Behind the scenes of Stock Exchange Presented by- Sindhura Reddy V (96)

Comparison: Bombay Stock Exchange National Stock Exchange BOLT(Bombay Online Trading Sytem) NEAT(National Exchange for Automated trading) 8 million trades per day 15 million trades per day Depository- CDSL Depository- NSDL Clearing House- CCIL Clearing house- NSCCL 8th largest in the world 9th largest in the world oldest stock exchange in Asia largest in India by daily turnover and number of trades, for both equities and derivative trading largest number of listed companies in the world. second fastest growing stock exchange in the world with a recorded growth of 16.6%. there are over 5,034 listed Indian companies and over 7700 scrips. There are over 1552 listed companies Market Cap – USD 1.63 trillion Market Cap- USD 1.59 trillion owned and managed by India Index Services and Products Ltd. (IISL), which is a joint venture between NSE and CRISIL. Bse 1875 nse 1992 National Securities Clearing Corporation Limited Claring Corp India limited

Trading Network An investor informs a broker to place an order on his behalf. The broker enters the order through his PC, which runs under Windows NT and sends signal to the Satellite via VSAT/leased line/modem. The signal is directed to mainframe computer at NSE via VSAT at NSE's office. A message relating to the order activity is broadcast to the respective member. The order confirmation message is immediately displayed on the PC of the broker. This order matches with the existing passive order(s), otherwise it waits for the active orders to enter the system. On order matching, a message is broadcast to the respective member.

Efficiency of the exchange Fully-automated screen based trading system (SBTS) Trading system operates on a strict price time priority Investor Education and Protection Fund Settlement Guarantee Fund a member can punch into the computer, quantities of securities and the prices at which he desires to transact and the transaction is executed as soon as it finds a matching sale or buy order from a counter party. It al lows a large number of participants, irrespective of their geographical locations, to trade with one another simultaneously, improving the depth and liquidity of the market. By Price: A buy order with a higher price gets a higher priority and similarly, a sell order with a lower price gets a higher priority. By Time: If there is more than one order at the same price, the order entered earlier gets a higher priority Central Government has established a fund called Investor Education and Protection Fund (IEPF) in October 2001 for the promotion of awareness amongst investors and protection of the interest of investors. Max 10lakhs can be paid to an ivestor from this fund. A large Settlement Guarantee Fund provides the cushion for any residual risk. In the event of failure of a trading member to meet settlement obligations or committing default, the Fund is utilized to the extent required for successful completion of the settlement. This has eliminated counter party risk of trading on the Exchange. The market has now full confidence that settlements will take place in time and will be completed irrespective of possible default by isolated trading members. The Fund operates like a self-insurance mechanism and is funded through the contributions made by trading members, transaction charges, penalty amounts, fines etc. recovered by NSCCL. A part of the cash deposit and the entire security deposit of every clearing member with the Exchange has been converted into an initial contribution towards the Settlement Guarantee Fund.

Transaction Cycle April 1 2003, from t+3 to t+2 A person holding assets (securities/funds), either to meet his liquidity needs or to reshuffle his holdings in response to changes in his perception about risk and return of the assets, dec ides to buy or sell the securities. He selects a broker and instructs him to place buy/sell order on an exchange. The order is converted to a trade as soon as it finds a matching sell/buy order. At the end of the trade cycle, the trades are netted to determine the obligations of the trading members to deliver securities/funds as per settlement schedule. Buyer/seller delivers funds/securities and receives securities/ funds and acquires ownership of the securities.

Trading & Settlement Pay-in day is the day when the securities sold are delivered to the exchange by the sellers and funds for the securities purchased are made available to the exchange by the buyers. Pay-out day is the day the securities purchased are delivered to the buyers and the funds for the securities sold are given to the sellers by the exchange. 2 30 pm – receive obligations on t+1 day 10 30 am – arrange fro secs on t+2 day Funds pay in b4 11 n pay out after 1 30

Settlement Process (1) Trade details from Exchange to NSCCL (real -time and end of day trade file). (2) NSCCL notifies the consummated trade details to CMs/custodians who affirm back. Based on the affirmation, NSCCL applies multilateral netting and determines obligations. (3) Download of obligation and pay-in advice of funds/securities. (4) Instructions to clearing banks to make funds available by pay-in time. (5) Instructions to depositories to make securities available by pay-in-time. (6) Pay-in of securities (NSCCL advises depository to debit pool account of custodians/CMs and credit its account and depository does it). (7) Pay-in of funds (NSCCL advises Clearing Banks to debit account of custodians/CMs and credit its account and clearing bank does it). (8) Pay-out of securities (NSCCL advises depository to credit pool account of custodians/CMs and debit its account and depository does it). (9) Pay-out of funds (NSCCL advises Clearing Banks to credit account of custodians/CMs and debit its account and clearing bank does it). Depository informs custodians/CMs through DPs. Clearing Banks inform custodians/CMs.

Circuit Breaker – 3 stages 10% movement – 1hr halt if its before 1:00 p.m; ½ hr - after 1:00 p.m. but before 2:30 after 2:30 p.m. there will be no trading halt 15% movement- 2hr halt if its before 1 p.m 1hr halt if its after 1p.m.but before 2p.m after 2:00 p.m. halt for remainder of the day 20% movement- halted for the remainder of the day

Boon or Bane Flash trading Algorithmic trading High frequency trading What happened on May 6,2010 ?? Are there many such days to come…??

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