Submitted By:

LAXMI SHEWKANI
ROLL NO.37
T.Y.B.M.S.
 Securities and Exchange Board of India
Securities Market Regulatory Body in India

SEBI Bhavan, Mumbai Headquarters of SEBI

INTRODUCTION
 The Stock Exchange, Mumbai, popularly known as "BSE" was
established in 1875 as "The Native Share and Stock Brokers Association", as a
voluntary non-profit making association. It has evolved over the years into its
present status as the premier Stock Exchange in the country. It may be noted that
the Stock Exchanges is the oldest one in Asia, even older than the Tokyo Stock
Exchange, which was founded in 1878.

The Exchange, while providing an efficient and transparent market for

trading in securities, 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 making available necessary
informative inputs and conducting investor education programmes.

A Governing Board comprising of 9 elected directors (one third of

them retire every year by rotation), two SEBI nominees, a Reserve Bank of India
nominee, six public representatives and an Executive Director is the apex body,
which decides the policies and regulates the affairs of the Exchange.

The Executive Director as the Chief Executive Officer is responsible

for the day-to-day administration of the Exchange
.

The average daily turnover of the Exchange during the year 2000-2001
(April-March), was Rs.3984.19 crores and average number of daily trades was 5.69
lakhs. However, the average daily turnover of the Exchange during the year 2001-
2002 has declined to Rs. 1244.10 crores and number of average daily trades during
the period to 5.17 lakhs. The ban on all deferral products like BLESS and ALBM in
the Indian capital Markets by SEBI w.e.f. July 2, 2001, abolition of account period
settlements, introduction of Compulsory Rolling Settlements in all scrips traded on
the Exchanges w.e.f. December 31, 2001, etc. have adversely impacted the liquidity
and consequently there is a considerable decline in the daily turnover at the
Exchange.

What is a share?
A share represents the smallest recognized fraction of ownership in a publicly held
business. Each such fraction of ownership is represented in the form of a certificate
known as a share certificate. The breaking up of total ownership of a business into
small fragments, each fragment represented by a share certificate, enables them to
be easily bought and sold.

What is a stock exchange?

The institution where this buying and selling of shares essentially

takes place is the Stock Exchange. In the absence of stock exchanges, ie. Institutions
where small chunks of businesses could be traded, there would be no modern
business in the form of publicly held companies. Today, owing to the stock
exchanges, one can be part owners of one company today and another company
tomorrow; one can be part owners in several companies at the same time; one can
be part owner in a company hundreds or thousands of miles away; one can be all of
these things. Thus by enabling the convertibility of ownership in the product market
into financial assets, namely shares, stock exchanges bring together buyers and
sellers (or their representatives) of fractional ownerships of companies. And for that
very reason, activities relating to stock exchanges are also appropriately enough,
known as stock market or security market. Also a stock exchange is distinguished
by a specific locality and characteristics of its own, mostly a stock exchange is also
distinguished by a physical location and characteristics of its own. In fact, according
to H.T.Parekh, the earliest location of the Bombay Stock Exchange, which for a long
period was known as “the native share and stock brokers’ association”, was
probably under a tree around 1870!

The stock exchanges are the exclusive centers for the trading of
securities. The regulatory framework encourages this by virtually banning trading
of securities outside exchanges. Until recently, the area of operation/ jurisdiction of
exchange was specified at the time of its recognition, which in effect precluded
competition among the exchanges. These are called regional exchanges. In order to
provide an opportunity to investors to invest/ trade in the securities of local
companies, it is mandatory foe the companies, wishing to list their securities, to list
on the regional stock exchange nearest to their registered office.

Characteristics of Stock Exchanges in India

 Traditionally, a stock exchange has been an association of individual members
called
member brokers (or simply members or brokers), formed for the express purpose of
regulating and facilitating buying and selling of securities by the public and
institution at large.

 A stock exchange in India operates with due recognition from the government
under the
Securities and Contracts (Regulations) Act, 1956. the member brokers are
essentially the middlemen who carry out the desired transactions in securities on
behalf of the public(for a commission) or on their own behalf. New membership to a
Stock Exchange is through election by the governing board of that stock exchange.

 At present, there are 23 stock exchanges in India, the largest among them being
the
Bombay Stock Exchange. BSE alone accounts for over 80% of the total volume of
transactions in shares.

 Typically, a stock exchange is governed by a board consisting of directors largely

elected
by the member brokers, and a few nominated by the government. Government
nominee include representatives of the ministry of finance, as well as some public
representatives, who are expected to safeguard the public interest in the functioning
of the exchanges. A president, who is an elected member, usually nominated by the
government from among the elected members, heads the board. The executive
director, who is usually appointed by the by the stock exchange with the
government approval is the operational chief of the stock exchange. His duty is to
ensure that the day to day operations the Stock Exchange are carried out in
accordance with the various rules and regulations governing its functioning.

 The overall development and regulation of the securities market has been
entrusted to the Securities and Exchange Board of India (SEBI) by an act of
parliament in 1992.  All companies wishing to raise capital from the public are
required to list their securities on at least one stock exchange. Thus, all ordinary
shares, preference shares and debentures of the publicly held companies are listed
in the stock exchange.

Exchange management
 Made some attempts in this direction, but this did not materially alter
the situation. In view of the less than satisfactory quality, of administration of
broker-managed exchanges, the finance minister in march 2001 proposed
demutualisation of exchanges by which ownership, management and trading
membership would be segregated from each other. The regulators are working
towards implementing this. Of the 23 stock exchanges in India, two stock exchanges
viz., OTCEI and NSE are already demutualised. Board of directors, which do not
include trading members, manages these. Theses are purest form of demutualised
exchanges, where ownership, management and trading are in the hands of three sets
of people. The concept of demutualisation completely eliminates any conflict of
interest and helps the exchange to pursue market efficiency and investors interest
aggressively.

Role of SEBI
 The SEBI, that is, the Securities and the Exchange Board of India, is the
national regulatory body for the securities market, set up under the securities and
Exchange Board of India act, 1992, to “protect the interest of investors in securities
and to promote the development of, and to regulate the securities market and for
matters connected therewith and incidental too.”

SEBI has its head office in Mumbai and it has now set up regional offices
in the metropolitan cities of Kolkata, Delhi, and Chennai. The Board of SEBI
comprises a Chairman, two members from the central government representing the
ministries of finance and law, one member from the Reserve Bank of India and two
other members appointed by the central government.

As per the SEBI act, 1992, the power and functions of the
Board encompass the regulation of Stock Exchanges and other securities markets;
registration and regulation of the working stock brokers, sub-brokers, bankers to
an issue (a public offer of capital), trustees of trust deeds, registrars to an issues,
merchant bankers, under writers, portfolio managers, investment advisors and such
other intermediaries who may be associated with the stock market in any way;
registration and regulations of mutual funds; promotion and regulation of self-
regulatory organizations; prohibiting Fraudulent and unfair trade practices and
insider trading in securities markets; regulating substantial acquisition of shares
and takeover of companies; calling for information from,undertking inspection,
conducting inquiries and audits of stock exchanges, intermediaries and self-
regulatory organizations of the securities market; performing such functions and
exercising such powers as contained in the provisions of the Capital Issues (Control)
Act,1947 and the Securities Contracts (Regulation) Act, 1956, levying various fees
and other charges, conducting necessary research for above purposes and
performing such other functions as may be prescribes from time to time.

SEBI as the watchdog of the industry has an important and crucial role in the
market in ensuring that the market participants perform their duties in accordance
with the regulatory norms. The Stock Exchange as a responsible Self Regulatory
Organization (SRO) function to regulate the market and its prices as per the
prevalent regulations. SEBI and the Exchange play complimentary roles to enhance
the investor protection and the overall quality of the market.

Membership

The trading platform of a stock exchange is accessible only to brokers.

The broker enters into trades in exchanges either on his own account or on behalf of
clients. The clients may place their order with them directly or a sub-broker
indirectly. A broker is admitted to the membership of an exchange in terms of the
provisions of the SCRA, the SEBI act 1992, the rules, circulars, notifications,
guidelines, etc. prescribed there under and the byelaws, rules and regulations of the
concerned exchange. No stockbroker or sub-broker is allowed to buy, sell or deal in
securities, unless he or she holds a certificate of registration granted by SEBI. A
broker/sub-broker compiles with the code of conduct prescribed by SEBI.

The stock exchanges are free to stipulate stricter requirements for

its members than those stipulated by SEBI. The minimum standards stipulated by
NSE for membership are in excess of the minimum norms laid down by SEBI. The
standards for admission of members laid down by NSE stress on factors, such as,
corporate structure, capital adequacy, track record, education, experience, etc. and
reflect the conscious endeavors to ensure quality broking services.

Listing

Listing means formal admission of a security to the trading platform

of a stock exchange, invariably evidenced by a listing agreement between the issuer
of the security and the stock exchange. ; Listing of securities on Indian Stock
Exchanges is essentially governed by the provisions in the companies act, 1956,
SCRA, SCRR, rules, bye-laws and regulations of the concerned stock exchange, the
listing agreement entered into by the issuer and the stock exchange and the
circulars/ guidelines issued by central government and SEBI.

Index services

Stock index uses a set of stocks that are representative of the whole
market, or a specified sector to measure the change in overall behavior of the
markets or sector over a period of time. India Index Services & Products Limited
(IISL), promoted by NSE and CRISIL, is the only specialized organization in the
country to provide stock index services.

Trading Mechanism

All stock exchanges in India follow screen-based trading

system. NSE was the first stock exchange in the country to provide nation-wide
order-driven, screen-based trading system. NSE model was gradually emulated by
all other stock exchanges in the country. The trading system at NSE known as the
National Exchange for Automated Trading (NEAT) system is an anonymous order-
driven system and operates on a strict price/time priority. It enables members from
across the countries to trade simultaneously with enormous ease and efficiency.
NEAT has lent considerable depth in the market by enabling large number of
members all over the country to trade simultaneously and consequently narrowed
the spreads significantly. A single consolidated order book for each stock displays,
on a real time basis, buy and sell orders originating from all over the country. The
bookstores only limit orders, which are orders to buy or sell shares at a stated
quantity and stated price. The limit order is executed only if the price quantity
conditions match. Thus, the NEAT system provides an open electronic consolidated
limit order book (OECLOB). The trading system provides tremendous flexibility to
the users in terms of kinds of orders that can be placed on the system. Several time-
related (Good-Till-Cancelled, Good-TillDay, Immediate-or-Cancel), price related
(buy/sell limit and stop-loss orders) or volume related (All-or-None, Minimum Fill,
etc.) conditions van be easily built into an order. Orders are sorted and match
automatically by the computer keeping the system transparent, objective and fair.
The trading system also provides complete market information on-line, which is
updated on real time basis. The trading platform of the CM segment of NSE is
accessed not only from the computer terminals from the premises of brokers spread
over 420 cities, but also from the personal computers in the homes of investors
through the internet and from the hand-held devices through WAP. The trading
platform of BSE is also accessible from 400 cities.

Internet trading is available on NSE and BSE, as of now. SEBI has approved the use
of Internet as an order routing system, for communicating clients’ orders to the
exchanges through brokers. SEBI- registered brokers can introduce internet-based
trading after obtaining permission from the respective Stock Exchanges. SEBI has
stipulated the minimum conditions to be fulfilled by trading members to start
internet-based trading and services.

BSE /NSE

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NSE was the first exchange in the country to provide web-based access to investors
to trade directly on the exchange. It launched Internet trading in February 2000. It
was followed by the launch of Internet trading by BSE in March 2001. The orders
originating from the personal computers (PCs) of investors are routed through the
Internet tot eh trading terminals of the designated brokers with whom they have
relations and further to the exchange of trade execution. Soon after these orders get
matched and result into trades, the investors get confirmation about them on their
PCs through the same Internet routes.
SEBI approved trading through wireless medium or WAP platform. NSE is the only
exchange to provide access to its order book through the hand held devices, which
use WAP technology. This serves primarily retail investors who are mobile and
want to trade from any place when the market prices for st0ocks of their choice are
attractive.

Demat Trading

A depository holds securities in dematerialized form. It maintains ownership

records of securities in a book entry form and also effects transfer of ownership
through book entry. SEBI has introduced some degree of compulsion in trading and
settlement of securities in dematerialized form. While the investors have a right to
hold securities in either physical or demat form, SEBI has mandated compulsory
trading and settlement of securities in dematerialized form. This was initially
introduced for institutional investors and was later extended to all investors.
Starting with 12 scrips on January 15, 1998, all investors are required to
mandatorily trade in dematerialized form in respect of 2,335 securities as at end-
June, 2001.

Since the introduction of the depository system, dematerialization has progressed at

a fast pace and has gained acceptance among the participants in the market. All
actively traded scrips are held, traded and settled in demat form. The details of
progress in dematerialization in two depositories, viz., NSDL and CDSL., are
presented as below:

In a SEBI working paper titled ‘Dematerialization: A Silent Revolution in the

Indian Capital Market’ released in April 2000, it has been observed that India has
achieved a very high level of dematerialization in less than three years’ time, and
currently more than 99%of trades settle in demand form. Competition and
regulatory developments facilitated reduction in custodial charges and
improvements in qualities of service standards. The paper observes that one
imminent and apparent immediate benefit of competition between the two
depositories is fall in settlement and other charges. Competition has been driving
improvement in service standards. Depository facility has effected changes in stock
market microstructure. Breadth and depth of investment culture has further got
extended to interior areas of the country faster. Explicit transaction cost has been
falling due to dematerialization. Dematerialization substantially contributed to the
increased growth in the turnover. Dematerialization growth in India is the quickest
among all emerging markets and also among developed markets excepting for the
U.K and Hong Kong.
CAPITAL LISTED AND MARKET CAPITALIZATION.

The Stock Exchange, Bombay (BSE) is the premier Stock Exchange in India. The
BSE accounted for 46 per cent of listed companies on an all India basis as on 31st
March 1994. It ranked first in terms of the number of listed companies and stock
issues listed. The capital listed in the BSE as on 31st March 1994 accounted for 50%
of the overall capital listed on all the stock exchanges. Its share of the market
capitalization was around 74% as on the same date. The paidup capital of equity,
debentures/bonds and preference were 73%, 31%, 44% respectively of the overall
capital listed on all the Stock Exchanges as on the same date.

On the BSE, the Steel Authority of India had the largest market capitalization of
Rs.19, 908 crores as on the 31st March, 1994 followed by the State Bank of India
with the market capitalization of Rs.16, 702 crores and Mahanagar Telephone
Nigam Limited with the market capitalization of Rs.11, 700 crores.

BSE SENSEX

The BSE SENSEX, short form of Sensitive Index, first

compiled in 1986 is a “market Capitalization-Weighted” index of 30 component
stocks representing a sample of large, wellestablished and financially sound
companies. The index is widely reported in both, the domestic international, print
electronic media and is widely used to measure the used to measure the
performance of the Indian stock markets.

The BSE SENSEX is the benchmark index of the Indian capital market and one,
which has the longest social memory. In fact the SENSEX is considered to be the
pulse of the Indian stock markets. It is the oldest index in India and has acquired a
unique place in collective consciousness of the investors. Further, as the oldest index
of the Indian Stock Market, it provides time series data over a fairly long period of
time. Small wonder that the SENSEX has over the years has become one of the most
prominent brands of the Country.

Objectives of SENSEX
The BSE SENSEX is the benchmark index with wide acceptance among individual
investors, institutional investors, foreign investors, foreign investors and fund
managers. The objectives of the index are:

 To measure market movements Given its long history and its wide acceptance,
no other index matches the BSE SENESX in the reflecting market movements and
sentiments. SENSEXis widely used to describe the mood in the Indian stock
markets.

 Benchmark for funds performance The inclusion of blue chip companies and the
wide and balanced industry Representation in the SENSEX makes it the ideal
benchmark for fund managers to compare the performance of their funds.

 For index based derivatives products Institutional investors, money managers

and small investors, all refer to the BSE

SENSEX for their specific purposes. The BSE SENSEXis in effect

the proxy for the Indian stock markets. Since SENSEXcomprises of the leading
companies in allthe significant sectors in the economy, we believe that it will be the
most liquid contract in the Indian market and will garner a predominant market
share.

Companies represented in the SENSEX

Company name (As on 15.06.01) Hindustan lever Reliance limited

Infosys technologies Reliance petroleum ITC State bank of India MTNL Satyam
computers Zee telefilms Ranbaxy labs ICICI Larsen & toubro Cipla Hindalco
HPCL TISCO Nestle Sector FMCG Chemicals and petrochemicals Information
technology Oil and gas FMCG Finance Telecom Information technology Media
Healthcare Finance Diversified Healthcare Metals and mining Metal and mining
Metal and mining FMCG

Trading System
 Till Now, buyers and sellers used to negotiate face-to-face on the
trading floor over a security until agreement was reached and a deal was struck in
the open outcry system of trading, that used to take place in the trading ring. The
transaction details of the account period (called settlement period) were submitted
for settlement by members after each trading session.

The computerized settlement system initiated the netting and

clearing process by providing on a daily basis statements for each member, showing
matched and unmatched transactions. Settlement processing involves computation
of each member's net position in each security, after taking into account all
transactions for the member during the settlement period, which is 10 working days
for group 'A' securities and 5 working days for group 'B' securities.

Trading is done by members and their authorized assistants from

their Trader Work Stations (TWS) in their offices, through the BSE On-Line
Trading (BOLT) system. BOLT system has replaced the open outcry system of
trading. BOLT system accepts two-way quotations from jobbers, market and limit
orders from client-brokers and matches them according to the matching logic
specified in the Business Requirement Specifications (BRS) document for this
system.

The matching logic for the Carry-Forward System as in the case of

the regular trading system is quote driven with the order book functioning as an
"auxiliary jobber".

TRADING
 The Exchange, which had an open outcry trading system, had
switched over to a fully automated computerized mode of trading known as BOLT
(BSE on Line Trading) System. Through the BOLT system the members now enter
orders from Trader Work Stations (TWSs) installed in their offices instead of
assembling in the trading ring. This system, which was initially both order and
quote driven, was commissioned on March 14, 1995. However, the facility of placing
of quotes has been removed w.e.f., August 13, 2001 in view of lack of market interest
and to improve system-matching efficiency. The system, which is now only order
driven, facilitates more efficient processing, automatic order matching and faster
execution of orders in a transparent manner.

Earlier, the members of the Exchange were permitted to open

trading terminals only in Mumbai. However, in October 1996, the Exchange
obtained permission from SEBI for expansion of its BOLT network to locations
outside Mumbai. In terms of the permission granted by SEBI and certain
modifications announced later, the members of the Exchange are now free to install
their trading terminals at any place in the country. Shri P. Chidambaram
inaugurated the expansion of BOLT network the then Finance Minister,
Government of India on August 31, 1997.

In order to expand the reach of BOLT network to centers outside

Mumbai and support the smaller Regional Stock Exchanges, the Exchange has, as
on March 31, 2002, admitted subsidiary companies formed by 13 Regional Stock
Exchanges as its members. The members of these Regional Stock Exchanges work
as sub-brokers of the member-brokers of the Exchange.

The objectives of granting membership to the subsidiary companies

formed by the Regional Stock Exchanges were to reach out to investors in these
centers via the members of these Regional Exchanges and provide the investors in
these areas access to the trading facilities in all scrips listed on the Exchange.

Trading on the BOLT System

Trading on the BOLT System is conducted from Monday to Friday

between 9:55 a.m. and 3:30 p.m. The scrips traded on the Exchange have been
classified into 'A', 'B1', 'B2', 'F' and 'Z' groups. The number of scrips listed on the
Exchange under 'A', 'B1 ', 'B2' and 'Z' groups, which represent the equity segment,
as on March 31, 2002 was 173, 560,1930 and 3044 respectively. The 'F' group
represents the debt market (fixed income securities) segment wherein 748 securities
were listed as on March 31, 2002. The 'Z' group was introduced by the Exchange in
July 1999 and covers the companies which have failed to comply with listing
requirements and/or failed to resolve investor complaints or have not made the
required arrangements with both the Depositories, viz., Central Depository Services
(I) Ltd. (CDSL) and National Security Depository Ltd. (NSDL) for
dematerialization of their securities by the specified date, i.e., September 30, 2001.
Companies in "Z" group numbered 3044 as on March 31, 2002. Of these, 1429
companies were in "Z" group for not complying with the provisions of the Listing
Agreement and/or pending investor complaints and the balance 1615 companies
were on account of not making arrangements for dematerialization of their
securities with both the Depositories. 1615 companies have been put in "Z" group as
a temporary measure till they make arrangements for dematerialization of their
securities. Once they finalize the arrangements for dematerialization of their
securities, trading and settlement in their scrips would be shifted to their respective
erstwhile groups.

The Exchange has also the facility to trade in "C" group which covers the
odd lot securities in 'A', 'B1', 'B2' and 'Z' groups and Rights renunciations in all the
groups of scrips in the equity segment. The Exchange, thus, provides a facility to
market participants of on-line trading in odd lots of securities and Rights
renunciations. The facility of trading in odd lots of securities not only offers an exit
route to investors to dispose of their odd lots of securities but also provides them an
opportunity to consolidate their securities into market lots.

The 'C' group can also be used by investors for selling upto 500 shares
in physical form in respect of scrips of companies where trades are to be
compulsorily settled by all investors in demat mode. This scheme of selling physical
shares in compulsory demat scrips is called as Exit Route Scheme.

With effect from December 31, 2001, trading in all securities listed in
equity segment of the Exchange takes place in one market segment, viz.,
Compulsory Rolling Settlement Segment.

Permitted Securities The Exchange has since decided to permit

trading in the securities of the companies listed on other Stock Exchanges under "
Permitted Securities" category which meet the relevant norms specified by the
Exchange. Accordingly, to begin with the Exchange has permitted trading in scrips
of five companies listed on other Stock Exchanges w.e.f. April 22, 2002/
Computation of closing price of scrips in the Cash Segment: The closing prices of
scrips are computed on the basis of weighted average price of all trades in the last 15
minutes of the continuous trading session. However, if there is no trade during the
last 15 minutes, then the last traded price in the continuous trading session is taken
as the official closing price.

A) Compulsory Rolling Segment (CRS):

Compulsory Rolling Settlement (CRS) Segment:

With a view to introduce the best international trading

practices and to achieve higher settlement efficiency, as mandated by SEBI, trades
in all the equity shares listed on the Exchange in CRS Segment were to be settled on
T+5 basis w.e.f. December 31, 2001. SEBI has further directed the Stock Exchanges
that trades in all scrips w.e..f. April 1, 2002 should be settled on T+3 basis.
Accordingly, all transactions in all groups of securities in the equity segment and
fixed income securities listed on the Exchange are settled on T+3 basis w.e.f. April 1,
2002

Under a rolling settlement environment, the trades done on a

particular day are settled after a given number of business days rather than settling
all trades done during a period at the end of an 'account period'. A T+3 settlement
cycle means that the final settlement of transactions done on T or trade day by
exchange of monies and securities, occurs on fifth business day after the trade day.

The transactions in securities of companies which have made

arrangements for dematerialization of their securities by the stipulated date are
settled only in Demat mode on T+3 on net basis, i.e., buy and sale positions in the
same scrip are netted and the net quantity is to be settled. However, transactions in
securities of companies, which have failed to make arrangements for
dematerialization of their securities or /are in "Z" group, are settled only on trade
to trade basis on T+3 i.e., the transactions are settled on a gross basis and the facility
of netting of buy and sale transactions in a scrip is not available. For example, if one
buys and sells 100 shares of a company on the same day which is on trade to trade
basis, the two positions will not be netted and he will have to first deliver 100 shares
at the time of pay-in of securities and then receive 100 shares at the time of pay-out
of securities on the same day. Thus, if one fails to deliver the securities sold at the
time of pay-in, it will be treated as a shortage and the position will be auctioned/
closed-out.

In other words, the transactions in scrips of companies which are in compulsory

demat are settled in demat mode on T+3 on netting basis and the transactions in
scrips of companies, which have not made arrangements for dematerialization of
their securities by the stipulated date or are in "Z" group for other reasons, are
settled on trade to trade basis on T+3 either in demat mode or in physical mode.

The settlement of transactions in 'F' group securities representing Fixed Income

Securities is also on Rolling Settlement Cycle of T+3 basis.

The following tables summarizes the steps in the trading and settlement cycle for
scrips under CRS:

DAY ACTIVITY

Trading on BOLT and daily downloading of statements showing details of

transactions and margins at the end of each trading day.

6A/7A entry by the member-brokers.

T+1
Confirmation of 6A/7A data by the Custodians. Downloading of securities and funds
obligation statement by members.

T+3 Pay-in of funds and securities by 11:00 a.m. and pay-out of funds and securities
by 2:00 p.m

T+4 Auction on BOLT.

T+5 Auction pay-in and pay-out.

* 6A/7A : A mechanism whereby the obligation of settling the transactions done by

a memberbroker on behalf of a client is passed on to a custodian based on his
confirmation.

Thus, the pay-in and pay-out of funds and securities takes places on the 3rd
working day of the execution of the trade.

The Information Systems Department of the Exchange generates the

following statements, which can be downloaded by the members in their back offices
on a daily basis.

Statements giving details of the daily transactions entered into by the members.

Statements giving details of margins payable by the members in respect of the

trades executed by them.

The settlement of the trades (money and securities) done by a member on his own
account or on behalf of his individual, corporate or institutional clients may be
either through the member himself or through a SEBI registered Custodian
appointed by him or the respective client. In case the delivery/payment is to be given
or taken by a registered Custodian, he has to confirm the trade done by a member
on the BOLT System through 6A-7A entry. For this purpose, the Custodians have
been given connectivity to BOLT System and have also been admitted as members
of the Clearing House. In case a transaction is not confirmed by a registered
Custodian, the liability for pay-in of funds or securities in respect of the same
devolves on the concerned member.

The introduction of settlement on T+3 basis has resulted in reduction in settlement

risk, provided early receipt of securities and monies to buyers and sellers
respectively and brought Indian Capital Markets at the international standard of
settlements

Settlement
Pay-in and Pay-out for 'A', 'B1', 'B2', 'C', "F" & 'Z' group of securities

As discussed earlier, the trades done by members in all the securities

in CRS are now settled by payment of money and delivery of securities on T+3
basis. All deliveries of securities are required to be routed through the Clearing
House, except for certain off-market transactions which, although are required to
be reported to the Exchange, may be settled directly between the members
concerned.

The Clearing House is an independent company promoted jointly by

Bank of India and Stock Exchange, Mumbai for handling the clearing and
settlement operations of funds and securities on behalf of the Exchange. For this
purpose, the Clearing & Settlement Dept. of the Exchange liaises with the Clearing
House on a day to day basis.

The Information Systems Department (ISD) of the Exchange generates

Delivery and Receive Orders for transactions done by the members in A, B1, B2 and
F group scrips after netting purchase and sale transactions in each scrip whereas
Delivery and Receive Orders for "C" and "Z" group scrips are generated on trade
to trade basis, i.e., without netting of purchase and sale transactions in a scrip.

The Delivery Orders provide information like scrip, quantity and the
name of the receiving member to whom the securities are to be delivered through
the Clearing House. The Money Statement provides scrip wise/item wise details of
payments/receipts for the settlement. The Delivery/Receive Orders and money
statements can be downloaded by the members in their back offices

The bank accounts of members maintained with the eight clearing

banks, viz., Bank of India, HDFC Bank Ltd., Global Trust Bank Ltd., Standard
Chartered Bank, Centurion Bank Ltd., UTI Bank Ltd., ICICI Bank Ltd., and
Indusind Bank Ltd., are directly debited through computerized posting for their
settlement and margin obligations and credited with receivables on accounts of pay-
out dues and refund of margins.

The securities, as per the Delivery Orders issued by the Exchange, are
required to be delivered by the members in the Clearing House on the day
designated for securities pay-in, i.e., on T+3 day. In case of the physical securities,
the members have to deliver the securities in special closed pouches (supplied by the
Exchange) along with the relevant details (distinctive numbers, scrip code, quantity,
and receiving member) on a floppy. The data submitted by the members on floppies
is matched against the master file data on the Clearing House computer systems. If
there are no discrepancies, then a scroll number is generated by the Clearing House
and a scroll slip is issued. The members can then submit the securities at the
receiving counter in the Clearing House.

Auto D.O. facility:

 Instead of issuing Delivery Out instructions for their delivery
obligations in a settlement /auction, a facility has been made available to the
members of automatically generating Delivery-Out (D.O.) instructions on their
behalf from their CM Pool A/cs by the Clearing House w.e.f., August 10, 2000. This
Auto D.O. facility is available for CRS (Normal & Auction) and for trade-to-trade
settlements. This facility is, however, not available for delivery of non-pari passu
shares and shares having multiple ISINs. The members wishing to avail of this
facility have to submit an authority letter to the Clearing House. This Auto D.O
facility is currently available only for Clearing Member (CM) Pool
accounts/Principal Accounts maintained by the members with National Securities
Depository Ltd. (NSDL) and Central Depositories Services Ltd. (CDSL)

Demat pay-in:

The members can effect demat pay-in either through Central

Depository Services (I) Ltd. (CDSL) or National Securities Depository Ltd. (NSDL).
In case of NSDL, the members are required to give instructions to their Depository
Participant (DP) specifying settlement no., settlement type, effective pay-in date,
quantity, etc. The securities are transferred to the Pool Account. The members are
required to give delivery-out instructions so that the securities are considered for
pay-in.

As regards CDSL, the members give pay-in instructions to their

DP. The securities are transferred to Clearing Member (CM) Principal Account.
The members are required to give confirmation to their DP, so that securities are
processed towards pay-in obligations. Alternatively, members may also effect pay-in
from clients' beneficiary accounts for which member are required to do break-up on
the front-end software to generate obligation and settlement ID.
 The Clearing House arranges and tallies the securities received
against the receiving member wise report generated on the Pay-in day. Once this
reconciliation is complete, the bank accounts of members with seven clearing banks
having pay-in positions are debited on the scheduled payin day. This procedure is
called Funds Pay-in. In case of the demat securities, the securities are credited in the
Pool Account of the members or the Client Accounts as per the client details
submitted by the members. In case of Physical securities, the Receiving Members
collect securities from the Clearing House on the payout day and the accounts of the
members having payout are credited on Friday. This is referred to as Payout. In
case of the Rolling Settlements, pay-in and payout of both funds and securities is on
the same day, in case of Weekly settlements, pay-in of funds and securities is on
Thursday and payout is on Friday.

The auction is conducted for those securities which members fail

to deliver/short deliver during the Pay-in. In case the securities are not received in
an auction, the positions are closed out as per the closeout rate fixed by the
Exchange in accordance with the prescribed rules. The close out rate is calculated as
the highest rate of the scrip recorded in the settlement in which the trade was
executed and in the subsequent settlement upto the day prior to the day of auction,
or 20% above the closing price on the day prior to the day of auction, whichever is
higher. However, in case of close-out for shares under objection or traded in "C"
group, 10% instead of 20% above the closing price on the day prior to the day of
auction and the highest price recorded in the settlement in which trade took place
upto a day prior to auction is considered.

The Exchange has strictly adhered to the settlement schedules for

various groups of securities and there has been no case of clubbing of settlements or
postponement of pay-in and pay-out during the last six years.

The Exchange is also maintaining a database of fake/forged,

stolen, lost and duplicate securities with the Clearing House so that distinctive
numbers submitted by members on delivery may be matched against the database
to weed out bad paper from circulation at the time of introduction of such securities
in the market. This database has also been made available to the members so that
delivering and receiving members can check the entry of fake, forged and stolen
shares in the market
SHORTAGES AND OBJECTIONS

Shortages & consequent actions The members download

Delivery/Receive Orders based on their netted positions for transactions entered
into by them during a settlement in 'A', 'B1', 'B2', and 'F' group scrips and on trade
to trade basis, i.e., without netting buy and sell transactions in scrips in "C" & 'Z'
groups and scrips in B1 and B2 groups which have been put on trade to trade basis
as a surveillance measure.

The seller members have to deliver the shares in the Clearing

House as per the Delivery Orders downloaded. If a seller member is unable to
deliver the shares on the Pay-in day for any reason, his bank account is debited at
the standard rate (which is equal to the closing price of the scrip on the day of
trading) fixed by the Exchange for the quantity of shares short delivered. The
Clearing House arrives at the shortages in delivery of various scrips by members on
the basis of their delivery obligations and actual delivery.

The members can download the statement of shortages on T+3

in Rolling Settlements. After downloading the shortage details, the members are
expected to verify the same and report discrepancy , if any, to the Clearing House
by 1:00 p.m. If no discrepancy is reported within the stipulated time, the Clearing
House assumes that the shortage of a member is in order and proceeds to auction
the same. However, in 'C' group, i.e., Odd Lot segment the members are themselves
required to report the shortages to the Clearing House.

The Exchange issues an Auction Tender Notice to the members

informing them about the names of the scrips, quantity slated for auction and the
date and time of the auction session on the BOLT. The auction for the undelivered
quantities is conducted on T+4 for all the scrips under compulsory Rolling
Settlements. The auction offers received in batch mode are electronically matched
with the auction quantities so as to award the 'best price'. The members who
participate in the auction session can download the Delivery Orders on the same
day, if their offers are accepted. The members are required to deliver the shares in
the Clearing House on the auction Pay-in day, i.e, T+5. Pay-Out of auction shares
and funds is also done on the same day, i.e., T+5. The various auction sessions
relating to shortages, and bad deliveries are now conducted during normal trading
hours on BOLT. Thus, it is possible to schedule multiple auction sessions on a single
trading day.

In auction, the highest offer price is allowed upto the close-out rate and
the lowest offer price can be 20% below the closing price on a day prior to day of
auction. A member who has failed to deliver the securities of a particular company
on the pay-in day is not allowed to offer the same in auction. He can, however,
participate in auction of other scrips.

In case no offers are received in auction for a particular scrip, the sale
transaction is closed-out at a close-out price, determined by higher of the following:-

- Highest price recorded in the scrip from the settlement in which the transaction
took place upto a day prior to the day of the auction.

OR

- 20% above the closing price on a day prior to the day of auction.

However, in case of the close-out of the shares under objection and

shortages in "C" or "Z" group, 10% above the closing prices of the scrips on the
pay-out day of the respective settlement are considered instead of 20%.

Further, if the auction price/close-out price of a scrip is higher than the

standard price of the scrip in the settlement in which the transaction was done, the
difference is recovered from the seller who failed to deliver the scrip. However, in
case, auction/ close-out price is lower than standard price, the difference is not given
to the seller but is credited by the Exchange to the Customers Protection Fund. This
is to ensure that the seller does not benefit from his failure to meet his delivery
obligation. Further, if the offeror member fails to deliver the shares offered in
auction, then the transactions is closed-out as per the normal procedure and the
original selling member pays the difference below the standard rate and offer rate
and the offeror member pays the difference between the offer rate and close-out
rate.

Self Auction As has been discussed in the earlier paragraphs, the

Delivery and Receive Orders are issued to the members after netting off their
purchase and sale transactions in scrips where netting of purchase and sale
positions is permitted. It is likely in some circumstances that a selling client of a
member has failed to deliver the shares to him. However, this did not result in a
member's failure to deliver the shares to the Clearing House as there was a
purchase transaction of some other buying client of the member in the same scrip
and the same was netted off for the purpose of settlement. However, in such a case,
the member would require shares so that he can deliver the same to his buying
client, which otherwise would have taken place from the delivery of shares by the
seller. To provide shares to the members, so that they are in a position to deliver
them to their buying clients in case of internal shortages, the members have been
given an option to submit floppies for conducting self-auction (i.e., as if they have
defaulted in delivery of shares to the Clearing House). Such floppies are to be given
to the Clearing House on the pay-in day. The internal shortages reported by the
members are clubbed with the normal shortages in a settlement and the Clearing
House for the combined shortages conducts the auction. A member after getting
delivery of shares from the Clearing House in self-auction credits the shares to the
Beneficiary account of his client or hand over the same to him in case securities
received are in physical form and debits his seller client with the amount of
difference, if any, between the auction price and original sale price

B) Objections
When receiving members collect the physical securities from the Clearing House on
the Payout day, the same are required to be checked by them for good delivery as
per the norms prescribed by the SEBI in this regard. If the receiving member does
not consider the securities good delivery, he has to obtain an arbitration award from
the arbitrators and submit the securities in the Clearing House on the following day
of the Pay-Out (T+4). The Clearing House returns these securities to the delivering
members on the same day, i.e., (T+4). If a delivering members feels that arbitration
awards obtained against him is incorrect, he is required to obtain arbitration award
for invalid objection from the members of the Arbitration Review Committee. The
delivering members are required to rectify/replace the objections and return the
shares to the Clearing House on next day (T+5) to have the entry against them
removed. The rectified securities are delivered by the Clearing House to the buyer
members on the same day (T+5). The buyer members, if they are not satisfied with
the rectification, are required to obtain arbitration awards for invalid rectification
from the Bad Delivery Cell on T+6 day and submit the shares to the Clearing House
on the same day.

If a member fails to rectify/replace the objections then the same are closed-out. This
is known as "Objection Cycle" and the entire process takes 3 days.

The following table summarizes the activities involved in the Patawat Objection
Cycle of CRS.

DAY ACTIVITY T + 3 Pay-out of securities of Rolling Settlement T + 4 Patawat

Arbitration session : Arbitration awards to be obtained from officials of the Bad
Delivery Cell.
Securities under objection to be submitted in the Clearing House

Arbitration awards for invalid objection to be obtained from members of the

Arbitration Review Committee

T+5 Members and institutions to submit rectified securities, confirmation forms and
invalid objections in the clearing house

Rectified securities delivered to the receiving members

T+6 Arbitration Awards for invalid rectification to be obtained from officials of the
Bad Delivery Cell

Securities to be lodged with the clearing house

The un-rectified and invalid rectification of securities are directly closed-out by the
Clearing House instead of first inviting the auction offers for the same.

The shares in physical form returned under objection to the Clearing House are
required to be accompanied by an arbitration award (Chukada) except in certain
cases where the receiving members are permitted to submit securities to the
Clearing House without "Chukada".
These cases are as follows: Transfer Deed is out of date. Cheques for the dividend
adjustment for new shares where distinctive numbers are given in the Exchange
Notice is not enclosed. Stamp of the Registrar of Companies is missing. Details like
Distinctive Numbers, Transferors' Names, etc. are not filled, in the Transfer Deeds.
Delivering broker's stamp on the reverse of the Transfer Deed is missing. Witness
stamp or signature on Transfer Deed is missing. Signature of the transferor is
missing. Death Certificate (in cases where one or more of the transferors are
deceased) is missing.

A penalty at the rate of Rs.100/- per Delivery Order is levied on the delivering
member for delivering shares, which are not in order. In the event a receiving
member misuses the facility of submitting shares under objection without
"Chukada", a penalty of Rs.500/- per case is charged and the penalty of Rs.100/- per
Delivery Order levied on the delivering member is refunded to him by debiting the
receiving member's account Close Out: There are cases when no offer for particular
scrip is received in an auction or when members who offer the scrips in auction, fail
to deliver the same. In the former case, the original seller member's account is
debited and the buyer member's account is credited at the closeout rate. In the
latter case, the offeror member's account is debited and the buyer member's
account is credited at the close-out rate. The closeout rates for closing the positions
in different segments are as under:

For 'A' + 'B1' + 'B2' + 'Z', 'Rolling demat' and 'F' group

The closeout rate is higher of the following rates:

➢ The highest rate of the scrip from the first day (trading day in case of Rolling
demat segment) to the day prior to the day on which the auction is conducted for the
respective settlement. ➢ 20% above the closing rate as on the day prior to the day of
auction of the respective settlement.

For 'C' group segment

The close-out rate is higher of the following rates : ➢ The highest rate of the scrip
from the first day to the day prior to the day of auction of 'A', 'B1', 'B2, and 'Z'
group segment of the respective settlements; or ➢ 10% above the closing rate as on
the day prior to the day of auction of 'A', 'B1', 'B2, and 'Z' group; or ➢ Transaction
price.

In the 'C' group, i.e., Odd Lot Segment, no auction session is conducted.
The shortages are directly closed out.

DOES AND DONTS :-

Does SEBI approve the contents of the issue?

It is to be distinctly understood that submission of offer

document to SEBI should not in any way be deemed or construed that the
same has been cleared or approved by SEBI. The Lead manager certifies
that the disclosures made in the offer document are generally adequate
and are in conformity with SEBI guidelines for disclosures and investor
protection in force for the time being. This requirement is to facilitate
investors to take an informed decision for making investment in the
proposed issue.

Does SEBI tag make my money safe?

The investors should make an informed decision purely

by themselves based on the contents disclosed in the offer documents.
SEBI does not associate itself with any issue/issuer and should in no way
be construed as a guarantee for the funds that the investor proposes to
invest through the issue. However, the investors are generally advised to
study all the material facts pertaining to the issue including the risk factors
before considering any investment. They are strongly warned against any
'tips' or news through unofficial means.

How does SEBI ensure compliance with DIP?

The Merchant Banker are the specialized intermediaries

who are required to do due diligence and ensure that all the requirements
of DIP are complied with while submitting the draft offer document to SEBI.
Any non compliance on their part, attract penal action from SEBI, in terms
of SEBI (Merchant Bankers) Regulations. The draft offer document filed by
Merchant Banker is also placed on the website for public comments.
Officials of SEBI at various levels examine the compliance with DIP
guidelines and ensure that all necessary material information is disclosed
in the draft offer documents.

With the presence of the Central Listing Authority (CLA),

what would be the role of SEBI in the processing of Offer docume nts for
an issue?

The Central Listing Authority's (CLA) functions have been

detailed under Regulation 8 of SEBI (Central Listing Authority) Regulations,
2003 (CLA Regulations) issued on August 21, 2003 and amended up to
October 14, 2003.

In brief, it covers processing applications for letter precedent

to listing from applicants; to make recommendations to the Board on
issues pertaining to the protection of the interest of the investors in
securities and development and regulation of the securities market,
including the listing agreements, listing conditions and disclosures to be
made in offer documents; and; to undertake any other functions as may be
delegated to it by the Board from time to time.

SEBI as the regulator of the securities market examines all

the policy matters pertaining to issues and will continue to do so even
during the existence of the CLA.
Since the CLA is not yet operational, the reply to this question would be
updated thereafter.

Who decides the price of an issue?

Indian primary market ushered in an era of free pricing in 1992. Following

this, the guidelines have provided that the issuer in consultation with
Merchant Banker shall decide the price. There is no price formula
stipulated by SEBI. SEBI does not play any role in price fixation. The
company and merchant banker are however required to give full
disclosures of the parameters which they had considered while deciding
the issue price. There are two types of issues one where company and LM
fix a price (called fixed price) and other, where the company and LM
stipulate a floor price or a price band and leave it to market forces to
determine the final price (price discovery through book building process).

How does one com of the draft offer document?e to know about the issues
on offer? And from where can I get copies
SEBI issues press releases every week regarding the draft offer documents
received and observations issued during the period. The draft offer
documents are put up on the website under Reports/Documents section.
The final offer documents that are filed with SEBI/ROC are also put up for
information under the same section. Copies of the draft offer documents in
hard copy form may be obtained from the office of SEBI
Who is eligible to be a BRLM?

A Merchant banker possessing a valid SEBI registration i

n accordance with the SEBI (Merchant Bankers) Regulations, 1992 is
eligible to act as a Book Running Lead Manager to an issue.

What and where do I find them?

The SEBI Manual is SEBI authorized publication that is

a compre hensive databank of all relevant Acts, Rules, Regulations and
Guidelines that are related to the functioning of the Board. The details
pertaining to the Acts, Rules, Regulations, Guidelines and Circulars are
placed on the SEBI website under the "Legal Framework" section.

Will SEBI answer my queries online in case of doubts and clarifications?

The "Feedback" section on the SEBI website has a

provision for the visitors to the site to ask questions on clarifications on
smaller issues pertaining to the availability of information and a facility for
users to provide feedback on the same. However, if the queries are
legalistic and deep in nature, they are to be referred to SEBI under the SEBI
(informal Guidance) Scheme, 2003.

Sebi' Latest Announcement....

Nebody knows about the Sebi's latest Announce .....?

CNBC-TV18 has learnt from sources that Sebi is likely to propose short
swing rule in India. The move restricts company insiders from making short-term
profit at the company’s expense.

It is a move that could potentially have a big impact on promoters of

listed companies. Market regulator Sebi is proposing to put in place a new rule-the
short swing rule- in India. This is similar to one that exists in the USA.
The rule prevents company insiders, who have greater access to material
information, from taking advantage of the information to make short-term profits.
So, Sebi proposes that company insiders buying and selling their company's stock
within a 6-month period return the money they make to the company. As of now,
this is just a consultative paper and the regulator has invited feedback to this
proposal.

Sources added that the move proposes insiders return profits from
buying and selling the company’s stock. It proposes a tenor of six months for the
short swing rule.It has circulated a paper on short swing profit regulations.

Sebi has proposed last-in-first-out method to determine the six

month period and the move is intended to check insider trading. The designated
insider will include all key management personnel and directors of companies as
well as officials who own above 10% stake in the company.

Sebi says that any officer who buys and sells shares of a company
within six-months will have to return those profits to the company, which means
that he cannot buy and sell shares within six months and make a profit on them.
If he makes, he will return the profit.

Who cannot do these transactions or who will be brought under the ambit of this
short swing rule?

It is a designated insider and a designated insider goes beyond the

threshold of any person who holds 10%. An insider is basically defined as a person
who would own more than 10% shares in a company. But here it says a designated
insider would include all key management personnel.

It would include all directors of the company, all officers of the

company who are beneficial owners of 10% or more stake in that company. So, a
designated insider concept seems to be a far wider definition. They have given it a
far wider definition than what an insider would be who owns only 10% in that
company. It is a draft proposal. They have invited suggestions to these proposals.

The future of stock exchanges

The future of stock trading appears to be electronic, as competition is
continually growing between the remaining traditional New York Stock Exchange
specialist system against the relatively new, all Electronic Communications
Networks, or ECNs. ECNs point to their speedy execution of large block trades,
while specialist system proponents cite the role of specialists in maintaining orderly
markets, especially under extraordinary conditions or for special types of orders.

The ECNs contend that an array of special interests profit at the

expense of investors in even the most mundane exchange-directed trades. Machine-
based systems, they argue, are much more efficient, because they speed up the
execution mechanism and eliminate the need to deal with an intermediary.
 Historically, the 'market' (which, as noted, encompasses the
totality of stock trading on all exchanges) has been slow to respond to technological
innovation, thus allowing growing pure speculation to continue. Conversion to all-
electronic trading could erode/eliminate the trading profits of floor specialists and
the NYSE's "upstairs traders", who, like in September and October 2008, earned
billions of dollars selling shares they did not have, and days later buying the same
amount of shares, but maybe 15 % cheaper, so these shares could be handed to their
buyers, thereby making the market fall deeply.

William Lupien, founder of the Instinet trading system and the

OptiMark system, has been quoted as saying "I'd definitely say the ECNs are
winning... Things happen awfully fast once you reach the tipping point. We're now
at the tipping point."

One example of improved efficiency of ECNs is the prevention of

front running, by which manual Wall Street traders use knowledge of a customer's
incoming order to place their own orders so as to benefit from the perceived change
to market direction that the introduction of a large order will cause. By executing
large trades at lightning speed without manual intervention, ECNs make impossible
this illegal practice, for which several NYSE floor brokers were investigated and
severely fined in recent years. Under the specialist system, when the market sees a
large trade in a name, other buyers are immediately able to look to see how big the
trader is in the name, and make inferences about why s/he is selling or buying. All
traders who are quick enough are able to use that information to anticipate price
movements.

ECNs have changed ordinary stock transaction processing (like

brokerage services before them) into a commodity-type business. ECNs could
regulate the fairness of initial public offerings (IPOs), oversee Hambrecht's
OpenIPO process, or measure the effectiveness of securities research and use
transaction fees to subsidize small- and mid-cap research efforts.

Somehowever, believe the answer will be some combination of the

best of technology and "upstairs trading" — in other words, a hybrid model.

Trading 25,000 shares of General Electric stock (recentquote: $7.54;

recent[] volume: 216,266,000) would be a relatively simple e-commerce transaction;
trading 100 shares of Berkshire Hathaway Class A stock (recent quote: $72,625.00;
recent volume: 877) may never be. The choice of system should be clear (but always
that of the trader), based on the characteristics of the security to be traded.

Even with ECNs forming an important part of a national market

system, opportunities presumably remain to profit from the spread between the bid
and offer price. That is especially true for investment managers that direct huge
trading volume, and own a stake in an ECN or specialist firm. For example, in its
individual stock-brokerage accounts, "Fidelity Investments runs 29% of its
undesignated orders in NYSE-listed stocks, and 37% of its undesignated market
orders through the Boston Stock Exchange, where an affiliate controls a specialist
post."