kohli1

ONON

NATIONAL STOCK EXCHANGE OF INDIA NATIONAL STOCK EXCHANGE OF INDIACONDUCTED AT

SUBMITTED TO

Kurukshetra University Kurukshetra

In the partial fulfillment for the degree of Master in Business Administration

(SESSION 2010-2011)

Under the supervision of Submitted by

MrNAVEEN BAJAJ AMANDEEP SINGH

Branch manager Roll No 1809904

HARYANA ENGINEERIENG COLLEGE

JAGADHRI (HARYANA)

DECLARATION

This is certify that Mr Amandeep singh a student of MBA has worked on summer project titled ldquoNATIONAL STOCK EXCHANGE OF INDIArdquo after Semester 2nd in partial fulfillment of the requirement for the program His efforts are really appreciable

Date-

ACKNOWLEDGEMENT

A project can never exist and thrive in solitude Project work is never the work of an individual Itrsquos more the combination of view suggestion contribution and work involving many individuals This project also bears the imprint of many people Thus one of the pleasant parts of writing this report is the opportunity to thank all those who have contributed to writing it

I am grateful to my industrial guide respected Mr Naveen Bajaj (Manager Training and Development ANAND RATHI) and all the members who has given me a chance to conduct the research I would also like to thank my MrUjjawal Kumar MrSachin walia without whose efforts the work cannot be accomplished on time

I feel self-short of word to thanks my parents and friends who had directly or indirectly instrumental in completion of project I am indebted to all respondents for their time passion during the long conversation

I would like to thank almighty God for blessing showered on me during the completion of the project report

AMANDEEP SINGH

PREFACE

Summer training is an integral part of MBA course It is meant to make the student familiar with the actual functioning of the real atmosphere of an organization Apart from the theoretical knowledge we get the practical training to understand the natural and normal industrial atmosphere through the participation and observations Project is a bridge between theoretical and practical knowledge I as a student of MBA took up the industrial training at Anand Rathi

Today rapidly changing business world is characterized by Liberalization Privatization and Globalization which poses a challenge for management The information technology has caused a revolution in the field of communication and manner of doing business as most of the information data is available online just whit a click of a button resulting in reduced response time The business is facing competition not only from the national players but also from those in the outside world To be a world class organization is no longer a pious wish or a matter of pride but it is a prerequisite for the survival

The challenges for the topic ldquoNational Stock Exchange of Indiardquo

have increased as never before It is imperative for an organization to offer quality goods and services at a competitive price at the time and place as per the customerrsquos requirement

The project undertaken entitled topic ldquoNational Stock Exchange Of Indiardquo

at Anand Rathi is an attempt to assess the effectiveness of the FINANCE and training programs whit a view to improved them

The project has been done up to the best of the researcherrsquos abilities but there can be some errors She will be highly obliged if they are brought to his notice He welcomes the suggestions and criticism from the reader for the improvements in the project

TABLE OF CONTENTS

Certificate

Declaration

Preface

Acknowledgement

List of tables

List of graphs

CHAPTER 1 INTRODUCTION

CHAPTER 2 REVIEW OF LITERATURE

CHAPTER 3 RESEARCH METHODOLOGY

Objectives of the study

Significance of the study

Scopearea of study

Nature of the study

Nature of the data to be used

Data collection techniques

Data analysis techniques

Hypothesis to be tested

Limitations of the study

CHAPTER 4 RELATED TO THE TOPIC (IN DEPTH STUDY)

CHAPTER 5 ANALYSIS OF DATA

Tabulargraphical presentation

Used statistical techniques

Calculation of hypothesis testing

Interpretation of each table

Sources of data collected

CHAPTER 6 FINDINGS AND SUGGESTIONS

CHAPTER 7 CONCLUSION

BIBLIOGRAPHY

ANNEXURE

INTRODUCTION TO INDIAN MARKETS

THERE ARE TWO TYPES OF MARKETS IN INDIA

TYPES OF FINANCIAL MARKETS

MO

MONEY MARKET

Money market is a market for debt securities that pay off in the short term usually lessthan one year for example the market for 90-days treasury bills This marketencompasses the trading and issuance of short term non equity debt instrumentsincluding treasury bills commercial papers bankers acceptance certificates ofdeposits etcIn other word we can also say that the Money Market is basically concerned with theissue and trading of securities with short term maturities or quasi-money instrumentsThe Instruments traded in the money-market are Treasury Bills Certificates ofDeposits (CDs) Commercial Paper (CPs) Bills of Exchange and other suchinstruments of short-term maturities (ie not exceeding 1 year with regard to theoriginal maturity)

CAPITAL MARKETCapital market is a market for long-term debt and equity shares In this market thecapital funds comprising of both equity and debt are issued and traded This alsoincludes private placement sources of debt and equity as well as organized marketslike stock exchanges

FINANCIAL MARKET

MONEY MARKET CAPITAL MARKET

Capital market can be divided into Primary and Secondary Markets

PRIMARY MARKET

In the primary market securities are offered to public for subscription for the purposeof raising capital or fund Secondary market is an equity trading avenue in whichalready existingpre- issued securities are traded amongst investors Secondarymarket could be either auction or dealer market While stock exchange is the part ofan auction market Over-the-Counter (OTC) is a part of the dealer marketIn addition to the traditional sources of capital from family and friends startup firms arecreated and nurtured by Venture Capital Funds and Private Equity Funds Accordingto the Indian Venture Capital Association Yearbook (2003) investments of $881million were injected into 80 companies in 2002 and investments of $470 million wereinjected into 56 companies in 2003 The firms which received these investments weredrawn from a wide range of industries including finance consumer goods and healthThe growth of the venture capital and private equity mechanisms in India is criticallylinked to their track record for successful exits Investments by these funds onlycommenced in recent years and we are seeing a rapid buildup in a full range ofchannels for exit with a mix of profitable and unprofitable outcomes This success withexit suggests that investors will allocate increased resources to venture funds andprivate equity funds operating in India who will (in turn) be able to fund the creation ofnew firms

SECONDARY MARKET

Secondary Market refers to a market where securities are traded after being initiallyoffered to the public in the primary market andor listed on the Stock ExchangeMajority of the trading is done in the secondary market Secondary market comprisesof equity markets and the debt marketsFor the general investor the secondary market provides an efficient platform fortrading of his securities For the management of the company Secondary equitymarkets serve as a monitoring and control conduitmdashby facilitating value-enhancingcontrol activities enabling implementation of incentive-based management contractsand aggregating information (via price discovery) that guides management decisions

Difference between the primary market and the secondary market

In the primary market securities are offered to public for subscription for thepurpose of raising capital or fund Secondary market is an equity trading avenue inwhich already existingpre- issued securities are traded amongst investors Secondarymarket could be either auction or dealer market While stock exchange is the part ofan auction market Over-the-Counter (OTC) is a part of the dealer market

Main financial productsinstruments dealt in the secondary market

bull Equity The ownership interest in a company of holders of its common andpreferred stock The various kinds of equity shares are as follows ndash

bull Equity Sharesbull An equity share commonly referred to as ordinary share also represents theform of fractional ownership in which a shareholder as a fractional ownerundertakes the maximum entrepreneurial risk associated with a businessventure The holders of such shares are members of the company and havevoting rights A company may issue such shares with differential rights as tovoting payment of dividend etc

bull Rights Issue Rights Shares The issue of new securities to existingshareholders at a ratio to those already held

bull Bonus Shares Shares issued by the companies to their shareholders free ofcost by capitalization of accumulated reserves from the profits earned in theearlier years

bull Preferred Stock Preference shares Owners of these kind of shares areentitled to a fixed dividend or dividend calculated at a fixed rate to be paidregularly before dividend can be paid in respect of equity share They also enjoypriority over the equity shareholders in payment of surplus But in the event ofliquidation their claims rank below the claims of the companyrsquos creditorsbondholders debenture holders

bull Cumulative Preference Shares A type of preference shares on which dividendaccumulates if remains unpaid All arrears of preference dividend have to bepaid out before paying dividend on equity shares

bull Cumulative Convertible Preference Shares A type of preference shareswhere the dividend payable on the same accumulates if not paid After aspecified date these shares will be converted into equity capital of the company

bull Participating Preference Share The right of certain preference shareholders toparticipate in profits after a specified fixed dividend contracted for is paidParticipation right is linked with the quantum of dividend paid on the equityshares over and above a particular specified level

bull Security Receipts Security receipt means a receipt or other security issued bya securitisation company or reconstruction company to any qualified institutionalbuyer pursuant to a scheme evidencing the purchase or acquisition by theholder thereof of an undivided right title or interest in the financial asset involved

in securitisation

bull Government securities (G-Secs) These are sovereign (credit risk-free) couponbearing instruments which are issued by the Reserve Bank of India on behalf ofGovernment of India in lieu of the Central Governments market borrowingprogramme These securities have a fixed coupon that is paid on specific dateson half-yearly basis These securities are available in wide range of maturitydates from short dated (less than one year) to long dated (upto twenty years)

bull Debentures Bonds issued by a company bearing a fixed rate of interest usuallypayable half yearly on specific dates and principal amount repayable onparticular date on redemption of the debentures Debentures are normallysecured charged against the asset of the company in favour of debentureholder

bull Bond A negotiable certificate evidencing indebtedness It is normally unsecuredA debt security is generally issued by a company municipality or governmentagency A bond investor lends money to the issuer and in exchange the issuerpromises to repay the loan amount on a specified maturity date The issuerusually pays the bond holder periodic interest payments over the life of the loanThe various types of Bonds are as follows-

bull Zero Coupon Bond Bond issued at a discount and repaid at a face value Noperiodic interest is paid The difference between the issue price and redemptionprice represents the return to the holder The buyer of these bonds receives onlyone payment at the maturity of the bond

bull Convertible Bond A bond giving the investor the option to convert the bond intoequity at a fixed conversion price

bull Commercial Paper A short term promise to repay a fixed amount that is placedon the market either directly or through a specialized intermediary It is usuallyissued by companies with a high credit standing in the form of a promissory noteredeemable at par to the holder on maturity and therefore doesnrsquot require anyguarantee Commercial paper is a money market instrument issued normally fora tenure of 90 days

bull Treasury Bills Short-term (up to 91 days) bearer discount security issued by theGovernment as a means of financing its cash requirements

2 SEBI

SEBI AND ITS ROLE IN THE SECONDARY MARKET

The SEBI is the regulatory authority established under Section 3 of SEBI Act 1992 toprotect the interests of the investors in securities and to promote the development ofand to regulate the securities market and for matters connected therewith andincidental thereto

Securities and Exchange Board of India constituted under the Resolution of theGovernment of India in the Department of Economic Affairs No1 (44)SE86 dated the12th day of April 1988The Board shall consist of the following members namely-1 A Chairman2 Two members from amongst the officials of the Ministry of the CentralGovernment dealing with Finance (and administration of the Companies Act1956) 2 of 19343 One member from amongst the officials of [the Reserve Bank4 Five other members of whom at least three shall be the whole-time members

Departments of SEBI regulating trading in the secondary market

(1) Market Intermediaries Registration and Supervision department (MIRSD)Registration supervision compliance monitoring and inspections of all marketintermediaries in respect of all segments of the markets viz equity equity derivativesdebt and debt related derivatives

(2) Market Regulation Department (MRD)Formulating new policies and supervising the functioning and operations (exceptrelating to derivatives) of securities exchanges their subsidiaries and marketinstitutions such as Clearing and settlement organizations and Depositories(Collectively referred to as lsquoMarket SROsrsquo)

(3)Derivatives and New Products Departments (DNPD)Supervising trading at derivatives segments of stock exchanges introducing newproducts to be traded and consequent policy changes

POWERS amp FUNCTIONS

1 Regulating the business in stock exchanges and any other securities markets2 Registering and regulating the working of stock brokers sub-brokers sharetransfer agents bankers to an issue trustees of trust deeds registrars to anissue merchant bankers underwriters portfolio managers investment advisersand such other intermediaries who may be associated with securities marketsin any manner3 Registering and regulating the working of the depositories participantscustodians of securities foreign institutional investors credit rating agenciesand such other intermediaries as the board may by notification specify in thisbehalf4 Registering and regulating the working of (venture capital funds and collectiveinvestment schemes) including mutual funds5 Promoting and regulating self-regulatory organizations6 Prohibiting fraudulent and unfair trade practices relating to securities markets7 Promoting investors education and training of intermediaries of securitiesmarkets8 Prohibiting insider trading in securities9 Regulating substantial acquisition of shares and take-over of companies10 Calling for information from undertaking inspection conducting inquiries andaudits of the stock exchanges (mutual funds) and other persons associatedwith the securities market and intermediaries and self- regulatory organizationsin the securities market11 Performing such functions and exercising such powers under the provisions ofsecurities contracts (regulation) act 1956 as may be delegated to it by thecentral government12 Levying fees or other charges for carrying out the purpose of this section13 Conducting research for the above purposes

BOMBAY STOCK EXCHANGE OF INDIA LIMITED

Bombay Stock Exchange Limited is the oldest stock exchangein Asia with a rich heritage Popularly known as BSE it wasestablished as The Native Share amp Stock Brokers Associationin 1875 It is the first stock exchange in the country to obtain permanent recognition in1956 from the Government of India under the Securities Contracts (Regulation) Act1956The Exchanges pivotal and pre-eminent role in the development of the Indian capitalmarket is widely recognized and its index SENSEX is tracked worldwide Earlier anAssociation of Persons (AOP) the Exchange is now a demutualised and corporativeentity incorporated under the provisions of the Companies Act 1956 pursuant to theBSE (Corporatization and Demutualization) Scheme 2005 notified by the Securitiesand Exchange Board of India (SEBI)With demutualization the trading rights and ownership rights have been de-linkedeffectively addressing concerns regarding perceived and real conflicts of interest TheExchange is professionally managed under the overall direction of the Board ofDirectorsThe Board comprises eminent professionals representatives of Trading Members andthe Managing Director of the Exchange The Board is inclusive and is designed tobenefit from the participation of market intermediariesIn terms of organization structure the Board formulates larger policy issues andexercises over-all control The committees constituted by the Board are broad-basedThe day-to-day operations of the Exchange are managed by the Managing Directorand a management team of professionalsThe Exchange has a nation-wide reach with a presence in 417 cities and towns ofIndia The systems and processes of the Exchange are designed to safeguard marketintegrity and enhance transparency in operations During the year 2004-2005 thetrading volumes on the Exchange showed robust growthThe Exchange provides an efficient and transparent market for trading in equity debtinstruments and derivatives The BSEs On Line Trading System (BOLT) is aproprietary system of the Exchange and is BS 7799-2-2002 certified The surveillanceand clearing amp settlement functions of the Exchange are ISO 90012000 certifiedBombay Stock Exchange Limited (BSE) which was founded in 1875 with six brokershas now grown into a giant institution with over 874 registered Broker-Members

spread over 380 cities across the country Today BSEs Wide Area Network (WAN)connecting over 8000 BSE Online Trading (BOLT) System Trader Work Stations(TWS) is one of the largest of its kind in the countryWith a view to provide efficient and integrated services to the investing public throughthe members and their associates in the operations pertaining to the ExchangeBombay Stock Exchange Limited (BSE) has set up a unique Member Services andDevelopment to attend to the problems of the Broker-MembersMember Services and Development Department is the single point interface forinteracting with the Exchange Administration to address to Members issues TheDepartment takes care of various problems and constraints faced by the Members invarious products such as Cash Derivatives Internet Trading and Processes such asTrading Technology Clearing and Settlement Surveillance and InspectionMembership Training Corporate Information etc

PERSONALIZED SERVICE PROVIDERMember Services and Development has put in place the concept of RelationshipManagers whereby an Officer is responsible for providing comprehensive services toa group set of Members alloted to himher The Relationship Managers maintain acomprehensive database on the members and their associatesA distinct feature of the functioning of the Relationship Manager is attending to thediverse problems of the Members at one stop by co-ordinating with variousdepartments thus saving valuable time and energy for the Members This synergeticeffort will benefit both the Exchange and its members in consolidating the businessand exploiting the opportunities

VISION OF BSE

ldquoEmerge as the premier Indian stock exchange byEstablishing global benchmarks

COMMODITY EXCHANGES

There are three categories

bull NCDEXbull MCXbull NMCEIL

A brief description of commodity exchanges are those which trade inparticular commodities neglecting the trade of securities stock indexfutures and options etcIn the middle of 19th century in the United States businessmen beganorganizing market forums to make the buying and selling of commodities

easier These central marketplaces provided a place for buyers andsellers to meet set quality and quantity standards and establish rules ofbusiness

Agricultural commodities were mostly traded but as long as there arebuyers and sellers any commodity can be traded In 1872 a group ofManhattan dairy merchants got together to bring chaotic condition in NewYork market to a system in terms of storage pricing and transfer ofagricultural products

In 1933 during the Great Depression the Commodity Exchange Incwas established in New York through the merger of four small exchan gesndash the National Metal Exchange the Rubber Exchange of New York theNational Raw Silk Exchange and the New York Hide ExchangeThe major commodity markets are in the United Kingdom and in the USAIn india there are 25 recognized future exchanges of which there arethree national level multi-commodity exchanges After a gap of almostthree decades Government of India has allowed forward transactions incommodities through Online Commodity Exchanges a modification oftraditional business known as Adhat and Vayda Vyapar to facilitate betterrisk coverage and delivery of commodities

The three exchanges are

1 National Commodity amp Derivatives Exchange Limited (NCDEX)2 Multi Commodity Exchange of India Limited (MCX)3 National Multi-Commodity Exchange of India Limited (NMCEIL)

All the exchanges have been set up under overall control of ForwardMarket Commission (FMC) of Government of India

National Commodity amp Derivatives Exchange Limited (NCDEX)

National Commodity amp Derivatives Exchange Limited (NCDEX) located in Mumbai is apublic limited company incorporated on April 23 2003 under the Companies Act 1956and had commenced its operations on December 15 2003This is the only commodityexchange in the country promoted by national level institutionsIt is promoted by ICICI Bank Limited Life Insurance Corporation of India (LIC)National Bank for Agriculture and Rural Development (NABARD) and National StockExchange of India Limited (NSE)It is a professionally managed online multi commodity exchange NCDEX is regulatedby Forward Market Commission and is subjected to various laws of the land like theCompanies Act Stamp Act Contracts Act Forward Commission (Regulation) Act andvarious other legislations

Multi Commodity Exchange of India Limited(MCX)

Headquartered in Mumbai Multi Commodity Exchange of India Limited (MCX) is anindependent and de-mutulised exchange with a permanent recognition fromGovernment of India Key shareholders of MCX are Financial Technologies (India)Ltd State Bank of India Union Bank of India Corporation Bank Bank of India andCanara Bank MCX facilitates online trading clearing and settlement operations forcommodity futures markets across the countryMCX started offering trade in November 2003 and has built strategic alliances withBombay Bullion Association Bombay Metal Exchange Solvent ExtractorsrsquoAssociation of India Pulses Importers Association and Shetkari Sanghatana

National Multi-Commodity Exchange of India Limited (NMCEIL)

National Multi Commodity Exchange of India Limited (NMCEIL) is the first demutualzedElectronic Multi-Commodity Exchange in India On 25th July 2001 it wasgranted approval by the Government to organize trading in the edible oil complexIt has operationalised from November 26 2002 It is being supported by CentralWarehousing Corporation Ltd Gujarat State Agricultural Marketing Board andNeptune Overseas Limited It got its recognition in October 2000Commodity exchange in India plays an important role where the prices of anycommodity are not fixed in an organized way Earlier only the buyer of produce andits seller in the market judged upon the prices Others never had a sayToday commodity exchanges are purely speculative in nature Before discovering theprice they reach to the producers end-users and even the retail investors at agrassroots level It brings a price transparency and risk management in the vitalmarket

A big difference between a typical auction where a single auctioneer announces thebids and the Exchange is that people are not only competing to buy but also to sellBy Exchange rules and by law no one can bid under a higher bid and no one canoffer to sell higher than someone elsersquos lower offer That keeps the market as efficientas possible and keeps the traders on their toes to make sure no one gets thepurchase or sale before they do

NSE - A New ideology

The broad objective for which the exchange was set up has made it to play a leadingrole in enlarging the scope of market reforms in securities market in India During lastone decade it has been playing the role of a catalytic agent in reforming the markets interms of market microstructure and in evolving the best market practices keeping inmind the investorsThe Exchange is set up on a demutualised model wherein the ownershipmanagement and trading rights are in the hands of three different sets of people

This has completely eliminated any conflict of interest This has helped NSE toaggressively pursue policies and practices within a public interest frameworkNSEs nationwide automated trading system has helped in shifting the tradingplatform from the trading hall in the premises of the exchange to the computerterminals at the premises of the trading members located at different geographicallocations in the country and subsequently to the personal computers in the homes ofinvestors and even to hand held portable devices for the mobile investors It has beenencouraging corporatization of membership in securities marketIt has also proved to be instrumental in ushering in scrip less trading and providingsettlement guarantee for all trades executed on the Exchange Settlement risks havealso been eliminated with NSEs innovative endeavors in the area of clearing andsettlement viz establishment of the clearing corporation (NSCCL) setting up asettlement guarantee fund (SGF) reduction of settlement cycle implementing on-linereal-time risk management systems dematerialization and electronic transfer ofsecurities to name few of themAs a consequence the market today uses state-of-the-art information technology toprovide an efficient and transparent trading clearing and settlement mechanism Inorder to take care of investors interest it has also created an investors protection fund(IPF) that would help investors who have incurred financial loss due to default ofbrokers

Ownership and Management the NSE

NSE is owned by a set of leading financial institutions banks insurance companiesand other financial intermediaries It is managed by a team of professional managersand the trading rights are with trading members who offer their services to theinvestors

The Board of NSE comprises of senior executives from promoter institutions andeminent professionals without having any representation from trading membersWhile the Board deals with the broad policy issues the Executive Committees whichinclude trading members formed under the Articles of Association and the Rules ofNSE for different market segments set out rules and parameters to manage the dayto-day affairs of the Exchange The ECs have constituted several committees likeCommittee on Trade Related Issues (COTI) Committee on Settlement Issues (COSI)etc comprising mostly of trading members to receive inputs from the marketparticipants and implement suggestions which are in the best interest of the investorsand the market

The day-to-day management of the Exchange is delegated to the Managing Directorand CEO who is supported by a team of professional staff Therefore though the roleof trading members at NSE is to the extent of providing only trading services to theinvestors the Exchange involves trading members in the process of consultation andparticipation in vital inputs towards decision making

Market Segments and Products

NSE provides an electronic trading platform for of all types of securities for investorsunder one roof - Equity Corporate Debt Central and State Government Securities TBillsCommercial Paper Certificate of Deposits (CDs) Warrants Mutual Funds unitsExchange Traded Funds Derivatives like Index Futures Index Options StockFutures Stock Options Futures on Interest Rates etc which makes it one of the fewexchanges in the world providing trading facility for all types of securities on a singleexchange

The Exchange provides trading in 3 different segments viz

bull Wholesale debt market (WDM)

bull Capital market (CM) segment and

bull The futures amp options (FampO) segment

The Wholesale Debt Market segment provides the trading platform for trading of awide range of debt securities which includes State and Central Government securitiesT-Bills PSU Bonds Corporate Debentures CPs CDs etc However along with thesefinancial instruments NSE has also launched various products (eg FIMMDA-NSEMIBIDMIBOR) owing to the market need A reference rate is said to be an accuratemeasure of the market price In the fixed income market it is the interest rate that themarket respects and closely matches In response to this NSE started computing anddisseminating the NSE Mumbai Inter-bank Bid Rate (MIBID) and NSE Mumbai Inter-Bank Offer Rate (MIBOR) Owing to the robust methodology of computation of theserates and its extensive use this product has become very popular among the marketparticipants

Keeping in mind the requirements of the banking industry FIs MFs insurancecompanies who have substantial investments in sovereign papers NSE also startedthe dissemination of its yet another product the lsquoZero Coupon Yield Curversquo This helpsin valuation of sovereign securities across all maturities irrespective of its liquidity inthe market The increased activity in the government securities market in India andsimultaneous emergence of MFs (Gilt MFs) had given rise to the need for a welldefined bond index to measure the returns in the bond market NSE constructed suchan index the lsquoNSE Government Securities Indexrsquo This index provides a benchmarkfor portfolio management by various investment managers and gilt fundsThe Capital Market segment offers a fully automated screen based trading systemknown as the National Exchange for Automated Trading (NEAT) system Thisoperates on a pricetime priority basis and enables members from across the countryto trade with enormous ease and efficiency Various types of securities eg equityshares warrants debentures etc are traded on this system The average dailyturnover in the CM Segment of the Exchange during 2004-05 was nearly Rs 4506crs

NSE started trading in the equities segment (Capital Market segment) on November 31994 and within a short span of 1 year became the largest exchange in India in termsof volumes transacted

Trading volumes in the equity segment have grown rapidly with average daily turnoverincreasing from Rs17 crores during 1994-95 to Rs6253 crores during 2005-06During the year 2005-06 NSE reported a turnover of Rs1569556 crores in theequities segment

The Equities section provides you with an insight into the equities segment of NSEand also provides real-time quotes and statistics of the equities market In-depthinformation regarding listing of securities trading systems amp processes clearing andsettlement risk management trading statistics etc are available here

Technology

Futures amp Options segment of NSE provides trading in derivatives instruments likeIndex Futures Index Options Stock Options Stock Futures and Futures on interestrates Though only four years into itsrsquo operations the futures and options segment ofNSE has made a mark for itself globally In the Futures and Options segment tradingin Nifty and CNX IT index and 53 single stocks are available Wef May 27 2005futures and options would be available on 118 single stocks The average dailyturnover in the FampO Segment of the Exchange during 2004-05 was nearly Rs 10067crs

Technology has been the backbone of the Exchange Providing the services to theinvesting community and the market participants using technology at the cheapestpossible cost has been its main thrust NSE chose to harness technology in creating anew market design It believes that technology provides the necessary impetus for theorganisation to retain its competitive edge and ensure timeliness and satisfaction incustomer service In recognition of the fact that technology will continue to redefine theshape of the securities industryNSE stresses on innovation and sustained investment in technology to remain aheadof competition NSE is the first exchange in the world to use satellite communicationtechnology for trading It uses satellite communication technology to energiseparticipation through about 2829 VSATs from nearly 345 cities spread all over thecountry

The list of towns and cities and the state-wise distribution of VSATs as at end March2005 Its trading system called National Exchange for Automated Trading (NEAT) isa state of the art client server based application At the server end all tradinginformation is stored in an in-memory database to achieve minimum response timeand maximum system availability for usersIt has uptime record of 997 For all trades entered into NEAT system there isuniform response time of less than 15 seconds NSE has been continuouslyundertaking capacity enhancement measures so as to effectively meet therequirements of increased users and associated trading loadsWith recent up gradation of trading hardware NSE can handle up to 6 million tradesper day NSE has also put in place NIBIS (NSEs Internet Based Information System)for on-line real-time dissemination of trading information over the Internet As part ofits business continuity plan NSE has established a disaster back-up site at Chennai

along with its entire infrastructure including the satellite earth station and the highspeedoptical fiber link with its main site at Mumbai

This site at Chennai is a replica of the production environment at Mumbai Thetransaction data is backed up on near real time basis from the main site to the disasterback-up site through the 2 mbps high-speed link to keep both the sites all the timesynchronized with each other

Application Systems

The various application systems that NSE uses for its trading as well clearing andsettlement and other operations form the backbone of the Exchange The applicationsystems used for the day-to-day functioning of the Exchange can be divided into

(a) Front end applications (b) Back office applications

IN THE FRONT END APPLICATION SYSTEM THERE ARE 6 APPLICATIONS

bull NEAT ndash CM system takes care of trading of securities in the Capital Marketsegment that includes equities debenturesnotes as well as retail Gilts TheNEAT ndash CM application has a split architecture wherein the split is on thesecurities and users The application runs on two Stratus systems with OpenStrata Link (OSL) The application has been benchmarked to support 15000users and handle more than 6 million trades daily This application also providesdata feed for processing to some other systems like Index OPMS throughTCPIP This is a direct interface with the trading members of the CM segment ofthe Exchange for entering the orders into the main system There is a two waycommunication between the NSE main system and the front end terminal of thetrading member

bull NEAT ndash WDM system takes care of trading of securities in the Wholesale DebtMarket (WDM) segment that includes Gilts Corporate Bonds CPs T-Bills etcThis is a direct interface with the trading members of the WDM segment of theExchange for entering the orderstrades into the main system There is a two waycommunication between the NSE main system and the front end terminal of thetrading member

bull NEAT ndash FampO system takes care of trading of securities in the Futures andOptions (FampO) segment that includes Futures on Index as well as individualstocks and Options on Index as well as individual stocks This is a direct interfacewith the trading members of the FampO segment of the Exchange for entering theorders into the main system There is a two way communication between the

NSE main system and the front end terminal of the trading member

bull NEAT ndash IPO system is an interface to help the initial public offering ofcompanies which are issuing the stocks to raise capital from the market This is adirect interface with the trading members who are registered for undertakingorder entry on behalf of their clients for IPOs NSE uses the NEAT IPO systemthat allows bidding in severalbull issues concurrently There is a two way communication between the NSEmain system and the front end terminal of the trading member

bull NEAT ndash MF system is an interface with the trading members for order collectionof designated mutual funds units

bull Surveillance system offers the users a facility to comprehensively monitor thetrading activity and analyze the trade data online and offline In the back officethe following important application systems are operative

(A) NCSS (Nationwide Clearing and Settlement System) is the clearing andsettlement system of the NSCCL for the trades executed in the CM segment of theExchange The system has 3 important interfaces ndash OLTL (Online Trade loading) thattakes each and every trade executed on real time basis and allocates the same to theclearing members Depository Interface that connects the depositories for settlementof securities and Clearing Bank Interface that connects the 10 clearing banks forsettlement of funds It also interfaces with the clearing members for all requiredreports Through collateral management system it keeps an account of all availablecollaterals on behalf of all tradingclearing members and integrates the same with theposition monitoring of the trading clearing members The system also generates basecapital adequacy reports

(B) FOCASS is the clearing and settlement system of the NSCCL for the tradesexecuted in the FampO segment ofthe Exchange It interfaces with the clearing membersfor all required reports Through collateral management system it keeps an account ofall available collaterals on behalf of all trading clearing members and integrates thesame with the position monitoring of the tradingclearing members The system alsogenerates base capital adequacy reports

(C) OPMS ndash the online position monitoring system that keeps track of all tradesexecuted for a trading member vis-agrave-vis its capital adequacy

(D) PRISM is the parallel risk management system for FampO trades using StandardPortfolio Analysis (SPAN) It is a system for comprehensive monitoring and loadbalancing of an array of parallel processors that provides complete fault tolerance Itprovides real time information on initial margin value mark to market profit or losscollateral amounts contract-wise latest prices contract-wise open interest and limitsThe system also tracks online real time client level portfolio base upfront marginingand monitoring

(E) Data warehousing that is the central repository of all data in CM as well as FampOsegment of the Exchange

(F) Listing system that captures the data of companies which are listed on theExchange and integrates the same with the trading system for necessary broadcastsinformation dissemination and

(G) Membership system hat keeps track of all required details of the TradingMembers of the Exchange

4 NSE FAMILY

NSCCL

National Securities Clearing Corporation Ltd (NSCCL) a wholly-owned subsidiary ofNSE was incorporated in August 1995 and commenced clearing operations in April1996 It was the first clearing corporation in the country to provide notationsettlementguarantee that revolutionized the entire concept of settlement system in India It wasset up to bring and 9 sustain confidence in clearing and settlement of securities topromote and maintain short and consistent settlement cycles to provide counter-partyrisk guarantee and to operate a tight risk containment system It carries out theclearing and settlement of the trades executed in the equities and derivativessegments of the NSE It operates a well-defined settlement cycle and there are nodeviations or deferments from this cycle It aggregates trades over a trading period Tnets the positions to determine the liabilities of members and ensures movement offunds and securities to meet respective liabilities It also operates a SubsidiaryGeneral Ledger (SGL) for settling trades in government securities for its constituentsIt has been managing clearing and settlement functions since its inception without asingle failure or clubbing of settlements It assumes the counter-party risk of eachmember and guarantees financial settlement It has tied up with 10 Clearing Banksviz Canara Bank HDFC Bank IndusInd Bank ICICI Bank UTI Bank Bank of IndiaIDBI Bank and Standard Chartered Bank for funds settlement while it has directconnectivity with depositories for settlement of securities It has also initiated aworking capital facility in association with the clearing banks that helps clearingmembers to meet their working capital requirements Any clearing bank interested inutilizing this facility has to enter into an agreement with NSCCL and with the clearingmember NSCCL has also introduced the facility of direct payout to clientsrsquo account onboth the depositories It ascertains from each clearing member the beneficiaryaccount details of their respective clients who are due to receive pay out of securitiesIt has provided its members with a front-end for creating the file through which theinformation is provided to NSCCL Based on the information received from membersit sends payout instructions to the depositories so that the client receives the pay outof securities directly to their accounts on the pay-out day NSCCL currently settles

trades under T+2 rolling settlement It has the credit of continuously upgrading theclearing and settlement procedures and has also brought Indian financial markets inline with international markets It has put in place online real-time monitoring andsurveillance system to keep track of the trading and clearing membersrsquo outstandingpositions and each member is allowed to tradeoperate within the pre-set limits fixedaccording to the funds available with the Exchange on behalf of the member Theonline surveillance mechanism also generates various alertsreports on anypricevolume movements of securities not in line with the normal trendspatterns

IISL

India Index Services and Products Limited (IISL) a joint venture of NSE and CreditRating Information Services of India Limited (CRISIL) was set up in May 1998 toprovide indices and index services It has a consulting and licensing agreement withStandard and Poors (SampP) the worlds leading provider of invest able equity indicesfor co-branding equity indices IISL pools the index development efforts of NSE andCRISIL into a coordinated whole It is Indias first specialized company which focusesupon the index as a core product It provides a broad range of products andprofessional index services It maintains over 70 equity indices comprising broadbasedbenchmark indices sectoral indices and customized indices Many investmentand risk management products based on IISL indices have been developed in therecent past These include index based derivatives on NSE a number of index fundsand Indias first exchange traded fund

NSDL

Prior to trading in a dematerialized environment settlement of trades required movingthe securities physically from the seller to the ultimate buyer through the sellers

broker and buyers broker which involved lot of time and the risk of delay somewherealong the chainFurther the system of transfer of ownership was grossly inefficient as every transferinvolved physical movement of paper to the issuer for registration with the change ofownership being evidenced by an endorsement on the security certificate In manycases the process of transfer took much longer than stipulated in the then regulationsTheft forgery mutilation of certificates and other irregularities were rampant All theseadded to the costs and delays in settlement and restricted liquidityTo obviate these problems and to promote dematerialization of securities NSE joinedhands with UTI and IDBI to set up the first depository in India called the NationalSecurities Depository Limited (NSDL)The depository system gained quick acceptance and in a very short span of time itwas able to achieve the objective of eradicating paper from the trading and settlementof securities and was also able to get rid of the risks associated withfakeforgedstolenbad paperDematerialized delivery today constitutes almost 100 of the total delivery basedsettlement

NSE IT

NSEIT Limited a 100 technology subsidiary of NSE was incorporated in October1999 to provide thrust to NSErsquos technology edge concomitant with its overall goal ofharnessing latest technology for optimum business useIt provides the securities industry with technology that ensures transparency andefficiency in the trading clearing and risk management systems Additionally NSEITprovides consultancy services in the areas of data warehousing internet and businesscontinuity plans

Amongst various products launched by NSEIT are NEAT XS a Computer-To-Computer Link (CTCL) order routing system NEAT iXS an internet trading systemand Promos professional brokerrsquos back office system NSEIT also offers an elearningortal invarsitywwwfinvarsitycom) dedicated to the finance sectorThe site is powered by Enlitor - a learning management system developed by NSEITjointly with an e-learning partner New initiatives include payment gateways productsfor derivatives segments and Enterprise Management Services (EMSs)

NCDEX

NSE joined hand with other financial institutions in India viz ICICI Bank NABARDLIC PNB CRISIL Canara Bank and IFFCO to promote the NCDEX which provide aplatform for market participants to trade in wide spectrum of commodity derivativesCurrently NCDEX facilitates trading of 37 agro based commodities 1 base metal and2 precious metal

Shareholders of NSEIL

1 Industrial Development Bank of India Limited2 Industrial Finance Corporation of India Limited3 Life Insurance Corporation of India4 State Bank of India5 ICICI Bank Limited6 IL amp FS Trust Company Limited7 Stock Holding Corporation of India Limited8 SBI Capital Markets Limited9 The Administrator of the Specified Undertaking of Unit Trust of India10 Bank of Baroda11 Canara Bank12 General Insurance Corporation of India13 National Insurance Company Limited14 The New India Assurance Company Limited15 The Oriental Insurance Company Limited16 United Insurance Company Limited17 Punjab National Bank18 Oriental Bank of Commerce19 Corporation Bank

20 Indian Bank21 Union Bank of India

Board of Directors

1 Mr S B Mathur Administrator of the Specified Undertaking of Unit Trust ofIndia Chairman2 Mr Ravi Narain - Managing Directoramp CEO3 Ms Chitra Ramkrishna ndash Managing Director4 Mr R N Bhardwaj Chairman Life Insurance Corporation of India Director5 Mr S P Chhajed Sr Partner Ms Chhajed amp Doshi Chartered AccountantsDirector6 Mr R P Chitale Managing Partner Ms M P Chitale amp Co CharteredAccountants Director7 Mr Indrajit Gupta Managing Director amp CEO SBI Capital Markets LimitedDirector8 Mr N S Kannan Chief Financial Officer amp Treasurer ICICI Bank LimitedDirector9 Mr S H Khan Chairman Feedback First Urban Infrastructure DevelopmentDirector Company Limited10 Mr A P Kurian Chairman Association of Mutual Funds in India Director11 Mr Anand G Mahindra Vice Chairman amp Managing Director Mahindra ampDirector Mahindra Lminted12 Mr Y H Malegam Chartered Accountant Director13 Prof (Dr) K R S Murthy Professor amp Former Director IIM BangaloreDirector14 Mr Ravi Parthasarathy Chairman amp Managing Director ILampFS Ltd Director15 Dr R H Patil Chairman The Clearing Corporation of India Limited Director16 Mr Justice M L Pendse (Retd) Former Chief Justice of Karnataka HighCourt amp Director Judge of Bombay High Court17 Mr M Raghavendra Ex-General Manager General Insurance Corporation ofIndia Director18 Mr S Venkiteswaran Sr Advocate Director(As of March 31 2005 ndash data from wwwnseindiacom)

Executive Committees

ICM amp WDM SEGMENTS

1 Mr Ravi Narain MD amp CEO National Stock Exchange of India Ltd Chairman2 Mr Mukesh Kansal Managing Dircetor Ms K amp A Securities (P) Ltd TradingMember3 Mr Hemang Raja Managing Director Ms ILampFS Investmart Ltd TradingMember4 Mr Shailesh Saraf Wholetime Director Ms Dynamic Equities Pvt LtdTrading Member5 Mr C Parthasarathy Director Ms Karvy Stock Broking Ltd TradingMember6 Mr R P Chitale Managing Partner Ms M P Chitale amp Co PublicChartered Accountants Representative7 Mr Y H Malegam Chartered Accountant Public Representative8 Mr S Venkiteswaran Sr Advocate Public Representative9 Ms Chitra Ramkrishna Dy Managing Director National Stock ExchangeOther Nominees of India Ltd10 Mr P M Venkatasubramanian Ex-Managing Director GIC Other Nominees11 Mr N S Kannan Chief Financial Officer amp Treasurer ICICI Bank Ltd OtherNominees

FampO MARKET SEGMENT

1 Mr Ravi Narain MD amp CEO NSEIL Chairman2 Mr D C Anjaria Director International Finance Solutions Pvt Ltd PublicRepresentative3 Mr Shailesh Haribhakti Partner Ms Haribhakti amp Co Public4 Representative5 Prof V Ravi Anshuman I I M Bangalore Public Representative6 5 Mr Vineet Bhatnagar Managing Director Ms Refco-Sify SecuritiesTrading Member (Pvt) Ltd7 6 Mr Shitin D Desai Executive Vice Chairman Ms DSP Merrill Lynch LtdTrading Member8 Mr M Raghavendra Ex-General Manager General Insurance CorporationOther Nominee of India Ltd9 Mr M L Soneji Director (Operations amp Surveillance) NSEIL Other Nominee(As of March 31 2005 ndash data from wwwnseindiacom)

5 LISTING OF SECURITIES

The stocks bonds and other securities issued by issuers require listing for providingliquidity to investors Listing means formal admission of a security to the tradingplatform of the Exchange It provides liquidity to investors without compromising theneed of the issuer for capital and ensures effective monitoring of conduct of the issuerand trading of the securities in the interest of investors The issuer wishing to havetrading privileges for its securities satisfies listing requirements prescribed in therelevant statutes and in the listing regulations of the Exchange It also agrees to paythe listing fees and comply with listingrequirements on a continuous basis All the issuers who list their securities have tosatisfy the corporate governance requirement framed by regulators

Benefits of Listing on NSE

1048729 NSE provides a trading platform that extends across the length and breadthof the country Investors from approximately 345 centers can avail of tradingfacilities on the NSE trading network Listing on NSE thus enables issuers toreach and service investors across the country1048729 NSE being the largest stock exchange in terms of trading volumes thesecurities trade at low impact cost and are highly liquidity This in turnreduces the cost of trading to the investor1048729 The trading system of NSE provides unparallel level of trade and post-tradeinformation The best 5 buy and sell orders are displayed on the tradingsystem and the total number of securities available for buying and selling isalso displayed This helps the investor to know the depth of the marketFurther corporate announcements results corporate actions etc are alsoavailable on the trading system thus reducing scope for price manipulation ormisuse

1048729 The facility of making initial public offers (IPOs) using NSEs network andsoftware results in significant reduction in cost and time of issues1048729 NSEs web-site wwwnseindiacom provides a link to the web-sites of thecompanies that are listed on NSE so that visitors interested in any companycan visit that companys web-site from the NSE site1048729 Listed companies are provided with monthly trade statistics for the securitiesof the company listed on the Exchange1048729 The listing fee is nominal

CM Segment

Two categories namely listed and permitted to trade categories of securities (equityshares preference shares and debentures) are available for trading in the CMsegment However the permitted to trade category is being phased out gradually andno new company is been given the benefit of this category At the end of March 2005970 listed and 1 permitted to trade companies were available for trading Thesesecurities had a market capitalisation of Rs 1585585 crore

Listing Criteria

The Exchange has laid down criteria for listing of new issues by companiescompanies listed on other exchanges and companies formed byamalgamationrestructuring etc in conformity with the Securities Contracts(Regulation) Rules 1957 and directions of the Central Government and the Securitiesand Exchange Board of India (SEBI) The criteria include minimum paid-up capital andmarket capitalisation project appraisal companypromoters track record etc Theissuers of securities are required to adhere to provisions of the Securities Contracts(Regulation) Act 1956 the Companies Act 1956 the Securities and Exchange Boardof India Act 1992 and the rules circulars notifications guidelines etc prescribedthere under

Listing Agreement

All companies seeking listing of their securities on the Exchange are required to enterinto a listing agreement with the Exchange The agreement specifies all therequirements to be continuously complied with by the issuer for continued listing TheExchange monitors such compliance Failure to comply with the requirements invitessuspension of trading or withdrawaldelisting in addition to penalty under theSecurities Contracts (Regulation) Act 1956 The agreement is being increasingly usedas a means to improve corporate governance

Shareholding Pattern

In the interest of transparency the issuers are required to disclose shareholdingpattern on a quarterly basis On an average the promoters hold more than 5563 oftotal shares Though non-promoter holding is nearly 4437 Indian public held only1703 and the public float (holding by foreign institutional investors mutual fundsand Indian Public) is at best 2727

De-listing

The securities listed on NSE can be de-listed from the Exchange as per the SEBI(Delisting of Securities) Guidelines 2003 in the following manner

Voluntary De-listing of Companies

Any promoter or acquirer desirous of delisting securities of the company under theprovisions of these guidelines shall obtain the prior approval of shareholders of thecompany by a special resolution passed at its general meeting make a publicannouncement in the manner provided in these guidelines make an application to thedelisting exchange in the form specified by the exchange and comply with such otheradditional conditions as may be specified by the concerned stock exchanges fromwhere securities are to be de-listed Any

promoter of a company which desires to de-list from the stock exchange shall alsodetermine an exit price for delisting of securities in accordance with the book buildingprocess as stated in the guidelines The stock exchanges shall provide theinfrastructure facility for display of the price at the terminal of the trading members toenable the investors to access the price on the screen to bring transparency to thedelisting process

Compulsory De-listing of Companies

The stock exchanges may de-list companies which have been suspended for aminimum period of six months for non-compliance with the listing agreement Thestock exchanges have to give adequate and wide public notice through newspapersand also give a show cause notice to a company The exchange shall provide a timeperiod of 15 days within which 30 representation may be made to the exchange byany person who may be aggrieved by the proposed delisting Where the securities ofthe company are de-listed by an exchange the

promoter of the company shall be liable to compensate the security holders of thecompany by paying them the fair value of the securities held by them and acquiringtheir securities subject to their option to remain security-holders with the company

WDM Segment

In the WDM segment all government securities state development loans and treasurybills are deemed listed as and when they are issued The other categories of

securities are traded under the listed category All eligible securities whether publiclyissued or privately placed can be made available for trading in the WDM segmentAmongst other requirements privately placed debt paper of banks institutions andcorporates require credit rating to be eligiblefor listing

6 MEMBERSHIP ADMINISTRATION

The trading in NSE has a three tier structure-the trading platform provided by theExchange the broking and intermediary services and the investing community Thetrading members have been provided exclusive rights to trade subject to theircontinuously fulfilling the obligation under the Rules Regulations Byelaws Circularsetc of the Exchange The trading members are subject to its regulatory discipline Anyentity can become a trading member by complying with the prescribed eligibilitycriteria and exit by surrendering trading membership There are no entryexit barriersto trading membership

Eligibility Criteria

The Exchange stresses on factors such as corporate structure capital adequacytrack record education experience etc while granting trading rights to its membersThis reflects a conscious effort by the Exchange to ensure quality broking serviceswhich enables to build and sustain confidence in the Exchanges operations Thestandards stipulated by the Exchange for trading membership are substantially inexcess of the minimum statutory requirements as also in comparison to thosestipulated by other exchanges in India The exposure and volume of transactions thatcan be undertaken by a trading member are linked to liquid assets in the form of cashbank guarantees etc deposited by the member with the Exchange as part of themembership requirements The trading members are admitted to the differentsegments of the Exchange subject to the provisions of the Securities Contracts(Regulation) Act 1956 the Securities and Exchange Board of India Act 1992 therules circulars notifications guidelines etc issued there under and the byelawsRules and Regulations of the Exchange All trading members are registered withSEBI

Trading MembershipA prospective trading member is admitted to any of the following combinationsof market segments

bull Wholesale Debt Market (WDM) segmentbull Capital Market (CM) and the Futures and Options (FampO) segmentsbull CM Segment the WDM and the FampO segment

In order to be admitted as a trading member at least two directors of the applicantcorporate must be graduates and must possess at least two years experience insecurities markets The applicantany of its partners shareholdersdirectors must nothave been declared defaulters on any stock exchange must not be debarred by SEBIfor being associated with capital market as intermediaries and must not be engaged inany fund-based activity

For the FampO segment at least two dealers should also have passed SEBI-approvedcertification test for derivatives In case of corporate applicant the minimum paid upcapital should be Rs 30 lakh and the dominant promotershareholder group shouldhold at least 51 (40 in case 2 20of listed companies) of paid-up equity capital of such corporate entity The net worthrequired for trading members on CM amp FampO Segment is Rs 100 lakh however a networth of Rs 300 lakh is required for members clearing for self as well as for othertrading members

Clearing Membership

The trades executed on the Exchange may be cleared and settled by a clearingmember The trading members in the CM segment are also clearing members In theFampO segment some members who are registered with SEBI as self-clearingmembers clear and settle their own trades Certain others registered as tradingmember-cum-clearing member clear and settle their own trades as well as trades ofother trading members Besides this there is a special category of members calledprofessional clearing members (PCMs) who do not trade but only clear tradesexecuted by others This means that some members clear and settle their tradesthrough a trading member-cum-clearing member or a PCM not themselves Themembers clearing their own trades or trades of others and the PCMs are required tobring in additional security deposits in respect of every trading member whose tradesthey undertake to clear and settle

Growth and Distribution of Members

As at end March 2005 the Exchange had 891 members including 519 from non-Mumbai centers A large majority (89) of them were corporate members and theremaining individuals and firms There were 881 75 and 661 members in the CMWDM and FampO segments respectively The distribution of trading members on theExchange as at end March 2005 is presented below

Transaction Charges

In addition to annual fees members are required to pay transaction charges on tradesundertaken by them They pay transaction charges at the rate of Rs 4 for every Rs 1lakh of turnover in the CM segment at the rate of Rs 2 for every Rs 1 lakh ofturnover in Futures contracts and at the rate of 5 paise per Rs 1 lakh gross tradevalue up to Rs 25000 crors and at the rate of 2 paise per Rs 1 lakh gross tradedvalue above Rs 25000 crors subject to minimum of Rs 10000 per annum in theWDM segment For the transactions in the Options sub-segment the transactioncharges are levied on the premium value at the rate of 005 (each side)

7 INVESTOR GRIEVANCES

Investors are the backbone of the securities market Protection of their interests isparamount for NSE In furtherance of their interests NSE has put in place systems toensure availability of adequate up-to-date and correct information to investors toenable them to take informed decisions It ensures that critical and price-sensitiveinformation reaching the exchange is made available to all classes of investor at thesame point of timeSuch price-sensitive information as bonus announcements mergers new line ofbusiness etc received from the companies is disseminated to all the marketparticipants through the network of NSE terminals all over India Action is initiated bythe Exchange whenever any kind of price sensitive information is not provided to theExchange at the prescribed time by companies listed on the ExchangeIn an attempt to ease the existing system of information dissemination by the listedcompanies NSE launched the electronic interface for listed companies in August2004 Under the new system all corporate announcements including that of Boardmeetings which needs to be disclosed to the market is handled electronically in astraight through and hands free manner

The Exchange also conducts various seminars and programs for the investors all overthe country with a view of educating them on their rights and obligations Investors arealso made aware of the precautions they need to take while dealing in the securitiesmarket

The Exchange makes an audit trail available on request for all transactions executedon NSE to enable investors to counter-check trade details for the trades executed onhis behalf by the member The Exchange has also prescribed and makes efforts toensure the implementation of various safeguards like time schedules for issuingcontract notes for receiving funds and securities purchased by investors segregationof client funds and securities from those of members etc

In spite of all the necessary steps taken by the Exchange to offer quality services toinvestors it is possible that some investors may still have certain complaintsgrievances For this NSE has put in place a system for redressal of investorgrievances for mattersissues related toagainst trading memberslisted companies

The Investor Grievance Cell (IGC) of NSE is manned by a team of professionalspossessing relevant experience in the areas of securities markets company and legalaffairs and specially trained to identify problems faced by the investor and to find andeffect a solution quickly It takes up complaints in respect of trades executed on theNSE through its NEAT terminal and routed through the NSE trading member or SEBIregistered sub-broker of NSE trading member and trades pertaining to companiestraded on NSE

Investor Protection Fund

Some cushion to the interests of investors is provided by the Investor ProtectionFunds (IPFs) set up by the stock exchange The exchanges maintains an IPF to takecare of investor claims which may arise out of non settlement of obligations by thetrading member who has been declared a defaulter in respect of trades executed onthe Exchange The maximum amount of claim payable from the Fund to the investor isRs 10 lakh

Arbitration

Arbitration is a speedy and alternative dispute resolution mechanism provided by theExchange for resolving disputes between the trading members and between a tradingmember and his client in respect of trades done on the Exchange The arbitrationmechanism is provided by the Exchange in all its Regional offices to facilitate thespeedy dispute resolution mechanism

8 DEMATERIALISATION amp REMATERIALISATION

DEMATERIALISATION MEANING

Dematerialisation is the process by which physical certificates of an investor areconverted to an equivalent number of securities in electronic form and credited into theinvestors account with hisher DP

Dematerializing securities (physical holding into electronic holding)

In order to dematerialize physical securities one has to fill in a DRF (Demat RequestForm) which is available with the DP and submit the same along with physicalcertificates one wishes to dematerialise Separate DRF has to be filled for each ISINNumber The complete process of dematerialisation is outlined belowSurrender certificates for dematerialisation to your depository participantDepository participant intimates Depository of the request through the systemDepository participant submits the certificates to the registrar of the Issuer CompanyRegistrar confirms the dematerialisation request from depositoryAfter dematerialising the certificates Registrar updates accounts and informsdepository of the completion of dematerialisationDepository updates its accounts and informs the depository participantDepository participant updates the demat account of the investor

REMATERIALISATION

The process of rematerialisation is used to convert the electronic holding into physicalholdings If one wishes to get back his securities in the physical form one has to fill inthe RRF (Remat Request Form) and request his DP for rematerialisation of thebalances in his securities account The process of rematerialisation is outlined below

bull One makes a request for dematerialisationbull Depository participant intimates depository of the request through the systembull Depository confirms dematerialisation request to the registrarbull Registrar updates accounts and prints certificatesbull Depository updates accounts and downloads details to depository participantbull Registrar dispatches certificates to investor

Procedure for buying amp selling dematerialised securities

The procedure for buying and selling dematerialised securities is similar to the

procedure for buying and selling physical securities The difference lies in the processof delivery (in case of sale) and receipt (in case of purchase) of securitiesIn case of purchase-

1 The broker will receive the securities in his account on the payout day2 The broker will give instruction to its DP to debit his account and creditinvestors account3 Investor will give lsquoReceipt Instruction to DP for receiving credit by fillingappropriate form However one can give standing instruction for creditinto ones account that will obviate the need of giving Receipt Instruction every time

In case of sale-

The investor will give delivery instruction to DP to debit his account and credit thebrokerrsquos account Such instruction should reach the DPrsquos office at least 24 hoursbefore the pay-in as other wise DP will accept the instruction only at the investorrsquos risk

9 BROKER amp SUB-BROKER

BROKER

A broker is a member of a recognized stock exchange who is permitted to do tradeson the screen-based trading system of different stock exchanges He is enrolled as amember with the concerned exchange and is registered with SEBI

sub broker

A sub broker is a person who is registered with SEBI as such and is affiliated to amember of a recognized stock exchange

Client Agreement Form

This form is an agreement entered between client and broker in the presence ofwitness where the client agrees (is desirous) to tradeinvest in the securities listed onthe concerned Exchange through the broker after being satisfied of brokerscapabilities to deal in securities The member on the other hand agrees to be satisfiedby the genuineness and financial soundness of the client and making client aware ofhis (brokerrsquos) liability for the business to be conducted

Details of Client Registration form

The brokers have to maintain a database of their clients for which you have to fillclient registration form In case of individual client registration you have to broadlyprovide following information1048729 Your name date of birth photograph address educational qualifications

occupation residential status(Resident Indian NRIothers)1048729 Unique Identification Number (wherever applicable)1048729 Bank and depository account details1048729 Income tax No (PANGIR) which also serves as unique client code1048729 If you are registered with any other broker then the name of broker andconcerned Stock exchange and Client Code Number1048729 Proof of identity submitted either as MAPIN UID CardPan NoPassportVoterIDDriving licensePhoto Identity card issued by Employer registered underMAPIN

For proof of address (any one of the following)

1 Passport2 Voter ID3 Driving license4 Bank Passbook5 Rent Agreement6 Ration Card7 Flat Maintenance Bill8 Telephone Bill9 Electricity Bill10 Certificate issued by employer registered under MAPIN11 Insurance Policy

Each client has to use one registration form In case of joint names family members aseparate form has to be submitted for each person

In case of Corporate Client following information has to be provided

1 Name address of the CompanyFirm2 Unique Identification Number (wherever applicable)3 Date of incorporation and date of commencement of business4 Registration number(with ROC SEBI or any government authority)5 Details of PAN Account Number6 Details of PromotersPartnersKey managerial Personnel of theCompanyFirm in specified format7 Bank and Depository Account Details8 Copies of the balance sheet for the last 2 financial years (copies of annualbalance sheet to be submitted every year)9 Copy of latest share holding pattern including list of all those holding morethan 5 in the share capital of the company duly certified by the CompanySecretary Whole time DirectorMD (copy of updated shareholding pattern tobe submitted every year)10 Copies of the Memorandum and Articles of Association in case of a company

body incorporate partnership deed in case of a partnership firm11 Copy of the Resolution of board of directors approving participation in equity derivatives debt trading and naming authorized persons for dealing insecurities12 Photographs of PartnersWhole time directors individual promoters holding5 or more either directly or indirectly in the shareholding of the companyand of persons authorized to deal in securities13 If registered with any other broker then the name of broker and concernedStock exchange and Client Code Number

Unique Client Code

In order to facilitate maintaining database of their clients it is mandatory for all brokersto use unique client code which will act as an exclusive identification for the client Forthis purpose PAN numberpassport numberdriving Licensevoters ID number rationcard number coupled with the frequently used bank account number and thedepository beneficiary account can be used for identification in the given order basedon availability

MAPINMAPIN is the Market Participants and Investors Integrated Database

The SEBI (Central Database of Market Participants) Regulations 2003 were notifiedon November 20 2003 As per these regulations all the participants in the IndianSecurities Market viz SEBI registered intermediaries listed companies and theirassociates and the investors would need to get registered and obtain a UniqueIdentification Number (UIN) The system for allotment of UIN involves the use ofbiometric impressions for natural persons

The major objective is creation of a comprehensive database of market participantsOnce created the database would not only help the regulator in establishing theidentity of person(s) who have taken large exposures in the market andor who aretrading through a large number of different brokers but also enable the regulator totake adequate risk containment measures such as imposition of margins trading orexposure limits etc depending upon the exposures of various investors Hence in theevent of a failure of market integrity an immediate audit trail would be possible andthe regulator would be able to take early preventive and or remedial measures andtrack down the defaulters and or manipulators

It has been decided to suspend all fresh registrations for obtaining UIN and therequirement to obtainquote UIN under the MAPIN RegulationsCirculars with effectfrom July 01 2005

Maximum brokerage that a brokersub broker can charge

The maximum brokerage that can be charged by a broker has been specified in theStock Exchange Regulations and hence it may differ from across various exchangesAs per the BSE amp NSE Bye Laws a broker cannot charge more than 25 brokeragefrom his clients This maximum brokerage is inclusive of the brokerage charged by thesub-broker Further SEBI (Stock brokers and Sub brokers) Regulations 1992stipulates that sub broker cannot charge from his clients a commission which is morethan 15 of the value mentioned in the respective purchase or sale note

Charges that can be levied on the investor by a stock brokersub broker

The trading member can charge1 Brokerage charged by member broker2 Penalties arising on specific default on behalf of client (investor)3 Service tax as stipulated4 Securities Transaction Tax (STT) as applicableThe brokerage service tax and STT are indicated separately in the contract note

STT (Securities Transaction Tax)

Securities Transaction Tax (STT) is a tax being levied on all transactions done on thestock exchanges at rates prescribed by the Central Government from time to timePursuant to the enactment of the Finance (No2) Act 2004 the Government of Indianotified the Securities Transaction Tax Rules 2004 and STT came into effect fromOctober 1 2004

Account Period Settlement

An account period settlement is a settlement where the trades pertaining to a periodstretching over more than one day are settled For example trades for the periodMonday to Friday are settled together The obligations for the account period aresettled on a net basis Account period settlement has been discontinued sinceJanuary 1 2002 pursuant to SEBI directives

Rolling Settlement

In a Rolling Settlement trades executed during the day are settled based on the netobligations for the dayPresently the trades pertaining to the rolling settlement are settled on a T+2 day basiswhere T stands for the trade day Hence trades executed on a Monday are typicallysettled on the following Wednesday (considering 2 working days from the trade day)The funds and securities pay-in and pay-out are carried out on T+2 day

10 PAY-IN DAY AND PAY- OUT DAY

Pay in day is the day when the brokers shall make payment or delivery of securities tothe exchange Pay out day is the day when the exchange makes payment or deliveryof securities to the brokerSettlement cycle is on T+2 rolling settlement basis wef April 01 2003 Theexchanges have to ensure that the pay out of funds and securities to the clients isdone by the broker within 24 hours of the payout The Exchanges will have to issuepress release immediately after pay out

Prescribed pay-in and pay-out days for funds and securities for NormalSettlement

The pay-in and pay-out days for funds and securities are prescribed as per theSettlement Cycle A typical Settlement Cycle of Normal Settlement is given belowctivity ayrading olling Settlement Tradinglearing ustodial Confirmation +1 working dayselivery Generation +1 working daysettlement ecurities and Funds pay in +2 working daysecurities and Funds pay out +2 working daysost Settlement aluation Debit +2 working daysuction +3 working daysad Delivery Reporting +4 working daysuction settlement +5 working dayslose out +5 working daysectified bad delivery pay-in anday-out +6 working dayse-bad delivery reporting and pickup +8 working dayslose out of re-bad delivery +9 working days

11 AUCTION

WHAT IS AN AUCTION

The Exchange purchases the requisite quantity in the Auction Market and gives themto the buying trading member The shortages are met through auction process and thedifference in price indicated in contract note and price received through auction is paidby member to the Exchange which is then liable to be recovered from the client

What happens if the shares are not bought in the auctionIf the shares could not be bought in the auction ie if shares are not offered for sale inthe auction the transactions are closed out as per SEBI guidelinesThe guidelines stipulate that ldquothe close out Price will be the highest price recorded inthat scrip on the exchange in the settlement in which the concerned contract wasentered into and up to the date of auctionclose out OR 20 above the official closingprice on the exchange on the day on which auction offers are called for (and in theevent of there being no such closing price on that day then the official closing price onthe immediately preceding trading day on which there was an official closing price)whichever is higher

Since in the rolling settlement the auction and the close out takes place during tradinghours the reference price in the rolling settlement for close out procedures would betaken as the previous dayrsquos closing price

BIBLIOGRAPHY

1 WWWSEBIGOVIN2 WWWBSEINDIACOM3 WWWNSEINDIACOM4 WWWINDIABUDGETNICIN5 WWWANGELTRADECOM