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TYBMS SIXTH SEMESTER 2001-2002.
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.
In 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. This is so because it is not always possible to find buyers for an entire business or a part of business, just 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. These problems will be even more magnified in large proprietorships and partnerships. Nobody 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. Clearly 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. This 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. This 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. Each such fraction of ownership is represented in the form of a certificate known as a share certificate. The 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. In the absence of stock exchanges, ie. Institutions where small chunks of businesses could be traded, there would be no modern business in the form of publicly held companies. Today, 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. Thus 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. In fact, according to H.T.Parekh, the earliest location of the Bombay Stock Exchange, which for a long period was known as “the native share and stock brokers’ association”, was probably under a tree around 1870! The stock exchanges are the exclusive centers for the trading of securities. The regulatory framework encourages this by virtually banning trading of securities outside exchanges. Until recently, the area of operation/ jurisdiction of exchange was specified at the time of its recognition, which in effect precluded competition among the exchanges. These are called regional exchanges. In order to provide an opportunity to investors to invest/ trade in the securities of local companies, it is
who is an elected member. a stock exchange has been an association of individual members called member brokers (or simply members or brokers). Characteristics of Stock Exchanges in India Traditionally. there are 23 stock exchanges in India. New membership to a Stock Exchange is through election by the governing board of that stock exchange. 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. BSE alone accounts for over 80% of the total volume of transactions in shares.mandatory foe the companies. Government nominee include representatives of the ministry of finance. A president. and a few nominated by the government. who is usually appointed by the by the stock exchange with the government approval is the operational chief of the stock exchange. the largest among them being the Bombay Stock Exchange. usually nominated by the government from among the elected members. as well as some public representatives. 1956. His duty is to ensure that the day to day operations the Stock Exchange are carried out in accordance with the various rules and regulations governing its functioning. wishing to list their securities. formed for the express purpose of regulating and facilitating buying and selling of securities by the public and institution at large. At present. . heads the board. The executive director. Typically. a stock exchange is governed by a board consisting of directors largely elected by the member brokers. A stock exchange in India operates with due recognition from the government under the Securities and Contracts (Regulations) Act. to list on the regional stock exchange nearest to their registered office. who are expected to safeguard the public interest in the functioning of the exchanges.
In view of the less than satisfactory quality. Theses are purest form of demutualised exchanges. management and trading are in the hands of three sets of people. Thus. of administration of broker-managed exchanges. which do not include trading members. management and trading membership would be segregated from each other. the finance minister in march 2001 proposed demutualisation of exchanges by which ownership. all ordinary shares. Board of directors. OTCEI and NSE are already demutualised.. preference shares and debentures of the publicly held companies are listed in the stock exchange. two stock exchanges viz. but this did not materially alter the situation. The overall development and regulation of the securities market has been entrusted to the Securities and Exchange Board of India (SEBI) by an act of parliament in 1992. The regulators are working towards implementing this. The concept of demutualisation completely eliminates any conflict of interest and helps the exchange to pursue market efficiency and investors interest aggressively. All companies wishing to raise capital from the public are required to list their securities on at least one stock exchange. Exchange management Made some attempts in this direction. Role of SEBI . where ownership. Of the 23 stock exchanges in India. manages these.
1992. The Stock Exchange as a responsible Self Regulatory Organization (SRO) function to regulate the market and its prices as per the prevalent regulations. . investment advisors and such other intermediaries who may be associated with the stock market in any way. promotion and regulation of self. 1956. trustees of trust deeds. Delhi. conducting inquiries and audits of stock exchanges. the Securities and the Exchange Board of India.The SEBI. one member from the Reserve Bank of India and two other members appointed by the central government. registration and regulations of mutual funds. intermediaries and self. performing such functions and exercising such powers as contained in the provisions of the Capital Issues (Control) Act. the power and functions of the Board encompass the regulation of Stock Exchanges and other securities markets. prohibiting Fraudulent and unfair trade practices and insider trading in securities markets. sub-brokers.regulatory organizations. registration and regulation of the working stock brokers. portfolio managers.1947 and the Securities Contracts (Regulation) Act. that is. two members from the central government representing the ministries of finance and law.” SEBI has its head office in Mumbai and it has now set up regional offices in the metropolitan cities of Kolkata. SEBI 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. levying various fees and other charges. calling for information from. to “protect the interest of investors in securities and to promote the development of. registrars to an issues. conducting necessary research for above purposes and performing such other functions as may be prescribes from time to time. merchant bankers. is the national regulatory body for the securities market.regulatory organizations of the securities market. 1992. The Board of SEBI comprises a Chairman. bankers to an issue (a public offer of capital). under writers.undertking inspection. and to regulate the securities market and for matters connected therewith and incidental too. regulating substantial acquisition of shares and takeover of companies. As per the SEBI act. set up under the securities and Exchange Board of India act. and Chennai.
No stockbroker or sub-broker is allowed to buy. education. sell or deal in securities. The broker enters into trades in exchanges either on his own account or on behalf of clients. notifications. SCRA. 1956. The stock exchanges are free to stipulate stricter requirements for its members than those stipulated by SEBI.SEBI and the Exchange play complimentary roles to enhance the investor protection and the overall quality of the market. SCRR. such as. A broker is admitted to the membership of an exchange in terms of the provisions of the SCRA. Index services . etc. The clients may place their order with them directly or a sub-broker indirectly. the rules. Membership The trading platform of a stock exchange is accessible only to brokers. rules. experience. corporate structure. bye-laws and regulations of the concerned stock exchange. circulars. prescribed there under and the byelaws. and reflect the conscious endeavors to ensure quality broking services. etc. The minimum standards stipulated by NSE for membership are in excess of the minimum norms laid down by SEBI. the listing agreement entered into by the issuer and the stock exchange and the circulars/ guidelines issued by central government and SEBI. rules and regulations of the concerned exchange. invariably evidenced by a listing agreement between the issuer of the security and the stock exchange. unless he or she holds a certificate of registration granted by SEBI. the SEBI act 1992. Listing Listing means formal admission of a security to the trading platform of a stock exchange. A broker/sub-broker compiles with the code of conduct prescribed by SEBI. . Listing of securities on Indian Stock Exchanges is essentially governed by the provisions in the companies act. track record. capital adequacy. The standards for admission of members laid down by NSE stress on factors. guidelines.
The trading platform of the CM segment of NSE is accessed not only from the computer terminals from the premises of brokers spread over 420 cities. or a specified sector to measure the change in overall behavior of the markets or sector over a period of time. The trading system at NSE known as the National Exchange for Automated Trading (NEAT) system is an anonymous order-driven system and operates on a strict price/time priority. objective and fair. NSE model was gradually emulated by all other stock exchanges in the country. It enables members from across the countries to trade simultaneously with enormous ease and efficiency. Good-Till-Day. Immediate-or-Cancel). The trading system provides tremendous flexibility to the users in terms of kinds of orders that can be placed on the system. Several time-related (Good-Till-Cancelled. The bookstores only limit orders. Minimum Fill. the NEAT system provides an open electronic consolidated limit order book (OECLOB). A single consolidated order book for each stock displays. The limit order is executed only if the price quantity conditions match. price related (buy/sell limit and stop-loss orders) or volume related (All-or-None. Orders are sorted and match automatically by the computer keeping the system transparent. but also from the personal computers in . India Index Services & Products Limited (IISL). screen-based trading system. etc. NEAT 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. NSE was the first stock exchange in the country to provide nation-wide order-driven. The trading system also provides complete market information on-line.) conditions van be easily built into an order. Trading Mechanism All stock exchanges in India follow screen-based trading system. which is updated on real time basis.Stock index uses a set of stocks that are representative of the whole market. buy and sell orders originating from all over the country. on a real time basis. promoted by NSE and CRISIL. which are orders to buy or sell shares at a stated quantity and stated price. Thus. is the only specialized organization in the country to provide stock index services.
This serves primarily retail investors who are mobile and want to trade from any place when the market prices for st0ocks of their choice are attractive. which use WAP technology. Soon after these orders get matched and result into trades. It launched Internet trading in February 2000. The trading platform of BSE is also accessible from 400 cities.registered brokers can introduce internet-based trading after obtaining permission from the respective Stock Exchanges. for communicating clients’ orders to the exchanges through brokers.the homes of investors through the internet and from the hand-held devices through WAP. SEBI. The orders originating from the personal computers (PCs) of investors are routed through the Internet tot eh trading terminals of the designated brokers with whom they have relations and further to the exchange of trade execution. SEBI has stipulated the minimum conditions to be fulfilled by trading members to start internetbased trading and services. Internet trading is available on NSE and BSE. NSE is the only exchange to provide access to its order book through the hand held devices. It was followed by the launch of Internet trading by BSE in March 2001. SEBI has approved the use of Internet as an order routing system. NSE was the first exchange in the country to provide web-based access to investors to trade directly on the exchange. . the investors get confirmation about them on their PCs through the same Internet routes. as of now. SEBI approved trading through wireless medium or WAP platform.
Demat Trading A depository holds securities in dematerialized form. all investors are required to mandatorily trade in dematerialized form in respect of 2. Depository facility has effected changes in stock market microstructure. 2001. Dematerialization growth in India is the quickest among all emerging markets and also among developed markets excepting for the U. Starting with 12 scrips on January 15. it has been observed that India has achieved a very high level of dematerialization in less than three years’ time.K and Hong Kong. Competition has been driving improvement in service standards. and currently more than 99%of trades settle in demand form. dematerialization has progressed at a fast pace and has gained acceptance among the participants in the market.. Dematerialization substantially contributed to the increased growth in the turnover. Competition and regulatory developments facilitated reduction in custodial charges and improvements in qualities of service standards. All actively traded scrips are held. Since the introduction of the depository system. traded and settled in demat form. It maintains ownership records of securities in a book entry form and also effects transfer of ownership through book entry. Explicit transaction cost has been falling due to dematerialization. viz. The paper observes that one imminent and apparent immediate benefit of competition between the two depositories is fall in settlement and other charges. 1998. Breadth and depth of investment culture has further got extended to interior areas of the country faster. The details of progress in dematerialization in two depositories. NSDL and CDSL. are presented as below: In a SEBI working paper titled ‘Dematerialization: A Silent Revolution in the Indian Capital Market’ released in April 2000. This was initially introduced for institutional investors and was later extended to all investors. SEBI has introduced some degree of compulsion in trading and settlement of securities in dematerialized form.335 securities as at end-June. . SEBI has mandated compulsory trading and settlement of securities in dematerialized form.. While the investors have a right to hold securities in either physical or demat form.
which was founded in 1878. However.e. 1244. December 31. a Reserve Bank of India nominee. The Exchange. which decides the policies and regulates the affairs of the Exchange. Mumbai. The ban on all deferral products like BLESS and ALBM in the Indian capital Markets by SEBI w. abolition of account period settlements. July 2. six public representatives and an Executive Director is the apex body.f. etc.e. was Rs. The Executive Director as the Chief Executive Officer is responsible for the day-today administration of the Exchange.69 lakhs.19 crores and average number of daily trades was 5. even older than the Tokyo Stock Exchange. as a voluntary non-profit making association. have adversely impacted the liquidity and consequently there is a considerable decline in the daily turnover at the Exchange. It has evolved over the years into its present status as the premier Stock Exchange in the country. A Governing Board comprising of 9 elected directors (one third of them retire every year by rotation). introduction of Compulsory Rolling Settlements in all scrips traded on the Exchanges w. . 2001.3984. popularly known as "BSE" was established in 1875 as "The Native Share and Stock Brokers Association".INTRODUCTION The Stock Exchange.10 crores and number of average daily trades during the period to 5. while providing an efficient and transparent market for trading in securities.f. It may be noted that the Stock Exchanges is the oldest one in Asia. the average daily turnover of the Exchange during the year 2001. The average daily turnover of the Exchange during the year 2000-2001 (AprilMarch). two SEBI nominees. It also strives to educate and enlighten the investors by making available necessary informative inputs and conducting investor education programmes.17 lakhs.2002 has declined to Rs. 2001. upholds the interests of the investors and ensures redressal of their grievances. whether against the companies or its own member-brokers.
700 crores. The Stock Exchange. 1994 followed by the State Bank of India with the market capitalization of Rs. The index is widely reported in both. The BSE accounted for 46 per cent of listed companies on an all India basis as on 31st March 1994. Bombay (BSE) is the premier Stock Exchange in India. well-established and financially sound companies. the domestic international.CAPITAL LISTED AND MARKET CAPITALIZATION. The BSE SENSEX is the benchmark index of the Indian capital market and one.11. print electronic media and is widely used to measure the used to measure the performance of the Indian stock markets.19.16. BSE SENSEX The BSE SENSEX. first compiled in 1986 is a “market Capitalization-Weighted” index of 30 component stocks representing a sample of large. It ranked first in terms of the number of listed companies and stock issues listed. 908 crores as on the 31st March. 702 crores and Mahanagar Telephone Nigam Limited with the market capitalization of Rs. The capital listed in the BSE as on 31st March 1994 accounted for 50% of the overall capital listed on all the stock exchanges. The paid-up capital of equity. 31%. 44% respectively of the overall capital listed on all the Stock Exchanges as on the same date. Its share of the market capitalization was around 74% as on the same date. the Steel Authority of India had the largest market capitalization of Rs. In fact the SENSEX is considered to be the . On the BSE. which has the longest social memory. short form of Sensitive Index. debentures/bonds and preference were 73%.
Small wonder that the SENSEX has over the years has become one of the most prominent brands of the Country. It is the oldest index in India and has acquired a unique place in collective consciousness of the investors. as the oldest index of the Indian Stock Market. Further.pulse of the Indian stock markets. Companies represented in the SENSEX Company name Sector . The objectives of the index are: To measure market movements Given its long history and its wide acceptance. SENSEX is widely used to describe the mood in the Indian stock markets. foreign investors and fund managers. For index based derivatives products Institutional investors. all refer to the BSE SENSEX for their specific purposes. institutional investors. no other index matches the BSE SENESX in the reflecting market movements and sentiments. Objectives of SENSEX The BSE SENSEX is the benchmark index with wide acceptance among individual investors. The BSE SENSEX is in effect the proxy for the Indian stock markets. it provides time series data over a fairly long period of time. we believe that it will be the most liquid contract in the Indian market and will garner a predominant market share. Benchmark for funds performance The inclusion of blue chip companies and the wide and balanced industry Representation in the SENSEX makes it the ideal benchmark for fund managers to compare the performance of their funds. Since SENSEX comprises of the leading companies in all the significant sectors in the economy. money managers and small investors. foreign investors.
after taking into account all transactions for the member during the settlement period. which is 10 working days for group 'A' securities and 5 working days for group 'B' securities. The 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 member's net position in each security. 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. The transaction details of the account period (called settlement period) were submitted for settlement by members after each trading session.(As on 15. that used to take place in the trading ring. .01) Hindustan lever Reliance limited Infosys technologies Reliance petroleum ITC State bank of India MTNL Satyam computers Zee telefilms Ranbaxy labs ICICI Larsen & toubro Cipla Hindalco HPCL TISCO Nestle FMCG Chemicals and petrochemicals Information technology Oil and gas FMCG Finance Telecom Information technology Media Healthcare Finance Diversified Healthcare Metals and mining Metal and mining Metal and mining FMCG Trading System Till Now.06.
the Exchange obtained permission from SEBI for expansion of its BOLT network to locations outside Mumbai. the members of the Exchange are now free to install their trading terminals at any place in the country. BOLT system accepts two-way quotations from jobbers. which is now only order driven. through the BSE On-Line Trading (BOLT) system. the members of the Exchange were permitted to open trading terminals only in Mumbai. automatic order matching and faster execution of orders in a transparent manner. the facility of placing of quotes has been removed w.Trading is done by members and their authorized assistants from their Trader Work Stations (TWS) in their offices.e. facilitates more efficient processing. The matching logic for the Carry-Forward System as in the case of the regular trading system is quote driven with the order book functioning as an "auxiliary jobber". August 13. In terms of the permission granted by SEBI and certain modifications announced later. Through the BOLT system the members now enter orders from Trader Work Stations (TWSs) installed in their offices instead of assembling in the trading ring. . Shri P. Government of India on August 31. in October 1996. However. was commissioned on March 14. The system. However. 2001 in view of lack of market interest and to improve system-matching efficiency. 1995. had switched over to a fully automated computerized mode of trading known as BOLT (BSE on Line Trading) System. BOLT system has replaced the open outcry system of trading. 1997. which had an open outcry trading system. market and limit orders from client-brokers and matches them according to the matching logic specified in the Business Requirement Specifications (BRS) document for this system. Chidambaram inaugurated the expansion of BOLT network the then Finance Minister. Earlier. This system.. which was initially both order and quote driven.f. TRADING TRADING The Exchange.
1615 companies have been put in "Z" group as a temporary measure till they make arrangements for dematerialization of their securities. as on March 31. 'B1'. (NSDL) for dematerialization of their securities by the specified date.1930 and 3044 respectively. 560. 'B1 '. 'B2' and 'Z' groups and Rights renunciations in all the groups of .. The number of scrips listed on the Exchange under 'A'.m. and 3:30 p. 'B2' and 'Z' groups. 'B1'. 1429 companies were in "Z" group for not complying with the provisions of the Listing Agreement and/or pending investor complaints and the balance 1615 companies were on account of not making arrangements for dematerialization of their securities with both the Depositories.m. Central Depository Services (I) Ltd. which represent the equity segment. Trading on the BOLT System is conducted from Monday to Friday between 9:55 a. 2002. Companies in "Z" group numbered 3044 as on March 31. (CDSL) and National Security Depository Ltd. 'F' and 'Z' groups. The Exchange has also the facility to trade in "C" group which covers the odd lot securities in 'A'. September 30. The objectives of granting membership to the subsidiary companies formed by the Regional Stock Exchanges were to reach out to investors in these centers via the members of these Regional Exchanges and provide the investors in these areas access to the trading facilities in all scrips listed on the Exchange. Once they finalize the arrangements for dematerialization of their securities. viz. Of these.e. The 'Z' group was introduced by the Exchange in July 1999 and covers the companies which have failed to comply with listing requirements and/or failed to resolve investor complaints or have not made the required arrangements with both the Depositories.In order to expand the reach of BOLT network to centers outside Mumbai and support the smaller Regional Stock Exchanges. 2002. 2002. 'B2'. admitted subsidiary companies formed by 13 Regional Stock Exchanges as its members. The members of these Regional Stock Exchanges work as sub-brokers of the member-brokers of the Exchange. 2002 was 173. 2001. trading and settlement in their scrips would be shifted to their respective erstwhile groups. as on March 31. the Exchange has. i. The 'F' group represents the debt market (fixed income securities) segment wherein 748 securities were listed as on March 31. The scrips traded on the Exchange have been classified into 'A'..
A) Compulsory Rolling Segment (CRS): . 2002/ Computation of closing price of scrips in the Cash Segment: The closing prices of scrips are computed on the basis of weighted average price of all trades in the last 15 minutes of the continuous trading session.. Permitted Securities The Exchange has since decided to permit trading in the securities of the companies listed on other Stock Exchanges under " Permitted Securities" category which meet the relevant norms specified by the Exchange. With effect from December 31. 2001. then the last traded price in the continuous trading session is taken as the official closing price. if there is no trade during the last 15 minutes. provides a facility to market participants of on-line trading in odd lots of securities and Rights renunciations.scrips in the equity segment. Accordingly. The 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. The 'C' group can also be used by investors for selling upto 500 shares in physical form in respect of scrips of companies where trades are to be compulsorily settled by all investors in demat mode.f. viz. trading in all securities listed in equity segment of the Exchange takes place in one market segment.e. April 22. Compulsory Rolling Settlement Segment. This scheme of selling physical shares in compulsory demat scrips is called as Exit Route Scheme. The Exchange. thus. However. to begin with the Exchange has permitted trading in scrips of five companies listed on other Stock Exchanges w.
if one buys and sells 100 shares of a company on the same day which is on trade to trade basis.. The transactions in securities of companies which have made arrangements for dematerialization of their securities by the stipulated date are settled only in Demat mode on T+3 on net basis.e. all transactions in all groups of securities in the equity segment and fixed income securities listed on the Exchange are settled on T+3 basis w. 2002 should be settled on T+3 basis. A T+3 settlement cycle means that the final settlement of transactions done on T or trade day by exchange of monies and securities. 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 'account period'.e. In other words.f. transactions in securities of companies. as mandated by SEBI. if one fails to deliver the securities sold at the time of pay-in. which have failed to make arrangements for dematerialization of their securities or /are in "Z" group. are settled only on trade to trade basis on T+3 i. trades in all the equity shares listed on the Exchange in CRS Segment were to be settled on T+5 basis w. the two positions will not be netted and he will have to first deliver 100 shares at the time of pay-in of securities and then receive 100 shares at the time of pay-out of securities on the same day.Compulsory Rolling Settlement (CRS) Segment: With a view to introduce the best international trading practices and to achieve higher settlement efficiency. the transactions are settled on a gross basis and the facility of netting of buy and sale transactions in a scrip is not available. buy and sale positions in the same scrip are netted and the net quantity is to be settled.f. April 1.e. For example. occurs on fifth business day after the trade day. Accordingly. SEBI has further directed the Stock Exchanges that trades in all scrips w. i. However. the transactions in scrips of companies which are in compulsory demat are settled in demat mode on T+3 on netting basis and the transactions in scrips .e..f. it will be treated as a shortage and the position will be auctioned/ closed-out.. December 31. 2002 Under a rolling settlement environment. Thus.e. 2001. April 1.
6A/7A entry by the member-brokers. T+1 Confirmation of 6A/7A data by the Custodians. and pay-out of funds and securities by 2:00 p. . which have not made arrangements for dematerialization of their securities by the stipulated date or are in "Z" group for other reasons. are settled on trade to trade basis on T+3 either in demat mode or in physical mode.m. T+5 Auction pay-in and pay-out.m T+4 Auction on BOLT.of companies. The following tables summarizes the steps in the trading and settlement cycle for scrips under CRS: DAY ACTIVITY Trading on BOLT and daily downloading of statements showing details of transactions and margins at the end of each trading day. T+3 Pay-in of funds and securities by 11:00 a. The settlement of transactions in 'F' group securities representing Fixed Income Securities is also on Rolling Settlement Cycle of T+3 basis. Downloading of securities and funds obligation statement by members.
In case a transaction is not confirmed by a registered Custodian. provided early receipt of securities and monies to buyers and sellers respectively and brought Indian Capital Markets at the international standard of settlements . The settlement of the trades (money and securities) done by a member on his own account or on behalf of his individual. the liability for pay-in of funds or securities in respect of the same devolves on the concerned member. corporate or institutional clients may be either through the member himself or through a SEBI registered Custodian appointed by him or the respective client. Statements giving details of the daily transactions entered into by the members. the Custodians have been given connectivity to BOLT System and have also been admitted as members of the Clearing House. he has to confirm the trade done by a member on the BOLT System through 6A-7A entry. In case the delivery/payment is to be given or taken by a registered Custodian. For this purpose.* 6A/7A : 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. Thus. The Information Systems Department of the Exchange generates the following statements. the pay-in and pay-out of funds and securities takes places on the 3rd working day of the execution of the trade. which can be downloaded by the members in their back offices on a daily basis. The introduction of settlement on T+3 basis has resulted in reduction in settlement risk. Statements giving details of margins payable by the members in respect of the trades executed by them.
. All deliveries of securities are required to be routed through the Clearing House. The Money Statement provides scrip wise/item wise details of payments/receipts for the settlement. of the Exchange liaises with the Clearing House on a day to day basis. ICICI Bank Ltd.. 'B2'. and Indusind Bank Ltd. The Delivery Orders provide information like scrip.e.. 'B1'. except for certain offmarket transactions which. The Information Systems Department (ISD) of the Exchange generates Delivery and Receive Orders for transactions done by the members in A. Bank of India. the trades done by members in all the securities in CRS are now settled by payment of money and delivery of securities on T+3 basis. B2 and F group scrips after netting purchase and sale transactions in each scrip whereas Delivery and Receive Orders for "C" and "Z" group scrips are generated on trade to trade basis. the Clearing & Settlement Dept... HDFC Bank Ltd. i. Mumbai for handling the clearing and settlement operations of funds and securities on behalf of the Exchange. UTI Bank Ltd. although are required to be reported to the Exchange.. B1. "F" & 'Z' group of securities As discussed earlier. The Delivery/Receive Orders and money statements can be downloaded by the members in their back offices The bank accounts of members maintained with the eight clearing banks. are directly debited through computerized posting for their settlement and margin . may be settled directly between the members concerned. Standard Chartered Bank. Centurion Bank Ltd. The Clearing House is an independent company promoted jointly by Bank of India and Stock Exchange. Global Trust Bank Ltd. For this purpose. quantity and the name of the receiving member to whom the securities are to be delivered through the Clearing House. 'C'...Settlement Pay-in and Pay-out for 'A'. viz. without netting of purchase and sale transactions in a scrip.
however. as per the Delivery Orders issued by the Exchange.e. The members can then submit the securities at the receiving counter in the Clearing House Auto D.e. This Auto D. facility is available for CRS (Normal & Auction) and for trade-to-trade settlements. scrip code. The data submitted by the members on floppies is matched against the master file data on the Clearing House computer systems.O. quantity.O. not available for delivery of non-pari passu shares and shares having multiple ISINs. on T+3 day. the members have to deliver the securities in special closed pouches (supplied by the Exchange) along with the relevant details (distinctive numbers.f. If there are no discrepancies. This facility is.O facility is currently available only for Clearing Member (CM) Pool accounts/Principal Accounts maintained by the members with National Securities Depository Ltd. and receiving member) on a floppy. a facility has been made available to the members of automatically generating Delivery-Out (D.O. 2000.. are required to be delivered by the members in the Clearing House on the day designated for securities pay-in. The securities. The members wishing to avail of this facility have to submit an authority letter to the Clearing House. This Auto D.obligations and credited with receivables on accounts of pay-out dues and refund of margins. In case of the physical securities. facility: Instead of issuing Delivery Out instructions for their delivery obligations in a settlement /auction. i. then a scroll number is generated by the Clearing House and a scroll slip is issued. August 10.. (CDSL) . (NSDL) and Central Depositories Services Ltd.) instructions on their behalf from their CM Pool A/cs by the Clearing House w.
settlement type. members may also effect pay-in from clients' beneficiary accounts for which member are required to do break-up on the front-end software to generate obligation and settlement ID. In case of the demat securities. (NSDL). so that securities are processed towards pay-in obligations. pay-in and payout of both funds and securities is on the same day. This is referred to as Payout. quantity. etc. the members are required to give instructions to their Depository Participant (DP) specifying settlement no. The securities are transferred to Clearing Member (CM) Principal Account. the Receiving Members collect securities from the Clearing House on the payout day and the accounts of the members having payout are credited on Friday. the securities are credited in the Pool Account of the members or the Client Accounts as per the client details submitted by the members. Alternatively. or 20% above the closing price on . pay-in of funds and securities is on Thursday and payout is on Friday. The members are required to give delivery-out instructions so that the securities are considered for pay-in. The securities are transferred to the Pool Account. the positions are closed out as per the closeout rate fixed by the Exchange in accordance with the prescribed rules. in case of Weekly settlements. The members are required to give confirmation to their DP. Once this reconciliation is complete. (CDSL) or National Securities Depository Ltd. As regards CDSL. the bank accounts of members with seven clearing banks having pay-in positions are debited on the scheduled pay-in day. The Clearing House arranges and tallies the securities received against the receiving member wise report generated on the Pay-in day.. effective pay-in date. In case of the Rolling Settlements. This procedure is called Funds Pay-in. The auction is conducted for those securities which members fail to deliver/short deliver during the Pay-in. The 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. In case of NSDL. In case of Physical securities.Demat pay-in: The members can effect demat pay-in either through Central Depository Services (I) Ltd. the members give pay-in instructions to their DP. In case the securities are not received in an auction.
This database has also been made available to the members so that delivering and receiving members can check the entry of fake. 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 Exchange for the quantity of shares short delivered. However. without netting buy and sell transactions in scrips in "C" & 'Z' groups and scrips in B1 and B2 groups which have been put on trade to trade basis as a surveillance measure. forged and stolen shares in the market SHORTAGES AND OBJECTIONS Shortages & consequent actions The members download Delivery/Receive Orders based on their netted positions for transactions entered into by them during a settlement in 'A'. stolen. 10% instead of 20% 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.e. The Exchange is also maintaining a database of fake/forged. whichever is higher. and 'F' group scrips and on trade to trade basis. 'B1'. The Clearing House arrives at the shortages in delivery of various scrips by members on the basis of their delivery obligations and actual delivery. i. The Exchange 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. 'B2'. in case of close-out for shares under objection or traded in "C" group. . If a seller member is unable to deliver the shares on the Pay-in day for any reason. lost and duplicate securities with the Clearing House 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..the day prior to the day of auction. The seller members have to deliver the shares in the Clearing House as per the Delivery Orders downloaded.
e. the sale transaction is closed-out at a close-out price. If no discrepancy is reported within the stipulated time. T+5. if any..e. He can. In auction. i. Pay-Out of auction shares and funds is also done on the same day. and bad deliveries are now conducted during normal trading hours on BOLT. quantity slated for auction and the date and time of the auction session on the BOLT.The members can download the statement of shortages on T+3 in Rolling Settlements. Odd Lot segment the members are themselves required to report the shortages to the Clearing House. however.e. in 'C' group. it is possible to schedule multiple auction sessions on a single trading day. i. The auction offers received in batch mode are electronically matched with the auction quantities so as to award the 'best price'. In case no offers are received in auction for a particular scrip. T+5. participate in auction of other scrips. determined by higher of the following:. the highest offer price is allowed upto the close-out rate and the lowest offer price can be 20% below the closing price on a day prior to day of auction.Highest price recorded in the scrip from the settlement in which the transaction took place upto a day prior to the day of the auction. .. the members are expected to verify the same and report discrepancy . After downloading the shortage details. i. The auction for the undelivered quantities is conducted on T+4 for all the scrips under compulsory Rolling Settlements. Thus. The various auction sessions relating to shortages. The Exchange issues an Auction Tender Notice to the members informing them about the names of the scrips. the Clearing House assumes that the shortage of a member is in order and proceeds to auction the same. The members who participate in the auction session can download the Delivery Orders on the same day. to the Clearing House by 1:00 p. 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. However.m. if their offers are accepted. The members are required to deliver the shares in the Clearing House on the auction Payin day.
However. the Delivery and Receive 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. the difference is recovered from the seller who failed to deliver the scrip. auction/ close-out price is lower than standard price. the difference is not given to the seller but is credited by the Exchange to the Customers Protection Fund. However. This is to ensure that the seller does not benefit from his failure to meet his delivery obligation. 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. in case. However. Further. 10% above the closing prices of the scrips on the pay-out day of the respective settlement are considered instead of 20%. this did not result in a member's failure to deliver the shares to the Clearing House 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.20% above the closing price on a day prior to the day of auction. in case of the close-out of the shares under objection and shortages in "C" or "Z" group. if the auction price/close-out price of a scrip is higher than the standard price of the scrip in the settlement in which the transaction was done. It is likely in some circumstances that a selling client of a member has failed to deliver the shares to him. if the offeror member fails to deliver the shares offered in auction. in such a case.OR . However. Further. Self Auction As has been discussed in the earlier paragraphs. the member would require shares so that he can deliver the same to his .
If a delivering members feels that arbitration awards obtained against him is incorrect..e. he has to obtain an arbitration award from the arbitrators and submit the securities in the Clearing House on the following day of the Pay-Out (T+4).e. he is required to obtain arbitration award for invalid objection from the members of the Arbitration Review Committee. Such floppies are to be given to the Clearing House on the pay-in day. the same are required to be checked by them for good delivery as per the norms prescribed by the SEBI in this regard. . are required to obtain arbitration awards for invalid rectification from the Bad Delivery Cell on T+6 day and submit the shares to the Clearing House on the same day. between the auction price and original sale price B) Objections When receiving members collect the physical securities from the Clearing House on the Payout day. if they are not satisfied with the rectification.buying client. A member after getting delivery of shares from the Clearing House in self-auction credits the shares to the Beneficiary 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. The Clearing House returns these securities to the delivering members on the same day. The delivering members are required to rectify/replace the objections and return the shares to the Clearing House on next day (T+5) to have the entry against them removed. To provide shares to the members. i. If the receiving member does not consider the securities good delivery. which otherwise would have taken place from the delivery of shares by the seller. (T+4). the members have been given an option to submit floppies for conducting self-auction (i. The internal shortages reported by the members are clubbed with the normal shortages in a settlement and the Clearing House for the combined shortages conducts the auction. The buyer members.. if any. The rectified securities are delivered by the Clearing House to the buyer members on the same day (T+5). as if they have defaulted in delivery of shares to the Clearing House). so that they are in a position to deliver them to their buying clients in case of internal shortages.
DAY ACTIVITY T + 3 Pay-out of securities of Rolling Settlement T + 4 Patawat Arbitration session : Arbitration awards to be obtained from officials of the Bad Delivery Cell. . confirmation forms and invalid objections in the clearing house Rectified securities delivered to the receiving members T+6 Arbitration Awards for invalid rectification to be obtained from officials of the Bad Delivery Cell Securities to be lodged with the clearing house The un-rectified and invalid rectification of securities are directly closed-out by the Clearing House instead of first inviting the auction offers for the same. Securities under objection to be submitted in the Clearing House Arbitration awards for invalid objection to be obtained from members of the Arbitration Review Committee T+5 Members and institutions to submit rectified securities. The following table summarizes the activities involved in the Patawat Objection Cycle of CRS.If a member fails to rectify/replace the objections then the same are closed-out. This is known as "Objection Cycle" and the entire process takes 3 days.
per Delivery Order is levied on the delivering member for delivering shares. Signature of the transferor is missing.The shares in physical form returned under objection to the Clearing House are required to be accompanied by an arbitration award (Chukada) except in certain cases where the receiving members are permitted to submit securities to the Clearing House without "Chukada".500/. These cases are as follows: Transfer Deed is out of date. are not filled. a penalty of Rs. Witness stamp or signature on Transfer Deed is missing. Delivering broker's stamp on the reverse of the Transfer Deed is missing. Transferors' Names. in the Transfer Deeds. etc. A penalty at the rate of Rs.per Delivery Order levied on the delivering member is refunded to him by debiting the receiving member's account .100/. In the event a receiving member misuses the facility of submitting shares under objection without "Chukada". Details like Distinctive Numbers.per case is charged and the penalty of Rs. which are not in order. Death Certificate (in cases where one or more of the transferors are deceased) is missing. Cheques for the dividend adjustment for new shares where distinctive numbers are given in the Exchange Notice is not enclosed.100/. Stamp of the Registrar of Companies is missing.
'B2. and 'Z' group. or Transaction price. the original seller member's account is debited and the buyer member's account is credited at the closeout rate. 'Rolling demat' and 'F' group The closeout rate is higher of the following rates: The highest rate of the scrip from the first day (trading day in case of Rolling demat segment) to the day prior to the day on which the auction is conducted for the respective settlement.Close Out: There are cases when no offer for particular scrip is received in an auction or when members who offer the scrips in auction. The closeout rates for closing the positions in different segments are as under: For 'A' + 'B1' + 'B2' + 'Z'. For 'C' group segment The close-out rate is higher of the following rates : The highest rate of the scrip from the first day to the day prior to the day of auction of 'A'. . and 'Z' group segment of the respective settlements. 20% above the closing rate as on the day prior to the day of auction of the respective settlement. the offeror member's account is debited and the buyer member's account is credited at the close-out rate. In the former case. In the latter case. 'B1'. 'B2. fail to deliver the same. or 10% above the closing rate as on the day prior to the day of auction of 'A'. 'B1'.
The shortages are directly closed out.e. Odd Lot Segment. .. i.In the 'C' group. no auction session is conducted.
fail to deliver the same.Close Out: There are cases when no offer for particular scrip is received in an auction or when members who offer the scrips in auction. the offeror member's account is debited and the buyer member's account is credited at the close-out rate. In the latter case. In the former case. The closeout rates for closing the positions in different segments are as under: . the original seller member's account is debited and the buyer member's account is credited at the closeout rate.
'B1'. or Transaction price. In the 'C' group.. Subsequently. enable the investors to hedge their risks. BASKET TRADING SYSTEM The Exchange has commenced trading in the Derivatives Segment with effect from June 9. or 10% above the closing rate as on the day prior to the day of auction of 'A'. 'Rolling demat' and 'F' group The closeout rate is higher of the following rates: The highest rate of the scrip from the first day (trading day in case of Rolling demat segment) to the day prior to the day on which the auction is conducted for the respective settlement. 'B2. 'B2.e. 20% above the closing rate as on the day prior to the day of auction of the respective settlement. i.For 'A' + 'B1' + 'B2' + 'Z'. Initially. Odd Lot Segment. and 'Z' group segment of the respective settlements. and 'Z' group. no auction session is conducted. 'B1'. the Exchange has since introduced the index options and options & futures in select . 2000 to. For 'C' group segment The close-out rate is higher of the following rates : The highest rate of the scrip from the first day to the day prior to the day of auction of 'A'. The shortages are directly closed out. the facility of trading in the Derivatives Segment has been confined to Index Futures.
in one go. With 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 Cash Segment and Futures on Sensex.. The investors in cash market had felt a need to limit their risk exposure in the market to movement in Sensex. . the Exchange has provided the facility of Basket Trading System on BOLT. specified shares or 'A' group and non-specified securities that are sub-divided into 'B1' and 'B2' groups.individual stocks. This is expected to have balancing impact on the prices in both cash and futures markets. SETTLEMENT SYSTEM Securities traded on BSE are classified into three groups.e. namely. To participate in this system the member indicates number of Sensex basket(s) to be bought or sold. Further. where the value of one Sensex basket is arrived at by the system by multiplying Rs. The Basket Trading System has been implemented by the Exchange w. meet the needs of investors and also boost the volumes and depth in cash and futures markets.50 to prevailing Sensex. the investors are able to buy/ sell all 30 scrips of Sensex in the proportion of their respective weights in the Sensex. The Basket Trading System would. The trades executed under the Basket Trading System are subject to intra-day trading/gross exposure limits and daily margins as are applicable to normal trades. The 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. Monday. In Basket Trading System. the Basket Trading System provides the arbitrageurs an opportunity to take advantage of price differences in the underlying securities of Sensex and Futures on the Sensex by simultaneous buying and selling of baskets covering the Sensex scrips and Sensex Futures.f. The investors are also allowed to create their own baskets by deleting certain scrips from the Sensex basket of 30 scrips. the 14th August 2000. thus.
good growth record and a large volume of business in the secondary market. The remaining securities-about 5800 as on May 31. The Clearing House handles only the money part of 'B2' group while securities are physically exchanged between the brokers. Direct investment: Foreign Companies are now permitted to have a majority stake in their Indian affiliates except in a few restricted industries. foreigners can even have holding upto 100 per cent. a steady dividend. 495 relatively liquid securities are placed in a category called 'B1' group. 1996 are placed in the 'B2' group. 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. The period is a calendar week in the case of 'A' and 'B1' groups and 14 calendar days in the case of 'B2' group During an account period. Opportunities available for foreign investors 1. Settlement of transactions is done on an 'Account Period' basis. equity shares of thirty-two companies are classified as specified shares. In certain specific industries. 2. All newly listed securities are placed in the 'B2' group. Clearing System The Clearing House of the Exchange handles the share and the money parts of the settlement process in the case of 'A' and 'B1' groups. Investment through Stock Exchanges: . These companies typically have a large capital base with widespread shareholding. Contracts in this group are allowed to be carried over to subsequent settlements upto a maximum permissible period of 75 days.Presently.
foreign brokers at present are not allowed membership in India Stock Exchanges. . Portfolio investment in primary or secondary markets will be subject to a ceiling of 24 per cent of issued share capital for the total holding of all registered FIIs in any one company. The holding of a single FII in any one company is subject to a ceiling of 5 per cent of the total issued capital. A registered FII is required to buy or sell only for delivery. which is. Asset Management Companies/Merchant Banking: Foreign Participation in Asset Management Companies and Merchant Banking Companies is permitted. 3. Broking Business: Foreign brokers upon registration with the SEBI are now allowed to route the business of registered FIIs. Investment in Euro Issues/Mutual Funds Floated Overseas: Foreign investors can invest in Euro issues of Indian companies and in Indiaspecific funds floated abroad. Guideline for the purpose have been issued by SEBI. GDR's and Euro convertibles. However. in applying the ceiling of 24 percent the following are excluded: • Foreign investment under a financial collaboration (DFI). Offshore Single/Regional funds.Foreign Institutional Investors (FII) upon registration with the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) are allowed to operate in Indian Stock Exchanges subject to the guidelines issued for the purpose by SEBI. Disinvestments will be allowed only through a broker of a Stock Exchange. 4. permitted upto 51 per cent in all priority areas. II. Important requirements under the guidelines are as under: I. • Investment by FIIs through following alternative routes. III. However. 5. It is also not allowed to sell short. It should not offset a deal.
Transfer-deeds remain valid for twelve months or the next book closure following the stamped date whichever occurs later. The highest arbitrator in the Exchange is the Governing Board. The duly executed transfer-deed along with the share certificate has to be lodged with the company for change in the ownership. Companies are required to publish half-yearly unaudited results and other price sensitive information. 4. comprise of a two-member bench and a full bench that is to comprise of at least sixteen members respectively. A nominal duty becomes payable in the form of stamps to be affixed on the transfer-deeds. This imparts greater transparency to the stock market operations. BSE is in the process of establishing a Clearing Corporation that will guarantee trades. 5. A comprehensive insurance cover for the Exchange and the members is about to be put in place. which are adjudicated by member brokers. 3. . The total outstanding position is further subject to capital adequacy norms laid down from time to time. 2. Margins are collected from the brokers on buying and selling positions at the end of the day. SAFEGUARDS 1. The first two levels. ARBITRATION MACHINERY There exists three level arbitration machinery. Guaranteeing trades is the cornerstone of a mature clearing and settlement process. which is signed. Insider Trading Regulations have been laid down and a 'Take-Over' code has been created.TRANSFER OF OWNERSHIP Transfer of ownership of securities in effected through a date stamped transfer-deed. Disputes unresolved in the Exchange are taken to the Court of Law. by the buyer and the seller.
the Exchange does not have power to take penal action against listed companies. It comprises of equity shares of 30 companies from both specified and non-specified securities groups. GRIEVANCE REDRESSAL The Investor's Services Cell redresses investors' grievances against listed companies and stockbrokers. except delisting for specified periods.1. It is further augmented by 50% of the interest accrued on 1% 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. INDICES The Exchange compiles four indices. Subsequently. DISCIPLINARY ACTION The Exchange has an eight member Disciplinary Action Committee (DAC) which decides on punitive action in disciplinary cases referred to it by the Surveillance and inspection departments of the Exchange Administration. The corpus of the fund is created by depositing 2. However.5% of the listing fees and a levy on turnover at the rate or Re.1 for Rs.CUSTOMER PROTECTION FUND The objective of this fund is to provide insurance to investors in case of default by a member. The companies have been selected on the basis of market activity. BSE National Index with 1983-84 as base year. The investor is indemnified from default to the extent of Rs.000. The first index to be compiled was the BSE Sensitive Index with 1978-79 as the base year. 00. a more broad based index. was compiled. 1 million of turnover. This index is made up of 100 scrips. which are based on market capitalization. 98 of which are quoted on .
which is more representative of the recent changes and is more balanced is necessary. The BSE-200. which have been selected on the basis of market capitalization. consists of equity shares of 200 companies. With divestment of Public Sector Unit (PSU) equity by government and a sharp increase in the number of companies listed over the last few years. DISCLOSURE & LISTING NORMS Companies who wish to raise money from capital market follow guidelines relating to disclosure. 1989-90 has been chosen as the base year for BSE-200. which indicates the movement of the market in dollar values. This index.Bombay. If scrip is actively quoted on more than one Exchange the average price of the scrip is used in the compilation of the index. Ahmedabad and Madras. Calcutta. . which was introduced in May 1994. Some of the disclosure norms are: • • Details of other income if it constitutes more than ten percent of total All adverse event affecting the operations of the company. It was felt that the sensitive index-the most popular indicator of market movementhad become oversensitive to a handful of scrips. a need was felt to express the index values by taking into account the Rupee-Dollar conversion rate. is called the Dollex. As the presence of the foreign investors grew. income. Consequently. laid down by the Securities and Exchange Board of India. volume of turnover and strength of the companies' fundamentals. This index also includes prices on the other major stock exchanges of Delhi. it was felt that a new index. dividing the current Rupee market value by Rupee-Dollar modifies the BSE-200 conversion rate in the base year.
Any change in key managerial personnel. Risk factors specific to the project and those which are external to the
company. The listing requirements with the Exchange call for further disclosure by companies to promote public confidence. Important disclosures are: • • • The company is required to furnish unaudited half-yearly financial The company must explain to the Stock Exchange any large variation When any person or an institution acquires or agrees to acquire any results in the prescribed Performa. between audited and unaudited results in respect of any item. 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 Exchange 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.
BSE computerized its trading and settlement activities by following a three-phased approach. Phase I: The primary objective of this phase was the real time dissemination of price data through the Display Information Driver System (DIDS). DIDS was
commissioned in November 1992 to disseminate bids, offers, actual rates of transactions and indices on a real time basis. Phase II: In 1994, settlement related daily transactions inputs and outputs were uploaded and downloaded from the TWS in the brokers’ offices. Phase III: Commissioned on March 14, 1995. Although, screen based trading started with 818 scrips, by the 70th day of its commissioning, all scrips-exceeding 5000 had been put on the BOLT system. The BOLT system was commissioned with the Himalya K 10,000 central trading computer hardware. Since then the hardware has been upgraded to the Himalya K 20,000 system. The 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 1992-93 1993-94 1994-95 1995-96 (Apr.Mar (Apr.Mar (Apr.Mar (Apr.Mar (Apr.Mar) ) ) ) ) No. of Listed Companies 2061 2861 3585 4702 5603
Market Capitalization (In Rs.Billion) 3059.87 1881.46 3680.71 4354.81 5264.76 (In US $ Billion) 97.13 59.72 116.85 138.37 153.27 Annual Turnover (In Rs.Billion) 717.77 456.96 836.29 677.49 500.64 (In US $ Billion) 22.78 14.50 26.55 21.51 14.57 Velocity 0.23 0.24 0.24 0.16 0.10 Average Daily Turnover (In Rs.Billion) 3.32 2.38 3.84 1.78 2.16 (In US $ Billion) 0.10 0.07 0.12 0.06 0.06 No. of Shares Traded 6,35,515 3,50,313 7,42,792 1,07,24.8 7,71,850 (In Million Nos.) Average Number of Daily 75,000 65,535 63,786 85,010 73,855 Deals BSE Sensitive Index 4285.00 2280.52 3778.99 3260.95 3366.61 (Year End) BSE National Index 1967.71 1021.40 1829.53 1605.57 1549.25 (Year End)
BSE 2000 (Year End) Dollex (Year End) No. of Registered Flls (In Rs. Billion) (In US $ Billion) No. of Members (Year End) No. of Corporate Members (Year End)
585.19 261.25 -
234.35 124.89 -
450.07 238.86 145
365.97 194.67 308 21.24 0.67 636 26
345.40 168.54 366 31.63 0.92 641 63
Fll Net investment 29.85 0.95 558 4 558 4 628 4
In 1995, the President of India promulgated an Ordinance, which allowed for establishment of depositories. BSE in collaboration with Bank of India (BOI) will shortly establish a depository. BSE has applied for permission from SEBI to expand BOLT to other centres. Expansion of BOLT would bring more investors into the ambit of the capital market and consequently add depth to it.
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. Stockholding corporation. During the year 2000-2001. Infrastructure leasing and finance and so on. India has had a history of stock exchanges limited in their operating jurisdiction to the cities in which they were set up. To set up a nation wide trading facility for equities. banks and other financial institutions such as SBI Capital Market. Trading volumes in the equity segment have grown rapidly with average daily turnover increasing from Rs. which transcends geographical barriers.7 crores in November 1994 to Rs. It provides a modern.INTRODUCTION The National Stock Exchange (NSE) is India's leading stock exchange covering around 400 cities and towns all over India. The NSE represented an attempt to overcome the fragmentation of regional markets by providing a screen-based system. the NSE has been cosponsored by other development/ public finance institutions. debt instruments and hybrids. NSE reported a turnover of Rs. fully automated screen based trading.6 lakh trades on a daily basis. namely. 1994 and within a short span of 1 year became the largest exchange in India in terms of volumes transacted. Having operationalised both the debt and equity markets. which will provide futures and options in equity. Its main objectives has been to set up comprehensive facilities for the entire range of securities under a single umbrella. the NSE is planning for a derivative market. To ensure equal access to investors across the country through an appropriate communication network. LIC. . NSE started equity trading on November 3.510 crores in the equities segment accounting for 45% of the total market. NSE introduced for the first time in India.6797 crores in February 2001 with an average of 9. Sponsored by the industrial development bank of India.13. GIC. 39.
Various types of securities of a company are traded under a unique symbol and different series. Locations One of the objectives of NSE was to provide a nationwide trading facility and to enable investors’ spread all over the country to have an equal access to NSE. Constitution The NSE has two segments for trading in securities: Wholesale Debt Market (WDM) and Capital Market (CM). This section provides a direct link to the web site of companies traded on the Exchange. NSE uses sophisticated telecommunication technology through which members can trade remotely from their offices located in any part of the country. To ensure shorter settlement cycles and book entry settlement systems. efficient and transparent securities market to investors using the electronic trading system. Separate membership is required for each segment. and To meet the current international standards prevalent in the securities Industry/markets. To provide a fair. Securities listed on the Exchange are required to fulfill the listing eligibility criteria. Listing The prime objective of admission to dealings on the Exchange is to provide liquidity and marketability to securities as also to provide a mechanism for effective management of trading. NSE trading terminals are present in around 400 cities and towns all over India. .
However. subsidiaries of banks and financial institutions. The persons eligible to become TMs are body corporates. NSE holidays. . which include bank holidays. In this segment quantities not exceeding 500 shares of each security held in the name of the investor can be traded. on the 5th working day. Typically trades taking place on Monday shall be settled on the next Monday. In order to ensure that the overall FII ceiling limits are not violated. trading members are allowed to enter sell orders in this market segment only for their FII clients. Limited Physical Market Pursuant to SEBI guidelines.e. NSE introduced a new market called Limited Physical Market 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 SEBI. Saturdays and Sundays are excluded. the trades in rolling settlement are settled on a T+5 basis i. For arriving at the settlement day all intervening holidays. In NSE.Trading members They are recognized members of NSE. They are selected on the basis of a comprehensive selection criterion. The whole time directors/dealers of thess Trading mechanism Rolling Settlement In a rolling settlement. Institutional Segment Trading in this market segment is available for institutional investors only. 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. Tuesday's trades shall be settled on the next Tuesday and so on.
This has helped reduce jobbing spreads not only on NSE but in other exchanges as well. . The list of these securities is notified by SEBI from time to time. irrespective of location. Trading System NSE operates on the 'National Exchange for Automated Trading' (NEAT) system. 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.members can enter buy orders on behalf of FII/FI clients. NSE consciously opted in favour of an order driven system as opposed to a quote driven system. Till the advent of NSE. NSE has made it possible for an investor to access the same market and order book. a fully automated screen based trading system. This resulted in a great deal of uncertainty and high transaction costs. The settlement of transactions in this segment is in demat mode only. at the same price and at the same cost. thus reducing transaction costs. which have not established connectivity with both the depositories as per SEBI directive. which adopts the principle of an order driven market. Trade for Trade Segment Trading in this segment is available only for those securities.
. For shares. both the price and quantity of both the orders (buy and sell) should exactly match for the trade to take place. Negotiated Trade Orders and Stop Loss orders depending on their order attributes. Normal market consists of various book types wherein orders are segregated as Regular lot orders.Market Types The NEAT system in NSE has four types of market. In an odd-lot market. Auction Market In the Auction Market. which are traded in the compulsory dematerialised mode the market lot of these shares. Spot Market Spot orders are similar to the normal market orders except that spot orders have different settlement period’s vis-à-vis normal market. These orders do not have any special terms attributes attached to them. Currently the odd lot market facility is used for the Limited Physical Market as per the SEBI directives. These orders do not have any special terms attributes attached to them. They are: Normal Market All orders which are of regular lot size or multiples thereof are traded in the Normal Market. Special Term orders. is one. Currently the Spot Market is being used for the Automated Lending & Borrowing Mechanism (ALBM) session. An order is called an odd lot order if the order size is less than regular lot size. the Exchange on behalf of trading members for settlement related reasons initiates’ auctions. Odd Lot Market All orders whose order size is less than the regular lot size are traded in the odd-lot market.
Solicitor The party who enters orders on the opposite side as of the initiator is called a Solicitor. Every order has a distinctive order number and a unique time stamp on it. Within Price.Price priority means that if two orders are entered into the system.There are 3 participants in this market. If a match is not found. Orders are first numbered and time-stamped on receipt and then immediately processed for potential match. Order Books The NSE trading system provides complete flexibility to members in the kinds of orders that can be placed by them. . the order having the best price gets the higher priority. the order that is entered first gets the higher priority. by time priority-Time priority means if two orders having the same price are entered. then the orders are stored in different 'books'. Competitor The party who enters orders on the same side as of the initiator is called a Competitor. Initiator The party who initiates the auction process is called an initiator. Orders are stored in price-time priority in various books in the following sequence: Best Price.
A sell order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or falls below the trigger price of the order. a) All or None (AON) b) Minimum Fill (MF) c) Stop Loss (SL) 2. When the trigger price is reached or surpassed. 3. Stop-Loss Book Stop Loss orders are stored in this book till the trigger price specified in the order is reached or surpassed. special term orders i. Special Terms Book The Special Terms book contains all orders that have either of the following terms attached: a) All or None (AON) b) Minimum Fill (MF) Note: Currently. Negotiated Trade Book The Negotiated Trade book contains all negotiated order entries captured by the system before they have been matched against their counterparty trade entries. Regular Lot Book The Regular Lot Book contains all regular lot orders that have none of the following attributes attached to them.e AON and MF are not available on the system as per the SEBI directives.The Capital Market segment has following types of books: 1. It is to be noted that these entries contain a counter party code in addition to other order details. 4. the order is released in the Regular lot book. . These entries are matched with identical counterparty entries only. The stop loss condition is met under the following circumstances: Sell order .
6. Auction Book This book contains orders that are entered for all auctions. Currently.A buy order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or exceeds the trigger price of the order. Currently the Spot Market book type is being used for conducting the Automated Lending & Borrowing Mechanism (ALBM) session. Spot Book The Spot lot book contains all spot orders (orders having only the settlement period different) in the system. The system attempts to match an active odd lot order against passive orders in the book. Odd Lot Book The Odd lot book contains all odd lot orders (orders with quantity less than marketable lot) in the system. This is referred as the Limited Physical Market (LPM). 5. pursuant to a SEBI directive the Odd Lot Market is being used for orders which has a quantity less than or equal to 500 (Qty more than the market lot) for trading. 7.Buy order . The matching process for auction orders in this book is initiated only at the end of the solicitor period. The system attempts to match an active spot lot order against the passive orders in the book. .
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. the best buy order is the one with the highest price and the best sell order is the one with the lowest price. Order Conditions A Trading Member can enter various types of orders depending upon his/her requirements.Order Matching Rules The best buy order is matched with the best sell order. a seller would obviously like to sell at the highest possible buy price that is offered. For order matching. Orders lying unmatched in the system are 'passive' orders and orders that come in to match the existing orders are called 'active' orders. Hence. of all buy orders available in the market at any point of time. These conditions are broadly classified into three categories: time related conditions. This 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. An order may match partially with another order resulting in multiple trades. Alternatively. members may be reactive and put in orders that match with existing orders in the system. Orders are always matched at the passive order price. Members can proactively enter orders in the system. price-related conditions and quantity related conditions. For example Time Conditions . So. the best buy order is the order with the highest price and the best sell order is the order with the lowest price. This ensures that the earlier orders get priority over the orders that come in later.
All or None orders allow a Trading Member to impose the condition that only the full order should be matched against.A Good Till Cancelled (GTC) order is an order that remains in the system until the Trading Member cancels it.An Immediate or Cancel (IOC) order allows a Trading Member to buy or sell a security as soon as the order is released into the market. AON and MF orders are not available on the system as per SEBI directives. This may be by way of multiple trades. GTD . as the name suggests. failing which the order will be removed from the market. AON . It will therefore be able to span trading days if it does not get matched.A Day order. is an order which is valid for the day on which it is entered. If the full order is not matched it will stay in the books till matched or cancelled. the order gets cancelled automatically at the end of the trading day. At the end of this period the order will get flushed from the system. If the order is not matched during the day. IOC . Note: Currently.A Good Till Days/Date (GTD) order allows the Trading Member to specify the days/date up to which the order should stay in the system. Each day/date counted is a calendar day and inclusive of holidays. and the unmatched portion of the order is cancelled immediately. Partial match is possible for the order. GTC . Price Conditions Limit Price/Order . The Exchange notifies the maximum number of days a GTD order can remain in the system from time to time. The days/date counted are inclusive of the day/date on which the order is placed. DAY . The Exchange notifies the maximum number of days a GTC order can remain in the system from time to time.
e. If for stop loss buy order. Market Price/Order An order to buy or sell securities at the best price obtainable at the time of entering the order.00.An order. the limit price is 95.00. Until then the order does not enter the market.00. Buy order A buy order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or exceeds the trigger price of the order. For example.An order with a DQ condition allows the Trading Member to disclose only a part of the order quantity to the market. then this order is released into the system once the market price reaches or exceeds 93. as a limit order of 95. which allows the price to be specified while entering the order into the system.00 and the market (last traded) price is 90. the trigger is 93. an order of 1000 with a disclosed quantity condition of 200 will mean that 200 is displayed to the market at a time. After this is traded.g. Sell order A sell order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or falls below the trigger price of the order. Stop Loss (SL) Price/Order The one which allows the Trading Member to place an order which gets activated only when the market price of the relevant security reaches or crosses a threshold price. another 200 is automatically released and so on .00 Quantity Conditions Disclosed Quantity (DQ). This order is added to the regular lot book with time of triggering as the time stamp.
till the full order is executed. Trading Workstation The trader workstation is the terminal from which the member accesses the trading system. In other words there will be a maximum of 5 trades of 200 each or a single trade of 1000. an order of 1000 units with minimum fill 200 will require that each trade be for at least 200 units. The Exchange may also allow a Trading Member to set up a network of dealers in different cities all of whom are provided a connection to the NSE central computer. MF . Trader Workstation Screens The Trader Workstation screen of the Trading Member is divided into several major windows: Title Bar The title bar displays the current time. Tool Bar A window with different icons which provides quick access to various functions such as Market By Order. The Exchange may set a minimum disclosed quantity criteria from time to time. Market Inquiry.Minimum Fill (MF) orders allow the Trading Member to specify the minimum quantity by which an order should be filled. The Exchange may lay down norms of MF from time to time. Market Movement. A Trading Member can define a hierarchy of users of the system with the Corporate Manager at the top followed by the Branch Manager and Dealers. Auction . Each trader has a unique identification by way of Trading Member ID and User ID through which he is able to log on to the system for trading or inquiry purposes. A member can have several user IDs allotted to him by which he can have more than one employee using the system concurrently. Market By Price. For example. Trading system name and date.
If the security is suspended. Ex or cum dividend. Sell order entry.). Security List and Help. the last traded price change indicator ('+' if last traded price is better than the previous last traded price and '-' if it is worse) and the no delivery indicators are displayed. The purpose of Market Watch is to view market information of pre-selected securities.g. All these functions are also available on the keyboard. Activity Log. On line index and Index Inquiry . rights etc. The market information displayed is for the current best price orders available in the regular lot book. Snap Quote. Invoking the Security List and selecting the securities from the window can also set up securities. Previous Trades. "SUSPENDED" appears in front of the security. interest. Buy order entry. the Last Traded Price (LTP). Order Modification. Online Backup. Supplementary Menu. best sell price. the trading member can set them up by typing the Security Descriptor consisting of a Symbol field and a Series field. market information is dynamically updated on a real time basis. Net Position. the corporate action indicator (e. Market Watch Window The Market Watch window is the main area of focus for a Trading Member.. To monitor various securities. The Symbol field incorporates the Company name and the Series field captures the segment/instrument type. Order Cancellation. which are of interest to the Trading Member. Order Status. The user has the option to set-up the securities. total sell order quantity for the best sell price. Ticker Window The ticker displays information about a trade as and when it takes place. the total buy order quantity for the best buy price. which appear in the ticker. Outstanding Orders. A third field indicates the market type. Market Watch.Inquiry. For each security in the Market Watch window. For each security.
Inquiry Window In this window. the user has the information on the current value of the Nifty. Market by Price (MBP) The purpose of Market By Price is to enable the Trading Member to view aggregate orders waiting in the book at given prices. This value is displayed at the extreme right hand corner of the ticker window. the inquiries such as Market by Order. Order Status and Market Inquiry can be viewed. Open. Outstanding Orders (OO) . Activity Log. Market by Price.With every trade in a security participating in Index. Previous Trades. Outstanding Orders. which are not triggered will not be displayed on the window. Index Inquiry gives information on Close. High. The orders are presented in a price/time priority with the "best priced" order at the top. Buy orders are displayed on the left side of the window and Sell orders on the right side. Market By Order (MBO) The purpose of Market by Order is to enable the user to view outstanding orders in the trading books in the order of price/time priority. Low and current index values at the time of invoking this inquiry screen. The information is displayed for each order. Previous Trades (PT) The purpose of this window is to provide information to users for their own trade. Stop Loss orders.
A user may find inquiry screens like Market Movement. Market Movement (MM) The Market Movement screen provides information to the user regarding the movement of a security for the current day. The details include total buy and sell order quantity value. It does not display orders. It displays information only of those orders in which some activity has taken place. the trade details are also displayed. but is not yet completely traded or cancelled. An outstanding order will be an order that was entered by the user. It gives details of the movement of the scrip for a time interval. Current status of the order and other order details are displayed. In case the order is traded. Most Active Securities and Net Position useful. Activity Log (AL) The Activity Log shows the activities. Low. Last traded quantity. Open. High. Order Status (OS) Order Status enables the user to look into the status of a specific order. Previous close. Low. High. Last traded price change indicator. Last traded price etc. it has been modified or has been cancelled. the order has been traded against fully or partially. Market Inquiry (MI) Market Inquiry enables the user to view the market statistics like Open. which have been performed on any order of the Trading Member such as whether.The purpose of Outstanding Orders is to enable a Trading Member to view his/her own outstanding buy or sell orders for a security. date and time etc. which have entered the books but have not been matched (fully or partially) or modified or cancelled. . These are available in the supplementary menu.
order conditions like disclosed or minimum fill quantity etc. price. The information presented is the same as that of Market Watch window. trade time. order no. The order confirmation slip contains among other things. Net Position This functionality enables the user to interactively view his net position for all securities in which he has traded. The trade confirmation slip contains the order and trade no. This is normally used for securities which are not already on display in the Market Watch window. Orders once placed on the system can be modified or cancelled till they are matched.. Snap Quote The Snap Quote feature allows a Trading Member to get instantaneous market information on any desired security. date. price and quantity traded. . Once orders are matched they cannot be modified or cancelled. Orders and trades are identified and linked by unique numbers so that the investor can check his order and trade details. There is a facility to generate online order/trade confirmation slips as soon as an order is placed or a trading is done. security name. Order/Trade Window Order entry mechanisms enable the Trading Member to place orders in the market. quantity..Most Active Securities This screen gives a list of the securities with the highest traded value during the day and the quantity traded for each of them. amount etc. The system will request re-confirmation of an order so that the user is cautioned before the order is finally released into the market.
Computer-to-Computer Link (CTCL) Facility NSE offers a facility to its trading members by which members can use their own trading front-end software in order to trade on the NSE trading system. This software would be a replacement of the NEAT front-end software that is currently used by members to trade on the NSE trading system. Off Line Order Entry A member is able to make an order entry in the batch mode. risk management tools. The dealers of the member may trade using the software remotely through the member's own private network. Members can use software customised to meet their specialized needs like provision of on-line trade analysis. This Computer-to-Computer Link (CTCL) facility is available only to trading members of NSE. integration of back-office operations etc.Systems Message Window This window is used to view messages from the Exchange to all specific Trading Members. There is an option to copy the file to any drive of the computer or on a floppy diskette. Trading members find this convenient in their back office work. subject to . Supplementary Menu Some of the supplementary features in the NEAT system are: On 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. Through CTCL facility Trading Members can use their own software running on any suitable hardware/software platform of their choice.
approvals from Department of Telecommunication etc. NSCCL 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. a wholly owned subsidiary of NSE. It operates a well-defined settlement cycle and there are no deviations or deferments from this cycle. NSCCL has empanelled 9 clearing banks to provide banking services to trading members and has established connectivity with both the depositories for electronic settlement of securities. It has successfully brought about an up-gradation of the clearing and settlement procedures and has brought Indian financial markets in line with international markets. promoting and maintaining. account period settlement for dealings in physical securities and dematerialized securities. (NSCCL). It also undertakes settlement of transactions on other stock exchanges like. NSCCL carries out the clearing and settlement of the trades executed in the Equities and Derivatives segments and operates Subsidiary General Ledger (SGL) for settlement of trades in government securities. rolling settlement (T+5 basis) in dematerialized segment etc. It provides a facility for multiple settlement mechanisms including. It assumes the counter-party risk of each member and guarantees financial settlement. the Over the Counter Exchange of India. was incorporated in August 1995 and commenced clearing operations in April 1996. . National Securities Clearing Corporation Limited National Securities Clearing Corporation Ltd. It has been set up with a philosophy to sustain confidence in clearing and settlement of securities. to provide counter-party risk guarantee. and to operate a tight risk containment system. nets the positions to determine the liabilities of members and ensures movement of funds and securities to meet respective liabilities. short and consistent settlement cycles. It aggregates trades over a trading period. as may be required in this regard.
Although nay Sayers might feel that vyaj badla provides an investor with an opportunity to maximize his earnings in a . This rosy picture could well be a reality during a bull run. it is imperative that one takes a hard. Before an investor start believing in the stories of superlative returns (in excess of 20 per cent). Investors need to be aware of the problems. there was a very high chance that an investor may end up with an average annual return of 14-18 per cent or sometimes even higher. the returns were not guaranteed.BADLA TRADING Badla is a complex system that contains many a pitfall for the uninitiated and the unwary. This is so because financing badla is a definite no-no for the first-time investor in the stock market and also for those who don't have the time to constantly monitor the status of his/her investments and fluctuations in the market returns Vyaj Badla In the vyaj badla system. an investor’s final returns get lopped off to that extent. coupled with liquidity. safety and flexibility. returns could diminish to just around 6-8 per cent a year. especially when brokers on BSE and other regional stock exchanges are marketing vyaj badla schemes to their clients aggressively. but when the market was under a bear hug. Thus. unfortunately. And then the taxman cometh! Vyaj badla transactions began to be treated as purchase and sale of shares. Comparing it with a steady 12 per cent annual return offered by a bank fixed deposit or any AAA rated corporate bandit seemed that The high-risk and uncertain return of vyaj badla would start looking like a bad investment option. rational look at the entire mechanism. thus getting subjected to capital gains tax of 30 per cent. But having said that.
Shares delivered by the seller were kept by the exchange in the clearing-house and allocated to the financier's broker in a special account. and there are 12 separate buyers and sellers respectively. brokers who were sure of taking or making delivery of shares mark their respective "for delivery" positions.bull market. This financier charged interest (badla) for the money paid on behalf of the two buyers for them. the nerve-wracking tension that accompanies stock market fluctuations may well take its toll. by deducting them from the broker's weekly out standings. The demand and supply of funds and shares determined this rate. Of the sellers. An outstanding "buy" position in a stock sees a "seedha badla" where the financiers participate. the base price (hawala rate) is fixed. six want to take delivery. Six buyers and six sellers got squared off. which was normally the closing price of the scrip on Friday. An outstanding "sell" position in the stock sees an "ulta" or "undha badla" where the stock lenders participate. How did the Badla function? Assume that there had been 12 trades of 100 shares each in "ABC" stock. Specified quantities of the stock on offer are bought and sold at the financier's desired interest rate . while eight sellers effect delivery.the badla rate. while six wanted to carry forward their positions. Else. This helped the exchange to arrive at the net outstanding positions on Friday evening (the last day of the settlement on BSE). Among the buyers. Four "buy" carry-forward positions get matched against four "sell" carry-forward positions. . The difference is threw open to the market's badla trading session on Saturday. Now six buyers made the payment for their purchases. eight wished to deliver the shares while four were keen on carrying their positions forward. On the BSE. vyaj badla financiers came in. forming the financier's collateral. Prior to the commencement of this session. To ensure payment to the remaining two sellers for their 200 shares. the fact remains that it is a good option for the experienced investor.
the financier can either receive the difference or roll over his/her money to a new badla transaction.38 per cent. A constant fluctuation in these values during the two-and-a-half hour session is due to the constant change in demand and supply. which would have two entries. The difference will be the financiers earning for that week. if you are keen on becoming a vyaj badla financier. These rates fluctuate considerably throughout the session. the interest rate is converted into a weekly figure. while the other would show a sale of 100 shares at Rs 69. you should approach the type-I broker. Badla rates vary between stocks. The broker would give the financier a badla bill or informal contract note. and also market perception. it is advisable to look for brokers who have automated this process. let's assume the hawala rate to be Rs 69. as you would be one among a lot of clients whose money has been collectively invested in vyaj badla. But it would be prudent for you to know the basis of allocation of stocks to you. Most brokers don't accept anything less than Rs 1 lakh per client for badla financing. On the hawala rate of Rs 69. brokers using the discretionary allocation of stocks to the badla account should pay a weighted average return to each client.26 per share. This should be reflected in the badla bills. Only the former can carry out badla trades. Memberships on BSE are split between type-I and type-II brokers. With the next trading cycle ending. it would be 0. The terminals would constantly keep flashing the best badla rate and the best annual yield for each stock on offer for a particular quantity. For getting the weighted average return on badla finance. In this case. Hence. And the stock selection too is at their discretion. One would show a purchase of 100 shares at Rs 69 per share. If the financier wants to pay for 100 shares at 20 per cent per annum and the trade gets matched. depending upon their demand and supply. for they maintain higher margins with the exchange. . this 0.38 percent works out to 26 paise. Who can participate? Not all brokers can participate in the badla process. Ideally.In this case.
one cannot avoid brokerage in a vyaj badla transaction too. always time your exit. the prices had dipped sharply by the time the financiers got their shares. While opting out. This further reduces your yield. he got the shares held in the exchange's clearinghouse against his broker’s name. trimming down your annual yield further. Brokerage for such deals could range between 1-2. the delay can really eat into your returns. So factor in those extra days while calculating your actual return. there have been instances of brokers (having large carryforward positions in highly speculative stocks) defaulting. Even a 10 per cent downward shift in their position would wipe out the broker's entire net worth. Are investors safe? What is the investor’s safeguard in times of default? If the forward buyer defaults.As in any other market transaction. Failure 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.5 per cent. the delay in the release of your money can be detrimental. Apart from the large institutional brokers. The BSE's Trade Guarantee Fund could be of some succour and solace in these situations. Badla positions taken by them sometimes go up to 15-20 times their net worth. but just that. the financier is in a larger mess. As in the case of defaults. By virtue of the exchange's settlement cycle. Given the quirks of the vyaj . It is advisable to enter into a firm brokerage percentage prior to the commencement of the relationship. In the recent history of BSE. If the broker defaults. Although vyaj badla is considered to be an effective short-term instrument. most brokers on BSE have a net worth of Rs 1-2 crore. on which he had a lien through his Badla bill. your money gets released within a ten-day period. as is the case with all such instruments. But his risk erosioned in the value of the share during the days that it takes to release the shares. Although these shares were enjoying very high badla rates at the time of the default. And then you could bid goodbye to your money too.
. Cheaper. he can leverage on the margins to buy more units of the underlying security. Hence.badla transactions and the inherent risks involved.it is strictly for the pro and the strong hearted. they offer the benefits of ownership. But the valuation of futures contracts are not as complicated as that of options. These instruments enhance the ability to differentiate risk and allocate it to those investors most able and willing to take it -. Hence. -. of leveraging the stock or its underlying asset. As delivery of futures contracts is on a future date. such as options on indices and individual stocks. Theoretically.. Substitutes to Badla Financial derivatives By far the most significant event in finance during the past decade has been the extraordinary development and expansion of financial derivatives.Fed Chairman Alan Greenspan Following the introduction of index futures. the Securities and Exchange Board of India (SEBI) permitted the BSE and the NSE to introduce more derivatives. small investors find them relatively easy to understand and use. it can be concluded that amateurs should stay away . One of the advantages enjoyed by single-stock futures is that they are cheaper to trade and easier to use for hedging strategies than options.single-stock futures -. But an instrument that may be more in line with the domestic market structure -.a process that has undoubtedly improved national productivity growth and standards of living.. But a similar opportunity is not available to the speculator-investor to sell options in the underlying scrip.is not under consideration. because margins in futures trading are lower than in options. the investor has to put up only the margin money. Single-stock futures are a way to reap the benefits of a stock's performance without actually owning the stock.
However. Exchanges normally guarantee the writer's position. to limit default in the market. Thus. Market making in options depends to a great extent on institutions willing to write the contracts. This is purely from the options-writer's perspective. Currently. A market exists only if there is a writer and a buyer. that for index options works out to the commission received plus around 15 per cent of the contract's notional value. they may not be allowed to write options. For instance. while the margin rate for index futures contracts is around 5 per cent. the writer is under an obligation to deliver. in this situation. in international markets.Trading options: Trading options are riskier than futures. the regulations prevent funds from taking speculative positions in the spot market. it is difficult to foresee a lot of interest in the options market. But given that there are few takers for the futures market. Since the buyer of an option contract is not under any obligation to exercise his right. Hence. So. This means the risk borne by the option-writer is enormous. . there is excessive risk for the options-writer and transactions costs could be high. the margin requirements are quite high. his risk is limited to the premium paid for purchasing the right.
com 5) www.Bibliography 1) Stock exchanges in India 2) Indian securities market 3) NSE News 4) www. Raja Raman A review (Volume IV. 2001 .nseindia.com : : : V.bseindia. 2001) May.
PARVATI VENKATESH FROM . GHATKOPER (E). PLOT NO.WORKING OF STOCK EXCHANGES IN INDIA (WITH REFERENCE TO BSE AND NSE) BY SHARMA MUKTA A/22 SATI KRUPA BLDG. TYBMS SIXTH SEMESTER 2001-2002. 104. MUMBAI-400077. PROJECT GUIDE PROF. GARODIA NAGAR.
Somaiya College of Arts.K. broker. DATE OF SUBMISSION: Acknowledgement It gives me pleasure to submit this project to the University of Mumbai as a part of curriculum of my BMS course. Prof. S. Science & Commerce and our Course Coordinator. Stock Holding Corporation of . VIDYAVIHAR (E). SCIENCE AND COMMERCE. and Ms. MUMBAI-400077.Gitanjali Madan. without I whose could guidance. SOMAIYA COLLEGE OF ARTS.K. Stock Exchange. Venkatramani. not have inspiration motivation. My respect and grateful thanks to Mr. who simultaneously is my project guide and also. Mumbai. completed this project successfully. the Principal.Dilip Adani. I take this opportunity to express my sincere gratitude to Respected Prof.S. K. Parvati Venkatesh.
Executive summary. Role of SEBI. Terminologies associated with stock exchanges.India Ltd. Trading system. Demat pay in. Capital listed and market capitalization. Introduction. for their valuable assistance in completion of this project. Light on stock exchange and it services. . Introduction. I am thankful to the Almighty for giving me strength. Bombay Stock Exchange. BSE Sensex. Last but not the least. Settlement and clearing. courage and patience to complete this project. INDEX.
Trading workstation. Customer protection fund. Listing. Order conditions. National Stock Exchange. Order books. Future developments. Arbitration machinery. Disclosures and listing norms. . Computation of closing price. Grievances redressal. National Securities Clearing Corporation Limited. Trading members. Transfer of ownership. Settlement system. Indices. Safeguards. Trading mechanism. Closing system. Market types. Basket trading system. Order matching rules. Computer to computer links facility. Introduction. Quantity conditions. Computerized trading. Locations. Constitution. Shortages and objections. Disciplinary actions. Opportunities for foreign investors.
. Substitutes for Badla. Badla trading. Bibliography. Trading options. Financial derivatives.
attached with the report. which have been explained in length in the pages to come. The report is divided in three parts. their role in economy. value stocks have provided low relative volatility over time. introduction of securities market. The third part is the Case. The first dealing with the theory. which is also taken from Franklin Templeton India Ltd. The focus is basically with Indian context. second being. first being that growth and value do not move in tandem. The second part is the study made of different methods of trading and In all they offer 9 different avenues for investing. The case speaks about 3 facts of investing. . It provides thorough knowledge of different aspects of trading in stock exchanges. and the third one as.EXECUTIVE SUMMARY The project is an attempt to working of stock exchanges in detail. their characteristics. value investing has rewarded long term investors. concept of stock exchanges. ie. role of SEBI etc.
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