *S7O+ function to regulate the market and its
prices as per the prevalent regulations. S).! and the )xchange
play complimentary roles to enhance the investor protection and
the overall quality of the market.
"embership
"he trading platform of a stock exchange is accessible only to
brokers. "he broker enters into trades in exchanges either on his
own account or on behalf of clients. "he clients may place their
order with them directly or a sub@broker indirectly. A broker is
admitted to the membership of an exchange in terms of the
provisions of the S%7A, the S).! act 088;, the rules, circulars,
notifications, guidelines, etc. prescribed there under and the
byelaws, rules and regulations of the concerned exchange. $o
stockbroker or sub@broker is allowed to buy, sell or deal in
securities, unless he or she holds a certificate of registration
granted by S).!. A broker6sub@broker compiles with the code of
conduct prescribed by S).!.
"he stock exchanges are free to stipulate stricter requirements
for its members than those stipulated by S).!. "he minimum
standards stipulated by $S) for membership are in excess of the
minimum norms laid down by S).!. "he standards for
admission of members laid down by $S) stress on factors, such
as, corporate structure, capital adequacy, track record, education,
experience, etc. and reflect the conscious endeavors to ensure
quality broking services.
#isting
Eisting means formal admission of a security to the trading
platform of a stock exchange, invariably evidenced by a listing
agreement between the issuer of the security and the stock
exchange. Eisting of securities on !ndian Stock )xchanges is
essentially governed by the provisions in the companies act,
089:, S%7A, S%77, rules, bye@laws and regulations of the
concerned stock exchange, the listing agreement entered into by
the issuer and the stock exchange and the circulars6 guidelines
issued by central government and S).!.
Index ser$ices
Stock index uses a set of stocks that are representative of the
whole market, or a specified sector to measure the change in
overall behavior of the markets or sector over a period of time.
!ndia !ndex Services ( -roducts Eimited *!!SE+, promoted by
$S) and %7!S!E, is the only specialized organization in the
country to provide stock index services.
Trading "echanism
All stock exchanges in !ndia follow screen@based trading
system. $S) was the first stock exchange in the country to
provide nation@wide order@driven, screen@based trading system.
$S) model was gradually emulated by all other stock
exchanges in the country. "he trading system at $S) known as
the $ational )xchange for Automated "rading *$)A"+ system is
an anonymous order@driven system and operates on a strict
price6time priority. !t enables members from across the countries
to trade simultaneously with enormous ease and efficiency.
$)A" has lent considerable depth in the market by enabling
large number of members all over the country to trade
simultaneously and consequently narrowed the spreads
significantly. A single consolidated order book for each stock
displays, on a real time basis, buy and sell orders originating
from all over the country. "he bookstores only limit orders,
which are orders to buy or sell shares at a stated quantity and
stated price. "he limit order is executed only if the price
quantity conditions match. "hus, the $)A" system provides an
open electronic consolidated limit order book *O)%EO.+. "he
trading system provides tremendous flexibility to the users in
terms of kinds of orders that can be placed on the system.
Several time@related *>ood@"ill@%ancelled, >ood@"ill@Bay,
!mmediate@or@%ancel+, price related *buy6sell limit and stop@loss
orders+ or volume related *All@or@$one, ?inimum Cill, etc.+
conditions van be easily built into an order. Orders are sorted
and match automatically by the computer keeping the system
transparent, ob#ective and fair. "he trading system also provides
complete market information on@line, which is updated on real
time basis. "he trading platform of the %? segment of $S) is
accessed not only from the computer terminals from the
premises of brokers spread over D;3 cities, but also from the
personal computers in the homes of investors through the
internet and from the hand@held devices through FA-. "he
trading platform of .S) is also accessible from D33 cities.
!nternet trading is available on $S) and .S), as of now. S).!
has approved the use of !nternet as an order routing system, for
communicating clients/ orders to the exchanges through brokers.
S).!@ registered brokers can introduce internet@based trading
after obtaining permission from the respective Stock )xchanges.
S).! has stipulated the minimum conditions to be fulfilled by
trading members to start internet@based trading and services.
$S) was the first exchange in the country to provide web@based
access to investors to trade directly on the exchange. !t launched
!nternet trading in Cebruary ;333. !t was followed by the launch
of !nternet trading by .S) in ?arch ;330. "he orders
originating from the personal computers *-%s+ of investors are
routed through the !nternet tot eh trading terminals of the
designated brokers with whom they have relations and further to
the exchange of trade execution. Soon after these orders get
matched and result into trades, the investors get confirmation
about them on their -%s through the same !nternet routes.
S).! approved trading through wireless medium or FA-
platform. $S) is the only exchange to provide access to its
order book through the hand held devices, which use FA-
technology. "his serves primarily retail investors who are
mobile and want to trade from any place when the market prices
for st3ocks of their choice are attractive.
%emat Trading
A depository holds securities in dematerialized form. !t
maintains ownership records of securities in a book entry form
and also effects transfer of ownership through book entry. S).!
has introduced some degree of compulsion in trading and
settlement of securities in dematerialized form. Fhile the
investors have a right to hold securities in either physical or
demat form, S).! has mandated compulsory trading and
settlement of securities in dematerialized form. "his was
initially introduced for institutional investors and was later
extended to all investors. Starting with 0; scrips on Ganuary 09,
0881, all investors are required to mandatorily trade in
dematerialized form in respect of ;,<<9 securities as at end@
Gune, ;330.
Since the introduction of the depository system,
dematerialization has progressed at a fast pace and has gained
acceptance among the participants in the market. All actively
traded scrips are held, traded and settled in demat form. "he
details of progress in dematerialization in two depositories, viz.,
$SBE and %BSE., are presented as belowH
!n a S).! working paper titled IBematerializationH A Silent
7evolution in the !ndian %apital ?arket/ released in April ;333,
it has been observed that !ndia has achieved a very high level of
dematerialization in less than three years/ time, and currently
more than 88=of trades settle in demand form. %ompetition and
regulatory developments facilitated reduction in custodial
charges and improvements in qualities of service standards. The
paper obser$es that one imminent and apparent immediate
benefit of competition between the two depositories is fall in
settlement and other charges. Competition has been dri$ing
impro$ement in ser$ice standards. Bepository facility has
effected changes in stock market microstructure. .readth and
depth of investment culture has further got extended to interior
areas of the country faster. )xplicit transaction cost has been
falling due to dematerialization. Bematerialization substantially
contributed to the increased growth in the turnover.
Bematerialization growth in !ndia is the quickest among all
emerging markets and also among developed markets excepting
for the 5.A and ,ong Aong.


I&T'%(CTI'&
"he Stock )xchange, ?umbai, popularly known as J.S)J was
established in 0129 as J"he $ative Share and Stock .rokers
AssociationJ, as a voluntary non@profit making association. !t
has evolved over the years into its present status as the premier
Stock )xchange in the country. !t may be noted that the Stock
)xchanges is the oldest one in Asia, even older than the "okyo
Stock )xchange, which was founded in 0121.
"he )xchange, while providing an efficient and transparent
market for trading in securities, upholds the interests of the
investors and ensures redressal of their grievances, whether
against the companies or its own member@brokers. !t also strives
to educate and enlighten the investors by making available
necessary informative inputs and conducting investor education
programmes.
A >overning .oard comprising of 8 elected directors *one third
of them retire every year by rotation+, two S).! nominees, a
7eserve .ank of !ndia nominee, six public representatives and
an )xecutive Birector is the apex body, which decides the
policies and regulates the affairs of the )xchange.
"he )xecutive Birector as the %hief )xecutive Officer is
responsible for the day@to@day administration of the )xchange.
"he average daily turnover of the )xchange during the year
;333@;330 *April@?arch+, was 7s.<81D.08 crores and average
number of daily trades was 9.:8 lakhs. ,owever, the average
daily turnover of the )xchange during the year ;330@ ;33; has
declined to 7s. 0;DD.03 crores and number of average daily
trades during the period to 9.02 lakhs. "he ban on all deferral
products like .E)SS and AE.? in the !ndian capital ?arkets
by S).! w.e.f. Guly ;, ;330, abolition of account period
settlements, introduction of %ompulsory 7olling Settlements in
all scrips traded on the )xchanges w.e.f. Becember <0, ;330,
etc. have adversely impacted the liquidity and consequently
there is a considerable decline in the daily turnover at the
)xchange.
C)*IT)# #ISTE% )&% ")+ET C)*IT)#I,)TI'&.
"he Stock )xchange, .ombay *.S)+ is the premier Stock
)xchange in !ndia. "he .S) accounted for D: per cent of listed
companies on an all !ndia basis as on <0st ?arch 088D. !t
ranked first in terms of the number of listed companies and
stock issues listed. "he capital listed in the .S) as on <0st
?arch 088D accounted for 93= of the overall capital listed on
all the stock exchanges. !ts share of the market capitalization
was around 2D= as on the same date. "he paid@up capital of
equity, debentures6bonds and preference were 2<=, <0=, DD=
respectively of the overall capital listed on all the Stock
)xchanges as on the same date.
On the .S), the Steel Authority of !ndia had the largest market
capitalization of 7s.08, 831 crores as on the <0st ?arch, 088D
followed by the State .ank of !ndia with the market
capitalization of 7s.0:, 23; crores and ?ahanagar "elephone
$igam Eimited with the market capitalization of 7s.00, 233
crores.
!SE SE&SE-
"he !SE SE&SE-, short form of Sensitive !ndex, first
compiled in 081: is a &market %apitalization@Feighted' index
of <3 component stocks representing a sample of large, well@
established and financially sound companies. "he index is
widely reported in both, the domestic international, print
electronic media and is widely used to measure the used to
measure the performance of the !ndian stock markets.
"he .S) S)$S)K is the benchmark index of the !ndian capital
market and one, which has the longest social memory. !n fact
the SE&SE- is considered to be the pulse of the !ndian stock
markets. !t is the oldest index in !ndia and has acquired a unique
place in collective consciousness of the investors. Curther, as the
oldest index of the !ndian Stock ?arket, it provides time series
data over a fairly long period of time. Small wonder that the
SE&SE- has over the years has become one of the most
prominent brands of the %ountry.
'b.ecti$es of SE&SE-
"he !SE SE&SE- is the benchmark index with wide
acceptance among individual investors, institutional investors,
foreign investors, foreign investors and fund managers. "he
ob#ectives of the index areH
To measure market mo$ements
>iven its long history and its wide acceptance, no other
index matches the !SE
SE&ES- in the reflecting market movements and
sentiments. SE&SE- is widely
used to describe the mood in the !ndian stock markets.
!enchmark for funds performance
"he inclusion of blue chip companies and the wide and
balanced industry 7epresentation in the SE&SE-
makes it the ideal benchmark for fund managers to compare
the performance of their funds.
/or index based deri$ati$es products
!nstitutional investors, money managers and small investors,
all refer to the !SE
SE&SE- for their specific purposes. "he !SE SE&SE- is
in effect the proxy for
the !ndian stock markets. Since SE&SE- comprises of the
leading companies in
all the significant sectors in the economy, we believe that it
will be the most liquid
contract in the !ndian market and will garner a predominant
market share.
Companies represented in the SE&SE-
Company name Sector
0)s on 12.34.315
,industan lever C?%>
7eliance limited %hemicals and
petrochemicals
!nfosys technologies !nformation technology
7eliance petroleum Oil and gas
!"% C?%>
State bank of !ndia Cinance
?"$E "elecom
Satyam computers !nformation technology
Lee telefilms ?edia
7anbaxy labs ,ealthcare
!%!%! Cinance
Earsen ( toubro Biversified
%ipla ,ealthcare
,indalco ?etals and mining
,-%E ?etal and mining
"!S%O ?etal and mining
$estle C?%>
Trading System
"ill $ow, buyers and sellers used to negotiate face@to@face on
the trading floor over a security until agreement was reached
and a deal was struck in the open outcry system of trading, that
used to take place in the trading ring. "he transaction details of
the account period *called settlement period+ were submitted for
settlement by members after each trading session.
"he computerized settlement system initiated the netting and
clearing process by providing on a daily basis statements for
each member, showing matched and unmatched transactions.
Settlement processing involves computation of each memberMs
net position in each security, after taking into account all
transactions for the member during the settlement period, which
is 03 working days for group MAM securities and 9 working days
for group M.M securities.
"rading is done by members and their authorized assistants from
their "rader Fork Stations *"FS+ in their offices, through the
.S) On@Eine "rading *.OE"+ system. .OE" system has
replaced the open outcry system of trading. .OE" system
accepts two@way quotations from #obbers, market and limit
orders from client@brokers and matches them according to the
matching logic specified in the .usiness 7equirement
Specifications *.7S+ document for this system.
"he matching logic for the %arry@Corward System as in the case
of the regular trading system is quote driven with the order book
functioning as an Jauxiliary #obberJ.
T)%I&6
T)%I&6
"he )xchange, which had an open outcry trading system, had
switched over to a fully automated computerized mode of
trading known as .OE" *.S) on Eine "rading+ System.
"hrough the .OE" system the members now enter orders from
"rader Fork Stations *"FSs+ installed in their offices instead of
assembling in the trading ring. "his system, which was initially
both order and quote driven, was commissioned on ?arch 0D,
0889. ,owever, the facility of placing of quotes has been
removed w.e.f., August 0<, ;330 in view of lack of market
interest and to improve system@matching efficiency. "he system,
which is now only order driven, facilitates more efficient
processing, automatic order matching and faster execution of
orders in a transparent manner.
)arlier, the members of the )xchange were permitted to open
trading terminals only in ?umbai. ,owever, in October 088:,
the )xchange obtained permission from S).! for expansion of
its .OE" network to locations outside ?umbai. !n terms of the
permission granted by S).! and certain modifications
announced later, the members of the )xchange are now free to
install their trading terminals at any place in the country. Shri -.
%hidambaram inaugurated the expansion of .OE" network the
then Cinance ?inister, >overnment of !ndia on August <0, 0882.
!n order to expand the reach of .OE" network to centers outside
?umbai and support the smaller 7egional Stock )xchanges, the
)xchange has, as on ?arch <0, ;33;, admitted subsidiary
companies formed by 0< 7egional Stock )xchanges as its
members. "he members of these 7egional Stock )xchanges
work as sub@brokers of the member@brokers of the )xchange.
"he ob#ectives of granting membership to the subsidiary
companies formed by the 7egional Stock )xchanges were to
reach out to investors in these centers via the members of these
7egional )xchanges and provide the investors in these areas
access to the trading facilities in all scrips listed on the
)xchange.
"rading on the .OE" System is conducted from ?onday to
Criday between 8H99 a.m. and <H<3 p.m. "he scrips traded on the
)xchange have been classified into MAM, M.0M, M.;M, MCM and MLM
groups. "he number of scrips listed on the )xchange under MAM,
M.0 M, M.;M and MLM groups, which represent the equity segment, as
on ?arch <0, ;33; was 02<, 9:3,08<3 and <3DD respectively.
"he MCM group represents the debt market *fixed income
securities+ segment wherein 2D1 securities were listed as on
?arch <0, ;33;. "he MLM group was introduced by the )xchange
in Guly 0888 and covers the companies which have failed to
comply with listing requirements and6or failed to resolve
investor complaints or have not made the required arrangements
with both the Bepositories, viz., %entral Bepository Services *!+
Etd. *%BSE+ and $ational Security Bepository Etd. *$SBE+ for
dematerialization of their securities by the specified date, i.e.,
September <3, ;330. %ompanies in JLJ group numbered <3DD as
on ?arch <0, ;33;. Of these, 0D;8 companies were in JLJ
group for not complying with the provisions of the Eisting
Agreement and6or pending investor complaints and the balance
0:09 companies were on account of not making arrangements
for dematerialization of their securities with both the
Bepositories. 0:09 companies have been put in JLJ group as a
temporary measure till they make arrangements for
dematerialization of their securities. Once they finalize the
arrangements for dematerialization of their securities, trading
and settlement in their scrips would be shifted to their respective
erstwhile groups.
"he )xchange has also the facility to trade in J%J group which
covers the odd lot securities in MAM, M.0M, M.;M and MLM groups and
7ights renunciations in all the groups of scrips in the equity
segment. "he )xchange, thus, provides a facility to market
participants of on@line trading in odd lots of securities and
7ights renunciations. "he facility of trading in odd lots of
securities not only offers an exit route to investors to dispose of
their odd lots of securities but also provides them an opportunity
to consolidate their securities into market lots.
"he M%M group can also be used by investors for selling upto 933
shares in physical form in respect of scrips of companies where
trades are to be compulsorily settled by all investors in demat
mode. "his scheme of selling physical shares in compulsory
demat scrips is called as )xit 7oute Scheme.
Fith effect from Becember <0, ;330, trading in all securities
listed in equity segment of the )xchange takes place in one
market segment, viz., %ompulsory 7olling Settlement Segment.
*ermitted Securities
"he )xchange has since decided to permit trading in the
securities of the companies listed on other Stock )xchanges
under J -ermitted SecuritiesJ category which meet the relevant
norms specified by the )xchange. Accordingly, to begin with the
)xchange has permitted trading in scrips of five companies
listed on other Stock )xchanges w.e.f. April ;;, ;33;6
Computation of closing price of scrips in the Cash Segment7
"he closing prices of scrips are computed on the basis of
weighted average price of all trades in the last 09 minutes of the
continuous trading session. ,owever, if there is no trade during
the last 09 minutes, then the last traded price in the continuous
trading session is taken as the official closing price.
)5 Compulsory olling Segment 0CS57
Compulsory olling Settlement 0CS5 Segment7
Fith a view to introduce the best international trading practices
and to achieve higher settlement efficiency, as mandated by
S).!, trades in all the equity shares listed on the )xchange in
%7S Segment were to be settled on "N9 basis w.e.f. Becember
<0, ;330. S).! has further directed the Stock )xchanges that
trades in all scrips w.e..f. April 0, ;33; should be settled on "N<
basis. Accordingly, all transactions in all groups of securities in
the equity segment and fixed income securities listed on the
)xchange are settled on "N< basis w.e.f. April 0, ;33;
5nder a rolling settlement environment, the trades done on a
particular day are settled after a given number of business days
rather than settling all trades done during a period at the end of
an Maccount periodM. A "N< settlement cycle means that the final
settlement of transactions done on " or trade day by exchange of
monies and securities, occurs on fifth business day after the
trade day.
"he transactions in securities of companies which have made
arrangements for dematerialization of their securities by the
stipulated date are settled only in Bemat mode on "N< on net
basis, i.e., buy and sale positions in the same scrip are netted and
the net quantity is to be settled. ,owever, transactions in
securities of companies, which have failed to make
arrangements for dematerialization of their securities or 6are in
JLJ group, are settled only on trade to trade basis on "N< i.e.,
the transactions are settled on a gross basis and the facility of
netting of buy and sale transactions in a scrip is not available.
Cor example, if one buys and sells 033 shares of a company on
the same day which is on trade to trade basis, the two positions
will not be netted and he will have to first deliver 033 shares at
the time of pay@in of securities and then receive 033 shares at
the time of pay@out of securities on the same day. "hus, if one
fails to deliver the securities sold at the time of pay@in, it will be
treated as a shortage and the position will be auctioned6 closed@
out.
!n other words, the transactions in scrips of companies which
are in compulsory demat are settled in demat mode on "N< on
netting basis and the transactions in scrips of companies, which
have not made arrangements for dematerialization of their
securities by the stipulated date or are in JLJ group for other
reasons, are settled on trade to trade basis on "N< either in
demat mode or in physical mode.
"he settlement of transactions in MCM group securities
representing Cixed !ncome Securities is also on 7olling
Settlement %ycle of "N< basis.
"he following tables summarizes the steps in the trading and
settlement cycle for scrips under %7SH
BAO A%"!P!"O
"rading on .OE" and daily downloading of statements
showing details of transactions and margins at the end of each
trading day.
:A62A entry by the member@brokers.

"N0
%onfirmation of :A62A data by the %ustodians. Bownloading
of securities and funds obligation statement by members.

"N<
-ay@in of funds and securities by 00H33 a.m. and pay@out of
funds and securities by ;H33 p.m

"ND
Auction on .OE".

"N9
Auction pay@in and pay@out.

Q :A62A H A mechanism whereby the obligation of settling the
transactions done by a member@broker on behalf of a client is
passed on to a custodian based on his confirmation.
"hus, the pay@in and pay@out of funds and securities takes places
on the <rd working day of the execution of the trade.
"he !nformation Systems Bepartment of the )xchange generates
the following statements, which can be downloaded by the
members in their back offices on a daily basis.
Statements giving details of the daily transactions entered into
by the members.
Statements giving details of margins payable by the members in
respect of the trades executed by them.
"he settlement of the trades *money and securities+ done by a
member on his own account or on behalf of his individual,
corporate or institutional clients may be either through the
member himself or through a S).! registered %ustodian
appointed by him or the respective client. !n case the
delivery6payment is to be given or taken by a registered
%ustodian, he has to confirm the trade done by a member on the
.OE" System through :A@2A entry. Cor this purpose, the
%ustodians have been given connectivity to .OE" System and
have also been admitted as members of the %learing ,ouse. !n
case a transaction is not confirmed by a registered %ustodian,
the liability for pay@in of funds or securities in respect of the
same devolves on the concerned member.
"he introduction of settlement on "N< basis has resulted in
reduction in settlement risk, provided early receipt of securities
and monies to buyers and sellers respectively and brought
!ndian %apital ?arkets at the international standard of
settlements
Settlement
Pay-in and Pay-out for 'A', 'B1', 'B2', 'C', "F" & 'Z' group of
securities
As discussed earlier, the trades done by members in all the
securities in %7S are now settled by payment of money and
delivery of securities on "N< basis. All deliveries of securities
are required to be routed through the %learing ,ouse, except for
certain off@market transactions which, although are required to
be reported to the )xchange, may be settled directly between the
members concerned.
"he %learing ,ouse is an independent company promoted
#ointly by .ank of !ndia and Stock )xchange, ?umbai for
handling the clearing and settlement operations of funds and
securities on behalf of the )xchange. Cor this purpose, the
%learing ( Settlement Bept. of the )xchange liaises with the
%learing ,ouse on a day to day basis.
"he !nformation Systems Bepartment *!SB+ of the )xchange
generates Belivery and 7eceive Orders for transactions done by
the members in A, .0, .; and C group scrips after netting
purchase and sale transactions in each scrip whereas Belivery
and 7eceive Orders for J%J and JLJ group scrips are generated
on trade to trade basis, i.e., without netting of purchase and sale
transactions in a scrip.
"he Belivery Orders provide information like scrip, quantity
and the name of the receiving member to whom the securities
are to be delivered through the %learing ,ouse. "he ?oney
Statement provides scrip wise6item wise details of
payments6receipts for the settlement. "he Belivery67eceive
Orders and money statements can be downloaded by the
members in their back offices
"he bank accounts of members maintained with the eight
clearing banks, viz., .ank of !ndia, ,BC% .ank Etd., >lobal
"rust .ank Etd., Standard %hartered .ank, %enturion .ank Etd.,
5"! .ank Etd., !%!%! .ank Etd., and !ndusind .ank Etd., are
directly debited through computerized posting for their
settlement and margin obligations and credited with receivables
on accounts of pay@out dues and refund of margins.
"he securities, as per the Belivery Orders issued by the
)xchange, are required to be delivered by the members in the
%learing ,ouse on the day designated for securities pay@in, i.e.,
on "N< day. !n case of the physical securities, the members have
to deliver the securities in special closed pouches *supplied by
the )xchange+ along with the relevant details *distinctive
numbers, scrip code, quantity, and receiving member+ on a
floppy. "he data submitted by the members on floppies is
matched against the master file data on the %learing ,ouse
computer systems. !f there are no discrepancies, then a scroll
number is generated by the %learing ,ouse and a scroll slip is
issued. "he members can then submit the securities at the
receiving counter in the %learing ,ouse
)uto %.'. facility7
!nstead of issuing Belivery Out instructions for their delivery
obligations in a settlement 6auction, a facility has been made
available to the members of automatically generating Belivery@
Out *B.O.+ instructions on their behalf from their %? -ool A6cs
by the %learing ,ouse w.e.f., August 03, ;333. "his Auto B.O.
facility is available for %7S *$ormal ( Auction+ and for trade@
to@trade settlements. "his facility is, however, not available for
delivery of non@pari passu shares and shares having multiple
!S!$s. "he members wishing to avail of this facility have to
submit an authority letter to the %learing ,ouse. "his Auto B.O
facility is currently available only for %learing ?ember *%?+
-ool accounts6-rincipal Accounts maintained by the members
with $ational Securities Bepository Etd. *$SBE+ and %entral
Bepositories Services Etd. *%BSE+
%emat pay8in7
"he members can effect demat pay@in either through %entral
Bepository Services *!+ Etd. *%BSE+ or $ational Securities
Bepository Etd. *$SBE+. !n case of $SBE, the members are
required to give instructions to their Bepository -articipant *B-+
specifying settlement no., settlement type, effective pay@in date,
quantity, etc. "he securities are transferred to the -ool Account.
"he members are required to give delivery@out instructions so
that the securities are considered for pay@in.
As regards %BSE, the members give pay@in instructions to their
B-. "he securities are transferred to %learing ?ember *%?+
-rincipal Account. "he members are required to give
confirmation to their B-, so that securities are processed towards
pay@in obligations. Alternatively, members may also effect pay@
in from clientsM beneficiary accounts for which member are
required to do break@up on the front@end software to generate
obligation and settlement !B.
"he %learing ,ouse arranges and tallies the securities received
against the receiving member wise report generated on the -ay@
in day. Once this reconciliation is complete, the bank accounts
of members with seven clearing banks having pay@in positions
are debited on the scheduled pay@in day. "his procedure is called
Cunds -ay@in. !n case of the demat securities, the securities are
credited in the -ool Account of the members or the %lient
Accounts as per the client details submitted by the members. !n
case of -hysical securities, the 7eceiving ?embers collect
securities from the %learing ,ouse on the payout day and the
accounts of the members having payout are credited on Criday.
"his is referred to as -ayout. !n case of the 7olling Settlements,
pay@in and payout of both funds and securities is on the same
day, in case of Feekly settlements, pay@in of funds and
securities is on "hursday and payout is on Criday.
"he auction is conducted for those securities which members
fail to deliver6short deliver during the -ay@in. !n case the
securities are not received in an auction, the positions are closed
out as per the closeout rate fixed by the )xchange in accordance
with the prescribed rules. "he close out rate is calculated as the
highest rate of the scrip recorded in the settlement in which the
trade was executed and in the subsequent settlement upto the
day prior to the day of auction, or ;3= above the closing price
on the day prior to the day of auction, whichever is higher.
,owever, in case of close@out for shares under ob#ection or
traded in J%J group, 03= instead of ;3= above the closing price
on the day prior to the day of auction and the highest price
recorded in the settlement in which trade took place upto a day
prior to auction is considered.
"he )xchange has strictly adhered to the settlement schedules
for various groups of securities and there has been no case of
clubbing of settlements or postponement of pay@in and pay@out
during the last six years.
"he )xchange is also maintaining a database of fake6forged,
stolen, lost and duplicate securities with the %learing ,ouse so
that distinctive numbers submitted by members on delivery may
be matched against the database to weed out bad paper from
circulation at the time of introduction of such securities in the
market. "his database has also been made available to the
members so that delivering and receiving members can check
the entry of fake, forged and stolen shares in the market
S9'T)6ES )&% '!:ECTI'&S
Shortages & consequent actions
"he members download Belivery67eceive Orders based on their
netted positions for transactions entered into by them during a
settlement in MAM, M.0M, M.;M, and MCM group scrips and on trade to
trade basis, i.e., without netting buy and sell transactions in
scrips in J%J ( MLM groups and scrips in .0 and .; groups which
have been put on trade to trade basis as a surveillance measure.
"he seller members have to deliver the shares in the %learing
,ouse as per the Belivery Orders downloaded. !f a seller
member is unable to deliver the shares on the -ay@in day for any
reason, his bank account is debited at the standard rate *which is
equal to the closing price of the scrip on the day of trading+
fixed by the )xchange for the quantity of shares short delivered.
"he %learing ,ouse arrives at the shortages in delivery of
various scrips by members on the basis of their delivery
obligations and actual delivery.
"he members can download the statement of shortages on "N<
in 7olling Settlements. After downloading the shortage details,
the members are expected to verify the same and report
discrepancy , if any, to the %learing ,ouse by 0H33 p.m. !f no
discrepancy is reported within the stipulated time, the %learing
,ouse assumes that the shortage of a member is in order and
proceeds to auction the same. ,owever, in M%M group, i.e., Odd
Eot segment the members are themselves required to report the
shortages to the %learing ,ouse.
"he )xchange issues an Auction "ender $otice to the members
informing them about the names of the scrips, quantity slated for
auction and the date and time of the auction session on the
.OE". "he auction for the undelivered quantities is conducted
on "ND for all the scrips under compulsory 7olling Settlements.
"he auction offers received in batch mode are electronically
matched with the auction quantities so as to award the Mbest
priceM. "he members who participate in the auction session can
download the Belivery Orders on the same day, if their offers
are accepted. "he members are required to deliver the shares in
the %learing ,ouse on the auction -ay@in day, i.e, "N9. -ay@Out
of auction shares and funds is also done on the same day, i.e.,
"N9. "he various auction sessions relating to shortages, and bad
deliveries are now conducted during normal trading hours on
.OE". "hus, it is possible to schedule multiple auction sessions
on a single trading day.
!n auction, the highest offer price is allowed upto the close@out
rate and the lowest offer price can be ;3= below the closing
price on a day prior to day of auction. A member who has failed
to deliver the securities of a particular company on the pay@in
day is not allowed to offer the same in auction. ,e can,
however, participate in auction of other scrips.
!n case no offers are received in auction for a particular scrip,
the sale transaction is closed@out at a close@out price, determined
by higher of the followingH@
@ ,ighest price recorded in the scrip from the settlement in
which the transaction took place upto a day prior to the day of
the auction.
O7
@ ;3= above the closing price on a day prior to the day of
auction.
,owever, in case of the close@out of the shares under ob#ection
and shortages in J%J or JLJ group, 03= above the closing prices
of the scrips on the pay@out day of the respective settlement are
considered instead of ;3=.
Curther, if the auction price6close@out price of a scrip is higher
than the standard price of the scrip in the settlement in which the
transaction was done, the difference is recovered from the seller
who failed to deliver the scrip. ,owever, in case, auction6 close@
out price is lower than standard price, the difference is not given
to the seller but is credited by the )xchange to the %ustomers
-rotection Cund. "his is to ensure that the seller does not benefit
from his failure to meet his delivery obligation. Curther, if the
offeror member fails to deliver the shares offered in auction,
then the transactions is closed@out as per the normal procedure
and the original selling member pays the difference below the
standard rate and offer rate and the offeror member pays the
difference between the offer rate and close@out rate.

Self )uction
As has been discussed in the earlier paragraphs, the Belivery
and 7eceive Orders are issued to the members after netting off
their purchase and sale transactions in scrips where netting of
purchase and sale positions is permitted. !t is likely in some
circumstances that a selling client of a member has failed to
deliver the shares to him. ,owever, this did not result in a
memberMs failure to deliver the shares to the %learing ,ouse as
there was a purchase transaction of some other buying client of
the member in the same scrip and the same was netted off for
the purpose of settlement. ,owever, in such a case, the member
would require shares so that he can deliver the same to his
buying client, which otherwise would have taken place from the
delivery of shares by the seller. "o provide shares to the
members, so that they are in a position to deliver them to their
buying clients in case of internal shortages, the members have
been given an option to submit floppies for conducting self@
auction *i.e., as if they have defaulted in delivery of shares to the
%learing ,ouse+. Such floppies are to be given to the %learing
,ouse on the pay@in day. "he internal shortages reported by the
members are clubbed with the normal shortages in a settlement
and the %learing ,ouse for the combined shortages conducts the
auction. A member after getting delivery of shares from the
%learing ,ouse in self@auction credits the shares to the
.eneficiary account of his client or hand over the same to him in
case securities received are in physical form and debits his seller
client with the amount of difference, if any, between the auction
price and original sale price
!5 'b.ections
Fhen receiving members collect the physical securities from
the %learing ,ouse on the -ayout day, the same are required to
be checked by them for good delivery as per the norms
prescribed by the S).! in this regard. !f the receiving member
does not consider the securities good delivery, he has to obtain
an arbitration award from the arbitrators and submit the
securities in the %learing ,ouse on the following day of the
-ay@Out *"ND+. "he %learing ,ouse returns these securities to
the delivering members on the same day, i.e., *"ND+. !f a
delivering members feels that arbitration awards obtained
against him is incorrect, he is required to obtain arbitration
award for invalid ob#ection from the members of the Arbitration
7eview %ommittee. "he delivering members are required to
rectify6replace the ob#ections and return the shares to the
%learing ,ouse on next day *"N9+ to have the entry against
them removed. "he rectified securities are delivered by the
%learing ,ouse to the buyer members on the same day *"N9+.
"he buyer members, if they are not satisfied with the
rectification, are required to obtain arbitration awards for invalid
rectification from the .ad Belivery %ell on "N: day and submit
the shares to the %learing ,ouse on the same day.
!f a member fails to rectify6replace the ob#ections then the same
are closed@out. "his is known as JOb#ection %ycleJ and the
entire process takes < days.
The following table summari;es the acti$ities in$ol$ed in the
*atawat 'b.ection Cycle of CS.
BAO A%"!P!"O
" N < -ay@out of securities of 7olling Settlement
" N D -atawat Arbitration session H
Arbitration awards to be obtained from officials of the .ad
Belivery %ell.
Securities under ob#ection to be submitted in the %learing
,ouse
Arbitration awards for invalid ob#ection to be obtained from
members of the Arbitration 7eview %ommittee

" N 9
?embers and institutions to submit rectified securities,
confirmation forms and invalid ob#ections in the clearing house
7ectified securities delivered to the receiving members

" N :
Arbitration Awards for invalid rectification to be obtained from
officials of the .ad Belivery %ell
Securities to be lodged with the clearing house

"he un@rectified and invalid rectification of securities are
directly closed@out by the %learing ,ouse instead of first
inviting the auction offers for the same.
"he shares in physical form returned under ob#ection to the
%learing ,ouse are required to be accompanied by an arbitration
award *%hukada+ except in certain cases where the receiving
members are permitted to submit securities to the %learing
,ouse without J%hukadaJ.
"hese cases are as followsH
"ransfer Beed is out of date.
%heques for the dividend ad#ustment for new shares where
distinctive numbers are given in the )xchange $otice is not
enclosed.
Stamp of the 7egistrar of %ompanies is missing.
Betails like Bistinctive $umbers, "ransferorsM $ames, etc. are
not filled, in the "ransfer Beeds.
Belivering brokerMs stamp on the reverse of the "ransfer Beed is
missing.
Fitness stamp or signature on "ransfer Beed is missing.
Signature of the transferor is missing.
Beath %ertificate *in cases where one or more of the transferors
are deceased+ is missing.
A penalty at the rate of 7s.0336@ per Belivery Order is levied on
the delivering member for delivering shares, which are not in
order. !n the event a receiving member misuses the facility of
submitting shares under ob#ection without J%hukadaJ, a penalty
of 7s.9336@ per case is charged and the penalty of 7s.0336@ per
Belivery Order levied on the delivering member is refunded to
him by debiting the receiving memberMs account
Close 'ut7
"here are cases when no offer for particular scrip is received in
an auction or when members who offer the scrips in auction, fail
to deliver the same. !n the former case, the original seller
memberMs account is debited and the buyer memberMs account is
credited at the closeout rate. !n the latter case, the offeror
memberMs account is debited and the buyer memberMs account is
credited at the close@out rate. "he closeout rates for closing the
positions in different segments are as underH
/or <)< = <!1< = <!>< = <,<? <olling demat< and </< group
"he closeout rate is higher of the following ratesH
"he highest rate of the scrip from the first day *trading day in
case of 7olling demat segment+ to the day prior to the day on
which the auction is conducted for the respective settlement.
;3= above the closing rate as on the day prior to the day of
auction of the respective settlement.
/or <C< group segment
"he close@out rate is higher of the following rates H
"he highest rate of the scrip from the first day to the day prior
to the day of auction of MAM, M.0M, M.;, and MLM group segment of
the respective settlements or
03= above the closing rate as on the day prior to the day of
auction of MAM, M.0M, M.;, and MLM group or
"ransaction price.
!n the M%M group, i.e., Odd Eot Segment, no auction session is
conducted. "he shortages are directly closed out.












Close 'ut7
"here are cases when no offer for particular scrip is received in
an auction or when members who offer the scrips in auction, fail
to deliver the same. !n the former case, the original seller
memberMs account is debited and the buyer memberMs account is
credited at the closeout rate. !n the latter case, the offeror
memberMs account is debited and the buyer memberMs account is
credited at the close@out rate. "he closeout rates for closing the
positions in different segments are as underH
/or <)< = <!1< = <!>< = <,<? <olling demat< and </< group
"he closeout rate is higher of the following ratesH
"he highest rate of the scrip from the first day *trading day in
case of 7olling demat segment+ to the day prior to the day on
which the auction is conducted for the respective settlement.
;3= above the closing rate as on the day prior to the day of
auction of the respective settlement.
/or <C< group segment
"he close@out rate is higher of the following rates H
"he highest rate of the scrip from the first day to the day prior
to the day of auction of MAM, M.0M, M.;, and MLM group segment of
the respective settlements or
03= above the closing rate as on the day prior to the day of
auction of MAM, M.0M, M.;, and MLM group or
"ransaction price.
!n the M%M group, i.e., Odd Eot Segment, no auction session is
conducted. "he shortages are directly closed out.
!)S+ET T)%I&6 S@STE"
"he )xchange has commenced trading in the Berivatives
Segment with effect from Gune 8, ;333 to, enable the investors
to hedge their risks. !nitially, the facility of trading in the
Berivatives Segment has been confined to !ndex Cutures.
Subsequently, the )xchange has since introduced the index
options and options ( futures in select individual stocks. "he
investors in cash market had felt a need to limit their risk
exposure in the market to movement in Sensex.
Fith a view to provide investors with this facility of creating
Sensex linked portfolios and also to create a linkage of market
prices of the underlying securities of Sensex in the %ash
Segment and Cutures on Sensex, the )xchange has provided the
facility of .asket "rading System on .OE". !n .asket "rading
System, the investors are able to buy6 sell all <3 scrips of Sensex
in the proportion of their respective weights in the Sensex, in
one go. "he investors need not calculate the quantity of Sensex
scrips to be bought or sold for creating Sensex linked portfolios
and this function is performed by the system. "he investors are
also allowed to create their own baskets by deleting certain
scrips from the Sensex basket of <3 scrips.
Curther, the .asket "rading System provides the arbitrageurs an
opportunity to take advantage of price differences in the
underlying securities of Sensex and Cutures on the Sensex by
simultaneous buying and selling of baskets covering the Sensex
scrips and Sensex Cutures. "his is expected to have balancing
impact on the prices in both cash and futures markets.
"he .asket "rading System would, thus, meet the needs of
investors and also boost the volumes and depth in cash and
futures markets.
"he .asket "rading System has been implemented by the
)xchange w.e.f. ?onday, the 0Dth August ;333. "he trades
executed under the .asket "rading System are sub#ect to intra@
day trading6gross exposure limits and daily margins as are
applicable to normal trades.. "o participate in this system the
member indicates number of Sensex basket*s+ to be bought or
sold, where the value of one Sensex basket is arrived at by the
system by multiplying 7s.93 to prevailing Sensex.
SETT#E"E&T S@STE"
Securities traded on .S) are classified into three groups,
namely, specified shares or MAM group and non@specified
securities that are sub@divided into M.0M and M.;M groups.
-resently, equity shares of thirty@two companies are classified as
specified shares. "hese companies typically have a large capital
base with widespread shareholding, a steady dividend, good
growth record and a large volume of business in the secondary
market. %ontracts in this group are allowed to be carried over to
subsequent settlements upto a maximum permissible period of
29 days.
D89 relatively liquid securities are placed in a category called
M.0M group. "he remaining securities@about 9133 as on ?ay <0,
088: are placed in the M.;M group. All newly listed securities are
placed in the M.;M group.
Settlement of transactions is done on an MAccount -eriodM basis.
"he period is a calendar week in the case of MAM and M.0M groups
and 0D calendar days in the case of M.;M group Buring an
account period, buy or sell positions in a particular security can
be either squared up by entering into contra transactions or can
be further accumulated by entering into more buy or sell
transactions.
Clearing System
"he %learing ,ouse of the )xchange handles the share and the
money parts of the settlement process in the case of MAM and M.0M
groups. "he %learing ,ouse handles only the money part of M.;M
group while securities are physically exchanged between the
brokers.
'pportunities a$ailable for foreign in$estors
0. Birect investmentH
Coreign %ompanies are now permitted to have a ma#ority
stake in their !ndian affiliates except in a few restricted
industries. !n certain specific industries, foreigners can even
have holding upto 033 per cent.
;. !nvestment through Stock )xchangesH
Coreign !nstitutional !nvestors *C!!+ upon registration with the
Securities and )xchange .oard of !ndia *S).!+ and the
7eserve .ank of !ndia *7.!+ are allowed to operate in !ndian
Stock )xchanges sub#ect to the guidelines issued for the
purpose by S).!.
!mportant requirements under the guidelines are as underH
!. -ortfolio investment in primary or secondary markets will
be sub#ect to a ceiling of ;D per cent of issued share capital
for the total holding of all registered C!!s in any one
company. "he holding of a single C!! in any one company is
sub#ect to a ceiling of 9 per cent of the total issued capital.
,owever, in applying the ceiling of ;D percent the following
are excludedH
Coreign investment under a financial collaboration
*BC!+, which is, permitted upto 90 per cent in all
priority areas.
!nvestment by C!!s through following alternative routes
Offshore Single67egional funds, >B7Ms and )uro
convertibles.
!!. Bisinvestments will be allowed only through a broker of
a Stock )xchange.
!!!. A registered C!! is required to buy or sell only for
delivery. !t should not offset a deal. !t is also not
allowed to sell short.
<. !nvestment in )uro !ssues6?utual Cunds Cloated OverseasH
Coreign investors can invest in )uro issues of !ndian
companies and in !ndia@specific funds floated abroad.
D. .roking .usinessH
Coreign brokers upon registration with the S).! are now
allowed to route the business of registered C!!s. >uideline for
the purpose have been issued by S).!. ,owever, foreign
brokers at present are not allowed membership in !ndia Stock
)xchanges.
9. Asset ?anagement %ompanies6?erchant .ankingH
Coreign -articipation in Asset ?anagement %ompanies and
?erchant .anking %ompanies is permitted.
T)&S/E '/ 'W&ES9I*
"ransfer of ownership of securities in effected through a date
stamped transfer@deed, which is signed, by the buyer and the
seller. "he duly executed transfer@deed along with the share
certificate has to be lodged with the company for change in the
ownership. A nominal duty becomes payable in the form of
stamps to be affixed on the transfer@deeds. "ransfer@deeds
remain valid for twelve months or the next book closure
following the stamped date whichever occurs later.
S)/E6()%S
0. ?argins are collected from the brokers on buying and
selling positions at the end of the day. "he total
outstanding position is further sub#ect to capital adequacy
norms laid down from time to time.
;. A comprehensive insurance cover for the )xchange and
the members is about to be put in place.
<. >uaranteeing trades is the cornerstone of a mature clearing
and settlement process. .S) is in the process of
establishing a %learing %orporation that will guarantee
trades.
D. %ompanies are required to publish half@yearly unaudited
results and other price sensitive information. "his imparts
greater transparency to the stock market operations.
9. !nsider "rading 7egulations have been laid down and a
M"ake@OverM code has been created.
)!IT)TI'& ")C9I&E@

"here exists three level arbitration machinery. "he first two
levels, which are ad#udicated by member brokers, comprise of a
two@member bench and a full bench that is to comprise of at
least sixteen members respectively. "he highest arbitrator in the
)xchange is the >overning .oard. Bisputes unresolved in the
)xchange are taken to the %ourt of Eaw.
C(ST'"E *'TECTI'& /(&%
"he ob#ective of this fund is to provide insurance to investors in
case of default by a member. "he investor is indemnified from
default to the extent of 7s.0, 33,333. "he corpus of the fund is
created by depositing ;.9= of the listing fees and a levy on
turnover at the rate or 7e.0 for 7s. 0 million of turnover. !t is
further augmented by 93= of the interest accrued on 0= of the
issue amount which is deposited by companies at the time of
their public and rights issues for a three month period as a
safeguard against non@refund of excess subscription.
6IEA)&CE E%ESS)#
"he !nvestorMs Services %ell redresses investorsM grievances
against listed companies and stockbrokers. ,owever, the
)xchange does not have power to take penal action against
listed companies, except delisting for specified periods.
%ISCI*#I&)@ )CTI'&
"he )xchange has an eight member Bisciplinary Action
%ommittee *BA%+ which decides on punitive action in
disciplinary cases referred to it by the Surveillance and
inspection departments of the )xchange Administration.
I&%ICES
"he )xchange compiles four indices, which are based on market
capitalization. "he first index to be compiled was the .S)
Sensitive !ndex with 0821@28 as the base year. !t comprises of
equity shares of <3 companies from both specified and non@
specified securities groups. "he companies have been selected
on the basis of market activity. Subsequently, a more broad
based index, .S) $ational !ndex with 081<@1D as base year,
was compiled. "his index is made up of 033 scrips, 81 of which
are quoted on .ombay. "his index also includes prices on the
other ma#or stock exchanges of Belhi, %alcutta, Ahmedabad and
?adras. !f scrip is actively quoted on more than one )xchange
the average price of the scrip is used in the compilation of the
index.
!t was felt that the sensitive index@the most popular indicator of
market movement@had become oversensitive to a handful of
scrips. Fith divestment of -ublic Sector 5nit *-S5+ equity by
government and a sharp increase in the number of companies
listed over the last few years, it was felt that a new index, which
is more representative of the recent changes and is more
balanced is necessary. "he .S)@;33, which was introduced in
?ay 088D, consists of equity shares of ;33 companies, which
have been selected on the basis of market capitalization, volume
of turnover and strength of the companiesM fundamentals. 0818@
83 has been chosen as the base year for .S)@;33.
As the presence of the foreign investors grew, a need was felt to
express the index values by taking into account the 7upee@
Bollar conversion rate. %onsequently, dividing the current
7upee market value by 7upee@Bollar modifies the .S)@;33
conversion rate in the base year. "his index, which indicates the
movement of the market in dollar values, is called the Bollex.
%ISC#'S(E B #ISTI&6 &'"S
%ompanies who wish to raise money from capital market follow
guidelines relating to disclosure, laid down by the Securities and
)xchange .oard of !ndia. Some of the disclosure norms areH
Betails of other income if it constitutes more than ten
percent of total income.
All adverse event affecting the operations of the company.
Any change in key managerial personnel.
7isk factors specific to the pro#ect and those which are
external to the company.
"he listing requirements with the )xchange call for further
disclosure by companies to promote public confidence.
!mportant disclosures areH
"he company is required to furnish unaudited half@yearly
financial results in the prescribed -erforma.
"he company must explain to the Stock )xchange any
large variation between audited and unaudited results in
respect of any item.
Fhen any person or an institution acquires or agrees to
acquire any security of a company which would result in
his holding five percent or more of the voting capital of the
company, including the existing holding the )xchange
must be notified within two days of such acquisition by the
company or by authorized intermediary or by the acquirer.
Any take@over offer made either voluntarily or
compulsorily to a company requires a public
announcement by both the offeror and the offeree
company.
Computeri;ed Trading
.S) computerized its trading and settlement activities by
following a three@phased approach.
*hase I7 "he primary ob#ective of this phase was the real time
dissemination of price data through the Bisplay !nformation
Briver System *B!BS+. B!BS was commissioned in $ovember
088; to disseminate bids, offers, actual rates of transactions and
indices on a real time basis.
*hase II7 !n 088D, settlement related daily transactions inputs
and outputs were uploaded and downloaded from the "FS in
the brokers/ offices.
*hase III7 %ommissioned on ?arch 0D, 0889. Although, screen
based trading started with 101 scrips, by the 23th day of its
commissioning, all scrips@exceeding 9333 had been put on the
.OE" system. "he .OE" system was commissioned with the
,imalya A 03,333 central trading computer hardware. Since
then the hardware has been upgraded to the ,imalya A ;3,333
system. "he system provides for a response time of two seconds
and can handle more than two hundred thousand trades in a day.
Stock Market Indicators
1991-
92
(Apr.M
ar)
1992-
93
(Apr.M
ar)
1993-
94
(Apr.M
ar)
1994-
95
(Apr.M
ar)
1995-
96
(Apr.M
ar)
No. of
Listed
o!panies
2061 2861 3585 4702 5603
Market apita"i#ation
(In
$s.%i""ion)
3059.8
7
1881.4
6
3680.7
1
4354.8
1
5264.7
6
(In &S '
%i""ion)
97.13 59.72 116.85 138.37 153.27
Ann(a" )(rno*er
(In
$s.%i""ion)
717.77 456.96 836.29 677.49 500.64
(In &S '
%i""ion)
22.78 14.50 26.55 21.51 14.57
+e"ocit, 0.23 0.24 0.24 0.16 0.10
A*era-e .ai", )(rno*er
(In
$s.%i""ion)
3.32 2.38 3.84 1.78 2.16
(In &S '
%i""ion)
0.10 0.07 0.12 0.06 0.06
No. of
S/ares
)raded
(In Mi""ion
Nos.)
6,35,51
5
3,50,31
3
7,42,79
2
1,07,24
.8
7,71,85
0
A*era-e
N(!0er of
.ai", .ea"s
75,000 65,535 63,786 85,010 73,855
%S1 4285.0 2280.5 3778.9 3260.9 3366.6
Sensiti*e
Inde2
(3ear 1nd)
0 2 9 5 1
%S1
Nationa"
Inde2
(3ear 1nd)
1967.7
1
1021.4
0
1829.5
3
1605.5
7
1549.2
5
%S1 2444
(3ear 1nd)
585.19 234.35 450.07 365.97 345.40
.o""e2 (3ear
1nd)
261.25 124.89 238.86 194.67 168.54
No. of
$e-istered
5""s
- - 145 308 366
5"" Net in*est!ent
(In $s.
%i""ion)
- - 29.85 21.24 31.63
(In &S '
%i""ion)
- - 0.95 0.67 0.92
No. of
Me!0ers
(3ear 1nd)
558 558 628 636 641
No. of
orporate
Me!0ers
(3ear 1nd)
4 4 4 26 63
/uture %e$elopments
!n 0889, the -resident of !ndia promulgated an Ordinance,
which allowed for establishment of depositories.
.S) in collaboration with .ank of !ndia *.O!+ will shortly
establish a depository. .S) has applied for permission from
S).! to expand .OE" to other centres. )xpansion of .OE"
would bring more investors into the ambit of the capital market
and consequently add depth to it.
I&T'%(CTI'&
"he $ational Stock )xchange *$S)+ is !ndiaMs leading stock
exchange covering around D33 cities and towns all over !ndia.
$S) introduced for the first time in !ndia, fully automated
screen based trading. !t provides a modern, fully computerized
trading system designed to offer investors across the length and
breadth of the country a safe and easy way to invest or liquidate
investments in securities.
Sponsored by the industrial development bank of !ndia, the $S)
has been co@sponsored by other development6 public finance
institutions, E!%, >!%, banks and other financial institutions
such as S.! %apital ?arket, Stockholding corporation,
!nfrastructure leasing and finance and so on. !ndia has had a
history of stock exchanges limited in their operating #urisdiction
to the cities in which they were set up.
$S) started equity trading on $ovember <, 088D and within a
short span of 0 year became the largest exchange in !ndia in
terms of volumes transacted. "rading volumes in the equity
segment have grown rapidly with average daily turnover
increasing from 7s.2 crores in $ovember 088D to 7s.:282
crores in Cebruary ;330 with an average of 8.: lakh trades on a
daily basis. Buring the year ;333@;330, $S) reported a turnover
of 7s.0<, <8,903 crores in the equities segment accounting for
D9= of the total market.
"he $S) represented an attempt to overcome the fragmentation
of regional markets by providing a screen@based system, which
transcends geographical barriers. ,aving operationalised both
the debt and equity markets, the $S) is planning for a derivative
market, which will provide futures and options in equity. !ts
main ob#ectives has been to set up comprehensive facilities for
the entire range of securities under a single umbrella, namely,
"o set up a nation wide trading facility for equities, debt
instruments and
hybrids
"o ensure equal access to investors across the country
through an appropriate
communication network
"o provide a fair, efficient and transparent securities
market to investors using the electronic trading
system
"o ensure shorter settlement cycles and book entry
settlement systems and
"o meet the current international standards prevalent in the
securities
!ndustry6markets.
#ocations
One of the ob#ectives of $S) was to provide a nationwide
trading facility and to enable investors/ spread all over the
country to have an equal access to $S). $S) uses sophisticated
telecommunication technology through which members can
trade remotely from their offices located in any part of the
country. $S) trading terminals are present in around D33 cities
and towns all over !ndia.
#isting
"he prime ob#ective of admission to dealings on the )xchange is
to provide liquidity and marketability to securities as also to
provide a mechanism for effective management of trading.
Securities listed on the )xchange are required to fulfill the
listing eligibility criteria. Parious types of securities of a
company are traded under a unique symbol and different series.
"his section provides a direct link to the web site of companies
traded on the )xchange.
Constitution
"he $S) has two segments for trading in securitiesH Fholesale
Bebt ?arket *FB?+ and %apital ?arket *%?+. Separate
membership is required for each segment.
Trading members
"hey are recognized members of $S). "he persons eligible to
become "?s are body corporates, subsidiaries of banks and
financial institutions. "hey are selected on the basis of a
comprehensive selection criterion. "he whole time
directors6dealers of thess
Trading mechanism
olling Settlement
!n a rolling settlement, each trading day is considered as a
trading period and trades executed during the day are settled
based on the net obligations for the day.
!n $S), the trades in rolling settlement are settled on a "N9
basis i.e. on the 9th working day. Cor arriving at the settlement
day all intervening holidays, which include bank holidays, $S)
holidays, Saturdays and Sundays are excluded. "ypically trades
taking place on ?onday shall be settled on the next ?onday,
"uesdayMs trades shall be settled on the next "uesday and so on.
#imited *hysical "arket
-ursuant to S).! guidelines, $S) introduced a new market
called Eimited -hysical ?arket to provide a facility to small
investors to trade and settle physical shares in those securities
where compulsory dematerialized trading and settlement is
enforced by S).!. !n this segment quantities not exceeding 933
shares of each security held in the name of the investor can be
traded.
Institutional Segment
"rading in this market segment is available for institutional
investors only. !n order to ensure that the overall C!! ceiling
limits are not violated, trading members are allowed to enter sell
orders in this market segment only for their C!! clients.
,owever, members can enter buy orders on behalf of C!!6C!
clients. "he settlement of transactions in this segment is in
demat mode only.
Trade for Trade Segment
"rading in this segment is available only for those securities,
which have not established connectivity with both the
depositories as per S).! directive. "he list of these securities is
notified by S).! from time to time.
Trading System
$S) operates on the M$ational )xchange for Automated "radingM
*$)A"+ system, a fully automated screen based trading system,
which adopts the principle of an order driven market. $S)
consciously opted in favour of an order driven system as
opposed to a quote driven system. "his has helped reduce
#obbing spreads not only on $S) but in other exchanges as well,
thus reducing transaction costs.
"ill the advent of $S), an investor wanting to transact in a
security not traded on the nearest exchange had to route orders
through a series of correspondent brokers to the appropriate
exchange. "his resulted in a great deal of uncertainty and high
transaction costs. $S) has made it possible for an investor to
access the same market and order book, irrespective of location,
at the same price and at the same cost.
"arket Types
"he $)A" system in $S) has four types of market. "hey areH
&ormal "arket
All orders which are of regular lot size or multiples thereof are
traded in the $ormal ?arket. Cor shares, which are traded in the
compulsory dematerialised mode the market lot of these shares,
is one. $ormal market consists of various book types wherein
orders are segregated as 7egular lot orders, Special "erm orders,
$egotiated "rade Orders and Stop Eoss orders depending on
their order attributes.
'dd #ot "arket
All orders whose order size is less than the regular lot size are
traded in the odd@lot market. An order is called an odd lot order
if the order size is less than regular lot size. "hese orders do not
have any special terms attributes attached to them. !n an odd@lot
market, both the price and quantity of both the orders *buy and
sell+ should exactly match for the trade to take place. %urrently
the odd lot market facility is used for the Eimited -hysical
?arket as per the S).! directives.
Spot "arket
Spot orders are similar to the normal market orders except that
spot orders have different settlement period/s vis@R@vis normal
market. "hese orders do not have any special terms attributes
attached to them. %urrently the Spot ?arket is being used for
the Automated Eending ( .orrowing ?echanism *AE.?+
session.
)uction "arket
!n the Auction ?arket, the )xchange on behalf of trading
members for settlement related reasons initiates/ auctions.
"here are < participants in this market.
Initiator
"he party who initiates the auction process is called an
initiator.
Competitor
"he party who enters orders on the same side as of the
initiator is called a
%ompetitor.
Solicitor
"he party who enters orders on the opposite side as of
the initiator is called a
Solicitor.
'rder !ooks
"he $S) trading system provides complete flexibility to
members in the kinds of orders that can be placed by them.
Orders are first numbered and time@stamped on receipt and then
immediately processed for potential match. )very order has a
distinctive order number and a unique time stamp on it. !f a
match is not found, then the orders are stored in different
MbooksM. Orders are stored in price@time priority in various books
in the following sequenceH
.est -rice@ -rice priority means that if two orders are entered
into the system, the order having the best price gets the higher
priority.
Fithin -rice, by time priority@"ime priority means if two
orders having the same price are entered, the order that is
entered first gets the higher priority.
The Capital "arket segment has following types of books7
1. egular #ot !ook
"he 7egular Eot .ook contains all regular lot orders that
have none of the following attributes attached to them.
a+ All or $one *AO$+
b+ ?inimum Cill *?C+
c+ Stop Eoss *SE+
>. Special Terms !ook
"he Special "erms book contains all orders that have either
of the following terms
attachedH
a+ All or $one *AO$+
b+ ?inimum Cill *?C+
$oteH %urrently, special term orders i.e AO$ and ?C are not
available on the system as per the S).! directives.
C. &egotiated Trade !ook
"he $egotiated "rade book contains all negotiated order
entries captured by the system before they have been matched
against their counterparty trade entries.
"hese entries are matched with identical counterparty entries
only. !t is to be noted that these entries contain a counter
party code in addition to other order details.
D. Stop8#oss !ook
Stop Eoss orders are stored in this book till the trigger price
specified in the order is reached or surpassed. Fhen the
trigger price is reached or surpassed, the order is released in
the 7egular lot book.
The stop loss condition is met under the following
circumstances7
Sell order @ A sell order in the Stop Eoss book gets triggered
when the last traded price in the normal market reaches or falls
below the trigger price of the order.
!uy order @ A buy order in the Stop Eoss book gets triggered
when the last traded price in the normal market reaches or
exceeds the trigger price of the order.
2. 'dd #ot !ook
"he Odd lot book contains all odd lot orders *orders with
quantity less than
marketable lot+ in the system. "he system attempts to match
an active odd lot
order against passive orders in the book. %urrently, pursuant
to a S).! directive
the Odd Eot ?arket is being used for orders which has a
quantity less than or
equal to 933 *Sty more than the market lot+ for trading. "his
is referred as the
Eimited -hysical ?arket *E-?+.
4. Spot !ook
"he Spot lot book contains all spot orders *orders having only
the settlement period different+ in the system. "he system
attempts to match an active spot lot order against the passive
orders in the book. %urrently the Spot ?arket book type is
being used for conducting the Automated Eending (
.orrowing ?echanism *AE.?+ session.
E. )uction !ook
"his book contains orders that are entered for all auctions.
"he matching process
for auction orders in this book is initiated only at the end of
the solicitor period.
'rder "atching ules
"he best buy order is matched with the best sell order. An order
may match partially with another order resulting in multiple
trades. Cor order matching, the best buy order is the one with the
highest price and the best sell order is the one with the lowest
price. "his is because the system views all buy orders available
from the point of view of a seller and all sell orders from the
point of view of the buyers in the market. So, of all buy orders
available in the market at any point of time, a seller would
obviously like to sell at the highest possible buy price that is
offered. ,ence, the best buy order is the order with the highest
price and the best sell order is the order with the lowest price.
?embers can proactively enter orders in the system, which will
be displayed in the system till the full quantity is matched by
one or more of counter@orders and result into trade*s+ or is
cancelled by the member. Alternatively, members may be
reactive and put in orders that match with existing orders in the
system. Orders lying unmatched in the system are MpassiveM
orders and orders that come in to match the existing orders are
called MactiveM orders. Orders are always matched at the passive
order price. "his ensures that the earlier orders get priority over
the orders that come in later.
'rder Conditions
A "rading ?ember can enter various types of orders depending
upon his6her requirements. "hese conditions are broadly
classified into three categoriesH time related conditions, price@
related conditions and quantity related conditions. Cor example
Time Conditions
BAO @ A Bay order, as the name suggests, is an order
which is valid for the day on which it is entered. !f the
order is not matched during the day, the order gets
cancelled automatically at the end of the trading day.
>"% @ A >ood "ill %ancelled *>"%+ order is an order that
remains in the system until the "rading ?ember cancels it.
!t will therefore be able to span trading days if it does not
get matched. "he )xchange notifies the maximum number
of days a >"% order can remain in the system from time to
time.
>"B @ A >ood "ill Bays6Bate *>"B+ order allows the
"rading ?ember to specify the days6date up to which the
order should stay in the system. At the end of this period
the order will get flushed from the system. )ach day6date
counted is a calendar day and inclusive of holidays. "he
days6date counted are inclusive of the day6date on which
the order is placed. "he )xchange notifies the maximum
number of days a >"B order can remain in the system
from time to time.
!O% @ An !mmediate or %ancel *!O%+ order allows a
"rading ?ember to buy or sell a security as soon as the
order is released into the market, failing which the order
will be removed from the market. -artial match is possible
for the order, and the unmatched portion of the order is
cancelled immediately.
AO$ @ All or $one orders allow a "rading ?ember to
impose the condition that only the full order should be
matched against. "his may be by way of multiple trades. !f
the full order is not matched it will stay in the books till
matched or cancelled.
$oteH %urrently, AO$ and ?C orders are not available on the
system as per S).! directives.
*rice Conditions
#imit *riceF'rder
An order, which allows the price to be specified while entering
the order into the system.
"arket *riceF'rder
An order to buy or sell securities at the best price obtainable at
the time of entering the order.
Stop #oss 0S#5 *riceF'rder
"he one which allows the "rading ?ember to place an order
which gets activated only when the market price of the relevant
security reaches or crosses a threshold price. 5ntil then the order
does not enter the market.
Sell order
A sell order in the Stop Eoss book gets triggered when the last
traded price in the normal market reaches or falls below the
trigger price of the order.
!uy order
A buy order in the Stop Eoss book gets triggered when the last
traded price in the normal market reaches or exceeds the trigger
price of the order.
e.g. !f for stop loss buy order, the trigger is 8<.33, the limit price
is 89.33 and the market *last traded+ price is 83.33, then this
order is released into the system once the market price reaches
or exceeds 8<.33. "his order is added to the regular lot book
with time of triggering as the time stamp, as a limit order of
89.33
Guantity Conditions
Bisclosed Suantity *BS+@ An order with a BS condition allows
the "rading ?ember to disclose only a part of the order quantity
to the market. Cor example, an order of 0333 with a disclosed
quantity condition of ;33 will mean that ;33 is displayed to the
market at a time. After this is traded, another ;33 is
automatically released and so on till the full order is executed.
"he )xchange may set a minimum disclosed quantity criteria
from time to time.
?C @ ?inimum Cill *?C+ orders allow the "rading ?ember to
specify the minimum quantity by which an order should be
filled. Cor example, an order of 0333 units with minimum fill
;33 will require that each trade be for at least ;33 units. !n other
words there will be a maximum of 9 trades of ;33 each or a
single trade of 0333. "he )xchange may lay down norms of ?C
from time to time.
Trading Workstation
"he trader workstation is the terminal from which the member
accesses the trading system. )ach trader has a unique
identification by way of "rading ?ember !B and 5ser !B
through which he is able to log on to the system for trading or
inquiry purposes. A member can have several user !Bs allotted
to him by which he can have more than one employee using the
system concurrently.
"he )xchange may also allow a "rading ?ember to set up a
network of dealers in different cities all of whom are provided a
connection to the $S) central computer. A "rading ?ember can
define a hierarchy of users of the system with the %orporate
?anager at the top followed by the .ranch ?anager and
Bealers.
Trader Workstation Screens
"he "rader Forkstation screen of the "rading ?ember is
divided into several ma#or windowsH
Title !ar
"he title bar displays the current time, "rading system name and
date.
Tool !ar
A window with different icons which provides quick access to
various functions such as ?arket .y Order, ?arket .y -rice,
?arket ?ovement, ?arket !nquiry, Auction !nquiry, Snap
Suote, ?arket Fatch, .uy order entry, Sell order entry, Order
?odification, Order %ancellation, Outstanding Orders, Order
Status, Activity Eog, -revious "rades, $et -osition, Online
.ackup, Supplementary ?enu, Security Eist and ,elp. All these
functions are also available on the keyboard.
Ticker Window
"he ticker displays information about a trade as and when it
takes place. "he user has the option to set@up the securities,
which appear in the ticker.
"arket Watch Window
"he ?arket Fatch window is the main area of focus for a
"rading ?ember. "he purpose of ?arket Fatch is to view
market information of pre@selected securities, which are of
interest to the "rading ?ember.
"o monitor various securities, the trading member can set them
up by typing the Security Bescriptor consisting of a Symbol
field and a Series field. !nvoking the Security Eist and selecting
the securities from the window can also set up securities. "he
Symbol field incorporates the %ompany name and the Series
field captures the segment6instrument type. A third field
indicates the market type.
Cor each security in the ?arket Fatch window, market
information is dynamically updated on a real time basis. "he
market information displayed is for the current best price orders
available in the regular lot book. Cor each security, the corporate
action indicator *e.g., )x or cum dividend, interest, rights etc.+,
the total buy order quantity for the best buy price, best sell price,
total sell order quantity for the best sell price, the East "raded
-rice *E"-+, the last traded price change indicator *MNM if last
traded price is better than the previous last traded price and M@M if
it is worse+ and the no delivery indicators are displayed. !f the
security is suspended, JS5S-)$B)BJ appears in front of the
security.
'n line index and Index InHuiry
Fith every trade in a security participating in !ndex, the user has
the information on the current value of the $ifty. "his value is
displayed at the extreme right hand corner of the ticker window.
!ndex !nquiry gives information on %lose, Open, ,igh, Eow and
current index values at the time of invoking this inquiry screen.
InHuiry Window
!n this window, the inquiries such as ?arket by Order, ?arket
by -rice, -revious "rades, Outstanding Orders, Activity Eog,
Order Status and ?arket !nquiry can be viewed.
"arket !y 'rder 0"!'5
"he purpose of ?arket by Order is to enable the user to view
outstanding orders in the trading books in the order of price6time
priority. "he information is displayed for each order. Stop Eoss
orders, which are not triggered will not be displayed on the
window. .uy orders are displayed on the left side of the window
and Sell orders on the right side. "he orders are presented in a
price6time priority with the Jbest pricedJ order at the top.
"arket by *rice 0"!*5
"he purpose of ?arket .y -rice is to enable the "rading
?ember to view aggregate orders waiting in the book at given
prices.
*re$ious Trades 0*T5
"he purpose of this window is to provide information to users
for their own trade.
'utstanding 'rders 0''5
"he purpose of Outstanding Orders is to enable a "rading
?ember to view his6her own outstanding buy or sell orders for a
security. An outstanding order will be an order that was entered
by the user, but is not yet completely traded or cancelled.
)cti$ity #og 0)#5
"he Activity Eog shows the activities, which have been
performed on any order of the "rading ?ember such as whether,
the order has been traded against fully or partially, it has been
modified or has been cancelled. !t displays information only of
those orders in which some activity has taken place. !t does not
display orders, which have entered the books but have not been
matched *fully or partially+ or modified or cancelled.
'rder Status 0'S5
Order Status enables the user to look into the status of a specific
order. %urrent status of the order and other order details are
displayed. !n case the order is traded, the trade details are also
displayed.
"arket InHuiry 0"I5
?arket !nquiry enables the user to view the market statistics like
Open, ,igh, Eow, -revious close, East traded price change
indicator, East traded quantity, date and time etc. A user may
find inquiry screens like ?arket ?ovement, ?ost Active
Securities and $et -osition useful. "hese are available in the
supplementary menu.
"arket "o$ement 0""5
"he ?arket ?ovement screen provides information to the user
regarding the movement of a security for the current day. !t
gives details of the movement of the scrip for a time interval.
"he details include total buy and sell order quantity value, Open,
,igh, Eow, East traded price etc.
"ost )cti$e Securities
"his screen gives a list of the securities with the highest traded
value during the day and the quantity traded for each of them.
&et *osition
"his functionality enables the user to interactively view his net
position for all securities in which he has traded.
Snap Guote
"he Snap Suote feature allows a "rading ?ember to get
instantaneous market information on any desired security. "his
is normally used for securities which are not already on display
in the ?arket Fatch window. "he information presented is the
same as that of ?arket Fatch window.
'rderFTrade Window
Order entry mechanisms enable the "rading ?ember to place
orders in the market. "he system will request re@confirmation of
an order so that the user is cautioned before the order is finally
released into the market. Orders once placed on the system can
be modified or cancelled till they are matched. Once orders are
matched they cannot be modified or cancelled.
"here is a facility to generate online order6trade confirmation
slips as soon as an order is placed or a trading is done. "he order
confirmation slip contains among other things, order no.,
security name, price, quantity, order conditions like disclosed or
minimum fill quantity etc. "he trade confirmation slip contains
the order and trade no., date, trade time, price and quantity
traded, amount etc. Orders and trades are identified and linked
by unique numbers so that the investor can check his order and
trade details.
Systems "essage Window
"his window is used to view messages from the )xchange to all
specific "rading ?embers.
Supplementary "enu
Some of the supplementary features in the $)A" system areH
'n line back up
An on line back up facility is provided which the user can
invoke to take a back up of all order and trade related
information. "here is an option to copy the file to any drive of
the computer or on a floppy diskette. "rading members find this
convenient in their back office work.
'ff #ine 'rder Entry
A member is able to make an order entry in the batch mode.
Computer8to8Computer #ink 0CTC#5 /acility
$S) offers a facility to its trading members by which members
can use their own trading front@end software in order to trade on
the $S) trading system. "his %omputer@to@%omputer Eink
*%"%E+ facility is available only to trading members of $S).
"hrough %"%E facility "rading ?embers can use their own
software running on any suitable hardware6software platform of
their choice. "his software would be a replacement of the $)A"
front@end software that is currently used by members to trade on
the $S) trading system. ?embers can use software customised
to meet their specialized needs like provision of on@line trade
analysis, risk management tools, integration of back@office
operations etc. "he dealers of the member may trade using the
software remotely through the memberMs own private network,
sub#ect to approvals from Bepartment of "elecommunication
etc. as may be required in this regard.
&ational Securities Clearing Corporation #imited
$ational Securities %learing %orporation Etd. *$S%%E+, a
wholly owned subsidiary of $S), was incorporated in August
0889 and commenced clearing operations in April 088:. !t has
been set up with a philosophy to sustain confidence in clearing
and settlement of securities promoting and maintaining, short
and consistent settlement cycles to provide counter@party risk
guarantee, and to operate a tight risk containment system. !t
assumes the counter@party risk of each member and guarantees
financial settlement. !t has successfully brought about an up@
gradation of the clearing and settlement procedures and has
brought !ndian financial markets in line with international
markets.
$S%%E carries out the clearing and settlement of the trades
executed in the )quities and Berivatives segments and operates
Subsidiary >eneral Eedger *S>E+ for settlement of trades in
government securities. !t also undertakes settlement of
transactions on other stock exchanges like, the Over the %ounter
)xchange of !ndia.
$S%%E assumes the counter@party risk of each member and
guarantees settlement through a fine@tuned risk management
system and an innovative method of on@line position
monitoring. !t operates a well@defined settlement cycle and there
are no deviations or deferments from this cycle. !t aggregates
trades over a trading period, nets the positions to determine the
liabilities of members and ensures movement of funds and
securities to meet respective liabilities. !t provides a facility for
multiple settlement mechanisms including, account period
settlement for dealings in physical securities and dematerialized
securities, rolling settlement *"N9 basis+ in dematerialized
segment etc.
$S%%E has empanelled 8 clearing banks to provide banking
services to trading members and has established connectivity
with both the depositories for electronic settlement of securities.
!)%#) T)%I&6
.adla is a complex system that contains many a pitfall for the
uninitiated and the unwary. !nvestors need to be aware of the
problems, especially when brokers on .S) and other regional
stock exchanges are marketing vyaj ad!a schemes to their
clients aggressively.
.efore an investor start believing in the stories of superlative
returns *in excess of ;3 per cent+, coupled with liquidity, safety
and flexibility, it is imperative that one takes a hard, rational
look at the entire mechanism. "his is so because financing badla
is a definite no@no for the first@time investor in the stock market
and also for those who donMt have the time to constantly monitor
the status of his6her investments and fluctuations in the market
returns
Aya. !adla
!n the vyaj ad!a system, there was a very high chance that an
investor may end up with an average annual return of 0D@01 per
cent or sometimes even higher. .ut having said that,
unfortunately, the returns were not guaranteed. "his rosy picture
could well be a reality during a bull run, but when the market
was under a bear hug, returns could diminish to #ust around :@1
per cent a year. %omparing it with a steady 0; per cent annual
return offered by a bank fixed deposit or any AAA rated
corporate bandit seemed that "he high@risk and uncertain return
of vya# badla would start looking like a bad investment option.
And then the taxman cometh4 Pya# badla transactions began to
be treated as purchase and sale of shares, thus getting sub#ected
to capital gains tax of <3 per cent. "hus, an investor/s final
returns get lopped off to that extent. Although nay Sayers might
feel that vya# badla provides an investor with an opportunity to
maximize his earnings in a bull market, the fact remains that it is
a good option for the experienced investor. )lse, the nerve@
wracking tension that accompanies stock market fluctuations
may well take its toll.
9ow did the !adla function?
Assume that there had been 0; trades of 033 shares each in
JA.%J stock, and there are 0; separate buyers and sellers
respectively. Among the buyers, while six wanted to carry
forward their positions, six want to take delivery. Of the sellers,
eight wished to deliver the shares while four were keen on
carrying their positions forward. $ow six buyers made the
payment for their purchases, while eight sellers effect delivery.
Six buyers and six sellers got squared off. Cour JbuyJ carry@
forward positions get matched against four JsellJ carry@forward
positions.
"o ensure payment to the remaining two sellers for their ;33
shares, vya# badla financiers came in. "his financier charged
interest *badla+ for the money paid on behalf of the two buyers
for them. "he demand and supply of funds and shares
determined this rate. Shares delivered by the seller were kept by
the exchange in the clearing@house and allocated to the
financierMs broker in a special account, forming the financierMs
collateral.
On the .S), brokers who were sure of taking or making
delivery of shares mark their respective Jfor deliveryJ positions.
"his helped the exchange to arrive at the net outstanding
positions on Criday evening *the last day of the settlement on
.S)+, by deducting them from the brokerMs weekly out
standings. "he difference is threw open to the marketMs badla
trading session on Saturday. -rior to the commencement of this
session, the base price *hawala rate+ is fixed, which was
normally the closing price of the scrip on Criday. An outstanding
JbuyJ position in a stock sees a Jseedha badlaJ where the
financiers participate. An outstanding JsellJ position in the stock
sees an JultaJ or Jundha badlaJ where the stock lenders
participate. Specified quantities of the stock on offer are bought
and sold at the financierMs desired interest rate @ the badla rate.
!n this case, letMs assume the hawala rate to be 7s :8. !f the
financier wants to pay for 033 shares at ;3 per cent per annum
and the trade gets matched, the interest rate is converted into a
weekly figure. !n this case, it would be 3.<1 per cent. On the
hawala rate of 7s :8, this 3.<1 percent works out to ;: paise.
"he terminals would constantly keep flashing the best badla rate
and the best annual yield for each stock on offer for a particular
quantity. A constant fluctuation in these values during the two@
and@a@half hour session is due to the constant change in demand
and supply, and also market perception. "he broker would give
the financier a badla bill or informal contract note, which would
have two entries. One would show a purchase of 033 shares at
7s :8 per share, while the other would show a sale of 033 shares
at 7s :8.;: per share. "he difference will be the financiers
earning for that week. Fith the next trading cycle ending, the
financier can either receive the difference or roll over his6her
money to a new badla transaction.
Who can participate?
$ot all brokers can participate in the badla process.
?emberships on .S) are split between type@! and type@!!
brokers. Only the former can carry out badla trades, for they
maintain higher margins with the exchange. ,ence, if you are
keen on becoming a vya# badla financier, you should approach
the type@! broker.
?ost brokers donMt accept anything less than 7s 0 lakh per client
for badla financing. And the stock selection too is at their
discretion. .ut it would be prudent for you to know the basis of
allocation of stocks to you, as you would be one among a lot of
clients whose money has been collectively invested in vya#
badla. .adla rates vary between stocks, depending upon their
demand and supply. "hese rates fluctuate considerably
throughout the session.
!deally, brokers using the discretionary allocation of stocks to
the badla account should pay a weighted average return to each
client. "his should be reflected in the badla bills. Cor getting the
weighted average return on badla finance, it is advisable to look
for brokers who have automated this process.
As in any other market transaction, one cannot avoid brokerage
in a vya# badla transaction too. .rokerage for such deals could
range between 0@;.9 per cent, trimming down your annual yield
further. !t is advisable to enter into a firm brokerage percentage
prior to the commencement of the relationship.
)re in$estors safe?
Fhat is the investor/s safeguard in times of defaultT !f the
forward buyer defaults, he got the shares held in the exchangeMs
clearinghouse against his broker/s name, on which he had a lien
through his .adla bill. .ut his risk erosioned in the value of the
share during the days that it takes to release the shares.
!n the recent history of .S), there have been instances of
brokers *having large carry@forward positions in highly
speculative stocks+ defaulting. Although these shares were
en#oying very high badla rates at the time of the default, the
prices had dipped sharply by the time the financiers got their
shares.
!f the broker defaults, the financier is in a larger mess. Apart
from the large institutional brokers, most brokers on .S) have a
net worth of 7s 0@; crore. .adla positions taken by them
sometimes go up to 09@;3 times their net worth. )ven a 03 per
cent downward shift in their position would wipe out the
brokerMs entire net worth. And then you could bid goodbye to
your money too. "he .S)Ms "rade >uarantee Cund could be of
some succour and solace in these situations, but #ust that.
Cailure to cash in on your interest gain at the end of the trading
cycle gives the confidence to your broker to automatically roll
over your investment to the next cycle. Fhile opting out, always
time your exit. .y virtue of the exchangeMs settlement cycle,
your money gets released within a ten@day period. "his further
reduces your yield.
As in the case of defaults, the delay in the release of your money
can be detrimental. So factor in those extra days while
calculating your actual return. Although vya# badla is considered
to be an effective short@term instrument, as is the case with all
such instruments, the delay can really eat into your returns.
>iven the quirks of the vya# badla transactions and the inherent
risks involved, it can be concluded that amateurs should stay
away @ it is strictly for the pro and the strong hearted.
Substitutes to !adla
/inancial deri$ati$es
.y far the most significant event in finance during the past
decade has been the extraordinary development and expansion
of financial derivatives...
"hese instruments enhance the ability to differentiate risk and
allocate it to those investors most able and willing to take it @@ a
process that has undoubtedly improved national productivity
growth and standards of living. @@ Ced %hairman Alan
>reenspan
Collowing the introduction of index futures, the Securities and
)xchange .oard of !ndia *S).!+ permitted the .S) and the
$S) to introduce more derivatives, such as options on indices
and individual stocks. .ut an instrument that may be more in
line with the domestic market structure @@ single@stock futures @@
is not under consideration.
Single@stock futures are a way to reap the benefits of a stockMs
performance without actually owning the stock. "heoretically,
they offer the benefits of ownership, of leveraging the stock or
its underlying asset. .ut a similar opportunity is not available to
the speculator@investor to sell options in the underlying scrip. As
delivery of futures contracts is on a future date, the investor has
to put up only the margin money. ,ence, he can leverage on the
margins to buy more units of the underlying security.
One of the advantages en#oyed by single@stock futures is that
they are cheaper to trade and easier to use for hedging strategies
than options. %heaper, because margins in futures trading are
lower than in options. .ut the valuation of futures contracts are
not as complicated as that of options. ,ence, small investors
find them relatively easy to understand and use.
Trading options7
"rading options are riskier than futures. "his is purely from the
options@writerMs perspective. ?arket making in options depends
to a great extent on institutions willing to write the contracts.
Since the buyer of an option contract is not under any obligation
to exercise his right, his risk is limited to the premium paid for
purchasing the right.
,owever, the writer is under an obligation to deliver. "his
means the risk borne by the option@writer is enormous.
)xchanges normally guarantee the writerMs position. ,ence, to
limit default in the market, the margin requirements are quite
high. Cor instance, in international markets, while the margin
rate for index futures contracts is around 9 per cent, that for
index options works out to the commission received plus around
09 per cent of the contractMs notional value.
"hus, in this situation, there is excessive risk for the options@
writer and transactions costs could be high. %urrently, the
regulations prevent funds from taking speculative positions in
the spot market. So, they may not be allowed to write options. A
market exists only if there is a writer and a buyer. .ut given that
there are few takers for the futures market, it is difficult to
foresee a lot of interest in the options market.
IN!". IN!".
)xecutive summary.
!ntroduction.
Eight on stock exchange and it services.
7ole of S).!.
"erminologies associated with stock exchanges.
!ombay Stock Exchange.
!ntroduction.
%apital listed and market capitalization.
.S) Sensex.
"rading system.
Settlement and clearing.
Bemat pay in.
%omputation of closing price.
Shortages and ob#ections.
.asket trading system.
Settlement system.
%losing system.
Opportunities for foreign investors.
"ransfer of ownership.
Safeguards.
Arbitration machinery.
%ustomer protection fund.
>rievances redressal.
Bisciplinary actions.
!ndices.
Bisclosures and listing norms.
%omputerized trading.
Cuture developments.
&ational Stock Exchange.
!ntroduction.
Eocations.
Eisting.
%onstitution.
"rading members.
"rading mechanism.
?arket types.
Order books.
Order matching rules.
Order conditions.
Suantity conditions.
"rading workstation.
%omputer to computer links facility.
$ational Securities %learing %orporation Eimited.
.adla trading.
Substitutes for .adla.
Cinancial derivatives.
"rading options.
.ibliography.

161&)I+1 S&MMA$3
"he pro#ect is an attempt to working of stock exchanges in
detail. !t provides thorough knowledge of different aspects of
trading in stock exchanges. "he focus is basically with !ndian
context. "he report is divided in three parts. "he first dealing
with the theory, ie, introduction of securities market, concept of
stock exchanges, their role in economy, their characteristics, role
of S).! etc.
"he second part is the study made of different methods of
trading and !n all they offer 8 different avenues for investing,
which have been explained in length in the pages to come.
"he third part is the %ase, attached with the report, which is also
taken from Cranklin "empleton !ndia Etd. "he case speaks about
< facts of investing first being that growth and value do not
move in tandem second being, value investing has rewarded
long term investors and the third one as, value stocks have
provided low relative volatility over time.