Submitted By:

LAXMI SHEWKANI

ROLL NO.37

T.Y.B.M.S.

Securities and Exchange Board of IndiaSecurities Market Regulatory Body in India

SEBI Bhavan, Mumbai Headquarters of SEBI

INTRODUCTION

The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875 as "The Native Share and Stock Brokers Association", as a voluntary non-profit making association. It has evolved over the years into its present status as the premier Stock Exchange in the country. It may be noted that the Stock Exchanges is the oldest one in Asia, even older than the Tokyo Stock Exchange, which was founded in 1878.

The Exchange, while providing an efficient and transparent market for trading in securities, upholds the interests of the investors and ensures redressal of their grievances, whether against the companies or its own member-brokers. It also strives to educate and enlighten the investors by making available necessary informative inputs and conducting investor education programmes.

A Governing Board comprising of 9 elected directors (one third of them retire every year by rotation), two SEBI nominees, a Reserve Bank of India nominee, six public representatives and an Executive Director is the apex body, which decides the policies and regulates the affairs of the Exchange.

The Executive Director as the Chief Executive Officer is responsible for the day-to-day administration of the Exchange.

The average daily turnover of the Exchange during the year 2000-2001 (April-March), was Rs.3984.19 crores and average number of daily trades was 5.69 lakhs. However, the average daily turnover of the Exchange during the year 2001- 2002 has declined to Rs. 1244.10 crores and number of average daily trades during the period to 5.17 lakhs. The ban on all deferral products like BLESS and ALBM in the Indian capital Markets by SEBI w.e.f. July 2, 2001, abolition of account period settlements, introduction of Compulsory Rolling Settlements in all scrips traded on the Exchanges w.e.f. December 31, 2001, etc. have adversely impacted the liquidity and consequently there is a considerable decline in the daily turnover at the Exchange.

What is a share?

A share represents the smallest recognized fraction of ownership in a publicly held business. Each such fraction of ownership is represented in the form of a certificate known as a share certificate. The breaking up of total ownership of a business into small fragments, each fragment represented by a share certificate, enables them to be easily bought and sold.

What is a stock exchange?

The institution where this buying and selling of shares essentially takes place is the Stock Exchange. In the absence of stock exchanges, ie. Institutions where small chunks of businesses could be traded, there would be no modern business in the form of publicly held companies. Today, owing to the stock exchanges, one can be part owners of one company today and another company tomorrow; one can be part owners in several companies at the same time; one can be part owner in a company hundreds or thousands of miles away; one can be all of these things. Thus by enabling the convertibility of ownership in the product market into financial assets, namely shares, stock exchanges bring together buyers and sellers (or their representatives) of fractional ownerships of companies. And for that very reason, activities relating to stock exchanges are also appropriately enough, known as stock market or security market. Also a stock exchange is distinguished by a specific locality and characteristics of its own, mostly a stock exchange is also distinguished by a physical location and characteristics of its own. In fact, according to H.T.Parekh, the earliest location of the Bombay Stock Exchange, which for a long period was known as “the native share and stock brokers’ association”, was probably under a tree around 1870!

The stock exchanges are the exclusive centers for the trading of securities. The regulatory framework encourages this by virtually banning trading of securities outside exchanges. Until recently, the area of operation/ jurisdiction of exchange was specified at the time of its recognition, which in effect precluded competition among the exchanges. These are called regional exchanges. In order to provide an opportunity to investors to invest/ trade in the securities of local companies, it is mandatory foe the companies, wishing to list their securities, to list on the regional stock exchange nearest to their registered office.

Characteristics of Stock Exchanges in India

Traditionally, a stock exchange has been an association of individual members calledmember brokers (or simply members or brokers), formed for the express purpose of regulating and facilitating buying and selling of securities by the public and institution at large.

A stock exchange in India operates with due recognition from the government under theSecurities and Contracts (Regulations) Act, 1956. the member brokers are essentially the middlemen who carry out the desired transactions in securities on behalf of the public(for a commission) or on their own behalf. New membership to a Stock Exchange is through election by the governing board of that stock exchange.

At present, there are 23 stock exchanges in India, the largest among them being theBombay Stock Exchange. BSE alone accounts for over 80% of the total volume of transactions in shares.

Typically, a stock exchange is governed by a board consisting of directors largely electedby the member brokers, and a few nominated by the government. Government nominee include representatives of the ministry of finance, as well as some public representatives, who are expected to safeguard the public interest in the functioning of the exchanges. A president, who is an elected member, usually nominated by the government from among the elected members, heads the board. The executive director, who is usually appointed by the by the stock exchange with the government approval is the operational chief of the stock exchange. His duty is to ensure that the day to day operations the Stock Exchange are carried out in accordance with the various rules and regulations governing its functioning.

The overall development and regulation of the securities market has been entrusted to the Securities and Exchange Board of India (SEBI) by an act of parliament in 1992. All companies wishing to raise capital from the public are required to list their securities on at least one stock exchange. Thus, all ordinary shares, preference shares and debentures of the publicly held companies are listed in the stock exchange.

Exchange management

Made some attempts in this direction, but this did not materially alter the situation. In view of the less than satisfactory quality, of administration of broker-managed exchanges, the finance minister in march 2001 proposed demutualisation of exchanges by which ownership, management and trading membership would be segregated from each other. The regulators are working towards implementing this. Of the 23 stock exchanges in India, two stock exchanges viz., OTCEI and NSE are already demutualised. Board of directors, which do not include trading members, manages these. Theses are purest form of demutualised exchanges, where ownership, management and trading are in the hands of three sets of people. The concept of demutualisation completely eliminates any conflict of interest and helps the exchange to pursue market efficiency and investors interest aggressively.

Role of SEBI

The SEBI, that is, the Securities and the Exchange Board of India, is the national regulatory body for the securities market, set up under the securities and Exchange Board of India act, 1992, to “protect the interest of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith and incidental too.”

SEBI has its head office in Mumbai and it has now set up regional offices in the metropolitan cities of Kolkata, Delhi, and Chennai. The Board of SEBI comprises a Chairman, two members from the central government representing the ministries of finance and law, one member from the Reserve Bank of India and two other members appointed by the central government.

As per the SEBI act, 1992, the power and functions of the Board encompass the regulation of Stock Exchanges and other securities markets; registration and regulation of the working stock brokers, sub-brokers, bankers to an issue (a public offer of capital), trustees of trust deeds, registrars to an issues, merchant bankers, under writers, portfolio managers, investment advisors and such other intermediaries who may be associated with the stock market in any way; registration and regulations of mutual funds; promotion and regulation of self- regulatory organizations; prohibiting Fraudulent and unfair trade practices and insider trading in securities markets; regulating substantial acquisition of shares and takeover of companies; calling for information from,undertking inspection, conducting inquiries and audits of stock exchanges, intermediaries and self- regulatory organizations of the securities market; performing such functions and exercising such powers as contained in the provisions of the Capital Issues (Control) Act,1947 and the Securities Contracts (Regulation) Act, 1956, levying various fees and other charges, conducting necessary research for above purposes and performing such other functions as may be prescribes from time to time.

SEBI as the watchdog of the industry has an important and crucial role in the market in ensuring that the market participants perform their duties in accordance with the regulatory norms. The Stock Exchange as a responsible Self Regulatory Organization (SRO) function to regulate the market and its prices as per the prevalent regulations. SEBI and the Exchange play complimentary roles to enhance the investor protection and the overall quality of the market.

Membership

The trading platform of a stock exchange is accessible only to brokers. The broker enters into trades in exchanges either on his own account or on behalf of clients. The clients may place their order with them directly or a sub-broker indirectly. A broker is admitted to the membership of an exchange in terms of the provisions of the SCRA, the SEBI act 1992, the rules, circulars, notifications, guidelines, etc. prescribed there under and the byelaws, rules and regulations of the concerned exchange. No stockbroker or sub-broker is allowed to buy, sell or deal in securities, unless he or she holds a certificate of registration granted by SEBI. A broker/sub-broker compiles with the code of conduct prescribed by SEBI.

The stock exchanges are free to stipulate stricter requirements for its members than those stipulated by SEBI. The minimum standards stipulated by NSE for membership are in excess of the minimum norms laid down by SEBI. The standards for admission of members laid down by NSE stress on factors, such as, corporate structure, capital adequacy, track record, education, experience, etc. and reflect the conscious endeavors to ensure quality broking services.

Listing

Listing means formal admission of a security to the trading platform of a stock exchange, invariably evidenced by a listing agreement between the issuer of the security and the stock exchange. ; Listing of securities on Indian Stock Exchanges is essentially governed by the provisions in the companies act, 1956, SCRA, SCRR, rules, bye-laws and regulations of the concerned stock exchange, the listing agreement entered into by the issuer and the stock exchange and the circulars/ guidelines issued by central government and SEBI.

Index services

Stock index uses a set of stocks that are representative of the whole market, or a specified sector to measure the change in overall behavior of the markets or sector over a period of time. India Index Services & Products Limited (IISL), promoted by NSE and CRISIL, is the only specialized organization in the country to provide stock index services.

Trading Mechanism

All stock exchanges in India follow screen-based trading system. NSE was the first stock exchange in the country to provide nation-wide order-driven, screen-based trading system. NSE model was gradually emulated by all other stock exchanges in the country. The trading system at NSE known as the National Exchange for Automated Trading (NEAT) system is an anonymous order-driven system and operates on a strict price/time priority. It enables members from across the countries to trade simultaneously with enormous ease and efficiency. NEAT has lent considerable depth in the market by enabling large number of members all over the country to trade simultaneously and consequently narrowed the spreads significantly. A single consolidated order book for each stock displays, on a real time basis, buy and sell orders originating from all over the country. The bookstores only limit orders, which are orders to buy or sell shares at a stated quantity and stated price. The limit order is executed only if the price quantity conditions match. Thus, the NEAT system provides an open electronic consolidated limit order book (OECLOB). The trading system provides tremendous flexibility to the users in terms of kinds of orders that can be placed on the system. Several time-related (Good-Till-Cancelled, Good-TillDay, Immediate-or-Cancel), price related (buy/sell limit and stop-loss orders) or volume related (All-or-None, Minimum Fill, etc.) conditions van be easily built into an order. Orders are sorted and match automatically by the computer keeping the system transparent, objective and fair. The trading system also provides complete market information on-line, which is updated on real time basis. The trading platform of the CM segment of NSE is accessed not only from the computer terminals from the premises of brokers spread over 420 cities, but also from the personal computers in the homes of investors through the internet and from the hand-held devices through WAP. The trading platform of BSE is also accessible from 400 cities.

Internet trading is available on NSE and BSE, as of now. SEBI has approved the use of Internet as an order routing system, for communicating clients’ orders to the exchanges through brokers. SEBI- registered brokers can introduce internet-based trading after obtaining permission from the respective Stock Exchanges. SEBI has stipulated the minimum conditions to be fulfilled by trading members to start internet-based trading and services.

BSE /NSE

Mutual Funds Commodity

Listed SchemesOpen EndedClose EndedScheme Code

Mutual Funds NewsLatest NAV'smore...

NCDEXMCXNMCEILBullion

Agro ProductsMetalsmore...

NSE was the first exchange in the country to provide web-based access to investors to trade directly on the exchange. It launched Internet trading in February 2000. It was followed by the launch of Internet trading by BSE in March 2001. The orders originating from the personal computers (PCs) of investors are routed through the Internet tot eh trading terminals of the designated brokers with whom they have relations and further to the exchange of trade execution. Soon after these orders get matched and result into trades, the investors get confirmation about them on their PCs through the same Internet routes.

SEBI approved trading through wireless medium or WAP platform. NSE is the only exchange to provide access to its order book through the hand held devices, which use WAP technology. This serves primarily retail investors who are mobile and want to trade from any place when the market prices for st0ocks of their choice are attractive.

Demat Trading

A depository holds securities in dematerialized form. It maintains ownership records of securities in a book entry form and also effects transfer of ownership through book entry. SEBI has introduced some degree of compulsion in trading and settlement of securities in dematerialized form. While the investors have a right to hold securities in either physical or demat form, SEBI has mandated compulsory trading and settlement of securities in dematerialized form. This was initially introduced for institutional investors and was later extended to all investors. Starting with 12 scrips on January 15, 1998, all investors are required to mandatorily trade in dematerialized form in respect of 2,335 securities as at end-June, 2001.

Since the introduction of the depository system, dematerialization has progressed at a fast pace and has gained acceptance among the participants in the market. All actively traded scrips are held, traded and settled in demat form. The details of progress in dematerialization in two depositories, viz., NSDL and CDSL., are presented as below:

In a SEBI working paper titled ‘Dematerialization: A Silent Revolution in the Indian Capital Market’ released in April 2000, it has been observed that India has achieved a very high level of dematerialization in less than three years’ time, and currently more than 99%of trades settle in demand form. Competition and regulatory developments facilitated reduction in custodial charges and improvements in qualities of service standards. The paper observes that one imminent and apparent immediate benefit of competition between the two depositories is fall in settlement and other charges. Competition has been driving improvement in service standards. Depository facility has effected changes in stock market microstructure. Breadth and depth of investment culture has further got extended to interior areas of the country faster. Explicit transaction cost has been falling due to dematerialization. Dematerialization substantially contributed to the increased growth in the turnover. Dematerialization growth in India is the quickest among all emerging markets and also among developed markets excepting for the U.K and Hong Kong.

CAPITAL LISTED AND MARKET CAPITALIZATION.

The Stock Exchange, Bombay (BSE) is the premier Stock Exchange in India. The BSE accounted for 46 per cent of listed companies on an all India basis as on 31st March 1994. It ranked first in terms of the number of listed companies and stock issues listed. The capital listed in the BSE as on 31st March 1994 accounted for 50% of the overall capital listed on all the stock exchanges. Its share of the market capitalization was around 74% as on the same date. The paidup capital of equity, debentures/bonds and preference were 73%, 31%, 44% respectively of the overall capital listed on all the Stock Exchanges as on the same date.

On the BSE, the Steel Authority of India had the largest market capitalization of Rs.19, 908 crores as on the 31st March, 1994 followed by the State Bank of India with the market capitalization of Rs.16, 702 crores and Mahanagar Telephone Nigam Limited with the market capitalization of Rs.11, 700 crores.

BSE SENSEX

The BSE SENSEX, short form of Sensitive Index, first compiled in 1986 is a “market Capitalization-Weighted” index of 30 component stocks representing a sample of large, wellestablished and financially sound companies. The index is widely reported in both, the domestic international, print electronic media and is widely used to measure the used to measure the performance of the Indian stock markets.

The BSE SENSEX is the benchmark index of the Indian capital market and one, which has the longest social memory. In fact the SENSEX is considered to be the pulse of the Indian stock markets. It is the oldest index in India and has acquired a

unique place in collective consciousness of the investors. Further, as the oldest index of the Indian Stock Market, it provides time series data over a fairly long period of time. Small wonder that the SENSEX has over the years has become one of the most prominent brands of the Country.

Objectives of SENSEXThe BSE SENSEX is the benchmark index with wide acceptance among individual investors, institutional investors, foreign investors, foreign investors and fund managers. The objectives of the index are:

To measure market movements Given its long history and its wide acceptance, no other index matches the BSE SENESX in the reflecting market movements and sentiments. SENSEXis widely used to describe the mood in the Indian stock markets.

Benchmark for funds performance The inclusion of blue chip companies and the wide and balanced industry Representation in the SENSEX makes it the ideal benchmark for fund managers to compare the performance of their funds.

For index based derivatives products Institutional investors, money managers and small investors, all refer to the BSE

SENSEX for their specific purposes. The BSE SENSEXis in effect the proxy for the Indian stock markets. Since SENSEXcomprises of the leading companies in allthe significant sectors in the economy, we believe that it will be the most liquid contract in the Indian market and will garner a predominant market share.

Companies represented in the SENSEX

Company name (As on 15.06.01) Hindustan lever Reliance limited Infosys technologies Reliance petroleum ITC State bank of India MTNL Satyam computers Zee telefilms Ranbaxy labs ICICI Larsen & toubro Cipla Hindalco HPCL TISCO Nestle Sector FMCG Chemicals and petrochemicals Information technology Oil and gas FMCG Finance Telecom Information technology Media Healthcare Finance Diversified Healthcare Metals and mining Metal and mining Metal and mining FMCG

Trading System

Till Now, buyers and sellers used to negotiate face-to-face on the trading floor over a security until agreement was reached and a deal was struck in the open outcry system of trading, that used to take place in the trading ring. The transaction details of the account period (called settlement period) were submitted for settlement by members after each trading session.

The computerized settlement system initiated the netting and clearing process by providing on a daily basis statements for each member, showing matched and unmatched transactions. Settlement processing involves computation of each member's net position in each security, after taking into account all transactions for the member during the settlement period, which is 10 working days for group 'A' securities and 5 working days for group 'B' securities.

Trading is done by members and their authorized assistants from their Trader Work Stations (TWS) in their offices, through the BSE On-Line Trading (BOLT) system. BOLT system has replaced the open outcry system of trading. BOLT system accepts two-way quotations from jobbers, market and limit orders from client-brokers and matches them according to the matching logic specified in the Business Requirement Specifications (BRS) document for this system.

The matching logic for the Carry-Forward System as in the case of the regular trading system is quote driven with the order book functioning as an "auxiliary jobber".

TRADING

The Exchange, which had an open outcry trading system, had switched over to a fully automated computerized mode of trading known as BOLT (BSE on Line Trading) System. Through the BOLT system the members now enter orders from Trader Work Stations (TWSs) installed in their offices instead of assembling in the trading ring. This system, which was initially both order and quote driven, was commissioned on March 14, 1995. However, the facility of placing of quotes has been removed w.e.f., August 13, 2001 in view of lack of market interest and to improve system-matching efficiency. The system, which is now only order driven, facilitates more efficient processing, automatic order matching and faster execution of orders in a transparent manner.

Earlier, the members of the Exchange were permitted to open trading terminals only in Mumbai. However, in October 1996, the Exchange obtained permission from SEBI for expansion of its BOLT network to locations outside Mumbai. In terms of the permission granted by SEBI and certain modifications announced later, the members of the Exchange are now free to install their trading terminals at any place in the country. Shri P. Chidambaram inaugurated the expansion of BOLT network the then Finance Minister, Government of India on August 31, 1997.

In order to expand the reach of BOLT network to centers outside Mumbai and support the smaller Regional Stock Exchanges, the Exchange has, as on March 31, 2002, admitted subsidiary companies formed by 13 Regional Stock Exchanges as its members. The members of these Regional Stock Exchanges work as sub-brokers of the member-brokers of the Exchange.

The objectives of granting membership to the subsidiary companies formed by the Regional Stock Exchanges were to reach out to investors in these centers via the members of these Regional Exchanges and provide the investors in these areas access to the trading facilities in all scrips listed on the Exchange.

Trading on the BOLT System

Trading on the BOLT System is conducted from Monday to Friday between 9:55 a.m. and 3:30 p.m. The scrips traded on the Exchange have been classified into 'A', 'B1', 'B2', 'F' and 'Z' groups. The number of scrips listed on the Exchange under 'A', 'B1 ', 'B2' and 'Z' groups, which represent the equity segment, as on March 31, 2002 was 173, 560,1930 and 3044 respectively. The 'F' group represents the debt market (fixed income securities) segment wherein 748 securities were listed as on March 31, 2002. The 'Z' group was introduced by the Exchange in July 1999 and covers the companies which have failed to comply with listing requirements and/or failed to resolve investor complaints or have not made the required arrangements with both the Depositories, viz., Central Depository Services (I) Ltd. (CDSL) and National Security Depository Ltd. (NSDL) for dematerialization of their securities by the specified date, i.e., September 30, 2001. Companies in "Z" group numbered 3044 as on March 31, 2002. Of these, 1429 companies were in "Z" group for not complying with the provisions of the Listing Agreement and/or pending investor complaints and the balance 1615 companies were on account of not making arrangements for dematerialization of their securities with both the Depositories. 1615 companies have been put in "Z" group as a temporary measure till they make arrangements for dematerialization of their securities. Once they finalize the arrangements for dematerialization of their securities, trading and settlement in their scrips would be shifted to their respective erstwhile groups.

The Exchange has also the facility to trade in "C" group which covers the odd lot securities in 'A', 'B1', 'B2' and 'Z' groups and Rights renunciations in all the groups of scrips in the equity segment. The Exchange, thus, provides a facility to market participants of on-line trading in odd lots of securities and Rights renunciations. The facility of trading in odd lots of securities not only offers an exit route to investors to dispose of their odd lots of securities but also provides them an opportunity to consolidate their securities into market lots.

The 'C' group can also be used by investors for selling upto 500 shares in physical form in respect of scrips of companies where trades are to be compulsorily settled by all investors in demat mode. This scheme of selling physical shares in compulsory demat scrips is called as Exit Route Scheme.

With effect from December 31, 2001, trading in all securities listed in equity segment of the Exchange takes place in one market segment, viz., Compulsory Rolling Settlement Segment.

Permitted Securities The Exchange has since decided to permit trading in the securities of the companies listed on other Stock Exchanges under " Permitted Securities" category which meet the relevant norms specified by the Exchange. Accordingly, to begin with the Exchange has permitted trading in scrips of five companies listed on other Stock Exchanges w.e.f. April 22, 2002/ Computation of closing price of scrips in the Cash Segment: The closing prices of scrips are computed on the basis of weighted average price of all trades in the last 15 minutes of the continuous trading session. However, if there is no trade during the last 15 minutes, then the last traded price in the continuous trading session is taken as the official closing price.

A) Compulsory Rolling Segment (CRS):Compulsory Rolling Settlement (CRS) Segment:

With a view to introduce the best international trading practices and to achieve higher settlement efficiency, as mandated by SEBI, trades in all the equity shares listed on the Exchange in CRS Segment were to be settled on T+5 basis w.e.f. December 31, 2001. SEBI has further directed the Stock Exchanges that trades in all scrips w.e..f. April 1, 2002 should be settled on T+3 basis. Accordingly, all transactions in all groups of securities in the equity segment and fixed income securities listed on the Exchange are settled on T+3 basis w.e.f. April 1, 2002

Under a rolling settlement environment, the trades done on a particular day are settled after a given number of business days rather than settling all trades done during a period at the end of an 'account period'. A T+3 settlement cycle means that the final settlement of transactions done on T or trade day by exchange of monies and securities, occurs on fifth business day after the trade day.

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The transactions in securities of companies which have made arrangements for dematerialization of their securities by the stipulated date are settled only in Demat mode on T+3 on net basis, i.e., buy and sale positions in the same scrip are netted and the net quantity is to be settled. However, transactions in securities of companies, which have failed to make arrangements for dematerialization of their securities or /are in "Z" group, are settled only on trade to trade basis on T+3 i.e., the transactions are settled on a gross basis and the facility of netting of buy and sale transactions in a scrip is not available. For example, if one buys and sells 100 shares of a company on the same day which is on trade to trade basis, the two positions will not be netted and he will have to first deliver 100 shares at the time of pay-in of securities and then receive 100 shares at the time of pay-out of securities on the same day. Thus, if one fails to deliver the securities sold at the time of pay-in, it will be treated as a shortage and the position will be auctioned/ closed-out.

In other words, the transactions in scrips of companies which are in compulsory demat are settled in demat mode on T+3 on netting basis and the transactions in scrips of companies, which have not made arrangements for dematerialization of their securities by the stipulated date or are in "Z" group for other reasons, are settled on trade to trade basis on T+3 either in demat mode or in physical mode.

The settlement of transactions in 'F' group securities representing Fixed Income Securities is also on Rolling Settlement Cycle of T+3 basis.

The following tables summarizes the steps in the trading and settlement cycle for scrips under CRS:

DAY ACTIVITY

Trading on BOLT and daily downloading of statements showing details of transactions and margins at the end of each trading day.

6A/7A entry by the member-brokers.

T+1

Confirmation of 6A/7A data by the Custodians. Downloading of securities and funds obligation statement by members.

T+3 Pay-in of funds and securities by 11:00 a.m. and pay-out of funds and securities by 2:00 p.m

T+4 Auction on BOLT.

T+5 Auction pay-in and pay-out.

* 6A/7A : A mechanism whereby the obligation of settling the transactions done by a memberbroker on behalf of a client is passed on to a custodian based on his confirmation.

Thus, the pay-in and pay-out of funds and securities takes places on the 3rd working day of the execution of the trade.

The Information Systems Department of the Exchange generates the following statements, which can be downloaded by the members in their back offices on a daily basis.

Statements giving details of the daily transactions entered into by the members.

Statements giving details of margins payable by the members in respect of the trades executed by them.

The settlement of the trades (money and securities) done by a member on his own account or on behalf of his individual, corporate or institutional clients may be either through the member himself or through a SEBI registered Custodian appointed by him or the respective client. In case the delivery/payment is to be given or taken by a registered Custodian, he has to confirm the trade done by a member on the BOLT System through 6A-7A entry. For this purpose, the Custodians have been given connectivity to BOLT System and have also been admitted as members of the Clearing House. In case a transaction is not confirmed by a registered Custodian, the liability for pay-in of funds or securities in respect of the same devolves on the concerned member.

The introduction of settlement on T+3 basis has resulted in reduction in settlement risk, provided early receipt of securities and monies to buyers and sellers respectively and brought Indian Capital Markets at the international standard of settlements

SettlementPay-in and Pay-out for 'A', 'B1', 'B2', 'C', "F" & 'Z' group of securities

As discussed earlier, the trades done by members in all the securities in CRS are now settled by payment of money and delivery of securities on T+3 basis. All deliveries of securities are required to be routed through the Clearing House, except for certain off-market transactions which, although are required to be reported to the Exchange, may be settled directly between the members concerned.

The Clearing House is an independent company promoted jointly by Bank of India and Stock Exchange, Mumbai for handling the clearing and settlement operations of funds and securities on behalf of the Exchange. For this purpose, the Clearing & Settlement Dept. of the Exchange liaises with the Clearing House on a day to day basis.

The Information Systems Department (ISD) of the Exchange generates Delivery and Receive Orders for transactions done by the members in A, B1, B2 and F group scrips after netting purchase and sale transactions in each scrip whereas Delivery and Receive Orders for "C" and "Z" group scrips are generated on trade to trade basis, i.e., without netting of purchase and sale transactions in a scrip.

The Delivery Orders provide information like scrip, quantity and the name of the receiving member to whom the securities are to be delivered through the Clearing House. The Money Statement provides scrip wise/item wise details of payments/receipts for the settlement. The Delivery/Receive Orders and money statements can be downloaded by the members in their back offices

The bank accounts of members maintained with the eight clearing banks, viz., Bank of India, HDFC Bank Ltd., Global Trust Bank Ltd., Standard Chartered Bank, Centurion Bank Ltd., UTI Bank Ltd., ICICI Bank Ltd., and Indusind Bank Ltd., are directly debited through computerized posting for their settlement and margin obligations and credited with receivables on accounts of pay-out dues and refund of margins.

The securities, as per the Delivery Orders issued by the Exchange, are required to be delivered by the members in the Clearing House on the day designated for securities pay-in, i.e., on T+3 day. In case of the physical securities, the members have to deliver the securities in special closed pouches (supplied by the Exchange) along with the relevant details (distinctive numbers, scrip code, quantity, and receiving member) on a floppy. The data submitted by the members on floppies is matched against the master file data on the Clearing House computer systems. If there are no discrepancies, then a scroll number is generated by the Clearing House

and a scroll slip is issued. The members can then submit the securities at the receiving counter in the Clearing House.

Auto D.O. facility:

Instead of issuing Delivery Out instructions for their delivery obligations in a settlement /auction, a facility has been made available to the members of automatically generating Delivery-Out (D.O.) instructions on their behalf from their CM Pool A/cs by the Clearing House w.e.f., August 10, 2000. This Auto D.O. facility is available for CRS (Normal & Auction) and for trade-to-trade settlements. This facility is, however, not available for delivery of non-pari passu shares and shares having multiple ISINs. The members wishing to avail of this facility have to submit an authority letter to the Clearing House. This Auto D.O facility is currently available only for Clearing Member (CM) Pool accounts/Principal Accounts maintained by the members with National Securities Depository Ltd. (NSDL) and Central Depositories Services Ltd. (CDSL)

Demat pay-in:

The members can effect demat pay-in either through Central Depository Services (I) Ltd. (CDSL) or National Securities Depository Ltd. (NSDL). In case of NSDL, the members are required to give instructions to their Depository Participant (DP) specifying settlement no., settlement type, effective pay-in date, quantity, etc. The securities are transferred to the Pool Account. The members are required to give delivery-out instructions so that the securities are considered for pay-in.

As regards CDSL, the members give pay-in instructions to their DP. The securities are transferred to Clearing Member (CM) Principal Account. The members are required to give confirmation to their DP, so that securities are processed towards pay-in obligations. Alternatively, members may also effect pay-in from clients' beneficiary accounts for which member are required to do break-up on the front-end software to generate obligation and settlement ID.

The Clearing House arranges and tallies the securities received against the receiving member wise report generated on the Pay-in day. Once this reconciliation is complete, the bank accounts of members with seven clearing banks having pay-in positions are debited on the scheduled payin day. This procedure is called Funds Pay-in. In case of the demat securities, the securities are credited in the Pool Account of the members or the Client Accounts as per the client details submitted by the members. In case of Physical securities, the Receiving Members collect securities from the Clearing House on the payout day and the accounts of the members having payout are credited on Friday. This is referred to as Payout. In case of the Rolling Settlements, pay-in and payout of both funds and securities is on the same day, in case of Weekly settlements, pay-in of funds and securities is on Thursday and payout is on Friday.

The auction is conducted for those securities which members fail to deliver/short deliver during the Pay-in. In case the securities are not received in an auction, the positions are closed out as per the closeout rate fixed by the Exchange in accordance with the prescribed rules. The close out rate is calculated as the highest rate of the scrip recorded in the settlement in which the trade was executed and in the subsequent settlement upto the day prior to the day of auction, or 20% above the closing price on the day prior to the day of auction, whichever is higher. However, in case of close-out for shares under objection or traded in "C" group, 10% instead of 20% above the closing price on the day prior to the day of auction and the highest price recorded in the settlement in which trade took place upto a day prior to auction is considered.

The Exchange has strictly adhered to the settlement schedules for various groups of securities and there has been no case of clubbing of settlements or postponement of pay-in and pay-out during the last six years.

The Exchange is also maintaining a database of fake/forged, stolen, lost and duplicate securities with the Clearing House so that distinctive numbers submitted by members on delivery may be matched against the database to weed out bad paper from circulation at the time of introduction of such securities in the market. This database has also been made available to the members so that delivering and receiving members can check the entry of fake, forged and stolen shares in the market

SHORTAGES AND OBJECTIONS

Shortages & consequent actions The members download Delivery/Receive Orders based on their netted positions for transactions entered into by them during a settlement in 'A', 'B1', 'B2', and 'F' group scrips and on trade to trade basis, i.e., without netting buy and sell transactions in scrips in "C" & 'Z' groups and scrips in B1 and B2 groups which have been put on trade to trade basis as a surveillance measure.

The seller members have to deliver the shares in the Clearing House as per the Delivery Orders downloaded. If a seller member is unable to deliver the shares on the Pay-in day for any reason, his bank account is debited at the standard rate (which is equal to the closing price of the scrip on the day of trading) fixed by the Exchange for the quantity of shares short delivered. The Clearing House arrives at the shortages in delivery of various scrips by members on the basis of their delivery obligations and actual delivery.

The members can download the statement of shortages on T+3 in Rolling Settlements. After downloading the shortage details, the members are expected to verify the same and report discrepancy , if any, to the Clearing House by 1:00 p.m. If no discrepancy is reported within the stipulated time, the Clearing House assumes that the shortage of a member is in order and proceeds to auction the same. However, in 'C' group, i.e., Odd Lot segment the members are themselves required to report the shortages to the Clearing House.

The Exchange issues an Auction Tender Notice to the members informing them about the names of the scrips, quantity slated for auction and the date and time of the auction session on the BOLT. The auction for the undelivered quantities is conducted on T+4 for all the scrips under compulsory Rolling Settlements. The auction offers received in batch mode are electronically matched with the auction quantities so as to award the 'best price'. The members who participate in the auction session can download the Delivery Orders on the same day, if their offers are accepted. The members are required to deliver the shares in the Clearing House on the auction Pay-in day, i.e, T+5. Pay-Out of auction shares and funds is also done on the same day, i.e., T+5. The various auction sessions relating to shortages, and bad deliveries are now conducted during normal trading hours on BOLT. Thus, it is possible to schedule multiple auction sessions on a single trading day.

In auction, the highest offer price is allowed upto the close-out rate and the lowest offer price can be 20% below the closing price on a day prior to day of auction. A member who has failed to deliver the securities of a particular company on the pay-in day is not allowed to offer the same in auction. He can, however, participate in auction of other scrips.

In case no offers are received in auction for a particular scrip, the sale transaction is closed-out at a close-out price, determined by higher of the following:-

- Highest price recorded in the scrip from the settlement in which the transaction took place upto a day prior to the day of the auction.

OR

- 20% above the closing price on a day prior to the day of auction.

However, in case of the close-out of the shares under objection and shortages in "C" or "Z" group, 10% above the closing prices of the scrips on the pay-out day of the respective settlement are considered instead of 20%.

Further, if the auction price/close-out price of a scrip is higher than the standard price of the scrip in the settlement in which the transaction was done, the difference is recovered from the seller who failed to deliver the scrip. However, in case, auction/ close-out price is lower than standard price, the difference is not given to the seller but is credited by the Exchange to the Customers Protection Fund. This is to ensure that the seller does not benefit from his failure to meet his delivery obligation. Further, if the offeror member fails to deliver the shares offered in auction, then the transactions is closed-out as per the normal procedure and the original selling member pays the difference below the standard rate and offer rate and the offeror member pays the difference between the offer rate and close-out rate.

Self Auction As has been discussed in the earlier paragraphs, the Delivery and Receive Orders are issued to the members after netting off their purchase and sale transactions in scrips where netting of purchase and sale positions is permitted. It is likely in some circumstances that a selling client of a member has failed to deliver the shares to him. However, this did not result in a member's failure to deliver the shares to the Clearing House as there was a purchase transaction of some other buying client of the member in the same scrip and the same was netted off for the purpose of settlement. However, in such a case, the member would require shares so that he can deliver the same to his buying client, which otherwise would have taken place from the delivery of shares by the seller. To provide shares to the members, so that they are in a position to deliver

them to their buying clients in case of internal shortages, the members have been given an option to submit floppies for conducting self-auction (i.e., as if they have defaulted in delivery of shares to the Clearing House). Such floppies are to be given to the Clearing House on the pay-in day. The internal shortages reported by the members are clubbed with the normal shortages in a settlement and the Clearing House for the combined shortages conducts the auction. A member after getting delivery of shares from the Clearing House in self-auction credits the shares to the Beneficiary account of his client or hand over the same to him in case securities received are in physical form and debits his seller client with the amount of difference, if any, between the auction price and original sale price

B) ObjectionsWhen receiving members collect the physical securities from the Clearing House on the Payout day, the same are required to be checked by them for good delivery as per the norms prescribed by the SEBI in this regard. If the receiving member does not consider the securities good delivery, he has to obtain an arbitration award from the arbitrators and submit the securities in the Clearing House on the following day of the Pay-Out (T+4). The Clearing House returns these securities to the delivering members on the same day, i.e., (T+4). If a delivering members feels that arbitration awards obtained against him is incorrect, he is required to obtain arbitration award for invalid objection from the members of the Arbitration Review Committee. The delivering members are required to rectify/replace the objections and return the shares to the Clearing House on next day (T+5) to have the entry against them removed. The rectified securities are delivered by the Clearing House to the buyer members on the same day (T+5). The buyer members, if they are not satisfied with the rectification, are required to obtain arbitration awards for invalid rectification from the Bad Delivery Cell on T+6 day and submit the shares to the Clearing House on the same day.

If a member fails to rectify/replace the objections then the same are closed-out. This is known as "Objection Cycle" and the entire process takes 3 days.

The following table summarizes the activities involved in the Patawat Objection Cycle of CRS.

DAY ACTIVITY T + 3 Pay-out of securities of Rolling Settlement T + 4 Patawat Arbitration session : Arbitration awards to be obtained from officials of the Bad Delivery Cell.

Securities under objection to be submitted in the Clearing House

Arbitration awards for invalid objection to be obtained from members of the Arbitration Review Committee

T+5 Members and institutions to submit rectified securities, confirmation forms and invalid objections in the clearing house

Rectified securities delivered to the receiving members

T+6 Arbitration Awards for invalid rectification to be obtained from officials of the Bad Delivery Cell

Securities to be lodged with the clearing house

The un-rectified and invalid rectification of securities are directly closed-out by the Clearing House instead of first inviting the auction offers for the same.

The shares in physical form returned under objection to the Clearing House are required to be accompanied by an arbitration award (Chukada) except in certain cases where the receiving members are permitted to submit securities to the Clearing House without "Chukada".

These cases are as follows: Transfer Deed is out of date. Cheques for the dividend adjustment for new shares where distinctive numbers are given in the Exchange Notice is not enclosed. Stamp of the Registrar of Companies is missing. Details like Distinctive Numbers, Transferors' Names, etc. are not filled, in the Transfer Deeds. Delivering broker's stamp on the reverse of the Transfer Deed is missing. Witness stamp or signature on Transfer Deed is missing. Signature of the transferor is missing. Death Certificate (in cases where one or more of the transferors are deceased) is missing.

A penalty at the rate of Rs.100/- per Delivery Order is levied on the delivering member for delivering shares, which are not in order. In the event a receiving member misuses the facility of submitting shares under objection without "Chukada", a penalty of Rs.500/- per case is charged and the penalty of Rs.100/- per Delivery Order levied on the delivering member is refunded to him by debiting the receiving member's account Close Out: There are cases when no offer for particular scrip is received in an auction or when members who offer the scrips in auction, fail to deliver the same. In the former case, the original seller member's account is debited and the buyer member's account is credited at the closeout rate. In the latter case, the offeror member's account is debited and the buyer member's account is credited at the close-out rate. The closeout rates for closing the positions in different segments are as under:

For 'A' + 'B1' + 'B2' + 'Z', 'Rolling demat' and 'F' group

The closeout rate is higher of the following rates:

The highest rate of the scrip from the first day (trading day in case of Rolling ➢demat segment) to the day prior to the day on which the auction is conducted for the respective settlement. 20% above the closing rate as on the day prior to the day of➢ auction of the respective settlement.

For 'C' group segment

The close-out rate is higher of the following rates : The highest rate of the scrip ➢from the first day to the day prior to the day of auction of 'A', 'B1', 'B2, and 'Z' group segment of the respective settlements; or 10% above the closing rate as on ➢the day prior to the day of auction of 'A', 'B1', 'B2, and 'Z' group; or Transaction➢ price.

In the 'C' group, i.e., Odd Lot Segment, no auction session is conducted. The shortages are directly closed out.

DOES AND DONTS :-

Does SEBI approve the contents of the issue?

It is to be distinctly understood that submission of offer document to SEBI should not in any way be deemed or construed that the same has been cleared or approved by SEBI. The Lead manager certifies that the disclosures made in the offer document are generally adequate and are in conformity with SEBI guidelines for disclosures and investor protection in force for the time being. This requirement is to facilitate investors to take an informed decision for making investment in the proposed issue.

Does SEBI tag make my money safe?

The investors should make an informed decision purely by themselves based on the contents disclosed in the offer documents. SEBI does not associate itself with any issue/issuer and should in no way be construed as a guarantee for the funds that the investor proposes to invest through the issue. However, the investors are generally advised to study all the material facts pertaining to the issue including the risk factors before considering any investment. They are strongly warned against any 'tips' or news through unofficial means.

How does SEBI ensure compliance with DIP?

The Merchant Banker are the specialized intermediaries who are required to do due diligence and ensure that all the requirements of DIP are complied with while submitting the draft offer document to SEBI. Any non compliance on their part, attract penal action from SEBI, in terms of SEBI (Merchant Bankers) Regulations. The draft offer document filed by Merchant Banker is also placed on the website for public comments. Officials of SEBI at various levels examine the compliance with DIP guidelines and ensure that all necessary material information is disclosed in the draft offer documents.

With the presence of the Central Listing Authority (CLA), what would be the role of SEBI in the processing of Offer docume nts for an issue?

The Central Listing Authority's (CLA) functions have been detailed under Regulation 8 of SEBI (Central Listing Authority) Regulations, 2003 (CLA Regulations) issued on August 21, 2003 and amended up to October 14, 2003.

In brief, it covers processing applications for letter precedent to listing from applicants; to make recommendations to the Board on issues pertaining to the protection of the interest of the investors in securities and development and regulation of the securities market, including the listing agreements, listing conditions and disclosures to be made in offer documents; and; to undertake any other functions as may be delegated to it by the Board from time to time.

SEBI as the regulator of the securities market examines all the policy matters pertaining to issues and will continue to do so even during the existence of the CLA.Since the CLA is not yet operational, the reply to this question would be updated thereafter.

Who decides the price of an issue?

Indian primary market ushered in an era of free pricing in 1992. Following this, the guidelines have provided that the issuer in consultation with Merchant Banker shall decide the price. There is no price formula stipulated by SEBI. SEBI does not play any role in price fixation. The company and merchant banker are however required to give full disclosures of the parameters which they had considered while deciding the issue price. There are two types of issues one where company and LM fix a price (called fixed price) and other, where the company and LM stipulate a floor price or a price band and leave it to market forces to determine the final price (price discovery through book building process).

How does one com of the draft offer document?e to know about the issues on offer? And from where can I get copies

SEBI issues press releases every week regarding the draft offer documents received and observations issued during the period. The draft offer documents are put up on the website under Reports/Documents section. The final offer documents that are filed with SEBI/ROC are also put up for information under the same section. Copies of the draft offer documents in hard copy form may be obtained from the office of SEBIWho is eligible to be a BRLM?

A Merchant banker possessing a valid SEBI registration i n accordance with the SEBI (Merchant Bankers) Regulations, 1992 is eligible to act as a Book Running Lead Manager to an issue.

What and where do I find them?

The SEBI Manual is SEBI authorized publication that is a compre hensive databank of all relevant Acts, Rules, Regulations and Guidelines that are related to the functioning of the Board. The details pertaining to the Acts, Rules, Regulations, Guidelines and Circulars are placed on the SEBI website under the "Legal Framework" section.

Will SEBI answer my queries online in case of doubts and clarifications?

The "Feedback" section on the SEBI website has a provision for the visitors to the site to ask questions on clarifications on smaller issues pertaining to the availability of information and a facility for users to provide feedback on the same. However, if the queries are legalistic and deep in nature, they are to be referred to SEBI under the SEBI (informal Guidance) Scheme, 2003.

Sebi' Latest Announcement....

Nebody knows about the Sebi's latest Announce .....?

CNBC-TV18 has learnt from sources that Sebi is likely to propose short swing rule in India. The move restricts company insiders from making short-term profit at the company’s expense.

It is a move that could potentially have a big impact on promoters of listed companies. Market regulator Sebi is proposing to put in place a new rule-the short swing rule- in India. This is similar to one that exists in the USA. The rule prevents company insiders, who have greater access to material information, from taking advantage of the information to make short-term profits. So, Sebi proposes that company insiders buying and selling their company's stock within a 6-month period return the money they make to the company. As of now, this is just a consultative paper and the regulator has invited feedback to this proposal.

Sources added that the move proposes insiders return profits from buying and selling the company’s stock. It proposes a tenor of six months for the short swing rule.It has circulated a paper on short swing profit regulations.

Sebi has proposed last-in-first-out method to determine the six month period and the move is intended to check insider trading. The designated insider will include all key management personnel and directors of companies as well as officials who own above 10% stake in the company.

Sebi says that any officer who buys and sells shares of a company within six-months will have to return those profits to the company, which means that he cannot buy and sell shares within six months and make a profit on them. If he makes, he will return the profit.

Who cannot do these transactions or who will be brought under the ambit of this short swing rule?

]

It is a designated insider and a designated insider goes beyond the threshold of any person who holds 10%. An insider is basically defined as a person who would own more than 10% shares in a company. But here it says a designated insider would include all key management personnel.

It would include all directors of the company, all officers of the company who are beneficial owners of 10% or more stake in that company. So, a designated insider concept seems to be a far wider definition. They have given it a far wider definition than what an insider would be who owns only 10% in that company. It is a draft proposal. They have invited suggestions to these proposals.

The future of stock exchanges

The future of stock trading appears to be electronic, as competition is continually growing between the remaining traditional New York Stock Exchange specialist system against the relatively new, all Electronic Communications Networks, or ECNs. ECNs point to their speedy execution of large block trades, while specialist system proponents cite the role of specialists in maintaining orderly markets, especially under extraordinary conditions or for special types of orders.

The ECNs contend that an array of special interests profit at the expense of investors in even the most mundane exchange-directed trades. Machine-based systems, they argue, are much more efficient, because they speed up the execution mechanism and eliminate the need to deal with an intermediary.

Historically, the 'market' (which, as noted, encompasses the totality of stock trading on all exchanges) has been slow to respond to technological innovation, thus allowing growing pure speculation to continue. Conversion to all-electronic trading could erode/eliminate the trading profits of floor specialists and the NYSE's "upstairs traders", who, like in September and October 2008, earned billions of dollars selling shares they did not have, and days later buying the same amount of shares, but maybe 15 % cheaper, so these shares could be handed to their buyers, thereby making the market fall deeply.

William Lupien, founder of the Instinet trading system and the OptiMark system, has been quoted as saying "I'd definitely say the ECNs are winning... Things happen awfully fast once you reach the tipping point. We're now at the tipping point."

One example of improved efficiency of ECNs is the prevention of front running, by which manual Wall Street traders use knowledge of a customer's incoming order to place their own orders so as to benefit from the perceived change to market direction that the introduction of a large order will cause. By executing large trades at lightning speed without manual intervention, ECNs make impossible this illegal practice, for which several NYSE floor brokers were investigated and severely fined in recent years. Under the specialist system, when the market sees a large trade in a name, other buyers are immediately able to look to see how big the trader is in the name, and make inferences about why s/he is selling or buying. All traders who are quick enough are able to use that information to anticipate price movements.

ECNs have changed ordinary stock transaction processing (like brokerage services before them) into a commodity-type business. ECNs could regulate the fairness of initial public offerings (IPOs), oversee Hambrecht's OpenIPO process, or measure the effectiveness of securities research and use transaction fees to subsidize small- and mid-cap research efforts.

Somehowever, believe the answer will be some combination of the best of technology and "upstairs trading" — in other words, a hybrid model.

Trading 25,000 shares of General Electric stock (recentquote: $7.54; recent[] volume: 216,266,000) would be a relatively simple e-commerce transaction; trading 100 shares of Berkshire Hathaway Class A stock (recent quote: $72,625.00; recent volume: 877) may never be. The choice of system should be clear (but always that of the trader), based on the characteristics of the security to be traded.

Even with ECNs forming an important part of a national market system, opportunities presumably remain to profit from the spread between the bid and offer price. That is especially true for investment managers that direct huge trading volume, and own a stake in an ECN or specialist firm. For example, in its individual stock-brokerage accounts, "Fidelity Investments runs 29% of its undesignated orders in NYSE-listed stocks, and 37% of its undesignated market orders through the Boston Stock Exchange, where an affiliate controls a specialist post."