Stock Exchange

Securities Contract ( Regulation ) Act , 1956 defines a stock exchange as any body or individuals whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities
1875 Bombay - Non- profit association ( recognized in Aug 1987) 1908 - Calcutta & Chennai - Public Limited Co. (recogn. in 1957) 1930 - MP ( Indore ) 1943 Hyderabad 1947 Delhi 1957 Bangalore 1978 Cochin 1980 s 11 new exchanges including OTC exchange in 1989 1990 s 4 new exchanges including NSE in November 1992.

Objective : Produce trading arrangements at lowest transaction cost

Bilateral Settlement
Broker A Amount Amount Shares Broker B

Counter Party Risk

Amount Risk of other party not meeting an obligation

Shares

Shares Seller

Buyer

Counter Guarantee Settlement

Amount Amount Broker B Broker A SharesClearing House Shares Shares Amount Buyer Shares Seller Amount

Settlement of Trades
Settlement is the process of fulfilling of obligations of the trade by the parties

Types of Settlement Delivery Vs.Payment

Payment of Funds Buyer Deliver of Securities Seller

Rolling Settlement
 Trade executed on a certain day has to be settled after a specific number of days.
 E.g. If settlement cycle is T + 3 a trade executed on Monday has to be settled on 4th day i.e. Thursday

Account period settlement : Trading is continued for a certain period of

time and the traders obligations are netted and then settled

Rolling Settlement at NSE

In a rolling settlement, each trading day is considered as a trading period and trades executed during the day are netted to obtain the net obligations for the day. At NSE, trades in rolling settlement are settled on a T+2 basis i.e. on the 2nd working day. For arriving at the settlement day all intervening holidays are excluded. Typically trades taking place on Monday are settled on Wednesday, Tuesday's trades settled on Thursday and so on.

Activity Trading Clearing Settlement Rolling Settlement Trading Custodial Confirmation Delivery Generation Securities and Funds pay in Securities and Funds pay out

Day T T+1 working days T+2 working days

Trading System at NSE

NSE introduced for the first time in India, fully automated screen based, floor-less trading system (National Exchange for Automated Trading-NEAT) on a national wide basis. It adopts the principle of an order driven market and attempts to provides transparency of trading operations. Orders, as and when they are received, are first time stamped and then immediately processed for potential match. If a match is not found, then the orders are stored in different 'books'. Orders are stored in price-time priority in various books in the following sequence: Best Price Within Price, by time priority. Order Matching Rules Has one of the Lowest transaction cost world wide

Order Matching Rules

The best buy order will match with the best sell order. An order may match partially with another order resulting in multiple trades. For order matching, the best buy order is the one with highest price and the best sell order is the one with lowest price The best buy order will match with the best sell order. An order may match partially with another order resulting in multiple trades. For order matching, the best buy order is the one with highest price and the best sell order is the one with lowest price

Time Conditions
DAY Order - is an order which is valid for the day on which it is entered. If the
order is not matched during the day, the order gets cancelled automatically at the end of the trading day.

GTC - A Good Till Cancelled (GTC) order remains in the system until it is
cancelled by the Trading Member . (The It will therefore be able to span trading days if it does not exchange specifies the maximum number of days a GTC remain in the system .

GTD - A Good Till Days/Date (GTD) order allows the Trading Member to specify
the days/date up to which the order should stay in the system. At the end of this period the order will get flushed from the system. Each day/date counted is a calendar day and inclusive of holidays. The days/date counted are inclusive of the day/date on which the order is placed.

IOC - An Immediate or Cancel (IOC) order allows a Trading Member to buy or

sell a security as soon as the order is released into the market, failing which the order will be removed from the market. Partial match is possible for the order, and the unmatched portion of the order is cancelled immediately.

Price Conditions
Limit Price/Order An order that allows the price to be specified while entering the order into the system. Market Price/Order An order to buy or sell securities at the best price obtainable at the time of entering the order. Stop Loss (SL) Price/Order The one that allows the Trading Member to place an order which gets activated only when the market price of the relevant security reaches or crosses a threshold price. Until then the order does not enter the market.
A sell order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or falls below the trigger price of the order. A buy order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or exceeds the trigger price of the order. E.g. If for stop loss buy order, the trigger is 93.00, the limit price is 95.00 and the market (last traded) price is 90.00, then this order is released into the system once the market price reaches or exceeds 93.00. This order is added to the regular lot book with time of triggering as the time stamp, as a limit order of 95.00

Clearing & Settlement at NSE

NSCCL carries out clearing and settlement functions as per the settlement cycles of different sub-segments in the Equities segment. The clearing function of the clearing corporation is designed to work out a) what counter parties owe and b) what counter parties are due to receive on the settlement date. Settlement is a two way process which involves legal transfer of title to funds and securities or other assets on the settlement date. NSCCL has also devised mechanism to handle various exceptional situations like security shortages, bad delivery, company objections, auction settlement etc. Clearing is the process of determination of obligations, after which the obligations are discharged by settlement. NSCCL uses the concept of multi-lateral netting for determining the obligations of counter parties. Thus, members pay-in and pay-out obligations for funds and securities are determined latest by T + 1 day and are forwarded to them so that they can settle their obligations on the settlement day (T+2).

Negotiated Trades
An off-market transaction where the price & delivery terms are negotiated between the counter parties. The NSE has a separate Negotiated Trade segment where transactions can be settled on a DVP basis provided


 

The trade is entered into the system along with counter parties Contract amount is more than Rs. 5 million Hand or spot delivery

FII s who generally deal in big lots prefer negotiated deals and settle through DVP basis

Index
  

     

Nifty (50 shares of NSE) Sensex (30 shares of BSE ) S&P CNX 500 (500 shares of NSE) CNX Nifty Junior ( next 50 shares at NSE ) BSE Bankex BSE Teck BSE PSU Index ET Mindex Knowledge ET Lifex - Pharrm ET Brandex -

   

FTSE 100 UK Nikkei 225 Japan Nasdaq 100 Nasdaq USA DJIA NYSE Scripts BSE groups

A (specified) large,well established , broad investor base , actively traded , forward trading B1 , B2,(Unspecified) , Z

Insider Trading
SEBI (Insider Trading) Regulations, 1992 prohibits an insider from dealing (on his own behalf or on behalf of others) in securities on the basis of unpublished price sensitive information, communicating such information and also from counseling any other person to deal in securities of any company on the basis of such information. Unpublished price sensitive information, - if published or known, is likely to have an impact on the market price of the securities of that company. An insider means any person who, is or was connected with the company or is deemed to have been connected with the company, and who has received or is reasonably expected to have (had) access to unpublished price sensitive information in respect of securities of the company

Functions of a Stock Exchange

       

   

Provide Trading arrangements Low Transaction Costs Liquidity & Marketability of Securities Safety of investor funds Supply of Long term funds Price Discovery Mechanism Flow of capital to profitable ventures Motivation of improved performance Stock market price reflects performance of company Channelize savings into capital formation & productive Investment Reflect Business cycle Widening share holder base Market for new issues Provides investment information