contribution of nse (national stock exchange) in evolution of indian stock market

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09) CHAPTER – 1 Securities Market in India- An Overview ) Contents of this chapter: 1.01 INTRODUCTION 1.02 MARKET SEGMENTS 1.03 INTERNATIONAL SCENARIO 1.04 KEY STRENGTHS OF THE INDIAN SECURITIES MARKETS 1.05 MARKET PARTICIPANTS 1.06 INVESTORS 1.07 ISSUERS 1.08 INTERMEDIARIES 1.09 REGULATORS 1.10 SECONDARY MARKET 1.11 RECENT INITIATIVES AND DEVELOPMENTS IN INDIAN SECURITIES MARKETS 1.12 INITIATIVE IN THE PIPELINE 1.13 RESEARCH IN SECURITIES MARKET ________________________________________________________________ ______________ 1

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Page 1: Contribution of NSE (National Stock Exchange) in Evolution of Indian Stock Market

Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)

CHAPTER –1 Securities Market in India- An Overview )

Contents of this chapter:1.01 INTRODUCTION

1.02 MARKET SEGMENTS

1.03 INTERNATIONAL SCENARIO

1.04 KEY STRENGTHS OF THE INDIAN SECURITIES MARKETS

1.05 MARKET PARTICIPANTS

1.06 INVESTORS

1.07 ISSUERS

1.08 INTERMEDIARIES

1.09 REGULATORS

1.10 SECONDARY MARKET

1.11 RECENT INITIATIVES AND DEVELOPMENTS IN INDIAN SECURITIES

MARKETS

1.12 INITIATIVE IN THE PIPELINE

1.13 RESEARCH IN SECURITIES MARKET

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1.01 Introduction:

We are living in exciting times, witnessing a process of ever-increasing globalization and innovation in the financial markets. This is bringing with it sophistication and thus a need to better understand financial risks and develop tools to manage them. The financial markets and institutions have undergone significant changes keeping pace with the changing needs of market participants. Along side the rise of private finance, the financial markets are seeing an enhanced role of National Governments through Sovereign Wealth Funds. Venture capital funds and hedge funds have added new dimension to the market dynamics.

India has not remained untouched by these developments worldwide. With its growing and increasingly complex market-oriented economy and increasing integration with global trade and Finance, India’s financial system has also innovated.

In the securities markets, organizational innovation has been witnessed with corporatisation and demutualization of all the stock exchanges; institutional innovations in the form of emergence of regulators, Self Regulatory Organizations and clearing corporations and more recently, market innovations through a short selling and Securities Lending and Borrowing Scheme, Direct Market Access, addressing of the legal, regulatory, tax and market design issues in the development of the corporate bond market in the country, provision of a legal framework for trading of securitizeddebt, quicker procedures for registration and operation by FIIs, making PAN as the sole Identification number for all transactions in securities market and new derivative products such as currency futures.

1.02 Market Segments:

The securities market has two interdependent and inseparable segments, the new issues (primary) market and the stock (secondary) market. The primary market provides the channel for creation and sale of new securities, while the secondary market deals in securities previously issued. The securities issued in the primary market are issued by public limited companies or by government agencies. The resources in this kind of market are mobilized either through the public issue or through private placement route. It is a public issue if anybody and everybody can subscribe for it, whereas if the issue is made available to a selected group of persons it is termed as private placement. There are two major types of issuers of securities, the corporate entities who issue mainly debt and equity instruments and the government (central as well as state) who issue debt securities (dated securities and

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)treasury bills).

The secondary market enables participants who hold securities to adjust their holdings in response to changes in their assessment of risks and returns. Once the new securities are issued in the primary market they are traded in the stock (secondary) market. The

secondary market operates through two mediums, namely, the over-the-counter (OTC) market and the exchange-traded market. OTC markets are informal markets where trades are negotiated. Most of the trades in the government securities are in the OTC market. All the spot trades where securities are traded for immediate delivery and payment take place in the OTC market. The other option is to trade using the infrastructure provided by the stock exchanges. The exchanges in India follow a systematic settlement period. All the trades taking place over a trading cycle (day=T) are settled together after a certain time (T+2 day). The trades executed on exchanges are cleared and settled by a clearing corporation. The clearing corporation acts as a counterparty and guarantees settlement. A variant of the secondary market is the forward market, where securities are traded for future delivery and payment. A variant of the forward market is Futures and Options market. Presently only two exchanges viz., National Stock Exchange of India Ltd. (NSE) and Bombay Stock Exchange (BSE) provides trading in the Futures & Options.

1.03 International Scenario:

Following the implementation of reforms in the securities industry in the past years, Indian stock markets have stood out in the world ranking. India has the distinction of having the second largest number of listed companies after the USA. As per Standard and Poor’s Fact Book 2007, India ranked 8th in terms of market capitalization and 15th in terms of turnover ratio as of December 2007.

India posted a turnover ratio of 84% at end 2007. Table 1-1 below present India’s positionvis-a-vis major international markets.

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)A comparative study of concentration of market indices and index stocks in different world markets is presented in the (Table 1-2). It is seen that the index stocks share of total market capitalization in India is 77.5% whereas US index accounted for 78.1% as on end 2007. The concentration levels in index stocks in 2006 were 81.6% for India and 89.5% for US. Thus, there is a decline in concentration in 2007. The ten largest index stocks share of total market capitalization is 26.8% in India and 12.4% in case of US.

The stock markets worldwide have grown in size as well as depth over the years. As can be observed from (Table 1-3), the turnover of all markets taken together have grown from US $ 47.39 trillion in 2005 to US $ 98.82 trillion in 2007.

US alone accounted for about 43.12 % of worldwide turnover in 2007. The share of India in the total world turnover increased from 0.95% in 2006 to 1.12% in 2007.

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)The market capitalization of all listed companies taken together on all markets stood at US $ 64.56 trillion in 2007 up from US $ 53.38 trillion in 2006. The share of US in worldwide market capitalization decreased from 36.39 % as at end-2006 to 30.90 % at end 2007, while Indian listed companies accounted for 2.82% of total market capitalization as at end 2007 (an increase from 1.53% at end of 2006).

According to the ‘World Development Indicators 2008’, World Bank there has been an increase in market capitalization as percentage of Gross Domestic Product (GDP) in some of the major country groups as is evident from (Table 1-4).

The increase, however, has not been uniform across countries. The market capitalization as a percentage of GDP was the highest at 126.1% for the high income countries as at end 2006 and lowest for low income countries at 67%. The Middle income countries have shown a remarkable improvement in market capitalization to GDP ratio from 49.5% in2005 to 74.2% in 2006.

Market capitalisation as percentage of GDP in India stood at 89.8 % as at end 2006. The turnover ratio, which is a measure of liquidity, was 150.2 % for high-income countries and 93.3% for low-income countries in 2007. The total number of listed companies stood at 30,016 for high-income countries, 13,195 for middle-income countries and 6,911for low-income countries as at end-2007.

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1.04 Key strengths of the Indian Securities Market :

The key strengths of the Indian capital market include a fully automated trading system on all stock exchanges, a wide range of products, an integrated platform for trading in both cash and derivatives, and a nationwide network of trading through over 4,000 corporate brokers. The securities markets in India have made enormous progress in developing sophisticated instruments and modern market mechanisms.

The real strength of the Indian securities market lies in the quality of regulation. The market regulator, Securities and Exchange Board of India (SEBI) is an independent and effective regulator. It has put in place sound regulations in respect of intermediaries, trading mechanism, settlement cycles, risk management, derivative trading and takeover of companies. There is a well designed disclosure based regulatory system. Information technology is extensively used in the securities market. The NSE and BSE have most advanced and scientific risk management systems. The growing number of market participants, the growth in volume of securities transactions, the reduction in transaction costs, the significant improvements in efficiency, transparency and safety, and the level of compliance with international standards have earned for the Indian securities market a new respect in the world.

1.05 Market Participants

In every economic system, some units, individuals or institutions, are surplus-generating, who are called savers, while others are deficit- generating, called spenders. Households are surplus-generators and corporates and Government are deficit generators. Through the platform of securities markets, the savings units place their surplus funds in financial claims or securities at the disposal of the spending community and in turn get benefits like interest, dividend, capital appreciation, bonus etc. These investors and issuers of financial securities constitute two important elements of thesecurities markets. The third critical element of markets is the intermediaries who act as conduits between the investors and issuers. Regulatory bodies, which regulate the functioning of the securities markets, constitute another significant element of securities markets. The process of mobilization of resources is carried out under the supervision and overview of the regulators.

The regulators develop fair market practices and regulate the conduct of issuers of securities and the intermediaries. They are also in charge of protecting the interests of the investors. The regulator ensures a high service standard from the intermediaries and supply of quality securities and non-manipulated demand for them in the market.

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Thus, the four important elements of securities markets are the investors, the issuers, the intermediaries and regulators.

1.06 Investors

An investor is the backbone of the capital markets of any economy as he is the one lending his surplus resources for funding the setting up of or expansion of companies, in return for financial gain.

Households’ investment pattern

According to Reserve Bank of India (RBI) data, the household sector accounted for 80.5% of the Gross Domestic Savings in Fixed Income investment instruments during 2007-08, as against 84.5% in 2006-07 (Table 1-5). Mutual funds accounted for the bulk of securities markets investments with an absolute amount of Rs 568,000 million in 2007-08 against Rs. 398,030 million in 2006-07. 2007-08 saw huge investments in mutual funds to take advantage of the booming stock market. Besides, bank deposit rates

were very low then.

1.07 Issuers

Primary MarketsAn aggregate of Rs. 5,788,150 million (US $ 144,812 million) were raised by the government and corporate sector during 2007-08 as against Rs. 3,944,540 million (US $ 90,492 million) during the preceding year, an increase of 46.74%. Private placement accounted for 71.75% of the domestic resource mobilization by the corporate sector.

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(Table 1-6)

The Indian market is getting integrated with the global market, though in a limited way through Euro Issues, since they were permitted access in 1992. Indian companies have raised about Rs. 265,560 million i.e. US $ 6,644 million during 2007-08 through American Depository Receipts (ADRs)/Global Depository Receipts (GDRs), an increase of 56.17% as compared with Rs.170,050 million ( US $ 3901 million) during 2006-07.

Of the total resources mobilized through the primary markets, the share of resources raised by the Government decreased from 51 % in 2006-07 to 42% in 2007-08. While the primary issues of the Central Government increased from Rs. 1,793,730 million in 2006-07 to Rs. 1,882,050 million in 2007-08, the resources raised by State Governmentsincreased by 225% from Rs. 208,250 million in 2006-07 to Rs.677,790 million in 2007-08.

1.08 Intermediaries

The term “market intermediary” is usually used to refer to those who are in the business of managing individual portfolios, executing orders, dealing in or distributing securities and providing information relevant to the trading of securities. The market mediators play an important role on the stock exchange market; they put together the demandsof the buyers with the offers of the security sellers. A large variety and number of intermediaries provide intermediation services in the Indian securities markets.

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Table 1-7 presents an overview of market participants in the Indian securities market.

The market intermediary has a close relationship with the investor with whose protection the Regulator is primarily tasked. As a consequence a large portion of the regulation of a securities industry is directed at the market intermediary.

Regulations address entry criteria, capital and prudential requirements, ongoing supervision and discipline of entrants, and the consequences of default and failure.One of the issue concerning brokers is the need to encourage then to corporatize. Presently, 44% of the brokers are corporates. Corporatisation of

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)their business would help them compete with global players in capital markets at home and abroad. Corporatisation brings better standards of governance and better transparency hence increasing the confidence level of customers.

1.09 Regulators

The absence of conditions of perfect competition in the securities market makes the role of regulator extremely important. The regulator ensures that the market participants behave in a desired manner so that securities market continue to be a major source of finance for corporate and government and the interest of investors are protected.

The responsibility for regulating the securities market is shared by Department of Economic Affairs (DEA), Ministry of Company Affairs (MCA), Reserve Bank of India (RBI) and SEBI. The activities of these agencies are coordinated by a High Level Committee on Capital Markets. The orders of SEBI under the securities laws are appellable before a Securities Appellate Tribunal.

Most of the powers under the SCRA are exercisable by DEA while a few others by SEBI. The powers of the DEA under the SCRA are also con-currently exercised by SEBI. The powers in respect of the contracts for sale and purchase of securities, gold related securities, money market securities and securities derived from these securities and ready forward contracts in debt securities are exercised concurrently by RBI. The SEBI Act and the Depositories Act are mostly administered by SEBI. The rules under the securities laws are framed by government and regulations by SEBI. All these are administered by SEBI. The powers under the Companies Act relating to issue and transfer of securities and non-payment of dividend are administered by SEBI in case of listed public companies and public companies proposing to get their securities listed. The SROs ensure compliance with their own rules as well as with the rules relevant for them under the securities laws.

Regulatory framework

At present, the five main Acts governing the securities markets are (a) the SEBI Act, 1992; (b) the Companies Act, 1956,which sets out the code of

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)conduct for the corporate sector in relation to issuance, allotment and transfer of securities, and disclosures to be made in public issues; (c) the Securities Contracts (Regulation) Act, 1956, which provides for regulation of transactions in securities through control over stock exchanges (d) the Depositories Act, 1996 which provides for electronic maintenance and transfer of ownership of demat shares and (e) Prevention of Money Laundering Act, 2002.

Legislations

Capital Issues (Control) Act, 1947The Act had its origin during the war in 1943 when the objective was to channel resources to support the war effort. It was retained with some modifications as a means of controlling the raising of capital by companies and to ensure that national resources were channeled into proper lines, i.e., for desirable purposes to serve goals and priorities of the government, and to protect the interests of investors. Under the Act, any firm wishing to issue securities had to obtain approval from the Central Government, which also determined the amount, type and price of the issue. As a part of the liberalisation process, the Act was repealed in 1992 paving way for market determined allocation of resources.

SEBI Act, 1992

The SEBI Act, 1992 was enacted to empower SEBI with statutory powers for (a) protecting the interests of investors in securities, (b) promoting the development of the securities market, and (c) regulating the securities market. Its regulatory jurisdiction extends over corporates in the issuance of capital and transfer of securities, in addition to all intermediaries and persons associated with securities market. It can conduct enquiries, audits and inspection of all concerned and adjudicate offences under the Act. It has power to register and regulate all market intermediaries and also to penalisethem in case of violations of the provisions of the Act, Rules and Regulations made there under. SEBI has full autonomy and authority to regulate and develop an orderly securities market.

Securities Contracts (Regulation) Act, 1956

It provides for direct and indirect control of virtually all aspects of securities trading and the running of stock exchanges and aims to prevent undesirable transactions in securities. It gives Central Government regulatory jurisdiction

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)over (a) stock exchanges through a process of recognition and continued supervision, (b) contracts in securities, and (c) listing of securities on stock exchanges. As a condition of recognition, a stock exchange complies with conditions prescribed by Central Government. Organised trading activity in securities takes place on a specified recognised stock exchange.

The stock exchanges determine their own listing regulations which have to conform to the minimum listing criteria set out in the Rules.

Depositories Act, 1996

The Depositories Act, 1996 provides for the establishment of depositories in securities with the objective of ensuring free transferability of securities with speed, accuracy and security by (a) making securities of public limited companies freely transferable subject to certain exceptions; (b) dematerializing the securities in the depository mode; and (c)Providing for maintenance of ownership records in a book entry form. In order to streamline the settlement process, the Act envisages transfer of ownership of securities electronically by book entry without making the securities move from person to person. The Act has made the securities of all public limited companies freely transferable, restricting the company’s right to use discretion in effecting the transfer of securities, and the transfer deed and other procedural requirements under the Companies Act have been dispensed with.

Companies Act, 1956

It deals with issue, allotment and transfer of securities and various aspects relating to company management. It provides for standard of disclosure in public issues of capital, particularly in the fields of company management and projects, information about other listed companies under the same management, and management perception of risk factors. It also regulates underwriting, the use of premium and discounts on issues, rights and bonus issues, payment of interest and dividends, supply of annual report and other information.

Prevention of Money Laundering Act, 2002

The primary objective of the Act is to prevent money-laundering and to

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)provide for confi scation of property derived from or involved in money-laundering. The term money-laundering is defined as whoever acquires, owns, possess or transfers any proceeds of crime; or knowingly enters into any transaction which is related to proceeds of crimeeither directly or indirectly or conceals or aids in the concealment of the proceeds or gains of crime within India or outside India commits the offence of money-laundering. Besides providing punishment for the offence of money-laundering, the Act also provides other measures for prevention of Money Laundering. The Act also casts an obligation on the intermediaries, banking companies etc to furnish information, of such prescribed transactions to the Financial Intelligence Unit- India, to appoint a principal officer, to maintain certain records etc.

Rules and Regulations

The Government have framed rules under the SCRA, SEBI Act and the Depositories Act. SEBI has framed regulations under the SEBI Act and the Depositories Act for registration

and regulation of all market intermediaries, and for prevention of unfair trade practices, insider trading, etc. Under these Acts, Government and SEBI issue notifications,

guidelines, and circulars which need to be complied with by market participants. The SROs like stock exchanges have also laid down their rules and regulations.

Having discussed the various elements of securities market above the following section presents an overview of‘Secondary Market’ segment of the Indian Securities Markets.

1.10 Secondary Market

Corporate SecuritiesExchanges in the country, offer screen based trading system. There were 9,487 trading members registered with SEBI as at end March 2008 (Table 1-8).

The market capitalization has grown over the period indicating more companies using the trading platform of the stock exchange. The All-India market capitalization was around Rs. 51,497,010 million (US $ 1,288,392 million) at the end of March 2008. The market capitalization ratio is defined as market capitalisation of stocks divided by GDP. It is used as a measure to denote the importance of equity markets relative to the GDP.

It is of economic significance since market is positively correlated with the

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)ability to mobilize capital and diversify risk.

The All- India market capitalisation ratio increased to 109.26 % in 2007-08 from 86.02 % in 2006-07. NSE Market Capitalisation ratio was 103.08 % during 2007-08 while BSE Market Capitalisation ratio was 109.01 %.

The trading volumes on stock exchanges have been witnessing phenomenal growth over the past years. The trading volume, which peaked at Rs.28,809,900 million (US $ 617,708 million) in 2000-01, posted a substantial fall of 68.91 % to Rs.8,958,180 million (US $ 183,569 million) in 2001-02. However, from 2002-03 onwards the trading volumes picked up. It stood at Rs.9,689,098 million (US $ 203,981 million) in 2002-03 and further witnessed a year-on-year increase of 67.29 % in 2003-04 standing at Rs.16,209,326 million (US $ 373,573 million). The upsurge continued and in 2006-07, the turnover showed an increase of 21.40 % to Rs.29,014,715 million (US $ 665,628 million) from Rs.23,901,030 million (US $ 535,777 million) in 2005-06. (Table 1-8)

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During 2007-08, the trading volumes on the CM segment of Exchanges increased signifi- cantly by 76.83% to Rs.51,308,160 million (US $ 1,283,667 million).

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)The relative importance of various stock exchanges in the market has undergone dramatic changes over a decade. The increase in turnover took place mostly at the big stock exchanges. The NSE yet again registered as the market leader with 90.27 % of total turnover (volumes on all segment) in 2007-08. Top 2 stock exchanges accounted for 99.99 % of turnover, while the rest 19 stock exchanges had negligible volumes during 2007-08 (Table 1-9).

The movement of the Nifty 50, the most widely used indicator of the market, is presented in Chart 1-1. The index movement has been responding to changes in the government’s economic policies, the increase in FII in flows, etc.

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However, the year 2007-08 witnessed a favorable movement in the Nifty 50 Index, wherein it registered its all time high of 6357.10 in January 08, 2008. The point-to-point return of Nifty 50 was 23.89 % for 2007-08.

Shareholding Pattern

In the interest of transparency, the issuers are required to disclose shareholding pattern on a quarterly basis. Table 1-10 presents the sector wise shareholding pattern of the companies listed at NSE at end June 2008. It is observed that on an average the promoters held 57.45% of the total shares while non-promoters holding was 40.72%.

Individual held 12.86% and the institutional holding (FIIs, MFs, VCFs-Indian and Foreign) accounted for 13.19%.

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Government Securities

The trading in non-repo government securities has been declining considerably since 2004-05. The aggregate trading volumes in central and state government dated securities on SGL declined from Rs. 3,982,988 million (US $ 91,374 million) in 2006-07 to Rs.5,003,047million (US $ 125,170 million) in 2007-08 (Table 1-8).

Derivatives Market

The number of instruments available in derivatives has been expanded. To begin with, SEBI only approved trading in index futures contracts based on Nifty 50 Index and BSE-30 (Sensex) Index. This was followed by approval for trading in options based on these indices and options on individual securities and also futures on interest rates derivativeinstruments (91-day Notional T-bills and 10-year Notional 6% coupon bearing as well as zero coupon bonds).

On NSE, there are futures and options based on benchmark index Nifty 50, CNX IT Index, Bank Nifty Index, CNX Nifty Junior,CNX 100, Nifty Midcap 50 and S&P CNX Defty as well as futures and options on 263 single stocks as of December 2008. On BSE, Futures and Options are based on BSE 30 Sensex, BSE Teck, BSE Bankex, BSE Oil & Gas, BSE Metal and BSE FMCG, as well as futures and options on 119 single stocks. The mini derivative (futures and options) contracts on Nifty 50 and Sensex were introduced for trading on January 1, 2008 while the long term Options on Nifty 50 were launched on March 3, 2008. The futures and options on Defty were introduced on December 10, 2008.The total exchange traded derivatives witnessed a value of Rs.133,327,869 million (US $ 3,335,698 million) during 2007-08 as against Rs. 74,152,780 million (US $ 1,701,142 million) during the preceding year. NSE proved itself as the market leader contributing 98.18 % of the total turnover in 2007-08 in India. Not only in Indian scenario, but also inthe global market NSE has created a niche for itself in terms of derivatives trading in various instruments.

1.11 Recent initiatives and developments in Indian Securities Markets

Corporatisation and Demutualization of Stock Exchanges

To improve the governance mechanism of stock exchanges and to protect the interest of investors in securities market, corporatisation and demutualization of stock exchanges was mandated through an amendment to the Securities law in 2004. The benefi ts of

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demutualisation, other than correcting the con icts of interests situation in governance of stock exchanges, include streamlining of business operations consistent with market needs, streamlined decision making by a professional management and capacity to raise capital which can be used to improve technology, seek innovationsor acquisition of other markets.

Out of the 23 stock exchanges, 18 have since been corporatized and

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)demutualised in 2007-08. One stock exchange, i.e. Hyderabad Stock Exchange, failed to demutualise by the due date and has therefore been de-recognized. Saurashtra Kutch Stock exchange, Mangalore Stock exchange and Magadh Stock exchange have been de-recognized for various irregularities/non compliances. As regards Coimbatore Stock Exchange which had sought voluntary withdrawal of recognition, the matter is sub-judice.

Corporate Bond Markets

The Government and regulators have well recognized that a well developed corporate bond market is essential for financial system effi ciency, stability and overall economic growth. A well functioning bond market provides for financial diversification and facilitates necessary financing not only for AAA-rated corporates but also less well known, sub-investment grade corporates and infrastructure developers. Considering that this market is not well developed in the country, the Government had set up a High-Level Expert Committee on Corporate Bonds and Securitisation (Patil Committee) to look in to legal, regulatory, tax and market design issues in the development of the corporate bond market. The Committee submitted its report to the Government in December, 2005. The Budget of 2006-07 announced that the Government has accepted the recommendations of the Report and that steps would be taken to create a single,unified exchange-traded market for corporate bonds. The measures already taken in respect of implementation of the recommendations of the Patil Committee include:(a) Amendment to the Securities Contracts (Regulation) Act, 1956 to include securitized instruments within the ambit of ‘securities’. (b) Amendment to the RBI Act to empower RBI to develop and regulate market for Repos in corporate bonds; (c) Enhancement of limit of FII Investment in corporate debt from US$ 0.5 bn to US$ 1.5 bn and further to US $ 3 bn.;(d) operationalising of trade reporting and trading platforms for corporate bonds at the major exchanges; (e) Waiver of TDS from corporate bonds traded on exchanges.

Foreign investment in stock exchanges

Foreign Investment upto 49% has been allowed in December 2006 in infrastructure companies in the securities markets, viz. stock exchanges, depositories and clearing corporations, with separate Foreign Direct Investment (FDI) cap of 26%and Foreign Institutional Investment (FII) cap of 23%.

National Institute of Securities Markets (NISM)

In the Budget of 2005-06, SEBI was authorized to set up NISM for teaching and training intermediaries in the securities markets and promoting research. NISM has since been set up and is functional. It has been set up as a public trust and is located in Mumbai, India.

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The SEBI, by establishing NISM, has envisioned a large and far reaching vision to articulate the desire expressed by the Indian government to promote securities market education and research. This vision presents an all encompassing educational initiative relevant for the securities markets of emerging nations. This is the first unified attempt of such magnitude and comprehension in the securities markets anywhere. It is a unique experiment in development of new branch of knowledge relevant for emerging securities markets. Towards accomplishing the desire of Government of India and vision of SEBI, NISM has launched an effort to deliver financial and securities education at various levels and across various segments in India and abroad.

Securities Contracts (Regulation) Amendment Act, 2007

It was recognized that in India, the market for securitised debt remains underdeveloped. Despite two major initiatives, namely, the amendment of the National Housing Bank Act, 1987 (NHB Act) in 2000; and enactment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), the market did not pick up because the facility of trading on stock exchanges was not available. This was, in part due to the fact that securitisation transactions under the NHB Act were not covered under the definition of ‘securities’ in the SCR Act. Asa result, buyers of securitised financial instruments have few exit options.

Thus, the Securities Contracts Regulation Act, 1956 was amended in 2007 to include securitized instruments under the definition of ‘securities’ and provide for disclosure based regulation for issue of the securitized instruments and the procedure thereof. This has been done keeping in view that there is considerable potential in the securities market for the certificates or instruments under securitisation transactions. The development of the securitised debt market is critical for meeting the huge requirements of the infrastructure sector, particularly housing sector, in the country.

Replication of the securities markets framework for these instruments would facilitate trading on stock exchanges and in turn help development of the market in terms of depth and liquidity.

PAN as the sole identification numberThe need for a Unique Identification Number (UIN) for market participants in the securities markets was felt in the interest of enforcement action. Presently, a person has variety of identification numbers such as Permanent Account Number (PAN) from CBDT, Depository Account Numbers from respective depositories, Bank Account Numbers from respective banks, MAPIN from SEBI, Unique Client Code from Exchanges, Director Identification Number from MCA, etc. and there is no arrangement to link these numbers.

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It was felt that the PAN issued by the CBDT could be a UIN for market participants. A PAN could identify all participants and the account managers (Depositories, Banks, Exchanges, Insurance Companies, Pension Fund Managers, Post Offices, and Intermediaries etc.) must use these numbers. Following a budget announcement to this effect in the budget of 2007-08, SEBI has declared PAN the sole identification number for all transactions in securities market. It is an investor friendly measure as he does not have to maintain different identification numbers for different kinds of transactions/different segments in financial markets.

In the Budget of 2008-09 it was proposed that the requirement of PAN be extended to all transactions in the financial market subject to suitable threshold exemption limits.

IPO grading

SEBI has made it compulsory for companies coming out with IPOs of equity shares to get their IPOs graded by at least one credit rating agency registered with SEBI from May 1, 2007. This measure is intended to provide the investor with an informed and objective opinion expressed by a professional rating agency after analyzing factors like business and financial prospects, management quality and corporate governance practices etc. The grading would be disclosed in the prospectus, abridged prospectus and in every advertisement for IPOs.

Real Estate Mutual Funds

After careful and detailed deliberations and consultation process, SEBI approved the launch of Real Estate Mutual funds (REMFs) and accordingly made necessary amendments to the SEBI (Mutual Fund) Regulations 1996 in April, 2008.

This product would allow retail investors to invest in real estate in a much more flexible and convenient manner. A REMF has investment objective to invest directly or indirectly in real estate property. Real estate the largest asset class in the world, may serve as a hedge against other asset classes like debt or equity. By including it in ones portfolio, aninvestor reduces risk and can achieve stable returns. Unlike other asset classes, real estate rarely earns negative returns, and does not suffer high volatility. Over years, the value of real estate usually increases manifold. This also makes it a good hedge against inflation. Real estate is a good long-term investment.

New derivative products

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)The Mini derivative Futures & Options contract was introduced for trading on S&P CNX Nifty on January 1, 2008 while the long term option contracts on S&P CNX Nifty were introduced for trading on March 3, 2008.

Volatility Index

With rapid changes in volatility in securities market from time to time, a need was felt for an openly available and quoted measure of market volatility in the form of an index to help market participants. On January 15, 2008, Securities and Exchange Board of India recommended Exchange to construct and disseminate the volatility index. Volatility Index is a measure, of the amount by which an underlying Index is expected to uctuate, in the near term, (calculated as annualised volatility, denoted in percentage e.g. 20%) based on the order book of the underlying index options. On April 08, 2008, NSE launched the Volatility Index, India VIX, based on the Nifty 50 Index Option prices. From the best bid-ask prices of Nifty 50 Options contracts, a volatility fi gure (%) is calculated which indicates the expected market volatility over the next 30 calendar days. The India VIX is a simple but useful tool in determining the overall volatility of the market .

Short Selling

There were regulatory restrictions in the Indian markets which enabled only retail investors to short sell. Thus, there was no level playing field between various classes of investors. A need was felt to bridge this gap and provide equal leveraging opportunities for all classes of investors.

After due consultation process the SEBI laid down the broad framework to permit all classes of investors to short sell, in December, 2007. Certain conditions were imposed on the FIIs while undertaking a short selling transaction. These, inter-alia, include that borrowing of equity shares by FIIs would only be for the purpose of delivery into short sale and that the margin / collateral would be maintained by FIIs only in the form of cash. Simultaneously, the scope of the existing securities lending and borrowing scheme was widened into a full- edged lending and borrowing scheme enabling participation of all classes of investors, including retail investors.

This short selling and securities lending and borrowing scheme was operationalised with effect from April 21, 2008.

Investment options for Navaratna and Miniratna Public Sector EnterprisesThe Navaratna and Miniratna Public Sector Enterprises have been allowed to invest in public sector mutual funds subject to the condition that they would

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)not invest more than 30% of the available surplus funds in equity mutual funds and the Boards of PSEs would decide the guidelines, procedures and management control systems for such investmentin consultation with their administrative Ministries.

Investor Protection and Education Fund (IPEF)

SEBI has set up the Investor Protection and Education Fund (IPEF) with the purpose of investor education and related activities. SEBI has contributed a sum of Rs.10 crore toward the initial corpus of the IPEF from the SEBI General Fund.

In addition following amounts will also be credited to the IPEF namely: (i) Grants and donations given to IPEF by the Central Government, State Governments or any institution approved by SEBI for the purpose of the IPEF;(ii) Interest or other income received out of the investments made from the IPEF; and (iii) Such other amount that SEBI may specify in the interests of the investors.

Direct Market Access

During April 2008, Securities & Exchange Board of India (SEBI) allowed the direct market access (DMA) facility to the institutional investors. DMA allows brokers to offer clients direct access to the exchange trading system through the broker’s infrastructure without manual intervention by the broker. DMA facility give clients direct control over orders, help in faster execution of orders, reduce the risk of errors from manual order entry and lend greater transparency and liquidity. DMA also leads to lower impact cost for large orders, better audit trails and better use of hedging and arbitrage opportunities through the use of decision support tools/algorithms for trading.

Cross Margining

Many trading members undertake transactions on both the cash and derivative segments of an Exchange. They keep separate deposits with the exchange for taking positions in two different segments. In order to improve the efficiency of the use of the margin capital by market participants SEBI introduced cross margining for institutional investors in May 2008.

In December 2008, SEBI extended the cross margin facility across Cash and F&O segment to all the market participants. The salient features of cross margining are as under :

1. Cross margin is available across Cash and F&O segment and to all categories of

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09) market participants.2. The positions of clients in both the Cash and F&O segments to the extent they offset each other shall be considered for the purpose of cross margining as per the following priority.a) Index futures and constituent stock futures in F&O segment.

b) Index futures and constituent stock positions in Cash segment.c) Stock futures in F&O segment and stock positions in Cash segment.

3. In order to extend the cross margin benefit as per 2 (a) and (b) above, the basket of constituent stock futures/ stock positions shall be a complete replica of the index futures.

4. The positions in F&O segment for stock futures and index futures shall be in the same expiry month to be eligible for cross margin benefit.

5. Positions in option contracts shall not be considered for cross margining benefit.

6. The Computation of cross margin shall be at client level on an on-line real time basis.

7. For institutional investors the positions in Cash segment shall be considered only after confirmation by the custodian on T+1 basis and on confirmation by the clearing member in F&O segment.

8. The positions in the Cash and F&O segment shall be considered for cross margining only till the time the margins are levied on such positions.

9. The positions which are eligible for offset, shall be subject to spread margins. The spread margins shall be 25% of the applicable upfront margins on the offsetting positions.

ASBA

To make the existing public issue process more efficient, SEBI introduced a supplementary process of applying in public issues, viz, the ‘Applications

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)Supported by Blocked Amount (ASBA) in July 2008. ASBA is an application containing an authorization to block the application money in the bank account, for subscribing to an issue. If an investor is applying through ASBA, his application money is debited from the bank account only if his/her application is selected for allotment after the basis of allotment is finalized, or the issue is withdrawn/failed .In case of rights issue his application money is debited from the bank account after the receipt of instruction from the registrars. The ASBA process is available in all public issues made through the book building route. In September 2008, the ASBA facility was extended to Rights Issue.

1.12 Initiatives in the pipeline

Equity Finance for the Small and Medium Enterprises (SMEs)

SMEs in India have traditionally relied on debt financing from banks and non-bank financial institutions. In order to develop the equity market for SMEs, SEBI has decided to the creation of a separate exchange for the SMEs. It has decided that, to begin with there should be a single exchange for the SME sector for around 2-3 years to enable successful development of the market for SMEs.

In recognition of the need for making finance available to needy small and medium enterprises, the SEBI Board has decided to encourage promotion of dedicated exchanges and/or dedicated platforms of the exchanges for listing and trading of securities issued by SMEs. Multiple exchanges or platforms would provide the necessary competition in this space. SEBI will come out with a suitable framework for recognition and supervision of such exchanges/platforms. The enterprises with a post issue paid up capital of upto Rs. 25 crore would be listed on such exchanges / platforms and trading lot would be Rs. 1 lakh.

Framework for delisting of securities

The Securities Laws (Amendment) Act enacted in 2005 allowed delisting of securities necessitating the creation of a delisting framework. In order to provide statutory backing to delisting framework, Rules and Regulations are being finalized by the regualators. A simplified procedure for delisting for small companies is being put in place.

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1.13 Research in Securities Market

In order to deepen the understanding and to assist in policy-making, SEBI has been promoting high quality research in the Indian capital market. Its monthly bulletin carries research articles pertaining to issues in the capital market. In order to improve market efficiency further and to set international benchmarks in the securities industry, NSE also administers a scheme called the NSE Research Initiative. The objective of this initiative is to foster research to better design market microstructure. The NSE Research Initiative has so far come out with 44 Working Papers.

Testing and Certification

With a view to improve the quality of intermediation, a system of testing and certifi cation has been used in some of the developed and developing markets. This ensures that a person dealing with financial products has a minimum knowledge about them,

the markets and regulations. As a result, not only the intermediaries benefit due to the improvement in the quality of their services, but also the career prospectus of the certified professionals is better. Thus, the confidence of the investors in the market increases.

NSE has evolved a testing and certification mechanism known as the National Stock Exchange’s Certification in Financial Markets (NCFM). It is an on-line fully automated nation-wide testing and certification system where the entire process from generation of question paper, testing, assessing, scores reporting and certifying is fully automated. It tests practical knowledge and skills, that are required to operate in financial markets. A certificate is awarded to those personnel who qualify the tests, which indicates that they have a proper understanding of the market and skills to service different constituents of the market. It offers 17 securities market related modules.

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CHAPTER -2 Introduction to NSE (National Stock

Exchange) )

Contents of this chapter:

2.01 GENESIS OF NSE

2.02 OWNERSHIP & MANAGEMENT

2.03 MARKET SEGMENTS

2.04 ORGANISATION OF NSE

2.05 CORPORATE STRUCTURE

2.06 NSE MISSION

2.07 NSE GROUP

2.08 NSE LOGO

2.09 MILESTONES

2.10 ROLE OF NSE IN INDIAN SECURITIES MARKETS

2.11 TECHNOLOGY AND APPLICATION SYSTEMS IN NSE

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2.01 Genesis of NSE

Was given recognition as a stock exchange in April 1993 and started operations inJune 1994, with trading on the Wholesale Debt Market Segment. Subsequently, it launched the Capital Market Segment in November 1994 as a trading platform for Equities and the Futures and Options segment in June 2000 for various derivative instruments.

2.02 Ownership and Management

The NSE is owned by a set of leading financial institutions, banks, insurance companiesand other financial intermediaries. It is managed by professionals, who do not directlyor indirectly trade on the Exchange. The trading rights are with trading members whooffer their services to the investors. The Board of NSE comprises of senior executivesfrom 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 theRules of NSE for different market segments, set out rules and parameters to manage theday-to-day affairs of the Exchange. The day-to-day management of the Exchange isdelegated 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 investors, the Exchange involves trading members in the process of consultation and participation in vital inputs towards decision making.

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-NSE Head office Building in Mumbai-

2.03 Market Segments and Products

NSE provides a trading platform for of all types of securities for investors underone roof – Equity, Corporate Debt, Central and State Government Securities,T-Bills, Commercial Paper (CPs), Certifi cate of Deposits (CDs), Warrants, MutualFunds (MFs) units, Exchange Traded Funds (ETFs), Derivatives like Index Futures,Index Options, Stock Futures, Stock Options. The Exchange provides trading in3 different segments viz., Wholesale Debt Market (WDM) segment, Capital Market (CM)segment and the Futures & Options (F&O) segment

2.04 NSE-The Organisation

The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges, which

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the country.

On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000.

2.05 NSE’s Corporate Structure

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

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

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

While the Board deals with broad policy issues, decisions relating to market operations are delegated by the Board to various committees constituted by it. Such committees includes representatives from trading members, professionals, the public and the

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)management. The day-to-day management of the Exchange is delegated to the Managing Director who is supported by a team of professional staff.

2.06 NSE’s Mission

NSE's mission is setting the agenda for change in the securities markets in India. The NSE was set-up with the main objectives of:

establishing a nation-wide trading facility for equities, debt instruments and hybrids,

ensuring equal access to investors all over the country through an appropriate communication network,

providing a fair, efficient and transparent securities market to investors using electronic trading systems,

enabling shorter settlement cycles and book entry settlements systems, and

meeting the current international standards of securities markets.

The standards set by NSE in terms of market practices and technology have become industry benchmarks and are being emulated by other market participants. NSE is more than a mere market facilitator. It's that force which is guiding the industry towards new horizons and greater opportunities.

2.07 NSE Group

NSCCL

     

        NCCL NSETECH

IISL

       

      NSE NSE.IT

  

DotEx Intl. Ltd.

 

NSDL

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2.08 NSE Logo

The logo of the NSE symbolises a single nationwide securities trading facility ensuring equal and fair access to investors, trading members and issuers all over the country. The initials of the Exchange viz., N, S and E have been etched on the logo and are distinctly visible. The logo symbolises use of state of the art information technology and satellite connectivity to bring about the change within the securities industry. The logo symbolises vibrancy and unleashing of creative energy to constantly bring about change through innovation.

2.09 NSE Milestones

November 1992

Incorporation

April 1993 Recognition as a stock exchange

May 1993 Formulation of business plan

June 1994 Wholesale Debt Market segment goes live

November 1994

Capital Market (Equities) segment goes live

March 1995 Establishment of Investor Grievance Cell

April 1995 Establishment of NSCCL, the first Clearing Corporation

June 1995Introduction of centralised insurance cover for all trading members

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July 1995 Establishment of Investor Protection Fund

October 1995 Became largest stock exchange in the country

April 1996 Commencement of clearing and settlement by NSCCL

April 1996 Launch of S&P CNX Nifty

June 1996 Establishment of Settlement Guarantee Fund

November 1996

Setting up of National Securities Depository Limited, first depository in India, co-promoted by NSE

November 1996

Best IT Usage award by Computer Society of India

December 1996

Commencement of trading/settlement in dematerialized securities

December 1996

Dataquest award for Top IT User

December 1996

Launch of CNX Nifty Junior

February 1997 Regional clearing facility goes live

November 1997

Best IT Usage award by Computer Society of India

May 1998Promotion of joint venture, India Index Services & Products Limited (IISL)

May 1998 Launch of NSE's Web-site: www.nse.co.in

July 1998Launch of NSE's Certification Programme in Financial Market

August 1998 CYBER CORPORATE OF THE YEAR 1998 award

February 1999 Launch of Automated Lending and Borrowing Mechanism

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April 1999 CHIP Web Award by CHIP magazine

October 1999 Setting up of NSE.IT

January 2000 Launch of NSE Research Initiative

February 2000 Commencement of Internet Trading

June 2000 Commencement of Derivatives Trading (Index Futures)

September 2000

Launch of 'Zero Coupon Yield Curve'

November 2000

Launch of Broker Plaza by Dotex International, a joint venture between NSE.IT Ltd. and i-flex Solutions Ltd.

December 2000

Commencement of WAP trading

June 2001 Commencement of trading in Index Options

July 2001Commencement of trading in Options on Individual Securities

November 2001

Commencement of trading in Futures on Individual Securities

December 2001

Launch of NSE VaR for Government Securities

January 2002 Launch of Exchange Traded Funds (ETFs)

May 2002NSE wins the Wharton-Infosys Business Transformation Award in the Organization-wide Transformation category

October 2002 Launch of NSE Government Securities Index

January 2003 Commencement of trading in Retail Debt Market

June 2003 Launch of Interest Rate Futures

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August 2003 Launch of Futures & options in CNXIT Index

June 2004 Launch of STP Interoperability

August 2004 Launch of NSE’s electronic interface for listed companies

March 2005‘India Innovation Award’ by EMPI Business School, New Delhi

June 2005 Launch of Futures & options in BANK Nifty Index

December 2006

'Derivative Exchange of the Year', by Asia Risk magazine

January 2007 Launch of NSE – CNBC TV 18 media centre

March 2007 NSE, CRISIL announce launch of IndiaBondWatch.com

June 2007 NSE launches derivatives on Nifty Junior & CNX 100

October 2007 NSE launches derivatives on Nifty Midcap 50

January 2008Introduction of Mini Nifty derivative contracts on 1st January 2008

March 2008Introduction of long term option contracts on S&P CNX Nifty Index

April 2008 Launch of India VIX

April 2008 Launch of Securities Lending & Borrowing Scheme

August 2008 Launch of Currency Derivatives

1.10 Role of NSE in Indian Securities Market

In Union of India Vs. Allied International Products Ltd. [ (1971) 41 Comp Cas 127 SC]: (1970) 3 SCC 5941), the Supreme Court of India has enunciated the role of the Stock Exchanges in these words:

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)“A Stock Exchange fulfills a vital function in the economic development of a nation: its main function is to ‘liquify’ capital by enabling a person who has invested money in, say a factory or railway, to convert it into cash by disposing off his shares in the enterprise to someone else. Investment in Joint stock companies is attractive to the public, because the value of the shares is announced day after day in the stock exchanges, and shares quoted on the exchanges are capableof almost immediate conversion into money. In modern days a company stands little chance of inducing the public to subscribe to its capital, unless its shares are quoted in an approved stock exchange. All public companies are anxious to obtain permission from reputed exchanges for securing quotations of their shares and the management of a company is anxious to inform the investing public that the shares of the company will be quoted on the stock exchange”.

The stock exchange is really an essential pillar of the private sector corporate economy. It discharges three essential functions:

• First, the stock exchange provides a market place for purchase and sale of securities viz. shares, bonds, debentures etc. It, therefore, ensures the free transferability of securities which is the essential basis for the joint stock enterprise system.

• Secondly, the stock exchange provides the linkage between the savings in the household sector and the investment in the corporate economy. It mobilizes savings, channelises them as securities into these enterprises which are favoured by the investors on the basis of such criteria as future growth prospects, good returns and appreciation of capital.

• Thirdly, by providing a market quotation of the prices of shares and bonds- a sort of collective judgment simultaneously reached by many buyers and sellers in the market- the stock exchange serves the role of a barometer, not only of the state of health of individual companies, but also of the nation’s economy as a whole.

National Stock Exchange of India (NSE) was given recognition as a stock exchange in

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)April 1993. NSE was set up with the objectives of

(a) establishing a nationwide trading facility for all types of securities, (b) ensuring equal access to all investors all over the country through an appropriate communication network, (c) providing a fair, efficient and transparent securities market using electronic trading system, (d) enabling shorter settlement cycles and book entry settlements and (e) meeting the international benchmarks and standards.

Within a short span of time, above objectives have been realized and the Exchange has played a leading role as a change agent in transforming the Indian Capital Markets to its present form.

NSE has set up infrastructure that serves as a role model for the securities industry in terms of trading systems, clearing and settlement practices and procedures. The standards set by NSE in terms of market practices, products, technology and service standards have become industry benchmarks and are being replicated by other market participants. It provides screen-based automated trading system with a high degree of transparency and equal access to investors irrespective of geographical location. The high level of information dissemination through on-line system has helped in integrating retail investors on a nation-wide basis. The Exchange currently operates four market

segments, namely Capital Market Segment, Wholesale Debt Market Segment, Futures an Options segment and the Currency Derivatives Segment.

NSE has been playing the role of a catalytic agent in reforming the market in terms of microstructure and market practices. Right from its inception, the exchange has adopted the purest form of demutualised set up whereby the ownership, management and trading rights are in the hands of three different sets of people. This has completelyeliminated any conflict of interest and helped NSE to aggressively pursue policies and practices within a public interest framework. It has helped in shifting the trading platform from the trading hall in the premises of the exchange to the computer terminals at the premises of the trading members located country-wide and subsequently to the personal computers in the homes of investors. Settlement risks have been eliminated with NSE’s innovative endeavors in the area of clearing and settlement viz., reduction of settlement cycle, professionalisation of the trading members, fine-tuned riskmanagement system, dematerialisation and electronic transfer of securities and establishment of clearing corporation.

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As a consequence, the market today uses the state-of-art information technology to provide an efficient and transparent trading, clearing and settlement mechanism.

NSE provides a trading platform for of all types of securities-equity and debt, corporate government and derivatives. On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, it commenced operations in the Wholesale Debt Market (WDM) segment in June 1994, in the Capital Market (CM) segment in November 1994, in Futures & Options (F&O) segment in June 2000 and in Currency Derivative segment (CDS) in August 2008. The Exchange started providing trading in retail debt of Government Securities in January 2003.

During the year 2007-08, it accounted for over 90 % of total trading value (debt, derivatives and equity) in the stock exchanges and 69% in equities and more than 98% in derivatives.

Wholesale Debt Marketsegment provides the trading platform for trading of a wide range of debt securities. Its product, which is now disseminated jointly with FIMMDA, the FIMMDA NSE MIBID/MIBOR is used as a benchmark rate for majority of deals struck for Interest Rate Swaps, Forwards Rate Agreements, Floating Rate Debentures and Term Deposits in the country. Its ‘Zero Coupon Yield Curve’ as well as NSE-VaR for Fixed Income Securities have also become very popular for valuation of sovereign securities across all maturities irrespective of its liquidity and facilitated the pricing of corporate papers and GOI Bond Index.

NSEs Capital Marketsegment offers a fully automated screen based trading system, known as the National Exchange for Automated Trading (NEAT) system, which operates on a strict price/time priority. It enables members from across the country to trade simultaneously with enormous ease and efficiency.

NSEs Futures & Optionssegment provides trading of a wide range of derivatives like Index Futures, Index Options, Stock Options and Stock Futures.

NSEs Currency Derivativessegment provides trading on currency futures contracts on the USD-INR which commenced on August 29, 2008.

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1.11 Technology and Application Systems in NSE

Across the globe, developments in information, communication and network technologies have created paradigm shifts in the securities market operations. Technology has enabled organisations to build new sources of competitive advantage, bring about innovations in products and services, and to provide for new business opportunities. Stock exchanges all over the world have realised the potential of IT and have moved over to electronic trading systems, which are cheaper, have wider reach and provide a better mechanism for trade and post trade execution.

NSE believes that technology will continue to provide the necessary impetus for the organisation to retain its competitive edge and ensure timeliness and satisfaction in customer service. In recognition of the fact that technology will continue to redefine the shape of the securities industry, NSE stresses on innovation and sustained investment in technology to remain ahead of competition. NSE's IT set-up is the largest by any company in India. It uses satellite communication technology to energise participation from around 200 cities spread all over the country. In the recent past, capacity enhancement measures were taken up in regard to the trading systems so as to effectively meet the requirements of increased users and associated trading loads. With upgradation of trading hardware, NSE today can handle up to 15 million trades per day in Capital Market segment. In order to capitalise on in-house expertise in technology, NSE set up a separate company, NSE Technology Services Ltd. which is expected to provide a platform for taking up all IT related assignments of NSE.

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NEAT is a state-of-the-art client server based application. At the server end, all trading information is stored in an in-memory database to achieve minimum response time and maximum system availability for users. The trading server software runs on a fault tolerant STRATUS main frame computer while the client software runs under Windows on PCs.

The telecommunications network which was using X.25 protocol and is the backbone of the automated trading system is being upgraded to use the more popular and modern IP Protocol. This is a major project involving use of X.25 and IP in parallel and ensuring smooth transition to IP. Each trading member trades on the NSE with other members through a PC located in the trading member's office, anywhere in India. The trading members on the various market segments such as CM / F&O, WDM are linked to the central computer at the NSE through dedicated leased lines and VSAT terminals. The Exchange uses powerful RISC -based UNIX servers, procured from HP for the back office processing. The latest software platforms like ORACLE 10g RDBMS, SQL/ORACLE FORMS Front – Ends.

Technology has been the backbone of the Exchange. Providing the services to the investing community and the market participants using technology at the cheapest possible cost has been its main thrust. NSE chose to harness technology in creating a new market design. It believes that technology provides the necessary impetus for the organisation to retain its competitive edge and ensure timeliness and satisfaction in customer service. In recognition of the fact that technology will continue to redefine the shape of the securities industry, NSE stresses on innovation and sustained investment in technology to remain ahead of competition. NSE is the first exchange in the world to use satellite communication technology for trading. It uses satellite communication technology to energize participation from about 2,956 VSATs from nearly 245 cities spread all over the country. The list of towns and cities and the state-wise distribution of VSATs as at end March 2008 is presented in (Table 1-11).

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)Its trading system, called National Exchange for Automated Trading (NEAT), is a state of-the-art client server based application. At the server end all trading information is stored in an in-memory database to achieve minimum response time and maximum system availability for users. It has uptime record of 99.7%. For all trades entered into NEAT system, there is uniform response time of less than 1.5 seconds. NSE has been continuously undertaking capacity enhancement measures so as to effectively meet the requirements of increased users and associated trading loads.

NSE has also put in place NIBIS (NSEs Internet Based Information System) for on-line real-time dissemination of trading information over the Internet.

As part of its business continuity plan, NSE has established a disaster back-up site at Chennai along with its entire infrastructure, including the satellite earth station and the high-speed optical fibre link with its main site at Mumbai. This site at Chennai is a replica of the production environment at Mumbai. The transaction data is backed up on near real time basis from the main site to the disaster back-up site through the 2 mbps high-speed link to keep both the sites all the time synchronised with each other.

The various application systems that NSE uses for its trading as well clearing and settlement and other operations form the backbone of the Exchange. The application systems used for the day-to-day functioning of the Exchange can be divided into (a) Front end applications and (b) Back office applications.

In the front office, there are 6 applications:

(i) NEAT – CMsystem takes care of trading of securities in the Capital Market segment that includes equities, debentures/notes as well as retail Gilts. The NEAT – CM application has a split architecture wherein the split is on the securities and users. The application runs on two Stratus systems with Open Strata Link (OSL). The application has been benchmarked to support 15,000 users and handle more than 3 million trades daily. This application also provides data feed for processing to some other systems like Index, OPMS through TCP/IP. This is a direct interface with the trading members of the CM segment of the Exchange for entering the orders into the main system. There is a two way communication between the NSE main system and the front end terminal of the trading member.

(ii) NEAT – WDMsystem takes care of trading of securities in the Wholesale Debt Market (WDM) segmentthat includes Gilts, Corporate Bonds, CPs, T-Bills, etc. This is a direct interface with the trading members of the WDM segment of the Exchange for entering the orders/trades into the main system. There is a two way communication between the NSE main system and the front end terminal of the trading member.

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(iii) NEAT – F&Osystem takes care of trading of securities in the Futures and Options (F&O) segment that includes Futures on Index as well as individual stocks and Options on Index as well as individual stocks. This is a direct interface with the trading members of the F&O segment of the Exchange for entering the orders into the main system. There is a two way communication between the NSE main system and the front end terminal of thetrading member.

(iv) NEAT – IPOsystem is an interface to help the initial public offering of companies which are issuing the stocks to raise capital from the market. This is a direct interface with the trading members of the CM segment who are registered for undertaking order entry on behalf of their clients for IPOs. NSE uses the NEAT IPO system that allows bidding in several issues concurrently.

There is a two way communication between the NSE main system and the front end terminal of the trading member.

(v) NEAT – MFsystem is an interface with the trading members of the CM segment for order collection of designated Mutual Funds units

(vi) NEAT – CDSystem is trading system for currency derivatives. Currently currency futures are trading in the segment.

The exchange also provides a facility to its members to use their own front end software through the CTCL (computer to computer link) facility. The member can either develop his own software or use products developed by CTCL vendors.

In the back office, the following important application systems are operative:

(i) NCSS(Nationwide Clearing and Settlement System) is the clearing and settlement system of the NSCCL for the trades executed in the CM segment of the Exchange. The system has 3 important interfaces – OLTL (Online Trade loading) that takes each and every trade executed on real time basis and allocates the same to the clearing members, Depository Interface that connects the depositories for settlement of securities and Clearing Bank Interface that connects the 13 clearing banks for settlement of funds. It also interfaces with the clearing members for all required reports. Through collateral management system it keeps an account of all available collaterals on behalf of all trading/clearing members and integrates the same with the position monitoring of the trading/clearing members.

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The system also generates base capital adequacy reports.

(ii) FOCASSis the clearing and settlement system of the NSCCL for the trades executed in the F&O segment of the Exchange. It interfaces with the clearing members for all required reports. Through collateral management system it keeps an account of all available collaterals on behalf of all trading/clearing members and integrates the same with the position monitoring of the trading/clearing members. The system also generates base capital adequacy reports.

(iii) CDCSSis the clearing and settlement system for trades executed in the currency derivative segment. Through collateral management system it keep an account of all available collateral on behalf of all trading / clearing members and integrates the same with the position monitoring of the trading / cleaning members. The System also generate base capital adequacy report.

(iv) Surveillance systemoffers the users a facility to comprehensively monitor the trading activity and analyse the trade data online and of ine.

(v) OPMS– the online position monitoring system that keeps track of all trades executed for a trading member vis-à-vis its capital adequacy.

(vi) PRISMis the parallel risk management system for F&O trades using Standard Portfolio Analysis (SPAN). It is a system for comprehensive monitoring and load balancing of an array of parallel processors that provides complete fault tolerance. It provides real time information on initial margin value, mark to market profit or loss, collateral amounts, contract-wise latest prices, contract-wise open interest and limits. The system also tracks online real time client level portfolio base upfront margining and monitoring.

(vii) PRISM-CDis the risk management system of the currency derivatives segment. It is similar in features to the PRISM of F&O segment.

(viii)Data warehousingthat is the central repository of all data in CM as well as F&O segment of the Exchange.

(ix) Listing systemthat captures the data from the companies which are listed in the Exchange

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governance and integrates the same to the trading system for necessary broadcasts for data dissemination process and

(x) Membership system

that keeps track of all required details of the Trading Members of the Exchange.The exchange operates and manages a nationwide network. This network of over 2000 VSATs and 3000 Leased Lines is being migrated from X.25 to IP from 2008 onwards and is expected to complete by early 2009. In the new IP network, members have an advantage of a more generic and latest IP protocol and an overall better design, in terms of bandwidth and resilience. Currently the network has over 2000 VSATs, 1500 Leased Lines and 9 POPs (Point of Presence) across the country.

NOW (Neat on Web)

NSE is also offering internet based trading services to NSE members. This facility is branded as NOW 'NEAT on Web'. NOW provides an internet portal for NSE members and their authorized clients to transact orders and trades to the various market of NSE viz. CM, F&O and Currency. The members can also access NOW through their existing VSAT/Leased line, in addition to internet links. The various features provided by NOW are:

(a) Comprehensive Administration features(b) Flexible Risk Management System(c) High speed dealer terminals(d) Online trading facility for investors

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CHAPTER –3 Capital Market Segment- Equities )

Contents of this chapter:

3.01 Introduction

3.02 Trading System-NEAT

3.03 Market Timing

3.04 Capital Market Segments

3.05 Circuit Breakers

3.06 Securities Available for Trading

3.07 Trading System (Explained)

3.08 Trader Workstation –NEAT Terminal

3.09 CTCL-Computer to Computer Link Facility

3.10 Internet based Trading

3.11 Clearing & Settlement

3.01 Introduction

NSE started trading in the equities segment (Capital Market segment) on November 3, 1994 and within a short span of 1 year became the largest exchange in India in terms of volumes transacted.

Trading volumes in the equity segment have grown rapidly with average daily turnover increasing from Rs.17 crores during 1994-95 to Rs.14,148 crores during FY 2007-08. During the year 2007-08, NSE reported a turnover of Rs.3,551,038 crores in the equities segment.

The Equities section provides you with an insight into the equities segment of NSE and also provides real-time quotes and statistics of the equities market. In-depth information regarding listing of securities, trading systems

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3.02 Trading System (NEAT)

NSE introduced for the first time in India, fully automated screen based trading. It uses a modern, fully computerised trading system designed to offer investors across the length and breadth of the country a safe and easy way to invest.

The NSE trading system called 'National Exchange for Automated Trading' (NEAT) is a fully automated screen based trading system, which adopts the principle of an order driven market. (details in section 3.07)

3.03 Market Timings

Trading on the equities segment takes place on all days of the week (except Saturdays and Sundays and holidays declared by the Exchange in advance). The market timings of the equities segment are:

Normal Market Open : 09:55 hoursNormal Market Close : 15:30 hours

The Closing Session is held between 15.50 hours and 16.00 hours

Limited Physical Market Open : 09:55 hoursLimited Physical Market Close : 15:30 hours

3.04 Market Segments

The Exchange operates the following sub-segments in the Equities segment:

Rolling Settlement / Regular Lot Market / Normal Market

Limited Physical Market

Institutional Segment

Trade for Trade Segment

Rolling Settlement

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)In a rolling settlement, each trading day is considered as a trading period and trades executed during the day are settled based on the net obligations for the day. At NSE, trades in rolling settlement are settled on a T+2 basis i.e. on the 2nd working day. For arriving at the settlement day all intervening holidays, which include bank holidays, NSE holidays, Saturdays and Sundays are excluded. Typically trades taking place on Monday are settled on Wednesday, Tuesday's trades settled on Thursday and so on.

Limited Physical Market

Pursuant to the directive of SEBI to provide an exit route for small investors holding physical shares in securities mandated for compulsory dematerialised settlement, the Exchange has provided a facility for such trading in physical shares not exceeding 500 shares. This market segment is referred to as 'Limited Physical Market' (small window). The Limited Physical Market was introduced on June 7, 2001

Institutional Segment

The Reserve Bank of India had vide a press release on October 21, 1999, clarified that inter-foreign-institutional-investor (inter-FII) transactions do not require prior approval or post-facto confirmation of the Reserve Bank of India, since such transactions do not affect the percentage of overall FII holdings in Indian companies. (Inter FII transactions are however not permitted in securities where the FII holdings have already crossed the overall limit due to any reason).

To facilitate execution of such Inter-Institutional deals in companies where the cut-off limit of FII investment has been reached, the Exchange introduced a new market segment on December 27, 1999.

The securities where FII investors and FII holding has reached the cut-off limit as specified by RBI (2% lower than the ceiling specified by RBI) from time to time would be available for trading in this market type for exclusive selling by FII clients. The cut off limits for companies with 24% ceiling is 22%, for companies with 30% ceiling, is 28% and for companies with 40% ceiling is 38%. Similarly, the cut off limit for public sector banks (including State Bank of India) is 18% whose ceiling is 20%. The list of securities eligible / become ineligible for trading in this market type would be notified to members from time to time.

Trade for Trade Segment

Trading in this segment is available only for the securities

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Which have not established connectivity with both the depositories as per SEBI directive. The list of these securities is notified by SEBI from time to time.

On account of surveillance action

3.05 Circuit Breakers

The Exchange has implemented index-based market-wide circuit breakers in compulsory rolling settlement with effect from July 02, 2001. In addition to the circuit breakers, price bands are also applicable on individual securities.

Index-based Market-wide Circuit Breakers

The index-based market-wide circuit breaker system applies at 3 stages of the index movement, either way viz. at 10%, 15% and 20%. These circuit breakers when triggered, bring about a coordinated trading halt in all equity and equity derivative markets nationwide. The market-wide circuit breakers are triggered by movement of either the BSE Sensex or the NSE S&P CNX Nifty, whichever is breached earlier.

In case of a 10% movement of either of these indices, there would be a one-hour market halt if the movement takes place before 1:00 p.m. In case the movement takes place at or after 1:00 p.m. but before 2:30 p.m. there would be trading halt for ½ hour. In case movement takes place at or after 2:30 p.m. there will be no trading halt at the 10% level and market shall continue trading.

In case of a 15% movement of either index, there shall be a two-hour halt if the movement takes place before 1 p.m. If the 15% trigger is reached on or after 1:00p.m. but before 2:00 p.m., there shall be a one-hour halt. If the 15% trigger is reached on or after 2:00 p.m. the trading shall halt for remainder of the day.

In case of a 20% movement of the index, trading shall be halted for the remainder of the day.

These percentages are translated into absolute points of index variations on a quarterly basis. At the end of each quarter, these absolute points of index variations are revised for the applicability for the next quarter. The absolute points are calculated based on closing level of index on the last day of the trading in a quarter and rounded off to the nearest 10 points in case of S&P CNX Nifty.

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3.06 Securities Available for Trading

The Capital Market (Equities) segment of NSE facilitates trading in the following instruments:

A. Shares

Equity Shares

Preference Shares

B. Debentures

Partly Convertible Debentures

Fully Convertible Debentures

Non Convertible Debentures

Warrants / Coupons / Secured Premium Notes/ other Hybrids

Bonds

C. Units of Mutual Funds

3.07 Trading System (Explained)

NSE operates on the 'National Exchange for Automated Trading' (NEAT) system, a fully automated screen based trading system, which adopts the system. This has helped reduce jobbing spreads not only on NSE but in other exchanges as well, thus reducing transaction costs.

NSE consciously opted in favour of an order driven system as opposed to a quote driven

Market Types

Order Books

Order Matching Rules

3.07.1 Trading System - Market Types

The NEAT system has four types of market. They are:

Normal MarketAll orders which are of regular lot size or multiples thereof are traded in the Normal Market. For shares that are traded in the compulsory dematerialised mode the market lot of these shares is one. Normal market consists of various book types wherein orders are segregated as Regular lot orders,

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)Special Term orders, Negotiated Trade Orders and Stop Loss orders depending on their order attributes.

Odd Lot MarketAll orders whose order size is less than the regular lot size are traded in the odd-lot market. An order is called an odd lot order if the order size is less than regular lot size. These orders do not have any special terms attributes attached to them. In an odd-lot market, both the price and quantity of both the orders (buy and sell) should exactly match for the trade to take place. Currently the odd lot market facility is used for the

Limited Physical Market as per the SEBI directives.

Auction MarketIn the Auction Market, auctions are initiated by the Exchange on behalf of trading members for settlement related reasons. There are 3 participants in this market.

Initiator - the party who initiates the auction process is called an initiator

Competitor - the party who enters orders on the same side as of the initiator

Solicitor - the party who enters orders on the opposite side as of the initiator

Spot MarketSpot orders are similar to the normal market orders except that spot orders have different settlement periods vis-à-vis normal market. These orders do not have any special terms attributes attached to them. Currently the Spot Market is not in use.

3.07.2 Trading System - Order Books

The NSE trading system provides complete flexibility to members in the kinds of orders that can be placed by them. Orders are first numbered and time-stamped on receipt and then immediately processed for potential match. Every order has a distinctive order number and a unique time stamp on it. If a match is not found, then the orders are stored in different 'books'. Orders are stored in price-time priority in various books in the following sequence:

-Best Price-Within Price, by time priority.

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Price priority means that if two orders are entered into the system, the order having the best price gets the higher priority. Time priority means if two orders having the same price are entered, the order that is entered first gets the higher priority.

The Equities segment has following types of books:

Regular Lot BookThe Regular Lot Book contains all regular lot orders that have none of the following attributes attached to them.- All or None (AON)- Minimum Fill (MF)- Stop Loss (SL)

Special Terms BookThe Special Terms book contains all orders that have either of the following terms attached:- All or None (AON)- Minimum Fill (MF)Note: Currently, special term orders i.e. AON and MF are not available on the system as per the SEBI directives.

Negotiated Trade BookThe Negotiated Trade book contains all negotiated order entries captured by the system before they have been matched against their counterparty trade entries. These entries are matched with identical counterparty entries only. It is to be noted that these entries contain a counterparty code in addition to other order details.

Stop-Loss BookStop Loss orders are stored in this book till the trigger price specified in the order is reached or surpassed. When the trigger price is reached or surpassed, the order is released in the Regular lot book.

The stop loss condition is met under the following circumstances:Sell order - A sell order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or falls below the trigger price of the order.

Buy order - A buy order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or exceeds the trigger price of the order.

Odd Lot BookThe Odd lot book contains all odd lot orders (orders with quantity less than

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)marketable lot) in the system. The system attempts to match an active odd lot order against passive orders in the book. Currently, pursuant to a SEBI directive, the Odd Lot Market is being used for orders that have quantity less than or equal to 500 viz. the Limited Physical Market.

Spot BookThe Spot lot book contains all spot orders (orders having only the settlement period different) in the system. The system attempts to match an active spot lot order against the passive orders in the book. Currently the Spot Market book type is not in use.

Auction BookThis book contains orders that are entered for all auctions. The matching process for auction orders in this book is initiated only at the end of the solicitor period.

3.07.3.a Trading System - Order Matching Rules

The best buy order is matched with the best sell order. An order may match partially with another order resulting in multiple trades. For order matching, the best buy order is the one with the highest price and the best sell order is the one with the lowest price.

This is because the system views all buy orders available from the point of view of a seller and all sell orders from the point of view of the buyers in the market. So, of all buy orders available in the market at any point of time, a seller would obviously like to sell at the highest possible buy price that is offered. Hence, the best buy order is the order with the highest price and the best sell order is the order with the lowest price.

Members can proactively enter orders in the system, which will be displayed in the system till the full quantity is matched by one or more of counter-orders and result into trade(s) or is cancelled by the member. Alternatively, members may be reactive and put in orders that match with existing orders in the system. Orders lying unmatched in the system are 'passive' orders and orders that come in to match the existing orders are called 'active' orders. Orders are always matched at the passive order price. This ensures that the earlier orders get priority over the orders that come in later.

3.07.3.b Trading System - Order Conditions

A Trading Member can enter various types of orders depending upon his/her requirements. These conditions are broadly classified into three categories: time related conditions, price-related conditions and quantity related conditions.

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(I) Time Conditions

DAY - A Day order, as the name suggests, is an order which is valid for the day on which it is entered. If the order is not matched during the day, the order gets cancelled automatically at the end of the trading day.

GTC - A Good Till Cancelled (GTC) order is an order that remains in the system until it is cancelled by the Trading Member. It will therefore be able to span trading days if it does not get matched. The maximum number of days a GTC order can remain in the system is notified by the Exchange from time to time.

GTD - A Good Till Days/Date (GTD) order allows the Trading Member to specify the days/date up to which the order should stay in the system. At the end of this period the order will get flushed from the system. Each day/date counted is a calendar day and inclusive of holidays. The days/date counted are inclusive of the day/date on which the order is placed. The maximum number of days a GTD order can remain in the system is notified by the Exchange from time to time.

IOC - An Immediate or Cancel (IOC) order allows a Trading Member to buy or sell a security as soon as the order is released into the market, failing which the order will be removed from the market. Partial match is possible for the order, and the unmatched portion of the order is cancelled immediately.

(II) Price Conditions

Limit Price/Order – An order that allows the price to be specified while entering the order into the system.

Market Price/Order – An order to buy or sell securities at the best price obtainable at the time of entering the order.

Stop Loss (SL) Price/Order – The one that allows the Trading Member to place an order which gets activated only when the market price of the relevant security reaches or crosses a threshold price. Until then the order does not enter the market.

A sell order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or falls below the trigger price of the order. A buy order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or exceeds the trigger price of the order.

E.g. If for stop loss buy order, the trigger is 93.00, the limit price is 95.00 and the market (last traded) price is 90.00, then this order is released into the system once the market price reaches or exceeds 93.00. This order is added

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(III) Quantity Conditions

Disclosed Quantity (DQ)- An order with a DQ condition allows the Trading Member to disclose only a part of the order quantity to the market. For example, an order of 1000 with a disclosed quantity condition of 200 will mean that 200 is displayed to the market at a time. After this is traded, another 200 is automatically released and so on till the full order is executed. The Exchange may set a minimum disclosed quantity criteria from time to time.

MF - Minimum Fill (MF) orders allow the Trading Member to specify the minimum quantity by which an order should be filled. For example, an order of 1000 units with minimum fill 200 will require that each trade be for at least 200 units. In other words there will be a maximum of 5 trades of 200 each or a single trade of 1000. The Exchange may lay down norms of MF from time to time.

AON - All or None orders allow a Trading Member to impose the condition that only the full order should be matched against. This may be by way of multiple trades. If the full order is not matched it will stay in the books till matched or cancelled.

Note: Currently, AON and MF orders are not available on the system as per SEBI directives.

3.08 Trader Workstation (NEAT Terminal)

The trader workstation is the terminal from which the member accesses the trading system. Each trader has a unique identification by way of Trading Member ID and User ID through which he is able to log on to the system for trading or inquiry purposes. A member can have several user IDs allotted to him by which he can have more than one employee using the system concurrently.

The Exchange may also allow a Trading Member to set up a network of dealers in different cities all of whom are provided a connection to the NSE central computer. A Trading Member can define a hierarchy of users of the system with the Corporate Manager at the top followed by the Branch Manager and Dealers.

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Title Bar

The title bar displays the current time, Trading system name and date.

Tool BarA window with different icons which provides quick access to various functions such as Market By Order, Market By Price, Market Movement, Market Inquiry, Auction Inquiry, Snap Quote, Market Watch, Buy order entry, Sell order entry, Order Modification, Order Cancellation, Outstanding Orders, Order Status, Activity Log, Previous Trades, Net Position, Online Backup, Supplementary Menu, Security List and Help. All these functions are also available on the keyboard.

Ticker WindowThe ticker displays information about a trade as and when it takes place. The user has the option to set-up the securities which appear in the ticker.

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)Market Watch WindowThe Market Watch window is the main area of focus for a Trading Member. The purpose of Market Watch is to view market information of pre-selected securities that are of interest to the Trading Member.

To monitor various securities, the trading member can set them up by typing the Security Descriptor consisting of a Symbol field and a Series field. Securities can also be set up by invoking the Security List and selecting the securities from the window. The Symbol field incorporates the Company name and the Series field captures the segment/instrument type. A third field indicates the market type.

For example,Company (Symbol) : ACCInstrument type (Series): EQMarket Type: N

For each security in the Market Watch window, market information is dynamically updated on a real time basis. The market information displayed is for the current best price orders available in the regular lot book. For each security, the corporate action indicator (e.g., Ex or cum dividend, interest, rights etc.), the total buy order quantity for the best buy price, best sell price, total sell order quantity for the best sell price, the Last Traded Price (LTP), the last traded price change indicator ('+' if last traded price is better than the previous last traded price and '-' if it is worse) and the no delivery indicators are displayed. If the security is suspended, "SUSPENDED" appears in front of the security.

On line Index and Index InquiryWith every trade in a security participating in Index, the user has the information on the current value of the Nifty. This value is displayed at the extreme right hand corner of the ticker window.

Index Inquiry gives information on Close, Open, High, Low and current index values at the time of invoking this inquiry screen.

Inquiry WindowIn this window, the inquiries such as Market by Order, Market by Price, Previous Trades, Outstanding Orders, Activity Log, Order Status and Market Inquiry can be viewed.

Market By Order (MBO)The purpose of Market by Order is to enable the user to view outstanding orders in the trading books in the order of price/time priority. The information is

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displayed for each order. Stop Loss orders, which are not triggered will not be

displayed on the window. Buy orders are displayed on the left side of the

window and Sell orders on the right side. The orders are presented in a

price/time priority with the "best priced" order at the top.

Market by Price (MBP)The purpose of Market By Price is to enable the Trading Member to view aggregate orders waiting in the book at given prices.

Previous Trades (PT)The purpose of this window is to provide information to users for their own trade.

Outstanding Orders (OO)The purpose of Outstanding Orders is to enable a Trading Member to view his/her own outstanding buy or sell orders for a security. An outstanding order will be an order that was entered by the user, but is not yet completely traded or cancelled.

Activity Log (AL)The Activity Log shows the activities that have been performed on any order of the Trading Member such as whether the order has been traded against fully or partially, it has been modified or has been cancelled. It displays information only of those orders in which some activity has taken place. It does not display orders, which have entered the books but have not been matched (fully or partially) or modified or cancelled.

Order Status (OS)Order Status enables the user to look into the status of a specific order. Current status of the order and other order details are displayed. In case the order is traded, the trade details are also displayed.

Market Inquiry (MI)Market Inquiry enables the user to view the market statistics like Open, High, Low, Previous close, Last traded price change indicator, Last traded quantity, date and time etc. A user may find inquiry screens like Market Movement, Most Active Securities and Net Position useful. These are available in the supplementary menu.

Market Movement (MM)The Market Movement screen provides information to the user regarding the movement of a security for the current day. It gives details of the movement of the scrip for a time interval. The details include total buy and sell order quantity value, Open, High, Low, Last traded price etc.

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Most Active SecuritiesThis screen gives a list of the securities with the highest traded value during the day and the quantity traded for each of them.

Net PositionThis functionality enables the user to interactively view his net position for all securities in which he has traded.

Snap QuoteThe Snap Quote feature allows a Trading Member to get instantaneous market information on any desired security. This is normally used for securities that are not already on display in the Market Watch window. The information presented is the same as that of Market Watch window.

Order/Trade WindowOrder entry mechanisms enable the Trading Member to place orders in the market. The system will request re-confirmation of an order so that the user is cautioned before the order is finally released into the market. Orders once placed on the system can be modified or cancelled till they are matched. Once orders are matched they cannot be modified or cancelled.

There is a facility to generate online order/trade confirmation slips as soon as an order is placed or a trading is done. The order confirmation slip contains among other things, order no., security name, price, quantity, order conditions like disclosed or minimum fill quantity etc. The trade confirmation slip contains the order and trade no., date, trade time, price and quantity traded, amount etc. Orders and trades are identified and linked by unique numbers so that the investor can check his order and trade details.

Systems Message WindowThis window is used to view messages from the Exchange to all specific Trading Members.

Supplementary MenuSome of the supplementary features in the NEAT system are:

On line back upAn on line back up facility is provided which the user can invoke to take a back up of all order and trade related information. There is an option to copy the file to any drive of the computer or on a floppy diskette. Trading members find this convenient in their back office work.

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Off Line Order EntryA member is able to make an order entry in the batch mode.

Locations

Till the advent of NSE, an investor wanting to transact in a security not traded on the nearest exchange had to route orders through a series of correspondent brokers to the appropriate exchange. This resulted in a great deal of uncertainty and high transaction costs. One of the objectives of NSE was to provide a nationwide trading facility and to enable investors spread all over the country to have an equal access to NSE.

NSE has made it possible for an investor to access the same market and order book, irrespective of location, at the same price and at the same cost. NSE uses sophisticated telecommunication technology through which members can trade remotely from their offices located in any part of the country. NSE trading terminals are present in various cities and towns all over India.

3.09. Computer to Computer Link (CTCL) facility

NSE offers a facility to its trading members by which members can use their own trading front-end software in order to trade on the NSE trading system. This facility called Computer-to-Computer Link (CTCL) facility is available only to trading members of NSE.

About the CTCL facilityTrading Members can use their own software running on any suitable hardware/software platform of their choice. This software would be a replacement of the NEAT front-end software that is currently used by members to trade on the NSE trading system. Members can use software customised to meet their specialised needs like provision of on-line trade analysis, risk management tools, integration of back-office operations etc. The dealers of the member may trade using the software remotely through the member's own private network, subject to approvals from Department of Telecommunication etc. as may be required in this regard.

CTCL softwareMembers can procure the CTCL software either from software vendors who are empanelled with NSE or they may develop the software through their own in-house development team or may procure the software from other non-empanelled vendors.

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The Exchange has issued circular no.NSE/CMO/0235/2005 dated Aug 24, 2005 (Download No.NSE/CMTR/6552) regarding detailing requirement and procedures to be complied with by members desirous of using the CTCL facility.

Vendors desirous of being empanelled with the Exchange for providing CTCL solutions to the trading members of the Exchange can refer to circular no.NSE/CMO/0029/2000 dated December 19, 2000 (Download No.NSE/CMT/2174), circular no.NSE/CMO/0039/2001 dated December 14, 2001 (Download No.NSE/CMTR/3054) and circular no.NSE/CMO/10 dated January 28, 2003 (Download No.NSE/CMTR/3896) detailing the requirements and procedures to be complied with by vendors for empanelment.

3.10 Internet Based Trading

The Securities & Exchange Board of India (SEBI) approved the report on Internet Trading brought out by the SEBI Committee on Internet Based Trading and Services In January 2000. Internet trading can take place through order routing systems, which will route client orders to exchange trading systems for execution. Thus a client sitting in any part of the country would be able to trade using the Internet as a medium through brokers' Internet trading systems.

SEBI-registered brokers can introduce Internet based trading after obtaining permission from respective Stock Exchanges. SEBI has stipulated the minimum conditions to be fulfilled by trading members to start Internet based trading and services, vide their circular no.SMDRP/POLICY/CIR-06/2000 dated January 31, 2000.

• Internet trading at NSE• Empanelled Vendors / ASPs for Internet trading solutions• Members who have been granted permission for Internet trading• Internet Trading Statistics• WAP Trading

Internet Trading at NSE

NSE became the first exchange to grant approval to its members for providing Internet based trading services. In line with SEBI directives, NSE has issued circulars detailing the requirements and procedures to be complied with by members desirous of providing Internet based trading and services. Members may please refer to circular no. NSE/CMO/0014/2000 dated May 12, 2000 (Download No.NSE/CMPT/1642) and

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Members can procure the Internet trading software from software vendors who are empanelled with NSE or they may develop the software through their own in-house development team or may procure the software from other non-empanelled vendors.

Members can also avail of services provided by Application Service Providers (which may inter-alia include providing / maintaining software / hardware / other infrastructure etc.) for providing Internet based trading services subject to the Application Service Provider (ASP) being empanelled with the Exchange for providing such services. The Exchange has issued circular no. NSE/CMO/0028/2000 dated December 18, 2000 (Download No.NSE/CMT/2169) detailing the formalities / requirements for members desirous of using ASPs for providing Internet based trading services as well as formalities / requirements for ASPs desirous of being empanelled

with the Exchange for providing such services to trading members of NSE. Clearing & Settlement (Equities)

NSCCL carries out clearing and settlement functions as per the settlement cycles of different sub-segments in the Equities segment.

The clearing function of the clearing corporation is designed to work out a) what counter parties owe and b) what counter parties are due to receive on the settlement date. Settlement is a two way process which involves legal transfer of title to funds and securities or other assets on the settlement date.

NSCCL has also devised mechanism to handle various exceptional situations like security shortages, bad delivery, company objections, auction settlement etc.

3.11 Clearing & Settlement

3.11.1 Clearing

Clearing is the process of determination of obligations, after which the obligations are discharged by settlement.

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NSCCL has two categories of clearing members: trading members and custodians. The trading members can pass on its obligation to the custodians if the custodian confirms the same to NSCCL. All the trades whose obligation the trading member proposes to pass on to the custodian are forwarded to the custodian by NSCCL for their confirmation. The custodian is required to confirm these trade on T + 1 days basis.

Once, the above activities are completed, NSCCL starts its function of Clearing. It uses the concept of multi-lateral netting for determining the obligations of counter parties. Accordingly, a clearing member would have either pay-in or pay-out obligations for funds and securities separately. Thus, members pay-in and pay-out obligations for funds and securities are determined latest by T + 1 day and are forwarded to them so that they can settle their obligations on the settlement day (T+2).

Cleared and non-cleared deals

NSCCL carries out the clearing and settlement of trades executed in the following sub-segments of the Equities segment:1. All trades executed in the Book entry / Rolling segment.2. All trades executed in the Limited Physical Market segment.

NSCCL does not undertake clearing and settlement of deals executed in the Trade for Trade sub-segment of the Equities (Capital Market) segment of the Exchange. Primary responsibility of settling these deals rests directly with the members and the Exchange only monitors the settlement. The parties are required to report settlement of these deals to the Exchange.

Clearing MechanismTrades in rolling segment are cleared and settled on a netted basis. Trading and settlement periods are specified by the Exchange / Clearing Corporation from time to time. Deals executed during a particular trading period are netted at the end of that trading period and settlement obligations for that settlement period are computed. A multilateral netting procedure is adopted to determine the net settlement obligations

In a rolling settlement, each trading day is considered as a trading period and trades executed during the day are netted to obtain the net obligations for the day.

Trade-for-trade deals and Limited Physical Market deals are settled on a trade for trade basis and settlement obligations arise out of every deal.

3.11.2 Settlement Cycle

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)At the end of each trading day, concluded or locked-in trades are received from NSE by NSCCL. NSCCL determines the cumulative obligations of each member and electronically transfers the data to Clearing Members (CMs). All trades concluded during a particular trading period are settled together. A multilateral netting procedure is adopted to determine the net settlement obligations (delivery/receipt positions) of CMs. NSCCL then allocates or assigns delivery of securities inter se the members to arrive at the delivery and receipt obligation of funds and securities by each member. Settlement is deemed to be complete upon declaration and release of pay-out of funds and securities.

On the securities pay-in day, delivering members are required to bring in securities to NSCCL. On pay out day the securities are delivered to the respective receiving members. Exceptions may arise because of short delivery of securities by CMs, bad deliveries or company objections on the pay-out day.

3.11.3 Auctions

Each CM would communicate to NSCCL on the pay-in day the securities that the CM would be delivering and those that the CM is unable to deliver. NSCCL identifies short deliveries and conducts a buying-in auction on the day after the pay-out day through the NSE trading system.

The CM is debited by an amount equivalent to the securities not delivered and valued at a valuation price (the closing price as announced by NSE on the day previous to the day of the valuation). If the buy-in auction price is more than the valuation price, the CM is required to make good the difference. All shortages not bought-in are deemed closed out at the highest price between the first day of the trading period till the day of squaring off or closing price on the auction day plus 20%, whichever is higher. This amount is credited to the receiving member's account on the auction pay-out day.

Bad Deliveries (in case of physical settlement)Bad deliveries (deliveries which are prima facie defective) are required to be reported to the clearing house within two days from the receipt of documents. The delivering member is required to rectify these within two days. Un-rectified bad deliveries are assigned to auction on the next day.

Company Objections (in case of physical settlementCompany objections arise when, on lodgment of the securities with the company / Share Transfer Agent (STA) for transfer, which are returned due to signature mismatch or for any other reason for which the transfer of security

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)cannot be effected. The original selling CM is normally responsible for rectifying / replacing defective documents to the receiving CM as per pre-notified schedule. The CM on whom company objection is lodged has an opportunity to withdraw the objection if the objection is not valid or the documents are incomplete (i.e. not as required under guideline No.100 or 109 of SEBI Good/Bad delivery guidelines), within 7 days of lodgement against him. If the CM is unable to rectify/replace defective documents on or before 21 days, NSCCL conducts a buying-in auction for the non-rectified part of defective document on the next auction day through the trading system of NSE. All objections, which are not bought-in, are deemed closed out on the auction day at the closing price on the auction day plus 20%. This amount is credited to the receiving member's account on the auction pay-out day.

Settlement cycles for the various sub-segments:  Rolling Settlement  Limited Physical Market Segment  Institutional Segment

Settlement Cycle for Rolling Settlement

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Settlement Cycle for Odd Lot Market (Physical Market)

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Settlement Cycle for Institutional Segment

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CHAPTER –4 Future & Option Market-Derivative )

Contents of this chapter:

4.01 Introduction

4.02 Trading

4.03 Market timing

4.04 Trading System

4.05 Order Matching Rules

4.06 Order Conditions

4.07 Clearing Mechanism

4.08 Clearing Bank

4.09 Clearing & Settlement

4.10 Settlement Schedule

4.01 Introduction

The National Stock Exchange of India Limited (NSE) commenced trading in derivatives with the launch of index futures on June 12, 2000. The futures contracts are based on the popular benchmark S&P CNX Nifty Index.

The Exchange introduced trading in Index Options (also based on Nifty) on June 4, 2001. NSE also became the first exchange to launch trading in options on individual securities from July 2, 2001. Futures on individual securities were introduced on November 9, 2001. Futures and Options on individual securities are available on 234 securities stipulated by SEBI.

The Exchange has also introducted trading in Futures and Options contracts based on CNX-IT, BANK NIFTY, CNX NIFTY JUNIOR, CNX 100,  NIFTY MIDCAP 50 and S&P CNX DEFTY indices.

This section provides you with an insight into the derivatives segment of NSE. Real-time quotes and information regarding derivative products, trading systems & processes, clearing and settlement, risk management, statistics etc. are available here.

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4.02 Trading

NSE introduced for the first time in India, fully automated screen based trading. It uses a modern, fully computerised trading system designed to offer investors across the length and breadth of the country a safe and easy way to invest.

The NSE trading system called 'National Exchange for Automated Trading' (NEAT) is a fully automated screen based trading system, which adopts the principle of an order driven market.

4.03 Market Timings

Trading on the derivatives segment takes place on all days of the week (except Saturdays and Sundays and holidays declared by the Exchange in advance). The market timings of the derivatives segment are:

Normal Market / Exercise Market Open time : 09:55 hoursNormal market close : 15:30 hoursSet up cut of time for Position limit/Collateral value : till 15:30 hrsTrade modification end time / Exercise Market : 16:15 hours

Note: The Exchange may however close the market on days other than the above schedule holidays or may open the market on days originally declared as holidays. The Exchange may also extend, advance or reduce trading hours when its deems fit and necessary.

4.04 Trading System

The Futures and Options Trading System provides a fully automated trading environment for screen-based, floor-less trading on a nationwide basis and an online monitoring and surveillance mechanism. The system supports an order driven market and provides complete transparency of trading operations.

Orders, as and when they are received, are first time stamped and then immediately processed for potential match. If a match is not found, then the orders are stored in different 'books'. Orders are stored in price-time priority in various books in the following sequence:

Best Price

Within Price, by time priority.

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4.05 Order Matching Rules

The best buy order will match with the best sell order. An order may match partially with another order resulting in multiple trades. For order matching, the best buy order is the one with highest price and the best sell order is the one with lowest price. This is because the computer views all buy orders available from the point of view of a seller and all sell orders from the point of view of the buyers in the market. So, of all buy orders available in the market at any point of time, a seller would obviously like to sell at the highest possible buy price that is offered. Hence, the best buy order is the order with highest price and vice-versa.

Members can pro actively enter orders in the system which will be displayed in the system till the full quantity is matched by one or more of counter-orders and result into trade(s). Alternatively members may be reactive and put in orders that match with existing orders in the system. Orders lying unmatched in the system are 'passive' orders and orders that come in to match the existing orders are called 'active' orders. Orders are always matched at the passive order price. This ensures that the earlier orders get priority over the orders that come in later.

4.06 Order Conditions

A Trading Member can enter various types of orders depending upon his/her requirements. These conditions are broadly classified into 2 categories: time related conditions and price-related conditions.

Time ConditionsDAY - A Day order, as the name suggests, is an order which is valid for the day on which it is entered. If the order is not matched during the day, the order gets cancelled automatically at the end of the trading day.

IOC - An Immediate or Cancel (IOC) order allows a Trading Member to buy or sell a security as soon as the order is released into the market, failing which the order will be removed from the market. Partial match is possible for the order, and the unmatched portion of the order is cancelled immediately.

Price ConditionsLimit Price/Order – An order that allows the price to be specified while entering the order into the system.

Market Price/Order – An order to buy or sell securities at the best price obtainable at the time of entering the order.

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Stop Loss (SL) Price/Order – The one that allows the Trading Member to place an order which gets activated only when the market price of the relevant security reaches or crosses a threshold price. Until then the order does not enter the market.

A sell order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or falls below the trigger price of the order. A buy order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or exceeds the trigger price of the order.

E.g. If for stop loss buy order, the trigger is 93.00, the limit price is 95.00 and the market (last traded) price is 90.00, then this order is released into the system once the market price reaches or exceeds 93.00. This order is added to the regular lot book with time of triggering as the time stamp, as a limit order of 95.00

4.07 Clearing Mechanism

A Clearing Member's open position calculation is arrived by aggregating the open position of all the Trading Members (TM) and all custodial participants clearing through him. A TM's open position in turn includes his proprietary open position and clients’ open positions.

a. Proprietary / Clients’ Open Position

While entering orders on the trading system, TMs are required to identify them as proprietary (if they are own trades) or client (if entered on behalf of clients) through 'Pro / Cli' indicator provided in the order entry screen. The proprietary positions are calculated on net basis (buy - sell) and client positions are calculated on gross of net positions of each client i.e., a buy trade is off-set by a sell trade and a sell trade is off-set by a buy trade.

b. Open Position

Open position for the proprietary position are calculated separately from client position.

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For example,For a CM - XYZ, with TMs clearing through him - ABC and PQR

   Proprietary

PositionClient 1 Client 2

Net Member

TM SecurityBuy Qty

Sell Qty

Net Qty

Buy Qty

Sell Qty

Net Qty

Buy Qty

Sell Qty

Net Qty

ABCNIFTY January contract

4000 2000 2000 3000 1000 2000 4000 2000 2000Long 6000

PQRNIFTY January contract

2000 3000(1000

)2000 1000 1000 1000 2000

(1000)

Long 1000Short 2000

XYZ’s open position for Nifty January contract is :

MemberLong

PositionShort

Position

ABC 6000 0

PQR 1000 2000

Total for XYZ

7000 2000

4.08 Clearing Banks

NSCCL has empanelled 13 clearing banks namely Axis Bank Ltd., Bank of India, Canara Bank, Citibank N.A, HDFC Bank, Hongkong & Shanghai Banking Corporation Ltd., ICICI Bank, IDBI Bank, IndusInd Bank, Kotak Mahindra Bank, Standard Chartered Bank, State Bank of India and Union Bank of India.

Every Clearing Member is required to maintain and operate a clearing account with any one of the empanelled clearing banks at the designated

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)clearing bank branches. The clearing account is to be used exclusively for clearing & settlement operations.

Clearing Banks Contact Details

Clearing Bank AddressContact Person &

Numbers

Axis Bank Ltd.

Capital Market DivisionJeevan Prakash BuildingSir P.M. RoadFortMumbai - 400 001

Mr. Sunil Sharma Asst. Vice PresidentTel: 66107250/51Mobile: 9869663870Fax: 66107284/85

Bank of India Ltd.

Stock Exchange BranchP.J.TowersDalal StreetFortMumbai - 400 001

Mr. R. S. NairDy. General ManagerTel: 22722400, 22721787Mobile: 9820520744Fax: 22721782

Mr DhapodkarSenior ManagerTel: 22722396Fax: 22721784/22721788

Canara Bank Ltd.

NSE BranchVarma Chambers, 1st Floor11 Homji StreetFortMumbai - 400 001

Mr. Partha SarathyChief ManagerTel: 22693157, 22675702, 22658291Fax: 22670033

Mr K.Y MallyaSenior ManagerTel: 22633006Fax: 22675650

Citibank N.A. Citigroup Global ServicesInfinity Towers1srt Floor, A WingBehind Toyota ShowroomMalad (W)Mumbai- 400064

Mr Ganesh RamanathanVice PresidentTel No:40015640

Mr. Rajarshi ChakrabortyAsst Vice President

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Tel. No.: 40015652 Mobile: 9820753469

Mr. KVP Satish ChandraAsst Vice PresidentTel. No.: 40015192 Mobile: 9820787010

The Hongkong & Shanghai Banking Corporation Ltd.

52/60M G RoadFortMumbai - 400 001

Mr. Ritesh JainVice PresidentHead- PCM- Payment OperationsTel: 67115841Fax : 66536004

Mr. Shaleen MaharSr. Relationship ManagerNon Bank Financial Institutions Tel: 22681175, 24980000Mobile: 9820333047Fax : 22734388

ICICI Bank Ltd.

Capital Market Division Mafatlal Chambers ‘B’ wing, 3rd Floor N.M. Joshi MargLower Parel (East)Mumbai 400 013

Ms. Hemanshi ShahMobile: 9833988770

Mr. Devendra N ChandavarkarChief ManagerTel: 66672085Fax: 66661430

HDFC Bank Ltd. 2nd Floor, Trade World "A" Wing, Kamala MillsLower Parel (W)Mumbai- 400013

Mr. Shailesh SukhthankarHead- Capital & Commodity Market BusinessTel: 24988484 Extn 3334Mobile: 9323651640

Mr. Chetan A. ShahBusiness Head - Capital Market

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Business Tel: 24988484 Extn 3538Mobile: 9322902935

Mr. Ashish AgarwalDy Vice President-Capital Market Business Tel: 24988484 Extn 3565 Mobile: 9323469162 Fax : 022-40804711

IDBI Bank Ltd.

Block no 82/83Road no 7, Street no 15MIDC, Andheri EastMumbai -400093

N.R. ViswanadhanProduct head- Capital MarketTel: 66552259Mob: 9833651064

Mr. Ajay Thakur / Sadik AliAsst ManagerTel: 66977910Mobile: 9967222102

IndusInd Bank Ltd.

Sonawalla Building57, Mumbai Samachar MargFortMumbai - 400 001

Mr. Pradeep BhaveVP & Branch Head Tel: 66347722

Mr. Yogesh AdkeAsst. Vice PresidentTel : 66366589Fax: 66366590

Kotak Mahindra Bank Ltd.

Unit no.35, 3rd FloorNavsari BuildingDr. D.N. RoadFortMumbai-400 001

Mr. Rajiv GurnaniSr. Vice President-FIGTel: 66596375Board: 66596103Fax: 22817527

Mr. Prasad RamaswamyAssociate VP - OperationsTel: 66153045/66153065

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Fax: 66159050

Standard Chartered Bank

5th floor, Forbes Building Charanjeet Rai MargFortMumbai 400 001

Sachin Shah Director (Financial institution) Tel: 66372359Mobile: 9833477800

Mr. Girish BhatiaAssociate Director Tel: 66314285Mobile: 9820622748

Union Bank of India

Capital Market Cell Mumbai Samachar Marg Branch66/80, Mumbai Samachar Marg Fort, Mumbai 400 023

Mr. R.S. MajithiaAsst. General ManagerTel: 22629303 Fax: 22642742

Mr. Girishchandra KashyapSr ManagerTel : 22629335

State Bank Of India

Mumbai Main Branch1st floorInternational Banking DivisionMumbai Samachar MargMumbai 400 023

Ms. Vidya KrishnanAsst. General ManagerMobile : 9821078386

Ms. Supriya Kulkarni ManagerTel: 22651363

Mr. P.N. RautDy. ManagerTel: 22644411, 22644972Mobile: 9870498672

Mr. Sathish BabuDy ManagerMobile: 9870498671

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Clearing Account

Every Clearing Member is required to maintain and operate a clearing account with any one of the empanelled clearing banks at the designated clearing bank branches. The clearing account is to be used exclusively for clearing operations i.e., for settling funds and other obligations to the Clearing Corporation including payments of margins and penal charges.

A Clearing Member in the Futures and Options Segment, who is also Clearing Member in the Capital Market Segment, shall maintain a separate clearing bank account for the Futures and Options Segment distinct from the capital market clearing account.

Clearing Members are required to authorise the Clearing Bank to access their clearing account for debiting and crediting their accounts, reporting of balances and other information as may be required by NSCCL from time to time as per the specified format. The Clearing Bank will debit/ credit the clearing account of clearing members as per instructions received from the Clearing Corporation.

A Clearing member can deposit funds into this account in any form, but can withdraw funds from this account only in self-name.

4.09 Clearing & Settlement (Derivatives)

National Securities Clearing Corporation Limited (NSCCL) is the clearing and settlement agency for all deals executed on the Derivatives (Futures & Options) segment. NSCCL acts as legal counter-party to all deals on NSE's F&O segment and guarantees settlement.

A Clearing Member (CM) of NSCCL has the responsibility of clearing and settlement of all deals executed by Trading Members (TM) on NSE, who clear and settle such deals through them.

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4.10 Settlement Schedule

Product Settlement Schedule

Futures Contracts on Index & Individual Securities

Daily Mark-to-Market Settlement

Pay-in : T+1 working day at or after 11.30 a.m.

Payout : T+1 working day at or after 12.00 p.m.

(T is trade day)

Futures Contracts on Index &Individual Securities

Final Settlement

Pay-in : T+1 working day at or after 11.30 a.m.

Payout : T+1 working day at or after 12.00 p.m.

(T is expiration day of contract)

Interest Rate Futures Contracts

Daily Mark-to-Market Settlement

Pay-in : T+1 working day on or after 11.30 a.m.

Payout : T+1 working day on or after 12.00 p.m.

(T is trading day)

Interest Rate Futures Contracts

Final Settlement

Pay-in : T+1 working day on or after 11.30 a.m.

Payout : T+1 working day on or after 12.00 p.m.

(T is expiration day)

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Options Contracts on Index &Individual Securities

Premium Settlement

Pay-in : T+1 working day at or after 11.30 a.m.

Payout : T+1 working day at or after 12.00 p.m.

(T is trade day)

Options Contracts on IndexExercise & Final Settlement

Pay-in : T+1 working day at or after 11.30 a.m.

Payout : T+1 working day at or after 12.00 p.m.

(T is expiration day of contract)

Options Contract on IndividualSecurities

Interim Exercise Settlement

Pay-in : T+1 working day at or after 11.30 a.m.

Payout : T+1 working day at or after 12.00 p.m.

(T is exercise day)

Options Contract on IndividualSecurities

Exercise & Final Settlement

Pay-in : T+1 working day at or after 11.30 a.m.

Payout : T+1 working day at or after 12.00 p.m.

(T is expiration day)

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CHAPTER –5 Debt Market )

Contents of this chapter:

5.01 Corporate Bonds

5.02 Wholesale Debt Market (WDM)

5.03 Market Timing

5.04 Trading System

5.05 Retail Debt Market

5.06 Trading in RETDEBT Market

5.07 Trading Parameters

5.08 SLBS

5.01 Corporate Bonds

Corporate bonds are debt securities issued by private and public corporations. Companies issue corporate bonds to raise money for a variety of purposes, such as building a new plant, purchasing equipment, or growing the business. When one buys a corporate bond, one lends money to the "issuer," the company that issued the bond. In exchange, the company promises to return the money, also known as "principal," on a specified maturity date. Until that date, the company usually pays you a stated rate of interest, generally semiannually. While a corporate bond gives an IOU from the company, it does not have an ownership interest in the issuing company, unlike when one purchases the company's equity stock.

Need for Corporate Bonds

Yields

Valuation of Corporate Bonds

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5.02 Wholesale Debt Market

The Wholesale Debt Market segment deals in fixed income securities and is fast gaining ground in an environment that has largely focussed on equities.The Wholesale Debt Market (WDM) segment of the Exchange commenced operations

on June 30, 1994. This provided the first formal screen-based trading facility for the debt market in the country.

This segment provides trading facilities for a variety of debt instruments including Government Securities, Treasury Bills and Bonds issued by Public Sector Undertakings/ Corporates/ Banks like Floating Rate Bonds, Zero Coupon Bonds, Commercial Papers, Certificate of Deposits, Corporate Debentures, State Government loans, SLR and Non-SLR Bonds issued by Financial Institutions, Units of Mutual Funds and Securitized debt by banks, financial institutions, corporate bodies, trusts and others.Large investors and a high average trade value characterize this segment. Till recently, the market was purely an informal market with most of the trades directly negotiated and struck between various participants. The commencement of this segment by NSE has brought about transparency and efficiency to the debt market, along with effective monitoring and surveillance to the market.

5.03 Market Timings

Trading in the WDM segment is open on all days except Saturdays, Sundays and other holidays, as specified by the Exchange. The market timings are as given below:

Trading DaysSame day Settlement

Other day Settlement

Monday to Friday

10.00 a.m. to 3.00 p.m.

10.00 a.m. to 5.45 p.m.

Trading on WDM segment is divided into three phases as under:1.  Pre-Open2.  Market Open

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)3.  SURCON

Pre-Open Market Phase

The pre-open period commences from 9.00 a.m. This period allows the trading member/Participant to:

§  set up counter party exposure limits

§  set up Market Watch (the security descriptor)

§  make inquiries

Market Open Phase

The system allows for inquiries of the following activities when the market is open for trading:1.  Order Entry

2.  Order Modification

3.  Order Cancellation

4.  Negotiated Entry

5.  Trade Cancellation

6.  Setting up counter party exposure limits

5.04 Trading System

The fully computerised, on-line trading system used in the WDM segment of the Exchange has changed the very manner in which trading is perceived in the Indian securities market. Besides the fact that the system helped increase in trading velocities and cut time frames, it has also managed to incorporate the critical aspect of security in its functioning.

The Exchange provides a facility for screen based trading with order matching facility. The members are connected from their respective offices at dispersed locations to the main system at the NSE premises through a high-speed, efficient satellite tele-communication network. The trading system is an order-driven, automated order matching system, which does not reveal the identity of parties to an order or a trade. This helps orders whether large or small to be placed without the members being disadvantaged by disclosure of their identity. The trading system operates

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)on a price time priority. Orders are matched automatically by the computer keeping the system transparent, objective and fair. Where an order does not find a match it remains in the system and is displayed to the whole market, till a fresh order which matches, comes in or the earlier order is cancelled or modified.

The trading system provides tremendous flexibility to the users in terms of the type of orders that can be placed on the system. Several time-related, price-related or volume-related conditions can easily be placed on an order. The trading system also provides complete on-line market information through various inquiry facilities. Detailed information on the total order depth in a security, the best buys and sells available in the market, the quantity traded in that security, the high, the low and last traded prices are available through the various market screens at all points of time.

5.05 Retail Debt Market

With a view to encouraging wider participation of all classes of investors across the country (including retail investors) in government securities, the Government, RBI and SEBI have introduced trading in government securities for retail investors.

Trading in this retail debt market segment (RDM) on NSE has been introduced w.e.f. January 16, 2003. Trading shall take place in the existing Capital Market segment of the Exchange.

In the first phase, all outstanding and newly issued central government securities would be traded in the retail segment. Other securities like state government securities, T-Bills etc. would be added in subsequent phases.

Trade Verification Module

We are pleased to provide our investors with a facility to verify trades on the NSE website. Using this facility, an investor who has received a contract note from a trading member of the Exchange, can check whether the trade has been executed on the Exchange.

This facility is available on the NSE website for the Capital Market, Derivatives (F&O) and Retail Debt Market segments of the Exchange.

How does it work?

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Trade details are available for verification on the same day (i.e. T itself) after 19:00 hours IST.

The investor needs to input minimum details of the trade viz. client code (provided by the trading member), security details (symbol and series), order number, trade number, trade quantity and price (excluding brokerage). All the above details are mandatory.

If an identical match is found for the details provided, a confirmation along with the details of the trade are displayed to the investor. If no match is found, a message is displayed to that effect.

Where no match is found, investors are advised to contact their trading member for clarification. For further assistance, please contact the Investor Grievance Cell of the Exchange.

Trade details for the last 5 trading days will be available on the website. That is, trades executed on 'T' day, can be verified till the T+4th day.

All trades can be verified

5.06 Trading in RETDEBT Market

Trading in the Retail Debt Market takes place in the same manner in which the trading takes place in the equities (Capital Market) segment. The RETDEBT Market facility on the NEAT system of Capital Market Segment is used for entering transactions in RDM session.

Members eligible for trading in RDM segment

Market Timings and Market Holidays

Trading Parameters

Trading System

Trading Cycle

Members eligible for trading in RDM segment

Trading Members who are registered members of NSE in the Capital Market segment and Wholesale Debt Market segment are allowed to trade in Retail Debt Market (RDM) subject to fulfilling the capital adequacy norms.

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Trading Members with membership in Wholesale Debt Market segment only, can participate in RDM on submission of a letter in the prescribed format as per Circular No. NSE/CMTR/3860 dated January 11, 2003.

Market Timings and Market Holidays

Trading in RDM segment takes place on all days of the week, except Saturdays and Sundays and holidays declared by the Exchange in advance (The holidays on the RDM segment shall be the same as those on the Equities segment).

The market timings of the RDM segment are the same as the Equities segment, viz.:

Normal Market Open : 09:55 hours

Normal Market Close : 15:30 hours

Note: The Exchange may however close the market on days other than the above schedule holidays or may open the market on days originally declared as holidays. The Exchange may also extend, advance or reduce trading hours when its deems fit and necessary.

5.07 Trading Parameters

The trading parameters for RDM segment are as below:

Face Value Rs. 100/-

Permitted Lot Size 10

Tick Size Rs. 0.01

Operating Range +/- 5%

Mkt. Type Indicator D (RETDEBT)

Book Type RD

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5.08 SLBS (Securities Lending & Borrowing System)

NSCCL as an Approved Intermediary has launched the Securities Lending & Borrowing Scheme from April 21, 2008. Lending & Borrowing will be on an automated screen based platform where the order matching will be on price time priority. The borrowing will be for a fixed tenure of thirty days with the first leg settlement on T+1 day and reverse leg settlement on T+31 day. Securities traded in F&O segment shall be eligible for lending & borrowing under the scheme.

Order Matching System NSE operates on the 'National Exchange for Automated Trading' (NEAT) system, a fully automated screen based order matching system, which adopts the principle of an order driven market.

Market Timings

The platform for borrowing and lending is available on all days of the week (except Saturdays and Sundays and holidays declared by the Exchange in advance). The market timings of the Securities Lending & Borrowing Market are:

Market Open: 09:55 hours

Market Close: 15:30 hours

Note: The NSCCL may however close the market on days other than the above schedule holidays or may open the market on days originally declared as holidays. The NSCCL may also extend, advance or reduce market hours when its deems fit and necessary.

Securities Available for Borrow / Lending

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ParametersThe parameters for SLBS are as follows:-

Series "FL"

Permitted Lot Size

1

Tick Size Rs. 0.01

Price BandNo Band with operating range of 40%

Mkt. Type Indicator

N (Normal Market)

Book Type RL (Regular Lot)

Trader Workstation

The trader workstation is the terminal from which the member accesses the borrow and lending system. Each member has a unique identification by way of Participant ID and User ID through which he is able to log on to the system for order entry purposes. A participant’ can have multiple user IDs allotted to him by which he can have more than one employee using the system concurrently.

Clearing & Settlement (SLBS)

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)Participant Eligibility

All clearing members of NSCCL including Banks and Custodians, hereinafter referred to as ‘Participant’, shall be eligible to participate in SLBS. In order to become eligible to participate in SLBS, clearing members shall have to register as Participants in SLBS.

For this purpose, the eligible persons shall be required to follow the registration procedure as specified by NSCCL which shall include entering into an agreement with NSCCL as per the format specified.

Participants desirous of lending or borrowing securities can do so either on their own

account or on behalf of their clients. Prior to undertaking lending or borrowing of securities on account of clients, the Participant shall enter into an agreement with each client as per the format specified by NSCCL.

The Participant shall apply to NSCCL for allotment of a Unique client ID for each client who desires to participate in SLBS.

Eligible Securities

Securities lending and borrowing shall be permitted in dematerialized form only. NSCCL shall announce the list of securities eligible under SLBS from time to time. To start with, securities available for trading in F&O segment of National Stock Exchange of India Ltd. (NSEIL) shall be permitted.

The shut period for all corporate actions in respect of securities shall be intimated by NSCCL from time to time.

Clearing:NSCCL shall compute obligations based on the transactions executed on the order matching platform. All obligations shall be on a gross basis i.e there shall be no netting of transactions.

Transactions under SLBS segment shall be identified based on different settlement types as intimated by NSCCL for the first leg and reverse leg settlements.

Settlement Procedure:

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)The pay-in and pay-out of funds and securities shall be through the designated bank accounts and securities settlement account respectively.

The transactions shall be settled on a T+1 day basis as per time lines specified by NSCCL. The lender shall be required to deliver the securities by the scheduled time on T+1 day. Failure to deliver securities shall result in financial close-out. The close-out computation formula shall be intimated by way of circular.

For a borrow transaction, the obligation shall be the lending fees.

Designated Bank Account

The bank account currently used by Participant for settlement of funds in the Capital Market segment shall be the designated bank account for giving effect to funds debits/credits under SLBS.

Securities Settlement Account

Participants shall be required to maintain accounts with both depositories i.e NSDL & CDSL. The pool account currently used by Participants in NSDL for effecting securities pay-in and pay-out in the Capital Market segment shall be used for settlement under SLBS.

In case of CDSL, Participants shall require to open a separate settlement account for effecting securities pay-in and pay-out under SLBS.

Period of lending

Tenure of lending / borrowing shall be thirty working days. Accordingly the return of securities by borrower shall be scheduled on the T+31 day (where T is the SLBS transaction day).

Process of return of securities

All Participants shall be required to return the securities borrowed on completion of period of lending. The securities shall be returned to the lender of the securities by NSCCL. In the case of borrower failing to return securities, NSCCL shall conduct an auction for obtaining securities. In the event of exceptional circumstances resulting in non-availability of securities in auction, such transactions would be financially closed-out at appropriate

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)rates. The close-out computation formula shall be intimated by way of a circular.

A typical settlement cycle for a lending and borrowing transaction shall be as under:

Activities Timings

T Day  

SLBS transaction session09:55 AM - 03:30 PM

Custodial confirmation 06:00 PM

Final obligation to Participant 07:00 PM

T+1 day  

Pay-in of securities/funds first leg (Settl Type L) 9:30 AM

Pay-out of securities/funds first leg 11:30 AM

T+31 day  

Pay-in of securities of reverse leg (Settl Type P) 09:30 AM

Pay-out of securities/funds of reverse leg 11:30 AM

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Buy-in auction for failure of borrower to return securities

Around 12:00 noon

Auction obligation to Participant 04:30 PM

T+32 day  

Pay-in of securities for auction settlement (Settl Type Q)

09:30 AM

Pay-out of securities/funds for auction settlement 11:30 AM

Shortages and Close out

In the event of funds shortage by the borrower, the SLBS transactions shall be cancelled, as may be decided by NSCCL and accordingly, securities shall be returned to the lenders along with lending fees.

In the event the lender fails to deliver securities, the transaction shall be closed out. The methodology and rate of close out shall be intimated by NSCCL from time to time.

In the event the borrower fails to return the securities NSCCL shall conduct a buy-in auction. The buy-in auction shall be carried out in the Capital Market segment of NSEIL.

If the security cannot be bought through the buy-in auction, the transaction shall be closed out. The methodology and rate of close out shall be intimated by NSCCL from time to time.

In all cases of shortages, NSCCL may initiate various actions including withdrawal of access to the order matching platform, withhold of the securities/funds pay-out due to the Participant or any other action as may be intimated by NSCCL from time to time.

Risk Management (SLBS)

Position Limits

NSCCL shall prescribe position limits at various levels for transactions in

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)SLBS in consultation with SEBI and the same shall be intimated from time to time. To begin with the limits shall be as under:

(a) the market–wide position limits for SLB transactions shall be 10% of the free-float capital of the company in terms of number of shares

(b) No Participant shall have open position of more than 10% of the market-wide position limits or Rs. 50 crore (base value), whichever is lower

(c) For a FII/MF, the position limits shall be the same as of the Participant(d) The client level position limits shall be not more than 1% of the market-wide

position limits.

Collateral Deposits

Participants may deposit collaterals in the form of cash equivalents i.e., cash, bank guarantees and fixed deposit receipts, and any other form of collateral as may be prescribed by the Approved Intermediary (NSCCL) from time to time. The collateral deposited by the participant shall be utilized towards margin requirement of the participant.

In case of failure of the participant to meet its obligation, the collaterals provided by the participants may be liquidated by NSCCL to meet the obligation of the participant.

Minimum Collateral

Every participant is required to continuously maintain minimum collateral of Rs.10 lacs in the form of cash as prescribed by the NSCCL. This deposit should be provided by the participant at the time of registration in Securities Lending and Borrowing Scheme (SLBS).

MarginsAll transactions under SLBS shall be subject to margins. Following margins shall be applicable for transactions under SLBS.

First Leg transactions

Both lender and borrower shall be levied margins in respect of first leg of transactions under SLBS.

Borrow transaction

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)The borrower shall be levied only the Lending fee fixed percentage on T day. The fixed percentage shall be 100% or as may be specified by NSCCL from time to time.

Lend transaction

The following margins shall be levied on the Participants for lend transactions:

1. Mark to Market Margins

2. Fixed percentage of lending price. The fixed percentage shall be 25% or as may be specified by NSCCL from time to time.

Reverse Leg transactions

The Lender would not be charged any margins for the reverse leg.The borrower shall be levied margins in respect of reverse leg of transactions under

SLBS. The following margins shall be levied on the Participants for a borrow transactions from T+1 to T+31 day.

1. Value at Risk Margins

2. Extreme Loss Margins

3. Mark to Market Margins

4. Fixed percentage of lending price. The fixed percentage shall be 100% of the lending price or as may be specified by NSCCL from time to time.

The fixed percentage of lending price which is currently acceptable only in the form of cash shall be now collected in the form of cash or cash equivalents.

Value at Risk Margin (VaR Margin)

VaR margin rate as applicable to the security in the capital market segment shall be applicable in the SLBS.

The VaR margin shall be collected on an upfront basis by adjusting against the collateral of the Participant at the time of transaction.

The VaR margin shall be collected on the gross open position of the Participant. The gross open position for this purpose would mean the gross of all positions across all the clients of a Participant including its proprietary position.

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VaR margin rate for each security shall be disseminated to the Participants through the Extranet and on the website of the Exchange.

The VaR margin so collected shall be released on completion of pay-in of the respective settlement.

Extreme Loss Margin

Extreme Loss margin rate as applicable to the security in the capital market segment shall be applicable in the SLBS.

The Extreme Loss margin shall be collected on an upfront basis by adjusting against the collateral of the Participant at the time of transaction.

The Extreme Loss margin shall be collected on the gross open position of the Participant. The gross open position for this purpose would mean the gross of all positions across all the clients of a Participant including its proprietary position.

The Extreme Loss margin so collected shall be released on completion of pay-in of the respective settlement.

Mark to Market Margin

Mark to market loss shall be calculated by marking each transaction in security to the closing price of the security at the end of day in the capital market segment. In case the security has not been transacted on a particular day in the capital market segment, the latest available closing price at the NSE shall be considered as the closing price.

The mark to market margin (MTM) shall be collected from the Participant before the start of the SLBS session of the next day.

The MTM margin shall also be collected /adjusted from/against the collateral deposited by the Participant.

The MTM margin shall be collected on the gross open position of the Participant. The gross open position for this purpose would mean the gross of all positions across all the clients of a Participant including its proprietary position. For this purpose, the position of a client would be netted across its various securities and the positions of all the clients of a Participant would be grossed.

There would be no netting off of the positions and setoff against MTM profits across two settlements However, for computation of MTM

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profits/losses for the day, netting or setoff against MTM profits would be permitted.

The MTM margin so collected shall be released on completion of pay-in of the settlement.

Fixed Percentage of lending price

A fixed percentage of lending price shall be levied as margin on the Participants for lend transactions on T day on upfront basis as may be intimated by NSCCL from time to time. To start with the fixed percentage shall be ‘25%’.

A fixed percentage of lending price shall be levied as margin on the Participants for borrow transactions from T+1 day till the shares are returned by the borrower as may be intimated by NSCCL from time to time. To start with the fixed percentage shall be ‘100%’.

This shall be collected on an upfront basis by adjusting against the collateral of the Participant at the time of transaction.

This shall be collected on the gross open position of the Participant. The gross open position for this purpose would mean the gross of all positions across all the clients of a Participant including its proprietary position.

The margin so collected shall be released on completion of pay-in of the respective settlement.

The lending price shall be the previous day closing price of the security in the capital market segment.

Fixed Percentage of lending fee

A fixed percentage of lending fee shall be levied as margin on the Participants for borrow transactions on T day on upfront basis as may be intimated by NSCCL from time to time. To start with the fixed percentage shall be ‘100%’.

This shall be collected on an upfront basis by adjusting against the collateral of the Participant at the time of transaction.

The margin so collected shall be released on completion of pay-in of the respective settlement.

The lending fee shall be the actual price of the transaction.

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Exemption from margins

In cases where early pay-in of securities is made prior to the securities pay-in, such positions for which early pay-in (EPI) of securities is made shall be exempt from margins. The EPI would be allocated to clients having net deliverable position, on a random basis.

Custodial transactions

In respect of transactions entered by a Participant which is to be settled by a custodian, the margins from the time of transactions till confirmation by the custodian shall be levied on the Participant. On confirmation of the said transactions by the custodian, the custodian shall be levied the margins applicable on such transactions.

In case of rejection by the custodian, the margins on the transaction rejected shall continue to be levied on the Participant.

Short fall of margins

In case of any shortfall in margin the Participant shall not be permitted to transact in SLBS with immediate effect. The same shall be considered as violation and shall attract penal charges as may be specified by NSCCL from time to time.

Margins from the ClientParticipants should have a prudent system of risk management to protect themselves from client default. Margins are likely to be an important element of such a system. The same shall be well documented and be made accessible to the clients and NSCCL. However, the quantum of these margins and the form and mode of collection are left to the discretion of the Participants.

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CHAPTER –6 Initial Public Offering (IPO) )

Contents of this chapter:

6.01 What is Book Building?

6.02 Book Building at NSE.

6.03 Reverse Book Building at NSE.

A corporate may raise capital in the primary market by way of an initial public offer, rights issue or private placement. An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is the largest source of funds with long or indefinite maturity for the company.

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6.01 What is Book Building?

SEBI guidelines defines Book Building as "a process undertaken by which a demand for the securities proposed to be issued by a body corporate is elicited and built-up and the price for such securities is assessed for the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer document".

Book Building is basically a process used in Initial Public Offer (IPO) for efficient price discovery. It is a mechanism where, during the period for which the IPO is open, bids are collected from investors at various prices, which are above or equal to the floor price. The offer price is determined after the bid closing date.

As per SEBI guidelines, an issuer company can issue securities to the public though prospectus in the following manner:

1. 100% of the net offer to the public through book building process

2. 75% of the net offer to the public through book building process and 25% at the price determined through book building. The Fixed Price portion is conducted like a normal public issue after the Book Built portion, during which the issue price is determined.

The concept of Book Building is relatively new in India. However it is a common practice in most developed countries.

Difference between Book Building Issue and Fixed Price Issue

In Book Building securities are offered at prices above or equal to the floor prices, whereas securities are offered at a fixed price in case of a public issue. In case of Book Building, the demand can be known everyday as the book is built. But in case of the public issue the demand is known at the close of the issue.

Issuers

An Issuer Company can issue capital through book building in following two ways:

75% Book Building processThe option of 75% Book Building is available to all body corporates that are otherwise eligible to make an issue of capital to the public. The

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securities issued through the book building process are indicated as 'placement portion category' and securities available to public are identified as 'net offer to public'. In this option, underwriting is mandatory to the extent of the net offer to the public. The issue price for the placement portion and offers to public are required to be same.

100% of the net offer to the public through Book Building processIn the 100% of the net offer to the public, entire issue is made through Book Building process. However, there can be a reservation or firm allotment to a maximum of 5% of the issue size for the permanent employees, shareholders of the company or group companies, persons who, on the date of filing of the draft offer document with the Board, have business association, as depositors, bondholders and subscribers to services, with the issuer making an initial public offering.

The number of bidding centres, in case of 75% book building process should not be less than the number of mandatory collection centres specified by SEBI. In case of 100% book building process, the bidding centres should be at all the places where the recognised stock exchanges are situated.

For additional details, issuers are requested to refer to SEBI guidelines.

6.02 Book Building at NSE

The NSE has set up nation-wide network for trading whereby members can trade remotely from their offices located all over the country. The NSE trading network spans various cities and towns across India.

NSE decided to offer this infrastructure for conducting online IPOs through the Book Building process. NSE operates a fully automated screen based bidding system called NEAT IPO that enables trading members to enter bids directly from their offices through a sophisticated telecommunication network.

Book Building through the NSE system offers several advantages:

The NSE system offers a nation wide bidding facility in securities

It provides a fair, efficient & transparent method for collecting bids using latest electronic trading systems

Costs involved in the issue are far less than those in a normal IPO

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)The IPO market timings are from 10.00 a.m. to 5.00 p.m. On the last day of the IPO, the session timings can be further extended on specific request by the Book Running Lead Manager.

Procedures

IssuersIssuers desirous of using NSE's online IPO system are required to comply with the following procedures:

1. Submit a written request as per prescribed format (Letter1, Letter2, BRLM) for usage of electronic facilities and software of NSE

2. Give details regarding Book Running Lead Manager, Co Book Running Lead Managers and Syndicate Members.

3. Pay the requisite charges to NSE.

Trading Members

The Book Running Lead Manager will give the list of trading members who are eligible to participate in the Book Building process to the Exchange. Members have to submit a one time undertaking to the Exchange. Eligible trading members have to give in the prescribed format details of the user IDs that they would like to use.

SubscribersSubscribers can approach any of the approved trading members for submitting bids in the NEAT IPO system. On line transaction registration slip are generated automatically after entering the bids in to the system which acts as proof of the registration of each Bid option

6.03 Reverse Book Building at NSE

Delisting of shares under SEBI (delisting of Securities) guidelines 2003

Securities and Exchange Board of India has issued the SEBI (Delisting of Securities) Guidelines 2003’ for delisting of shares from stock exchanges. The guidelines inter alia provide the overall framework for voluntary delisting by a promoter. In accordance with the guidelines for the first time in India by any Exchange, National Stock Exchange now provides online reverse book building for promoter/acquirer through its trading network which spans various cities and towns across India. NSE operates a fully automated screen

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)based bidding system that enables trading members to enter offers directly from their offices through a sophisticated telecommunication network.

What is Reverse Book Building (Delisting of shares)?

The Reverse Book Building is a mechanism provided for capturing the sell orders on online basis from the share holders through respective Book Running Lead Managers (BRLMs) which can be used by companies intending to delist its shares through buy back process. In the Reverse Book Building scenario, the Acquirer/Company offers to buy back shares from the share holders. The Reverse Book Building is basically a process used for efficient price discovery. It is a mechanism where, during the period for which the Reverse Book Building is open, offers are collected from the share holders at various prices, which are above or equal to the floor price. The buy back price is determined after the offer closing date

Business process for delisting through book building is as follows:

The acquirer shall appoint designated Book Running Lead Manager (BRLM) for accepting offers from the share holders.

The company/acquirer intending to delist its shares through Book Building process is identified by way of a symbol assigned to it by BRLM.

Orders for the offer shall be placed by the share holders only through the designated trading members, duly approved by the Exchange.

The designated trading members shall ensure that the security / share holders deposit the securities offered with the trading members prior to placement of an order.

The offer shall be open for 'n' number of days.

The BRLM shall intimate the final acceptance price and provide the valid accepted order file to the National Securities Clearing Corporation Limited (A wholly owned subsidiary of NSE carrying out clearing and responsible for settlement operations.)

SEBI guidelines shall be applicable to delisting of securities of companies and specifically apply to:

Voluntary delisting being sought by the promoters of a company.

Any acquisition of shares of the company (either by a promoter or by any other person) or scheme or arrangement, by whatever name referred to, consequent to which the public shareholding falls below the minimum limit specified in the listing conditions or listing agreement that may result in delisting of securities.

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Promoters of the companies who voluntarily seek to delist their securities from all or some of the stock exchanges.

Cases where a person in control of the management is seeking to consolidate his holding in a company, in a manner which would result in the public shareholding or in the listing agreement that may have the effect of company being delisted.

Companies which may be compulsorily delisted by the stock exchanges.

NSE Reverse Book Building System

NSE uses the reverse book building system; a fully automated screen based bidding system that allows offers to run in several issues concurrently. The system has the facility of defining a hierarchy amongst the users of the system. The Book Running Lead Manager can define who will be the Syndicate member and who will be the other members participating in the issue. The Syndicate Member and other Members also have a facility of defining a hierarchy among the users of the system as Corporate Manager, Branch Manager and Dealer.

Trading Members

The Book Running Lead Manager will give the list of trading members who are eligible to participate in the Book Building process to the Exchange. Members have to submit a one-time undertaking to the Exchange. Eligible trading members have to give in the prescribed format details of the user IDs that they would like to use.

List of Approved Trading Members:

ICICI Brokerage Services Limited.

Karvy Stock Broking Limited.

Master Capital Services Limited.

Subscribers

Subscribers can approach any of the approved trading members for submitting offers in the NEAT IPO system. On line transaction registration slip are generated automatically after entering the offers in to the system, which acts as proof of the registration of each offer.

Reverse Book Building through the NSE system offers several advantages:

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The NSE system offers a nation wide bidding facility in securities.

It provides a fair, efficient & transparent method for collecting offers using latest electronic trading systems.

CHAPTER –7 Indices )

Contents of this chapter:

7.01 Introduction7.02 Index

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)7.03 About S&P 7.04 Objectives of IISL7.05 Index Concepts

7.01 Introduction

An Index is used to give information about the price movements of products in the financial, commodities or any other markets. Financial indexes are constructed to measure price movements of stocks, bonds, T-bills and other forms of investments. Stock market indexes are meant to capture the overall behaviour of equity markets. A stock market index is created by selecting a group of stocks that are representative of the whole market or a specified sector or segment of the market. An Index is calculated with reference to a base period and a base index value.

Stock market indexes are useful for a variety of reasons. Some of them are :

They provide a historical comparison of returns on money invested in the stock market against other forms of investments such as gold or debt.

They can be used as a standard against which to compare the performance of an equity fund.

It is a lead indicator of the performance of the overall economy or a sector of the economy

Stock indexes reflect highly up to date information

Modern financial applications such as Index Funds, Index Futures, Index Options play an important role in financial investments and risk management

7.02 Index

An Index is used to give information about the price movements of products in the financial, commodities or any other markets. Financial indexes are constructed to

measure price movements of stocks, bonds, T-bills and other forms of investments. Stock market indexes are meant to capture the overall behaviour of equity markets. A

stock market index is created by selecting a group of stocks that are representative of the whole market or a specified sector or segment of the market. An Index is calculated with reference to a base period and a base index value.

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Stock market indexes are useful for a variety of reasons. Some of them are :

They provide a historical comparison of returns on money invested in the stock market against other forms of investments such as gold or debt.

They can be used as a standard against which to compare the performance of an equity fund.

It is a lead indicator of the performance of the overall economy or a sector of the economy

Stock indexes reflect highly up to date information

Modern financial applications such as Index Funds, Index Futures, Index Options play an important role in financial investments and risk management

7.03 About S&P

S&P owns the most important index in the world, the S&P 500 index, which is the foundation of the largest index funds and most liquid index futures markets in the world. The S&P 500 index is used by professionals around the world as the standard measure of the US market. Over US$ 800 billion is indexed, or directly linked, to the S&P 500 through index or tracker funds, more than any other index in the world. Daily trading volumes of derivatives transactions based on the S&P 500 amount to over US$ 50 billion.

Standard & Poor's plays an active role in the construction, development and maintenance of IISL's indices and brings its international expertise to the joint venture. With this involvement, IISL is committed to providing to the market the same assured quality, objectivity, integrity and service which are a constant source of inspiration to the international markets. This marks the first time Standard & Poor's, the world's largest index services provider, has offered its brand name and technical support to any such venture anywhere in the world.

7.04 Objectives of IISL

IISL pools the index development efforts of CRISIL and NSE into a coordinated whole - India's first specialised company focused upon the index as a core product. IISL has the following objectives:

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To develop, construct and maintain indices on Indian equities and commodities that serve as useful market performance benchmarks and are the underlying indices for derivatives trading

To develop related products and services which can be used by investors for managing their exposures in the equity and commodity markets

To provide data and information on the trading activity in the Indian stock markets

To provide market participants with value added research on the Indian equity and Commodity markets

All the erstwhile indices of NSE and CRISIL, such as Nifty, Nifty Junior, Defty, CRISIL 500, CRISIL Midcap 200 index etc. have been transferred to IISL which now maintains, develops, compiles and disseminates the indices.

The indices of IISL are now known under the following names:

S.No.

Old Name New Name

1 Nifty S&P CNX Nifty

2 Defty S&P CNX Defty

3Crisil 500 Equity Index  

S&P CNX 500 Equity Index 

4 Nifty Junior CNX Nifty Junior

5 Crisil Midcap 200 CNX Midcap 200 Index*

6 Crisil PSE CNX PSE Index

7 Crisil MNC CNX MNC Index

PSE indicates Public Sector EnterprisesMNC indicates Multinational Corporation* CNX Midcap 200 Discontinued from July 18, 2005

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7.05. Index Concepts

Impact Cost

Beta

Total Returns Index

I. Impact Cost

Introduction

Liquidity in the context of stock markets means a market where large orders can be executed without incurring a high transaction cost. The transaction cost referred here is not the fixed costs typically incurred like brokerage, transaction charges, depository charges etc. but is the cost attributable to lack of market liquidity as explained subsequently. Liquidity comes from the buyers and sellers in the market, who are constantly on the look out for buying and selling opportunities. Lack of liquidity translates into a high cost for buyers and sellers.

The electronic limit order book (ELOB) as available on NSE is an ideal provider of market liquidity. This style of market dispenses with market makers, and allows anyone in the market to execute orders against the best available counter orders. The market may thus be thought of as possessing liquidity in terms of outstanding orders lying on the buy and sell side of the order book, which represent the intention to buy or sell.

When a buyer or seller approaches the market with an intention to buy a particular stock, he can execute his buy order in the stock against such sell orders, which are already lying in the order book, and vice versa.

An example of an order book for a stock at a point in time is detailed below:

Buy Sell

Sr.No. Quantity Price Quantity Price Sr. No.

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1 1000 3.50 2000 4.00 5

2 1000 3.40 1000 4.05 6

3 2000 3.40 500 4.20 7

4 1000 3.30 100 4.25 8

There are four buy and four sell orders lying in the order book. The difference between the best buy and the best sell orders (in this case, Rs.0.50) is the bid-ask spread. If a person places an order to buy 100 shares, it would be matched against the best available sell order at Rs. 4 i.e. he would buy 100 shares for Rs. 4. If he places a sell order for 100 shares, it would be matched against the best available buy order at Rs. 3.50 i.e. the shares would be sold at Rs.3.5.

Hence if a person buys 100 shares and sells them immediately, he is poorer by the bid-ask spread. This spread may be regarded as the transaction cost which the market charges for the privilege of trading (for a transaction size of 100 shares).

Progressing further, it may be observed that the bid-ask spread as specified above is valid for an order size of 100 shares upto 1000 shares. However for a larger order size the transaction cost would be quite different from the bid-ask spread.

Suppose a person wants to buy and then sell 3000 shares. The sell order will hit the following buy orders:

Sr. Quantity Price

1 1000 3.50

2 1000 3.40

3 1000 3.40

while the buy order will hit the following sell orders :

Quantity Price Sr.

2000 4.00 5

1000 4.05 6

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)This implies an increased transaction cost for an order size of 3000 shares in comparison to the impact cost for order for 100 shares. The "bid-ask spread" therefore conveys transaction cost for a small trade.

This brings us to the concept of impact cost. We start by defining the ideal price as the average of the best bid and offer price, in the above example it is (3.5+4)/2, i.e. 3.75. In an infinitely liquid market, it would be possible to execute large transactions on both buy and sell at prices which are very close to the ideal price of Rs.3.75. In reality, more than Rs.3.75 per share may be paid while buying and less than Rs.3.75 per share may be received while selling. Such percentage degradation that is experienced vis-à-vis the ideal price, when shares are bought or sold, is called impact cost. Impact cost varies with transaction size.

For example, in the above order book, a sell order for 4000 shares will be executed as follows:

Sr. Quantity Price Value

1 1000 3.50 3500

2 1000 3.40 3400

3 2000 3.40 6800

Total value 13700

Wt. average price 3.43

The sale price for 4000 shares is Rs.3.43, which is 8.53% worse than the ideal price of Rs.3.75. Hence we say "The impact cost faced in buying 4000 shares is 8.53%".

Definition

Impact cost represents the cost of executing a transaction in a given stock, for a specific predefined order size, at any given point of time.

Impact cost is a practical and realistic measure of market liquidity; it is closer to the true cost of execution faced by a trader in comparison to the bid-ask spread.

It should however be emphasised that :

(a) impact cost is separately computed for buy and sell(b) impact cost may vary for different transaction sizes (c) impact cost is dynamic and depends on the outstanding orders(d) where a stock is not sufficiently liquid, a penal impact cost is applied

In mathematical terms it is the percentage mark up observed while buying / selling the desired quantity of a stock with reference to its ideal price (best buy + best sell) / 2.

Example A :

ORDER BOOK SNAPSHOT

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Buy Quantity Buy Price Sell Quantity Sell Price

1000 98 1000 99

2000 97 1500 100

1000 96 1000 101

TO BUY 1500 SHARES

II. Beta

Risk is an important consideration in holding any portfolio. The risk in holding securities is generally associated with the possibility that realised returns will be less than the returns expected.

Risks can be classified as Systematic risks and Unsystematic risks.

Unsystematic risks:These are risks that are unique to a firm or industry. Factors such as management capability, consumer preferences, labour, etc. contribute to unsystematic risks. Unsystematic risks are controllable by nature and can be considerably reduced by sufficiently diversifying one's portfolio.

Systematic risks:These are risks associated with the economic, political, sociological and other macro-level changes. They affect the entire market as a whole and cannot be controlled or eliminated merely by diversifying one's portfolio.

What is Beta?

The degree to which different portfolios are affected by these systematic risks as compared to the effect on the market as a whole, is different and is measured by Beta. To put it differently, the systematic risks of various securities differ due to their relationships with the market. The Beta factor

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)describes the movement in a stock's or a portfolio's returns in relation to that of the market returns. For all practical purposes, the market returns are measured by the returns on the index (Nifty, Mid-cap etc.), since the index is a good reflector of the market.

Methodology / Formula

Beta is calculated as :

where,Y is the returns on your portfolio or stock - DEPENDENT VARIABLEX is the market returns or index - INDEPENDENT VARIABLEVariance is the square of standard deviation.Covariance is a statistic that measures how two variables co-vary, and is given by:

Where, N denotes the total number of observations, and and respectively represent the arithmetic averages of x and y.

In order to calculate the beta of a portfolio, multiply the weightage of each stock in the portfolio with its beta value to arrive at the weighted average beta of the portfolio

Standard DeviationStandard Deviation is a statistical tool, which measures the variability of returns from the expected value, or volatility. It is denoted by sigma(s) . It is calculated using the formula mentioned below:

Where, is the sample mean, xi’s are the observations (returns), and N is the total number of observations or the sample size.

Total Return Index

Introduction

Nifty is a price index and hence reflects the returns one would earn if investment is made in the index portfolio. However, a price index does not consider the returns arising from dividend receipts. Only capital gains arising due to price movements of constituent stocks are indicated in a price index. Therefore, to get a true picture of returns, the dividends received from the constituent stocks also need to be factored in the index values. Such an index, which includes the dividends received, is called the Total Returns Index.

Total Returns Index reflects the returns on the index arising from (a) constituent stock price movements and (b) dividend receipts from constituent index stocks.

Methodology for Total Returns Index (TR) is as follows:

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The following information is a prerequisite for calculation of TR Index:

1. Price Index close

2. Price Index returns

3. Dividend payouts in Rupees

4. Index Base capitalisation on ex-dividend date

Dividend payouts as they occur are indexed on ex-date.

Indexed dividends are then reinvested in the index to give TR Index.

Total Return Index = [Prev. TR Index + (Prev. TR Index * Index returns)] +                                  [Indexed dividends + (Indexed dividends * Index returns)]Base for both the Price index close and TR index close will be the same.An investor in index stocks should benchmark his investments against the Total Returns index instead of the price index to determine the actual returns vis-à-vis the index.

CHAPTER-8

NCFM( NSE’s Certification in Financial Markets) )

Contents of this chapter:

8.01 Introduction to NCFM

8.02 NCFM Modules

8.03 NSE Research initiatives

8.01 Introduction to NCFM

A critical element of the financial sector reforms is the development of a pool of human resources having right skills and expertise in each segment of the industry to provide quality intermediation to market participants.

In order to dispense quality intermediation, personnel working in the industry need to (i) follow a certain code of conduct usually achieved through

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)regulations and (ii) possess requisite skills and knowledge acquired through a system of testing and certification.

As intermediation involves human expertise more than technological support, it is important that a person providing intermediation in the industry has a proper understanding of the business and the skills to help it remain competitive. In order to ensure this, it has become an accepted international practice for personnel working for market intermediaries to be adequately certified.

Such testing and certification has assumed significance in India as there is no formal education or training on financial markets, especially in the area of operations, while at the same time the market has undergone a complete transformation in the recent years.

A variety of new functions that need different levels and nature of specialisation and orientation have emerged. The industry has a large work force with varying levels of professional qualifications, skills and experience that do not necessarily match their work responsibilities.

Taking into account international experience and the needs of the Indian financial markets, with a view for protecting interests of investors in financial markets and more importantly, for minimising risks of losses arising out of deficient understanding of

markets and instruments, National Stock Exchange introduced in 1998 a facility for testing and certification by launching NSE's Certification in Financial Markets (NCFM).

8.02 NCFM Modules

NCFM currently tests expertise in the following modules:

1. Financial Markets: A Beginners' Module

2. Mutual Funds : A Beginners' Module

3. Securities Market (Basic) Module

4. Capital Market (Dealers) Module

5. Derivatives Market (Dealers) Module

6. FIMMDA-NSE Debt Market (Basic) Module

7. NSDL - Depository Operations Module

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8. Commodities Market Module

9. AMFI - Mutual Fund (Basic) Module

10. AMFI - Mutual Fund (Advisors) Module

11. Surveillance in Stock Exchanges Module

12. Corporate Governance Module

13. Compliance Officers (Brokers) Module

14. Compliance Officers (Corporates) Module

15. Information Security Auditors Module (Part-1)Information Security Auditors Module (Part-2)

16. Modules of Financial Planning Standards Board India (Certified Financial Planner certification)

17. Financial Modeling Module

18. FEDAI-NSE Currency Futures (Basic) Module

19. Options Trading Strategies Module

Financial Markets: A Beginners' Module

This module has been prepared for those who are keen to acquire some basic but key information about the stock markets as an initial step towards becoming a more informed investor. This module will act as a means of satisfying some of the initial queries on the stock markets and has been prepared with the objective of introducing the functioning and role of the financial markets in India to all those interested in this topic.

Mutual Funds : A Beginners' Module

This module has been prepared with a view to educate and create awareness about the role and function of mutual funds, the different mutual funds products being offered in the markets, risk profile of different products, the advantages of investing in mutual funds.  This module would be useful for first time investors in mutual funds, young students and anyone wanting to know about the basics of mutual funds.

Securities Market (Basic) Module

This module equips the candidates with the knowledge and fundamentals of the securities market as a whole.

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Capital Market (Dealers) Module

This module equips the candidates with the knowledge and skills required for dealers in the capital market operations.

Candidates have the option to take the test in English, Gujarati and Hindi languages. The workbook for the module is available in English only.

Derivatives Market (Dealers) Module

SEBI Committee on `Regulatory Framework for Financial Derivatives in India’ had recommended that all brokers-members and sales persons/dealers in the derivatives market must pass a certification programme. Based on the Committee’s recommendations, SEBI issued guidelines for the conduct of the certification examination. The Derivatives Market (Dealers) Module certifies brokers-members and sales persons/dealers in the derivatives market.

FIMMDA-NSE Debt Market (Basic) Module

This module equips the candidates with the knowledge and skills required in debt market operations.

NSDL - Depository Operations Module

This is an initiative of NSDL to accelerate the pace of professionalisation of the depository operations. This module equips the candidates seeking employment with depository participants and thereby helps in fast dematerialisation of securities.

Commodities Market Module

The module equips the candidates with the knowledge and skills required for dealers in Commodities Market Module

AMFI - Mutual Fund (Basic) Module AMFI - Mutual Fund (Advisors) Module

These two modules have been developed by Association of Mutual Funds in India to build a cadre of mutual fund advisors and disseminate knowledge about the working of the mutual funds.

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Surveillance in Stock Exchanges Module

This module has been developed pursuant to the desire of the Inter-Exchange Market Surveillance Group of SEBI to have a certified training programme for the surveillance staff of the stock exchanges. The module seeks to equip the surveillance staff with the art and science of surveillance in the stock market transactions.

Corporate Governance Module

This module has been jointly developed by National Stock Exchange of India Limited (NSEIL) and The Institute of Company Secretaries of India (ICSI) to strengthen knowledge on Corporate Governance.

Compliance Officers (Brokers) Module Compliance Officers (Corporates) Module

Market intermediaries need to have comprehensive knowledge and a proper understanding of the Acts governing the Securities Markets, Rules and Regulations of the Exchange, Listing Procedures, etc. A proper understanding and knowledge of these rules and regulations would enable an organization to adhere to the required

compliance standards and not fall short of meeting any existing guidelines. Compliance Officers modules tests the candidates on their knowledge of the relevant rules, regulations and guidelines governing the securities markets and corporates

Information Security Auditors Module (Part-1)Information Security Auditors Module (Part-2)

Information security is gaining in importance in today’s corporate environment where a vast amount of information is being processed by organisations on a day to day basis. A well defined, objective, information security audit should form a part of every organization’s policy. Confidentiality, integrity and timely availability of information are critical, for implementing efficient business processes. An information security audit is one of the best ways to determine the security of an organization’s information. Information security is not just technology related security but much more than that, covering physical and environmental security, access controls, business continuity planning etc. A timely and comprehensive assesement of information security systems and policies within the organisation, helps in avoiding the cost and other associated damages of a future security incident. Even today, it is possible to find a number of

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)organizations where a written security policy does not exist. When security practices are unwritten or informal, there is a greater risk of them being misinterpreted or ineffectively executed leading to a costly breach or security lapse which could have severe ramifications for an organization.

The Information Security Auditors Module has been developed for those involved with or interested to know about information security related issues in the financial markets.

The module consists of two parts: Information Security Auditors Module (Part-1) and Information Security Auditors Module (Part-2) of 2 hours duration each. On successfully clearing both the parts, a candidate would be provided with a 'Certified Information Security Auditor for Financial Markets' certification.

Modules of Financial Planning Standards Board India (Certified Financial Planner certification)

Currently, tests in four modules of FPSB India namely (i) Risk Analysis & Insurance Planning (ii) Retirement Planning & Employee Benefits (iii) Investment Planning and (iv) Tax Planning & Estate Planning are conducted “Live” i.e. on real time basis. For any

query for the said test(s), contact FPSB India at: Tel No 022-66663268 / 66663314 Ext :17 email: [email protected] website: http://www.fpsbindia.org

FEDAI-NSE Currency Futures (Basic) Module

This certification would equip the dealers, investors, students, participants etc. with knowledge and information on the Currency Futures markets and products. It would provide them with knowledge on the structure of the Exchange traded Currency Futures Market, product definitions, application of currency futures for hedging, speculation and arbitrage, order and trade management, clearing and settlement systems and risk management.

Options Trading Strategies Module

Exchange-traded options form an important class of derivatives which have standardized contract features and trade on public exchanges, facilitating trading among investors. They provide settlement guarantee by the Clearing Corporation thereby reducing counterparty risk. Options can be used for hedging, taking a view on the future direction of the market or for arbitrage. Options are also helpful for implementing various trading strategies such as straddle, strangle, butterfly, collar etc. which can help in generating income for investors under various market conditions.

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This module is being introduced to explain some of the important and basic Options strategies. The module would be of interest to traders, investors, students and anyone interested in the options markets. However, it is advisable to have a very good knowledge about the basics of Options or clear the NCFM Derivatives Markets (Dealers) Module before taking up this module. There are 22 Options strategies covered in this module and the tests are based on these 22 strategies.

8.03 NSE Research Initiative

In order to improve market efficiency further and to set international benchmarks in the securities industry, NSE launched the NSE Research Initiative with a view to develop an information base and a better insight into the working of securities market in India.

The objective of this initiative is to foster research, which can support and facilitate:

(a) stock exchanges to better design market micro-structure,(b) participants to frame their strategies in the market place,(c) regulators to frame regulations,(d) policy makers to formulate policies and(e) expand the horizon of knowledge.

NSE supports research initiatives on issues that have a bearing on securities market in India.

CONCLUSION NSE has been playing a vital & very crucial role in the development of Indian Securities Market.NSE has not only changed the share trading in India but also has proved itself as role model for many stock Exchanges across the Globe.

It’s the contribution of NSE only that today India can boast of being the first country in the world to provide almost 100% demateriased trading.

Many stock exchanges across the world are now giving the work of computerization to major IT companies like TCS of India to transform their trading & stock market activities & to put them in line of advanced countries in context of share trading.

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)Before set-up of NSE the stock market seemed to be a maze to normal investor due to it’s non transparency & other hurdles.

It’s due to NSE only that today the normal investor is participating aggressively in securities market.

NSE has also made a wonderful use of the innovations & Developments in IT industry to it’s benefit & thus making them reaching to the investors & is playing an important role in helping an Indian companies access equity capital, by providing a liquid and well-regulated market. NSE has about 1319 companies listed representing the length, breadth and diversity of the Indian economy which includes from hi-tech to heavy industry, software, refinery, public sector units, infrastructure, and financial services. Listing on NSE raises a company’s profile among investors in India and abroad. Trade data is distributed worldwide through various news-vending agencies. More importantly, each and every NSE listed company is required to satisfy stringent financial, public distribution and management requirements. High listing standards foster investor confidence and also bring credibility into the markets.

Bibliography

Study Materials of :

NCFM Financial Market Beginner’s Module

NCFM Securities Market Basic Module

NCFM Capital Market Dealer Module

NCFM Derivative Market Dealer Module

NCFM Debt Market Module

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Contribution of NSE In the Evolution of Indian Securities Market - By Chitra Rani (M.Phil 2008-09)

Online Resources:

www.sebi.gov.in

www.nseindia.com

www.bseindia.in

www.mintlive.com

www.economictimes.com

www.wsj.com (Wall Street Journal)

NSE 2008-09 fact book

Institutions:

SoftDreamz Institute of Financial Markets,Noida.

Newspapers & Magazine

Business & Economy

The Economist

Business Standard

Businessworld

Financial Express

The Times of India

Mint

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