BY

SHARMA MUKTA
TYBMS SIXTH SEMESTER 2001-2002.

Introduction

Of all the modern service institutions, stock exchanges are perhaps the most crucial agents and facilitators of entrepreneurial progress. After the industrial revolution, as the size of business enterprises grew, it was no longer possible for proprietors or partnerships to raise colossal amount of money required for undertaking large entrepreneurial ventures. Such huge requirement of capital could only be met by the participation of a very large number of investors; their numbers running into hundreds, thousands and even millions, depending on the size of business venture.

In general, small time proprietors, or partners of a proprietary or partnership firm, are likely to find it rather difficult to get out of their business should they for some reason wish to do so. This is so because it is not always possible to find buyers for an entire business or a part of business, just when one wishes to sell it. Similarly, it is not easy for someone with savings, especially with a small amount of savings, to readily find an appropriate business opportunity, or a part thereof, for investment. These problems will be even more magnified in large proprietorships and partnerships. Nobody would like to invest in such partnerships in the first place, since once invested, their savings would be very difficult to convert into cash. And most people have lots of reasons, such as better investment opportunity, marriage, education, death, health and so on for wanting to convert their savings into cash. Clearly then, big enterprises will be able to raise capital from the public at large only if there were some mechanism by which the investors could purchase or sell their share of business as ands they wished to do so. This implies that ownership in business has to be “broken up” into a lager number of small units, such that each unit may be independently & easily bought and sold without hampering the business activity as such. Also, such breaking of business ownership would help mobilize small savings in the economy into entrepreneurial ventures. This end is achieved in a modern business through the mechanism of shares.

What is a share?

A share represents the smallest recognized fraction of ownership in a publicly held business. Each such fraction of ownership is represented in the form of a certificate known as a share certificate. The breaking up of total ownership of a business into small fragments, each fragment represented by a share certificate, enables them to be easily bought and sold. What is a stock exchange? The institution where this buying and selling of shares essentially takes place is the Stock Exchange. In the absence of stock exchanges, ie. Institutions where small chunks of businesses could be traded, there would be no modern business in the form of publicly held companies. Today, owing to the stock exchanges, one can be part owners of one company today and another company tomorrow; one can be part owners in several companies at the same time; one can be part owner in a company hundreds or thousands of miles away; one can be all of these things. Thus by enabling the convertibility of ownership in the product market into financial assets, namely shares, stock exchanges bring together buyers and sellers (or their representatives) of fractional ownerships of companies. And for that very reason, activities relating to stock exchanges are also appropriately enough, known as stock market or security market. Also a stock exchange is distinguished by a specific locality and characteristics of its own, mostly a stock exchange is also distinguished by a physical location and characteristics of its own. In fact, according to H.T.Parekh, the earliest location of the Bombay Stock Exchange, which for a long period was known as “the native share and stock brokers’ association”, was probably under a tree around 1870! The stock exchanges are the exclusive centers for the trading of securities. The regulatory framework encourages this by virtually banning trading of securities outside exchanges. Until recently, the area of operation/ jurisdiction of exchange was specified at the time of its recognition, which in effect precluded competition among the exchanges. These are called regional exchanges. In order to provide an opportunity to investors to invest/ trade in the securities of local companies, it is

BSE alone accounts for over 80% of the total volume of transactions in shares. 1956. who are expected to safeguard the public interest in the functioning of the exchanges. Characteristics of Stock Exchanges in India  Traditionally. wishing to list their securities. Government nominee include representatives of the ministry of finance. and a few nominated by the government.  Typically. who is an elected member. a stock exchange has been an association of individual members called member brokers (or simply members or brokers). as well as some public representatives. heads the board. the member brokers are essentially the middlemen who carry out the desired transactions in securities on behalf of the public(for a commission) or on their own behalf. His duty is to ensure that the day to day operations the Stock Exchange are carried out in accordance with the various rules and regulations governing its functioning. the largest among them being the Bombay Stock Exchange. The executive director. New membership to a Stock Exchange is through election by the governing board of that stock exchange. usually nominated by the government from among the elected members.mandatory foe the companies. At present. who is usually appointed by the by the stock exchange with the government approval is the operational chief of the stock exchange. to list on the regional stock exchange nearest to their registered office.  A stock exchange in India operates with due recognition from the government under the Securities and Contracts (Regulations) Act. formed for the express purpose of regulating and facilitating buying and selling of securities by the public and institution at large. a stock exchange is governed by a board consisting of directors largely elected by the member brokers. . A president. there are 23 stock exchanges in India.

two stock exchanges viz. Theses are purest form of demutualised exchanges. the finance minister in march 2001 proposed demutualisation of exchanges by which ownership. management and trading membership would be segregated from each other. management and trading are in the hands of three sets of people. but this did not materially alter the situation.. Exchange management Made some attempts in this direction. Role of SEBI . all ordinary shares. Thus. OTCEI and NSE are already demutualised.  All companies wishing to raise capital from the public are required to list their securities on at least one stock exchange. The overall development and regulation of the securities market has been entrusted to the Securities and Exchange Board of India (SEBI) by an act of parliament in 1992. preference shares and debentures of the publicly held companies are listed in the stock exchange. In view of the less than satisfactory quality. which do not include trading members. Board of directors. where ownership. The concept of demutualisation completely eliminates any conflict of interest and helps the exchange to pursue market efficiency and investors interest aggressively. of administration of broker-managed exchanges. manages these. Of the 23 stock exchanges in India. The regulators are working towards implementing this.

that is. intermediaries and self. The Stock Exchange as a responsible Self Regulatory Organization (SRO) function to regulate the market and its prices as per the prevalent regulations. the Securities and the Exchange Board of India. regulating substantial acquisition of shares and takeover of companies.1947 and the Securities Contracts (Regulation) Act. SEBI as the watchdog of the industry has an important and crucial role in the market in ensuring that the market participants perform their duties in accordance with the regulatory norms.” SEBI has its head office in Mumbai and it has now set up regional offices in the metropolitan cities of Kolkata. registration and regulation of the working stock brokers. and to regulate the securities market and for matters connected therewith and incidental too. set up under the securities and Exchange Board of India act. 1992. Delhi. and Chennai. one member from the Reserve Bank of India and two other members appointed by the central government. 1992. promotion and regulation of self. investment advisors and such other intermediaries who may be associated with the stock market in any way.The SEBI. 1956. is the national regulatory body for the securities market. under writers. registration and regulations of mutual funds. prohibiting Fraudulent and unfair trade practices and insider trading in securities markets. sub-brokers. .regulatory organizations. The Board of SEBI comprises a Chairman. two members from the central government representing the ministries of finance and law. trustees of trust deeds. conducting inquiries and audits of stock exchanges. levying various fees and other charges.undertking inspection. performing such functions and exercising such powers as contained in the provisions of the Capital Issues (Control) Act. merchant bankers. to “protect the interest of investors in securities and to promote the development of. bankers to an issue (a public offer of capital). the power and functions of the Board encompass the regulation of Stock Exchanges and other securities markets. registrars to an issues. calling for information from.regulatory organizations of the securities market. portfolio managers. As per the SEBI act. conducting necessary research for above purposes and performing such other functions as may be prescribes from time to time.

circulars. 1956. The clients may place their order with them directly or a sub-broker indirectly. education. Membership The trading platform of a stock exchange is accessible only to brokers. the SEBI act 1992. the listing agreement entered into by the issuer and the stock exchange and the circulars/ guidelines issued by central government and SEBI. capital adequacy. Listing Listing means formal admission of a security to the trading platform of a stock exchange. Index services . Listing of securities on Indian Stock Exchanges is essentially governed by the provisions in the companies act. rules and regulations of the concerned exchange. No stockbroker or sub-broker is allowed to buy. experience. etc. invariably evidenced by a listing agreement between the issuer of the security and the stock exchange. SCRA. prescribed there under and the byelaws.SEBI and the Exchange play complimentary roles to enhance the investor protection and the overall quality of the market. The minimum standards stipulated by NSE for membership are in excess of the minimum norms laid down by SEBI. the rules. bye-laws and regulations of the concerned stock exchange. sell or deal in securities. . track record. etc. The broker enters into trades in exchanges either on his own account or on behalf of clients. SCRR. rules. corporate structure. The standards for admission of members laid down by NSE stress on factors. and reflect the conscious endeavors to ensure quality broking services. A broker is admitted to the membership of an exchange in terms of the provisions of the SCRA. guidelines. such as. The stock exchanges are free to stipulate stricter requirements for its members than those stipulated by SEBI. A broker/sub-broker compiles with the code of conduct prescribed by SEBI. notifications. unless he or she holds a certificate of registration granted by SEBI.

price related (buy/sell limit and stop-loss orders) or volume related (All-or-None. Trading Mechanism All stock exchanges in India follow screen-based trading system. NSE was the first stock exchange in the country to provide nation-wide order-driven. It enables members from across the countries to trade simultaneously with enormous ease and efficiency. the NEAT system provides an open electronic consolidated limit order book (OECLOB). NSE model was gradually emulated by all other stock exchanges in the country. NEAT has lent considerable depth in the market by enabling large number of members all over the country to trade simultaneously and consequently narrowed the spreads significantly. but also from the personal computers in . The trading system at NSE known as the National Exchange for Automated Trading (NEAT) system is an anonymous order-driven system and operates on a strict price/time priority. Good-Till-Day. The trading platform of the CM segment of NSE is accessed not only from the computer terminals from the premises of brokers spread over 420 cities. buy and sell orders originating from all over the country. Minimum Fill. India Index Services & Products Limited (IISL). which are orders to buy or sell shares at a stated quantity and stated price. Thus. Several time-related (Good-Till-Cancelled. A single consolidated order book for each stock displays.) conditions van be easily built into an order. objective and fair. screen-based trading system. which is updated on real time basis. or a specified sector to measure the change in overall behavior of the markets or sector over a period of time. The trading system also provides complete market information on-line. Orders are sorted and match automatically by the computer keeping the system transparent. is the only specialized organization in the country to provide stock index services.Stock index uses a set of stocks that are representative of the whole market. Immediate-or-Cancel). The limit order is executed only if the price quantity conditions match. The trading system provides tremendous flexibility to the users in terms of kinds of orders that can be placed on the system. etc. The bookstores only limit orders. on a real time basis. promoted by NSE and CRISIL.

NSE was the first exchange in the country to provide web-based access to investors to trade directly on the exchange. Soon after these orders get matched and result into trades. the investors get confirmation about them on their PCs through the same Internet routes. The trading platform of BSE is also accessible from 400 cities. The orders originating from the personal computers (PCs) of investors are routed through the Internet tot eh trading terminals of the designated brokers with whom they have relations and further to the exchange of trade execution. for communicating clients’ orders to the exchanges through brokers. . SEBI approved trading through wireless medium or WAP platform. It launched Internet trading in February 2000.registered brokers can introduce internet-based trading after obtaining permission from the respective Stock Exchanges. Internet trading is available on NSE and BSE. SEBI. NSE is the only exchange to provide access to its order book through the hand held devices. as of now. SEBI has stipulated the minimum conditions to be fulfilled by trading members to start internetbased trading and services.the homes of investors through the internet and from the hand-held devices through WAP. SEBI has approved the use of Internet as an order routing system. This serves primarily retail investors who are mobile and want to trade from any place when the market prices for st0ocks of their choice are attractive. It was followed by the launch of Internet trading by BSE in March 2001. which use WAP technology.

it has been observed that India has achieved a very high level of dematerialization in less than three years’ time. This was initially introduced for institutional investors and was later extended to all investors. The details of progress in dematerialization in two depositories. NSDL and CDSL. Starting with 12 scrips on January 15. Dematerialization substantially contributed to the increased growth in the turnover.. Breadth and depth of investment culture has further got extended to interior areas of the country faster. Since the introduction of the depository system. SEBI has introduced some degree of compulsion in trading and settlement of securities in dematerialized form. All actively traded scrips are held. Competition has been driving improvement in service standards.Demat Trading A depository holds securities in dematerialized form. . Explicit transaction cost has been falling due to dematerialization. 2001.K and Hong Kong. The paper observes that one imminent and apparent immediate benefit of competition between the two depositories is fall in settlement and other charges. While the investors have a right to hold securities in either physical or demat form. SEBI has mandated compulsory trading and settlement of securities in dematerialized form.335 securities as at end-June. Depository facility has effected changes in stock market microstructure. viz. traded and settled in demat form. and currently more than 99%of trades settle in demand form. Competition and regulatory developments facilitated reduction in custodial charges and improvements in qualities of service standards. 1998. Dematerialization growth in India is the quickest among all emerging markets and also among developed markets excepting for the U.. dematerialization has progressed at a fast pace and has gained acceptance among the participants in the market. are presented as below: In a SEBI working paper titled ‘Dematerialization: A Silent Revolution in the Indian Capital Market’ released in April 2000. all investors are required to mandatorily trade in dematerialized form in respect of 2. It maintains ownership records of securities in a book entry form and also effects transfer of ownership through book entry.

.

19 crores and average number of daily trades was 5.f. However. a Reserve Bank of India nominee. The Executive Director as the Chief Executive Officer is responsible for the day-today administration of the Exchange. six public representatives and an Executive Director is the apex body. etc. whether against the companies or its own member-brokers. It also strives to educate and enlighten the investors by making available necessary informative inputs and conducting investor education programmes.2002 has declined to Rs.INTRODUCTION The Stock Exchange. while providing an efficient and transparent market for trading in securities. popularly known as "BSE" was established in 1875 as "The Native Share and Stock Brokers Association".3984. even older than the Tokyo Stock Exchange. December 31. The average daily turnover of the Exchange during the year 2000-2001 (AprilMarch). 2001. It may be noted that the Stock Exchanges is the oldest one in Asia. It has evolved over the years into its present status as the premier Stock Exchange in the country. which decides the policies and regulates the affairs of the Exchange. abolition of account period settlements. July 2.17 lakhs.69 lakhs.e. was Rs.f. Mumbai. upholds the interests of the investors and ensures redressal of their grievances. The ban on all deferral products like BLESS and ALBM in the Indian capital Markets by SEBI w. introduction of Compulsory Rolling Settlements in all scrips traded on the Exchanges w.10 crores and number of average daily trades during the period to 5. The Exchange. A Governing Board comprising of 9 elected directors (one third of them retire every year by rotation). which was founded in 1878. the average daily turnover of the Exchange during the year 2001. have adversely impacted the liquidity and consequently there is a considerable decline in the daily turnover at the Exchange. 1244. two SEBI nominees.e. . as a voluntary non-profit making association. 2001.

The BSE SENSEX is the benchmark index of the Indian capital market and one. first compiled in 1986 is a “market Capitalization-Weighted” index of 30 component stocks representing a sample of large. BSE SENSEX The BSE SENSEX. Its share of the market capitalization was around 74% as on the same date. The paid-up capital of equity. It ranked first in terms of the number of listed companies and stock issues listed. the domestic international.11. which has the longest social memory. In fact the SENSEX is considered to be the .16. The Stock Exchange.19. Bombay (BSE) is the premier Stock Exchange in India. 44% respectively of the overall capital listed on all the Stock Exchanges as on the same date. 31%. 702 crores and Mahanagar Telephone Nigam Limited with the market capitalization of Rs. The index is widely reported in both. print electronic media and is widely used to measure the used to measure the performance of the Indian stock markets. short form of Sensitive Index. well-established and financially sound companies. 1994 followed by the State Bank of India with the market capitalization of Rs.CAPITAL LISTED AND MARKET CAPITALIZATION. On the BSE. 908 crores as on the 31st March. The BSE accounted for 46 per cent of listed companies on an all India basis as on 31st March 1994. the Steel Authority of India had the largest market capitalization of Rs. debentures/bonds and preference were 73%. The capital listed in the BSE as on 31st March 1994 accounted for 50% of the overall capital listed on all the stock exchanges. 700 crores.

as the oldest index of the Indian Stock Market.  For index based derivatives products Institutional investors. Further.  Benchmark for funds performance The inclusion of blue chip companies and the wide and balanced industry Representation in the SENSEX makes it the ideal benchmark for fund managers to compare the performance of their funds. no other index matches the BSE SENESX in the reflecting market movements and sentiments. money managers and small investors. The BSE SENSEX is in effect the proxy for the Indian stock markets. Objectives of SENSEX The BSE SENSEX is the benchmark index with wide acceptance among individual investors. Small wonder that the SENSEX has over the years has become one of the most prominent brands of the Country. The objectives of the index are:  To measure market movements Given its long history and its wide acceptance.pulse of the Indian stock markets. we believe that it will be the most liquid contract in the Indian market and will garner a predominant market share. foreign investors. Since SENSEX comprises of the leading companies in all the significant sectors in the economy. Companies represented in the SENSEX Company name Sector . institutional investors. It is the oldest index in India and has acquired a unique place in collective consciousness of the investors. foreign investors and fund managers. all refer to the BSE SENSEX for their specific purposes. it provides time series data over a fairly long period of time. SENSEX is widely used to describe the mood in the Indian stock markets.

The computerized settlement system initiated the netting and clearing process by providing on a daily basis statements for each member.(As on 15. Settlement processing involves computation of each member's net position in each security. The transaction details of the account period (called settlement period) were submitted for settlement by members after each trading session. . buyers and sellers used to negotiate face-to-face on the trading floor over a security until agreement was reached and a deal was struck in the open outcry system of trading. which is 10 working days for group 'A' securities and 5 working days for group 'B' securities. after taking into account all transactions for the member during the settlement period.06.01) Hindustan lever Reliance limited Infosys technologies Reliance petroleum ITC State bank of India MTNL Satyam computers Zee telefilms Ranbaxy labs ICICI Larsen & toubro Cipla Hindalco HPCL TISCO Nestle FMCG Chemicals and petrochemicals Information technology Oil and gas FMCG Finance Telecom Information technology Media Healthcare Finance Diversified Healthcare Metals and mining Metal and mining Metal and mining FMCG Trading System Till Now. showing matched and unmatched transactions. that used to take place in the trading ring.

TRADING TRADING The Exchange.f. the members of the Exchange are now free to install their trading terminals at any place in the country. 2001 in view of lack of market interest and to improve system-matching efficiency. which had an open outcry trading system. . the facility of placing of quotes has been removed w.. facilitates more efficient processing. Government of India on August 31. BOLT system has replaced the open outcry system of trading. The system. 1997. Earlier. Through the BOLT system the members now enter orders from Trader Work Stations (TWSs) installed in their offices instead of assembling in the trading ring. the Exchange obtained permission from SEBI for expansion of its BOLT network to locations outside Mumbai. Shri P. August 13. BOLT system accepts two-way quotations from jobbers. However. through the BSE On-Line Trading (BOLT) system. 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". which was initially both order and quote driven. in October 1996. In terms of the permission granted by SEBI and certain modifications announced later.e. Chidambaram inaugurated the expansion of BOLT network the then Finance Minister. had switched over to a fully automated computerized mode of trading known as BOLT (BSE on Line Trading) System. which is now only order driven. was commissioned on March 14. automatic order matching and faster execution of orders in a transparent manner. 1995.Trading is done by members and their authorized assistants from their Trader Work Stations (TWS) in their offices. the members of the Exchange were permitted to open trading terminals only in Mumbai. This system. However. market and limit orders from client-brokers and matches them according to the matching logic specified in the Business Requirement Specifications (BRS) document for this system.

560.m. The number of scrips listed on the Exchange under 'A'. 'B2' and 'Z' groups. The 'F' group represents the debt market (fixed income securities) segment wherein 748 securities were listed as on March 31. 2002. 'B2'. the Exchange has. Trading on the BOLT System is conducted from Monday to Friday between 9:55 a. 'B2' and 'Z' groups and Rights renunciations in all the groups of . The members of these Regional Stock Exchanges work as sub-brokers of the member-brokers of the Exchange. (CDSL) and National Security Depository Ltd. Companies in "Z" group numbered 3044 as on March 31. Central Depository Services (I) Ltd.m. as on March 31. The objectives of granting membership to the subsidiary companies formed by the Regional Stock Exchanges were to reach out to investors in these centers via the members of these Regional Exchanges and provide the investors in these areas access to the trading facilities in all scrips listed on the Exchange. 1615 companies have been put in "Z" group as a temporary measure till they make arrangements for dematerialization of their securities. 2002. (NSDL) for dematerialization of their securities by the specified date. The Exchange has also the facility to trade in "C" group which covers the odd lot securities in 'A'. 1429 companies were in "Z" group for not complying with the provisions of the Listing Agreement and/or pending investor complaints and the balance 1615 companies were on account of not making arrangements for dematerialization of their securities with both the Depositories.e. 2002. The scrips traded on the Exchange have been classified into 'A'. 'B1 '. 'F' and 'Z' groups. 'B1'. which represent the equity segment.. and 3:30 p.In order to expand the reach of BOLT network to centers outside Mumbai and support the smaller Regional Stock Exchanges. September 30. 2002 was 173. The 'Z' group was introduced by the Exchange in July 1999 and covers the companies which have failed to comply with listing requirements and/or failed to resolve investor complaints or have not made the required arrangements with both the Depositories. as on March 31. Once they finalize the arrangements for dematerialization of their securities. Of these.1930 and 3044 respectively.. admitted subsidiary companies formed by 13 Regional Stock Exchanges as its members. trading and settlement in their scrips would be shifted to their respective erstwhile groups. 'B1'. i. 2001. viz.

. provides a facility to market participants of on-line trading in odd lots of securities and Rights renunciations. Permitted Securities The Exchange has since decided to permit trading in the securities of the companies listed on other Stock Exchanges under " Permitted Securities" category which meet the relevant norms specified by the Exchange. then the last traded price in the continuous trading session is taken as the official closing price. if there is no trade during the last 15 minutes. viz.f.scrips in the equity segment. This scheme of selling physical shares in compulsory demat scrips is called as Exit Route Scheme. However. The facility of trading in odd lots of securities not only offers an exit route to investors to dispose of their odd lots of securities but also provides them an opportunity to consolidate their securities into market lots. April 22. The 'C' group can also be used by investors for selling upto 500 shares in physical form in respect of scrips of companies where trades are to be compulsorily settled by all investors in demat mode. thus. trading in all securities listed in equity segment of the Exchange takes place in one market segment. 2001. With effect from December 31. Compulsory Rolling Settlement Segment. to begin with the Exchange has permitted trading in scrips of five companies listed on other Stock Exchanges w. Accordingly. 2002/ Computation of closing price of scrips in the Cash Segment: The closing prices of scrips are computed on the basis of weighted average price of all trades in the last 15 minutes of the continuous trading session. The Exchange. A) Compulsory Rolling Segment (CRS): .e.

2001. which have failed to make arrangements for dematerialization of their securities or /are in "Z" group.f. In other words. The transactions in securities of companies which have made arrangements for dematerialization of their securities by the stipulated date are settled only in Demat mode on T+3 on net basis.f. April 1. are settled only on trade to trade basis on T+3 i. if one buys and sells 100 shares of a company on the same day which is on trade to trade basis. Accordingly. However. if one fails to deliver the securities sold at the time of pay-in. it will be treated as a shortage and the position will be auctioned/ closed-out. trades in all the equity shares listed on the Exchange in CRS Segment were to be settled on T+5 basis w. April 1. the transactions in scrips of companies which are in compulsory demat are settled in demat mode on T+3 on netting basis and the transactions in scrips . For example.. 2002 should be settled on T+3 basis..Compulsory Rolling Settlement (CRS) Segment: With a view to introduce the best international trading practices and to achieve higher settlement efficiency. occurs on fifth business day after the trade day.e. SEBI has further directed the Stock Exchanges that trades in all scrips w. i. buy and sale positions in the same scrip are netted and the net quantity is to be settled. A T+3 settlement cycle means that the final settlement of transactions done on T or trade day by exchange of monies and securities.e. the transactions are settled on a gross basis and the facility of netting of buy and sale transactions in a scrip is not available.e..e. December 31. the trades done on a particular day are settled after a given number of business days rather than settling all trades done during a period at the end of an 'account period'. the two positions will not be netted and he will have to first deliver 100 shares at the time of pay-in of securities and then receive 100 shares at the time of pay-out of securities on the same day. 2002 Under a rolling settlement environment. as mandated by SEBI. all transactions in all groups of securities in the equity segment and fixed income securities listed on the Exchange are settled on T+3 basis w. Thus.e.f. transactions in securities of companies.

are settled on trade to trade basis on T+3 either in demat mode or in physical mode. The following tables summarizes the steps in the trading and settlement cycle for scrips under CRS: DAY ACTIVITY Trading on BOLT and daily downloading of statements showing details of transactions and margins at the end of each trading day. 6A/7A entry by the member-brokers.of companies. T+3 Pay-in of funds and securities by 11:00 a. T+5 Auction pay-in and pay-out. which have not made arrangements for dematerialization of their securities by the stipulated date or are in "Z" group for other reasons. and pay-out of funds and securities by 2:00 p. The settlement of transactions in 'F' group securities representing Fixed Income Securities is also on Rolling Settlement Cycle of T+3 basis. Downloading of securities and funds obligation statement by members.m T+4 Auction on BOLT.m. T+1 Confirmation of 6A/7A data by the Custodians. .

corporate or institutional clients may be either through the member himself or through a SEBI registered Custodian appointed by him or the respective client.* 6A/7A : A mechanism whereby the obligation of settling the transactions done by a member-broker on behalf of a client is passed on to a custodian based on his confirmation. The introduction of settlement on T+3 basis has resulted in reduction in settlement risk. In case the delivery/payment is to be given or taken by a registered Custodian. the liability for pay-in of funds or securities in respect of the same devolves on the concerned member. provided early receipt of securities and monies to buyers and sellers respectively and brought Indian Capital Markets at the international standard of settlements . For this purpose. he has to confirm the trade done by a member on the BOLT System through 6A-7A entry. the Custodians have been given connectivity to BOLT System and have also been admitted as members of the Clearing House. the pay-in and pay-out of funds and securities takes places on the 3rd working day of the execution of the trade. Statements giving details of the daily transactions entered into by the members. In case a transaction is not confirmed by a registered Custodian. Statements giving details of margins payable by the members in respect of the trades executed by them. which can be downloaded by the members in their back offices on a daily basis. Thus. The settlement of the trades (money and securities) done by a member on his own account or on behalf of his individual. The Information Systems Department of the Exchange generates the following statements.

"F" & 'Z' group of securities As discussed earlier.. i. B2 and F group scrips after netting purchase and sale transactions in each scrip whereas Delivery and Receive Orders for "C" and "Z" group scrips are generated on trade to trade basis.e. the Clearing & Settlement Dept. B1... without netting of purchase and sale transactions in a scrip.. 'B1'... All deliveries of securities are required to be routed through the Clearing House. the trades done by members in all the securities in CRS are now settled by payment of money and delivery of securities on T+3 basis. 'B2'. are directly debited through computerized posting for their settlement and margin . Standard Chartered Bank. Bank of India. of the Exchange liaises with the Clearing House on a day to day basis. may be settled directly between the members concerned. For this purpose. UTI Bank Ltd.. except for certain offmarket transactions which. The Delivery Orders provide information like scrip. The Clearing House is an independent company promoted jointly by Bank of India and Stock Exchange. The Information Systems Department (ISD) of the Exchange generates Delivery and Receive Orders for transactions done by the members in A. HDFC Bank Ltd. quantity and the name of the receiving member to whom the securities are to be delivered through the Clearing House. although are required to be reported to the Exchange.. The Money Statement provides scrip wise/item wise details of payments/receipts for the settlement. and Indusind Bank Ltd.Settlement Pay-in and Pay-out for 'A'. viz. 'C'. Centurion Bank Ltd. Mumbai for handling the clearing and settlement operations of funds and securities on behalf of the Exchange. ICICI Bank Ltd. The Delivery/Receive Orders and money statements can be downloaded by the members in their back offices The bank accounts of members maintained with the eight clearing banks. Global Trust Bank Ltd.

This Auto D. 2000.obligations and credited with receivables on accounts of pay-out dues and refund of margins. If there are no discrepancies. as per the Delivery Orders issued by the Exchange.e. (NSDL) and Central Depositories Services Ltd. This Auto D. (CDSL) . facility: Instead of issuing Delivery Out instructions for their delivery obligations in a settlement /auction.O.. August 10. i. then a scroll number is generated by the Clearing House and a scroll slip is issued. facility is available for CRS (Normal & Auction) and for trade-to-trade settlements. are required to be delivered by the members in the Clearing House on the day designated for securities pay-in. on T+3 day. however. The securities.O. scrip code. This facility is.O.f. and receiving member) on a floppy. the members have to deliver the securities in special closed pouches (supplied by the Exchange) along with the relevant details (distinctive numbers.e. The members can then submit the securities at the receiving counter in the Clearing House Auto D. quantity. The data submitted by the members on floppies is matched against the master file data on the Clearing House computer systems.. The members wishing to avail of this facility have to submit an authority letter to the Clearing House.O facility is currently available only for Clearing Member (CM) Pool accounts/Principal Accounts maintained by the members with National Securities Depository Ltd. not available for delivery of non-pari passu shares and shares having multiple ISINs.) instructions on their behalf from their CM Pool A/cs by the Clearing House w. In case of the physical securities. a facility has been made available to the members of automatically generating Delivery-Out (D.

This is referred to as Payout. quantity. This procedure is called Funds Pay-in. the securities are credited in the Pool Account of the members or the Client Accounts as per the client details submitted by the members. Once this reconciliation is complete. In case of the demat securities. the Receiving Members collect securities from the Clearing House on the payout day and the accounts of the members having payout are credited on Friday. Alternatively. In case of Physical securities. settlement type. In case the securities are not received in an auction. the positions are closed out as per the closeout rate fixed by the Exchange in accordance with the prescribed rules. As regards CDSL. the bank accounts of members with seven clearing banks having pay-in positions are debited on the scheduled pay-in day.. etc. pay-in of funds and securities is on Thursday and payout is on Friday. (CDSL) or National Securities Depository Ltd. The Clearing House arranges and tallies the securities received against the receiving member wise report generated on the Pay-in day. the members give pay-in instructions to their DP. The members are required to give delivery-out instructions so that the securities are considered for pay-in. so that securities are processed towards pay-in obligations. pay-in and payout of both funds and securities is on the same day. The auction is conducted for those securities which members fail to deliver/short deliver during the Pay-in. The securities are transferred to the Pool Account. The close out rate is calculated as the highest rate of the scrip recorded in the settlement in which the trade was executed and in the subsequent settlement upto the day prior to the day of auction. in case of Weekly settlements. (NSDL). In case of the Rolling Settlements.Demat pay-in: The members can effect demat pay-in either through Central Depository Services (I) Ltd. the members are required to give instructions to their Depository Participant (DP) specifying settlement no. The members are required to give confirmation to their DP. or 20% above the closing price on . effective pay-in date. The securities are transferred to Clearing Member (CM) Principal Account. members may also effect pay-in from clients' beneficiary accounts for which member are required to do break-up on the front-end software to generate obligation and settlement ID. In case of NSDL.

. The Exchange has strictly adhered to the settlement schedules for various groups of securities and there has been no case of clubbing of settlements or postponement of pay-in and pay-out during the last six years. stolen. i. without netting buy and sell transactions in scrips in "C" & 'Z' groups and scrips in B1 and B2 groups which have been put on trade to trade basis as a surveillance measure. This database has also been made available to the members so that delivering and receiving members can check the entry of fake. 'B2'. However. If a seller member is unable to deliver the shares on the Pay-in day for any reason. whichever is higher.. 'B1'. lost and duplicate securities with the Clearing House so that distinctive numbers submitted by members on delivery may be matched against the database to weed out bad paper from circulation at the time of introduction of such securities in the market. 10% instead of 20% above the closing price on the day prior to the day of auction and the highest price recorded in the settlement in which trade took place upto a day prior to auction is considered. his bank account is debited at the standard rate (which is equal to the closing price of the scrip on the day of trading) fixed by the Exchange for the quantity of shares short delivered. The seller members have to deliver the shares in the Clearing House as per the Delivery Orders downloaded. and 'F' group scrips and on trade to trade basis. The Clearing House arrives at the shortages in delivery of various scrips by members on the basis of their delivery obligations and actual delivery. in case of close-out for shares under objection or traded in "C" group. The Exchange is also maintaining a database of fake/forged. forged and stolen shares in the market SHORTAGES AND OBJECTIONS Shortages & consequent actions The members download Delivery/Receive Orders based on their netted positions for transactions entered into by them during a settlement in 'A'.the day prior to the day of auction.e.

T+5. participate in auction of other scrips..e. if any. The auction for the undelivered quantities is conducted on T+4 for all the scrips under compulsory Rolling Settlements. to the Clearing House by 1:00 p. T+5. The members are required to deliver the shares in the Clearing House on the auction Payin day. Pay-Out of auction shares and funds is also done on the same day. The auction offers received in batch mode are electronically matched with the auction quantities so as to award the 'best price'. determined by higher of the following:. Odd Lot segment the members are themselves required to report the shortages to the Clearing House. and bad deliveries are now conducted during normal trading hours on BOLT. .e. however. The various auction sessions relating to shortages. in 'C' group. i. if their offers are accepted. In auction. i. The Exchange issues an Auction Tender Notice to the members informing them about the names of the scrips.The members can download the statement of shortages on T+3 in Rolling Settlements.m. quantity slated for auction and the date and time of the auction session on the BOLT.e.. The members who participate in the auction session can download the Delivery Orders on the same day. the sale transaction is closed-out at a close-out price. If no discrepancy is reported within the stipulated time. In case no offers are received in auction for a particular scrip. After downloading the shortage details. the members are expected to verify the same and report discrepancy . i. Thus. the Clearing House assumes that the shortage of a member is in order and proceeds to auction the same.Highest price recorded in the scrip from the settlement in which the transaction took place upto a day prior to the day of the auction. He can. it is possible to schedule multiple auction sessions on a single trading day. A member who has failed to deliver the securities of a particular company on the pay-in day is not allowed to offer the same in auction. the highest offer price is allowed upto the close-out rate and the lowest offer price can be 20% below the closing price on a day prior to day of auction. However.

the Delivery and Receive Orders are issued to the members after netting off their purchase and sale transactions in scrips where netting of purchase and sale positions is permitted. It is likely in some circumstances that a selling client of a member has failed to deliver the shares to him. if the offeror member fails to deliver the shares offered in auction.OR . Self Auction As has been discussed in the earlier paragraphs. the member would require shares so that he can deliver the same to his . the difference is recovered from the seller who failed to deliver the scrip. However. 10% above the closing prices of the scrips on the pay-out day of the respective settlement are considered instead of 20%. in case. in case of the close-out of the shares under objection and shortages in "C" or "Z" group. This is to ensure that the seller does not benefit from his failure to meet his delivery obligation. the difference is not given to the seller but is credited by the Exchange to the Customers Protection Fund. Further. Further. this did not result in a member's failure to deliver the shares to the Clearing House as there was a purchase transaction of some other buying client of the member in the same scrip and the same was netted off for the purpose of settlement. However. However. However. then the transactions is closed-out as per the normal procedure and the original selling member pays the difference below the standard rate and offer rate and the offeror member pays the difference between the offer rate and close-out rate. if the auction price/close-out price of a scrip is higher than the standard price of the scrip in the settlement in which the transaction was done.20% above the closing price on a day prior to the day of auction. in such a case. auction/ close-out price is lower than standard price.

buying client. (T+4). The buyer members. The internal shortages reported by the members are clubbed with the normal shortages in a settlement and the Clearing House for the combined shortages conducts the auction. he has to obtain an arbitration award from the arbitrators and submit the securities in the Clearing House on the following day of the Pay-Out (T+4). i. which otherwise would have taken place from the delivery of shares by the seller. The rectified securities are delivered by the Clearing House to the buyer members on the same day (T+5). The delivering members are required to rectify/replace the objections and return the shares to the Clearing House on next day (T+5) to have the entry against them removed. as if they have defaulted in delivery of shares to the Clearing House). the members have been given an option to submit floppies for conducting self-auction (i. he is required to obtain arbitration award for invalid objection from the members of the Arbitration Review Committee. To provide shares to the members.. if they are not satisfied with the rectification. if any. A member after getting delivery of shares from the Clearing House in self-auction credits the shares to the Beneficiary account of his client or hand over the same to him in case securities received are in physical form and debits his seller client with the amount of difference. The Clearing House returns these securities to the delivering members on the same day. Such floppies are to be given to the Clearing House on the pay-in day. If a delivering members feels that arbitration awards obtained against him is incorrect.e.. If the receiving member does not consider the securities good delivery. .e. are required to obtain arbitration awards for invalid rectification from the Bad Delivery Cell on T+6 day and submit the shares to the Clearing House on the same day. between the auction price and original sale price B) Objections When receiving members collect the physical securities from the Clearing House on the Payout day. so that they are in a position to deliver them to their buying clients in case of internal shortages. the same are required to be checked by them for good delivery as per the norms prescribed by the SEBI in this regard.

The following table summarizes the activities involved in the Patawat Objection Cycle of CRS. .If a member fails to rectify/replace the objections then the same are closed-out. Securities under objection to be submitted in the Clearing House Arbitration awards for invalid objection to be obtained from members of the Arbitration Review Committee T+5 Members and institutions to submit rectified securities. confirmation forms and invalid objections in the clearing house Rectified securities delivered to the receiving members T+6 Arbitration Awards for invalid rectification to be obtained from officials of the Bad Delivery Cell Securities to be lodged with the clearing house The un-rectified and invalid rectification of securities are directly closed-out by the Clearing House instead of first inviting the auction offers for the same. This is known as "Objection Cycle" and the entire process takes 3 days. DAY ACTIVITY T + 3 Pay-out of securities of Rolling Settlement T + 4 Patawat Arbitration session : Arbitration awards to be obtained from officials of the Bad Delivery Cell.

which are not in order. These cases are as follows: Transfer Deed is out of date.per Delivery Order is levied on the delivering member for delivering shares. etc.100/. are not filled. Delivering broker's stamp on the reverse of the Transfer Deed is missing. in the Transfer Deeds.per case is charged and the penalty of Rs. Witness stamp or signature on Transfer Deed is missing. a penalty of Rs. Stamp of the Registrar of Companies is missing. Cheques for the dividend adjustment for new shares where distinctive numbers are given in the Exchange Notice is not enclosed. Signature of the transferor is missing.100/. Transferors' Names.per Delivery Order levied on the delivering member is refunded to him by debiting the receiving member's account .The shares in physical form returned under objection to the Clearing House are required to be accompanied by an arbitration award (Chukada) except in certain cases where the receiving members are permitted to submit securities to the Clearing House without "Chukada". In the event a receiving member misuses the facility of submitting shares under objection without "Chukada". Details like Distinctive Numbers. A penalty at the rate of Rs. Death Certificate (in cases where one or more of the transferors are deceased) is missing.500/.

or  10% above the closing rate as on the day prior to the day of auction of 'A'.  20% above the closing rate as on the day prior to the day of auction of the respective settlement. or  Transaction price. 'B1'. the offeror member's account is debited and the buyer member's account is credited at the close-out rate. 'B2. and 'Z' group. . For 'C' group segment The close-out rate is higher of the following rates :  The highest rate of the scrip from the first day to the day prior to the day of auction of 'A'. the original seller member's account is debited and the buyer member's account is credited at the closeout rate. 'B1'. 'B2. In the latter case. The closeout rates for closing the positions in different segments are as under: For 'A' + 'B1' + 'B2' + 'Z'. 'Rolling demat' and 'F' group The closeout rate is higher of the following rates:  The highest rate of the scrip from the first day (trading day in case of Rolling demat segment) to the day prior to the day on which the auction is conducted for the respective settlement. and 'Z' group segment of the respective settlements.Close Out: There are cases when no offer for particular scrip is received in an auction or when members who offer the scrips in auction. fail to deliver the same. In the former case.

The shortages are directly closed out.In the 'C' group.e. no auction session is conducted. .. i. Odd Lot Segment.

the offeror member's account is debited and the buyer member's account is credited at the close-out rate. the original seller member's account is debited and the buyer member's account is credited at the closeout rate. In the former case. In the latter case.Close Out: There are cases when no offer for particular scrip is received in an auction or when members who offer the scrips in auction. fail to deliver the same. The closeout rates for closing the positions in different segments are as under: .

 20% above the closing rate as on the day prior to the day of auction of the respective settlement. 'B1'.For 'A' + 'B1' + 'B2' + 'Z'. In the 'C' group. BASKET TRADING SYSTEM The Exchange has commenced trading in the Derivatives Segment with effect from June 9. enable the investors to hedge their risks. 'B2. or  10% above the closing rate as on the day prior to the day of auction of 'A'. The shortages are directly closed out. Odd Lot Segment. 'B1'. i..e. 'Rolling demat' and 'F' group The closeout rate is higher of the following rates:  The highest rate of the scrip from the first day (trading day in case of Rolling demat segment) to the day prior to the day on which the auction is conducted for the respective settlement. no auction session is conducted. the Exchange has since introduced the index options and options & futures in select . For 'C' group segment The close-out rate is higher of the following rates :  The highest rate of the scrip from the first day to the day prior to the day of auction of 'A'. and 'Z' group segment of the respective settlements. and 'Z' group. Subsequently. the facility of trading in the Derivatives Segment has been confined to Index Futures. 2000 to. or  Transaction price. Initially. 'B2.

This is expected to have balancing impact on the prices in both cash and futures markets. thus. the investors are able to buy/ sell all 30 scrips of Sensex in the proportion of their respective weights in the Sensex. specified shares or 'A' group and non-specified securities that are sub-divided into 'B1' and 'B2' groups. . The Basket Trading System would. Further. meet the needs of investors and also boost the volumes and depth in cash and futures markets.. To participate in this system the member indicates number of Sensex basket(s) to be bought or sold. Monday. The investors are also allowed to create their own baskets by deleting certain scrips from the Sensex basket of 30 scrips. the Exchange has provided the facility of Basket Trading System on BOLT. SETTLEMENT SYSTEM Securities traded on BSE are classified into three groups.e. In Basket Trading System.f. the Basket Trading System provides the arbitrageurs an opportunity to take advantage of price differences in the underlying securities of Sensex and Futures on the Sensex by simultaneous buying and selling of baskets covering the Sensex scrips and Sensex Futures. The investors in cash market had felt a need to limit their risk exposure in the market to movement in Sensex. The trades executed under the Basket Trading System are subject to intra-day trading/gross exposure limits and daily margins as are applicable to normal trades.50 to prevailing Sensex.individual stocks. The Basket Trading System has been implemented by the Exchange w. namely. The investors need not calculate the quantity of Sensex scrips to be bought or sold for creating Sensex linked portfolios and this function is performed by the system. the 14th August 2000. where the value of one Sensex basket is arrived at by the system by multiplying Rs. in one go. With a view to provide investors with this facility of creating Sensex linked portfolios and also to create a linkage of market prices of the underlying securities of Sensex in the Cash Segment and Futures on Sensex.

These companies typically have a large capital base with widespread shareholding. Direct investment: Foreign Companies are now permitted to have a majority stake in their Indian affiliates except in a few restricted industries. 495 relatively liquid securities are placed in a category called 'B1' group. All newly listed securities are placed in the 'B2' group. Opportunities available for foreign investors 1. Investment through Stock Exchanges: .Presently. Contracts in this group are allowed to be carried over to subsequent settlements upto a maximum permissible period of 75 days. The Clearing House handles only the money part of 'B2' group while securities are physically exchanged between the brokers. In certain specific industries. buy or sell positions in a particular security can be either squared up by entering into contra transactions or can be further accumulated by entering into more buy or sell transactions. 1996 are placed in the 'B2' group. Settlement of transactions is done on an 'Account Period' basis. The period is a calendar week in the case of 'A' and 'B1' groups and 14 calendar days in the case of 'B2' group During an account period. foreigners can even have holding upto 100 per cent. Clearing System The Clearing House of the Exchange handles the share and the money parts of the settlement process in the case of 'A' and 'B1' groups. The remaining securities-about 5800 as on May 31. good growth record and a large volume of business in the secondary market. a steady dividend. equity shares of thirty-two companies are classified as specified shares. 2.

3. . which is. Guideline for the purpose have been issued by SEBI. GDR's and Euro convertibles.Foreign Institutional Investors (FII) upon registration with the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) are allowed to operate in Indian Stock Exchanges subject to the guidelines issued for the purpose by SEBI. II. Broking Business: Foreign brokers upon registration with the SEBI are now allowed to route the business of registered FIIs. permitted upto 51 per cent in all priority areas. Portfolio investment in primary or secondary markets will be subject to a ceiling of 24 per cent of issued share capital for the total holding of all registered FIIs in any one company. Important requirements under the guidelines are as under: I. The holding of a single FII in any one company is subject to a ceiling of 5 per cent of the total issued capital. • Investment by FIIs through following alternative routes. A registered FII is required to buy or sell only for delivery. Investment in Euro Issues/Mutual Funds Floated Overseas: Foreign investors can invest in Euro issues of Indian companies and in Indiaspecific funds floated abroad. It is also not allowed to sell short. foreign brokers at present are not allowed membership in India Stock Exchanges. Disinvestments will be allowed only through a broker of a Stock Exchange. Asset Management Companies/Merchant Banking: Foreign Participation in Asset Management Companies and Merchant Banking Companies is permitted. in applying the ceiling of 24 percent the following are excluded: • Foreign investment under a financial collaboration (DFI). However. However. Offshore Single/Regional funds. III. 4. 5. It should not offset a deal.

Companies are required to publish half-yearly unaudited results and other price sensitive information. Transfer-deeds remain valid for twelve months or the next book closure following the stamped date whichever occurs later. 5. The duly executed transfer-deed along with the share certificate has to be lodged with the company for change in the ownership. Disputes unresolved in the Exchange are taken to the Court of Law. ARBITRATION MACHINERY There exists three level arbitration machinery. Margins are collected from the brokers on buying and selling positions at the end of the day. A nominal duty becomes payable in the form of stamps to be affixed on the transfer-deeds. which is signed. The first two levels. which are adjudicated by member brokers. 4. A comprehensive insurance cover for the Exchange and the members is about to be put in place.TRANSFER OF OWNERSHIP Transfer of ownership of securities in effected through a date stamped transfer-deed. 3. BSE is in the process of establishing a Clearing Corporation that will guarantee trades. The highest arbitrator in the Exchange is the Governing Board. The total outstanding position is further subject to capital adequacy norms laid down from time to time. comprise of a two-member bench and a full bench that is to comprise of at least sixteen members respectively. 2. Insider Trading Regulations have been laid down and a 'Take-Over' code has been created. . by the buyer and the seller. This imparts greater transparency to the stock market operations. SAFEGUARDS 1. Guaranteeing trades is the cornerstone of a mature clearing and settlement process.

000. GRIEVANCE REDRESSAL The Investor's Services Cell redresses investors' grievances against listed companies and stockbrokers. DISCIPLINARY ACTION The Exchange has an eight member Disciplinary Action Committee (DAC) which decides on punitive action in disciplinary cases referred to it by the Surveillance and inspection departments of the Exchange Administration.5% of the listing fees and a levy on turnover at the rate or Re. BSE National Index with 1983-84 as base year. However. This index is made up of 100 scrips. The investor is indemnified from default to the extent of Rs. It is further augmented by 50% of the interest accrued on 1% of the issue amount which is deposited by companies at the time of their public and rights issues for a three month period as a safeguard against non-refund of excess subscription. The corpus of the fund is created by depositing 2. 00. Subsequently. INDICES The Exchange compiles four indices. the Exchange does not have power to take penal action against listed companies. 98 of which are quoted on . a more broad based index.1 for Rs. The first index to be compiled was the BSE Sensitive Index with 1978-79 as the base year. which are based on market capitalization. except delisting for specified periods. 1 million of turnover. The companies have been selected on the basis of market activity. was compiled. It comprises of equity shares of 30 companies from both specified and non-specified securities groups.CUSTOMER PROTECTION FUND The objective of this fund is to provide insurance to investors in case of default by a member.1.

1989-90 has been chosen as the base year for BSE-200. dividing the current Rupee market value by Rupee-Dollar modifies the BSE-200 conversion rate in the base year. income. This index. The BSE-200. volume of turnover and strength of the companies' fundamentals. DISCLOSURE & LISTING NORMS Companies who wish to raise money from capital market follow guidelines relating to disclosure. With divestment of Public Sector Unit (PSU) equity by government and a sharp increase in the number of companies listed over the last few years. is called the Dollex. consists of equity shares of 200 companies. Consequently. which was introduced in May 1994. . a need was felt to express the index values by taking into account the Rupee-Dollar conversion rate. which have been selected on the basis of market capitalization. Calcutta. which is more representative of the recent changes and is more balanced is necessary. laid down by the Securities and Exchange Board of India. Ahmedabad and Madras. it was felt that a new index. This index also includes prices on the other major stock exchanges of Delhi. If scrip is actively quoted on more than one Exchange the average price of the scrip is used in the compilation of the index.Bombay. Some of the disclosure norms are: • • Details of other income if it constitutes more than ten percent of total All adverse event affecting the operations of the company. which indicates the movement of the market in dollar values. It was felt that the sensitive index-the most popular indicator of market movementhad become oversensitive to a handful of scrips. As the presence of the foreign investors grew.

• •

Any change in key managerial personnel. Risk factors specific to the project and those which are external to the

company. The listing requirements with the Exchange call for further disclosure by companies to promote public confidence. Important disclosures are: • • • The company is required to furnish unaudited half-yearly financial The company must explain to the Stock Exchange any large variation When any person or an institution acquires or agrees to acquire any results in the prescribed Performa. between audited and unaudited results in respect of any item. security of a company which would result in his holding five percent or more of the voting capital of the company, including the existing holding the Exchange must be notified within two days of such acquisition by the company or by authorized intermediary or by the acquirer. • Any take-over offer made either voluntarily or compulsorily to a company requires a public announcement by both the offeror and the offeree company.

Computerized Trading
BSE computerized its trading and settlement activities by following a three-phased approach. Phase I: The primary objective of this phase was the real time dissemination of price data through the Display Information Driver System (DIDS). DIDS was

commissioned in November 1992 to disseminate bids, offers, actual rates of transactions and indices on a real time basis. Phase II: In 1994, settlement related daily transactions inputs and outputs were uploaded and downloaded from the TWS in the brokers’ offices. Phase III: Commissioned on March 14, 1995. Although, screen based trading started with 818 scrips, by the 70th day of its commissioning, all scrips-exceeding 5000 had been put on the BOLT system. The BOLT system was commissioned with the Himalya K 10,000 central trading computer hardware. Since then the hardware has been upgraded to the Himalya K 20,000 system. The system provides for a response time of two seconds and can handle more than two hundred thousand trades in a day.

Stock Market Indicators 1991-92 1992-93 1993-94 1994-95 1995-96 (Apr.Mar (Apr.Mar (Apr.Mar (Apr.Mar (Apr.Mar) ) ) ) ) No. of Listed Companies 2061 2861 3585 4702 5603

Market Capitalization (In Rs.Billion) 3059.87 1881.46 3680.71 4354.81 5264.76 (In US $ Billion) 97.13 59.72 116.85 138.37 153.27 Annual Turnover (In Rs.Billion) 717.77 456.96 836.29 677.49 500.64 (In US $ Billion) 22.78 14.50 26.55 21.51 14.57 Velocity 0.23 0.24 0.24 0.16 0.10 Average Daily Turnover (In Rs.Billion) 3.32 2.38 3.84 1.78 2.16 (In US $ Billion) 0.10 0.07 0.12 0.06 0.06 No. of Shares Traded 6,35,515 3,50,313 7,42,792 1,07,24.8 7,71,850 (In Million Nos.) Average Number of Daily 75,000 65,535 63,786 85,010 73,855 Deals BSE Sensitive Index 4285.00 2280.52 3778.99 3260.95 3366.61 (Year End) BSE National Index 1967.71 1021.40 1829.53 1605.57 1549.25 (Year End)

BSE 2000 (Year End) Dollex (Year End) No. of Registered Flls (In Rs. Billion) (In US $ Billion) No. of Members (Year End) No. of Corporate Members (Year End)

585.19 261.25 -

234.35 124.89 -

450.07 238.86 145

365.97 194.67 308 21.24 0.67 636 26

345.40 168.54 366 31.63 0.92 641 63

Fll Net investment 29.85 0.95 558 4 558 4 628 4

Future Developments
In 1995, the President of India promulgated an Ordinance, which allowed for establishment of depositories. BSE in collaboration with Bank of India (BOI) will shortly establish a depository. BSE has applied for permission from SEBI to expand BOLT to other centres. Expansion of BOLT would bring more investors into the ambit of the capital market and consequently add depth to it.

.

the NSE has been cosponsored by other development/ public finance institutions.  To ensure equal access to investors across the country through an appropriate communication network. Trading volumes in the equity segment have grown rapidly with average daily turnover increasing from Rs. During the year 2000-2001. Having operationalised both the debt and equity markets. which transcends geographical barriers. which will provide futures and options in equity. fully computerized trading system designed to offer investors across the length and breadth of the country a safe and easy way to invest or liquidate investments in securities.6797 crores in February 2001 with an average of 9. LIC. NSE reported a turnover of Rs. It provides a modern.  To set up a nation wide trading facility for equities. fully automated screen based trading. Infrastructure leasing and finance and so on. banks and other financial institutions such as SBI Capital Market. Its main objectives has been to set up comprehensive facilities for the entire range of securities under a single umbrella. namely. the NSE is planning for a derivative market.6 lakh trades on a daily basis. debt instruments and hybrids. NSE started equity trading on November 3.13. India has had a history of stock exchanges limited in their operating jurisdiction to the cities in which they were set up. Stockholding corporation. The NSE represented an attempt to overcome the fragmentation of regional markets by providing a screen-based system. Sponsored by the industrial development bank of India. . NSE introduced for the first time in India. 39. GIC. 1994 and within a short span of 1 year became the largest exchange in India in terms of volumes transacted.7 crores in November 1994 to Rs.INTRODUCTION The National Stock Exchange (NSE) is India's leading stock exchange covering around 400 cities and towns all over India.510 crores in the equities segment accounting for 45% of the total market.

efficient and transparent securities market to investors using the electronic trading system. . Locations One of the objectives of NSE was to provide a nationwide trading facility and to enable investors’ spread all over the country to have an equal access to NSE. Constitution The NSE has two segments for trading in securities: Wholesale Debt Market (WDM) and Capital Market (CM). NSE uses sophisticated telecommunication technology through which members can trade remotely from their offices located in any part of the country.  To ensure shorter settlement cycles and book entry settlement systems. and  To meet the current international standards prevalent in the securities Industry/markets. Listing The prime objective of admission to dealings on the Exchange is to provide liquidity and marketability to securities as also to provide a mechanism for effective management of trading. NSE trading terminals are present in around 400 cities and towns all over India. This section provides a direct link to the web site of companies traded on the Exchange. Various types of securities of a company are traded under a unique symbol and different series. Securities listed on the Exchange are required to fulfill the listing eligibility criteria. Separate membership is required for each segment. To provide a fair.

Limited Physical Market Pursuant to SEBI guidelines. each trading day is considered as a trading period and trades executed during the day are settled based on the net obligations for the day. The persons eligible to become TMs are body corporates. In this segment quantities not exceeding 500 shares of each security held in the name of the investor can be traded. They are selected on the basis of a comprehensive selection criterion. . trading members are allowed to enter sell orders in this market segment only for their FII clients.e. subsidiaries of banks and financial institutions. In order to ensure that the overall FII ceiling limits are not violated.Trading members They are recognized members of NSE. which include bank holidays. Saturdays and Sundays are excluded. Tuesday's trades shall be settled on the next Tuesday and so on. Institutional Segment Trading in this market segment is available for institutional investors only. on the 5th working day. However. For arriving at the settlement day all intervening holidays. the trades in rolling settlement are settled on a T+5 basis i. Typically trades taking place on Monday shall be settled on the next Monday. In NSE. NSE holidays. The whole time directors/dealers of thess Trading mechanism Rolling Settlement In a rolling settlement. NSE introduced a new market called Limited Physical Market to provide a facility to small investors to trade and settle physical shares in those securities where compulsory dematerialized trading and settlement is enforced by SEBI.

at the same price and at the same cost.members can enter buy orders on behalf of FII/FI clients. This has helped reduce jobbing spreads not only on NSE but in other exchanges as well. which have not established connectivity with both the depositories as per SEBI directive. This resulted in a great deal of uncertainty and high transaction costs. an investor wanting to transact in a security not traded on the nearest exchange had to route orders through a series of correspondent brokers to the appropriate exchange. thus reducing transaction costs. . Till the advent of NSE. NSE has made it possible for an investor to access the same market and order book. The settlement of transactions in this segment is in demat mode only. irrespective of location. which adopts the principle of an order driven market. a fully automated screen based trading system. Trading System NSE operates on the 'National Exchange for Automated Trading' (NEAT) system. The list of these securities is notified by SEBI from time to time. NSE consciously opted in favour of an order driven system as opposed to a quote driven system. Trade for Trade Segment Trading in this segment is available only for those securities.

Market Types The NEAT system in NSE has four types of market.  Auction Market In the Auction Market. Negotiated Trade Orders and Stop Loss orders depending on their order attributes. For shares. both the price and quantity of both the orders (buy and sell) should exactly match for the trade to take place. These orders do not have any special terms attributes attached to them.  Spot Market Spot orders are similar to the normal market orders except that spot orders have different settlement period’s vis-à-vis normal market. the Exchange on behalf of trading members for settlement related reasons initiates’ auctions. These orders do not have any special terms attributes attached to them. They are:  Normal Market All orders which are of regular lot size or multiples thereof are traded in the Normal Market. In an odd-lot market. Special Term orders. Normal market consists of various book types wherein orders are segregated as Regular lot orders. is one. which are traded in the compulsory dematerialised mode the market lot of these shares. .  Odd Lot Market All orders whose order size is less than the regular lot size are traded in the odd-lot market. An order is called an odd lot order if the order size is less than regular lot size. Currently the odd lot market facility is used for the Limited Physical Market as per the SEBI directives. Currently the Spot Market is being used for the Automated Lending & Borrowing Mechanism (ALBM) session.

the order that is entered first gets the higher priority. Orders are first numbered and time-stamped on receipt and then immediately processed for potential match.  Within Price.  Competitor The party who enters orders on the same side as of the initiator is called a Competitor. by time priority-Time priority means if two orders having the same price are entered. Order Books The NSE trading system provides complete flexibility to members in the kinds of orders that can be placed by them. . Every order has a distinctive order number and a unique time stamp on it. If a match is not found.  Initiator The party who initiates the auction process is called an initiator. the order having the best price gets the higher priority.There are 3 participants in this market.Price priority means that if two orders are entered into the system. then the orders are stored in different 'books'.  Solicitor The party who enters orders on the opposite side as of the initiator is called a Solicitor. Orders are stored in price-time priority in various books in the following sequence:  Best Price.

a) All or None (AON) b) Minimum Fill (MF) c) Stop Loss (SL) 2. special term orders i. These entries are matched with identical counterparty entries only. Special Terms Book The Special Terms book contains all orders that have either of the following terms attached: a) All or None (AON) b) Minimum Fill (MF) Note: Currently. The stop loss condition is met under the following circumstances: Sell order . .e AON and MF are not available on the system as per the SEBI directives. Stop-Loss Book Stop Loss orders are stored in this book till the trigger price specified in the order is reached or surpassed. When the trigger price is reached or surpassed. Regular Lot Book The Regular Lot Book contains all regular lot orders that have none of the following attributes attached to them. It is to be noted that these entries contain a counter party code in addition to other order details. the order is released in the Regular lot book.The Capital Market segment has following types of books: 1. Negotiated Trade Book The Negotiated Trade book contains all negotiated order entries captured by the system before they have been matched against their counterparty trade entries.A sell order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or falls below the trigger price of the order. 4. 3.

Spot Book The Spot lot book contains all spot orders (orders having only the settlement period different) in the system. Currently. 7. Auction Book This book contains orders that are entered for all auctions. The matching process for auction orders in this book is initiated only at the end of the solicitor period. Currently the Spot Market book type is being used for conducting the Automated Lending & Borrowing Mechanism (ALBM) session. .A buy order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or exceeds the trigger price of the order. This is referred as the Limited Physical Market (LPM). pursuant to a SEBI directive the Odd Lot Market is being used for orders which has a quantity less than or equal to 500 (Qty more than the market lot) for trading. Odd Lot Book The Odd lot book contains all odd lot orders (orders with quantity less than marketable lot) in the system. The system attempts to match an active spot lot order against the passive orders in the book. 6. The system attempts to match an active odd lot order against passive orders in the book.Buy order . 5.

the best buy order is the one with the highest price and the best sell order is the one with the lowest price. So. Alternatively. This ensures that the earlier orders get priority over the orders that come in later. a seller would obviously like to sell at the highest possible buy price that is offered.Order Matching Rules The best buy order is matched with the best sell order. Hence. Orders are always matched at the passive order price. the best buy order is the order with the highest price and the best sell order is the order with the lowest price. which will be displayed in the system till the full quantity is matched by one or more of counter-orders and result into trade(s) or is cancelled by the member. Members can proactively enter orders in the system. This is because the system views all buy orders available from the point of view of a seller and all sell orders from the point of view of the buyers in the market. Orders lying unmatched in the system are 'passive' orders and orders that come in to match the existing orders are called 'active' orders. These conditions are broadly classified into three categories: time related conditions. of all buy orders available in the market at any point of time. For example Time Conditions . An order may match partially with another order resulting in multiple trades. Order Conditions A Trading Member can enter various types of orders depending upon his/her requirements. members may be reactive and put in orders that match with existing orders in the system. price-related conditions and quantity related conditions. For order matching.

If the full order is not matched it will stay in the books till matched or cancelled. AON and MF orders are not available on the system as per SEBI directives. If the order is not matched during the day. Each day/date counted is a calendar day and inclusive of holidays.A Day order.  AON . failing which the order will be removed from the market. DAY .A Good Till Cancelled (GTC) order is an order that remains in the system until the Trading Member cancels it.A Good Till Days/Date (GTD) order allows the Trading Member to specify the days/date up to which the order should stay in the system. The Exchange notifies the maximum number of days a GTC order can remain in the system from time to time. and the unmatched portion of the order is cancelled immediately.  GTD . Note: Currently. the order gets cancelled automatically at the end of the trading day. Price Conditions Limit Price/Order . It will therefore be able to span trading days if it does not get matched. Partial match is possible for the order. The days/date counted are inclusive of the day/date on which the order is placed. At the end of this period the order will get flushed from the system.  GTC . as the name suggests. This may be by way of multiple trades. is an order which is valid for the day on which it is entered. The Exchange notifies the maximum number of days a GTD order can remain in the system from time to time.  IOC .An Immediate or Cancel (IOC) order allows a Trading Member to buy or sell a security as soon as the order is released into the market.All or None orders allow a Trading Member to impose the condition that only the full order should be matched against.

another 200 is automatically released and so on .00.00. e. This order is added to the regular lot book with time of triggering as the time stamp. the trigger is 93. Until then the order does not enter the market. If for stop loss buy order. Sell order A sell order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or falls below the trigger price of the order.00 Quantity Conditions Disclosed Quantity (DQ).00. as a limit order of 95.g. Buy order A buy order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or exceeds the trigger price of the order. Market Price/Order An order to buy or sell securities at the best price obtainable at the time of entering the order.An order with a DQ condition allows the Trading Member to disclose only a part of the order quantity to the market. an order of 1000 with a disclosed quantity condition of 200 will mean that 200 is displayed to the market at a time. the limit price is 95. which allows the price to be specified while entering the order into the system. Stop Loss (SL) Price/Order The one which allows the Trading Member to place an order which gets activated only when the market price of the relevant security reaches or crosses a threshold price.An order. After this is traded.00 and the market (last traded) price is 90. For example. then this order is released into the system once the market price reaches or exceeds 93.

A Trading Member can define a hierarchy of users of the system with the Corporate Manager at the top followed by the Branch Manager and Dealers. Market By Price. The Exchange may set a minimum disclosed quantity criteria from time to time. an order of 1000 units with minimum fill 200 will require that each trade be for at least 200 units. The Exchange may lay down norms of MF from time to time. Each trader has a unique identification by way of Trading Member ID and User ID through which he is able to log on to the system for trading or inquiry purposes. The Exchange may also allow a Trading Member to set up a network of dealers in different cities all of whom are provided a connection to the NSE central computer. In other words there will be a maximum of 5 trades of 200 each or a single trade of 1000. Trading system name and date. Trader Workstation Screens The Trader Workstation screen of the Trading Member is divided into several major windows: Title Bar The title bar displays the current time. For example. MF . Tool Bar A window with different icons which provides quick access to various functions such as Market By Order. Market Movement. Trading Workstation The trader workstation is the terminal from which the member accesses the trading system.Minimum Fill (MF) orders allow the Trading Member to specify the minimum quantity by which an order should be filled. Auction .till the full order is executed. A member can have several user IDs allotted to him by which he can have more than one employee using the system concurrently. Market Inquiry.

For each security. Ticker Window The ticker displays information about a trade as and when it takes place. market information is dynamically updated on a real time basis. Previous Trades. For each security in the Market Watch window. total sell order quantity for the best sell price. The market information displayed is for the current best price orders available in the regular lot book. the trading member can set them up by typing the Security Descriptor consisting of a Symbol field and a Series field. rights etc. Order Cancellation. Sell order entry. If the security is suspended. On line index and Index Inquiry .). Snap Quote. Market Watch. which are of interest to the Trading Member. Online Backup. "SUSPENDED" appears in front of the security. the Last Traded Price (LTP). The purpose of Market Watch is to view market information of pre-selected securities. Buy order entry. the last traded price change indicator ('+' if last traded price is better than the previous last traded price and '-' if it is worse) and the no delivery indicators are displayed..g. To monitor various securities. Order Modification. the corporate action indicator (e. Supplementary Menu. A third field indicates the market type. best sell price. which appear in the ticker. Net Position. Invoking the Security List and selecting the securities from the window can also set up securities. Ex or cum dividend. Activity Log. the total buy order quantity for the best buy price. interest. Market Watch Window The Market Watch window is the main area of focus for a Trading Member. Security List and Help. All these functions are also available on the keyboard. Order Status. The Symbol field incorporates the Company name and the Series field captures the segment/instrument type.Inquiry. The user has the option to set-up the securities. Outstanding Orders.

The orders are presented in a price/time priority with the "best priced" order at the top. Low and current index values at the time of invoking this inquiry screen. Outstanding Orders. Stop Loss orders. Activity Log.With every trade in a security participating in Index. This value is displayed at the extreme right hand corner of the ticker window. Market by Price. the user has the information on the current value of the Nifty. The information is displayed for each order. Order Status and Market Inquiry can be viewed. Index Inquiry gives information on Close. Open. Previous Trades (PT) The purpose of this window is to provide information to users for their own trade. Inquiry Window In this window. Market By Order (MBO) The purpose of Market by Order is to enable the user to view outstanding orders in the trading books in the order of price/time priority. Outstanding Orders (OO) . Buy orders are displayed on the left side of the window and Sell orders on the right side. which are not triggered will not be displayed on the window. the inquiries such as Market by Order. High. Market by Price (MBP) The purpose of Market By Price is to enable the Trading Member to view aggregate orders waiting in the book at given prices. Previous Trades.

Previous close. Most Active Securities and Net Position useful. High. These are available in the supplementary menu. Low. It displays information only of those orders in which some activity has taken place. the order has been traded against fully or partially. which have been performed on any order of the Trading Member such as whether. . it has been modified or has been cancelled. Market Inquiry (MI) Market Inquiry enables the user to view the market statistics like Open. Last traded price etc. Last traded quantity. date and time etc.The purpose of Outstanding Orders is to enable a Trading Member to view his/her own outstanding buy or sell orders for a security. It does not display orders. Low. but is not yet completely traded or cancelled. Order Status (OS) Order Status enables the user to look into the status of a specific order. The details include total buy and sell order quantity value. An outstanding order will be an order that was entered by the user. the trade details are also displayed. High. It gives details of the movement of the scrip for a time interval. A user may find inquiry screens like Market Movement. Market Movement (MM) The Market Movement screen provides information to the user regarding the movement of a security for the current day. Open. Activity Log (AL) The Activity Log shows the activities. which have entered the books but have not been matched (fully or partially) or modified or cancelled. Current status of the order and other order details are displayed. Last traded price change indicator. In case the order is traded.

quantity. This is normally used for securities which are not already on display in the Market Watch window. Orders once placed on the system can be modified or cancelled till they are matched.. Orders and trades are identified and linked by unique numbers so that the investor can check his order and trade details. Once orders are matched they cannot be modified or cancelled. order no. price. Snap Quote The Snap Quote feature allows a Trading Member to get instantaneous market information on any desired security.Most Active Securities This screen gives a list of the securities with the highest traded value during the day and the quantity traded for each of them. price and quantity traded. order conditions like disclosed or minimum fill quantity etc. Net Position This functionality enables the user to interactively view his net position for all securities in which he has traded. amount etc. security name. The order confirmation slip contains among other things. trade time. . The system will request re-confirmation of an order so that the user is cautioned before the order is finally released into the market. There is a facility to generate online order/trade confirmation slips as soon as an order is placed or a trading is done. The trade confirmation slip contains the order and trade no. Order/Trade Window Order entry mechanisms enable the Trading Member to place orders in the market.. date. The information presented is the same as that of Market Watch window.

This Computer-to-Computer Link (CTCL) facility is available only to trading members of NSE. Off Line Order Entry A member is able to make an order entry in the batch mode. Through CTCL facility Trading Members can use their own software running on any suitable hardware/software platform of their choice.Systems Message Window This window is used to view messages from the Exchange to all specific Trading Members. There is an option to copy the file to any drive of the computer or on a floppy diskette. Supplementary Menu Some of the supplementary features in the NEAT system are: On line back up An on line back up facility is provided which the user can invoke to take a back up of all order and trade related information. Trading members find this convenient in their back office work. Members can use software customised to meet their specialized needs like provision of on-line trade analysis. integration of back-office operations etc. Computer-to-Computer Link (CTCL) Facility NSE offers a facility to its trading members by which members can use their own trading front-end software in order to trade on the NSE trading system. subject to . The dealers of the member may trade using the software remotely through the member's own private network. risk management tools. This software would be a replacement of the NEAT front-end software that is currently used by members to trade on the NSE trading system.

account period settlement for dealings in physical securities and dematerialized securities. National Securities Clearing Corporation Limited National Securities Clearing Corporation Ltd. and to operate a tight risk containment system. NSCCL has empanelled 9 clearing banks to provide banking services to trading members and has established connectivity with both the depositories for electronic settlement of securities. nets the positions to determine the liabilities of members and ensures movement of funds and securities to meet respective liabilities.approvals from Department of Telecommunication etc. It provides a facility for multiple settlement mechanisms including. promoting and maintaining. . It assumes the counter-party risk of each member and guarantees financial settlement. It also undertakes settlement of transactions on other stock exchanges like. as may be required in this regard. NSCCL carries out the clearing and settlement of the trades executed in the Equities and Derivatives segments and operates Subsidiary General Ledger (SGL) for settlement of trades in government securities. rolling settlement (T+5 basis) in dematerialized segment etc. a wholly owned subsidiary of NSE. the Over the Counter Exchange of India. It operates a well-defined settlement cycle and there are no deviations or deferments from this cycle. to provide counter-party risk guarantee. It has successfully brought about an up-gradation of the clearing and settlement procedures and has brought Indian financial markets in line with international markets. short and consistent settlement cycles. It aggregates trades over a trading period. It has been set up with a philosophy to sustain confidence in clearing and settlement of securities. (NSCCL). was incorporated in August 1995 and commenced clearing operations in April 1996. NSCCL assumes the counter-party risk of each member and guarantees settlement through a fine-tuned risk management system and an innovative method of on-line position monitoring.

unfortunately. But having said that. especially when brokers on BSE and other regional stock exchanges are marketing vyaj badla schemes to their clients aggressively. but when the market was under a bear hug. Comparing it with a steady 12 per cent annual return offered by a bank fixed deposit or any AAA rated corporate bandit seemed that The high-risk and uncertain return of vyaj badla would start looking like a bad investment option. And then the taxman cometh! Vyaj badla transactions began to be treated as purchase and sale of shares. an investor’s final returns get lopped off to that extent. returns could diminish to just around 6-8 per cent a year.BADLA TRADING Badla is a complex system that contains many a pitfall for the uninitiated and the unwary. coupled with liquidity. Before an investor start believing in the stories of superlative returns (in excess of 20 per cent). the returns were not guaranteed. Investors need to be aware of the problems. Although nay Sayers might feel that vyaj badla provides an investor with an opportunity to maximize his earnings in a . thus getting subjected to capital gains tax of 30 per cent. Thus. This rosy picture could well be a reality during a bull run. there was a very high chance that an investor may end up with an average annual return of 14-18 per cent or sometimes even higher. This is so because financing badla is a definite no-no for the first-time investor in the stock market and also for those who don't have the time to constantly monitor the status of his/her investments and fluctuations in the market returns Vyaj Badla In the vyaj badla system. it is imperative that one takes a hard. safety and flexibility. rational look at the entire mechanism.

brokers who were sure of taking or making delivery of shares mark their respective "for delivery" positions. To ensure payment to the remaining two sellers for their 200 shares. Shares delivered by the seller were kept by the exchange in the clearing-house and allocated to the financier's broker in a special account. while six wanted to carry forward their positions. How did the Badla function? Assume that there had been 12 trades of 100 shares each in "ABC" stock. This helped the exchange to arrive at the net outstanding positions on Friday evening (the last day of the settlement on BSE). which was normally the closing price of the scrip on Friday. This financier charged interest (badla) for the money paid on behalf of the two buyers for them. while eight sellers effect delivery. On the BSE. Now six buyers made the payment for their purchases. Four "buy" carry-forward positions get matched against four "sell" carry-forward positions. forming the financier's collateral. An outstanding "buy" position in a stock sees a "seedha badla" where the financiers participate. The difference is threw open to the market's badla trading session on Saturday.bull market. Of the sellers. Specified quantities of the stock on offer are bought and sold at the financier's desired interest rate . and there are 12 separate buyers and sellers respectively. Prior to the commencement of this session.the badla rate. Six buyers and six sellers got squared off. six want to take delivery. the nerve-wracking tension that accompanies stock market fluctuations may well take its toll. eight wished to deliver the shares while four were keen on carrying their positions forward. Else. . the fact remains that it is a good option for the experienced investor. The demand and supply of funds and shares determined this rate. An outstanding "sell" position in the stock sees an "ulta" or "undha badla" where the stock lenders participate. by deducting them from the broker's weekly out standings. Among the buyers. vyaj badla financiers came in. the base price (hawala rate) is fixed.

With the next trading cycle ending. as you would be one among a lot of clients whose money has been collectively invested in vyaj badla. you should approach the type-I broker. Hence. This should be reflected in the badla bills. . this 0. One would show a purchase of 100 shares at Rs 69 per share. the financier can either receive the difference or roll over his/her money to a new badla transaction.38 percent works out to 26 paise. and also market perception. Memberships on BSE are split between type-I and type-II brokers. A constant fluctuation in these values during the two-and-a-half hour session is due to the constant change in demand and supply. Ideally. it would be 0. Most brokers don't accept anything less than Rs 1 lakh per client for badla financing. But it would be prudent for you to know the basis of allocation of stocks to you. depending upon their demand and supply. which would have two entries. for they maintain higher margins with the exchange. Who can participate? Not all brokers can participate in the badla process. The terminals would constantly keep flashing the best badla rate and the best annual yield for each stock on offer for a particular quantity. let's assume the hawala rate to be Rs 69. while the other would show a sale of 100 shares at Rs 69. Only the former can carry out badla trades. The difference will be the financiers earning for that week. For getting the weighted average return on badla finance. The broker would give the financier a badla bill or informal contract note. if you are keen on becoming a vyaj badla financier. If the financier wants to pay for 100 shares at 20 per cent per annum and the trade gets matched. On the hawala rate of Rs 69.26 per share. brokers using the discretionary allocation of stocks to the badla account should pay a weighted average return to each client. it is advisable to look for brokers who have automated this process.In this case. And the stock selection too is at their discretion. Badla rates vary between stocks. In this case.38 per cent. These rates fluctuate considerably throughout the session. the interest rate is converted into a weekly figure.

the delay can really eat into your returns. By virtue of the exchange's settlement cycle. the prices had dipped sharply by the time the financiers got their shares. the delay in the release of your money can be detrimental.5 per cent. The BSE's Trade Guarantee Fund could be of some succour and solace in these situations. As in the case of defaults. So factor in those extra days while calculating your actual return. This further reduces your yield. trimming down your annual yield further. always time your exit. And then you could bid goodbye to your money too. the financier is in a larger mess. Given the quirks of the vyaj . Failure to cash in on your interest gain at the end of the trading cycle gives the confidence to your broker to automatically roll over your investment to the next cycle. In the recent history of BSE. Badla positions taken by them sometimes go up to 15-20 times their net worth. If the broker defaults. Are investors safe? What is the investor’s safeguard in times of default? If the forward buyer defaults. Brokerage for such deals could range between 1-2. most brokers on BSE have a net worth of Rs 1-2 crore. Apart from the large institutional brokers. Although vyaj badla is considered to be an effective short-term instrument. there have been instances of brokers (having large carryforward positions in highly speculative stocks) defaulting. but just that. on which he had a lien through his Badla bill. Even a 10 per cent downward shift in their position would wipe out the broker's entire net worth. as is the case with all such instruments. Although these shares were enjoying very high badla rates at the time of the default. While opting out. your money gets released within a ten-day period. he got the shares held in the exchange's clearinghouse against his broker’s name. It is advisable to enter into a firm brokerage percentage prior to the commencement of the relationship.As in any other market transaction. But his risk erosioned in the value of the share during the days that it takes to release the shares. one cannot avoid brokerage in a vyaj badla transaction too.

a process that has undoubtedly improved national productivity growth and standards of living. the Securities and Exchange Board of India (SEBI) permitted the BSE and the NSE to introduce more derivatives. Hence. These instruments enhance the ability to differentiate risk and allocate it to those investors most able and willing to take it -. of leveraging the stock or its underlying asset.badla transactions and the inherent risks involved. they offer the benefits of ownership. such as options on indices and individual stocks. he can leverage on the margins to buy more units of the underlying security. But an instrument that may be more in line with the domestic market structure -. it can be concluded that amateurs should stay away .single-stock futures -.. -.. . small investors find them relatively easy to understand and use.Fed Chairman Alan Greenspan Following the introduction of index futures. Theoretically. As delivery of futures contracts is on a future date. Cheaper.is not under consideration. Hence. because margins in futures trading are lower than in options. One of the advantages enjoyed by single-stock futures is that they are cheaper to trade and easier to use for hedging strategies than options. But the valuation of futures contracts are not as complicated as that of options. the investor has to put up only the margin money. Single-stock futures are a way to reap the benefits of a stock's performance without actually owning the stock. Substitutes to Badla Financial derivatives By far the most significant event in finance during the past decade has been the extraordinary development and expansion of financial derivatives.it is strictly for the pro and the strong hearted. But a similar opportunity is not available to the speculator-investor to sell options in the underlying scrip.

Thus. in international markets. the writer is under an obligation to deliver. A market exists only if there is a writer and a buyer. that for index options works out to the commission received plus around 15 per cent of the contract's notional value. there is excessive risk for the options-writer and transactions costs could be high. they may not be allowed to write options. while the margin rate for index futures contracts is around 5 per cent. Hence. This is purely from the options-writer's perspective. his risk is limited to the premium paid for purchasing the right. the margin requirements are quite high. Market making in options depends to a great extent on institutions willing to write the contracts. . Since the buyer of an option contract is not under any obligation to exercise his right. it is difficult to foresee a lot of interest in the options market. in this situation. But given that there are few takers for the futures market. Currently. to limit default in the market. However. This means the risk borne by the option-writer is enormous. So. the regulations prevent funds from taking speculative positions in the spot market. Exchanges normally guarantee the writer's position.Trading options: Trading options are riskier than futures. For instance.

com 5) www. 2001) May.bseindia.nseindia.com : : : V.Bibliography 1) Stock exchanges in India 2) Indian securities market 3) NSE News 4) www. Raja Raman A review (Volume IV. 2001 .

PARVATI VENKATESH FROM . GHATKOPER (E). GARODIA NAGAR. MUMBAI-400077. 104.WORKING OF STOCK EXCHANGES IN INDIA (WITH REFERENCE TO BSE AND NSE) BY SHARMA MUKTA A/22 SATI KRUPA BLDG. TYBMS SIXTH SEMESTER 2001-2002. PROJECT GUIDE PROF. PLOT NO.

Stock Exchange. and Ms. Somaiya College of Arts. VIDYAVIHAR (E). completed this project successfully. DATE OF SUBMISSION: Acknowledgement It gives me pleasure to submit this project to the University of Mumbai as a part of curriculum of my BMS course.Dilip Adani.K. Mumbai. K.Gitanjali Madan. Prof. SOMAIYA COLLEGE OF ARTS.S. who simultaneously is my project guide and also. S. Science & Commerce and our Course Coordinator. SCIENCE AND COMMERCE. Stock Holding Corporation of .K. Parvati Venkatesh. I take this opportunity to express my sincere gratitude to Respected Prof. Venkatramani. MUMBAI-400077. without I whose could guidance. My respect and grateful thanks to Mr. not have inspiration motivation. broker. the Principal.

 Capital listed and market capitalization.  Terminologies associated with stock exchanges.  Role of SEBI.  Demat pay in.  Settlement and clearing. INDEX. for their valuable assistance in completion of this project.  BSE Sensex. .  Bombay Stock Exchange.  Introduction.  Light on stock exchange and it services.  Introduction.  Executive summary. Last but not the least.India Ltd. courage and patience to complete this project. I am thankful to the Almighty for giving me strength.  Trading system.

 Closing system.  Introduction. .  Order matching rules.  Grievances redressal.  Computer to computer links facility.  Computerized trading.  Trading members.  Disciplinary actions. Computation of closing price.  Basket trading system.  Order books.  Locations.  Indices.  Market types.  Transfer of ownership.  Listing.  Order conditions.  Constitution.  Disclosures and listing norms.  Future developments.  National Stock Exchange.  Trading workstation.  Trading mechanism.  National Securities Clearing Corporation Limited.  Customer protection fund.  Shortages and objections.  Quantity conditions.  Settlement system.  Arbitration machinery.  Opportunities for foreign investors.  Safeguards.

 Substitutes for Badla. Badla trading. . Trading options.    Bibliography. Financial derivatives.

CONCLUSION .

concept of stock exchanges. It provides thorough knowledge of different aspects of trading in stock exchanges. The first dealing with the theory. which is also taken from Franklin Templeton India Ltd. which have been explained in length in the pages to come. introduction of securities market. . role of SEBI etc. their role in economy. ie. The third part is the Case.EXECUTIVE SUMMARY The project is an attempt to working of stock exchanges in detail. The focus is basically with Indian context. The case speaks about 3 facts of investing. and the third one as. first being that growth and value do not move in tandem. their characteristics. second being. The report is divided in three parts. value stocks have provided low relative volatility over time. value investing has rewarded long term investors. attached with the report. The second part is the study made of different methods of trading and In all they offer 9 different avenues for investing.

Sign up to vote on this title
UsefulNot useful