tital page orignal.doc

7/28/2019 Tital page orignal.doc

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1. Introduction about Company

The South Gujarat Shares & Shares broker Limited (SGSSL) is a publiclimited company registered under company act 1956. Company

established with authorized share capital of Rs. 3 cr.

The South Gujarat Shares & Share brokers Limited started its activities as

an association of persons in 1992 and acted of sub broker giving services

for buying and selling of securities to the retail inverters form south

Gujarat, particularly in surat. Mr. Anil Choksy, Mr. Ashok Mehta, Mr.

Jagdish Patel and Mr. Paresh Javeri who are the permanent directors of

the company, took initiative in forming a limited company, so as to

become the member of the National Stock Exchange of India Limited.

Accordingly the company South Gujarat Shares & Share brokers Limited

was registered under the companies act on the 5 th January 1995. To begin

with it conducted its trading business through other members of the

National Stock Exchange. During the first year of its operation ending on

the 31st March 1995 it suffered a loss of Rs. 80000.

The company had another poor year during 1995-96 and suffered a

further loss of Rs 1.18 lacs. This was mainly because the company

couldnt procure the National Stock Exchange membership during the

year and also because of the prevailing poor market conditions.

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The company Obtained SEBI registration as stockboker on the 27 th feb,

1996 and its activities full-fledged member of the National Stock

Exchange commenced on the 18th April, 1996. Originally the operation

were started at Baroda since National Stock Exchange at that time was

not providing connectivity in Surat. Once the NSE connectivity was made

available in surat, the poeration was shifted to surat on the 23 rd July 1996.

At present the location in Belgium Chamber. At Belgium Chamber the

company has a large space of approximately 2700sq ft for smooth

operation.

Another terminal has since been installed at J.K. Towers in March 1997

to give better service to the investors. During the year ended 31st March,

1997 the company has turned the corner. On the total income of Rs.

4580000 the company made a net profit of Rs. 375000 and after adjusting

the losses of the previous two year of Rs. 198000, the net profit carried to

the balance sheet works out to be Rs. 178000.

In 1998 company take National Security Depository Ltd. Participation

under the SEBI act 1996. In south Gujarat, SGSSL is the first company

who takes the depository participant (DP). In DP there are 11500 holder

which having demate account in SGSSL. The company is second Largest

in demate account.

Company has a Computer To Computer Link (CTCL) network, which are

connected with LAN and also with WAN. In Surat City Company has

give many register sub-broker CTCL. Company also provide in outside of

Surat like Hazira, Navsari, and also in Bilimora.

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In present condition company try to register its sub broker in SEBI. Now

in present, company has 35 register sub broker and other members if they

work then company insist to take registration.

In company there are 28 persons working. Company has 5 servers, in this

one server connect with NSE CTCL and second with disaster

management. In NSDL, also there is one main server. Company provides

3 different room for on line trading to its clients and sub-broker with

satellite dish, Equara cable and modem. There are 8 Bombay Online

Trading (BILT) and in back office with account package of comate also

work actively with NSDL server. Company also provides very useful and

modern service to account member which are Interactive Voice Response

(IVR).

The company has been stressing on the delivery oriented securities

trading and since inception has been consistently one of the major

delivering member. The company has been diligent ensuring compliance

with the securities trading and settlement regulations of the NSE. It has

resulted in ensuring cleaner operation.

The trading business of the company is rapidly expanding and its

volumes have now crossed Rs. 2.5 to 3 crores per day. The company

expects the trading volume to at least double during the current year.

Shri Anil choksy, who is the chairman and the managing director of the

company, heads the operation of the company. He along with other full

time directors maintains a close hand on the operation. The company has

its own internal trading and settlement regulations, which are in

conformity has with the NSE and SEBI regulations. These regulations

ensure that the activities of the company are managed on the profession

lines an on the best interest of the investors and the shareholder of the

company.

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1.1 FINANCIAL POSITION OF COMPANY(Rs. In lacks)

Particular 2001 2002 2003 2004 2005

Total Income 187.38 108.80 96.58 105.05 112.54

Profit Before Depreciation 49.43 15.80 30.99 16.70 21.58

Depreciation 13.30 13.99 12.13 10.55 8.56

Profit before tax 36.13 1.81 18.86 15.20 5.54

Tax 12.50 0.76 7.00 5.00 10.05

Profit after tax 23.63 1.05 11.86 12.21 15.32

Year Market

turnover

(in crore)

Brokerage

(in lack)

Total

income

(in lack)

Salary of

staff

(in lack)

Net profit

(in lack)

1999 341.99 59.90 72.95 5.23 7.04

2000 480.25 76.21 125.51 5.83 8.09

2001 1146.00 120.9 187.38 7.68 23.63

2002 887.99 68.90 108.80 13.62 1.05

2003 322.46 36.17 96.58 11.80 11.862004 458.25 45.85 106.57 12.58 9.54

2005 568.88 74.25 125.86 11.58 15.57

1.2 MILESTONES

In 1992,SGSSL has started their activities as on association of person.

On 5th January 1995, company registered under company act 1956.

On 3rd March 1995, the company suffered loss of Rs. 80000.

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In 1995-96, company suffered loss of Rs 1.10 lacks.

On 27th February 1996, company got SEBI registration.

The activity of NSE started on 18th April 1996.

On 23rd July 1996, the co-operation was shifted to Surat from Baroda.

Another terminal installed at J.K.Tower in March 1997.

The total volume per day now crossed Rs. 2 Crrores.

During year ended 31st March 1997, company turned corner.

The company has taken approval from NSDL to work of DP.

At present, there are more than 12000 holder having DEMAT A/c in

SGSSL.

Company has 35 registered sub broker.

Total incomes of 2005 are Rs. 96.58 lacks.

PAT for 2005 is Rs. 11.86 lack as against Rs. 1.05 lack of previous

year.

1.3 PROFILE OF COMPANY

1. Name of Company:

South Gujarat Shares & Share Brokers Limited

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2. Registered office

3rd floor, Belgium chamber,

OPP. Linear bus stop,

Ring Road,

Surat. 395003

3. Board of Director

Mr. Anil J. Choksy Chairman & Mamaging Director

Mr. Bhadresh G. Kaldia Whole time director

Mr. Indubhai D. Dalwala Whole time director

Mr. Ashok S. Mehta Whole time director

Mr. Paresh H. Jhaveri Director

4. Banker

Canara Bank

Bank of Baroda

HDFC Bank

5. Auditor

Ashwin Sanghavi

Chartered Account

Surat

Internal AuditorAmish Sanghavi & Company

Chartered Accounts

Surat.

2. National Stock Exchange (NSE)

2.1 Introduction of NSE

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The high-powered on the establishment of new stock exchange headed by

M.J.Pherwani, the former UTI Chairman, first mooted the ides of a

National Stock Exchange in June 1991.

The establishment on National Stock Exchange (NSE) is a step to

overcome the deficiencies of the existing stock market and to bring

Indian financial markets in line with international markets.

The national stock exchange on India was incorporated in November

1992 with an equity capital of Rs. 25 crores and promoted by IDBI,

ICICI, LIC, GIL and its subsidiaries, SBI and SBI Capital Markets

Limited.

Objectives of NSE

To establish nation wide trading facility for equities, debts and

hybrids.

To facilitate equal access to investors across the country.

To provide fairness, efficiency and transparency to the securities

trading.

To enable shorter settlement cycles.

To meet international securities market standard.

Features of NSE

- Fully automated screen based trading system.

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- It has two segments: The capital Market segment and whole sale debt

market segment.

- The market operates with all participants stationed at their offices and

making use of their computer terminals, to receive market

information, to enter order and to execute trade. Through 1777

satellite dishes there are 3000 computer terminals connected to NSE.

- The trading member is the capital market segment are connected to the

central computer in bombay through a satellite link-up using VSATs

(Very Small Aperture Terminal).

- The NSE has opted for an order driven system.

- When a trade takes place, a trade confirmation slip is printed at the

trading members work station. It gives detail price, quantity, code

number of the party and so on.

- The identity of the trading member is not revealed to other when he

places an order or when his pending orders are delayed.

- On the same day, each member gets a statement showing his net

position, the amount of cash he has to transfer to the clearing bank and

the securities he has to deliver to the clearing house.

- The automated trade matching system secures the best price available

in the market to the investor.

Board of Directors of NSE1 Mr. S. B. Mathur

Administrative of the specified undertaking of UTI

Chairman

2 Mr. Ravi Narain Managing

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National Stock Exchange of the India Ltd. Director

3 Ms. Chitra Ramkrishna

National Stock Exchange of the india Ltd.

Deputy

Managing

Director4 Mr. S. P. Chhajed

Partner of

M/S Chhajed & Doshi

Chartered Accountants

Director

5 Mr. R. P. Chitale

Managing Partner

M/S M. P. Chitale & Co.

Chartered Accountant

Director

6 Mr. Indrajit Gupta

Managing Director & CEO

SBI Capital Market Ltd.

Director

7 Mr. N. S. Kannan

Chief Financial Officer & Treasurer

ICICI Bank Ltd.

Director

8 Mr. S. H. Khan

Chairman

Feedback First Urban Infrastructure

Development Comp. Ltd.

Director

9 Mr. A. P. Kurian

Chairman Association of Mutual Fun in India

Director

10 Mr. Anand G. Mahindra

Vice Chairman & Managing Director

Mahindra & Mahindra Ltd.

Director

11 Mr. Y. H. Malegam

Chartered Accountant

Director

12

Prof. (Dr.) K. R. S. Murthy Director

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Professor and Former Director

Indian Institute of Management, Benglore

13 Mr. Ravi Parthasarathy

Chairman & Managing Director

Infrastructure Leasing & Finance Services Ltd.

Director

14 Dr. R. H. Patil

Chairman

The clearing corporation of india Ltd.

Director

15 Mr. Jastice M.L. Pendse (Retd.)

Former Chief Justice of Karnataka High Court

And Judge of Bombay High Court

Director

16 Mr. M. Reghavendra

Ex-General Manager

General Insurance Corporation of India

Director

17 Mr. S. Venkitesvedra

Sr. Advocate

Director

18 Mr. R. N. Bhardwaj

Chairman

Life Insurance Corporation of India

Director

Facts and Figure of NSE

Distribution of SEBI registered Trading Member and PCMs on the

Exchange (as on January 31, 2005)

CM WDM CM

&

WDM

CM,

WDM

&

F&D

CM

&

F&O

TOTAL PCMs

Corporate

/Institute

168 11 17 46 535 777 17

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Individual 17 - - - 29 46 -

Firms 17 - - - 32 49 -

Subsidiaries

of

Regional

Stock

Exchanges

7 - - - 4 11 -

Total 209 11 17 46 600 883 17

Distribution of SEBI registered sub-brokers affiliated to member of NSE

(as on January 31, 2005)

A Momentary look of NSECAPITAL MARKET (EQUITIES) SEGMENT

Number of VSATs February 28,2005 2,846

Number of cities covered February 28,2005 350

Settlement Guarantee Fund March 28, 2004 Rs.1,50.90

cr

Investor Protection fund (CM and F &O) February 28,2005 Rs.139.76 cr

Number of securities available fortrading

February 28,2005 1352

Record number of Trades January 05,2005 28,49,987

Record daily turnover (quantity) January 05,2005 6,757 lakhs

Record daily turnover (value) February 28,2001 Rs.

10,366.52 cr

Record market capitalization March 08,2005 Rs.

16,72,448 cr

Record value of S&P CNX Nifty Index March 09,2005 2183.45

Record value of CNX Nifty Junior Index February 23,2000 5365.90Record Pay-in /pay-out (Rolling

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Settlement):

Funds pay-in/pay-out February

05,2004*

Rs. 685.76

cr

Securities pay-in/pay-out (value) January 13, 2004* Rs. 1884.09

crSecurities pay-in/pay-out (Quantity) August 21,2003* 1470.14lakh

s*Settlement Date

DERIVATIVE (F&O) SEGMENT

No. of cities covered February 28,2005 315

Settlement Guarantee Fund March 31,2004 Rs.

4,356.85cr

Record daily turnover (value) January 28,2004 Rs.

21,921.34 crWHOLESALE DEBT SEGMENT Rs.

21,921.34 cr

Number of securities available for

trading

February 28,2005 3045

Record daily turnover (value) August 25, 2003 Rs.13,911.5

7cr

NSE Milestones

November1992

Incorporation

April 1993 Recognition as a stock exchange

May 1993 Formulation of business plan

June 1994 Wholesale Debt Market segment goes live

November1994

Capital Market (Equities) segment goes live

March 1995 Establishment of Investor Grievance Cell

April 1995 Establishment ofNSCCL, the first ClearingCorporation

June 1995 Introduction of centralised insurance cover forall trading members

July 1995 Establishment of Investor Protection Fund

October1995

Became largest stock exchange in the country

April 1996 Commencement of clearing and settlement byNSCCL

April 1996 Launch of S&P CNX Nifty

June 1996 Establishment of Settlement Guarantee Fund

November

1996

Setting up ofNational Securities Depository

Limited, first depository in India, co-promotedby NSE

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November1996

Best IT Usage award by Computer Society ofIndia

December1996

Commencement of trading/settlement indematerialised securities

December1996

Dataquest award for Top IT User

December1996

Launch ofCNX Nifty Junior

February1997

Regional clearing facility goes live

November1997

Best IT Usage award by Computer Society ofIndia

May 1998 Promotion of joint venture, India IndexServices & Products Limited (IISL)

May 1998 Launch of NSE's Web-site: www.nse.co.in

July 1998 Launch of NSE's Certification Programme inFinancial Market

August 1998 CYBER CORPORATE OF THE YEAR 1998 award

February1999

Launch of Automated Lending and BorrowingMechanism

April 1999 CHIP Web Award by CHIP magazine

October1999

Setting up ofNSE.IT

January

2000

Launch ofNSE Research Initiative

February2000

Commencement ofInternet Trading

June 2000 Commencement of Derivatives Trading (IndexFutures)

September2000

Launch of'Zero Coupon Yield Curve'

November2000

Launch ofBroker Plaza by Dotex International,a joint venture between NSE.IT Ltd. and i-flexSolutions Ltd.

December2000 Commencement ofWAP trading

June 2001 Commencement of trading in Index Options

July 2001 Commencement of trading in Options onIndividual Securities

November2001

Commencement of trading in Futures onIndividual Securities

December2001

Launch ofNSE VaR for Government Securities

January

2002

Launch ofExchange Traded Funds (ETFs)

May 2002 NSE wins the Wharton-Infosys Business

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Transformation Award in the Organization-wide Transformation category

October2002

Launch ofNSE Government Securities Index

January2003

Commencement of trading in Retail DebtMarket

June 2003 Launch of Interest Rate Futures

August 2003 Launch of Futures & options in CNXIT Index

June 2004 Launch of STP Interoperability

August 2004 Launch of NSEs electronic interface for listedcompanies

June 2005 Launch of Futures & options in

OTHER REGIONAL STOCK EXCHANGE

There are another 23 well known regional stock exchange working in

india with the similar objective.

Sr. No Name of stock exchange Year of Establishment

1 Bombay 1875

2 Ahmedabad 1894

3 Calcutta 1908

4 Madras 1908

5 Indore 1930

6 Hyderabad 1943

7 Delhi 1947

8 Bangalore 1957

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9 Cochi 1978

10 Kanpur 1982

11 Pune 1982

12 Ludhiana 1983

13 Gauhati 198314 Kanara 1985

15 Magadh 1986

16 Jaipur 1987

17 Bhuvaneshvar 1989

18 Sourashtra 1989

19 OTC exchange 1989

20 Vadodara 1990

21 Coimbatore 1991

22 National Stock Exchange 1992

2.2 Derivative Market of NSE

Futures & Options

The National Stock Exchange of India Limited (NSE) commenced

trading in derivatives with the launch of index futures on June 12, 2000.

The futures contracts are based on the popular benchmark S&P CNX

Nifty Index

The Exchange introduced trading in Index Options (also based on Nifty)

on June 4, 2001. NSE also became the first exchange to launch trading in

options on individual securities from July 2, 2001. Futures on individual

securities were introduced on November 9, 2001. Futures and Options on

individual securities are available on 116 securities stipulated by SEBI.

The Exchange has also introduced trading in Futures and Options

contracts based on the CNX-IT index from August 29,2003.

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The turnover in the derivatives segment has shown considerable growth

in the last year, with NSE turnover accounting for 98% of the total

turnover in the year 2001-2002.

This section provides you with an insight into the derivatives segment of

NSE. Real-time quotes and information regarding derivative products,

trading systems & processes, clearing and settlement, risk management,

statistics etc. are available here.

2.3 Equities Market of NSE

NSE started trading in the equities segment (Capital Market segment) on

November 3, 1994 and within a short span of 1 year became the largest

exchange in India in terms of volumes transacted.

Trading volumes in the equity segment have grown rapidly with average

daily turnover increasing from Rs.17 crores during 1994-95 to Rs.4,328

crores during 2003-04. During the year2003-04, NSE reported a turnover

of Rs.1,099,535 crores in the equities segment accounting for 68.60% of

the total Indian securities market.

The Equities section provides you with an insight into the equities

segment of NSE and also provides real-time quotes and statistics of the

equities market. In-depth information regarding listing of securities,

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trading systems & processes, clearing and settlement, risk management,

trading statistics etc are available here.

2.4 Commodity Exchanges of NSE

Commodity exchanges may make their closing prices available publicly,

although they are not required to do so. Trading on commodity exchanges

is almost always done only on a large scale, and so is not available to

smaller producers or investors. However, traders on commodity

exchanges work closely with smaller businesses and can provide their

services for a fee, giving these small businesses the opportunity to have

their products traded globally.

In a significant development, National Stock Exchange of India Ltd.

(NSE), countrys largest exchange and National Bank for Agriculture and

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Rural Development (NABARD), countrys premier agriculture

development bank announced their strategic participation in the equity of

MCX.

This new partnership of NSE and NABARD with MCX along with its

existing share holders such as State Bank of India group (SBI along with

its 7 subsidiary banks and SBI Life), Union Bank, Corporation Bank,

Canara Bank, Bank of Baroda, Bank of India, HDFC Bank and Financial

Technologies (India) Ltd. makes MCX consortium the largest distribution

network across the country.

3. SEBI, BSE, & Commodity exchange

3.1 Securities and Exchange Board of India (SEBI)

The duty of the government is to control stock market operation

through legislative and administrative measures for better and efficient

working of the stock market. For this purpose the government of India

has passed a bill in parliament on 4 th April 1956 known as securities

contracts (Regulation) Act, 1956. It was a landmark in Indian Securities

Market.

Objective of SEBI

To regulate the securities market.

To protect the interests of investors.

To promote the development of securities market.

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Function of the SEBI

To register and regulate the working of stock broker.

To register and regulate the working of bankers to an issue.

To control and regulate securities market.

To exercise and powers under Securities Contracts (Regulation) Act.

To regulate the working of mutual funds.

To control fraudulent and unfair trade practices relating to securities

market.

To regulate issue of securities.

To prohibit insides trading in securities.

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SEBI

BSE NSE Regional Stock

Exchange

Commodity

ExchangeEquity

Market

Derivative

Market

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SEBI Registration

Once admission is granted to an entity as a Stock broker (in NSE stock

brokers are referred to as Trading Members), provisional offer letters are

sent to the applicant.

In this offer letter, the requirements to be complied with by the trading

member for forwarding their application to SEBI are listed, important

among them being:

1. SEBI Application form along with DD of Rs. 5000/- favouring

SEBI for Capital Market, Rs. 10,000/- for F&O trading only and

Rs. 25,000/- for Trading cum Clearing/ Self clearing member on

F&O segment.

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Corporate

Partnership

Sub-broker

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2. Audited Financial statements, Networth certificate, Details of

Directors and shareholders, etc.

3. Memorandum or Articles of association or Partnership deed, as the

case may be.

As per the requirements of SEBI, every trading member of a recognised

Stock Exchange has to mandatorily register itself with SEBI through the

Stock Exchange which has admitted them as a Stock broker alongwith the

recommendation of the Exchange.

It must be noted that the applicant has to remit the prescribed membership

deposits (as required by the demand advice attached to the provisional

offer letter) before their application is forwarded to SEBI.

After satisfying itself as to compliance with respect to all the prescribed

norms, SEBI shall grant a Registration Certificate in the name of theapplicant. Upon receipt of the SEBI registration certificate, the applicant

will need to comply with certain formalities in order to be enabled to

trade on the National Exchange for Automated Trading (NEAT) system

of the Exchange.

Formalities for Enablement

After obtaining SEBI Registration, payment of fees/deposits and

submission of relevant documents, the Trading Member has to ensure that

the following formalities have been complied with:

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1. For installation of VSAT the following has to be submitted: (they

can also be submitted while giving documents for SEBI

Registration)

o Application for installation as per Annexure 3 of Circular

No.163

o VSAT Undertaking duly notarised

o NOC from the ownerof Premises where VSAT is going to

be installed

o Payment of Rs.2 lakhs favouring National Stock Exchange

of India Limited payable at Mumbai towards Interest-free

VSAT deposit

2. The member should also submit proof of :

o Opening of Exchange Dues accounts, Client account and

Own account

o Registration with Central Excise authorities

3. Application for approval as user for 2 people as per specified

format.

4. Trading Members are required to submit a Broker based specified

by SEBI. One soft copy and two hard copies of the same are to be

submitted to the Exchange.

5. Trading Members have to submit the following duly certified by

the statutory auditor:

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o Audited accounts

o Networth certificate as perAnnexure C-1

o Details of Directors as perAnnexure C-3

o Details of shareholding as perAnnexure C-6

o Details of dominant promoter group as perAnnexure C-7

6. Submission of Trading Membership Undertaking

After satisfying that all the formalities and requirements are complied

with regard to the Exchange, the Trading Member is enabled to trade on

the system and issued user ids.

3.2 Bombay Stock Exchange (BSE)

The Stock Exchange, Mumbai, popularly known as BSE was

established in 1875 as The Native Share and Stock Broker Association.

It is the oldest one in Asia, it is the first Stock Exchange in the Country to

have obtained permanent recognition in 1956 from the Govt. of India

under securities Contracts Act, 1956.

The Exchange, while providing an efficient and transparent market for

trading in securities, debt and derivatives upholds of the investors and

mare sure right of their objection whether against the companies or its

own member-brokers. It also struggles to education and markingavailable to them necessary informative inputs.

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A Governing Board having 20 directors is the apex body, which decides

the policies and regulates the affairs of the exchange. The Governing

Board consists of 9 elected directors, who are from the brokingcommunity (one third of them retire ever year by rotation), three SEBI

nominees, six public representatives and an Executive Director & Chief

Executive office and a Chief operating officer.

The Executive Director as the Chief Executive officer is responsible for

the day-to-day administration of the Exchange and the Chief Operating

officer and other heads of department assist him.

3.3 Commodity Exchange

MCX is an ISO 9001:2000 online nationwide demutualised multi

commodity exchange. It has over 900+ members spread across 500+

centers across the country, with more than 750+ VSATs and leased line

connections and 5,000+ trading terminals that provides a transparent

robust and trustworthy trading platform in more than 50 commodity

futures contract with a wide range of commodity baskets which includes

metals, energy and agriculture commodities. Exchange has pioneered

major innovations in Indian commodities market, which has become the

industry benchmarks subsequently. MCX is the only Exchange which has

got three international tie-ups which is with Tokyo Commodity Exchange

(TOCOM), the 250 year old Baltic Freight Exchange, London, Dubai

Metals & Commodity Centre (DMCC) & Dubai Gold & Commodity

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Exchange (DGCX), the strategic initiative of Government of Dubai.

MCX has to its credit setting up of the National spot exchange (NSEAP),

which connects all India APMC markets thereby contributing in the

implementation of Government of Indias vision to create a common

Indian market.

4. Trading Membership

4.1 Introduction:-

A broker is an intermediary who arranges to buy and sell securities o

behalf of clients (the buyer and the seller).

According to Rule 2(e) of SEBI (Stock Brokers and Sub-Brokers) Rules,

1992, a stockbroker means a member of a recognized stock exchange. No

stockbroker is allowed to buy, sell or deal in securities, unless he or she

holds a certificate of registration granted by SEBI.

A stockbroker applies for registration to SEBI through a stock exchange

or stock exchanges of which he or she is admitted as a member.SEBI may

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grant a certificate to a stock-broker [as per SEBI(Stock Brokers and Sub-

Brokers) Rules, 1992] subject to the conditions that:

a) He holds the membership of any stock exchange;

b) He shall abide by the rules, regulations and bye-laws of the stock

exchange or stock exchanges of which he is a member;

c) In case of any change in the status and constitution, he shall

obtain prior permission of SEBI to continue to buy, sell or deal in

securities in any stock exchange;

d) He shall pay the amount of fees for registration in the prescribed

manner; and

e) He shall take adequate steps for redressal of grievances of the

investors within one month of the date of the receipt of the

complaint and keep SEBI informed about the number, nature and

other particulars of the complaint.

While considering the application of an entity for grant of registration as

a stockbroker, SEBI shall take into account the following namely,

whether the stockbroker applicant-

a) is eligible to be admitted as a member of a stock exchange;

b) has the necessary infrastructure like adequate office space,

equipment and manpower to effectively discharge his

activities;c) has any past experience in the business of buying, selling or

dealing in securities;

d) Is being subjected to any disciplinary proceedings under the

rules, regulations and bye-laws of a stock exchange with

respect to his business as a stock-broker involving either

himself or any of his partners, directors or employees.

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4.2 Membership in NSE

There are entry/exit barriers to the membership in NSE. Anybody

can become member by complying with the prescribed eligibilitycriteria and exit by surrendering membership without any

hidden/overt cost.

The members are admitted to the different segments of the

Exchange subject to the provisions of the Securities

Contracts(Regulation) Act,1956, the Securities and Exchange

Board of India Act,1992,the Rules, circulars, notifications,

guidelines,etc.,issued there under and the Bye laws, Rules and

Regulations of the Exchange.

4.3 Benefits to the trading membership of NSE

include:

1. access to a nation-wide trading facility for equities,

derivatives, debt and hybrid instruments / products,

2. ability to provide a fair, efficient and transparent securities

market to the investors

3. use of state-of-the-art electronic trading systems and

technology,

4. dealing with an organization which follows strict standards

for trading & settlement at per with those available at the

top international bourses,

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5. a demutualised Exchange which is managed by

independent and experienced professionals, and

6. Dealing with an organisationwhich is constantly striving to

move towards a global marketplace in the securities

industry.

4.4 New Membership

Membership of NSE is open to all persons desirous of becoming tradingmembers, subject to meeting requirements/ criteria as laid down by SEBI

and the Exchange. The different segments currently available on the

Exchange for trading are:

Capital Market (Equities and Retail Debt)

Wholesale Debt Market

Derivatives (Futures and Options) Market

Admission to membership of the Exchange to any of the segments is

currently open and available.

Persons or Intuitions desirous of securing admission as Trading Members

(Stock Brokers) on the Exchange may apply for any one of the following

segment groups:

I. Wholesale Debt Market (WDM) segments

II. Capital Market (CM) and Wholesale Debt Market(WDM)

segments

III. Capital Market (CM) and Futures & Options (F&O) segments

IV. Capital Market (CM), Wholesale Debt Market (WDM) and Futures

& Options(F&O) segments

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V. Clearing Membership of National Securities Clearing Corporation

Ltd.(NSCCL) as a Professional Clearing Member(PCM)

4.5 Eligibility for acquiring membership of NSE is as

follows:

1) The following persons are eligible to become trading members:

a) Individuals

b) Partnership firms registered under the Indian Partnership Act, 1932

Individual and Partnership firm are not eligible to apply for

membership on WDM segment.

c) Institutions, including subsidiaries of banks engaged in financial

services.

d) Body Corporates including companies as defined in the Companies

Act, 1956.

A company shall be eligible to be admitted as a member if:

i. Such company is formed in compliance with the provisions

of Section 12 of the said Act;

ii. Such company undertakes to comply with such financial

requirements and norms as may be specified by the

Securities and Exchange Board of India for the registration

of such company;

iii. The directors of such company are not disqualified for being

members of a stock exchange and have not held the offices

of the Directors in any company which had been a member

of the stock exchange and had been declared defaulter or

expelled by the stock exchange; and

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e) Such other persons or entities as may be permitted from time to

time by RBI / SEBI under the Securities Contracts (Regulations)

Rules, 1957.

i. it is a body corporate which has committed any act which

renders it liable to be wound up under the provisions of the

law;

ii. it is a body corporate or a company in respect of which a

provisional liquidator or receiver or official liquidator has

been appointed by a competent court;

4.6 Education and Experience

Where an applicant is a corporate, not less than two directors of the

company (in case of a sole proprietorship, individual and in case of a

partnership firm, two partners) should satisfy the following criteria:

They should be at least graduates and each of them should posses at least

two years experience in an activity related to broker, sub-broker,

authorized agent or authorized clerk or authorized representative or

remisier or apprentice to a member of a recognized stock exchange.

Such experience will include working as a dealer, jobber, market maker,

or in any other manner in the dealing in securities or clearing and

settlement thereof, as portfolio manager or merchant bankers or as a

researcher with any individual or organization operating in the securities

market.

4.7 Shareholding Pattern: -

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Securities markets have the inherent tendency to be volatile and risky.

Therefore, there should be adequate risk containment mechanisms in

place for the Stock Exchanges. Once such risk containment tool is the

concept of Dominant Promoter / Shareholder Group which is very

unique for applicants acquiring membership on the NSE. Though

membership on NSE is granted to the entity applying for it, but for all

practical purposes the entity is managed by a few shareholders who have

controlling interest in the company. The shareholders holding the

majority of shares have a dominant role in the affairs of the company. In

case of any default by the broking entity, the Exchange should be able to

identify and take action against the persons who are behind the company.

The Exchange, therefore, needs to know the background, financial

soundness and integrity of these shareholders holding such controlling

interest. Hence, during the admission process the dominant shareholders

are called for an interview with the Membership Approval Committee.

4.8 Eligibility Criteria for MembershipParticulars WDM

Segment

CM and F&O

Segments

CM and

WDM

Segments

CM,WDM

and F&O

Segments

Constitution Corporates/

Institutions

Individuals/

Firms/

Corporates

Corporates/

Institutions

Corporates/

Institutions

Paid-upcapital

Rs.30 lakh Rs.30 lakh Rs.30 lakh Rs.30 lakh

Net Worth Rs. 200 lakh Rs. 100 lakh* Rs. 200 lakh Rs. 200 lakh*

Interest Free

Security

Deposit

(IFSD)

Rs. 150 lakh Rs.125 lakh Rs. 250 lakh Rs. 275 lakh

CollateralSecurity

Deposit

(CSD)

- RS. 25 lakh Rs. 25 lakh Rs. 25 lakh

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Annual

Subscription

Rs.1 lakh Rs. 1 lakh Rs. 2 lakh Rs. 2 lakh

Education At least two

directors

should be

graduates.

Proprietor/two

partners/two

directors should

be graduates

Dealers should

also have passed

SEBI approved

certification test

for derivatives

and NCFM

Capital Market

(Basic or

Dealers)Module.

At least two

directors

should be

graduates.

Dealers

should also

have passed

NCFM

Capital

Market

(Basic or

Dealers)

Module.

At least two

directors

should be

graduates.

Dealers

should also

have passed

SEBI

approved

certification

test for

derivatives

and NCFMCapital

Market (Basic

or Dealers)

Module.

Experience ------------------Two years experience in securities

market-------------

Track Record The Applicant/ Partners/Directors should not be defaulters on any

stock exchange. They must not be debarred by SEBI for being

associated with capital market as intermediaries. They must be

engaged solely in the business of securities and must not beengaged in any fund-based activity.

4.9 Eligibility Criteria for Professional Clearing

Member of NSCCL

Applications seeking admission as Professional Clearing Members on the

Futures7 Options and / or Capital Market Segments of NSCCL would berequired to meet the capital adequacy norms including additional deposits

and fees as given below:

Sr. No. Particulars Clearing Membership of segments

F &O CM CM and

F&O

1 Interest Free

Cash

SecurityDeposit with

25 25 34

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NSCCL

2 Collateral

Security

Deposit with

NSCCL*

25 25 50

3 Advance

Annual

Subscription

2.5 2.5

4 Net Worth

Requirement

300 300 300

5 Formula /

Methodology

applicable

forcalculation of

net worth

As per Dr. L C

Gupta

Committee

recommendation

As

prescribed

by NSE for

tradingmembers

As per Dr. L C

Gupta

Committee

recommendation

* Collect Security Deposit with .NSCCL can be by way of cash or

bank guarantees or fixed deposits or select demat securities with

appropriate hair cuts.

4.10 Admission Procedure

Applicants are required to submit application form, in the prescribed

format, along with other relevant documents. Admission is a two-stage

process with applicants requiring to go through an examination (a module

of NCFM) followed by an interview with the Membership Approval

Committee (MAC). The examination is conducted so as to test the

knowledge of the people associated with the Exchange on different

aspects of the capital/ financial markets in India, as it would ensure the

conduct of fair, professional and sound dealing practices. MAC consists

of seven persons from various disciplines, including the Managing

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Director of the Exchange. The MAC conducts interviews with the

applicants for trading membership. The purpose of the interview is to

gain knowledge about the prospects as to their capability and

commitment to carry on stock broking activities, financial standing,

integrity, etc.

4.11 Brokerage and other charges

As stipulated by SEBI, the maximum brokerage that can be charges id

2.5% of the trade value.The maximum brokerage is inclusive of the brokerage charged by the

sub-broker

- service tax @ 10.20% of the brokerage.

- Transaction charge levied by NSE

- STAM charge 0.05

-Transaction Turnover tax-delivery buys 0.075 and sell trading sell0.015% cash

sell 0.01% derivative.

The brokerage and service tax is indiacted separately in the contract

note.

4.12 Authorized persons

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Trading members of the Exchange may appoint authorised persons who

are individuals, registered partnership firms, bodies corporate or

companies as defined under the Companies Act, 1956 in the Capital

Market (CM) segment or Futures & Options (F&O) segment or in both

CM and F&O segments.

The trading member shall issue the contract notes and/ or bills directly to

the client i.e. the authorised person shall not issue contract notes,

confirmation memo and/ or bills in their name.

The clients introduced by the authorised person would be required to

deliver securities and make payments directly in the trade name of the

trading member (as appearing on the SEBI registration certificate).

5. Sub-Brokers

A Sub-broker is a person who intermediates between investors and

stock brokers. He acts on behalf of a stock-broker as as agent of

otherwise for assisting the investors for bying, selling or dealing in

securities through such stock-broker. No sub-broker is allowed to buy,

sell or deal in securities, unless he or she holds a certificate of registration

granted by SEBI. A sub-broker may take the form of a sole

proprietorship; a partnership firm or a company. Stockbrokers of the

recognized stock exchanges are permitted to transact with sub-brokers.

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SEBI may grant a certificate to a sub-broker, subject to the conditions

that:-

a) He shall pay the fees in the prescribed manner;

b) He shall take adequate steps for redressal of grievances of the

investors within one month of the date of the receipt of the

complaint and keep SEBI informed about the number, nature and

other particulars of the complaints received;

c) The applicant is not less than 21 years of ago;

d) The applicant has not been convicted of any offence involving

fraud or dishonesty;

e) The applicant has at least passed 12 Th standard equivalents from

an institution recognized by the Government.

f) They should not have been debarred by SEBI.

g) The corporate entities applying for sub-broker ship shall have a

minimum paid up capital of Rs. 5 lakh and it shall identify a

dominant shareholder who holds a minimum of 51% shares either

singly or with the unconditional support of his/ her spouse.

The sub-broker of a TM Exchange has to comply with all the

requirements under SEBI (Stock brokers and sub-brokers) Regulations,

1992 and the requirements of the Exchange as may be laid down fromtime to time. The sub-broker is bound by and amenable to the Rules,

Byelaws and Regulations of the Exchange. The sub-broker shall also

comply with all terms and conditions of the agreement entered into by

him with the TM.

5.1 Sub-brokersMembership

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Trading members desirous of appointing sub-brokers are required to

submit the following documents to the Membership Department of the

Exchange:

Copy of sub-broker - broker agreement duly certified by the

trading members

Application form for registration as a sub-broker with Securities

and Exchange Board of India (Form B)

Recommendation letter to be given by the trading member with

whom the sub-broker is affiliated (Form C)

The detailed scheme relating to the registration of sub-brokers is provided

in the following circulars::

Circular No Download No. Date

60 NSE/MEM/275 12-Jun-1997

63 NSE/MEM/282 25-Jun-1997

69 NSE/MEM/311 23-Jul-1997

379 NSE/MEMB/4684 26-Dec-2003

418 NSE/MEMB/5411 08-Sep-2004

The trading member concerned shall be responsible to ensure the

settlement of all deals entered into by trading member even though the

orders in respect of the deals may have originated from its sub-broker.

The TM with whom the sub-broker is affiliated is responsible for-

1) Ensuring the compliance by a sub-broker of the Rules, Bye-Laws

and Regulations of the Exchange

2) Inspecting that the sub-broker are registered and recognized

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3) Ensuring that the sub-brokers function in accordance with the

Scheme, Rules, Byelaws, Regulations etc. of the Exchange /

NSCCL and the SEBI Regulations etc.

4) Informing the sub-broker and keeping him apprised trading /

settlement cycles, delivery / payments schedules and any changes

therein from time to time.

5) Reporting any default or delay in carrying out obligations by any of

the sub-brokers affiliated to him, to all other stock brokers with

whom the said sub-broker is affiliated.

5.2 Broker-Clients Relations

Know your client

The TM shall enter into an agreement in the specified format provided by

NSE with the client before accepting orders on latters behalf. The said

agreement shall be executed on non-judicial stamp paper of adequate

value, duly signed by both the parties on all the pages. Copy of the said

agreement is to be kept with the TM permanently.

Unique Client Code

SEBI made it mandatory for all brokers to use unique client codes for all

clients. Brokers shall collect and maintain in their back office the

Permanent Account Number (PAN) allotted by Income Tax Departments

for all their clients. Sub-brokers will similarly maintain the same for their

clients. Where an individual client does not have PAN, such a client shall

be required to give a declaration to that effect and until the PAN is

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allotted, such client shall furnish passport number and place and date of

issue.

Margins from the Clients

It shall be mandatory for the TM to collect upfront margins from clients

whose trades would result in a margin of Rs. 50,000/- or more. The

margin so collected shall be kept separately in the client bank account and

utilized for making payment to the clearing house for margin and

settlement with respect to that client.

Execution of Orders

The TM shall ensure that appropriate confirmed order instructions are

obtained from the clients before placement of an order on the system. In

order to execute a trade for a client, a broker must have specific customer

instructions as to name of the company, the precise number of shares and

limit / market price condition.

Accumulation of Orders

The TM shall not accumulate clients order / unexecuted balances of

order where such aggregate orders/ aggregate of unexecuted balance if

grater than the regular lot size, specified for that security by the

Exchange.

Contract Note

Contract note is a confirmation of trade(s) done on a particular day for

and on behalf of a client. A stock-broker shall issue a contract not to his

clients for trades (purchase / sale of securities) executed with all relevant

details as required therein to be filled in (refer to SEBI circular no.

SMD/SED/CIR/23321 dated November 18, 1993). A contract note shall

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be issued to a client within 24 hours of the execution of the contract duly

signed by the TM or his Authorised Signatory or Client Attorney.

Payments / Delivery of Securities to the Clients

Every TM shall make payments to his clients or deliver the securities

purchased within 2 working days of pay-out unless the client has

requested otherwise (refer to SEBI circular no. SMD/SED/CIR/23320

dated November 18, 1993).

Segregation of Bank Accounts

The TM should maintain separate bank accounts for clients funds and

own funds. It shall be compulsory for all TMs to keep the money of the

clients in a separate account and their own money in a separate account.

Funds shall be transferred from the client account to the clearing account

for the purpose of funds pay-in obligations on behalf of the clients and

vice- versa in case of funds pay-out.

Know Your Client

The sub-broker shall enter into an agreement with the client before

placing orders. Such agreement shall include provisions specified by the

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exchange in this behalf. The said agreement shall be executed on non-

judicial stamp paper.

Orders

The sub-broker shall ensure that appropriate confirmed order instructions

are obtained from the clients before placement of an order on the system

and shall keep relevant records or documents of the same and of the

completion or otherwise of these orders thereof.

Payments / Delivery of Securities

The sub-broker shall make payments to his clients to his clients or deliver

the securities purchased within 48 hours of pay-out unless the client has

requested otherwise.

Sub-brokerage

The sub-broker shall charge his brokerage at rates not exceeding the rate

prescribed by SEBI i.e., 1.5%. The brokerage charged by the TM and the

sub-broker shall be indicated separately from the clients and shall be

indicated separately from the price, in the purchase / sale note.

5.3 Code of Advertisement

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Trading Members of the Exchange while issuing advertisements in the

media have to comply with the Code of Advertisement prescribed by the

Exchange.

1. The trading member should designate and authorise a person to

ensure the correctness of the information given in any

advertisement.

2. The trading member issuing any such advertisement should inform

the name of such authorised person to the Exchange.

3. The advertisement should be written in clear language and should

not be such which may prejudice interest of the investors in

general.

4. The advertisement should not contain any confusing, misleading or

offensive information.

5. It should be free from inaccuracies.

6. The material should not contain anything which is otherwise

prohibited.

7. The copy of such advertisement should be retained for a period of

three years.

8. These norms will apply to any other investment / consultancy

agencies associated with the trading member concerned.

9. The above norms shall also apply to an advertisement, T.V. or

Cable T.V. or any other such media of audio / visual nature.10.The trading members should check with the Exchange in case of

any doubt for advice prior to the issue of any such material or

advertisement.

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6.1 Introduction

The trading on stock exchanges in India used to take place through open

outcry without use of information technology for immediate matching or

recording of trades. This was time consuming and inefficient. This

imposed limits on trading volumes and efficiency. In order to provide

efficiency, liquidity and transparency, NSE introduced a nation-wide on-

line fully-automated screen based trading system (SBTS) where a

member can punch into the computer quantities of securities and the

prices at which he likes to transact and the transaction is executed as soon

as it finds a matching sale or buy order from a counter party. It also

provides a perfect audit trial, which helps to resolve disputes by logging

in the trade execution process in entirety. This sucked liquidity from other

exchanges and in the very first year of its operation, NSE became the

leading stock exchange in the country, impacting the fortunes of other

exchanges and forcing them to adopt SBTS also. Today India can boast

that almost 100% trading take place through electronic order matching.

Promoters:

- IDBI

- LIC

- SBI & SBI Capital Market Limited

- ICICI

- GIC & Its Subsidiaries

6.2 Trading Network

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1- the trading network is depicted in figure. NSE has main computer

which is connected through Very Small Aperture Teminal (VSAT)

installed at its office.

2- The main computer runs on a fault tolerant STRATUS mainframe

computer at the exchange.

3- Brokers have terminal installed at their premises which are connected

through VSAT/leased lines / modems.

4- An investor informs a broker to place an order on his behalf. The

broker enters the order through his PC, which runs WindowsNT and

sends singal to the satellite via VSAT/leased line/modem. The singal

is directed to mainframe computer at NSE via VSAT at NSE office.

5- A message relating to the order activity is broadcast to the respective

member. The order confirmation message is immediately displayed on

the PC of the broker.

6- This order match with the existing passive order, otherwise it waits for

the active order to enter the system. On order matching a message is

broadcast to the respective member.

6.3 Trading System

NSE operation on the National Exchange for Automated Trading

(NEAT) system, a fully automated screen based trading system, which

adopts the principle of an order driven market.

This has help reduce jobbing spreads not only on NSE but in other

exchange as well, thus reducing transaction cost.

1. Market Type

2. Order Book

3. Order Matching Rules

4. Order Conditions

NEAT System :-

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The NEAT system supports an order driven market, wherein orders

match on the basis of time and price priority. All quantity fields are in

units and prices are quoted in India Rupes. The regular lot size and tick

size for various securities traded is notified by the Exchange from time to

time.

Trading System - Market Types:-

The capital Market system has four types of market.

Normal Market -

Normal market consists of various book types wherein orders aresegregated as Regular Lot Orders, Special Term Orders, Negotiated

Trade Orders and Stop Loss Orders depending on their order attributes.

Odd Lot Market

The odd lot market facility is used for the Limited Physical Market. The

main features of the Limited Physical Market are detailed in a separate

section.

RETDEBT Market

The RETDEBT market facility on the NEAT system of capital market

segment is used for transactions in Retail Debt Market session. Trading in

Retail Detail Market takes place in the same manner a in equities (capital

market) segment.

Auction Market

In the Auction market, auctions are initiated by the Exchange on behalf of

trading members for settlement related reasons. The main features of this

market are detailed in a separate section on auction.

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Trading System Order Books

The NSE trading system provides complete flexibility to members in the

kinds of order that can be placed by them.

Every order has a distinctive order number and a unique time stamp on it.

If a match is not found, then the orders are stored in different books.

Order are stored in price-time priority in various books in the following

sequence.

- Best Price

- Within Price by time priority.

Price priority means that if two order are entered into the system, the

order having the best gets the higher priority. Time priority means if two

order having the same price are entered, the order that is entered first get

the higher priority.

The equities segment has following types of books:

Regular Lot Book-

The Regular Lot Book contains all regular lot order that have nine of the

following attributes attached to them.

- All or Non (AON)

- Minimum Fill (MF)

- Stop Loss (SL)

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Special Terms Book -

The Special Terms book contains all orders that have either of the

following terms attached:

- All or Non (AON)

- Minimum Fill (MF)

Note: Currently, special term order i.e. AON and MF are not available on

the system as per the SEBI directives.

Negotiated Trade Book -

The Negotiated Trade Book contains all negotiated order entries captured

by the system before they have been matched against their counterparty

trade entries.

These entries are matched with identical counterparty entries only.

Stop-loss Book-

Stop Loss orders are stored in the book till the trigger price specified in

the order is reached or surpassed. When the trigger price is reached or

surpassed, the order is released in the regular lot book.

Odd Lot Book-

The Odd Lot Book contains all odd lot orders (order with quantity less

than marketable lot) in the system. The system attempts to match an

active odd lot order against passive order in the book.

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Currently, pursuant to a SEBI directive, the odd lot market is being used

for order that have quantity less than or equal to 500 viz. The limited

physical market.

Spot Book-

The Spot lot book contains all spot order (order having only the

settlement priority different) in the system. Currently the spot market

book type is not in use.

Auction Book

This book contains that are entered for all auctions. The matching process

for auction order in this book is initiated only end of the solicitor period.

Trading System Order Matching Rules

The best buy order is matched with the best sell order. An order may

match partially with another order resulting in multiple trade.

The best buy order is the order with the higher price and the best sell

order is the order with the lowest price. This is because the system views

all buy order available from the point of view of a saller and all sell order

from the point of view of the buyer in the market.

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Member can proactively enter order in the system, which will be displyed

in the system till the full quantity is matched by one or more of counter-

order and result into trade or is cancelled by the member. Order lying

unmatched in the system are passive order and order that come in to

match the existing order are called active orders. Orders are always

matched at the passive order price.

Trading System Order Conditions

A trading member can enter various type of order depending upon his/her

requirements.

These conditions are broadly are classified into three categories:

- Time conditions

- Price condition

- Quantity conditions.

Time condition

Day- A Day orders, as the name suggests, is an order that is valid for the

day on which it is entered. If the order is not matched during the day, the

order gets cancelled automatically at the end of the trading day.

GTC- A Good Till Cancelled (GTC) order is an order that remains in the

system until it is cancelled by the trading Member.

The maximum number of days a GTC order can remain in the system is

notified by the exchange from time to time.

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GTD- A Good Till Day/Date (GTD) order allows the trading member to

specify the days / date up to which the oredr should stay in the system. At

the end of this period the order will get flushed from the system.

Each day/date counted is a calendar day and inclusive of holidays. The

days/date counted is inclusive of the day/date on which the order is

placed.

The maximum number of the days a GTD order can remain in the system

is notified by the exchange from time to tome.

IOC- An Immediate or Cancel (IOC) order allows a trading member to

buy or sell a security as soon as the order is released into the market,

failing which the order will be removed from the market.

Partial match is possible for the order, and the unmatched portion of the

order is cancelled immediately.

Price Conditions-

Limit Price/order- An order that allows the price to be specified while

entering the order into the system.

Market Price/Order- An order to buy or sell securities at the beat price

obtainable at the time of entering the order.

Stop Loss (SL) Price/order- The one that allows the trading member to

placed an order which get activated only when the market price of the

relevant securities crosses a threshold price. Until the order does not enter

the market.

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Quantity Conditions

Disclosed Quantity (DQ)- An order with a DQ condition allows the

trading member to disclose only a part of the order quantity to the market.

Minimum Fill (MF)- An order allows the trading member to specify the

minimum quantity by which an order should be filled.

6.4 Corporate Hierarchy

The trading member has the facility of defining a hierarchy amongst itsusers of the NEAT system. This hierarchy comprises:-

Corporate Manager: - The corporate manager is a term assigned

to a user placed at the highest level in a trading firm. Such a user

receives the End of Day reports for all branches of the trading

member. The facility to set Branch Order Value Limits and User

Order Value Limits is available to the corporate manager.

Branch Manager: - The branch manager is a term assigned to a

user who is placed under the corporate manager. The branch

manager receives End of Day reports for all the dealers under that

branch.

Dealer: - Dealers are user at the lower most level of the hierarchy.

A dealer can view and perform order and trade related activities

only for oneself and does not have access to information on other

dealers under either the same branch or other branches.

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6.5 Local Database

The Local Database provides faster response time to users. All inquiries

made by a user for own orders / trades re serviced through the local

database. If however, a corporate manager / branch manager makes

inquiries for orders of any dealer / branch manager of the trading firm,

and then the inquiry is serviced by the host.

6.6 Trade Management

A trade is an activity in which a buy and a sell order match with each

other. Matching of two orders is done automatically by the system.

Whenever a trade takes place, the system sends a trade confirmation

message to each of the users involved in the trade. The trade confirmation

slip gets printed at the trader workstation of the user with a unique trade

number. The system also broadcasts a message to the entire market

through the ticker window displaying the details of the trade.

Trade Modification:-

The user can use trade modification facility to request for modifying

trades done during the day. The user can request the Exchange to modify

only the trade quantity field. Moreover, the new quantity requested must

be lower than the original trade quantity.

If the user is a corporate Manager of a trading member firm, he can

request for trade modification for the trades of the trading members firm

and if he is a Branch Manager of a branch, then he can request for trade

modification for any dealer of the trading member firm.

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Trade Cancellation :-

The user can use trade cancellation screen for canceling trades done

during the day. If the user is a corporate manager of a trading member

firm , he can request for trade cancellation for the trades o any dealer of

the trading members firm and if he is a branch manager of a branch, then

he can request for trade cancellation for the trades for any dealer of the

branch of the trading member firm.

6.7 Transaction Cycle

A person holding assets (securities / funds), either to meet his liquidity

needs or to reshuffle his holding in response to changes in his perception

about risk and return of the assets, decides to buy or sell the securities.

He finds out the right broker and instructs him to place buy/sell order on

an exchange. The order is converted to a trade as soon as it funds a

matching sell/buy order.

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(Transaction Cycle)

Trade Recording:

The key details about the trades are recorded to provide basis for

settlement. These details are automatically recorded in the electronic

trading system of the exchange.

Trade Confirmation:

The counterparties to trade agree upon the terms of trade like security,

quantity, price, and settlement date, but not the counter-party, which is

the NSCCL.

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Decision to

Trades

Decision to

Trades

Placing

Order

Placing

Order

Trade

Execution

Trade

Execution

Clearing of

Trade

Clearing of

TradeSettlement of

Trade

Settlement of

Trade

Funds/

Securities

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Determination of obligation:

The next step is determination of what counter-patties owe, and what

counter-patties are due to receive on the settlement date.

The NSCCL interposes itself as accentual counter-party between the

counterparties to trades and nets the position so that a members has

security wise net obligation to receive or deliver a security and has to

either pay or receive funds.

Pay-in of Funds and Securities:

The member bring in their funds/securities to the NSCCL.

They make available required securities in designated accounts with the

depositories by the prescribed pay-in time.

The depositories move the security available in the accounts of member

to the account of the NSCCL.

The bank process these instructions, debit accounts of members and

credit accounts of the NSCCL.

Pay-out Funds and Securities:

After processing shortage of funds/securities and arranging for movement

of funds from surplus banks to deficit banks through RBI clearing, the

NSCCL sends electronic instructions to the depositories / clearing banks

to release pay-out of securities / funds.

The depositors and clearing banks debit accounts of the NSCCL and

credit accounts of members.

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Risk Management:

A sound risk management systems is integral to an efficient Settlement

system.

The NSCCL ensures that trading members obligations are

Commensurate with their net worth.

It has put in place a comprehensive risk management system, which is

constantly monitored and upgraded to pre-empt market failures.

6.8 Clearing & Settlement

NSCCL carries out and settlement functions as per the settlement cycle of

different sub-segments in the equities segment.

NSCCL has also devised mechanism to handle various exceptional

situations like security shortages, bad delivery, company objections,

auction settlement etc.

Clearing

Clearing is the process of determination of obligation, after which the

obligations are discharged by settlement.

NSCCL has two categories of clearing members: trading members and

custodians. The trading member can pass on its obligation to the

custodians confirms the same to NSCCL. All the trades whose obligation

the trading member proposes to pass on to the custodian are forwarded to

the custodian by NSCCL for their confirmation. The custodian is required

to confirm these on t+1 days basis.

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Accordingly, a clearing member would have either pay-in or pay-out

obligations for funds and securities separately. Thus, member pay-in and

pay-out obligation for funds and securities are determined latest by t + 1

day and are forwared to them so that they can settle their obligation on

the settlement day (t+2).

Cleared and non-cleared deals

NSCCL carries out the clearing and settlement of trades executed in the

following sub-segment of the equities segment.

1. all trades executed in the book entry / rolling segment.

2. All trade executed in the limited physical market segment.

Clearing Merchant

Trades in rolling segment are cleared and settled on a netted basis.

Trading and settlement periods are specified by the exchange / clearing

corporation from time to time. Deals executed during a particular trading

period are netted at the end of that trading period and settlement

obligation for that settlement period are computed. A multilateral netting

procedure is adopted the net settlement obligations.

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Funds settlement

Fund shortage

Member required ensuring that adequate fund are available in the clearing

account towards all obligation, on the scheduled date and time.

In all cases of funds shortages, NSCCL may initiate various actions

including with drawing the trading facilities of the member, with holding

the securities pay-out dye to the member, reduction in permissible gross

exposure limits, requiring the member to make advance pay-in, etc.

Once the member brings in the required fund to fulfill his shortage, the

member may be permitted to trade with reduced exposure limits as per

the slabs mentioned below:

Cumulative Fund Shortage (Rs.) Exposure limit allowed (% of current

exposure limit)2-5 lakhs 80%

> 5 lakhs 60%

If the cumulative fund shortage for the next 10 settlements is less that

Rs. 2 lakhs, the exposure limits may be restored.

Apart from the above, the member will be required to pay a penal chargeat the rate of 0.09% per day computed on the amount outstanding at the

end of the day, till the amount is recovered. Further, for every case of

non-fulfillment of fund pay-in obligations, penalty points are levied on

members.

Settlement Cycle

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At the end of each trading day, concluded or locked-in trades are received

from NSE by NSCCL. NSCCL determines the cumulative obligations of

each member and electronically transfers the date to Clearing Members

(CMs).

Settlement id deemed to be complete upon declaration and release of pay-

out of fund and securities.

On the securities pay-in day, delivering member are required to bring in

securities to NSCCL. On pay-out day the securities are delivered to the

respective receiving members. Exceptions may arise because of short

delivery of securities by CMs, bad deliveries or company objection on the

pay-out day.

Auctions

Each CM would communicate to NSCCL on the pay-in day the securities

that the CM would be delivering and those that the CM is unable to

deliver. NSCCL identified short deliveries and conducts a buying-in

auction on the day after the pay-out day through the NSE trading system.

Rolling Settlement

In a rolling settlement, each trading day is considered as a trading period

and trades executed during the day are setteled based on the net

obligation for the day. At NSE, trades in rolling settlement are day settled

on a t+2 bases i.e. on the 2nd working day. For arriving at the settlement

day all intervening holidays, which include bank holidays, NSE holidays,

Saturday and Sunday are excluded. Typically trades taking place on

Monday are settled on Wednesday, Tuesdays trades settled on Thursday

and so on.

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A table representation of the settlement cycle for rolling settlement is

given below:

SETTELEMENT CYCLE

Activity Day

Trading Rolling settlement trading T

Clearing Custodial confirmation T+1 working day

Delivery generation T+1 working day

Settlement Securities and fund pay in T+2 working day

Securities and fund pay out T+2 working day

Valuation T+2 working day

Post

settlement

Auction T+3 working day

Bad delivery reporting T+4 working day

Auction settlement T+5 working day

Rectified bad delivery pay in and pay

out

T+6 working day

Re-dab delivery reporting and pickup T+8 working day

Close out of re-bad delivery and fund

pay in & pay out

T+9 working day

Salient features of settlement

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Delivery of shares in street name and market delivery (client holding

physical shares purchased from the secondary market) is treated as

bad delivery. The shares standing in the name of individual / HUF

only would constitute good delivery. The selling / delivery member

must necessary be the introducing member.

Any delivery in excess of 50 shares is market as short and such

deliveries are compulsory closed-out.

Shortage, if any, are compulsory closed-out at 20% over the actual

traded price. Uncertified bad delivery and re-bad delivery are

compulsory closed-out at 20% over the actual traded price.

The buyer must compulsory send the securities for transfer and

dematerialization, latest within 3 months from the date of pay-out.

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1

8 9

6 7

2 3 4 11

10 5

Settlement Process in CM segment of NSE

Explanation

1) Trade details from exchange to NSCCL (real time and end of day

trade file)

2) NSCCL notified the consummated trade details to CMS/custodians

who affirm back. Based on the affirmation, NCSSL applies

multilateral netting and determines obligation.

3) Download of obligation and pay-in advice of fund / securities.

4) Instruction to clearing bank to mark fund available by pay-in time.

5) Instruction to depository to make securities available by pay-in time.

6) Pay-in of securities (NSCCL advises depository to debit pool account

of custodians / CMS and credit its account and depository does it).

7) Pay-in of fund (NSCCL advise clearing bank to debit account of

custodians / CMS and credit its account and clearing bank does it).

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Depositories NSCCL Clearing

Bank

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8) Pay-out of securities ( NSCCL advise depository to credit pool

account of custodians / CMS and debit its account and depository does

it).

9) Pay-out of fund ( NSCCL advise clearing bank to credit account of

custodians / CMS and debit its account and clearing bank does it).

10) Depository informs custodians / CMS through DPS.

11) Clearing bank inform custodians / CMs.

Auction of share

The securities are put-up for auction by the exchange on account of non-

delivers of securities by the selling trading member to ensure that the

buying trading member receives the securities due to him. The non-

deliver by the trading member could arise on account of short delivery.

The exchange purchase the requires quantity in the auction market and

gives them to the buying trading member.

Securities not delivered on auction pay-in day. So, directly squared off

at a price specified by the exchange.

The transaction is squared up at the higher price on the NSE from the dayor at 20% about the last available trading price on the NSE, whichever is

higher.

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AUCTION CYCLE

Post Settlement Auct

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