Introduction

Of all the modern service institutions, stock exchanges are perhaps the most crucial agents and facilitators of entrepreneurial progress. After the industrial revolution, as the size of business enterprises grew, it was no longer possible for proprietors or partnerships to raise colossal amount of money required for undertaking large entrepreneurial ventures. Such huge requirement of capital could only be met by the participation of a very large number of investors; their numbers running into hundreds, thousands and even millions, depending on the size of business venture. In general, small time proprietors, or partners of a proprietary or partnership firm, are likely to find it rather difficult to get out of their business should they for some reason wish to do so. This is so because it is not always possible to find buyers for an entire business or a part of business, just when one wishes to sell it. Similarly, it is not easy for someone with savings, especially with a small amount of savings, to readily find an appropriate business opportunity, or a part thereof, for investment. These problems will be even more magnified in large proprietorships and partnerships. Nobody would like to invest in such partnerships in the first place, since once invested, their savings would be very difficult to convert into cash. And most people have lots of reasons, such as better investment opportunity, marriage, education, death, health and so on for wanting to convert their savings into cash. Clearly then, big enterprises will be able to raise capital from the public at large only if there were some mechanism by which the investors could purchase or sell their share of business as ands they wished

to do so. This implies that ownership in business has to be broken up into a lager number of small units, such that each unit may be independently & easily bought and sold without hampering the business activity as such. Also, such breaking of business ownership would help mobilize small savings in the economy into entrepreneurial ventures. This end is achieved in a modern business through the mechanism of shares.

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, i.e. 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 were 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 demutualization 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 dematerialized. Board of directors, which do not include trading members, manages these. Theses are purest form of dematerialized exchanges, where ownership, management and trading are in the hands of three sets of people. The concept of dematerialization 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, undertaking 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 as ensuring the market participants perform their duties in accordance with the regulatory norms.

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 subbroker 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 lay 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. 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. 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. 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.

INTRODUCTION

The Stock Exchange, Mumbai, popularly known as "BSE" The Bombay/Mumbai Stock Exchange Limited (formerly, The Stock Exchange, Mumbai; popularly called The Bombay/Mumbai Stock Exchange, or BSE) is the oldest stock exchange in Asia and has the greatest number of listed companies in the world, with 4700 listed as of August 2007.It is located at Dalal Street, Mumbai, India. On 31 December 2007, the equity market capitalization of the companies listed on the BSE was US$ 1.79 trillion, making it the largest stock exchange in South Asia and the 12th largest in the world. With over 4700 Indian companies list on the stock exchange. And it has a significant trading volume. The BSE SENSEX (SENSitive indEX), also called the "BSE 30", is a widely used market index in India and Asia. Though many other exchanges exist, BSE and the National Stock Exchange of India account for most of the trading in shares in India. Mumbai Stock Exchange Limited 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 scripts 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.

Bombay Stock Exchange history

1830's Business on corporate stocks and shares in Bank and Cotton presses started in Bombay. 1860-1865 Cotton price bubble as a result of the American Civil War. 1870 - 90's Sharp increase in share prices of jute industries followed by a boom in tea stocks and coal. 1978-79 Base year of Sensex, defined to be 100. 1986 Sensex first compiled using a market Capitalization-Weighted methodology for 30 component stocks representing well-established companies across key sectors. The Bombay Stock Exchange is known as the oldest exchange in Asia. It traces its history to the 1850s, when stockbrokers would gather under banyan trees in front of Mumbai's Town Hall. The location of these meetings changed many times, as the number of brokers constantly

increased. The group eventually moved to Dalal Street in 1874 and in 1875 became an official organization known as 'The Native Share & Stock Brokers Association'. In 1956, the BSE became the first stock exchange to be recognized by the Indian Government under the Securities Contracts Regulation Act. The Bombay Stock Exchange developed the BSE Sensex in 1986, giving the BSE a means to measure overall performance of the exchange. In 2000 the BSE used this index to open its derivatives market, trading Sensex futures contracts. The development of Sensex options along with equity derivatives followed in 2001 and 2002, expanding the BSE's trading platform. Historically an open-cry floor trading exchange, the Bombay Stock Exchange switched to an electronic trading system in 1995. It took the exchange only fifty days to make this transition.

Since 1990 1000, July 25, 1990 On July 25, 1990, the Sensex touched the magical fourdigit figure for the first time and closed at 1,001 in the wake of a good monsoon season and excellent corporate results. July 1991 Rupee devalued by 18-19 % 2000, January 15, 1992 On January 15, 1992, the Sensex crossed the 2,000mark and closed at 2,020 followed by the liberal economic policy initiatives undertaken by the then prime minister P.V.Narasimha Rao.

3000, February 29, 1992 On February 29, 1992, the Sensex surged past the 3000 mark in the wake of the market-friendly Budget announced by the then Finance Minister, Dr Manmohan Singh. 4000, March 30, 1992 On March 30, 1992, the Sensex crossed the 4,000mark and closed at 4,091 on the expectations of a liberal export-import policy. It was then that the Harshad Mehta scam hit the markets and Sensex witnessed unabated selling. 5000, October 8, 1999 On October 8, 1999, the Sensex crossed the 5,000mark as the BJP-led coalition won the majority in the 13th Lok Sabha election. 6000, February 11, 2000 On February 11, 2000, the InfoTech boom helped the Sensex to cross the 6,000-mark and hit and all time high of 6,006. 6151, Feb 14, 2000 Tops. Index declines until Sept 2001 and loses half the value. Coincides with dot-com bubble burst. 2595, Sept 21, 2001 Bottoms. 7000, June 20, 2005 On June 20, 2005, the news of the settlement between the Ambani brothers boosted investor sentiments and the scripts of RIL, Reliance Energy, Reliance Capital, and IPCL made huge gains. This helped the Sensex crossed 7,000 points for the first time. 8000, September 8, 2005 On September 8, 2005, the Bombay Stock Exchange's benchmark 30-share indexthe Sensex crossed the 8000 level following brisk buying by foreign and domestic funds in early trading.

9000, November 28, 2005 The Sensex on November 28, 2005 crossed the magical figure of 9000 to touch 9000.32 points during mid-session at the Bombay Stock Exchange on the back of frantic buying spree by foreign institutional investors and well supported by local operators as well as retail investors. 10000, February 6, 2006 The Sensex on February 6, 2006 touched 10,003 points during mid-session. The Sensex finally closed above the 10K-mark on February 7, 2006. 11000, March 21, 2006 The Sensex on March 21, 2006 crossed the magical figure of 11,000 and touched a life-time peak of 11,001 points during midsession at the Bombay Stock Exchange for the first time. However, it was on March 27, 2006 that the Sensex first closed at over 11,000 points. 12000, April 20, 2006 The Sensex on April 20, 2006 crossed the 12,000mark and closed at a peak of 12,040 points for the first time. 13000, October 30, 2006 The Sensex on October 30, 2006 crossed the magical figure of 13,000 and closed at 13,024.26 points, up 117.45 points or 0.9%. It took 135 days for the Sensex to move from 12,000 to 13,000 and 123 days to move from 12,500 to 13,000. 14000, December 5, 2006 The Sensex on December 5, 2006 crossed the 14000-mark to touch 14,028 points. It took 36 days for the Sensex to move from 13,000 to the 14,000 mark. 15000, July 6, 2007 The Sensex on July 6, 2007 crossed the magical figure of 15,000 to touch 15,005 points in afternoon trade. It took seven months for the Sensex to move from 14,000 to 15,000 points.

16000, September 19, 2007 The Sensex scaled yet another milestone during early morning trade on September 19, 2007. Within minutes after trading began, the Sensex crossed 16,000, rising by 450 points from the previous close. The 30-share Bombay Stock Exchange's sensitive index took 53 days to reach 16,000 from 15,000. Nifty also touched a new high at 4659, up 113 points. The Sensex finally ended with a gain of 654 points at 16,323. The NSE Nifty gained 186 points to close at 4,732. 17000, September 26, 2007 The Sensex scaled yet another height during early morning trade on September 26, 2007. Within minutes after trading began, the Sensex crossed the 17,000-mark. Some profit taking towards the end, saw the index slip into red to 16,887 - down 187 points from the day's high. The Sensex ended with a gain of 22 points at 16,921. 18000, October 9, 2007 The BSE Sensex crossed the 18,000-mark on October 9, 2007. It took just 8 days to cross 18,000 points from the 17,000 mark. The index zoomed to a new all-time intra-day high of 18,327. It finally gained 789 points to close at an all-time high of 18,280. The market set several new records including the biggest single day gain of 789 points at close, as well as the largest intra-day gains of 993 points in absolute term backed by frenzied buying after the news of the UPA and Left meeting on October 22 put an end to the worries of an impending election. 19000, October 15, 2007 The Sensex crossed the 19,000-mark backed by revival of funds-based buying in blue chip stocks in metal, capital goods and refinery sectors. The index gained the last 1,000 points in just four trading days. The index touched a fresh all-time intra-day high of 19,096, and finally

ended with a smart gain of 640 points at 19,059.The Nifty gained 242 points to close at 5,670. 20000, October 29, 2007 The Sensex crossed the 20,000 mark on the back of aggressive buying by funds ahead of the US Federal Reserve meeting. The index took only 10 trading days to gain 1,000 points after the index crossed the 19,000-mark on October 15. The major drivers of today's rally were index heavyweights Larsen and Toubro, Reliance Industries, ICICI Bank, HDFC Bank and SBI among others. The 30-share index spurted in the last five minutes of trade to fly-past the crucial level and scaled a new intraday peak at 20,024.87 points before ending at its fresh closing high of 19977.67, a gain of 734.50 points. The NSE Nifty rose to a record high 5,922.50 points before ending at 5,905.90, showing a hefty gain of 203.60 points. 21000, January 8, 2008 The Sensex peaks. It crossed the 21,000 mark in intra-day trading after 49 trading sessions. This was backed by high market confidence of increased FII investment and strong corporate results for the third quarter. However, it later fell back due to profit booking. 15,200, June 13, 2008 The Sensex closed below 15,200 mark, Indian market suffer with major downfall from January 212008. 14,220, June 25, 2008 The Sensex touched an intra day low of 13,731 during the early trades, then pulled back and ended up at 14,220 amidst a negative sentiment generated on the Reserve Bank of India hiking CRR by 50 bps. FII outflow continued in this week.

12,822, July 2, 2008 The Sensex hit an intra day low of 12,822.70 on July 2, 2008. This is the lowest that it has ever been in the past year. Six months ago, on January 10, 2008, the market had hit an all time high of 21206.70. This is a bad time for the Indian markets, although Reliance and Infosys continue to lead the way with mostly positive results. Bloomberg lists them as the top two gainers for the Sensex, closely followed by ICICI Bank and ITC Ltd. 11801.70, Oct 6, 2008 The Sensex closed at 11801.70 hitting the lowest in the past 2 years. 10527, Oct 10, 2008 The Sensex today closed at 10527,800.51 points down from the previous day having seen an intraday fall of as large as 1063 points. Thus, this week turned out to be the week with largest percentage fall in the Sensex. 14284.21, May 18, 2009 After the result of 15th Indian general election Sensex gained 2110.79 points from the previous close of 12173.42 these creates a new history in Indian Market. In the Opening Trade itself Sensex gain 15% from the previous day close this leads to the suspension of 2 hours trade. After 2 hours Sensex again surged this leads to the suspension of full day trading.

Hours of operation

Beginning of the Day Session Login Session Trading Session Position Transfer Session Closing Session Option Exercise Session Margin Session Query Session End of Day Session

:- 8:00 - 9:00 :- 9:00 - 9:30 :- 9:55 - 15:30 :- 15:30 - 15:50 :- 15:50 - 16:05 :- 16:05 - 16:35 :- 16:35 - 16:50 :- 16:50 - 17:35 :- 17:35

The hours of operation for the BSE quoted above are stated in terms of the local time in Mumbai, India (also known as Bombay). This translates into a standard time zone UTC/GMT +5:30.

BSE's normal trading sessions are on all days of the week except Saturdays, Sundays and holidays declared by the Exchange in advance.

BSE STATISTICS
As the number of companies that are listed at this exchange is quite huge, it is obvious that the trading volume at this exchange would also be significant. It is important to note there that in the month of May 2007; the total equity market capitalization of the various companies listed at the exchange was about $999 billion. The BSE Sensex, short form of BSE Sensitive Index, is the commonly used market index in the country and is also called as BSE 30. This is because it comprises 30 major listed companies that tend to change with time depending upon market capitalization etc. Even in other countries in Asia, BSE is commonly used for making references. The Bombay Stock Exchange is a value weighted index and thus, it is composed of 30 major scripts pertaining to the 30 major listed companies. As far as the base year is concerned, it is taken as April 1978=100. The 30 companies that make up the Index are not frequently changing as in the past 20 years; only some of the companies have been changed. Thus, there is good consistency as far as the composition of BSE 30 is considered. It is also important to note here that these 30 listed

companies account for about one-fifth of the total market capitalization of Bombay Stock Exchange. There are also many other indexes apart from BSE and these include BSE500, BSE 100, BSE 200, BSE Tech, BSE Auto, BSE Pharma etc. Let us now discuss about the various other aspects related to Bombay Stock Exchange.

VARIOUS ASPECTS RELATED TO BOMBAY STOCK EXCHANGE

There are many other aspects related to Bombay Stock Exchange that need to be discussed in order to have the complete understanding of the topic. The first one is the BSE Broadcast. This is a large ticker on the wall of BSE and it displays continuously the latest share prices and prices of other stocks. Thus, a person can easily get this quote and stocks can be bought or sold in order to gain advantage. Bombay Stock Exchange has played a very important role in the development of capital market in India. As far as the organization structure is concerned, it consists of Board of Directors and the Board formulates almost all the policy issues regarding the exercise and control of various activities performed at BSE. There are many committees that are constituted by the board and these committees take care of different aspects of BSE. The daily operations at the stock exchange are looked after by the Managing Director and CEO. There is also a management team

comprising various professionals that help MD & CEO in performing various tasks. The reach of BSE is nationwide and it has its presence in about 417 cities and towns in nation that are located across the nation. The Bombay Stock Exchange provides a transparent and efficient market for the trading of different types of securities like shares, bonds etc. Apart from this, the debt instruments and derivatives are also traded at the exchange. There has been a greater emphasis that has been given to the technology that is used at the Bombay Stock Exchange in order to strengthen the performance and the functioning of the exchange. The hardware, software and the networking systems of the Bombay Stock Exchange are continuously upgraded by the Operations and Trading Department. This enables the exchange to provide quality services to its various members. It is important to note here that the BOLT capacity of the exchange has been enhanced to 40 lacks orders per day. This has been made possible by upgrading the hardware.

HOW STOCK MARKET WORKS?

In order to understand what stocks are and how stock markets work, we need to dive into history--specifically, the history of what has come to be known as the corporation, or sometimes the limited liability company (LLC). Corporations in one form or another have been around ever since one guy convinced a few others to pool their resources for mutual benefit. The first corporate charters were created in Britain as early as the sixteenth century, but these were generally what we might think of today as a public corporation owned by the government, like the postal service. Privately owned corporations came into being gradually during the early 19th century in the United States, United Kingdom and Western Europe as the governments of those countries started allowing anyone to create corporations.

In order for a corporation to do business, it needs to get money from somewhere. Typically, one or more people contribute an initial investment to get the company off the ground. These entrepreneurs may commit some of their own money, but if they don't have enough, they will need to persuade other people, such as venture capital investors or banks, to invest in their business. They can do this in two ways: by issuing bonds, which are basically a way of selling debt (or taking out a loan, depending on your perspective), or by issuing stock, that is, shares in the ownership of the company. Long ago stock owners realized that it would be convenient if there were a central place they could go to trade stock with one another, and the public stock exchange was born. Eventually, today's stock markets grew out of these public places.

What is Trade Stock Market System

The stock market system is an avenue of how to trade stock for listed corporations. As a corporation is formed, its initial shareholders are able to acquire shares of stock from the point of subscription when a company is created. When a company starts to be traded to the public, the primary market comes in where those who subscribe to the initial public offering (IPO) takes on the shares of stock sold from point of IPO. When those who bought into a company at IPO point of view decides to sell their shares of stock to other people, they can do so by going to the stock market. The stock market is a secondary market for securities trading wherein original or secondary holders of a companys shares of stock can sell their stocks to other individuals within the frame work of the stock market system.

The stock market has buyers of stocks or those who wants to own a part of the company but wasnt able to do so during the initial public offerings made by the company to the public when it has decided to list itself as a publicly listed company. As the stock market has developed and progressed over the years, the ways of how to trade stock from one individual to another has become more complicated and more challenging to be regulated. Technology has aided in providing more efficient ways of transactions. Front and backend solutions are put into place that helps direct the exchange of shares of stock in timely and secure manner.

What is Technical Analysis? How is it different from Fundamental Analysis?

Technical Analysis is a method of evaluating future security prices and market directions based on statistical analysis of variables such as trading volume, price changes, etc., to identify patterns. A stock market term - The attempt to look for numerical trends in a random function. The stock market used to be filled with technical analysts deciding what to buy and sell, until it was decided that their success rate is no better than chance. Now technical stock analysis is virtually non-existent. Technical analysts study trading histories to identify price trends in particular stocks, mutual funds, commodities, or options in specific market sectors or in the overall financial markets. They use their findings

to predict probable, often short-term, trading patterns in the investments that they study. The speed (and advocates would say the accuracy) with which the analysts do their work depends on the development of increasingly sophisticated computer programs. Technical Analysis is a tool to detect if a trend (and thus the investor's behavior) will persist or break. It gives some results but can be deceptive as it relies mostly on graphic signals that are often intertwined, unclear or belated. It might become a source of representiveness heuristic (spotting patterns where there are none). Fundamental analysis looks at a shares market price in light of the companys underlying business proposition and financial situation. It involves making both quantitative and qualitative judgments about a company. Fundamental analysis can be contrasted with 'technical analysis, which seeks to make judgments about the performance of a share based solely on its historic price behavior and without reference to the underlying business, the sector it's in, or the economy as a whole. This is done by tracking and charting the companies stock price, volume of shares traded day to day, both on the company itself and also on its competitors. In this way investors hope to build up a picture of future price movements.

PRIMARY & SECONDARY MARKET

There are two ways for investors to get shares from the primary and secondary markets. In primary markets, securities are bought by way of public issue directly from the company. In Secondary market share are traded between two investors.

PRIMARY MARKET
Market for new issues of securities, as distinguished from the Secondary Market, where previously issued securities are bought and sold.

A market is primary if the proceeds of sales go to the issuer of the securities sold. This is part of the financial market where enterprises issue their new shares and bonds. It is characterized by being the only moment when the enterprise receives money in exchange for selling its financial assets.

SECONDARY MARKET
The market where securities are traded after they are initially offered in the primary market. Most trading is done in the secondary market. To explain further, it is trading in previously issued financial instruments. An organized market for used securities. Examples are the New York Stock Exchange (NYSE), Bombay Stock Exchange (BSE), National Stock Exchange NSE, bond markets, over-the-counter markets, residential mortgage loans, governmental guaranteed loans etc.

Investment Basics What is a Bull Market

There are two classic market types used to characterize the general direction of the market. Bull markets are when the market is generally rising, typically the result of a strong economy. A bull market is typified by generally rising stock prices, high economic growth, and strong investor confidence in the

economy. Bear markets are the opposite. A bear market is typified by falling stock prices, bad economic news, and low investor confidence in the economy. A bull market is a financial market where prices of instruments (e.g., stocks) are, on average, trending higher. The bull market tends to be associated with rising investor confidence and expectations of further capital gains. A market in which prices are rising. A market participant who believes prices will move higher is called a "bull". A news item is considered bullish if it is expected to result in higher prices. An advancing trend in stock prices that usually occurs for a time period of months or years. Bull markets are generally characterized by high trading volume. Simply put, bull markets are movements in the stock market in which prices are rising and the consensus is that prices will continue moving upward. During this time, economic production is high, jobs are plentiful and inflation is low. Bear markets are the opposite--stock prices are falling, and the view is that they will continue falling. The economy will slow down, coupled with a rise in unemployment and inflation. A key to successful investing during a bull market is to take advantage of the rising prices. For most, this means buying securities early, watching them rise in value and then selling them when they reach a high. However, as simple as it sounds, this practice involves timing the market. Since no one knows exactly when the market will begin its climb or reach its peak, virtually no one can time the market perfectly. Investors often attempt to buy securities as they

demonstrate a strong and steady rise and sell them as the market begins a strong move downward. Portfolios with larger percentages of stocks can work well when the market is moving upward. Investors who believe in watching the market will buy and sell accordingly to change their portfolios. Speculators and risk-takers can fare relatively well in bull markets. They believe they can make profits from rising prices, so they buy stocks, options, futures and currencies they believe will gain value. Growth is what most bull investors seek.

What is a Bear Market?

The opposite of a bull market is a bear market when prices are falling in a financial market for a prolonged period of time. A bear market tends to be accompanied by widespread pessimism. A bear market is slang for when

stock prices have decreased for an extended period of time. If an investor is "bearish" they are referred to as a bear because they believe a particular company, industry, sector, or market in general is going to go down.

F a m o u s S t o c k M a r k e t Q u o t e s & S a y i n g s - Bulls make money. Bears make money. Pigs get slaughtered.

Stocks and Futures - What is the Difference?

Are you new to trading? Perhaps you wonder what the difference is between trading Stocks and trading Futures. Often when I meet someone new who inquires as to what I do, I get a response of "that's like trading stocks, isn't it?" In some ways they are similar, but only minutely so. So let's consider some of the major differences between the two. Most individuals have likely traded stocks at one time or another. Usually, it is to buy in order to 'own' a percentage of a particular company or to liquidate such partial ownership. They pick up a phone to call a broker or go online to purchase or sell. The order is facilitated through an 'exchange', such as the New York Stock Exchange for example. Buying and selling Futures is similar in this respect. You can call a broker or go online to buy or sell Futures contracts. The order is then facilitated

through commodity exchange, such as the Chicago Mercantile Exchange for example. Yet while buying a stock gives you part ownership in a company or portfolio of companies (as in a fund), buying a Futures contract does not give you ownership of a commodity or product. Rather, you are simply entering into a contract to purchase the underlying commodity at a certain price at a future time, noted by the contract. For example, buying one May Wheat at 3.00 simply creates a contract between you and the seller (whom you need not know as this is taken care of via the exchange) that come May you will take delivery of 5000 bushels of Wheat at $3 per bushel, regardless of what the price of Wheat at market happens to be come May. As a speculator simply trading to make a profit from trading itself and with no interest in actually taking delivery of product, you will simply sell your contract prior to delivery at the going market price and the difference between your buy price and sell price is either your profit or loss. When you buy a stock, you are part owner of a company. When you buy a Futures contract, you simply are entering a contract. With stocks, you will pay for the stock at the time of your purchase plus broker commissions. When buying a futures contract, you are simply entering the buy side of a contract and no monies are paid other than commissions to your broker. Stock exchanges and commodity exchanges are both membership organizations established to act as middlemen between the buys and sells of all types of traders, from business entities to the individual small trader. The stock exchange act to bring capital from investors to the businesses that need that capital. They facilitate the transfer of property rights (ownership in the various companies offering stock).The commodity exchange act to bring people willing to assume risk for the opportunity to make a substantial

amount of money for taking such risk. This helps transfer the price risk associated with ownership of various commodities, such as Soybeans, or a service, like interest rates, from producers. To buy stocks, you only need enough money in your account to purchase the stock outright plus commissions. Once you make the purchase, the money is removed immediately to make the purchase. With trading futures, since you are not actually purchasing anything but simply entering a contract to do so at a later time (which you will exit prior to avoid delivery), the broker will require a certain amount of margin (good faith deposit to cover any possible losses) in what is called a 'margin account'. Each commodity has a different minimum margin requirement depending on several factors. Your broker may use the exchange calculated margin or require a different margin of their own. If the value of the commodity were to decrease and you are on the buy side of the contract, then your contract has lost value and your broker will notify you if your unrealized losses exceeds have gone beyond your minimum margin requirement. This is called a 'margin call'. Naturally you would want to have more capital than simply the margin amount when trading futures to avoid these broker calls. The broker has the right (and likely will) liquidate your position if you are getting too close to not having enough to cover the losses in order to protect themselves. With buying stocks outright, there is no potential for a margin call. You simply own the stock outright. So perhaps you may be wondering why anyone would bother buying futures contracts rather than stocks. The major answer is: LEVERAGE.

Leverage gives the trader the ability to control a large amount of money (or commodity worth a lot of money) with very little money. For example, if Live Cattle futures requires a minimum margin of $800 to trade a single contract, and a single contract represents 40,000 lbs at the current market price of say 75, you would be controlling $30,000 worth for a leverage of over 35:1. This is appealing to many traders and justifies the risk. What is that risk? Just as leverage can work in your favor, it can work against you at the very same ratio. Known as a 'two-edged sword'. You can increase the leverage of trading stocks if you trade with a margin account. This usually allows you to purchase stocks on margin at the usual rate of 50%. So for every dollar you have you can purchase $2 worth of stock. The leverage is 2:1. How this works is that the broker is actually 'lending' you the other 50%. Of course by purchasing stock with margin you can lose more than you have due to the leverage. And in this case you can end up getting a 'margin call' from your broker if your stock losses too much value. When you look at these two trading vehicles, the bottom line comes to MARGIN and LEVERAGE.

Understanding The Stock Market

Many people look to the stock market to enhance their hard-earned money more and more each year. Some people are not even aware of their investments, because they can come in the form of pensions with their place of employment. The company invests this money in efforts to increase your retirement funds. In order to fully understand what is happening with your money, you should understand how the investments work.

The stock market is an avenue for investors who want to sell or buy stocks, shares or other things like government bonds. Within the United Kingdom, the major stock market in this area is LSE (London Stock Exchange. Every day a list is produced that includes indexes or companies and how they are performing on the market. An index will be compromised of a special list of certain companies, for example, within the UK; the FTSE 100 is the most popular index. The Financial Times Stock Exchange dictates the average overall performance of 100 of the largest companies with in the UK that are listed on the stock market. A share is a small portion of a PIC (public limited company), owning one of these shares will give you many rights. For example, you will gain a portion of the profits and growth that the company experiences, additionally you

will obtain occasional accounts and reports from the chosen company. Another exciting feature of owning a share of a company is the fact that you are given the right to vote in various aspects of what happens with the company. Once you purchase a share of a company you will receive something called a share certificate, this will be your proof of ownership. This certificate will contain the total value of the share, this will likely not be the price that is listed upon the exchange and is specifically for reasons of a legal matter. This will not affect the current value the share currently holds on the market. Typically, as a shareholder, you will receive your profit in the form of a dividend; these are paid on a twice per year basis. The way this works is if the company makes a profit, you will as well and on the opposite end of this spectrum if they do not make a profit, neither will you. If a company does extremely well their value increases, which means the value of the share you own will as well. If you should decide to sell your share, you will only benefit from it, if the company has experienced growth.

Basics of Stock Market

Financial markets provide their participants with the most favorable conditions for purchase/sale of financial instruments they have inside. Their major functions are: guaranteeing liquidity, forming assets prices within establishing proposition and demand and decreasing of operational expenses, incurred by the participants of the market. Financial market comprises variety of instruments, hence its functioning totally depends on instruments held. Usually it can be classified according to the type of financial instruments and according to the terms of instruments paying-off. From the point of different types of instruments held the market can be divided into the one of promissory notes and the one of securities (stock market). The first one contains promissory instruments with the right for its owners to get some fixed amount of money in future and is called the market of promissory notes, while the latter binds the issuer to pay a certain amount of money according to the return received after paying-off all the promissory notes and is called stock market. There are also types of securities referring to both categories as, e.g., preference shares and converted bonds. They are also called the instruments with fixed return. Another classification is due to paying-off terms of instruments. These are: market of assets with high liquidity (money market) and market of capital. The first one refers to the market of short-term promissory notes with assets age up to 12 months. The second one refers to the market of long-term

promissory notes with instruments age surpasses 12 months. This classification can be referred to the bond market only as its instruments have fixed expiry date, while the stock markets not. Now we are turning to the stock market. As it was mentioned before, ordinary shares purchasers typically invest their funds into the companyissuer and become its owners. Their weight in the process of making decisions in the company depends on the number of shares he/she possesses. Due to the financial experience of the company, its part in the market and future potential shares can be divided into several groups. 1. Blue Chips Shares of large companies with a long record of profit growth, annual return over $4 billion, large capitalization and constancy in paying-off dividends are referred to as blue chips. 2. Growth Stocks Shares of such company grow faster; its managers typically pursue the policy of reinvestment of revenue into further development and modernization of the company. These companies rarely pay dividends and in case they do the dividends are minimal as compared with other companies. 3. Income Stocks Income stocks are the stocks of companies with high and stable earnings that pay high dividends to the shareholders. The shares of such companies usually use mutual funds in the plans for middle-aged and elderly people. 4. Defensive Stocks These are the stocks whose prices stay stable when the market declines, do well during recessions and are able to minimize risks.

They perform perfect when the market turns sour and are in requisition during economic boom. These categories are widely spread in mutual funds, thus for better understanding investment process it is useful to keep in mind this division. Shares can be issued both within the country and abroad. In case a company wants to issue its shares abroad it can use American Depositary Receipts (ADRs). ADRs are usually issued by the American banks and point at shareholders right to possess the shares of a foreign company under the asset management of a bank. Each ADR signals of one or more shares possession. When operating with shares, aside of purchase/sale ratio profits, you can also quarterly receive dividends. They depend on: type of share, financial state of the company, shares category etc. Ordinary shares do not guarantee paying-off dividends. Dividends of a company depend on its profitability and spare cash. Dividends differ from each other as they are to be paid in a different period of time, with the possibility of being higher as well as lower. There are periods when companies do not pay dividends at all, mostly when a company is in a financial distress or in case executives decide to reinvest income into the development of the business. While calculating acceptable share price, dividends are the key factor. Price of ordinary share is determined by three main factors: annual dividends rate, dividends growth rate and discount rate. The latter is also called a required income rate. The company with the high risks level is expected to

have high required income rate. The higher cash flow the higher share prices and versus. This interdependence determines assets value. Below we will touch upon the division of share prices estimating in three possible cases with regard to dividends. While purchasing shares, aside of risks and dividends analysis, it is absolutely important to examine company carefully as for its profit/loss accounting, balance, cash flows, distribution of profits between its shareholders, managers and executives wages etc. Only when you are sure of all the ins and outs of a company, you can easily buy or sell shares. If you are not confident of the information, it is more advisable not to hold shares for a long time (especially before financial accounting published).

12 Basic Stock Investing Rules Every Successful Investor Should Follow

There are many important things you need to know to trade and invest successfully in the stock market or any other market. 12 of the most important things that I can share with you based on many years of trading experience are enumerated below. 1. Buy low-sell high. As simple as this concept appears to be, the vast majority of investors do the exact opposite. Your ability to consistently buy low and sell high, will determine the success, or failure, of your investments. Your rate of return is determined 100% by when you enter the stock market. 2. The stock market is always right and price is the only reality in trading. If you want to make money in any market, you need to mirror what the market is doing. If the market is going down and you are long, the market is right and you are wrong. If the stock market is going up and you are short, the market is right and you are wrong. Other things being equal, the longer you stay right with the stock market, the more money you will make. The longer you stay wrong with the stock market, the more money you will lose. 3. Every market or stock that goes up will go down and most markets or stocks that have gone down will go up. The more extreme the move up or down, the more extreme the movement in the opposite direction once the trend changes. This is also known as "the trend always changes rule."

4. If you are looking for "reasons" that stocks or markets make large directional moves, you will probably never know for certain. Since we are dealing with perception of markets-not necessarily reality, you are wasting your time looking for the many reasons markets move. A huge mistake most investors make is assuming that stock markets are rational or that they are capable of ascertaining why markets do anything. To make a profit trading, it is only necessary to know that markets are moving not why they are moving. Stock market winners only care about direction and duration, while market losers are obsessed with the whys. 5. Stock markets generally move in advance of news or supportive fundamentals - sometimes months in advance. If you wait to invest until it is totally clear to you why a stock or a market is moving, you have to assume that others have done the same thing and you may be too late. You need to get positioned before the largest directional trend move takes place. The market reaction to good or bad news in a bull market will be positive more often than not. The market reaction to good or bad news in a bear market will be negative more often than not. 6. The trend is your friend. Since the trend is the basis of all profit, we need long term trends to make sizeable money. The key is to know when to get aboard a trend and stick with it for a long period of time to maximize profits. Contrary to the short term perspective of most investors today, all the big money is made by catching large market moves - not by day trading or short term stock investing.

7. You must let your profits run and cut your losses quickly if you are to have any chance of being successful. Trading discipline is not a sufficient condition to make money in the markets, but it is a necessary condition. If you do not practice highly disciplined trading, you will not make money over the long term. This is a stock trading system in itself. 8. The Efficient Market Hypothesis is fallacious and is actually a derivative of the perfect competition model of capitalism. The Efficient Market Hypothesis at root shares many of the same false premises as the perfect competition paradigm as described by a well known economist. The perfect competition model is not based on anything that exists on this earth. Consistently profitable professional traders simply have better information - and they act on it. Most non-professionals trade strictly on emotion, and lose much more money than they earn. The combination of superior information for some investors and the usual panic as losses mount caused by buying high and selling low for others, creates inefficient markets. 9. Traditional technical and fundamental analysis alone may not enable you to consistently make money in the markets. Successful market timing is possible but not with the tools of analysis that most people employ. If you eliminate optimization, data mining, subjectivism, and other such statistical tricks and data manipulation, most trading ideas are losers. 10. Never trust the advice and/or ideas of trading software vendors, stock trading system sellers, market commentators, financial analysts,

brokers, newsletter publishers, trading authors, etc., unless they trade their own money and have traded successfully for years. Note those that have traded successfully over very long periods of time are very few in number. Keep in mind that Wall Street and other financial firms make money by selling you something - not instilling wisdom in you. You should make your own trading decisions based on a rational analysis of all the facts. 11. The worst thing an investor can do is take a large loss on their position or portfolio. Market timing can help avert this much too common experience. You can avoid making that huge mistake by avoiding buying things when they are high. It should be obvious that you should only buy when stocks are low and only sell when stocks are high. 12. The most successful investing methods should take most individuals no more than four or five hours per week and, for the majority of us, only one or two hours per week with little to no stress involved.

Stock Trading Psychology

Many of today's highly successful traders will tell you that the general key to success in trading is to be able to comfortably take a loss. It is general knowledge among experts in the trading psychology field and among traders that the market is not predictable and it is safe to say that it never will be. In the world of trading, it is expected to take a loss; even those who are highly skilled traders know that it is inevitable. With that said, let us have a look at things you as a trader should be aware of, how you can take a loss effectively and use it towards the greater good of your trading world. Trading psychology tells us that when a trader loses he begins to become somewhat of a perfectionist in his dealing. Many traders think that in trading, a good day will always be one that is profitable. Trading psychology experts tells us this is not true. A trader should define a good day as one where they have extensively researched and planned with discipline and focus, and have followed through to the entire extent of the plan. Yes, when a trader has mastered the art of accepting losses and working through them with a well thought out plan then good days will become profitable in time. Because the art of trading in an unpredictable market fluctuates so greatly from one day to the next, experts in trading psychology believe that it is important that you concentrate on what you can control, instead of things that are beyond your control. Looking into the short-term you cannot expect to be able to control the profits of your trading. With that said, look at what you do you have ability to control.

You do have the ability to control the difference between good and bad days. You are able to control this factor by extensively researching the strategies you implement within your trading experiences. By learning to research your chosen strategies, thus controlling the amount of good and bad trading days you experience, you will, in the long-term begin to generate profits, which is the ultimate goal of every trader. Trading psychology experts tell us that it is important to become realistic in trading instead of becoming a perfectionist. Perfectionist traders, relate a loss with failure, and will become obsessed with the failure, focusing only upon it. Realistic traders understand the unpredictability of the market and taking a loss is simply part of the art. The main key you must remember in trading psychology to be able to effectively limit your losses, instead of becoming obsessed with them. A common thing seen within the trading psychology world is that traders who are obsessed with their losses often have a hard time bouncing back from them, thus losing in the end. Experts in trading psychology have organized three basic strategies you can use to effectively stop losses. These strategies are:
* Price Based * Time Based * Indicator Based

Stops that are priced based are generally used when the other two have not functioned. To make this work you will need to make hypothesis's about the trade and identify a low point in that particular market. Then you will set your trade entries near your points, thus making sure that losses will not be overly excessive if the hypothesis fails.

Time Based stops constitutes making use of your time. Designate a holding period you allow to capture a certain number of points. If you have no achieved your desired profit within that time limit, you should stop the trade. If effectively used you should stop even if the price stop limit has not been achieved. The Indicator based stop makes use of market indicators. As a trader, you should be aware of these indicators and utilize them extensively within your trading experiences. Look at indicators such as, volume, advances, declines, and new highs and lows. Experts in trading psychology say that setting stops and rehearsing them mentally is a good psychological tool to use and will help ensure that you follow through.

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 paid-up 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, well-established 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. SENSEX is 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 SENSEX is in effect the proxy for the Indian stock markets. Since SENSEX comprises of the leading companies in all the 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 IN SENSEX

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 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 limits 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 scripts listed on the Exchange.

Trading on the BOLT System is conducted from Monday to Friday between 9:55 a.m. and 3:30 p.m. The scripts traded on the Exchange have been classified into 'A', 'B1', 'B2', 'F' and 'Z' groups. The number of scripts 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 scripts 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 scripts 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 scripts of companies where trades are to be compulsorily settled by all investors in demat mode. This scheme of selling physical shares in compulsory demat scripts 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 scripts of five companies listed on other Stock Exchanges w.e.f. April 22, 2002/

Computation of closing price of scripts in the Cash Segment: The closing prices of scripts 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. 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) 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 scripts 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 script 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.

BASKET TRADING SYSTEM

The Exchange has commenced trading in the Derivatives Segment with effect from June 9, 2000 to, enable the investors to hedge their risks. Initially, the facility of trading in the Derivatives Segment has been confined to Index Futures. Subsequently, the Exchange has since introduced the index options and options & futures in select individual stocks. The investors in

cash market had felt a need to limit their risk exposure in the market to movement in Sensex . With a view to provide investors with this facility of creating Sensex linked portfolios and also to create a linkage of market prices of the underlying securities of Sensex in the Cash Segment and Futures on Sensex , the Exchange has provided the facility of Basket Trading System on BOLT. In Basket Trading System, the investors are able to buy/ sell all 30 scripts of Sensex in the proportion of their respective weights in the Sensex , in one go. The investors need not calculate the quantity of Sensex scripts to be bought or sold for creating Sensex linked portfolios and this function is performed by the system. The investors are also allowed to create their own baskets by deleting certain scripts from the Sensex basket of 30 scripts. Further, the Basket Trading System provides the arbitrageurs an opportunity to take advantage of price differences in the underlying securities of Sensex and Futures on the Sensex by simultaneous buying and selling of baskets covering the Sensex scripts and Sensex Futures. This is expected to have balancing impact on the prices in both cash and futures markets. The Basket Trading System would, thus, meet the needs of investors and also boost the volumes and depth in cash and futures markets. The Basket Trading System has been implemented by the Exchange w.e.f. Monday, the 14th August 2000. The trades executed under the Basket Trading System are subject to intra-day trading/gross exposure limits and daily margins as are applicable to normal trades.. To participate in this

system the member indicates number of Sensex basket(s) to be bought or sold, where the value of one Sensex basket is arrived at by the system by multiplying Rs.50 to prevailing Sensex .

SETTLEMENT SYSTEM
Securities traded on BSE are classified into three groups, namely, specified shares or 'A' group and non-specified securities that are sub-divided into 'B1' and 'B2' groups. Presently, equity shares of thirty-two companies are classified as specified shares. These companies typically have a large capital base with widespread shareholding, a steady dividend, good growth record and a large volume of business in the secondary market. Contracts in this group are allowed to be carried over to subsequent settlements upto a maximum permissible period of 75 days.

495 relatively liquid securities are placed in a category called 'B1' group. The remaining securities-about 5800 as on May 31, 1996 are placed in the 'B2' group. All newly listed securities are placed in the 'B2' group. Settlement of transactions is done on an 'Account Period' basis. The period is a calendar week in the case of 'A' and 'B1' groups and 14 calendar days in the case of 'B2' group During an account period, buy or sell positions in a particular security can be either squared up by entering into contra transactions or can be further accumulated by entering into more buy or sell transactions.

Clearing System
The Clearing House of the Exchange handles the share and the money parts of the settlement process in the case of 'A' and 'B1' groups. The Clearing House handles only the money part of 'B2' group while securities are physically exchanged between the brokers.

Opportunities available for foreign investors

1. Direct investment: Foreign Companies are now permitted to have a majority stake in their Indian affiliates except in a few restricted industries. In certain specific industries, foreigners can even have holding upto 100 per cent. 2. Investment through Stock Exchanges: Foreign Institutional Investors (FII) upon registration with the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) are allowed to operate in Indian Stock Exchanges subject to the guidelines issued for the purpose by SEBI.

Important requirements under the guidelines are as under: I. Portfolio investment in primary or secondary markets will be subject to a ceiling of 24 per cent of issued share capital for the total holding of all registered FIIs in any one company. The holding of a single FII in any one company is subject to a ceiling of 5 per cent of the total issued capital. However, in applying the ceiling of 24 percent the following are excluded: Foreign investment under a financial collaboration (DFI), which is, permitted upto 51 per cent in all priority areas. Investment by FIIs through following alternative routes; Offshore Single/Regional funds, GDR's and Euro convertibles. II. Disinvestments will be allowed only through a broker of a Stock Exchange. III. A registered FII is required to buy or sell only for delivery. It should not offset a deal. It is also not allowed to sell short.

3. Investment in Euro Issues/Mutual Funds Floated Overseas: Foreign investors can invest in Euro issues of Indian companies and in India-specific funds floated abroad. 4. Broking Business: Foreign brokers upon registration with the SEBI are now allowed to route the business of registered FIIs. Guidelines for the purpose have been issued by SEBI. However, foreign brokers at present are not allowed membership in India Stock Exchanges. 5. Asset Management Companies/Merchant Banking:

Foreign Participation in Asset Management Companies and Merchant Banking Companies is permitted.

ARBITRATION MACHINERY

There exists three level arbitration machinery. The first two levels, which are adjudicated by member brokers, comprise of a two-member bench and a full bench that is to comprise of at least sixteen members respectively. The highest arbitrator in the Exchange is the Governing Board. Disputes unresolved in the Exchange are taken to the Court of Law.

CUSTOMER PROTECTION FUND

The objective of this fund is to provide insurance to investors in case of default by a member. The investor is indemnified from default to the extent of Rs.1, 00,000. The corpus of the fund is created by depositing 2.5% of the listing fees and a levy on turnover at the rate or Re.1 for Rs. 1 million of turnover. It is further augmented by 50% of the interest accrued on 1% of the issue amount which is deposited by companies at the time of their public and rights issues for a three month period as a safeguard against non-refund of excess subscription.

GRIEVANCE REDRESSAL The Investor's Services Cell redresses investors' grievances against listed companies and stockbrokers. However, the Exchange does not have power to take penal action against listed companies, except delisting for specified periods.

DISCIPLINARY ACTION The Exchange has an eight member Disciplinary Action Committee (DAC) which decides on punitive action in disciplinary cases referred to it by the Surveillance and inspection departments of the Exchange Administration.

INDICES The Exchange compiles four indices, which are based on market capitalization. The first index to be compiled was the BSE Sensitive Index with 1978-79 as the base year. It comprises of equity shares of 30 companies from both specified and non-specified securities groups. The companies have been selected on the basis of market activity. Subsequently, a broader based index, BSE National Index with 1983-84 as base year, was compiled. This index is made up of 100 scripts, 98 of which are quoted on Bombay. This index also includes prices on the other major stock exchanges of Delhi, Calcutta, Ahmedabad and Madras. If scrip is actively quoted on more than

one Exchange the average price of the scrip is used in the compilation of the index. It was felt that the sensitive index-the most popular indicator of market movement-had become oversensitive to a handful of scripts. With divestment of Public Sector Unit (PSU) equity by government and a sharp increase in the number of companies listed over the last few years, it was felt that a new index, which is more representative of the recent changes and is more balanced, is necessary. The BSE-200, which was introduced in May 1994, consists of equity shares of 200 companies, which have been selected on the basis of market capitalization, volume of turnover and strength of the companies' fundamentals. 1989-90 has been chosen as the base year for BSE-200. As the presence of the foreign investors grew, a need was felt to express the index values by taking into account the Rupee-Dollar conversion rate. Consequently, dividing the current Rupee market value by Rupee-Dollar modifies the BSE-200 conversion rate in the base year. This index, which indicates the movement of the market in dollar values, is called the Dollex.

DISCLOSURE & LISTING NORMS Companies who wish to raise money from capital market follow guidelines relating to disclosure, laid down by the Securities and Exchange Board of India. Some of the disclosure norms are:

Details of other income if it constitutes more than ten percent of total income.
All adverse events affecting the operations of the company.

Any change in key managerial personnel. Risk factors specific to the project and those which are external to the company.

The listing requirements with the Exchange call for further disclosure by companies to promote public confidence. Important disclosures are:
The company is required to furnish unaudited half-yearly financial

results in the prescribed Performa. The company must explain to the Stock Exchange any large variation between audited and unaudited results in respect of any item. When any person or an institution acquires or agrees to acquire any security of a company which would result in his holding five percent or more of the voting capital of the company, including the existing holding the Exchange must be notified within two days of such acquisition by the company or by authorized intermediary or by the acquirer. Any take-over offer made either voluntarily or compulsorily to a company requires a public announcement by both the offeror and the offeree company.

Computerized Trading
BSE computerized its trading and settlement activities by following a threephased approach. Phase I: The primary objective of this phase was the real time dissemination of price data through the Display Information Driver System (DIDS). DIDS was commissioned in November 1992 to disseminate bids, offers, actual rates of transactions and indices on a real time basis. Phase II: In 1994, settlement related daily transactions inputs and outputs were uploaded and downloaded from the TWS in the brokers offices.

Phase III: Commissioned on March 14, 1995. Although, screen based trading started with 818 scripts, by the 70th day of its commissioning, all scripts-exceeding 5000 had been put on the BOLT system. The BOLT system was commissioned with the Himalaya K 10,000 central trading computer hardware. Since then the hardware has been upgraded to the Himalaya K 20,000 system. The system provides for a response time of two seconds and can handle more than two hundred thousand trades in a day.

Stock Market Indicators

1991-92 No. of

1992-93

1993-94

1994-95

1995-96

Companies Market Capitalization (In Rs. Billion) 3059.87 (In US $ Billion) 97.13 Annual Turnover (In Rs. Billion) 717.77 (In US $ Billion) 22.78 Velocity 0.23 Average Daily Turnover

(Apr-Mar) (Apr-Mar) (Apr-Mar) (Apr-Mar) (Apr-Mar) Listed 2061 2861 3585 4702 5603 1881.46 59.72 456.96 14.50 0.24 3680.71 116.85 836.29 26.55 0.24 4354.81 138.37 677.49 21.51 0.16 5264.76 153.27 500.64 14.57 0.10

(In Rs. Billion) 3.32 (In US $ Billion) 0.10 No. of Shares Traded 6,35,515 (In Million Nos.) Average Number of 75,000 Daily Deals BSE Sensitive Index 4285.00 (Year End) BSE National Index 1967.71 (Year End) BSE 2000 585.19 (Year End) Dollex (Year End) 261.25 No. of Registered Flls Fll Net investment (In Rs. Billion) (In US $ Billion) No. of Members 558 (Year End) No. of Corporate 4 Members (Year End)

2.38 0.07 3,50,313 65,535 2280.52 1021.40 234.35 124.89 558 4

3.84 0.12 7,42,792 63,786 3778.99 1829.53 450.07 238.86 145 29.85 0.95 628 4

1.78 0.06 1,07,24.8 85,010 3260.95 1605.57 365.97 194.67 308 21.24 0.67 636 26

2.16 0.06 7,71,850 73,855 3366.61 1549.25 345.40 168.54 366 31.63 0.92 641 63

Future Developments
In 1995, the President of India promulgated an Ordinance, which allowed for establishment of depositories. BSE in collaboration with Bank of India (BOI) will shortly establish a depository. BSE has applied for permission from SEBI to expand BOLT to other centers. Expansion of BOLT would bring more investors into the ambit of the capital market and consequently add depth to it.

INTERVIEW: Market Basics

What is a Stock Exchange?

A common platform where buyers and sellers come together to transact in stocks and shares. It may be a physical entity where brokers trade on a physical trading floor via an "open outcry" system or a virtual environment. What is electronic trading?

Electronic trading eliminates the need for physical trading floors. Brokers can trade from their offices, using fully automated screen-based processes. Their workstations are connected to a Stock Exchange's central computer via satellite using Very Small Aperture Terminus (VSATs). The orders placed by brokers reach the Exchange's central computer and are matched electronically. Howmany Exchanges are there in India?

The Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) are the country's two leading Exchanges. There are 20 other regional Exchanges, connected via the Inter-Connected Stock Exchange (ICSE). The BSE and NSE allow nationwide trading via their VSAT systems. What is an Index?

An Index is a comprehensive measure of market trends, intended for investors who are concerned with general stock market price movements. An Index comprises stocks that have large liquidity and market capitalisation. Each stock is given a weightage in the Index equivalent to its market capitalisation. At the NSE, the capitalisation of NIFTY (fifty selected stocks) is taken as a base capitalisation, with the value set at 1000. Similarly, BSE Sensitive Index or Sensex comprises 30 selected stocks. The Index value compares the day's market capitalisation vis-a-vis base capitalisation and indicates how prices in general have moved over a period of time. Howdoes one execute an order?

Select a broker of your choice and enter into a broker-client agreement and fill in the client registration form. Place your order with your broker preferably in writing. Get a trade confirmation slip on the day the trade is executed and ask for the contract note at the end of the trade date. Why does one needa broker?

As per SEBI (Securities and Exchange Board of India.) regulations, only registered members can operate in the stock market. One can trade by executing a deal only through a registered broker of a recognised Stock Exchange What is a or through a SEBI-registered sub-broker.

contract

note?

A contract note describes the rate, date, time at which the trade was transacted and the brokerage rate. A contract note issued in the prescribed format establishes a legally enforceable relationship between the client and the member in respect of trades stated in the contract note. These are made in duplicate and the member and the client both keep a copy each. A client

should receive the contract note within 24 hours of the executed trade. Corporate What is a book-closure/record date? Benefits/Action

Book closure and record date help a company determine exactly the shareholders of a company as ona given date. Book closure refers to the closing of register of the names or investors in the records of a company. Companies announce book closure dates from time to time. The benefits of dividends, bonus issues, rights issue accruing to investors whose name appears on the company's records as on a given date, is known as the record date.

An investor might purchase a share-cum-dividend, cum rights or cum bonus and may therefore expect to receive these benefits as the new shareholder. In order to receive this, the share has to be transferred in the investor's name, or he would stand deprived of the benefits. The buyer of such a share will be a loser. It is important for a buyer of a share to ensure that shares purchased at cum benefits prices are transferred before book-closure. It must be ensured that the price paid for the shares is ex-benefit and not cum benefit. What is the difference between book closureand record date? In case of a record date, the company does not close its register of security holders. Record date is the cut off date for determining the number of registered members who are eligible for the corporate benefits. In case of book closure, shares cannot be sold on an Exchange bearing a date on the transfer deed earlier than the book closure. This does not hold good for the

record What is a no-delivery

date. period?

Whenever a company announces a book closure or record date, the Exchange sets up a no-delivery (ND) period for that security. During this period only trading is permitted in the security. However, these trades are settled only after the no-delivery period is over. This is done to ensure that investor's entitlement for the corporate benefit is clearly determined. What is an ex-dividend date?

The date on or after which a security begins trading without the dividend (cash or stock) included in the contract price. What is an ex-date?

The first day of the no-delivery period is the ex-date. If there is any corporate benefits such as rights, bonus, dividend announced for which book closure/record date is fixed, the buyer of the shares on or after the ex-date will not be eligible for the benefits. What is a Bonus Issue?

While investing in shares the motive is not only capital gains but also a proportionate share of surplus generated from the operations once all other stakeholders have been paid. But the distribution of this surplus to shareholders seldom happens. Instead, this is transferred to the reserves and surplus account. If the reserves and surplus amount becomes too large, the company may transfer some amount from the reserves account to the share capital account by a mere book entry. This is done by increasing the number of shares outstanding and every shareholder is given bonus shares in a ratio

called the bonus ratio and such an issue is called bonus issue. If the bonus ratio is 1:2, it means that for every two shares held, the shareholder is entitled to one extra share. So if a shareholder holds two shares, post bonus he will hold three. What is a Split?

A Split is book entry wherein the face value of the share is altered to create a greater number of shares outstanding without calling for fresh capital or altering the share capital account. For example, if a company announces a two-way split, it means that a share of the face value of Rs 10 is split into two shares of face value of Rs 5 each and a person holding one share now holds two shares. What is a Buy Back? As the name suggests, it is a process by which a company can buy back its shares from shareholders. A company may buy back its shares in various ways: from existing shareholders on a proportionate basis; through a tender offer from open market; through a book-building process; from the Stock Exchange; or from odd lot holders. A company cannot buy back through negotiated deals on or off the Stock Exchange, through spot transactions or through any private arrangement. Clearing and Settlement. What is a settlement cycle?

The accounting period for the securities traded on the Exchange. On the NSE, the cycle begins on Wednesday and ends on the following Tuesday, and on the BSE the cycle commences on Monday and ends on Friday.

At the end of this period, the obligations of each broker are calculated and the brokers settle their respective obligations as per the rules, bye-laws and regulations of the Clearing Corporation. If a transaction is entered on the first day of the settlement, the same will be settled on the eighth working day excluding the day of transaction. However, if the same is done on the last day of the settlement, it will be settled on the fourth working day excluding the day of transaction. What is a rolling settlement?

The rolling settlement ensures that each day's trade is settled by keeping a fixed gap of a specified number of working days between a trade and its settlement. At present, this gap is five working days after the trading day. The waiting period is uniform for all trades. When does one deliver the shares and pay the money to broker? As a seller, in order to ensure smooth settlement you should deliver the shares to your broker immediately after getting the contract note for sale but in any case before the pay-in day. Simliarly, as a buyer, one should pay immediately on the receipt of the contract note for purchase but in any case before the pay-in day. What is short selling?

Short selling is a legitimate trading strategy. It is a sale of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short sellers take the risk that they will be able to buy the stock at a more favourable price than the price at which they "sold short."

What

is

an

auction?

An auction is conducted for those securities that members fail to deliver/short deliver during pay-in. Three factors primarily give rise to an auction: short deliveries, un-rectified bad deliveries, un-rectified company objections. Is there a separate market for auctions?

The buy/sell auction for a capital market security is managed through the auction market. As opposed to the normal market where trade matching is an on-going process, the trade matching process for auction starts after the auction period is over. What happens if the shares are not bought in the auction?

If the shares are not bought at the auction i.e. if the shares are not offered for sale, the Exchange squares up the transaction as per SEBI guidelines. The transaction is squared up at the highest price from the relevant trading period till the auction day or at 20 per cent above the last available Closing price whichever is higher. The pay-in and pay-out of funds for auction square up is held along with the pay-out for the relevant auction. What is bad delivery?

SEBI has formulated uniform guidelines for good and bad delivery of documents. Bad delivery may pertain to a transfer deed being torn, mutilated, overwritten, defaced, or if there are spelling mistakes in the name of the company or the transfer. Bad delivery exists only when shares are transferred physically. In "Demat" bad delivery does not exist.

What

are

company

objections?

A list documenting reasons by a company for not transferring a share in the name of an investor is called company objections. Rejection occurs due to a signature difference, or fake shares, or forgery, or if there is a court injunction preventing the transfer of the shares. What should one do with company objections?

The broker must immediately be notified. Company objection cases should be reported within 12 months from the date of issue of the memo for the original quantity of share under objection. Who has to replace the shares in case of company objections? The member who has sold the shares first on the Exchange is responsible for replacing the shares within 21 days of the Exchange being informed. Company objection cases that are not rectified or replaced are normally auctioned. How does transfer of physical shares take place?

After a sale, the share certificate along with a proper transfer deed duly stamped and complete in all respects is sent to the company for transfer in the name of the buyer. Once the transfer is registered in the share transfer register maintained by the company, the process of transfer is complete.

BSE settlement cycle at a glance

Day Activity Monday to Friday Trading on BOLT and daily downloading of statement showing details of transactions Saturday Monday Wednesday Thursday and margin statement, at the end of each trading day. Carry Forward Session (for A Group Securities) and downloading of money statement. Marking the mode of delivery physical or demat Pay-in of physical securities.

Delivery of securities in the Clearing House as per prescribed time slots upto 1:00 p.m.only. Debiting of members bank accounts having payable position at 5:00 p.m. Reconciliation of securities delivered and amounts claimed.

Friday Saturday

Pay-out (Physical securities only) Funds pay-out

INTRODUCTION
The National Stock Exchange (NSE) is India's leading stock exchange covering around 400 cities and towns all over India. NSE introduced for the first time in India, fully automated screen based trading. It provides a modern, fully computerized trading system designed to offer investors across the length and breadth of the country a safe and easy way to invest or liquidate investments in securities. Sponsored by the industrial development bank of India, the NSE has been co-sponsored by other development/ public finance institutions, LIC, GIC, banks and other financial institutions such as SBI Capital Market, Stockholding corporation, Infrastructure leasing and finance and so on. India has had a history of stock exchanges limited in their operating jurisdiction to the cities in which they were set up. NSE started equity trading on November 3, 1994 and within a short span of 1 year became the largest exchange in India in terms of volumes transacted. Trading volumes in the equity segment have grown rapidly with average daily turnover increasing from Rs.7 crores in November 1994 to Rs.6797 crores in February 2001 with an average of 9.6 lakh trades on a daily basis.

During the year 2000-2001, NSE reported a turnover of Rs.13, 39,510 crores in the equities segment accounting for 45% of the total market. The NSE represented an attempt to overcome the fragmentation of regional markets by providing a screen-based system, which transcends geographical barriers. Having operationalised both the debt and equity markets, the NSE is planning for a derivative market, which will provide futures and options in equity. Its main objectives has been to set up comprehensive facilities for the entire range of securities under a single umbrella, namely, To set up a nation wide trading facility for equities, debt instruments and hybrids; To ensure equal access to investors across the country through an appropriate communication network; To provide a fair, efficient and transparent securities market to investors using systems; and To meet the current international standards prevalent in the securities Industry/markets. the electronic trading system; To ensure shorter settlement cycles and book entry settlement

Locations
One of the objectives of NSE was to provide a nationwide trading facility and to enable investors spread all over the country to have an equal access to NSE. NSE uses sophisticated telecommunication technology through which members can trade remotely from their offices located in any part of the country. NSE trading terminals are present in around 400 cities and towns all over India.

Listing
The prime objective of admission to dealings on the Exchange is to provide liquidity and marketability to securities as also to provide a mechanism for effective management of trading. Securities listed on the Exchange are required to fulfill the listing eligibility criteria. Various types of securities of a company are traded under a unique symbol and different series. This section provides a direct link to the web site of companies traded on the Exchange.

Constitution
The NSE has two segments for trading in securities: Wholesale Debt Market (WDM) and Capital Market (CM). Separate membership is required for each segment.

Trading members
They are recognized members of NSE. The persons eligible to become TMs are body corporates, subsidiaries of banks and financial institutions. They are selected on the basis of a comprehensive selection criterion. The whole time directors/dealers of thess

Trading mechanism
Rolling Settlement In 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. In NSE, the trades in rolling settlement are settled on a T+5 basis i.e. on the 5th working day. For arriving at the settlement day all intervening holidays, which include bank holidays, NSE holidays, Saturdays and Sundays are excluded. Typically trades taking place on Monday shall be settled on the next Monday, Tuesday's trades shall be settled on the next Tuesday and so on. Limited Physical Market Pursuant to SEBI guidelines, NSE introduced a new market called Limited Physical Market to provide a facility to small investors to trade and settle physical shares in those securities where compulsory dematerialized trading and settlement is enforced by SEBI. In this segment quantities not exceeding 500 shares of each security held in the name of the investor can be traded.

Institutional Segment Trading in this market segment is available for institutional investors only. In order to ensure that the overall FII ceiling limits are not violated, trading members are allowed to enter sell orders in this market segment only for their FII clients. However, members can enter buy orders on behalf of FII/FI clients. The settlement of transactions in this segment is in demat mode only. Trade for Trade Segment Trading in this segment is available only for those securities, which have not established connectivity with both the depositories as per SEBI directive. The list of these securities is notified by SEBI from time to time.

Trading System
NSE operates on the 'National Exchange for Automated Trading' (NEAT) system, a fully automated screen based trading system, which adopts the principle of an order driven market. NSE consciously opted in favour of an order driven system as opposed to a quote driven system. This has helped reduce jobbing spreads not only on NSE but in other exchanges as well, thus reducing transaction costs. Till the advent of NSE, an investor wanting to transact in a security not traded on the nearest exchange had to route orders through a series of correspondent brokers to the appropriate exchange. This resulted in a great deal of uncertainty and high transaction costs. NSE has made it possible for an investor to access the same market and order book, irrespective of location, at the same price and at the same cost. Market Types The NEAT system in NSE has four types of market. They are: Normal Market All orders which are of regular lot size or multiples thereof are traded in the Normal Market. For shares, which are traded in the compulsory dematerialized mode the market lot of these shares, is one. Normal market consists of various book types wherein orders are segregated as Regular lot orders, Special Term orders, and Negotiated Trade Orders and Stop Loss orders depending on their order attributes.

 Odd Lot Market All orders whose order size is less than the regular lot size are traded in the odd-lot market. An order is called an odd lot order if the order size is less than regular lot size. These orders do not have any special terms attributes attached to them. In an odd-lot market, both the price and quantity of both the orders (buy and sell) should exactly match for the trade to take place. Currently the odd lot market facility is used for the Limited Physical Market as per the SEBI directives. Spot Market Spot orders are similar to the normal market orders except that spot orders have different settlement periods vis--vis normal market. These orders do not have any special terms attributes attached to them. Currently the Spot Market is being used for the Automated Lending & Borrowing Mechanism (ALBM) session. Auction Market In the Auction Market, the Exchange on behalf of trading members for settlement related reasons initiates auctions.

There are 3 participants in this market. Initiator The party who initiates the auction process is called an initiator. Competitor The party who enters orders on the same side as of the initiator is called a Competitor. Solicitor The party who enters orders on the opposite side as of the initiator is called a Solicitor.

Order Books
The NSE trading system provides complete flexibility to members in the kinds of orders that can be placed by them. Orders are first numbered and time-stamped on receipt and then immediately processed for potential match. Every order has a distinctive order number and a unique time stamp on it. If a match is not found, then the orders are stored in different 'books'. Orders are stored in price-time priority in various books in the following sequence: Best Price- Price priority means that if two orders are entered into the system, the order having the best price gets the higher priority. Within Price, by time priority-Time priority means if two orders having the same price are entered, the order that is entered first gets the higher priority. The Capital Market segment has following types of books: 1. Regular Lot Book The Regular Lot Book contains all regular lot orders that have none of the following attributes attached to them. a) All or None (AON) b) Minimum Fill (MF) c) Stop Loss (SL) 2. Special Terms Book

The Special Terms book contains all orders that have either of the following terms attached: a) All or None (AON) b) Minimum Fill (MF) Note: Currently, special term orders i.e AON and MF are not available on the system as per the SEBI directives. 3. Negotiated Trade Book The Negotiated Trade book contains all negotiated order entries captured by the system before they have been matched against their counterparty trade entries. These entries are matched with identical counterparty entries only. It is to be noted that these entries contain a counter party code in addition to other order details. 4. Stop-Loss Book Stop Loss orders are stored in this book till the trigger price specified in the order is reached or surpassed. When the trigger price is reached or surpassed, the order is released in the Regular lot book. The stop loss condition is met under the following circumstances: Sell order - A sell order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or falls below the trigger price of the order.

Buy order - A buy order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or exceeds the trigger price of the order. 5. Odd Lot Book The Odd lot book contains all odd lot orders (orders with quantity less than marketable lot) in the system. The system attempts to match an active odd lot order against passive orders in the book. Currently, pursuant to a SEBI directive the Odd Lot Market is being used for orders which has a quantity less than or equal to 500 (Qty more than the market lot) for trading. This is referred as the Limited Physical Market (LPM). 6. Spot Book The Spot lot book contains all spot orders (orders having only the settlement period different) in the system. The system attempts to match an active spot lot order against the passive orders in the book. Currently the Spot Market book type is being used for conducting the Automated Lending & Borrowing Mechanism (ALBM) session. 7. Auction Book This book contains orders that are entered for all auctions. The matching process for auction orders in this book is initiated only at the end of the solicitor period.

Order Matching Rules The best buy order is matched with the best sell order. An order may match partially with another order resulting in multiple trades. For order matching, the best buy order is the one with the highest price and the best sell order is the one with the lowest price. This is because the system views all buy orders available from the point of view of a seller and all sell orders from the point of view of the buyers in the market. So, of all buy orders available in the market at any point of time, a seller would obviously like to sell at the highest possible buy price that is offered. Hence, the best buy order is the order with the highest price and the best sell order is the order with the lowest price. Members can proactively enter orders in the system, which will be displayed in the system till the full quantity is matched by one or more of counterorders and result into trade(s) or is cancelled by the member. Alternatively, members may be reactive and put in orders that match with existing orders in the system. Orders lying unmatched in the system are 'passive' orders and orders that come in to match the existing orders are called 'active' orders. Orders are always matched at the passive order price. This ensures that the earlier orders get priority over the orders that come in later. Order Conditions A Trading Member can enter various types of orders depending upon his/her requirements. These conditions are broadly classified into three categories: time related conditions, price-related conditions and quantity related conditions. For example

Time Conditions DAY - A Day order, as the name suggests, is an order which is valid for the day on which it is entered. If the order is not matched during the day, the order gets cancelled automatically at the end of the trading day. GTC - A Good Till Cancelled (GTC) order is an order that remains in the system until the Trading Member cancels it. It will therefore be able to span trading days if it does not get matched. The Exchange notifies the maximum number of days a GTC order can remain in the system from time to time. GTD - A Good Till Days/Date (GTD) order allows the Trading Member to specify the days/date up to which the order should stay in the system. At the end of this period the order will get flushed from the system. Each day/date counted is a calendar day and inclusive of holidays. The days/date counted are inclusive of the day/date on which the order is placed. The Exchange notifies the maximum number of days a GTD order can remain in the system from time to time. IOC - An Immediate or Cancel (IOC) order allows a Trading Member to buy or sell a security as soon as the order is released into the market, failing which the order will be removed from the market. Partial match is possible for the order, and the unmatched portion of the order is cancelled immediately.

 AON - All or None orders allow a Trading Member to impose the condition that only the full order should be matched against. This may be by way of multiple trades. If the full order is not matched it will stay in the books till matched or cancelled. Note: Currently, AON and MF orders are not available on the system as per SEBI directives.

Price Conditions Limit Price/Order An order, which allows the price to be specified while entering the order into the system. Market Price/Order An order to buy or sell securities at the best price obtainable at the time of entering the order. Stop Loss (SL) Price/Order The one which allows the Trading Member to place an order which gets activated only when the market price of the relevant security reaches or crosses a threshold price. Until then the order does not enter the market.

Sell order A sell order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or falls below the trigger price of the order. Buy order A buy order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or exceeds the trigger price of the order. e.g. If for stop loss buy order, the trigger is 93.00, the limit price is 95.00 and the market (last traded) price is 90.00, then this order is released into the system once the market price reaches or exceeds 93.00. This order is added to the regular lot book with time of triggering as the time stamp, as a limit order of 95.00 Quantity Conditions Disclosed Quantity (DQ)- An order with a DQ condition allows the Trading Member to disclose only a part of the order quantity to the market. For example, an order of 1000 with a disclosed quantity condition of 200 will mean that 200 is displayed to the market at a time. After this is traded, another 200 is automatically released and so on till the full order is executed. The Exchange may set a minimum disclosed quantity criteria from time to time. MF - Minimum Fill (MF) orders allow the Trading Member to specify the minimum quantity by which an order should be filled. For example, an order of 1000 units with minimum fill 200 will require that each trade be for at

least 200 units. In other words there will be a maximum of 5 trades of 200 each or a single trade of 1000. The Exchange may lay down norms of MF from time to time.

Trading Workstation The trader workstation is the terminal from which the member accesses the trading system. Each trader has a unique identification by way of Trading Member ID and User ID through which he is able to log on to the system for trading or inquiry purposes. A member can have several user IDs allotted to him by which he can have more than one employee using the system concurrently. The Exchange may also allow a Trading Member to set up a network of dealers in different cities all of whom are provided a connection to the NSE central computer. A Trading Member can define a hierarchy of users of the system with the Corporate Manager at the top followed by the Branch Manager and Dealers. Trader Workstation Screens The Trader Workstation screen of the Trading Member is divided into several major windows: Title Bar The title bar displays the current time, Trading system name and date.

Tool Bar A window with different icons which provides quick access to various functions such as Market By Order, Market By Price, Market Movement, Market Inquiry, Auction Inquiry, Snap Quote, Market Watch, Buy order entry, Sell order entry, Order Modification, Order Cancellation, Outstanding Orders, Order Status, Activity Log, Previous Trades, Net Position, Online Backup, Supplementary Menu, Security List and Help. All these functions are also available on the keyboard. Ticker Window The ticker displays information about a trade as and when it takes place. The user has the option to set-up the securities, which appear in the ticker. Market Watch Window The Market Watch window is the main area of focus for a Trading Member. The purpose of Market Watch is to view market information of pre-selected securities, which are of interest to the Trading Member. To monitor various securities, the trading member can set them up by typing the Security Descriptor consisting of a Symbol field and a Series field. Invoking the Security List and selecting the securities from the window can also set up securities. The Symbol field incorporates the Company name and the Series field captures the segment/instrument type. A third field indicates the market type. For each security in the Market Watch window, market information is dynamically updated on a real time basis. The market information displayed

is for the current best price orders available in the regular lot book. For each security, the corporate action indicator (e.g., Ex or cum dividend, interest, rights etc.), the total buy order quantity for the best buy price, best sell price, total sell order quantity for the best sell price, the Last Traded Price (LTP), the last traded price change indicator ('+' if last traded price is better than the previous last traded price and '-' if it is worse) and the no delivery indicators are displayed. If the security is suspended, "SUSPENDED" appears in front of the security.

On line index and Index Inquiry

With every trade in a security participating in Index, the user has the information on the current value of the Nifty. This value is displayed at the extreme right hand corner of the ticker window. Index Inquiry gives information on Close, Open, High, Low and current index values at the time of invoking this inquiry screen. Inquiry Window In this window, the inquiries such as Market by Order, Market by Price, Previous Trades, Outstanding Orders, Activity Log, Order Status and Market Inquiry can be viewed. Market By Order (MBO) The purpose of Market by Order is to enable the user to view outstanding orders in the trading books in the order of price/time priority. The information is displayed for each order. Stop Loss orders, which are not triggered will not be displayed on the window. Buy orders are displayed on the left side of the window and Sell orders on the right side. The orders are presented in a price/time priority with the "best priced" order at the top. Market by Price (MBP) The purpose of Market by Price is to enable the Trading Member to view aggregate orders waiting in the book at given prices. Previous Trades (PT)

The purpose of this window is to provide information to users for their own trade. Outstanding Orders (OO) The purpose of Outstanding Orders is to enable a Trading Member to view his/her own outstanding buy or sell orders for a security. An outstanding order will be an order that was entered by the user, but is not yet completely traded or cancelled.

Activity Log (AL) The Activity Log shows the activities, which have been performed on any order of the Trading Member such as whether, the order has been traded against fully or partially, it has been modified or has been cancelled. It displays information only of those orders in which some activity has taken place. It does not display orders, which have entered the books but have not been matched (fully or partially) or modified or cancelled.

Order Status (OS) Order Status enables the user to look into the status of a specific order. Current status of the order and other order details are displayed. In case the order is traded, the trade details are also displayed. Market Inquiry (MI) Market Inquiry enables the user to view the market statistics like Open, High, Low, Previous close, Last traded price change indicator, Last traded

quantity, date and time etc. A user may find inquiry screens like Market Movement, Most Active Securities and Net Position useful. These are available in the supplementary menu. Market Movement (MM) The Market Movement screen provides information to the user regarding the movement of a security for the current day. It gives details of the movement of the scrip for a time interval. The details include total buy and sell order quantity value, Open, High, Low, Last traded price etc. Most Active Securities This screen gives a list of the securities with the highest traded value during the day and the quantity traded for each of them. Net Position This functionality enables the user to interactively view his net position for all securities in which he has traded. Snap Quote The Snap Quote feature allows a Trading Member to get instantaneous market information on any desired security. This is normally used for securities which are not already on display in the Market Watch window. The information presented is the same as that of Market Watch window. Order/Trade Window Order entry mechanisms enable the Trading Member to place orders in the market. The system will request re-confirmation of an order so that the user

is cautioned before the order is finally released into the market. Orders once placed on the system can be modified or cancelled till they are matched. Once orders are matched they cannot be modified or cancelled. There is a facility to generate online order/trade confirmation slips as soon as an order is placed or a trading is done. The order confirmation slip contains among other things, order no., security name, price, quantity, order conditions like disclosed or minimum fill quantity etc. The trade confirmation slip contains the order and trade no., date, trade time, price and quantity traded, amount etc. Orders and trades are identified and linked by unique numbers so that the investor can check his order and trade details.

Systems Message Window This window is used to view messages from the Exchange to all specific Trading Members.

Supplementary Menu Some of the supplementary features in the NEAT system are: On line back up An on line back up facility is provided which the user can invoke to take a back up of all order and trade related information. There is an option to copy the file to any drive of the computer or on a floppy diskette. Trading members find this convenient in their back office work.

Off Line Order Entry A member is able to make an order entry in the batch mode. Computer-to-Computer Link (CTCL) Facility NSE offers a facility to its trading members by which members can use their own trading front-end software in order to trade on the NSE trading system. This Computer-to-Computer Link (CTCL) facility is available only to trading members of NSE. Through CTCL facility Trading Members can use their own software running on any suitable hardware/software platform of their choice. This software would be a replacement of the NEAT front-end software that is currently used by members to trade on the NSE trading system. Members can use software customized to meet their specialized needs like provision of on-line trade analysis, risk management tools, integration of back-office operations etc. The dealers of the member may trade using the software remotely through the member's own private network, subject to approvals from Department of Telecommunication etc. as may be required in this regard.

National Securities Clearing Corporation Limited

National Securities Clearing Corporation Ltd. (NSCCL), a wholly owned subsidiary and settlement of securities; promoting and maintaining, short and consistent settlement cycles; to provide counter-party risk guarantee, and to operate a tight risk containment system. It assumes the counter-party risk of each member and guarantees financial settlement. It has successfully brought about an up-gradation of the clearing and settlement procedures and has brought Indian financial markets in line with international markets. NSCCL carries out the clearing and settlement of the trades executed in the Equities and Derivatives segments and operates Subsidiary General Ledger (SGL) for settlement of trades in government securities. It also undertakes settlement of transactions on other stock exchanges like, the Over the Counter Exchange of India. NSCCL assumes the counter-party risk of each member and guarantees settlement through a fine-tuned risk management system and an innovative method of on-line position monitoring. It operates a well-defined settlement cycle and there are no deviations or deferments from this cycle. It aggregates trades over a trading period, nets the positions to determine the liabilities of members and ensures movement of funds and securities to meet respective liabilities. It provides a facility for multiple settlement mechanisms including, account period settlement for dealings in physical securities and dematerialized securities, rolling settlement (T+5 basis) in dematerialized segment etc. NSCCL has empanelled 9 clearing banks to provide banking services to trading members and has established connectivity with both the depositories for electronic settlement of securities.

BADLA TRADING Badla is a complex system that contains many a pitfall for the uninitiated and the unwary. Investors need to be aware of the problems, especially when brokers on BSE and other regional stock exchanges are marketing vyaj badla schemes to their clients aggressively. Before an investor start believing in the stories of superlative returns (in excess of 20 per cent), coupled with liquidity, safety and flexibility, it is imperative that one takes a hard, rational look at the entire mechanism. This is so because financing badla is a definite no-no for the first-time investor in the stock market and also for those who don't have the time to constantly monitor the status of his/her investments and fluctuations in the market returns. Vyaj Badla In the vyaj badla system, there was a very high chance that an investor may end up with an average annual return of 14-18 per cent or sometimes even higher. But having said that, unfortunately, the returns were not guaranteed. This rosy picture could well be a reality during a bull run, but when the market was under a bear hug, returns could diminish to just around 6-8 per cent a year. Comparing it with a steady 12 per cent annual return offered by a bank fixed deposit or any AAA rated corporate bandit seemed that The high-risk and uncertain return of vyaj badla would start looking like a bad investment option.

And then the taxman cometh! Vyaj badla transactions began to be treated as purchase and sale of shares, thus getting subjected to capital gains tax of 30 per cent. Thus, an investors final returns get lopped off to that extent. Although nay Sayers might feel that vyaj badla provides an investor with an opportunity to maximize his earnings in a bull market, the fact remains that it is a good option for the experienced investor. Else, the nerve-wracking tension that accompanies stock market fluctuations may well take its toll. How did the Badla function? Assume that there had been 12 trades of 100 shares each in "ABC" stock, and there are 12 separate buyers and sellers respectively. Among the buyers, while six wanted to carry forward their positions, six want to take delivery. Of the sellers, eight wished to deliver the shares while four were keen on carrying their positions forward. Now six buyers made the payment for their purchases, while eight sellers affect delivery. Six buyers and six sellers got squared off. Four "buy" carry-forward positions get matched against four "sell" carry-forward positions. To ensure payment to the remaining two sellers for their 200 shares, vyaj badla financiers came in. This financier charged interest (badla) for the money paid on behalf of the two buyers for them. The demand and supply of funds and shares determined this rate. Shares delivered by the seller were kept by the exchange in the clearing-house and allocated to the financier's broker in a special account, forming the financier's collateral. On the BSE, brokers who were sure of taking or making delivery of shares mark their respective "for delivery" positions. This helped the exchange to

arrive at the net outstanding positions on Friday evening (the last day of the settlement on BSE), by deducting them from the broker's weekly out standings. The difference is thrown open to the market's badla trading session on Saturday. Prior to the commencement of this session, the base price (hawala rate) is fixed, which the closing price of the scrip was normally on Friday. An outstanding "buy" position in a stock sees a "seedha badla" where the financiers participate. An outstanding "sell" position in the stock sees an "ulta" or "undha badla" where the stock lenders participate. Specified quantities of the stock on offer are bought and sold at the financier's desired interest rate - the badla rate. In this case, let's assume the hawala rate to be Rs. 69. If the financier wants to pay for 100 shares at 20 per cent per annum and the trade gets matched, the interest rate is converted into a weekly figure. In this case, it would be 0.38 per cent. On the hawala rate of Rs 69, this 0.38 percent works out to 26 paise. The terminals would constantly keep flashing the best badla rate and the best annual yield for each stock on offer for a particular quantity. A constant fluctuation in these values during the two-and-a-half hour session is due to the constant change in demand and supply, and also market perception. The broker would give the financier a badla bill or informal contract note, which would have two entries. One would show a purchase of 100 shares at Rs 69 per share, while the other would show a sale of 100 shares at Rs 69.26 per share. The difference will be the financiers earning for that week. With the next trading cycle ending, the financier can either receive the difference or roll over his/her money to a new badla transaction.

Who can participate? Not all brokers can participate in the badla process. Memberships on BSE are split between type-I and type-II brokers. Only the former can carry out badla trades, for they maintain higher margins with the exchange. Hence, if you are keen on becoming a vyaj badla financier, you should approach the type-I broker. Most brokers don't accept anything less than Rs 1 lakh per client for badla financing. And the stock selection too is at their discretion. But it would be prudent for you to know the basis of allocation of stocks to you, as you would be one among a lot of clients whose money has been collectively invested in vyaj badla. Badla rates vary between stocks, depending upon their demand and supply. These rates fluctuate considerably throughout the session. Ideally, brokers using the discretionary allocation of stocks to the badla account should pay a weighted average return to each client. This should be reflected in the badla bills. For getting the weighted average return on badla finance, it is advisable to look for brokers who have automated this process. As in any other market transaction, one cannot avoid brokerage in a vyaj badla transaction too. Brokerage for such deals could range between 1-2.5 per cent, trimming down your annual yield further. It is advisable to enter into a firm brokerage percentage prior to the commencement of the relationship.

Are investors safe? What is the investors safeguard in times of default? If the forward buyer defaults, he got the shares held in the exchange's clearinghouse against his brokers name, on which he had a lien through his Badla bill. But his risk erosioned in the value of the share during the days that it takes to release the shares. In the recent history of BSE, there have been instances of brokers (having large carry-forward positions in highly speculative stocks) defaulting. Although these shares were enjoying very high badla rates at the time of the default, the prices had dipped sharply by the time the financiers got their shares. If the broker defaults, the financier is in a larger mess. Apart from the large institutional brokers, most brokers on BSE have a net worth of Rs 1-2 crore. Badla positions taken by them sometimes go up to 15-20 times their net worth. Even a 10 per cent downward shift in their position would wipe out the broker's entire net worth. And then you could bid goodbye to your money too. The BSE's Trade Guarantee Fund could be of some succour and solace in these situations, but just that. Failure to cash in on your interest gain at the end of the trading cycle gives the confidence to your broker to automatically roll over your investment to the next cycle. While opting out, always time your exit. By virtue of the exchange's settlement cycle, your money gets released within a ten-day period. This further reduces your yield.

As in the case of defaults, the delay in the release of your money can be detrimental. So factor in those extra days while calculating your actual return. Although vyaj badla is considered to be an effective short-term instrument, as is the case with all such instruments, the delay can really eat into your returns. Given the quirks of the vyaj badla transactions and the inherent risks involved, it can be concluded that amateurs should stay away it is strictly for the pro and the strong hearted. Substitutes to Badla Financial derivatives By far the most significant event in finance during the past decade has been the extraordinary development and expansion of financial derivatives... These instruments enhance the ability to differentiate risk and allocate it to those investors most able and willing to take it -- a process that has undoubtedly improved national productivity growth and standards of living. -- Fed Chairman Alan Greenspan Following the introduction of index futures, the Securities and Exchange Board of India (SEBI) permitted the BSE and the NSE to introduce more derivatives, such as options on indices and individual stocks. But an instrument that may be more in line with the domestic market structure -single-stock futures -- is not under consideration. Single-stock futures are a way to reap the benefits of a stock's performance without actually owning the stock. Theoretically, they offer the benefits of

ownership, of leveraging the stock or its underlying asset. But a similar opportunity is not available to the speculator-investor to sell options in the underlying scrip. As delivery of futures contracts is on a future date, the investor has to put up only the margin money. Hence, he can leverage on the margins to buy more units of the underlying security. One of the advantages enjoyed by single-stock futures is that they are cheaper to trade and easier to use for hedging strategies than options. Cheaper, because margins in futures trading are lower than in options. But the valuations of futures contracts are not as complicated as that of options. Hence, small investors find them relatively easy to understand and use. Trading options: Trading options are riskier than futures. This is purely from the optionswriter's perspective. Market making in options depends to a great extent on institutions willing to write the contracts. Since the buyer of an option contract is not under any obligation to exercise his right, his risk is limited to the premium paid for purchasing the right. However, the writer is under an obligation to deliver. This means the risk borne by the option-writer is enormous. Exchanges normally guarantee the writer's position. Hence, to limit default in the market, the margin requirements are quite high. For instance, in international markets, while the margin rate for index futures contracts is around 5 per cent, that for index options works out to the commission received plus around 15 per cent of the contract's notional value.

Thus, in this situation, there is excessive risk for the options-writer and transactions costs could be high. Currently, the regulations prevent funds from taking speculative positions in the spot market. So, they may not be allowed to write options. A market exists only if there is a writer and a buyer. But given that there are few takers for the futures market, it is difficult to foresee a lot of interest in the options market.

NSE settlement cycle at a glance

Date 1-7 8 13 14 15 17 18 20 22 23 24 Particulars Wednesday-Tuesday Wednesday Monday Tuesday Wednesday Friday Saturday Monday Wednesday Thursday Friday Activity Trading Period Custodians report trades which they will not settle.Such trades will be added to the member obligation. Pay-in of securities, delivery of documents by the delivery members at the Clearing House. Pay-in funds by members through the Clearing

Bank.Shortage identification at Clearing House. Pay-out day for Securities and Funds. Auction for shortages. Auction pay-in day for Securities and Funds. Bad delivery reporting by the receiving member to the Clearing House and intimation to the delivering member. Auction pay-out. Pick-up of bad deliveries for rectification. Bad delivery rectification/replacement by the delivering member. Auction for bad delivery not rectified/replaced. Bad delivery auction pay-in. Bad delivery auction pay-out.