Final Project on Stock Market

Current scenario of Capital Market in India.

A

FINAL PROJECT REPORT

ON

“STUDY OF CAPITAL MARKET FROM 2000 TO 2010”

partial fulfillment of Full time Postgraduate Diploma in Marketing Management

UNDER THE GUIDANCE OF

Mr. Amit Batra

Submitted to: Submitted by:

Director Academics Tiwari Deepak

IIMT, Enr. No.-1031

Greater Noida. PGDMM, 1st Batch

Ishan Institute of Management & Technology

1A, Knowledge Park-I, Greater Noida, Distt. G.B. Nagar (UP)

Website: ishanfamily.com, E-mail: - [email protected]


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ACKNOWLEDGEMENT

I wish to express my sincere gratitude to all those persons who extended their help,

guidance and suggestions without which it would not have been possible to

complete the project report.

I am deeply indebted to my guide MR.AMIT BATRA

For his valuable and enlightened guidance and who encouraged me in compilation

of my project.

I am really thankful to Dr. D.K. Garg (Chairman, Ishan Institute of Management

and Technology), who has been the chief facilitator of this project and I could

enhance my knowledge in the field of capital market.

I am very much thankful to Director (Academies) for his guidance.

TIWARI DEEPAK KUMAR

ENR NO-MMR-1031

DEEPENDRA KUMAR

ENR NO-MMR-1055


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DECLARATION

The Final project on STUDY OF CAPITAL MARKET FROM 2000 TO 2010. Under

the guidance of Mr. Amit Batra the original work done by me. This is

the property of the institute and use of this report without prior

permission of the institute will be considered illegal and actionable.

Date: Signature-

Tiwari Deepak

Enr No.-MMR1031


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TABLE OF CONTENTS

Title-Current scenario of Capital Market in India.

1. Introduction

a. An overview of capital market

b. Structure of capital market

c. Present face of capital market

2. Classification of capital market

a. Primary market

b. Secondary market

3. Instruments & players of capital market

New issue market instruments

Stock market instruments

Players in capital market

4. Trading Procedure

Electronic share trading

Process of share trading

Parties involved in trading

5. Legal frame work of capital market

Regulatory authority of capital market

SEBI guidelines

Securities Contract and Regulations Act

6. Clearing and settlement procedures

Process of clearing and settlement

Parties involved in clearing and settlementIshan Institute of Management & Technology

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7. Network of stock exchange in India

National stock exchange

Bombay stock exchange

Regional stock exchange

Over the counter exchange of India

8. Trend of capital market in India

Trend of Sensex and Nifty (for last 2 years)

Factors responsible for the fluctuation of Sensex and Nifty.

9. Role of RBI &SEBI

SEBI guidelines & impact

Role of SEBI

10. Study of stock indexes

Market capitalization of different indexes

Performance of Stock indexes( for past 2 years)

11. Analysis &findings

Data analysis & interpretation

Findings

12. Recommendations &problem of capital market

problem of new issue market

Problem of secondary market

Suggestions and recommendations

13. Conclusion

14. Appendix

15. Bibliography


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PREFACE

The project on Capital market is an attempt to study an overall primary market and secondary

market of India. It helped to know and study the parameters opted by all the Capital market and

the companies who are operating themselves under the rules and regulation of Capital Market.

The performance of Capital Market has registered a significant upward in recent times.

Right from the beginning Capital Market attract every person as it has become common to see

car on road every day and being a student of marketing I learnt a lot from this project and it

would helped me a lot in making my career. I came to know a lot about Indian as well as

international Capital Market and how they help their economy.

The market for long-term securities like bonds, equity stocks and preferred stocks is divided into

primary market and secondary market. The primary market deals with the new issues of

securities. Outstanding securities are traded in the secondary market, which is commonly known

as stock market or stock exchange. In the secondary market, the investors can sell and buy

securities. Stock markets predominantly deal in the equity shares. Debt instruments like bonds

and debentures are also traded in the stock market. Well-regulated and active stock market

promotes capital formation. Growth of the primary market depends on the secondary market.

The health of the economy is reflected by the growth of the stock market.

Companies raise funds to finance their projects through various methods. The promoters can

bring their own money or borrow from the financial institutions or mobilize capital by issuing

securities. The funds may be raised through issue of fresh shares at par or premium, preference

shares, debentures or global depository receipts. The main objectives of a capital issue are given

below:

To promote a new company

To expand an existing company


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To diversify the production

To meet the regular working capital requirements

To capitalize the reverses

Securities markets provide a channel for allocation of savings to those who have a productive

need for them. As a result, the savers and investors are not constrained by their individual

abilities, but by the economy’s abilities to invest and save respectively, which inevitably

enhances savings and investment in the economy.

The National Stock Exchange of India Limited (NSE) has genesis in the report of the High

Powered Study Group on Establishment of New Stock Exchanges, which recommended

promotion of a National Stock Exchange by financial institutions (FIs) to provide access to

investors from all across the country on an equal footing. Based on the recommendations, NSE

was promoted by leading Financial Institutions at the behest of the Government of India and was

incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the

country.

I am really thankful to Dr. D.K. Garg (Chairman, Ishan Institute of Management and

Technology), who has been the chief facilitator of this project and I could enhance my

knowledge in the field of Capital Market.

Ankush Choudhary

Enr No.- 11007


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UNIT- IIntroduction:

Concept of capital market. Structure of capital market. Present face of capital market.


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CONCEPT OF CAPITAL MARKET

coupon bond and 6% notional 10 year bond.

The past decade in many ways has been remarkable for securities market in India.n It has

grown exponentially as measured in terms of amount raised from the market,number of

stock exchanges and other intermediaries, the number of listed stocks,market

capitalisation, trading volumes and turnover on stock exchanges, and investor population.

Along with this growth, the profiles of the investors, issuers and intermediaries have

changed significantly. The market has witnessed several institutional changes resulting in

drastic reduction in transaction costs and significant improvements in efficiency,

transparency, liquidity and safety. In a short span of time, Indian derivatives market has

got a place in list of top global exchanges. In single stock futures category, the Futures

Industry Association (FIA) placed NSE in second position in the year 2000.

Introduction

The market for long-term securities like bonds, equity stocks and preferred stocks is

divided into primary market and secondary market. The primary market deals with the

new issues of securities. Outstanding securities are traded in the secondary market, which

is commonly known as stock market or stock exchange. In the secondary market, the

investors can sell and buy securities. Stock markets predominantly deal in the equity

shares. Debt instruments like bonds and debentures are also traded in the stock market.

Well-regulated and active stock market promotes capital formation. Growth of the

primary market depends on the secondary market. The health of the economy is reflected

by the growth of the stock market.


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Companies raise funds to finance their projects through various methods. The promoters

can bring their own money or borrow from the financial institutions or mobilize capital by

issuing securities. The funds may be raised through issue of fresh shares at par or

premium, preference shares, debentures or global depository receipts. The main objectives

of a capital issue are given below:

To promote a new company

To expand an existing company

To diversify the production

To meet the regular working capital requirements

To capitalize the reverses

Securities markets provide a channel for allocation of savings to those who have a

productive need for them. As a result, the savers and investors are not constrained by their

individual abilities, but by the economy’s abilities to invest and save respectively, which

inevitably enhances savings and investment in the economy.

Market Segments

The securities market has two interdependent and inseparable segments: the primary and

the secondary market. The primary market provides the channel for creation of new

securities through issuance of financial instruments by public companies as well as

Governments and Government agencies and bodies whereas the secondary market helps

the holders of these financial instruments to sale for exiting from the investment. The price

signals, which subsume all information about the issuer and his business including

associated risk, generated in the secondary market, help the primary market in allocation

of funds. The primary market issuance is done either through public issues or private

placement. A public issue does not limit any entity in investing while in private placement,

the issuance is done to select people. In terms of the Companies Act, 1956, an issue becomes

public if it results in allotment to more than 50 persons. This means an issue resulting in

allotment to less than 50 persons is private placement.Ishan Institute of Management & Technology

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There are two major types of issuers who issue securities. The corporate entities issue

mainly debt and equity instruments (shares, debentures, etc.), while the governments

(central and state governments) issue debt securities (dated securities, reasury bills). The

secondary market enables participants who hold securities to adjust their holdings in

response to changes in their assessment of risk and return. They also sell securities for cash

to meet their liquidity needs. The exchanges do not provide facility for spot trades in a

strict sense. Closest to spot market is the cash market in exchanges where settlement takes

place after some time. Trades taking place over a trading cycle (one day under rolling

settlement) are settled together after a certain time. All the 23 stock exchanges in the

country provide facilities for trading of corporate securities. Trades executed on NSE only

are cleared and settled by a clearing corporation which provides novation and settlement

guarantee. Nearly 100% of the trades in capital market segment are settled through demat

delivery. NSE also provides a formal trading platform for trading of a wide range of debt

securities including government securities in both retail and wholesale mode. NSE also

provides trading in derivatives of equities, interest rate as well indices. In derivatives

market (F&O market segment of NSE), standardized contracts are traded for future

settlement. These futures can be on a basket of securities like an index or an individual

security. In case of options, securities are traded for conditional future delivery. There are

two types of options – a put option permits the owner to sell a security to the writer of

options at a predetermined price while a call option permits the owner to purchase a

security from the writer of the option at a predetermined price. These options can also be

on individual stocks or basket of stocks like index. Two exchanges, namely NSE and the

Stock Exchange, Mumbai (BSE) provide trading of derivatives of securities. Today the

market participants have the flexibility of choosing from a basket of products like:

• Equities

• Bonds issued by both Government and Companies

• Futures on benchmark indices as well as stocks

• Options on benchmark indices as well as stocks

• Futures on interest rate products like Notional 91-day T-Bills, 10 year notional zero


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Reforms in the securities market, particularly the establishment and empowerment of

SEBI, market determined allocation of resources, screen based nation-wide trading,

dematerialization and electronic transfer of securities, rolling settlement and ban on

deferral products, sophisticated risk management and derivatives trading, have greatly

improved the regulatory framework and efficiency of trading and settlement. Indian

market is now comparable to many developed markets in terms of a number of qualitative

parameters.

Products and Participants

Financial markets facilitate the reallocation of savings from savers to entrepreneurs.

Savings are linked to investments by a variety of intermediaries through a range of

complex financial products called “securities” which is defined in the Securities Contracts

(Regulation) Act, 1956 to include shares, bonds, scrips, stocks or other marketable

securities of like nature in or of any incorporate company or body corporate, government

securities, derivatives of securities, units of collective investment scheme, interest and rights

in securities, security receipt or any other instruments so declared by the central

government.

Market Participants in Securities Market

Particulars Number of participantsSecurities Appellate Tribunal 1Regulator 4Depositories 2Stock Exchanges with equity trading 23Listed Securities 9,413Brokers 9,519Sub-brokers 13,291FIIs 502Portfolio Managers 54Custodians 11Share Transfer Agents 143Merchant Bankers 124Bankers to an Issue 67Debenture Trustees 35Underwriters 43Venture Capital Funds 43Mutual Funds 38


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Collective Investment Schemes 0

*Data collected from DCA, DEA, RBI & SEBI

It is not that the users and suppliers of funds meet each other and exchange funds for

securities. It is difficult to accomplish such double coincidence of wants. The amount of

funds supplied by the supplier may not be the amount needed by the user. Similarly, the

risk, liquidity and maturity characteristics of the securities issued by the issuer may not

match preference of the supplier. In such cases, they incur substantial search costs to find

each other. Search costs are minimised by the intermediaries who match and bring the

suppliers and users of funds together. These intermediaries may act as agents to match the

needs of users and suppliers of funds for a commission, help suppliers and users in creation

and sale of securities for a fee or buy the securities issued by users and in turn, sell their

own securities to suppliers to book profit. It is, thus, a misnomer that securities market

disintermediates by establishing a direct relationship between the savers and the users of

funds. The market does not work in a vacuum; it requires services of a large variety of

intermediaries. The disintermediation in the securities market is in fact an intermediation

with a difference, it is a risk-less intermediation, where the ultimate risks are borne by the

savers and not the intermediaries. A large variety and number of intermediaries provide

intermediation services in the Indian securities market. The securities market has

essentially three categories of participants, namely the issuers of securities, investors in

securities and the intermediaries and products include equities, bonds and derivatives. The

issuers and investors are the consumers of services rendered by the intermediaries while

the investors are consumers (they subscribe for and trade in securities) of securities issued

by issuers.

In pursuit of providing a product to meet the needs of each investor and issuer, the

intermediaries churn out more and more complicated products. They educate and guide

them in their dealings and bring them together. Those who receive funds in exchange for

securities and those who receive securities in exchange for funds often need the reassurance

that it is safe to do so. This reassurance is provided by the law and by custom, often

enforced by the regulator. The regulator develops fair market practices and regulates the


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conduct of issuers of securities and the intermediaries so as to protect the interests of

suppliers of funds. The regulator ensures a high standard of service from intermediaries

and supply of quality securities and non-manipulated demand for them in the market.

The past decade in many ways has been remarkable for securities market in India. It has

grown exponentially as measured in terms of amount raised from the market, number of

stock exchanges and other intermediaries, the number of listed stocks, market

capitalisation, trading volumes and turnover on stock exchanges, and investor population.

Along with this growth, the profiles of the investors, issuers and intermediaries have

changed significantly. The market has witnessed fundamental institutional changes

resulting in drastic reduction in transaction costs and significant improvements in

efficiency, transparency and safety.

DEPENDENCECAPITAL MARKET

Three main sets of entities depend on securities market. While the corporates and governments

raise resources from the securities market to meet their obligations, the households invest their

savings in the securities.

Corporate Sector

The 1990s witnessed emergence of the securities market as a major source of finance for trade

and industry. A growing number of companies are accessing the securities market rather than

depending on loans from FIs/banks. The corporate sector is increasingly depending on external

sources for meeting its funding requirements. There appears to be growing preference for direct

financing (equity and debt) to indirect financing (bank loan) within the external sources.

According to CMIE data, the share of capital market based instruments in resources raised

externally increased to 53% in 1993-94, but declined thereafter to 33% by 1999-00 and further to


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21% in 2001-02. In the sector-wise shareholding pattern of companies listed on NSE, it is

observed that on an average the promoters hold more than 55% of total shares. Though the non-

promoter holding is about 44%, Indian public held only 17% and the public float (holding by

FIIs, MFs, Indian public) is at best 25%. There is not much difference in the shareholding pattern

of companies in different sectors. Strangely, 63% of shares in companies in media and

entertainment sector are held by private corporate bodies though the requirement of public offer

was relaxed to 10% for them. The promoter holding is not strikingly high in respect of

companies in the IT and telecom sectors where similar relaxation was granted.

Governments

Along with increase in fiscal deficits of the governments, the dependence on market borrowings

to finance fiscal deficits has increased over the years. During the year 1990-91, the state

governments and the central government financed nearly 14% and 18% respectively of their

fiscal deficit by market borrowing. In percentage terms, dependence of the state governments on

market borrowing did not increase much during the decade 1991-2001. In case of central

government, it increased to 77.6% by 2002-03.

Households

According to RBI data, household sector accounted for 82.4% of gross domestic savings during

2001-02. They invested 38% of financial savings in deposits, 33% in insurance/provident funds,

11% on small savings, and 8% in securities, including government securities and units of mutual

funds during 2001- 02. Thus the fixed income bearing instruments are the most preferred assets

of the household sector. Their share in total financial savings of the household sector witnessed

an increasing trend in the recent past and is estimated at 82.4% in 2001- 02. In contrast, the share

of financial savings of the household sector in securities (shares, debentures, public sector bonds

and units of UTI and other mutual funds and government securities) is estimated to have gone

down from 22.9% in 1991-92 to 4.3% in 2000-01, which increased to 8% in 2001-02. Though

there was a major shift in the saving pattern of the household sector from physical assets to

financial assets and within financial assets, from bank deposits to securities, the trend got

reversed in the recent past due to high real interest rates, prolonged subdued conditions in the


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secondary market, lack of confidence by the issuers in the success of issue process as well as of

investors in the credibility of the issuers and the systems and poor performance of mutual funds.

The portfolio of household sector remains heavily weighted in favour of physical assets and

fixed income bearing instruments.

Investor Population

The Society for Capital Market Research and Development carries out periodical surveys of

household investors to estimate the number of investors. Their first survey carried out in 1990

placed the total number of share owners at 90-100 lakh. Their second survey estimated the

number of share owners at around 140-150 lakh as of mid-1993. Their latest survey estimates the

number of shareowners at around 2 crore at 1997 end, after which it remained stagnant up to the

end of 1990s. The bulk of increase in number of investors took place during 1991-94 and tapered

off thereafter. 49% of the share owners at the end of 2000 had, for the first time, entered the

market before the end of 1990, 44% entered during 1991-94, 6.3% during 1995-96 and 0.8%

since 1997. The survey attributes such tapering off to persistent depression in the share market

and investors’ bad experience with many unscrupulous company promoters and managements.

Distribution of Investors

The Society for Capital Market Research & Development estimates that 15% of urban

households and only 0.5-1.0% of semi-urban and rural households own shares. It is estimated

that 4% of all households own shares.

Distribution of Beneficial Accounts with NSDL

S. No. States/Union Beneficial Accounts

Territories Number % to total

1 Andhra Pradesh 194,405 6.08

2 Bihar 27,340 0.85

3 Chandigarh 7,891 0.25

4 Delhi 323,693 10.12

5 Goa 11,374 0.36


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6 Gujarat 536,720 16.78

7 Himachal Pradesh 3,706 0.12

8 Jammu & Kashmir 7,320 0.23

9 Karnataka 195,159 6.10

10 Kerala 76,793 2.40

11 Madhya Pradesh 71,158 2.23

12 Maharashtra 911,997 28.52

13 Orissa 14,701 0.46

14 Pondicherry 2,481 0.08

15 Punjab 52,434 1.64

16 Rajasthan 72,316 2.26

17 Tamil Nadu 230,407 7.20

18 Uttar Pradesh 188,835 5.90

19 West Bengal 214,432 6.71

20 Others 54,802 1.71

Total 3,197,964 100.00

An indirect, but very authentic source of information about distribution of investors is the data

base of beneficial accounts with the depositories. By February 2003, there were 3 million

beneficial accounts with the National Securities Depository Limited (NSDL). The state-wise

distribution of beneficial accounts with NSDL expected Maharashtra and Gujarat account for

nearly 45% of total beneficial accounts.

CAPITAL MARKET AT A GLANCE

Primary market

Stocks available for the first time are offered through new issue market. The issuer may be

a new company. These issues may be of new type or the security used in the past. In the

new issue market the issuer can be considered as a manufacturer. The issuing houses,

investment bankers and brokers act as the channel of distribution for the new issues. They

take the responsibility of selling the stocks to the public.


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A total of Rs. 2,520,179 million were raised by the government and corporate sector during

2002-03 as against Rs. 2,269,110 million during the preceding year. Government raised

about two third of the total resources, with central government alone raising nearly Rs.

1,511,260 million.

Corporate Securities

Average annual capital mobilization from the primary market, which used to be about

Rs.70 crore in the 1960s and about Rs.90 crore in the 1970s, increased manifold during the

1980s, with the amount raised in 1990-91 being Rs. 4,312 crore. It received a further boost

during the 1990s with the capital raised by non-government public companies rising

sharply to Rs. 26,417 crore in 1994-95. The capital raised which used to be less than 1% of

gross domestic saving (GDS) in the 1970s increased to about 13% in 1992-93. In real terms,

the capital raised increased 4 times between 1990-91 and 1994-95. During 1994-95, the

amount raised through new issues of securities from the securities market accounted for

about four-fifth of the disbursements by FIs. Issuers have shifted focus to other avenues for

raising resources like private placement.

There is a preference for raising resources in the primary market through private

placement of debt instruments. Private placements accounted for about 93% of total

resources mobilized through domestic issues by the corporate sector during 2002-03. Rapid

dismantling of shackles on institutional investments and deregulation of the economy are

driving growth of this segment. There are several inherent advantages of relying on private

placement route for raising resources. While it is cost and time effective method of raising

funds and can be structured to meet the needs of the entrepreneurs, it does not require

detailed compliance with formalities as required in public or rights issues. It is believed in

some circles that private placement has crowded out public issues. However, to prevent

public issues from being passed on as private placement, the Companies (Amendment) Act,

2001 considers offer of securities to more than 50 persons as made to public.

Indian market is getting integrated with the global market though in a limited way through

euro issues. Since 1992, when they were permitted access, Indian companies have raised

about Rs. 34,264 million through ADRs/GDRs. By the end of March 2003, 502 FIIs were

registered with SEBI. They had net cumulative investments over of US $ 15.8 billion by the


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end of March 2003. Their operations influence the market as they do delivery-based

business and their knowledge of market is considered superior. The market is getting

institutionalized as people prefer mutual funds as their investment vehicle, thanks to

evolution of a regulatory framework for mutual funds, tax concessions offered by

government and preference of investors for passive investing. The net collections by MFs

picked up during this decade and increased to Rs. 199,530 million during 1999-00. This

declined to Rs. 111,350 million during 2000-01 which may be attributed to increase in rate

of tax on income distributed by debt oriented mutual funds and lackluster secondary

market.

The total collection of mutual funds for 2002-03 has been Rs. 105,378 million. Starting with

an asset base of Rs. 250 million in 1964, the total assets under management at the end of

March 2003 was Rs. 794,640 million. The number of households owning units of MFs

exceeds the number of households owning equity and debentures. At the end of financial

year March 2003, according to a SEBI press release 23 million unit holders had invested in

units of MFs, while 16 million individual investors invested in equity and or debentures.

Government Securities

The primary issues of the Central Government have increased many-fold during the

decade of 1990s from Rs. 89,890 million in 1990-91 to Rs. 1,511,260 million in 2002-03. The

issues by state governments increased by about twelve times from Rs. 25,690 million to Rs.

308,530 million during the same period. The Central Government mobilised Rs. 1,250,000

million through issue of dated securities and Rs. 261,260 million through issue of T-bills.

After meeting repayment liabilities of Rs. 274,200 million for dated securities, and

redemption of T-bills of Rs. 195,880 million, net market borrowing of Central Government

amounted to Rs. 1,041,180 million for the year 2002-03. The state governments collectively

raised Rs. 305,830 million during 2002-03 as against Rs. 187,070 million in the preceding

year. The net borrowings of State Governments in 2002-03 amounted to Rs. 290,640

million. Along with growth of the market, the investor base has become very wide. In

addition to banks and insurance companies, corporates and individual investors are

investing in government securities. With dismantling of control regime, and gradual

lowering of the SLR and CRR, Government is borrowing at near–market rates. The


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coupons across maturities went down recently signifying lower interest rates. The weighted

average cost of its borrowing at one stage increased to 13.75% in 1995- 96, which declined

to 7.34% in 2002-03. The maturity structure of government debt is also changing. In view

of bunching of redemption liabilities in the medium term, securities with higher maturities

were issued during 2002-03. About 64% of primary issues were raised through securities

with maturities above 5 years and up to 10 years. As a result the weighted average maturity

of dated securities increased to 13.83 years from 6.6 years in 1997-98.

Relationship between the Primary and Secondary Market

1. The new issues market cannot function without the secondary market. The

secondary market or the stock market provides liquidity for the issued securities. The

issued securities are traded in the secondary market offering liquidity to the stocks at a

fair price.

2. The stock exchanges through their listing requirements, exercise control over

the primary market. The company seeking for listing on the respective stock exchange

has to comply with all the rules and regulations given by the stock exchange.

3. The primary market provides a direct link between the prospective investors

and the company. By providing liquidity and safety, the stock markets encourage the

public to subscribe to the new issues. The marketability and the capital appreciation

provided in the stock market are the major factors that attract the investing public

towards the stock market. Thus, it provides an indirect link between the savers and the

company.

4. Even though they are complementary to each other, their functions and the

organizational set up are different from each other. The health of the primary market

depends on the secondary market and vice versa.

Functions of Primary Market

The main service functions of the primary market are organization, underwriting and

distribution. Origination deals with the origin of the new issue. The proposal is analyzed in

terms of the nature of the security, the size of the issue, and timing of the issue and

floatation method of the issue. Underwriting contract makes the share predictable and


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removes the element of uncertainty in the subscription. Distribution refers to the lead

managers and brokers to the issue.

In the new issue market stocks are offered for the first time. The functions and the

organization of the new issue market is different from the secondary market. In the new

issue the lead mangers manage the issue, the underwriters assure to take up the

unsubscribed portion according to his commitment for a commission and the bankers take

up the responsibility of the collecting the application form and the money. Advertising

agencies promote the new issue through advertising. Financial institutions and underwriter

lend term loans to the company. Government agencies regulate the issue. The new issues

are offered through prospectus. The prospectus is drafted according to SEBI guidelines

disclosing the needed information to the investing public. In the bought out deal banks or a

company buys the promoters shares and they offer them to the public at a later date. This

reduces the cost of raising the fund. Private placement means placing of the issue with

financial institutions. They sell shares to the investors at a suitable price. Right issue means

the allotment of shares to the previous shareholders at a pro-ratio basis. Book building

involves firm allotment of the instrument to a syndicate created by the lead managers. The

book runner manages the issue. Norms are given by the SEBI to price the issue.

Proportionate allotment method is adopted in the allocation of shares. Project appraisal,

disclosure in the prospectus and clearance of the prospectus by the stock exchanges protect

the investors in the primary market along with the active role played by the SEBI

Secondary market

The market for long-term securities like bonds, equity stocks and preferred stocks is

divided into primary market and secondary market. The primary market deals with the

new issues of securities. Outstanding securities are traded in the secondary market, which

is commonly known as stock market or stock exchange. In the secondary market, the

investors can sell and buy securities. Stock markets predominantly deal in the equity

shares. Debt instruments like bonds and debentures are also traded in the stock market.

Well-regulated and active stock market promotes capital formation. Growth of the

primary market depends on the secondary market. The health of the economy is reflected

by the growth of the stock market.


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Corporate Securities

The number of stock exchanges increased from 11 in 1990 to 23 now. All the exchanges are

fully computerised and offer 100% on-line trading. 9,413 companies were available for

trading on stock exchanges at the end of March 2003. The trading platform of the stock

exchanges was accessible to 9,519 members from over 358 cities on the same date.

The market capitalisation grew ten fold between 1990-91 and 1999-00. It increased by

221% during 1991-92 and by 107% during 1999-00. All India market capitalisation is

estimated at Rs. 6,319,212 million at the end of March 2003. The market capitalisation

ratio, which indicates the size of the market, increased sharply to 57.4% in 1991-92

following spurt in share prices. The ratio further increased to 85% by March 2000. It,

however, declined to 55% at the end of March 2001 and to 29% by end March 2003.

The trading volumes on exchanges have been witnessing phenomenal growth during the

1990s. The average daily turnover grew from about Rs.1500 million in 1990 to Rs. 120,000

million in 2000, peaking at over Rs. 200,000 million. One-sided turnover on all stock

exchanges exceeded Rs. 10,000,000 million during 1998-99, Rs. 20,000,000 million during

1999-00 and approached Rs. 30,000,000 million during 2000-01. However, the trading

volume substantially depleted to Rs.9,689,541 million in 2002-03. The turnover ratio, which

reflects the volume of trading in relation to the size of the market, has been increasing by

leaps and bounds after the advent of screen based trading system by the NSE. The

turnover ratio for the year 2002-03 increased to 375 but fell substantially due to bad

market conditions to 119 during 2001-02 regaining its position accounted 153.3% in 2002-

03.

The relative importance of various stock exchanges in the market has undergone dramatic

change during this decade. The increase in turnover took place mostly at the large big

exchanges and it was partly at the cost of small exchanges that failed to keep pace with the

changes. NSE is the market leader with more 85% of total turnover (volumes on all

segments) in 2002-03. Top 5 stock exchanges accounted for 99.88% of turnover, while the

rest 18 exchange for less than 0.12% during 2002-03. About ten exchanges reported nil

turnover during the year.

Role of the Secondary Market


23


When company management has different objectives than its outside investors, "agency”

and "information" problems may result. For example, management may exert less than

optimal effort, may pursue goals that simply enhance its own power and control, or may

squander or divert company resources. In addition, to the extent that management is better

informed than outside investors about the company's financial situation, this creates an

informational asymmetry. This, in turn, may result in management being unable to

convince its outside investors of the true value of the company as well as of management's

intentions. As a consequence, management also may find that it is not able to raise as much

capital as it wants or needs to finance new projects, or that management may have to

surrender too much of the value of the firm to raise the capital it wants or needs.

"Governance" refers to the various mechanisms that exist to mitigate these agency and

information problems. These mechanisms are numerous, some involving capital markets

(e.g., facilitation of corporate control via takeover) while others do not, at least not directly

(e.g., the role of the board of directors as a monitoring device). These major mechanisms

will be discussed. We use the term "market-based governance" to refer to the role of

capital markets in alleviating the agency and information problems, by functioning as an

effective conduit for monitoring and controlling management's sub optimal behavior.

Market-based governance may take different forms. However, generally speaking, such

governance takes the form of facilitating the monitoring of management by outsiders, and

aggregating information—in the form of equilibrium prices (or price discovery)—to help

guide management decisions within the firm.

A. Monitoring and Control.

As noted, secondary equity markets serve as a conduit for monitoring and controlling

management by outsiders. First, markets generate information that helps outside investors

Evaluate the quality of past management decisions. Second, the threat of a takeover may

mitigate management inefficiencies. Third, information on stock-market prices provides

for effective incentives for management. And fourth, the rich menu of contracts provided

in the market allows private workouts of financial distress, easing the transfer of control.


24


For purposes of our analysis below, we have divided monitoring into two categories

Market-based monitoring

Non market-based monitoring

I. Market-Based Monitoring

I. 1 Active Shareholders:

The secondary equity market can facilitate effective monitoring by providing the ability to

build positions so as to influence management decisions in situations where a change in

corporate policies could increase a firm's value.

I. 2 The Market for Corporate Control:

The threat of a corporate takeover by outside investors could serve as a deterrent to

mismanagement. Secondary equity markets provide the means for launching a credible

takeover threat, which could influence actions by management.

I. 3 Facilitation of Incentive-Based Compensation:

Management could be aligned with its outside shareholders through a proper structuring

of incentive-based compensation. Management's equity ownership and stock options

provide management with additional incentives to act in the interest of outside

shareholders.

I. 4 Certification by Investment Banks:

When issuing securities to the public, the underwriting investment bankers monitor

management. When certifying a firm that hires them to sell its securities, these investment

bankers place their own reputations and capital at stake.

II. Non Market-Based Monitoring

II. 1 Board of Directors:

A board of directors is the primary method of non market-based monitoring. Management

reports directly to the board, and the board has a fiduciary obligation to stay informed of

management's major activities. The board has the power to terminate management that

does not act in the best interests of the company's shareholders. The key to a board's being

an effective monitoring mechanism is its independence. In this regard, the composition of

the board, especially the presence of outside board members, is critical to its effectiveness

as a monitor.


25


II. 2 Financial intermediaries as delegated monitors:

Banks closely monitor their business borrowers, and collect information and scrutinize

major investment and financing decisions. In doing so, they can threaten to withhold

financing should management act in a manner contrary to the banks' interests. Monitoring

via business groups. In some countries, such as Japan and Korea, corporate actions are

coordinated within a family of interrelated firms, with a main bank at the center. Firms in

the group are interconnected through intricate vertical and horizontal business

relationships and cross-ownership. Members of the business group, with the lead

participation of the main bank, closely monitor the actions of a member firm's

management.

The Legal System:

The four main legislations governing the securities market are: (a) the SEBI Act, 1992

which establishes SEBI to protect investors and develop and regulate securities market; (b)

the Companies Act, 1956, which sets out the code of conduct for the corporate sector in

relation to issue, allotment and transfer of securities, and disclosures to be made in public

issues; (c) the Securities Contracts (Regulation) Act, 1956, which provides for regulation of

transactions in securities through control over stock exchanges; and (d) the Depositories

Act, 1996 which provides for electronic maintenance and transfer of ownership of demat

securities. Government has framed rules under the SCRA, SEBI Act and the Depositories

Act. SEBI has framed regulations under the SEBI Act and the Depositories Act for

registration and regulation of all market intermediaries, and for prevention of unfair trade

practices, insider trading, etc. Under these Acts, Government and SEBI issue notifications,

guidelines, and circulars which need to be complied with by market participants. The

SROs like stock exchanges have also laid down their rules of game.

The responsibility for regulating the securities market is shared by Department of

Economic Affairs (DEA), Department of Company Affairs (DCA), Reserve Bank of India

(RBI) and SEBI. The activities of these agencies are co-ordinated by the High Level

Committee on Capital Markets. Most of the powers under the SCRA are exercisable by

DEA while a few others by SEBI. The powers of the DEA under the SCRA are also con-

currently exercised by SEBI. The powers in respect of the contracts for sale and purchase

of securities, gold related securities, money market securities and securities derived from


26


these securities and ready forward contracts in debt securities are exercised concurrently

by RBI. The SEBI Act and the Depositories Act are mostly administered by SEBI. The

rules and regulations under the securities laws are administered by SEBI. The powers

under the Companies Act relating to issue and transfer of securities and non-payment of

dividend are administered by SEBI in case of listed public companies and public companies

proposing to get their securities listed. The SROs ensure compliance with their own rules

as well as with the rules.

The legal system governs both the rights of management and the rights of investors. The

legal system also specifies the recourse available to investors. Recent research indicates that

countries vary in the level of protection afforded to minority shareholders (LaPorta et al,

1996). Generally, countries with common-law traditions afford the highest protection,

while civil-law countries, particularly the French civil-law systems, provide the least

amount of protection.

For purposes of this paper, the main focus and emphasis are on market-based governance

services.

B. Information Production.

Markets serve to aggregate the diverse opinions held by investors regarding the financial

prospects of a company, thereby providing management with an important guide when it

comes to its investment decisions. This price discovery role of secondary equity markets is

well recognized. Prices aggregate the diverse opinions and convey that collective wisdom to

management. This flow of information from the market to the firm might be especially

relevant in today's economy, since consensus on the optimal management actions is so

difficult to achieve due to rapid technological change and constantly changing market

conditions.


27


Functions of Stock Exchange

Maintains active trading: shares are traded on the stock exchanges, enabling the

investors to buy and sell securities. The prices may vary from transactions to

transaction. A continuous trading increases the liquidity or marketability of the

shares traded on the stock exchanges.

Fixation of prices: Price is determined by the transactions that flow from investors’

demand and suppliers’ preferences. Usually the traded prices are made known to the

public. This helps the investors to make better decisions.

Ensures safe and fair dealing: The rules, regulations and by-laws of the stock

exchanges’ provide a measure of safety to the investors. Transactions are conducted

under competitive conditions enabling the investors to get a fair deal.

Aids in financing the industry: A continuous market for shares provides a favourable

climate for raising capital. The negotiability and transferability of the securities helps

the companies to raise long-term funds. When it is easy to trade the securities,

investors are willing to subscribe to the initial public offerings. This stimulates the

capital formation.

Dissemination of information: Stock exchanges provide information through their

various publications. They publish the share prices traded on daily basis along with

the volume traded. Directory of Corporate Information is useful for the investors’

assessment regarding the corporate. Handouts, handbooks and pamphlets provide

information regarding the functioning of the stock exchanges.

Performance inducer: 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.


28


Self-regulating organization: The stock exchanges monitor the integrity of the

members, brokers, listed companies and clients. Continuous internal audit

safeguards the investors against unfair trade practices. It settles the dispute between

member brokers, investors and brokers.

Research in Securities Market

In order to deepen the understanding and knowledge about Indian capital market, and to

assist in policy-making, SEBI has been promoting high quality research in capital market.

It has set up an in-house research department, which brings out working papers on a

regular basis. In collaboration with NCAER, SEBI brought out a ‘Survey of Indian

Investors’, which estimates investor population in India and their investment preferences.

SEBI has also tied up with reputed national and international academic and research

institutions for conducting research studies/projects on various issues related to the capital

market. In order to improve market efficiency further and to set international benchmarks

in the securities industry, NSE administers a scheme called the NSE Research Initiative

with a view to develop an information base and a better insight into the working of

securities market in India. The objective of this initiative is to foster research, which can

support and facilitate (a) stock exchanges to better design market micro-structure, (b)

participants to frame their strategies in the market place, (c) regulators to frame

regulations, (d) policy makers to formulate policies, and (e) expand the horizon of

knowledge. The Initiative has received tremendous response.

Testing and Certification

The intermediaries, of all shapes and sizes, who package and sell securities, compete with

one another for the chance to handle investors/issuers’ money. The quality of their services

determines the shape and health of the securities market. In developed markets and in


29


some of the developing markets, this is ensured through a system of testing and

certification of persons joining market intermediaries in the securities market. A testing

and certification mechanism that has become extremely popular and is sought after by the

candidates as well as employers is a unique on-line testing and certification programme

called National Stock Exchange’s Certification in Financial Markets (NCFM). It is an on-

line fully automated nation-wide testing and certification system where the entire process

from generation of question paper, invigilation, testing, assessing, scores reporting and

certifying is fully automated - there is absolutely no scope for human intervention. It allows

tremendous flexibility in terms of testing centres, dates and timing and provides easy

accessibility and convenience to candidates as he can be tested at any time and from any

location. It tests practical knowledge and skills, that are required to operate in financial

markets, in a very secure and unbiased manner, and certifies personnel who have a proper

understanding of the market and business and skills to service different constituents of the

market. It offers 9 financial market related modules.

Market Design

Primary Market

1. Corporate Securities: The Disclosure and Investor Protection (DIP) guidelines prescribe

a substantial body of requirements for issuers/intermediaries, the broad intention being to

ensure that all concerned observe high standards of integrity and fair dealing, comply with

all the requirements with due skill, diligence and care, and disclose the truth, whole truth

and nothing but truth. The guidelines aim to secure fuller disclosure of relevant

information about the issuer and the nature of the securities to be issued so that investors

can take informed decisions. For example, issuers are required to disclose any material

‘risk factors’ and give justification for pricing in their prospectus. An unlisted company

can access the market up to 5 times its pre-issue networth only if it has track record of

distributable profits and net worth of Rs. 1 crore in 3 out of last five years. A listed

company can access up to 5 times of its pre-issue networth. In case a company does not

have track record or wishes to raise beyond 5 times of its pre-issue networth, it can access

the market only through book building with minimum offer of 60% to qualified

institutional buyers. Infrastructure companies are exempt from the requirement of


30


eligibility norms if their project has been appraised by a public financial institution and not

less than 5% of the project cost is financed by any of the institutions, jointly or severally,

by way of loan and/or subscription to equity. The debt instruments of maturities more than

18 months require credit rating. If the issue size exceeds Rs. 100 crore, two ratings from

different agencies are required. Thus the quality of the issue is demonstrated by track

record/appraisal by approved financial institutions/credit rating/subscription by QIBs. The

lead merchant banker discharges most of the pre-issue and post-issue obligations. He

satisfies himself about all aspects of offering and adequacy of disclosures in the offer

document. He issues a due diligence certificate stating that he has examined the prospectus,

he finds it in order and that it brings out all the facts and does not contain anything wrong

or misleading. He also takes care of allotment, refund

and despatch of certificates. The admission to a depository for dematerialisation of

securities is a prerequisite for making a public or rights issue or an offer for sale. The

investors, however, have the option of subscribing to securities in either physical form or

dematerialised form. All new IPOs are compulsorily traded in dematerialised form. Every

public listed company making IPO of any security for Rs. 10 crore or more is required to

do so only in dematerialised form.

2. Government Securities: The government securities market has witnessed significant

transformation in the 1990s. With giving up of the responsibility of allocating resources

from securities market, government stopped expropriating seigniorage and started

borrowing at near - market rates. Government securities are now sold at market related

coupon rates through a system of auctions instead of earlier practice of issue of securities at

very low rates just to reduce the cost of borrowing of the government. Major reforms

initiated in the primary market for government securities include auction system (uniform

price and multiple price method) for primary issuance of T-bills and central government

dated securities, a system of primary dealers and non-competitive bids to widen investor

base and promote retail participation, issuance of securities across maturities to develop a

yield curve from short to long end and provide benchmarks for rest of the debt market,

innovative instruments like, zero coupon bonds, floating rate bonds, bonds with embedded

derivatives, availability of full range ( 91-day and 382-day) of T-bills, etc.


31


Secondary Market

(a) Corporate Securities: The stock exchanges are the exclusive centres for trading of

securities. Though the area of operation/jurisdiction of an exchange is specified at the time

of its recognition, they have been allowed recently to set up trading terminals anywhere in

the country. The three newly set up exchanges (OTCEI, NSE and ICSE) were permitted

since their inception to have nation wide trading. The trading platforms of a few exchanges

are now accessible from many locations. Further, with extensive use of information

technology, the trading platforms of a few exchanges are also accessible from anywhere

through the Internet and mobile devices. This made a huge difference in a

geographically vast country like India.

(b) Exchange Management: Most of the stock exchanges in the country are organized as

“mutuals” which was considered beneficial in terms of tax benefits and matters of

compliance. The trading members, who provide brokering services, also own, control and

manage the exchanges. This is not an effective model for self-regulatory organisations as

the regulatory and public interest of the exchange conflicts with private interests. Efforts

are on to demutualise the exchanges whereby ownership, management and trading

membership would be segregated from one another. Two exchanges viz. OTCEI and NSE

are demutualised from inception, where ownership, management and trading are in the

hands of three different sets of people. This model eliminates conflict of interest and helps

the exchange to pursue market efficiency and investor interest aggressively.

(c) Membership: The trading platform of an exchange is accessible only to brokers. The

broker enters into trades in exchanges either on his own account or on behalf of clients. No

stock broker or sub-broker is allowed to buy, sell or deal in securities, unless he or she

holds a certificate of registration granted by SEBI. A broker/sub-broker complies with the

code of conduct prescribed by SEBI. Over time, a number of brokers - proprietor firms

and partnership firms – have converted themselves into corporates. The standards for

admission of members stress on factors, such as corporate structure, capital adequacy,

track record, education, experience, etc. and reflect a conscious endeavour to ensure

quality broking services.Ishan Institute of Management & Technology

32


(d) Listing: A company seeking listing satisfies the exchange that at least 10% of the

securities, subject to a minimum of 20 lakh securities, were offered to public for

subscription, and the size of the net offer to the public (i.e. the offer price multiplied by the

number of securities offered to the public, excluding reservations, firm allotment and

promoters’ contribution) was not less than Rs.100 crore, and the issue is made only

through book building method with allocation of 60% of the issue size to the qualified

institutional buyers. In the alternative, it is required to offer at least 25% of the securities

to public. The company is also required to maintain the minimum level of non-promoter

holding on a continuous basis. In order to provide an opportunity to investors to

invest/trade in the securities of local companies, it is mandatory for the companies, wishing

to list their securities, to list on the regional stock exchange nearest to their registered

office. If they so wish, they can seek listing on other exchanges as well. Monopoly of the

exchanges within their allocated area, regional aspirations of the people and mandatory

listing on the regional stock exchange resulted in multiplicity of exchanges. The basic

norms for listing of securities on the stock exchanges are uniform for all the exchanges.

These norms are specified in the listing agreement entered into between the company and

the concerned exchange. The listing agreement prescribes a number of requirements to be

continuously complied with by the issuers for continued listing and such compliance is

monitored by the exchanges. It also stipulates the disclosures to be made by the companies

and the corporate governance practices to be followed by them. SEBI has been issuing

guidelines/circulars prescribing certain norms to be included in the listing agreement and

to be complied with by the companies. A listed security is available for trading on the

exchange. The stock exchanges levy listing fees - initial fees and annual fees - from the

listed companies. It is a major source of income for many exchanges. A security listed on

other exchanges is also permitted for trading. A listed company can voluntary delist its

securities from non-regional stock exchanges after providing an exit opportunity to holders

of securities in the region where the concerned exchange is located. An exchange can,

however, delist the securities compulsorily following a very stringent procedure.


33


(e) Trading Mechanism: The exchanges provide an on-line fully-automated screen based

trading system (SBTS) where a member can punch into the computer quantities of

securities and the prices at which he likes to transact and the transaction is executed as

soon as it finds a matching order from a counter party. SBTS electronically matches orders

on a strict price/time priority and hence cuts down on time, cost and risk of error, as well

as on fraud resulting in improved operational efficiency. It allows faster incorporation of

price sensitive information into prevailing prices, thus increasing the informational

efficiency of markets. It enables market participants to see the full market on real-time,

making the market transparent. It allows a large number of participants, irrespective of

their geographical locations, to trade with one another simultaneously, improving the

depth and liquidity of the market. It provides full anonymity by accepting orders, big or

small, from members without revealing their identity, thus providing equal access to

everybody. It also provides a perfect audit trail, which helps to resolve disputes by logging

in the trade execution process in entirety.

(f) Trading Rules: Regulations have been framed to prevent insider trading as well as

unfair trade practices. The acquisitions and takeovers are permitted in a welldefined and

orderly manner. The companies are permitted to buy back their securities to improve

liquidity and enhance the shareholders’ wealth.

(g) Price Bands: Stock market volatility is generally a cause of concern for both policy

makers as well as investors. To curb excessive volatility, SEBI has prescribed a system of

price bands. The price bands or circuit breakers bring about a coordinated trading halt in

all equity and equity derivatives markets nation-wide. An index-based market-wide circuit

breaker system at three stages of the index movement either way at 10%, 15% and 20%

has been prescribed. The movement of either S&P CNX Nifty or Sensex, whichever is

breached earlier, triggers the breakers. As an additional measure of safety, individual

scrip-wise price bands of 20% either way have been imposed for all securities except those

available for stock options.


34


(h) Demat Trading: The Depositories Act, 1996 was passed to proved for the establishment

of depositories in securities with the objective of ensuring free transferability of securities

with speed, accuracy and security by (a) making securities of public limited companies

freely transferable subject to certain exceptions; (b) dematerialising the securities in the

depository mode; and (c) providing for maintenance of ownership records in a book entry

form. In order to streamline both the stages of settlement process, the Act envisages

transfer of ownership of securities electronically by book entry without making the

securities move from person to person. Two depositories, viz. NSDL and CDSL, have come

up to provide instantaneous electronic transfer of securities. At the end of March 2002,

4,172 and 4,284 companies were connected to

NSDL and CDSL respectively. The number of dematerialised securities increased to 56.5

billion at the end of March 2002. As on the same date, the value of dematerialsied securities

was Rs. 4,669 billion and the number of investor accounts was 4,605,588. All actively

traded scrips are held, traded and settled in demat form. Demat settlement accounts for

over 99% of turnover settled by delivery. This has almost eliminated the bad deliveries and

associated problems. To prevent physical certificates from sneaking into circulation, it has

been mandatory for all new IPOs to be compulsorily traded in dematerialized form. The

admission to a depository for dematerialisation of securities has been made a prerequisite

for making a public or rights issue or an offer for sale. It has also been made compulsory

for public listed companies making IPO of any security for Rs. 10 crore or more to do the

same only in dematerialised form.

(i) Charges: A stock broker is required to pay a registration fee of Rs.5,000 every financial year,

if his annual turnover does not exceed Rs. 1 crore. If the turnover exceeds Rs. 1 crore during any

financial year, he has to pay Rs. 5,000 plus one-hundredth of 1% of the turnover in excess of

Rs.1 crore. After the expiry of five years from the date of initial registration as a broker, he has to

pay Rs. 5,000 for a block of five financial years. Besides, the exchanges collect transaction

charges from its trading members. NSE levies Rs. 4 per lakh of turnover. The maximum

brokerage a trading member can levy in respect of securities transactions is 2.5% of the contract

price, exclusive of statutory levies like SEBI turnover fee, service tax and stamp duty. However,

brokerage charges as low as


35


0.15% are also observed in the market.

(j) Trading Cycle: Rolling settlement on T+3 basis gave way to T+2 from April 2003. The

market has moved close to spot/cash market.

(k) Risk Management: To pre-empt market failures and protect investors, the

regulator/exchanges have developed a comprehensive risk management system, which is

constantly monitored and upgraded. It encompasses capital adequacy of members, adequate

margin requirements, limits on exposure and turnover, indemnity insurance, on-line position

monitoring and automatic disablement, etc. They also administer an efficient market surveillance

system to curb excessive volatility, detect and prevent price manipulations. Exchanges have set

up trade/settlement guarantee funds for meeting shortages arising out of nonfulfillment/partial

fulfillment of funds obligations by the members in a settlement. A clearing corporation assures

the counterparty risk of each member and guarantees financial settlement in respect of trades

executed on NSE.

(l) Government Securities: The reforms in the secondary market include Delivery versus

Payment system for settling scripless SGL transactions to reduce settlement risks, SGL Account

II with RBI to enable financial intermediaries to open custody (Constituent SGL) accounts and

facilitate retail transactions in scripless mode, enforcement of a trade-for-trade regime,

settlement period of T+0 or T+1 for all transactions undertaken directly between SGL

participants and up to T+5 days for transactions routed through NSE brokers, routing

transactions through brokers of NSE, OTCEI and BSE, repos in all government securities with

settlement through SGL, liquidity support to PDs to enable them to support primary market and

undertake market making, special fund facility for security settlement, etc. As part of the

ongoing efforts to build debt market infrastructure, two new systems, the Negotiated Dealing

System (NDS) and the Clearing Corporation of India Limited (CCIL) commenced operations on

February 15, 2002. NDS, interalia, facilitates screen based negotiated dealing for secondary

market transactions in government securities and money market instruments, online reporting of

transactions in


36


the instruments available on the NDS and dissemination of trade information to the market.

Government Securities (including T-bills), call money, notice/term money, repos in eligible

securities, Commercial Papers and Certificate of Deposits are available for negotiated dealing

through NDS among the members. The CCIL facilitates settlement of transactions in government

securities (both outright and repo) on Delivery versus Payment (DvP-II) basis which provides for

settlement of securities on gross basis and settlement of funds on net basis simultaneously. It acts

as a central counterparty for clearing and settlement of government securities transactions done

on NDS.

The relative importance of various stock exchanges in the market has undergone dramatic

change during this decade. The increase in turnover took place mostly at the large big exchanges

and it was partly at the cost of small exchanges that failed to keep pace with the changes. NSE is

the market leader with over 80% of total turnover (volumes on all segments) in 2001-02. Top 6

stock exchanges accounted for 99.88% of turnover, while the rest 17 exchange for less than

0.12% during 2002-03 (Table 5.4). About a dozen exchanges reported nil turnover during the

year.

The movement of the S&P CNX NIFTY, the most widely used indicator of the market, is

presented in Chart 5.1. In the very first year of liberalisation, i.e. 1991-92, it recorded a growth

of 267%, followed by sharp decline of 47% in the next year as certain irregularities in securities

transactions were noticed. The market picked up next year thanks to increased inflow of foreign

funds, and increased investor interest. Thereafter the market remained subdued. The index

recorded a decline of 3.47% during 1998-99 under the pressure of economic sanctions following

detonation of nuclear device, continuing woes of East Asian financial markets, volatility of

Indian currency and worries about financial health of UTI’s US-64 scheme. The Union Budget

of 1999 brought cheers to the market. The market moved on a roller coaster ride, but a distinct

rising trend emerged due to all-round positive perception about strength of the Government and

also its commitment towards second generation reforms, improved macro-economic parameters

and better corporate results. The S&P CNX Nifty firmed up during 1999-2000 by 42% which

was nearly four times the average return offered on bank deposits. The trend got reversed during

2000-01, which witnessed large sell-offs in new economy stocks in global markets and

deceleration in the growth of the domestic economy. This brought down Nifty from a high of

1636.95 in April 2000 to a low of 1108.20 in October 2000. The market looked up in November-


37


January in anticipation of a good budget. However it did not last long as the market received

shocking news about imminent payment crisis on certain exchanges, large scale manipulations in

stock prices and revelation of large scale corruption in the procurement of defence equipments.

The Nifty closed at 1148.20 at the end of March 2001 recording a fall of about 25% during 2000-

01. The trend precipitated further with introduction of rolling settlement and withdrawal of

deferral products in July 2002, suspension of repurchase facility under UTI’s US-64 scheme,

terrorist attack on world Trade Centre in September 2002, etc. which caused a further decline in

S&P CNX Nifty by 1.6% during 2001-02. The Nifty closed at 978.2 at the end of March 2003.

Government Securities

The trading volumes in government securities exceeded the combined trading volumes in equity

segments of all the exchanges in the country during 2002-03. The aggregate turnover in central

and state government dated securities, including treasury bills, through SGL transactions

increased by manifold between 1994-95 and 2002-03. During 2002-03 it reached a level of Rs.

19,557,313 million, recording about 24.3% growth over Rs.15,738,930 million in the previous

year. Such growing turnover reflects further deepening of the market. The bulk of transactions

during 2000-02 were on outright basis. The share of outright transactions in government

securities increased from 23.2% in 1995-96 to 71.2% in 2002-03. The share of repo transactions

declined correspondingly from 76.8% in 1995-96 to 29% in 2002-03. The share of WDM

segment of NSE in total turnover for government securities decreased marginally from 58.9% in

2000-01 to 52% in 2002-03. As compared to the increase in overall turnover of government

securities by 24%, the same on WDM grew by 11% during 2002-03. Share of WDM in

transactions of dated securities decreased from 61.1% in 2001-02 to 55.6% in 2002-03. Its share

in transactions of T-bills decreased from 27.4% in 2001-02 to 21.5% in 2002-03. Government

debt, which constitutes about three-fourth of the total outstanding debt, has the highest level of

liquidity amongst the fixed income instruments in the secondary market. The share of dated

securities in total turnover of government securities has been increasing over the years. Two-way

quotes are available for the active gilt securities from the primary dealers. Though many trades in

the gilts take place through telephone, a larger chunk of trades get routed through NSE brokers.

Derivatives Market


38


Trading in derivatives of securities commenced in June 2000 with the enactment of enabling

legislation in early 2000. Derivatives are formally defined to include: (a) a security derived from

a debt instrument, share, loan whether secured or unsecured, risk instrument or contract for

differences or any other form of security, and (b) a contract which derives its value from the

prices, or index of prices, or underlying securities. Derivatives are legal and valid only if such

contracts are traded on a recognised stock exchange, thus precluding OTC derivatives.

Derivatives trading commenced in India in June 2000 after SEBI granted the approval to this

effect in May 2000. SEBI permitted the derivative segment of two stock exchanges, i.e. NSE and

BSE, and their clearing house/corporation to commence trading and settlement in approved

derivative contracts. To begin with, SEBI approved trading in index futures contracts based on

S&P CNX Nifty Index and BSE-30 (Sensex) Index. This was followed by approval for trading in

options based on these two indices and options on individual securities. The trading in index

options commenced in June 2001 and trading in options on individual securities would

commence in July 2001 while trading in futures of individual stocks started from November

2001. In June 2003, SEBI/RBI approved the trading on interest rate derivative instruments.

The total exchange traded derivatives witnessed a volume of Rs.4,423,333 million during 2002-

03 as against Rs. 1,038,480 million during the preceding year. While NSE accounted for about

99.5% of total turnover, BSE accounted for less than 1% in 2002-03. The market witnessed

higher volumes from June 2001 with introduction of index options, and still higher volumes with

the introduction of stock options in July 2001. There was a spurt in volumes in November 2001

when stock futures were introduced. It is believed that India is the largest market in the world for

stock futures.

Current status of Indian capital markets

Market capitalisation and turnover

As on March 31, 2000, the Indian stock market had a market capitalisation of over Rs 10 trillion

($ 230 billion) representing 58per cent of GDP. The annual trading volume in all the exchanges

put together amounted to Rs 20 trillion (approximately twice the market capitalisation). The


39


average daily trading volume is about $2 billion and there are days on which the turnover is

twice this level. Sideshows 'Stockexchange-wise turnover' and 'Stock market indicators',

provide more details about turnover and market capitalisation.

India has 9,871 listed companies; this number is second only to that of the United States.

However, most of the trading volume is concentrated in a few hundred stocks, and even within

this, the top hundred stocks account for a disproportionate share of the trading volume.

The Indian capital market is well-diversified in terms of ownership pattern and industry

structure. Most of the top 50 companies are domestic private sector companies with no single

family or business group accounting for a disproportionate share. There is no foreign owned

corporation, public sector organisation or newly privatised company in the top five stocks by

market capitalisation. Companies with a market capitalisation of $1 billion or more are present in

industries as diverse as software, petrochemicals, oil refining, consumer goods, telecom,

banking, pharmaceuticals, and entertainment.

In the last few years, however, new economy stocks have shown rapid increase in their market

capitalisation and turnover. In the BSE 500 index covering the top 500 listed companies, new

economy stocks account for about 49per cent of market capitalisation and 50per cent of the

average daily turnover.

Stock exchanges

India boasts of the oldest stock exchange in Asia -- the Bombay Stock Exchange is 125 years

old. There are 23 recognised exchanges spread across the country, but a process of consolidation

is now under way. Many of the regional stock exchanges have started aligning themselves with

one or both of the two large exchanges (the Bombay Stock Exchange and the National Stock

Exchange) both of which have VSAT networks that give them a nation wide reach.

The National Stock Exchange is an unlisted for-profit company set up by some of the leading

financial institutions of India. Most of the remaining stock exchanges are broker-owned (mutual)


40


organisations, but the Bombay Stock Exchange is actively considering demutualisation. The

Securities and Exchange Board of India (SEBI), the apex regulator of the capital market has

regulations that mandate a minimum number of outside directors on the governing board and

provide greater autonomy to the professional executives in the day-to-day running of the

exchange.

Trading and settlement

India’s stock exchanges are fully computerised order driven or order-cum-quote driven systems.

The country has made rapid strides towards a dematerialised trading environment on the basis of

a competing depositories model. Investors have the choice of holding their stocks in physical or

dematerialised form, but trading in the exchanges is in mandatory dematerialised mode in most

important stocks. As of October 2000, about 98per cent of the trading in the stock exchanges is

in dematerialised mode.

India has put in place a regulatory regime for internet trading of stocks. A large number of online

brokers have started operations. More brokers are expected to follow when the exchanges put in

place an ASP (Application Service Provider) model for online trading software. However,

currently, the level of penetration of online trading is extremely small.

The stock exchanges currently run two parallel settlement systems. Practically all the trading

takes place in the account period settlement system in which all trades during a weekly account

period are netted off and the net obligations are settled five business days after the end of the

period. The other unpopular system is that of rolling settlements where trades of each day are

settled on a T+5 basis. SEBI is currently working on mandatorily shifting all stocks in a phased

manner to the rolling settlement system. Further improvements in the settlement system to T+3

or beyond would have to wait for improvements in the payment system.

However, account period settlement does not give rise to significant systemic risks in India

because of stringent end of day and intra-day margining systems. Put simply, the weekly

settlement is regarded as akin to a one-week futures contract, and the systemic risk is taken care

of by using futures style margining. The exchange imposes daily mark to market and initial


41


margins on the brokers to eliminate settlement risk. Exchanges also have clearing houses to

guarantee settlements on the exchange. As a result, there have been no settlement failures in the

principal stock exchanges during the last five years.

Primary market

India enjoyed a major boom of IPOs in the mid 1990s. This hot IPO period came to an end in

1995-96 with a fall in the stock market and a downturn in the economy. Investors who

subscribed at the height of the boom suffered significant losses, and the primary market has yet

to recover from this debacle. In the late 1990s, moreover, the Indian corporate sector was in the

midst of a structural transformation with the old economy companies stocks doing badly in the

face of global competition while software companies delivered outstanding financial results. The

stock market also rewarded the new economy stocks with high valuations. In this environment, it

was difficult for most old economy companies to come to the market with a credible business

plan. Software companies in India have used a stock market listing primarily to establish a

valuation and create an acquisition currency as their large positive cash flows leave them with

little need for additional funding.

At the same time, SEBI has been concerned about public capital raising by companies with no

track record. Newly set up software companies, entertainment companies and internet companies

with no tangible assets pose particular problems of valuation. In this situation, SEBI has moved

half-way towards a QIB (Qualified Institutional Buyers) market for some of these stocks. This

mandatory gatekeeping approach is discussed later in this paper. In 1999-2000, a total of Rs 78

billion was raised in the Indian capital market, of which about Rs 45 billion was in the form of

equity and the balance in the form of debt. More details about the Indian primary market are

available in the Sideshows. (see 'Capital raised from the primary market', 'Industrywise

classification' and 'Sizewise classification')

Disclosure and corporate governance

India moved from a merit based regulation to a disclosure based regulation of the primary market

with the establishment of the Securities and Exchange Board of India (SEBI) in 1992. The level


42


of disclosure has increased progressively in recent years as SEBI has attempted to bring

disclosure requirements up to international levels. This is an ongoing exercise.

In the field of continuing disclosure, listed companies are now required to disclose unaudited

financial results on a quarterly basis, and there is now a subject these results to limited auditor

review. The Accounting Standards Board set up by the accounting profession is engaged in a

major exercise to bring Indian accounting standards on par with those of the IASC (International

Accounting Standards Committee).

SEBI is now in the process of implementing the Corporate Governance Code framed by the Birla

Committee through the listing agreement. Under this code, companies are required to have a

minimum number of independent directors, and to have an audit committee.

Globalisation

India operates a rigorous system of exchange controls on the capital account. However, a

window has been created for foreign portfolio investment. As on March 31, 2000, there were 506

Foreign Institutional Investors (FIIs) registered with SEBI. These FIIs had in the aggregate

invested $11.23 billion in the Indian stock market; this represents about 5 per cent of the market

capitalisation. Sideshow, 'FII Investment', provides trends regarding FII investments in the last

few years.

Indian companies have also been allowed to issue shares outside the country in the form of

GDRs (Global Depository Receipts) and ADRs (American Depository Receipts). From 1992-93

to 1998-99, Indian companies raised Rs 274 billion in this form (see Sideshow, Euro issues by

Indian companies). Any holder of ADRs and GDRs can convert these into the underlying

domestic shares. However conversion in the opposite direction is not permitted.

Mutual funds

As on March 31, 2000, there were 37 mutual funds registered with SEBI. This is in addition to

the country’s largest and oldest mutual fund, the Unit Trust of India, which is not yet under

SEBI’s regulatory purview. These mutual funds had floated a total of 330 different mutual fund


43


schemes, which together controlled assets of Rs 1.1 trillion ($ 25 billion) representing about

11per cent of the market capitalisation. Details regarding annual resource mobilisation by mutual

funds are available in Sideshow, 'Mutual fund resource mobilisation'.

Investor population and profile

According to the investor survey carried out by the National Council of Applied Economic

Research (NCAER) together with SEBI, about 8per cent of all households hold equity shares or

debentures. This constitutes an investor base of 19 million individuals. Investors in mutual funds

numbered about 23 million thanks mainly to the long established Unit Trust of India. Allowing

for common ownership of shares and mutual funds, there are probably about 30 million direct

and indirect investors in the Indian capital market.

The share of household financial savings that goes to the capital market is very small at around 3

per cent (see Sideshow, 'Instrument-wise flow of household financial savings'). This share

had reached a level of 23 per cent in early 1990s towards the end of a long boom in the capital

markets and has been steadily declining since then.

Derivatives market

India’s fledgling index futures market is less than six months old and the trading volume is far

below even one per cent of the cash market volumes. Global experience suggests that the market

may still be in the initial stage of low awareness and low acceptance, and that the market could

pick up in coming months. There are also plans to introduce new derivative products.


44


Unit –II Classification of capital market

Primary market Secondary market

PRIMARY MARKETThe primary is that part of the capital markets that deals with the issuance of new securities.

Companies, governments or public sector institutions can obtain funding through the sale of a

new stock or bond issue. This is typically done through a syndicate of securities dealers. The

process of selling new issues to investors is called underwriting. In the case of a new stock issue,

this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price

of the security offering, though it can be found in the prospectus.

The primary market for equity, which consists of both the ‘initial public offering’ (IPO)market

and the ‘seasoned equity offering’ (SEO) markets, experienced considerable activity in 2005 and

2006 (Table 4.1). In 2006,Rs.30,325 crore of resources were raised onthis market, of which

Rs.9,918 crore were made up by 55 companies which were listed for the first time (IPOs). The


45

http://en.wikipedia.org/wiki/Prospectus

http://en.wikipedia.org/wiki/Initial_public_offering

http://en.wikipedia.org/wiki/Underwriting

http://en.wikipedia.org/wiki/Funding

http://en.wikipedia.org/wiki/Security_(finance)

http://en.wikipedia.org/wiki/Capital_market


number of IPOs per year has risen steadily from 2002 onwards. A level of 55 IPOs in the year

translates to roughly 4 IPOs every month. The mean IPO size, which was elevated in 2005,

returned to Rs.180 crore, which is similar to the value prevalent in 2003. 4.3 The primary

issuance of debt securities, as per SEBI, fell to a low of around Rs. 66 crore in 2006, which is

one facet of the far-reaching difficulties of the debt market. Unlike equity securities, debt

securities issued at previous dates are redeemed by companies every year. Hence, a year with a

low issuance of fresh debt securities is a year in which the stock of outstanding debt securities

drops. In addition to resource mobilisation by the issuance of debt and equity securities, one of

the most important mechanisms of financing that has been used by Indian firms is retained

earnings, which are also a part of equity financing.

Table : Primary market

(Rs. crore)

2002

Calendar year

2003 2005 2006

Debt 4,549 Equity 2,420 Of which, IPOs 1,981 Number of IPOs 6

5,284 2,891

1,708 12

2,383 33,475 12,402 26

66 30,325 9,918 55

Mean IPO size 330 142 477 180

Total 6, 970 8,175 35,859 30,391

Number 28 43 65 109

Source: SEBI.

SECONDARY MARKET:

Outstanding securities are traded in the secondary market, which is commonly known as stock

market or stock exchange. In the secondary market, the investors can sell and buy securities.

Stock markets predominantly deal in the equity shares. Debt instruments like bonds and

debentures are also traded in the stock market.

Dematerialization

Indian investor community has undergone sea changes in the past few years. India now has a

very large investor population and ever increasing volumes of trades. However, this continuous

growth in activities has also increased problems associated with stock trading. Most of these


46


problems arise due to the intrinsic nature of paper based trading and settlement, like theft or loss

of share certificates. This system requires handling of huge volumes of paper leading to

increased costs and inefficiencies. Risk exposure of the investor also increases due to this trading

in paper.

Some of these risks are :

Delay in transfer of shares.

Possibility of forgery on various documents leading to bad deliveries, legal disputes etc.

Possibility of theft of share certificates.

Prevalence of fake certificates in the market.

Mutilation or loss of share certificates in transit.

The physical form of holding and trading in securities also acts as a bottleneck for

broking community in capital market operations.

The introduction of NSE and BOLT has increased the reach of capital market manifolds. The

increase in number of investors participating in the capital market has increased the possibility of

being hit by a bad delivery. The cost and time spent by the brokers for rectification of these bad

deliveries tends to be higher with the geographical spread of the clients. The increase in trade

volumes lead to exponential rise in the back office operations thus limiting the growth potential

of the broking members. The inconvenience faced by investors (in areas that are far flung and

away from the main metros) in settlement of trade also limits the opportunity for such investors,

especially in participating in auction trading. This has made the investors as well as broker wary

of Indian capital market. In this scenario dematerialized trading is certainly a welcome move.

What is Dematerialization?

Dematerialization or "Demat" is a process whereby your securities like shares, debentures etc,

are converted into electronic data and stored in computers by a Depository. Securities registered

in your name are surrendered to depository participant (DP) and these are sent to the respective


47


companies who will cancel them after "Dematerialization" and credit your depository account

with the DP. The securities on Dematerialization appear as balances in your depository account.

These balances are transferable like physical shares. If at a later date, you wish to have these

"demat" securities converted back into paper certificates, the Depository helps you to do this.

Depository

Depository functions like a securities bank, where the dematerialized physical securities are

traded and held in custody. This facilitates faster, risk free and low cost settlement. Depository is

much like a bank and perform many activities that are similar to a bank. Following table

compares the two.

Bank Depository

Holds funds in accounts Holds securities in account

Transfers funds between accounts Transfers securities between accounts

Transfers without handling money Transfers without handling securities

Safekeeping of money Safekeeping of securities

NSDL and CDS

At present there are two depositories in India, National Securities Depository Limited (NSDL)

and Central Depository Services (CDS). NSDL is the first Indian depository, it was inaugurated

in November 1996. NSDL was set up with an initial capital of US$28mn, promoted by Industrial

Development Bank of India (IDBI), Unit Trust of India (UTI) and National Stock Exchange of

India Ltd. (NSEIL). Later, State Bank of India (SBI) also became a shareholder.

The other depository is Central Depository Services (CDS). It is still in the process of linking

with the stock exchanges. It has registered around 20 DPs and has signed up with 40 companies.

It had received a certificate of commencement of business from Sebi on February 8, 1999.


48


These depositories have appointed different Depository Participants (DP) for them. An investor

can open an account with any of the depositories’ DP. But transfers arising out of trades on the

stock exchanges can take place only amongst account-holders with NSDL's DPs. This is because

only NSDL is linked to the stock exchanges (nine of them including the main ones-National

Stock Exchange and Bombay Stock Exchange).

In order to facilitate transfers between investors having accounts in the two existing depositories

in the country the Securities and Exchange Board of India has asked all stock exchanges to link

up with the depositories. Sebi has also directed the companies’ registrar and transfer agents to

effect change of registered ownership in its books within two hours of receiving a transfer

request from the depositories. Once connected to both the depositories the stock exchanges have

also to ensure that inter-depository transfers take place smoothly. It also involves the two

depositories connecting with each other. The NSDL and CDS have signed an agreement for

inter-depository connectivity.

Depositiory Participant

NSDL carries out its activities through various functionaries called business partners who

include Depository Participants (DPs), Issuing corporates and their Registrars and Transfer

Agents, Clearing corporations/ Clearing Houses etc. NSDL is electronically linked to each of

these business partners via a satellite link through Very Small Aperture Terminals (VSATs). The

entire integrated system (including the VSAT linkups and the software at NSDL and each

business partner's end) has been named as the "NEST" [National Electronic Settlement &

Transfer] system.

The investor interacts with the depository through a depository participant of NSDL. A DP can

be a bank, financial institution, a custodian or a broker

Just as one opens a bank account in order to avail of the services of a bank, an investor opens a

depository account with a depository participant in order to avail of depository facilities.

Benefits of demat


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Transacting the depository way has several advantages over the traditional system of transacting

using share certificates. Some of the benefits are:

Trading in demat segment completely eliminates the risk of bad deliveries, which in turn

eliminates all cost and wastage of time associated with follow up for rectification. This

reduction in risk associated with bad delivery has lead to reduction in brokerage to the

extent of 0.5% by quite a few brokerage firms.

In case of transfer of electronic shares, you save 0.5% in stamp duty.

You also avoid the cost of courier/ notarization/ the need for further follow-up with your

broker for shares returned for company objection

In case the certificates are lost in transit or when the share certificates become mutilated

or misplaced, to obtain duplicate certificates, you may have to spend at least Rs500 for

indemnity bond, newspaper advertisement etc, which can be completely eliminated in the

demat form.

You can also receive your bonuses and rights into your depository account as a direct

credit, thus eliminating risk of loss in transit.

You can also expect a lower interest charge for loans taken against demat shares as

compared to the interest for loan against physical shares. This could result in a saving of

about 0.25% to 1.5%. Some banks have already announced this.

RBI has increased the limit of loans against dematerialized securities as collateral to

Rs2mn per borrower as against Rs1mn per borrower in case of loans against physical

securities.

RBI has also reduced the minimum margin to 25% for loans against dematerialized

securities as against 50% for loans against physical securities.

Savings

Trading in dematerialized shares results in substantial savings for the investors. Following tables

gives an idea about these savings.

Savings for a person who buy shares for long term investment


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(On a purchase of Rs10000)

Item Physical

(Rs)

Depository (demat)

(RS)

Savings

(Rs)

Brokerage 75-100 50-75 25-50

*Stamp Duty 50 - 50

Postal Charges 10-30 - 10-30

Company Objection (courier

etc.)

10-30 - 10-30

Settlement charges - 5-10 -(5-10)

#Custody (5 years) - 10-50 -(10-50)

Total 35-100

* Stamp duty of 0.5%

# Custody charge of 0.05%- 0.1%

Savings for an investor who sells dematerialized shares

(For a sale of Rs10000)

Item Physical

(Rs)

Depository (demat)

(Rs)

Savings

(Rs)

*Brokerage 75-100 50-75 25-50

Company Objection (courier, 10-30 - 10-30


51


etc.)

Settlement charges - -(5-10) -(5-10)

Total 25-75

Savings for a trader who buys and sell very often.

(For a trader who turns over his portfolio of Rs10000 ten times in a year.)

Item Physical (Rs) Depository (demat) (Rs) Savings (Rs)

*Brokerage 750-1000 500-750 250-500

Settlement charges - 50-100 -(50-100)

Custody (5 years) - 2-10 -(2-10)

Total 140-390

* Many brokers offer reduced brokerage for sell of dematerialized securities since they would

not have fear of bad delivery

Bank Accounts

How to open a bank account with a DP

Opening a depository account is as simple as opening a bank account. You can open a depository

account with any DP convenient to you.

To open an account you have to:


52


Fill up the account opening form, which is available with the DP.

Sign the DP-client agreement, which defines the rights and duties of the DP and the

person wishing to open the account.

Receive your client account number (client ID).

This client ID along with your DP ID gives you a unique identification in the depository

system.

There is no restriction on the number of depository accounts a person can open. However, if your

existing physical shares are in joint names, you have to open the account in the same order of

names before you submit your share certificates for demat. A sole holder of the share certificates

cannot add more names as joint holders at the time of dematerializing his share certificates.

However, if the investor wants to transfer the ownership from his individual name to a joint

name, he should first open an account as the sole holder (account A) and dematerialize the share

certificates. He should then open another depository account (account B) in which he is the first

holder and the other person is the second holder and make an off market transfer of the shares

from the account A to account B. The investor will incur a charge on this transaction.

Alternatively, the certificates can be transferred to the joint ownership and then sent for

Dematerialization.

Right now, as per the Companies Act, there is no nomination facility for shares (whether in the

physical or in the electronic form). The nomination facility for shares can be availed of only

when the relevant provisions in the Companies Act are amended. NSDL captures the details of

the nominee when the account is opened so as to offer the facility as soon as the relevant

amendments are effected in the Law.

A client can choose to open more than one account with same DP. In addition to this, he has a

choice of opening accounts with more than one DP. However a broker can open just one

Clearing Member account per card/ stock exchange for clearing purpose, but he can still open

multiple beneficiary accounts Beneficiary is the personal account wherein brokers can keep their

personal holdings.


53


A broker has only one Clearing Member-pool-account. One Clearing Member pool account is

opened per card/ stock exchange to settle trades in the dematerialized form. The Clearing

Corporation/ House just deals with one designated account for pay-in and payout and the

broker's clients know to which account they have to deliver and receive securities from.

A clearing member cannot hold his personal holdings in his clearing member account. A broker

may deal in the depository system as a clearing member only through a special account, known

as the Clearing Member account. This account can be used only for clearing purposes and not for

holding his own securities in it. As this is a transitory account, the securities held in this account

are not eligible for corporate actions. Therefore, the broker will have to open a separate

beneficiary owner account to hold his investments.

There is no compulsion for the client to open his account with the same DP as that of his broker.

Even if he has an account with another DP, he can carry out normal business with his broker.

There is no loss in operational efficiency. But it is possible that opening account with his broker's

DP may work out to his advantage, as some DPs may offer special charge structure if the broker

and his clients are dealing through him.

How to choose a DP

Following are the few aspects that you should consider before choosing a DP

Branch-level service.

Most DPs offer depository services from their main branch as well as through other branches and

franchisees. Higher the number of branches your DP has, (which offer depository services)

greater will be the geographical convenience you will have.

Recently Department of Telecommunications has allowed the DPs (only bank-DPs at present) to

connect their entire internal network to NSDL. The NSDL is making changes in its software for

DPs to meet the DoT conditions. After it is done DPs will be able to execute your instructions

directly at the branch level thus saving time and improving efficiency. So check before opening

an account whether your DP (if it is a bank-DP) intends to interconnect its branch network with


54


that of NSDL. Before opening an account with a DP you should also check whether the DP is

offering all the services through its branches.

DPs mandate a time limit for submission of debit instructions before settlement pay-in time. It

should be checked whether the time limit applies equally to all the branches (or franchisees) of

the DP or whether it varies.

Backup facilities

Having an adequate backup system is extremely necessary for a DP. In case of a system failure

all the data could be lost if backup facilities are not present. Although depositories too have the

data with them but a strong system with your DP ensures no risks and hassles.

So before opening an account get details from your DP about its computer system's technical

specifications and backup facilities.

Safe procedures.

Your securities account can get debited only if you submit to your DP a duly filled and signed

'delivery instruction' (debit instruction) form (separate for market trades and off-market transfers)

that authorizes the DP to debit your account. You will execute this form only when you have

sold shares. But you could have worries that some one else can forge your signature on such a

form, which your DP will not be able to detect, and your account will get debited .To get rid of

these worries you should check that delivery instruction form book that you get from your DP

must be serial-numbered with numbers unique to your account and recorded in the DP's system.

Whenever there is a debit or credit in an account the DP is supposed to send a transaction

statement and a holding statement to the investors within a fortnight. In case there have been no

transactions they generate just a holding statement every quarter. So check for the statements

regularly since all DPs are not very punctual about sending transaction and holding statements.

These statements will ensure that your account is proper.


55


There is an additional safety feature available with the DPs. You can freeze your account on the

debit side if you do not want to sell the shares from your account, this will ensure that no debit is

done in your account. Your account will continue to receive credits arising from fresh purchases

but no debit will be permitted. A special form, that you can get from the DP, is executed that

instructs your DP to freeze your account (only for the debit side or completely). When you want

to sell your shares you can execute the same form to unlock your account.

Customer Service

DPs should have an adequate customer service facilities. This is one of the most important

aspects while deciding your DP. At some time or other you will need some information on your

account. Your DP should be able to provide you quick service, so check whether your DP has a

dedicated customer service department.

If you are not happy with the service you get from your DP or you are not sure that your shares

will be safe you should not think twice of taking your shares to another DP.

Dematerialization And Rematerialization

How To Dematerialize Your Shares

To dematerialize your share certificates you have to:

Fill up a dematerialization request form, which is available with your DP;

Submit your share certificates along with the form; (write "surrendered for demat" on the

face of the certificate before submitting it for demat)

Receive credit for the dematerialized shares into your account in 15 days.

Dematerialized shares do not have any distinctive or certificate numbers. These shares are

fungible - which means that 100 shares of a security are the same as any other 100 shares of that

security.


56


The investor can dematerialize only those certificates that are already registered in his name and

belong to the list of securities admitted for Dematerialization at NSDL. Shares held in street

name (market deliveries) cannot be dematerialized. If the share certificates that investor wants to

dematerialize do not belong to the list of securities eligible for Dematerialization specified by

NSDL, he can approach the company and request them to sign up with NSDL to make their

securities available for Dematerialization. Odd lot share certificates can also be dematerialized.

No transfer deed is required for dematerializing certificates, the certificates have to be

accompanied by a demat request form (DRF) which can be obtained from DPs. It is compulsory

to mention the ISIN number of the company while filling up the Demat Request form. This, to a

certain extent, ensures that the security mentioned in the Demat Request Form is the same as the

one the investor intends to dematerialize. However, the investor need not remember cryptic

numbers and can take the help of his DP in filling these forms.

Dematerialization is not compulsory. According to the Depositories Act, 1996, an investor has

the option to hold shares either in physical or in dematerialized form. An investor can hold part

of his holdings in demat form and part of his holdings in the form of share certificates for the

same security.

Although the depository would be a registered owner of securities in the depository, a transaction

involving dematerialized securities would not be considered as benami transactions, the Benami

Transactions (Prohibition) Act, 1988 have been suitably modified to exclude the securities held

by a:

Depository as a registered owner

DP as an agent of the depository.

Securities bearing the same distinctive numbers as demat securities can still float in the market.

It is a case of forged certificates and normal procedures that are being followed in the physical

market will be used to weed them out. The concerned stock exchanges where the securities are

listed are informed of the details of securities dematerialized and rematerialized.

An investor can dematerialize shares that are pledged with a bank, which is a DP as well.


57


How To Rematerialize Shares.

During a rematerialization process, the request goes from the DP to the R&T agent via NSDL.

The R&T Agent, after processing the request, will print and dispatch the share certificate directly

to you. No transfer duty will be charged to you when you rematerialize your shares. You have

the option of rematerializing your total holdings or part of it. In addition to this, you have the

option to get the certificates in market lot or jumbo lot.

If your name has been wrongly spelt on the certificates given to you after a remat, you can send

it for rectification to the R&T agent along with the relevant documents.

Trading

Trading in dematerialized securities is quite similar to trading in physical securities. The major

difference is that at the time of settlement, instead of delivery/ receipt of securities in the

physical form, it is done through account transfer.

An investor cannot trade in dematerialized securities through his DP. Trading at the stock

exchanges can be done only through a registered trading member (broker) of the stock exchange

irrespective of whether the securities are held in physical or dematerialized form. DPs role will

only be to facilitate settlement of trade in the dematerialized form, by transferring securities from

and to the account of the investor, for selling and buying respectively.

Trading in dematerialized securities is presently available at NSE, BSE, CSE, DSE, BgSE, LSE,

MSE, ISE & OTCEI. These exchanges have a segment exclusive for trading in dematerialized

securities and a segment where trades could be settled either in the physical or in the

dematerialized form as per the choice of the delivering client. In unified (erstwhile - physical)

segment securities can be delivered either in the physical form or in the dematerialized form at

the choice of the delivering party.

However, securities that have to be mandatorily settled in demat form (both by institutional

investors & all category of investors) cannot be settled in physical form. Also for securities that


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have to be mandatorily settled in demat form by all categories of investors the concept of market

lot is eliminated ie the tradable lot is one share from the date they become compulsory.

Since January 4, 1999, all category of investors can deliver only in dematerialized form with

respect to a select list of securities (which is expanded from time to time). For these scrips, from

the date they become compulsory, the concept of market lot is eliminated ie the tradable lot for

these scrips is one share. This will be applicable only at those exchanges that have joined the

depository.

Also, from January 15, 1998, select category of investors can deliver only in dematerialized form

with respect to a select list of securities (which is expanded from time to time).

Consequently there will be separate price quotes available for each scrips in both the segments.

The trades in each of these segments cannot be netted off with each other.

The facility of delivering dematerialized securities in the physical segments of the stock

exchanges is available for all the companies that are eligible for dematerialization. This also

applies to delivery against auction of securities in the physical segment.

However, at DSE dematerialized securities can be presently traded only in the exclusive demat

segment. They are not accepted as good delivery in the physical segment. At LSE,

dematerialized securities can be delivered only in the unified (erstwhile - physical) segment.

Presently, LSE does not have an exclusive demat segment.

Non pari-passu shares (like partly paid up bonus/ right shares with pro-rata dividend) are

identified with separate ISIN (scrip codes) and can be traded separately. These can also be

delivered against obligation in pari-passu shares along with dividend cheques.

In the unified (erstwhile - physical) segment, auction trade obligations can be met & bad delivery

rectification can be made by delivering dematerialized securities.

Trades in each segment have to be settled separately and cannot be netted between segments for

settlement.


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Any investor who buys securities from any of the stock exchanges where dematerialized

securities are available, may receive his delivery in the dematerialized form as dematerialized

shares can be delivered in the physical segment at the option of the seller.

Therefore those investors who buy securities from these exchanges should necessarily open a

depository account to take delivery of these shares.

Squaring off

It is possible to square off trades in dematerialized securities. In the exclusive demat segment,

the trades can be squared off within the same day as this segment follows a rolling settlement

cycle. In the physical segment the trades can be squared off within the trading period specified

for that stock exchange. This is presently five working days, between Wednesday to Tuesday at

NSE, Monday to Friday at BSE and Thursday to Wednesday at CSE. At CSE for some of the

shares (classified as specified group) the trading period is 14 days.

If an investor squares off his position within the trading period, he does not need to open a

depository account. Depository account is required for taking delivery or giving delivery of

dematerialized securities in case of buy or sell respectively. In case the investor squares off his

trade, and hence, does not have to take or give delivery of dematerialized securities, the

depository account is not used.

As in the physical segment, an investor can go long or short in the demat segment also.

How to access a scrip

At NSE, the AE and BE segments can be accessed by selecting the scrip you want to trade in and

typing AE or BE in place of EQ.

At the BSE, all scrips have a scrip code. For going to the Demat segment, add 500000 to the

scrip code. For eg If the scrip code of RIL is 325 in the physical segment, the scrip code to be

typed for going to Demat segment is 500325.


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Trading at NSE

Trading in dematerialized securities is quite similar to trading in physical securities and is done

through the same "NEAT" terminals of the trading members (brokers).

Exclusive Demat segments.

On NSE, three separate segments; viz AE and BE and BT segments are available for trading only

in dematerialized securities. The difference between the segments being that, in BE segment the

concept of market lot is eliminated ie the minimum tradable quantity is one share. However,

securities that have to be mandatorily settled in demat form by all class of investors cannot be

traded in the AE segment.

Trades in AE & BE segments follow rolling settlement of T+5 working days cycle and are

cleared & settled through NSCCL, the Clearing Corporation (CC) of NSE. Trades settled in the

AE segment on Wednesday follow rolling settlement cycle of T+3 working days. Trades in BT

segment are not settled through NSCCL, but are settled bilaterally by the trading members.

Unified (erstwhile - physical) segments.

In EQ and TT segments securities can be delivered either in the physical form or in the

dematerialized form at the choice of the delivering party. In the EQ segment, auction trade

obligations can be met and bad delivery rectification can be made by delivering dematerialized

securities.

Trades in EQ segment follow account period settlement (Wednesday to Tuesday) cycle and are

cleared &settled through NSCCL. Trades in TT segment are not settled through NSCCL, but are

settled bilaterally by the trading members.

Trading at BSE


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through the same "BOLT" terminals of the trading members(brokers).

Trading at CSE


through the same "C-Star" terminals of the trading members (brokers).

Trading at DSE


through the same "DOTS" terminals of the trading members (brokers). Presently not all

securities are available for trading at DSE. Only a select list of dematerialized scrips can be

presently traded at DSE only in the exclusive demat segment.

Trading at BSE


through the same "BEST" terminals of the trading members(brokers).

BE and BO are segments available for trading exclusively in dematerialized securities.

Trades in BE and BO segments follow rolling settlement cycle of T+5 working days and are

cleared & settled through the Clearing House (CH) of BgSE.

The only difference between BE and BO is that while trading in BE segment is in normal market

lots, trading in BO segment is in units of one security.

Trading at LSE


through the same "VECTOR" terminals of the trading members (brokers).

Trading at OTCEI


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through the same "OASIS" terminals of the trading members(brokers).

AE and BE are segments available for trading exclusively in dematerialized securities.

Trades in AE and BE segments follow rolling settlement cycle of T+5 working days and are

cleared & settled through NSCCL, the Clearing Corporation (CC) of NSE which also acts as the

clearing agent of OTCEI.

The only difference between AE and BE is that while trading in AE segment is in normal market

lots, trading in BE segment is in units of one security. However, securities that have to be

mandatorily settled in demat form by all class of investors cannot be traded in the AE segment.

Settlement

The settlement of trades in the stock exchanges is undertaken by the clearing corporation (CC)/

clearing house(CH) of the corresponding stock exchanges. While the settlement of

dematerialized securities is effected through depository, the funds settlement is effected through

the clearing banks. The physical securities are settled by the clearing members directly with the

CC/ CH.

Exclusive demat segment follows rolling settlement (T+5) cycle and the unified (erstwhile -

physical) segment follows account period settlement cycle. In case of rolling settlement cycle,

the account period is reduced to one day.

In case of settlement of trades done in exclusive demat segments, the pay-in and pay out

of funds and securities are effected on the same day afternoon and evening (same day)

thus reducing the blockage of funds and limiting exposure to the clearing corporation.

Settlement of funds is effected through the clearing banks and depository plays no role in

this.

Settlement of securities is effected through NSDL depository system.


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Clearing and settlement of the regular market trades is effected through the clearing

members of the clearing houses of respective stock exchanges. All trading members of

stock exchanges are clearing members of clearing houses. In addition, for settlement of

institutional trades, custodians are also allowed to act as clearing members.

Clearing members of clearing house, dealing in dematerialized securities are expected to

open a clearing account with any DP for the purpose of settling trades in dematerialized

securities. As, in the mixed (unified) segment, there is a possibility for all clearing

members to receive dematerialized securities, they are expected to open clearing

accounts.

If there is any short delivery at the time of pay-in of securities, these short positions are

auctioned in the Demat segment as done in the Unified (erstwhile-physical) segment.

Rolling settlement (T+5) cycle

In this case, the trading period (T) is one day. For the trading period comprising one day,

settlement of trades on the basis of netted obligation is on the 5th working day from the trade day

ie on T+5 basis. At NSE, for trades executed on Wednesday in the AE segment, settlement on

the basis of net obligation is on the 3rd working day ie on T+3 basis.

The deadline time for pay-in and pay-out of securities to the Clearing Corporation/ Clearing

House (through NSDL depository system) is effected till 4.00 p.m. for NSE and 1.30 p.m. for

BSE, CSE and DSE on settlement day (ie 5th working day from trade day) varies from exchange

to exchange. Pay-in and pay-out of funds to the clearing bank (NSDL has no role in this) is also

on the same day - settlement day (ie 5th working day from trade day).

As in the physical segment, cumulative obligation statement for daily trades is downloaded by

Clearing Corporation/ Clearing House at the end of the day. The final/ net obligation statement is

downloaded by the Clearing Corporation/ Clearing House on the 2nd working day from the trade

day. In case of CSE, the final/ net obligation statement is downloaded by the Clearing House on

the next working day from trade day.


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Short deliveries, if any is auctioned on the 6th working day from the trade day ie one day after

the settlement day. In case of NSE, auction trade is on the 7th working day from the trade day.

The time for auction trade is announced by the exchanges and may vary from one exchange to

another. Settlement of auction trades is on the 2nd working day from the auction trade day. The

procedure for settlement of auction trades is similar to settlement of market trades.

For trades executed on Wednesday (TD 1):

Final/ Net obligation statement download - Friday (T+2nd working day)

Settlement day (SD 1) ie pay in and pay out of funds and securities - next Wednesday

(T+5th working day)

Auction trade day (ATD 1) - next Thursday (T+6th working day)

Auction settlement day (ASD 1) - Monday (2nd working day from auction trade day ie

T+8th working day)

Similarly, for trades executed on Thursday (TD 2):

Final/ Net obligation statement download - Monday (T+2nd working day)

Settlement day (SD 2) - next Thursday (T+5th working day)

Auction trade day (ATD 2) - next Friday (T+6th working day)

Auction settlement day (ASD 2) - Tuesday (2nd working day from auction trade day ie

T+8th working day)

Selling And Buying of Shares

How To Sell Dematerialized Shares

Selling dematerialized shares in stock exchanges is similar to the procedure for selling physical

shares. Instead of delivering physical shares to the broker, you instruct your DP to debit your

account with the number of shares sold by you and credit your broker's clearing account.


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For this, a delivery instruction has to be given to your DP in a standardized format, which will be

available with your DP.

In short, for selling demat shares;

You can sell shares in any of the stock exchanges linked to a depository through a broker

of your choice.

Give an instruction to your DP to debit your account and credit your broker's clearing

member pool account. (this is a depository account used exclusively for settling

transactions by a broker)

On the pay-in day, your broker gives instruction to his DP for delivery of the shares to

clearing corporation of the relevant stock exchange.

The broker receives payment from the clearing corporation

You receive payment from your broker for the sale in the same manner you would

receive payment for a sale in the physical mode.

How To Buy Dematerialized Shares.

The procedure for buying dematerialized shares in stock exchanges is similar to the procedure

for buying physical shares. When you want to purchase shares in electronic form, you have to

instruct your broker to purchase the dematerialized shares from the stock exchanges linked to a

depository.

Once the order is executed, you have to instruct your DP (vide a simple format which is available

with the DP) to receive securities from your broker's clearing account.

Alternatively, you may give a standing instruction to receive credits into your account and do

away with giving a separate receipt instruction each time you expect a credit. You have to ensure

that your broker too gives a matching instruction to his DP to transfer the shares purchased on

your behalf into your depository account.


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You should also ensure that your broker transfers the shares purchased from his clearing account

to your depository account, before the book closure. This is really important because shares that

remain in the clearing account of the broker on the book closure/ record date will not be eligible

for corporate benefits.

In brief, the transactions relating to purchase of shares are:

You can purchase shares in any of the stock exchanges connected to a depository through

a broker of your choice and make a payment to your broker;

Your broker receives credit in his clearing account with his DP on the pay-out day;

Broker gives instructions to his DP to debit his clearing account and credit your account;

You instruct your DP for receiving credit into your depository account either through a

specific receipt instruction or using the "standing instruction" facility.

In case you are not using the "standing instruction" facility then, your depository account

is credited only if the instructions given by you and your broker match.

Charges

NSDL Charges for DPs

NSDL does not charge the investor directly but charges its DPs, who are free to charge their

clients.

NSDL charges its DPs under the following heads:

Transaction Fees :

Market Trade :

sale - nil; purchase - 5 basis points (ie 0.05% of the value of net receipts to a

clearing members account)

Off Market Trade :


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sale - nil;

purchase - 10 basis points (ie 0.1% of value of securities)

Custody Fees :

3.5 basis points p.a.(ie 0.035% p.a. of average value of securities)

Rematerialization :

Rs. 10/- per certificate

One time payment scheme:

NSDL has announced a new scheme under which, if a company makes a one-time payment of 5

basis points (0.05%) of the average market capitalization during the preceding 26 weeks, then

NSDL will not charge any custody fees to the DPs for shares of that company. Future issues by

such companies would require a payment of 5 basis points on the new share capital created. The

valuation for new shares will be done at the issue price. Companies would not be required to pay

any additional amount, if they make a bonus issue.

Other Services

Besides demat and trading Depositories also offer other services, these are:

Pledging/ hypothecation of dematerialized securities.

Electronic credit in public offerings of companies.

Receipt of non-cash corporate benefits such as bonus, rights in electronic form.

Stock lending and borrowing.

Transmission of securities.

Pledging


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Dematerialized shares could be pledged; in fact, this is more advantageous as compared to

pledging share certificates.

How to pledge your Demat shares

Both you (pledgor) as well as the lender (pledgee) must have depository accounts.

You must initiate the pledge by submitting the details of the securities to be pledged in a

standard format (available with DPs).

The pledgee should confirm the request through his DP.

Once this is done, your securities are pledged

All commercial documentation between the pledgor and the pledgee are handled outside

the depository system.

After you have repaid your loan, you can request for a closure of pledge by instructing your DP

through a standard format. The pledgee on receiving the repayment as well as the request for

closure of pledge will instruct his DP accordingly.

Even the locked-in securities can be pledged, however they cannot be invoked before the lock-in

release date.

Even after the securities are pledged, the pledgor continues to remain the beneficiary holder of

those securities and will receive benefits of a corporate action, if any.

Initial Public Offerings

Credits for public offers can be directly received into demat account. In the public issue

application form of depository eligible companies, there will be a provision to indicate the

manner in which securities should be allotted to the applicant. All you have to do is to mention

your client account number and the name and identification number of your DP.

Any allotment due to you will be credited into your account.


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If the applicant is allotted securities in dematerialized form, but the details regarding the

beneficiary account are incomplete/ wrong, the person will get physical delivery of allotted

securities.

If securities are allotted in the dematerialized form, these would be credited to applicants account

any day between allotment date and listing date, at the discretion of the company.

The issuer company/ their R&T agent will forward the applicant the allotment advice giving the

number of shares allotted in dematerialized form. Through this you can come to know that you

have been allotted shares.

An amendment to the company law requiring all future public issues above Rs100mn to

compulsorily offer securities in dematerialized form is awaiting legislative approval. After this

all the issues above Rs100mn will require investors to trade only in demat way.

Partly paid up and fully paid up shares in the depository, will be given separate ISINs

(International Securities Identification Number). These are also traded separately at the stock

exchanges.

The company issues call notices to the beneficial holders of securities in the electronic form. The

details of such beneficial holders will be provided to the issuer/ their R&T agent by NSDL. After

the call money realization, issuer/ their R&T agent will electronically convert the partly paid up

shares to fully paid up shares.

Receipt Of Cash/ Non-Cash Benefits

When any corporate event such as rights or bonus or dividend is announced for a particular

security, depository will give the details of all the clients having electronic holdings in that

security as of the record date to the registrar. The registrar will then calculate the corporate

benefits due to all the shareholders. The disbursement of cash benefits such as dividend/ interest

will be done directly by the registrar. In case of non-cash benefits, depository will directly credit

the securities entitlements in the depository accounts of all those clients who have opted for

electronic allotment based on the information provided by the registrar.


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The bonus/ rights issue against holding in dematerialized form can be either in the physical/

dematerialized form as per the choice of the investor. If no choice is given, by default, the

securities will be issued in the physical form.

Even if an investor has holdings in physical form, he can receive the bonus/ rights issue against

this in the dematerialized form.

In case of fractional part, as in the physical segment, it would be paid in cash and the remaining

whole part would be credited to the investors account.

The statement of holding and transaction statement is sent by the investors DP, it will show the

bonus/ rights credit into investor’s account. This report is sent to the investor every fifteen days.

In addition, an allotment advise will be send by the issuer/ their R&T agent for bonus/ rights

entitlement.

Stock Lending And borrowing

Through the depository account securities in the demat form can be easily lent/ borrowed.

Securities can be lent or borrowed in electronic form through an approved intermediary, who has

opened a special 'intermediary' account with a DP.

Lending Securities

You have to instruct your DP through a standard format (which is available with your DP) to

deposit your securities with the intermediary.

If the intermediary accepts your deposit of securities, the securities will be moved from your

account into the intermediary's account. If you wish to recall the securities lent by you, you can

make a request vide a standard format available with your DP.


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How To Borrow Securities

You have to instruct your DP through a standard format (which is available with your DP) to

borrow securities from the intermediary.

If the intermediary accepts your request, the securities will be moved from the intermediary's

account to your account. If you wish to return the securities borrowed by you, you can make a

request vide a standard format available with your DP.

Transmission Of Securities

Transmission of securities due to death, lunacy, bankruptcy, insolvency or by any other lawful

means other than transfer is also possible in the depository system. In the case of transmission,

the claimant will have to fill in a transmission request form, (which is available with the DP)

supported by valid documents. The DP, after ensuring that the application is genuine, will

transfer securities to the account of the claimant. For this, the claimant must have a depository

account. The major advantage in transmission of dematerialized holdings is that the transmission

formalities for all securities held with a DP can be completed in one go, unlike in the case of

share certificates, where the claimant will have to interact with each issuing company or its R&T

Agent.

In case where the deceased was one of the joint holders in the Client account, the surviving

client(s) shall be the person(s) recognized by depository as having title to the securities held in

that joint Client account. In case where the deceased was a sole holder of the Client account, his

legal heir(s) or the legal representative(s) will be the person(s) recognized by depository as

having title to the securities held in that sole Client account

Security

National Security and Depository Limited claims to have undertaken sufficient security

measures. These measures are:


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A DP can be operational only after registration by Sebi, which is based on the

recommendation from NSDL and Sebi’s own independent evaluation. Sebi has

prescribed criteria for becoming a DP in the regulations.

DPs are allowed to effect any debit and credit to an account only on the basis of valid

instruction from the client.

Every day, there is a system driven mandatory reconciliation between the DP and NSDL.

There are periodic inspections into the activities of both DP and R&T agent by NSDL.

This also includes records based on which the debit/ credit are effected.

The data interchange between NSDL and its business partners is protected by standard

protection measures such as encryption. This is a SEBI requirement.

There are no direct communication links between two business partners and all

communications between two business partners are routed through NSDL

All investors have a right to receive their statement of accounts periodically from the DP.

Every month NSDL forwards statement of accounts to a random sample of investors as a

counter check.

In the depository, the depository holds the investor holdings on trust. Therefore, if the DP

goes bankrupt the creditors of the DP will have no access to the holdings in the name of

the clients of the DP. These investors can then either dematerialize their holdings or

transfer them to a different account held with another DP.

Investor grievance: All grievances of the investors are to be resolved by the concerned

DP. If they fail to do so the investor has the right to approach NSDL.


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Insurance Cover: NSDL has taken a comprehensive insurance policy to protect the

interest of the investors in cases of failure of the DP to resolve a genuine loss. The details

of the policy is as under:

Upper limit per claim : Rs200mn

Number of claims allowed : unlimited

Minimum value of the claim : Rs150,000

To cover claims valued less than Rs150,000 NSDL has an investor protection fund in

place.

Besides all these safety measures efforts have been done to make this electronic system

foolproof.

Computer And Communication Infrastructure.

The systems are accepted by NSDL only after a rigorous testing procedure.

Machine level back up: The IBM mainframe situated at "Trade World" (NSDL office in

Mumbai) in which the data is processed has adequate redundancy built into its configuration.

There is a standby central processing unit (CPU) to which processing can be switched over to in

case of main system CPU failure. The disk has RAID implementation, which ensures that a

single point failure will not lead to loss in data.

System has spare disk configuration where data is automatically copied from the main disk upon

encountering the first failure (due to RAID implementation - first failure does not result in loss of

data).

All network components like router, communication controllers etc, have on-line redundancy

and thus a failure does not result in loss of transaction.

Disaster back up site: In addition, a disaster back up site equipped with a computer identical to

the mainframe computer & computing resources has been set up at a remote location about 175

km away from Mumbai. This site has been tested for operations from the site.


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Back-up in case of power failure: Continuity in power supply to the main systems is assured by

providing for; dual uninterrupted power supply (UPS) for IBM-Mainframe and related

components wherein the two UPSs are connected in tandem. In case of failure of primary UPS,

the secondary UPS takes over instantaneously and thus, there is no interruption in operation, and

back-up diesel generator set.

If an investor looses his statement of holdings, he may inform his DP and obtain a duplicate

statement of holdings. The loss of statement of holding will not effect his actual holdings.

If a DP goes bankrupt, there is no need for an investor to be unduly concerned as enough

provisions are there for the investor to transfer his account from the defunct DP to another DP or

get the securities rematerialized. There cannot be any lien on the account holders assets by

creditors belonging to the DP or NSDL and therefor the account holders assets are absolutely

safe. There is no credit risk in case of a defunct NSDL or its DPs.

Depository account details are confidential. There are strict systems and procedures established

to protect the confidentiality of investor information at the depository to ensure that these are

available to only authorized persons. Even a DP other than your own, cannot have access to your

account.

Tax Aspect

In case of dematerialized holdings cost of acquisition and period of holding for calculation of

capital gains tax is determined on the basis of First In First Out (FIFO) method. This is as per the

amendment to the Income Tax Act. The proof of the cost of acquisition will remain to be the

contract note.

Demat Shares: Are They 100% Safe


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When you buy physical shares from the stock market, you could never be certain of the validity

of the title of shares. There were many reasons- the sellers' signature did not match, or the

certificates were fake, forged or stolen, and so on.

Demat shares are supposed to obviate these problems. Buying shares in the demat form always

guarantees you a good title as soon as the settlement is over. The biggest attraction of trading in

demat shares is that the shares you buy come with a clean title and immediately after the

settlement on the relevant stock exchange.

Rule 100 of market regulator SEBI determines whether the shares delivered in a settlement, are

good or not. Under rule 100, the shares that have been transferred any number of times can still

be withdrawn by the company, if a transfer is found to be invalid for any reason.

Suppose A sells physical shares to B and B gets them dematerialized. Later B sells the shares in

the stock exchange and C buys them. Meanwhile A discovers that his share certificates were

stolen and fraudulently sold by someone else. He gets a court order restraining the company from

further transferring the shares and attaching them (currently in possession of C). This is known

as 'stop transfer'. So C who has bought dematerialized shares is now struck with the shares. He

cannot sell these shares since they would be frozen in his account

In demat shares, pre-demat problems about the validity of a share do not effect the interest of the

buyers after dematerialization. Shares go through a verification process at the registrars' before

they are dematerialized.

Therefore the responsibility lies with the registrar. The registrar must find a remedy if the

original transfer of shares, before their dematerialization comers under doubt. But there is a

catch. The company and its registrars are not responsible if the reasons for original transfer being

invalid were not available at the time of dematerialization. Matters have to be dealt with on a

case to case basis. Which means that even demat buyer may find that his shares have been frozen

in his demat account. This kind of case has to be contested in court by the parties involved.

This issue is not directly addressed in The Depositories Act, 1996. Sebi’s regulations on

depositories and depository participants also do not mention the issue.


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Matters get more complex if an investor has traded further in shares of the same company in his

demat account. Demat shares are fungible and don’t have distinctive numbers. It is not easy to

track the sale or trade of shares after they are dematerialized.

Auction

Auctions are initiated by the Exchange on behalf of trading members for settlement related

reasons. The main reasons are Shortages, Bad Deliveries and Objections. There are three types of

participants in the auction market.

(a) Initiator: The party who initiates the auction process is called an initiator.

(b) Competitor: The party who enters on the same side as of the initiator is called a competitor.

(c) Solicitor: The party who enters on the opposite side as of the initiator is called a solicitor.

The trading members can participate in the Exchange initiated auctions by entering orders as a

solicitor. E.g. If the Exchange conducts a Buy-In auction, the trading members entering sell

orders are called solicitors. When the auction starts, the competitor period for that auction also

starts. Competitor period is the period during which competitor order entries are allowed.

Competitor orders are the orders which compete with the initiator’s order i.e. if the initiator’s

order is a buy order, then all the buy orders for that auction other than the initiator’s order are

competitor orders. And if the initiator order is a sell order then all the sell orders for that auction

other than the initiators order are competitor orders.

After the competitor period ends, the solicitor period for that auction starts. Solicitor period is the

period during which solicitor order entries are allowed. Solicitor orders are the orders which are

opposite to the initiator order i.e. if the initiator order is a buy order, then all the sell orders for

that auction are solicitor orders and if the initiator order is a sell order, then all the buy orders for

that auction are solicitor orders.

After the solicitor period, order matching takes place. The system calculates trading price

for the auction and all possible trades for the auction are generated at the calculated trading price.

After this the auction is said to be complete. Competitor period and solicitor period for any

auction are set by the Exchange.

Entering Auction Orders

Auction order entry allows the user to enter orders into auctions that are currently running. To

view the information about currently running auctions invoke ‘Auction Inquiry’ screen. Further Ishan Institute of Management & Technology

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one can view one's own outstanding orders for any auction by invoking ‘Outstanding Order

Inquiry’ for auction market. All auction orders are valid for the trading day only. The user can do

auction order entry by entering ‘AU’ in the book type of the order entry screen. Symbol and

Series that is currently selected in any of the market information windows (i.e. MW) provides the

defaults in the auction order entry screen. If Auction OO is up for an auction that is either in a

competitor or solicitor period, then the auction number has to be entered. All fields in the auction

order entry screen except auction number and settlement days are same as normal market order

entry screen. The screen also displays competitor period and solicitor period. The defaults that

are provided on the auction inquiry screen are symbol, series, auction number, settlement days

and quantity (available for auction). The user can edit the default values if required. The fields in

the auction order entry screen that has to be entered are PRO/CLI selection, account number (not

mandatory), participant and remarks.

Solicitor period for an auction starts as soon as the auction starts. The duration of the

solicitor period is set by the Exchange. The system accepts the solicitor orders in any currently

running auction only if the solicitor period for that auction is in progress. Presently the trading

members cannot initiate auctions in any security. They can only participate as solicitors in

auctions initiated by the Exchange. In Exchange initiated auctions, the competitor period is set to

zero and therefore only solicitor period is available.

Entering Solicitor Order: To enter a solicitor order invoke auction order entry screen and enter

the auction number or symbol series in AUC No. (auction number) field. The AUC No. and

symbol series combination is validated and if an error is encountered then an appropriate error

message is displayed in the message window and the focus is set on the AUC No. When the

order details are found to be correct, the system assigns a unique order number to the order and

sends an order confirmation message to the trader workstation. If the solicitor period for that

auction is over, the order is not accepted. Auction number for each security is displayed in the

Auction Inquiry screen.

Validation of Auction Orders: Following validation checks are performed, in addition to the

routine order entry validation checks, to verify initiator orders.

• If the auction market is not open for trading, the user is not allowed to enter an auction order.

• If a trading member or a participant is suspended, then no auctions can be entered for the

trading member or for the participant.


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• If the security is not allowed to trade in the auction market or if the security is suspended, the

orders for that security are not allowed.

• If the quantity entered exceeds Warning Quantity Percentage, the system asks the user for

confirmation of the order.

• Any order with a price outside the Day Min/Max range is not allowed.

Following validation checks are performed to verify the competitor and the solicitor

orders: -

• If a competitor order is entered, then a check is made if the auction in which order entry is

desired is in the competitor period.

• If a solicitor order is entered, then a check is made if the auction in which order entry is desired

is either in competitor period or solicitor period.

• Auction order entry in auctions which are yet in a pending state or which are cancelled is

prohibited.

Auction Order Modification

The user is not allowed to modify any auction orders.

Auction Order Cancellation

The user can cancel any solicitor order placed by him in any auction provided the solicitor period

for that auction is not over. The order cancellation procedure is similar to that of normal market.

The user can also use quick order cancellation key to cancel his outstanding auction orders.

Auction Order Matching

When the solicitor period for an auction is over, auction order matching starts for that auction.

During this process, the system calculates the trading price for the auction based on the initiator

order and the orders entered during the competitor and the solicitor period. At present for

Exchange initiated auctions, the matching takes place at the respective solicitor order prices.

Rolling Settlement

In a Rolling Settlement, all trades outstanding at end of the day have to be settled, which means

that the buyer has to make payments for securities purchased and seller has to deliver the

securities sold. In India, we have adopted the T+5 settlement cycle, which means that a Ishan Institute of Management & Technology

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transaction entered into on Day 1 has to be settled on the Day 1 + 5 working days, when funds

pay in or securities pay out takes place.

(Now we have T+2 settlement cycle)

Internationally, most developed countries follow rolling settlement system. For instance, USA

and UK follow a T+3 system.

In a weekly settlement cycle, (currently operational in India), all transactions done during the

week (which is defined as Monday to Friday for the Stock Exchange, Mumbai (BSE) and

Wednesday to Tuesday for the National Stock Exchange (NSE)) can be squared off on the last

day of the cycle. This means that a trader has a longer time frame to speculate. Only those

transactions which are outstanding at the end of the last trading day are required to be settled by

payments or deliveries.

Advantages

As mentioned earlier, this is the system practiced in developed countries. Pay outs are quicker

than in weekly settlements, and investors will benefit from increased liquidity. The other benefit

of the modified system is that it keeps cash and forward markets separate. In the current system,

the trader has five days to square off his transaction which leads to a high level of speculation as

people even without funds tend to "play" the market. During volatile markets, especially in a

bearish market, this often leads to a payment problem which has dogged the Indian stock

exchanges for a long time. It provides for a higher degree of safety, and once mechanisms such

as futures and stock-lending become popular, it would result in quality speculation and genuine

investor interest.

Rolling Settlement will keep Cash and Futures/ Speculative markets separate Currently, we

have "badla", which is nothing but a carry forward mechanism. A trader takes a long position in

a stock, and at settlement end, he carries forward his open position by paying badla. This

effectively means that cash and forward markets are over lapping. In the Rolling Settlement, a

trader has only time within the day to speculate. At end of each day, either he has to deliver


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securities or funds. All forward positions will be now limited to Index Futures and individual

Options on stocks, thus separating cash and forward markets.

Most brokers and media reports say that volumes will dry, post introduction of Rolling

Settlement.

Going by past track record of what happened to shares in rolling settlement, there will be a

temporary dip in volumes. Time frame for speculation will get reduced from 5 days to 5 hours,

which will also impact volumes. In the long term, the superior trading mechanism will instill

investor confidence and volumes will rise.

In the past, given the fact that trades used to happen in physical format (paper shares),

settlements was a tedious process. Post dematerialization and introduction of depositories, rolling

settlements has become feasible. Funds transfer still takes time. The other reason attributed by

media is the presence of the "broker lobby" which used to object to this move citing reasons that

trading volumes will diminish significantly post rolling settlements, impacting their business.

The Securities & Exchange Board of India (SEBI) had decided to gradually introduce rolling

settlements on Indian stock exchanges. This is a forward step which makes Indian markets

comparable to developed markets like USA and Europe. This will give a boost to investor

confidence and increase foreign inflows. At the same time, SEBI is planning to introduce futures

and options, which are instruments of choice in developed countries. From July 2, 2001, Group

A and Index heavy weight stocks will be put in compulsory rolling mode and hence the media

hype. But we can trade in odd lot shares in rolling.

Futures and Options will replace badla. SEBI had earlier allowed carry forward positions taken

prior to May 14, 2001 to be "carried forward" till September 3, by which time they had to be

squared off. In a later note, it said, all carry forward outstanding positions from July 2 shall be

allowed only with the approved deferral products in the rolling settlement and not through the

weekly badla product.

Given the confusion and uncertainty, we would advice retail investors to square all outstanding

carry forward positions.


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About speculators

Since settlement is now daily, there will be intra day speculation. Note only 411 scrips are

getting into rolling from July 2, hence action will shift to quality B1 and B2 stocks which are not

under the rolling purview. We believe SEBI to act quickly and bring all those stocks also under

rolling mode. A better degree of speculative interest will re-emerge in the rolling settlement

stocks. Note that when badla was banned all market players and observers felt that volumes will

dry and business will evaporate. Nothing of that sort happened and markets bounced back with a

vengeance. There will be a period of adjustment and volumes might see a short term dip.

Rising volatility

For small or mid cap stocks, the rolling settlement could lead to sharper price swings. Intra day

speculation with lower volumes may lead to every significant buy or sell order having a much

greater impact.

Consequently, will retail investors get marginalized leading the field open to institutional players

only?

In the short term, this is a distinct likelihood. One should keep in mind that even in normal five

day settlement cycle, big ticket orders impacted prices. This is a small price to pay as markets

evolve. Intra day speculation (made famous by day traders on Nasdaq) will grow leading to more

liquidity.

OTCEI had similar settlement cycles and stringent conditions, but failed to get any

investor support. Will the OTCEI story repeat?

The fundamental difference between OTCEI of the early 90s and the rolling settlement of the

22nd century is maturity. Indian markets have matured and concepts like rolling settlement,

paperless trading and stringent market conditions are accepted now. Stocks on the OTCEI were

companies in an early stage, most of which failed to deliver results and enthuse investors. Even

when screen based trading was started by NSE, most market operators predicted that it will die


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and early death citing OTCEI example. On contrary, NSE flourished and thrived and completely

revolutionized trading in India.

OTCEI faced competition from NSE and BSE with better options. And given profile of listed

stocks, it could not grow. Investor and speculative investor will be there, given most major

stocks are in rolling segment now.

Does this mean that price rigging and circular trading will end, making markets cleaner

for genuine investors?

No market and trading system is free from evils of price rigging and circular trading. To keep

these anti investor activities in check is the main task of the regulator. Rolling settlements will go

a long way in making the market safer for investors. This would attract more interest in the

market, as investor confidence in the price discovery process will be higher.

The S&P CNX Nifty

What makes a good stock market index for use in an index futures and index options market?

Several issues play a role in terms of the choice of index. We will discuss how the S&P

CNXNifty addresses some of these issues.

Diversification As mentioned earlier, a stock market index should be well–diversifi ed, thus

ensuring thathedgers or speculators are not vulnerable to individual–company or industry risk.

Market index

The S&P CNX Nifty is an index based upon solid economic research. It was designed not only

as abarometer of market movement but also to be a foundation of the new world of financial

products based on the index like index futures, index options and index funds. A trillion

calculations were expended to evolve the rules inside the S&P CNX Nifty index. The results of

this work are remarkably simple:


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(a) the correct size to use is 50, (b) stocks considered for the S&P CNX Nifty must be liquid by

the’ impact cost’ criterion, (c) the largest 50 stocks that meet the criterion go into the index. S&P

CNX Nifty is a contrast to the adhoc methods that have gone into index construction in the

preceding years, where indexes were made out of intuition and lacked a scientific basis. The

research that led up to S&P CNX Nifty is well-respected internationally as a pioneering effort in

better understanding how to make a stock market index.

The Nifty is uniquely equipped as an index for the index derivatives market owing to its (a) low

market impact cost and (b) high hedging effectiveness. The good diversifi cation of Nifty

generates low initial margin requirement. Finally, Nifty is calculated using NSE prices, the most

liquid exchange in India, thus making it easier to do arbitrage for index derivatives.

Liquidity of the index The index should be easy to trade on the cash market. This is partly

related to the choice of stocks in the index. High liquidity of index components implies that the

information in the index is less noisy.

Operational issues The index should be professionally maintained, with a steady evolution of

securities in the index to keep pace with changes in the economy. The calculations involved in

the index should be accurate and reliable. When a stock trades at multiple venues, index

computation should be done using prices from the most liquid market.

Impact cost

Market impact cost is a measure of the liquidity of the market. It reflects the costs faced when

actually trading an index. For a stock to qualify for possible inclusion into the Nifty, it has to

have market impact cost of below 1.5% when doing Nifty trades of half a crore rupees. The

market impact cost on a trade of Rs.3 million of the full Nifty works out to be about 0.2%. This

means that if Nifty is at 1000, a buy order goes through at 1002, i.e.1000+(1000*0.002) and a

sell order gets 998, i.e. 1000-(1000*0.002).

Hedging effectiveness


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Hedging effectiveness is a measure of the extent to which an index correlates with a portfolio,

whatever the portfolio may be. Nifty correlates better with all kinds of portfolios in India as

compared to other indexes. This holds good for all kinds of portfolios, not just those that contain

index stocks. Nifty is owned, computed andmaintained by India Index Services &Products

Limited (IISL), a company setup by NSE and CRISIL with technical assistance from Standard &

Poor’s.


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Unit –IIIInstruments & players of capital market

New issue market instruments Stock market instruments Players in capital market

Products available in the Secondary and Primary Market

New issue market instruments


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The term initial public offering (IPO) slipped into everyday speech during the tech bull market of

the late 1990s. Back then, it seemed you couldn't go a day without hearing about a dozen new

dotcom millionaires in Silicon Valley who were cashing in on their latest IPO. The phenomenon

spawned the term siliconaire, which described the dotcom entrepreneurs in their early 20s and

30s who suddenly found themselves living large on the proceeds from their internet companies'

IPOs.

Selling Stock

An initial public offering, or IPO, is the first sale of stock by a company to the public. A

company can raise money by issuing either debt or equity. If the company has never issued

equity to the public, it's known as an IPO.

Companies fall into two broad categories: private and public.

A privately held company has fewer shareholders and its owners don't have to disclose much

information about the company. Anybody can go out and incorporate a company: just put in

some money, file the right legal documents and follow the reporting rules of your jurisdiction.

Most small businesses are privately held. But large companies can be private too. Did you know

that IKEA, Domino's Pizza and Hallmark Cards are all privately held?

It usually isn't possible to buy shares in a private company. You can approach the owners about

investing, but they're not obligated to sell you anything. Public companies, on the other hand,

have sold at least a portion of themselves to the public and trade on a stock exchange. This is

why doing an IPO is also referred to as "going public." Public companies have thousands of

shareholders and are subject to strict rules and regulations. They must have a board of directors

and they must report financial information every quarter. In the United States, public companies

report to the Securities and Exchange Commission (SEC). In other countries, public companies

are overseen by governing bodies similar to the SEC. From an investor's standpoint, the most

exciting thing about a public company is that the stock is traded in the open market, like any

other commodity. If you have the cash, you can invest. The CEO could hate your guts, but there's

nothing he or she could do to stop you from buying stock.

Going public raises cash, and usually a lot of it. Being publicly traded also opens many financial

doors:


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Because of the increased scrutiny, public companies can usually get better rates when

they issue debt.

As long as there is market demand, a public company can always issue more stock.

Thus, mergers and acquisitions are easier to do because stock can be issued as part of the

deal.

Trading in the open markets means liquidity. This makes it possible to implement things

like employee stock ownership plans, which help to attract top talent.

Being on a major stock exchange carries a considerable amount of prestige. In the past, only

private companies with strong fundamentals could qualify for an IPO and it wasn't easy to get

listed.

The internet boom changed all this. Firms no longer needed strong financials and a solid history

to go public. Instead, IPOs were done by smaller startups seeking to expand their businesses.

There's nothing wrong with wanting to expand, but most of these firms had never made a profit

and didn't plan on being profitable any time soon. Founded on venture capital funding, they spent

like Texans trying to generate enough excitement to make it to the market before burning

through all their cash. In cases like this, companies might be suspected of doing an IPO just to

make the founders rich. This is known as an exit strategy, implying that there's no desire to stick

around and create value for shareholders. The IPO then becomes the end of the road rather than

the beginning.

The Underwriting Process

Getting a piece of a hot IPO is very difficult, if not impossible. To understand why, we need to

know how an IPO is done, a process known as underwriting.

When a company wants to go public, the first thing it does is hire an investment bank. A

company could theoretically sell its shares on its own, but realistically, an investment bank is

required - it's just the way Wall Street works. Underwriting is the process of raising money by

either debt or equity (in this case we are referring to equity). You can think of underwriters as


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middlemen between companies and the investing public. The biggest underwriters are Goldman

Sachs, Merrill Lynch, Credit Suisse First Boston, Lehman Brothers and Morgan Stanley.

The company and the investment bank will first meet to negotiate the deal. Items usually

discussed include the amount of money a company will raise, the type of securities to be issued

and all the details in the underwriting agreement. The deal can be structured in a variety of ways.

For example, in a firm commitment, the underwriter guarantees that a certain amount will be

raised by buying the entire offer and then reselling to the public. In a best efforts agreement,

however, the underwriter sells securities for the company but doesn't guarantee the amount

raised. Also, investment banks are hesitant to shoulder all the risk of an offering. Instead, they

form a syndicate of underwriters. One underwriter leads the syndicate and the others sell a part

of the issue.

Once all sides agree to a deal, the investment bank puts together a registration statement to be

filed with the SEC. This document contains information about the offering as well as company

info such as financial statements, management background, any legal problems, where the

money is to be used and insider holdings. The SEC then requires a cooling off period, in which

they investigate and make sure all material information has been disclosed. Once the SEC

approves the offering, a date (the effective date) is set when the stock will be offered to the

public.

During the cooling off period the underwriter puts together what is known as the red herring.

This is an initial prospectus containing all the information about the company except for the offer

price and the effective date, which aren't known at that time. With the red herring in hand, the

underwriter and company attempt to hype and build up interest for the issue. They go on a road

show - also known as the "dog and pony show" - where the big institutional investors are

courted.

As the effective date approaches, the underwriter and company sit down and decide on the price.

This isn't an easy decision: it depends on the company, the success of the road show and, most

importantly, current market conditions. Of course, it's in both parties' interest to get as much as

possible.

Finally, the securities are sold on the stock market and the money is collected from investors.


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An initial public offering (IPO) is the first sale of stock by a company to the public.

Broadly speaking, companies are either private or public. Going public means a company

is switching from private ownership to public ownership.

Going public raises cash and provides many benefits for a company.

The dotcom boom lowered the bar for companies to do an IPO. Many startups went

public without any profits and little more than a business plan.

Getting in on a hot IPO is very difficult, if not impossible.

The process of underwriting involves raising money from investors by issuing new

securities.

Companies hire investment banks to underwrite an IPO.

The road to an IPO consists mainly of putting together the formal documents for

the Securities and Exchange Commission (SEC) and selling the issue to institutional

clients.

The only way for you to get shares in an IPO is to have a frequently traded account with

one of the investment banks in the underwriting syndicate.

An IPO company is difficult to analyze because there isn't a lot of historical info.

Lock-up periods prevent insiders from selling their shares for a certain period of time.

The end of the lockup period can put strong downward pressure on a stock.

Flipping may get you blacklisted from future offerings.

Road shows and red herrings are marketing events meant to get as much attention as

possible. Don't get sucked in by the hype.

A tracking stock is created when a company spins off one of its divisions into a separate

entity through an IPO.

Don't consider tracking stocks to be the same as a normal IPO, as you are essentially a

second-class shareholder.

Following are the main financial products/instruments dealt in the secondary market:


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Equity: The ownership interest in a company of holders of its common and preferred stock. The

various kinds of equity shares are as follows –

Equity Shares:

An equity share, commonly referred to as ordinary share also represents the form of fractional

ownership in which a shareholder, as a fractional owner, undertakes the maximum

entrepreneurial risk associated with a business venture. The holders of such shares are members

of the company and have voting rights. A company may issue such shares with differential rights

as to voting, payment of dividend, etc.

Rights Issue/ Rights Shares: The issue of new securities to existing shareholders at a ratio

to those already held.

Bonus Shares: Shares issued by the companies to their shareholders free of cost by

capitalization of accumulated reserves from the profits earned in the earlier years.

Preferred Stock/ Preference shares: Owners of these kind of shares are entitled to a fixed

dividend or dividend calculated at a fixed rate to be paid regularly before dividend can be paid in

respect of equity share. They also enjoy priority over the equity shareholders in payment of

surplus. But in the event of liquidation, their claims rank below the claims of the company’s

creditors, bondholders / debenture holders.

Cumulative Preference Shares. A type of preference shares on which dividend

accumulates if remains unpaid. All arrears of preference dividend have to be paid out before

paying dividend on equity shares.

Cumulative Convertible Preference Shares: A type of preference shares where the

dividend payable on the same accumulates, if not paid. After a specified date, these shares will

be converted into equity capital of the company.


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Participating Preference Share: The right of certain preference shareholders to participate

in profits after a specified fixed dividend contracted for is paid. Participation right is linked with

the quantum of dividend paid on the equity shares over and above a particular specified level.

Security Receipts: Security receipt means a receipt or other security, issued by a

securitisation company or reconstruction company to any qualified institutional buyer pursuant

to a scheme, evidencing the purchase or acquisition by the holder thereof, of an undivided right,

title or interest in the financial asset involved in securitisation.

Government securities (G-Secs): These are sovereign (credit risk-free) coupon bearing

instruments which are issued by the Reserve Bank of India on behalf of Government of India, in

lieu of the Central Government's market borrowing programme. These securities have a fixed

coupon that is paid on specific dates on half-yearly basis. These securities are available in wide

range of maturity dates, from short dated (less than one year) to long dated (upto twenty years).

Debentures: Bonds issued by a company bearing a fixed rate of interest usually payable

half yearly on specific dates and principal amount repayable on particular date on redemption of

the debentures. Debentures are normally secured/ charged against the asset of the company in

favour of debenture holder.

Bond: A negotiable certificate evidencing indebtedness. It is normally unsecured. A debt

security is generally issued by a company, municipality or government agency. A bond investor

lends money to the issuer and in exchange, the issuer promises to repay the loan amount on a

specified maturity date. The issuer usually pays the bond holder periodic interest payments over

the life of the loan. The various types of Bonds are as follows-

Zero Coupon Bond: Bond issued at a discount and repaid at a face value. No periodic

interest is paid. The difference between the issue price and redemption price represents the return

to the holder. The buyer of these bonds receives only one payment, at the maturity of the bond.

Convertible Bond: A bond giving the investor the option to convert the bond into equity at

a fixed conversion price.


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Commercial Paper: A short term promise to repay a fixed amount that is placed on the

market either directly or through a specialized intermediary. It is usually issued by companies

with a high credit standing in the form of a promissory note redeemable at par to the holder on

maturity and therefore, doesn’t require any guarantee. Commercial paper is a money market

instrument issued normally for a tenure of 90 days.

Treasury Bills: Short-term (up to 91 days) bearer discount security issued by the

Government as a means of financing its cash requirements.

DEBT INSTRUMENTS

To meet the long term and short term needs of finance, firms issue various kinds of Securities to

the public. Securities represent claims on a stream of income and /or particular assets.Debentures

are debt securities, and there is a wide range of them. Market loans are raised by the government

and public sector institutions through debt securities. Equity shares issued by cooperates are

ownership securities. Preference shares are a hybrid security. It is a mixture of an ownership

security and debt security.

DEBENTURES

A debenture is a document which either creates a debt or acknowledges it. Debenture issued by a

company is in the form of a certificate acknowledging indebtedness. The debentures are issued

under the Company's Common Seal. Debentures are one of a series issued to a number of

lenders. The date of repayment is specified in the debentures. Debentures are issued against a

charge on the assets of the Company. Debentures holders have no right to vote at the meetings of

the companies.

KINDS OF DEBENTURES

(a)Bearer Debentures:

They are registered and are payable to the bearer. They are negotiable instruments and are

transferable by delivery.


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(b) Registered Debentures:

They are payable to the registered holder whose name appears both on the debentures and in the

Register of Debenture Holders maintained by the company. Registered Debentures can be

transferred but have to be registered again. Registered Debentures are not negotiable instruments.

A registered debenture contains a commitment to pay the principal sum and interest. It also has a

description of the charge and a statement that it is Issued subject to the conditions endorsed

therein.

(c) Secured Debentures:

Debentures which create a change on the assets of the company which may be fixed or floating

are known as secured Debentures. The term "bonds" and "debentures"(secured) are used

interchangeably in common parlance. In USA, BOND is a long term contract which is secured,

whereas a debentures is an unsecured one.

(d) Unsecured or Naked Debentures:

Debentures which are issued without any charge on assets are insecured or naked debentures.

The holders are like unsecured creditors and may see the company for the recovery of debt.

(e) Redeemable Debentures:

Normally debentures are issued on the condition that they shall be redeemed after a certain

period. They can however, be reissued after redemption.

(f) Perpetual Debentures:

When debentures are irredeemable they are called perpetual. Perpetual Debentures cannot be

issued in India at present.

(g) Convertible Debentures:


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If an option is given to convert debentures into equity shares at the stated rate of exchange after a

specified period, they are called convertible debentures. Convertible Debentures have become

very popular in India. On conversion the holders cease to be lenders and become owners.

Debentures are usually issued in a series with a pari passu (at the same rate) clause which entitles

them to be discharged rateably though issued at different times. New series of debentures cannot

rank pari passu with the old series unless the old series provides so.

New debt instruments issued by public limited companies are participating debentures,

convertible debentures with options, third party convertible debentures convertible debentures

redeemable at premiums, debt equity swaps and zero coupon convertible notes. These are

discussed below:

(h) Participating Debentures:

They are unsecured corporate debt securities which participate in the profits of the company.

They might find investors if issued by existing dividend paying companies.

(i) Convertible Debentures with options:

They are a derivative of convertible debentures with an embedded option, providing flexibility to

the issuer as well as the investor to exit from the terms of the issue. The coupon rate is specified

at the time of issue.

(j) Third Party Convertible Debentures:

They are debt with a warrant allowing the investor to subscribe to the equity of third firm at a

preferential price visa vis the market price. Interest rate on third party convertible debentures is

lower than pure debt on account of the conversion option.

(k) Convertible-Debentures Redeemable at a Premium:


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Convertible Debentures are issued at face value with 'a put option entitling investors to sell the

bond to the issuer at a premium. They are basically similar to convertible debentures but embody

less risk.

(I) Debt-Equity Swaps:

Debt-Equity Swaps are an offer from an issuer of debt to swap it for equity. The instrument is

quite risky for the investor because the anticipated capital appreciation may not materialise.

(m) Deep discount Bonds:

They are designed to meet the long term funds requirements of the issuer and investors who are

not looking for immediate return and can be sold with a long maturity of 25-30 years at a deep

discount on the face value of debentures. IDBI deep discount bonds for Rs 1 lakh repayable after

25 years were sold at a discount price of Rs. 2,700.

(n) Zero-Coupon Convertible Note:

A zero-coupon convertible note can be converted into shares. If choice is exercised investors

forego all accured and unpaid interest. The zero-coupon convertible notes are quite sensitive to

changes in interest rates.

(o) Secured Premium Notes (SPN) with Detachable Warrants:

SPN which is issued along with a detachable warrant, is redeemable after a notice period, say

four to seven years. The warrants attached to it ensures the holder the right to apply and get

allotted equity shares; provided the SPN is fully paid.

There is a lock-in period for SPN during which no interest will be paid for an invested amount.

The SPN holder has an option to sell back the SPN to the company at par value after the lock in

period. If the holder exercises this option, no interest/ premium will be paid on redemption. In

case the SPN holder holds its further, the holder wili be repaid the principal amount along with

the additional amount of interest/ premium on redemption in instalments as decided by the


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company. The conversion of detachable warrants into equity shares will have to be done within

the time limit notified by the company.

(p) Floating Rate Bonds:

The rate on the floating Rate Bond is linked to a benchmark interest rate like the prime rate in

USA or LIBOR in eurocurrency market. The State Bank of India's floating rate bond was linked

to maximum interest on term deposits which was 10 percent. Floating rate is quoted in terms of a

margin above or below the bench mark rate. The-floor rate in the State Bank of India case was

12 per cent. Interest rates linked to the bench mark ensure that neither the borrower nor the

lender suffer from the changes in interest rates. When rates are fixed, they are likely to be

inequitable to the borrower when interest rates fall subsequently, and the same bonds are likely

to be inequitable to the lender when interest rates rise subsequently.

WARRANTS

A warrant is a security issued by a company granting the holder of the warrant the right to

purchase a specified number of, shares at a specified price any time prior to an expirable date.

Warrants may be issued with debentures or equity shares. The specific rights are set out in the

warrant. The main features-of a warrant are number of shares entitled, expiry date and state price

exercise price. Expiry date of warrants, generally in USA, is 5 to 10 years from the original issue

date. The exercise price is 10 to 30 percent above the prevailing market price. The Warrants have

a secondary market. The minimum value of a warrant represents the exchange value between the

current price of the share and the shares purchased at the exercise price. Warrants have no

flotation costs and when they are exercised the firm receives additional funds at a price lower

than the current market, yet about those prevailing at issue time. New or growing firms and

venture capitalists issue warrants. They are also issued in mergers and acquisitions. Warrants are

called sweeteners and have been issued in the recent past by several companies in India.

Debentures issued with warrants, like convertible debentures, carry lower coupon rates.


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Non-Convertible Debentures (NCDS) With Detachable Equity Warrants

The holder of NCDs with detachable equity warrants is given an option to buy a specific number

of shares from the company at a predetermined price within a definite time-frame.

The warrants attached to NCDs will be issued subject to full payment of NCD is a value. There

is a specific lock-in period after which there detachable option to apply for equities. If the option

to apply for equities is not exercised, the unapplied portion of shares would be disposed off by

the company at its liberty.

Zero-Interest Fully Convertible Debentures (FCDS)

The investors in zero-interest fully convertible debentures will not be paid any interest. However,

there is a notified period after which fully paid FCDs will be automatically and compulsorily

converted into shares.

There is a lock-in period upto which no interest will be paid. Conversion is allowed only for fully

paid FCDs. In the event of the company going for rights issue prior to the allotment of equity

resulting from the conversion of equity shares into FCDs, FCD holders shall be offered securities

as may be determined by the company.

Secured Zero-Interest Partly Convertible Debentures (PCDS) With Detachable And

Separately Tradable Warrants:

This instrument has two parts; A and B. Part A is convertible into equity shares at a fixed amount

on the date of allotment. Part B is non-convertible, to be redeemed at par at the end of a specific

period from the date of allotment. Part B will carry a detachable and separately tradable warrant

which will provide an option to the warrant holder to receive equity shares for every warrant held

at a price as worked out by the company.

Fully Convertible Debentures (FCDS) With Interest (Optional)

This instrurnent does not yield interest in the initial period of say, 6 months. After this period

option is given to the holder of FCDs to apply for equity at a "premium" for which no additional


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amourit needs to be paid. The option has to be indicated in the application form itself. However,

interest on FCDs is payable at a determined rate from the date of first conversion to the second /

final conversion and in lieu of it, equity shares are issued.

OTHER DEBT SECURITIES IN VOGUE ABROAD

Income Bonds:

Here interest is paid only when cash flows are adequate. Income Bonds are like cumulative

preference shares on which the fixed dividend is not paid if there is no profit in a year, but is

carried forward and paid in the following year. On Income Bonds, there is no default if interest is

not paid. Unlike dividend on cumulative preference shares, interest on income bond is tax

deductible. Income Bonds are issued abroad by companies in reorganisation or by firms whose

financial situation does not make it feasible to issue bonds with a fixed interest payment

Asset-Backed Securities:

Assets-backed securities are a category of marketable securities that are collateralised by

financial assets such as instalment loan contracts. Asset-backed financing involves a process

called securitisation. Securitisation is a disintermediation process in which credit from financial

intermediaries is replaced by marketable debentures that can be issued at lower cost. Financial

assets are pooled so that debentures can be sold to third parties to finance the pool. Repos are the

oldest asset-backed security in our country. In USA, securitisation has been undertaken for

insured mortgages (Ginnie Mae, 1970), mortgage backed loans, student loans (Sallie Mae 1973),

trade credit receivable backed bonds (1982), equipment leasing backed bonds (1984), certificates

of automobile receivable securities (1985) and small business administration loans. More

recently, credit card receivables have been securitized. The decade of the eighties witnessed

large expansion of asset backed security financing.

Junk Bonds:

Junk Bond is a high risk, high yield bond to finance either a leveraged buyout (LBO), a merger

of a company in financial distress. Coupon rates range from 16 to 25 per cent. Old line


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established companies which were inefficient and. financed conservatively were objects of take

over and restructuring. To finance such take-over, high yield bonds were sold. Attractive deals

were put together establishing their feasibility in terms of adequacy of cash flows to meet interest

payments. Michael Milken (the JUNK BOND KING) of Drexel Buraham Lambert was the real

developer of the market. The junk bond market was tarnished by the fines ($ 650 million) levied

in 1989 on the investment banking firm Drexel Burnham Lambert for various Securities Law

violations and thus was forced into bankruptcy in 1990 and the indictment of Milken in 1990 on

charges of fraud $ 600 million fines and penalties.


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Unit –IVTrading Procedure

Electronic share trading

Process of share trading

Parties involved in trading


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Dematerialization and Electronic Transfer of Securities

Traditionally, settlement system on Indian stock exchanges gave rise to settlement risk due to the

time that elapsed before trades were settled by physical movement of certificates. There were

two aspects: First relating to settlement of trade in stock exchanges by delivery of shares by the

seller and payment by the buyer. The stock exchange aggregated trades over a period of time

and carried out net settlement through the physical delivery of securities. The process of

physically moving the securities from the seller to his broker to Clearing Corporation to the

buyer’s broker and finally to the buyer took time with the risk of delay somewhere along the

chain. The second aspect related to transfer of shares in favour of the purchaser by the issuer.

This system of transfer of ownership was grossly inefficient as every transfer involved the

physical movement of paper securities to the issuer for registration, with the change of

ownership being evidenced by an endorsement on the security certificate. In many cases the

process of transfer took much longer than the two months as stipulated in the Companies Act,

and a significant proportion of transactions wound up as bad delivery due to faulty compliance of

paper work. Theft, mutilation of certificates and other irregularities were rampant, and in

addition the issuer had the right to refuse the transfer of a security. Thus the buyer did not get

good title of the securities after parting with good money. All this added to the costs and delays

in settlement, restricted liquidity and made investor grievance redressal time-consuming and at

times intractable.

To obviate these problems, the Depositories Act, 1996 was passed to provide for the

establishment of depositories in securities with the objective of ensuring free transferability of

securities with speed, accuracy and security by

(a) making securities of public limited companies freely transferable subject to certain

exceptions;

(b) dematerializing the securities in the depository mode; and

(c) providing for maintenance of ownership records in a book entry form.

In order to streamline both the stages of settlement process, the Depositories Act envisages

transfer of ownership of securities electronically by book entry without making the securities

move from person to person. The Act has made the securities of all public limited companies


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freely transferable by restricting the company’s right of use discretion in effecting the transfer of

securities, and dispensing with the transfer deed and other procedural requirements under the

Companies Act.

A depository holds securities in dematerialized form. It maintains ownership records of securities

and effects transfer of ownership through book entry. By fiction of law, it is the registered owner

of the securities held with it with the limited purpose of effecting transfer of ownership at the

behest of the owner. The name of the depository appears in the records of the issuer as registered

owner of securities. The name of actual owner appears in the records of the depository as

beneficial owner. The beneficial owner has all the rights and liabilities associated with the

securities. The owner of securities intending to avail of depository services opens an account

with a depository through a depository participant (DP). The Securities are transferred from one

account to another through book entry only on the instructions of the beneficial owner.

In order to promote dematerialization of securities, NSE joined hands with leading financial

institutions to establish the National Securities Depository Ltd. (NSDL), the first depository in

the country, with the objective of enhancing the efficiency in settlement systems as also to

reduce the menace of fake/forged and stolen securities. This has ushered in an era of

dematerialized trading and settlement. SEBI has made dematerialized settlement mandatory in an

ever-increasing number of securities in a phased manner, thus bringing about an increase in the

proportion of shares delivered in dematerialized form. There is an increasing preference to settle

trades, particularly in high value securities, in demat form. Such high level of demat settlement

reassures success of rolling settlement. CDSL was set up in February, 1999 to provide depository

services. All leading stock exchanges like the National Stock Exchange, Calcutta Stock

Exchange, Delhi Stock Exchange, The Stock Exchange, Ahmedabad, etc have established

Connectivity with CDSL.

TRADING PROCEDURE

Neat System

The NEAT system supports an order driven market, wherein orders match on the basis of time

and price priority. All quantity fields are in units and prices are quoted in Indian Rupees. The


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regular lot size and tick size for various securities traded is notified by the Exchange from time

to time.

Market Types

The Capital Market system has four types of market.

Normal Market

Normal market consists of various book types wherein orders are segregated as Regular Lot

Orders, Special Term Orders, Negotiated Trade Orders and Stop Loss Orders depending on their

order attributes.

Odd Lot Market

The odd lot market facility is used for the Limited Physical Market. The main features of the

Limited Physical Market are detailed in a separate section (1.14).

RETDEBT Market

The RETDEBT market facility on the NEAT system of capital market segment is used or

transactions in Retail Debt Market session. Trading in Retail Detail Market takes place in the

same manner as in equities (capital market) segment. The main features of this market are

detailed in a separate section (1.15) on RETDEBT market.

Auction Market

In the Auction market, auctions are initiated by the Exchange on behalf of trading members for

settlement related reasons. The main features of this market are detailed in a separate section

(1.13) on auction.

Order Management

Order Management consists of entering orders, order modification, order cancellation and order

matching.

Entering Orders

The trading member can enter orders in the normal market, odd lot, RETDEBT and auction

market. A user can place orders in any of the above mentioned markets by invoking the

respective order entry screens. After doing so, the system automatically picks up information

from the last invoked screen (e.g. Market Watch/MBP/OO/SQ and Security List). When the user

invokes the order entry screen, the fields that are taken as default are Symbol, Series and Book

Type.

In case of other fields, the system takes the following defaults:Ishan Institute of Management & Technology

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Qty : Regular lot quantity available at best price on counter side

Price : Price of best counter order

Pro : Trading member ID of the user

Order Duration : Day

Disclosed quantity : Fully Disclosed

Participant ID : Trading member ID of the user

Active & Passive Order

When any order enters the trading system, it is an active order. It tries to find a match on the

other side of the books. If it finds a match, a trade is generated. If it does not find a match, the

order becomes a passive order and goes and sits in the order book.

Order Books

As and when valid orders are entered or received by the trading system, they are first numbered,

time stamped and then scanned for a potential match. This means that each order has a

distinctive order number and a unique time stamp on it. If a match is not found, then the orders

are stored in the books as per the price/time priority. Price priority means that if two orders are

entered into the system, the order having the best price gets the higher priority. Time priority

means if two orders having the same price is entered, the order that is entered first gets the higher

priority. Best price for a sell order is the lowest price and for a buy order, it is the highest price.

The different order books in the NEAT system are as detailed below:

(a) Regular Lot Book: An order that has no special condition associated with it is a Regular Lot

order. When a dealer places this order, the system looks for a corresponding Regular Lot order

existing in that market (Passive orders). If it does not find a match at the time it enters the

system, the order is stacked in the Regular Lot book as a passive order. By default, the Regular

Lot book appears in the order entry screen in the normal market. Buyback orders can be placed

through the Regular Lot (RL) book in the Normal Market. The member can place a buyback

order by specifying ‘BUYBACKORD’ in the Client Account field in the order entry screen.

Such company buyback orders will be identified in MBP screen by an ‘*’ (asterisk) indicator

against such orders.

(b) Special Terms Book: Orders which have a special term attribute attached to it are known as

special terms orders. When a special term order enters the system, it scans the orders existing in


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the Regular Lot book as well as Special Terms Book. Currently this facility is not available in the

trading system.

(c) Stop Loss Book: Stop Loss orders are released into the market when the last traded price for

that security in the normal market reaches or surpasses the trigger price. Before triggering, the

order does not participate in matching and the order cannot get traded. Untriggered stop loss

orders are stacked in the stop loss book. The stop loss orders can be either a market order or a

limit price order. For buy SL orders, the trigger price has to be less than or equal to the limit

price. Similarly, for sell SL orders, the trigger price has to be greater than or equal to the limit

price.

(d) Negotiated Trade Book: Two trading members can negotiate a trade outside the Exchange.

To regularise the trade each trading member has to enter the respective order in the system. To

enter Negotiated Trade order details, select book type as NT. It is mandatory for the trading

member to enter the counterparty trading member id. When both parties to a trade enter orders,

then the request goes to the Exchange for approval. The Exchange can either approve the request

or reject it. Further, the Exchange has the discretion to send either of the two orders or both the

orders to the Regular Lot book so that the orders are available to the entire market. Currently this

facility is not available in the trading system.

(e) Odd Lot Book: The Odd Lot book can be selected in the order entry screen in order to trade

in the Odd Lot market. Order matching in this market takes place between two orders on the

basis of quantity and price. To enter orders in the odd lot market, select the book type as OL.

(f) RETDEBT Order Book: RETDEBT market orders can be entered into the system by selecting

the RETDEBT Order book. These orders scan only the RETDEBT Order book for potential

matches. If no suitable match can be found, the order is stored in the book as a passive order. To

enter orders in the RETDEBT market, select the book type as 'D'.

(g) Auction Order Book: Auction order book stores orders entered by the trading members to

participate in the Exchange initiated auctions. Auction orders can be initiator orders, competitor

orders and solicitor orders. For further details kindly refer to section on 'Auction'.

Symbol & Series

Securities can be taken as default values from the order entry screen from any of the inquiry

screens such as MBP, OO, PT, AL, MI and SQ. In case the security isnot set up in the Market

Watch screen, the Security List can also be used to take the codes as default values. Order entry


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in a security is not possible if that security is suspended from trading. E.g. If a security is

suspended in the normal market a message “Security is suspended in the normal market” is

displayed on the order entry screen. The label ‘Suspended’ is also displayed in the market watch

screen for the setup security. Order entry is also not possible in case the security is not eligible to

trade in a particular market. E.g. If a security is not eligible to trade in the normal market a

message “Security is not allowed to trade in normal market” is displayed on the order entry

screen. In case the user types the symbol series incorrectly a message “Invalid symbol series” is

displayed on the screen.

Quantity

When the buy/sell order entry screen is invoked, the regular lot size available at the best price on

the counter side gets defaulted in the order entry screen. In case of negotiated trade or auction

book is selected for display, the quantity has to be specifically mentioned by the user. Quantity

mentioned should be in multiples of regular lot size for that security.

Quantity Freeze

All orders with very large quantities are sent for Exchange approval. If the quantity for the order

is greater than x% of the issue size of the security or is greater than Rs. x value of the order (‘x’

is as specified by the Exchange) whichever is less, then the order is sent as a quantity freeze to

the Exchange for approval. The Exchange may either approve or reject the quantity freeze

request.

Price

Along with the regular lot quantity, the best price on the counterside is also taken as default

value in the order entry screen. A user has the option to either enter the order at the default price

or overwrite it with any other desired price. If a user mentions a price, it should be in multiples

of the tick size for that particular security and within the day’s minimum/maximum price range,

otherwise the order is not accepted by the system and an order rejection message/confirmation

slip is generated. If a price outside the Operational Range is entered, the order results in a price

freeze and is not accepted as a valid order till the time the Exchange approves it. All auction

orders require the user to mention a price.

In case the user enters an order with a ‘Market’ price the order takes the last traded price in the

respective market as the market price, provided no passive order exists on the same side or the

counter side in that security and in that market. However, if suitable orders exist on the counter


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side, then the order takes the price of the counter order and a trade is generated. If an order exists

on the same side but no orders exists on the counter side, then the order takes the price of the

best order on that side and is stacked immediately below it. If the security has never been traded,

then the market order takes the value of the base price and sits in the books as a passive order.

In case of stop loss orders, a user has the flexibility of specifying a limit price along with the

trigger price. This limit price can be selected as equal to the trigger price in the price field so as

to leave it with the word ‘Price’. Alternatively, a user can specify a limit price as ‘Market’ price.

Circuit Breakers

The Exchange has implemented index-based market-wide circuit breakers in compulsory rolling

settlement with effect from July 02, 2001. In addition to the circuit breakers, price bands are also

applicable on individual securities.

Index-based Market-wide Circuit Breakers

The index-based market-wide circuit breaker system applies at 3 stages of the index movement,

either way viz. at 10%, 15% and 20%. These circuit breakers when triggered bring about a

coordinated trading halt in all equity and equity derivative markets nationwide. The market-wide

circuit breakers are triggered by movement of either the BSE Sensex or the NSE S&P CNX

Nifty, whichever is breached earlier.

In case of a 10% movement of either of these indices, there would be a one-hour market halt if

the movement takes place before 1:00 p.m.

In case the movement takes place at or after 1:00 p.m. but before 2:30 p.m. there would be

trading halt for ½ hour. In case movement takes place at or after 2:30 p.m. there will be no

trading halt at the 10% level and market shall continue trading.

In case of a 15% movement of either index, there shall be a two-hour halt if the movement takes

place before 1 p.m. If the 15% trigger is reached on or after 1:00 p.m., but before 2:00 p.m., there

shall be a one-hour halt. If the 15% trigger is reached on or after 2:00 p.m. the trading shall halt

for remainder of the day.

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

These percentages are translated into absolute points of index variations on a quarterly basis. At

the end of each quarter, these absolute points of index variations are revised for the applicability

for the next quarter. The absolute points are calculated based on closing level of index on the last


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day of the trading in a quarter and rounded off to the nearest 10 points in case of S&P CNX

Nifty.

Price Bands

Daily price bands are applicable on securities as below:

• Daily price bands of 2% (either way) on securities as specified by the Exchange.



• No price bands are applicable on: scrips on which derivative products are available or scrips

included in indices on which derivative products are available. In order to prevent members from

entering orders at non-genuine prices in such securities, the Exchange has fixed operating range

of 20% for such securities.

• Price bands of 20% (either way) on all remaining scrips (including debentures, warrants,

preference shares etc). The price bands for the securities in the Limited Physical Market are the

same as those applicable for the securities in the Normal Market. For auction market the price

bands of 20% are applicable.

Order Types and Conditions

The system allows the trading members to enter orders with various conditions attached to them

as per their requirements. These conditions are broadly divided into Time Conditions, Quantity

Conditions, Price Conditions and Other Conditions. Several combinations of the above are

allowed thereby providing enormous flexibility to the users. The order types and conditions are

summarized below:

a) Time Conditions.

DAY: A DAY order, as the name suggests is an order that is valid for the day on which it is

entered. If the order is not executed during the day, the system cancels the order automatically at

the end of the day. By default, the system assumes that all orders entered are Day orders.

IOC: An Immediate or Cancel (IOC) order allows the user to buy or sell a security as soon as the

order is released into the system, failing which the order is cancelled from the system. Partial

match is possible for the order, and the unmatched portion of the order is cancelled immediately.

b) Quantity Conditions


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DQ: An order with a Disclosed Quantity (DQ) allows the user to disclose only a portion of the

order quantity to the market. For e.g. if the order quantity is 10,000 and the disclosed quantity is

2,000, then only 2,000 is released to the market. After this quantity is fully matched, a

subsequent quantity of 2,000 is disclosed. Thus, totally five disclosures with the same order

number are shown one after the other in the market.

c) Price Conditions

Market: Market orders are orders for which price is specified as 'MKT' at the time the order is

entered. For such orders, the system determines the price.

Stop-Loss: This facility allows the user to release an order into the system, after the market price

of the security reaches or crosses a threshold price called trigger price. Example: If for stop loss

buy order, the trigger is Rs.93.00, the limit price is Rs.95.00 and the market (last traded) price is

Rs.90.00, then this order is released into the system once the market price reaches or exceeds

Rs.93.00. This order is added to the regular lot book with time of triggering as the time stamp, as

a limit order of Rs.95.00. All stop loss orders are kept in a separate book (stop loss book) in the

system until they are triggered.

Trigger Price: Price at which an order gets triggered from the stop loss book.

Limit Price: Price of the orders after triggering from stop loss book.

d) Other Conditions

PRO/CLI/WHS: A user can enter orders on his own account or on behalf of clients or warehouse

order on behalf of institutional clients. By default, the system assumes that the user is entering

orders on the trading member’s own account. The client account field is an alphanumeric field. It

is mandatory to enter the client account number in the field provided in case the user enters

orders on behalf of clients or warehouse order on behalf of institutional clients. The system will

assign a code ‘Cli’ to such an order. The user cannot specify the trading member code in the

client account field. Warehouse orders may be entered only in NM for book type RL. In case a

member tries to enter a warehouse order in other segments, an error message “Invalid series for

warehouse order” is displayed. To enter a warehouse order with client account, select WHS and

enter the client account in the client account field. The client account field is an alphanumeric

field and does not accept client code same as trading member code. In such a case an error

message “Broker code not allowed as A/C Number for WHS orders” is displayed.


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Counterparty ID: In case a negotiated trade order is entered, the system requests the user to enter

the counterparty trading member id which is to be obtained by the user from the counter party

itself. Currently this facility is not available in the trading system.

Participant Code: By default, the system displays the trading member id of the user in the

participant field. Thus, all trades resulting from an order are to be settled by that trading member.

NCIT orders can be marked by the user at the order entry level itself. Only a valid participant

code can be entered. In case the participant is suspended a message to this effect is displayed to

the user on the order entry screen. The user can also mark his orders at the order entry screen to

disclose his open or close orders. In the participant field, ‘O’ has to be typed, for ‘Open’ orders

and ‘C’ has to be typed for ‘Close’ orders. Warehousing is permitted where registered custodian

is involved for delivery/receipt of securities. The user has to therefore enter a valid participant

code other than ‘O’, ‘C’, ‘NCIT’ and broker code in the participant code field. In case of

incorrect participant code a message “This participant code is not valid for warehouse orders” is

displayed.

All pending warehousing orders get purged at the end of the day processing. The participant field

will contain ‘INST’ code as part of the drop down list to mark the Institutional orders.

Remarks: The remarks field is a description field within the order entry screen provided to

incorporate any remarks to be specified by the user at the time of order entry.

Order Modification

All orders can be modified in the system till the time they do not get fully traded and only during

market hours. Once an order is modified, the branch order value limit for the branch gets

adjusted automatically.

Following is the corporate hierarchy for performing order modification functionality:

• A dealer can modify only the orders entered by him.

• A branch manager can modify his own orders or orders of any dealer under his branch.

• A corporate manager can modify his own orders or orders of all dealers and branch managers

of the trading member firm.

However, the corporate manager/branch manager cannot modify order details such that it

exceeds the branch order value limit set for the day. Order modification cannot be performed

by/for a trading member who is suspended or de-activated by the Exchange for any reason.


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A buyback having ‘BUYBACKORD’ in the client account field cannot be modified to any other

client account.

Any order modifications resulting in price or quantity freeze shall not be allowed. The user will

receive a message "CFO Request Rejected' for such modification requests.

Order Cancellation

Order cancellation functionality can be performed only for orders which have not been fully or

partially traded (for the untraded part of partially traded orders only) and only during market

hours.

Single Order Cancellation

Single order cancellation can be done during trading hours either by selecting the order from the

outstanding order screen or from the function key provided. Order cancellation functionality is

available for all book types. But the user is not allowed to cancel auction initiation and

competitor orders in auction market. Order cancellation is also not allowed for those negotiated

trade orders that have not resulted as an alert.

Quick Order Cancellation

Quick Order Cancellation (Cancel All) is an extension of Single Order Cancellation enabling a

user to cancel multiple outstanding orders in various trading books subject to the corporate

hierarchy. The different filters available for canceling orders by using quick order cancellation

facility are symbol, series, book type, branch, user, PRO/CLI/WHS, client account number and

buy/sell. Quick order cancellation can be performed by invoking the function key provided and

cannot be done from the outstanding orders screen. If the criteria are not found to be correct by a

trading member then an error message is displayed and the focus is set on the incorrect field to

enable the user to correct it. If the selection criteria are correct then a message appears on the

quick order cancellation screen stating the number of buy and sell orders to be cancelled. Quick

order cancellation can be done only during market hours.

Order Cancellation for Disabled Member

The Exchange disables a member from trading due to various reasons. In case a member is

disabled from trading by the Exchange, all pending orders in all books except for Negotiated

Trade orders of the member are immediately cancelled by the system. A message:


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“Order Number .......... cancelled due to suspension” is displayed at the message window screen

at the trader workstation. Inquiry screens such as MBP, Market Watch and trader specific screens

such as Outstanding Orders, Activity Log etc. get updated accordingly.

Order Matching

The buy and sell orders are matched on Book Type, Symbol, Series, Quantity and Price.

Matching Priority

The best sell order is the order with the lowest price and a best buy order is the order with the

highest price. The unmatched orders are queued in the system by the following priority:

(a) By Price: A buy order with a higher price gets a higher priority and similarly, a sell order

with a lower price gets a higher priority. E.g. Consider the following buy orders:

1) 100 shares @ Rs. 35 at time 9:30 a.m.

2) 500 shares @ Rs. 35.05 at time 9:43 a.m.

The second order price is greater than the first order price and therefore is the best buy order.

(b) By Time: If there is more than one order at the same price, the order entered earlier gets a

higher priority. E.g. consider the following sell orders:



Both orders have the same price but they were entered in the system at different time. The first

order was entered before the second order and therefore is the best sell order.

As and when valid orders are entered or received by the system, they are first numbered, time

stamped and then scanned for a potential match. This means that each order has a distinctive

order number and a unique time stamp on it. If a match is not found, then the orders are stored in

the books as per the price/time priority. An active buy order matches with the best passive sell

order if the price of the passive sell order is less than or equal to the price of the active buy order.

Similarly, an active sell order matches with the best passive buy order if the price of the passive

buy order is greater than or equal to the price of the active sell order.

Regular Lot Matching

If the combined quantity of one or more matching orders on the opposite side of the regular lot

book is equal to or more than the quantity of active order, the active order is completely traded.

If the combined quantity of one or more matching orders on the opposite side of the regular lot

book is equal to or less than the quantity of active order, the active order is partially traded.


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If after trading any quantity is left untraded, the order is added to the regular lot book in the

price/time priority.

The orders with the IOC attribute try to match maximum possible quantity after they are entered.

Any remaining quantity is cancelled. The orders with DQ attribute disclose only a part of the

total order quantity to the market.

An active order with disclosed condition tries to maximize the quantity as possible regardless of

the disclosed quantity i.e. a single trade takes place for a quantity more than the disclosed

quantity. If an active order with the disclosed quantity cannot trade its total quantity, it is added

to the regular lot book in the price/time priority. The disclosed order

quantity is determined as follows:

a) If the remaining order quantity is less than or equal to the original disclosed quantity, the

disclosed order quantity is set as equal to remaining order quantity.

b) If the remaining order quantity is more than the original disclosed quantity, the disclosed order

quantity is set to the original disclosed quantity. Once an order with the disclosed quantity has

become a passive order, it trades only in units of disclosed quantity or less. However, if there is

no other competing order with the same price, a single trade of as much quantity as possible

takes place between the two orders. When the entire disclosed order quantity is fully traded the

disclosed quantity gets replenished and this continues till the entire order quantity is fully traded.

Each time the disclosed quantity is replenished, the order is stamped with the current trading

time and added to the regular order book as fresh order.

Stop Loss Matching

All stop loss orders entered into the system are stored in the stop loss book. These orders can

contain two prices.

Trigger Price. It is the price at which the order gets triggered from the stop loss book. Limit

Price. It is the price for orders after the orders get triggered from the stop loss book. If the limit

price is not specified, the trigger price is taken as the limit price for the order. The stop loss

orders are prioritised in the stop loss book with the most likely order to trigger first and the least

likely to trigger last. The priority is same as that of the regular lot book. The stop loss condition

is met under the following circumstances:

Sell Order - A sell order in the stop loss book gets triggered when the last traded price in the

normal market reaches or falls below the trigger price of the order.


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Buy Order - A buy order in the stop loss book gets triggered when the last traded price in the

normal market reaches or exceeds the trigger price of the order. When a stop loss order with IOC

condition enters the system, the order is released in the market after it is triggered. Once

triggered, the order scans the counter order book for a suitable match to result in a trade or else is

cancelled by the system.

RETDEBT Order Matching

The rules for matching the RETDEBT orders are similar to the Regular Lot book except that

RETDEBT order matching takes place only for orders in the RETDEBT order book.

Odd Lot Order Matching

Odd Lot matching takes place only for orders in Odd Lot book. There are no partial trades for an

Odd Lot order i.e. each match is an exact match where the quantity of the passive order is equal

to that of the active order.

Auction Matching

All auction orders are entered into the auction order book. The rules for matching of auctions are

similar to that of the regular lot book except for the following points:-

a) Auction order matching takes place at the end of the solicitor period for the auction.

b) Auction matching takes place only across orders belonging to the same auction.

c) All auction trades take place at the auction price.

Validation Checks

While matching orders, the system performs following validation checks:

a) If the turnover limit of any trading member has already exceeded, a trade does not take place.

b) If the participant of any of the orders is 'Suspended', the trade does not go through.

Trade Management

A trade is an activity in which a buy and a sell order match with each other. Matching of two

orders is done automatically by the system. Whenever a trade takes place, the system sends a

trade confirmation message to each of the users involved in the trade. The trade confirmation slip

gets printed at the trader workstation of the user with a unique trade number. The system also

broadcasts a message to the entire market through the ticker window displaying the details of the

trade. This section describes trade-related activities like viewing the trades, trade

modification/cancellation, etc. Before the trade is effected, the system performs checks with

respect to the following parameters: -


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a) The security in which the trade is to be effected is not suspended from operations.

b) Trading members involved in the potential trade are not suspended from operations.

c) Turnover limits for the trading members involved are not exceeded.

Once the trade for an order entered is confirmed by the system, a message is sent to the trader

workstation. The system generates a Trade Confirmation Slip that is printed on the printer of the

trader workstation.

Trade Modification

The user can use trade modification facility to request for modifying trades done during the day.

The user can request the Exchange to modify only the trade quantity field. Moreover, the new

quantity requested must be lower than the original trade quantity. If the user is a Corporate

Manager of a trading member firm, he can request for trade modification for the trades of any

dealer of the trading members firm and if he is a Branch Manager of a branch, then he can

request for trade modification for any dealer of the branch of the trading member firm.

The user can request for trade modification either from the previous trades screen or by using the

function key provided in the workstation. Trade Modification Request is sent to the Exchange for

approval and message to that effect is displayed in the message window. The counterparty to the

trade also receives this message. The counterparty then has to make a similar request for the

same modified quantity on the same trading day. Once both the parties to trade send their

respective trade modification requests, the Exchange either approves or rejects it. The message to

that effect is displayed in the message window.

In case a request for trade modification is approved by the Exchange, the parties to trade receive

a system message confirming the trade modification and the trade modification slip is printed at

their respective trader workstations. If the Exchange rejects the trade modification request, the

trade modification rejection slip will be printed at their respective trader workstations.

Trade Cancellation

The user can use trade cancellation screen for cancelling trades done during the day. If the user is

a corporate manager of a trading member firm, he can request for trade cancellation for the

trades of any dealer of the trading members firm and if he is a branch manager of a branch, then

he can request for trade cancellation for the trades for any dealer of the branch of the trading

member firm.


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The user can request for trade cancellation either from the previous trades screen or by using the

function key provided in the workstation. The trade cancellation request is sent to the Exchange

for approval and message to that effect is displayed in the message window. The counterparty to

the trade also receives the message.

The counterparty then has to make similar request on the same trading day. Once both the parties

to trade send the trade cancellation request, the Exchange either approves or rejects it. The

message to that effect is displayed in the message window. When a request for the trade

cancellation is approved by the Exchange, the parties to trade receive a system message

confirming the trade cancellation and the trade cancellation slip is printed at their respective

trader workstations. If the Exchange rejects the trade cancellation request, the trade cancellation

rejection slip is printed at their respective trader workstations.

Internet Broking

SEBI Committee has approved the use of Internet as an Order Routing System (ORS) for

communicating clients' orders to the exchanges through brokers. ORS enables investors to place

orders with his broker and have control over the information and quotes and to hit the quote on

an on-line basis. Once the broker’s system receives the order, it checks the authenticity of the

client electronically and then routes the order to the appropriate exchange for execution. On

execution of the order, it is confirmed on real time basis. Investor receives reports on margin

requirement, payments and delivery obligations through the system. His ledger and portfolio

account get updated online. NSE launched internet trading in early February 2000. It is the first

stock exchange in the country to provide web-based access to investors to trade directly on the

exchange. The orders originating from the PCs of the investors are routed through the Internet to

the trading terminals of the designated brokers with whom they are connected and further to the

exchange for trade execution. Soon after these orders get matched and result into trades, the

investors get confirmation about them on their PCs through the same internet route.

2.6 Wireless Application Protocol (WAP)

SEBI has also approved trading through wireless medium on WAP Platform. NSE.IT launched

the Wireless Application Protocol (WAP) in November 2000. This provides access to its order

book through the hand held devices, which use WAP technology. This serves primarily retail

investors who are mobile and want to trade from any place when the market prices for stocks at

their choice are attractive. Only SEBI registered members who have been granted permission by Ishan Institute of Management & Technology

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the Exchange for providing Internet based trading services can introduce the service after

obtaining permission from the Exchange.

Unit –V

Legal frame work of capital market

Regulatory authority of capital market

SEBI guidelines

Securities Contract and Regulations Act


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LEGAL FRAMEWORK

This section deals with legislative and regulatory provisions relevant from the viewpoint of a

trading member.

The four main legislations governing the securities market are:(a) the Securities Contracts

(Regulation) Act, 1956, which provides for regulation of transactions in securities through

control over stock exchanges; (b) the Companies Act, 1956, which sets out the code of conduct

for the corporate sector in relation to issue, allotment and transfer of securities, and disclosures to

be made in public issues; (c) the SEBI Act, 1992 which establishes SEBI to protect investors and

develop and regulate securities market; and (d) the Depositories Act, 1996 which provides for

electronic maintenance and transfer of ownership of dematerialized securities.

Legislations

Capital Issues (Control) Act, 1947

The Act had its origin during the war in 1943 when the objective was to channel resources to

support the war effort. It was retained with some modifications as a means of controlling the

raising of capital by companies and to ensure that national resources were channeled into proper

lines, i.e., for desirable purposes to serve goals and priorities of the government, and to protect

the interests of investors. Under the Act, any firm wishing to issue securities had to obtain

approval from the Central Government, which also determined the amount, type and price of the

issue. As a part of the liberalization process, the Act was repealed in 1992 paving way for market

determined allocation of resources.

Securities Contracts (Regulation) Act, 1956

It provides for direct and indirect control of virtually all aspects of securities trading and the

running of stock exchanges and aims to prevent undesirable transactions in securities. It gives

Central Government regulatory jurisdiction over (a) stock exchanges through a process of

recognition and continued supervision, (b) contracts in securities, and (c) listing of securities on


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stock exchanges. As a condition of recognition, a stock exchange complies with conditions

prescribed by Central Government. Organized trading activity in securities takes place on a

specified recognized stock exchange. The stock exchanges determine their own listing

regulations which have to conform to the minimum listing criteria set out in the Rules.

SEBI Act, 1992

The SEBI Act, 1992 was enacted to empower SEBI with statutory powers for (a) protecting the

interests of investors in securities, (b) promoting the development of the securities market, and

(c) regulating the securities market. Its regulatory jurisdiction extends over corporate in the

issuance of capital and transfer of securities, in addition to all intermediaries and persons

associated with securities market. It can conduct enquiries, audits and inspection of all concerned

and adjudicate offences under the Act. It has powers to register and regulate all market

intermediaries and also to penalise them in case of violations of the provisions of the Act, Rules

and Regulations made there under. SEBI has full autonomy and authority to regulate and develop

an orderly securities market.

Depositories Act, 1996

The Depositories Act, 1996 provides for the establishment of depositories in securities with the

objective of ensuring free transferability of securities with speed, accuracy and security by (a)

making securities of public limited companies freely transferable subject to certain exceptions;

(b) dematerializing the securities in the depository mode; and (c) providing for maintenance of

ownership records in a book entry form. In order to streamline the settlement process, the Act

envisages transfer of ownership of securities electronically by book entry without making the

securities move from person to person. The Act has made the securities of all public limited

companies freely transferable, restricting the company’s right to use discretion in effecting the

transfer of securities, and the transfer deed and other procedural requirements under the

Companies Act have been dispensed with.

Companies Act, 1956

It deals with issue, allotment and transfer of securities and various aspects relating to company

management. It provides for standard of disclosure in public issues of capital, particularly in the

fields of company management and projects, information about other listed companies under the

same management, and management perception of risk factors. It also regulates underwriting, the


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use of premium and discounts on issues, rights and bonus issues, payment of interest and

dividends, supply of annual report and other information.

Rules and Regulations

The Government has framed rules under the SC(R) A, SEBI Act and the Depositories Act. SEBI

has framed regulations under the SEBI Act and the Depositories Act for registration and

regulation of all market intermediaries, for prevention of unfair trade practices, insider trading,

etc. Under these Acts, Government and SEBI issue notifications, guidelines, and circulars, which

need to be complied with by market participants. The self-regulatory organizations (SROs) like

stock exchanges have also laid down their rules of game.

Regulators

The regulators ensure that the market participants behave in a desired manner so that the

securities market continues to be a major source of finance for corporate and government and the

interest of investors are protected. The responsibility for regulating the securities market is

shared by Department of Economic Affairs (DEA), Department of Company Affairs (DCA),

Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and Securities

Appellate Tribunal (SAT).

Most of the powers under the SC(R)A are exercisable by Department of Economic Affairs

(DEA), while a few others by SEBI. The powers of the DEA under the SC(R)A are also con-

currently exercised by SEBI. The powers in respect of the contracts for sale and purchase of

securities, gold-related securities, money market securities and securities derived from these

securities and ready forward contracts in debt securities are exercised concurrently by RBI. The

SEBI Act and the Depositories Act are mostly administered by SEBI. All these are administered

by SEBI. The powers under the Companies Act relating to issue and transfer of securities and

non-payment of dividend are administered by SEBI in case of listed public companies and public

companies proposing to get their securities listed. The SROs ensure compliance with their own

rules relevant for them under the securities laws.

5.1 Securities Contracts (Regulation) Act, 1956

The Securities Contracts (Regulation) Act, 1956 [SC(R)A] was enacted to prevent undesirable

transactions in securities by regulating the business of dealing therein and by providing for


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certain other matters connected therewith. This is the principal Act, which governs the trading of

securities in India. The definitions of some of the important terms are given below:

‘Recognised Stock Exchange’ means a stock exchange, which is for the time being recognised

by the Central Government under Section 4 of the SC(R)A

‘Stock Exchange’ means any body of individuals, whether incorporated or not, constituted for

the purpose of assisting, regulating or controlling the business of buying, selling or dealing in

securities.

As per Section 2(h), the term "securities" include-

(I) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a

like nature in or of any incorporated company or other body corporate,

(ii) Derivative,

(iii) Units or any other instrument issued by any collective investment scheme to the investors in

such schemes,

(iv) Security receipts

(v) Government securities,

(vi) Such other instruments as may be declared by the Central Government to be securities, and

(vii) Rights or interests in securities.

As per section 2(aa), “Derivative” includes-

A. a security derived from a debt instrument, share, loan whether secured or unsecured, risk

instrument or contract for differences or any other form of security;

B. a contract which derives its value from the prices, or index of prices, of underlying securities;

Section 18A provides that notwithstanding anything contained in any other law for the time

being in force, contracts in derivative shall be legal and valid if such contracts are-

(i) Traded on a recognised stock exchange;

(ii) Settled on the clearing house of the recognised stock exchange, in accordance with the rules

and bye-laws of such stock exchanges.

"Spot delivery contract" has been defined in Section 2(i) to mean a contract which provides for-

(a) actual delivery of securities and the payment of a price therefore either on the same day as the

date of the contract or on the next day, the actual period taken for the dispatch of the securities or


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the remittance of money therefore through the post being excluded from the computation of the

period aforesaid if the parties to the contract do not reside in the same town or locality;

(b) Transfer of the securities by the depository from the account of a beneficial owner to the

account of another beneficial owner when such securities are dealt with by a depository.

The SC(R)A deals with-

1. Stock exchanges, through a process of recognition and continued supervision,

2. Contracts in securities, and

3. Listing of securities on stock exchanges.

Recognition of stock exchanges

By virtue of the provisions of the Act, the business of dealing in securities cannot be carried out

without registration from SEBI. Any Stock Exchange which is desirous of being recognised has

to make an application under Section 3 of the Act to SEBI, which is empowered to grant

recognition and prescribe conditions. This recognition can be withdrawn in the interest of the

trade or public. SEBI is authorized to call for periodical returns from the recognised Stock

Exchanges and make enquiries in relation to their affairs. Every Stock Exchange is obliged to

furnish annual reports to SEBI. Recognised Stock Exchanges are allowed to make bylaws for the

regulation and control of contracts but subject to the previous approval of SEBI and SEBI has the

power to amend the said bylaws. The Central Government and SEBI have the power to

supersede the governing body of any recognised stock exchange.

Contracts in Securities

Organized trading activity in securities takes place on a recognised stock exchange. If the Central

Government is satisfied, having regard to the nature or the volume of transactions in securities in

any State or area, that it is necessary so to do, it may, by notification in the Official Gazette,

declare provisions of section 13 to apply to such State or area, and thereupon every contract in

such State or area which is entered into after date of the notification otherwise than between

members of a recognised stock exchange in such State or area or through or with such member

shall be illegal. The effect of this provision clearly is that if a transaction in securities has to be

validly entered into, such a transaction has to be either between the members of a recognised

stock exchange or through a member of a Stock Exchange.

Listing of Securities


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Where securities are listed on the application of any person in any recognised stock exchange,

such person shall comply with the conditions of the listing agreement with that stock exchange

(Section 21). Where a recognised stock exchange acting in pursuance of any power given to it by

its bye-laws, refuses to list the securities of any company, the company shall be entitled to be

furnished with reasons for such refusal and the company may appeal to Securities Appellate

Tribunal (SAT) against such refusal.

Securities Contracts (Regulation) Rules, 1957

The Central Government has made Securities Contracts (Regulation) Rules, 1957, as required by

sub-section (3) of the Section 30 of the Securities Contracts (Regulation) Act, 1956 for carrying

out the purposes of that Act. The powers under the SC(R)R, 1957 are exercisable by SEBI.

Contracts between members of recognised stock exchange

All contracts between the members of a recognised stock exchange shall be confirmed in writing

and shall be enforced in accordance with the rules and byelaws of the stock exchange of which

they are members (Rule 9). Books of account and other documents to be maintained and

preserved by every member of a recognised stock exchange:

(i) Every member of a recognised stock exchange shall maintain and preserve the following

books of account and documents for a period of five years:

(a) Register of transactions (Sauda book).

(b) Clients' ledger.

(c) General ledger.

(d) Journals.

(e) Cash book.

(f) Bank pass-book.

(g) Documents register showing full particulars of shares and securities received and delivered.

(2) Every member of a recognised stock exchange shall maintain and preserve the following

documents for a period of two years:

(a) Members' contract books showing details of all contracts entered into by him with other

members of the same exchange or counter-foils or duplicates of memos of confirmation issued to

such other members.

(b) Counter-foils or duplicates of contract notes issued to clients.

(c) Written consent of clients in respect of contracts entered into as principals. (Rule 15)


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Securities and Exchange Board of India Act, 1992

Major part of the liberalization process was the repeal of the Capital Issues (Control) Act, 1947,

in May 1992. With this, Government’s control over issues of capital, pricing of the issues, fixing

of premia and rates of interest on debentures etc. ceased, and the office which administered the

Act was abolished: the market was allowed to allocate resources to competing uses. However, to

ensure effective regulation of the market, SEBI Act, 1992 was enacted to establish SEBI with

statutory powers for:

(a) Protecting the interests of investors in securities,

(b) Promoting the development of the securities market, and

(c) Regulating the securities market.

Its regulatory jurisdiction extends over companies listed on Stock Exchanges and companies

intending to get their securities listed on any recognized stock exchange in the issuance of

securities and transfer of securities, in addition to all intermediaries and persons associated with

securities market. SEBI can specify the matters to be disclosed and the standards of disclosure

required for the protection of investors in respect of issues; can issue directions to all

intermediaries and other persons associated with the securities market in the interest of investors

or of orderly development of the securities market; and can conduct enquiries, audits and

inspection of all concerned and adjudicate offences under the Act. In short, it has been given

necessary autonomy and authority to regulate and develop an orderly securities market. All the

intermediaries and persons associated with securities market, viz., brokers and sub-brokers,

underwriters, merchant bankers, bankers to the issue, share transfer agents and registrars to the

issue, depositories, depository participants, portfolio managers, debentures trustees, foreign

institutional investors, custodians, venture capital funds, mutual funds, collective investments

schemes, credit rating agencies, etc., shall be registered with SEBI and shall be governed by the

SEBI Regulations pertaining to respective market intermediary.

Constitution of SEBI

The Central Government has constituted a Board by the name of SEBI under Section 3 of SEBI

Act. The head office of SEBI is in Mumbai. SEBI may establish offices at other places in India.

SEBI consists of the following members, namely:-

(a) A Chairman;


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(b) Two members from amongst the officials of the Ministries of the Central Government

dealing with Finance and administration of Companies Act, 1956;

(c) One member from amongst the officials of the Reserve Bank of India;

(d) five other members of whom at least three shall be whole time members to be appointed by

the Central Government.

The general superintendence, direction and management of the affairs of SEBI vests in a Board

of Members, which exercises all powers and do all acts and things which may be exercised or

done by SEBI. The Chairman and the other members are from amongst the persons of ability,

integrity and standing who have shown capacity in dealing with problems relating to securities

market or have special knowledge or experience of law, finance, economics, accountancy,

administration or in any other discipline which, in the opinion of the Central Government, shall

be useful to SEBI.

Functions of SEBI

SEBI has been obligated to protect the interests of the investors in securities and to promote and

development of, and to regulate the securities market by such measures as it thinks fit. The

measures referred to therein may provide for:-

(a) Regulating the business in stock exchanges and any other securities markets;

(b) registering and regulating the working of stock brokers, sub-brokers, share transfer agents,

bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers,

underwriters, portfolio managers, investment advisers and such other intermediaries who may be

associated with securities markets in any manner;

(c) registering and regulating the working of the depositories, participants, custodians of

securities, foreign institutional investors, credit rating agencies and such other intermediaries as

SEBI may, by notification, specify in this behalf;

(d) Registering and regulating the working of venture capita funds and collective investment

schemes including mutual funds;

(e) Promoting and regulating self-regulatory organizations;

(f) Prohibiting fraudulent and unfair trade practices relating to securities markets;

(g) Promoting investors' education and training of intermediaries of securities markets;

(h) Prohibiting insider trading in securities;

(i) Regulating substantial acquisition of shares and take-over of companies;


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(j) calling for information from, undertaking inspection, conducting inquiries and audits of the

stock exchanges, mutual funds, other persons associated with the securities market,

intermediaries and self- regulatory organizations in the securities market;

(k) calling for information and record from any bank or any other authority or board or

corporation established or constituted by or under any Central, State or Provincial Act in respect

of any transaction in securities which is under investigation or inquiry by the Board;

(l) Performing such functions and exercising according to Securities Contracts (Regulation) Act,

1956, as may be delegated to it by the Central Government;

(m) Levying fees or other charges for carrying out the purpose of this section;

(n) Conducting research for the above purposes;

(o) Calling from or furnishing to any such agencies, as may be specified by SEBI, such

information as may be considered necessary by it for the efficient discharge of its functions;

(p) Performing such other functions as may be prescribed.

SEBI may, for the protection of investors, (a) specify, by regulations, (i) the matters relating to

issue of capital, transfer of securities and other matters incidental thereto; and (ii) the manner in

which such matters, shall be disclosed by the companies and (b) by general or special orders, (i)

prohibit any company from issuing of prospectus, any offer document, or advertisement

soliciting money from the public for the issue of securities, (ii) specify the conditions subject to

which the prospectus, such offer document or advertisement, if not prohibited may be issued

(Section 11A).

SEBI may issue directions to any person or class of persons referred to in section 12, or

associated with the securities market or to any company in respect of matters specified in section

11A. if it is in the interest of investors, or orderly development of securities market to prevent the

affairs of any intermediary or other persons referred to in section 12 being conducted in a manner

detrimental to the interests of investors or securities market to secure the proper management of

any such intermediary or person (Section 11B).

Registration of Intermediaries

The intermediaries and persons associated with securities market shall buy sell or deal in

securities after obtaining a certificate of registration from SEBI, as required by Section 12:

1) Stock-broker,

2) Sub- broker,


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3) Share transfer agent,

4) Banker to an issue,

5) Trustee of trust deed,

6) Registrar to an issue,

7) Merchant banker,

8) Underwriter,

9) Portfolio manager,

10) Investment adviser

11) Depository,

12) Depository Participant

13) Custodian of securities,

14) Foreign institutional investor,

15) Credit rating agency or

16) Collective investment schemes,

17) Venture capital funds,

18) Mutual fund, and

19) Any other intermediary associated with the securities market

SEBI (Stock Brokers & Sub-Brokers) Regulations, 1992

In terms of regulation 1(g), ‘small investor' means any investor buying or selling securities on a

cash transaction for a market value not exceeding rupees fifty thousand in aggregate on any day

as shown in a contract note issued by the stockbroker Registration of Stock Broker

A stock broker applies in the prescribed format for grant of a certificate through the stock

exchange or stock exchanges, as the case may be, of which he is admitted as a member

(Regulation 3). The stock exchange forwards the application form to SEBI as early as possible as

but not later than thirty days from the date of its receipt.

SEBI takes into account for considering the grant of a certificate all matters relating to buying,

selling, or dealing in securities and in particular the following, namely, whether the stock broker:

(a) is eligible to be admitted as a member of a stock exchange,

(b) Has the necessary infrastructure like adequate office space, equipment and man power to

effectively discharge his activities,

(c) Has any past experience in the business of buying, selling or dealing in securities,


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(d) Is subjected to disciplinary proceedings under the rules, regulations and byelaws

Of a stock exchange with respect to his business as a stock-broker involving either himself or

any of his partners, directors or employees, and

(e) Is a fit and proper person.

SEBI on being satisfied that the stock-broker is eligible, grants a certificate to the stock-broker

and sends intimation to that effect to the stock exchange or stock exchanges, as the case may be.

Where an application for grant of a certificate does not fulfill the requirements, SEBI may reject

the application after giving a reasonable opportunity of being heard.

Fees by stock brokers

Every applicant eligible for grant of a certificate shall pay such fees and in such manner as

specified in Schedule III. Provided that SEBI may on sufficient cause being shown permit the

stock-broker to pay such fees at any time before the expiry of six months from the date for which

such fees become due (Regulation 10).

Where a stock-broker fails to pay the fees, SEBI may suspend the registration certificate,

whereupon the stock- broker shall cease to buy, sell or deal in securities as a stock- broker.

Appointment of Compliance Officer

Every stock broker shall appoint a compliance officer who shall be responsible for monitoring

the compliance of the Act, rules and regulations, notifications, guidelines, instructions etc issued

by SEBI or the Central Government and for redressal of investors’ grievances. The compliance

officer shall immediately and independently report to SEBI any non-compliance observed by

him (Regulation 18A).

Code of conduct

The stock-broker holding a certificate at all times abides by the Code of Conduct as given

hereunder:

I. General

1. Integrity: A stock-broker, shall maintain high standards of integrity, promptitude and fairness

in the conduct of all his business.

2. Exercise of Due Skill and Care: A stock-broker, shall act with due skill, care and diligence in

the conduct of all his business.


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3. Manipulation: A stock-broker shall not indulge in manipulative, fraudulent or deceptive

transactions or schemes or spread rumors with a view to distorting market equilibrium or making

personal gains.

4. Malpractices: A stock-broker shall not create false market either singly or in concert with

others or indulge in any act detrimental to the investors' interest or which leads to interference

with the fair and smooth functioning of the market. A stock-broker shall not involve himself in

excessive speculative business in the market beyond reasonable levels not commensurate with

his financial soundness.

5. Compliance with Statutory Requirements: A stock-broker shall abide by all the provisions of

the Act and the rules, regulations issued by the Government, SEBI and the stock exchange from

time to time as may be applicable to him.

II. Duty to the investor

1. Execution of Orders: A stock-broker, in his dealings with the clients and the general investing

public, shall faithfully execute the orders for buying and selling of securities at the best available

market price and not refuse to deal with a small investor merely on the ground of the volume of

business involved. A stock-broker shall promptly inform his client about the execution or no

execution of an order, and make prompt payment in respect of securities sold and arrange for

prompt delivery of securities purchased by clients.

2. Issue of Contract Note: A stock-broker shall issue without delay to his client a contract note

for all transactions in the form specified by the stock exchange.

3. Breach of Trust: A stock-broker shall not disclose or discuss with any other person or make

improper use of the details of personal investments and other information of a confidential nature

of the client which he comes to know in his business relationship.

4. Business and Commission:

(a) A stock-broker shall not encourage sales or purchases of securities with the sole object of

generating brokerage or commission.

(b) A stock-broker shall not furnish false or misleading quotations or give any other false or

misleading advice or information to the clients with a view of inducing him to do business in

particular securities and enabling himself to earn brokerage or commission thereby.


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5. Business of Defaulting Clients: A stock-broker shall not deal or transact business knowingly,

directly or indirectly or execute an order for a client who has failed to carry out his commitments

in relation to securities with another stockbroker.

6. Fairness to Clients: A stock-broker, when dealing with a client, shall disclose whether he is

acting as a principal or as an agent and shall ensure at the same time that no conflict of interest

arises between him and the client. In the event of a conflict of interest, he shall inform the client

accordingly and shall not seek to gain a direct or indirect personal advantage from the situation

and shall not consider clients' interest inferior to his own.

7. Investment Advice: A stock-broker shall not make a recommendation to any client who might

be expected to rely thereon to acquire, dispose of, retain any securities unless he has reasonable

grounds for believing that the recommendation is suitable for such a client upon the basis of the

facts, if disclosed by such a client as to his own security holdings, financial situation and

objectives of such investment. The stock-broker should seek such information from clients,

wherever he feels it is appropriate to do so.

8. Investment Advice in publicly accessible media:

(a) A stock broker or any of his employees shall not render, directly or indirectly, any investment

advice about any security in the publicly accessible media, whether real - time or non real-time,

unless a disclosure of his interest including the interest of his dependent family members and the

employer including their long or short position in the said security has been made, while

rendering such advice.

(b) In case, an employee of the stock broker is rendering such advice, he shall also disclose the

interest of his dependent family members and the employer including their long or short position

in the said security, while rendering such advice.

9. Competence of Stock Broker: A stock-broker should have adequately trained staff and

arrangements to render fair, prompt and competent services to his clients.

III. Stock-brokers vis-à-vis other stock-brokers

1. Conduct of Dealings: A stock-broker shall co-operate with the other contracting party in

comparing unmatched transactions. A stock-broker shall not knowingly and willfully deliver

documents which constitute bad delivery and shall co-operate with other contracting parties for

prompt replacement of documents which are declared as bad delivery.


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2. Protection of Clients Interests: A stock-broker shall extend fullest co-operation to other stock-

brokers in protecting the interests of his clients regarding their rights to dividends, bonus shares,

right shares and any other rights related to such securities.

3. Transactions with Stock-Brokers: A stock-broker shall carry out his transactions with other

stock-brokers and shall comply with his obligations in completing the settlement of transactions

with them.

4. Advertisement and Publicity: A stock-broker shall not advertise his business publicly unless

permitted by the stock exchange.

5. Inducement of Clients: A stock-broker shall not resort to unfair means of inducing clients from

other stock- brokers.

6. False or Misleading Returns: A stock-broker shall not neglect or fail or refuse to submit the

required returns and not make any false or misleading statement on any returns required to be

submitted to the Board and the stock exchange.

Registration of Sub-Broker

An application by a sub-broker for the grant of a certificate is made in the prescribed format

accompanied by a recommendation letter from a stock-broker of a recognised stock exchange

with whom he is to be affiliated along with two references including one from his banker

(Regulation 11). The application form is submitted to the stock exchange of which the stock-

broker with whom he is to be affiliated is a member.

The eligibility criteria for registration as a sub-broker are as follows:

(i) In the case of an individual:

(a) The applicant is not less than 21 years of age,

(b) The applicant has not been convicted of any offence involving fraud or dishonesty,

(c) The applicant has at least passed 12th standard equivalent examination from an institution

recognised by the Government, and

(d) The applicant is a fit and proper person.

Provided that SEBI may relax the educational qualifications on merits having regard to the

applicant's experience.

(ii) In the case of partnership firm or a body corporate the partners or directors, as the case may

be, shall comply with the following requirements:

(a) The applicant is not less than 21 years of age,


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(b) The applicant has not been convicted of any offence involving fraud or dishonesty, and

(c) The applicant has at least passed 12th standard equivalent examination from an institution

recognised by the Government.

The stock exchange on receipt of an application, verifies the information contained therein and

certifies that the applicant is eligible for registration. The stock exchange forwards the

application form of such applicants who comply with all the requirements specified in the

Regulations to SEBI as early as possible, but not later

Than thirty days from the date of its receipt.

SEBI on being satisfied that the sub-broker is eligible, grants a certificate to the sub-broker and

sends intimation to that effect to the stock exchange or stock exchanges as the case may be. SEBI

grants a certificate of registration to the appellant subject to the terms and conditions as stated in

rule 5.

Where an application does not fulfill the requirements, SEBI may reject the application after

giving a reasonable opportunity of being heard.

The sub-broker shall -

(a) Pay the fees as specified in Schedule III,

(b) Abide by the Code of Conduct specified in Schedule II, and

(c) Enter into an agreement with the stock-broker for specifying the scope of his authority and

responsibilities.

Code of conduct

The sub-broker at all times abides by the Code of Conduct as given hereunder:

I. General

1. Integrity: A sub-broker shall maintain high standards of integrity, promptitude and fairness in

the conduct of all investment business.

2. Exercise of Due Skill and Care: A sub-broker shall act with due skill, care and diligence in the

conduct of all investment business.

II. Duty to the Investor

1. Execution of Orders: A sub-broker, in his dealings with the clients and the general investing

public, shall faithfully execute the orders for buying and selling of securities at the best available

market price. A sub-broker shall promptly inform his client about the execution or non-execution


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of an order and make payment in respect of securities sold and arrange for prompt delivery of

securities purchased by clients.

2. Issue of Purchase or Sale Notes:

a) A sub-broker shall issue promptly to his client’s purchase or sale notes for all the transactions

entered into by him with his clients.

b) A sub-broker shall issue promptly to his clients scrip-wise split purchase or sale notes and

similarly bills and receipts showing the brokerage separately in respect of all transactions in the

specified form.

c) A sub-broker shall only split the contract notes client-wise and scrip-wise originally issued to

him by the affiliated broker into different denominations.

d) A sub-broker shall not match the purchase and sale orders of his clients and each order must

invariably be routed through a member-broker of the stock exchange with whom he is affiliated.

3. Breach of Trust: A sub-broker shall not disclose or discuss with any other person or make

improper use of the details of personal investments and other information of a confidential nature

of the client which he comes to know in his business relationship.

4. Business and Commission:

a) A sub-broker shall not encourage sales or purchases of securities with the sole object of

generating brokerage or commission.

b) A sub-broker shall not furnish false or misleading quotations or give any other false or

misleading advice or information to the clients with a view of inducing him to do business in

particular securities and enabling himself to earn brokerage or commission thereby.

c) A sub-broker shall not charge from his clients a commission exceeding one and one-half

percent of the value mentioned in the respective sale or purchase notes.

5. Business of Defaulting Clients: A sub-broker shall not deal or transact business knowingly,

directly or indirectly or execute an order for a client who has failed to carry out his commitments

in relation to securities and is in default with another broker or sub-broker.

6. Fairness to Clients: A sub-broker, when dealing with a client, shall disclose that he is acting as

an agent and shall issue appropriate purchase/sale note ensuring at the same time, that no conflict

of interest arises between him and the client. In the event of a conflict of interest, he shall inform

the client accordingly and shall not seek to gain a direct or indirect personal advantage from the

situation and shall not consider clients' interest inferior to his own.


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7. Investment Advice: A sub-broker shall not make a recommendation to any client who might

be expected to rely thereon to acquire, dispose of, retain any securities unless he has reasonable

grounds for believing that the recommendation is suitable for such a client upon the basis of the

facts, if disclosed by such a client as to his own security holdings, financial situation and

objectives of such investment. The sub-broker should seek such information from clients,

wherever they feel it is appropriate to do so.

8. Investment Advice in publicly accessible media:

a) A sub-broker or any of his employees shall not render, directly and indirectly any investment

advice about any security in the publicly accessible media, whether real-time or non-real-time,

unless a disclosure of his interest including his long or short position in the said security has been

made, while rendering such advice.

b) In case, an employee of the sub-broker is rendering such advice, he shall also disclose the

interest of his dependent family members and the employer including their long or short position

in the said security, while rendering such advice.

9. Competence of Sub-broker: A sub-broker should have adequately trained staff and

arrangements to render fair, prompt and competent services to his clients and continuous

compliance with the regulatory system.

III. Sub-Brokers vis-à-vis Stock Brokers

1. Conduct of Dealings: A sub-broker shall co-operate with his broker in comparing unmatched

transactions. A sub-broker shall not knowingly and willfully deliver documents, which constitute

bad delivery. A sub-broker shall co-operate with other contracting party for prompt replacement

of documents, which are declared as bad delivery.

2. Protection of Clients Interests: A sub-broker shall extend fullest co-operation to his stock-

broker in protecting the interests of their clients regarding their rights to dividends, right or bonus

shares or any other rights relatable to such securities.

3. Transaction with Brokers: A sub-broker shall not fail to carry out his stock broking

transactions with his broker nor shall he fail to meet his business liabilities or show negligence in

completing the settlement of transactions with them.

4. Legal Agreement between Brokers: A sub-broker shall execute an agreement or contract with

his affiliating brokers who would clearly specify the rights and obligations of the sub-broker and

the principal broker.


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5. Advertisement and Publicity: A sub-broker shall not advertise his business publicly unless

permitted by the stock exchange.

6. Inducement of Clients: A sub-broker shall not resort to unfair means of inducing clients from

other brokers.

IV. Sub-brokers vis-à-vis Regulatory Authorities

1. General Conduct: A sub-broker shall not indulge in dishonorable, disgraceful or disorderly or

improper conduct on the stock exchange nor shall he willfully obstruct the business of the stock

exchange. He shall comply with the rules, bye-laws and regulations of the stock exchange.

2. Failure to give Information: A sub-broker shall not neglect or fail or refuse to submit to SEBI

or the stock exchange with which he is registered, such books, special returns, correspondence,

documents, and papers or any part thereof as may be required.

3. False or Misleading Returns: A sub-broker shall not neglect or fail or refuse to submit the

required returns and not make any false or misleading statement on any returns required to be

submitted to SEBI or the stock exchanges.

4. Manipulation: A sub-broker shall not indulge in manipulative, fraudulent or deceptive

transactions or schemes or spread rumours with a view to distorting market equilibrium or

making personal gains.

5. Malpractices: A sub-broker shall not create false market either singly or in concert with others

or indulge in any act detrimental to the public interest or which leads to interference with the fair

and smooth functions of the market mechanism of the stock exchanges. A sub-broker shall not

involve himself in excessive speculative business in the market beyond reasonable levels not

commensurate with his financial soundness.

SEBI (Insider Trading) Regulations, 1992

Insider trading is prohibited and is considered an offence vide SEBI (Insider Trading)

Regulations, 1992.

The definitions of some of the important terms are given below:

‘Dealing in securities’ means an act of buying, selling or agreeing to buy, sell or deal in any

securities by any person either as principal or agent.

‘Insider’ means any person who, is or was connected with the company or is deemed to have

been connected with the company, and who is reasonably expected to have access, connection, to


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unpublished price sensitive information in respect of securities of a company, or who has

received or has had access to such unpublished price sensitive information.

A “connected person” means any person who-

(i) is a director, as defined in clause (13) of section 2 of the Companies Act, 1956 of a company,

or is deemed to be a director of that company by virtue of subclause (10) of section 307 of that

Act, or

(ii) Occupies the position as an officer or an employee of the company or holds a position

involving a professional or business relationship between himself and the company whether

temporary or permanent and who may reasonably be expected to have an access to unpublished

price sensitive information in relation to that company.

A person is ‘deemed to be a connected person’ if such person-

(i) is a company under the same management or group or any subsidiary company thereof within

the meaning of section (1B) of section 370, or subsection (11) of section 372, of the Companies

Act, 1956 or sub-clause (g) of section 2 of the Monopolies and Restrictive Trade Practices Act,

1969 as the case may be; or

(ii) is an intermediary as specified in section 12 of SEBI Act, 1992, Investment company,

Trustee Company, Asset Management Company or an employee or director thereof or an official

of a stock exchange or of clearing house or corporation;

(iii) is a merchant banker, share transfer agent, registrar to an issue, debenture trustee, broker,

portfolio manager, Investment Advisor, sub-broker, Investment Company or an employee

thereof, or, is a member of the Board of Trustees of a mutual fund or a member of the Board of

Directors of the Asset Management Company of a mutual fund or is an employee thereof who

have a fiduciary relationship with the company;

(iv) is a member of the Board of Directors, or an employee, of a public financial institution as

defined in Section 4A of the Companies Act, 1956; or

(v) is an official or an employee of a self regulatory organization recognised or authorized by the

Board of a regulatory body; or

(vi) is a relative of any of the aforementioned persons;


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(vii) Is a banker of the company.

(viii) Relatives of the connected person;

(ix) is a concern, firm, trust, Hindu Undivided Family, company or association of persons

wherein any of the connected persons mentioned in sub-clause (i) of clause (c) of this regulation

or any of the persons mentioned in subclauses (vi), (vii) or (viii) of this clause have more than

10% of the holding or interest

“Price sensitive information" means any information which relates directly or indirectly to a

company and which if published is likely to materially affect the price of securities of that

company.

The following shall be deemed to be price sensitive information: -

(i) Periodical financial results of the company;

(ii) Intended declaration of dividends (both interim and final);

(iii) Issue of securities or buy-back of securities;

(iv) Any major expansion plans or execution of new projects;

(v) Amalgamation, mergers or takeovers;

(vi) Disposal of the whole or substantial part of the undertaking;

(vii) Any significant changes in policies, plans or operations of the company.

Unpublished means information which is not published by the company or its agents and is not

specific in nature.

Speculative reports in print or electronic media shall not be considered as published information.

Prohibition on dealing, communicating or counseling (Regulation 3)

No insider shall–

• either on his own behalf or on behalf of any other person, deal in securities of a company listed

on any stock exchange when in possession of any unpublished price sensitive information;

• communicate, counsel or procure, directly or indirectly, any unpublished price sensitive

information to any person who while in possession of such unpublished price sensitive

information shall not deal in securities; Provided that nothing contained above shall be

applicable to any communication required in the ordinary course of business or profession or

employment or under any law.

Regulation 3A


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No company shall deal in the securities of another company or associate of that other company

while in possession of any unpublished price sensitive information. Violation of provisions

relating to insider trading

Any insider, who deals in securities in contravention of the provisions of regulation 3 or 3A shall

be guilty of insider trading (regulation 4). The regulations enable SEBI, on the basis of any

complaint or otherwise, to take steps to investigate an allegation of insider trading. On the basis

of the report of the investigating authority, SEBI is empowered to prosecute persons found prima

facie guilty of insider trading in an appropriate court.

Policy on disclosures and internal procedure for prevention of insider trading:

Chapter IV of the Regulations deals with policy on disclosures and internal procedure for

prevention of insider trading. Accordingly, all listed companies and organizations associated

with securities markets including:

(a) The intermediaries as mentioned in section 12 of the Act, asset Management Company and

trustees of mutual funds;

(b) The self regulatory organizations recognised or authorized by the Board;

(c) The recognised stock exchanges and clearing house or corporations;

(d) The public financial institutions as defined in Section 4A of the Companies Act, 1956; and

(e) the professional firms such as auditors, accountancy firms, law firms, analysts, consultants,

etc., assisting or advising listed companies, shall frame a code of internal procedures and conduct

as near there to the Model Code specified in Schedule I of these Regulations.

Disclosures

Disclosure of interest or holding by directors and officers and substantial shareholders in listed

companies –

Initial Disclosure:

(1) Any person who holds more than 5% shares or voting rights in any listed company shall

disclose to the company, the number of shares or voting rights held by such person, on becoming

such holder, within 4 working days of:-

(a) The receipt of intimation of allotment of shares; or

(b) The acquisition of shares or voting rights, as the case may be.


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(2) Any person who is a director or officer of a listed company shall disclose to the company, the

number of shares or voting rights held by such person, within 4 working days of becoming a

director or officer of the company.

Continual Disclosure

(3) Any person who holds more than 5% shares or voting rights in any listed company shall

disclose to the company the number of shares or voting rights held and change in shareholding or

voting rights, even if such change results in shareholding falling below 5%, if there has been

change in such holdings from the last disclosure made under sub-regulation (1) or under this sub-

regulation; and such change exceeds 2% of total shareholding or voting rights in the company.

(4) Any person who is a director or officer of a listed company, shall disclose to the company,

the total number of shares or voting rights held and change in shareholding or voting rights, if

there has been a change in such holdings from the last disclosure made under sub-regulation (2)

or under this sub-regulation, and the change exceeds Rupees 5 lacs in value or 42*[25000] shares

or 43*[1%] of total shareholding or voting rights, whichever is lower.

(5) The disclosure mentioned in sub-regulations (3) and (4) shall be made within 4 working days

of;

(a) The receipt of intimation of allotment of shares, or

(b) The acquisition or sale of shares or voting rights, as the case may be.

Disclosure by company to stock exchanges

(6) Every listed company, within five days of receipt, shall disclose to all stock exchanges on

which the company is listed, the information received under sub regulations (1), (2), (3) and (4).

Code of Ethics

SEBI has advised stock exchanges to adopt the Code of Ethics for their directories and

functionaries with effect from 31st May 2001. This is aimed at improving the professional and

ethical standards in the functioning of exchanges thereby creating better investors confidence in

the integrity of the market.

SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating To

Securities Markets) Regulations, 1995

The SEBI (Prohibition of Fraudulent and Unfair Trade Practices in relation to the Securities

Market) Regulations, 1995 enable SEBI to investigate into cases of market manipulation and

fraudulent and unfair trade practices. The regulations specifically prohibit market manipulation, Ishan Institute of Management & Technology

140


misleading statements to induce sale or purchase of securities, unfair trade practices relating to

securities. SEBI can conduct investigation, suo moto or upon information received by it, by an

investigating officer in respect of conduct and affairs of any person dealing,

buying/selling/dealing in securities. Based on the report of the investigating officer, SEBI can

initiate action for suspension or cancellation of registration of an intermediary.

The term “fraud” has been defined by Regulation 2(1)(c). Fraud includes any of the following

acts committed by a party to a contract, or with his connivance, or by his agent, with intent to

deceive another party thereto or his agent, or to induce him to enter into the contract:-

1. The suggestion, as to a fact which is not true, by one who does not believe it to be true;

2. The active concealment of a fact by one having knowledge or belief of the fact;

3. A promise made without any intention of performing it;

4. Any other act fitted to deceive; and

5. Any such act or omission as the law specially declares to be fraudulent; and ‘fraudulent’ shall

be construed accordingly.

The regulation prohibits:

(1) Dealings in securities in a fraudulent manner,

(2) Market manipulation,

(3) Misleading statements to induce sale or purchase of securities, and

(4) Unfair trade practice relating to securities

Prohibition of certain dealings in securities

A person shall not buy, sell or otherwise deal in securities in a fraudulent manner (Regulation 3).

Prohibition against Market Manipulation

For prohibition against market manipulation, Regulation 4 specifies that no person shall-

(i) Effect, take part in, or enter into, either directly or indirectly, transactions in securities, with

the intention of artificially raising or depressing the prices of securities and thereby inducing the

sale or purchase of securities by any person,

(ii) Indulge in any act, which is calculated to create a false or misleading appearance of trading in

the securities market,

(iii) Indulge in any act which results in reflection of prices of securities based on transactions that

are not genuine trade transactions,


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(iv) enter into a purchase or sale of any securities, not intended to effect transfer of beneficial

ownership but intended to operate only as a device to inflate, depress, or cause fluctuations in the

market price of securities, and

(v) Pay, offer or agree to pay or offer, directly or indirectly, to any person any money or money's

worth for inducing another person to purchase or sell any security with the sole object of

inflating, depressing, or causing fluctuations in the market price of securities.

Prohibition of misleading statements to induce sale or purchase of securities

According to Regulation 5(1), no person shall make any statement, or disseminate any

information which –

(a) is misleading in a material particular; and

(b) is likely to induce the sale or purchase of securities by any other person or is likely to have

the effect of increasing or depressing the market price of securities, if when he makes the

statement or disseminates the information-

(i) He does not care whether the statement or information is true or false; or

(ii) He knows, or ought reasonably to have known that the statement or information is misleading

in any material particular.

According to Regulation 5(2), nothing in this sub-regulation shall apply to any general comments

made in good faith in regard to –

a) The economic policy of the Government,

b) The economic situation in the country,

c) Trends in the securities markets, or

d) Any other matter of a similar nature.

Whether such comments be made in public or in private.

Prohibition on unfair trade practice relating to securities (Regulation 6) No person shall:

(a) In the course of his business, knowingly engage in any act, or practice which would operate

as a fraud upon any person in connection with the purchase or sale of, or any other dealing in,

any securities;

(b) on his own behalf or on behalf of any person, knowingly buy, sell or otherwise deal in

securities, pending the execution of any order of his client relating to the same security for

purchase, sale or other dealings in respect of securities; Nothing contained in this clause shall


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apply where according to the clients instructions, the transaction for the client is to be effected

only under specified conditions or in specified circumstances;

(c) intentionally and in contravention of any law for the time being in force delays the transfer of

securities in the name of the transferee or the dispatch of securities or connected documents to

any transferee;

(d) Indulge in falsification of the books, accounts and records; (whether maintained

Manually or in computer or in any other form);

(e) When acting as an agent, execute a transaction with a client at a price other than the price at

which the transaction was executed by him, whether on a stock exchange or otherwise, or at a

price other than the price at which it was offset against the transaction of another client.

The Depositories Act, 1996

The Depositories Act, 1996 was enacted to provide for regulation of depositories in securities

and for matters connected therewith or incidental thereto. It came into force from 20 th September,

1995.

The terms used in the Act are defined as under:

(1) "Beneficial owner" means a person whose name is recorded as such with a depository.

(2) "Depository" means a company, formed and registered under the Companies Act, 1956 and

which has been granted a certificate of registration under subsection (1A) of section 12 SEBI

Act, 1992.

(3) "Issuer" means any person making an issue of securities.

(4) "Participant" means a person registered as such under sub-section (1A) of section 12 of

SEBI Act, 1992.

(5) "Registered owner" means a depository whose name is entered as such in the register of the

issuer.

Agreement between depository and participant

A depository shall enter into an agreement in the specified format with one or more participants

as its agent.

Services of depository

Any person, through a participant, may enter into an agreement, in such form as may be

specified by the bye-laws, with any depository for availing its services.

Surrender of certificate of security


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Any person who has entered into an agreement with a depository shall surrender the certificate of

security, for which he seeks to avail the services of a depository, to the issuer in such manner as

may be specified by the regulations. The issuer, on receipt of certificate of security, shall cancel

the certificate of security and substitute in its records the name of the depository as a registered

owner in respect of that security and inform the depository accordingly. A depository shall, on

receipt of information enter the name of the person in its records, as the beneficial owner.

Registration of transfer of securities with depository

Every depository shall, on receipt of intimation from a participant, register the transfer of

security in the name of the transferee. If a beneficial owner or a transferee of any security seeks

to have custody of such security, the depository shall inform the issuer accordingly.

Options to receive security certificate or hold securities with depository

Every person subscribing to securities offered by an issuer shall have the option either to receive

the security certificates or hold securities with a depository. Where a person opts to hold a

security with a depository, the issuer shall intimate such depository the details of allotment of the

security, and on receipt of such information the depository shall enter in its records the name of

the allottee as the beneficial owner of that security.

Securities in depositories to be in fungible form

All securities held by a depository shall be dematerialized and shall be in a fungible form.

Rights of depositories and beneficial owner

A depository shall be deemed to be the registered owner for the purposes of effecting transfer of

ownership of security on behalf of a beneficial owner. The depository as a registered owner shall

not have any voting rights or any other rights in respect of securities held by it. The beneficial

owner shall be entitled to all the rights and benefits and be subjected to all the liabilities in

respect of his securities held by a depository.

Pledge or hypothecation of securities held in a depository

A beneficial owner may with the previous approval of the depository create a pledge or

hypothecation in respect of a security owned by him through a depository. Every beneficial

owner shall give intimation of such pledge or hypothecation to the depository and such

depository shall thereupon make entries in its records accordingly. Any entry in the records of a

depository under Section 12 (2) shall be evidence of a pledge or hypothecation.

Furnishing of information and records by depository and issuer


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Every depository shall furnish to the issuer information about the transfer of securities in the

name of beneficial owners at such intervals and in such manner as may be specified by the bye-

laws. Every issuer shall make available to the depository copies of the relevant records in respect

of securities held by such depository.

Option to opt out in respect of any security

If a beneficial owner seeks to opt out of a depository in respect of any security he

Shall inform the depository accordingly. The depository shall on receipt of intimation make

appropriate entries in its records and shall inform the issuer. Every issuer shall, within thirty days

of the receipt of intimation from the depository and on fulfillment of such conditions and on

payment of such fees as may be specified by the regulations, issue the certificate of securities to

the beneficial owner or the transferee, as the case may be.

Depository to indemnify loss in certain cases

Any loss caused to the beneficial owner due to the negligence of the depository or the

participant, the depository shall indemnify such beneficial owner. Where the loss due to the

negligence of the participant is indemnified by the depository, the depository shall have the right

to recover the same from such participant.

Securities not liable to stamp duty

As per Section 8-A of Indian Stamp Act, 1899; an issuer, by the issue of securities to one or

more depositories shall, in respect of such issue, be chargeable with duty on the total amount of

security issued by it and such securities need not be stamped;

1) where an issuer issues certificate of security under sub-section (3) of Section 14 of the

Depositories Act, 1996, on such certificate duty shall be payable as is payable on the issue of

duplicate certificate under the Indian Stamp Act, 1899;

2) Transfer of registered ownership of shares from a person to a depository or from a depository

to a beneficial owner shall not be liable to any stamp duty;

3) transfer of beneficial ownership of shares, such shares being shares of a company formed and

registered under the Companies Act, 1956 or a body corporate established by a Central Act dealt

with by a depository, shall not be liable to duty under Article 62 of Schedule I of the Indian

Stamp Act, 1899;


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4) Transfer of beneficial ownership of units, such units being units of mutual fund including

units of the Unit Trust of India, dealt with by a depository shall not be liable to duty under

Article 62 of Schedule I of the Indian Stamp Act, 1899;

5) transfer of beneficial ownership of debentures, such debentures being debentures of a

company formed and registered under the Companies Act, 1956 or a body corporate established

by a Central Act, dealt with a depository, shall not be liable to duty under Article 27 of Schedule

I of the Indian Stamp Act, 1899;

Income Tax Act, 1961

‘Domestic company’ means an Indian company, or any other company which, in respect of its

income liable to tax under this Act, has made the prescribed arrangements for the declaration and

payment, within India, of the dividends (including dividends on preference shares) payable out

of such income, as per Section 2(22A).

Dividend, according to Section 2(22) includes-

(a) Any distribution by a company of accumulated profits, whether capitalized or not, if such

distribution entails the release by the company to its shareholders of all or any part of the assets

of the company;

(b) any distribution to its shareholders by a company of debentures, debenture stock, or deposit

certificates in any form, whether with or without interest, and any distribution to its preference

shareholders of shares by way of bonus, to the extent to which the company possesses

accumulated profits, whether capitalized or not;

(c) Any distribution made to the shareholders of a company on its liquidation, to the extent to

which the distribution is attributable to the accumulated profits of the company immediately

before its liquidation, whether capitalized or not;

(d) any distribution to its shareholders by a company on the reduction of its capital, to the extent

to which the company possesses accumulated profits which arose after the end of the previous

year ending next before the 1st day of April, 1933, whether such accumulated profits have been

capitalized or not;

(e) any payment by a company, not being a company in which the public are substantially

interested, of any sum (whether as representing a part of the assets of the company or otherwise)

made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person Ishan Institute of Management & Technology

146


who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend

whether with or without a right to participate in profits) holding not less than ten percent of the

voting power, or to any concern in which such shareholder is a member or a partner and in which

he has a substantial interest (hereafter in this clause referred to as the said concern) or any

payment by any such company on behalf, or for the individual benefit, of any such shareholder,

to the extent to which the company in either case possesses accumulated profits; but ‘dividend’

does not include-

(a) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share

issued for full cash consideration, where the holder of the shares is not entitled in the event of

liquidation to participate in the surplus assets;

(b) a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as such

distribution is attributable to the capitalized profits of the company representing bonus shares

allotted to its equity shareholders after the 31st day of March, 1964 (and before the 1st day of

April, 1965);

(c) Any advance or loan made to a shareholder (or the said concern) by a company in the

ordinary course of its business, where the lending of money is a substantial part of the business

of the company;

(d) any dividend paid by a company which is set off by the company against the whole or any

part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause

(e), to the extent to which it is so set off;

(e) Any payment made by a company on purchase of its own shares from a shareholder in

accordance with the provisions of section 77A of the Companies Act, 1956.

(f) Any distribution of shares pursuant to a demerger by the resulting company to the

shareholders of the demerged company (whether or not there is a reduction of capital in the

demerged company).

Dividend income (Section 8): For the purposes of inclusion in the total income of an assessee-

(a) any dividend declared by a company or distributed or paid by it within the meaning of sub-

clause (a) or sub-clause (b) or sub-clause (c) or sub-clause (d) or sub-clause (e) of clause (22) of

Section 2, shall be deemed to be the income of the previous year in which it is so declared,

distributed or paid, as the case may be;


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(b) Any interim dividend shall be deemed to be the income of the previous year, in which the

amount of such dividend is unconditionally made available by the company to the member who

is entitled to it.

Interest on securities (Clause 28B of Section 2) means-

(i) interest on any security of the Central Government or a State Government,

(ii) Interest on debentures or other securities for money issued by or on behalf of a local

authority or a company or a corporation established by a Central, state or provincial

Act.

Capital asset

(i) Long term capital asset means a capital asset which is not a short term capital asset, as per

Clause 29A of Section 2.

(ii) Short term capital asset means a capital asset held by an assessee for not more than thirty-six

months* immediately preceding the date of its transfer, (Clause 42A of Section 2)* twelve

months in the case of a share held in a company or any other security listed in a recognised stock

exchange in India or a unit of the Unit Trust of India established under the Unit Trust of India

Act, 1963 or a unit of a Mutual Fund specified under clause (23D) of section 10.

Capital gains (Section 45)

Any profits or gains arising from the transfer of a capital asset effected in the previous year shall,

save as otherwise provided in sections (54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H), be

chargeable to income-tax under the head “Capital gains”, and shall be deemed to be the income

of the previous year in which the transfer took place. Where any person has had at any time

during previous year any beneficial interest in any securities, then any profits or gains arising

from transfer made by the depository or participant of such beneficial interest in respect of

securities shall be chargeable to income-tax as the income of the beneficial owner of the previous

year in which such transfer took place and shall not be regarded as income of the depository who

is deemed to be registered owner of securities by virtue of subsection (1) of section 10 of the

Depositories Act, 1996, and for the purposes of section 48 and proviso to clause ( 42A) of

section 2, the cost of acquisition and the period of holding of any securities shall be determined

on the basis of the first-in first- out method.


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Types of capital gains

1. Long term capital gain means capital gain arising from the transfer of a long term capital asset,

as per Clause 29B of Section 2. 2. Short term capital gain means capital gain arising from the

transfer of a short term capital asset, as per Clause 42B of Section 2.

Deduction in respect of interest on certain securities, dividends, etc.

According to Section 80L, where the gross total income of an assessee, being an individual, or a

Hindu undivided family includes any income by way of-

(i) Interest on any security of the Central Government or a State Government

(ii) Interest on National Savings Certificates (VI Issue) or National Savings Certificates (VII

Issue) or National Savings Certificates (VIII Issue) issued under the Government Savings

Certificates Act, 1959.

(iii) Interest on such debentures, issued by any institution or authority or any public sector

company, or any co-operative society (including a co-operative land mortgage bank or a co-

operative land development bank), as the Central Government may, by notification in the

Official Gazette, specify in this behalf;

(iv) Interest on deposits under such National Deposit Scheme as may be framed by the Central

Government and notified by it in this behalf in the Official Gazette;

(v) Interest on deposits under any (other) scheme framed by the Central Government and notified

by it in this behalf in the Official Gazette;

(vi) Interest on deposits under the Post Office (Monthly Income Account) Rules, 1987.

(vii) Interest on deposits with a banking company to which the Banking Regulation Act, 1949

(10 of 1949), applies (including any bank or banking institution referred to in section 51 of that

Act) or a co-operative society engaged in carrying on the business of banking (including a co-

operative land mortgage bank or a co-operative land development bank);

(viii) Interest on deposits with any such bank, not being a banking company or a co-operative

society referred to in the clause but being a bank established by or under any law made by

Parliament, as may be approved by the Central Government for the purposes of this clause;


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(ix) Interest on deposits with a financial corporation which is engaged in providing long-term

finance for industrial development in India (and which is eligible for deduction under clause

(viii) of sub-section (1) of section 36)

(x) Interest on deposits with any authority constituted in India by or under any law enacted either

for the purpose of dealing with and satisfying the need for housing accommodation or for the

purpose of planning, development or improvement of cities, towns and villages, or for both;

(xi) Interest on deposits with a co-operative society, not being a co-operative society made by a

member of the society;

(xii) Dividends from any co-operative society;

(xiii) Interest on deposits with any public company formed and registered in India with the main

object of carrying on the business of providing long-term finance for construction or purchase of

houses in India for residential purposes (and which is eligible for deduction under clause (viii) of

subsection (1) of section 36). there shall, in accordance with and subject to the provisions of this

section, be allowed, in computing the total income of the assessee, a deduction as specified

hereunder, namely:-

(i) in a case where the amount of such income does not exceed in the aggregate (nine)

thousand rupees, the whole of such amount; and

(ii) in any other case (nine) thousand rupees:

Provided that where any income referred to in clause (i) remains unallowed after the deduction

under the foregoing provision of this section, there shall be allowed in computing the total

income of the assessee, an additional deduction of an amount equal to so much of such income as

has remained unallowed; so, however, that the amount of such additional deduction shall not

exceed three thousand rupees.

Explanation - For the purposes of this sub-section, the expression ‘security’ means a Government

security as defined in clause (2) of section 2 of the Public Debt Act, 1944.

For the removal of doubts, it is hereby declared that where the income referred to in sub-section

(1) is derived from any asset held by, or on behalf of, a firm, an association of persons or a body

of individuals, no deduction shall be allowed under the said sub-section in respect of such

income in computing the total income of any partner of the firm or any member of the

association or body.

PAN compulsory for Securities transaction


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The Income-tax (Eighth Amendment) Rules, 2002 made it mandatory for a person to quote

permanent account numbers (PAN), issued by the income tax department, for securities

transactions of over Rs. 1 lakh.

Tax on long-term capital gains (Section 112)

Where the total income of an assessee includes any income, arising from the transfer of along-

term capital asset, which is chargeable under the head ‘Capital gains’, the tax payable by the

assessee on the total income shall be the aggregate of,-

(a) In the case of an individual or a Hindu undivided family, being a resident,-

i. the amount of income-tax payable on the total income as reduced by the amount of such long-

term capital gains, had the total income as so reduced been his total income; and

ii. The amount of income-tax calculated on such long-term capital gains at the rate of twenty per

cent:

(b) In the case of a domestic company,-


term capital gains, had the total income as so reduced been its total income; and

ii. The amount of income-tax calculated on such long-term capital gains at the rate of [twenty]

per cent:

(c) In the case of a non-resident (not being a company) or a foreign company,-


term capital gains , had the total income as so reduced been its total income; and

ii. The amount of income-tax calculated on such long-term capital gains at the rate of twenty

percent;

(d) In any other case of a resident,-

i. the amount of income-tax payable on the total income as reduced by the amount of long-term

capital gains, had the total income as so reduced been its total income; and

ii. the amount of income-tax calculated on such long-term capital gains at the rate of twenty per

cent Where the gross total income of an assessee includes any income arising from the transfer of

along term capital asset, the gross total income shall be reduced by the amount of such income

and the deduction under Chapter VI-A shall be allowed as if the gross total income as so reduced

were the gross total income of the assessee. Where the total income of an assessee includes any

income arising from the


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Transfer of a long-term capital asset, the total income shall be reduced by the amount of such

income and the rebate under section 88 shall be allowed from the income-Tax on the total

income as so reduced.

Unit –VI

Clearing and settlement procedures

Process of clearing and settlement

Parties involved in clearing and settlement


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CLEARING AND SETTLEMENT

Transaction Cycle

Settlement Process

While NSE provides a platform for trading to its trading members, the National Securities

Clearing Corporation Ltd. (NSCCL) determines the funds/securities obligations of the trading

members and ensures that trading members meet their obligations. NSCCL becomes the legal

counterparty to the net settlement obligations of every member. This principle is called

``novation'' and NSCCL is obligated to meet all settlement obligations, regardless of member

defaults, without any discretion. Once a member fails on any obligations, NSCCL immediately

cuts off trading and initiates recovery. The clearing banks and depositories provide the necessary

interface between the custodians/clearing members (who clear for the trading members or their

own transactions) for settlement of funds/securities obligations of trading members. The core

processes involved in the settlement process are:

(a) Determination of Obligation: NSCCL determines what counter-parties owe, and what

counter-parties are due to receive on the settlement date. The NSCCL interposes itself as a


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Transaction cycle

Decision to trade

Settlement of trades

Funds/securities

Clearing of trades

Placing order

Trade execution


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.

(b) Pay-in of Funds and Securities: The members bring in their funds/securities to the NSCCL.

They make available required securities in designated accounts with the depositories by the

prescribed pay-in time. The depositories move the securities available in the accounts of

members to the account of the NSCCL. Likewise members with funds obligations make

available required funds in the designated accounts with clearing banks by the prescribed pay-in

time. The NSCCL 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 of

members and credit accounts of the NSCCL.

(c) Pay-out of Funds and Securities: After processing for shortages of funds/securities and

arranging for movement of funds from surplus banks to deficit banks through RBI clearing, the

NSCCL sends electronic instructions to the depositories/clearing banks to release pay-out of

securities/funds. The depositories and clearing banks debit accounts of NSCCL and credit

settlement accounts of members. Settlement is complete upon release of pay-out of funds and

securities to custodians/members. The settlement process for transactions in securities in the CM

segment of NSE is presented in the Figure 3.2

(d) Risk Management: A sound risk management system is integral to an efficient settlement

system. NSCCL has put in place a comprehensive risk management system, which is constantly

monitored and upgraded to pre-empt market failures. It monitors the track record and

performance of members and their net worth; 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.

3.3 Settlement Agencies

The NSCCL, with the help of clearing members, custodians, clearing banks and depositories

settles the trades executed on exchanges. The roles of each of these entities are explained below:

(a) NSCCL: The NSCCL is responsible for post-trade activities of a stock exchange. Clearing

and settlement of trades and risk management are its central functions. It clears all trades,

determines obligations of members, arranges for pay-in of funds/securities, receives

funds/securities, processes for shortages in funds/securities, arranges for pay-out of


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funds/securities to members, guarantees settlement, and collects and maintains

margins/collateral/base capital/other funds.

(b) Clearing Members: They are responsible for settling their obligations as determined by the

NSCCL. They have to make available funds and/or securities in the designated accounts with

clearing bank/depository participant, as the case may be, to meet their obligations on the

settlement day. In the capital market segment, all trading members of the Exchange are required

to become the Clearing Member of the Clearing Corporation. (c) Custodians: A custodian is a

person who holds for safekeeping the documentary evidence of the title to property belonging

like share certificates, etc. The title to the custodian’s property remains vested with the original

holder, or in their nominee(s), or custodian trustee, as the case may be. In NSCCL, custodian is a

clearing member but not a trading member. He settles trades assigned to him by trading

members. He is required to confirm whether he is going to settle a particular trade or not. If it is

confirmed, the NSCCL assigns that obligation to that custodian and the custodian is required to

settle it on the settlement day. If the custodian rejects the trade, the obligation is assigned back to

the trading /clearing member.

Figure : Settlement Process in CM segment of NSE

1

8 9

6 7

2 3

5 4

10 11


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Depositories Clearing Banks

NSE

Custodians/CM’s

NSCCL


Explanations:

(1) Trade details from Exchange to NSCCL (real-time and end of day trade file).

(2) NSCCL notifies the consummated trade details to CMs/custodians who affirm back. Based

on the affirmation, NSCCL applies multilateral netting and determines obligations.

(3) Download of obligation and pay-in advice of funds/securities.

(4) Instructions to clearing banks to make funds available by pay-in time.

(5) Instructions to depositories to make securities available by pay-in-time.

(6) Pay-in of securities (NSCCL advises depository to debit pool account of custodians/CMs and

credit its account and depository does it).

(7) Pay-in of funds (NSCCL advises Clearing Banks to debit account of custodians/CMs and

credit its account and clearing bank does it).

(8) Pay-out of securities (NSCCL advises depository to credit pool account of custodians/CMs

and debit its account and depository does it).

(9) Pay-out of funds (NSCCL advises Clearing Banks to credit account of custodians/CMs and

debit its account and clearing bank does it).

(10) Depository informs custodians/CMs through DPs.

(11) Clearing Banks inform custodians/CMs.

(d) Clearing Banks: Clearing banks are a key link between the clearing members andNSCCL for

funds settlement. Every clearing member is required to open a dedicated settlement account with

one of the clearing banks. Based on his obligation as determined through clearing, the clearing

member makes funds available in the clearing account for the pay-in and receives funds in case

of a pay-out. Multiple clearing banks provide advantages of competitive forces, facilitate

introduction of new products viz. working capital funding, anywhere banking facilities, the

option to members to settle funds through a bank, which provides the maximum services suitable

to the member. The clearing banks are required to provide the following services as a single

window to all clearing members of National Securities Clearing Corporation Ltd. as also to the

Clearing Corporation:

• Branch network in cities that cover bulk of the trading cum clearing members


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• High level automation including electronic funds transfer (EFT) facilities

• Facilities like (a) dedicated branch facilities (b) software to interface with the Clearing

Corporation (c) access to accounts information on a real time basis

• Value-added services to members such as free-of-cost funds transfer across centers etc.

• Providing working capital funds

• Stock lending facilities

• Services as Professional Clearing Members

• Services as Depository Participants

• Other Capital Market related facilities

• All other banking facilities like issuing bank guarantees / credit facilities etc.

(e) Depositories: A depository is an entity where the securities of an investor are held in

electronic form. The person who holds a demat account is a beneficiary owner. In case of a joint

account, the account holders will be beneficiary holders of that joint account. Depositories help

in the settlement of the dematerialised securities. Each custodian/clearing member is required to

maintain a clearing pool account with the depositories. He is required to make available the

required securities in the designated account on settlement day. The depository runs an electronic

file to transfer the securities from accounts of the custodians/clearing member to that of NSCCL.

As per the schedule of allocation of securities determined by the NSCCL, the depositories

transfer the securities on the pay-out day from the account of the NSCCL to those of

members/custodians.

(f) Professional Clearing Member: NSCCL admits special category of members namely,

professional clearing members. Professional Clearing Member (PCM) may clear and settle trades

executed for their clients (individuals, institutions etc.). In such an event, the functions and

responsibilities of the PCM would be similar to Custodians. PCMs may also undertake clearing

and settlement responsibility for trading members. In such a case, the PCM would settle the

trades carried out by the trading members connected to them. The onus for settling the trade

would be thus on the PCM and not the trading member. A PCM has no trading rights but has

only clearing rights, i.e. he just clears the trades of his associate trading members and

institutional clients.

3.4 Risks in Settlement

The following two kinds of risks are inherent in a settlement system:


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(1) Counterparty Risk: This arises if parties do not discharge their obligations fully when due or

at any time thereafter. This has two components, namely replacement cost risk prior to settlement

and principal risk during settlement.

(a) The replacement cost risk arises from the failure of one of the parties to transaction. While

the non-defaulting party tries to replace the original transaction at current prices, he loses the

profit that has accrued on the transaction between the date of original transaction and date of

replacement transaction. The seller/buyer of the security loses this unrealised profit if the current

price is below/above the transaction price. Both parties encounter this risk as prices are

uncertain. It has been reduced by reducing time gap between transaction and settlement and by

legally binding netting systems.

(b) The principal risk arises if a party discharges his obligations but the counterparty defaults.

The seller/buyer of the security suffers this risk when he delivers/makes payment, but does not

receive payment/delivery. This risk can be eliminated by delivery vs. payment mechanism which

ensures delivery only against payment. This has been reduced by having a central counterparty

(NSCCL) which becomes the buyer to every eller and the seller to every buyer. A variant of

counterparty risk is liquidity risk which arises if one of the parties to transaction does not settle

on the settlement date, but later. The seller/buyer who does not receive payment/delivery when

due, may have to borrow funds/securities to complete his payment/delivery obligations. Another

variant is the third party risk which arises if the parties to trade are permitted or required to use

the services of a third party which fails to perform. For example, the failure of a clearing bank

which helps in payment can disrupt settlement. This risk is reduced by allowing parties to have

accounts with multiple banks. Similarly, the users of custodial services face risk if the concerned

custodian becomes insolvent, acts negligently, etc.

(2) System Risk: This comprises of operational, legal and systemic risks. The operational risk

arises from possible operational failures such as errors, fraud, outages etc. The legal risk arises if

the laws or regulations do not support enforcement of settlement obligations or are uncertain.

Systemic risk arises when failure of one of the parties to discharge his obligations leads to failure

by other parties. The domino effect of successive failures can cause a failure of the settlement

system. These risks have been contained by enforcement of an elaborate margining and capital

adequacy standards to secure market integrity, settlement guarantee funds to provide counter-

party guarantee, legal backing for settlement activities and business continuity plan, etc.


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3.5 Settlement Cycle

At the end of each trading day, concluded or locked-in trades are received from NSE by NSCCL.

NSCCL determines the cumulative obligations of each member and electronically transfers the

data to Clearing Members (CMs). All trades concluded during a particular trading period are

settled together. A multilateral netting procedure is adopted to determine the net settlement

obligations (delivery/receipt positions) of CMs. NSCCL then allocates or assigns delivery of

securities inter se the members to arrive at the delivery and receipt obligation of funds and

securities by each member. On the securities pay-in day, delivering members are required to

bring in securities to NSCCL.On pay out day the securities are delivered to the respective

receiving members. Settlement is deemed to be complete upon declaration and release of pay-out

of funds and securities. Exceptions may arise because of short delivery of securities by CMs, bad

deliveries or company objections on the pay-out day. NSCCL identifies short deliveries and

conducts a buying-in auction on the day after the pay-out day through the NSE trading system.

The delivering CM is debited by an amount equivalent to the securities not delivered and valued

at a valuation price (the closing price as announced by NSE on the day previous to the day of the

valuation). If the buy-in auction price is more than the valuation price, the CM is required to

make good the difference. All shortages not bought-in are deemed closed out at the highest price

between the first day of the trading period till the day of squaring off or closing price on the

auction day plus 20%, whichever is higher. This amount is credited to the receiving member's

account on the auction pay-out day.

Bad Deliveries (in case of physical settlement)

Bad deliveries (deliveries which are prima facie defective) are required to be reported to the

clearing house within two days from the receipt of documents. The delivering member is

required to rectify these within two days. Un-rectified bad deliveries are assigned to auction on

the next day.

Company Objections (in case of physical settlement)

Company objections arise when, on lodgment of the securities with the company/Share Transfer

Agent (STA) for transfer, which are returned due to signature mismatch or for any other reason

for which the transfer of security cannot be effected. The original selling CM is normally

responsible for rectifying/replacing defective documents to the receiving CM as per pre-notified

schedule. The CM on whom company objection is lodged has an opportunity to withdraw the Ishan Institute of Management & Technology

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objection if the objection is not valid or the documents are incomplete (i.e. not as required under

guideline No.100 or 109 of SEBI Good/Bad delivery guidelines), within 7 days of lodgement

against him. If the CM is unable to rectify/replace defective documents on or before 21 days,

NSCCL conducts a buying-in auction for the non-rectified part of defective document on the

next auction day through the trading system of NSE. All objections, which are not bought-in, are

deemed closed out on the auction day at the closing price on the auction day plus 20%. This

amount is credited to the receiving member's account on the auction pay-out day.

Till June, 2001 trades were settled as account period settlement. Following Finance Minister’s

announcement on March 13, 2001 that the rolling settlement would be extended to 200 category

‘A’ stocks in MCFS, ALBM and BLESS by July, 2001, SEBI decided that all 263 scrips

included in the ALBM/BLESS or MCFS in any stock exchange or in the BSE-200 list would be

traded only in the compulsory rolling settlement on all the exchanges from July 2, 2001. Further,

SEBI mandated rolling settlement for the remaining securities from December 31, 2001. The

settlement cycle would be reduced from T+5 to T+3 from April 1, 2002. With effect from April

1, 2003 the settlement cycle has been further reduced from T+3 to T+2.

Normal Market

In a rolling settlement, trade day is T day, T+1 day and T+2 day for NSCCL. The trades

executed each trading day are considered as a trading period and trades executed during the day

are settled based on the net obligations for the day. At NSE, trades in rolling settlement are

settled on a T+2 basis i.e. on the 2nd working day. Typically trades taking place on Monday are

settled on Wednesday, Tuesday's trades settled on Thursday and so on.

A tabular representation of the settlement cycle for rolling settlement is given below:

Activity Day

Trading Rolling Settlement Trading T

Clearing Custodial Conformation T+1 working

days

Delivery Generation T+1 working


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days

Settlement Securities and Funds pay in T+2 working days

Securities and Funds pay out T+2 working days

Valuation of shortages based on closing prices T+1 closing prices

Post

settlement

Auction T+3 working days

Bad delivery reporting T+4 working days

Auction settlement T+5 working days

Rectified bad delivery pay in and pay out T+6 working days

Re-bad delivery reporting and pick up T+8 working days

Close out of re-bad delivery and funds pay-in & pay

out

T+9 working days

Limited Physical Market

Settlement for trades is done on a trade-for-trade basis and delivery obligations arise out of each

trade.

Salient features of Limited Physical Market settlement.

• Delivery of shares in street name and market delivery (clients holding physical shares

purchased from the secondary market) is treated as bad delivery. The shares standing in the name

of individuals/HUF only would constitute good delivery. The selling/delivering member must

necessarily be the introducing member.

• Any delivery in excess of 500 shares is marked as short and such deliveries are compulsorily

closed-out.

• Shortages, if any, are compulsorily closed-out at 20% over the actual traded price. Unrectified

bad delivery and re-bad delivery are compulsorily closed out at 20% over the actual traded price.


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• All deliveries are compulsorily be required to be attested by the introducing/ delivering

member.

• The buyer must compulsorily send the securities for transfer and dematerialisation, latest within

3 months from the date of pay-out.

• Company objections arising out of such trading and settlement in this market are reported in the

same manner as is currently being done for normal market segment. However securities would

be accepted as valid company objection, only if the securities are lodged for transfer within 3

months from the date of pay-out.

The settlement cycle for this segment is same as for the rolling settlement viz:

Activity Day



days


days



Post

settlement

Assigning of shortages for close out T+3 working days

Reporting and pick up of bad delivery T+4 working days

Close out of shortages T+5 working days

Replacement of bad delivery T+6 working days

Reporting of re-bad and pick up T+8 working days

Close out of re-bad delivery T+9 working days


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Institutional Segment

Trading in this market segment is available for 'institutional investors' only. In order to ensure

that the overall FII limits are not violated, selling in this segment is restricted to FII clients.

Buying is restricted to FII and FI clients. Members are required to enter the custodian participant

code at the time of order entry and to ensure that the selling/buying restrictions are strictly

adhered to. A sale order entered by trading members on behalf of non FII clients or a buy order

entered by trading members on behalf of non FII / non FI clients, shall be deemed to be invalid

and any trade arising from such order shall be compulsorily closed out by the Clearing

Corporation at 20 % over the actual trade price, without any further reference to the parties to the

trade. The member entering the invalid order shall further be liable for disciplinary action, which

may include penalties, penal action, withdrawal of trading facilities, suspension etc.

Members are not allowed the facility of trade warehousing for this segment and accordingly

members are not required to mark the orders for NCIT and warehousing. If any orders are

marked for the Clearing Corporation shall remove NCIT and / or warehousing the same.

Shortages, if any, are compulsorily closed-out at 20% over the actual trade price. Deals executed

in this segment are cleared on a T+2 rolling basis. Settlement for all trades is done on a trade-for-

trade basis and delivery obligation arises out of each trade. Settlement of all transactions is

compulsorily in demat mode only.

Deals executed in this segment are not covered under the settlement guarantee extended by the

Clearing Corporation.


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The settlement cycle for this segment is shown below:

Securities Settlement

The securities obligations of members are downloaded to members/custodians by NSCCL after

the end of the trading day. The members/custodians deliver the securities to the Clearing House

on the pay-in day in case of physical settlement and make available the required securities in the

pool accounts with the depository participants in case of dematerialised securities. Members are

required to open accounts with depository participants of both the depositories, NSDL and

CDSL. Delivering members are required to deliver all documents to the Clearing House (in case

of physical settlement) between 9:30 a.m. and 10:30 a.m. on the settlement day. Receiving

members are required to collect the documents from the Clearing House between 2:00 p.m. and

2:30 p.m.

In case of dematerialised settlement, the members receive their obligation by 1.30 pm on T + 1

day. The members need to arrange for the securities as per their obligations and give instructions

by 10.30 am on the pay-in day. In case of NSDL the members need to give instructions to move

the securities to the settlement account of NSCCL, whereas in case of CDSL the members need

to ensure that the necessary quantity of securities are available in their pool account. The

members need to ensure that the settlement number and type are correctly entered to avoid any


Activity Day



days


days



Valuation of shortages based on closing prices T+1 working days

Post

settlement

Close out T+2 working days

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defaults. The depository would credit the receiving members' receipt account within his CM

clearing account with the depository on or after 2:30 p.m. on the pay-out day.

Pursuant to SEBI directive (vide its circular SMDRP/Policy/Cir-05/2001 dated February 1, 2001)

NSCCL has introduced a settlement system for direct delivery of securities to the investors

accounts with effect from April 2, 2001.

Direct Payout to Investors

SEBI vide its circular no.SMDRP/Policy/Cir-05/2001 dated February 1, 2001 had directed stock

exchanges to introduce a settlement system for direct delivery of securities to the investors

accounts with effect from April 2, 2001. Accordingly, NSCCL has introduced the facility of

direct payout to clients' account on both the depositories. It ascertains from each clearing

member, the beneficiary account details of their respective clients who are due to receive pay out

of securities. NSCCL has provided its members with a front-end for creating the file through

which the information is provided to NSCCL. Based on the information received from members,

the Clearing Corporation sends payout instructions to the depositories, so that the client receives

the pay out of securities directly to their accounts on the pay-out day. The client receives payout

to the extent of instructions received from the respective clearing members. To the extent of

instruction not received, the securities are credited to the CM pool account of the member.

Salient features of Direct Payout to Investors

• Clearing members are required to provide a file to NSCCL for effecting pay out to investors'

accounts for a particular settlement type, settlement number and delivery type. The file is to be

provided as per the structure specified by NSCCL.

• Clearing members are provided with an application in the clearing front end for the purpose of

capturing the requisite data and generating the file. This front end is a part of the Clearing Front

End Version 4.2, which is available on the extranet in the 'common/clearing' directory.

• The time limit for submission of files is up to 9.30.am on the pay out day

• The files are uploaded by NSCCL in its system and returned with the indication of the

success/rejection of the file and the records. This is purely a validation of the correctness of the

file and record formats.

• Clearing members shall provide details of beneficiary account of the clients of the trading

members in any one of the depositories.


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• Credit to the accounts of various constituents (i.e. client account and CM Pool / CM Clearing

account) would be in the same order as specified by the clearing member in the file given to

NSCCL.

• If for any client account record, the quantity requested for direct payout is more than the

balance available for pay out to the clearing member in that depository, the quantity available in

that depository shall only be directly credited to members settlement account in that depository.

Example: The member is supposed to receive pay out of 1100 shares for particular script. The

member has allocated the pay out as under:

Client Name Depository Quantity

A CDSL 100

B CDSL 500

C CDSL 500

The member receives 1000 shares in CDSL and 100 shares in NSDL. The allocation of qty will

be as under

Client Name Depository Quantity

A CDSL 100

B CDSL 500

C CDSL 0

Members pool CDSL 400

Members pool NSDL 100

If the member receives entire 1100 shares in NSDL the same will be transferred to members pool

account in NSDL.


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• In the following situations, the pay out shall be credited to CM Pool / Clearing account of the

clearing members :

a. Where the clearing members fail to provide the details of the beneficiary account or where the

credit to the beneficiary accounts of the clients fail, or any account whatsoever

b. The remaining quantity received from other depository as pay out shall be credited to the CM

Pool / Clearing account of the clearing member with the respective depositories

• If the member's client has not paid the dues to the member for the said securities or for any

other reason, the member has valid justification not to release the payout of a client direct in such

a situation the member may not be giving the beneficiary account details of such client's in the

file. In case the investor has paid the dues for delivery of securities and there is no valid

justification for not releasing pay-out directly to the client, the member has to provide the details

of its clients beneficiary account so that direct credit can be given to the client.

3.7 Funds Settlement

Currently, NSCCL offers settlement of funds through 10 clearing banks namely Canara Bank,

HDFC Bank, Global Trust Bank, IndusInd Bank, ICICI Bank, UTI Bank, Centurion Bank, Bank

of India and IDBI Bank, Standard Chartered Bank. Every Clearing Member is required to

maintain and operate a clearing account with any one of the empanelled clearing banks at the

designated clearing bank branches. The clearing account is to be used exclusively for clearing &

settlement operations.

Clearing Account:

Every Clearing Member is required to maintain and operate a clearing account with any one of

the empanelled clearing banks at the designated clearing bank branches. The clearing account is

to be used exclusively for clearing operations i.e., for settling funds and other obligations to the

Clearing Corporation including payments of margins and penal charges. Clearing Members are

required to authorise the Clearing Bank to access their clearing account for debiting and crediting

their accounts, reporting of balances and other information as may be required by NSCCL from

time to time as per the specified format. The Clearing Bank will debit/ credit the clearing account

of clearing members as per instructions received from the Clearing Corporation. A Clearing

member can deposit funds into this account in any form, but can withdraw funds from this

account only in selfname.

Change in Clearing Bank:


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In case a Clearing Member wishes to shift a clearing account from one designated Clearing Bank

to another, the procedure is as follows:

1. The Clearing Member is required to lodge his request with the Clearing Bank where he is

maintaining a clearing account, seeking permission to shift his clearing account to another

designated clearing bank and send an acknowledged copy of the same to the Clearing

Corporation.

2. The Clearing Member is required to obtain a "No Objection Certificate" (NOC) from his

existing bank.

3. On receipt of the NOC from the existing bank, the Clearing Corporation shall issue a letter of

introduction to the clearing bank the member wishes to shift his clearing account to.

4. The Clearing Member, is required to submit an acknowledged copy of the letter sent to the

new clearing bank to the Clearing Corporation, on opening the clearing account with the

designated clearing bank.

Funds settlement:

Members are informed of their funds obligation for various settlements through the daily

clearing data download. The daily funds statement gives date-wise details of each debit/ credit

transaction in the member’s clearing account whereas the summary statement summarises the

same information for a quick reference. The member account may be debited for various types of

transactions on a daily basis. The member is required to ensure that adequate funds are available

in the clearing account towards all obligations, on the scheduled date and time. The member can

refer to his various obligation statements and provide for funds accordingly. To ensure timely

fulfillment of funds obligations, members may avail of the facility of standing instructions to

transfer the requisite amount from some other account to the clearing account or a Temporary

Overdraft facility from the bank. In case the member has availed such a facility, the member

may furnish details of his obligation to the bank to ensure timely transfer of funds towards the

same to avoid inconvenience. The member with a funds pay-in obligation is required to have

clear funds in his account on or before 11.00 a.m. on the scheduled pay-in day. The payout of

funds is credited to the clearing account of the members on or after 1.30 p.m. on the scheduled

payout day.

Funds shortages:


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In pursuance of chapter IV of the Byelaws of the NSCCL and Regulations framed there under,

all clearing members are requested to note that on account of settlement funds shortages trading

may not be permitted and securities payout withheld as as per the norm in place from time to

time-

Penal Charges

Penalties are charged to members for:

(a) failure to fulfil their funds obligations

(b) failure to fulfil their securities deliverable obligations

(c) Gross Exposure & Turnover Violations

(d) Margin Shortages

(e) Security Deposit Shortages

(f) Other violations in respect of client code modifications, non-confirmation of

custodial trades, company objections reported against the members' etc.

Penalty Points

Penalty points are charged to members for:

(a) Gross Exposure & Turnover Violations

(b) Other violations in respect of client code modifications, non-confirmation of custodial trades,

company objections reported against the members' etc.

Penalty points are calculated for each settlement and accumulated for all the settlements over

each calendar month. Penalty points are imposed over and above penal interest and other

charges. At the beginning of the first settlement period of each month the cumulated points will

be reset to zero.

Type of Default Penalty points per settlement

Gross Exposure or Turnover Violation for

Rs.5 lacs or more

4

Gross Exposure or Turnover Violation for

less than Rs.5 lacs

2

Non Confirmation of Custodial Trades 4

Client code modifications of more than 5

instances

4


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The following penalties are imposed for penalty points earned during each calendar

month:

Penalty Points Penalty

0 to 20 No action

21 to 30 Reprimand letter

31 to 50 A fine of Rs.2000/- per point over 30 points

51 to 100 A fine of Rs.5000/- per point over 50 points plus RS 40000

Over 100 Allowable exposure to be reduced by 75% for 10 settlements

in normal regular market

In addition to the above, a penal interest at the rate of 9 basis points for each day of default will

be levied on the members who fail to pay the penalty imposed on them.

Parties involved in clearing and settlement

Stock Brokers

Introduction

A broker is an intermediary who arranges to buy and sell securities on behalf of clients (the

buyer and the seller). According to Rule 2 (e) of SEBI (Stock Brokers and Sub-Brokers) Rules,

1992, a stockbroker means a member of a recognized stock exchange. No stockbroker is allowed

to buy, sell or deal in securities, unless he or she holds a certificate of registration granted by

SEBI.

A stockbroker applies for registration to SEBI through a stock exchange or stock exchanges of

which he or she is admitted as a member. SEBI may grant a certificate to a stock-broker [as per

SEBI (Stock Brokers and Sub-Brokers) Rules, 1992] subject to the conditions that:

a) he holds the membership of any stock exchange;


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b) he shall abide by the rules, regulations and bye-laws of the stock exchange or stock exchanges

of which he is a member;

c) in case of any change in the status and constitution, he shall obtain prior permission of SEBI

to continue to buy, sell or deal in securities in any stock exchange;

d) he shall pay the amount of fees for registration in the prescribed manner; and

e) he shall take adequate steps for redressal of grievances of the investors within one month of

the date of the receipt of the complaint and keep SEBI informed about the number, nature and

other particulars of the complaints.

While considering the application of an entity for grant of registration as a stock broker, SEBI

shall take into account the following namely, whether the stock broker applicant - a) is eligible to

be admitted as a member of a stock exchange;

b) has the necessary infrastructure like adequate office space, equipment and man power to

effectively discharge his activities;

c) has any past experience in the business of buying, selling or dealing in securities;

d) is being subjected to any disciplinary proceedings under the rules, regulations and bye-laws of

a stock exchange with respect to his business as a stockbroker involving either himself or any of

his partners, directors or employees.

Membership in NSE

There are no entry/exit barriers to the membership in NSE. Anybody can become member by

complying with the prescribed eligibility criteria and exit by surrendering membership without

any hidden/overt cost.

The members are admitted to the different segments of the Exchange subject to the provisions of

the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act,

1992, the Rules, circulars, notifications, guidelines, etc., issued there under and the Bye laws,

Rules and Regulations of the Exchange. The standards for admission of members laid down by

the Exchange stress on factors such as, corporate structure, capital adequacy, track record,

education, experience, etc. and reflect a conscious effort on the part of NSE to ensure quality

broking services so as to build and sustain confidence among investors in the Exchange’s

operations. Benefits to the trading membership of NSE include:

1. access to a nation-wide trading facility for equities, derivatives, debt and hybrid instruments /

products,


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2. ability to provide a fair, efficient and transparent securities market to the investors

3. use of state-of-the-art electronic trading systems and technology,

4. dealing with an organisation which follows strict standards for trading & settlement at par with

those available at the top international bourses,

5. a demutualised Exchange which is managed by independent and experienced professionals,

and

6. dealing with an organisation which is constantly striving to move towards a global

marketplace in the securities industry.

New Membership

Membership of NSE is open to all persons desirous of becoming trading members, subject to

meeting requirements/criteria as laid down by SEBI and the Exchange. The different segments

currently available on the Exchange for trading are:

I Capital Market (Equities and Retail Debt)

II Wholesale Debt Market

III Derivatives (Futures and Options) Market

Admission to membership of the Exchange to any of the segments is currently open and

available.

Persons or Institutions desirous of securing admission as Trading Members (Stock Brokers) on

the Exchange may apply for any one of the following segment groups:

I. Wholesale Debt Market (WDM) Segment

II. Capital Market (CM) and Wholesale Debt Market (WDM) segments

III. Capital Market (CM) and Futures & Options (F&O) segments

IV. Capital Market (CM), Wholesale Debt Market (WDM) and Futures & Options

(F&O) segment

V. Clearing Membership of National Securities Clearing Corporation Ltd.(NSCCL) as a

Professional Clearing Member (PCM)

Eligibility for acquiring membership of NSE is as follows:

1) The following persons are eligible to become trading members:

(a) Individuals

(b) Partnership firms registered under the Indian Partnership Act, 1932

Individual and Partnership firm are not eligible to apply for membership on WDM segment.


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(c) Institutions, including subsidiaries of banks engaged in financial services.

(d) Body Corporate including companies as defined in the Companies Act, 1956.

A company shall be eligible to be admitted as a member if:

i) such company is formed in compliance with the provisions of Section 12 of the said Act;

ii) such company undertakes to comply with such financial requirements and norms as may be

specified by the Securities and Exchange Board of India for the registration of such company;

iii) the directors of such company are not disqualified for being members of a stock exchange

and have not held the offices of the Directors in any company which had been a member of the

stock exchange and had been declared defaulter or expelled by the stock exchange; and

(e) such other persons or entities as may be permitted from time to time by RBI / SEBI under the

Securities Contracts (Regulations) Rules, 1957.

2) No person shall be admitted as a trading member if:

(a) he has been adjudged bankrupt or a receiver order in bankruptcy has been made against him

or he has been proved to be insolvent even though he has obtained his final discharge;

(b) he has compounded with his creditors for less than full discharge of debts;

(c) he has been convicted of an offence involving a fraud or dishonesty;

(d) he is engaged as a principal or employee in any business other than that of Securities, except

as a broker or agent not involving any personal financial liability or for providing merchant

banking, underwriting or corporate or investment advisory services, unless he undertakes to

severe its connections with such business on admission, if admitted;

(e) he has been at any time expelled or declared a defaulter by any other Stock Exchange or he

has been debarred from trading in securities by any Regulatory Authorities like SEBI, RBI etc;

(f) he has been previously refused admission to trading membership by NSE unless a period of

one year has elapsed since the date of such rejection;

(g) he incurs such disqualification under the provisions of the Securities Contract (Regulations)

Act, 1956 or Rules made there under so as to disentitle him from seeking membership of a stock

exchange;

(h) incurs such disqualification consequent to which NSE determines it to be not in public

interest to admit him as a member on the Exchange Provided that in case of registered firms,

body corporate and companies, the condition from (a) to (h) above will apply to all partners in

case of partnership firms, and all directors in case of companies;


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(i) it is a body corporate which has committed any act which renders it liable to be wound up

under the provisions of the law;

(j) it is a body corporate or a company in respect of which a provisional liquidator or receiver or

official liquidator has been appointed by a competent court;

Education and Experience. Where an applicant is a corporate, not less than two directors of the

company (in case of a sole proprietorship, individual and in case of a partnership firm, two

partners) should satisfy the following criteria:

They should be at least graduates and each of them should possess at least two years' experience

in an activity related to broker, sub-broker, authorized agent or authorized clerk or authorized

representative or remisier or apprentice to a member of a recognised stock exchange. Such

experience will include working as a dealer, jobber, market maker, or in any other manner in the

dealing in securities or clearing and settlement thereof, as portfolio manager or merchant bankers

or as a researcher with any individual or organization operating in the securities market.

Shareholding Pattern: Securities markets have the inherent tendency to be volatile and risky.

Therefore, there should be adequate risk containment mechanisms in place

for the Stock Exchanges. One such risk containment tool is the concept of ‘Dominant

Promoter/Shareholder Group’ which is very unique for applicants acquiring membership on the

NSE. Though membership on NSE is granted to the entity applying for it, but for all practical

purposes the entity is managed by a few shareholders who have controlling interest in the

company. The shareholders holding the majority of shares have a dominant role in the affairs of

the company. In case of any default by the broking entity, the Exchange should be able to

identify and take action against the persons who are behind the company. The Exchange,

therefore, needs to know the background, financial soundness and integrity of these shareholders

holding such controlling interest. Hence, during the admission process the dominant shareholders

are called for an interview with the Membership Approval Committee.

Salient features on the concept of Dominant Promoter/Shareholder Group:

a) Dominant Promoter / Shareholder Group (DPG) is a group of shareholders of the Trading

member corporate who normally would be individuals, not exceeding 4 in number, and who

would jointly and/or severally hold not less than 51% of shares (40% in case of listed companies)

in the trading member corporate at the time of admission as well as subsequently at all relevant

points of time.


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b) The shareholding/interest of close relatives of the DPG viz. Parents, spouse, children, brothers

and sisters would also be counted for arriving at total dominant holding / interest of a particular

dominant shareholder, if such relative(s) give an unqualified and irrevocable support in writing

to the concerned dominant shareholder in respect of such holding / interest.

c) Corporate shareholders of the trading member company can also extend their support to the

DPG, provided the shareholding of the Dominant Promoter Group along with the support of their

specified relatives in the corporate shareholder is not less than 51% or 40%, as the case may be.

The indirect shareholding shall be calculated proportionately by reckoning the direct

shareholding of the DPG along with the support of their specified relatives in the corporate

shareholder of the trading member company.

d) If none of the dominant promoters/shareholders is a Director on the Board of Directors of the

trading member company, then at least two other directors having the requisite experience and

qualification shall hold a minimum of 5% shares (each) in the paid up equity capital of the

trading member company. Once a trading entity nominates/determines a group of shareholders (1

to 4) as the DPG, no other shareholder (existing or new) would be allowed to join the DPG.

However, one or more shareholders within the DPG may be allowed to divest their shares and

quit the group. In such an eventuality, it is to be ensured that the remaining dominant

shareholders always maintain among themselves, a minimum of 51% of the shares of the

company (40% in case of listed trading member corporate) at all points of time. Failure to

maintain this required level of shareholding will be treated as a breach of the continuing

membership norms, which would tantamount to a reconstitution of the trading member corporate

as the existing DPG would no longer hold controlling interest in the trading member corporate or

alternatively a new group would have emerged with controlling stake. NSE would immediately

withdraw the trading facility of such trading members. They could be re-instated upon rectifying

the defect or seeking the approval of the Exchange for identifying the new group of shareholders

as the dominant shareholders, for which the process of going through the Membership Approval

Committee and the Board will need to be followed.

e) The DPG may also be permitted to consist of corporate shareholders, provided:

• The trading member is a wholly owned subsidiary of another company

• The said holding company is not a subsidiary of any other company


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• The identifiable individual dominant promoter(s) (not more than 4) hold at least 51% of the

share capital of the holding company, or there are two or more listed corporate shareholders

jointly holding at least 51% of the share capital of the holding company or one or more listed

corporate shareholders along with individual shareholders together, not exceeding four in

number, jointly hold at least 51% of the shares of the holding company, Provided that in none of

the above instances the holding company of the trading member corporate becomes the

subsidiary of another corporate.

• The said dominant promoters undertake in writing, not to dilute their shareholding in the

holding company without prior consent of the Exchange.

• Such corporate dominant shareholders are widely held listed Finance companies having net

worth of Rs. 20 crores and above and their debt instruments, if any, have been accorded at least

investment grade credit rating by reputed rating agencies.

• If such corporate dominant shareholders are non-finance companies listed on NSE and have a

net worth of Rs. 20 crores and their debt instruments, if any, have been accorded at least

investment grade credit rating by reputed rating agencies, then such a company shall be

permitted to be included in the DPG.

• Private Banks, central or state government owned Finance and/or Development Institutions etc

are also allowed to be identified as dominant shareholder(s) even if they are not listed provided

they have a net worth of at least Rs. 20 crores and the debt instruments, if any, have investment

grade credit rating made by one of the reputed credit rating agencies. The aforesaid norms are

also applicable to trading members who are partnership firms. The term dominant

shareholder/promoter may be substituted as ‘dominant partner’.

Continuing Membership

Trading members of the Exchange have to submit the following documents/information to the

Exchange on an annual basis as part of the continuing membership norms. Non-submission of

the required documents/information attracts disciplinary action by the Exchange including levy

of penalty, reduction of gross exposure, etc.

1. Audited Financial statements (Balance Sheet, Profit and Loss Account)

2. Net worth Certificate in the prescribed format duly certified by a Chartered Accountant. (every

half yearly)


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3. Details of directors, shareholders, dominant shareholders, etc. duly certified by a Chartered

Accountant.

4. Proof of renewal of Insurance Cover.

Other related matters in respect of Continuing Membership are as under:

Up gradation of Membership: The Exchange permits the trading members desirous of upgrading

their trading membership from Individual or Partnership firm to a Corporate. Trading members

intending to do so should take note of the following:

a) A request has to be sent by the trading member indicating the scheme of up gradation and the

proposed shareholding pattern of the corporate.

b) In case of an up gradation from individual to Corporate, the individual should hold at least

51% of the paid up capital of the proposed corporate (40% in case of listed corporate).

c) In case of an upgradation from partnership firm to Corporate, the original partners should hold

atleast 51% of the paid up capital of the proposed corporate (40% in case of listed corporate).

d) There should be at least 2 qualified directors who should be graduates with minimum 2 years

experience in stock broking related activities.

e) The proposed corporate should have a minimum paid up capital of Rs. 30 lakh and meet the

net worth requirements of the Exchange from time to time.

f) After the up gradation is approved by the Exchange, the trading member will have to pay the

differential deposits as applicable to corporate trading members.

Merger/Amalgamation of Membership: Trading members desirous of merging among

themselves are required to submit the proposal to the Exchange for approval. The salient features

are as follows:

a) The dominant promoter group of the merged entity shall comprise of only the dominant

members of the merging Trading Member.

b) When two or more Individual Trading Members merge to form either a partnership firm or a

corporate, the dominant group of partners / shareholders in such emerging Trading Member

entity shall comprise of any or all such individual Trading Members.

c) In case of merger between two or more Individual / partnership firms Trading Members

resulting in the formation of a new partnership firm or corporate; the dominant group of

partners / shareholders in such emerging firms or corporate Trading Member shall comprise of

any or all the dominant partners / shareholders of such merging Trading Members.


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d) In case of merger between two or more corporate trading members, the dominant group of

shareholders in such emerging corporate Trading Member shall comprise of any or all the

dominant shareholders of such merging Trading Members.

e) The merged entity shall at all times consist of at least one or more members of the dominant

promoter group of the merging Trading Members who would hold at least 51% of its total paid

up capital (40% in case of listed companies) / profit sharing ratio.

f) The scheme of merger shall provide for the appropriation / transfer of the entire amount of

security deposits of the extinguishing Trading Members with the Exchange / NSCCL in favour

of the merged entity. Such deposits of the extinguishing Trading Members will be refunded to

the merged entity only after the expiry of the respective lock in period of each of the

extinguishing Trading Members. No interest shall be paid by the Exchange /NSCCL on such

deposits. These deposits may however be considered towards net worth / capital adequacy

requirements / exposure limits of the

merged entity, as also for margin purposes.

g) The scheme of merger shall provide that the merged entity shall honour all the financial

commitments / obligations/ liabilities of all the extinguishing Trading Members that devolved

prior to merger or may devolve subsequent to the merger and shall be treated as if it were the

liability of the merged entity.

h) As soon as the application for merger is filed before the High Court, the extinguishing broking

entity should approach SEBI through the Stock Exchange for obtaining prior permission, to the

scheme of merger, giving all necessary details of the proposal.

i) The emerging entity would be allowed to trade on the registration of the extinguishing entity

for a period of 45 days. However, the emerging entity should apply to SEBI at the earliest and

give an undertaking to be liable for the act of the extinguishing entity and such applications in

any case should be made not later than 30 days of the registration granted by the Registrar of

companies to the emerging entity.

Reconstitution / Transfer of Membership: Reconstitution / Transfer of Membership takes place

when the shareholding/profit sharing ratio of existing Dominant Promoter/Shareholder/Partner

group falls below 51% (40% in case of listed corporates) which means that effectively they are

no more in control of the trading member entity.


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Trading members desirous of transferring their trading membership of the Exchange are

requested to refer to the circulars issued by the Exchange from time to time in this regard and

submit the proposal to the Exchange for approval. The salient features are as follows:

a) The trading member would be required to comply with the prevalent net worth norms of the

Exchange as applicable to corporate Trading Members.

b) A processing fee of Rs.1 lakh would be payable on approval of proposal for transfer.

c) The trading member would be required to pay the differential between the deposit paid by

them for the membership of the relevant market segments and the deposit payable for a corporate

trading membership as per the prevailing entry norms for membership of the segment.

d) The transfer proposal would be subject to recommendation by the Membership Approval

Committee (MAC) and approval by the Board of the Exchange, and, for this purpose, the

Exchange's requirements of written test and an interview by MAC, will apply.

Multiple Memberships: The Exchange does not permit multiple memberships among he same set

of dominant promoters/shareholders. However, there may be a need for the existing trading

members to take up more than one membership on the NSE for various reasons like client

segregation, market or business segregation, etc. In such cases, multiple memberships may be

permitted by the Exchange only in cases where the existing trading member corporate forms a

subsidiary. The following requirements need to be complied with by the applicant company and

the holding company for related entities to obtain membership of the Exchange:

1. In the application for new membership, the applicant shall identify the holding company,

which is a member of the Exchange.

2. Board resolution from the existing trading member corporate for applying for new

membership in the name of the subsidiary.

3. The existing trading member should be the dominant promoter/shareholder directly holding at

least 51% of the shareholding of the company.

4. In case of transfer of membership of holding company, both the companies will be required to

comply with the transfer provisions.

5. Majority of the directors should be appointed by the holding company. The same should be

incorporated in the articles of association of the subsidiary company.

6. Undertaking from the existing as well as the applicant subsidiary company that they may be

considered as a single unit for taking any disciplinary action by the Exchange.


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7. In case of default or failure to meet the obligations towards NSEIL / NSCCL by one company,

the deposits of other company may be appropriated.

8. In case of investor grievances and arbitration awards, the holding company shall honour the

obligations of the subsidiary company and vice versa.

9. The new applicant company shall be required to take up the combined membership of Capital

Market Segment and Futures & Options Segment as in the case of new applicants.

10. When any disciplinary action etc., is taken against the holding company (existing trading

member) or the applicant (new trading member), both the entities shall be considered as one

single unit and would attract similar action by the Exchange/NSCCL.

Suspension & Expulsion of Membership: The Exchange may expel or suspend and/or fine under

censure and/or warn and/or withdraw any of the membership rights of a trading member if it be

guilty of contravention, non-compliance, disobedience, disregard or evasion of any of the Bye

Laws, Rules and Regulations of the Exchange or of any resolutions, orders, notices, directions or

decisions or rulings of the Exchange or the relevant authority or of any other Committee or

officer of the Exchange authorised on that behalf or of any conduct, proceeding or method of

business which the relevant authority in its absolute discretion deems dishonorable, disgraceful

or unbecoming of a trading member of the Exchange or inconsistent with just and equitable

principles of trade or detrimental to the interests, good name or welfare of the Exchange or

prejudicial or subversive to its objects and purposes.

1. Misconduct: A trading member shall be deemed guilty of misconduct for any of the

following or similar acts or omissions namely:

(a) Fraud: If it is convicted of a criminal offence or commits fraud or a fraudulent act which in

the opinion of the relevant authority renders it unfit to be a trading member;

(b) Violation: If it has violated provisions of any statute governing the activities, business and

operations of the Exchange, trading members and securities business in general;

(c) Improper Conduct: If in the opinion of the relevant authority it is guilty of dishonorable or

disgraceful or disorderly or improper conduct on the Exchange or of willfully obstructing the

business of the Exchange;

(d) Breach of Rules, Bye Laws and Regulations: If it shields or assists or omits to report any

trading member whom it has known to have committed a breach or evasion of any Rule, Bye-law


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and Regulation of the Exchange or of any resolution, order, notice or direction thereunder of the

relevant authority or of any Committee or officer or the Exchange authorised in that behalf;

(e) Failure to comply with Resolutions: If it contravenes or refuses or fails to comply with or

abide by any resolution, order, notice, direction, decision or ruling of the relevant authority or of

any Committee or officer of the Exchange or other person authorised in that behalf under the Bye

Laws, Rules and Regulations of the Exchange;

(f) Failure to submit to or abide by Arbitration: If it neglects or fails or refuses to submit to

arbitration or to abide by or carry out any award, decision or order of the relevant authority or the

Arbitration Committee or the arbitrators made in connection with a reference under the Bye

Laws, Rules and Regulations of the Exchange;

(g) Failure to testify or give information: If it neglects or fails or refuses to submit to the relevant

authority or to a Committee or an officer of the Exchange authorised in that behalf, such books,

correspondence, documents and papers or any part thereof as may be required to be produced or

to appeal and testify before or cause any of its partners, attorneys, agents, authorized

representatives or employees to appear and testify before the relevant authority or such

Committee or officer of the Exchange or other person authorized in that behalf;

(h) Failure to submit Special Returns: If it neglects or fails or refuses to submit to the relevant

authority within the time notified in that behalf special returns in such form as the relevant

authority may from time to time prescribe together with such other information as the relevant

authority may require whenever circumstances arise which in the opinion of the relevant

authority make it desirable that such special returns or information should be furnished by any or

all the trading members;

(i) Failure to submit Audited Accounts: If it neglects or fails or refuses to submit its audited

accounts to the Exchange within such time as may be prescribed by the relevant authority from

time to time,

(j) Failure to compare or submit accounts with Defaulter: If it neglects or fails to compare its

accounts with the Defaulters' Committee or to submit to it a statement of its accounts with a

defaulter or a certificate that it has no such account or if it makes a false or misleading statement

therein;


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(k) False or misleading Returns: If it neglects or fails or refuses to submit or makes any false or

misleading statement in its clearing forms or returns required to be submitted to the Exchange

under the Bye Laws, Rules and Regulations;

(l) Vexatious complaints: If it or its agent brings before the relevant authority or a Committee or

an officer of the Exchange or other person authorised in that behalf a charge, complaint or suit

which in the opinion of the relevant authority is frivolous, vexatious or malicious;

(m) Failure to pay dues and fees: If it fails to pay its subscription, fees, arbitration charges or any

other money which may be due by it or any fine or penalty imposed on it.

2. Un-businesslike Conduct: A trading member shall be deemed guilty of unbusiness like

conduct for any of the following or similar acts or omissions namely :

(a) Fictitious Names: If it transacts its own business or the business of its constituent in fictitious

names or if he carries on business in more than one trading segment of the Exchange under

fictitious names;

(b) Fictitious Dealings: If it makes a fictitious transaction or gives an order for the purchase or

sale of securities the execution of which would involve no change of ownership or executes such

an order with knowledge of its character;

(c) Circulation of rumours: If it, in any manner, circulates or causes to be circulated, any

rumours;

(d) Prejudicial Business: If it makes or assists in making or with such knowledge is a party to or

assists in carrying out any plan or scheme for the making of any purchases or sales or offers of

purchase or sale of securities for the purpose of upsetting the equilibrium of the market or

bringing about a condition in which prices will not fairly reflect market values;

(e) Market Manipulation and Rigging: If it, directly or indirectly, alone or with other persons,

effects series of transactions in any security to create actual or apparent active trading in such

security or raising or depressing the prices of such security for the purpose of inducing purchase

or sale of such security by others;

(f) Unwarrantable Business: If it engages in reckless or unwarrantable or unbusinesslike

dealings in the market or effects purchases or sales for its constituent's account or for any

account in which it is directly or indirectly interested which purchases or sales are excessive in

view of its constituent's or his own means and financial resources or in view of the market for

such security;


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(g) Compromise: If it connives at a private failure of a trading member or accepts less than a full

and bona fide money payment in settlement of a debt due by a trading member arising out of a

transaction in securities;

(h) Dishonoured Cheque: If it issues to any other trading member or to its constituents a cheque

which is dishonoured on presentation for whatever reasons;

(i) Failure to carry out transactions with Constituents: If it fails in the opinion of the relevant

authority to carry out its committed transactions with its constituents;

3. Unprofessional Conduct: A trading member shall be deemed guilty of unprofessional

conduct for any of the following or similar acts or omissions namely :

(a) Business in Securities in which dealings not permitted: If it enters into dealings in

securities in which dealings are not permitted;

(b) Business for Defaulting Constituent: If it deals or transacts business directly or indirectly or

executes an order for a constituent who has within its knowledge failed to carry out engagements

relating to securities and is in default to another trading member unless such constituent shall

have made a satisfactory arrangement with the trading member who is its creditor;

(c) Business for Insolvent: If without first obtaining the consent of the relevant authority it

directly or indirectly is interested in or associated in business with or transacts any business with

or for any individual who has been bankrupt or insolvent even though such individual shall have

obtained his final discharge from an Insolvency Court;

(d) Business without permission when under suspension: If without the permission of

the relevant authority it does business on its own account or on account of a principal with or

through a trading member during the period it is required by the relevant authority to suspend

business on the Exchange;

(e) Business for or with suspended, expelled and defaulter trading members: If without the

special permission of the relevant authority it shares brokerage with or carries on business or

makes any deal for or with any trading member who has been suspended, expelled or declared a

defaulter;

(f) Business for Employees of other trading members: If it transacts business directly or

indirectly for or with or executes an order for a authorized representative or employee of another

trading member without the written consent of such employing trading member;


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(g) Business for Exchange Employees: If it makes a speculative transaction in which an

employee of the Exchange is directly or indirectly interested;

(h) Advertisement: If it advertises for business purposes or issue regularly circular or other

business communications to persons other than its own constituents, trading members of the

Exchange, Banks and Joint Stock Companies or publishes pamphlets, circular or any other

literature or report or information relating to the stock markets with its name attached;

(i) Evasion of Margin Requirements: If it willfully evades or attempts to evade or assists in

evading the margin requirements prescribed in these Bye Laws and Regulations;

(j) Brokerage Charge: If it willfully deviates from or evades or attempts to evade the Bye Laws

and Regulations relating to charging and sharing of brokerage.

(k) Dealings with entities prohibited to buy or sell or deal in securities market. If it deals, directly

or indirectly, in the course of its business with or transacts any business with or for any entity,

which has been prohibited by SEBI to buy or sell or deal in the securities market.

4. Trading member’s responsibility for Partners, Agents and Employees: A trading

member shall be fully responsible for the acts and omissions of its authorized officials, attorneys,

agents, authorized representatives and employees and if any such act or omission be held by the

relevant authority to be one which if committed or omitted by the trading member would subject

it to any of the penalties as provided in the Bye Laws, Rules and Regulations of the Exchange

then such trading member shall be liable therefore to the same penalty to the same extent as if

such act or omission had been done or omitted by itself.

5. Suspension on failure to provide margin deposit and/or Capital Adequacy

requirements: The Exchange shall require a trading member to suspend its business when it

fails to provide the margin deposit and/or meets capital adequacy norms as provided in the Bye

Laws, Rules and Regulations and the suspension of business shall continue until it furnishes the

necessary margin deposit or meet capital adequacy requirements. The relevant authority may

expel a trading member acting in contravention of this provision.

6. Suspension of Business: The relevant authority may require a trading member to suspend its

business in part or in whole :

(a) Prejudicial Business: When in the opinion of the relevant authority, the trading member

conducts business in a manner prejudicial to the Exchange by making purchases or sales of

securities or offers to purchase or sell securities for the purpose of upsetting equilibrium of the


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market or bringing about a condition of demoralisation in which prices will not fairly reflect

market values, or

(b) Unwarrantable Business: When in the opinion of the relevant authority it engages in

unwarrantable business or effects purchases or sales for its constituent's account or for any

account in which it is directly or indirectly interested which purchases or sales are excessive in

view of its constituent's or its own means and financial resources or in view of the market for

such security, or

(c) Unsatisfactory Financial Condition: When in the opinion of the relevant authority it is in such

financial condition that it cannot be permitted to do business with safety to its creditors or the

Exchange.

7. Removal of Suspension: The suspension of business as above shall continue until the trading

member has been allowed by the relevant authority to resume business on its paying such deposit

or on its doing such act or providing such thing as the relevant authority may require.

8. Consequence of Suspension: The suspension of a trading member shall have the following

consequences namely:

(a) Suspension of Membership Rights : The suspended trading member shall during the terms of

its suspension be deprived of and excluded from all the rights and privileges of membership

including the right to attend or vote at any meeting of the general body of trading members of the

relevant segment, but it may be proceeded against by the relevant authority for any offence

committed by it either before or after its suspension and the relevant authority shall not be

debarred from taking cognisance of and adjudicating on or dealing with any claim made against

it by other trading members;

(b) Rights of creditors unimpaired: The suspension shall not affect the rights of the trading

members who are creditors of the suspended trading member;

(c) Fulfillment of Contracts: The suspended trading member shall be bound to fulfill contracts

outstanding at the time of its suspension;

(d) Further business prohibited : The suspended trading member shall not during the terms of its

suspension make any trade or transact any business with or through a trading member provided

that it may with the permission of the relevant authority close with or through a trading member

the transactions outstanding at the time of its suspension;


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(e) Trading members not to deal: No trading member shall transact business for or with or share

brokerage with a suspended trading member during the terms of its suspension except with the

previous permission of the relevant authority.

9. Consequences of Expulsion: The expulsion of a trading member shall have the following

consequences namely:

(a) Trading membership rights forfeited: The expelled trading member shall forfeit to the

Exchange its right of trading membership and all rights and privileges as a trading member of the

Exchange including any right to the use of or any claim upon or any interest in any property or

funds of the Exchange but any liability of any such trading member to the Exchange orto any

trading member of the Exchange shall continue and remain unaffected by its expulsion;

(b) Office vacated : The expulsion shall create a vacancy in any office or position held by the

expelled trading member;

(c) Rights of Creditors unimpaired: The expulsion shall not affect the rights of the trading

members who are creditors of the expelled trading member;

(d) Fulfillment of Contracts: The expelled trading member shall be bound to fulfil transactions

outstanding at the time of his expulsion and it may with the permission of the relevant authority

close such outstanding transactions with or through a trading member;

(e) Trading members not to deal: No trading member shall transact business for or with or share

brokerage with the expelled trading member except with the previous permission of the relevant

authority.

(f) Consequences of declaration of defaulter to follow: The provisions of Chapter XII and

Chapter XII of the Bye Laws pertaining to default and Protection Fund respectively shall become

applicable to the trading member expelled from the Exchange as if such trading member has

been declared a defaulter.

Declaration of Defaulter: A trading member may be declared a defaulter by direction

circular / notification of the relevant authority of the trading segment if:

1. he is unable to fulfill his obligations; or

2. he admits or discloses his inability to fulfill or discharge his duties, obligations and liabilities;

or

3. he fails or is unable to pay within the specified time the damages and the money difference

due on a closing-out effected against him under these Bye Laws, Rules and Regulations; or


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4. he fails to pay any sum due to the Exchange or to submit or deliver to the Exchange on the due

date, delivery and receive orders, statement of differences and securities, balance sheet and such

other clearing forms and other statements as the relevant authority may from time to time

prescribe; or

5. if he fails to pay or deliver to the Defaulters' Committee all monies, securities and other assets

due to a trading member who has been declared a defaulter within such time of the declaration of

default of such trading member as the relevant authority may direct; or

6. if he fails to abide by the arbitration proceedings as laid down under the Bye Laws, Rules and

Regulations Without prejudice to the foregoing, if a Trading Member is either expelled or

declared a defaulter by any other recognised Stock Exchange on which he is a member or if the

registration certificate is cancelled by SEBI, then the said Trading Member is expelled from the

Exchange.

Failure to fulfill Obligations

The relevant authority may order a trading member to be declared a defaulter if he fails to meet

an obligation to a trading member or constituent arising out of Exchange transactions.

Insolvent a Defaulter

A trading member who has been adjudicated an insolvent shall be ipso factor declared a defaulter

although he may not be at the same time a defaulter on the Exchange.

Trading member's Duty to Inform

A trading member shall be bound to notify the Exchange immediately if there be a failure by any

trading member to discharge his liabilities in full.

Compromise Forbidden

A trading member guilty of accepting from any trading member anything less than a full and

bona fide money payment in settlement of a debt arising out of a transaction in securities shall be

suspended for such period as the relevant authority may determine.

Surrender of Trading Membership. TMs can apply for surrender of their trading membership

once admitted on the Exchange. Surrender of trading membership can be permitted by the

Exchange after fulfilling certain conditions by the member such as, clearing off all the dues to

the Exchange and NSCCL, notifying all other TMs of the approval of surrender, obtaining No

dues certificate from SEBI, issuance of a public notification in leading dailies etc. The deposits


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of the trading members would be released by the Exchange/NSCCL after a prescribed lock-in

period. However, there is no lock-in period applicable in case of trading member, who is,

1. Not SEBI registered

2. SEBI registered but not enabled

3. SEBI registered and enabled but not traded at all

Authorized Persons

Trading members of the Exchange may appoint authorized persons who are individuals,

registered partnership firms, bodies corporate or companies as defined under the Companies Act,

1956 in the Capital Market (CM) segment or Futures & Options (F&O) segment or in both CM

and F&O segments.

An authorized person may introduce clients to the trading member for whom they may receive

remuneration / commission / compensation from the trading member and not from the clients.

The clients introduced by the authorized person will have a direct relationship with the trading

member i.e. the member-constituent agreement, know your client forms, risk disclosure

document, etc. shall be executed between the client and the trading member i.e., the authorized

person shall not be allowed to have any trading relationship with the clients.

The trading member shall issue the contract notes and/or bills directly to the client i.e. the

authorized person shall not issue contract notes, confirmation memo and/or bills in their name.

The clients introduced by the authorised person would be required to deliver securities and make

payments directly in the trade name of the trading member (as appearing on the SEBI

registration certificate). Similarly the trading member shall deliver securities and make payments

directly in the name of the clients.

For further details pertaining to authorised person and trading members desirous of appointing

authorised person may refer to circular no. 333 (NSE/MEM/4082) dated April 10, 2003.

Sub-Brokers

A Sub-broker is a person who intermediates between investors and stock brokers. He acts on

behalf of a stock-broker as an agent or otherwise for assisting the investors for buying, selling or

dealing in securities through such stock-broker. No sub-broker is allowed to buy, sell or deal in

securities, unless he or she holds a certificate of registration granted by SEBI. A sub-broker may

take the form of a sole proprietorship, a partnership firm or a company. Stockbrokers of the

recognised stock exchanges are permitted to transact with sub-brokers. Sub-brokers are required


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to obtain certificate of registration from SEBI in accordance with SEBI (Stock Brokers & Sub-

brokers) Rules and Regulations, 1992, without which they are not permitted to buy, sell or deal

in securities. SEBI may grant a certificate to a sub-broker, subject to the conditions that:

(a) he shall pay the fees in the prescribed manner;

(b) he shall take adequate steps for redressal of grievances of the investors within one month of

the date of the receipt of the complaint and keep SEBI informed about the number, nature and

other particulars of the complaints received;

(c) in case of any change in the status and constitution, the sub- broker shall obtain prior

permission of SEBI to continue to buy, sell or deal in securities in any stock

exchange; and

(d) he is authorised in writing by a stock-broker being a member of a stock exchange for

affiliating himself in buying, selling or dealing in securities.

In case of company, partnership firm and sole proprietorship firm, the directors, the partners and

the individual, shall comply with the following requirements:

(a) the applicant is not less than 21 years of age;

(b) the applicant has not been convicted of any offence involving fraud or dishonesty;

(c) the applicant has atleast passed 12th standard equivalent examination from an institution

recognised by the Government.

(d) They should not have been debarred by SEBI.

(e) The corporate entities applying for sub-brokership shall have a minimum paid up capital of

Rs. 5 lakh and it shall identify a dominant shareholder who holds a minimum of 51% shares

either singly or with the unconditional support of his/her spouse.

The salient features of the circular Ref. No. SMD/POLICY/CIRCULAR/11-97 dated May 21,

1999 issued by SEBI is as under:

1. The registered sub-broker can transact only through the member broker who had

recommended his application for registration. If the Sub-broker is desirous of doing business

with more than one broker, he will have to obtain separate registration in each case.

2. The sub-broker shall disclose the names of all other sub-brokers/brokers where he is having

direct or indirect interest.

3. It shall be the responsibility of the broker to report the default if any of his subbroker to all

other brokers with whom sub-broker is affiliated.


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4. The agreement can be terminated by giving the notice in writing of not less than 6 months by

either party.

5. Sub-brokers are obligated to enter into agreements and maintain the database of their

clients/investors in the specified format. The applicant sub-broker shall submit the required

documents to the stock exchange with the recommendation of a TM. After verifying the

documents, the stock exchange may forward the documents of the applicant sub-broker to SEBI

for registration. A sub-broker can trade in that capacity after getting himself registered with

SEBI. The Exchange may not forward the said application of the sub-broker to SEBI for

registration if the applicant is found to have introduced or otherwise dealt with fake, forged,

stolen, counterfeit etc. shares and securities in the market.

The sub-broker of a TM of the Exchange has to comply with all the requirements under SEBI

(stock brokers and sub-brokers) Regulation, 1992 and the requirements of the Exchange as may

be laid down from time to time. The sub broker is bound by and amenable to the Rules, Byelaws

and Regulations of the Exchange. The sub-broker shall also comply with all terms and conditions

of the agreement entered into by him with the TM. After registration with SEBI, the sub-broker

can buy, sell or deal in securities on behalf of the investors through the broker with whom he is

affiliated. The TM has to issue contract notes for all trades in respect of its sub-broker in the

name of the sub-broker and the sub-broker shall, in turn issue purchase/sale notes to his clients as

per the format prescribed by the Exchange. The TM with whom the sub-broker is affiliated is

responsible for –

1) Ensuring the compliance by a sub-broker of the Rules, Bye-laws and Regulations of the

Exchange

2) Inspecting that the sub-brokers are registered and recognized

3) Ensuring that the sub-brokers function in accordance with the Scheme, Rules, Byelaws,

Regulations etc. of the Exchange/NSCCL and the SEBI Regulations etc.

4) Informing the sub-broker and keeping him apprised about trading/settlement cycles,

delivery/payment schedules and any changes therein from time to time.

5) Reporting any default or delay in carrying out obligations by any of the sub brokers affiliated

to him, to all other stock brokers with whom the said sub broker is affiliated.

DepositoriesIshan Institute of Management & Technology

190


A depository is an entity where the securities of an investor are held in electronic form. The

person who holds a demat account is a beneficiary owner. In case of a joint account, the account

holders will be beneficiary holders of that joint account. Depositories help in the settlement of

the dematerialized securities. Each custodian/clearing member is required to maintain a clearing

pool account with the depositories. He is required to make available the required securities in the

designated account on settlement day. The depository runs an electronic file to transfer the

securities from accounts of the custodians/clearing member to that of NSCCL. As per the

schedule of allocation of securities determined by the NSCCL, the depositories transfer the

securities on the pay-out day from the account of the NSCCL to those of members/custodians.


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Unit –VIINetwork of stock exchange in India

National stock exchange

Bombay stock exchange

Regional stock exchange

Over the counter exchange of India

National Stock Exchange.The National Stock Exchange of India Limited (NSE) has genesis in the report of the High

Powered Study Group on Establishment of New Stock Exchanges, which recommended

promotion of a National Stock Exchange by financial institutions (FIs) to provide access to

investors from all across the country on an equal footing. Based on the recommendations, NSE

was promoted by leading Financial Institutions at the behest of the Government of India and was

incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the

country.


192


On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in

April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June

1994. The Capital Market (Equities) segment commenced operations in November 1994 and

operations in Derivatives segment commenced in June 2000.

The Group

NSCCL

IISL NSE.IT

NSDL DotEx Intl. Ltd.

AT A GLANCE:

CAPITAL MARKET (EQUITIES) SEGMENT

Number of VSATs May 31, 2006 2,810

Number of cities covered May 31, 2006 339

Settlement Guarantee Fund March 31, 2005 Rs. 1,550.90 crores

Investor Protection Fund (CM and F&O) May 31, 2006 Rs. 144.20 crores

Number of securities available for trading May 31, 2006 1,379

Record number of trades January 05, 2006 28,49,987

Record daily turnover (quantity) January 05, 2006 6,757 lakhs

Record daily turnover (value) February 28, 2001 Rs.10,366.52 crores

Record market capitalisation June 24, 2006 Rs. 17,23,648.70 crores

Record value of S&P CNX Nifty Index June 24, 2006 2,204.45


193

http://www.nse-india.com/content/equities/eq_vsats.htm

http://www.nse-india.com/content/equities/eq_vsats.htm

http://www.nse-india.com/content/us/us_nsccl.htm

http://www.nse-india.com/content/us/us_iisl.htm

http://www.nse-india.com/content/us/us_nseit.htm

http://www.nse-india.com/content/us/us_nsdl.htm

http://www.nse-india.com/content/us/us_dotex.htm


Record value of CNX Nifty Junior Index February 23, 2000 5,365.90

Record Pay-in/Pay-out (Rolling Settlement):

Funds Pay-in/Pay-out February 05, 2005* Rs. 685.76 crores

Securities Pay-in/Pay-out (Value) January 13, 2005* Rs. 1884.09 crores

Securities Pay-in/Pay-out (Quantity) August 21, 2003* 1470.14 lakhs

*Settlement Date

DERIVATIVES (F&O) SEGMENT

No. of cities covered June 09, 2006 312

Settlement Guarantee Fund March 31, 2005 Rs. 4,356.85 crores

Record daily turnover (value) January 28, 2005 Rs. 21,921.34 crores

Record number of trades April 28, 2006 4,02,980

WHOLESALE DEBT SEGMENT

Number of securities available for trading May 31, 2006 3,103

Record daily turnover (value) August 25, 2003 Rs.13,911.57 crores

Over The Counter Exchange of India (OTCEI) was incorporated in 1990 as a Section 25

company under the Companies Act 1956 and is recognized as a stock exchange under Section 4

of the Securities Contracts Regulation Act, 1956. The Exchange was set up to aid enterprising

promoters in raising finance for new projects in a cost effective manner and to provide investors

with a transparent & efficient mode of trading.

Modelled along the lines of the NASDAQ market of USA, OTCEI introduced many novel

concepts to the Indian capital markets such as screen-based nationwide trading, sponsorship of

companies, market making and scripless trading.

NSE Indexes Ishan Institute of Management & Technology

194

http://www.nse-india.com/content/fo/fo_vsats.htm


Equities trading at NSE began in November 1994. By late 1995, NSE became India's largest

equity market and was looking for a market index to utilise this unique information source. NSE

also wanted to have a vehicle for the futures and options market. NSE approached the

economists Dr. Ajay Shah and Dr. Susan Thomas, then at CMIE (and now at IGIDR), to do

research on methods in index construction. This work was funded by the USAID FIRE project

and led to the S&P CNX Nifty.

Index futures

NSE has been gearing up from 1995 onwards to start an index futures market. Trading in S&P

CNX Nifty futures will soon commence here. With NSE's expertise, this futures market is

expected to become reliable and liquid.

S&P CNX Nifty is uniquely equipped as an index for the index futures market owing to (a) low

market impact cost and (b) high hedging effectiveness. The good diversification of S&P CNX

Nifty will generate low initial margin requirements.

Finally, S&P CNX Nifty is calculated using NSE prices, and NSE is the most liquid exchange in

India, thus making it easier to do arbitrage for S&P CNX Nifty index futures.

S&P CNX Defty

S&P CNX Defty is S&P CNX Nifty, measured in dollars. If the S&P CNX Nifty rises by 2% it

means that the Indian stock market rose by 2%, measured in rupees. If the S&P CNX Defty rises

by 2%, it means that the Indian stock market rose by 2%, measured in dollars.

The S&P CNX Defty is calculated in realtime. Data for the S&P CNX Nifty and the dollar--

rupee is absorbed in realtime, and used to calculate the S&P CNX Defty in realtime. Realtime

currency data is obtained from Knight Ridder. When there is currency volatility, the S&P CNX

Defty is an ideal device for a foreign investor to know where he stands, even intraday.


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S&P CNX Nifty

S&P CNX Nifty is the first rung of the largest, highly liquid stocks in India. CNX Nifty Junior is

an index built out of the next 50 large, liquid stocks in India. It is not as liquid as the S&P CNX

Nifty, which implies that the information in the CNX Nifty Junior is not as noise-free as that of

the S&P CNX Nifty.

It may be useful to think of the S&P CNX Nifty and the CNX Nifty Junior as making up the 100

most liquid stocks in India. S&P CNX Nifty is the front line blue-chips, large and highly liquid

stocks. The CNX Nifty Junior is the second rung of growth stocks which are not as established as

those in the S&P CNX Nifty. Stocks like Infosys and NIIT, which recently graduated into the

S&P CNX Nifty, were in the CNX Nifty Junior for a long time prior to this. CNX Nifty Junior

can be viewed as an incubator where young growth stocks are found. As with the S&P CNX

Nifty, stocks in the CNX Nifty Junior are filtered for liquidity, so they are the most liquid of the

stocks excluded from the S&P CNX Nifty. Buying and selling the entire CNX Nifty Junior as a

portfolio is feasible.

The maintenance of the S&P CNX Nifty and the CNX Nifty Junior are synchronised so that the

two indexes will always be disjoint sets; i.e. a stock will never appear in both indexes at the same

time. Hence it is always meaningful to pool the S&P CNX Nifty and the CNX Nifty Junior into a

composite 100 stock index or portfolio.

S&P CNX Nifty is based upon solid economic research. A trillion calculations were expended to

evolve the rules inside the S&P CNX Nifty index. The results of this work are remarkably

simple: (a) the correct size to use is 50, (b) stocks considered for the S&P CNX Nifty must be

liquid by the `impact cost' criterion, (c) the largest 50 stocks that meet the criterion go into the

index.

S&P CNX Nifty is a contrast to the adhoc methods that have gone into index construction in the

preceding years, where indexes were made out of intuition and lacked a scientific basis. The

research that led up to S&P CNX Nifty is well-respected internationally as a pioneering effort in

better understanding how to make a stock market index.


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OTCEI OVER THE COUNTER EXCHANGE OF INDIA.

Over The Counter Exchange of India (OTCEI) was incorporated in 1990 as a Section 25

company under the Companies Act 1956 and is recognized as a stock exchange under Section 4

of the Securities Contracts Regulation Act, 1956. The Exchange was set up to aid enterprising

promoters in raising finance for new projects in a cost effective manner and to provide investors

with a transparent & efficient mode of trading.

Modelled along the lines of the NASDAQ market of USA, OTCEI introduced many novel

concepts to the Indian capital markets such as screen-based nationwide trading, sponsorship of

companies, market making and scripless trading. As a measure of success of these efforts, the

Exchange today has 115 listings and has assisted in providing capital for enterprises that have

gone on to build successful brands for themselves like VIP Advanta, Sonora Tiles & Brilliant

mineral water, etc.

OTCEI...

is the first screen based nationwide stock exchange in India

is the first exchange to introduce Market Making in India

is the first exchange to introduce Sponsorship of companies in India

is the only exchange to allow listing of companies with paid-up below Rs.3 crores

is the only exchange to allow companies with less than 3 year track record to tap capital

market.

has shifted trading from counter receipts to share certificates

has introduced Weekly Settlement Cycle

allows short selling

allows demat trading through NSDL

has tied-up with NSCCL for Clearing

Need for OTCEI

Studies by NASSCOM, Software Technology Parks of India, the venture capital funds and the

government's IT Task Force, as well as the rising interest in information technology,


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pharmaceutical, biotechnology and media shares have repeatedly emphasized the need for a

national stock market for innovative and high growth companies.

Innovative companies are critical to developing economies like India, which is undergoing a

major technological revolution. With their abilities to generate employment opportunities and

contribute to the economy, it is essential that these companies not only expand existing

operations but also set up new units. The key issue for these companies is raising timely, cost

effective and long term capital to sustain their operations and enhance growth. Such companies,

particularly those that have been in operation for a short time, are unable to raise funds through

the traditional financing methods, because they have not yet been evaluated by the financial

world.

Who would find OTCEI helpful:

high-technology enterprises

companies with high growth potential

companies focussed on new product development .

entrepreneurs seeking finance for specific business projects

The Indian economy is demonstrating signs of recovery and it is essential that these companies

have suitable financing alternatives to fund their growth and maintain competitiveness.

OTCEI, with its entry guidelines and eligibility requirements tailored for such innovative and

growth oriented companies, is ideally positioned as the preferred route for raising funds through

Initial Public Offer (IPOs) or primary issues, in this country.

The Exchange has three types of intermediaries called Members, Dealers and Sponsors, who

contribute to the Exchange's activities by trading and enabling listing of companies on the

Exchange. Members and Dealers may carry out the activities of trading, underwriting, market

making and participation in bought out deals, but Dealers cannot sponsor an issue for listing.


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Sponsors can perform the function of sponsorship of issues, but are not permitted to participate

in secondary market activities.

Key Information

Base Minimum Capital deposited with the Exchange

The Base Minimum Capital is taken as security for due performance and fulfillment by the

member of his operations and obligations towards the Exchange. The minimum base capital is

Rs. 4 lakhs. All members have to comply with the Base Minimum Capital requirements before

their activation. The members may opt for Base Minimum Capital by way of Cash, FDRs, Bank

Guarantee or Securities.

Cash to be deposited with the Exchange- minimum 25 % i.e. Rs. 1 lakh

Deposit of Fixed Deposit Receipts (FDRs)- (25 %) issued by approved banks

Deposit /lodgement of Securities- (maximum 50 %) with approved custodian (HDFC

Bank Ltd.) with 20% margin. OR

Irrevocable Bank guarantees (in lieu of securities - maximum 50 %) from approved banks

Members can also deposit additional base capital with the Exchange. The cash component of the

additional base capital to be deposited should be a minimum 30%.

Intra-day Limits :

Turnover Limit : Members are subject to intra-day trading limits. Gross Turnover (buy+sell) for

the day shall not exceed twenty five times (25) the base capital deposited by the members.

Members desirous of increasing their limits will have to submit additional deposits by way of

cash, bank guarantees, fixed deposit receipts and securities. Trading Members violating the intra-

day gross turnover limit at any time on any trading day shall not be permitted to trade forthwith.

Gross Exposure Limit : Members are subject to gross exposure limits. Gross exposure, being

the aggregate of the cumulative net outstanding positions (purchase or sales) in each security

shall not exceed eight and half times (8.5) the base capital deposited by the members. Gross

Exposure at any point of time shall also include net outstanding positions of the previous

settlement till the securities pay-in for the previous settlement. Members desirous of increasing


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their limits will have to submit additional deposits by way of cash, bank guarantees, fixed

deposit receipts and securities.

Margins :

All margins imposed by the Exchange are payable on T+1 day.

The Exchange collects the following margins from brokers depending on their positions/

exposures and market volatility, in line with SEBI requirements:

a) Daily Margin

Daily margin payable by the member consists of value at Risk Margin and Mark to Mark

Margin.

b) Mark to Market Margin

Mark to market margin is computed on the basis of mark to market loss of a member. Mark to

market loss is potential loss, in case the cumulative net outstanding position of the member in all

securities at the end of day is closed out. Mark to Market margin is calculated by marking each

transaction in a scrip to the closing price of the scrip at the end of trading. MTM Profit/loss

across different securities within the same settlement is set off to determine the MTM loss for a

settlement. Such MTM losses for settlements are computed at client level.

c) Value at Risk Margin

Value at Risk Margin is computed for all securities in the rolling settlement. All securities are

classified into three groups for purpose of var margin

Bombay Stock Exchange.

Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich heritage.

Popularly known as "BSE", it was established as "The Native Share & Stock Brokers

Association" in 1875. It is the first stock exchange in the country to obtain permanent

recognition in 1956 from the Government of India under the Securities Contracts (Regulation)

Act, 1956.The Exchange's pivotal and pre-eminent role in the development of the Indian capital

market is widely recognized and its index, SENSEX, is tracked worldwide. Earlier an Association

of Persons (AOP), the Exchange is now a demutualised and corporatised entity incorporated


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under the provisions of the Companies Act, 1956, pursuant to the BSE(Corporatisation and

Demutualisation) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI).

With demutualisation, the trading rights and ownership rights have been de-linked effectively

addressing concerns regarding perceived and real conflicts of interest. The Exchange is

professionally managed under the overall direction of the Board of Directors.The Board

comprises eminent professionals, representatives of Trading Members and the Managing

Director of the Exchange. The Board is inclusive and is designed to benefit from theparticipation

of market intermediaries.

In terms of organisation structure, the Board formulates larger policy issues and exercises over-

all control. The committees constituted by the Board are broad-based.The day-to-dayoperations

of the Exchange are managed by the Managing Director and a management team of

professionals.

The Exchange has a nation-wide reach with a presence in 417 cities and towns of India. The

systems and processes of the Exchange are designed to safeguard market integrity and enhance

transparency in operations. During the year 2004-2005, the trading volumes on the Exchange

showed robust growth.

The Exchange provides an efficient and transparent market for trading in equity, debt

instruments and derivatives. The BSE's On Line Trading System (BOLT) is a proprietory system

of the Exchange and is BS 7799-2-2002 certified. The surveillance and clearing & settlement

functions of the Exchange are ISO 9001:2000 certified.

For the premier Stock Exchange that pioneered the stock broking activity in India , 125 years of

experience seem to be a proud milestone. A lot has changed since 1875 when 318 persons

became members of what today is called "Bombay Stock Exchange Limited" by paying a

princely amount of Re1.

Since then, the stock market in the country has passed through both good and bad periods. The

journey in the 20th century has not been an easy one. Till the decade of eighties, there was no

measure or scale that could precisely measure the various ups and downs in the Indian stock


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market. Bombay Stock Exchange Limited (BSE) in 1986 came out with a Stock Index that

subsequently became the barometer of the Indian Stock Market.

SENSEX, first compiled in 1986 was calculated on a "Market Capitalization-Weighted"

methodology of 30 component stocks representing a sample of large, well-established and

financially sound companies. The base year of SENSEX is 1978-79. The index is widely

reported in both domestic and international markets through print as well as electronic media.

SENSEX is not only scientifically designed but also based on globally accepted construction and

review methodology. From September 2003, the SENSEX is calculated on a free-float marke

capitalization methodology. The "free-float Market Capitalization-Weighted" methodology is a

widely followed index construction methodology on which majority of global equity benchmarks

are based.

The growth of equity markets in India has been phenomenal in the decade gone by. Right from

early nineties the stock market witnessed heightened activity in terms of various bull and bear

runs. More recently, the bourses in India witnessed a similar frenzy in the 'TMT' sectors. The

SENSEX captured all these happenings in the most judicial manner. One can identify the booms

and bust of the Indian equity market through SENSEX.

The launch of SENSEX in 1986 was later followed up in January 1989 by introduction of BSE

National Index (Base: 1983-84 = 100). It comprised of 100 stocks listed at five major stock

exchanges in India at Mumbai, Calcutta , Delhi , Ahmedabad and Madras . The BSE National

Index was renamed as BSE-100 Index from October 14, 1996 and since then it is calculated

taking into consideration only the prices of stocks listed at BSE. The Exchange launched dollar-

linked version of BSE-100 index i.e. Dollex-100 on May 22, 2006.

With a view to provide a better representation of the increased number of companies listed,

increased market capitalisation and the new industry groups, the Exchange constructed and

launched on 27th May, 1994, two new index series viz., the 'BSE-200' and the 'DOLLEX-200'

indices. Since then, BSE has come a long way in attuning itself to the varied needs of investors

and market participants. In order to fulfill the need of the market participants for still broader,

segment-specific and sector-specific indices, the Exchange has continuously been increasing the


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range of its indices. The launch of BSE-200 Index in 1994 was followed by the launch of BSE-

500 Index and 5 sectoral indices in 1999. In 2001, BSE launched the BSE-PSU Index,

DOLLEX-30 and the country's first free-float based index - the BSE TECk Index. The Exchange

shifted all its indices to a free-float methodology (except BSE PSU index) in a pahsed manner.

The Exchange also disseminates the Price-Earnings Ratio, the Price to Book Value Ratio and the

Dividend Yield Percentage on day-to-day basis of all its major indices.

The values of all BSE indices are updated every 15 seconds during the market hours and

displayed through the BOLT system, BSE website and news wire agencies.

All BSE-Indices are reviewed periodically by the "Index Committee" of the Exchange. The

Committee frames the broad policy guidelines for the development and maintenance of all BSE

indices. Department of BSE Indices of the Exchange carries out the day to day maintenance of

all indices and conducts research on development of new indices.

BSE Ltd places great deal of emphasis on Information Technology to strengthen its functioning

and performance. 'Operations & Trading Department' continuously upgrades the hardware,

software and networking systems, thus enabling the Exchange to enhance the quality and

standard of service provided to its members and other market intermediaries.

To facilitate smooth transaction, BSE had replaced its open outcry system with BSE On-line

Trading (BOLT) facility in 1995. This totally automated screen based trading in securities was

put into practice nation-wide within a record time of just 50 days.

The BOLT platform capacity has been enhanced to 40 lakh orders per day by upgrading the

hardware. BOLT has been certified by DNV for conforming to BS7799 security standards. With

this, BSE is the second stock exchange in the world to have this certification.

Exchange has also introduced the world's first centralized exchange based Internet trading

system, BSEWEBx.com. The initiative enables investors anywhere in the world to trade on the

BSE platform.


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BSE's website http://www.bseindia.com/provides comprehensive information on the stock

market. It is one of the most popular financial websites in India and is regularly visited by

financial organizations and other stakeholders for updates.

BSE's team of experts and professionals, along with its strategic partners have put into place

several critical systems such as Derivatives Trading & Settlement System (DTSS), Electronic

Contract Notes (ECN), Unique Client Code registration (UCC), Real time data dissemination -

system - Datafeed, Integrated Back office System - CDB / IDB, Book Building System (BBS) &

Reverse Book Building System (RBBS) etc.

BSE also operates one of the largest private networks in India, comprising campus LAN; WAN

set up within Mumbai and across some major metros in India and VSAT set up across the

country.

BSE's Campus LAN covers around 350 member offices across three BSE buildings P.J. Towers,

Rotunda and Cama building.

BSE WAN setup connects approximately 2000 member offices within Mumbai and some major

metros to BSE systems. Leased MLLN circuits from MTNL / BSNL are provided with ISDN /

TTML leased circuit backup. Around 300 circuits are of 2Mbps capacity and rest all are of

64Kbps capacity.

In year 2000 BSE set up its own VSAT Master Earth Station (HUB), which uses full transponder

on INSAT 3B satellite to cater to roughly 2000 locations in over 400 cities across the country.

Regional Hubs for local fan out of leased lines within Metros backed by high availability trunk

backbone to BSE. The regional technology hubs are commissioned in Ahmedabad, Bangalore,

Chandigarh, Chennai, Delhi, Hyderabad, Indore, Jaipur, Kolkatta, Ludhiana, Pune and Rajkot

provide cost-effective reliable services to members.

The trading and settlement activities of the member-brokers are closely monitored through On-

line Real Time System known as BSE Online Surveillance System (BOSS). The system enables


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http://www.bseindia.com/


the Exchange to detect market abuses at a nascent stage, improve the risk management system

and strengthen the self-regulatory mechanisms. Currently, BSE is in the process of evolving an

integrated system for online surveillance of Cash and Derivatives Segment through BSE Online

Surveillance System - Integrated (BOSS - i).

BSE uses higher end fault tolerant systems for its trading and related functionalities. It uses

Integrity Non-stop S88000 systems for its online trading systems (BOLT). The systems have

been designed to deliver the best performance without compromising on key factors of

availability, scalability, ROI and TCO.

There are powerful RISC based Unix severs rp8400 from hp for our Derivatives, Settlement,

Backoffice, Datafeed, BBS, RBBS and other systems related to trading / non-trading and related

functionalities. The systems are facilitated by the use of the robust and high available storage

subsystems from hp.

BSE use one of the most powerful RISC based Alpha GS140 and ES40 servers for our Internet

based trading system (ITS) enabling the end user to carry out the trading activities from any

location facilitated by the internet.

BSE also use Intel 8 way and 4 way servers for bseindia.com web site, one of the best portal on

information related to capital markets.

BSE strictly adheres to IS policies and IS Security policies and procedures for its day to day

operational activities on 24 x 7 basis which has enabled us to achieve the BS7799 certification.

In addition, BSE has also been successful in maintaining systems and processes uptime of

99.99%.

Following are the main BSE IndexesBSE PSU Index

BSE TECK Index

BSE Mid Cap & Small Cap Index

BSE BANKX


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BSE 100 Index

BSE 200 Index

BSE 500 Index

How do S&P CNX Nifty and the `BSE sensitive index’ compare?

Every technical reason favours the S&P CNX Nifty.

S&P CNX Nifty is a more diversified index, accurately reflecting overall market conditions. The

BSE index is more vulnerable to movements of individual stocks. The reward-to-risk ratio of

S&P CNX Nifty is higher (5.74 as compared with 5.12), making it a more attractive portfolio –

both indices offer similar returns, but S&P CNX Nifty costs less risk.

S&P CNX Nifty is a more liquid index. Trades on the S&P CNX Nifty suffer lower market

impact cost.

Several important issues lead back to the fact that the S&P CNX Nifty is calculated using NSE

prices while the `BSE sensitive index’ is calculated using BSE prices.

S&P CNX Nifty is calculated from a more liquid market, which features the safety of novation at

the clearing corporation. Users of the BSE index would be forced to trade on BSE, a less liquid

exchange where there is settlement risk owing to the lack of novation and the lack of a clearing

corporation.

S&P CNX Nifty has fully articulated and professionally implemented rules governing index

revision, corporate actions, etc. These rules are carefully thought out, under Indian conditions, to

dovetail with operational problems of index funds and index arbitrageurs. Many of the BSE

procedures are adhoc and undocumented, and do not reflect an awareness of modern applications

of an index.

S&P CNX Nifty is calculated using modern computer systems with great care about data

accuracy.


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S&P CNX Nifty is more likely to rapidly benefit from a liquid index futures market. (The BSE

has long campaigned against the introduction of index futures in India.)

The hedging effectiveness for randomly selected portfolios in India is better using the S&P CNX

Nifty.

S&P CNX Nifty is relatively free of manipulation, for three reasons: (a) the index levels are

calculated from the more liquid exchange with better surveillance procedures (it is easier for a

manipulator to move prices at BSE), (b) S&P CNX Nifty has a larger market Capitalization so

the consequence (upon the index) of a given move in an individual stock price is smaller and (c)

S&P CNX Nifty calculation intrinsically requires liquidity in proportion to market

Capitalization, thus avoiding weak links which a manipulator can attack.

Users of the S&P CNX Nifty benefit from the research that is possible owing to the long time-

series available: both S&P CNX Nifty and S&P CNX Nifty TR series are observed from July

1990 onwards. Owing to the large changes in the `BSE sensitive index’ in 1996, the comparable

series available is only two years old, and no TR index is available.

S&P CNX Nifty is backed by solid economic research and three most respected institutions:

NSE, CRISIL and S&P.


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Unit –VIII

Trend of capital market in India

Trend of Sensex and Nifty (for last 2 years)

Factors responsible for the fluctuation of

Sensex and Nifty.


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Introduction

Traditionally, indexes have been used as information sources. By looking at an index we know

how the market is faring. This information aspect also figures in myriad applications of stock

market indexes in economic research. This is particularly valuable when an index reflects highly

uptodate information (a central issue which is discussed in detail ahead) and the portfolio of an

investor contains illiquid securities - in this case, the index is a lead indicator of how the overall

portfolio will fare.

In recent years, indexes have come to the fore owing to direct applications in finance, in the form

of index funds and index derivatives. Index funds are funds which passively `invest in the index'.

Index derivatives allow people to cheaply alter their risk exposure to an index (this is called

hedging) and to implement forecasts about index movements (this is called speculation).

Hedging using index derivatives has become a central part of risk management in the modern

economy. These applications are now a multi-trillion dollar industry worldwide, and they are

critically linked up to market indexes.

Finally, indexes serve as a benchmark for measuring the performance of fund managers. An all-

equity fund should obtain returns like the overall stock market index. A 50:50 debt:equity fund

should obtain returns close to those obtained by an investment of 50% in the index and 50% in

fixed income. A well-specified relationship between an investor and a fund manager should

explicitly define the benchmark against which the fund manager will be compared, and in what

fashion.

The most important type of market index is the broad-market index. In most countries, a single

major index dominates benchmarking, index funds, index derivatives and research applications.

In addition, more specialised indexes often find interesting applications. In India, we have seen


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situations where a dedicated industry fund uses an industry index as a benchmark. In India,

where clear categories of ownership groups exist, it becomes interesting to examine the

performance of classes of companies sorted by ownership group.

SENSEX - THE BAROMETER OF INDIAN CAPITAL MARKETS

For the premier Stock Exchange that pioneered the stock broking activity in India, 128 years of

experience seems to be a proud milestone. A lot has changed since 1875 when 318 persons

became members of what today is called "The Stock Exchange, Mumbai" by paying a princely

amount of Re1.

Since then, the country's capital markets have passed through both good and bad periods. The

journey in the 20th century has not been an easy one. Till the decade of eighties, there was no

scale to measure the ups and downs in the Indian stock market. The Stock Exchange, Mumbai

(BSE) in 1986 came out with a stock index that subsequently became the barometer of the Indian

stock market.

SENSEX is not only scientifically designed but also based on globally accepted construction and

review methodology. First compiled in 1986, SENSEX is a basket of 30 constituent stocks

representing a sample of large, liquid and representative companies. The base year of SENSEX

is 1978-79 and the base value is 100. The index is widely reported in both domestic and

international markets through print as well as electronic media.

The Index was initially calculated based on the "Full Market Capitalization" methodology but

was shifted to the free-float methodology with effect from September 1, 2003. The "Free-float

Market Capitalization" methodology of index construction is regarded as an industry best

practice globally. All major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use

the Free-float methodology.

Due to is wide acceptance amongst the Indian investors; SENSEX is regarded to be the pulse of

the Indian stock market. As the oldest index in the country, it provides the time series data over a


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fairly long period of time (From 1979 onwards). Small wonder, the SENSEX has over the years

become one of the most prominent brands in the country.

The growth of equity markets in India has been phenomenal in the decade gone by. Right from

early nineties the stock market witnessed heightened activity in terms of various bull and bear

runs. The SENSEX captured all these events in the most judicial manner. One can identify the

booms and busts of the Indian stock market through SENSEX.

SENSEX Calculation Methodology

SENSEX is calculated using the "Free-float Market Capitalization" methodology. As per this

methodology, the level of index at any point of time reflects the Free-float market value of 30

component stocks relative to a base period. The market capitalization of a company is

determined by multiplying the price of its stock by the number of shares issued by the company.

This market capitalization is further multiplied by the free-float factor to determine the free-float

market capitalization.

The base period of SENSEX is 1978-79 and the base value is 100 index points. This is often

indicated by the notation 1978-79=100. The calculation of SENSEX involves dividing the Free-

float market capitalization of 30 companies in the Index by a number called the Index Divisor.

The Divisor is the only link to the original base period value of the SENSEX. It keeps the Index

comparable over time and is the adjustment point for all Index adjustments arising out of

corporate actions, replacement of scrips etc. During market hours, prices of the index scrips, at

which latest trades are executed, are used by the trading system to calculate SENSEX every 15

seconds and disseminated in real time.

Dollex-30

BSE also calculates a dollar-linked version of SENSEX and historical values of this index are

available since its inception.

Understanding Free-float Methodology


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Concept:

Free-float Methodology refers to an index construction methodology that takes into

consideration only the free-float market capitalization of a company for the purpose of index

calculation and assigning weight to stocks in Index. Free-float market capitalization is defined as

that proportion of total shares issued by the company that are readily available for trading in the

market. It generally excludes promoters' holding, government holding, strategic holding and

other locked-in shares that will not come to the market for trading in the normal course. In other

words, the market capitalization of each company in a Free-float index is reduced to the extent of

its readily available shares in the market.

In India, BSE pioneered the concept of Free-float by launching BSE TECk in July 2001 and

BANKEX in June 2003. While BSE TECk Index is a TMT benchmark, BANKEX is positioned

as a benchmark for the banking sector stocks. SENSEX becomes the third index in India to be

based on the globally accepted Free-float Methodology.

Major advantages of Free-float Methodology:

A Free-float index reflects the market trends more rationally as it takes into consideration

only those shares that are available for trading in the market.

Free-float Methodology makes the index more broad-based by reducing the concentration

of top few companies in Index. For example, the concentration of top five companies in

SENSEX has fallen under the free-float scenario thereby making the SENSEX more

diversified and broad-based.

A Free-float index aids both active and passive investing styles. It aids active managers

by enabling them to benchmark their fund returns vis-à-vis an investable index. This

enables an apple-to-apple comparison thereby facilitating better evaluation of

performance of active managers. Being a perfectly replicable portfolio of stocks, a Free-

float adjusted index is best suited for the passive managers as it enables them to track the

index with the least tracking error.


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Free-float Methodology improves index flexibility in terms of including any stock from

the universe of listed stocks. This improves market coverage and sector coverage of the

index. For example, under a Full-market capitalization methodology, companies with

large market capitalization and low free-float cannot generally be included in the Index

because they tend to distort the index by having an undue influence on the index

movement. However, under the Free-float Methodology, since only the free-float market

capitalization of each company is considered for index calculation, it becomes possible to

include such closely held companies in the index while at the same time preventing their

undue influence on the index movement.

Globally, the Free-float Methodology of index construction is considered to be an

industry best practice and all major index providers like MSCI, FTSE, S&P and STOXX

have adopted the same. MSCI, a leading global index provider, shifted all its indices to

the Free-float Methodology in 2002. The MSCI India Standard Index, which is followed

by Foreign Institutional Investors (FIIs) to track Indian equities, is also based on the Free-

float Methodology. NASDAQ-100, the underlying index to the famous Exchange Traded

Fund (ETF) - QQQ is based on the Free-float Methodology.

Definition of Free-float:

Share holdings held by investors that would not, in the normal course come into the open market

for trading are treated as 'Controlling/ Strategic Holdings' and hence not included in free-float. In

specific, the following categories of holding are generally excluded from the definition of Free-

float:

Holdings by founders/directors/ acquirers which has control element

Holdings by persons/ bodies with "Controlling Interest"

Government holding as promoter/acquirer

Holdings through the FDI Route

Strategic stakes by private corporate bodies/ individuals

Equity held by associate/group companies (cross-holdings)

Equity held by Employee Welfare Trusts


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Locked-in shares and shares which would not be sold in the open market in normal

course.

The remaining shareholders would fall under the Free-float category.

Determining Free-float factors of companies:

BSE has designed a Free-float format, which is filled and submitted by all index companies on a

quarterly basis with the Exchange.The Exchange determines the Free-float factor for each

company based on the detailed information submitted by the companies in the prescribed format.

Free-float factor is a multiple with which the total market capitalization of a company is adjusted

to arrive at the Free-float market capitalization. Once the Free-float of a company is determined,

it is rounded-off to the higher multiple of 5 and each company is categorized into one of the 20

bands given below. A Free-float factor of say 0.55 means that only 55% of the market

capitalization of the company will be considered for index calculation.

Free-float Bands:

% Free-Float Free-Float Factor % Free-Float Free-Float Factor

>0 – 5% 0.05 >50 – 55% 0.55

>5 – 10% 0.10 >55 – 60% 0.60

>10 – 15% 0.15 >60 – 65% 0.65

>15 – 20% 0.20 >65 – 70% 0.70

>20 – 25% 0.25 >70 – 75% 0.75

>25 – 30% 0.30 >75 – 80% 0.80

>30 – 35% 0.35 >80 – 85% 0.85

>35 – 40% 0.40 >85 – 90% 0.90

>40 – 45% 0.45 >90 – 95% 0.95


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>45 – 50% 0.50 >95 – 100% 1.00

Index Closure Algorithm

The closing SENSEX on any trading day is computed taking the weighted average of all the

trades on SENSEX constituents in the last 30 minutes of trading session. If a SENSEX

constituent has not traded in the last 30 minutes, the last traded price is taken for computation of

the Index closure. If a SENSEX constituent has not traded at all in a day, then its last day's

closing price is taken for computation of Index closure. The use of Index Closure Algorithm

prevents any intentional manipulation of the closing index value.

Maintenance of SENSEX

One of the important aspects of maintaining continuity with the past is to update the base year

average. The base year value adjustment ensures that replacement of stocks in Index, additional

issue of capital and other corporate announcements like 'rights issue' etc. do not destroy the

historical value of the index. The beauty of maintenance lies in the fact that adjustments for

corporate actions in the Index should not per se affect the index values.

The Index Cell of the exchange does the day-to-day maintenance of the index within the broad

index policy framework set by the Index Committee. The Index Cell ensures that SENSEX and

all the other BSE indices maintain their benchmark properties by striking a delicate balance

between frequent replacements in index and maintaining its historical continuity. The Index

Committee of the Exchange comprises of experts on capital markets from all major market

segments. They include Academicians, Fund-managers from leading Mutual Funds, Finance-

Journalists, Market Participants, Independent Governing Board members, and Exchange

administration.

On-Line Computation of the Index:

During market hours, prices of the index scrips, at which trades are executed, are automatically

used by the trading computer to calculate the SENSEX every 15 seconds and continuously

updated on all trading workstations connected to the BSE trading computer in real time.


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Adjustment for Bonus, Rights and Newly issued Capital:

The arithmetic calculation involved in calculating SENSEX is simple, but problem arises when

one of the component stocks pays a bonus or issues rights shares. If no adjustments were made, a

discontinuity would arise between the current value of the index and its previous value despite

the non-occurrence of any economic activity of substance. At the Index Cell of the Exchange, the

base value is adjusted, which is used to alter market capitalization of the component stocks to

arrive at the SENSEX value.

The Index Cell of the Exchange keeps a close watch on the events that might affect the index on

a regular basis and carries out daily maintenance of all the 14 Indices.

Adjustments for Rights Issues:

When a company, included in the compilation of the index, issues right shares, the free-float

market capitalisation of that company is increased by the number of additional shares issued

based on the theoretical (ex-right) price. An offsetting or proportionate adjustment is then made

to the Base Market Capitalisation (see 'Base Market Capitalisation Adjustment' below).

Adjustments for Bonus Issue:

When a company, included in the compilation of the index, issues bonus shares, the market

capitalisation of that company does not undergo any change. Therefore, there is no change in the

Base Market Capitalisation, only the 'number of shares' in the formula is updated.

Other Issues:

Base Market Capitalisation Adjustment is required when new shares are issued by way of

conversion of debentures, mergers, spin-offs etc. or when equity is reduced by way of buy-back

of shares, corporate restructuring etc.

Base Market Capitalization Adjustment:

The formula for adjusting the Base Market Capitalisation is as follows:

New Market Capitalisation


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New Base Market Capitalisation = Old Base Market Capitalisation x ---------------------------------------

Old Market Capitalisation

To illustrate, suppose a company issues right shares which increases the market capitalisation of

the shares of that company by say, Rs.100 crores. The existing Base Market Capitalisation (Old

Base Market Capitalisation), say, is Rs.2450 crores and the aggregate market capitalisation of all

the shares included in the index before the right issue is made is, say Rs.4781 crores. The "New

Base Market Capitalisation " will then be:

2450 x (4781+100)

-------------------------- = Rs.2501.24 crores

4781

This figure of 2501.24 will be used as the Base Market Capitalization for calculating the index

number from then onwards till the next base change becomes necessary.

SENSEX - Scrip selection criteria:

The general guidelines for selection of constituents in SENSEX are as follows:

1. Listed History:The scrip should have a listing history of at least 3 months at BSE.

Exception may be considered if full market capitalisation of a newly listed company

ranks among top 10 in the list of BSE universe. In case, a company is listed on account of

merger/ demerger/ amalgamation, minimum listing history would not be required.

2. Trading Frequency:The scrip should have been traded on each and every trading day in

the last three months. Exceptions can be made for extreme reasons like scrip suspension

etc.

3. Final Rank:The scrip should figure in the top 100 companies listed by final rank. The

final rank is arrived at by assigning 75% weightage to the rank on the basis of three-

month average full market capitalisation and 25% weightage to the liquidity rank based

on three-month average daily turnover & three-month average impact cost.

4. Market Capitalization Weightage: The weightage of each scrip in SENSEX based on

three-month average free-float market capitalisation should be at least 0.5% of the Index.


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5. Industry Representation:Scrip selection would generally take into account a balanced

representation of the listed companies in the universe of BSE.

6. Track Record: In the opinion of the Committee, the company should have an acceptable

track record.

Index Review Frequency:

The Index Committee meets every quarter to discuss index related issues. In case of a revision in

the Index constituents, the announcement of the incoming and outgoing scrip is made six weeks

in advance of the actual implementation of the revision of the Index.

History of replacement of scrip’s in SENSEX

Date Outgoing Scrips Replaced by

01.01.1986 Bombay Burmah Voltas

Asian Cables Peico

Crompton Greaves Premier Auto.

Scinda G.E.Shipping

03.08.1992 Zenith Ltd. Bharat Forge

19.08.1996 Ballarpur Inds. Arvind Mills

Bharat Forge Bajaj Auto

Bombay Dyeing BHEL


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Ceat Tyres BSES

Century Text. Colgate

GSFC Guj. Amb. Cement

Hind. Motors HPCL

Indian Organic ICICI

Indian Rayon IDBI

Kirloskar Cummins IPCL

Mukand Iron MTNL

Phlips Ranbaxy Lab.

Premier Auto State Bank of India

Siemens Steel Authority of India

Voltas Tata Chem

16.11.1998 Arvind Mills Castrol

G. E. Shipping Infosys Technologies

IPCL NIIT Ltd.

Steel Authority of India Novartis

10.04.2000 I.D.B.I Dr. Reddy’s Laboratories

Indian Hotels Reliance Petroleum

Tata Chem Satyam Computers

Tata Power Zee Telefilms

08.01.2001 Novartis Cipla Ltd.


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07.01.2002 NIIT Ltd. HCL Technologies

Mahindra & Mahindra Hero Honda Motors Ltd.

31.05.2002 ICICI Ltd. ICICI Bank Ltd.

10.10.2002 Reliance Petroleum Ltd. HDFC Ltd.

10.11.2003 Castrol India Ltd. Bharti-Tele-Ventures Ltd.

Colgate Palomive (India) Ltd. HDFC Bank Ltd.

Glaxo Smithkline Pharma. Ltd. ONGC Ltd.

HCL Technologies Ltd. Tata Power Company Ltd.

Nestle (India) Ltd. Wipro Ltd.

19.05.2004 Larsen & Toubro Ltd. Maruti Udyog Ltd.

27.09.2004 Mahanagar Telephone Nigam Ltd. Larsen & Toubro Ltd.

06.06.2005 Hindustan Petroleum Corp Ltd. National Thermal Power Corpn. Ltd.

Zee Telefilms Ltd. Tata Consultancy Services Ltd.

12.06.2006 Tata Power Ltd. Reliance Communiation Ventures Ltd.

Trend in capital market


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Top Gainers - All Market

Listed below are the current top Gainers with respect to Price change in % terms.

This data was last updated on Thursday, April 12, 2007 3:59:26 PM

Scrip Code

Scrip NameScrip

GroupOpen Rate

High Rate

Low Rate

Last Traded

Change w.r.t. Last Close(abs)

Change w.r.t. Last Close %

505533 DHANPRAYOG B2 34.55 34.55 34.55 34.55 5.75 19.97

530193 INTERN DIAMO B2 3.57 5.25 3.57 5.25 0.85 19.32

530235 KJMC FINA SE B2 13.50 15.85 13.50 15.80 2.55 19.25

530765 DEVKI LEASIN B2 4.00 4.40 4.00 4.38 0.68 18.38

511401 MUNOTH INVES B2 3.00 3.00 3.00 3.00 0.42 16.28

531672 INANI SECURI B2 15.00 15.00 15.00 15.00 2.00 15.38

531823 ARVIN REMEDI B1 1.59 1.87 1.58 1.79 0.23 14.74

532711 SUNIL HITECH B1 84.55 101.40 84.50 98.35 12.30 14.29

532723 MONET SUGAR B2 46.70 54.80 46.20 52.90 6.20 13.28

531175 BRELS INFOTE B2 0.50 0.56 0.48 0.53 0.06 12.77




Scrip Code

Scrip NameScrip

GroupOpen Rate

High Rate

Low Rate

Last Traded



531102 SURANA CORPR B2 23.50 27.50 23.50 26.00 2.70 11.59

505744 FED MOG GOE B1 245.70 283.85 244.50 272.50 27.50 11.22

530095BHAGWAND MET

B2 6.78 7.20 6.10 6.80 0.68 11.11

524748 LINK PHARMA B2 7.56 8.58 7.56 8.58 0.78 10.00

526773 PRESSURE SEW B2 5.72 5.72 5.72 5.72 0.52 10.00

531644 TOKYO FINANC B2 3.20 3.52 3.00 3.52 0.32 10.00

590053 KAR MOBILES S 192.00 198.10 190.00 198.10 18.00 9.99


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http://www.bseindia.com/price_finder/stockreach.asp?scripcd=590053



















532762 ACTION CONST B1 200.00 221.80 195.05 221.80 20.15 9.99

512022 WINRO COMMR. B2 107.40 107.40 107.40 107.40 9.75 9.98

500343 PUDUMJE PUL& B1 85.00 96.00 85.00 96.00 8.70 9.97

Top Losers - All Market

Listed below are the current Losers with respect to Price change in % terms.

This data was last updated on 4/12/2007 3:59:26 PM

Scrip Code

Scrip NameScrip

GroupOpen Rate

High Rate

Low Rate

Last Traded



530419 SUMEDH FISCA B2 10.39 10.39 7.35 7.35 -1.52 -17.14

500143 P.H.CAPITAL B2 4.99 5.00 4.12 4.14 -0.75 -15.34

511642 WISEC GLOBAL B2 13.50 13.94 11.52 11.52 -1.88 -14.03

523564 MORGAN IND B2 7.60 7.60 5.66 5.66 -0.86 -13.19

511451 DHARANI FINA B2 3.53 3.70 3.53 3.70 -0.53 -12.53

531127 ENRICH INDUT B2 1.80 1.80 1.70 1.70 -0.24 -12.37

532503 RAJAPAL MILL S 455.10 455.50 408.15 410.00 -57.75 -12.35

512437 APOLLO FINVE B2 10.35 10.35 9.10 9.10 -1.16 -11.31

502352 AURANG PAP M B2 5.74 5.90 5.23 5.23 -0.65 -11.05

512237 JAI CORP LIM B1 2,434.45 2,434.45 2,200.55 2,200.55 -244.45 -10.00


222


















Scrip Code

Scrip NameScrip

GroupOpen Rate

High Rate

Low Rate

Last Traded



507852 ADDI INDUSTR S 0.00 7.96 7.96 7.96 -0.88 -9.95

513436 SHAH ALLOY L B1 99.95 104.00 88.70 88.70 -9.80 -9.95

531289 INTERF TEC P B2 3.17 3.17 3.17 3.17 -0.35 -9.94

508905 SMIFS CAP MA B2 39.65 39.65 35.80 35.80 -3.95 -9.94

531236 MEWAR POLYTE S 15.90 15.90 15.90 15.90 -1.75 -9.92

511742 CHOKHANI SEC B2 9.01 9.01 9.01 9.01 -0.99 -9.90

511728 KZLEASING B2 5.25 5.25 4.76 4.76 -0.52 -9.85

526251 MIDEAS POR M B2 3.47 3.47 2.85 2.85 -0.31 -9.81

523846 SKYPAK SER S B2 10.12 10.12 8.30 8.30 -0.90 -9.78


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530519 INTERF FIN S B2 2.70 2.70 2.31 2.34 -0.25 -9.65

Factors responsible for the fluctuation of Sensex and Nifty.

Think of a liquid stock as a good thermometer, one which gives accurate data about the true price of the stock, because it trades actively with a tight spread. The prices observed for an illiquid stock are like readings from a low quality thermometer, which reports noisy data about the phenomenon of interest (the true price of the security).

We try to find the fifty best thermometers in the country and average their values to make the S&P CNX Nifty. As time passes, better thermometers become available (in the form of large, liquid stocks that are not in the S&P CNX Nifty). We would like that S&P CNX Nifty always uses the best thermometers possible. So we remove the weakest thermometer from inside the S&P CNX Nifty and accept the new stock into it.

The world changes, so the index should change. Yet, the change should not be sudden - for that would disrupt the character of the index. In 1996, after a decade of near-silence, the BSE removed 14 out of 30 stocks in their `sensitive' index. This completely changed the character of the index - older data for this index is not comparable with new data. Such sudden changes should be avoided. They serve to illustrate the proverb those who make peaceful change difficult make violent change inevitable. S&P CNX Nifty believes in steady, peaceful changes.

S&P CNX Nifty uses clear, publicly documented rules for index revision. These rules are applied regularly, to obtain changes to the index set.

IDBI was once not listed; SBI was once illiquid; Infosys was once an obscure software startup. The world changes, and one by one, these stocks have come into the S&P CNX Nifty. Each change in the S&P CNX Nifty is small, so the continuity of the index is maintained. Yet, at all times, S&P CNX Nifty represents the 50 most important liquid stocks in the country, the best thermometers to build an index out of.

There are mathematical formulas which ensure that yesterday's value and today's are comparable, even if a change in

composition takes place in-between. Think of an index as a portfolio. The composition of the portfolio changes, but

it is still meaningful to keep measuring the overnight returns on the portfolio from day to day. These returns,

cumulated up, are the index level.

There are no speculators on the internal committee of IISL which manages the index revisions. Further, there are

objective, publicly defined rules which determine when stocks come in and go out of the index. There isn't much

room for personal judgement here.

Every stock price moves for two possible reasons: news about the company (e.g. a product launch, or the closure of a factory, etc.) or news about the country (e.g. nuclear bombs, or a budget announcement, etc.). The job of an index is to purely capture the second part, the movements of the stock market as a whole (i.e. news about the country).


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This is achieved by averaging. Each stock contains a mixture of these two elements - stock news and index news. When we take an average of returns on many stocks, the individual stock news tends to cancel out. On any one day, there would be good stock-specific news for a few companies and bad stock-specific news for others. In a good index, these will cancel out, and the only thing left will be news that is common to all stocks. That is what the index will capture.

They reflect the changing expectations of the stock market about future dividends of India's corporate sector. When

the index goes up, it is because the stock market thinks that the prospective dividends in the future will be better

than previously thought. When prospects of dividends in the future become pessimistic, the index drops. The ideal

index gives us instant-to-instant readings about how the stock market perceives the future of India's corporate sector.

Unit –IX

Role of RBI &SEBI SEBI guidelines & impact Role of SEBI


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Role of RBI and SEBIRole of RBI.

Modern day central banking extends far beyond the domain of traditional functions such as

currency management, banker to Government and promoting financial soundness. These re-

orientations have been the natural corollary of pursuing monetary policy measures that are

focused on definitive, well-defined and quantifiable objectives.

Central banks in emerging economies differ from their counterparts of developed countries in

several ways. In some developed countries, central banks are vested only with the conduct of

monetary policy. In most emerging countries, central banks, besides monetary policy, also

shoulder the responsibilities of debt management, and regulation/supervision of banks and

financial institutions. Even in regard to the conduct of monetary policy, central banks in

emerging economies have to contend with several objectives, and distinct trade-offs as compared

with some developed countries which pursue a single objective of price stability. While pursuing

multiple objectives, and managing complex trade-offs, central banks in emerging countries

assume the responsibility of looking after the interests of several agents including depositors,

intermediaries, government, business, and external trade. In regard to choice of instruments,

given the level of market development, and multiple objectives, emerging countries cannot

entirely rely on single instrument such as interest rates. Rather, central banks in emerging

countries prefer a judicious mix of interest rates, cash reserves, and other instruments. The most

striking feature of central banking in emerging countries pertains to their critical role in

development of financial markets and active involvement in the institution building process.

Institution Building


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In the Indian context, the Reserve Bank of India (RBI), in consultation with the Government, has

played a major role in institution building since independence. Efforts in this direction

encompass RBI’s contribution to development of commercial banking, development finance

institutions in the areas of agriculture and industry, and specialised institutions for development

of financial markets. After initiation of the economic reforms of the early 1990s, the role of RBI

in the area of developing financial markets particularly the government securities, money

markets and payment and settlement systems has come to the fore. Moreover, in a global

environment, with increasing integration of the international economy, the RBI’s role as the

regulator and supervisor of commercial banks and financial institutions has assumed a central

place in promoting transparency and credibility of institutions and monetary and financial

policies.

Monetary Policy

Most central bankers presently enjoy independence in choosing their policy instrument and have

used it to rely on setting short-term interest rates. As a logical offshoot, many central banks in

emerging markets are giving more exposures to pursuing price stability as one of the main

objectives of monetary policy. In the RBI, there is a Financial Markets Committee (FMC), which

meets daily before the opening of the markets and at times more frequently, when the situation

warrants. The FMC reviews the liquidity and interest rate situation in financial markets and

advises top management on the course of action that would be required by RBI during the day.

This institutionalised framework helps the RBI to take an integrated view on all-important

decisions having an impact on financial markets.

Economists have long debated as to what should be the objective(s) of monetary policy. In most

developed countries, monetary stability, defined as the price stability, constitutes the dominant

objective of monetary policy. In emerging economies, central banks have to contend with several

concerns: price stability, sustained growth, financial system’s stability, stable exchange rate, and

operating objectives of liquidity management. The animated discussion on central bank

objectives ranges broadly between single objective and multiple objectives. Such discussion

entails a generic analysis of advantages and disadvantages of single or multiple objectives, and


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the nature, and scope of central banking organisation, which differs across the country groups of

developed and emerging countries due to significant difference in socio-economic-technological-

institutional environment.

Adoption of a single objective of monetary policy by central banks is based on the arguments

that (i) monetary policy should concentrate its instruments on one objective, free from any policy

trade-off, thereby strengthening the implementation of monetary policy; (ii) a single objective

promotes transparency, accountability and independence of monetary policy; (iii) a single

objective is more realistic in a deregulated and globalised economic and financial system; and

(iv) it is easier to observe the channels of transmission, and therefore, easier to determine the

‘right’ instruments. Since a central bank’s monetary policy actions could involve several

implications for the economy as a whole, the counterarguments against a single objective derive

from the fact that (i) economic objectives should be achieved simultaneously (in harmony), and a

single objective may disrupt that harmony; (ii) monetary policy by itself may not be able to bring

down inflation further and other wings of policy have to be deployed.

The case for multiple objectives for central banks entails “co-ordination” of a range of policies

and thus, a spectrum of objectives. The principal reason as to why central banks in emerging

economies have to contend with multiple objectives, or at least dual objectives of price stability

and economic growth derives from the concerns of socio-economic-political systems. James

Tobin, a Nobel laureate economist, argued that since central banks form an integral part of

government, they cannot dissociate from the major objectives of the society, which includes

sustained economic growth and price stability. William Poole, a revered central banker viewed

that economic growth is a citizens’ objective and central bankers too are citizens.

Currency management is one of the most important traditional function of central banks in most

countries. Central banks serve as a service provider to issue and distribute currency notes and

coins. In most developed countries, high degree of homogeneity in the society as reflected in the

culture, language, tastes and preferences of the public and the efficient distribution of income

could induce a homogenous pattern of currency demand and thus, facilitate to achieve better

currency management as compared with that of developing countries. In developing countries,


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significant diversity in socio-economic development across regions induce completely different

currency preference of the public across regions, and across demographic segments, thus,

entailing dynamic and complex currency management tasks for central bankers. What is

noteworthy is the way in which technology has been harnessed to bring about improvement in

currency management. The RBI performs the role of currency management with the objectives

of ensuring adequate availability of coins and notes and maintaining the quality of notes in

circulation. This is done through its 18 Regional issue offices/sub offices and a wide network of

currency chests, repositories and small coin depots spread across the country. In pursuance of the

Clean Note Policy, efforts are being made to improve the quality of notes in circulation.

In most emerging markets including India, central banks manage Government debts. Quite apart

from the need to decide on issues such as the kind of auctioning, the types of securities to be

auctioned and the maturity profile of the securities, there remains the issue of the extent of

support that the central bank and commercial banks should extend to the Government borrowing

programme. This is important from not only the point of view of deepening the Government

securities markets, but also in terms of the flow and cost of credit to the commercial sector. As

adviser to Government, central bankers need to interact intimately with the Government on fiscal

policy matters and provide a unified and coherent signal to the market on the macro policy

stance. In recent years, central banks have become pro-active in the area of structural reforms.

The Indian case provides an excellent testimony towards this point. The strategy of financial

reforms was worked out in close coordination with the Government, and undertaken in

appropriate sequential steps and synchronised with real sector reforms. This was all the more

relevant in the Indian scenario where the Government has a significant stake in the banking

system and consequently, any disruption in the financial structure could have significant

budgetary implications. The RBI has undertaken wide-ranging reforms to deepen and widen the

financial markets – money market, Government securities market and foreign exchange market.

These markets have become vibrant and competitive.

Central bankers, in the present era, rely on a combination of policy measures in their day-to-day

operations. They undertake combinations of actions primarily to provide signals about their

policy stance to market participants. Reforms of the tools of monetary policy have, therefore,


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gained prominence. Such reforms have been made possible by the growing emphasis on indirect

instruments of monetary control and the de-emphasis on direct instruments of policy. Open

market operations, in such a milieu, have grown in importance. Interest rate flexibility is another

tool. A major instrument of statutory preemption, such as the Cash Reserve Ratio has been

progressively de-emphasised and instead, short-term instruments, such as the Repo Rate and in

the medium-term, instruments such as Bank Rate have become important. Likewise, in several

instances, the Statutory Liquidity Ratio (SLR), an erstwhile important prudential measure, has

increasingly been scaled down. The idea inherent in these transformations in the approach to

monetary policy is to provide banks with maximum freedom in their portfolio choice, without

losing sight of the risks in asset accretion, and to provide opportunity to ensure that their

resource allocation is optimal. Given the concerns of an emerging economy, certain portion of

banks resources are often prescribed to be allotted under the ‘priority sector norms’; but in this

case as well, the range of activities covered under priority sector has been expanded to provide

greater choice to banks. And let us not forget the central bank’s authority and power of “moral

suasion” which can act as a supervisory and regulatory force, even when no explicit oversight of

the financial system is in place.

Liquidity determination is the key to the efficiency of the actions of the monetary authorities. As

the economy increasinglyopens up, the interactions between domestic and external markets are

expected to impinge on liquidity as much as the growth impulses from within the economy.

Liquidity, however, is not static, in view of the speed of transactions and settlements and the

sharp increase in financial innovations. Since liquidity is a function of both domestic monetary

policies as much as external sector policies and debt management strategy, modern day central

bankers are confronted with the enviable task of balancing a tightrope walk to ensure that the

economy remains on track.

As bankers to banks, central bankers tend to exercise considerable discretion and rarely go by

straightjacket rule-based methods. While the ‘lender-of-the-last’ resort function of the central

banks continues to be important, in addition, the central bank provides access to refinance

facilities and a whole host of services, as in the matter of payments and settlement, funds

transfer, settling of government securities through the Negotiated dealing System (NDS) and the


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like. Another area where central bankers of emerging countries have assumed new

responsibilities pertains to managing the economy in response to external developments in the

context of globalisation. Deputy Governor Dr. Rakesh Mohan has rightly pointed out that

globalisation has offered several benefits as well as a host of challenges. In an increasingly

global environment, countries have to adapt to greater internationalisation of economic policies.

In this regard, central bankers in emerging countries have to be alert to international

developments and acquire skills in the areas of international banking, international finance and

economics, international regulations and international relations in order to function effectively

while managing the monetary and financial conditions of the economy.

In the area of banking soundness, central banks in emerging markets have become major

initiators of activity. Financial supervision, whether on-site or off-site, has assumed prominence

in the face of market imperfections and ensuring depositor protection. It is widely recognised

that the Asian crisis was , to a large extent, the outcome of lax supervisory standards pursued in

these crisis-ridden economies. The soundness of banks and other non-bank entities depends not

only on the operation of these entities, but also the efficacy of the supervisory process. In this

context, the Core Principles , enunciated by the BIS in 1997, have quickly become a benchmark

and we in the RBI are, by now, compliant with most of these Principles. In view of the growing

risks that banking entails and the scarcity of supervisory resources, many central banks are

increasingly moving towards a risk-based approach to supervision in order to ensure optimum

utilisation of supervisory resources. Following recent advancements, central banks have

developed macro-prudential indicators in order to monitor the health of financial entities within

the overall economic environment in which they operate.

High quality regulation and supervision, which contribute directly to improvements in operating

efficiency, are beneficial for emerging countries since efficiency in the allocation of resources to

most productive sectors cannot be achieved and sustained without achieving operating

efficiency. Regulation and supervision of institutions is, however, not a simple task especially in

the Indian context as it involves a large network of banks and other financial institutions and

their large number of branches spread over the entire country. Banks and their branches too

involve a wide network of inter-action with different market segments owing to diversified


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portfolios in a deregulated environment. In this context, central bankers have to be highly skilled,

vibrant and most dynamic in order to be effective in regulation and supervision.

In several countries, central banks assume a pivotal place in the payments and settlements

system. As financial transactions become increasingly complex, there arises the need to harness

financial markets to fully exploit the advances in information technology and communications

networking. Some important research studies show that a relatively large involvement of the

central bank in the financial system contributes to financial development. For emerging

countries, the central bank involvement in the payment system enhances financial development.

There is a considered view that an efficient payment and settlement system contributes to

operating and allocation efficiencies of the financial system and thus, overall economic growth.

Payments and settlement systems in emerging countries involve several features, which are

distinct from that of developed countries.

One of the guiding principles followed by RBI in the reforms in the payment and settlement

systems has been the need to provide for a safe, secure and efficient systems. RBI has identified

the Systemically Important Financial Intermediaries (SIFI), which have the propensity for

systemic risks. The introduction of screen based trading in Government securities following the

delivery versus payment model in the form of Negotiated Dealing System (NDS) was a

milestone in this regard. The commencement of foreign exchange clearing by the Clearing

Corporation of India Ltd. aimed at net settlement of the foreign exchange transactions is a major

step forward, which has brought about more efficiency and safety. The RBI has also embarked

upon the introduction of a Real Time Gross Settlement (RTGS) System for settlement of inter-

bank and customer related funds transfers on a real time mode. Going beyond technological

upgradation, the issue also remains of formulating an appropriate legal framework, in which

transactions could take place in a safe, sound and secured manner. The growth of e-transactions

and ‘digital signatures’ is a case in point.

As you would be aware, the challenges to central bankers in the present day are manifold and I

venture to list out a few for this discerning audience. First, the challenge of financial sector

liberalisation. While competitive financial markets no doubt aid in efficient allocation of


232


resources, failure or even disruptions in one segment of the financial sector can have serious

‘contagion effects’ throughout the rest of the economy. Thus , central bankers need to be vigilant

and alert to domestic and external developments.

There also remains the challenge of ensuring soundness of financial institutions. The supervision

of the financial system is getting increasingly complicated with the growth of ‘one-stop-banking’

and conglomerates as well as off-shore financial activities operating in multiple segments of the

financial markets, leading to blurring of distinction among the various segments themselves.

Repeated financial crises across the world have provided graphic evidence of the fact that

financial disruptions can engender serious output costs. In this context, the need for effective

supervision can hardly be underscored.

In conclusion, central banking is passing through challenging yet exciting times. While

developments within the country charter its transformation, the experience of other countries

provides invaluable lessons in the approach to promote growth, whilst maintaining price

stability.

All in all, the life of a central banker is one of anonymity, staid and boring. It is only in moments

when the going is tough that central bankers emerge from isolation and lean against the wind to

battle splenetic insurmountable odds. Central bankers choose their profession because they are

driven by a commitment to public service, which they hold dearer to themselves irrespective of

financial remuneration. The conduct of central banking inherently involves the ultimate good of

the society. An inappropriate choice of instruments or targets can lead to large losses of

macroeconomic well-being. Ultimately, all citizens are stake holders in the central bank. Former

Governor, Dr. Bimal Jalan rightly referred to central banks as the public’s own institutions.

Every central banker is conscious of operating at the apex of the financial system and at the

centre of the macro-economic management, continuously balancing risks against every policy

action. In this sense, a central banker has to possess certain unique qualities –integrity and

professionalism of the highest order, finely honed analytical skills, the capability to take

decisions under difficult

circumstances, a thorough knowledge of the manner in which the economy functions,

adaptability and a dynamism with which to respond to a life of continuous change and challenge.


233


What is more they have to avoid partisanship and command public support. Together, these

attributes distinguish a central banker as a leader and manager of people, situations and money,

always dedicated to service to the nation. No wonder that central bankers are called priests at the

temple of money.

Role of SEBI

The SEBI is the regulatory authority established under Section 3 of SEBI Act 1992 to protect the

interests of the investors in securities and to promote the development of, and to regulate, the

securities market and for matters connected therewith and incidental thereto.

The following departments of SEBI take care of the activities in the secondary market.

Sr.No. Name of the Department Major Activities

1. Market Intermediaries

Registration and Supervision

department (MIRSD)

Registration, supervision, compliance monitoring

and inspections of all market intermediaries in

respect of all segments of the markets viz. equity,

equity derivatives, debt and debt related derivatives.

2. Market Regulation

Department (MRD)

Formulating new policies and supervising the

functioning and operations (except relating to

derivatives) of securities exchanges, their

subsidiaries, and market institutions such as

Clearing and settlement organizations and

Depositories (Collectively referred to as ‘Market

SROs’.)

3. Derivatives and New Products

Departments (DNPD)

Supervising trading at derivatives segments of stock

exchanges, introducing new products to be traded,

and consequent policy changes


234


The issue of debt securities having maturity period of more than 365 days by listed companies

(i.e. which have any of their securities, either equity or debt, offered through an offer document,

and listed on a recognized stock exchange and also includes Public Sector Undertakings whose

securities are listed on a recognized stock exchange) on private placement basis must comply

with the conditions prescribed by SEBI from time to time for getting them listed on the stock

exchanges. Further, unlisted companies/statutory corporations/other entities, if they so desire,

may get their privately placed debt securities listed on the stock exchanges, by complying with

the relevant conditions. Briefly, these conditions are:

Compliance with disclosure requirements under Chapter VI of the SEBI (Disclosure and

Investor Protection) Guidelines, 2000, Listing Agreement with the exchanges and

provisions of the Companies Act.

Such disclosures may be made through the web site of the stock exchanges where the

debt securities are sought to be listed if the privately placed debt securities are issued in the

standard denomination of Rs. 10 lakhs.

The company shall sign a separate listing agreement with the exchange in respect of debt

securities.

The debt securities shall carry a credit rating from a Credit Rating Agency registered with

SEBI.

The company shall appoint a debenture trustee registered with SEBI in respect of the

issue of the debt securities.

The debt securities shall be issued and traded in demat form.

All trades with the exception of spot transactions, in a listed debt security, shall be

executed only on the trading platform of a stock exchange.

Guidelines on Advertisements

An issue advertisement shall be truthful, fair and clear and shall not contain any statement which

is untrue or misleading.


235


Any advertisement reproducing or purporting to reproduce any information contained in a offer

document shall reproduce such information in full and disclose all relevant facts and not be

restricted to select extracts relating to that item.

An issue advertisement shall be considered to be misleading, if it contains -

a) Statements made about the performance or activities of the company in the absence of

necessary explanatory or qualifying statements, which may give an exaggerated picture of the

performance or activities, than what it really is.

b) An inaccurate portrayal of past performance or its portrayal in a manner which implies that

past gains or income will be repeated in the future.

a) An advertisement shall be set forth in a clear, concise and understandable language.

b) Extensive use of technical, legal terminology or complex language and

the inclusion of excessive details which may distract the investor, shall be avoided.

An issue advertisement shall not contain statements which promise or guarantee rapid increase in

profits.

An issue advertisement shall not contain any information that is not contained in the offer

document.

No models, celebrities, fictional characters, landmarks or caricatures or the likes shall be

displayed on or form part of the offer documents or issue advertisements.

Issue advertisements shall not appear in the form of crawlers (theadvertisements which run

simultaneously with the programme in a narrow strip at the bottom of the television screen) on

television.

A In case of issue advertisement on television screen:

(a) the risk factors shall not be scrolled on the screen; and

(b) the advertisement shall advise the viewers to refer to the red herring prospectus or other offer

document for details.)

No advertisement shall include any issue slogans or brand names for the issue except the

normal commercial name of the company or commercial brand names of its products

already in use.

No slogans, expletives or non-factual and unsubstantiated titles shall appear in the issue

advertisements or offer documents.


236


If any advertisement carries any financial data, it shall also contain data for the past three years

and shall include particulars relating to sales, gross profit, net profit, share capital, reserves,

earnings per share, dividends and the book values.

(a) All issue advertisements in newspapers, Magazines, brochures, pamphlets containing

highlights relating to any issue shall also contain risk factors given equal importance in all

respects including the print size.

(b) The print size of highlights and risk factors in issue advertisements shall not be less than

point 162(7) size.

(c) 163(Subject to section 66 of the Companies Act, 1956, any advertisement made by an issuer

namely Pre – Issue advertisement, advertisement for opening or closure of the issue, shall be in

the format and contain the minimum disclosures as given in the relevant part of

Schedule XX – A.

Unit –X

Study of stock indexes Market capitalization of different indexes


237


Performance of Stock indexes( for past 2 years)

Market capitalization of Indexes

Indices Highlights

This data was last updated on Thursday, April 12, 2007

INDICES

52 Week Market Capitalisation Turnover

Close High Low (Rs. crores)% to TotalMkt Cap

(Rs. crores)% to TotalTurnover

SENSEX 13,113.81 14,723.88 8,799.01 835,069.03 23.24 683.42 20.55

MIDCAP 5,512.40 6,229.40 3,692.15 225,763.46 6.28 574.31 17.27

SMLCAP 6,682.53 7,872.80 4,480.45 79,820.38 2.22 334.86 10.07

BSE-100 6,626.04 7,444.28 4,471.51 1,155,984.85 32.16 1,328.06 39.94

BSE-200 1,568.21 1,760.70 1,058.66 1,304,116.97 36.29 1,808.42 54.38

BSE-500 5,002.81 5,616.67 3,360.85 1,472,225.11 40.96 2,350.77 70.69

BSE Sectoral Indices

AUTO 4,680.55 5,881.83 3,959.66 88,074.81 2.45 66.47 2.00

BANKEX 6,470.32 7,653.84 3,934.12 171,442.19 4.77 75.62 2.27

CD 3,738.53 4,060.24 2,339.78 7,471.49 0.21 29.11 0.88

CG 9,271.18 10,148.94 5,674.21 108,299.60 3.01 102.14 3.07

FMCG 1,788.37 2,383.36 1,109.03 87,646.05 2.44 36.73 1.10

HC 3,659.18 4,154.08 2,804.37 69,470.28 1.93 98.28 2.96

IT 4,879.59 5,611.33 3,017.25 186,458.69 5.19 223.51 6.72

METAL 9,122.01 11,402.40 6,425.56 66,371.10 1.85 286.18 8.61

OIL&GAS 6,472.99 6,803.00 4,243.21 167,592.18 4.66 97.52 2.93


238

http://www.bseindia.com/mktlive/indiceswatch.asp?iname=OILGAS&sensid=14&type=sect&graphpath=/applet/images/graf_appOILGAS.gif

http://www.bseindia.com/mktlive/indiceswatch.asp?iname=METAL&sensid=12&type=sect&graphpath=/applet/images/graf_appMETAL.gif

http://www.bseindia.com/mktlive/indiceswatch.asp?iname=BSEIT&sensid=10&type=sect&graphpath=/applet/images/graf_appBSE_IT.gif

http://www.bseindia.com/mktlive/indiceswatch.asp?iname=BSEHC&sensid=08&type=sect&graphpath=/applet/images/graf_appBSE_HC.gif

http://www.bseindia.com/mktlive/indiceswatch.asp?iname=BSEFMCG&sensid=06&type=sect&graphpath=/applet/images/graf_appBSEFMC.gif

http://www.bseindia.com/mktlive/indiceswatch.asp?iname=BSECG&sensid=02&type=sect&graphpath=/applet/images/graf_appBSE_CG.gif

http://www.bseindia.com/mktlive/indiceswatch.asp?iname=BSECD&sensid=04&type=sect&graphpath=/applet/images/graf_appBSE_CD.gif

http://www.bseindia.com/mktlive/indiceswatch.asp?iname=BANKEX&sensid=03&type=comp&graphpath=/applet/images/graf_appBANKEX.gif

http://www.bseindia.com/mktlive/indiceswatch.asp?iname=AUTO&sensid=19&type=sect&graphpath=/applet/images/graf_appAUTO.gif

http://www.bseindia.com/mktlive/indiceswatch.asp?iname=BSE500&sensid=500&type=sens&graphpath=/applet/images/graf_appBSE500.gif



http://www.bseindia.com/mktlive/indiceswatch.asp?iname=SMLCAP&sensid=22&type=cap&graphpath=/applet/images/graf_appSMLCAP.gif

http://www.bseindia.com/mktlive/indiceswatch.asp?iname=MIDCAP&sensid=21&type=cap&graphpath=/applet/images/graf_appMIDCAP.gif

http://www.bseindia.com/mktlive/indiceswatch.asp


PSU 6,023.39 6,609.76 4,323.37 734,902.59 5.19 191.81 5.77

TECk 3,525.65 3,972.35 2,033.16 294,109.30 8.18 342.80 10.31

BSE Dollex Indices

DOLLEX-30 2,510.82 2,740.80 1,570.26 -- -- -- --

DOLLEX-100 1,598.56 1,746.08 1,005.49 -- -- -- --

DOLLEX-200 608.88 664.63 383.12 -- -- -- --

Note : The market capitalisation of all the indices is free float market capitalisation except for BSEPSU

BANK NIFTY - Industry wise Market CapitalizationAs on 29-Dec-2006 (Rs. crores)

Security Market Capitalization Weightage (%)

BANK OF BARODA 8742 3.37

BANK OF INDIA 10109 3.9

CANARA BANK 11324 4.37

CORPORATION BANK 4977 1.92

HDFC BANK LTD 33656 12.99

ICICI BANK LTD. 79702 30.77

ORIENTAL BANK OF COMMERCE 5712 2.21

PUNJAB NATIONAL BANK 15986 6.17

STATE BANK OF INDIA 65556 25.31

SYNDICATE BANK 3902 1.51

UNION BANK OF INDIA 6198 2.39

UTI BANK LTD 13192 5.09

Total 259056 100

CNX IT - Industrywise Market CapitalisationAs on 29-Dec-2006 (Rs. crores)

Security Market Capitalisation Weightage (%)

CMC LTD 1027 0.23

FINANCIAL TECHNO (I) LTD 7818 1.78


239

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http://www.bseindia.com/mktlive/indiceswatch.asp?iname=TECK&sensid=02&type=comp&graphpath=/applet/images/graf_appTECK.gif

http://www.bseindia.com/mktlive/indiceswatch.asp?iname=BSEPSU&sensid=01&type=comp&graphpath=/applet/images/graf_appBSEPSU.gif


GTL LTD 1398 0.32

HCL INFOSYSTEMS LTD 2702 0.62

HCL TECHNOLOGIES LTD 20821 4.74

HEXAWARE TECHNOLOGIES LTD 2630 0.6

HINDUJA TMT LTD 3011 0.69

I-FLEX SOLUTIONS LIMITED 15869 3.61

IGATE GLOBAL SOLUTIONS LT 1084 0.25

INFOSYS TECHNOLOGIES LTD 124596 28.37

MASTEK LTD 1048 0.24

MOSER-BAER (I) LTD 3447 0.78

MPHASIS LIMITED 4932 1.12

PATNI COMPUTER SYST LTD 5772 1.31

POLARIS SOFTWARE LAB LTD 1700 0.39

ROLTA INDIA LTD 2034 0.46

SATYAM COMPUTER SERVICES 31753 7.23

TATA ELXSI (I) LTD 817 0.19

TATA CONSULTANCY SERV LT 119586 27.23

WIPRO LTD 87141 19.84

Total 439187 100


240


Performance of Stock Indexes.

Indices Watch


Index Open High Low Current Value Previous Close Change(Pts) Change(%)

SENSEX 13,127.86 13,160.15 13,030.87 13,113.81 13,183.24 -69.43 -0.53

MIDCAP 5,507.03 5,544.45 5,488.59 5,512.40 5,517.06 -4.66 -0.08

SMLCAP 6,711.74 6,738.00 6,673.99 6,682.53 6,711.51 -28.98 -0.43

BSE-100 6,644.24 6,658.76 6,589.20 6,626.04 6,669.06 -43.02 -0.65

BSE-200 1,572.27 1,576.06 1,559.95 1,568.21 1,577.57 -9.36 -0.59

BSE-500 5,010.66 5,027.82 4,976.19 5,002.81 5,028.95 -26.14 -0.52

BSE Sectoral Indices

AUTO 4,691.34 4,713.33 4,655.93 4,680.55 4,700.34 -19.79 -0.42

BANKEX 6,511.16 6,525.59 6,430.35 6,470.32 6,552.92 -82.60 -1.26

CD 3,737.25 3,768.57 3,712.09 3,738.53 3,742.69 -4.16 -0.11

CG 9,312.12 9,312.17 9,216.92 9,271.18 9,342.38 -71.20 -0.76

FMCG 1,813.76 1,813.76 1,782.97 1,788.37 1,811.58 -23.21 -1.28

HC 3,663.03 3,695.64 3,648.77 3,659.18 3,677.38 -18.20 -0.49

IT 4,769.80 4,894.50 4,750.92 4,879.59 4,808.08 71.51 1.49

METAL 9,306.74 9,417.96 9,093.61 9,122.01 9,330.87 -208.86 -2.24

OIL&GAS 6,498.23 6,511.03 6,444.51 6,472.99 6,540.71 -67.72 -1.04

PSU 6,088.42 6,088.42 6,007.26 6,023.39 6,103.26 -79.87 -1.31

TECk 3,484.49 3,536.46 3,462.27 3,525.65 3,503.64 22.01 0.63

BSE Dollex Indices

DOLLEX-30 2,517.04 2,520.28 2,498.44 2,510.82 2,527.65 -16.83 -0.67

DOLLEX-100 1,605.19 1,606.92 1,591.90 1,598.56 1,611.19 -12.63 -0.78

DOLLEX-200 611.32 612.13 606.52 608.88 613.38 -4.50 -0.73


241

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http://www.bseindia.com/mktlive/indiceswatch.asp?iname=TECK&sensid=02&type=comp&graphpath=/applet/images/graf_appTECK.gif

http://www.bseindia.com/mktlive/indiceswatch.asp?iname=BSEPSU&sensid=01&type=comp&graphpath=/applet/images/graf_appBSEPSU.gif

http://www.bseindia.com/mktlive/indiceswatch.asp?iname=OILGAS&sensid=14&type=sect&graphpath=/applet/images/graf_appOILGAS.gif

http://www.bseindia.com/mktlive/indiceswatch.asp?iname=METAL&sensid=12&type=sect&graphpath=/applet/images/graf_appMETAL.gif

http://www.bseindia.com/mktlive/indiceswatch.asp?iname=BSEIT&sensid=10&type=sect&graphpath=/applet/images/graf_appBSE_IT.gif

http://www.bseindia.com/mktlive/indiceswatch.asp?iname=BSEHC&sensid=08&type=sect&graphpath=/applet/images/graf_appBSE_HC.gif

http://www.bseindia.com/mktlive/indiceswatch.asp?iname=BSEFMCG&sensid=06&type=sect&graphpath=/applet/images/graf_appBSEFMC.gif

http://www.bseindia.com/mktlive/indiceswatch.asp?iname=BSECG&sensid=02&type=sect&graphpath=/applet/images/graf_appBSE_CG.gif

http://www.bseindia.com/mktlive/indiceswatch.asp?iname=BSECD&sensid=04&type=sect&graphpath=/applet/images/graf_appBSE_CD.gif

http://www.bseindia.com/mktlive/indiceswatch.asp?iname=BANKEX&sensid=03&type=comp&graphpath=/applet/images/graf_appBANKEX.gif

http://www.bseindia.com/mktlive/indiceswatch.asp?iname=AUTO&sensid=19&type=sect&graphpath=/applet/images/graf_appAUTO.gif




http://www.bseindia.com/mktlive/indiceswatch.asp?iname=SMLCAP&sensid=22&type=cap&graphpath=/applet/images/graf_appSMLCAP.gif

http://www.bseindia.com/mktlive/indiceswatch.asp?iname=MIDCAP&sensid=21&type=cap&graphpath=/applet/images/graf_appMIDCAP.gif

http://www.bseindia.com/mktlive/indiceswatch.asp?iname=BSE30&sensid=30&type=sens&graphpath=/applet/images/graf_appSENSEX.gif


OTHER NSE INDEXESINDEX_FLG, SECURITY. ISSUE CAP, CLOSE PRIC, MKT_CAPITALIZATION.

NIFTY ABB LTD. 42381675 3652.9 1.54816E+11

NIFTY ACC LIMITED 187369776 726.35 1.36096E+11

NIFTY BAJAJ AUTO LTD 101183510 2348.1 2.37589E+11

NIFTY BHARTI AIRTEL LIMITED 1895868407 769 1.45792E+12

NIFTY BHEL 244760000 2468.8 6.04263E+11

NIFTY BHARAT PETROLEUM CORP LT 361542124 313.55 1.13362E+11

NIFTY CIPLA LTD 777291357 232.4 1.80643E+11

NIFTY DABUR INDIA LTD 862883808 93.85 80981645381

NIFTY DR. REDDY'S LABORATORIES 167912180 705.5 1.18462E+11

NIFTY GAIL (INDIA) LTD 845651600 284.55 2.4063E+11

NIFTY GLAXOSMITHKLINE PHARMA LT 84703017 1145.15 96997659918

NIFTY GRASIM INDUSTRIES LTD 91673654 2254.95 2.0672E+11

NIFTY GUJARAT AMBUJA CEMENT LTD 1516828590 107.15 1.62528E+11

NIFTY HCL TECHNOLOGIES LTD 650907836 287.6 1.87201E+11

NIFTY HDFC LTD 253006677 1539.25 3.89441E+11

NIFTY HDFC BANK LTD 319389608 958.35 3.06087E+11

NIFTY HERO HONDA MOTORS LTD 199687500 629.3 1.25663E+11

NIFTY HINDALCO INDUSTRIES LTD 1159684962 140.15 1.6253E+11

NIFTY HINDUSTAN LEVER LTD 2206831977 207.85 4.5869E+11

NIFTY HINDUSTAN PETROLEUM CORP 339330000 247.55 84001141500

NIFTY ICICI BANK LTD. 899321705 849.25 7.63749E+11

NIFTY INFOSYS TECHNOLOGIES LTD 571209862 2045.85 1.16861E+12

NIFTY INDIAN PETROCHEMICALS COR 300702798 274.45 82527882911

NIFTY ITC LTD 3762222780 156.25 5.87847E+11

NIFTY LARSEN & TOUBRO LTD. 281871909 1566.6 4.41581E+11

NIFTY MAHINDRA & MAHINDRA LTD 245371265 718.8 1.76373E+11

NIFTY MARUTI UDYOG LIMITED 288910060 758.95 2.19268E+11

NIFTY MAHANAGAR TELEPHONE NIGAM 630000000 151.8 95634000000


242


NIFTY NATIONAL ALUMINIUM CO LTD 644309628 241.3 1.55472E+11

NIFTY OIL AND NATURAL GAS CORP. 2138872530 850.85 1.81986E+12

NIFTY PUNJAB NATIONAL BANK 315302500 441.6 1.39238E+11

NIFTY RANBAXY LABS LTD 372778821 336.95 1.25608E+11

NIFTY RELIANCE COMMUNICATIONS L 2044614990 409.95 8.3819E+11

NIFTY RELIANCE ENERGY LTD 228530308 504 1.15179E+11

NIFTY RELIANCE INDUSTRIES LTD 1393508041 1387.5 1.93349E+12

NIFTY RELIANCE PETROLEUM LTD. 4500000000 73.65 3.31425E+11

NIFTY STEEL AUTHORITY OF INDIA 4130400545 120.65 4.98333E+11

NIFTY SATYAM COMPUTER SERVICES 662109109 446.1 2.95367E+11

NIFTY STATE BANK OF INDIA 526298878 968 5.09457E+11

NIFTY SIEMENS LTD 168580100 1120.85 1.88953E+11

NIFTY STERLITE INDS (IND) LTD 558485850 498.4 2.78349E+11

NIFTY SUN PHARMACEUTICALS IND. 193402120 1091.65 2.11127E+11

NIFTY SUZLON ENERGY LIMITED 287764780 1050.2 3.02211E+11

NIFTY TATA MOTORS LIMITED 385373885 712.4 2.7454E+11

NIFTY TATA POWER CO LTD 197897864 523.45 1.0359E+11

NIFTY TATA STEEL LIMITED 580472856 496.05 2.87944E+11

NIFTY TATA CONSULTANCY SERV LT 978610498 1200.95 1.17526E+12

NIFTY VIDESH SANCHAR NIGAM LTD 285000000 415.5 1.18418E+11

NIFTY WIPRO LTD 1444182333 540.45 7.80508E+11

NIFTY ZEE ENTERTAINMENT ENT LTD 433566765 253.65 1.09974E+11

CNX Nifty Junior Sec.

JR. NIFTY ANDHRA BANK 485000000 74.5 36132500000

JR. NIFTY APOLLO TYRES LTD 46402477 275.85 12800123280

JR. NIFTY ASHOK LEYLAND LTD 1323870317 37.15 49181782277

JR. NIFTY ASIAN PAINTS LIMITED 95919779 803.8 77100318360

JR. NIFTY AUROBINDO PHARMA LTD 53348637 685.05 36546483777

JR. NIFTY AVENTIS PHARMA LIMITED 23030622 1224.85 28209057357

JR. NIFTY BANK OF BARODA 364265600 219.65 80010939040

JR. NIFTY BANK OF INDIA 487400200 172.8 84222754560

JR. NIFTY BHARAT ELECTRONICS LTD 80000000 1644 1.3152E+11


243


JR. NIFTY BHARAT FORGE CO LTD 222652271 313.6 69823752186

JR. NIFTY BIOCON LIMITED. 100000000 489.7 48970000000

JR. NIFTY BONGAIGAON REFINERY LTD 199817900 41.5 8292442850

JR. NIFTY CADILA HEALTHCARE LIMITED 125613708 343.3 43123185956

JR. NIFTY CANARA BANK 410000000 190.6 78146000000

JR. NIFTY CHENNAI PETROLEUM CORP LT 148943200 193.6 28835403520

JR. NIFTY CONTAINER CORP OF IND LTD 64991397 1967.9 1.27897E+11

JR. NIFTY CORPORATION BANK 143440000 270.5 38800520000

JR. NIFTY CUMMINS INDIA LTD 198000000 271.2 53697600000

JR. NIFTY I-FLEX SOLUTIONS LIMITED 83174035 2198.35 1.82846E+11

JR. NIFTY IBP CO LTD 22147369 400.55 8871128653

JR. NIFTY INDUS DEV BANK OF IND LTD 724155349 78.7 56991025966

JR. NIFTY INFRA. DEV. FIN. CO. LTD 1125551486 91.9 1.03438E+11

JR. NIFTY IFCI LTD 638675762 38.05 24301612744

JR. NIFTY INDIAN HOTELS CO LTD 586630920 146.65 86029424418

JR. NIFTY INGERSOLL-RAND INDIA LTD 31568000 264.85 8360784800

JR. NIFTY ING VYSYA BANK LTD 90883011 170.1 15459200171

JR. NIFTY INDIAN OVERSEAS BANK 544800000 97.1 52900080000

JR. NIFTY JAIPRAKASH ASSOCIATES LTD 219239654 556.7 1.22051E+11

JR. NIFTY KOTAK MAHINDRA BANK LTD 326155708 479.45 1.56375E+11

JR. NIFTY LIC HOUSING FINANCE LTD 84932600 140.5 11933030300

JR. NIFTY LUPIN LIMITED 80344564 626.9 50368007172

JR. NIFTY MOSER-BAER (I) LTD 111601184 323.45 36097402965

JR. NIFTY MPHASIS LIMITED 163307668 281.2 45922116242

JR. NIFTY NICOLAS PIRAMAL INDIA LTD 209017606 252.3 52735141994

JR. NIFTY NIRMA LTD 158769368 157.05 24934729244

JR. NIFTY PATNI COMPUTER SYST LTD 138403319 401.25 55534331749

JR. NIFTY PFIZER LTD 29841440 823.8 24583378272

JR. NIFTY POLARIS SOFTWARE LAB LTD 98416397 179.65 17680505721

JR. NIFTY PUNJAB TRACTORS LTD 60755700 306.8 18639848760

JR. NIFTY RAYMOND LTD 61380853 331.15 20326269471

JR. NIFTY RELIANCE CAPITAL LTD 245632800 665.45 1.63456E+11

JR. NIFTY SYNDICATE BANK 521968282 63.65 33223281149

JR. NIFTY TECH MAHINDRA LIMITED 117331823 1407.95 1.65197E+11


244


JR. NIFTY TATA TELESERV(MAHARASTRA) 1809496726 21.9 39627978299

JR. NIFTY TVS MOTOR COMPANY LTD 237543557 56.65 13456842504

JR. NIFTY ULTRATECH CEMENT LIMITED 124485879 720.55 89698300113

JR. NIFTY UNION BANK OF INDIA 505117900 102.25 51648305275

JR. NIFTY UTI BANK LTD 281630787 463.25 1.30465E+11

JR. NIFTY VIJAYA BANK 433517800 40.4 17514119120

JR. NIFTY WOCKHARDT LIMITED 109435903 412.65 45158725373

BANK Nifty

BANK Nifty BANK OF BARODA 364265600 219.65 80010939040

BANK Nifty BANK OF INDIA 487400200 172.8 84222754560

BANK Nifty CANARA BANK 410000000 190.6 78146000000

BANK Nifty CORPORATION BANK 143440000 270.5 38800520000

BANK Nifty HDFC BANK LTD 319389608 958.35 3.06087E+11

BANK Nifty ICICI BANK LTD. 899321705 849.25 7.63749E+11

BANK Nifty KOTAK MAHINDRA BANK LTD 326155708 479.45 1.56375E+11

BANK Nifty ORIENTAL BANK OF COMMERCE 250539700 183.45 45961507965

BANK Nifty PUNJAB NATIONAL BANK 315302500 441.6 1.39238E+11

BANK Nifty STATE BANK OF INDIA 526298878 968 5.09457E+11

BANK Nifty UNION BANK OF INDIA 505117900 102.25 51648305275

BANK Nifty UTI BANK LTD 281630787 463.25 1.30465E+11

CNX IT

CNX IT CMC LTD 15150000 1182.75 17918662500

CNX IT FINANCIAL TECHNO (I) LTD 44094696 1922.5 84772053060

CNX IT GTL LTD 97316886 139.95 13619498196

CNX IT HCL INFOSYSTEMS LTD 169046330 128.65 21747810355

CNX IT HCL TECHNOLOGIES LTD 650907836 287.6 1.87201E+11

CNX IT HEXAWARE TECHNOLOGIES LTD 132055200 169.1 22330534320

CNX IT I-FLEX SOLUTIONS LIMITED 83174035 2198.35 1.82846E+11

CNX IT INFOSYS TECHNOLOGIES LTD 571209862 2045.85 1.16861E+12

CNX IT MASTEK LTD 28338178 310.7 8804671905


245


CNX IT MOSER-BAER (I) LTD 111601184 323.45 36097402965

CNX IT MPHASIS LIMITED 163307668 281.2 45922116242

CNX IT PATNI COMPUTER SYST LTD 138403319 401.25 55534331749

CNX IT POLARIS SOFTWARE LAB LTD 98416397 179.65 17680505721

CNX IT ROLTA INDIA LTD 80118508 351.95 28197708891

CNX IT SATYAM COMPUTER SERVICES 662109109 446.1 2.95367E+11

CNX IT SUBEX AZURE LIMITED 34742140 556 19316629840

CNX IT TATA ELXSI (I) LTD 31138220 296.75 9240266785

CNX IT TATA CONSULTANCY SERV LT 978610498 1200.95 1.17526E+12

CNX IT TECH MAHINDRA LIMITED 117331823 1407.95 1.65197E+11

CNX IT WIPRO LTD 1444182333 540.45 7.80508E+11

Changes to S&P CNX Nifty

Date of Inclusion Securities Included Securities Excluded

4-Apr-07 RPL JETAIRWAYS

4-Apr-07 STER ORIENTBANK

1-Sep-06 RCOM TATATEA

27-Jun-06 SUZLON SCI

27-Jun-06 SIEMENS TATACHEM

26-Sep-05 JETAIRWAYS COLGATE

25-Feb-05 TCS INDHOTEL

10-Dec-04 LT BRITANNIA

24-May-04 PNB L&T

12-Apr-04 ONGC DIGITALEQP

1-Mar-04 BHARTI GSKCONS

1-Mar-04 MARUTI NIIT

4-Aug-03 SAIL NESTLE

2-May-03 GAIL NOVARTIND

2-May-03 NATIONALUM CASTROL

28-Oct-02 BPCL P&G

28-Oct-02 HCLTECH ASIANPAINT


246


10-Oct-02 SCI RELPETRO

31-May-02 VSNL ICICI

25-Jan-02 ICICIBANK RECKCOLMAN

17-Jan-02 SUNPHARMA HCL-INSYS

17-Jan-02 WIPRO COCHINREFN

1-Sep-00 DIGITALEQP BANKINDIA

24-May-00 HCL-INSYS EIHOTEL

24-May-00 ZEETELE IDBI

10-May-00 DABUR TVSSUZUKI

8-Sep-99 BRITANNIA IFCI

8-Sep-99 SATYAMCOMP INDRAYON

26-May-99 DRREDDY ARVINDMILL

26-May-99 NOVARTIS GESHIPPING

26-May-99 RECKCOLMAN RELCAPITAL

7-Oct-98 BANKINDIA THERMAX

7-Oct-98 CIPLA ANDRAVALLY

7-Oct-98 HEROHONDA ASHOKLEY

7-Oct-98 INFOSYSTCH BPCL

7-Oct-98 NIIT INDOGULF

7-Oct-98 P&G MRPL

7-Oct-98 SMITKLBECH PONDS

24-Dec-97 BPCL ESSARGUJ

14-May-97 BHEL SCICI

14-May-97 HINDPETRO DRREDDY

7-May-97 MTNL BROOKBOND

18-Sep-96 ABB CHAMBLFERT

18-Sep-96 ASIANPAINT HEROHONDA

18-Sep-96 EIHOTEL APOLLOTYRE

18-Sep-96 GLAXO INDAL

18-Sep-96 M&M MADRASREFN

18-Sep-96 NESTLE NAGARFERT


247


Performance of various indices as of end March 2007 (in %)

1 month 3 month 6 month 1 year

S&P CNX Nifty 2.04 -3.65 6.5 12.31

S&P CNX 500 1.21 -4.54 5.26 8.07

S&P CNX Defty 3.71 -2.03 12.45 15.08

CNX Nifty junior 2.32 -3.21 5.65 7.27

CNX Midcap -0.56 -6.73 3.38 1.31

CNX IT Index 0.99 -4.63 14.1 19.01

S&P CNX Banks 1.56 -9.43 1.91 15.2

Unit –XI

Analysis &findings Data analysis & interpretation Findings


248


Data Analysis and Interpertation




Scrip Code

Scrip NameScrip

GroupOpen Rate

High Rate

Low Rate

Last Traded



505533 DHANPRAYOG B2 34.55 34.55 34.55 34.55 5.75 19.97

530193 INTERN DIAMO B2 3.57 5.25 3.57 5.25 0.85 19.32

530235 KJMC FINA SE B2 13.50 15.85 13.50 15.80 2.55 19.25

530765 DEVKI LEASIN B2 4.00 4.40 4.00 4.38 0.68 18.38

511401 MUNOTH INVES B2 3.00 3.00 3.00 3.00 0.42 16.28

531672 INANI SECURI B2 15.00 15.00 15.00 15.00 2.00 15.38

531823 ARVIN REMEDI B1 1.59 1.87 1.58 1.79 0.23 14.74

532711 SUNIL HITECH B1 84.55 101.40 84.50 98.35 12.30 14.29

532723 MONET SUGAR B2 46.70 54.80 46.20 52.90 6.20 13.28

531175 BRELS INFOTE B2 0.50 0.56 0.48 0.53 0.06 12.77


249















Scrip Code

Scrip NameScrip

GroupOpen Rate

High Rate

Low Rate

Last Traded



531102 SURANA CORPR B2 23.50 27.50 23.50 26.00 2.70 11.59

505744 FED MOG GOE B1 245.70 283.85 244.50 272.50 27.50 11.22

530095BHAGWAND MET

B2 6.78 7.20 6.10 6.80 0.68 11.11

524748 LINK PHARMA B2 7.56 8.58 7.56 8.58 0.78 10.00

526773 PRESSURE SEW B2 5.72 5.72 5.72 5.72 0.52 10.00

531644 TOKYO FINANC B2 3.20 3.52 3.00 3.52 0.32 10.00

590053 KAR MOBILES S 192.00 198.10 190.00 198.10 18.00 9.99

532762 ACTION CONST B1 200.00 221.80 195.05 221.80 20.15 9.99

512022 WINRO COMMR. B2 107.40 107.40 107.40 107.40 9.75 9.98

500343 PUDUMJE PUL& B1 85.00 96.00 85.00 96.00 8.70 9.97


250
















Scrip Code

Scrip NameScrip

GroupOpen Rate

High Rate

Low Rate

Last Traded



530419 SUMEDH FISCA B2 10.39 10.39 7.35 7.35 -1.52 -17.14

500143 P.H.CAPITAL B2 4.99 5.00 4.12 4.14 -0.75 -15.34

511642 WISEC GLOBAL B2 13.50 13.94 11.52 11.52 -1.88 -14.03

523564 MORGAN IND B2 7.60 7.60 5.66 5.66 -0.86 -13.19

511451 DHARANI FINA B2 3.53 3.70 3.53 3.70 -0.53 -12.53

531127 ENRICH INDUT B2 1.80 1.80 1.70 1.70 -0.24 -12.37

532503 RAJAPAL MILL S 455.10 455.50 408.15 410.00 -57.75 -12.35

512437 APOLLO FINVE B2 10.35 10.35 9.10 9.10 -1.16 -11.31

502352 AURANG PAP M B2 5.74 5.90 5.23 5.23 -0.65 -11.05

512237 JAI CORP LIM B1 2,434.45 2,434.45 2,200.55 2,200.55 -244.45 -10.00


251















Scrip Code

Scrip NameScrip

GroupOpen Rate

High Rate

Low Rate

Last Traded



507852 ADDI INDUSTR S 0.00 7.96 7.96 7.96 -0.88 -9.95

513436 SHAH ALLOY L B1 99.95 104.00 88.70 88.70 -9.80 -9.95

531289 INTERF TEC P B2 3.17 3.17 3.17 3.17 -0.35 -9.94

508905 SMIFS CAP MA B2 39.65 39.65 35.80 35.80 -3.95 -9.94

531236 MEWAR POLYTE S 15.90 15.90 15.90 15.90 -1.75 -9.92

511742 CHOKHANI SEC B2 9.01 9.01 9.01 9.01 -0.99 -9.90

511728 KZLEASING B2 5.25 5.25 4.76 4.76 -0.52 -9.85

526251 MIDEAS POR M B2 3.47 3.47 2.85 2.85 -0.31 -9.81

523846 SKYPAK SER S B2 10.12 10.12 8.30 8.30 -0.90 -9.78

530519 INTERF FIN S B2 2.70 2.70 2.31 2.34 -0.25 -9.65


252












Changes to CNX Nifty Junior

Date Securities Included Securities Excluded

4-Apr-07 TECHM RPL

4-Apr-07 ULTRACEMCO STER

8-Nov-06 INDHOTEL GESHIPPING

22-Sep-06 RPL COCHINREFN

27-Jun-06 IDFC SIEMENS

2-Mar-06 RELCAPITAL CMC

3-Feb-06 CONCOR FSS

21-Feb-05 STER JINDVIJSTL

10-Dec-04 BIOCON CONCOR

10-Dec-04 JPASSOCIAT INDSHAVING

10-Dec-04 LUPIN MRPL

10-Dec-04 PATNI MICO

24-May-04 VIJAYABANK PNB

1-Mar-04 CANBK BHARTI

1-Mar-04 MICO ICI

1-Mar-04 BHARATFORG HIMACHLFUT

1-Mar-04 CADILAHC EMERCK

1-Mar-04 COCHINREFN GLOBALTELE

1-Mar-04 INDSHAVING ROLTA

1-Mar-04 IBP INDIACEM

1-Mar-04 JINDVIJSTL ESCORTS

1-Mar-04 MRPL THOMASCOOK

1-Mar-04 BONGAIREFN FINCABLES

1-Mar-04 IOB TITAN

1-Mar-04 SYNDIBANK MOREPENLAB


253


4-Aug-03 UNIONBANK PENTSFWARE

4-Aug-03 NIRMA GLOBLTRUST

4-Aug-03 BHARTI SAIL

2-May-03 BFLSOFTWAR INDSHAVING

2-May-03 HUGHESTELE (TATATELSER) GERMANREM

2-May-03 ANDHRABANK MADRASCEM

2-May-03 UTIBANK ORCHIDCHEM

7-Apr-03 TVSMOTOR SILVERLINE

1-Apr-03 I-FLEX BOOTSPHARM

1-Apr-03 ASIANPAINT CARRIERAIR

1-Apr-03 PNB HINDZINC

1-Apr-03 IDBI TATAUNISYS

19-Mar-03 SAIL INDOGULF

28-Oct-02 CMC PHILIPS

28-Oct-02 BEL CADBURY

28-Oct-02 WOCKPHARMA BATAINDIA

28-Oct-02 KIRLOSKCUM WARTSILA

28-Oct-02 BANKINDIA BOMDYEING

28-Oct-02 HOECHST UNITEDPHOS

28-Oct-02 HINDZINC SPIC

28-Oct-02 CONCOR BPCL

28-Oct-02 KOTAKMAH NAGARFERT

31-May-02 POLARIS VSNL

29-Jan-02 APTECH MOSERBAER

25-Jan-02 VSNL ICICIBANK

17-Jan-02 BPCL SUNPHARMA

17-Jan-02 GLOBALTELE BURRWELCOM

17-Jan-02 MORPENLABS ITCHOTELS

30-Oct-01 INDOGULF SMITHKLPHA

18-Jul-01 HUGHESSOFT LUPINLAB

4-Sep-00 FINCABLES ASIANHOTEL


254


4-Sep-00 INDIACEM DIGITALEQP

24-May-00 HIMACHLFUT HCL-INSYS

24-May-00 ROLTA ZEETELE

10-May-00 ASHOKLEY DABUR

12-Jan-00 HCL-INSYS WOCKHARDT

8-Sep-99 BOOTSPHARM BRITANNIA

8-Sep-99 GESHIPPING GSFC

8-Sep-99 IFCI NIRMA

8-Sep-99 PHILIPS SATYAMCOMP

8-Sep-99 SILVERLINE TATAHYDRO

26-May-99 APTECH DRREDDY

26-May-99 BURRWELCOM FEDERALBNK

26-May-99 EMERCK HOTELEELA

26-May-99 GERMANREM NOVARTIS

26-May-99 RAYMOND RECKCOLMAN

3-Feb-99 CORPBANK SUNDARMFIN

3-Feb-99 NOVARTIS SUNDRMFAST

7-Oct-98 BANKBARODA CIPLA

7-Oct-98 ICI GECALSTHOM

7-Oct-98 ICICIBANK HEROHONDA

7-Oct-98 NICOLASPIR HINPOWPLUS

7-Oct-98 PENTSFWARE INFOSYSTCH

7-Oct-98 TATAUNSYS KOTAKMAH

7-Oct-98 SATYAMCOMP LAKME

7-Oct-98 ZEETELE NIIT

7-Oct-98 GSFC NIPPONDENR

7-Oct-98 DRREDDY P&G

7-Oct-98 NIRMA SMITKLBECH

10-Sep-97 BATAINDIA ITCBHADRA

10-Sep-97 SMITHKLPHA NOCIL

10-Sep-97 THOMASCOOK SUPREMEIND


255


Unit –XII

Recommendations &problem of capital market problem of new issue market Problem of secondary market Suggestions and recommendations


256


PROBLEMS OF PRIMARY AND SECONDARY MARKET

IT IS ten years since the Securities and Exchange Board of India (SEBI) started to put in place

the regulatory framework for the capital market. And investors have certainly benefited from the

availability of more information and a contemporary secondary market structure.

SEBI began to put in place regulations a decade ago, starting with its Guidelines for Disclosure

and Investor Protection (primary markets) in 1992. A fairly broad-based regulatory framework is

now in place, though, going forward, SEBI has to make the market a friendlier place for

investors by plugging the gaps in its performance, especially in the following areas:

Enhancing disclosures

Despite a plethora of disclosure requirements, there are still key areas where investors get

precious little information of value. This mainly relates to big-ticket corporate action, such as

mergers, de-mergers, acquisitions, asset sell-offs, takeovers and inter-corporate investments. In


257


each of these areas, no doubt, the minimum information requiredunder the Companies Act is

made available.

The disclosure level varies from one instance to another, though a lot of information is made

available on the financials and the synergies of a merger. But the manner in which the swap ratio

is fixed and what the management thinks of the same is largely taken for granted.

The valuation of the two companies and the swap ratio are key aspects in any merger. No doubt,

valuation reports are made available for inspection, but access is not easy for all investors. A

comprehensive and mandated list of disclosures, like the one that accompanies an IPO or a rights

offer, should be made available to all shareholders.

Aspects such as risks from these actions, mode of deployment of resources, the benefits, reasons

for such action and management perception of the issues involved, can form part of such a

disclosure list.

SEBI has much to do to make its existing disclosure requirements work better. This can be done

only by making all disclosures available freely to every one. Take, for instance, mutual funds.

Trustee and asset management companies are required to file monthly/quarterly reports with

SEBI. These must be available on the Internet.

Only public scrutiny and comment can improve the level of disclosures mandated by SEBI.

While this is not a job that SEBI can do on its own, due partly to resource constraints and also

because of the varying types of expertise needed, it has made a small beginning with its Web site

http://www.edifar.nic.in/ and must make sure as much information as possible is pumped in

through this Web site.

Quality of decisions

The effectiveness of any regulatory body is judged by the quality of implementation, in general,

and the rate of convictions achieved in cases where there are violations.


258

http://www.edifar.nic.in/


What is worrying is the poor rate of conviction in major cases. Virtually every SEBI decision

involving major cases — such as Sterlite, BPL, Videocon, Anand Rathi and Associates and

Hindustan Lever — has been overturned by the appeals process (or the Securities Appellate

Tribunal).

This hardly sends the right signals about SEBI's penal actions when regulations are violated.

There is clearly something seriously amiss if the SAT can overturn SEBI orders by pointing to

lacunae on almost every possible ground — ranging from the merely technical aspects to

substantive issues involving the regulator's subjective judgment.

This is what happened in the Sterlite, BPL and Videocon cases (they were barred from capital

market access for their role in price manipulation in 1998). . Quite clearly, the quality of SEBI's

investigative work has to improve considerably so that penal actions stick.

Take a larger view

There are quite a few instances where shareholders have suffered due to specific corporate

actions. Whenever an issue of this kind has come up, , SEBI has generally shied away from

taking up the cudgels (unless nudged by some extraneous pressure) on behalf of the investors to

ensure that they get a fair deal.

In some of the global development-triggered `changes in control', SEBI's actions have been

mixed . In some cases, such as Castrol, it has acted with alacrity and ordered open offers. But in

quite a few others, its stance has virtually enabled elaborate structures to be created that helped

avoid open offers or its actions have come rather late in the day — Color Chem-Clariant, for

example — imposing unfair costs on acquirers and shareholders.

There have been a quite a few decisions on whether open offers are triggered by global

developments or not, both by SEBI and/or by SAT. But no parameters have been laid down so

far and eachissue is handled on a case-by-case basis.

When it comes todomestic acquisitions, SEBI's interpretation of `change in control' is

questionable. When Gujarat Ambuja picked up the entire 14.4 per cent of the Tatas in ACC, it


259


was clear that effective control had passed. But SEBI offered no view and, only when directed by

the court, took the stance that there was `no change in control' on technical grounds. In such

situations, SEBI has to come out and clearly say why it thinks there is change in control or not.

The absence of a convincing rationale only creates precedents that can be used by others, as

happened with Grasim-L & T.

Every time there is a major corporate action, SEBI should proactively examine if there are issues

of a contentious nature. In most major cases SEBI has tended to take up matters only when there

is a referral from a court or investor forum or the government (like in the UTI's assured return

schemes).

Accounting, audit quality

SEBI can now act proactively on the issue of accounting and auditing quality. In several recent

instances in the US, such as Enron, WorldCom, Global Crossing, Merck, to name a few,

companies put out blatantly false numbers and auditors went along with this charade.

In India, hundreds of companies came out with IPOs and vanished subsequently, and in many

companies, accounting and audit information has proved to be of poor quality and unreliable.

This is where SEBI can step in and work with the government to have special audits done of the

top 100 or 200 firms that account for more than 90 per cent of market capitalisation and trading.

There is no reason to assume that everything is hunky-dory on the accounting-auditing front in

Indian companies. Just look at the problems in the finance sector — the likes of IFCI, IDBI, UTI

and Centurion Bank, to name a few — and one cannot help feeling there may be problems

elsewhere too.

The plethora of inter-corporate investments, intra-company and intra-group transactions,

guarantees and contingent liabilities are areas where there is room for considerable concern.

A one-time special audit, efforts to ensure that audit assignments are rotated at three- or five-year

intervals and fast-tracking the process of accounting standards with relevant authorities are

actions that SEBI can pursue before a crisis breaks out on this front.


260


Perhaps the most significant change in the market in the last decade is the complete

transformation of the trading, clearing and settlement infrastructure. From a market burdened

with heavy problems of paper and an opaque trading structure (where brokers and sub-brokers

ruled the roost), there has been a dramatic transformation to a paperless market and transparent

trading system.

The last six months or so, all trades on the National Stock Exchange are settled in demat

(paperless mode). Full marks to SEBI.

No doubt, the process of electronic trading was set off by the NSE, but SEBI too moved rapidly

to force other exchanges, especially the Bombay Stock Exchange, to adopt contemporary trading

systems.

By also moving towards rolling settlement (albeit after a considerable and unnecessary delay),

cutting the settlement cycle and now going forward towards a T+1 settlement system, SEBI has

made the markets much safer for investors. But when it comes to addressing price manipulation,

the story is different.

Price manipulation — no dent: One area where SEBI has barely made any difference is in the

manipulation of stock prices ahead of key corporate actions and even at other times when

operator driven activity is rampant. The most recent instance was the manner in which all Ketan


261


Parekh favoured stocks, such as Himachal Futuristic, Global Tele-Systems, SSI, Silverline,

surged, recording heavy trading volumes.

But one was left completely in the dark on what was behind the sudden spurt in interest in these

stocks and the rise in prices (even if not of the 1999-2000 kind). This was the kind of situation

where SEBI should have stepped in proactively and told investors what was going in. This would

do much more for investors than the mundane investor education programmes talked about often.

Price manipulation, informed trading and insider trading with key operators/investors is now

routine. This is an area that is difficult to tackle for any regulator. But over the last ten years,

SEBI has taken action on such price manipulation in just two cases (Bayer ABS and Amara Raja

Batteries). Here, too, the penal action has hardly been stringent.

Act on corporate actions: Perhaps as a matter of routine, SEBI should take up all cases of

corporate action and subject them to scrutiny for share price behaviour ahead of and after the

action.

Trading action is generally confined to a small list of 150 stocks, on which SEBI can focus its

attention. It can also draw up a list of another 150 stocks of companies with reasonable standing

but poor liquidity, for tracking. At the end of the day, SEBI's effectiveness will be enhanced only

if it can make a dent in this crucial area. Else, the larger body of shareholders will be

shortchanged by such price manipulation.

Suggestions and Recommendations

India does not have a legacy of employer provided pensions. The OASIS report is right in

making the proposed pension system completely portable and independent of employers. India

does not also have a legacy of social security, and does not have to contend with the nightmare

of politically determined defined-benefit plans. The OASIS report is right in keeping its

proposals for pension funds totally on a defined-contribution basis and providing market

determined rates of return. The OASIS report is also right in eschewing any attempt to use the

pension fund assets as a pool of funds for financing infrastructure or any other socially useful

purpose other than on the basis of a competitive risk-return tradeoff decided by the fund


262


manager. The broad framework of the OASIS Committee report therefore has much to be

commended.

However, it attempts to create a class of financial intermediaries to manage pensions which are

isolated from other financial institutions. In any economy, there are institutions like mutual funds

and insurance companies that provide services that have similarities to what the pension funds

would offer. By keeping them as distinct entities, regulated by a new regulator different from

either the capital market regulator (SEBI) or the insurance regulator (IRDA), the OASIS

proposals would perhaps impede the full play of scale and scope economies and restrict the pace

of financial innovation. Investors would probably have more choice if pension products were

fully integrated into the panoply of financial products available in the economy. The financial

sector would also be more efficient and vibrant if that were done.

In this context, this paper argues that pension fund reforms should be placed in the broader

context of capital market development aimed at providing investors with a range of choices on

risk, liquidity and maturity. It must be recognized that investors save for life cycle reasons as

well as for shorter term income smoothing and for hedging human capital. Since there are no

watertight compartments between these various investment needs, artificial barriers between

different types of financial products and services do not serve investor interests.


263



264



265


INDEX CONSTITUENTS

SENSEX Constituents: 16-Apr-07

Code Name Sector Adj. Factor

500410 ACC Ltd. Housing Related 0.65

500490 Bajaj Auto Ltd. Transport Equipments 0.70

500103 Bharat Heavy Electricals Ltd. Capital Goods 0.35

532454 Bharti Airtel Ltd. Telecom 0.35

500087 Cipla Ltd. Healthcare 0.65

500124 Dr Reddy's Laboratories Ltd. Healthcare 0.75

500300 Grasim Industries Ltd. Diversified 0.75

500425 Gujarat Ambuja Cements Ltd. Housing Related 0.70

500010 HDFC Finance 0.90

500180 HDFC Bank Ltd. Finance 0.80

500182 Hero Honda Motors Ltd. Transport Equipments 0.50

500440 Hindalco Industries Ltd. Metal,Metal Products & Mining 0.75

500696 Hindustan Lever Ltd. FMCG 0.50

532174 ICICI Bank Ltd. Finance 1.00

500209 Infosys Technologies Ltd. Information Technology 0.85

500875 ITC Ltd. FMCG 0.70

500510 Larsen & Toubro Limited Capital Goods 0.90

532500 Maruti Udyog Ltd. Transport Equipments 0.40

532555 NTPC Ltd. Power 0.15

500312 ONGC Ltd. Oil & Gas 0.20

500359 Ranbaxy Laboratories Ltd. Healthcare 0.70


266

http://www.bseindia.com/downloads/about/INDICES.zip


532712 Reliance Communications Limited Telecom 0.35

500390 Reliance Energy Ltd. Power 0.75

500325 Reliance Industries Ltd. Oil & Gas 0.50

500376 Satyam Computer Services Ltd. Information Technology 0.95

500112 State Bank of India Finance 0.45

532540 Tata Consultancy Services Limited Information Technology 0.20

500570 Tata Motors Ltd. Transport Equipments 0.60

500470 Tata Steel Ltd. Metal,Metal Products & Mining 0.70

507685 Wipro Ltd. Information Technology 0.20

BSE-100 Index Constituents: 16-Apr-07


500002 ABB Ltd. Capital Goods 0.50


500303 Aditya Birla Nuvo Limited Diversified 0.65

500477 Ashok Leyland Ltd. Transport Equipments 0.50

500820 Asian Paints Ltd. Chemical & Petrochemical 0.55


500032 Bajaj Hindustan Ltd. Agriculture 0.65

500038 Balrampur Chini Mills Ltd. Agriculture 0.65

532134 Bank of Baroda Finance 0.50

532149 Bank Of India Finance 0.35

532430 BF Utilities Ltd. Miscellaneous 0.55

500049 Bharat Electronics Ltd. Capital Goods 0.25

500493 Bharat Forge Ltd. Transport Equipments 0.65


500547 Bharat Petroleum Corpn Ltd. Oil & Gas 0.40


532483 Canara Bank Finance 0.30

500040 Century Textiles Ind ltd. Textile 0.60



267


500830 Colgate Palmolive(India) FMCG 0.50

500093 Crompton Greaves Ltd. Capital Goods 0.60

500480 Cummins India Ltd. Transport Equipments 0.50

500096 Dabur India Ltd. FMCG 0.30


500134 Essar Oil Ltd. Oil & Gas 0.85

526881 Financial Technologies (India) Ltd Information Technology 0.55

532155 Gail (India) Ltd. Oil & Gas 0.40

500660 GlaxoSmithKline Pharmaceuticals Ltd. Healthcare 0.50

532296 Glenmanrk Pharmaceuticals Ltd. Healthcare 0.50



532281 HCL Technologies Ltd. Information Technology 0.35






500104 Hindustan Petroleum Corp Ltd. Oil & Gas 0.50

500188 Hindustan Zinc Ltd. Metal,Metal Products & Mining 0.10


532466 I-Flex Solutions Ltd. Information Technology 0.20

530005 India Cements Ltd. Housing Related 0.75

532544 Indiabulls Financial Services Ltd. Finance 0.65

500850 Indian Hotels Co Ltd. Tourism 0.75

530965 Indian Oil Corporation Ltd. Oil & Gas 0.10

500105 Indian Petrochemicals Corp Ltd. Chemical & Petrochemical 0.55

500116 Industrial Dev Bank of India Finance 0.50


532659 Infrastructure Development Finance Co. Ltd. Finance 0.60


268



532532 Jaiprakash Associates Ltd. Housing Related 0.55

500228 JSW Steel Ltd Metal,Metal Products & Mining 0.50

500247 Kotak Mahindra Bank Ltd. Finance 0.45


500108 Mahanagar Telephone Nigam Ltd. Telecom 0.45

500520 Mahindra & Mahindra Ltd. Transport Equipments 0.80

532313 Mahindra Gesco Developers Ltd. Housing Related 0.55


524794 Matrix Laboratories Ltd. Healthcare 0.25

500530 MICO Ltd. Transport Equipments 0.40

532234 National Aluminium Co. Ltd. Metal,Metal Products & Mining 0.15

500790 Nestle India Ltd. FMCG 0.40



500315 Oriental Bank of Commerce Finance 0.50

532517 Patni Computer Systems Ltd. Information Technology 0.40

532693 Punj LLoyd Ltd Capital Goods 0.40

532461 Punjab National Bank Finance 0.45


500111 Reliance Capital Ltd. Finance 0.55

532712 Reliance Communications Ltd. Telecom 0.35



532709 Reliance Natural Resources Ltd. Oil & Gas 0.55

532743 Reliance Petroleum Ltd. Oil & Gas 0.10


500295 Sesa Goa Ltd. Metal,Metal Products & Mining 0.50

500550 Siemens Ltd. Capital Goods 0.45


500113 Steel Authority of India Ltd. Metal,Metal Products & Mining 0.15


269


500900 Sterlite Industries Ltd. Metal,Metal Products & Mining 0.20

524715 Sun Pharmaceutical Inds Ltd. Healthcare 0.35

532667 Suzlon Energy Ltd. Power 0.35

500770 Tata Chemicals Ltd. Diversified 0.70

532540 Tata Consultancy Services Limited Information Technology 0.20


500400 Tata Power Co. Ltd. Power 0.70


500800 Tata Tea Ltd. FMCG 0.70

500114 Titan Industries Ltd Consumer Durables 0.50

532538 Ultratech cement limited Housing Related 0.40

532477 Union Bank of India Finance 0.45

507878 Unitech Ltd. Housing Related 0.30

512070 United Phosphorus Ltd. Agriculture 0.75

532432 United Spirits Ltd. FMCG 0.50

532215 UTI Bank Ltd. Finance 0.75

511389 Videocon Industries Ltd. Consumer Durables 0.30

500483 Videsh Sanchar Nigam Ltd. Telecom 0.25


505537 Zee Entertainment Enterprises Ltd. Media & Publishing 0.60



523204 Aban Offshore Ltd. Capital Goods 0.40



512599 Adani Enterprises Ltd. Diversified 0.35


532480 Allahabad Bank Finance 0.45

521070 Alok Industries Ltd. Textile 0.60

532309 Alstom Power India Ltd. Capital Goods 0.35

520077 Amtek Auto Ltd. Transport Equipments 0.70


270


515055 Anant Raj Industries Ltd. Housing Related 0.30

532418 Andhra Bank Finance 0.50

508869 Apollo Hospitals Enterprises Ltd. Healthcare 0.60

522275 Areva T&D India Ltd. Capital Goods 0.35

500101 Arvind Mills Ltd. Textile 0.70



524804 Aurobindo Pharma Ltd. Healthcare 0.45

500674 Aventis Phrama Ltd. Healthcare 0.40



500102 Ballarpur Industries Ltd. Miscellaneous 0.60




500043 Bata India Limited FMCG 0.50

532430 BF Utilities Ltd. Miscellaneous 0.55

500048 Bharat Earth Movers Ltd. Capital Goods 0.40






532523 Biocon Ltd. Healthcare 0.40

500335 Birla Corporation Ltd. Housing Related 0.40

500020 Bombay Dyeing & Mfg Co Ltd. Textile 0.60

500825 Britannia Industries Ltd. FMCG 0.50

532321 Cadila Healthcare Ltd. Healthcare 0.30


500870 Castrol India Ltd. Oil & Gas 0.30

532273 Centurion Bank Ltd. Finance 0.70


271


500040 Century Textiles Diversified 0.60

500084 CESC Ltd. Power 0.65

500085 Chambal Fertilisers & Chemical Agriculture 0.50

500110 Chennai Petroleum Corporation Ltd. Oil & Gas 0.35



531344 Container Corporation of India Transport Services 0.40

532179 Corporation Bank Finance 0.20




532488 Divi's Laboratories Ltd. Healthcare 0.50


500125 E.I.D. Parry (India) Ltd. Agriculture 0.65

500840 EIH Ltd. Tourism 0.55


500086 Exide Industries Co. Ltd. Transport Equipments 0.50

500469 Federal Bank Ltd. Finance 1.00

526881 Financial Technologies (India) Ltd Information Technology 0.55


509550 Gammon India Ltd. Capital Goods 0.65

532622 Gateway Distriparks Ltd Transport Services 0.65

500171 GHCL Ltd. Chemical & Petrochemical 0.55



532424 Godrej Consumer Products Ltd. FMCG 0.35


500160 GTL Ltd. Information Technology 0.60

530001 Gujarat Alkalies & Chem Ltd. Chemical & Petrochemical 0.65


500173 Gujarat Fluorochemicals Ltd. Oil & Gas 0.35


272


500670 Gujarat Narmada Valley Fertiliser Agriculture 0.60

500690 Gujarat State Fertilisers &Chem. Ltd. Agriculture 0.60

532702 Gujarat State Petronet Ltd. Oil & Gas 0.40

506480 Gulf Oil Corporation Ltd. Diversified 0.40

500179 HCL Infosystems Ltd. Information Technology 0.50





532129 Hexaware Technologies Ltd. Information Technology 0.75


500185 Hindustan Construction Co. Ltd. Housing Related 0.50




500193 Hotel Leela Venture Ltd. Tourism 0.55


500106 IFCI Ltd. Finance 0.95






532388 Indian Overseas Bank Finance 0.40


532514 Indraprastha Gas Ltd. Oil & Gas 0.55

532187 Indusind Bank Ltd. Finance 0.60



532659 Infrastructure Development Finance Co. Ltd Finance 0.60



273


530773 IVRCL Infrastructures & Projects Ltd. Housing Related 0.90


532209 Jammu & Kashmir Bank Ltd. Finance 0.50

532617 Jet Airways(India) Ltd. Transport Services 0.20

500378 Jindal Saw Ltd. Metal,Metal Products & Mining 0.45

532508 Jindal Stainless Ltd. Metal,Metal Products & Mining 0.60

532286 Jindal Steel & Powers Ltd. Metal,Metal Products & Mining 0.45


530019 Jubilant Organosys Ltd. Chemical & Petrochemical 0.45

502937 Kesoram Industries Ltd. Diversified 0.80

500241 Kirloskar Brothers Ltd. Capital Goods 0.40

500243 Kirloskar Oil Engines Ltd. Transport Equipments 0.40


500252 Lakshmi Machine Works Ltd. Capital Goods 0.65


500253 LIC Housing Finance Ltd. Finance 0.65

500257 Lupin Ltd. Healthcare 0.40

500260 Madras Cements Ltd. Housing Related 0.60


500265 Maharashtra Seamless Ltd. Metal,Metal Products & Mining 0.50



500109 Mangalore Refinery & Petro Ltd. Oil & Gas 0.15

531642 Marico Ltd. FMCG 0.40




517140 Moser Baer India Ltd. Information Technology 0.50

526299 Mphasis Ltd. Information Technology 0.40

500290 MRF Ltd. Transport Equipments 0.65

500294 Nagarjuna Construction Co. Ltd. Housing Related 0.80


274




513683 Neyveli Lignite Corpn. Power 0.10

500302 Nicholas Piramal India Healthcare 0.45



524372 Orchid Chemicals Pharmaceuticals Healthcare 0.60


523574 Pantaloon Retail (India) Ltd. Miscellaneous 0.60

531120 Patel Engineering Ltd. Housing Related 0.40


532522 Petronet LNG Ltd. Oil & Gas 0.40

500680 Pfizer Ltd. Healthcare 0.60

522205 Praj Industries Ltd. Capital Goods 0.70

500459 Procter & Gamble FMCG 0.35



500344 Punjab Tractors Ltd. Transport Equipments 0.80


500330 Raymond Ltd. Textile 0.65


530773 IVRCL Infrastructures & Projects Ltd. Housing Related 0.90



532617 Jet Airways(India) Ltd. Transport Services 0.20








275






















500294 Nagarjuna Construction Co. Ltd. Housing Related 0.80










531120 Patel Engineering Ltd. Housing Related 0.40


276
















532709 Reliance Natural Resources Limited Oil & Gas 0.55


500366 Rolta India Ltd. Information Technology 0.60



523598 Shipping Corpn Of India Ltd. Transport Services 0.20

500387 Shree Cements Ltd. Housing Related 0.30

532670 Shree Renuka Sugars Ltd. Agriculture 0.60


500285 SpiceJet Limited Transport Services 0.65

503806 SRF Ltd. Chemical & Petrochemical 0.60



512299 Sterling Biotech Ltd. Healthcare 0.70



532733 Sun TV Ltd. Media & Publishing 0.10


277


532667 Suzlon Energy Limited Power 0.35


532540 Tata Consultancy Services Ltd. Information Technology 0.20





532371 Tata Teleservices (Maharashtra) Ltd. Telecom 0.35

532755 Tech Mahindra Ltd. Information Technology 0.15

500411 Thermax Ltd. Capital Goods 0.35

500114 Titan Industries Ltd. Consumer Durables 0.50

532356 Triveni Engineering & Inds. Ltd. Capital Goods 0.35

532343 TVS Motors Ltd. Transport Equipments 0.45

532538 Ultratech Cement Limited Housing Related 0.40








532401 Vijaya Bank Finance 0.50

500575 Voltas Ltd. Diversified 0.75


532300 Wockhardt Ltd. Healthcare 0.30








278








532670 Shree Renuka Sugars Ltd. Agriculture 0.60


500285 SpiceJet Limited Transport Services 0.65








532667 Suzlon Energy Limited Power 0.35











532356 Triveni Engineering & Inds. Ltd. Capital Goods 0.35





279















532628 3i Infotech Ltd. Information Technology 0.55

523395 3M India Ltd. Diversified 0.20

523204 Aban Offshore Ltd. Oil & Gas 0.40


500488 Abbott India Ltd. Healthcare 0.40

532682 ABG Shipyard Limited Transport Services 0.20


532762 Action Construction Equipment Ltd. Capital Goods 0.30

512599 Adani Enterprises Ltd. Diversified 0.35


532399 Adlabs Films Ltd. Media & Publishing 0.30

530707 Aftek Ltd. Information Technology 0.90

513335 Ahmednagar Forgings Ltd Transport Equipments 0.30

532683 AIA Engineering Ltd. Capital Goods 0.35

532799 Akruti Nirman Ltd. Housing Related 0.15

506235 Alembic Ltd. Healthcare 0.40

505885 Alfa Laval (India) Ltd. Capital Goods 0.40

532749 All Cargo Global Logistics Ltd. Transport Services 0.15


280


532480 Allahabad Bank Finance 0.45

521070 Alok Industries Ltd. Textile 0.60


500008 Amara Raja Batteries Transport Equipments 0.50

520077 Amtek Auto Ltd. Transport Equipments 0.70

532282 Amtek India Ltd. Transport Equipments 0.35

515055 Anant Raj Industries Ltd. Housing Related 0.30

532418 Andhra Bank Finance 0.50


500877 Apollo Tyres Ltd. Transport Equipments 0.60

532475 Aptech Ltd. Information Technology 0.85

522275 Areva T & D India Ltd. Capital Goods 0.35

500101 Arvind Mills Ltd. Textile 0.70

515030 Asahi India Glass Ltd. Transport Equipments 0.45

527001 Ashapura Minechem Ltd. Metal,Metal Products & Mining 0.40


503940 Asian Electronics Ltd. Capital Goods 0.70

500023 Asian Hotels Ltd. Tourism 0.40


500024 Assam Company Ltd FMCG 0.45

532493 Astra Microwave Products Ltd. Capital Goods 0.55

532759 Atlanta Ltd. Capital Goods 0.30

526991 Atlas Copco (India) Ltd. Capital Goods 0.20


505010 Automotive Axles Ltd. Transport Equipments 0.30


532385 Aztecsoft Ltd. Information Technology 0.55

532719 B L Kashyap and Sons Ltd Housing Related 0.30

500034 Bajaj Auto Finance Ltd. Finance 0.55




281


532382 Balaji Telefilms Ltd. Media & Publishing 0.35

502355 Balkrishna Industries Ltd. Transport Equipments 0.50

500102 Ballarpur Industries Ltd. Miscellaneous 0.60

523319 Balmer Lawrie & Co. Ltd. Miscellaneous 0.40




532525 Bank of Maharashtra Finance 0.25

500019 Bank of Rajasthan Ltd. Finance 0.60

500041 Bannari Amman Sugars Ltd. Agriculture 0.55

500042 BASF India Ltd. Agriculture 0.50

500043 Bata India Ltd. FMCG 0.50

506285 Bayer CropScience Ltd. Agriculture 0.30

509480 Berger Paints India Ltd. Chemical & Petrochemical 0.30

532430 BF Utilities Miscellaneous 0.55

503960 Bharat Bijlee Ltd. Capital Goods 0.65







532609 Bharti Shipyard Ltd. Transport Services 0.60

500055 Bhushan Steel & Strips Ltd. Metal,Metal Products & Mining 0.35

526853 Bilcare Ltd. Healthcare 0.55

500059 Binani Industries Ltd. Metal,Metal Products & Mining 0.60


500335 Birla Corporation Ltd. Housing Related 0.40

500067 Blue Star Ltd. Consumer Durables 0.60

523457 BOC (I) Ltd. Oil & Gas 0.50

500020 Bombay Dyeing & Mfg Co Ltd. Textile 0.60


282


532678 Bombay Rayon Fashions Ltd. Textile 0.40

500072 Bongaingaon Refinery & Petro. Oil & Gas 0.30



532792 Cairn India Ltd. Oil & Gas 0.25


513375 Carborundum Universal Ltd. Capital Goods 0.60

500870 Castrol India Ltd. Oil & Gas 0.30

500878 Ceat Ltd. Transport Equipments 0.60

532273 Centurion Bank Ltd. Finance 0.70

500040 Century Textiles Diversified 0.60

500084 CESC Ltd. Power 0.65

500085 Chambal Fertilisers & Chemical Agriculture 0.50

500110 Chennai Petroleum Corporation Ltd. Oil & Gas 0.35


532210 City Union Bank Ltd. Finance 1.00

506390 Clariant Chemicals (India) Ltd. Chemical & Petrochemical 0.40

517326 CMC Ltd. Information Technology 0.50


531344 Container Corporation of India Transport Services 0.40

506395 Coromandel Fertilizers Ltd. Agriculture 0.30

532179 Corporation Bank Finance 0.20

512093 Cranes Software International Ltd. Information Technology 0.65

500092 CRISIL Ltd. Finance 0.45



523890 D.S.Kulkarni Developers Ltd Miscellaneous 0.65


532545 Dabur Pharma Limited Healthcare 0.25

500097 Dalmia Cements (Bharat) Ltd. Housing Related 0.50

523367 DCM Shriram Consolidated Ltd. Diversified 0.50


283


532747 Deccan Aviation Ltd. Transport Services 0.30

532608 Deccan Chronicle Holdings Limited Media & Publishing 0.35

500645 Deepak Fert. & Petrochemicals Agriculture 0.60

532121 Dena Bank Finance 0.50

532772 Development Credit Bank Limited Finance 0.50

511072 Dewan Hsg. Finance Corp. Ltd. Finance 0.45

500119 Dhampur Sugar Mills Ltd. Agriculture 0.65

532526 Dishman Pharmaceuticals and Chemicals Limited Healthcare 0.30



523618 Dredging Corporation of India Capital Goods 0.25

500125 E.I.D. Parry (I) Ltd. Agriculture 0.65

532696 Educomp Solutions Ltd Information Technology 0.30

505200 Eicher Motors Ltd. Transport Equipments 0.40

500840 EIH Ltd. Tourism 0.55

532322 Elder Pharmacueticals Ltd. Healthcare 0.65

505700 Elecon Engineering Co.Ltd. Capital Goods 0.60

500128 Electrosteel Castings Ltd. Metal,Metal Products & Mining 0.50

522074 Elgi Equipments Ltd. Capital Goods 0.70

531162 Emami Ltd FMCG 0.15

504008 EMCO Ltd. Capital Goods 0.70

532178 Engineers India Ltd. Miscellaneous 0.10

532700 Entertainment Network (India) Ltd Media & Publishing 0.30

530323 Era Constructions (India) Ltd. Housing Related 0.80

500133 Esab India Ltd. Capital Goods 0.65

500495 Escorts Ltd. Transport Equipments 0.75


500630 Essar Shipping Ltd. Transport Services 0.25

500627 Essar Steel Limited Metal,Metal Products & Mining 0.15

500135 Essel Propack Ltd. Miscellaneous 0.45

531508 Eveready Industries Limited FMCG 0.60


284


532684 Everest Kanto Cylinders Ltd. Capital Goods 0.30

500086 Exide Industries Co. Ltd. Transport Equipments 0.50

531599 F D C Ltd. Healthcare 0.40

505790 Fag Bearings India Ltd. Capital Goods 0.50

500469 Federal Bank Ltd. Finance 1.00

505744 Federal-Mogul Goetze (India) Ltd. Transport Equipments 0.50

526881 Financial Technologies Ltd. Information Technology 0.55

500144 Finolex Cables Ltd. Telecom 0.55

500940 Finolex Industries Ltd. Chemical & Petrochemical 0.50

532809 Firstsource Solutions Limited Information Technology 0.15



532622 Gateway Distriparks Ltd.. Transport Services 0.65

532345 Gati Ltd. Miscellaneous 0.50

503699 Geodesic Information Systems Ltd. Information Technology 0.75

532285 Geojit Financial Services Ltd. Finance 0.55

532312 Geometric Software Solut. Information Technology 0.65

500171 GHCL Ltd. Chemical & Petrochemical 0.55

507815 Gillette India Ltd. FMCG 0.15

532715 Gitanjali Gems Ltd. Consumer Durables 0.30

500676 Glaxosmithkline Consumer Healthcare FMCG 0.60



532800 Global Broadcast News Ltd. Media & Publishing 0.20

500162 Gmr Industries Ltd. Diversified 0.30

532754 GMR Infrastructure Ltd. Diversified 0.15

500163 Godfrey Phillips India Ltd. FMCG 0.30

532424 Godrej Consumer Products Ltd. FMCG 0.35

500164 Godrej Industries Ltd. Chemical & Petrochemical 0.15

532630 Gokaldas Exports Limited Textile 0.30

509488 Graphite India Ltd. Capital Goods 0.40


285



500620 Great Eastern Shipping Co. Ltd Transport Services 0.75

532786 Great Offshore Ltd Transport Services 0.75

501455 Greaves Cotton Ltd. Capital Goods 0.50

500151 GTC Industries Ltd. FMCG 0.60

532775 Gtl Infrastructure Ltd. Telecom 0.30

500160 GTL Ltd. Information Technology 0.60

530001 Gujarat Alkalies & Chem Ltd. Chemical & Petrochemical 0.65


500173 Gujarat Fluorochemicals Ltd. Oil & Gas 0.35

523477 Gujarat Gas Company Ltd. Oil & Gas 0.35

517300 Gujarat Industries Power Co.Ltd. Power 0.35

532181 Gujarat Mineral Development Corpn. Metal,Metal Products & Mining 0.30

500670 Gujarat Narmada Valley Fertiliser Agriculture 0.60

512579 Gujarat NRE Coke Ltd. Metal,Metal Products & Mining 0.55

500690 Gujarat State Fertilisers &Chem. Ltd. Agriculture 0.60

532702 Gujarat State Petronet Ltd Oil & Gas 0.40

506480 Gulf Oil Corporation Ltd. Diversified 0.40

532708 GVK Power & Infrastructure Ltd Diversified 0.40

509631 H.E.G Ltd. Capital Goods 0.45

517354 Havell'S India Ltd Capital Goods 0.35

500179 HCL Infosystems Ltd. Information Technology 0.50




532347 Helios & Matheson Information Technology Ltd. Information Technology 0.60


532129 Hexaware Technologies Ltd. Information Technology 0.75

500183 Himachal Futuristic Communication Telecom 1.00

500184 Himadri Chemicals & Inds. Ltd. Chemical & Petrochemical 0.30

514043 Himatsingka Seide Ltd. Textile 0.50


286



500185 Hindustan Construction Co Ltd. Housing Related 0.50


500191 Hindustan Machine Tools Ltd. Capital Goods 0.05

500500 Hindustan Motors Ltd. Transport Equipments 0.75

500186 Hindustan Oil Exploration Co. Ltd. Oil & Gas 0.65



517174 Honeywell Automation India Ltd. Capital Goods 0.20

500193 Hotel Leela Venture Ltd. Tourism 0.55

532662 HT Media Limited Media & Publishing 0.20

500198 I.B.P Co. Ltd. Oil & Gas 0.50

531524 I.C.S.A. (India) Ltd. Finance 0.85

500710 ICI India Ltd. Chemical & Petrochemical 0.40


532822 Idea Cellular Ltd. Telecom 0.15

500106 IFCI Ltd. Finance 0.95


532653 IL&FS Investmart Ltd. Finance 0.55


500201 India Glycols Ltd. Chemical & Petrochemical 0.55

532636 India Infoline Ltd. Finance 0.55


532814 Indian Bank Finance 0.20



532388 Indian Overseas Bank Finance 0.40


500207 Indo Rama Synthetics (India) Ltd. Chemical & Petrochemical 0.45

532514 Indraprastha Gas Ltd. Oil & Gas 0.55

532187 Indusind Bank Ltd. Finance 0.60


287



532777 Infoedge (India) Ltd. Information Technology 0.30


532175 Infotech Enterprises Ltd. Information Technology 0.60

532659 Infrastructure Development Finance Corp. Limited Finance 0.60

531807 ING Vysya Bank Ltd. Finance 0.55

500210 Ingersoll - Rand (India) Ltd. Capital Goods 0.30

532706 Inox Leisure Ltd. Media & Publishing 0.35

524494 Ipca Laboratories Ltd. Healthcare 0.50

532479 ISMT Ltd. Metal,Metal Products & Mining 0.50

500305 Ispat Industries Ltd Metal,Metal Products & Mining 0.50


530773 IVRCL Infrastructures & Projects Housing Related 0.90

506943 J.B.Chemicals & Pharma Ltd. Healthcare 0.40

532644 J.K. Cement Ltd. Housing Related 0.40

532705 Jagran Prakashan Limited Media & Publishing 0.20

500219 Jain Irrigation Systems Ltd. Agriculture 0.70


532627 Jaiprakash Hydro-Power Limited Power 0.40


512233 Jay Bharat Textile & Real Estate Ltd. Textile 0.35

514034 JBF Industries Ltd. Textile 0.40

532617 Jet Airways (India) Limited Transport Services 0.20




500380 JK Lakshmi Cement Ltd. Housing Related 0.50

523405 JM Financial Ltd. Finance 0.15



513250 Jyoti Structures Ltd. Capital Goods 0.70


288


500249 K S B Pumps Ltd. Capital Goods 0.35

522287 Kalpataru Power Transmission Ltd. Capital Goods 0.40

505185 Kalyani Brakes Ltd. Transport Equipments 0.20

500235 Kalyani Steels Ltd. Metal,Metal Products & Mining 0.45

500165 Kansai Nerolac Paints Ltd. Chemical & Petrochemical 0.40

532652 Karnataka Bank Ltd. Finance 1.00

532714 KEC International Ltd. Power 0.70

517569 KEI Industries Ltd. Power 0.60





532400 KPIT Infosystems Ltd. Information Technology 0.65


519570 Lakshmi Overseas Industries Ltd. FMCG 0.50

532778 Lanco Infratech Ltd Capital Goods 0.20



517518 Lloyd Electric & Engineering Ltd. Consumer Durables 0.70


531497 Madhucon Projects Ltd. Housing Related 0.50




532720 Mahindra & Mahindra Financial Services Ltd. Finance 0.25


532756 Mahindra Forgings Ltd. Capital Goods 0.50


513269 Man Industries (I) Ltd. Metal,Metal Products & Mining 0.60

502157 Mangalam Cement Ltd. Housing Related 0.70



289


505324 Manugraph India Ltd Capital Goods 0.45


524404 Marksons Pharma Limited Healthcare 0.55


531131 Mascon Global Ltd. Information Technology 1.00

523704 Mastek Ltd. Information Technology 0.60


500271 Max India Ltd. Diversified 0.45

532654 McLeod Russel India Ltd. FMCG 0.55

532629 McNally Bharat Engineering Company Ltd. Capital Goods 0.70

532408 Megasoft Ltd. Information Technology 0.55

526235 Mercator Lines Ltd Transport Services 0.60

500126 Merck Ltd. Healthcare 0.50


523886 Micro Inks Ltd. Chemical & Petrochemical 0.25

532819 Mindtree Consulting Ltd. Information Technology 0.20

513446 Monnet Ispat Ltd Metal,Metal Products & Mining 0.50

524084 Monsanto India Ltd. Agriculture 0.30


517334 Motherson Sumi Systems Ltd. Transport Equipments 0.30



500460 Mukand Ltd. Metal,Metal Products & Mining 0.55

500292 Mysore Cements Ltd. Housing Related 0.45

500294 Nagarjuna Construction Co Ltd. Housing Related 0.80

500075 Nagarjuna Fertilz. & Chem. Ltd. Agriculture 0.60

519136 Nahar Industrial Enterprises Ltd Textile 0.45


500730 National Organic Chemicals Inds. Ltd. Chemical & Petrochemical 0.70

513023 Nava Bharat Ventures Ltd. Metal,Metal Products & Mining 0.50



290


532798 Network 18 Fincap Ltd. Finance 0.45

532529 New Delhi Television Ltd. Media & Publishing 0.40



500304 NIIT Ltd. Information Technology 0.65

532541 NIIT Technologies Ltd. Information Technology 0.60

500308 Nirma Ltd. FMCG 0.25

532722 Nitco Tiles Ltd. Housing Related 0.55

532481 Noida Toll Bridge Company Ltd Housing Related 0.70

500672 Novartis India Ltd. Healthcare 0.50


531209 Nucleus Software Exports Ltd. Information Technology 0.40

502165 OCL India Ltd. Housing Related 0.40


532391 Opto Circuits (India) Ltd. Telecom 0.65


502420 Orient Paper & Industries Ltd. Miscellaneous 0.70


531349 Panacea Biotec Ltd. Healthcare 0.35


530555 Paramount Communications Ltd. Telecom 0.70

532780 Parsvnath Devlopers Ltd. Housing Related 0.20

531120 Patel Engineering Ltd Housing Related 0.40


503031 Peninsula Land Ltd Housing Related 0.35



517296 Phoenix Lamps Ltd. Transport Equipments 0.55

503100 Phoenix Mills Ltd. Housing Related 0.20

500331 Pidilite Industries Ltd. Chemical & Petrochemical 0.30

532254 Polaris Software Lab Ltd. Information Technology 0.30


291


532810 Power Finance Corporation Limited Finance 0.15


531746 Prajay Engineers Syndicate Ltd. Capital Goods 0.80

500338 Prism Cement Ltd. Housing Related 0.40

532675 Prithvi Information Solutions Ltd. Information Technology 0.70


532647 Provogue (India) Ltd. Textile 0.50

532524 PTC India Ltd. Power 0.70

532693 Punj Lloyd Limited Capital Goods 0.40



532689 PVR Ltd. Media & Publishing 0.60

532497 Radico Khaitan Ltd. FMCG 0.45

532153 Rain Calcining Ltd. Chemical & Petrochemical 0.55

500339 Rain Commodities Ltd. Housing Related 0.35

531500 Rajesh Exports Ltd. Consumer Durables 0.40


524230 Rashtriya Chem & Fert. Ltd. Agriculture 0.10

500044 Rayban Sun Optics India Ltd. FMCG 0.60


532106 Rei Agro Ltd. FMCG 0.60




523445 Reliance Industrial Infrastructure Capital Goods 0.55



532743 Reliance Petroleum Limited Oil & Gas 0.10

520008 Rico Auto Industries Ltd. Transport Equipments 0.50


532699 Royal Orchid Hotels Ltd Tourism 0.35


292


500368 Ruchi Soya Industries Ltd. FMCG 0.70

514304 S.Kumars Nationwide Ltd. Textile 0.60

532710 Sadbhav Engineering Ltd. Capital Goods 0.30

507315 Sakthi Sugars Ltd. Agriculture 0.65

530073 Sanghvi Movers Ltd. Transport Services 0.55

532663 Sasken Communication Techno. Ltd. Telecom 0.50


532616 Scandent Solutions Corporation Ltd. Information Technology 0.25


522034 Shanti Gears Ltd Transport Equipments 0.55

524552 Shasun Chemicals & Drugs Ltd. Healthcare 0.60

501379 Shaw Wallace & Co.Ltd. FMCG 0.25


532638 Shoppers Stop Ltd. Miscellaneous 0.35


502180 Shree Digvijay Cement Ltd. Housing Related 0.50

513349 Shree Precoated Steels Ltd. Metal,Metal Products & Mining 0.35

532670 Shree Renuka Sugars Limited Agriculture 0.60

511218 Shriram Transport Fin Co. Ltd. Finance 0.45

520086 Sical Logistics Ltd. Metal,Metal Products & Mi 0.35


523838 Simplex Infrastructures Ltd. Housing Related 0.55

502742 Sintex Industries Ltd. Chemical & Petrochemical 0.45

500472 SKF India Ltd. Capital Goods 0.50

532784 Sobha Developers Ltd. Housing Related 0.15

520057 Sona Koyo Steering Systems Ltd. Transport Equipments 0.55

532218 South Indian Bank Ltd. Finance 1.00

530491 Southern Iron & Steel Co.Ltd Metal,Metal Products & Mining 0.60

500285 Spicejet Ltd. Transport Services 0.65

523756 Srei Infrastructure Finance Ltd. Finance 0.80



293






532374 Sterlite Optical Technologies Ltd. Telecom 0.65

532531 Strides Arcolab Ltd. Healthcare 0.45

532348 Subex Azure Ltd. Information Technology 0.90



520056 Sundaram Clayton Ltd. Transport Equipments 0.20

500403 Sundaram Fastners Ltd. Transport Equipments 0.55

509930 Supreme Industries Ltd. Chemical & Petrochemical 0.60

532667 Suzlon Energy Ltd. Power 0.35

503310 Swan Mills Ltd. Textile 0.30

532276 Syndicate Bank Finance 0.35

532409 Syngenta India Ltd. Agriculture 0.20

532515 T.V.Today Network Ltd. Media & Publishing 0.45

532390 Taj GVK Hotels & Resorts Ltd. Tourism 0.30

531426 Tamil Nadu Newsprint & Papers Miscellaneous 0.65

522229 Taneja Aerospace & Aviation Ltd. Miscellaneous 0.55

532790 Tanla Solutions Ltd. Telecom 0.70


532301 Tata Coffee Ltd. FMCG 0.45


500408 Tata Elxsi Ltd. Information Technology 0.65

501301 Tata Investment Corporation Ltd. Finance 0.40







294



532358 Tele Data Informatics Ltd. Information Technology 0.90

532299 Television Eighteen India Ltd. Media & Publishing 0.45

505400 Texmaco Ltd. Metal,Metal Products & Mining 0.50


500413 Thomas Cook (India) Ltd. Tourism 0.35

522113 Timken India Ltd. Capital Goods 0.20


500420 Torrent Pharma Ltd. Healthcare 0.30

532779 Torrent Power Ltd. Power 0.35

508998 Transworld Infotech Ltd. Information Technology 0.50

500251 Trent Ltd. Miscellaneous 0.75

532356 Triveni Engineering & Industries Limited Capital Goods 0.35

504973 Tube Investments Of India Ltd. Transport Equipments 0.60

532691 Tulip IT Services Ltd. Information Technology 0.35


532505 UCO Bank Finance 0.30


506690 Unichem Laboratories Ltd. Healthcare 0.55



507458 United Breweries (Holdings) Ltd. Housing Related 0.45

532478 United Breweries Ltd. FMCG 0.25



532746 Unity Infraprojects Ltd. Capital Goods 0.30

517146 Usha Martin Ltd. Capital Goods 0.60


513216 Uttam Galva Steels Ltd. Metal,Metal Products & Mining 0.55

511431 Vakrangee Software Ltd. Miscellaneous 0.85

502986 Vardhman Textiles Ltd. Textile 0.35


295


500465 Varun Shipping Co. Ltd. Transport Services 0.65

526953 Venus Remedies Ltd. Healthcare 0.80

531544 Vertex Spinning Ltd. Textile 0.30




532757 Voltamp Transformers Ltd. Capital Goods 0.50


532144 Welspun Gujarat Stahl Rohren Ltd. Metal,Metal Products & Mining 0.55

514162 Welspun India Ltd. Textile 0.65


532795 Wire and Wireless (India) Ltd. Media & Publishing 0.60


500095 Wyeth Ltd. Healthcare 0.45

532648 Yes Bank Ltd. Finance 0.30


500780 Zuari Industries Ltd. Agriculture 0.40

BSE TECk Index Constituents: 16-Apr-07


532399 Adlabs Films Ltd. Media & Publishing 0.30

532382 Balaji Telefilms Ltd. Media & Publishing 0.35


532608 Deccan Chronicle Holdings Ltd. Media & Publishing 0.35

526881 Financial Technologies (I) Ltd. Information Technology 0.55

500144 Finolex Cables Ltd. Telecom 0.55


500183 Himachal Futuristic Comm. Telecom 1.00

532662 HT Media Ltd. Media & Publishing 0.20



532706 Inox Leisure Limited Media & Publishing 0.35


296


532705 Jagran Prakashan Limited. Media & Publishing 0.20



532529 New Delhi Television Ltd. Media & Publishing 0.40

530555 Paramount Communications Ltd. Telecom 0.70


532689 PVR Limited Media & Publishing 0.60

532712 Reliance Communications Ltd Telecom 0.35

532663 Sasken Communication Techno. Telecom 0.50


532374 Sterlite Optical Technol'S Ltd. Telecom 0.65





532299 Television Eighteen India Ltd. Media & Publishing 0.45



532795 Wire and Wireless (India) Ltd. Media & Publishing 0.60


BSE-PSU Index Constituents: 16-Apr-07

Code Name Sector

532480 Allahabad Bank Finance

532418 Andhra Bank Finance

523319 Balmer Lawrie & Co. Ltd. Miscellaneous

532134 Bank of Baroda Finance

532149 Bank Of India Finance

532525 Bank of Maharashtra Finance

500048 Bharat Earth Movers Ltd. Capital Goods

500049 Bharat Electronics Ltd. Capital Goods

500103 Bharat Heavy Electricals Ltd. Capital Goods


297


500547 Bharat Petroleum Corpn Ltd. Oil & Gas

500072 Bongaingaon Refinery & Petro. Oil & Gas

532483 Canara Bank Finance

500110 Chennai Petroleum Corporation Ltd. Oil & Gas

531344 Container Corporation of India Transport Services

532179 Corporation Bank Finance

532121 Dena Bank Finance

523618 Dredging Corporation of India Capital Goods

532178 Engineers India Ltd. Miscellaneous

532155 Gail (India) Ltd. Oil & Gas

500191 Hindustan Machine Tools Ltd. Capital Goods

500104 Hindustan Petroleum Corp Ltd. Oil & Gas

500198 I.B.P Co. Ltd. Oil & Gas

530965 Indian Oil Corporation Ltd. Oil & Gas

532388 Indian Overseas Bank Finance

500116 Industrial Dev Bank of India Finance

532209 Jammu & Kashmir Bank Ltd. Finance

500108 Mahanagar Telephone Nigam Ltd. Telecom

500109 Mangalore Refinery & Petro Ltd. Oil & Gas

532234 National Aluminium Co. Ltd. Metal,Metal Products & Mining

513683 Neyveli Lignite Corpn. Power

532555 NTPC Ltd. Power

500312 ONGC Ltd. Oil & Gas

500315 Oriental Bank of Commerce Finance

532461 Punjab National Bank Finance

524230 Rashtriya Chem & Fert. Ltd. Agriculture

523598 Shipping Corpn Of India Ltd. Transport Services

500112 State Bank of India Finance

500113 Steel Authority of India Ltd. Metal,Metal Products & Mining

532276 Syndicate Bank Finance

532505 UCO Bank Finance


298


532477 Union Bank of India Finance

532401 Vijaya Bank Finance

BSE-Sectoral Indices Constituents: 16-Apr-07

Code Name Sector FF Factor


532683 AIA Engineering Limited Capital Goods 0.35

505885 Alfa Laval (India) Ltd. Capital Goods 0.40

522275 Alstom Ltd. Capital Goods 0.35


520077 Amtek Auto Ltd. Auto 0.70


500877 Apollo Tyres Ltd. Auto 0.60

500477 Ashok Leyland Ltd. Auto 0.50

532493 Astra Microwave Products Capital Goods 0.55



500490 Bajaj Auto Ltd. Auto 0.70

500043 Bata India Ltd. FMCG 0.50

503960 Bharat Bijlee Ltd. Capital Goods 0.65



500493 Bharat Forge Ltd. Auto 0.65




500067 Blue Star Ltd. Consumer Durables 0.60



513375 Carborundum Universal Ltd. Capital Goods 0.60




299



500480 Cummins India Ltd. Auto 0.50




500495 Escorts Ltd. Auto 0.75

500134 Essar Oil Ltd Oil & Gas 0.85

500086 Exide Industries Co. Ltd. Auto 0.50

526881 Financial Technologies (I) Ltd. IT 0.55



532715 Gitanjali Gems Ltd. Consumer Durables 0.30


500676 Glaxosmithkline Consumer FMCG 0.60


532424 Godrej Consumer Products FMCG 0.35

501455 Greaves Cotton Ltd. Capital Goods 0.50

532281 HCL Technologies Ltd. IT 0.35

500182 Hero Honda Motors Ltd. Auto 0.50

500440 Hindalco Industries Ltd. Metal 0.75


500500 Hindustan Motors Ltd. Auto 0.75


500188 Hindustan Zinc Ltd. Metal 0.10

532466 I-Flex Solutions Ltd. IT 0.20


500209 Infosys Technologies Ltd. IT 0.85


500378 Jindal Saw Ltd. Metal 0.45

532508 Jindal Stainless Ltd. Metal 0.60

532286 Jindal Steel & Powers Ltd. Metal 0.45


300


500228 JSW Steel Ltd Metal 0.50

513250 Jyoti Structures Ltd. Capital Goods 0.70

522287 Kalpataru Power Transmission Capital Goods 0.40


500243 Kirloskar Oil Engines Ltd. Capital Goods 0.40



517518 Lloyd Electric & Engineering Consumer Durables 0.70


500265 Maharashtra Seamless Ltd. Metal 0.50

500520 Mahindra & Mahindra Ltd. Auto 0.80

531642 Marico Limited. FMCG 0.40

532500 Maruti Udyog Ltd. Auto 0.40


500530 MICO Ltd. Auto 0.40

526299 Mphasis Ltd. IT 0.40

500290 Mrf Ltd. Auto 0.65

532234 National Aluminium Co. Ltd. Metal 0.15



500672 Novartis India Ltd. Healthcare 0.50


532391 Opto Circuits (India) Ltd. Healthcare 0.65


531349 Panacea Biotec Ltd. Healthcare 0.35

532517 Patni Computer Systems Ltd. IT 0.40

532522 Petronet Lng Ltd. Oil & Gas 0.40



500459 Procter & Gamble Limited FMCG 0.35

532693 Punj Lloyd Capital Goods 0.40


301


500344 Punjab Tractors Ltd. Auto 0.80

531500 Rajesh Exports Ltd. Consumer Durables 0.40


523445 Reliance Industrial Infrastructure Ltd. Capital Goods 0.55




500376 Satyam Computer Services Ltd. IT 0.95

500295 Sesa Goa Ltd. Metal 0.50

513349 Shree Precoated Steels Ltd. Metal 0.35


500472 SKF India Ltd. Capital Goods 0.50

500113 Steel Authority of India Ltd. Metal 0.15


500900 Sterlite Industries Ltd. Metal 0.20


532667 Suzlon Energy Limited Capital Goods 0.35

532540 Tata Consultancy Services Ltd. IT 0.20

500570 Tata Motors Ltd. Auto 0.60

500470 Tata Steel Ltd. Metal 0.70


532755 Tech Mahindra Ltd. IT 0.15



532356 Triveni Engineering & Industries Capital Goods 0.35

504973 Tube Investments Of India Ltd. Auto 0.60

532343 TVS Motors Ltd. Auto 0.45

532478 United Breweries Ltd FMCG 0.25



507685 Wipro Ltd. IT 0.20


302



500095 Wyeth Ltd. Healthcare 0.45

BANKEX Constituents: 16-Apr-07

Code Name Adj. Factor

532480 Allahabad bank Ltd 0.45

532418 Andhra Bank 0.50

532134 Bank of Baroda 0.50

532149 Bank Of India 0.35

532483 Canara Bank 0.30

532273 Centurion Bank Ltd. 0.70

500469 Federal Bank Ltd. 1.00

500180 HDFC Bank Ltd. 0.80

532174 ICICI Bank Ltd. 1.00

532388 Indian Overseas Bank 0.40

500247 Kotak Mahindra Bank Ltd. 0.45

500315 Oriental Bank of Commerce 0.50

532461 Punjab National Bank 0.45

500112 State Bank of India 0.45

532477 Union Bank of India 0.45

532215 UTI Bank Ltd. 0.75

BSE-Mid-Cap Constituents: 16-Apr-07


532628 3I INFOTECH LIMITED. 0.55

523395 3M INDIA LTD. 0.20

500488 ABBOTT INDIA LTD. 0.40

532682 ABG SHIPYARD LIMITED. 0.20

532399 ADLABS FILMS LTD. 0.30

532683 AIA ENGINEERING LIMITED 0.35

532799 AKRUTI NIRMAN LTD. 0.15

506235 ALEMBIC LTD. 0.40

505885 ALFA LAVAL (INDIA) LTD. 0.40Ishan Institute of Management & Technology

303


532749 ALLCARGO GLOBAL LOGISTICS LTD. 0.15

521070 ALOK INDUSTRIES LTD. 0.60

532309 ALSTOM POWER INDIA LTD. 0.35

520077 AMTEK AUTO LTD 0.70

532282 AMTEK INDIA LTD. 0.35

515055 ANANT RAJ INDUSTRIES LTD 0.30

500013 ANSAL PROPERTIES&INFRASTRUCTURE LTD 0.35

508869 APOLLO HOSPITALS ENTERPRISES LTD. 0.60

500877 APOLLO TYRES LTD 0.60

522275 AREVA T & D INDIA LIMITED 0.35

500101 ARVIND MILLS LTD 0.70

515030 ASAHI INDIA GLASS LTD. 0.45

527001 ASHAPURA MINECHEM LTD. 0.40

500023 ASIAN HOTELS LTD. 0.40

531847 ASIAN STAR COMPANY LTD. 0.30

532493 ASTRA MICROWAVE PRODUCTS LTD. 0.55

506820 ASTRAZENECA PHRAMA LTD. 0.10

526991 ATLAS COPCO (INDIA) LTD. 0.20

524804 AUROBINDO PHARMA LTD. 0.45

505010 AUTOMOTIVE AXLES LTD 0.30

500674 AVENTIS PHRAMA LTD. 0.40

532719 B.L. KASHYAP & SONS LTD. 0.30

500034 BAJAJ AUTO FINANCE LTD. 0.55

500032 BAJAJ HINDUSTAN LTD. 0.65

532382 BALAJI TELEFILMS LTD 0.35

502355 BALKRISHNA INDUSTRIES LTD. 0.50

500102 BALLARPUR INDUSTRIES LTD 0.60

500038 BALRAMPUR CHINI MILLS LTD. 0.65

532525 BANK OF MAHARASHTRA 0.25

500043 BATA INDIA LTD. 0.50

506285 BAYER CROPSCIENCE LTD. 0.30


304


509480 BERGER PAINTS INDIA LTD. 0.30

532609 BHARTI SHIPYARD LIMITED 0.60

500055 BHUSHAN STEEL & STRIPS LTD. 0.35

500059 BINANI INDUSTRIES LTD. 0.60

500335 BIRLA CORPORATION LTD. 0.40

526612 BLUE DART EXPRESS LTD 0.20

500067 BLUE STAR LTD. 0.60

500020 BOMBAY DYEING & MFG CO LTD 0.60

532678 BOMBAY RAYON FASHIONS LTD. 0.40

500072 BONGAINGAON REFINERY & PETRO LTD 0.30

505185 BOSCH CHASSIS SYSTEMS LIMITED. 0.20

500825 BRITANNIA INDUSTRIES LTD. 0.50

532616 CAMBRIDGE SOLUTIONS LTD. 0.25

513375 CARBORUNDUM UNIVERSAL LTD. 0.60

500870 CASTROL 0.30

500084 CESC LTD. 0.65

500085 CHAMBAL FERTILISERS & CHEMICAL 0.50

500110 CHENNAI PETROLEUM CORPORATION LTD 0.35

506390 CLARIANT CHEMICALS (INDIA) LTD. 0.40

517326 CMC LTD. 0.50

506395 COROMANDEL FERTILISERS LTD. 0.30

512093 CRANES SOFTWARE LTD. 0.65

500092 CRISIL LTD. 0.45

532545 DABUR PHARMA LIMITED 0.25

500097 DALMIA CEMENTS (BHARAT) LTD. 0.50

523367 DCM SHRIRAM CONSOLIDATED LTD. 0.50

532747 DECCAN AVIATION LTD. 0.30

532608 DECCAN CHRONICLE HOLDINGS LTD. 0.35

532121 DENA BANK 0.50

532772 DEVELOPMENT CREDIT BANK LTD. 0.50

532526 DISHMAN PHARMACEUTICALS & CHEMICALS 0.30


305


532488 DIVI'S LABORATORIES LTD. 0.50

512519 DONEAR INDUSTRIES LTD 0.25

523618 DREDGING CORPORATION OF INDIA 0.25

500125 E.I.D. PARRY (I) LTD. 0.65

532696 EDUCOMP SOLUTIONS LIMITED. 0.30

505200 EICHER MOTORS LTD. 0.40

500840 EIH LIMITED 0.55

505700 ELECON ENGINEERING CO LTD 0.60

500128 ELECTROSTEEL CASTINGS LTD 0.50

531162 EMAMI LTD. 0.15

532178 ENGINEERS INDIA LTD. 0.10

532700 ENTERTAINMENT NETWORK (INDIA) LTD. 0.30

500630 ESSAR SHIPPING LTD. 0.25

500627 ESSAR STEEL LTD. 0.15

500135 ESSEL PROPACK LTD. 0.45

532684 EVEREST KANTO CYLINDER LIMITED 0.30

500086 EXIDE INDUSTRIES CO. LTD. 0.50

505790 FAG BEARINGS INDIA LTD. 0.50

500469 FEDERAL BANK LTD. 1.00

505744 FEDERAL-MOGUL GOETZE (INDIA) LTD. 0.50

500144 FINOLEX CABLES LTD. 0.55

500940 FINOLEX INDUSTRIES LTD. 0.50

532809 FIRSTSOURCE SOLUTIONS LTD. 0.15

500148 FLEX INDUSTRIES LTD. 0.55

532622 GATEWAY DISTRIPARKS LIMITED. 0.65

503699 GEODESIC INFORMATION SYSTEMS LTD. 0.75

500171 GHCL LTD. 0.55

507815 GILLETTE INDIA LTD 0.15

532715 GITANJALI GEMS LTD. 0.30

500676 GLAXOSMITHKLINE CONSUMER HEALTHCARE 0.60

532800 GLOBAL BROADCAST NEWS LTD. 0.20


306


500162 GMR INDUSTRIES LTD. 0.30

500163 GODFREY PHILLIPS INDIA LTD 0.30

532424 GODREJ CONSUMER PRODUCTS LTD. 0.35

500164 GODREJ INDUSTRIES LTD. 0.15

532630 GOKALDAS EXPORTS LIMITED. 0.30

509488 GRAPHITE INDIA LTD. 0.40

500620 GREAT EASTERN SHIPPING CO. LTD. 0.75

532786 GREAT OFFSHORE LTD. 0.75

501455 GREAVES COTTON LTD. 0.50

532775 GTL INFRASTRUCTURE LIMITED 0.30

500160 GTL LIMITED 0.60

530001 GUJARAT ALKALIES & CHEM LTD. 0.65

500173 GUJARAT FLUOROCHEMICALS LTD 0.35

523477 GUJARAT GAS COMPANY LTD. 0.35

517300 GUJARAT INDUSTRIES POWERCO.LTD. 0.35

532181 GUJARAT MINERAL DEVELOPMENT CORPN. 0.30

500670 GUJARAT NARMADA VAL FER CO. LTD. 0.60

500690 GUJARAT STATE FERTILISERS &CHEM.LTD 0.60

532702 GUJARAT STATE PETRONET LIMITED 0.40

506480 GULF OIL CORPORATION LTD. 0.40

517354 HAVELL'S INDIA LTD 0.35

500179 HCL INFOSYSTEMS LTD. 0.50

532129 HEXAWARE LTD. 0.75

500183 HIMACHAL FUTURISTIC COMM. 1.00

514043 HIMATSINGKA SEIDE LTD. 0.50

500185 HINDUSTAN CONSTRUCTION CO LTD 0.50

500191 HMT LTD. 0.05

517174 HONEYWELL AUTOMATION INDIA LTD. 0.20

500193 HOTEL LEELA VENTURE LTD. 0.55

532662 HT MEDIA LIMITED. 0.20

500198 I.B.P CO. LTD 0.50


307


500710 ICI INDIA LTD. 0.40

500106 IFCI LTD. 0.95

532337 IGATE GLOBAL SOLUTIONS LTD. 0.20

532653 IL&FS INVESTMART LIMITED 0.55

530005 INDIA CEMENTS LTD. 0.75

532636 INDIA INFOLINE LIMITED. 0.55

532514 INDRAPRASTHA GAS LTD. 0.55

532187 INDUSIND BANK LTD 0.60

532777 INFOEDGE (INDIA) LIMITED 0.30

532175 INFOTECH ENTERPRISES LTD. 0.60

531807 ING VYSYA BANK LTD. 0.55

500210 INGERSOLL - RAND (INDIA) LTD. 0.30

532706 INOX LEISURE LIMITED 0.35

524494 IPCA LOBORATORIES LTD. 0.50

532479 ISMT LTD. 0.50

500305 ISPAT INDUSTRIES LTD. 0.50

530773 IVRCL INFRASTRUCTURES & PROJECTS 0.90

506943 J.B.CHEMICALS & PHARMA LTD. 0.40

532644 J.K.CEMENT LIMITED 0.40

532705 JAGRAN PRAKASHAN LIMITED. 0.20

512237 JAI CORP LTD. 0.15

500219 JAIN IRRIGATION SYSTEMS LTD 0.70

532627 JAIPRAKASH HYDRO-POWER LIMITED. 0.40

532209 JAMMU & KASHMIR BANK LTD. 0.50

512233 JAY BHARAT TEXTILE & REAL ESTATE LT 0.35

500378 JINDAL SAW LTD. 0.45

532508 JINDAL STAINLESS LTD. 0.60

523405 JM FINANCIAL LTD 0.15

530019 JUBILANT ORGANOSYS LTD. 0.45

513250 JYOTI STRUCTURES LTD. 0.70

500249 K S B PUMPS LTD. 0.35


308


522287 KALPATARU POWER TRANSMISSION 0.40

500235 KALYANI STEELS LTD. 0.45

500165 KANSAI NEROLAC PAINTS LTD. 0.40

532652 KARNATAKA BANK LIMITED 1.00

532714 KEC INTERNATIONAL LTD. 0.70

502937 KESORAM INDUSTRIES LTD. 0.80

500243 KIRLOSKAR OIL ENGINES LTD. 0.40

532400 KPIT CUMMINS INFOSYSTEMS LTD. 0.65

530149 KSL AND INDUSTRIES LTD. 0.65

500252 LAKSHMI MACHINE WORKS LTD. 0.65

519570 LAKSHMI OVERSEAS INDUSTRIES 0.50

500253 LIC HOUSING FINANCE LTD 0.65

531497 MADHUCON PROJECTS LTD. 0.50

504580 MADRAS ALUMINIUM CO. LTD. 0.20

500260 MADRAS CEMENTS LTD. 0.60

500265 MAHARASHTRA SEAMLESS LTD. 0.50

532720 MAHINDRA & MAHINDRA FIN.SER.LTD. 0.25

532313 MAHINDRA GESCO DEVELOPERS LTD. 0.55

531642 MARICO LIMITED. 0.40

523704 MASTEK LTD. 0.60

524794 MATRIX LABORATORIES LTD. 0.25

500271 MAX INDIA LTD. 0.45

532654 MCLEOD RUSSEL INDIA LIMITED 0.55

500126 MERCK LTD. 0.50

523886 MICRO INKS LTD. 0.25

532819 MINDTREE CONSULTING LTD. 0.20

524084 MONSANTO INDIA LTD. 0.30

517140 MOSER BAER INDIA LTD. 0.50

517334 MOTHERSON SUMI SYSTEMS LTD. 0.30

526299 MPHASIS LTD 0.40

500290 MRF LTD. 0.65


309


500294 NAGARJUNA CONSTRUCTION CO LTD. 0.80

523630 NATIONAL FERTILISERS LTD. 0.05

505355 NESCO LTD. 0.35

532798 NETWORK 18 FINCAP LTD. 0.45

532529 NEW DELHI TELEVISION LTD. 0.40

500304 NIIT LTD. 0.65

532541 NIIT TECHNOLOGIES LTD. 0.60

500308 NIRMA LTD. 0.25

500672 NOVARTIS INDIA LTD 0.50

531209 NUCLEUS SOFTWARE EXPORTS LTD. 0.40

532391 OPTO CIRCUITS (INDIA) LTD. 0.65

524372 ORCHID CHEMICALS PHARMACEUTICALS 0.60

531349 PANACEA BIOTEC LTD. 0.35

531120 PATEL ENGINEERING LTD. 0.40

503031 PENINSULA LAND LTD. 0.35

532522 PETRONET LNG LTD. 0.40

500680 PFIZER LTD. 0.60

503100 PHOENIX MILLS LTD 0.20

500331 PIDILITE INDUSTRIES LTD. 0.30

532739 PLETHICO PHARMACEUTICALS LTD. 0.15

532254 POLARIS SOFTWARE LAB LTD. 0.30

522205 PRAJ INDUSTRIES LTD. 0.70

500338 PRISM CEMENT LTD 0.40

500459 PROCTER & GAMBLE HYGIENE & HEALTH 0.35

532524 PTC INDIA LTD. 0.70

500344 PUNJAB TRACTORS LTD. 0.80

532497 RADICO KHAITAN LTD. 0.45

531500 RAJESH EXPORTS LTD. 0.40

524230 RASHTRIYA CHEM & FERT. LTD. 0.10

500330 RAYMOND LTD. 0.65

532805 REDINGTON (INDIA) LTD. 0.20


310


532709 RELIANCE NATURAL RESOURCES LTD. 0.55

500366 ROLTA INDIA LTD. 0.60

500368 RUCHI SOYA INDUSTRIES LTD. 0.70

514304 S.KUMARS NATIONWIDE LTD. 0.60

532663 SASKEN COMMUNICATION TECHNO. LTD. 0.50

532638 SHOPPERS STOP LIMITED 0.35

500387 SHREE CEMENTS LTD. 0.30

513349 SHREE PRECOATED STEELS LTD. 0.35

503205 SHREE RAM MILLS LTD. 0.15

532670 SHREE RENUKA SUGARS LIMITED 0.60

511218 SHRIRAM TRANSPORT FIN CO. LTD. 0.45

523838 SIMPLEX INFRASTRUCTURE LIMITED 0.55

502742 SINTEX INDUSTRIES LTD. 0.45

500472 SKF INDIA LTD. 0.50

500285 SPICEJET LIMITED 0.65

503806 SRF LTD. 0.60

517556 SSI LTD. 0.30

512299 STERLING BIOTECH LTD 0.70

532374 STERLITE OPTICAL TECHNOL'S LTD. 0.65

532531 STRIDES ARCOLAB LTD. 0.45

532348 SUBEX AZURE LTD. 0.90

520056 SUNDARAM CLAYTON LTD. 0.20

500403 SUNDARAM FASTNERS LTD. 0.55

532276 SYNDICATE BANK LTD. 0.35

532409 SYNGENTA INDIA LTD. 0.20

532390 TAJ GVK HOTELS & RESORTS LTD. 0.30

532790 TANLA SOLUTIONS LTD. 0.70

501301 TATA INVESTMENT CORPORATION LTD. 0.40

532371 TATA TELESERVICES (MAHARASHTRA) LTD 0.35

532299 TELEVISION EIGHTEEN INDIA LTD 0.45

505400 TEXMACO LTD. 0.50


311


500411 THERMAX LTD. 0.35

522113 TIMKEN INDIA LTD. 0.20

500114 TITAN INDUSTRIES LTD. 0.50

500420 TORRENT PHARMA LTD. 0.30

532779 TORRENT POWER LTD. 0.35

500251 TRENT LTD. 0.75

532356 TRIVENI ENGINEERING & INDUSTRIES 0.35

504973 TUBE INVESTMENTS OF INDIA LTD. 0.60

532691 TULIP IT SERVICES LIMITED. 0.35

532343 TVS MOTORS LTD 0.45

532505 UCO BANK 0.30

506690 UNICHEM LABORATORIES LTD. 0.55

507458 UNITED BREWERIES (HOLDINGS) LTD. 0.45

502986 VARDHMAN TEXTILES LTD. 0.35

532401 VIJAYA BANK 0.50

500575 VOLTAS LTD. 0.75

532144 WELSPUN GUJARAT STAHL ROHREN LTD. 0.55

532795 WIRE AND WIRELESS (INDIA) LTD. 0.60

500095 WYETH LEDERLE LTD. 0.45

532648 YES BANK LIMITED 0.30

532794 ZEE NEWS LTD. 0.50

BSE-Small-Cap Constituents: 16-Apr-07


524208 AARTI INDUSTRIES LTD. 0.60

514274 AARVEE DENIM & EXPORTS LTD. 0.25

520155 ABG HEAVY INDUSTRIES LTD 0.30

521064 ABHISHEK INDUSTRIES LTD. 0.40

532774 ACCEL FRONTLINE LTD. 0.30

532762 ACTION CONSTRUCTION EQUIPMENT LTD. 0.30

532727 ADHUNIK METALIKS LTD. 0.40

517041 ADOR WELDING LTD. 0.45


312


523269 ADVANI HOTELS & RESORTS (INDIA) LTD. 0.55

500003 AEGIS LOGISTICS LTD. 0.40

530707 AFTEK LTD. 0.90

500215 AGRO TECH FOODS LTD. 0.40

532811 AHLUWALIA CONTRACTS (INDIA) LTD 0.30

513335 AHMEDNAGAR FORGINGS LTD 0.30

532806 AI CHAMPDANY INDUSTRIES LTD. 0.60

526707 ALCHEMIST LIMITED 0.55

532633 ALLSEC TECHNOLOGIES LIMITED. 0.40

530715 ALPS INDUSTRIES LTD 0.75

500008 AMARA RAJA BATTERIES 0.50

532141 ANDHRA CEMENT LTD. 0.20

502330 ANDHRA PRADESH PAPER MILLS LTD. 0.35

530721 ANG AUTO LTD. 0.60

531683 ANKUR DRUGS AND PHARMA LTD. 0.65

507828 ANSAL HOUS & CONSTRUCTION LTD 0.70

505665 ANTIFRICTION BEARINGS CORP. LTD. 0.45

532259 APAR INDUSTRIES LTD. 0.30

532475 APTECH LTD. 0.85

531381 ARIHANT FOUNDATIONS & HSG LTD 0.65

530619 ASIAN CERC INFORMATION TECHNOLOGY LTD. 0.45

503940 ASIAN ELECTRONICS LTD 0.70

500024 ASSAM COMPANY LTD. 0.45

500027 ATUL LTD. 0.65

532668 AURIONPRO SOLUTIONS LIMITED 0.60

532797 AUTOLINE INDUSTRIES LTD. 0.35

505036 AUTOMOBILE CORPN OF GOA LTD 0.65

500463 AVAYA GLOBALCONNECT LTD. 0.45

532385 AZTECSOFT LTD. 0.55

500031 BAJAJ ELECTRICALS LTD. 0.35

523319 BALMER LAWRIE & CO. LTD. 0.40


313


532485 BALMER LAWRIE INVESTMENT LTD. 0.45

500039 BANCO PRODUCTS (I) LTD. 0.35

500019 BANK OF RAJASTHAN LTD. 0.60

532674 BANNARI AMMAN SPINNING MILLS LTD. 0.45

500041 BANNARI AMMAN SUGARS LTD. 0.55

532694 BARTRONICS INDIA LTD. 0.45

500042 BASF INDIA LTD. 0.50

522004 BATLIBOI LTD 0.20

500046 BEST & CROMPTON ENGG.LTD. 0.25

512296 BHAGYANAGAR INDIA LTD 0.35

500052 BHANSALI ENGG POLYMERS LTD. 0.60

503960 BHARAT BIJLEE LTD. 0.65

526853 BILCARE LTD. 0.55

503796 BIRLA VXL INDIA LTD. 0.30

532781 BLUE BIRD (INDIA) LTD. 0.30

523457 BOC INDIA LTD. 0.50

501425 BOMBAY BURMAH TRG CORPN LTD 0.30

500074 BPL LTD. 0.30

532123 BSEL INFRASTRUCTURE REALTY LTD. 0.65

532813 C & C CONSTRUCTIONS LTD. 0.25

500446 CAROL INFO SERVICES LTD. 0.40

519600 CCL PRODUCTS (INDIA) LTD. 0.55

500878 CEAT LTD. 0.60

532695 CELEBRITY FASHIONS LIMITED. 0.30

501150 CENTRUM CAPITAL LTD. 0.55

500280 CENTURY ENKA LTD. 0.75

532548 CENTURY PLYBOARDS (INDIA) LTD. 0.30

522059 CHAMPAGNE INDAGE LTD. 0.60

506355 CHEMPLAST SANMAR LTD. 0.25

511243 CHOLAMANDALAM DBS FINANCE LTD. 0.30

532184 CIBA SPECIALITY CHEM. 0.30


314


532807 CINEMAX INDIA LTD. 0.35

532210 CITY UNION BANK LTD. 1.00

523200 CLASSIC DIAMONDS (I) LTD. 0.40

505052 CLUTCH AUTO LTD 0.70

508814 COSMO FILMS LTD. 0.60

526550 COUNTRY CLUB (INDIA) LTD. 0.40

526785 CREST ANIMATION STUDIOS LTD 0.70

532542 CREW B.O.S PRODUCTS LTD. 0.50

523890 D.S.KULKARNI DEVELOPERS LTD. 0.65

532528 DATAMATICS TECHNOLOGIES LTD. 0.35

502817 DAWN MILLS CO. LTD. 0.30

500117 DCW LTD. 0.60

500645 DEEPAK FERT. & PETROCHEMICALS 0.60

520022 DENSO INDIA LTD. 0.30

511072 DEWAN HSG. FINANCE CORP. LTD. 0.45

500119 DHAMPUR SUGAR MILLS LTD. 0.65

532180 DHANALAKSHMI BANK LTD. 0.65

522163 DIAMOND CABLES LTD. 0.50

500068 DISA INDIA LTD 0.30

532419 D-LINK (INDIA) LTD. 0.40

522261 DOLPHIN OFFSHORE ENT. (I) LTD. 0.30

505242 DYNAMATIC TECHNOLOGIES LTD. 0.45

532751 EASUN REYROLLE LTD. 0.70

532491 ECE INDUSTRIES LTD. 0.70

523127 EIH ASSOCIATED HOTELS LTD. 0.45

523708 EIMCO ELECON (I) LTD 0.30

532322 ELDER PHARMACUETICALS LTD. 0.65

526608 ELECTROTHERM (INDIA) LTD. 0.45

522074 ELGI EQUIPMENTS LTD. 0.70

504008 EMCO LTD. 0.70

532737 EMKAY SHARE & STOCK BROKERS LTD. 0.30


315


532219 ENERGY DEVELOPMENT CO. LTD. 0.30

526560 ENGLISH INDIAN CLAYS LTD. 0.20

531147 ENKEI CASTALLOY LTD. 0.25

505982 ENNORE FOUNDRIES LTD. 0.20

530323 ERA CONSTRUCTIONS (INDIA) LTD 0.80

500133 ESAB INDIA LTD. 0.65

500495 ESCORTS LTD 0.75

532787 ESS DEE ALUMINIUM LTD. 0.30

532823 EURO CEREMICS LTD 0.35

531508 EVEREADY INDUSTRIES (I) LTD. 0.60

508906 EVEREST INDUSTRIES LTD. 0.35

520145 FAIRFIELD ATLAS LTD. 0.20

504250 FCI OEN CONNECTORS LTD 0.35

531599 FDC LTD. 0.40

500139 FEDDERS LLOYD CORPORATION LTD 0.65

502865 FORBES GOKAK LTD. 0.30

500033 FORCE MOTORS LIMITED. 0.30

526927 FORTIS FINANCIAL SERVICES LTD 0.25

500150 FOSECO INDIA LTD. 0.15

532521 FOUR SOFT LIMITED 0.65

506803 FULFORD (I) LTD. 0.50

509546 G.L. HOTELS LTD. 0.25

505714 GABRIEL INDIA LTD. 0.40

506186 GALAXY ENTERTAINMENT CORPN. LTD. 0.55

526367 GANESH HOUSING CORP. LTD. 0.30

500155 GARDEN SILK MILLS LTD. 0.45

501848 GARWARE OFFSHORE SERVICES LTD. 0.55

509557 GARWARE WALL ROPES LTD. 0.60

532345 GATI LTD. 0.50

532767 GAYATRI PROJECTS LTD. 0.45

500398 GE CAPITAL TRANSPORTATION FIN.SER 0.25


316


530389 GEEFCEE FINANCE LTD. 0.45

532318 GEMINI COMMUNICATIONS LTD. 0.65

530343 GENUS OVERSEAS ELECTRONICS LTD 0.50

532285 GEOJIT FINANCIAL SERVICES LTD. 0.55

532312 GEOMETRIC SOFTWARE SOLUTIONS CO. LTD. 0.65

511676 GIC HOUSING FINANCE LTD. 0.50

532773 GLOBAL VECTRA HELICORP LTD. 0.25

505255 GMM PFAUDLER LTD. 0.25

532734 GODAVARI POWER & ISPAT LTD. 0.35

526729 GOLDIAM INTERNATIONAL LTD 0.40

500166 GOODRICKE GROUP LTD. 0.30

500168 GOODYEAR INDIA LTD. 0.30

526797 GREENPLY INDUSTRIES LTD 0.35

506076 GRINDWELL NORTON LTD. 0.25

511288 GRUH FINANCE LTD 0.40

500151 GTC INDUSTRIES LTD 0.60

524226 GUJARAT AMBUJA EXPORTS LTD. 0.40

512579 GUJARAT NRE COKE LTD. 0.55

518029 GUJARAT SIDHEE CEMENT LTD. 0.55

532708 GVK POWER & INFRASTRUCTURE LTD. 0.40

532764 GWALIOR CHEMICAL INDUSTRIES LTD. 0.45

509631 H.E.G LTD. 0.45

532770 HANUNG TOYS & TEXTILES LTD. 0.40

500467 HARRISONS MALYALAM LTD 0.50

517271 HBL POWER SYSTEMS LTD. 0.30

532347 HELIOS & MATHESON INFORM'N TECHNOLO 0.60

532671 HENKEL INDIA LIMITED 0.35

505720 HERCULES HOISTS LTD 0.20

519552 HERITAGE FOODS (INDIA) LTD. 0.55

524735 HIKAL LTD. 0.25

500184 HIMADRI CHEMICALS & INDS. LTD. 0.30


317


509627 HINDUSTAN DORR-OLIVER LTD 0.50

500500 HINDUSTAN MOTORS LTD. 0.75

515145 HINDUSTAN NATIONAL GLASS & INDUS. 0.10

500186 HINDUSTAN OIL EXPLORATION 0.65

500449 HINDUSTAN ORGANIC CHEMICAL LTD 0.45

500187 HINDUSTAN SANITARYWARE & INDS 0.30

523398 HITACHI HOME & LIFE SOLN. (I) LTD. 0.35

522073 HI-TECH GEARS LTD. 0.50

522064 HONDA SIEL POWER PRODUCTS LTD. 0.35

532808 HOUSE OF PEARL FASHIONS LTD. 0.35

532761 HOV SERVICES LTD. 0.35

509675 HYDERABAD INDUSTRIES LTD 0.60

531524 I.C.S.A. INDIA LTD 0.85

532133 IFGL REFRACTORS LTD. 0.30

517380 IGARASHI MOTORS INDIA LTD. 0.45

506074 IID FORGINGS LTD. 0.40

511208 IL & FS INVESTMENT MANAGERS LTD. 0.45

500201 INDIA GLYCOLS LTD. 0.55

532240 INDIA NIPPON ELECTRICALS LTD. 0.35

504741 INDIAN HUME PIPE CO. LTD. 0.35

532658 INDO ASIAN FUSEGEAR LIMITED 0.60

531565 INDO PACIFIC SOFT.& ENTERTAINMENT 0.75

500207 INDO RAMA SYNTHETICS (INDIA) LTD. 0.45

532717 INDO TECH TRANSFORMERS LTD. 0.40

532612 INDOCO REMEDIES LTD. 0.45

532150 INDRAPRASTHA MEDICAL CORPN. LTD. 0.50

532305 IND-SWIFT LABORATORIES LTD. 0.70

532821 INDUS FILA LTD. 0.30

509069 INFOMEDIA INDIA LTD. 0.40

512185 IOL BROADBAND LTD. 0.65

500214 ION EXCHANGE (INDIA) LTD. 0.60


318


508807 IST LTD. 0.25

532342 IT PEOPLE (INDIA) LTD. 0.40

509496 ITD CEMENTATION INDIA LTD. 0.20

523610 ITI LTD. 0.10

530007 J.K.INDUSTRIES LTD., 0.45

507155 JAGATJIT INDUSTRIES LTD 0.10

514034 JBF INDUSTRIES LTD 0.40

500223 JCT LTD 0.50

507796 JHAVERI FLEXO INDIA LTD. 0.20

511034 JINDAL DRILLING INDUSTRIES LTD. 0.20

500227 JINDAL POLY FLIMS LTD. 0.45

532642 JINDAL SOUTHWEST HOLDINGS LIMITED 0.45

531543 JINDAL WORLDWIDE LTD 0.15

500380 JK LAKSHMI CEMENT LTD. 0.50

532162 JK PAPER LTD. 0.35

522263 JMC PROJECTS (INDIA) LTD. 0.50

513691 JMT AUTO LTD. 0.35

526209 K S OIL LTD. 0.75

500233 KAJARIA CERAMICS LTD. 0.55

526668 KAMAT HOTELS (INDIA) LTD 0.30

506525 KANORIA CHEMICALS & INDS LTD 0.30

517569 KEI INDUSTRIES LTD. 0.60

526015 KEMROCK INDS & EXPO LTD 0.70

505890 KENNAMETAL INDIA LTD. 0.15

532686 KERNEX MICROSYSTEMS (INDIA) LIMITED 0.45

532732 KEWAL KIRAN CLOTHING LTD. 0.30

500245 KIRLOSKAR FERROUS INDUSTRIES LTD. 0.55

505283 KIRLOSKAR PNEUMATIC CO. LTD. 0.50

531269 KLG SYSTEL LTD. 0.75

532536 KOJAM FININVEST LIMITED 0.40

530299 KOTHARI PRODUCTS LTD. 0.20


319


530813 KRBL LTD. 0.35

514221 KRISHNA LIFESTYLE TECHNOLOGIES LTD. 0.50

500250 L.G.BALKRISHNAN & BROS. LTD. 0.60

513605 LANCO INDUSTRIES LTD 0.45

506222 LANXESS ABS LIMITED 0.30

526596 LIBERTY SHOES LTD 0.40

512349 LINKHOUSE INDUSTRIES LTD. 0.80

517518 LLOYD ELECTRIC & ENGINEERING 0.70

500254 LLOYDS STEEL INDUSTRIES LTD. 0.80

532341 LOGIX MICROSYSTEMS LTD. 0.70

532740 LOKESH MACHINES LTD. 0.30

517206 LUMAX INDUSTRIES LTD 0.45

532440 MACMILLAN INDIA LTD. 0.30

524000 MAGMA LEASING LTD. 0.25

530059 MAHARAJA SHREE UMAID MILLS LTD. 0.20

500266 MAHARASHTRA SCOOTERS LTD. 0.50

532756 MAHINDRA FORGINGS LTD. 0.50

504823 MAHINDRA UGINE STEEL CO. LTD. 0.45

513269 MAN INDUSTRIES (INDIA) LTD. 0.60

500268 MANALI PETROCHEMICALS LTD 0.65

502157 MANGALAM CEMENT LTD. 0.70

530011 MANGALORE CHEMICALS & FERT. LTD. 0.70

505324 MANUGRAPH INDIA LTD. 0.45

530543 MARG CONSTRUCTIONS LTD. 0.55

524404 MARKSANS PHARMA LTD. 0.55

531131 MASCON GLOBAL LTD 1.00

532469 MATHER & PLATT PUMP LTD 0.40

532512 MAWANA SUGARS LTD. 0.55

532613 MAXWELL INDUSTRIES LIMITED 0.40

532629 MCNALLY BHARAT ENGINEERING CO.LTD. 0.70

530435 MEDIA VIDEO LTD. 0.60


320


532408 MEGASOFT LTD. 0.55

526235 MERCATOR LINES LTD 0.60

532494 MICRO TECHNOLOGIES (I) LTD. 0.65

532416 MID-DAY MULTIMEDIA LTD. 0.50

532539 MINDA INDUSTRIES LTD. 0.30

500279 MIRC ELECTRONICS LTD 0.45

526642 MIRZA INTERNATIONAL LTD. 0.35

503015 MODERN INDIA 0.15

513446 MONNET ISPAT LTD 0.50

500288 MOREPEN LABORATORIES LTD. 0.70

531096 MOUNT EVEREST MINERAL WATER 0.80

532820 MUDRA LIFESTYLE LTD. 0.30

500460 MUKAND LTD. 0.55

520059 MUNJAL AUTO INDUSTRIES LTD. 0.30

520043 MUNJAL SHOWA LTD. 0.35

519323 MURLI INDUSTRIES LTD. 0.20

515037 MURUDESHWAR CERAMICS LTD 0.55

500292 MYSORE CEMENTS LTD. 0.45

524709 NAGARJUNA AGRICHEM LTD. 0.25

500075 NAGARJUNA FERTILZ. & CHEM. LTD. 0.60

519136 NAHAR INDUSTRIAL ENTERPRISES LTD. 0.45

500296 NAHAR SPINNING MILLS LTD. 0.45

532256 NALWA SONS INVESTMENT LTD. 0.45

524816 NATCO PHARMA LTD 0.40

500730 NATIONAL ORGANIC CHEMICALS INDS.LTD 0.70

500298 NATIONAL PEROXIDE LTD. 0.35

513023 NAVA BHARAT VENTURES LTD. 0.50

532504 NAVIN FLUORINE INTERNATIONAL LTD. 0.65

508989 NAVNEET PUBLICATIONS LTD. 0.40

502168 NCL INDUSTRIES LTD. 0.70

532649 NECTAR LIFESCIENCES LIMITED. 0.35


321


504112 NELCO LTD. 0.50

523385 NILKAMAL LTD. 0.45

500307 NIRLON LTD. 0.90

532722 NITCO TILES LTD. 0.55

532481 NOIDA TOLL BRIDGE CO.LTD. 0.70

530367 NRB BEARINGS LTD. 0.25

532051 NUMERIC POWER SYSTEMS LTD. 0.35

502165 OCL INDIA LTD. 0.40

531092 OM METALS INFRAPROJECTS LTD. 0.30

520021 OMAX AUTOS LTD. 0.50

517195 ORG INFORMATICS LTD. 0.50

502420 ORIENT PAPER & INDUSTRIES LTD. 0.70

500314 ORIENTAL HOTELS LTD. 0.45

532827 PAGE INDUSTRIES LTD. 0.30

513511 PANCHMAHAL STEEL LTD. 0.15

531816 PANORAMIC UNIVERSAL LTD. 0.30

509820 PAPER PRODUCTS LTD. 0.40

530555 PARAMOUNT COMMUNICATIONS LTD. 0.70

508184 PARRY AGRO INDUSTRIES LTD. 0.20

532676 PBA INFRASTRUCTURE LIMITED. 0.40

513228 PENNAR INDUSTRIES LTD. 0.60

506590 PHILLIPS CARBON BLACK LTD. 0.50

517296 PHOENIX LAMPS LTD. 0.55

514300 PIONEER EMBROIDERIES LTD. 0.45

532366 PNB GILTS LTD. 0.30

532486 POKARNA LTD. 0.40

524051 POLYPLEX CORPORATION LTD. 0.60

531746 PRAJAY ENGINEERS SYNDICATE LTD. 0.80

506022 PRAKASH INDUSTRIES LTD. 0.40

532718 PRATIBHA INDUSTRIES LTD. 0.30

523539 PRECISION WIRES INDIA LTD. 0.40


322


526109 PRICOL LTD. 0.55

532748 PRIME FOCUS LTD. 0.20

532675 PRITHVI INFORMATION SOLUTIONS LTD. 0.70

532647 PROVOGUE(INDIA) LIMITED 0.50

526801 PSL LTD. 0.30

532689 PVR LIMITED 0.60

532679 PYRAMID RETAIL LIMITED 0.40

532735 R SYSTEMS INTERNATIONAL LTD. 0.35

532140 R.M.MOHITEX TEXTILES LTD. 0.30

532153 RAIN CALCINING LTD. 0.55

500339 RAIN COMMODITIES LTD. 0.35

504614 RAIPUR ALLOYS & STEEL LTD. 0.40

532826 RAJ TELEVISION NETWORK LTD. 0.30

532503 RAJAPALAYAM MILLS LTD. 0.50

500354 RAJSHREE SUGARS & CHEMICALS LTD. 0.60

500355 RALLIS INDIA LTD. 0.55

500356 RAMA NEWSPRINT & PAPERS LTD. 0.50

532369 RAMCO INDUSTRIES LTD. 0.45

532370 RAMCO SYSTEMS LTD. 0.40

532527 RAMKRISHNA FORGINGS LIMITED 0.60

532690 RAMSARUP INDUSTRIES LIMITED. 0.35

507490 RANA SUGARS LTD 0.70

532328 RANE BRAKE LININGS LTD. 0.50

532490 RANE ENGINE VALVES LTD. 0.40

505800 RANE HOLDINGS LIMITED. 0.60

531583 RAP MEDIA LTD. 0.25

520111 RATNAMANI METALS & TUBES LTD. 0.35

500044 RAYBAN SUN OPTICS INDIA LTD. 0.60

526723 RDB INDUSTRIES LTD 0.30

532106 REI AGRO LTD. 0.60

523445 RELIANCE INDUSTRIAL INFRASTRUCTURE LTD. 0.55


323


505368 REVATHI EQUIPMENT LTD. 0.40

520008 RICO AUTO INDUSTRIES LTD. 0.50

524480 RIDDHI SIDDHI GLUCO BIOLS LTD. 0.25

532699 ROYAL ORCHID HOTELS LIMITED. 0.35

500384 RPG LIFE SCIENCES LTD. 0.60

500350 RSWM LTD. 0.50

503169 RUBY MILLS LTD. 0.30

509020 RUCHI INFRASTRUCTURE LTD. 0.40

532710 SADBHAV ENGINEERING LTD. 0.30

502090 SAGAR CEMENTS LTD. 0.60

503691 SAHARA ONE MEDIA AND ENTERT. LTD 0.05

515043 SAINT-GOBAIN SEKURIT INDIA LTD. 0.15

507315 SAKTHI SUGARS LTD 0.65

500372 SAMTEL COLOUR LTD. 0.50

514234 SANGAM INDIA LTD 0.50

526521 SANGHI INDUSTRIES LTD 0.55

530073 SANGHVI MOVERS LTD 0.55

519260 SANWARIA AGRO OILS LTD. 0.15

532163 SAREGAMA INDIA LTD. 0.45

512559 SATNAM OVERSEAS LTD. 0.60

508996 SATPROP LTD. 0.25

502175 SAURASHTRA CEMENT LTD. 0.25

524667 SAVITA CHEMICALS LTD. 0.30

500123 SCHENECTADY -BECK INDIA LTD. 0.15

502450 SESHASAYEE PAPER & BOARDS LTD. 0.60

513436 SHAH ALLOYS LTD. 0.50

522034 SHANTI GEARS LTD 0.55

511413 SHARYANS RESOURCES LTD 0.50

524552 SHASUN CHEMICALS & DRUGS LTD. 0.60

501379 SHAW WALLACE & CO.LTD. 0.25

522175 SHIV VANI OIL & GAS EXPLO SERV LTD. 0.30


324


532776 SHIVAM AUTOTECH LIMITED 0.30

532793 SHREE ASHTAVINAYAK CINE VISION LTD. 0.35

502180 SHREE DIGVIJAY CEMENT LTD. 0.50

523236 SHRENUJ & CO LTD 0.35

520151 SHREYAS SHIPPING & LOGISTICS LTD. 0.30

532631 SHRINGAR CINEMAS LIMITED. 0.55

532498 SHRIRAM CITY UNION FINANCE LTD. 0.30

506460 SI GROUP INDIA LTD. 0.20

520086 SICAL LOGISTICS LTD. 0.35

500389 SILVERLINE INDUSTRIES LTD. 1.00

503811 SIYARAM SILK MILLS LTD. 0.35

532815 SMS PHARMACEUTICALS LTD. 0.30

532725 SOLAR EXPLOSIVES LTD. 0.30

517544 SOLECTRON CENTUM 0.40

532447 SOLVAY PHARMA INDIA LTD. 0.35

520057 SONA KOYO STEERING SYSTEMS LTD. 0.55

532221 SONATA SOFTWARE LTD. 0.40

532452 SOUTH ASIAN PETROCHEM LTD. 0.45

526807 SOUTH EAST ASIA MARINE ENGG.CONST. 0.25

530491 SOUTHERN IRON & STEEL CO LTD 0.60

508976 SPANCO TELESYSTEMS & SOLUTIONS LTD. 0.50

532833 SPARSH BPO SERVICES LTD. 0.35

521082 SPENTEX INDUSTRIES LTD 0.30

523756 SREI INFRASTRUCTURE FINANCE LTD. 0.80

530017 STANDARD INDUSTRIES LTD 0.45

512531 STATE TRADING CORP. OF INDIA LTD. 0.10

513262 STEEL STRIPS WHEELS LTD 0.35

523363 STERLING HOLIDAY RESORT (I)LTD. 0.65

526733 SUASHISH DIAMONDS LTD. 0.15

500402 SUBHASH PROJECTS & MARKETING LTD. 0.30

517168 SUBROS LTD. 0.35


325


513414 SUJANA METAL PRODUCTS LTD. 0.75

500404 SUNFLAG IRON & STEEL CO. LTD. 0.60

521180 SUPER SPINNING MILLS LTD. 0.65

532509 SUPRAJIT ENGINEERING LTD. 0.55

500405 SUPREME PETROCHEM LTD. 0.45

507892 SU-RAJ DIAMONDS (I) LTD. 0.60

513597 SURANA INDUSTRIES LTD. 0.55

500336 SURYA ROSHNI LTD. 0.80

532782 SUTLEJ TEXTILES & INDUSTRIES LTD. 0.25

530239 SUVEN LIFE SCIENCES LTD. 0.40

503310 SWAN MILLS LTD 0.30

500407 SWARAJ ENGINES LTD. 0.50

505192 SWARAJ MAZDA LTD. 0.30

504920 SWIL LTD. 0.90

505854 T R F LTD. 0.60

532515 T.V.TODAY NETWORK LTD. 0.45

531426 TAMIL NADU NEWSPRINT & PAPERS 0.65

500777 TAMILNADU PETROPRODUCTS LTD. 0.65

522229 TANEJA AEROSPACE & AVIATION 0.55

532738 TANTIA CONSTRUCTIONS LTD. 0.50

532301 TATA COFFEE LTD. 0.45

500408 TATA ELXSI LTD. 0.65

513434 TATA METALIKS LTD. 0.55

513010 TATA SPONGE IRON LTD. 0.60

505397 TECHNO ELECTRIC & ENGG. CO. LTD. 0.35

532804 TECHNOCRAFT INDUSTRIES (INDIA) LTD. 0.30

532358 TELE DATA INFORMATICS LTD. 0.90

532218 THE SOUTH INDIAN BANK LTD. 1.00

507450 THIRU AROORAN SUGARS IND LTD. 0.55

500412 THIRUMALAI CHEMICALS LTD. 0.50

500413 THOMAS COOK INDIA LTD. 0.35


326


505196 TIL LTD. 0.60

500414 TIMEX WATCHES 0.30

504966 TINPLATE COMPANY OF INDIA LTD 0.70

532349 TRANSPORT CORPORATION OF INDIA LTD. 0.30

531675 TRICOM INDIA LTD. 0.80

523387 TRITON CORP. LTD. 0.10

517506 TTK PRESTIGE LTD. 0.30

509960 U.P. HOTELS LTD. 0.15

500464 UCAL FUEL SYSTEMS LTD. 0.55

532746 UNITY INFRAPROJECTS LTD. 0.30

504212 UNIVERSAL CABLES LTD. 0.50

517146 USHA MARTIN LTD. 0.60

513216 UTTAM GALVA STEELS LTD. 0.55

532729 UTTAM SUGAR MILLS LTD. 0.20

532619 UTV SOFTWARE COMMUNICATIONS LIMITED 0.55

507880 V.I.P.INDUSTRIES LTD. 0.45

532156 VAIBHAV GEMS LTD. 0.85

511431 VAKRANGEE SOFTWARE LTD. 0.85

532389 VALECHA ENGINEERING LTD. 0.65

500465 VARUN SHIPPING LTD. 0.65

526953 VENUS REMEDIES LTD. 0.80

520113 VESUVIUS INDIA LTD. 0.45

523796 VICEROY HOTELS LTD 0.75

524394 VIMTA LABORATORIES LTD. 0.50

517015 VINDHYA TELELINKS LTD 0.50

532721 VISA STEEL LTD. 0.30

509055 VISAKA INDUSTRIES LTD. 0.60

532214 VISUALSOFT (INDIA) LTD. 0.85

532757 VOLTAMP TRANSFORMERS LTD. 0.50

509966 VST INDUSTRIES LTD. 0.30

507410 WALCHANDNAGAR INDUSTRIES LTD. 0.55


327


524212 WANBURY LTD. 0.60

500443 WARTSILA INDIA LTD. 0.15

517498 WEBEL-SL ENERGY SYSTEMS LTD. 0.65

514162 WELSPUN INDIA LTD. 0.65

505412 WENDT (I) LTD 0.25

500444 WEST COAST PAPER MILLS LTD. 0.50

500238 WHIRLPOOL OF INDIA LTD. 0.20

532788 XL TELECOM LTD. 0.30

517216 YOKOGAWA INDIA LTD. 0.20

506720 ZANDU PHARMA WORKS LTD. 0.60

531845 ZENITH BIRLA (INDIA) LTD. 0.65

532298 ZENITH INFOTECH LTD. 0.40

532039 ZENOTECH LABORATORIES LTD. 0.35

504067 ZENSAR TECHNOLOGIES LTD. 0.20

505163 ZF STEERING GEAR (I) LTD 0.30

531404 ZICOM ELECTRONIC SECURITY SYSTEMS 0.75

521163 ZODIAC CLOTHING CO. LTD. 0.40

500780 ZUARI INDUSTRIES LTD. 0.40


328


Websites: -Ishan Institute of Management & Technology

329


www.bseindia.com

www.nseindia.com

www.valuresearch.com

www.google.com

www.mooneychimp.com

www.amfi-india.com

www.investopedia.com

www.sebi.gov.in

www.rbi.org.in

www.finmin.nic.in

Books and Magazines: -

Indian Securities Market: A Review - NSEIL publication

NSE Newsletters

SC(R)A, 1956 & Rules

SEBI Act, 1992, Rules & Regulations

Depository Act, 1996 & Rules

Rules, Regulations and Byelaws of NSEIL & NSCCL

WORD OF THANKS


330

http://www.finmin.nic.in/

http://www.rbi.org.in/

http://www.sebi.gov.in/

http://www.investopedia.com/

http://www.amfi-india.com/

http://www.mooneychimp.com/

http://www.google.com/

http://www.valuresearch.com/

http://www.nseindia.com/

http://www.bseindia.com/


In the end I thank to all those persons who have directly or indirectly helped me to

complete this project successfully without whose cooperation it was not possible to

complete the project due to various constraints.

I thank to all those readers who will study this project in the future.

I welcome any type of suggestions or comments from the readers.

Thanking you.

Ankush Choudhary

(Enr No.-11007)


331

Final Project on Stock Market

Documents

study of capital market

performance of capital

trend of capital market

structure of capital

overview of capital

international capital

regulation of capital

beginning capital market