Description
Stock exchange is an organized market place where securities are traded. These securities are issued by the government, semi-government bodies, public sector undertakings and companies for borrowing funds and raising resources.
A STUDY ON
ONLINE TRADING SYSTEM
AT
Inter-Connected Stock Exchange Of India
Liited
!ro"ect re#ort $%&itted in
!artia' f%'(''ent for the a)ard of
MASTER O* +USINESS ADMINISTRATION
DECLARATION
I here &, dec'are that the #ro"ect tit'ed - On'ine
Trading S,$te- done at Inter-Connected Stock
Exchange of India Liited $%&itted &, e a$ #art
of #artia' f%'(''ent for the a)ard of the Ma$ter$ of
+%$ine$$ Adini$tration. at /////. ////
Uni0er$it,. /// i$ a record of &ona(de )ork done
&, e1
I a'$o dec'are that thi$ re#ort ha$ to , kno)'edge
i$ , o)n and i$ neither $%&itted to an, other
%ni0er$it, nor #%&'i$hed an, tie &efore1
////
ACKNOWLEDGEMENT
I )o%'d 'ike to ex#re$$ , gratit%de for a'' the
#eo#'e. )ho extended %nending $%##ort at a''
$tage$ of the #ro"ect1
Thi$ re#ort i$ a #rod%ct of not on', , $incere
e2ort$ &%t a'$o the g%idance and ora'e $%##ort
gi0en &, the anageent of Inter-Connected Stock
Exchange of India Ltd1. ////1
I ex#re$$ , $incere gratit%de to , g%ide ////.
Incharge Training. Inter-Connected Stock Exchange
of India Ltd1. //// for $#aring hi$ 0a'%a&'e tie in
gi0ing the 0a'%a&'e inforation and $%gge$tion$ a''
thro%gh. for the $%cce$$f%' co#'etion of the
#ro"ect1
I )i$h to ex#re$$ , $incere thank$ to ////.
Director 3 ////. G%ide and a'$o the anageent
and $ta2 of , co''ege for #ro0iding the g%idance
and $%##ort1
I )o%'d 'ike to ackno)'edge. , $incere thank$ to
a'' the exec%ti0e$ at Inter-Connected Stock
Exchange of India Ltd1. //// )ho ha0e extended
he'#ing hand in gi0ing the inforation and &eing a
#art of the $t%d,1
La$t &%t not 'ea$t. I ex#re$$ , $incere gratit%de
to a'' the e#'o,ee$ at Inter-Connected Stock
Exchange of India Ltd1. ////. )ho ha0e direct', or
indirect', contri&%ted to the $%cce$$f%' co#'etion
of the #ro"ect1
////
CONTENTS
INTRODUCTION OF STUDY
? A STUDY ON STOCK EXCHANGE
? HISTORY OF STOCK EXCHANGE
? SECURITIES EXCHANGE BOARD OF INDIA
? NATIONAL STOCK EXCHANGE
COMPANY PROFILE
? INTRODUCTION OF ISE
? OBJECTIVES OF ISE
? OBJECTIVES OF THE STUDY
? SALIENT FEATURES OF ISE
ONLINE TRADING SYSTEM
? TRADING PROCEDURE BEFORE ONLINE
? INTRODUCTION TO ONLINE TRADING
? OBJECTIVES OF ONLINE TRADING
? ADVANTAGES & DISADVANTAGES OF ONLINE
TRADING
CLEARING AND SETTLEMENT
MECHANISM
? TRADING CYCLE
? SETTLEMENT PROCESS
? TRADING SYSTEM IN ISE
? DEMATRALISATION
? NSDL
OBSERVATIONS
CONCLUSIONS
SUGGETIONS
BIBLIOGRAPHY
INTRODUCTION TO THE STUDY
Stock exchange is an organized market place where securities
are traded. These securities are issued by the government, semi-
government bodies, public sector undertakings and companies for
borrowing funds and raising resources. Securities are defined as any
monetary claims (promissory notes or .!."# and also include shares,
debentures, bonds and etc., if these securities are marketable as in the case
of the government stock, they are transferable by endorsement and alike
movable property. They are tradable on the stock exchange. So are the
case shares of companies.
"nder the Securities $ontract %egulation &ct of '()*, securities+
trading is regulated by the $entral ,overnment and such trading can take
place only in stock exchanges recognized by the government under this
&ct. &s referred to earlier there are at present -. such recognized stock
exchanges in ndia. !f these, ma/or stock exchanges, like 0ombay Stock
1xchange 2ational Stock 1xchange, nter-$onnected Stock 1xchange,
3olkata, 4elhi, $hennai, 5yderabad and 0angalore etc. are permanently
recognized while a few are temporarily recognized. The above act has also
laid down that trading in approved contract should be done through
registered members of the exchange. &s per the rules made under the
above act, trading in securities permitted to be traded would be in the
normal trading hours ('6 &.7 to ...6 8.7# on working days in the trading
ring, as specified for trading purpose. $ontracts approved to be traded are
the following9
&. Spot delivery deals are for deliveries of shares on the same day or
the next day as the payment is made.
0. 5and deliveries deals for delivering shares within a period of : to '; days
from the date of contract.
$. 4elivery through clearing for delivering shares with in a period of two
months from the date of the contract, which is now reduce to ') days.
(%educed to - days in demat trading#
4. Special 4elivery deals for delivering of shares for specified longer periods
as may be approved by the governing board of the stock exchange.
1xcept in those deals meant for delivery on spot basis, all
the rest are to be put through by the registered brokers of a stock
exchange. The securities contracts (%egulation# rules of '(): laid down
the condition for such trading, the trading hours, rules of trading,
settlement of disputes, etc. as between the members and of the members
with reference to their clients.
HISTORY OF STOCK EXCHANGES IN INDIA
The origin of the Stock 1xchanges in ndia can be traced back to the later
half of '(th century. &fter the &merican $ivil <ar ('=*6-*'# due to the
share mania of the public, the number of brokers dealing in shares
increased. The brokers organized an informal association in 7umbai
named >The 2ative Stock and Share 0rokers &ssociation in '=
?.later
evolved as 0ombay stock exchange.
ncreased activity in trade and commerce during the
@irst <orld <ar and Second <orld <ar resulted in an increase in the stock
trading. The ,rowth of Stock 1xchanges suffered a set after the end of
<orld <ar. <orld wide depression affected them most of the Stock
1xchanges in the early stages had a speculative nature of working without
technical strength. &fter independence, government took keen interest to
regulate the speculative nature of stock exchange working. n that
direction, securities and $ontract %egulation &ct '()* was passed, this
gave powers to $entral ,overnment to regulate the stock exchanges.
@urther to develop secondary markets in the country, stock exchanges
established at 7umbai, $hennai, 4elhi, 5yderabad, &hmedabad and
ndore. The 0angalore Stock 1xchange was recognized in '(*.. &t
present there are -. Stock 1xchanges.
Till recent past, floor trading took place in all Stock 1xchanges.
n the floor trading system, the trade takes place through open outcry
system during the official trading hours. Trading posts are assigned for
different securities where by and sell activities of securities took place.
This system needs a face A to A face contact among the traders and
restricts the trading volume. The speed of the new information reflected
on the prices was rather than the investors.
The Setting up of 2S1 and !T$1 (!ver the counter exchange
of ndia with the screen based trading facility resulted in more and more
Sock exchanges turning towards the computer based trading. 0S1
introduced the screen based trading system in '((), which known as
0!BT (0ombay on A line Trading System#.
7adras Stock 1xchange introduced &utomated 2etwork Trading
System (7&2T%&# on !ctober :, '((* &part from 0ombay Stock
1xchanges have introduced screen based trading.
FUNCTIONS OF STOCK EXCHANGE
Maintain Activ T!a"in#$ Shares are traded on the stock exchanges,
enabling the investors to buy and sell securities. The prices may vary
from transaction to transaction. & continuous trading increases the
liCuidity or marketability of the shares traded on the stock exchanges.
Fi%ati&n &' P!ic($ 8rice is determined by the transactions that flow from
investors demand and the supplier+s preferences. "sually the traded prices
are made known to the public. This helps the investors to make the better
decision.
En()!( (a' an" 'ai! "a*in#($ The rules, regulations and bylaws of
the Stock 1xchanges provide a measure of safety to the investors.
Transactions are conducted under competitive conditions enabling the
investors to get a fair deal.
Ai"( in 'inancin# t+ In")(t!,$ & continuous market for shares
provides a favorable climate for raising capital. The negotiability and
transferability of the securities, investors are willing to subscribe to the
initial public offering (8!#. This stimulates the capital formation.
Di((-inati&n &' In'&!-ati&n$ Stock 1xchanges provide information
through their various publications. They publish the share prices traded on
their basis along with the volume traded. 4irectory of $orporate
nformation is useful for the investor+s assessment regarding the corporate.
5andouts, handbooks and pamphlets provide information regarding the
functioning of the Stock 1xchanges.
P!'&!-anc In")c!$ The prices of stocks reflect the performance
of the traded companies. This makes the corporate more concerned with
its public image and tries to maintain good performance.
S*'.!#)*atin# &!#ani/ati&n$ The Stock 1xchanges monitor the integrity
of the members, brokers, listed companies and clients. $ontinuous
internal audit safeguards the investors against unfair trade practices. t
settles the disputes between member brokers, investors and brokers.
REGULATORY FRAME 0ORK
This Securities $ontract %egulation &ct, '()* and Securities and
1xchange board of ndia (S10'# &ct, '((-, provides a comprehensive
legal framework. & .-tier regulatory structure comprising the ministry of
finance, S10' and the ,overning 0oards of the Stock 1xchanges
regulates the functioning of Stock 1xchanges.
Mini(t!, &' 'inanc$ The Stock 1xchange division of the 7inistry of
@inance has powers related to the application of the provision of the S$%
&ct and licensing of dealers in the other area. &ccording to S10 &ct, The
7inistry of @inance has the appellate and the supervisory power over the
S10. t has powered to grant recognition to the Stock 1xchange and
regulation of their operations. 7inistry of @inance has the power to
approve the appointments of executives chiefs and the nominations of the
public representatives in the government 0oards of the Stock 1xchanges.
t has the responsibility of preventing undesirable speculation.
T+ Sc)!iti( an" E%c+an# B&a!" &' In"ia
The Securities and 1xchange 0oard of ndia even though
established in the year '(==. %eceived statutory powers only on .6th
Danuary '((-. "nder the S10 &ct, a wide variety of powers are vested in
the hands of S10. S10 has the powers to regulate the business of Stock
1xchanges, other security and mutual funds. %egistration and regulation of
market intermediaries are also carried out by S10. t has responsibility to
prohibit the fraudulent unfair trade practices and insider dealings.
Takeovers are also monitored by the S10 has the multi pronged duty to
promote the healthy growth of the capital market and protect the investors.
T+ G&v!nin# B&a!" &' (t&c1 %c+an#($ The ,overning 0oard of the
Stock 1xchange consists of elected members of directors, government
nominees and public representatives. %ules, by laws and regulations of the
Stock 1xchange substantial powers to the executive director for
maintaining efficient and smooth day-to day functioning of Stock
1xchange. The ,overning 0oard has the responsibility to maintain and
orderly and well-regulated market.
The ,overning body of the Stock 1xchange consists of '. members of
which
&. Six members of the Stock 1xchange are elected by the members of the
Stock 1xchange.
0. $entral ,overnment nominates not more than three members.
$. The board nominates three public representatives.
4. S10 nominates persona not exceeding three and
1. The Stock 1xchange appoints one 1xecutive 4irector.
!ne third of the elected members retire at annual general
meeting (&,7#. The retired member can offer himself for election if he is
not elected for two consecutive years. f a member serves in the governing
body for two years consecutively, he should refrain offering himself for
another two years.
The members of the governing body elect the president and
vice-president. t needs to approval from the $entral ,overnment or the
0oard. The office tenure for the president and vice-president is on year.
They can offer themselves for re-election, if they have not held for two
consecutive years. n that case they can offer themselves for re-election
after a gap of one-year period
NATIONAL STOCK EXCHANGE
The 2ational Stock 1xchange (2S1# of ndia became
operational in the capital market segment on third 2ovember '((; in
7umbai. The genesis of the 2S1 lies in the recommendations of the
pherwani committee ('(('#. &part from the 2S1. t had recommended for
the establishment of 2ational Stock market System also. The committee
pointed out some ma/or defects in the ndian stock market. The defects
specified are.
'. Back of liCuidity in most of the markets in terms of depth and
breadth.
-. Back of ability to develop markets for debt.
.. Back of infrastructure facilities and outdated trading system.
;. Back of transparency in the operations that affect investors+
confidence.
). !utdated settlement system that are inadeCuate to cater to the
growing volume, leading to delays.
*. Back of single market due to the inability of various stock
exchanges to function cohesively with legal structure and
regulatory framework.
These factors led to the establishment of the 2S1.
T+ -ain &23ctiv( &' NSE a! a( '&**&4(
'#. To establish a nation wide trading facility for eCuities, debt
and hybrid instruments
-#. To ensure eCual access investors all over the country through
appropriate communication network.
.#. To provide a fair, efficient and transparent securities market
to investors using an electronic communication network.
;#. To enable shorter settlement cycle and book entry settlement
system.
)#. To meet current international standards of securities market.
8romoters of 2S19 40, $$, @$, B$, ,$, S0, 0ank of
0aroda. $anara 0ank, $orporation 0ank, ndian 0ank, !riental 0ank
of $ommerce. "nion 0ank of ndia, 8un/ab 2ational 0ank,
nfrastructure Beasing and @inancial Services, Stock 5olding
$orporation of ndia and S01 capital market are the promoters of 2S1.
MEMBERSHIP$
7embership is based on factors such as capital adeCuacy,
corporate structure, track record, education, experience etc. &dmission
is a two-stage process with applicants reCuiring going through a written
examination followed by an interview. & committee consisting of
experienced people from the industry to assess the applicant+s
capability to operate as an exchange member, interviews candidates.
The exchange admits members separately to <holesale 4ebt 7arket
(<47# segment and the capital market segment. !nly corporate
members are admitted on the debt market segment whereas individuals
and firms are also eligible on the capital market segment. 1ligibility
criteria for trading membership on the segment of <47 are as
follows.
'#. The persons eligible to become trading members are bodies
corporate, companies institutions including subsidiaries of banks
engaged in financial services and such other persons or entities as may
be permitted form time to time by %0ES10.
-#.The whole-time directors should possess at least two years
experience in any activity related to banking or financial services or
treasury.
.#.The applicant must possess a minimum net worth of %s.-
crores.
;#.The applicant must be engaged solely ion the business of
securities and must not be engaged in any fund-based activities.
T+ *i#i2i*it, c!it!ia '&! t+ ca5ita* -a!1t (#-nt a!6
'#. ndividuals, registered firms, bodies corporate, companies and such
other persons may be permitted under S$%&, '():.
-#. &pplicant must be engaged in the business of securities and must
not be engaged in any fund-based activities.
.#. 7inimum net worth reCuirements prescribed are as followsF
a#. ndividual and registered firms A %s.'66 Bacs.
b#.$orporate bodies A %s. '66 Bacs.
.
;#. 7inimum prescribed Cualification of graduation and two years
experience of handling securities as broker, sub-broker, authorized
assistant, etc must be fulfilled by
a# 7inimum two directors in case the applicant is a corporate
b#. 7inimum two partners in case of partnership firms and
c#. ndividual, in case of individual or sole proprietary concerns.
The two experienced director in a corporate applicant or trading
member should hold minimum of )G of the capital of the company.
P!(nt T!a"in# Mc+ani(-
The 2ational system provides single, nation wide Securities. t
enables investors in one part of the country to trade at the best Cuotes with
an investors located in any other part of the country through the members
of the stock exchanges and subseCuently clears and settles the trade in an
efficient and cost effective manner.
The primary ob/ective of the stock market is to provide clear opportunity
to the investors throughout the country to trade any securities irrespective
of the size of the order or the broker through whom the order is routed.
This provides the facility to execute the buy out any extra cost to the
investors.
There will be no trading floor in the exchanges. nstead, each trading
member will have a computer at his own office any where in ndia which
will be connected to the central computer system at the 2S1 through
leased lines or HS&T+s (Hery Small &perture Terminal#, for an interim
transition period of six months and subseCuently by satellite link.
HS&T+s are relatively smaller dishes similar to dish antenna for cable T.H
and have the benefit of not being very expensive.
& satellite network makes it possible to connect almost all the parts of the
nation Cuickly as it is easy to install, as against the ground lines
Such as dial up modems leased lines which are prone to disruptions,
satellite links on other hands ensure high speed, availability and Cuality of
the connection. This code of trading is known as >!n-line Trading?.
INTRODUCTION
nter-connected stock exchange of ndia limited IS1J has been promoted
by '; %egional stock exchanges to provide cost-effective trading
linkageEconnectivity to all the members of the participating 1xchanges,
with the ob/ective of widening the market for the securities listed on these
1xchanges. S1 aims to address the needs of small companies and retail
investors with the guiding principle of optimizing the existing
infrastructure and harnessing the potential of regional markets, so as to
transform these into a liCuid and vibrant market through the use of state-
of-the-art technology and networking.
The participating 1xchanges of S1 in all about
66 stock
brokers, out of which more than -66 have been currently registered as
traders on S1. n order to leverage its infrastructure and to expand its
nationwide reach, S1 has also appointed around6 4ealers across :6
cities other than the participating 1xchange centers. These dealers are
administratively supported through the regional offices of S1 at 4elhi
InorthJ, kolkata IeastJ, $oimbatore, 5yderabad IsouthJ and 2agpur
IcentralJ, besides 7umbai.
S1 has also floated a wholly-owned subsidiary, S1 securities
and services limited ISSJ, which has taken up corporate membership of
the 2ational Stock 1xchange of ndia Btd. I2S1J in both the $apital
7arket and @utures and !ptions segments and The Stock 1xchange,
7umbai n the 1Cuities segment, so that the traders and dealers of S1 can
access other markets in addition to the S1 markets and their local market.
S1 thus provides the investors in smaller cities a one-stop solution for
cost-effective and efficient trading and settlement in securities.
<ith the ob/ective of broad basing the range of its services, S1
has started offering the full suite of 48 facilities to its Traders, 4ealers and
their clients.
OBJECTIVES$
'. $reate a single integrated national level solution with access to
multiple markets for providing high cost-effective service to
millions of investors across the country.
-. $reate a liCuid and vibrant national level market for all listed
companies in general and small capital companies in particular.
.. !ptimally utilize the existing infrastructure and other resources of
participating Stock 1xchanges, which are under-utilized now.
;. 8rovide a level playing field to small Traders and 4ealers by
offering an opportunity to participate in a national markets having
investment-oriented business.
). %educe transaction cost.
*. 8rovide clearing and settlement facilities to the Traders and 4ealers
across the $ountry at their doorstep in a decentralized mode.
:. Spread demat trading across the country
OBJECTIVES OF THE STUDY
The ob/ectives of the study are as follows9
? To know the on-line screen based trading system adopted by S1
and about its communication facilities for the appropriate
configuration to set network. This would link the S1 to individual
brokersEmembers.
? To study about the back up measures with respect to primary
communication facilities, in order to achieve network availability
and connectivity back-up options.
? Study about $learing K Settlements in the stock exchanges for easy
transfer and error prone system. &lso study about computerization
demand process.
? To know about the settlement procedure involved in S1 and also
2S4B operations.
? $learing K defining each and every term of the stock exchange
trading procedures.
SCOPE OF STUDY$
The scope of the pro/ect is to study and know about !nline
Trading and $learing K Settlements dealt in nter-$onnected Stock
1xchange.
0y studying the !nline Trading and $learing K Settlements, a
clear option of dealing in stock exchange has been
"nderstood. "nlike olden days the concept of trading manually is been
replaced for fast interaction of shares of shareholder. 0y this we can
access anywhere and know the present dealings in shares.
DATA COLLECTION METHODS
The data collection methods include both the primary and secondary
collection methods.
? 8rimary collection methods9 This method includes the data
collection from the personal discussion with the authorized clerks
and members of the exchange.
? Secondary collection methods9 The secondary collection methods
includes the lectures of the superintend of the department of market
operations and so on., also the data collected from the news,
magazines of the S1 and different books issues of this study
LIMITATIONS OF THE STUDY
The study confines to the past --. years and present system of the trading
procedure in the S1 and the study is confined to the coverage of all the
related issues in brief. The data is collected from the primary and
secondary sources and thus is sub/ect to slight variation than what the
study includes in reality.
5ence accuracy and correctness can be measured only to the extend of
what the sample group has furnished.
SAILENT FEATURES
Nt4&!1 &' int!-"ia!i($
&s at the beginning of the financial year -66.-6;, );=
intermediaries (-6: Traders and .;' 4ealers# are registered on S1. &
broad of members forms the bedrock for any 1xchange, and in this
respect, S1 has a large pool of registered intermediaries who can be
tapped for any new line of business.
R&2)(t O5!ati&na* S,(t-(9
The trading, settlement and funds transfer operations of S1 and
SS are completely automated and state-of-the-art systems have been
deployed. The communication network of S1, which has connectivity
with over ;66 trading members and is spread across;* cities, is also used
for supporting the operations of SS. The trading software and settlement
software, as well as the electronic funds transfer arrangement established
with 54@$ 0ank and $$ 0ank, gives S1 and SS the reCuired
operational efficiency and flexibility to not only handle the secondary
market functions effectively, but also by leveraging them for new
ventures.
S1i**" an" %5!inc" -an5&4!9
S1 and SS have experienced and professional staff, who have
wide experience in Stock 1xchangesE capital market institutions, with in
some cases, the experience going up to nearly twenty years in this
industry. The staff has the skill-set reCuired to perform a wide range of
functions, depending upon the reCuirements from time to time.
A##!((iv 5!icin# 5&*ic,
The philosophy of S1 is to have an aggressive pricing policy for
the various products and services offered by it. The aim is to penetrate the
retail market and strengthen the position, so that a wide variety of products
and services having appeal for the retail market can be offered using a
common distribution channel. The aggressive pricing policy also ensures
that the intermediaries have sufficient financial incentives for offering
these products and services to the end-clients.
T!a"in#7 Ri(1 Mana#-nt an" Stt*-nt S&'t4a! S,(t-(9
The !%0T (!nline %egional 0ourses nter-connected Trading#
and &LS (&utomated 1xchange ntegrated Settlement# software
developed on the 7icrosoft 2T platform, with consultancy assistance
from 7icrosoft, are the most contemporary of the trading and settlement
software introduced in the country. The applications have been built on a
technology platform, which offers low cost of ownership, facilitates
simple maintenance and supports easy up gradation and enhancement. The
soft wares are so designed that the transaction processing capacity
depends on the hardware usedF capacity can be added by /ust adding
inexpensive hardware, without any additional software work.
Vi2!ant S)2(i"ia!, O5!ati&n(9
SS, the wholly owned subsidiary of S1, is one of the biggest
1xchange subsidiaries in the country. !n any given day, more than -)6
registered intermediaries of SS traded from ;* cities across the length and
breadth of the country.
'. 8rof. 8. H. 2arasimham 8ublic nterest 4irector
-. Shri H. Shankar 7anaging 4irector
.. 4r. S. 4. srani 8ublic nterest 4irector
;. 4r. 7. M. 3han 8ublic nterest 4irector
). 7r. 8. D. 7athew Shareholder 4irector
*. 7. $. %odrigues Shareholder 4irector
:. 7r. 7. 3. &nanda 3umar Shareholder 4irector
=. 7r. T.2.T 2ayar Shareholder 4irector
(. 7r. 3. 4. ,upta Shareholder 4irector
'6. 7r. H. %. 0haskar %eddy Shareholder 4irector
''. 7r. Dambu 3umar Dain Trading 7ember 4irector
TRADING PROCEDURE BEFORE ON.LINE
THE TRADING RING$
Trading on stock exchanges is officially done in the ring for a few
hours from ''.66 &.7 to -..68.7. Trading before or after official hour is
called 31%0 T%&42,. n the trading ring space is provided for
specified and non-specified sections. The members of their authorized
assistants have to wear a badge or carry with them identify cards given by
the exchange to enter the trading ring. They carry a Sauda book or
confirmation memos duly authorized by exchange. The stock exchanges
operations at floor level are highly technical in nature. 2on-members are
not permitted to enter into stock market. 5ence, various stages have to be
completed in executing a transaction at a stock exchange. The steps
involved in the methods of trading have been given below9
A8CHOICE OF BROKER$
The prospective investor who wants to buy shares or the investor who
wants to sell his shares cannot enter into hall of the exchange and transact
business. They have to act through only member brokers. They can also
appoint their bankers for this purpose. Since, bankers can become
members of stock exchange as per the present regulations.
So, the first task in transacting business on stock exchanges is to choose a
broker of repute or banker. Such people+s can ensure prompt and Cuick
execution of a transaction at the possible price.
&t present there are66 authorized brokers in S1.
INTRODUCTION TO ONLINE TRADING
,one are the days of trading on the floor. Technology has
changed the landscape of the stock markets. The look of the stock
exchanges has undergone metamorphic changes in the recent years. 8rior
to online trading, regional stock exchange was playing a very important
role in capital markets, as they were local investors. %egional S1, which
was unable to interact with other S1s started developing this own screen
based trading and connecting to other scrip+s which were not available
with them. This also helped in accessing the Cuotes and other market
information from other stock exchange which proved vital in the
functioning of the system as a whole.
The trading network is depicted in given below 2S1 has main
computer which is connected through Hery Small &perture Terminal
(HS&T# installed at its office. The main computer runs on a fault tolerant
ST%&T"S mainframe computer at the 1xchange. 0rokers have terminals
(identified as the 8$s in the given picture# installed at their premises
which are connected through HS&TsE leased linesEmodems. &n investor
informs a broker to place an order on his behalf. The broker enters the
order through his 8$, which runs under <indows 2T and sends signal to
the satellite via HS&TEleased lineEmodem. The signal is directed to
mainframe computer at 2S1 via HS&T at 2S1+s office. & message
relating to the order activity is broadcast to the respective member. The
order confirmation message is immediately displayed on the 8$ of the
broker. This order matches with the existing passive order(S# otherwise it
waits for the active orders to enter the system. !n order matching, a
message is broadcast to the respective member.
TRADING NET0ORK
5"0
ANTENNA SATELITE
2S1 7&2@%&71 BROKERS PREMISES
CORPORATE HIERARCHY
The Trading member has the facility of defining a hierarchy amongst its
users of the 21&T system. The hierarchy comprises9
The users of the trading system can logon as either of the user
type. The significance of each type is explained below9
A8 C&!5&!at Mana#!$ The corporate manager is a term assigned to a
user placed at the highest level in a trading firm. The facility to set 0ranch
order value limits and user order value limits is available to the corporate
manager.
B8 B!anc+ Mana#!9 The branch manager is term assigned to a user who
is placed under the corporate manager. The branch manager can set user
order value limits for each of his branch.
B8 Da*!$ 4ealers are users at the lower most level of the hierarchy. &
dealer can view and perform order and related activities only for oneself.
$orporate 7anager
4ealer '' 4ealer '-
0ranch '
4ealer '
0ranch -
4ealer -
OBJECTIVES OF ON.LINE TRADING$
? %educe and eliminate operational inefficiencies inherent in manual
system.
? ncreased trading capacity in stock exchanges.
? mprove market transparency, eliminate unmatched trades and
delayed reporting.
? 8rovides for online and offline monitoring, control and surveillance
of the markets.
? 8romote fairness and speedy matching.
? 1nsure smooth market operations using technology while retaining
the flexibility of conventional trading practices.
? Setup various limits rules and controls centrally.
? 8rovide brokers with their data on electronic media interface with
the brokers back office system.
? 8rovide public information on scrip prices, indices for all users of
the system.
? 8rovide analytical data for use of stock exchange in analysis and
reporting
? To face stiff competition from other stock exchange.
? $onsolidate trader+s data and interface with clearing and settlement.
PLACEMENT OF ORDER$
The next step in planning of order for the purchase or sale of
Securities with the broker. The order is usually by telegram, telephone,
letter, fax etc., or in person. To avoid delay it is placed generally over the
phone. The orders may take any one of the forms such as at best order,
limit order, immediate or cancel order, discretionary order, limited
discretionary order, open order and stop loss order.
ENTRY OF ORDER INTO THE BOOKS$
&fter receiving the order, the member enters them in his books
and the purchase and sale orders are distributed among his assistants to
handle them separately in non-specified and odd-lots.
EXECUTION OF ORDER$
0ig brokers transact their business through their authorized
clerk. Small ones out their business personally. !rders are executed in the
trading ring of the S1. This works from '-966 noon to -966 p.m
discretionary order on all working days from 7onday to @riday and a
special hour session on Saturday.
The floor of the stock exchange is divided into number of
markets (pits# according to the nature of security deal in. The authorized
clerkEbroker goes to the pit and /obbers offer two way Cuotes for the scrips
they deal in. they act as market makers and provide liCuidity to the market.
The system has been designed to get the bet lids and offers from the
/obber+s book as well as the best buy and sell orders from the book. f the
Cuotation is not acceptable to the brokers, he may make a counter bidEoffer
"ltimately the bargains may be closed at a price mutually
acceptable to both the parties. n case the Cuotation is not acceptable to
him, the broker may go to another dealer and make a bargain. &ll bargains
on the stock exchanges are settled by word of mouth and there is no
written contract signed immediately by the parties concerned. !nce the
transaction is finalized, the deals are recorded in a $haupri %ough
notebook or transaction note or confirmation memos. Soudha block books
or confirmation memos are provided by the stock exchange. The details
are recorded in these books also. The prices at which different scrips are
traded on a particular day published on the next day in the newspapers. &n
authorized representative of the stock exchange is also present in the hall
to supervise the trading.
PREPARATION OF CONTRACT NOTES$
"sually, the authorized clerks enter the particulars of the
business transacted during a particular day in N3acha Sauda 0ook+ they
are transferred to N8ucca Sauda 0ook+, which are maintained separately
for the ready delivery contracts. Then the brokerEauthorized clerk prepares
a contract note. & contract note is a written agreement between the broker
and his client for the transaction executed. t contains the details of the
contract made for the purchaseEsale of Securities, the brokerage
chargeable, name of the company, number of shares boughtEsold, net rate,
etc., it is prepared in a prescribed from and a copy of it is also sent to the
client.
? PLACING ORDER 0ITH THE BROKER$
The next step is placing an order for the purchaseEsale of securities
with the broker. The order is usually placed over telephone, fax. t can also
take the form of telegram or letter or in person. The order placed may be
any of the following varieties (largely classified on the basis of price limits
that it imposes.#.
? AT BEST ORDER 9OR: BEST RATE ORDER$
>0uy '666 LMO ltd.?, it does not specify any price. t means buy LMO
Btd. Securities at the prevailing market price. These are executed very fast
as there is no price limits.
? LIMIT ORDER$
>0uy '66 LMO Btd. &t %s '66?, it is an order for the purchase of shares at
a specified price by the client. (%s '66#
? LIMITED DISCRETIONARY ORDER$
>0uy '666 LMO Btd., around %s.'66?. t gives discretion to the broker.
The price can be a little above %s '66. 5ow much discretion is implied
depends on how the broker and client define around.
? OPEN ORDER$
t is an order to buy or sell without fixing any time or price limit on the
execution of the order.
? STOP LOSS ORDER$
>0uy '66 LMO Btd. P %s '- to stop %s '6?. t means buy '66 LMO Btd
securities at the market rate of %s. '- but if on the same day the price falls
to %s. '6 immediately sell of the securities Eshares. Thus an attempt is
made to limit the loss of sudden unfavorable shift in the market.
? NET RATE ORDER$
>0uy '666 LMO Btd. P%s..6 net >would mean that the client is willing to
buy '666 LMO Btd. @or no more than %s..6 per security inclusive of
brokerage payable to the broker. 2et rate is purchase or sale rate minus
brokerage.
? MARKET RATE ORDER$
7arket rate is net rate plus brokerage for purchase and net minus
brokerage for sale. So, >0uy '666 LMO Btd. P%s..6 market? would mean
that the client is willing to pay %s..6 plus brokerage for each security of
LMO Btd.
CLEARING HOUSE
The exchange has a clearing house as a part of its 7arket
!perations 4epartment to collect the securities from all members and
distribute to each member, all the securities that are due to him in respect
of every settlement. The whole of the operations of the clearing house are
computerized. $5 is like are bank where all the members of S1 maintain
their accounts. $5 acts as a member between the buyer and seller. t gets a
record of all the transactions (buying and selling# done by a particular
week and process these transactions and directs the members to deliver the
shares or make payment on the pay-in day.
!n the payout day, the $5 gives the delivery and the payment to
the members according to their respective positions. There are ) counters
in the S1s, $5 where bad deliveries, auction, odd-lot shares transaction,
spot transaction etc.., are dealt in respect of all the transactions done from
7onday to @riday all the shares will have to be delivered through the S1s
$5 as per the settlement program field, which is generally, a Saturday on
next.
NORMAL TRANSACTION$
n case of regular transaction, shares are deposited in clearing
house on Tuesday and <ednesday. 8ayout will be on Thursday. 4eliveries
will also be on Thursday.
STOCK MARKET TRADING ON INTERNET
The ma/or events that will take place in the ndian $apital 7arket
are introduction of index-based futures trading on internet. Trading on
internet means that the investor+s will actually buy and sell the stocks on-
line through the net. & committee was setup by S10 to develop
regulatory parameters for use internet trading. S10 approved the report
on the committee. S10 decided that internet trading could take place in
ndia within the existing legal framework through use of order routing
system, which will route order from client to brokers,. @or trade execution
on registered stock exchanges. The broad also took note of the
recommended minimum technical standards for ensuring safety and
security of transaction between clients and brokers, which will be forced
by the respective stock exchanges.
ADVANTAGES OF INTERNET TRADING
? t will help in reducing transaction costs particularly for overseas
and remote located investors.
? t will provide real time Cuotes and on-line trading facility at a
much cheaper cost.
? @acility of transaction business from the terminal of the investors
and will help him making rational /udgment or decisions.
? t will bring down the brokerages fees and increases the trading
volumes.
? Quick response in transaction i.e. giving the order verification and
acknowledgement.
? t allows transparent companies of services and easy price
discovery.
? t is easy enough to set up either as individual account for margins
trading or settle transactions by credit card.
? t is easy for brokers to monitor and maintain online accounts and
the possibility of miss-trading is less.
? Surveillance is easy as there is very less scope for speculation
? The investor is provided with best offer
? Trading procedure is easy and fully automated.
Ea(i! t!an(acti&n 5!&c((in#.
8rofit in time9 nvestor can make profits by selling shares when the going
is good. They do not have to instruct their brokers on the cut off price to
sell shares.
1ase and transparency9 Since the broking, bank and demat account are all
electronically connected, all transaction get updated, demat account shows
the latest stockholding statement while the bank account shows the
balance amount after buying or selling of shares.
8recaution9 $heck for hidden costs of broker+s age. 0eware of net
seamstress. 2ever double click the mouse during execution of trade avoids
cyber cafes and change password regularly.
Bess fees9 shares traded online reCuire no human intervention to match
buys and sells. This means that commission costs are cut dramatically for
the freCuent investor.
PROBLEMS OF ONLINE TRADING
? &ll the stock exchanges in ndia were mechanized in the year
'((; 2ovember. That was the year when the stock exchanges
introduced screen based trading across the country.
? <hile on line trading gives you speed and price advantage, there
is some risk and disadvantage to entering orders on-line. The
page alerts you to any pitfalls you should watch out for if you
want to use the internet to trade stocks.
? f you do commit to trading online, you must be careful when
you enter stock orders. t is easy to make mistakes, but the
market and your brokers may not be sympathetic. !nce an order
is submitted, there may be nothing you can do to take it back if
you made a mistake. The various types of orders you enter can be
confusing.
? ndividuals are restricted to first hand financial guidance. This
simply means that the individual is himselfEherself alone to make
the decisions.
? Tax (sales tax and value added tax# evaluation becomes an issue,
especially when you are trading internationally.
? $hanges are that one has no idea who is dealing with on the other
end, so it is advisable to gather all the possible information about
the party one is dealing with. n short are full knowledge is to be
known.
? !nline trading as left individual open to too much information.
This is harmful since it leaves brokerages wide open to sensitive
data.
<hen network crashes there will be problems and delays due to a
large influx of traffic and rapid online trading criteria. @or instance on -:
th
!ct '( there was a one day crash, which caused online trading on the
2ew Mork Stock 1xchange to stop and brokers were unable to conduct
business.
f you are going to trade online, you were obviously the one
making all the trading choices. To make your trading decisions, you need
to research your stocks and constantly pay attention to market news. This
will reCuire some time, as you pursue your sources of market information
and use online tools
CLEARING & SETTLEMENT TRADING MECHANISM
The clearing and settlement mechanism in ndia securities market has
witnessed several innovations during the last decade. These include use of
the state-of-art information technology, compression of settlement cycle,
dematerialization and electronic transfer of securities, securities lending
and borrowing, professionalisation of trading members, fine-tuned risk
management system, emergence of clearing corporation to assume
counterparty risk etc., though many these are yet to permeate the whole
market.
Till recently, the stock exchanges in ndia were following a system of
account period settlement for cash market transactions, expert for
transaction in a few active securities, which were settled under tR. rolling
settlement. The rolling settlement has been introduced for all securities.
<ith effect from &pril ', -66. TR- rolling settlement has been introduced.
The stock exchanges were also offering deferral products to provide
leverage to members to postpone their settlement obligations. The
transactions are not settled immediately but after - days after the trade
day. The members receive the fundsEsecurities in accordance with the pay-
inEpay-out schedules notified by the respective exchanges. ,iven the
growing volume of trades and market volatility, the time gap between
trading and settlement gives rise to settlement risk. n recognition of this,
the exchanges and their clearing corporation employ risk management
practices to ensure timely settlement of trades. The regulators have also
prescribed elaborate margining and capital adeCuacy standards to secure
market integrity and protect the interests of investors. The exchanges not
providing counter-party guarantee have been advised by S10 to set up
trade guarantee funds, which would honour pay-in liabilities in the event
of default by a member. n pursuance to this, '* out of -. exchanges have
set up tradeEsettlement guarantee funds. The trades are settled irrespective
of default by a member and the exchange follows up the defaulting
member subseCuently for recovery of his dues to the exchange. The
market has full confidence that settlements will take place in time and will
be completed irrespective of possible default by isolated trading members.
7ovement of securities has become almost instantaneous in the
dematerialized environment. Two depositories viz., 2ational Securities
4epositories Btd. (2S4B# and $entral 4epositories Services Btd. ($4SB#
provide electronic transfer securities and more then ((G of turnover is
settled in dematerialized form. &ll actively traded scrip+s are held, traded
and settled in demat form. The obligations of members are downloaded to
membersEcustodians by the clearing agency. The membersEcustodians
make available the reCuired securities in their pool accounts with
4epository 8articipants (48s# by the prescribed pay-in time for securities.
The depository transfers the securities from the pool accounts of
membersEcustodians to the settlement account of the clearing agency. &s
per the schedule determined by the depository from the settlement account
of the clearing agency to the pool accounts of membersEcustodians. The
pay-in and pay-out of securities is affected on the same day for all
settlements.
TRANSACTION CYCLE
& person holding assets (securitiesEfunds#, either to meet his liCuidity
needs or to reshuffle his holdings in response to changes in his perception
about risk and return of the assets, decides to buy or sell the securities. 5e
finds out the right broker and instructs him to place buyEsell order on an
exchange. The order is converted to a trade as soon as it finds a matching
sellEbuy order. The trades are cleared to determine the obligations of
counterparties to deliver securitiesEfunds as per settlement schedule.
0uyerEseller delivers fundsEsecurities and receives securitiesEfunds and
acCuires ownership over them. & securities transaction cycle is presented
given below.
T!an(acti&n c,c*
Stt*-nt( 5!&c((
<hile 2S1 provides a platform for trading to its trading
members, the 2ational Securities $learing $orporation Btd. (2S$$B#
determines the fundsEsecurities obligations of the trading members and
ensures that trading members meet their obligations. The clearing banks
and depositories provide the necessary interface between the
custodiansEclearing members (who clear for the trading members or their
own transactions# for settlement of fundsEsecurities obligations of trading
members. The core functions involved in the process are9
a# T!a" Rc&!"in#9 The key details about the trades are recorded to
provide basis for settlement. These details are automatically recorded in
the electronic trading system of the exchanges.
8lacing
order
Settlement
of Trades
Trade
1xecution
$learing of
Trades
4ecision to
Trade
@undsE
Securities
Transaction cycle
b# T!a" C&n'i!-ati&n$ The counterparties to trade agree upon the
terms of trade like security, price, and settlement date, but not the
counterparty which is the 2S$$B. The electronic system automatically
generates confirmation by direct participants. The ultimate buyersEsellers
of securities also affirm the terms, as the funds-securities would flow from
them, although the direct participants are responsible for settlement of
trade.
c# Dt!-inati&n &' &2*i#ati&n9 The next step is determination of what
counter-parties owe, and what counter-parties are due to receive on the
settlement date. The 2S$$B interposes itself as a central counterparty
between the counterparties to trades and nets the positions so that a
member has security wise net obligation to receive or deliver a security
and has to either pay or receive funds.
d# Pa,.in &! ')n"( an" Sc)!iti(9 The members bring in their funds-
securities to the 2S$$B. They make available reCuired prescribed pay-in
time. The depositories move the securities available in the accounts of
members to the account of the 2S$$B. Bikewise members with funds
obligations make available reCuired funds in the designated accounts with
clearing banks by the prescribed pay-in time. The $$ sends electronic
instructions to the clearing banks to debit member+s accounts to the extent
of payment obligations. The banks process these instructions, debit
accounts or members and credit accounts of the 2S$$B.
e# Pa,.&)t &' F)n"( an" Sc)!iti(9 &fter processing for shortages of
fundsEsecurities and arranging for movement of funds from surplus banks
to deficit banks through %0 clearing, the 2S$$B sends electronic
instructions to the depositoriesEclearing banks to release pay-out of
securitiesEfunds. The depositories and clearing banks debit accounts or the
2S$$B and credit accounts or members. Settlement is complete upon
release of pay-out of funds and securities to custodiansEmembers. The
settlement process for transactions in securities in the $7 segment of 2S1
is presented in the @igure ....
f# Ri(1 Mana#-nt$ & sound risk management system is integral to
an efficient settlement system. The 2S$$B ensures that trading members+
obligations are commensurate with their net worth. t has put in place a
comprehensive risk management system, which is constantly monitored
and upgraded to pre-empt market failures. t monitors the track record and
performance of members and their net worthF undertakes on-line
monitoring of members+ positions and exposure in the market collects
margins from members and automatically disables members if the limits
are breached.
SETTLEMENT PROCESS IN CM SEGMENT OF NSE
'
NSE
= (
* :
- .
) ;
'6 ''
E%5*anati&n($
('# Trade details from 1xchange to 2S$$B (real-time and end of day
trade file#.
(-# 2S$$B notifies the consummated trade details to $7sEcustodians
who affirm back. 0ased on the affirmation, 2S$$B applies multilateral
netting and determines obligations.
(.# 4ownload of obligation and pay-in advice of fundsEsecurities
(;# nstructions to clearing banks to make funds available by pay-in time.
()# nstructions to depositories to make securities available by pay-in-
time.
(*# 8ay-in of securities (2S$$B advises depository to debit pool account
of custodians. 7s and credit its account and depository does it#.
CUSTODIAN(;CM(
DEPOSITORIES
CLEARING
BANKS
2S$$B
# 8ay-in of funds (2S$$B advises $learing 0anks to debit account of
custodiansE$7s and credit its account and clearing bank does it#.
(=# 8ay-out of securities (2S$$B advises depository to credit pool
account of custodiansE$7s and debit its account and depository does it#.
((# 8ay-out of funds (2S$$B advises clearing 0anks to credit account of
custodiansE$7s and debit its account and clearing bank does it#.
('6# 4epository informs custodiansE$7s through 48s.
(''# $learing 0anks inform custodiansE$7s.
T!a"in# S,(t- in ISE
Transactions for the S1 segment are routed from the Trader
<ork Stations (T<S# to the central trading computer installed at
S1Ss office in Hashi, 2avi 7umbai. The T<Ss are connected to the
central trading computer of S1 through leased lines, S42 lines,
H82 connectivity and HS&T network. The technology infrastructure
optimizes and shares the system resources for access to S1 and
2S1 segments.
&s far as access to the 2S1 segment is concerned, all orders
are routed to 2S1 through the central order routing system installed
at Hashi. This computer is connected to the 2S1 trading system
through a -mbps leased line acting as the primary link between S1
and 2S1 and it also has a HS&T link as a backup. <ithin the
8articipating Stock 1xchange premises, the T<Ss reCuired for S1
and 2S1 segments are connected on B&2 segments to the HS&T
infrastructure already established
CLEARING AND SETTLEMENT
n tune with the S10 decision, S1 has implemented TR-
settlement cycle from &pril ', -66.. The total delivery-inEdelivery-
out and pay-inEpay-out of Traders and 4ealers are computed on a
netted basis. &fter netting, the net position for each centre is
computed. f there is a settlement position at a centre, then funds or
securities are moved in and out from one centre to another, as the
case may be, so as to fulfill the total pay-in or pay-out position of
funds and securities. The movement of funds is through 54@$ 0ank
and $$ 0ank. The settlement of securities takes place only in a
dematerialized mode using both the depositories in ndia, i.e.
2ational Securities 4epository Bimited (2S4B# and the $entral
4epository Services(ndia#Bimited($4SB#.8ay-in of funds is done
by way of direct debits to the settlement accounts maintained by the
Traders and 4ealers with 54@$ 0ank and $$ 0ank. n the case
of margins, debits are affected on TR' by electronically debiting the
settlement accounts of Traders and 4ealers. Similarly, pay-out of
funds is affected by the 1xchange through direct credits to the
settlement accounts of the Traders and 4ealers.
n the case of operations on SS, the trading intermediaries
(Sub-brokers of SS# are reCuired to maintain separate settlement
accounts for the $apital 7arket segment and @utures K !ptions
segment of 2S1 with any one of the designated $learing 0anks
(54@$ 0ank and $$ 0ank at present#. Similarly, another
settlement account will be reCuired for the 1Cuities segment of 0S1,
when introduced. 7argin collection and refund are through direct
debits and credits by SS to the settlement accounts of the trading
intermediaries. @unds pay-in and pay-out likewise, are handled
through the electronic funds transfer system. n the @utures K
!ptions segment, end clients are reCuired to maintain such accounts
with the $learing 0anks and all debits and credits are effected by
SS to these accounts.
&s far as securities is concerned a client of a trading member
having a net delivery position, can transfer securities from his demat
account either directly to the pool account of SS or route them
through the account of the trading member. 8ay-out of securities is
always effected by SS into the account of the concerned trading
members, who are then obligated to deliver the same to their clients.
INVESTOR PROTECTION
&ll settlement liabilities amongst Traders and 4ealers of S1 are
guaranteed by the 1xchange+s Settlement ,uarantee fund. n addition,
investors are protected against non-fulfillment of commitments by
TradersE4ealers through the nvestor 8rotection @und.
%egion wise 4istribution of Traders and 4ealers
(&s on Danuary ', -66)#
%egion States $overed
%egistered
4ealers
%egistered
Traders
Total
<est ,oa, ,u/arat, 7aharashtra '(; .;(
2orth
5aryana, Dammu K 3ashmir,
4elhi, 8un/ab, %a/asthan,
"ttaranchal, "ttar 8radesh
:' ') =*
1ast
&ssam, 0ihar, Dharkhand,
!rissa, <est 0engal
:: :; ')'
South
&ndhra 8radesh, 3erala,
3arnataka, Tamil 2adu
'' ''( '.6
$entral $hattisgarh, 7adhya 8radesh ( '; -.
T!T&B .*- -*: *-(
DEMATERIALI<ATION
4ematerialization is a process by which physical shares of
investors are converted to an eCuivalent number of Securities in electronic
form and credited in the investor+s account with his 4epository
8articipant.
4ematerialized trading is now compulsory for all investors.
0eginning of first week of Danuary '(((, investor can trade in specific
scripts in the 4emoralization form. They can provide and receive delivery
only in a 4ematerialized form and share certificate will not be changed for
these scripts.
& depository is an organization where Securities of shareholder
are held in the electronic form at the reCuest of the shareholder through
4epository 8articipant (48s#. The system is comparable to that in a bank.
f an investor wants services offered by a depository, he would have to
open an account with it through a 48- similar to opening an account with
any other branches of the bank in order to avail of its services.
4ematerialization is a process by which physical certificates
of an investor are taken back by the companyEregistrar and actually
destroyed and an eCuivalent number of Securities are credited in the
depository account of those investors. & 4epository 8articipant is
investor+s agent in the system. 5e maintains investor+s Securities account
and intimates the status of holdings from time to time to the investor.
Ba(ic T!-in&*&#i( &n D-at Stt*-nt
%efers to the process whereby all those who have
made purchases make a payment and all those who have made sales
deliver shares. The exchanges ensure that the buyers who have paid
for the shares purchased by them receive the shares. Similarly sellers
who have given delivery of shares to the exchange receive payment
for the same.
SETTLEMENT CYCLES9 Settlement $ycle refers to a calendar
according to which all purchase and sale transactions done within
the dates of the settlement cycle are settled on a net basis. 2S1 and
0S1 currently follow daily settlement cycles.
n a rolling settlement, each trading day is considered as a
trading period and trades executed during the day are settled based
on the net obligations for the day. &t 2S1 and 0S1, trades in rolling
settlement are settled on a TR- basis i.e. on the -
nd
working day. @or
arriving at the settlement day all intervening holidays, which include
bank holidays, 2S1E0S1 holidays, Saturdays and Sundays are
executed. Typically trades taking place on 7onday are settled on
<ednesday, Tuesday+s trades settled on Thursday and so on.
8&M 2 K 8&M !"T9 8ay n refers to your obligations towards the
exchanges and 8ay !ut refers to exchange obligation towards you. &ll 8ay
ns and 8ay !uts take place on a >TR-? days basis, where >T? is the
trading day and plus two more trading days. So if you buy some shares on
7onday, you would have to pay money which is a 8ay n and you would
receive shares, which is a 8ay !ut. 0oth of these would take place ion
<ednesday.
B7T !%41% 9 Bimit !rders allow you to place a buyEsell order at a
price defined by you. The execution can happen at a price more favorable
than the price that has been defined by you. Mou can place limit orders
during holidays K non-market hours too.
7arket !rders9 7arket !rders can be placed only during market hours
(i.e. when the exchanges is open for trading#. 7arket !rders have different
interpretations for both 2S1 and 0S1.
SQ"&%1 !@@ $ SCuare !ff means buying and selling, selling and buying
on the same day. @or example, if you have bought '66 T shares of
2@T1$ today morning and later on at the end of the day, if you sell
2@T1$, '66 shares, it /ust means that you have sCuared off your order.
=8 OPENING CLEARING ACCOUNTS FOR SETTLEMENT OF
TRADES$
&ll the trades executed at the exchanges are settled by the
clearing member ($7#, as in the case of Securities in the physical form.
To settle trades in 4emat segment each $7 should open one clearing
account with any of the 48.
The procedure for opening clearing accounts is9
? &pproach a 48.
? @ill up an account opening form.
? Sign on an agreement with the 48.
? &pplication is forwarded to 2S4B by 48.
? 2S4B allots a number identified as $7-08-4.
? 48 opens account and an account number is providing along with
$7-08-4 to the clearing member.
The clearing account consists of three parts9
? 8ool account
? 4elivery account
? %eceipt account
'. 8!!B &$$!"2T9
t has two roles to play in clearing of securities,
? 0efore pay in the selling client of the $7 transfers Securities from
his client account to the $7 pool account.
? The $7 transfers the Securities from his pool account to the account
of the buying client.
$B1&%2,
&$$!"2T
41BH1%M
&$$!"2T
8!!B &$$!"2T %1$18T
&$$!"2T
S1BB2,
$B12T
0"M2,
$B12T
-. 41BH1%M &$$!"2T9
The $7 transfers the Securities in, from the pool account to the
delivery account before pay in, at the time of pay- in 2S4B flushes out the
securities in the delivery account and transfers the same to the $$E$5.
.. %1$18T &$$!"2T9
!n pay Aout day, the $$E$5 transfers Securities to the pool account
through the account.
$7 has to ensure that before book closure or record date of any
company the Securities are moved from $7 pool account to a beneficiary
account as holding in pool account for longer period is not allowed.
>8 SETTLEMENT$
n the depository system, any trade that is cleared and settled
through the clearing corporation ($$E$5# is called market trade.
8rocedure for pay-in of securities
? ,ive %eceipt instruction to the 48 for transfer of Securities from
client account to the pool account or give a standing instruction for the
same.
? 4elivery to $$E$5 instruction for the transfer of Securities from pool
and account to delivery account for pay-in.
$B1&%2, 41BH1%M
&$$!"2T
8!!B
&$$!"2T
0oth pay-in and pay-out happens to be on )thworking day after
the trading and the instruction to transfer the Securities from the pool
account to delivery account must be given before pay-in such that this
transfer is affected before pay-in. the transfer instruction is taken as an
authority to transfer the security irrespective of when the client gives the
delivery instruction, the Securities will be parked in the delivery account
till final pay-in and the facility of multiple instructions from the pool
account is also provided to the investors.
n case of excess transfer of shares to the delivery account or
excess delivery to $$E$5 the instruction slip can be cancelled and
issued new one or the $$E$5 will return the Securities at the time of pay-
out respectively.
8rocedure for pay-out of securities
? Transfer of Securities from $$E$5 to pool account through receipt in
account on pay-out.
? 4elivery instruction to transfer from pool account to client on pay-
out.
!n the delivery of the instruction from the client+s name, client+s
48, 4 and 48 name of the client must be mentioned and ensure that
receipt instruction given by client to receive the Securities bears the same
execution date as given in the delivery instruction. 5owever, the broker
$B1&%2, %1$18T 8!!B
can hold the Securities in the pool account until the client meets his
obligations but before the closure of books, the balances must be
transferred as the balances in the pool account, which are not entitled for
any corporate benefits.
FLO0 CHART TO EFFECT CLEARING AND SETTLEMENT OF
MARKET TRADES
Send receipt instruction for
transfer from client account
to pool account
,ive delivery instruction to
your 48 for transfer from
pool account to $$
!n payout you will receive
securities from $$ to your
pool aEc automatically
,ive delivery instruction
for transfer of securities
from pool aEc to client aEcs
&ny time before or
after pay-out
&ny time before
pay-in
Int!.D5&(it&!, T!an('!(
& transfer of securities from an account in one depository to an
account in another depository is termed as an inter-depository transfer.
This facility is Cuite similar to the account transfers within 2S4B.
t can be done only for Securities that are available for
4ematerialization on both the depositories. The account in 2S4B can be
either a clearing account or a beneficiary account. @or debiting the
clearing account or the beneficial account with 2S4B, the form for >inter-
depository delivery instruction? is reCuired to be submitted by the clearing
memberEbeneficial owner to its 48.
@or crediting the clearing account or the beneficial account,
the standard instruction given for automatically crediting the account is
applicable. n case the standard instructions are not given, then the form
for >inter-depository receipt instruction? is reCuired to be submitted by the
clearing memberEbeneficial owner to its 48.
&s both the depositories are connected to each other, the
batches to effect inter-depository transfers are presently exchanged twice
on the working day.
The issuerEregistrar and transfer agent is informed about
the transfer by both the depositories and it amends its records accordingly.
,overnment Securities cannot be transferred from one depository to
another using this facility.
NATIONAL SECURITIES DEPOSITORY LIMITED
2S4B was inaugurated in '((*, as the depository in the country to
avoid the myriad problems in settlement.
n depository system, Securities are held in securities (depository#
accounts, which is more or less similar to holding funds in the bank
accounts. Transfer of ownership is done through simple account transfer.
This method does away with all the risks and hassles normally associated
with paper work. $onseCuently, the cost of transaction in depository
environment is considerably lower as compared to transaction in physical
certificates.
Trading in dematerialized Securities is Cuite similar to trading in
physical Securities. The ma/or difference is that at the time of settlement,
instead of deliveryEreceipt of Securities in the physical form, the same is
affected through account transfer. $urrently dematerializes trading is
available at 2S1, 0S1 and $S1.
1xclusive 4emat segment follows rolling settlement (TR-# cycle and
the unified (erstwhile-physical# segment follows account period settlement
cycle.
&ll investors, other than the institutional investors, can
deliver Securities either in the physical or dematerialized form in the
market.
@rom Danuary ;, '(((, all categories of investors can
deliver only in 4ematerialized form with respect to a select list of
securities. 5owever initially this was applicable only at those exchanges,
which have /oined the depository, but S10 has also specified that this list
is to be expanded in a phased manner. The settlement of trades in the stock
exchanges is undertaken by the clearing corporation ($$#Eclearing house
($5# of the corresponding stock exchanges.
<hile settlement of 4ematerialized Securities is effected through
2S4B, the funds settlement is effected through the clearing banks. The
physical Securities are settled by the clearing members directly with the
$$E$5.
BENEFITS OF DEPOSITORY SYSTEM
n the depository system, the ownership and transfer of Securities
takes place by means of electronic book entries. &t the outset, this system
rids the capital market of the danger related to handling of paper. 2S4B
provides numerous direct and indirect benefits, like9
? 1limination of bad deliveries-in the depository environment, once
holding of an investor are 4ematerialized, the Cuestion of bad delivery
does not arise i.e. they cannot be hold >under ob/ection?.
? 1limination of all risks associated with physical certificates-dealing
in physical Securities have associates security risks of stocks, mutilation
of certificates, loss of certificates during movements through and from the
registrars, thus exposing the investor to the cost of obtaining duplicate
certificates and advertisement, etc.., This problem does not arise in the
depository environment.
? 2o stamps duty for transfer of any kind of Securities in the
depository.
? mmediate transfer and registration of securities- in the depository
environment, once the securities are credited to the investors accounts on
pay-out, he becomes the legal owner of the securities. There is no further
need to send it to the company+s registrar for registration.
? @aster settlement cycle-the exclusive 4emat segment follow rolling
settlement cycle of TR- i.e. the settlement of trades will be on the -
nd
working day from the trade day. This will enable faster turnover of stock
and more liCuidity with the investor.
? %eduction in brokerage by many brokers for trading in
4ematerialized Securities-brokers provide this benefit to investors as
dealing in 4ematerialized Securities reduced their back office cost of
handling paper and eliminates the risk of being the introducing broker.
? @aster disbursement of non-cash corporate benefits like rights, bonus,
etc..,
? %eduction of problems related to change of address of investor,
transmission, etc., in case of change of address or transmission of 4emat
shares, investors are saved from undergoing the entire change procedure
with each company or registrar. nvestors have to only inform their 48
with all relevant documents and the reCuired changes are effected in the
database of all the companies, where the investor is a registered holder of
Securities.
? 1limination of problems related to selling Securities on behalf of a
minor- a natural guardian is not reCuired to take court approval 4emat
Securities on behalf of a minor. 1ase in portfolio monitoring since
statement of account gives a consolidated position of investment in all
instructions.
OBSERVATION
The online in S1 is introduced to reduce and eliminate all
the discrepancies that arise out of manual trading system. t has been
developed to computerize the trading activity of the broker. <ith the
computerization of the trading activity, the number of transaction and the
volume of trading have increased to a great extent. S1 is dealing in both
0S1 and 2S1.
The turnover of S1 has gone up during '((= with the
introduction of online trading system. The trading of S1 of the first day
was %s. .:.66 crores.
2ow the companies are also taking orders on phone call. !nly
S1 is not in phone order. Trading in O securities is not available. (O
securities are those securities which are not traded regularly#. 0ank
account for instant transfer is also not available, which all the companies
dealing with online trading are giving instant bank aEc. all companies are
giving offline option while S1 is not giving any offline options. 8ortfolio
valuation is not available. 7oreover, only govt securities and bonds are
allowed for mutual trading.
CONCLUSION
The comprehensive study of on >online trading system> at nter-
connected stock 1xchange has been an enlightening experience stressing
on the position aspects on security trading. 4ematerialization of shares
and online trading has done in whole lot of good to the issuer, investor,
companies and country.
The 4epository system has reduced the time lag in delivering
and settlement of securities but also supported the cause of providing more
liCuidity to the security holder, the need for setting up of a depository,
paper less trading through online trading system and settlement became in
evitable and unavoidable for the smooth and efficient functioning of the
capital market. This system has proven its worthy ness by increasing in the
settlement will be done with in the day in future is in itself an indication of
how great a boon in this system of !nline trading.
1-brokerages provide convenience, encourage increased investor
participation and lead to lower up front costs. n the long run, they will
likely reflect increased market efficiency as well. n short run, however,
there are a number of issues related to transparency, investor+s misplaced
trust, and poorly aligned incentives between e-brokerages and markets,
that may impede true market efficiency.
@or efficiency to move beyond the user interface and into the
trading process, consumers need a transparent window to observe the
actual flow of orders, the time of execution and the commission structure
are various points in the trading process. n this regard, institutional rules,
regulations and monitoring functions play a significant role in promoting
efficiency and transparency along the value chain in electronic markets.
!ur analysis confirms that in the context of online stock markets, the need
for such intervention and oversight it particularly strong.
SUGGESTIONS
The overall performance of S1, 48 and !2B21 T%&42, is
good. 5ere are the suggestions for further improvements of the
performance in the future.
? Holume of paper work is small but it is very complicated to
maintain data in system so try to reduce that by regular audit and
updating data.
? 7ost of 48s do not have the necessary infrastructure to handle the
high workload of transactions lending to many error by 48s, so by
giving full infrastructure information to every 48 can avoid this
problem
? The pool aEc does not know the true owner of the shares and hence
dividends are paid to the broker instead of owners, by this broker
can do any manipulations or any fraud with the owner, for this the
owner can loose his dividend. 5ence for this try to pay the dividend
directly to the owner.
? f the shares are fakeEforged which delivered by the broker the
shareholder can loose that system and have to receive another lot of
issued shares from the broker in -' days, this system stands abused
as soon as possible.
? The online trading is easy to work but it is costly to maintain and
difficult to learn.
? t should increase the speed of executing the orders.
? 7utual funds trading for other companies have to be encouraged. f
phone orders are encouraged, trading in z securities are allowed,
bank account for instant transfer are provided and offline option are
given then S1 would be definitely improving in the turnover.
? 2ecessary steps should be taken by the exchanges to deal with the
situation arising due to break down in online trading.
? nstant bank account should be provided as the other companies
are providing, because this helps the S1 in dealing directly with the
investors.
? ¬her important thing, which has to be taken into considerations,
is portfolio management. t should have a separate department for
portfolio management and should guide the investors. f S1 takes
initiative steps for portfolio valuation of the investor+s .Then
investors will be attracted towards the S1 to a greater extent.
? S1 has to give more advertisement through the media stating the
advantages to the investors by using S1.
? Beverages should be provided to the investors till settlement. Then
only it encourages the investors to take active part in online trading
of the stock exchange
? The software or the system used in online trading should be
advanced and the persons who operate should have minimum
knowledge or if they are very well versed about the functioning of
the system then it will be helpful in smooth functioning of online
trading.
n S1 investors cannot do their own trading on the system,
every time they have to consult the 48 members and has to tell to hold the
shares by his name, instead of this provide the web trading facility to
investors by this they can do their own trading by sitting in front of
internet.
.
BIBLIOGRAPHY
2ewspaper9 1conomic Times, The 0usiness Standard.
<eb-site 9 www.nseindia.org
www.iseindia.com
www.nsccl.com
%eport 9 S1 %eport
doc_745342162.doc
Stock exchange is an organized market place where securities are traded. These securities are issued by the government, semi-government bodies, public sector undertakings and companies for borrowing funds and raising resources.
A STUDY ON
ONLINE TRADING SYSTEM
AT
Inter-Connected Stock Exchange Of India
Liited
!ro"ect re#ort $%&itted in
!artia' f%'(''ent for the a)ard of
MASTER O* +USINESS ADMINISTRATION
DECLARATION
I here &, dec'are that the #ro"ect tit'ed - On'ine
Trading S,$te- done at Inter-Connected Stock
Exchange of India Liited $%&itted &, e a$ #art
of #artia' f%'(''ent for the a)ard of the Ma$ter$ of
+%$ine$$ Adini$tration. at /////. ////
Uni0er$it,. /// i$ a record of &ona(de )ork done
&, e1
I a'$o dec'are that thi$ re#ort ha$ to , kno)'edge
i$ , o)n and i$ neither $%&itted to an, other
%ni0er$it, nor #%&'i$hed an, tie &efore1
////
ACKNOWLEDGEMENT
I )o%'d 'ike to ex#re$$ , gratit%de for a'' the
#eo#'e. )ho extended %nending $%##ort at a''
$tage$ of the #ro"ect1
Thi$ re#ort i$ a #rod%ct of not on', , $incere
e2ort$ &%t a'$o the g%idance and ora'e $%##ort
gi0en &, the anageent of Inter-Connected Stock
Exchange of India Ltd1. ////1
I ex#re$$ , $incere gratit%de to , g%ide ////.
Incharge Training. Inter-Connected Stock Exchange
of India Ltd1. //// for $#aring hi$ 0a'%a&'e tie in
gi0ing the 0a'%a&'e inforation and $%gge$tion$ a''
thro%gh. for the $%cce$$f%' co#'etion of the
#ro"ect1
I )i$h to ex#re$$ , $incere thank$ to ////.
Director 3 ////. G%ide and a'$o the anageent
and $ta2 of , co''ege for #ro0iding the g%idance
and $%##ort1
I )o%'d 'ike to ackno)'edge. , $incere thank$ to
a'' the exec%ti0e$ at Inter-Connected Stock
Exchange of India Ltd1. //// )ho ha0e extended
he'#ing hand in gi0ing the inforation and &eing a
#art of the $t%d,1
La$t &%t not 'ea$t. I ex#re$$ , $incere gratit%de
to a'' the e#'o,ee$ at Inter-Connected Stock
Exchange of India Ltd1. ////. )ho ha0e direct', or
indirect', contri&%ted to the $%cce$$f%' co#'etion
of the #ro"ect1
////
CONTENTS
INTRODUCTION OF STUDY
? A STUDY ON STOCK EXCHANGE
? HISTORY OF STOCK EXCHANGE
? SECURITIES EXCHANGE BOARD OF INDIA
? NATIONAL STOCK EXCHANGE
COMPANY PROFILE
? INTRODUCTION OF ISE
? OBJECTIVES OF ISE
? OBJECTIVES OF THE STUDY
? SALIENT FEATURES OF ISE
ONLINE TRADING SYSTEM
? TRADING PROCEDURE BEFORE ONLINE
? INTRODUCTION TO ONLINE TRADING
? OBJECTIVES OF ONLINE TRADING
? ADVANTAGES & DISADVANTAGES OF ONLINE
TRADING
CLEARING AND SETTLEMENT
MECHANISM
? TRADING CYCLE
? SETTLEMENT PROCESS
? TRADING SYSTEM IN ISE
? DEMATRALISATION
? NSDL
OBSERVATIONS
CONCLUSIONS
SUGGETIONS
BIBLIOGRAPHY
INTRODUCTION TO THE STUDY
Stock exchange is an organized market place where securities
are traded. These securities are issued by the government, semi-
government bodies, public sector undertakings and companies for
borrowing funds and raising resources. Securities are defined as any
monetary claims (promissory notes or .!."# and also include shares,
debentures, bonds and etc., if these securities are marketable as in the case
of the government stock, they are transferable by endorsement and alike
movable property. They are tradable on the stock exchange. So are the
case shares of companies.
"nder the Securities $ontract %egulation &ct of '()*, securities+
trading is regulated by the $entral ,overnment and such trading can take
place only in stock exchanges recognized by the government under this
&ct. &s referred to earlier there are at present -. such recognized stock
exchanges in ndia. !f these, ma/or stock exchanges, like 0ombay Stock
1xchange 2ational Stock 1xchange, nter-$onnected Stock 1xchange,
3olkata, 4elhi, $hennai, 5yderabad and 0angalore etc. are permanently
recognized while a few are temporarily recognized. The above act has also
laid down that trading in approved contract should be done through
registered members of the exchange. &s per the rules made under the
above act, trading in securities permitted to be traded would be in the
normal trading hours ('6 &.7 to ...6 8.7# on working days in the trading
ring, as specified for trading purpose. $ontracts approved to be traded are
the following9
&. Spot delivery deals are for deliveries of shares on the same day or
the next day as the payment is made.
0. 5and deliveries deals for delivering shares within a period of : to '; days
from the date of contract.
$. 4elivery through clearing for delivering shares with in a period of two
months from the date of the contract, which is now reduce to ') days.
(%educed to - days in demat trading#
4. Special 4elivery deals for delivering of shares for specified longer periods
as may be approved by the governing board of the stock exchange.
1xcept in those deals meant for delivery on spot basis, all
the rest are to be put through by the registered brokers of a stock
exchange. The securities contracts (%egulation# rules of '(): laid down
the condition for such trading, the trading hours, rules of trading,
settlement of disputes, etc. as between the members and of the members
with reference to their clients.
HISTORY OF STOCK EXCHANGES IN INDIA
The origin of the Stock 1xchanges in ndia can be traced back to the later
half of '(th century. &fter the &merican $ivil <ar ('=*6-*'# due to the
share mania of the public, the number of brokers dealing in shares
increased. The brokers organized an informal association in 7umbai
named >The 2ative Stock and Share 0rokers &ssociation in '=
?.laterevolved as 0ombay stock exchange.
ncreased activity in trade and commerce during the
@irst <orld <ar and Second <orld <ar resulted in an increase in the stock
trading. The ,rowth of Stock 1xchanges suffered a set after the end of
<orld <ar. <orld wide depression affected them most of the Stock
1xchanges in the early stages had a speculative nature of working without
technical strength. &fter independence, government took keen interest to
regulate the speculative nature of stock exchange working. n that
direction, securities and $ontract %egulation &ct '()* was passed, this
gave powers to $entral ,overnment to regulate the stock exchanges.
@urther to develop secondary markets in the country, stock exchanges
established at 7umbai, $hennai, 4elhi, 5yderabad, &hmedabad and
ndore. The 0angalore Stock 1xchange was recognized in '(*.. &t
present there are -. Stock 1xchanges.
Till recent past, floor trading took place in all Stock 1xchanges.
n the floor trading system, the trade takes place through open outcry
system during the official trading hours. Trading posts are assigned for
different securities where by and sell activities of securities took place.
This system needs a face A to A face contact among the traders and
restricts the trading volume. The speed of the new information reflected
on the prices was rather than the investors.
The Setting up of 2S1 and !T$1 (!ver the counter exchange
of ndia with the screen based trading facility resulted in more and more
Sock exchanges turning towards the computer based trading. 0S1
introduced the screen based trading system in '((), which known as
0!BT (0ombay on A line Trading System#.
7adras Stock 1xchange introduced &utomated 2etwork Trading
System (7&2T%&# on !ctober :, '((* &part from 0ombay Stock
1xchanges have introduced screen based trading.
FUNCTIONS OF STOCK EXCHANGE
Maintain Activ T!a"in#$ Shares are traded on the stock exchanges,
enabling the investors to buy and sell securities. The prices may vary
from transaction to transaction. & continuous trading increases the
liCuidity or marketability of the shares traded on the stock exchanges.
Fi%ati&n &' P!ic($ 8rice is determined by the transactions that flow from
investors demand and the supplier+s preferences. "sually the traded prices
are made known to the public. This helps the investors to make the better
decision.
En()!( (a' an" 'ai! "a*in#($ The rules, regulations and bylaws of
the Stock 1xchanges provide a measure of safety to the investors.
Transactions are conducted under competitive conditions enabling the
investors to get a fair deal.
Ai"( in 'inancin# t+ In")(t!,$ & continuous market for shares
provides a favorable climate for raising capital. The negotiability and
transferability of the securities, investors are willing to subscribe to the
initial public offering (8!#. This stimulates the capital formation.
Di((-inati&n &' In'&!-ati&n$ Stock 1xchanges provide information
through their various publications. They publish the share prices traded on
their basis along with the volume traded. 4irectory of $orporate
nformation is useful for the investor+s assessment regarding the corporate.
5andouts, handbooks and pamphlets provide information regarding the
functioning of the Stock 1xchanges.
P!'&!-anc In")c!$ The prices of stocks reflect the performance
of the traded companies. This makes the corporate more concerned with
its public image and tries to maintain good performance.
S*'.!#)*atin# &!#ani/ati&n$ The Stock 1xchanges monitor the integrity
of the members, brokers, listed companies and clients. $ontinuous
internal audit safeguards the investors against unfair trade practices. t
settles the disputes between member brokers, investors and brokers.
REGULATORY FRAME 0ORK
This Securities $ontract %egulation &ct, '()* and Securities and
1xchange board of ndia (S10'# &ct, '((-, provides a comprehensive
legal framework. & .-tier regulatory structure comprising the ministry of
finance, S10' and the ,overning 0oards of the Stock 1xchanges
regulates the functioning of Stock 1xchanges.
Mini(t!, &' 'inanc$ The Stock 1xchange division of the 7inistry of
@inance has powers related to the application of the provision of the S$%
&ct and licensing of dealers in the other area. &ccording to S10 &ct, The
7inistry of @inance has the appellate and the supervisory power over the
S10. t has powered to grant recognition to the Stock 1xchange and
regulation of their operations. 7inistry of @inance has the power to
approve the appointments of executives chiefs and the nominations of the
public representatives in the government 0oards of the Stock 1xchanges.
t has the responsibility of preventing undesirable speculation.
T+ Sc)!iti( an" E%c+an# B&a!" &' In"ia
The Securities and 1xchange 0oard of ndia even though
established in the year '(==. %eceived statutory powers only on .6th
Danuary '((-. "nder the S10 &ct, a wide variety of powers are vested in
the hands of S10. S10 has the powers to regulate the business of Stock
1xchanges, other security and mutual funds. %egistration and regulation of
market intermediaries are also carried out by S10. t has responsibility to
prohibit the fraudulent unfair trade practices and insider dealings.
Takeovers are also monitored by the S10 has the multi pronged duty to
promote the healthy growth of the capital market and protect the investors.
T+ G&v!nin# B&a!" &' (t&c1 %c+an#($ The ,overning 0oard of the
Stock 1xchange consists of elected members of directors, government
nominees and public representatives. %ules, by laws and regulations of the
Stock 1xchange substantial powers to the executive director for
maintaining efficient and smooth day-to day functioning of Stock
1xchange. The ,overning 0oard has the responsibility to maintain and
orderly and well-regulated market.
The ,overning body of the Stock 1xchange consists of '. members of
which
&. Six members of the Stock 1xchange are elected by the members of the
Stock 1xchange.
0. $entral ,overnment nominates not more than three members.
$. The board nominates three public representatives.
4. S10 nominates persona not exceeding three and
1. The Stock 1xchange appoints one 1xecutive 4irector.
!ne third of the elected members retire at annual general
meeting (&,7#. The retired member can offer himself for election if he is
not elected for two consecutive years. f a member serves in the governing
body for two years consecutively, he should refrain offering himself for
another two years.
The members of the governing body elect the president and
vice-president. t needs to approval from the $entral ,overnment or the
0oard. The office tenure for the president and vice-president is on year.
They can offer themselves for re-election, if they have not held for two
consecutive years. n that case they can offer themselves for re-election
after a gap of one-year period
NATIONAL STOCK EXCHANGE
The 2ational Stock 1xchange (2S1# of ndia became
operational in the capital market segment on third 2ovember '((; in
7umbai. The genesis of the 2S1 lies in the recommendations of the
pherwani committee ('(('#. &part from the 2S1. t had recommended for
the establishment of 2ational Stock market System also. The committee
pointed out some ma/or defects in the ndian stock market. The defects
specified are.
'. Back of liCuidity in most of the markets in terms of depth and
breadth.
-. Back of ability to develop markets for debt.
.. Back of infrastructure facilities and outdated trading system.
;. Back of transparency in the operations that affect investors+
confidence.
). !utdated settlement system that are inadeCuate to cater to the
growing volume, leading to delays.
*. Back of single market due to the inability of various stock
exchanges to function cohesively with legal structure and
regulatory framework.
These factors led to the establishment of the 2S1.
T+ -ain &23ctiv( &' NSE a! a( '&**&4(
'#. To establish a nation wide trading facility for eCuities, debt
and hybrid instruments
-#. To ensure eCual access investors all over the country through
appropriate communication network.
.#. To provide a fair, efficient and transparent securities market
to investors using an electronic communication network.
;#. To enable shorter settlement cycle and book entry settlement
system.
)#. To meet current international standards of securities market.
8romoters of 2S19 40, $$, @$, B$, ,$, S0, 0ank of
0aroda. $anara 0ank, $orporation 0ank, ndian 0ank, !riental 0ank
of $ommerce. "nion 0ank of ndia, 8un/ab 2ational 0ank,
nfrastructure Beasing and @inancial Services, Stock 5olding
$orporation of ndia and S01 capital market are the promoters of 2S1.
MEMBERSHIP$
7embership is based on factors such as capital adeCuacy,
corporate structure, track record, education, experience etc. &dmission
is a two-stage process with applicants reCuiring going through a written
examination followed by an interview. & committee consisting of
experienced people from the industry to assess the applicant+s
capability to operate as an exchange member, interviews candidates.
The exchange admits members separately to <holesale 4ebt 7arket
(<47# segment and the capital market segment. !nly corporate
members are admitted on the debt market segment whereas individuals
and firms are also eligible on the capital market segment. 1ligibility
criteria for trading membership on the segment of <47 are as
follows.
'#. The persons eligible to become trading members are bodies
corporate, companies institutions including subsidiaries of banks
engaged in financial services and such other persons or entities as may
be permitted form time to time by %0ES10.
-#.The whole-time directors should possess at least two years
experience in any activity related to banking or financial services or
treasury.
.#.The applicant must possess a minimum net worth of %s.-
crores.
;#.The applicant must be engaged solely ion the business of
securities and must not be engaged in any fund-based activities.
T+ *i#i2i*it, c!it!ia '&! t+ ca5ita* -a!1t (#-nt a!6
'#. ndividuals, registered firms, bodies corporate, companies and such
other persons may be permitted under S$%&, '():.
-#. &pplicant must be engaged in the business of securities and must
not be engaged in any fund-based activities.
.#. 7inimum net worth reCuirements prescribed are as followsF
a#. ndividual and registered firms A %s.'66 Bacs.
b#.$orporate bodies A %s. '66 Bacs.
.
;#. 7inimum prescribed Cualification of graduation and two years
experience of handling securities as broker, sub-broker, authorized
assistant, etc must be fulfilled by
a# 7inimum two directors in case the applicant is a corporate
b#. 7inimum two partners in case of partnership firms and
c#. ndividual, in case of individual or sole proprietary concerns.
The two experienced director in a corporate applicant or trading
member should hold minimum of )G of the capital of the company.
P!(nt T!a"in# Mc+ani(-
The 2ational system provides single, nation wide Securities. t
enables investors in one part of the country to trade at the best Cuotes with
an investors located in any other part of the country through the members
of the stock exchanges and subseCuently clears and settles the trade in an
efficient and cost effective manner.
The primary ob/ective of the stock market is to provide clear opportunity
to the investors throughout the country to trade any securities irrespective
of the size of the order or the broker through whom the order is routed.
This provides the facility to execute the buy out any extra cost to the
investors.
There will be no trading floor in the exchanges. nstead, each trading
member will have a computer at his own office any where in ndia which
will be connected to the central computer system at the 2S1 through
leased lines or HS&T+s (Hery Small &perture Terminal#, for an interim
transition period of six months and subseCuently by satellite link.
HS&T+s are relatively smaller dishes similar to dish antenna for cable T.H
and have the benefit of not being very expensive.
& satellite network makes it possible to connect almost all the parts of the
nation Cuickly as it is easy to install, as against the ground lines
Such as dial up modems leased lines which are prone to disruptions,
satellite links on other hands ensure high speed, availability and Cuality of
the connection. This code of trading is known as >!n-line Trading?.
INTRODUCTION
nter-connected stock exchange of ndia limited IS1J has been promoted
by '; %egional stock exchanges to provide cost-effective trading
linkageEconnectivity to all the members of the participating 1xchanges,
with the ob/ective of widening the market for the securities listed on these
1xchanges. S1 aims to address the needs of small companies and retail
investors with the guiding principle of optimizing the existing
infrastructure and harnessing the potential of regional markets, so as to
transform these into a liCuid and vibrant market through the use of state-
of-the-art technology and networking.
The participating 1xchanges of S1 in all about
66 stockbrokers, out of which more than -66 have been currently registered as
traders on S1. n order to leverage its infrastructure and to expand its
nationwide reach, S1 has also appointed around
6 4ealers across :6cities other than the participating 1xchange centers. These dealers are
administratively supported through the regional offices of S1 at 4elhi
InorthJ, kolkata IeastJ, $oimbatore, 5yderabad IsouthJ and 2agpur
IcentralJ, besides 7umbai.
S1 has also floated a wholly-owned subsidiary, S1 securities
and services limited ISSJ, which has taken up corporate membership of
the 2ational Stock 1xchange of ndia Btd. I2S1J in both the $apital
7arket and @utures and !ptions segments and The Stock 1xchange,
7umbai n the 1Cuities segment, so that the traders and dealers of S1 can
access other markets in addition to the S1 markets and their local market.
S1 thus provides the investors in smaller cities a one-stop solution for
cost-effective and efficient trading and settlement in securities.
<ith the ob/ective of broad basing the range of its services, S1
has started offering the full suite of 48 facilities to its Traders, 4ealers and
their clients.
OBJECTIVES$
'. $reate a single integrated national level solution with access to
multiple markets for providing high cost-effective service to
millions of investors across the country.
-. $reate a liCuid and vibrant national level market for all listed
companies in general and small capital companies in particular.
.. !ptimally utilize the existing infrastructure and other resources of
participating Stock 1xchanges, which are under-utilized now.
;. 8rovide a level playing field to small Traders and 4ealers by
offering an opportunity to participate in a national markets having
investment-oriented business.
). %educe transaction cost.
*. 8rovide clearing and settlement facilities to the Traders and 4ealers
across the $ountry at their doorstep in a decentralized mode.
:. Spread demat trading across the country
OBJECTIVES OF THE STUDY
The ob/ectives of the study are as follows9
? To know the on-line screen based trading system adopted by S1
and about its communication facilities for the appropriate
configuration to set network. This would link the S1 to individual
brokersEmembers.
? To study about the back up measures with respect to primary
communication facilities, in order to achieve network availability
and connectivity back-up options.
? Study about $learing K Settlements in the stock exchanges for easy
transfer and error prone system. &lso study about computerization
demand process.
? To know about the settlement procedure involved in S1 and also
2S4B operations.
? $learing K defining each and every term of the stock exchange
trading procedures.
SCOPE OF STUDY$
The scope of the pro/ect is to study and know about !nline
Trading and $learing K Settlements dealt in nter-$onnected Stock
1xchange.
0y studying the !nline Trading and $learing K Settlements, a
clear option of dealing in stock exchange has been
"nderstood. "nlike olden days the concept of trading manually is been
replaced for fast interaction of shares of shareholder. 0y this we can
access anywhere and know the present dealings in shares.
DATA COLLECTION METHODS
The data collection methods include both the primary and secondary
collection methods.
? 8rimary collection methods9 This method includes the data
collection from the personal discussion with the authorized clerks
and members of the exchange.
? Secondary collection methods9 The secondary collection methods
includes the lectures of the superintend of the department of market
operations and so on., also the data collected from the news,
magazines of the S1 and different books issues of this study
LIMITATIONS OF THE STUDY
The study confines to the past --. years and present system of the trading
procedure in the S1 and the study is confined to the coverage of all the
related issues in brief. The data is collected from the primary and
secondary sources and thus is sub/ect to slight variation than what the
study includes in reality.
5ence accuracy and correctness can be measured only to the extend of
what the sample group has furnished.
SAILENT FEATURES
Nt4&!1 &' int!-"ia!i($
&s at the beginning of the financial year -66.-6;, );=
intermediaries (-6: Traders and .;' 4ealers# are registered on S1. &
broad of members forms the bedrock for any 1xchange, and in this
respect, S1 has a large pool of registered intermediaries who can be
tapped for any new line of business.
R&2)(t O5!ati&na* S,(t-(9
The trading, settlement and funds transfer operations of S1 and
SS are completely automated and state-of-the-art systems have been
deployed. The communication network of S1, which has connectivity
with over ;66 trading members and is spread across;* cities, is also used
for supporting the operations of SS. The trading software and settlement
software, as well as the electronic funds transfer arrangement established
with 54@$ 0ank and $$ 0ank, gives S1 and SS the reCuired
operational efficiency and flexibility to not only handle the secondary
market functions effectively, but also by leveraging them for new
ventures.
S1i**" an" %5!inc" -an5&4!9
S1 and SS have experienced and professional staff, who have
wide experience in Stock 1xchangesE capital market institutions, with in
some cases, the experience going up to nearly twenty years in this
industry. The staff has the skill-set reCuired to perform a wide range of
functions, depending upon the reCuirements from time to time.
A##!((iv 5!icin# 5&*ic,
The philosophy of S1 is to have an aggressive pricing policy for
the various products and services offered by it. The aim is to penetrate the
retail market and strengthen the position, so that a wide variety of products
and services having appeal for the retail market can be offered using a
common distribution channel. The aggressive pricing policy also ensures
that the intermediaries have sufficient financial incentives for offering
these products and services to the end-clients.
T!a"in#7 Ri(1 Mana#-nt an" Stt*-nt S&'t4a! S,(t-(9
The !%0T (!nline %egional 0ourses nter-connected Trading#
and &LS (&utomated 1xchange ntegrated Settlement# software
developed on the 7icrosoft 2T platform, with consultancy assistance
from 7icrosoft, are the most contemporary of the trading and settlement
software introduced in the country. The applications have been built on a
technology platform, which offers low cost of ownership, facilitates
simple maintenance and supports easy up gradation and enhancement. The
soft wares are so designed that the transaction processing capacity
depends on the hardware usedF capacity can be added by /ust adding
inexpensive hardware, without any additional software work.
Vi2!ant S)2(i"ia!, O5!ati&n(9
SS, the wholly owned subsidiary of S1, is one of the biggest
1xchange subsidiaries in the country. !n any given day, more than -)6
registered intermediaries of SS traded from ;* cities across the length and
breadth of the country.
'. 8rof. 8. H. 2arasimham 8ublic nterest 4irector
-. Shri H. Shankar 7anaging 4irector
.. 4r. S. 4. srani 8ublic nterest 4irector
;. 4r. 7. M. 3han 8ublic nterest 4irector
). 7r. 8. D. 7athew Shareholder 4irector
*. 7. $. %odrigues Shareholder 4irector
:. 7r. 7. 3. &nanda 3umar Shareholder 4irector
=. 7r. T.2.T 2ayar Shareholder 4irector
(. 7r. 3. 4. ,upta Shareholder 4irector
'6. 7r. H. %. 0haskar %eddy Shareholder 4irector
''. 7r. Dambu 3umar Dain Trading 7ember 4irector
TRADING PROCEDURE BEFORE ON.LINE
THE TRADING RING$
Trading on stock exchanges is officially done in the ring for a few
hours from ''.66 &.7 to -..68.7. Trading before or after official hour is
called 31%0 T%&42,. n the trading ring space is provided for
specified and non-specified sections. The members of their authorized
assistants have to wear a badge or carry with them identify cards given by
the exchange to enter the trading ring. They carry a Sauda book or
confirmation memos duly authorized by exchange. The stock exchanges
operations at floor level are highly technical in nature. 2on-members are
not permitted to enter into stock market. 5ence, various stages have to be
completed in executing a transaction at a stock exchange. The steps
involved in the methods of trading have been given below9
A8CHOICE OF BROKER$
The prospective investor who wants to buy shares or the investor who
wants to sell his shares cannot enter into hall of the exchange and transact
business. They have to act through only member brokers. They can also
appoint their bankers for this purpose. Since, bankers can become
members of stock exchange as per the present regulations.
So, the first task in transacting business on stock exchanges is to choose a
broker of repute or banker. Such people+s can ensure prompt and Cuick
execution of a transaction at the possible price.
&t present there are
66 authorized brokers in S1.INTRODUCTION TO ONLINE TRADING
,one are the days of trading on the floor. Technology has
changed the landscape of the stock markets. The look of the stock
exchanges has undergone metamorphic changes in the recent years. 8rior
to online trading, regional stock exchange was playing a very important
role in capital markets, as they were local investors. %egional S1, which
was unable to interact with other S1s started developing this own screen
based trading and connecting to other scrip+s which were not available
with them. This also helped in accessing the Cuotes and other market
information from other stock exchange which proved vital in the
functioning of the system as a whole.
The trading network is depicted in given below 2S1 has main
computer which is connected through Hery Small &perture Terminal
(HS&T# installed at its office. The main computer runs on a fault tolerant
ST%&T"S mainframe computer at the 1xchange. 0rokers have terminals
(identified as the 8$s in the given picture# installed at their premises
which are connected through HS&TsE leased linesEmodems. &n investor
informs a broker to place an order on his behalf. The broker enters the
order through his 8$, which runs under <indows 2T and sends signal to
the satellite via HS&TEleased lineEmodem. The signal is directed to
mainframe computer at 2S1 via HS&T at 2S1+s office. & message
relating to the order activity is broadcast to the respective member. The
order confirmation message is immediately displayed on the 8$ of the
broker. This order matches with the existing passive order(S# otherwise it
waits for the active orders to enter the system. !n order matching, a
message is broadcast to the respective member.
TRADING NET0ORK
5"0
ANTENNA SATELITE
2S1 7&2@%&71 BROKERS PREMISES
CORPORATE HIERARCHY
The Trading member has the facility of defining a hierarchy amongst its
users of the 21&T system. The hierarchy comprises9
The users of the trading system can logon as either of the user
type. The significance of each type is explained below9
A8 C&!5&!at Mana#!$ The corporate manager is a term assigned to a
user placed at the highest level in a trading firm. The facility to set 0ranch
order value limits and user order value limits is available to the corporate
manager.
B8 B!anc+ Mana#!9 The branch manager is term assigned to a user who
is placed under the corporate manager. The branch manager can set user
order value limits for each of his branch.
B8 Da*!$ 4ealers are users at the lower most level of the hierarchy. &
dealer can view and perform order and related activities only for oneself.
$orporate 7anager
4ealer '' 4ealer '-
0ranch '
4ealer '
0ranch -
4ealer -
OBJECTIVES OF ON.LINE TRADING$
? %educe and eliminate operational inefficiencies inherent in manual
system.
? ncreased trading capacity in stock exchanges.
? mprove market transparency, eliminate unmatched trades and
delayed reporting.
? 8rovides for online and offline monitoring, control and surveillance
of the markets.
? 8romote fairness and speedy matching.
? 1nsure smooth market operations using technology while retaining
the flexibility of conventional trading practices.
? Setup various limits rules and controls centrally.
? 8rovide brokers with their data on electronic media interface with
the brokers back office system.
? 8rovide public information on scrip prices, indices for all users of
the system.
? 8rovide analytical data for use of stock exchange in analysis and
reporting
? To face stiff competition from other stock exchange.
? $onsolidate trader+s data and interface with clearing and settlement.
PLACEMENT OF ORDER$
The next step in planning of order for the purchase or sale of
Securities with the broker. The order is usually by telegram, telephone,
letter, fax etc., or in person. To avoid delay it is placed generally over the
phone. The orders may take any one of the forms such as at best order,
limit order, immediate or cancel order, discretionary order, limited
discretionary order, open order and stop loss order.
ENTRY OF ORDER INTO THE BOOKS$
&fter receiving the order, the member enters them in his books
and the purchase and sale orders are distributed among his assistants to
handle them separately in non-specified and odd-lots.
EXECUTION OF ORDER$
0ig brokers transact their business through their authorized
clerk. Small ones out their business personally. !rders are executed in the
trading ring of the S1. This works from '-966 noon to -966 p.m
discretionary order on all working days from 7onday to @riday and a
special hour session on Saturday.
The floor of the stock exchange is divided into number of
markets (pits# according to the nature of security deal in. The authorized
clerkEbroker goes to the pit and /obbers offer two way Cuotes for the scrips
they deal in. they act as market makers and provide liCuidity to the market.
The system has been designed to get the bet lids and offers from the
/obber+s book as well as the best buy and sell orders from the book. f the
Cuotation is not acceptable to the brokers, he may make a counter bidEoffer
"ltimately the bargains may be closed at a price mutually
acceptable to both the parties. n case the Cuotation is not acceptable to
him, the broker may go to another dealer and make a bargain. &ll bargains
on the stock exchanges are settled by word of mouth and there is no
written contract signed immediately by the parties concerned. !nce the
transaction is finalized, the deals are recorded in a $haupri %ough
notebook or transaction note or confirmation memos. Soudha block books
or confirmation memos are provided by the stock exchange. The details
are recorded in these books also. The prices at which different scrips are
traded on a particular day published on the next day in the newspapers. &n
authorized representative of the stock exchange is also present in the hall
to supervise the trading.
PREPARATION OF CONTRACT NOTES$
"sually, the authorized clerks enter the particulars of the
business transacted during a particular day in N3acha Sauda 0ook+ they
are transferred to N8ucca Sauda 0ook+, which are maintained separately
for the ready delivery contracts. Then the brokerEauthorized clerk prepares
a contract note. & contract note is a written agreement between the broker
and his client for the transaction executed. t contains the details of the
contract made for the purchaseEsale of Securities, the brokerage
chargeable, name of the company, number of shares boughtEsold, net rate,
etc., it is prepared in a prescribed from and a copy of it is also sent to the
client.
? PLACING ORDER 0ITH THE BROKER$
The next step is placing an order for the purchaseEsale of securities
with the broker. The order is usually placed over telephone, fax. t can also
take the form of telegram or letter or in person. The order placed may be
any of the following varieties (largely classified on the basis of price limits
that it imposes.#.
? AT BEST ORDER 9OR: BEST RATE ORDER$
>0uy '666 LMO ltd.?, it does not specify any price. t means buy LMO
Btd. Securities at the prevailing market price. These are executed very fast
as there is no price limits.
? LIMIT ORDER$
>0uy '66 LMO Btd. &t %s '66?, it is an order for the purchase of shares at
a specified price by the client. (%s '66#
? LIMITED DISCRETIONARY ORDER$
>0uy '666 LMO Btd., around %s.'66?. t gives discretion to the broker.
The price can be a little above %s '66. 5ow much discretion is implied
depends on how the broker and client define around.
? OPEN ORDER$
t is an order to buy or sell without fixing any time or price limit on the
execution of the order.
? STOP LOSS ORDER$
>0uy '66 LMO Btd. P %s '- to stop %s '6?. t means buy '66 LMO Btd
securities at the market rate of %s. '- but if on the same day the price falls
to %s. '6 immediately sell of the securities Eshares. Thus an attempt is
made to limit the loss of sudden unfavorable shift in the market.
? NET RATE ORDER$
>0uy '666 LMO Btd. P%s..6 net >would mean that the client is willing to
buy '666 LMO Btd. @or no more than %s..6 per security inclusive of
brokerage payable to the broker. 2et rate is purchase or sale rate minus
brokerage.
? MARKET RATE ORDER$
7arket rate is net rate plus brokerage for purchase and net minus
brokerage for sale. So, >0uy '666 LMO Btd. P%s..6 market? would mean
that the client is willing to pay %s..6 plus brokerage for each security of
LMO Btd.
CLEARING HOUSE
The exchange has a clearing house as a part of its 7arket
!perations 4epartment to collect the securities from all members and
distribute to each member, all the securities that are due to him in respect
of every settlement. The whole of the operations of the clearing house are
computerized. $5 is like are bank where all the members of S1 maintain
their accounts. $5 acts as a member between the buyer and seller. t gets a
record of all the transactions (buying and selling# done by a particular
week and process these transactions and directs the members to deliver the
shares or make payment on the pay-in day.
!n the payout day, the $5 gives the delivery and the payment to
the members according to their respective positions. There are ) counters
in the S1s, $5 where bad deliveries, auction, odd-lot shares transaction,
spot transaction etc.., are dealt in respect of all the transactions done from
7onday to @riday all the shares will have to be delivered through the S1s
$5 as per the settlement program field, which is generally, a Saturday on
next.
NORMAL TRANSACTION$
n case of regular transaction, shares are deposited in clearing
house on Tuesday and <ednesday. 8ayout will be on Thursday. 4eliveries
will also be on Thursday.
STOCK MARKET TRADING ON INTERNET
The ma/or events that will take place in the ndian $apital 7arket
are introduction of index-based futures trading on internet. Trading on
internet means that the investor+s will actually buy and sell the stocks on-
line through the net. & committee was setup by S10 to develop
regulatory parameters for use internet trading. S10 approved the report
on the committee. S10 decided that internet trading could take place in
ndia within the existing legal framework through use of order routing
system, which will route order from client to brokers,. @or trade execution
on registered stock exchanges. The broad also took note of the
recommended minimum technical standards for ensuring safety and
security of transaction between clients and brokers, which will be forced
by the respective stock exchanges.
ADVANTAGES OF INTERNET TRADING
? t will help in reducing transaction costs particularly for overseas
and remote located investors.
? t will provide real time Cuotes and on-line trading facility at a
much cheaper cost.
? @acility of transaction business from the terminal of the investors
and will help him making rational /udgment or decisions.
? t will bring down the brokerages fees and increases the trading
volumes.
? Quick response in transaction i.e. giving the order verification and
acknowledgement.
? t allows transparent companies of services and easy price
discovery.
? t is easy enough to set up either as individual account for margins
trading or settle transactions by credit card.
? t is easy for brokers to monitor and maintain online accounts and
the possibility of miss-trading is less.
? Surveillance is easy as there is very less scope for speculation
? The investor is provided with best offer
? Trading procedure is easy and fully automated.
Ea(i! t!an(acti&n 5!&c((in#.
8rofit in time9 nvestor can make profits by selling shares when the going
is good. They do not have to instruct their brokers on the cut off price to
sell shares.
1ase and transparency9 Since the broking, bank and demat account are all
electronically connected, all transaction get updated, demat account shows
the latest stockholding statement while the bank account shows the
balance amount after buying or selling of shares.
8recaution9 $heck for hidden costs of broker+s age. 0eware of net
seamstress. 2ever double click the mouse during execution of trade avoids
cyber cafes and change password regularly.
Bess fees9 shares traded online reCuire no human intervention to match
buys and sells. This means that commission costs are cut dramatically for
the freCuent investor.
PROBLEMS OF ONLINE TRADING
? &ll the stock exchanges in ndia were mechanized in the year
'((; 2ovember. That was the year when the stock exchanges
introduced screen based trading across the country.
? <hile on line trading gives you speed and price advantage, there
is some risk and disadvantage to entering orders on-line. The
page alerts you to any pitfalls you should watch out for if you
want to use the internet to trade stocks.
? f you do commit to trading online, you must be careful when
you enter stock orders. t is easy to make mistakes, but the
market and your brokers may not be sympathetic. !nce an order
is submitted, there may be nothing you can do to take it back if
you made a mistake. The various types of orders you enter can be
confusing.
? ndividuals are restricted to first hand financial guidance. This
simply means that the individual is himselfEherself alone to make
the decisions.
? Tax (sales tax and value added tax# evaluation becomes an issue,
especially when you are trading internationally.
? $hanges are that one has no idea who is dealing with on the other
end, so it is advisable to gather all the possible information about
the party one is dealing with. n short are full knowledge is to be
known.
? !nline trading as left individual open to too much information.
This is harmful since it leaves brokerages wide open to sensitive
data.
<hen network crashes there will be problems and delays due to a
large influx of traffic and rapid online trading criteria. @or instance on -:
th
!ct '(
there was a one day crash, which caused online trading on the2ew Mork Stock 1xchange to stop and brokers were unable to conduct
business.
f you are going to trade online, you were obviously the one
making all the trading choices. To make your trading decisions, you need
to research your stocks and constantly pay attention to market news. This
will reCuire some time, as you pursue your sources of market information
and use online tools
CLEARING & SETTLEMENT TRADING MECHANISM
The clearing and settlement mechanism in ndia securities market has
witnessed several innovations during the last decade. These include use of
the state-of-art information technology, compression of settlement cycle,
dematerialization and electronic transfer of securities, securities lending
and borrowing, professionalisation of trading members, fine-tuned risk
management system, emergence of clearing corporation to assume
counterparty risk etc., though many these are yet to permeate the whole
market.
Till recently, the stock exchanges in ndia were following a system of
account period settlement for cash market transactions, expert for
transaction in a few active securities, which were settled under tR. rolling
settlement. The rolling settlement has been introduced for all securities.
<ith effect from &pril ', -66. TR- rolling settlement has been introduced.
The stock exchanges were also offering deferral products to provide
leverage to members to postpone their settlement obligations. The
transactions are not settled immediately but after - days after the trade
day. The members receive the fundsEsecurities in accordance with the pay-
inEpay-out schedules notified by the respective exchanges. ,iven the
growing volume of trades and market volatility, the time gap between
trading and settlement gives rise to settlement risk. n recognition of this,
the exchanges and their clearing corporation employ risk management
practices to ensure timely settlement of trades. The regulators have also
prescribed elaborate margining and capital adeCuacy standards to secure
market integrity and protect the interests of investors. The exchanges not
providing counter-party guarantee have been advised by S10 to set up
trade guarantee funds, which would honour pay-in liabilities in the event
of default by a member. n pursuance to this, '* out of -. exchanges have
set up tradeEsettlement guarantee funds. The trades are settled irrespective
of default by a member and the exchange follows up the defaulting
member subseCuently for recovery of his dues to the exchange. The
market has full confidence that settlements will take place in time and will
be completed irrespective of possible default by isolated trading members.
7ovement of securities has become almost instantaneous in the
dematerialized environment. Two depositories viz., 2ational Securities
4epositories Btd. (2S4B# and $entral 4epositories Services Btd. ($4SB#
provide electronic transfer securities and more then ((G of turnover is
settled in dematerialized form. &ll actively traded scrip+s are held, traded
and settled in demat form. The obligations of members are downloaded to
membersEcustodians by the clearing agency. The membersEcustodians
make available the reCuired securities in their pool accounts with
4epository 8articipants (48s# by the prescribed pay-in time for securities.
The depository transfers the securities from the pool accounts of
membersEcustodians to the settlement account of the clearing agency. &s
per the schedule determined by the depository from the settlement account
of the clearing agency to the pool accounts of membersEcustodians. The
pay-in and pay-out of securities is affected on the same day for all
settlements.
TRANSACTION CYCLE
& person holding assets (securitiesEfunds#, either to meet his liCuidity
needs or to reshuffle his holdings in response to changes in his perception
about risk and return of the assets, decides to buy or sell the securities. 5e
finds out the right broker and instructs him to place buyEsell order on an
exchange. The order is converted to a trade as soon as it finds a matching
sellEbuy order. The trades are cleared to determine the obligations of
counterparties to deliver securitiesEfunds as per settlement schedule.
0uyerEseller delivers fundsEsecurities and receives securitiesEfunds and
acCuires ownership over them. & securities transaction cycle is presented
given below.
T!an(acti&n c,c*
Stt*-nt( 5!&c((
<hile 2S1 provides a platform for trading to its trading
members, the 2ational Securities $learing $orporation Btd. (2S$$B#
determines the fundsEsecurities obligations of the trading members and
ensures that trading members meet their obligations. The clearing banks
and depositories provide the necessary interface between the
custodiansEclearing members (who clear for the trading members or their
own transactions# for settlement of fundsEsecurities obligations of trading
members. The core functions involved in the process are9
a# T!a" Rc&!"in#9 The key details about the trades are recorded to
provide basis for settlement. These details are automatically recorded in
the electronic trading system of the exchanges.
8lacing
order
Settlement
of Trades
Trade
1xecution
$learing of
Trades
4ecision to
Trade
@undsE
Securities
Transaction cycle
b# T!a" C&n'i!-ati&n$ The counterparties to trade agree upon the
terms of trade like security, price, and settlement date, but not the
counterparty which is the 2S$$B. The electronic system automatically
generates confirmation by direct participants. The ultimate buyersEsellers
of securities also affirm the terms, as the funds-securities would flow from
them, although the direct participants are responsible for settlement of
trade.
c# Dt!-inati&n &' &2*i#ati&n9 The next step is determination of what
counter-parties owe, and what counter-parties are due to receive on the
settlement date. The 2S$$B interposes itself as a central counterparty
between the counterparties to trades and nets the positions so that a
member has security wise net obligation to receive or deliver a security
and has to either pay or receive funds.
d# Pa,.in &! ')n"( an" Sc)!iti(9 The members bring in their funds-
securities to the 2S$$B. They make available reCuired prescribed pay-in
time. The depositories move the securities available in the accounts of
members to the account of the 2S$$B. Bikewise members with funds
obligations make available reCuired funds in the designated accounts with
clearing banks by the prescribed pay-in time. The $$ sends electronic
instructions to the clearing banks to debit member+s accounts to the extent
of payment obligations. The banks process these instructions, debit
accounts or members and credit accounts of the 2S$$B.
e# Pa,.&)t &' F)n"( an" Sc)!iti(9 &fter processing for shortages of
fundsEsecurities and arranging for movement of funds from surplus banks
to deficit banks through %0 clearing, the 2S$$B sends electronic
instructions to the depositoriesEclearing banks to release pay-out of
securitiesEfunds. The depositories and clearing banks debit accounts or the
2S$$B and credit accounts or members. Settlement is complete upon
release of pay-out of funds and securities to custodiansEmembers. The
settlement process for transactions in securities in the $7 segment of 2S1
is presented in the @igure ....
f# Ri(1 Mana#-nt$ & sound risk management system is integral to
an efficient settlement system. The 2S$$B ensures that trading members+
obligations are commensurate with their net worth. t has put in place a
comprehensive risk management system, which is constantly monitored
and upgraded to pre-empt market failures. t monitors the track record and
performance of members and their net worthF undertakes on-line
monitoring of members+ positions and exposure in the market collects
margins from members and automatically disables members if the limits
are breached.
SETTLEMENT PROCESS IN CM SEGMENT OF NSE
'
NSE
= (
* :
- .
) ;
'6 ''
E%5*anati&n($
('# Trade details from 1xchange to 2S$$B (real-time and end of day
trade file#.
(-# 2S$$B notifies the consummated trade details to $7sEcustodians
who affirm back. 0ased on the affirmation, 2S$$B applies multilateral
netting and determines obligations.
(.# 4ownload of obligation and pay-in advice of fundsEsecurities
(;# nstructions to clearing banks to make funds available by pay-in time.
()# nstructions to depositories to make securities available by pay-in-
time.
(*# 8ay-in of securities (2S$$B advises depository to debit pool account
of custodians. 7s and credit its account and depository does it#.
CUSTODIAN(;CM(
DEPOSITORIES
CLEARING
BANKS
2S$$B
# 8ay-in of funds (2S$$B advises $learing 0anks to debit account of custodiansE$7s and credit its account and clearing bank does it#.
(=# 8ay-out of securities (2S$$B advises depository to credit pool
account of custodiansE$7s and debit its account and depository does it#.
((# 8ay-out of funds (2S$$B advises clearing 0anks to credit account of
custodiansE$7s and debit its account and clearing bank does it#.
('6# 4epository informs custodiansE$7s through 48s.
(''# $learing 0anks inform custodiansE$7s.
T!a"in# S,(t- in ISE
Transactions for the S1 segment are routed from the Trader
<ork Stations (T<S# to the central trading computer installed at
S1Ss office in Hashi, 2avi 7umbai. The T<Ss are connected to the
central trading computer of S1 through leased lines, S42 lines,
H82 connectivity and HS&T network. The technology infrastructure
optimizes and shares the system resources for access to S1 and
2S1 segments.
&s far as access to the 2S1 segment is concerned, all orders
are routed to 2S1 through the central order routing system installed
at Hashi. This computer is connected to the 2S1 trading system
through a -mbps leased line acting as the primary link between S1
and 2S1 and it also has a HS&T link as a backup. <ithin the
8articipating Stock 1xchange premises, the T<Ss reCuired for S1
and 2S1 segments are connected on B&2 segments to the HS&T
infrastructure already established
CLEARING AND SETTLEMENT
n tune with the S10 decision, S1 has implemented TR-
settlement cycle from &pril ', -66.. The total delivery-inEdelivery-
out and pay-inEpay-out of Traders and 4ealers are computed on a
netted basis. &fter netting, the net position for each centre is
computed. f there is a settlement position at a centre, then funds or
securities are moved in and out from one centre to another, as the
case may be, so as to fulfill the total pay-in or pay-out position of
funds and securities. The movement of funds is through 54@$ 0ank
and $$ 0ank. The settlement of securities takes place only in a
dematerialized mode using both the depositories in ndia, i.e.
2ational Securities 4epository Bimited (2S4B# and the $entral
4epository Services(ndia#Bimited($4SB#.8ay-in of funds is done
by way of direct debits to the settlement accounts maintained by the
Traders and 4ealers with 54@$ 0ank and $$ 0ank. n the case
of margins, debits are affected on TR' by electronically debiting the
settlement accounts of Traders and 4ealers. Similarly, pay-out of
funds is affected by the 1xchange through direct credits to the
settlement accounts of the Traders and 4ealers.
n the case of operations on SS, the trading intermediaries
(Sub-brokers of SS# are reCuired to maintain separate settlement
accounts for the $apital 7arket segment and @utures K !ptions
segment of 2S1 with any one of the designated $learing 0anks
(54@$ 0ank and $$ 0ank at present#. Similarly, another
settlement account will be reCuired for the 1Cuities segment of 0S1,
when introduced. 7argin collection and refund are through direct
debits and credits by SS to the settlement accounts of the trading
intermediaries. @unds pay-in and pay-out likewise, are handled
through the electronic funds transfer system. n the @utures K
!ptions segment, end clients are reCuired to maintain such accounts
with the $learing 0anks and all debits and credits are effected by
SS to these accounts.
&s far as securities is concerned a client of a trading member
having a net delivery position, can transfer securities from his demat
account either directly to the pool account of SS or route them
through the account of the trading member. 8ay-out of securities is
always effected by SS into the account of the concerned trading
members, who are then obligated to deliver the same to their clients.
INVESTOR PROTECTION
&ll settlement liabilities amongst Traders and 4ealers of S1 are
guaranteed by the 1xchange+s Settlement ,uarantee fund. n addition,
investors are protected against non-fulfillment of commitments by
TradersE4ealers through the nvestor 8rotection @und.
%egion wise 4istribution of Traders and 4ealers
(&s on Danuary ', -66)#
%egion States $overed
%egistered
4ealers
%egistered
Traders
Total
<est ,oa, ,u/arat, 7aharashtra '(;
.;( 2orth
5aryana, Dammu K 3ashmir,
4elhi, 8un/ab, %a/asthan,
"ttaranchal, "ttar 8radesh
:' ') =*
1ast
&ssam, 0ihar, Dharkhand,
!rissa, <est 0engal
:: :; ')'
South
&ndhra 8radesh, 3erala,
3arnataka, Tamil 2adu
'' ''( '.6
$entral $hattisgarh, 7adhya 8radesh ( '; -.
T!T&B .*- -*: *-(
DEMATERIALI<ATION
4ematerialization is a process by which physical shares of
investors are converted to an eCuivalent number of Securities in electronic
form and credited in the investor+s account with his 4epository
8articipant.
4ematerialized trading is now compulsory for all investors.
0eginning of first week of Danuary '(((, investor can trade in specific
scripts in the 4emoralization form. They can provide and receive delivery
only in a 4ematerialized form and share certificate will not be changed for
these scripts.
& depository is an organization where Securities of shareholder
are held in the electronic form at the reCuest of the shareholder through
4epository 8articipant (48s#. The system is comparable to that in a bank.
f an investor wants services offered by a depository, he would have to
open an account with it through a 48- similar to opening an account with
any other branches of the bank in order to avail of its services.
4ematerialization is a process by which physical certificates
of an investor are taken back by the companyEregistrar and actually
destroyed and an eCuivalent number of Securities are credited in the
depository account of those investors. & 4epository 8articipant is
investor+s agent in the system. 5e maintains investor+s Securities account
and intimates the status of holdings from time to time to the investor.
Ba(ic T!-in&*&#i( &n D-at Stt*-nt
%efers to the process whereby all those who have
made purchases make a payment and all those who have made sales
deliver shares. The exchanges ensure that the buyers who have paid
for the shares purchased by them receive the shares. Similarly sellers
who have given delivery of shares to the exchange receive payment
for the same.
SETTLEMENT CYCLES9 Settlement $ycle refers to a calendar
according to which all purchase and sale transactions done within
the dates of the settlement cycle are settled on a net basis. 2S1 and
0S1 currently follow daily settlement cycles.
n a rolling settlement, each trading day is considered as a
trading period and trades executed during the day are settled based
on the net obligations for the day. &t 2S1 and 0S1, trades in rolling
settlement are settled on a TR- basis i.e. on the -
nd
working day. @or
arriving at the settlement day all intervening holidays, which include
bank holidays, 2S1E0S1 holidays, Saturdays and Sundays are
executed. Typically trades taking place on 7onday are settled on
<ednesday, Tuesday+s trades settled on Thursday and so on.
8&M 2 K 8&M !"T9 8ay n refers to your obligations towards the
exchanges and 8ay !ut refers to exchange obligation towards you. &ll 8ay
ns and 8ay !uts take place on a >TR-? days basis, where >T? is the
trading day and plus two more trading days. So if you buy some shares on
7onday, you would have to pay money which is a 8ay n and you would
receive shares, which is a 8ay !ut. 0oth of these would take place ion
<ednesday.
B7T !%41% 9 Bimit !rders allow you to place a buyEsell order at a
price defined by you. The execution can happen at a price more favorable
than the price that has been defined by you. Mou can place limit orders
during holidays K non-market hours too.
7arket !rders9 7arket !rders can be placed only during market hours
(i.e. when the exchanges is open for trading#. 7arket !rders have different
interpretations for both 2S1 and 0S1.
SQ"&%1 !@@ $ SCuare !ff means buying and selling, selling and buying
on the same day. @or example, if you have bought '66 T shares of
2@T1$ today morning and later on at the end of the day, if you sell
2@T1$, '66 shares, it /ust means that you have sCuared off your order.
=8 OPENING CLEARING ACCOUNTS FOR SETTLEMENT OF
TRADES$
&ll the trades executed at the exchanges are settled by the
clearing member ($7#, as in the case of Securities in the physical form.
To settle trades in 4emat segment each $7 should open one clearing
account with any of the 48.
The procedure for opening clearing accounts is9
? &pproach a 48.
? @ill up an account opening form.
? Sign on an agreement with the 48.
? &pplication is forwarded to 2S4B by 48.
? 2S4B allots a number identified as $7-08-4.
? 48 opens account and an account number is providing along with
$7-08-4 to the clearing member.
The clearing account consists of three parts9
? 8ool account
? 4elivery account
? %eceipt account
'. 8!!B &$$!"2T9
t has two roles to play in clearing of securities,
? 0efore pay in the selling client of the $7 transfers Securities from
his client account to the $7 pool account.
? The $7 transfers the Securities from his pool account to the account
of the buying client.
$B1&%2,
&$$!"2T
41BH1%M
&$$!"2T
8!!B &$$!"2T %1$18T
&$$!"2T
S1BB2,
$B12T
0"M2,
$B12T
-. 41BH1%M &$$!"2T9
The $7 transfers the Securities in, from the pool account to the
delivery account before pay in, at the time of pay- in 2S4B flushes out the
securities in the delivery account and transfers the same to the $$E$5.
.. %1$18T &$$!"2T9
!n pay Aout day, the $$E$5 transfers Securities to the pool account
through the account.
$7 has to ensure that before book closure or record date of any
company the Securities are moved from $7 pool account to a beneficiary
account as holding in pool account for longer period is not allowed.
>8 SETTLEMENT$
n the depository system, any trade that is cleared and settled
through the clearing corporation ($$E$5# is called market trade.
8rocedure for pay-in of securities
? ,ive %eceipt instruction to the 48 for transfer of Securities from
client account to the pool account or give a standing instruction for the
same.
? 4elivery to $$E$5 instruction for the transfer of Securities from pool
and account to delivery account for pay-in.
$B1&%2, 41BH1%M
&$$!"2T
8!!B
&$$!"2T
0oth pay-in and pay-out happens to be on )thworking day after
the trading and the instruction to transfer the Securities from the pool
account to delivery account must be given before pay-in such that this
transfer is affected before pay-in. the transfer instruction is taken as an
authority to transfer the security irrespective of when the client gives the
delivery instruction, the Securities will be parked in the delivery account
till final pay-in and the facility of multiple instructions from the pool
account is also provided to the investors.
n case of excess transfer of shares to the delivery account or
excess delivery to $$E$5 the instruction slip can be cancelled and
issued new one or the $$E$5 will return the Securities at the time of pay-
out respectively.
8rocedure for pay-out of securities
? Transfer of Securities from $$E$5 to pool account through receipt in
account on pay-out.
? 4elivery instruction to transfer from pool account to client on pay-
out.
!n the delivery of the instruction from the client+s name, client+s
48, 4 and 48 name of the client must be mentioned and ensure that
receipt instruction given by client to receive the Securities bears the same
execution date as given in the delivery instruction. 5owever, the broker
$B1&%2, %1$18T 8!!B
can hold the Securities in the pool account until the client meets his
obligations but before the closure of books, the balances must be
transferred as the balances in the pool account, which are not entitled for
any corporate benefits.
FLO0 CHART TO EFFECT CLEARING AND SETTLEMENT OF
MARKET TRADES
Send receipt instruction for
transfer from client account
to pool account
,ive delivery instruction to
your 48 for transfer from
pool account to $$
!n payout you will receive
securities from $$ to your
pool aEc automatically
,ive delivery instruction
for transfer of securities
from pool aEc to client aEcs
&ny time before or
after pay-out
&ny time before
pay-in
Int!.D5&(it&!, T!an('!(
& transfer of securities from an account in one depository to an
account in another depository is termed as an inter-depository transfer.
This facility is Cuite similar to the account transfers within 2S4B.
t can be done only for Securities that are available for
4ematerialization on both the depositories. The account in 2S4B can be
either a clearing account or a beneficiary account. @or debiting the
clearing account or the beneficial account with 2S4B, the form for >inter-
depository delivery instruction? is reCuired to be submitted by the clearing
memberEbeneficial owner to its 48.
@or crediting the clearing account or the beneficial account,
the standard instruction given for automatically crediting the account is
applicable. n case the standard instructions are not given, then the form
for >inter-depository receipt instruction? is reCuired to be submitted by the
clearing memberEbeneficial owner to its 48.
&s both the depositories are connected to each other, the
batches to effect inter-depository transfers are presently exchanged twice
on the working day.
The issuerEregistrar and transfer agent is informed about
the transfer by both the depositories and it amends its records accordingly.
,overnment Securities cannot be transferred from one depository to
another using this facility.
NATIONAL SECURITIES DEPOSITORY LIMITED
2S4B was inaugurated in '((*, as the depository in the country to
avoid the myriad problems in settlement.
n depository system, Securities are held in securities (depository#
accounts, which is more or less similar to holding funds in the bank
accounts. Transfer of ownership is done through simple account transfer.
This method does away with all the risks and hassles normally associated
with paper work. $onseCuently, the cost of transaction in depository
environment is considerably lower as compared to transaction in physical
certificates.
Trading in dematerialized Securities is Cuite similar to trading in
physical Securities. The ma/or difference is that at the time of settlement,
instead of deliveryEreceipt of Securities in the physical form, the same is
affected through account transfer. $urrently dematerializes trading is
available at 2S1, 0S1 and $S1.
1xclusive 4emat segment follows rolling settlement (TR-# cycle and
the unified (erstwhile-physical# segment follows account period settlement
cycle.
&ll investors, other than the institutional investors, can
deliver Securities either in the physical or dematerialized form in the
market.
@rom Danuary ;, '(((, all categories of investors can
deliver only in 4ematerialized form with respect to a select list of
securities. 5owever initially this was applicable only at those exchanges,
which have /oined the depository, but S10 has also specified that this list
is to be expanded in a phased manner. The settlement of trades in the stock
exchanges is undertaken by the clearing corporation ($$#Eclearing house
($5# of the corresponding stock exchanges.
<hile settlement of 4ematerialized Securities is effected through
2S4B, the funds settlement is effected through the clearing banks. The
physical Securities are settled by the clearing members directly with the
$$E$5.
BENEFITS OF DEPOSITORY SYSTEM
n the depository system, the ownership and transfer of Securities
takes place by means of electronic book entries. &t the outset, this system
rids the capital market of the danger related to handling of paper. 2S4B
provides numerous direct and indirect benefits, like9
? 1limination of bad deliveries-in the depository environment, once
holding of an investor are 4ematerialized, the Cuestion of bad delivery
does not arise i.e. they cannot be hold >under ob/ection?.
? 1limination of all risks associated with physical certificates-dealing
in physical Securities have associates security risks of stocks, mutilation
of certificates, loss of certificates during movements through and from the
registrars, thus exposing the investor to the cost of obtaining duplicate
certificates and advertisement, etc.., This problem does not arise in the
depository environment.
? 2o stamps duty for transfer of any kind of Securities in the
depository.
? mmediate transfer and registration of securities- in the depository
environment, once the securities are credited to the investors accounts on
pay-out, he becomes the legal owner of the securities. There is no further
need to send it to the company+s registrar for registration.
? @aster settlement cycle-the exclusive 4emat segment follow rolling
settlement cycle of TR- i.e. the settlement of trades will be on the -
nd
working day from the trade day. This will enable faster turnover of stock
and more liCuidity with the investor.
? %eduction in brokerage by many brokers for trading in
4ematerialized Securities-brokers provide this benefit to investors as
dealing in 4ematerialized Securities reduced their back office cost of
handling paper and eliminates the risk of being the introducing broker.
? @aster disbursement of non-cash corporate benefits like rights, bonus,
etc..,
? %eduction of problems related to change of address of investor,
transmission, etc., in case of change of address or transmission of 4emat
shares, investors are saved from undergoing the entire change procedure
with each company or registrar. nvestors have to only inform their 48
with all relevant documents and the reCuired changes are effected in the
database of all the companies, where the investor is a registered holder of
Securities.
? 1limination of problems related to selling Securities on behalf of a
minor- a natural guardian is not reCuired to take court approval 4emat
Securities on behalf of a minor. 1ase in portfolio monitoring since
statement of account gives a consolidated position of investment in all
instructions.
OBSERVATION
The online in S1 is introduced to reduce and eliminate all
the discrepancies that arise out of manual trading system. t has been
developed to computerize the trading activity of the broker. <ith the
computerization of the trading activity, the number of transaction and the
volume of trading have increased to a great extent. S1 is dealing in both
0S1 and 2S1.
The turnover of S1 has gone up during '((= with the
introduction of online trading system. The trading of S1 of the first day
was %s. .:.66 crores.
2ow the companies are also taking orders on phone call. !nly
S1 is not in phone order. Trading in O securities is not available. (O
securities are those securities which are not traded regularly#. 0ank
account for instant transfer is also not available, which all the companies
dealing with online trading are giving instant bank aEc. all companies are
giving offline option while S1 is not giving any offline options. 8ortfolio
valuation is not available. 7oreover, only govt securities and bonds are
allowed for mutual trading.
CONCLUSION
The comprehensive study of on >online trading system> at nter-
connected stock 1xchange has been an enlightening experience stressing
on the position aspects on security trading. 4ematerialization of shares
and online trading has done in whole lot of good to the issuer, investor,
companies and country.
The 4epository system has reduced the time lag in delivering
and settlement of securities but also supported the cause of providing more
liCuidity to the security holder, the need for setting up of a depository,
paper less trading through online trading system and settlement became in
evitable and unavoidable for the smooth and efficient functioning of the
capital market. This system has proven its worthy ness by increasing in the
settlement will be done with in the day in future is in itself an indication of
how great a boon in this system of !nline trading.
1-brokerages provide convenience, encourage increased investor
participation and lead to lower up front costs. n the long run, they will
likely reflect increased market efficiency as well. n short run, however,
there are a number of issues related to transparency, investor+s misplaced
trust, and poorly aligned incentives between e-brokerages and markets,
that may impede true market efficiency.
@or efficiency to move beyond the user interface and into the
trading process, consumers need a transparent window to observe the
actual flow of orders, the time of execution and the commission structure
are various points in the trading process. n this regard, institutional rules,
regulations and monitoring functions play a significant role in promoting
efficiency and transparency along the value chain in electronic markets.
!ur analysis confirms that in the context of online stock markets, the need
for such intervention and oversight it particularly strong.
SUGGESTIONS
The overall performance of S1, 48 and !2B21 T%&42, is
good. 5ere are the suggestions for further improvements of the
performance in the future.
? Holume of paper work is small but it is very complicated to
maintain data in system so try to reduce that by regular audit and
updating data.
? 7ost of 48s do not have the necessary infrastructure to handle the
high workload of transactions lending to many error by 48s, so by
giving full infrastructure information to every 48 can avoid this
problem
? The pool aEc does not know the true owner of the shares and hence
dividends are paid to the broker instead of owners, by this broker
can do any manipulations or any fraud with the owner, for this the
owner can loose his dividend. 5ence for this try to pay the dividend
directly to the owner.
? f the shares are fakeEforged which delivered by the broker the
shareholder can loose that system and have to receive another lot of
issued shares from the broker in -' days, this system stands abused
as soon as possible.
? The online trading is easy to work but it is costly to maintain and
difficult to learn.
? t should increase the speed of executing the orders.
? 7utual funds trading for other companies have to be encouraged. f
phone orders are encouraged, trading in z securities are allowed,
bank account for instant transfer are provided and offline option are
given then S1 would be definitely improving in the turnover.
? 2ecessary steps should be taken by the exchanges to deal with the
situation arising due to break down in online trading.
? nstant bank account should be provided as the other companies
are providing, because this helps the S1 in dealing directly with the
investors.
? ¬her important thing, which has to be taken into considerations,
is portfolio management. t should have a separate department for
portfolio management and should guide the investors. f S1 takes
initiative steps for portfolio valuation of the investor+s .Then
investors will be attracted towards the S1 to a greater extent.
? S1 has to give more advertisement through the media stating the
advantages to the investors by using S1.
? Beverages should be provided to the investors till settlement. Then
only it encourages the investors to take active part in online trading
of the stock exchange
? The software or the system used in online trading should be
advanced and the persons who operate should have minimum
knowledge or if they are very well versed about the functioning of
the system then it will be helpful in smooth functioning of online
trading.
n S1 investors cannot do their own trading on the system,
every time they have to consult the 48 members and has to tell to hold the
shares by his name, instead of this provide the web trading facility to
investors by this they can do their own trading by sitting in front of
internet.
.
BIBLIOGRAPHY
2ewspaper9 1conomic Times, The 0usiness Standard.
<eb-site 9 www.nseindia.org
www.iseindia.com
www.nsccl.com
%eport 9 S1 %eport
doc_745342162.doc