BSE trading mini project report

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.

 Registrar:

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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:

These are authorized clerks & sub-brokers who enter the trading floor &
execute the orders for the client or other member.

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 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.

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

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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 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

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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.

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

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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 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

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Chairman, HDFC Bank
Mr. Vijay Mukhi
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.

Our Mission:

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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.

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

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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

 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

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 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

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,

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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 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

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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 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.

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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 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.

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This coupled with the nation wide VSAT network makes NSE the country's
largest Information Technology user.

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 index should represent the returns
obtained by "typical" portfolios in the country.

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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.

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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 (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,

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well-established and financially 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.

• 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.

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• 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, 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.

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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 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).

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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.

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:

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Nirmal Bang securities Private Limited, Mumbai.
Peninsular Capital Market limited, Cochin.
Stock Holding Corporation of India limited, Hubli.

Educating in Futures and Options.

Investment related other diversified services provided by Geerak:
 New issue forms, applications for bonds, debentures and fixed
deposits.

 Investment in mutual Fund of UTI, Alliance, Kothari, Zurich, Kotak
Mahindra, LIC, GIC, Cholamandala etc.

 Investment in taxfree bonds.

 Investment of long term gains under section 54 EC in the prescribed
infrastructure bonds (as of NHAI)

Some Other Services provided by Geerak:
Information regarding what shares to buy/sell, when to buy/sell and what 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.

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Arrangement of pre and post Budget meetings for the investors.

Transfer of shares and transmission of Shares.

GEERAK BRANCHES:
Following are the branches of Geerak Marketing Ltd.

Dharwad: #3, 1st Floor, Geeta complex, P B Road, 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

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Settu Securities, Hubli (Station Road): 49, Shri Laxmi Balakrishna Square,
Station Road, Hubli

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 delivery based trading. For few their
objective remains “investing” their surplus cash while some others enjoy

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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:

“Functioning of Capital Market (stock exchange) & Role of
Intermediaries in Capital Market”

Objective:

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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:

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

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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.

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

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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:

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).

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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 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:

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A. Shares

• Equity Shares
• Preference Shares

B. Debentures

• 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

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orders are created for the selected portfolio of securities according to the
ratio of their market capitalisation.
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.
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.

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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.

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.

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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
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

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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 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:

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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:

- 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

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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.

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;

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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 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:

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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.

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

Quantity Conditions:

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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:

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.

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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

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

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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.

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

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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.

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.

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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.

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.

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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 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.

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9. Most Active Securities

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., security name, price, quantity, order
conditions like disclosed or minimum fill quantity etc. The trade

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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:

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.

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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.

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.

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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 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

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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.

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.

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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.
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;

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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 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.

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Underwriters:

The words “underwriting” and “Underwriter” are defined as under.

• “Underwriting,” means an agreement with or without conditions to
subscribe to the securities of a body corporate when the existing
shareholders of such body corporate or the public does not subscribe
to the securities offered to them.
• “Underwriter” means a person, who engages in the business of
underwriting of an issue of securities of a body corporate;

As per the prior agreement between the company & the underwriter, 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 should be in the name of member & are pledged in
favour of stock exchange.

Additional Capital Related to volume Of Business:

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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,
 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

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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;
 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

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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 (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.

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(For instance: a jobber in Asian Paints can buy Asian Paints shares
form a commission broker at Rs. 100 & sell the same to other broker
at Rs. 105. The Rs. 5 difference in price will be the jobber’s margin.
Generally a jobber squares up his position at the end of the day i.e. he
does not maintain any outstanding sale or purchase contract at the end
of the trading hours.

4. Dealer in non-cleared securities:

The principal acts as principal for buying & selling those shares that
are not actively traded in the market. Though the buy & sell any
volume of shares, the price at which they trade depends on the
trading activity of the shares during the transaction. At times, jobber
too specialize in trading in inactive a stocks. They receive orders
from other members at a price recorded in their books & the orders
are executed when business is possible.

5.Arbitrageur: The member buys the shares on one stock exchange &
sells it on other stock exchange to get the benefit of price difference.
In the case the shares is required to be listed on both the stock
exchanges where member in going to do the arbitrage.
(For instance, if he L & T shares are quoted at Rs. 422 at the BSE and
the same is quoted at Rs. 422 in the NSE, then he buys on BSE & sells
on NSE, there by making a profit of Rs.2 per share, which is called an
arbitrage).

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6. Security Dealer:
A security dealer is a member who specializes in buying & selling of
gilt-edge securities. Only few members are invited to such dealing,
due to lack of public interest in such securities.

New Membership:

Membership of the Exchange is open to all persons desirous of 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):

a.Institutions, including subsidiaries of banks engaged in financial
services.

b.Body Corporates including companies as defined in the Companies
Act, 1956.

c.A company as defined in the Companies Act, 1956 (1 of 1956), shall
also be eligible to be elected as a member of the Exchange

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a.Such other persons or entities as may be permitted from time to time by
RBI / SEBI under the Securities Contracts (Regulations) Rules, 1957.

Fees, Deposit & Networth Requirements:

Applicants recommended for admission will be required to pay the
following fee and deposits:

Particulars (Amt.in Rs. 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):

a.Individuals

b.Partnership Firms registered under the Indian Partnership Act, 1932

c.Corporations, Companies or institutions or subsidiaries of such
Corporations, Companies or institutions set up for providing financial
services

d.Such other persons or entities as may be permitted from time to time by
RBI / SEBI under the Securities Contracts (Regulations) Rules, 1957.

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General Eligibility Conditions;

Criteria Members

Individual Firm Corporate
Minimum age: 21 Minimum age: 21 Minimum age: 21
years years (applicable years (applicable
AGE Maximum age: 60 for partners) for directors)
years

Registered Corporate
Partnership firm registered under
Indian Citizen
under Indian The Companies
STATUS
Partnership Act, Act, 1956 (Indian)
1932

At least a graduate or Partners should be Two Directors
equivalent at least a graduate should be at least
qualification or equivalent graduate or
EDUCATION
qualification equivalent
qualification

Should have the Partners should be Two Directors
experience in the at least a graduate should be at least
capital market related or equivalent graduate or
EXPERIENCE
activity qualification equivalent
qualification

MINIMUM PAID Clearing and Rs.30 lacs
UP EQUITY settlement thereof.
CAPITAL

Fees, Deposit & Networth Requirements:

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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 & Clearing
F&O Segment Clearing Membership of
Membership of F&O Segment
NSCCL (F&O
Segment)

Interest Free Cash 110 110
Security Deposit
with NSEIL

Interest Free Cash 15 25 40
Security Deposit
with NSCCL

Total Interest Free 125 25 150
Cash Security
Deposit (1+2)

Collateral Security 25 25 50
Deposit with
NSCCL

Annual Subscription 1 1
Charges

Advance Minimum 1 1
Transaction Charges
for Futures &

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Options Segment

Networth 100 300 300
Requirement (100 for self- (100 for self-
clearing members in clearing members in
F&O) F&O)

Deposit for setting up VSAT terminals and operating cost for the 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

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the companies Act 1956, an issue becomes public if results in the allotment
to more than 50 people.

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.
 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.

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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. 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.

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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.

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

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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.

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

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2) Trading in Futures and Options.

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

 Derivatives trading
 How to trade in F&O,
 Trading strategy in F&O,
 Settlement procedure in F&O,

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 Margin Money required for trading in F&O,

 Dematerialisation procedure
 It’ working,
 It’s advantage,
 Procedure involved,
 The scrips which is compulsorily traded in demat form,
 Different depositories that exist in India,
 There charges, procedure of delivery ect.

 Explaining the client about the T+2 system existing in the current market,

 To guide an investor about the sources from where he can get the market
information,

 Arrangement of pre and post budget meetings for the investors,

 Making the client aware about the technical & fundament analysis,

 Conducting meetings every now and then to explain the investors about
the changes in SEBI guidelines and stock exchanges guidelines,

From above explanation, we can say that the broker/sub broker is playing 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,

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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 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

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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.

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.

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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.

All auction orders are entered into the auction order book. The rules for
matching of auction are similar to that of the regular lot book except for the
following point;

1) Auction order matching takes place at the end of for the solicitor’s
period for the auction.
2) Auction matching takes place only across orders belonging to the
same auction.
3) All auction trades take place at the auction price.

Example:
Auction is held in TISCO for 5,000 shares.
 The closing price of TISCO on that day was Rs. 155.0
 The last trade price of TISCO on that day was Rs. 150.0
 The price of TISCO last Friday was Rs. 151.0
 The previous day’s close price of TISCO was Rs. 160.0

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What is the maximum allowable price at which the member can put a sell
order in the auction for TISCO? (Assuming that the price band applicable
for auction market is +/- 15%).

Max price applicable in Auction = previous day’s close price*price band
= 160*1.15
Rs. 184.00

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