3. A stock exchange has certain listed securities and
permitted securities which are traded on it.
Members of the exchange alone are entitled to the
trading privileges. Investors interested in buying or
selling securities should place their orders with the
members (also called brokers) of the exchange.
There are two ways of organizing the trading activity:
a) The open-outcry system
b) The screen-based system
4. Under the open outcry system, traders shout and resort
to signals on the trading floor of the exchange which
consists of several ‘national’ trading posts for different
securities.
A member wishing to buy or sell certain security
reaches the trading post where the security is traded.
5. In the screen-based system, the trading ring is replaced
by the computer screen and distant participants can
trade with each other through the computer network.
A large number of participants, geographically
separated, can trade simultaneously at high speeds.
6. Group of specific rules, or parameters, that determine
entry and exit points for a given equity.
Primary aim of a trading system- manage risk and
increase profitability in any market environment.
Prevailing in stock exchanges for many years.
Types of Trading System-
a)Floor Trading
b)Screen Based Training
- Quote Driven System
- Order Driven System
7. Buyers and sellers transact business face to face.
An investor desirous of buying a security gets in
touch with broker and places the buy order along
with the money for buying security.
Similarly an investor intending to sell a security
gets in touch with the broker, places the sell order
and hands him over the share certificate to be sold.
After the completion of the transaction, the buyer
receives the share certificate and the seller would
receive the cash from their respective brokers.
8. Fully automated mode of trading (online and offline).
Trading ring is replaced by the computer screen and distant
participants can trade with each other through the computer
network.
Brokers can install trading terminals at any place in the
country.
Large number of participants, geographically separated
from each other, can trade simultaneously from their
respective locations.
9. The market-maker, who is the dealer inputs two-way
quotes into the system, that is, his bid price (buying
price) and offer price (selling price).
The market participants then place their orders based
on the offer quotes.
10. Clients place their buy and sell order.
These are then fed into the system.
Buy and sell orders are automatically matched with the
system according to predetermined rules.
11. Reforming Government Securities Markets in
India – A pre-requisite for developing active
derivatives markets on interest rates.
STUDY BY Prof. Suresh Sundaresan, Chase
Manhattan Bank Professor of Economics and
Finance, Columbia University
12. 1. Government Debt Securities are “public goods”:-
The presence of an actively traded “yield curve” in
the Government Securities Markets provides a “price
discovery” function about the risk-free cost of
borrowing at different maturity sectors.
The Government is in a unique position to supply
“long-term risk-free” debt unlike any other private
market participant: this is due to the fact that, in any
country, Government alone has the ability to issue the
local currency bond that is free from explicit default
risk.
13. Auctions, Benchmarks, and Vintages
Broadening Institutional Ownership
Establishing a Retail Investor Base
Ability to finance long and short
positions
