A STUDY OF NATIONAL STOCK EXCHANGE (NSE) OF

INDIA

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 CONTENTS

DESCRIPTION Page no.

Acknowledgement

Contents With page no.

Executive Summary

Chapter 1 INTRODUCTION TO TOPIC

Chapter 2 LITERATURE REVIEW

Chapter 3 COMPANY PROFILE

Chapter 4 OBJECTIVES

Chapter 5 RESEARCH METHODOLOGY

Chapter 6 ANALYSIS AND FINDINGS

Chapter 7 FINDINGS AND INFERENCES

Chapter 8 LIMITATIONS

Chapter9 RECOMMENDATION AND CONCLUSION

ANNEXURE

REFERENCES

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EXECUTIVE SUMMARY

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The history of stock exchanges can be traced to 12th century France, when the first brokers
are believed to have developed, trading in debt and government securities. Unofficial share
markets existed across Europe through the 1600s, where brokers would meet outside or in
coffee houses to make trades. The Amsterdam Stock Exchange, created in 1602, became
the first official stock exchange when it began trading shares of the Dutch East India
Company. These were the first company shares ever issued. By the early 1700s there were
fully operational stock exchanges in France and England, and America followed in the later
part of the century. Share exchanges became an important way for companies to raise
capital for investment, while also offering investors the opportunity to share in company
profits. The early days of the stock exchange experienced many scandals and share crashes,
as there was little to no regulation and almost anyone was allowed to participate in the
exchange .Today, stock exchanges operate around the world, and they have become highly
regulated institutions. Investors wanting to buy and sell shares must do so through a share
broker, who pays to own a seat on the exchange. Companies with shares traded on an
exchange are said to be 'listed' and they must meet specific criteria, which varies across
exchanges. Most stock exchanges began as floor exchanges, where traders made deals face-
to-face. The largest stock exchange in the world, the New York Stock Exchange, continues
to operate this way, but most of the world's exchanges have now become fully electronic.

This study will be based on the NSE (National Stock Exchange) function in India and its
operation, and success story. NSE has been believed by thousands of customer and
companies which makes the company stronger and wider in reach of investor day by day.
This project will also explore the opportunities areas of NSE in India.

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 CHAPTER I
INTRODUCTION TO THE TOPIC

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This section attempts to highlight the structure of the stock markets in India. It gives a brief
overview of the transition of the way the stock markets used to perform historically and
the huge transformation that they have gone through now. It is undoubtedly a remarkable
change of events.

The evolution of Indian stock market emerged in the 1970s. In 1975, the Congress political
party directed the SEC to develop a national market system in which all orders to buy or
sell equities would interact with each other. (Singh, 2007) It would have been considered
that a national market system abhors fragmentation and assumes that one market will best
serve the needs of all the investors, irrespective of their size. However, such an assumption
would not capture the realities of the modern markets. Every individual investor has
different needs and different markets tend to develop to serve these different needs.
Markets are non anonymous, and in such markets, the most important concept of trading
of the “best price” is certainly not defined. (Fry, 2005) The cut throat competition among
investment options results in fragmented markets. The sharing of trade and quote
information among different markets helps to mitigate any deleterious effects of
fragmentation within the Indian stock market. It would have also been considered that the
markets of tomorrow will be truly global. Therefore in an Indian market, the SEC will have
to give up its goal of a national market system and focus on other issues related to the world
as a whole for all the investors taken together. (Scharfstein, 2008) For example, it would
be an enormous challenge to provide just the sharing of trade information of
equities/commodities across all the borders and regions of the world. Further, a
technological evolution allowed the investors in order to gathering information to be
located anywhere in the world from the common market centre. Hence, this threat of
relocation will place a restriction on Indian regulators, and global trading will make it more
difficult for SEBI authorities to regulate investment practices and opportunities and to
protect Indian investors from such difficulties. This was a huge challenge for the Indian
stock market as a whole. (Bhole, 2009)

Also, the equity markets worldwide are in a constant state of change. The markets have
reached bizarre heights. There is absolutely no doubt about the proven fact that the
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technology and the internet have always had and will continue to have a deep impact on
the structure of the equity capital markets and the debt capital markets. (Greenwood and
Smith, 2004) Some of the recent rulings from the SEBI have unleashed new competitive
forces that will challenge established markets which were already in place.(Bhole, 2009)
There are some constraints and processes such as the date, the cost and awkwardness of
the settlement processes across the nations which had restrained global competition, but
these processes were changing. As the time passes, the cross-border settlement becomes
cheaper and relatively easier to invest for an investor, as a result the global trading may
increase and Indian regulators will need to adapt to this new environment sooner than later.
(Singh, 2007)

Consequently, the amendments in the year 1975 to the Securities Exchange Act of 1934
set as a national goal which stated that all securities should be traded in a national market
system. This was a major goal to be achieved. This goal has shaped out much of the security
exchange control’s thinking since that time; however this goal may collapse with some of
the ongoing structural changes which might occur in the equity markets, in both domestic
markets as well as the global markets. (Bhole, 2009) A national market system of a country
represents a naïve and parochial view of the way in which equities are generally traded. It
is really incompatible in a way with how the markets in the country are developing and
will develop in the near future. As mentioned above, a national market system really needs
to abhor fragmentation as the fragmentation limits the interaction amongst orderly flow or
patterns. Since, the fragmentation has emerged as the heart of competition for investors. It
has been coded by many of the researchers that the new competition creates fragmentation,
but significant fragmentation will occur only if the competition is successful. In case, the
competition is extremely successful, existing markets will decline and fail, resulting
ultimately in less fragmentation. Therefore with due effect of the increasing the world
globally, the SEBI will have to duly give up its goal of a national market system, begin to
recognize the global nature of the equity market across the country as a whole. (Singh,
2007)

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OBJECTIVE

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 To study about the stock market in India.
 To evaluate the success journey of NSE in India.
 To Analyze the Impact of NSE in Indian Financial market
 To find out different opportunities areas where company can improve on

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 CHAPTER-II
LITRATURE REVIEW

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There was a time when India was discussed as the land of snake charmers, black magic and epidemics
but the revolutionary Indian growth story changed everything. Indian economy at its height compelled
the world to change its viewpoint towards India. Out of the several factors which changed the face of
modern India, we are going to discuss the most roaring of them i.e. our share market. The earlier reform
procedures adopted by India gave India the two most sought after world-class brands i.e. SENSEX and
NIFTY. The magical figures displayed by our market turned all the heads on India. And India became
one of the most favoured places for investment. Now we are going to deal with the ups and downs in the
share market since last two years i.e. since year 2006. Indian share market has gone through many phases
in there 2 years. We saw the investors getting overjoyed at 21K and we saw them crying too when it
crashed. We saw how the market rewarded the undervalued shares and how the overvalued shares fell
down to demonstrate the saying “everything which rise more than expected, has to fall.” So to analyze
the saga of Indian share market, we had two indices to follow: BSE Sensex and NSE nifty. Though NSE
nifty is a more advanced option and has left BSE Sensex far behind, still we call BSE Sensex as the
barometer of our economy. That’s why we have followed the BSE Sensex. It was not possible to track
each and every day figure of the Sensex since last two years. The performance of the Sensex is analyzed
with the help of data and graphs collected from various sources and some of the most talked about
movements of Sensex starting with the secondary market summary of each year, firstly year 2006 and
then year 2007.

4.1 More Developments in Stock Markets in India in recent times

The secondary market which represented an institutional mechanism that was inadequate, non-
transparent, hardly regulated and rarely geared to investor protection till the early nineties, has also
witnessed notable developments. The most notable ones among them are the prescription of norms by
SEBI for intermediaries like brokers or sub-brokers or dealers in trading and settlement, broad based
governing boards of stock exchanges, capital adequacy norms for the intermediaries, corporate
membership, transparency in trading and settlement practices, development of cash market, regulation
of badla trading, introduction of futures and options trading and just recently ease and flexibility in
trading of mutual funds units. Also, the setting up of the Over The Counter Exchange of India (OTCEI)
and the National Stock Exchange (NSE) represents a landmark in the direction of developing a vibrant,
strong, matured, and equitable secondary market as an integral constituent of the emerging securities
market in India. This has undoubtedly been a major breakthrough for the stock market development in
India. An equally significant development has been the coming into being of the National Securities
Depositories Ltd (NSDL) and the system of dematerialized trading. (Bhole, 2009) The commencement
of derivative trading has certainly added weight to the sophistication of the market in a huge way and
also helped to integrate it with international markets. The corporatization and demutualization of the
stock exchanges, separating trading, ownership and management is yet another crucial factor in the same
direction. Securities and Exchange Board of India (SEBI) has undoubtedly played a major role to turn
these initiatives from mere dreams to hard core reality.

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There is absolutely no doubt about the fact that the secondary market in India has shown great maturity
by registering enormous growth in the recent years in terms of the number of listed companies, market
capitalization, market value of listed companies to gross national product, number of shareholders, and
so on. There are currently 23 recognized stock exchanges in the country. The organization of the stock
exchanges varies: 14 are public limited companies, 6 are companies listed by guarantee and 3 are
voluntary non-profit organizations. (Bhole, 2009) The Government of India and SEBI ensure broad
uniformity in the structure while granting recognition; only 9 stock exchanges have got permanent
recognition, others have to renew it every year until permanent recognition is granted. All stock
exchanges are managed by a governing body which consists of elected broker-directors (excepting
NSE/OTCEI), public representatives and Government/SEBI nominees. The number of stock broker-
directors members has now been reduced to about 40 per cent. For regulation and control of transactions,
each stock exchange has bye-laws and regulations which are more or less uniform in all stock exchanges.

4.2 Emergence of Securities and Exchange Board of India (SEBI)

The securities market which emerged from the periphery to enter the mainstream of the financial market
in India has been one of the most significant institutional developments since the mid-eighties, especially
since the beginning of the nineties. It has witnessed a spectacular growth, both in terms of its ability to
mobilize resources and to allocate it with some efficiency. The corporate sector has come to rely on the
securities market increasingly to finance its long-term requirements of funds, in contrast to a decade
earlier when the Development Finance Institutions (DFIs) were the sole purveyors of long-term funds.
There has also been a growth in the awareness and interest in investment opportunities available in the
securities market among investors. To help sustain this growth and crystallize the awareness and interest
into a committed, discerning and growing pool of investors, the investors’ rights must be fully protected,
trading malpractices must be prevented and structural inadequacies of the market recovered.
The need of the growing securities market in India was a focused as well as integrated regulatory
framework and its development by an independent and autonomous body. This was sought to be
achieved by the establishment of the Securities and Exchange Board of India (SEBI) in April 1988 by
an administrative order and later by an ordinance which was replaced by the SEBI Act in April 1992,
making it a statutory autonomous body.
The SEBI has been established to protect the interest of the investors in securities and to promote the
development and regulation of the securities market. The SEBI registers, regulates and monitors various
intermediaries in the capital market. It is empowered to exclusively regulate the primary market after the
repeal of the Capital Issues (Control) Act and the consequent abolition of the office of the CCI. However,
presently there is dual control of the Government and the SEBI on the secondary markets in India.
Certain powers under the Securities Contracts (Regulation) Act have been delegated to the SEBI to
regulate the dealings on the stock exchanges. It has been vested with powers to inspect and enquire into
the affairs of the stock exchanges and its members. (Bhole, 2009) It can also issue directions for
regulating the dealings in securities, ensuring transparency in transactions on the stock exchanges and

14
also between the stock brokers and their constituents. The Securities and Exchange Board of India’s aim
is to attain a pragmatic balance between the two approaches to regulation, namely, self-regulation and
statutory regulation. (Ryrie, 2001)
The SEBI’s approach to the regulation of the primary market is to focus on the development of healthy
practices on the part of the issuers of capital, observance of proper standards on the part of the
intermediaries and provisions for better protection of the investors along with their guidance and
education. It has formulated regulations and codes of conduct for intermediaries. It is also encouraging
investors’ association and self-regulatory organizations (SROs) of merchant bankers as well as mutual
funds in the country. Considering the increasing level of investors’ interest in investing in the stock
market, it has issued a series of educational advertisements for investor protection and guidance.
The SEBI has persuaded the stock exchanges to broad-base boards and to introduce prudential norms of
capital adequacy for brokers, norms for broker-client relationship and has undertaken the inspection of
stock exchanges. It is also attempting to develop a strong cash market for the benefit of the investors and
encourage transparency and fairness in market transactions. It has replaced ‘badla’ by future and option
trading, and regulations concerning insider trading have been issued. (Stern, 2005) It is also handling
individual investor complaints, but the initiative for redressal still lies with the Department of Company
Affairs. Through corporatization and demutualization, it has been instrumental in separating trading,
ownership and management rights. The stock market in India is by all means, acquiring a truly
professional character.
The SEBI has been set up under the SEBI Act to
1) To protect the interests of the investors in securities and

2) To promote the development of, and regulate, the securities market

The SEBI is a body corporate. It consists of

a) A Chairman appointed by the Government,

b) Two members from amongst officials of the Ministry of Government of India dealing with Finance
and Administration of the companies appointed by the Government,

c) One member from amongst the officials of, and nominated by the RBI,

d) Five members of whom at least two should be whole time members nominated by the Government.

Its general superintendence, direction and management are vested in a Board of members which
may exercise all powers and do all acts/things exercisable/done by it. The Chairman and other
members of the SEBI should be persons of ability, integrity and standing who have shown capacity
in dealing with problems relating to the securities market or have special knowledge / experience of
law, finance, economics, accountancy, administration or in any other discipline which, in the
opinion of the Government, would be useful to the SEBI.

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 4.3 Powers and Functions of SEBI
SEBI has a pivotal role to play in development of stock markets in India. Subject to the provisions of the
SEBI Act, it is the duty of the SEBI to protect the interests of investors in securities and to promote the
development of, and to regulate the securities market, by such measures as it thinks fit.
These measures provide for the following:
a) Regulating the business in stock exchanges and any other securities markets

b) Registering and regulating the working of stockbrokers, sub-brokers, share transfer agents, bankers
to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio
managers, investment advisers and such other intermediaries who may be associated with the
securities markets in any manner. Also, registering and regulating the working of the depositories,
participants, custodians of securities, foreign institutional investors, credit rating agencies and such
other intermediaries

c) Registering and regulating the working of venture capital funds and collective investment schemes
including mutual funds

d) Promoting and regulating self-regulatory organizations

e) Prohibiting fraudulent and unfair trade practices relating to the securities market

f) Promoting investors’ education and training of intermediaries of the securities market

g) Prohibiting insider trading in securities

h) Regulating substantial acquisition of shares and takeover of companies

i) Calling for information from, undertaking inspection, conducting inquiries and audits, of the stock
exchanges, mutual funds, other persons associated with the securities market intermediaries and
self-regulatory organizations in the securities market. It also gets involved in calling for information
and record from any bank or any other authority or board or corporation established or constituted
by or under any Central, State or Provincial Act, in respect of any transaction in securities which is
under investigation or inquiry by the SEBI .

j) Performing such functions and exercise such powers under the provisions of the Securities Contracts
(Regulation) Act, as may be delegated to it by the Central Government

k) Levying fees or other charges for carrying out the above purposes

l) Conducting research for the above purposes

m) Calling from, or furnishing to, any such agencies, as may be specified by it, such information as
may be considered necessary by it for the efficient discharge of its functions .

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4.4 Introduction to Depository System
A major reform of the Indian stock markets has been the introduction of the depository system and
scripless trading mechanism, since 1996. This system of trading based on physical transfer or custody
of securities militated against the efficient functioning of markets, particularly in the context of the large
scale entry of Foreign Institutional Investors (FIIs). The main problems faced the investors in general
and FIIs in particular were:
 Inordinate delays in transfer of securities

 Return of share certificates as bad deliveries on account of forged signatures or mismatch of

signatures or fake certificate / forged transfer deed,

 Delay in the receipt / non-receipt of securities after allotment / refund orders to non-allottees,

 Delay in getting duplicate shares / debentures certificates, and

 Inadequate infrastructure in banking and postal segments to handle a large volume of application
and storage of share certificates (Journal of Business & Economics Research, 2005)

To overcome the problem of a large number of transfer deeds and share certificates, the concept of jumbo
transfer deed and jumbo certificate had been introduced. In a jumbo transfer deed, only one transfer deed
is to be executed for a large number of transfers, while a jumbo certificate reflects a large number of
certificates. However, physical dealing in securities had to be completely eliminated to bring the Indian
stock markets at par with the international stock markets, through scripless trading in which transactions
in securities take place by a book entry method, without the physical delivery of securities or movement
of cheques for payment. The essential part of scripless trading is the dematerialization of share
certificates through depositories. All certificates are surrendered to the issuer company that has issued
the securities. On the receipt of the certificates through the depository participants and on the advice of
the depository with whom the company has already entered into an agreement, the certificates are
cancelled. The depositories’ name is entered in the Register of Members of the company in respect of
these securities, and the name of the beneficial owners whose name is recorded as such with a depository
are deleted. The depository system in India operates within the framework of Depositories Act, 1996
and the SEBI Depositories and Participants Regulation, 1996.
Existing Depositories in India
Presently, there are two depositories in the country, namely National Securities Depositories Limited
(NSDL) and Central Securities Depositories Limited (CSDL).
4.4.1 National Securities Depositories Limited (NSDL):
This was set up as the first depository company in the country. It has been sponsored by the Unit Trust
of India, NSE, State Bank of India, HDFC Bank and Citibank. As a public limited company, it is
managed by a Board of Directors. It is governed by its bye-laws and business operations are regulated
by its business rules.

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Functions: The NSDL performs the following functions through depository participants:
1) It enables the surrender and withdrawal of securities to, and from, the depository (dematerialization
and rematerialization)

2) It maintains investor holdings in the electronic form

3) It effects settlement of securities traded on the exchanges

4) It carries out settlement of trades not done on the stock exchange (off-market trades)

5) Transfer of securities

6) Pledging / hypothecation of dematerialized securities

7) Electronic credit in public offerings of companies

8) Receipt of non-cash corporate benefits like bonus, rights, and so on in electronic form and

9) Stock lending and borrowing

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1) Maintenance of Beneficial Holdings through DPs: The NSDL maintains accounts of investor
holdings through its DPs. However, it has a record of the accounts of individual investors to ensure
proper flow of information to companies. The DPs provide a statement of holding of each of their
clients which is similar to such documents provided by a commercial bank. (Singh and Weisse,
2008)

2) Dematerialization: Conversion of physical certificates into dematerialized holdings at the request of

the investors is called dematerialization. Only shares registered in the name of account holder are
accepted for dematerialization at NSDL. (Gupta et al, 2001) Dematerialization takes place through
the following steps:

a) The investor surrenders defaced certificates along with the dematerialization request from DRF
to his DP

b) The DP intimates the NSDL of the request through the system

c) The DP submits the certificates along with the DRF to the registrar

d) The Registrar confirms the dematerialization request from the NSDL

e) The Registrar validates the request, updates records and informs the NSDL

f) The NSDL credits the DP’s account and informs the DP

g) The DP updates the investor’s account and informs the investor

The entire process of dematerialization takes place in about 15 days time. However, for those
cases where a very large amount of certificates are submitted from institutions for
dematerialization, up to 30 days are allowed for dematerialization.

NSDL 2 Depository
6 Participants

1
4 5

3
7

Registrar Investor

Dematerialization Process

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3) Trading and Settlement in Dematerialized Securities: Trading in dematerialized securities is
separate from trading in physical securities. An investor who has sold securities in the physical
market can deliver either physical or dematerialized securities. But physical securities cannot be
delivered against obligations in the market for dematerialized securities.

4) Receipt of Allotment in the Dematerialized form: In the case of public issues, the applicant can
specify upfront the manner in which he wishes to receive his allotment, that is, in the form of
physical securities or in the form of electronic credit in an account maintained with a DP. In case
the investor prefers the electronic mode, he has to mention his account number, name of his DP and
DPO Identification Number, so that the allotted securities are credited into his account. Thus, it is
possible for an investor (beneficial owner) to receive allotment of securities directly into his account.
This has been a great relief to the investors at large.

5) Receipt of Corporate Benefits: The NSDL provides details of the beneficial owners as on a given
day (the record date) to the Issuer Company or registrar so as to enable the company to calculate the
benefits arising out of these holdings. Shareholders would be given the option of receiving their
securities entitlements (like bonus or rights) in the form of physical certificates or in the form of
dematerialized holdings with the NSDL. If the investor chooses to receive securities in the
dematerialized form, he can get a direct credit to his account, thereby avoiding the risk of loss of
certificates in transit. The cash benefits are forwarded directly to the investor by the company or its
registrar and transfer agent.

6) Rematerialization: The conversion of dematerialized holdings back into physical certificates is

called rematerialization. Typically, rematerialization takes place through the following steps:

a) The beneficial owner submits a rematerialization request form (RRF) to the DP.

b) The DP intimates the NSDL of the request through the system.

c) The DP submits the RRF to the registrar.

d) The NSDL then confirms rematerialization request to the registrar.

e) The Registrar updates accounts and print certificates and inform the NSDL

f) The NSDL updates the accounts and downloads details to the DP

g) The Registrar dispatches the certificates to the investor

The entire process of rematerialization takes a maximum of 30 days.

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 Depository Participants

7) Pledging and Hypothecation Facilities: The NSDL provides beneficial owners with the facility to
pledge / hypothecate securities held in dematerialized form. The securities lying in the beneficiary
account of the investor-borrower (pledger) can be pledged in favour of a lender (pledge). The
pledged securities are blocked in favour of the lender / pledgee, who can release the pledge once its
loan is repaid by the borrower. If the borrower fails to repay the loan, the pledgee can invoke the
pledge in accordance with the pledge deed. On invoking the pledge, the securities would be
transferred to the lender’s account and, hence, changed in its name immediately. (Jalan, 2004)

8) Freezing / Locking of an Investor’s Account: An investor can freeze / lock his account for any given
period of time, if he so desires. During this period, no debit can be made to the investor’s account.

9) Stock Lending and Borrowing Facilities: The NSDL also facilitates stock lending and borrowing of
securities held in dematerialized form. All trade is done in the depository segment following the
rolling settlement cycle. In the case of the rolling settlement cycle, the account period is reduced to
one day. If the broker executes the transaction (on behalf of the investor) on Monday, settlement of
the same would be on the next Monday. Trading in dematerialized securities can be bifurcated into
market trades and off-market trades. Market trades are those trades that are cleared and settled
through the CC / CH of the stock exchange.

10) Market Trade (Sale of Securities): In the course of selling securities, an investor intimates his broker
to sell his securities in the depository or physical segment of the market. After the deal is executed,
the investor gives his DP a Delivery Instruction Slip, authorizing him to debit his account. (Fischer,
2003) The clearing member gives his DP a corresponding Receipt Instruction Slip, authorizing his
DP to credit his account with the sold securities. The participant then debits the investor’s account
and credits the clearing member’s account. On the pay-in day, the DP (at the instruction of the
clearing member) debits the clearing member’s account and delivers the securities to the CC/CH.

11) Market Trade (Purchase of Securities): An investor purchasing securities intimates his broker to
purchase securities from the depository segment of the market. After the deal is executed, the
investor gives his DP a Receipt Instruction Slip, authorizing the DP to credit his account with the
purchased securities. (Lucas, 2001) On the pay-out day, the securities due to the clearing member
are given who then gives a corresponding Delivery Instruction Slip to his DP, authorizing the DP to
transfer the securities from his account to the investor’s account. The DP transfers the purchased
securities from the clearing member’s account to the investor’s account. In the depository segment,
pay-in and pay-out of securities takes place on the same day. (Diamond and Verrecchia, 2002)

21
 12) Off-market trades: These are the trades that are not cleared and are settled through the CC / CH of
the stock exchange. The buyer and the seller negotiate the trade internally with each other. The seller
then gives his DP, a delivery instruction slip, authorizing the DP to debit his account with the sold
securities. The buyer also gives his DP the corresponding Receipt Instruction Slip, authorizing the
DP to credit his account with the purchased securities.

4.4.2 Central Depositories Services Limited (CDSL):

The Mumbai Stock Exchange (BSE) in association with the Bank of India, Bank of Baroda, State Bank of
India and HDFC Bank have promoted CDSL as the secondary depository in India for dealing in securities,
in the electronic form, by the name of Central Depositories Services (India) Limited (CDSL). The primary
objectives of this depository are:
 To accelerate the growth of scripless trading

 To make a major thrust in the individual investor’s participation in the depository

 To create a competitive environment which will be responsive to the user’s interests and demands

 To enhance overall liquidity

Features of the CDSL

The main features of the CDSL are as follows:
1) Centralized Database and Accounting: The CDSL aims to retain the entire data of the investors in
its central database. It has opted for it with the following objectives in mind:

 Real time information is available to issuers/registrars and share transfer agents

 Companies can monitor critical holdings, for example, holding of FIIs, FIs, investment
companies and so on by setting up the parameters through their front end terminals. (Singh
and Weisse, 2008)

 There is no other database in the system for reconciliation

 There is no additional security or storage cost of data as there is no critical database residing
at the front end terminals with the issuers or registrars

 There is no capital cost for VSAT. The CDSL proposes to recover only the annual
maintenance charges.

2) Disaster Recovery: The CDSL provides a full operating system and environment at the Disaster
Recovery Site. This is a major relief and a major breakthrough in the history of Indian Stock Market.

22
3) Indemnification and Insurance: The CDSL would indemnify the Beneficial Owner (BO) as per the
provisions of law, in the unlikely event of any loss accruing to the BO due to the negligence of the
CDSL or any of its DPs. It would also take adequate insurance cover in respect of risks arising out
of physical loss and damage on premises, financial loss arising out of forgery and fraud, electronic
or computer crimes and manipulations and professional liabilities arising out of the actions of a
depository due to negligence, errors or omissions. (Demirguc-kunt and Masksimovic, 2005)

4) CDSL Link-Up with NSDL: The CDSL has signed a memorandum of understanding with the NSDL
for their depository connectivity. The MOU covers the understanding between the two depositories
for inter-depository transfers arising out of transactions not settled through the clearing house /
clearing corporation. The CDSL and NSDL have established connectivity through the I-Net.

Services offered by the CDSL

It provides the Beneficial Owner (BO) with the following services: Dematerialization of existing scrips,
dematerialization of new issues, reliable and efficient settlements, rematerialization and corporate
actions (both cash as well as non-cash)
4.5 Corporatization and Demutualisation of Stock Exchanges
The Government approved the corporatization of stock exchanges in India by which ownership,
management and trading rights could be segregated from each other. Corporatisation and
demutualization of stock exchanges are complex subjects and involve a number of legal, accounting,
company law and tax issues. (Shaw, 2003) These issues need careful examination before a clear roadmap
could be prepared to take the process forward. The SEBI constituted the M.H. Kania Group to
recommend the modalities for corporatization and mutualisation of the stock exchanges. The
recommendations of the Group, summarized below in this section, have been approved by the SEBI
subject to the following:
1) While the existing members would be entitled to shares in the corporatized/demutualised stock
exchanges in lieu of their existing rights, the voting rights of the shares held by the broker-
shareholders would be determined by the SEBI in consultation with the Government of India.

2) The Board of the demutualized stock exchange would have equal representation of brokers,
shareholders and investing public, except in the case of NSC where the present structure of its Board
would be maintained. Thus, the broker-shareholder of the demutualized stock exchange can have
up to one-third representation on its board.

3) The names of all directors including the broker-directors to be appointed on the Board of the
demutualized exchanges would require the approval of the SEBI. (Dickey and Fuller, 2001)

4) All directors including the broker-directors would be on the Board of the demutualized stock
exchanges for a tenure to be determined by SEBI.

23
 Some of the recommendations of the Group approved by the SEBI would require legislative changes.
The SEBI has rightfully taken up these proposals for legislative changes with the Central Government.
(Obstfeld, 2004)
To expedite the process for corporatization and demutualization, the stock exchanges have been advised
to frame a scheme for corporatization and demutualization for approval of the SEBI. They may also
consider the consequent changes in the rules, bye-laws, and articles of the exchange which may be
required, to implement the scheme.
The stock exchanges are required to submit a scheme, together with changes in rules, bye-laws and
articles that would be required to implement the scheme, for approval to SEBI on the lines of
recommendations of the Kania Group which have been approved by SEBI in July 2003.

4.6 Other Emerging Trends in Indian Stock Market:

Free Pricing:
The stock markets have been in the focus lately with record rise in the benchmark indices of the Bombay and
National Stock Exchanges (BSE/NSE).
However, in the last few months, volatility in the market has stunned the investors as the BSE benchmark
index slipped from a high of 12,600 level to the 9,000 levels not so long back ago. The bond or debt market
is suddenly looking much more lucrative as an investment option with yields for 10 year bond going above
8 per cent as compared to 5 per cent two to three years ago. Debt market is all set to make a comeback as an
asset allocation substitute. Mutual Funds have come of age and for the first time in history they were buyers
when markets were falling.
Also this time investors were not panicking when market was experiencing high level volatility. Majority
agreed that SEBI and Stock Exchanges have placed Indian capital markets among the best in the world; there
has been no payment crisis when the market has crashed. Moreover, India is now among top five exchanges
in terms of derivatives trading. However, the Foreign Institutional Investors (FIIs) have been in the driver’s
seat in the market and the government should ensure that domestic financial institutions and retail investors
have enough liquidity to take on the FIIs, according to experts. (Arnold and Walz, 2008).
Emergence of new institutions and Instruments:
The stock markets in India have been evolving and evolving rapidly. The Bombay Stock Exchange of India
was the pioneer in bringing about the concept of share trading in India and this happened more than 100 years
ago. However, the National Stock Exchange of India laid the foundation of a technological environment
which gave a boost to the growth of the Indian Stock Markets. (Levine, and Sara, 2006) The Indian Stock
Markets have been witness to a gradual shift from the outcry system of trading to a seamless environment
wherein stocks are now being transferred from the seller to the buyer in the electronic mode. (Roubini and
Sala-I-Martin, 2001) The shift to the online transfer of securities has been the result of the introduction of
depositories into the landscape of the Indian stock markets. In the earlier times, Stocks shifted hands through
physical delivery of certificates from the seller to the buyer through a registered stock broker. (Holmstrom
and Tirole, 2003) This transfer was authenticated when the seller signed the transfer deeds and passed on to
the buyer through the stock broker which in turn was sent by the buyer to the company for registration.
24
However, this process of buying and selling securities has now gone into the archives as the depository
participants have given a new meaning to the transfer of securities through advanced technological
implementations. (Singh and Weisse, 2008)
The depository participants in India have systems in place to facilitate online transfer of securities.
Another important factor to fasten the process of the share trading cult in India is the growth of online broking
platforms to facilitate the trading of stocks. In effect, online stock trading in India can boast of innovations
in share trading as well as share transfer and this has resulted in a new breed of technologically savvy
investors and traders who are now instrumental in driving the equity cult in India. (Singh and Weisse, 2008)
Though organizations, their competencies and product portfolios are expanding and going global, their profit
margins are shrinking, competition is intensifying and lives – working and social are becoming more and
more complex and tougher day by day. Opportunity zones are encountering a blood bath, globally. (Robinson
and Wrights man, 2001)
Change has become a ubiquitous phenomenon. Indeed, the intensity and speed of changes in the market place
is rendering all veterans, conventional and orthodox organizations and people redundant at an amazing speed.
Unambiguously, markets have become merciless without any respect for the long standing and accumulated
expertise. Amidst such choppy waves, market participants are virtually left with two choices – either change
or perish. Apparently, nothing but change is stable in the world, which interestingly offers both - opportunities
and challenges. To me, change is an exciting opportunity to reposition oneself because of the survival crisis
created by unanticipated change and/or the excitement offered by the unfolding of new caverns of
opportunities, which were not visible earlier to the naked eye. (Stigilitz, 2004)
As the exchanges are in the business of providing liquidity to the market place through a transparent and
efficient mechanism called the trading platform, like any other business their success or failure would be
determined by the competencies they possess and strategies they adopt to position themselves in the future.
(Singh and Weisse, 2008) There will be see the integration / amalgamation / mergers of the entities
(exchanges) and businesses into liquidity business on the lines of other opportunity zones. Indeed, this has
already begun if they incisively survey around. Creation of the Euro next (merger of Amsterdam Stock
Exchange, Paris Stock Exchange and Brussels Stock Exchange), Singapore Exchange Ltd. (merger of Stock
Exchange Singapore and Singapore Mercantile Exchange (SIMEX)) and One Chicago (alliance of Chicago
Mercantile Exchange (CME), Chicago Board of trade (CBOT) and Chicago Board Options Exchange
(CBOE)) are live examples to substantiate the underlying thinking. Further, London International Financial
Futures and Options Exchange (LIFFE) have also joined hands with Euro next to create Euro next. liffe.
Ideally, it can be said that as a country, India needs at least 2-3 exchanges to serve the continental structure
of the market and fight the challenges of building a competitive edge. However, eventually there would not
be more than say 5-6 stock exchanges across the globe, in the time to come. Which will be these 5 to 6
featured stock exchanges, that would really depend on the strategic global moves that existing exchanges
across the globe take as they all are competing for the future opportunity share in a very competitive
environment? It can be said that these exchanges would simply be exchanges and not securities exchanges

25
as they would trade commodities, securities, currencies, bullion, weather, credit risk or anything else you can
imagine and beyond. (Jalan, 2004)
Emergence of Online Share Trading In India:
Indian stock markets are now electronically driven with the introduction of online stock trading platforms
which facilitate the transfer of shares and funds with the integration of share trading brokers and the banks.
Trading in Options and Futures
A stock option trading is a legal contract giving the owner the right to buy or sell a quantity of stock at a set
price on or before a specific date: This definition was written in regard to stock options but is not limited to
stocks. (Stigilitz, 2004) Options are used in many other markets including real estate, bonds, futures and
commodities, indexes, ETFs and even "exotic" market. A stock option is regulated by the SEC, managed by
the Options Clearing Corporation, and is standardized. Because of this imposed structure, a stock option is
traded on an exchange very much like stock. (Jalan, 2004) These option exchanges give the market liquidity
by bring buyers and sellers together efficiently, and enables rapid execution of orders.
Introduction of Technology Initiatives
Stock exchanges today have to rely increasingly on information technology to stay competitive in delivering
services. This is primarily because of newer trading channels used for communicating and transacting like
Internet and On-line security trading. (Singh and Weisse, 2008)
The IT department of NSE employs 150 IT professionals forming a third of its total staff strength. The
exchange has invested close to Rs.400 Crores in computers, software and communication equipment. It is
therefore recognized as one of "Top IT User" organizations. (Jalan, 2004)
In line with global trends NSE is structured and operates much like an information technology company. It
has the largest VSAT network in this part of the world with a huge and complex web of hardware and
software. It has a detailed disaster recovery site that mirrors all operating systems. The NSE has set up its
own Internet Webster, which is visited daily by four Lakh persons. (Robinson and Wrightsman, 2001)
Stock Exchange Technology
The modern stock exchange technology does not need the traditional type of brokers to match investors'
orders as they used to do on the physical-trading floor. The automated Trading screens can match buy and
sell orders without the intervention of brokers. Today brokers are needed only for settlement responsibilities.
NSE introduced a nation-wide VSAT driven screen based trading system.
Operations commenced in Mumbai and rapidly spread all over India. NSE today offers investors trading
facilities in over 280 cities and town through 4000 terminals. For the first time NSE introduced in India
screen based trading with automated matching. (Jalan, 2004)
The system conceals the identity of the parties to an order or trade. This help better functioning of the market
as disclosures of identity would put most members at a disadvantage. The trading system operates on price
time priority. This means given the same set or orders, the orders that come first receive priority in matching.
When an order does not find an immediate match in remains in the system and is displayed to the whole
market, till a fresh order comes in or the earlier order is modified or cancelled. The market screens at any

26
point of time give the members complete information on the total order depth in a security, the high price,
the low price, the last traded price and other related information.
Nationwide Trading Facility
Nationwide Trading system of NSE has immensely benefited investors in all places, which do not have a
stock exchange nearby. Earlier their orders took three days for confirmation. This time lag is now a thing of
the past, as the orders and prices are visible and instantly available to all investors across the country,
representing a dramatic change in investor access and protection. This has served to unify the earlier
fragmented market into a single national order book, bringing with it unprecedented increases in liquidity
and transparency.

Risk Containment Measures -Investors freed from Counterparty Risks

NSE introduced risk containment measures like mark to market margins, exposure limits etc., bringing
enormous safety to fast growing and changing electronic market.
NSE has introduced the concept of a clearing corporation, by which the counterparty risk of each member is
taken by NSCC and the financial settlement guaranteed by the Corporation. Counterparty risk is being
guaranteed through the tight risk management system and an innovative method of on-line position
monitoring and automatic disablement. NSE introduced this system of automatic disablement to control grave
risks. Under this system each broker of NSC is given a limit up to which he can trade. This limit is fixed in
relation to the money he deposits with NSC or its clearing corporation. This money can be cash or pledge of
securities or Bank Guarantee. Currently the limit is 8.5 times the money deposited.
The trading system works in such a way that the broker gets warning messages after he crosses 70% of his
trading limit and the moment he reaches 100% of his limit NSE computer disconnects all his terminals from
the system so that he cannot trade further. He is allowed to trade again only when he brings additional deposits
or authorize NSC to reduce his trades either by selling or buying on his behalf.

27
 CHAPTER IV
NATIONAL STOCK EXCHANGE

28
Established in 1875, bse ltd. (formerly known as bombay stock exchange ltd.), is asia’s
first stock exchange and one of india’s leading exchange groups. Over the past 137 years,
bse has facilitated the growth of the indian corporate sector by providing it an efficient
capital-raising platform. Popularly known as bse, the bourse was established as "the native
share & stock brokers' association" in 1875. Bse is a corporatized and demutualised entity,
with a broad shareholder-base which includes two leading global exchanges, deutsche
bourse and singapore exchange as strategic partners. Bse provides an efficient and
transparent market for trading in equity, debt instruments, derivatives, mutual funds. It also
has a platform for trading in equities of small-and-medium enterprises (sme).

More than 5000 companies are listed on bse making it world's no. 1 exchange in terms of
listed members. The companies listed on bse ltd command a total market capitalization of
usd 1.32 trillion as of january 2013. It is also one of the world’s leading exchanges (3rd
largest in december 2012) for index options trading (source: world federation of
exchanges).

Bse also provides a host of other services to capital market participants including risk
management, clearing, settlement, market data services and education. It has a global reach
with customers around the world and a nation-wide presence. Bse systems and processes
are designed to safeguard market integrity, drive the growth of the indian capital market
and stimulate innovation and competition across all market segments. Bse is the first
exchange in india and second in the world to obtain an iso 9001:2000 certification. It is
also the first exchange in the country and second in the world to receive information
security management system standard bs 7799-2-2002 certification for its on-line trading
system (bolt). It operates one of the most respected capital market educational institutes in
the country (the bse institute ltd.). Bse also provides depository services through its central.

Bse’s popular equity index - the s&p bse sensex - is india's most widely tracked stock
market benchmark index. It is traded internationally on the eurex as well as leading
exchanges of the brcs nations (brazil, russia, china and south africa).

29
Bse has won several awards and recognitions that acknowledge the work done and progress
made like the golden peacock global csr award for its initiatives in corporate social
responsibility, nasscom - cnbc-tv18’s it user awards, 2012 in financial services category,
skoch virtual corporation 2012 award in the bse star mf category and responsibility award
(csr) by the world council of corporate governance. Its recent milestones include the
launching of bricsmart indices derivatives, bse-sme exchange platform, s&p bse greenex
to promote investments in green india.

PROMOTERS

Sr. Name Organisation

No.
1 Shri. S Ramadorai BSE Ltd. Chairman
2 Shri. Akhilesh Quadeye Securites Pvt. Ltd. Member
Chaudhary
3 Shri. Amarnath M Paterson Securities Pvt. Ltd. Member
4 Shri. Anup Bagchi ICICI Securites Ltd. Member
5 Shri. Atul Gupta Adroit Financial Services Ltd. Member
6 Shri. D K Aggarwal SMC Global Securities Ltd. Member
7 Smt. Deena Mehta Asit C Mehta Investment Intermediates Member
Ltd.
8 Shri. Dinesh Thakkar Angel Broking Ltd Member
9 Shri. Jayant Manglik Religare Seurites Ltd. Member
10 Shri. Kamlesh Shah Total Securities Ltd. Member
11 Shri. Rajesh Baheti Crosseas Capital Services Pvt Ltd Member
12 Shri. Rakesh Somani Eureka Stock & Share Broking Services Member
Ltd.
13 Shri. Richard Macfarlane Citigroup Global Markets India Pvt. Ltd. Member
14 Shri. Siddharth Shah J. G. A Shah Share Brokers Pvt. Ltd. Member
15 Shri. Sonal Jain CLSA India Ltd. Member
16 Shri. Virender Mansukh Stock Brokres Ltd. Member
Mansukhani
* In alphabetical order

30
The national stock exchange of india limited has genesis in the report of the high powered
study group on establishment of new stock exchanges. It recommended promotion of a
national stock exchange by financial institutions (fis) to provide access to investors from
all across the country on an equal footing. Based on the recommendations, nse was
promoted by leading financial institutions at the behest of the government of india and was
incorporated in november 1992 as a tax-paying company unlike other stock exchanges in
the country.

The national stock exchange (nse) operates a nation-wide, electronic market, offering
trading in capital market, derivatives market and currency derivatives segments including
equities, equities based derivatives, currency futures and options, equity based etfs, gold
etf and retail government securities. Today nse network stretches to more than 1,500
locations in the country and supports more than 2, 30,000 terminals.

With more than 10 asset classes in offering, nse has taken many initiatives to strengthen
the securities industry and provides several new products like mini nifty, long dated options
and mutual fund service system. Responding to market needs, nse has introduced services
like dma, fix capabilities, co-location facility and mobile trading to cater to the evolving
need of the market and various categories of market participants.

Nse has made its global presence felt with cross-listing arrangements, including license
agreements covering benchmark indexes for u.s. And indian equities with cme group and
has also signed a memorandum of understanding (mou) with singapore exchange (sgx) to
cooperate in the development of a market for india-linked products and services to be listed
on sgx. The two exchanges also will look into a bilateral securities trading link to enable
investors in one country to seamlessly trade on the other country's exchange.

31
Nse is committed to operate a market ecosystem which is transparent and at the same time
offers high levels of safety, integrity and corporate governance, providing ever growing
trading & investment opportunities for investors.

National Securities Clearing Corporation Limited (NSCCL)

The National Securities Clearing Corporation Ltd. (NSCCL) a wholly owned subsidiary of
NSE, was incorporated in August 1995. It was the first clearing corporation to introduce
settlement guarantee. It commenced clearing operations in April 1, 1996.

NSCCL has been assigned the highest corporate rating of 'AAA' for three consecutive
years. This is the first Indian Clearing Corporation to get this rating.

National Commodity Clearing Limited (NCCL)

National Commodity Clearing Limited (NCCL) has been incorporated jointly between
NSE and NCDEX. Presently , the company provides IT and process support in respect of
its clearing and settlement of trades done in derivatives segment. The clearing and
settlement covers contracts in 44 products ranging from agricultural commodities to base
metals, ferrous metals, energy, polymers and precious metals.

NSE Infotech Services Limited (NSETECH)

NSE Infotech Services Limited (NSETECH) is a wholly owned subsidiary incorporated to

cater to the needs of NSE and all its group companies exclusively.

India Index Services & Products Ltd. (IISL)

32
India Index Services and Products Limited (IISL), a joint venture between NSE and
CRISIL Ltd., was set up in May 1998 to provide a variety of indices and index related
services and products for the Indian capital markets.

DotEx International. Ltd. (DotEx)

The data and info-vending products of NSE are provided through a separate company
DotEx International Ltd., a 100% subsidiary of NSE., which is a professional set-up
dedicated solely for this purpose. DotEX also offers "NOW" a fully managed, secure and
reliable trading gateway, providing immediate, scalable and seamless access through
internet to members and internet investors.

NSE.IT Ltd.

NSE.IT is a 100% subsidiary of National Stock Exchange of India Limited (NSE). NSE.IT
Limited, a Vertical Specialist Enterprise, offers end-to-end Information Technology (IT)
products, solutions and services and has expertise in a wide range of business applications.
It specializes in providing complete IT solutions to Stock Exchanges, Clearing
Corporations, Brokerage Firms, Insurance Firms and other organizations in the Capital
Market, Banking and Insurance industry. NSE.IT has emerged as the preferred technology
partner for deploying high end solutions for the financial services sector.

33
ASSOCIATE / AFFILIATE COMPANIES

National Securities Depository Ltd. (NSDL)

The enactment of Depositories Act in August 1996 paved the way for establishment of
NSDL, the first depository in India. NSE joined hands with the Industrial Development
Bank of India (IDBI) and the Unit Trust of India (UTI) to promote dematerialisation of
securities. Together they set up National Securities Depository Limited (NSDL), the first
depository in India.

National Commodity & Derivatives Exchange Ltd. (NCDEX)

NCDEX is a public limited company incorporated on April 23, 2003 under the Companies
Act, 1956. It obtained its Certificate for Commencement of Business on May 9, 2003. It
commenced its operations on December 15, 2003. NCDEX is a nation-level, technology
driven de-mutualised on-line commodity exchange with an independent Board of Directors
and professional management. It is committed to provide a world-class commodity
exchange platform for market participants to trade in a wide spectrum of commodity
derivatives driven by best global practices, professionalism and transparency.

Power Exchange India Limited (PXIL)

Power Exchange India Limited (PXIL) is India’s first institutionally promoted Power
Exchange that provides innovative and credible solutions to transform the Indian Power
Markets.

PXIL’s unique combination of local insights and global perspectives helps its stakeholders
to make better informed business and investment decisions, improves the efficiency of the
power markets, and helps shape policies and projects. www.powerexindia.com

34
 STRATEGY, VISION, MISSION, OBJECTIVES OF THE COMPANY

VISION

"EMERGE AS THE PREMIER INDIAN STOCK EXCHANGE WITH BEST-IN-CLASS

GLOBAL PRACTICE IN TECHNOLOGY, PRODUCTS INNOVATION AND
CUSTOMER SERVICE."

MISSION

At par with international standards, BSE Ltd. has been a pioneer in several areas over the
decades and has many firsts and key achievements to its credit. BSE is the first exchange
in India to

STRATEGY

 Launch a special platform for trading in SME securities

 Introduce Equity Derivatives
 Launch a Free Float Index - S&P BSE SENSEX
 Launch Exchange Enabled Internet Trading Platform
 Obtain ISO certification for a stock exchange
 Exclusive facility for financial training – BSE Institute Ltd.
 Launch its website in Hindi and regional languages
 Host the popular opening-bell ceremony in Indian capital markets
 Launch mobile-based trading in India in Sept 2012
 Become securities market infrastructure member of SWIFT in India and provide
corporate actions to custodians in ISO 15022 format
 Launched S&P BSE SENSEX Realized S&P BSE Volatility (REALVOL) Index
in Nov 2012

35
OBJECTIVE
Besides the above, BSE has taken large strides in product and service innovation for the
benefit of its members and investors, notable ones being

 Launch of a reporting platform for corporate bonds

 Launch of the S&P BSE IPO index and S&P BSE PSU website
 Revamp of its website with wide range of new investor-friendly features
 Launch of trading in S&P BSE SENSEX futures on EUREX and leading exchanges
of the BRICS nation bloc
 Launched Smart Order Routing for members and investors
 Introduced SACT (SMS alert & Complaint Tracking system)
 Launched co-location facility at BSE premises in November 2012
 Reduction in membership fees to Rs. 10 lakh for new memberships to promote
financial access and inclusion
 Launch of web-based mutual fund trading platform for investors

36
 CAPITAL STRUCTURE AND WORKING CAPITAL NEEDS

Deposit & Networth Requirements(Corporates)

DEPOSIT STRUCTURE ( in lakhs)

Segment Type of Cash- Non- Cash Non- Tota Net

Membership NSEI Cash NSCC Cash l Wort
L NSEI L NSCC h
L L
Capital TM & SCM 85 - 15 25 125 100
Market
Wholesale TM & SCM 50 - - - 50 200
Debt
Market
Futures & TM 25 - - - 25 100
Options TM & SCM 25 - 25 25 75 100
TM & CM 25 - 25 25 75 300
PCM - - 25 25 50 300
Currency Existing TM 2 8 - - 10 100
Derivative Member TM 2 8 25 25 60 500
s Segment s &
SC
M
TM 2 8 25 25 60 1000
&
CM
TM 2 13 - - 15 100

37
 TM 2 18 25 25 70 500
&
New SC
Member M
s TM 2 18 25 25 70 1000
&
CM
PCM - - 25 25 50 1000

* TM = Trading Membership.
* TM & SCM = Trading and Self Clearing Membership.
* TM & CM = Trading and Clearing Membership.
* PCM = Professional Clearing Membership.

Deposit & Networth Requirements(Individual / Partnership Firms)

DEPOSIT STRUCTURE ( in lakhs)

Segment Type of Cash- Non- Cash Non- Tota Net

Membership NSEI Cash NSCC Cash l Wort
L NSEI L NSCC h
L L
Capital TM & SCM 26.5 - 6 17.5 50 75
Market
Wholesale TM & SCM 50 - - - 50 200
Debt
Market
Futures & TM 25 - - - 25 75
Options TM & SCM 25 - 25 25 75 100
TM & CM 25 - 25 25 75 300
Currency Existing TM 2 8 - - 10 100
Derivative Member TM 2 8 25 25 60 500
s Segment s &

38
 SC
M
TM 2 8 25 25 60 1000
&
CM
New TM 2 13 - - 15 100
Member TM 2 18 25 25 70 500
s &
SC
M
TM 2 18 25 25 70 1000
&
CM

* TM = Trading Membership.
* TM & SCM = Trading and Self Clearing Membership.
* TM & CM = Trading and Clearing Membership.
* PCM = Professional Clearing Membership.

Fees and Charges :

 Application Processing Fees : 10,000/- Plus applicable Service Tax.

 Admission Fees : 5,00,000/- Plus applicable Service Tax
 Annual subscription charges (Captial Market Segment):

For Corporates - 1,00,000 P.A.

For Individuals/Partnership Firms - 50,000 P.A.

 Advance minimum transaction charges (Futures & Options segment): 1,00,000

p.a.
 Advance transaction charges (Currency Derivatives segment) 50,000 p.a.

39
 ORGANISATION STRUCTURE, EVOLUTION & CONTEMPORARY CHALLENGES

EVOLUTION

NSE is one of the first de-mutualised stock exchanges in the country, where the ownership
and management of the Exchange is completely divorced from the right to trade on it.
Though the impetus for its establishment came from policy makers in the country, it has
been set up as a public limited company, owned by the leading institutional investors in the
country.

From day one, NSE has adopted the form of a demutualised exchange - the ownership,
management and trading is in the hands of three different sets of people. NSE is owned by
a set of leading financial institutions, banks, insurance companies and other financial
intermediaries and is managed by professionals, who do not directly or indirectly trade on
the Exchange. This has completely eliminated any conflict of interest and helped NSE in
aggressively pursuing policies and practices within a public interest framework.

The NSE model however, does not preclude, but in fact accommodates involvement,
support and contribution of trading members in a variety of ways. Its Board comprises of
40
senior executives from promoter institutions, eminent professionals in the fields of law,
economics, accountancy, finance, taxation, etc, public representatives, nominees of SEBI
and one full time executive of the Exchange.

While the Board deals with broad policy issues, decisions relating to market operations are
delegated by the Board to various committees constituted by it. Such committees includes
representatives from trading members, professionals, the public and the management.The
day-to-day management of the Exchange is delegated to the Managing Director who is
supported by a team of professional staff.

CHALLENGES

The NSE is owned by a set of leading financial institutions, banks, insurance companies
and other financial intermediaries. It is managed by professionals, who do not directly or
indirectly trade on the Exchange. The trading rights are with trading members who offer
their services to the investors. The Board of NSE comprises of senior executives from
promoter institutions and eminent professionals, without having any representation from
trading members. While the Board deals with the broad policy issues, the Executive
Committees (ECs), which include trading members, formed under the Articles of
Association and the Rules of NSE for different market segments, set out rules and
parameters to manage the day-to-day affairs of the Exchange. The ECs have constituted
several committees, like Committee on Trade Related Issues (COTI), Committee on
Settlement Issues (COSI) etc., comprising mostly of trading members, to receive inputs
from the market participants and implement suggestions which are in the best interest of
the investor s and the market. The day-to-day management of the Exchange is delegated to
the Managing Director and CEO who is supported by a team of professional staff.
Therefore, though the role of trading members at NSE is to the extent of providing only
trading services to the in vestors, the Exchange involves trading members in the process of
consultation and participation in vital inputs towards de i sionmaking

41
 BRANCH/ DIVISION WHERE THIS TRAINING WAS UNDERTAKEN

 1026 trading members on the Capital Market segment, of which around 86%
account for corporates and the remaining individuals and firms.

 113 trading members on the Wholesale Debt Market segment, all of which account
for corporates. (Out of these 113 trading members, 106 are members of the Capital
Market segment also and are included in the 1026 members indicated above).

 Over 2600 trading terminals

 Over 1500 VSAT's across the country with a 24 hour Network monitoring system
in over 160 cities as of December 31st, 2012.

42
 IMPLEMENTATION OF THE STRATEGY

With NSEIL's strong focus on debt market segment and the long felt need to create
standardized market practices, NSEIL has embarked upon developing products that will be
used by the market participants to address themselves to issues relating to this market
segment.

In its continuing effort to innovate, the Exchange has developed a 'Zero Coupon Yield
Curve' (ZCYC) that will help in valuation of sovereign securities across all maturities
irrespective of its liquidity. It aims to create uniform valuation standards in the market. The
product has been developed keeping in mind the requirements of the banking industry,
financial institutions, mutual funds, insurance companies, etc. that have substantial
investment in sovereign papers. NSE ZCYC aims to help in improving Asset Liability
Management of institutions with realistic valuations of portfolio of sovereign papers. It has
been developed keeping in mind the emergence of a scientific forward curve for the market
that will be useful in developing derivative products and STRIPS in the emerging scenario.
The 'zero coupon yield curve' (ZCYC for short) starts from the basic premise of 'time value
of money' - that a given amount of money due today has a value different from the same
amount due at a future point of time. An individual willing to part with his money today
has to be compensated in terms of a higher amount due in future - in other words, he has
to be paid a rate of interest on the principal amount. The rate of interest to be paid would
vary with the time period that elapses between today (when the principal amount is being
foregone) and the future point of time (at which the amount is repaid). At any point of time
therefore, we would observe different spot rates of interest associated with different terms
to maturity; longer maturity offering a 'term spread' relative to shorter maturity. The term
structure of interest rates, or ZCYC, is the set of such spot interest rates. This is the principal
factor underlying the valuation of most fixed income instruments.

43
Fixed income instruments can be categorized by type of payments. Most fixed income
instruments pay to the holder a periodic interest payment, commonly known as the coupon,
and an amount due at maturity, the redemption value. There exist some instruments that do
not make periodic interest payments; the principal amount together with the entire
outstanding amount of interest on the instrument is paid as a lump sum amount at maturity.
These instruments are also known as 'zero coupon' instruments (Treasury Bills provide an
example of such an instrument). These are sold at a discount to the redemption value, the
discounted value being determined by the interest rate payable (yield) on the instrument.

Fixed income instruments can also be categorized by type of issuer. The rate of interest
offered by the issuer depends on its credit-worthiness. Sovereign securities issued by the
Government of any country, with minimal default risk, usually offer lower rates of interest
than a non-sovereign entity with some default risk. The 'credit spread' that has to be added
by a non-sovereign entity with non-zero probability of default risk, over and above the
interest rates offered by a sovereign body, is directly related to the default risk of the issuer
- higher the default risk, higher is the spread.

In empirical models of the ZCYC, the discounted stream of cashflows gives the underlying
valuation of the bond. If the term structure is the only factor that influences the pricing of
the bond, the present value relation, as we have mentioned earlier, should give us 'the' price
of the bond. With the PV relation, and with information available on 'trade date', 'traded
price', 'coupon rate'and 'date of maturity' of a bond, this essentially leaves as unknown only
the set of interest rates. Trades on a given day provide us with such information for the
sample of traded bonds. Estimation of the ZCYC now involves estimation of the
appropriate set of interest rates that go into deriving the present value relation. This is done
by specifying a functional form of the interest rate-maturity relation/discount
function/forward rate function. The present exercise estimates the ZCYC using the 'Nelson-
Siegel' (NS) functional form [Nelson & Siegel (1987)] using data on secondary market
trades in Government securities reported on the Wholesale Debt Market segment of the
National Stock Exchange (NSE-WDM).

The ZCYC depicts the relationship between interest rate and maturity for a set of 'similar'
securities, as on a given date. To derive the 'true' term structure, we need to have a sample

44
of bonds that are identical in every respect except in term to maturity. Government
securities do, in practice, differ in coupon rates; nonetheless, these come closest to
satisfying the requirement, and hence most empirical studies have concentrated on this
segment of the securities market.

We have mentioned earlier that the underlying valuation of the bond is given by the
discounted stream of cash flows. This relation should give us 'the' price of the bond if the
term structure is the only factor that influences the pricing of the bond. In practice,
however, observed prices differ from this 'average' price. Factors other than the term
structure that affect the price of a bond include, for instance, tax regulations (differential
tax rates for income and capital gains) that affect the relative valuations of bonds with
different cash flows. Further, illiquid bonds trade at a premium relative to liquid bonds of
the same residual maturity. Other bond characteristics also influence valuation. For trades
in the same bond conducted on the same day, dispersion in prices could be attributed to
transaction costs that vary with the size of the trade, an intra-day effect on account of new
developments during the day, or other factors (expectations about the directionality of the
term structure being an example) that have not been explicitly accounted for in the
estimation.

The uses that an estimate of the term structure can be put to are immense. Once an estimate
of the term structure based on default-free government securities is obtained, it can be used
to price all non-sovereign fixed income instruments after adding an appropriate credit
spread. It can be used to value government securities that do not trade on a given day, or
to provide default-free valuations for corporate bonds. Estimates of the ZCYC at regular
intervals over a period of time provides us with a time-series of the interest rate structure
in the economy, which can be used to analyze the extent of impact of monetary policy.
This also forms an input for VaR systems for fixed income systems and portfolios.

45
 RESEARCH METHODOLOGY

SAMPLE SIZE

I have chosen 100 customers for the survey. This sample I have take through the random
sampling procedure.

PRIMARY DATA

 Data collected from brokers and members of HUL and others.

 Data collected through questionnaires.
 Data collected through telephonic conversation.

SECONDARY DATA

A secondary data is that data that is required to conduct the study and can be obtained from
books, journals, magazines, records etc. Secondary data is data taken by the researcher
from secondary sources, internal or external. Secondary data is collected from following
sources: -
1) Magazines and journals
2) Company websites.
3) Internet
4) Books
LIMITATION
Many constraints were involved in doing this study. Some of them are as follows.
 The most significant limitation has been the individuals involved in this study were
very busy and did not spare much time in discussion.
 The sample size selected for the survey was too small as compared to large
population.
 The project was carried out only in the Delhi, so findings on data gathered can be
best true for Delhi only and not applicable to other parts of state and country.
46
Indian stock market is a market where sentiments play a major role in price; hence 100%
accurate predictions cannot be made about its future path

47
 CHAPTER-IV
ANALYSIS AND FINDINGS

48
 1 Are you investor and Trader?

KNOWLEDGE %AGE

Investor 80%

Trader 20%

TOTAL 100

20%

80%

As per the study suggested that 80% of people who involved in this survey are individual
investor out of 100 are and only 20% are trader I have taken this ratio to balance out the
investor decision making process.

49
2. If investor, what type of investor?

A. Short Terms

B. Medium Term

C. Long Term

Short Terms 44%

Medium Term 48%
Long Term 8%

Long Term
8%

Short Terms
44%

Medium Term
48%

As per the question almost 44% are investor are short terms investor also , 48% of the
investor are medium range investor it is clearly shown here that investor decision are
moving around with stock movement.

50
3. If Trader, which type of trading you do most?

A. Intraday

B. Cash/Delivery

C. Futures and options

50%
Intraday
20%
Cash/Delivery
30%
Futures and options

Futures and
options
30% Intraday
50%

Cash/Delivery
20%

Amongst the trading group 50% of them are those who do Intraday, adding to this 20%
will do it cash/delivery option for the trading under the BSE/NSE.

51
4. How Many Demat account do you have?

A. 0 - 2

B. 2 - 4

C. 4 and above

0 to 2 80%
2 to 4 10%
4 And above 10%

4 And above
10%

2 to 4
10%

0 to 2
80%

Demat account is became almost popular from the different age group , as per the above
graph 80% of the investor have more than 1 demat account with different stock broking
companies.

52
5. How often do you trade in stock market?

A. Daily

B. Once in a week

C. Once in a month

D. Depends upon market conditions.

Daily 35%
Once in a week 25%
Once in a month 20%
20%
Depends upon market conditions.

Depends upon
market
conditions.
20% Daily
35%

Once in a
month
20%
Once in a week
25%

Trading is became very popular amongst the all user group particularly, those who have
Demat account, 35% of the total population trading Daily adding to this 25% of the
population doing trading once in a week time which is quite good sign for the Indian stock
market.

53
6. What is the preferred mode of trading?

A. Online trading

B. Software loaded at your PC.

C. At the broker house.

Online trading 45%

25%
Software loaded at your PC.
30%
At the broker house.

At the broker
house.
30% Online trading
45%

Software
loaded at your
PC.
25%

Online trading and taking help from broker house is the two major and preferred way of
investor while performing the trading, growing demand of internet helped online trading
to gain more popularity amongst the investors.

54
7. Which is the major factor that lures you to buy or sell shares during the trading session?

A. Own Judgement

B. Companies at the trading centre.

C. Market News.

Own Judgement 15%

Companies at the trading centre. 25%
Market News. 60%

Own Judgement Companies at the trading centre. Market News.

15%

25%
60%

Most of the individual investor and the traders influenced by the market information that
has been released by the different media houses, almost 60% investor and traders are
dependent upon the market news to buy or sell its shares.

55
8/ Please rate the importance of the following factors in the change in the market piece of
share in the share market as per opinion.

A. Demand and Supply

B. Companies business development

C. Global factors

D. Indian economy

E. Interest Rates.

F. Political factors.

Demand and Supply 5%

15%
Companies business development
Global factors 20%
Indian economy 20%
Interest Rates. 15%
Political factors. 25%
Demand and Companies
Supply business
5% development
Political factors. 15%
25%

Global factors
Interest Rates.
20%
15%

Indian economy
20%

Indian economy , political factors, global cues and interest rates are main reason to change
investor decision these factor contributing about 80% of the total mentioned factors.

56
9, In which of the following investment instruments you invest most part of your savings?

A. Stock/Shares

B. Fixed Deposits

C. Insurance

D. Mutual Fund

Stock/Shares 40%
Fixed Deposits 20%
Insurance 15%
Mutual Fund 25%

Mutual Fund
25% Stock/Shares
40%

Insurance
15%

Fixed Deposits
20%

Stock shares and the mutual fund both investment instrument directly linked with the stock
market are at top in the investment list by investors and traders in which stock/shares
contributing 40% and mutual fund contributing 25%.

57
10. What percentage of return you expect per annum from your funds invested in share
market?

A. 0 to 10%

B. 10 to 20 %

C. 20 to 30 %

D. 30% and above.

0 to 10% 60%
10 to 20 % 10%
20 to 30 % 8%
30% and above. 22%

30% and
above.
20 to 22%
30 %
8% 0 to 10%
10 to 20 % 60%
10%

60% of the investor and traders looking for min 10% of return, expect per annum from
funds invested in share market which is very realistic and can be maintained in long run
for the Indian stock market.

58
11. In times of uncertainty, which group of stock would you give priority to sell?

a. The ones which yielded a profit

b. The ones which yielded a loss.

The ones which yielded a profit 80%

The ones which yielded a loss. 20%

The ones which

yielded a loss.
20%

The ones which

yielded a profit
80%

80% of the investor/trader willing to invest only those stock during the economic downturn
which gives them maximum return earlier.

59
12. Do you know about investment options available?

KNOWLEDGE %AGE

Yes 80%

No 20%

TOTAL 100

20%

Yes
No
80%

COMMENT

Only 80% people knows the exact meaning of investment. Because of remaining 20% take
his/her residential property as an investment. According to law purpose this is not an
investment because of it is not create any profit for the owner.

60
13) Most preferable investment scenario.
INVESTMENT SCENARIO %AGE

Banks 24%

Derivatives & securities market 28%

Insurance 4%
Bonds 20%

Real estate 20%

Others 4%
TOTAL 100

Banks
4%

24% Derivatives & securities

20%
market
Insurance

20% Bonds
28%

Real estate

4% Others

COMMENT

Today scenario is changed so that most area covered by the derivative and securities
market. It is 28% of the total population.

61
 14. What is the basic purpose of your investment?

INVESTMENT PURPOSE PERCENTAGE

Liquidity 30%
Returns 25%
Capital appreciation 10%
Tax benefits 20%
Risk covering 5%
Others 10%
TOTAL 100

5%
10%
30% Liquidity
Returns
20%
Capital appreciation
Tax benefits
10% 25%
Risk covering
Others

COMMENT:- 75% people are interested in liquidity, returns and tax benefits. And
remaining 25% are interested in capital appreciations, risk covering, and others.

62
15Most important things you take into your mind while making investments?

FACTOR %AGE
Risk 8%
Returns 17%
Both 75%
TOTAL 100

8%
17%
Risk
Returns
75%
Both

COMMENT

75% people are considered the both factors risk as well as returns but, only 25% considered
the risk or returns factor.

63
FINDINGS AND INFERENCES

64
To conclude, it can be safely said that India has a long tradition of functioning capital
markets. The major process of reform of capital markets started in a big way in the year
1992 which aimed at removing direct government control and replacing it by a regulatory
framework based on transparency and disclosure.

The first step was taken in 1992 when SEBI was elevated to a full-fledged capital market
regulator. A much needed and important policy initiative in 1993 was the opening of capital
markets for foreign institutional investors and allowing Indian companies to raise capital
abroad. FII registrations in the country have gone up significantly over the years, which is
great news for the stock markets as well as the Indian mutual funds industry. (Demetriades
and Hussein, 2006)

Foreign institutional investors (FIIs) poured inflows heavily to bet strongly and also to
show their confidence in the India growth story. (Chakraborty, 2011)

As per data released by the Securities and Exchange board of India (SEBI), FIIs invested
US$ 2055.74 million in equities between July 1 and July 21, 2012, and US$ 1566.98
million in debt between the same periods. These are enormous amounts of investments by
any standards.

During January to June 2012, FIIs invested US$ 6878.50 million in equity and US$
6083.90 million in debt.

Data sourced from SEBI shows that the number of registered FIIs stood at 1713 and number
of registered sub-accounts rose to 5,426 as of June 30, 2012.

The FIIs have been rewarded well by attractive valuations and increasing returns. The
depository and share dematerialization systems have been introduced to enhance the
efficiency of the transaction cycle. A number of significant reforms have been implemented
in the spot equity and related exchange traded derivatives markets since the early 1990s.
For instance, spot prices are mostly market-determined, trading volumes in the derivatives
market exceed those in spot markets and market practices such as speed of settlement and
dematerialization are close to international best practices.

65
As we can see that the stock exchange is now seen increasingly for what it really is, namely
an essential financial infrastructure for any economy. It is this view of the exchange as
infrastructure that motivated the Indian government to encourage the establishment of the
National Stock Exchange of India at Mumbai, which in a few short years completely
revolutionized the Indian capital market. The transparency of the price discovery process,
which results especially in technology driven stock exchanges encourages participation in
economic activity and enhances the efficient utilization of resources. In addition, the stock
market is increasingly perceived as an electronic marketplace for buyers and sellers of
securities to transact their business, under the full view of observers.

66
LIMITATIONS

67
Many constraints were involved in doing this study. Some of them are as follows.
 The most significant limitation has been the individuals involved in this study were
very busy and did not spare much time in discussion.
 The sample size selected for the survey was too small as compared to large
population.
 The project was carried out only in the Delhi, so findings on data gathered can be
best true for Delhi only and not applicable to other parts of state and country.
Indian stock market is a market where sentiments play a major role in price; hence 100%
accurate predictions cannot be made about its future path

68
RECOMMENDATION

69
 Changes in stock prices are largely dependent on human opinions and expectations
about the future performance of a stock or share. In fact, over expectations about
the valuation of a security can lead to a stock market bubble which is sometimes
the premonition of an imminent stock market crash.
 Taking into account the changing socio-economic demographics, rate of GDP
growth, changing consumer behaviour, it is very much difficult to predict the stock
market behaviour because even trends may not give conclusive results.
 FIIs play a major role in movement of stock market and surprisingly dollar
exchange rate do not have a significant role in stock market volatility.
 Largely, stock market depends on investors sentiments. With new UPA government
coming into majority, it boosted the investors’ confidence and market is expected
to be bullish in near future.
 If a person looks for long term investment than he/ she prefers ULIP as an
investment option over equity market.
 The percentage of investment in equity is very less compared to other investment
options with goal of aggressive growth of their capital.

70
CONCLUSION

71
1) The NSE should be thoroughly studying the HKSE (Hong Kong Stock Exchange),
the Tokyo Stock Exchange and the other leading stock exchanges in the Asia
Pacific region. They should conduct a benchmarking exercise and figure out what
are the areas where we need to improve and can do better. The other stock
exchanges in Asia have strong market operations mechanisms and risk management
processes in place which makes them more efficient. For example, Hong Kong
Stock Exchange has very strong securities trading infrastructure and derivatives
trading infrastructure in place. The Indian stock markets will do well to emulate
these models and prepare strong roadmaps for the future.

2) All the major stock exchanges should organize training programs on modules such
as trading, fundamental analysis, mutual funds operations, derivatives trading etc.
for the general investing public. They should specifically target all investors in the
age group 18 – 35 years as it is very essential to educate these investors at the right
age and time. It should be further ensured that these investors are made aware of
the fact that the stock markets are a legalized way of investing capital and making
adequate returns and not gambling dens. They should also put more emphasis on
concepts like systematic investment plans, the time value of money so that the
investors have true knowledge of benefits of long term investing.

3) The NSE should closely study the risk management and compliance systems of
NYSE, NASDAQ and London Stock Exchange and figure out the areas where we
can compete with them. This is because we are still lagging way behind than them
in terms of overall infrastructure and security systems.

4) The stock markets in India should ensure that all routine trading and delivery
processes are automated to ensure better delivery systems. This will result in
reduction of workload and also efficiency in the overall processes.

72
 APPENDICES

1. Internet
 www.in.lge.com
 www.wikipedia.com
 www.businessstandard.com
 www.economicstimes.com
 www.thehindubusinessline

2. Magazines
3. 1. www.bseindia.com
4. 2. www.nseindia.com
5. 3. www.sebi.org

73