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Knowledge InitiativesISMR 228

Knowledge Initiatives

Several initiatives have been taken over the last few years with a view to develop the skills of market intermediaries, educate the investors and promote high quality research in the securities market.

Quality IntermediationIn some of the developed and developing markets, there is a system of testing and certification for persons joining market intermediaries. This ensures that these personnel have a minimum required knowledge about the market and the existing regulations. The benefits of this system are widespread. While the intermediaries are assured of qualified staff, the employees get an opportunity to improve their career prospects. This in turn instills confidence in the investors to be associated with the securities market. The formal educational or training programme on securities markets is not adequate to cover their areas of operations. For instance, no academic course teaches how to maintain depository accounts or to sell mutual fund products, issue contract notes or clear and settle trades on a stock exchange. As a result, a need for certification was being increasingly felt by the regulators as well as by the securities industry.

NSE’s Certification in Financial Markets (NCFM)National Stock Exchange’s Certification in Financial Markets (NCFM), is an online testing and certification process. The entire process from generation of question papers to testing, assessing, scores reporting and certifying is fully automated. It allows tremendous flexibility in terms of testing centres, dates and timing by providing easy accessibility and convenience to candidates as they can be tested at any time and from any location. The purpose is to test the practical knowledge and skills that are required to operate in the financial markets.

NCFM offers a comprehensive range of modules covering many different areas in finance. NCFM currently tests expertise in the modules mentioned below in Table 8-1.

NCFM introduced several new modules in 2010. On January 11, 2010 a module on ‘Interest Rate Derivatives: A Beginner’s Module’ was introduced. This module aims at creating a better understanding of the concepts underlying the money market and giving insights into the operations related to the trading of interest rate derivatives. The ‘Investment Analysis and Portfolio Management’ module was launched on March 19, 2010 which aims at providing an overview of the various investment instruments in the financial markets with details on evaluating investment opportunities to satisfy risk-return objectives of investors. On May 25, 2010 a module on ‘Commercial Banking in India: A Beginner’s Module’ was launched. This module aims at providing some basic insights into the policies and practices currently followed in the Indian banking system.

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Knowledge Initiatives ISMR229

8-1: NCFM Module Test Details

Sr. No.

Name of Module Fees (`) Test Duration

(in minutes)

No. of

Questions

Maximum Marks

Pass Marks

(%)

Certifi cate Validity

(in years)

1 Financial Markets: A Beginners’ Module * 1500 120 60 100 50 5

2 Mutual Funds : A Beginners’ Module 1500 120 60 100 50 5

3 Currency Derivatives: A Beginner’s Module 1500 120 60 100 50 5

4 Equity Derivatives: A Beginner’s Module 1500 120 60 100 50 5

5 Interest Rate Derivatives: A Beginner’s Module 1500 120 60 100 50 5

6 Commercial Banking in India: A Beginner’s Module 1500 120 60 100 50 5

7 Securities Market (Basic) Module 1500 105 60 100 60 5

8 Capital Market (Dealers) Module * 1500 105 60 100 50 5

9 Derivatives Market (Dealers) Module * 1500 120 60 100 60 3

10 FIMMDA-NSE Debt Market (Basic) Module 1500 120 60 100 60 5

11 Investment Analysis and Portfolio Management Module

1500 120 60 100 60 5

12 Certifi ed Personal Financial Advisor (CPFA) Examination

4000 120 80 100 60 3

13 NSDL–Depository Operations Module 1500 75 60 100 60 # 5

14 Commodities Market Module 1800 120 60 100 50 3

15 Surveillance in Stock Exchanges Module 1500 120 50 100 60 5

16 Corporate Governance Module 1500 90 100 100 60 5

17 Compliance Offi cers (Brokers) Module 1500 120 60 100 60 5

18 Compliance Offi cers (Corporates) Module 1500 120 60 100 60 5

19 Information Security Auditors Module (Part-1) 2250 120 90 100 60 2

Information Security Auditors Module (Part-2) 2250 120 90 100 60

20 Options Trading Strategies Module 1500 120 60 100 60 5

21 FPSB India Exam 1 to 4** 2000 per exam

120 75 140 60 NA

22 Examination 5/Advanced Financial Planning ** 5000 240 30 100 50 NA

23 Equity Research Module ## 1500 120 65 100 55 2

24 Issue Management Module ## 1500 120 80 100 55 2

25 Market Risk Module ## 1500 120 50 100 55 2

26 Financial Modeling Module ### 1000 150 50 75 50 NA

* Candidates have the option to take the tests in English, Gujarati or Hindi languages. # Candidates securing 80% or more marks in NSDL-Depository Operations Module ONLY will be certifi ed as ‘Trainers’.** Following are the modules of Financial Planning Standards Board India (Certifi ed Financial Planner Certifi cation) - FPSB India Exam 1 to 4 i.e. (i) Risk Analysis & Insurance Planning (ii) Retirement Planning & Employee Benefi ts (iii) Investment Planning

and (iv) Tax Planning & Estate Planning - Examination 5/Advanced Financial Planning ## Modules of Finitiatives Learning India Pvt. Ltd. (FLIP)### Module of IMS ProschoolThe curriculum for each of the modules (except Modules of Financial Planning Standards Board India, Finitiatives Learning India Pvt. Ltd. and IMS Proschool) is available on our website: www.nseindia.com > NCFM > Curriculum & Study Material.

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Knowledge InitiativesISMR 230

NSE Certified Market Professional (NCMP)NSE Certified Market Professional (NCMP) certificates are issued to those candidates who have cleared NCFM modules as prescribed by the exchange. This certification was launched on August 17, 2009 as per the below given eligibility criteria. This hierarchy of certifications is aimed at enabling the candidates to better demonstrate their domain knowledge relating to financial markets. Thus, a candidate clearing 3 – 4 modules would be given “NCMP Level 1” certificate and so on. Currently there are 14 modules qualifying for the NCMP certification which are available on the NSE website.

• NCMP Level 1: 3 – 4 modules

• NCMP Level 2: 5 – 6 modules

• NCMP Level 3: 7 – 8 modules

• NCMP Level 4: 9 or more modules

CBSE – NSE joint certification in Financial MarketsCBSE and NSE introduced a joint certification in Financial Markets for Std. XI and XII. The course, titled “Financial Markets Management (FMM)” had been introduced by CBSE for academic year 2007 - 2008. The course comprises of various subjects, such as Languages, Economics, Business Studies, Accounting for Business etc. Besides these, two financial market related subjects, “Introduction to Financial Markets – I” and “Introduction to Financial Markets – II” are taught in Std. XI and XII respectively. Students opting for the course are required to take the NCFM on-line tests in “Financial Markets: A Beginners Module” in Std. XI and both “Capital Markets (Dealers) Module and Derivatives Markets (Dealers) Module”, in Std. XII. The course is in its second year and over 1500 students are enrolled for the course. This is the first such attempt to introduce financial literacy in a formal way in schools.

The course has completed three years till 2009-10 during which period 92 schools have opted for CBSE – NSE certification and 1664 candidates have successfully qualified for the CBSE-NSE joint certification in Financial Markets.

NSE-Manipal Education Training Programs on Stock MarketsNSE has joined hands with Manipal Education, one of India’s premier educational institutions, to impart training with the aim of improving the participants’ understanding of how the stock markets function. These programs are designed to cater to people interested in a career in stock markets and other related financial services and also to those who wish to learn about the functioning of the securities markets. It provides relevant tools and techniques that give an in-depth understanding of the various facets of the stock market. Several training programs are currently being offered over multiple days in a month across various cities in India.

NSE Certified Capital Market Professional (NCCMP)NSE, in collaboration with reputed colleges and institutes in India, has been offering a short-term course called NSE Certified Capital Market Professional (NCCMP) since August 2009, in the campuses of the respective colleges/institutes. The aim of the NCCMP Program is to develop skills and competency in securities markets. It is a 100 hours program, spanning over 3–4 months and covering theoretical and practical training in subjects related to capital markets. Successful candidates are awarded joint certification from NSE and the concerned college. NCCMP covers an array of subjects pertaining to the capital markets, such as equity markets, debt markets, derivatives, macroeconomics, technical analysis and fundamental analysis.

Basic Financial Literacy CourseNSE has joined hands with Maharashtra Knowledge Corporation Ltd. (MKCL) to launch a course in basic financial literacy. The aim of the course is to educate learners on simple concepts of personal finance. The course covers in a simple language topics such as income, taxation, expenditure, savings & investment avenues, borrowing, managing risk, budgeting etc. Participants would also learn about various financial institutions and in what ways they can benefit from

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Knowledge Initiatives ISMR231

these institutions. The course helps participants to become aware of different products through which they can meet their financial needs and learn about the benefits of prudent financial behavior. The course comprises of 14 modules of approximately 60 minutes each. At the end of the course, there would be an online examination and successful candidates will be provided with an NSE-MKCL certification in basic financial literacy.

Research InitiativeKnowledge management is very important in today’s competitive world. It acts as a tool which helps to acquire the cutting edge in a globalised financial market. The regulators and SROs have been actively promoting academicians and market participants to carry out research on the various segments of securities markets. During the year 2010 three research papers were completed under the NSE Research Initiative. While the completed papers are available on the NSE website, we present here non-technical abstracts of these papers.

1. Determinants and the Stability of Dividends in India

By Dr. Manoj Subhash Kamat and Dr. Manasvi Manoj Kamat

This paper improves on earlier research on stability and determinants of dividend policies by using a more advanced estimation methodology, a larger and more representative sample of panel data (PD), and different proxies for a longer time window 1971-2007. It is aimed to find whether the Indian private corporate sector follow stable cash dividend policies, whether dividends smoothen earnings in India, to estimate the implicit target payout ratio and speed of adjustment of dividends towards a long run target payout ratio.

We further test applicability of dividend stability hypothesis and add to the relatively limited literature on aspects of dividend decision by examining the dynamics of relationship between dividend payouts and a host of other explanatory variables. We estimate the basic static PD model, GMM-in-Levels {GMM (in-Lev)} model, and its other variations GMM-in-first-differences {GMM (in-Diff)} and GMM-in-Systems {GMM (in-Sys)} so to include other lag structures. This procedure shows us how much the size of the dividend determinants, the speed of adjustment coefficient and the one of the implicit target payout ratio varies across the different estimation techniques. In addition, it will also be useful to compare our results with those of Pooled OLS-estimation with alternate data definitions for checking the robustness of the results.

2. Forecasting of Indian Stock Market Index using Artificial Neural Network

By Manna Majumder and MD Anwar Hussian

This paper presents a computational approach for predicting the S&P CNX Nifty 50 Index. A neural network based model has been used in predicting the direction of the movement of the closing value of the index. The model presented in the paper also confirms that it can be used to predict price index value of the stock market. After studying the various features of the network model, an optimal model is proposed for the purpose of forecasting. The model has used the preprocessed data set of closing value of S&P CNX Nifty 50 Index. The data set encompassed the trading days from 1st January, 2000 to 31st December, 2009. In the paper, the model has been validated across 4 years of the trading days. Accuracy of the performance of the neural network is compared using various out of sample performance measures. The highest performance of the network in terms of accuracy in predicting the direction of the closing value of the index is reported at 89.65% and with an average accuracy of 69.72% over a period of 4 years.

3. Is it Heterogeneous Investor Beliefs or Private Information that Affects Prices and Trading Volume?

By Sugato Chakravarty and Rina Ray

A large fraction of the behavioral finance literature is based on a “disagreement” model, an important component of which is heterogeneous priors. Heterogeneous priors usually rely on some form of public information. While some investors may be especially skillful in “interpreting” public information and arriving at heterogeneous priors, public information can also trigger private signals. Once private information is introduced into the system, to effectively test such models of heterogeneous priors, the empiricist has to address the “joint behavior” of price and trading volume. In this paper we make such an attempt. Using a new dataset from India, we pit heterogeneous priors against private information to test

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Knowledge InitiativesISMR 232

the explanatory power of such heterogeneous priors. Our measure of heterogeneous priors is based on abnormal order data submitted by institutions, high net worth individuals and retail investors for a sample of Indian IPOs. Our measure of private information is the probability of informed trade (PIN) commonly used in market microstructure literature and computed from high frequency transaction data. While we find that private information dominates heterogeneous priors in explaining trading volume, heterogeneous priors measure dominates imbalance in trading frequency or net buy, i.e. the difference between buy and sell trades. Further, heterogeneous priors affect prices significantly through this trading imbalance. The price impact of our heterogeneous belief measure could be interpreted either as a behavioral bias or as an information processing, and analyzing, cost.

Data DisseminationNSE compiles, maintains and disseminates high quality data to market participants, researchers and policy-makers. This acts as a valuable input for formulating strategy, doing research and making policies. The data and info-vending services of National Stock Exchange (NSE) are provided through DotEx International Limited (DoteEx) which is a separate professional set-up dedicated solely for this purpose. DotEx provides NSE’s market quotes and data for various market segments. DotEx currently provides the following five products: (i) NSE’s online Real Time Data Feed is high speed streaming data providing Stock Exchange trade quotations and other related information pertaining to the trading on the Capital Market, Wholesale Debt Market, Futures and Options Segments, Securities Lending & Borrowing Market and Currency Derivatives Market Segment of NSE. NSE’s real time data is provided in three levels i.e. level 1, level 2 and tick by tick; (ii) NSE’s 5-minute, 2-minute and 1 minute Snapshot Data feed contains data pertaining to stock exchange trade quotations and other related information pertaining to the trading on various market segments of National Stock Exchange of India Limited; (iii) NSE’s End of Day data contains the End of Day bhavcopy information along with security and trade details pertaining to the Capital Market, Wholesale Debt Market and Futures and Options Segments of National Stock Exchange of India Limited (iv) Historical Data is provided on DVDs/CDs. The historical data is available for the Capital Market Segment, Futures & Option Segment and Wholesale Debt Market Segment. Historical Data contains (a) Day wise bhavcopy for each trading day, (b) Circulars issued by NSE or NSCCL during the month, (c) masters containing information like symbols, series, ISINs etc., (d) snapshots of the limit order book at four time points in the day and (e) trades data containing details about every trade that took place; (v) Corporate Data contains data pertaining to company fundamentals, corporate announcements and shareholding pattern.

Investor Awareness and EducationNSE has been carrying out investor awareness and education seminars on a regular basis in various centres across the country. Informative brochures and booklets have been prepared for educating investors which are distributed free of cost at the seminars. 1000 Investor Awareness Programmes were conducted during the year 2010.

`Visit to NSE´ Program It has been the endeavor of NSE to spread knowledge about financial markets as widely as possible. As part of this endeavor, NSE has been organizing the ‘Visit to NSE’ Program, under which groups of students visit NSE to attend a 2-hour session. The session includes lecture on ‘Overview of the Exchange’, ‘Capital Markets’, ‘Derivative Markets’ and NSE’s NCFM certification which not only expands their knowledge base, but also improves their career prospects. In this session, the students learn about stock exchange structure, its operations, products traded on it and so on. This program is conducted in the Mumbai office as well as the regional offices located at Delhi, Kolkata and Chennai.

Around 75 colleges have visited the Exchange till December 2010.

Investor awareness efforts for Currency DerivativesNational Stock Exchange of India Ltd is pioneer in the development of Indian securities market and various reforms including creation of a vibrant derivatives market. Over the years, NSE has taken many new initiatives to strengthen the securities industry. With evolving needs of the market, NSE has launched several new products and has attracted active

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Knowledge Initiatives ISMR233

participation from various categories of market participants. Within two year of launching Currency Future in India, NSE has launched currency options on USD-INR currency pair on October 29, 2010.

Focused efforts have been made to enhance knowledge and understanding of both the new and existing product categories through various interactive sessions and training programs to NSE Members, Sub-brokers and Investors. A total of 675 programs have been conducted in 95 locations across the country partnering more than 160 members. These training and awareness programs included topics on Currency Derivatives, ETFs, Mutual Fund Service Systems, Interest Rate Futures and Investor Awareness programs focused on Exchange Traded products. The participants include corporate, importers- exporters, banks, individual clients, NSE members, their Branches and sub brokers.