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Securities and Exchange Board of India Securities Market Regulatory Body in India SEBI Bhavan, Mumbai Headquarters of SEBI

INTRODUCTION The Stock Exchange, Mumbai, popularly known as "BSE" wasestablished in 1875 as "The Native Share and Stock Brokers Association", as avoluntary non-profit making association. It has evolved over the years into itspresent status as the premier Stock Exchange in the country. It may be noted thatthe Stock Exchanges is the oldest one in Asia, even older than the Tokyo Stock Exchange, which was founded in 1878. The Exchange, while providing an efficient and transparent market fortrading in securities, upholds the interests of the investors and ensures redressal of their grievances, whether against the companies or its own member-brokers. It alsostrives to educate and enlighten the investors by making available necessaryinformative inputs and conducting investor education programmes. A Governing Board comprising of 9 elected directors (one third of them retire every year by rotation), two SEBI nominees, a Reserve Bank of Indianominee, six public representatives and an Executive Director is the apex body,which decides the policies and regulates the affairs of the Exchange. The Executive Director as the Chief Executive Officer is responsiblefor the day-to-day administration of the Exchange. The average daily turnover of the Exchange during the year 20002001(April-March), was Rs.3984.19 crores and average number of daily trades was 5.69lakhs. However, the average daily turnover of the Exchange during the year 2001-2002 has declined to Rs. 1244.10 crores and number of average daily trades duringthe period to 5.17 lakhs. The ban on all deferral products like BLESS and ALBM inthe Indian capital Markets by SEBI w.e.f. July 2, 2001, abolition of account periodsettlements, introduction of Compulsory Rolling Settlements in all scrips traded onthe Exchanges w.e.f. December 31, 2001, etc. have adversely impacted the liquidityand consequently there is a considerable decline in the daily turnover at theExchange.

What is a share? A share represents the smallest recognized fraction of ownership in a publicly heldbusiness. Each such fraction of ownership is represented in the form of a certificateknown as a share certificate. The breaking up of total ownership of a business intosmall fragments, each fragment represented by a share certificate, enables them tobe easily bought and sold. What is a stock exchange? The institution where this buying and selling of shares essentiallytakes place is the Stock Exchange. In the absence of stock exchanges, ie. Institutionswhere small chunks of businesses could be traded, there would be no modernbusiness in the form of publicly held companies. Today, owing to the stock exchanges, one can be part owners of one company today and another companytomorrow; one can be part owners in several companies at the same time; one canbe 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 marketinto financial assets, namely shares, stock exchanges bring together buyers andsellers (or their representatives) of fractional ownerships of companies. And for thatvery reason, activities relating to stock exchanges are also appropriately enough,known as stock market or security market. Also a stock exchange is distinguishedby a specific locality and characteristics of its own, mostly a stock exchange is alsodistinguished by a physical location and characteristics of its own. In fact, accordingto H.T.Parekh, the earliest location of the Bombay Stock Exchange, which for a longperiod was known as the native share and stock brokers association, wasprobably 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 tradingof securities outside exchanges. Until recently, the area of operation/ jurisdiction of exchange was specified at the time of its recognition, which in effect precludedcompetition among the exchanges. These are called regional exchanges. In order toprovide an opportunity to investors to invest/ trade in the securities of localcompanies, it is mandatory foe the companies, wishing to list their securities, to liston the regional stock exchange nearest to their registered office.

Characteristics of Stock Exchanges in India Traditionally, a stock exchange has been an association of individual memberscalledmember brokers (or simply members or brokers), formed for the express purpose of regulating and facilitating buying and selling of securities by the public andinstitution at large. A stock exchange in India operates with due recognition from the governmentunder theSecurities and Contracts (Regulations) Act, 1956. the member brokers areessentially the middlemen who carry out the desired transactions in securities onbehalf of the public(for a commission) or on their own behalf. New membership to aStock Exchange is through election by the governing board of that stock exchange. At present, there are 23 stock exchanges in India, the largest among them beingtheBombay Stock Exchange. BSE alone accounts for over 80% of the total volume of transactions in shares. Typically, a stock exchange is governed by a board consisting of directors largelyelectedby the member brokers, and a few nominated by the government. Governmentnominee include representatives of the ministry of finance, as well as some publicrepresentatives, who are expected to safeguard the public interest in the functioningof the exchanges. A president, who is an elected member, usually nominated by thegovernment from among the elected members, heads the board. The executivedirector, who is usually appointed by the by the stock exchange with thegovernment approval is the operational chief of the stock exchange. His duty is toensure that the day to day operations the Stock Exchange are carried out inaccordance with the various rules and regulations governing its functioning. 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. All companies wishing to raise capital from the public arerequired to list their securities on at least one stock exchange. Thus, all ordinaryshares, preference shares and debentures of the publicly held companies are listedin the stock exchange.

Exchange management Made some attempts in this direction, but this did not materially alterthe situation. In view of the less than satisfactory quality, of administration of broker-managed exchanges, the finance minister in march 2001 proposeddemutualisation of exchanges by which ownership, management and tradingmembership would be segregated from each other. The regulators are workingtowards implementing this. Of the 23 stock exchanges in India, two stock exchangesviz., OTCEI and NSE are already demutualised. Board of directors, which do notinclude trading members, manages these. Theses are purest form of demutualisedexchanges, where ownership, management and trading are in the hands of three setsof people. The concept of demutualisation completely eliminates any conflict of interest and helps the exchange to pursue market efficiency and investors interestaggressively.

Role of SEBI The SEBI, that is, the Securities and the Exchange Board of India, is thenational regulatory body for the securities market, set up under the securities andExchange Board of India act, 1992, to protect the interest of investors in securitiesand to promote the development of, and to regulate the securities market and formatters connected therewith and incidental too. SEBI has its head office in Mumbai and it has now set up regional officesin the metropolitan cities of Kolkata, Delhi, and Chennai. The Board of SEBIcomprises a Chairman, two members from the central government representing theministries of finance and law, one member from the Reserve Bank of India and twoother members appointed by the central government. As per the SEBI act, 1992, the power and functions of theBoard encompass the regulation of Stock Exchanges and other securities markets;registration and regulation of the working stock brokers, subbrokers, bankers toan issue (a public offer of capital), trustees of trust deeds, registrars to an issues,merchant bankers, under writers, portfolio managers, investment advisors and suchother intermediaries who may be

associated with the stock market in any way;registration and regulations of mutual funds; promotion and regulation of self-regulatory organizations; prohibiting Fraudulent and unfair trade practices andinsider trading in securities markets; regulating substantial acquisition of sharesand takeover of companies; calling for information from,undertking inspection,conducting inquiries and audits of stock exchanges, intermediaries and self-regulatory organizations of the securities market; performing such functions andexercising such powers as contained in the provisions of the Capital Issues (Control)Act,1947 and the Securities Contracts (Regulation) Act, 1956, levying various feesand other charges, conducting necessary research for above purposes andperforming such other functions as may be prescribes from time to time. SEBI as the watchdog of the industry has an important and crucial role in themarket in ensuring that the market participants perform their duties in accordancewith the regulatory norms. The Stock Exchange as a responsible Self RegulatoryOrganization (SRO) function to regulate the market and its prices as per theprevalent regulations. SEBI and the Exchange play complimentary roles to enhancethe investor protection and the overall quality of the market. Membership The trading platform of a stock exchange is accessible only to brokers.The broker enters into trades in exchanges either on his own account or on behalf of clients. The clients may place their order with them directly or a sub-brokerindirectly. A broker is admitted to the membership of an exchange in terms of the provisions of the SCRA, the SEBI act 1992, the rules, circulars, notifications,guidelines, etc. prescribed there under and the byelaws, rules and regulations of theconcerned exchange. No stockbroker or sub-broker is allowed to buy, sell or deal insecurities, unless he or she holds a certificate of registration granted by SEBI. Abroker/sub-broker compiles with the code of conduct prescribed by SEBI. The stock exchanges are free to stipulate stricter requirements forits members than those stipulated by SEBI. The minimum standards

stipulated byNSE for membership are in excess of the minimum norms laid down by SEBI. Thestandards for admission of members laid down by NSE stress on factors, such as,corporate structure, capital adequacy, track record, education, experience, etc. andreflect the conscious endeavors to ensure quality broking services. Listing Listing means formal admission of a security to the trading platformof a stock exchange, invariably evidenced by a listing agreement between the issuerof the security and the stock exchange. ; Listing of securities on Indian Stock Exchanges is essentially governed by the provisions in the companies act, 1956,SCRA, SCRR, rules, bye-laws and regulations of the concerned stock exchange, thelisting agreement entered into by the issuer and the stock exchange and thecirculars/ guidelines issued by central government and SEBI. Index services Stock index uses a set of stocks that are representative of the wholemarket, or a specified sector to measure the change in overall behavior of themarkets or sector over a period of time. India Index Services & Products Limited(IISL), promoted by NSE and CRISIL, is the only specialized organization in thecountry to provide stock index services. Trading Mechanism All stock exchanges in India follow screen-based tradingsystem. NSE was the first stock exchange in the country to provide nation-wideorderdriven, screen-based trading system. NSE model was gradually emulated byall other stock exchanges in the country. The trading system at NSE known as theNational Exchange for Automated Trading (NEAT) system is an anonymous order-driven system and operates on a strict price/time priority. It enables members fromacross the countries to trade simultaneously with enormous ease and efficiency. NEAT has lent considerable depth in the market by enabling large number of members all over the country to trade simultaneously and consequently narrowedthe spreads significantly. A single consolidated

order book for each stock displays,on a real time basis, buy and sell orders originating from all over the country. Thebookstores only limit orders, which are orders to buy or sell shares at a statedquantity and stated price. The limit order is executed only if the price quantityconditions match. Thus, the NEAT system provides an open electronic consolidatedlimit order book (OECLOB). The trading system provides tremendous flexibility tothe users in terms of kinds of orders that can be placed on the system. Several time-related (Good-Till-Cancelled, Good-TillDay, Immediate-or-Cancel), price related(buy/sell limit and stop-loss orders) or volume related (All-or-None, Minimum Fill,etc.) conditions van be easily built into an order. Orders are sorted and matchautomatically by the computer keeping the system transparent, objective and fair.The trading system also provides complete market information on-line, which isupdated on real time basis. The trading platform of the CM segment of NSE isaccessed not only from the computer terminals from the premises of brokers spreadover 420 cities, but also from the personal computers in the homes of investorsthrough the internet and from the hand-held devices through WAP. The tradingplatform of BSE is also accessible from 400 cities. Internet trading is available on NSE and BSE, as of now. SEBI has approved the useof Internet as an order routing system, for communicating clients orders to theexchanges through brokers. SEBIregistered brokers can introduce internet-basedtrading after obtaining permission from the respective Stock Exchanges. SEBI hasstipulated the minimum conditions to be fulfilled by trading members to startinternetbased trading and services. BSE /NSE

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NSE was the first exchange in the country to provide web-based access to investorsto trade directly on the exchange. It launched Internet trading in February 2000. Itwas followed by the launch of Internet trading by BSE in March 2001. The ordersoriginating from the personal computers (PCs) of investors are routed through theInternet tot eh trading terminals of the designated brokers with whom they haverelations and further to the exchange of trade execution. Soon after these orders getmatched and result into trades, the investors get confirmation about them on theirPCs through the same Internet routes. SEBI approved trading through wireless medium or WAP platform. NSE is the onlyexchange to provide access to its order book through the hand held devices, whichuse WAP technology. This serves primarily retail investors who are mobile andwant to trade from any place when the market prices for st0ocks of their choice areattractive. Demat Trading A depository holds securities in dematerialized form. It maintains ownershiprecords of securities in a book entry form and also effects transfer of ownershipthrough book entry. SEBI has introduced some degree of compulsion in trading andsettlement of securities in dematerialized form. While the investors have a right tohold securities in either physical or demat form, SEBI has mandated compulsorytrading

and settlement of securities in dematerialized form. This was initiallyintroduced for institutional investors and was later extended to all investors.Starting with 12 scrips on January 15, 1998, all investors are required tomandatorily trade in dematerialized form in respect of 2,335 securities as at end-June, 2001. Since the introduction of the depository system, dematerialization has progressed ata fast pace and has gained acceptance among the participants in the market. Allactively traded scrips are held, traded and settled in demat form. The details of progress in dematerialization in two depositories, viz., NSDL and CDSL., arepresented as below: In a SEBI working paper titled Dematerialization: A Silent Revolution in theIndian Capital Market released in April 2000, it has been observed that India hasachieved a very high level of dematerialization in less than three years time, andcurrently more than 99%of trades settle in demand form. Competition andregulatory developments facilitated reduction in custodial charges andimprovements in qualities of service standards. The paper observes that oneimminent and apparent immediate benefit of competition between the twodepositories is fall in settlement and other charges. Competition has been drivingimprovement in service standards. Depository facility has effected changes in stock market microstructure. Breadth and depth of investment culture has further gotextended to interior areas of the country faster. Explicit transaction cost has beenfalling due to dematerialization. Dematerialization substantially contributed to theincreased growth in the turnover. Dematerialization growth in India is the quickestamong all emerging markets and also among developed markets excepting for theU.K and Hong Kong.

CAPITAL LISTED AND MARKET CAPITALIZATION. The Stock Exchange, Bombay (BSE) is the premier Stock Exchange in India. TheBSE accounted for 46 per cent of listed companies on an all India basis as on 31stMarch 1994. It ranked first in terms of the number of listed companies and stock issues listed. The capital listed in the BSE as on 31st March 1994 accounted for 50%of the overall capital listed on all the stock exchanges. Its share of the marketcapitalization was around 74% as on the same date.

The paidup capital of equity,debentures/bonds and preference were 73%, 31%, 44% respectively of the overallcapital listed on all the Stock Exchanges as on the same date.On the BSE, the Steel Authority of India had the largest market capitalization of Rs.19, 908 crores as on the 31st March, 1994 followed by the State Bank of Indiawith the market capitalization of Rs.16, 702 crores and Mahanagar TelephoneNigam Limited with the market capitalization of Rs.11, 700 crores.


The BSE SENSEX, short form of Sensitive Index, firstcompiled in 1986 is a market Capitalization-Weighted index of 30 componentstocks representing a sample of large, wellestablished and financially soundcompanies. The index is widely reported in both, the domestic international, printelectronic media and is widely used to measure the used to measure theperformance of the Indian stock markets.The BSE SENSEX is the benchmark index of the Indian capital market and one,which has the longest social memory. In fact the SENSEX is considered to be thepulse of the Indian stock markets. It is the oldest index in India and has acquired aunique place in collective consciousness of the investors. Further, as the oldest indexof the Indian Stock Market, it provides time series data over a fairly long period of time. Small wonder that the SENSEX has over the years has become one of the mostprominent brands of the Country.Objectives of SENSEXThe BSE SENSEX is the benchmark index with wide acceptance among individualinvestors, institutional investors, foreign investors, foreign investors and fundmanagers. The objectives of the index are:To measure market movements Given its long history and its wide acceptance, no other index matches the BSE SENESX in the reflecting market movements andsentiments. SENSEXis widely used to describe the mood

in the Indian stock markets.Benchmark for funds performance The inclusion of blue chip companies and the wide and balanced industry Representation in the SENSEX makes it the idealbenchmark for fund managers to compare the performance of their funds.For index based derivatives products Institutional investors, money managers and small investors, all refer to the BSESENSEX for their specific purposes. The BSE SENSEXis in effectthe proxy for the Indian stock markets. Since SENSEXcomprises of the leadingcompanies in allthe significant sectors in the economy, we believe that it will be themost liquid contract in the Indian market and will garner a predominant marketshare.Companies represented in the SENSEXCompany name (As on 15.06.01) Hindustan lever Reliance limitedInfosys technologies Reliance petroleum ITC State bank of India MTNL Satyamcomputers Zee telefilms Ranbaxy labs ICICI Larsen & toubro Cipla HindalcoHPCL TISCO Nestle Sector FMCG Chemicals and petrochemicals Informationtechnology Oil and gas FMCG Finance Telecom Information technology MediaHealthcare Finance Diversified Healthcare Metals and mining Metal and miningMetal and mining FMCGTrading System Till Now, buyers and sellers used to negotiate face-to-face on thetrading floor over a security until agreement was reached and a deal was struck inthe open outcry system of trading, that used to take place in the trading ring. Thetransaction details of the account period (called settlement period) were submittedfor settlement by members after each trading session.The computerized settlement system initiated the netting andclearing process by providing on a daily basis statements for each member, showingmatched and unmatched transactions. Settlement processing involves computationof each member's net position in each security, after taking into account alltransactions for the member during the settlement period, which is 10 working daysfor group 'A' securities and 5 working days for group 'B' securities.Trading is done by members and their authorized assistants fromtheir Trader Work Stations (TWS) in their offices, through the BSE On-LineTrading (BOLT) system. BOLT system has replaced the open outcry system of trading. BOLT system accepts two-way quotations from jobbers, market and limitorders from

client-brokers and matches them according to the matching logicspecified in the Business Requirement Specifications (BRS) document for thissystem.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".TRADING The Exchange, which had an open outcry trading system, hadswitched over to a fully automated computerized mode of trading known as BOLT(BSE on Line Trading) System. Through the BOLT system the members now enterorders from Trader Work Stations (TWSs) installed in their offices instead of assembling in the trading ring. This system, which was initially both order andquote driven, was commissioned on March 14, 1995. However, the facility of placingof quotes has been removed w.e.f., August 13, 2001 in view of lack of market interestand to improve system-matching efficiency. The system, which is now only orderdriven, facilitates more efficient processing, automatic order matching and fasterexecution of orders in a transparent manner.Earlier, the members of the Exchange were permitted to opentrading terminals only in Mumbai. However, in October 1996, the Exchangeobtained permission from SEBI for expansion of its BOLT network to locationsoutside Mumbai. In terms of the permission granted by SEBI and certainmodifications announced later, the members of the Exchange are now free to installtheir trading terminals at any place in the country. Shri P. Chidambaraminaugurated the expansion of BOLT network the then Finance Minister,Government of India on August 31, 1997.In order to expand the reach of BOLT network to centers outsideMumbai and support the smaller Regional Stock Exchanges, the Exchange has, ason March 31, 2002, admitted subsidiary companies formed by 13 Regional Stock Exchanges as its members. The members of these Regional Stock Exchanges work as sub-brokers of the member-brokers of the Exchange.The objectives of granting membership to the subsidiary companiesformed by the Regional Stock Exchanges were to reach out to investors in thesecenters via the members of these Regional Exchanges and provide the investors inthese areas access to the trading facilities in all scrips listed on the Exchange.Trading on the BOLT SystemTrading on the BOLT System is conducted from Monday to Fridaybetween 9:55 a.m. and 3:30 p.m. The scrips traded on the Exchange have beenclassified into 'A', 'B1', 'B2', 'F' and 'Z' groups. The number of scrips listed on

theExchange under 'A', 'B1 ', 'B2' and 'Z' groups, which represent the equity segment, as on March 31, 2002 was 173, 560,1930 and 3044 respectively. The 'F' grouprepresents the debt market (fixed income securities) segment wherein 748 securitieswere listed as on March 31, 2002. The 'Z' group was introduced by the Exchange inJuly 1999 and covers the companies which have failed to comply with listingrequirements and/or failed to resolve investor complaints or have not made therequired arrangements with both the Depositories, viz., Central Depository Services(I) Ltd. (CDSL) and National Security Depository Ltd. (NSDL) fordematerialization of their securities by the specified date, i.e., September 30, 2001.Companies in "Z" group numbered 3044 as on March 31, 2002. Of these, 1429companies were in "Z" group for not complying with the provisions of the ListingAgreement and/or pending investor complaints and the balance 1615 companieswere on account of not making arrangements for dematerialization of theirsecurities with both the Depositories. 1615 companies have been put in "Z" group asa temporary measure till they make arrangements for dematerialization of theirsecurities. Once they finalize the arrangements for dematerialization of theirsecurities, trading and settlement in their scrips would be shifted to their respectiveerstwhile groups.The Exchange has also the facility to trade in "C" group which covers theodd lot securities in 'A', 'B1', 'B2' and 'Z' groups and Rights renunciations in all thegroups of scrips in the equity segment. The Exchange, thus, provides a facility tomarket participants of on-line trading in odd lots of securities and Rightsrenunciations. The facility of trading in odd lots of securities not only offers an exitroute to investors to dispose of their odd lots of securities but also provides them anopportunity to consolidate their securities into market lots.The 'C' group can also be used by investors for selling upto 500 sharesin physical form in respect of scrips of companies where trades are to becompulsorily settled by all investors in demat mode. This scheme of selling physicalshares in compulsory demat scrips is called as Exit Route Scheme. With effect from December 31, 2001, trading in all securities listed inequity segment of the Exchange takes place in one market segment, viz.,Compulsory Rolling Settlement Segment.Permitted Securities The Exchange has since decided to permittrading in the securities of the companies listed on other Stock Exchanges under

"Permitted Securities" category which meet the relevant norms specified by theExchange. Accordingly, to begin with the Exchange has permitted trading in scrips of five companies listed on other Stock Exchanges w.e.f. April 22, 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 15minutes of the continuous trading session. However, if there is no trade during thelast 15 minutes, then the last traded price in the continuous trading session is takenas the official closing price.A) Compulsory Rolling Segment (CRS):Compulsory Rolling Settlement (CRS) Segment:With a view to introduce the best international tradingpractices and to achieve higher settlement efficiency, as mandated by SEBI, tradesin all the equity shares listed on the Exchange in CRS Segment were to be settled onT+5 basis w.e.f. December 31, 2001. SEBI has further directed the Stock Exchangesthat trades in all scrips w.e..f. April 1, 2002 should be settled on T+3 basis.Accordingly, all transactions in all groups of securities in the equity segment andfixed income securities listed on the Exchange are settled on T+3 basis w.e.f. April 1,2002Under a rolling settlement environment, the trades done on aparticular day are settled after a given number of business days rather than settlingall trades done during a period at the end of an 'account period'. A T+3 settlementcycle means that the final settlement of transactions done on T or trade day byexchange of monies and securities, occurs on fifth business day after the trade day. ]The transactions in securities of companies which have madearrangements for dematerialization of their securities by the stipulated date aresettled only in Demat mode on T+3 on net basis, i.e., buy and sale positions in thesame scrip are netted and the net quantity is to be settled. However, transactions insecurities of companies, which have failed to make arrangements fordematerialization of their securities or /are in "Z" group, are settled only on tradeto trade basis on T+3 i.e., the transactions are settled on a gross basis and the facilityof netting of buy and sale transactions in a scrip is not available. For example, if onebuys and sells 100 shares of a company on the same day which is on trade to tradebasis, the two positions will not be netted and he will have to first deliver 100 sharesat the time of pay-in of securities and then receive 100 shares at the time of pay-out

of securities on the same day. Thus, if one fails to deliver the securities sold at thetime of pay-in, it will be treated as a shortage and the position will be auctioned/closed-out.In other words, the transactions in scrips of companies which are in compulsorydemat are settled in demat mode on T+3 on netting basis and the transactions inscrips of companies, which have not made arrangements for dematerialization of their securities by the stipulated date or are in "Z" group for other reasons, aresettled on trade to trade basis on T+3 either in demat mode or in physical mode.The settlement of transactions in 'F' group securities representing Fixed IncomeSecurities is also on Rolling Settlement Cycle of T+3 basis.The following tables summarizes the steps in the trading and settlement cycle forscrips under CRS:DAY ACTIVITYTrading 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.T+1 Confirmation of 6A/7A data by the Custodians. Downloading of securities and fundsobligation statement by members.T+3 Pay-in of funds and securities by 11:00 a.m. and pay-out of funds and securitiesby 2:00 p.mT+4 Auction on BOLT.T+5 Auction pay-in and pay-out.* 6A/7A : A mechanism whereby the obligation of settling the transactions done bya memberbroker on behalf of a client is passed on to a custodian based on hisconfirmation.Thus, the pay-in and pay-out of funds and securities takes places on the 3rdworking day of the execution of the trade.The Information Systems Department of the Exchange generates thefollowing statements, which can be downloaded by the members in their back officeson a daily basis.Statements giving details of the daily transactions entered into by the members.Statements giving details of margins payable by the members in respect of thetrades executed by them.The settlement of the trades (money and securities) done by a member on his ownaccount or on behalf of his individual, corporate or institutional clients may beeither through the member himself or through a SEBI registered Custodianappointed by him or the respective client. In case the delivery/payment is to be givenor taken by a registered Custodian, he has to confirm the trade done by a memberon the BOLT System through 6A7A entry. For this purpose, the Custodians havebeen given connectivity to BOLT System and have also been admitted as membersof the Clearing House. In case a transaction is not confirmed by a registeredCustodian, the liability for pay-in of funds or securities in respect of the samedevolves

on the concerned member.The introduction of settlement on T+3 basis has resulted in reduction in settlementrisk, provided early receipt of securities and monies to buyers and sellersrespectively and brought Indian Capital Markets at the international standard of settlementsSettlementPay-in and Pay-out for 'A', 'B1', 'B2', 'C', "F" & 'Z' group of securitiesAs discussed earlier, the trades done by members in all the securitiesin CRS are now settled by payment of money and delivery of securities on T+3basis. All deliveries of securities are required to be routed through the Clearing House, except for certain off-market transactions which, although are required tobe reported to the Exchange, may be settled directly between the membersconcerned.The Clearing House is an independent company promoted jointly byBank of India and Stock Exchange, Mumbai for handling the clearing andsettlement operations of funds and securities on behalf of the Exchange. For thispurpose, the Clearing & Settlement Dept. of the Exchange liaises with the ClearingHouse on a day to day basis.The Information Systems Department (ISD) of the Exchange generatesDelivery and Receive Orders for transactions done by the members in A, B1, B2 andF group scrips after netting purchase and sale transactions in each scrip whereasDelivery and Receive Orders for "C" and "Z" group scrips are generated on tradeto trade basis, i.e., without netting of purchase and sale transactions in a scrip.The Delivery Orders provide information like scrip, quantity and thename of the receiving member to whom the securities are to be delivered throughthe Clearing House. The Money Statement provides scrip wise/item wise details of payments/receipts for the settlement. The Delivery/Receive Orders and moneystatements can be downloaded by the members in their back officesThe bank accounts of members maintained with the eight clearingbanks, viz., Bank of India, HDFC Bank Ltd., Global Trust Bank Ltd., StandardChartered Bank, Centurion Bank Ltd., UTI Bank Ltd., ICICI Bank Ltd., andIndusind Bank Ltd., are directly debited through computerized posting for theirsettlement and margin obligations and credited with receivables on accounts of pay-out dues and refund of margins.The securities, as per the Delivery Orders issued by the Exchange, arerequired to be delivered by the members in the Clearing House on the daydesignated for securities pay-in, i.e., on T+3 day. In case of the physical securities,the members have to deliver the securities in

special closed pouches (supplied by theExchange) along with the relevant details (distinctive numbers, scrip code, quantity,and receiving member) on a floppy. The data submitted by the members on floppiesis matched against the master file data on the Clearing House computer systems. If there are no discrepancies, then a scroll number is generated by the Clearing Houseand a scroll slip is issued. The members can then submit the securities at thereceiving counter in the Clearing House.Auto D.O. facility: Instead of issuing Delivery Out instructions for their deliveryobligations in a settlement /auction, a facility has been made available to themembers of automatically generating Delivery-Out (D.O.) instructions on theirbehalf from their CM Pool A/cs by the Clearing House w.e.f., August 10, 2000. ThisAuto D.O. facility is available for CRS (Normal & Auction) and for trade-to-tradesettlements. This facility is, however, not available for delivery of non-pari passushares and shares having multiple ISINs. The members wishing to avail of thisfacility have to submit an authority letter to the Clearing House. This Auto D.Ofacility is currently available only for Clearing Member (CM) Poolaccounts/Principal Accounts maintained by the members with National SecuritiesDepository Ltd. (NSDL) and Central Depositories Services Ltd. (CDSL)Demat pay-in:The members can effect demat pay-in either through CentralDepository Services (I) Ltd. (CDSL) or National Securities Depository Ltd. (NSDL).In case of NSDL, the members are required to give instructions to their DepositoryParticipant (DP) specifying settlement no., settlement type, effective pay-in date,quantity, etc. The securities are transferred to the Pool Account. The members arerequired to give delivery-out instructions so that the securities are considered forpay-in.As regards CDSL, the members give pay-in instructions to theirDP. The securities are transferred to Clearing Member (CM) Principal Account.The members are required to give confirmation to their DP, so that securities areprocessed towards pay-in obligations. Alternatively, members may also effect pay-infrom clients' beneficiary accounts for which member are required to do break-up onthe front-end software to generate obligation and settlement ID. The Clearing House arranges and tallies the securities receivedagainst the receiving member wise report generated on the Pay-in day. Once thisreconciliation is complete, the bank accounts of members with seven

clearing bankshaving pay-in positions are debited on the scheduled payin day. This procedure iscalled Funds Pay-in. In case of the demat securities, the securities are credited in thePool Account of the members or the Client Accounts as per the client detailssubmitted by the members. In case of Physical securities, the Receiving Memberscollect securities from the Clearing House on the payout day and the accounts of themembers having payout are credited on Friday. This is referred to as Payout. Incase of the Rolling Settlements, pay-in and payout of both funds and securities is onthe same day, in case of Weekly settlements, pay-in of funds and securities is onThursday and payout is on Friday.The auction is conducted for those securities which members failto deliver/short deliver during the Pay-in. In case the securities are not received inan auction, the positions are closed out as per the closeout rate fixed by theExchange in accordance with the prescribed rules. The close out rate is calculated asthe highest rate of the scrip recorded in the settlement in which the trade wasexecuted and in the subsequent settlement upto the day prior to the day of auction,or 20% above the closing price on the day prior to the day of auction, whichever ishigher. However, in case of close-out for shares under objection or traded in "C"group, 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 placeupto a day prior to auction is considered.The Exchange has strictly adhered to the settlement schedules forvarious groups of securities and there has been no case of clubbing of settlements orpostponement of pay-in and pay-out during the last six years.The Exchange is also maintaining a database of fake/forged,stolen, lost and duplicate securities with the Clearing House so that distinctivenumbers submitted by members on delivery may be matched against the databaseto weed out bad paper from circulation at the time of introduction of such securitiesin the market. This database has also been made available to the members so thatdelivering and receiving members can check the entry of fake, forged and stolenshares in the market SHORTAGES AND OBJECTIONSShortages & consequent actions The members downloadDelivery/Receive Orders based on their netted positions for transactions enteredinto by them during a settlement in 'A', 'B1', 'B2', and 'F' group scrips and on tradeto trade basis, i.e., 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 basisas a surveillance measure.The seller members have to deliver the shares in the ClearingHouse as per the Delivery Orders downloaded. If a seller member is unable todeliver the shares on the Pay-in day for any reason, his bank account is debited atthe 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. TheClearing House arrives at the shortages in delivery of various scrips by members onthe basis of their delivery obligations and actual delivery.The members can download the statement of shortages on T+3in Rolling Settlements. After downloading the shortage details, the members areexpected to verify the same and report discrepancy , if any, to the Clearing Houseby 1:00 p.m. If no discrepancy is reported within the stipulated time, the ClearingHouse assumes that the shortage of a member is in order and proceeds to auctionthe same. However, in 'C' group, i.e., Odd Lot segment the members are themselvesrequired to report the shortages to the Clearing House.The Exchange issues an Auction Tender Notice to the membersinforming them about the names of the scrips, quantity slated for auction and thedate and time of the auction session on the BOLT. The auction for the undeliveredquantities is conducted on T+4 for all the scrips under compulsory RollingSettlements. The auction offers received in batch mode are electronically matchedwith the auction quantities so as to award the 'best price'. The members whoparticipate in the auction session can download the Delivery Orders on the sameday, if their offers are accepted. The members are required to deliver the shares inthe Clearing House on the auction Pay-in day, i.e, T+5. Pay-Out of auction sharesand funds is also done on the same day, i.e., T+5. The various auction sessionsrelating to shortages, and bad deliveries are now conducted during normal tradinghours on BOLT. Thus, it is possible to schedule multiple auction sessions on a singletrading day. In auction, the highest offer price is allowed upto the close-out rate andthe lowest offer price can be 20% below the closing price on a day prior to day of auction. A member who has failed to deliver the securities of a particular companyon the pay-in day is not allowed to offer the same in auction. He can, however,participate in auction of other scrips.In case no offers are received in auction for a particular scrip, the saletransaction is closed-out at a close-out price, determined by higher of the following:-- Highest price

recorded in the scrip from the settlement in which the transactiontook place upto a day prior to the day of the auction.OR - 20% above the closing price on a day prior to the day of auction.However, in case of the close-out of the shares under objection andshortages in "C" or "Z" group, 10% above the closing prices of the scrips on thepay-out day of the respective settlement are considered instead of 20%.Further, if the auction price/close-out price of a scrip is higher than thestandard price of the scrip in the settlement in which the transaction was done, thedifference is recovered from the seller who failed to deliver the scrip. However, incase, auction/ close-out price is lower than standard price, the difference is not givento the seller but is credited by the Exchange to the Customers Protection Fund. Thisis to ensure that the seller does not benefit from his failure to meet his deliveryobligation. Further, if the offeror member fails to deliver the shares offered inauction, then the transactions is closed-out as per the normal procedure and theoriginal selling member pays the difference below the standard rate and offer rateand the offeror member pays the difference between the offer rate and close-outrate.Self Auction As has been discussed in the earlier paragraphs, theDelivery and Receive Orders are issued to the members after netting off theirpurchase and sale transactions in scrips where netting of purchase and salepositions is permitted. It is likely in some circumstances that a selling client of amember has failed to deliver the shares to him. However, this did not result in amember's failure to deliver the shares to the Clearing House as there was apurchase transaction of some other buying client of the member in the same scripand the same was netted off for the purpose of settlement. However, in such a case,the member would require shares so that he can deliver the same to his buyingclient, which otherwise would have taken place from the delivery of shares by theseller. To provide shares to the members, so that they are in a position to deliverthem to their buying clients in case of internal shortages, the members have beengiven an option to submit floppies for conducting self-auction (i.e., as if they havedefaulted in delivery of shares to the Clearing House). Such floppies are to be givento the Clearing House on the pay-in day. The internal shortages reported by the members are clubbed with the normal shortages in a settlement and the ClearingHouse for the combined shortages conducts the auction. A member after gettingdelivery of shares from the Clearing House in self-

auction credits the shares to theBeneficiary account of his client or hand over the same to him in case securitiesreceived are in physical form and debits his seller client with the amount of difference, if any, between the auction price and original sale priceB) ObjectionsWhen receiving members collect the physical securities from the Clearing House onthe Payout day, the same are required to be checked by them for good delivery asper the norms prescribed by the SEBI in this regard. If the receiving member doesnot consider the securities good delivery, he has to obtain an arbitration award fromthe arbitrators and submit the securities in the Clearing House on the following dayof the Pay-Out (T+4). The Clearing House returns these securities to the deliveringmembers on the same day, i.e., (T+4). If a delivering members feels that arbitrationawards obtained against him is incorrect, he is required to obtain arbitration awardfor invalid objection from the members of the Arbitration Review Committee. Thedelivering members are required to rectify/replace the objections and return theshares to the Clearing House on next day (T+5) to have the entry against themremoved. The rectified securities are delivered by the Clearing House to the buyermembers on the same day (T+5). The buyer members, if they are not satisfied withthe rectification, are required to obtain arbitration awards for invalid rectificationfrom the Bad Delivery Cell on T+6 day and submit the shares to the Clearing Houseon the same day.If a member fails to rectify/replace the objections then the same are closed-out. Thisis known as "Objection Cycle" and the entire process takes 3 days.The following table summarizes the activities involved in the Patawat ObjectionCycle of CRS.DAY ACTIVITY T + 3 Pay-out of securities of Rolling Settlement T + 4 PatawatArbitration session : Arbitration awards to be obtained from officials of the BadDelivery Cell. Securities under objection to be submitted in the Clearing HouseArbitration awards for invalid objection to be obtained from members of theArbitration Review CommitteeT+5 Members and institutions to submit rectified securities, confirmation forms andinvalid objections in the clearing houseRectified securities delivered to the receiving membersT+6 Arbitration Awards for invalid rectification to be obtained from officials of theBad Delivery CellSecurities to be lodged with the clearing houseThe un-rectified and invalid rectification of securities are directly closed-out by theClearing House instead of first

inviting the auction offers for the same.The shares in physical form returned under objection to the Clearing House arerequired to be accompanied by an arbitration award (Chukada) except in certaincases where the receiving members are permitted to submit securities to theClearing House without "Chukada". These cases are as follows: Transfer Deed is out of date. Cheques for the dividendadjustment for new shares where distinctive numbers are given in the ExchangeNotice is not enclosed. Stamp of the Registrar of Companies is missing. Details likeDistinctive Numbers, Transferors' Names, etc. are not filled, in the Transfer Deeds.Delivering broker's stamp on the reverse of the Transfer Deed is missing. Witnessstamp or signature on Transfer Deed is missing. Signature of the transferor ismissing. Death Certificate (in cases where one or more of the transferors aredeceased) is missing.A penalty at the rate of Rs.100/- per Delivery Order is levied on the deliveringmember for delivering shares, which are not in order. In the event a receivingmember misuses the facility of submitting shares under objection without"Chukada", a penalty of Rs.500/- per case is charged and the penalty of Rs.100/- perDelivery Order levied on the delivering member is refunded to him by debiting thereceiving member's account Close Out: There are cases when no offer for particularscrip is received in an auction or when members who offer the scrips in auction, failto deliver the same. In the former case, the original seller member's account isdebited and the buyer member's account is credited at the closeout rate. In thelatter case, the offeror member's account is debited and the buyer member'saccount is credited at the close-out rate. The closeout rates for closing the positionsin different segments are as under:For 'A' + 'B1' + 'B2' + 'Z', 'Rolling demat' and 'F' groupThe 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 therespective settlement. 20% above the closing rate as on the day prior to the day of auction of the respective settlement.For 'C' group segmentThe 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', 'B1', 'B2, and 'Z'group segment of the respective settlements; or 10% above the closing rate as on the day prior to the day of auction of 'A', 'B1', 'B2, and 'Z' group; or Transaction price.In the 'C' group, i.e., Odd Lot Segment, no auction session is conducted.The shortages are directly closed out.DOES AND DONTS :Does SEBI approve the contents of the issue?It is to be distinctly understood that submission of offer document to SEBI should not in any way be deemed or construed that thesame has been cleared or approved by SEBI. The Lead manager certifiesthat the disclosures made in the offer document are generally adequateand are in conformity with SEBI guidelines for disclosures and investor protection in force for the time being. This requirement is to facilitateinvestors to take an informed decision for making investment in theproposed issue.Does SEBI tag make my money safe?The investors should make an informed decision purelyby themselves based on the contents disclosed in the offer documents.SEBI does not associate itself with any issue/issuer and should in no waybe construed as a guarantee for the funds that the investor proposes toinvest through the issue. However, the investors are generally advised tostudy all the material facts pertaining to the issue including the risk factorsbefore considering any investment. They are strongly warned against any'tips' or news through unofficial means.How does SEBI ensure compliance with DIP?The Merchant Banker are the specialized intermediarieswho are required to do due diligence and ensure that all the requirementsof DIP are complied with while submitting the draft offer document to SEBI.Any non compliance on their part, attract penal action from SEBI, in termsof SEBI (Merchant Bankers) Regulations. The draft offer document filed byMerchant Banker is also placed on the website for public comments.Officials of SEBI at various levels examine the compliance with DIPguidelines and ensure that all necessary material information is disclosedin the draft offer

documents.With the presence of the Central Listing Authority (CLA),what would be the role of SEBI in the processing of Offer docume nts for an issue? The Central Listing Authority's (CLA) functions have beendetailed under Regulation 8 of SEBI (Central Listing Authority) Regulations,2003 (CLA Regulations) issued on August 21, 2003 and amended up toOctober 14, 2003.In brief, it covers processing applications for letter precedentto listing from applicants; to make recommendations to the Board onissues pertaining to the protection of the interest of the investors insecurities and development and regulation of the securities market,including the listing agreements, listing conditions and disclosures to bemade in offer documents; and; to undertake any other functions as may bedelegated to it by the Board from time to time.SEBI as the regulator of the securities market examines allthe policy matters pertaining to issues and will continue to do so evenduring the existence of the CLA.Since the CLA is not yet operational, the reply to this question would beupdated thereafter.Who decides the price of an issue?Indian primary market ushered in an era of free pricing in 1992. Followingthis, the guidelines have provided that the issuer in consultation withMerchant Banker shall decide the price. There is no price formulastipulated by SEBI. SEBI does not play any role in price fixation. Thecompany and merchant banker are however required to give fulldisclosures of the parameters which they had considered while decidingthe issue price. There are two types of issues one where company and LMfix a price (called fixed price) and other, where the company and LMstipulate a floor price or a price band and leave it to market forces todetermine the final price (price discovery through book building process).How does one com of the draft offer document?e to know about the issueson offer? And from where can I get copies SEBI issues press releases every week regarding the draft offer documentsreceived and observations issued during the period. The draft offer documents are put up on the website under Reports/Documents section.The final offer documents that are filed with SEBI/ROC are also put up for information under the

same section. Copies of the draft offer documents inhard copy form may be obtained from the office of SEBIWho is eligible to be a BRLM?A Merchant banker possessing a valid SEBI registration in accordance with the SEBI (Merchant Bankers) Regulations, 1992 iseligible to act as a Book Running Lead Manager to an issue.What and where do I find them?The SEBI Manual is SEBI authorized publication that isa compre hensive databank of all relevant Acts, Rules, Regulations andGuidelines that are related to the functioning of the Board. The detailspertaining to the Acts, Rules, Regulations, Guidelines and Circulars areplaced on the SEBI website under the "Legal Framework" section.Will SEBI answer my queries online in case of doubts and clarifications?The "Feedback" section on the SEBI website has aprovision for the visitors to the site to ask questions on clarifications onsmaller issues pertaining to the availability of information and a facility for users to provide feedback on the same. However, if the queries arelegalistic and deep in nature, they are to be referred to SEBI under the SEBI(informal Guidance) Scheme, 2003. Sebi' Latest Announcement.... Nebody knows about the Sebi's latest Announce .....?CNBC-TV18 has learnt from sources that Sebi is likely to propose shortswing rule in India. The move restricts company insiders from making short-termprofit at the companys expense.It is a move that could potentially have a big impact on promoters of listed companies. Market regulator Sebi is proposing to put in place a new rule-theshort swing rule- in India. This is similar to one that exists in the USA.The rule prevents company insiders, who have greater access to materialinformation, from taking advantage of the information to make short-term profits.So, Sebi proposes that company insiders buying and selling their company's stock within a 6-month period return the money they make to the company. As of now,this is just a consultative paper and the regulator has invited feedback to thisproposal.Sources added that the move proposes insiders return profits frombuying and selling the companys stock. It proposes a tenor of six months for theshort swing rule.It has circulated a paper on short swing profit regulations.Sebi has proposed last-in-first-out method to determine the sixmonth period and the move is intended to check insider

trading . The designatedinsider will include all key management personnel and directors of companies aswell as officials who own above 10% stake in the company. Sebi says that any officer who buys and sells shares of a companywithin six-months will have to return those profits to the company, which meansthat he cannot buy and sell shares within six months and make a profit on them.If he makes, he will return the profit.Who cannot do these transactions or who will be brought under the ambit of thisshort swing rule?]It is a designated insider and a designated insider goes beyond thethreshold of any person who holds 10%. An insider is basically defined as a person who would own more than 10% shares in a company. But here it says a designatedinsider would include all key management personnel.It would include all directors of the company, all officers of thecompany who are beneficial owners of 10% or more stake in that company. So, adesignated insider concept seems to be a far wider definition. They have given it afar wider definition than what an insider would be who owns only 10% in thatcompany. It is a draft proposal. They have invited suggestions to these proposals. The future of stock exchanges The future of stock trading appears to be electronic, as competition iscontinually growing between the remaining traditionalNew York Stock Exchange specialistsystem against the relatively new, allElectronic CommunicationsNetworks, or ECN s. ECNs point to their speedy execution of large block trades,while specialist system proponents cite the role of specialists in maintaining orderlymarkets, especially under extraordinary conditions or for special types of orders.The ECNs contend that an array of special interests profit at theexpense of investors in even the most mundane exchange-directed trades. Machine-based systems, they argue, are much more efficient, because they speed up theexecution mechanism and eliminate the need to deal with an intermediary.

Historically, the 'market' (which, as noted, encompasses thetotality of stock trading on all exchanges) has been slow to respond to technologicalinnovation, thus allowing growing pure speculation to continue. Conversion to all-electronic trading could erode/eliminate the trading profits of floor specialists andthe NYSE's "upstairs traders", who, like in September and October 2008, earnedbillions of dollars selling shares they did not have, and days later buying the sameamount of shares, but maybe 15 % cheaper, so these shares could be handed to theirbuyers, thereby making the market fall deeply.William Lupien, founder of theInstinettrading system and theOptiMark system, has been quoted as saying "I'd definitely say the ECNs arewinning... Things happen awfully fast once you reach the tipping point. We're nowat the tipping point." One example of improved efficiency of ECNs is the prevention of front running, by which manual Wall Street traders use knowledge of a customer'sincoming order to place their own orders so as to benefit from the perceived changeto market direction that the introduction of a large order will cause. By executinglarge trades at lightning speed without manual intervention, ECNs make impossiblethis illegal practice, for which several NYSE floor brokers were investigated andseverely fined in recent years. Under the specialist system, when the market sees alarge trade in a name, other buyers are immediately able to look to see how big thetrader is in the name, and make inferences about why s/he is selling or buying. Alltraders who are quick enough are able to use that information to anticipate pricemovements.ECNs have changed ordinary stock transaction processing (likebrokerage services before them) into a commodity-type business. ECNs couldregulate the fairness of initial public offerings (IPOs), overseeHambrecht'sOpenIPOprocess, or measure the effectiveness of securities research and usetransaction fees to subsidize small- and mid-cap research efforts.Somehowever, believe the answer will be some combination of thebest of technology and "upstairs trading" in other words, a hybrid model.Trading 25,000 shares of General Electricstock (recentquote: $7.54;recent [] volume: 216,266,000) would be a relatively simple e-commerce transaction;trading 100 shares of Berkshire HathawayClass A stock (recent quote: $72,625.00;

recent volume: 877) may never be. The choice of system should be clear (but alwaysthat of the trader), based on the characteristics of the security to be traded.Even with ECNs forming an important part of a national marketsystem, opportunities presumably remain to profit from the spread between the bidand offer price. That is especially true for investment managers that direct hugetrading volume, and own a stake in an ECN or specialist firm. For example, in itsindividual stock-brokerage accounts, "Fidelity Investmentsruns 29% of itsundesignated orders in NYSE-listed stocks, and 37% of its undesignated marketorders through theBoston Stock Exchange, where an affiliate controls a specialistpost." Download 0 Go BackComment Link Embed Zoom of 36 Readcast 0inShare More From This User

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