Technology in Securities market

INDIAN SECURITIES MARKET

The emergence of securities market in India dates back to the eighteenth century, when the BSE was set up in 1887 The securities market came to provide all the support needed for the growth and development of the corporate sector by facilitating the raising of long term capital fund

STRUCTURE OF THE SECURITIES MARKET

Securities Market

Equity Market

Debt Market

Derivatives Market

Government Securities Market

Corporate Debt Market

Money Market

Options Market

Futures Market

PARTICIPANTS IN THE SECURITIES MARKET

Regulators CLB, RBI, SEBI, Stock Exchanges Listed Securities Depositories Brokers FIIs Merchant Bankers or Investment Bankers Mutual Funds Custodians Registrars Underwriters Bankers to an issue Debenture trustees Venture capital funds. Credit rating agencies

Indian Securities Market -pre 1992 era

Most of the financial markets in India faced controls of pricing entry barriers high transaction costs low liquidity restrictions on foreign investment poor governance and transparency lack of political will to liberalise, etc

Indian Securities Market -pre 1992 era

Trading was limited to Equity Shares through Open outcry trading system (Floor based trading) with longer settlement period. Primary markets were not in the mainstream of the financial system. Merchant bankers and other intermediaries were unregulated and there was no concept of capital adequacy. Investor protection was much on paper than in reality.

Indian Securities Market - post 1992 era

Political will to open up the financial sector for foreign investment Benefits of liberalization The Indian securities markets have witnessed far reaching reforms in the post-liberalization era in terms of market design, technological developments, settlement practices and introduction of new instruments

Use of Information Technology (IT)

Traditionally securities transactions have been carried out by traders gathering on the floor of a stock exchange to quote buy and sell prices and strike a deal when the quotes matched There was a shift from Floor based trading to a fully computerised automated trading known as BOLT (BSE on Line Trading) and NEAT (National Exchange Automated Trading) System

Use of Information Technology (IT)

The last decade has however seen Information Technology (IT) bring about major changes not only in the clearance and settlement systems but also in the trading of securities The use of modern data processing and communication technologies significantly improves the efficiency and effectiveness of market operations

Use of Information Technology (IT)

With the advent of computers, the exchanges came to provide a range of post-trade services such as clearance and settlement of transactions to their members Massive technological advances, including the increasingly widespread acceptance of the Internet, are revolutionizing financial markets. Information flows are becoming seamless and borderless, instant and almost costless

Use of Information Technology (IT)

Mutual funds are using the Internet to communicate with investors and to offer and distribute shares Corporate issuers, large and small, conduct offerings on the Internet Investors are starting to bypass traditional exchanges and dealer-based trading systems, using electronic networks to deal directly with each other at lower cost Retail customers are trading stock on-line rather than calling or visiting a live broker Certain small issuers have used the Internet to establish secondary trading markets for otherwise fairly illiquid stock without the benefit of the usual market intermediaries

Use of Information Technology (IT)

Dematerialisation (immobilization) of securities was mandated and today almost all securities are traded in immobilised form The Depositories Act was enacted to facilitate the electronic book entry transfer of securities through depositories. Depositories like NSDL have played a vital role in strengthening the Indian Securities Market.

Use of Information Technology (IT)

Higher technology has enabled settlement through real time gross settlement systems Today we have integrated trading, clearing and payment platforms which enables seamless settlement of transactions

Use of Information Technology (IT)

Promoting use of IT should be the topmost priority of SEBI, because this measure alone can take care of perhaps 90% of the problems in the market operations today The benefits are so immense that emerging economies and even economies with fledgling financial systems are opting for computerized trading and settlement systems

Application of Advanced Market Technology

Technological innovation was largely propelled by the National Stock Exchange (NSE), a demutualized electronic exchange incorporated in November 1992 by major public sector financial institutions The NSE began trading in June 1994, effectively utilizing the most advanced market technology at that time. It introduced a modern market infrastructure with fully-automated, screen-based trading systems and settlement systems equal to any in the world

Application of Advanced Market Technology

The BSE protected its competitive position by converting to a modern market infrastructure by 1997 The systems put in place by NSE and BSE, under SEBIs oversight, created more efficient, liquid, and transparent stock exchanges, and were instrumental in minimizing market systemic and settlement risks By mid-2007, 99.9 percent of trades settled in dematerialized form in a rolling T+2 environment

SCREEN BASED SYSTEM

The open outcry system that restricted trading to the floors of stock exchanges in Indias metropolises was replaced by screen-based, electronic order-book systems that instantaneously linked traders across the country through the worlds first satellite trading system Virtually all trading took place on a dematerialized basis through a central depository

SCREEN BASED SYSTEM

The kind of screen based system adopted in India is referred to as the open electronic order market system. Buyers and sellers place their orders on the computer Computer instantly tries to match mutually compatible orders on a price-time priority The limit order book, the list of unmatched limit orders is displayed on the screen

SETTLEMENT
Security transactions are settled through electronic delivery facilitated by depositories Presently, the settlement of all trades is a rolling settlement

on a T+2 basis, thereby shortening the settlement cycle

The members receive the funds/securities in accordance with the pay- in/pay-out schedules notified by the

respective exchanges

SUMMING UP
The securities market is the market for equity, debt, and derivatives It has two national exchanges, the Bombay Stock Exchange (BSE) and the NSE. Each has fully electronic trading platforms with around 9400 participating broking outfits The key features of stock market transaction in India are screen-based trading, electronic delivery, and rolling settlement