IT in Stock Exchange Final

7/28/2019 IT in Stock Exchange Final

1/72

IT (INFORMATION TECHNOLOGY) IN STOCK

EXCHANGE

A PROJECT SUBMITTED TO THE

UNIVERSITY OF MUMBAI

FOR THE DEGREE OF

BACHEOLAR OF MANAGEMENT STUDIES

In the partial fulfillment of the requirement of

the course

BY

TUSHAR DILIP PARAB

UNDER THE SUPERVISION OF

PROF. PRATHAMA NEMANE

DEPARTMENT OF BMS

D.G. RUPAREL COLLEGE

MUMBAI 400016

JANUARY, 2012

- 1


2/72

STATEMENT BY THE CANDIDATE

I, Tushar dilip parab, wish to state that the work

embodied is this project entitled IT in stock

exchange is carried out under the supervision of

prof. Prathama nemane, department of B.M.S., D. G.

Ruparel College, Mumbai. This work has not been

submitted for any other degree of this or any other

universities.

(PROF. PRATHAMA NEMANE) (TUSHAR DILIP PARAB)

(DR. PRAKASH SALVI)(CO-ORDINATOR, B.M.S.)

- 2


3/72

ACKNOWLEDGEMENT

I feel deeply in debted towards people who have guided

me in this project. It would have not been possible to make such an

extensive report without their help and guidance.

I would firstly like to express my gratitude towards my

guide Prof. Prathama nemane. for having shown so much of

flexibility in guiding and always encouraged me. She helped me in

deciding the project topic. She showed a lot of openness in her

approach and I would like to thank her for her support in a way that

has lead to proper & effective learning.

Last but not least I am grateful to all my family members &

my friends for being my side always. Without their help and

Motivation it would have been impossible to complete my project.

- 3


4/72

INDEX

Chapt

er

TITLE Pg no.

1 Introduction to stock exchange. 6 - 10

2 Financial market. 11- 17

3 Technology at stock exchange.

i) NSE.

ii) BSE.

iii) SEBI.

18

19

32

33 -

39

40 -44

4 A successful trading architecture. 45 -

55

5 Changing scenario/benefits 56 -

616 Adverse impact of IT on stock exchange. 62 -

647 Future outlook. 65 -

668 Conclusion. 67 -

689 Bibliography

- 4


5/72

INFORMATION TECHNOLOGY IN

STOCK EXCHANGE

- 5


6/72

INTRODUCTION

Increase of consistency, stabilization and

reinforcement of market and governmental organization, also

transformation in technology and inspecting environment, change

the competitive criterion in stock exchange industry.

Consequently, stock organizations like commercial

firms going to adapt with new environment via IT, cost minimizing,

and revenue maximizing, changes in organizational structure and

establish strategic alliances, due to compete in augmentation of

market share and etc. Increasing the development of computer

technology, lead to IT appearance beside of expansion of

telecommunication infrastructures.

IT as one of the new human technologies not only

affected by deep transformations but also it is affecting on human life

patterns quickly and it is an important growth factor and a device of

other sectors too. The plans of other countries show that effects of IT

are too deep and if we ignore it, it would lead us to have no status in

the future.

Changing approach of global business from

concentration on industry to emphasis on information and

knowledge, made many challenges for different countries,

particularly for developing countries.

Under this circumstance, investment in national

economy to reach micro-economical and macro-economical goals has

an obvious role. Now, stock exchange in advanced countries is the

core of investment and every year conduct too much wandering

- 6


7/72

capital to active and generative units of society like production and

service units.

Recently, financial departments emphasize onapplying IT and global trading. Regarding of stock exchange role in

structure improvement and economical development, increasing the

importance of IT prospective world and effective and efficient usage

of IT in stock exchange, may be progress and advantage key in future

stock market and realization of national goals. Therefore, this study

investigates the advanced IT application on stock exchange on

market characteristics like trade volume, outcome instability, cash

and market efficiency.

The growth in technology and communications has

impacted every aspect of our business in some or the other form.

These effects are enduring and have changed the very way in which

business is carried out.

The stock market is one such institution whose very

existence has been challenged by the growth in information

technology. IT has turned the very idea of a stock market on its head.

The following study is an attempt to study the impact of

information technology on the stock market, with an Indian

perspective.

The study starts with an assessment of the impact of

dematerialization on the stock markets. Dematerialization is perhaps

the single most important factor that has changed every aspect of

working of a stock market. Next we examine the impact IT has on the

revenue and cost models of the stock exchange.

- 7


8/72

We also examine IT-enabled linkages between

exchanges and also have a look at RTGS (Real time Gross

settlement).

PRE-REFORM PHASE:-

As of 1992 the Bombay stock exchange ltd was a monopoly. It was

an association of brokers, and imposed entry barriers, which led to

increased cost of intermediation.

Trading took place by open out cry on the trading floor which was

inaccessible to users. It was usual for the brokers to charge the

investors a much higher price for that actually traded at.

As with all trading floors there was no price time priority, so users of

the market were not assured that the trade was executed at the best

possible price.

A variety of manipulative practices prevailed, so that external users

of the market often found themselves at the losing end of the price

movements. No strict actions could be taken against errant brokers.

Retail brokers and particularly users of the market outside Mumbai,

accessed market liquidity. Through a chain of intermediaries called

sub-broker. Each sub broker in the chain mark-up in the price and

the investors thus had to pay a much higher price than the actual

traded price.

The market used future style settlements with fortnightly

settlements. This means that the trading was supposed to take place

for a fortnight until a predetermined expiration date.

- 8


9/72

A peculiar market practice called Badla allowed brokers to carry

positions across settlements periods. In other words even open

positions at the end of the fortnightly settlements cycle. The

efficiencies of the exchange clearing house only applied for thelargest 100 stocks. For other stocks, clearing, and settlements were

done bilaterally which introduced further inefficiencies and costs.

IMPORTANCE OF STOCK EXCHANGES

Financial institutions increasingly use technology to

operation smoothing, commercial and service activities, service

development and improvement, risk reduction decreasing the cost ofdeals. These institutions transfer and distribute the risk by using

service information networks facilities, more efficiently.

Network establishing has been developed by reaching

one of the important IT goals: quick and communal access to

information resources. News transmission highways, internet, is one

of the most efficient and useful computer networks in the world thatmany different activities can be performed in it and it has many

facilities.

According to National Association In Capitalization

(NAIC) comment, private investors rate the internet in the first place

as a source of information for investing, because people can study

annual reports of companies and analysis of analyst, adopt

specifications stock, goods and etc, and engaged in business

operations by visiting different websites.

Using electronic networks to data, production, service

and money exchanging between people (consumers) and companies,

companies with each others, peoples with each others, citizens and

governments, and at last companies and governments, is called

electronic financial services.

- 9


10/72

A lot has been written about the relevance and importance of

stock exchanges in the economy. However, at the cost of repetition,

some salient points are highlighted here.

One of the key advantages is that stock exchanges are an

efficient medium for raising resources and channeling savings from

the public by way of issue of equity / debt capital by joint stock

companies listed on the stock exchanges.

The second main benefit is the wide dispersal of information

and the need to disclose adequate information not only the

quarterly or year-end financial results, but also major events that

have an impact on the working of the company.

- 10


11/72

FINANCIAL MARKET

We know that, money always flows from surplus sector to deficit

sector. That means persons having excess of money lend it to those

who need money to fulfill their requirement.

Similarly, in business sectors the surplus money flows from the

investors or lenders to the businessmen for the purpose of production

or sale of goods and services. So, we find two different groups, one

who invest money or lend money and the others, who borrow or use

the money.

Now you think, how these two groups meet and transact with

each other. The financial markets act as a link between these two

different groups. It facilitates this function by acting as an

intermediary between the borrowers and lenders of money. So,

financial market may be defined as a transmission mechanism

between investors (or lenders) and the borrowers (or users) through

which transfer of funds is facilitated. It consists of individual

investors, financial institutions and other intermediaries who are

linked by a formal trading rules and communication network for

trading the various financial assets and credit instruments.

Before reading further let us have an idea about some of the

credit instruments:-

A bill of exchange is an instrument in writing containing an

unconditional order, signed by the maker, directing a certain personto pay a certain sum of money only to or to the order of a certain

- 11


12/72

person, or to the bearer of the instrument. To clarify the meaning let

us take an example. Suppose Gopal has given a loan of Rs. 50,000 to

Madan, which Madan has to return. Now, Gopal also has to give some

money to Madhu. In this case, Gopal can make a document directingMadan to make payment up to Rs. 50,000 to Madhu on demand or

after expiry of a specified period. This document is called a bill of

exchange, which can be transferred to some other persons name by

Madhu.

A promissory note is an instrument in writing (not being a bank

note or a currency note) containing an unconditional undertaking,

signed by the maker, to pay a certain sum of money only to or to the

order of a certain person or to the bearer of the instrument. Suppose

you take a loan of Rs. 20,000 from your friend Jagan. You can make a

document stating that you will pay the money to Jagan or the bearer

on demand. Or you can mention in the document that you will pay

the amount after three months. This document, once signed by you,

duly stamped and handed over to Jagan, becomes a negotiable

instrument. Now Jagan can personally present it before you for

payment or give this document to some other person to collect

money on his behalf. He can endorse it in somebody elses name who

in turn can endorse it further till the final payment is made by you to

whosoever presents it before you. This type of a document is called a

Promissory Note.

The financial markets can broadly be divided into money and

capital market.

a. MONEY MARKET:-

The money market is a mechanism that deals with the lending

and borrowing of short term funds. The India Money Market has come

of age in the past two decades. In order to study the money market

of India in detail, we at first need to understand the parameters

- 12


13/72

around which the money market in India revolves.

The performance of the Indian Money Market is heavily

dependent on real interest rate that is the interest rate that isinflation adjusted. Though the money market is free from interest

rate ceilings, structural barriers and other institutional factors can be

held responsible for creating distortions in India Money Market. Apart

from the call market rates, the other interest rates in the Indian

Money Market usually do not change in the short run.

It is due to this disparity between the opposite forces that is

prevalent in the money market in India that a well defined income

path cannot be traced.

Money market is a market for debt securities that pay off in the short

term

Usually less than one year, for example the market for 90-days

treasury bills.

This market encompasses the trading and issuance of short term non

equity

debt instruments including treasury bills, commercial papers, bankers

acceptance, certificates of deposits, etc.

b. CAPITAL MARKETS

Capital market is a market where long term funds can be

raised either through issue of securities or by borrowing from certain

institutions short term funds can also be borrowed from various

agencies. Thus business units can raise capital from issue of

securities and borrowings (long term and short-term). The lenders of

funds include the individual investors, the institutional investors,

banks and special industrial financial institutions. Capital market is a

market for long-term debt and equity shares. In this market, the

- 13


14/72

capital funds comprising of both equity and debt are issued and

traded. This also includes private placement sources of debt and

equity as well as organized markets like stock exchanges. Capital

market can be further divided into primary and secondary markets.

i. Primary markets:-

The Primary Market consists of arrangements, which

facilitate the

procurement of long term funds by companies by making fresh issue

of shares and debentures. You know that companies make

fresh issue of shares

and/or debentures at their formation stage and, if necessary,

subsequently for

the expansion of business. It is usually done through private

placement to

friends, relatives and financial institutions or by making public issue.

In any

case, the companies have to follow a well-established legal procedure

and

involve a number of intermediaries such as underwriters, brokers,

etc. who

form an integral part of the primary market. You must have learnt

about

many initial public offers (IPOs) made recently by a number of public

sector

undertakings such as ONGC, GAIL, NTPC and the private sector

companies

like Tata Consultancy Services (TCS), Biocon, Jet-Airways and so on.

Primary markets or the new issue market is also called the IPO

(initial

- 14


15/72

public offering) market. Money is raised in the primary market for long

term

needs in the form of shares or debentures.

ii. Secondary Markets

Secondary Market refers to a market where securities are traded

after being initially offered to the public in the primary market and/or

listed on the Stock Exchange. Majority of the trading is done in the

secondary market. Secondary market comprises of equity markets

and the debt markets.

For the general investor, the secondary market provides an

efficient platform for trading of his securities. For the management of

the company, Secondary equity markets serve as a monitoring and

control conduitby facilitating value-enhancing control activities,

enabling implementation of incentive-based management contracts,

and aggregating information (via price discovery) that guides

management decisions.

Difference between primary market and secondary

market:

The main points of distinction between the primary market and

secondary market are as follows:

1. Function :

While the main function of primary market is to raise long-term

funds

- 15


16/72

through fresh issue of securities, the main function of secondary

market is to

provide continuous and ready market for the existing long-term

securities.

2. Participants:

While the major players in the primary market are financial

institutions, mutual funds, underwriters and individual investors, the

major players in secondary market are all of these and the

stockbrokers who are members of the stock exchange.

3. Listing Requirement:

While only those securities can be dealt with in the secondary

market, which have been approved for the purpose (listed), there is

no such requirement in case of primary market.

4. Determination of prices:

In case of primary market, the prices are determined by the

management with due compliance with SEBI requirement for new

issue of securities. But in case of secondary market, the price of the

securities is determined by forces of demand and supply of the

market and keeps on fluctuating.

Reasons of applying electronic financial services in are:

a) Quick development of electronic exchanges:

- 16


17/72

The portion of stocks that exchanged by direct electronic

exchange in industrial countries has reached 90% from 28% in 2007.

This quick development of electronic services is an evidence of

importance of it.

b) Intense change in financial structure and nature:

Electronic financial services by inputting external suppliers with

internal suppliers causes cost reduction and augmentation of

competition in this sector.

c) Government role in modification of financial sector:

Government interference in financial sector usually has not enough

efficiency to State ownership of banks, to prevent development of

financial sector, and to increases the risk of financial crisis

appearance. This management method is always failed or leads to

support special group's benefits and finally results augmentation in

financial supplying costs in economy. Therefore, supervisory role of

government becomes basic and coordinator.

d) Globalization of investment and stock exchange process:

IT causes capital establishment and stock exchanging

transferred to the international financial centers. Result of these

matters is intense augmentation of capital establishment and stock

exchanging contribution, especially in new markets. Normal level of

capital establishment for partnership in international markets

increased from 5 billion dollar in 1990to 30 billion dollar in 2000.

e) Ensures transparency in exchange of stocks:

- 17


18/72

Information technology can be said to be the Messiah of the

stock exchange because it has helped to curb a lot of fraudulent

schemes from dubious stock brokerages and issuing houses as well

as providing a transparent and more efficient mode of operation forthis gold mining sector. This Messianic effect can be seen from the

changes that have occurred in the recent past. The importance of

Information Technology on the capital market would not be complete

without a mention of the internet boom as communication with

stockbrokers and shareholders have improved so also information

like market capitalization, all share index, value and volume of stock

traded, bulls and bears, are all available.

INTRODUCTION OF TECHNOLOGY IN STOCK

EXCHANGES

- 18


19/72

The city of Bombay, now re-christened Mumbai, has always

been the financial capital of India. The Bombay Stock Exchange (BSE LTD ,

now known as The Stock Exchange, Mumbai) and more recently the

National Stock Exchange of India (NSE) are both headquartered inMumbai.

BSE LTD was established in 1875 and is the oldest in Asia. BSE

LTD was formed as "The Native Share and Stockbrokers Association" (a

voluntary non-profit association). It has evolved over the years into its

present status as one of the two leading stock exchanges in India.

Till recently, the exchange was broker-managed. Now the

exchange plans to demutualise and convert itself into a corporate entity,

with management clearly separated from ownership. The NSE was

established as a corporate body in 1993 with the primary objectives of

ensuring nationwide electronic trading, high levels of transparency and

faster settlement cycles. Since inception, the exchange has been

demutualised, with the owners Hip, management and trading in the

hands of three different sets of people.

The NSE has been playing a catalytic role and has significantly

contributed to the reforming of the secondary markets in India in terms of

microstructure, market practices, trading volumes and use of state-of-the-

art technology. The use of satellite Communication technology for trading

using Very Small Aperture Terminals (VSATs) enabled NSE to rapidly

expand across the length and breadth of the country.

Subsequently, after BSE LTD was granted the required site

permissions, it expanded its trading facilities to the remote corners of the

land.

- 19


20/72

The National Stock Exchange (NSE) is India's leading stock

exchange covering various cities and towns across the country. NSE

was set up by leading institutions to provide a modern, fully

automated screen-based trading system with national reach. The

Exchange has brought about unparalleled transparency, speed &

efficiency, safety and market integrity. It has set up facilities that

serve as a model for the securities industry in terms of systems,

practices and procedures.

NSE has played a catalytic role in reforming the Indian securities

market in terms of microstructure, market practices and trading

volumes. The market today uses state-of-art information technology

to provide an efficient and transparent trading, clearing and

settlement mechanism, and has witnessed several innovations in

products & services viz. demutualization of stock exchange

governance, screen based trading, compression of settlement cycles,

dematerialization and electronic transfer of securities, securities

lending and borrowing, professionalization of trading members, fine-

tuned risk management systems, emergence of clearing corporations

to assume counterparty risks, market of debt and derivative

instruments and intensive use of information technology.

The National Stock Exchange (NSE), located in Bombay, is

India's first debt market. It was set up in 1993 to encourage stock

exchange reform through system modernization and competition. It

opened for trading in mid-1994. It was recently accorded recognition

as a stock exchange by the Department of Company Affairs. The

instruments traded are, treasury bills, government security and

- 20

INTRODUCTION OF

NATIONAL STOCK EXCHANGE (NSE)


21/72

bonds issued by public sector companies.

The number of members trading on the exchange has been on a

steady increase, helping integrate the national market and providinga modern system with a complete audit trail of all transactions.

MEMBERSHIP

- 1026 trading members on the Capital Market segment, of which

around 86% account for corporate, and the remaining individuals

and firms.

- 113 trading members on the Wholesale Debt Market segment, all

of which account for corporate. (Out of these 113 trading

members, 106 are members of the Capital Market segment also

and are included in the 1026 members indicated above).

GEOGRAPHIC DISTRIBUTION

- Over 2600 trading terminals

- Over 1500 VSATs across the country with a 24 hour Network

monitoring system in over 160 cities as of December 31st, 1997.

NUMBER OF COMPANIES

- On the Capital Market segment, 600 securities are listed and 762

securities are permitted to trade as of December 31st, 1997.

- On the Wholesale Debt Market segment, 470 securities are listed

and 369 securities are permitted to trade as of December 31st,

1997. Of the 470 securities listed, 267 are Government Securities,

T-Bills and the balance account for other securities.

- 21


22/72

CAPITAL MARKET OPERATIONS

NSE is working to increase the capacity of the trading system fromthe present 4,00,000 trades per day to more than 10,00,000 trades

per day.

The average daily numbers of trades have gone up from over 893

trades in November-94 to over 1,48,783 trades in November 97. On

August 7, 97 the number of trades reached a record high of 2,36,411

which makes NSE one of the largest stock exchanges in the world.

Average daily traded value has increased from Rs.7 crores in

November-94 to more than Rs. 1480 crores in December-97 with a

high of Rs.3,080.61 crores recorded on 26th June-97.

Number of shares traded has increased from 76.10 lakhs in

November-94 to 11,148.21 lakhs in December-97.

Net traded value has increased from Rs.125 crores in November -94

to Rs. 32,549 crores in December-97.

Delivered value (settlement wise) has increased from Rs.60 crores in

November -94 to Rs.5,008 crores in December -97.

Number of shares traded (depository segment) has increased from

200 shares in December -96 to 1,19,102 shares in December-97.

Net traded value (depository segment) has increased from Rs.0.43

lakhs in December -96 to Rs.185.44 lakhs in December-97.

- 22


23/72

Market share of cities other than five metros (Mumbai, Delhi,

Calcutta, Chennai & Ahmedabad) which was about 16% in first

quarter of 1996 grew to as high as 24% during the last quarter of

1997.

The ratio of contribution to turnover from Non Stock Exchange

centres to Stock Exchange centres has risen from 0.36% in first

quarter (Jan to Mar) of 1996 to over 10% in fourth quarter of 1997.

The market capitalization of companies has increased from Rs.

292637 crores in November'94 to Rs. 4571663 crores in February'98.

NSE STRUCTURE

- 23


24/72

NSE STRUCTURE

CURRENT WORKING OF THE NATIONAL STOCK

EXCHANGE (NSE)

- 24


25/72

The trading on stock exchanges in India used to take place through

open outcry without use of information technology for immediate

matching or recording of trades. This was time consuming and

inefficient. This imposed limits on trading volumes and efficiency.

In order to provide efficiency, liquidity and transparency, NSE

introduced a nation-wide on-line fully-automated screen based

trading system (SBTS) where a member can punch into the computer

quantities of securities and the prices at which he likes to transact

and the transaction is executed as soon as it finds a matching sale or

buy order from a counter party.

SBTS electronically matches orders on a strict price/time priority and

hence cuts down on time, cost and risk of error, as well as on fraud

resulting in improved operational efficiency.

It allows faster incorporation of price sensitive information into

prevailing prices, thus increasing the informational efficiency of

markets.

It enables market participants, irrespective of their geographical

locations, to trade with one another simultaneously, improving the

depth and liquidity of the market.

It provides full anonymity by accepting orders, big or small, from

members without revealing their identity, thus providing equal

access to everybody.

It also provides a perfect audit trail, which helps to resolve disputes

by logging in the trade execution process in entirety. This sucked

liquidity from other exchanges and in the very first year of its

operation, NSE became the leading stock exchange in the country,

impacting the fortunes of other exchanges and forcing them to adopt

SBTS also.

- 25


26/72

Today India can boast that almost 100% trading take place

through electronic order matching. Technology was used to carry the

trading platform from the trading hall of stock exchanges to thepremises of brokers. NSE carried the trading platform further to the

PCs at the residence of investors through the Internet and to

handheld devices through WAP for convenience of mobile investors.

This made a huge difference in terms of equal access to investors in

a geographically vast country like India.

TRADING NETWORK:

- 26


27/72

The trading network is depicted in the above figure. NSE

has main computer which is connected through Very Small Aperture

Terminal (VSAT) installed at its office.

The main computer runs on a fault tolerant STRATUS

mainframe computer at the Exchange. Brokers have terminals

installed at their premises which are connected through VSATs/leased

lines/modems.

An investor informs a broker to place an order on his

behalf. The broker enters the order through his PC, which runs under

Windows NT and sends signal to the Satellite via VSAT/leased

line/modem. The signal is directed to mainframe computer at NSE via

VSAT at NSE's office. A message relating to the order activity is

broadcast to the respective member. The order confirmation

message is immediately displayed on the PC of the broker. This order

matches with the existing passive order(s); otherwise it waits for the

active orders to enter the system. On order matching, a message is

broadcast to the respective member.

The trading system operates on a strict price time priority.All orders received on the system are sorted with the best priced

- 27


28/72

order getting the first priority for matching i.e., the best buy orders

match with the best sell order. Similar priced orders are sorted on

time priority basis, i.e. the one that came in early gets priority over

the later one. Orders are matched automatically by the computerkeeping the system transparent, objective and fair. Where an order

does not find a match, it remains in the system and is displayed to

the whole market, till a fresh order comes in or the earlier order is

cancelled or modified. The trading system provides tremendous

flexibility to the users in terms of kinds of orders that can be placed

on the system. Several time-related (good till cancelled, good till day,

immediate or 9 cancel), price-related (buy/sell limit and stop loss

orders) or volume related (all or none, minimum fill, etc) conditions

can be easily built into an order.

The trading system also provides complete

market information on-line. The market screens at any point of time

provide complete information on total order depth in a security, the

five best buys and sells available in the market, the quantity traded

during the day in that security, the high and the low, the last traded

price, etc. Investors can also know the fate of the orders almost as

soon as they are placed with the trading members.

TECHNOLOGY AT NSE:-

Across the globe, developments in information,

communication and network technologies have created paradigm

shifts in the securities market operations. Technology has enabled

organizations to build new sources of competitive advantage, bring

about innovations in products and services, and to provide for new

business opportunities. Stock exchanges all over the world have

realized the potential of IT and have moved over to electronic trading

systems, which are cheaper, have wider reach and provide a better

mechanism for trade and post trade execution.

- 28


29/72

NSE believes that technology will continue to provide the

necessary impetus for the organization to retain its competitive edge

and ensure timeliness and satisfaction in customer service. In

recognition of the fact that technology will continue to redefine theshape of the securities industry, NSE stresses on innovation and

sustained investment in technology to remain ahead of competition.

NSE's IT set-up is the largest by any company in India. It uses

satellite communication technology to energize participation from

around 320 cities spread all over the country. In the recent past,

capacity enhancement measures were taken up in regard to the

trading systems so as to effectively meet the requirements of

increased users and associated trading loads.

With upgradation of trading hardware, NSE can handle

up to 6 million trades per day in Capital Market segment. In order to

capitalize on in-house expertise in technology, NSE set up a separate

company, NSE.IT, in October 1999. This is expected to provide a

platform for taking up new IT assignments both within and outside

India and attaining global exposure.

NSE is one of the largest interactive VSAT based stock

exchanges in the world. Today it supports more than 3000 VSATs.

The NSE- network is the largest private wide area network in the

country and the first extended C- Band VSAT network in the world.

Currently more than 9000 users are trading on the real time-online

NSE application. There are over 15 large computer systems which

include non-stop fault-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 NSE the country's

largest Information Technology user.

In an ongoing effort to improve NSE's infrastructure, a

corporate network has been implemented, connecting all the offices

- 29


30/72

at Mumbai, Delhi, Calcutta and Chennai. This corporate network

enables speedy inter-office communications and data and voice

connectivity between offices.

In keeping with the current trend, NSE has gone online onthe Internet. Apart from having a 2mbps link to VSNL and our own

domain for internal browsing and e-mail purposes, we have also set

up our own Web site. Currently, NSE is displaying its live stock quotes

on the web site (www.nseindia.com) which are updated online.

- 30


31/72

TELECOMMUNICATIONS NETWORK AT NSE

Telecommunication Network of

NSE

- 31


32/72

NSE uses satellite communication technology through VSATs to

energize participation from around 400 cities spread all over the

country. NSE can handle up to 1 million trades per day.

The telecommunications network uses X.25 protocol (an

International Telecommunication Union-Telecommunication

Standardization Sector (ITU-T) protocol standard for WAN

communications that defines how connections between user devices

and network devices are established and maintained). It is the

backbone of the automated trading system.

The trading members on the Wholesale Debt Market segment

are linked to the central computer at the NSE through dedicated

64Kbps leased lines and VSAT terminals. These leased lines are

multiplexed using dedicated 2 MBPS, optical-fibre links. The WDM

participants connect to the trading system through dial-up links.

X.25:

IS an International Telecommunication Union-

Telecommunication Standardization Sector (ITU-T) protocol standard

for WAN communications that defines how connections between user

devices and network devices are established and maintained. X.25 is

designed to operate effectively regardless of the type of systems

connected to the network. It is typically used in the packet-switched

networks (PSNs) of common carriers, such as the telephone

companies. Subscribers are charged based on their use of the

network. The development of the X.25 standard was initiated by the

common carriers in the 1970s. At that time, there was a need for

WAN protocols capable of providing connectivity across public data

networks (PDNs). X.25 is now administered as an international

standard by the ITU-T.

- 32


33/72

SUMMARY:

X.25 is an ITU-T standard protocol that defines how connections

between user devices and network devices are established and

maintained, and that operates effectively regardless of the type of

systems connected to the network. X.25 devices include DTEs, DCEs,

and PSNs. X.25 connections contain both SVCs and PVCs within the

physical circuit. X.25 uses the following three protocols, which map to

the bottom three layers of the OSI reference model:

PLP, which maps to the network layer

LAPB, which maps to the data link layer

X.21bis, EIA/TIA-232, EIA/TIA-449, EIA-530, and G.703, which map

to the

physical layer

- 33


34/72

THE BSE LTD (CORPORATISATION AND DEMUTUALISATION)

SCHEME, 2005

Bombay Stock Exchange Limited (the Exchange) is the oldest

stock exchange in Asia with a rich heritage. Popularly known as "BSE

LTD ", it was established as "The Native Share & Stock Brokers

Association" in 1875. It is the first stock exchange in the country to

obtain permanent recognition in 1956 from the Government of India

under the Securities Contracts (Regulation) Act, 1956.The Exchange's

pivotal and pre-eminent role in the development of the Indian capital

market is widely recognized and its index, SENSEX, is trackedworldwide. Earlier an Association of Persons (AOP), the Exchange is

now a demutualised and corporatized entity incorporated under the

provisions of the Companies Act, 1956, pursuant to the BSE LTD

(Corporatization and Demutualization) Scheme, 2005 notified by the

Securities and Exchange Board of India (SEBI).Bombay Stock

Exchange Limited received its Certificate of Incorporation on 8th

August, 2005 and Certificate of Commencement of Business on 12thAugust, 2005. The 'Due Date' for taking over the business and

operations of the BSE LTD, by the Exchange was fixed for 19th

August, 2005, under the Scheme. The Exchange has succeeded the

business and operations of BSE LTD on going concern basis and its

recognition as an Exchange has been continued by SEBI.

With demutualization, the trading rights and ownership rightshave been de-linked effectively addressing concerns regarding

- 34

INTRODUCTION OF

BOMBAY STOCK EXCHANGE (BSE)


35/72

perceived and real conflicts of interest. The Exchange is

professionally managed under the overall direction of the Board of

Directors. The Board comprises eminent professionals,

representatives of Trading Members and the Managing Director of theExchange. The Board is inclusive and is designed to benefit from the

participation of market intermediaries.

In terms of organization structure, the Board formulates larger

policy issues and exercises over-all control. The committees

constituted by the Board are broad-based. The day-to-day operations

of the Exchange are managed by the Managing Director & CEO and a

management team of professionals.

The Exchange has a nation-wide reach with a presence in 417

cities and towns of India. The systems and processes of the Exchange

are designed to safeguard market integrity and enhance

transparency in operations. During the year 2004-2005, the trading

volumes on the Exchange showed robust growth.

The Exchange provides an efficient and transparent market for

trading in equity, debt instruments and derivatives. The BSE LTDs On

Line Trading System (BOLT) is a proprietary system of the Exchange

and is ISO-27001 certified. The surveillance and clearing &

settlement functions of the Exchange are ISO 9001:2000 certified.

BSE THREE PHASED APPROACH.

BSE LTD computerized its trading and settlement activities by

following a three phased approach.

Phase I: The primary objective of this phase was the real time

dissemination of price data through the Display Information DriverSystem (DIDS). DIDS was commissioned in November, 1992 to

- 35


36/72

disseminate bids, offers, actual rates of transactions and indices on a

real time basis.

Phase II: In 1994, settlement related daily transactions inputs andoutputs were uploaded and downloaded from the TWS in the brokers

offices.

Phase III: Commissioned on March 14, 1995. Although, screen based

trading started with 818 scrips, by the 70th day of its

commissioning, all scripts-exceeding 5000 had been put on the BOLT

system. The BOLT system was commissioned with the Himalaya K

10,000 central trading computer hardware. Since then the hardware

has been upgraded to the Himalaya K 20,000 system. The system

provides for a response time of two seconds and can handle more

than two hundred thousand trades in a day

- 36


37/72

TECHNOLOGY AT BSE LTD

BSE LTD places great deal of emphasis on Information

Technology to strengthen its functioning and performance.

'Operations & Trading Department' continuously upgrades the

hardware, software and networking systems, thus enabling the

Exchange to enhance the quality and standard of service provided to

its members and other market intermediaries.

To facilitate smooth transaction, BSE LTD had replaced its

open outcry system with BSE LTD On-line Trading (BOLT) facility in

1995. This totally automated screen based trading in securities was

put into practice nation-wide within a record time of just 50 days.

The BOLT platform capacity has been enhanced to 70 lakhs

orders per day by upgrading the hardware. BOLT has been certified

by DNV for conforming to ISO27001 security standards.

Exchange has also introduced the world's first centralizedexchange based Internet trading system, BSE LTD WEBx.com. The

- 37
http://upload.wikimedia.org/wikipedia/commons/9/99/Bombay-Stock-Exchange.jpg


38/72

initiative enables investors anywhere in the world to trade on the BSE

LTD platform.

BSE LTDs website www.bseindia.com providescomprehensive information on the stock market. It is one of the most

popular financial websites in India and is regularly visited by financial

organizations and other stakeholders for updates.

BSE LTD 's team of experts and professionals, along with its

strategic partners have put into place several critical systems such as

Derivatives Trading & Settlement System (DTSS), Electronic Contract

Notes (ECN), Unique Client Code registration (UCC), Real time data

dissemination - system - Data feed, Integrated Back office System -

CDB / IDB, Book Building System (BBS) & Reverse Book Building

System (RBBS) etc.

BSE LTD also operates one of the largest private networks in

India, comprising campus LAN; WAN set up within Mumbai and across

some major metros in India and VSAT set up across the country.

BSE LTDs Campus LAN covers around 350 member offices

across three BSE LTD buildings P.J.Towers, Rotunda and Cama

building.

BSE LTD WAN setup connects approximately 2000 member

offices within Mumbai and some major metros to BSE LTD systems.

Leased MLLN circuits from MTNL / BSNL are provided with ISDN /

TTML leased circuit backup. Around 300 circuits are of 2Mbps

capacity and rests all are of 64Kbps capacity.

In year 2000 BSE LTD set up its own VSAT Master Earth

Station (HUB), which uses full transponder on INSAT 3B satellite to

cater to roughly 2000 locations in over 400 cities across the country?

- 38


39/72

Regional Hubs for local fan out of leased lines within Metros

backed by high availability trunk backbone to BSE LTD. The regional

technology hubs are commissioned in Ahmedabad, Bangalore,Chandigarh, Chennai, Delhi, Hyderabad, Indore, Jaipur, Kolkata,

Ludhiana, Pune and Rajkot provide cost-effective reliable services to

members.

The trading and settlement activities of the member-brokers

are closely monitored through On-line Real Time System known as

BSE LTD Online Surveillance System (BOSS). The system enables the

Exchange to detect market abuses at a nascent stage, improve the

risk management system and strengthen the self-regulatory

mechanisms. Currently, BSE LTD is in the process of evolving an

integrated system for online surveillance of Cash and Derivatives

Segment through BSE LTD Online Surveillance System - Integrated

(BOSS I ).

BSE LTD uses higher end fault tolerant systems for its trading

and related functionalities. It uses Integrity Non-stop systems for its

online trading systems (BOLT). The systems have been designed to

deliver the best performance without compromising on key factors of

availability, scalability, ROI and TCO.

There are powerful RISC based Unix severs rp8420 from hp for

our Derivatives, Settlement, Back office, Data feed, BBS, RBBS and

other systems related to trading / non-trading and related

functionalities. The systems are facilitated by the use of the robust

and high available storage subsystems from hp.

We use one of the most powerful Intel blade servers for our

Internet based trading system (ITS) enabling the end user to carry

out the trading activities from any location facilitated by the internet.

- 39


40/72

We also use Intel blade servers for BSE LTD india.com web site, one

of the best portals on information related to capital markets.

BSE LTD strictly adheres to IS policies and IS Security policiesand procedures for its day to day operational activities on 24 x 7

bases which have enabled us to achieve the ISO27001 certification.

In addition, BSE LTD has also been successful in maintaining systems

and processes uptime of 99.99%.

- 40


41/72

The securities and exchange board of India (SEBI) was set up in 1988

was given statuary recognition in 1992 on recommendations of the

Narsimha Committee. Following the recommendations of this

committee the capital issues (control) act 1947, was repealed in May

1992 and SEBI was made the regulatory authority in regard to new

issue of companies. An amendment to the SEBI act 1992 carried out

on march 25, 1995 has empowered SEBI to register and regulate new

intermediaries in the capital market. With this empowerment all

intermediaries associated with the securities market are now

regulated by SEBI

ADOPTION OF TECHNOLOGY BY SEBI:

AUTOMATION :-

The underlying philosophy for the SEBIs information

technology strategy is to equip its officers with an electronic office

wherein the required information is readily available at their desktop

itself. The SEBI is in the process of implementing an organization-

wide database from which individual officers would draw information

to facilitate their day to day work.

In a fast evolving environment, the speedy and

effective communication between the SEBIs own departments at

Mumbai and its regional offices spread throughout the country are

critical prerequisites for quick and timely response. To achieve this

objective it is necessary to network all the computers in a manner

- 41

SECURITIES AND EXCHANGE

BOARD OF INDIA (SEBI)


42/72

that they act as a single corporate resource. Initiatives were taken in

1997-98 to implement a Local Area Network (LAN).

This is expected to provide the basic infrastructure for

unified database access, client-server computing as well as thefoundation for sharing information.

As part of the SEBIs information technology plan, the entire

computing infrastructure was upgraded during the previous year with

the introduction of 250 "Pentium" workstations. These were

supplemented in the year under review with the addition of 100

"Pentium" workstations and over 50 high end multimedia computers.

These computers were provided with the latest productivity tools

including software products for word processing, spreadsheets and

presentations. With the implementation of the LAN, officers were also

being provided with e-mail and Internet access to encourage the

transmission of electronic information and to help users access the

vast resources of the Internet relating to securities markets. A

training programme was organized to enable users to make effective

use of information technology and computing resources within the

SEBI.

Database servers were acquired to initiate the

development of the SEBIs own database and application systems.

These servers are equipped with fault tolerant and security features

to ensure uninterrupted and controlled access.

The SEBIs web site is hosted at http://www.sebi.gov.in. This

site was heavily accessed during the year. In response to the needs

and comments of users, the site was substantially redesigned during

the year. The site contains statutes, rules, regulations, guidelines

relating to SEBI; annual reports, draft prospectuses, press releases

and investor related information. A mirror site is also hosted at

http://www.sebi.com.

- 42


43/72

New technologies such as imaging, document

management, workflow, video conferencing and electronic data

interchange are being explored for their feasibility and introductionwithin the organization.

STATUS OF INFORMATION TECHNOLOGY IN SEBI:-

The SEBI has continuously been in the process of adopting

emerging technologies to maintain the status of advanced users of

the modern techniques. During 1999-2000, the SEBI initiated theprocess of consolidation of databases to implement effective

Management Information Systems on the securities

market, enhancement of Network Communication and

implementation of workflow applications.

SEBIS DATABASES:-

With the installation of state-of-the-art database servers,

during the year 1999-2000, the emphasis was given to migration and

re-engineering of SEBIs internal databases from legacy systems to

Relational Database Management Systems (RDBMS).

The internal database primarily comprises of informationpertaining to initial public offers, securities market intermediaries,

Investments by Foreign Institutional Investors (FII),

investigations/action taken, legislation matters, Investor Grievances

and Internal Administration. Consequently the application software

packages have been developed and deployed for up-to-date

maintenance of these databases. A suitable security and audit

mechanism has also been implemented to protect the data from

unauthorized access.

- 43


44/72

With the strengthening of the team of IT Professionals at

SEBI, the application software development is being done in-house,

with an aim to provide Executive Information System and to providequick response to the departmental needs.

NETWORKING:-

During the year 1999-2000, the Network Communication

Systems were enhanced. The local area network (LAN) was

established at all the regional offices for implementing the basicinfrastructure for client-server computing. With the installation of LAN

at the Regional Offices, Database applications, E-mail, Internet and

Intranet were all configured in tandem with the head-office.

As part of the Wide Area Network (WAN) between SEBI

offices and the offices in Mumbai have been inter-connected by

Integrated Services Digital Network (ISDN) link for the unified

Database Applications and Web access. A feasibility study has also

been initiated to form a SEBI-Net linking Head-Office and the

Regional Offices.

SEBI WEB SITE:-

As part of our constant endeavor in promoting thedevelopment of the securities market by providing the latest

information, the official web site of SEBI http://www.sebi.gov.in was

enhanced during the year 1999-2000. The enhancements included

Daily Market Trends pertaining to FII and Mutual Funds, Hosting Draft

Prospectus, SEBI Bulletin, Department-Wise Classification of

Contents, etc.

- 44


45/72

ELECTRONIC OFFICE:-

Pursuing the philosophy of "Less Paper" office, Intranetand workflow applications have been implemented, featuring hosting

of internal circulars, various application formats etc. and

enhancement of the correspondence tracking system. The Work has

been initiated to foster the knowledge base management, by way of

electronic hosting of internal bulletin and discussion forums.

During 1999-2000 state-of-the-arts multimedianotebook computers equipped with latest office automation tools for

presentations and mobile computing were procured.

- 45


46/72

A SUCCESSFUL TRADING ARCHITECTURE

INDIAN EXCHAGES:-

The NSE and BSE LTD are among the largest exchanges in

the country. They handle very large daily trading volumes, support

large amounts of data traffic, and have a very large nationwide

network.

The trading volume figures in both the exchanges are huge.

The average daily turnover in the capital markets segment at NSE is

around Rs 2300 crore and in the derivatives segment, around Rs

1300 crore. The average daily traffic volume is around one million

trades per day in the capital markets segment and around 50,000

trades per day in the derivatives segment. There are around 13,000

registered users in both segments and an average of around 9500

users is logged in at a time.

At BSE LTD the average daily turnover in 2001-2002 (April-

March) was Rs 1244.10 crore and the number of average daily trades

was Rs 5.17 lakhs.

As promised by technology visionaries and forecast groups

over the last decade, the Internet has indeed opened up new

avenues for conducting business. Stock exchanges worldwide now

conduct a bulk of its business online through its brokers and partners,

a major shift from the traditional method. In developed countries,

almost all exchange transactions are conducted online. The trend has

slowly picked up in India and two of the largest exchanges, the

National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE

LTD) have been conducting online trade successfully for some time

now.

- 46


47/72

NETWORK DESIGN:-

Needless to say, any online exchange needs to be always-

on, secure, redundant, and have adequate backup and recovery

processes. G.M Shenoy, VP, NSE-IT, talks about the design philosophy

of his online exchange. "The basic design objective was to provide

fair, equal, and transparent access across all our nationwidelocations. An important aspect was to provide connectivity to our

trading members as soon as possible."

"The telecom sector is fairly liberal today. Back in 1993,

the technology was maturing and was costly. Leased lines cost

almost ten times as much as it does today. Satellite technology was a

boon since it allowed quicker deployment than leased lines. NSE nowhas the country's largest VSAT network with over 3000 VSATs and

expects to grow to more than 4000 VSATs soon."

NETWORK ELEMENTS:-

A look at the massive trading volumes and traffic bulk is enough

proof of the critical nature of systems. It makes one shudder to thinkof the expected losses in case of a ten minute downtime when daily

trade crosses Rs 3000 crore. Network elements like storage, security,

backup and recovery processes, availability, and the different

applications must be carefully planned and commissioned. Then one

has to follow stringent RBI regulations to store at least 7 years of

transactional and financial data.

- 47


48/72

Storage: For such high amounts of critical data it's natural to deploy

network-based storage like NAS or SAN. NSE is implementing a SAN

as it feels that its data volumes have grown 'phenomenally'.

Security: This should be a vital and integral part of the design

architecture. The hardware and software elements should be built

around layered security architecture. And it should be held in place

with a well-documented security policy.

Backup and recovery: This has emerged as one of the vital aspects

of business continuity. When online exchanges were designed a few

years ago, perhaps a lot of emphasis was not placed on this aspect,

as it is today. However it's not difficult to add business continuity

processes to an existing network.

As a backup to our VSAT network at NSE, a terrestrial-based trading

network was deployed in the middle of 2000. NSE has more than 850

leased lines connecting nationwide locations. NSE is the only stock

exchange in the country to have a fully-redundant business

continuity site in Chennai.

Availability: Ideally online exchanges should have 'five-nine'

availability. Exchanges usually prefer to host its infrastructure in-

house and not use the services of an external data center.

Applications: It's difficult to deploy out-of-the-box applications at

exchanges as each has a unique architecture based on factors like

operations flow, trading volumes, number of members, number of

users, and number of locations. The applications like trading,

clearing, risk-management, surveillance, index computation, listing,

membership, and accounts may be developed in-house or by external

software developers.

- 48


49/72

THE 'BIG TWO' ARCHITECTURES

NSE and BSE LTD, the 'big two' exchanges believe in updating and

upgrading its technology systems to keep delivering according to

commitments and promises made to its members, partners, and

customers.

- 49


50/72

- 50


51/72

NSE ARCHITECTURE NEAT:

NSE has deployed NIBIS (NSE's Internet Based Information

System) for real-time dissemination of trading information over the

Internet and NEAT a client-server-based application to help its

operations.

- 51


52/72

NEAT stores all trading information in an in-memory

database at the server end to achieve minimum response time and

maximum system availability for users. The trading server software

runs on a fault-tolerant STRATUS mainframe and the client softwareruns on Windows PCs.

The telecommunications network uses the X.25 protocol

and is the backbone of the automated trading system. Each trading

member trades on the NSE with other members through a PC located

in the trading member's office.

The trading members on the Wholesale Debt Market

segment are linked to the central computer at the NSE through

dedicated 64 Kbps leased lines and VSAT terminals. These leased

lines are multiplexed using dedicated 2 MB optical-fiber links. The

WDM participants connect to the trading system through dial-up

links.

The exchange uses RISC-based UNIX servers from Digital

and HP for back office processing. Applications like Oracle 7 and

SQL/Oracle Forms 4.5 front ends are used for the exchange functions.

NEAT System:

The NEAT system supports an order driven market, wherein orders

match on the basis of time and price priority. All quantity fields are in

units and prices are quoted in Indian Rupees. The regular lot size and

tick size for various securities traded is notified by the Exchange from

time to time. NEAT is a state-of-the-art client server based

application. At the server end, all trading information is stored in an

in-memory database to achieve minimum response time and

maximum system availability for users. The trading server software

runs on a fault tolerant STRATUS main frame computer while the

client software runs under Windows on PCs.

BOMBAY STOCK EXCHANGE LTD SYSTEMS

ARCHITECTURE

- 52


53/72

BSE LTD ARCHITECTURE BOLT:

BSE LTD has deployed an Online Trading system (BOLT) on

March 14, 1995. It works on a nonstop platform .The nonstop systems

act as the backend to more than 12000 Trader Workstations

networked on Ethernet, VSAT and Managed Leased Data Network

(MLDN). The systems claim to handle up to three million trades a day.

BOLT has a two-tier architecture. The trader workstations

are connected directly to the backend server which acts as a

communication server and a Central Trading Engine (CTE). Other

services like information dissemination, index computation, and

position monitoring are also provided by the system. A transaction

monitoring facility in the Tandem architecture helps keep data

integrity through non-stop SQL.

With the help of MTNL, BSE LTD has setup a MLDN

Network comprising 300 2 Mbps lines and 1500 64 Kbps lines which

connect all regional stock exchanges and offices in Mumbai. Access

to market related information through the trader workstations is

essential for the market participants to act on real-time basis and

take instantaneous decisions. BOLT has been interfaced with various

- 53

TRADING ENGINE

LAN WAN VSAT

MEMEBERS

OFFICEROUTER

MEMBERS OFFICE

IDU

ROUTER

MEMBERS OFFICE


54/72

information vendors like Bloomberg, Bridge, and Reuters. Market

information is fed to news agencies in real time. The

Exchange plans to enhance the capabilities further to have

an integrated two-way information flow.

BOLT:

BOLT i.e., BSE LTDs online trading system is designed and

developed by CMC LTD, now a Tata Group company. This screen-

based trading system replaced the manual out-cry method of trading

in the ring and went live on March 1995.This enabled BSE LTD to

provide floorless and fully automated screen-based trading facilitiesin capital market (CM) instruments with equal access to investors all

over the country. Currently, BSE LTD with around 685 members has

seen an average daily turnover of Rs. 1,162 crore in July 2002.

For further expansion of its activities, BSE LTD decided to

provide web-based trading facility to the members as it was felt that

Internet trading would fundamentally change the way exchange andbrokers interact with their customers. Tata Consultancy Services

developed the system (BSE LTD WebX) with the objective of enabling

the exchange to service its members and the customers of the

members in an efficient and cost-effective manner using the Internet

Applications used by BSE LTD Windows, SQL Server 2000, and IIS

Server.

THE BOLT SYSTEM HAS ENABLED THE EXCHANGE TO

MEET THE FOLLOWING OBJECTIVE:

- 54


55/72

Reduce and eliminate operational inefficiencies inherent in manual

systems,

Increases trading capacity of the stock exchange, Improve market transparency, eliminate unmatched trades and

delayed reporting,

Promote fairness and speedy matching ,

Provide for on-line and off-line monitoring, control and surveillance of

the market,

Smooth market operations using technology while retaining the

flexibility of conventional trading practices,

Set up various limits, rules and controls centrally ,

Provide brokers with their trade data on electronic media to interface

with the Broker's Back Office system,

Provide a sophisticated, easy to use, graphical user interface (GUI) to

all the users of the system,

Provide public information on scrip prices, indices for all users of the

system and allow the stock exchange to do information vending,

Provide analytical data for use of the Stock Exchange.

WORKING OF BOLT:

Trading on CMC's Trading system BOLT can be carried out for Normal

segment as well as in the Auction, Odd lot segment, Continuous Net

Settlement, etc. The system is capable of handling 2.5 million orders

per day. Today, there are around 9000+ BSE LTD trading terminals

spread across India.

The brokers / traders operate from their own offices and send their

quotes, orders, negotiated deals, in-house deals, auction orders as

the case may be to the Central Trading Engine (CTE) through the

Broker Work Station (BWS). The Best Bid and the Best Offer (based

- 55


56/72

on price and time priority) in the market form what is known as the

Best Bid and Offer (BBO) for each scrip.

The BBO of all the scrips in the market are available to all the BWSthrough a mechanism called broadcast of the market information.

The buy and sell orders placed by the broker / trader will be matched

at the best available price in the market for that scrip, at the time of

the order. SuBSE LTD quent to matching, trade confirmations are

sent to the respective workstations, which can be printed on-line.

BOLT was developed on Non Stop Tandem platform keeping in view

the criticality of the application.

BOLT ARCHITECTURE:

- 56


57/72

STRENGTHS

Reduces or eliminates operational inefficiencies inherent in manual

systems,

Increases the trading capacity of the stock exchange,

Improves transparency, eliminates unmatched trades, no delay in

reporting,

Smooth market operations using the latest technology ,

Allows setting of various checks, limits, for better control,

- 57


58/72

Provides trade data using electronic media to the broker using an

interface with the broker's back-office system,

Provides user information (like scrip prices and indices) to all users,

Provides analytical data to the stock exchange.

C HANGING SCENARIO/BENEFITS

Dematerialization:

- 58


59/72


60/72

Introduction of rolling settlements

Enhancing liquidity

Bringing stamp duty to zero

Reducing chances of bad delivery

Increased lending by banks and other FIs

SEBI extended Demat to IPOs during capital reforms in

capital markets in 2002. The premise being elimination of problems

due to loss of allotment letters, share certificates etc., encouraging

shareholders to opt for Demat credit of allotments, trading

compulsorily in Demat form with an option of holding shares in

physical form for retail investors.

BSE LTD is the first exchange to be set up in India,

started as a floor-based exchange. However, NSE, setup as an

alternative to BSE LTD, was an electronic (computerized) exchange.

With advancements in technology, both these exchanges moved to

SBTS (Screen Based Trading System) in 1997.While NSE introduced

NEAT (NSEs Online Trading System) in May 1997, BSE LTD

introduced BOLT (BSE LTDs Online Trading System) in September

1997 in Mumbai.

The outcome has phenomenal with respect to the number

of trades taking place on these two exchanges.

Online trading:-

An online trading account is more than a brokerage account. It offers

you a unique 3-in-1 feature, which integrates your Brokerage, Bank

and one or more Demat accounts. This means that you can buy and

sell shares and forget about the hassles of settlements. Transfers of

shares from/to your Demat account and transfer of money from/to

- 60


61/72

your Bank account take place automatically with no paperwork.

Online investing is just a click away and settlements are no longer a

problem.

Circuit breakers/ price bands:-

Circuit breakers were first introduced in 1987 in the US in the wake of

sharp fall in the share prices. To contain abnormal price variations,

scrip-wise specify daily price bands or circuits breakers in India were

introduced in 1995 where by the trading automatically got suspended

if the price varied either side beyond 8 percent; further trading wasallowed to the price band. Price band which were originally fixed at 8

percent, were relaxed in January 2000, whereby a further variation of

4 percent in the scrip beyond 8 percent, after a cooling off period of

30 minutes, was allowed. In June 2000, for all scrips under

compulsory rolling settlement, the price band was relaxed by 8

percent (from 4 percent earlier) with half an hour cooling period the

scrips had hit the initial price band of 8 percent.

Internet Broking:-

SEBI Committee has approved the use of Internet as an

Order Routing System (ORS) it communicates clients' orders to the

exchanges through brokers. ORS enables investors to place orders

with his broker and have control over the information and quotes and

to hit the quote on an on-line basis. Once the brokers system

receives the order, it checks the authenticity of the client

electronically and then routes the order to the appropriate exchange

for execution. On execution of the order, it is confirmed on real time

basis. Investor receives reports on margin requirement, payments

and delivery obligations through the system. His ledger and portfolio

account get updated online.

- 61


62/72

NSE launched internet trading in early February 2000. It is

the first stock exchange in the country to provide web-based access

to investors to trade directly on the exchange. The orders originatingfrom the PCs of the investors are routed through the Internet to the

trading terminals of the designated brokers with whom they are

connected and further to the exchange for trade execution. Soon

after these orders get matched and result into trades, the investors

get confirmation about them on their PCs through the same internet

route.

Wireless Application Protocol (WAP):-

SEBI has also approved trading through wireless medium on WAP

Platform. NSE.IT launched the Wireless Application Protocol (WAP) in

November 2000. This provides access to its order book through the

hand held devices, which use WAP technology. This serves primarily

retail investors who are mobile and want to trade from any placewhen the market prices for stocks at their choice are attractive. Only

SEBI registered members who have been granted permission by the

Exchange for providing Internet based trading services can introduce

the service after obtaining permission from the Exchange.

RTGS (REAL TIME GROSS SETTLEMENT):-

The continuous settlement of payments on an individual

order basis without netting debits with credits across the books of a

central bank. Basically, this is a system for large-value interbank

funds transfers. This system lessens settlement risk because

interbank settlement happens throughout the day, rather than just at

the end of the day.

- 62


63/72

RTGS now has been implemented in major countries all

over the world. A look at the RTGS systems in place around the world

indicates that these systems have been responsible for reduction in

systematic risks and increased trading in the financial marketsincluding stock markets.

Back home in India, spurred by similar systems all over

the world and partly by the BASEL-II regulations, RBI went live with

the RTGS system in March 2004. Starting with State Bank of India,

HDFC Bank, Standard Chartered Bank, and Saraswat Co-operative

bank the system now includes 23 banks.

India is already ahead of the world in terms of being at

T+2 settlements. For example, in New York, T+3 settlement is used,

which means that they have to wait one extra day (compared to

India) in order to get money for shares sold. One major factor, which

has held back the move to T+1, is the weak banking system. In

August 2004, The Reserve Bank of India (RBI) enabled RTGS for

straight through processing (STP). The measure is expected to pave

the way for T+1 settlement for stock exchanges and lead to

settlement of securities one day after the day of trade.

- 63


64/72

OTHER BENEFITS :

Transparency - Users could look at price at computer screen before

placing order at the screen.

Anonymity - Electronic trading is completely transparent about

prices and quantities and completely opaque about identities.

Competition in the brokerage industry - As a result of which NSE

about 1000 new brokerage firms have entered the markets. This has

reduced transaction costs sharply.

Operational efficiency automation eliminated vagaries of

manipulative trading.

Gains out side Mumbai- NSEs satellite based trading gave equal

assess to the trading flow from all locations in India. This has helped

the user outside Mumbai and has been a major impetus to the

development of financial sector outside Mumbai.

ADVERSE IMPACTS OF IT ON STOCK MARKETS

- 64


65/72

Some other interesting observations about impact of technology on

stock markets

Vintage capital model teaches us that technological change destroysold capital. We have gone further and argued that major

technological changelike the IT revolution destroys old firms. It

does so by making machines, workers, and managers obsolete.

Product-market entry of new firms and new capital takes time, and

their stock-market entry takes even longer. In the meantime, the

stock market declines. We have argued that aggregate valuation can

fall below the present value of dividends because capital may

"disappear" right after a major technological shift, as new capital

forms in small, private companies. Later, these companies are IPOs,

and only then does their value become a part of stock-market

capitalization.

Volatility: The degree to which the price of a security, commodity,

or market rises or falls within a short-term period. An obvious reason

for market volatility is technology. This includes more timely

information dissemination, improved technology to make trades and

more kinds of financial instruments. The faster information is

disseminated, the quicker markets can react to both negative and

positive news. Improved trading technology makes it easier to take

advantage of arbitrage opportunities, and the resulting price

alignment arbitrage causes. Finally, more kinds of financial

instruments allow investors more opportunity to move their money to

more kinds of investment positions when conditions change.

SOME OTHER IT TOOLS USED IN STOCK TRADING

- 65


66/72

Email alerts:-

Interested investors or potential investors may conveniently receive

E-mail alert messages whenever certain new company information is

posted to the site. The fluctuations in the stock market are also

alerted to the users by the help of email messages

Portfolio:-

Creating a portfolio helps to Track holdings, view all the latest news,

monitor the profit/loss, chart the historical valuation of the portfolio

and compare and chart your portfolio performance against indices

or sectors.

Company watch:-

Concise reports designed to give a rapid understanding of anycompanis financial health with a graphical five-year overview of its

strengths, weaknesses and financial trends.

Exchange insight:-

Access to level 1 and level 2 real-time prices and a

wide range of premium data, tools and analysis including stock

screeners and heat maps.

Watchlist:-

- 66


67/72

Helps to create a watch lists to monitor potential

investment opportunities at a glance. You can quickly and easily

transfer a stock from a watchlist to a portfolio.

FUTURE OUTLOOK

- 67


68/72

With increasing globalization and consolidation amongst

exchanges, the future of the regional stock exchanges, around 22 in

India, is likely to be very uncertain and even their very survival is a

question mark.

Sebi has permitted the regional exchanges to form

subsidiary companies, which are akin to super brokers. These

companies have acquired membership of both BSE LTD and NSE at

confessional entry fees and permitted their members to trade on the

BSE LTD and NSE thus increasing trade volumes and business in both

BSE LTD and NSE.

The stock markets of the future will have a redefined

purpose and reinvented architecture due to the advent and

widespread use of technology. Information and stock price quotations

are available almost instantaneously and more importantly investors

can act on this data by executing a trade from anywhere at any time.

This new market will bring benefits to investors, listed

companies, and the economies of countries. Trading will be cheaper,

faster and settlement will be simpler and with reduced risk. Raising

capital for companies will be easier, thus contributing directly to

economic expansion.

The leaders in this new world of investing will be the ones

willing to be agents of change, to best meet the needs of investors

and companies, and to do what is best for these two principal

stakeholders in the capital markets.

If done right, the stock markets of the future will be even

better vehicles than today in helping companies grow, creating jobs,

providing fair investment opportunities for people, and in improving

economies.

- 68


69/72

Both the exchanges, BSE LTD and NSE, are visionary,

proactive and increasingly use leading-edge technologies to

effectively compete in the global environment. In the not-too-distantfuture, once full capital account convertibility is permitted in India

one could well witness an expansion of trading volumes and its

resultant economic benefits to the thriving and ever-young

metropolis of Mumbai.

- 69


70/72

CONCLUSION

As a human being, we all think about our development. As we

plan for our development we also have to decide our working area, or

the most possible / approachable area. Everyone likes to cover bigger

area as much as he can cover. Initially we had a small area of

operation in each segment of life. But as the technology developed,

we become part of global market and now we are able to cope with

the market development at large.

Information technology has made a tremendous development

in respect of our approach at amass level. It opens the door of

several avenues as well as has brought in several threats, which

should be analyzed carefully. Due to development in technology, the

information can be transferred from one place to another in very

short span of time, earlier which required lot of time.

Transfer of large information and storing capacity for a longperiod also has some draw backs, inherent in the process itself. For

example manipulation of message is very easy and it requires small

level of technical literacy. It is also observed that master in a subject

may not be many times able to express his views effectively as

compared to a person having less knowledge of subject but more

computer literacy, who can make better presentations.

Here the knowledge part of the core subject has been

compromised with proficiency with technology. All in all, the

development of new information technology should be welcomed

because it is the need of the hour. And all of us should prepare

ourselves to make it easier for us and should use it in ethical ways

then only we would be able to survive in the global market.

- 70


71/72

To sum up, we can say that computerization and automation

are not to be avoided. Technology has been able to make the stock

markets accessible to every individual. It has also led to positivedevelopments in terms of reduced costs and fewer errors. But, as

some experiences have indicated, it cannot be applied as a panacea

for all problems. Regulation and knowledge dissemination are still

important. The use of technology should be preceded by a detailed

study and assessment of all other alternatives. The key to successful

use to technology is the appreciation of its constraints.

- 71


72/72

BIBLIOGRAPHY

REFERENCE:-

INDIAS BANKING AND FINANCIAL SECTOR IN THE NEW

MILLENIUM - BY RAJ KAPILA AND UMA KAPILA VOLUME

2.

SECURITIES MARKETS: TOWARDS GREATER EFFICIENCY

- BYSUSAN THOMAS.

SEBI READING MATERIAL FOR WORKSHOP.

CAPITAL MARKETS (DEALERS) -MODULE WORK BOOK.

WEBSITES:-

www.bseindia.com

www.nseindia.com

www.sebi.gov.in

www.icicidirect.com
http://www.bseindia.com/http://www.nseindia.com/http://www.sebi.gov.in/http://www.icicidirect.com/http://www.bseindia.com/http://www.nseindia.com/http://www.sebi.gov.in/http://www.icicidirect.com/

Documents

IT in Stock Exchange Final