Sebi
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Transcript of Sebi
INDEX
Chapter Title Page No:
I Introduction 1Need of the study 3
Objectives of the study 3
Scope of Study 3
Research Methodology 4
Limitations of Study 5
II Company Profile 11
Industry Profile 13
III Theoretical Frame Work 16
IV Data Analysis & Interpretation 48
V Conclusions and Suggestions 61
Suggestions 64
Conclusion 65
VI Annexure
Bibliography 67
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CHAPTER-I
INTRODUCTION
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Introduction of study the problem
SEBI In India's Capital Market:
SEBI from time to time have adopted many rules and regulations for enhancing the
Indian capital market. The recent initiatives undertaken are as follows:
Sole Control on Brokers:
Under this rule every brokers and sub brokers have to get registration with SEBI and any
stock exchange in India.
For Underwriters:
For working as an underwriter an asset limit of 20 lakhs has been fixed.
For Share Prices
According to this law all Indian companies are free to determine their respective share
prices and premiums on the share prices.
For Mutual Funds
SEBI's introduction of SEBI (Mutual Funds) Regulation in 1993 is to have direct control
on all mutual funds of both public and private sector.
Role of SEBI in Capital Market
SEBI’s Principal Tasks
To regulate the business in Stock Exchage &other Securities Market.
To register & regulate the working of Capitalmarket intermediaries.
To register & regulate the working of MutualFunds.
To promote & regulate Self-regulatoryOrganization
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Purpose and Aims of SEBI
Regulating the business in the stock market andother securities market.
Registering and regulating the working of stockbrokers and other intermediaries
associatedwith the securities market.
Registering and regulating the working of collective investment schemes include
ingmutual funds.
Promoting and regulating the self-regulatery organizations.
Prohibiting fraudulent and unfair trade practices relating to securities market.
Promoting investors’ education and training ofintermediaries of securities market.
Prohibiting insider trading in securities.
2) Need for the study: the main objective of my study is tries to develop the
securities market. To improve about Promotes Investors Interest. To Makes rules and
regulations for the securities market.
3) Objectives Of the Studies
To know about Importance of SEBI
1. Regulates Capital Market
2. Checks Trading of securities.
3. Checks the malpractices in securities market.
4. It enhances investor's knowledge on market by providing education.
5. It regulates the stockbrokers and sub-brokers.
6. To promote Research and Investigation
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SCOPE OF THE STUDY:
A big boom has been witnessed in Capital market in recent times. A large number of
new players have entered the market and trying to gain market share in this rapidly
improving market.
The research was carried on in Hyderabad. I had been sent at one of the branch of
K.P.Commodities. Hyderabad where I completed my Project work. I surveyed on my
Project Topic “A study of Securities and exchange board of India” on the visiting of
different investors in hyderabad
The study will help to know the preferences of the customers, which company, portfolio,
mode of investment and option for getting return and so on they prefer. This project
report may help the company to make further planning and strategy.
Methodology and data base
This report is based on primary as well secondary data, however primary data collection
was given more importance since it is overhearing factor in attitude studies. One of the
most important users of research methodology is that it helps in identifying the problem,
collecting, analyzing the required information data and providing an alternative solution
to the problem .It also helps in collecting the vital information that is required by the top
management to assist them for the better decision making both day to day decision and
critical ones.
Data sources:
Research is totally based on primary data. Secondary data can be used only for the
reference. Research has been done by primary data collection, and primary data has been
collected by interacting with various people. The secondary data has been collected
through various journals and websites.
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Sampling procedure:
The sample was selected of them who are the customers/visitors of K.P.COMMODITIES
Securities Hyderabad Branch, irrespective of them being investors or not or availing the
services or not. It was also collected through personal visits to persons, by formal and
informal talks and through filling up the questionnaire prepared. The data has been
analyzed by using mathematical/Statistical tool.
Sample size:
The sample size of my project is limited to 200 people only. Out of which only 120
people had invested in Mutual Fund. Other 80 people did not have invested in Mutual
Fund.
Sample design:
Data has been presented with the help of bar graph, pie charts, line graphs etc.
6) Period of study:-45 Days
7) LIMITATIONS OF STUDY
To understand the overall working of share market, the period of 45 days is not
enough.
Moreover, very few investor and agents have a detail knowledge of the study.
The study was conducted in Hyderabad only.
The data provided by the investor and the agents can’t be held true as 100%
correct.
The study was conducted to understand with respect to Risk involved in broking
firm and investors, which is a part of the equity share market.
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INTRODUCTION
The Stock Exchange, Mumbai, popularly known as "BSE" was established
in 1875 as "The Native Share and Stock Brokers Association", as a voluntary non-profit
making association. It has evolved over the years into its present status as the premier
Stock Exchange in the country. It may be noted that the Stock Exchanges is the oldest
one in Asia, even older than the Tokyo Stock Exchange, which was founded in 1878.
The Exchange, while providing an efficient and transparent market for trading
in securities, upholds the interests of the investors and ensures redressal of their
grievances, whether against the companies or its own member-brokers. It also strives to
educate and enlighten the investors by making available necessary informative inputs and
conducting investor education programmes.
A Governing Board comprising of 9 elected directors (one third of them
retire every year by rotation), two SEBI nominees, a Reserve Bank of India nominee, six
public representatives and an Executive Director is the apex body, which decides the
policies and regulates the affairs of the Exchange.
The Executive Director as the Chief Executive Officer is responsible for
the day-to-day administration of the Exchange
.
The average daily turnover of the Exchange during the year 2000-2001 (April-
March), was Rs.3984.19 crores and average number of daily trades was 5.69 lakhs.
However, the average daily turnover of the Exchange during the year 2001- 2002 has
declined to Rs. 1244.10 crores and number of average daily trades during the period to
5.17 lakhs. The ban on all deferral products like BLESS and ALBM in the Indian capital
Markets by SEBI w.e.f. July 2, 2001, abolition of account period settlements,
introduction of Compulsory Rolling Settlements in all scrips traded on the Exchanges
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w.e.f. December 31, 2001, etc. have adversely impacted the liquidity and consequently
there is a considerable decline in the daily turnover at the Exchange
What is a share?
A share represents the smallest recognized fraction of ownership in a publicly held
business. Each such fraction of ownership is represented in the form of a certificate
known as a share certificate. The breaking up of total ownership of a business into small
fragments, each fragment represented by a share certificate, enables them to be easily
bought and sold.
What is a stock exchange?
The institution where this buying and selling of shares essentially takes
place is the Stock Exchange. In the absence of stock exchanges, ie. Institutions where
small chunks of businesses could be traded, there would be no modern business in the
form of publicly held companies. Today, owing to the stock exchanges, one can be part
owners of one company today and another company tomorrow; one can be part owners in
several companies at the same time; one can be part owner in a company hundreds or
thousands of miles away; one can be all of these things. Thus by enabling the
convertibility of ownership in the product market into financial assets, namely shares,
stock exchanges bring together buyers and sellers (or their representatives) of fractional
ownerships of companies. And for that very reason, activities relating to stock exchanges
are also appropriately enough, known as stock market or security market. Also a stock
exchange is distinguished by a specific locality and characteristics of its own, mostly a
stock exchange is also distinguished by a physical location and characteristics of its own.
In fact, according to H.T.Parekh, the earliest location of the Bombay Stock Exchange,
which for a long period was known as “the native share and stock brokers’ association”,
was probably under a tree around 1870!
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The stock exchanges are the exclusive centers for the trading of
securities. The regulatory framework encourages this by virtually banning trading of
securities outside exchanges. Until recently, the area of operation/ jurisdiction of
exchange was specified at the time of its recognition, which in effect precluded
competition among the exchanges. These are called regional exchanges. In order to
provide an opportunity to investors to invest/ trade in the securities of local companies, it
is mandatory foe the companies, wishing to list their securities, to list on the regional
stock exchange nearest to their registered office.
Characteristics of Stock Exchanges in India
Traditionally, a stock exchange has been an association of individual members called
member brokers (or simply members or brokers), formed for the express purpose of
regulating and facilitating buying and selling of securities by the public and institution at
large.
A stock exchange in India operates with due recognition from the government under the
Securities and Contracts (Regulations) Act, 1956. the member brokers are essentially the
middlemen who carry out the desired transactions in securities on behalf of the public(for
a commission) or on their own behalf. New membership to a Stock Exchange is through
election by the governing board of that stock exchange.
At present, there are 23 stock exchanges in India, the largest among them being the
Bombay Stock Exchange. BSE alone accounts for over 80% of the total volume of
transactions in shares.
Typically, a stock exchange is governed by a board consisting of directors largely elected
by the member brokers, and a few nominated by the government. Government nominee
include representatives of the ministry of finance, as well as some public representatives,
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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
demutualised. Board of directors, which do not include trading members, manages these.
Theses are purest form of demutualised exchanges, where ownership, management and
trading are in the hands of three sets of people. The concept of demutualization
completely eliminates any conflict of interest and helps the exchange to pursue market
efficiency and investors interest aggressively.
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CHAPTER-II
Company Profile
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K.P.Commodities, a startup venture aimed at serving investors and traders in
commodity futures market, is floated by the professionals who have diverse
experience in the industry. Commodity futures trading is a very dynamic and
complex field which requires multi perspective outlook and well spread
knowledge to provide genuine service. We provide various commodity
consultancy services according to the needs of traders. The services offered
by the firm primarily fall into research and education which would be
itemized in services segment.
For K.P customer is the king and strives to make the market a level playing
field to every investor irrespective of his portfolio and financial strength.
Futures market is said to be not suitable for small investors who come with
little investment but we believe the market can be made appropriate for any
kind of investor if the strategy is correct. We help customers to design their
own strategies and trading plans depending upon their risk profile and
margin capacity. Personal attention is given to each and every client.
K.P. Commodities believes in “Knowledge is a prerequisite to success”.
Abiding by the same we design education programmes, which would cater
to the needs of all levels of market participants from students, amateur
traders, hedgers, arbitrageurs, speculators, jobbers and experts. The agenda
or curriculum of the education modules encompasses commodity trading,
economic indicators, fundamental analysis, technical analysis etc.
Team:
K.P. stands for (Krishna Pradeep) Lingala who conceived an idea of
establishing a firm with focus on research and education in commodities
markets is an MBA graduate and trained technical analyst. He has garnered
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around 9 years of experience, specifically in technical analysis and designing
trading rules. His formulas or trading rules devised based on various
indicators of technical analysis have achieved high success rate and achieved
market’s attention. His 13 years stint in the industry and his association with
companies per se K.P.Commodities Commodities; JRG Wealth
Management; Vertex Securities has offered him complex challenges which
he handled efficiently. He has the credit of setting up research department at
K.P.Commodities as well as the commodities trading desk at Vertex
Securities. He majorly focuses on providing short term investment or
positional calls in the commodities segment with client safety as utmost
priority.
Satish Mandava, playing an advisory role for KP Commodities, is an MBA
graduate & Associate Financial Planner offering over 14 years of proven
skill-sets in leading banking & financial services companies and currently
pioneering his entrepreneurial venture Value Prop Corporate Solutions to
introduce the same to ‘success’. During his career he successfully provided
wealth management & investment consultancy services, handled commodity
& stock broking, and also managed various activities spanning banking,
mutual funds and insurance. As well he developed commodities hedging
strategies, managed spot & future arbitrages, traded in derivatives, futures &
equity, and ensured compliance with all related regulatory requirements. His
role as an advisor to K.P.Commodities includes steering forward the start-up
venture towards growth with suitable business development and brand
penetration strategies.
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Services
Research
Ever wondered why many lose money in futures trading while a
few succeed. It is the just the expert edge that makes all the difference. The
difference is the way one trades, having or not having a trading plan, putting
and respecting stop loss, and honoring markets.
K.P’s Services
Research
Commodities Future Trading has a potential of generating very
handsome profits with very Low investment. But at the same time, if not
traded properly, it can lead to huge losses too. K.P.Commodities provides
highly accurate positional trading tips for Multi Commodity Exchange of
India Ltd.
K.P.Commdoties is committed to help clients cut their losses
and grow their money by increasing the profit percentages. Our tips are
based on immense technical analysis. Whether you are an intraday or short
term trader; or positional investor we are dedicated to give you informed
advice. Our recommendations have tight stop loss to protect the capital and
relaxed profit targets make good money for the clients in the markets. Apart
from technical indicators we also do a thorough study of fundamental factors
such as economic indicators and their impact on markets. Tracking global
markets, commodity news, market dynamics, forecasts et al we deliver the
best of the industry in the form of market live alerts, analysis,
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recommendations et al.
K.P.Commodities aim to catch each and every fluctuation in
volatile commodities by using methods to maximize the return from
commodities.
K.P.Commodities values its customer’s utmost and strives to
serve them in the best way. For the registered clients calls would be
provided in the following means.
By Yahoo messenger, Google Talk and SMS.
Even the calls and market updates would be posted on the website.
The calls would be intraday, BTST/STBT as well as positional trading
calls.
Strict stop loss would be given to minimize the risk.
Complete follow-up of the calls would be given -> Entry, Exit, Stop
loss etc.
Education
Through its education wing K.P.Commodities engrosses in development of
education modules in the area of Technical Analysis, capital markets and
financial planning. Its target for education modules include those from
fresher’s in the markets like students to employees in the broking industry to
experienced clients. The focus of this service, apart from business
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perspective, is to promote technical analysis education to facilitate the
market participants like clients, dealers, marketing staff to be more traders,
investors and advisers. The advantage with K.P.’s education program lies in
its small batch size that would allow one-to-one concentration, better faculty
interaction, and sharing ideas.
Apart from imparting education we also aim at doing research on different
aspects of Technical Analysis theory and design different trading rules that
suit the market environment.
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CHAPTER-III
Theoretical Frame
Work
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THEORETICAL FRAME WORK
Role of SEBI
The SEBI, that is, the Securities and the Exchange Board of India, is the
national regulatory body for the securities market, set up under the securities and
Exchange Board of India act, 1992, to “protect the interest of investors in securities and
to promote the development of, and to regulate the securities market and for matters
connected therewith and incidental too.”
SEBI has its head office in Mumbai and it has now set up regional offices in
the metropolitan cities of Kolkata, Delhi, and Chennai. The Board of SEBI comprises a
Chairman, two members from the central government representing the ministries of
finance and law, one member from the Reserve Bank of India and two other members
appointed by the central government.
As per the SEBI act, 1992, the power and functions of the Board
encompass the regulation of Stock Exchanges and other securities markets; registration
and regulation of the working stock brokers, sub-brokers, bankers to an issue (a public
offer of capital), trustees of trust deeds, registrars to an issues, merchant bankers, under
writers, portfolio managers, investment advisors and such other intermediaries who may
be associated with the stock market in any way; registration and regulations of mutual
funds; promotion and regulation of self- regulatory organizations; prohibiting Fraudulent
and unfair trade practices and insider trading in securities markets; regulating substantial
acquisition of shares and takeover of companies; calling for information from,undertking
inspection, conducting inquiries and audits of stock exchanges, intermediaries and self-
regulatory organizations of the securities market; performing such functions and
exercising such powers as contained in the provisions of the Capital Issues (Control)
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Act,1947 and the Securities Contracts (Regulation) Act, 1956, levying various fees and
other charges, conducting necessary research for above purposes and performing such
other functions as may be prescribes from time to time.
SEBI as the watchdog of the industry has an important and crucial role in the market in
ensuring that the market participants perform their duties in accordance with the
regulatory norms. The Stock Exchange as a responsible Self Regulatory Organization
(SRO) function to regulate the market and its prices as per the prevalent regulations.
SEBI and the Exchange play complimentary roles to enhance the investor protection and
the overall quality of the market.
Membership
The trading platform of a stock exchange is accessible only to brokers.
The broker enters into trades in exchanges either on his own account or on behalf of
clients. The clients may place their order with them directly or a sub-broker indirectly. A
broker is admitted to the membership of an exchange in terms of the provisions of the
SCRA, the SEBI act 1992, the rules, circulars, notifications, guidelines, etc. prescribed
there under and the byelaws, rules and regulations of the concerned exchange. No
stockbroker or sub-broker is allowed to buy, sell or deal in securities, unless he or she
holds a certificate of registration granted by SEBI. A broker/sub-broker compiles with the
code of conduct prescribed by SEBI.
The stock exchanges are free to stipulate stricter requirements for its
members than those stipulated by SEBI. The minimum standards stipulated by NSE for
membership are in excess of the minimum norms laid down by SEBI. The standards for
admission of members laid down by NSE stress on factors, such as, corporate structure,
capital adequacy, track record, education, experience, etc. and reflect the conscious
endeavors to ensure quality broking services.
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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
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consolidated order book for each stock displays, on a real time basis, buy and sell orders
originating from all over the country. The bookstores only limit orders, which are orders
to buy or sell shares at a stated quantity and stated price. The limit order is executed only
if the price quantity conditions match. Thus, the NEAT system provides an open
electronic consolidated limit order book (OECLOB). The trading system provides
tremendous flexibility to the users in terms of kinds of orders that can be placed on the
system. Several time-related (Good-Till-Cancelled, Good-TillDay, Immediate-or-
Cancel), price related (buy/sell limit and stop-loss orders) or volume related (All-or-
None, Minimum Fill, etc.) conditions van be easily built into an order. Orders are sorted
and match automatically by the computer keeping the system transparent, objective and
fair. The trading system also provides complete market information on-line, which is
updated on real time basis. The trading platform of the CM segment of NSE is accessed
not only from the computer terminals from the premises of brokers spread over 420
cities, but also from the personal computers in the homes of investors through the internet
and from the hand-held devices through WAP. The trading platform of BSE is also
accessible from 400 cities.
Internet trading is available on NSE and BSE, as of now. SEBI has approved the use of
Internet as an order routing system, for communicating clients’ orders to the exchanges
through brokers. SEBI- registered brokers can introduce internet-based trading after
obtaining permission from the respective Stock Exchanges. SEBI has stipulated the
minimum conditions to be fulfilled by trading members to start internet-based trading and
services.
NSE was the first exchange in the country to provide web-based access to investors to
trade directly on the exchange. It launched Internet trading in February 2000. It was
followed by the launch of Internet trading by BSE in March 2001. The orders originating
from the personal computers (PCs) of investors are routed through the Internet tot eh
trading terminals of the designated brokers with whom they have relations and further to
the exchange of trade execution. Soon after these orders get matched and result into
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trades, the investors get confirmation about them on their PCs through the same Internet
routes.
SEBI approved trading through wireless medium or WAP platform. NSE is the only
exchange to provide access to its order book through the hand held devices, which use
WAP technology. This serves primarily retail investors who are mobile and want to trade
from any place when the market prices for st0ocks of their choice are attractive.
Demat Trading
A depository holds securities in dematerialized form. It maintains ownership records of
securities in a book entry form and also effects transfer of ownership through book entry.
SEBI has introduced some degree of compulsion in trading and settlement of securities in
dematerialized form. While the investors have a right to hold securities in either physical
or demat form, SEBI has mandated compulsory trading and settlement of securities in
dematerialized form. This was initially introduced for institutional investors and was later
extended to all investors. Starting with 12 scrips on January 15, 1998, all investors are
required to mandatorily trade in dematerialized form in respect of 2,335 securities as at
end-June, 2001.
Since the introduction of the depository system, dematerialization has progressed at a fast
pace and has gained acceptance among the participants in the market. All actively traded
scrips are held, traded and settled in demat form. The details of progress in
dematerialization in two depositories, viz., NSDL and CDSL., are presented as below:
In a SEBI working paper titled ‘Dematerialization: A Silent Revolution in the Indian
Capital Market’ released in April 2000, it has been observed that India has achieved a
very high level of dematerialization in less than three years’ time, and currently more
than 99%of trades settle in demand form. Competition and regulatory developments
facilitated reduction in custodial charges and improvements in qualities of service
standards. The paper observes that one imminent and apparent immediate benefit of
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competition between the two depositories is fall in settlement and other charges.
Competition has been driving improvement in service standards. Depository facility has
effected changes in stock market microstructure. Breadth and depth of investment culture
has further got extended to interior areas of the country faster. Explicit transaction cost
has been falling due to dematerialization. Dematerialization substantially contributed to
the increased growth in the turnover. Dematerialization growth in India is the quickest
among all emerging markets and also among developed markets excepting for the U.K
and Hong Kong.
CAPITAL LISTED AND MARKET CAPITALIZATION.
The Stock Exchange, Bombay (BSE) is the premier Stock Exchange in India. The BSE
accounted for 46 per cent of listed companies on an all India basis as on 31st March
1994. It ranked first in terms of the number of listed companies and stock issues listed.
The capital listed in the BSE as on 31st March 1994 accounted for 50% of the overall
capital listed on all the stock exchanges. Its share of the market capitalization was around
74% as on the same date. The paidup capital of equity, debentures/bonds and preference
were 73%, 31%, 44% respectively of the overall capital listed on all the Stock Exchanges
as on the same date.
On the BSE, the Steel Authority of India had the largest market capitalization of Rs.19,
908 crores as on the 31st March, 1994 followed by the State Bank of India with the
market capitalization of Rs.16, 702 crores and Mahanagar Telephone Nigam Limited
with the market capitalization of Rs.11, 700 crores.
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BSE SENSEX
The BSE SENSEX, short form of Sensitive Index, first compiled in
1986 is a “market Capitalization-Weighted” index of 30 component stocks representing a
sample of large, wellestablished and financially sound companies. The index is widely
reported in both, the domestic international, print electronic media and is widely used to
measure the used to measure the performance of the Indian stock markets.
The BSE SENSEX is the benchmark index of the Indian capital market and one, which
has the longest social memory. In fact the SENSEX is considered to be the pulse of the
Indian stock markets. It is the oldest index in India and has acquired a unique place in
collective consciousness of the investors. Further, as the oldest index of the Indian Stock
Market, it provides time series data over a fairly long period of time. Small wonder that
the SENSEX has over the years has become one of the most prominent brands of the
Country.
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Objectives of SENSEX
The BSE SENSEX is the benchmark index with wide acceptance among individual
investors, institutional investors, foreign investors, foreign investors and fund managers.
The objectives of the index are:
To measure market movements Given its long history and its wide acceptance, no
other index matches the BSE SENESX in the reflecting market movements and
sentiments. SENSEXis widely used to describe the mood in the Indian stock markets.
Benchmark for funds performance The inclusion of blue chip companies and the wide
and balanced industry Representation in the SENSEX makes it the ideal benchmark for
fund managers to compare the performance of their funds.
For index based derivatives products Institutional investors, money managers and
small investors, all refer to the BSE
SENSEX for their specific purposes. The BSE SENSEXis in effect the
proxy for the Indian stock markets. Since SENSEXcomprises of the leading companies in
allthe significant sectors in the economy, we believe that it will be the most liquid
contract in the Indian market and will garner a predominant market share.
Companies represented in the SENSEX
Company name (As on 15.06.01) Hindustan lever Reliance limited
Infosys technologies Reliance petroleum ITC State bank of India MTNL Satyam
computers Zee telefilms Ranbaxy labs ICICI Larsen & toubro Cipla Hindalco HPCL
TISCO Nestle Sector FMCG Chemicals and petrochemicals Information technology Oil
and gas FMCG Finance Telecom Information technology Media Healthcare Finance
Diversified Healthcare Metals and mining Metal and mining Metal and mining FMCG
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Trading System
Till Now, buyers and sellers used to negotiate face-to-face on the
trading floor over a security until agreement was reached and a deal was struck in the
open outcry system of trading, that used to take place in the trading ring. The transaction
details of the account period (called settlement period) were submitted for settlement by
members after each trading session.
The computerized settlement system initiated the netting and clearing
process by providing on a daily basis statements for each member, showing matched and
unmatched transactions. Settlement processing involves computation of each member's
net position in each security, after taking into account all transactions for the member
during the settlement period, which is 10 working days for group 'A' securities and 5
working days for group 'B' securities.
Trading is done by members and their authorized assistants from their
Trader Work Stations (TWS) in their offices, through the BSE On-Line Trading (BOLT)
system. BOLT system has replaced the open outcry system of trading. BOLT system
accepts two-way quotations from jobbers, market and limit orders from client-brokers
and matches them according to the matching logic specified in the Business Requirement
Specifications (BRS) document for this system.
The matching logic for the Carry-Forward System as in the case of the
regular trading system is quote driven with the order book functioning as an "auxiliary
jobber".
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TRADING
The Exchange, which had an open outcry trading system, had
switched over to a fully automated computerized mode of trading known as BOLT (BSE
on Line Trading) System. Through the BOLT system the members now enter orders from
Trader Work Stations (TWSs) installed in their offices instead of assembling in the
trading ring. This system, which was initially both order and quote driven, was
commissioned on March 14, 1995. However, the facility of placing of quotes has been
removed w.e.f., August 13, 2001 in view of lack of market interest and to improve
system-matching efficiency. The system, which is now only order driven, facilitates more
efficient processing, automatic order matching and faster execution of orders in a
transparent manner.
Earlier, the members of the Exchange were permitted to open trading
terminals only in Mumbai. However, in October 1996, the Exchange obtained permission
from SEBI for expansion of its BOLT network to locations outside Mumbai. In terms of
the permission granted by SEBI and certain modifications announced later, the members
of the Exchange are now free to install their trading terminals at any place in the country.
Shri P. Chidambaram inaugurated the expansion of BOLT network the then Finance
Minister, Government of India on August 31, 1997.
In order to expand the reach of BOLT network to centers outside Mumbai
and support the smaller Regional Stock Exchanges, the Exchange has, as on March 31,
2002, admitted subsidiary companies formed by 13 Regional Stock Exchanges as its
members. The members of these Regional Stock Exchanges work as sub-brokers of the
member-brokers of the Exchange.
The objectives of granting membership to the subsidiary companies
formed by the Regional Stock Exchanges were to reach out to investors in these centers
via the members of these Regional Exchanges and provide the investors in these areas
access to the trading facilities in all scrips listed on the Exchange.
27
Trading on the BOLT System
Trading on the BOLT System is conducted from Monday to Friday
between 9:55 a.m. and 3:30 p.m. The scrips traded on the Exchange have been classified
into 'A', 'B1', 'B2', 'F' and 'Z' groups. The number of scrips listed on the Exchange under
'A', 'B1 ', 'B2' and 'Z' groups, which represent the equity segment, as on March 31, 2002
was 173, 560,1930 and 3044 respectively. The 'F' group represents the debt market (fixed
income securities) segment wherein 748 securities were listed as on March 31, 2002. The
'Z' group was introduced by the Exchange in July 1999 and covers the companies which
have failed to comply with listing requirements and/or failed to resolve investor
complaints or have not made the required arrangements with both the Depositories, viz.,
Central Depository Services (I) Ltd. (CDSL) and National Security Depository Ltd.
(NSDL) for dematerialization of their securities by the specified date, i.e., September 30,
2001. Companies in "Z" group numbered 3044 as on March 31, 2002. Of these, 1429
companies were in "Z" group for not complying with the provisions of the Listing
Agreement and/or pending investor complaints and the balance 1615 companies were on
account of not making arrangements for dematerialization of their securities with both the
Depositories. 1615 companies have been put in "Z" group as a temporary measure till
they make arrangements for dematerialization of their securities. Once they finalize the
arrangements for dematerialization of their securities, trading and settlement in their
scrips would be shifted to their respective erstwhile groups.
The Exchange has also the facility to trade in "C" group which covers the odd
lot securities in 'A', 'B1', 'B2' and 'Z' groups and Rights renunciations in all the groups of
scrips in the equity segment. The Exchange, thus, provides a facility to market
participants of on-line trading in odd lots of securities and Rights renunciations. The
facility of trading in odd lots of securities not only offers an exit route to investors to
dispose of their odd lots of securities but also provides them an opportunity to consolidate
their securities into market lots.
28
The 'C' group can also be used by investors for selling upto 500 shares in
physical form in respect of scrips of companies where trades are to be compulsorily
settled by all investors in demat mode. This scheme of selling physical shares in
compulsory demat scrips is called as Exit Route Scheme With effect from December 31,
2001, trading in all securities listed in equity segment of the Exchange takes place in one
market segment, viz., Compulsory Rolling Settlement Segment.
Permitted Securities The Exchange has since decided to permit trading in
the securities of the companies listed on other Stock Exchanges under " Permitted
Securities" category which meet the relevant norms specified by the Exchange.
Accordingly, to begin with the Exchange has permitted trading in scrips of five
companies listed on other Stock Exchanges w.e.f. April 22, 2002/ Computation of closing
price of scrips in the Cash Segment: The closing prices of scrips are computed on the
basis of weighted average price of all trades in the last 15 minutes of the continuous
trading session. However, if there is no trade during the last 15 minutes, then the last
traded price in the continuous trading session is taken as the official closing price.
A) Compulsory Rolling Segment (CRS):
Compulsory Rolling Settlement (CRS) Segment:
With a view to introduce the best international trading practices
and to achieve higher settlement efficiency, as mandated by SEBI, trades in all the equity
shares listed on the Exchange in CRS Segment were to be settled on T+5 basis w.e.f.
December 31, 2001. SEBI has further directed the Stock Exchanges that trades in all
scrips w.e..f. April 1, 2002 should be settled on T+3 basis. Accordingly, all transactions
in all groups of securities in the equity segment and fixed income securities listed on the
Exchange are settled on T+3 basis w.e.f. April 1, 2002
29
Under a rolling settlement environment, the trades done on a particular
day are settled after a given number of business days rather than settling all trades done
during a period at the end of an 'account period'. A T+3 settlement cycle means that the
final settlement of transactions done on T or trade day by exchange of monies and
securities, occurs on fifth business day after the trade day.
The transactions in securities of companies which have made
arrangements for dematerialization of their securities by the stipulated date are settled
only in Demat mode on T+3 on net basis, i.e., buy and sale positions in the same scrip are
netted and the net quantity is to be settled. However, transactions in securities of
companies, which have failed to make arrangements for dematerialization of their
securities or /are in "Z" group, are settled only on trade to trade basis on T+3 i.e., the
transactions are settled on a gross basis and the facility of netting of buy and sale
transactions in a scrip is not available. For example, if one buys and sells 100 shares of a
company on the same day which is on trade to trade basis, the two positions will not be
netted and he will have to first deliver 100 shares at the time of pay-in of securities and
then receive 100 shares at the time of pay-out of securities on the same day. Thus, if one
fails to deliver the securities sold at the time of pay-in, it will be treated as a shortage and
the position will be auctioned/ closed-out.
In other words, the transactions in scrips of companies which are in compulsory demat
are settled in demat mode on T+3 on netting basis and the transactions in scrips of
companies, which have not made arrangements for dematerialization of their securities by
the stipulated date or are in "Z" group for other reasons, are settled on trade to trade basis
on T+3 either in demat mode or in physical mode.
The settlement of transactions in 'F' group securities representing Fixed Income Securities
is also on Rolling Settlement Cycle of T+3 basis.
The following tables summarizes the steps in the trading and settlement cycle for scrips
under CRS:
30
DAY ACTIVITY
Trading on BOLT and daily downloading of statements showing details of transactions
and margins at the end of each trading day.
6A/7A entry by the member-brokers.
T+1
Confirmation of 6A/7A data by the Custodians. Downloading of securities and funds
obligation statement by members.
T+3 Pay-in of funds and securities by 11:00 a.m. and pay-out of funds and securities by
2:00 p.m
T+4 Auction on BOLT.
T+5 Auction pay-in and pay-out.
* 6A/7A : A mechanism whereby the obligation of settling the transactions done by a
memberbroker on behalf of a client is passed on to a custodian based on his confirmation.
Thus, the pay-in and pay-out of funds and securities takes places on the 3rd
working day of the execution of the trade.
The Information Systems Department of the Exchange generates the
following statements, which can be downloaded by the members in their back offices on
a daily basis.
Statements giving details of the daily transactions entered into by the members.
31
Statements giving details of margins payable by the members in respect of the trades
executed by them.
The settlement of the trades (money and securities) done by a member on his own
account or on behalf of his individual, corporate or institutional clients may be either
through the member himself or through a SEBI registered Custodian appointed by him or
the respective client. In case the delivery/payment is to be given or taken by a registered
Custodian, he has to confirm the trade done by a member on the BOLT System through
6A-7A entry. For this purpose, the Custodians have been given connectivity to BOLT
System and have also been admitted as members of the Clearing House. In case a
transaction is not confirmed by a registered Custodian, the liability for pay-in of funds or
securities in respect of the same devolves on the concerned member.
The introduction of settlement on T+3 basis has resulted in reduction in settlement risk,
provided early receipt of securities and monies to buyers and sellers respectively and
brought Indian Capital Markets at the international standard of settlements
Settlement
Pay-in and Pay-out for 'A', 'B1', 'B2', 'C', "F" & 'Z' group of securities
As discussed earlier, the trades done by members in all the securities in
CRS are now settled by payment of money and delivery of securities on T+3 basis. All
deliveries of securities are required to be routed through the Clearing House, except for
certain off-market transactions which, although are required to be reported to the
Exchange, may be settled directly between the members concerned.
The Clearing House is an independent company promoted jointly by Bank
of India and Stock Exchange, Mumbai for handling the clearing and settlement
operations of funds and securities on behalf of the Exchange. For this purpose, the
32
Clearing & Settlement Dept. of the Exchange liaises with the Clearing House on a day to
day basis.
The Information Systems Department (ISD) of the Exchange generates
Delivery and Receive Orders for transactions done by the members in A, B1, B2 and F
group scrips after netting purchase and sale transactions in each scrip whereas Delivery
and Receive Orders for "C" and "Z" group scrips are generated on trade to trade basis,
i.e., without netting of purchase and sale transactions in a scrip.
The Delivery Orders provide information like scrip, quantity and the
name of the receiving member to whom the securities are to be delivered through the
Clearing House. The Money Statement provides scrip wise/item wise details of
payments/receipts for the settlement. The Delivery/Receive Orders and money statements
can be downloaded by the members in their back offices
The bank accounts of members maintained with the eight clearing banks,
viz., Bank of India, HDFC Bank Ltd., Global Trust Bank Ltd., Standard Chartered Bank,
Centurion Bank Ltd., UTI Bank Ltd., ICICI Bank Ltd., and Indusind Bank Ltd., are
directly debited through computerized posting for their settlement and margin obligations
and credited with receivables on accounts of pay-out dues and refund of margins.
The securities, as per the Delivery Orders issued by the Exchange, are
required to be delivered by the members in the Clearing House on the day designated for
securities pay-in, i.e., on T+3 day. In case of the physical securities, the members have to
deliver the securities in special closed pouches (supplied by the Exchange) along with the
relevant details (distinctive numbers, scrip code, quantity, and receiving member) on a
floppy. The data submitted by the members on floppies is matched against the master file
data on the Clearing House computer systems. If there are no discrepancies, then a scroll
number is generated by the Clearing House and a scroll slip is issued. The members can
then submit the securities at the receiving counter in the Clearing House.
33
Auto D.O. facility:
Instead of issuing Delivery Out instructions for their delivery obligations
in a settlement /auction, a facility has been made available to the members of
automatically generating Delivery-Out (D.O.) instructions on their behalf from their CM
Pool A/cs by the Clearing House w.e.f., August 10, 2000. This Auto D.O. facility is
available for CRS (Normal & Auction) and for trade-to-trade settlements. This facility is,
however, not available for delivery of non-pari passu shares and shares having multiple
ISINs. The members wishing to avail of this facility have to submit an authority letter to
the Clearing House. This Auto D.O facility is currently available only for Clearing
Member (CM) Pool accounts/Principal Accounts maintained by the members with
National Securities Depository Ltd. (NSDL) and Central Depositories Services Ltd.
(CDSL)
Demat pay-in:
The members can effect demat pay-in either through Central Depository
Services (I) Ltd. (CDSL) or National Securities Depository Ltd. (NSDL). In case of
NSDL, the members are required to give instructions to their Depository Participant (DP)
specifying settlement no., settlement type, effective pay-in date, quantity, etc. The
securities are transferred to the Pool Account. The members are required to give delivery-
out instructions so that the securities are considered for pay-in.
As regards CDSL, the members give pay-in instructions to their DP.
The securities are transferred to Clearing Member (CM) Principal Account. The members
are required to give confirmation to their DP, so that securities are processed towards
pay-in obligations. Alternatively, members may also effect pay-in from clients'
beneficiary accounts for which member are required to do break-up on the front-end
software to generate obligation and settlement ID.
34
The Clearing House arranges and tallies the securities received
against the receiving member wise report generated on the Pay-in day. Once this
reconciliation is complete, the bank accounts of members with seven clearing banks
having pay-in positions are debited on the scheduled payin day. This procedure is called
Funds Pay-in. In case of the demat securities, the securities are credited in the Pool
Account of the members or the Client Accounts as per the client details submitted by the
members. In case of Physical securities, the Receiving Members collect securities from
the Clearing House on the payout day and the accounts of the members having payout are
credited on Friday. This is referred to as Payout. In case of the Rolling Settlements, pay-
in and payout of both funds and securities is on the same day, in case of Weekly
settlements, pay-in of funds and securities is on Thursday and payout is on Friday.
The auction is conducted for those securities which members fail to
deliver/short deliver during the Pay-in. In case the securities are not received in an
auction, the positions are closed out as per the closeout rate fixed by the Exchange in
accordance with the prescribed rules. The close out rate is calculated as the highest rate of
the scrip recorded in the settlement in which the trade was executed and in the subsequent
settlement upto the day prior to the day of auction, or 20% above the closing price on the
day prior to the day of auction, whichever is higher. However, in case of close-out for
shares under objection or traded in "C" group, 10% instead of 20% above the closing
price on the day prior to the day of auction and the highest price recorded in the
settlement in which trade took place upto a day prior to auction is considered.
The Exchange has strictly adhered to the settlement schedules for various
groups of securities and there has been no case of clubbing of settlements or
postponement of pay-in and pay-out during the last six years.
The Exchange is also maintaining a database of fake/forged, stolen,
lost and duplicate securities with the Clearing House so that distinctive numbers
submitted by members on delivery may be matched against the database to weed out bad
paper from circulation at the time of introduction of such securities in the market. This
35
database has also been made available to the members so that delivering and receiving
members can check the entry of fake, forged and stolen shares in the market
SHORTAGES AND OBJECTIONS
Shortages & consequent actions The members download
Delivery/Receive Orders based on their netted positions for transactions entered into by
them during a settlement in 'A', 'B1', 'B2', and 'F' group scrips and on trade to trade basis,
i.e., without netting buy and sell transactions in scrips in "C" & 'Z' groups and scrips in
B1 and B2 groups which have been put on trade to trade basis as a surveillance measure.
The seller members have to deliver the shares in the Clearing House
as per the Delivery Orders downloaded. If a seller member is unable to deliver the shares
on the Pay-in day for any reason, his bank account is debited at the standard rate (which
is equal to the closing price of the scrip on the day of trading) fixed by the Exchange for
the quantity of shares short delivered. The Clearing House arrives at the shortages in
delivery of various scrips by members on the basis of their delivery obligations and actual
delivery.
The members can download the statement of shortages on T+3 in
Rolling Settlements. After downloading the shortage details, the members are expected to
verify the same and report discrepancy , if any, to the Clearing House by 1:00 p.m. If no
discrepancy is reported within the stipulated time, the Clearing House assumes that the
shortage of a member is in order and proceeds to auction the same. However, in 'C'
group, i.e., Odd Lot segment the members are themselves required to report the shortages
to the Clearing House.
The Exchange issues an Auction Tender Notice to the members
informing them about the names of the scrips, quantity slated for auction and the date and
time of the auction session on the BOLT. The auction for the undelivered quantities is
conducted on T+4 for all the scrips under compulsory Rolling Settlements. The auction
36
offers received in batch mode are electronically matched with the auction quantities so as
to award the 'best price'. The members who participate in the auction session can
download the Delivery Orders on the same day, if their offers are accepted. The members
are required to deliver the shares in the Clearing House on the auction Pay-in day, i.e,
T+5. Pay-Out of auction shares and funds is also done on the same day, i.e., T+5. The
various auction sessions relating to shortages, and bad deliveries are now conducted
during normal trading hours on BOLT. Thus, it is possible to schedule multiple auction
sessions on a single trading day.
In auction, the highest offer price is allowed upto the close-out rate and the
lowest offer price can be 20% below the closing price on a day prior to day of auction. A
member who has failed to deliver the securities of a particular company on the pay-in day
is not allowed to offer the same in auction. He can, however, participate in auction of
other scrips.
In case no offers are received in auction for a particular scrip, the sale
transaction is closed-out at a close-out price, determined by higher of the following:-
- Highest price recorded in the scrip from the settlement in which the transaction took
place upto a day prior to the day of the auction.
OR
- 20% above the closing price on a day prior to the day of auction.
However, in case of the close-out of the shares under objection and
shortages in "C" or "Z" group, 10% above the closing prices of the scrips on the pay-out
day of the respective settlement are considered instead of 20%.
37
Further, if the auction price/close-out price of a scrip is higher than the
standard price of the scrip in the settlement in which the transaction was done, the
difference is recovered from the seller who failed to deliver the scrip. However, in case,
auction/ close-out price is lower than standard price, the difference is not given to the
seller but is credited by the Exchange to the Customers Protection Fund. This is to ensure
that the seller does not benefit from his failure to meet his delivery obligation. Further, if
the offeror member fails to deliver the shares offered in auction, then the transactions is
closed-out as per the normal procedure and the original selling member pays the
difference below the standard rate and offer rate and the offeror member pays the
difference between the offer rate and close-out rate.
Self Auction As has been discussed in the earlier paragraphs, the Delivery
and Receive Orders are issued to the members after netting off their purchase and sale
transactions in scrips where netting of purchase and sale positions is permitted. It is likely
in some circumstances that a selling client of a member has failed to deliver the shares to
him. However, this did not result in a member's failure to deliver the shares to the
Clearing House as there was a purchase transaction of some other buying client of the
member in the same scrip and the same was netted off for the purpose of settlement.
However, in such a case, the member would require shares so that he can deliver the
same to his buying client, which otherwise would have taken place from the delivery of
shares by the seller. To provide shares to the members, so that they are in a position to
deliver them to their buying clients in case of internal shortages, the members have been
given an option to submit floppies for conducting self-auction (i.e., as if they have
defaulted in delivery of shares to the Clearing House). Such floppies are to be given to
the Clearing House on the pay-in day. The internal shortages reported by the members
are clubbed with the normal shortages in a settlement and the Clearing House for the
combined shortages conducts the auction. A member after getting delivery of shares from
the Clearing House in self-auction credits the shares to the Beneficiary account of his
client or hand over the same to him in case securities received are in physical form and
debits his seller client with the amount of difference, if any, between the auction price
and original sale price
38
B) Objections
When receiving members collect the physical securities from the Clearing House on the
Payout day, the same are required to be checked by them for good delivery as per the
norms prescribed by the SEBI in this regard. If the receiving member does not consider
the securities good delivery, he has to obtain an arbitration award from the arbitrators and
submit the securities in the Clearing House on the following day of the Pay-Out (T+4).
The Clearing House returns these securities to the delivering members on the same day,
i.e., (T+4). If a delivering members feels that arbitration awards obtained against him is
incorrect, he is required to obtain arbitration award for invalid objection from the
members of the Arbitration Review Committee. The delivering members are required to
rectify/replace the objections and return the shares to the Clearing House on next day
(T+5) to have the entry against them removed. The rectified securities are delivered by
the Clearing House to the buyer members on the same day (T+5). The buyer members, if
they are not satisfied with the rectification, are required to obtain arbitration awards for
invalid rectification from the Bad Delivery Cell on T+6 day and submit the shares to the
Clearing House on the same day.
If a member fails to rectify/replace the objections then the same are closed-out. This is
known as "Objection Cycle" and the entire process takes 3 days.
The following table summarizes the activities involved in the Patawat Objection Cycle of
CRS.
DAY ACTIVITY T + 3 Pay-out of securities of Rolling Settlement T + 4 Patawat
Arbitration session : Arbitration awards to be obtained from officials of the Bad Delivery
Cell.
Securities under objection to be submitted in the Clearing House
39
Arbitration awards for invalid objection to be obtained from members of the Arbitration
Review Committee
T+5 Members and institutions to submit rectified securities, confirmation forms and
invalid objections in the clearing house
Rectified securities delivered to the receiving members
T+6 Arbitration Awards for invalid rectification to be obtained from officials of the Bad
Delivery Cell
Securities to be lodged with the clearing house
The un-rectified and invalid rectification of securities are directly closed-out by the
Clearing House instead of first inviting the auction offers for the same.
The shares in physical form returned under objection to the Clearing House are required
to be accompanied by an arbitration award (Chukada) except in certain cases where the
receiving members are permitted to submit securities to the Clearing House without
"Chukada".
These cases are as follows: Transfer Deed is out of date. Cheques for the dividend
adjustment for new shares where distinctive numbers are given in the Exchange Notice is
not enclosed. Stamp of the Registrar of Companies is missing. Details like Distinctive
Numbers, Transferors' Names, etc. are not filled, in the Transfer Deeds. Delivering
broker's stamp on the reverse of the Transfer Deed is missing. Witness stamp or signature
on Transfer Deed is missing. Signature of the transferor is missing. Death Certificate (in
cases where one or more of the transferors are deceased) is missing.
A penalty at the rate of Rs.100/- per Delivery Order is levied on the delivering member
for delivering shares, which are not in order. In the event a receiving member misuses the
40
facility of submitting shares under objection without "Chukada", a penalty of Rs.500/-
per case is charged and the penalty of Rs.100/- per Delivery Order levied on the
delivering member is refunded to him by debiting the receiving member's account Close
Out: There are cases when no offer for particular scrip is received in an auction or when
members who offer the scrips in auction, fail to deliver the same. In the former case, the
original seller member's account is debited and the buyer member's account is credited at
the closeout rate. In the latter case, the offeror member's account is debited and the buyer
member's account is credited at the close-out rate. The closeout rates for closing the
positions in different segments are as under:
For 'A' + 'B1' + 'B2' + 'Z', 'Rolling demat' and 'F' group
The closeout rate is higher of the following rates:
➢ The highest rate of the scrip from the first day (trading day in case of Rolling demat
segment) to the day prior to the day on which the auction is conducted for the respective
settlement. ➢ 20% above the closing rate as on the day prior to the day of auction of the
respective settlement.
For 'C' group segment
The close-out rate is higher of the following rates : ➢ The highest rate of the scrip from
the first day to the day prior to the day of auction of 'A', 'B1', 'B2, and 'Z' group segment
of the respective settlements; or ➢ 10% above the closing rate as on the day prior to the
day of auction of 'A', 'B1', 'B2, and 'Z' group; or ➢ Transaction price.
In the 'C' group, i.e., Odd Lot Segment, no auction session is conducted. The
shortages are directly closed out.
DO’S AND DONT’S
41
Does SEBI approve the contents of the issue
It is to be distinctly understood that submission of offer document to
SEBI should not in any way be deemed or construed that the same has been cleared or
approved by SEBI. The Lead manager certifies that the disclosures made in the offer
document are generally adequate and are in conformity with SEBI guidelines for
disclosures and investor protection in force for the time being. This requirement is to
facilitate investors to take an informed decision for making investment in the proposed
issue.
Does SEBI tag make my money safe?
The investors should make an informed decision purely by themselves
based on the contents disclosed in the offer documents. SEBI does not associate itself
with any issue/issuer and should in no way be construed as a guarantee for the funds that
the investor proposes to invest through the issue. However, the investors are generally
advised to study all the material facts pertaining to the issue including the risk factors
before considering any investment. They are strongly warned against any 'tips' or news
through unofficial means.
How does SEBI ensure compliance with DIP?
The Merchant Banker are the specialized intermediaries who are
required to do due diligence and ensure that all the requirements of DIP are complied
with while submitting the draft offer document to SEBI. Any non compliance on their
part, attract penal action from SEBI, in terms of SEBI (Merchant Bankers) Regulations.
The draft offer document filed by Merchant Banker is also placed on the website for
public comments. Officials of SEBI at various levels examine the compliance with DIP
guidelines and ensure that all necessary material information is disclosed in the draft
offer documents.
42
With the presence of the Central Listing Authority (CLA), what would
be the role of SEBI in the processing of Offer docume nts for an issue?
The Central Listing Authority's (CLA) functions have been detailed under
Regulation 8 of SEBI (Central Listing Authority) Regulations, 2003 (CLA Regulations)
issued on August 21, 2003 and amended up to October 14, 2003
In brief, it covers processing applications for letter precedent to listing
from applicants; to make recommendations to the Board on issues pertaining to the
protection of the interest of the investors in securities and development and regulation of
the securities market, including the listing agreements, listing conditions and disclosures
to be made in offer documents; and; to undertake any other functions as may be delegated
to it by the Board from time to time
SEBI as the regulator of the securities market examines all the policy
matters pertaining to issues and will continue to do so even during the existence of the
CLA.
Since the CLA is not yet operational, the reply to this question would be updated
thereafter.
Who decides the price of an issue?
Indian primary market ushered in an era of free pricing in 1992. Following this, the
guidelines have provided that the issuer in consultation with Merchant Banker shall
decide the price. There is no price formula stipulated by SEBI. SEBI does not play any
role in price fixation. The company and merchant banker are however required to give
full disclosures of the parameters which they had considered while deciding the issue
price. There are two types of issues one where company and LM fix a price (called fixed
43
price) and other, where the company and LM stipulate a floor price or a price band and
leave it to market forces to determine the final price (price discovery through book
building process).
How does one com of the draft offer documents to know about the issues on offer? And
from where can I get copies SEBI issues press releases every week regarding the draft
offer documents received and observations issued during the period. The draft offer
documents are put up on the website under Reports/Documents section. The final offer
documents that are filed with SEBI/ROC are also put up for information under the same
section. Copies of the draft offer documents in hard copy form may be obtained from the
office of SEBI.
Who is eligible to be a BRLM?
A Merchant banker possessing a valid SEBI registration in accordance with the SEBI
(Merchant Bankers) Regulations, 1992 is eligible to act as a Book Running Lead
Manager to an issue.
What and where do I find them?
The SEBI Manual is SEBI authorized publication that is a
comprehensive databank of all relevant Acts, Rules, Regulations and Guidelines that are
related to the functioning of the Board. The details pertaining to the Acts, Rules,
Regulations, Guidelines and Circulars are placed on the SEBI website under the "Legal
Framework" section.
Will SEBI answer my queries online in case of doubts and clarifications?
The "Feedback" section on the SEBI website has a provision for the
visitors to the site to ask questions on clarifications on smaller issues pertaining to the
availability of information and a facility for users to provide feedback on the same.
However, if the queries are legalistic and deep in nature, they are to be referred to SEBI
under the SEBI (informal Guidance) Scheme, 2003
44
Sebi' Latest Announcement....
Nebody knows about the Sebi's latest Announce .....?
CNBC-TV18 has learnt from sources that Sebi is likely to propose short
swing rule in India. The move restricts company insiders from making short-term profit
at the company’s expense.
It is a move that could potentially have a big impact on promoters of listed
companies. Market regulator Sebi is proposing to put in place a new rule-the short swing
rule- in India. This is similar to one that exists in the USA.
The rule prevents company insiders, who have greater access to material information,
from taking advantage of the information to make short-term profits. So, Sebi proposes
that company insiders buying and selling their company's stock within a 6-month period
return the money they make to the company. As of now, this is just a consultative paper
and the regulator has invited feedback to this proposal.
Sources added that the move proposes insiders return profits from buying and
selling the company’s stock. It proposes a tenor of six months for the short swing rule.It
has circulated a paper on short swing profit regulations.
Sebi has proposed last-in-first-out method to determine the six month
period and the move is intended to check insider trading. The designated insider will
include all key management personnel and directors of companies as well as officials
who own above 10% stake in the company.
Sebi says that any officer who buys and sells shares of a company within
six-months will have to return those profits to the company, which means that he cannot
buy and sell shares within six months and make a profit on them. If he makes, he will
return the profit.
45
Who cannot do these transactions or who will be brought under the ambit of this short
swing rule?
It is a designated insider and a designated insider goes beyond the
threshold of any person who holds 10%. An insider is basically defined as a person who
would own more than 10% shares in a company. But here it says a designated insider
would include all key management personnel.
It would include all directors of the company, all officers of the company
who are beneficial owners of 10% or more stake in that company. So, a designated
insider concept seems to be a far wider definition. They have given it a far wider
definition than what an insider would be who owns only 10% in that company. It is a
draft proposal. They have invited suggestions to these proposals.
The future of stock exchanges
The future of stock trading appears to be electronic, as competition is
continually growing between the remaining traditional New York Stock Exchange
specialist system against the relatively new, all Electronic Communications Networks, or
ECNs. ECNs point to their speedy execution of large block trades, while specialist system
proponents cite the role of specialists in maintaining orderly markets, especially under
extraordinary conditions or for special types of orders.
The ECNs contend that an array of special interests profit at the expense
of investors in even the most mundane exchange-directed trades. Machine-based systems,
they argue, are much more efficient, because they speed up the execution mechanism and
eliminate the need to deal wit an intermediary.
Historically, the 'market' (which, as noted, encompasses the totality of
stock trading on all exchanges) has been slow to respond to technological innovation,
46
thus allowing growing pure speculation to continue. Conversion to all-electronic trading
could erode/eliminate the trading profits of floor specialists and the NYSE's "upstairs
traders", who, like in September and October 2008, earned billions of dollars selling
shares they did not have, and days later buying the same amount of shares, but maybe
15 % cheaper, so these shares could be handed to their buyers, thereby making the market
fall deeply.
William Lupien, founder of the Instinet trading system and the OptiMark
system, has been quoted as saying "I'd definitely say the ECNs are winning... Things
happen awfully fast once you reach the tipping point. We're now at the tipping point."
One example of improved efficiency of ECNs is the prevention of front
running, by which manual Wall Street traders use knowledge of a customer's incoming
order to place their own orders so as to benefit from the perceived change to market
direction that the introduction of a large order will cause. By executing large trades at
lightning speed without manual intervention, ECNs make impossible this illegal practice,
for which several NYSE floor brokers were investigated and severely fined in recent
years. Under the specialist system, when the market sees a large trade in a name, other
buyers are immediately able to look to see how big the trader is in the name, and make
inferences about why s/he is selling or buying. All traders who are quick enough are able
to use that information to anticipate price movements.
ECNs have changed ordinary stock transaction processing (like brokerage
services before them) into a commodity-type business. ECNs could regulate the fairness
of initial public offerings (IPOs), oversee Hambrecht's OpenIPO process, or measure the
effectiveness of securities research and use transaction fees to subsidize small- and mid-
cap research efforts.
Some however, believe the answer will be some combination of the
best of technology and "upstairs trading" — in other words, a hybrid model.
Trading 25,000 shares of General Electric stock (recent quote: $7.54; recent
[] volume: 216,266,000) would be a relatively simple e-commerce transaction; trading
47
100 shares of Berkshire Hathaway Class A stock (recent quote: $72,625.00; recent
volume: 877) may never be. The choice of system should be clear (but always that of the
trader), based on the characteristics of the security to be traded.
Even with ECNs forming an important part of a national market system,
opportunities presumably remain to profit from the spread between the bid and offer
price. That is especially true for investment managers that direct huge trading volume,
and own a stake in an ECN or specialist firm. For example, in its individual stock-
brokerage accounts, "Fidelity Investments runs 29% of its undesignated orders in NYSE-
listed stocks, and 37% of its undesignated market orders through the Boston Stock
Exchange, where an affiliate controls a specialist post."
48
CHAPTER-IV
Data Analysis &
Interpretation
49
Are you aware of online trading?
Particulars Yes No
Investors response 27 3
% of the sample 90 10
yes90%
no10%
response
yes
no
INTERPRETATION:
From the above graph we can say that 90% of the people are aware of online trading and
10% of them are not aware of it.
50
Do you actively participate in the share market?
Particulars Yes No
Investors response 19 11
% of the sample 63 37
yes63%
no37%
response
yes
no
INTERPRETATION:
From the above graph we can say that 63% people actively participate in share market
and 37% of do not participate.
51
Which online investor category you belong to?
Particulars Uncertain
newcomer
Moderate
active trader
Active day
trader
Hands in
every pot
Investors response 10 8 8 4
% of the sample 33 27 27 13
uncertain newcomer33%
moderate active trader27%
active day trader27%
hands in every pot13%
category
uncertain newcomer
moderate active trader
active day trader
hands in every pot
INTERPRETATION:
The above graph depicts that 33% of them are uncertain newcomer, 27% of them belong
to moderate active trader category and active day trader and 13% of them belongs to hand
in every pot category.
52
Do You Aware of SEBI Rules And Regulations On Online Trading
Particulars Yes No
Investors response 03 27
% of the sample 80 20
yesno
53
Do you have a Demat account?
Particulars yes No
Investors response 20 10
% of the sample 67 33
yes67%
no33%
responses
yes
no
INTERPRETATION:
From the above graph we can say that 67% of the investors have Demat account and 33%
of them doesn’t have Demat account.
54
Which depository do you take into consideration for accessing Demat account?
Particulars NSDL CDSL
Investors response 23 7
% of the sample 77 23
NSDL77%
CDSL23%
response
NSDL
CDSL
INTERPRETATION:
From the above graph we can say that 77%of the people are in favour of NSDL
depository and 23% are in favour of CDSL depository.
55
Are you in favour of Demat account?
Particulars Yes No
Investors response 23 7
% of the sample 77 23
YES77%
NO23%
response
YES
NO
INTERPRETATION:
From the above graph we can say that 77% of the people are in favour of demat account
and 20% of them are not in favour of it.
56
Which is the most preferable attribute while investing? Comment…
Particulars Rate of return Liquidity Convenience Regulation
Investors
response
12 13 2 3
% of the sample 40 43 7 10
Rate of return40%
Liquidity43%
Convinience7%
Regulation10%
response
Rate of return
Liquidity
Convinience
Regulation
INTERPRETATION:
From the above graph we can say that Liquidity(43%) is most preferable among all the
attributes.
57
Are you aware the nature of risk involved in online trading?
Particulars Yes No
Investors response 25 5
% of the sample 83 17
83%
17%
response
yes
no
INTERPRETATION:
From the above graph we can say that (83%)majority of the people are aware of risk
involved in online trading.
58
Do you check brokers activity involved in online trading?
Particulars yes no
Investors response 15 15
% of the sample 50 50
50%50%
Brokers activity
yes
no
INTERPRETATION:
From the above graph we can say that 50% of the investors check brokers activities and
50% do not check.
59
Do you feel any changes in earlier trading and at present trading?
Particulars yes No
Investors response 30 0
% of the sample 100 0
100%
changes
yes
no
INTERPRETATION:
From the above graph we can say that 90% of the people are aware of online trading and
10% of them are not aware of it.
60
Which system do you feel more convenient in trading?
Particulars Yes No
Investors response 6 24
% of the sample 20 80
20%
80%
convinience
outcry
screen based
INTERPRETATION:
From the above graph we can say that 80% of the people are in favour of screen based
trading and 20% of them in favour of outcry system.
NOTE: In the above analysis the sample size is 30 i.e N=30 .
61
CHAPTER-V
Conclusion and
Suggestions
62
CONCLUSION OF ANALYTICAL STUDY:
From the above analysis we have come to this conclusion that most of the people are
aware of online trading and very much interested in screen based trading.As we know
K.P.COMMODITIES Securities Limited started online trading system in 1997 before
this concept they use outcrysystem . After this study we can come to this conclusion as
below i.e
90% of investors are aware of online trading.
63.3% of investors participate in share market .
33.3% of investors are willing to go for option (A),26.7% of investors are
willing to go for option (B)& (C) and 13.3% of investors are willing for
option (D) where (A)uncertain newcomer(B) moderate active trader (C)active
day trader(D)hand in every pot.
66.7% of investors have Demat account.
76.6% of investors consider accessing of Demat account through National
securities depository limited(NSDL). And 23.3% of investor go with central
depository services limited(CDSL).
76.7% of investors are in favour of Demat account . And 23.3% of investors
are not in favour of Demat account.
40% of investors prefer (A)rate of returns, 43.3% of investors prefer (B)
liquidity, 6% of investors go for(C) convenience and 10% of investors prefer
(D) Regulation.
83.3% of investors are aware of risk involved in online trading .and 16.7% of
investors are not aware of risk involved in online trading.
50% of investor check brokers activity and 50% does not check.
100% of investors feel the changes in trading.
80% of investors feel screen-based system more convenient and 20% of
investors feel outcry system more-convenient. Hence online trading has a
positive impact on investors with respect to all above attributes.
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Findings:
Online trading is more powerful & advantageous than manual trading.
The software or the systems used in online trading should be advanced and the
persons who operate should have minimum knowledge.
Tips are available for trading online and invest wisely. So that the investor can
avoid the fraud.
It should increase the speed of executing the orders.
Due to invention of online trading here has been greater benefit to the investors as
they could buy/sell shares as and when required.
It has to take necessary steps to attract the customers through the Internet.
Instant bank account should be provided as the other companies are providing.
It should have separate department for portfolio management.
Most of the investors like to trade along with brokers.
Online makes direct contact between the investors and it avoids the presence of
middleman.
Online trading reduces the trade time.
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SUGGESTIONS
The suggestion to exchange authorities is to take steps to educate investors
about their rights and obligation, try to increase investors confidence. I suggest the
exchange authorities to be vigilant to curb wide fluctuations of prices on the
exchanges in the prices ,not attracting to the genuine investors to the greater extents
towards the market .Try to explain them how fraud will take place so that they will be
alert and they can take necessary steps to avoid the frauds.
Genuine investors are not at all interested in the speculative gain as their
investment is based on the future profits, therefore the authorities of exchange should be
more vigilant in imposing heavy margin to curb the speculative of securities.
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Conclusion
Due to changes in technology K.P.COMMODITIES Securities Limited has
changed its trading activities into online trading system. So that transactions will
be performed efficiently.
Things have changed for the better with the K.P.COMMODITIES Securities
Limited going online coupled with endeavors to stream line the whole trading
system, thing have changed dramatically over the last 3-4 years. New and
advanced technologies have breached geographical and cultural barriers and have
brought the country wide market to doorstep.
Border of the Regional Stock exchange(RSE) have suddenly been thrown to
intense competition from counter parts across the country. The RSE’s have
their own advantages like being nearer to the retail investors and to let the
RSE’s perish would be determined to stock market system there is no
brokerage firms with in India with national reach.
In the present scenario and to compete the RSE’s would require sound
infrastructure and trading as per international standards . The concept of
business have changed and today it has become service to clients or to
provide the best possible service to clients or to engage into new business
practices in the other exchanges of the world .
In order to stem the flow of business from the regional center to the
metro centers and to impart liquidity introductions of online trading is
necessary .i.e demand of the day presently.
66
Tips are available for trading online and to invest wisely, so that the investors
can avoid the frauds .
The introductions of online trading would influence in the investors
resulting in an increase in the business of the exchange. It has helped the
brokers handling a vast amount of transactions and this can be achieved
through delivering and settlement system with adequate protections to
investors system. The trading of K.P.COMMODITIES Securities Limited on
the first day was Rs 1.8 crores .
Due to invention of online trading there has been greater benefit to the
investors as they could sell /buy shares as and when required and that to with
online trading will inspire confidence in investors resulting in increase in
business of exchange.
The regional stock exchange has a greater scope than compared to the earlier
time because of invention of online trading.
The concept of business has changed , today it is a service oriented
industry hence the survival would require them to provide the best possible
service to the client .
The longer trading time has helped the investor as well as the broker to take
much interest in the trading of the securities as they have got extra time to
take in the security market.
The existing system can be further improved by introduction of stop loss
facility , which will help reduced investors losses.
Also there is need for exchanges to exchange to set up standing committee
into break down of online trading .
67
CHAPTER-VI
Annexure
68
BIBILIOGRAPHY
Reference Books:
How To trade In Stock Market – Aswin Gujral
Financial Management –Khan and Jain
Websites:
www.RELIGARE.in
www.nseindia.com
www.bseindia.com
www.siainvestor.com
www.indiainfoline.com
www.stcionline.com
www.sharekhan.com
www.capitalideasonline.com
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