unit iv mfsi

8/3/2019 Unit IV Mfsi

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INTRODUCTION

The trading on stock exchange in INDIA used totake place through open outcry method withoutuse of information technology for immediate

matching or recording of trades. This was timeconsuming and inefficient. This imposed limitson trading volumes and efficiency. In order toprovide efficiency, liquidity, and transparency

NSE and BSE introduced nation wide online fullyautomated SCREEN BASED TRADING

SYSTEM


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SCREEN BASED TRADING

NSEs screen based trading is known as

NEAT- National exchange for automatedtrading.

BSES screen based trading is known asBOLT- Bombay online trading.


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MECHANISM OF ONLINETRADING

NSE has main computer which isconnected through VERY SMALL

APERTURE TERMINAL(VSAT) installed

at its office.

The main computer runs on a fault tolerantSTRATUS mainframe computer at the

exchange. Brokers have terminalsinstalled at their premises which areconnected through VSATS.


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HOW TO PLACE ORDER

An investor informs broker to place anorder on his behalf.

The broker enters the order through his

PC, which runs under windows NT andsends signal to the satellite via VSAT.

The signal is directed to mainframe

computer at NSE via VSAT at NSEsoffice. A message relating to the orderactivity is broad casted to respectivemember.


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TERMINOLOGIES OF ONLINETRADING

Snap quote:- feature available to getinstantaneous market information on a desiredsecurity.

Active and Passive orders:- when any orderenters the trading system, it is an active order. Ittries to find a match on the other side of books.

If it finds a match trade is generated, if does notfinds match it turns to passive order which is

stored in order book.


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BSE

BSE is the leading and the oldest stockexchange in India as well as in Asia. It wasestablished in 1887 with the formation of "TheNative Share and Stock Brokers' Association".

BSE is a very active stock exchange withhighest number of listed securities in India.Nearly 70% to 80% of all transactions in the

India are done alone in BSE. The BSE has computerized its trading system by

introducing BOLT (Bombay On Line Trading)since March 1995.
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OTC Exchange of India (OTCEI)

Over-the-Country Exchange of India (OTCEI)was incorporated in the year 1990 as a Section25 company under the Companies Act 1956.

It is recognized by the Securities Contracts

Regulation Act, 1956 as a stock exchange.

The purpose of the formation of OTCEI was toaid enterprising promoters in raising finance for

new projects in a cost effective manner and toprovide transparent and efficient mode of tradingto the investors.


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OTCEI

OTCEI is the first screen based nationwide

stock exchange in India created by Unit Trust

of India, Industrial Credit and Investment

Corporation of India, Industrial Development

Bank of India, SBI Capital Markets, Industrial

Finance Corporation of India, General

Insurance Corporation and its subsidiariesand CanBank Financial Services.


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OTC Exchange of India (OTCEI)

It introduced several novel concepts to theIndian capital markets, like screen-basednationwide trading, sponsorship of

companies, market making and scriplesstrading


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OTCEI Fact

It is the first screen based nationwide stock exchange in India. It is the first exchange to introduce Market Making in India.

It is the first exchange to introduce Sponsorship of companiesin India.

It is the only exchange which allows the listing of companieswith a paid-up capital below Rs. 3 crores.

It is the only exchange which allows the companies with lessthan 3 year track record to tap capital market.

It has shifted trading from counter receipts to sharecertificates.

It has introduced Weekly Settlement Cycle.

It allows short selling.

It allows the demat trading through NSDL.

It has tied-up with NSCCL for Clearing.


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National Stock Exchange In order to lift the Indian stock market trading system on parwith the international standards.

On the basis of the recommendations of high poweredPherwani Committee, the National Stock Exchange wasincorporated in 1992 by Industrial Development Bank of

India, Industrial Credit and Investment Corporation of India,Industrial Finance Corporation of India, all InsuranceCorporations, selected commercial banks and others.

NSE is the largest and most modern stock exchange inIndiaNSE provides exposure to investors in two types of markets,namely:

Wholesale debt market

Capital market


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Trading at NSE

Fully automated screen-based trading mechanism

Strictly follows the principle of an order-driven market

Trading members are linked through a communicationnetwork

This network allows them to execute trade from their offices

The prices at which the buyer and seller are willing to transactwill appear on the screen

When the prices match the transaction will be completed

A confirmation slip will be printed at the office of the tradingmember


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Settlement in the Securities Market

Earlier trading in the stock exchange was held face-to-face (called pit-trading) without the use of

computers and the advanced computer software as it

is today.

In those times, transactions were settled (i.e., actual

delivery of shares, through share certificates, by the

seller and payment of money by the buyer) in the

stock exchange, only on a fixed day of the week, sayon a Saturday, or a Wednesday irrespective of which

day of the week the shares were bought and sold.

This was called Fixed Settlement.


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Settlement in the Securities Market

With the electronic / computer based system ofrecording and carrying out of share transactions,stock exchanges go in for rolling settlement.

That means, transaction are settled after a fixednumber of days of the transaction rather than ona particular day of the week. For example, if astock exchange goes in for T+2 days of rolling

settlement, the transaction is settled within twoworking days of occurring of the transaction,


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Depository system in India

Before Introduction of depository system, the problems facedby the investors and corporate in handling large volume ofpaper were:

Bad deliveries

Fake certificates Loss of certificates in transit

Mutilation of certificates

Delays in transfer

Long settlement cycles Mismatch of signatures

Delay in refund and remission of dividend.


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NSDL

National Securities Depository Limited(NSDL) does the above tasks for the tradesdone on NSE. It is a joint venture of:

IDBI (Industrial Development Bank of IndiaLimited);

NSE (National Stock Exchange); and

UTI (Unit Trust of India). NSDL is the first depository to be set up in India.

It was registered by SEBI on June 7, 1996.


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CDSL

The second depository Central DepositoryServices Limited (CDSL) has been promotedby Bombay Stock Exchange and Bank of India,

Bank of Baroda and HDFC bank. It was formedin February 1999.

Both depositories have a network of Depositoryparticipants (DPs) which are further

electronically connected to their clients. So, DPsact as a link between the depositories and theclients.


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Bank v/s NSDL

Holds funds inaccounts

Transfers funds

between accounts Transfers without

handling cash

Safekeeping ofmoney

Holds securities inaccounts

Transfers securities

between accounts Transfers without

handling physical

securities Safekeeping of

securities


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Constituents of Depository system

Depository

DP (Depository participant)

Securities, Issuers and Registrars andshare transfer agent

Stock exchanges and stock brokers

Clearing house

Banking system

Investors


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Depository participant

Depository Participant (DP) is the representative (agent) of theinvestor in the depository system providing the link betweenthe Company and the client through the Depository.

The clients Depository Participant will maintain his securities

account balances and intimate the status of the holding fromtime to time.

According to SEBI guidelines, Financial Institutions likebanks, custodians, stockbrokers etc. can become participants inthe depository.

DP is one with whom a client needs to open an account to dealin electronic form.


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Depository participant

While the Depository can be compared to a Bank, DP is like a

branch of a bank with which one can have an account.

Therefore, DPs are authorized to maintain accounts of

dematerialized shares. They help in instantaneous electronic

transfer of shares held in Demat form through electronic book

entry system. Book entry system is a system under which no physical transfer

of securities takes place.

Fungibility means that all the holdings of a particular security

are identical & inter-changeable & they have no uniquecharacteristic such as distinctive number, certificate no., folio no.

etc

the registered owners are the depositories whereas the

beneficiary owners are the people who are holding the securitiesat an iven oint of time


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Facilities offered by DP

Opening of Depository accounts

Dematerialization

Dematerialization

Settlement of trades in dematerialized

securities

Account transfer

Transfer, transmission and transposition

Pledge and hypothecation

unit iv mfsi

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