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Unlike the traders, sales people, capital markets bankers and corporate financiers of the 'front office', operations staff don’t liaise with customers to generate revenues and profits for the bank. Instead, the division is a support function – operations professionals support people in the front office to make sure everything works smoothly and the institute runs smoothly on the surface. The operations division is at the core of processing every transaction at the bank. It links all the control processes to help protect the institutes operations and reputation. Operations staff work closely with the other divisions – trading, sales, technology, market risk, credit, compliance, tax and legal – as well as external clients to help facilitate business and provide guidance and direction, especially with new products. All institutes have back-office support teams. Back-office functions are so broad that operations staff typically specialise in only one of these areas. Typical functions include settlement of securities and derivatives including Forex and commodities, reconciliations, issuance of new securities through Initial Public Offerings (IPOs), and processing of asset servicing. At its centre is the core function of clearing and settling trades. Clearing trades involves looking at the records made by the investors and traders when they buy and sell shares or other financial products, and checking that they match the records kept by the people from whom or to whom the shares were bought or sold (the counterparties). People who work in settlements 'settle' trades or ensure the stocks or shares bought and sold by the bank’s traders are exchanged for the correct amount of money. Settlements covers everything from preparing the documentation required for a sale, to making sure the bank has been paid for all the shares it has sold and bought.
Indian Financial System The financial system comprises a variety of intermediaries, markets, and instruments. It provides the principal means by which savings are transformed into investments. Given its role in the allocation of resources, the efficient functioning of the financial system is critical to a modern economy. A conceptual Framework of how the financial system works:-
The Financial System
The financial system performs the following interrelated functions that are essential to a modern economy: It provides a payment system for the exchange of goods and services. It enables the pooling of funds for undertaking large-scale enterprises. It provides a mechanism for managing uncertainty and controlling risk. It generates information that helps in coordinating decentralized decision making. It helps in dealing with the incentive problem when one party has an information advantages.
What Is A Stock Exchange? A stock exchange is simply a market that is designed for the sale and purchase of securities of corporations and municipalities. This means that a stock exchange sells and buys stocks, shares, and other such securities. In addition, the stock exchange sometimes buys and sells certificates representing commodities of trade. At first, stock exchanges were completely open. Anyone who wished to buy or sell could do so at a stock exchange. However, to make stock exchange more effective, membership became limited to those in clubs and other associations. Today, professionals who have a seat at the exchange are the people who trade at the exchange. Stock markets affect the entire economy and encourage investment. In the United States, larger cities including Boston, New York, Philadelphia, Denver, Chicago, Los Angeles, and San Francisco all have stock exchanges. Major cities across the world also have exchanges of their own. Not all stocks are listed on exchanges. Some are sold on the so-called overthe-counter market, which means that they are sold and bought directly by brokers. This method of buying became especially important during the early 1980s. Today, online stock exchange is even more covalent. Thanks to the growth of the Internet almost anyone can sell and buy stocks online. Investors simply tell their banks or investment brokers online what they wish to trade and when and the brokers hired by the online trading system buy or sell stocks for the client electronically.
How Does A Stock Exchange Work? Traditionally The buying and selling of stocks at the exchange is done on an area which is called the floor. All over the floor are positions which are called posts. Each post has the names of the stocks traded at that specific post. If a broker wants to buy shares of a specific company they will go to the section of the post that has that stock. If the broker sees at the price of the stock is not quite what the broker is authorized to pay, a professional called the specialist may receive an order. The specialist will often act as a go-between between the seller and buyer. What the specialist does is to enter the information from the broker into a book. If the stock reaches the required price, the specialist will sell or buy the stock according to the orders given to them by the broker. The transaction is then reported to the investor. If a broker approaches a post and sees that the price of the stock is what they are authorized to pay, the broker can complete the transaction themselves. As soon as a transaction occurs, the broker makes a memorandum and reports it to the brokerage office by telephone instantly. At the post, an exchange employee jots down on a special card the details of the transaction including the stock symbol, the number of shares, and the price of the stocks. The employee then puts the card into an optical reader. The reader puts this information into a computer and transmits the information of the buy or sell of the stock to the market. This means that information about the transaction is added to the stock market and the transaction is counted on the many stock market tickers and information display devices that investors rely on all over the world. Today, markets are instantly linked by the Internet, allowing for faster exchange.
A NSE NSDL Broker-B Buyer-B/Seller-B Client Depository Participant Settlement of money Settlement of shares Detailed explanation with example:- Buyer-B of Broker-B purchases 100 shares Reliance from Broker-A at the same time Seller-A sells 100 shares of Reliance to Broker B through Broker-A then following procedure take place B pays to broker-B the amount due on the shares purchased by him. NSDL then gives the shares to broker-b Finally Broker-B delivers the shares to Buyer-B (Shares Payout) . Broker-B pays the settlement amount to NSE (Funds Pay in) NSE pays the amount to the Seller Broker-A Then Seller Broker-A pays the amount to seller-A (Funds Pay out) Simultaneously Seller-A delivers 100 Reliance to Broker-A in his depository account (Shares Pay in) Broker-A delivers the shares to NSDL through his Depository Participant.Working of the Stock Exchange. Buyer-A/ Seller-A Depository Participant Broker.
The main objectives are as to accelerate the growth of scripless trading. NSE. NSDL was set up as the first depository company in the country. to enhance liduidity. Its performs the following functions through depository participants enables the surrender and withdrawal of securities to. receipt of non-cash corporate benefits like bonus.(International Securities Identification Number) for which he has to take the delivery and make the payment on T+2 basis. no. rights. to make a major trust in the individual investors participation in the depository. Stock Exchange provides readily available seller for the interested investors. if he doesn t make the payment it goes to Auction and he has to pay the penalty and the auction price for the shares traded. by the name of Central Depository Services (India) Limited (CDSL). 4. The stock exchange provides a market place for purchase and sale of securities.An investor who wants to hold his securities in electronic form he has to approach a Depository Participant and through him open an account at NSDL. and from. State Bank of India and HDFC Bank have promoted CDSL as a secondary depository in India for dealing in securities. transfers of securities. namely National Securities Depositories Limited (NSDL) and Central Depositories Services Limited (CDSL). HDFC Bank and City Bank. State Bank of India. The client gives the order to the operator seating on the NEAT software (National Exchange for Automated Trading) for particular scrip at a specific price when the bid matches on the screen the confirmation tag blinks with the scrip ISIN no. Stock exchange provides readily available buyers for corporate stocks. effects settlement of securities traded on the exchanges. The Mumbai Stock Exchange in association with the Bank of Baroda. Stock lending and borrowing. electronic credit in public offerings of companies. the depository. in the electronic form. Existing Depositories in India Presently there are two depositories in the country. 3. . After getting Client I. Ensures the free transferability of securities. from NSDL then client goes to a registered broker of NSE/BSE for investing in the shares. to create a competitive environment which will be responsive to the user s interests and demands. it has been sponsored by the Unit Trust of India.D. it carries out settlement of trades not done on the stock exchange (off market trades). 2. it maintains investors holdings in the electronic form. and so on in electronic form. Role and Functions of Stock Market The functions of the stock exchange are as follows: 1.
which is headed by a General Manager. and to discourage malpractices. Stock Exchange provides valuable data and information about the prices of the securities on micro (company) and macro level (market level). 10. The abnormal variation in the prices as well as the volumes of the scrips are scrutinised and appropriate actions are taken. This Department. It also provides a market place for the Government Securities Safety of the Market: A major objective of BSE is to promote and inculcate honourable and just practices of trade in securities transactions. watch on the price movement of scrips.. risk with the information about factors affecting these conditions like industrial policies. monitor abnormal prices and volumes which are not consistent with normal trading pattern and monitor the Members' exposure levels to ensure that defaults do not occur. 6. Stock Exchange has introduced various laws to keep a check on the speculative activities in the markets and possesses the power and authority to prevent/ penalizes excessive speculation. .Circuit filters ensures that the price of a scrip cannot move upward or downward beyond the limit set for the day. It mobilizes the savings from the household sector to the investment in the corporate sector. foreign exchange regulations. 7. and a daily.BSE has imposed dummy circuit filters to avoid freak trade due to punching errors by the Trading Members. A special emphasis is laid on the newly listed scrips.a daily Circuit Filter of 20% is applied on all scrips. in order to ensure disciplined trading. reports directly to Managing Director. They also act as the under-writers and brokers. The scrips which reach new high or new low and companies which have high trading volumes are watched closely. detect market manipulations like price rigging. except for scrips on which derivative products are available and are part of indices on which derivative products are available. etc. The surveillance function at BSE has assumed greater importance over the last few years. returns. from either party. The members of the Stock Exchange also assist in regulating and floating a new issue in the markets.. It has a dedicated Surveillance Department to keep a close. all over India. etc. 9. It helps the investor in analyzing the enterprises on the basis of growth prospects. price controls.5. As per the guidelines issued by SEBI. 8.
Hence the back office function calls for the full concentration level of the personnel while doing his or her work. their pay-in obligations. BSE imposes special margins in scrips where it suspects an attempt to ramp up the prices by creating artificial volumes. . settlement and other administration functions.g. Compliance department etc. 1999. This system integrates several databases like company profiles. If abnormal movements continue despite the aforesaid measures. Back office functioning This report is about the study undertaken by me during a period of two months for my summer project in Pune Stock Exchange. Delivery department. etc. which has been in operation since July 15.In case certain abnormalities are noticed. The Back office function acts as a back bone of any share broking firm as the work which the personnel in back office has to perform is very crucial and important for the client as well as the firm. Under this system. Members' profiles and historical data of turnover and price movement in scrips. Detailed investigations are conducted in cases where price manipulation is suspected and disciplinary action is taken against the concerned Members. So the key result activity in a share broking firm is the back office function which operates through different department like Crd department. the circuit filters are reduced to make it difficult for the price manipulators to increase or push down the prices of a scrip within a short period of time. If the back office section detects any error it should draw the attention of the higher authority for the corrective action. in real time during the trading hours. Any mistake from the personnel might become a liability for the firm. based on certain preset parameters like the price and volume variation in scrips. alerts are generated on-line. a Member taking unduly large positions not commensurate with their financial position or having concentrated positions in one or more scrips. for e. Basically the back office function includes responsibilities like transaction processing. Accounts Department. Members' turnovers. BSE has an On-line Real Time (OLRT) Surveillance System. BSE suspends the trading in the scrip. if there is short delivery or pay in of clients share then for those shares auction takes place for which they have to pay the price for the same. BSE also transfers the scrips for trading and settlement to the trade-totrade category which leads to giving/taking delivery of shares on a gross level and no intraday/settlement netting off/squaring off facility is permitted.
and everything is matched. And once it get activated CRD informs to client by putting the details in the ftp site which can be viewed at their end and can start trading. which means the day of trade plus two days within which the . Pay in of shares Now a days pay in of the shares is done automatically which is known auto delivery out. has to been send to CRD. which is only for clearing member. b. it gives instructions for the activation of the client to the surveillance department. After receiving the forms the employees in the CRD verifies it and checks with the master. a. 2. And if the details do not match or any particular attachment is not there then they inform through ftp site where the client and sub broker can view the current status. The bank in which the broker has his account. Suppose if they are any short delivery of shares then nse/bse gives debit to the pse account and similarly brokers debit it to sub brokers/clients account and then nse/bse can charge penalty for short pay in. If any changes has to made like change in name or address or in brokerage they have to inform to CRD and they get it changed. Delivery and Accounts Department Basically the employees in the Delivery department have to look after the pay in and pay out of shares and Accounts department has to look after the pay in and pay out of funds. After confirming it from the bank the shares are sent from pse account to nse/bse and confirm the pay in. Client registration Department (CRD) In order to trade in the market the client has to fill up the agreement between the Client-Broker-Sub broker which is know as tripartite agreement and also know your client forms with necessary requirement attached to it. NSE/BSE has the record of how much pay in of shares is due from the seller s broker. Pay out of shares and funds When shares are purchased by the client then he gives money to sub broker which he delivers to pse and pse sends to nse/bse as funds pay in against which nse/bse gives payout of funds and also gives delivery of shares to pse and in return pse gives the pay out of shares and payout of funds to the respective sub brokers at present T+2 basis. In the mean while the client or sub broker has to feed the all information in masters and has to submit it in s/w which can viewed by the client broker and sub brokers end. Then the broker gets the print out of the delivery out report which shows whether nsdl/cdsl has received the pay in correctly or not.Departments 1. the download of auto delivery out is taken through the NSE s site.
if yes then get the short delivery report from the delivery department. d. Preparing the cash statement This statement gives the details of the transactions of previous days. f. This report has to be checked by the accountant and find whether there is any short delivery.g. c. Compliance Department Compliance has acquired a lot of importance these days as there are penalties if you fail to comply as per the requirement of nse. Checking the Daily Funds Statements Daily funds give the details of pay in and pay out of funds and also show whether it was normal or auction. Intersettlement transaction Intersettlement transaction are the necessary adjustments between the broker and the client for which client has to give request to the broker. It shows all the debits and credits given to each and every client. net stock payment(normal/auction) and net stock receivable(normal/auction) g. There could be many reasons because of which there can be indifference in cash and bank balances and doing bank reconciliation statement can rectify these difference. 3. net balances. e. margin from the sub broker. Cash management and transfer of funds Cash/ funds is the lifeblood of any organization so management of cash and transfer of funds form a very important aspect of the accounts department. for e. if the client has sold 20 share of reliance in settlement number 154. Undertake the work of recovery as well The job of recovery is very is very difficult and this is one of the important functions of the accounts personnel for this he has to be very shrud person and see that the job is done.pay in and pay out of shares and funds should take place simultaneously. This includes constant check and reconciliation of the bank account of the sub broker. but if the client request to broker/ sub broker to adjust this pay in against the payout in settlement number 158 then it is called as inter settlement transaction. Preparation Bank Reconciliation statement Bank reconciliation state is very important as it helps the accountant to understand the balance of cash in the respective bank account and if there is any difference between in balance as per the sub brokers book and as per our books it has to be rectified immediately and should be informed immediately. For those purpose of compliance pse has to submit a compliance report to nse s . h.
a minimum of 10% of the active trading members are to be inspected every year to verify the level of compliance with various rules. Alerts are scrutinized and are taken up for follow up action. Surveillance Department As the securities transactions are prone to verity of manipulations.Business . the depositories allots a number identified as CM. If the analysis suggest any possible irregular activity which deviates from trends/patterns and concentration of trading at the nse. Depository participant (DP) Once the trade is done on the stock exchange. The inspection randomly verifies if investor interests are being compromised in the conduct of business by members. if required. then a more detailed investigation is undertaken. where they are sensitive. Open positions of securities are also analyzed. rumours in the print media are tracked and. They have to inform to sub broker regarding the inspection or meetings which are duly held like AGM. then disciplinary action is initiated against the member. Besides this. On opening of such account an account. It includesOnline monitoring . the nse has instituted a strong surveillance mechanism to protect market integrity. Replies are informed to the members and the public. regulations and laws etc 4. If the investigation suggests possible irregular activity across the exchange and/ or possible involvement of clients. The system enables the NSCCL to further check the micro details of members positions. byelaws and regulations of the nse. The online surveillance mechanism also generates various alerts/ reports on any price/volume movement of securities not in line with past trends/patterns. and take proactive action. inspection of more members than the regulatory requirement is under taken every year.inspection and investigation department signed by the Managing director on the behalf of the company under the common seal. has to inform any changes in rules. The investigation is based on various alerts which require further analysis. has in place an online monitoring and surveillance system whereby exposure of the member is monitored on a real time basis. has to prepare minutes of the meeting. A system of alerts has been built in so that both the member and NSCCL are altered as per pre-set levels (reaching 70. at the member level. Usually. companies are contacted for verification. and 100 percent) when the members approach their allowable limits. then the same is informed to the SEBI. If the detailed investigation establishes any irregular activity. For this purpose. 5. A clearing member (CM) has to open a clearing and settlement of trades with a DP. client/sub broker gets reports of their net obligation. 95. Investigation and inspection As per regulatory requirements. the nse has put in place a system that generates alerts. 85.The National Securities Clearing Corporation Ltd.
buy or sell. The delivery account consists of three parts pool a/c. which are actively traded at other stock exchanges but are not listed on BSE.) the selling client of the CM transfers securities from his client account to the pool a/c of the CM before pay in and b. in order to increase the liquidity and enable the market participants to put orders at finer rates. Trading and General terms: Listed Securities The securities of companies.partner. to facilitate easy book keeping.a. these include trades where the seller and buyer deal directly with each other. the CM transfers securities(to the extent of his obligation to the clearing operation) from the pool a/c to the delivery a/c . Trading in scrips listed on BSE is done with the tick size of 5 paise. the CC transfers securities to the pool a/c (to extent of the net receipt) through the receipt a/c. trading in such securities is facilitated as " Permitted Securities" provided they meet the relevant norms specified by BSE Tick Size Tick size is the minimum difference in rates between two orders on the same side i. are traded as "Listed Securities".15 is revised to 1 paise .Id. which have signed the Listing Agreement with BSE. On pay out day. and credit and debit would be given by the DPs to their respective Client account. On off market trades. the tick size in various scrips quoting up to Rs. The transaction would match at the depository.. Almost all scrips traded in the Equity segment fall in this category. receipt a/c. delivery a/c. Permitted Securities To facilitate the market participants to trade in securities of such companies. 15 on the last trading day of the calendar month. Both the instructions would have the same execution date. However. before pay in. The role of the pool account in clearing of securities is two fold. without any intervention of the CC.) after payout. securities traded in "F" group and equity shares having closing price up to Rs. The seller would give his DP a delivery instruction slip instructing him to debit his account with the transacted securities and the buyer would give his DP a receipt instruction slip to credit his account. BSE has reduced the tick size from 5 paise to 1 paise in case of units of mutual funds. entered in the system for particular scrip. This account can be used to trace the details of settlement-wise receipt into the clearing. The DP opens an account and the CM is allotted a number (Client ID).e. Accordingly. On pay in day the depository flushes out the securities in the delivery a/c and transfers the same to CC automatically.
.e.50. The trades executed under the Basket Trading System are subject to intra-day trading and gross exposure limits available to the Members. The Basket Trading System provides the arbitrageurs an opportunity to take advantage of price differences in the underlying Sensex and Futures on the Sensex by simultaneous buying and selling of baskets comprising the Sensex scrips in the Cash Segment and Sensex Futures. The VaR. For example. The Basket Trading System thus meets the need of investors and also improves the depth in cash and futures markets. Basket Trading System BSE has commenced trading in the Derivatives Segment with effect from June 9. MTM margins etc.000/-. BSE has provided to the investors as well as to its Members a facility of Basket Trading System on BOLT with effect from August 14.. Initially. The investors can also select less than 100% weightage to reduce the value of the basket as per their own requirements. Further. Computation Of Closing Price Of Scrips The closing price of scrips is computed by BSE on the basis of weighted average price of all trades executed during the last 30 minutes of a continuous trading session. if the Sensex is 15. The investors can also place orders by entering value of Sensex portfolio to be brought or sold with a minimum value of Rs. as are applicable to normal trades in the Cash Segment. 7.000. The investors can also create their own baskets by deleting certain scrips from 30 scrips in the Sensex. 2000. the investors can alter the weights of securities in such profiled baskets and enter their own weights. The tick size so revised on the first trading day of month remains unchanged during the month even if the price of scrips undergoes a change. where the value of one Sensex basket is arrived at by the system by multiplying Rs. However. With a view to provide investors the 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. the facility of trading in the Derivatives Segment was confined to Index Futures. 50. 2000 to enable investors to hedge their risks. Investors in the cash market had felt a need to limit their risk exposure in the market to the movement in Sensex. the value of one basket of Sensex would be 15000 x 50= i. the Members need to indicate the number of Sensex basket(s) to be bought or sold.50 to the prevailing Sensex. This would provide a balancing impact on the prices in both cash and futures markets. Rs. BSE has introduced the Index Options and Options & Futures in select individual stocks.000 for each order. In the Basket Trading System. are also recovered from the Members. then the last traded price of scrip in the continuous trading session is taken as the official closing price. if there is no trade recorded during the last 30 minutes. To participate in this system.on the first trading day of month. the investors through the Members are able to buy/ sell all 30 scrips of Sensex in one go in the proportion of their respective weights in the Sensex. Subsequently. 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.
are settled only on a gross basis and the facility of netting of buy and sell transactions in such scrips is not available. buy and sell positions of a member-broker in the same scrip are netted and the net quantity and value is required to be settled.. However. i.e.Netting: Netting is the agreed offsetting of reciprocal obligations by trading partners or participants in a system.f.e.e. The settlement calendar. which are in "Z" group or have been placed under "trade-to-trade" by BSE as a surveillance measure ("T" group) . . The result is that delivery and payment obligations arising from trading are netted to reduce the number of settlement transactions. i. The transactions in securities of companies which have made arrangements for dematerialization of their securities are settled only in demat mode on T+2 on net basis. is drawn by BSE in advance and is circulated among the market participants. including the netting of trading obligations. A T+2 settlement cycle means that the final settlement of transactions done on T. which indicates the dates of the various settlement related activities. as well as agreements to settle instructions to transfer securities or fund assets on a net basis. Settlement Compulsory Rolling Settlement All transactions in all groups of securities in the Equity segment and Fixed Income securities listed on BSE are required to be settled on T+2 basis (w. through a central counterparty. 2003).. for example. from April 1. Under rolling settlements. trade day by exchange of monies and securities between the buyers and sellers respectively takes place on second business day (excluding Saturdays. transactions in securities of companies. bank and Exchange trading holidays) after the trade day. the trades done on a particular day are settled after a given number of business days. Sundays.
bank & BSE trading holidays) after the pay-out of the funds and securities for the concerned settlement is completed by BSE.The transactions in 'F' group securities representing "Fixed Income Securities" and " G" group representing Government Securities for retail investors are also settled at BSE on T+2 basis.00 a. 6A/7A* entry by the member-brokers/ confirmation by the custodians. The member-brokers are required to submit the pay-in instructions for funds and securities to banks and depositories respectively by 10: 30 a. This is the timeframe permitted to the Members to settle their funds/ securities obligations with their clients as per the Byelaws of BSE. Confirmation of 6A/7A data by the Custodians upto 1:00 p. and payout of funds and securities by 1:30 p. Downloading of final securities and funds obligation statements by members Pay-in of funds and securities by 11:00 a. Downloading of provisional securities and funds obligation statements by member-brokers.m.m. respectively. The following table summarizes the steps in the trading and settlement cycle for scrips under CRS : DAY T ACTIVITY o o o Trading on BOLT and daily downloading of statements showing details of transactions and margins at the end of each trading day. T+1 o T+2 o T+3 o o T+4 .m. Auction on BOLT at 11. Members are required to make payment for securities sold and/ or deliver securities purchased to their clients within one working day (excluding Saturday.m.m. In case of Rolling Settlements. pay-in and pay-out of both funds and securities is completed on the same day. Auction pay-in and pay-out of funds and securities by 12:00 noon and 1:30 p. Sunday.m.
Delivery/Receive orders for delivery /receipt of securities. excluding Saturday. However. The Money Statement provides scrip wise/item wise details of payments/receipts of monies by the Members in the settlement. corporate or institutional clients may be either through the Member himself or through a SEBI registered custodian appointed by him/client. the funds obligations for the Members are netted for transactions across all groups of securities. The settlement of the trades (money and securities) done by a Member on his own account or on behalf of his individual. In case the delivery/payment in respect of a transaction executed by a Member is to be given or taken by a registered custodian. The Delivery/Receive Orders and Money Statement can be downloaded by the Members in their back office Pay-in and Pay-out for 'A'. All deliveries of securities are required to be routed through the Clearing House. In case a registered custodian does not confirm a transaction done by a Member within the time permitted. i. For this purpose. "G" & 'Z' Group of Securities The trades done on BOLT by the Members in all securities in CRS are now settled on BSE by payment of monies and delivery of securities on T+2 basis.. Statements giving details of margins payable by the Member in respect of the trades executed by him.e. i. Statements of securities and fund obligation. 'B'. The Delivery Order/Receive Order provides information like the scrip and quantity of securities to be delivered/received by the Members through the Clearing House. 'C'. BSE generates Delivery and Receive Orders for transactions done by the Members in A. h. "C" & "Z" group scrips and scrips which are traded on BSE on "trade-to-trade" basis are generated on a gross basis. 'T'. The following statements can be downloaded by the Members in their back offices on a daily basis. the custodians have been given connectivity to the BOLT System and have also been admitted as clearing member of the Clearing House. . B1. "F".The pay-in and payout of funds and securities takes places on the second business day (i. j. Sundays and bank and BSE trading holidays) of the day of the execution of the trade.. without netting of purchase and sell transactions in a scrip. B2 and F and G group scrips after netting purchase and sale transactions in each scrip whereas Delivery and Receive Orders for "T". the liability for pay-in of funds or securities in respect of the same devolves on the concerned Member. the latter has to confirm the trade done by a Member on the BOLT System through 6A-7A entries. k.e. Statements giving details of the daily transactions entered into by the Member.
quantity. a facility has been made available to the Members of automatically generating delivery instructions on their behalf from their CM Pool accounts maintained with NSDL and CM Principal Accounts maintained with CDSL. etc. on a floppy. not available for delivery of non-pari passu shares and shares having multiple ISINs. effective pay-in date. the clients are required to mention the settlement details and clearing member ID through whom they have sold the securities. (NSDL) or Central Depository Services (I) Ltd. The data submitted by the Members on floppies is matched against the master file data on the Clearing House. the securities are accepted.. . This auto delivery facility is currently available for Clearing Member (CM) Pool accounts and Principal accounts maintained by the Members with the respective depositories. Pay-in of Securities in Physical Form In case of delivery of securities in physical form.If there is no discrepancy. quantity. the National Securities Depository Ltd. the value of shares delivered short is recovered from him at the standard/closing rate of the scrips on the trading day. Thus. however. In case a Member fails to deliver the securities. Members may also effect pay-in directly from the clients' beneficiary accounts through CDSL. scrip code. This auto delivery facility is available for CRS (Normal & Auction) and for trade-to-trade settlements. Demat pay-in The Members can effect pay-in of demat securities to the Clearing House through either of the Depositories i. (CDSL). the Members are required to deliver the securities to the Clearing House in special closed pouches along with the relevant details like distinctive numbers.The Pay-in /Pay-out of funds based on the money statement and that of securities based on Delivery Order/ Receive Order issued by BSE are settled on T+2 day.. This facility is. etc. Members wishing to avail of this facility have to submit an authority letter to the Clearing House. For this.e. The Members are required to give instructions to their respective Depository Participants (DPs) specifying details such as settlement no. Auto delivery facility Instead of issuing delivery instructions for their securities delivery obligations in demat mode in various scrips in a settlement /auction. in such cases the Clearing Members are not required to give any delivery instructions from their accounts.
the Receiving Members are required to collect the same from the Clearing House on the pay-out day. viz. Union Bank of India and Hongkong & Shanghai Banking Corporation Ltd. Oriental Bank of Commerce.. In case of Members whose funds pay-in obligations are not cleared at the scheduled time. BSE has also provided a facility to the Members for transfer of pay-out securities directly to the clients' beneficiary owner accounts without routing the same through their Pool/Principal accounts in NSDL/ CDSL. action such as levy of penalty and/or deactivation of BOLT TWSs .. Axis Bank Ltd. For this. CDSL & NSDL to credit the securities to the Beneficiary Owners (BO) Accounts of the clients. Bank of India. Standard Chartered Bank. is initiated as per the prescribed penalty norms. the Clearing House instructs the depositories.. Funds Payout The bank accounts of the Members having pay-out of funds are credited by the Clearing House with the Clearing Banks on the pay-in day itself In case a Member fails to deliver the securities. are directly debited through computerized posting for their funds settlement obligations. the value of shares delivered short is recovered from him at the standard/closing rate of the scrips on the trading day. In case of physical securities.. In case delivery of securities received from one depository is to be credited to an account in the other depository. HDFC Bank Ltd. the Clearing House does an inter-depository transfer to give effect to such transfers. Based on the break up given by the Members... Indusind Bank Ltd. ICICI Bank Ltd. the concerned Members are required to give a client wise break up file which is uploaded by the Members from their offices to the Clearing House. viz. . Securities Pay-out Demat securities are credited by the Clearing House in the Pool/Principal Accounts of the Members.. Centurion Bank Ltd.Funds Pay-in The bank accounts of Members maintained with the clearing banks.
This has also consequently increased the risk of default by the Members in meeting their settlement obligations. BSE has initiated several risk management measures in order to maintain the safety of the market and to avert defaults by the BSE Members in meeting their payment and delivery obligations. These liquid assets cover the following five requirements: Base Minimum Capital (BMC) . Total Liquid Assets The core of the risk management system is the liquid assets deposited by the Members with BSE.Risk Management Cash Market The expansion of BOLT across the country has led to a significant increase in volumes and liquidity.
5%). is required to be kept in the form of cash (minimum 12. Particulars (i) Cash (ii) Bank Fixed Deposit Receipts ( FDRs ).All Members are required to maintain a BMC of Rs. Sec. The eligible shares for the purpose of the securities portion of the BMC are A and B1 group securities forming part of Group I classified as per the parameters of volatility and liquidity as stipulated in SEBI circular No. The BMC. iii) Bank Guarantee (iv) Securities of the Central Government * . Members are also allowed to deposit Additional Capital (AC) over and above the BMC with BSE as follows : (Liquid Assets) : Cash Equivalent.Non-Cash Component . as prescribed by SEBI.5%) and balance in the form of eligible shares. Mutual Fund (by whatever name called which invests in government securities) *. Fixed Deposit Receipt(s) or Bank Guarantee(s) issued by bank(s) (minimum 37. Additional Capital a. The composite corporate Members are required to maintain BMC in multiple of the membership rights held by them. 2005. MRD/DoP/SE/Cir07/2005 dated February 23. Other Liquid Assets . BMC is not available for adjustment towards margins. (v) Units of liquid Mutual Fund (or) Govt.10 lakhs with BSE in the prescribed manner at all times.
f.5% of the number of equity shares of the company listed at BSE. Within one hour from the closure of the trading hours. MTM (Mark-To-Market) Losses: Mark-to-market losses on outstanding settlement obligations of the Member. d. Extreme Loss Margins: Margins to cover the expected loss in situations that lie outside the coverage of the VaR margins.5% of the number of equity shares of the company listed on BSE. c. Members are required to maintain the liquid assets (collateral) to cover all the above five requirements.(Total of Other Liquid Assets should not exceed total of Cash Equivalent) : Particulars Non-Cash equivalent : (i) Liquid (Group-I) Equity Shares (as per the criteria for classification of scrips on the basis of liquidity). Base Minimum Capital: Capital required for all risks other than the market risk (for example. (Only A and B1 group securities forming part of such Group I) (ii)Mutual Fund units (other than those listed under cash equivalent). b. Special Margin : Special margin collected as a surveillance measure. where the cumulative quantity traded under any single client code on that day either purchase or sale is more than 0. Cumulative Trades for the Day Immediately upon the execution of the order where the traded quantity. This implies that Other Liquid Assets in excess of the total Cash Equivalents is not regarded as part of the Total Liquid Assets.on account of any trade is more than 0. Single Trade 2. * Cash equivalents should be at least 50% of the liquid assets. VaR Margins: Value at risk margins to cover potential losses for 99% of the days. e. operational risk and client claims). . 1. either buy or sell . There are no other margins in the risk management system.
Liquidity Categorization of Securities The securities are classified into three groups based on their liquidity: Group Trading Frequency (over the previous six months – see Note A) At least 80% of the days At least 80% of the days Less than 80% of the days Impact Cost (over the previous six months – see Note A Less than or equal to 1% More than 1% N/A Liquid Securities (Group I) Less Liquid Securities (Group II) Illiquid Securities (Group III) The trading frequency and impact cost is calculated on the 15th of each month on a rolling basis considering the previous six months for impact cost and previous six months for trading frequency. A/c trade name of the Member" issued by any Mumbai-based branch or payable at any Mumbai-based branch of any scheduled commercial or co-operative bank. and a hair-cut equivalent to the respective VaR of individual scrip is applied i. . As regards the Fixed Deposit Receipts (FDRs) of banks. The cash can be deposited by the Members towards capital by submitting instructions to their clearing banks to debit their bank accounts and credit the amount to BSE's account. the payment of the proceeds on encashment of FDRs and invocation of bank guarantees by BSE has to be assured by a Mumbai-based branch of the concerned issuing bank. the duly discharged FDRs are required to be submitted by the Members to BSE in the name of " Bombay Stock Exchange Ltd..e. The valuation of shares deposited by the Members with BSE is done on a daily basis. branches outside Mumbai).. However. On the basis of the trading frequency and impact cost so calculated. the securities move from one group to another group from the 1st of the next month. The eligible shares deposited by the Members towards BMC are accepted by BSE in demat form only..e. only the residual value of eligible shares deposited is considered for the purpose of evaluation of capital(collateral) deposited by the Members with BSE. in case FDRs/ bank guarantees are issued by the outstation branches of scheduled commercial banks (i. The bank guarantees submitted by the Member towards the capital have to be in the approved format in favour of BSE either issued or payable by any Mumbai-based branch of a scheduled commercial bank only.
1 lakh from the average of the best bid and offer price in the order book snapshot. Margins In order to contain the risk arising out of transactions entered into by the members in various scrips either on their own account or on behalf of their clients. a newly listed stock is categorised in that group where the market capitalization of the newly listed stock exceeds or equals the market capitalization of 80% of the stocks in that particular group. to determine the liquidity categorization of the security. whenever the next monthly review is carried out. 2. These four snapshots are randomly chosen from within four fixed ten-minutes windows spread through the day. Subsequently. Categorisation of Newly-listed Securities For the first month and till the time of monthly review as mentioned above.Impact cost is calculated by taking four snapshots in a day from the order book in the past six months.The impact cost is the percentage price movement caused by an order size of Rs. after one month. BSE has a well designed risk-management . the actual trading frequency and impact cost of the security is computed. II and III are disseminated on the BSE website on a monthly basis. Calculation of mean impact cost: The mean impact cost is calculated in the following manner: 1. Dissemination of Information The lists of securities forming part of groups I. the buy and the sell side in each order book snapshot. In case any corporate action results in a change in ISIN. The impact cost is calculated for both. the securities bearing the new ISIN is treated as newly listed scrip for group categorization.
The margining system followed by BSE is described below : Computation of Margins For securities that have been listed for less than six months.5% or 3. a.5 scrip sigma. The VaR Margin is a margin intended to cover the largest loss that can be encountered on 99% of the days (99% Value at Risk). is applicable on the outstanding positions of the Members in all scrips. the trading frequency and the impact cost is computed using the entire trading history of the scrip. Scrip VaR means the higher of 7. BSE accordingly imposes various kinds of margins on the Members based on their outstanding positions in the market. For liquid stocks. Index sigma means the daily volatility of the market index (S&P CNX Nifty or BSE Sensex) computed as at the end of the previous trading day. Computation of the VaR margin requires the following definitions: Scrip sigma means the volatility of the security computed as at the end of the previous trading day. VaR Margin As mandated by SEBI. Index VaR . This leads to a scaling factor of square root of three for illiquid stocks. The computation uses the exponentially weighted moving average method applied to daily returns in the same manner as in the derivatives market. the VaR margins are based only on the volatility of the stock while for other stocks. the volatility of the market index is also used in the computation. the margin covers one-day losses while for illiquid stocks. which is internationally accepted as the best margining system. The computation uses the exponentially weighted moving average method applied to daily returns in the same manner as in the derivatives market. the Value at Risk (VaR) margining system. includes collection of margins from the Members. For liquid stocks.system which inter-alia. it covers three-day losses so as to allow the Exchange to liquidate the position over three days.
.00) VaR Margin Scrip VaR Higher of 1. The VaR margin is collected on an upfront basis by adjusting against the total liquid assets of the Member at the time of trade. f.means the higher of 5% or 3 index sigma.73 (square root of 3.73 (square root of 3.00) Collection of VaR Margin : a. d. and 1. The higher of the Sensex VaR or Nifty VaR would be used for this purpose.00 1. For this purpose. It covers the expected loss in situations that go beyond those envisaged in the 99% value at risk estimates used in the VaR margin. Extreme Loss Margin : The term Extreme Loss Margin replaces the terms "exposure limits" and "second line of defense" that have been used hitherto. e. Dissemination of Information : The VaR amount applicable in respect of the scrips is disseminated on the BSE website on a daily basis. The gross open position for this purpose is the gross of all net positions across all the clients of a Member including his proprietary position. b. c.5 times the standard deviation of daily logarithmic returns of the stock price in the last six months. The Extreme Loss Margin is collected/adjusted against the total liquid assets of the member on a real time basis.66 times Index VaR Illiquid Securities (Group III) Five times Index VaR 1. The VaR margin is collected on the gross open position of the Member. The VaR Margins are specified as follows for different groups of stocks: Liquidity Categorization Liquid Securities (Group I) Less Liquid Securities (Group II) One-Day VaR Scrip VaR Higher of Scrip VaR and three times Index VaR Scaling factor for illiquidity 1. there would be no netting of positions across different settlements.73 times Scrip VaR and 5. The Extreme Loss Margin for any stock is higher of: o o 5%.20 times Index VaR 8. This computation is done at the end of each month by taking the price data on a rolling basis for the past six months and the resulting value is applicable for the next month.
Dissemination of Information : The ELM amount applicable in respect of the scrips is also disseminated on the BSE website. Special Margin : Special margin may be imposed by BSE from time to time on certain scrips as a surveillance measure and informed to the Members through notices.. Further. i. . For this purpose. The gross open position for this purpose means the gross of all net positions across all the clients of a member including his proprietary position. netting or setoff against MTM profits is permitted. for computation of MTM profits/losses for the day. The Extreme Loss margin so collected is released alongwith the pay-in. The Extreme Loss Margin is collected on the gross open position of the Member.g. b. However. There is no netting off the positions and setoff against MTM profits across 2 rolling settlements i.e. there is no netting of positions across different settlements. MTM. j. VaR Margin The VaR margin is collected on an upfront basis by adjusting against the total liquid assets of the Member at the time of trade. T day and T-1 day. For this purpose. Mark-to-Market Margin (MTM) : a. h. The gross open position for this purpose would mean the gross of all net positions across all the clients of a member including his proprietary position. there is no netting across two different settlements. VaR. Collection and Release of Margins All statements pertaining to daily margins viz. the position of a client is netted across his various securities and the positions of all the clients of a Member is grossed. ELM and Special Margin computed by BSE on the outstanding positions of the Members are available for downloading by them in their backoffices at the end of the day. The MTM margin is collected on the gross open position of the Member.
whichever is higher. May 30. Such MTM is collected from the Members in the evening on the T day itself. In addition BOLT Terminal to be deactivated immediately and to remain de-activated till margin obligation is cleared. The norms for levy of fines/ penalty for delay in clearance of margin obligations w.or 1.000/. In addition to the above penalty. first. MTM margins is also recomputed in respect of all the pending settlements on the basis of closing prices of T day and the difference due to increase/decrease in MTM margins on account of such recomputation is adjusted in the MTM obligation of the Member for the day.Extreme Loss Margin (ELM) The ELM is collected/ adjusted from the total liquid assets of the Member on a real time basis. 4th & 5 th instance: Rs. whichever is higher. of that day. by adjusting the same from the available liquid assets and the balance Special Margin in form of cash from the Members through their clearing banks on the same day. first by adjusting the same from the available cash and cash equivalent component of the liquid assets and the balance MTM in form of cash from the Members through their clearing banks on the same day. after clearance of the . the latest available closing price is considered as the closing price. BOLT Terminal to be deactivated immediately and to remain de-activated for additional ONE trading day.e.or 1% of funds obligation.5.5% of funds obligation. In case the security has not been traded on a particular day. Release of Margins The above-referred margins are released on completion of pay-in of the settlement o Fines / Penalty for Margin Default Cases where there are insufficient balances in bank accounts of the Members at the time of debit of margin amounts payable in cash on the relevant day. 1st to 3rd instance : Rs. Special Margins The Special Margin as applicable is collected along with MTM from the Members. 2005 are as follows : Violation/s Revised norms (Instances of violations in a F.000/.Y.f. Mark-to-Market Margin (MTM) The MTM is computed after trading hours on T day on the basis of closing price.10. are treated as margin defaults.) Delay in clearance of margin obligations to the Exchange.
000/then penalty of Rs. 50.then penalty of Rs. Exemption from Payment of Margins The following trades executed on the BOLT are exempted from payment of margins : a.e.00 p. on a day are available on the next trading day. BOLT Terminal to be deactivated immediately and to remain de-activated for additional Seven trading days after clearance of the obligation.000/.000/. Mutual Funds registered with SEBI.will be levied. on a day are considered for online release of blocked liquid assets on account of margins on that day. Banks.m. i. .obligation. 1949.25. 5.000/.10. the outstanding position of the client to the extent of early pay-in.will be levied. Public Financial Institutions as defined under Section 4A of the Companies Act.then penalty of Rs. If financial obligation is > Rs. a banking company as defined under Section 5(1)(c) of the Banking Regulations Act. irrespective of the amount of obligation. Plus the matter would be referred to DAC. 50. If obligation is > Rs. 2. 6 th & 7 th instance: If financial obligation is <= Rs. 1956. In addition to the above penalty.or 2. The benefits of early pay-in done after 3.000/. 4. Early Pay-in Facility o The early pay-in of securities done upto 3. In addition to the above penalty.00 p. 50. Insurance companies registered with IRDA. institutional investors include : Foreign Institutional Investors registered with SEBI.penalty of Rs. Institutional business. In cases where early pay-in of securities is made. 8 th Instance: If financial obligation is <= Rs.5 % of the funds obligation whichever is higher .m. 1..25.000/. For this purpose. 3. 25.000/or 2% of funds obligation whichever is higher . BOLT Terminal to be deactivated immediately and to remain de-activated for additional three trading days after clearance of the obligation irrespective of the amount of obligation.25000/.
The requirement is communicated to the members on the first day of the subsequent month. The Members are provided a time limit of three working days to provide the amount of additional capital in the form of Cash. The additional capital so collected is retained with the Clearing House for a period of one calendar month. The details in the file is matched against the transaction files received from CDSL and NSDL. the members are required to upload a file containing details in respect of the early pay-in at client level to the Clearing House(BOISL). In case of non. The highest of such amounts for the identified members during the month is called for as additional capital. These reports are scrutinized by officials of the Surveillance Department to ascertain whether a Member has built up excessive purchase or sale position compared to his normal level of business. Only the matched records are uploaded for Early Pay-In.o Members are also able to do early pay-in of securities before execution of the trade on T day to avail benefit of margin exemption. exposure margins and premium. Members who have exceeded 90% of utilization of capital during the day for more than 7 days in the current month are identified. the amount of additional capital shall be recomputed and the excess /deficit is refunded /called for. FDRs and Bank Guarantees only. the utilisation is monitored after considering initial margins. margin etc is available to the Member on the amount of additional capital so collected. is being followed by BSE: o o o At the end of each calendar month. In the derivatives segment. whether . it is examined whether purchases or sales are concentrated in one or more scrips. o o o o o o Monitoring Business of Brokers BSE closely monitors the outstanding positions of the main Members on a daily basis. Further. Capital Cushion Requirements SEBI has advised BSE to build an administrative mechanism to encourage members to hold capital cushions while operating in the Cash and Derivatives Segments. it has developed various market monitoring reports based on certain pre-set parameters. The capital requirement to bring the utilisation to a level of 85% at the time of violating the trigger point of 90% on each of those occasions is noted for the Members. For availing the benefits of margin exemptions through early pay-in of securities. as advised by SEBI. In case a Member is liable to provide additional capital in the subsequent month. For this purpose. No benefit including exposure. the following methodology.payment of additional capital within the stipulated time limit a penalty as applicable for funds shortage is levied on the Member for the period of default. Accordingly.
A Member would be eligible to avail of advance from the Fund up to a maximum of Rs 25 lakhs at any point of time. asked to make advance pay-in on the T+1 day instead of on the T+2 day. Based on an analysis of these factors. at the discretion of BSE. .the margin cover is adequate and whether transactions have been entered into on behalf of institutional clients.. BOLT Deactivation The BOLT TWSs of a Member are deactivated for non-payment / late payment of margins or settlement dues or on apprehension of financial difficulties or on detection of serious irregularities or for frequent violations of trading restrictions. Chief Operating Officer and three non-elected directors. Such decisions are taken on a case-to-case basis. The advance would be available for a maximum period of 30 days from the date of disbursement.a. The advance may be availed of by a Member against the value of his pay-out securities (in dematerialised form only) after applying a haircut of 30%. A Member would be eligible to avail of advance from the Fund up to a maximum of six times in a financial year. 1997 with a view to : A Member desirous of availing of an advance would be required to give a request letter in writing to the Clearing & Settlement Department of BSE stating that as and when there is a shortfall in meeting his funds pay-in obligation. BSE also scrutinizes the pay-in position of the Members and such Members who have larger funds pay-in positions are . For the next three times in a financial year @15% p. The advance would be available only for meeting shortfall in his funds pay-in obligations in a settlement arising out of delivery based transactions and not for any other obligations in a settlement. an advance pay-in is called from the concerned Member. since July 21.e. the margins already paid and the total capital deposited by the Member with BSE. 10 lakhs to meet such shortfall. Brokers Contingency Fund BSE operates a Brokers' Contingency Fund. The overall objective in resorting to this ultimate step is to ensure that questionable trading behavior of a Member does not compromise the safety of the market or jeopardize the integrity of the market. BSE may automatically advance him an amount up to Rs. i. Even the quality of scrips. liquid or illiquid.a. BCF is managed by a Committee comprising of the Managing Director. is looked into in order to assess the quality of exposure. The amounts advanced from the BCF would be at the following interest rates: o o For the first three times in a financial year @12% p.
who is unable to meet his settlement dues as a defaulter is a pre-condition for invoking the provisions of this Fund. BSE has a Trade Guarantee Fund. Each Member is also required to provide to the Fund a bank guarantee of Rs.51 crores to the corpus of this Fund.10. BCF has ensured that the settlement cycles at BSE are not affected due to the temporary financial problems faced by its Members.01 for every Rs. further strengthening the credibility of the stock exchange settlement system. All active Members are required to maintain a base minimum capital of Rs. All active members are required to make an initial contribution of Rs. This contribution has also been transferred to the Fund and has been treated as refundable contribution of the Members.1 lakh of gross turnover in all the groups of scrips by way of continuous contribution which is debited to their settlement account in each settlement. The corpus of the fund as on 31/03/08 (unaudited) is Rs.60 crores to the corpus of the Fund.000 to the Fund. so as to ensure timely completion of settlements of contracts and thereby protect the interest of investors and Members. The present corpus.50. 56 crores. with the following objectives : p.25 lakhs at the rate of 12% per annum. which is a Standing Committee constituted by BSE. is Rs 181 crores (cash component excluding collaterals & additional capital) TGF has eliminated the age-old counter party risk.2. so that if a Member is declared a defaulter. TGF is managed by the Defaulters' Committee. the constitution of which is approved by SEBI. INVESTORS or CUSTOMERS PROTECTION FUND (IPF) .9. To guarantee settlement of bonafide transactions of BSE Members inter-se which form part of the Stock Exchange settlement system. in operation since May 12. BSE has accordingly instituted a system to guarantee settlement of bonafide transactions of Members which form part of the settlement system. as on 31/03/2008 ( unaudited ).10 lakhs each with BSE. BSE has contributed an initial sum of Rs.10 lakhs from a scheduled commercial or co-operative bank as an additional contribution to the Fund. Members are eligible to get advances from this Fund upto a maximum of Rs. 1997.BSE contributed Rs.000 in cash to the Fund and also contribute Re. 0. The declaration of a member. Trade Guarantee Fund SEBI requires BSE to have a system of guaranteeing settlement of trades or set up a Clearing Corporation to ensure that the market equilibrium is not disturbed in case of payment default by the members. All active Members are required to make an initial non-refundable contribution of Rs. other Members do not suffer.
00 lacs.15 per Rs. Government of India. auction proceeds in certain cases.10. Once the Defaulter Committee is satisfied about genuineness of the claim.03 crores.in 1988 to the present level and is the highest among the Stock Exchanges in the country. have been impounded and transferred to the Fund.00 lakhs. a Standing Committee constituted by the Exchange. the surplus lying in the account of the defaulters after meeting their liabilities on the Exchange is released to them after transferring 5% of the surplus amount to this Fund. the Exchange has set up an Investor Protection Fund (IPF) on July 10. This has been progressively raised by the Exchange from Rs.5% of the listing fees collected by it. The Stock Exchange contributes on a quarterly basis 2. BSE had set up a distinct Trade Guarantee Fund known as GSEC Trade Guarantee Fund for trading in the Central Government Securities and such fund was created with an initial contribution of Rs. the corpus of the Fund was Rs 157. where price manipulation / rigging was suspected. etc. Also the entire interest earned by the Exchange on 1% security deposit kept with it by the companies making public/rights issues is credited to the Fund. 1987 to meet the claims of investors against defaulter members. 5 crores by transferring the said amout from the free reserves of BSE .0.000/. which is debited to their general charges account. it recommends to the Trustees of the Fund for release of the award amount or Rs. to ascertain their genuineness. The maximum amount presently payable to an investor from this Fund in the event of default by a member is Rs. As per the SEBI directive.Investors' Protection Fund In accordance with the guidelines issued by the Ministry of Finance. The Fund is managed by the trustees appointed by the Exchange. The arbitration award obtained by investors against defaulters is scrutinized by the Defaulters Committee.G -Sec Segment In 2003.1 lakh of gross turnover. As at the end of June 30. The members at present contribute to this Fund Re. After the approval of the Trustees of the Fund. 2002.10. whichever is lower. Also. the amount is disbursed to the clients of the defaulters from the Investor Protection Fund. Trade Guarantee Fund .5.
The delivering members to collect such securities under objection from the clearing house Arbitration awards for invalid objection to be obtained from members of the Arbitration Review Committee/officials of the Bad Delivery Cell.m.m.m.m.m. Rectified securities/invalid objections will be delivered to the receiving members 1:00 p.7 crores. 11:00 a. 3:00 p.m. T+4 Members and institution to submit rectified securities. • protect the interest of the investors dealing through the BSE Members by ensuring timely completion of settlement • inculcate confidence in investors regarding safety of their bonafide transactions DAY T+3 ACTIVITY TIME Patawat Arbitration session : Arbitration 10:30 a. confirmation forms and invalid objections in the clearing house. rectification to be obtained from officials of the Bad Delivery Cell Securities to be lodged with the clearing house unto 1:00 p. The shares in physical form returned under objection to the Clearing House as explained earlier are required to be accompanied by an arbitration award (Chukada) except in certain cases where the . To protect the interests of the investors and to promote the development and regulation of the secondary market. 5:00 p. r. to 12:30 p.The present corpus as on 31/03/08 (unaudited) is Rs.m.m.m. to 2:00 p.m The transactions pertaining to un-rectified and invalid rectification of securities are directly closedout by BSE as per the formula. to 11:30 a. to 5:30 p.m.m. to 4:00 p. • make temporary refundable advance(s) to the Members facing temporary financial mismatch as a result of which they may not be in a position to meet their financial obligations to BSE in time.m.m. T+5 Arbitration Awards for invalid 11:30 a. to 3:00 p. To inculcate confidence in the secondary market traders including the global investors to attract larger participation. awards to be obtained from officials of the Bad Delivery Cell Securities under objection to be submitted in the Clearing House. to 12:00 noon 2:00 p. q.
the adjusted gross exposure will be Rs 3 crore and Rs 5 crore respectively. a trading member having Rs 1 crore exposure in Group 1 securities (highly liquid securities) will have adjusted gross exposure of Rs 1 crore.receiving Members are permitted to submit securities to the Clearing House without "Chukada" or arbitration award in the following cases: Gross exposure Limit/Margin As per the latest rules of SEBI.Open settlements would be all those settlements for which trading has commencedand for which settlement pay in is not yet completed. The total gross exposure for a member on any given day would be the sum total of the gross exposure computed across all the securities in which the member has an open position In case of securities that are traded in the Rolling settlement (Type 'N'and security series 'EQ'). Gross exposure for a member. the exchange uses margin as a tool to do so. How much business a broker can do depends on the deposit the broker has with the stock exchange concerned. the adjusted gross exposure for the member will be considered as Rs 9 crore. For exposure of Rs 1 crore in Group 2 (securities with medium liquidity) and Group 3 (illiquid scrips). i.sell value). though the outstanding position is Rs 3 crore.e. when the exchange wants to cut down the exposure of the broker. Gross Exposure Limits Members are also subject to gross exposure limits. In a volatile situation. Hence. Stock exchanges use margin as a tool to control the activities of the broker. across all the securities in rolling settlements. across all open settlements. is computed as the absolute (buy value . ignoring +ve and -ve signs. the GE multiple for each security are as under: Group I 1 time Group II 3 times Group III 5 times .
the surplus additional deposits. Members exceeding the gross exposure limit are not permitted to trade with immediate effect and are not permittedto do so until the cumulative gross exposure is reduced to below the gross exposure limits (as defined above or any such lower limits as applicable to the members) or they increase their limit by providing additional base capital.All new securities to be traded on the Exchange shall be subject to exposure multiple of 2 times. if any. After such adjustments.The additional deposits of the member are used first for adjustment against grossexposure of the member. It is clarified that while computing the gross exposure at any time for a particular trading day. members are required to add the net outstanding positions of the previous settlement period to the cumulative net outstanding positions as of that particular trading day until the securities pay in day for the previous settlement period.Members who desire to reduce their gross exposure may submit their order entry requirements as per the prescribed format and if members desire toincrease their limits additional deposits by way of bank guarantee or Fixed Deposit Receipt (FDR) have to be submitted to NSCCL. for the purpose of the above limits. excluding deposits in the form of securities is utilized for meeting the margin requirements . Additional deposits by way of securities in electronic form (demat securities) may be deposited as per procedures.
which have been inherently borne by the member brokers for all times. Misplaced Securities Client Caution Database Verification of shares at members office Inspection Nature of Risks: The Exchange has been exposed to a large number of risks. till such that it is made compulsory in all scrips. The Risks can be classified as under: . Stolen . The safe custody of these shares in physical form in the Exchange as well as in the member brokers offices is of prime importance. At the same time the inherent risk involved with the trading of paper based securities still remains. Though the process of dematerialisation has already begun. Since the introduction of the screen based trading the nature of risks to which the members of the Exchange are exposed to has undergone radical transformation.Risk Management Nature of Risks Reduction and Control of Risks • Know Your Client Scheme • • • • Database of lost . will continue to exist. the risk of trading in fake/forged shares and instances of loss of shares etc.
Database of lost . In this regard the Exchange has initiated the following measures: 1. Further follow-up is done with the delivering broker and they are directed to lodge a police complaint against the client introducing the stolen shares. At the time of pay-in the members of the Exchange are required to submit the details of the shares being deposited in the pay-in in a softcopy in a prescribed format. o o o 2. . Know Your Client Scheme : Under the procedure the member brokers of the Exchange are compulsory required to obtain detailed information of clients prior to commencement of any transactions for new clients. Such shares are then reported as bad delivery in the Exchange. duplicate etc. This information is to be made available to the Exchange authorities whenever called for. Stolen . stolen. A similar procedure is also to be followed for existing clients. Misplaced Securities : The Exchange maintains a database on all the shares that have been reported as lost. The information available through the database is time relevant thus the database is modified on a regular basis and is downloaded by the members through BOLT on a weekly basis. This database is also provided to the Clearing House. 2. The member brokers can thus reduce the instances of delivery of shares that have been reported by the Company as bad delivery by checking all the deliveries in their office with the database provided. The Exchange has designed and developed a software module for the above for the benefit of the members.1.. In case the member brokers fails to furnish the same it is viewed seriously. o o o Risks associated with Paper Based Trading Lost/misplaced securities damage to securities loss of securities in transit Client Risk Client default Client absconding Fake/ forged/stolen securities introduced by the clients Reduction and Control of Risks: As a measure of the pro-active risk control several measures have been initiated by the Exchange to reduce the risks to which the Exchange and the member brokers are exposed. The Clearing House also uses the database. by the Companies / registrars. These details are checked against the database and a report is generated in case a match is found.
The above procedure is an important Risk Management Tool especially where there exists a large volume of deliveries. 4. 10 lakhs are received from the Clearing House during pay-out in one scrip. A similar procedure should also be followed in case the shares worth more than Rs. Client Caution Database : The Risk Management department in conjunction with the Bad Delivery Cell of the Exchange. which is downloaded to the members. The minimum sum insured is Rs. The basic idea behind the introduction of this procedure is to prevent Fake/ forged/stolen shares from being introduced in the market. had directed all stock exchanges to ensure that all active Members are properly insured. 1996. Inspection : The department is carrying out inspection of the member brokers records as regards compliance of the risk management procedures. 5. The Exchange issued a notice outlining the procedure to be followed. Insurance companies in consultation with BSE have offered an insurance policy which covers losses on account of trading as well as back office losses to the Members. Verification of shares at members office : The Risk Management Committee has outlined a process for minimising the risks arising out of Fake/ forged /stolen shares introduced by the clients of the member brokers. the Exchange has designed and developed a client database. The member brokers at the time of admitting new clients can refer to the client caution database for further verification. as a precautionary measure. As per the procedure outlined issued by the Exchange. No SMD/SED/RCG/270/96 dated January 19th. As per the scheme the members have to collect detailed information about the clients. all active Members obtain the said policy directly from the insurance companies and then inform BSE about the same.deeds and the share certificates to the Company / Registrar for verification of the material particulars. The members can select a random sample for the same from the lot. The Risk Management Department acts as a facilitator in this regard and has written to all "A" group and B1 group companies in this regard seeking their co-operation. Securities & Exchange Board of India ( SEBI) vide its circular ref. These details are incorporated in the database. in case the transaction in a script with one particular client in a settlement exceeds Rs. The information of such clients is called for in a prescribed format. 10 lakhs then the member brokers are required to send the photocopies of the transfer .5 lakhs per Member Presently. . Integrated Comprehensive Insurance Policy for Members To reduce the systematic risk.3. All member brokers whose clients / subbrokers have introduced fake / forged shares are required to lodge a FIR / Police complaint against their clients and also report the same to the Exchange.
which has obtained the ISO certification for its surveillance function. • By monitoring price and volume movements (volatility) as well as by detecting potential market abuses (fictitious/ artificial transactions.Property Insurance Policies The assets at BSE are fully covered through fire. • Position Monitoring: relates mainly to abnormal positions of Members in order to manage the default risk Price Monitoring Cell . Surveillance BSE is one of the few stock exchanges in the world. The main objective of the surveillance function is to promote market integrity in two ways. false or misleading impressions. etc) at a nascent stage. circular trading. The surveillance activities at BSE are allocated to three Cells: • Price Monitoring: is mainly related to the price movement/ abnormal fluctuation in prices or volumes of any scrip • Investigations: conducting snap investigations/examinations/detailed investigations in scrips where manipulation /aberration is suspected. burglary theft ( including terrorism) insurance policies. insider trading. with a view to minimizing the ability of the market participants to influence the price of any scrip in the absence of any meaningful information • By taking timely actions to manage default risk.
The circuit filters are reduced to 10 % or 5 % or 2 % as the case may be. imposition of special margin. selling/ buying of shares in that scrip results into giving/ taking delivery of shares at the gross level and no intra day netting off/ square off facility is permitted. etc. Trade-to-Trade If a scrip is shifted to the Trade-to-Trade settlement basis. etc. The detail rationale of the surveillance actions taken by BSE from time to time are as follows : o o Special Margins Special margins are imposed on such scrips which have witnessed an abnormal price/ volume movement. Comments received from the companies are disseminated to the market by way of BOLT Ticker and/ or Notices . company results. o o o o o o o Rumour Verification The Surveillance Department liaises with the Compliance Officers of the listed companies to obtain their comments on various price-sensitive corporate news items appearing in the media. on the client wise net outstanding purchase or sale position (or on both side). Suspension of a scrip A scrip is suspended for trading by the Surveillance Department in exceptional cases. transferring scrips on a trade-to-trade settlement basis.The function of this Cell is to detect potential market abuses at a nascent stage to reduce the ability of the market participants to unduly influence the price of the scrips traded at BSE by taking surveillance actions like reduction of circuit filters. These pro-active measures are taken based on the analysis/ processing of alerts generated based on various parameters and other inputs like news. scrips traded infrequently. scrips hitting new high/ low. pending investigation or if the same scrip has been suspended by any other stock exchange as a surveillance action. No circuit filters are applicable on scrips on which derivative products are available and scrips which are liquid and included in indices on which derivative products are available. the Surveillance Department transfers various scrips from time to time to the trade-to-trade settlement basis (T&TS group) based on the criteria decided jointly by the stock exchanges and SEBI. if any. etc. However. BSE imposes dummy circuit filter on these scrips to avoid punching errors. scrips picked up for rumour verification. The scrips picked up based on the preliminary analysis/ enquiries are forwarded to the Investigation cell for further examination/ investigation. based on the criteria decided by the Surveillance Department. Special margin is imposed by BSE @ 25% or 50% or 75% as the case may be. suspension of scrips/ members. The scrips which form part of the 'Z group' are compulsorily settled on a trade-to-trade basis. Circuit Filter of 20 % is applicable on other scrips which are not included in the abovementioned category. In addition. The broad parameters considered for generation and analysis of alerts are price movement. top 'n' turnover. Reduction of Circuit Filters The circuit filters are reduced in case of illiquid scrips or as a price containment measures.
o o o o The Surveillance Department imposes a penalty or deactivates the BOLT terminals or suspends the Members who are involved in market manipulation. Based on an analysis of the above factors and the margins already paid and the capital deposited by the Member. based on the input/ evidence available from the investigation report or as and when directed by SEBI. Examinations Examinations are a more detailed form of preliminary analysis of the trading pattern and various developments in the company wherein a report is prepared. companies. Some Members are even advised to reduce their outstanding exposure in the market. depositories and various other sources. Investigations Cell The Investigation Cell conducts following types of analysis of suspected market irregularities in a systematic and logical manner and then take appropriate and timely actions. or whether the purchases have been made by inactive or financially weak Members. The Department. These examinations are conducted usually on receiving a reference from SEBI or any other department of BSE or is based on an investor complaint. Investigations These are full-fledged and detailed investigations wherein a complete analysis is conducted in a systematic and logical manner based on the information available with BSE and information sought/received from the Members. which takes necessary disciplinary actions against such Members. If the company denies the news / information. early pay-in calls are made. a letter is sent to the company asking them to take up the matter with the concerned media. executes an important risk . if required.on the BSE website. The cases of habitual offenders are taken to the Disciplinary Action Committee. whether there are concentrated purchases or sales. These investigations are conducted to establish the manipulation that was suspected in the preliminary analysis. Position Monitoring The Surveillance Department closely monitors the outstanding exposure of Members on a daily basis. Even the quality of scrips is considered to assess the quality of exposure. A preliminary analysis of the trading pattern and corporate developments in the scrip is done to ascertain whether the price or volume variation observed requires further detailed analysis. it has developed various market monitoring reports. For this purpose. The reports are scrutinized to ascertain whether there is excessive purchase or sale position build up compared to the normal business of the Member. o o Snap Investigations Potential cases of market irregularities are taken up for further analysis. as such. Trading restrictions are placed on financially weak Members as and when deemed fit after taking into consideration their past track record.
m. .m. The above percentage would be translated into absolute points of the Index variation on a quarterly basis. These absolute points are revised at the end of each quarter The Market Wide Circuit Breakers at a national level have been introduced in the Indian markets for the first time..m. there will be a 1-hour market halt if the movement takes place before 1:00 p. . This would provide a cooling period to the market participants and to assimilate and re-act to the market movements. This is on the lines of the system prevailing in the US markets. but before 2:30 p.m. there will be a trading halt for 1 hour. the trading will halt for the remainder of the day.m. In case the movement takes place at or after 1 p.management function to avert possible payment default of Members by taking timely and corrective measures.m..m.In case of a 15% movement in either index. The trading halt on all stock exchanges would take place as under.In case of a 10% movement in either index.. but before 2 p.m. there will be no trading halt at the 10% level and the market will continue trading. Now. If the 15% trigger is reached on or after 1:00 p. there will be a trading halt for 1/2 hour. In order to contain huge price movements of index scrips. . Market Wide Circuit Breakers The earlier Circuit Filters at individual scrip level used to restrict the movements of indices as well. SEBI has mandated that Market Wide Circuit Breakers (MWCB) which at 10-15-20% of the movements in either BSE SENSEX or NSE Nifty whichever is breached earlier would be applicable. the trading will halt for the remainder of the day. there are no Circuit Filters on the scrips forming part of popular indices like SENSEX.. If the 15% trigger is reached on or after 2:00 p.In case of a 20% movement in either index. Individual Scrip Circuit Filters . there will be a 2-hour market halt if the movement takes place before 1:00 p. In case the movement takes place at or after 2:30 p.
What is Arbitration? (Determining disputes or differences) With a view to ensuring speedy and effective resolution of claims. as the case may be. the Complaint against trading members of the Exchange or Applications for Arbitration should be filed at the concerned Regional Arbitration Centre referred to in column 1 below covering that State or Union Territory of India. However. 1956. in which lies the address or the Registered Office address. of the trading member. This procedure is duly embodied in the Rules. BSE imposes dummy circuit filter on these scrips to avoid punching errors. depending upon corporate or non-corporate membership of the trading member.Circuit Filter of 20% is applicable on all scrips except the scrips on which derivative products are available and are part of indices on which derivative products are available. differences and disputes between non-Trading Members and Trading Members and Trading Members inter-se. Provided in respect of a non-resident Indian Constituent. under the Securities Contracts (Regulation) Act. and duly approved by the Government of India/SEBI. . referred to in Column 2 below. Bye-laws and Regulations of BSE. is located. within which the most recent address / registered office address of the constituent. 2009. if any. The hearings shall be held in the concerned Regional Arbitration Centre in which the Applicant had duly filed the Application for Arbitration. the Seat of Arbitration shall be Regional Arbitration Centre which covers the States and Union Territories given in Column 2. as duly communicated in writing to the trading member in accordance with law. BSE has laid down an arbitration procedure. Effective from 31st January.
thus enabling BSE to enhance the quality and standards of service provided to its members.JURISDICTION OF COURTS The Courts in Mumbai shall have exclusive jurisdiction in respect of all proceedings to which the Exchange is a party. investors and other market intermediaries. The period consumed in redressal of complaint thru IGRC will not be considered while measuring period of ‘limitation’ in filing arbitration application provided the complaint and / or arbitration application is / are filed at the concerned Regional Arbitration Centre. The investors are required by law. shall have jurisdiction. and in respect of all other proceedings. the Courts having jurisdiction over the area in which the respective Regional Arbitration Centre is situated. . software and networking systems. Only those Arbitration References and complaints filed on or after 31st January. which are quasi-judicial in nature. The 'Operations & Trading Department' at BSE continuously upgrades the hardware. 2009 will attract the above provisions Types of Arbitrtion: Arbitration between Trading Members inter-se Arbitration between Non-Trading Members and Trading Members Technology BSE places a great deal of emphasis on Information Technology for its operations and performance. which has geographical jurisdiction over the subject matter as above The Exchange redresses investors’ complaints thru arbitration and IGRC mechanism. to file their grievances and/or Arbitration References in the concerned RAC.
The capacity of the BOLT platform stands presently enhanced to 80 lakh orders per day. BOLT has been certified by DNV for conforming to ISO 27001:2005 security standards. The initiative enables investors anywhere in the world to trade on the BSE platform. Other Technology-based Initiatives BSE. It is one of the most popular financial websites in India and is regularly visited by financial organizations and other stakeholders for updates. BSE had replaced its open outcry system with the BSE On-line Trading (BOLT) facility in 1995. BSEWebx. have put into place several critical processes/systems such as • • • • • • • • • Derivatives Trading & Settlement System (DTSS) Electronic Contract Notes (ECN) Unique Client Code registration (UCC) Real-time Data Dissemination System Integrated Back-office System . along with its strategic partners.com provides comprehensive information on the stock market.CDB / IDB Book Building System (BBS) Reverse Book Building System (RBBS) Debt Market Director's Database A Large Private Network BSE operates a large private network in India. BSEWEBx.com BSE's website www.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.99%. The network uses following segments to cater to market intermediaries:- . BOLT To facilitate smooth transactions.co. This totally automated. BSE has also been successful in maintaining systems and processes uptime of 99. screen-based trading in securities was put into practice nation-wide within a record time of just 50 days. In addition.in BSE has also introduced the world's first centralized exchange based Internet trading system.co.in. bseindia.bseindia.
RBBS and other systems related to trading and related functionalities. The systems have been designed to deliver the best performance without compromising on key factors of availability. Backoffice. VSATs: Satellite based communication system serves the connectivity requirements of market participants in remote areas. Rotunda and Cama building BSE WAN: TDM / MPLS lines from different service providers cater to connectivity requirements of market participants across the country. It uses Integrity Non-stop NS16000 and S88000 systems for its online trading systems (BOLT). Towers. This system enables BSE to detect market abuses at a nascent stage. RISC based Unix Severs rp8420 from HP: for our Derivatives. Connectivity forms are available at url : http://www. an Real-time system to closely monitor the trading and settlement activities of the member-brokers. Settlement.bseindia.integrated (BOSS-i). BSE Campus comprises of 3 BSE buildings: P. Intel blade servers running on Microsoft platform are also used for bseindia. .BSE's Campus LAN: Connects market participant offices across 20 floors of BSE campus to BSE systems.com website. Services are provided through BSE's Satellite Communication Hub in Mumbai. State-of-the-art Hardware BSE uses higher-end.com/about/bolt_connect_forms. Wired / Wireless media is used. fault-tolerant systems for its trading and related functionalities. ROI and TCO.asp BSE Online Surveillance System . scalability. improve the risk management system and strengthen the self-regulatory mechanisms.J. The systems are facilitated by the use of the robust and high available storage subsystems from HP. one of the best portals on the capital market which is also facilitated by the regional languages viz Hindi and Gujarati. Data Feed. 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. BBS.
BSEWEBx. In addition. software and networking systems. investors and other market intermediaries. It is one of the most popular financial websites in India and is regularly visited by financial organizations and other stakeholders for updates. BSE has also been successful in maintaining systems and processes uptime of 99.com provides comprehensive information on the stock market. 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. screenbased trading in securities was put into practice nation-wide within a record time of just 50 days. The initiative enables investors anywhere in the world to trade on the BSE platform. The capacity of the BOLT platform stands presently enhanced to 80 lakh orders per day. BSEWebx.com BSE's website www.in. BOLT To facilitate smooth transactions. This totally automated. bseindia. Other Technology-based Initiatives .co.in BSE has also introduced the world's first centralized exchange based Internet trading system.bseindia.99%.Arbitration between Non-Trading Members and Trading Members Technology BSE places a great deal of emphasis on Information Technology for its operations and performance.co. BOLT has been certified by DNV for conforming to ISO 27001:2005 security standards. thus enabling BSE to enhance the quality and standards of service provided to its members. The 'Operations & Trading Department' at BSE continuously upgrades the hardware. BSE had replaced its open outcry system with the BSE On-line Trading (BOLT) facility in 1995.
Services are provided through BSE's Satellite Communication Hub in Mumbai.J. VSATs: Satellite based communication system serves the connectivity requirements of market participants in remote areas.CDB / IDB Book Building System (BBS) Reverse Book Building System (RBBS) Debt Market Director's Database A Large Private Network BSE operates a large private network in India. an Real-time system to closely monitor the trading and settlement activities of the member-brokers. along with its strategic partners. 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.asp BSE Online Surveillance System . Wired / Wireless media is used.com/about/bolt_connect_forms. Towers.bseindia. improve the risk management system and strengthen the self-regulatory mechanisms. Rotunda and Cama building BSE WAN: TDM / MPLS lines from different service providers cater to connectivity requirements of market participants across the country. have put into place several critical processes/systems such as • • • • • • • • • Derivatives Trading & Settlement System (DTSS) Electronic Contract Notes (ECN) Unique Client Code registration (UCC) Real-time Data Dissemination System Integrated Back-office System . BSE Campus comprises of 3 BSE buildings: P.integrated (BOSS-i). This system enables BSE to detect market abuses at a nascent stage.BSE. State-of-the-art Hardware . Connectivity forms are available at url : http://www.
. Settlement. fault-tolerant systems for its trading and related functionalities. The systems have been designed to deliver the best performance without compromising on key factors of availability. Intel blade servers running on Microsoft platform are also used for bseindia. BBS.com website. It uses Integrity Non-stop NS16000 and S88000 systems for its online trading systems (BOLT). one of the best portals on the capital market which is also facilitated by the regional languages viz Hindi and Gujarati. RBBS and other systems related to trading and related functionalities.BSE uses higher-end. Backoffice. 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. The systems are facilitated by the use of the robust and high available storage subsystems from HP. ROI and TCO. RISC based Unix Severs rp8420 from HP: for our Derivatives. Data Feed. scalability.
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