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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 usually appointed by the by the stock exchange with the government approval is the operational chief of the 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. and a few nominated by the government. Typically. who are expected to safeguard the public interest in the functioning of the exchanges. the largest among them being the Bombay Stock Exchange. A president. Government nominee include representatives of the ministry of finance. a stock exchange is governed by a board consisting of directors largely elected by the member brokers. a stock exchange has been an association of individual members called member brokers (or simply members or brokers). as well as some public representatives. 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. . formed for the express purpose of regulating and facilitating buying and selling of securities by the public and institution at large. New membership to a Stock Exchange is through election by the governing board of that stock exchange. At present. there are 23 stock exchanges in India. wishing to list their securities. 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. usually nominated by the government from among the elected members. heads the board. who is an elected member.mandatory foe the companies. 1956. Characteristics of Stock Exchanges in India Traditionally. The executive director. BSE alone accounts for over 80% of the total volume of transactions in shares.
Of the 23 stock exchanges in India. All companies wishing to raise capital from the public are required to list their securities on at least one stock exchange. of administration of broker-managed exchanges. Role of SEBI . OTCEI and NSE are already demutualised. two stock exchanges viz.. all ordinary shares. The regulators are working towards implementing this. Board of directors. preference shares and debentures of the publicly held companies are listed in the stock exchange. 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. where ownership. The concept of demutualisation completely eliminates any conflict of interest and helps the exchange to pursue market efficiency and investors interest aggressively. the finance minister in march 2001 proposed demutualisation of exchanges by which ownership. Exchange management Made some attempts in this direction. which do not include trading members. management and trading membership would be segregated from each other. manages these. management and trading are in the hands of three sets of people. Theses are purest form of demutualised exchanges. In view of the less than satisfactory quality. but this did not materially alter the situation. Thus.
conducting inquiries and audits of stock exchanges. the power and functions of the Board encompass the regulation of Stock Exchanges and other securities markets. performing such functions and exercising such powers as contained in the provisions of the Capital Issues (Control) Act. levying various fees and other charges. The Board of SEBI comprises a Chairman. to “protect the interest of investors in securities and to promote the development of.1947 and the Securities Contracts (Regulation) Act. trustees of trust deeds. 1992. 1992. two members from the central government representing the ministries of finance and law. registration and regulation of the working stock brokers. The Stock Exchange as a responsible Self Regulatory Organization (SRO) function to regulate the market and its prices as per the prevalent regulations. the Securities and the Exchange Board of India.The SEBI. prohibiting Fraudulent and unfair trade practices and insider trading in securities markets.” SEBI has its head office in Mumbai and it has now set up regional offices in the metropolitan cities of Kolkata. and Chennai. bankers to an issue (a public offer of capital). investment advisors and such other intermediaries who may be associated with the stock market in any way. 1956. that is. and to regulate the securities market and for matters connected therewith and incidental too. merchant bankers. conducting necessary research for above purposes and performing such other functions as may be prescribes from time to time.undertking inspection. 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. Delhi. calling for information from. promotion and regulation of self.regulatory organizations. . under writers. registration and regulations of mutual funds. set up under the securities and Exchange Board of India act. regulating substantial acquisition of shares and takeover of companies. portfolio managers.regulatory organizations of the securities market. As per the SEBI act. one member from the Reserve Bank of India and two other members appointed by the central government. is the national regulatory body for the securities market. registrars to an issues. intermediaries and self. sub-brokers.
1956. notifications.SEBI and the Exchange play complimentary roles to enhance the investor protection and the overall quality of the market. The clients may place their order with them directly or a sub-broker indirectly. Listing Listing means formal admission of a security to the trading platform of a stock exchange. the rules. capital adequacy. A broker is admitted to the membership of an exchange in terms of the provisions of the SCRA. SCRR. sell or deal in securities. The minimum standards stipulated by NSE for membership are in excess of the minimum norms laid down by SEBI. No stockbroker or sub-broker is allowed to buy. circulars. track record. education. unless he or she holds a certificate of registration granted by SEBI. etc. Listing of securities on Indian Stock Exchanges is essentially governed by the provisions in the companies act. Index services . bye-laws and regulations of the concerned stock exchange. guidelines. rules and regulations of the concerned exchange. The stock exchanges are free to stipulate stricter requirements for its members than those stipulated by SEBI. Membership The trading platform of a stock exchange is accessible only to brokers. SCRA. . The standards for admission of members laid down by NSE stress on factors. and reflect the conscious endeavors to ensure quality broking services. the SEBI act 1992. rules. etc. corporate structure. The broker enters into trades in exchanges either on his own account or on behalf of clients. invariably evidenced by a listing agreement between the issuer of the security and the stock exchange. experience. prescribed there under and the byelaws. the listing agreement entered into by the issuer and the stock exchange and the circulars/ guidelines issued by central government and SEBI. A broker/sub-broker compiles with the code of conduct prescribed by SEBI. such as.
NSE model was gradually emulated by all other stock exchanges in the country. Several time-related (Good-Till-Cancelled. but also from the personal computers in . 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. The trading system also provides complete market information on-line. objective and fair. The bookstores only limit orders.Stock index uses a set of stocks that are representative of the whole market. India Index Services & Products Limited (IISL). the NEAT system provides an open electronic consolidated limit order book (OECLOB). Immediate-or-Cancel). Good-Till-Day. The trading system provides tremendous flexibility to the users in terms of kinds of orders that can be placed on the system. which is updated on real time basis. 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. It enables members from across the countries to trade simultaneously with enormous ease and efficiency. price related (buy/sell limit and stop-loss orders) or volume related (All-or-None. is the only specialized organization in the country to provide stock index services. buy and sell orders originating from all over the country. The limit order is executed only if the price quantity conditions match. Trading Mechanism All stock exchanges in India follow screen-based trading system. Orders are sorted and match automatically by the computer keeping the system transparent. A single consolidated order book for each stock displays. which are orders to buy or sell shares at a stated quantity and stated price. NSE was the first stock exchange in the country to provide nation-wide order-driven. screen-based trading system. or a specified sector to measure the change in overall behavior of the markets or sector over a period of time.) conditions van be easily built into an order. Thus. promoted by NSE and CRISIL. on a real time basis. 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. Minimum Fill.
Internet trading is available on NSE and BSE. Soon after these orders get matched and result into trades. .the homes of investors through the internet and from the hand-held devices through WAP. which use WAP technology. for communicating clients’ orders to the exchanges through brokers. It launched Internet trading in February 2000. It was followed by the launch of Internet trading by BSE in March 2001. SEBI has stipulated the minimum conditions to be fulfilled by trading members to start internetbased trading and services. The trading platform of BSE is also accessible from 400 cities. as of now. NSE is the only exchange to provide access to its order book through the hand held devices. SEBI has approved the use of Internet as an order routing system. the investors get confirmation about them on their PCs through the same Internet routes. 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. SEBI approved trading through wireless medium or WAP platform. 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.registered brokers can introduce internet-based trading after obtaining permission from the respective Stock Exchanges. NSE was the first exchange in the country to provide web-based access to investors to trade directly on the exchange. SEBI.
2001. are presented as below: In a SEBI working paper titled ‘Dematerialization: A Silent Revolution in the Indian Capital Market’ released in April 2000. . dematerialization has progressed at a fast pace and has gained acceptance among the participants in the market. Competition has been driving improvement in service standards. 1998. Depository facility has effected changes in stock market microstructure. Dematerialization growth in India is the quickest among all emerging markets and also among developed markets excepting for the U.. Breadth and depth of investment culture has further got extended to interior areas of the country faster. viz.K and Hong Kong. The paper observes that one imminent and apparent immediate benefit of competition between the two depositories is fall in settlement and other charges. SEBI has introduced some degree of compulsion in trading and settlement of securities in dematerialized form. While the investors have a right to hold securities in either physical or demat form. It maintains ownership records of securities in a book entry form and also effects transfer of ownership through book entry.335 securities as at end-June.Demat Trading A depository holds securities in dematerialized form. all investors are required to mandatorily trade in dematerialized form in respect of 2. Dematerialization substantially contributed to the increased growth in the turnover. it has been observed that India has achieved a very high level of dematerialization in less than three years’ time.. SEBI has mandated compulsory trading and settlement of securities in dematerialized form. This was initially introduced for institutional investors and was later extended to all investors. Explicit transaction cost has been falling due to dematerialization. Starting with 12 scrips on January 15. All actively traded scrips are held. traded and settled in demat form. The details of progress in dematerialization in two depositories. and currently more than 99%of trades settle in demand form. Competition and regulatory developments facilitated reduction in custodial charges and improvements in qualities of service standards. NSDL and CDSL. Since the introduction of the depository system.
popularly known as "BSE" was established in 1875 as "The Native Share and Stock Brokers Association".69 lakhs.f. However. six public representatives and an Executive Director is the apex body. It may be noted that the Stock Exchanges is the oldest one in Asia.INTRODUCTION The Stock Exchange.17 lakhs.10 crores and number of average daily trades during the period to 5.19 crores and average number of daily trades was 5. 2001. etc. upholds the interests of the investors and ensures redressal of their grievances. even older than the Tokyo Stock Exchange. the average daily turnover of the Exchange during the year 2001. introduction of Compulsory Rolling Settlements in all scrips traded on the Exchanges w.e.3984. have adversely impacted the liquidity and consequently there is a considerable decline in the daily turnover at the Exchange. whether against the companies or its own member-brokers. July 2.2002 has declined to Rs. 1244. which decides the policies and regulates the affairs of the Exchange. two SEBI nominees. a Reserve Bank of India nominee. . as a voluntary non-profit making association.f. December 31. Mumbai. A Governing Board comprising of 9 elected directors (one third of them retire every year by rotation).e. It has evolved over the years into its present status as the premier Stock Exchange in the country. was Rs. which was founded in 1878. abolition of account period settlements. The average daily turnover of the Exchange during the year 2000-2001 (AprilMarch). It also strives to educate and enlighten the investors by making available necessary informative inputs and conducting investor education programmes. The ban on all deferral products like BLESS and ALBM in the Indian capital Markets by SEBI w. while providing an efficient and transparent market for trading in securities. The Executive Director as the Chief Executive Officer is responsible for the day-today administration of the Exchange. The Exchange. 2001.
700 crores. The BSE accounted for 46 per cent of listed companies on an all India basis as on 31st March 1994. print electronic media and is widely used to measure the used to measure the performance of the Indian stock markets. The Stock Exchange.19. first compiled in 1986 is a “market Capitalization-Weighted” index of 30 component stocks representing a sample of large. The capital listed in the BSE as on 31st March 1994 accounted for 50% of the overall capital listed on all the stock exchanges. 702 crores and Mahanagar Telephone Nigam Limited with the market capitalization of Rs. It ranked first in terms of the number of listed companies and stock issues listed. which has the longest social memory. The index is widely reported in both.16. 908 crores as on the 31st March. 31%. On the BSE. well-established and financially sound companies. The paid-up capital of equity. The BSE SENSEX is the benchmark index of the Indian capital market and one. the Steel Authority of India had the largest market capitalization of Rs. debentures/bonds and preference were 73%. the domestic international. Its share of the market capitalization was around 74% as on the same date. Bombay (BSE) is the premier Stock Exchange in India. short form of Sensitive Index. In fact the SENSEX is considered to be the . 44% respectively of the overall capital listed on all the Stock Exchanges as on the same date.11.CAPITAL LISTED AND MARKET CAPITALIZATION. 1994 followed by the State Bank of India with the market capitalization of Rs. BSE SENSEX The BSE SENSEX.
it provides time series data over a fairly long period of time.pulse of the Indian stock markets. we believe that it will be the most liquid contract in the Indian market and will garner a predominant market share. institutional investors. Further. foreign investors. Objectives of SENSEX The BSE SENSEX is the benchmark index with wide acceptance among individual investors. money managers and small investors. It is the oldest index in India and has acquired a unique place in collective consciousness of the investors. For index based derivatives products Institutional investors. as the oldest index of the Indian Stock Market. all refer to the BSE SENSEX for their specific purposes. Since SENSEX comprises of the leading companies in all the significant sectors in the economy. The objectives of the index are: To measure market movements Given its long history and its wide acceptance. Companies represented in the SENSEX Company name Sector . foreign investors and fund managers. 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. SENSEX is widely used to describe the mood in the Indian stock markets. The BSE SENSEX is in effect the proxy for the Indian stock markets. Small wonder that the SENSEX has over the years has become one of the most prominent brands of the Country. no other index matches the BSE SENESX in the reflecting market movements and sentiments.
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. The computerized settlement system initiated the netting and clearing process by providing on a daily basis statements for each member. that used to take place in the trading ring.06.(As on 15. after taking into account all transactions for the member during the settlement period. 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. showing matched and unmatched transactions. The transaction details of the account period (called settlement period) were submitted for settlement by members after each trading session. which is 10 working days for group 'A' securities and 5 working days for group 'B' securities. Settlement processing involves computation of each member's net position in each security. .
which had an open outcry trading system. Government of India on August 31.f. which was initially both order and quote driven. had switched over to a fully automated computerized mode of trading known as BOLT (BSE on Line Trading) System. the members of the Exchange were permitted to open trading terminals only in Mumbai. the members of the Exchange are now free to install their trading terminals at any place in the country. TRADING TRADING The Exchange. the facility of placing of quotes has been removed w. The system. In terms of the permission granted by SEBI and certain modifications announced later.. which is now only order driven. Chidambaram inaugurated the expansion of BOLT network the then Finance Minister. Earlier. 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". BOLT system has replaced the open outcry system of trading. BOLT system accepts two-way quotations from jobbers. . through the BSE On-Line Trading (BOLT) system. in October 1996. However. Shri P. automatic order matching and faster execution of orders in a transparent manner. However.e. 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. facilitates more efficient processing. 1997. August 13. 1995. 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. This system. 2001 in view of lack of market interest and to improve system-matching efficiency.Trading is done by members and their authorized assistants from their Trader Work Stations (TWS) in their offices. the Exchange obtained permission from SEBI for expansion of its BOLT network to locations outside Mumbai. was commissioned on March 14.
viz. which represent the equity segment. 2002..In order to expand the reach of BOLT network to centers outside Mumbai and support the smaller Regional Stock Exchanges. Central Depository Services (I) Ltd. 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. 1615 companies have been put in "Z" group as a temporary measure till they make arrangements for dematerialization of their securities. The Exchange has also the facility to trade in "C" group which covers the odd lot securities in 'A'. Trading on the BOLT System is conducted from Monday to Friday between 9:55 a. admitted subsidiary companies formed by 13 Regional Stock Exchanges as its members. 2002. Once they finalize the arrangements for dematerialization of their securities. 'F' and 'Z' groups. The scrips traded on the Exchange have been classified into 'A'. 'B1 '. 'B1'. (CDSL) and National Security Depository Ltd. Of these. 2001.1930 and 3044 respectively. 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. Companies in "Z" group numbered 3044 as on March 31. September 30. The members of these Regional Stock Exchanges work as sub-brokers of the member-brokers of the Exchange. as on March 31. The number of scrips listed on the Exchange under 'A'. 2002 was 173. The 'F' group represents the debt market (fixed income securities) segment wherein 748 securities were listed as on March 31. (NSDL) for dematerialization of their securities by the specified date. i. the Exchange has.m.m.e. 'B2' and 'Z' groups. 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. and 3:30 p. 'B2' and 'Z' groups and Rights renunciations in all the groups of . trading and settlement in their scrips would be shifted to their respective erstwhile groups. 560.. 2002. as on March 31. 'B2'. 'B1'.
trading in all securities listed in equity segment of the Exchange takes place in one market segment.scrips in the equity segment. This scheme of selling physical shares in compulsory demat scrips is called as Exit Route Scheme.f. A) Compulsory Rolling Segment (CRS): . April 22. However. 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. if there is no trade during the last 15 minutes. 2001. Accordingly. Compulsory Rolling Settlement Segment. provides a facility to market participants of on-line trading in odd lots of securities and Rights renunciations. The Exchange. 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. viz. thus.. With effect from December 31. then the last traded price in the continuous trading session is taken as the official closing price.e. 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. 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. to begin with the Exchange has permitted trading in scrips of five companies listed on other Stock Exchanges w.
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. 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 .Compulsory Rolling Settlement (CRS) Segment: With a view to introduce the best international trading practices and to achieve higher settlement efficiency. 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'.f. 2002 should be settled on T+3 basis. if one fails to deliver the securities sold at the time of pay-in.e. it will be treated as a shortage and the position will be auctioned/ closed-out.. if one buys and sells 100 shares of a company on the same day which is on trade to trade basis. SEBI has further directed the Stock Exchanges that trades in all scrips w. buy and sale positions in the same scrip are netted and the net quantity is to be settled. December 31.e. 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. 2001. For example. the transactions are settled on a gross basis and the facility of netting of buy and sale transactions in a scrip is not available. 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 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. However. April 1.e. In other words. occurs on fifth business day after the trade day. trades in all the equity shares listed on the Exchange in CRS Segment were to be settled on T+5 basis w.f. are settled only on trade to trade basis on T+3 i. transactions in securities of companies..e. Thus. Accordingly.f. April 1. i.e. which have failed to make arrangements for dematerialization of their securities or /are in "Z" group. as mandated by SEBI. 2002 Under a rolling settlement environment.
T+3 Pay-in of funds and securities by 11:00 a. . Downloading of securities and funds obligation statement by members.m T+4 Auction on BOLT.of companies. T+1 Confirmation of 6A/7A data by the Custodians. and pay-out of funds and securities by 2:00 p. are settled on trade to trade basis on T+3 either in demat mode or in physical mode. T+5 Auction pay-in and pay-out. 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. 6A/7A entry by the member-brokers. which have not made arrangements for dematerialization of their securities by the stipulated date or are in "Z" group for other reasons. The settlement of transactions in 'F' group securities representing Fixed Income Securities is also on Rolling Settlement Cycle of T+3 basis.m.
* 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. The Information Systems Department of the Exchange generates the following statements. 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. In case the delivery/payment is to be given or taken by a registered Custodian. he has to confirm the trade done by a member on the BOLT System through 6A-7A entry. provided early receipt of securities and monies to buyers and sellers respectively and brought Indian Capital Markets at the international standard of settlements . the Custodians have been given connectivity to BOLT System and have also been admitted as members of the Clearing House. For this purpose. the liability for pay-in of funds or securities in respect of the same devolves on the concerned member. In case a transaction is not confirmed by a registered Custodian. 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. Thus. which can be downloaded by the members in their back offices on a daily basis. The settlement of the trades (money and securities) done by a member on his own account or on behalf of his individual. the pay-in and pay-out of funds and securities takes places on the 3rd working day of the execution of the trade.
may be settled directly between the members concerned.. viz. without netting of purchase and sale transactions in a scrip. i. 'B1'...e. 'C'. 'B2'. The Money Statement provides scrip wise/item wise details of payments/receipts for the settlement. are directly debited through computerized posting for their settlement and margin . ICICI Bank Ltd. the Clearing & Settlement Dept.. of the Exchange liaises with the Clearing House on a day to day basis. Bank of India... UTI Bank Ltd. "F" & 'Z' group of securities As discussed earlier. The Information Systems Department (ISD) of the Exchange generates Delivery and Receive Orders for transactions done by the members in A.. although are required to be reported to the Exchange.Settlement Pay-in and Pay-out for 'A'. For this purpose. quantity and the name of the receiving member to whom the securities are to be delivered through the Clearing House. 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. Global Trust Bank Ltd. HDFC Bank Ltd. Mumbai for handling the clearing and settlement operations of funds and securities on behalf of the Exchange. and Indusind Bank Ltd. Centurion Bank Ltd. 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. The Delivery Orders provide information like scrip. The Clearing House is an independent company promoted jointly by Bank of India and Stock Exchange.. 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. B1. except for certain offmarket transactions which. Standard Chartered Bank. All deliveries of securities are required to be routed through the Clearing House.
O. If there are no discrepancies. facility is available for CRS (Normal & Auction) and for trade-to-trade settlements.) instructions on their behalf from their CM Pool A/cs by the Clearing House w.e. The members wishing to avail of this facility have to submit an authority letter to the Clearing House. facility: Instead of issuing Delivery Out instructions for their delivery obligations in a settlement /auction. The members can then submit the securities at the receiving counter in the Clearing House Auto D.f. 2000.O facility is currently available only for Clearing Member (CM) Pool accounts/Principal Accounts maintained by the members with National Securities Depository Ltd. not available for delivery of non-pari passu shares and shares having multiple ISINs. as per the Delivery Orders issued by the Exchange. 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. The data submitted by the members on floppies is matched against the master file data on the Clearing House computer systems. In case of the physical securities.O. are required to be delivered by the members in the Clearing House on the day designated for securities pay-in.. (NSDL) and Central Depositories Services Ltd. however.e. This facility is. quantity.. scrip code. i. This Auto D. August 10. then a scroll number is generated by the Clearing House and a scroll slip is issued. and receiving member) on a floppy.O. The securities. a facility has been made available to the members of automatically generating Delivery-Out (D. This Auto D. (CDSL) .obligations and credited with receivables on accounts of pay-out dues and refund of margins.
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. This procedure is called Funds Pay-in. etc. the bank accounts of members with seven clearing banks having pay-in positions are debited on the scheduled pay-in day.Demat pay-in: The members can effect demat pay-in either through Central Depository Services (I) Ltd. The Clearing House arranges and tallies the securities received against the receiving member wise report generated on the Pay-in day. In case of the demat securities. the positions are closed out as per the closeout rate fixed by the Exchange in accordance with the prescribed rules. The members are required to give delivery-out instructions so that the securities are considered for pay-in. the members give pay-in instructions to their DP. As regards CDSL. In case of NSDL. effective pay-in date. in case of Weekly settlements. so that securities are processed towards pay-in obligations. settlement type. the members are required to give instructions to their Depository Participant (DP) specifying settlement no. In case the securities are not received in an auction. In case of the Rolling Settlements. pay-in and payout of both funds and securities is on the same day. Alternatively. The auction is conducted for those securities which members fail to deliver/short deliver during the Pay-in. quantity. This is referred to as Payout. (CDSL) or National Securities Depository Ltd. The members are required to give confirmation to their DP. pay-in of funds and securities is on Thursday and payout is on Friday. Once this reconciliation is complete. 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 transferred to Clearing Member (CM) Principal Account. (NSDL). the securities are credited in the Pool Account of the members or the Client Accounts as per the client details submitted by the members. 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. or 20% above the closing price on . In case of Physical securities. The securities are transferred to the Pool Account.
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. 'B2'.e. 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'.. The seller members have to deliver the shares in the Clearing House as per the Delivery Orders downloaded. 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. whichever is higher. 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. and 'F' group scrips and on trade to trade basis. . This database has also been made available to the members so that delivering and receiving members can check the entry of fake. 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. If a seller member is unable to deliver the shares on the Pay-in day for any reason. stolen. 'B1'. i. 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. in case of close-out for shares under objection or traded in "C" group. The Clearing House arrives at the shortages in delivery of various scrips by members on the basis of their delivery obligations and actual delivery.the day prior to the day of auction. The Exchange is also maintaining a database of fake/forged. However.
e. participate in auction of other scrips. The various auction sessions relating to shortages. i. T+5.e. the Clearing House assumes that the shortage of a member is in order and proceeds to auction the same.e. In auction. . The members are required to deliver the shares in the Clearing House on the auction Payin day. in 'C' group.The members can download the statement of shortages on T+3 in Rolling Settlements. i. The auction offers received in batch mode are electronically matched with the auction quantities so as to award the 'best price'. Pay-Out of auction shares and funds is also done on the same day. the sale transaction is closed-out at a close-out price. however. He can. if any.. Odd Lot segment the members are themselves required to report the shortages to the Clearing House. the members are expected to verify the same and report discrepancy . T+5. If no discrepancy is reported within the stipulated time. and bad deliveries are now conducted during normal trading hours on BOLT. it is possible to schedule multiple auction sessions on a single trading day. i. The Exchange issues an Auction Tender Notice to the members informing them about the names of the scrips. 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. In case no offers are received in auction for a particular scrip.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. However.m.. quantity slated for auction and the date and time of the auction session on the BOLT. After downloading the shortage details. if their offers are accepted. to the Clearing House by 1:00 p. determined by higher of the following:. The auction for the undelivered quantities is conducted on T+4 for all the scrips under compulsory Rolling Settlements. The members who participate in the auction session can download the Delivery Orders on the same day. Thus. 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.
Further. This is to ensure that the seller does not benefit from his failure to meet his delivery obligation. It is likely in some circumstances that a selling client of a member has failed to deliver the shares to him. However.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. Self Auction As has been discussed in the earlier paragraphs. However. 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. Further. the difference is recovered from the seller who failed to deliver the scrip. 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. 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. However. the difference is not given to the seller but is credited by the Exchange to the Customers Protection Fund.OR . if the offeror member fails to deliver the shares offered in auction. in such a case. However. the member would require shares so that he can deliver the same to his . in case. auction/ close-out price is lower than standard price. 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. 10% above the closing prices of the scrips on the pay-out day of the respective settlement are considered instead of 20%.
(T+4). i. If a delivering members feels that arbitration awards obtained against him is incorrect. 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. if they are not satisfied with the rectification. 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..buying client..e. The rectified securities are delivered by the Clearing House to the buyer members on the same day (T+5). which otherwise would have taken place from the delivery of shares by the seller. the members have been given an option to submit floppies for conducting self-auction (i. Such floppies are to be given to the Clearing House on the pay-in day. . if any.e. To provide shares to the members. 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 same are required to be checked by them for good delivery as per the norms prescribed by the SEBI in this regard. as if they have defaulted in delivery of shares to the Clearing House). 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. The buyer members. 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). 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. so that they are in a position to deliver them to their buying clients in case of internal shortages. he is required to obtain arbitration award for invalid objection from the members of the Arbitration Review Committee. If the receiving member does not consider the securities good delivery.
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. The following table summarizes the activities involved in the Patawat Objection Cycle of CRS. 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. 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. 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. .
per Delivery Order is levied on the delivering member for delivering shares. A penalty at the rate of Rs. In the event a receiving member misuses the facility of submitting shares under objection without "Chukada".500/. Death Certificate (in cases where one or more of the transferors are deceased) is missing. are not filled. which are not in order. Transferors' Names.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". a penalty of Rs.100/. Stamp of the Registrar of Companies is missing. Signature of the transferor is missing.100/. Details like Distinctive Numbers. Cheques for the dividend adjustment for new shares where distinctive numbers are given in the Exchange Notice is not enclosed. These cases are as follows: Transfer Deed is out of date. etc.per case is charged and the penalty of Rs. in the Transfer Deeds. Witness stamp or signature on Transfer Deed is missing.per Delivery Order levied on the delivering member is refunded to him by debiting the receiving member's account . Delivering broker's stamp on the reverse of the Transfer Deed is missing.
'B1'. 'B1'. or 10% above the closing rate as on the day prior to the day of auction of 'A'. 'B2. the offeror member's account is debited and the buyer member's account is credited at the close-out rate. . 'B2. or Transaction price. 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 original seller member's account is debited and the buyer member's account is credited at the closeout rate. 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'. '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. 20% above the closing rate as on the day prior to the day of auction of the respective settlement. and 'Z' group. In the latter case. and 'Z' group segment of the respective settlements. In the former case.
Odd Lot Segment. i. no auction session is conducted. The shortages are directly closed out.In the 'C' group.e.. .
the original seller member's account is debited and the buyer member's account is credited at the closeout rate. The closeout rates for closing the positions in different segments are as under: .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. fail to deliver the same. In the latter case. In the former case.
and 'Z' group segment of the respective settlements. 'B2. the Exchange has since introduced the index options and options & futures in select . 20% above the closing rate as on the day prior to the day of auction of the respective settlement. enable the investors to hedge their risks. no auction session is conducted. and 'Z' group. 'B2. 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'. '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. or Transaction price. the facility of trading in the Derivatives Segment has been confined to Index Futures.For 'A' + 'B1' + 'B2' + 'Z'. 'B1'. The shortages are directly closed out. Initially.. 'B1'.e. Subsequently. 2000 to. or 10% above the closing rate as on the day prior to the day of auction of 'A'. In the 'C' group. BASKET TRADING SYSTEM The Exchange has commenced trading in the Derivatives Segment with effect from June 9. i. Odd Lot Segment.
The investors in cash market had felt a need to limit their risk exposure in the market to movement in Sensex. the investors are able to buy/ sell all 30 scrips of Sensex in the proportion of their respective weights in the Sensex. where the value of one Sensex basket is arrived at by the system by multiplying Rs. the 14th August 2000. 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. This is expected to have balancing impact on the prices in both cash and futures markets.f. SETTLEMENT SYSTEM Securities traded on BSE are classified into three groups. namely. Monday. . in one go. The Basket Trading System would. Further. specified shares or 'A' group and non-specified securities that are sub-divided into 'B1' and 'B2' groups.50 to prevailing Sensex. 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. To participate in this system the member indicates number of Sensex basket(s) to be bought or sold. thus. meet the needs of investors and also boost the volumes and depth in cash and futures markets.. The Basket Trading System has been implemented by the Exchange w. 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.individual stocks. the Exchange has provided the facility of Basket Trading System on BOLT. The investors are also allowed to create their own baskets by deleting certain scrips from the Sensex basket of 30 scrips. 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. In Basket Trading System.e.
495 relatively liquid securities are placed in a category called 'B1' group. Opportunities available for foreign investors 1. 1996 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. 2. Contracts in this group are allowed to be carried over to subsequent settlements upto a maximum permissible period of 75 days. Investment through Stock Exchanges: .Presently. 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. These companies typically have a large capital base with widespread shareholding. good growth record and a large volume of business in the secondary market. The remaining securities-about 5800 as on May 31. Settlement of transactions is done on an 'Account Period' basis. The Clearing House handles only the money part of 'B2' group while securities are physically exchanged between the brokers. 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. foreigners can even have holding upto 100 per cent. a steady dividend. equity shares of thirty-two companies are classified as specified shares. In certain specific industries. Direct investment: Foreign Companies are now permitted to have a majority stake in their Indian affiliates except in a few restricted industries. All newly listed securities are placed in the 'B2' group.
III. However. 3. However. II. . Disinvestments will be allowed only through a broker of a Stock Exchange. It should not offset a deal. 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. permitted upto 51 per cent in all priority areas. Asset Management Companies/Merchant Banking: Foreign Participation in Asset Management Companies and Merchant Banking Companies is permitted. 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. which is.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. Important requirements under the guidelines are as under: I. 4. 5. Offshore Single/Regional funds. Guideline for the purpose have been issued by SEBI. in applying the ceiling of 24 percent the following are excluded: • Foreign investment under a financial collaboration (DFI). The holding of a single FII in any one company is subject to a ceiling of 5 per cent of the total issued capital. foreign brokers at present are not allowed membership in India Stock Exchanges. A registered FII is required to buy or sell only for delivery. GDR's and Euro convertibles. • Investment by FIIs through following alternative routes. It is also not allowed to sell short.
A comprehensive insurance cover for the Exchange and the members is about to be put in place. which is signed. Guaranteeing trades is the cornerstone of a mature clearing and settlement process. BSE is in the process of establishing a Clearing Corporation that will guarantee trades. The highest arbitrator in the Exchange is the Governing Board. . SAFEGUARDS 1. Transfer-deeds remain valid for twelve months or the next book closure following the stamped date whichever occurs later. Margins are collected from the brokers on buying and selling positions at the end of the day. Companies are required to publish half-yearly unaudited results and other price sensitive information. ARBITRATION MACHINERY There exists three level arbitration machinery. Insider Trading Regulations have been laid down and a 'Take-Over' code has been created. 2. comprise of a two-member bench and a full bench that is to comprise of at least sixteen members respectively. This imparts greater transparency to the stock market operations. 3. A nominal duty becomes payable in the form of stamps to be affixed on the transfer-deeds. The first two levels. Disputes unresolved in the Exchange are taken to the Court of Law.TRANSFER OF OWNERSHIP Transfer of ownership of securities in effected through a date stamped transfer-deed. 4. 5. The duly executed transfer-deed along with the share certificate has to be lodged with the company for change in the ownership. by the buyer and the seller. which are adjudicated by member brokers. The total outstanding position is further subject to capital adequacy norms laid down from time to time.
It comprises of equity shares of 30 companies from both specified and non-specified securities groups. the Exchange does not have power to take penal action against listed companies. GRIEVANCE REDRESSAL The Investor's Services Cell redresses investors' grievances against listed companies and stockbrokers. was compiled. a more broad based index. which are based on market capitalization. This index is made up of 100 scrips. BSE National Index with 1983-84 as base year. Subsequently. The companies have been selected on the basis of market activity. The corpus of the fund is created by depositing 2.5% of the listing fees and a levy on turnover at the rate or Re. 00. 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. The investor is indemnified from default to the extent of Rs.1.CUSTOMER PROTECTION FUND The objective of this fund is to provide insurance to investors in case of default by a member.000. However.1 for Rs. except delisting for specified periods. 98 of which are quoted on . 1 million of turnover. 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. INDICES The Exchange compiles four indices. The first index to be compiled was the BSE Sensitive Index with 1978-79 as the base year.
This index also includes prices on the other major stock exchanges of Delhi. is called the Dollex. laid down by the Securities and Exchange Board of India. DISCLOSURE & LISTING NORMS Companies who wish to raise money from capital market follow guidelines relating to disclosure. which is more representative of the recent changes and is more balanced is necessary. which have been selected on the basis of market capitalization. As the presence of the foreign investors grew. 1989-90 has been chosen as the base year for BSE-200. This index. . which was introduced in May 1994. it was felt that a new index. 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.Bombay. The BSE-200. 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. Ahmedabad and Madras. consists of equity shares of 200 companies. If scrip is actively quoted on more than one Exchange the average price of the scrip is used in the compilation of the index. Calcutta. a need was felt to express the index values by taking into account the Rupee-Dollar conversion rate. volume of turnover and strength of the companies' fundamentals. income. Consequently. which indicates the movement of the market in dollar values. It was felt that the sensitive index-the most popular indicator of market movementhad become oversensitive to a handful of scrips. 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.
Having operationalised both the debt and equity markets.7 crores in November 1994 to Rs. Stockholding corporation. Trading volumes in the equity segment have grown rapidly with average daily turnover increasing from Rs. fully automated screen based trading.13. namely. 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.INTRODUCTION The National Stock Exchange (NSE) is India's leading stock exchange covering around 400 cities and towns all over India. India has had a history of stock exchanges limited in their operating jurisdiction to the cities in which they were set up. Infrastructure leasing and finance and so on. which transcends geographical barriers. NSE reported a turnover of Rs. The NSE represented an attempt to overcome the fragmentation of regional markets by providing a screen-based system. 1994 and within a short span of 1 year became the largest exchange in India in terms of volumes transacted. . During the year 2000-2001. which will provide futures and options in equity. 39. To set up a nation wide trading facility for equities.6797 crores in February 2001 with an average of 9. the NSE has been cosponsored by other development/ public finance institutions.510 crores in the equities segment accounting for 45% of the total market. GIC. NSE introduced for the first time in India. NSE started equity trading on November 3. LIC. the NSE is planning for a derivative market. Sponsored by the industrial development bank of India.6 lakh trades on a daily basis. To ensure equal access to investors across the country through an appropriate communication network. It provides a modern. Its main objectives has been to set up comprehensive facilities for the entire range of securities under a single umbrella. debt instruments and hybrids. banks and other financial institutions such as SBI Capital Market.
NSE uses sophisticated telecommunication technology through which members can trade remotely from their offices located in any part of the country. . To provide a fair. Constitution The NSE has two segments for trading in securities: Wholesale Debt Market (WDM) and Capital Market (CM). NSE trading terminals are present in around 400 cities and towns all over India. To ensure shorter settlement cycles and book entry settlement systems. 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. efficient and transparent securities market to investors using the electronic trading system. 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. Securities listed on the Exchange are required to fulfill the listing eligibility criteria. and To meet the current international standards prevalent in the securities Industry/markets. This section provides a direct link to the web site of companies traded on the Exchange. Various types of securities of a company are traded under a unique symbol and different series. Separate membership is required for each segment.
Saturdays and Sundays are excluded. NSE holidays. The whole time directors/dealers of thess Trading mechanism Rolling Settlement In a rolling settlement. which include bank holidays. Institutional Segment Trading in this market segment is available for institutional investors only. For arriving at the settlement day all intervening holidays. trading members are allowed to enter sell orders in this market segment only for their FII clients. subsidiaries of banks and financial institutions. 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. In NSE. The persons eligible to become TMs are body corporates.Trading members They are recognized members of NSE. In this segment quantities not exceeding 500 shares of each security held in the name of the investor can be traded. In order to ensure that the overall FII ceiling limits are not violated. They are selected on the basis of a comprehensive selection criterion. 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.e. Typically trades taking place on Monday shall be settled on the next Monday. Limited Physical Market Pursuant to SEBI guidelines. on the 5th working day. the trades in rolling settlement are settled on a T+5 basis i. Tuesday's trades shall be settled on the next Tuesday and so on. . However.
which adopts the principle of an order driven market. This resulted in a great deal of uncertainty and high transaction costs. This has helped reduce jobbing spreads not only on NSE but in other exchanges as well. 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. . NSE consciously opted in favour of an order driven system as opposed to a quote driven system. The list of these securities is notified by SEBI from time to time. Trading System NSE operates on the 'National Exchange for Automated Trading' (NEAT) system. irrespective of location. thus reducing transaction costs. NSE has made it possible for an investor to access the same market and order book. Till the advent of NSE. which have not established connectivity with both the depositories as per SEBI directive. Trade for Trade Segment Trading in this segment is available only for those securities.members can enter buy orders on behalf of FII/FI clients. The settlement of transactions in this segment is in demat mode only. a fully automated screen based trading system. at the same price and at the same cost.
They are: Normal Market All orders which are of regular lot size or multiples thereof are traded in the Normal Market. These orders do not have any special terms attributes attached to them. 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. which are traded in the compulsory dematerialised mode the market lot of these shares. Odd Lot Market All orders whose order size is less than the regular lot size are traded in the odd-lot market. both the price and quantity of both the orders (buy and sell) should exactly match for the trade to take place. the Exchange on behalf of trading members for settlement related reasons initiates’ auctions. Special Term orders. Currently the Spot Market is being used for the Automated Lending & Borrowing Mechanism (ALBM) session.Market Types The NEAT system in NSE has four types of market. is one. For shares. Normal market consists of various book types wherein orders are segregated as Regular lot orders. Negotiated Trade Orders and Stop Loss orders depending on their order attributes. . Auction Market In the Auction Market. In an odd-lot market. An order is called an odd lot order if the order size is less than regular lot size. Currently the odd lot market facility is used for the Limited Physical Market as per the SEBI directives.
. Initiator The party who initiates the auction process is called an initiator. by time priority-Time priority means if two orders having the same price are entered. Order Books The NSE trading system provides complete flexibility to members in the kinds of orders that can be placed by them. If a match is not found.There are 3 participants in this market. the order having the best price gets the higher priority. Orders are first numbered and time-stamped on receipt and then immediately processed for potential match. Competitor The party who enters orders on the same side as of the initiator is called a Competitor. Within Price. then the orders are stored in different 'books'.Price priority means that if two orders are entered into the system. Orders are stored in price-time priority in various books in the following sequence: Best Price. 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. the order that is entered first gets the higher priority.
The stop loss condition is met under the following circumstances: Sell order . 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. These entries are matched with identical counterparty entries only. 3. the order is released in the Regular lot book. 4.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. . a) All or None (AON) b) Minimum Fill (MF) c) Stop Loss (SL) 2. 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.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. When the trigger price is reached or surpassed. Stop-Loss Book Stop Loss orders are stored in this book till the trigger price specified in the order is reached or surpassed. It is to be noted that these entries contain a counter party code in addition to other order details. Regular Lot Book The Regular Lot Book contains all regular lot orders that have none of the following attributes attached to them. special term orders i.
Currently. Currently the Spot Market book type is being used for conducting the Automated Lending & Borrowing Mechanism (ALBM) session. The system attempts to match an active odd lot order against passive orders in the book. 6. Spot Book The Spot lot book contains all spot orders (orders having only the settlement period different) in the system. The matching process for auction orders in this book is initiated only at the end of the solicitor period. 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. The system attempts to match an active spot lot order against the passive orders in the book. This is referred as the Limited Physical Market (LPM). 7. Auction Book This book contains orders that are entered for all auctions. Odd Lot Book The Odd lot book contains all odd lot orders (orders with quantity less than marketable lot) in the system.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. 5. .
a seller would obviously like to sell at the highest possible buy price that is offered. Alternatively.Order Matching Rules The best buy order is matched with the best sell order. Orders are always matched at the passive order price. An order may match partially with another order resulting in multiple trades. Order Conditions A Trading Member can enter various types of orders depending upon his/her requirements. 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. Orders lying unmatched in the system are 'passive' orders and orders that come in to match the existing orders are called 'active' orders. This ensures that the earlier orders get priority over the orders that come in later. the best buy order is the order with the highest price and the best sell order is the order with the lowest price. of all buy orders available in the market at any point of time. 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. These conditions are broadly classified into three categories: time related conditions. price-related conditions and quantity related conditions. So. Hence. Members can proactively enter orders in the system. For example Time Conditions . For order matching. members may be reactive and put in orders that match with existing orders in the system. the best buy order is the one with the highest price and the best sell order is the one with the lowest price.
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. AON . AON and MF orders are not available on the system as per SEBI directives. GTC . and the unmatched portion of the order is cancelled immediately. GTD . The Exchange notifies the maximum number of days a GTC order can remain in the system from time to time. At the end of this period the order will get flushed from the system. The days/date counted are inclusive of the day/date on which the order is placed. The Exchange notifies the maximum number of days a GTD order can remain in the system from time to time. If the full order is not matched it will stay in the books till matched or cancelled. It will therefore be able to span trading days if it does not get matched.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. as the name suggests. Partial match is possible for the order. Note: Currently.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.A Day order. the order gets cancelled automatically at the end of the trading day. Price Conditions Limit Price/Order . If the order is not matched during the day. is an order which is valid for the day on which it is entered. failing which the order will be removed from the market. This may be by way of multiple trades. IOC . DAY . Each day/date counted is a calendar day and inclusive of holidays.
Until then the order does not enter the market. the trigger is 93.An order with a DQ condition allows the Trading Member to disclose only a part of the order quantity to the market. 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. Market Price/Order An order to buy or sell securities at the best price obtainable at the time of entering the order.00 and the market (last traded) price is 90.00. This order is added to the regular lot book with time of triggering as the time stamp.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. which allows the price to be specified while entering the order into the system. the limit price is 95. as a limit order of 95. another 200 is automatically released and so on .g. 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. If for stop loss buy order.00 Quantity Conditions Disclosed Quantity (DQ).00. then this order is released into the system once the market price reaches or exceeds 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. For example.An order. e.
Market Movement.Minimum Fill (MF) orders allow the Trading Member to specify the minimum quantity by which an order should be filled. MF . In other words there will be a maximum of 5 trades of 200 each or a single trade of 1000. 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. 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. Market By Price. Auction . For example. Trading Workstation The trader workstation is the terminal from which the member accesses the trading system. The Exchange may lay down norms of MF from time to time. The Exchange may set a minimum disclosed quantity criteria from time to time. Market Inquiry.till the full order is executed. Tool Bar A window with different icons which provides quick access to various functions such as Market By Order. 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. an order of 1000 units with minimum fill 200 will require that each trade be for at least 200 units. Trading system name and date. 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. A member can have several user IDs allotted to him by which he can have more than one employee using the system concurrently.
the Last Traded Price (LTP). rights etc. Order Cancellation. interest.Inquiry. For each security. Snap Quote. On line index and Index Inquiry . 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. Invoking the Security List and selecting the securities from the window can also set up securities. To monitor various securities.. best sell price. Previous Trades. A third field indicates the market type.). Order Modification. The market information displayed is for the current best price orders available in the regular lot book. market information is dynamically updated on a real time basis. which appear in the ticker. total sell order quantity for the best sell price. Net Position. Order Status.g. "SUSPENDED" appears in front of the security. Ticker Window The ticker displays information about a trade as and when it takes place. Security List and Help. Supplementary Menu. Ex or cum dividend. For each security in the Market Watch window. If the security is suspended. the trading member can set them up by typing the Security Descriptor consisting of a Symbol field and a Series field. Outstanding Orders. Online Backup. which are of interest to the Trading Member. the total buy order quantity for the best buy price. Sell order entry. All these functions are also available on the keyboard. The user has the option to set-up the securities. Activity Log. the corporate action indicator (e. Buy order entry. The Symbol field incorporates the Company name and the Series field captures the segment/instrument type. Market Watch Window The Market Watch window is the main area of focus for a Trading Member. The purpose of Market Watch is to view market information of pre-selected securities. Market Watch.
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. Stop Loss orders. The information is displayed for each order. the user has the information on the current value of the Nifty.With every trade in a security participating in Index. Inquiry Window In this window. Low and current index values at the time of invoking this inquiry screen. High. Activity Log. the inquiries such as Market by Order. 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. Outstanding Orders (OO) . Market by Price. Previous Trades (PT) The purpose of this window is to provide information to users for their own trade. Index Inquiry gives information on Close. Open. which are not triggered will not be displayed on the window. Outstanding Orders. Buy orders are displayed on the left side of the window and Sell orders on the right side. Order Status and Market Inquiry can be viewed. The orders are presented in a price/time priority with the "best priced" order at the top. Previous Trades. This value is displayed at the extreme right hand corner of the ticker window.
High. 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. Previous close. Most Active Securities and Net Position useful. it has been modified or has been cancelled. Last traded price change indicator. The details include total buy and sell order quantity value. High. . It displays information only of those orders in which some activity has taken place. but is not yet completely traded or cancelled. An outstanding order will be an order that was entered by the user. Market Inquiry (MI) Market Inquiry enables the user to view the market statistics like Open.The purpose of Outstanding Orders is to enable a Trading Member to view his/her own outstanding buy or sell orders for a security. Last traded price etc. Low. Open. the trade details are also displayed. Current status of the order and other order details are displayed. These are available in the supplementary menu. It gives details of the movement of the scrip for a time interval. In case the order is traded. which have been performed on any order of the Trading Member such as whether. Activity Log (AL) The Activity Log shows the activities. Order Status (OS) Order Status enables the user to look into the status of a specific order. date and time etc. Low. Last traded quantity. the order has been traded against fully or partially. which have entered the books but have not been matched (fully or partially) or modified or cancelled. It does not display orders.
The trade confirmation slip contains the order and trade no. order no. security name. Snap Quote The Snap Quote feature allows a Trading Member to get instantaneous market information on any desired security.. price and quantity traded.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. The system will request re-confirmation of an order so that the user is cautioned before the order is finally released into the market.. Net Position This functionality enables the user to interactively view his net position for all securities in which he has traded. Orders and trades are identified and linked by unique numbers so that the investor can check his order and trade details. This is normally used for securities which are not already on display in the Market Watch window. Order/Trade Window Order entry mechanisms enable the Trading Member to place orders in the market. The order confirmation slip contains among other things. . amount etc. Orders once placed on the system can be modified or cancelled till they are matched. order conditions like disclosed or minimum fill quantity etc. Once orders are matched they cannot be modified or cancelled. There is a facility to generate online order/trade confirmation slips as soon as an order is placed or a trading is done. trade time. price. The information presented is the same as that of Market Watch window. date. quantity.
subject to . integration of back-office operations etc.Systems Message Window This window is used to view messages from the Exchange to all specific Trading Members. risk management tools. Off Line Order Entry A member is able to make an order entry in the batch mode. 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. This Computer-to-Computer Link (CTCL) facility is available only to trading members of NSE. 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. The dealers of the member may trade using the software remotely through the member's own private network. There is an option to copy the file to any drive of the computer or on a floppy diskette. Members can use software customised to meet their specialized needs like provision of on-line trade analysis. 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. Trading members find this convenient in their back office work. Through CTCL facility Trading Members can use their own software running on any suitable hardware/software platform of their choice.
to provide counter-party risk guarantee.approvals from Department of Telecommunication etc. National Securities Clearing Corporation Limited National Securities Clearing Corporation Ltd. nets the positions to determine the liabilities of members and ensures movement of funds and securities to meet respective liabilities. was incorporated in August 1995 and commenced clearing operations in April 1996. 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. account period settlement for dealings in physical securities and dematerialized securities. It aggregates trades over a trading period. as may be required in this regard. 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. It has been set up with a philosophy to sustain confidence in clearing and settlement of securities. It provides a facility for multiple settlement mechanisms including. short and consistent settlement cycles. a wholly owned subsidiary of NSE. the Over the Counter Exchange of India. It operates a well-defined settlement cycle and there are no deviations or deferments from this cycle. promoting and maintaining. 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 also undertakes settlement of transactions on other stock exchanges like. and to operate a tight risk containment system. It assumes the counter-party risk of each member and guarantees financial settlement. 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. (NSCCL). . rolling settlement (T+5 basis) in dematerialized segment etc.
coupled with liquidity. Before an investor start believing in the stories of superlative returns (in excess of 20 per cent). 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. returns could diminish to just around 6-8 per cent a year. 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. unfortunately. it is imperative that one takes a hard. 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. Investors need to be aware of the problems. Thus. Although nay Sayers might feel that vyaj badla provides an investor with an opportunity to maximize his earnings in a .BADLA TRADING Badla is a complex system that contains many a pitfall for the uninitiated and the unwary. And then the taxman cometh! Vyaj badla transactions began to be treated as purchase and sale of shares. but when the market was under a bear hug. But having said that. thus getting subjected to capital gains tax of 30 per cent. safety and flexibility. especially when brokers on BSE and other regional stock exchanges are marketing vyaj badla schemes to their clients aggressively. rational look at the entire mechanism. This rosy picture could well be a reality during a bull run.
while eight sellers effect delivery. The demand and supply of funds and shares determined this rate. This financier charged interest (badla) for the money paid on behalf of the two buyers for them. .bull market. An outstanding "buy" position in a stock sees a "seedha badla" where the financiers participate. the fact remains that it is a good option for the experienced investor. Prior to the commencement of this session. Six buyers and six sellers got squared off. How did the Badla function? Assume that there had been 12 trades of 100 shares each in "ABC" stock. 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. brokers who were sure of taking or making delivery of shares mark their respective "for delivery" positions. Of the sellers. eight wished to deliver the shares while four were keen on carrying their positions forward. To ensure payment to the remaining two sellers for their 200 shares. Specified quantities of the stock on offer are bought and sold at the financier's desired interest rate . forming the financier's collateral. by deducting them from the broker's weekly out standings. the base price (hawala rate) is fixed. Among the buyers. which was normally the closing price of the scrip on Friday. and there are 12 separate buyers and sellers respectively. while six wanted to carry forward their positions. the nerve-wracking tension that accompanies stock market fluctuations may well take its toll. 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. vyaj badla financiers came in. six want to take delivery. This helped the exchange to arrive at the net outstanding positions on Friday evening (the last day of the settlement on BSE). Now six buyers made the payment for their purchases.the badla rate. Else. An outstanding "sell" position in the stock sees an "ulta" or "undha badla" where the stock lenders participate. On the BSE.
This should be reflected in the badla bills. Memberships on BSE are split between type-I and type-II brokers. If the financier wants to pay for 100 shares at 20 per cent per annum and the trade gets matched. Badla rates vary between stocks. while the other would show a sale of 100 shares at Rs 69. the interest rate is converted into a weekly figure. which would have two entries. These rates fluctuate considerably throughout the session. let's assume the hawala rate to be Rs 69. the financier can either receive the difference or roll over his/her money to a new badla transaction. and also market perception. In this case. For getting the weighted average return on badla finance. you should approach the type-I broker.38 percent works out to 26 paise.38 per cent.In this case. this 0. Only the former can carry out badla trades. The broker would give the financier a badla bill or informal contract note.26 per share. brokers using the discretionary allocation of stocks to the badla account should pay a weighted average return to each client. it would be 0. And the stock selection too is at their discretion. if you are keen on becoming a vyaj badla financier. depending upon their demand and supply. as you would be one among a lot of clients whose money has been collectively invested in vyaj badla. The difference will be the financiers earning for that week. The terminals would constantly keep flashing the best badla rate and the best annual yield for each stock on offer for a particular quantity. . Most brokers don't accept anything less than Rs 1 lakh per client for badla financing. for they maintain higher margins with the exchange. it is advisable to look for brokers who have automated this process. Ideally. Hence. Who can participate? Not all brokers can participate in the badla process. A constant fluctuation in these values during the two-and-a-half hour session is due to the constant change in demand and supply. With the next trading cycle ending. One would show a purchase of 100 shares at Rs 69 per share. But it would be prudent for you to know the basis of allocation of stocks to you. On the hawala rate of Rs 69.
the financier is in a larger mess. trimming down your annual yield further. Apart from the large institutional brokers. Given the quirks of the vyaj . By virtue of the exchange's settlement cycle. one cannot avoid brokerage in a vyaj badla transaction too. So factor in those extra days while calculating your actual return. Although vyaj badla is considered to be an effective short-term instrument.As in any other market transaction. This further reduces your yield. Brokerage for such deals could range between 1-2. the delay in the release of your money can be detrimental. The BSE's Trade Guarantee Fund could be of some succour and solace in these situations. but just that. In the recent history of BSE. as is the case with all such instruments. Badla positions taken by them sometimes go up to 15-20 times their net worth. your money gets released within a ten-day period. there have been instances of brokers (having large carryforward positions in highly speculative stocks) defaulting. But his risk erosioned in the value of the share during the days that it takes to release the shares. the prices had dipped sharply by the time the financiers got their shares. And then you could bid goodbye to your money too. While opting out. on which he had a lien through his Badla bill. It is advisable to enter into a firm brokerage percentage prior to the commencement of the relationship. he got the shares held in the exchange's clearinghouse against his broker’s name. As in the case of defaults. Even a 10 per cent downward shift in their position would wipe out the broker's entire net worth. Although these shares were enjoying very high badla rates at the time of the default. most brokers on BSE have a net worth of Rs 1-2 crore.5 per cent. If the broker defaults. 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. always time your exit. the delay can really eat into your returns. Are investors safe? What is the investor’s safeguard in times of default? If the forward buyer defaults.
Hence.badla transactions and the inherent risks involved. the investor has to put up only the margin money. But an instrument that may be more in line with the domestic market structure -. . As delivery of futures contracts is on a future date. But a similar opportunity is not available to the speculator-investor to sell options in the underlying scrip.a process that has undoubtedly improved national productivity growth and standards of living. he can leverage on the margins to buy more units of the underlying security. 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. Single-stock futures are a way to reap the benefits of a stock's performance without actually owning the stock. the Securities and Exchange Board of India (SEBI) permitted the BSE and the NSE to introduce more derivatives. Hence. because margins in futures trading are lower than in options. it can be concluded that amateurs should stay away .is not under consideration. such as options on indices and individual stocks. These instruments enhance the ability to differentiate risk and allocate it to those investors most able and willing to take it -.. Cheaper.it is strictly for the pro and the strong hearted. -. 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.Fed Chairman Alan Greenspan Following the introduction of index futures.single-stock futures -.. But the valuation of futures contracts are not as complicated as that of options. they offer the benefits of ownership. small investors find them relatively easy to understand and use. of leveraging the stock or its underlying asset.
For instance. it is difficult to foresee a lot of interest in the options market. the margin requirements are quite high. So. there is excessive risk for the options-writer and transactions costs could be high. his risk is limited to the premium paid for purchasing the right. they may not be allowed to write options.Trading options: Trading options are riskier than futures. However. that for index options works out to the commission received plus around 15 per cent of the contract's notional value. Thus. in international markets. to limit default in the market. the regulations prevent funds from taking speculative positions in the spot market. in this situation. the writer is under an obligation to deliver. Market making in options depends to a great extent on institutions willing to write the contracts. Hence. But given that there are few takers for the futures market. while the margin rate for index futures contracts is around 5 per cent. This is purely from the options-writer's perspective. Since the buyer of an option contract is not under any obligation to exercise his right. Exchanges normally guarantee the writer's position. This means the risk borne by the option-writer is enormous. . A market exists only if there is a writer and a buyer. Currently.
Raja Raman A review (Volume IV. 2001) May. 2001 .Bibliography 1) Stock exchanges in India 2) Indian securities market 3) NSE News 4) www.nseindia.com 5) www.com : : : V.bseindia.
104. PROJECT GUIDE PROF. MUMBAI-400077. TYBMS SIXTH SEMESTER 2001-2002.WORKING OF STOCK EXCHANGES IN INDIA (WITH REFERENCE TO BSE AND NSE) BY SHARMA MUKTA A/22 SATI KRUPA BLDG. GARODIA NAGAR. GHATKOPER (E). PLOT NO. PARVATI VENKATESH FROM .
SCIENCE AND COMMERCE. I take this opportunity to express my sincere gratitude to Respected Prof. K. the Principal. 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. SOMAIYA COLLEGE OF ARTS. Stock Holding Corporation of .K.K. Venkatramani. Prof. S. Parvati Venkatesh. Science & Commerce and our Course Coordinator. Somaiya College of Arts.Dilip Adani. not have inspiration motivation. without I whose could guidance. Stock Exchange. broker. VIDYAVIHAR (E). and Ms. completed this project successfully. MUMBAI-400077. who simultaneously is my project guide and also.S. Mumbai. My respect and grateful thanks to Mr.Gitanjali Madan.
INDEX. Introduction. courage and patience to complete this project. Settlement and clearing. Light on stock exchange and it services. Last but not the least. BSE Sensex. Capital listed and market capitalization. I am thankful to the Almighty for giving me strength.India Ltd. Role of SEBI. for their valuable assistance in completion of this project. . Executive summary. Bombay Stock Exchange. Terminologies associated with stock exchanges. Demat pay in. Introduction. Trading system.
Opportunities for foreign investors. Constitution. Trading members. Future developments. National Securities Clearing Corporation Limited. Grievances redressal. Safeguards. Introduction. . Quantity conditions. Closing system. Transfer of ownership. Order books. Trading workstation. Computerized trading. Arbitration machinery. Disclosures and listing norms. Basket trading system. Order conditions. Disciplinary actions. Listing. Trading mechanism. Indices. Market types. National Stock Exchange. Shortages and objections. Locations. Order matching rules. Settlement system. Computation of closing price. Customer protection fund. Computer to computer links facility.
. Trading options. Badla trading. Financial derivatives. Bibliography. Substitutes for Badla.
The report is divided in three parts. introduction of securities market. value investing has rewarded long term investors. The third part is the Case. attached with the report. ie. The second part is the study made of different methods of trading and In all they offer 9 different avenues for investing. their characteristics. role of SEBI etc. which is also taken from Franklin Templeton India Ltd. first being that growth and value do not move in tandem.EXECUTIVE SUMMARY The project is an attempt to working of stock exchanges in detail. The focus is basically with Indian context. which have been explained in length in the pages to come. and the third one as. concept of stock exchanges. value stocks have provided low relative volatility over time. The first dealing with the theory. their role in economy. It provides thorough knowledge of different aspects of trading in stock exchanges. . second being. The case speaks about 3 facts of investing.
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