Trading and Settlement

Procedure
 Market this week - Sensex
Series 1
18250
18200
18150
18100
Series 1
18050
18000
17950
17900
17850
Mon Tue Wed Thu Fri
 Nifty
Series 1
5480
5460
5440
5420
5400 Series 1

5380
5360
5340
5320
mon tue wed thu fri
business for a week………
Inflation a major worry for policy makers…

• The RBI has listed high inflation as foremost concern.

• Food price inflation and more generally consumer price
inflation are still in double digits.
• Economic growth however is getting consolidated fast
in India and is becoming broad -based.
• WPI double digits since feb , June 10.6% higher than
the 10.2 % recorded in May.
• Price rise in primary food articles continues to be in
double digits.
 Food inflation dips to single digit…
• Dips to single digit at 9.67% for the first time in the
current year.
• Food inflation remained above the 16% level for the
most part of last year, before falling to below 13%
since mid June.
• Acc to….inflation fell by 2.80% points for week ending
july 17 from 12.47% in the previous week, mainly due
to decline in the price of vegetables.
• Fuel prices index rose to 14.29% foll a hike prices of
petrol, diesel, kerosene and cooking gas.
 Narrowing the liquidity spread..
• RBI has hiked the Repo rate by 0.25% point to 5.75%
and the Reverse Repo rate by 0.50% point to 4.50%.
• If liqui……..
• The RBIs decision to “narrow the liquidity corridor”
the difference between the Repo and Reverse Repo
rates is significant.
• The reverse Repo has been hiked by a higher margin
than the Repo rate. Liquity is tight at the moment.
 BSNL in red for first time
• Bsnl ltd has posted its first ever loss of
Rs.1,822.65 crore for fiscal 2009-10 due to stiff
competition from private players,delays in
procuring equipment and drastic reduction in
tariffs.
• This is the first time that the telecom PSU has
reported losseses since it was formed.
• The loss has occurred due to reduction in
revenue, increase in expenditure and so on…
NEW MARKETS…..
 Pepsi Max now in India
• Global beverage giant Pepsi co on Monday
launched its international premium cola brand
“Max” widening its product portfolio in the
Rs.10,000 crore branded beverage market in
India.
• Offers consumer a beverage with a higher cola
kick , more fizz,punch and an added advantage
of “no sugar”
Bharti Wal-Mart JV plans national rollout….

• So far confined to Punjab, plans to build a

national presence over the next 18 months
with outlets in Karnataka, AP,MP,UP and
Haryana.
Saint Gobian India to set up Rs.1k-cr plant…

• Saint Gobain glass India, a fully owned

subsidiary of euro 6 billion Saint Gobain
France, has decided to set up a Rs.1000 crore
float glass line near Delhi.
• It will probably be the world’s largest float
glass unit.
“You were born to win, but to be a winner….,
you must plan to win, prepare to win, and expect to win”

06/08/2010 Prepared and Presented by 2nd Team 13

Secondary Stock Market
 The origin of the stock market in india goes
back to end of the 18th century.
 As of January 2005 there were 23 stock
exchanges recognized by the central
government.
 The most important development in the
Indian stock market was the establishment of
the National Stock Exchange.
The National Stock Exchange

 It was established in 1994.

 The NSE is a ring less National Computerized
System.
 The NSE has 2 segments.
 The NSE has opted for order driven system.
Bombay Stock Exchange

 It was established in 1875.

 It is one of the oldest organized exchanges in
the world with the long colorful and
chequered history.
 Jobbers play an important role in Bombay
Stock Exchange.
Timings :
 Monday to Friday-9.00am to 3.30pm
Grouping:
 BSE has, for the guidance and benefit of the
investors, classified the scrip's in the Equity
Segment into 'A', ‘B’,'T', ‘S', ‘TS' and 'Z' groups
on certain qualitative and quantitative
parameters.
 Types of Order

 Market Order
 Limit Order
 Stop Loss Order
 Stop Limit Order
 TRADING

 Each stock exchange has certain listed securities and permitted

securities which are traded on it.
 Members of exchange alone are entitled to the trading privileges.
 Investors interested in buying or selling securities should place their
order with the members( also called brokers ) of the exchange.

06/08/2010 Prepared and Presented by 2nd Team 19

 Trading
Activity

Open outcry
system

Screen-based
system

06/08/2010 Prepared and Presented by 2nd Team

• Open Outcry System:
Traders shout and resort to signals on the trading floor of the
exchange which consists of several notional trading posts for
different securities.
•
A member or his representative wishing to buy securities
reaches the trading post where the security is traded.

Buyers make their bids & sellers make their offer.

06/08/2010 Prepared and Presented by 2nd Team

 In stocks jobbing is done.

He stands ready to buy or sell from his account.

He quotes his bid(buying) and ask (selling) prices

He provides some stability and continuity to the

market.

06/08/2010 Prepared and Presented by 2nd Team

• Screen-Based System:
 The trading ring is replaced by the computer screen.
 Computer network.
 Large no. of participants, geographically separated ,can trade
simultaneously @ hi-speed.

1. Enhances informational efficiency.

2. Market participants to get full view of markets.
3. Establishes transparency

06/08/2010 Prepared and Presented by 2nd Team

• Till 1994, trading on stock exchange in India was based on the
open outcry system.

• With the establishment of NSE in 1994, India entered the era of

screen-based trading

• Screen-based trading supplanted the open outcry trading system

so rapidly, all the credit goes to SEBI.

• The kind of screen-based trading system adopted in India

open electronic limit order book (ELOB)

06/08/2010 Prepared and Presented by 2nd Team

• Key Features:
o buyers and sellers place heir order in computer
o These orders may be may be limit orders or market orders
o The limit order pre specifies the price limit.
o E.g. a limit order to buy at a price of Rs. 90 means that the trader
wants to Buy at a price not greater than Rs.90. Likewise, a limit order
to sell at a price of 95 means that the trader wants sell at a price not
less than Rs.95.
o Market order to sell will be executed at the highest bid price whereas
a market order to buy will be executed as the lowest ask price.

06/08/2010 Prepared and Presented by 2nd Team

 Settlement
• Traditionally – physical delivery
• Seller-broker-Stock exchange-broker-buyer
• 1-3 months for transfer
• Paper work cost and risk
• Presently - Electronic delivery facilities
• Dematerialises physical securities
• Depositary act 1996 highlights :
• Depositary must be registered with SEBI
• Option of continuing share certificates or for
demat
• Depositary registered with company – Investor
enjoys voting rights & economic benefits
• Investors should register with agents – banks,
firms, large brokerage firms.
• Shares will cease to have distinctive numbers
• Ownership changes made automatically of delivery
against payment
• Any loss caused to owners will be indemnified by
the depositary
• NSDL and CSDL
• SEBI made demat mandatory
 Shift to Rolling Settlement
Recently the basis was weekly accounting period
NSE –(Wed to Tue)
BSE-(Mon-Fri)
T+5 days
Led to unbridled speculative activity
A need to convert it to t+2 days
 Transaction costs
• Trading Costs –
1. Brokerage cost
2. Market impact cost
3. STT –
• for delivery based 0.20 % buyer and seller.
• Non delivery based .03%

• Clearing costs – default in payout

• Settlement costs – less paper work due to demat
 Costs before and after Dematerialisation

Mid 1993 Today

Trading
Brokerage cost 3.00% 0.25%
Market impact cost 0.75% 0.15%
Clearing
Counterparty risk Present Absent
Settlement
Paperwork cost 0.75% 0.10%
Bad paper risk 0.50% 0.00%
Total 5.00 % +… 0.5%
 Trading of securities
ORDER PLACING-
•LIMIT ORDER
•BEST RATE ORDER
•IMMEDIATE OR CANCEL ORDER
•STOP LOSS ORDER
•OPEN ORDER
ORDER EXECUTION
• Brokers execute the orders placed by the
clients
• Kerb trading
• Single jobber or tarawaniwala
• Auction or negotiation
CONTRACT NOTE PREPARATION
• Contract note made out between the broker
and the client
• Pucca sauda boook: particulars such as the
price ,number of scrips,date of
transaction,names of parties , brokerage etc.
DELIVERY AND CLEARING
• Transfer Deed
Kinds of delivery
• Spot delivery
• Hand delivery
• Specified or special delivery
Delivery and clearing of security takes place
through a clearance house
SHARE TRANSFER
• Share certificate and transfer deed are
lodged with the co.
• Company issues a share certificate

SETTLEMENT
• The procedure adopted for the settlement
of transactions varies depending upon the
kind of securities
 CLIENT REGISTRATION

AGREEMENT

ORDER PLACING

ORDER CONFIRMATION

TRADE CONFIRMATION

CONTRACT NOTE

DELIVERY AND CLEARING

SHARE TRANSFER

SETTLEMENT
 Comparison of BSE & NSE

BSE NSE

Secrecy Disclosure to the identity of Identity of counter party is

counter- party is optional not known until delivery

Trading System Quote driven Order driven

Speed of execution Average speed Very fast

Choice of stocks wide choice and range with Limited choice

over 6,000 listed co’s

Short delivery Auction on the pay out day Auction on the pay out day
 Rectified within 4 days of Rectified within 5 days of
Bad delivery the pay out day the pay out day

Objection of transfer Rectified with 21 days Rectified with21 days

Strong contract among It is possible to trade in big

Ease of trading brokers makes it easier to lots in only selected stocks
source huge lots faster

Own depository is being

contemplated, while the
Depository BSE is joining the NSE’s Started in Dec. 1996
depository
Settlement period 7 calendar days 7 calendar days

Used to be limited to It covers more than 150

National coverage Mumbai only cities

Counter party risk Introduced in May 1997 Introduced since inception

coverage

Management Largely elected by brokers Independent of brokers

 If you trust the winner within you, you will win.
If you can keep your courage, you will go so far.
If you follow your ambitions, your course will guide you
toward a ladder that you can climb to your stars.”
06/08/2010 Prepared and Presented by 2nd Team 41