CHAPTER 1

INTRODUCTION
National Stock Exchange of India (NSE) is India's largest Stock Exchange &
World's third largest Stock Exchange in terms of transactions. Located in
Mumbai, NSE was promoted by leading Financial Institutions at the behest of
the Government of India, and was incorporated in November 1992 as a taxpaying
company. In April 1993, NSE was recognized as a Stock exchange under
the Securities Contracts (Regulation) Act-1956. NSE commenced operations in
the Wholesale Debt Market (WDM) segment in June 1994. Capital Market
(Equities) segment of the NSE commenced operations in November 1994, while
operations in the Derivatives segment commenced in June 2000. NSE has played
a catalytic role in reforming Indian securities market in terms of microstructure,
market practices and trading volumes. NSE has set up its trading system as a
nation-wide, fully automated screen based trading system. It has written for itself the
mandate to create World-class Stock Exchange and use it as an instrument of
change for the industry as a whole through competitive pressure. NSE is set up
on a demutualised model wherein the ownership, management and trading rights
are in the hands of three different sets of people. This has completely eliminated
any conflict of interest. Capital market reforms in India have outstripped the process of
liberalization in most other sectors of the economy. However, the creation of an
independent capital market regulator was the initiation of this reform process. After the
formation of the Securities Market regulator, the Securities and Exchange Board of India
(SEBI), attention were drawn towards the inefficiencies of the bourses and the need was
felt for better regulation, discipline and accountability. A Committee recommended the
creation of a 2nd stock exchange in Mumbai called the "National Stock Exchange". The
Committee suggested the formation of an exchange which would provide investors across
the country a single, screen based trading platform, operated through a VSAT network. It
was on this recommendation that setting up of NSE as a technology driven exchange
was conceptualized. NSE has set up its trading system as a nation-wide, fully
automated screen based trading system.

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 CHAPTER 2
History
Capital market reforms in India and the launch of the Securities and Exchange
Board of India (SEBI) accelerated the incorporation of the second Indian stock
exchange called the National Stock Exchange (NSE) in 1992. After a few years
of operations, the NSE has become the largest stock exchange in India.
Three segments of the NSE trading platform were established one after another.
The Wholesale Debt Market (WDM) commenced operations in June 1994 and
the Capital Market (CM) segment was opened at the end of 1994. Finally, the
Futures and Options segment began operating in 2000. Today the NSE takes the
14th position in the top 40 futures exchanges in the world.
In 1996, the National Stock Exchange of India launched S&P CNX Nifty and
CNX Junior Indices that make up 100 most liquid stocks in India. CNX Nifty is
a diversified index of 50 stocks from 25 different economy sectors. The Indices
are owned and managed by India Index Services and Products Ltd (IISL) that
has a consulting and licensing agreement with Standard & Poor's.
In 1998, the National Stock Exchange of India launched its web-site and was the
first exchange in India that started trading stock on the Internet in 2000. The
NSE has also proved its leadership in the Indian financial market by gaining
many awards such as 'Best IT Usage Award' by Computer Society in India (in
1996 and 1997) and CHIP Web Award by CHIP magazine (1999). In the fast growing
Indian financial market, there are 23 stock exchanges trading
securities. The National Stock Exchange of India (NSE) situated in Mumbai - is
the largest and most advanced exchange with 1016 companies listed and 726
trading members.
The NSE is owned by the group of leading financial institutions such as Indian
Bank or Life Insurance Corporation of India. However, in the totally demutualised
Exchange, the ownership as well as the management does not have a
right to trade on the Exchange. Only qualified traders can be involved in the
securities trading. The NSE is one of the few exchanges in the world trading all types of
securities

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on a single platform, which is divided into three segments: Wholesale Debt
Market (WDM), Capital Market (CM), and Futures & Options (F&O) Market.
Each segment has experienced a significant growth throughout a few years of
their launch. While the WDM segment has accumulated the annual growth of
over 36% since its opening in 1994, the CM segment has increased by even 61%
during the same period.
The National Stock Exchange of India has stringent requirements and criteria for
the companies listed on the Exchange. Minimum capital requirements, project
appraisal, and companys track record are just a few of the criteria. In addition,
listed companies pay variable listing fees based on their corporate capital size.
The National Stock Exchange of India Ltd. Provides its clients with a single,
fully electronic trading platform that is operated through a VSAT network.
Unlike most world exchanges, the NSE uses the satellite communication system
that connects traders from 345 Indian cities. The advanced technologies enable
up to 6 million trades to be operated daily on the NSE trading platform. Market Segment
in November 1994 as a trading platform for equities and the Futures and Options
Segment in June 2000 for various derivative instruments.

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 CHAPTER 3
OBJECTIVE
NSE was set up with the objectives of:
Establishing a nationwide trading facility for all types of securities;
Ensuring equal access to investors all over the country through an
appropriate communication network;
Providing a fair, efficient and transparent securities market using
electronic trading system;
Enabling shorter settlement cycles and book entry settlements; and
Meeting international benchmarks and standards.
NSE has been able to take the stock market to the doorsteps of the
investors.
The technology has been harnessed to deliver the services to the investors across
thecountry at the cheapest possible cost. It provides a nation-wide, screen-based,
automated trading system, with a high degree of transparency and equal access
to investors irrespective of geographical location.
The high level of information dissemination through on-line system has helped
in integrating retail investors on a nation-wide basis. The standards set by the
exchange in terms of market practices, products, technology and service
standards have become industry benchmarks and are being replicated by other
market participants.
Within a very short span of time, NSE has been able to achieve all the objectives
for which it was set up. It has been playing a leading role as a change agent in
transforming the Indian Capital Markets to its present form.
The Indian Capital Markets are a far cry from what they used to be a decade ago
in terms of market practices, infrastructure, technology, risk management,
clearing and settlement and investor service.

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 CHAPTER 4
MARKET SEGMENT & PRODUCT
NSE provides an electronic trading platform for of all types of securities for investors
under one roof - Equity, Corporate Debt, Central and State Government Securities,
TBills, Commercial Paper, Certificate of Deposits (CDs), Warrants, Mutual Funds units,
Exchange Traded Funds, Derivatives like Index Futures, Index Options, Stock
Futures, Stock Options, Futures on Interest Rates etc., which makes it one of the few
exchanges in the world providing trading facility for all types of securities on a single
exchange.
The Exchange provides trading in 3 different segments viz.
1. Wholesale debt market (WDM)
2. Capital market (CM) segment and
3. The futures & options (F&O) segment.
The Wholesale Debt Market segment provides the trading platform for trading of a
wide range of debt securities which includes State and Central Government securities,
T-Bills, PSU Bonds, Corporate Debentures, CPs, CDs etc. However, along with these
financial instruments, NSE has also launched various products (e.g. FIMMDA-NSE
MIBID/MIBOR) owing to the market need. A reference rate is said to be an accurate
measure of the market price. In the fixed income market, it is the interest rate that the
market respects and closely matches. In response to this, NSE started computing and
disseminating the NSE Mumbai Inter-bank Bid Rate (MIBID) and NSE Mumbai Inter-
Bank Offer Rate (MIBOR). Owing to the robust methodology of computation of these
rates and its extensive use, this product has become very popular among the market
participants. Keeping in mind the requirements of the banking industry, FIs, MFs,
insurance companies, who have substantial investments in sovereign papers, NSE also
started the dissemination of its yet another product, the Zero Coupon Yield Curve. This
helps in valuation of sovereign securities across all maturities irrespective of its liquidity
in the market. The increased activity in the government securities market in India and
simultaneous emergence of MFs (Gilt MFs) had given rise to the need for a well
defined bond index to measure the returns in the bond market. NSE constructed such
an index the, NSE Government Securities Index. This index provides a benchmark

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for portfolio management by various investment managers and gilt funds.
The Capital Market segment offers a fully automated screen based trading system,
known as the National Exchange for Automated Trading (NEAT) system. This operates
on a price/time priority basis and enables members from across the country to trade with
enormous ease and efficiency. Various types of securities e.g. equity shares, warrants,
debentures etc. are traded on this system. The average daily turnover in the CM Segment
of the Exchange during 2004-05 was nearly Rs. 4,506crs NSE started trading in the
equities segment (Capital Market segment) on November 3,
1994 and within a short span of 1 year became the largest exchange in India in terms of
volumes transacted. Trading volumes in the equity segment have grown rapidly with
average daily turnover increasing from Rs.17 crores during 1994-95 to Rs.6,253 crores
during 2005-06. During the year 2005-06, NSE reported a turnover of Rs.1,569,556
crores in the equities segment.
The Equities section provides you with an insight into the equities segment of NSE
and also provides real-time quotes and statistics of the equities market. In-depth
information regarding listing of securities, trading systems & processes, clearing and
settlement, risk management, trading statistics etc are available here.

Futures & Options segment of NSE provides trading in derivatives instruments like
Index Futures, Index Options, Stock Options, Stock Futures and Futures on interest
rates. Though only four years into its operations, the futures and options segment of
NSE has made a mark for itself globally. In the Futures and Options segment, trading
in Nifty and CNX IT index and 53 single stocks are available. W.e.f. May 27 2005,
futures and options would be available on 118 single stocks. The average daily
turnover in the F&O Segment of the Exchange during 2004-05 was nearly Rs. 10,067 crs

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 CHAPTER 5
NSE FAMILY:
Our Group

NSCCL NCCL NSETECH

IISL NSE NSEIT

DOT.EX NSDL

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NSCCL
National Securities Clearing Corporation Ltd. (NSCCL), a wholly-owned
subsidiary of NSE, was incorporated in August 1995 and commenced clearing
operations in April 1996. It was the first clearing corporation in the country to
provide notation/settlement guarantee that revolutionized the entire concept of
settlement system in India.
It was set up to bring and 9 sustain confidence in clearing and settlement of
securities; to promote and maintain short and consistent settlement cycles; to
provide counter-party risk guarantee, and to operate a tight risk containment
system. It carries out the clearing and settlement of the trades executed in the
equities and derivatives segments of the NSE.
It operates a well-defined settlement cycle and there are no deviations or
deferments from this cycle. It aggregates trades over a trading period T, nets the
positions to determine the liabilities of members and ensures movement of funds
and securities to meet respective liabilities. It also operates a Subsidiary General
Ledger (SGL) for settling trades in government securities for its constituents.
It has been managing clearing and settlement functions since its inception
without a single failure or clubbing of settlements. It assumes the counter-party
risk of each member and guarantees financial settlement. It has tied up with 10
Clearing Banks viz., Canara Bank, HDFC Bank, IndusInd Bank, ICICI Bank,
UTI Bank, Bank of India, IDBI Bank and Standard Chartered Bank for funds
settlement while it has direct connectivity with depositories for settlement of
securities.
It has also initiated a working capital facility in association with the clearing
banks that helps clearing members to meet their working capital requirements.
Any clearing bank interested in utilizing this facility has to enter into an
agreement with NSCCL and with the clearing member. NSCCL has also
introduced the facility of direct payout to clients account on both the
depositories.
It ascertains from each clearing member, the beneficiary account details of their

8
respective clients who are due to receive pay out of securities.
It has provided its members with a front-end for creating the file through which
the information is provided to NSCCL. Based on the information received from
members, it sends payout instructions to the depositories, so that the client
receives the pay out of securities directly to their accounts on the pay-out day.
NSCCL currently settles trades under T+2 rolling settlement. It has the credit of
continuously upgrading the clearing and settlement procedures and has also
brought Indian financial markets in line with international markets. It has put in
place online real-time monitoring and surveillance system to keep track of the
trading and clearing members outstanding positions and each member is
allowed to trade/operate within the pre-set limits fixed according to the funds
available with the Exchange on behalf of the member.
The online surveillance mechanism also generates various alerts/reports on any
price/volume movements of securities not in line with the normal
trends/patterns.

IISL:
India Index Services and Products Limited (IISL), a joint venture of NSE and
Credit Rating Information Services of India Limited (CRISIL), was set up in
May 1998 to provide indices and index services. It has a consulting and licensing
agreement with Standard and Poor's (S&P), the world's leading provider of
invest able equity indices, for co-branding equity indices. IISL pools the index
development efforts of NSE and CRISIL into a coordinated whole. It is India's
first specialized company which focuses upon the index as a core product. It
provides a broad range of products and professional index services.
It maintains over 70 equity indices comprising broad based benchmark indices,
sectoral indices and customized indices. Many investment and risk management
products based on IISL indices have been developed in the recent past. These
include index based derivatives on NSE, a number of index funds and India's
first exchange traded fund.

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NSDL;
Prior to trading in a dematerialized environment, settlement of trades required
moving the securities physically from the seller to the ultimate buyer, through
the seller's broker and buyer's broker, which involved lot of time and the risk of
delay somewhere along the chain. Further, the system of transfer of ownership
was grossly inefficient as every transfer involved physical movement of paper to
the issuer for registration, with the change of ownership being evidenced by an
endorsement on the security certificate.

In many cases, the process of transfer took much longer than stipulated in the
then regulations. Theft, forgery, mutilation of certificates and other irregularities
were rampant. All these added to the costs and delays in settlement and restricted
liquidity. To obviate these problems and to promote dematerialization of
securities, NSE joined hands with UTI and IDBI to set up the first depository in
India called the "National Securities Depository Limited" (NSDL).
The depository system gained quick acceptance and in a very short span of time
it was able to achieve the objective of eradicating paper from the trading and
settlement of securities, and was also able to get rid of the risks associated with
fake/forged/stolen/bad paper. Dematerialized delivery today constitutes almost
100% of the total delivery based settlement.

NSE.IT:
NSE.IT Limited, a 100% technology subsidiary of NSE, was incorporated in
October 1999 to provide thrust to NSEs technology edge, concomitant with its
overall goal of harnessing latest technology for optimum business use. It
provides the securities industry with technology that ensures transparency and
efficiency in the trading, clearing and risk management systems. Additionally,
NSE.IT provides consultancy services in the areas of data warehousing, internet
and business continuity plans.
Amongst various products launched by NSE.IT are NEAT XS, a Computer-To-
Computer Link (CTCL) order routing system, NEAT iXS, an internet trading

10
system and Promos, professional brokers back office system.
NSE.IT also offers an e-learning oral, in varsity (www.finvarsity.com) dedicated
to the finance sector. The site is powered by Enlitor - a learning management
system developed by NSE.IT jointly with an e-learning partner. New initiatives
include payment gateways, products for derivatives segments and Enterprise
Management Services (EMSs)

NCDEX:
NSE joined hand with other financial institutions in India viz., ICICI Bank,
NABARD, LIC, PNB, CRISIL, Canara Bank and IFFCO to promote the
NCDEX which provide a platform for market participants to trade in wide
spectrum of commodity derivatives. Currently NCDEX facilitates trading of 37
agro based commodities,
1) Base metal and
2) Precious metal.
Shareholders of NSEIL
1. Industrial Development Bank of India Limited
2. Industrial Finance Corporation of India Limited
3. Life Insurance Corporation of India
4. State Bank of India
5. ICICI Bank Limited
6. IL & FS Trust Company Limited
7. Stock Holding Corporation of India Limited
8. SBI Capital Markets Limited
9. The Administrator of the Specified Undertaking of Unit
Trust of India
10. Bank of Baroda
11. Canara Bank
12. General Insurance Corporation of India
13. National Insurance Company Limited
14. The New India Assurance Company Limited

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15. The Oriental Insurance Company Limited
16. United Insurance Company Limited
17. Punjab National Bank
18. Oriental Bank of Commerce
19. Corporation Bank
20. Indian Bank
21. Union Bank of Indian

CHAPTER 6

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 Basics Concepts to understand NSE Functions

1. What is Stock Market Index?

A stock market index should capture the behavior of the overall equity market.
Movements of the index should represent the returns obtained by "typical" portfolios in
the country.

2. What do the ups and downs of an index mean?

They reflect the changing expectations of the stock market about future dividends of
India's corporate sector. When the index goes up, it is because the stock market thinks
that the prospective dividends in the future will be better than previously thought. When
prospects of dividends in the future become pessimistic, the index drops. The ideal index
gives us instant-to-instant readings about how the stock market perceives the future of
India's corporate sector.

3. What is the basic idea in an index?

Every stock price moves for two possible reasons: news about the company (e.g. a
product launch, or the closure of a factory, etc.) or news about the country (e.g. nuclear
bombs, or a budget announcement, etc.). The job of an index is to purely capture the
second part, the movements of the stock market as a whole (i.e. news about the country).

This is achieved by averaging. Each stock contains a mixture of these two elements -
stock news and index news. When we take an average of returns on many stocks, the
individual stock news tends to cancel out. On any one day, there would be good stock-
specific news for a few companies and bad stock-specific news for others. In a good
index, these will cancel out, and the only thing left will be news that is common to all
stocks. That is what the index will capture.

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4. What kind of averaging is done?

For technical reasons, it turns out that the correct method of averaging is to take a
weighted average, and give each stock a weight proportional to its market capitalisation.

5. What is the portfolio interpretation of index movements?

It is easy to create a portfolio which will reliably get the same returns as the index. i.e. if
the index goes up by 4%, this portfolio will also go up by 4%.

Suppose an index is made of two stocks , one with a market cap of Rs.1000 Cr and
another with a market cap of Rs.3000 Cr. Then the index portfolio will assign a weight of
25% to the first and 75% weight to the second.

If we form a portfolio of the two stocks, with a weight of 25% on the first and 75% on the
second, then the portfolio returns will equal the index returns. So if you want to buy Rs.1
lakh of this two-stock index, you would buy Rs.25,000 of the first and Rs.75,000 of the
second; this portfolio would exactly mimic the two-stock index.

A stock market index is hence just like other prices indexes in showing what is happening
on the overall indexes -- the wholesale price index is a comparable example. In addition,
the stock market index is attainable as a portfolio.

6. Why are indexes important?

Traditionally, indexes have been used as information sources. By looking at an index we

know how the market is faring. This information aspect also figures in myriad
applications of stock market indexes in economic research. This is particularly valuable
when an index reflects highly uptodate information and the portfolio of an investor
contains illiquid securities - in this case, the index is a lead indicator of how the overall
portfolio will fare.

In recent years, indexes have come to the fore owing to direct applications in finance, in
the form of index funds and index derivatives. Index funds are funds which passively

14
 `invest in the index'. Index derivatives allow people to cheaply alter their risk exposure to
an index (this is called hedging) and to implement forecasts about index movements (this
is called speculation). Hedging using index derivatives has become a central part of risk
management in the modern economy. These applications are now a multi-trillion dollar
industry worldwide, and they are critically linked up to market indexes.

Finally, indexes serve as a benchmark for measuring the performance of fund managers.
An all-equity fund should obtain returns like the overall stock market index. A 50:50
debt:equity fund should obtain returns close to those obtained by an investment of 50% in
the index and 50% in fixed income. A well-specified relationship between an investor and
a fund manager should explicitly define the benchmark against which the fund manager
will be compared, and in what fashion.

7. What kinds of indexes exist?

The most important type of market index is the broad-market index. In most countries, a
single major index dominates benchmarking, index funds, index derivatives and research
applications. In addition, more specialised indexes often find interesting applications. In
India, we have seen situations where a dedicated industry fund uses an industry index as a
benchmark. In India, where clear categories of ownership groups exist, it becomes
interesting to examine the performance of classes of companies sorted by ownership
group.

8. What is `stale prices'?

Suppose we look at the closing price of an index. It is supposed to reflect the state of the
stock market at 3:50 PM on NSE. Suppose an illiquid stock is in the index. The last
traded price (LTP) of the stock might be an hour, or a day, or a week old!

The index is supposed to show how the stock market perceives the future of the corporate
sector at 3:50 PM. When an illiquid stock injects these `stale prices' into the calculation
of an index, it makes the index more stale. It reduces the accuracy with which the index
reflects information.

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9. What is `bid-ask bounce'?

Suppose a stock trades at bid 1440 ask 1490. Suppose no news appears for ten minutes.
But, over this period, suppose that a buy order first comes in (at Rs.1490) followed by a
sell order (at Rs. 1440). This sequence of events makes it seem that the stock price has
dropped by Rs.50. This is a totally spurious price movement!

Even when no news is breaking, when a stock price is not changing, the `bid-ask bounce'
is about prices bouncing up and down between bid and ask. These changes are spurious.
This problem is the greatest with illiquid stocks where the bid-ask spread is wide. When
an index component shows such price changes it contaminates the index.

10. How does the S&P CNX Nifty work?

S&P CNX Nifty is based upon solid economic research. A trillion calculations were
expended to evolve the rules inside the S&P CNX Nifty index. The results of this work
are remarkably simple: (a) the correct size to use is 50, (b) stocks considered for the S&P
CNX Nifty must be liquid by the `impact cost' criterion, (c) the largest 50 stocks that
meet the criterion go into the index.

S&P CNX Nifty is a contrast to the adhoc methods that have gone into index construction
in the preceding years, where indexes were made out of intuition and lacked a scientific
basis. The research that led up to S&P CNX Nifty is well-respected internationally as a
pioneering effort in better understanding how to make a stock market index.

11. What do you mean by `an S&P CNX Nifty trade'?

Earlier, we said that the index assigns weightages to index components, and the weight of
a stock is proportional to its market capitalisation. This idea can be applied to buying the
S&P CNX Nifty. If you buy all 50 stocks in the S&P CNX Nifty, in correct proportions,
that would be called "an index trade".

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12. Why does the index keep changing from time to time?

Think of a liquid stock as a good thermometer, one which gives accurate data about the
true price of the stock, because it trades actively with a tight spread. The prices observed
for an illiquid stock are like readings from a low quality thermometer, which reports
noisy data about the phenomenon of interest (the true price of the security).

We try to find the fifty best thermometers in the country and average their values to make
the S&P CNX Nifty. As time passes, better thermometers become available (in the form
of large, liquid stocks that are not in the S&P CNX Nifty). We would like that S&P CNX
Nifty always uses the best thermometers possible. So we remove the weakest
thermometer from inside the S&P CNX Nifty and accept the new stock into it.

The world changes, so the index should change. Yet, the change should not be sudden -
for that would disrupt the character of the index. In 1996, after a decade of near-silence,
the BSE removed 15 out of 30 stocks in their `sensitive' index. This completely changed
the character of the index - older data for this index is not comparable with new data.
Such sudden changes should be avoided. They serve to illustrate the proverb those who
make peaceful change difficult make violent change inevitable. S&P CNX Nifty believes
in steady, peaceful changes.

S&P CNX Nifty uses clear, publicly documented rules for index revision. These rules are
applied regularly, to obtain changes to the index set.

IDBI was once not listed; SBI was once illiquid; Infosys was once an obscure software
startup. The world changes, and one by one, these stocks have come into the S&P CNX
Nifty. Each change in the S&P CNX Nifty is small, so the continuity of the index is
maintained. Yet, at all times, S&P CNX Nifty represents the 50 most important liquid
stocks in the country, the best thermometers to build an index out of.

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13. How is the S&P CNX Nifty closing price calculated?

The best closing prices of the country are used for this - the NSE official closing prices.
These, in turn, come from a "call auction" in the last ten minutes. The call auction yields
a single, sharp price out of millions of shares of supply and demand.

14. What is special about the NSE closing price?

NSE has the best surveillance procedures in India, so the extent of market manipulation is
minimum there. In NSE, the professional staff of the surveillance department has no
positions on the market. This elimination of conflicts of interest generates a more honest
focus upon eliminating market manipulation.

From the date November 18, 1998 onwards, the NSE `official closing price' was
determined by a call auction, a remarkable market procedure where a single, sharply
defined closing price arises out of supply and demand of millions of shares. Due to the
liquidity and order flow from numerous market players manipulation of the closing price
becomes very hard.

NSE is the most liquid exchange in India. Hence, the prices observed there are the most
reliable. NSE has the highest trading intensity (reducing stale prices) and their bid-ask
spreads are the tightest (reducing bid-ask bounce). This is assisted by the fact that the
NSE tick size is Rs.0.05 for all stocks, which encourages tight bid-ask spreads.

15. What about dividends?

What is commonly reported as S&P CNX Nifty on TV and in the newspapers is actually
the NSE-50 Price Index. It only reflects changes in prices. IISL also calculates something
called the S&P CNX Nifty Total Returns (TR) index. This shows the returns on the index
portfolio, inclusive of dividends. This is the appropriate benchmark for mutual funds,
which do earn dividends.

Both S&P CNX Nifty and S&P CNX Nifty TR use a base of 3 November 1995 as 1000.
On 8 October 1998, i.e. nearly three years later, S&P CNX Nifty was at 847.95 while

18
 S&P CNX Nifty TR was at 887.13. The difference in the two levels is the return obtained
on reinvestment of dividends through the intervening period.

16. What's S&P CNX Defty?

S&P CNX Defty is S&P CNX Nifty, measured in dollars. If the S&P CNX Nifty rises by
2% it means that the Indian stock market rose by 2%, measured in rupees. If the S&P
CNX Defty rises by 2%, it means that the Indian stock market rose by 2%, measured in
dollars.

The S&P CNX Defty is calculated in realtime. Data for the S&P CNX Nifty and the
dollar--rupee is absorbed in realtime, and used to calculate the S&P CNX Defty in
realtime. Realtime currency data is obtained from Knight Ridder. When there is currency
volatility, the S&P CNX Defty is an ideal device for a foreign investor to know where he
stands, even intraday.

17. What's CNX Nifty Junior?

S&P CNX Nifty is the first rung of the largest, highly liquid stocks in India. CNX Nifty
Junior is an index built out of the next 50 large, liquid stocks in India. It is not as liquid as
the S&P CNX Nifty, which implies that the information in the S&P CNX Nifty Junior is
not as noise-free as that of the S&P CNX Nifty.

It may be useful to think of the S&P CNX Nifty and the CNX Nifty Junior as making up
the 100 most liquid stocks in India. S&P CNX Nifty is the front line blue-chips, large and
highly liquid stocks. The CNX Nifty Junior is the second rung of growth stocks which are
not as established as those in the S&P CNX Nifty. Stocks like Infosys and NIIT, which
recently graduated into the S&P CNX Nifty, were in the CNX Nifty Junior for a long
time prior to this. CNX Nifty Junior can be viewed as an incubator where young growth
stocks are found. As with the S&P CNX Nifty, stocks in the CNX Nifty Junior are filtered
for liquidity, so they are the most liquid of the stocks excluded from the S&P CNX Nifty.
Buying and selling the entire CNX Nifty Junior as a portfolio is feasible.

19
The maintenance of the S&P CNX Nifty and the CNX Nifty Junior are synchronised so
that the two indexes will always be disjoint sets; i.e. a stock will never appear in both
indexes at the same time. Hence it is always meaningful to pool the S&P CNX Nifty and
the CNX Nifty Junior into a composite 100 stock index or portfolio.

CHAPTER 7
LISTING OF SECURITIES

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The stocks, bonds and other securities issued by issuers require listing for providing
liquidity to investors. Listing means formal admission of a security to the trading
platform of the Exchange. It provides liquidity to investors without compromising the
need of the issuer for capital and ensures effective monitoring of conduct of the issuer
and trading of the securities in the interest of investors. The issuer wishing to have
trading privileges for its securities satisfies listing requirements prescribed in the
relevant statutes and in the listing regulations of the Exchange. It also agrees to pay
the listing fees and comply with listing requirements on a continuous basis. All the
issuers who list their securities have to satisfy the corporate governance requirement
framed by regulators.
Benefits of Listing on NSE
NSE provides a trading platform that extends across the length and breadth
of the country. Investors from approximately 345 centers can avail of trading
facilities on the NSE trading network. Listing on NSE thus, enables issuers to
reach and service investors across the country.
NSE being the largest stock exchange in terms of trading volumes, the
securities trade at low impact cost and are highly liquidity. This in turn
reduces the cost of trading to the investor.
The trading system of NSE provides unparallel level of trade and post-trade
information. The best 5 buy and sell orders are displayed on the trading
system and the total number of securities available for buying and selling is
also displayed. This helps the investor to know the depth of the market.
Further, corporate announcements, results, corporate actions etc are also
available on the trading system, thus reducing scope for price manipulation or
misuse.
The facility of making initial public offers (IPOs), using NSE's network and
software, results in significant reduction in cost and time of issues.
NSE's web-site www.nseindia.com provides a link to the web-sites of the
companies that are listed on NSE, so that visitors interested in any company
can visit that company's web-site from the NSE site.
Listed companies are provided with monthly trade statistics for the securities

21
of the company listed on the Exchange.
The listing fee is nominal.

CM Segment
Two categories, namely 'listed' and 'permitted to trade' categories of securities (equity
shares, preference shares and debentures) are available for trading in the CM
segment. However, the permitted to trade category is being phased out gradually and
no new company is been given the benefit of this category. At the end of March 2005,
970 'listed' and 1 'permitted to trade' companies were available for trading. These
securities had a market capitalisation of Rs. 1,585,585 crore.

Listing Criteria
The Exchange has laid down criteria for listing of new issues by companies,
companies listed on other exchanges, and companies formed by
amalgamation/restructuring, etc. in conformity with the Securities Contracts
(Regulation) Rules, 1957 and directions of the Central Government and the Securities
and Exchange Board of India (SEBI). The criteria include minimum paid-up capital and
market Papitalization, project appraisal, company/promoters track record, etc. The
issuers of securities are required to adhere to provisions of the Securities Contracts
(Regulation) Act, 1956, the Companies Act, 1956, the Securities and Exchange Board
of India Act, 1992, and the rules, circulars, notifications, guidelines, etc. prescribed
there under.
Listing Agreement
All companies seeking listing of their securities on the Exchange are required to enter
into a listing agreement with the Exchange. The agreement specifies all the
requirements to be continuously complied with by the issuer for continued listing. The
Exchange monitors such compliance. Failure to comply with the requirements invites
suspension of trading, or withdrawal/delisting, in addition to penalty under the
Securities Contracts (Regulation) Act, 1956. The agreement is being increasingly used
as a means to improve corporate governance.
Shareholding Pattern

22
In the interest of transparency, the issuers are required to disclose shareholding
pattern on a quarterly basis. On an average, the promoters hold more than 55.63% of
total shares. Though non-promoter holding is nearly 44.37%, Indian public held only
17.03% and the public float (holding by foreign institutional investors, mutual funds,
and Indian Public) is at best 27.27%.

De-listing
The securities listed on NSE can be de-listed from the Exchange as per the SEBI
(Delisting of Securities) Guidelines, 2003 in the following manner:
Voluntary De-listing of Companies
Any promoter or acquirer desirous of delisting securities of the company under
the provisions of these guidelines shall obtain the prior approval of shareholders
of the company by a special resolution passed at its general meeting, make a
public announcement in the manner provided in these guidelines, make an
application to the delisting exchange in the form specified by the exchange, and
comply with such other additional conditions as may be specified by the
concerned stock exchanges from where securities are to be de-listed.
Any promoter of a company which desires to de-list from the stock exchange
shall also determine an exit price for delisting of securities in accordance with
the book building process as stated in the guidelines. The stock exchanges shall
provide the infrastructure facility for display of the price at the terminal of the
trading members to enable the investors to access the price on the screen to bring
transparency to the delisting process.
Compulsory De-listing of Companies
The stock exchanges may de-list companies which have been suspended for a
minimum period of six months for non-compliance with the listing agreement.
The stock exchanges have to give adequate and wide public notice through
newspapers and also give a show cause notice to a company.
The exchange shall provide a time period of 15 days within which 30
representations may be made to the exchange by any person who may be

23
aggrieved by the proposed delisting. Where the securities of the company are delisted by
an exchange, the promoter of the company shall be liable to compensate the security
holders of the company by paying them the fair value of
the securities held by them and acquiring their securities, subject to their option
to remain security-holders with the company.

WDM Segment
In the WDM segment, all government securities, state development loans and
treasury bills are deemed listed as and when they are issued. The other
categories of securities are traded under the listed category. All eligible
securities whether publicly issued or privately placed can be made available for
trading in the WDM segment. Amongst other requirements, privately placed
debt paper of banks, institutions and corporate require credit rating to be eligible
for listing.

CHAPTER 8

24
 CONCLUSION
NSE has remained in the forefront of modernization of India's capital and financial
markets, and its pioneering efforts include:
Being the first national, anonymous, electronic limit order book (LOB)
exchange to trade securities in India. Since the success of the NSE,
existent market and new market structures have followed the "NSE"
model.
Setting up the first clearing corporation "National Securities Clearing
Corporation Ltd." in India. NSCCL was a landmark in providing
innovation on all spot equity market (and later, derivatives market) trades
in India.
Co-promoting and setting up of National Securities Depository Limited,
first depository in India.
Setting up of S&P CNX Nifty.
NSE pioneered commencement of Internet Trading in February 2000,
which led to the wide popularization of the NSE in the broker community.
Being the first exchange that, in 1996, proposed exchange traded
derivatives, particularly on an equity index, in India. After four years of
policy and regulatory debate and formulation, the NSE was permitted to
start trading equity derivatives
109
Being the first and the only exchange to trade GOLD ETFs (exchange
traded funds) in India.
NSE has also launched the NSE-CNBC-TV18 media centre in association
with CNBC-TV18,
Markets
Currently, NSE has the following major segments of the capital market:
Equity
Futures and Options
Retail Debt Market

25
 Wholesale Debt Market
Currency futures
Hours
NSE's normal trading sessions are from 09:55am to 03:30pm on all days of the
week except Saturdays, Sundays and holidays declared by the Exchange in
advance.
Indices
NSE also set up as index services firm known as India Index Services &
Products Limited (IISL) and has launched several stock indices, including:
S&P CNX Nifty
CNX Nifty Junior
CNX 100 (= S&P CNX Nifty + CNX Nifty Junior)
S&P CNX 500 (= CNX 100 + 400 major players across 72 industries)
CNX Midcap (introduced on 18 July 2005 replacing CNX Midcap 200)

Chapter 9

26
 BIBLIOGRAPHY
WWW.SEBI.GOV.IN
WWW.NSEINDIA.COM
WWW.INDIABUDGET.NIC.IN
WWW.ANGELTRADE.COM
WWW.INDIAINFOLINE.COM
WWW.SPGLOBAL.COM
WWW.E-ANALYTICS.COM
WWW.NNI.NIKKEI.CO.JP
Microstructures Considerations in Index Construction by Ajay Sha and Susan
Thomas

27