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Introduction

BSE Limited is the oldest stock exchange in Asia What is now popularly known as the BSE wasestablished as "The Native Share & Stock Brokers' Association" in 1875.

Over the past 135 years, BSE has facilitated the growth of the Indian corporate sector by providing it with anefficient capital raising platform.

Today, BSE is the world's number 1 exchange in the world in terms of the number of listed companies (over4900). It is the world's 5th most active in terms of number of transactions handled through its electronic tradingsystem. And it is in the top ten of global exchanges in terms of the market capitalization of its listed companies(as of December 31, 2009). The companies listed on BSE command a total market capitalization of USD Trillion1.28 as of Feb, 2010.

BSE is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certification. It is alsothe first Exchange in the country and second in the world to receive Information Security Management SystemStandard BS 7799-2-2002 certification for its BSE On-Line trading System (BOLT). Presently, we are ISO27001:2005 certified, which is a ISO version of BS 7799 for Information Security.

The BSE Index, SENSEX, is India's first and most popular Stock Market benchmark index. Exchange tradedfunds (ETF) on SENSEX, are listed on BSE and in Hong Kong. Futures and options on the index are alsotraded at BSE.

BSE continues to innovate:

Became the first national exchange to launch its website in Gujarati and Hindi and now Marathi Purchased of Marketplace Technologies in 2009 to enhance the in-house technology

development capabilities of the BSE and allow faster time-to-market for new products Launched a reporting platform for corporate bonds christened the ICDM or Indian Corporate Debt

Market

Acquired a 15% stake in United Stock Exchange (USE) to drive the development and growth ofthe currency and interest rate derivatives markets Launched 'BSE StAR MF' Mutual fund trading platform, which enables exchange members to use

its existing infrastructure for transaction in MF schemes. BSE now offers AMFI Certification for Mutual Fund Advisors through BSE Training Institute (BTI) Co-location facilities for Algorithmic trading BSE also successfully launched the BSE IPO index and PSU website BSE revamped its website with wide range of new features like 'Live streaming quotes for

SENSEX companies', 'Advanced Stock Reach', 'SENSEX View', 'Market Galaxy', and 'Members' Launched 'BSE SENSEX MOBILE STREAMER'

With its tradition of serving the community, BSE has been undertaking Corporate Social Responsibility(CSR) initiatives with a focus on Education, Health and Environment. BSE has been awarded by the World

Council of Corporate Governance the Golden Peacock Global CSR Award for its initiatives in Corporate SocialResponsibility (CSR).

Other Awards:

The Annual Reports and Accounts of BSE for the year ended March 31, 2006 and March 31,2007 have been awarded the ICAI awards for excellence in financial reporting.

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The Human Resource Management at BSE has won the Asia - Pacific HRM awards for its effortsin employer branding through talent management at work, health management at work and excellence in HRthrough technology

Drawing from its rich past and its equally robust performance in the recent times, BSE will continue toremain an icon in the Indian capital market.

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vision"Emerge as the premier Indian stock exchange by establishing global benchmarks.

Logo

The Stock Exchange, Mumbai is now BSE Limited a new name, and an entirely new perspective... aperspective born out of corporatization and demutualization. As a corporate entity, our new logo reflects ournew mission... smoother, seamless, and efficient, whichever way you look at it.

BSE is Asia's oldest stock exchange...carrying the depth of knowledge of capital markets acquired since itsinception in 1875. Located in Mumbai, the financial capital of India, BSE has been the backbone of the country'scapital markets.

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HISTORY

The first ever stock exchange in Asia (established in 1875) and the first in the country to begranted permanent recognition under the Securities Contract Regulation Act, 1956, BSE Limited hashad an interesting rise to prominence over the past 133 years

While BSE Limited is now synonymous with Dalal Street, it was not always so. The first venues ofthe earliest stock broker meetings in the 1850s were in rather natural environs - under banyan trees - infront of the Town Hall, where Horniman Circle is now situated. A decade later, the brokers moved theirvenue to another set of foliage, this time under banyan trees at the junction of Meadows Street andwhat is now called Mahatma Gandhi Road. As the number of brokers increased, they had to shift fromplace to place, but they always overflowed to the streets. At last, in 1874, the brokers found apermanent place, and one that they could, quite literally, call their own. The new place was, aptly, calledDalal Street (Brokers' Street).

In 2002, the name "The Stock Exchange, Mumbai" was changed to Bombay Stock Exchange.Subsequently on August 19, 2005, the exchange turned into a corporate entity from an Association ofPersons (AoP) and renamed as Bombay Stock Exchange Limited.

BSE Limited, which had introduced securities trading in India, replaced its open outcry system oftrading in 1995, with the totally automated trading through the BSE Online trading (BOLT) system. TheBOLT network was expanded nationwide in 1997.

Prominent Position

The journey of BSE Limited is as eventful and interesting as the history of India's securitiesmarket. In fact, as India's biggest bourse, in terms of listed companies and market capitalisation, BSELimited has played a pioneering role in the development of the Indian securities market. It is surely BSELimited pride that almost every leading corporate in India has sourced BSE Limited services in capitalraising and is listed with BSE Limited.

Even in terms of an orderly growth, much before the actual legislations were enacted, BSELimited had formulated a comprehensive set of Rules and Regulations for the securities market. It hadalso laid down best practices which were adopted subsequently by 23 stock exchanges which were setup after India gained its independence.

BSE Limited, as a brand, has been and is synonymous with the capital market in India. ItsSENSEX is the benchmark equity index that reflects the health of the Indian economy.

Several Firsts

At par with the international standards, BSE Limited has in fact been a pioneer in several areas. Ithas several firsts to its credit even in an intensely competitive environment.

First in India to introduce Equity Derivatives. First in India to launch a Free Float Index. First in India to launch US$ version of BSE Limited. First in India to launch Exchange Enabled Internet Trading Platform. First in India to obtain ISO certification for a stock exchange. 'BSE On-Line Trading System' (BOLT) has been awarded the globally recognised the

Information Security Management System standard BS7799-2:2002 First to have an exclusive facility for financial training.

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First in India in the financial services sector to launch its website in Hindi and Gujarati. Shifted from Open Outcry to Electronic Trading within just 50 days. First bell-ringing ceremony in the history of the Indian capital markets (listing ceremony of

Bharti Televentures Ltd. on February 18, 2002)

Investor Education

An equally important accomplishment of BSE Limited is its nationwide investor awarenesscampaign - "Safe Investing in the Stock Market"- under which awareness campaigns and disseminationof information through print and electronic medium is undertaken across the country. BSE Limited alsoactively promotes the securities market awareness campaign of the Securities and Exchange Board ofIndia.

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CORPORATE STRUCTURE

Board of Directors

Non-Executive Chairman

Mr. S. Ramadorai

blic Interest Director

Vice Chairman

onsultancy Services Ltd

Managing Director &

Chief Executive Officer

Mr.Madhu

Kannan

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Public Interest Director

Mr.

hakar Rao

Dr. Sanjiv Misra - IAS

(Retd.)

Shareholder Directors

Mr. Dipak

hatterjee

Mr. Andreas

Preuss

Deputy CEO

che Borse AG

Mr. Keki M.

Mistry

Vice-Chairman

& CEO

HDFC Ltd.

Trading Member Directors

Ms. Deena A.

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Mr. Uttam Bagri

Designated Director

rokerage Private Ltd.

Mehta

Designated

Director

Mehta Investment

errmediates Ltd.

Mr. Anil M. Shah

Designated Director

aplease Private Ltd.

s

Technology

BSE places a great deal of emphasis on Information Technology for its operations and performance.perations & Trading Department' at BSE continuously upgrades the hardware, software and

rking systems, thus enabling BSE to enhance the quality and standards of service provided to itsers, investors and other market intermediaries.

trictly adheres to IS policies and IS Security policies and procedures for its day-to-day operations onasis which has enabled it to achieve the BS7799 certification and the subsequent ISO 27001ation. In addition, BSE has also been successful in maintaining systems and processes uptime of.

BOLT

To facilitate smooth transactions, BSE had replaced its open outcry system with the BSE On-lineg (BOLT) facility in 1995. This totally automated, screen-based trading in securities was put intoe nation-wide within a record time of just 50 days. BOLT has been certified by DNV for conforming to

7001:2005 security standards.

The capacity of the BOLT platform stands presently enhanced to 80 lakh orders per day.

BSEWebx.co.in

BSE has also introduced the world's first centralized exchange based Internet trading system,EBx.co.in. The initiative enables investors anywhere in the world to trade on the BSE platform.

bseindia.com

BSE's websitewww.bseindia.comprovides comprehensive information on the stock market. It is one ofost popular financial websites in India and is regularly visited by financial organizations and otherolders for updates.

Other Technology-based Initiatives

BSE, along with its strategic partners, have put into place several critical processes/systems such as

Derivatives Trading & Settlement System (DTSS) Electronic Contract Notes (ECN)

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Unique Client Code registration (UCC) Real-time Data Dissemination System - Integrated Back-office System - CDB / IDB Book Building System (BBS) Reverse Book Building System (RBBS)

Debt Market Director's Database

A Large Private Network

BSE operates a large private network in India. The network uses following segments to cater to marketediaries:-

Campus LAN: Connects market participant offices across 20 floors of BSE campus to BSE systems.ampus comprises of 3 BSE buildings: P.J. Towers, Rotunda and Cama building

AN: TDM / MPLS lines from different service providers cater to connectivity requirements of marketpants across the country. Wired / Wireless media is used.

VSATs: Satellite based communication system serves the connectivity requirements of marketpants in remote areas. Services are provided through BSE's Satellite Communication Hub in Mumbai.

Connectivity forms are available at url :http://www.bseindia.com/about/bolt_connect_forms.asp

nline Surveillance System - integrated (BOSS-i). an Real-time system to closely monitor the tradingttlement activities of the member-brokers. This system enables BSE to detect market abuses at a

nt stage, improve the risk management system and strengthen the self-regulatory mechanisms.

State-of-the-art Hardware

BSE uses higher-end, fault-tolerant systems for its trading and related functionalities. It uses Integritytop NS16000 and S88000 systems for its online trading systems (BOLT). The systems have beened to deliver the best performance without compromising on key factors of availability, scalability, ROI

CO.

based Unix Severs rp8420 from HP: for our Derivatives, Settlement, Backoffice, Data Feed, BBS,and other systems related to trading and related functionalities. The systems are facilitated by the userobust and high available storage subsystems from HP.

lade servers running on Microsoft platform are used for the Internet based trading system (ITS)ng the end users to carry out the trading activities from any location facilitated by the internet.

lade servers running on Microsoft platform are also used for bseindia.com website, one of the beston the capital market which is also facilitated by the regional languages viz Hindi and Gujarati.

Safety of the MarketA major objective of BSE is to promote and inculcate honourable and just practices of trade in securities transa

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rage malpractices.

The surveillance function at BSE has assumed greater importance over the last few years. It has a dedicated Stment to keep a close, and a daily, watch on the price movement of scrips, detect market manipulations like pricr abnormal prices and volumes which are not consistent with normal trading pattern and monitor the Members'

ure that defaults do not occur. This Department, which is headed by a General Manager, reports directly to Man

As per the guidelines issued by SEBI, except for scrips on which derivative products are available and are part derivative products are available,a daily Circuit Filter of 20% is applied on all scrips.Circuit filters ensures that tannot move upward or downward beyond the limit set for the day.BSE has imposed dummy circuit filters to avopunching errors by the Trading Members.

The abnormal variation in the prices as well as the volumes of the scrips are scrutinised and appropriate actionwhich reach new high or new low and companies which have high trading volumes are watched closely. A spethe newly listed scrips.

In case certain abnormalities are noticed, the circuit filters are reduced to make it difficult for the price manipulah down the prices of a scrip within a short period of time. BSE imposes special margins in scrips where it suspeup the prices by creating artificial volumes. BSE also transfers the scrips for trading and settlement to the trade-

ry which leads to giving/taking delivery of shares on a gross level and no intra-day/settlement netting off/squarted. If abnormal movements continue despite the aforesaid measures, BSE suspends the trading in the scrip.

Detailed investigations are conducted in cases where price manipulation is suspected and disciplinary action isncerned Members.

BSE has an On-line Real Time (OLRT) Surveillance System, which has been in operation since July 15, 1999. , alerts are generated on-line, in real time during the trading hours, based on certain preset parameters like the

e variation in scrips, a Member taking unduly large positions not commensurate with their financial position or hntrated positions in one or more scrips.

This system integrates several databases like company profiles, Members' profiles and historical data of turnov

ent in scrips, Members' turnovers, their pay-in obligations, etc.

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Trading, Settlement and Risk Management

Trading

Timing

Trading on the BOLT System is conducted from Monday to Friday between 9:15 a.m. and 3:30 p.m.normally. Refer Notice No. 20101014-8 for call auction.

Groups

The scrips traded on BSE have been classified into various groups.

BSE has, for the guidance and benefit of the investors, classified the scrips in the Equity Segment into'A', 'B', 'T' and 'Z' groups on certain qualitative and quantitative parameters. Criteria for "A"Group Companies

The "F" Group represents the Fixed Income Securities.

The "T" Group represents scrips which are settled on a trade-to-trade basis as a surveillance measure.

Trading in Government Securities by the retail investors is done under the "G" group.

The 'Z' group was introduced by BSE in July 1999 and includes companies which have failed to complywith its listing requirements and/or have failed to resolve investor complaints and/or have not made therequired arrangements with both the depositories, viz., Central Depository Services (I) Ltd. (CDSL) andNational Securities Depository Ltd. (NSDL) for dematerialization of their securities.

BSE also provides a facility to the market participants for on-line trading of odd-lot securities in physicalform in 'A', 'B', 'T' and 'Z' groups and in rights renunciations in all groups of scrips in the Equity Segment.

With effect from December 31, 2001, trading in all securities listed in the Equity segment takes place inone market segment, viz., Compulsory Rolling Settlement Segment (CRS).

The scrips of companies which are in demat can be traded in market lot of 1. However, the securities ofcompanies which are still in the physical form are traded in the market lot of generally either 50 or 100.Investors having quantities of securities less than the market lot are required to sell them as "Odd Lots".This facility offers an exit route to investors to dispose of their odd lots of securities, and also providesthem an opportunity to consolidate their securities into market lots.

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This facility of selling physical shares in compulsory demat scrips is called an Exit Route Scheme. Thisfacility can also be used by small investors for selling up to 500 shares in physical form in respect ofscrips of companies where trades are required to be compulsorily settled by all investors in dematmode.

Listed Securities

The securities of companies, which have signed the Listing Agreement with BSE, are traded as "ListedSecurities". Almost all scrips traded in the Equity segment fall in this category.

Permitted Securities

To facilitate the market participants to trade in securities of such companies, which are actively traded atother stock exchanges but are not listed on BSE, trading in such securities is facilitated as " PermittedSecurities" provided they meet the relevant norms specified by BSE

Tick Size:

Tick size is the minimum difference in rates between two orders on the same side i.e., buy or sell,entered in the system for particular scrip. Trading in scrips listed on BSE is done with the tick size of 5paise.

However, in order to increase the liquidity and enable the market participants to put orders at finer rates,BSE has reduced the tick size from 5 paise to 1 paise in case of units of mutual funds, securities tradedin "F" group and equity shares having closing price up to Rs. 15 on the last trading day of the calendarmonth. Accordingly, the tick size in various scrips quoting up to Rs.15 is revised to 1 paise on the firsttrading day of month. The tick size so revised on the first trading day of month remains unchangedduring the month even if the price of scrips undergoes a change.

Computation Of Closing Price Of Scrips

The closing price of scrips is computed by BSE on the basis of weighted average price of all tradesexecuted during the last 30 minutes of a continuous trading session. However, if there is no traderecorded during the last 30 minutes, then the last traded price of scrip in the continuous trading sessionis taken as the official closing price.

Basket Trading System

BSE has commenced trading in the Derivatives Segment with effect from June 9, 2000 to enableinvestors to hedge their risks. Initially, the facility of trading in the Derivatives Segment was confined toIndex Futures. Subsequently, BSE has introduced the Index Options and Options & Futures in selectindividual stocks.

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Investors in the cash market had felt a need to limit their risk exposure in the market to the movement inSensex. With a view to provide investors the facility of creating Sensex-linked portfolios and also tocreate a linkage of market prices of the underlying securities of Sensex in the Cash Segment andFutures on Sensex, BSE has provided to the investors as well as to its Members a facility of BasketTrading System on BOLT with effect from August 14, 2000. In the Basket Trading System, the investorsthrough the Members are able to buy/ sell all 30 scrips of Sensex in one go in the proportion of their

respective weights in the Sensex. The investors need not calculate the quantity of Sensex scrips to bebought or sold for creating Sensex-linked portfolios and this function is performed by the system. Theinvestors can also create their own baskets by deleting certain scrips from 30 scrips in the Sensex.Further, the investors can alter the weights of securities in such profiled baskets and enter their ownweights. The investors can also select less than 100% weightage to reduce the value of the basket asper their own requirements.

To participate in this system, the Members need to indicate the number of Sensex basket(s) to bebought or sold, where the value of one Sensex basket is arrived at by the system by multiplying Rs.50 tothe prevailing Sensex. For example, if the Sensex is 15,000, the value of one basket of Sensex wouldbe 15000 x 50= i.e., Rs. 7,50,000/-. The investors can also place orders by entering value of Sensexportfolio to be brought or sold with a minimum value of Rs. 50,000 for each order.

The Basket Trading System provides the arbitrageurs an opportunity to take advantage of pricedifferences in the underlying Sensex and Futures on the Sensex by simultaneous buying and selling ofbaskets comprising the Sensex scrips in the Cash Segment and Sensex Futures. This would provide abalancing impact on the prices in both cash and futures markets.

The Basket Trading System thus meets the need of investors and also improves the depth in cash andfutures markets.

The trades executed under the Basket Trading System are subject to intra-day trading and grossexposure limits available to the Members. The VaR, MTM margins etc, as are applicable to normaltrades in the Cash Segment, are also recovered from the Members.

Settlement

Compulsory Rolling Settlement

All transactions in all groups of securities in the Equity segment and Fixed Income securities listed onBSE are required to be settled on T+2 basis (w.e.f. from April 1, 2003). The settlement calendar, whichindicates the dates of the various settlement related activities, is drawn by BSE in advance and iscirculated among the market participants.

Under rolling settlements, the trades done on a particular day are settled after a given number ofbusiness days. A T+2 settlement cycle means that the final settlement of transactions done on T, i.e.,trade day by exchange of monies and securities between the buyers and sellers respectively takesplace on second business day (excluding Saturdays, Sundays, bank and Exchange trading holidays)

after the trade day.

The transactions in securities of companies which have made arrangements for dematerialization oftheir securities are settled only in demat mode on T+2 on net basis, i.e., buy and sell positions of amember-broker in the same scrip are netted and the net quantity and value is required to be settled.However, transactions in securities of companies, which are in "Z" group or have been placed under"trade-to-trade" by BSE as a surveillance measure ("T" group) , are settled only on a gross basis andthe facility of netting of buy and sell transactions in such scrips is not available.

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The transactions in 'F' group securities representing "Fixed Income Securities" and " G" grouprepresenting Government Securities for retail investors are also settled at BSE on T+2 basis.

In case of Rolling Settlements, pay-in and pay-out of both funds and securities is completed on thesame day.

Members are required to make payment for securities sold and/ or deliver securities purchased to theirclients within one working day (excluding Saturday, Sunday, bank & BSE trading holidays) after the pay-out of the funds and securities for the concerned settlement is completed by BSE. This is the timeframepermitted to the Members to settle their funds/ securities obligations with their clients as per the Byelawsof BSE.

The following table summarizes the steps in the trading and settlement cycle for scrips under CRS :

DAY ACTIVITY

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

o Downloading of provisional securities and fundsobligation statements by member-brokers.

o 6A/7A* entry by the member-brokers/ confirmation bythe custodians.

T+1 o Confirmation of 6A/7A data by the Custodians upto1:00 p.m. Downloading of final securities and funds

obligation statements by members

T+2 o Pay-in of funds and securities by 11:00 a.m. andpay-out of funds and securities by 1:30 p.m. Themember-brokers are required to submit the pay-ininstructions for funds and securities to banks anddepositories respectively by 10:40 a.m.

T+2 o Auction on BOLT at 2.00 p.m.

T+3 o Auction pay-in and pay-out of funds and securities by

09:30 a.m. and 10:15 a.m. respectively.

The pay-in and payout of funds and securities takes places on the second business day (i.e., excludingSaturday, Sundays and bank and BSE trading holidays) of the day of the execution of the trade.

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

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of his individual, corporate or institutional clients may be either through the Member himself or through aSEBI registered custodian appointed by him/client. In case the delivery/payment in respect of atransaction executed by a Member is to be given or taken by a registered custodian, the latter has toconfirm the trade done by a Member on the BOLT System through 6A-7A entries. For this purpose, thecustodians have been given connectivity to the BOLT System and have also been admitted as clearingmember of the Clearing House. In case a registered custodian does not confirm a transaction done by a

Member within the time permitted, the liability for pay-in of funds or securities in respect of the samedevolves on the concerned Member.

The following statements can be downloaded by the Members in their back offices on a daily basis.

h. Statements giving details of the daily transactions entered into by the Member.

i. Statements giving details of margins payable by the Member in respect of the trades executedby him.

j. Statements of securities and fund obligation.k. Delivery/Receive orders for delivery /receipt of securities.

BSE generates Delivery and Receive Orders for transactions done by the Members in A, B, and F andG group scrips after netting purchase and sale transactions in each scrip whereas Delivery and ReceiveOrders for "T", "C" & "Z" group scrips and scrips which are traded on BSE on "trade-to-trade" basis aregenerated on a gross basis, i.e., without netting of purchase and sell transactions in a scrip. However,the funds obligations for the Members are netted for transactions across all groups of securities.

The Delivery Order/Receive Order provides information like the scrip and quantity of securities to bedelivered/received by the Members through the Clearing House. The Money Statement provides scripwise/item wise details of payments/receipts of monies by the Members in the settlement. The

Delivery/Receive Orders and Money Statement can be downloaded by the Members in their back office

Pay-in and Pay-out for 'A', 'B', 'T', 'C', "F", "G" & 'Z' Group of Securities

The trades done on BOLT by the Members in all securities in CRS are now settled on BSE by paymentof monies and delivery of securities on T+2 basis. All deliveries of securities are required to be routedthrough the Clearing House,

The Pay-in /Pay-out of funds based on the money statement and that of securities based on DeliveryOrder/ Receive Order issued by BSE are settled on T+2 day.

Demat pay-in :

The Members can effect pay-in of demat securities to the Clearing House through either of theDepositories i.e. the National Securities Depository Ltd. (NSDL) or Central Depository Services (I) Ltd.(CDSL). The Members are required to give instructions to their respective Depository Participants (DPs)specifying details such as settlement no., effective pay-in date, quantity, etc.

Members may also effect pay-in directly from the clients' beneficiary accounts through CDSL. For this,the clients are required to mention the settlement details and clearing member ID through whom theyhave sold the securities. Thus, in such cases the Clearing Members are not required to give anydelivery instructions from their accounts.

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In case a Member fails to deliver the securities, the value of shares delivered short is recovered fromhim at the standard/closing rate of the scrips on the trading day.

Auto delivery facility :

Instead of issuing delivery instructions for their securities delivery obligations in demat mode in variousscrips in a settlement /auction, a facility has been made available to the Members of automaticallygenerating delivery instructions on their behalf from their CM Pool accounts maintained with NSDL andCM Principal Accounts maintained with CDSL. This auto delivery facility is available for CRS (Normal &Auction) and for trade-to-trade settlements. This facility is, however, not available for delivery of non-paripassu shares and shares having multiple ISINs. Members wishing to avail of this facility have to submitan authority letter to the Clearing House. This auto delivery facility is currently available for ClearingMember (CM) Pool accounts and Principal accounts maintained by the Members with the respectivedepositories.

Pay-in of Securities in Physical Form

In case of delivery of securities in physical form, the Members are required to deliver the securities tothe Clearing House in special closed pouches along with the relevant details like distinctive numbers,scrip code, quantity, etc., on a floppy. The data submitted by the Members on floppies is matchedagainst the master file data on the Clearing House.If there is no discrepancy, the securities areaccepted.

Funds Pay-in

The bank accounts of Members maintained with the clearing banks, viz., Axis Bank Ltd.,Bank of India,Bank of Baroda, Canara Bank, Citi Bank, Corporation Bank, Dhanalaxmi Bank, HDFC BankLtd., Hongkong & Shanghai Banking Corporation Ltd., ICICI Bank Ltd, Indusind Bank Ltd., IDBI Bank,Kotak Mahindra Bank, Oriental Bank of Commerce., Punjab National Bank, State Bank ofIndia, Standard Chartered Bank, Union Bank of India, Yes Bank are directly debited throughcomputerized posting for their funds settlement obligations.

In case of Members whose funds pay-in obligations are not cleared at the scheduled time, action suchas levy of penalty and/or deactivation of BOLT TWSs , is initiated as per the prescribed penalty norms.

Securities Pay-out

Demat securities are credited by the Clearing House in the Pool/Principal Accounts of the Members.BSE has also provided a facility to the Members for transfer of pay-out securities directly to the clients'beneficiary owner accounts without routing the same through their Pool/Principal accounts in NSDL/CDSL. For this, the concerned Members are required to give a client wise break up file which isuploaded by the Members from their offices to the Clearing House. Based on the break up given by theMembers, the Clearing House instructs the depositories, viz., CDSL & NSDL to credit the securities tothe Beneficiary Owners (BO) Accounts of the clients. In case delivery of securities received from onedepository is to be credited to an account in the other depository, the Clearing House does an inter-depository transfer to give effect to such transfers.

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In case of physical securities, the Receiving Members are required to collect the same from the ClearingHouse on the pay-out day.

Funds Payout

The bank accounts of the Members having pay-out of funds are credited by the Clearing House with theClearing Banks on the pay-in day itself

In case a Member fails to deliver the securities, the value of shares delivered short is recovered fromhim at the standard/closing rate of the scrips on the trading day.

Penalty Norms

For Settlement (Pay-in) Defaults

Violation/s Shortage amount Late fees/fines/penalty

Non-fulfillment offunds obligation(viz. Normal pay-in,securities shortagepay-in and auctionpay-in) and failureto deposit additionalcapital towardscapital cushionrequirement as perSEBI norms withinstipulated time.

a) If the shortageamount is more than theBase Minimum Capital (atpresent Rs.10 lakhs) :

a) - 1% of such shortage amount, and

- additional 0.07% per day of theshortage amount.

- Also, the trading facility of such

member shall be withdrawn and thesecurities pay-out shall be withheld.

b) If the funds shortageis less than the BaseMinimum Capital (atpresent Rs.10 lakhs) :

b) - 1% of such shortage amount,and

- additional 0.07% per day of theshortage amount.

- In cases where the shortageamount exceeds 20% of the BMC butless than the BMC on 6 occasions

within a period of three months, thenalso the trading facility of the membershall be withdrawn* and the securitiespay-out due to the member shall bewithheld.

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(*In case the members trading facility

has been withdrawn on account of (b)above, then upon recovery of the

complete shortages, the member shallbe permitted to trade, subject to suchmembers providing a deposit equivalentto his cumulative funds shortageamount as the funds shortage

collateral. Such deposit shall be keptwith the Exchange for a period of tenrolling settlements and shall bereleased thereafter. Such deposit shallnot be available against marginliabilities and also such deposit will notearn any interest. Such deposit may beby way of cash, fixed deposit receipts ofbanks and/or bank guarantee.)

In case a member fails to meet his obligation amounting to less than 20% of BMC, a penaltyequivalent to his obligation amount or Rs.5,000/- whichever is less will be levied:

Further, if a member fails to meet his pay-in obligations of a normal settlement, auction settlementand that of securities delivered short in the pay-in for the same settlement, then such instances ofdefault would be considered as a single instance for the purpose of counting violations and levyingpenalties as above.

Non deposit of additional capital under capital cushion requirement would be considered as aseparate instance for the purpose of counting instances of violation and levying fines/penalties asabove.

Shortages

The Clearing House arrives at the shortages in delivery of various scrips by the Members on the basisof their delivery obligations and actual delivery.

The Members can download the statement of shortages in delivery of scrips in A, B, T, Z, F, Odd-lot & Ggroup scrips on T+2 day, i.e., Pay-in day. After downloading the shortage details, the Members areexpected to verify the same and report discrepancy, if any, to the Clearing House immediately. If nodiscrepancy is reported within the stipulated time, the Clearing House assumes that the shortage of a

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Member is in order and proceeds to auction/ close-out the same. Moreover, the value of sharesdelivered short is recovered from the Member at the standard/closing rate of the scrips on the tradingday.

Auctions

An Auction Tender Notice is issued by BSE to the Members informing them about the names of thescrips short or not delivered, quantity slated for auction and the date and time of the auction session onthe BOLT. The auction for the undelivered quantities is conducted on T+2 day between 2:00 p.m. and2.45 p.m. for all the scrips under Compulsory Rolling Settlements except those in "Z" group and scripson "trade to trade" basis which are directly closed-out. A Member who has failed to deliver the securitiesof a particular company on the pay-in day is not allowed to offer the same in auction. The Members,who participate in the auction session, can download the Delivery Orders in respect of the auctionobligations on the same day, if their offers are accepted. The Members are required to deliver theshares in the Clearing House on the auction Pay-in day, i.e, T+3. Pay-out of auction shares and funds isalso done on the same day, i.e., T+3.

Self-Auction

The Delivery and Receive Orders are issued by BSE to the Members after netting off their purchase andsell transactions in scrips where netting of purchase and sell positions is permitted. It is likely in somecases, a selling client has failed to deliver the shares sold in a settlement to a Member. However, thismay not result in failure of the Member to deliver the shares to the Clearing House as there was apurchase transaction of his some other buying client in the same scrip and the same was netted off forthe purpose of settlement. In such a case, the Member would require shares so that he can deliver thesame to his buying client, which otherwise would have taken place from the delivery of shares by hisselling client. To provide shares to the Members in such cases, they have been given an option tosubmit the details of such internal shortages on floppies on pay-in day for conducting self-auction (i.e.,as if they have defaulted in delivery of shares to the Clearing House). These shortages are clubbed with

the normal shortages in a settlement arrived at by the Clearing House and the auction is conducted bythe Clearing House for the combined shortages.

Close-out

Close-out is effected for cases when no offer for a particular scrip is received in an auction or whenMembers who offer the scrips in auction, fail to deliver the same or shortages pertaining to those groupsof securities for which auctions are not conducted. The close-out rates for different segments are asunder

o 'A', 'B' and 'F' group

The close-out rate is higher of the following rates :a) The highest rate of the scrip from the trading day to the day on which the auction isconducted for the respective settlement.b) 20% above the closing rate as on the day of auction/close out of the respective settlement.

o "Odd Lot", "T" and "Z" group and Patawat objections

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The closeout rate is higher of the following rates:a) The highest rate of the scrip from the day of trading to the day of auction of the respectivesettlements;b) 10% above the closing rate as on the day of auction/ close out of the respective settlement.

o "G" group

In case of shortages in "G" group, the shortages are closed out at Zero Coupon Yield Curve(ZCYC) plus a 5% penalty.

The closeout amounts are debited to the bank accounts of those Members who have failed todeliver the securities against their sale obligations and credited to the bank accounts of thoseMembers who had bought the securities but did not receive the same.

Rectification of Bad Deliveries

One of the biggest problems faced by the investors in the secondary market while dealing in physical

securities is that of bad delivery arising out of various reasons. Based on the reasons, these baddeliveries are classified into two categories, namely;

o Patawat (Settlement) Objectionso Company Objections

Patawat (Settlement) Objections

The physical securities received in payout are required to be checked by the Members for gooddelivery as per the norms of good and bad delivery of documents prescribed by the SEBI. If thesecurities are not considered good delivery, the receiving Member has to participate in "Patawat Objection Cycle" given below:

Transfer Deed is out of date. Cheques for the dividend adjustment for new shares where distinctive numbers

are given in the BSE Notice is not enclosed. Stamp of the Registrar of Companies on the Transfer Deed is missing. Details like distinctive numbers, transferors names, etc. are not filled in the

Transfer Deeds. Delivering Member's stamp on the reverse of the Transfer Deed is missing. Witness stamp or signature on Transfer Deed is missing. Signature of the transferor is missing. Death Certificate (in cases where one or more of the transferors is/ are

deceased) is missing.

A penalty at the rate of Rs.100 per Delivery Order is recovered by BSE on the deliveringMembers for delivering shares, which are not in order.

Company Objections

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Bad deliveries arising out of rejection of physical shares sent to the companies by the buyers forgetting them transferred in their names are termed as Company Objections. In order to help thebuyers, BSE has set up a Bad Delivery Cell (BDC), which conducts its operations based on theUniform Norms for Good/Bad Deliveries formulated by SEBI.

BDC follows a weekly cycle for acceptance of Objections and Rectifications. The cycle

commences every Tuesday, when the Objections are accepted in the Clearinghouse. TheMembers have a facility of directly uploading the bad delivery claims in the BDC system, anddownload the various reports through the same. The physical/objection documents areaccepted in the Clearinghouse only if the data has been successfully uploaded in the BDCsystem. The Objections, which have been forwarded to the Clearinghouse by the BuyingClearing Members on the first day of the cycle, need to be rectified by the Seller ClearingMembers and submitted to Clearinghouse on the 21st day of that particular cycle.

BDC issues notices every Monday, Tuesday and Thursday informing the market about variousactivities to be carried out by them. The notice issued on Monday contains the details of theClearing Members against whom the Buyer Member has lodged an Objection. The noticeissued on Tuesday is information to the Market about the Bad Delivery Schedule for the nextweek's cycle. And the Thursday's notice contains the details about the shares going in Auction

for the un-rectified securities, if any.After receipt of the Objections, the Seller Member can approach the verification officers of theBDC for obtaining the Award for Invalid Objections, if any. The BDC officers, on the basis of theguidelines issued by SEBI for Good and Bad Deliveries of Documents and on the basis ofprovisions of other relevant Acts, give an Award stating "Not in Order/In Order". If the Award isgiven as "In Order", the Seller Member is required to accept the objections and to rectify thesame within 21 days. If the objections are not rectified within the prescribed period of 21 days,the relevant transactions are auctioned or closed out as per the procedure laid down in thisregard. If the Objection is "Not In Order", the Seller Members are required to deliver back theshares to the Clearing House, who in turn returns the same to the Buyer Members. After theaward session for invalid objections, the deletion/modification entries are made and a statementtitled Permanent Claim Status is generated. The same is available to the Seller Members andthe Buyer Members in order to enable the Seller Members to submit rectifications on a floppy.To minimise the interfaces, the Members can also upload rectification directly through BDCsystem and can download the error report. The rectification will be accepted only if the data isproperly uploaded in the BDC system.

Along with the award for invalid objections, the award for the invalid rectifications, if any, is alsogiven. If the Seller Member has not properly submitted the rectifications, an award is given as"Not In Order". In that case the Buyer Members are required to deliver back the shares to theClearing House who, in turn, returns the same to the Seller Member. Thus, all InvalidRectifications go for auction/close-out along with all Unrectified Objections.

The auction is conducted on 30th day and the Buyer Member receives the shares in auctionpay-in after 3 days. The Buyer Member also receives the close out amount, for the shares notreceived in auction offer, and for the un-rectified objections in Group Z and T on the same day.

The disputed matters are referred to arbitration. The BDC accepts the objections only if theCompany Objection Memo is forwarded or the Patawat Objection Memo duly signed by theArbitrator is forwarded The share documents which have been returned under objection by acompany for the second time, can be reported in the BDC system, as Second Time Objection.The seller in this case is not given a chance to rectify the objections and the claim is closed outon the 10th day after the commencement of the particular cycle.

In case of objection reported with the BDC as Fake/Forged and Missing/Lost/Stolen shares, the

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rectification is allowed only in Demat mode.

After every BDC auction, a report is generated for bad deliveries submitted under the reason'fake/forged shares'. Members are cautioned against introducing fake/forged shares. They haveto follow the policy of 'Know your client', and be careful while choosing their clients.

In case the amount of fake/forged shares introduced by a Member exceeds Rs.10 lakhs in ayear, he has to submit an explanation for the same to BDC In case where the value offake/forged shares introduced by a Member exceeds a certain level, stringent action is takenagainst him. The list of members who have introduced fake/forged shares exceeding Rs. 5lakhs in one quarter is also circulated to all the stock exchanges.

BDC also maintains the data of lost/ stolen/ fake/ duplicate shares of all listed companies. BDChas informed all listed companies to forward updated database of such shares in soft copy orthrough E-mail, so that the Members and the Clearing House can download the same. Thisenables the Members to check the bad shares at the entry point i.e., at the time when sharesare delivered. This procedure prevents circulation of bad shares in the market, so that the samecannot be lodged with the company for transfer.

Bulk Deals Disclosures in the Cash Segment

With a view to imparting transparency in BULK Deal so as to prevent rumors/speculation aboutdeals causing volatility in the scrip prices, disclosures shall be made with respect to alltransactions in scrip where total quantity of shares brought/sold is more than 0.5% of thenumber of equity shares of the company listed on the stock exchange. Trading member shalldisclose to the stock exchange the name of the scrip, name of the client, quantity of sharesbought/sold and the traded price.

Please refer to the Exchange notice no.20090505-10 dated the May 05, 2009 for Modalities forBulk and Block deal reporting.

Block Deals Disclosures in the Cash Segment

In order to facilitate execution of large trades, a separate trading window is provided. A trade,with a minimum quantity of 5,00,000 shares or minimum value of Rs.5 crore executed through asingle transaction on this separate window of the stock exchange will constitute a BLOCK Deal.The Stock Exchanges shall disseminate the information of BLOCK Deal such as the name ofthe scrip, name of the client, quantity of shares brought/sold, traded price, etc to the generalpublic on the same day, after the market hours.

Please refer to latest Exchange notice no.20090505-10 dated the May 05, 2009 for Modalitiesfor Bulk and Block deal reporting.

Risk Management

Cash Market

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The expansion of BOLT across the country has led to a significant increase in volumes andliquidity. This has also consequently increased the risk of default by the Members in meetingtheir settlement obligations. BSE has initiated several risk management measures in order tomaintain the safety of the market and to avert defaults by the BSE Members in meeting theirpayment and delivery obligations.

Total Liquid Assets

The core of the risk management system is the liquid assets deposited by the Members withBSE. These liquid assets cover the following five requirements:

Base Minimum Capital (BMC)

All Members are required to maintain a BMC of Rs.10 lakhs with BSE in the prescribed mannerat all times. The composite corporate Members are required to maintain BMC in multiple of themembership rights held by them. The BMC, as prescribed by SEBI, is required to be kept in theform of cash (minimum 12.5%), Fixed Deposit Receipt(s) or Bank Guarantee(s) issued bybank(s) (minimum 37.5%) and balance in the form of eligible shares. The eligible shares for thepurpose of the securities portion of the BMC are A and B group securities forming part of GroupI classified as per the parameters of volatility and liquidity as stipulated in SEBI circular No.MRD/DoP/SE/Cir-07/2005 dated February 23, 2005. BMC is not available for adjustmenttowards margins.

Additional Capital

b. Members are also allowed to deposit Additional Capital (AC) over and above the BMCwith BSE as follows :

(Liquid Assets) :

Cash Equivalent.

Particulars Hair-cut Limit on Capital Deposit

(i) Cash Nil No Limit

(ii) Bank Fixed DepositReceipts ( FDRs ).

Nil No Limit

iii) Bank Guarantee Nil Limit on BSE's exposure to

a single bank exposure asstipulated in the SEBI

circular No.MRD/DoP/SE/Cir-07/2005dated February 23, 2005.

(iv) Securities of the CentralGovernment * .

10% No limit

(v) Units of liquid MutualFund (or) Govt. Sec. Mutual

10% No limit.

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Fund (by whatever name

called which invests in

government securities) *.

Other Liquid Assets - Non-Cash Component

(Total of Other Liquid Assets should not exceed total of Cash Equivalent) :

Particulars Hair-cut Limit on Capital Deposit

Non-Cash equivalent :

(i) Liquid (Group-I) Equity

Shares (as per the criteriafor classification of scrips

on the basis of liquidity).

(Only A and B group

securities forming part of

such Group I)

Same as the Value at Risk

(VaR) margin for therespective shares.

Limit on BSE's exposure to

a single issuer as stipulatedin the SEBI circular No.

MRD/DoP/SE/Cir-07/2005dated February 23, 2005.

(ii)Mutual Fund units (other

than those listed under cashequivalent). *

Same as the VaR margins

for the units computedusing the traded price on

BSE, if available, or else,

using the NAV of the unit

treating it as a liquid

security.

* BSE, at present, does not accept such liquid assets towards collateral.

Cash equivalents should be at least 50% of the liquid assets. This implies that OtherLiquid Assets in excess of the total Cash Equivalents is not regarded as part of the TotalLiquid Assets.

c. MTM (Mark-To-Market) Losses:Mark-to-market losses on outstanding settlementobligations of the Member.

d. VaR Margins:Value at risk margins to cover potential losses for 99% of the days.e. Extreme Loss Margins:Margins to cover the expected loss in situations that lie

outside the coverage of the VaR margins.f. Base Minimum Capital:Capital required for all risks other than the market risk (for

example, operational risk and client claims).g. Special Margin :Special margin collected as a surveillance measure.

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Members are required to maintain the liquid assets (collateral) to cover all the above fiverequirements. There are no other margins in the risk management system.

Single Trade Cumulative Trades for the Day

Immediately upon the execution of the order where the traded quantity, either buy orsell ,on account of any trade is more than 0.5% of the number of equity shares of thecompany listed on BSE.

Within one hour from the closure of the trading hours, where the cumulative quantitytraded under any single client code on that day either purchase or sale is more than0.5% of the number of equity shares of the company listed at BSE.

o The valuation of shares deposited by the Members with BSE is done on a daily basis, and ahair-cut equivalent to the respective VaR of individual scrip is applied i.e., only the residualvalue of eligible shares deposited is considered for the purpose of evaluation ofcapital(collateral) deposited by the Members with BSE.. The eligible shares deposited by theMembers towards BMC are accepted by BSE in demat form only.

o The cash can be deposited by the Members towards capital by submitting instructions to theirclearing banks to debit their bank accounts and credit the amount to BSE's account.

o As regards the Fixed Deposit Receipts (FDRs) of banks, the duly discharged FDRs are requiredto be submitted by the Members to BSE in the name of " BSE Limited. A/c - trade name of theMember" issued by any Mumbai-based branch or payable at any Mumbai-based branch of anyscheduled commercial or co-operative bank.

o The bank guarantees submitted by the Member towards the capital have to be in the approvedformat in favour of BSE either issued or payable by any Mumbai-based branch of a scheduledcommercial bank only. However, in case FDRs/ bank guarantees are issued by the outstationbranches of scheduled commercial banks (i.e., branches outside Mumbai), the payment of theproceeds on encashment of FDRs and invocation of bank guarantees by BSE has to beassured by a Mumbai-based branch of the concerned issuing bank.

b. For every instance of deactivation of BOLT TWSs due to non-availability of total liquidassets, fines/penalties are levied as per the structure given below :

Description No. of instancesin a financial

year

Fines/penalties ( Rs. )

Fines/penalties for de-activation ofBOLT TWSs due to non-

availability of Total Liquid Assets

1 st to 5 thinstance.

Rs. 5,000/- per instance.

6 th to 15 th Rs. 10,000/- per instance or

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(collateral) during the trading

session and in case of de-activation

of BOLT TWSs due to non-

availability of total liquid asset atthe end of day because of shortfall

of Total Liquid Assets due toexpiry of Bank Guarantees/FixedDeposit Receipts, evaluation of

securities, etc.

instance. 0.25% of the amount of

shortfall of total liquid assets

on account of violation of

trading limits, whichever ishigher.

16 th to 30 thinstance

Rs. 15,000/- per instance or0.25% of the amount of

shortfall of total liquid assets

on account of violation oftrading limits, whichever is

higher.

31 st instance

onwards.

Rs. 20,000/- per instance or

0.25% of the amount of

shortfall of total liquid assets

on account of violation of

trading limits, whichever ishigher.

BSE, as a precautionary measure, provides on-line warnings to its Members on the BOLTTWSs when they reach 70%, 80% and 90% of the utilisation of Total Liquid Assets (TLA). Whena Member crosses 100% of the utilization of TLA , a message is flashed on his BOLT TWSswhich says "Capital Violated : Member Trading Suspend" and immediately thereafter, all hisBOLT TWSs get deactivated. The BOLT TWSs of the Members in such cases are reactivatedonly after they deposit the required additional liquid assets. To avoid de-activation of BOLTTWSs and levy of fines/penalties, the additional liquid assets should be deposited with BSE

sufficiently in advance.

o Liquidity Categorization of Securities

The securities are classified into three groups based on their liquidity:

Group Trading Frequency (overthe previous six months

see Note A)

Impact Cost (over theprevious six monthssee

Note A

Liquid Securities (Group I) At least 80% of the days Less than or equal to 1%

Less Liquid Securities

(Group II)

At least 80% of the days More than 1%

Illiquid Securities (Group

III)

Less than 80% of the days N/A

o

Note:

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Monthly Review

o The trading frequency and impact cost is calculated on the 15th of each month on a rolling basisconsidering the previous six months for impact cost and previous six months for trading

frequency. On the basis of the trading frequency and impact cost so calculated, the securitiesmove from one group to another group from the 1st of the next month.o Categorisation of Newly-listed Securities

o For the first month and till the time of monthly review as mentioned above, a newly listed stockis categorised in that group where the market capitalization of the newly listed stock exceeds orequals the market capitalization of 80% of the stocks in that particular group. Subsequently,after one month, whenever the next monthly review is carried out, the actual trading frequencyand impact cost of the security is computed, to determine the liquidity categorization of thesecurity.

In case any corporate action results in a change in ISIN, the securities bearing the new ISIN istreated as newly listed scrip for group categorization.

Calculation of mean impact cost:

The mean impact cost is calculated in the following manner:

a. Impact cost is calculated by taking four snapshots in a day from the order book in thepast six months. These four snapshots are randomly chosen from within four fixed ten-minutes windows spread through the day.

b. The impact cost is the percentage price movement caused by an order size of Rs.1 lakhfrom the average of the best bid and offer price in the order book snapshot. The impactcost is calculated for both, the buy and the sell side in each order book snapshot.

Dissemination of Information

The lists of securities forming part of groups I, II and III are disseminated on the BSEwebsite on a monthly basis.

Margins

In order to contain the risk arising out of transactions entered into by the members invarious scrips either on their own account or on behalf of their clients, BSE has a welldesigned risk-management system which inter-alia, includes collection of margins fromthe Members. BSE accordingly imposes various kinds of margins on the Members

based on their outstanding positions in the market. The margining system followed byBSE is described below :

Computation of Margins

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o For securities that have been listed for less than six months, the trading frequency and theimpact cost is computed using the entire trading history of the scrip.

o VaR Margin

As mandated by SEBI, the Value at Risk (VaR) margining system, which is internationallyaccepted as the best margining system, is applicable on the outstanding positions of the

Members in all scrips.

a. The VaR Margin is a margin intended to cover the largest loss that can be encounteredon 99% of the days (99% Value at Risk). For liquid stocks, the margin covers one-daylosses while for illiquid stocks, it covers three-day losses so as to allow the Exchange toliquidate the position over three days. This leads to a scaling factor of square root ofthree for illiquid stocks.

For liquid stocks, the VaR margins are based only on the volatility of the stock while forother stocks, the volatility of the market index is also used in the computation.Computation of the VaR margin requires the following definitions:

o Scrip sigma means the volatility of the security computed as at the end of the previous tradingday. The computation uses the exponentially weighted moving average method applied to daily

returns in the same manner as in the derivatives market.o Scrip VaR means the higher of 7.5% or 3.5 scrip sigma.

o Index sigma

means the daily volatility of the market index (S&P CNX Nifty or BSE Sensex) computed as atthe end of the previous trading day. The computation uses the exponentially weighted movingaverage method applied to daily returns in the same manner as in the derivatives market.

o Index VaR

means the higher of 5% or 3 index sigma. The higher of the Sensex VaR or Nifty VaR would beused for this purpose.

The VaR Margins are specified as follows for different groups of stocks:

Liquidity

Categorization

One-Day VaR Scaling factor for

illiquidity

VaR Margin

Liquid Securities

(Group I)

Scrip VaR 1.00 Scrip VaR

Less Liquid

Securities (Group II)

Higher of Scrip VaR

and three times

Index VaR

1.73

(square root of 3.00)

Higher of 1.73 times

Scrip VaR and 5.20

times Index VaRIlliquid Securities

(Group III)

Five times Index

VaR

1.73

(square root of 3.00)

8.66 times Index

VaR

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Collection of VaR Margin :

a. The VaR margin is collected on an upfront basis by adjusting against the total liquidassets of the Member at the time of trade.

b. The VaR margin is collected on the gross open position of the Member. The gross openposition for this purpose is the gross of all net positions across all the clients of a

Member including his proprietary position.c. For this purpose, there would be no netting of positions across different settlements.d. Dissemination of Information :

The VaR amount applicable in respect of the scrips is disseminated on the BSE website on adaily basis.

Extreme Loss Margin :

The term Extreme Loss Margin replaces the terms "exposure limits" and "second line of defense" that

have been used hitherto. It covers the expected loss in situations that go beyond those envisaged in the99% value at risk estimates used in the VaR margin.

e. The Extreme Loss Margin for any stock is higher of: 5%, and 1.5 times the standard deviation of daily logarithmic returns of the stock price in

the last six months. This computation is done at the end of each month bytaking the price data on a rolling basis for the past six months and the resultingvalue is applicable for the next month.

f. The Extreme Loss Margin is collected/adjusted against the total liquid assets of themember on a real time basis.

g. The Extreme Loss Margin is collected on the gross open position of the Member. Thegross open position for this purpose means the gross of all net positions across all the

clients of a member including his proprietary position.h. For this purpose, there is no netting of positions across different settlements.i. The Extreme Loss margin so collected is released alongwith the pay-in.

j. Dissemination of Information :

The ELM amount applicable in respect of the scrips is also disseminated on the BSEwebsite.

o Special Margin :

Special margin may be imposed by BSE from time to time on certain scrips as a surveillancemeasure and informed to the Members through notices.

o Mark-to-Market Margin (MTM) :a. The MTM margin is collected on the gross open position of the Member. The gross

open position for this purpose would mean the gross of all net positions across all theclients of a member including his proprietary position. For this purpose, the position of aclient is netted across his various securities and the positions of all the clients of aMember is grossed. Further, there is no netting across two different settlements.

b. There is no netting off the positions and setoff against MTM profits across 2 rollingsettlements i.e. T day and T-1 day. However, for computation of MTM profits/losses forthe day, netting or setoff against MTM profits is permitted.

Collection and Release of Margins

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All statements pertaining to daily margins viz., VaR, MTM, ELM and Special Margin computedby BSE on the outstanding positions of the Members are available for downloading by them intheir back-offices at the end of the day.

o VaR Margin

The VaR margin is collected on an upfront basis by adjusting against the total liquid assets ofthe Member at the time of trade.

o Extreme Loss Margin (ELM)

The ELM is collected/ adjusted from the total liquid assets of the Member on a real time basis.

o Mark-to-Market Margin (MTM)

The MTM is computed after trading hours on T day on the basis of closing price, of that day. Incase the security has not been traded on a particular day, the latest available closing price is

considered as the closing price. MTM margins is also recomputed in respect of all the pendingsettlements on the basis of closing prices of T day and the difference due to increase/decreasein MTM margins on account of such recomputation is adjusted in the MTM obligation of theMember for the day. Such MTM is collected from the Members in the evening on the T dayitself, first by adjusting the same from the available cash and cash equivalent component of theliquid assets and the balance MTM in form of cash from the Members through their clearingbanks on the same day.

o Special Margins

The Special Margin as applicable is collected along with MTM from the Members, first, byadjusting the same from the available liquid assets and the balance Special Margin in form ofcash from the Members through their clearing banks on the same day.

Release of Margins

The above-referred margins are released on completion of pay-in of the settlement

o Fines / Penalty for Margin Default

Cases where there are insufficient balances in bank accounts of the Members at the time ofdebit of margin amounts payable in cash on the relevant day, are treated as margin defaults.The norms for levy of fines/ penalty for delay in clearance of margin obligations are as follows :

Violation/s Late fees/fines/penalty

Non-fulfillment ofmargin obligations tothe Exchange.

In case of non-fulfillment of margin obligation, the tradingfacility of such members shall be withdrawn immediatelyand fine/penalty of 1% of the unpaid margin amount willbe levied. In addition, the trading facility of the membershall be withdrawn immediately. The trading facility shallbe restored after fulfillment of the margin obligation bythe member.

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o

o Exemption from Payment of Margins

The following trades executed on the BOLT are exempted from payment of margins on Trade

Day. However the same are margined to the Custodians/members on T+1 day in case ofacceptance / rejection of the 6A7A entry:

a. Institutional business. For this purpose, institutional investors include :1. Foreign Institutional Investors registered with SEBI.2. Mutual Funds registered with SEBI.3. Public Financial Institutions as defined under Section 4A of the Companies Act,

1956.4. Banks, i.e., a banking company as defined under Section 5(1)(c) of the Banking

Regulations Act, 1949.5. Insurance companies registered with IRDA.6. Pension Funds

b. In cases where early pay-in of securities is made, the outstanding position of the clientto the extent of early pay-in.

Early Pay-in Facility

The early pay-in of securities done upto 3.45 p.m. on a day are considered for on-linerelease of blocked liquid assets on account of margins on that day. The benefits of earlypay-in done after 3.45 p.m. on a day are available on the next trading day.

Members are also able to do early pay-in of securities before execution of the trade onT day to avail benefit of margin exemption.

For availing the benefits of margin exemptions through early pay-in of securities, the members

are required to upload a file containing details in respect of the early pay-in at client level to theClearing House-BOISL (Notice No.20050526-20). The details in the file is matched against thetransaction files received from CDSL and NSDL. Only the matched records are uploaded forEarly Pay-In.

Capital Cushion Requirements

SEBI has advised BSE to build an administrative mechanism to encourage members to holdcapital cushions while operating in the Cash and Derivatives Segments. Accordingly, thefollowing methodology, as advised by SEBI, is being followed by BSE:

At the end of each calendar month, Members who have exceeded 90% of utilization ofcapital during the day for more than 7 days in the current month are identified.

In the derivatives segment, the utilisation is monitored after considering initial margins,exposure margins and premium.

The capital requirement to bring the utilisation to a level of 85% at the time of violatingthe trigger point of 90% on each of those occasions is noted for the Members. Thehighest of such amounts for the identified members during the month is called for asadditional capital.

The requirement is communicated to the members on the first day of the subsequent

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month. The Members are provided a time limit of three working days to provide the amount of

additional capital in the form of Cash, FDRs and Bank Guarantees only. The additional capital so collected is retained with the Clearing House for a period of

one calendar month. No benefit including exposure, margin etc is available to the Member on the amount of

additional capital so collected. In case of non- payment of additional capital within the stipulated time limit a penalty as

applicable for funds shortage is levied on the Member for the period of default. In case a Member is liable to provide additional capital in the subsequent month, the

amount of additional capital shall be recomputed and the excess /deficit is refunded/called for.

Monitoring Business of Brokers

BSE closely monitors the outstanding positions of the main Members on a daily basis. For thispurpose, it has developed various market monitoring reports based on certain pre-setparameters. These reports are scrutinized by officials of the Surveillance Department toascertain whether a Member has built up excessive purchase or sale position compared to hisnormal level of business. Further, it is examined whether purchases or sales are concentratedin one or more scrips, whether the margin cover is adequate and whether transactions havebeen entered into on behalf of institutional clients. Even the quality of scrips, i.e., liquid orilliquid, is looked into in order to assess the quality of exposure. Based on an analysis of thesefactors, the margins already paid and the total capital deposited by the Member with BSE, anadvance pay-in is called from the concerned Member.

BSE also scrutinizes the pay-in position of the Members and such Members who have largerfunds pay-in positions are , at the discretion of BSE, asked to make advance pay-in on the T+1day instead of on the T+2 day.

BOLT Deactivation

The BOLT TWSs of a Member are deactivated for non-payment / late payment of margins orsettlement dues or on apprehension of financial difficulties or on detection of seriousirregularities or for frequent violations of trading restrictions. Such decisions are taken on acase-to-case basis. The overall objective in resorting to this ultimate step is to ensure thatquestionable trading behavior of a Member does not compromise the safety of the market or

jeopardize the integrity of the market.

Brokers Contingency Fund

BSE operates a Brokers' Contingency Fund, since July 21, 1997 with a view to :

A Member desirous of availing of an advance would be required to give a request letter inwriting to the Clearing & Settlement Department of BSE stating that as and when there is ashortfall in meeting his funds pay-in obligation, BSE may automatically advance him an amountup to Rs. 10 lakhs to meet such shortfall.

A Member would be eligible to avail of advance from the Fund up to a maximum of Rs 25 lakhsat any point of time. The advance would be available only for meeting shortfall in his funds pay-in obligations in a settlement arising out of delivery based transactions and not for any other

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obligations in a settlement.

The advance would be available for a maximum period of 30 days from the date ofdisbursement. A Member would be eligible to avail of advance from the Fund up to a maximumof six times in a financial year. The amounts advanced from the BCF would be at the followinginterest rates:

For the first three times in a financial year @12% p.a. For the next three times in a financial year @15% p.a.

The advance may be availed of by a Member against the value of his pay-out securities (indematerialised form only) after applying a haircut of 30%.

BCF is managed by a Committee comprising of the Managing Director, Chief Operating Officerand three non-elected directors.

BSE contributed Rs.9.51 crores to the corpus of this Fund. All active Members are required tomake an initial non-refundable contribution of Rs.2,50,000 to the Fund. The corpus of the fund

as on 31/03/08 (unaudited) is Rs. 56 crores.

Members are eligible to get advances from this Fund upto a maximum of Rs.25 lakhs at the rateof 12% per annum.

BCF has ensured that the settlement cycles at BSE are not affected due to the temporaryfinancial problems faced by its Members, further strengthening the credibility of the stockexchange settlement system.

Trade Guarantee Fund

SEBI requires BSE to have a system of guaranteeing settlement of trades or set up a ClearingCorporation to ensure that the market equilibrium is not disturbed in case of payment default bythe members. BSE has accordingly instituted a system to guarantee settlement of bonafidetransactions of Members which form part of the settlement system.

BSE has a Trade Guarantee Fund, in operation since May 12, 1997, with the followingobjectives :

p. To guarantee settlement of bonafide transactions of BSE Members inter-se which formpart of the Stock Exchange settlement system, so as to ensure timely completion ofsettlements of contracts and thereby protect the interest of investors and Members.

TGF is managed by the Defaulters' Committee, which is a Standing Committeeconstituted by BSE, the constitution of which is approved by SEBI. The declaration of a

member, who is unable to meet his settlement dues as a defaulter is a pre-condition forinvoking the provisions of this Fund.

BSE has contributed an initial sum of Rs.60 crores to the corpus of the Fund. All activemembers are required to make an initial contribution of Rs.10,000 in cash to the Fundand also contribute Re. 0.01 for every Rs.1 lakh of gross turnover in all the groups ofscrips by way of continuous contribution which is debited to their settlement account ineach settlement.

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All active Members are required to maintain a base minimum capital of Rs.10 lakhseach with BSE. This contribution has also been transferred to the Fund and has beentreated as refundable contribution of the Members. Each Member is also required toprovide to the Fund a bank guarantee of Rs.10 lakhs from a scheduled commercial orco-operative bank as an additional contribution to the Fund.

The present corpus, as on 31/03/2008 ( unaudited ), is Rs 181 crores (cash componentexcluding collaterals & additional capital)

TGF has eliminated the age-old counter party risk, so that if a Member is declared adefaulter, other Members do not suffer.

Trade Guarntee Fund - G -Sec Segment

In 2003, BSE had set up a distinct Trade Guarantee Fund known as GSEC TradeGuarantee Fund for trading in the Central Government Securities and such fund was

created with an initial contribution of Rs. 5 crores by transferring the said amout fromthe free reserves of BSE

The present corpus as on 31/03/08 (unaudited) is Rs.7 crores.

q. To inculcate confidence in the secondary market traders including the global investorsto attract larger participation.

r. To protect the interests of the investors and to promote the development and regulationof the secondary market.

make temporary refundable advance(s) to the Members facing temporary financial mis-match as a result of which they may not be in a position to meet their financialobligations to BSE in time;

protect the interest of the investors dealing through the BSE Members by ensuringtimely completion of settlement

inculcate confidence in investors regarding safety of their bonafide transactions

DAY ACTIVITY TIME

T + 3 Patawat Arbitration session : Arbitrationawards to be obtained from officials of

10:30 a.m. to 11:30 a.m.

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the Bad Delivery Cell

Securities under objection to besubmitted in the Clearing House.

11:00 a.m. to 12:00noon

The delivering members to collect suchsecurities under objection from theclearing house

2:00 p.m. to 3:00 p.m.

Arbitration awards for invalid objectionto be obtained from members of theArbitration Review Committee/officials ofthe Bad Delivery Cell.

5:00 p.m. to 5:30 p.m.

T + 4 Members and institution to submitrectified securities, confirmation forms

and invalid objections in the clearinghouse.

1:00 p.m. to 2:00 p.m.

Rectified securities/invalid objections willbe delivered to the receiving members

3:00 p.m. to 4:00 p.m.

T + 5 Arbitration Awards for invalidrectification to be obtained from officialsof the Bad Delivery Cell

11:30 a.m. to 12:30 p.m.

Securities to be lodged with the clearinghouse unto

1:00 p.m

The transactions pertaining to un-rectified and invalid rectification of securities are directly closed-out byBSE as per the formula.

The shares in physical form returned under objection to the Clearing House as explained earlier arerequired to be accompanied by an arbitration award (Chukada) except in certain cases where thereceiving Members are permitted to submit securities to the Clearing House without "Chukada" orarbitration award in the following cases:

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Primary market

The primary market is that part of the capital markets that deals with the issuance of new

securities. Companies, governments or public sector institutions can obtain funding through thesale of a new stockor bond issue. This is typically done through a syndicate of securities dealers.

The process of selling new issues to investors is called underwriting. In the case of a new stock

issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the

price of the security offering, though it can be found in the prospectus. Primary markets createlong term instruments through which corporate entities borrow from capital market.

Features of primary markets are:

This is the market for new long term equity capital. The primary market is the market where thesecurities are sold for the first time. Therefore it is also called the new issue market (NIM).

In a primary issue, the securities are issued by the company directly to investors. The company receives the money and issues new security certificates to the investors. Primary issues are used by companies for the purpose of setting up new business or for

expanding or modernizing the existing business.

The primary market performs the crucial function of facilitating capital formation in the economy. The new issue market does not include certain other sources of new long term external finance,

such as loans from financial institutions. Borrowers in the new issue market may be raising capitalfor converting private capital into public capital; this is known as "going public."

The financial assets sold can only be redeemed by the original holder.

Methods of issuing securities in the primary market are:

Initial public offering; Rights issue (for existing companies); Preferential issue.

http://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Security_%28finance%29http://en.wikipedia.org/wiki/Fundinghttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Bond_%28finance%29http://en.wikipedia.org/wiki/Underwritinghttp://en.wikipedia.org/wiki/Initial_public_offeringhttp://en.wikipedia.org/wiki/Prospectus_%28finance%29http://en.wikipedia.org/wiki/Initial_public_offeringhttp://en.wikipedia.org/wiki/Rights_issuehttp://en.wikipedia.org/wiki/Rights_issuehttp://en.wikipedia.org/wiki/Initial_public_offeringhttp://en.wikipedia.org/wiki/Prospectus_%28finance%29http://en.wikipedia.org/wiki/Initial_public_offeringhttp://en.wikipedia.org/wiki/Underwritinghttp://en.wikipedia.org/wiki/Bond_%28finance%29http://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Fundinghttp://en.wikipedia.org/wiki/Security_%28finance%29http://en.wikipedia.org/wiki/Capital_market

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Secondary market

The secondary market, also called aftermarket, is the financial market in which previously

issued financial instruments such as stock, bonds, options, and futures are bought and sold.[1].

Another frequent usage of "secondary market" is to refer to loans which are sold by a mortgagebankto investors such as Fannie Mae and Freddie Mac.

The term "secondary market" is also used to refer to the market for any used goods or assets, oran alternative use for an existing product or asset where the customer base is the second market

(for example, corn has been traditionally used primarily for food production and feedstock, but a

"second" or "third" market has developed for use in ethanol production).

With primary issuances of securities or financial instruments, or the primary market, investorspurchase these securities directly from issuers such as corporations issuing shares in an IPO or

private placement, or directly from the federal government in the case oftreasuries. After the

initial issuance, investors can purchase from other investors in the secondary market.

The secondary market for a variety of assets can vary from loans to stocks, from fragmented to

centralized, and from illiquid to very liquid. The major stock exchanges are the most visible

example of liquid secondary markets - in this case, for stocks of publicly traded companies.Exchanges such as the New York Stock Exchange, Nasdaq and the American Stock Exchange

provide a centralized, liquid secondary market for the investors who own stocks that trade on

those exchanges. Most bonds and structured products trade over the counter, or by phoning the

bond desk of ones broker-dealer. Loans sometimes trade online using a Loan Exchange.

Function

Secondary marketing is vital to an efficient and modern capital market.[citation needed] In the

secondary market, securities are sold by and transferred from one investor or speculator toanother. It is therefore important that the secondary market be highly liquid (originally, the only

way to create this liquidity was for investors and speculators to meet at a fixed place regularly