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The south Gujarat shares &shares brokers Limited (SGSSL) is a

public limited company registered under company act 1956. Company
established with authorized share capital of RS.3 crores and it’s paid up
capital 1.27 crores.

The south Gujarat shares &shares brokers Limited started its activities
as an association of persons in 1992 and acted as sub brokers giving services
for buying and selling of securities to the retail investors from south Gujarat,
particularly in Surat. Mr. Anil Choksy, Mr. Ashok Mehta, Mr. Jagdish Patel
and Mr. Paresh Javeri who are the permanent directors of the company, took
initiative in forming a limited company, so as to become the member of the
National Stock Exchange of India Limited.

Accordingly, the company South Gujarat Shares & Share brokers

Limited was registered under the companies act on the 5th January 1995. To
begin with it conducted its trading business through other members of the
National Stock Exchange. During the first year of its operation ending on the
31st March 1995 it suffered a loss of Rs.80000 due to heavy establishment
expenses like assets purchase, maintenance, establishment, building,
furniture etc

The company had another poor year during 1995-96 and suffered a
further loss of Rs.1.18lacs. This was mainly because the company couldn’t


procure the Nation Stock Exchange membership during the year and also
because of the prevailing poor market conditions.

The company obtained SEBI registration as stockbroker on the 27th

February 1996 and its activities full-fledged members of the National Stock
Exchange commenced on the 18th April 1996. Originally, the operations
were started at Baroda since National Stock Exchange at that time was not
providing connectivity in Surat. Once the NSE connectivity was made
available in Surat, the operation was shifted to Surat on the 23rd July 1996.
At present the location in Belgium Chamber. At Belgium Chamber the
company has a large space of approximately 2700sq ft for smooth operation.

Another terminal has since been installed at J.K.Towers in March

1997 to give better services to the investors. During the year ended 31st
March 1997 the company has turned the corner. On the total income of
Rs.45,80,000 the company made a net profit of Rs.3,75,000 and after
adjusting the losses of the previous two years of Rs.1,98,000, the net profit
carried to the Balance Sheet works out to be Rs.1,78,000.

In 1998 company has taken approval from National Security

Depository Ltd to work as depository participant (DP). In south Gujarat,
SGSSL is the first company who takes the depository participant (DP).
There are more than 12,000 holders which having demate account in
SGSSL. The company is second largest in demate account in Surat city

Company has a computer to computer link (CTCL) network, which

are connected with LAN and also with WAN. In Surat City Company has


given many register sub-broker CTCL. Company also provide in outside of

Surat like Hazira, Navsari, and also in Bilimora.

In present condition company try to register it’s sub broker in SEBI.

Now in present, company has 35 registered sub-brokers and other members
if they work then company insist to take registration.

In company there are 28 persons working. Company has 5 servers, in

this one server connect with NSE CTCL and second with disaster
management. In NSDL also their is one main server. Company provides 3
different rooms for on line trading to it’s clients and sub-broker with satellite
dish, Equara cable and modem. In back office with account package of
comtek also works actively with NSDL server.

The company has been stressing on the delivery oriented securities

trading and since inception has been consistently one of the major delivering
members. The company has been diligent ensuring compliance with the
securities trading and settlement regulations of the NSE. It has resulted in
ensuring cleaner operations.

The trading business of the company is rapidly expanding and its

volumes have now crossed Rs.2.5 to 3 corers per day. The company expects
the trading volume to at least double during the current year.

Mr. Anil Choksy, who is the chairman and the managing director of
the company, heads the operations of the company. He along with other full
time directors maintains a close hand on the operations. The company has its
own internal trading and settlement regulations, which are in conformity


with the NSE and SEBI regulations. These regulations ensure that the
activities of the company are managed on the Cooperative basis and in the
best interest of the investors and the shareholders of the company.


 During the year ended 31st march 1997. Company has turned the
 The company has taken approval from NSDL to work as DP.
 At present there are more than 12,000 holders having demate a/c in
 Company has 35 registered sub-brokers.
 Total income of company is Rs.96.58 lacks.
 Net profit for current year is Rs.11.86 lacks as against 1.05 lacks of
previous year.


1.) Name of the company:

“South Gujarat Shares and Share-brokers Ltd.

2.) Registered office:

3rd Floor, Belgium Chamber,
Opp. Liner Bus stop,
Ring Road,


3.) Board of Directors:

Mr. Anil J. Choksy Chairman and M.D.
Mr. Bhadresh G. Kapadia Whole time Director
Mr. Shashikant R. Yadav Director
Mr. Aiyus M. Yacoobali Director
Mr. Bipinchandra Linewala Director

4.) Bankers:
Canara Bank
Karnataka Bank Ltd.
HDFC Bank Ltd.

5.) Auditors:
Ashok Rajpara
Chartered Accountants
Internal Auditor:
P. H. Patel and Co.
Chartered Accountants




Capital market is the markets for funds which have a long or indefine
maturity i.e. It deal with long term funds. Generally capital market supplies
long term and medium term securities and funds, which have a maturity
period of above one year. Capital market generates the funds from the saver
and transfer to user. Generally it done with ordinary share, stocks,
debentures and bonds of corporations and securities of the government .They
do so by converting financial assets into productive physical assets.

Capital market provides a market mechanism for those who have

savings and to those who need funds for productive investments. It diverts
resources from wasteful and unproductive channels to productive


The origination of the Indian securities market may be traced back to

1875, when 22 enterprising brokers under a Banyan tree established the
Bombay Stock Exchange (BSE). Over the last 125 years, the Indian
securities market has evolved continuously to become one of the most
dynamic, modern and efficient securities markets in Asia. Today, Indian
markets conform to international standards both in terms of structure and in
terms of operating efficiency.


Structure and Size of the Markets

Corporation of the exchanges assumes the counter-party risk of each

member and guarantees settlement through a fine-tuned risk management
system and an innovative method of online position monitoring. It also
ensures the financial settlement of trades on the appointed day and time
irrespective of default by members to deliver the required funds and/or
securities with the help of a settlement guarantee fund. Today India has two
national exchanges, the Bombay Stock Exchange (BSE) and the National
Stock Exchange (NSE). Each has fully electronic trading platforms with
around 9400 participating broking outfits. Foreign brokers account for 29 of
these. There are some 9600 companies listed on the respective exchanges
with a combined market capitalization near $125.5bn. Any market that has
experienced this sort of growth has an equally substantial demand for highly
efficient settlement procedures. In India 99.9% of the trades, according to
the National Securities Depository, are settled in dematerialized form in a
T+2 rolling settlement environments. In addition, trades are guaranteed by
the National Clearing Corporation of India Ltd (NSCCL) and Bank of India
Shareholding Ltd (BOISL), Clearing Corporation houses of NSE and BSE
respectively. The main functions of the Clearing Corporation are to work out
(a) what counter parties owe and (b) what counter parties are due to receive
on the settlement date. Furthermore, each exchange has a Settlement
Guarantee Fund to meet with any unpredictable situation and a negligible
trade failure of 0.003%. The Clearing


Highlights of the highly attractive Indian

capital markets
Two major reasons why Indian securities are now increasingly
regarded as attractive to international investors are the relatively high returns
compared with more developed global markets as well as the low correlation
with world markets. However until the early 90s, the foreign investors’ only
way of accessing the Indian capital markets was through listed country


A Brief History

“The capital market is one of the most exciting

sectors in the financial system, marking an important
contribution to economic development.”

Asia Focus was launched by the Unit Trust of India (UTI) in

London in 1986. The success of this initiative ensured that this fund was
followed by numerous others. Indian companies are now also allowed to
raise equity capital in the international market through the issue of GDRs.
Today, there are 498 Foreign Institutional Investors who hold 1325 sub-
accounts with a net investment of approximately $15bn. India’s regulator,
the Securities Exchange Board of India (SEBI) is playing more of a
development role rather than being merely a watchdog. Transparency,


competitiveness and equal opportunity to all market participants has been

the driving philosophy behind all the development and regulatory initiatives
of SEBI. This makes the market place attractive for foreign and domestic
investors. With SEBI recognizing the benefits of, and actively campaigning
for the adoption of Straight through Processing as the market standard, the
market is making significant progress towards the goal of executing and
settling the transactions without any human intervention – the so called STP
nirvana. Successful implementation of STP will considerably reduce the
transaction processing cost in the market, eliminating the manual work
involved in transaction processing. Other aspects of the market such as the
increasing sophistication and range of tradable financial products add to the
attractiveness of the market as a whole. The availability of derivative
products including index futures, index options, individual stock futures and
individual stock options re-enforces the overall attractiveness of this market
to foreign and domestic investors. The derivatives market in only two years
has shown spectacular growth. Compared to last financial year the annual
turnover grew by over 300%. As if further evidence was needed of India’s
willingness to embrace change, the availability of Internet trading and dual
fungibles of American Depository Receipts (ADRs) and Global Depository
Receipts (GDRs) provides a clear indication of the vibrancy and dynamism
of the Indian securities market.



“Capital market refers to the market for rising of financial

resources by the business enterprises, firms, government, semi-
government bodies, public sector units and other organization.”

Capital market is an organized market for long term funds required for
meeting long term needs of business enterprises. It converts savings into
profitable investments for industrial development.

Capital market is a wide term used to comprise all operation in the

new issues market and stock market. New issues made by the companies
constitute the Primary marker. While trading in the existing securities relates
to the secondary market. While we can only buy in the Primary market, we
can buy and sell securities in the secondary market. Market comprises some
who demand and other who supply these resources.






Primary Market

Secondary Market



The securities market can be divided in to three part:

1.) Industrial securities market
2.) Government securities market
3.) Long term loans market


The industrial securities market consists of two complementary parts

i.e. the New Issue Market, and Secondary Market.
It is a market for industrial securities namely:
(i) Equity shares or ordinary shares or common stock.
(ii) Preference shares
(iii) Debenture or Bonds.
The corporate sector raises their capital through these above three types of
securities. This is the physical or tangible asset through which the market
Company raises it capital in the primary market though:

1).Primary Market

Primary market is the market for those securities which are issued first
time in the market for the public. The New Issue Market deals with new
securities i.e. securities which were not previously availably and are offered
to the investing public for the first time. Primary market is a market for New
issues or New financial claims. Hence, it is called New Issue Market. The
market, therefore, derives its name from the fact that it makes available a


New Block of Securities for public subscription. In the Primary market,

borrowers exchange new financial securities for long term funds. It
facilitates capital formulation.
Companies raise ite capital in the primary market though:
(i) Public Issue
(ii) Right Issue
(iii) Primary placement/subscription

The most popular method of raising capital is sale of securities to the

public by new companies is called Public Issue. Right Issue means, when
existing company first offered. The security to existing shareholders on a Pre
–emptive bases, while company want to raise additional capital is called
capital is called Right Issue. Private placement imagine private sale of
securities to small group investors.

2.) Secondary Market

Secondary market is the market for those securities which have

already been available in the market and listed on a stock exchange. The
main benefit of Secondary market is securities sold and purchased
continuously among investors without involvement of company. This
market consists of all stock exchange recognized by the Government of
India. The stock exchange in India are regulated under the securities
contracts (Regulation) Act, 1956.



The government securities market (G-secs) is the largest segment of

the long term debt market in India, accounting for nearly two-thirds of the
issues in the primary market and more than four –fifths of the turnover in the
secondary market.

It is otherwise called Gilt-Edged securities market. It is a market

where Government securities are traded. In India there are many kinds of
Government Securities-short term and long term. Long term securities are
traded in this market while short term securities are traded in the money
market. Securities issued by the Central Government, State Government,
Semi –Government authorities like city Corporation, Port Trusts etc.
Improvement Trusts, State Electricity Boards, All India and State level
financial institutions and public sector enterprise are dealt in this market.

Participants in the G-secs Market

Banks are the largest holders of G-secs. About one –third of the net
demand and time liabilities of the banks are partly in government securities
market mainly to meet statutory liquidity requirements and partly for
investment purpose. Apart from banks, insurance companies, and provident
funds have substantial holdings of G-secs almost one-fifth of the outstanding
G-secs are held by these institutions. Other investor in G-secs includes
mutual funds, primary and satellite dealers, and trusts.

Government securities are issued in denominations of RS. 100.

Interest is payable half- yearly and they carry tax exemptions also. The role
of brokers in marketing these securities is practically very limited and the


major participant in this market in the “commercial banks” because they

hold a very substantial portion of these securities to satisfy their S.L.R.

The secondary market for these securities is very narrow since most of
the institutional investors tend to retain these securities until maturity.
The Government securities are in many forms. These are generally:
(i) Stock certificates of inscribed stock
(ii) Promissory Notes
(iii) carrier Bonds which can be discounted.
Government securities are sold through the Public Debt Office of the
RBI while Treasury Bills are sold through auctions.

Government securities offer a good soured of raising inexpensive

finance for the Government exchequer and the interest on these securities
influences the prices and yields in this market. Hence this market also plays
a vital role in monetary management.


Development banks and commercial banks play a significant role in

this market by supplying long term loans to corporate customers. Long term
loans market may further be classified into:
(i) Term loans market
(ii) Mortgages market
(iii) Financial Guarantees market.


1.) Term Loans Market

In India , many industrial financing institutions have been created by

the Government both at the national and regional levels to supply long term
and medium term loans to corporate customers directly as well as indirectly.
These development banks dominate the industrial finance in India.
Institutions like IDBI, IFCI, ICICI, and other state financial corporations
come under this category. These institutions meet the growing and varied
long term loans. They also help in identifying investment opportunities,
encourage new entrepreneurs and support modernization efforts.

2.) Mortgages Market

The mortgage market refers to these centres which supply mortgage

loan mainly to individual customers. A mortgage loan is a loan against the
security of immovable properly like real estate. The transfer of interest in a
specific immovable properly to secure a loan is called mortgage. This
mortgages may be equitable mortgage or legal one. Again it may be a first
charge of title deeds to properties as security whereas in the case of a legal
mortgage the title in the property is legally transferred to the lender by the
borrower. Legal mortgage is less risky.

Similarly, in the first charge, the mortgages transfer his interest in the
specific property to the mortgagee as security. When the properly in
question is already mortgaged once to another creditor, it becomes a second
charge when it is subsequently mortgaged to somebody else. The mortgagee


can also further transfer his interest in the mortgaged property to another, In
such a case, it is called a sub mortgage.

The mortgage market may have primary market as well secondary

market. The primary market consists of original extension of credit and
secondary market has sales and re-sales of existing mortgages at prevailing

In India residential mortgages ate the most common ones. The

Housing and Urban Development Corporation and the LIC play a dominant
role in financing residential projects. Besides, the Land Development Banks
provides cheap mortgages loans for the development of lands, purchase of
equipment etc. These development banks raise finance through the sale of
debentures which are treated as trustee securities.

3.) Financial Guarantees Market

A guarantees market is a centre where finance is provide against the

guarantee of a reputed person in the financial circle. Guarantee is a contract
to discharge the liability of a third party in case of his default. Guarantee acts
as a security from the creditor’s point of view. In case the borrower fails to
repay the loan, the liability falls on the shoulders of the guarantor. Hence the
guarantor must be known to both the borrower and the lender and he must
have the means to discharge his liability.
Though there are many types of guarantees, the common forms ate:
(i) Performance Guarantee
(ii) Financial Guarantee


Performance guarantees cover the payment of earnest money, retention

money, advance payments, non-completion of contracts etc. On the other
hand financial guarantees cover only financial contracts.

In India, the market for financial guarantees is well organized. The

financial guarantees in India relate to:
(i) Deferred payments for imports and exports
(ii) Medium and long term loans raised abroad
(iii) Loans advanced by banks and other financial institutions.

These guarantees ate provided mainly by commercial banks,

development banks, Governments both central and states and other
specialized guarantee institutions like ECGC(Export Credit Guarantee
Corporation) and DICGO (Deposit Insurance and Credit Guarantee
Corporation). This guarantee financial service is available to both individual
and corporate customers. For a smooth functioning of any financial system,
this guarantee service is absolutely essential.



The changes in the regulatory framework of the capital market and

fiscal policies have also resulted in newer kinds of financial instruments
(securities) being introduced in the market. Also, a Jot of financial
innovation by companies who are now permitted to undertake treasury
operations, has resulted in newer kinds of instruments - all of which can be
traded - being introduced. The variations in all these instruments depend on
the tenure, the nature of security, the collateral security, the interest rate, the
trading features, tax breaks and purpose of issue.

These are issued by companies and regulated under the SEBI
guidelines of June 11, 1992. These are issued under a prospectus, which has
to be approved by SEBI like in the case of equity issues. The rights of
investors as debenture holders are governed by the Companies Act. The
following is an indicative list of types of debentures:-

• Participating debentures
• Convertible debentures with options
• Zero coupon convertible notes
• Secured premium notes
• Zero interest fully convertible debentures
• Fully convertible debentures with interest
• Partly convertible debentures.


Indian development financial institutions like IDBI, ICICI, and IFCI,
have been raising capital for their operations by issuing of bonds. These too
are available in a large variety. These include:
• Income bonds
• Tax-free bonds
• Capital gains bonds
• Deep discount bonds
• Infrastructure bonds
• Retirement bonds

In addition to the interest rates and maturity profiles of these

instruments, the issuer institutions have been including a put/call option on
especially the very long-dated bonds like deep discount bonds. Put option
means investor opting to seek refund of investment from the issuer. Call
option means issuer opting to refund the amount to investors. Since the
tenures of some of these instruments spanned some 20 or 25 years during
which the interest rate regimes may undergo a complete change, the issuer
have kept the flexibility to retire the costly debt. This they do by exercising
their option to redeem the securities at pre-determined periods like at the end
of five or seven years. This has been witnessed in number of instruments
recently much to the chagrin of investors who were looking for secure and
hassle-free long-dated instruments.
Owners of preferential shares enjoy a preferential treatment over
equity shareholders with regard to corporate actions like dividend. They also


have a right to receive their amounts before equity shareholders in case of

winding up of a company. Preference shareholders do not have voting rights.
They generally bear a fixed dividend, payable if the company declares
dividends. Preference shares have different features and are accordingly
available as:

• Cumulative and non-cumulative preference shares

• Redeemable and non-redeemable preference shares
• Convertible and non-convertible preference shares
• Preference shares with a combination of the above features.

Equity shares represent proportionate ownership in the company.
Investors who own equity shares of a company are entitled to ownership
rights, like voting for selection of directors on the Board, share in profits of
the company, etc. Investors who own equity shares in a company are called
shareholders. When the dematerialize their shares in a depository, they are
called beneficial owners. Beneficial owners are entitled to all rights,
privileges and liabilities that shareholders enjoy. A shareholder or a
beneficial owner can exit from the ownership by selling the shares. An
investor can become shareholder/beneficial owner of a company by
purchasing shares of the company. Shareholders are entitled to share profit
of the company in the form of "dividend" on "bonus shares", if Board of
Directors and majority of the shareholders agree. If a company is wound up
for any reason, equity shareholders may receive money from the residual
funds after satisfying all other liabilities.


The Central Government or State Governments issue securities
periodically for the purpose of raising loans from the public. There are two
types of Government Securities - Dated Securities and Treasury Bills. Dated
Securities have a maturity period of more than one year. Treasury Bills have
a maturity period of less than or up to one year. The Public Debt Office
(PDO) of the Reserve Bank of India performs all functions with regard to the
issue management, settlement of trade, distribution of interest and
redemption. Although only corporate and institutional investors subscribe to
government securities, individual investors are also permitted to subscribe to
these securities.

An investor has to approach RBI to receive government securities in

physical form. Investors can invest in book entry form with Banks and other
institutions like NSDL, SHCIL, and NSCCL etc. NSDL facility to buy and
hold government securities is convenient because of its reach and depository
account opened for other securities can be used for holding government



There are various processes that Issuers of securities follow or utilize
in order to tap the savers for raising resources. Some of the commonly used
processes and methods are described below.

Initial Public Offering (IPO)

Companies, new as well as old, can offer their shares to the investors
in the primary market. This kind of tapping the savings is called an IPO or
Initial Public Offering. SEBI guidelines regulate various procedures
involved in making a public issue but price of shares, size of the issue,
timing of the issue, listing of the issue are decided by the issuer. Issuers have
to disclose all relevant facts and information [relevant for deciding on
whether to invest in those shares] in the prospectus. Prospectus also has to
disclose risk factors and management perception about those risks. Investors
may invest in the securities after examining the facts and information
disclosed in the prospectus. Large initial public offers are made through
book building route. Under this route, market determines the price of issue
by offering bids. Companies Act was necessarily amended directing that all
public issues above Rs.10 crore have to be necessarily in demat form.
Investor can receive shares in a public issue by writing DP-ld and Client-Id
in the share application form.

Private Placement
Methods of raising funds directly from investors without issue of
prospectus to the public are known as private placement. SEBI has
prescribed the eligibility criteria for companies and instruments as well as


procedures for private placement. Privately placed securities can also be

listed if such placements fulfill all listing criteria.

Preferential Offer/Rights Issue

Companies can expand their capital by offering the new shares to their
existing shareholders. Such offers for sale can be made to the existing
shareholders by giving them a preferential treatment in allocation or the
offer can be on a rights basis, i.e., the existing holders can get by way of
their right, allotment of new shares in certain proportion to their earlier
holding. If the shares are offered to a few of the existing shareholders
instead to all shareholders or at a price different from the price at which they
are issue to all, such issues are called preferential allotments. Preferential
allotments require shareholders approval in the general body meeting.
Further, all such offers have also to be in compliance with criteria laid down
by SEBI.

Stock Trading
An investor in securities needs assurance that they can convert their
security holdings to cash to meet their cash requirements. The ability to
convert value of securities into cash is called liquidity. The liquidity is
provided by the stock exchange. Stock exchange is a platform where buyers
and sellers of securities will match their bids and offers for securities and
exchange securities with cash. The offers and bids are routed through
members of the stock exchange, popularly known as a "broker". Stock
exchange regulates the transactions of the broker and ensures that the
transactions are conducted fairly and transparently with justice to both
buyers and sellers.


Also the stock exchanges conduct clearing and settlement process to

give securities to the buyer and cash to the seller at the end of trade. Stock
exchanges are self-regulatory organizations. They are under the over all
supervision of SEBI.

Internet Broking
With the Internet becoming ubiquitous, many institutions have set up
securities trading agencies that provide online trading facilities to their
clients from their homes. This has been possible since all the players in the
securities market, viz., stockbrokers, stock exchanges, clearing corporations,
depositories, DPs, clearing banks, etc., are linked electronically. Thus,
information flows amongst them on a real time basis.

The trading platform, which was converted from the trading hall to the
computer terminals at the brokers' premises, are now shifting to the homes
of investors. The investor knows exactly when and at what rate his order was
processed. It also creates an end-to-end audit trail that makes market
manipulation difficult. The availability of securities in demat form has given
a further fillip to this process.

Internet trading helps security-trading houses to expand their market

far and wide across the country and outside the country. This facility is
likely to bring about sustained changes in the trading practices.



Capital market is important as it plays an important role in bringing

rapid industrial development in a country. The savings are invested
profitably for economic development because of the services offered by
capital market. Mobilization of investable surplus and provision of expert
services to investors and companies are two significant activities undertaken
by the capital market. Capital market acts as a link between those who save
and those who need funds and are in a position to invest them with safety
and reasonable return. It is importance due to:

• It enables the investors to adopt their investment to their

expectations which are constantly changing.

• It acts as a link between those who save and those who are
interested in investing these savings.

• It provided the capital to those enterprises which can apply it

profitably, productively and increase the aggregate national

• It provides proper flow of funds and brings about the rational

allocation of resources through the conversion of financial assets
into physical assets. Thus, the capital market facilitates capital

• It provides incentives to saving and facilitates capital formation by

offering suitable rate of interest as the price of capital.


• It serves as an important source for technological upgradation in

industrial sector by utilizing the fund invested by the public.

• It facilitated buying and selling of securities at listed price by

providing continuously marketability to the investors.

• The securities offered in the capital market are transferable in


• The changing business conditions in the economy are immediately

reflected on capital market. Booms and depression can be
identified by capital market. So suitable monitory and fiscal
policies can be taken by government.

• Capital market supplies securities of different kinds with different

maturity and yields in unable the investors to diversify their risk by
wider portfolio of investment.



(Amount in RS. mn)

YEAR Public Issue Right Issue
Amount Amount
2000/01 53784 7294
2001/02 65018 10413
2002/03 36387 4312
2003/ 649 8318

Category Wise

30000 8318
20000 7294
10000 649

2000/012001/022002/03 2003 /

Public Right

(Amount in RS. mn)


Issue Type


70000 63413

YEAR50000 Listed IPOs
Amount Amount

2000/01 27223
33854 30316 27223
30000 63413 1509
20000 30316 10387
10387 4307
2003/ 4660 4660 4307
jan4 1509

2000/01 2001/02 2002/03 2003 /
Jan 2004

Listed IPOs

(Amount in RS. mn)

YEAR Equities Bonds Others
At par At Amount Amount
(Amount) premium
2000/01 8178 24076 27040 363
2001/02 1509 11213 56012 6696
2002/03 1425 13144 26000 134
566 4400 4000 0



25000 24076


15000 13144
10000 8178
1509 1425 566
2000/01 2001/02 2002/03 2003 /
Jan 2004

At Par At Premium


Bonds & Others

60000 56012



30000 27040 26000


10000 6696
363 134 0
2000/01 2001/02 2002/03 2003 /
Jan 2004

Bonds Others




While discussing the concept of the new issue market, the distinction
between the New Issue Market (NIM) and the stock exchanges must always
be kept in mind since they differ from each other organizationally and as
regards, the nature of functions performance by them. In the first place, NIM
deals with ‘new’ securities I.e. securities which were not previously
available and are offered to the investing Public for the first time. The
market therefore, derives its name from the fact that it makes available a
new block of securities for Public Subscription. The stock market on the
other hand is a market for ‘old’ securities i.e. those which have already been
issued and have been granted stock exchange listing.

A related aspect of these two parts is the nature of their contribution to

industries financing. The new issue market provided the issuing company
with additional fund for starting a new enterprise or for either expansion or
diversification of an existing one and thus its contribution to company
financing is direct.



Many function services to gives maintain resources and the main

function of the New Issue market is to facilate the ‘Transfer of resource’
from serve to users. Conceptually, however, the NIM should not be
conceived as a platform only for the purpose of raising finance for new
capital expenditure but also for expansion of existing units. In this basis the
new issue market can be classified as:
1.) Market where firms go to the public for the first time
through initial public offering.
2.) Market where firms which are already trade raise additional
capital through seasoned equity offering.

Now, the main function of the new Issue market i.e. channeling of
investible funds can be divided, from the operational stand-point , in to a
triple service function.
a.) Origination
b.) Underwriting
c.) Distribution
(a) Origination
Origination refers to the work of investigation and analysis and
processing of new proposals.

i.) A preliminary investigation undertaken by the sponsors of the

issue. This involves a careful study of the technical, economic,
financial and legal aspects of the issuing companies to ensure that
it warrants the backing of the issue house.
ii.) Advisory services which improve the quality of capital issues and
ensure its success. The advisory services include:


─ Determination of the class of security to be issued and price of

the issue in terms of market conditions;
─ The timing and magnitude of issues;
─ Method of flotation; and
─ Technique of selling

The importance of the specialized services provided by the New Issue

Market organization in this respect can hardly be over-emphasized. On the
thoroughness of investigation and soundness of judgment of the sponsoring
institution depends, to a large extent, the allocative efficiency of the market.
The underwriting service is required because origination it self does not
guarantee the success of the issue.

(b.) Underwriting
Underwriting is an agreement whereby the underwriter promises to
subscribe to a specified number of shares or debentures or a specified
amount of stock in the event of public not subscribing to the issue. If the
issue is fully subscribed then there is no liability for the underwriter. If a part
of share issues remain unsold, the underwriter will buy the shares. Thus
underwriting is a guarantee for the marketability of shares.

Method of underwriting
The underwriting may take under the form:


Standing behind the Issue:- In this underwriter guarantees the sale of a

specified number of shares within a specified period. If the public do not
subscribe to the specified amount of issue, the underwriter buys the balance
in the issue.
Outright purchase:- The underwriter in this makes outright purchase of
shares and resell them to the investors.
Consortium method:- Underwriting is jointly done by a group of
underwriters in this method. The underwriters form syndicate for this
purpose .this method is adopted for large issues.
The underwriters in India may be classified into two categories:
i.) Institutional underwriters are LIC, ICICI, Commercial,
and General insurance companies etc.
ii.) Non- institutional underwriters are brokers. They
guarantee shares only with a view to earn commission from
the company floating the issue.

(c.) Distribution
The sale of securities to the ultimate investors is referred to as
distribution; it is another specialized job, which can be performed by brokers
and dealers in securities who maintain regular and direct contact with the
ultimate investors.



In the New Issue Market two type o players are exited one is player
for original, second is player for issues both are important to play a role
which is issued new share for investors.

1.] Player for New Issue

a.) Banker of merchant:- Merchant bankers are issued managers

rendering such service to industrial project or corporate unit as floatation of
new company. Preparation, Planning and execution of new project
consultancy and advise in technical financial managerial field.

b.) Registrars to the Issue:- These functions are next to merchant banker.
They collect applications form new issue cheque, stock invest etc. classify
and computerized them. They have to dispatch the latter of allotment, refund
order and share certificate within the time schedule. They have also be
satisfy the listing requirement and get them listed on one or more or stock

c.) Collecting and co-coordinating merchant:- Collector banker collect

the subscription in cheque, cash, stock invest etc. Coordinating bankers
collect information on subscriptions and coordinate the collection work, they
monitor the work and keep inform them to the registrars and merchant
bankers. Collecting banker and coordinating banker may be the same bank
or different banks.

d.) Underwriters and Brokers:- Underwriter may financial institution,

Bank, Mutual fund, Broker etc. and under take to mobilizes to subscription


as agreed to, they have to make good the short fall by their own
Brokers along with the net work of sub-brokers market the new issues.
They send their own circulars and applications to the clients and do follow
up work to market the securities.

e.) Printers:- Advertising agency, mailing agency are the other

organization involves in the new issue market operation. Now second type
of player in the new issue market also gives good role in this situational.

2.] Players for original

The original player in the new issues are many and the more important
of them are directors, friend, employee, financial, NRI public etc.
Cash and credit are parts of money and these are provided by the
government, RBI and Banks and are used for purchase/ sale of securities,
borrowing and lending saving and any other bodies corporate or non-
corporate and these funds are used for purchase of securities or lending for
any purpose borrowers or the government or companies or any other issues
of securities.
So for actual and original player, play under type of marker for new
issue market.
Promoters and directors
Associates and friends
Mutual funds, Banks, NRI etc.





This was very old technique of transaction in securities. Though the

Bridge information, client contact to his Broker for making transaction in
banking stock exchange. Broker makes a list of all the order of client and
sends his jobber to stock exchange for the implementation of the orders.
This technique has very fluctuated nature because at the time of noting the
order, the rate are different than the time at stock exchange for implementing


Screen Based Trading means online. NSE started at 1994-95, it

provided OLRT (online real time) rate of NSE and BSE, OLRT charts and
technical, online news and analysis with news on fore, SGSSL now
introduced VSAT and cable or fax , LAM(local area network), WAN(wide
area network), the exiting and high tech, network of computerized trading,
Online trading and order processing system for NSE. The totally screen
based trading operations will not only provide the best possible rates, but
will also create an absolutely unbeatable position for the constituents in the
highly competitive market. The first such computerized trading hub is
already in place in Ahmedabad. The transactions are made fast through the
screen based trading and deliveries are made very fast then physical. This
sub-brokers and clients are making order so quickly to stock exchange.



Dematerialization is the process by which physical certificate of an

investors are converted to an equivalent number of securities in electronic
form and credited in the investors account with DP. Most of the active
scripts in the market including all the scripts of S & P CNXNIFTY and BSE
SENSEX have already joined NSDL. In dematerialization form, we can get
an update list of these companies form NSDL.


Though C.T.C, SGSSL is the first in India to start C.T.C network and
is setting up major computerized Trading Hubs in major cities in entire
western India belt, starting with Ahmedabad. Brokers and investors can
transact business on NSE and BSE directly form the premises, on their
computers through the Hub. For this purpose, the computer will set up the
Computerized Trading Workstations (CTWs) at the brokers and investors
premises, which fully covered through latest communication technology and
trading environment available in the country. The CTW receive OLRT
information on scrip quotation form the various able to give buy and sale
orders through CTWs. Through, anyone can trade on the NSE / BSE form
own office, on the terminal, along with online technical and financial news.



Stock exchange is an organization, association or group of persons,

incorporated or not, which constitutes, maintains or provides a market place
or facilities for bringing together purchase and sellers of securities and
includes the market place and facilities maintained by such an exchange.

Thus in ordinary sense, it’s like BAZAAR of other thing, BAZAAR

of shares. All the orders of sell and purchase of shares are executed at stock
exchange. Stock exchange may be recognized or unrecognized. Recognized
stock exchange means a stock exchange which is for the time being
recognized by central government / SEBI under section – 4 of SCRA
(Securities Contract Regulation Act) 1956.

There are 23 stock exchange in all over India. In this BSE and NSE
are most active exchange.


Trading on the stock exchange used to be officially done in the trading

ring for five hours from 10:30 a.m. to 3:30 p.m. Under electronic trading,
house is also extended from 10:30 a.m. to 3:30 p.m. from Monday to Friday.
Trading before of after official hours is called kerb trading.

Trading Mechanism
The trading system, known as the National Exchange for Automated
Trading (NEAT) system, is an on-line, fully-automated, nationwide,
anonymous, order-driven, screen-based trading system at which investor
client contact his broker through telegram, telephone, fax etc. or through


intermediary or by directly and after they tells their broker about quantity of
security, price of security, name of security for buy or sale the security and
after this member/broker call the operator for punch into the computer
quantities of securities and the prices at which he likes to transact and the
transaction is executed as soon as it finds a matching sale or buy order from
a counter party. It electronically matches orders on a strict price/time priority
and hence cuts down on time, cost and risk of error, as well as on fraud
resulting in improved operational efficiency. It allows faster incorporation of
price sensitive information into prevailing prices, thus increasing the
informational efficiency of markets. It enables market participants to see the
full market on real-time, making the market transparent. It allows a large
number of participants, irrespective of their geographical locations, to trade
with one another simultaneously, improving the depth and liquidity of the
market. It provides tremendous flexibility to the users in terms of kinds of
orders that can be placed on the system. It ensures full anonymity by
accepting orders, big or small, from members without revealing their
identity, thus providing equal access to everybody. It provides a perfect audit
trail which helps to resolve disputes by logging in the trade execution
process in entirety.

The trading platform of the CM segment is accessed not only from the
computer terminals from the premises of brokers spread over about 350
cities, but also from the personal computers in the homes of investors
through the Internet and from the hand-held devices through WAP.


Block Book/ Sauda Book

After each order is executed, suitable entries are made in the
concerned member’s Block Book/Pass confirmation memos. This is a book
of transaction executed on the floor and appropriate entries are made after
every deal to record the number of shares traded, the prices of the purchase
and sale ,and the name or code number of the other member through whom
the deal was finalized.

Contract Note
From the sauda book /Block book the details are transferred to
contract note. It is important to ensure that the contract note is written up on
the day of the of the deal of the deal and posted to the client. This is a poof
that the contracts was executed on that day and not on any other day since
prices fluctuate every day.



Group A→ Specified shares/Specified list

Group B→ Non-Specified shares/Cash list
Group C→ Odd lots
Group Z

Group A
Under this, only those actively traded are included. i.e. those security
which have high traded volume which are included in Group A. The criteria
for listing in specified group have been dealt with as follow:
1.) The shares should be fully paid up
2.) The companies paid up capital should be at least RS. 5 crores,
3.) The shares should has been actively traded while on the cash list
4.) The number of shareholders must be more than 20,000.
5.) The company’s shares should have market capitalization of at least
RS.10 crores.
6.) The company should have a growth potential.
7.) The company should be a dividend paying one.

Group B
Those securities which have high traded volume less than the Group
A which are included in Group B. The shares which are traded on cash basis
are called group shares. They are also called as cash shares. Group B share,
those which are first listed will be, kept in Non-specified. Non-specified
group split into B1 and B2 groups. The carry forward facility is not
available to group B shares.


Group C
Those securities which have high traded volume less than the Group B
which are included in Group C. Under this, only for odd lots deal. Only
standard trading units i.e. prescribed round lots are traded on the stock
exchange. Most of the companies have fixed market lot as 50 to100.
Anything less than the round lot (market lot) is odd lot. Odd lots arise from
the issue of bonus or right shares. E.g., if GCLLtd. declares a bonus issue in
ratio of 1:3 (Assume that market lot of company is 50), a shareholder who is
holding 50 shares gets 17 shares which is less than the market lot and
treated as an odd lot. If he holds 150 shares, he will get 50 bonus shares
which is clearly a market lot. If he holds 250 shares, he can avail 83 shares,
out of which 50 is market lot and the rest of 33 shares is an odd lot. Stock
exchange are now making alternative arrangement for dealing with odd lots
i.e. under Group C.

Group Z
Those securities which are not follow the rules of the SEBI and which
have a high volatility (i.e. price of security is highly flexible) that type of
securities are included the Group Z.

Permitted securities
The securities which are listed with some of the recognized stock
exchanges, when permitted to be traded by those stock exchanges where
they are not listed are called permitted securities. Such permission is granted
as per rules and regulations of the stock exchange.



Transaction on stock exchange are carried out on either cash basis or
carry over basis. Carry over is permitted only in respect of Group A
securities. The types of transactions on cash basis according to
arrangement for delivery are:
a.) Spot delivery
b.) Hand delivery
c.) Delivery for clearing

a.) Spot delivery

In case of spot delivery transaction, the delivery and payment are
completed on the same day of contract or on the next day. For completion of
the contract, the actual period for the send off of the securities or payment of
money through post is excluded in the computation when the parties to the
contract reside at different places.

b.) Hand delivery

When a transaction is settled by delivery and payment on the day
fixed at the time of entering into contract or within 14 days from the date of
the contract.

c.) Delivery for Clearing

All transaction in securities in the specified list are effected only
through the clearing house. The securities for delivery will be delivery to
the buyer within a week and the seller receive all member dues within the


same time from the clearing house on the respective “pay-in” and “pay-out”
Due to On Line screen based Trading above type of delivery now day
can not seen because all delivery are doing on the basis of T+2 rolling


Order for the sale and purchase of shares are valid for a certain time
period, usually a day. In actual practice, the broker requires investor to
renew the order every day. On the basis of price limits, they can be divided
1) Nett rate orders
2) Market rate orders
3) Limited discretionary order
4) Best rate order
5) Stop loss order


Big brokers transact their business through their authorized clerks.

Small ones carry out their business personally. Orders are executed in the
Trading ring of the stock exchange which works form 10:30 a.m. to 3:30
p.m. on all working day from Monday to Friday and a special one hours
session on Saturday. Trading outside the trading hours are called ‘kerb


Order may be communicated to broker either orally or in writing. Oral

orders will be accepted by a broker only if the client is well known.
Acceptance of order may be communicated to the client orally or through
“Order Confirmation Note”.

In case the order related to a security listed in the stock exchange of

the broker, the order is executed in the following manner.

There are certain set hours on each working day of the stock exchange
when the brokers meet in the system to transact business on behalf of their

The trading system, known as the National Exchange for Automated

Trading (NEAT) system, is an on-line, fully-automated, nationwide,
anonymous, order-driven, screen-based trading system at which investor
client contact his broker through telegram, telephone, fax etc. or through
intermediary or by directly and after they tells their broker about quantity of
security, price of security, name of security for buy or sale the security and
after this member/broker call the operator for punch into the computer
quantities of securities and the prices at which he likes to transact and the
transaction is executed as soon as it finds a matching sale or buy order from
a counter party.

The broker intimates his client of the transactions done on his behalf
by sending him a ‘Contract Note’. This original is retained by the client and
the copy returned with the client’s signatures to the broker in confirmation
of that contract.



The rules and procedures for buying and selling securities are the same. In
all the recognized stock exchange in India. The procedures are listed blow:
[A.] Purchase of shares
[B.] Sale of shares

[A.] Purchase of shares

purchase of shares can be divided into 2 parts, namely purchase of
Existing shares from the market (secondary market) and purchase of
companies issuing fresh shares (primary market).

(a.) Purchase from primary market

i.) Filling application farm with application money
The companies issuing the shares circulate printed application form
on which intending purchases has to fill in the details like, name, address,
occupation, age, and specimen signatures etc. Application money per share
multiplied by number of shares this applied for has to be paid along with this

ii.) Receipt of response letter/refund order

Depending on response the company announces an allotment
procedure. If the shares are allotted on investor’s application, he will receive
the allotment letter otherwise a refund order of the amount applied for will
be received. Some companies send share certificates with the allotment


iii.) Payment of allotment money and call money

In, most companies the face value of the share is not asked for with
application. The company fixed allotment money and call money per share
which asks the shareholders to pay at certain intervals decided by the board
of directors of that company.

iv.) Endorsement of payment on share certificate

In companies where share certificates are issued before call money on
those shares is received, the company makes an endorsement on the shares
to show that how many calls have been paid by the shareholders.

(b.) Purchase from secondary market

i.) Placing order with broker
In the case of purchasing shares of existing companies, the order must
be Placed with broker. The broker will require certain sum of money as
margin money to be given along with the order.

ii.) Receipt of contract note

When the shares are purchased a contract note is sent to the client as
to the number, rate and date of purchase. Many brokers requires their client
to pay the balance amount i.e. purchase price minus margin money, on
receipt of contract.

iii.) Intimation of delivery


When broker receives the share certificate and transfer deed form the
seller he intimates the client to take those shares and make payment in case
it has been made. In case of outstation clients, the broker will call for
balance payment and then send the shares certificate and transfer deed
through registered post.

iv.) Sending shares for transfer

The last stage is the transfer of shares in the name of the purchaser.
The buyer signs in the transferee column of transfer deed. The transfer deed
is filled up if not, already done. Share transfer stamps have to be affixed on
the back of transfer deed.
Thus, the share certificate and complete transfer deed are now ready
which are sent at the share transfer department of company concerned. The
share certificates are received duly transferred within 3 months.

“Now a day for purchases the security/share from primary and

secondary market first of all investor has to open the demate account
without demate account investors can not purchase the share form the
market”. So it need not to Sending shares for transfer because of demate is
already made.

[B.] Sale of Shares

i.) Placing the order with the broker

The order of sale of shares has to be placed with the broker, as an
individual can not sell or purchase shares at the stock exchange directly.
Only member of that particular stock exchange either for themselves or an
behalf of their clients. Usually along with the order the broker will ask


investor to submit the share certificate and transfer deed. The seller must
sign at the transferor column on the transfer deed.

ii.) Receipt of contract note

On the sale of issues contracts note. A contract indicates the number
of share sold, the rate per share, the dare of sale and the terms and conditions
governing the sale. A contract note binds the broker and his client. In case
the client is not satisfied, he must notify his broker immediately on receipt of
the contract.

iii.) Delivery of share certificate and transfer deed

The share certificate and transfer deed have to be delivered by broker
to broker of same stock exchange, member of another stock exchange of
another of his clients, to whom he had sold the shares. The stock exchange
have fixed delivery days on this day, the members deliver to each other the
shares they have sold and purchased. The delivery day avoids the confusion
that would arise of members could deliver on any day of their choice.

iv.) Receipt of payment

Payment is made by the broker usually after 4 days from the day the
shares have been sold and the share certificates along with valid transfer for
same are given to the broker. The payment is made according to the rate
appearing on the contract as the rate is calculated after deducting the
commission payable to the broker.




A.) Long purchase

B.) Margin trading
C.) Short selling
A.) Long purchase
The long purchase is a transaction in which investors buy securities in
the hope that they will increase in value and can be sold at a later date for
profit. The object is to buy low and sell high. A long purchase is the most
common type of transaction. Each of basic types of orders described con be
used with long transactions. Because investor generally expect the price of
security to rise over the period of time they plan to hold it, their return
comes from any dividends or interest received during the ownership period ,
plus the difference between the price at which they sell the security and the
price paid to purchase it ( capital gains). This return is reduced by
brokerages fees paid to purchase and sell the securities.

B.) Margin Trading

Most security purchases do not have to be made on cash basis,
borrowed fund can be used instead, this activity is called margin trading and
it is used for one basic reason i.e. to magnify return.


If investor uses 75% margin means 75% of investment is being

finance by persons own capital and the balance (25%) with borrow money. It
should be clear that with the use of margin, an investor can purchase more
securities that he or she could afford on a security cash basis.

There are basically 2 types of margin requirements.

i.) Initial Margin
ii.) Maintenance Margin

I.) Initial Margin

Initial margin refers the minimum amount of equity that must be
provided by the investors at the time of purchase any security that can be
margined has a specific initial requirement, although these can be changed
by the authorities from time to time.

II.) Maintenance Margin

Maintenance margin absolute minimum amount of margin that an
investor must maintain in the margin account at all times. As long as the
margin account remains at a level equal to or greater than maintenance
margin, the investor is free to use the account in any way. If the value of
investors holding decline, margin in his account will also drop. When
margin drops below maintenance margin level, the related account is known
as restricted account. When restricted account position is occurred an
investor will receive a margin call. This call gives the investors a short
period of time to find some means to bringing the equity up to maintenance
level if this is not done the broker has no alternative but to sell enough of
investors margin holding to bring the equity in the account up to that level.


Generally initial margin is set slightly higher by broker houses for added
protection of both broker and their customers. So, the maintenance margins
on equity rarely change.

Margin formula
A simple formula can be used with all types of purchases to determine
the amount of margin in the transaction at any given point. 2 things are
i.) prevailing market value of securities being margin.
ii.) Amount of money being borrowed, it is also called debit balance
Value of securities - Debt balance
Margin =
Value of securities
Buy 1000 shares of ABC scrip at RS. 20 each. Initial margin is at 50% and
maintenance margin=30%.

Customer’s A/C
Stock (shares) RS. 20000 Debt RS. 10000
Equity RS. 10000

20,000- 10,000
Margin =
x 100
=50% (initial margin)
A.) share price moves down to RS.17


Stock (shares) RS. 17,000 Debt RS. 10000

Equity RS. 7000

17,000- 10,000
Margin =
x 100
B.) share price moves down to RS.13
Stock (shares) RS. 13,000 Debt RS. 10000
Equity RS. 3000

13,000- 10,000
Margin =
x 100

C.) share price moves UP to RS.25

Stock (shares) RS. 25,000 Debt RS. 10000
Equity RS. 15000

25,000- 10,000
Margin =
x 100


The share falling price must be absorbed by the customer’s Equity
because the debt has not been repaid.
The maintenance margin of 30% will be reached under the following

Debt balance
Market value of securities =
1 – Maintenance margin
1 – 0.30
= 14,286 RS.
It means, if value of securities/ shares move down from RS.14,286,
indicate at (beta) point in above Example, the maintenance margin falls
below 30%, the broker will send a maintenance margin call requiring that
the customer supplies additional funds in cash or securities in 2 to 5 days
otherwise, the securities in his account will be sold and cash used to repay
the outstanding margin loan.

If value of the shares move up from RS.14, 286, margin moves up

from 30%. So, investor now has additional borrowing power he can borrow
to buy shares without depositing equity of his own.

C.) Short selling

Short selling is generally defined as the practice of selling borrowed
securities. Short sales start when securities that have been borrowed from


broker are sold in the market place. Later, when the price of the issue has
declined, the short seller buys back the securities which are then returned to
the lender. Short sellers to make money by buying low and selling high. The
only difference is that they reverse the investment process by starting the
transaction with a sale and ending it with a purchase.

Short On Margin
With short selling, the term margin simply indicates the size of the
Equity deposit the investor must make in order to initiate the transaction.
There are no borrowed funds with margined short sales. Margined short
sales are executed in the same margin A/C as margined long transactions.
They are subject initial margin levels. In fact, the only thing that we do not
have to be concerned about with a margined short sale is the accounts debit

Shorting against the box

Shorting against the box is done after an investor has granted through
an earlier long transaction by falling it with a short sale. An investor also
own 100 equity shares would short on equal number of equity shares in
same company. By doing this, he is able to protect project already made in
long transaction.

The maximum brokerage chargeable by trading member in respect of
trades effected in the securities admitted to dealing on the CM segment of
the Exchange is fixed at 2.5% of the contract price, exclusive of statutory


levies like, SEBI turnover fee, service tax and stamp duty. This maximum
brokerage is inclusive of the brokerage charged by the sub-broker which
shall not exceed 1.5% of contract price. However, the brokerage charges as
low as 0.15% are also observed in the market.
A member is required to pay the exchange transaction charges at the
rate of 0.004% (Rs. 4 per Rs. 1 lakh) of the turnover.


While NSE/BSE other Exchange provides a platform for trading to its

trading members, Clearing House determines the funds/securities obligations
of the trading members and ensures that trading members meet their
obligations. The core processes involved in clearing and settlement are:

(a) Trade Recording:

The key details about the trades are recorded to provide basis for
settlement. These details are automatically recorded in the electronic trading
system of the exchanges.

(b) Trade Confirmation:

The parties to a trade agree upon the terms of trade like security,
quantity, price, and settlement date, but not the counterparty which is the
Clearing house. The electronic system automatically generates confirmation
by direct participants.

(c) Determination of Obligation:

The next step is determination of what counter-parties owe, and what
counter-parties are due to receive on the settlement date. The Clearing house


interposes itself as a central counterparty between the counterparties to

trades and nets the positions so that a member has security wise net
obligation to receive or deliver a security and has to either pay or receive

(d) Pay-in of Funds and Securities:

The members bring in their funds/securities to the Clearing house.
They make available required securities in designated accounts with the
depositories by the prescribed pay-in time. The depositories move the
securities available in the accounts of members to the account of the
Clearing house. Likewise members with funds obligations make available
required funds in the designated accounts with clearing banks by the
prescribed pay-in time. The Clearing house sends electronic instructions to
the clearing banks to debit member's accounts to the extent of payment
obligations. The banks process these instructions, debit accounts of members
and credit accounts of the Clearing house.

(e) Pay-out of Funds and Securities:

After processing for shortages of funds/securities and arranging for
movement of funds from surplus banks to deficit banks through RBI
clearing, the Clearing house sends electronic instructions to the
depositories/clearing banks to release pay-out of securities/ funds. The
depositories and clearing banks debit accounts of the Clearing house and
credit accounts of members. Settlement is complete upon release of pay-out
of funds and securities to custodians/members.

(f) Risk Management:


A sound risk management system is integral to an efficient settlement

system. The Clearing house ensures that trading members' obligations are
commensurate with their net worth. It has put in place a comprehensive risk
management system, which is constantly monitored and upgraded to pre-
empt market failures. It monitors the track record and performance of
members and their net worth; undertakes on-line monitoring of members'
positions and exposure in the market, collects margins from members and
automatically disables members if the limits are breached.

Settlement Cycles

Since the beginning of the financial year 2002, all securities are being
traded and settled under T+3 rolling settlement. (From April 1, 2003, trades
have been under T+2 rolling settlement). This is a step towards further
reducing the settlement cycle to T+1 in 2004. The Clearing House notifies
the consummated trade details to clearing members/custodians on the trade
day. The custodians affirm back the trades to Clearing House by T+1 day.
Based on the affirmation, Clearing House nets the positions of
counterparties to determine their obligations. A clearing member has to pay-
in/pay-out funds and/or securities. A member has a security-wise net
obligation to receive/deliver a security. The obligations are netted for a
member across all securities to determine his fund obligations and he has to
either pay or receive funds. Members' pay-in/pay-out obligations are
determined latest by T+1 day and are forwarded to them on the same day so
that they can settle their obligations on T+2 day. The securities/funds are
paid-in/paid-out on T+2 day and the settlement is complete in 3 days from
the end of the trading day.


The activity schedule for T+2 rolling settlement shall be as follows:

S.No. Day Time Description of Activity

1. T Trade day
2. T+1 By 11:00 a.m. Conformation of all trades( including
custodial trades.) Facility of an exception
window for the confirmations would be
made available by the exchange.
By 1:30 pm. Processing and downloading of obligation
files to brokers/ custodians
3. T+2 By 11:00 a.m. Pay in of securities and funds
By 1:3 p. Pay out of securities and funds

Development and adoptions under rolling settlement system are as

In January 2000, rolling settlement on a T+5 bases was introduced in 10
selected scrips.
 From May 2000, NO of scrips are increase under T+5 systems from 10 to
163 scrips.
 In March 2001, the announcement made by the finance minister to
introduce rolling settlement in200 scrips.
 From July 2001, SEBI announced a list of 251 scrips for compulsory
rolling settlement.


 From December 31, 2001, rolling settlement was extended to remaining

scrips on all exchanges.

 From 1 April 2002, the rolling settlement on a T+3 basis was introduced
for all securities of all exchanges.
 From 1 April, 2003, the rolling settlement on a T+2 basis has since
introduced for all groups of securities in the equity segment “F” and “G”

The trades in rolling settlement are settled on at T+2 bases i.e. / on the
2nd working day. For arriving holidays, Saturday and Sundays are excluded.
Typically trades taking place on Monday are settled on Wednesday,
Tuesday’s trades settled on Thursday and so on. A tabular representation of
the settlement cycle for rolling settlement is given bellow.


Activity T+3 Rolling T+2 Rolling

Settlement(From Settlement(From
April 1,2002) April 1,2003)

Trading T T
Custodial Confirmation T+1 T+1

Determination of Obligation T+2 T+1

Securities/FundsPay-in T+3 T+2

T+3 T+2
Securities/Funds Pay-out
T+3 T+1
Valuation Debit
T+4 T+3
T+5 T+4
Bad Delivery Reporting
T+6 T+5
Auction Pay-in/Pay-out
T+6 T+5
Close Out
Rectified Bad Delivery Pay- T+7 T+6
Re-bad Delivery Reporting T+9 T+8
Close Out of Re-bad Delivery T+10 T+9

T+1 means one working day after the trade day. Other T+ terms have similar


Auctions are arranged for scrips which could not be delivered even on
the final day. These auctions are tenders for sale of the desired scrips in the
quantities purchased but not delivered so that delivered can be effected to
the buyers. Auctions in group A is automatic when the seller fails to deliver
on the appointed day and at the request of the buyer in the case of group B.
Auctions are arranged by the stock exchange by inviting bids from members
to buy the shares on behalf of the member who could not deliver the shares.


The transactions in secondary market are processed through 3 distinct

phases viz: Trading, Clearing, Settlement.

While stock exchange provides a platform for trading to its trading

members, clearing corporation/Clearing House/ the National Securities
Clearing Corporation Ltd. (NSCCL) determines the funds/securities
obligations of the trading members and ensures that trading members meet
their obligations. Clearing Corporation and depositories provide the
necessary interface between custodian/ clearing members and trading

The clearing process involves determination of what trading members

owe, and what trading members are due to receive on the settlement date.
So, clearing process is essentially the process of determination of obligations
after which the obligations are recovered by settlement.


The clearing and settlement process for transactions in securities is

presented in the following diagram.

Clearing Procedure/Settlement Process

Stock Exchange

8 9

Depositories Clearing House Clearing

6 7 Banks

2 3
5 4

Custodians/ Clearing members

10 11



(1) Trade details from Exchange to Clearing House (real-time and end of
day trade file).
(2) Clearing House notifies the consummated trade details to
CMs/custodians who affirm back. Based on the affirmation, Clearing
House applies multilateral netting and determines obligations.
(3) Download of obligation and pay-in advice of funds/securities.
(4) Instructions to clearing banks to make funds available by pay-in time.
(5) Instructions to depositories to make securities available by pay-in-
(6) Pay-in of securities (Clearing House advises depository to debit pool
account of custodians/CMs and credit its account and depository does
(7) Pay-in of funds (Clearing House advises Clearing Banks to debit
account of custodians/CMs and credit its account and clearing bank
does it).

(8) Pay-out of securities (Clearing House advises depository to credit

pool account of custodians/CMs and debit its account and depository
does it).
(9) Pay-out of funds (Clearing House advises Clearing Banks to credit
account of custodians/CMs and debit its account and clearing bank
does it).
(10) Depository informs custodians/CMs through DPs.
(11) Clearing Banks inform custodians/CMs.


• The current trading system in the market is quick against

in the previous trading system.
• Due to screen based trading system and T+2 Rolling
settlement, the mobilization of money become speedily and less time.
• It is paper less process. No paper work is involved in
buying or selling of share because nowadays demit is compulsory and
account are debited and credited.
• Due to screen based trading, orders confirmations are
done within few second / minutes after punching the order.
• Capital market supplies securities of different kind with
different maturity and yield in unable the investor to diversify their risk
by wider portfolio of investment.
• The investor has high risk to invest in primary market
security but also have higher return compare to secondary market.
• When market is hyper, try to liquidate the investment and
ask for tips to sell and not to buy.
• In the case of online trading if your internet is not
working properly you cannot trade.
• The investments are more safety in T+2 rolling
settlement than T+3, T+4 etc.
• Demat opportunity zone has shown remarkable growth
over a last couple of years. And this growth is expected to continue in
future because of cease less expansion of product portfolio and customer



Capital market is the market in which investor both small and big can
invest for the intention to gain the fixed interest, income and dividend etc.
and also high profit for the high investment. The capital market is one of the
most vibrant sectors in the financial system, making an important
contribution to economic developments.

From the study of the project we can conclude that capital market
enable the investor to gain the maximum return by sort selling, speculation,
and investing long run, compare to invest or deposit the money in other
sources like bank, gold, etc. but even share market is more risky, investor
can gain the more profit and can reduce the risk by managing the good
portfolio management. From the study we can also conclude that in recent
time capital market become a safety compare to old market by regulation of
SEBI and compulsory demat account. Through on line trading investor can
save their time and contribute time in elsewhere.

More recently, the investors are trust on equity market because

generally, there is no speculation and number of restriction and rules govern
by SEBI against speculation.



• The settlement cycle should be reduced from T+2 to T+1.

• Those investor have physical share certificate should convert into demat by
opening demat account.
• Those investor who want to take the higher risk and more return, who should
invest in primary market.
• Those people who want to make speculation they should go into secondary
• Small investor should watch the trend of market and should know the
speculation situation after that invest.
• SEBI should introduce a system in which investor have full safety and which
avoid the high volatility and speculation form the market.
• In the SGSSL has two Trading room. So SGSSL should start a other more
trading room. So the traffic can be avoided in the trading room.
• The SGSSL should create more awareness in their client and investor about
demat and it’s benefit.
• In SGSSL there is less incentive and motivation among the worker compare
to other company. So SGSSL should motivate their worker more to do
worker better by special incentive scheme
• The SGSSL should start commodity and derivative so that it can attract more
• To make the better management SGSSL should recruit the post graduate
employee or management student.
• Merger of NSE and BSE should be done, so the speculation can be reduced.



• NSE Fact Book-2003.

• Capital Market in India Gordon and
• Investment Management V.
G. Ramesh Babu.
• Investment Management
• Web sites