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FINANCIAL MARKETS
SUBMITTED BY RAMAN KUMAR (15715) BFIA -3
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BSE TRADING SYSTEM BACKGROUND Bombay Stock Exchange is the oldest stock exchange
in Asia with a rich heritage, now spanning three centuries in its 133 years of
existence. What is now popularly known as BSE was established as "The Native Sha
re & Stock Brokers' Association" in 1875. BSE is the first stock exchange in the
country which obtained permanent recognition (in 1956) from the Government of I
ndia under the Securities Contracts (Regulation) Act 1956. BSE's pivotal and pre
eminent role in the development of the Indian capital market is widely recognize
d. It migrated from the open outcry system to an online screen-based order drive
n trading system in 1995. Earlier an Association Of Persons (AOP), BSE is now a
corporatized and demutualised entity incorporated under the provisions of the Co
mpanies Act, 1956, pursuant to the BSE (Corporatization and Demutualization) Sch
eme, 2005 notified by the Securities and Exchange Board of India (SEBI). With de
mutualization, BSE has two of world's best exchanges, Deutsche Brse and Singapore
Exchange, as its strategic partners. Today, BSE is the world's number 1 exchange
in terms of the number of listed companies and the world's 5th in transaction n
umbers. The market capitalization as on December 31, 2007 stood at USD 1.79 tril
lion. An investor can choose from more than 4,700 listed companies, which for ea
sy reference, are classified into A, B, S, T and Z groups. BSE provides an effic
ient and transparent market for trading in equity, debt instruments and derivati
ves. It has a nation-wide reach with a presence in more than 359 cities and town
s of India. BSE has always been at par with the international standards. The sys
tems and processes are designed to safeguard market integrity and enhance transp
arency in operations. BSE is the first exchange in India and the second in the w
orld to obtain an ISO 9001:2000 certification. It is also the first exchange in
the country and second in the world to receive Information Security Management S
ystem Standard BS 7799-2-2002 certification for its BSE On-line Trading System (
BOLT). BSE also has a wide range of services to empower investors and facilitate
smooth transactions Investor Services: The Department of Investor Services redr
esses grievances of investors. BSE was the first exchange in the country to prov
ide an amount of Rs.1 million towards the investor protection fund; it is an amo
unt higher than that of any exchange in the country. BSE launched a nationwide i
nvestor awareness programme- 'Safe Investing in the Stock Market' under which 26
4 programmes were held in more than 200 cities. The BSE On-line Trading (BOLT):
BSE On-line Trading (BOLT) facilitates on-line screen based trading in securitie
s. BOLT is currently operating in 25,000 Trader Workstations located across over
359 cities in India.
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BSEWEBX.com: In February 2001, BSE introduced the world's first centralized exch
ange-based Internet trading system, BSEWEBX.com. This initiative enables investo
rs anywhere in the world to trade on the BSE platform. Surveillance: BSE's On-Li
ne Surveillance System (BOSS) monitors on a real-time basis the price movements,
volume positions and members' positions and real-time measurement of default ri
sk, market reconstruction and generation of cross market alerts. BSE TRADING SYS
TEM The, Mumbai Exchange has initiated a number of measures aimed at providing q
uality products and services and expanding its network using cutting edge inform
ation technology. The BSE made its transition from an 'outcry' system of trading
to a completely electronic trading system. BSE has introduced electronic tradin
g system known as BOLT (BSE on Line Trading) with the following facility 1. Trad
ing system displays on a continuous basis scrip and market-related information r
equired supporting traders. (Information includes best five bids and offers, las
t traded quantity and price, total buy and sell depth (irrespective of rates), o
pen, high, low and close price, total number of trades, volume and value, and in
dex movement. Other company-related information is also displayed) 2. As soon as
an order is matched, the confirmation of the trade is generated on-line. 3. The
order matching logic is based on best price and time priority. 4. The BSE On li
ne Trading Platform has a capacity of conducting 2 million trades per day. 5. Th
e latest state of the art technology infrastructure with Trader Work Stations lo
cated in more than 400 cities all over the country. 6. Trading on the BOLT syste
m is conducted from Monday to Friday between 9: 30 a.m. and 3:30 p.m. 7. Trading
can also be conducted through the BSE Internet Trading System - www.bsewebx.com
the first Exchange enabled Internet Trading System. 8. BSE aims to provide trad
ing anywhere and at anytime. With this endeavor in mind, the exchange continuous
ly upgrades the hardware, software and networking systems so as to enable it to
enhance the quality and standards of service to its members and other market int
ermediaries.
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PRICE DISCOVERY MECHANISMS During the pre-opening period (9.15a.m.-9.30a.m.), br
okers input the bids and offers they receive from investors into the system unti
l they match. The mechanism for which the price of equities is determined is as
follows: 1. The best price (price priority): The transaction is executed for the
best price. 2. Type of order: If an order is conditional, precedence of executi
on is given to orders that are unconditional. For example, if there are two orde
rs with the same price, the system will give precedence to the un-conditional or
der. 3. Source of order: The sources of order are given precedence of execution
as follows: Priority 1 => clients order, foreign investors order, market controls ord
riority 2 => mutual funds order, the issuing companys order, specialists order Priori
=> insiders order 4. Time of order priority: In case the price and type are the sa
me, precedence is given to the orders entered into the system first. 5. Cross pr
iority: Cross priority is implemented if the one with the priority is on the act
ive side. Trading in cross priority takes precedence over other house, then agai
nst the same house order. 6. Random factor priority: In case two orders are rece
ived in the same time, precedence is given to the random factor. CLEARING AND SE
TTLEMENT The settlement of transactions was earlier done in the weekly settlemen
t environment, where the exchange had a carry forward facility. The exchange com
menced exchange of trades on rolling basis where the trades are settled on T+ 2
basis. Undelivered quantities of securities in settlement is promptly auctioned
or closed out as per the welllaid procedure. Two depositories, namely the Centra
l Depository Services (India) Ltd. and National Securities Depository of India L
td. operate in the Indian Market place. The Clearing House of the exchange has w
ell- structured linkages with both the depositories. Direct transfer of securiti
es to and from the Beneficial Owner Accounts is facilitated at the Clearinghouse
level only, making for the seamless movement of securities in the settlement sy
stem. The settlement of transactions in the depositories mode is based on the IS
IN codes of the securities. The exchange Rules, Bylaws and regulations have clea
rly laid down the default handling procedure.