Operations Processes at the Exchanges in India

29 May 2012, Mumbai

14th ACG Cross Training Seminar

Section Contents

A Role and Functions of a Stock Exchange

B Exchange Process Landscape

A

2

Role and Functions of a Stock Exchange

3

Business of Running the Exchange Marketplace

Trading Business

• Providing Trading Floors / Market segments for Buying/Selling of securities (Price Discovery, Market

Quality, Formulating business rules for market activity)

• Market Participants (On-boarding and Continued compliance)

• Market Surveillance, Control and Disciplinary Actions

• Participant Access (Empanelment of 3rd Party Brokerage Solution Providers)

Listing Business

• Initial Listing of Securities (IPO, OFS, PP, etc.)

• Listing Compliance (On-going disclosure of corporate information)

Index Business

• Index definition and maintenance

• Index Data Distribution

• Index Licensing

Data Business

• Data Dissemination (Reference, Market, Corporate, Participants)

• Data Vendor Enrollment

Others

• Providing/enabling IT and telecommunications infrastructure

• Education, Certification & Research Initiatives

• Investor protection

• Corporate Branding

• Treasury and Investments

4

In addition to the Stock Exchange business…

Regulated Entity under Securities Contract (Regulation) Act (SCRA) 1956 and SEBI Act

– SCRA provides for process of ‘Recognition’ and ‘Continual Supervision’ of Stock Exchanges, listing of securities and contracts in securities available for trading on a Stock Exchange

– Listing norms of stock exchanges need to conform to the minimum listing criteria set out in the Rules

– Competition from ATS regulated by regulation

Public institution, more than 'commercial' responsibility

Act as a Self Regulatory Organization (SRO) in addition to other functions

Focus on investor interest and fair trading practices

Stock Exchanges - Indian Context

5

BSE Group

BSE Group

Board of Directors

BSE USE NPEXNPEX ICCL CDSL

Marketplace Technologies

100%100% 15%15% 15%15% 100%100% 54%54%

100%100%

Equities Equity Derivatives Mutual Funds ETFs SME Corporate Debt SLB

Currency Derivatives

Interest Rate Derivatives

Power Carbon credits

Clearing Settlement Risk Management

Depository Record Keeping

IT Services Network

BSE Institute

Training Certification

MarketsMarkets

100%100%

ServicesServices

InfrastructureInfrastructure

6

30%30%

IIAS*

Proxy Advisory Services

* As on 31st Dec 2011

Exchange Process Landscape

7

Business / MarketEnvironment

Market Factors

Competition

Customers

Technology Environment

OperationalEnvironment

Governance

Delegation

Roles & Responsibilities

Risk Management

Internal Automation

Technological Innovations & Best Practices

Regulatory Environment

NewRegulations

Compliance Framework

Key Drivers That Shape Up Business Processes

Core Business Functions

8

Listing Policy

Listing

Listing Compliance

On-line Monitoring

Off-line Surveillance

Surveillance

Research

Membership

Education

Certification

Trading

Listing Operations

Member Admission

Member Inspection / Investigation

Member Compliance

Disciplinary Action

Investor Services & Protection

Arbitration

Investor Grievances

Training

IPF Management

Asset Classes

Warrants ETF/MF

Equity Interest Rate

Equity Fixed Income

Local Index CurrencyDerivatives Foreign IndexLinkages

Market Intermediaries

Data Agencies

Investors

Regulatory / Statutory

Bodies

Issuers

Brokerage Solution Vendors

Technology Vendors

Shareholders

Other Exchanges

Educational Institutions

Media

Helpdesk

New Business Initiatives

Admin

Finance & Accounts

Corporate Communications

HR

Information Technology

IT Development

IT Operations

IT Network

Market Operations

Troubleshooting

Trading Platform –

NewDevelopment

Trading / Operating

Rules

Trading Commercials

Trading API Management

Legal & SecretarialMember Business

Development

Information Vending

DataProductsPolicy

Data Dissemination

Operations

Website Management

Index Services

Index Management

Index Operations

Decision Support

Tools

IT Security

Clearing Corporation Internal Control

Exchange Process Landscape

9

Listing Operations Admission of securities (Equities, Warrants, MF,

etc) through various modes such as IPO, OFS, PP as per Listing Policy and Exchange Rules & Regulations

De-listing, Re-listing/ Revocation Listing commercials (Listing Fees) Facilitating Buy-back of shares of promoter

entity Monitoring, dissemination, maintenance of

corporate announcements, financial results of listed corporations

Determining trading eligibility and settlement mechanism of securities (Example – SPOS, Trade For Trade)

MIS reporting Market Communication Listing Ceremony

Process Overview : Listing

10

Listing Policy & Compliance Formulation and review of Listing Policy and

Admission Norms

Monitoring shareholding pattern

Monitoring of insider trading activities and ensuring compliance

Liaison with SEBI for Listing Compliance matters

Advisory support in Listing Applications processing

Membership Admission of Members as Trading/Clearing

members for various segments – Equity, F&O, SLB, Debt as per Exchange Rules & Regulations

Surrender of membership Registration & Appointment of Sub-brokers,

Authorized Persons, Remisiers Approvals on various trading mechanisms –

Internet Trading, Direct Market Access (DMA), Mobile Trading, Smart Order Routing (SOR), Algo Trading as per regulatory guidelines

Monitoring of members’ Net-worth, Balance Sheet, Financial Statements on annual basis

SEBI Turnover fees processing Maintenance of member information

(shareholding pattern, designated directors, company status , membership transfer, etc.)

MIS reporting Market Communication

Process Overview : Membership & Compliance

11

Membership Inspection/Compliance Periodic Inspection (segment wise) of Member

firms at member site Monitoring Client Registration Process by

members Documentation: KYC, Agreement, RDD Registering Unique Client Code (UCC) with

Exchange

Monitoring periodic submissions by members Annual System Audit Report Semi-Annual Internal Audit Report Margin trading Compliance Report Monthly Client Funding Report

Registration of Trader IDs with respect to location & other details and assigning a unique location code

Policy making and administration of penalties for non-compliance UCC non-registration Location code mismatch Non-submission of periodic reports

Online Surveillance On-line market monitoring to detect any

irregular market practices Monitoring Market-wide Position Limits in F&O

segment for various market participants Security Surveillance

Price band review and relaxation Shifting of securities in & out of T2T Online scrip suspension

Monitoring RBI-specified FII, QFI limits on scrips Rumour Verification Regulatory Reporting

Pre-market reporting EoD reporting Daily Market Summary Weekly surveillance meetings

Publishing information on website on daily basis as per regulatory requirement – Trade statistics based on Client Types Block Deals, Bulk Deals

Process Overview : Surveillance & Supervision

12

Offline Surveillance Offline investigation for irregular market

practices (circular trading, self trades, etc) Theme based/special investigation

Disciplinary actions on member, security

Market Operations

Administration and maintenance of market segments /trading floors (Equity, Debt, Derivatives, SME), market participants, securities and trading parameters on exchange trading platform

Introduction/withdrawal of underlying (Index, Stock) for F&O trading as per entry /retention criteria prescribed by regulations

Formulating and managing business rules for trading - Operating parameters, F&O contract specifications,

revisions in tick size & market lot, corporate action adjustments

Administration of special trading schemes such as liquidity enhancement schemes (governing rules, operating parameters, obligation monitoring & member benefits, etc.)

Administration of trading commercials (transaction charges, special discounts/incentives)

MIS reporting Market Communication

Process Overview : Trading

13

Trading System Development

New developments in core trading platforms & other allied systems (end-to-end cycle) from business standpoint New requirement definition/articulation, business

impact assessment, functional design, UAT, mock drills, go-live support, post live support

Identifying new development opportunities through market feedback, competition analysis

Trading API Management

Empanelment/approval of Brokerage Solution Vendors and broker firms with in-house software

Managing new API releases, test market infrastructure, support and commercials

Governance of decision support tools/ algorithms for API based trading as per prescribed regulations

Information Vending Formulation and review of Information product

pricing policy Product Sale (real-time / delayed / historical

data), Index data to data vendors, end customers

Customer on-boarding (infrastructure, access, legal documentation, vendor enrollment)

Billing / Collections (One-time/ Monthly/Annual billing , usage reports)

Customer support SWIFT Project - Operation & maintenance of

the SWIFT system

Process Overview : Data, Index Business, IT, Corporate Website

14

Index Services New index conceptualization and launch Administration and maintenance of indices

Periodic review of index constituents for eligibility and updates

Changes in index constituents Corporate actions adjustments Re-balancing of indices Managing customized indices Industry classification

Index licensing

Information Technology Development of IT systems, application to support

Exchange business Managing Daily System Operations Managing Network Connectivity – internal as well

as external Monitoring & managing internal I.T. security Business continuity planning – managing DR site

operations

Website Management Static data / content management Dynamic data management Subscription based services

Process Overview : Others

15

Customer Servicing & Helpdesk End-to-end daily operations of BSE Helpdesk

Level 1 troubleshooting User management of all trading and allied

systems Contingency pool operations Bulk SMS, Mailers, On-line messages

Customer education and communication Awareness & training of Exchange systems to

new members New features/functionalities Business processes, practices Regulatory notices/circulars

Detailed troubleshooting and problem solving of live market related issues, queries reported by members, vendors, internal stakeholders, etc.

Investor Services & Protection Investor grievances - Handling Redressal of investor

complaints against members or companies Arbitration - Managing Arbitration cases for cases

between 2 trading members or members with clients, appointing arbitrators & administer verdicts

Investor Protection Fund - Managing of the fund as per prescribed guidelines

Investor Awareness Programmes

Corporate Communications Official Media Releases & interaction with

Print/Electronic Media Event Management Corporate & Product Branding

Member Business Development New Member acquisition Competition tracking, Market feedback Member relationship management

New Business Initiatives Cross border alliances for new products (Foreign

indices) New Product Research Data Analytics

16rajesh.saraf@bseindia.com