INTRODUCTION

The India Capital market consists of many financial institutes, Banks, Stock

Markets etc. The capital Market is being divided between two parts:

Primary Market

Secondary market.

The stock exchange comes in the secondary market & these exchanges are

performing various functions. Stock exchange performs these functions with

the help of middleman called the intermediaries. These intermediates act as a

link in between buyer & seller on the stock exchange. Without the presence

of these intermediaries it is impossible to trade on the stock exchange.

Stock exchange is trading in share, securities, gilt-edge securities, bonds,

mutual fund & commodities.

There are 23 stock exchanges in India like BSE, NSE, Bangalore stock

exchange, Cochin stock exchange, Delhi stock exchange, kolkatta stock

exchange & many others.

The intermediaries in the capital market are:

Merchant Banker

Their function & working are very crucial to the operating in the

primary market. They are the issue manager, lead manager, co-manager &

are responsible to the company & SEBI.

Registrar :

BABASAB PATIL

Their function are next to merchant banker in importance. They collect

the application for the new issue, their cheques, stock invests, classify &

computerize them. They also make allotment in consultation with the

regional stock exchange regarding norms in the event of over subscription &

before a public representative.

Collecting Banker :

Collecting banker collects the subscription in cash, cheques, stock

invest, ect.

Underwriter:

Underwriter mar be financial institution, banks, mutual fund, ect., &

undertake to mobilise the subscription up to some limit. Falling to secure

subscription as agreed to, they have to make good the shortfalls by their own

subscription.

Stock Market Intermediaries:

Client Broker :

They are doing simple broking between buyer & seller & earning only

brokerage for their service from the client.

Floor Broker:

These are authorized clerks & sub-brokers who enter the trading floor &

execute the orders for the client or other member.

BABASAB PATIL

Jobber & Market Maker:

Those members who are ready to buy & sell simultaneously in selected

scrips, offering on the trade floor & earning profit through the margin

between buying & selling rate. Market Maker undertakes this work

compulsorily for some companies & bank finance in available to them.

Arbitrage r :

Those who do inter market deals for a profit through difference in price as

between markets say buy in Kolkatta & sell in Mumbai & vice versa.

Badla Financiers:

Those members who finance carry forward deals in specified group (A

group) for a return in the form of interest, called Badla Rate. They lend

money or shares for the brokers who are over bought or over sold

respectively at the time of settlement. Badla in carry forward facility from

one settlement to another without taking a delivery up to a maximum period

of 90 days at a time.

Introduction To Bombay Stock Exchange

The Stock Exchange, Mumbai, popularly known as "BSE" was established

in 1875 as "The Native Share and Stock Brokers Association". It is the

oldest one in Asia, even older than the Tokyo Stock Exchange, which was

established in 1878. It is a voluntary non-profit making Association of

Persons (AOP) and is currently engaged in the process of converting itself

into demutualised and corporate entity. It has evolved over the years into its

BABASAB PATIL

present status as the premier Stock Exchange in the country. It is the first

Stock Exchange in the Country to have obtained permanent recognition in

1956 from the Govt. of India under the Securities Contracts (Regulation)

Act, 1956.

The Exchange, while providing an efficient and transparent market for

trading in securities, debt and derivatives upholds the interests of the

investors and ensures redressal of their grievances whether against the

companies or its own member-brokers. It also strives to educate and

enlighten the investors by conducting investor education programmes and

making available to them necessary informative inputs.

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 Officer 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 Departments assist him.

The Exchange has inserted new Rule No.126 A in its Rules, Bye-laws &

Regulations pertaining to constitution of the Executive Committee of the

Exchange. Accordingly, an Executive Committee, consisting of three elected

BABASAB PATIL

directors, three SEBI nominees or public representatives, Executive Director

& CEO and Chief Operating Officer has been constituted. The Committee

considers judicial & quasi matters in which the Governing Board has powers

as an Appellate Authority, matters regarding annulment of transactions,

admission, continuance and suspension of member-brokers, declaration of a

member-broker as defaulter, norms, procedures and other matters relating to

arbitration, fees, deposits, margins and other monies payable by the member-

brokers to the Exchange, etc.

Turnover on the Exchange

The average daily turnover of the Exchange during the financial year

2000-2001 (April-March), was Rs.3984.19 crores and the average

number of daily trades was 5.69 lakhs.

The average daily turnover of the Exchange in the subsequent two

financial years, i.e., 2001-02 & 2002-03, has declined

Considerably to Rs. 1248.15 crores and Rs. 1251.29 crores

respectively.

The average number of daily trades recorded during 2001-02 and

2002-03 numbered 5.17 lakhs and 5.63 lakhs respectively.

The average daily turnover and average number of daily trades during the

quarter April-June 2003 were Rs. 1101.05 crores and 5.70 lakhs

respectively.

The ban on all deferral products like Borrowing & Lending of Securities

Scheme (BLESS) and Automated Lending & Borrowing Mechanism

(ALBM) in the Indian capital markets by SEBI w.e.f. July 2, 2001, abolition

BABASAB PATIL

of account period settlements, introduction of Compulsory Rolling

Settlements in all scrips traded on the Exchanges w.e.f. December 31, 2001,

etc. has adversely impacted the liquidity in the market and consequently

there is a considerable decline in the average daily turnover at the Exchange

as reflected in above statistics.

The Stock Exchange, Mumbai Governing BoardFor The Year 2005

Mr. S. Jambunathan

 IAS (Retd.)

Executive Director & CEO

Mr. Rajnikant Patel

Mr. Bhanubhai G. Fozdar

Mr. Siddharth J. Shah

Mr. Prakash R. Kacholia

Mr. Alok C. Churiwala

Mr. Deven R. Choksey

Mr. Balkishan Mohta

Mr. Uttam Bagri

Mr. Radheyshyam B. Khandelwal

Mr. Nagji Keshavji Rita

Mr. Jitesh Khosla

Joint Secretary, Dept. of Company Affairs, Govt. of India

Mr. P.P. Vora

Mr. P. K. Banerji

Retired IAS Officer

Mr. Jagdish Capoor

BABASAB PATIL

Chairman, HDFC Bank

Mr. Vijay Mukhi

Managing Director, Vijay Mukhi's Computer Institute

Mr. Pradip P. Shah

Chairman, IndAsia Fund Advisors Private Limited

Prof. N. Ravichandran

Professor, IIM Ahmedabad

NATIONAL STOCK EXCHANGE LTD.

The Organisation:

The National Stock Exchange of India Limited has genesis in the report of

the High Powered Study Group on Establishment of New Stock Exchanges,

which recommended promotion of a National Stock Exchange by financial

institutions (FIs) to provide access to investors from all across the country

on an equal footing. Based on the recommendations, NSE was promoted by

leading Financial Institutions at the behest of the Government of India and

was incorporated in November 1992 as a tax-paying company unlike other

stock exchanges in the country.

On its recognition as a stock exchange under the Securities Contracts

(Regulation) Act, 1956 in April 1993, NSE commenced operations in the

Wholesale Debt Market (WDM) segment in June 1994. The Capital Market

(Equities) segment commenced operations in November 1994 and

operations in Derivatives segment commenced in June 2000.

Our Mission:

BABASAB PATIL

NSE's mission is setting the agenda for change in the securities markets in

India. The NSE was set-up with the main objectives of:

Establishing a nation-wide trading facility for equities, debt

instruments and hybrids,

Ensuring equal access to investors all over the country through

an appropriate communication network,

Providing a fair, efficient and transparent securities market to

investors using electronic trading systems,

Enabling shorter settlement cycles and book entry settlements

systems, and

Meeting the current international standards of securities

markets.

The standards set by NSE in terms of market practices and technology has

become industry benchmarks and is being emulated by other market

participants. NSE is more than a mere market facilitator. It's that force which

is guiding the industry towards new horizons and greater opportunities.

Our Logo: Say NSE’s LOGO

The logo of the NSE symbolises a single nationwide securities trading

facility ensuring equal and fair access to investors, trading members and

issuers all over the country. The initials of the Exchange viz., N, S and E

have been etched on the logo and are distinctly visible. The logo symbolises

use of state of the art information technology and satellite connectivity to

BABASAB PATIL

bring about the change within the securities industry. The logo symbolises

vibrancy and unleashing of creative energy to constantly bring about change

through innovation.

Promoters:

NSE has been promoted by leading financial institutions, banks, insurance

companies and other financial intermediaries:

Industrial Development Bank of India Limited

Industrial Finance Corporation of India Limited

Life Insurance Corporation of India

State Bank of India

ICICI Bank Limited

IL & FS Trust Company Limited

Stock Holding Corporation of India Limited

SBI Capital Markets Limited

The Administrator of the Specified Undertaking of Unit

Trust of India

Bank of Baroda

Canara Bank

General Insurance Corporation of India

National Insurance Company Limited

The New India Assurance Company Limited

The Oriental Insurance Company Limited

United India Insurance Company Limited

Punjab National Bank

Oriental Bank of Commerce

BABASAB PATIL

Corporation Bank

Indian Bank

Union Bank of India

Corporate Structure

NSE is one of the first de-mutualised stock exchanges in the country, where

the ownership and management of the Exchange is completely divorced

from the right to trade on it. Though the impetus for its establishment came

from policy makers in the country, it has been set up as a public limited

company, owned by the leading institutional investors in the country.

From day one, NSE has adopted the form of a demutualised exchange - the

ownership, management and trading is in the hands of three different sets of

people. NSE is owned by a set of leading financial institutions, banks,

insurance companies and other financial intermediaries and is managed by

professionals, who do not directly or indirectly trade on the Exchange. This

has completely eliminated any conflict of interest and helped NSE in

aggressively pursuing policies and practices within a public interest

framework.

The NSE model however, does not preclude, but in fact accommodates

involvement, support and contribution of trading members in a variety of

ways. Its Board comprises of senior executives from promoter institutions,

eminent professionals in the fields of law, economics, accountancy, finance,

taxation, etc, public representatives, nominees of SEBI and one full time

executive of the Exchange.

BABASAB PATIL

While the Board deals with broad policy issues, decisions relating to market

operations are delegated by the Board to various committees constituted by

it. Such committee includes representatives from trading members,

professionals, the public and the management. The day-to-day management

of the Exchange is delegated to the Managing Director who is supported by

a team of professional staff.

Our Technology:

Across the globe, developments in information, communication and network

technologies have created paradigm shifts in the securities market

operations. Technology has enabled organizations to build new sources of

competitive advantage, bring about innovations in products and services,

and to provide for new business opportunities. Stock exchanges all over the

world have realised the potential of IT and have moved over to electronic

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

mechanism for trade and post trade execution.

NSE believes that technology will continue to provide the necessary impetus

for the organisation to retain its competitive edge and ensure timeliness and

satisfaction in customer service. In recognition of the fact that technology

will continue to redefine the shape of the securities industry, NSE stresses

on innovation and sustained investment in technology to remain ahead of

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

satellite communication technology to energies participation from around

400 cities spread all over the country. In the recent past, capacity

enhancement measures were taken up in regard to the trading systems so as

to effectively meet the requirements of increased users and associated

BABASAB PATIL

trading loads. With upgradation of trading hardware, NSE can handle up to 1

million trades per day. NSE has also put in place NIBIS (NSE's Internet

Based Information System) for on-line real-time dissemination of trading

information over the Internet. In order to capitalise on in-house expertise in

technology, NSE set up a separate company, NSE.IT, in October 1999. This

is expected to provide a platform for taking up new IT assignments both

within and outside India and attaining global exposure.

NEAT is a state-of-the-art client server based application. At the server end,

all trading information is stored in an in-memory database to achieve

minimum response time and maximum system availability for users. The

trading server software runs on a fault tolerant STRATUS main-frame

computer while the client software runs under Windows on PCs.

The telecommunications network uses X.25 protocol and is the backbone of

the automated trading system. Each trading member trades on the NSE with

other members through a PC located in the trading member's office,

anywhere in India. The trading members on the Wholesale Debt Market

segment are linked to the central computer at the NSE through dedicated

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

using dedicated 2 Mbps, optical-fiber links. The WDM participants connect

to the trading system through dial-up links.

The Exchange uses powerful RISC -based UNIX servers, procured from

Digital and HP for the back office processing. The latest software platforms

like ORACLE 7 RDBMS, GUPTA - SQL/ORACLE FORMS 4.5 Front -

BABASAB PATIL

Ends, etc. have been used for the Exchange applications. The Exchange

currently manages its data centre operations, system and database

administration, design and development of in-house systems and design and

implementation of telecommunication solutions.

NSE is one of the largest interactive VSAT based stock exchanges in the

world. Today it supports more than 3000 VSATs and is expected to grow to

more than 4000 VSATs in the next year. The NSE- network is the largest

private wide area network in the country and the first extended C- Band

VSAT network in the world. Currently more than 9000 users are trading on

the real time-online NSE application. There are over 15 large computer

systems, which include non-stop fault-tolerant computers and high-end

UNIX servers, operational under one roof to support the NSE applications.

This coupled with the nation wide VSAT network makes NSE the country's

largest Information Technology user.

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

has been implemented, connecting all the offices at Mumbai, Delhi, Calcutta

and Chennai. This corporate network enables speedy inter-office

communications and data and voice connectivity between offices.

In keeping with the current trend, NSE has gone online on the Internet.

Apart from having a 2mbps link to VSNL and our own domain for internal

browsing and e-mail purposes, we have also set up our own Web site.

Currently, NSE is displaying its live stock quotes on the web site

(www.nseindia.com), which are updated online.

BABASAB PATIL

BOARD OF DIRECTORS OF NSE:

Mr. S. B. Mathur Chairman

Mr. Ravi Narain Managing Director

Ms. Chitra Ramkrishna Deputy Managing Director

Mr. S. P. Chhajed Director

Mr. R. P. Chitale -do-

Mr. Indrajit Gupta -do-

Mr. N.S. Kannan -do-

Mr. S. H. Khan -do-

Mr. A. P. Kurian -do-

Mr. Anand G. Mahindra -do-

Mr. Y. H. Malegam -do-

Prof. (Dr.) K.R.S.Murthy -do-

Mr. Ravi Parthasarathy -do-

Dr. R. H. Patil -do-

Mr. Justice M.L. Pendse (Retd.) -do-

Mr. M. Raghavendra -do-

Mr. M. Raghavendra -do-

Mr. R. N. Bhardwaj -do-

BABASAB PATIL

Stock Exchanges in India:

Totally there are 24 Stock Exchanges in India (Capital Stock Exchange is

yet to start it’s function)

Some of them are like this:

1. National Stock Exchange

2. Bombay Stock Exchange

3. Bangalore Stock Exchange

4. Delhi Stock Exchange

5. Vadora Stock Exchange

6. Kolkatta Stock Exchange

7. Cochin stock exchange

8. Pune stock Exchange

9. Chennai Stock Exchange

10. Jaipur Stock Exchange

The geographical location of all the stock exchanges is shown below

BABASAB PATIL

Stock market index

A stock Market Index is a Market. It should capture the behaviour of the

overall equity market. Movements of the index should represent the returns

obtained by "typical" portfolios in the country.

BABASAB PATIL

The basic idea in an index

Every stock price moves for two possible reasons: news about the company

(e.g. a product launch, or the closure of a factory, etc.) or news about the

country (e.g. nuclear bombs, or a budget announcement, etc.). The job of an

index is to purely capture the second part, the movements of the stock

market as a whole (i.e. news about the country). This is achieved by

averaging. Each stock contains a mixture of these two elements - stock news

and index news. When we take an average of returns on many stocks, the

individual stock news tends to cancel out. On any one day, there would be

good stock-specific news for a few companies and bad stock-specific news

for others. In a good index, these will cancel out, and the only thing left will

be news that is common to all stocks. The news that is common to all stocks

is news about India. That is what the index will capture.

BABASAB PATIL

Importance of Index

Traditionally, indices have been used as information sources. By looking at

an index we know how the market is faring. This information aspect also

figures in myriad applications of stock market indices in economic research.

This is particularly valuable when an index reflects highly up-to-date

information (a central issue which is discussed in detail ahead) and the

portfolio of an investor contains illiquid securities - in this case, the index is

a lead indicator of how the overall portfolio will fare. In recent years, indices

have come to the fore owing to direct applications in finance, in the form of

index funds and index derivatives. Index funds are funds which passively

`invest in the index'. Index derivatives allow people to cheaply alter their

risk exposure to an index (this is called hedging) and to implement forecasts

about index movements (this is called speculation). Hedging using index

derivatives has become a central part of risk management in the modern

economy. These applications are now a multi-trillion dollar industry

worldwide, and they are critically linked up to market indices. Finally,

indices serve as a benchmark for measuring the performance of fund

managers. An all-equity fund should obtain returns like the overall stock

market index. A 50:50 debt: equity fund should obtain returns close to those

obtained by an investment of 50% in the index and 50% in fixed income. A

well-specified relationship between an investor and a fund manager should

explicitly define the benchmark against which the fund manager will be

compared, and in what fashion.

BSE Sensex:

BSE-SENSEX, short form of the BSE-Sensitive Index, is a "Market

Capitalization-Weighted" index of 30 stocks representing a sample of large,

BABASAB PATIL

well-established and financially sound companies. It is the oldest index in

India and has acquired a unique place in the collective consciousness of

investors. The index is widely used to measure the performance of the Indian

stock markets. BSE-SENSEX is considered to be the pulse of the Indian

stock markets as it represents the underlying universe of listed stocks at The

Stock Exchange, Mumbai. Further, as the oldest index of the Indian Stock

market, it provides time series data over a fairly long period of time (since

1978-79). Over the years, BSE-SENSEX has become one of the most

prominent brands in the country

S&P CNX Nifty;

S&P CNX Nifty is a well-diversified 50 stock index accounting for 23

sectors of the economy. It is used for a variety of purposes such as

benchmarking fund portfolios, index based derivatives and index funds.

S&P CNX Nifty is owned and managed by India Index Services and

Products Ltd. (IISL), which is a joint venture between NSE and CRISIL.

IISL is India's first specialised company focused upon the index as a core

product. IISL have a consulting and licensing agreement with Standard &

Poor's (S&P), who are world leaders in index services.

The average total traded value for the last six months of all Nifty

stocks is approximately 58% of the traded value of all stocks on the

NSE

Nifty stocks represent about 60% of the total market capitalization as

on March 31, 2005.

BABASAB PATIL

Impact cost of the S&P CNX Nifty for a portfolio size of Rs.5 million

is 0.07%

S&P CNX Nifty is professionally maintained and is ideal for

derivatives trading

The ups and downs of an index:

They reflect the changing expectations of the stock market about future

dividends of India's corporate sector. When the index goes up, it is because

the stock market thinks that the prospective dividends in the future will be

better than previously thought. When prospects of dividends in the future

become pessimistic, the index drops. The ideal index gives us instant-to-

instant readings about how the stock market perceives the future of India's

corporate sector.

Kinds of indices exist :

The most important type of market index is the broad-market index,

consisting of the large, liquid stocks of the country. In most countries, a

single major index dominates benchmarking, index funds, index derivatives

and research applications. In addition, more specialised indices often find

interesting applications. In India, we have seen situations where a dedicated

industry fund uses an industry index as a benchmark. In India, where clear

categories of ownership groups exist, it becomes interesting to examine the

performance of classes of companies sorted by ownership group.

BABASAB PATIL

GEERAK MARKETING, COMPANY OVERVIEW

About The Founder

Mr. Nanalal Karva born in the year 1958 & completed his schooling at

Dharwad, he completed his B.Com from J G College of Commerce, Hubli,

after completion of graduation, he went to Mumbai for gaining experience &

served for professionally managed concerns, private companies, for 4 years,

which helped him to bring professional approach to his organisation. After

gaining working experience at Mumbai, he went abroad i.e. to Muscat &

Kuwait for 3 years & returned to Dharwad during 1985.

Company Profile

Mr.Nanalal Karva started Geerak Marketing, an investment consultancy

firm in the year 1985. This firm was established with the view to bring the

people of Northern part of Karnataka in the main stream of investors at

national level. Since its establishment the firm is continuously engaged in

serving the investors’. In the given scenario it will be much appropriate to

say that “GEERAK” is the first organization that has educated and

introduced the people of this part of Karnataka to the capital market.

Geerak Marketing was the first incorporated as a private Limited Company

on 16th June 1992 and subsequently converted into a public Limited

Company on 25th October1995 and was named as “Geerak Marketing Stock

and Shares Broker Limited” (GMSSBL).

BABASAB PATIL

Mr. Nanalal Karva and his family hold majority of the shares. The present

Net Worth of the company stands around Rs. 54 lakhs. GMSSBL has taken

over all the activities of Geerak Marketing, which was in existence since

1985. Ultimately GMSSBL has become the Flagship Company of GEERAK

GROUP to serve the investors.

Since its inception in the year 1985, the firm has grown to reach immense

heights. It has withstood all odds in the market and has emerged as a true

leader in the bargain. GEERAK is widely recognized as a trustworthy

organization and has been successful in satisfying its clients’ interests.

SCOPE OF ACTIVITIES:

The scope of activities for Geerak has been:

Stock and Shares broking as sub-broker of

National Stock Exchange (NSE).

Bombay Stock exchange (BSE).

Investment advisory service for:

Resident Indians.

Non-Resident Indians.

Mobilising the savings of the people towards Corporate.

Establishment of service centers at semi-urban and rural areas to meet the

investors’ needs.

Depository services which are being offered through:

BABASAB PATIL

Nirmal Bang securities Private Limited, Mumbai.

Peninsular Capital Market limited, Cochin.

Stock Holding Corporation of India limited, Hubli.

Educating in Futures and Options.

Investment related other diversified services provided by Geerak:

New issue forms, applications for bonds, debentures and fixed

deposits.

Investment in mutual Fund of UTI, Alliance, Kothari, Zurich, Kotak

Mahindra, LIC, GIC, Cholamandala etc.

Investment in taxfree bonds.

Investment of long term gains under section 54 EC in the prescribed

infrastructure bonds (as of NHAI)

Some Other Services provided by Geerak:

Information regarding what shares to buy/sell, when to buy/sell and what are

the market conditions.

Technical Analysis and arriving the trends in the market of index and

individual scrip.

Arranging investors’ meeting to provide information on the day-to-day

changes in the stock market and investment related activities.

BABASAB PATIL

Arrangement of pre and post Budget meetings for the investors.

Transfer of shares and transmission of Shares.

GEERAK BRANCHES:

Following are the branches of Geerak Marketing Ltd.

Dharwad: #3, 1st Floor, Geeta complex, P B Road, Dharwad

Belgaum: 9/10, 1st Floor, Biligi Plaza College Road, Belgaum

Haveri: Banashankari Complex Vidyanagar, P B Road, Haveri

Gadag: #6, Siddhhalingeshwar Complex, Station Road, Gadag

Gulbarga: O/o Balaji Traders #20, Pal Complex Near City Bus stand Super

Market, Gulbarga

Gajendragad: 1st Floor, Natraj Hotel Building, Kalkaeshwar Circle

Gajendragad

Panvel (Mumbai): O/o Shri Balaji Investment #8, Shree Shayya Pride, Plot

No-155, MCCH Society, Panvel, Dist. Raigad

Ranebennur: C/o Siddheshwar Enterprise, P B Road, Near Forest Office,

Ranebennur

BABASAB PATIL

Settu Securities, Hubli (Station Road): 49, Shri Laxmi Balakrishna Square,

Station Road, Hubli

Sindhnur Geerak marketing, A newly branch started in Sindhnur,

The major services provided by these branches are trading in Futures and

Options, Buying and Selling of shares through national Stock Exchange and

Bombay Stock Exchange.

All the branches are fully controlled by the Head Office at Hubli. In the

administrator server (situated at the H.O) the trading limits for each of the

branches and for the clients trading are defined. Further every transaction

that takes place in these branches can be monitored from the head office; the

whole system is controlled with the help of the software called ODIN (Open

Dealer Integrated Network) developed by financial technologies (India) ltd.

At the end of the day the contract notes for the transactions executed on the

behalf of the clients are also issued from Head Office. Payments from clients

received at the branches are deposited at the designated Bank account, and

the payment for the Clients are

Made from the Head office.

Customer Profile:

The clients’ base of Geerak includes bank employees, business people,

retired persons, government employees, teachers and professors. Here some

speculate while some others take up delivery based trading. For few their

objective remains “investing” their surplus cash while some others enjoy

BABASAB PATIL

hedging, many clients also invest in Mutual funds, Company deposits and

still some others invest their money in Debentures of various companies.

Brokerage charges:

The brokerage charged by GEERAK varies from 0.05% to 0.205 for trading

purposes and from 0.25% to 0.75% as delivery charges.

Topic:

“Functioning of Capital Market (stock exchange) & Role of

Intermediaries in Capital Market”

Objective:

BABASAB PATIL

Getting an in-depth knowledge of the working of the capital market with

special reference to the stock exchange and understanding the role of

intermediaries in capital market.

Sub-Objectives:

Getting the over view of the Capital Market (Primary & Secondary

Market).

To study about the settlement procedures in the stock exchanges.

To study about the intermediaries, their functioning & importance of

their presence in the capital market.

To study about the Auction Trading in the Stock Exchange.

STOCK EXCHANGE ONLINE TRADING:

The trading on stock exchange 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 & inefficient. These imposed

limits on trading volumes & efficiency. In order to provide efficiency,

liquidity & transferency, NSE introduced a nation-wide on-line fully-

automated screen based trading system (SBTS) where a member can punch

into the computer quantities of securities & the price at which he likes to

BABASAB PATIL

transact & the transaction is executed as son as it finds a matching sales or

buy order from a counter party. SBTS electronically matches order on a

strict price/time priority & hence cut down on time. Cost & times or, as well

as on fraud resulting in improving operating efficiency NSE is the first Stock

Exchange to introduce screen based trading system in India.

Advantages of SBTS

It allows to faster incorporation of price sensitive information into

prevailing price.

It allows the market participant to trade from any where in the world.

Providing equal access to everybody.

Improving the depth & liquidity of the market.

It also provides a perfect Audit Trial.

Market Timings ;

Trading on the equities segment takes place on all days of the week (except

Saturdays and Sundays and holidays declared by the Exchange in advance).

The market timings of the equities segment are:

Normal Market Open : 09:55 hours

Normal Market Close : 15:30 hours

The Closing Session is held between 15.50 hours and 16.00 hours

Limited Physical Market Open: 09:55 hours

BABASAB PATIL

Limited Physical Market Close: 15:30 hours

Market Segments:

The Exchange operates the following sub-segments in the Equities segment:

Limited Physical Market

Institutional Segment

Trade for Trade Segment

Limited Physical Market:

Pursuant to the directive of SEBI to provide an exit route for small investors

holding physical shares in securities mandated for compulsory

damaterialised settlement, the Exchange has provided a facility for such

trading in physical shares not exceeding 500 shares. This market segment is

referred to as 'Limited Physical Market' (small window). The Limited

Physical Market was introduced on June 7, 1999.

Institutional Segment:

The Reserve Bank of India had vide a press release on October 21, 1999,

clarified that inter-foreign-institutional-investor (inter-FII) transactions do

not require prior approval or post-facto confirmation of the Reserve Bank of

India, since such transactions do not affect the percentage of overall FII

holdings in Indian companies. (Inter FII transactions are however not

permitted in securities where the FII holdings have already crossed the

overall limit due to any reason).

BABASAB PATIL

To facilitate execution of such Inter-Institutional deals in companies where

the cut-off limit of FII investment has been reached, the Exchange

introduced a new market segment on December 27, 1999.

The securities where FII investors and FII holding has reached the cut-off

limit as specified by RBI (2% lower than the ceiling specified by RBI) from

time to time would be available for trading in this market type for exclusive

selling by FII clients. The cut off limits for companies with 24% ceiling is

22%, for companies with 30% ceiling, is 28% and for companies with 40%

ceiling is 38%. Similarly, the cut off limit for public sector banks (including

State Bank of India) is 18% whose ceiling is 20%. The list of securities

eligible / become ineligible for trading in this market type would be notified

to members from time to time.

Trade for Trade Segment:

Trading in this segment is available only for the securities

Which have not established connectivity with both the depositories as

per SEBI directive. The list of these securities is notified by SEBI

from time to time.

On account of surveillance action

Securities Available for Trading:

The Capital Market (Equities) segment of NSE facilitates trading in the

following instruments:

BABASAB PATIL

A. Shares

Equity Shares

Preference Shares

B. Debentures

Partly Convertible Debentures

Fully Convertible Debentures

Non Convertible Debentures

Warrants / Coupons / Secured Premium Notes/ other Hybrids

Bonds

C. Units of Mutual Funds

Trading System:

NSE operates on the 'National Exchange for Automated Trading' (NEAT)

system & BSE operates on the ‘Bombay Stock Exchange Online Trading

System’ (BOLT) a fully automated screen based trading system, which

adopts the principle of an order driven market. NSE & BSE consciously

opted in favour of an order driven system as opposed to a quote driven

system. This has helped reduce jobbing spreads not only on NSE & BSE

but in other exchanges as well, thus reducing transaction costs.

Types of Trading:

Basket Trading:

The purpose of basket trading is to provide NEAT user with a facility to

create offline order file for a selected portfolio. On inputting the values, the

BABASAB PATIL

orders are created for the selected portfolio of securities according to the

ratio of their market capitalisation.

All the order generated through the offline order file are priced at the

available market price.

Quantity of shares of a particular security in portfolio are calculated as

under:

No. of shares of a security on portfolio = Amount multiplied by Issued

Capital for the Security divided by Current Portfolio Capitalisation.

Where:

Current Portfolio Capitalisation = Summation [Last Traded price (previous

close if not traded) * No. Of issued shares]

Index Trading :

The purpose of index trading is to provide NEAT users with a facility of

buying & selling of indices, in terms of security that comprise the index.

Currently, the facility is only for NIFTY security. The users have to specify

the amount, and other inputs that are sent to the host, and the host generates

the orders.

The index trading provide user the choice of gaining with the rise/decline in

index values either by buying or selling them. The buying & selling of

indices are simulated by entering orders in securities in proportion to the

composition of the index.

Quantity of shares of a particular security of NIFTY is calculated as under:

No. Of shares of a security in index = Amount * Issued Capital for the

security divided by Current Market Capitalisation of the index.

BABASAB PATIL

Where,

Current Market Capitalisation of index = Summation [last traded price

(previous close if not traded) * No. Of Issued Shares]

Insider Trading:It is a trading done on the basis of inside information, which is not available

to general public. The price sensitive information is any information, which

if published, is likely to materially affect the price of the securities of a

company. Such information may relate to the financial results of the

company, intended declaration of dividend, issue of securities or buy back of

securities, amalgamation, merger, takeover etc.

Insider trading is prohibited & is considered an offence. The SEBI

(Prohibition of Trading) Regulation Act, 1992, prohibits the insider trading.

SEBI appoints an Adjudication Officer to make investigation into insider

trading & if any body found guilty, then he impose monetary penalty.

Short Sale:

It is a kind of trading where the market participant sells the shares (without

having possessing) with an expectation that market will go down, once the

market goes down, he purchases the shares and makes his position clear.

BABASAB PATIL

Market Types :

The NEAT system has four types of market. They are:

Normal Market:

All orders which are of regular lot size or multiples thereof are traded in the

Normal Market. For shares that are traded in the compulsory damaterialised

mode the market lot of these shares is one. 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:

All orders whose order size is less than the regular lot size are traded in the

odd-lot market. An order is called an odd lot order if the order size is less

than regular lot size. These orders do not have any special terms attributes

attached to them. In an odd-lot market, both the price and quantity of both

the orders (buy and sell) should exactly match for the trade to take place.

Currently the odd lot market facility is used for the Limited Physical Market

BABASAB PATIL

as per the SEBI directives.

Spot Market:

Spot orders are similar to the normal market orders except that spot orders

have different settlement periods vis-à-vis normal market. These orders do

not have any special terms attributes attached to them. Currently the Spot

Market is not in use.

Order Books:

The NSE trading system provides complete flexibility to members in the

kinds of orders that can be placed by them. Orders are first numbered and

time-stamped on receipt and then immediately processed for potential

match. 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'.

Orders 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 orders are entered into the system, the order

having the best price gets the higher priority. Time priority means if two

orders having the same price are entered, the order that is entered first gets

the higher priority.

The Equities segment has following types of books:

BABASAB PATIL

Regular Lot Book;

The Regular Lot Book contains all regular lot orders that have none of the

following attributes attached to them.

- All or None (AON)

- Minimum Fill (MF)

- Stop Loss (SL)

Special Terms Book;

The Special Terms book contains all orders that have either of the following

terms attached:

- All or None (AON)

- Minimum Fill (MF)

Negotiated Trade Book;

The Negotiated Trade book contains all negotiated order entries captured by

the system before they have been matched against their counter party trade

entries. These entries are matched with identical counter party entries only.

It is to be noted that these entries contain a counter party code in addition to

other order details.

Stop-Loss Book;

Stop Loss orders are stored in this book till the trigger price specified in the

order is reached or surpassed. When the trigger price is reached or

BABASAB PATIL

surpassed, the order is released in the Regular lot book.

The stop loss condition is met under the following circumstances:

Sell order - A sell order in the Stop Loss book gets triggered when the last

traded price in the normal market reaches or falls below the trigger price of

the order.

Buy order - A buy order in the Stop Loss book gets triggered when the last

traded price in the normal market reaches or exceeds the trigger price of the

order.

Odd Lot Book:

The Odd lot book contains all odd lot orders (orders with quantity less than

marketable lot) in the system. The system attempts to match an active odd

lot order against passive orders in the book. Currently, pursuant to a SEBI

directive, the Odd Lot Market is being used for orders that have quantity less

than or equal to 500 viz. the Limited Physical Market.

Spot Book;

The Spot lot book contains all spot orders (orders having only the settlement

period different) in the system. The system attempts to match an active spot

lot order against the passive orders in the book. Currently the Spot Market

book type is not in use.

Auction Book;

BABASAB PATIL

This book contains orders that are entered for all auctions. The matching

process for auction orders in this book is initiated only at the end of the

solicitor period.

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 trades. For order matching,

the best buy order is the one with the highest price and the best sell order is

the one with the lowest price. This is because the system views all buy

orders available from the point of view of a seller and all sell orders from the

point of view of the buyers in the market. So, of all buy orders available in

the market at any point of time, a seller would obviously like to sell at the

highest possible buy price that is offered. Hence, the best buy order is the

order with the highest price and the best sell order is the order with the

lowest price.

Members can proactively enter orders in the system, which will be displayed

in the system till the full quantity is matched by one or more of counter-

orders and result into trade(s) or is cancelled by the member. Alternatively,

members may be reactive and put in orders that match with existing orders

in the system. Orders lying unmatched in the system are 'passive' orders and

orders that come in to match the existing orders are called 'active' orders.

Orders are always matched at the passive order price. This ensures that the

earlier orders get priority over the orders that come in later.

Order Conditions:

BABASAB PATIL

A Trading Member can enter various types of orders depending upon his/her

requirements. These conditions are broadly classified into three categories:

time related conditions, price-related conditions and quantity related

conditions.

Time Conditions:

DAY - A Day order, as the name suggests, is an order which 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 the Trading Member cancels it. It will therefore be able to span

trading days if it does not get matched. The Exchange notifies the maximum

number of days a GTC order can remain in the system from time to time.

GTD - A Good Till Days/Date (GTD) order allows the Trading Member to

specify the days/date up to which the order 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

are inclusive of the day/date on which the order is placed.

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.

BABASAB PATIL

Price Conditions;

Limit 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 best price

obtainable at the time of entering the order.

Stop Loss (SL) Price/Order – The one that allows the Trading Member to

place an order which gets activated only when the market price of the

relevant security reaches or crosses a threshold price. Until then the order

does not enter the market.

A sell order in the Stop Loss book gets triggered when the last traded price

in the normal market reaches or falls below the trigger price of the order. A

buy order in the Stop Loss book gets triggered when the last traded price in

the normal market reaches or exceeds the trigger price of the order.

E.g. If for stop loss buy order, the trigger is 93.00, the limit price is 95.00

and the market (last traded) price is 90.00, then this order is released into the

system once the market price reaches or exceeds 93.00. This order is added

to the regular lot book with time of triggering as the time stamp, as a limit

order of 95.00

Quantity Conditions:

BABASAB PATIL

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. For

example, an order of 1000 with a disclosed quantity condition of 200 will

mean that 200 is displayed to the market at a time. After this is traded,

another 200 is automatically released and so on till the full order is executed.

The Exchange may set a minimum disclosed quantity criteria from time to

time.

MF - Minimum Fill (MF) orders allow the Trading Member to specify the

minimum quantity by which an order should be filled. For example, an order

of 1000 units with minimum fill 200 will require that each trade be for at

least 200 units. In other words there will be a maximum of 5 trades of 200

each or a single trade of 1000. The Exchange may lay down norms of MF

from time to time.

AON - All or None orders allow a Trading Member to impose the condition

that only the full order should be matched against. This may be by way of

multiple trades. If the full order is not matched it will stay in the books till

matched or cancelled.

Trader Workstation:

The trader workstation is the terminal from which the member accesses the

trading system. Each trader has a unique identification by way of Trading

Member ID and User ID through which he is able to log on to the system for

trading or inquiry purposes. A member can have several user IDs allotted to

him by which he can have more than one employee using the system

concurrently.

BABASAB PATIL

The Exchange may also allow a Trading Member to set up a network of

dealers in different cities all of whom are provided a connection to the stock

exchanges’ central computer. A Trading Member can define a hierarchy of

users of the system with the Corporate Manager at the top followed by the

Branch Manager and Dealers.

The Trader Workstation screen of the Trading Member is divided into

several major windows:

Title Bar

Tool Bar

Ticker Window

Market Watch Window

On line Index and Index Inquiry

Inquiry Window

Snap Quote

Order/Trade Window

Systems Message Window

Supplementary Menu

Title Bar

The title bar displays the current time, Trading system name and date.

Tool Bar

A window with different icons which provides quick access to various

functions such as Market By Order, Market By Price, Market Movement,

Market Inquiry, Auction Inquiry, Snap Quote, Market Watch, Buy order

BABASAB PATIL

entry, Sell order entry, Order Modification, Order Cancellation, Outstanding

Orders, Order Status, Activity Log, Previous Trades, Net Position, Online

Backup, Supplementary Menu, Security List and Help. All these functions

are also available on the keyboard.

Ticker Window

The ticker displays information about a trade as and when it takes place. The

user has the option to set-up the securities, which appear in the ticker.

Market Watch Window

The Market Watch window is the main area of focus for a Trading Member.

The purpose of Market Watch is to view market information of pre-selected

securities that are of interest to the Trading Member.

To monitor various securities, the trading member can set them up by typing

the Security Descriptor consisting of a Symbol field and a Series field.

Securities can also be set up by invoking the Security List and selecting the

securities from the window. The Symbol field incorporates the Company

name and the Series field captures the segment/instrument type. A third field

indicates the market type.

For example,

Company (Symbol) : ACC

Instrument type (Series): EQ

BABASAB PATIL

Market Type: N

For each security in the Market Watch window, market information is

dynamically updated on a real time basis. The market information displayed

is for the current best price orders available in the regular lot book. For each

security, the corporate action indicator (e.g., Ex or cum dividend, interest,

rights etc.), the total buy order quantity for the best buy price, best sell price,

total sell order quantity for the best sell price, the Last Traded Price (LTP),

the last traded price change indicator ('+' if last traded price is better than the

previous last traded price and '-' if it is worse) and the no delivery indicators

are displayed. If the security is suspended, "SUSPENDED" appears in front

of the security.

On line Index and Index Inquiry

With every trade in a security participating in Index, the user has the

information on the current value of the Nifty. This value is displayed at the

extreme right hand corner of the ticker window.

Index Inquiry gives information on Close, Open, High, Low and current

index values at the time of invoking this inquiry screen.

Inquiry Window

In this window, the inquiries such as Market by Order, Market by Price,

Previous Trades, Outstanding Orders, Activity Log, Order Status and Market

Inquiry can be viewed.

BABASAB PATIL

1. Market By Order (MBO)

The purpose of Market by Order is to enable the user to view outstanding

orders in the trading books in the order of price/time priority. The

information is displayed for each order. Stop Loss orders, which are not

triggered will not be displayed on the window. Buy orders are displayed on

the left side of the window and Sell orders on the right side. The orders are

presented in a price/time priority with the "best priced" order at the top.

2. Market by Price (MBP)

The purpose of Market By Price is to enable the Trading Member to view

aggregate orders waiting in the book at given prices.

3. Previous Trades (PT)

The purpose of this window is to provide information to users for their own

trade.

4. Outstanding Orders (OO)

The purpose of Outstanding Orders is to enable a Trading Member to view

his/her own outstanding buy or sell orders for a security. An outstanding

order will be an order that was entered by the user, but is not yet completely

traded or cancelled.

BABASAB PATIL

5. Activity Log (AL)

The Activity Log shows the activities that have been performed on any order

of the Trading Member such as whether the order has been traded against

fully or partially, it has been modified or has been cancelled. It displays

information only of those orders in which some activity has taken place. It

does not display orders, which have entered the books but have not been

matched (fully or partially) or modified or cancelled.

6. Order Status (OS)

Order Status enables the user to look into the status of a specific order.

Current status of the order and other order details are displayed. In case the

order is traded, the trade details are also displayed.

7. Market Inquiry (MI)

Market Inquiry enables the user to view the market statistics like Open,

High, Low, Previous close, Last traded price change indicator, Last traded

quantity, date and time etc. A user may find inquiry screens like Market

Movement, Most Active Securities and Net Position useful. These are

available in the supplementary menu.

8. Market Movement (MM)

The Market Movement screen provides information to the user regarding the

movement of a security for the current day. It gives details of the movement

of the scrip for a time interval. The details include total buy and sell order

quantity value, Open, High, Low, Last traded price etc.

BABASAB PATIL

9. Most Active Securities

This screen gives a list of the securities with the highest traded value during the

day and the quantity traded for each of them.

10. Net Position

This functionality enables the user to interactively view his net position for

all securities in which he has traded.

Snap Quote:

The Snap Quote feature allows a Trading Member to get instantaneous

market information on any desired security. This is normally used for

securities that are not already on display in the Market Watch window. The

information presented is the same as that of Market Watch window.

Order/Trade Window:

Order entry mechanisms enable the Trading Member to place orders in the

market. The system will request re-confirmation of an order so that the user

is cautioned before the order is finally released into the market. Orders once

placed on the system can be modified or cancelled till they are matched.

Once orders are matched they cannot be modified or cancelled.

There is a facility to generate online order/trade confirmation slips as soon

as an order is placed or a trading is done. The order confirmation slip

contains among other things, order no., security name, price, quantity, order

conditions like disclosed or minimum fill quantity etc. The trade

BABASAB PATIL

confirmation slip contains the order and trade no., date, trade time, price and

quantity traded, amount etc. Orders and trades are identified and linked by

unique numbers so that the investor can check his order and trade details.

Systems Message Window:

This window is used to view messages from the Exchange to all specific

Trading Members.

Supplementary Menu:

Some of the supplementary features in the NEAT system are:

On line back up

An on line back up facility is provided which the user can invoke to take

a back up of all order and trade related information. There is an option to

copy the file to any drive of the computer or on a floppy diskette. Trading

members find this convenient in their back office work.

Off Line Order Entry

A member is able to make an order entry in the batch mode.

Computer-to-Computer Link (CTCL) facility:

NSE offers a facility to its trading members by which members can use their

own trading front-end software in order to trade on the NSE trading system.

This facility called Computer-to-Computer Link (CTCL) facility is available

only to trading members of NSE.

BABASAB PATIL

About the CTCL facility:

Trading Members can use their own software running on any suitable

hardware/software platform of their choice. This software would be a

replacement of the NEAT front-end software that is currently used by

members to trade on the NSE trading system. Members can use software

customised to meet their specialised needs like provision of on-line trade

analysis, risk management tools, integration of back-office operations etc.

The dealers of the member may trade using the software remotely through

the member's own private network, subject to approvals from Department of

Telecommunication etc. as may be required in this regard.

CTCL software:

Members can procure the CTCL software either from software vendors who

are empanelled with NSE or they may develop the software through their

own in-house development team or may procure the software from other

non-empanelled vendors.

Internet Based Trading:

The Securities & Exchange Board of India (SEBI) approved the report on

Internet Trading brought out by the SEBI Committee on Internet Based

Trading and Services In January 2000. Internet trading can take place

through order routing systems, which will route client orders to exchange

trading systems for execution. Thus a client sitting in any part of the country

would be able to trade using the Internet as a medium through brokers'

Internet trading systems.

BABASAB PATIL

SEBI-registered brokers can introduce Internet based trading after obtaining

permission from respective Stock Exchanges. SEBI has stipulated the

minimum conditions to be fulfilled by trading members to start Internet

based trading and services, vide their circular no. SMDRP/POLICY/CIR-

06/2000 dated January 31, 2000.

WAP Trading:

The SEBI Committee on Internet Based Trading and Services in its meeting

held on August 2, 2000 approved the minimum requirements for brokers

offering securities trading through wireless medium on Wireless Application

Protocol (WAP) platform.

SEBI-registered brokers who have been granted permission to provide

Internet based trading services can introduce WAP trading after obtaining

permission from respective stock exchanges. SEBI has stipulated the

minimum conditions to be fulfilled by trading members to start Internet

based trading and services, vide their circular no.SMDRP/POLICY/CIR-

48/2000 dated October 11, 2000.

WAP trading at NSE:

NSE became the first exchange to grant permission to its members for

providing WAP trading services. NSE has Custodians.

Custodians are clearing members but not trading members. They settle

trades on behalf of their clients that are executed through other trading

members. A trading member may assign a particular trade to a custodian for

settlement. The custodian is required to confirm whether he is going to settle

that trade or not. If it confirms the trade, the Clearing Corporation assigns

BABASAB PATIL

the obligation to the custodian. If the custodian rejects the trade, the

obligation is assigned back to the trading member.

The following custodians are empanelled with NSCCL:  ABN Amro Bank N.V.

  Citibank N.A.

  Deutsche Bank A.G.

  HDFC Bank Ltd.

  HongKong & Shanghai Banking Corpn. Ltd.

  ICICI Ltd.

  IndusInd Bank Ltd.

  Infrastructure Leasing & Financial Services Ltd.

  Standard Chartered Bank

  State Bank of India

  Stock Holding Corporation of India Ltd.

anted permission to one of its trading members M/s.Gogia Capital Services

Ltd. to provide securities trading through WAP. This is the first WAP

enabled online stock trading facility in the country.

BABASAB PATIL

The WAP technology has been harnessed jointly by NSE.IT and Bharti

Telesoft using Bharti Telesoft's WAP interface and NSE.IT's E-broking

products NeatXS/ iXS, leading to convenience of livestock trading for

people on the move.

Role of Intermediaries in the Capital Market:

The capital Market has been divided in to two parts i.e.

Primary Market,

Secondary Market,

Primary Market Intermediaries:

Following are the intermediaries in the primary market,

Merchant Banker

"Merchant Banker" means any person who is engaged in the business of

issue management either by making arrangements regarding selling, buying

or subscribing to securities as manager, consultant, adviser or rendering

corporate advisory service in relation to such issue management;

The term Issue is defined as - "issue' means -

i. Public offer of securities for sale;

BABASAB PATIL

ii. Sale or purchase of securities or transfer thereof by any other means,

by any body corporate or any person on his own behalf or on behalf of

the body corporate through a merchant banker;

As per Rule No.3 of the aforesaid Rules "No person shall carry on any

activity as a merchant banker unless he holds a certificate granted by the

Board under the regulations".

Merchant Banker is mainly doing the business of collecting the biding

forms, cheques, demand drafts ect, from the bidder for the issue. &

Submitting it to the issuer of IPO. For doing all these activities he gets

commission.

Registrar to an Issue:

Registrar to an Issue means the person appointed by a body corporate or any

person or group of persons to carry on the following

i. Collecting applications from investors in respect of an issue;

ii. Keeping a proper record of applications and monies received from

investors or paid to the seller of the securities. And

iii. Assisting body corporate or person or group of persons in-

a. Determining the basis of allotment of securities in consultation

with the stock exchange;

b. Finalising of the list of persons entitled to allotment of

securities;

BABASAB PATIL

c. Processing and dispatching allotment letters, refund orders or

certificates and other related documents in respect of the issue.

Underwriters:

The words “underwriting” and “Underwriter” are defined as under.

“Underwriting,” means an agreement with or without conditions to

subscribe to the securities of a body corporate when the existing

shareholders of such body corporate or the public does not subscribe

to the securities offered to them.

“Underwriter” means a person, who engages in the business of

underwriting of an issue of securities of a body corporate;

As per the prior agreement between the company & the underwriter, an

underwriter underwrites those shares that are not subscribed by the general

public. For doing this, he gets underwriting commission.

Credit Rating Agencies:

Credit Rating Agencies to be eligible to operate in India need to be

registered with SEBI and comply with provisions of SEBI (Credit Rating

Agencies) Regulations, 1999

As per the aforesaid Regulations the terms of "credit-rating" and "credit-

rating agency" are defined as under-

"Rating" means an opinion regarding securities, expressed in the form

of standard symbols or in any other standardised manner, assigned by

BABASAB PATIL

a credit rating agency and used by the issuer of such securities, to

comply with a requirement specified by these regulations;

"Credit rating agency" means a body corporate which is engaged in,

or proposes to be engaged in, the business of rating of securities

offered by way of public or rights issue;

Share Transfer Agent:

Share Transfer Agent means-

i. Any person, who on behalf of any body corporate maintains the

record of holders of securities issued by such body corporate and

deals with all matters connected with the transfer and redemption of

its securities.

ii. A department or division (by whatever name called) of a body

corporate performing the activities referred in sub-clause (i) if, at any

time the total number of the holders of securities issued exceed one

lakh.

Intermediaries In Secondary Market:

Stock Broker:

BABASAB PATIL

Broker is a member of stock exchange who enters into the contract on behalf

of his client to execute the trade. They have two clearly distinguishable

functions.

The member acts as Broker, that is, as agents for buying & selling

securities on behalf of their client & charging a commission on the

processed.

The member can also act as dealers, that is, as principals for buying &

selling securities on their own account for a profit or at a loss.

Capital adequacy Norms for Broker:

The capital adequacy requirement consists of the following two components,

1) Base minimum capital, 2) Additional/optional capital related to volume of

business.

Base Minimum Capital:

The broker should maintain an absolute minimum of Rs. 5 lakhs as a deposit

with the stock exchange. The security deposit kept by members in the

exchange forms a part of the base minimum capital; 25 per cent of the base

capital is to be maintained in cash with exchange, another 25 per cent

remains in the form of long term fixed deposit with a bank on which the

stock exchange is a completely unencumbered & unconditional lien, the

remaining requirement being in the form of securities with a 30 per cent

margin. The securities should be in the name of member & are pledged in

favour of stock exchange.

Additional Capital Related to volume Of Business:

BABASAB PATIL

The optional or additional capital required form a member should be at any

point of time be such that together with the base minimum capital it is not

less than 8 per cent of the gross outstanding business in the exchange

defined as the aggregate of up-to-date sales & purchase by the member-

broker in all the securities out together.

The gross outstanding business of a member at any point of time should not

exceed 12.5 times the base capital & additional capital requirements.

Duty of Broker Towards Investor:

A Broker/sub-broker, in his dealing with the client & the general public,

should faithfully execute the order for buying & selling of securities at all

the best available price & promptly inform his client about the execution or-

non execution of an order & make payment in respect of securities sold &

arrange for the prompt deliver of securities purchased.

He should issue promptly to his clients;

The contract note for the all the transaction entered into by him with

his clients, or through his principal agent,

Scripwise split the contract note & similarly, bills & receipts of the

transaction in the prescribed form.

He should not disclose his client’s account in front of third person.

Sub-Broker:

The trading members of the Exchange may appoint sub-brokers to act as

agents of the concerned trading member for assisting the investors in buying,

selling or dealing in securities. The sub-brokers would be affiliated to the

trading members and are required to be registered with SEBI. A sub-broker

BABASAB PATIL

would be allowed to be associated with only one trading member of the

Exchange.

Trading members desirous of appointing sub-brokers are required to submit

the following documents to the Membership Department of the Exchange:

Eligibility:

A sub-broker may be an individual, a partnership firm or a corporate. In case

of corporate or partnership firm, the directors or partners and in the case of

an individual sub-broker applicant, each of them shall comply with the

following requirements:

They shall not be less than 21 years of age;

They shall not have been convicted of any offence involving fraud or

dishonesty;

They shall have at least passed 12th standard equivalent examination

from an institution recognised by the Government;

They should not have been debarred by SEBI

The corporate entities applying for sub-brokership 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.

Foreign Broker:

The foreign institutional investors (FII) are playing a significant role in the

stock market. With a view to helping the FIIs to allow the procedures & to

BABASAB PATIL

encourage them to invest in India, SEBI has issued a different set of

guidelines for foreign broker.

Right now there are 29 Foreign Brokers on both NSE & BSE.

Other members of stock exchange:

As such there are no major distinction but here is a functional classification

of members.

In Bombay Stock Exchange members are classified as:

1. Commission Broker: A commission Broker executes buys & sells

order of his client against a commission (termed as brokerage)

prescribed by the authority. By and large every member acts as

commission agents.

2. Floor Broker: A floor broker is officially not attached to other

members. He executes buy & sell orders on behalf on any

commission broker & earn a share of the brokerage form the

commission broker. Floor broker are now a days very few in

number.

3. Taravaniwala or Jobber: a member in addition to being a broker can

also act as a dealer or principal. A jobber is a member who acts as a

principal, that is, he himself buys & sells stocks. A jobber specialise

in stocks located at the same trading post & trades in & put of

market for a small difference in price.

BABASAB PATIL

(For instance: a jobber in Asian Paints can buy Asian Paints shares

form a commission broker at Rs. 100 & sell the same to other broker

at Rs. 105. The Rs. 5 difference in price will be the jobber’s margin.

Generally a jobber squares up his position at the end of the day i.e. he

does not maintain any outstanding sale or purchase contract at the end

of the trading hours.

4. Dealer in non-cleared securities:

The principal acts as principal for buying & selling those shares that

are not actively traded in the market. Though the buy & sell any

volume of shares, the price at which they trade depends on the

trading activity of the shares during the transaction. At times, jobber

too specialize in trading in inactive a stocks. They receive orders

from other members at a price recorded in their books & the orders

are executed when business is possible.

5.Arbitrageur: The member buys the shares on one stock exchange &

sells it on other stock exchange to get the benefit of price difference.

In the case the shares is required to be listed on both the stock

exchanges where member in going to do the arbitrage.

(For instance, if he L & T shares are quoted at Rs. 422 at the BSE and

the same is quoted at Rs. 422 in the NSE, then he buys on BSE & sells

on NSE, there by making a profit of Rs.2 per share, which is called an

arbitrage).

BABASAB PATIL

6. Security Dealer:A security dealer is a member who specializes in buying & selling of

gilt-edge securities. Only few members are invited to such dealing,

due to lack of public interest in such securities.

New Membership:

Membership of the Exchange is open to all persons desirous of becoming

trading members of the Exchange, subject to their meeting certain

requirements and criteria as laid down by SEBI and the Exchange.

Persons or Institutions desirous of securing admission as Trading Members

(Stock Brokers) on the Exchange may apply for any one of the following

segment groups available in stock market;

WDM segment Eligibility;

The following persons are eligible to become trading members, subject to

Securities Contract Regulation Act (SCRA), Securities Contract Regulation

Rules (SCRR) and other requirements of Securities and Exchange Board of

India (SEBI):

a. Institutions, including subsidiaries of banks engaged in financial

services.

b. Body Corporates including companies as defined in the Companies

Act, 1956.

c. A company as defined in the Companies Act, 1956 (1 of 1956), shall

also be eligible to be elected as a member of the Exchange

BABASAB PATIL

a. Such other persons or entities as may be permitted from time to time

by RBI / SEBI under the Securities Contracts (Regulations) Rules,

1957.

Fees, Deposit & Networth Requirements:

Applicants recommended for admission will be required to pay the

following fee and deposits:

Particulars (Amt.in Rs. Lakhs)

Advance annual subscription 1.00

Interest free security deposit 150.00

Annual subscription fee 1.00

New Membership – CM and F&O segment:

Eligibility

The following persons are eligible to seek membership of the Exchange as

Trading Members (Brokers):

a. Individuals

b. Partnership Firms registered under the Indian Partnership Act, 1932

c. Corporations, Companies or institutions or subsidiaries of such

Corporations, Companies or institutions set up for providing financial

services

BABASAB PATIL

d. Such other persons or entities as may be permitted from time to time

by RBI / SEBI under the Securities Contracts (Regulations) Rules,

1957.

General Eligibility Conditions;

Criteria Members

Individual Firm Corporate

AGE

Minimum age: 21

years

Maximum age: 60

years

Minimum age: 21

years (applicable

for partners)

Minimum age: 21

years (applicable

for directors)

STATUSIndian Citizen

Registered

Partnership firm

under Indian

Partnership Act,

1932

Corporate

registered under

The Companies

Act, 1956 (Indian)

EDUCATION

At least a graduate or

equivalent

qualification

Partners should be

at least a graduate

or equivalent

qualification

Two Directors

should be at least

graduate or

equivalent

qualification

EXPERIENCE Should have the

experience in the

capital market related

activity

Partners should be

at least a graduate

or equivalent

qualification

Two Directors

should be at least

graduate or

equivalent

BABASAB PATIL

qualification

MINIMUM PAID

UP EQUITY

CAPITAL

Clearing and

settlement thereof.

Rs.30 lacs

Fees, Deposit & Networth Requirements:

Applicants recommended for admission will be required to pay the

following fee and deposits:

(All figures in Rs. lakhs)

Particulars Segments

CM and Trading

Membership of

F&O Segment

Additional

requirements for

Clearing

Membership of

NSCCL (F&O

Segment)

Total for CM and

Trading & Clearing

Membership of

F&O Segment

Interest Free Cash

Security Deposit

with NSEIL

110 110

Interest Free Cash

Security Deposit

with NSCCL

15 25 40

Total Interest Free

Cash Security

125 25 150

BABASAB PATIL

Deposit (1+2)

Collateral Security

Deposit with

NSCCL

25 25 50

Annual Subscription

Charges

1 1

Advance Minimum

Transaction Charges

for Futures &

Options Segment

1 1

Networth

Requirement

100 300

(100 for self-

clearing members in

F&O)

300

(100 for self-

clearing members in

F&O)

Deposit for setting up VSAT terminals and operating cost for the VSAT

network will be levied separately as per the policy prevailing from time to

time.

Capital Market Overview:-

Primary Market :-

BABASAB PATIL

The securities market has two interdependent & inseparable segments, the

new issue (Primary Market) & the stock (Secondary) market. The primary

market provides the channel for sale new securities while the secondary

market deals in securities already issued. The price signals, which subsume

all information about the issuer & his business including associates risk,

generated in the secondary market, help the primary market in allocation of

fund. The issuer of securities issue (create & sell) new securities in the

primary market to raise fund for investment and/or to discharge some

obligation. They do so either by public issue or by private placement. It is

public issue if any body & every body can subscribe for the securities. If the

issue is made to selected people, it is called private placement. In terms of

the companies Act 1956, an issue becomes public if results in the allotment

to more than 50 people.

There are two major types of issuer who issues securities. The corporate

entities issue mainly debt & equity instruments while the Government issues

debt securities.

The government & corporate sector raised a total of Rs. 2,52,108/- crore

during 2002-03 as against Rs. 2,26,911/- crore during the preceding year.

Government raised about two third of the total resources, the central

government alone raising nearly Rs. 1,51,126/- crore.

Secondary Market:-

The secondary market enables participant who hold securities to adjust their

holdings in response to change in their holdings in response to change in

BABASAB PATIL

their assessments of risk & return. They also sell securities for cash to meet

their liquidity needs.

The secondary market has further two components, namely the over-the-

counter (OTC) market & the exchange trade market. OTC is different from

the market place provided by the Over The Counter Exchange of India

Limited. OTC market is essentially informal market where trades are

negotiated. Most of the trades in government securities are in the TOC

market.

All the spot trades where securities are traded for immediate delivery &

payment take place in the OTC market. The exchange does not provide

facility for spot trade in strict sense.

Closest to the spot market in the cash market where settlements takes place

after some time. Trade taking place over a trading cycle, i.e. a day under

rolling settlement, are settled together after a certain time (currently 2

working days)

All the 24 stock exchanges in the country provide facility for trading of

equities. Nearly 100% of the trades are settled in the demat form.

A variant of secondary market is the forward market, where the securities

are traded for the future deliver & payment. Pure forward is put side the

formal market. The version market is future & options. In futures market,

standardized securities are traded for future delivery & settlement. These

futures can be on a basket of securities like index or an individual security.

In case of options, securities are traded for conditional future delivery.

BABASAB PATIL

There are two types options:

A put option – it permits the owner to sell a security to the writer

of option at a predetermined price.

A call option – permits the owner to purchase a security from

the writer of the option at a predetermined price.

These options can also be an individual stock or a basket of stock like index.

Two exchanges viz. NSE & BSE provide trading of derivatives of securities.

Regulatory Framework:

The four main legislations governing the security market are:

The SEBI ACT, 1992, which establish SEBI to protect investor &

develop & regulate securities market;

The Companies Act, 1956, which sets out the transfer of securities,

and disclosure to be made in the public issue:

The Securities Contract (Regulation) Act, 1956, which provide for

regulation of transaction in securities through control over the stock

exchange;

The Depositories Act, 1996, which provides for electronic

maintenance & transfer of ownership of demat securities;

Clearing & Settlement Procedure s In The Stock E xchanges.

The clearing & settlement mechanism in Indian security market has

witnessed several innovations during the last decade. These include use of

BABASAB PATIL

the state-of-art information technology, compression of settlement cycle,

dematerialization & electronic transfer of securities, securities lending &

borrowing, professionalisation of trading members, fine-tuned risk

management system, emergence of clearing corporations to assume country

party risk, though many of these are yet to permeate the whole market.

Till recently, the stock exchanges in India were following a system of

account period settlement for cash market transaction, except for

transactions in a few active securities, which were settled under T+3 rolling

settlement. The rolling settlement has now been introduced for all securities.

With effect from April 1st, 2003 T+2 rolling settlement has been introduced.

The transactions are not settled immediately but after 2 days after the two

days. The member receives the fund/securities in accordance with the pay

in/pay out schedules notified by the respective stock exchanges.

Movement of securities has become almost instantaneous in the

damaterialised environment. Two depositories viz. National Securities

Depositories Ltd. (NSDL) & Central Depositories Service Ltd. (CSDL)

provide electronic transfer of securities & more than 99% of turnover is

settled in demat form.

The obligation of members is downloaded to the member/custodian by the

clearing agency. The members/custodian make available the required

securities in their pool account with depository participant by the prescribed

pay-in time for securities the depository transfer the securities form the pool

account of members/custodian to the settlement account of clearing agency.

As per the schedule determined by the clearing agency, the depository

BABASAB PATIL

transfers the securities on the payout day from the settlement account of

clearing agency to the pool account of members/custodians. The pay-in &

pay-put of securities is affected on the same day for all settlements.

Selected banks have been empanelled by clearing agency for electronic

transfer of funds. The members are required to maintain accounts with any

of these banks. The members are informed electronically of their pay-in

obligation of funds. The members make available required fund in their

accounts with clearing bank by the prescribed pay-in day. The clearing

agency forwards fund obligation file to clearing banks which. In turn, debit

the account of member & credit the account of clearing agency. In same

cases, the clearing agency runs an electronic file to debit members’ accounts

with clearing banks & credit it’s own account.

GRAPHICAL PRESENTATION OF CLRAGING HOUSE

ACTIVITY.

BABASAB PATIL

Functions of intermediaries & their importance in capital market

There are some basic services offered by the intermediaries in the capital

market, those services are as follows;

1) Online buying and selling of the shares though any stock exchange

2) Trading in Futures and Options.

The intermediary is acting like a link in between the buyer & seller of the

scrips on the stock exchange. He executes the orders of his client through the

computer & takes care that the trade is being carried out for best price.

He provides all the assistance to his client that is providing the daily

information about the stock exchange and ups & downs, which are likely to

happen in the market. He advises client that which scrip is to purchase at

what time & at what price so that the client is benefited.

BABASAB PATIL

Value added Services:

Apart from providing basic services, it also becomes very important on the

part of the sub broker to guide an investor in this changing technological

environment. The concept of dematerialisation of shares is relatively new.

Further the rolling settlement and T+2 system of settlement has recently

being started. Derivative trading is also introduced. To explain to an investor

all these “New” things, a broker/sub broker plays a crucial role. Unless an

investor becomes familiar with all these new things, he won’t be in a better

position. Therefore a broker/sub broker doesn’t have much option but to

guide a common investor by providing value added services.

Following is the value added services provided by the broker/sub broker

Derivatives trading

How to trade in F&O,

Trading strategy in F&O,

Settlement procedure in F&O,

Margin Money required for trading in F&O,

Dematerialisation procedure

It’ working,

It’s advantage,

Procedure involved,

The scrips which is compulsorily traded in demat form,

Different depositories that exist in India,

There charges, procedure of delivery ect.

BABASAB PATIL

Explaining the client about the T+2 system existing in the current market,

To guide an investor about the sources from where he can get the market

information,

Arrangement of pre and post budget meetings for the investors,

Making the client aware about the technical & fundament analysis,

Conducting meetings every now and then to explain the investors about

the changes in SEBI guidelines and stock exchanges guidelines,

From above explanation, we can say that the broker/sub broker is playing an

active role in the stock market, he helping the client from all the angels so

that the investor doesn’t incur any lose by investing in the stock market,

Auction Sale

The Exchange on behalf of trading members for settlement related reasons

initiates auctions. The main reason is shortage. There are three types of

participants in the auction market:

Initiator : The party who initiates the auction process is called an

initiator.

Competitor : The party who enters on the same side as of the initiator

is called a competitor.

BABASAB PATIL

Solicitor : The party who enters on the opposite side as of the initiator

is called a competitor.

The trading members can participate in the exchange-initiated auction by

entering orders as solicitors. E.g. if the exchange conducts a Buy-in action,

the trading members entering sell orders are called solicitors. When the

auction starts, the competitor period for that auction starts. Competitor

period is the period during which competitor orders entries are allowed.

Competitor orders are the orders that compete with the initiators order i.e. if

the initiator’s order is a buy order, then all the buy order for that auction

other then the initiator’s order are competitors order. And if the initiator’s

order is a sell order for that auction other than the initiation’s order are

competitor’s orders.

After the competitor’s period ends, the solicitor’s period for that that auction

starts. Solicitors order is the period during which solicitors order are

allowed. Solicitors order are the orders, which are opposite to the initiator’s

order i.e. if the initiator’s order is a buy order than all the sell order for that

auction are solicitors order & if the initiator order is a sell order, then all the

buy order for that auction are solicitors order.

After solicitor’s period, order matching takes place. The system calculates

trading price for the auction & all possible trade for the auction are

generated at the calculated trading price. After this the auction is said to be

complete. Competitor period & solicitor’s period for any auction are set by

the exchange.

BABASAB PATIL

Entering Auction order:

Auction order entry allows the user to enter orders into auctions that are currently

running.

Auction Order Modification:

The user is not allowed to modify any auction orders.

Auction Order Cancellation:

The user can cancel any solicitors order placed by him in any auction

provided the solicitors period for that auction is not over.

Auction Order Matching:

When the solicitor’s period for auction is over, auction order matching stars

for that auction. During this process, the system calculates the trading price

for that auction based on the initiator’s order entered during the competitor

& solicitor’s period. At present for exchange-initiated auction, the matching

takes place at the respective solicitors order price.

BABASAB PATIL

All auction orders are entered into the auction order book. The rules for

matching of auction are similar to that of the regular lot book except for the

following point;

1) Auction order matching takes place at the end of for the solicitor’s

period for the auction.

2) Auction matching takes place only across orders belonging to the

same auction.

3) All auction trades take place at the auction price.

Example:

Auction is held in TISCO for 5,000 shares.

The closing price of TISCO on that day was Rs. 155.0

The last trade price of TISCO on that day was Rs. 150.0

The price of TISCO last Friday was Rs. 151.0

The previous day’s close price of TISCO was Rs. 160.0

What is the maximum allowable price at which the member can put a sell

order in the auction for TISCO? (Assuming that the price band applicable

for auction market is +/- 15%).

Max price applicable in Auction = previous day’s close price*price band

= 160*1.15

Rs. 184.00

BABASAB PATIL