A Project Report onSTUDY ON BOMBAY STOCK EXCHANGEUnder the partial fulfillment ofT .Y. BCOM (FINANCIAL MARKET)SEMESTER 5thSubmitted ByMs. AMITA RAHI VIVEKRoll no. 07Project GuidePROF. (MRS.) SHRADDHA BHOMESubmitted toUNIVERSITY OF MUMBAIAcademic Year2010-2011VPMSK.G. JOSHI COLLEGE OF ATRS& N.G. BEDEKAR COLLEGE OF COMMERCECHENDANI BUNDER ROAD, THANE (W) 400601. ACKNOWLEDGEMENTI would like to extend my sincere gratitude to all those people who havehelped me in the successful completion of my Project.Its gives us immense pleasure in expressing our gratitude to us project guideprof. Mrs. Shraddha Bhome for giving her precious time and help us incompleting our project.We would also like to thank Prof.D.M.Murdeswar (co-ordinator), ourprincipal Dr. (Mrs.) S.A. Singh for their valuation suggestion and supportprovided during the project and also the library staff providing the bookswhenever demanded by us.We thank them for being informative and tolerant. We would not have beenable to complete our project without sincere guidance and effort of abovementioned people, whose presence was blessing in disguise for me, whichmotivated us to complete our project on time.And at last but not the least, a special thank to my parents for their constantsupport & assistance, to make these project worth presenting before you. DECLARATIONI, AMITA V. RAHI the student of JOSHI-BEDEKAR COLLEGE, studyingin the T.Y.B.Com (Financial market), Semester-5course for theTHacademic year 20010 11. Hereby declare that I have completed the projecton Study on Bombay Stock Exchange in fulfillment of the coursecompletion requirement at the University of Mumbai.I further declare that information presented in this project is true and originalto the best of my knowledge.DATE: signature of studentPLACE: (Amita V. Rahi) INDEXSr. No Contents Page no.1 Title Page2 Certificate3 Acknowledgement4 Declaration5 Index6 List of Chart and Diagram7 Researcher methodology8 Chapter SchemesOverview of financial market11.1 what is Financial System?1.2 Function of the Financial System1.3 Components of the Financial System1.4 Capital Market1.5 Primary Market1.6 Secondary market2 Secondary market2.1 Introduction2.2 Definition2.3 Features of secondary market2.4 Advantages of secondary market2.5 Ingredients of secondary market2.6 Innovation in secondary market 3 Study on Bombay Stock Exchange3.1 Introduction3.2 History of BSE3.3 Milestones of BSE3.4 Achievements & Awards by BSE4 Finding @ BSE4.1 Trading @ BSE4.2 BSE Indices4.3 BSE Technology4.4 Risk Management4.5 Derivative4.6 Safeguards for Investors9 Bibliography10 Annexure List of chart and DiagramListSr. no.1 1.1 Function of the financial system2 1.2 Indian Financial System3 2.1 Features of Secondary Market4 2.2 Advantages of Secondary Market5 2.3 Ingredients of Secondary Market6 3.1 Milestones of BSE REASHER METHODOLOGYWhy I have chosen this topic ?As being the student of financial market I have chosen my topic forproject on study on Bombay Stock Exchange. The financial market dealswith the various securities and these securities are traded on stockexchanges. Thats why I have done my project on the oldest and first stockexchange in India that is Bombay Stock Exchange.haveIchosen this topic to get more overview on Bombay StockExchange. To know the role played by BOMBAY STOCK EXCHANGE inIndian capital market. How BSE Sensex perform in the market. This topicwill increase my knowledge and will be benefited to my career.OBJECTIVES OF PROJECTTo get an overview of Bombay Stock Exchange.To know the role of Bombay Stock Exchangein capital marketHow BSE provide services to investor, companies, Governmentand society.To know about BSE INDICESTo know about risk management by BSETo know the new derivative segment on BSE NewspaperInternetProspectus of BSERESEARCH DESIGNIn order to conduct the research an appropriate methodology becamenecessary. In this direction both primary as well as secondary data wereattempted to be collected. The methodology is concentrated in the followingarea:1. Primary Data.2. Secondary Data.Primary DataThe primary data collection is specially designed to have information fromthe manager level officer. The questionnaire was presented to the officers ofthe bank. Questionnaire was collected and arranged in one after the other inrecording sheet. Incomplete responses were deleted.SOURCE SampleInterview at BSE Questionnaire 20Secondary DataThe methodology for collecting data with reference to the secondary datawas taken from the following:-Books JournalsMagazinesLIMITATIONSThe project has been limited to the visit on Bombay Stock Exchange. Duringresearch for the project it was noticed that the officers of the abovementioned, were hesitant to provide general information as regards thefunctioning of the ExchangeAt the same time they were reluctant to disclose information such as theaccurate facts and figures (commission for mercantile services etc.) as theywere being considered to be confidential.Thankfully, these limitations did not act as hindrances for completion of theproject.CHAPTER: 1 OVERVIEW OF FINANCIAL SYSTEM 1.1 WHAT IS FINANCIAL SYSTEM?The economic development of any country depends upon the existence ofa well organized financial system. A financial system plays a vital role in theeconomic growth of a country. It intermediates between the savers andinvestor and promotes faster economic development. It mobilizes andusefully allocates scarce resources of a country.A financial system is a complex, well-integrated set of sub-system offinancial institutions, markets, instruments, and services which facilitates thetransfer and allocation of funds, efficiently and effectively. An efficientfunctioning of the financial system facilities the free flow of funds to moreproductive activities and thus promotes investment.1.2 FUNCTIONS OF THE FINANCIAL SYSTEM.Chart 1.1 functions of Financial SystemF Provision of LiquidityUN Mobilization of SavingsCT Size Transformation FunctionIO Maturity Transformation FunctionNS Risk Transformation Function (Source: By Researcher)1. Provision of liquidityThe major function of financial system is the provision of money andmonetary assets for the production of goods and services. There shouldnot be any shortage of money for productive ventures. In financiallanguage, the money and monetary assets are referred to as liquidity. Theterm liquidity refers to cash or money and other assets which can beconverted into cash readily without loss of value and time. Hence, allactivates in a financial system are related to liquidity- either provision ofliquidity or trading in liquidity. In India the R.B.I. is the leader of thefinancial system and hence it has to control the money supply andcreation of credit by banks and regulates all the financial institutions inthe country in the best interest of the nation.2. Mobilization of SavingsAnother important activity of the financial system is to mobilizesaving and channelize them into productive activities. The financialsystem should offer appropriate incentives to attract saving and makethem available for more productive ventures. Thus, the financial systemfacilitates the transformation of saving into investment and consumption.The financial intermediaries have to play a dominant role in this activity.3. Size Transformation Function Generally, the savings of millions of small investors are in the natureof a small unit of capital which cannot find any fruitful avenue forinvestment unless it is transformed into perception size of credit unit.Banks and other financial intermediaries perform this size transformationfunction by collecting deposits from a vast majority of small customersand giving them as loan of a sizeable quantity. Thus, this sizetransformation function is considered to be one of the very importantfunctions of the financial system.4. Maturity Transformation FunctionAnother function of the financial system is the maturity transformationfunction. The financial intermediaries accept deposits from public indifferent maturities according to their liquidity preference and lend themto the borrowers in different maturities according to their needs andpromote the economic activities of a country.5. Risk Transformation FunctionMost of the small investors are risk-averse with their small holding ofsavings. So, they hesitate to invest directly in stock market. On the otherhand, the financial intermediaries collect the saving from individual saverand distribute them over different investment units with their highknowledge and expertise. Thus, the risks of individual investors getdistributed. This risk transformation function promotes industrialdevelopment. Moreover, various risk mitigating tools are available in thefinancial system like hedging, insurance, use of derivatives etc. 1.3 COMPONENTS OF THE FINANCIAL SYSTEMChart 1.2 Indian financial systemsIndian financial systemOrganized system Unorganized system (moneylender)Financial Financial Financial FinancialInstitutions Instruments Markets ServicesLong term Short term Depositories,. Instrument Instrument Venture capital,. Hire purchase etc.Banking Non BankingFinancial FinancialInstitution InstitutionCapital market money marketNon- banking Non- banking. Financial Development Equity market Debt market. Institution Institution Commercial Co-operative Primary Secondary DerivativeBank Bank market market marketT-bill Commercial paper Certificate of deposit Repo(Source: The Indian financial System by Bharati V. pathak, page no.7)The financial system consists of four segment or components. These are:1. Financial institutions,2. Financial markets,3. Financial instruments, and4. Financial services.1. Financial InstitutionsFinancial institution are intermediaries that mobilize saving and facilitatethe allocation of funds in an efficient manner.Financial institutions can be classified as banking and non-bankingfinancial institutions. Banking institutions are creators and purveyors ofcredit while non-banking financial institution is purveyors of credit. In India,non-banking financial institutions, namely, the Developmental FinancialInstitutions (DFIs), and Non-Banking Financial Companies (NBFCs) as wellas Housing Finance Companies (HFCs) are major institutional purveyors ofcredit.Financial institutions can also be classified as term- financial institutionssuch as the Industrial Development Bank of India (IDBI), the IndustrialCredit and Investment Corporation of India (ICICI), the Industrial Financial Corporation of India (IFCI), the Small Industries Development Bank ofIndia (SIDBI) and the industrial investment Bank of India (IIBI).In the post- reforms era, the role and nature of activity of these financialinstitutions have undergone a tremendous change. Banks have nowundertaken non- bank activities and financial institutions have taken upbanking functions. Most of the financial institution now resorts to financialmarkets for raising funds.2. Financial MarketsFinancial markets are a mechanism enabling participants to deal infinancial claims. The markets also provide a facility in which their demandsand requirements interact to set a price for such claims.The main organized financial markets in India are the money market andthe capital market. The first is a market for short- term securities while thesecond is a market for long- term securities, i.e., securities having a maturityperiod of one year or more.Financial markets can be also be classified as primary and secondarymarkets. While the primary market deals with new issues, the secondarymarket is meant for trading in outstanding or existing securities.3. Financial InstrumentsFinancial instrument is a claim against a person or an institution forpayment, at a future date, of a sum of money and periodic payment in theform of interest or dividend. Financial instruments represent paper wealthshares, debentures, like bonds and notes. Many financial instruments are marketable as they are denominated in small amount and traded in organizedmarkets. This distinct feature of financial instruments has enabled people tohold a portfolio of different financial assets which, in turn, helps in reducingrisk.Financial instrument differ in term of marketability, liquidity,reversibility, types of options, returns, risk and transaction cost. Financialinstruments help financial markets and financial intermediaries to performthe important role of channelizing funds from lenders to borrowers.4. Financial ServicesFinancial services are those that help with borrowing and funding,lending and investing, buying and selling securities, making and enablingpayments and categories of financial services are funds intermediation,payments mechanism, and provision of liquidity, risk management andfinancial engineering.Financial services are necessary for the management of risk in theincreasingly complex global economy. They enable risk transfer andprotection from risk.The four financial system components discussed do not function inisolation. They are independent and interact continuously with each other.Their interaction leads to the development of a smoothly functioningfinancial system.1.4 CAPITAL MARKET The capital market is a market for financial assets which have a long orindefinite maturity. Generally, it deals with long term securities which havea maturity period of above one year. Capital market may be further dividedinto three namely:i Industrial securities marketii Government securities market andiii Long term loan marketi.Industrial Securities MarketAs the very name implies, it is a market for industrial securities namelyEquity shares, Preference shares, and Debenture or Bonds. It is a marketwhere industrial concerns raised their capital or debt by issuing appropriateinstruments. It can be further subdivided in two. They are:Primary market or new issue marketSecondary market or stock exchangeii.Government securities marketIt is otherwise called Gild-Edged securities market. It is a market whereGovernment securities are traded. In India there are many kinds ofGovernment Securities short- term and long- term. Long term securitiesare traded in this market while short term securities are traded in money market. Securities issued by the Central Government, State Governments,Semi-Government authorities like City corporations, Port Trusts etc.iii.Long- Term Loans MarketDevelopment banks and commercial banks play a significant role in thismarket by supplying long term loans to corporate customers. Long termloans market may further be classified into:a. Term Loans marketb. Mortgages marketc. Financial guarantees market.a. Term loans marketMany industrial financing institutions have been created by theGovernment both at the national and regional levels to supply long term andmedium term loans to corporate customers directly as well as indirectly.b. Mortgages marketThe mortgages market refers to those centers which supply mortgage loanmainly to individual customers. A mortgage loan is a loan against thesecurity of immovable property like real estate. This mortgage may beequitable mortgage or legal one.c. Financial Guarantees market A Guarantee market is a center where finance is provided against theGuarantee of a reputed person in the financial circle. Guarantee is a contractto discharge the liabilities of a third party in case of his default. In case theborrower fails to repay the loan, the liability falls on the shoulders of theGuarantor. Hence the guarantor must be known to both the borrower and thelender and he must have the means to discharge his liability.1.5 PRIMARY MARKETPrimary market is a market for new issues or new financial claims.Hence, it is also called New Issue Market. The primary market deals withthose securities which are issued to the public for the first time. The market,therefore, makes available a new block of securities for public subscription.In the primary market, borrower exchange new financial securities for longterm funds. Thus, primary market facilitates capital formation. There arethree ways by which a company may raise capital in a primary market. Theyare:i Public issueii Rights issueiii Private placementThe most common method of raising capital by new companies isthrough sale of securities to public. It is called public issue. When anexisting company wants to raise additional capital, securities are first offeredto the existing shareholders on a pre-emptive basis. It is called right issue.Private placement is a way of selling securities privately to a small group ofinvestors. The new issue market encompasses all institution dealing in fresh claims.These claims may be in the form of equity shares, preference shares,debentures, rights issues, deposits etc. all financial institutions whichcontribute, underwrite and directly subscribe to the securities are part of newissue market.1.6 SECONDARY MARKETThe Secondary market is a market for secondary sale of securities. Inother words, securities which have already passed through the new issuemarket are traded in this market. The market where existing securities aretraded is referred to as the secondary market or stock market. In a stockmarket, purchases and sales of securities whether of Government or Semi-Government bodies or other public bodies and also shares and debenturesissued by joint stock companies are affected. The securities of governmentare traded in the stock exchange as a separate component, called guilt edgedmarket. Government securities are traded outside the trading wing in theform of over the counter sales or purchases. Another component of the stockmarket deals with trading in shares and debentures of limited companies.Stock exchanges are the important ingredient of the capital market. Theyare the theatres of trading in securities and as such they assist and control thebuying and selling of securities. The stock exchanges in India are regulatedunder the Securities Contract (Regulation) Act, 1956. The Bombay StockExchange is the principal stock exchange in India which sets the tone of thestock markets. CHAPTER: 2 SECONDARY MARKET2.1 INTRODUCTIONThe market where existing securities are traded is referred to as thesecondary market or stock market. In a stock market, purchases and sales ofsecurities whether of Government or Semi- Government bodies or otherpublic bodies and also shares and debentures issued by joint stockcompanies are affected. The securities of government are traded in the stockmarket as separate component, called guilt edged market. Governmentsecurities are traded outside the trading wing in the form of over the countersales or purchases. Another component of the stock market deals withtrading in shares and debentures of limited companies.The secondary market plays a very vital role as one of the indicators of the industrialdevelopment of a nation. Each and every country has the secondary marketssome of the well known stock exchanges are Bombay Stock Exchange(BSE) of India, New York Stock Exchange (NYSE) of America, NationalStock Exchange (NSE), London Stock Exchange of The Great Britain,NASDAQ etc. Various securities & financial instruments that are traded inthe stock market are;* Equity Shares* Preference Shares* Bonus Shares* Bonds* Debentures* Commercial Papers* Treasury Bills2.2 DEFINATIONStock exchanges are the important ingredient of the secondary market.They are the citadel of capital and fortress of finance. They are the theatresof trading in securities and as such they assist and control the buying andselling of securities. Thus, according to Husband and Dockeray securitiesor stock exchange are privately organized markets which are used tofacilities trading in securities. However at present stock exchanges need notnecessarily be privately organized ones.In brief, stocks exchanges constitute a market where securities issued bycentral and state government, public bodies and joint stock companies aretraded. 2.3 FEATURES OF SECONDARY MARKETChart 2.1 Features of Secondary Market(Source: By Researcher)Stock exchange is a mechanism, which facilitates listing and trading insecurities. The main features of stock exchange are as follows:1.Organized body:-A stock exchange is an organized association or corporate body. Theorganized stock exchanges can take any of the following forms:Public Limited by Guarantee.Companies Limited by Guarantee.Voluntary Non- profit Organization.2.Facilitates Listing Of Shares:- The stock exchanges facilities listing of shares issued by public limitedcompanies. The companies that issue shares to the public can get their shareslisted on one or more stock exchange in the country. The listing of shares isdone through the listing agreement. The listing agreement is signed by theshares issuing company and the concerned stock exchange. Due to listing ofshares, companies are able to raise long term funds through the issue ofshares.3.Facilities Trading of Securities:-The stock exchange facilitate of shares. The shares listed on the exchangecan be traded. The shares can be traded between the sellers and buyers onthe stock exchange. The trading of shares brings liquidity to the shares. Theinvestors can sell the shares and realize cash as and when they are in need offunds, or as and when they want to book profits.4. Controlled by SEBI:-The activities of stock exchanges are controlled by SEBI. SEBI hasframed rules and regulations to be followed by stock exchanges. If the rulesand regulations are not followed, SEBI may cancel the registration of suchstock exchange. SEBI may also impose penalty on defaulting stockexchange.5. Membership:-Every stock exchange has its members. The members are normally thestock brokers. Membership charges must be paid to become members of thestock exchange. The membership fees include:Entrance fees.Membership security deposit.Annual subscription fees. The membership charges vary depending upon the stock exchange. Thehighest membership charges are at Bombay Stock Exchange and Calcuttastock Exchange.6. Governing Body:-The stock exchanges are managed by Governing Body/ Board. TheGoverning board consists of:President and Vice- president.Chief Executive.Directors.Public Representative.Government Nominees.The Government nominates the president and Vice-president.Government nominees are nominated by SEBI. The Directors are elected bythe stock broker members. The governing body has administrative powersrelating to the functioning of the stock exchange.7. Trading Through Registered Brokers:-Transactions on the stock exchange are done only through the registeredstock brokers. Transactions through any other party are considered invalid.8. Important Element of Capital Market:-A capital market is a market for medium term and long term funds. Astock exchange plays an important role in capital market. It enable thecompanies to raise medium and long term funds through the issue of sharesand debentures.9. Barometer of Economic Strength:- Stock exchanges are indicators or barometers of economic stability of anation. If the national economy is strong and healthy, then the stockexchanges will reflect such a strong economic position. This is because thestock markets are at high, the economic growth is high, and vice- versa.10.Central Government Recognition:-The stock exchanges need to obtain recognition from the CentralGovernment. At present, only 8 stock exchanges are granted permanentrecognition by the Central Government.11. Location :-The stock exchanges are mostly located in the capital cities of majorstates in India. At present, there are 25 stock exchanges in the country.There are four national level stock exchanges and 21 regional stockexchanges. The oldest stock exchange in the country is the Bombay StockExchange, located in the financial capital of India.2.4 ADVANTAGES OF SECONDARY MARKETChart2.2 Advantages of secondary marketA Assist in raising fundsD Facilitates listing of sharesV Generate EmploymentA Capital FormationN Stimulates Industrial Development T Facilitates Regional DevelopmentA Provides Investment OpportunitiesG Provides Revenue to the GovernmentE Promotes Efficient Management of Listed CompaniesS(Source: By Researcher)Stock market is vital for the economic development of a nation. Theadvantages of stock market are briefly stated as follows:1. Assist in Raising funds:-The stock exchange is enables public limited companies to raise longterm funds from the stock market. The companies can issue shares anddebentures and obtain long term funds. The long term funds can be utilizedfor the purpose of expansion and modernization of existing units.Companies can also utilize the funds for the purpose of setting new projects.2. Facilitates Listing of Shares :-The stock exchanges facilitate listing of shares issued by public limitedcompanies. The companies that issue shares to the public can get their shareslisted on or more stock exchanges in the country. Readymade market to buyor sale shares, so company can list their share easily.3. Generates Employment:-It generates employment facilities in the country. A number of brokers,sub- brokers, and other do get their employment because of stock exchange.Stock exchange also facilities indirect employment in the various sectors. Due to availability of long term funds, companies undertake expansion andmodernization programs, which in turn generate more employment.4. Capital Formation:-The stock exchange encourages investors to invest in the primary andsecondary stock market. For investing in stock market, investors need tosave money. Savings lead to investment in shares and other securities.Investment leads to capital formation.5. Stimulates Industrial Development:-The Stock exchanges facilities mobilization of long term funds throughthe issue of shares and debentures. The long term funds can be utilized bycompanies for the following purpose:-Expansion and modernization.Setting up of new projects.6. Facilitates Regional Development:-The stock exchange also facilitates regional development in the country.Companies can generate long term funds due to stock exchanges. The fundsgenerated can be utilized for setting up units in backward areas. This leads toregional development in the country.7. Provides Investment Opportunity:-The stock exchange provides an investment opportunity to the investors.The investors are provided with an additional opportunity to invest in shares,other than investment in fixed deposits in bank or in other forms. It has been proved that the returns from the stock markets are much higher as compareto traditional forms of investment. But the investor must only in goodcompanies that provide good return to investors.8. Provides Revenue to the Government:-The stock exchange provides revenue to the Government, either directlyor indirectly. The stock exchanges pay tax on the revenue or profits earnedby them. Also, the investors who invest on stock markets are subject tocapital gain tax.9. Promotes Efficient Management of Listed Companies:-Stock exchange indirectly promotes efficiency of the management oflisted companies. Higher the efficiency, higher is the performance, and assuch higher the prices of the shares on the stock market.2.5 INGREDIENTS OF SECONDARY MARKETIngredients are citadel of capital and fortress of finance. They are thetheatres of trading in securities and as such they assist and control thebuying and selling of securities. Ingredients of secondary market are asfollow:-Chart 2.3 Ingredients of secondary market I Stock ExchangesNG JobbersRE TarawaniwalaDI commission BrokersEN Sub-Brokers / RemisiersTS Authorized Clerks(Source: By researcher)1. Stock Exchanges:-Stock exchanges are the important ingredient of capital market. Stockexchanges provide an organized market place for the investors to buy andsell securities freely. The market offers perfectly competitive conditionswhere a large number of seller and buyer participate. Further, stockexchanges provide an auction market in which member of the exchangeparticipate to ensure continuity of price and liquidity to investors. The first stock exchange in India was started in Bombay in 1875 withformation of the Native Share and Stock Brokers Association. ThusBombay Stock Exchange is the oldest one in the country. With the growth ofjoint stock companies, the stock exchanges also made a steady growth and atpresent these are 22 recognized stock exchanges.2. Jobbers:-A jobber is a professional independent broker who deals in securities onhis own behalf. In other words, he purchases and sells securities in his ownname. His main job is to earn a margin of profit due to price variations ofsecurities. A jobber plays in the market for quick returns. He is aprofessional broker who carefully judges the worth of the securities andmakes a good forecast of their future price movements. He buys securities asa owner, keeps them for a very short period and sell them for profit knownas the jobbers turn. Thus, a jobber does not work on commission basis butwork for profit. So, a jobber can deal either with a broker or with anotherjobber.3. Tarawaniwalas:-A Tarawaniwala is an active member in the Bombay Stock Exchange. ATarawaniwala can act both as a broker as well as a jobber. Basically he is ajobber. But at same time, he is not prohibited from acting as a broker. Thedrawback of this system is that a Tarawaniwala can act against the interest ofinvestors by purchasing securities from them in his own name at lowerprices and selling the same securities to them at higher prices. Now, the Securities Contract act of 1956 provides that a member of a stock exchangecan act as a principal only for a member of a recognized stock exchange. Incase he wants to act as such for a non-member, he must get his consent andthis fact must disclose in agreement also.4. Commission Brokers:-A commission broker is nothing but a broker. He buys and sells securitieson behalf of his client for a commission. He is permitted to deal with non-members directly. He does not purchase or sell in his own name. Generally,a broker acts for a large number of his clients, and therefore, he deals in alarge variety of securities. He get the orders from his clients and executesthem through jobbers.5. Sub- Brokers/ Remisiers:-As a stated earlier, a sub-broker is an agent of a stock broker. He helps theclient to buy and sell securities only through the stock broker. Since he is nota member of a stock exchange, he cannot directly deal in securities. He issubject to similar restrictions as are applicable to member brokers. He iscalled remisier in the Bombay Stock Exchange. His commission is paid outof the commission received by brokers for whom he is acting as an agent.Hence, remisiers are also called half commission men. Generally, theircommission cannot exceed 40% of the commission received on the businesstransacted by them6. Authorized Clerks:-An authorized clerk is one who is appointed by a stock broker to assisthim in the business of securities trading. A broker cannot be present always on the trading floor of a stock exchange, and therefore, he requires theassistance of others to carry on the trading activities on his behalf. InBombay Stock Exchange, each member broker can employ a maximumnumber of 5 clerks. Generally, authorized clerks are given power of attorneyto act on behalf of brokers and hence they can sign on behalf of brokers.2.6 Innovations in Secondary marketMany steps have been taken in recent years to reform the secondarymarket so that it may function efficient and effectively. Steps are also beingtaken to broaden the market and make it function with greater degree oftransparency and in the best interest of investors. Some of the developmentsin the secondary market are as following:-1. Change in the Management Structure:-In the early periods, the boards of stock exchanges were dominated bybrokers whose decisions were not fair and transparent. The SEBI nowrequires that 50 per cent of the directors must be non-broker directors orgovernment Representatives. Further, it is obligatory that a non-brokerprofessional shall be appointed as the Executive Director.2. Insistence of Quality Securities:-For efficient and active functioning of a stock exchange, qualitysecurities are absolutely essential. Realizing this fact, the SEBI hasannounced revised norms for companies accessing the capital market so thatonly quality securities are listed and traded in stock exchanges.3. Transparency of Accounting Practices:- To ensure correct pricing mechanism and wider participation, all attemptsare being taken to achieve transparency in trading and accountingprocedures. Brokers are asked to show their prices, brokerage, service taxetc. separately in the contract notes and their accounts. Of course the servicetax is collected from the client and paid to the Government.4. Introduction of Depository system:-A depository is an organization where the securities of a shareholder areheld in the electronic form through a process of dematerialization. Theinvestors have to simply open an account with the depository through adepository participant. The account will be credited with the purchase ofsecurities and debited with the sale of securities. There is no physicaltransfer of shares. Everything is done through electronic media. Thedepository system facilitates investors to hold securities in the electronicform rather than in physical form. Since the operations are computer linked,they are transparent, speedier, less speculative and cost effective.The SEBI has directed that all offer of public/ rights issue/ offer for saleshould only be of dematerialized shares. So, the investors will becompulsorily required to open a depository account with a DepositoryParticipant (DP) for making an application. All DPs will act as collectionagents.5. Setting up of Credit Rating Agencies:-Credit rating agencies have been set up for awarding credit rating to themoney market instruments, deposits and even to equity shares also. Now, alldebt instruments must be compulsorily credit rated by a credit rating agency so that the investing public may not be deceived by financially unsoundcompanies. It is a healthy trend towards a developed capital market.6. Introduction of Electronic Trading:-The OTCEI has started its trading operations through the electronicmedia. Similarly, BSE switched over to electronic trading system in January1995, called BOLT. Again, NSE went over to screen based trading with anational network. Under this system, investment counters can be spreadthroughout the country under the electronic network. The buyers and sellersliving apart from each other can trade in corporate securities throughelectronic media and through telephone/ teller / computer in the case ofOTC. Hence, there is a national market with no physical location, no tradingring, no stock exchange building, no hustle, and bustle scenes etc. which arecommonly found in conventional stock exchanges.7. Stock Watch System:-The SEBI is contemplating to introduce a New Stock Watch system totrace out the source of undesirable trading if any in the market. The StockWatch System simply works as a mathematical model which keeps aconstant watch on the market movement. When the model is activated,certain parameters are put to work at once. It would bring to lightautomatically the scrip which are under alert. This alert divided into threecategories such as least bothersome, bothersome and most bothersomeindicating blue, yellow and red signals respectively.8. Trading in Derivatives:- Dr. L. C. Gupta committee which had gone into the question ofintroduction of derivative trading has recommended introducing trading inIndex Futures to start with and then trading in options. Bye-laws havealready been framed by NSE and BSE based on the recommendation of theCommittee. Trading in derivatives has been introduced by bringingnecessary amendment to the Securities Contract Regulation Act. Thesemeasures would make the capital market active.9. Window For Block Deals:-A separate window has been created in both BSE and NSE for executinghuge block deals to check intra-day volatility on this count on the bourses.Large intra-day volatility was experienced on the stock exchanges whenthese block deals were carried out. Keeping them outside the purview of thetime after the first half-an hour will stem this volatility.Know Your Customer (KYC) Norms:-10.KYC norms are providing quite a deterrent for the population to put itsmoney into various investment channels. The hassles of KYCdocumentation are creating obstacles in the path of investor and advisorsalike.In 2002, KYC norms were introduced in India with the RBI directing allBank and Financial Institution to put in place a policy framework to KnowTheir Customer. The basic purpose of KYC was to prevent identity theft,money laundering, terrorist financing etc. this involve verifying customersidentity and address by asking them to submit document that are accepted asrelevant proof. CHAPTER 3: STUDY ON BOMBAY STOCK EXCANGE3.1 INTRODUCTIONBombay Stock Exchange is the oldest stock exchange in Asia What isnow popularly known as the BSE was established as "The Native Share &Stock Brokers' Association" in 1875. Over the past 135 years, BSE has facilitated the growth of the Indiancorporate sector by providing it with an efficient capital raising platform.Today, BSE is the world's number 1 exchange in the world in terms of thenumber of listed companies (over 4900). It is the world's 5th most active interms of number of transactions handled through its electronic tradingsystem. And it is in the top ten of global exchanges in terms of the marketcapitalization of its listed companies (as of December 31, 2009). Thecompanies listed on BSE command a total market capitalization of USDTrillion 1.28 as of Feb, 2010.BSE is the first exchange in India and the second in the world to obtainan ISO 9001:2000 certifications. It is also the first Exchange in the countryand second in the world to receive Information Security ManagementSystem Standard BS 7799-2-2002 certification for its BSE On-Line tradingSystem (BOLT). Presently, BSE are ISO 27001:2005 certified, which is aISO version of BS 7799 for Information Security.The BSE Index, SENSEX, is India's first and most popular Stock Marketbenchmark index. Exchange traded funds (ETF) on SENSEX, are listed onBSE and in Hong Kong. Futures and options on the index are also traded atBSE.Vision"Emerge as the premier Indian stock exchange by establishing globalbenchmarks"MissionTo educate and create awareness among investor 3.2 HISTORY OF BOMBAY STOCK EXCHANGEThe Bombay Stock Exchange is known as the oldest exchange in Asia. Ittraces its history to the 1850s, when stockbrokers would gather underbanyan trees in front of Mumbai's Town Hall. The location of thesemeetings changed many times, as the number of brokers constantlyincreased. The group eventually moved to Dalal Street in 1874 and in 1875became an official organization known as 'The Native Share & StockBrokers Association'. In 1956, the BSE became the first stock exchange tobe recognized by the Indian Government under the Securities ContractsRegulation Act.The Bombay Stock Exchange developed the BSE Sensex in 1986, givingthe BSE a means to measure overall performance of the exchange. In 2000the BSE used this index to open its derivatives market, trading Sensexfutures contracts. The development of Sensex options along with equityderivatives followed in 2001 and 2002, expanding the BSE's tradingplatform.Historically an open-cry floor trading exchange, the Bombay StockExchange switched to an electronic trading system in 1995. It took theexchange only fifty days to make this transition.Today BSE is among the 10 major international exchanges in context ofmarket investment of the firms registered under it. The total amount ofinvestment dominated by the cataloged firms under BSE as on 31st March,2010 was USD 1.36 Trillion.3.3 MILESTONES OF BSE SINCE 1875 Table 3.1 Milestones of BSEDate Milestones9Jul 1875 The Native Share & Stock Broker's Association formedt h2Feb 1921 Clearing House started by Bank of Indiand31Aug 1957 BSE granted permenant recognition under Securities Contracts (Regulation) Actst(SCRA)2Jan 1986 SENSEX, country's first equity index launched (Base Year:1978-79 =100)nd10Jul 1987 Investor's Protection Fund (IPF) introducedth3Jan 1989 BSE Training Institute (BTI) inauguratedrd25Jul 1990 SENSEX closes above 1000th15Jan 1992 SENSEX closes above 2000th30Mar 1992 SENSEX closes above 4000th1May 1992 SEBI Act established ( An Act to protect, develop and regulate the securitiess tmarket)29May 1992 Capital Issues (Control) Act repealedth1992 Securities Appellate Tribunal (SAT) established14Mar 1995 BSE On-Line Trading (BOLT) system introducedth19Aug 1996 First major SENSEX revampth12May 1997 Trade Guarantee Fund (TGF) introducedth21Jul 1997 Brokers Contingency Fund (BCF) introducedst1997 BSE On-Line Trading (BOLT) system expanded nation-wide1Jun 1999 Interest Rate Swaps (IRS) / Forward Rate Agreements (FRA) alloweds t22Mar 1999 Central Depository Services Ltd.(CDSL) set up with other financial institutionsnd15Jul 1999 CDSL commences workth11Oct 1999 SENSEX closed above 5000th 11Feb 2000 SENSEX crosses 6000 intra-dayth9Jun 2000 Equity Derivatives introducedt h1Mar 2001 Corporatization of Exchanges proposed by the Union Govt.s t1Feb 2001 BSE Webx Launcheds t4Jun 2001 BSE PSU index introducedt h15th Jun 2001 WDM operations at commenced1st Jun 2001 Index Options launched2nd Jul 2001 VaR model introduced for margin requirement calculation9th Jul 2001 Stock options launched11th Jul 2001 BSE Teck launched, India 's First free float index25th Jul 2001 Dollex 30 launched1st Nov 2001 Stock futures launched29Nov 2001 100% book building allowedth31Dec 2001 All securities turn to T+5st1st Apr 2002 T+3 settlement Introduced15Feb 2002 Negotiated Dealing System (NDS) establishedth1Feb 2002 Two way fungibility for ADR/GDRs t1Sep 2003 SENSEX shifted to free-float methodologys t1Jan 2003 India 's first ETF on SENSEX - SPICE' introduceds t16Jan 2003 Retail trading in G Secth1Apr 2003 T+2 settlement Introduceds t1June 2003 Banker launcheds t1Dec 2003 T group launcheds t17May 2004 Second biggest fall of all time, Circuit filters used twice in a dayth(564.71 points, 11.14%) 2Jun 2004 SENSEX closes over 6000 for the first timend20May 2005 The BSE (Corporatization and Demutualisation) Scheme, 2005th(the Scheme) announced by SEBI8Aug 2005 Incorporation of Bombay Stock Exchange Limitedt h12Aug 2005 Certificate of Commencement of Businessth19Aug 2005 BSE becomes a Corporate Entityth7Feb 2006 SENSEX closed above 10000t h7Jul 2006 BSE Gujarati website launchedt h21Oct 2006 BSE Hindi website launchedst2Nov 2006 iShares BSE SENSEX India Tracker listed at Hong Kong Stock Exchangend7Mar 2007 Singapore Exchange Limited entered into an agreement to invest int ha 5% stake in BSEAppointed Date under the Scheme i.e. Date on which16May 2007Corporatisaton and Demutualisation was achieved.Notified by SEBIthin the Official Gazette on 29.06.200710Jan 2008 SENSEX All-time high 21206.77th1Oct 2008 Currency Derivatives Introduceds t18May2009 The SENSEX raised 2110.70 points (17.34%) and Index-widethupper circuit breaker applied7Aug 2009 BSE - USE Form Alliance to Develop Currency & Interest Ratet hDerivatives Markets24Aug 2009 BSE IPO Index launchedth1Oct 2009 Bombay Stock Exchange introduces trade details facility for the Investorss t5Oct 2009 BSE Introduces New Transaction Fee Structure for Cash Equity Segmentt h25Nov 2009 BSE launches FASTRADE - a new market access platformth4Dec 2009 BSE Launches BSE StAR MF Mutual Fund trading platformt h14Dec 2009 Marathi website launchedth 18Dec 2009 BSE's new derivatives rates to lower transaction costs for allth4Jan 2010 Market time changed to 9.0 a.m. - 3.30 p.m.t h20Jan 2010 BSE PSU website launchedth(Source:www.bseindia.com)3.4 Achievements & Awards by BSELandmark Achievements:Some of the landmarks achieved by the BSE are mentioned as under:Became the first national exchange to launch its website in Gujarati andHindi and now MarathiPurchased of Marketplace Technologies in 2009 to enhance the in-housetechnology development capabilities of the BSE and allow faster time-to-market for new productsLaunched a reporting platform for corporate bonds christened the ICDMor Indian Corporate Debt MarketAcquired a 15% stake in United Stock Exchange (USE) to drive thedevelopment and growth of the currency and interest rate derivativesmarketsLaunched 'BSE StAR MF' Mutual fund trading platform, which enablesexchange members to use its existing infrastructure for transaction in MFschemes.BSE now offers AMFI Certification for Mutual Fund Advisors throughBSE Training Institute (BTI)Co-location facilities for Algorithmic trading BSE also successfully launched the BSE IPO index and PSU websiteBSE revamped its website with wide range of new features like 'Livestreaming quotes for SENSEX companies', 'Advanced Stock Reach','SENSEX View', 'Market Galaxy', and 'Members'Launched 'BSE SENSEX MOBILE STREAMER'With its tradition of serving the community, BSE has been undertakingCorporate Social Responsibility (CSR) initiatives with a focus on Education,Health and Environment. BSE has been awarded by the World Council ofCorporate Governance the Golden Peacock Global CSR Award for itsinitiative in Corporate Social Responsibility (CSR).Awards:The Annual Reports and Accounts of BSE for the year ended March31, 2006 and March 31, 2007 have been awarded the ICAI awards forexcellence in financial reporting.The Human Resource Management at BSE has won the Asia - PacificHRM awards for its efforts in employer branding through talentmanagement at work, health management at work and excellence inHR through technologyDrawing from its rich past and its equally robust performance in therecent times, BSE will continue to remain an icon in the Indian capitalmarket.CHAPTER 4 : FINDING @ BSE4.1 Trading @ BOMBAY STOCK EXCHANGE TimingTrading on the BOLT System is conducted from Monday to Fridaybetween 9:00 a.m. and 3:30 p.m. normally.GroupsThe scrips traded on BSE have been classified into various groups.BSE has, for the guidance and benefit of the investors, classified the scripsin the Equity Segment into 'A', B,'T', S', TS' and 'Z' groups on certainqualitative and quantitative parameters.The "F" Group represents the Fixed Income Securities.The "T" Group represents scrips which are settled on a trade-to-trade basisas a surveillance measure.The "S" Group represents scrips forming part of the "BSE-Indonext"segment.The "TS" Group consists of scrips in the "BSE-Indonext" segment, which issettled on a trade-to- trade basis as a surveillance measure.Trading in Government Securities by the retail investors is done under the"G" group.The 'Z' group was introduced by BSE in July 1999 and includes companieswhich have failed to comply with its listing requirements and/or have failedto resolve investor complaints and/or have not made the requiredarrangements with both the depositories, viz., Central Depository Services (I) Ltd. (CDSL) and National Securities Depository Ltd. (NSDL) fordematerialization of their securities.BSE also provides a facility to the market participants for on-line tradingof odd-lot securities in physical form in 'A', 'B', 'T', 'S', 'TS' and 'Z' groupsand in rights renunciations in all groups of scrips in the Equity Segment.With effect from December 31, 2001, trading in all securities listed in theEquity segment takes place in one market segment, viz., CompulsoryRolling Settlement Segment (CRS).The scrips of companies which are in demat can be traded in market lot of1. However, the securities of companies which are still in the physical formare traded in the market lot of generally either 50 or 100. Investors havingquantities of securities less than the market lot are required to sell them as"Odd Lots". This facility offers an exit route to investors to dispose of theirodd lots of securities, and also provides them an opportunity to consolidatetheir securities into market lots.This facility of selling physical shares in compulsory demat scrips iscalled an Exit Route Scheme. This facility can also be used by smallinvestors for selling up to 500 shares in physical form in respect of scrips ofcompanies where trades are required to be compulsorily settled by allinvestors in demat mode.Listed Securities The securities of companies, which have signed the Listing Agreementwith BSE, are traded as "Listed Securities". Almost all scrips traded in theEquity segment fall in this category.Permitted SecuritiesTo facilitate the market participants to trade in securities of suchcompanies, which are actively traded at other stock exchanges but are notlisted on BSE, trading in such securities is facilitated as PermittedSecurities" provided they meet the relevant norms specified by BSETick Size:Tick size is the minimum differences in rates between two orders on thesame side i.e., buy or sell, entered in the system for particular scrip. Tradingin scrips listed on BSE is done with the tick size of 5 paise.However, in order to increase the liquidity and enable the marketparticipants to put orders at finer rates, BSE has reduced the tick size from 5paise to 1 paise in case of units of mutual funds, securities traded in "F"group and equity shares having closing price up to Rs. 15 on the last tradingday of the calendar month. Accordingly, the tick size in various scripsquoting up to Rs.15 is revised to 1 paise on the first trading day of month.The tick size so revised on the first trading day of month remains unchangedduring the month even if the price of scrips undergoes a change.Computation of Closing Price of Scrips The closing price of scrips is computed by BSE on the basis of weightedaverage price of all trades executed during the last 30 minutes of acontinuous trading session. However, if there is no trade recorded during thelast 30 minutes, then the last traded price of scrip in the continuous tradingsession is taken as the official closing price.Basket Trading SystemBSE has commenced trading in the Derivatives Segment with effect fromJune 9, 2000 to enable investors to hedge their risks. Initially, the facility oftrading in the Derivatives Segment was confined to Index Futures.Subsequently, BSE has introduced the Index Options and Options & Futuresin select individual stocks.Investors in the cash market had felt a need to limit their risk exposure inthe market to the movement in Sensex. With a view to provide investors thefacility of creating Sensex-linked portfolios and also to create a linkage ofmarket prices of the underlying securities of Sensex in the Cash Segmentand Futures on Sensex, BSE has provided to the investors as well as to itsMembers a facility of Basket Trading System on BOLT with effect fromAugust 14, 2000. In the Basket Trading System, the investors through theMembers are able to buy/ sell all 30 scrips of Sensex in one go in theproportion of their respective weights in the Sensex. The investors need notcalculate the quantity of Sensex scrips to be bought or sold for creatingSensex-linked portfolios and this function is performed by the system. Theinvestors can also create their own baskets by deleting certain scrips from 30scrips in the Sensex. Further, the investors can alter the weights of securitiesin such profiled baskets and enter their own weights. The investors can also select less than 100% weightage to reduce the value of the basket as per theirown requirements.To participate in this system, the Members need to indicate the number ofSensex basket(s) to be bought or sold, where the value of one Sensex basketis arrived at by the system by multiplying Rs.50 to the prevailing Sensex.For example, if the Sensex is 15,000, the value of one basket of Sensexwould be 15000 x 50= i.e., Rs. 7,50,000/-. The investors can also placeorders by entering value of Sensex portfolio to be brought or sold with aminimum value of Rs. 50,000 for each order.The Basket Trading System provides the arbitrageurs an opportunity totake advantage of price differences in the underlying Sensex and Futures onthe Sensex by simultaneous buying and selling of baskets comprising theSensex scrips in the Cash Segment and Sensex Futures. This would providea balancing impact on the prices in both cash and futures markets.The Basket Trading System thus meets the need of investors and alsoimproves the depth in cash and futures markets.The trades executed under the Basket Trading System are subject to intra-day trading and gross exposure limits available to the Members. The VaR,MTM margins etc, as are applicable to normal trades in the Cash Segment,are also recovered from the Members.4.2 BSE INDICES Bombay Stock Exchange Indices are as follow:-SENSEX: -SENSEX or Sensitive Index is not only scientifically designed but alsobased on globally accepted construction and review methodology. Firstcompiled in 1986, SENSEX is a basket of 30 constituent stocks representinga sample of large, liquid and representative companies. The index is widelyreported in both domestic and international markets through print as well aselectronic media.The index was initially calculated based on the Full marketCapitalization methodology but was shifted to the free-float methodologywith effect from September 1, 2003.The objective of SENSEX is:-To measure Market Movements,Benchmark for Funds Performance,For Index Based Derivatives ProductsBSE-100:-After the launch of SENSEX, a need was felt for a more broad-basedindex, which reflect the movement of stock prices on a national scale.Initially, the BSE 100 National Index was calculated by taking prices of itsconstituents from five major stocks exchange in the country viz. Mumbai,Calcutta, Delhi, Ahmadabad and Madras. A distinction was made betweenlocal scrips for which prices were taken from only one exchange and Inter-Exchange Scrips for which an average of the prices quoted on two ormore exchanges was considered for index compilation.BSE PSU INDEX:-BSE launched BSE PSU Index on 4June 2001. Like other on- linethIndies, the BSE-PSU Index is also displayed on- line on the BOLT. BSEPSU Index tracks the performance of the listed PSU stocks on exchange.BSE PPSU index is a sub-set of BSE-500 index and hence all itsconstituents are part of the BSE-500 index. The BSE PSU Index ensure areasonable measure of how the Government wealth fluctuation on thebourses.BSE TECk Index- The TMT benchmark:-Attuning itself to the global standard in equity index constructionmethodology and leading the way in responding to the market demand for aTMT Benchmark (technology, media and telecommunications). It launchedon 11 July, 2001.BSE-500:-Although BSE-100 and BSE- 200 indices are broad- based indices, aneed was felt to construct BSE-500 index to represent all segment of listedstocks and to give more coverage in term of number of scrips, marketcapitalization and turnover. The BSE-500 represent around 94% of the totallisted market capitalization of BSE and around 99% of the average dailyturnover on the exchange. BSE Mid-Cap and BSE Small-Cap:-BSE introduced the new index series called BSE Small-Cap index on11April 2006 to track the performance of the companies with relativelythsmall market capitalization that would exclusively represent the mid andsmall cap companies listed on the Stock Exchange. BSE Mid-Cap and BSESmall-Cap index have proved to be great utility to the investing communityas they would truly capture the movement of the segment they are represent(mid and small).BSE Sectoral Indices:Stock belonging to major sectors in the BSE-500 index constitutesrespective sect oral indices.BSE BANKEX:-BANKEX, a benchmark for the banking sector, was launched in June2003 by Exchange to enable the market participants to track the movementof stocks from the banking sector4.3BSE TechnologyBSE places a great deal of emphasis on Information Technology for itsoperations and performance. The 'Operations & Trading Department' at BSEcontinuously upgrades the hardware, software and networking systems, thusenabling BSE to enhance the quality and standards of service provided to itsmembers, investors and other market intermediaries. BSE strictly adheres toIS policies and IS Security policies and procedures for its day-to-day operations on 24x7 basis which has enabled it to achieve the BS7799certification and the subsequent ISO 27001 certification. In addition, BSEhas also been successful in maintaining systems and processes uptime of99.99%.BOLTTo facilitate smooth transactions, BSE had replaced its open outcry systemwith the BSE On-line Trading (BOLT) facility in 1995. This totallyautomated, screen-based trading in securities was put into practice nation-wide within a record time of just 50 days. BOLT has been certified by DNVfor conforming to ISO 27001:2005 security standards.The capacity of the BOLT platform stands presently enhanced to 80 lakhorders per day.BSEWebx.co.inBSE has also introduced the world's first centralized exchange basedInternet trading system, BSEWEBx.co.in. The initiative enables investorsanywhere in the world to trade on the BSE platform.bseindia.comBSE's websitewww.bseindia.comprovides comprehensive informationon the stock market. It is one of the most popular financial websites in Indiaand is regularly visited by financial organizations and other stakeholders forupdates. Other Technology-based InitiativesBSE, along with its strategic partners, have put into place several criticalprocesses/systems such asDerivatives Trading & Settlement System (DTSS)Electronic Contract Notes (ECN)Unique Client Code registration (UCC)Real-time Data Dissemination System -Integrated Back-office System - CDB / IDBBook Building System (BBS)Reverse Book Building System (RBBS)Debt MarketDirector's DatabaseA Large Private NetworkBSE operates a large private network in India. The network usesfollowing segments to cater to market intermediaries:-CampusBSE'sLAN:Connects market participant offices across 20 floors of BSE campus toBSE systems. BSE Campus comprises of 3 BSE buildings: P.J. Towers,Rotunda and Cama buildingWANBSE: TDM / MPLS lines from different service providers cater to connectivityrequirements of market participants across the country. Wired / Wirelessmedia is used.VSATs:Satellite based communication system serves the connectivityrequirements of market participants in remote areas. Services are providedthrough BSE's Satellite Communication Hub in Mumbai.4.4 Risk Management:-Nature of Risks:The Exchange has been exposed to a large number of risks, which havebeen inherently borne by the member brokers for all times. Since theintroduction of the screen based trading the nature of risks to which themembers of the Exchange are exposed to has undergone radicaltransformation. At the same time the inherent risk involved with the tradingof paper based securities still remains. Though the process ofdematerialization has already begun, till such that it is made compulsory inall scrips, the risk of trading in fake/forged shares and instances of loss ofshares etc. will continue to exist. The safe custody of these shares inphysical form in the Exchange as well as in the member brokers offices isof prime importance.The Risks can be classified as under:1. Risks associated with Paper Based Trading Lost/misplaced securitiesodamage to securitiesoloss of securities in transito2. Client RiskClient defaultoClient abscondingoFake/ forged/stolen securities introduced by the clientoReduction and Control of Risks:As a measure of the pro-active risk control several measures have beeninitiated by the Exchange to reduce the risks to which the Exchange and themember brokers are exposed. In this regard the Exchange has initiated thefollowing measures:Know Your Client Scheme:1.Under the procedure the member brokers of the Exchange arecompulsory required to obtain detailed information of clients prior tocommencement of any transactions for new clients. A similar procedure isalso to be followed for existing clients. This information is to be madeavailable to the Exchange authorities whenever called for. In case themember broker fails to furnish the same it is viewed seriously.Database of lost, Stolen, Misplaced Securities:2.The Exchange maintains a database on all the shares that have beenreported as lost, stolen, duplicate etc. by the Companies / registrars. Theinformation available through the database is time relevant thus the database is modified on a regular basis and is downloaded by the members throughBOLT on a weekly basis. This database is also provided to the ClearingHouse. The member brokers can thus reduce the instances of delivery ofshares that have been reported by the Company as bad delivery by checkingall the deliveries in their office with the database provided. The Exchangehas designed and developed a software module for the above for the benefitof the members.The Clearing House also uses the database. At the time of pay-in themembers of the Exchange are required to submit the details of the sharesbeing deposited in the pay-in in a softcopy in a prescribed format.. Thesedetails are checked against the database and a report is generated in case amatch is found. Such shares are then reported as bad delivery in theExchange. Further follow-up is done with the delivering broker and they aredirected to lodge a police complaint against the client introducing the stolensharesClient Caution Database:3.The Risk Management department in conjunction with the Bad DeliveryCell of the Exchange, the Exchange has designed and developed a clientdatabase. All member brokers whose clients / sub-brokers have introducedfake / forged shares are required to lodge a FIR / Police complaint againsttheir clients and also report the same to the Exchange. The information ofsuch clients is called for in a prescribed format. As per the scheme themembers have to collect detailed information about the clients. These detailsare incorporated in the database, which is downloaded to the members, as a precautionary measure. The member brokers at the time of admitting newclients can refer to the client caution database for further verification.4. Verification of shares at members office :The Risk Management Committee has outlined a process for minimizingthe risks arising out of Fake/ forged /stolen shares introduced by the clientsof the member brokers.As per the procedure outlined issued by the Exchange, in case thetransaction in a script with one particular client in a settlement exceeds Rs.10 lakhs then the member brokers are required to send the photocopies of thetransfer - deeds and the share certificates to the Company / Registrar forverification of the material particulars. The members can select a randomsample for the same from the lot. A similar procedure should also befollowed in case the shares worth more than Rs. 10 lakhs are received fromthe Clearing House during pay-out in one scrip.The basic idea behind the introduction of this procedure is to preventFake/ forged/stolen shares from being introduced in the market. TheExchange issued a notice outlining the procedure to be followed. The aboveprocedure is an important Risk Management Tool especially where thereexists a large volume of deliveries. The Risk Management Department actsas a facilitator in this regard and has written to all "A" group and B1 groupcompanies in this regard seeking their co-operation. 5. Inspection :The department is carrying out inspection of the member brokers recordsas regards compliance of the risk management proceduresIntegrated Comprehensive Insurance Policy for MembersTo reduce the systematic risk, Securities & Exchange Board of India(SEBI) vide its circular ref. No SMD/SED/RCG/270/96 dated January 19th,1996, had directed all stock exchanges to ensure that all active Members areproperly insured. Insurance companies in consultation with BSE haveoffered an insurance policy which covers losses on account of trading aswell as back office losses to the Members. The minimum sum insured isRs.5 lakhs per MemberPresently, all active Members obtain the said policy directly from theinsurance companies and then inform BSE about the same.4.5 DERIVATIVEIntroductionBSE created history on June 9, 2000 by launching the first Exchange-traded Index Derivative Contract in India i.e. futures on the capital marketbenchmark index - the BSE Sensex. The inauguration of trading was doneby Prof. J.R. Varma, member of SEBI and Chairman of the committeewhich formulated the risk containment measures for the derivatives market. Trading in derivatives is enabled through a separate front end systemcalled the Derivatives Trading & Settlement System (DTSS) Trader Workstation (TWS). It is also extendable through Intermediate Messaging Layer(IML) where trading members can access the exchange systems throughtheir own customized software.In sequence of product innovation, BSE commenced trading in IndexOptions on Sensex on June 1, 2001, Stock Options were introduced on 31stocks on July 9, 2001 and Single Stock Futures were launched onNovember 9, 2002.September 13, 2004 marked another milestone in the history of the Indiancapital market, when BSE launched Weekly Options, a unique productunparalleled worldwide in the derivatives markets. BSE permitted trading inweekly contracts in options in the shares of four leading companies namelyReliance Industries, Satyam, State Bank of India, and TISCO ( now TataSteel) in addition to the flagship index-Sensex.Chhota (mini) SENSEXChhota SENSEX was launched on January 1, 2008. With a small or'mini' market lot of 5, it allows for comparatively lower capital outlay, lowertrading costs, more precise hedging and flexible trading. It is a step toencourage and enable small investors to mitigate risk and enable easy accessto India's most popular index, SENSEX, through futures & options. TheSecurity Symbol for SENSEX Mini Contracts is MSX. The contract isavailable for one, two and three months along with weekly options. Long Dated OptionsBSE also introduced 'Long Dated Options' on its flagship index -Sensex -on February 29, 2008, whereby the Members can trade in Sensex(in the normal lot of 15 only and not 'mini' Sensex) Options contracts withan expiry of up to 3 years.Currency Derivatives:Going ahead, on October 1, 2008 BSE launched its currency derivativessegment in dollar-rupee currency futures as the exchange traded currencyfutures contracts facilitate easy access, increased transparency, efficientprice discovery, better counterparty credit risk management, widerparticipation and reduced transaction costs.Futures on BOLTBSE re-launched its Derivatives Segment by enabling trading of Indexand Stock Futures on its BOLT Terminal. The change was in response torequests from trading members for a common front end from which equitiesand equity derivatives could be traded. The change will enable a trader totrade in cash scrips and futures products through BOLT TWS/ IML whileOption products would continue to trade through the DTSS TWS/DIML.The risk management and settlement of futures and option trades willcontinue to take place on DTSS.Why SENSEX FuturesThere are many reasons why a SENSEX future makes sense: SENSEX as compared with other indices shows less volatility and atthe same time gives returns equivalent to the returns given by theother indices.SENSEX is widely used to describe the mood in the Indian stockmarket. Because of its long history and wide acceptance, no otherindex matches the BSE SENSEX in reflecting market movementsand sentiments and it makes an attractive underlying for index-basedproducts like Index Funds, Futures & Options and Exchange TradedFunds.SENSEX is truly investible as it is the only broad based index in Indiathat is "free float market capitalization weighted", which reflects themarket trends more rationally and takes into consideration only thoseshares that are available for trading in the market.It may be noted that in addition to the SENSEX , five sectoral indicesbelonging to the 90/FF series are also available for trading in the Futures andOptions Segment of BSE Limited. The term '90 /FF' means that the indicescover 90% of the market capitalization of the sector to which the indexbelongs and is thus well representative of that sector. Also, FF stands forfree float - i.e. the indices are based on the globally followed standard of freefloat market capitalization methodology. The five sectoral indices that arepresently available for F&O are BSE TECK, BSE FMCG, BSE Metal, BSEBanker and BSE Oil & Gas.4.6 Safeguards' for Investors'These are some of the safeguards the investors should keep in mindbefore trading in the securities market. Selecting a Broker/ Sub - Broker1.Deal only with a SEBI registered Broker / Sub - broker afterdue diligence. Details of the BSE Brokers can be obtained from theMember's List published by BSE and from the website :2. Entering into an AgreementFill in a Client registration form with the Broker / Sub - brokerEnter into Broker / Sub - broker - Client Agreement. Thisagreement is mandatory for all investors for registering as a client of aBSE Trading Member. Ensure the following before entering into anagreement:Carefully read and understand the terms and conditions of the agreementbefore executing the same on a valid stamp paper of the requisite value.Agreement to be signed on all the pages by the Client and the Member ortheir representative who has the authority to sign the agreement.Agreement has also to be signed by the witnesses by giving their namesand addresses.Please note that Regulatory Authorities have not stipulated for executionof any document other than Broker/ Sub - Broker / Client Agreement.3. Transacting Specify to the Broker / Sub - broker, the exchange through whichyour trade is to be executed and maintain separate account for eachexchange.Obtain a valid Contract Note from the Broker / Sub-broker within24 hours of the execution of the trade.Contract note is a confirmation of trade(s) done on a particular day for andon behalf of a client in a format prescribed by BSE. It establishes a legallyenforceable relationship between the Trading Member and his Client inrespect of settlement of trades executed on BSE as stated in the ContractNote.Contract Notes are made in duplicate, and the Trading Member and Client,both keep one copy each. The Client is expected to sign on the duplicatecopy of the Contract Note, confirming receipt of the original.a. Contract Note - Form 'A' - Contract Note issued whereMember is acting for constituents as brokers/ agents.b. Contract Note - Form 'B' - Contract Note issued by Membersdealing with constituents as principals.Ensure that the Contract Note contains:SEBI registration number of the Trading Member/ Sub brokerDetails of trade such as, Order no, trade no., trade time, quantity,price, brokerage, settlement number, details of other levies.Trade price should be shown separately from the brokerage charged.As stipulated by SEBI, the maximum brokerage that can be charged is2.5% of the contract price. This maximum brokerage is inclusive ofthe brokerage charged by the sub-broker (Sub-brokerage cannot exceed 1.5% of the contract price.) Any additional charges that aTrading Member can charge are Service Tax on the brokerage, anypenalties arising on behalf of client and Securities Transaction Tax(STT).The brokerage, service tax and STT are indicated separately in theContract Note.Signature of authorized representative. Arbitration clause stating thatthe trade is subject to the jurisdiction of Mumbai must be present onthe face of the Contract note.4. SettlementEnsure delivery of securities /payment of money to the brokerimmediately upon getting the Contract Note for sale / purchase but in anycase, before the prescribed pay-in-day.Member should pay the money or securities to the investorwithin 24 hours of the payout.Open a demat account.Opt for buying and selling shares in demat form.For delivery of shares from demat account, give the DepositoryParticipant (D P) 'Delivery out' instructions to transfer the same from thebeneficiary account to the pool account of broker through whom sharesand securities have been sold. The following details to be given to the DP: details of the pool a/c ofbroker to which the shares are to be transferred, details of scrip, quantityetc. As per the requirement of depositories the 'Delivery out' Instructionshould be given at least 48 hours prior to the cut-off time for theprescribed securities pay-in.For receiving shares in your demat account, give the DepositoryParticipant (D P) 'Delivery in' instructions to accept shares in beneficiaryaccount from the pool account of broker through whom shares have beenpurchased.If physical deliveries are received check the deliveries receivedas per Good/Bad delivery guidelines issued by SEBI.Bad delivery cases should be sorted out through BSEmechanism immediately.Ensure that all registration of physical shares for ownership bytransfer should be executed by a valid, duly completed and stampedtransfer deed.Rights of InvestorsTo receive all benefits/ material information declared for the investorsby the Company.Prompt services from the Company such as transfers, Sub-divisionsand consolidation of holdings in the Company.As an equity holder have a right to subscribe to further issue of capitalby the Company. Brokerage not to exceed 2.5% of the contract price.Receipt of the Contract Note from the broker in the specified formatshowing transaction price, brokerage, Service Tax and STT, separately.Expect delivery of shares purchased/value of shares sold within 24hours from pay-out.Approach concerned Regional Arbitration Centres of BSE, byconfirminggeographical jurisdiction.The Complaint against trading members of the Exchange or Applicationsfor Arbitration should be filed at the concerned Regional Arbitration Centrereferred to in column 1 below covering that State or Union Territory ofIndia, referred to in Column 2 below, within which the most recent address /registered office address of the constituent, as duly communicated in writingto the trading member in accordance with law, is located. Provided inrespect of a non-resident Indian Constituent, the Seat of Arbitration shall beRegional Arbitration Centre which covers the States and Union Territoriesgiven in Column 2, in which lies the address or the Registered Officeaddress, as the case may be, of the trading member, depending uponcorporate or non-corporate membership of the trading member. The hearingsshall be held in the concerned Regional Arbitration Centre in which theApplicant had duly filed the Application for Arbitration. ANNEXURE1) How Bombay Stock Exchange has established?2) What are the various types of scrips traded on BSE?3) How the trading took place at BSE?4) What are the technologies used by BSE?5) How BOLT helps the invertors? 6) What are the various types of BSE indices?7) What is BSE derivative?8) How the settlement took place @ BSE?9) How the risks are managed by BSE?10) What are investors rights given by BSE? 11) BSE safeguard for investors