CHAPTER – 1

INTRODUCTION TO STUDY
DEMATERIALIZATION:
Dematerialization is the process of converting the physical form of shares into electronic form.
Prior to dematerialization the Indian stock markets have faced several problems like delay in
the transfer of certificates, forgery of certificates etc. Dematerialization helps to overcome
these problems as well as reduces the transaction time as compared to the physical segment.
The article discusses the procedures, advantages and problems of dematerialization.

The Indian Stock markets have seen a major change with the introduction of depository
system and scrip less trading mechanism. There were various problems like inordinate delays
in the transfer of share certificates, delay in receipt of securities and inadequate infrastructure
in banking and postal segments to handle a large volume of application and storage of share
certificates to overcome these problems physical dealing in securities should be eliminated.
The Indian stock market introduced the system of dematerialization recognizing the need for
scrip less trading.

According to the Depositories Act, 1996, an investor has the option to hold shares either in
physical or electronic form. The process of converting the physical form of shares into
electronic form is called dematerialization or in short demats. The converted electronic data is
stored with the depository from where they can be traded. It is similar to a bank where an
investor opens an account with any of the depository participants. Depository participant is a
representative of the depository. The DP maintains the investors securities account balances
and intimates him about the status of holdings.

ONLINE TRADING:
Online Trading is an easy way to buy and sell shares from the comfort of one’s place instead
of trading through individual stockbroker and broking firms, the customer can transact with the
help of mouse click and his visits to the neighborhood broker will become a thing of the past.
Even the older generation is adapting the online trading route.

Find the right depository to provide with an online trading account can be difficult, but many
banks and companies offer excellent services for online trading. Our needs will determine
which online broker is best for us. Online trading brings in total transparency between broker
an investor in case of secondary market operation.

Whether we are buying a mutual fund, investing in commodities market or any other
transaction can be performed with minimal fuss. In India presently online trading can take
place through order routing system, which will route client orders to exchanges trading system
for execution of trade on stock exchange (NSE and BSE).

One of the measure attractions of online trading is the wealth of free commentary and analysis
about stock market and global economy. Any investor with an ounce of market savviness can
extract all the data needed to make trading decisions and complete the trades. An important
catalyst behind the emergence of thriving online brokerage system has been the buoyant stock
market. One can trade online with e-brokerage such as ICICI Direct, HDFC Securities, India
Bulls, Kotakstreet and India Info line’s 5paisa.com.
NEED OF STUDY:
With the emergence of the internet in everyday business, the significance of the online stock
market trading broker has gone up.

 It can be done from home at any desired fixed hours of the investor.
 The processing of the order is executed at proper timings as the servers of the online
trading portal are linked to the selected banks and stock exchanges though out twenty-
four hours.
 The investments made are safe and secured and profit is earned at proper time without
any dispute.
 Online trading updates are also provided to the investors and also about the present
grade of their orders either through the interface or e-mail.
 The investors increase shares and make development to the company.

OBJECTIVES OF STUDY:
 To Study & understood the concept of Online trading.
 To know the time information & importance & the role played by the stock exchanges in
the process of online trading.
 To know the reasons for the introduction of online trading and their Benefits.
 To review the changes that Online trading brought when compared with the previous
systems.

RESEARCH METHODOLOGY OF THE STUDY:

DATA COLLECTION METHODS

The data collection methods include both the primary and secondary collection methods

 Primary collection methods: This method includes the data collection from questionnaire.

 Secondary collection methods: The secondary collection methods includes the available
research work on internet. Also the data collected from the news, magazines, books.

SCOPE OF STUDY:
The study is limited to “Demat and Online Trading” and since the year 2000, a big boom has
been witnessed in the Indian stock Market when the market showed the coming up of Online
Trading System. Many Online stock trading companies came but initially due to lack of Online
Trading some Companies Vanished and some survived. The Companies which are survived
are getting the handsome returns also attracting the foreign Investment Companies. Now a
day’s this sector is facing cut-throat Competition. And also provides huge growth prospects.
LIMITATIONS OF STUDY:

A good report tells us the results of the study. But every project has its own Limitations. These

Limitations can be in terms of:

 There is lack awareness among people about investing in stock market. So people who
are aware of such things were found in specific areas for survey purposes.
 Most people are comfortable with traditional system in small towns and like to trade
from their respective brokers, hence not providing their true opinions.
 Most of people are not using technology and Internet is growing still it is not at the
required level.
 Some of the respondents who did not do Online trading were able to respond only to
some questions.
 Limitations towards Demat and online trading confined to keep the study in
manageable limits.
REVIEW OF LITERATURE
INTRODUCTION
India Financial Market, the India financial market comprise of talks about the primary market,
FDIs, alternative investment options, banking and insurance and the pension sectors, asset
management segment as well. With all these elements in the India Financial market, it
happens to be one of the oldest across the globe and is definitely the fastest growing and best
among all the financial markets of the emerging economies. The history of Indian capital
markets spans back 200 years, around the end of the 18th century. It was at this time that
India was under the rule of the East India Company. The capital market of India initially
developed around Mumbai; with around 200 to 250 securities brokers participating in active
trade during the second half of the 19th century.
Scope of the India Financial Market –The financial market in India at present is more advanced
than many other sectors as it became organized as early as the 19th century with the
securities exchanges in Mumbai, Ahmedabad and Kolkata. In the early 1960s, the number of
securities exchanges in India became eight – including Mumbai, Ahmedabad and Kolkata.
Apart from these three exchanges, there was the Madras, Kanpur, Delhi, Bangalore and Pune
exchanges as well. Today there are 23 regional securities exchanges in India.

The financial market used to give financial services to the Industries

The NSE provides exposure to investors into two types of financial Markets:

1. Capital market.

2. Money market.

Capital market Refers to all the facilities and Institutional arrangements for borrowing and
lending of term funds. It does not deal in capital goods but is concerned with the raising of
money capital. It consists of term lending institutions and investing Institutions which mainly
provide long term funds.

Capital market has its growth includes:

1) Gilt-edged Securities Market

2) Industrial Securities Market

3) Development Banks and

4) Financial Services.

Industrial Securities Market has been further divided into two markets they are:

A. Primary Market.
B. Secondary Market.

Primary Market refers to the raising of new capital in the form of shares and debentures,
while Secondary Market deals with securities already issued by companies. Both the
markets are important, but the new issues market is much more important from the point of
view of economic growth.
Secondary Market: The market where securities are traded after they are initially offered in the
primary market. Most trading is done in the secondary market. To explain further, it is trading in
previously issued financial instruments. An organized market for used securities. Bombay Stock
Exchange (BSE), National Stock Exchange NSE, bond markets, over-the-counter markets,
residential mortgage loans, governmental guaranteed loans etc.

Secondary Market refers to a market where securities are traded after being initially offered to
the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is
done in the secondary market. Secondary market comprises of equity markets and the debt
markets. For the general investor, the secondary market provides an efficient platform for trading
of his securities. For the management of the company, Secondary equity markets serve as a
monitoring and control conduit—by facilitating value-enhancing control activities, enabling
implementation of incentive-based management contracts, and aggregating information (via
price discovery) that guides management decisions.

Money market: Money Market is a market for short-term funds, which can be used for
overnights to one-year duration. It also deals with the financial assets that constitute near
money which means that the assets can be converted into cash quickly with minimum
transaction cost and without a loss in value. It consists of commercial banks, co-operative
banks and other agencies which supply only short term funds. It consists of:

 Organized Money Markets. And Un Organized money markets

 The Call Money Market, Treasury Bill Market, Collateral Money market, Commercial
paper and Certificate of deposits.
 INDIAN CAPITAL MARKET AT GLANCE
18th Century

1800 Trading of shares of east India company in Kolkata And

Mumbai

1850 Joint stock company came into existence

1860 Speculation and feverish dealing in securities

1875 Formulation of stock exchange of Mumbai

1894 Formulation of Ahmadabad stock exchange

19th Century

1908 Formulation of Calcutta stock exchange

1939 Formulation of Lahore and madras stock exchange

1940 Formulation of U.P and Delhi stock exchange

1956 Securities contract and regulation act enacted

1957 Scam of Haridas Mundhra

1988 Securities and exchange board of India set up

1991 Scam of MS Shoes

1992 SEBI given power Under SEBI act,1992

1993 Formation of National stock exchange

1995 HARSHAD MEHTA Scam

1995 SESA GOA Scam

1997 CRB scam

1998 BPL And Videocon Scam

20th Century

2000 Depositories came into existence (electronic form of shares)

2001 Ketan Parekh scam

2002 Start of rolling settlement and banning of Badla trading

2002 Introduction of T+3 settlement in April

2003 Introduction of T+2 settlement in April

2005 BSE Sensex touches all time high 6954 in January

2006 BSE Sensex touches all time high 12500,the highest intraday fall of
1100

2007 BSE reaches the level of

2008 BSE touches all time high in January 2008

2008 Sensex saw its highest ever loss of 1,408 points at the end of
the session.

2008 Sensex saw its 15 month low, from its all time high

2009 Sensex saw its down trend & highest ever loss because of
Satyam case.
STOCK MARKETS IN INDIA:
A stock market is a marketplace where organized exchange (buying and selling) of stocks or
equities takes place. Indian stock markets are one of the most dynamic and efficient stock
markets in Asia. In terms of the make-up and overall dynamics, the Indian stock markets are at
par with international standards. The two national exchanges operating in India are the
National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). These exchanges
are well equipped with electronic trading platforms and handle large volume of transactions on
a daily basis.

DEFINATION OF STOCK EXCHANGE:

Stock exchange is an organized market place where securities are traded. These securities
are issued by the government, semi-government bodies, public sector undertakings and
companies for borrowing funds and raising resources. Securities are defined as any monetary
claims (promissory notes or I.O.U) and also include shares, debentures, bonds and etc., if
these securities are marketable as in the case of the government stock, they are transferable
by endorsement and alike movable property. They are tradable on the stock exchange. So are
the case shares of companies.

Under the Securities Contract Regulation Act of 1956, ‘securities’ trading is regulated by the
Central Government and such trading can take place only in stock exchanges recognized by
the government under this Act. As referred to earlier there are at present 23 such recognized
stock exchanges in India. Of these, major stock exchanges, like Bombay Stock Exchange
National Stock Exchange, Inter-Connected Stock Exchange, Calcutta, Delhi, Chennai,
Hyderabad and Bangalore etc. are permanently recognized while a few are temporarily
recognized. The above act has also laid down that trading in approved contract should be
done through registered members of the exchange. As per the rules made under the above
act, trading in securities permitted to be traded would be in the normal trading hours (09:15
A.M to 3.30 P.M) on working days in the trading ring, as specified for trading purpose.
Contracts approved to be traded are the following:

A. Spot delivery deals are for deliveries of shares on the same day or the next day as the
payment is made.
B. Hand deliveries deals for delivering shares within a period of 7 to 14 days from the date
of contract.
C. Delivery through clearing for delivering shares with in a period of two months from the
date of the contract, which is now reduce to 15 days. (Reduced to 2 days in demat
trading)
D. Special Delivery deals for delivering of shares for specified longer periods as may be
approved by the governing board of the stock exchange.

Except in those deals meant for delivery on spot basis, all the rest are to be put through by the
registered brokers of a stock exchange. The securities contracts (Regulation) rules of 1957
laid down the condition for such trading, the trading hours, rules of trading, settlement of
disputes, etc. as between the members and of the members with reference to their clients.
HISTORY OF STOCK EXCHANGE IN INDIA
The origin of the Stock Exchanges in India can be traced back to the later half of 19th century.
After the American Civil War (1860-61) due to the share mania of the public, the number of
brokers dealing in shares increased. The brokers organized an informal association in Mumbai
named “The Native Stock and Share Brokers Association in 1875” later evolved as Bombay
stock exchange.

Increased activity in trade and commerce during the First World War and Second World War
resulted in an increase in the stock trading. The Growth of Stock Exchanges suffered a set after
the end of World War. World wide depression affected them most of the Stock Exchanges in
the early stages had a speculative nature of working without technical strength. After
independence, government took keen interest to regulate the speculative nature of stock
exchange working. In that direction, securities and Contract Regulation Act 1956 was passed,
this gave powers to Central Government to regulate the stock exchanges. Further to develop
secondary markets in the country, stock exchanges established at Mumbai, Chennai, Delhi,
Hyderabad, Ahmedabad and Indore. The Bangalore Stock Exchange was recognized in
1963. At present there are 23 Stock Exchanges.

Till recent past, floor trading took place in all Stock Exchanges. In the floor trading system, the
trade takes place through open outcry system during the official trading hours. Trading posts
are assigned for different securities where by and sell activities of securities took place. This
system needs a face – to – face contact among the traders and restricts the trading
volume. The speed of the new information reflected on the prices was rather than the
investors.

The Setting up of NSE and OTCEI (Over the counter exchange of India with the screen based
trading facility resulted in more and more Sock exchanges turning towards the computer based
trading. BSE introduced the screen based trading system in 1995, which known as BOLT
(Bombay on – line Trading. System).

FUNCTIONS OF STOCK EXCHANGE

Maintain Active Trading: Shares are traded on the stock exchanges, enabling the investors
to buy and sell securities. The prices may vary from transaction to transaction. A continuous
trading increases the liquidity or marketability of the shares traded on the stock exchanges.

Fixation of Prices: Price is determined by the transactions that flow from investors demand
and the supplier’s preferences. Usually the traded prices are made known to the public. This
helps the investors to make the better decision.

Ensures safe and fair dealings: The rules, regulations and bylaws of the Stock Exchanges
provide a measure of safety to the investors. Transactions are conducted under competitive
conditions enabling the investors to get a fair deal.

Aids in financing the Industry: A continuous market for shares provides a favorable climate
for raising capital. The negotiability and transferability of the securities, investors are willing to
subscribe to the initial public offering (IPO). This stimulates the capital formation.
Dissemination of Information: Stock Exchanges provide information through their various
publications. They publish the share prices traded on their basis along with the volume
traded. Directory of Corporate Information is useful for the investor’s assessment regarding
the corporate. Handouts, handbooks and pamphlets provide information regarding the
functioning of the Stock Exchanges.

Performance Inducer: The prices of stocks reflect the performance of the traded
companies. This makes the corporate more concerned with its public image and tries to
maintain good performance.

Self-regulating organization: The Stock Exchanges monitor the integrity of the members,
brokers, listed companies and clients. Continuous internal audit safeguards the investors
against unfair trade practices. It settles the disputes between member brokers, investors and
brokers.

REGULATORY FRAME WORK

This Securities Contract Regulation Act, 1956 and Securities and Exchange board of India
(SEBI) Act, 1992, provides a comprehensive legal framework. A 3-tier regulatory structure
comprising the ministry of finance, SEBI and the Governing Boards of the Stock Exchanges
regulates the functioning of Stock Exchanges.

Ministry of finance: The Stock Exchange division of the Ministry of Finance has powers related
to the application of the provision of the SCR Act and licensing of dealers in the other area.
According to SEBI Act, The Ministry of Finance has the appellate and the supervisory power over
the SEBI. It has powered to grant recognition to the Stock Exchange and regulation of their
operations. Ministry of Finance has the power to approve the appointments of executive’s chiefs
and the nominations of the public representatives in the government Boards of the Stock
Exchanges. It has the responsibility of preventing undesirable speculation.

The Securities and Exchange Board of India

The Securities and Exchange Board of India even though established in the year 1988. Received
statutory powers only on 30th January 1992. Under the SEBI Act, a wide variety of powers are
vested in the hands of SEBI. SEBI has the powers to regulate the business of Stock Exchanges,
other security and mutual funds. Registration and regulation of market intermediaries are also
carried out by SEBI. It has responsibility to prohibit the fraudulent unfair trade practices and insider
dealings. Takeovers are also monitored by the SEBI has the multi-pronged duty to promote the
healthy growth of the capital market and protect the investors.

The Governing Board of stock exchanges: The Governing Board of the Stock Exchange
consists of elected members of directors, government nominees and public representatives.
Rules, by laws and regulations of the Stock Exchange substantial powers to the executive director
 for maintaining efficient and smooth day-to day functioning of Stock Exchange. The Governing
Board has the responsibility to maintain and orderly and well-regulated market.

The Governing body of the Stock Exchange consists of 13 members of which :

A. Six members of the Stock Exchange are elected by the members of the Stock Exchange.
B. Central Government nominates not more than three members.
C. The board nominates three public representatives.
D. SEBI nominates persona not exceeding three and
E. The Stock Exchange appoints one Executive Director.

One third of the elected members retires at annual general meeting (AGM). The retired member
can offer himself for election if he is not elected for two consecutive years. If a member serves in
the governing body for two years consecutively, he should refrain offering himself for another two
years.

The members of the governing body elect the president and vice-president. It needs to approval
from the Central Government or the Board. The office tenure for the president and vice-president
is on year. They can offer themselves for re-election, if they have not held for two consecutive
years. In that case they can offer themselves for re-election after a gap of one-year period.

VARIOUS STOCK EXCHANGES IN INDIA:

List of Stock Exchanges in India
» Bombay Stock Exchange
» National Stock Exchange
» Regional Stock Exchanges

» Ahmedabad
» Bangalore
» Bhubaneshwar
» Calcutta
» Cochin
» Coimbatore
» Delhi
» Guwahati
» Hyderabad
» Jaipur
» Ludhiana
» Madhya Pradesh
» Madras
» Magadh
» Mangalore
» Meerut
» OTC Exchange Of India
» Pune
» Saurashtra Kutch
» UttarPradesh
» Vadodara

AMONG THESE STOCK EXCHANGES THERE ARE TWO IMPORTANT, THEY ARE:

1) NSE
2) BSE

NATIONAL STOCK EXCHANGE

The National Stock Exchange of India (NSE) situated in Mumbai - is the largest and most
advanced exchange with 1016 companies listed and 726 trading members. Capital market
reforms in India and the launch of the Securities and Exchange Board of India (SEBI)
accelerated the incorporation of the second Indian stock exchange called the National Stock
Exchange (NSE) in 1992. After a few years of operations, the NSE has become the largest
stock exchange in India.

Three segments of the NSE trading platform were established one after another. The
Wholesale Debt Market (WDM) commenced operations in June 1994 and the Capital Market
(CM) segment was opened at the end of 1994. Finally, the Futures and Options segment
began operating in 2000. Today the NSE takes the 14th position in the top 40 futures
exchanges in the world.

In 1996, the National Stock Exchange of India launched S&P CNX Nifty and CNX Junior
Indices that make up 100 most liquid stocks in India. CNX Nifty is a diversified index of 50
stocks from 25 different economy sectors. The Indices are owned and managed by India Index
Services and Products Ltd (IISL) that has a consulting and licensing agreement with Standard
& Poor's.

In 1998, the National Stock Exchange of India launched its web-site and was the first
exchange in India that started trading stock on the Internet in 2000. The NSE has also proved
its leadership in the Indian financial market by gaining many awards such as 'Best IT Usage
Award' by Computer Society in India (in 1996 and 1997) and CHIP Web Award by CHIP
magazine (1999).

The NSE is owned by the group of leading financial institutions such as Indian Bank or Life
Insurance Corporation of India. However, in the totally de-mutualized Exchange, the ownership
as well as the management does not have a right to trade on the Exchange. Only qualified
traders can be involved in the securities trading.

The NSE is one of the few exchanges in the world trading all types of securities on a single
platform, which is divided into three segments: Wholesale Debt Market (WDM), Capital Market
(CM), and Futures & Options (F&O) Market.
The main objectives of NSE are as follows
1) To establish a nation-wide trading facility for equities, debt and hybrid instruments
2) To ensure equal access investors all over the country through appropriate communication
network.
3) To provide a fair, efficient and transparent securities market to investors using an
electronic communication network.
4) To enable shorter settlement cycle and book entry settlement system.
5) To meet current international standards of securities market.

Promoters of NSE: IDBI, ICICI, IFCI, LIC, GIC, SBI, Bank of Baroda. Canara Bank, Corporation
Bank, Indian Bank, Oriental Bank of Commerce. Union Bank of India, Punjab National Bank,
Infrastructure Leasing and Financial Services, Stock Holding Corporation for India and SBE capital
market are the promoters of NSE.

NSE Nifty:
The S&P CNX Nifty (nicknamed Nifty 50 or simply Nifty), is the leading index for large
companies on the National Stock Exchange of India. S&P CNX Nifty is a well diversified 50
stock index accounting for 22 sectors of the economy. It is used for a variety of purposes such
as benchmarking fund portfolios, index based derivatives and index funds.

Nifty was developed by the economists Ajay Shah and Susan Thomas, then at IGIDR. Later
on, it came to be owned and managed by India Index Services and Products Ltd. (IISL), which
is a joint venture between NSE and CRISIL. IISL is India's first specialized company focused
upon the index as a core product. IISL have a consulting and licensing agreement with
Standard & Poor's (S&P), who are world leaders in index services.

CNX stands for CRISIL NSE Indices. CNX ensures common branding of indices, to reflect the
identities of both the promoters, i.e. NSE and CRISIL. Thus, 'C' stands for CRISIL, 'N' stands
for NSE and X stands for Exchange or Index. The S&P prefix belongs to the US-based
Standard & Poor's Financial Information Services.

NSE other indices:

 S&P CNX Nifty

 CNX Nifty Junior
 CNX 100
 S&P CNX 500
 CNX Midcap
 S&P CNX Defty
 CNX Midcap 200

BOMBAY STOCK EXCHANGE:

The Bombay Stock Exchange Limited (formerly, The Stock Exchange, Mumbai; popularly
called The Bombay Stock Exchange, or BSE) is the oldest stock exchange in Asia. It is
located at Dalal Street, Mumbai, India.
Bombay Stock Exchange was established in 1875. There are around 5,600 Indian companies
listed with the stock exchange, and has a significant trading volume. As of October2006, the
market capitalization of the BSE was about Rs. 33.4 trillion (US $ 730 billion). The BSE
SENSEX (Sensitive index), also called the BSE 30, is a widely used market index in India and
Asia. As of 2005, it is among the 5 biggest stock exchanges in the world in terms of
transactions volume.

History
An informal group of 22 stockbrokers began trading under a banyan tree opposite the Town
Hall of Bombay from the mid-1850s, 1875, was formally organized as the Bombay Stock
Exchange (BSE). In January 1899, the stock exchange moved into the Brokers’ Hall after it
was inaugurated by James M MacLean. After the First World War, the BSE was shifted to an
old building near the Town Hall. In 1956, the Government of India recognized the Bombay
Stock Exchange as the first stock exchange in the country under the Securities Contracts
(Regulation) Act.1995, when it was replaced by an electronic (eTrading) system named BOLT,
or the BSE Online Trading system. In 2005, the status of the exchange changed from an
Association of Persons (AoP) to a full-fledged corporation under the BSE (Corporatization and
Demutualization) scheme, 2005 (and its name was changed to The Bombay Stock Exchange
Limited).

BSE Sensex:

The BSE SENSEX (also known as the BSE 30) is a value-weighted index composed of 30
scrips, with the base April 1979 = 100. The set of companies which make up the index has
been changed only a few times in the last 20 years. These companies account for around one-
fifth of the market capitalization of the BSE.

SENSEX, first compiled in 1986 was calculated on a "Market Capitalization-Weighted"

methodology of 30 component stocks representing a sample of large, well-established and
financially sound companies. The base year of SENSEX is 1978-79. The index is widely
reported in both domestic and international markets through print as well as electronic media.
SENSEX is not only scientifically designed but also based on globally accepted construction
and review methodology. From September 2003, the SENSEX is calculated on a free-float
market capitalization methodology. The "free-float Market Capitalization-Weighted"
methodology is a widely followed index construction methodology on which majority of global
equity benchmarks are based.

The growth of equity markets in India has been phenomenal in the decade gone by. Right from
early nineties the stock market witnessed heightened activity in terms of various bull and bear
runs. More recently, the bourses in India witnessed a similar frenzy in the 'TMT' sectors. The
SENSEX captured all these happenings in the most judicial manner. One can identify the
booms and bust of the Indian equity market through SENSEX.

The values of all BSE indices are updated every 15 seconds during the market hours and
displayed through the BOLT system, BSE website and news wire agencies.
SENSEX calculation:

SENSEX is calculated using a "Market Capitalization-Weighted" methodology.

As per this methodology, the level of index at any point of time reflects the total market value
of 30 component stocks relative to a base period. (The market capitalization of a company is
determined by multiplying the price of its stock by the number of shares issued by the
company). An index of a set of combined variables (such as price and number of shares) is
commonly referred as a 'Composite Index' by statisticians. A single indexed number is used to
represent the results of this calculation in order to make the value easier to work with and track
over time. It is much easier to graph a chart based on indexed values than one based on
actual values.

BSE - other Indices:

Apart from BSE SENSEX, which is the most popular stock index in India, BSE uses other
stock indices as well:

 BSE 500
 BSE PSU
 BSE MIDCAP
 BSE SMLCAP
 BSE BANK

The Securities and Exchange Board of India

The Securities and Exchange Board of India even though established in the year 1988.
Received statutory powers only on 30th January 1992. Under the SEBI Act, a wide variety of
powers are vested in the hands of SEBI. SEBI has the powers to regulate the business of
Stock Exchanges, other security and mutual funds. Registration and regulation of market
intermediaries are also carried out by SEBI. It has responsibility to prohibit the fraudulent unfair
trade practices and insider dealings. Takeovers are also monitored by the SEBI has the multi-
pronged duty to promote the healthy growth of the capital market and protect the investors.

The Governing Board of stock exchanges:

The Governing Board of the Stock Exchange consists of elected members of directors,
government nominees and public representatives. Rules, by laws and regulations of the Stock
Exchange substantial powers to the executive director for maintaining efficient and smooth
day-to day functioning of Stock Exchange. The Governing Board has the responsibility to
maintain and orderly and well-regulated market

The Governing body of the Stock Exchange consists of 13 members of which six members of
the Stock Exchange are elected by the members of the Stock Exchange.

1) Central Government nominates not more than three members.

2) The board nominates three public representatives.
3) SEBI nominates persona not exceeding three and
4) The Stock Exchange appoints one Executive Director.

One third of the elected members retire at annual general meeting (AGM). The retired member
can offer himself for election if he is not elected for two consecutive years. If a member serves in
the governing body for two years consecutively, he should refrain offering himself for another two
years.

The members of the governing body elect the president and vice-president. It needs to approval
from the Central Government or the Board. The office tenure for the president and vice-president
is on year. They can offer themselves for re-election, if they have not held for two consecutive
years. In that case they can offer themselves for re-election after a gap of one-year period.

SEBI GUIDELINES TO SECONDARY MARKETS:

The Securities and Exchange Board of India even though established in the year 1988.
Received statutory powers only on 30th January 1992. Under the SEBI Act, a wide variety of
powers are vested in the hands of SEBI. SEBI has the powers to regulate the business of
Stock Exchanges, other security and mutual funds. Registration and regulation of market
intermediaries are also carried out by SEBI. It has responsibility to prohibit the fraudulent unfair
trade practices and insider dealings. Takeovers are also monitored by the SEBI has the multi-
pronged duty to promote the healthy growth of the capital market and protect the investors

MANUAL MODE OF TRADING:

TRADING PROCEDURE BEFORE ONLINE

THE TRADING RING:

Trading on stock exchanges is officially done in the ring for a few hours from 11.00 A.M to 2.30P.M.
Trading before or after official hour is called KERB TRADING. In the trading ring space is provided
for specified and non-specified sections. The members of their authorized assistants have to wear
a badge or carry with them identify cards given by the exchange to enter the trading ring. They
carry a Sauda book or confirmation memos duly authorized by exchange. The stock exchanges
operations at floor level are highly technical in nature. Non-members are not permitted to enter
into stock market. Hence, various stages have to be completed in executing a transaction at a
stock exchange. The steps involved in the methods of trading have been given below:

CHOICE OF BROKER:
The prospective investor who wants to buy shares or the investor who wants to sell his shares
cannot enter into hall of the exchange and transact business. They have to act through only
member brokers. They can also appoint their bankers for this purpose. Since, bankers can become
members of stock exchange as per the present regulations.
So, the first task in transacting business on stock exchanges is to choose a broker of repute or
banker. Such people’s can ensure prompt and quick execution of a transaction at the possible
price.
At present there are 4500 authorized brokers in ISE.

PLACEMENT OF ORDER:
The next step in planning of order for the purchase or sale of Securities with the broker. The order
is usually by telegram, telephone, letter, fax etc., or in person. To avoid delay it is placed generally
over the phone. The orders may take any one of the forms such as at best order, limit order,
immediate or cancel order, discretionary order, limited discretionary order, open order and stop
loss order.

ENTRY OF ORDER INTO THE BOOKS:

After receiving the order, the member enters them in his books and the purchase and sale orders
are distributed among his assistants to handle them separately in non-specified and odd-lots.

EXECUTION OF ORDER:
Big brokers transact their business through their authorized clerk. Small ones out their business
personally. Orders are executed in the trading ring of the ISE. This works from 12:00 noon to 2:00
P.M. discretionary order on all working days from Monday to Friday and a special hour session on
Saturday.
The floor of the stock exchange is divided into number of markets (pits) according to the nature of
security deal in. The authorized clerk/broker goes to the pit and jobbers offer two way quotes for
the scrips they deal in. they act as market makers and provide liquidity to the market. The system
has been designed to get the bet lids and offers from the jobber’s book as well as the best buy
and sell orders from the book. If the quotation is not acceptable to the brokers, he may make a
counter bid/offer.
Ultimately the bargains may be closed at a price mutually acceptable to both the parties. In
case the quotation is not acceptable to him, the broker may go to another dealer and make a
bargain. All bargains on the stock exchanges are settled by word of mouth and there is no
written contract signed immediately by the parties concerned. Once the transaction is finalized,
the deals are recorded in a Chaupri Rough notebook or transaction note or confirmation
memos. Soudha block books or confirmation memos are provided by the stock exchange. The
details are Representative of the stock exchange is also present in the hall to supervise the
trading.
Preparation of contract Notes
Usually, the authorized clerks enter the participants of the business transacted during a
particular day in ‘Kacha Sauda Book’ they are transferred to ‘Pucca Sauda Book’, which are
maintained separately for the ready delivery contracts. Then the broker/authorized clerk
prepares a contract note. A contract note is a written agreement between the broker and his
client for the transition executed. It contains the details of the contract made for the
purchase/sale of Securities, the brokerage the details of the contract made for the
purchase/sale of Securities, the brokerage chargeable, name of the company, number of
shares bought/sold, net recorded in these books also. The prices at which different scrips are
traded on a particular day published on the next day in the newspapers. An authorized rate,
etc., it is prepared in a prescribed from and a copy of it is also sent to the client.

PLACING ORDER WITH THE BROKER:

The next step is placing an order for the purchase/sale of securities with the broker. The order is
usually placed over telephone, fax. It can also take the form of telegram or letter or in person. The
order placed may be any of the following varieties (largely classified on the basis of price limits
that it imposes).

AT BEST ORDER (OR) BEST RATE ORDER:

“Buy 1000 XYZ ltd.”, it does not specify any price. It means buy XYZ Ltd. Securities at the prevailing
market price. These are executed very fast as there is no price limits.

LIMIT ORDER:
“Buy 100 XYZ Ltd. At Rs 100”, it is an order for the purchase of shares at a specified price by the
client.(Rs 100)

LIMITED DISCRETIONARY ORDER:

“Buy 1000 XYZ Ltd., around Rs.100”. it gives discretion to the broker. The price can be a little
above Rs 100. How much discretion is implied depends on how the broker and client define
around.

OPEN ORDER:
It is an order to buy or sell without fixing any time or price limit on the execution of the order.

STOP LOSS ORDER:

“Buy 100 XYZ Ltd. @ Rs 12 to stop Rs 10”. It means buy 100 XYZ Ltd securities at the market
rate of Rs. 12 but if on the same day the price falls to Rs. 10 immediately sell of the securities
/shares. Thus an attempt is made to limit the loss of sudden unfavorable shift in the market.

NET RATE ORDER:

“Buy 1000 XYZ Ltd. @Rs.30 net “would mean that the client is willing to buy 1000 XYZ Ltd. For
no more than Rs.30 per security inclusive of brokerage payable to the broker. Net rate is purchase
or sale rate minus brokerage.

MARKET RATE ORDER:

Market rate is net rate plus brokerage for purchase and net minus brokerage for sale. So, “Buy
1000 XYZ Ltd. @Rs.30 market” would mean that the client is willing to pay Rs.30 plus brokerage
for each security of XYZ Ltd.

DISADVANTAGES OF MANUAL TRADING:

 1) Manual records are very difficult to be maintained safe.
2) Manual records are subject to greater human error.
3) Business can see itself in fines and penalties if records are lost.
4) Manual records are easier to be falsified, modified, altered or vanished, as compared
to computerized records which become very safe when using passwords, firewalls,
and back-ups.

DEPOSITORY SYSTEM:
A "Depository" is a facility for holding securities, which enables securities transactions to be
processed by book entry. To achieve this purpose, the depository may immobilize the securities
or dematerialize them (so that they exist only as electronic records). India has chosen the
dematerialization route. In India, a depository is an organization, which holds the beneficial owner's
securities in electronic form, through a registered Depository Participant (DP). A depository
functions somewhat similar to a commercial bank. To avail of the services offered by a depository,
the investor has to open an account with a registered DP.

BENEFITS OF DEPOSITORY SYSTEM:

In the depository system, the ownership and transfer of Securities takes place by means of
electronic book entries. At the outset, this system rids the capital market of the danger related to
handling of paper. NSDL provides numerous direct and indirect benefits, like:

 Elimination of bad deliveries-in the depository environment, once holding of an investor

are Dematerialized, the question of bad delivery does not arise i.e. they cannot be hold
“under objection”.
 Elimination of all risks associated with physical certificates-dealing in physical Securities
have associates security risks of stocks, mutilation of certificates, loss of certificates
during movements through and from the registrars, thus exposing the investor to the cost
of obtaining duplicate certificates and advertisement, etc.., This problem does not arise in
the depository environment.

SERVICES AVAILABLE IN DEPOSITORY SYSTEM:

NSE AND BSE.

NSDL: NATIONAL SECURITY DEPOSITORY LIMITED

Although India had a vibrant capital market which is more than a century old, the paper-based
settlement of trades caused substantial problems like bad delivery and delayed transfer of title
till recently. The enactment of Depositories Act in August 1996 paved the way for
establishment of NSDL, the first depository in India. This depository promoted by institutions of
national stature responsible for economic development of the country has since established a
national infrastructure of international standards that handles most of the securities held and
settled in dematerialized form in the Indian capital market.
Using innovative and flexible technology systems, NSDL works to support the investors and
brokers in the capital market of the country. NSDL aims at ensuring the safety and soundness
of Indian marketplaces by developing settlement solutions that increase efficiency, minimize
risk and reduce costs. At NSDL, we play a quiet but central role in developing products and
services that will continue to nurture the growing needs of the financial services industry.

In the depository system, securities are held in depository accounts, which is more or less
similar to holding funds in bank accounts. Transfer of ownership of securities is done through
simple account transfers. This method does away with all the risks and hassles normally
associated with paperwork. Consequently, the cost of transacting in a depository environment
is considerably lower as compared to transacting in certificates.

Promoters / Shareholders
NSDL is promoted by Industrial Development Bank of India Limited (IDBI) - the largest
development bank of India, Unit Trust of India (UTI) - the largest mutual fund in India and
National Stock Exchange of India Limited (NSE) - the largest stock exchange in India. Some of
the prominent banks in the country have taken a stake in NSDL.

Promoters

 Industrial Development Bank of India Limited (Now, IDBI Bank Limited)

 Unit Trust of India (Now, Adminstrator of the Specified Undertaking of the Unit Trust of
India)
 National Stock Exchange of India Limited

Other Shareholders

 State Bank of India

 Oriental Bank of Commerce
 Citibank NA
 Standard Chartered Bank
 HDFC Bank Limited
 The Honkong and Shanghai Banking Corporation Limited
 Deutsche Bank
 Dena Bank
 Canara Bank
 Union Bank of India

CDSL: CENTRAL DEPOSITORY SERVICES LIMITED:

A Depository facilitates holding of securities in the electronic form and enables securities
transactions to be processed by book entry by a Depository Participant (DP), who as an agent
of the depository, offers depository services to investors. According to SEBI guidelines,
financial institutions, banks, custodians, stockbrokers, etc. are eligible to act as DPs. The
investor who is known as beneficial owner (BO) has to open a demat account through any DP
for dematerialization of his holdings and transferring securities.

The balances in the investors account recorded and maintained with CDSL can be obtained
through the DP. The DP is required to provide the investor, at regular intervals, a statement of
account which gives the details of the securities holdings and transactions. The depository
system has effectively eliminated paper-based certificates which were prone to be fake,
forged, counterfeit resulting in bad deliveries. CDSL offers an efficient and instantaneous
transfer of securities.CDSL was promoted by Bombay Stock Exchange Limited (BSE) jointly
with leading banks such as State Bank of India, Bank of India, Bank of Baroda, HDFC Bank,
Standard Chartered Bank, Union Bank of India and Centurion Bank.

Promoters & Shareholders

CDSL was promoted by Bombay Stock Exchange Limited (BSE) in association with Bank of
India, Bank of Baroda, State Bank of India and HDFC Bank. BSE has been involved with this
venture right from the inception and has contributed overwhelmingly to the fruition of the
project. The initial capital of the company is Rs.104.50 crores. The list of shareholders with
effect from 11th December, 2008 is as under.