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    BSE trading mini project report BSE trading mini project report Document Transcript

    • INTRODUCTIONThe India Capital market consists of many financial institutes, Banks, StockMarkets etc. The capital Market is being divided between two parts:  Primary Market  Secondary market.The stock exchange comes in the secondary market & these exchanges areperforming various functions. Stock exchange performs these functions withthe help of middleman called the intermediaries. These intermediates act as alink in between buyer & seller on the stock exchange. Without the presenceof these intermediaries it is impossible to trade on the stock exchange.Stock exchange is trading in share, securities, gilt-edge securities, bonds,mutual fund & commodities.There are 23 stock exchanges in India like BSE, NSE, Bangalore stockexchange, Cochin stock exchange, Delhi stock exchange, kolkatta stockexchange & many others.The intermediaries in the capital market are:  Merchant Banker Their function & working are very crucial to the operating in theprimary market. They are the issue manager, lead manager, co-manager &are responsible to the company & SEBI.  Registrar:BABASAB PATIL
    • Their function are next to merchant banker in importance. They collectthe application for the new issue, their cheques, stock invests, classify &computerize them. They also make allotment in consultation with theregional stock exchange regarding norms in the event of over subscription &before a public representative.  Collecting Banker: Collecting banker collects the subscription in cash, cheques, stockinvest, ect.  Underwriter:Underwriter mar be financial institution, banks, mutual fund, ect., &undertake to mobilise the subscription up to some limit. Falling to securesubscription as agreed to, they have to make good the shortfalls by their ownsubscription.Stock Market Intermediaries:  Client Broker: They are doing simple broking between buyer & seller & earning onlybrokerage for their service from the client.  Floor Broker:These are authorized clerks & sub-brokers who enter the trading floor &execute the orders for the client or other member.BABASAB PATIL
    •  Jobber & Market Maker:Those members who are ready to buy & sell simultaneously in selectedscrips, offering on the trade floor & earning profit through the marginbetween buying & selling rate. Market Maker undertakes this workcompulsorily for some companies & bank finance in available to them.  Arbitrager:Those who do inter market deals for a profit through difference in price asbetween markets say buy in Kolkatta & sell in Mumbai & vice versa.  Badla Financiers:Those members who finance carry forward deals in specified group (Agroup) for a return in the form of interest, called Badla Rate. They lendmoney or shares for the brokers who are over bought or over soldrespectively at the time of settlement. Badla in carry forward facility fromone settlement to another without taking a delivery up to a maximum periodof 90 days at a time.Introduction To Bombay Stock ExchangeThe Stock Exchange, Mumbai, popularly known as "BSE" was establishedin 1875 as "The Native Share and Stock Brokers Association". It is theoldest one in Asia, even older than the Tokyo Stock Exchange, which wasestablished in 1878. It is a voluntary non-profit making Association ofPersons (AOP) and is currently engaged in the process of converting itselfinto demutualised and corporate entity. It has evolved over the years into itsBABASAB PATIL
    • present status as the premier Stock Exchange in the country. It is the firstStock Exchange in the Country to have obtained permanent recognition in1956 from the Govt. of India under the Securities Contracts (Regulation)Act, 1956.The Exchange, while providing an efficient and transparent market fortrading in securities, debt and derivatives upholds the interests of theinvestors and ensures redressal of their grievances whether against thecompanies or its own member-brokers. It also strives to educate andenlighten the investors by conducting investor education programmes andmaking available to them necessary informative inputs.A Governing Board having 20 directors is the apex body, which decides thepolicies and regulates the affairs of the Exchange. The Governing Boardconsists of 9 elected directors, who are from the broking community (onethird of them retire ever year by rotation), three SEBI nominees, six publicrepresentatives and an ExecutiveDirector & Chief Executive Officer and a Chief Operating Officer.The Executive Director as the Chief Executive Officer is responsible for theday-to-day administration of the Exchange and the Chief Operating Officerand other Heads of Departments assist him.The Exchange has inserted new Rule No.126 A in its Rules, Bye-laws &Regulations pertaining to constitution of the Executive Committee of theExchange. Accordingly, an Executive Committee, consisting of three electedBABASAB PATIL
    • directors, three SEBI nominees or public representatives, Executive Director& CEO and Chief Operating Officer has been constituted. The Committeeconsiders judicial & quasi matters in which the Governing Board has powersas an Appellate Authority, matters regarding annulment of transactions,admission, continuance and suspension of member-brokers, declaration of amember-broker as defaulter, norms, procedures and other matters relating toarbitration, fees, deposits, margins and other monies payable by the member-brokers to the Exchange, etc.Turnover on the Exchange • The average daily turnover of the Exchange during the financial year 2000-2001 (April-March), was Rs.3984.19 crores and the average number of daily trades was 5.69 lakhs. • The average daily turnover of the Exchange in the subsequent two financial years, i.e., 2001-02 & 2002-03, has declined • Considerably to Rs. 1248.15 crores and Rs. 1251.29 crores respectively. • The average number of daily trades recorded during 2001-02 and 2002-03 numbered 5.17 lakhs and 5.63 lakhs respectively.The average daily turnover and average number of daily trades during thequarter April-June 2003 were Rs. 1101.05 crores and 5.70 lakhsrespectively.The ban on all deferral products like Borrowing & Lending of SecuritiesScheme (BLESS) and Automated Lending & Borrowing Mechanism(ALBM) in the Indian capital markets by SEBI w.e.f. July 2, 2001, abolitionBABASAB PATIL
    • of account period settlements, introduction of Compulsory RollingSettlements in all scrips traded on the Exchanges w.e.f. December 31, 2001,etc. has adversely impacted the liquidity in the market and consequentlythere is a considerable decline in the average daily turnover at the Exchangeas reflected in above statistics. The Stock Exchange, Mumbai Governing Board For The Year 2005Mr. S. Jambunathan IAS (Retd.)Executive Director & CEOMr. Rajnikant PatelMr. Bhanubhai G. FozdarMr. Siddharth J. ShahMr. Prakash R. KacholiaMr. Alok C. ChuriwalaMr. Deven R. ChokseyMr. Balkishan MohtaMr. Uttam BagriMr. Radheyshyam B. KhandelwalMr. Nagji Keshavji RitaMr. Jitesh KhoslaJoint Secretary, Dept. of Company Affairs, Govt. of IndiaMr. P.P. VoraMr. P. K. BanerjiRetired IAS OfficerMr. Jagdish CapoorBABASAB PATIL
    • Chairman, HDFC BankMr. Vijay MukhiManaging Director, Vijay Mukhis Computer InstituteMr. Pradip P. ShahChairman, IndAsia Fund Advisors Private LimitedProf. N. RavichandranProfessor, IIM AhmedabadNATIONAL STOCK EXCHANGE LTD.The Organisation:The National Stock Exchange of India Limited has genesis in the report ofthe High Powered Study Group on Establishment of New Stock Exchanges,which recommended promotion of a National Stock Exchange by financialinstitutions (FIs) to provide access to investors from all across the countryon an equal footing. Based on the recommendations, NSE was promoted byleading Financial Institutions at the behest of the Government of India andwas incorporated in November 1992 as a tax-paying company unlike otherstock exchanges in the country.On its recognition as a stock exchange under the Securities Contracts(Regulation) Act, 1956 in April 1993, NSE commenced operations in theWholesale Debt Market (WDM) segment in June 1994. The Capital Market(Equities) segment commenced operations in November 1994 andoperations in Derivatives segment commenced in June 2000.Our Mission:BABASAB PATIL
    • NSEs mission is setting the agenda for change in the securities markets inIndia. The NSE was set-up with the main objectives of: • Establishing a nation-wide trading facility for equities, debt instruments and hybrids, • Ensuring equal access to investors all over the country through an appropriate communication network, • Providing a fair, efficient and transparent securities market to investors using electronic trading systems, • Enabling shorter settlement cycles and book entry settlements systems, and • Meeting the current international standards of securities markets.The standards set by NSE in terms of market practices and technology hasbecome industry benchmarks and is being emulated by other marketparticipants. NSE is more than a mere market facilitator. Its that force whichis guiding the industry towards new horizons and greater opportunities.Our Logo: Say NSE’s LOGOThe logo of the NSE symbolises a single nationwide securities tradingfacility ensuring equal and fair access to investors, trading members andissuers all over the country. The initials of the Exchange viz., N, S and Ehave been etched on the logo and are distinctly visible. The logo symbolisesBABASAB PATIL
    • use of state of the art information technology and satellite connectivity tobring about the change within the securities industry. The logo symbolisesvibrancy and unleashing of creative energy to constantly bring about changethrough innovation.Promoters:NSE has been promoted by leading financial institutions, banks, insurancecompanies and other financial intermediaries:  Industrial Development Bank of India Limited  Industrial Finance Corporation of India Limited  Life Insurance Corporation of India  State Bank of India  ICICI Bank Limited  IL & FS Trust Company Limited  Stock Holding Corporation of India Limited  SBI Capital Markets Limited  The Administrator of the Specified Undertaking of Unit Trust of India  Bank of Baroda  Canara BankBABASAB PATIL
    •  General Insurance Corporation of India  National Insurance Company Limited  The New India Assurance Company Limited  The Oriental Insurance Company Limited  United India Insurance Company Limited  Punjab National Bank  Oriental Bank of Commerce  Corporation Bank  Indian Bank  Union Bank of IndiaCorporate StructureNSE is one of the first de-mutualised stock exchanges in the country, wherethe ownership and management of the Exchange is completely divorcedfrom the right to trade on it. Though the impetus for its establishment camefrom policy makers in the country, it has been set up as a public limitedcompany, owned by the leading institutional investors in the country.From day one, NSE has adopted the form of a demutualised exchange - theownership, management and trading is in the hands of three different sets ofpeople. NSE is owned by a set of leading financial institutions, banks,BABASAB PATIL
    • insurance companies and other financial intermediaries and is managed byprofessionals, who do not directly or indirectly trade on the Exchange. Thishas completely eliminated any conflict of interest and helped NSE inaggressively pursuing policies and practices within a public interestframework.The NSE model however, does not preclude, but in fact accommodatesinvolvement, support and contribution of trading members in a variety ofways. Its Board comprises of senior executives from promoter institutions,eminent professionals in the fields of law, economics, accountancy, finance,taxation, etc, public representatives, nominees of SEBI and one full timeexecutive of the Exchange.While the Board deals with broad policy issues, decisions relating to marketoperations are delegated by the Board to various committees constituted byit. Such committee includes representatives from trading members,professionals, the public and the management. The day-to-day managementof the Exchange is delegated to the Managing Director who is supported bya team of professional staff.Our Technology:Across the globe, developments in information, communication and networktechnologies have created paradigm shifts in the securities marketoperations. Technology has enabled organizations to build new sources ofcompetitive advantage, bring about innovations in products and services,and to provide for new business opportunities. Stock exchanges all over theworld have realised the potential of IT and have moved over to electronicBABASAB PATIL
    • trading systems, which are cheaper, have wider reach and provide a bettermechanism for trade and post trade execution.NSE believes that technology will continue to provide the necessary impetusfor the organisation to retain its competitive edge and ensure timeliness andsatisfaction in customer service. In recognition of the fact that technologywill continue to redefine the shape of the securities industry, NSE stresseson innovation and sustained investment in technology to remain ahead ofcompetition. NSEs IT set-up is the largest by any company in India. It usessatellite communication technology to energies participation from around400 cities spread all over the country. In the recent past, capacityenhancement measures were taken up in regard to the trading systems so asto effectively meet the requirements of increased users and associatedtrading loads. With upgradation of trading hardware, NSE can handle up to 1million trades per day. NSE has also put in place NIBIS (NSEs InternetBased Information System) for on-line real-time dissemination of tradinginformation over the Internet. In order to capitalise on in-house expertise intechnology, NSE set up a separate company, NSE.IT, in October 1999. Thisis expected to provide a platform for taking up new IT assignments bothwithin and outside India and attaining global exposure.NEAT is a state-of-the-art client server based application. At the server end,all trading information is stored in an in-memory database to achieveminimum response time and maximum system availability for users. Thetrading server software runs on a fault tolerant STRATUS main-framecomputer while the client software runs under Windows on PCs.BABASAB PATIL
    • The telecommunications network uses X.25 protocol and is the backbone ofthe automated trading system. Each trading member trades on the NSE withother members through a PC located in the trading members office,anywhere in India. The trading members on the Wholesale Debt Marketsegment are linked to the central computer at the NSE through dedicated64Kbps leased lines and VSAT terminals. These leased lines are multiplexedusing dedicated 2 Mbps, optical-fiber links. The WDM participants connectto the trading system through dial-up links.The Exchange uses powerful RISC -based UNIX servers, procured fromDigital and HP for the back office processing. The latest software platformslike ORACLE 7 RDBMS, GUPTA - SQL/ORACLE FORMS 4.5 Front -Ends, etc. have been used for the Exchange applications. The Exchangecurrently manages its data centre operations, system and databaseadministration, design and development of in-house systems and design andimplementation of telecommunication solutions.NSE is one of the largest interactive VSAT based stock exchanges in theworld. Today it supports more than 3000 VSATs and is expected to grow tomore than 4000 VSATs in the next year. The NSE- network is the largestprivate wide area network in the country and the first extended C- BandVSAT network in the world. Currently more than 9000 users are trading onthe real time-online NSE application. There are over 15 large computersystems, which include non-stop fault-tolerant computers and high-endUNIX servers, operational under one roof to support the NSE applications.BABASAB PATIL
    • This coupled with the nation wide VSAT network makes NSE the countryslargest Information Technology user.In an ongoing effort to improve NSEs infrastructure, a corporate networkhas been implemented, connecting all the offices at Mumbai, Delhi, Calcuttaand Chennai. This corporate network enables speedy inter-officecommunications and data and voice connectivity between offices.In keeping with the current trend, NSE has gone online on the Internet.Apart from having a 2mbps link to VSNL and our own domain for internalbrowsing and e-mail purposes, we have also set up our own Web site.Currently, NSE is displaying its live stock quotes on the web site(www.nseindia.com), which are updated online.BOARD OF DIRECTORS OF NSE:Mr. S. B. Mathur ChairmanMr. Ravi Narain Managing DirectorMs. Chitra Ramkrishna Deputy Managing DirectorMr. S. P. Chhajed DirectorMr. R. P. Chitale -do-Mr. Indrajit Gupta -do-Mr. N.S. Kannan -do-Mr. S. H. Khan -do-BABASAB PATIL
    • Mr. A. P. Kurian -do-Mr. Anand G. Mahindra -do-Mr. Y. H. Malegam -do-Prof. (Dr.) K.R.S.Murthy -do-Mr. Ravi Parthasarathy -do-Dr. R. H. Patil -do-Mr. Justice M.L. Pendse (Retd.) -do-Mr. M. Raghavendra -do-Mr. M. Raghavendra -do-Mr. R. N. Bhardwaj -do-Stock Exchanges in India:Totally there are 24 Stock Exchanges in India (Capital Stock Exchange isyet to start it’s function)Some of them are like this: 1. National Stock Exchange 2. Bombay Stock Exchange 3. Bangalore Stock Exchange 4. Delhi Stock Exchange 5. Vadora Stock Exchange 6. Kolkatta Stock ExchangeBABASAB PATIL
    • 7. Cochin stock exchange 8. Pune stock Exchange 9. Chennai Stock Exchange 10. Jaipur Stock Exchange The geographical location of all the stock exchanges is shown belowBABASAB PATIL
    • Stock market indexA stock Market Index is a Market. It should capture the behaviour of theoverall equity market. Movements of the index should represent the returnsobtained by "typical" portfolios in the country.BABASAB PATIL
    • The basic idea in an indexEvery stock price moves for two possible reasons: news about the company(e.g. a product launch, or the closure of a factory, etc.) or news about thecountry (e.g. nuclear bombs, or a budget announcement, etc.). The job of anindex is to purely capture the second part, the movements of the stockmarket as a whole (i.e. news about the country). This is achieved byaveraging. Each stock contains a mixture of these two elements - stock newsand index news. When we take an average of returns on many stocks, theindividual stock news tends to cancel out. On any one day, there would begood stock-specific news for a few companies and bad stock-specific newsfor others. In a good index, these will cancel out, and the only thing left willbe news that is common to all stocks. The news that is common to all stocksis news about India. That is what the index will capture.BABASAB PATIL
    • Importance of IndexTraditionally, indices have been used as information sources. By looking atan index we know how the market is faring. This information aspect alsofigures in myriad applications of stock market indices in economic research.This is particularly valuable when an index reflects highly up-to-dateinformation (a central issue which is discussed in detail ahead) and theportfolio of an investor contains illiquid securities - in this case, the index isa lead indicator of how the overall portfolio will fare. In recent years, indiceshave come to the fore owing to direct applications in finance, in the form ofindex funds and index derivatives. Index funds are funds which passively`invest in the index. Index derivatives allow people to cheaply alter theirrisk exposure to an index (this is called hedging) and to implement forecastsabout index movements (this is called speculation). Hedging using indexderivatives has become a central part of risk management in the moderneconomy. These applications are now a multi-trillion dollar industryworldwide, and they are critically linked up to market indices. Finally,indices serve as a benchmark for measuring the performance of fundmanagers. An all-equity fund should obtain returns like the overall stockmarket index. A 50:50 debt: equity fund should obtain returns close to thoseobtained by an investment of 50% in the index and 50% in fixed income. Awell-specified relationship between an investor and a fund manager shouldexplicitly define the benchmark against which the fund manager will becompared, and in what fashion.BSE Sensex:BSE-SENSEX, short form of the BSE-Sensitive Index, is a "MarketCapitalization-Weighted" index of 30 stocks representing a sample of large,BABASAB PATIL
    • well-established and financially sound companies. It is the oldest index inIndia and has acquired a unique place in the collective consciousness ofinvestors. The index is widely used to measure the performance of the Indianstock markets. BSE-SENSEX is considered to be the pulse of the Indianstock markets as it represents the underlying universe of listed stocks at TheStock Exchange, Mumbai. Further, as the oldest index of the Indian Stockmarket, it provides time series data over a fairly long period of time (since1978-79). Over the years, BSE-SENSEX has become one of the mostprominent brands in the countryS&P CNX Nifty;S&P CNX Nifty is a well-diversified 50 stock index accounting for 23sectors of the economy. It is used for a variety of purposes such asbenchmarking fund portfolios, index based derivatives and index funds.S&P CNX Nifty is owned and managed by India Index Services andProducts Ltd. (IISL), which is a joint venture between NSE and CRISIL.IISL is Indias first specialised company focused upon the index as a coreproduct. IISL have a consulting and licensing agreement with Standard &Poors (S&P), who are world leaders in index services. • The average total traded value for the last six months of all Nifty stocks is approximately 58% of the traded value of all stocks on the NSE • Nifty stocks represent about 60% of the total market capitalization as on March 31, 2005.BABASAB PATIL
    • • Impact cost of the S&P CNX Nifty for a portfolio size of Rs.5 million is 0.07% • S&P CNX Nifty is professionally maintained and is ideal for derivatives tradingThe ups and downs of an index:They reflect the changing expectations of the stock market about futuredividends of Indias corporate sector. When the index goes up, it is becausethe stock market thinks that the prospective dividends in the future will bebetter than previously thought. When prospects of dividends in the futurebecome pessimistic, the index drops. The ideal index gives us instant-to-instant readings about how the stock market perceives the future of Indiascorporate sector.Kinds of indices exist:The most important type of market index is the broad-market index,consisting of the large, liquid stocks of the country. In most countries, asingle major index dominates benchmarking, index funds, index derivativesand research applications. In addition, more specialised indices often findinteresting applications. In India, we have seen situations where a dedicatedindustry fund uses an industry index as a benchmark. In India, where clearcategories of ownership groups exist, it becomes interesting to examine theperformance of classes of companies sorted by ownership group.BABASAB PATIL
    • GEERAK MARKETING, COMPANY OVERVIEWAbout The FounderMr. Nanalal Karva born in the year 1958 & completed his schooling atDharwad, he completed his B.Com from J G College of Commerce, Hubli,after completion of graduation, he went to Mumbai for gaining experience &served for professionally managed concerns, private companies, for 4 years,which helped him to bring professional approach to his organisation. Aftergaining working experience at Mumbai, he went abroad i.e. to Muscat &Kuwait for 3 years & returned to Dharwad during 1985.Company ProfileMr.Nanalal Karva started Geerak Marketing, an investment consultancyfirm in the year 1985. This firm was established with the view to bring thepeople of Northern part of Karnataka in the main stream of investors atnational level. Since its establishment the firm is continuously engaged inserving the investors’. In the given scenario it will be much appropriate tosay that “GEERAK” is the first organization that has educated andintroduced the people of this part of Karnataka to the capital market.Geerak Marketing was the first incorporated as a private Limited Companyon 16th June 1992 and subsequently converted into a public LimitedCompany on 25th October1995 and was named as “Geerak Marketing Stockand Shares Broker Limited” (GMSSBL).BABASAB PATIL
    • Mr. Nanalal Karva and his family hold majority of the shares. The presentNet Worth of the company stands around Rs. 54 lakhs. GMSSBL has takenover all the activities of Geerak Marketing, which was in existence since1985. Ultimately GMSSBL has become the Flagship Company of GEERAKGROUP to serve the investors.Since its inception in the year 1985, the firm has grown to reach immenseheights. It has withstood all odds in the market and has emerged as a trueleader in the bargain. GEERAK is widely recognized as a trustworthyorganization and has been successful in satisfying its clients’ interests.SCOPE OF ACTIVITIES:The scope of activities for Geerak has been: Stock and Shares broking as sub-broker of  National Stock Exchange (NSE).  Bombay Stock exchange (BSE). Investment advisory service for:  Resident Indians.  Non-Resident Indians. Mobilising the savings of the people towards Corporate.Establishment of service centers at semi-urban and rural areas to meet theinvestors’ needs.Depository services which are being offered through:BABASAB PATIL
    • Nirmal Bang securities Private Limited, Mumbai.Peninsular Capital Market limited, Cochin.Stock Holding Corporation of India limited, Hubli.Educating in Futures and Options.Investment related other diversified services provided by Geerak:  New issue forms, applications for bonds, debentures and fixed deposits.  Investment in mutual Fund of UTI, Alliance, Kothari, Zurich, Kotak Mahindra, LIC, GIC, Cholamandala etc.  Investment in taxfree bonds.  Investment of long term gains under section 54 EC in the prescribed infrastructure bonds (as of NHAI)Some Other Services provided by Geerak:Information regarding what shares to buy/sell, when to buy/sell and what arethe market conditions.Technical Analysis and arriving the trends in the market of index andindividual scrip.Arranging investors’ meeting to provide information on the day-to-daychanges in the stock market and investment related activities.BABASAB PATIL
    • Arrangement of pre and post Budget meetings for the investors.Transfer of shares and transmission of Shares.GEERAK BRANCHES:Following are the branches of Geerak Marketing Ltd.Dharwad: #3, 1st Floor, Geeta complex, P B Road, DharwadBelgaum: 9/10, 1st Floor, Biligi Plaza College Road, BelgaumHaveri: Banashankari Complex Vidyanagar, P B Road, HaveriGadag: #6, Siddhhalingeshwar Complex, Station Road, GadagGulbarga: O/o Balaji Traders #20, Pal Complex Near City Bus stand SuperMarket, Gulbarga Gajendragad: 1st Floor, Natraj Hotel Building, Kalkaeshwar CircleGajendragadPanvel (Mumbai): O/o Shri Balaji Investment #8, Shree Shayya Pride, PlotNo-155, MCCH Society, Panvel, Dist. RaigadRanebennur: C/o Siddheshwar Enterprise, P B Road, Near Forest Office,RanebennurBABASAB PATIL
    • Settu Securities, Hubli (Station Road): 49, Shri Laxmi Balakrishna Square,Station Road, HubliSindhnur Geerak marketing, A newly branch started in Sindhnur,The major services provided by these branches are trading in Futures andOptions, Buying and Selling of shares through national Stock Exchange andBombay Stock Exchange.All the branches are fully controlled by the Head Office at Hubli. In theadministrator server (situated at the H.O) the trading limits for each of thebranches and for the clients trading are defined. Further every transactionthat takes place in these branches can be monitored from the head office; thewhole system is controlled with the help of the software called ODIN (OpenDealer Integrated Network) developed by financial technologies (India) ltd.At the end of the day the contract notes for the transactions executed on thebehalf of the clients are also issued from Head Office. Payments from clientsreceived at the branches are deposited at the designated Bank account, andthe payment for the Clients areMade from the Head office.Customer Profile:The clients’ base of Geerak includes bank employees, business people,retired persons, government employees, teachers and professors. Here somespeculate while some others take up delivery based trading. For few theirobjective remains “investing” their surplus cash while some others enjoyBABASAB PATIL
    • hedging, many clients also invest in Mutual funds, Company deposits andstill some others invest their money in Debentures of various companies.Brokerage charges:The brokerage charged by GEERAK varies from 0.05% to 0.205 for tradingpurposes and from 0.25% to 0.75% as delivery charges.Topic:“Functioning of Capital Market (stock exchange) & Role ofIntermediaries in Capital Market”Objective:BABASAB PATIL
    • Getting an in-depth knowledge of the working of the capital market withspecial reference to the stock exchange and understanding the role ofintermediaries in capital market.Sub-Objectives:  Getting the over view of the Capital Market (Primary & Secondary Market).  To study about the settlement procedures in the stock exchanges.  To study about the intermediaries, their functioning & importance of their presence in the capital market.  To study about the Auction Trading in the Stock Exchange. STOCK EXCHANGE ONLINE TRADING:The trading on stock exchange in India used to take place through openoutcry without use of information technology for immediate matching orrecording of trades. This was time consuming & inefficient. These imposedlimits on trading volumes & efficiency. In order to provide efficiency,liquidity & transferency, NSE introduced a nation-wide on-line fully-automated screen based trading system (SBTS) where a member can punchinto the computer quantities of securities & the price at which he likes toBABASAB PATIL
    • transact & the transaction is executed as son as it finds a matching sales orbuy order from a counter party. SBTS electronically matches order on astrict price/time priority & hence cut down on time. Cost & times or, as wellas on fraud resulting in improving operating efficiency NSE is the first StockExchange to introduce screen based trading system in India.Advantages of SBTS  It allows to faster incorporation of price sensitive information into prevailing price.  It allows the market participant to trade from any where in the world.  Providing equal access to everybody.  Improving the depth & liquidity of the market.  It also provides a perfect Audit Trial.Market Timings;Trading on the equities segment takes place on all days of the week (exceptSaturdays and Sundays and holidays declared by the Exchange in advance).The market timings of the equities segment are:Normal Market Open : 09:55 hoursNormal Market Close : 15:30 hoursThe Closing Session is held between 15.50 hours and 16.00 hoursLimited Physical Market Open: 09:55 hoursBABASAB PATIL
    • Limited Physical Market Close: 15:30 hoursMarket Segments:The Exchange operates the following sub-segments in the Equities segment: • Limited Physical Market • Institutional Segment • Trade for Trade SegmentLimited Physical Market:Pursuant to the directive of SEBI to provide an exit route for small investorsholding physical shares in securities mandated for compulsorydamaterialised settlement, the Exchange has provided a facility for suchtrading in physical shares not exceeding 500 shares. This market segment isreferred to as Limited Physical Market (small window). The LimitedPhysical Market was introduced on June 7, 1999.Institutional Segment:The Reserve Bank of India had vide a press release on October 21, 1999,clarified that inter-foreign-institutional-investor (inter-FII) transactions donot require prior approval or post-facto confirmation of the Reserve Bank ofIndia, since such transactions do not affect the percentage of overall FIIholdings in Indian companies. (Inter FII transactions are however notpermitted in securities where the FII holdings have already crossed theoverall limit due to any reason).BABASAB PATIL
    • To facilitate execution of such Inter-Institutional deals in companies wherethe cut-off limit of FII investment has been reached, the Exchangeintroduced a new market segment on December 27, 1999.The securities where FII investors and FII holding has reached the cut-offlimit as specified by RBI (2% lower than the ceiling specified by RBI) fromtime to time would be available for trading in this market type for exclusiveselling by FII clients. The cut off limits for companies with 24% ceiling is22%, for companies with 30% ceiling, is 28% and for companies with 40%ceiling is 38%. Similarly, the cut off limit for public sector banks (includingState Bank of India) is 18% whose ceiling is 20%. The list of securitieseligible / become ineligible for trading in this market type would be notifiedto members from time to time.Trade for Trade Segment:Trading in this segment is available only for the securities • Which have not established connectivity with both the depositories as per SEBI directive. The list of these securities is notified by SEBI from time to time. • On account of surveillance actionSecurities Available for Trading:The Capital Market (Equities) segment of NSE facilitates trading in thefollowing instruments:BABASAB PATIL
    • A. Shares • Equity Shares • Preference SharesB. Debentures • Partly Convertible Debentures • Fully Convertible Debentures • Non Convertible Debentures • Warrants / Coupons / Secured Premium Notes/ other Hybrids • BondsC. Units of Mutual FundsTrading System:NSE operates on the National Exchange for Automated Trading (NEAT)system & BSE operates on the ‘Bombay Stock Exchange Online TradingSystem’ (BOLT) a fully automated screen based trading system, whichadopts the principle of an order driven market. NSE & BSE consciouslyopted in favour of an order driven system as opposed to a quote drivensystem. This has helped reduce jobbing spreads not only on NSE & BSEbut in other exchanges as well, thus reducing transaction costs.Types of Trading:Basket Trading:The purpose of basket trading is to provide NEAT user with a facility tocreate offline order file for a selected portfolio. On inputting the values, theBABASAB PATIL
    • orders are created for the selected portfolio of securities according to theratio of their market capitalisation.All the order generated through the offline order file are priced at theavailable market price.Quantity of shares of a particular security in portfolio are calculated asunder:No. of shares of a security on portfolio = Amount multiplied by IssuedCapital for the Security divided by Current Portfolio Capitalisation.Where:Current Portfolio Capitalisation = Summation [Last Traded price (previousclose if not traded) * No. Of issued shares]Index Trading:The purpose of index trading is to provide NEAT users with a facility ofbuying & selling of indices, in terms of security that comprise the index.Currently, the facility is only for NIFTY security. The users have to specifythe amount, and other inputs that are sent to the host, and the host generatesthe orders.The index trading provide user the choice of gaining with the rise/decline inindex values either by buying or selling them. The buying & selling ofindices are simulated by entering orders in securities in proportion to thecomposition of the index.Quantity of shares of a particular security of NIFTY is calculated as under:No. Of shares of a security in index = Amount * Issued Capital for thesecurity divided by Current Market Capitalisation of the index.BABASAB PATIL
    • Where,Current Market Capitalisation of index = Summation [last traded price(previous close if not traded) * No. Of Issued Shares]Insider Trading:It is a trading done on the basis of inside information, which is not availableto general public. The price sensitive information is any information, whichif published, is likely to materially affect the price of the securities of acompany. Such information may relate to the financial results of thecompany, intended declaration of dividend, issue of securities or buy back ofsecurities, amalgamation, merger, takeover etc.Insider trading is prohibited & is considered an offence. The SEBI(Prohibition of Trading) Regulation Act, 1992, prohibits the insider trading.SEBI appoints an Adjudication Officer to make investigation into insidertrading & if any body found guilty, then he impose monetary penalty.Short Sale:It is a kind of trading where the market participant sells the shares (withouthaving possessing) with an expectation that market will go down, once themarket goes down, he purchases the shares and makes his position clear.BABASAB PATIL
    • Market Types:The NEAT system has four types of market. They are:Normal Market:All orders which are of regular lot size or multiples thereof are traded in theNormal Market. For shares that are traded in the compulsory damaterialisedmode the market lot of these shares is one. Normal market consists ofvarious book types wherein orders are segregated as Regular lot orders,Special Term orders, Negotiated Trade Orders and Stop Loss ordersdepending on their order attributes.Odd Lot Market:All orders whose order size is less than the regular lot size are traded in theodd-lot market. An order is called an odd lot order if the order size is lessthan regular lot size. These orders do not have any special terms attributesattached to them. In an odd-lot market, both the price and quantity of boththe orders (buy and sell) should exactly match for the trade to take place.Currently the odd lot market facility is used for the Limited Physical MarketBABASAB PATIL
    • as per the SEBI directives.Spot Market:Spot orders are similar to the normal market orders except that spot ordershave different settlement periods vis-à-vis normal market. These orders donot have any special terms attributes attached to them. Currently the SpotMarket is not in use.Order Books:The NSE trading system provides complete flexibility to members in thekinds of orders that can be placed by them. Orders are first numbered andtime-stamped on receipt and then immediately processed for potentialmatch. Every order has a distinctive order number and a unique time stampon it. If a match is not found, then the orders are stored in different books.Orders are stored in price-time priority in various books in the followingsequence:-Best Price-Within Price, by time priority.Price priority means that if two orders are entered into the system, the orderhaving the best price gets the higher priority. Time priority means if twoorders having the same price are entered, the order that is entered first getsthe higher priority.The Equities segment has following types of books:BABASAB PATIL
    • Regular Lot Book;The Regular Lot Book contains all regular lot orders that have none of thefollowing attributes attached to them.- All or None (AON)- Minimum Fill (MF)- Stop Loss (SL)Special Terms Book;The Special Terms book contains all orders that have either of the followingterms attached:- All or None (AON)- Minimum Fill (MF)Negotiated Trade Book;The Negotiated Trade book contains all negotiated order entries captured bythe system before they have been matched against their counter party tradeentries. These entries are matched with identical counter party entries only.It is to be noted that these entries contain a counter party code in addition toother order details.Stop-Loss Book;Stop Loss orders are stored in this book till the trigger price specified in theorder is reached or surpassed. When the trigger price is reached orBABASAB PATIL
    • surpassed, the order is released in the Regular lot book.The stop loss condition is met under the following circumstances:Sell order - A sell order in the Stop Loss book gets triggered when the lasttraded price in the normal market reaches or falls below the trigger price ofthe order.Buy order - A buy order in the Stop Loss book gets triggered when the lasttraded price in the normal market reaches or exceeds the trigger price of theorder.Odd Lot Book:The Odd lot book contains all odd lot orders (orders with quantity less thanmarketable lot) in the system. The system attempts to match an active oddlot order against passive orders in the book. Currently, pursuant to a SEBIdirective, the Odd Lot Market is being used for orders that have quantity lessthan or equal to 500 viz. the Limited Physical Market.Spot Book;The Spot lot book contains all spot orders (orders having only the settlementperiod different) in the system. The system attempts to match an active spotlot order against the passive orders in the book. Currently the Spot Marketbook type is not in use.Auction Book;BABASAB PATIL
    • This book contains orders that are entered for all auctions. The matchingprocess for auction orders in this book is initiated only at the end of thesolicitor period.Order Matching Rules:The best buy order is matched with the best sell order. An order may matchpartially with another order resulting in multiple trades. For order matching,the best buy order is the one with the highest price and the best sell order isthe one with the lowest price. This is because the system views all buyorders available from the point of view of a seller and all sell orders from thepoint of view of the buyers in the market. So, of all buy orders available inthe market at any point of time, a seller would obviously like to sell at thehighest possible buy price that is offered. Hence, the best buy order is theorder with the highest price and the best sell order is the order with thelowest price.Members can proactively enter orders in the system, which will be displayedin the system till the full quantity is matched by one or more of counter-orders and result into trade(s) or is cancelled by the member. Alternatively,members may be reactive and put in orders that match with existing ordersin the system. Orders lying unmatched in the system are passive orders andorders that come in to match the existing orders are called active orders.Orders are always matched at the passive order price. This ensures that theearlier orders get priority over the orders that come in later.Order Conditions:BABASAB PATIL
    • A Trading Member can enter various types of orders depending upon his/herrequirements. These conditions are broadly classified into three categories:time related conditions, price-related conditions and quantity relatedconditions.Time Conditions:DAY - A Day order, as the name suggests, is an order which is valid for theday on which it is entered. If the order is not matched during the day, theorder gets cancelled automatically at the end of the trading day.GTC - A Good Till Cancelled (GTC) order is an order that remains in thesystem until the Trading Member cancels it. It will therefore be able to spantrading days if it does not get matched. The Exchange notifies the maximumnumber of days a GTC order can remain in the system from time to time.GTD - A Good Till Days/Date (GTD) order allows the Trading Member tospecify the days/date up to which the order should stay in the system. At theend of this period the order will get flushed from the system. Each day/datecounted is a calendar day and inclusive of holidays. The days/date countedare inclusive of the day/date on which the order is placed.IOC - An Immediate or Cancel (IOC) order allows a Trading Member to buyor sell a security as soon as the order is released into the market, failingwhich the order will be removed from the market. Partial match is possiblefor the order, and the unmatched portion of the order is cancelledimmediately.BABASAB PATIL
    • Price Conditions;Limit Price/Order – An order that allows the price to be specified whileentering the order into the system.Market Price/Order – An order to buy or sell securities at the best priceobtainable at the time of entering the order.Stop Loss (SL) Price/Order – The one that allows the Trading Member toplace an order which gets activated only when the market price of therelevant security reaches or crosses a threshold price. Until then the orderdoes not enter the market.A sell order in the Stop Loss book gets triggered when the last traded pricein the normal market reaches or falls below the trigger price of the order. Abuy order in the Stop Loss book gets triggered when the last traded price inthe normal market reaches or exceeds the trigger price of the order.E.g. If for stop loss buy order, the trigger is 93.00, the limit price is 95.00and the market (last traded) price is 90.00, then this order is released into thesystem once the market price reaches or exceeds 93.00. This order is addedto the regular lot book with time of triggering as the time stamp, as a limitorder of 95.00Quantity Conditions:BABASAB PATIL
    • Disclosed Quantity (DQ)- An order with a DQ condition allows the TradingMember to disclose only a part of the order quantity to the market. Forexample, an order of 1000 with a disclosed quantity condition of 200 willmean that 200 is displayed to the market at a time. After this is traded,another 200 is automatically released and so on till the full order is executed.The Exchange may set a minimum disclosed quantity criteria from time totime.MF - Minimum Fill (MF) orders allow the Trading Member to specify theminimum quantity by which an order should be filled. For example, an orderof 1000 units with minimum fill 200 will require that each trade be for atleast 200 units. In other words there will be a maximum of 5 trades of 200each or a single trade of 1000. The Exchange may lay down norms of MFfrom time to time.AON - All or None orders allow a Trading Member to impose the conditionthat only the full order should be matched against. This may be by way ofmultiple trades. If the full order is not matched it will stay in the books tillmatched or cancelled.Trader Workstation:The trader workstation is the terminal from which the member accesses thetrading system. Each trader has a unique identification by way of TradingMember ID and User ID through which he is able to log on to the system fortrading or inquiry purposes. A member can have several user IDs allotted tohim by which he can have more than one employee using the systemconcurrently.BABASAB PATIL
    • The Exchange may also allow a Trading Member to set up a network ofdealers in different cities all of whom are provided a connection to the stockexchanges’ central computer. A Trading Member can define a hierarchy ofusers of the system with the Corporate Manager at the top followed by theBranch Manager and Dealers.The Trader Workstation screen of the Trading Member is divided intoseveral major windows: • Title Bar • Tool Bar • Ticker Window • Market Watch Window • On line Index and Index Inquiry • Inquiry Window • Snap Quote • Order/Trade Window • Systems Message Window • Supplementary MenuTitle BarThe title bar displays the current time, Trading system name and date.Tool BarA window with different icons which provides quick access to variousfunctions such as Market By Order, Market By Price, Market Movement,Market Inquiry, Auction Inquiry, Snap Quote, Market Watch, Buy orderBABASAB PATIL
    • entry, Sell order entry, Order Modification, Order Cancellation, OutstandingOrders, Order Status, Activity Log, Previous Trades, Net Position, OnlineBackup, Supplementary Menu, Security List and Help. All these functionsare also available on the keyboard.Ticker WindowThe ticker displays information about a trade as and when it takes place. Theuser has the option to set-up the securities, which appear in the ticker.Market Watch WindowThe Market Watch window is the main area of focus for a Trading Member.The purpose of Market Watch is to view market information of pre-selectedsecurities that are of interest to the Trading Member.To monitor various securities, the trading member can set them up by typingthe Security Descriptor consisting of a Symbol field and a Series field.Securities can also be set up by invoking the Security List and selecting thesecurities from the window. The Symbol field incorporates the Companyname and the Series field captures the segment/instrument type. A third fieldindicates the market type.For example,Company (Symbol) : ACCInstrument type (Series): EQBABASAB PATIL
    • Market Type: NFor each security in the Market Watch window, market information isdynamically updated on a real time basis. The market information displayedis for the current best price orders available in the regular lot book. For eachsecurity, the corporate action indicator (e.g., Ex or cum dividend, interest,rights etc.), the total buy order quantity for the best buy price, best sell price,total sell order quantity for the best sell price, the Last Traded Price (LTP),the last traded price change indicator (+ if last traded price is better than theprevious last traded price and - if it is worse) and the no delivery indicatorsare displayed. If the security is suspended, "SUSPENDED" appears in frontof the security.On line Index and Index InquiryWith every trade in a security participating in Index, the user has theinformation on the current value of the Nifty. This value is displayed at theextreme right hand corner of the ticker window.Index Inquiry gives information on Close, Open, High, Low and currentindex values at the time of invoking this inquiry screen.Inquiry WindowIn this window, the inquiries such as Market by Order, Market by Price,Previous Trades, Outstanding Orders, Activity Log, Order Status and MarketInquiry can be viewed.BABASAB PATIL
    • 1. Market By Order (MBO)The purpose of Market by Order is to enable the user to view outstandingorders in the trading books in the order of price/time priority. Theinformation is displayed for each order. Stop Loss orders, which are nottriggered will not be displayed on the window. Buy orders are displayed onthe left side of the window and Sell orders on the right side. The orders arepresented in a price/time priority with the "best priced" order at the top. 2. Market by Price (MBP)The purpose of Market By Price is to enable the Trading Member to viewaggregate orders waiting in the book at given prices. 3. Previous Trades (PT)The purpose of this window is to provide information to users for their owntrade. 4. Outstanding Orders (OO)The purpose of Outstanding Orders is to enable a Trading Member to viewhis/her own outstanding buy or sell orders for a security. An outstandingorder will be an order that was entered by the user, but is not yet completelytraded or cancelled.BABASAB PATIL
    • 5. Activity Log (AL)The Activity Log shows the activities that have been performed on any orderof the Trading Member such as whether the order has been traded againstfully or partially, it has been modified or has been cancelled. It displaysinformation only of those orders in which some activity has taken place. Itdoes not display orders, which have entered the books but have not beenmatched (fully or partially) or modified or cancelled. 6. Order Status (OS)Order Status enables the user to look into the status of a specific order.Current status of the order and other order details are displayed. In case theorder is traded, the trade details are also displayed. 7. Market Inquiry (MI)Market Inquiry enables the user to view the market statistics like Open,High, Low, Previous close, Last traded price change indicator, Last tradedquantity, date and time etc. A user may find inquiry screens like MarketMovement, Most Active Securities and Net Position useful. These areavailable in the supplementary menu. 8. Market Movement (MM)The Market Movement screen provides information to the user regarding themovement of a security for the current day. It gives details of the movementof the scrip for a time interval. The details include total buy and sell orderquantity value, Open, High, Low, Last traded price etc.BABASAB PATIL
    • 9. Most Active SecuritiesThis screen gives a list of the securities with the highest traded value during theday and the quantity traded for each of them. 10. Net PositionThis functionality enables the user to interactively view his net position forall securities in which he has traded.Snap Quote:The Snap Quote feature allows a Trading Member to get instantaneousmarket information on any desired security. This is normally used forsecurities that are not already on display in the Market Watch window. Theinformation presented is the same as that of Market Watch window.Order/Trade Window:Order entry mechanisms enable the Trading Member to place orders in themarket. The system will request re-confirmation of an order so that the useris cautioned before the order is finally released into the market. Orders onceplaced on the system can be modified or cancelled till they are matched.Once orders are matched they cannot be modified or cancelled.There is a facility to generate online order/trade confirmation slips as soonas an order is placed or a trading is done. The order confirmation slipcontains among other things, order no., security name, price, quantity, orderconditions like disclosed or minimum fill quantity etc. The tradeBABASAB PATIL
    • confirmation slip contains the order and trade no., date, trade time, price andquantity traded, amount etc. Orders and trades are identified and linked byunique numbers so that the investor can check his order and trade details.Systems Message Window:This window is used to view messages from the Exchange to all specificTrading Members.Supplementary Menu:Some of the supplementary features in the NEAT system are: • On line back up An on line back up facility is provided which the user can invoke to take a back up of all order and trade related information. There is an option to copy the file to any drive of the computer or on a floppy diskette. Trading members find this convenient in their back office work. • Off Line Order Entry A member is able to make an order entry in the batch mode.Computer-to-Computer Link (CTCL) facility:NSE offers a facility to its trading members by which members can use theirown trading front-end software in order to trade on the NSE trading system.This facility called Computer-to-Computer Link (CTCL) facility is availableonly to trading members of NSE.BABASAB PATIL
    • About the CTCL facility:Trading Members can use their own software running on any suitablehardware/software platform of their choice. This software would be areplacement of the NEAT front-end software that is currently used bymembers to trade on the NSE trading system. Members can use softwarecustomised to meet their specialised needs like provision of on-line tradeanalysis, risk management tools, integration of back-office operations etc.The dealers of the member may trade using the software remotely throughthe members own private network, subject to approvals from Department ofTelecommunication etc. as may be required in this regard.CTCL software:Members can procure the CTCL software either from software vendors whoare empanelled with NSE or they may develop the software through theirown in-house development team or may procure the software from othernon-empanelled vendors.Internet Based Trading:The Securities & Exchange Board of India (SEBI) approved the report onInternet Trading brought out by the SEBI Committee on Internet BasedTrading and Services In January 2000. Internet trading can take placethrough order routing systems, which will route client orders to exchangetrading systems for execution. Thus a client sitting in any part of the countrywould be able to trade using the Internet as a medium through brokersInternet trading systems.BABASAB PATIL
    • SEBI-registered brokers can introduce Internet based trading after obtainingpermission from respective Stock Exchanges. SEBI has stipulated theminimum conditions to be fulfilled by trading members to start Internetbased trading and services, vide their circular no.SMDRP/POLICY/CIR-06/2000 dated January 31, 2000.WAP Trading:The SEBI Committee on Internet Based Trading and Services in its meetingheld on August 2, 2000 approved the minimum requirements for brokersoffering securities trading through wireless medium on Wireless ApplicationProtocol (WAP) platform.SEBI-registered brokers who have been granted permission to provideInternet based trading services can introduce WAP trading after obtainingpermission from respective stock exchanges. SEBI has stipulated theminimum conditions to be fulfilled by trading members to start Internetbased trading and services, vide their circularno.SMDRP/POLICY/CIR-48/2000 dated October 11, 2000.WAP trading at NSE:NSE became the first exchange to grant permission to its members forproviding WAP trading services. NSE has Custodians.Custodians are clearing members but not trading members. They settletrades on behalf of their clients that are executed through other tradingmembers. A trading member may assign a particular trade to a custodian forsettlement. The custodian is required to confirm whether he is going to settlethat trade or not. If it confirms the trade, the Clearing Corporation assignsBABASAB PATIL
    • the obligation to the custodian. If the custodian rejects the trade, theobligation is assigned back to the trading member.The following custodians are empanelled with NSCCL: ABN Amro Bank N.V. Citibank N.A. Deutsche Bank A.G. HDFC Bank Ltd. HongKong & Shanghai Banking Corpn. Ltd. ICICI Ltd. IndusInd Bank Ltd. Infrastructure Leasing & Financial Services Ltd. Standard Chartered Bank State Bank of India Stock Holding Corporation of India Ltd.anted permission to one of its trading members M/s.Gogia Capital ServicesLtd. to provide securities trading through WAP. This is the first WAPenabled online stock trading facility in the country.BABASAB PATIL
    • The WAP technology has been harnessed jointly by NSE.IT and BhartiTelesoft using Bharti Telesofts WAP interface and NSE.ITs E-brokingproducts NeatXS/ iXS, leading to convenience of livestock trading forpeople on the move.Role of Intermediaries in the Capital Market:The capital Market has been divided in to two parts i.e.Primary Market,Secondary Market,Primary Market Intermediaries:Following are the intermediaries in the primary market,Merchant Banker"Merchant Banker" means any person who is engaged in the business ofissue management either by making arrangements regarding selling, buyingor subscribing to securities as manager, consultant, adviser or renderingcorporate advisory service in relation to such issue management;The term Issue is defined as - "issue means - i. Public offer of securities for sale;BABASAB PATIL
    • ii. Sale or purchase of securities or transfer thereof by any other means, by any body corporate or any person on his own behalf or on behalf of the body corporate through a merchant banker;As per Rule No.3 of the aforesaid Rules "No person shall carry on anyactivity as a merchant banker unless he holds a certificate granted by theBoard under the regulations".Merchant Banker is mainly doing the business of collecting the bidingforms, cheques, demand drafts ect, from the bidder for the issue. &Submitting it to the issuer of IPO. For doing all these activities he getscommission.Registrar to an Issue:Registrar to an Issue means the person appointed by a body corporate or anyperson or group of persons to carry on the following i. Collecting applications from investors in respect of an issue; ii. Keeping a proper record of applications and monies received from investors or paid to the seller of the securities. Andiii. Assisting body corporate or person or group of persons in- a. Determining the basis of allotment of securities in consultation with the stock exchange; b. Finalising of the list of persons entitled to allotment of securities; c. Processing and dispatching allotment letters, refund orders or certificates and other related documents in respect of the issue.BABASAB PATIL
    • Underwriters:The words “underwriting” and “Underwriter” are defined as under. • “Underwriting,” means an agreement with or without conditions to subscribe to the securities of a body corporate when the existing shareholders of such body corporate or the public does not subscribe to the securities offered to them. • “Underwriter” means a person, who engages in the business of underwriting of an issue of securities of a body corporate;As per the prior agreement between the company & the underwriter, anunderwriter underwrites those shares that are not subscribed by the generalpublic. For doing this, he gets underwriting commission.Credit Rating Agencies:Credit Rating Agencies to be eligible to operate in India need to beregistered with SEBI and comply with provisions of SEBI (Credit RatingAgencies) Regulations, 1999As per the aforesaid Regulations the terms of "credit-rating" and "credit-rating agency" are defined as under- • "Rating" means an opinion regarding securities, expressed in the form of standard symbols or in any other standardised manner, assigned by a credit rating agency and used by the issuer of such securities, to comply with a requirement specified by these regulations;BABASAB PATIL
    • • "Credit rating agency" means a body corporate which is engaged in, or proposes to be engaged in, the business of rating of securities offered by way of public or rights issue;Share Transfer Agent:Share Transfer Agent means- i. Any person, who on behalf of any body corporate maintains the record of holders of securities issued by such body corporate and deals with all matters connected with the transfer and redemption of its securities. ii. A department or division (by whatever name called) of a body corporate performing the activities referred in sub-clause (i) if, at any time the total number of the holders of securities issued exceed one lakh.Intermediaries In Secondary Market:Stock Broker:BABASAB PATIL
    • Broker is a member of stock exchange who enters into the contract on behalfof his client to execute the trade. They have two clearly distinguishablefunctions.  The member acts as Broker, that is, as agents for buying & selling securities on behalf of their client & charging a commission on the processed.  The member can also act as dealers, that is, as principals for buying & selling securities on their own account for a profit or at a loss.Capital adequacy Norms for Broker:The capital adequacy requirement consists of the following two components,1) Base minimum capital, 2) Additional/optional capital related to volume ofbusiness.Base Minimum Capital:The broker should maintain an absolute minimum of Rs. 5 lakhs as a depositwith the stock exchange. The security deposit kept by members in theexchange forms a part of the base minimum capital; 25 per cent of the basecapital is to be maintained in cash with exchange, another 25 per centremains in the form of long term fixed deposit with a bank on which thestock exchange is a completely unencumbered & unconditional lien, theremaining requirement being in the form of securities with a 30 per centmargin. The securities should be in the name of member & are pledged infavour of stock exchange.Additional Capital Related to volume Of Business:BABASAB PATIL
    • The optional or additional capital required form a member should be at anypoint of time be such that together with the base minimum capital it is notless than 8 per cent of the gross outstanding business in the exchangedefined as the aggregate of up-to-date sales & purchase by the member-broker in all the securities out together.The gross outstanding business of a member at any point of time should notexceed 12.5 times the base capital & additional capital requirements.Duty of Broker Towards Investor:A Broker/sub-broker, in his dealing with the client & the general public,should faithfully execute the order for buying & selling of securities at allthe best available price & promptly inform his client about the execution or-non execution of an order & make payment in respect of securities sold &arrange for the prompt deliver of securities purchased.He should issue promptly to his clients;  The contract note for the all the transaction entered into by him with his clients, or through his principal agent,  Scripwise split the contract note & similarly, bills & receipts of the transaction in the prescribed form.  He should not disclose his client’s account in front of third person.Sub-Broker:The trading members of the Exchange may appoint sub-brokers to act asagents of the concerned trading member for assisting the investors in buying,selling or dealing in securities. The sub-brokers would be affiliated to thetrading members and are required to be registered with SEBI. A sub-brokerBABASAB PATIL
    • would be allowed to be associated with only one trading member of theExchange.Trading members desirous of appointing sub-brokers are required to submitthe following documents to the Membership Department of the Exchange:Eligibility:A sub-broker may be an individual, a partnership firm or a corporate. In caseof corporate or partnership firm, the directors or partners and in the case ofan individual sub-broker applicant, each of them shall comply with thefollowing requirements:  They shall not be less than 21 years of age;  They shall not have been convicted of any offence involving fraud or dishonesty;  They shall have at least passed 12th standard equivalent examination from an institution recognised by the Government;  They should not have been debarred by SEBI  The corporate entities applying for sub-brokership shall have a minimum paid up capital of Rs. 5 Lakh and it shall identify a dominant shareholder who holds a minimum of 51% shares either singly or with the unconditional support of his/her spouse.Foreign Broker:The foreign institutional investors (FII) are playing a significant role in thestock market. With a view to helping the FIIs to allow the procedures & toBABASAB PATIL
    • encourage them to invest in India, SEBI has issued a different set ofguidelines for foreign broker.Right now there are 29 Foreign Brokers on both NSE & BSE.Other members of stock exchange:As such there are no major distinction but here is a functional classificationof members.In Bombay Stock Exchange members are classified as: 1. Commission Broker: A commission Broker executes buys & sells order of his client against a commission (termed as brokerage) prescribed by the authority. By and large every member acts as commission agents. 2. Floor Broker: A floor broker is officially not attached to other members. He executes buy & sell orders on behalf on any commission broker & earn a share of the brokerage form the commission broker. Floor broker are now a days very few in number. 3. Taravaniwala or Jobber: a member in addition to being a broker can also act as a dealer or principal. A jobber is a member who acts as a principal, that is, he himself buys & sells stocks. A jobber specialise in stocks located at the same trading post & trades in & put of market for a small difference in price.BABASAB PATIL
    • (For instance: a jobber in Asian Paints can buy Asian Paints shares form a commission broker at Rs. 100 & sell the same to other broker at Rs. 105. The Rs. 5 difference in price will be the jobber’s margin. Generally a jobber squares up his position at the end of the day i.e. he does not maintain any outstanding sale or purchase contract at the end of the trading hours. 4. Dealer in non-cleared securities: The principal acts as principal for buying & selling those shares that are not actively traded in the market. Though the buy & sell any volume of shares, the price at which they trade depends on the trading activity of the shares during the transaction. At times, jobber too specialize in trading in inactive a stocks. They receive orders from other members at a price recorded in their books & the orders are executed when business is possible. 5.Arbitrageur: The member buys the shares on one stock exchange & sells it on other stock exchange to get the benefit of price difference. In the case the shares is required to be listed on both the stock exchanges where member in going to do the arbitrage. (For instance, if he L & T shares are quoted at Rs. 422 at the BSE and the same is quoted at Rs. 422 in the NSE, then he buys on BSE & sells on NSE, there by making a profit of Rs.2 per share, which is called an arbitrage).BABASAB PATIL
    • 6. Security Dealer: A security dealer is a member who specializes in buying & selling of gilt-edge securities. Only few members are invited to such dealing, due to lack of public interest in such securities.New Membership:Membership of the Exchange is open to all persons desirous of becomingtrading members of the Exchange, subject to their meeting certainrequirements and criteria as laid down by SEBI and the Exchange.Persons or Institutions desirous of securing admission as Trading Members(Stock Brokers) on the Exchange may apply for any one of the followingsegment groups available in stock market;WDM segment Eligibility;The following persons are eligible to become trading members, subject toSecurities Contract Regulation Act (SCRA), Securities Contract RegulationRules (SCRR) and other requirements of Securities and Exchange Board ofIndia (SEBI): a.Institutions, including subsidiaries of banks engaged in financial services. b.Body Corporates including companies as defined in the Companies Act, 1956. c.A company as defined in the Companies Act, 1956 (1 of 1956), shall also be eligible to be elected as a member of the ExchangeBABASAB PATIL
    • a.Such other persons or entities as may be permitted from time to time by RBI / SEBI under the Securities Contracts (Regulations) Rules, 1957.Fees, Deposit & Networth Requirements:Applicants recommended for admission will be required to pay thefollowing fee and deposits:Particulars (Amt.in Rs. Lakhs)Advance annual subscription 1.00Interest free security deposit 150.00Annual subscription fee 1.00New Membership – CM and F&O segment:EligibilityThe following persons are eligible to seek membership of the Exchange asTrading Members (Brokers): a.Individuals b.Partnership Firms registered under the Indian Partnership Act, 1932 c.Corporations, Companies or institutions or subsidiaries of such Corporations, Companies or institutions set up for providing financial services d.Such other persons or entities as may be permitted from time to time by RBI / SEBI under the Securities Contracts (Regulations) Rules, 1957.BABASAB PATIL
    • General Eligibility Conditions;Criteria Members Individual Firm Corporate Minimum age: 21 Minimum age: 21 Minimum age: 21 years years (applicable years (applicableAGE Maximum age: 60 for partners) for directors) years Registered Corporate Partnership firm registered under Indian Citizen under Indian The CompaniesSTATUS Partnership Act, Act, 1956 (Indian) 1932 At least a graduate or Partners should be Two Directors equivalent at least a graduate should be at least qualification or equivalent graduate orEDUCATION qualification equivalent qualification Should have the Partners should be Two Directors experience in the at least a graduate should be at least capital market related or equivalent graduate orEXPERIENCE activity qualification equivalent qualificationMINIMUM PAID Clearing and Rs.30 lacsUP EQUITY settlement thereof.CAPITALFees, Deposit & Networth Requirements:BABASAB PATIL
    • Applicants recommended for admission will be required to pay thefollowing fee and deposits:(All figures in Rs. lakhs)Particulars Segments CM and Trading Additional Total for CM and Membership of requirements for Trading & Clearing F&O Segment Clearing Membership of Membership of F&O Segment NSCCL (F&O Segment)Interest Free Cash 110 110Security Depositwith NSEILInterest Free Cash 15 25 40Security Depositwith NSCCLTotal Interest Free 125 25 150Cash SecurityDeposit (1+2)Collateral Security 25 25 50Deposit withNSCCLAnnual Subscription 1 1ChargesAdvance Minimum 1 1Transaction Chargesfor Futures &BABASAB PATIL
    • Options SegmentNetworth 100 300 300Requirement (100 for self- (100 for self- clearing members in clearing members in F&O) F&O)Deposit for setting up VSAT terminals and operating cost for the VSATnetwork will be levied separately as per the policy prevailing from time totime.Capital Market Overview:-Primary Market :-The securities market has two interdependent & inseparable segments, thenew issue (Primary Market) & the stock (Secondary) market. The primarymarket provides the channel for sale new securities while the secondarymarket deals in securities already issued. The price signals, which subsumeall information about the issuer & his business including associates risk,generated in the secondary market, help the primary market in allocation offund. The issuer of securities issue (create & sell) new securities in theprimary market to raise fund for investment and/or to discharge someobligation. They do so either by public issue or by private placement. It ispublic issue if any body & every body can subscribe for the securities. If theissue is made to selected people, it is called private placement. In terms ofBABASAB PATIL
    • the companies Act 1956, an issue becomes public if results in the allotmentto more than 50 people.There are two major types of issuer who issues securities. The corporateentities issue mainly debt & equity instruments while the Government issuesdebt securities.The government & corporate sector raised a total of Rs. 2,52,108/- croreduring 2002-03 as against Rs. 2,26,911/- crore during the preceding year.Government raised about two third of the total resources, the centralgovernment alone raising nearly Rs. 1,51,126/- crore.Secondary Market:-The secondary market enables participant who hold securities to adjust theirholdings in response to change in their holdings in response to change intheir assessments of risk & return. They also sell securities for cash to meettheir liquidity needs.The secondary market has further two components, namely the over-the-counter (OTC) market & the exchange trade market. OTC is different fromthe market place provided by the Over The Counter Exchange of IndiaLimited. OTC market is essentially informal market where trades arenegotiated. Most of the trades in government securities are in the TOCmarket.BABASAB PATIL
    • All the spot trades where securities are traded for immediate delivery &payment take place in the OTC market. The exchange does not providefacility for spot trade in strict sense.Closest to the spot market in the cash market where settlements takes placeafter some time. Trade taking place over a trading cycle, i.e. a day underrolling settlement, are settled together after a certain time (currently 2working days)All the 24 stock exchanges in the country provide facility for trading ofequities. Nearly 100% of the trades are settled in the demat form.A variant of secondary market is the forward market, where the securitiesare traded for the future deliver & payment. Pure forward is put side theformal market. The version market is future & options. In futures market,standardized securities are traded for future delivery & settlement. Thesefutures can be on a basket of securities like index or an individual security.In case of options, securities are traded for conditional future delivery.There are two types options:  A put option – it permits the owner to sell a security to the writer of option at a predetermined price.  A call option – permits the owner to purchase a security from the writer of the option at a predetermined price.These options can also be an individual stock or a basket of stock like index.Two exchanges viz. NSE & BSE provide trading of derivatives of securities.BABASAB PATIL
    • Regulatory Framework:The four main legislations governing the security market are:  The SEBI ACT, 1992, which establish SEBI to protect investor & develop & regulate securities market;  The Companies Act, 1956, which sets out the transfer of securities, and disclosure to be made in the public issue:  The Securities Contract (Regulation) Act, 1956, which provide for regulation of transaction in securities through control over the stock exchange;  The Depositories Act, 1996, which provides for electronic maintenance & transfer of ownership of demat securities; Clearing & Settlement Procedures In The Stock Exchanges.The clearing & settlement mechanism in Indian security market haswitnessed several innovations during the last decade. These include use ofthe state-of-art information technology, compression of settlement cycle,dematerialization & electronic transfer of securities, securities lending &borrowing, professionalisation of trading members, fine-tuned riskmanagement system, emergence of clearing corporations to assume countryparty risk, though many of these are yet to permeate the whole market.Till recently, the stock exchanges in India were following a system ofaccount period settlement for cash market transaction, except fortransactions in a few active securities, which were settled under T+3 rollingsettlement. The rolling settlement has now been introduced for all securities.BABASAB PATIL
    • With effect from April 1st, 2003 T+2 rolling settlement has been introduced.The transactions are not settled immediately but after 2 days after the twodays. The member receives the fund/securities in accordance with the pay in/pay out schedules notified by the respective stock exchanges.Movement of securities has become almost instantaneous in thedamaterialised environment. Two depositories viz. National SecuritiesDepositories Ltd. (NSDL) & Central Depositories Service Ltd. (CSDL)provide electronic transfer of securities & more than 99% of turnover issettled in demat form.The obligation of members is downloaded to the member/custodian by theclearing agency. The members/custodian make available the requiredsecurities in their pool account with depository participant by the prescribedpay-in time for securities the depository transfer the securities form the poolaccount of members/custodian to the settlement account of clearing agency.As per the schedule determined by the clearing agency, the depositorytransfers the securities on the payout day from the settlement account ofclearing agency to the pool account of members/custodians. The pay-in &pay-put of securities is affected on the same day for all settlements.Selected banks have been empanelled by clearing agency for electronictransfer of funds. The members are required to maintain accounts with anyof these banks. The members are informed electronically of their pay-inobligation of funds. The members make available required fund in theiraccounts with clearing bank by the prescribed pay-in day. The clearingagency forwards fund obligation file to clearing banks which. In turn, debitBABASAB PATIL
    • the account of member & credit the account of clearing agency. In samecases, the clearing agency runs an electronic file to debit members’ accountswith clearing banks & credit it’s own account. GRAPHICAL PRESENTATION OF CLRAGING HOUSE ACTIVITY.Functions of intermediaries & their importance in capital marketThere are some basic services offered by the intermediaries in the capitalmarket, those services are as follows; 1) Online buying and selling of the shares though any stock exchangeBABASAB PATIL
    • 2) Trading in Futures and Options.The intermediary is acting like a link in between the buyer & seller of thescrips on the stock exchange. He executes the orders of his client through thecomputer & takes care that the trade is being carried out for best price.He provides all the assistance to his client that is providing the dailyinformation about the stock exchange and ups & downs, which are likely tohappen in the market. He advises client that which scrip is to purchase atwhat time & at what price so that the client is benefited.Value added Services:Apart from providing basic services, it also becomes very important on thepart of the sub broker to guide an investor in this changing technologicalenvironment. The concept of dematerialisation of shares is relatively new.Further the rolling settlement and T+2 system of settlement has recentlybeing started. Derivative trading is also introduced. To explain to an investorall these “New” things, a broker/sub broker plays a crucial role. Unless aninvestor becomes familiar with all these new things, he won’t be in a betterposition. Therefore a broker/sub broker doesn’t have much option but toguide a common investor by providing value added services.Following is the value added services provided by the broker/sub broker Derivatives trading  How to trade in F&O,  Trading strategy in F&O,  Settlement procedure in F&O,BABASAB PATIL
    •  Margin Money required for trading in F&O, Dematerialisation procedure  It’ working,  It’s advantage,  Procedure involved,  The scrips which is compulsorily traded in demat form,  Different depositories that exist in India,  There charges, procedure of delivery ect. Explaining the client about the T+2 system existing in the current market, To guide an investor about the sources from where he can get the market information, Arrangement of pre and post budget meetings for the investors, Making the client aware about the technical & fundament analysis, Conducting meetings every now and then to explain the investors about the changes in SEBI guidelines and stock exchanges guidelines,From above explanation, we can say that the broker/sub broker is playing anactive role in the stock market, he helping the client from all the angels sothat the investor doesn’t incur any lose by investing in the stock market,BABASAB PATIL
    • Auction SaleThe Exchange on behalf of trading members for settlement related reasonsinitiates auctions. The main reason is shortage. There are three types ofparticipants in the auction market:  Initiator: The party who initiates the auction process is called an initiator.  Competitor: The party who enters on the same side as of the initiator is called a competitor.  Solicitor: The party who enters on the opposite side as of the initiator is called a competitor.The trading members can participate in the exchange-initiated auction byentering orders as solicitors. E.g. if the exchange conducts a Buy-in action,the trading members entering sell orders are called solicitors. When theauction starts, the competitor period for that auction starts. Competitorperiod is the period during which competitor orders entries are allowed.Competitor orders are the orders that compete with the initiators order i.e. ifthe initiator’s order is a buy order, then all the buy order for that auctionother then the initiator’s order are competitors order. And if the initiator’sorder is a sell order for that auction other than the initiation’s order arecompetitor’s orders.After the competitor’s period ends, the solicitor’s period for that that auctionstarts. Solicitors order is the period during which solicitors order areallowed. Solicitors order are the orders, which are opposite to the initiator’sBABASAB PATIL
    • order i.e. if the initiator’s order is a buy order than all the sell order for thatauction are solicitors order & if the initiator order is a sell order, then all thebuy order for that auction are solicitors order.After solicitor’s period, order matching takes place. The system calculatestrading price for the auction & all possible trade for the auction aregenerated at the calculated trading price. After this the auction is said to becomplete. Competitor period & solicitor’s period for any auction are set bythe exchange.Entering Auction order:Auction order entry allows the user to enter orders into auctions that are currentlyrunning.Auction Order Modification:The user is not allowed to modify any auction orders.Auction Order Cancellation:The user can cancel any solicitors order placed by him in any auctionprovided the solicitors period for that auction is not over.BABASAB PATIL
    • Auction Order Matching:When the solicitor’s period for auction is over, auction order matching starsfor that auction. During this process, the system calculates the trading pricefor that auction based on the initiator’s order entered during the competitor& solicitor’s period. At present for exchange-initiated auction, the matchingtakes place at the respective solicitors order price.All auction orders are entered into the auction order book. The rules formatching of auction are similar to that of the regular lot book except for thefollowing point; 1) Auction order matching takes place at the end of for the solicitor’s period for the auction. 2) Auction matching takes place only across orders belonging to the same auction. 3) All auction trades take place at the auction price.Example:Auction is held in TISCO for 5,000 shares.  The closing price of TISCO on that day was Rs. 155.0  The last trade price of TISCO on that day was Rs. 150.0  The price of TISCO last Friday was Rs. 151.0  The previous day’s close price of TISCO was Rs. 160.0BABASAB PATIL
    • What is the maximum allowable price at which the member can put a sellorder in the auction for TISCO? (Assuming that the price band applicablefor auction market is +/- 15%).Max price applicable in Auction = previous day’s close price*price band= 160*1.15 Rs. 184.00BABASAB PATIL