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Bombay Stock Exchange (BSE

Bombay Stock Exchange is the oldest stock exchange in Asia What is now popularly known as the BSE was established as "The Native Share & Stock Brokers' Association" in 1875.Over the past 135 years, BSE has facilitated the growth of the Indian corporate sector by providing it with an efficient capital raising platform. Today, BSE is the world's number 1 exchange in the world in terms of the number of listed companies (over 4900). It is the world's 5th most active in terms of number of transactions handled through its electronic trading system. And it is in the top ten of global exchanges in terms of the market capitalization of its listed companies (as of December 31, 2009). The companies listed on BSE command a total market capitalization of $1.6 trillion as of November, 2010. BSE offers a wide range of products for trading in the securities market. An investor can choose from 4,687 listed companies. BSE also offers trading in SENSEX futures and options; as well as Futures and Options in individual stocks. BSE also introduced trading in the Debt Segment in 2001. BSE also has an effective three-level arbitration mechanism that redresses grievances between members, investors against members and investors against companies. With more and more foreign investment flowing into the country¶s financial markets, particularly from the Non- Resident Indian (NRI) community, BSE has also charted out plans to conduct seminars abroad, covering various aspects of India¶s capital markets. The BSE Training Institute (BTI) in collaboration with reputed management institutes and universities, offers 40 courses on various aspects of the capital market and financial sector. More than 20,000 people have so far benefited from them. BSE is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certifications. It is also the first Exchange in the country and second in the world to receive Information Security Management System Standard BS 7799-2-2002 certification for its BSE On-Line trading System (BOLT). Presently, we are ISO 27001:2005 certified, which is a ISO version of BS 7799 for Information Security. The BSE Index, SENSEX, is India's first and most popular Stock Market benchmark index. Exchange traded funds (ETF) on SENSEX, are listed on BSE and in Hong Kong. Futures and options on the index are also traded at BSE

Challenge faced in offline (manual) system
The manual form of trading had several limitations. Some of them are given below:

1. 2. 3. 4. 5. 6. 7. 8. 9.

Brokers did not come to know of the best rates of bids and offers. There was no concept of stop loss. There was no concept of circuit filters or circuit breakers There was no concept of floor or ceiling for an order. Traders were not aware of volumes of shares being ordered / traded. There was no transparency in the system. Default of delivery either of shares or money could not be tracked easily. On many occasions, bad delivery of shares would take place. Settlement did not take place in the proper manner.

10. Surveillance was almost non-existent.
11. Exchange earnings from the trades were not properly accounted for.

Technology solution for online trading at stock exchanges
BSE places a great deal of emphasis on Information Technology for its operations and performance. The 'Operations & Trading Department' at BSE continuously upgrades the hardware, software and networking systems, thus enabling BSE to enhance the quality and standards of service provided to its members, investors and other market intermediaries. BSE strictly adheres to IS policies and IS Security policies and procedures for its day-to-day operations on 24x7 basis which has enabled it to achieve the BS7799 certification and the subsequent ISO 27001 certification. In addition, BSE has also been successful in maintaining systems and processes uptime of 99.99%. BOLT To facilitate smooth transactions, BSE had replaced its open outcry system with the BSE Online Trading (BOLT) facility on March 14, 1995. This totally automated, screen-based trading in securities was put into practice nation-wide within a record time of just 50 days. BOLT has been certified by DNV for conforming to ISO 27001:2005 security standards. BSE has also introduced the world's first centralized exchange based Internet trading system, The initiative enables investors anywhere in the world to trade on the BSE platform. BSE's website provides comprehensive information on the stock market. It is one of the most popular financial websites in India and is regularly visited by financial organizations and other stakeholders for updates.

Other Technology-based Initiatives BSE, along with its strategic partners, have put into place several critical processes/systems such as
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Derivatives Trading & Settlement System (DTSS) Unique Client Code registration (UCC) Real-time Data Dissemination System Integrated Back-office System - CDB / IDB Book Building System (BBS) Reverse Book Building System (RBBS)

A Large Private Network BSE operates a large private network in India. The network uses following segments to cater to market intermediaries:BSE's Campus LAN: Connects market participant offices across 20 floors of BSE campus to BSE systems. BSE Campus comprises of 3 BSE buildings: P.J. Towers, Rotunda and Cama building

BSE WAN: TDM / MPLS lines from different service providers cater to connectivity requirements of market participants across the country. Wired / Wireless media is used. VSATs: Satellite based communication system serves the connectivity requirements of market participants in remote areas. Services are provided through BSE's Satellite Communication Hub in Mumbai. BSE Online Surveillance System - integrated (BOSS-i) an Real-time system to closely monitor the trading and settlement activities of the member-brokers. This system enables BSE to detect market abuses at a nascent stage, improve the risk management system and strengthen the self-regulatory mechanisms.

State-of-the-art Hardware BSE uses higher-end, fault-tolerant systems for its trading and related functionalities. It uses Integrity Non-stop NS16000 and S88000 systems for its online trading systems (BOLT). The systems have been designed to deliver the best performance without compromising on key factors of availability, scalability, ROI and TCO. RISC based Unix Severs rp8420 from HP: for our Derivatives, Settlement, Back office, Data Feed, BBS, RBBS and other systems related to trading and related functionalities. The systems are facilitated by the use of the robust and high available storage subsystems from HP.

Intel blade servers running on Microsoft platform are used for the Internet based trading system (ITS) enabling the end users to carry out the trading activities from any location facilitated by the internet. Intel blade servers running on Microsoft platform are also used for website, one of the best portals on the capital market which is also facilitated by the regional languages viz Hindi and Gujarati.

BOLT Systems Architecture
BSE has deployed an On Line Trading system (BOLT). It works on a Tandem S74016 platform running on 16 CPUs. The Tandem Himalaya S74016 machines act as the backend to more than 8000 Trader Workstations networked on Ethernet, VSAT and Managed Leased Data Network (MLDN). The systems claim to handle up to two million trades a day. BOLT has a two-tier architecture. The trader workstations are connected directly to the backend server which acts as a communication server and a Central Trading Engine (CTE). Other services like information dissemination, index computation, and position monitoring are also provided by the system. A transaction monitoring facility in the Tandem architecture helps keep data integrity through non-stop SQL. BOLT stores all trading information in an in-memory database at the server end to achieve minimum response time and maximum system availability for users. The trading server software runs on a fault-tolerant STRATUS mainframe and the client software runs on Windows PCs. The telecommunications network uses the X.25 protocol and is the backbone of the automated trading system. Each trading member trades on the BSE with other members through a PC located in the trading member's office. The trading members on the Wholesale Debt Market segment are linked to the central computer at the BSE through dedicated 64 Kbps and 2 mbps leased lines and VSAT terminals. These leased lines are multiplexed using dedicated 2 MB optical-fibre links. The WDM participants connect to the trading system through dial-up links. The exchange uses RISC-based UNIX servers from Digital and HP for back office processing. Applications like Oracle 7 and SQL/Oracle Forms 4.5 front ends are used for the exchange functions.

With the help of MTNL, BSE has setup a MLDN Network comprising 300 2 Mbps lines and 1500 64 Kbps lines which connect all regional stock exchanges and offices in Mumbai. Access to market related information through the trader workstations is essential for the market participants to act on real-time basis and take instantaneous decisions. BOLT has been interfaced with various information vendors like Bloomberg, Bridge, and Reuters. Market information is fed to news agencies in real time. The exchange plans to enhance the capabilities further to have an integrated two-way information flow.

How members connect to BOLT System
BSE provides access to BSE's various applications like BOLT, Derivative, DLOAD and Book building etc. These applications are accessed via BSE's Private Network. BSE provides connectivity to Members over LAN, WAN/MPLS or VSAT network. According to the connection provided, the Member connecting to BSE are given BSE IP address which are configured for the local LAN. From BSE Local LAN BOLT, Derivative, Book building applications are available. For IML setup Member has to create another Private LAN.

The Members are advised to create different VLANs on the switch so that BSE network and Member Private Networks are separate. There should not be any communication between Vlan1 (V1) and Vlan2 (V2). Vlan3 (V3) can communicate with Vlan2 to have VPN network access to BSE via IML server. Layer 3 switches should have Multicast Support, Access/Filter list support and NAT feature.

Book Building Access through BOLT
BOLT is the primary application used by Members. Apart from BOLT during IPO registration, Book Building System (BBS) server is used. The users on BSE Private Network connect directly to the BBS.

Network Setup
The Members are connected to BSE Backbone through Ethernet, Lease Line or VSAT. At Member premises Trader Work Stations (TWS) may be connected to the BSE Router/BSE VSAT through a layer 2 Switch. Members deploy IML (Intermediate Messaging Layer) Server .The primary function of the server is to take the Bolt feed and convert it into customized feed format. The users connected behind the IML receive feed from the IML. These users at present are restricted only to BOLT application.

ISO 17799/ BS7799 Certification
BSE needed a comprehensive framework to initiate, implement, maintain and manage information security as part of its business continuity planning policy and to demonstrate its commitment towards good corporate governance. Whilst designing an appropriate Information Security Management System (ISMS) and selecting a review standard, BSE chose the ISO 17799 (which provides guidance on the use of the controls identified in BS7799 ± 2:2002) for its relevance, applicability and compatibility with existing quality management systems. The scale and complexity of BSE¶s network architecture meant that a security consultant would need depth and breadth of knowledge and skills to interpret and analyze risk across disparate WANs and LANs ± with local, intra office and remote users connecting to the BOLT system through leased lines, ISDN and VSAT connections.

BSE assigned this task to MIEL e-security Pvt. Ltd. It accurately identified the multiple points of risk, developed and implemented security controls aimed at minimizing risk, fine tuned the information security management system to reflect necessary changes and drew up a comprehensive implementation plan for the compliance effort ± all aimed at ensuring 100% confidentiality, integrity and availability of the BOLT trading and settlement platform. In addition, a customized training program was designed for senior managers, the implementation team, audit team and end users.

The Solution: A team of experienced Information Security professionals from MIEL conducted the consulting assignment in 5 phases: Phase I: Information Security Profiling: Risk Assessment and Gap Analysis visà BS 7799 standard vis

Phase II: Information Security Prescription: Development of the Information Security Management System (ISMS) Phase III: Information Security Treatment: ISMS Implementation and Training Phase IV: Information Security Vigil: Review of ISMS Implementation and Internal Audit Phase V: Information Security Certification: BS7799 Non Compliance Review and Corrective Action The exchange has also received ISO 9001:2000 certification in the areas of surveillance and clearing / settlement functions.

BSE TRADING SYSTEM The, Mumbai Exchange has initiated a number of measures aimed at providing quality products and services and expanding its network using cutting edge information technology. The BSE made its transition from an 'outcry' system of trading to a completely electronic trading system. BSE has introduced electronic trading system known as BOLT (BSE on Line Trading) with the following facilities: 1. Trading system displays on a continuous basis scrip and market-related information required supporting traders. (Information includes best five bids and offers, last traded quantity and price, total buy and sell depth (irrespective of rates), open, high, low and close price, total number of trades, volume and value, and index movement. Other company-related information is also displayed) 2. As soon as an order is matched, the confirmation of the trade is generated on-line. 3. The order matching logic is based on best price and time priority. 4. The BSE On line Trading Platform has a capacity of conducting 2 million trades per day. 5. The latest state of the art technology infrastructure with Trader Work Stations located in more than 400 cities all over the country. 6. Trading on the BOLT system is conducted from Monday to Friday between 9: 30 a.m. and 3:30 p.m. 7. Trading can also be conducted through the BSE Internet Trading System the first Exchange enabled Internet Trading System. 8. BSE aims to provide trading anywhere and at anytime. With this endeavour in mind, the exchange continuously upgrades the hardware, software and networking systems so as to enable it to enhance the quality and standards of service to its members and other market intermediaries.

PRICE DISCOVERY MECHANISMS During the pre-opening period (9.15a.m.-9.30a.m.), brokers input the bids and offers they receive from investors into the system until they match. The mechanism for which the price of equities is determined is as follows: 1. The best price (price priority): The transaction is executed for the best price. 2. Type of order: If an order is conditional, precedence of execution is given to orders that are un-conditional. For example, if there are two orders with the same price, the system will give precedence to the un-conditional order.

3. Source of order: The sources of order are given precedence of execution as follows: Priority 1 => client¶s order, foreign investor¶s order, market control¶s order Priority 2 => mutual fund¶s order, the issuing company¶s order, specialist¶s order Priority 3 => insider¶s order 4. Time of order priority: In case the price and type are the same, precedence is given to the orders entered into the system first. 5. Cross priority: Cross priority is implemented if the one with the priority is on the active side. Trading in cross priority takes precedence over other house, then against the same house order. 6. Random factor priority: In case two orders are received in the same time, precedence is given to the random factor.

CLEARING AND SETTLEMENT The settlement of transactions was earlier done in the weekly settlement environment, where the exchange had a carry forward facility. The exchange commenced exchange of trades on rolling basis where the trades are settled on T+ 2 basis. Undelivered quantities of securities in settlement is promptly auctioned or closed out as per the well-laid procedure. Two depositories, namely the Central Depository Services (India) Ltd. and National Securities Depository of India Ltd. operate in the Indian Market place. The Clearing House of the exchange has well- structured linkages with both the depositories. Direct transfer of securities to and from the Beneficial Owner Accounts is facilitated at the Clearinghouse level only, making for the seamless movement of securities in the settlement system. The settlement of transactions in the depository¶s mode is based on the ISIN codes of the securities. The exchange Rules, Bylaws and regulations have clearly laid down the default handling procedure.

ADVANTAGES OF ONLINE TRADING Typically online trading requires the investors to pay lower brokerage. In case of online trading there is no middle man involved. In case of online trading there is no paper work involved. Trading on a real time is possible. Investors can deal with different stock exchanges with single online trading account. DISADVANTAGES OF ONLINE TRADING In online terminal, investors can¶t set customized expert advice, whereas in offline the broker gives suggestions according to investor¶s strategy (i.e. Short term or Long term) Privacy is less due to lacking scandals. Transactional errors occur due to technical problems. ADVANTAGES OF OFFLINE TRADING It is the most trusted and the oldest form of stock trading. With an efficient and trusted broker, investor can effortless manage the portfolio without spending any time for that. DISADVANTAGE OF OFFLINE TRADING Often the broker¶s takes time to execute investor¶s instructions of buying or selling the stocks that might incur losses. Offline trading brokerage is always higher than that of online brokerage.

Benefits to customer
1. Brokers now know the best rates being offered for a scrip/trade before submitting an order. 2. Brokers can also compare the rates of scrip in BSE, NSE or CSE 3. Filters are imposed to control trading, thus the scrip¶s rate could not be increased or decreased abnormally. 4. Volume of a trade for a single order can be controlled. 5. The member after submitting an order could immediately know if his/her order is valid and after a trade being executed he/she could get that information on the screen. 6. The opposite trader was unknown to the broker, thus secrecy of a trade was possible. 7. The member/broker now could trade to the extent allowed by his/her margin limit deposited with the exchange. 8. Two-sided quotes are available in the system.

9. Surveillance could now keep a hawk eye on the market thus control the scrip or trader if necessary. Surveillance can suspend / reactivate a scrip or a member online. 10. Trading time could now be increased or decreased depending on the requirement. 11. In case of exigency market can be halted and again reactivated during online trading by Surveillance. 12. Earnings of the exchange increased through margin and turnover tax. 13. Demat trading has resulted in the end of era of bad delivery. 14. Tracking of defaulters made easy. 15. Daily reports generated can easily be downloaded by the exchange or members.

The main achievements of the BOLT system are: 1. An average response time of less than two seconds 2. On an average, 3.4 million market queries are handled daily 3. The system can support more than 10,000 users

The onset of online trading changed the traditional value proposition of trading, allowing online brokers to supply investors with rich, interactive information in real time including market updates, investment research and robust analytics. The result is an integrated trading experience that combines execution with interactive analysis shown by growth of the online customer community. On-line trading can flourish when certain conditions are in place and interact with each other positively. Among others, large Internet-using population, wellestablished communication infrastructure, the provision of incentives for on-line trading, deregulation and favourable market conditions are necessary to encourage on-line trading. It should be kept in mind that on-line trading has both positive and negative effects on the securities market. It is necessary to address the negative effects