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    A stock exchange is an entity which provides "trading" facilities for stock brokers and traders , to

    trade stocks and other securities . Stock exchanges also provide facilities for the issue and

    redemption of securities as well as other financial instruments and capital events including the

    payment of income and dividends . The securities traded on a stock exchange include shares

    issued by companies, unit trusts , derivatives , pooled investment products and bonds .

    To be able to trade a security on a certain stock exchange, it has to be listed there. Usually thereis a central location at least for recordkeeping, but trade is less and less linked to such a physical

    place, as modern markets are electronic networks , which gives them advantages of increased

    speed and reduced cost of transactions. Trade on an exchange is by members only.

    The initial offering of stocks and bonds to investors is by definition done in the primary market

    and subsequent trading is done in the secondary market . A stock exchange is often the most

    important component of a stock market . Supply and demand in stock markets is driven by

    various factors which, as in all free markets , affect the price of stocks (see stock valuation ).

    There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be

    subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter .

    This is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges are

    part of a global market for securities.

    The first stock exchange

    In 12th century France the courtiers de change was concerned with managing and regulating the

    debts of agricultural communities on behalf of the banks. As these men also traded in debts, they

    could be called the first brokers .

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    Some stories suggest that the origins of the term "bourse" came from the Latin b ursa meaning a

    b ag because, in 13th century Bruges , the sign of a purse (or perhaps three purses), hung on the

    front of the house where merchants met.

    M ajor stock exchanges

    M ajor Stock Exchanges: Year ended 31 December 2009

    (Source: World Federation of Exchanges - Statistics/ M onthly)

    Economy Stock ExchangeM arket Capitalization

    (USD Billions)

    Trade Value

    (USD Billions)

    United States New York Stock Exchange 11838 17521

    Japan Tokyo Stock Exchange 3306 3704

    United States NASDAQ 3239 13608

    Europe Euro next 2869 1935

    United Kingdom London Stock Exchange 2796 1772

    China Shanghai Stock Exchange 2705 5056

    Hong Kong Hong Kong Stock Exchange 2305 1416

    Canada Toronto Stock Exchange 1677 1245

    Spain BM E Spanish Exchanges 1435 1259

    Brazil BM& F Bovespa 1337 645

    India Bombay Stock Exchange 1307 264

    Germany Deutsche Brse 1292 1517

    Australia Australian Securities Exchange 1225 799

    India National Stock Exchange of India 1225 792

    Switzerland SIX Swiss Exchange 1065 740

    China Shenzhen Stock Exchange 868 2772

    South Korea Korea Exchange 835 1570

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    Nordic Countries NASDAQ Exchange 817 697

    South Africa JSE Limited 799 271

    Taiwan Taiwan Stock Exchange 658 905

    Italy Borsa Italiana 656 948

    Other types of exchanges

    In the 19th century, exchanges were opened to trade forward contracts on commodities .

    Exchange traded forward contracts are called futures contracts . These commodity exchanges later

    started offering future contracts on other products, such as interest rates and shares, as well asoptions contracts. They are now generally known as futures exchanges .

    Stock exchanges roles in the economy .

    1. Raising capital for businesses

    The Stock Exchange provides companies with the facility to raise capital for expansion through

    selling shares to the investing public.

    2. M obilizing savings for investment

    When people draw their savings and invest in shares, it leads to a more rational allocation of

    resources because funds, which could have been consumed, or kept in idle deposits with banks ,

    are mobilized and redirected to promote business activity with benefits for several economic

    sectors such as agriculture , commerce and industry , resulting in stronger economic growth and

    higher productivity levels of firms.

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    3. Facilitating company growth

    Companies view acquisitions as an opportunity to expand product lines , increase distribution

    channels, hedge against volatility, increase its market share , or acquire other necessary business

    assets . A takeover bid or a merger agreement through the stock market is one of the simplest andmost common ways for a company to grow by acquisition or fusion

    4. Profit sharing

    Both casual and professional stock investors , through dividends and stock price increases that

    may result in capital gains , will share in the wealth of profitable businesses.

    5. Corporate governance

    By having a wide and varied scope of owners, companies generally tend to improve on their

    management standards and efficiency in order to satisfy the demands of these shareholders and

    the more stringent rules for public corporations imposed by public stock exchanges and the

    government. Consequently, it is alleged that public companies (companies that are owned by

    shareholders who are members of the general public and trade shares on public exchanges) tend

    to have better management records than privately held companies (those companies where shares

    are not publicly traded, often owned by the company founders and/or their families and heirs, or otherwise by a small group of investors).

    Despite this claim, some well-documented cases are known where it is alleged that there has

    been considerable slippage in corporate governance on the part of some public companies. The

    dot-com bubble in the late 1990's, and the subprime mortgage crisis in 2007-08, are classical

    examples of corporate mismanagement. Companies like (2000), Enron Corporation

    (2001), One.Tel (2001), Sunbeam (2001), Webvan (2001), Adelphia (2002), M CI WorldCom

    (2002), Parmalat (2003), American International Group (2008), Bear Stearns (2008), Lehman

    Brothers (2008), General M otors (2009) and Satyam Computer Services (2009) were among the

    most widely scrutinized by the media.

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    However, when poor financial, ethical or managerial records are known by the stock investors ,

    the stock and the company tend to lose value. In the stock exchanges, shareholders of

    underperforming firms are often penalized by significant share price decline, and they tend as

    well to dismiss incompetent management teams.

    6. Creating investment opportunities for small investors

    As opposed to other businesses that require huge capital outlay, investing in shares is open to

    both the large and small stock investors because a person buys the number of shares they can

    afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares

    of the same companies as large investors.

    7. Government capital-raising for development projects

    Governments at various levels may decide to borrow money in order to finance infrastructure

    projects such as sewage and water treatment works or housing estates by selling another category

    of securities known as bonds . These bonds can be raised through the Stock Exchange whereby

    members of the public buy them, thus loaning money to the government. The issuance of such

    bonds can obviate the need to directly tax the citizens in order to finance development, although

    by securing such bonds with the full faith and cr of the government instead of with collateral, the

    result is that the government must tax the citizens or otherwise raise additional funds to make

    any regular coupon payments and refund the principal when the bonds mature.

    8. Barometer of the economy

    At the stock exchange, share prices rise and fall depending, largely, on market forces. Share

    prices tend to rise or remain stable when companies and the economy in general show signs of

    stability and growth. An economic recession , depression, or financial crisis could eventually lead

    to a stock market crash . Therefore the movement of share prices and in general of the stock

    indexes can be an indicator of the general trend in the economy.

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    Listing requirements

    Listing requirements are the set of conditions imposed by a given stock exchange upon

    companies that want to be listed on that exchange. Such conditions sometimes include minimum

    number of shares outstanding, minimum market capitalization, and minimum annual income.

    Requirements by stock exchange

    Companies have to meet the requirements of the exchange in order to have their stocks and

    shares listed and traded there, but requirements vary by stock exchange:

    Bombay Stock Exchange: Bombay Stock Exchange (BSE) has requirements for a

    minimum market capitalization of Rs.250 M illion and minimum public float equivalentto Rs.100 M illion.

    London Stock Exchange: The main market of the London Stock Exchange has

    requirements for a minimum market capitalization (700,000), three years of audited

    financial statements, minimum public float (25 per cent) and sufficient working capital

    for at least 12 months from the date of listing. NASDAQ Stock Exchange: To be listed on the NASDAQ a company must have issued at

    least 1.25 million shares of stock worth at least $70 million and must have earned more

    than $11 million over the last three years. New York Stock Exchange: To be listed on the New York Stock Exchange (NYSE) a

    company must have issued at least a million shares of stock worth $100 million and must

    have earned more than $10 million over the last three years.

    Indian Stock Exchange :

    India Stock Exchanges can either be a conglomerate/ firm or mutual group. The affiliates act as

    intermediaries to their patrons or as key players for their own accounts.

    Stock Exchanges in India also assist the issue and release of securities and other monetary tools

    incorporating the fortification of revenues and dividends. The book keeping of the trade is

    centralized but the buying and selling is associated to a particular place as advanced

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    marketplaces are mechanized. The buying and selling on an exchange is only open to its

    affiliates and brokers.

    Different Stock Exchanges in India

    (a)National Stock Exchange (NSE) of India

    Integrated in November 1992, the National Stock Exchange of India (NSE) was initially a tariff

    forfeiting association. In 1993, the exchange was certified under Securities Contracts

    (Regulation) Act, 1956 and in June 1994 it started its business functioning in the Wholesale Debt

    M arket (WD M ). The Equities division of NSE began its operations in 1994 while in 2000 the

    corporation incorporated its Derivatives division.

    (b) Bombay Stock Exchange (BSE) of India

    The oldest stock market in Asia, BSE stands for Bombay Stock Exchange and was initially

    known as "The Native Share & Stock Brokers Association." Incorporated in the 1875, BSE

    became the first exchange in India to be certified by the administration. It attained a permanent

    authorization from the Indian government in 1956 under Securities Contracts (Regulation) Act,


    Over the year, the exchange company has played an essential part in the expansion of Indian

    investment market. At present the association is functioning as corporatized body integrated

    under the stipulations of the Companies Act, 1956.

    (c) Regional Stock Exchanges (RSE) of India

    The Regional Stock Exchanges in India started spreading its business operation from 1894. The

    first RSE to start its functioning in India was Ahmadabad Stock Exchange (ASE) followed by

    Calcutta Stock Exchange (CSE) in 1908.

    The stock exchange in India witnessed a flourishing phase in 1980s with the incorporation of

    many exchanges under it. In early 60s, it has only few certifies RSEs under it namely Hyderabad

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    Stock Exchange, Indore Stock Exchange, M adras Stock Exchange, Calcutta Stock Exchange and

    Delhi Stock Exchange. The recent to join the list was M eerut Stock Exchange and Coimbatore

    Stock Exchange.

    Functions of Stock Exchange

    Functions done by the stock exchange market in favor of the investor:

    It permits him the access to the profitable activities of the big companies. It offers liquidity to the security investments, through a place in which to sell or buy

    securities. It permits for the investor to have a political power in the companies in which he invests

    its savings due that the acquisition of ordinary shares gives him the right (among other

    things) to vote in the general shareholders meetings of the company in question. It offers the possibility of diversifying your portfolio by enlarging the field of strategy of

    investments due to alternative options, as could be the derived market, the money market,


    The function done by the stock exchange market in favor of the companies:

    It supplies them with the obtaining of long-term funds that permits the company to make

    profitable activities or to do determine projects that otherwise wouldnt be possible to

    develop for lack of financing. Also, this funding signifies a less cost than if obtained at

    other channels.

    The securities quoted at the stock exchange market usually have more fiscal purpose

    advantages for the companies. It offers to the companys free publicity, which in other way would suppose considerable

    expenses. The institution is objecting of attention of the media (television, radio, etc.) incase any important change in its owners (the share holders).

    The Functions of the stock exchange market as an organization are:

    To guarantee the legal and economic security of the agreed contracts.

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    To provide official information about the quantities that are negotiated and of the quoted

    prices. To fix the prices of the securities according to the fundamental law of the offer and the


    Characteristics of Stock Exchanges in India

    Traditionally, a stock exchange has been an association of individual members called

    member brokers (or simply members or brokers), formed for the express purpose of regulating

    and facilitating buying and selling of securities by the public and institution at large.

    A stock exchange in India operates with due recognition from the government under the

    Securities and Contracts (Regulations) Act, 1956. the member brokers are essentially the

    middlemen who carry out the desired transactions in securities on behalf of the public(for a

    commission) or on their own behalf. New membership to a Stock Exchange is through election

    by the governing board of that stock exchange.

    At present, there are 23 stock exchanges in India, the largest among them being the

    Bombay Stock Exchange. BSE alone accounts for over 80% of the total volume of transactions

    in shares.

    Typically, a stock exchange is governed by a board consisting of directors largely elected

    by the member brokers, and a few nominated by the government. Government nominee include

    representatives of the ministry of finance, as well as some public representatives, who areexpected to safeguard the public interest in the functioning of the exchanges. A president, who is

    an elected member, usually nominated by the government from among the elected members,

    heads the board. The executive director, who is usually appointed by the by the stock exchange

    with the government approval is the operational chief of the stock exchange. His duty is to

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    ensure that the day to day operations the Stock Exchange are carried out in accordance with the

    various rules and regulations governing its functioning.

    The overall development and regulation of the securities market has been entrusted to the

    Securities and Exchange Board of India (SEBI) by an act of parliament in 1992. All

    companies wishing to raise capital from the public are required to list their securities on at least

    one stock exchange. Thus, all ordinary shares, preference shares and debentures of the publicly

    held companies are listed in the stock exchange.

    Exchange management

    M ade some attempts in this direction, but this did not materially alter the situation. In view of the

    less than satisfactory quality, of administration of broker-managed exchanges, the finance

    minister in march 2001 proposed demutualisation of exchanges by which ownership,

    management and trading membership would be segregated from each other. The regulators areworking towards implementing this. Of the 23 stock exchanges in India, two stock exchanges

    viz., OTCEI and NSE are already demutualised. Board of directors, which do not include trading

    members, manages these. Theses are purest form of demutualised exchanges, where ownership,

    management and trading are in the hands of three sets of people. The concept of demutualisation

    completely eliminates any conflict of interest and helps the exchange to pursue market efficiency

    and investors interest aggressively

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    The SEBI, that is, the Securities and the Exchange Board of India, is the national regulatory body

    for the securities market, set up under the securities and Exchange Board of India act, 1992, to

    protect the interest of investors in securities and to promote the development of, and to regulate

    the securities market and for matters connected therewith and incidental too.

    SEBI has its head office in M umbai and it has now set up regional offices in the metropolitan

    cities of Kolkata, Delhi, and Chennai. The Board of SEBI comprises a Chairman, two membersfrom the central government representing the ministries of finance and law, one member from

    the Reserve Bank of India and two other members appointed by the central government.

    As per the SEBI act, 1992, the power and functions of the Board encompass the regulation of

    Stock Exchanges and other securities markets; registration and regulation of the working stock

    brokers, sub-brokers, bankers to an issue (a public offer of capital), trustees of trust deeds,

    registrars to an issues, merchant bankers, under writers, portfolio managers, investment advisors

    and such other intermediaries who may be associated with the stock market in any way;

    registration and regulations of mutual funds; promotion and regulation of self- regulatory

    organizations; prohibiting Fraudulent and unfair trade practices and insider trading in securities

    markets; regulating substantial acquisition of shares and takeover of companies; calling for

    information from,undertking inspection, conducting inquiries and audits of stock exchanges,

    intermediaries and self- regulatory organizations of the securities market; performing such

    functions and exercising such powers as contained in the provisions of the Capital Issues

    (Control) Act,1947 and the Securities Contracts (Regulation) Act, 1956, levying various fees and

    other charges, conducting necessary research for above purposes and performing such other

    functions as may be prescribes from time to time.

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    SEBI as the watchdog of the industry has an important and crucial role in the market in ensuring

    that the market participants perform their duties in accordance with the regulatory norms. The

    Stock Exchange as a responsible Self Regulatory Organization (SRO) function to regulate the

    market and its prices as per the prevalent regulations. SEBI and the Exchange play

    complimentary roles to enhance the investor protection and the overall quality of the market.

    M embership

    The trading platform of a stock exchange is accessible only to brokers. The broker enters into

    trades in exchanges either on his own account or on behalf of clients. The clients may place their

    order with them directly or a sub-broker indirectly. A broker is admitted to the membership of an

    exchange in terms of the provisions of the SCRA, the SEBI act 1992, the rules, circulars,notifications, guidelines, etc. prescribed there under and the byelaws, rules and regulations of the

    concerned exchange. No stockbroker or sub-broker is allowed to buy, sell or deal in securities,

    unless he or she holds a certificate of registration granted by SEBI. A broker/sub-broker

    compiles with the code of conduct prescribed by SEBI.

    The stock exchanges are free to stipulate stricter requirements for its members than those

    stipulated by SEBI. The minimum standards stipulated by NSE for membership are in excess of

    the minimum norms laid down by SEBI. The standards for admission of members laid down by

    NSE stress on factors, such as, corporate structure, capital adequacy, track record, education,

    experience, etc. and reflect the conscious endeavors to ensure quality broking services.


    Listing means formal admission of a security to the trading platform of a stock exchange,

    invariably evidenced by a listing agreement between the issuer of the security and the stock

    exchange. ; Listing of securities on Indian Stock Exchanges is essentially governed by the

    provisions in the companies act, 1956, SCRA, SCRR, rules, bye-laws and regulations of the

    concerned stock exchange, the listing agreement entered into by the issuer and the stock

    exchange and the circulars/ guidelines issued by central government and SEBI

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    Index services

    Stock index uses a set of stocks that are representative of the whole market, or a specified sector

    to measure the change in overall behavior of the markets or sector over a period of time. India

    Index Services & Products Limited (IISL), promoted by NSE and CRISIL, is the only

    specialized organization in the country to provide stock index services.

    Trading M echanism

    All stock exchanges in India follow screen-based trading system. NSE was the first stock

    exchange in the country to provide nation-wide order-driven, screen-based trading system. NSE

    model was gradually emulated by all other stock exchanges in the country. The trading system atNSE known as the National Exchange for Automated Trading (NEAT) system is an anonymous

    order-driven system and operates on a strict price/time priority. It enables members from across

    the countries to trade simultaneously with enormous ease and efficiency. NEAT has lent

    considerable depth in the market by enabling large number of members all over the country to

    trade simultaneously and consequently narrowed the spreads significantly. A single consolidated

    order book for each stock displays, on a real time basis, buy and sell orders originating from all

    over the country. The bookstores only limit orders, which are orders to buy or sell shares at a

    stated quantity and stated price. The limit order is executed only if the price quantity conditions

    match. Thus, the NEAT system provides an open electronic consolidated limit order book

    (OECLOB). The trading system provides tremendous flexibility to the users in terms of kinds of

    orders that can be placed on the system. Several time-related (Good-Till-Cancelled, Good-

    TillDay, Immediate-or-Cancel), price related (buy/sell limit and stop-loss orders) or volume

    related (All-or-None, M inimum Fill, etc.) conditions van be easily built into an order. Orders are

    sorted and match automatically by the computer keeping the system transparent, objective and

    fair. The trading system also provides complete market information on-line, which is updated on

    real time basis. The trading platform of the C M segment of NSE is accessed not only from the

    computer terminals from the premises of brokers spread over 420 cities, but also from the

    personal computers in the homes of investors through the internet and from the hand-held

    devices through WAP. The trading platform of BSE is also accessible from 400 cities.

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    Internet trading is available on NSE and BSE, as of now. SEBI has approved the use of Internet

    as an order routing system, for communicating clients orders to the exchanges through brokers.

    SEBI- registered brokers can introduce internet-based trading after obtaining permission from

    the respective Stock Exchanges. SEBI has stipulated the minimum conditions to be fulfilled by

    trading members to start internet-based trading and services.

    BSE /NSE

    M utual Funds Commodity

    Listed Schemes

    Open Ended

    Close Ended

    M utual Funds News

    Latest NAV's

    more ...

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    Scheme Code


    M CX

    NM CEIL Bullion

    Agro Products

    M etals

    more ...

    NSE was the first exchange in the country to provide web-based access to investors to trade

    directly on the exchange. It launched Internet trading in February 2000. It was followed by the

    launch of Internet trading by BSE in M arch 2001. The orders originating from the personal

    computers (PCs) of investors are routed through the Internet tot eh trading terminals of the

    designated brokers with whom they have relations and further to the exchange of trade

    execution. Soon after these orders get matched and result into trades, the investors get

    confirmation about them on their PCs through the same Internet routes.

    SEBI approved trading through wireless medium or WAP platform. NSE is the only exchange to

    provide access to its order book through the hand held devices, which use WAP technology. This

    serves primarily retail investors who are mobile and want to trade from any place when themarket prices for st0ocks of their choice are attractive.

    Demat Trading

    A depository holds securities in dematerialized form. It maintains ownership records of securities

    in a book entry form and also effects transfer of ownership through book entry. SEBI has

    introduced some degree of compulsion in trading and settlement of securities in dematerialized

    form. While the investors have a right to hold securities in either physical or demat form, SEBI

    has mandated compulsory trading and settlement of securities in dematerialized form. This was

    initially introduced for institutional investors and was later extended to all investors. Starting

    with 12 scrips on January 15, 1998, all investors are required to mandatorily trade in

    dematerialized form in respect of 2,335 securities as at end-June, 2001.

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    Since the introduction of the depository system, dematerialization has progressed at a fast pace

    and has gained acceptance among the participants in the market. All actively traded scrips are

    held, traded and settled in demat form. The details of progress in dematerialization in two

    depositories, viz., NSDL and CDSL., are presented as below:

    In a SEBI working paper titled Dematerialization: A Silent Revolution in the Indian Capital

    M arket released in April 2000, it has been observed that India has achieved a very high level of

    dematerialization in less than three years time, and currently more than 99%of trades settle in

    demand form. Competition and regulatory developments facilitated reduction in custodial

    charges and improvements in qualities of service standards. The paper observes that one

    imminent and apparent immediate benefit of competition between the two depositories is fall insettlement and other charges. Competition has been driving improvement in service standards.

    Depository facility has effected changes in stock market microstructure. Breadth and depth of

    investment culture has further got extended to interior areas of the country faster. Explicit

    transaction cost has been falling due to dematerialization. Dematerialization substantially

    contributed to the increased growth in the turnover. Dematerialization growth in India is the

    quickest among all emerging markets and also among developed markets excepting for the U.K

    and Hong Kong.


    The Stock Exchange, Bombay (BSE) is the premier Stock Exchange in India. The BSE

    accounted for 46 per cent of listed companies on an all India basis as on 31st M arch 1994. It

    ranked first in terms of the number of listed companies and stock issues listed. The capital listed

    in the BSE as on 31st M arch 1994 accounted for 50% of the overall capital listed on all the stock

    exchanges. Its share of the market capitalization was around 74% as on the same date. The

    paidup capital of equity, debentures/bonds and preference were 73%, 31%, 44% respectively of

    the overall capital listed on all the Stock Exchanges as on the same date.

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    On the BSE, the Steel Authority of India had the largest market capitalization of Rs.19, 908

    crores as on the 31st M arch, 1994 followed by the State Bank of India with the market

    capitalization of Rs.16, 702 crores and M ahanagar Telephone Nigam Limited with the market

    capitalization of Rs.11, 700 crores.


    The BSE SENSEX, short form of Sensitive Index, first compiled in 1986 is a market

    Capitalization-Weighted index of 30 component stocks representing a sample of large,

    wellestablished and financially sound companies. The index is widely reported in both, the

    domestic international, print electronic media and is widely used to measure the used to measure

    the performance of the Indian stock markets.

    The BSE SENSEX is the benchmark index of the Indian capital market and one, which has the

    longest social memory. In fact the SENSEX is considered to be the pulse of the Indian stock

    markets. It is the oldest index in India and has acquired a unique place in collective

    consciousness of the investors. Further, as the oldest index of the Indian Stock M arket, it

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    provides time series data over a fairly long period of time. Small wonder that the SENSEX has

    over the years has become one of the most prominent brands of the Country.

    Objectives of SENSEX

    The BSE SENSEX is the benchmark index with wide acceptance among individual investors,

    institutional investors, foreign investors, foreign investors and fund managers. The objectives of

    the index are:

    To measure market movements Given its long history and its wide acceptance, no other index

    matches the BSE SENESX in the reflecting market movements and sentiments. SENSEXis

    widely used to describe the mood in the Indian stock markets.

    Benchmark for funds performance The inclusion of blue chip companies and the wide and

    balanced industry Representation in the SENSEX makes it the ideal benchmark for fund

    managers to compare the performance of their funds.

    For index based derivatives products Institutional investors, money managers and small

    investors, all refer to the BSE

    SENSEX for their specific purposes. The BSE SENSEXis in effect the proxy for the Indian stock

    markets. Since SENSEXcomprises of the leading companies in allthe significant sectors in the

    economy, we believe that it will be the most liquid contract in the Indian market and will garner

    a predominant market share.

    Companies represented in the SENSEX

    Company name (As on 15.06.01) Hindustan lever Reliance limited Infosys technologies

    Reliance petroleum ITC State bank of India M TNL Satyam computers Zee telefilms Ranbaxy

    labs ICICI Larsen & toubro Cipla Hindalco HPCL TISCO Nestle Sector F M CG Chemicals and

    petrochemicals Information technology Oil and gas F M CG Finance Telecom Information

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    technology M edia Healthcare Finance Diversified Healthcare M etals and mining M etal and

    mining M etal and mining F M CG

    Trading System

    Till Now, buyers and sellers used to negotiate face-to-face on the trading floor over a security

    until agreement was reached and a deal was struck in the open outcry system of trading, that used

    to take place in the trading ring. The transaction details of the account period (called settlement

    period) were submitted for settlement by members after each trading session.

    The computerized settlement system initiated the netting and clearing process by providing on a

    daily basis statements for each member, showing matched and unmatched transactions.

    Settlement processing involves computation of each member's net position in each security, after

    taking into account all transactions for the member during the settlement period, which is 10

    working days for group 'A' securities and 5 working days for group 'B' securities.

    Trading is done by members and their authorized assistants from their Trader Work Stations

    (TWS) in their offices, through the BSE On-Line Trading (BOLT) system. BOLT system has

    replaced the open outcry system of trading. BOLT system accepts two-way quotations from

    jobbers, market and limit orders from client-brokers and matches them according to the matching

    logic specified in the Business Requirement Specifications (BRS) document for this system.

    The matching logic for the Carry-Forward System as in the case of the regular trading system is

    quote driven with the order book functioning as an "auxiliary jobber".

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    The Exchange, which had an open outcry trading system, had switched over to a fully automated

    computerized mode of trading known as BOLT (BSE on Line Trading) System. Through the

    BOLT system the members now enter orders from Trader Work Stations (TWSs) installed in

    their offices instead of assembling in the trading ring. This system, which was initially both order

    and quote driven, was commissioned on M arch 14, 1995. However, the facility of placing of

    quotes has been removed w.e.f., August 13, 2001 in view of lack of market interest and to

    improve system-matching efficiency. The system, which is now only order driven, facilitates

    more efficient processing, automatic order matching and faster execution of orders in atransparent manner.

    Earlier, the members of the Exchange were permitted to open trading terminals only in M umbai.

    However, in October 1996, the Exchange obtained permission from SEBI for expansion of its

    BOLT network to locations outside M umbai. In terms of the permission granted by SEBI and

    certain modifications announced later, the members of the Exchange are now free to install their

    trading terminals at any place in the country. Shri P. Chidambaram inaugurated the expansion of

    BOLT network the then Finance M inister, Government of India on August 31, 1997.

    In order to expand the reach of BOLT network to centers outside M umbai and support the

    smaller Regional Stock Exchanges, the Exchange has, as on M arch 31, 2002, admitted subsidiary

    companies formed by 13 Regional Stock Exchanges as its members. The members of these

    Regional Stock Exchanges work as sub-brokers of the member-brokers of the Exchange.

    The objectives of granting membership to the subsidiary companies formed by the Regional

    Stock Exchanges were to reach out to investors in these centers via the members of these

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    Regional Exchanges and provide the investors in these areas access to the trading facilities in all

    scrips listed on the Exchange.

    Trading on the BOLT System

    Trading on the BOLT System is conducted from M onday to Friday between 9:55 a.m. and 3:30

    p.m. The scrips traded on the Exchange have been classified into 'A', 'B1', 'B2', 'F' and 'Z' groups.

    The number of scrips listed on the Exchange under 'A', 'B1 ', 'B2' and 'Z' groups, which represent

    the equity segment, as on M arch 31, 2002 was 173, 560,1930 and 3044 respectively. The 'F'

    group represents the debt market (fixed income securities) segment wherein 748 securities were

    listed as on M arch 31, 2002. The 'Z' group was introduced by the Exchange in July 1999 andcovers the companies which have failed to comply with listing requirements and/or failed to

    resolve investor complaints or have not made the required arrangements with both the

    Depositories, viz., Central Depository Services (I) Ltd. (CDSL) and National Security

    Depository Ltd. (NSDL) for dematerialization of their securities by the specified date, i.e.,

    September 30, 2001. Companies in "Z" group numbered 3044 as on M arch 31, 2002. Of these,

    1429 companies were in "Z" group for not complying with the provisions of the Listing

    Agreement and/or pending investor complaints and the balance 1615 companies were on account

    of not making arrangements for dematerialization of their securities with both the Depositories.

    1615 companies have been put in "Z" group as a temporary measure till they make arrangements

    for dematerialization of their securities. Once they finalize the arrangements for

    dematerialization of their securities, trading and settlement in their scrips would be shifted to

    their respective erstwhile groups.

    The Exchange has also the facility to trade in "C" group which covers the odd lot securities in

    'A', 'B1', 'B2' and 'Z' groups and Rights renunciations in all the groups of scrips in the equity

    segment. The Exchange, thus, provides a facility to market participants of on-line trading in odd

    lots of securities and Rights renunciations. The facility of trading in odd lots of securities not

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    only offers an exit route to investors to dispose of their odd lots of securities but also provides

    them an opportunity to consolidate their securities into market lots.

    The 'C' group can also be used by investors for selling upto 500 shares in physical form in

    respect of scrips of companies where trades are to be compulsorily settled by all investors in

    demat mode. This scheme of selling physical shares in compulsory demat scrips is called as Exit

    Route Scheme.

    With effect from December 31, 2001, trading in all securities listed in equity segment of the

    Exchange takes place in one market segment, viz., Compulsory Rolling Settlement Segment.

    Permitted Securities The Exchange has since decided to permit trading in the securities of the

    companies listed on other Stock Exchanges under " Permitted Securities" category which meet

    the relevant norms specified by the Exchange. Accordingly, to begin with the Exchange has

    permitted trading in scrips of five companies listed on other Stock Exchanges w.e.f. April 22,

    2002/ Computation of closing price of scrips in the Cash Segment: The closing prices of scrips

    are computed on the basis of weighted average price of all trades in the last 15 minutes of the

    continuous trading session. However, if there is no trade during the last 15 minutes, then the last

    traded price in the continuous trading session is taken as the official closing price.

    A) Compulsory Rolling Segment (CRS):

    Compulsory Rolling Settlement (CRS) Segment:

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    With a view to introduce the best international trading practices and to achieve higher settlement

    efficiency, as mandated by SEBI, trades in all the equity shares listed on the Exchange in CRS

    Segment were to be settled on T+5 basis w.e.f. December 31, 2001. SEBI has further directed the

    Stock Exchanges that trades in all scrips w.e..f. April 1, 2002 should be settled on T+3 basis.

    Accordingly, all transactions in all groups of securities in the equity segment and fixed income

    securities listed on the Exchange are settled on T+3 basis w.e.f. April 1, 2002

    Under a rolling settlement environment, the trades done on a particular day are settled after a

    given number of business days rather than settling all trades done during a period at the end of an

    'account period'. A T+3 settlement cycle means that the final settlement of transactions done on

    T or trade day by exchange of monies and securities, occurs on fifth business day after the tradeday.

    The transactions in securities of companies which have made arrangements for dematerialization

    of their securities by the stipulated date are settled only in Demat mode on T+3 on net basis, i.e.,

    buy and sale positions in the same scrip are netted and the net quantity is to be settled. However,

    transactions in securities of companies, which have failed to make arrangements for

    dematerialization of their securities or /are in "Z" group, are settled only on trade to trade basis

    on T+3 i.e., the transactions are settled on a gross basis and the facility of netting of buy and sale

    transactions in a scrip is not available. For example, if one buys and sells 100 shares of a

    company on the same day which is on trade to trade basis, the two positions will not be netted

    and he will have to first deliver 100 shares at the time of pay-in of securities and then receive

    100 shares at the time of pay-out of securities on the same day. Thus, if one fails to deliver the

    securities sold at the time of pay-in, it will be treated as a shortage and the position will be

    auctioned/ closed-out.

    In other words, the transactions in scrips of companies which are in compulsory demat are settled

    in demat mode on T+3 on netting basis and the transactions in scrips of companies, which have

    not made arrangements for dematerialization of their securities by the stipulated date or are in

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    "Z" group for other reasons, are settled on trade to trade basis on T+3 either in demat mode or in

    physical mode.

    The settlement of transactions in 'F' group securities representing Fixed Income Securities is also

    on Rolling Settlement Cycle of T+3 basis.

    The following tables summarizes the steps in the trading and settlement cycle for scrips under



    Trading on BOLT and daily downloading of statements showing details of transactions andmargins at the end of each trading day.

    6A/7A entry by the member-brokers.


    Confirmation of 6A/7A data by the Custodians. Downloading of securities and funds obligation

    statement by members.

    T+3 Pay-in of funds and securities by 11:00 a.m. and pay-out of funds and securities by 2:00 p.m

    T+4 Auction on BOLT.

    T+5 Auction pay-in and pay-out.

    * 6A/7A : A mechanism whereby the obligation of settling the transactions done by a

    memberbroker on behalf of a client is passed on to a custodian based on his confirmation.

    Thus, the pay-in and pay-out of funds and securities takes places on the 3rd working day of the

    execution of the trade.

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    The Information Systems Department of the Exchange generates the following statements, which

    can be downloaded by the members in their back offices on a daily basis.

    Statements giving details of the daily transactions entered into by the members.

    Statements giving details of margins payable by the members in respect of the trades executed by


    The settlement of the trades (money and securities) done by a member on his own account or on

    behalf of his individual, corporate or institutional clients may be either through the member

    himself or through a SEBI registered Custodian appointed by him or the respective client. In casethe delivery/payment is to be given or taken by a registered Custodian, he has to confirm the

    trade done by a member on the BOLT System through 6A-7A entry. For this purpose, the

    Custodians have been given connectivity to BOLT System and have also been admitted as

    members of the Clearing House. In case a transaction is not confirmed by a registered Custodian,

    the liability for pay-in of funds or securities in respect of the same devolves on the concerned


    The introduction of settlement on T+3 basis has resulted in reduction in settlement risk, provided

    early receipt of securities and monies to buyers and sellers respectively and brought Indian

    Capital M arkets at the international standard of settlements


    Pay-in and Pay-out for 'A', 'B1', 'B2', 'C', "F" & 'Z' group of securities

    As discussed earlier, the trades done by members in all the securities in CRS are now settled by

    payment of money and delivery of securities on T+3 basis. All deliveries of securities are

    required to be routed through the Clearing House, except for certain off-market transactions

    which, although are required to be reported to the Exchange, may be settled directly between the

    members concerned.

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    The Clearing House is an independent company promoted jointly by Bank of India and Stock

    Exchange, M umbai for handling the clearing and settlement operations of funds and securities on

    behalf of the Exchange. For this purpose, the Clearing & Settlement Dept. of the Exchange

    liaises with the Clearing House on a day to day basis.

    The Information Systems Department (ISD) of the Exchange generates Delivery and Receive

    Orders for transactions done by the members in A, B1, B2 and F group scrips after netting

    purchase and sale transactions in each scrip whereas Delivery and Receive Orders for "C" and

    "Z" group scrips are generated on trade to trade basis, i.e., without netting of purchase and saletransactions in a scrip.

    The Delivery Orders provide information like scrip, quantity and the name of the receiving

    member to whom the securities are to be delivered through the Clearing House. The M oney

    Statement provides scrip wise/item wise details of payments/receipts for the settlement. The

    Delivery/Receive Orders and money statements can be downloaded by the members in their back


    The bank accounts of members maintained with the eight clearing banks, viz., Bank of India,

    HDFC Bank Ltd., Global Trust Bank Ltd., Standard Chartered Bank, Centurion Bank Ltd., UTI

    Bank Ltd., ICICI Bank Ltd., and Indusind Bank Ltd., are directly debited through computerized

    posting for their settlement and margin obligations and credited with receivables on accounts of

    pay-out dues and refund of margins.

    The securities, as per the Delivery Orders issued by the Exchange, are required to be delivered

    by the members in the Clearing House on the day designated for securities pay-in, i.e., on T+3

    day. In case of the physical securities, the members have to deliver the securities in special

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    closed pouches (supplied by the Exchange) along with the relevant details (distinctive numbers,

    scrip code, quantity, and receiving member) on a floppy. The data submitted by the members on

    floppies is matched against the master file data on the Clearing House computer systems. If there

    are no discrepancies, then a scroll number is generated by the Clearing House and a scroll slip is

    issued. The members can then submit the securities at the receiving counter in the Clearing


    Auto D.O. facility:

    Instead of issuing Delivery Out instructions for their delivery obligations in a settlement /auction,

    a facility has been made available to the members of automatically generating Delivery-Out

    (D.O.) instructions on their behalf from their C M Pool A/cs by the Clearing House w.e.f., August10, 2000. This Auto D.O. facility is available for CRS (Normal & Auction) and for trade-to-trade

    settlements. This facility is, however, not available for delivery of non-pari passu shares and

    shares having multiple ISINs. The members wishing to avail of this facility have to submit an

    authority letter to the Clearing House. This Auto D.O facility is currently available only for

    Clearing M ember (C M ) Pool accounts/Principal Accounts maintained by the members with

    National Securities Depository Ltd. (NSDL) and Central Depositories Services Ltd. (CDSL)

    Demat pay-in:

    The members can effect demat pay-in either through Central Depository Services (I) Ltd.

    (CDSL) or National Securities Depository Ltd. (NSDL). In case of NSDL, the members are

    required to give instructions to their Depository Participant (DP) specifying settlement no.,

    settlement type, effective pay-in date, quantity, etc. The securities are transferred to the Pool

    Account. The members are required to give delivery-out instructions so that the securities are

    considered for pay-in.

    As regards CDSL, the members give pay-in instructions to their DP. The securities are

    transferred to Clearing M ember (C M ) Principal Account. The members are required to give

    confirmation to their DP, so that securities are processed towards pay-in obligations.

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    Alternatively, members may also effect pay-in from clients' beneficiary accounts for which

    member are required to do break-up on the front-end software to generate obligation and

    settlement ID.

    The Clearing House arranges and tallies the securities received against the receiving member

    wise report generated on the Pay-in day. Once this reconciliation is complete, the bank accounts

    of members with seven clearing banks having pay-in positions are debited on the scheduled

    payin day. This procedure is called Funds Pay-in. In case of the demat securities, the securities

    are credited in the Pool Account of the members or the Client Accounts as per the client details

    submitted by the members. In case of Physical securities, the Receiving M embers collect

    securities from the Clearing House on the payout day and the accounts of the members having

    payout are credited on Friday. This is referred to as Payout. In case of the Rolling Settlements,pay-in and payout of both funds and securities is on the same day, in case of Weekly settlements,

    pay-in of funds and securities is on Thursday and payout is on Friday.

    The auction is conducted for those securities which members fail to deliver/short deliver during

    the Pay-in. In case the securities are not received in an auction, the positions are closed out as per

    the closeout rate fixed by the Exchange in accordance with the prescribed rules. The close out

    rate is calculated as the highest rate of the scrip recorded in the settlement in which the trade was

    executed and in the subsequent settlement upto the day prior to the day of auction, or 20% above

    the closing price on the day prior to the day of auction, whichever is higher. However, in case of

    close-out for shares under objection or traded in "C" group, 10% instead of 20% above the

    closing price on the day prior to the day of auction and the highest price recorded in the

    settlement in which trade took place upto a day prior to auction is considered.

    The Exchange has strictly adhered to the settlement schedules for various groups of securities

    and there has been no case of clubbing of settlements or postponement of pay-in and pay-out

    during the last six years.

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    The Exchange is also maintaining a database of fake/forged, stolen, lost and duplicate securities

    with the Clearing House so that distinctive numbers submitted by members on delivery may be

    matched against the database to weed out bad paper from circulation at the time of introduction

    of such securities in the market. This database has also been made available to the members so

    that delivering and receiving members can check the entry of fake, forged and stolen shares in

    the market


    Shortages & consequent actions The members download Delivery/Receive Orders based on their

    netted positions for transactions entered into by them during a settlement in 'A', 'B1', 'B2', and 'F'group scrips and on trade to trade basis, i.e., without netting buy and sell transactions in scrips in

    "C" & 'Z' groups and scrips in B1 and B2 groups which have been put on trade to trade basis as a

    surveillance measure.

    The seller members have to deliver the shares in the Clearing House as per the Delivery Orders

    downloaded. If a seller member is unable to deliver the shares on the Pay-in day for any reason,

    his bank account is debited at the standard rate (which is equal to the closing price of the scrip on

    the day of trading) fixed by the Exchange for the quantity of shares short delivered. The Clearing

    House arrives at the shortages in delivery of various scrips by members on the basis of their

    delivery obligations and actual delivery.

    The members can download the statement of shortages on T+3 in Rolling Settlements. After

    downloading the shortage details, the members are expected to verify the same and report

    discrepancy , if any, to the Clearing House by 1:00 p.m. If no discrepancy is reported within the

    stipulated time, the Clearing House assumes that the shortage of a member is in order and

    proceeds to auction the same. However, in 'C' group, i.e., Odd Lot segment the members are

    themselves required to report the shortages to the Clearing House.

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    The Exchange issues an Auction Tender Notice to the members informing them about the names

    of the scrips, quantity slated for auction and the date and time of the auction session on the

    BOLT. The auction for the undelivered quantities is conducted on T+4 for all the scrips under

    compulsory Rolling Settlements. The auction offers received in batch mode are electronically

    matched with the auction quantities so as to award the 'best price'. The members who participate

    in the auction session can download the Delivery Orders on the same day, if their offers are

    accepted. The members are required to deliver the shares in the Clearing House on the auction

    Pay-in day, i.e, T+5. Pay-Out of auction shares and funds is also done on the same day, i.e., T+5.

    The various auction sessions relating to shortages, and bad deliveries are now conducted during

    normal trading hours on BOLT. Thus, it is possible to schedule multiple auction sessions on a

    single trading day.

    In auction, the highest offer price is allowed upto the close-out rate and the lowest offer price can

    be 20% below the closing price on a day prior to day of auction. A member who has failed to

    deliver the securities of a particular company on the pay-in day is not allowed to offer the same

    in auction. He can, however, participate in auction of other scrips.

    In case no offers are received in auction for a particular scrip, the sale transaction is closed-out at

    a close-out price, determined by higher of the following:-

    - Highest price recorded in the scrip from the settlement in which the transaction took place upto

    a day prior to the day of the auction.


    - 20% above the closing price on a day prior to the day of auction.

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    However, in case of the close-out of the shares under objection and shortages in "C" or "Z"

    group, 10% above the closing prices of the scrips on the pay-out day of the respective settlement

    are considered instead of 20%.

    Further, if the auction price/close-out price of a scrip is higher than the standard price of the scrip

    in the settlement in which the transaction was done, the difference is recovered from the seller

    who failed to deliver the scrip. However, in case, auction/ close-out price is lower than standard

    price, the difference is not given to the seller but is credited by the Exchange to the Customers

    Protection Fund. This is to ensure that the seller does not benefit from his failure to meet his

    delivery obligation. Further, if the offeror member fails to deliver the shares offered in auction,

    then the transactions is closed-out as per the normal procedure and the original selling member pays the difference below the standard rate and offer rate and the offeror member pays the

    difference between the offer rate and close-out rate.

    Self Auction As has been discussed in the earlier paragraphs, the Delivery and Receive Orders

    are issued to the members after netting off their purchase and sale transactions in scrips where

    netting of purchase and sale positions is permitted. It is likely in some circumstances that a

    selling client of a member has failed to deliver the shares to him. However, this did not result in

    a member's failure to deliver the shares to the Clearing House as there was a purchase transaction

    of some other buying client of the member in the same scrip and the same was netted off for the

    purpose of settlement. However, in such a case, the member would require shares so that he can

    deliver the same to his buying client, which otherwise would have taken place from the delivery

    of shares by the seller. To provide shares to the members, so that they are in a position to deliver

    them to their buying clients in case of internal shortages, the members have been given an option

    to submit floppies for conducting self-auction (i.e., as if they have defaulted in delivery of shares

    to the Clearing House). Such floppies are to be given to the Clearing House on the pay-in day.

    The internal shortages reported by the members are clubbed with the normal shortages in a

    settlement and the Clearing House for the combined shortages conducts the auction. A member

    after getting delivery of shares from the Clearing House in self-auction credits the shares to the

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    Beneficiary account of his client or hand over the same to him in case securities received are in

    physical form and debits his seller client with the amount of difference, if any, between the

    auction price and original sale price

    B) Objections

    When receiving members collect the physical securities from the Clearing House on the Payout

    day, the same are required to be checked by them for good delivery as per the norms prescribed

    by the SEBI in this regard. If the receiving member does not consider the securities good

    delivery, he has to obtain an arbitration award from the arbitrators and submit the securities in

    the Clearing House on the following day of the Pay-Out (T+4). The Clearing House returns these

    securities to the delivering members on the same day, i.e., (T+4). If a delivering members feels

    that arbitration awards obtained against him is incorrect, he is required to obtain arbitrationaward for invalid objection from the members of the Arbitration Review Committee. The

    delivering members are required to rectify/replace the objections and return the shares to the

    Clearing House on next day (T+5) to have the entry against them removed. The rectified

    securities are delivered by the Clearing House to the buyer members on the same day (T+5). The

    buyer members, if they are not satisfied with the rectification, are required to obtain arbitration

    awards for invalid rectification from the Bad Delivery Cell on T+6 day and submit the shares to

    the Clearing House on the same day.

    If a member fails to rectify/replace the objections then the same are closed-out. This is known as

    "Objection Cycle" and the entire process takes 3 days.

    The following table summarizes the activities involved in the Patawat Objection Cycle of CRS.

    DAY ACTIVITY T + 3 Pay-out of securities of Rolling Settlement T + 4 Patawat Arbitration

    session : Arbitration awards to be obtained from officials of the Bad Delivery Cell.

    Securities under objection to be submitted in the Clearing House

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    Arbitration awards for invalid objection to be obtained from members of the Arbitration Review


    T+5 M embers and institutions to submit rectified securities, confirmation forms and invalid

    objections in the clearing house

    Rectified securities delivered to the receiving members

    T+6 Arbitration Awards for invalid rectification to be obtained from officials of the Bad

    Delivery Cell

    Securities to be lodged with the clearing house

    The un-rectified and invalid rectification of securities are directly closed-out by the Clearing

    House instead of first inviting the auction offers for the same.

    The shares in physical form returned under objection to the Clearing House are required to be

    accompanied by an arbitration award (Chukada) except in certain cases where the receiving

    members are permitted to submit securities to the Clearing House without "Chukada".

    These cases are as follows: Transfer Deed is out of date. Cheques for the dividend adjustment for

    new shares where distinctive numbers are given in the Exchange Notice is not enclosed. Stamp

    of the Registrar of Companies is missing. Details like Distinctive Numbers, Transferors' Names,

    etc. are not filled, in the Transfer Deeds. Delivering broker's stamp on the reverse of the Transfer

    Deed is missing. Witness stamp or signature on Transfer Deed is missing. Signature of the

    transferor is missing. Death Certificate (in cases where one or more of the transferors are

    deceased) is missing.

    A penalty at the rate of Rs.100/- per Delivery Order is levied on the delivering member for

    delivering shares, which are not in order. In the event a receiving member misuses the facility of

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    submitting shares under objection without "Chukada", a penalty of Rs.500/- per case is charged

    and the penalty of Rs.100/- per Delivery Order levied on the delivering member is refunded to

    him by debiting the receiving member's account Close Out: There are cases when no offer for

    particular scrip is received in an auction or when members who offer the scrips in auction, fail to

    deliver the same. In the former case, the original seller member's account is debited and the

    buyer member's account is credited at the closeout rate. In the latter case, the offeror member's

    account is debited and the buyer member's account is credited at the close-out rate. The closeout

    rates for closing the positions in different segments are as under:

    For 'A' + 'B1' + 'B2' + 'Z', 'Rolling demat' and 'F' group

    The closeout rate is higher of the following rates:

    The highest rate of the scrip from the first day (trading day in case of Rolling demat segment)

    to the day prior to the day on which the auction is conducted for the respective settlement.

    20% above the closing rate as on the day prior to the day of auction of the respective settlement.

    For 'C' group segment

    The close-out rate is higher of the following rates : The highest rate of the scrip from the first

    day to the day prior to the day of auction of 'A', 'B1', 'B2, and 'Z' group segment of the respective

    settlements; or 10% above the closing rate as on the day prior to the day of auction of 'A', 'B1',

    'B2, and 'Z' group; or Transaction price.

    In the 'C' group, i.e., Odd Lot Segment, no auction session is conducted. The shortages are

    directly closed out.


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    Does SEBI approve the contents of the issue?

    It is to be distinctly understood that submission of offer document to SEBI

    should not in any way be deemed or construed that the same has been cleared or approved by

    SEBI. The Lead manager certifies that the disclosures made in the offer document are generally

    adequate and are in conformity with SEBI guidelines for disclosures and investor protection in

    force for the time being. This requirement is to facilitate investors to take an informed decision

    for making investment in the proposed issue.

    Does SEBI tag make my money safe?

    The investors should make an informed decision purely by themselves based

    on the contents disclosed in the offer documents. SEBI does not associate itself with any

    issue/issuer and should in no way be construed as a guarantee for the funds that the investor proposes to invest through the issue. However, the investors are generally advised to study all the

    material facts pertaining to the issue including the risk factors before considering any investment.

    They are strongly warned against any 'tips' or news through unofficial means.

    How does SEBI ensure compliance with DIP?

    The M erchant Banker are the specialized intermediaries who are required to do due diligence and

    ensure that all the requirements of DIP are complied with while submitting the draft offer

    document to SEBI. Any non compliance on their part, attract penal action from SEBI, in terms of

    SEBI ( M erchant Bankers) Regulations. The draft offer document filed by M erchant Banker is

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    also placed on the website for public comments. Officials of SEBI at various levels examine the

    compliance with DIP guidelines and ensure that all necessary material information is disclosed in

    the draft offer documents.

    With the presence of the Central Listing Authority (CLA), what would be the role of SEBI in the

    processing of Offer docume nts for an issue?

    The Central Listing Authority's (CLA) functions have been detailed under

    Regulation 8 of SEBI (Central Listing Authority) Regulations, 2003 (CLA Regulations)

    issued on August 21, 2003 and amended up to October 14, 2003.

    In brief, it covers processing applications for letter precedent to listing from

    applicants; to make recommendations to the Board on issues pertaining to the protection of the

    interest of the investors in securities and development and regulation of the securities market,

    including the listing agreements, listing conditions and disclosures to be made in offer

    documents; and; to undertake any other functions as may be delegated to it by the Board from

    time to time.

    SEBI as the regulator of the securities market examines all the policy matterspertaining to issues and will continue to do so even during the existence of the CLA.

    Since the CLA is not yet operational, the reply to this question would be updated thereafter.

    Who decides the price of an issue?

    Indian primary market ushered in an era of free pricing in 1992. Following this, the guidelines

    have provided that the issuer in consultation with M erchant Banker shall decide the price. Thereis no price formula stipulated by SEBI. SEBI does not play any role in price fixation. The

    company and merchant banker are however required to give full disclosures of the parameters

    which they had considered while deciding the issue price. There are two types of issues one

    where company and L M fix a price (called fixed price) and other, where the company and L M

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    stipulate a floor price or a price band and leave it to market forces to determine the final price

    (price discovery through book building process).

    How does one com of the draft offer document?e to know about the issues on offer? And

    from where can I get copies

    SEBI issues press releases every week regarding the draft offer documents received and

    observations issued during the period. The draft offer documents are put up on the website under

    Reports/Documents section. The final offer documents that are filed with SEBI/ROC are also put

    up for information under the same section. Copies of the draft offer documents in hard copy form

    may be obtained from the office of SEBI

    Who is eligible to be a BRL M ?

    A M erchant banker possessing a valid SEBI registration i

    n accordance with the SEBI ( M erchant Bankers) Regulations, 1992 is eligible to act as a Book

    Running Lead M anager to an issue.

    What and where do I find them?

    The SEBI M anual is SEBI authorized publication that is a compre hensive

    databank of all relevant Acts, Rules, Regulations and Guidelines that are related to the

    functioning of the Board. The details pertaining to the Acts, Rules, Regulations, Guidelines and

    Circulars are placed on the SEBI website under the "Legal Framework" section.

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    Will SEBI answer my queries online in case of doubts and clarifications?

    The "Feedback" section on the SEBI website has a provision for the visitors

    to the site to ask questions on clarifications on smaller issues pertaining to the availability of information and a facility for users to provide feedback on the same. However, if the queries are

    legalistic and deep in nature, they are to be referred to SEBI under the SEBI (informal Guidance)

    Scheme, 2003.

    Sebi' Latest Announcement....

    Nebody knows about the Sebi's latest Announce .....?

    CNBC-TV18 has learnt from sources that Sebi is likely to propose short swing rule

    in India. The move restricts company insiders from making short-term profit at the companys


    It is a move that could potentially have a big impact on promoters of listed

    companies. M arket regulator Sebi is proposing to put in place a new rule-the short swing rule- in

    India. This is similar to one that exists in the USA.

    The rule prevents company insiders, who have greater access to material information, from

    taking advantage of the information to make short-term profits. So, Sebi proposes that company

    insiders buying and selling their company's stock within a 6-month period return the money they

    make to the company. As of now, this is just a consultative paper and the regulator has invited

    feedback to this proposal.

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    Sources added that the move proposes insiders return profits from buying and selling

    the companys stock. It proposes a tenor of six months for the short swing rule.It has circulated a

    paper on short swing profit regulations.

    Sebi has proposed last-in-first-out method to determine the six month period and

    the move is intended to check insider trading . The designated insider will include all key

    management personnel and directors of companies as well as officials who own above 10% stake

    in the company.

    Sebi says that any officer who buys and sells shares of a company within six-

    months will have to return those profits to the company, which means that he cannot buy and sell

    shares within six months and make a profit on them. If he makes, he will return the profit.

    Who cannot do these transactions or who will be brought under the ambit of this short swing



    It is a designated insider and a designated insider goes beyond the threshold of

    any person who holds 10%. An insider is basically defined as a person who would own more

    than 10% shares in a company. But here it says a designated insider would include all key

    management personnel.

    It would include all directors of the company, all officers of the company who are

    beneficial owners of 10% or more stake in that company. So, a designated insider concept seems

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    to be a far wider definition. They have given it a far wider definition than what an insider would

    be who owns only 10% in that company. It is a draft proposal. They have invited suggestions to

    these proposals.

    The future of stock exchanges

    The future of stock trading appears to be electronic, as competition is continually growing

    between the remaining traditional New York Stock Exchange specialist system against the

    relatively new, all Electronic Communications Networks , or ECN s. ECNs point to their speedy

    execution of large block trades, while specialist system proponents cite the role of specialists in

    maintaining orderly markets, especially under extraordinary conditions or for special types of


    The ECNs contend that an array of special interests profit at the expense of investors in even the

    most mundane exchange-directed trades. M achine-based systems, they argue, are much more

    efficient, because they speed up the execution mechanism and eliminate the need to deal with an


    Historically, the ' market ' (which, as noted, encompasses the totality of stock trading on all

    exchanges) has been slow to respond to technological innovation, thus allowing growing pure

    speculation to continue. Conversion to all-electronic trading could erode/eliminate the trading

    profits of floor specialists and the NYSE's "upstairs traders", who, like in September and October

    2008, earned billions of dollars selling shares they did not have, and days later buying the same

    amount of shares, but maybe 15 % cheaper, so these shares could be handed to their buyers,

    thereby making the market fall deeply.

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    William Lupien, founder of the Instinet trading system and the OptiM ark system, has been

    quoted as saying "I'd definitely say the ECNs are winning... Things happen awfully fast once you

    reach the tipping point. We're now at the tipping point."

    One example of improved efficiency of ECNs is the prevention of front running , by which

    manual Wall Street traders use knowledge of a customer's incoming order to place their own

    orders so as to benefit from the perceived change to market direction that the introduction of a

    large order will cause. By executing large trades at lightning speed without manual intervention,

    ECNs make impossible this illegal practice, for which several NYSE floor brokers were

    investigated and severely fined in recent years. Under the specialist system, when the market

    sees a large trade in a name, other buyers are immediately able to look to see how big the trader

    is in the name, and make inferences about why s/he is selling or buying. All traders who are

    quick enough are able to use that information to anticipate price movements.

    ECNs have changed ordinary stock transaction processing (like brokerage services before them)

    into a commodity-type business. ECNs could regulate the fairness of initial public offerings

    (IPOs), oversee Hambrecht's OpenIPO process, or measure the effectiveness of securities

    research and use transaction fees to subsidize small- and mid-cap research efforts.

    Somehowever, believe the answer will be some combination of the best of technology and

    "upstairs trading" in other words, a hybrid model.

    Trading 25,000 shares of General Electric stock (recentquote: $7.54; recent [] volume:

    216,266,000) would be a relatively simple e-commerce transaction; trading 100 shares of

    Berkshire Hathaway Class A stock (recent quote: $72,625.00; recent volume: 877) may never be.

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    The choice of system should be clear (but always that of the trader), based on the characteristics

    of the security to be traded.

    Even with ECNs forming an important part of a national market system, opportunities

    presumably remain to profit from the spread between the bid and offer price. That is especially

    true for investment managers that direct huge trading volume, and own a stake in an ECN or

    specialist firm. For example, in its individual stock-brokerage accounts, " Fidelity Investments

    runs 29% of its undesignated orders in NYSE-listed stocks, and 37% of its undesignated market

    orders through the Boston Stock Exchange , where an affiliate controls a specialist post."




    The Securities and Exchange Board of India Act, 1992 (the SEBI

    Act) has been enacted for the establishment of the Board with the

    object of protecting the interests of investors in securities and to

    promote the development and to regulate the securities marketand for matters connected therewith or incidental thereto.

    Securities market is very dynamic and the laws governing it have to

    be responsive to the market needs. The SEBI Act was amended in

    the years 1995, 1999 and 2002 to meet the requirements of

    changing needs of the securities market and responding to the

    development in the securities market.

    The World Bank and the International M onetary Fund (I M F) have

    introduced a benchmark i.e., Financial Services Assessment

    Programme (FSAP) to strengthen the monitoring of financial

    systems in the context of the I M Fs bilateral surveillance and the

    World Banks financial sector development work. The FSAP is

    designed to help countries enhance their resilience to crisis and

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    cross-border contagion, and to foster growth by promoting

    financial system soundness and financial sector diversity. The

    mission of SEBI is to make India as one of the best securities

    market of the world and SEBI as one of the most respected

    regulator in the world. SEBI endeavors to achieve the standards of

    IOSCO/FSAP. Amendments will be required to be made in the

    Securities Laws especially the SEBI Act, which will facilitate India

    and SEBI to achieve above objective.

    The Report of Joint Parliamentary Committee (JPC) dated

    December 02, 2002 on stock market scam also made several

    recommendations in respect of the securities market. These

    recommendations include provisions for compensation toaggrieved investors, the concept of Ombudsman in the capital

    market, establishment of special courts for financial crimes,

    regulation of listed companies by SEBI, shifting of Investor

    Education and Protection Fund established under section 205C of

    the companies Act to SEBI, etc. M any of the above

    recommendations would require changes in the SEBI Act.

    The amendments effected in 2002 have sought to address certain

    shortcomings in the provisions of the SEBI Act, 1992, particularly

    with respect to matters relating to inspection, investigation and

    enhancement of penalties to serve as effective deterrants.

    However, it was felt that some of the amendments effected in

    2002 may also require amendments to remove ambiguities, if any.

    Constitution of the Group

    It is in this background, the SEBI Board had decided to constitute

    an Expert Group to identify the deficiencies / inconsistencies in

    the existing provisions of the SEBI Act and also to suggest new

    provisions that can be incorporated in the SEBI Act to make it

    more effective and investor friendly, taking into account

    recommendations of the JPC as also recommendations of other

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    expert groups constituted by SEBI from time to time in this


    The SEBI Board in its meeting held on August 05, 2004

    constituted the Expert Group with the following members.

    Sr.No. Name of the M ember

    1 M r. Justice M . H. Kania, ( Former Chief Justice of India)


    2 M r. Justice A. N. M ody ( Retd.)

    3 M r. Justice S. M . Jhunjhunwala (Retd.)

    4 M s. P. M . Umerji, Principal Secretary (Retd.) (Legislation),

    Govt. of M aharashtra

    5 Shri. Jitesh Khosla*, Joint Secretary Representative of the Department of Company Affairs

    (Govt. of India)

    6 Shri. Prashant Saran , Chief General M anager,

    Representative of the Reserve Bank of India

    7 M s Parimala Rao, Principal, Govt. Law College, M umbai

    8 Shri. PGR Prasad, M anaging Director,

    SBI Funds M anagementPvt. Ltd.,

    Representative of the Association of M utual Funds of

    India(A M FI)

    9 Shri. N. K. Jain**, Secretary and Chief Executive Officer,

    the Institute of Company Secretaries of India