INDEX.

Executive summary. Introduction. Light on stock exchange and it services. Role of SEBI. Terminologies associated with stock exchanges. Bombay Stock Exchange. Introduction. Ca ital listed and market ca itali!ation. BSE Sensex. Trading system. Settlement and clearing. "emat ay in. Com utation of closing rice. Shortages and o#$ections. Basket trading system. Settlement system. Closing system. % ortunities for foreign investors.

Transfer of ownershi . Safeguards. &r#itration machinery. Customer rotection fund. 'rievances redressal. "isci linary actions. Indices. "isclosures and listing norms. Com uteri!ed trading. (uture develo ments. National Stock Exchange.

 Introduction. Locations. Listing. Constitution. Trading mem#ers. Trading mechanism. )arket ty es. %rder #ooks. %rder matching rules. %rder conditions. *uantity conditions. Trading workstation. Com uter to com uter links facility. +ational Securities Clearing Cor oration Limited. Badla trading. Su#stitutes for Badla. Bi#liogra hy. (inancial derivatives. Trading o tions.

Introduction
%f all the modern service institutions, stock exchanges are erha s the most crucial agents and facilitators of entre reneurial rogress. &fter the industrial revolution, as the si!e of #usiness enter rises grew, it was no longer ossi#le for ro rietors or artnershi s to raise colossal amount of money re-uired for undertaking large entre reneurial ventures. Such huge re-uirement of ca ital could only #e met #y the artici ation of a very large num#er of investors. their num#ers running into hundreds, thousands and even millions, de ending on the si!e of #usiness venture.

In general, small time ro rietors, or artners of a ro rietary or artnershi firm, are likely to find it rather difficult to get out of their #usiness should they for some reason wish to do so. This is so #ecause it is not always ossi#le to find #uyers for an entire #usiness or a art of #usiness, $ust when one wishes to sell it. Similarly, it is not easy for someone with savings, es ecially with a small amount of savings, to readily find an a ro riate #usiness o ortunity, or a art thereof, for investment. These ro#lems will #e even more magnified in large ro rietorshi s and artnershi s. +o#ody would like to invest in such artnershi s in the first lace, since once invested, their savings would #e very difficult to convert into cash. &nd most eo le have lots of reasons, such as #etter investment o ortunity, marriage, education, death, health and so on for wanting to convert their savings into cash. Clearly then, #ig enter rises will #e a#le to raise ca ital from the u#lic at large only if there were some mechanism #y which the investors could urchase or sell their share of #usiness as ands they wished to do so. This im lies that ownershi in #usiness has to #e /#roken u 0 into a lager num#er of small units, such that each unit may #e inde endently 1 easily #ought and sold without ham ering the #usiness activity as such. &lso, such #reaking of #usiness ownershi would hel mo#ili!e small savings in the economy into entre reneurial ventures. This end is achieved in a modern #usiness through the mechanism of shares.

What is a share? & share re resents the smallest recogni!ed fraction of ownershi in a u#licly held #usiness. Each such fraction of ownershi is re resented in the form of a certificate known as a share certificate. The #reaking u of total ownershi of a #usiness into small fragments, each fragment re resented #y a share certificate, ena#les them to #e easily #ought and sold. What is a stock exchange? The institution where this buying and selling of shares essentially takes lace is the Stock Exchange. In the a#sence of stock exchanges, ie. Institutions where small chunks of #usinesses could #e traded, there would #e no modern #usiness in the form of u#licly held com anies. Today, owing to the stock exchanges, one can #e art owners of one com any today and another com any tomorrow. one can #e art owners in several com anies at the same time. one can #e art owner in a com any hundreds or thousands of miles away. one can #e all of these things. Thus #y ena#ling the converti#ility of ownershi in the roduct market into financial assets, namely shares, stock exchanges #ring together #uyers and sellers 2or their re resentatives3 of fractional ownershi s of com anies. &nd for that very reason, activities relating to stock exchanges are also a ro riately enough, known as stock market or security market. &lso a stock exchange is distinguished #y a s ecific locality and characteristics of its own, mostly a stock exchange is also distinguished #y a hysical location and characteristics of its own. In fact, according to 4.T.5arekh, the earliest location of the Bom#ay Stock Exchange, which for a long eriod was known as /the native share and stock #rokers6 association0, was ro#a#ly under a tree around 789:; The stock exchanges are the exclusive centers for the trading of securities. The regulatory framework encourages this #y virtually #anning trading of securities outside exchanges. <ntil recently, the area of o eration= $urisdiction of exchange was s ecified at the time of its recognition, which in effect recluded com etition among the exchanges. These are called regional exchanges. In order to o rovide an ortunity to investors to invest= trade in the securities of local com anies, it is

mandatory foe the com anies, wishing to list their securities, to list on the regional stock exchange nearest to their registered office.

!haracteristics of Stock Exchanges in India

Traditionally, a stock exchange has #een an association of individual mem#ers called mem#er #rokers 2or sim ly mem#ers or #rokers3, formed for the ex ress ur ose of regulating and facilitating #uying and selling of securities #y the u#lic and institution at large. & stock exchange in India o erates with due recognition from the government under the Securities and Contracts 2Regulations3 &ct, 7>?@. the mem#er #rokers are essentially the middlemen who carry out the desired transactions in securities on #ehalf of the u#lic2for a commission3 or on their own #ehalf. +ew mem#ershi to a Stock Exchange is through election #y the governing #oard of that stock exchange. &t resent, there are AB stock exchanges in India, the largest among them #eing the Bom#ay Stock Exchange. BSE alone accounts for over 8:C of the total volume of transactions in shares. Ty ically, a stock exchange is governed #y a #oard consisting of directors largely elected #y the mem#er #rokers, and a few nominated #y the government. 'overnment nominee include re resentatives of the ministry of finance, as well as some u#lic re resentatives, who are ex ected to safeguard the u#lic interest in the functioning of the exchanges. & resident, who is an elected mem#er, usually nominated #y the government from among the elected mem#ers, heads the #oard. The executive director, who is usually a ointed #y the #y the stock exchange with the government a roval is the o erational chief of the stock exchange. 4is duty is to ensure that the day to day o erations the Stock Exchange are carried out in accordance with the various rules and regulations governing its functioning. The overall develo ment and regulation of the securities market has #een entrusted to the Securities and Exchange Board of India 2SEBI3 #y an act of arliament in 7>>A.

 &ll com anies wishing to raise ca ital from the u#lic are re-uired to list their securities on at least one stock exchange. Thus, all ordinary shares, reference shares and de#entures of the u#licly held com anies are listed in the stock exchange.

Exchange management
)ade some attem ts in this direction, #ut this did not materially alter the situation. In view of the less than satisfactory -uality, of administration of #rokerDmanaged exchanges, the finance minister in march A::7 ro osed demutualisation of would #e exchanges #y which ownershi , management and trading mem#ershi

segregated from each other. The regulators are working towards im lementing this. %f the AB stock exchanges in India, two stock exchanges vi!., %TCEI and +SE are already demutualised. Board of directors, which do not include trading mem#ers, manages these. Theses are urest form of demutualised exchanges, where ownershi , management and trading are in the hands of three sets of eo le. The conce t of demutualisation com letely eliminates any conflict of interest and hel s the exchange to ursue market efficiency and investors interest aggressively.

"ole of SEBI
The SEBI, that is, the Securities and the Exchange Board of India, is the national regulatory #ody for the securities market, set u under the securities and Exchange Board of India act, 7>>A, to / rotect the interest of investors in securities and to romote the develo ment of, and to regulate the securities market and for matters connected therewith and incidental too.0 SEBI has its head office in )um#ai and it has now set u regional offices in the metro olitan cities of Eolkata, "elhi, and Chennai. The Board of SEBI com rises a Chairman, two mem#ers from the central government re resenting the ministries of finance and law, one mem#er from the Reserve Bank of India and two other mem#ers a ointed #y the central government. &s er the SEBI act, 7>>A, the ower and functions of the Board encom ass the regulation of Stock Exchanges and other securities markets. registration and

regulation of the working stock #rokers, su#D#rokers, #ankers to an issue 2a u#lic offer of ca ital3, trustees of trust deeds, registrars to an issues, merchant #ankers, under writers, ortfolio managers, investment advisors and such other intermediaries who may #e associated with the stock market in any way. registration and regulations of mutual funds. romotion and regulation of selfD regulatory organi!ations. rohi#iting (raudulent and unfair trade ractices and insider trading in securities markets. regulating su#stantial ac-uisition of shares and takeover of com anies. calling for information from,undertking ins ection, conducting in-uiries and audits of stock exchanges, intermediaries and selfD regulatory organi!ations of the securities market. erforming such functions and exercising such owers as contained in the rovisions of the Ca ital Issues 2Control3 &ct,7>F9 and the Securities Contracts 2Regulation3 &ct, 7>?@, levying various fees and other charges, conducting necessary research for a#ove ur oses and erforming such other functions as may #e rescri#es from time to time. SEBI as the watchdog of the industry has an im ortant and crucial role in the market in ensuring that the market artici ants erform their duties in accordance with the regulatory norms. The Stock Exchange as a res onsi#le Self Regulatory %rgani!ation 2SR%3 function to regulate the market and its rices as er the revalent regulations. SEBI and the Exchange lay com limentary roles to enhance the investor rotection and the overall -uality of the market.

#embershi
The trading latform of a stock exchange is accessi#le only to #rokers. The #roker enters into trades in exchanges either on his own account or on #ehalf of clients. The clients may lace their order with them directly or a su#D#roker indirectly. & #roker is admitted to the mem#ershi of an exchange in terms of the rovisions of the SCR&, the SEBI act 7>>A, the rules, circulars, notifications, guidelines, etc. rescri#ed there under and the #yelaws, rules and regulations of the concerned exchange. +o stock#roker or su#D#roker is allowed to #uy, sell or deal in securities, unless he or she holds a certificate of registration granted #y SEBI. & #roker=su#D#roker com iles with the code of conduct rescri#ed #y SEBI.

The stock exchanges are free to sti ulate stricter re-uirements for its mem#ers than those sti ulated #y SEBI. The minimum standards sti ulated #y +SE for mem#ershi are in excess of the minimum norms laid down #y SEBI. The standards for admission of mem#ers laid down #y +SE stress on factors, such as, cor orate structure, ca ital ade-uacy, track record, education, ex erience, etc. and reflect the conscious endeavors to ensure -uality #roking services.

$isting
Listing means formal admission of a security to the trading latform of a stock exchange, invaria#ly evidenced #y a listing agreement #etween the issuer of the security and the stock exchange. . Listing of securities on Indian Stock Exchanges is essentially governed #y the rovisions in the com anies act, 7>?@, SCR&, SCRR, rules, #yeDlaws and regulations of the concerned stock exchange, the listing agreement entered into #y the issuer and the stock exchange and the circulars= guidelines issued #y central government and SEBI.

Index ser%ices
Stock index uses a set of stocks that are re resentative of the whole market, or a s ecified sector to measure the change in overall #ehavior of the markets or sector over a eriod of time. India Index Services 1 5roducts Limited 2IISL3, romoted #y +SE and CRISIL, is the only s eciali!ed organi!ation in the country to rovide stock index services.

Trading #echanism
&ll stock exchanges in India follow screenD#ased trading system. +SE was the first stock exchange in the country to rovide nationDwide orderDdriven, screenD#ased trading system. +SE model was gradually emulated #y all other stock exchanges in the country. The trading system at +SE known as the +ational Exchange for &utomated Trading 2+E&T3 system is an anonymous orderDdriven system and o erates on a strict rice=time riority. It ena#les mem#ers from across the countries to trade simultaneously with enormous ease and efficiency. +E&T has lent considera#le de th in the market #y ena#ling large num#er of mem#ers all over the

country to trade simultaneously and conse-uently narrowed the s reads significantly. & single consolidated order #ook for each stock dis lays, on a real time #asis, #uy and sell orders originating from all over the country. The #ookstores only limit orders, which are orders to #uy or sell shares at a stated -uantity and stated rice. The limit order is executed only if the rice -uantity conditions match. Thus, the +E&T system rovides an o en electronic consolidated limit order #ook 2%ECL%B3. The trading system rovides tremendous flexi#ility to the users in terms of kinds of orders that can #e laced on the system. Several timeDrelated 2'oodDTillDCancelled, 'oodDTillD"ay, ImmediateDorDCancel3, rice related 2#uy=sell limit and sto Dloss orders3 or volume related 2&llDorD+one, )inimum (ill, etc.3 conditions van #e easily #uilt into an order. %rders are sorted and match automatically #y the com uter kee ing the system trans arent, o#$ective and fair. The trading system also rovides com lete market information onDline, which is u dated on real time #asis. The trading latform of the C) segment of +SE is accessed not only from the com uter terminals from the remises of #rokers s read over FA: cities, #ut also from the ersonal com uters in the homes of investors through the internet and from the handDheld devices through G&5. The trading latform of BSE is also accessi#le from F:: cities. Internet trading is availa#le on +SE and BSE, as of now. SEBI has a roved the use of Internet as an order routing system, for communicating clients6 orders to the exchanges through #rokers. SEBID registered #rokers can introduce internetD#ased trading after o#taining ermission from the res ective Stock Exchanges. SEBI has sti ulated the minimum conditions to #e fulfilled #y trading mem#ers to start internetD #ased trading and services. +SE was the first exchange in the country to rovide we#D#ased access to investors to trade directly on the exchange. It launched Internet trading in (e#ruary A:::. It was followed #y the launch of Internet trading #y BSE in )arch A::7. The orders originating from the ersonal com uters 25Cs3 of investors are routed through the Internet tot eh trading terminals of the designated #rokers with whom they have relations and further to the exchange of trade execution. Soon after these orders get matched and result into trades, the investors get confirmation a#out them on their 5Cs through the same Internet routes.

SEBI a roved trading through wireless medium or G&5 latform. +SE is the only exchange to rovide access to its order #ook through the hand held devices, which use G&5 technology. This serves rimarily retail investors who are mo#ile and want to trade from any lace when the market rices for st:ocks of their choice are attractive.

&emat Trading
& de ository holds securities in demateriali!ed form. It maintains ownershi records of securities in a #ook entry form and also effects transfer of ownershi through #ook entry. SEBI has introduced some degree of com ulsion in trading and settlement of securities in demateriali!ed form. Ghile the investors have a right to hold securities in either hysical or demat form, SEBI has mandated com ulsory trading and settlement of securities in demateriali!ed form. This was initially introduced for institutional investors and was later extended to all investors. Starting with 7A scri s on Hanuary 7?, 7>>8, all investors are re-uired to mandatorily trade in demateriali!ed form in res ect of A,BB? securities as at endDHune, A::7. Since the introduction of the de ository system, demateriali!ation has rogressed at a fast ace and has gained acce tance among the artici ants in the market. &ll actively traded scri s are held, traded and settled in demat form. The details of rogress in demateriali!ation in two de ositories, vi!., +S"L and C"SL., are resented as #elowI In a SEBI working a er titled J"emateriali!ationI & Silent Revolution in the Indian Ca ital )arket6 released in & ril A:::, it has #een o#served that India has achieved a very high level of demateriali!ation in less than three years6 time, and currently more than >>Cof trades settle in demand form. Com etition and regulatory develo ments facilitated reduction in custodial charges and im rovements in -ualities of service standards. The a er obser%es that one imminent and a arent immediate benefit of com etition between the two de ositories is fall in settlement and other charges. !om etition has been dri%ing im ro%ement in ser%ice standards. "e ository facility has effected changes in stock market microstructure. Breadth and de th of investment culture has further got extended to interior areas of the country faster. Ex licit transaction cost has #een falling due to demateriali!ation. "emateriali!ation su#stantially contri#uted to the increased growth in the turnover.

"emateriali!ation growth in India is the -uickest among all emerging markets and also among develo ed markets exce ting for the <.E and 4ong Eong.

B'N('$)"E ST)!* E+!,'N(EINT")&.!TI)N

The Stock Exchange, )um#ai, o ularly known as KBSEK was esta#lished in 789? as KThe +ative Share and Stock Brokers &ssociationK, as a voluntary nonD rofit making association. It has evolved over the years into its resent status as the remier Stock Exchange in the country. It may #e noted that the Stock Exchanges is the oldest one in &sia, even older than the Tokyo Stock Exchange, which was founded in 7898. The Exchange, while roviding an efficient and trans arent market for trading in securities, u holds the interests of the investors and ensures redressal of their grievances, whether against the com anies or its own mem#erD#rokers. It also strives to educate and enlighten the investors #y making availa#le necessary informative in uts and conducting investor education rogrammes. & 'overning Board com rising of > elected directors 2one third of them retire every year #y rotation3, two SEBI nominees, a Reserve Bank of India nominee, six u#lic re resentatives and an Executive "irector is the a ex #ody, which decides the olicies and regulates the affairs of the Exchange. The Executive "irector as the Chief Executive %fficer is res onsi#le for the dayDtoD day administration of the Exchange. The average daily turnover of the Exchange during the year A:::DA::7 2& rilD )arch3, was Rs.B>8F.7> crores and average num#er of daily trades was ?.@> lakhs. 4owever, the average daily turnover of the Exchange during the year A::7D A::A has declined to Rs. 7AFF.7: crores and num#er of average daily trades during the eriod to ?.79 lakhs. The #an on all deferral roducts like BLESS and &LB) in the Indian ca ital )arkets #y SEBI w.e.f. Huly A, A::7, a#olition of account eriod settlements, introduction of Com ulsory Rolling Settlements in all scri s traded on the Exchanges

w.e.f. "ecem#er B7, A::7, etc. have adversely im acted the li-uidity and conse-uently there is a considera#le decline in the daily turnover at the Exchange.

!'/IT'$ $ISTE& 'N& #'"*ET !'/IT'$I0'TI)N.

The Stock Exchange, Bom#ay 2BSE3 is the remier Stock Exchange in India. The BSE accounted for F@ er cent of listed com anies on an all India #asis as on B7st )arch 7>>F. It ranked first in terms of the num#er of listed com anies and stock issues listed. The ca ital listed in the BSE as on B7st )arch 7>>F accounted for ?:C of the overall ca ital listed on all the stock exchanges. Its share of the market ca itali!ation was around 9FC as on the same date. The aidDu ca ital of e-uity, de#entures=#onds and reference were 9BC, B7C, FFC res ectively of the overall ca ital listed on all the Stock Exchanges as on the same date. %n the BSE, the Steel &uthority of India had the largest market ca itali!ation of Rs.7>, >:8 crores as on the B7st )arch, 7>>F followed #y the State Bank of India with the market ca itali!ation of Rs.7@, 9:A crores and )ahanagar Tele hone +igam Limited with the market ca itali!ation of Rs.77, 9:: crores.

BSE SENSE+
The BSE SENSE+, short form of Sensitive Index, first com iled in 7>8@ is a /market Ca itali!ationDGeighted0 index of B: com onent stocks re resenting a sam le of large, wellDesta#lished and financially sound com anies. The index is widely re orted in #oth, the domestic international, rint electronic media and is widely used to measure the used to measure the erformance of the Indian stock markets. The BSE SE+SEL is the #enchmark index of the Indian ca ital market and one, which has the longest social memory. In fact the SENSE+ is considered to #e the ulse of the Indian stock markets. It is the oldest index in India and has ac-uired a uni-ue lace in collective consciousness of the investors. (urther, as the oldest index of the Indian Stock )arket, it rovides time series data over a fairly long eriod of

time. Small wonder that the SENSE+ has over the years has #ecome one of the most rominent #rands of the Country.

)b1ecti%es of SENSE+
The BSE SENSE+ is the #enchmark index with wide acce tance among individual investors, institutional investors, foreign investors, foreign investors and fund managers. The o#$ectives of the index areI To measure market mo%ements 'iven its long history and its wide acce tance, no other index matches the BSE SENES+ in the reflecting market movements and sentiments. SENSE+ is widely used to descri#e the mood in the Indian stock markets. Benchmark for funds erformance The inclusion of #lue chi com anies and the wide and #alanced industry Re resentation in the SENSE+ makes it the ideal #enchmark for fund managers to com are the erformance of their funds.

2or index based deri%ati%es roducts Institutional investors, money managers and small investors, all refer to the BSE SENSE+ for their s ecific ur oses. The BSE SENSE+ is in effect the roxy for the Indian stock markets. Since SENSE+ com rises of the leading com anies in all the significant sectors in the economy, we #elieve that it will #e the most li-uid contract in the Indian market and will garner a redominant market share.

!om anies re resented in the SENSE+

!om any name 3's on 45.67.648 4industan lever Reliance limited Infosys technologies Reliance etroleum ITC State #ank of India )T+L Satyam com uters Mee telefilms Ran#axy la#s ICICI Larsen 1 tou#ro Ci la 4indalco 45CL TISC% +estle Sector ()C' Chemicals and etrochemicals Information technology %il and gas ()C' (inance Telecom Information technology )edia 4ealthcare (inance "iversified 4ealthcare )etals and mining )etal and mining )etal and mining ()C'

Trading System
Till +ow, #uyers and sellers used to negotiate faceDtoDface on the trading floor over a security until agreement was reached and a deal was struck in the o en outcry system of trading, that used to take lace in the trading ring. The transaction details of the account eriod 2called settlement eriod3 were su#mitted for settlement #y mem#ers after each trading session. The com uteri!ed settlement system initiated the netting and clearing rocess #y roviding on a daily #asis statements for each mem#er, showing matched and unmatched transactions. Settlement rocessing involves com utation of each mem#erNs net osition in each security, after taking into account all transactions for the mem#er during the settlement eriod, which is 7: working days for grou N&N securities and ? working days for grou NBN securities.

Trading is done #y mem#ers and their authori!ed assistants from their Trader Gork Stations 2TGS3 in their offices, through the BSE %nDLine Trading 2B%LT3 system. B%LT system has re laced the o en outcry system of trading. B%LT system acce ts twoDway -uotations from $o##ers, market and limit orders from clientD#rokers and matches them according to the matching logic s ecified in the Business Re-uirement S ecifications 2BRS3 document for this system. The matching logic for the CarryD(orward System as in the case of the regular trading system is -uote driven with the order #ook functioning as an Kauxiliary $o##erK.

T"'&IN( T"'&IN(
The Exchange, which had an o en outcry trading system, had switched over to a fully automated com uteri!ed mode of trading known as B%LT 2BSE on Line Trading3 System. Through the B%LT system the mem#ers now enter orders from Trader Gork Stations 2TGSs3 installed in their offices instead of assem#ling in the trading ring. This system, which was initially #oth order and -uote driven, was commissioned on )arch 7F, 7>>?. 4owever, the facility of lacing of -uotes has #een removed w.e.f., &ugust 7B, A::7 in view of lack of market interest and to im rove systemDmatching efficiency. The system, which is now only order driven, facilitates more efficient rocessing, automatic order matching and faster execution of orders in a trans arent manner. Earlier, the mem#ers of the Exchange were ermitted to o en trading terminals only in )um#ai. 4owever, in %cto#er 7>>@, the Exchange o#tained ermission from SEBI for ex ansion of its B%LT network to locations outside )um#ai. In terms of the ermission granted #y SEBI and certain modifications announced later, the mem#ers of the Exchange are now free to install their trading terminals at any lace in the country. Shri 5. Chidam#aram inaugurated the ex ansion of B%LT network the then (inance )inister, 'overnment of India on &ugust B7, 7>>9.

In order to ex and the reach of B%LT network to centers outside )um#ai and su

ort

the smaller Regional Stock Exchanges, the Exchange has, as on )arch B7, A::A, admitted su#sidiary com anies formed #y 7B Regional Stock Exchanges as its mem#ers. The mem#ers of these Regional Stock Exchanges work as su#D#rokers of the mem#erD#rokers of the Exchange. The o#$ectives of granting mem#ershi to the su#sidiary com anies formed #y the Regional Stock Exchanges were to reach out to investors in these centers via the mem#ers of these Regional Exchanges and rovide the investors in these areas access to the trading facilities in all scri s listed on the Exchange. Trading on the B%LT System is conducted from )onday to (riday #etween >I?? a.m. and BIB: .m. The scri s traded on the Exchange have #een classified into N&N, NB7N, NBAN, N(N and NMN grou s. The num#er of scri s listed on the Exchange under N&N, NB7 N, NBAN and NMN grou s, which re resent the e-uity segment, as on )arch B7, A::A was 79B, ?@:,7>B: and B:FF res ectively. The N(N grou re resents the de#t market 2fixed income securities3 segment wherein 9F8 securities were listed as on )arch B7, A::A. The NMN grou was introduced #y the Exchange in Huly 7>>> and covers the com anies which have failed to com ly with listing re-uirements and=or failed to resolve investor com laints or have not made the re-uired arrangements with #oth the "e ositories, vi!., Central "e ository Services 2I3 Ltd. 2C"SL3 and +ational Security "e ository Ltd. 2+S"L3 for demateriali!ation of their securities #y the s ecified date, i.e., Se tem#er B:, A::7. Com anies in KMK grou num#ered B:FF as on )arch B7, A::A. %f these, 7FA> com anies were in KMK grou for not com lying with the rovisions of the Listing &greement and=or ending investor com laints and the #alance 7@7? com anies were on account of not making arrangements for demateriali!ation of their securities with #oth the "e ositories. 7@7? com anies have #een ut in KMK grou as a tem orary measure till they make arrangements for demateriali!ation of their securities. %nce they finali!e the arrangements for demateriali!ation of their securities, trading and settlement in their scri s would #e shifted to their res ective erstwhile grou s. The Exchange has also the facility to trade in KCK grou which covers the odd lot securities in N&N, NB7N, NBAN and NMN grou s and Rights renunciations in all the grou s of

scri s in the e-uity segment. The Exchange, thus,

rovides a facility to market

artici ants of onDline trading in odd lots of securities and Rights renunciations. The facility of trading in odd lots of securities not only offers an exit route to investors to dis ose of their odd lots of securities #ut also consolidate their securities into market lots. The NCN grou can also #e used #y investors for selling u to ?:: shares in hysical form in res ect of scri s of com anies where trades are to #e com ulsorily settled #y all investors in demat mode. This scheme of selling hysical shares in com ulsory demat scri s is called as Exit Route Scheme. Gith effect from "ecem#er B7, A::7, trading in all securities listed in e-uity segment of the Exchange takes Settlement Segment. lace in one market segment, vi!., Com ulsory Rolling rovides them an o ortunity to

/ermitted Securities The Exchange has since decided to ermit trading in the securities of the com anies listed on other Stock Exchanges under K 5ermitted SecuritiesK category which meet the relevant norms s ecified #y the Exchange. &ccordingly, to #egin with the Exchange has ermitted trading in scri s of five com anies listed on other Stock Exchanges w.e.f. & ril AA, A::A=

!om utation of closing rice of scri s in the !ash SegmentThe closing rices of scri s are com uted on the #asis of weighted average rice of all trades in the last 7? minutes of the continuous trading session. 4owever, if there is no trade during the last 7? minutes, then the last traded rice in the continuous trading session is taken as the official closing rice.

'8 !om ulsory "olling Segment 3!"S8!om ulsory "olling Settlement 3!"S8 Segment-

Gith a view to introduce the #est international trading ractices and to achieve higher settlement efficiency, as mandated #y SEBI, trades in all the e-uity shares listed on the Exchange in CRS Segment were to #e settled on TO? #asis w.e.f. "ecem#er B7, A::7. SEBI has further directed the Stock Exchanges that trades in all scri s w.e..f. & ril 7, A::A should #e settled on TOB #asis. &ccordingly, all transactions in all grou s of securities in the e-uity segment and fixed income securities listed on the Exchange are settled on TOB #asis w.e.f. & ril 7, A::A

<nder a rolling settlement environment, the trades done on a articular day are settled after a given num#er of #usiness days rather than settling all trades done during a eriod at the end of an Naccount eriodN. & TOB settlement cycle means that the final settlement of transactions done on T or trade day #y exchange of monies and securities, occurs on fifth #usiness day after the trade day. The transactions in securities of com anies which have made arrangements for demateriali!ation of their securities #y the sti ulated date are settled only in "emat mode on TOB on net #asis, i.e., #uy and sale ositions in the same scri are netted and the net -uantity is to #e settled. 4owever, transactions in securities of com anies, which have failed to make arrangements for demateriali!ation of their securities or =are in KMK grou , are settled only on trade to trade #asis on TOB i.e., the transactions are settled on a gross #asis and the facility of netting of #uy and sale transactions in a scri is not availa#le. (or exam le, if one #uys and sells 7:: shares of a com any on the same day which is on trade to trade #asis, the two ositions will not #e netted and he will have to first deliver 7:: shares at the time of ayDin of securities and then receive 7:: shares at the time of ayDout of securities on the same day. Thus, if one fails to deliver the securities sold at the time of ayDin, it will #e treated as a shortage and the osition will #e auctioned= closedDout. In other words, the transactions in scri s of com anies which are in com ulsory demat are settled in demat mode on TOB on netting #asis and the transactions in scri s of com anies, which have not made arrangements for demateriali!ation of their

securities #y the sti ulated date or are in KMK grou for other reasons, are settled on trade to trade #asis on TOB either in demat mode or in hysical mode. The settlement of transactions in N(N grou securities re resenting (ixed Income

Securities is also on Rolling Settlement Cycle of TOB #asis. The following ta#les summari!es the ste s in the trading and settlement cycle for scri s under CRSI "&P &CTIQITP Trading on B%LT and daily downloading of statements showing details of transactions and margins at the end of each trading day. @&=9& entry #y the mem#erD#rokers. TO7 Confirmation of @&=9& data #y the Custodians. "ownloading of securities and funds o#ligation statement #y mem#ers.

TOB 5ayDin of funds and securities #y 77I:: a.m. and ayDout of funds and securities #y AI:: .m TOF &uction on B%LT. TO? &uction ayDin and ayDout.

R @&=9& I & mechanism where#y the o#ligation of settling the transactions done #y a mem#erD#roker on #ehalf of a client is confirmation. Thus, the ayDin and ayDout of funds and securities takes laces on the Brd working day of the execution of the trade. The Information Systems "e artment of the Exchange generates the following statements, which can #e downloaded #y the mem#ers in their #ack offices on a daily #asis. assed on to a custodian #ased on his

Statements giving details of the daily transactions entered into #y the mem#ers.

Statements giving details of margins aya#le #y the mem#ers in res ect of the trades executed #y them. The settlement of the trades 2money and securities3 done #y a mem#er on his own account or on #ehalf of his individual, cor orate or institutional clients may #e either through the mem#er himself or through a SEBI registered Custodian a ointed #y him or the res ective client. In case the delivery= ayment is to #e given or taken #y a registered Custodian, he has to confirm the trade done #y a mem#er on the B%LT System through @&D9& entry. (or this ur ose, the Custodians have #een given connectivity to B%LT System and have also #een admitted as mem#ers of the Clearing 4ouse. In case a transaction is not confirmed #y a registered Custodian, the lia#ility for ayDin of funds or securities in res ect of the same devolves on the concerned mem#er. The introduction of settlement on TOB #asis has resulted in reduction in settlement risk, rovided early recei t of securities and monies to #uyers and sellers res ectively and #rought Indian Ca ital )arkets at the international standard of settlements

Settlement
Pay-in and Pay-out for 'A', 'B1', 'B2', 'C', "F" & 'Z' group of securities &s discussed earlier, the trades done #y mem#ers in all the securities in CRS are now settled #y ayment of money and delivery of securities on TOB #asis. &ll deliveries of securities are re-uired to #e routed through the Clearing 4ouse, exce t for certain offD market transactions which, although are re-uired to #e re orted to the Exchange, may #e settled directly #etween the mem#ers concerned. The Clearing 4ouse is an inde endent com any romoted $ointly #y Bank of India and Stock Exchange, )um#ai for handling the clearing and settlement o erations of funds and securities on #ehalf of the Exchange. (or this ur ose, the Clearing 1 Settlement "e t. of the Exchange liaises with the Clearing 4ouse on a day to day #asis. The Information Systems "e artment 2IS"3 of the Exchange generates "elivery and Receive %rders for transactions done #y the mem#ers in &, B7, BA and ( grou scri s after netting urchase and sale transactions in each scri whereas "elivery and Receive %rders for KCK and KMK grou scri s are generated on trade to trade #asis, i.e., without netting of urchase and sale transactions in a scri . The "elivery %rders rovide information like scri , -uantity and the name of the receiving mem#er to whom the securities are to #e delivered through the Clearing 4ouse. The )oney Statement rovides scri wise=item wise details of ayments=recei ts for the settlement. The "elivery=Receive %rders and money statements can #e downloaded #y the mem#ers in their #ack offices The #ank accounts of mem#ers maintained with the eight clearing #anks, vi!., Bank of India, 4"(C Bank Ltd., 'lo#al Trust Bank Ltd., Standard Chartered Bank, Centurion Bank Ltd., <TI Bank Ltd., ICICI Bank Ltd., and Indusind Bank Ltd., are directly de#ited through com uteri!ed osting for their settlement and margin

o#ligations and credited with receiva#les on accounts of ayDout dues and refund of margins. The securities, as er the "elivery %rders issued #y the Exchange, are re-uired to #e delivered #y the mem#ers in the Clearing 4ouse on the day designated for securities ayDin, i.e., on TOB day. In case of the hysical securities, the mem#ers have to deliver the securities in s ecial closed ouches 2su on a flo lied #y the Exchange3 along with ies is matched against the the relevant details 2distinctive num#ers, scri code, -uantity, and receiving mem#er3 y. The data su#mitted #y the mem#ers on flo master file data on the Clearing 4ouse com uter systems. If there are no discre ancies, then a scroll num#er is generated #y the Clearing 4ouse and a scroll sli is issued. The mem#ers can then su#mit the securities at the receiving counter in the Clearing 4ouse

'uto &.). facilityInstead of issuing "elivery %ut instructions for their delivery o#ligations in a settlement =auction, a facility has #een made availa#le to the mem#ers of automatically generating "eliveryD%ut 2".%.3 instructions on their #ehalf from their C) 5ool &=cs #y the Clearing 4ouse w.e.f., &ugust 7:, A:::. This &uto ".%. facility is availa#le for CRS 2+ormal 1 &uction3 and for tradeDtoDtrade settlements. This facility is, however, not availa#le for delivery of nonD ari assu shares and shares having multi le ISI+s. The mem#ers wishing to avail of this facility have to su#mit an authority letter to the Clearing 4ouse. This &uto ".% facility is currently availa#le only for Clearing )em#er 2C)3 5ool accounts=5rinci al &ccounts maintained #y the mem#ers with +ational Securities "e ository Ltd. 2+S"L3 and Central "e ositories Services Ltd. 2C"SL3

&emat ay9inThe mem#ers can effect demat ayDin either through Central "e ository Services 2I3 Ltd. 2C"SL3 or +ational Securities "e ository Ltd. 2+S"L3. In case of +S"L, the mem#ers are re-uired to give instructions to their "e ository 5artici ant 2"53

s ecifying settlement no., settlement ty e, effective ayDin date, -uantity, etc. The securities are transferred to the 5ool &ccount. The mem#ers are re-uired to give deliveryDout instructions so that the securities are considered for ayDin. &s regards C"SL, the mem#ers give ayDin instructions to their "5. The securities are transferred to Clearing )em#er 2C)3 5rinci al &ccount. The mem#ers are re-uired to give confirmation to their "5, so that securities are rocessed towards ayDin o#ligations. &lternatively, mem#ers may also effect software to generate o#ligation and settlement I". The Clearing 4ouse arranges and tallies the securities received against the receiving mem#er wise re ort generated on the 5ayDin day. %nce this reconciliation is com lete, the #ank accounts of mem#ers with seven clearing #anks having ayDin ositions are de#ited on the scheduled ayDin day. This rocedure is called (unds 5ayDin. In case of the demat securities, the securities are credited in the 5ool &ccount of the mem#ers or the Client &ccounts as er the client details su#mitted #y the mem#ers. In case of 5hysical securities, the Receiving )em#ers collect securities from the Clearing 4ouse on the ayout day and the accounts of the mem#ers having ayout are credited on (riday. This is referred to as 5ayout. In case of the Rolling Settlements, ayDin and ayout of #oth funds and securities is on the same day, in case of Geekly settlements, ayDin of funds and securities is on Thursday and ayout is on (riday. The auction is conducted for those securities which mem#ers fail to deliver=short deliver during the 5ayDin. In case the securities are not received in an auction, the ositions are closed out as er the closeout rate fixed #y the Exchange in accordance with the rescri#ed rules. The close out rate is calculated as the highest rate of the scri recorded in the settlement in which the trade was executed and in the su#se-uent settlement u to the day rior to the day of auction, or A:C a#ove the closing rice on the day rior to the day of auction, whichever is higher. 4owever, in case of closeDout for shares under o#$ection or traded in KCK grou , 7:C instead of A:C a#ove the closing rice on the day rior to the day of auction and the highest rice recorded in the settlement in which trade took lace u to a day rior to auction is considered. ayDin from clientsN #eneficiary accounts for which mem#er are re-uired to do #reakDu on the frontDend

The Exchange has strictly adhered to the settlement schedules for various grou s of securities and there has #een no case of clu##ing of settlements or ost onement of ayDin and ayDout during the last six years. The Exchange is also maintaining a data#ase of fake=forged, stolen, lost and du licate securities with the Clearing 4ouse so that distinctive num#ers su#mitted #y mem#ers on delivery may #e matched against the data#ase to weed out #ad a er from circulation at the time of introduction of such securities in the market. This data#ase has also #een made availa#le to the mem#ers so that delivering and receiving mem#ers can check the entry of fake, forged and stolen shares in the market

S,)"T'(ES 'N& )B:E!TI)NS

Shortages & consequent actions The mem#ers download "elivery=Receive %rders #ased on their netted ositions for transactions entered into #y them during a settlement in N&N, NB7N, NBAN, and N(N grou scri s and on trade to trade #asis, i.e., without netting #uy and sell transactions in scri s in KCK 1 NMN grou s and scri s in B7 and BA grou s which have #een ut on trade to trade #asis as a surveillance measure. The seller mem#ers have to deliver the shares in the Clearing 4ouse as er the "elivery %rders downloaded. If a seller mem#er is una#le to deliver the shares on the 5ayDin day for any reason, his #ank account is de#ited at the standard rate 2which is e-ual to the closing rice of the scri on the day of trading3 fixed #y the Exchange for the -uantity of shares short delivered. The Clearing 4ouse arrives at the shortages in delivery of various scri s #y mem#ers on the #asis of their delivery o#ligations and actual delivery. The mem#ers can download the statement of shortages on TOB in Rolling Settlements. &fter downloading the shortage details, the mem#ers are ex ected to verify the same and re ort discre ancy , if any, to the Clearing 4ouse #y 7I:: .m. If no discre ancy is re orted within the sti ulated time, the Clearing 4ouse assumes that the shortage of a mem#er is in order and roceeds to auction the same. 4owever, in NCN grou , i.e.,

%dd Lot segment the mem#ers are themselves re-uired to re ort the shortages to the Clearing 4ouse. The Exchange issues an &uction Tender +otice to the mem#ers informing them a#out the names of the scri s, -uantity slated for auction and the date and time of the auction session on the B%LT. The auction for the undelivered -uantities is conducted on TOF for all the scri s under com ulsory Rolling Settlements. The auction offers received in #atch mode are electronically matched with the auction -uantities so as to award the N#est riceN. The mem#ers who artici ate in the auction session can download the "elivery %rders on the same day, if their offers are acce ted. The mem#ers are re-uired to deliver the shares in the Clearing 4ouse on the auction 5ayD in day, i.e, TO?. 5ayD%ut of auction shares and funds is also done on the same day, i.e., TO?. The various auction sessions relating to shortages, and #ad deliveries are now conducted during normal trading hours on B%LT. Thus, it is ossi#le to schedule multi le auction sessions on a single trading day. In auction, the highest offer rice is allowed u to the closeDout rate and the lowest offer rice can #e A:C #elow the closing rice on a day rior to day of auction. & mem#er who has failed to deliver the securities of a articular com any on the ayDin day is not allowed to offer the same in auction. 4e can, however, artici ate in auction of other scri s. In case no offers are received in auction for a articular scri , the sale transaction is closedDout at a closeDout rice, determined #y higher of the followingID D 4ighest rice recorded in the scri from the settlement in which the transaction took lace u to a day rior to the day of the auction.

D A:C a#ove the closing rice on a day rior to the day of auction.

4owever, in case of the closeDout of the shares under o#$ection and shortages in KCK or KMK grou , 7:C a#ove the closing rices of the scri s on the ayDout day of the res ective settlement are considered instead of A:C. (urther, if the auction rice=closeDout rice of a scri is higher than the standard rice of the scri in the settlement in which the transaction was done, the difference is recovered from the seller who failed to deliver the scri . 4owever, in case, auction= closeDout rice is lower than standard rice, the difference is not given to the seller #ut is credited #y the Exchange to the Customers 5rotection (und. This is to ensure that the seller does not #enefit from his failure to meet his delivery o#ligation. (urther, if the offeror mem#er fails to deliver the shares offered in auction, then the transactions is closedDout as er the normal rocedure and the original selling mem#er ays the difference #elow the standard rate and offer rate and the offeror mem#er ays the difference #etween the offer rate and closeDout rate. Self 'uction &s has #een discussed in the earlier aragra hs, the "elivery and Receive %rders are issued to the mem#ers after netting off their urchase and sale transactions in scri s where netting of urchase and sale ositions is ermitted. It is likely in some circumstances that a selling client of a mem#er has failed to deliver the shares to him. 4owever, this did not result in a mem#erNs failure to deliver the shares to the Clearing 4ouse as there was a urchase transaction of some other #uying client of the mem#er in the same scri and the same was netted off for the ur ose of settlement. 4owever, in such a case, the mem#er would re-uire shares so that he can deliver the same to his #uying client, which otherwise would have taken lace from the delivery of shares #y the seller. To rovide shares to the mem#ers, so that they are in a osition to deliver them to their #uying clients in case of internal shortages, the mem#ers have #een given an o tion to su#mit flo ies for conducting selfDauction 2i.e., as if they have ies are to #e given to defaulted in delivery of shares to the Clearing 4ouse3. Such flo

the Clearing 4ouse on the ayDin day. The internal shortages re orted #y the mem#ers are clu##ed with the normal shortages in a settlement and the Clearing 4ouse for the com#ined shortages conducts the auction. & mem#er after getting delivery of shares from the Clearing 4ouse in selfDauction credits the shares to the Beneficiary account of his client or hand over the same to him in case securities received are in hysical

form and de#its his seller client with the amount of difference, if any, #etween the auction rice and original sale rice

B8 )b1ections
Ghen receiving mem#ers collect the hysical securities from the Clearing 4ouse on the 5ayout day, the same are re-uired to #e checked #y them for good delivery as er the norms rescri#ed #y the SEBI in this regard. If the receiving mem#er does not consider the securities good delivery, he has to o#tain an ar#itration award from the ar#itrators and su#mit the securities in the Clearing 4ouse on the following day of the 5ayD%ut 2TOF3. The Clearing 4ouse returns these securities to the delivering mem#ers on the same day, i.e., 2TOF3. If a delivering mem#ers feels that ar#itration awards o#tained against him is incorrect, he is re-uired to o#tain ar#itration award for invalid o#$ection from the mem#ers of the &r#itration Review Committee. The delivering mem#ers are re-uired to rectify=re lace the o#$ections and return the shares to the Clearing 4ouse on next day 2TO?3 to have the entry against them removed. The rectified securities are delivered #y the Clearing 4ouse to the #uyer mem#ers on the same day 2TO?3. The #uyer mem#ers, if they are not satisfied with the rectification, are re-uired to o#tain ar#itration awards for invalid rectification from the Bad "elivery Cell on TO@ day and su#mit the shares to the Clearing 4ouse on the same day. If a mem#er fails to rectify=re lace the o#$ections then the same are closedDout. This is known as K%#$ection CycleK and the entire rocess takes B days. The following table summari;es the acti%ities in%ol%ed in the /atawat )b1ection !ycle of !"S. "&P &CTIQITP T O B 5ayDout of securities of Rolling Settlement T O F 5atawat &r#itration session I &r#itration awards to #e o#tained from officials of the Bad "elivery Cell.

Securities under o#$ection to #e su#mitted in the Clearing 4ouse &r#itration awards for invalid o#$ection to #e o#tained from mem#ers of the &r#itration Review Committee TO? )em#ers and institutions to su#mit rectified securities, confirmation forms and invalid o#$ections in the clearing house Rectified securities delivered to the receiving mem#ers TO@ &r#itration &wards for invalid rectification to #e o#tained from officials of the Bad "elivery Cell Securities to #e lodged with the clearing house

The unDrectified and invalid rectification of securities are directly closedDout #y the Clearing 4ouse instead of first inviting the auction offers for the same. The shares in hysical form returned under o#$ection to the Clearing 4ouse are re-uired to #e accom anied #y an ar#itration award 2Chukada3 exce t in certain cases where the receiving mem#ers are ermitted to su#mit securities to the Clearing 4ouse without KChukadaK. These cases are as followsI Transfer "eed is out of date. Che-ues for the dividend ad$ustment for new shares where distinctive num#ers are given in the Exchange +otice is not enclosed. Stam of the Registrar of Com anies is missing. "etails like "istinctive +um#ers, TransferorsN +ames, etc. are not filled, in the Transfer "eeds. "elivering #rokerNs stam on the reverse of the Transfer "eed is missing.

Gitness stam or signature on Transfer "eed is missing. Signature of the transferor is missing. "eath Certificate 2in cases where one or more of the transferors are deceased3 is missing. & enalty at the rate of Rs.7::=D er "elivery %rder is levied on the delivering mem#er for delivering shares, which are not in order. In the event a receiving mem#er misuses the facility of su#mitting shares under o#$ection without KChukadaK, a enalty of Rs.?::=D er case is charged and the enalty of Rs.7::=D er "elivery %rder levied on the delivering mem#er is refunded to him #y de#iting the receiving mem#erNs account !lose )utThere are cases when no offer for articular scri is received in an auction or when mem#ers who offer the scri s in auction, fail to deliver the same. In the former case, the original seller mem#erNs account is de#ited and the #uyer mem#erNs account is credited at the closeout rate. In the latter case, the offeror mem#erNs account is de#ited and the #uyer mem#erNs account is credited at the closeDout rate. The closeout rates for closing the ositions in different segments are as underI 2or <'< = <B4< = <B>< = <0<? <"olling demat< and <2< grou The closeout rate is higher of the following ratesI The highest rate of the scri from the first day 2trading day in case of Rolling demat segment3 to the day rior to the day on which the auction is conducted for the res ective settlement. A:C a#ove the closing rate as on the day rior to the day of auction of the res ective settlement.

2or <!< grou segment The closeDout rate is higher of the following rates I

 The highest rate of the scri from the first day to the day rior to the day of auction of N&N, NB7N, NBA, and NMN grou segment of the res ective settlements. or 7:C a#ove the closing rate as on the day rior to the day of auction of N&N, NB7N, NBA, and NMN grou . or Transaction rice. In the NCN grou , i.e., %dd Lot Segment, no auction session is conducted. The shortages are directly closed out. !lose )utThere are cases when no offer for articular scri is received in an auction or when mem#ers who offer the scri s in auction, fail to deliver the same. In the former case, the original seller mem#erNs account is de#ited and the #uyer mem#erNs account is credited at the closeout rate. In the latter case, the offeror mem#erNs account is de#ited and the #uyer mem#erNs account is credited at the closeDout rate. The closeout rates for closing the ositions in different segments are as underI 2or <'< = <B4< = <B>< = <0<? <"olling demat< and <2< grou The closeout rate is higher of the following ratesI The highest rate of the scri from the first day 2trading day in case of Rolling demat segment3 to the day rior to the day on which the auction is conducted for the res ective settlement. A:C a#ove the closing rate as on the day rior to the day of auction of the res ective settlement.

2or <!< grou segment The closeDout rate is higher of the following rates I The highest rate of the scri from the first day to the day rior to the day of auction of N&N, NB7N, NBA, and NMN grou segment of the res ective settlements. or 7:C a#ove the closing rate as on the day rior to the day of auction of N&N, NB7N, NBA, and NMN grou . Transaction rice.

In the NCN grou , i.e., %dd Lot Segment, no auction session is conducted. The shortages are directly closed out.

B'S*ET T"'&IN( S@STE#

The Exchange has commenced trading in the "erivatives Segment with effect from Hune >, A::: to, ena#le the investors to hedge their risks. Initially, the facility of trading in the "erivatives Segment has #een confined to Index (utures. Su#se-uently, the Exchange has since introduced the index o tions and o tions 1 futures in select individual stocks. The investors in cash market had felt a need to limit their risk ex osure in the market to movement in Sensex. Gith a view to rovide investors with this facility of creating Sensex linked ortfolios and also to create a linkage of market rices of the underlying securities of Sensex in the Cash Segment and (utures on Sensex, the Exchange has rovided the facility of Basket Trading System on B%LT. In Basket Trading System, the investors are a#le to #uy= sell all B: scri s of Sensex in the ro ortion of their res ective weights in the Sensex, in one go. The investors need not calculate the -uantity of Sensex scri s to #e #ought or sold for creating Sensex linked ortfolios and this function is erformed #y the system. The investors are also allowed to create their own #askets #y deleting certain scri s from the Sensex #asket of B: scri s. (urther, the Basket Trading System rovides the ar#itrageurs an o ortunity to take

advantage of rice differences in the underlying securities of Sensex and (utures on the Sensex #y simultaneous #uying and selling of #askets covering the Sensex scri s and Sensex (utures. This is ex ected to have #alancing im act on the rices in #oth cash and futures markets. The Basket Trading System would, thus, meet the needs of investors and also #oost the volumes and de th in cash and futures markets.

The Basket Trading System has #een im lemented #y the Exchange w.e.f. )onday, the 7Fth &ugust A:::. The trades executed under the Basket Trading System are su#$ect to intraDday trading=gross ex osure limits and daily margins as are a lica#le to normal trades.. To artici ate in this system the mem#er indicates num#er of Sensex #asket2s3 to #e #ought or sold, where the value of one Sensex #asket is arrived at #y the system #y multi lying Rs.?: to revailing Sensex.

SETT$E#ENT S@STE#
Securities traded on BSE are classified into three grou s, namely, s ecified shares or N&N grou and nonDs ecified securities that are su#Ddivided into NB7N and NBAN grou s. 5resently, e-uity shares of thirtyDtwo com anies are classified as s ecified shares. These com anies ty ically have a large ca ital #ase with wides read shareholding, a steady dividend, good growth record and a large volume of #usiness in the secondary market. Contracts in this grou are allowed to #e carried over to su#se-uent settlements u to a maximum ermissi#le eriod of 9? days. F>? relatively li-uid securities are laced in a category called NB7N grou . The

remaining securitiesDa#out ?8:: as on )ay B7, 7>>@ are laced in the NBAN grou . &ll newly listed securities are laced in the NBAN grou . Settlement of transactions is done on an N&ccount 5eriodN #asis. The eriod is a calendar week in the case of N&N and NB7N grou s and 7F calendar days in the case of NBAN grou "uring an account eriod, #uy or sell ositions in a articular security can #e either s-uared u #y entering into contra transactions or can #e further accumulated #y entering into more #uy or sell transactions.

!learing System
The Clearing 4ouse of the Exchange handles the share and the money arts of the settlement rocess in the case of N&N and NB7N grou s. The Clearing 4ouse handles only the money art of NBAN grou while securities are hysically exchanged #etween the #rokers.

ortunities a%ailable for foreign in%estors

7. "irect investmentI (oreign Com anies are now ermitted to have a ma$ority stake in their Indian affiliates exce t in a few restricted industries. In certain s ecific industries, foreigners can even have holding u to 7:: er cent. A. Investment through Stock ExchangesI (oreign Institutional Investors 2(II3 u on registration with the Securities and Exchange Board of India 2SEBI3 and the Reserve Bank of India 2RBI3 are allowed to o erate in Indian Stock Exchanges su#$ect to the guidelines issued for the ur ose #y SEBI. Im ortant re-uirements under the guidelines are as underI I. 5ortfolio investment in rimary or secondary markets will #e su#$ect to a ceiling of AF er cent of issued share ca ital for the total holding of all registered (IIs in any one com any. The holding of a single (II in any one com any is su#$ect to a ceiling of ? er cent of the total issued ca ital. 4owever, in a lying the ceiling of AF ercent the following are excludedI (oreign investment under a financial colla#oration 2"(I3, which is, ermitted u to ?7 er cent in all riority areas. Investment #y (IIs through following alternative routes. %ffshore Single=Regional funds, '"RNs and Euro converti#les. II. "isinvestments will #e allowed only through a #roker of a Stock Exchange. III. & registered (II is re-uired to #uy or sell only for delivery. It should not offset a deal. It is also not allowed to sell short.

B. Investment in Euro Issues=)utual (unds (loated %verseasI (oreign investors can invest in Euro issues of Indian com anies and in IndiaD s ecific funds floated a#road. F. Broking BusinessI (oreign #rokers u on registration with the SEBI are now allowed to route the #usiness of registered (IIs. 'uideline for the ur ose have #een issued #y SEBI.

4owever, foreign #rokers at resent are not allowed mem#ershi in India Stock Exchanges. ?. &sset )anagement Com anies=)erchant BankingI (oreign 5artici ation in &sset )anagement Com anies and )erchant Banking Com anies is ermitted.

T"'NS2E" )2 )WNE"S,I/
Transfer of ownershi of securities in effected through a date stam ed transferDdeed, which is signed, #y the #uyer and the seller. The duly executed transferDdeed along with the share certificate has to #e lodged with the com any for change in the ownershi . & nominal duty #ecomes aya#le in the form of stam s to #e affixed on the transferDdeeds. TransferDdeeds remain valid for twelve months or the next #ook closure following the stam ed date whichever occurs later.

S'2E(.'"&S
7. )argins are collected from the #rokers on #uying and selling ositions at the end of the day. The total outstanding osition is further su#$ect to ca ital ade-uacy norms laid down from time to time. A. & com rehensive insurance cover for the Exchange and the mem#ers is a#out to #e ut in lace. B. 'uaranteeing trades is the cornerstone of a mature clearing and settlement rocess. BSE is in the rocess of esta#lishing a Clearing Cor oration that will guarantee trades. F. Com anies are re-uired to u#lish halfDyearly unaudited results and other rice sensitive information. This im arts greater trans arency to the stock market o erations. ?. Insider Trading Regulations have #een laid down and a NTakeD%verN code has #een created.

'"BIT"'TI)N #'!,INE"@ There exists three level ar#itration machinery. The first two levels, which are ad$udicated #y mem#er #rokers, com rise of a twoD mem#er #ench and a full #ench that is to com rise of at least sixteen mem#ers res ectively. The highest ar#itrator in the Exchange is the 'overning Board. "is utes unresolved in the Exchange are taken to the Court of Law. !.ST)#E" /")TE!TI)N 2.N&
The o#$ective of this fund is to rovide insurance to investors in case of default #y a mem#er. The investor is indemnified from default to the extent of Rs.7, ::,:::. The cor us of the fund is created #y de ositing A.?C of the listing fees and a levy on turnover at the rate or Re.7 for Rs. 7 million of turnover. It is further augmented #y ?:C of the interest accrued on 7C of the issue amount which is de osited #y com anies at the time of their u#lic and rights issues for a three month eriod as a safeguard against nonDrefund of excess su#scri tion.

("IEA'N!E "E&"ESS'$
The InvestorNs Services Cell redresses investorsN grievances against listed com anies and stock#rokers. 4owever, the Exchange does not have ower to take enal action against listed com anies, exce t delisting for s ecified eriods.

&IS!I/$IN'"@ '!TI)N
The Exchange has an eight mem#er "isci linary &ction Committee 2"&C3 which decides on unitive action in disci linary cases referred to it #y the Surveillance and ins ection de artments of the Exchange &dministration.

IN&I!ES
The Exchange com iles four indices, which are #ased on market ca itali!ation. The first index to #e com iled was the BSE Sensitive Index with 7>98D9> as the #ase year. It com rises of e-uity shares of B: com anies from #oth s ecified and nonDs ecified

securities grou s. The com anies have #een selected on the #asis of market activity. Su#se-uently, a more #road #ased index, BSE +ational Index with 7>8BD8F as #ase year, was com iled. This index is made u of 7:: scri s, >8 of which are -uoted on Bom#ay. This index also includes rices on the other ma$or stock exchanges of "elhi, Calcutta, &hmeda#ad and )adras. If scri is actively -uoted on more than one Exchange the average rice of the scri is used in the com ilation of the index. It was felt that the sensitive indexDthe most o ular indicator of market movementD had #ecome oversensitive to a handful of scri s. Gith divestment of 5u#lic Sector <nit 25S<3 e-uity #y government and a shar increase in the num#er of com anies listed over the last few years, it was felt that a new index, which is more re resentative of the recent changes and is more #alanced is necessary. The BSEDA::, which was introduced in )ay 7>>F, consists of e-uity shares of A:: com anies, which have #een selected on the #asis of market ca itali!ation, volume of turnover and strength of the com aniesN fundamentals. 7>8>D>: has #een chosen as the #ase year for BSEDA::. &s the resence of the foreign investors grew, a need was felt to ex ress the index values #y taking into account the Ru eeD"ollar conversion rate. Conse-uently, dividing the current Ru ee market value #y Ru eeD"ollar modifies the BSEDA:: conversion rate in the #ase year. This index, which indicates the movement of the market in dollar values, is called the "ollex.

&IS!$)S."E B $ISTIN( N)"#S

Com anies who wish to raise money from ca ital market follow guidelines relating to disclosure, laid down #y the Securities and Exchange Board of India. Some of the disclosure norms areI "etails of other income if it constitutes more than ten ercent of total income. &ll adverse event affecting the o erations of the com any. &ny change in key managerial ersonnel. Risk factors s ecific to the com any. ro$ect and those which are external to the

The listing re-uirements with the Exchange call for further disclosure #y com anies to romote u#lic confidence. Im ortant disclosures areI The com any is re-uired to furnish unaudited halfDyearly financial results in the rescri#ed 5erforma. The com any must ex lain to the Stock Exchange any large variation #etween audited and unaudited results in res ect of any item. Ghen any erson or an institution ac-uires or agrees to ac-uire any security of a com any which would result in his holding five ercent or more of the voting ca ital of the com any, including the existing holding the Exchange must #e notified within two days of such ac-uisition #y the com any or #y authori!ed intermediary or #y the ac-uirer. &ny takeDover offer made either voluntarily or com ulsorily to a com any re-uires a u#lic announcement #y #oth the offeror and the offeree com any.

!om uteri;ed Trading

BSE com uteri!ed its trading and settlement activities #y following a threeD hased a roach. /hase I- The rimary o#$ective of this hase was the real time dissemination of rice data through the "is lay Information "river System 2"I"S3. "I"S was commissioned in +ovem#er 7>>A to disseminate #ids, offers, actual rates of transactions and indices on a real time #asis. /hase II- In 7>>F, settlement related daily transactions in uts and out uts were u loaded and downloaded from the TGS in the #rokers6 offices. /hase III- Commissioned on )arch 7F, 7>>?. &lthough, screen #ased trading started with 878 scri s, #y the 9:th day of its commissioning, all scri sDexceeding ?::: had #een ut on the B%LT system. The B%LT system was commissioned with the 4imalya E 7:,::: central trading com uter hardware. Since then the hardware has #een u graded to the 4imalya E A:,::: system. The system rovides for a res onse time of two seconds and can handle more than two hundred thousand trades in a day.

Stock Market Indicators 1991-92 1992-93 1993-94 1994-95 1995-96 (Apr.Mar) (Apr.Mar) (Apr.Mar) (Apr.Mar) (Apr.Mar) No. of Listed o!panies (In $s.%i""ion) (In &S ' %i""ion) (In $s.%i""ion) (In &S ' %i""ion) +e"ocit, 2061 2861 3585 4702 4354.81 138.37 677.49 21.51 0.16 1.78 0.06 1,07,24.8 85,010 3260.95 1605.57 365.97 194.67 308 21.24 0.67 636 26 5603 5264.76 153.27 500.64 14.57 0.10 2.16 0.06 7,71,850 73,855 3366.61 1549.25 345.40 168.54 366 31.63 0.92 641 63

(In $s.%i""ion) (In &S ' %i""ion) No. of S/ares )raded 6,35,515 3,50,313 7,42,792 (In Mi""ion Nos.) A*era-e N(!0er of 75,000 65,535 63,786 .ai", .ea"s %S1 Sensiti*e Inde2 4285.00 2280.52 3778.99 (3ear 1nd) %S1 Nationa" Inde2 1967.71 1021.40 1829.53 (3ear 1nd) %S1 2444 585.19 234.35 450.07 (3ear 1nd) .o""e2 (3ear 1nd) 261.25 124.89 238.86 No. of $e-istered 145 5""s 5"" Net in*est!ent (In $s. %i""ion) 29.85 (In &S ' %i""ion) 0.95 No. of Me!0ers 558 558 628 (3ear 1nd) No. of orporate Me!0ers (3ear 4 4 4 1nd)

Market apita"i#ation 3059.87 1881.46 3680.71 97.13 59.72 116.85 Ann(a" )(rno*er 717.77 456.96 836.29 22.78 14.50 26.55 0.23 0.24 0.24 A*era-e .ai", )(rno*er 3.32 2.38 3.84 0.10 0.07 0.12

2uture &e%elo ments

In 7>>?, the 5resident of India esta#lishment of de ositories. romulgated an %rdinance, which allowed for

BSE in colla#oration with Bank of India 2B%I3 will shortly esta#lish a de ository. BSE has a lied for ermission from SEBI to ex and B%LT to other centres. Ex ansion of B%LT would #ring more investors into the am#it of the ca ital market and conse-uently add de th to it. National Stock Exchange INT")&.!TI)N The +ational Stock Exchange 2+SE3 is IndiaNs leading stock exchange covering around F:: cities and towns all over India. +SE introduced for the first time in India, fully automated screen #ased trading. It rovides a modern, fully com uteri!ed trading system designed to offer investors across the length and #readth of the country a safe and easy way to invest or li-uidate investments in securities. S onsored #y the industrial develo ment #ank of India, the +SE has #een coD s onsored #y other develo ment= u#lic finance institutions, LIC, 'IC, #anks and other financial institutions such as SBI Ca ital )arket, Stockholding cor oration, Infrastructure leasing and finance and so on. India has had a history of stock exchanges limited in their o erating $urisdiction to the cities in which they were set u . +SE started e-uity trading on +ovem#er B, 7>>F and within a short s an of 7 year #ecame the largest exchange in India in terms of volumes transacted. Trading volumes in the e-uity segment have grown ra idly with average daily turnover increasing from Rs.9 crores in +ovem#er 7>>F to Rs.@9>9 crores in (e#ruary A::7 with an average of >.@ lakh trades on a daily #asis. "uring the year A:::DA::7, +SE re orted a turnover of Rs.7B, B>,?7: crores in the e-uities segment accounting for F?C of the total market. The +SE re resented an attem t to overcome the fragmentation of regional markets #y roviding a screenD#ased system, which transcends geogra hical #arriers. 4aving o erationalised #oth the de#t and e-uity markets, the +SE is lanning for a derivative market, which will rovide futures and o tions in e-uity. Its main o#$ectives has #een

to set u com rehensive facilities for the entire range of securities under a single um#rella, namely, To set u a nation wide trading facility for e-uities, de#t instruments and hy#rids. To ensure e-ual access to investors across the country through an a ro riate communication network. To rovide a fair, efficient and trans arent securities market to investors using the electronic trading system. To ensure shorter settlement cycles and #ook entry settlement systems. and To meet the current international standards revalent in the securities Industry=markets.

$ocations
%ne of the o#$ectives of +SE was to rovide a nationwide trading facility and to ena#le investors6 s read all over the country to have an e-ual access to +SE. +SE uses so histicated telecommunication technology through which mem#ers can trade remotely from their offices located in any art of the country. +SE trading terminals are resent in around F:: cities and towns all over India.

$isting
The rime o#$ective of admission to dealings on the Exchange is to rovide li-uidity and marketa#ility to securities as also to management of trading. Securities listed on the Exchange are re-uired to fulfill the listing eligi#ility criteria. Qarious ty es of securities of a com any are traded under a uni-ue sym#ol and different series. This section rovides a direct link to the we# site of com anies traded on the Exchange. rovide a mechanism for effective

!onstitution
The +SE has two segments for trading in securitiesI Gholesale "e#t )arket 2G")3 and Ca ital )arket 2C)3. Se arate mem#ershi is re-uired for each segment.

Trading members
They are recogni!ed mem#ers of +SE. The ersons eligi#le to #ecome T)s are #ody cor orates, su#sidiaries of #anks and financial institutions. They are selected on the #asis of a com rehensive selection criterion. The whole time directors=dealers of thess

Trading mechanism
"olling Settlement In a rolling settlement, each trading day is considered as a trading eriod and trades executed during the day are settled #ased on the net o#ligations for the day. In +SE, the trades in rolling settlement are settled on a TO? #asis i.e. on the ?th working day. (or arriving at the settlement day all intervening holidays, which include #ank holidays, +SE holidays, Saturdays and Sundays are excluded. Ty ically trades taking lace on )onday shall #e settled on the next )onday, TuesdayNs trades shall #e settled on the next Tuesday and so on. $imited /hysical #arket 5ursuant to SEBI guidelines, +SE introduced a new market called Limited 5hysical )arket to rovide a facility to small investors to trade and settle hysical shares in those securities where com ulsory demateriali!ed trading and settlement is enforced #y SEBI. In this segment -uantities not exceeding ?:: shares of each security held in the name of the investor can #e traded. Institutional Segment Trading in this market segment is availa#le for institutional investors only. In order to ensure that the overall (II ceiling limits are not violated, trading mem#ers are allowed to enter sell orders in this market segment only for their (II clients. 4owever, mem#ers can enter #uy orders on #ehalf of (II=(I clients. The settlement of transactions in this segment is in demat mode only. Trade for Trade Segment Trading in this segment is availa#le only for those securities, which have not esta#lished connectivity with #oth the de ositories as er SEBI directive. The list of these securities is notified #y SEBI from time to time.

Trading System +SE o erates on the N+ational Exchange for &utomated TradingN 2+E&T3 system, a fully automated screen #ased trading system, which ado ts the rinci le of an order driven market. +SE consciously o ted in favour of an order driven system as o in other exchanges as well, thus reducing transaction costs. Till the advent of +SE, an investor wanting to transact in a security not traded on the nearest exchange had to route orders through a series of corres ondent #rokers to the a ro riate exchange. This resulted in a great deal of uncertainty and high transaction costs. +SE has made it ossi#le for an investor to access the same market and order #ook, irres ective of location, at the same rice and at the same cost. osed to a -uote driven system. This has hel ed reduce $o##ing s reads not only on +SE #ut

#arket Ty es
The +E&T system in +SE has four ty es of market. They areI Normal #arket &ll orders which are of regular lot si!e or multi les thereof are traded in the +ormal )arket. (or shares, which are traded in the com ulsory dematerialised mode the market lot of these shares, is one. +ormal market consists of various #ook ty es wherein orders are segregated as Regular lot orders, S ecial Term orders, +egotiated Trade %rders and Sto Loss orders de ending on their order attri#utes.

)dd $ot #arket &ll orders whose order si!e is less than the regular lot si!e are traded in the oddDlot market. &n order is called an odd lot order if the order si!e is less than regular lot si!e. These orders do not have any s ecial terms attri#utes attached to them. In an oddDlot market, #oth the rice and -uantity of #oth the orders 2#uy and sell3 should exactly

match for the trade to take lace. Currently the odd lot market facility is used for the Limited 5hysical )arket as er the SEBI directives.

S ot #arket S ot orders are similar to the normal market orders exce t that s ot orders have different settlement eriod6s visDSDvis normal market. These orders do not have any s ecial terms attri#utes attached to them. Currently the S ot )arket is #eing used for the &utomated Lending 1 Borrowing )echanism 2&LB)3 session.

'uction #arket In the &uction )arket, the Exchange on #ehalf of trading mem#ers for settlement related reasons initiates6 auctions. There are B artici ants in this market. Initiator The arty who initiates the auction rocess is called an initiator. !om etitor The arty who enters orders on the same side as of the initiator is called a Com etitor. Solicitor The arty who enters orders on the o Solicitor. osite side as of the initiator is called a

)rder Books
The +SE trading system rovides com lete flexi#ility to mem#ers in the kinds of orders that can #e laced #y them. %rders are first num#ered and timeDstam ed on recei t and then immediately rocessed for otential match. Every order has a distinctive order num#er and a uni-ue time stam on it. If a match is not found, then

the orders are stored in different N#ooksN. %rders are stored in riceDtime riority in various #ooks in the following se-uenceI Best 5riceD 5rice riority means that if two orders are entered into the system, the order having the #est rice gets the higher riority. Githin 5rice, #y time riorityDTime riority means if two orders having the same rice are entered, the order that is entered first gets the higher riority.

The !a ital #arket segment has following ty es of books4. "egular $ot Book The Regular Lot Book contains all regular lot orders that have none of the following attri#utes attached to them. a3 &ll or +one 2&%+3 #3 )inimum (ill 2)(3 c3 Sto Loss 2SL3 >. S ecial Terms Book The S ecial Terms #ook contains all orders that have either of the following terms attachedI a3 &ll or +one 2&%+3 #3 )inimum (ill 2)(3 +oteI Currently, s ecial term orders i.e &%+ and )( are not availa#le on the system as er the SEBI directives.

C. Negotiated Trade Book The +egotiated Trade #ook contains all negotiated order entries ca tured #y the system #efore they have #een matched against their counter arty trade entries. These entries are matched with identical counter arty entries only. It is to #e noted that these entries contain a counter arty code in addition to other order details.

D. Sto 9$oss Book Sto Loss orders are stored in this #ook till the trigger rice s ecified in the order is reached or sur assed. Ghen the trigger rice is reached or sur assed, the order is released in the Regular lot #ook. The sto loss condition is met under the following circumstancesSell order D & sell order in the Sto Loss #ook gets triggered when the last traded rice in the normal market reaches or falls #elow the trigger rice of the order. Buy order D & #uy order in the Sto Loss #ook gets triggered when the last traded rice in the normal market reaches or exceeds the trigger rice of the order. 5. )dd $ot Book The %dd lot #ook contains all odd lot orders 2orders with -uantity less than marketa#le lot3 in the system. The system attem ts to match an active odd lot order against assive orders in the #ook. Currently, ursuant to a SEBI directive the %dd Lot )arket is #eing used for orders which has a -uantity less than or e-ual to ?:: 2*ty more than the market lot3 for trading. This is referred as the Limited 5hysical )arket 2L5)3. 7. S ot Book The S ot lot #ook contains all s ot orders 2orders having only the settlement eriod different3 in the system. The system attem ts to match an active s ot lot order against the assive orders in the #ook. Currently the S ot )arket #ook ty e is #eing used for conducting the &utomated Lending 1 Borrowing )echanism 2&LB)3 session.

E. 'uction Book This #ook contains orders that are entered for all auctions. The matching rocess for auction orders in this #ook is initiated only at the end of the solicitor eriod.

)rder #atching "ules

The #est #uy order is matched with the #est sell order. &n order may match artially with another order resulting in multi le trades. (or order matching, the #est #uy order is the one with the highest rice and the #est sell order is the one with the lowest rice. This is #ecause the system views all #uy orders availa#le from the oint of view of a seller and all sell orders from the oint of view of the #uyers in the market. So, of all #uy orders availa#le in the market at any oint of time, a seller would o#viously like to sell at the highest ossi#le #uy rice that is offered. 4ence, the #est #uy order is the order with the highest rice and the #est sell order is the order with the lowest rice. )em#ers can roactively enter orders in the system, which will #e dis layed in the system till the full -uantity is matched #y one or more of counterDorders and result into trade2s3 or is cancelled #y the mem#er. &lternatively, mem#ers may #e reactive and ut in orders that match with existing orders in the system. %rders lying unmatched in the system are N assiveN orders and orders that come in to match the existing orders are called NactiveN orders. %rders are always matched at the assive order rice. This ensures that the earlier orders get riority over the orders that come in later.

)rder !onditions
& Trading )em#er can enter various ty es of orders de ending u on his=her re-uirements. These conditions are #roadly classified into three categoriesI time related conditions, exam le riceDrelated conditions and -uantity related conditions. (or

Time !onditions "&P D & "ay 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.

 'TC D & 'ood Till Cancelled 2'TC3 order is an order that remains in the system until the Trading )em#er cancels it. It will therefore #e a#le to s an trading days if it does not get matched. The Exchange notifies the maximum num#er of days a 'TC order can remain in the system from time to time. 'T" D & 'ood Till "ays="ate 2'T"3 order allows the Trading )em#er to s ecify the days=date u to which the order should stay in the system. &t the end of this eriod 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 laced. The Exchange notifies the maximum num#er of days a 'T" order can remain in the system from time to time. I%C D &n Immediate or Cancel 2I%C3 order allows a Trading )em#er to #uy or sell a security as soon as the order is released into the market, failing which the order will #e removed from the market. 5artial match is ossi#le for the order, and the unmatched ortion of the order is cancelled immediately. &%+ D &ll or +one orders allow a Trading )em#er to im ose the condition that only the full order should #e matched against. This may #e #y way of multi le trades. If the full order is not matched it will stay in the #ooks till matched or cancelled. +oteI Currently, &%+ and )( orders are not availa#le on the system as er SEBI directives.

/rice !onditions $imit /riceF)rder &n order, which allows the rice to #e s ecified while entering the order into the system.

#arket /riceF)rder &n order to #uy or sell securities at the #est rice o#taina#le at the time of entering the order. Sto $oss 3S$8 /riceF)rder The one which allows the Trading )em#er to lace an order which gets activated only when the market rice of the relevant security reaches or crosses a threshold rice. <ntil then the order does not enter the market. Sell order & sell order in the Sto Loss #ook gets triggered when the last traded rice in the normal market reaches or falls #elow the trigger rice of the order. Buy order & #uy order in the Sto Loss #ook gets triggered when the last traded rice in the normal market reaches or exceeds the trigger rice of the order. e.g. If for sto loss #uy order, the trigger is >B.::, the limit rice is >?.:: and the market 2last traded3 rice is >:.::, then this order is released into the system once the market rice reaches or exceeds >B.::. This order is added to the regular lot #ook with time of triggering as the time stam , as a limit order of >?.::

Guantity !onditions
"isclosed *uantity 2"*3D &n order with a "* condition allows the Trading )em#er to disclose only a art of the order -uantity to the market. (or exam le, an order of 7::: with a disclosed -uantity condition of A:: will mean that A:: is dis layed to the market at a time. &fter this is traded, another A:: is automatically released and so on till the full order is executed. The Exchange may set a minimum disclosed -uantity criteria from time to time. )( D )inimum (ill 2)(3 orders allow the Trading )em#er to s ecify the minimum -uantity #y which an order should #e filled. (or exam le, an order of 7::: units with

minimum fill A:: will re-uire that each trade #e for at least A:: units. In other words there will #e a maximum of ? trades of A:: each or a single trade of 7:::. The Exchange may lay down norms of )( from time to time.

Trading Workstation
The trader workstation is the terminal from which the mem#er accesses the trading system. Each trader has a uni-ue identification #y way of Trading )em#er I" and <ser I" through which he is a#le to log on to the system for trading or in-uiry ur oses. & mem#er can have several user I"s allotted to him #y which he can have more than one em loyee using the system concurrently. The Exchange may also allow a Trading )em#er to set u a network of dealers in different cities all of whom are rovided a connection to the +SE central com uter. & Trading )em#er can define a hierarchy of users of the system with the Cor orate )anager at the to followed #y the Branch )anager and "ealers. Trader Workstation Screens The Trader Gorkstation screen of the Trading )em#er is divided into several ma$or windowsI Title Bar The title #ar dis lays the current time, Trading system name and date. Tool Bar & window with different icons which rovides -uick access to various functions such as )arket By %rder, )arket By 5rice, )arket )ovement, )arket In-uiry, &uction In-uiry, Sna *uote, )arket Gatch, Buy order entry, Sell order entry, %rder lementary )enu, Security List )odification, %rder Cancellation, %utstanding %rders, %rder Status, &ctivity Log, 5revious Trades, +et 5osition, %nline Backu , Su and 4el . &ll these functions are also availa#le on the key#oard. Ticker Window The ticker dis lays information a#out a trade as and when it takes lace. The user has the o tion to setDu the securities, which a ear in the ticker.

#arket Watch Window The )arket Gatch window is the main area of focus for a Trading )em#er. The ur ose of )arket Gatch is to view market information of reDselected securities, which are of interest to the Trading )em#er. To monitor various securities, the trading mem#er can set them u #y ty ing the Security "escri tor consisting of a Sym#ol field and a Series field. Invoking the Security List and selecting the securities from the window can also set u securities. The Sym#ol field incor orates the Com any name and the Series field ca tures the segment=instrument ty e. & third field indicates the market ty e. (or each security in the )arket Gatch window, market information is dynamically u dated on a real time #asis. The market information dis layed is for the current #est rice orders availa#le in the regular lot #ook. (or each security, the cor orate action indicator 2e.g., Ex or cum dividend, interest, rights etc.3, the total #uy order -uantity for the #est #uy rice, #est sell rice, total sell order -uantity for the #est sell rice, the Last Traded 5rice 2LT53, the last traded rice change indicator 2NON if last traded rice is #etter than the revious last traded rice and NDN if it is worse3 and the no delivery indicators are dis layed. If the security is sus ended, KS<S5E+"E"K a ears in front of the security. )n line index and Index InHuiry Gith every trade in a security artici ating in Index, the user has the information on the current value of the +ifty. This value is dis layed at the extreme right hand corner of the ticker window. Index In-uiry gives information on Close, % en, 4igh, Low and current index values at the time of invoking this in-uiry screen. InHuiry Window In this window, the in-uiries such as )arket #y %rder, )arket #y 5rice, 5revious Trades, %utstanding %rders, &ctivity Log, %rder Status and )arket In-uiry can #e viewed.

#arket By )rder 3#B)8 The ur ose of )arket #y %rder is to ena#le the user to view outstanding orders in the trading #ooks in the order of rice=time riority. The information is dis layed for each order. Sto Loss orders, which are not triggered will not #e dis layed on the window. Buy orders are dis layed on the left side of the window and Sell orders on the right side. The orders are resented in a rice=time riority with the K#est ricedK order at the to . #arket by /rice 3#B/8 The ur ose of )arket By 5rice is to ena#le the Trading )em#er to view aggregate orders waiting in the #ook at given rices. /re%ious Trades 3/T8 The ur ose of this window is to rovide information to users for their own trade. )utstanding )rders 3))8 The ur ose of %utstanding %rders is to ena#le a Trading )em#er to view his=her own outstanding #uy or sell orders for a security. &n outstanding order will #e an order that was entered #y the user, #ut is not yet com letely traded or cancelled. 'cti%ity $og 3'$8 The &ctivity Log shows the activities, which have #een erformed on any order of the Trading )em#er such as whether, the order has #een traded against fully or artially, it has #een modified or has #een cancelled. It dis lays information only of those orders in which some activity has taken lace. It does not dis lay orders, which have entered the #ooks #ut have not #een matched 2fully or artially3 or modified or cancelled. )rder Status 3)S8 %rder Status ena#les the user to look into the status of a s ecific order. Current status of the order and other order details are dis layed. In case the order is traded, the trade details are also dis layed.

#arket InHuiry 3#I8 )arket In-uiry ena#les the user to view the market statistics like % en, 4igh, Low, 5revious close, Last traded rice change indicator, Last traded -uantity, date and time etc. & user may find in-uiry screens like )arket )ovement, )ost &ctive Securities and +et 5osition useful. These are availa#le in the su #arket #o%ement 3##8 The )arket )ovement screen rovides information to the user regarding the movement of a security for the current day. It gives details of the movement of the scri for a time interval. The details include total #uy and sell order -uantity value, % en, 4igh, Low, Last traded rice etc. #ost 'cti%e Securities This screen gives a list of the securities with the highest traded value during the day and the -uantity traded for each of them. Net /osition This functionality ena#les the user to interactively view his net securities in which he has traded. Sna Guote The Sna *uote feature allows a Trading )em#er to get instantaneous market information on any desired security. This is normally used for securities which are not already on dis lay in the )arket Gatch window. The information resented is the same as that of )arket Gatch window. )rderFTrade Window %rder entry mechanisms ena#le the Trading )em#er to lace orders in the market. The system will re-uest reDconfirmation of an order so that the user is cautioned #efore the order is finally released into the market. %rders once laced on the system can #e modified or cancelled till they are matched. %nce orders are matched they cannot #e modified or cancelled. osition for all lementary menu.

There is a facility to generate online order=trade confirmation sli s as soon as an order is laced or a trading is done. The order confirmation sli contains among other things, order no., security name, rice, -uantity, order conditions like disclosed or minimum fill -uantity etc. The trade confirmation sli contains the order and trade no., date, trade time, rice and -uantity traded, amount etc. %rders and trades are identified and linked #y uni-ue num#ers so that the investor can check his order and trade details.

Systems #essage Window This window is used to view messages from the Exchange to all s ecific Trading )em#ers. Su lementary #enu lementary features in the +E&T system areI

Some of the su )n line back u

&n on line #ack u facility is rovided which the user can invoke to take a #ack u of all order and trade related information. There is an o tion to co y the file to any drive of the com uter or on a flo #ack office work. )ff $ine )rder Entry & mem#er is a#le to make an order entry in the #atch mode. !om uter9to9!om uter $ink 3!T!$8 2acility +SE offers a facility to its trading mem#ers #y which mem#ers can use their own trading frontDend software in order to trade on the +SE trading system. This Com uterDtoDCom uter Link 2CTCL3 facility is availa#le only to trading mem#ers of +SE. Through CTCL facility Trading )em#ers can use their own software running on any suita#le hardware=software latform of their choice. This software would #e a re lacement of the +E&T frontDend software that is currently used #y mem#ers to trade on the +SE trading system. )em#ers can use software customised to meet their y diskette. Trading mem#ers find this convenient in their

s eciali!ed needs like rovision of onDline trade analysis, risk management tools, integration of #ackDoffice o erations etc. The dealers of the mem#er may trade using the software remotely through the mem#erNs own regard. rivate network, su#$ect to a rovals from "e artment of Telecommunication etc. as may #e re-uired in this

National Securities !learing !or oration $imited

+ational Securities Clearing Cor oration Ltd. 2+SCCL3, a wholly owned su#sidiary of +SE, was incor orated in &ugust 7>>? and commenced clearing o erations in & ril 7>>@. It has #een set u with a hiloso hy to sustain confidence in clearing and settlement of securities. romoting and maintaining, short and consistent settlement cycles. to rovide counterD arty risk guarantee, and to o erate a tight risk containment system. It assumes the counterD arty risk of each mem#er and guarantees financial settlement. It has successfully #rought a#out an u Dgradation of the clearing and settlement rocedures and has #rought Indian financial markets in line with international markets. +SCCL carries out the clearing and settlement of the trades executed in the E-uities and "erivatives segments and o erates Su#sidiary 'eneral Ledger 2S'L3 for settlement of trades in government securities. It also undertakes settlement of transactions on other stock exchanges like, the %ver the Counter Exchange of India. +SCCL assumes the counterD arty risk of each mem#er and guarantees settlement through a fineDtuned risk management system and an innovative method of onDline osition monitoring. It o erates a wellDdefined settlement cycle and there are no deviations or deferments from this cycle. It aggregates trades over a trading eriod, nets the ositions to determine the lia#ilities of mem#ers and ensures movement of funds and securities to meet res ective lia#ilities. It rovides a facility for multi le settlement mechanisms including, account eriod settlement for dealings in hysical securities and demateriali!ed securities, rolling settlement 2TO? #asis3 in demateriali!ed segment etc.

+SCCL has em anelled > clearing #anks to settlement of securities.

rovide #anking services to trading

mem#ers and has esta#lished connectivity with #oth the de ositories for electronic

B'&$' T"'&IN(
Badla is a com lex system that contains many a itfall for the uninitiated and the unwary. Investors need to #e aware of the ro#lems, es ecially when #rokers on BSE and other regional stock exchanges are marketing vyaj ad!a schemes to their clients aggressively. Before an investor start #elieving in the stories of su erlative returns 2in excess of A: er cent3, cou led with li-uidity, safety and flexi#ility, it is im erative that one takes a hard, rational look at the entire mechanism. This is so #ecause financing #adla is a definite noDno for the firstDtime investor in the stock market and also for those who donNt have the time to constantly monitor the status of his=her investments and fluctuations in the market returns Aya1 Badla In the vyaj ad!a system, there was a very high chance that an investor may end u with an average annual return of 7FD78 er cent or sometimes even higher. But having said that, unfortunately, the returns were not guaranteed. This rosy icture could well #e a reality during a #ull run, #ut when the market was under a #ear hug, returns could diminish to $ust around @D8 er cent a year. Com aring it with a steady 7A er cent annual return offered #y a #ank fixed de osit or any &&& rated cor orate #andit seemed that The highDrisk and uncertain return of vya$ #adla would start looking like a #ad investment o tion. &nd then the taxman cometh; Qya$ #adla transactions #egan to #e treated as urchase and sale of shares, thus getting su#$ected to ca ital gains tax of B: er cent. Thus, an investor6s final returns get lo ed off to that extent. &lthough nay Sayers might feel ortunity to maximi!e his earnings in a that vya$ #adla rovides an investor with an o

#ull market, the fact remains that it is a good o tion for the ex erienced investor. Else,

the nerveDwracking tension that accom anies stock market fluctuations may well take its toll.

,ow did the Badla function? &ssume that there had #een 7A trades of 7:: shares each in K&BCK stock, and there are 7A se arate #uyers and sellers res ectively. &mong the #uyers, while six wanted to carry forward their ositions, six want to take delivery. %f the sellers, eight wished to deliver the shares while four were keen on carrying their ositions forward. +ow six #uyers made the ayment for their urchases, while eight sellers effect delivery. Six #uyers and six sellers got s-uared off. (our K#uyK carryDforward ositions get matched against four KsellK carryDforward ositions. To ensure ayment to the remaining two sellers for their A:: shares, vya$ #adla financiers came in. This financier charged interest 2#adla3 for the money aid on #ehalf of the two #uyers for them. The demand and su ly of funds and shares determined this rate. Shares delivered #y the seller were ke t #y the exchange in the clearingDhouse and allocated to the financierNs #roker in a s ecial account, forming the financierNs collateral. %n the BSE, #rokers who were sure of taking or making delivery of shares mark their res ective Kfor deliveryK ositions. This hel ed the exchange to arrive at the net outstanding ositions on (riday evening 2the last day of the settlement on BSE3, #y deducting them from the #rokerNs weekly out standings. The difference is threw o en to the marketNs #adla trading session on Saturday. 5rior to the commencement of this session, the #ase rice 2hawala rate3 is fixed, which was normally the closing rice of the scri on (riday. &n outstanding K#uyK osition in a stock sees a Kseedha #adlaK where the financiers artici ate. &n outstanding KsellK osition in the stock sees an KultaK or Kundha #adlaK where the stock lenders artici ate. S ecified -uantities of the stock on offer are #ought and sold at the financierNs desired interest rate D the #adla rate. In this case, letNs assume the hawala rate to #e Rs @>. If the financier wants to ay for 7:: shares at A: er cent er annum and the trade gets matched, the interest rate is

converted into a weekly figure. In this case, it would #e :.B8 er cent. %n the hawala rate of Rs @>, this :.B8 ercent works out to A@ aise. The terminals would constantly kee flashing the #est #adla rate and the #est annual yield for each stock on offer for a articular -uantity. & constant fluctuation in these values during the twoDandDaDhalf hour session is due to the constant change in demand and su ly, and also market erce tion. The #roker would give the financier a #adla #ill or informal contract note, which would have two entries. %ne would show a urchase of 7:: shares at Rs @> er share, while the other would show a sale of 7:: shares at Rs @>.A@ er share. The difference will #e the financiers earning for that week. Gith the next trading cycle ending, the financier can either receive the difference or roll over his=her money to a new #adla transaction. Who can artici ate? +ot all #rokers can artici ate in the #adla rocess. )em#ershi s on BSE are s lit #etween ty eDI and ty eDII #rokers. %nly the former can carry out #adla trades, for they maintain higher margins with the exchange. 4ence, if you are keen on #ecoming a vya$ #adla financier, you should a roach the ty eDI #roker. )ost #rokers donNt acce t anything less than Rs 7 lakh er client for #adla financing. &nd the stock selection too is at their discretion. But it would #e rudent for you to know the #asis of allocation of stocks to you, as you would #e one among a lot of clients whose money has #een collectively invested in vya$ #adla. Badla rates vary #etween stocks, de ending u on their demand and su considera#ly throughout the session. Ideally, #rokers using the discretionary allocation of stocks to the #adla account should ay a weighted average return to each client. This should #e reflected in the #adla #ills. (or getting the weighted average return on #adla finance, it is advisa#le to look for #rokers who have automated this rocess. &s in any other market transaction, one cannot avoid #rokerage in a vya$ #adla transaction too. Brokerage for such deals could range #etween 7DA.? ercentage rior to the commencement of the relationshi . er cent, trimming down your annual yield further. It is advisa#le to enter into a firm #rokerage ly. These rates fluctuate

're in%estors safe? Ghat is the investor6s safeguard in times of defaultT If the forward #uyer defaults, he got the shares held in the exchangeNs clearinghouse against his #roker6s name, on which he had a lien through his Badla #ill. But his risk erosioned in the value of the share during the days that it takes to release the shares. In the recent history of BSE, there have #een instances of #rokers 2having large carryD forward ositions in highly s eculative stocks3 defaulting. &lthough these shares were en$oying very high #adla rates at the time of the default, the rices had di ed shar ly #y the time the financiers got their shares. If the #roker defaults, the financier is in a larger mess. & art from the large institutional #rokers, most #rokers on BSE have a net worth of Rs 7DA crore. Badla ositions taken #y them sometimes go u to 7?DA: times their net worth. Even a 7: er cent downward shift in their osition would wi e out the #rokerNs entire net worth. &nd then you could #id good#ye to your money too. The BSENs Trade 'uarantee (und could #e of some succour and solace in these situations, #ut $ust that. (ailure to cash in on your interest gain at the end of the trading cycle gives the confidence to your #roker to automatically roll over your investment to the next cycle. Ghile o ting out, always time your exit. By virtue of the exchangeNs settlement cycle, your money gets released within a tenDday eriod. This further reduces your yield. &s in the case of defaults, the delay in the release of your money can #e detrimental. So factor in those extra days while calculating your actual return. &lthough vya$ #adla is considered to #e an effective shortDterm instrument, as is the case with all such instruments, the delay can really eat into your returns. 'iven the -uirks of the vya$ #adla transactions and the inherent risks involved, it can #e concluded that amateurs should stay away D it is strictly for the ro and the strong hearted.

Substitutes to Badla
2inancial deri%ati%es

By far the most significant event in finance during the ast decade has #een the extraordinary develo ment and ex ansion of financial derivatives... These instruments enhance the a#ility to differentiate risk and allocate it to those investors most a#le and willing to take it DD a rocess that has undou#tedly im roved national 'reens an (ollowing the introduction of index futures, the Securities and Exchange Board of India 2SEBI3 ermitted the BSE and the +SE to introduce more derivatives, such as o tions on indices and individual stocks. But an instrument that may #e more in line with the domestic market structure DD singleDstock futures DD is not under consideration. SingleDstock futures are a way to rea the #enefits of a stockNs erformance without actually owning the stock. Theoretically, they offer the #enefits of ownershi , of leveraging the stock or its underlying asset. But a similar o ortunity is not availa#le to the s eculatorDinvestor to sell o tions in the underlying scri . &s delivery of futures contracts is on a future date, the investor has to ut u only the margin money. 4ence, he can leverage on the margins to #uy more units of the underlying security. %ne of the advantages en$oyed #y singleDstock futures is that they are chea er to trade and easier to use for hedging strategies than o tions. Chea er, #ecause margins in futures trading are lower than in o tions. But the valuation of futures contracts are not as com licated as that of o tions. 4ence, small investors find them relatively easy to understand and use. Trading o tionsTrading o tions are riskier than futures. This is urely from the o tionsDwriterNs roductivity growth and standards of living. DD (ed Chairman &lan

ers ective. )arket making in o tions de ends to a great extent on institutions willing to write the contracts. Since the #uyer of an o tion contract is not under any o#ligation to exercise his right, his risk is limited to the remium aid for urchasing the right.

4owever, the writer is under an o#ligation to deliver. This means the risk #orne #y the o tionDwriter is enormous. Exchanges normally guarantee the writerNs osition. 4ence, to limit default in the market, the margin re-uirements are -uite high. (or instance, in international markets, while the margin rate for index futures contracts is around ? er cent, that for index o tions works out to the commission received lus around 7? er cent of the contractNs notional value. Thus, in this situation, there is excessive risk for the o tionsDwriter and transactions costs could #e high. Currently, the regulations revent funds from taking s eculative ositions in the s ot market. So, they may not #e allowed to write o tions. & market exists only if there is a writer and a #uyer. But given that there are few takers for the futures market, it is difficult to foresee a lot of interest in the o tions market.

!)N!$.SI)N

EXECUTIVE SUMMARY

The ro$ect is an attem t to working of stock exchanges in detail. It rovides thorough knowledge of different as ects of trading in stock exchanges. The focus is #asically with Indian context. The re ort is divided in three arts. The first dealing with the theory, ie, introduction of securities market, conce t of stock exchanges, their role in economy, their characteristics, role of SEBI etc. The second art is the study made of different methods of trading and In all they offer > different avenues for investing, which have #een ex lained in length in the ages to come. The third art is the Case, attached with the re ort, which is also taken from (ranklin Tem leton India Ltd. The case s eaks a#out B facts of investing. first #eing that growth and value do not move in tandem. second #eing, value investing has rewarded long term investors. and the third one as, value stocks have rovided low relative volatility over time.