Profile bombay stock exchange

1. SAAB MARFIN MBA
INTRODUCTION
The India Capital market consists of many financial institutes,
Banks, Stock Markets etc. The capital Market is being divided
between two parts:
Primary Market
Secondary market.
The stock exchange comes in the secondary market & these
exchanges are performing various functions. Stock exchange
performs these functions with the help of middleman called
the intermediaries. These intermediates act as a link in
between buyer & seller on the stock exchange. Without the
presence of 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
stock exchange, Cochin stock exchange, Delhi stock exchange,
kolkatta stock exchange & many others.
The intermediaries in the capital market are:
Merchant Banker
Their function & working are very crucial to the operating
in the primary market. They are the issue manager, lead
manager, co-manager & are responsible to the company & SEBI.
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Registrar:
Their function are next to merchant banker in
importance. They collect the application for the new issue,
their cheques, stock invests, classify & computerize them. They
also make allotment in consultation with the regional stock
exchange regarding norms in the event of over subscription &
before a public representative.
Collecting Banker:
Collecting banker collects the subscription in cash,
cheques, stock invest, ect.
Underwriter:
Underwriter mar be financial institution, banks, mutual fund,
ect., & undertake to mobilise the subscription up to some limit.
Falling to secure subscription as agreed to, they have to make
good the shortfalls by their own subscription.
Stock Market Intermediaries:
Client Broker:
They are doing simple broking between buyer & seller &
earning only brokerage for their service from the client.
Floor Broker:
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These are authorized clerks & sub-brokers who enter the
trading floor & execute the orders for the client or other
member.
Jobber & Market Maker:
Those members who are ready to buy & sell simultaneously in
selected scrips, offering on the trade floor & earning profit
through the margin between buying & selling rate. Market
Maker undertakes this work compulsorily for some companies
& bank finance in available to them.
Arbitrager:
Those who do inter market deals for a profit through
difference in price as between markets say buy in Kolkatta &
sell in Mumbai & vice versa.
Badla Financiers:
Those members who finance carry forward deals in specified
group (A group) for a return in the form of interest, called
Badla Rate. They lend money or shares for the brokers who are
over bought or over sold respectively at the time of settlement.
Badla in carry forward facility from one settlement to another
without taking a delivery up to a maximum period of 90 days
at a time.
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Introduction To Bombay Stock Exchange
The Stock Exchange, Mumbai, popularly known as "BSE" was
established in 1875 as "The Native Share and Stock Brokers
Association". It is the oldest one in Asia, even older than the
Tokyo Stock Exchange, which was established in 1878. It is a
voluntary non-profit making Association of Persons (AOP) and
is currently engaged in the process of converting itself into
demutualised and corporate entity. It has evolved over the
years into its present status as the premier Stock Exchange in
the country. It is the first Stock Exchange in the Country to
have obtained permanent recognition in 1956 from the Govt.
of India under the Securities Contracts (Regulation) Act, 1956.
The Exchange, while providing an efficient and transparent
market for trading in securities, debt and derivatives upholds
the interests of the investors and ensures redressal of their
grievances whether against the companies or its own
member-brokers. It also strives to educate and enlighten the
investors by conducting investor education programmes and
making available to them necessary informative inputs.
A Governing Board having 20 directors is the apex body, which
decides the policies and regulates the affairs of the Exchange.
The Governing Board consists of 9 elected directors, who are
from the broking community (one third of them retire ever year
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by rotation), three SEBI nominees, six public representatives
and an Executive
Director & Chief Executive Officer and a Chief Operating
Officer.
The Executive Director as the Chief Executive Officer is
responsible for the day-to-day administration of the Exchange
and the Chief Operating Officer and 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 the Exchange. Accordingly, an
Executive Committee, consisting of three elected directors,
three SEBI nominees or public representatives, Executive
Director & CEO and Chief Operating Officer has been
constituted. The Committee considers judicial & quasi matters
in which the Governing Board has powers as an Appellate
Authority, matters regarding annulment of transactions,
admission, continuance and suspension of member-brokers,
declaration of a member-broker as defaulter, norms,
procedures and other matters relating to arbitration, fees,
deposits, margins and other monies payable by the
member-brokers to the Exchange, etc.
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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 the quarter April-June 2003 were Rs. 1101.05 crores
and 5.70 lakhs respectively.
The ban on all deferral products like Borrowing & Lending of
Securities Scheme (BLESS) and Automated Lending & Borrowing
Mechanism (ALBM) in the Indian capital markets by SEBI w.e.f.
July 2, 2001, abolition of account period settlements,
introduction of Compulsory Rolling Settlements in all scrips
traded on the Exchanges w.e.f. December 31, 2001, etc. has
adversely impacted the liquidity in the market and
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consequently there is a considerable decline in the average
daily turnover at the Exchange as reflected in above statistics.
The Stock Exchange, Mumbai Governing Board
For The Year 2005
Mr. S. Jambunathan
IAS (Retd.)
Executive Director & CEO
Mr. Rajnikant Patel
Mr. Bhanubhai G. Fozdar
Mr. Siddharth J. Shah
Mr. Prakash R. Kacholia
Mr. Alok C. Churiwala
Mr. Deven R. Choksey
Mr. Balkishan Mohta
Mr. Uttam Bagri
Mr. Radheyshyam B. Khandelwal
Mr. Nagji Keshavji Rita
Mr. Jitesh Khosla
Joint Secretary, Dept. of Company Affairs, Govt. of India
Mr. P.P. Vora
Mr. P. K. Banerji
Retired IAS Officer
Mr. Jagdish Capoor
Chairman, HDFC Bank
Mr. Vijay Mukhi
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Managing Director, Vijay Mukhi's Computer Institute
Mr. Pradip P. Shah
Chairman, IndAsia Fund Advisors Private Limited
Prof. N. Ravichandran
Professor, IIM Ahmedabad
NATIONAL STOCK EXCHANGE LTD.
The Organisation:
The National Stock Exchange of India Limited has genesis in
the report of the High Powered Study Group on Establishment
of New Stock Exchanges, which recommended promotion of a
National Stock Exchange by financial institutions (FIs) to
provide access to investors from all across the country on an
equal footing. Based on the recommendations, NSE was
promoted by leading Financial Institutions at the behest of the
Government of India and was incorporated in November 1992
as a tax-paying company unlike other stock 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 the Wholesale Debt Market (WDM)
segment in June 1994. The Capital Market (Equities) segment
commenced operations in November 1994 and operations in
Derivatives segment commenced in June 2000.
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Our Mission:
NSE's mission is setting the agenda for change in the securities
markets in India. 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 has become industry benchmarks and is being
emulated by other market participants. NSE is more than a
mere market facilitator. It's that force which is guiding the
industry towards new horizons and greater opportunities.
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Our Logo: Say NSE’s LOGO
The logo of the NSE symbolises a single nationwide securities
trading facility ensuring equal and fair access to investors,
trading members and issuers all over the country. The initials
of the Exchange viz., N, S and E have been etched on the logo
and are distinctly visible. The logo symbolises use of state of
the art information technology and satellite connectivity to
bring about the change within the securities industry. The logo
symbolises vibrancy and unleashing of creative energy to
constantly bring about change through innovation.
Promoters:
NSE has been promoted by leading financial institutions, banks,
insurance companies 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
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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 Bank
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 India
Corporate Structure
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NSE is one of the first de-mutualised stock exchanges in the
country, where the ownership and management of the
Exchange is completely divorced from the right to trade on it.
Though the impetus for its establishment came from policy
makers in the country, it has been set up as a public limited
company, owned by the leading institutional investors in the
country.
From day one, NSE has adopted the form of a demutualised
exchange - the ownership, management and trading is in the
hands of three different sets of people. NSE is owned by a set
of leading financial institutions, banks, insurance companies
and other financial intermediaries and is managed by
professionals, who do not directly or indirectly trade on the
Exchange. This has completely eliminated any conflict of
interest and helped NSE in aggressively pursuing policies and
practices within a public interest framework.
The NSE model however, does not preclude, but in fact
accommodates involvement, support and contribution of
trading members in a variety of ways. 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 time executive of the Exchange.
While the Board deals with broad policy issues, decisions
relating to market operations are delegated by the Board to
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various committees constituted by it. Such committee includes
representatives from trading members, professionals, the
public and the management. The day-to-day management of
the Exchange is delegated to the Managing Director who is
supported by a team of professional staff.
Our Technology:
Across the globe, developments in information,
communication and network technologies have created
paradigm shifts in the securities market operations.
Technology has enabled organizations to build new sources of
competitive advantage, bring about innovations in products
and services, and to provide for new business opportunities.
Stock exchanges all over the world have realised the potential
of IT and have moved over to electronic trading systems, which
are cheaper, have wider reach and provide a better mechanism
for trade and post trade execution.
NSE believes that technology will continue to provide the
necessary impetus for the organisation to retain its competitive
edge and ensure timeliness and satisfaction in customer
service. In recognition of the fact that technology will continue
to redefine the shape of the securities industry, NSE stresses
on innovation and sustained investment in technology to
remain ahead of competition. NSE's IT set-up is the largest by
any company in India. It uses satellite communication
technology to energies participation from around 400 cities
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spread all over the country. In the recent past, capacity
enhancement measures were taken up in regard to the trading
systems so as to effectively meet the requirements of
increased users and associated trading loads. With upgradation
of trading hardware, NSE can handle up to 1 million trades per
day. NSE has also put in place NIBIS (NSE's Internet Based
Information System) for on-line real-time dissemination of
trading information over the Internet. In order to capitalise on
in-house expertise in technology, NSE set up a separate
company, NSE.IT, in October 1999. This is expected to provide
a platform for taking up new IT assignments both within 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 achieve minimum response time and
maximum system availability for users. The trading server
software runs on a fault tolerant STRATUS main-frame
computer while the client software runs under Windows on PCs.
The telecommunications network uses X.25 protocol and is the
backbone of the automated trading system. Each trading
member trades on the NSE with other members through a PC
located in the trading member's office, anywhere in India. The
trading members on the Wholesale Debt Market segment are
linked to the central computer at the NSE through dedicated
64Kbps leased lines and VSAT terminals. These leased lines are
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multiplexed using dedicated 2 Mbps, optical-fiber links. The
WDM participants connect to the trading system through
dial-up links.
The Exchange uses powerful RISC -based UNIX servers,
procured from Digital and HP for the back office processing.
The latest software platforms like ORACLE 7 RDBMS, GUPTA -
SQL/ORACLE FORMS 4.5 Front - Ends, etc. have been used for
the Exchange applications. The Exchange currently manages
its data centre operations, system and database administration,
design and development of in-house systems and design and
implementation of telecommunication solutions.
NSE is one of the largest interactive VSAT based stock
exchanges in the world. Today it supports more than 3000
VSATs and is expected to grow to more than 4000 VSATs in
the next year. The NSE- network is the largest private wide
area network in the country and the first extended C- Band
VSAT network in the world. Currently more than 9000 users
are trading on the real time-online NSE application. There are
over 15 large computer systems, which include non-stop
fault-tolerant computers and high-end UNIX servers,
operational under one roof to support the NSE applications.
This coupled with the nation wide VSAT network makes NSE
the country's largest Information Technology user.
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In an ongoing effort to improve NSE's infrastructure, a
corporate network has been implemented, connecting all the
offices at Mumbai, Delhi, Calcutta and Chennai. This corporate
network enables speedy inter-office communications 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 internal browsing 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 Chairman
Mr. Ravi Narain Managing Director
Ms. Chitra Ramkrishna Deputy Managing
Director
Mr. S. P. Chhajed Director
Mr. R. P. Chitale -do-
Mr. Indrajit Gupta -do-
Mr. N.S. Kannan -do-
Mr. S. H. Khan -do-
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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 is yet 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 Exchange
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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 below
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Stock market index
A stock Market Index is a Market. It should capture the
behaviour of the overall equity market. Movements of the
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index should represent the returns obtained by "typical"
portfolios in the country.
The basic idea in an index
Every 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 the country (e.g. nuclear bombs, or a
budget announcement, etc.). The job of an index is to purely
capture the second part, the movements of the stock market as
a whole (i.e. news about the country). This is achieved by
averaging. Each stock contains a mixture of these two
elements - stock news and index news. When we take an
average of returns on many stocks, the individual stock news
tends to cancel out. On any one day, there would be good
stock-specific news for a few companies and bad
stock-specific news for others. In a good index, these will
cancel out, and the only thing left will be news that is common
to all stocks. The news that is common to all stocks is news
about India. That is what the index will capture.
Importance of Index
Traditionally, indices have been used as information sources.
By looking at an index we know how the market is faring. This
information aspect also figures in myriad applications of stock
market indices in economic research. This is particularly
valuable when an index reflects highly up-to-date information
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(a central issue which is discussed in detail ahead) and the
portfolio of an investor contains illiquid securities - in this
case, the index is a lead indicator of how the overall portfolio
will fare. In recent years, indices have come to the fore owing
to direct applications in finance, in the form of index funds
and index derivatives. Index funds are funds which passively
`invest in the index'. Index derivatives allow people to cheaply
alter their risk exposure to an index (this is called hedging)
and to implement forecasts about index movements (this is
called speculation). Hedging using index derivatives has
become a central part of risk management in the modern
economy. These applications are now a multi-trillion dollar
industry worldwide, and they are critically linked up to market
indices. Finally, indices serve as a benchmark for measuring
the performance of fund managers. An all-equity fund should
obtain returns like the overall stock market index. A 50:50
debt: equity fund should obtain returns close to those obtained
by an investment of 50% in the index and 50% in fixed income.
A well-specified relationship between an investor and a fund
manager should explicitly define the benchmark against which
the fund manager will be compared, and in what fashion.
BSE Sensex:
BSE-SENSEX, short form of the BSE-Sensitive Index, is a
"Market Capitalization-Weighted" index of 30 stocks
representing a sample of large, well-established and financially
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sound companies. It is the oldest index in India and has
acquired a unique place in the collective consciousness of
investors. The index is widely used to measure the
performance of the Indian stock markets. BSE-SENSEX is
considered to be the pulse of the Indian stock markets as it
represents the underlying universe of listed stocks at The
Stock Exchange, Mumbai. Further, as the oldest index of the
Indian Stock market, it provides time series data over a fairly
long period of time (since 1978-79). Over the years,
BSE-SENSEX has become one of the most prominent brands in
the country
S&P CNX Nifty;
S&P CNX Nifty is a well-diversified 50 stock index accounting
for 23 sectors of the economy. It is used for a variety of
purposes such as benchmarking fund portfolios, index based
derivatives and index funds.
S&P CNX Nifty is owned and managed by India Index Services
and Products Ltd. (IISL), which is a joint venture between NSE
and CRISIL. IISL is India's first specialised company focused
upon the index as a core product. IISL have a consulting and
licensing agreement with Standard & Poor's (S&P), who are
world leaders in index services.
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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.
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 trading
The ups and downs of an index:
They reflect the changing expectations of the stock market
about future dividends of India's corporate sector. When the
index goes up, it is because the stock market thinks that the
prospective dividends in the future will be better than
previously thought. When prospects of dividends in the future
become pessimistic, the index drops. The ideal index gives us
instant-to-instant readings about how the stock market
perceives the future of India's corporate 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, a single major index dominates benchmarking,
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index funds, index derivatives and research applications. In
addition, more specialised indices often find interesting
applications. In India, we have seen situations where a
dedicated industry fund uses an industry index as a
benchmark. In India, where clear categories of ownership
groups exist, it becomes interesting to examine the
performance of classes of companies sorted by ownership
group.
GEERAK MARKETING, COMPANY OVERVIEW
About The Founder
Mr. Nanalal Karva born in the year 1958 & completed his
schooling at Dharwad, 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. After gaining working experience at Mumbai, he
went abroad i.e. to Muscat & Kuwait for 3 years & returned to
Dharwad during 1985.
Company Profile
Mr.Nanalal Karva started Geerak Marketing, an investment
consultancy firm in the year 1985. This firm was established
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with the view to bring the people of Northern part of Karnataka
in the main stream of investors at national level. Since its
establishment the firm is continuously engaged in serving the
investors’. In the given scenario it will be much appropriate to
say that “GEERAK” is the first organization that has educated
and introduced the people of this part of Karnataka to the
capital market.
Geerak Marketing was the first incorporated as a private
Limited Company on 16th June 1992 and subsequently
converted into a public Limited Company on 25th October1995
and was named as “Geerak Marketing Stock and Shares Broker
Limited” (GMSSBL).
Mr. Nanalal Karva and his family hold majority of the shares.
The present Net Worth of the company stands around Rs. 54
lakhs. GMSSBL has taken over all the activities of Geerak
Marketing, which was in existence since 1985. Ultimately
GMSSBL has become the Flagship Company of GEERAK GROUP
to serve the investors.
Since its inception in the year 1985, the firm has grown to
reach immense heights. It has withstood all odds in the market
and has emerged as a true leader in the bargain. GEERAK is
widely recognized as a trustworthy organization and has been
successful in satisfying its clients’ interests.
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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 the investors’ needs.
Depository services which are being offered through:
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:
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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 are the market conditions.
Technical Analysis and arriving the trends in the market of
index and individual scrip.
Arranging investors’ meeting to provide information on the
day-to-day changes in the stock market and investment
related activities.
Arrangement of pre and post Budget meetings for the
investors.
Transfer of shares and transmission of Shares.
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GEERAK BRANCHES:
Following are the branches of Geerak Marketing Ltd.
Dharwad: #3, 1st Floor, Geeta complex, P B Road, Dharwad
Belgaum: 9/10, 1st Floor, Biligi Plaza College Road, Belgaum
Haveri: Banashankari Complex Vidyanagar, P B Road, Haveri
Gadag: #6, Siddhhalingeshwar Complex, Station Road, Gadag
Gulbarga: O/o Balaji Traders #20, Pal Complex Near City Bus
stand Super Market, Gulbarga
Gajendragad: 1st Floor, Natraj Hotel Building, Kalkaeshwar
Circle Gajendragad
Panvel (Mumbai): O/o Shri Balaji Investment #8, Shree Shayya
Pride, Plot No-155, MCCH Society, Panvel, Dist. Raigad
Ranebennur: C/o Siddheshwar Enterprise, P B Road, Near
Forest Office, Ranebennur
Settu Securities, Hubli (Station Road): 49, Shri Laxmi
Balakrishna Square, Station Road, Hubli
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Sindhnur Geerak marketing, A newly branch started in
Sindhnur,
The major services provided by these branches are trading in
Futures and Options, Buying and Selling of shares through
national Stock Exchange and Bombay Stock Exchange.
All the branches are fully controlled by the Head Office at Hubli.
In the administrator server (situated at the H.O) the trading
limits for each of the branches and for the clients trading are
defined. Further every transaction that takes place in these
branches can be monitored from the head office; the whole
system is controlled with the help of the software called ODIN
(Open Dealer Integrated Network) developed by financial
technologies (India) ltd. At the end of the day the contract
notes for the transactions executed on the behalf of the clients
are also issued from Head Office. Payments from clients
received at the branches are deposited at the designated Bank
account, and the payment for the Clients are
Made from the Head office.
Customer Profile:
The clients’ base of Geerak includes bank employees, business
people, retired persons, government employees, teachers and
professors. Here some speculate while some others take up
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delivery based trading. For few their objective remains
“investing” their surplus cash while some others enjoy hedging,
many clients also invest in Mutual funds, Company deposits
and still 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 trading purposes and from 0.25% to 0.75% as delivery
charges.
Topic:
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“Functioning of Capital Market (stock exchange) & Role of
Intermediaries in Capital Market”
Objective:
Getting an in-depth knowledge of the working of the capital
market with special reference to the stock exchange and
understanding the role of intermediaries 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:
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The trading on stock exchange in India used to take place
through open outcry without use of information technology for
immediate matching or recording of trades. This was time
consuming & inefficient. These imposed limits 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 punch into the computer quantities of securities &
the price at which he likes to transact & the transaction is
executed as son as it finds a matching sales or buy order from
a counter party. SBTS electronically matches order on a strict
price/time priority & hence cut down on time. Cost & times or,
as well as on fraud resulting in improving operating efficiency
NSE is the first Stock Exchange 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.
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Market Timings;
Trading on the equities segment takes place on all days of the
week (except Saturdays and Sundays and holidays declared by
the Exchange in advance). The market timings of the equities
segment are:
Normal Market Open : 09:55 hours
Normal Market Close : 15:30 hours
The Closing Session is held between 15.50 hours and 16.00
hours
Limited Physical Market Open: 09:55 hours
Limited Physical Market Close: 15:30 hours
Market Segments:
The Exchange operates the following sub-segments in the Equities
segment:
Limited Physical Market
Institutional Segment
Trade for Trade Segment
Limited Physical Market:
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Pursuant to the directive of SEBI to provide an exit route for
small investors holding physical shares in securities mandated
for compulsory damaterialised settlement, the Exchange has
provided a facility for such trading in physical shares not
exceeding 500 shares. This market segment is referred to as
'Limited Physical Market' (small window). The Limited Physical
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 do not require prior approval or
post-facto confirmation of the Reserve Bank of India, since
such transactions do not affect the percentage of overall FII
holdings in Indian companies. (Inter FII transactions are
however not permitted in securities where the FII holdings have
already crossed the overall limit due to any reason).
To facilitate execution of such Inter-Institutional deals in
companies where the cut-off limit of FII investment has been
reached, the Exchange introduced a new market segment on
December 27, 1999.
The securities where FII investors and FII holding has reached
the cut-off limit as specified by RBI (2% lower than the ceiling
specified by RBI) from time to time would be available for
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trading in this market type for exclusive selling by FII clients.
The cut off limits for companies with 24% ceiling is 22%, for
companies with 30% ceiling, is 28% and for companies with
40% ceiling is 38%. Similarly, the cut off limit for public sector
banks (including State Bank of India) is 18% whose ceiling is
20%. The list of securities eligible / become ineligible for
trading in this market type would be notified to 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 action
Securities Available for Trading:
The Capital Market (Equities) segment of NSE facilitates trading
in the following instruments:
A. Shares
Equity Shares
Preference Shares
B. Debentures
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Partly Convertible Debentures
Fully Convertible Debentures
Non Convertible Debentures
Warrants / Coupons / Secured Premium Notes/ other
Hybrids
Bonds
C. Units of Mutual Funds
Trading System:
NSE operates on the 'National Exchange for Automated
Trading' (NEAT) system & BSE operates on the ‘Bombay Stock
Exchange Online Trading System’ (BOLT) a fully automated
screen based trading system, which adopts the principle of an
order driven market. NSE & BSE consciously opted in favour of
an order driven system as opposed to a quote driven system.
This has helped reduce jobbing spreads not only on NSE & BSE
but 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 to create offline order file for a selected portfolio. On
inputting the values, the orders are created for the selected
portfolio of securities according to the ratio of their market
capitalisation.
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All the order generated through the offline order file are priced
at the available market price.
Quantity of shares of a particular security in portfolio are
calculated as under:
No. of shares of a security on portfolio = Amount multiplied by
Issued Capital for the Security divided by Current Portfolio
Capitalisation.
Where:
Current Portfolio Capitalisation = Summation [Last Traded
price (previous close if not traded) * No. Of issued shares]
Index Trading:
The purpose of index trading is to provide NEAT users with a
facility of buying & selling of indices, in terms of security that
comprise the index. Currently, the facility is only for NIFTY
security. The users have to specify the amount, and other
inputs that are sent to the host, and the host generates the
orders.
The index trading provide user the choice of gaining with the
rise/decline in index values either by buying or selling them.
The buying & selling of indices are simulated by entering
orders in securities in proportion to the composition of the
index.
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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 the security divided by Current Market Capitalisation of the
index.
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 available to general public. The price sensitive information
is any information, which if published, is likely to materially
affect the price of the securities of a company. Such
information may relate to the financial results of the company,
intended declaration of dividend, issue of securities or buy
back of securities, 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 insider trading & if any body found
guilty, then he impose monetary penalty.
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Short Sale:
It is a kind of trading where the market participant sells the
shares (without having possessing) with an expectation that
market will go down, once the market goes down, he
purchases the shares and makes his position clear.
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 the Normal Market. For shares that are traded in the
compulsory damaterialised mode the market lot of these
shares is one. Normal market consists of various book types
wherein orders are segregated as Regular lot orders, Special
Term orders, Negotiated Trade Orders and Stop Loss orders
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depending on their order attributes.
Odd Lot Market:
All orders whose order size is less than the regular lot size are
traded in the odd-lot market. An order is called an odd lot
order if the order size is less than regular lot size. These
orders do not have any special terms attributes attached to
them. In an odd-lot market, both the price and quantity of
both the 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 Market as per the SEBI directives.
Spot Market:
Spot orders are similar to the normal market orders except
that spot orders have different settlement periods vis-à-vis
normal market. These orders do not have any special terms
attributes attached to them. Currently the Spot Market is not in
use.
Order Books:
The NSE trading system provides complete flexibility to
members in the kinds of orders that can be placed by them.
Orders are first numbered and time-stamped on receipt and
then immediately processed for potential match. Every order
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has a distinctive order number and a unique time stamp on 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 following sequence:
-Best Price
-Within Price, by time priority.
Price priority means that if two orders are entered into the
system, the order having the best price gets the higher priority.
Time priority means if two orders having the same price are
entered, the order that is entered first gets the higher priority.
The Equities segment has following types of books:
Regular Lot Book;
The Regular Lot Book contains all regular lot orders that have
none of the following 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 following terms attached:
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- All or None (AON)
- Minimum Fill (MF)
Negotiated Trade Book;
The Negotiated Trade book contains all negotiated order
entries captured by the system before they have been matched
against their counter party trade entries. 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 to other order details.
Stop-Loss Book;
Stop Loss orders are stored in this book till the trigger price
specified in the order is reached or surpassed. When the
trigger price is reached or 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 last traded price in the normal market reaches or
falls below the trigger price of the order.
Buy order - A buy order in the Stop Loss book gets triggered
when the last traded price in the normal market reaches or
exceeds the trigger price of the order.
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Odd Lot Book:
The Odd lot book contains all odd lot orders (orders with
quantity less than marketable lot) in the system. The system
attempts to match an active odd lot order against passive
orders in the book. Currently, pursuant to a SEBI directive, the
Odd Lot Market is being used for orders that have quantity less
than or equal to 500 viz. the Limited Physical Market.
Spot Book;
The Spot lot book contains all spot orders (orders having only
the settlement period different) in the system. The system
attempts to match an active spot lot order against the passive
orders in the book. Currently the Spot Market book type is not
in use.
Auction Book;
This book contains orders that are entered for all auctions. The
matching process for auction orders in this book is initiated
only at the end of the solicitor period.
Order Matching Rules:
The best buy order is matched with the best sell order. An
order may match partially 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 is the one
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with the lowest price. This is because the system views all buy
orders available from the point of view of a seller and all sell
orders from the point of view of the buyers in the market. So,
of all buy orders available in the market at any point of time, a
seller would obviously like to sell at the highest possible buy
price that is offered. Hence, the best buy order is the order
with the highest price and the best sell order is the order with
the lowest price.
Members can proactively enter orders in the system, which will
be displayed in 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 orders in
the system. Orders lying unmatched in the system are 'passive'
orders and orders that come in to match the existing orders
are called 'active' orders. Orders are always matched at the
passive order price. This ensures that the earlier orders get
priority over the orders that come in later.
Order Conditions:
A Trading Member can enter various types of orders depending
upon his/her requirements. These conditions are broadly
classified into three categories: time related conditions,
price-related conditions and quantity related conditions.
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Time Conditions:
DAY - A Day order, as the name suggests, is an order which is
valid for the day on which it is entered. If the order is not
matched during the day, the order gets cancelled automatically
at the end of the trading day.
GTC - A Good Till Cancelled (GTC) order is an order that
remains in the system until the Trading Member cancels it. It
will therefore be able to span trading days if it does not get
matched. The Exchange notifies the maximum number 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 to specify the days/date up to which the order should
stay in the system. At the end of this period the order will get
flushed from the system. Each day/date counted is a calendar
day and inclusive of holidays. The days/date counted are
inclusive of the day/date on which the order is placed.
IOC - An Immediate or Cancel (IOC) order allows a Trading
Member to buy or sell a security as soon as the order is
released into the market, failing which the order will be
removed from the market. Partial match is possible for the
order, and the unmatched portion of the order is cancelled
immediately.
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Price Conditions;
Limit Price/Order – An order that allows the price to be
specified while entering the order into the system.
Market Price/Order – An order to buy or sell securities at the
best price obtainable at the time of entering the order.
Stop Loss (SL) Price/Order – The one that allows the Trading
Member to place an order which gets activated only when the
market price of the relevant security reaches or crosses a
threshold price. Until then the order does not enter the market.
A sell order in the Stop Loss book gets triggered when the last
traded price in the normal market reaches or falls below the
trigger price of the order. A buy order in the Stop Loss book
gets triggered when the last traded price in the 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 95.00 and the market (last traded) price is 90.00, then
this order is released into the system once the market price
reaches or exceeds 93.00. This order is added to the regular
lot book with time of triggering as the time stamp, as a limit
order of 95.00
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Quantity Conditions:
Disclosed Quantity (DQ)- An order with a DQ condition allows
the Trading Member to disclose only a part of the order
quantity to the market. For example, an order of 1000 with a
disclosed quantity condition of 200 will mean 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 to time.
MF - Minimum Fill (MF) orders allow the Trading Member to
specify the minimum quantity by which an order should be
filled. For example, an order of 1000 units with minimum fill
200 will require that each trade be for at least 200 units. In
other words there will be a maximum of 5 trades of 200 each
or a single trade of 1000. The Exchange may lay down norms
of MF from time to time.
AON - All or None orders allow a Trading Member to impose
the condition that only the full order should be matched
against. This may be by way of multiple trades. If the full order
is not matched it will stay in the books till matched or
cancelled.
Trader Workstation:
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The trader workstation is the terminal from which the member
accesses the trading system. Each trader has a unique
identification by way of Trading Member ID and User ID
through which he is able to log on to the system for trading or
inquiry purposes. A member can have several user IDs allotted
to him by which he can have more than one employee using
the system concurrently.
The Exchange may also allow a Trading Member to set up a
network of dealers in different cities all of whom are provided
a connection to the stock exchanges’ central computer. A
Trading Member can define a hierarchy of users of the system
with the Corporate Manager at the top followed by the Branch
Manager and Dealers.
The Trader Workstation screen of the Trading Member is
divided into several 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 Menu
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Title Bar
The title bar displays the current time, Trading system name
and date.
Tool Bar
A window with different icons which provides quick access to
various functions such as Market By Order, Market By Price,
Market Movement, Market Inquiry, Auction Inquiry, Snap Quote,
Market Watch, Buy order entry, Sell order entry, Order
Modification, Order Cancellation, Outstanding Orders, Order
Status, Activity Log, Previous Trades, Net Position, Online
Backup, Supplementary Menu, Security List and Help. All these
functions are also available on the keyboard.
Ticker Window
The ticker displays information about a trade as and when it
takes place. The user has the option to set-up the securities,
which appear in the ticker.
Market Watch Window
The 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-selected securities that are of
interest to the Trading Member.
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To monitor various securities, the trading member can set
them up by typing the Security Descriptor consisting of a
Symbol field and a Series field. Securities can also be set up by
invoking the Security List and selecting the securities from the
window. The Symbol field incorporates the Company name and
the Series field captures the segment/instrument type. A third
field indicates the market type.
For example,
Company (Symbol) : ACC
Instrument type (Series): EQ
Market Type: N
For each security in the Market Watch window, market
information is dynamically updated on a real time basis. The
market information displayed is for the current best price
orders available in the regular lot book. For each security, 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 the previous last
traded price and '-' if it is worse) and the no delivery indicators
are displayed. If the security is suspended, "SUSPENDED"
appears in front of the security.
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On line Index and Index Inquiry
With every trade in a security participating in Index, the user
has the information on the current value of the Nifty. This
value is displayed at the extreme right hand corner of the
ticker window.
Index Inquiry gives information on Close, Open, High, Low and
current index values at the time of invoking this inquiry screen.
Inquiry Window
In this window, the inquiries such as Market by Order, Market
by Price, Previous Trades, Outstanding Orders, Activity Log,
Order Status and Market Inquiry can be viewed.
1. Market By Order (MBO)
The purpose of Market by Order is to enable the user to view
outstanding orders in the trading books in the order of
price/time priority. The information is displayed for each order.
Stop Loss orders, which are not triggered will not be displayed
on the window. Buy orders are displayed on the left side of the
window and Sell orders on the right side. The orders are
presented in a price/time priority with the "best priced" order
at the top.
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2. Market by Price (MBP)
The purpose of Market By Price is to enable the Trading
Member to view aggregate 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 own trade.
4. Outstanding Orders (OO)
The purpose of Outstanding Orders is to enable a Trading
Member to view his/her own outstanding buy or sell orders for
a security. An outstanding order will be an order that was
entered by the user, but is not yet completely traded or
cancelled.
5. Activity Log (AL)
The Activity Log shows the activities that have been performed
on any order of the Trading Member such as whether the order
has been traded against fully or partially, it has been modified
or has been cancelled. It displays information only of those
orders in which some activity has taken place. It does not
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display orders, which have entered the books but have not
been matched (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 the order 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 traded quantity, date and time etc. A user may
find inquiry screens like Market Movement, Most Active
Securities and Net Position useful. These are available in the
supplementary menu.
8. Market Movement (MM)
The Market Movement screen provides information to the user
regarding the movement of a security for the current day. It
gives details of the movement of the scrip for a time interval.
The details include total buy and sell order quantity value,
Open, High, Low, Last traded price etc.
9. Most Active Securities
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This screen gives a list of the securities with the highest traded
value during the day and the quantity traded for each of them.
10. Net Position
This functionality enables the user to interactively view his net
position for all securities in which he has traded.
Snap Quote:
The Snap Quote feature allows a Trading Member to get
instantaneous market information on any desired security. This
is normally used for securities that are not already on display
in the Market Watch window. The information presented is the
same as that of Market Watch window.
Order/Trade Window:
Order entry mechanisms enable the Trading Member to place
orders in the market. The system will request re-confirmation
of an order so that the user is cautioned before the order is
finally released into the market. Orders once placed 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 soon as an order is placed or a trading is done. The
order confirmation slip contains among other things, order no.,
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security name, price, quantity, order conditions like disclosed
or minimum fill quantity etc. The trade confirmation slip
contains the order and trade no., date, trade time, price and
quantity traded, amount etc. Orders and trades are identified
and linked by unique 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
specific Trading 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:
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NSE offers a facility to its trading members by which members
can use their own trading front-end software in order to trade
on the NSE trading system. This facility called
Computer-to-Computer Link (CTCL) facility is available only to
trading members of NSE.
About the CTCL facility:
Trading Members can use their own software running on any
suitable hardware/software platform of their choice. This
software would be a replacement of the NEAT front-end
software that is currently used by members to trade on the NSE
trading system. Members can use software customised to meet
their specialised needs like provision of on-line trade analysis,
risk management tools, integration of back-office operations
etc. The dealers of the member may trade using the software
remotely through the member's own private network, subject
to approvals from Department of Telecommunication etc. as
may be required in this regard.
CTCL software:
Members can procure the CTCL software either from software
vendors who are empanelled with NSE or they may develop the
software through their own in-house development team or
may procure the software from other non-empanelled vendors.
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Internet Based Trading:
The Securities & Exchange Board of India (SEBI) approved the
report on Internet Trading brought out by the SEBI Committee
on Internet Based Trading and Services In January 2000.
Internet trading can take place through order routing systems,
which will route client orders to exchange trading systems for
execution. Thus a client sitting in any part of the country
would be able to trade using the Internet as a medium through
brokers' Internet trading systems.
SEBI-registered brokers can introduce Internet based trading
after obtaining permission from respective Stock Exchanges.
SEBI has stipulated the minimum conditions to be fulfilled by
trading members to start Internet based 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 meeting held on August 2, 2000 approved the minimum
requirements for brokers offering securities trading through
wireless medium on Wireless Application Protocol (WAP)
platform.
SEBI-registered brokers who have been granted permission to
provide Internet based trading services can introduce WAP
trading after obtaining permission from respective stock
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exchanges. SEBI has stipulated the minimum conditions to be
fulfilled by trading members to start Internet based trading
and services, vide their circular
no.SMDRP/POLICY/CIR-48/2000 dated October 11, 2000.
WAP trading at NSE:
NSE became the first exchange to grant permission to its
members for providing WAP trading services. NSE has
Custodians.
Custodians are clearing members but not trading members.
They settle trades on behalf of their clients that are executed
through other trading members. A trading member may assign
a particular trade to a custodian for settlement. The custodian
is required to confirm whether he is going to settle that trade
or not. If it confirms the trade, the Clearing Corporation
assigns the obligation to the custodian. If the custodian rejects
the trade, the obligation 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.
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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 Services Ltd. to provide securities trading through WAP.
This is the first WAP enabled online stock trading facility in the
country.
The WAP technology has been harnessed jointly by NSE.IT and
Bharti Telesoft using Bharti Telesoft's WAP interface and
NSE.IT's E-broking products NeatXS/ iXS, leading to
convenience of livestock trading for people on the move.
Role of Intermediaries in the Capital Market:
The capital Market has been divided in to two parts i.e.
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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 of issue management either by making arrangements
regarding selling, buying or subscribing to securities as
manager, consultant, adviser or rendering corporate advisory
service in relation to such issue management;
The term Issue is defined as - "issue' means -
i. Public offer of securities for sale;
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 any activity as a merchant banker unless he holds a
certificate granted by the Board under the regulations".
Merchant Banker is mainly doing the business of collecting the
biding forms, cheques, demand drafts ect, from the bidder for
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the issue. & Submitting it to the issuer of IPO. For doing all
these activities he gets commission.
Registrar to an Issue:
Registrar to an Issue means the person appointed by a body
corporate or any person 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. And
iii. 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.
Underwriters:
The words “underwriting” and “Underwriter” are defined as
under.
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“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, an underwriter underwrites those shares that are
not subscribed by the general public. For doing this, he gets
underwriting commission.
Credit Rating Agencies:
Credit Rating Agencies to be eligible to operate in India need
to be registered with SEBI and comply with provisions of SEBI
(Credit Rating Agencies) Regulations, 1999
As 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;
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"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:
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Broker is a member of stock exchange who enters into the
contract on behalf of his client to execute the trade. They have
two clearly distinguishable functions.
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 of business.
Base Minimum Capital:
The broker should maintain an absolute minimum of Rs. 5
lakhs as a deposit with the stock exchange. The security
deposit kept by members in the exchange forms a part of the
base minimum capital; 25 per cent of the base capital is to be
maintained in cash with exchange, another 25 per cent
remains in the form of long term fixed deposit with a bank on
which the stock exchange is a completely unencumbered &
unconditional lien, the remaining requirement being in the
form of securities with a 30 per cent margin. The securities
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65. SAAB MARFIN MBA
should be in the name of member & are pledged in favour of
stock exchange.
Additional Capital Related to volume Of Business:
The optional or additional capital required form a member
should be at any point of time be such that together with the
base minimum capital it is not less than 8 per cent of the gross
outstanding business in the exchange defined 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 not exceed 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 all the 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,
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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 as agents of the concerned trading member
for assisting the investors in buying, selling or dealing in
securities. The sub-brokers would be affiliated to the trading
members and are required to be registered with SEBI. A
sub-broker would be allowed to be associated with only one
trading member of the Exchange.
Trading members desirous of appointing sub-brokers are
required to submit the following documents to the
Membership Department of the Exchange:
Eligibility:
A sub-broker may be an individual, a partnership firm or a
corporate. In case of corporate or partnership firm, the
directors or partners and in the case of an individual
sub-broker applicant, each of them shall comply with the
following requirements:
They shall not be less than 21 years of age;
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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 the stock market. With a view to helping the FIIs to
allow the procedures & to encourage them to invest in India,
SEBI has issued a different set of guidelines 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
classification of 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
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(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.
(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:
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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).
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:
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Membership of the Exchange is open to all persons desirous of
becoming trading members of the Exchange, subject to their
meeting certain requirements 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 following segment groups available in stock
market;
WDM segment Eligibility;
The following persons are eligible to become trading members,
subject to Securities Contract Regulation Act (SCRA), Securities
Contract Regulation Rules (SCRR) and other requirements of
Securities and Exchange Board of India (SEBI):
. Institutions, including subsidiaries of banks engaged in
financial services.
a. Body Corporates including companies as defined in the
Companies Act, 1956.
b. A company as defined in the Companies Act, 1956 (1 of
1956), shall also be eligible to be elected as a member of
the Exchange
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c. 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
the following fee and deposits:
(Amt.in Rs.
Particulars
Lakhs)
Advance annual subscription 1.00
Interest free security deposit 150.00
Annual subscription fee 1.00
New Membership – CM and F&O segment:
Eligibility
The following persons are eligible to seek membership of the
Exchange as Trading Members (Brokers):
. Individuals
a. Partnership Firms registered under the Indian Partnership
Act, 1932
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b. Corporations, Companies or institutions or subsidiaries of
such Corporations, Companies or institutions set up for
providing financial services
c. Such other persons or entities as may be permitted from
time to time by RBI / SEBI under the Securities Contracts
(Regulations) Rules, 1957.
General Eligibility Conditions;
Criteria Members
Individual Firm Corporate
Minimum age: 21 Minimum age: Minimum age:
years 21 years 21 years
AGE Maximum age: 60 (applicable for (applicable for
years partners) directors)
Registered Corporate
Partnership firm registered
Indian Citizen
STATUS under Indian under The
Partnership Act, Companies Act,
1932 1956 (Indian)
At least a graduate Partners should Two Directors
or equivalent be at least a should be at
EDUCATION qualification graduate or least graduate
equivalent or equivalent
qualification qualification
EXPERIENCE Should have the Partners should Two Directors
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experience in the be at least a should be at
capital market graduate or least graduate
related activity equivalent or equivalent
qualification qualification
MINIMUM PAID Clearing and Rs.30 lacs
UP EQUITY settlement thereof.
CAPITAL
Fees, Deposit & Networth Requirements:
Applicants recommended for admission will be required to pay
the following fee and deposits:
(All figures in Rs. lakhs)
Particulars Segments
CM and Trading Additional Total for CM and
Membership of requirements for Trading &
F&O Segment Clearing Clearing
Membership of Membership of
NSCCL (F&O F&O Segment
Segment)
Interest Free 110 110
Cash Security
Deposit with
NSEIL
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Interest Free 15 25 40
Cash Security
Deposit with
NSCCL
Total Interest 125 25 150
Free Cash
Security Deposit
(1+2)
Collateral 25 25 50
Security Deposit
with NSCCL
Annual 1 1
Subscription
Charges
Advance 1 1
Minimum
Transaction
Charges for
Futures &
Options
Segment
Networth 100 300 300
Requirement (100 for (100 for
self-clearing self-clearing
members in members in
F&O) F&O)
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Deposit for setting up VSAT terminals and operating cost for
the VSAT network will be levied separately as per the policy
prevailing from time to time.
Capital Market Overview:-
Primary Market :-
The securities market has two interdependent & inseparable
segments, the new issue (Primary Market) & the stock
(Secondary) market. The primary market provides the channel
for sale new securities while the secondary market deals in
securities already issued. The price signals, which subsume all
information about the issuer & his business including
associates risk, generated in the secondary market, help the
primary market in allocation of fund. The issuer of securities
issue (create & sell) new securities in the primary market to
raise fund for investment and/or to discharge some obligation.
They do so either by public issue or by private placement. It is
public issue if any body & every body can subscribe for the
securities. If the issue is made to selected people, it is called
private placement. In terms of the companies Act 1956, an
issue becomes public if results in the allotment to more than
50 people.
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There are two major types of issuer who issues securities. The
corporate entities issue mainly debt & equity instruments while
the Government issues debt securities.
The government & corporate sector raised a total of Rs.
2,52,108/- crore during 2002-03 as against Rs. 2,26,911/-
crore during the preceding year. Government raised about two
third of the total resources, the central government alone
raising nearly Rs. 1,51,126/- crore.
Secondary Market:-
The secondary market enables participant who hold securities
to adjust their holdings in response to change in their holdings
in response to change in their assessments of risk & return.
They also sell securities for cash to meet their liquidity needs.
The secondary market has further two components, namely the
over-the-counter (OTC) market & the exchange trade market.
OTC is different from the market place provided by the Over
The Counter Exchange of India Limited. OTC market is
essentially informal market where trades are negotiated. Most
of the trades in government securities are in the TOC market.
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All the spot trades where securities are traded for immediate
delivery & payment take place in the OTC market. The
exchange does not provide facility for spot trade in strict sense.
Closest to the spot market in the cash market where
settlements takes place after some time. Trade taking place
over a trading cycle, i.e. a day under rolling settlement, are
settled together after a certain time (currently 2 working days)
All the 24 stock exchanges in the country provide facility for
trading of equities. Nearly 100% of the trades are settled in the
demat form.
A variant of secondary market is the forward market, where the
securities are traded for the future deliver & payment. Pure
forward is put side the formal market. The version market is
future & options. In futures market, standardized securities are
traded for future delivery & settlement. These futures 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.
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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.
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
has witnessed several innovations during the last decade.
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These include use of the state-of-art information technology,
compression of settlement cycle, dematerialization & electronic
transfer of securities, securities lending & borrowing,
professionalisation of trading members, fine-tuned risk
management system, emergence of clearing corporations to
assume country party risk, though many of these are yet to
permeate the whole market.
Till recently, the stock exchanges in India were following a
system of account period settlement for cash market
transaction, except for transactions in a few active securities,
which were settled under T+3 rolling settlement. The rolling
settlement has now been introduced for all securities. 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 two days. 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
the damaterialised environment. Two depositories viz. National
Securities Depositories Ltd. (NSDL) & Central Depositories
Service Ltd. (CSDL) provide electronic transfer of securities &
more than 99% of turnover is settled in demat form.
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The obligation of members is downloaded to the
member/custodian by the clearing agency. The
members/custodian make available the required securities in
their pool account with depository participant by the
prescribed pay-in time for securities the depository transfer
the securities form the pool account of members/custodian to
the settlement account of clearing agency. As per the schedule
determined by the clearing agency, the depository transfers
the securities on the payout day from the settlement account
of clearing 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
electronic transfer of funds. The members are required to
maintain accounts with any of these banks. The members are
informed electronically of their pay-in obligation of funds. The
members make available required fund in their accounts with
clearing bank by the prescribed pay-in day. The clearing
agency forwards fund obligation file to clearing banks which.
In turn, debit the account of member & credit the account of
clearing agency. In same cases, the clearing agency runs an
electronic file to debit members’ accounts with clearing banks
& credit it’s own account.
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GRAPHICAL PRESENTATION OF CLRAGING HOUSE
ACTIVITY.
Functions of intermediaries & their importance in
capital market
There are some basic services offered by the intermediaries in
the capital market, those services are as follows;
1) Online buying and selling of the shares though any stock
exchange
2) Trading in Futures and Options.
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The intermediary is acting like a link in between the buyer &
seller of the scrips on the stock exchange. He executes the
orders of his client through the computer & takes care that the
trade is being carried out for best price.
He provides all the assistance to his client that is providing the
daily information about the stock exchange and ups & downs,
which are likely to happen in the market. He advises client that
which scrip is to purchase at what time & at what price so that
the client is benefited.
Value added Services:
Apart from providing basic services, it also becomes very
important on the part of the sub broker to guide an investor in
this changing technological environment. The concept of
dematerialisation of shares is relatively new. Further the rolling
settlement and T+2 system of settlement has recently being
started. Derivative trading is also introduced. To explain to an
investor all these “New” things, a broker/sub broker plays a
crucial role. Unless an investor becomes familiar with all these
new things, he won’t be in a better position. Therefore a
broker/sub broker doesn’t have much option but to guide a
common investor by providing value added services.
Following is the value added services provided by the
broker/sub broker
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Derivatives trading
How to trade in F&O,
Trading strategy in F&O,
Settlement procedure in F&O,
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,
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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 an active role in the stock market, he helping
the client from all the angels so that the investor doesn’t incur
any lose by investing in the stock market,
Auction Sale
The Exchange on behalf of trading members for settlement
related reasons initiates auctions. The main reason is shortage.
There are three types of participants 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 by entering orders as solicitors. E.g. if the exchange
conducts a Buy-in action, the trading members entering sell
orders are called solicitors. When the auction starts, the
competitor period for that auction starts. Competitor period is
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the period during which competitor orders entries are allowed.
Competitor orders are the orders that compete with the
initiators order i.e. if the initiator’s order is a buy order, then
all the buy order for that auction other then the initiator’s
order are competitors order. And if the initiator’s order is a sell
order for that auction other than the initiation’s order are
competitor’s orders.
After the competitor’s period ends, the solicitor’s period for
that that auction starts. Solicitors order is the period during
which solicitors order are allowed. Solicitors order are the
orders, which are opposite to the initiator’s order i.e. if the
initiator’s order is a buy order than all the sell order for that
auction are solicitors order & if the initiator order is a sell
order, then all the buy order for that auction are solicitors
order.
After solicitor’s period, order matching takes place. The
system calculates trading price for the auction & all possible
trade for the auction are generated at the calculated trading
price. After this the auction is said to be complete. Competitor
period & solicitor’s period for any auction are set by the
exchange.
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Entering Auction order:
Auction order entry allows the user to enter orders into auctions that are
currently running.
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
auction provided the solicitors period for that auction is not
over.
Auction Order Matching:
When the solicitor’s period for auction is over, auction order
matching stars for that auction. During this process, the
system calculates the trading price for that auction based on
the initiator’s order entered during the competitor & solicitor’s
period. At present for exchange-initiated auction, the
matching takes place at the respective solicitors order price.
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