Bombay Stock Exchange Limited

T h e E d g e i s E f f i c i e n c y

INTRODUCTION

The stock exchange, Mumbai popularly known, as Bombay

Stock Exchange Limited is the oldest stock exchange in Asia with a

rich heritage. It was established as "The Native Share & Stock

Brokers Association" in 1875. It is the first stock exchange in the

country to obtain permanent recognition in 1956 from the Govt. of

India under the Securities Contracts (Regulation) Act, 1956. The

Exchange's pivotal and pre-eminent role in the development of the

Indian capital market is widely recognized and its index, SENSEX, is

tracked worldwide. Earlier an Association of Persons (AOP), the

Exchange is now a demutualised and corporatised entity

incorporated under the provisions of the Companies Act, 1956,

pursuant to BES (Corporatisation and Demutualisation) Scheme,

2005 notified by the Securities and Exchange Board of India (SEBI)

With demutualisation, the trading rights and ownership rights

have been delinked effectively addressing concerns regarding

perceived and real conflicts of interest. The Exchange is

professionally managed under the overall direction of the Board of

Directors. The Board comprises eminent professionals,

representatives of Trading members and the managing Director of

the Exchange. The Board is inclusive and is designed to benefit

from the participation of market intermediaries.

In terms of organization structure, the Board formulates larger

policy issues and exercises over-all control. The committees

constituted by the Board are board based. The Day-to-Day

operations of the Exchange are managed by the Managing Director

and a management team of professionals.

The Exchange has a Nation wide reach with a presence in 417

cities and towns of India. The systems and processes of the

Exchange are designed to safeguard the market integrity and

enhance transparency in operations. During the year 2005-2006, the

trading volumes on the Exchange showed robust growth. The

Exchange provides an efficient and transparent market for trading in

equity, debt instruments and derivatives. The BSE's Online Trading

System (BOLT) is a proprietary system of Exchange and is BS

7799-2-2002 certified. The surveillance and clearing & settlement

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functions of the Exchange are ISO 9001:2000 certified.

The Stock Exchange, Mumbai is not in any manner

answerable, responsible or liable to any person or persons for any

acts of omission or commission, errors, mistakes and or violation

actual or perceived, by us or our partners, agents, associates, etc.,

of any of the rules, regulations, Bye-Laws of the Stock Exchange,

Mumbai, SEBI Act or any other laws in force from time to time. The

Stock exchange, Mumbai is not answerable, responsible or liable for

any information on this website or for any services rendered by us,

our employees and our servants.

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THE ORGANIZATION

The national stock exchange of India Limited has genesis in

the report of the High Powered Study Group on establishment of

new stock exchanges, which recommended promotion of a national

stock exchange by financial institutions (FIS) to provide access to

investors from all across the country on an equal footing. Based on

the recommendations, NSE was promoted by leading financial

institutions at the behest of the Government of India and was

incorporated in November 1992 as a tax paying company, unlike

other stock exchanges in the country.

On its recognition as a stock exchange under the securities

contracts (regulations) Act, 1956 in April 1993, NSE commenced

operations in the wholesale debt market (WDM) segment in June

1994. The capital market (Equities) segment commenced operations

in November 1994 and operations in derivatives segment

commenced in June 2000.

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DEFINITIONS AND EXPLANATIONS

1. Shares:-

In every day language, when we talk of shares we

normally refer to equity shares or ordinary shares of a company. The

terms shares and stock essentially means the same things, the letter

being a more common American usage.

An equity share is evidence of ownership in a

company. The physical evidence of this ownership of this document

is called the Share Certificate. Now days, shares are usually kept in

electronic, or dematerialized, form with a depository participant

(Banks, brokers, financial institutions) of the National Securities

Depository Limited (NSDL). However, if one wants one can still hold

the share in the physical form which has your name endorsed on it,

and is proved that you are a part owner of the company. Your

ownership rights are proportionate to the number of share you own.

Companies issue shares of a certain fixed denomination, called face

value or par value of that share, which is clearly indicated on a

share certificate in the physical form.

2. Investment: -

Investment essentially refers to what you do with

your savings in order to preserve them and make them grow or yield

an income. If you keep your savings in the form of cash, they are

certainly going to diminish in value because the purchasing power of

money is constantly going down as a result of inflation. (The value of

money is judged by the quantity of goods and services you can buy

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with it). Therefore, if you want to maintain or increase the value of

your savings, you have to keep them in forms other than cash. This

is what investment is all about, deployment of your saving with the

intentions of preserving or increasing their value. This deployment

can be done by using your savings to buy land, residential

properties, commercial properties, gold, jewelry, works of art, fixed

deposits in banks and companies, shares, bonds, infact, anything

whose value is likely to either remain constant or appreciate with

time. Investment also refer to using one's savings with the intention

of earning an income.

3. Demate A/c:-

On doing an online business ever customer has to

open and demate account in any bank whichever he likes. Demate

account is the account in which the trading done by the customer is

mentioned. If the customer sales or purchases any share the details

of this sale and purchasing are in demate account. This account

contents the name of the shares and also the number of shares held

or sold and also the rate of the share with this demate account. It is

also compulsory for every customer to open a saving account in the

bank because the amount which is to be received when the

customers sales the shares are transferred from the demate account

to the saving account.

It is the responsibility of the customers that the

share which he purchased or sales are properly transferred in

demate account from the stock exchange whichever he deals. The

amount of dividend whichever to be received on the shares when

held for one or more year are also transferred in this demate

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account. It is compulsory for every customer to have a PAN no. For

opening an demate account. If PAN no. Is not there is no chance for

the customer to do any trading on line. There is no limit of amount to

deal in this account.

4. Circuit Limit:-

While issuing the shares to the public the company

has to fix a particular limit of the rate of the per share this limit is

called as circuit limit. This circuit limit is generally fixed on the

percentage basis. This circuit limit is applied to both the ends of the

share. That is to the upper limit also and also to the lower limit

actually circuit limit is of two types

1) Upper limit

2) Lower limit

It is compulsory for every company to fix the circuit

limit. This limit is beneficial to both. The customer and also to the

company generally every company fix below 10%of the rate of per

share.

5.Upper Limit: -

While issuing the shares to the public the company

has to fix the upper limit this limit is also calculated in percentage

the limit is also beyond which the rate of the shares cannot exceed

nor that the customer doing the trading can sell above the level.

For ex. Customer wants to sell a share which is of

Rs10 and its upper limit is fixed at 10% so in this case the person

will have to sell it at Rs11 or the rate which ever he wants but the

person cannot sell it beyond this Rs 11 because by addition of upper

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limit to the rate of share the maximum amount of the shares is Rs 11

only and not above.

6.Lower Limit: -

At the time of issuing share the company has to fix

the lower limit also. This lower limit is calculated on the basis of the

rate of the shares. This limit bears the same percentage, which is

mentioned for the upper limit of the share. Like upper limit in this

limit also the share minimum rate of the share is fixed the customer

who wants to se; the holding shares has to first consider the upper&

lower limit of the share he cannot sell the share below the lower limit

and not above the upper limit like the upper limit

Percentage generally in this limit also the percentage is below 10%

of the face value of the shares the percentage is below 10% of the

face value of the shares the percentage of the upper &lower limit is

equal to every type of share

For ex. Suppose the person wants to sell the shares and

the rate of the share is Rs. 10/- and the lower limit percentage is 10% of

the rate. So in this case the person cannot sell the share at below Rs. 9/-.

He will have to sell at above Rs. 9/- or up to the upper limit of the share.

7. Sensex:-

When the shares are issued to the public the stock

exchange gives a particular group to the company. For ex. The

Reliance Group is given the group “A” like this there are several

companies which fall in “A” Group. The weightage mean is

calculated according to its equity when all the companies of Group

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“A” has calculated this weightage mean they are added all together

when this addition is done the result which comes down is known as

“Sensex”.

The trading of shares of “A” group is totally

depended on this sensex value. The price of the share rises this

sensex value also rises and when the price of this share comes

down the sensex value also comes down. With the sensex value the

investors can know that the share market is in plus position or minus

position.

8. Scripts:-

The company, which has more than one working

area, it has to issue the share separately than that company is the

company which has the script of its name.

For Ex. The Reliance this company has its several

working area Namely Reliance, Capital Reliance, Infocom Reliance

Energy, Reliance Industry. So reliance company issues separate

share for separate working area but the bold name which is given to

the working area is “Reliance”. So in this case Reliance has its own

scripts. Other example Ambuja, Birla, Etc.

9. Groups:-

When the shares are issued by the company they

are given the particular group by the Stock exchange according to

its demand in the market. There are mainly 7 groups known as:-

i. Group “A”

ii. Group “B”

iii. Group “C”

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iv. Group “K”

v. Group “T”

vi. Group “TS”

vii. Group “Z”

The company which are in great demand is given

as Group “A” company. And the company which are not in so

demand are given in other group. This means that the companies

are given the group according to its demand.

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BUYING AND SELLING

The first step is to open a demate account with your selected

Depository Participants (DP). All transactions on both the BSE and

NSE are done in demate securities.

When you buy shares, you are required to pay money to your

broker or sub-broker immediately upon getting the contract

note/confirmation memo for the purchase of shares. The broker

issue as contract note, whereas sub-broker issues a confirmation

memo. Similarly, when you sale shares you are required to give

delivery of your shares by transferring them to the demate account

of your broker/sub-broker immediately upon getting the contract note

or confirmation memo. When you buy the shares then the share you

have purchased will come first to demate account of your

broker/sub-broker. Once this happens, you can instruct your

broker/sub-broker to transfer those shares to your demate account

for receiving shares in your demate account you will have to give

your broker or sub-broker the details regarding your demate

account.

When you sale shares you are required to give delivery of

share from your demate account by instructing your DP to transfer

the number of shares that you have sold from your account to the

demate account of your broker. In this regard, you will be required to

include the details of the demate account of your broker in the

instruction slip that you give to your DP. Your broker or sub-broker

will help you to fill in the delivery instructions. These instructions are

of a technical nature and the delivery instruction forms and

procedures differ from DP to DP.

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PROCEDURE FOR REGISTRATION

For registration, send your name, address, phone no. and E-

Mail ID, package name and duration of your subscription with

payment details like DD, Cheque no., or online fund transfer detail.

Mode of payment:-

Pay us buy cheque or demand draft or pay for our

services to I.C.I.C.I bank. For more details E-Mail at

Shares@Indiaoye.com

DEALING THROUGH NSE TRADING MEMBER/SEBI

REGISTERED SUB-BROKER

1. Where do I go for buying/selling of shares?

To buy or sale securities you could approach either SEBI

registered trading member of the NSE or SEBI

registered Sub-broker of the trading member of the NSE.

2. What care should I take while investing?

Before making any investment, you must ensure that

you:

Obtain written documents explaining the investment

Read and understand such documents,

Verify the legitimacy of the investment,

Find out the costs and benefits associated with the

investment,

Assess risk return profile of the investment,

Ascertain if it is appropriate for your specific goals,

Compares these details other investment opportunities

available,

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Examine if it fits with other investments you are

considering or you have already made,

Deal only through an authorized intermediary,

Seek all clarifications about the intermediary and the

investment,

Explore the options available to you if something goes

wrong and then if satisfied make the investment.

We call this the 12 step to investing.

3. Why I should trade on Stock Exchange?

Any trade in securities outside stock exchanges other

than spot transactions are illegal. Hence, you do not get

any protection if you trade outside an exchange besides

the stock exchange NSE offers a ready market for your

securities. If you are trading outside and exchange you

have to waste considerable time to find out the right

person who is willing to undertake a corresponding

transaction with you. Other benefits of trading on an

exchange include you have to right to receive the best

price prevailing at that time for the trade you do not take

counter party risk which is assumed by a clearing

corporation you have accessed to the investor

grievances redressal mechanism of stock exchanges;

you have protection upto a limit from the investor

protection fund and you have access to all company

related information to enable an inform decision, etc.

4. Is it necessary to deal with a semi registered brokers/sub-

broker/NSE trading member?

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You are advised to deal with registered intermediaries as

it ensures speedy settlement as well as speedy dispute

resolution mechanism. The exchange can ensure the

settlement and handle dispute/claims arising out of only

those trades which are executed on NSE through

registered trading members/registered sub-brokers.

Thus, incase of any trade executed through non-NSE

entity, the investor may not be able to approach the

investor grievances cell of the exchange. In case of non-

settlement or a dispute arising out of same.

5. How do I verify the authenticity and the conduct of trading

member/sub-broker?

All the SBI registered trading member/sub-brokers

get the SBI registration certificate/no. You may ask

the trading member to furnish the same document

to verify the antecedents of the person. You may

verify the authenticity and the validity of the

registration with the exchange or from the

exchange, web site

WWW.NSEINDIA.COM/content/members/mem_dir

ectory.html. Generally reputation of a trading

member/sub-broker can be known from the

existing clients besides the exchange issues press

release as and when approves the surrender

application of any trade member and also when it

expels any trading member or declares any trading

member a defaulter.

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6. What are my general rights and obligations?

As an investor you have the right to receive all

documents evidencing your investment if you are

trading on NSE, you should get the price at that

point of time and receive money and securities in

time. Your general obligations are to remain

informed about the intermediaries and securities

you are dealing with/in, to pay/deliver

funds/securities as and when called upon, to

exercise all rights conferred on you and to remain

vigilant.

REGISTRATION AS A CLIENT

7. What are the formalities for registration as a client for NSE

trading member/sub-broker?

You (clients) should register yourself with

registration trading member/sub-broker Rs. By:-

Filing a client registration form.

Signing a member constituent agreement.

Signing a sub-broker-client agreement, if dealing through

a sub-broker.

Obtaining a copy of the above agreement for one’s own

record.

The member-constituent agreement/sub-broker

client agreement contains the terms and conditions

including order/trade, confirmation, brokerage

charged by trading member/registered sub-broker,

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delivery of securities and funds and therefore helps

reduced the chance of dispute. This agreement is

mandatory for all the person registering as a new

client of a NSE trading member/SEBI registered

sub-broker. On registration with a trading member

or a sub-broker, an uniform and unique client-ID

needs to be obtained, which is required to be

incorporated in all transactions on NSE.

8. What check points/precautions should one take before

signing the member-constituent agreement/sub-broker-

client agreement? What are my general rights and

obligations?

As an investor you have the right to receive all

documents evidencing your investment if you are

trading on NSE, you should get the best price at

that point of time and receive money and securities

in time. Your general obligations are to remain

informed about the intermediary and securities you

are dealing with/in, to pay deliver funds/securities

as and when called upon, to exercise all rights

conferred on you and to remain vigilant registration

as a client.

One should read the various terms and conditions

carefully and understand their implications before

entering into this agreement with the trading

member/registered broker.

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A check should be done whether the agreement is

on the stamp paper of requisite value and whether

the stamp paper is valid. Date of agreement should

be within the validity period of the stamp paper.

The clients name and the name of the trading

member/sub-broker should be clearly mentioned in

the agreement. All the pages of the agreement

should be duly signed by the trading member as

well as the client (Investor). The witness should

also put their names and addresses against their

signature.

The investors (client) should check whether the

trading/registered sub-broker or the

representatives have the authority (such as board

resolution, power of attorney, etc.) to sign the

member-constituent agreement/sub-broker-client

agreement.

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PERFORMANCE OF COMPANIES

9. How do I know of the performance of the companies whose

securities I want to trade in?

There are no. of sources where information about

the company can be received. In terms of listing

agreement, the companies are required to make

continuous disclosures about the price sensitive

information. These disclosures are disseminated

through the website of the exchangers. Besides,

SEBI provides EDIFAR (Electronic Data

Information Filing And Retrieval System), which

contain the information about (i) financial

statement comprising of balance sheets, profit and

loss a/c and full version of the annual report, half

yearly financial statements, (ii) corporate

governance reports (iii) share holding pattern and

(iv) action against the company by a regulatory

body. Apart from the above the detail of the

company are also available with the various

market participants and numerous public online

sites. News magazines also carry out analysis of

the companies periodically.

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TRADING RELATED ISSUES

GIVING PURCHASE/SALE INSTRUCTIONS

10. How do I give sale/purchase instructions to my trading

member/registered sub-broker?

A trading member will have to communicated the

order instruction in writing. The order instructions

should clearly indicate the security name weather

the order is for buy or sell, the quantity for each of

the security, rate specifications, and other relevant

instructions. This reduces chances of

miscommunication between the client (investors)

and the trading member/registered sub-broker at

the time of placing the deals on behalf the client.

You are advised to quote your uniform and unique

client id, while communicating with the trading

member or the sub-broker.

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PRICE AT WHICH TRADED

11. What is price time priority?

The system arranges all orders in the priority of

price and within price by time. You have, let us say

placed buy order for hundred shares of company A

at Rs.285/- and another investor has placed a buy

order at Rs.290/-, than any one who places a sell

order in company A will be first matched with the

buy order of 2nd investor as he has given a

better price. This is price priority. Let us say both of

you have quoted Rs.285/- as the price at which

you want to buy shares of company A, than sell

order which comes in to the system at this price

will be matched against the order which was

placed first.

12. How do I know my tm has given me the best price?

The NSE trading system matches order Rs. In

such a way that the order gets executed at a price

which is either equal to or better than the specified

price but never worse than it. Therefore, if you

have given an order for selling 100 shares at the

rate of Rs.50/-,your order will be traded in the

system in such a way that you will et a sale price of

Rs.50,or more but never the less. Similarly, if you

have given an order for buying 100 shares at the

rate of Rs.50, your order will be traded in the

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system in such a way that you will get a buy price

of Rs.50or less but never come.

13. How do I know that the broker has given me the correct

price?

Regulations provide that the client receives a

contract note indicating details like order number,

trade number, time, price, brokerage, etc. within 24

hours of the trade. In case of any doubts about the

details of the contract note, you(investor)can avail

the facility provided by NSE, wherein you can

verify the traders on your website

WWW.NSEINDIA.COM

/content/equities/eq_trdverify.htm. The exchange

generates and maintains an audit trail of

orders/trades for a no. of years and you can

counter check details of order /trade with the

exchange .

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CONTRACT NOTE

14. What is a contract note? What is its need? What is

important in contract note?

Contract note is a confirmation of trades done on a

particular day on behalf of the client. It establishes

a legally enforceable relationship between the

client and the trading member with respect to the

settlement of the trades. It also helps to settle

disputes/claim/differences in terms of the contract

note. It is a prerequisite for filling a complaint or

arbitration proceeding against the trading

member/sub-broker in case of a dispute. A valid

contract note should be in the prescribed form

contains the details of trades, stamped with

requisites value and duly signed by the authorized

signatory.

Contract notes are made in duplicate,

the trading members and the client should keep

one copy each. After verifying the details contained

therein, the client keeps the one copy and returns

the 2nd copy to the trading member duly

acknowledge by him. Do not accept

unsigned/duplicate contract note confirmation

memo or contract not confirmation memo signed

by any authorized person.

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15. Will a contract note be issued even if the trade has been

executed through a registered sub-broker?

In case of a deal executed through a

registered sub-broker, the sub-broker is

required to issue purchase/sale notes to the

client (investor). However, the trading

member would issue to the registered sub-

broker back to back contract notes giving the

details of all transaction done by the sub-

broker through the trading members

terminal.

16. What if the details contained in the contract/purchase/sale

notes are incorrect or the notes include some transaction

not pertaining to my order /trades?

Counter-check the details contained in the

contract note purchase/sale notes with those

on the order and trade confirmation slip.

Check whether the order number, trade

number and other details on the trade

confirmation slip match with those on

contract/purchase /sale notes. In case

discrepancy, bring the same to the notice of

the notice of the trading member /registered

sub-broker immediately by way of written

communication.

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17. What are the points to be checked by an investor to check

the validity of a contract?

To ensure that the contract note issued to

you by the trading member is a valid one,

you must verify the following details:

The contract note in the prescribed format

(annexure).

Name and address of the trading member.

SEBI registration no. of the trading member.

Details of trade like order no., trade no.,

trade time security name, quantity, price,

brokerage, client code,etc.

The trade price should be separately shown

from the brokerage charged.

Signature of the authorized person.

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BROKERAGE

18. What is the brokerage chargeable?

As stipulated by SEBI, the maximum

brokerage chargeable by a trading member

in respect of traders executed on the

exchange is fixed at 25% of the contract

price. This maximum brokerage is inclusive

of the brokerage charged by sub-broker

which shall not exceed 15% of the contract

price. Apart from the above, the trading

member can charge statutory levies.

19. What documents should I receive from the trading member

in respect of trade?

After the order/trade is placed/executed you

(investor) should receive an order/trade

confirmation slip from the trading member,

within 24 hours of the execution of trade, you

should also receive a contract note from the

trading member. Receipts of all the monies

paid to the brokers specifying the nature of

payment should also be obtained from the

trading member.

In case of derivates obtain receipt for

collateral deposited with Trading Member

(TM) towards margin.

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DEMATE SETTLEMENT

20. What is the depositary?

A depositary is like a bank wherein the

deposits are securities (viz., shares,

debentures, bonds, govt.securities, units

etc.) in electronic form. Besides holding

securities, a depositary also provides

services related to transaction in securities.

21. Who is Depositary Participant (DP)?

Depositary provides its services to investors

through its agents called Depositary

Participant (DPs). These agents are

appointed by the depositary with the

approval of SEBI. According to SEBI

regulations, amongst others, three

categories of entities i.e. Banks, Financial

Institutions, and Members Of Stock

Exchanges registered with SEBI(TMs) can

become DPs.

22. What is dematerialization?

Dematerialization is the process by which

physical certificates of an investor are

converted to an equivalent number of

securities in electronic form and credited in

the investors account with his DP.

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23. What is the procedure for dematerialization?

In order to dematerialize certificates, you will

have to first open an account with DP and

then request for the dematerialization of

request form (DRF), which is available with

DP and submitting the same alongwith the

physical certificates. Ensure that the

certificates are defaced by marking

“Surrendered for dematerialization” on the

face of the certificate before the certificate

are handed over to the DP.

24. Why should I hold securities in depository and is it

compulsory for every inventory to open a depository

account to trade in capital market?

Holding securities in depository enables

immediate transfer of securities in case of

purchases. The stamp duty to be paid on

transfer of securities is not needed, all risks

associated with physical certificates like fake

securities, forgery, bad delivery, etc. is not

involved. Also since more than 99% of the

settlement at the stock exchanges is taking

place in demate form, it is advisable that

securities be held in demate form within DP.

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25. How do I receive demate shares in my account towards my

purchase transaction and pay-in demate shares towards

my sale obligation?

For receiving demate securities in case of

purchase made you may give a one time

standing instruction to your DP. This

standing instruction can be given at the time

of account opening or later. Alternatively, you

may choose to give a separate receipt

instruction to your DP for receiving every

credit. For pay-in obligations, you should

instruct your DP to give ‘Delivery Out”

instructions to transfer the shares from your

beneficiary account to the pool/principal

account of your trading member through

whom you have sold the shares. The details

of the pool/principal account of your trading

member /clearing member to which shares to

be transferred, security, quantity, etc. should

be mentioned in the ‘Delivery Out’ instruction

given by you to your DP.

The instruction should be given well before

the prescribed securities pay-in day. SEBI

has advised that the ‘Delivery Out’ instruction

should be given at least 24 hours prior to the

cut-off time for the prescribed securities pay-

in to avoid any rejection of instruction due to

data entry error, networks problems etc.

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AUCTION OF SHARES

26. What is an auction?

On account of non delivery of securities, by

the trading member, the securities are put for

auction by the exchange. This ensures that

the buying trading member receives the

securities on time. Non-delivery by the

selling trading member can arise on account

of short delivery and deliveries not rectified.

The exchange purchases the requisites

quantity in the auction market and gives

them to the buying trading member.

27. Can I avail the benefit of the auction mechanism, if I have

shares to deliver?

Yes, you can direct your trading member to

sell your securities in the auction. However

you should ensure that the securities are

readily available for delivery. Securities not

delivered on auction pay-in day are directly

squared off at a price specified by the

exchange /clearing corporation.

28. What happens if the shares are not bought in the auction?

If the shares are not bought in the auction,

the transactions are squared up as per

SEBI guidelines.

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REDRESSAL OF COMPLAINT

Complaints to be addressed to:-

29. Whom should I approach if have a grievance against a sub-

broker /company?

You should bring it to the notice of the broker

with whom the sub-broker is affiliated. In

case the sub-broker broker fails to resolve

the dispute and in case of complaints against

a broker/company, you should take of the

matter with Investor Grievances Cell (IGC) of

the exchange. The cell takes up complaints

for redressal in respect of trades executed

on the exchange of trades pertaining to

companies traded on the exchange. You

should lodge the complaints in the

prescribed form with all associated

documents such as contract notes,

purchase/sale notes, bills, statement of

accounts and the member client agreement.

30. Who should I approach for redressal of my complaints?

Despite all the precautionary measures

taken by you and the exchange, there might

be some grievances. The exchange tries to

solve and sort out all the grievances, in

addition to this you also have the freedom to

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take up the grievances with SEBI, consumer

forum and court of law.

31. Whom should I address my complaints against a trading

member/registered sub-broker or against any company traded on

NSE?

You should address all complaints to the

Mumbai office or the regional office of NSE

based on the dealing office where the deals

are executed.

INVESTOR PROTECTION FUND

32. What protection is available from Investor Protection Fund?

The exchange maintains an Investor

Protection Fund to make good investor

claims, which may arise out of non-

settlement of obligations by the trading

member, who has been declared a defaulter,

in respect of trades executed on the

exchange. The maximum amount of claim

payable from the fund is Rs.10 lakhs in

respect of trades on NES.

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ELECTRONIC TRADING: THE ROLE OF A MARKET MAKER

Market makers (sometimes referred to as “AX”) provide continuous

bid and offer prices within a prescribed percentage spread for

shares in which they are designated to make a market. There can

be any where from 4 to 40 (or more) market makers for a particular

stock depending on average daily volume. The market makers play

an important role in the secondary market as catalysts, particularly

for enhancing stock liquidity and thus generally for promoting long-

term growth the market.

Market makers must maintain continuous two-sided quotes (bid &

ask) within a predefined spread. A market is created when the

designated market maker quotes bids and offers over a period of

time. They ensure here is a buyer for your sell order and a seller for

your buy order at any time.

Once the market maker has entered a price, they are obligated to

either buy or sell at least 1000 securities at that advertised price.

Once the market maker has either bought or sold these shares they

may then leave the market and enter a new bid or ask price to make

a profit on their previous trade.

Let’s say that market maker has entered a sell order for Microsoft

(MSFT) and the bid/ask is $65.25/$65.30. The market maker can try

to sell shares of MFST at $65.30, if they do, they can then turn

around and enter a bid order to buy shares in MSFT. The market

maker can bid higher or lower than the current bid of $65.25, if

he/she enters a bid at $65.26 than a new market is created because

their bid price is now best bid. If the market maker attracts a seller at

the new bid price of $65.30 and bought these shares back at

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$65.26. As a result, the market maker made $40(1000shares x 4

cents) on the difference between the two transactions. This might

not seem like much, but doing this repeatedly with larger order sizes

can provide lucrative profits. All day long market makers do this,

providing liquidity to individual and institutional investors. The major

risk for the market maker is the time elapsed between the two

transactions, the faster they can make the spread the more money

they can potentially make.

However, making money from the differences in bid and ask prices

is not only the function of market makers. Their 1st priority is to

provide liquidity to their own firm’s client, for which they will receive a

commission. They may also facilitate trading for other brokerage

firms, very similar to the specialist’s duties.

It should also be noted that market makers are requested by law to

give customers the best bid or ask price for each market order

transaction. This ensures a fair and reasonable two-sided market. If

these regulations were not in place, we would see customers getting

gouged and share prices being much more volatile than they

already are.

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A STEP-BY-STEP GUIDE TO ACTUAL INVESTING

Given below is a simple step-by-step

summary procedure for selecting the right share to

invest in:-

Preliminary Screening

Examining The Company

Analyzing The Company’s Finances

Making An Investment Decision

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CONCLUSION

Tips For Successful Investing

Basic Principles

Do not invest in unlisted shares

Invest in active shares

Diversify your investment

Don’t over diversify

Ensure liquidity of your investment

In all investments there is a trade-off between

reward and risk

Investment risks can be reduced through

knowledge and experience.

Understanding The Stock Markets

The stock markets always over-react

Stock market prices never go straight up or straight

down

Greed and fear are the two most dominant

emotions that influence stock behavior

The stock markets are irrational in the short run,

but rational over the long-term

Tactics And Strategy

Do not speculate unless you have a natural flair for

it

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When investing in shares go for the long-term

investments

The stock markets are dominated by short-term

traders and speculators

Invest in companies with a low price earning ratio

Beware of bargain hunting in stock markets

Be on the lookout for rights renunciations

Averaging up is a sound investment strategy

A company is generally good at its management

Invest in companies, which have a clearly

identifiable plus factor.

Apart from this above tips you should keep in mind that stock

market is like a drunkard man. So as a result stock market is un

predictable. It fluctuates any times in a day. Trading online is risky. It

is not a work of a child, even a learned man can make a mistake

while trading.

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