WORKING OF A STOCK EXCHANGE

PROJECT ON FINANCIAL SERVICES

Presented By:

Hursh Anandwala -04Nirmit Chandgothia -07Samay Khandelwal -26Sahil Khanna -27Darshit Morjaria -36Porush Sharaf -49

According to Husband and Dockerary, “Stock Exchanges are privately organised market which are used to facilitate trading in securites.”

The Securities Contract (Regulation) Act of 1956 defines stock exchange as “an association, organization or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling business, selling and dealing in securities.

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India has 23 small and 2 big stock exchanges

The 2 big stock exchanges (NSE And BSE) account for upto 90 percent of trading

Over 7000 listed companies on the stock exchanges – The larget in the world!

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OTCEI formed under section 12 of Companies Act, 1956

NSE formed with a profit motive

All exchanges except NSE had a ‘non profit motive’

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Provides an efficient and transparent market for trading

Nation-wide presence in more than 450 cities

At par with international standards

Online trading followed - BOLT

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BSE was established as “The Native Share and Stock Brokers’ Association

BSE is Worlds Number One exchange in terms of number of listed companies and Fifth largest in transaction numbers

BSE Index , SENSEX is an index of 30 stocks representing 12 major sectors

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Provides an efficient and transparent market for trading

Nation-wide presence in more than 450 cities

At par with international standards

Online trading followed - BOLT

A depository can be compared to a bank. A depository holds securities like shares, debentures, bonds etc. of investors in electric form. Besides this, A depository also provides services related to transactions in securities.

A depository interfaces with its investors through its agents called Depository Participants. If an investor who is known as a Beneficial Owner wants to avail the services offered by the depository, the investor has to open an account with the DP. This is similar to opening an account with any branch of a bank in order to utilize the bank’s services.

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Dematerialization Account transfer Transfer and Registration Corporate actions Pledge and Hypothecation Linkage with clearing systems

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According to SEBI guidelines, financial institutions, banks, custodians, stockbrokers, etc can act as DP.

National Securities Depository Ltd. (NSDL) is promoted by Industrial Development Bank of India (IDBI) – the largest development bank of India, Unit Trust of India (UTI) – the largest mutual fund in India, and National Stock Exchange of India (NSE) – the largest stock exchange in India. Some of the prominent banks have taken a stake in NSDL.

Central Depository Services (India) Ltd. (CDSL) was promoted by Bombay Stock Exchange Ltd (BSE) in association with State Bank of India, Bank of India, Bank of Baroda and HDFC bank.

Dematerialization Rematerialization Facilitating Purchase / redemption of units of mutual

funds Electronic settlement of trades in stock exchange

connected to NSDL Pledging/hypothecation of dematerialized securities

against loan Nomination facility for demat accounts Services related to change of address

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DP

The benefits of participating in a depository are: Immediate transfer of securities No stamp duty on transfer of securities Elimination of risks associated with physical certificates such

as bad delivery, fake securities, etc. Reduction in paperwork involved in transfer of securities Reduction in transfer costs Nomination facility Change in address recorded with DP gets registered

electronically with all companies in which investor holds securities eliminating the need to correspond with each of them separately

Transmission of securities is done by DP eliminating correspondence with DP

Convenient method of consolidation of folios/accounts.

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A Broker is a member of a recognized stock exchange, who is permitted to o trades on the screen- based trading system of different stock exchanges. He is enrolled as a member with the concerned exchange and is registered with SEBI.

A sub broker is a person who is registered with SEBI as such and is affiliated to a member of a recognized stock exchange.

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As per the BSE & NSE Bye Laws, a broker cannot charge more than 2.5% brokerage is inclusive of the brokerage charged by the sub- broker.

Further, SEBI Regulations, 1992 stipulates that sub broker cannot charge from his clients, a commission which is more than 1.5% of the value mentioned in the respective purchase or sale note.

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The trading member can charge :1. Brokerage charged by member broker.2. Penalties arising on specific default on

behalf of client.(investor). 3. Service tax as stipulated.4. Securities Transactions tax (STT)as

applicable. The brokerage service tax and STT are

indicated separately in the contract note.

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Exchange

Customer

Broker

Trading terminal

Place orders

Enters orders

Order confirm

Clearing corporations

Depositary

Trade details

Obligation reports

Clearing banks

Funds availability

Security availability

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Security transfer to clearing pool member a/c

Security transfer to Clearing corporations a/c

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T Any trade settled through a clearing

corporation is termed as a “Market Trade.” These trades are done through the stock brokers in a stock exchange

“Off Market” trade is one which is settled directly by the 2 parties without d involvement of a clearing corporation.

The same delivery slip can be used either for market trade or off market trade by ticking on one of the options.

1. In rolling settlement trades which are executed during the day are settled based on the net obligations for the day. Presently the trades pertaining to rolling settlement are settled on a t+2 day basis where t stands for the trade day. Hence the trades executed on Monday are typically settled on the following Wednesday ( considering 2 working days from the trade day. )

2. Pay in day is the day when the brokers shall payments or delivery of securities to the exchange.

3. Pay out day is when the exchange makes the payment or delivery of securities to the broker.

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The settlement cycle is on T+2 rolling settlement basis w.e.f. April 1st 2003

The exchanges have to ensure that the pay out funds and securities to the clients is done by the broker within 24 hours of the pay out day.

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The exchange purchases the requisite quantity in Auction market and gives them to the buying trading member . The shortages are met through the auction process and the difference in price indicated in contract note and price received through auctions paid by member to exchange, which is then liable to be recovered from the client.

If shares could not be bought in the auction i.e. if shares are not offered for sale in the auction, the transactions are closed out as per SEBI guidelines.

The guidelines stipulate that “the close out price will be the highest price recorded in that scrip on the exchange in the settlement inwhich the concerned contract was entered into and up to the date of auction/close out OR 20% above the official closing price on exchange on the day on which auction offers are called for( & in the event of there being no such closing price on that day , then the official closing price on the immediately preceding trading day on which there was an official closing price), whichever is higher.

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E 9040 brokers in cash segment and 1064 in

derivative segment of the market.

122 investment bankers in the market

58 underwriters to support primary issues

34 foreign venture capital funds.

120 portfolio managers

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E11 Custodian banks2 Depositories with over 9mn

beneficiary owner accounts120 Portfolio managersNumber of trades at 20mnNumber of internet trading

clients at 1.44mnInternet trading at 12% of total

trading.

THANK YOUWe appreciate your time.