CHAPTER1: Introduction to Indian Securities Market and Trading Membership

Market segments:
Securities markets provide a channel for allocation of savings to those who have a
productive need for them. The securities market has two interdependent and
inseparable segments:
a) Primary market and
b) Secondary market

Primary Market:-

The primary market is where companies issue a new security, not previously traded
on any exchange. A company offers securities to the general public to raise funds to
finance its long-term goals. The primary market may also be called the New Issue
Market (NIM).

Features of Primary Market:-

a) In the primary market, new stocks and bonds are sold to the public for the first
time.
b) In a primary market, investors are able to purchase securities directly from the
issuer.

Types of Primary Market Issues

a) An initial public offering, or IPO, is an example of a security issued on a primary

market. An IPO occurs when a private company sells shares of stock to the
public for the first time, a process known as "going public."

b) A rights offering (issue) permits companies to raise additional equity through the
primary market after already having securities enter the secondary market.
Current investors are offered prorated rights based on the shares they currently
own, and others can invest anew in newly minted shares.

c) Private placement (or non-public offering) is a funding round of securities which

are sold not through a public offering, but rather through a private offering,
mostly to a small number of chosen investors. Generally, these investors include
friends and family, accredited investors, and institutional investors.

Secondary Market:-

The secondary market is where investors buy and sell securities they already own. It
is what most people typically think of as the "stock market," though stocks are also
sold on the primary market when they are first issued.

Function of Secondary Market

a) In secondary markets, investors exchange with each other rather than with the
issuing entity.
b) A stock exchange provides a platform to investors to enter into a trading
transaction of bonds, shares, debentures and such other financial instruments.
c) Transactions can be entered into at any time, and the market allows for active
trading so that there can be immediate purchase or selling with little variation in price
among different transactions.
d) Investors find a proper platform, such as an organised exchange to liquidate the
holdings. The securities that they hold can be sold in various stock exchanges.
e) A secondary market acts as a medium of determining the pricing of assets in a
transaction consistent with the demand and supply.
f) It is indicative of a nation’s economy as well, and also serves as a link between
savings and investment. As in, savings are mobilised via investments by way of
securities.

Types of Secondary Market

There are two types of secondary markets – stock exchanges and over-the-counter

markets. Exchanges are centralised platforms where securities are traded without

any contact between buyers and sellers. Examples of such platforms include the

National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).

Stock Exchanges

One will not find direct contact between the seller and the buyer of securities in this

type of secondary market. Regulations are in place to ensure the safety of trading. In

this case, the exchange is a guarantor, so there is almost no counter party risk.

Exchanges have a relatively high transaction cost because of exchange fees and

commissions.
Over the Counter Markets

Over the counter markets are those in which participants trade directly between two

parties, without the use of a central exchange or other third party.

OTC markets do not have physical locations or market markets.Some of the products

most commonly traded over the counter include bonds, derivatives, structured

products and currencies

.Examples of OTC markets include a foreign exchange.

Difference between Primary and Secondary Market

Basis of
Primary Market Secondary Market
Comparison

A platform that offers security for The market where investors trade
Meaning the first time is the primary already issued securities is known as
market. the secondary market.

Another
New issue market (NIM). Aftermarket or share market.
name

Products are limited and mainly Many products, such as shares,

Type of
include IPO and FPO (Follow-on warrants, derivatives, and more, are
product
Public Offer). available.

Purchase All the purchases in this market The issuer (company raising capital) is
type happen directly. not involved in the trading.

Security can be sold to the

Frequency Here the traders can buy and sell the
investors just once in this
of selling shares as often they want.
market.

The company and the investors

Parties Here investors buy and sell the
are involved in buying and
involved securities among themselves.
selling the security.

Beneficiary Company Investor

Several tools are available to the

Investors primarily rely on
How to investors to help them pick good
prospectus and word-of-mouth
identify investments, such as price to earnings
publicity to pick an investment in
investment? (P/E), price to book (P/B), price to sales
the primary market.
(P/S), and more.

Underwriters are the

Intermediar
intermediaries in the primary Here the intermediaries are the brokers.
y
market.

Help new and existing It does not provide funding to

Purpose companies to raise capital for companies; instead, it helps investors to
expansion and diversification. make money.

Both buy and sell-side investors work

The company sells the shares to
Price toward finding the best price for the
the investors at a fixed price.
trade.

There is a geographical setup and

There is no organization set up
Presence organizational presence for the
for the primary market
secondary market.

The company
Here investors and brokers need to
Rules and issuing securities goes through a
follow the rules set by the exchange and
Regulations lot of regulation and due
the governing agency.
diligence.
Market Capitalization:-

Market capitalization refers to the market value of a company’s equity. Market cap is
often used to determine a company's size, then evaluate the company's financial
performance to other companies of various sizes.

How to Calculate Market Cap

The formula for market capitalization is:

Market Cap = Current Share Price * Total Number of Shares

Outstanding

What Does a High Market Cap Tell You?

A high market cap signifies that the company has a larger presence in the market.
Companies with higher market caps are generally less risky than companies with
lower market caps.

Is It Better to Have a Large Market Capitalization?

There are advantages and drawbacks to having a large market capitalization. On

the one hand, larger companies might be able to secure better financing terms from
banks and by selling corporate bonds. Also, these companies might benefit from
competitive advantages related to their sizes, such as economies of scale or
widespread brand recognition.

On the other hand, large companies might have limited opportunities for continued
growth, and may therefore see their growth rates decline over time.

Does Market Cap Affect Stock Price?

Market cap does not affect stock price; rather, market cap is calculated by analyzing
the stock price and number of shares issued. Although a blue-chip stock may
perform better because of organizational efficiency and greater market presence,
simply having a higher market cap does not directly impact stock prices.

One could argue that analysts do track market cap to determine which companies
may be undervalued or overvalued. In this lens, market cap can lead an investor to
buy or sell shares based on the company's relative value compared to the industry
or competitors. Still, the stock price of a share is determined as the fair value
determined by the market, not by a company's market capitalization.

What Is the Importance of Market Cap?

Market cap demonstrates the size of a company. It is an important tool for analytics,
especially when comparing companies. Market cap is often used as a baseline for
analysis as all other financial metrics must be viewed through this lens. For
example, a company could have had twice as much revenue as any other company
in the industry. However, if the company's market cap is four times as large, the
argument could be made that company is underperforming.

Index:-
An index measures the price performance of a basket of securities using a
standardized metric and methodology. Indexes in financial markets are often used as
benchmarks to evaluate an investment's performance against..

Some of the most important indexes in the U.S. markets are the S&P 500 and the
Dow Jones Industrial Average and in India Nifty 50, Sensex.

What Is an Index Fund?

An” index fund” is a type of mutual fund or exchange traded fund that seeks to track
the returns of a market index. The S&P 500 index, the Russell 2000 index, Nifty 50,
Sensex are just a few examples of market indexes that index funds may seek to
track.

What Are Different Ways to Construct an Index?

Indexes can be built in a number of ways, often with consideration to how to weight
the various components of the index. The three main ways include:

 A market-cap, or capitalization-weighted index puts more weight in the index to

those components that have the largest market capitalization (market value),
such as the S&P 500
 A price-weighted index puts more weight to those components with the highest
prices (such as the Dow Jones Industrial Average)
 An equal-weighted index allocates each component with the same weights (this
is sometimes called an unweighted index)

Why Are Indexes Useful?

Indexes are useful for providing valid benchmarks against which to measure
investment performance for a given strategy or portfolio. By understanding how a
strategy does relative to a benchmark, one can understand its true performance.

Indexes also provide investors with a simplified snapshot of a large market sector,
without having to examine every single asset in that index. For example, it would be
impractical for an ordinary investor to study hundreds of different stock prices in
order to understand the changing fortunes of different technology companies. A
sector-specific index can show the average trend for the sector.

What Are Some Major Stock Indexes?

In India the most popular indexes are In the United States, the three leading stock
indexes are the Dow Jones Industrial Average, the S&P 500, the Nasdaq
Composite, and the Russell 2000. For international markets, the Financial Times
Stock Exchange 100 (FTSE 100) Index and the Nikkei 225 Index are popular
proxies for the British and Japanese stock markets, respectively. Most countries with
stock exchanges publish at least one index for their major stocks.

Market Capitalisation Ratio:- The market capitalization ratio is defined as market

capitalization of stocks divided by GDP.It is used as a measure of stock market size.
Turnover:- Turnover for a share is computed by multiplying the traded quantity with
the price at which the trade takes place. Similarly, to compute the turnover of the
companies listed at the Exchange we aggregate the traded value of all the
companies traded on the Exchange.

Turnover Ratio:- The turnover ratio is defined as the total value of shares traded on a
country‘s stock Exchange for a particular period divided by market capitalization at
the end of the period. It is used as a measure of trading activity or liquidity in the
stock markets.

Turnover Ratio = Turnover at Exchange / Market Capitalisation at Exchange

ProductS and PartIcIPantS

1.3.1 Products
Financial markets facilitate reallocation of savings from savers to entrepreneurs.
Savings are linked to investments by a variety of intermediaries through a range of
complex financial products called ―”securities”. Under the Securities Contracts
(Regulation) Act [SC(R)A], 1956, ―securities” include
a) shares, bonds, scrips, stocks or other marketable securities of like nature in or of
any incorporate company or body corporate,
b) government securities,
c) derivatives of securities,
d) units of collective investment scheme,
e) interest and rights in securities, and security receipt or any other instruments so
declared by the central government.

Broadly, securities can be of three types - equities, debt securities and derivatives.

Participants
The securities market has essentially three categories of participants
a) the investors,
b) the issuers,
c) the intermediaries

Issuers

Investors Intermediaries

Market
Participants

These participants are regulated by the Securities and Exchange Board of India
(SEBI), Reserve Bank of India (RBI), Ministry of Corporate Affairs (MCA) and the
Department of Economic Affairs (DEA) of the Ministry of Finance.

1.5 Reforms In IndIan SecurItIeS Markets

Over a period, the Indian securities market has undergone remarkable changes and
grown exponentially, particularly in terms of resource mobilisation, intermediaries, the
number of listed stocks, market capitalisation, turnover and investor population. The
following paragraphs list the principal reform measures undertaken since 1992.
Creation of Market Regulator:
1. Securities and Exchange Board of India (SEBI), the securities
market regulator in India, was established under SEBI Act 1992, with the main
objective and responsibility for
(i) protecting the interests of investors in securities,
(ii) promoting the development of the securities market, and
(iii) regulating the securities market.

2. Screen Based Trading: Prior to setting up of NSE, the trading on stock

exchanges in India was based on an open outcry system. The system was
inefficient and time consuming because of its inability to provide immediate
matching or recording of trades. In order to provide efficiency, liquidity and
transparency, NSE introduced a nation-wide on-line fully automated
screen based trading system (SBTS) on the CM segment on November 3, 1994.

3. Reduction of Trading Cycle: Earlier, the trading cycle for stocks, based on
type of securities, used to vary between 14 days to 30 days and the
settlement involved another fortnight. The Exchanges, however, continued to
have different weekly trading cycles, which enabled shifting of positions from
one Exchange to another. It was made mandatory for all Exchanges to follow
a uniform weekly trading cycle in respect of scrips not under rolling
settlement. In December
2001, all scrips were moved to rolling settlement and the settlement period was
reduced progressively from T+5 to T+3 days. From April 2003 onwards, T+2 days
settlement cycle is being followed.Currently the market follows a T +2 settlement
cycle, which means the investors receive shares or dividends as well as bonus
shares in their accounts within two days after the transaction. Starting Jan 27 23 all
large cap and blue chip companies will switch to the T +1 system.

4. Equity Derivates:- Equity derivates are financial instruments whose

value is derived from price movements of the underlying assets, where
that asset is a stock or stock index.
Traders use equity derivatives to speculate and manage risk for their stock
portfolios.
Equity derivatives can take on two major forms: Equity options and equity
index futures. Equity swaps,warrants, and single stock futures are also equity
derivates.

5. Demutualisation: Historically, stock exchanges were owned, controlled and

managed by the brokers. This often led to conflict of interests between
brokers and their clients. To solve this problem government did
demutualisation of stock exchange.
Demutualisation referes to seperation of ownership and control of stock
exchange from the trading rights of members. Through demutalisation there is
a reduction of chances of brokers using stock exchange for personal gains.

6. Dematerialisation:- Dematerialisation is a process through which physical

securities such as share certificates and other documents are converted into
electronic format and held in a Demat Account.Holding and trading shares
and securities in their physical form can pose a risk of forgery, loss of
certificates, and delays in the transfer of securities. Dematerialization
overcome the hassles of keeping physical copies of securities. A depository
(National Securities Depository Ltd.(NSDL) and Central Depository Services
(India) Ltd.) (CDSL) has the responsibility to store the shares
electronically.There are two depositories in India, viz. NSDL and CDSL. They
 have been set up to provide instantaneous electronic transfer of securities.
Demat (Dematerialised) settlement has eliminated the bad deliveries and
associated problems.

Dematerialisation account or demat account is the most secure and safest way to
carry out transactions by electronic means. All the risks like theft, damage, loss of
share certificate, etc. that were associated with holding shares in physical form are
completely eliminated.

Benefits Of Dematerialisation

a. Convenience:- The introduction of a demat account has eased the

process of trading and investing in the Indian stock market as it enables you
to carry out the transactions electronically. There is no need for you to be
physically present at the broker’s place to settle a transaction. Moreover, the
investor can have access to the demat account using a computer or
smartphone. In addition, you can convert your physical holdings into
electronic format to become the legal owner of your shares.

b. Fund Transfer:- By linking your demat account with the bank account you
can easily transfer funds electronically. This saves you from the hassles of
drawing a cheque or transferring the funds manually.
c. Safety:- Dematerialisation account or demat account is the most secure
and safest way to carry out transactions by electronic means. All the risks
like theft, damage, loss of share certificate, etc. that were associated with
holding shares in physical form are completely eliminated.

d. Nomination Facility:-Demat account provides you the facility to grant the

right to operate your demat account to the nominee in your absence. With
this facility you can carry out transactions in your demat account with the
help of a nominee when you are not in a situation to do it yourself.

e. Paperless:-One of the main benefits of using a demat account is that it

excludes the need for paper. Since the demat account is about holding
shares or securities in electronic form, the need for the paper is almost zero.
In addition, the demat account has also proved to be very useful for the
companies in reducing their administrative costs and hassles. Furthermore,
cutting down paper usage is also good for the environment.

f. Avail Loan Facility:-The demat account helps you in availing loans against
the holdings in dematerialized form. The securities and shares held in the
demat account can be kept as collateral and loan can be taken against them.

g. Monitoring:-With the help of a demat account, you can monitor your

portfolio from your home, office or anywhere across the globe. The flexibility
to be able to monitor the portfolio performance enhances the chances of you
making more profits because of increase in participation and interest.
h. Ease In Receiving Corporate Benefits:- Demat account eases the process
of receiving various corporate benefits like dividends, interest, refunds, etc.
 All the benefit amount gets directly credited into the demat account.
Moreover, other benefits like stock split, bonus shares, rights shares, etc. get
directly updated into the demat account.
i. Eliminates the Problem of Odd Lots:-Before the introduction of a demat
account, the shares and securities could be traded in a specified quantity
only. It was not possible to sell the desired number of shares you want.
However, with the introduction of the demat account, the problem of odd lots
is completely eliminated. Now can you purchase or sell any desired quantity.

j. Multiple Purposes:- In the demat account, you can not only hold shares or
equities but also debt instruments. You can even purchase, hold and
sell mutual fund units through the demat account. In fact, you can even
purchase government bonds, exchange-traded funds, etc. in the demat
account.
k. Clearing Corporation:
A clearing corporation is an organization associated with an exchange to handle the
confirmation, settlement, and delivery of transactions. Clearing corporations fulfill the
main obligation of ensuring transactions are made in a prompt and efficient manner.
Clearing corporations are also referred to as "clearing firms" or "clearing houses."
It was set up with the following objectives:

 to bring and sustain confidence in clearing and settlement of securities;

 to promote and maintain, short and consistent settlement cycles;
 to provide counter-party risk guarantee, and
 to operate a tight risk containment system.
NSE Clearing commenced clearing operations in April 1996.

Parties to the clearing corporation

The main parties who assist in the clearing process are:

a) Depositories:- This ensures in facilitating the electronic transfer of securities
in a dematerialized form.
b) Clearing banks:- Clearing Banks acts as a connecting link between the
clearing members and the NSCCL for the settlement of funds.
c) Clearing Members:-These members are responsible for settling the trade
which is done on all the counters.
d) Custodians :-These members keep the securities in a safe manner and they
hold the documentary proof of securities, keeping the title of securities intact in the
name of the holder.

Functions of Clearing Corporation of India Limited

a) They act as guarantors in clearing and settlement functions to various parties and
they also ensure that transactions occur smoothly.
b) It also acts as an agent to Financial Benchmark India Private Limited. The main
role of the FBI is administering government securities.
c) They also ensure all the parties who are involved in the successful completion of
transactions follow the due procedures.
d) By ensuring that goods are delivered to the buyer properly it avoids the needs for
any post-settlement arbitrations.
e) They also play an active role in settlement of complex transactions at
predetermined future price and date.
f) The pivotal functions are improving market efficiency, ensuring transparency,
liquidity and risk management.
g) It also helps in trade settlement for wholesale markets entities like banks,
insurance companies and mutual funds.

Risk involved in Clearing Corporation

a) Replacement cost risk:- Whenever a clearing member defaults, the

clearinghouse would be liable to pay the replacement cost. It fulfils the
replacement obligation by purchasing or selling the contracts identical to
those on which the clearing member default.
b) Liquidity risk :- By substituting itself as a counterparty to its clearing
members, the clearinghouse exposes itself to liquidity risk. It does by fulfilling
its payment obligations to non-defaulting members on schedule. On default of
the payment, the clearing house looks into the assets of defaulting members
and its financial resources to raise the necessary funds.
c) Delivery risk :- This is one of the biggest risk clearing corporations incurs at
the time of expiry of the contracts and when they are to be settled through
delivery and delivery versus payment is not achieved. There are two
circumstances when this kind of risk is involved and they are:
 When the securities are delivered to the buyer before the payment is
made to the seller and seller is at risk losing the value of the payment.
 When the payment is made before the securities are delivered to the
buyer.
d) Counterparty risk :- This risk arises in circumstances when either of the
party fails to fulfil their obligations on time.
e) Principal risk :-When both buyer and seller has fulfilled the obligation of
making payments and delivery of shares but has not received the shares or
funds and in such circumstances counterparty which is here NSCCL will
become the buyer to every seller and the seller to every buyer.

Steps involved in settlement of trade

a) Determination of obligations of both parties :- These obligations are

determined by NSCCL for the traders and it also acts as the central
counterparty to the members.
b) Pay-In funds and securities :- Members after knowing their obligations they
make available funds and securities to NSCCL
c) Pay-out funds and securities :- After fulfilling the Pay-In obligations, NSCCL
sends out electronic instructions to the clearing banks to pass the required
entries.
d) Risk management :- As there is a considerable time gap between the
settlement of trade and execution there is a possibility of arising defaults and
 to minimise this default NSCCL has framed comprehensive risk management
and surveillance system.

Investor Protection: In order to protect the interest of the investors and promote
awareness, the Central Government (Ministry of Corporate Affairs1 ) established the
Investor Education and Protection Fund (IEPF) in October 2001.
With the similar objectives, the Exchanges and SEBI also maintain investor
protection funds to take care of investor claims. SEBI and the stock exchanges have
also set up investor grievance / service cells for redress of investor grievance. All
these agencies and investor associations also organise investor education and
awareness programmes.

 Its main objective is to protect the interests of investors and promote investor
education.
 Under the Companies Act, unclaimed dividends, matured deposits, debentures,
and other amounts are required to be transferred to the IEPF if they remain
unclaimed for a specified period. The IEPF utilizes these funds for investor
education and protection initiatives
 These funds are utilized for investor education, awareness, and protection
activities.

Key features and functions of the Investor Education and Protection Fund
include:

 Investor Education: The IEPF conducts programs and initiatives to enhance

investor education and awareness. These efforts aim to educate investors about
their rights, investment opportunities, and the risks associated with investing in
the financial markets.

 Investor Protection: The IEPF works to protect the interests of investors,

particularly small investors who may be vulnerable to fraudulent schemes or
unfair practices. It provides a platform for investors to report grievances and
seeks to resolve them through appropriate legal mechanisms.

 Refund and Repayment: The IEPF facilitates the refund and repayment of
unclaimed dividends, matured deposits, and other amounts due to investors. It
maintains a database of unclaimed amounts and takes necessary steps to
ensure their rightful owners receive their funds.

 Investor Awareness Programs: The IEPF conducts various investor awareness

programs to empower investors with knowledge and skills to make informed
investment decisions. These programs cover topics such as investment options,
financial planning, and the importance of due diligence.

 Shareholder Education: The IEPF focuses on educating shareholders about their

rights and responsibilities. It encourages shareholders to actively participate in
corporate governance and exercise their voting rights in general meetings of
companies.
 Regulation and Compliance: The IEPF collaborates with regulatory authorities to
enforce compliance with investor protection regulations. It assists in
investigations related to investor grievances and promotes transparency and fair
practices in the financial markets.

In summary, the Investor Education and Protection Fund plays a vital role in
safeguarding the interests of investors in India. It promotes investor education,
awareness, and protection measures to create a transparent and investor-friendly
environment in the country

Launch of India VIX:-The India VIX is a measure of market volatility in the Indian
stock market.
It was launched by the National Stock Exchange (NSE) on March 1, 2008.
The India VIX calculates expected volatility based on the prices of Nifty 50 options.
It helps traders, investors, and risk managers understand market sentiment and
make informed decisions.
The India VIX is expressed as a percentage and represents expected volatility over
the next 30 days.
It is used to assess the level of risk and guide trading strategies and portfolio
management.
Since its launch, the India VIX has become an important tool in the Indian stock
market.

Direct Market Access (DMA) refers to a technology that allows investors to directly
access and interact with financial markets, such as stock exchanges, without the
need for intermediaries like brokers or dealers. DMA provides individuals and
institutional investors with the ability to trade securities electronically and execute
orders directly on the exchange.

Here are some key points about Direct Market Access:

a) Elimination of Intermediaries: DMA enables investors to bypass traditional

brokers or dealers and directly connect to the exchange. This allows for greater
control, transparency, and potentially lower costs.
b) Real-Time Trading: DMA provides investors with immediate access to real-time
market data, order book information, and pricing. Investors can view and analyze
market conditions and execute trades accordingly.

c) Faster Execution: By directly accessing the market, DMA offers the potential for
faster order execution compared to traditional methods that involve manual
intervention by brokers.

d) Enhanced Control: DMA gives investors more control over their trading activities.
They can enter their orders directly into the market, set their own price limits, and
manage their positions in real-time.
e) Access to Multiple Markets: DMA can provide access to multiple exchanges and
trading venues, allowing investors to trade a wide range of securities and
instruments across different markets.
f) Algorithmic Trading: DMA is often utilized in conjunction with algorithmic trading
strategies. Traders can use pre-programmed algorithms to automatically execute
trades based on predefined rules and market conditions.
g) Regulatory Considerations: DMA is subject to regulatory oversight to ensure fair
and orderly trading. Regulations may vary across jurisdictions and exchanges,
and investors need to comply with the specific requirements and risk
management measures.

DMA has become increasingly popular among active traders and institutional
investors seeking faster execution, increased control, and access to multiple
markets. However, it is important for investors to understand the risks associated
with DMA and have the necessary expertise and infrastructure to utilize it effectively.

Securities Lending and Borrowing (SLB) is a mechanism that allows investors to

lend their securities (such as stocks or bonds) to other market participants in
exchange for a fee. The borrowing party can use the securities for various purposes,
such as short selling or hedging strategies. The launch of SLB schemes refers to the
introduction and implementation of such programs in the financial markets.

Here's a simplified explanation of the launch of Securities Lending and Borrowing

schemes:

Securities Lending and Borrowing (SLB) schemes were introduced to enable

investors to lend their securities to others in exchange for a fee.

These schemes allow borrowers to access securities they need for activities like
short selling or hedging strategies.

Investors who lend their securities earn a fee for providing this service.

SLB schemes are typically launched by stock exchanges or other market

intermediaries.

The launch of SLB schemes provides additional liquidity to the market and
enhances market efficiency.

These schemes can benefit both lenders and borrowers, as lenders earn a fee
while borrowers gain access to the securities they require.

SLB schemes are subject to regulatory oversight and have specific rules and
guidelines to ensure fair and transparent operations.

Overall, the launch of Securities Lending and Borrowing schemes facilitates

efficient borrowing and lending of securities in the financial markets,
benefiting both investors and market participants.
Globalisation: Indian companies have been permitted to raise resources overseas
through issue of ADRs, GDRs, FCCBs and ECBs. Further, FIIs have been permitted to
invest in all types of securities, including government securities and tap the domestic
market. The investments by FIIs enjoy full capital account convertibility. They can
invest in a company under portfolio investment route upto 24% of the paid up capital
of the company. This can be increased up to the sectoral cap/statutory ceiling, as
applicable to the Indian companies concerned, by passing a resolution of its Board of
Directors followed by a special resolution to that effect by its general body. The Indian
stock exchanges have been permitted to set up trading terminals
abroad. The trading platform of Indian exchanges is now accessible through the
Internet from anywhere in the world. RBI permitted two-way fungibility for ADRs /
GDRs, which means that the investors (foreign institutional or domestic) who hold
ADRs / GDRs can cancel them with the depository and sell the underlying shares in
the market.

What is a stock broker?

A stock broker is an intermediary who arranges to buy and sell securities on the behalf
of clients. According to SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 a
stockbroker is a member of a stock exchange and requires to hold a certificate of
registration form SEBI in order to buy , sell or deal in securities

SEBI GRANTS A CERTIFICATE TO A STOCK BROKER SUBJECT TO THE

CONDITIONS THAT THE STOCK BROKER:-

a) Holds the membership of any stock exchange

b) Should abide by the rules, regulations and bye laws of the stock exchange or stock
exchanges of which he is a member
c) Should obtain prior permission of SEBI to continue to buy, sell or deal in securities
in any stock exchange in case of any change in the status and constitution
d) Should pay the amount of fees for registration in the prescribed manner and
e) Should take adequate steps for redress of grievances of the investors within one
month of the date of the receipt of the complaint and keep SEBI informed about the
number, nature and other particulars of the complaints.

Who can become a Member of NSE?

a) Access to a nation wide trading facility for equities derivatives debt and hybrid
instruments/products.
b) Ability to provide a fair, efficient and transparent securities market to the investors.
c) Use of state of the art electronic trading systems and technology.
d) Dealing with an organization which follows strict standards for trading and
settlement at par with those available at the tip international bourses and constantly
strives to move towards a global market place in the securities industry.

WHAT IS THE ADMISSION PROCEDURE FOR NEW MEMBERSHIP

 WHAT IS MEANT BY SURRENDER OF TRADING MEMBERSHIP

 Trading member can apply for surrender of their trading membership once

admitted to the exchange.

 For surrender trading member needs to fulfill certain condition

a) Clearing all the dues to the exchange and NSCCL notifying all other TMs of the

approval of surrender.

b) Issuance of a public notification in leading dailies about your surrender

c) The deposits of the trading members would be released by the Exchange/

NSCCL after a prescribed lock in period. There is however no lock in period in

case of TMs:-

 SEBI registered but not enabled ( that means the TMs has registered under

SEBI but still he didn’t get any right of trading till now)

 SEBI register and enabled but not traded at all

NSE PROVIDE A SCHEME FOR ENABLING THE TRANING MEMEBR TO

SURRENDER THEIR MEMBERSHIP TO THE EXCHANGE

Norms and procedures are as below::-

a) Need to send its request in writing in the prescribed format

b) Before submission of the application. The following should be covered in the

application of membership form a trading member.

 Who has been suspended /disciplinary action taken by the Exchange/SEBI

 in respect of whom is any investigation and any action of default has been

initiated by the Exchange/SEBI

 Who is falling with the category of associates as defined by SEBI

 Who owe any due to the Exchange/NSCCL

 Against whom is any claim by investors of value of Rs10 lakh or more are

pending or any claim for any amount is pending for a period more than 6 months.

 Against whom any other claim/ complaint is pending which in the option of the

Exchange/ NSCCL needs to be resolved by the concerned trading member.

 Whose turnover fees liability to SEBI is still outstanding.

EXCHANGE HAS ABSOLUTE DISCREATION (FREEDOM AND POWER TO MAKE

DECISION ) ADDITIONAL TERMS AND CONDITIONS AS IT MAY DECIDE

 No trading member has the TMs is eligible to be readmitted to the TMs of the

Exchange in any form for a period of one year

 TMs is subject to fufill of certain conditions such as submission of original SEBI

registration certificate , submission of sub broker registration certificate of all the

sub brokers associated with TMs for onward Transmission to the SEBI for

cancellation

 TMs request to surrender application of dismantle and recover all the leased line/

VSAT and other equipment given to them at their dealing offices.

 Give public notification in dailies ‘

 A letter is sent to SEBI seeking pending dues if any from member

 TMs would be intimated if payable exceeds the deposits to bring in the requisite

amount within 21 days of intimation. Upon the failure of the member the case

shall be reffered to the relevant authority for future actions.

WHAT IS SUSPENSION AND EXPULSION OF MEMBERSHIP

1. Misconduct

2. Un business like conduct

3. Unprofesssional conduct

4. Trading member’s responsibility for partners, agents and employees

5. Suspension on failure to provide margin deposit and/ or capital adequacy

requirments

What is Suspension of Business

1. Prejudicial business

2. Unwarrantable business

3. Unsatisfactory Financial condition

What are the Consequences of Suspension?

1. Suspension of membership rights

2. Rights of creditors unimpaired

3. Fulfillment of contracts

4. Further business prohibited

5. Trading members not to deal with supended trading member.

What are the Consequences of Expulsion?

1. Trading membership rights forfeited

2. Office vacated
3. Rights of creditors unimpaired

4. Fulfilment of contracts

5. Trading members not to deal with expelled trading member

6. Consequences of declaration of defaulter to follow