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A PROJECT REPORT ON
WORKING OF STOCK EXCHANGES IN INDIA AT
UTTAR PRADESH STOCK EXCHANGE ASSOCIATION LTD.
SUBMITTED BY: ASHISH SHARMA PGDM(FINANCE)

2008-2010

SINHGAD INSTITUTE OF BUSINESS ADMINISTRATION AND RESEARCH

KONDHWA (BUDRUK) PUNE-411048

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CERTIFICATE
This is to certify that Mr. ASHISH SHARMA student of SINHGAD INSTITUTE OF BUSINESS ADMINISTRATION & RESEARCH , Pune has completed his field work report at UTTAR PRADESH STOCK EXCHANGE ASSOCIATION LTD on the topic of WORKING OF STOCK EXCHANGE IN INDIA and has submitted the field work report in partial fulfillment of PGDM (AICTE) for the academic year 2008-10 . He has worked under our guidance and direction. The said report is based on bonafide information.

Prof. R.M Indi Project guide

Prof. V.S MANGNALE Director

Date:Place:- Pune

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DECLARATION
I hereby declare that the project titled Working of Stock Exchange in India is an original piece of research work carried out by me under the guidance and supervision of Prof. R.M Indi . The information has been collected from genuine & authentic sources. The work has been submitted in partial fulfillment of the requirement of PGDM (finance) .

Place: Pune Date:

Signature: Name of the student: ASHISH SHARMA

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Acknowledgement

I have done my level best to present a comprehensive and extensive report over the project. I am highly thankful to Mr. B.K Nadhani, the Director of UTTAR PRADESH STOCK EXCHANGE ASSOCIATION LTD, who laid invaluable support and guidance. He shared his knowledge and support and wisdom with me which has been a milestone for me. I am also thankful to all members of UPSE, who guided me for the completion of the project. I am much more thankful to my project guide, Prof. R.M INDI Who helped me a lot.

ASHISH SHARMA PGDM (FINANCE)

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INDEX

Sr. NO Chapter 1. Chapter 2. Chapter 3. Chapter 4. Chapter 5. Chapter 6. Chapter 7. Chapter 8. Chapter 9. chapter 10.

DESCRIPTION Introduction Objectives Research methodology Organization profile Literature survey Data analysis/collection Conclusion Limitation/future scope Recommendation Bibliography

Page NO. 6 7 8 9 10 12 54 55 56 57

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INTRODUCTION
Of all the modern service institutions, stock exchanges are perhaps the most crucial agents and facilitators of entrepreneurial progress. After the industrial revolution, as the size of business enterprises grew, it was no longer possible for proprietors or partnerships to raise colossal amount of money required for undertaking large entrepreneurial ventures. Such huge requirement of capital could only be met by the participation of a very large number of investors; their numbers running into hundreds, thousands and even millions, depending on the size of business venture. In general, small time proprietors, or partners of a proprietary or partnership firm, are likely to find it rather difficult to get out of their business should they for some reason wish to do so. This is so because it is not always possible to find buyers for an entire business or a part of business, just when one wishes to sell it. Similarly, it is not easy for someone with savings, especially with a small amount of savings, to readily find an appropriate business opportunity, or a part thereof, for investment. These problems will be even more magnified in large proprietorships and partnerships. Nobody would like to invest in such partnerships in the first place, since once invested, their savings would be very difficult to convert into cash. And most people have lots of reasons, such as better investment opportunity, marriage, education, death, health and so on for wanting to convert their savings into cash. Clearly then, big enterprises will be able to raise capital from the public at large only if there were some mechanism by which the investors could purchase or sell their share of business as ands they wished to do so. This implies that ownership in business has to be broken up into a larger number of small units, such that each unit may be independently & easily bought and sold without hampering the business activity as such. Also, such breaking of business ownership would help mobilize small savings in the economy into entrepreneurial ventures. This end is achieved in a modern business through the mechanism of shares.

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OBJECTIVES
The UPSE is one of the benchmark index with wide acceptance among individual investors, institutional investors, foreign investors, foreign investors and fund managers. The objectives of the index are:

To measure market movements Given its long history and its wide acceptance, no other index matches the BSE SENSEX in the reflecting market movements and sentiments. UPSE is widely Used to describe the mood in the Indian stock markets.

Benchmark for funds performance The inclusion of blue chip companies and the wide and balanced industry Representation in the UPSE makes it the ideal benchmark for fund managers to compare the performance of their funds.

For index based derivatives products Institutional investors, money managers and small investors, all refer to the UPSE for their specific purposes. The UPSE is in effect the proxy for The Indian stock markets. Since SENSEX comprises of the leading companies in all the significant sectors in the economy, we believe that it will be the most liquid Contract in the Indian market and will garner a predominant market share.

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RESEARCH METHODOLOGY
Made some attempts in this direction, but this did not materially alter the situation. In view of the less than satisfactory quality, of administration of broker-managed exchanges, the finance minister in March 2001 proposed demutualization of exchanges by which ownership, management and trading membership would be segregated from each other. The regulators are working towards implementing this. Of the 23 stock exchanges in India, two stock exchanges viz., OTCEI and NSE are already demutualised. Board of directors, which do not include trading members, manages these. These are purest form of demutualised exchanges, where ownership, management and trading are in the hands of three sets of people. The concept of demutualization completely eliminates any conflict of interest and helps the exchange to pursue market efficiency and investors interest aggressively.

R&D wing of UPSE is in function since 1992 under the direction of SEBI and it provides valuables services to the investors. Investors service center maintains a well equipped library of books, journals, periodicals and newspapers on financial markets. They maintain the records of day-to-day quotations of major exchanges, the annual reports of companies, PRIME directory, complete set of volumes of the stock exchange, Mumbai directories. Along with this it also maintains the newsletters, daily bulletin, books on capital markets, investors awareness, budget, taxation with other relevant books. The UPSE has been organizing summer camps to give trainings to company secretaries and MBAs from different institutes giving those complete data and helping the student to know the practical day-to-day working of the exchanges. Along with this it also organizes investors awareness shows. The changing technology has helped the exchange to install a corporate database of over 7000 companies. The rates of UPSE, BSE and NSE are displayed for the benefit of investors.

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ORGANISATION PROFILE
Uttar Pradesh stock exchange association ltd. was inaugurated on 27th Aug, 1982 and occupies one of the prominent places among the stock exchanges in India. It plays an important role in the development of the capital market of north India. Initially, it had only 350 members which have grown up to 540 at present. The membership is open to companies even beyond the territories of Uttar Pradesh. Currently, the exchange has 843 listed companies with a total capitalization of Rs. 81184 crores. The annual turnover of the exchange for 3 consecutive years is as follows: 2005-06 2006-07 2007-08 : : : 18429 crores 23876 crores 25112 crores

Additional trading floor-Lucknow of UPSE The additional trading floor-lucknow, also known as ATF-lucknow, is the first additional trading floor in India. The motto of this setup is to further increase business and to provide online trading facility to Lucknow based members. It commenced online trading from 24th March, 1999. Currently, 22 members have been allotted computer terminal in Lucknow which is connected with the UPSE main server V-SAT. At present, 13 of them are taking part in the trading. The ATF- Lucknow can be reached in the following address: U.P Stock Exchange Association Ltd. - ATF Arohi trade centre, Ist floor, Neebu Bagh chowk, Lucknow, India

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LITERATURE SURVEY
Traditionally, a stock exchange has been an association of individual members called member brokers (or simply members or brokers), formed for the express purpose of regulating and facilitating buying and selling of securities by the public and institution at large. A stock exchange in India operates with due recognition from the government under the Securities and Contracts (Regulations) Act, 1956. The member brokers are essentially the middlemen who carry out the desired transactions in securities on behalf of the public (for a commission) or on their own behalf. New membership to a Stock Exchange is through election by the governing board of that stock exchange.

At present, there are 23 stock exchanges in India, the largest among them
being the Bombay Stock Exchange. BSE alone accounts for over 80% of the total volume of transactions in shares. Typically, a stock exchange is governed by a board consisting of directors largely elected by the member brokers, and a few nominated by the government. Government nominee include representatives of the ministry of finance, as well as some public representatives, who are expected to safeguard the public interest in the functioning of the exchanges. A president, who is an Elected member, usually nominated by the government from among the elected members, heads the board. The executive director, who is usually appointed by the stock exchange with the government approval, is the operational chief of the stock exchange. His duty is to ensure that the day to

11 | P a g e day operations the Stock Exchange are carried out in accordance with the various rules and regulations governing its functioning. The overall development and regulation of the securities market has been entrusted to the Securities and Exchange Board of India (SEBI) by an act of parliament in 1992. All companies wishing to raise capital from the public are required to list their securities on at least one stock exchange. Thus, all ordinary shares, preference shares and debentures of the publicly held companies are listed in the stock exchange.

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DATA COLLECTION/ANALYSIS

Companies represented in the SENSEX as on 01. 09.09

COMPANY ACC ltd. Ambuja cements ltd. BAJAJ auto ltd. BHEL Bharti Airtel ltd. Cipla ltd. Dlf ltd.developers Grasim industries ltd. Hudco HDFC bank ltd. Infosys technologies ltd. ITC ltd. L& T ltd. Mahindra & Mahindra ltd. Maruti udyog ltd. NTPC ltd. ONGC ltd. Ranbaxy laboratories ltd. Reliance communication ltd. Reliance energy ltd. Reliance industries ltd. Satyam computer services ltd. State bank of India Tata consultancy services ltd. Tata motors ltd. WIPRO ltd. Hindalco industries ltd. Hindustan unilever ltd. ICICI bank ltd. SECTOR Cement products Cement products Automobiles-2 & 3 wheelers Electrical equipment Telecommunication services Pharmaceuticals Construction Diversified Housing-finance Banking Information ltd. FMCG Engineering Automobile- 4 wheelers Automobile- 4 wheelers Power Oil exploration/production Pharmaceuticals Telecom Power Refineries Computer-software Banks Computer-software Automobiles- 4 wheelers Computers software Aluminum FMCG Banks

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GRAPHICAL REPRESENTATION:-

Number of companies listed

Membership The trading platform of a stock exchange is accessible only to brokers. The broker enters into trades in exchanges either on his own account or on behalf of clients. The clients may place their order with them directly or a sub-broker indirectly. A broker is admitted to the membership of an exchange in terms of the provisions of the SCRA, the SEBI act 1992, the rules, circulars, notifications, guidelines, etc. prescribed there under and the byelaws, rules and regulations of the concerned exchange. No stockbroker or sub-broker is allowed to buy, sell or deal in securities, unless he or she

14 | P a g e holds a certificate of registration granted by SEBI. A broker/sub-broker compiles with the code of conduct prescribed by SEBI. The stock exchanges are free to stipulate stricter requirements for its members than those stipulated by SEBI. The minimum standards stipulated by NSE for membership are in excess of the minimum norms laid down by SEBI. The standards for admission of members lay down by NSE stress on factors, such as, corporate structure, capital adequacy, track record, education, experience, etc. and reflect the conscious endeavors to ensure quality broking services. Listing Listing means formal admission of a security to the trading platform of a stock exchange, invariably evidenced by a listing agreement between the issuer of the security and the stock exchange. ; Listing of securities on Indian Stock Exchanges is essentially governed by the provisions in the companies act, 1956, SCRA, SCRR, rules, bye-laws and regulations of the concerned stock exchange, the listing agreement entered into by the issuer and the stock exchange and the circulars/ guidelines issued by central government and SEBI. Index services Stock index uses a set of stocks that are representative of the whole market, or a specified sector to measure the change in overall behavior of the markets or sector over a period of time. India Index Services & Products Limited (IISL), promoted by NSE and CRISIL, is the only specialized organization in the country to provide stock index services.

Trading Mechanism All stock exchanges in India follow screen-based trading system. NSE was the first stock exchange in the country to provide nation-wide order-driven, screen-based trading system. NSE model was gradually emulated by all other stock exchanges in the country. The trading system at NSE known as the National Exchange for Automated Trading (NEAT) system is an anonymous order-driven system and operates on a strict price/time priority. It enables members from across the countries to trade simultaneously with enormous ease and efficiency. NEAT has lent considerable depth in the market by

15 | P a g e enabling large number of members all over the country to trade simultaneously and consequently narrowed the spreads significantly. A single consolidated order book for each stock displays, on a real time basis, buy and sell orders originating from all over the country. The bookstores only limit orders, which are orders to buy or sell shares at a stated quantity and stated price. The limit order is executed only if the price quantity conditions match. Thus, the NEAT system provides an open electronic consolidated limit order book (OECLOB). The trading system provides tremendous flexibility to the users in terms of kinds of orders that can be placed on the system. Several time-related (Good-Till-Cancelled, Good-Till-Day, Immediate-orCancel), price related (buy/sell limit and stop-loss orders) or volume related (All-orNone, Minimum Fill, etc.) conditions van be easily built into an order. Orders are sorted and match automatically by the computer keeping the system transparent, objective and fair. The trading system also provides complete market information online, which is updated on real time basis. The trading platform of the CM segment of NSE is accessed not only from the computer terminals from the premises of brokers spread over 420 cities, but also from the personal computers in the homes of investors through the internet and from the hand-held devices through WAP. The trading platform of BSE is also accessible from 400 cities. Internet trading is available on NSE and BSE, as of now. SEBI has approved the use of Internet as an order routing system, for communicating clients orders to the exchanges through brokers. SEBI- registered brokers can introduce internet-based trading after obtaining permission from the respective Stock Exchanges. SEBI has stipulated the minimum conditions to be fulfilled by trading members to start internetbased trading and services. NSE was the first exchange in the country to provide web-based access to investors to trade directly on the exchange. It launched Internet trading in February 2000. It was followed by the launch of Internet trading by BSE in March 2001. The orders

16 | P a g e originating from the personal computers (PCs) of investors are routed through the Internet tot eh trading terminals of the designated brokers with whom they have relations and further to the exchange of trade execution. Soon after these orders get matched and result into trades, the investors get confirmation about them on their PCs through the same Internet routes. SEBI approved trading through wireless medium or WAP platform. NSE is the only exchange to provide access to its order book through the hand held devices, which use WAP technology. This serves primarily retail investors who are mobile and want to trade from any place when the market prices for stocks of their choice are attractive. Demat Trading A depository holds securities in dematerialized form. It maintains ownership records of securities in a book entry form and also effects transfer of ownership through book entry. SEBI has introduced some degree of compulsion in trading and settlement of securities in dematerialized form. While the investors have a right to hold securities in either physical or de-mat form, SEBI has mandated compulsory trading and settlement of securities in dematerialized form. This was initially introduced for institutional investors and was later extended to all investors. Starting with 12 scrips on January 15, 1998, all investors are required to mandatorily trade in dematerialized form in respect of 2,335 securities as at end-June, 2001. Since the introduction of the depository system, dematerialization has progressed at a fast pace and has gained acceptance among the participants in the market. All actively traded scrips are held, traded and settled in demat form. The details of progress in dematerialization in two depositories, viz., NSDL and CDSL, are presented as below:

In a SEBI working paper titled Dematerialization: A Silent Revolution in the Indian Capital Market released in April 2000, it has been observed that India has achieved a very high level of dematerialization in less than three years time, and currently more than 99%of trades settle in demand form. Competition and regulatory developments facilitated reduction in custodial charges and improvements in qualities of service

17 | P a g e standards. The paper observes that one imminent and apparent immediate benefit of competition between the two depositories is fall in settlement and other charges. Competition has been driving improvement in service standards.

Depository facility has effected changes in stock market microstructure. Breadth and depth of investment culture has further got extended to interior areas of the country faster. Explicit transaction cost has been falling due to dematerialization. Dematerialization substantially contributed to the increased growth in the turnover. Dematerialization growth in India is the quickest among all emerging markets and also among developed markets excepting for the U.K and Hong Kong.

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CAPITAL LISTED AND MARKET CAPITALIZATION. The Stock Exchange, Bombay (BSE) is the premier Stock Exchange in India. The BSE accounted for 46 per cent of listed companies on an all India basis as on 31st March 1994. It ranked first in terms of the number of listed companies and stock issues listed. The capital listed in the BSE as on 31st March 1994 accounted for 50% of the overall capital listed on all the stock exchanges. Its share of the market capitalization was around 74% as on the same date. The paid-up capital of equity, debentures/bonds and preference were 73%, 31%, 44% respectively of the overall capital listed on all the Stock Exchanges as on the same date. On the BSE, the Steel Authority of India had the largest market capitalization of Rs.19, 908 crores as on the 31st March, 1994 followed by the State Bank of India with the market capitalization of Rs. 16,702 crores and Mahanagar Telephone Nigam Limited with the market capitalization of Rs. 11,700 crores

Trading System Till Now, buyers and sellers used to negotiate face-to-face on the trading floor over a security until agreement was reached and a deal was struck in the open outcry system of trading, that used to take place in the trading ring. The transaction details of the account period (called settlement period) were submitted for settlement by members after each trading session. The computerized settlement system initiated the netting and clearing process by providing on daily basis statements for each member, showing matched and unmatched transactions. Settlement processing involves computation of each member's net position in each security, after taking into account all transactions for the member during the settlement period, which is 10 working days for group 'A' securities and 5 working days for group 'B' securities.

19 | P a g e Trading is done by members and their authorized assistants from their Trader Work Stations (TWS) in their offices, through the BSE On-Line Trading (BOLT) system. BOLT system has replaced the open outcry system of trading. BOLT system accepts two-way quotations from jobbers, market and limits orders from client-brokers and matches them according to the matching logic specified in the Business Requirement Specifications (BRS) document for this system. The matching logic for the Carry-Forward System as in the case of the regular trading system is quote driven with the order book functioning as an "auxiliary jobber".

TRADING The Exchange, which had an open outcry trading system, had switched over to a fully automated computerized mode of trading known as BOLT (BSE on Line Trading) System. Through the BOLT system the members now enter orders from Trader Work Stations (TWSs) installed in their offices instead of assembling in the trading ring. This system, which was initially both order and quote driven, was commissioned on March 14, 1995. However, the facility of placing of quotes has been removed w.e.f., August 13, 2001 in view of lack of market interest and to improve system-matching efficiency. The system, which is now only order driven, facilitates more efficient processing, automatic order matching and faster execution of orders in a transparent manner. Earlier, the members of the Exchange were permitted to open trading terminals only in Mumbai. However, in October 1996, the Exchange obtained permission from SEBI for expansion of its BOLT network to locations outside Mumbai. In terms of the permission granted by SEBI and certain modifications announced later, the members of the Exchange are now free to install their trading terminals at any place in the country. Shri P. Chidambaram inaugurated the expansion of BOLT network the then Finance Minister, Government of India on August 31, 1997.

20 | P a g e In order to expand the reach of BOLT network to centers outside Mumbai and support the smaller Regional Stock Exchanges, the Exchange has, as on March 31, 2002, admitted subsidiary companies formed by 13 Regional Stock Exchanges as its members. The members of these Regional Stock Exchanges work as sub-brokers of the member-brokers of the Exchange. The objectives of granting membership to the subsidiary companies formed by the Regional Stock Exchanges were to reach out to investors in these centers via the members of these Regional Exchanges and provide the investors in these areas access to the trading facilities in all scrips listed on the Exchange. Trading on the BOLT System is conducted from Monday to Friday between 9:55 a.m. and 3:30 p.m. The scrips traded on the Exchange have been classified into 'A', 'B1', 'B2', 'F' and 'Z' groups. The number of scrips listed on the Exchange under 'A', 'B1 ', 'B2' and 'Z' groups, which represent the equity segment, as on March 31, 2002 was 173, 560,1930 and 3044 respectively. The 'F' group represents the debt market (fixed income securities) segment wherein 748 securities were listed as on March 31, 2002. The 'Z' group was introduced by the Exchange in July 1999 and covers the companies which have failed to comply with listing requirements and/or failed to resolve investor complaints or have not made the required arrangements with both the Depositories, viz., Central Depository Services (I) Ltd. (CDSL) and National Security Depository Ltd. (NSDL) for dematerialization of their securities by the specified date, i.e., September 30, 2001. Companies in "Z" group numbered 3044 as on March 31, 2002. Of these, 1429 companies were in "Z" group for not complying with the provisions of the Listing Agreement and/or pending investor complaints and the balance 1615 companies were on account of not making arrangements for dematerialization of their securities with both the Depositories. 1615 companies have been put in "Z" group as a temporary measure till they make arrangements for dematerialization of their securities. Once they finalize the arrangements for dematerialization of their securities, trading and settlement in their scrips would be shifted to their respective erstwhile groups.

21 | P a g e The Exchange has also the facility to trade in "C" group which covers the odd lot securities in 'A', 'B1', 'B2' and 'Z' groups and Rights renunciations in all the groups of scrips in the equity segment. The Exchange, thus, provides a facility to market participants of on-line trading in odd lots of securities and Rights renunciations. The facility of trading in odd lots of securities not only offers an exit route to investors to dispose of their odd lots of securities but also provides them an opportunity to consolidate their securities into market lots. The 'C' group can also be used by investors for selling up to 500 shares in physical form in respect of scrips of companies where trades are to be compulsorily settled by all investors in demat mode. This scheme of selling physical shares in compulsory demat scrips is called as Exit Route Scheme. With effect from December 31, 2001, trading in all securities listed in equity segment of the Exchange takes place in one market segment, viz., Compulsory Rolling Settlement Segment.

Permitted Securities The Exchange has since decided to permit trading in the securities of the companies listed on other Stock Exchanges under Permitted Securities" category which meet the relevant norms specified by the Exchange. Accordingly, to begin with the Exchange has permitted trading in scrips of five companies listed on other Stock Exchanges w.e.f. April 22, 2002.

Computation of closing price of scrips in the Cash Segment: The closing prices of scrips are computed on the basis of weighted average price of all trades in the last 15 minutes of the continuous trading session. However, if there is no trade during the last 15 minutes, then the last traded price in the continuous trading session is taken as the official closing price.

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CLEARING AND SETTLEMENT The clearing and settlement mechanism in Indian securities market has witnessed significant changes and several innovations during the last decade. These include use of the state-of-art information technology, emergence of clearing corporations to assume counterparty risk, shorter settlement cycle, dematerialization and electronic transfer of securities, fine-tuned risk management system. Till recently, the stock exchanges in India were following a system of account period settlement for cash market transactions. T+2 rolling settlement have now been introduced for all securities. The members receive the funds/securities in accordance with the pay-in/pay-out schedules notified by the respective exchanges. Given the growing volume of trades and market volatility, the time gap between trading and settlement gives rise to settlement risk. In recognition of this, the exchanges and their clearing corporations employ risk management practices to ensure timely settlement of trades. The regulators have also prescribed elaborate margining and capital adequacy standards to secure market integrity and protect the interests of investors. The trades are settled irrespective of default by a member and the exchange follows up with the defaulting member subsequently for recovery of his dues to the exchange. Due to setting up of the Clearing Corporation, the market has full confidence that settlements will take place on time and will be completed irrespective of possible default by isolated trading members. Movement of securities has become almost instantaneous in the dematerialized environment. Two depositories viz., National Securities Depositories Ltd. (NSDL) and Central Depositories Services Ltd. (CDSL) provide electronic transfer of securities and more than 99% of turnover is settled in dematerialized form. All actively traded scrips are held, traded and settled in demat form. The obligations of members are downloaded to members/custodians by the clearing agency. The members/custodians make available the required securities in their pool accounts with depository participants (DPs) by the prescribed pay-in time for securities. The depository transfers the securities from the pool accounts of members/custodians to the settlement account of the clearing agency.

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As per the schedule determined by the clearing agency, the securities are transferred on the pay-out day by the depository from the settlement account of the clearing agency to the pool accounts of members/custodians. The pay-in and pay-out of securities is affected on the same day for all settlements. Select banks have been empanelled by clearing agency for electronic transfer of funds. The members are required to maintain accounts with any of these banks. The members are informed electronically of their pay-in obligations of funds. The members make available required funds in their accounts with clearing banks by the prescribed pay-in day. The clearing agency forwards funds obligations file to clearing banks which, in turn, debit the accounts of members and credit the account of the clearing agency. In some cases, the clearing agency runs an electronic file to debit members accounts with clearing banks and credit its own account. On pay-out day, the funds are transferred by the clearing banks from the account of the clearing agency to the accounts of members as per the members obligations. In the T+2 rolling settlement, the pay-in and pay-out of funds as well as securities take place 2 working days after the trade date . Demat pay-in: The members can effect demat pay-in either through Central Depository Services (I) Ltd. (CDSL) or National Securities Depository Ltd. (NSDL). In case of NSDL, the members are required to give instructions to their Depository Participant (DP) specifying settlement no. , settlement type, effective pay-in date, quantity, etc. The securities are transferred to the Pool Account. The members are required to give delivery-out instructions so that the securities are considered for pay-in. As regards CDSL, the members give pay-in instructions to their DP. The securities are transferred to Clearing Member (CM) Principal Account. The members are required to give confirmation to their DP, so that securities are processed towards pay-in obligations. Alternatively, members may also affect pay-in from clients' beneficiary accounts for which member are required to do break-up on the front-end software to generate obligation and settlement ID.

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The Clearing House arranges and tallies the securities received against the receiving member wise report generated on the Pay-in day. Once this reconciliation is complete, the bank accounts of members with seven clearing banks having pay-in positions are debited on the scheduled pay-in day. This procedure is called Funds Pay-in. In case of the de-mat securities, the securities are credited in the Pool Account of the members or the Client Accounts as per the client details submitted by the members. In case of Physical securities, the Receiving Members collect securities from the Clearing House on the payout day and the accounts of the members having payout are credited on Friday. This is referred to as Payout. In case of the Rolling Settlements, pay-in and payout of both funds and securities is on the same day, in case of Weekly settlements, pay-in of funds and securities is on Thursday and payout is on Friday. The auction is conducted for those securities which members fail to deliver/short deliver during the Pay-in. In case the securities are not received in an auction, the positions are closed out as per the closeout rate fixed by the Exchange in accordance with the prescribed rules. The close out rate is calculated as the highest rate of the scrip recorded in the settlement in which the trade was executed and in the subsequent settlement up to the day prior to the day of auction, or 20% above the closing price on the day prior to the day of auction, whichever is higher. However, in case of close-out for shares under objection or traded in "C" group, 10% instead of 20% above the closing price on the day prior to the day of auction and the highest price recorded in the settlement in which trade took place up to a day prior to auction is considered. The Exchange has strictly adhered to the settlement schedules for various groups of securities and there has been no case of clubbing of settlements or postponement of pay-in and pay-out during the last six years. The Exchange is also maintaining a database of fake/forged, stolen, lost and duplicate securities with the Clearing House so that distinctive numbers submitted by members on delivery may be matched against the database to weed out bad paper from circulation at the time of introduction of such securities in the market. This database has also been made available to the members so that delivering and receiving members can check the entry of fake, forged and stolen shares in the market

25 | P a g e SHORTAGES AND OBJECTIONS The members download Delivery/Receive Orders based on their netted positions for transactions entered into by them during a settlement in 'A', 'B1', 'B2', and 'F' group scrips and on trade to trade basis, i.e., without netting buy and sell transactions in scrips in "C" & 'Z' groups and scrips in B1 and B2 groups which have been put on trade to trade basis as a surveillance measure. The seller members have to deliver the shares in the Clearing House as per the Delivery Orders downloaded. If a seller member is unable to deliver the shares on the Pay-in day for any reason, his bank account is debited at the standard rate (which is equal to the closing price of the scrip on the day of trading) fixed by the Exchange for the quantity of shares short delivered. The Clearing House arrives at the shortages in delivery of various scrips by members on the basis of their delivery obligations and actual delivery. The members can download the statement of shortages on T+3 in Rolling Settlements. After downloading the shortage details, the members are expected to verify the same and report discrepancy, if any, to the Clearing House by 1:00 p.m. If no discrepancy is reported within the stipulated time, the Clearing House assumes that the shortage of a member is in order and proceeds to auction the same. However, in 'C' group, i.e., Odd Lot segment the members are themselves required to report the shortages to the Clearing House. The Exchange issues an Auction Tender Notice to the members informing them about the names of the scrips, quantity slated for auction and the date and time of the auction session on the BOLT. The auction for the undelivered quantities is conducted on T+4 for all the scrips under compulsory Rolling Settlements. The auction offers received in batch mode are electronically matched with the auction quantities so as to award the 'best price'. The members who participate in the auction session can download the Delivery Orders on the same day, if their offers are accepted. The members are required to deliver the shares in the Clearing House on the auction Payin day, i.e., T+5. Pay-Out of auction shares and funds is also done on the same day, i.e., T+5. The various auction sessions relating to shortages and bad deliveries are

26 | P a g e now conducted during normal trading hours on BOLT. Thus, it is possible to schedule multiple auction sessions on a single trading day. In auction, the highest offer price is allowed up to the close-out rate and the lowest offer price can be 20% below the closing price on a day prior to day of auction. A member who has failed to deliver the securities of a particular company on the pay-in day is not allowed to offer the same in auction. He can, however, participate in auction of other scrips. In case no offers are received in auction for a particular scrip, the sale transaction is closed-out at a close-out price, determined by higher of the following:- Highest price recorded in the scrip from the settlement in which the transaction took place up to a day prior to the day of the auction. OR - 20% above the closing price on a day prior to the day of auction. However, in case of the close-out of the shares under objection and shortages in "C" or "Z" group, 10% above the closing prices of the scrips on the pay-out day of the respective settlement are considered instead of 20%. Further, if the auction price/close-out price of scrip is higher than the standard price of the scrip in the settlement in which the transaction was done, the difference is recovered from the seller who failed to deliver the scrip. However, in case, auction/ close-out price is lower than standard price, the difference is not given to the seller but is credited by the Exchange to the Customers Protection Fund.

This is to ensure that the seller does not benefit from his failure to meet his delivery obligation. Further, if the offeror member fails to deliver the shares offered in auction, then the transactions is closed-out as per the normal procedure and the original selling

27 | P a g e member pays the difference below the standard rate and offer rate and the offeror member pays the difference between the offer rate and close-out rate.

Self Auction As has been discussed in the earlier paragraphs, the Delivery and Receive Orders are issued to the members after netting off their purchase and sale transactions in scrips where netting of purchase and sale positions is permitted. It is likely in some circumstances that a selling client of a member has failed to deliver the shares to him. However, this did not result in a member's failure to deliver the shares to the Clearing House as there was a purchase transaction of some other buying client of the member in the same scrip and the same was netted off for the purpose of settlement. However, in such a case, the member would require shares so that he can deliver the same to his buying client, which otherwise would have taken place from the delivery of shares by the seller. To provide shares to the members, so that they are in a position to deliver them to their buying clients in case of internal shortages, the members have been given an option to submit floppies for conducting self-auction (i.e., as if they have defaulted in delivery of shares to the Clearing House). Such floppies are to be given to the Clearing House on the pay-in day. The internal shortages reported by the members are clubbed with the normal shortages in a settlement and the Clearing House for the combined shortages conducts the auction. A member after getting delivery of shares from the Clearing House in self-auction credits the shares to the Beneficiary account of his client or hand over the same to him in case securities received are in physical form and debits his seller client with the amount of difference, if any, between the auction price and original sale price

Objections When receiving members collect the physical securities from the Clearing House on the Payout day, the same are required to be checked by them for good delivery as per the norms prescribed by the SEBI in this regard. If the receiving member does not consider the securities good delivery, he has to obtain an arbitration award from the arbitrators and submit the securities in the Clearing House on the following day of the Pay-Out (T+4). The Clearing House returns these securities to the delivering members

28 | P a g e on the same day, i.e., (T+4). If a delivering member feels that arbitration awards obtained against him is incorrect, he is required to obtain arbitration award for invalid objection from the members of the Arbitration Review Committee. The delivering members are required to rectify/replace the objections and return the shares to the Clearing House on next day (T+5) to have the entry against them removed. The rectified securities are delivered by the Clearing House to the buyer members on the same day (T+5). The buyer members, if they are not satisfied with the rectification, are required to obtain arbitration awards for invalid rectification from the Bad Delivery Cell on T+6 day and submit the shares to the Clearing House on the same day. If a member fails to rectify/replace the objections then the same are closed-out. This is known as "Objection Cycle" and the entire process takes 3 days.

The following table summarizes the activities involved in the Patawat Objection Cycle of CRS. DAY ACTIVITY T + 3 Pay-out of securities of Rolling Settlement T + 4 Patawat Arbitration sessions: Arbitration awards to be obtained from officials of the Bad Delivery Cell. Securities under objection to be submitted in the Clearing House Arbitration awards for invalid objection to be obtained from members of the Arbitration Review Committee T+5 Members and institutions to submit rectified securities, confirmation forms and invalid objections in the clearing house Rectified securities delivered to the receiving members

29 | P a g e T+6 Arbitration Awards for invalid rectification to be obtained from officials of the Bad Delivery Cell Securities to be lodged with the clearing house, the un-rectified and invalid rectifications of securities are directly closed-out by the Clearing House instead of first inviting the auction offers for the same. The shares in physical form returned under objection to the Clearing House are required to be accompanied by an arbitration award (Chukada) except in certain cases where the receiving members are permitted to submit securities to the Clearing House without "Chukada". These cases are as follows: Transfer Deed is out of date. Cheques for the dividend adjustment for new shares where distinctive numbers are given in the Exchange Notice are not enclosed. Stamp of the Registrar of Companies is missing. Details like Distinctive Numbers, Transferors' Names, etc. are not filled, in the Transfer Deeds. Delivering broker's stamp on the reverse of the Transfer Deed is missing. Witness stamp or signature on Transfer Deed is missing. Signature of the transferor is missing. Death Certificate (in cases where one or more of the transferors are deceased) is missing. A penalty at the rate of Rs.100/- per Delivery Order is levied on the delivering member for delivering shares, which are not in order. In the event a receiving member misuses the facility of submitting shares under objection without "Chukada", a penalty of Rs.500/- per case is charged and the penalty of Rs.100/- per Delivery Order levied on the delivering member is refunded to him by debiting the receiving member's account.

30 | P a g e Close Out: There are cases when no offer for particular scrip is received in an auction or when members who offer the scrips in auction, fail to deliver the same. In the former case, the original seller member's account is debited and the buyer member's account is credited at the closeout rate. In the latter case, the offeror member's account is debited and the buyer member's account is credited at the close-out rate. The closeout rates for closing the positions in different segments are as under

For 'A' + 'B1' + 'B2' + 'Z', 'Rolling demat' and 'F' group The close-out rate is higher of the following rates: The highest rate of the scrip from the first day (trading day in case of Rolling demat segment) to the day prior to the day on which the auction is conducted for the respective settlement. 20% above the closing rate as on the day prior to the day of auction of the respective settlement. For 'C' group segment The close-out rate is higher of the following rates : The highest rate of the scrip from the first day to the day prior to the day of auction of 'A', 'B1', 'B2, and 'Z' group segment of the respective settlements; or 10% above the closing rate as on the day prior to the day of auction of 'A', 'B1', 'B2, and 'Z' group; or Transaction price. In the 'C' group, i.e., Odd Lot Segment, no auction session is conducted. The shortages are directly closed out.

31 | P a g e BASKET TRADING SYSTEM The Exchange has commenced trading in the Derivatives Segment with effect from June 9, 2000 to, enable the investors to hedge their risks. Initially, the facility of trading in the Derivatives Segment has been confined to Index Futures. Subsequently, the Exchange has since introduced the index options and options & futures in select individual stocks. The investors in cash market had felt a need to limit their risk exposure in the market to movement in Sensex. With a view to provide investors with this facility of creating Sensex linked portfolios and also to create a linkage of market prices of the underlying securities of Sensex in the Cash Segment and Futures on Sensex, the Exchange has provided the facility of Basket Trading System on BOLT. In Basket Trading System, the investors are able to buy/ sell all 30 scrips of Sensex in the proportion of their respective weights in the Sensex, in one go. The investors need not calculate the quantity of Sensex scrips to be bought or sold for creating Sensex linked portfolios and this function is performed by the system. The investors are also allowed to create their own baskets by deleting certain scrips from the Sensex basket of 30 scrips. Further, the Basket Trading System provides the arbitrageurs an opportunity to take advantage of price differences in the underlying securities of Sensex and Futures on the Sensex by simultaneous buying and selling of baskets covering the Sensex scrips and Sensex Futures. This is expected to have balancing impact on the prices in both cash and futures markets. The Basket Trading System would, thus, meet the needs of investors and also boost the volumes and depth in cash and futures markets. The Basket Trading System has been implemented by the Exchange w.e.f. Monday, the 14th August 2000. The trades executed under the Basket Trading System are subject to intra-day trading/gross exposure limits and daily margins as are applicable to normal trades... To participate in this system the member indicates number of Sensex basket(s) to be bought or sold, where the value of one Sensex basket is arrived at by the system by multiplying Rs.50 to prevailing Sensex.

32 | P a g e SETTLEMENT SYSTEM Securities traded on BSE are classified into three groups, namely, specified shares or 'A' group and non-specified securities that are sub-divided into 'B1' and 'B2' groups. Presently, equity shares of thirty-two companies are classified as specified shares. These companies typically have a large capital base with widespread shareholding, a steady dividend, good growth record and a large volume of business in the secondary market. Contracts in this group are allowed to be carried over to subsequent settlements up to a maximum permissible period of 75 days. 495 relatively liquid securities are placed in a category called 'B1' group. The remaining securities-about 5800 as on May 31, 1996 are placed in the 'B2' group. All newly listed securities are placed in the 'B2' group. Settlement of transactions is done on an 'Account Period' basis. The period is a calendar week in the case of 'A' and 'B1' groups and 14 calendar days in the case of 'B2' group During an account period, buy or sell positions in a particular security can be either squared up by entering into contra transactions or can be further accumulated by entering into more buy or sell transactions.

Clearing System The Clearing House of the Exchange handles the share and the money parts of the settlement process in the case of 'A' and 'B1' groups. The Clearing House handles only the money part of 'B2' group while securities are physically exchanged between the brokers.

33 | P a g e Opportunities available for foreign investors

1. Direct investment: Foreign Companies are now permitted to have a majority stake in their Indian affiliates except in a few restricted industries. In certain specific industries, foreigners can even have holding up to 100 per cent. 2. Investment through Stock Exchanges: Foreign Institutional Investors (FII) upon registration with the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) are allowed to operate in Indian Stock Exchanges subject to the guidelines issued for the purpose by SEBI. Important requirements under the guidelines are as under: I. Portfolio investment in primary or secondary markets will be subject to a ceiling of 24 per cent of issued share capital for the total holding of all registered FIIs in any one company. The holding of a single FII in any one company is subject to a ceiling of 5 per cent of the total issued capital. However, in applying the ceiling of 24 percent the following are excluded: Foreign investment under a financial collaboration (DFI), which is, permitted up to 51 per cent in all priority areas. Investment by FIIs through following alternative routes; Offshore Single/Regional funds, GDR's and Euro convertibles. II. Disinvestments will be allowed only through a broker of a Stock Exchange. III. A registered FII is required to buy or sell only for delivery. It should not offset a deal. It is also not allowed to sell short.

3. Investment in Euro Issues/Mutual Funds Floated Overseas: Foreign investors can invest in Euro issues of Indian companies and in Indiaspecific funds floated abroad.

34 | P a g e 4. Broking Business: Foreign brokers upon registration with the SEBI are now allowed to route the business of registered FIIs. Guideline for the purpose has been issued by SEBI. However, foreign brokers at present are not allowed membership in India Stock Exchanges.

5. Asset Management Companies/Merchant Banking: Foreign Participation in Asset Management Companies and Merchant Banking Companies is permitted.

TRANSFER OF OWNERSHIP Transfer of ownership of securities in effected through a date stamped transfer-deed, which is signed, by the buyer and the seller. The duly executed transfer-deed along with the share certificate has to be lodged with the company for change in the ownership. A nominal duty becomes payable in the form of stamps to be affixed on the transfer-deeds. Transfer-deeds remain valid for twelve months or the next book closure following the stamped date whichever occurs later.

SAFEGUARDS 1. Margins are collected from the brokers on buying and selling positions at the end of the day. The total outstanding position is further subject to capital adequacy norms laid down from time to time. 2. A comprehensive insurance cover for the Exchange and the members is about to be put in place. 3. Guaranteeing trades is the cornerstone of a mature clearing and settlement process. BSE is in the process of establishing a Clearing Corporation that will guarantee trades. 4. Companies are required to publish half-yearly unaudited results and other price sensitive information. This imparts greater transparency to the stock market operations.

35 | P a g e 5. Insider Trading Regulations have been laid down and a 'Take-Over' code has been created.

ARBITRATION MACHINERY

There exists three level arbitration machinery. The first two levels, which are adjudicated by member brokers, comprise of a two-member bench and a full bench that is to comprise of at least sixteen members respectively. The highest arbitrator in the Exchange is the Governing Board. Disputes unresolved in the Exchange are taken to the Court of Law.

INVESTOR PROTECTION FUND The objective of this fund is to provide insurance to investors in case of default by a member. The investor is indemnified from default to the extent of Rs.11, 00,000. The corpus of the fund is created by depositing 2.5% of the listing fees and a levy on turnover at the rate or Re.1 for Rs. 1 million of turnovers. It is further augmented by 50% of the interest accrued on 1% of the issue amount which is deposited by companies at the time of their public and rights issues for a three month period as a safeguard against non-refund of excess subscription.

GRIEVANCE REDRESSAL The Investor's Services Cell redresses investors' grievances against listed companies and stockbrokers. However, the Exchange does not have power to take penal action against listed companies, except delisting for specified periods.

36 | P a g e DISCIPLINARY ACTION The Exchange has an eight member Disciplinary Action Committee (DAC) which decides on punitive action in disciplinary cases referred to it by the Surveillance and inspection departments of the Exchange Administration.

INDICES

The Exchange compiles four indices, which are based on market capitalization. The first index to be compiled was the BSE Sensitive Index with 1978-79 as the base year. It comprises of equity shares of 30 companies from both specified and non-specified securities groups. The companies have been selected on the basis of market activity. Subsequently, a broader based index, BSE National Index with 1983-84 as base year, was compiled. This index is made up of 100 scrips, 98 of which are quoted on Bombay. This index also includes prices on the other major stock exchanges of Delhi, Calcutta, Ahmadabad and Madras. If scrip is actively quoted on more than one Exchange the average price of the scrip is used in the compilation of the index. It was felt that the sensitive index-the most popular indicator of market movement-had become oversensitive to a handful of scrips. With divestment of Public Sector Unit (PSU) equity by government and a sharp increase in the number of companies listed over the last few years, it was felt that a new index, which is more representative of the recent changes and is more balanced, is necessary. The BSE-200, which was introduced in May 1994, consists of equity shares of 200 companies, which have been selected on the basis of market capitalization, volume of turnover and strength of the companies' fundamentals. 1989-90 has been chosen as the base year for BSE-200. As the presence of the foreign investors grew, a need was felt to express the index values by taking into account the Rupee-Dollar conversion rates. Consequently, dividing the current Rupee market value by Rupee-Dollar modifies the BSE-200 conversion rate in the base year. DISCLOSURE & LISTING NORMS

37 | P a g e

Companies who wish to raise money from capital market follow guidelines relating to disclosure, laid down by the Securities and Exchange Board of India. Some of the disclosure norms are: Details of other income if it constitutes more than ten percent of total All adverse events affecting the operations of the company. Any change in key managerial personnel. Risk factors specific to the project and those which are external to the income.

company. The listing requirements with the Exchange call for further disclosure by companies to promote public confidence. Important disclosures are: The company is required to furnish unaudited half-yearly financial The company must explain to the Stock Exchange any large variation When any person or an institution acquires or agrees to acquire any results in the prescribed Performa. between audited and unaudited results in respect of any item. security of a company which would result in his holding five percent or more of the voting capital of the company, including the existing holding the Exchange must be notified within two days of such acquisition by the company or by authorized intermediary or by the acquirer. Any take-over offer made either voluntarily or compulsorily to a company requires a public announcement by both the offeror and the offered company.

38 | P a g e

Computerized Trading BSE computerized its trading and settlement activities by following a three-phased approach.

Computerized Trading

Phase 1

Phase 2

Phase 3

Phase I: The primary objective of this phase was the real time dissemination of price data through the Display Information Driver System (DIDS). DIDS was commissioned in November 1992 to disseminate bids, offers, actual rates of transactions and indices on a real time basis. Phase II: In 1994, settlement related daily transactions inputs and outputs were uploaded and downloaded from the TWS in the brokers offices. Phase III: Commissioned on March 14, 1995. Although, screen based trading started with 818 scrips, by the 70th day of its commissioning, all scrips exceeding 5000 had been put on the BOLT system. The BOLT system was commissioned with the Himalaya K 10,000 central trading computer hardware. Since then the hardware has

39 | P a g e been upgraded to the Himalaya K 20,000 system. The system provides for a response time of two seconds and can handle more than two hundred thousand trades in a day.

Future Developments In 1995, the President of India promulgated an Ordinance, which allowed for establishment of depositories. BSE in collaboration with Bank of India (BOI) will shortly establish a depository. BSE has applied for permission from SEBI to expand BOLT to other centres.

Market Types The NEAT system in NSE has four types of market. They are: Normal Market All orders which are of regular lot size or multiples thereof are traded in the Normal Market. For shares, which are traded in the compulsory dematerialized mode the market lot of these shares, is one. Normal market consists of various book types wherein orders are segregated as Regular lot orders, Special Term orders, and Negotiated Trade Orders and Stop Loss orders depending on their order attributes.

Odd Lot Market

40 | P a g e

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

Spot Market Spot orders are similar to the normal market orders except that spot orders have different settlement periods vis--vis normal market. These orders do not have any special terms attributes attached to them. Currently the Spot Market is being used for the Automated Lending & Borrowing Mechanism (ALBM) session.

Auction Market In the Auction Market, the Exchange on behalf of trading members for settlement related reasons initiates auctions. 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 is called a Competitor. Solicitor The party who enters orders on the opposite side as of the initiator.

41 | P a g e

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

The Capital Market segment has following types of books:

1. Regular Lot Book The Regular Lot Book contains all regular lot orders that have none of the following attributes attached to them. a) All or None (AON) b) Minimum Fill (MF) c) Stop Loss (SL) 2. Special Terms Book The Special Terms book contains all orders that have either of the following terms Attached:

42 | P a g e a) All or None (AON) b) Minimum Fill (MF) Note: Currently, special term orders i.e. AON and MF are not available on the system as per the SEBI directives. 3. Negotiated Trade Book The 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 counter party code in addition to other order details.

4.

Stop-Loss Book Stop Loss orders are stored in this book till the trigger price specified in the order is reached or surpassed. When the trigger price is reached or 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.

5. Odd Lot Book The Odd lot book contains all odd lot orders (orders with quantity less than Marketable lot) in the system. The system attempts to match an active odd lot Order against passive orders in the book. Currently, pursuant to a SEBI directive The Odd Lot Market is being used for orders which has a quantity less than or Equal to 500 (Qty more than the market lot) for trading. This is referred as the

43 | P a g e Limited Physical Market (LPM).

6. Spot Book The Spot lot book contains all spot orders (orders having only the settlement period different) in the system. The system attempts to match an active spot lot order against the passive orders in the book. Currently the Spot Market book type is being used for conducting the Automated Lending & Borrowing Mechanism (ALBM) session.

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

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

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

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

Time Conditions DAY - A Day order, as the name suggests, is an order which is valid for the day on which it is entered. If the order is not matched during the day, the order gets cancelled automatically at the end of the trading day. GTC - A Good Till Cancelled (GTC) order is an order that remains in the system until the Trading Member cancels it. It will therefore be able to span trading days if it does not get matched. The Exchange notifies the maximum number of days a GTC order can remain in the system from time to time. GTD - A Good Till Days/Date (GTD) order allows the Trading Member to specify the days/date up to which the order should stay in the system. At the

45 | P a g e 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 Exchange notifies the maximum number of days a GTD order can remain in the system 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. 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.

Price Conditions: Limit Price/Order An order, which 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.

46 | P a g e Stop Loss (SL) Price/Order The one which 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.

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

Quantity Conditions 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

47 | P a g e 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. Trading Workstation The trader workstation is the terminal from which the member accesses the trading system. Each trader has a unique identification by way of Trading Member ID and User ID through which he is able to log on to the system for trading or inquiry purposes. A member can have several user IDs allotted to him by which he can have more than one employee using the system concurrently. 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. Trader Workstation Screens The Trader Workstation screen of the Trading Member is divided into several major windows:

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

Tool Bar A window with different icons which provides quick access to various functions such as Market By Order, Market By Price, Market Movement, Market Inquiry, Auction Inquiry, Snap Quote, Market Watch, Buy order entry, Sell order entry, Order Modification, Order Cancellation, Outstanding Orders, Order Status, Activity Log,

48 | P a g e Previous Trades, Net Position, Online Backup, Supplementary Menu, Security List and Help. All these functions are also available on the keyboard.

Ticker Window The ticker displays information about a trade as and when it takes place. The user has the option to set-up the securities, which appear in the ticker. Market Watch Window The Market Watch window is the main area of focus for a Trading Member. The purpose of Market Watch is to view market information of pre-selected securities, which 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. Invoking the Security List and selecting the securities from the window can also set up securities. The Symbol field incorporates the Company name and the Series field captures the segment/instrument type. A third field indicates the market type. For each security in the Market Watch window, market information is dynamically updated on a real time basis. The market information displayed is for the current best price orders available in the regular lot book. For each security, the corporate action indicator (e.g., Ex or cum dividend, interest, rights etc.), the total buy order quantity for the best buy price, best sell price, total sell order quantity for the best sell price, the Last Traded Price (LTP), the last traded price change indicator ('+' if last traded price is better than the previous last traded price and '-' if it is worse) and the no delivery indicators are displayed. If the security is suspended, "SUSPENDED" appears in front of the security. On line index and Index Inquiry

49 | P a g e With every trade in a security participating in Index, the user has the information on the current value of the Nifty. This value is displayed at the extreme right hand corner of the ticker window. Index Inquiry gives information on Close, Open, High, Low and current index values at the time of invoking this inquiry screen.

Inquiry Window In this window, the inquiries such as Market by Order, Market by Price, Previous Trades, Outstanding Orders, Activity Log, Order Status and Market Inquiry can be viewed. Market By Order (MBO) The purpose of Market by Order is to enable the user to view outstanding orders in the trading books in the order of price/time priority. The information is displayed for each order. Stop Loss orders, which are not triggered will not be displayed on the window. Buy orders are displayed on the left side of the window and Sell orders on the right side. The orders are presented in a price/time priority with the "best priced" order at the top. 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.

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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, which 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.

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

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

Snap Quote The Snap Quote feature allows a Trading Member to get instantaneous market information on any desired security. This is normally used for securities which are not already on display in the Market Watch window. The information presented is the same as that of Market Watch window. Order/Trade Window Order entry mechanisms enable the Trading Member to place orders in the market. The system will request re-confirmation of an order so that the user is cautioned before the order is finally released into the market. Orders once placed on the system

52 | P a g e 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 Window This window is used to view messages from the Exchange to all specific Trading Members. Supplementary Menu Some of the supplementary features in the NEAT system are: On line back up

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

A member is able to make an order entry in the batch mode. Computer-to-Computer Link (CTCL) Facility

53 | P a g e 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 Computer-to-Computer Link (CTCL) facility is available only to trading members of NSE. Through CTCL facility Trading Members can use their own software running on any suitable hardware/software platform of their choice. This software would be a replacement of the NEAT front-end software that is currently used by members to trade on the NSE trading system. Members can use software customized to meet their specialized 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.

Trading options: Trading options are riskier than futures. This is purely from the options-writer's perspective. Market making in options depends to a great extent on institutions willing to write the contracts. Since the buyer of an option contract is not under any obligation to exercise his right, his risk is limited to the premium paid for purchasing the right. However, the writer is under an obligation to deliver. This means the risk borne by the option-writer is enormous. Exchanges normally guarantee the writer's position. Hence, to limit default in the market, the margin requirements are quite high. For instance, in international markets, while the margin rate for index futures contracts is around 5 per cent, that for index options works out to the commission received plus around 15 per cent of the contract's notional value. Thus, in this situation, there is excessive risk for the options-writer and transactions costs could be high. Currently, the regulations prevent funds from taking speculative positions in the spot market. So, they may not be allowed to write options. A market exists only if there is a writer and a buyer. But given that there are few takers for the futures market, it is difficult to foresee a lot of interest in the options market.

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CONCLUSION
GUIDELINES GOVERNING RELATIONSHIP BETWEEN TRADING MEMBER AND CONSTITUENT The Trading Member shall not recommend to the constituent a sale or purchase of securities traded on the Trading System, unless he has reasonable grounds to believe that such recommendation is suitable for the constituent on the basis of the facts, if any, disclosed by the constituent, whether in writing or orally, regarding the constituent's security holdings, financial soundness and investment objectives. The Trading Member shall make adequate disclosures of relevant material information in dealing with the constituent including the current best price of trade and trade or order quantities on the Trading System, as also any allocation policy inter se constituents, any relevant announcement from the Exchange relating to margin, trading restrictions as to price, quantity or where the Trading Member is the counter party to a trade executed on the NEAT with the constituent. Where the Trading Member manages a discretionary account for or on behalf of the constituent, he should abide by the Securities and Exchange Board of India (Portfolio Managers) Rules and Regulations, 1993. The Trading Member shall not furnish any false or misleading information or advice with a view to inducing the constituent to do business in particular securities and which will enable the Trading Member to earn a gain thereby The Trading Member shall explain the NEAT Trading System and order matching process to the constituent before accepting any orders from him.

55 | P a g e Trading Members shall inform their Constituents whether they do client based trading or Pro-account trading. Trading Members shall disclose the aforesaid information to their existing Constituents within such period as specified by the Exchange; to their new Constituents upfront at the time of entering into Member-Client Agreement; To their Constituents before carrying out any Pro-account trading.

LIMITATIONS/FUTURE SCOPE
UPSE should set up a nationwide trading facility for equities, debt instruments and Hybrids;

UPSE should ensure equal access to investors across the country through an appropriate communication network;

To provide a fair, efficient and transparent securities market to investors using the electronic trading system

To ensure shorter settlement cycles and book entry settlement systems;

To meet the current international standards prevalent in the securities Industry/markets.

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RECOMMENDATIONS
The power and functions of the Board encompass the regulation of Stock Exchanges and other securities markets;

Registration and regulation of the working of stock brokers, sub-brokers,

bankers to an issue (a public offer of capital)

trustees of trust deeds, registrars to an issues, merchant bankers, under writers,

portfolio managers, investment advisors and such other intermediaries who may be associated with the stock market in any way; Registration and regulations of mutual funds; Promotion and regulation of self- regulatory organizations; Prohibiting Fraudulent and unfair trade practices and insider trading in securities markets; Regulating substantial acquisition of shares and takeover of companies;

57 | P a g e Calling for information from, undertaking inspection, conducting inquiries and audits of stock exchanges, intermediaries and self- regulatory organizations of the securities market; performing such functions and exercising such powers as contained in the provisions of the Capital Issues (Control) Act,1947 and the Securities Contracts (Regulation) Act, 1956, levying various fees and other charges, conducting necessary research for above purposes and performing such other functions as may be prescribes from time to time. . BIBLIOGRAPHY www.google.co.in www.bseindia.org www.nseindia.org www.upse-india.com www.traderji.com www.wikipedia.com www.yahoosearch.com www.ask.com