NSE Operation

1. Introduction about Company

The South Gujarat Shares & Shares broker Limited (SGSSL) is a public limited company registered under company act 1956. Company established with authorized share capital of Rs. 3 cr. The South Gujarat Shares & Share brokers Limited started its activities as an association of persons in 1992 and acted of sub broker giving services for buying and selling of securities to the retail inverters form south Gujarat, particularly in surat. Mr. Anil Choksy, Mr. Ashok Mehta, Mr. Jagdish Patel and Mr. Paresh Javeri who are the permanent directors of the company, took initiative in forming a limited company, so as to become the member of the National Stock Exchange of India Limited. Accordingly the company South Gujarat Shares & Share brokers Limited was registered under the companies act on the 5 th January 1995. To begin with it conducted its trading business through other members of the National Stock Exchange. During the first year of its operation ending on the 31st March 1995 it suffered a loss of Rs. 80000. The company had another poor year during 1995-96 and suffered a further loss of Rs 1.18 lacs. This was mainly because the company couldnt procure the National Stock Exchange membership during the year and also because of the prevailing poor market conditions.

NSE Operation

The company Obtained SEBI registration as stockboker on the 27 th feb, 1996 and its activities full-fledged member of the National Stock Exchange commenced on the 18th April, 1996. Originally the operation were started at Baroda since National Stock Exchange at that time was not providing connectivity in Surat. Once the NSE connectivity was made available in surat, the poeration was shifted to surat on the 23 rd July 1996. At present the location in Belgium Chamber. At Belgium Chamber the company has a large space of approximately 2700sq ft for smooth operation. Another terminal has since been installed at J.K. Towers in March 1997 to give better service to the investors. During the year ended 31 st March, 1997 the company has turned the corner. On the total income of Rs. 4580000 the company made a net profit of Rs. 375000 and after adjusting the losses of the previous two year of Rs. 198000, the net profit carried to the balance sheet works out to be Rs. 178000. In 1998 company take National Security Depository Ltd. Participation under the SEBI act 1996. In south Gujarat, SGSSL is the first company who takes the depository participant (DP). In DP there are 11500 holder which having demate account in SGSSL. The company is second Largest in demate account. Company has a Computer To Computer Link (CTCL) network, which are connected with LAN and also with WAN. In Surat City Company has give many register sub-broker CTCL. Company also provide in outside of Surat like Hazira, Navsari, and also in Bilimora.

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In present condition company try to register its sub broker in SEBI. Now in present, company has 35 register sub broker and other members if they work then company insist to take registration. In company there are 28 persons working. Company has 5 servers, in this one server connect with NSE CTCL and second with disaster management. In NSDL, also there is one main server. Company provides 3 different room for on line trading to its clients and sub-broker with satellite dish, Equara cable and modem. There are 8 Bombay Online Trading (BILT) and in back office with account package of comate also work actively with NSDL server. Company also provides very useful and modern service to account member which are Interactive Voice Response (IVR). The company has been stressing on the delivery oriented securities trading and since inception has been consistently one of the major delivering member. The company has been diligent ensuring compliance with the securities trading and settlement regulations of the NSE. It has resulted in ensuring cleaner operation. The trading business of the company is rapidly expanding and its volumes have now crossed Rs. 2.5 to 3 crores per day. The company expects the trading volume to at least double during the current year. Shri Anil choksy, who is the chairman and the managing director of the company, heads the operation of the company. He along with other full time directors maintains a close hand on the operation. The company has its own internal trading and settlement regulations, which are in conformity has with the NSE and SEBI regulations. These regulations ensure that the activities of the company are managed on the profession lines an on the best interest of the investors and the shareholder of the company. 3

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1.1 FINANCIAL POSITION OF COMPANY

(Rs. In lacks) Particular Total Income Profit Before Depreciation Depreciation Profit before tax Tax Profit after tax Year Market turnover 1999 2000 2001 2002 2003 2004 2005 (in crore) 341.99 480.25 1146.00 887.99 322.46 458.25 568.88 2001 187.38 49.43 13.30 36.13 12.50 23.63 2002 108.80 15.80 13.99 1.81 0.76 1.05 Total income (in lack) 72.95 125.51 187.38 108.80 96.58 106.57 125.86 2003 96.58 30.99 12.13 18.86 7.00 11.86 2004 105.05 16.70 10.55 15.20 5.00 12.21 2005 112.54 21.58 8.56 5.54 10.05 15.32

Brokerage (in lack) 59.90 76.21 120.9 68.90 36.17 45.85 74.25

Salary staff (in lack) 5.23 5.83 7.68 13.62 11.80 12.58 11.58

of Net profit (in lack) 7.04 8.09 23.63 1.05 11.86 9.54 15.57

1.2 MILESTONES
In 1992,SGSSL has started their activities as on association of person. On 5th January 1995, company registered under company act 1956. On 3rd March 1995, the company suffered loss of Rs. 80000. 4

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In 1995-96, company suffered loss of Rs 1.10 lacks. On 27th February 1996, company got SEBI registration. The activity of NSE started on 18th April 1996. On 23rd July 1996, the co-operation was shifted to Surat from Baroda. Another terminal installed at J.K.Tower in March 1997. The total volume per day now crossed Rs. 2 Crrores. During year ended 31st March 1997, company turned corner. The company has taken approval from NSDL to work of DP. At present, there are more than 12000 holder having DEMAT A/c in SGSSL. Company has 35 registered sub broker. Total incomes of 2005 are Rs. 96.58 lacks. PAT for 2005 is Rs. 11.86 lack as against Rs. 1.05 lack of previous year.

1.3 PROFILE OF COMPANY

1. Name of Company: South Gujarat Shares & Share Brokers Limited 5

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2. Registered office 3rd floor, Belgium chamber, OPP. Linear bus stop, Ring Road, Surat. 395003 3. Board of Director Mr. Anil J. Choksy Mr. Bhadresh G. Kaldia Mr. Indubhai D. Dalwala Mr. Ashok S. Mehta Mr. Paresh H. Jhaveri 4. Banker Canara Bank Bank of Baroda HDFC Bank 5. Auditor Ashwin Sanghavi Chartered Account Surat Internal Auditor Amish Sanghavi & Company Chartered Accounts Surat. Chairman & Mamaging Director Whole time director Whole time director Whole time director Director

2. National Stock Exchange (NSE)

2.1 Introduction of NSE
6

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The high-powered on the establishment of new stock exchange headed by M.J.Pherwani, the former UTI Chairman, first mooted the ides of a National Stock Exchange in June 1991. The establishment on National Stock Exchange (NSE) is a step to overcome the deficiencies of the existing stock market and to bring Indian financial markets in line with international markets. The national stock exchange on India was incorporated in November 1992 with an equity capital of Rs. 25 crores and promoted by IDBI, ICICI, LIC, GIL and its subsidiaries, SBI and SBI Capital Markets Limited.

Objectives of NSE
To establish nation wide trading facility for equities, debts and hybrids. To facilitate equal access to investors across the country. To provide fairness, efficiency and transparency to the securities trading. To enable shorter settlement cycles. To meet international securities market standard.

Features of NSE
- Fully automated screen based trading system. 7

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- It has two segments: The capital Market segment and whole sale debt market segment. - The market operates with all participants stationed at their offices and making use of their computer terminals, to receive market information, to enter order and to execute trade. Through 1777 satellite dishes there are 3000 computer terminals connected to NSE. - The trading member is the capital market segment are connected to the central computer in bombay through a satellite link-up using VSATs (Very Small Aperture Terminal). - The NSE has opted for an order driven system. - When a trade takes place, a trade confirmation slip is printed at the trading members work station. It gives detail price, quantity, code number of the party and so on. - The identity of the trading member is not revealed to other when he places an order or when his pending orders are delayed. - On the same day, each member gets a statement showing his net position, the amount of cash he has to transfer to the clearing bank and the securities he has to deliver to the clearing house. - The automated trade matching system secures the best price available in the market to the investor.

Board of Directors of NSE

1 2 Mr. S. B. Mathur Administrative of the specified undertaking of UTI Mr. Ravi Narain Chairman Managing 8

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National Stock Exchange of the India Ltd. Ms. Chitra Ramkrishna National Stock Exchange of the india Ltd.

Director Deputy Managing Director Director

Mr. S. P. Chhajed Partner of M/S Chhajed & Doshi Chartered Accountants Mr. R. P. Chitale Managing Partner M/S M. P. Chitale & Co. Chartered Accountant Mr. Indrajit Gupta Managing Director & CEO SBI Capital Market Ltd. Mr. N. S. Kannan Chief Financial Officer & Treasurer ICICI Bank Ltd. Mr. S. H. Khan Chairman Feedback First Urban Infrastructure Development Comp. Ltd. Mr. A. P. Kurian Chairman Association of Mutual Fun in India Mr. Anand G. Mahindra Vice Chairman & Managing Director Mahindra & Mahindra Ltd. Mr. Y. H. Malegam Chartered Accountant

Director

Director

Director

Director

9 10

Director Director

11

Director

12 Prof. (Dr.) K. R. S. Murthy Director 9

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Professor and Former Director 13 Indian Institute of Management, Benglore Mr. Ravi Parthasarathy Chairman & Managing Director 14 Infrastructure Leasing & Finance Services Ltd. Dr. R. H. Patil Chairman 15 The clearing corporation of india Ltd. Mr. Jastice M.L. Pendse (Retd.) Former Chief Justice of Karnataka High Court 16 And Judge of Bombay High Court Mr. M. Reghavendra Ex-General Manager 17 18 General Insurance Corporation of India Mr. S. Venkitesvedra Sr. Advocate Mr. R. N. Bhardwaj Chairman Life Insurance Corporation of India Director Director Director Director Director Director

Facts and Figure of NSE

Distribution of SEBI registered Trading Member and PCMs on the Exchange (as on January 31, 2005) CM WDM CM & WDM Corporate /Institute 10 168 11 17 CM, WDM & F&D 46 CM & F&O 535 777 17 TOTAL PCMs

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Individual 17 Firms 17 Subsidiaries 7 of Regional Stock Exchanges Total 209

29 32 4

46 49 11

11

17

46

600

883

17

Distribution of SEBI registered sub-brokers affiliated to member of NSE (as on January 31, 2005)

A Momentary look of NSE

CAPITAL MARKET (EQUITIES) SEGMENT Number of VSATs February 28,2005 Number of cities covered February 28,2005 Settlement Guarantee Fund March 28, 2004 Investor Protection fund (CM and F &O) Number of securities available for trading Record number of Trades Record daily turnover (quantity) Record daily turnover (value) Record market capitalization Record value of S&P CNX Nifty Index Record value of CNX Nifty Junior Index Record Pay-in /pay-out (Rolling February 28,2005 February 28,2005 January 05,2005 January 05,2005 February 28,2001 March 08,2005 March 09,2005 February 23,2000 2,846 350 Rs.1,50.90 cr Rs.139.76 cr 1352 28,49,987 6,757 lakhs Rs. 10,366.52 cr Rs. 16,72,448 cr 2183.45 5365.90 11

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Settlement): Funds pay-in/pay-out Securities pay-in/pay-out (value) Securities pay-in/pay-out (Quantity)

*Settlement Date

February 05,2004* January 13, 2004* August 21,2003*

Rs. 685.76 cr Rs. 1884.09 cr 1470.14lakh s 315 Rs. 4,356.85cr Rs. 21,921.34 cr Rs. 21,921.34 cr 3045 Rs.13,911.5 7cr

DERIVATIVE (F&O) SEGMENT No. of cities covered Settlement Guarantee Fund Record daily turnover (value) WHOLESALE DEBT SEGMENT Number of securities available for trading Record daily turnover (value)

February 28,2005 March 31,2004 January 28,2004

February 28,2005 August 25, 2003

NSE Milestones
November 1992 April 1993 May 1993 June 1994 November 1994 March 1995 April 1995 June 1995 July 1995 October 1995 April 1996 April 1996 June 1996 November 1996 Incorporation Recognition as a stock exchange Formulation of business plan Wholesale Debt Market segment goes live Capital Market (Equities) segment goes live Establishment of Investor Grievance Cell Establishment of NSCCL, the first Clearing Corporation Introduction of centralised insurance cover for all trading members Establishment of Investor Protection Fund Became largest stock exchange in the country Commencement of clearing and settlement by NSCCL Launch of S&P CNX Nifty Establishment of Settlement Guarantee Fund Setting up of National Securities Depository Limited, first depository in India, co-promoted by NSE

12

NSE Operation November 1996 December 1996 December 1996 December 1996 February 1997 November 1997 May 1998 May 1998 July 1998 August 1998 February 1999 April 1999 October 1999 January 2000 February 2000 June 2000 September 2000 November 2000 December 2000 June 2001 July 2001 November 2001 December 2001 January 2002 May 2002 Best IT Usage award by Computer Society of India Commencement of trading/settlement in dematerialised securities Dataquest award for Top IT User Launch of CNX Nifty Junior Regional clearing facility goes live Best IT Usage award by Computer Society of India Promotion of joint venture, India Index Services & Products Limited (IISL) Launch of NSE's Web-site: www.nse.co.in Launch of NSE's Certification Programme in Financial Market CYBER CORPORATE OF THE YEAR 1998 award Launch of Automated Lending and Borrowing Mechanism CHIP Web Award by CHIP magazine Setting up of NSE.IT Launch of NSE Research Initiative Commencement of Internet Trading Commencement of Derivatives Trading (Index Futures) Launch of 'Zero Coupon Yield Curve' Launch ofBroker Plaza by Dotex International, a joint venture between NSE.IT Ltd. and i-flex Solutions Ltd. Commencement of WAP trading Commencement of trading in Index Options Commencement of trading in Options on Individual Securities Commencement of trading in Futures on Individual Securities Launch of NSE VaR for Government Securities Launch of Exchange Traded Funds (ETFs) NSE wins the Wharton-Infosys Business

13

NSE Operation Transformation Award in the Organizationwide Transformation category Launch of NSE Government Securities Index Commencement of trading in Retail Debt Market Launch of Interest Rate Futures Launch of Futures & options in CNXIT Index Launch of STP Interoperability Launch of NSEs electronic interface for listed companies Launch of Futures & options in

October 2002 January 2003 June 2003 August 2003 June 2004 August 2004 June 2005

OTHER REGIONAL STOCK EXCHANGE

There are another 23 well known regional stock exchange working in india with the similar objective. Sr. No 1 2 3 4 5 6 7 8 Name of stock exchange Bombay Ahmedabad Calcutta Madras Indore Hyderabad Delhi Bangalore Year of Establishment 1875 1894 1908 1908 1930 1943 1947 1957 14

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9 10 11 12 13 14 15 16 17 18 19 20 21 22

Cochi Kanpur Pune Ludhiana Gauhati Kanara Magadh Jaipur Bhuvaneshvar Sourashtra OTC exchange Vadodara Coimbatore National Stock Exchange

1978 1982 1982 1983 1983 1985 1986 1987 1989 1989 1989 1990 1991 1992

2.2 Derivative Market of NSE

Futures & Options
The National Stock Exchange of India Limited (NSE) commenced trading in derivatives with the launch of index futures on June 12, 2000. The futures contracts are based on the popular benchmark S&P CNX Nifty Index

The Exchange introduced trading in Index Options (also based on Nifty) on June 4, 2001. NSE also became the first exchange to launch trading in options on individual securities from July 2, 2001. Futures on individual securities were introduced on November 9, 2001. Futures and Options on individual securities are available on 116 securities stipulated by SEBI. The Exchange has also introduced trading in Futures and Options contracts based on the CNX-IT index from August 29,2003.

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The turnover in the derivatives segment has shown considerable growth in the last year, with NSE turnover accounting for 98% of the total turnover in the year 2001-2002. This section provides you with an insight into the derivatives segment of NSE. Real-time quotes and information regarding derivative products, trading systems & processes, clearing and settlement, risk management, statistics etc. are available here.

2.3 Equities Market of NSE

NSE started trading in the equities segment (Capital Market segment) on November 3, 1994 and within a short span of 1 year became the largest exchange in India in terms of volumes transacted.

Trading volumes in the equity segment have grown rapidly with average daily turnover increasing from Rs.17 crores during 1994-95 to Rs.4,328 crores during 2003-04. During the year 2003-04, NSE reported a turnover of Rs.1,099,535 crores in the equities segment accounting for 68.60% of the total Indian securities market.

The Equities section provides you with an insight into the equities segment of NSE and also provides real-time quotes and statistics of the equities market. In-depth information regarding listing of securities,

16

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trading systems & processes, clearing and settlement, risk management, trading statistics etc are available here.

2.4 Commodity Exchanges of NSE

Commodity exchanges may make their closing prices available publicly, although they are not required to do so. Trading on commodity exchanges is almost always done only on a large scale, and so is not available to smaller producers or investors. However, traders on commodity exchanges work closely with smaller businesses and can provide their services for a fee, giving these small businesses the opportunity to have their products traded globally.

In a significant development, National Stock Exchange of India Ltd. (NSE), countrys largest exchange and National Bank for Agriculture and 17

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Rural MCX.

Development

(NABARD),

countrys

premier

agriculture

development bank announced their strategic participation in the equity of

This new partnership of NSE and NABARD with MCX along with its existing share holders such as State Bank of India group (SBI along with its 7 subsidiary banks and SBI Life), Union Bank, Corporation Bank, Canara Bank, Bank of Baroda, Bank of India, HDFC Bank and Financial Technologies (India) Ltd. makes MCX consortium the largest distribution network across the country.

3. SEBI, BSE, & Commodity exchange

3.1 Securities and Exchange Board of India (SEBI)
The duty of the government is to control stock market operation through legislative and administrative measures for better and efficient working of the stock market. For this purpose the government of India has passed a bill in parliament on 4th April 1956 known as securities contracts (Regulation) Act, 1956. It was a landmark in Indian Securities Market.

Objective of SEBI
To regulate the securities market. To protect the interests of investors. To promote the development of securities market. 18

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Function of the SEBI

To register and regulate the working of stock broker. To register and regulate the working of bankers to an issue. To control and regulate securities market. To exercise and powers under Securities Contracts (Regulation) Act. To regulate the working of mutual funds. To control fraudulent and unfair trade practices relating to securities market. To regulate issue of securities. To prohibit insides trading in securities.

SEBI

BSE

NSE

Regional Stock Exchange

Derivative Market

Equity Market

Commodity Exchange

Main Broker Individual Client 19

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Corporate Partnership Sub-broker

Partnership

Proprietor

Corporate

SEBI Registration
Once admission is granted to an entity as a Stock broker (in NSE stock brokers are referred to as Trading Members), provisional offer letters are sent to the applicant.

In this offer letter, the requirements to be complied with by the trading member for forwarding their application to SEBI are listed, important among them being: 1. SEBI Application form along with DD of Rs. 5000/- favouring SEBI for Capital Market, Rs. 10,000/- for F&O trading only and Rs. 25,000/- for Trading cum Clearing/ Self clearing member on F&O segment. 20

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2. Audited Financial statements, Networth certificate, Details of Directors and shareholders, etc. 3. Memorandum or Articles of association or Partnership deed, as the case may be. As per the requirements of SEBI, every trading member of a recognised Stock Exchange has to mandatorily register itself with SEBI through the Stock Exchange which has admitted them as a Stock broker alongwith the recommendation of the Exchange. It must be noted that the applicant has to remit the prescribed membership deposits (as required by the demand advice attached to the provisional offer letter) before their application is forwarded to SEBI.

After satisfying itself as to compliance with respect to all the prescribed norms, SEBI shall grant a Registration Certificate in the name of the applicant. Upon receipt of the SEBI registration certificate, the applicant will need to comply with certain formalities in order to be enabled to trade on the National Exchange for Automated Trading (NEAT) system of the Exchange.

Formalities for Enablement

After obtaining SEBI Registration, payment of fees/deposits and submission of relevant documents, the Trading Member has to ensure that the following formalities have been complied with:

21

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1. For installation of VSAT the following has to be submitted: (they can also be submitted while giving documents for SEBI Registration)
o

Application for installation as per Annexure 3 of Circular No.163

o o

VSAT Undertaking duly notarised NOC from the owner of Premises where VSAT is going to be installed

Payment of Rs.2 lakhs favouring National Stock Exchange of India Limited payable at Mumbai towards Interest-free VSAT deposit

2. The member should also submit proof of :

o

Opening of Exchange Dues accounts, Client account and Own account Registration with Central Excise authorities

3.

Application for approval as user for 2 people as per specified format.

4. Trading Members are required to submit a Broker based specified by SEBI. One soft copy and two hard copies of the same are to be submitted to the Exchange. 5. Trading Members have to submit the following duly certified by the statutory auditor: 22

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o o o o o

Audited accounts Networth certificate as per Annexure C-1 Details of Directors as per Annexure C-3 Details of shareholding as per Annexure C-6 Details of dominant promoter group as per Annexure C-7

6. Submission of Trading Membership Undertaking After satisfying that all the formalities and requirements are complied with regard to the Exchange, the Trading Member is enabled to trade on the system and issued user ids.

3.2 Bombay Stock Exchange (BSE)

The Stock Exchange, Mumbai, popularly known as BSE was established in 1875 as The Native Share and Stock Broker Association. It is the oldest one in Asia, it is the first Stock Exchange in the Country to have obtained permanent recognition in 1956 from the Govt. of India under securities Contracts Act, 1956. The Exchange, while providing an efficient and transparent market for trading in securities, debt and derivatives upholds of the investors and mare sure right of their objection whether against the companies or its own member-brokers. It also struggles to education and marking available to them necessary informative inputs. 23

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A Governing Board having 20 directors is the apex body, which decides the policies and regulates the affairs of the exchange. The Governing Board consists of 9 elected directors, who are from the broking community (one third of them retire ever year by rotation), three SEBI nominees, six public representatives and an Executive Director & Chief Executive office and a Chief operating officer. The Executive Director as the Chief Executive officer is responsible for the day-to-day administration of the Exchange and the Chief Operating officer and other heads of department assist him.

3.3 Commodity Exchange

MCX is an ISO 9001:2000 online nationwide demutualised multi commodity exchange. It has over 900+ members spread across 500+ centers across the country, with more than 750+ VSATs and leased line connections and 5,000+ trading terminals that provides a transparent robust and trustworthy trading platform in more than 50 commodity futures contract with a wide range of commodity baskets which includes metals, energy and agriculture commodities. Exchange has pioneered major innovations in Indian commodities market, which has become the industry benchmarks subsequently. MCX is the only Exchange which has got three international tie-ups which is with Tokyo Commodity Exchange (TOCOM), the 250 year old Baltic Freight Exchange, London, Dubai Metals & Commodity Centre (DMCC) & Dubai Gold & Commodity 24

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Exchange (DGCX), the strategic initiative of Government of Dubai. MCX has to its credit setting up of the National spot exchange (NSEAP), which connects all India APMC markets thereby contributing in the implementation of Government of Indias vision to create a common Indian market.

4. Trading Membership
4.1 Introduction:A broker is an intermediary who arranges to buy and sell securities o behalf of clients (the buyer and the seller). According to Rule 2(e) of SEBI (Stock Brokers and Sub-Brokers) Rules, 1992, a stockbroker means a member of a recognized stock exchange. No stockbroker is allowed to buy, sell or deal in securities, unless he or she holds a certificate of registration granted by SEBI. A stockbroker applies for registration to SEBI through a stock exchange or stock exchanges of which he or she is admitted as a member.SEBI may 25

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grant a certificate to a stock-broker [as per SEBI(Stock Brokers and SubBrokers) Rules, 1992] subject to the conditions that: a) He holds the membership of any stock exchange; b) He shall abide by the rules, regulations and bye-laws of the stock exchange or stock exchanges of which he is a member; c) In case of any change in the status and constitution, he shall obtain prior permission of SEBI to continue to buy, sell or deal in securities in any stock exchange; d) He shall pay the amount of fees for registration in the prescribed manner; and e) He shall take adequate steps for redressal of grievances of the investors within one month of the date of the receipt of the complaint and keep SEBI informed about the number, nature and other particulars of the complaint. While considering the application of an entity for grant of registration as a stockbroker, SEBI shall take into account the following namely, whether the stockbroker applicanta) is eligible to be admitted as a member of a stock exchange; b) has the necessary infrastructure like adequate office space, equipment and manpower to effectively discharge his activities; c) has any past experience in the business of buying, selling or dealing in securities; d) Is being subjected to any disciplinary proceedings under the rules, regulations and bye-laws of a stock exchange with respect to his business as a stock-broker involving either himself or any of his partners, directors or employees. 26

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4.2 Membership in NSE

There are entry/exit barriers to the membership in NSE. Anybody can become member by complying with the prescribed eligibility criteria and exit by surrendering membership without any hidden/overt cost. The members are admitted to the different segments of the Exchange subject to the provisions of the Securities Contracts(Regulation) Act,1956, the Securities and Exchange Board of India Act,1992,the Rules, circulars, notifications, guidelines,etc.,issued there under and the Bye laws, Rules and Regulations of the Exchange.

4.3 Benefits to the trading membership of NSE include:

1. access to a nation-wide trading facility for equities, derivatives, debt and hybrid instruments / products, 2. ability to provide a fair, efficient and transparent securities market to the investors 3. use of state-of-the-art electronic trading systems and technology, 4. dealing with an organization which follows strict standards for trading & settlement at per with those available at the top international bourses,

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5. a

demutualised

Exchange

which

is

managed

by

independent and experienced professionals, and 6. Dealing with an organisationwhich is constantly striving to move towards a global marketplace in the securities industry.

4.4 New Membership

Membership of NSE is open to all persons desirous of becoming trading members, subject to meeting requirements/ criteria as laid down by SEBI and the Exchange. The different segments currently available on the Exchange for trading are: Capital Market (Equities and Retail Debt) Wholesale Debt Market Derivatives (Futures and Options) Market Admission to membership of the Exchange to any of the segments is currently open and available. Persons or Intuitions desirous of securing admission as Trading Members (Stock Brokers) on the Exchange may apply for any one of the following segment groups: I. Wholesale Debt Market (WDM) segments II. Capital Market (CM) and Wholesale Debt Market(WDM) segments III. Capital Market (CM) and Futures & Options (F&O) segments IV. Capital Market (CM), Wholesale Debt Market (WDM) and Futures & Options(F&O) segments 28

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V. Clearing Membership of National Securities Clearing Corporation Ltd.(NSCCL) as a Professional Clearing Member(PCM)

4.5 Eligibility for acquiring membership of NSE is as follows:

1) The following persons are eligible to become trading members: a) Individuals b) Partnership firms registered under the Indian Partnership Act, 1932 Individual and Partnership firm are not eligible to apply for membership on WDM segment. c) Institutions, including subsidiaries of banks engaged in financial services. d) Body Corporates including companies as defined in the Companies Act, 1956. A company shall be eligible to be admitted as a member if: i. ii. Such company is formed in compliance with the provisions of Section 12 of the said Act; Such company undertakes to comply with such financial requirements and norms as may be specified by the Securities and Exchange Board of India for the registration of such company; iii. The directors of such company are not disqualified for being members of a stock exchange and have not held the offices of the Directors in any company which had been a member of the stock exchange and had been declared defaulter or expelled by the stock exchange; and

29

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e) Such other persons or entities as may be permitted from time to time by RBI / SEBI under the Securities Contracts (Regulations) Rules, 1957. i. it is a body corporate which has committed any act which renders it liable to be wound up under the provisions of the law; ii. it is a body corporate or a company in respect of which a provisional liquidator or receiver or official liquidator has been appointed by a competent court;

4.6 Education and Experience

Where an applicant is a corporate, not less than two directors of the company (in case of a sole proprietorship, individual and in case of a partnership firm, two partners) should satisfy the following criteria:

They should be at least graduates and each of them should posses at least two years experience in an activity related to broker, sub-broker, authorized agent or authorized clerk or authorized representative or remisier or apprentice to a member of a recognized stock exchange. Such experience will include working as a dealer, jobber, market maker, or in any other manner in the dealing in securities or clearing and settlement thereof, as portfolio manager or merchant bankers or as a researcher with any individual or organization operating in the securities market.

4.7 Shareholding Pattern: 30

NSE Operation

Securities markets have the inherent tendency to be volatile and risky. Therefore, there should be adequate risk containment mechanisms in place for the Stock Exchanges. Once such risk containment tool is the concept of Dominant Promoter / Shareholder Group which is very unique for applicants acquiring membership on the NSE. Though membership on NSE is granted to the entity applying for it, but for all practical purposes the entity is managed by a few shareholders who have controlling interest in the company. The shareholders holding the majority of shares have a dominant role in the affairs of the company. In case of any default by the broking entity, the Exchange should be able to identify and take action against the persons who are behind the company. The Exchange, therefore, needs to know the background, financial soundness and integrity of these shareholders holding such controlling interest. Hence, during the admission process the dominant shareholders are called for an interview with the Membership Approval Committee.

4.8 Eligibility Criteria for Membership

Particulars
Constitution Paid-up capital Net Worth Interest Free Security Deposit (IFSD) Collateral Security Deposit (CSD)

WDM Segment
Corporates/ Institutions Rs.30 lakh Rs. 200 lakh Rs. 150 lakh

CM and F&O CM and CM,WDM Segments WDM and F&O Segments Segments
Individuals/ Firms/ Corporates Rs.30 lakh Rs. 100 lakh* Rs.125 lakh Corporates/ Institutions Rs.30 lakh Rs. 200 lakh Rs. 250 lakh Corporates/ Institutions Rs.30 lakh Rs. 200 lakh* Rs. 275 lakh

RS. 25 lakh

Rs. 25 lakh

Rs. 25 lakh

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NSE Operation

Annual Subscription Education

Rs.1 lakh At least two directors should be graduates.

Rs. 1 lakh Proprietor/two partners/two directors should be graduates Dealers should also have passed SEBI approved certification test for derivatives and NCFM Capital Market (Basic or Dealers) Module.

Rs. 2 lakh At least two directors should be graduates. Dealers should also have passed NCFM Capital Market (Basic or Dealers) Module.

Rs. 2 lakh At least two directors should be graduates. Dealers should also have passed SEBI approved certification test for derivatives and NCFM Capital Market (Basic or Dealers) Module. in securities

Experience Track Record

------------------Two years experience market------------The Applicant/ Partners/Directors should not be defaulters on any stock exchange. They must not be debarred by SEBI for being associated with capital market as intermediaries. They must be engaged solely in the business of securities and must not be engaged in any fund-based activity.

4.9 Eligibility Criteria for Professional Clearing Member of NSCCL

Applications seeking admission as Professional Clearing Members on the Futures7 Options and / or Capital Market Segments of NSCCL would be required to meet the capital adequacy norms including additional deposits and fees as given below: Sr. No. 1 Particulars Interest Free Cash Security Deposit with Clearing Membership of segments F &O CM CM and F&O 25 25 34

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NSCCL 2 Collateral 25 25 50 Security Deposit with NSCCL* 3 Advance 2.5 2.5 Annual Subscription 4 Net Worth 300 300 300 Requirement 5 Formula / As per Dr. L C As As per Dr. L C Methodology Gupta prescribed Gupta applicable Committee by NSE for Committee for recommendation trading recommendation calculation of members net worth * Collect Security Deposit with .NSCCL can be by way of cash or bank guarantees or fixed deposits or select demat securities with appropriate hair cuts.

4.10 Admission Procedure

Applicants are required to submit application form, in the prescribed format, along with other relevant documents. Admission is a two-stage process with applicants requiring to go through an examination (a module of NCFM) followed by an interview with the Membership Approval Committee (MAC). The examination is conducted so as to test the knowledge of the people associated with the Exchange on different aspects of the capital/ financial markets in India, as it would ensure the conduct of fair, professional and sound dealing practices. MAC consists of seven persons from various disciplines, including the Managing 33

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Director of the Exchange. The MAC conducts interviews with the applicants for trading membership. The purpose of the interview is to gain knowledge about the prospects as to their capability and commitment to carry on stock broking activities, financial standing, integrity, etc.

4.11 Brokerage and other charges

As stipulated by SEBI, the maximum brokerage that can be charges id 2.5% of the trade value. The maximum brokerage is inclusive of the brokerage charged by the sub-broker

- service tax @ 10.20% of the brokerage. - Transaction charge levied by NSE - STAM charge 0.05 - Transaction Turnover tax-delivery buys 0.075 and sell trading sell 0.015% cash sell 0.01% derivative. The brokerage and service tax is indiacted separately in the contract note.

4.12 Authorized persons

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Trading members of the Exchange may appoint authorised persons who are individuals, registered partnership firms, bodies corporate or companies as defined under the Companies Act, 1956 in the Capital Market (CM) segment or Futures & Options (F&O) segment or in both CM and F&O segments. The trading member shall issue the contract notes and/ or bills directly to the client i.e. the authorised person shall not issue contract notes, confirmation memo and/ or bills in their name. The clients introduced by the authorised person would be required to deliver securities and make payments directly in the trade name of the trading member (as appearing on the SEBI registration certificate).

5. Sub-Brokers
A Sub-broker is a person who intermediates between investors and stock brokers. He acts on behalf of a stock-broker as as agent of otherwise for assisting the investors for bying, selling or dealing in securities through such stock-broker. No sub-broker is allowed to buy, sell or deal in securities, unless he or she holds a certificate of registration granted by SEBI. A sub-broker may take the form of a sole proprietorship; a partnership firm or a company. Stockbrokers of the recognized stock exchanges are permitted to transact with sub-brokers. 35

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SEBI may grant a certificate to a sub-broker, subject to the conditions that:a) b) He shall pay the fees in the prescribed manner; He shall take adequate steps for redressal of grievances of the investors within one month of the date of the receipt of the complaint and keep SEBI informed about the number, nature and other particulars of the complaints received; c) d) e) f) g) The applicant is not less than 21 years of ago; The applicant has not been convicted of any offence involving fraud or dishonesty; The applicant has at least passed 12 Th standard equivalents from an institution recognized by the Government. They should not have been debarred by SEBI. The corporate entities applying for sub-broker ship shall have a minimum paid up capital of Rs. 5 lakh and it shall identify a dominant shareholder who holds a minimum of 51% shares either singly or with the unconditional support of his/ her spouse.

The sub-broker of a TM Exchange has to comply with all the requirements under SEBI (Stock brokers and sub-brokers) Regulations, 1992 and the requirements of the Exchange as may be laid down from time to time. The sub-broker is bound by and amenable to the Rules, Byelaws and Regulations of the Exchange. The sub-broker shall also comply with all terms and conditions of the agreement entered into by him with the TM.

5.1 Sub-brokers Membership

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Trading members desirous of appointing sub-brokers are required to submit the following documents to the Membership Department of the Exchange:

Copy of sub-broker - broker agreement duly certified by the trading members

Application form for registration as a sub-broker with Securities and Exchange Board of India (Form B)

Recommendation letter to be given by the trading member with whom the sub-broker is affiliated (Form C)

The detailed scheme relating to the registration of sub-brokers is provided in the following circulars:: Circular No Download No. Date 60 NSE/MEM/275 12-Jun-1997 63 NSE/MEM/282 25-Jun-1997 69 NSE/MEM/311 23-Jul-1997 379 NSE/MEMB/4684 26-Dec-2003 418 NSE/MEMB/5411 08-Sep-2004 The trading member concerned shall be responsible to ensure the settlement of all deals entered into by trading member even though the orders in respect of the deals may have originated from its sub-broker. The TM with whom the sub-broker is affiliated is responsible for1) Ensuring the compliance by a sub-broker of the Rules, Bye-Laws and Regulations of the Exchange 2) Inspecting that the sub-broker are registered and recognized

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3) Ensuring that the sub-brokers function in accordance with the Scheme, Rules, Byelaws, Regulations etc. of the Exchange / NSCCL and the SEBI Regulations etc. 4) Informing the sub-broker and keeping him apprised trading / settlement cycles, delivery / payments schedules and any changes therein from time to time. 5) Reporting any default or delay in carrying out obligations by any of the sub-brokers affiliated to him, to all other stock brokers with whom the said sub-broker is affiliated.

5.2 Broker-Clients Relations

Know your client The TM shall enter into an agreement in the specified format provided by NSE with the client before accepting orders on latters behalf. The said agreement shall be executed on non-judicial stamp paper of adequate value, duly signed by both the parties on all the pages. Copy of the said agreement is to be kept with the TM permanently.

Unique Client Code SEBI made it mandatory for all brokers to use unique client codes for all clients. Brokers shall collect and maintain in their back office the Permanent Account Number (PAN) allotted by Income Tax Departments for all their clients. Sub-brokers will similarly maintain the same for their clients. Where an individual client does not have PAN, such a client shall be required to give a declaration to that effect and until the PAN is 38

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allotted, such client shall furnish passport number and place and date of issue. Margins from the Clients It shall be mandatory for the TM to collect upfront margins from clients whose trades would result in a margin of Rs. 50,000/- or more. The margin so collected shall be kept separately in the client bank account and utilized for making payment to the clearing house for margin and settlement with respect to that client. Execution of Orders The TM shall ensure that appropriate confirmed order instructions are obtained from the clients before placement of an order on the system. In order to execute a trade for a client, a broker must have specific customer instructions as to name of the company, the precise number of shares and limit / market price condition. Accumulation of Orders The TM shall not accumulate clients order / unexecuted balances of order where such aggregate orders/ aggregate of unexecuted balance if grater than the regular lot size, specified for that security by the Exchange.

Contract Note Contract note is a confirmation of trade(s) done on a particular day for and on behalf of a client. A stock-broker shall issue a contract not to his clients for trades (purchase / sale of securities) executed with all relevant details as required therein to be filled in (refer to SEBI circular no. SMD/SED/CIR/23321 dated November 18, 1993). A contract note shall

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be issued to a client within 24 hours of the execution of the contract duly signed by the TM or his Authorised Signatory or Client Attorney. Payments / Delivery of Securities to the Clients Every TM shall make payments to his clients or deliver the securities purchased within 2 working days of pay-out unless the client has requested otherwise (refer to SEBI circular no. SMD/SED/CIR/23320 dated November 18, 1993). Segregation of Bank Accounts The TM should maintain separate bank accounts for clients funds and own funds. It shall be compulsory for all TMs to keep the money of the clients in a separate account and their own money in a separate account. Funds shall be transferred from the client account to the clearing account for the purpose of funds pay-in obligations on behalf of the clients and vice- versa in case of funds pay-out.

Know Your Client The sub-broker shall enter into an agreement with the client before placing orders. Such agreement shall include provisions specified by the

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exchange in this behalf. The said agreement shall be executed on nonjudicial stamp paper. Orders The sub-broker shall ensure that appropriate confirmed order instructions are obtained from the clients before placement of an order on the system and shall keep relevant records or documents of the same and of the completion or otherwise of these orders thereof. Payments / Delivery of Securities The sub-broker shall make payments to his clients to his clients or deliver the securities purchased within 48 hours of pay-out unless the client has requested otherwise. Sub-brokerage The sub-broker shall charge his brokerage at rates not exceeding the rate prescribed by SEBI i.e., 1.5%. The brokerage charged by the TM and the sub-broker shall be indicated separately from the clients and shall be indicated separately from the price, in the purchase / sale note.

5.3 Code of Advertisement

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Trading Members of the Exchange while issuing advertisements in the media have to comply with the Code of Advertisement prescribed by the Exchange. 1. The trading member should designate and authorise a person to ensure the correctness of the information given in any advertisement. 2. The trading member issuing any such advertisement should inform the name of such authorised person to the Exchange. 3. The advertisement should be written in clear language and should not be such which may prejudice interest of the investors in general. 4. The advertisement should not contain any confusing, misleading or offensive information. 5. It should be free from inaccuracies. 6. The material should not contain anything which is otherwise prohibited. 7. The copy of such advertisement should be retained for a period of three years. 8. These norms will apply to any other investment / consultancy agencies associated with the trading member concerned. 9. The above norms shall also apply to an advertisement, T.V. or Cable T.V. or any other such media of audio / visual nature. 10.The trading members should check with the Exchange in case of any doubt for advice prior to the issue of any such material or advertisement.

6. NSE Trading
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6.1 Introduction
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 online 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. It also provides a perfect audit trial, 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. Today India can boast that almost 100% trading take place through electronic order matching.

Promoters:
- IDBI - LIC - SBI & SBI Capital Market Limited - ICICI - GIC & Its Subsidiaries

6.2 Trading Network

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1- the trading network is depicted in figure. NSE has main computer which is connected through Very Small Aperture Teminal (VSAT) installed at its office. 2- The main computer runs on a fault tolerant STRATUS mainframe computer at the exchange. 3- Brokers have terminal installed at their premises which are connected through VSAT/leased lines / modems. 4- An investor informs a broker to place an order on his behalf. The broker enters the order through his PC, which runs WindowsNT and sends singal to the satellite via VSAT/leased line/modem. The singal is directed to mainframe computer at NSE via VSAT at NSE office. 5- 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. 6- This order match with the existing passive order, otherwise it waits for the active order to enter the system. On order matching a message is broadcast to the respective member.

6.3 Trading System

NSE operation on the National Exchange for Automated Trading (NEAT) system, a fully automated screen based trading system, which adopts the principle of an order driven market. This has help reduce jobbing spreads not only on NSE but in other exchange as well, thus reducing transaction cost. 1. 2. 3. 4. Market Type Order Book Order Matching Rules Order Conditions

NEAT System :44

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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 India Rupes. The regular lot size and tick size for various securities traded is notified by the Exchange from time to time.

Trading System - Market Types:The capital Market system has four types of market. Normal Market Normal market consists of various book types wherein orders are segregated as Regular Lot Orders, Special Term Orders, Negotiated Trade Orders and Stop Loss Orders depending on their order attributes.

Odd Lot Market

The odd lot market facility is used for the Limited Physical Market. The main features of the Limited Physical Market are detailed in a separate section.

RETDEBT Market
The RETDEBT market facility on the NEAT system of capital market segment is used for transactions in Retail Debt Market session. Trading in Retail Detail Market takes place in the same manner a in equities (capital market) segment.

Auction Market
In the Auction market, auctions are initiated by the Exchange on behalf of trading members for settlement related reasons. The main features of this market are detailed in a separate section on auction.

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Trading System Order Books

The NSE trading system provides complete flexibility to members in the kinds of order that can be placed by them. Every order has a distinctive order number and a unique time stamp on it. If a match is not found, then the orders are stored in different books. Order are stored in price-time priority in various books in the following sequence. - Best Price - Within Price by time priority. Price priority means that if two order are entered into the system, the order having the best gets the higher priority. Time priority means if two order having the same price are entered, the order that is entered first get the higher priority. The equities segment has following types of books: Regular Lot BookThe Regular Lot Book contains all regular lot order that have nine of the following attributes attached to them. - All or Non (AON) - Minimum Fill (MF) - Stop Loss (SL) 46

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Special Terms Book The Special Terms book contains all orders that have either of the following terms attached: - All or Non (AON) - Minimum Fill (MF) Note: Currently, special term order i.e. AON and MF are not available on the system as per the SEBI directives. Negotiated Trade Book The Negotiated Trade Book contains all negotiated order entries captured by the system before they have been matched against their counterparty trade entries. These entries are matched with identical counterparty entries only. Stop-loss Book Stop Loss orders are stored in the book till the trigger price specified in the order is reached or surpassed. When the trigger price is reached or surpassed, the order is released in the regular lot book. Odd Lot Book The Odd Lot Book contains all odd lot orders (order with quantity less than marketable lot) in the system. The system attempts to match an active odd lot order against passive order in the book. 47

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Currently, pursuant to a SEBI directive, the odd lot market is being used for order that have quantity less than or equal to 500 viz. The limited physical market. Spot Book The Spot lot book contains all spot order (order having only the settlement priority different) in the system. Currently the spot market book type is not in use. Auction Book This book contains that are entered for all auctions. The matching process for auction order in this book is initiated only end of the solicitor period.

Trading System Order Matching Rules

The best buy order is matched with the best sell order. An order may match partially with another order resulting in multiple trade. The best buy order is the order with the higher price and the best sell order is the order with the lowest price. This is because the system views all buy order available from the point of view of a saller and all sell order from the point of view of the buyer in the market.

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Member can proactively enter order in the system, which will be displyed in the system till the full quantity is matched by one or more of counterorder and result into trade or is cancelled by the member. Order lying unmatched in the system are passive order and order that come in to match the existing order are called active orders. Orders are always matched at the passive order price.

Trading System Order Conditions

A trading member can enter various type of order depending upon his/her requirements. These conditions are broadly are classified into three categories: - Time conditions - Price condition - Quantity conditions.

Time condition
Day- A Day orders, as the name suggests, is an order that is valid for the day on which it is entered. If the order is not matched during the day, the order gets cancelled automatically at the end of the trading day. GTC- A Good Till Cancelled (GTC) order is an order that remains in the system until it is cancelled by the trading Member. The maximum number of days a GTC order can remain in the system is notified by the exchange from time to time. 49

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GTD- A Good Till Day/Date (GTD) order allows the trading member to specify the days / date up to which the oredr should stay in the system. At the end of this period the order will get flushed from the system. Each day/date counted is a calendar day and inclusive of holidays. The days/date counted is inclusive of the day/date on which the order is placed. The maximum number of the days a GTD order can remain in the system is notified by the exchange from time to tome. IOC- An Immediate or Cancel (IOC) order allows a trading member to buy or sell a security as soon as the order is released into the market, failing which the order will be removed from the market. Partial match is possible for the order, and the unmatched portion of the order is cancelled immediately.

Price ConditionsLimit Price/order- An order that allows the price to be specified while entering the order into the system. Market Price/Order- An order to buy or sell securities at the beat price obtainable at the time of entering the order. Stop Loss (SL) Price/order- The one that allows the trading member to placed an order which get activated only when the market price of the relevant securities crosses a threshold price. Until the order does not enter the market.

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Quantity Conditions
Disclosed Quantity (DQ)- An order with a DQ condition allows the trading member to disclose only a part of the order quantity to the market. Minimum Fill (MF)- An order allows the trading member to specify the minimum quantity by which an order should be filled.

6.4 Corporate Hierarchy

The trading member has the facility of defining a hierarchy amongst its users of the NEAT system. This hierarchy comprises: Corporate Manager: - The corporate manager is a term assigned to a user placed at the highest level in a trading firm. Such a user receives the End of Day reports for all branches of the trading member. The facility to set Branch Order Value Limits and User Order Value Limits is available to the corporate manager. Branch Manager: - The branch manager is a term assigned to a user who is placed under the corporate manager. The branch manager receives End of Day reports for all the dealers under that branch. Dealer: - Dealers are user at the lower most level of the hierarchy. A dealer can view and perform order and trade related activities only for oneself and does not have access to information on other dealers under either the same branch or other branches.

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6.5 Local Database

The Local Database provides faster response time to users. All inquiries made by a user for own orders / trades re serviced through the local database. If however, a corporate manager / branch manager makes inquiries for orders of any dealer / branch manager of the trading firm, and then the inquiry is serviced by the host.

6.6 Trade Management

A trade is an activity in which a buy and a sell order match with each other. Matching of two orders is done automatically by the system. Whenever a trade takes place, the system sends a trade confirmation message to each of the users involved in the trade. The trade confirmation slip gets printed at the trader workstation of the user with a unique trade number. The system also broadcasts a message to the entire market through the ticker window displaying the details of the trade. Trade Modification:The user can use trade modification facility to request for modifying trades done during the day. The user can request the Exchange to modify only the trade quantity field. Moreover, the new quantity requested must be lower than the original trade quantity. If the user is a corporate Manager of a trading member firm, he can request for trade modification for the trades of the trading members firm and if he is a Branch Manager of a branch, then he can request for trade modification for any dealer of the trading member firm. 52

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Trade Cancellation :The user can use trade cancellation screen for canceling trades done during the day. If the user is a corporate manager of a trading member firm , he can request for trade cancellation for the trades o any dealer of the trading members firm and if he is a branch manager of a branch, then he can request for trade cancellation for the trades for any dealer of the branch of the trading member firm.

6.7 Transaction Cycle

A person holding assets (securities / funds), either to meet his liquidity needs or to reshuffle his holding in response to changes in his perception about risk and return of the assets, decides to buy or sell the securities. He finds out the right broker and instructs him to place buy/sell order on an exchange. The order is converted to a trade as soon as it funds a matching sell/buy order.

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Decision Decisionto to Trades Trades

Placing Placing Order Order

Funds/ Funds/ Securities Securities

Trade Trade Execution Execution

Settlementof of Settlement Trade Trade

Clearing Clearingof of Trade Trade

(Transaction Cycle)
Trade Recording:
The key details about the trades are recorded to provide basis for settlement. These details are automatically recorded in the electronic trading system of the exchange.

Trade Confirmation:
The counterparties to trade agree upon the terms of trade like security, quantity, price, and settlement date, but not the counter-party, which is the NSCCL.

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Determination of obligation:
The next step is determination of what counter-patties owe, and what counter-patties are due to receive on the settlement date. The NSCCL interposes itself as accentual counter-party between the counterparties to trades and nets the position so that a members has security wise net obligation to receive or deliver a security and has to either pay or receive funds.

Pay-in of Funds and Securities:

The member bring in their funds/securities to the NSCCL. They make available required securities in designated accounts with the depositories by the prescribed pay-in time. The depositories move the security available in the accounts of member to the account of the NSCCL. The bank process these instructions, debit accounts of members and credit accounts of the NSCCL.

Pay-out Funds and Securities:

After processing shortage of funds/securities and arranging for movement of funds from surplus banks to deficit banks through RBI clearing, the NSCCL sends electronic instructions to the depositories / clearing banks to release pay-out of securities / funds. The depositors and clearing banks debit accounts of the NSCCL and credit accounts of members.

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Risk Management:
A sound risk management systems is integral to an efficient Settlement system. The NSCCL ensures that trading members obligations are Commensurate with their net worth. It has put in place a comprehensive risk management system, which is constantly monitored and upgraded to pre-empt market failures.

6.8 Clearing & Settlement

NSCCL carries out and settlement functions as per the settlement cycle of different sub-segments in the equities segment. NSCCL has also devised mechanism to handle various exceptional situations like security shortages, bad delivery, company objections, auction settlement etc.

Clearing
Clearing is the process of determination of obligation, after which the obligations are discharged by settlement. NSCCL has two categories of clearing members: trading members and custodians. The trading member can pass on its obligation to the custodians confirms the same to NSCCL. All the trades whose obligation the trading member proposes to pass on to the custodian are forwarded to the custodian by NSCCL for their confirmation. The custodian is required to confirm these on t+1 days basis. 56

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Accordingly, a clearing member would have either pay-in or pay-out obligations for funds and securities separately. Thus, member pay-in and pay-out obligation for funds and securities are determined latest by t + 1 day and are forwared to them so that they can settle their obligation on the settlement day (t+2).

Cleared and non-cleared deals

NSCCL carries out the clearing and settlement of trades executed in the following sub-segment of the equities segment. 1. all trades executed in the book entry / rolling segment. 2. All trade executed in the limited physical market segment.

Clearing Merchant
Trades in rolling segment are cleared and settled on a netted basis. Trading and settlement periods are specified by the exchange / clearing corporation from time to time. Deals executed during a particular trading period are netted at the end of that trading period and settlement obligation for that settlement period are computed. A multilateral netting procedure is adopted the net settlement obligations.

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Funds settlement
Fund shortage Member required ensuring that adequate fund are available in the clearing account towards all obligation, on the scheduled date and time. In all cases of funds shortages, NSCCL may initiate various actions including with drawing the trading facilities of the member, with holding the securities pay-out dye to the member, reduction in permissible gross exposure limits, requiring the member to make advance pay-in, etc. Once the member brings in the required fund to fulfill his shortage, the member may be permitted to trade with reduced exposure limits as per the slabs mentioned below: Cumulative Fund Shortage (Rs.) 2-5 lakhs > 5 lakhs Exposure limit allowed (% of current exposure limit) 80% 60%

If the cumulative fund shortage for the next 10 settlements is less that Rs. 2 lakhs, the exposure limits may be restored. Apart from the above, the member will be required to pay a penal charge at the rate of 0.09% per day computed on the amount outstanding at the end of the day, till the amount is recovered. Further, for every case of non-fulfillment of fund pay-in obligations, penalty points are levied on members.

Settlement Cycle
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At the end of each trading day, concluded or locked-in trades are received from NSE by NSCCL. NSCCL determines the cumulative obligations of each member and electronically transfers the date to Clearing Members (CMs). Settlement id deemed to be complete upon declaration and release of payout of fund and securities. On the securities pay-in day, delivering member are required to bring in securities to NSCCL. On pay-out day the securities are delivered to the respective receiving members. Exceptions may arise because of short delivery of securities by CMs, bad deliveries or company objection on the pay-out day.

Auctions
Each CM would communicate to NSCCL on the pay-in day the securities that the CM would be delivering and those that the CM is unable to deliver. NSCCL identified short deliveries and conducts a buying-in auction on the day after the pay-out day through the NSE trading system.

Rolling Settlement
In a rolling settlement, each trading day is considered as a trading period and trades executed during the day are setteled based on the net obligation for the day. At NSE, trades in rolling settlement are day settled on a t+2 bases i.e. on the 2nd working day. For arriving at the settlement day all intervening holidays, which include bank holidays, NSE holidays, Saturday and Sunday are excluded. Typically trades taking place on Monday are settled on Wednesday, Tuesdays trades settled on Thursday and so on. 59

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A table representation of the settlement cycle for rolling settlement is given below:

SETTELEMENT CYCLE
Activity Trading Clearing Rolling settlement trading Custodial confirmation Delivery generation Settlement Securities and fund pay in Securities and fund pay out Valuation Post settlement Bad delivery reporting Auction settlement T+4 working day T+5 working day Auction Day T T+1 working day T+1 working day T+2 working day T+2 working day T+2 working day T+3 working day

Rectified bad delivery pay in and pay T+6 working day out Re-dab delivery reporting and pickup T+8 working day

Close out of re-bad delivery and fund T+9 working day pay in & pay out

Salient features of settlement

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Delivery of shares in street name and market delivery (client holding physical shares purchased from the secondary market) is treated as bad delivery. The shares standing in the name of individual / HUF only would constitute good delivery. The selling / delivery member must necessary be the introducing member. Any delivery in excess of 50 shares is market as short and such deliveries are compulsory closed-out. Shortage, if any, are compulsory closed-out at 20% over the actual traded price. Uncertified bad delivery and re-bad delivery are compulsory closed-out at 20% over the actual traded price. The buyer must compulsory send the securities for transfer and dematerialization, latest within 3 months from the date of pay-out.

NSE 61

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1 Depositories 8 6 NSCCL 9 7 Clearing Bank

2 10 5 CMs

3 Custodians /

11

Settlement Process in CM segment of NSE Explanation 1) Trade details from exchange to NSCCL (real time and end of day trade file) 2) NSCCL notified the consummated trade details to CMS/custodians who affirm back. Based on the affirmation, NCSSL applies multilateral netting and determines obligation. 3) Download of obligation and pay-in advice of fund / securities. 4) Instruction to clearing bank to mark fund available by pay-in time. 5) Instruction to depository to make securities available by pay-in time. 6) Pay-in of securities (NSCCL advises depository to debit pool account of custodians / CMS and credit its account and depository does it). 7) Pay-in of fund (NSCCL advise clearing bank to debit account of custodians / CMS and credit its account and clearing bank does it).

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8) Pay-out of securities ( NSCCL advise depository to credit pool account of custodians / CMS and debit its account and depository does it). 9) Pay-out of fund ( NSCCL advise clearing bank to credit account of custodians / CMS and debit its account and clearing bank does it). 10) 11) Depository informs custodians / CMS through DPS. Clearing bank inform custodians / CMs.

Auction of share
The securities are put-up for auction by the exchange on account of nondelivers of securities by the selling trading member to ensure that the buying trading member receives the securities due to him. The nondeliver by the trading member could arise on account of short delivery. The exchange purchase the requires quantity in the auction market and gives them to the buying trading member. Securities not delivered on auction pay-in day. So, directly squared off at a price specified by the exchange. The transaction is squared up at the higher price on the NSE from the day or at 20% about the last available trading price on the NSE, whichever is higher.

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AUCTION CYCLE
Post Settlement Auction Bad Delivery Reporting Auction settlement T+3 working day T+4 working day T+5 working day

Rectified bad delivery pay-in and T+6 working day pay-out Re-bad delivery reporting and T+8 working day pickup

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7. Findings & Suggestions

FINDINGS
I found that SGSSL have only NSE trading registration, but they are providing BSE trading facility for his client. From the study, I am having an excellent experience of professionalization only because of SGSSL. As SGSSL is a very reputed and having a few year of experience in capital market, its professional approach help me a lot. From the training I am fully aware about the client registrations and back office operation held in the surat branch. This training has proving me a lot of confidence for dealing in secondary market. Here I am aware about the clients strategy for dealing in equity market. I was observed that within my training time the all staff member gave me lot of support for my study, I have obtained an on line trading experience. I have observed in the two month training that SGSSL is having a well experience and qualified staff member who cares a lot of their client. 65

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SUGGESTIONS
SGSSL has improve its marketing strategy for brand awareness. The company has to improve his client relation. Surat is one the most growth potential city in our state. At the same time the situation of cutthroat competition is also arisen in this city. SGSSL has to grow rapidly for the maximum market share in Surat city.

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8. Bibliography
- Capital Market Workbook. - Annual data of the company. - Websites www.nseindia.com www.sebi.gov.in www.bseindia.com

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