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INTRODUCTION

The India Capital market consists of many financial institutes,Banks, Stock Markets etc. The capital Market is being dividedbetween two parts:

Primary Market

Secondary market.

The stock exchange comes in the secondary market & theseexchanges are performing various functions. Stock exchangeperforms these functions with the help of middleman calledthe intermediaries. These intermediates act as a link inbetween buyer & seller on the stock exchange. Without thepresence of these intermediaries it is impossible to trade onthe stock exchange.Stock exchange is trading in share, securities, gilt-edgesecurities, bonds, mutual fund & commodities.There are 23 stock exchanges in India like BSE, NSE, Bangalorestock exchange, Cochin stock exchange, Delhi stock exchange,kolkatta stock exchange & many others.

The intermediaries in the capital market are:

Merchant Banker

Their function & working are very crucial to the operatingin the primary market. They are the issue manager, leadmanager, co-manager & are responsible to the company & SEBI.

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Registrar:

Their function are next to merchant banker inimportance. They collect the application for the new issue,their cheques, stock invests, classify & computerize them. Theyalso make allotment in consultation with the regional stockexchange regarding norms in the event of over subscription &before a public representative.

Collecting Banker:

Collecting banker collects the subscription in cash,cheques, stock invest, ect.

Underwriter:

Underwriter mar be financial institution, banks, mutual fund,ect., & undertake to mobilise the subscription up to some limit.Falling to secure subscription as agreed to, they have to makegood the shortfalls by their own subscription.

Stock Market Intermediaries:

Client Broker:

They are doing simple broking between buyer & seller &earning only brokerage for their service from the client.

Floor Broker:

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These are authorized clerks & sub-brokers who enter thetrading floor & execute the orders for the client or othermember.

Jobber & Market Maker:

Those members who are ready to buy & sell simultaneously inselected scrips, offering on the trade floor & earning profitthrough the margin between buying & selling rate. MarketMaker undertakes this work compulsorily for some companies& bank finance in available to them.

Arbitrager:

Those who do inter market deals for a profit throughdifference in price as between markets say buy in Kolkatta &sell in Mumbai & vice versa.

Badla Financiers:

Those members who finance carry forward deals in specifiedgroup (A group) for a return in the form of interest, calledBadla Rate. They lend money or shares for the brokers who areover bought or over sold respectively at the time of settlement.Badla in carry forward facility from one settlement to anotherwithout taking a delivery up to a maximum period of 90 daysat a time.

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Introduction To Bombay Stock Exchange

The Stock Exchange, Mumbai, popularly known as "BSE" wasestablished in 1875 as "The Native Share and Stock BrokersAssociation". It is the oldest one in Asia, even older than theTokyo Stock Exchange, which was established in 1878. It is avoluntary non-profit making Association of Persons (AOP) andis currently engaged in the process of converting itself intodemutualised and corporate entity. It has evolved over theyears into its present status as the premier Stock Exchange inthe country. It is the first Stock Exchange in the Country tohave obtained permanent recognition in 1956 from the Govt.of India under the Securities Contracts (Regulation) Act, 1956.

The Exchange, while providing an efficient and transparentmarket for trading in securities, debt and derivatives upholdsthe interests of the investors and ensures redressal of theirgrievances whether against the companies or its ownmember-brokers. It also strives to educate and enlighten theinvestors by conducting investor education programmes andmaking available to them necessary informative inputs.

A Governing Board having 20 directors is the apex body, whichdecides the policies and regulates the affairs of the Exchange.The Governing Board consists of 9 elected directors, who arefrom the broking community (one third of them retire ever year

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by rotation), three SEBI nominees, six public representativesand an Executive

Director & Chief Executive Officer and a Chief OperatingOfficer.The Executive Director as the Chief Executive Officer isresponsible for the day-to-day administration of the Exchangeand the Chief Operating Officer and other Heads ofDepartments assist him.

The Exchange has inserted new Rule No.126 A in its Rules,Bye-laws & Regulations pertaining to constitution of theExecutive Committee of the Exchange. Accordingly, anExecutive Committee, consisting of three elected directors,three SEBI nominees or public representatives, ExecutiveDirector & CEO and Chief Operating Officer has beenconstituted. The Committee considers judicial & quasi mattersin which the Governing Board has powers as an AppellateAuthority, matters regarding annulment of transactions,admission, continuance and suspension of member-brokers,declaration of a member-broker as defaulter, norms,procedures and other matters relating to arbitration, fees,deposits, margins and other monies payable by themember-brokers to the Exchange, etc.

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Turnover on the Exchange

The average daily turnover of the Exchange during thefinancial year 2000-2001 (April-March), was Rs.3984.19crores and the average number of daily trades was 5.69lakhs.The average daily turnover of the Exchange in thesubsequent two financial years, i.e., 2001-02 & 2002-03,has declinedConsiderably to Rs. 1248.15 crores and Rs. 1251.29crores respectively.The average number of daily trades recorded during2001-02 and 2002-03 numbered 5.17 lakhs and 5.63lakhs respectively.

The average daily turnover and average number of daily tradesduring the quarter April-June 2003 were Rs. 1101.05 croresand 5.70 lakhs respectively.

The ban on all deferral products like Borrowing & Lending ofSecurities Scheme (BLESS) and Automated Lending & BorrowingMechanism (ALBM) in the Indian capital markets by SEBI w.e.f.July 2, 2001, abolition of account period settlements,introduction of Compulsory Rolling Settlements in all scripstraded on the Exchanges w.e.f. December 31, 2001, etc. hasadversely impacted the liquidity in the market and

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consequently there is a considerable decline in the averagedaily turnover at the Exchange as reflected in above statistics.

The Stock Exchange, Mumbai Governing BoardFor The Year 2005

Mr. S. JambunathanIAS (Retd.)

Executive Director & CEOMr. Rajnikant PatelMr. Bhanubhai G. FozdarMr. Siddharth J. ShahMr. Prakash R. KacholiaMr. Alok C. ChuriwalaMr. Deven R. ChokseyMr. Balkishan MohtaMr. Uttam BagriMr. Radheyshyam B. KhandelwalMr. Nagji Keshavji RitaMr. Jitesh KhoslaJoint Secretary, Dept. of Company Affairs, Govt. of IndiaMr. P.P. VoraMr. P. K. BanerjiRetired IAS OfficerMr. Jagdish CapoorChairman, HDFC BankMr. Vijay Mukhi

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Managing Director, Vijay Mukhi's Computer InstituteMr. Pradip P. ShahChairman, IndAsia Fund Advisors Private LimitedProf. N. RavichandranProfessor, IIM Ahmedabad

NATIONAL STOCK EXCHANGE LTD.

The Organisation:

The National Stock Exchange of India Limited has genesis inthe report of the High Powered Study Group on Establishmentof New Stock Exchanges, which recommended promotion of aNational Stock Exchange by financial institutions (FIs) toprovide access to investors from all across the country on anequal footing. Based on the recommendations, NSE waspromoted by leading Financial Institutions at the behest of theGovernment of India and was incorporated in November 1992as a tax-paying company unlike other stock exchanges in thecountry.

On its recognition as a stock exchange under the SecuritiesContracts (Regulation) Act, 1956 in April 1993, NSEcommenced operations in the Wholesale Debt Market (WDM)segment in June 1994. The Capital Market (Equities) segmentcommenced operations in November 1994 and operations inDerivatives segment commenced in June 2000.

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Our Mission:

NSE's mission is setting the agenda for change in the securitiesmarkets in India. The NSE was set-up with the main objectivesof:

Establishing a nation-wide trading facility forequities, debt instruments and hybrids,

Ensuring equal access to investors all over thecountry through an appropriate communication network,

Providing a fair, efficient and transparent securitiesmarket to investors using electronic trading systems,

Enabling shorter settlement cycles and book entrysettlements systems, and

Meeting the current international standards ofsecurities markets.

The standards set by NSE in terms of market practices andtechnology has become industry benchmarks and is beingemulated by other market participants. NSE is more than amere market facilitator. It's that force which is guiding theindustry towards new horizons and greater opportunities.

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Our Logo: Say NSE’s LOGO

The logo of the NSE symbolises a single nationwide securitiestrading facility ensuring equal and fair access to investors,trading members and issuers all over the country. The initialsof the Exchange viz., N, S and E have been etched on the logoand are distinctly visible. The logo symbolises use of state ofthe art information technology and satellite connectivity tobring about the change within the securities industry. The logosymbolises vibrancy and unleashing of creative energy toconstantly bring about change through innovation.

Promoters:

NSE has been promoted by leading financial institutions, banks,insurance companies and other financial intermediaries:

Industrial Development Bank of India Limited

Industrial Finance Corporation of India Limited

Life Insurance Corporation of India

State Bank of India

ICICI Bank Limited

IL & FS Trust Company Limited

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Stock Holding Corporation of India Limited

SBI Capital Markets Limited

The Administrator of the Specified Undertaking ofUnit Trust of India

Bank of Baroda

Canara Bank

General Insurance Corporation of India

National Insurance Company Limited

The New India Assurance Company Limited

The Oriental Insurance Company Limited

United India Insurance Company Limited

Punjab National Bank

Oriental Bank of Commerce

Corporation Bank

Indian Bank

Union Bank of India

Corporate Structure

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NSE is one of the first de-mutualised stock exchanges in thecountry, where the ownership and management of theExchange is completely divorced from the right to trade on it.Though the impetus for its establishment came from policymakers in the country, it has been set up as a public limitedcompany, owned by the leading institutional investors in thecountry.

From day one, NSE has adopted the form of a demutualisedexchange - the ownership, management and trading is in thehands of three different sets of people. NSE is owned by a setof leading financial institutions, banks, insurance companiesand other financial intermediaries and is managed byprofessionals, who do not directly or indirectly trade on theExchange. This has completely eliminated any conflict ofinterest and helped NSE in aggressively pursuing policies andpractices within a public interest framework.

The NSE model however, does not preclude, but in factaccommodates involvement, support and contribution oftrading members in a variety of ways. Its Board comprises ofsenior executives from promoter institutions, eminentprofessionals in the fields of law, economics, accountancy,finance, taxation, etc, public representatives, nominees of SEBIand one full time executive of the Exchange.

While the Board deals with broad policy issues, decisionsrelating to market operations are delegated by the Board to

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various committees constituted by it. Such committee includesrepresentatives from trading members, professionals, thepublic and the management. The day-to-day management ofthe Exchange is delegated to the Managing Director who issupported by a team of professional staff.

Our Technology:

Across the globe, developments in information,communication and network technologies have createdparadigm shifts in the securities market operations.Technology has enabled organizations to build new sources ofcompetitive advantage, bring about innovations in productsand services, and to provide for new business opportunities.Stock exchanges all over the world have realised the potentialof IT and have moved over to electronic trading systems, whichare cheaper, have wider reach and provide a better mechanismfor trade and post trade execution.

NSE believes that technology will continue to provide thenecessary impetus for the organisation to retain its competitiveedge and ensure timeliness and satisfaction in customerservice. In recognition of the fact that technology will continueto redefine the shape of the securities industry, NSE stresseson innovation and sustained investment in technology toremain ahead of competition. NSE's IT set-up is the largest byany company in India. It uses satellite communicationtechnology to energies participation from around 400 cities

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spread all over the country. In the recent past, capacityenhancement measures were taken up in regard to the tradingsystems so as to effectively meet the requirements ofincreased users and associated trading loads. With upgradationof trading hardware, NSE can handle up to 1 million trades perday. NSE has also put in place NIBIS (NSE's Internet BasedInformation System) for on-line real-time dissemination oftrading information over the Internet. In order to capitalise onin-house expertise in technology, NSE set up a separatecompany, NSE.IT, in October 1999. This is expected to providea platform for taking up new IT assignments both within andoutside India and attaining global exposure.

NEAT is a state-of-the-art client server based application. Atthe server end, all trading information is stored in anin-memory database to achieve minimum response time andmaximum system availability for users. The trading serversoftware runs on a fault tolerant STRATUS main-framecomputer while the client software runs under Windows on PCs.

The telecommunications network uses X.25 protocol and is thebackbone of the automated trading system. Each tradingmember trades on the NSE with other members through a PClocated in the trading member's office, anywhere in India. Thetrading members on the Wholesale Debt Market segment arelinked to the central computer at the NSE through dedicated64Kbps leased lines and VSAT terminals. These leased lines are

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multiplexed using dedicated 2 Mbps, optical-fiber links. TheWDM participants connect to the trading system throughdial-up links.

The Exchange uses powerful RISC -based UNIX servers,procured from Digital and HP for the back office processing.The latest software platforms like ORACLE 7 RDBMS, GUPTA -SQL/ORACLE FORMS 4.5 Front - Ends, etc. have been used forthe Exchange applications. The Exchange currently managesits data centre operations, system and database administration,design and development of in-house systems and design andimplementation of telecommunication solutions.

NSE is one of the largest interactive VSAT based stockexchanges in the world. Today it supports more than 3000VSATs and is expected to grow to more than 4000 VSATs inthe next year. The NSE- network is the largest private widearea network in the country and the first extended C- BandVSAT network in the world. Currently more than 9000 usersare trading on the real time-online NSE application. There areover 15 large computer systems, which include non-stopfault-tolerant computers and high-end UNIX servers,operational under one roof to support the NSE applications.This coupled with the nation wide VSAT network makes NSEthe country's largest Information Technology user.

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In an ongoing effort to improve NSE's infrastructure, acorporate network has been implemented, connecting all theoffices at Mumbai, Delhi, Calcutta and Chennai. This corporatenetwork enables speedy inter-office communications and dataand voice connectivity between offices.

In keeping with the current trend, NSE has gone online on theInternet. Apart from having a 2mbps link to VSNL and our owndomain for internal browsing and e-mail purposes, we havealso set up our own Web site. Currently, NSE is displaying itslive stock quotes on the web site (www.nseindia.com), whichare updated online.

BOARD OF DIRECTORS OF NSE:

Mr. S. B. Mathur Chairman

Mr. Ravi Narain Managing Director

Ms. Chitra Ramkrishna Deputy ManagingDirector

Mr. S. P. Chhajed Director

Mr. R. P. Chitale -do-

Mr. Indrajit Gupta -do-

Mr. N.S. Kannan -do-

Mr. S. H. Khan -do-

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Mr. A. P. Kurian -do-

Mr. Anand G. Mahindra -do-

Mr. Y. H. Malegam -do-

Prof. (Dr.) K.R.S.Murthy -do-

Mr. Ravi Parthasarathy -do-

Dr. R. H. Patil -do-

Mr. Justice M.L. Pendse (Retd.) -do-

Mr. M. Raghavendra -do-

Mr. M. Raghavendra -do-

Mr. R. N. Bhardwaj -do-

Stock Exchanges in India:Totally there are 24 Stock Exchanges in India (Capital StockExchange is yet to start it’s function)

Some of them are like this:

1. National Stock Exchange2. Bombay Stock Exchange3. Bangalore Stock Exchange4. Delhi Stock Exchange5. Vadora Stock Exchange6. Kolkatta Stock Exchange

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7. Cochin stock exchange8. Pune stock Exchange9. Chennai Stock Exchange10. Jaipur Stock Exchange

The geographical location of all the stock exchangesis shown below

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Stock market index

A stock Market Index is a Market. It should capture thebehaviour of the overall equity market. Movements of the

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index should represent the returns obtained by "typical"portfolios in the country.

The basic idea in an indexEvery stock price moves for two possible reasons: news aboutthe company (e.g. a product launch, or the closure of a factory,etc.) or news about the country (e.g. nuclear bombs, or abudget announcement, etc.). The job of an index is to purelycapture the second part, the movements of the stock market asa whole (i.e. news about the country). This is achieved byaveraging. Each stock contains a mixture of these twoelements - stock news and index news. When we take anaverage of returns on many stocks, the individual stock newstends to cancel out. On any one day, there would be goodstock-specific news for a few companies and badstock-specific news for others. In a good index, these willcancel out, and the only thing left will be news that is commonto all stocks. The news that is common to all stocks is newsabout India. That is what the index will capture.

Importance of IndexTraditionally, indices have been used as information sources.By looking at an index we know how the market is faring. Thisinformation aspect also figures in myriad applications of stockmarket indices in economic research. This is particularlyvaluable when an index reflects highly up-to-date information

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(a central issue which is discussed in detail ahead) and theportfolio of an investor contains illiquid securities - in thiscase, the index is a lead indicator of how the overall portfoliowill fare. In recent years, indices have come to the fore owingto direct applications in finance, in the form of index fundsand index derivatives. Index funds are funds which passively`invest in the index'. Index derivatives allow people to cheaplyalter their risk exposure to an index (this is called hedging)and to implement forecasts about index movements (this iscalled speculation). Hedging using index derivatives hasbecome a central part of risk management in the moderneconomy. These applications are now a multi-trillion dollarindustry worldwide, and they are critically linked up to marketindices. Finally, indices serve as a benchmark for measuringthe performance of fund managers. An all-equity fund shouldobtain returns like the overall stock market index. A 50:50debt: equity fund should obtain returns close to those obtainedby an investment of 50% in the index and 50% in fixed income.A well-specified relationship between an investor and a fundmanager should explicitly define the benchmark against whichthe fund manager will be compared, and in what fashion.

BSE Sensex:BSE-SENSEX, short form of the BSE-Sensitive Index, is a"Market Capitalization-Weighted" index of 30 stocksrepresenting a sample of large, well-established and financially

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sound companies. It is the oldest index in India and hasacquired a unique place in the collective consciousness ofinvestors. The index is widely used to measure theperformance of the Indian stock markets. BSE-SENSEX isconsidered to be the pulse of the Indian stock markets as itrepresents the underlying universe of listed stocks at TheStock Exchange, Mumbai. Further, as the oldest index of theIndian Stock market, it provides time series data over a fairlylong period of time (since 1978-79). Over the years,BSE-SENSEX has become one of the most prominent brands inthe country

S&P CNX Nifty;

S&P CNX Nifty is a well-diversified 50 stock index accountingfor 23 sectors of the economy. It is used for a variety ofpurposes such as benchmarking fund portfolios, index basedderivatives and index funds.

S&P CNX Nifty is owned and managed by India Index Servicesand Products Ltd. (IISL), which is a joint venture between NSEand CRISIL. IISL is India's first specialised company focusedupon the index as a core product. IISL have a consulting andlicensing agreement with Standard & Poor's (S&P), who areworld leaders in index services.

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The average total traded value for the last six months ofall Nifty stocks is approximately 58% of the traded valueof all stocks on the NSENifty stocks represent about 60% of the total marketcapitalization as on March 31, 2005.Impact cost of the S&P CNX Nifty for a portfolio size ofRs.5 million is 0.07%S&P CNX Nifty is professionally maintained and is ideal forderivatives trading

The ups and downs of an index:They reflect the changing expectations of the stock marketabout future dividends of India's corporate sector. When theindex goes up, it is because the stock market thinks that theprospective dividends in the future will be better thanpreviously thought. When prospects of dividends in the futurebecome pessimistic, the index drops. The ideal index gives usinstant-to-instant readings about how the stock marketperceives the future of India's corporate sector.

Kinds of indices exist:

The most important type of market index is the broad-marketindex, consisting of the large, liquid stocks of the country. Inmost countries, a single major index dominates benchmarking,

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index funds, index derivatives and research applications. Inaddition, more specialised indices often find interestingapplications. In India, we have seen situations where adedicated industry fund uses an industry index as abenchmark. In India, where clear categories of ownershipgroups exist, it becomes interesting to examine theperformance of classes of companies sorted by ownershipgroup.

GEERAK MARKETING, COMPANY OVERVIEW

About The FounderMr. Nanalal Karva born in the year 1958 & completed hisschooling at Dharwad, he completed his B.Com from J GCollege of Commerce, Hubli, after completion of graduation,he went to Mumbai for gaining experience & served forprofessionally managed concerns, private companies, for 4years, which helped him to bring professional approach to hisorganisation. After gaining working experience at Mumbai, hewent abroad i.e. to Muscat & Kuwait for 3 years & returned toDharwad during 1985.

Company ProfileMr.Nanalal Karva started Geerak Marketing, an investmentconsultancy firm in the year 1985. This firm was established

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with the view to bring the people of Northern part of Karnatakain the main stream of investors at national level. Since itsestablishment the firm is continuously engaged in serving theinvestors’. In the given scenario it will be much appropriate tosay that “GEERAK” is the first organization that has educatedand introduced the people of this part of Karnataka to thecapital market.

Geerak Marketing was the first incorporated as a privateLimited Company on 16th June 1992 and subsequentlyconverted into a public Limited Company on 25th October1995and was named as “Geerak Marketing Stock and Shares BrokerLimited” (GMSSBL).

Mr. Nanalal Karva and his family hold majority of the shares.The present Net Worth of the company stands around Rs. 54lakhs. GMSSBL has taken over all the activities of GeerakMarketing, which was in existence since 1985. UltimatelyGMSSBL has become the Flagship Company of GEERAK GROUPto serve the investors.

Since its inception in the year 1985, the firm has grown toreach immense heights. It has withstood all odds in the marketand has emerged as a true leader in the bargain. GEERAK iswidely recognized as a trustworthy organization and has beensuccessful in satisfying its clients’ interests.

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SCOPE OF ACTIVITIES:The scope of activities for Geerak has been:

Stock and Shares broking as sub-broker of

National Stock Exchange (NSE).

Bombay Stock exchange (BSE).

Investment advisory service for:

Resident Indians.

Non-Resident Indians.

Mobilising the savings of the people towards Corporate.

Establishment of service centers at semi-urban and rural areasto meet the investors’ needs.

Depository services which are being offered through:Nirmal Bang securities Private Limited, Mumbai.Peninsular Capital Market limited, Cochin.Stock Holding Corporation of India limited, Hubli.

Educating in Futures and Options.

Investment related other diversified services provided byGeerak:

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New issue forms, applications for bonds, debentures andfixed deposits.

Investment in mutual Fund of UTI, Alliance, Kothari,Zurich, Kotak Mahindra, LIC, GIC, Cholamandala etc.

Investment in taxfree bonds.

Investment of long term gains under section 54 EC in theprescribed infrastructure bonds (as of NHAI)

Some Other Services provided by Geerak:Information regarding what shares to buy/sell, when tobuy/sell and what are the market conditions.

Technical Analysis and arriving the trends in the market ofindex and individual scrip.

Arranging investors’ meeting to provide information on theday-to-day changes in the stock market and investmentrelated activities.

Arrangement of pre and post Budget meetings for theinvestors.

Transfer of shares and transmission of Shares.

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GEERAK BRANCHES:Following are the branches of Geerak Marketing Ltd.

Dharwad: #3, 1st Floor, Geeta complex, P B Road, Dharwad

Belgaum: 9/10, 1st Floor, Biligi Plaza College Road, Belgaum

Haveri: Banashankari Complex Vidyanagar, P B Road, Haveri

Gadag: #6, Siddhhalingeshwar Complex, Station Road, Gadag

Gulbarga: O/o Balaji Traders #20, Pal Complex Near City Busstand Super Market, Gulbarga

Gajendragad: 1st Floor, Natraj Hotel Building, KalkaeshwarCircle Gajendragad

Panvel (Mumbai): O/o Shri Balaji Investment #8, Shree ShayyaPride, Plot No-155, MCCH Society, Panvel, Dist. Raigad

Ranebennur: C/o Siddheshwar Enterprise, P B Road, NearForest Office, Ranebennur

Settu Securities, Hubli (Station Road): 49, Shri LaxmiBalakrishna Square, Station Road, Hubli

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Sindhnur Geerak marketing, A newly branch started inSindhnur,

The major services provided by these branches are trading inFutures and Options, Buying and Selling of shares throughnational Stock Exchange and Bombay Stock Exchange.

All the branches are fully controlled by the Head Office at Hubli.In the administrator server (situated at the H.O) the tradinglimits for each of the branches and for the clients trading aredefined. Further every transaction that takes place in thesebranches can be monitored from the head office; the wholesystem is controlled with the help of the software called ODIN(Open Dealer Integrated Network) developed by financialtechnologies (India) ltd. At the end of the day the contractnotes for the transactions executed on the behalf of the clientsare also issued from Head Office. Payments from clientsreceived at the branches are deposited at the designated Bankaccount, and the payment for the Clients areMade from the Head office.

Customer Profile:The clients’ base of Geerak includes bank employees, businesspeople, retired persons, government employees, teachers andprofessors. Here some speculate while some others take up

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delivery based trading. For few their objective remains“investing” their surplus cash while some others enjoy hedging,many clients also invest in Mutual funds, Company depositsand still some others invest their money in Debentures ofvarious companies.

Brokerage charges:The brokerage charged by GEERAK varies from 0.05% to 0.205for trading purposes and from 0.25% to 0.75% as deliverycharges.

Topic:

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“Functioning of Capital Market (stock exchange) & Role ofIntermediaries in Capital Market”

Objective:

Getting an in-depth knowledge of the working of the capitalmarket with special reference to the stock exchange andunderstanding the role of intermediaries in capital market.

Sub-Objectives:

Getting the over view of the Capital Market (Primary &Secondary Market).

To study about the settlement procedures in the stockexchanges.

To study about the intermediaries, their functioning &importance of their presence in the capital market.

To study about the Auction Trading in the StockExchange.

STOCK EXCHANGE ONLINE TRADING:

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The trading on stock exchange in India used to take placethrough open outcry without use of information technology forimmediate matching or recording of trades. This was timeconsuming & inefficient. These imposed limits on tradingvolumes & efficiency. In order to provide efficiency, liquidity &transferency, NSE introduced a nation-wide on-linefully-automated screen based trading system (SBTS) where amember can punch into the computer quantities of securities &the price at which he likes to transact & the transaction isexecuted as son as it finds a matching sales or buy order froma counter party. SBTS electronically matches order on a strictprice/time priority & hence cut down on time. Cost & times or,as well as on fraud resulting in improving operating efficiencyNSE is the first Stock Exchange to introduce screen basedtrading system in India.

Advantages of SBTS

It allows to faster incorporation of price sensitive

information into prevailing price.

It allows the market participant to trade from any where

in the world.

Providing equal access to everybody.

Improving the depth & liquidity of the market.

It also provides a perfect Audit Trial.

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Market Timings;

Trading on the equities segment takes place on all days of theweek (except Saturdays and Sundays and holidays declared bythe Exchange in advance). The market timings of the equitiessegment are:

Normal Market Open : 09:55 hours

Normal Market Close : 15:30 hours

The Closing Session is held between 15.50 hours and 16.00hoursLimited Physical Market Open: 09:55 hours

Limited Physical Market Close: 15:30 hours

Market Segments:

The Exchange operates the following sub-segments in the Equitiessegment:

Limited Physical MarketInstitutional SegmentTrade for Trade Segment

Limited Physical Market:

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Pursuant to the directive of SEBI to provide an exit route forsmall investors holding physical shares in securities mandatedfor compulsory damaterialised settlement, the Exchange hasprovided a facility for such trading in physical shares notexceeding 500 shares. This market segment is referred to as'Limited Physical Market' (small window). The Limited PhysicalMarket was introduced on June 7, 1999.

Institutional Segment:

The Reserve Bank of India had vide a press release on October21, 1999, clarified that inter-foreign-institutional-investor(inter-FII) transactions do not require prior approval orpost-facto confirmation of the Reserve Bank of India, sincesuch transactions do not affect the percentage of overall FIIholdings in Indian companies. (Inter FII transactions arehowever not permitted in securities where the FII holdings havealready crossed the overall limit due to any reason).

To facilitate execution of such Inter-Institutional deals incompanies where the cut-off limit of FII investment has beenreached, the Exchange introduced a new market segment onDecember 27, 1999.

The securities where FII investors and FII holding has reachedthe cut-off limit as specified by RBI (2% lower than the ceilingspecified by RBI) from time to time would be available for

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trading in this market type for exclusive selling by FII clients.The cut off limits for companies with 24% ceiling is 22%, forcompanies with 30% ceiling, is 28% and for companies with40% ceiling is 38%. Similarly, the cut off limit for public sectorbanks (including State Bank of India) is 18% whose ceiling is20%. The list of securities eligible / become ineligible fortrading in this market type would be notified to members fromtime to time.

Trade for Trade Segment:

Trading in this segment is available only for the securities

Which have not established connectivity with both thedepositories as per SEBI directive. The list of thesesecurities is notified by SEBI from time to time.On account of surveillance action

Securities Available for Trading:

The Capital Market (Equities) segment of NSE facilitates tradingin the following instruments:

A. Shares

Equity SharesPreference Shares

B. Debentures

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Partly Convertible DebenturesFully Convertible DebenturesNon Convertible DebenturesWarrants / Coupons / Secured Premium Notes/ otherHybridsBonds

C. Units of Mutual Funds

Trading System:

NSE operates on the 'National Exchange for AutomatedTrading' (NEAT) system & BSE operates on the ‘Bombay StockExchange Online Trading System’ (BOLT) a fully automatedscreen based trading system, which adopts the principle of anorder driven market. NSE & BSE consciously opted in favour ofan order driven system as opposed to a quote driven system.This has helped reduce jobbing spreads not only on NSE & BSEbut in other exchanges as well, thus reducing transaction costs.

Types of Trading:

Basket Trading:The purpose of basket trading is to provide NEAT user with afacility to create offline order file for a selected portfolio. Oninputting the values, the orders are created for the selectedportfolio of securities according to the ratio of their marketcapitalisation.

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All the order generated through the offline order file are pricedat the available market price.Quantity of shares of a particular security in portfolio arecalculated as under:No. of shares of a security on portfolio = Amount multiplied byIssued Capital for the Security divided by Current PortfolioCapitalisation.

Where:Current Portfolio Capitalisation = Summation [Last Tradedprice (previous close if not traded) * No. Of issued shares]

Index Trading:The purpose of index trading is to provide NEAT users with afacility of buying & selling of indices, in terms of security thatcomprise the index. Currently, the facility is only for NIFTYsecurity. The users have to specify the amount, and otherinputs that are sent to the host, and the host generates theorders.The index trading provide user the choice of gaining with therise/decline in index values either by buying or selling them.The buying & selling of indices are simulated by enteringorders in securities in proportion to the composition of theindex.

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Quantity of shares of a particular security of NIFTY iscalculated as under:No. Of shares of a security in index = Amount * Issued Capitalfor the security divided by Current Market Capitalisation of theindex.Where,Current Market Capitalisation of index = Summation [lasttraded price (previous close if not traded) * No. Of IssuedShares]

Insider Trading:It is a trading done on the basis of inside information, which isnot available to general public. The price sensitive informationis any information, which if published, is likely to materiallyaffect the price of the securities of a company. Suchinformation may relate to the financial results of the company,intended declaration of dividend, issue of securities or buyback of securities, amalgamation, merger, takeover etc.

Insider trading is prohibited & is considered an offence. TheSEBI (Prohibition of Trading) Regulation Act, 1992, prohibitsthe insider trading. SEBI appoints an Adjudication Officer tomake investigation into insider trading & if any body foundguilty, then he impose monetary penalty.

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Short Sale:

It is a kind of trading where the market participant sells theshares (without having possessing) with an expectation thatmarket will go down, once the market goes down, hepurchases the shares and makes his position clear.

Market Types:

The NEAT system has four types of market. They are:

Normal Market:

All orders which are of regular lot size or multiples thereof aretraded in the Normal Market. For shares that are traded in thecompulsory damaterialised mode the market lot of theseshares is one. Normal market consists of various book typeswherein orders are segregated as Regular lot orders, SpecialTerm orders, Negotiated Trade Orders and Stop Loss orders

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depending on their order attributes.

Odd Lot Market:

All orders whose order size is less than the regular lot size aretraded in the odd-lot market. An order is called an odd lotorder if the order size is less than regular lot size. Theseorders do not have any special terms attributes attached tothem. In an odd-lot market, both the price and quantity ofboth the orders (buy and sell) should exactly match for thetrade to take place. Currently the odd lot market facility is usedfor the Limited Physical Market as per the SEBI directives.

Spot Market:

Spot orders are similar to the normal market orders exceptthat spot orders have different settlement periods vis-à-visnormal market. These orders do not have any special termsattributes attached to them. Currently the Spot Market is not inuse.

Order Books:

The NSE trading system provides complete flexibility tomembers in the kinds of orders that can be placed by them.Orders are first numbered and time-stamped on receipt andthen immediately processed for potential match. Every order

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has a distinctive order number and a unique time stamp on it.If a match is not found, then the orders are stored in different'books'. Orders are stored in price-time priority in variousbooks in the following sequence:

-Best Price

-Within Price, by time priority.

Price priority means that if two orders are entered into thesystem, the order having the best price gets the higher priority.Time priority means if two orders having the same price areentered, the order that is entered first gets the higher priority.

The Equities segment has following types of books:

Regular Lot Book;

The Regular Lot Book contains all regular lot orders that havenone of the following attributes attached to them.

- All or None (AON)

- Minimum Fill (MF)

- Stop Loss (SL)

Special Terms Book;

The Special Terms book contains all orders that have either ofthe following terms attached:

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- All or None (AON)

- Minimum Fill (MF)

Negotiated Trade Book;

The Negotiated Trade book contains all negotiated orderentries captured by the system before they have been matchedagainst their counter party trade entries. These entries arematched with identical counter party entries only. It is to benoted that these entries contain a counter party code inaddition to other order details.

Stop-Loss Book;

Stop Loss orders are stored in this book till the trigger pricespecified in the order is reached or surpassed. When thetrigger price is reached or surpassed, the order is released inthe Regular lot book.

The stop loss condition is met under the followingcircumstances:Sell order - A sell order in the Stop Loss book gets triggeredwhen the last traded price in the normal market reaches orfalls below the trigger price of the order.

Buy order - A buy order in the Stop Loss book gets triggeredwhen the last traded price in the normal market reaches orexceeds the trigger price of the order.

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Odd Lot Book:

The Odd lot book contains all odd lot orders (orders withquantity less than marketable lot) in the system. The systemattempts to match an active odd lot order against passiveorders in the book. Currently, pursuant to a SEBI directive, theOdd Lot Market is being used for orders that have quantity lessthan or equal to 500 viz. the Limited Physical Market.

Spot Book;

The Spot lot book contains all spot orders (orders having onlythe settlement period different) in the system. The systemattempts to match an active spot lot order against the passiveorders in the book. Currently the Spot Market book type is notin use.

Auction Book;

This book contains orders that are entered for all auctions. Thematching process for auction orders in this book is initiatedonly at the end of the solicitor period.

Order Matching Rules:

The best buy order is matched with the best sell order. Anorder may match partially with another order resulting inmultiple trades. For order matching, the best buy order is theone with the highest price and the best sell order is the one

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with the lowest price. This is because the system views all buyorders available from the point of view of a seller and all sellorders from the point of view of the buyers in the market. So,of all buy orders available in the market at any point of time, aseller would obviously like to sell at the highest possible buyprice that is offered. Hence, the best buy order is the orderwith the highest price and the best sell order is the order withthe lowest price.

Members can proactively enter orders in the system, which willbe displayed in the system till the full quantity is matched byone or more of counter-orders and result into trade(s) or iscancelled by the member. Alternatively, members may bereactive and put in orders that match with existing orders inthe system. Orders lying unmatched in the system are 'passive'orders and orders that come in to match the existing ordersare called 'active' orders. Orders are always matched at thepassive order price. This ensures that the earlier orders getpriority over the orders that come in later.

Order Conditions:

A Trading Member can enter various types of orders dependingupon his/her requirements. These conditions are broadlyclassified into three categories: time related conditions,price-related conditions and quantity related conditions.

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Time Conditions:

DAY - A Day order, as the name suggests, is an order which isvalid for the day on which it is entered. If the order is notmatched during the day, the order gets cancelled automaticallyat the end of the trading day.

GTC - A Good Till Cancelled (GTC) order is an order thatremains in the system until the Trading Member cancels it. Itwill therefore be able to span trading days if it does not getmatched. The Exchange notifies the maximum number of daysa GTC order can remain in the system from time to time.

GTD - A Good Till Days/Date (GTD) order allows the TradingMember to specify the days/date up to which the order shouldstay in the system. At the end of this period the order will getflushed from the system. Each day/date counted is a calendarday and inclusive of holidays. The days/date counted areinclusive of the day/date on which the order is placed.

IOC - An Immediate or Cancel (IOC) order allows a TradingMember to buy or sell a security as soon as the order isreleased into the market, failing which the order will beremoved from the market. Partial match is possible for theorder, and the unmatched portion of the order is cancelledimmediately.

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Price Conditions;

Limit Price/Order – An order that allows the price to bespecified while entering the order into the system.

Market Price/Order – An order to buy or sell securities at thebest price obtainable at the time of entering the order.

Stop Loss (SL) Price/Order – The one that allows the TradingMember to place an order which gets activated only when themarket price of the relevant security reaches or crosses athreshold price. Until then the order does not enter the market.

A sell order in the Stop Loss book gets triggered when the lasttraded price in the normal market reaches or falls below thetrigger price of the order. A buy order in the Stop Loss bookgets triggered when the last traded price in the normal marketreaches or exceeds the trigger price of the order.

E.g. If for stop loss buy order, the trigger is 93.00, the limitprice is 95.00 and the market (last traded) price is 90.00, thenthis order is released into the system once the market pricereaches or exceeds 93.00. This order is added to the regularlot book with time of triggering as the time stamp, as a limitorder of 95.00

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Quantity Conditions:

Disclosed Quantity (DQ)- An order with a DQ condition allowsthe Trading Member to disclose only a part of the orderquantity to the market. For example, an order of 1000 with adisclosed quantity condition of 200 will mean that 200 isdisplayed to the market at a time. After this is traded, another200 is automatically released and so on till the full order isexecuted. The Exchange may set a minimum disclosedquantity criteria from time to time.

MF - Minimum Fill (MF) orders allow the Trading Member tospecify the minimum quantity by which an order should befilled. For example, an order of 1000 units with minimum fill200 will require that each trade be for at least 200 units. Inother words there will be a maximum of 5 trades of 200 eachor a single trade of 1000. The Exchange may lay down normsof MF from time to time.

AON - All or None orders allow a Trading Member to imposethe condition that only the full order should be matchedagainst. This may be by way of multiple trades. If the full orderis not matched it will stay in the books till matched orcancelled.

Trader Workstation:

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The trader workstation is the terminal from which the memberaccesses the trading system. Each trader has a uniqueidentification by way of Trading Member ID and User IDthrough which he is able to log on to the system for trading orinquiry purposes. A member can have several user IDs allottedto him by which he can have more than one employee usingthe system concurrently.

The Exchange may also allow a Trading Member to set up anetwork of dealers in different cities all of whom are provideda connection to the stock exchanges’ central computer. ATrading Member can define a hierarchy of users of the systemwith the Corporate Manager at the top followed by the BranchManager and Dealers.

The Trader Workstation screen of the Trading Member isdivided into several major windows:

Title BarTool BarTicker WindowMarket Watch WindowOn line Index and Index InquiryInquiry WindowSnap QuoteOrder/Trade WindowSystems Message WindowSupplementary Menu

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Title Bar

The title bar displays the current time, Trading system nameand date.

Tool Bar

A window with different icons which provides quick access tovarious functions such as Market By Order, Market By Price,Market Movement, Market Inquiry, Auction Inquiry, Snap Quote,Market Watch, Buy order entry, Sell order entry, OrderModification, Order Cancellation, Outstanding Orders, OrderStatus, Activity Log, Previous Trades, Net Position, OnlineBackup, Supplementary Menu, Security List and Help. All thesefunctions are also available on the keyboard.

Ticker Window

The ticker displays information about a trade as and when ittakes place. The user has the option to set-up the securities,which appear in the ticker.

Market Watch Window

The Market Watch window is the main area of focus for aTrading Member. The purpose of Market Watch is to viewmarket information of pre-selected securities that are ofinterest to the Trading Member.

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To monitor various securities, the trading member can setthem up by typing the Security Descriptor consisting of aSymbol field and a Series field. Securities can also be set up byinvoking the Security List and selecting the securities from thewindow. The Symbol field incorporates the Company name andthe Series field captures the segment/instrument type. A thirdfield indicates the market type.

For example,

Company (Symbol) : ACC

Instrument type (Series): EQ

Market Type: N

For each security in the Market Watch window, marketinformation is dynamically updated on a real time basis. Themarket information displayed is for the current best priceorders available in the regular lot book. For each security, thecorporate action indicator (e.g., Ex or cum dividend, interest,rights etc.), the total buy order quantity for the best buy price,best sell price, total sell order quantity for the best sell price,the Last Traded Price (LTP), the last traded price changeindicator ('+' if last traded price is better than the previous lasttraded price and '-' if it is worse) and the no delivery indicatorsare displayed. If the security is suspended, "SUSPENDED"appears in front of the security.

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On line Index and Index Inquiry

With every trade in a security participating in Index, the userhas the information on the current value of the Nifty. Thisvalue is displayed at the extreme right hand corner of theticker window.Index Inquiry gives information on Close, Open, High, Low andcurrent index values at the time of invoking this inquiry screen.

Inquiry Window

In this window, the inquiries such as Market by Order, Marketby Price, Previous Trades, Outstanding Orders, Activity Log,Order Status and Market Inquiry can be viewed.

1. Market By Order (MBO)

The purpose of Market by Order is to enable the user to viewoutstanding orders in the trading books in the order ofprice/time priority. The information is displayed for each order.Stop Loss orders, which are not triggered will not be displayedon the window. Buy orders are displayed on the left side of thewindow and Sell orders on the right side. The orders arepresented in a price/time priority with the "best priced" orderat the top.

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2. Market by Price (MBP)

The purpose of Market By Price is to enable the TradingMember to view aggregate orders waiting in the book at givenprices.

3. Previous Trades (PT)

The purpose of this window is to provide information to usersfor their own trade.

4. Outstanding Orders (OO)

The purpose of Outstanding Orders is to enable a TradingMember to view his/her own outstanding buy or sell orders fora security. An outstanding order will be an order that wasentered by the user, but is not yet completely traded orcancelled.

5. Activity Log (AL)

The Activity Log shows the activities that have been performedon any order of the Trading Member such as whether the orderhas been traded against fully or partially, it has been modifiedor has been cancelled. It displays information only of thoseorders in which some activity has taken place. It does not

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display orders, which have entered the books but have notbeen matched (fully or partially) or modified or cancelled.

6. Order Status (OS)

Order Status enables the user to look into the status of aspecific order. Current status of the order and other orderdetails are displayed. In case the order is traded, the tradedetails are also displayed.

7. Market Inquiry (MI)

Market Inquiry enables the user to view the market statisticslike Open, High, Low, Previous close, Last traded price changeindicator, Last traded quantity, date and time etc. A user mayfind inquiry screens like Market Movement, Most ActiveSecurities and Net Position useful. These are available in thesupplementary menu.

8. Market Movement (MM)

The Market Movement screen provides information to the userregarding the movement of a security for the current day. Itgives details of the movement of the scrip for a time interval.The details include total buy and sell order quantity value,Open, High, Low, Last traded price etc.

9. Most Active Securities

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This screen gives a list of the securities with the highest traded

value during the day and the quantity traded for each of them.

10. Net Position

This functionality enables the user to interactively view his netposition for all securities in which he has traded.

Snap Quote:

The Snap Quote feature allows a Trading Member to getinstantaneous market information on any desired security. Thisis normally used for securities that are not already on displayin the Market Watch window. The information presented is thesame as that of Market Watch window.

Order/Trade Window:

Order entry mechanisms enable the Trading Member to placeorders in the market. The system will request re-confirmationof an order so that the user is cautioned before the order isfinally released into the market. Orders once placed on thesystem can be modified or cancelled till they are matched.Once orders are matched they cannot be modified or cancelled.

There is a facility to generate online order/trade confirmationslips as soon as an order is placed or a trading is done. Theorder confirmation slip contains among other things, order no.,

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security name, price, quantity, order conditions like disclosedor minimum fill quantity etc. The trade confirmation slipcontains the order and trade no., date, trade time, price andquantity traded, amount etc. Orders and trades are identifiedand linked by unique numbers so that the investor can checkhis order and trade details.

Systems Message Window:

This window is used to view messages from the Exchange to allspecific Trading Members.

Supplementary Menu:

Some of the supplementary features in the NEAT system are:

On line back up

An on line back up facility is provided which the user caninvoke to take a back up of all order and trade relatedinformation. There is an option to copy the file to any driveof the computer or on a floppy diskette. Trading membersfind this convenient in their back office work.

Off Line Order Entry

A member is able to make an order entry in the batch mode.

Computer-to-Computer Link (CTCL) facility:

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NSE offers a facility to its trading members by which memberscan use their own trading front-end software in order to tradeon the NSE trading system. This facility calledComputer-to-Computer Link (CTCL) facility is available only totrading members of NSE.

About the CTCL facility:

Trading Members can use their own software running on anysuitable hardware/software platform of their choice. Thissoftware would be a replacement of the NEAT front-endsoftware that is currently used by members to trade on the NSEtrading system. Members can use software customised to meettheir specialised needs like provision of on-line trade analysis,risk management tools, integration of back-office operationsetc. The dealers of the member may trade using the softwareremotely through the member's own private network, subjectto approvals from Department of Telecommunication etc. asmay be required in this regard.

CTCL software:

Members can procure the CTCL software either from softwarevendors who are empanelled with NSE or they may develop thesoftware through their own in-house development team ormay procure the software from other non-empanelled vendors.

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Internet Based Trading:

The Securities & Exchange Board of India (SEBI) approved thereport on Internet Trading brought out by the SEBI Committeeon Internet Based Trading and Services In January 2000.Internet trading can take place through order routing systems,which will route client orders to exchange trading systems forexecution. Thus a client sitting in any part of the countrywould be able to trade using the Internet as a medium throughbrokers' Internet trading systems.

SEBI-registered brokers can introduce Internet based tradingafter obtaining permission from respective Stock Exchanges.SEBI has stipulated the minimum conditions to be fulfilled bytrading members to start Internet based trading and services,vide their circular no. SMDRP/POLICY/CIR-06/2000 datedJanuary 31, 2000.

WAP Trading:The SEBI Committee on Internet Based Trading and Services inits meeting held on August 2, 2000 approved the minimumrequirements for brokers offering securities trading throughwireless medium on Wireless Application Protocol (WAP)platform.

SEBI-registered brokers who have been granted permission toprovide Internet based trading services can introduce WAPtrading after obtaining permission from respective stock

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exchanges. SEBI has stipulated the minimum conditions to befulfilled by trading members to start Internet based tradingand services, vide their circularno.SMDRP/POLICY/CIR-48/2000 dated October 11, 2000.

WAP trading at NSE:NSE became the first exchange to grant permission to itsmembers for providing WAP trading services. NSE hasCustodians.

Custodians are clearing members but not trading members.They settle trades on behalf of their clients that are executedthrough other trading members. A trading member may assigna particular trade to a custodian for settlement. The custodianis required to confirm whether he is going to settle that tradeor not. If it confirms the trade, the Clearing Corporationassigns the obligation to the custodian. If the custodian rejectsthe trade, the obligation is assigned back to the tradingmember.

The following custodians are empanelled with NSCCL:ABN Amro Bank N.V.

Citibank N.A.

Deutsche Bank A.G.

HDFC Bank Ltd.

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HongKong & Shanghai Banking Corpn. Ltd.

ICICI Ltd.

IndusInd Bank Ltd.

Infrastructure Leasing & Financial Services Ltd.

Standard Chartered Bank

State Bank of India

Stock Holding Corporation of India Ltd.

anted permission to one of its trading members M/s.GogiaCapital Services Ltd. to provide securities trading through WAP.This is the first WAP enabled online stock trading facility in thecountry.

The WAP technology has been harnessed jointly by NSE.IT andBharti Telesoft using Bharti Telesoft's WAP interface andNSE.IT's E-broking products NeatXS/ iXS, leading toconvenience of livestock trading for people on the move.

Role of Intermediaries in the Capital Market:

The capital Market has been divided in to two parts i.e.

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Primary Market,Secondary Market,

Primary Market Intermediaries:

Following are the intermediaries in the primary market,

Merchant Banker"Merchant Banker" means any person who is engaged in thebusiness of issue management either by making arrangementsregarding selling, buying or subscribing to securities asmanager, consultant, adviser or rendering corporate advisoryservice in relation to such issue management;

The term Issue is defined as - "issue' means -

i. Public offer of securities for sale;ii. Sale or purchase of securities or transfer thereof by any

other means, by any body corporate or any person on hisown behalf or on behalf of the body corporate through amerchant banker;

As per Rule No.3 of the aforesaid Rules "No person shall carryon any activity as a merchant banker unless he holds acertificate granted by the Board under the regulations".

Merchant Banker is mainly doing the business of collecting thebiding forms, cheques, demand drafts ect, from the bidder for

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the issue. & Submitting it to the issuer of IPO. For doing allthese activities he gets commission.

Registrar to an Issue:

Registrar to an Issue means the person appointed by a bodycorporate or any person or group of persons to carry on thefollowing

i. Collecting applications from investors in respect of anissue;

ii. Keeping a proper record of applications and moniesreceived from investors or paid to the seller of thesecurities. And

iii. Assisting body corporate or person or group of personsin-a. Determining the basis of allotment of securities in

consultation with the stock exchange;b. Finalising of the list of persons entitled to allotment

of securities;c. Processing and dispatching allotment letters, refund

orders or certificates and other related documents inrespect of the issue.

Underwriters:

The words “underwriting” and “Underwriter” are defined asunder.

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“Underwriting,” means an agreement with or withoutconditions to subscribe to the securities of a bodycorporate when the existing shareholders of such bodycorporate or the public does not subscribe to thesecurities offered to them.“Underwriter” means a person, who engages in thebusiness of underwriting of an issue of securities of abody corporate;

As per the prior agreement between the company & theunderwriter, an underwriter underwrites those shares that arenot subscribed by the general public. For doing this, he getsunderwriting commission.

Credit Rating Agencies:

Credit Rating Agencies to be eligible to operate in India needto be registered with SEBI and comply with provisions of SEBI(Credit Rating Agencies) Regulations, 1999

As per the aforesaid Regulations the terms of "credit-rating"and "credit-rating agency" are defined as under-

"Rating" means an opinion regarding securities,expressed in the form of standard symbols or in anyother standardised manner, assigned by a credit ratingagency and used by the issuer of such securities, tocomply with a requirement specified by these regulations;

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"Credit rating agency" means a body corporate which isengaged in, or proposes to be engaged in, the businessof rating of securities offered by way of public or rightsissue;

Share Transfer Agent:

Share Transfer Agent means-

i. Any person, who on behalf of any body corporatemaintains the record of holders of securities issued bysuch body corporate and deals with all matters connectedwith the transfer and redemption of its securities.

ii. A department or division (by whatever name called) of abody corporate performing the activities referred insub-clause (i) if, at any time the total number of theholders of securities issued exceed one lakh.

Intermediaries In Secondary Market:

Stock Broker:

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Broker is a member of stock exchange who enters into thecontract on behalf of his client to execute the trade. They havetwo clearly distinguishable functions.

The member acts as Broker, that is, as agents for buying& selling securities on behalf of their client & charging acommission on the processed.

The member can also act as dealers, that is, as principalsfor buying & selling securities on their own account for aprofit or at a loss.

Capital adequacy Norms for Broker:The capital adequacy requirement consists of the following twocomponents, 1) Base minimum capital, 2) Additional/optionalcapital related to volume of business.

Base Minimum Capital:The broker should maintain an absolute minimum of Rs. 5lakhs as a deposit with the stock exchange. The securitydeposit kept by members in the exchange forms a part of thebase minimum capital; 25 per cent of the base capital is to bemaintained in cash with exchange, another 25 per centremains in the form of long term fixed deposit with a bank onwhich the stock exchange is a completely unencumbered &unconditional lien, the remaining requirement being in theform of securities with a 30 per cent margin. The securities

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should be in the name of member & are pledged in favour ofstock exchange.

Additional Capital Related to volume Of Business:The optional or additional capital required form a membershould be at any point of time be such that together with thebase minimum capital it is not less than 8 per cent of the grossoutstanding business in the exchange defined as the aggregateof up-to-date sales & purchase by the member-broker in allthe securities out together.

The gross outstanding business of a member at any point oftime should not exceed 12.5 times the base capital &additional capital requirements.

Duty of Broker Towards Investor:A Broker/sub-broker, in his dealing with the client & thegeneral public, should faithfully execute the order for buying &selling of securities at all the best available price & promptlyinform his client about the execution or-non execution of anorder & make payment in respect of securities sold & arrangefor the prompt deliver of securities purchased.He should issue promptly to his clients;

The contract note for the all the transaction entered intoby him with his clients, or through his principal agent,

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Scripwise split the contract note & similarly, bills &receipts of the transaction in the prescribed form.

He should not disclose his client’s account in front ofthird person.

Sub-Broker:The trading members of the Exchange may appointsub-brokers to act as agents of the concerned trading memberfor assisting the investors in buying, selling or dealing insecurities. The sub-brokers would be affiliated to the tradingmembers and are required to be registered with SEBI. Asub-broker would be allowed to be associated with only onetrading member of the Exchange.Trading members desirous of appointing sub-brokers arerequired to submit the following documents to theMembership Department of the Exchange:

Eligibility:

A sub-broker may be an individual, a partnership firm or acorporate. In case of corporate or partnership firm, thedirectors or partners and in the case of an individualsub-broker applicant, each of them shall comply with thefollowing requirements:

They shall not be less than 21 years of age;

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They shall not have been convicted of any offenceinvolving fraud or dishonesty;

They shall have at least passed 12th standard equivalentexamination from an institution recognised by theGovernment;

They should not have been debarred by SEBIThe corporate entities applying for sub-brokership shallhave a minimum paid up capital of Rs. 5 Lakh and it shallidentify a dominant shareholder who holds a minimum of51% shares either singly or with the unconditionalsupport of his/her spouse.

Foreign Broker:The foreign institutional investors (FII) are playing a significantrole in the stock market. With a view to helping the FIIs toallow the procedures & to encourage them to invest in India,SEBI has issued a different set of guidelines for foreign broker.Right now there are 29 Foreign Brokers on both NSE & BSE.

Other members of stock exchange:As such there are no major distinction but here is a functionalclassification of members.

In Bombay Stock Exchange members are classified as:1. Commission Broker: A commission Broker executesbuys & sells order of his client against a commission

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(termed as brokerage) prescribed by the authority. Byand large every member acts as commission agents.

2. Floor Broker: A floor broker is officially not attached toother members. He executes buy & sell orders on behalfon any commission broker & earn a share of thebrokerage form the commission broker. Floor brokerare now a days very few in number.

3. Taravaniwala or Jobber: a member in addition to being abroker can also act as a dealer or principal. A jobber is amember who acts as a principal, that is, he himself buys& sells stocks. A jobber specialise in stocks located atthe same trading post & trades in & put of market for asmall difference in price.

(For instance: a jobber in Asian Paints can buy AsianPaints shares form a commission broker at Rs. 100 &sell the same to other broker at Rs. 105. The Rs. 5difference in price will be the jobber’s margin. Generally ajobber squares up his position at the end of the day i.e.he does not maintain any outstanding sale or purchasecontract at the end of the trading hours.

4. Dealer in non-cleared securities:

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“BSE “ PROFILE

The principal acts as principal for buying & selling thoseshares that are not actively traded in the market. Thoughthe buy & sell any volume of shares, the price at whichthey trade depends on the trading activity of the sharesduring the transaction. At times, jobber too specialize intrading in inactive a stocks. They receive orders fromother members at a price recorded in their books & theorders are executed when business is possible.

5.Arbitrageur: The member buys the shares on one stockexchange & sells it on other stock exchange to get thebenefit of price difference. In the case the shares isrequired to be listed on both the stock exchanges wheremember in going to do the arbitrage.(For instance, if he L & T shares are quoted at Rs. 422 atthe BSE and the same is quoted at Rs. 422 in the NSE,then he buys on BSE & sells on NSE, there by making aprofit of Rs.2 per share, which is called an arbitrage).

6. Security Dealer:A security dealer is a member who specializes in buying &selling of gilt-edge securities. Only few members areinvited to such dealing, due to lack of public interest insuch securities.

New Membership:

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“BSE “ PROFILE

Membership of the Exchange is open to all persons desirous ofbecoming trading members of the Exchange, subject to theirmeeting certain requirements and criteria as laid down by SEBIand the Exchange.

Persons or Institutions desirous of securing admission asTrading Members (Stock Brokers) on the Exchange may applyfor any one of the following segment groups available in stockmarket;

WDM segment Eligibility;

The following persons are eligible to become trading members,subject to Securities Contract Regulation Act (SCRA), SecuritiesContract Regulation Rules (SCRR) and other requirements ofSecurities and Exchange Board of India (SEBI):

. Institutions, including subsidiaries of banks engaged infinancial services.

a. Body Corporates including companies as defined in theCompanies Act, 1956.

b. A company as defined in the Companies Act, 1956 (1 of1956), shall also be eligible to be elected as a member ofthe Exchange

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c. Such other persons or entities as may be permitted fromtime to time by RBI / SEBI under the Securities Contracts(Regulations) Rules, 1957.

Fees, Deposit & Networth Requirements:

Applicants recommended for admission will be required to paythe following fee and deposits:

Particulars(Amt.in Rs.Lakhs)

Advance annual subscription 1.00

Interest free security deposit 150.00

Annual subscription fee 1.00

New Membership – CM and F&O segment:

Eligibility

The following persons are eligible to seek membership of theExchange as Trading Members (Brokers):

. Individuals

a. Partnership Firms registered under the Indian PartnershipAct, 1932

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“BSE “ PROFILE

b. Corporations, Companies or institutions or subsidiaries ofsuch Corporations, Companies or institutions set up forproviding financial services

c. Such other persons or entities as may be permitted fromtime to time by RBI / SEBI under the Securities Contracts(Regulations) Rules, 1957.

General Eligibility Conditions;

Criteria Members

Individual Firm Corporate

AGE

Minimum age: 21yearsMaximum age: 60

years

Minimum age:21 years(applicable for

partners)

Minimum age:21 years(applicable for

directors)

STATUSIndian Citizen

Registered

Partnership firmunder IndianPartnership Act,

1932

Corporate

registeredunder TheCompanies Act,

1956 (Indian)

EDUCATION

At least a graduate

or equivalentqualification

Partners should

be at least agraduate orequivalent

qualification

Two Directors

should be atleast graduateor equivalent

qualification

EXPERIENCE Should have the Partners should Two Directors

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“BSE “ PROFILE

experience in thecapital marketrelated activity

be at least agraduate orequivalent

qualification

should be atleast graduateor equivalent

qualification

MINIMUM PAID

UP EQUITYCAPITAL

Clearing and

settlement thereof.

Rs.30 lacs

Fees, Deposit & Networth Requirements:

Applicants recommended for admission will be required to paythe following fee and deposits:

(All figures in Rs. lakhs)

Particulars Segments

CM and Trading

Membership ofF&O Segment

Additional

requirements forClearing

Membership ofNSCCL (F&OSegment)

Total for CM and

Trading &Clearing

Membership ofF&O Segment

Interest FreeCash Security

Deposit withNSEIL

110 110

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Interest FreeCash SecurityDeposit with

NSCCL

15 25 40

Total Interest

Free CashSecurity Deposit(1+2)

125 25 150

CollateralSecurity Deposit

with NSCCL

25 25 50

AnnualSubscription

Charges

1 1

Advance

MinimumTransactionCharges for

Futures &Options

Segment

1 1

NetworthRequirement

100 300(100 for

self-clearingmembers inF&O)

300(100 for

self-clearingmembers inF&O)

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“BSE “ PROFILE

Deposit for setting up VSAT terminals and operating cost forthe VSAT network will be levied separately as per the policyprevailing from time to time.

Capital Market Overview:-

Primary Market :-

The securities market has two interdependent & inseparablesegments, the new issue (Primary Market) & the stock(Secondary) market. The primary market provides the channelfor sale new securities while the secondary market deals insecurities already issued. The price signals, which subsume allinformation about the issuer & his business includingassociates risk, generated in the secondary market, help theprimary market in allocation of fund. The issuer of securitiesissue (create & sell) new securities in the primary market toraise fund for investment and/or to discharge some obligation.They do so either by public issue or by private placement. It ispublic issue if any body & every body can subscribe for thesecurities. If the issue is made to selected people, it is calledprivate placement. In terms of the companies Act 1956, anissue becomes public if results in the allotment to more than50 people.

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“BSE “ PROFILE

There are two major types of issuer who issues securities. Thecorporate entities issue mainly debt & equity instruments whilethe Government issues debt securities.

The government & corporate sector raised a total of Rs.2,52,108/- crore during 2002-03 as against Rs. 2,26,911/-crore during the preceding year. Government raised about twothird of the total resources, the central government aloneraising nearly Rs. 1,51,126/- crore.

Secondary Market:-

The secondary market enables participant who hold securitiesto adjust their holdings in response to change in their holdingsin response to change in their assessments of risk & return.They also sell securities for cash to meet their liquidity needs.

The secondary market has further two components, namely theover-the-counter (OTC) market & the exchange trade market.OTC is different from the market place provided by the OverThe Counter Exchange of India Limited. OTC market isessentially informal market where trades are negotiated. Mostof the trades in government securities are in the TOC market.

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“BSE “ PROFILE

All the spot trades where securities are traded for immediatedelivery & payment take place in the OTC market. Theexchange does not provide facility for spot trade in strict sense.

Closest to the spot market in the cash market wheresettlements takes place after some time. Trade taking placeover a trading cycle, i.e. a day under rolling settlement, aresettled together after a certain time (currently 2 working days)All the 24 stock exchanges in the country provide facility fortrading of equities. Nearly 100% of the trades are settled in thedemat form.

A variant of secondary market is the forward market, where thesecurities are traded for the future deliver & payment. Pureforward is put side the formal market. The version market isfuture & options. In futures market, standardized securities aretraded for future delivery & settlement. These futures can beon a basket of securities like index or an individual security. Incase of options, securities are traded for conditional futuredelivery.

There are two types options:

A put option – it permits the owner to sell a securityto the writer of option at a predetermined price.

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“BSE “ PROFILE

A call option – permits the owner to purchase asecurity from the writer of the option at apredetermined price.

These options can also be an individual stock or a basket of stock

like index.

Two exchanges viz. NSE & BSE provide trading of derivatives ofsecurities.

Regulatory Framework:The four main legislations governing the security market are:

The SEBI ACT, 1992, which establish SEBI to protectinvestor & develop & regulate securities market;

The Companies Act, 1956, which sets out the transfer ofsecurities, and disclosure to be made in the public issue:

The Securities Contract (Regulation) Act, 1956, whichprovide for regulation of transaction in securities throughcontrol over the stock exchange;

The Depositories Act, 1996, which provides for electronicmaintenance & transfer of ownership of demat securities;

Clearing & Settlement Procedures In The StockExchanges.

The clearing & settlement mechanism in Indian security markethas witnessed several innovations during the last decade.

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“BSE “ PROFILE

These include use of the state-of-art information technology,compression of settlement cycle, dematerialization & electronictransfer of securities, securities lending & borrowing,professionalisation of trading members, fine-tuned riskmanagement system, emergence of clearing corporations toassume country party risk, though many of these are yet topermeate the whole market.

Till recently, the stock exchanges in India were following asystem of account period settlement for cash markettransaction, except for transactions in a few active securities,which were settled under T+3 rolling settlement. The rollingsettlement has now been introduced for all securities. Witheffect from April 1st, 2003 T+2 rolling settlement has beenintroduced. The transactions are not settled immediately butafter 2 days after the two days. The member receives thefund/securities in accordance with the pay in/pay outschedules notified by the respective stock exchanges.

Movement of securities has become almost instantaneous inthe damaterialised environment. Two depositories viz. NationalSecurities Depositories Ltd. (NSDL) & Central DepositoriesService Ltd. (CSDL) provide electronic transfer of securities &more than 99% of turnover is settled in demat form.

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“BSE “ PROFILE

The obligation of members is downloaded to themember/custodian by the clearing agency. Themembers/custodian make available the required securities intheir pool account with depository participant by theprescribed pay-in time for securities the depository transferthe securities form the pool account of members/custodian tothe settlement account of clearing agency. As per the scheduledetermined by the clearing agency, the depository transfersthe securities on the payout day from the settlement accountof clearing agency to the pool account of members/custodians.The pay-in & pay-put of securities is affected on the same dayfor all settlements.

Selected banks have been empanelled by clearing agency forelectronic transfer of funds. The members are required tomaintain accounts with any of these banks. The members areinformed electronically of their pay-in obligation of funds. Themembers make available required fund in their accounts withclearing bank by the prescribed pay-in day. The clearingagency forwards fund obligation file to clearing banks which.In turn, debit the account of member & credit the account ofclearing agency. In same cases, the clearing agency runs anelectronic file to debit members’ accounts with clearing banks& credit it’s own account.

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“BSE “ PROFILE

GRAPHICAL PRESENTATION OF CLRAGING HOUSEACTIVITY.

Functions of intermediaries & their importance incapital market

There are some basic services offered by the intermediaries inthe capital market, those services are as follows;

1) Online buying and selling of the shares though any stockexchange

2) Trading in Futures and Options.

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“BSE “ PROFILE

The intermediary is acting like a link in between the buyer &seller of the scrips on the stock exchange. He executes theorders of his client through the computer & takes care that thetrade is being carried out for best price.

He provides all the assistance to his client that is providing thedaily information about the stock exchange and ups & downs,which are likely to happen in the market. He advises client thatwhich scrip is to purchase at what time & at what price so thatthe client is benefited.

Value added Services:Apart from providing basic services, it also becomes veryimportant on the part of the sub broker to guide an investor inthis changing technological environment. The concept ofdematerialisation of shares is relatively new. Further the rollingsettlement and T+2 system of settlement has recently beingstarted. Derivative trading is also introduced. To explain to aninvestor all these “New” things, a broker/sub broker plays acrucial role. Unless an investor becomes familiar with all thesenew things, he won’t be in a better position. Therefore abroker/sub broker doesn’t have much option but to guide acommon investor by providing value added services.

Following is the value added services provided by thebroker/sub broker

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Derivatives trading

How to trade in F&O,

Trading strategy in F&O,

Settlement procedure in F&O,

Margin Money required for trading in F&O,

Dematerialisation procedure

It’ working,

It’s advantage,

Procedure involved,

The scrips which is compulsorily traded in demat form,

Different depositories that exist in India,

There charges, procedure of delivery ect.

Explaining the client about the T+2 system existing in thecurrent market,

To guide an investor about the sources from where he canget the market information,

Arrangement of pre and post budget meetings for theinvestors,

Making the client aware about the technical & fundamentanalysis,

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“BSE “ PROFILE

Conducting meetings every now and then to explain theinvestors about the changes in SEBI guidelines and stockexchanges guidelines,

From above explanation, we can say that the broker/subbroker is playing an active role in the stock market, he helpingthe client from all the angels so that the investor doesn’t incurany lose by investing in the stock market,

Auction Sale

The Exchange on behalf of trading members for settlementrelated reasons initiates auctions. The main reason is shortage.There are three types of participants in the auction market:

Initiator: The party who initiates the auction process iscalled an initiator.

Competitor: The party who enters on the same side as ofthe initiator is called a competitor.

Solicitor: The party who enters on the opposite side as ofthe initiator is called a competitor.

The trading members can participate in the exchange-initiatedauction by entering orders as solicitors. E.g. if the exchangeconducts a Buy-in action, the trading members entering sellorders are called solicitors. When the auction starts, thecompetitor period for that auction starts. Competitor period is

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“BSE “ PROFILE

the period during which competitor orders entries are allowed.Competitor orders are the orders that compete with theinitiators order i.e. if the initiator’s order is a buy order, thenall the buy order for that auction other then the initiator’sorder are competitors order. And if the initiator’s order is a sellorder for that auction other than the initiation’s order arecompetitor’s orders.

After the competitor’s period ends, the solicitor’s period forthat that auction starts. Solicitors order is the period duringwhich solicitors order are allowed. Solicitors order are theorders, which are opposite to the initiator’s order i.e. if theinitiator’s order is a buy order than all the sell order for thatauction are solicitors order & if the initiator order is a sellorder, then all the buy order for that auction are solicitorsorder.

After solicitor’s period, order matching takes place. Thesystem calculates trading price for the auction & all possibletrade for the auction are generated at the calculated tradingprice. After this the auction is said to be complete. Competitorperiod & solicitor’s period for any auction are set by theexchange.

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“BSE “ PROFILE

Entering Auction order:Auction order entry allows the user to enter orders into auctions that are

currently running.

Auction Order Modification:The user is not allowed to modify any auction orders.

Auction Order Cancellation:The user can cancel any solicitors order placed by him in anyauction provided the solicitors period for that auction is notover.

Auction Order Matching:When the solicitor’s period for auction is over, auction ordermatching stars for that auction. During this process, thesystem calculates the trading price for that auction based onthe initiator’s order entered during the competitor & solicitor’speriod. At present for exchange-initiated auction, thematching takes place at the respective solicitors order price.

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“BSE “ PROFILE

All auction orders are entered into the auction order book. Therules for matching of auction are similar to that of the regularlot book except for the following point;

1) Auction order matching takes place at the end of for thesolicitor’s period for the auction.

2) Auction matching takes place only across ordersbelonging to the same auction.

3) All auction trades take place at the auction price.

Example:Auction is held in TISCO for 5,000 shares.

The closing price of TISCO on that day was Rs. 155.0

The last trade price of TISCO on that day was Rs. 150.0

The price of TISCO last Friday was Rs. 151.0

The previous day’s close price of TISCO was Rs. 160.0

What is the maximum allowable price at which the member canput a sell order in the auction for TISCO? (Assuming that theprice band applicable for auction market is +/- 15%).

Max price applicable in Auction = previous day’s closeprice*price band = 160*1.15

Rs. 184.00