Security Measure for Investors

on NSE and BSE

By Gaurav Sareen (049)
Need for the Measures
• In India, SEBI is the principal regulatory
authority for all secondary and primary
market related activity
• It take special care to protect interest of
investors as this class is most widely
dispersed, and generally more vulnerable to
being taken for a ride
• Additionally it is the investor class that infuses
the capital into the market and hence bears
higher risks than other participants
PROTECTION MEASURES ON BSE
• Trade Guarantee Fund
• Surveillance
• Z Group
• Investors' or Customers Protection
Fund (IPF) 
• Redressal of Investor Grievances
Trade Guarantee Fund
• BSE has formulated a scheme to guarantee
settlement of transactions of members, which
form part of the settlement system. For this,
BSE has constituted a Trade Guarantee Fund
with the following objectives:
• To guarantee settlement of transactions of
members of the exchange inter-se which
form part of the stock exchange settlement
system, so as to ensure timely completion of
settlements of contracts and thereby protect
the interest of investors and members of the
exchange to inculcate confidence in the mind
of secondary market participants
Surveillance
• BSE has set up a separate Surveillance Department to keep a
close watch on price movement of securities, detect market
manipulations like price rigging, etc., monitor abnormal prices
and volumes which are not consistent with normal trading
pattern and monitor the member-brokers' position to ensure
that defaults do not occur.
• It not only monitors the exposure of the members on a daily
basis but also scrutinizes the prices and volumes of the
securities on a daily basis. 
• The large variation in the prices as well as the volumes of the
securities is scrutinized and appropriate actions are taken.
• The securities, which reach new high or new low and
companies, which have high turnover, are watched.
• Also the prices and volumes in the newly listed securities are
monitored. In case certain abnormalities are noticed, then
circuit filters are reduced to make it difficult for the price
manipulators to increase or push down the prices of security
within a short period of time.
• The Exchange imposes special margin in the securities where it
is suspected that there is an attempt to ramp up the prices by
creating artificial volumes.
• In cases where the abnormal movements continue despite the
aforesaid measures, trading in the security is
suspended. Detailed investigations are conducted in cases
where price manipulation is suspected and disciplinary action is
taken against the members concerned, if warranted.
• Where any security has been suspended for more than three
days after obtaining necessary permission from SEBI, a detailed
investigation report is prepared and sent to SEBI for further
investigation/action, if any. 
Z Group
• To protect investors from fraudulent
companies listed on BSE has created a
new group of securities known as ‘Z’
group category. The 'Z' group was
introduced in the month of July 1999
and covers the list of companies, which
fail to comply with listing requirements
and also fail to resolve investor
complaints
Investors' or Customers Protection
Fund (IPF) 
• In accordance with the guidelines issued by
the Ministry of Finance, Government of India,
BSE has set up an Investor Protection Fund
(IPF) to meet the claims of investors against
defaulter members. Further, as per the recent
SEBI decision, auction proceeds in certain
cases, where price manipulation / rigging was
involved, have been impounded and
transferred to the Investor Protection Fund
Redressal of Investor Grievances
• The grievances of investors against listed
companies or members are redressed by the
Exchange. The Exchange also assists in
arbitration process both between members &
investors and member’s inter-se. 
o Investors’ Grievances against Companies
o Investors’ Grievances against Member-
brokers of the Exchange
 Investors’ Grievances against Companies

o BSE forwards the investors’ complaints against the

companies to the concerned companies and a copy
of the letter sent to the company is also forwarded to
the complainant. He is advised to intimate the
Exchange if his complaint is not resolved within 45
days.
o If a company fails to redress the complaint within 45
days, a reminder is sent.
o If a company still fails to respond to a large number
of complaints pending against it, then a consolidated
list of complaints is sent to it to resolve the same
within 30 days.
o In spite of the above efforts, if the complaints are
not resolved, the company officials are asked to
appear before the Investors’ Grievance Redressal
Committee (IGRC) appointed by the Governing Board
of the Exchange to resolve all the investors
grievances. This Committee consists of five members
including a retired judge of Mumbai High Court. The
company officials are impressed by the committee
members to resolve all the pending grievances
immediately. 
o Inspite of these efforts, if the complaints are not
resolved then a show cause notice is issued by the
Exchange and then the matter is placed before the
Governing Board of the Exchange for necessary
action against the company. 
Investors’ Grievances against Member-brokers of the Exchange

• BSE handles complaints of investors against members and vice-versa.

It forwards the complaints of investors to the concerned members to
settle within 7 days from the receipt of the letter.
• In case no reply is received from a member, a reminder is sent and the
member is informed that if he does not reply/resolve the complaint
immediately, a fine of Rs.500/- is levied on him. He is also directed to
settle the matter expeditiously.
• In order to resolve the complaints expeditiously the matter is placed
before the IGRC wherein both the investors and members present their
case. After hearing both the parties, the Committee gives a decision,
which is binding on both the parties.
• In case a member fails to implement the decision of the IGRC, then the
matter is referred to the Executive Director for taking disciplinary action
against the member which includes referring the matter to the
Disciplinary Action Committee
PROTECTION MEASURES ON NSE
• Settlement Guarantee Fund
• Investor Grievances Cell
• Arbitration
• Circuit Breaker
Settlement Guarantee Fund
• In order to guarantee settlement, it has set
up a Settlement Guarantee Fund contributed
by the clearing members of the Corporation.
• As counter-party to settlement obligations,
NSE guarantees financial settlement. As a
result, though there have been a few defaults
by member firms, the Clearing Corporation
has stepped in to complete settlement and
avoided market disruption. Short deliveries
and un-rectified bad deliveries are
automatically auctioned by NSCCL so that
settlement is completed within a well-defined
time frame. 
Investor Grievances Cell
• The Investor Grievances Cell (IGC) attends to various
problems faced by investors in dealing with the two
integral parts of the Capital Markets, Trading Members
and Companies whose securities are traded on the
Exchange.
• The investors can report their complaints/ grievances to
the IGC through e-mails or through Complaint forms.
• All valid complaints are assigned a unique complaint no.
and are entered into a database for easy follow up and
necessary action. Most complaints are resolved within a
period of 45 days.
• On exhausting all means, if the matter remains
unresolved, it is referred to Arbitration. 
Arbitration
• Arbitration is an alternative dispute resolution
mechanism provided by the NSE for resolving disputes
between the trading members and between trading
members & constituents (i.e. clients of trading
members), in respect of trades done on the Exchange.
• This process of resolving a dispute is comparatively
faster than other means of redressal. 
• The facility of arbitration on the Exchange can be
availed by: The comprehensive approach to risk
management taken by BSE and NSE encompassing the
quality of clearing/trading members, tight monitoring
mechanism, strict margining, efficient settlement
systems have made the Secondary market in India
comparable to world market across the globe.
Circuit Breaker
• Circuit breaker is very important tool to reduce the
high volatility in the market.
• Circuit breakers were first introduced in 1987 in the
US in the wake of sharp decline in the share prices.
• In India, It was introduced for the first time on
Bombay Stock Exchange on Tuesday, 9 March 1993
when the SENSEX declined by more than 5% from
the opening level.
• Importance of circuit breaker comes into existence
once again on 18th may, 2009 after the victory of
UPA government, when market reacted sharply on
the event. To control this severe condition regulatory
authority SEBI came into existence and applied
circuit breakers on the Indian bourses.
• The Exchange implements circuit a quarterly
basis the index based market wide circuit
breaker system. The system is applicable at
three stages of the index movement either
way at 10%, 15% and 20%. This circuit
breaker brings about a coordinated trading
halt in all equity and equity derivative
markets nationwide. The market wide circuit
breakers would be triggered by movement of
either SENSEX or the NSE S&P CNX Nifty
whichever is breached earlier
Movement Break in Trading
10% Before 1:00 PM- 1 Hr
After 1:00 but before
2:30 PM-½ Hr
After 2:30-No trading halt
15% Before 1:00 PM-2 Hr
After 1:00 but before
2:00 PM-1 Hr
After 2:00-Trading will be
halted for the remainder of
the day
20% Trading will be halted for
the remainder of the day
THANK YOU