A STUDY ON ONLINE TRADING SYSTEM AT INTER-CONNECED STOCK EXCHANGE OF INDIA LIMITED

Project report submitted in Partial fulfillment for the award of

MASTER OF BUSINESS ADMINISTRATION

DECLARATION

I here by declare that the project titled Online Trading System done at Inter-Connected Stock Exchange of India Limited submitted by me as part of partial fulfillment for the award of the Masters of

Business Administration, at XXXXX, XXXX University, XXX is a record of bonafide work done by me.

I also declare that this report has to my knowledge is my own and is neither submitted to any other university nor published any time before.

XXXX

ACKNOWLEDGEMENT

I would like to express my gratitude for all the people, who extended unending support at all stages of the project. This report is a product of not only my sincere efforts but also the guidance and morale support given by the management of InterConnected Stock Exchange of India Ltd., XXXX. I express my sincere gratitude to my guide XXXX, Incharge Training, Inter-Connected Stock Exchange of India Ltd., XXXX for sparing his valuable time in giving the valuable information and suggestions all through, for the successful completion of the project. I wish to express my sincere thanks to XXXX, Director & XXXX, Guide and also the management and staff of my college for providing the guidance and support. I would like to acknowledge, my sincere thanks to all the executives at Inter-Connected Stock Exchange of India Ltd., XXXX who have extended helping hand in giving the information and being a part of the study. Last but not least, I express my sincere gratitude to all the employees at Inter-Connected Stock Exchange of India Ltd., XXXX, who have directly or indirectly contributed to the successful completion of the project.

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CONTENTS
INTRODUCTION OF STUDY A STUDY ON STOCK EXCHANGE HISTORY OF STOCK EXCHANGE SECURITIES EXCHANGE BOARD OF INDIA NATIONAL STOCK EXCHANGE COMPANY PROFILE INTRODUCTION OF ISE OBJECTIVES OF ISE OBJECTIVES OF THE STUDY SALIENT FEATURES OF ISE ONLINE TRADING SYSTEM

 TRADING PROCEDURE BEFORE ONLINE INTRODUCTION TO ONLINE TRADING OBJECTIVES OF ONLINE TRADING ADVANTAGES & DISADVANTAGES OF ONLINE TRADING

CLEARING AND SETTLEMENT MECHANISM TRADING CYCLE SETTLEMENT PROCESS TRADING SYSTEM IN ISE DEMATRALISATION NSDL OBSERVATIONS CONCLUSIONS

SUGGETIONS BIBLIOGRAPHY

INTRODUCTION TO THE STUDY

Stock exchange is an organized market place where securities are traded. These securities are issued by the government, semi-government bodies, public sector undertakings and companies for borrowing funds and raising resources. Securities are defined as any monetary claims (promissory notes or .!."# and also include shares, debentures, bonds and etc., if these securities are marketable

as in the case of the government stock, they are transferable by endorsement and alike movable property. They are tradable on the stock exchange. So are the case shares of companies. "nder the Securities $ontract %egulation &ct of '()*, securities+ trading is regulated by the $entral ,overnment and such trading can take place only in stock exchanges recognized by the government under this &ct. &s referred to earlier there are at present -. such recognized stock exchanges in ndia. !f these, ma/or stock exchanges, like 0ombay Stock 1xchange 2ational Stock 1xchange, nter-$onnected Stock 1xchange, 3olkata, 4elhi, $hennai, 5yderabad and 0angalore etc. are permanently recognized while a few are temporarily recognized. The above act has also laid down that trading in approved contract should be done through registered members of the exchange. &s per the rules made under the above act, trading in securities permitted to be traded would be in the normal trading hours ('6 &.7 to ...6 8.7# on working days in the trading ring, as specified for trading purpose. $ontracts approved to be traded are the following9 &. Spot delivery deals are for deliveries of shares on the same day or the next day as the payment is made. 0. 5and deliveries deals for delivering shares within a period of : to '; days from the date of contract. $. 4elivery through clearing for delivering shares with in a period of two months from the date of the contract, which is now reduce to ') days.(%educed to - days in demat trading#

4. Special 4elivery deals for delivering of shares for specified longer periods as may be approved by the governing board of the stock exchange. 1xcept in those deals meant for delivery on spot basis, all the rest are to be put through by the registered brokers of a stock exchange. The securities contracts (%egulation# rules of '(): laid down the condition for such trading, the trading hours, rules of trading, settlement of disputes, etc. as between the members and of the members with reference to their clients.

HISTORY OF STOCK EXCHANGES IN INDIA

The origin of the Stock 1xchanges in ndia can be traced back to the later half of '(th century. &fter the &merican $ivil <ar ('=*6-*'# due to the share mania of the public, the number of brokers dealing in shares increased. The brokers organized an informal association in 7umbai named >The 2ative Stock and Share 0rokers &ssociation in '=:)?.later evolved as 0ombay stock exchange. ncreased activity in trade and commerce during the @irst <orld <ar and Second <orld <ar resulted in an increase in the stock trading. The ,rowth of Stock 1xchanges suffered a set after the end of <orld <ar. <orld wide depression affected them most of the Stock 1xchanges in the early stages had a speculative nature of working without technical strength. &fter independence, government took keen interest to regulate the speculative nature of stock exchange working. n that direction, securities and $ontract %egulation &ct '()* was passed, this gave powers to $entral ,overnment to regulate the stock exchanges. @urther to develop secondary markets in the country, stock exchanges established at 7umbai, $hennai, 4elhi, 5yderabad, &hmedabad and ndore. The 0angalore Stock 1xchange was recognized in '(*.. &t present there are -. Stock 1xchanges.

Till recent past, floor trading took place in all Stock 1xchanges. n the floor trading system, the trade takes place through open outcry system during the official trading hours. Trading posts are assigned for different securities where by and sell activities of securities took place. This system needs a face A to A face contact among the traders and restricts the trading volume. The speed of the new information reflected on the prices was rather than the investors. The Setting up of 2S1 and !T$1 (!ver the counter exchange of ndia with the screen based trading facility resulted in more and more Sock exchanges turning towards the computer based trading. 0S1 introduced the screen based trading system in '((), which known as 0!BT (0ombay on A line Trading System#. 7adras Stock 1xchange introduced &utomated 2etwork Trading System (7&2T%&# on !ctober :, '((* &part from 0ombay Stock 1xchanges have introduced screen based trading. FUNCTIONS OF STOCK EXCHANGE Maintain Activ T!a"in#$ Shares are traded on the stock & continuous

exchanges, enabling the investors to buy and sell securities. The prices may vary from transaction to transaction. the stock exchanges. trading increases the liCuidity or marketability of the shares traded on

Fi%ati&n &' P!ic ($ 8rice is determined by the transactions that flow from investors demand and the supplier+s preferences. "sually the traded prices are made known to the public. This helps the investors to make the better decision. En()! ( (a' an" 'ai! " a*in#($ The rules, regulations and

bylaws of the Stock 1xchanges provide a measure of safety to the investors. Transactions are conducted under competitive conditions enabling the investors to get a fair deal. Ai"( in 'inancin# t+ In")(t!,$ & continuous market for shares provides a favorable climate for raising capital. The negotiability and transferability of the securities, investors are willing to subscribe to the initial public offering ( 8!#. formation. Di(( -inati&n &' In'&!-ati&n$ Stock 1xchanges provide They publish the This stimulates the capital

information through their various publications.

share prices traded on their basis along with the volume traded. 4irectory of $orporate nformation is useful for the investor+s assessment regarding the corporate. 1xchanges. P !'&!-anc In")c !$ The prices of stocks reflect the performance of the traded companies. This makes the corporate more concerned with its public image and tries to maintain good performance. 5andouts, handbooks and pamphlets provide information regarding the functioning of the Stock

S *'.! #)*atin# &!#ani/ati&n$ The Stock 1xchanges monitor the integrity of the members, brokers, listed companies and clients. $ontinuous internal audit safeguards the investors against unfair trade practices. t settles the disputes between member brokers, investors and brokers. REGULATORY FRAME 0ORK This Securities $ontract %egulation &ct, '()* and Securities and 1xchange board of ndia (S10'# &ct, '((-, provides a comprehensive legal framework. & .-tier regulatory structure

comprising the ministry of finance, S10' and the ,overning 0oards of the Stock 1xchanges regulates the functioning of Stock 1xchanges. Mini(t!, &' 'inanc $ The Stock 1xchange division of the 7inistry of @inance has powers related to the application of the provision of the S$% &ct and licensing of dealers in the other area. &ccording to S10 &ct, The 7inistry of @inance has the appellate and the supervisory power over the S10 . t has powered to grant recognition to the Stock 1xchange and regulation of their operations. 7inistry of @inance has the power to approve the appointments of executives chiefs and the nominations of the public representatives in the government 0oards of the Stock 1xchanges. responsibility of preventing undesirable speculation. t has the

T+ S c)!iti ( an" E%c+an# B&a!" &' In"ia The Securities and 1xchange 0oard of ndia even though established in the year '(==. %eceived statutory powers only on .6th Danuary '((-. "nder the S10 &ct, a wide variety of powers are vested in the hands of S10 . S10 has the powers to regulate the business of Stock 1xchanges, other security and mutual funds. %egistration and regulation of market intermediaries are also carried out by S10 . t has responsibility to prohibit the fraudulent unfair trade practices and insider dealings. Takeovers are also monitored by the S10 has the multi pronged duty to promote the healthy growth of the capital market and protect the investors. T+ G&v !nin# B&a!" &' (t&c1 %c+an# ($ The ,overning 0oard of the Stock 1xchange consists of elected members of directors, government nominees and public representatives. %ules, by laws and regulations of the Stock 1xchange substantial powers to the executive director for maintaining efficient and smooth day-to day functioning of Stock 1xchange. The ,overning 0oard has the responsibility to maintain and orderly and well-regulated market. The ,overning body of the Stock 1xchange consists of '. members of which &. Six members of the Stock 1xchange are elected by the members of the Stock 1xchange.

0. $entral ,overnment nominates not more than three members. $. The board nominates three public representatives. 4. S10 nominates persona not exceeding three and 1. The Stock 1xchange appoints one 1xecutive 4irector. !ne third of the elected members retire at annual general meeting (&,7#. The retired member can offer himself for election if he is not elected for two consecutive years. f a member serves in the governing body for two years consecutively, he should refrain offering himself for another two years. The members of the governing body elect the president and vice-president. t needs to approval from the $entral ,overnment or the 0oard. The office tenure for the president and vice-president is on year. They can offer themselves for re-election, if they have not held for two consecutive years. n that case they can offer themselves for re-election after a gap of one-year period

NATIONAL STOCK EXCHANGE

The 2ational Stock 1xchange (2S1# of ndia became operational in the capital market segment on third 2ovember '((; in 7umbai. The genesis of the 2S1 lies in the recommendations of the pherwani committee ('(('#. &part from the 2S1. t had recommended for the establishment of 2ational Stock market System also. The committee pointed out some ma/or defects in the ndian stock market. The defects specified are. '. Back of liCuidity in most of the markets in terms of depth and breadth. -. Back of ability to develop markets for debt. .. Back of infrastructure facilities and outdated trading system. ;. Back of transparency in the operations that affect investors+ confidence. ). !utdated settlement system that are inadeCuate to cater to the growing volume, leading to delays. *. Back of single market due to the inability of various stock exchanges to function cohesively with legal structure and regulatory framework. These factors led to the establishment of the 2S1. T+ -ain &23 ctiv ( &' NSE a! a( '&**&4( '#. To establish a nation wide trading facility for eCuities, debt and hybrid instruments -#. To ensure eCual access investors all over the country through appropriate communication network. .#. To provide a fair, efficient and transparent securities market to investors using an electronic communication network.

;#. To enable shorter settlement cycle and book entry settlement system. )#. To meet current international standards of securities market. 8romoters of 2S19 40 , $ $ , @$ , B $, , $, S0 , 0ank of 0aroda. $anara 0ank, $orporation 0ank, ndian 0ank, !riental 0ank of $ommerce. "nion 0ank of ndia, 8un/ab 2ational 0ank, nfrastructure Beasing and @inancial Services, Stock 5olding $orporation of ndia and S01 capital market are the promoters of 2S1. MEMBERSHIP$ 7embership is based on factors such as capital adeCuacy, corporate structure, track record, education, experience etc. &dmission is a two-stage process with applicants reCuiring going through a written examination followed by an interview. & committee consisting of experienced people from the industry to assess the applicant+s capability to operate as an exchange member, interviews candidates. The exchange admits members separately to <holesale 4ebt 7arket (<47# segment and the capital market segment. !nly corporate members are admitted on the debt market segment whereas individuals and firms are also eligible on the capital market segment. 1ligibility criteria for trading membership on the segment of <47 are as follows.

'#. The persons eligible to become trading members are bodies corporate, companies institutions including subsidiaries of banks engaged in financial services and such other persons or entities as may be permitted form time to time by %0 ES10 . -#.The whole-time directors should possess at least two years experience in any activity related to banking or financial services or treasury. .#.The applicant must possess a minimum net worth of %s.crores. ;#.The applicant must be engaged solely ion the business of securities and must not be engaged in any fund-based activities. T+ a! 6 '#. ndividuals, registered firms, bodies corporate, companies and such other persons may be permitted under S$%&, '():. -#. &pplicant must be engaged in the business of securities and must not be engaged in any fund-based activities. .#. 7inimum net worth reCuirements prescribed are as followsF a#. ndividual and registered firms A %s.'66 Bacs. b#.$orporate bodies A %s. '66 Bacs. . ;#. 7inimum prescribed Cualification of graduation and two years experience of handling securities as broker, sub-broker, authorized assistant, etc must be fulfilled by *i#i2i*it, c!it !ia '&! t+ ca5ita* -a!1 t ( #- nt

a# 7inimum two directors in case the applicant is a corporate b#. 7inimum two partners in case of partnership firms and c#. ndividual, in case of individual or sole proprietary concerns. The two experienced director in a corporate applicant or trading member should hold minimum of )G of the capital of the company.

P! ( nt T!a"in# M c+ani(The 2ational system provides single, nation wide Securities. t enables investors in one part of the country to trade at the best Cuotes with an investors located in any other part of the country through the members of the stock exchanges and subseCuently clears and settles the trade in an efficient and cost effective manner. The primary ob/ective of the stock market is to provide clear opportunity to the investors throughout the country to trade any securities irrespective of the size of the order or the broker through whom the order is routed. This provides the facility to execute the buy out any extra cost to the investors. There will be no trading floor in the exchanges. nstead, each trading member will have a computer at his own office any where in ndia which will be connected to the central computer system at the 2S1 through leased lines or HS&T+s (Hery Small &perture Terminal#, for an interim transition period of six months and subseCuently by satellite link. HS&T+s are relatively smaller dishes similar to dish antenna for cable T.H and have the benefit of not being very expensive. & satellite network makes it possible to connect almost all the parts of the nation Cuickly as it is easy to install, as against the ground lines

Such as dial up modems leased lines which are prone to disruptions, satellite links on other hands ensure high speed, availability and Cuality of the connection. This code of trading is known as >!n-line Trading?.

INTRODUCTION nter-connected stock exchange of ndia limited I S1J has been promoted by '; %egional stock exchanges to provide cost-effective trading linkageEconnectivity to all the members of the participating 1xchanges, with the ob/ective of widening the market for the securities listed on these 1xchanges. S1 aims to address the needs of small companies and retail investors with the guiding principle of optimizing the existing infrastructure and harnessing the potential of regional markets, so as to transform these into a liCuid and vibrant market through the use of state-of-the-art technology and networking.

The participating 1xchanges of S1 in all about ;)66 stock brokers, out of which more than -66 have been currently registered as traders on S1. n order to leverage its infrastructure and to expand its nationwide reach, S1 has also appointed around ;)6 4ealers across :6 cities other than the participating 1xchange centers. These dealers are administratively supported through the regional offices of S1 at 4elhi InorthJ, kolkata IeastJ, $oimbatore, 5yderabad IsouthJ and 2agpur IcentralJ, besides 7umbai. S1 has also floated a wholly-owned subsidiary, S1

securities and services limited I SSJ, which has taken up corporate membership of the 2ational Stock 1xchange of ndia Btd. I2S1J in both the $apital 7arket and @utures and !ptions segments and The Stock 1xchange, 7umbai n the 1Cuities segment, so that the traders and dealers of S1 can access other markets in addition to the S1 markets and their local market. S1 thus provides the investors in smaller cities a one-stop solution for cost-effective and efficient trading and settlement in securities. <ith the ob/ective of broad basing the range of its services, S1 has started offering the full suite of 48 facilities to its Traders, 4ealers and their clients.

OBJECTIVES$

'. $reate a single integrated national level solution with access to multiple markets for providing high cost-effective service to millions of investors across the country. -. $reate a liCuid and vibrant national level market for all listed companies in general and small capital companies in particular. .. !ptimally utilize the existing infrastructure and other resources of participating Stock 1xchanges, which are under-utilized now. ;. 8rovide a level playing field to small Traders and 4ealers by offering an opportunity to participate in a national markets having investment-oriented business. ). %educe transaction cost. *. 8rovide clearing and settlement facilities to the Traders and 4ealers across the $ountry at their doorstep in a decentralized mode. :. Spread demat trading across the country OBJECTIVES OF THE STUDY The ob/ectives of the study are as follows9 To know the on-line screen based trading system adopted by S1 and about its communication facilities for the appropriate configuration to set network. This would link the S1 to individual brokersEmembers.

 To study about the back up measures with respect to primary communication facilities, in order to achieve network availability and connectivity back-up options. Study about $learing K Settlements in the stock exchanges for easy transfer and error prone system. &lso study about computerization demand process. To know about the settlement procedure involved in S1 and also 2S4B operations. $learing K defining each and every term of the stock exchange trading procedures. SCOPE OF STUDY$ The scope of the pro/ect is to study and know about !nline Trading and $learing K Settlements dealt in nter-$onnected Stock 1xchange. 0y studying the !nline Trading and $learing K Settlements, a clear option of dealing in stock exchange has been "nderstood. "nlike olden days the concept of trading manually is been replaced for fast interaction of shares of shareholder. 0y this we can access anywhere and know the present dealings in shares. DATA COLLECTION METHODS The data collection methods include both the primary and secondary collection methods.

 8rimary collection methods9 This method includes the data collection from the personal discussion with the authorized clerks and members of the exchange. Secondary collection methods9 The secondary collection methods includes the lectures of the superintend of the department of market operations and so on., also the data collected from the news, magazines of the S1 and different books issues of this study LIMITATIONS OF THE STUDY The study confines to the past --. years and present system of the trading procedure in the S1 and the study is confined to the coverage of all the related issues in brief. The data is collected from the primary and secondary sources and thus is sub/ect to slight variation than what the study includes in reality. 5ence accuracy and correctness can be measured only to the extend of what the sample group has furnished.

SAILENT FEATURES N t4&!1 &' int !- "ia!i ($

&s at the beginning of the financial year -66.-6;, );= intermediaries (-6: Traders and .;' 4ealers# are registered on S1. & broad of members forms the bedrock for any 1xchange, and in this respect, S1 has a large pool of registered intermediaries who can be tapped for any new line of business.

R&2)(t O5 !ati&na* S,(t -(9

The trading, settlement and funds transfer operations of S1 and SS are completely automated and state-of-the-art systems have been deployed. The communication network of S1, which has connectivity with over ;66 trading members and is spread across;* cities, is also used for supporting the operations of SS. The trading software and settlement software, as well as the electronic funds transfer arrangement established with 54@$ 0ank and $ $ 0ank, gives S1 and SS the reCuired operational efficiency and flexibility to not only handle the secondary market functions effectively, but also by leveraging them for new ventures. S1i** " an" %5 !i nc " -an5&4 !9 S1 and SS have experienced and professional staff, who have wide experience in Stock 1xchangesE capital market institutions, with in some cases, the experience going up to nearly twenty years in this industry. The staff has the skill-set reCuired to perform a wide range of functions, depending upon the reCuirements from time to time.

A##! ((iv 5!icin# 5&*ic, The philosophy of S1 is to have an aggressive pricing policy for the various products and services offered by it. The aim is to penetrate the retail market and strengthen the position, so that a wide variety of products and services having appeal for the retail market can be offered using a common distribution channel. The aggressive pricing policy also ensures that the intermediaries have sufficient financial incentives for offering these products and services to the end-clients. T!a"in#7 Ri(1 Mana# - nt an" S tt* - nt S&'t4a! S,(t -( 9 The !%0 T (!nline %egional 0ourses nter-connected Trading# and &L S (&utomated 1xchange ntegrated Settlement# software developed on the 7icrosoft 2T platform, with consultancy assistance from 7icrosoft, are the most contemporary of the trading and settlement software introduced in the country. The applications have been built on a technology platform, which offers low cost of ownership, facilitates simple maintenance and supports easy up gradation and enhancement. The soft wares are so designed that the transaction processing capacity depends on the hardware usedF capacity can be added by /ust adding inexpensive hardware, without any additional software work. Vi2!ant S)2(i"ia!, O5 !ati&n(9

SS, the wholly owned subsidiary of S1, is one of the biggest 1xchange subsidiaries in the country. !n any given day, more than -)6 registered intermediaries of SS traded from ;* cities across the length and breadth of the country. '. 8rof. 8. H. 2arasimham -. Shri H. Shankar .. 4r. S. 4. srani ;. 4r. 7. M. 3han ). 7r. 8. D. 7athew *. 7. $. %odrigues :. 7r. 7. 3. &nanda 3umar =. 7r. T.2.T 2ayar (. 7r. 3. 4. ,upta '6. 7r. H. %. 0haskar %eddy ''. 7r. Dambu 3umar Dain 8ublic nterest 4irector 7anaging 4irector 8ublic nterest 4irector 8ublic nterest 4irector Shareholder 4irector Shareholder 4irector Shareholder 4irector Shareholder 4irector Shareholder 4irector Shareholder 4irector Trading 7ember 4irector

TRADING PROCEDURE BEFORE ON.LINE THE TRADING RING$ Trading on stock exchanges is officially done in the ring for a few hours from ''.66 &.7 to -..68.7. Trading before or after official hour is called 31%0 T%&4 2,. n the trading ring space is provided for specified and non-specified sections. The members of their authorized assistants have to wear a badge or carry with them identify cards given by the exchange to enter the trading ring. They carry a Sauda book or confirmation memos duly authorized by exchange. The stock exchanges operations at floor level are highly technical in nature. 2on-members are not permitted to enter into stock market. 5ence, various stages have to be completed in executing a transaction at a stock exchange. The steps involved in the methods of trading have been given below9 A8CHOICE OF BROKER$

The prospective investor who wants to buy shares or the investor who wants to sell his shares cannot enter into hall of the exchange and transact business. They have to act through only member brokers. They can also appoint their bankers for this purpose. Since, bankers can become members of stock exchange as per the present regulations. So, the first task in transacting business on stock exchanges is to choose a broker of repute or banker. Such people+s can ensure prompt and Cuick execution of a transaction at the possible price. &t present there are ;)66 authorized brokers in S1. INTRODUCTION TO ONLINE TRADING ,one are the days of trading on the floor. Technology has changed the landscape of the stock markets. The look of the stock exchanges has undergone metamorphic changes in the recent years. 8rior to online trading, regional stock exchange was playing a very important role in capital markets, as they were local investors. %egional S1, which was unable to interact with other S1s started developing this own screen based trading and connecting to other scrip+s which were not available with them. This also helped in accessing the Cuotes and other market information from other stock exchange which proved vital in the functioning of the system as a whole.

The trading network is depicted in given below 2S1 has main computer which is connected through Hery Small &perture Terminal (HS&T# installed at its office. The main computer runs on a fault tolerant ST%&T"S mainframe computer at the 1xchange. 0rokers have terminals (identified as the 8$s in the given picture# installed at their premises which are connected through HS&TsE leased linesEmodems. &n investor informs a broker to place an order on his behalf. The broker enters the order through his 8$, which runs under <indows 2T and sends signal to the satellite via HS&TEleased lineEmodem. The signal is directed to mainframe computer at 2S1 via HS&T at 2S1+s office. & message relating to the order activity is broadcast to the respective member. The order confirmation message is immediately displayed on the 8$ of the broker. This order matches with the existing passive order(S# otherwise it waits for the active orders to enter the system. !n order matching, a message is broadcast to the respective member.

TRADING NET0ORK

5"0 ANTENNA SATELITE

2S1 7& 2@%&71

PREMISES

BROKERS

CORPORATE HIERARCHY The Trading member has the facility of defining a hierarchy amongst its users of the 21&T system. The hierarchy comprises9

$orporate 7anager

0ranch '

0ranch -

4ealer '

4ealer -

4ealer ''

4ealer '-

The users of the trading system can logon as either of the user type. The significance of each type is explained below9 A8 C&!5&!at Mana# !$ The corporate manager is a term assigned to a user placed at the highest level in a trading firm. The facility to set 0ranch order value limits and user order value limits is available to the corporate manager.

B8 B!anc+ Mana# !9 The branch manager is term assigned to a user who is placed under the corporate manager. The branch manager can set user order value limits for each of his branch. B8 D a* !$ 4ealers are users at the lower most level of the hierarchy. & dealer can view and perform order and related activities only for oneself. OBJECTIVES OF ON.LINE TRADING$ %educe and eliminate operational inefficiencies inherent in manual system. ncreased trading capacity in stock exchanges. mprove market transparency, eliminate unmatched trades and delayed reporting. 8rovides for online and offline monitoring, control and surveillance of the markets. 8romote fairness and speedy matching. 1nsure smooth market operations using technology while retaining the flexibility of conventional trading practices. Setup various limits rules and controls centrally. 8rovide brokers with their data on electronic media interface with the brokers back office system. 8rovide public information on scrip prices, indices for all users of the system.

 8rovide analytical data for use of stock exchange in analysis and reporting To face stiff competition from other stock exchange. $onsolidate trader+s data and interface with clearing and settlement.

PLACEMENT OF ORDER$ The next step in planning of order for the purchase or sale of Securities with the broker. The order is usually by telegram, telephone, letter, fax etc., or in person. To avoid delay it is placed generally over the phone. The orders may take any one of the forms such as at best order, limit order, immediate or cancel order, discretionary order, limited discretionary order, open order and stop loss order. ENTRY OF ORDER INTO THE BOOKS$ &fter receiving the order, the member enters them in his books and the purchase and sale orders are distributed among his assistants to handle them separately in non-specified and odd-lots. EXECUTION OF ORDER$

0ig brokers transact their business through their authorized clerk. Small ones out their business personally. !rders are executed in the trading ring of the S1. This works from '-966 noon to -966 p.m discretionary order on all working days from 7onday to @riday and a special hour session on Saturday. The floor of the stock exchange is divided into number of markets (pits# according to the nature of security deal in. The authorized clerkEbroker goes to the pit and /obbers offer two way Cuotes for the scrips they deal in. they act as market makers and provide liCuidity to the market. The system has been designed to get the bet lids and offers from the /obber+s book as well as the best buy and sell orders from the book. f the Cuotation is not acceptable to the brokers, he may make a counter bidEoffer

"ltimately the bargains may be closed at a price mutually acceptable to both the parties. n case the Cuotation is not acceptable to him, the broker may go to another dealer and make a bargain. &ll bargains on the stock exchanges are settled by word of mouth and there is no written contract signed immediately by the parties concerned. !nce the transaction is finalized, the deals are recorded in a $haupri %ough notebook or transaction note or confirmation memos. Soudha block books or confirmation memos are provided by the stock exchange. The details are recorded in these books also. The prices at which different scrips are traded on a particular day published on the next day in the newspapers. &n authorized representative of the stock exchange is also present in the hall to supervise the trading. PREPARATION OF CONTRACT NOTES$ "sually, the authorized clerks enter the particulars of the business transacted during a particular day in N3acha Sauda 0ook+ they are transferred to N8ucca Sauda 0ook+, which are maintained separately for the ready delivery contracts. Then the brokerEauthorized clerk prepares a contract note. & contract note is a written agreement between the broker and his client for the transaction executed. t contains the details of the contract made for the purchaseEsale of Securities, the brokerage chargeable, name of the company, number of shares boughtEsold, net rate, etc., it is prepared in a prescribed from and a copy of it is also sent to the client.

 PLACING ORDER 0ITH THE BROKER$ The next step is placing an order for the purchaseEsale of securities with the broker. The order is usually placed over telephone, fax. t can also take the form of telegram or letter or in person. The order placed may be any of the following varieties (largely classified on the basis of price limits that it imposes.#. AT BEST ORDER 9OR: BEST RATE ORDER$ >0uy '666 LMO ltd.?, it does not specify any price. t means buy LMO Btd. Securities at the prevailing market price. These are executed very fast as there is no price limits. LIMIT ORDER$ >0uy '66 LMO Btd. &t %s '66?, it is an order for the purchase of shares at a specified price by the client. (%s '66# LIMITED DISCRETIONARY ORDER$ >0uy '666 LMO Btd., around %s.'66?. t gives discretion to the broker. The price can be a little above %s '66. 5ow much discretion is implied depends on how the broker and client define around. OPEN ORDER$

t is an order to buy or sell without fixing any time or price limit on the execution of the order.

STOP LOSS ORDER$ >0uy '66 LMO Btd. P %s '- to stop %s '6?. t means buy '66 LMO Btd securities at the market rate of %s. '- but if on the same day the price falls to %s. '6 immediately sell of the securities Eshares. Thus an attempt is made to limit the loss of sudden unfavorable shift in the market. NET RATE ORDER$ >0uy '666 LMO Btd. P%s..6 net >would mean that the client is willing to buy '666 LMO Btd. @or no more than %s..6 per security inclusive of brokerage payable to the broker. 2et rate is purchase or sale rate minus brokerage. MARKET RATE ORDER$ 7arket rate is net rate plus brokerage for purchase and net minus brokerage for sale. So, >0uy '666 LMO Btd. P%s..6 market? would mean that the client is willing to pay %s..6 plus brokerage for each security of LMO Btd.

CLEARING HOUSE

The exchange has a clearing house as a part of its 7arket !perations 4epartment to collect the securities from all members and distribute to each member, all the securities that are due to him in respect of every settlement. The whole of the operations of the clearing house are computerized. $5 is like are bank where all the members of S1 maintain their accounts. $5 acts as a member between the buyer and seller. t gets a record of all the transactions (buying and selling# done by a particular week and process these transactions and directs the members to deliver the shares or make payment on the pay-in day. !n the payout day, the $5 gives the delivery and the payment to the members according to their respective positions. There are ) counters in the S1s, $5 where bad deliveries, auction, odd-lot shares transaction, spot transaction etc.., are dealt in respect of all the transactions done from 7onday to @riday all the shares will have to be delivered through the S1s $5 as per the settlement program field, which is generally, a Saturday on next. NORMAL TRANSACTION$ n case of regular transaction, shares are deposited in clearing house on Tuesday and <ednesday. 8ayout will be on Thursday. 4eliveries will also be on Thursday.

STOCK MARKET TRADING ON INTERNET The ma/or events that will take place in the ndian $apital 7arket are introduction of index-based futures trading on internet. Trading on internet means that the investor+s will actually buy and sell the stocks on-line through the net. & committee was setup by S10 to develop regulatory parameters for use internet trading. S10 approved the report on the committee. S10 decided that internet trading could take place in ndia within the existing legal framework through use of order routing system, which will route order from client to brokers,. @or trade execution on registered stock exchanges. The broad also took note of the recommended minimum technical standards for ensuring safety and security of transaction between clients and brokers, which will be forced by the respective stock exchanges. ADVANTAGES OF INTERNET TRADING t will help in reducing transaction costs particularly for overseas and remote located investors. t will provide real time Cuotes and on-line trading facility at a much cheaper cost. @acility of transaction business from the terminal of the investors and will help him making rational /udgment or decisions.

 t will bring down the brokerages fees and increases the trading volumes. Quick response in transaction i.e. giving the order verification and acknowledgement. t allows transparent companies of services and easy price discovery. t is easy enough to set up either as individual account for margins trading or settle transactions by credit card. t is easy for brokers to monitor and maintain online accounts and the possibility of miss-trading is less. Surveillance is easy as there is very less scope for speculation The investor is provided with best offer Trading procedure is easy and fully automated. Ea(i ! t!an(acti&n 5!&c ((in#. 8rofit in time9 nvestor can make profits by selling shares when the going is good. They do not have to instruct their brokers on the cut off price to sell shares. 1ase and transparency9 Since the broking, bank and demat account are all electronically connected, all transaction get updated, demat account shows the latest stockholding statement while the bank account shows the balance amount after buying or selling of shares.

8recaution9 $heck for hidden costs of broker+s age. 0eware of net seamstress. 2ever double click the mouse during execution of trade avoids cyber cafes and change password regularly. Bess fees9 shares traded online reCuire no human intervention to match buys and sells. This means that commission costs are cut dramatically for the freCuent investor. PROBLEMS OF ONLINE TRADING &ll the stock exchanges in ndia were mechanized in the year '((; 2ovember. That was the year when the stock exchanges introduced screen based trading across the country. <hile on line trading gives you speed and price advantage, there is some risk and disadvantage to entering orders online. The page alerts you to any pitfalls you should watch out for if you want to use the internet to trade stocks. f you do commit to trading online, you must be careful when you enter stock orders. t is easy to make mistakes, but the market and your brokers may not be sympathetic. !nce an order is submitted, there may be nothing you can do to take it back if you made a mistake. The various types of orders you enter can be confusing.

 ndividuals are restricted to first hand financial guidance. This simply means that the individual is himselfEherself alone to make the decisions. Tax (sales tax and value added tax# evaluation becomes an issue, especially when you are trading internationally. $hanges are that one has no idea who is dealing with on the other end, so it is advisable to gather all the possible information about the party one is dealing with. n short are full knowledge is to be known. !nline trading as left individual open to too much information. This is harmful since it leaves brokerages wide open to sensitive data. <hen network crashes there will be problems and delays due to a large influx of traffic and rapid online trading criteria. @or instance on -:th !ct '((: there was a one day crash, which caused online trading on the 2ew Mork Stock 1xchange to stop and brokers were unable to conduct business. f you are going to trade online, you were obviously the one making all the trading choices. To make your trading decisions, you need to research your stocks and constantly pay attention to market news. This will reCuire some time, as you pursue your sources of market information and use online tools

CLEARING & SETTLEMENT TRADING MECHANISM The clearing and settlement mechanism in ndia securities market has witnessed several innovations during the last decade. These include use of the state-of-art information technology, compression of settlement cycle, dematerialization and electronic transfer of securities, securities lending and borrowing, professionalisation of trading members, fine-tuned risk management system, emergence of clearing corporation to assume counterparty risk etc., though many these are yet to permeate the whole market. Till recently, the stock exchanges in ndia were following a system of account period settlement for cash market transactions, expert for transaction in a few active securities, which were settled under tR. rolling settlement. The rolling settlement has been introduced for all securities. <ith effect from &pril ', -66. TRrolling settlement has been introduced. The stock exchanges were also offering deferral products to provide leverage to members to postpone their settlement obligations. The transactions are not settled immediately but after - days after the trade day. The members receive the fundsEsecurities in accordance with the pay-inEpay-out

schedules notified by the respective exchanges. ,iven the growing volume of trades and market volatility, the time gap between trading and settlement gives rise to settlement risk. n recognition of this, the exchanges and their clearing corporation employ risk management practices to ensure timely settlement of trades. The regulators have also prescribed elaborate margining and capital adeCuacy standards to secure market integrity and protect the interests of investors. The exchanges not providing counter-party guarantee have been advised by S10 to set up trade guarantee funds, which would honour pay-in liabilities in the event of default by a member. n pursuance to this, '* out of -. exchanges have set up tradeEsettlement guarantee funds. The trades are settled irrespective of default by a member and the exchange follows up the defaulting member subseCuently for recovery of his dues to the exchange. The market has full confidence that settlements will take place in time and will be completed irrespective of possible default by isolated trading members. 7ovement of securities has become almost instantaneous in the dematerialized environment. Two depositories viz., 2ational Securities 4epositories Btd. (2S4B# and $entral 4epositories Services Btd. ($4SB# provide electronic transfer securities and more then ((G of turnover is settled in dematerialized form. &ll actively traded scrip+s are held, traded and settled in demat form. The obligations of members are downloaded to membersEcustodians by the clearing agency. The membersEcustodians make available the reCuired securities in their pool accounts with 4epository 8articipants

(48s# by the prescribed pay-in time for securities. The depository transfers the securities from the pool accounts of membersEcustodians to the settlement account of the clearing agency. &s per the schedule determined by the depository from the settlement account of the clearing agency to the pool accounts of membersEcustodians. The pay-in and pay-out of securities is affected on the same day for all settlements. TRANSACTION CYCLE & person holding assets (securitiesEfunds#, either to meet his liCuidity needs or to reshuffle his holdings in response to changes in his perception about risk and return of the assets, decides to buy or sell the securities. 5e finds out the right broker and instructs him to place buyEsell order on an exchange. The order is converted to a trade as soon as it finds a matching sellEbuy order. The trades are cleared to determine the obligations of counterparties to deliver securitiesEfunds as per settlement schedule. 0uyerEseller delivers fundsEsecurities and receives securitiesEfunds and acCuires ownership over them. & securities transaction cycle is presented given below. T!an(acti&n c,c*

4ecision to Trade

8lacing order

@undsE Securities

Transaction cycle
Trade

1xecution

S tt* - nt( 5!&c (( Settlement of Trades

$learing of Trades

<hile 2S1 provides a platform for trading to its trading members, the 2ational Securities $learing $orporation Btd. (2S$$B# determines the fundsEsecurities obligations of the trading members and ensures that trading members meet their obligations. The clearing banks and depositories provide the necessary interface between the custodiansEclearing members (who clear for the trading members or their own transactions# for settlement of fundsEsecurities obligations of trading members. The core functions involved in the process are9 a# T!a" R c&!"in#9 The key details about the trades are recorded

to provide basis for settlement. These details are automatically recorded in the electronic trading system of the exchanges. b# T!a" C&n'i!-ati&n$ The counterparties to trade agree upon

the terms of trade like security, price, and settlement date, but not the counterparty which is the 2S$$B. The electronic system automatically generates confirmation by direct participants. The

ultimate buyersEsellers of securities also affirm the terms, as the funds-securities would flow from them, although the direct participants are responsible for settlement of trade.

c#

D t !-inati&n &' &2*i#ati&n9 The next step is determination of

what counter-parties owe, and what counter-parties are due to receive on the settlement date. The 2S$$B interposes itself as a central counterparty between the counterparties to trades and nets the positions so that a member has security wise net obligation to receive or deliver a security and has to either pay or receive funds. d# Pa,.in &! ')n"( an" S c)!iti (9 The members bring in their

funds-securities to the 2S$$B. They make available reCuired prescribed pay-in time. The depositories move the securities available in the accounts of members to the account of the 2S$$B. Bikewise members with funds obligations make available reCuired funds in the designated accounts with clearing banks by the prescribed pay-in time. The $$ sends electronic instructions to the clearing banks to debit member+s accounts to the extent of payment obligations. The banks process these instructions, debit accounts or members and credit accounts of the 2S$$B.

e#

Pa,.&)t &' F)n"( an" S c)!iti (9 &fter processing for

shortages of fundsEsecurities and arranging for movement of funds

from surplus banks to deficit banks through %0 clearing, the 2S$$B sends electronic instructions to the depositoriesEclearing banks to release pay-out of securitiesEfunds. The depositories and clearing banks debit accounts or the 2S$$B and credit accounts or members. Settlement is complete upon release of pay-out of funds and securities to custodiansEmembers. The settlement process for transactions in securities in the $7 segment of 2S1 is presented in the @igure .... f# Ri(1 Mana# - nt$ & sound risk management system is integral to an efficient settlement system. The 2S$$B ensures that trading members+ obligations are commensurate with their net worth. t has put in place a comprehensive risk management system, which is constantly monitored and upgraded to pre-empt market failures. t monitors the track record and performance of members and their net worthF undertakes on-line monitoring of members+ positions and exposure in the market collects margins from members and automatically disables members if the limits are breached.

SETTLEMENT PROCESS IN CM SEGMENT OF NSE

NSE
'

DEPOSITORIES

2S$$B

CLEARING BANKS

) '6

. ; ''

CUSTODIAN(;CM(

E%5*anati&n($
('# Trade details from 1xchange to 2S$$B (real-time and end of day trade file#. (-# 2S$$B notifies the consummated trade details to $7sEcustodians who affirm back. 0ased on the affirmation, 2S$$B applies multilateral netting and determines obligations. (.# 4ownload of obligation and pay-in advice of fundsEsecurities (;# time. ()# nstructions to depositories to make securities available by payin-time. nstructions to clearing banks to make funds available by pay-in

(*# 8ay-in of securities (2S$$B advises depository to debit pool account of custodians. 7s and credit its account and depository does it#. (:# 8ay-in of funds (2S$$B advises $learing 0anks to debit account of custodiansE$7s and credit its account and clearing bank does it#. (=# 8ay-out of securities (2S$$B advises depository to credit pool account of custodiansE$7s and debit its account and depository does it#. ((# 8ay-out of funds (2S$$B advises clearing 0anks to credit account of custodiansE$7s and debit its account and clearing bank does it#. ('6# 4epository informs custodiansE$7s through 48s. (''# $learing 0anks inform custodiansE$7s.

T!a"in# S,(t - in ISE

Transactions for the S1 segment are routed from the Trader <ork Stations (T<S# to the central trading computer installed at S1Ss office in Hashi, 2avi 7umbai. The T<Ss are connected to the central trading computer of S1 through leased lines, S42 lines, H82 connectivity and HS&T network. The technology infrastructure optimizes and shares the system resources for access to S1 and 2S1 segments. &s far as access to the 2S1 segment is concerned, all orders are routed to 2S1 through the central order routing system installed at Hashi. This computer is connected to the 2S1 trading system through a -mbps leased line acting as the primary link between S1 and 2S1 and it also has a HS&T link as a backup. <ithin the 8articipating Stock 1xchange premises, the T<Ss reCuired for S1 and 2S1 segments are connected on B&2 segments to the HS&T infrastructure already established

CLEARING AND SETTLEMENT n tune with the S10 decision, S1 has implemented TR- settlement cycle from &pril ', -66.. The total deliveryinEdelivery-out and pay-inEpay-out of Traders and 4ealers are computed on a netted basis. &fter netting, the net position for each centre is computed. f there is a settlement position at a centre, then funds or securities are moved in and out from one centre to another, as the case may be, so as to fulfill the total pay-in or pay-out position of funds and securities. The movement of funds is through 54@$ 0ank and $ $ 0ank. The settlement of securities takes place only in a dematerialized mode using both the depositories in ndia, i.e. 2ational Securities 4epository Bimited (2S4B# and the $entral 4epository Services( ndia#Bimited($4SB#.8ay-in of funds is done by way of direct debits to the settlement accounts maintained by the Traders and 4ealers with 54@$ 0ank and $ $ 0ank. n the case of margins, debits are affected on TR' by electronically debiting the settlement accounts of Traders and 4ealers. Similarly, pay-out of funds is affected by the 1xchange through direct credits to the settlement accounts of the Traders and 4ealers.

n the case of operations on

SS, the trading

intermediaries (Sub-brokers of SS# are reCuired to maintain separate settlement accounts for the $apital 7arket segment and @utures K !ptions segment of 2S1 with any one of the designated $learing 0anks (54@$ 0ank and $ $ 0ank at present#. Similarly, another settlement account will be reCuired for the 1Cuities segment of 0S1, when introduced. 7argin collection and refund are through direct debits and credits by SS to the settlement accounts of the trading intermediaries. @unds pay-in and pay-out likewise, are handled through the electronic funds transfer system. n the @utures K !ptions segment, end clients are reCuired to maintain such accounts with the $learing 0anks and all debits and credits are effected by SS to these accounts. &s far as securities is concerned a client of a trading member having a net delivery position, can transfer securities from his demat account either directly to the pool account of SS or route them through the account of the trading member. 8ay-out of securities is always effected by SS into the account of the concerned trading members, who are then obligated to deliver the same to their clients. INVESTOR PROTECTION &ll settlement liabilities amongst Traders and 4ealers of S1 are guaranteed by the 1xchange+s Settlement ,uarantee fund. n

addition, investors are protected against non-fulfillment of commitments by TradersE4ealers through the nvestor 8rotection @und.

%egion

wise

4istribution

of

Traders

and

4ealers

(&s on Danuary ', -66)# %egion States $overed <est %egistered %egistered Total 4ealers Traders '(; ;) .;( ') :; ''( '; -*: =* ')' '.6 -. *-(

,oa, ,u/arat, 7aharashtra 5aryana, Dammu K 3ashmir, 2orth 4elhi, 8un/ab, %a/asthan,:' "ttaranchal, "ttar 8radesh &ssam, 0ihar, Dharkhand, 1ast :: !rissa, <est 0engal &ndhra 8radesh, 3erala, South '' 3arnataka, Tamil 2adu $entral $hattisgarh, 7adhya 8radesh ( T!T&B .*-

DEMATERIALI<ATION
4ematerialization is a process by which physical shares of investors are converted to an eCuivalent number of Securities in electronic form and credited in the investor+s account with his 4epository 8articipant. 4ematerialized trading is now compulsory for all investors. 0eginning of first week of Danuary '(((, investor can trade in specific scripts in the 4emoralization form. They can provide and

receive delivery only in a 4ematerialized form and share certificate will not be changed for these scripts. & depository is an organization where Securities of shareholder are held in the electronic form at the reCuest of the shareholder through 4epository 8articipant (48s#. The system is comparable to that in a bank. f an investor wants services offered by a depository, he would have to open an account with it through a 48similar to opening an account with any other branches of the bank in order to avail of its services. 4ematerialization is a process by which physical certificates of an investor are taken back by the companyEregistrar and actually destroyed and an eCuivalent number of Securities are credited in the depository account of those investors. & 4epository 8articipant is investor+s agent in the system. 5e maintains investor+s Securities account and intimates the status of holdings from time to time to the investor.

Ba(ic T !-in&*&#i ( &n D -at S tt* - nt %efers to the process whereby all those who have made purchases make a payment and all those who have made sales deliver shares. The exchanges ensure that the buyers who have paid for the shares purchased by them receive the shares. Similarly sellers who have given delivery of shares to the exchange receive payment for the same.

SETTLEMENT CYCLES9 Settlement $ycle refers to a calendar according to which all purchase and sale transactions done within the dates of the settlement cycle are settled on a net basis. 2S1 and 0S1 currently follow daily settlement cycles. n a rolling settlement, each trading day is considered as a trading period and trades executed during the day are settled based on the net obligations for the day. &t 2S1 and 0S1, trades in rolling settlement are settled on a TR- basis i.e. on the -nd working day. @or arriving at the settlement day all intervening holidays, which include bank holidays, 2S1E0S1 holidays, Saturdays and Sundays are executed. Typically trades taking place on 7onday are settled on <ednesday, Tuesday+s trades settled on Thursday and so on. 8&M 2 K 8&M !"T9 8ay n refers to your obligations towards the exchanges and 8ay !ut refers to exchange obligation towards you. &ll 8ay ns and 8ay !uts take place on a >TR-? days basis, where

>T? is the trading day and plus two more trading days. So if you buy some shares on 7onday, you would have to pay money which is a 8ay n and you would receive shares, which is a 8ay !ut. 0oth of these would take place ion <ednesday. B 7 T !%41%9 Bimit !rders allow you to place a buyEsell order at a price defined by you. The execution can happen at a price more favorable than the price that has been defined by you. Mou can place limit orders during holidays K non-market hours too. 7arket !rders9 7arket !rders can be placed only during market hours (i.e. when the exchanges is open for trading#. 7arket !rders have different interpretations for both 2S1 and 0S1. SQ"&%1 !@@$ SCuare !ff means buying and selling, selling and buying on the same day. @or example, if you have bought '66 T shares of 2@T1$ today morning and later on at the end of the day, if you sell 2@T1$, '66 shares, it /ust means that you have sCuared off your order. =8 OPENING CLEARING ACCOUNTS FOR SETTLEMENT &ll the trades executed at the exchanges are settled by the clearing member ($7#, as in the case of Securities in the physical form. To settle trades in 4emat segment each $7 should open one clearing account with any of the 48. The procedure for opening clearing accounts is9 &pproach a 48.

OF TRADES$

@ill up an account opening form. Sign on an agreement with the 48. &pplication is forwarded to 2S4B by 48. 2S4B allots a number identified as $7-08- 4. 48 opens account and an account number is providing along

with $7-08- 4 to the clearing member. The clearing account consists of three parts9 8ool account 4elivery account %eceipt account
$B1&% 2, &$$!"2T

41B H1%M &$$!"2T

8!!B &$$!"2T

%1$1 8T &$$!"2T

S1BB 2, $B 12T

0"M 2, $B 12T

'. 8!!B &$$!"2T9 t has two roles to play in clearing of securities, 0efore pay in the selling client of the $7 transfers Securities from his client account to the $7 pool account.

The $7 transfers the Securities from his pool account to the

account of the buying client.

-. 41B H1%M &$$!"2T9 The $7 transfers the Securities in, from the pool account to the delivery account before pay in, at the time of pay- in 2S4B flushes out the securities in the delivery account and transfers the same to the $$E$5. .. %1$1 8T &$$!"2T9 !n pay Aout day, the $$E$5 transfers Securities to the pool account through the account. $7 has to ensure that before book closure or record date of any company the Securities are moved from $7 pool account to a beneficiary account as holding in pool account for longer period is not allowed. >8 SETTLEMENT$ n the depository system, any trade that is cleared and settled through the clearing corporation ($$E$5# is called market trade. 8rocedure for pay-in of securities

,ive %eceipt instruction to the 48 for transfer of Securities from

client account to the pool account or give a standing instruction for the same. 4elivery to $$E$5 instruction for the transfer of Securities from pool and account to delivery account for pay-in. $B1&% 2, 41B H1%M &$$!"2T 8!!B &$$!"2T

0oth pay-in and pay-out happens to be on )thworking day after the trading and the instruction to transfer the Securities from the pool account to delivery account must be given before pay-in such that this transfer is affected before pay-in. the transfer instruction is taken as an authority to transfer the security irrespective of when the client gives the delivery instruction, the Securities will be parked in the delivery account till final pay-in and the facility of multiple instructions from the pool account is also provided to the investors. n case of excess transfer of shares to the delivery account or excess delivery to $$E$5 the instruction slip can be cancelled and issued new one or the $$E$5 will return the Securities at the time of pay-out respectively. 8rocedure for pay-out of securities Transfer of Securities from $$E$5 to pool account through receipt in account on pay-out.

4elivery instruction to transfer from pool account to client on

pay-out.

$B1&% 2,

%1$1 8T

8!!B

!n the delivery of the instruction from the client+s name, client+s 48, 4 and 48 name of the client must be mentioned and ensure that receipt instruction given by client to receive the Securities bears the same execution date as given in the delivery instruction. 5owever, the broker can hold the Securities in the pool account until the client meets his obligations but before the closure of books, the balances must be transferred as the balances in the pool account, which are not entitled for any corporate benefits. FLO0 CHART TO EFFECT CLEARING AND SETTLEMENT OF MARKET TRADES

Send receipt instruction for transfer from client account to pool account &ny time before pay-in ,ive delivery instruction to your 48 for transfer from pool account to $$

!n payout you will receive securities from $$ to your pool aEc automatically

&ny time before or after pay-out ,ive delivery instruction for transfer of securities from pool aEc to client aEcs

Int !.D 5&(it&!, T!an(' !(

& transfer of securities from an account in one depository to an account in another depository is termed as an inter-depository transfer. This facility is Cuite similar to the account transfers within 2S4B. t can be done only for Securities that are available for 4ematerialization on both the depositories. The account in 2S4B can be either a clearing account or a beneficiary account. @or debiting the clearing account or the beneficial account with 2S4B, the form for >inter-depository delivery instruction? is reCuired to be submitted by the clearing memberEbeneficial owner to its 48.

@or crediting the clearing account or the beneficial account, the standard instruction given for automatically crediting the account is applicable. n case the standard instructions are not given, then the form for >inter-depository receipt instruction? is reCuired to be submitted by the clearing memberEbeneficial owner to its 48. &s both the depositories are connected to each other, the batches to effect inter-depository transfers are presently exchanged twice on the working day. The issuerEregistrar and transfer agent is informed about the transfer by both the depositories and it amends its records accordingly. ,overnment Securities cannot be transferred from one depository to another using this facility. NATIONAL SECURITIES DEPOSITORY LIMITED 2S4B was inaugurated in '((*, as the depository in the country to avoid the myriad problems in settlement. n depository system, Securities are held in securities (depository# accounts, which is more or less similar to holding funds in the bank accounts. Transfer of ownership is done through simple account transfer. This method does away with all the risks and

hassles normally associated with paper work. $onseCuently, the cost of transaction in depository environment is considerably lower as compared to transaction in physical certificates. Trading in dematerialized Securities is Cuite similar to trading in physical Securities. The ma/or difference is that at the time of settlement, instead of deliveryEreceipt of Securities in the physical form, the same is affected through account transfer. $urrently dematerializes trading is available at 2S1, 0S1 and $S1. 1xclusive 4emat segment follows rolling settlement (TR-# cycle and the unified (erstwhile-physical# segment follows account period settlement cycle. &ll investors, other than the institutional investors, can deliver Securities either in the physical or dematerialized form in the market. @rom Danuary ;, '(((, all categories of investors can deliver only in 4ematerialized form with respect to a select list of securities. 5owever initially this was applicable only at those exchanges, which have /oined the depository, but S10 has also specified that this list is to be expanded in a phased manner. The settlement of trades in the stock exchanges is undertaken by the clearing corporation ($$#Eclearing house ($5# of the corresponding stock exchanges.

<hile settlement of 4ematerialized Securities is effected through 2S4B, the funds settlement is effected through the clearing banks. The physical Securities are settled by the clearing members directly with the $$E$5. BENEFITS OF DEPOSITORY SYSTEM n the depository system, the ownership and transfer of Securities takes place by means of electronic book entries. &t the outset, this system rids the capital market of the danger related to handling of paper. 2S4B provides numerous direct and indirect benefits, like9 1limination of bad deliveries-in the depository environment,

once holding of an investor are 4ematerialized, the Cuestion of bad delivery does not arise i.e. they cannot be hold >under ob/ection?. 1limination of all risks associated with physical certificatesdealing in physical Securities have associates security risks of stocks, mutilation of certificates, loss of certificates during movements through and from the registrars, thus exposing the investor to the cost of obtaining duplicate certificates and advertisement, etc.., This problem does not arise in the depository environment. 2o stamps duty for transfer of any kind of Securities in the depository.

mmediate transfer and registration of securities- in the

depository environment, once the securities are credited to the investors accounts on pay-out, he becomes the legal owner of the securities. There is no further need to send it to the company+s registrar for registration. @aster settlement cycle-the exclusive 4emat segment follow rolling settlement cycle of TR- i.e. the settlement of trades will be on the -nd working day from the trade day. This will enable faster turnover of stock and more liCuidity with the investor. %eduction in brokerage by many brokers for trading in 4ematerialized Securities-brokers provide this benefit to investors as dealing in 4ematerialized Securities reduced their back office cost of handling paper and eliminates the risk of being the introducing broker. @aster disbursement of non-cash corporate benefits like rights, %eduction of problems related to change of address of investor, bonus, etc.., transmission, etc., in case of change of address or transmission of 4emat shares, investors are saved from undergoing the entire change procedure with each company or registrar. nvestors have to only inform their 48 with all relevant documents and the reCuired changes are effected in the database of all the companies, where the investor is a registered holder of Securities.

1limination of problems related to selling Securities on behalf of

a minor- a natural guardian is not reCuired to take court approval 4emat Securities on behalf of a minor. 1ase in portfolio monitoring since statement of account gives a consolidated position of investment in all instructions. OBSERVATION The online in S1 is introduced to reduce and

eliminate all the discrepancies that arise out of manual trading system. t has been developed to computerize the trading activity of the broker. <ith the computerization of the trading activity, the number of transaction and the volume of trading have increased to a great extent. S1 is dealing in both 0S1 and 2S1. The turnover of S1 has gone up during '((= with the introduction of online trading system. The trading of S1 of the first day was %s. .:.66 crores. 2ow the companies are also taking orders on phone call. !nly S1 is not in phone order. Trading in O securities is not available. (O securities are those securities which are not traded regularly#. 0ank account for instant transfer is also not available, which all the companies dealing with online trading are giving instant bank aEc. all companies are giving offline option while S1 is not giving any offline options. 8ortfolio valuation is not available.

7oreover, only govt securities and bonds are allowed for mutual trading. CONCLUSION The comprehensive study of on >online trading system> at nter-connected stock 1xchange has been an enlightening experience stressing on the position aspects on security trading. 4ematerialization of shares and online trading has done in whole lot of good to the issuer, investor, companies and country. The 4epository system has reduced the time lag in delivering and settlement of securities but also supported the cause of providing more liCuidity to the security holder, the need for setting up of a depository, paper less trading through online trading system and settlement became in evitable and unavoidable for the smooth and efficient functioning of the capital market. This system has proven its worthy ness by increasing in the settlement will be done with in the day in future is in itself an indication of how great a boon in this system of !nline trading. 1-brokerages provide convenience, encourage increased investor participation and lead to lower up front costs. n the long run, they will likely reflect increased market efficiency as well. n short run, however, there are a number of issues related to transparency, investor+s misplaced trust, and poorly aligned

incentives between e-brokerages and markets, that may impede true market efficiency. @or efficiency to move beyond the user interface and into the trading process, consumers need a transparent window to observe the actual flow of orders, the time of execution and the commission structure are various points in the trading process. n this regard, institutional rules, regulations and monitoring functions play a significant role in promoting efficiency and transparency along the value chain in electronic markets. !ur analysis confirms that in the context of online stock markets, the need for such intervention and oversight it particularly strong.

SUGGESTIONS The overall performance of S1, 48 and !2B 21

T%&4 2, is good. 5ere are the suggestions for further improvements of the performance in the future. Holume of paper work is small but it is very complicated to maintain data in system so try to reduce that by regular audit and updating data. 7ost of 48s do not have the necessary infrastructure to handle the high workload of transactions lending to many error by 48s, so by giving full infrastructure information to every 48 can avoid this problem The pool aEc does not know the true owner of the shares and hence dividends are paid to the broker instead of owners, by this broker can do any manipulations or any fraud with the owner, for this the owner can loose his dividend. 5ence for this try to pay the dividend directly to the owner.

 f the shares are fakeEforged which delivered by the broker the shareholder can loose that system and have to receive another lot of issued shares from the broker in -' days, this system stands abused as soon as possible. The online trading is easy to work but it is costly to maintain and difficult to learn. t should increase the speed of executing the orders. 7utual funds trading for other companies have to be encouraged. f phone orders are encouraged, trading in z securities are allowed, bank account for instant transfer are provided and offline option are given then S1 would be definitely improving in the turnover. 2ecessary steps should be taken by the exchanges to deal with the situation arising due to break down in online trading. nstant bank account should be provided as the other companies are providing, because this helps the S1 in dealing directly with the investors. &nother important thing, which has to be taken into considerations, is portfolio management. t should have a separate department for portfolio management and should guide the investors. f S1 takes initiative steps for portfolio valuation of the investor+s .Then investors will be attracted towards the S1 to a greater extent. S1 has to give more advertisement through the media stating the advantages to the investors by using S1.

Beverages should be provided to the investors till settlement. Then only it encourages the investors to take active part in online trading of the stock exchange The software or the system used in online trading should be advanced and the persons who operate should have minimum knowledge or if they are very well versed about the functioning of the system then it will be helpful in smooth functioning of online trading. n S1 investors cannot do their own trading on the system,

every time they have to consult the 48 members and has to tell to hold the shares by his name, instead of this provide the web trading facility to investors by this they can do their own trading by sitting in front of internet. .

BIBLIOGRAPHY 2ewspaper9 Standard. <eb-site 9 www.nseindia.org www.iseindia.com www.nsccl.com S1 %eport 1conomic Times, The 0usiness

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