A Project Report on

STUDY ON BOMBAY STOCK EXCHANGE

Under the partial fulfillment of

T .Y. BCOM (FINANCIAL MARKET)

SEMESTER 5th

Submitted By

Ms. AMITA RAHI VIVEK

Roll no. 07

Project Guide

PROF. (MRS.) SHRADDHA BHOME

Submitted to

UNIVERSITY OF MUMBAI

Academic Year

2010-2011

VPM’S

K.G. JOSHI COLLEGE OF ATRS

& N.G. BEDEKAR COLLEGE OF COMMERCE

CHENDANI BUNDER ROAD, THANE (W) 400601.

 ACKNOWLEDGEMENT

I would like to extend my sincere gratitude to all those people who have
helped me in the successful completion of my Project.

Its gives us immense pleasure in expressing our gratitude to us project guide

prof. Mrs. Shraddha Bhome for giving her precious time and help us in
completing our project.

We would also like to thank Prof.D.M.Murdeswar (co-ordinator), our

principal Dr. (Mrs.) S.A. Singh for their valuation suggestion and support
provided during the project and also the library staff providing the books
whenever demanded by us.

We thank them for being informative and tolerant. We would not have been
able to complete our project without sincere guidance and effort of above
mentioned people, whose presence was blessing in disguise for me, which
motivated us to complete our project on time.

And at last but not the least, a special thank to my parents for their constant
support & assistance, to make these project worth presenting before you.
 DECLARATION

I, AMITA V. RAHI the student of JOSHI-BEDEKAR COLLEGE, studying

in the T.Y.B.Com – (Financial market), Semester-5TH course for the
academic year 20010 – 11. Hereby declare that I have completed the project
on “Study on Bombay Stock Exchange” in fulfillment of the course
completion requirement at the University of Mumbai.

I further declare that information presented in this project is true and original
to the best of my knowledge.

DATE: signature of student

PLACE: (Amita V. Rahi)

 INDEX
Sr. No Contents Page no.

1 Title Page

2 Certificate

3 Acknowledgement

4 Declaration

5 Index

6 List of Chart and Diagram

7 Researcher methodology

8 Chapter Schemes

1 Overview of financial market

1.1 what is Financial System?

1.2 Function of the Financial System
1.3 Components of the Financial System
1.4 Capital Market
1.5 Primary Market
1.6 Secondary market

2 Secondary market

2.1 Introduction
2.2 Definition
2.3 Features of secondary market
2.4 Advantages of secondary market
2.5 Ingredients of secondary market
2.6 Innovation in secondary market
 3 Study on Bombay Stock Exchange

3.1 Introduction
3.2 History of BSE
3.3 Milestones of BSE
3.4 Achievements & Awards by BSE

4 Finding @ BSE

4.1 Trading @ BSE

4.2 BSE Indices
4.3 BSE Technology
4.4 Risk Management
4.5 Derivative
4.6 Safeguards for Investors

9 Bibliography

10 Annexure
 List of chart and Diagram
Sr. no. List

1 1.1 Function of the financial system

2 1.2 Indian Financial System

3 2.1 Features of Secondary Market

4 2.2 Advantages of Secondary Market

5 2.3 Ingredients of Secondary Market

6 3.1 Milestones of BSE

 REASHER METHODOLOGY

Why I have chosen this topic ?

As being the student of financial market I have chosen my topic for

project on study on Bombay Stock Exchange. The financial market deals
with the various securities and these securities are traded on stock
exchanges. That’s why I have done my project on the oldest and first stock
exchange in India that is Bombay Stock Exchange.

I have chosen this topic to get more overview on Bombay Stock

Exchange. To know the role played by BOMBAY STOCK EXCHANGE in
Indian capital market. How BSE Sensex perform in the market. This topic
will increase my knowledge and will be benefited to my career.

OBJECTIVES OF PROJECT

 To get an overview of Bombay Stock Exchange.

 To know the role of Bombay Stock Exchange in capital market
 How BSE provide services to investor, companies, Government
and society.
 To know about BSE INDICES
 To know about risk management by BSE
 To know the new derivative segment on BSE
• Newspaper

• Internet

• Prospectus of BSE

RESEARCH DESIGN

In order to conduct the research an appropriate methodology became

necessary. In this direction both primary as well as secondary data were
attempted to be collected. The methodology is concentrated in the following
area:

1. Primary Data.
2. Secondary Data.
• Primary Data

The primary data collection is specially designed to have information from

the manager level officer. The questionnaire was presented to the officers of
the bank. Questionnaire was collected and arranged in one after the other in
recording sheet. Incomplete responses were deleted.

SOURCE Sample
Interview at BSE Questionnaire 20

• Secondary Data

The methodology for collecting data with reference to the secondary data
was taken from the following:-

• Books
• Journals

• Magazines

LIMITATIONS
The project has been limited to the visit on Bombay Stock Exchange. During
research for the project it was noticed that the officers of the above
mentioned, were hesitant to provide general information as regards the
functioning of the Exchange

At the same time they were reluctant to disclose information such as the
accurate facts and figures (commission for mercantile services etc.) as they
were being considered to be confidential.

Thankfully, these limitations did not act as hindrances for completion of the
project.

CHAPTER: 1 OVERVIEW OF FINANCIAL SYSTEM

1.1 WHAT IS FINANCIAL SYSTEM?

The economic development of any country depends upon the existence of

a well organized financial system. A financial system plays a vital role in the
economic growth of a country. It intermediates between the savers and
investor and promotes faster economic development. It mobilizes and
usefully allocates scarce resources of a country.

A financial system is a complex, well-integrated set of sub-system of

financial institutions, markets, instruments, and services which facilitates the
transfer and allocation of funds, efficiently and effectively. An efficient
functioning of the financial system facilities the free flow of funds to more
productive activities and thus promotes investment.

1.2 FUNCTIONS OF THE FINANCIAL SYSTEM.

Chart 1.1 functions of Financial System

F Provision of Liquidity

N Mobilization of Savings

T Size Transformation Function

O Maturity Transformation Function

S Risk Transformation Function

(Source: By Researcher)

1. Provision of liquidity

The major function of financial system is the provision of money and

monetary assets for the production of goods and services. There should
not be any shortage of money for productive ventures. In financial
language, the money and monetary assets are referred to as liquidity. The
term liquidity refers to cash or money and other assets which can be
converted into cash readily without loss of value and time. Hence, all
activates in a financial system are related to liquidity- either provision of
liquidity or trading in liquidity. In India the R.B.I. is the leader of the
financial system and hence it has to control the money supply and
creation of credit by banks and regulates all the financial institutions in
the country in the best interest of the nation.

2. Mobilization of Savings

Another important activity of the financial system is to mobilize

saving and channelize them into productive activities. The financial
system should offer appropriate incentives to attract saving and make
them available for more productive ventures. Thus, the financial system
facilitates the transformation of saving into investment and consumption.
The financial intermediaries have to play a dominant role in this activity.

3. Size Transformation Function

 Generally, the savings of millions of small investors are in the nature
of a small unit of capital which cannot find any fruitful avenue for
investment unless it is transformed into perception size of credit unit.
Banks and other financial intermediaries perform this size transformation
function by collecting deposits from a vast majority of small customers
and giving them as loan of a sizeable quantity. Thus, this size
transformation function is considered to be one of the very important
functions of the financial system.

4. Maturity Transformation Function

Another function of the financial system is the maturity transformation

function. The financial intermediaries accept deposits from public in
different maturities according to their liquidity preference and lend them
to the borrowers in different maturities according to their needs and
promote the economic activities of a country.

5. Risk Transformation Function

Most of the small investors are risk-averse with their small holding of
savings. So, they hesitate to invest directly in stock market. On the other
hand, the financial intermediaries collect the saving from individual saver
and distribute them over different investment units with their high
knowledge and expertise. Thus, the risks of individual investors get
distributed. This risk transformation function promotes industrial
development. Moreover, various risk mitigating tools are available in the
financial system like hedging, insurance, use of derivatives etc.
1.3 COMPONENTS OF THE FINANCIAL SYSTEM

Chart 1.2 Indian financial systems

Indian financial system

Organized system Unorganized system (moneylender)

Financial Financial Financial Financial

Institutions Instruments Markets Services

Long term Short term Depositories,

. Instrument Instrument Venture capital,
. Hire purchase etc.

Banking Non –Banking

Financial Financial
Institution Institution

Capital market money market

Non- banking Non- banking

. Financial Development Equity market Debt market
. Institution Institution
Commercial Co-operative Primary Secondary Derivative
Bank Bank market market market

T-bill Commercial paper Certificate of deposit Repo

(Source: The Indian financial System by Bharati V. pathak, page no.7)
The financial system consists of four segment or components. These are:
1. Financial institutions,

2. Financial markets,

3. Financial instruments, and

4. Financial services.

1. Financial Institutions

Financial institution are intermediaries that mobilize saving and facilitate

the allocation of funds in an efficient manner.

Financial institutions can be classified as banking and non-banking

financial institutions. Banking institutions are creators and purveyors of
credit while non-banking financial institution is purveyors of credit. In India,
non-banking financial institutions, namely, the Developmental Financial
Institutions (DFIs), and Non-Banking Financial Companies (NBFCs) as well
as Housing Finance Companies (HFCs) are major institutional purveyors of
credit.

Financial institutions can also be classified as term- financial institutions

such as the Industrial Development Bank of India (IDBI), the Industrial
Credit and Investment Corporation of India (ICICI), the Industrial Financial
Corporation of India (IFCI), the Small Industries Development Bank of
India (SIDBI) and the industrial investment Bank of India (IIBI).

In the post- reforms era, the role and nature of activity of these financial
institutions have undergone a tremendous change. Banks have now
undertaken non- bank activities and financial institutions have taken up
banking functions. Most of the financial institution now resorts to financial
markets for raising funds.

2. Financial Markets

Financial markets are a mechanism enabling participants to deal in

financial claims. The markets also provide a facility in which their demands
and requirements interact to set a price for such claims.

The main organized financial markets in India are the money market and
the capital market. The first is a market for short- term securities while the
second is a market for long- term securities, i.e., securities having a maturity
period of one year or more.

Financial markets can be also be classified as primary and secondary

markets. While the primary market deals with new issues, the secondary
market is meant for trading in outstanding or existing securities.

3. Financial Instruments

Financial instrument is a claim against a person or an institution for

payment, at a future date, of a sum of money and periodic payment in the
form of interest or dividend. Financial instruments represent paper wealth
shares, debentures, like bonds and notes. Many financial instruments are
marketable as they are denominated in small amount and traded in organized
markets. This distinct feature of financial instruments has enabled people to
hold a portfolio of different financial assets which, in turn, helps in reducing
risk.

Financial instrument differ in term of marketability, liquidity,

reversibility, types of options, returns, risk and transaction cost. Financial
instruments help financial markets and financial intermediaries to perform
the important role of channelizing funds from lenders to borrowers.

4. Financial Services

Financial services are those that help with borrowing and funding,
lending and investing, buying and selling securities, making and enabling
payments and categories of financial services are funds intermediation,
payments mechanism, and provision of liquidity, risk management and
financial engineering.

Financial services are necessary for the management of risk in the

increasingly complex global economy. They enable risk transfer and
protection from risk.

The four financial system components discussed do not function in

isolation. They are independent and interact continuously with each other.
Their interaction leads to the development of a smoothly functioning
financial system.

1.4 CAPITAL MARKET

 The capital market is a market for financial assets which have a long or
indefinite maturity. Generally, it deals with long term securities which have
a maturity period of above one year. Capital market may be further divided
into three namely:

i Industrial securities market

ii Government securities market and

iii Long term loan market

i. Industrial Securities Market

As the very name implies, it is a market for industrial securities namely

Equity shares, Preference shares, and Debenture or Bonds. It is a market
where industrial concerns raised their capital or debt by issuing appropriate
instruments. It can be further subdivided in two. They are:

• Primary market or new issue market

• Secondary market or stock exchange

ii.Government securities market

It is otherwise called Gild-Edged securities market. It is a market where

Government securities are traded. In India there are many kinds of
Government Securities – short- term and long- term. Long term securities
are traded in this market while short term securities are traded in money
market. Securities issued by the Central Government, State Governments,
Semi-Government authorities like City corporations, Port Trusts etc.

iii. Long- Term Loans Market

Development banks and commercial banks play a significant role in this

market by supplying long term loans to corporate customers. Long term
loans market may further be classified into:

a. Term Loans market

b. Mortgages market

c. Financial guarantees market.

a. Term loans market

Many industrial financing institutions have been created by the

Government both at the national and regional levels to supply long term and
medium term loans to corporate customers directly as well as indirectly.

b. Mortgages market

The mortgages market refers to those centers which supply mortgage loan
mainly to individual customers. A mortgage loan is a loan against the
security of immovable property like real estate. This mortgage may be
equitable mortgage or legal one.

c. Financial Guarantees market

 A Guarantee market is a center where finance is provided against the
Guarantee of a reputed person in the financial circle. Guarantee is a contract
to discharge the liabilities of a third party in case of his default. In case the
borrower fails to repay the loan, the liability falls on the shoulders of the
Guarantor. Hence the guarantor must be known to both the borrower and the
lender and he must have the means to discharge his liability.

1.5 PRIMARY MARKET

Primary market is a market for new issues or new financial claims.

Hence, it is also called New Issue Market. The primary market deals with
those securities which are issued to the public for the first time. The market,
therefore, makes available a new block of securities for public subscription.
In the primary market, borrower exchange new financial securities for long
term funds. Thus, primary market facilitates capital formation. There are
three ways by which a company may raise capital in a primary market. They
are:

i Public issue

ii Rights issue

iii Private placement

The most common method of raising capital by new companies is

through sale of securities to public. It is called public issue. When an
existing company wants to raise additional capital, securities are first offered
to the existing shareholders on a pre-emptive basis. It is called right issue.
Private placement is a way of selling securities privately to a small group of
investors.
 The new issue market encompasses all institution dealing in fresh claims.
These claims may be in the form of equity shares, preference shares,
debentures, rights issues, deposits etc. all financial institutions which
contribute, underwrite and directly subscribe to the securities are part of new
issue market.

1.6 SECONDARY MARKET

The Secondary market is a market for secondary sale of securities. In

other words, securities which have already passed through the new issue
market are traded in this market. The market where existing securities are
traded is referred to as the secondary market or stock market. In a stock
market, purchases and sales of securities whether of Government or Semi-
Government bodies or other public bodies and also shares and debentures
issued by joint stock companies are affected. The securities of government
are traded in the stock exchange as a separate component, called guilt edged
market. Government securities are traded outside the trading wing in the
form of over the counter sales or purchases. Another component of the stock
market deals with trading in shares and debentures of limited companies.

Stock exchanges are the important ingredient of the capital market. They
are the theatres of trading in securities and as such they assist and control the
buying and selling of securities. The stock exchanges in India are regulated
under the Securities Contract (Regulation) Act, 1956. The Bombay Stock
Exchange is the principal stock exchange in India which sets the tone of the
stock markets.
CHAPTER: 2 SECONDARY MARKET

2.1 INTRODUCTION

The market where existing securities are traded is referred to as the

secondary market or stock market. In a stock market, purchases and sales of
securities whether of Government or Semi- Government bodies or other
public bodies and also shares and debentures issued by joint stock
companies are affected. The securities of government are traded in the stock
market as separate component, called guilt edged market. Government
securities are traded outside the trading wing in the form of over the counter
sales or purchases. Another component of the stock market deals with
trading in shares and debentures of limited companies. The secondary
market plays a very vital role as one of the indicators of the industrial
development of a nation. Each and every country has the secondary markets
some of the well known stock exchanges are Bombay Stock Exchange
(BSE) of India, New York Stock Exchange (NYSE) of America, National
Stock Exchange (NSE), London Stock Exchange of The Great Britain,
NASDAQ etc. Various securities & financial instruments that are traded in
the stock market are;

* Equity Shares
* Preference Shares
* Bonus Shares
* Bonds
* Debentures
* Commercial Papers
* Treasury Bills
2.2 DEFINATION
Stock exchanges are the important ingredient of the secondary market.
They are the citadel of capital and fortress of finance. They are the theatres
of trading in securities and as such they assist and control the buying and
selling of securities. Thus, according to Husband and Dockeray “securities
or stock exchange are privately organized markets which are used to
facilities trading in securities”. However at present stock exchanges need not
necessarily be privately organized ones.
In brief, stocks exchanges constitute a market where securities issued by
central and state government, public bodies and joint stock companies are
traded.
2.3 FEATURES OF SECONDARY MARKET
Chart 2.1 Features of Secondary Market

(Source: By Researcher)
Stock exchange is a mechanism, which facilitates listing and trading in
securities. The main features of stock exchange are as follows:
1.Organized body:-
A stock exchange is an organized association or corporate body. The
organized stock exchanges can take any of the following forms:
• Public Limited by Guarantee.
• Companies Limited by Guarantee.
• Voluntary Non- profit Organization.
2.Facilitates Listing Of Shares :-
 The stock exchanges facilities listing of shares issued by public limited
companies. The companies that issue shares to the public can get their shares
listed on one or more stock exchange in the country. The listing of shares is
done through the listing agreement. The listing agreement is signed by the
shares issuing company and the concerned stock exchange. Due to listing of
shares, companies are able to raise long term funds through the issue of
shares.
3.Facilities Trading of Securities :-
The stock exchange facilitate of shares. The shares listed on the exchange
can be traded. The shares can be traded between the sellers and buyers on
the stock exchange. The trading of shares brings liquidity to the shares. The
investors can sell the shares and realize cash as and when they are in need of
funds, or as and when they want to book profits.
4. Controlled by SEBI:-
The activities of stock exchanges are controlled by SEBI. SEBI has
framed rules and regulations to be followed by stock exchanges. If the rules
and regulations are not followed, SEBI may cancel the registration of such
stock exchange. SEBI may also impose penalty on defaulting stock
exchange.
5. Membership:-
Every stock exchange has its members. The members are normally the
stock brokers. Membership charges must be paid to become members of the
stock exchange. The membership fees include:
• Entrance fees.
• Membership security deposit.
• Annual subscription fees.
 The membership charges vary depending upon the stock exchange. The
highest membership charges are at Bombay Stock Exchange and Calcutta
stock Exchange.
6. Governing Body:-
The stock exchanges are managed by Governing Body/ Board. The
Governing board consists of:
• President and Vice- president.
• Chief Executive.
• Directors.
• Public Representative.
• Government Nominees.
The Government nominates the president and Vice-president.
Government nominees are nominated by SEBI. The Directors are elected by
the stock broker members. The governing body has administrative powers
relating to the functioning of the stock exchange.

7. Trading Through Registered Brokers:-

Transactions on the stock exchange are done only through the registered
stock brokers. Transactions through any other party are considered invalid.
8. Important Element of Capital Market:-
A capital market is a market for medium term and long term funds. A
stock exchange plays an important role in capital market. It enable the
companies to raise medium and long term funds through the issue of shares
and debentures.
9. Barometer of Economic Strength:-
 Stock exchanges are indicators or barometers of economic stability of a
nation. If the national economy is strong and healthy, then the stock
exchanges will reflect such a strong economic position. This is because the
stock markets are at high, the economic growth is high, and vice- versa.
10. Central Government Recognition:-
The stock exchanges need to obtain recognition from the Central
Government. At present, only 8 stock exchanges are granted permanent
recognition by the Central Government.
11. Location :-
The stock exchanges are mostly located in the capital cities of major
states in India. At present, there are 25 stock exchanges in the country.
There are four national level stock exchanges and 21 regional stock
exchanges. The oldest stock exchange in the country is the Bombay Stock
Exchange, located in the financial capital of India.

2.4 ADVANTAGES OF SECONDARY MARKET

Chart2.2 Advantages of secondary market

A Assist in raising funds

D Facilitates listing of shares
V Generate Employment
A Capital Formation
N Stimulates Industrial Development
T Facilitates Regional Development
A Provides Investment Opportunities
G Provides Revenue to the Government
E Promotes Efficient Management of Listed Companies
S
(Source: By Researcher)

Stock market is vital for the economic development of a nation. The

advantages of stock market are briefly stated as follows:
1. Assist in Raising funds:-
The stock exchange is enables public limited companies to raise long
term funds from the stock market. The companies can issue shares and
debentures and obtain long term funds. The long term funds can be utilized
for the purpose of expansion and modernization of existing units.
Companies can also utilize the funds for the purpose of setting new projects.

2. Facilitates Listing of Shares :-

The stock exchanges facilitate listing of shares issued by public limited
companies. The companies that issue shares to the public can get their shares
listed on or more stock exchanges in the country. Readymade market to buy
or sale shares, so company can list their share easily.
3. Generates Employment:-
It generates employment facilities in the country. A number of brokers,
sub- brokers, and other do get their employment because of stock exchange.
Stock exchange also facilities indirect employment in the various sectors.
Due to availability of long term funds, companies undertake expansion and
modernization programs, which in turn generate more employment.
4. Capital Formation:-
The stock exchange encourages investors to invest in the primary and
secondary stock market. For investing in stock market, investors need to
save money. Savings lead to investment in shares and other securities.
Investment leads to capital formation.
5. Stimulates Industrial Development:-
The Stock exchanges facilities mobilization of long term funds through
the issue of shares and debentures. The long term funds can be utilized by
companies for the following purpose:-
• Expansion and modernization.
• Setting up of new projects.

6. Facilitates Regional Development:-

The stock exchange also facilitates regional development in the country.
Companies can generate long term funds due to stock exchanges. The funds
generated can be utilized for setting up units in backward areas. This leads to
regional development in the country.
7. Provides Investment Opportunity:-
The stock exchange provides an investment opportunity to the investors.
The investors are provided with an additional opportunity to invest in shares,
other than investment in fixed deposits in bank or in other forms. It has been
proved that the returns from the stock markets are much higher as compare
to traditional forms of investment. But the investor must only in good
companies that provide good return to investors.
8. Provides Revenue to the Government:-
The stock exchange provides revenue to the Government, either directly
or indirectly. The stock exchanges pay tax on the revenue or profits earned
by them. Also, the investors who invest on stock markets are subject to
capital gain tax.
9. Promotes Efficient Management of Listed Companies:-
Stock exchange indirectly promotes efficiency of the management of
listed companies. Higher the efficiency, higher is the performance, and as
such higher the prices of the shares on the stock market.

2.5 INGREDIENTS OF SECONDARY MARKET

Ingredients are citadel of capital and fortress of finance. They are the
theatres of trading in securities and as such they assist and control the
buying and selling of securities. Ingredients of secondary market are as
follow:-

Chart 2.3 Ingredients of secondary market

I Stock Exchanges

G Jobbers

E Tarawaniwala

I commission Brokers

N Sub-Brokers / Remisiers

S Authorized Clerks

(Source: By researcher)

1. Stock Exchanges:-

Stock exchanges are the important ingredient of capital market. Stock

exchanges provide an organized market place for the investors to buy and
sell securities freely. The market offers perfectly competitive conditions
where a large number of seller and buyer participate. Further, stock
exchanges provide an auction market in which member of the exchange
participate to ensure continuity of price and liquidity to investors.
 The first stock exchange in India was started in Bombay in 1875 with
formation of the “Native Share and Stock Broker’s Association’. Thus
Bombay Stock Exchange is the oldest one in the country. With the growth of
joint stock companies, the stock exchanges also made a steady growth and at
present these are 22 recognized stock exchanges.

2. Jobbers:-

A jobber is a professional independent broker who deals in securities on

his own behalf. In other words, he purchases and sells securities in his own
name. His main job is to earn a margin of profit due to price variations of
securities. A jobber plays in the market for quick returns. He is a
professional broker who carefully judges the worth of the securities and
makes a good forecast of their future price movements. He buys securities as
a owner, keeps them for a very short period and sell them for profit known
as the ‘jobber’s turn’. Thus, a jobber does not work on commission basis but
work for profit. So, a jobber can deal either with a broker or with another
jobber.

3. Tarawaniwalas:-

A Tarawaniwala is an active member in the Bombay Stock Exchange. A

Tarawaniwala can act both as a broker as well as a jobber. Basically he is a
jobber. But at same time, he is not prohibited from acting as a broker. The
drawback of this system is that a Tarawaniwala can act against the interest of
investors by purchasing securities from them in his own name at lower
prices and selling the same securities to them at higher prices. Now, the
Securities Contract act of 1956 provides that a member of a stock exchange
can act as a principal only for a member of a recognized stock exchange. In
case he wants to act as such for a non-member, he must get his consent and
this fact must disclose in agreement also.

4. Commission Brokers:-

A commission broker is nothing but a broker. He buys and sells securities

on behalf of his client for a commission. He is permitted to deal with non-
members directly. He does not purchase or sell in his own name. Generally,
a broker acts for a large number of his clients, and therefore, he deals in a
large variety of securities. He get the orders from his clients and executes
them through jobbers.

5. Sub- Brokers/ Remisiers:-

As a stated earlier, a sub-broker is an agent of a stock broker. He helps the

client to buy and sell securities only through the stock broker. Since he is not
a member of a stock exchange, he cannot directly deal in securities. He is
subject to similar restrictions as are applicable to member brokers. He is
called remisier in the Bombay Stock Exchange. His commission is paid out
of the commission received by brokers for whom he is acting as an agent.
Hence, remisiers are also called “half commission men”. Generally, their
commission cannot exceed 40% of the commission received on the business
transacted by them

6. Authorized Clerks:-

An authorized clerk is one who is appointed by a stock broker to assist

him in the business of securities trading. A broker cannot be present always
 on the trading floor of a stock exchange, and therefore, he requires the
assistance of others to carry on the trading activities on his behalf. In
Bombay Stock Exchange, each member broker can employ a maximum
number of 5 clerks. Generally, authorized clerks are given power of attorney
to act on behalf of brokers and hence they can sign on behalf of brokers.

2.6 Innovations in Secondary market

Many steps have been taken in recent years to reform the secondary
market so that it may function efficient and effectively. Steps are also being
taken to broaden the market and make it function with greater degree of
transparency and in the best interest of investors. Some of the developments
in the secondary market are as following:-

1. Change in the Management Structure:-

In the early periods, the boards of stock exchanges were dominated by

brokers whose decisions were not fair and transparent. The SEBI now
requires that 50 per cent of the directors must be non-broker directors or
government Representatives. Further, it is obligatory that a non-broker
professional shall be appointed as the Executive Director.

2. Insistence of Quality Securities:-

For efficient and active functioning of a stock exchange, quality

securities are absolutely essential. Realizing this fact, the SEBI has
announced revised norms for companies accessing the capital market so that
only quality securities are listed and traded in stock exchanges.

3. Transparency of Accounting Practices:-

 To ensure correct pricing mechanism and wider participation, all attempts
are being taken to achieve transparency in trading and accounting
procedures. Brokers are asked to show their prices, brokerage, service tax
etc. separately in the contract notes and their accounts. Of course the service
tax is collected from the client and paid to the Government.

4. Introduction of Depository system:-

A depository is an organization where the securities of a shareholder are

held in the electronic form through a process of dematerialization. The
investors have to simply open an account with the depository through a
depository participant. The account will be credited with the purchase of
securities and debited with the sale of securities. There is no physical
transfer of shares. Everything is done through electronic media. The
depository system facilitates investors to hold securities in the electronic
form rather than in physical form. Since the operations are computer linked,
they are transparent, speedier, less speculative and cost effective.

The SEBI has directed that all offer of public/ rights issue/ offer for sale
should only be of ‘dematerialized shares’. So, the investors will be
compulsorily required to open a depository account with a Depository
Participant (DP) for making an application. All DPs will act as collection
agents.

5. Setting up of Credit Rating Agencies:-

Credit rating agencies have been set up for awarding credit rating to the
money market instruments, deposits and even to equity shares also. Now, all
debt instruments must be compulsorily credit rated by a credit rating agency
 so that the investing public may not be deceived by financially unsound
companies. It is a healthy trend towards a developed capital market.

6. Introduction of Electronic Trading:-

The OTCEI has started its trading operations through the electronic
media. Similarly, BSE switched over to electronic trading system in January
1995, called BOLT. Again, NSE went over to screen based trading with a
national network. Under this system, investment counters can be spread
throughout the country under the electronic network. The buyers and sellers
living apart from each other can trade in corporate securities through
electronic media and through telephone/ teller / computer in the case of
OTC. Hence, there is a national market with no physical location, no trading
ring, no stock exchange building, no hustle, and bustle scenes etc. which are
commonly found in conventional stock exchanges.

7. Stock Watch System:-

The SEBI is contemplating to introduce a New Stock Watch system to

trace out the source of undesirable trading if any in the market. The Stock
Watch System simply works as a mathematical model which keeps a
constant watch on the market movement. When the model is activated,
certain parameters are put to work at once. It would bring to light
automatically the scrip which are under alert. This alert divided into three
categories such as least bothersome, bothersome and most bothersome
indicating blue, yellow and red signals respectively.

8. Trading in Derivatives:-
 Dr. L. C. Gupta committee which had gone into the question of
introduction of derivative trading has recommended introducing trading in
Index Futures to start with and then trading in options. Bye-laws have
already been framed by NSE and BSE based on the recommendation of the
Committee. Trading in derivatives has been introduced by bringing
necessary amendment to the Securities Contract Regulation Act. These
measures would make the capital market active.

9. Window For Block Deals:-

A separate window has been created in both BSE and NSE for executing
huge block deals to check intra-day volatility on this count on the bourses.
Large intra-day volatility was experienced on the stock exchanges when
these block deals were carried out. Keeping them outside the purview of the
time after the first half-an hour will stem this volatility.

10. Know Your Customer (KYC) Norms:-

KYC norms are providing quite a deterrent for the population to put its
money into various investment channels. The hassles of KYC
documentation are creating obstacles in the path of investor and advisors
alike.

In 2002, KYC norms were introduced in India with the RBI directing all
Bank and Financial Institution to put in place a policy framework to Know
Their Customer. The basic purpose of KYC was to prevent identity theft,
money laundering, terrorist financing etc. this involve verifying customer’s
identity and address by asking them to submit document that are accepted as
relevant proof.
CHAPTER 3: STUDY ON BOMBAY STOCK EXCANGE

3.1 INTRODUCTION

Bombay Stock Exchange is the oldest stock exchange in Asia What is

now popularly known as the BSE was established as "The Native Share &
Stock Brokers' Association" in 1875.
Over the past 135 years, BSE has facilitated the growth of the Indian
corporate sector by providing it with an efficient capital raising platform.
Today, BSE is the world's number 1 exchange in the world in terms of the
number of listed companies (over 4900). It is the world's 5th most active in
terms of number of transactions handled through its electronic trading
system. And it is in the top ten of global exchanges in terms of the market
capitalization of its listed companies (as of December 31, 2009). The
companies listed on BSE command a total market capitalization of USD
Trillion 1.28 as of Feb, 2010.

BSE is the first exchange in India and the second in the world to obtain
an ISO 9001:2000 certifications. It is also the first Exchange in the country
and second in the world to receive Information Security Management
System Standard BS 7799-2-2002 certification for its BSE On-Line trading
System (BOLT). Presently, BSE are ISO 27001:2005 certified, which is a
ISO version of BS 7799 for Information Security.

The BSE Index, SENSEX, is India's first and most popular Stock Market
benchmark index. Exchange traded funds (ETF) on SENSEX, are listed on
BSE and in Hong Kong. Futures and options on the index are also traded at
BSE.

Vision
"Emerge as the premier Indian stock exchange by establishing global
benchmarks"

Mission

“To educate and create awareness among investor”

3.2 HISTORY OF BOMBAY STOCK EXCHANGE

The Bombay Stock Exchange is known as the oldest exchange in Asia. It

traces its history to the 1850s, when stockbrokers would gather under
banyan trees in front of Mumbai's Town Hall. The location of these
meetings changed many times, as the number of brokers constantly
increased. The group eventually moved to Dalal Street in 1874 and in 1875
became an official organization known as 'The Native Share & Stock
Brokers Association'. In 1956, the BSE became the first stock exchange to
be recognized by the Indian Government under the Securities Contracts
Regulation Act.

The Bombay Stock Exchange developed the BSE Sensex in 1986, giving
the BSE a means to measure overall performance of the exchange. In 2000
the BSE used this index to open its derivatives market, trading Sensex
futures contracts. The development of Sensex options along with equity
derivatives followed in 2001 and 2002, expanding the BSE's trading
platform.
Historically an open-cry floor trading exchange, the Bombay Stock
Exchange switched to an electronic trading system in 1995. It took the
exchange only fifty days to make this transition.

Today BSE is among the 10 major international exchanges in context of

market investment of the firms registered under it. The total amount of
investment dominated by the cataloged firms under BSE as on 31st March,
2010 was USD 1.36 Trillion.

3.3 MILESTONES OF BSE SINCE 1875

Table 3.1 Milestones of BSE

Date Milestones

9th Jul 1875 The Native Share & Stock Broker's Association formed

2nd Feb 1921 Clearing House started by Bank of India

BSE granted permenant recognition under Securities Contracts (Regulation) Act

31st Aug 1957
(SCRA)

2nd Jan 1986 SENSEX, country's first equity index launched (Base Year:1978-79 =100)

10th Jul 1987 Investor's Protection Fund (IPF) introduced

3rd Jan 1989 BSE Training Institute (BTI) inaugurated

25th Jul 1990 SENSEX closes above 1000

15th Jan 1992 SENSEX closes above 2000

30th Mar 1992 SENSEX closes above 4000

SEBI Act established ( An Act to protect, develop and regulate the securities
1st May 1992
market)

29thMay 1992 Capital Issues (Control) Act repealed

1992 Securities Appellate Tribunal (SAT) established

14th Mar 1995 BSE On-Line Trading (BOLT) system introduced

19th Aug 1996 First major SENSEX revamp

12thMay 1997 Trade Guarantee Fund (TGF) introduced

21st Jul 1997 Brokers Contingency Fund (BCF) introduced

1997 BSE On-Line Trading (BOLT) system expanded nation-wide

1st Jun 1999 Interest Rate Swaps (IRS) / Forward Rate Agreements (FRA) allowed

22ndMar 1999 Central Depository Services Ltd.(CDSL) set up with other financial institutions

15thJul 1999 CDSL commences work

11th Oct 1999 SENSEX closed above 5000

11th Feb 2000 SENSEX crosses 6000 intra-day

9th Jun 2000 Equity Derivatives introduced

1st Mar 2001 Corporatization of Exchanges proposed by the Union Govt.

1st Feb 2001 BSE Webx Launched

4th Jun 2001 BSE PSU index introduced

15th Jun 2001 WDM operations at commenced

1st Jun 2001 Index Options launched

2nd Jul 2001 VaR model introduced for margin requirement calculation

9th Jul 2001 Stock options launched

11th Jul 2001 BSE Teck launched, India 's First free float index

25th Jul 2001 Dollex 30 launched

1st Nov 2001 Stock futures launched

29th Nov 2001 100% book building allowed

31st Dec 2001 All securities turn to T+5

1st Apr 2002 T+3 settlement Introduced

15th Feb 2002 Negotiated Dealing System (NDS) established

1st Feb 2002 Two way fungibility for ADR/GDR

1st Sep 2003 SENSEX shifted to free-float methodology

1st Jan 2003 India 's first ETF on SENSEX - ‘SPICE' introduced

16th Jan 2003 Retail trading in G Sec

1st Apr 2003 T+2 settlement Introduced

1st June 2003 Banker launched

1st Dec 2003 T group launched

Second biggest fall of all time, Circuit filters used twice in a day
17thMay 2004
(564.71 points, 11.14%)
2nd Jun 2004 SENSEX closes over 6000 for the first time

The BSE (Corporatization and Demutualisation) Scheme, 2005

20thMay 2005
(the Scheme) announced by SEBI

8th Aug 2005 Incorporation of Bombay Stock Exchange Limited

12th Aug 2005 Certificate of Commencement of Business

19th Aug 2005 BSE becomes a Corporate Entity

7th Feb 2006 SENSEX closed above 10000

7th Jul 2006 BSE Gujarati website launched

21st Oct 2006 BSE Hindi website launched

2nd Nov 2006 iShares BSE SENSEX India Tracker listed at Hong Kong Stock Exchange

Singapore Exchange Limited entered into an agreement to invest in

7thMar 2007
a 5% stake in BSE

Appointed Date” under the Scheme i.e. Date on which

16thMay 2007 Corporatisaton and Demutualisation was achieved.Notified by SEBI
in the Official Gazette on 29.06.2007

10th Jan 2008 SENSEX All-time high 21206.77

1st Oct 2008 Currency Derivatives Introduced

The SENSEX raised 2110.70 points (17.34%) and Index-wide

18th May2009
upper circuit breaker applied

BSE - USE Form Alliance to Develop Currency & Interest Rate

7th Aug 2009
Derivatives Markets

24th Aug 2009 BSE IPO Index launched

1st Oct 2009 Bombay Stock Exchange introduces trade details facility for the Investors

5th Oct 2009 BSE Introduces New Transaction Fee Structure for Cash Equity Segment

25th Nov 2009 BSE launches FASTRADE™ - a new market access platform

4th Dec 2009 BSE Launches BSE StAR MF – Mutual Fund trading platform

14th Dec 2009 Marathi website launched

18th Dec 2009 BSE's new derivatives rates to lower transaction costs for all

4th Jan 2010 Market time changed to 9.0 a.m. - 3.30 p.m.

20th Jan 2010 BSE PSU website launched

(Source: www.bseindia.com)

3.4 Achievements & Awards by BSE

Landmark Achievements:
Some of the landmarks achieved by the BSE are mentioned as under:

• Became the first national exchange to launch its website in Gujarati and
Hindi and now Marathi
• Purchased of Marketplace Technologies in 2009 to enhance the in-house
technology development capabilities of the BSE and allow faster time-to-
market for new products
• Launched a reporting platform for corporate bonds christened the ICDM
or Indian Corporate Debt Market
• Acquired a 15% stake in United Stock Exchange (USE) to drive the
development and growth of the currency and interest rate derivatives
markets
• Launched 'BSE StAR MF' Mutual fund trading platform, which enables
exchange members to use its existing infrastructure for transaction in MF
schemes.
• BSE now offers AMFI Certification for Mutual Fund Advisors through
BSE Training Institute (BTI)
• Co-location facilities for Algorithmic trading
• BSE also successfully launched the BSE IPO index and PSU website
• BSE revamped its website with wide range of new features like 'Live
streaming quotes for SENSEX companies', 'Advanced Stock Reach',
'SENSEX View', 'Market Galaxy', and 'Members'
• Launched 'BSE SENSEX MOBILE STREAMER'

With its tradition of serving the community, BSE has been undertaking
Corporate Social Responsibility (CSR) initiatives with a focus on Education,
Health and Environment. BSE has been awarded by the World Council of
Corporate Governance the Golden Peacock Global CSR Award for its
initiative in Corporate Social Responsibility (CSR).

Awards:

• The Annual Reports and Accounts of BSE for the year ended March
31, 2006 and March 31, 2007 have been awarded the ICAI awards for
excellence in financial reporting.
• The Human Resource Management at BSE has won the Asia - Pacific
HRM awards for its efforts in employer branding through talent
management at work, health management at work and excellence in
HR through technology

Drawing from its rich past and its equally robust performance in the
recent times, BSE will continue to remain an icon in the Indian capital
market.

CHAPTER 4 : FINDING @ BSE

4.1 Trading @ BOMBAY STOCK EXCHANGE

Timing

Trading on the BOLT System is conducted from Monday to Friday

between 9:00 a.m. and 3:30 p.m. normally.

Groups

The scrips traded on BSE have been classified into various groups.
BSE has, for the guidance and benefit of the investors, classified the scrips
in the Equity Segment into 'A', ‘B’,'T', ‘S', ‘TS' and 'Z' groups on certain
qualitative and quantitative parameters.

The "F" Group represents the Fixed Income Securities.

The "T" Group represents scrips which are settled on a trade-to-trade basis
as a surveillance measure.

The "S" Group represents scrips forming part of the "BSE-Indonext"

segment.

The "TS" Group consists of scrips in the "BSE-Indonext" segment, which is

settled on a trade-to- trade basis as a surveillance measure.

Trading in Government Securities by the retail investors is done under the

"G" group.

The 'Z' group was introduced by BSE in July 1999 and includes companies
which have failed to comply with its listing requirements and/or have failed
to resolve investor complaints and/or have not made the required
arrangements with both the depositories, viz., Central Depository Services
(I) Ltd. (CDSL) and National Securities Depository Ltd. (NSDL) for
dematerialization of their securities.

BSE also provides a facility to the market participants for on-line trading
of odd-lot securities in physical form in 'A', 'B', 'T', 'S', 'TS' and 'Z' groups
and in rights renunciations in all groups of scrips in the Equity Segment.

With effect from December 31, 2001, trading in all securities listed in the
Equity segment takes place in one market segment, viz., Compulsory
Rolling Settlement Segment (CRS).

The scrips of companies which are in demat can be traded in market lot of
1. However, the securities of companies which are still in the physical form
are traded in the market lot of generally either 50 or 100. Investors having
quantities of securities less than the market lot are required to sell them as
"Odd Lots". This facility offers an exit route to investors to dispose of their
odd lots of securities, and also provides them an opportunity to consolidate
their securities into market lots.

This facility of selling physical shares in compulsory demat scrips is

called an Exit Route Scheme. This facility can also be used by small
investors for selling up to 500 shares in physical form in respect of scrips of
companies where trades are required to be compulsorily settled by all
investors in demat mode.

Listed Securities
 The securities of companies, which have signed the Listing Agreement
with BSE, are traded as "Listed Securities". Almost all scrips traded in the
Equity segment fall in this category.

Permitted Securities

To facilitate the market participants to trade in securities of such

companies, which are actively traded at other stock exchanges but are not
listed on BSE, trading in such securities is facilitated as “Permitted
Securities" provided they meet the relevant norms specified by BSE

Tick Size:

Tick size is the minimum differences in rates between two orders on the
same side i.e., buy or sell, entered in the system for particular scrip. Trading
in scrips listed on BSE is done with the tick size of 5 paise.
However, in order to increase the liquidity and enable the market
participants to put orders at finer rates, BSE has reduced the tick size from 5
paise to 1 paise in case of units of mutual funds, securities traded in "F"
group and equity shares having closing price up to Rs. 15 on the last trading
day of the calendar month. Accordingly, the tick size in various scrips
quoting up to Rs.15 is revised to 1 paise on the first trading day of month.
The tick size so revised on the first trading day of month remains unchanged
during the month even if the price of scrips undergoes a change.

Computation of Closing Price of Scrips

 The closing price of scrips is computed by BSE on the basis of weighted
average price of all trades executed during the last 30 minutes of a
continuous trading session. However, if there is no trade recorded during the
last 30 minutes, then the last traded price of scrip in the continuous trading
session is taken as the official closing price.

Basket Trading System

BSE has commenced trading in the Derivatives Segment with effect from
June 9, 2000 to enable investors to hedge their risks. Initially, the facility of
trading in the Derivatives Segment was confined to Index Futures.
Subsequently, BSE has introduced the Index Options and Options & Futures
in select individual stocks.

Investors in the cash market had felt a need to limit their risk exposure in
the market to the movement in Sensex. With a view to provide investors the
facility of creating Sensex-linked portfolios and also to create a linkage of
market prices of the underlying securities of Sensex in the Cash Segment
and Futures on Sensex, BSE has provided to the investors as well as to its
Members a facility of Basket Trading System on BOLT with effect from
August 14, 2000. In the Basket Trading System, the investors through the
Members are able to buy/ sell all 30 scrips of Sensex in one go in the
proportion of their respective weights in the Sensex. The investors need not
calculate the quantity of Sensex scrips to be bought or sold for creating
Sensex-linked portfolios and this function is performed by the system. The
investors can also create their own baskets by deleting certain scrips from 30
scrips in the Sensex. Further, the investors can alter the weights of securities
in such profiled baskets and enter their own weights. The investors can also
select less than 100% weightage to reduce the value of the basket as per their
own requirements.

To participate in this system, the Members need to indicate the number of

Sensex basket(s) to be bought or sold, where the value of one Sensex basket
is arrived at by the system by multiplying Rs.50 to the prevailing Sensex.
For example, if the Sensex is 15,000, the value of one basket of Sensex
would be 15000 x 50= i.e., Rs. 7,50,000/-. The investors can also place
orders by entering value of Sensex portfolio to be brought or sold with a
minimum value of Rs. 50,000 for each order.

The Basket Trading System provides the arbitrageurs an opportunity to

take advantage of price differences in the underlying Sensex and Futures on
the Sensex by simultaneous buying and selling of baskets comprising the
Sensex scrips in the Cash Segment and Sensex Futures. This would provide
a balancing impact on the prices in both cash and futures markets.

The Basket Trading System thus meets the need of investors and also
improves the depth in cash and futures markets.

The trades executed under the Basket Trading System are subject to intra-
day trading and gross exposure limits available to the Members. The VaR,
MTM margins etc, as are applicable to normal trades in the Cash Segment,
are also recovered from the Members.

4.2 BSE INDICES

 Bombay Stock Exchange Indices are as follow:-

• SENSEX: -

SENSEX or Sensitive Index is not only scientifically designed but also

based on globally accepted construction and review methodology. First
compiled in 1986, SENSEX is a basket of 30 constituent stocks representing
a sample of large, liquid and representative companies. The index is widely
reported in both domestic and international markets through print as well as
electronic media.

The index was initially calculated based on the “Full market

Capitalization” methodology but was shifted to the free-float methodology
with effect from September 1, 2003.

The objective of SENSEX is:-

 To measure Market Movements,

 Benchmark for Funds Performance,
 For Index Based Derivatives Products

• BSE-100:-

After the launch of SENSEX, a need was felt for a more broad-based
index, which reflect the movement of stock prices on a national scale.
Initially, the BSE 100 National Index was calculated by taking prices of its
constituents from five major stocks exchange in the country viz. Mumbai,
Calcutta, Delhi, Ahmadabad and Madras. A distinction was made between
“local scrips” for which prices were taken from only one exchange and
“Inter-Exchange Scrips” for which an average of the prices quoted on two or
more exchanges was considered for index compilation.

• BSE PSU INDEX:-

BSE launched “BSE PSU Index” on 4th June 2001. Like other on- line
Indies, the BSE-PSU Index is also displayed on- line on the BOLT. BSE
PSU Index tracks the performance of the listed PSU stocks on exchange.
BSE PPSU index is a sub-set of BSE-500 index and hence all its
constituents are part of the BSE-500 index. The BSE PSU Index ensure a
reasonable measure of how the Government wealth fluctuation on the
bourses.

• BSE TECk Index- The TMT benchmark:-

Attuning itself to the global standard in equity index construction

methodology and leading the way in responding to the market demand for a
TMT Benchmark (technology, media and telecommunications). It launched
on 11 July, 2001.

• BSE-500:-

Although BSE-100 and BSE- 200 indices are broad- based indices, a
need was felt to construct BSE-500 index to represent all segment of listed
stocks and to give more coverage in term of number of scrips, market
capitalization and turnover. The BSE-500 represent around 94% of the total
listed market capitalization of BSE and around 99% of the average daily
turnover on the exchange.
 • BSE Mid-Cap and BSE Small-Cap:-

BSE introduced the new index series called ‘BSE Small-Cap’ index on
11th April 2006 to track the performance of the companies with relatively
small market capitalization that would exclusively represent the mid and
small cap companies listed on the Stock Exchange. BSE Mid-Cap and BSE
Small-Cap index have proved to be great utility to the investing community
as they would truly capture the movement of the segment they are represent
(mid and small).

• BSE Sectoral Indices:

Stock belonging to major sectors in the BSE-500 index constitutes

respective sect oral indices.

• BSE BANKEX:-

BANKEX, a benchmark for the banking sector, was launched in June

2003 by Exchange to enable the market participants to track the movement
of stocks from the banking sector

4.3 BSE Technology

BSE places a great deal of emphasis on Information Technology for its

operations and performance. The 'Operations & Trading Department' at BSE
continuously upgrades the hardware, software and networking systems, thus
enabling BSE to enhance the quality and standards of service provided to its
members, investors and other market intermediaries. BSE strictly adheres to
IS policies and IS Security policies and procedures for its day-to-day
operations on 24x7 basis which has enabled it to achieve the BS7799
certification and the subsequent ISO 27001 certification. In addition, BSE
has also been successful in maintaining systems and processes uptime of
99.99%.

BOLT

To facilitate smooth transactions, BSE had replaced its open outcry system
with the BSE On-line Trading (BOLT) facility in 1995. This totally
automated, screen-based trading in securities was put into practice nation-
wide within a record time of just 50 days. BOLT has been certified by DNV
for conforming to ISO 27001:2005 security standards.

The capacity of the BOLT platform stands presently enhanced to 80 lakh

orders per day.

BSEWebx.co.in

BSE has also introduced the world's first centralized exchange based
Internet trading system, BSEWEBx.co.in. The initiative enables investors
anywhere in the world to trade on the BSE platform.

bseindia.com

BSE's website www.bseindia.com provides comprehensive information

on the stock market. It is one of the most popular financial websites in India
and is regularly visited by financial organizations and other stakeholders for
updates.
Other Technology-based Initiatives

BSE, along with its strategic partners, have put into place several critical
processes/systems such as

• Derivatives Trading & Settlement System (DTSS)

• Electronic Contract Notes (ECN)
• Unique Client Code registration (UCC)
• Real-time Data Dissemination System -
• Integrated Back-office System - CDB / IDB
• Book Building System (BBS)
• Reverse Book Building System (RBBS)
• Debt Market
• Director's Database

A Large Private Network

BSE operates a large private network in India. The network uses

following segments to cater to market intermediaries:-

BSE's Campus LAN:

Connects market participant offices across 20 floors of BSE campus to

BSE systems. BSE Campus comprises of 3 BSE buildings: P.J. Towers,
Rotunda and Cama building

BSE WAN:
 TDM / MPLS lines from different service providers cater to connectivity
requirements of market participants across the country. Wired / Wireless
media is used.

VSATs:

Satellite based communication system serves the connectivity

requirements of market participants in remote areas. Services are provided
through BSE's Satellite Communication Hub in Mumbai.

4.4 Risk Management:-

Nature of Risks:

The Exchange has been exposed to a large number of risks, which have
been inherently borne by the member brokers for all times. Since the
introduction of the screen based trading the nature of risks to which the
members of the Exchange are exposed to has undergone radical
transformation. At the same time the inherent risk involved with the trading
of paper based securities still remains. Though the process of
dematerialization has already begun, till such that it is made compulsory in
all scrips, the risk of trading in fake/forged shares and instances of loss of
shares etc. will continue to exist. The safe custody of these shares in
physical form in the Exchange as well as in the member broker’s offices is
of prime importance.

The Risks can be classified as under:

1. Risks associated with Paper Based Trading

 o Lost/misplaced securities
o damage to securities
o loss of securities in transit
2. Client Risk
o Client default
o Client absconding
o Fake/ forged/stolen securities introduced by the client

Reduction and Control of Risks:

As a measure of the pro-active risk control several measures have been

initiated by the Exchange to reduce the risks to which the Exchange and the
member brokers are exposed. In this regard the Exchange has initiated the
following measures:

1. Know Your Client Scheme:

Under the procedure the member brokers of the Exchange are

compulsory required to obtain detailed information of clients prior to
commencement of any transactions for new clients. A similar procedure is
also to be followed for existing clients. This information is to be made
available to the Exchange authorities whenever called for. In case the
member broker fails to furnish the same it is viewed seriously.

2. Database of lost, Stolen, Misplaced Securities:

The Exchange maintains a database on all the shares that have been
reported as lost, stolen, duplicate etc. by the Companies / registrars. The
information available through the database is time relevant thus the database
is modified on a regular basis and is downloaded by the members through
BOLT on a weekly basis. This database is also provided to the Clearing
House. The member brokers can thus reduce the instances of delivery of
shares that have been reported by the Company as bad delivery by checking
all the deliveries in their office with the database provided. The Exchange
has designed and developed a software module for the above for the benefit
of the members.

The Clearing House also uses the database. At the time of pay-in the
members of the Exchange are required to submit the details of the shares
being deposited in the pay-in in a softcopy in a prescribed format.. These
details are checked against the database and a report is generated in case a
match is found. Such shares are then reported as bad delivery in the
Exchange. Further follow-up is done with the delivering broker and they are
directed to lodge a police complaint against the client introducing the stolen
shares

3. Client Caution Database:

The Risk Management department in conjunction with the Bad Delivery

Cell of the Exchange, the Exchange has designed and developed a client
database. All member brokers whose clients / sub-brokers have introduced
fake / forged shares are required to lodge a FIR / Police complaint against
their clients and also report the same to the Exchange. The information of
such clients is called for in a prescribed format. As per the scheme the
members have to collect detailed information about the clients. These details
are incorporated in the database, which is downloaded to the members, as a
precautionary measure. The member brokers at the time of admitting new
clients can refer to the client caution database for further verification.

4. Verification of shares at members office :

The Risk Management Committee has outlined a process for minimizing

the risks arising out of Fake/ forged /stolen shares introduced by the clients
of the member brokers.

As per the procedure outlined issued by the Exchange, in case the

transaction in a script with one particular client in a settlement exceeds Rs.
10 lakhs then the member brokers are required to send the photocopies of the
transfer - deeds and the share certificates to the Company / Registrar for
verification of the material particulars. The members can select a random
sample for the same from the lot. A similar procedure should also be
followed in case the shares worth more than Rs. 10 lakhs are received from
the Clearing House during pay-out in one scrip.

The basic idea behind the introduction of this procedure is to prevent

Fake/ forged/stolen shares from being introduced in the market. The
Exchange issued a notice outlining the procedure to be followed. The above
procedure is an important Risk Management Tool especially where there
exists a large volume of deliveries. The Risk Management Department acts
as a facilitator in this regard and has written to all "A" group and B1 group
companies in this regard seeking their co-operation.
 5. Inspection :

The department is carrying out inspection of the member brokers records

as regards compliance of the risk management procedures

Integrated Comprehensive Insurance Policy for Members

To reduce the systematic risk, Securities & Exchange Board of India

(SEBI) vide its circular ref. No SMD/SED/RCG/270/96 dated January 19th,
1996, had directed all stock exchanges to ensure that all active Members are
properly insured. Insurance companies in consultation with BSE have
offered an insurance policy which covers losses on account of trading as
well as back office losses to the Members. The minimum sum insured is
Rs.5 lakhs per Member

Presently, all active Members obtain the said policy directly from the
insurance companies and then inform BSE about the same.

4.5 DERIVATIVE

Introduction

BSE created history on June 9, 2000 by launching the first Exchange-

traded Index Derivative Contract in India i.e. futures on the capital market
benchmark index - the BSE Sensex. The inauguration of trading was done
by Prof. J.R. Varma, member of SEBI and Chairman of the committee
which formulated the risk containment measures for the derivatives market.
 Trading in derivatives is enabled through a separate front end system
called the Derivatives Trading & Settlement System (DTSS) Trader Work
station (TWS). It is also extendable through Intermediate Messaging Layer
(IML) where trading members can access the exchange systems through
their own customized software.

In sequence of product innovation, BSE commenced trading in Index

Options on Sensex on June 1, 2001, Stock Options were introduced on 31
stocks on July 9, 2001 and Single Stock Futures were launched on
November 9, 2002.

September 13, 2004 marked another milestone in the history of the Indian
capital market, when BSE launched Weekly Options, a unique product
unparalleled worldwide in the derivatives markets. BSE permitted trading in
weekly contracts in options in the shares of four leading companies namely
Reliance Industries, Satyam, State Bank of India, and TISCO ( now Tata
Steel) in addition to the flagship index-Sensex.

Chhota (mini) SENSEX

Chhota SENSEX was launched on January 1, 2008. With a small or

'mini' market lot of 5, it allows for comparatively lower capital outlay, lower
trading costs, more precise hedging and flexible trading. It is a step to
encourage and enable small investors to mitigate risk and enable easy access
to India's most popular index, SENSEX, through futures & options. The
Security Symbol for SENSEX Mini Contracts is MSX. The contract is
available for one, two and three months along with weekly options.
Long Dated Options

BSE also introduced 'Long Dated Options' on its flagship index -

Sensex� -on February 29, 2008, whereby the Members can trade in Sensex
(in the normal lot of 15 only and not 'mini' Sensex) Options contracts with
an expiry of up to 3 years.

Currency Derivatives:

Going ahead, on October 1, 2008 BSE launched its currency derivatives

segment in dollar-rupee currency futures as the exchange traded currency
futures contracts facilitate easy access, increased transparency, efficient
price discovery, better counterparty credit risk management, wider
participation and reduced transaction costs.

Futures on BOLT

BSE re-launched its Derivatives Segment by enabling trading of Index

and Stock Futures on its BOLT Terminal. The change was in response to
requests from trading members for a common front end from which equities
and equity derivatives could be traded. The change will enable a trader to
trade in cash scrips and futures products through BOLT TWS/ IML while
Option products would continue to trade through the DTSS TWS/DIML.
The risk management and settlement of futures and option trades will
continue to take place on DTSS.

Why SENSEX Futures

There are many reasons why a SENSEX future makes sense:

 • SENSEX as compared with other indices shows less volatility and at
the same time gives returns equivalent to the returns given by the
other indices.
• SENSEX is widely used to describe the mood in the Indian stock
market. Because of its long history and wide acceptance, no other
index matches the BSE SENSEX� in reflecting market movements
and sentiments and it makes an attractive underlying for index-based
products like Index Funds, Futures & Options and Exchange Traded
Funds.
• SENSEX is truly investible as it is the only broad based index in India
that is "free float market capitalization weighted", which reflects the
market trends more rationally and takes into consideration only those
shares that are available for trading in the market.

It may be noted that in addition to the SENSEX�, five sectoral indices

belonging to the 90/FF series are also available for trading in the Futures and
Options Segment of BSE Limited. The term '90 /FF' means that the indices
cover 90% of the market capitalization of the sector to which the index
belongs and is thus well representative of that sector. Also, FF stands for
free float - i.e. the indices are based on the globally followed standard of free
float market capitalization methodology. The five sectoral indices that are
presently available for F&O are BSE TECK, BSE FMCG, BSE Metal, BSE
Banker and BSE Oil & Gas.

4.6 Safeguards' for Investors'

These are some of the safeguards the investors should keep in mind
before trading in the securities market.
1. Selecting a Broker/ Sub - Broker

• Deal only with a SEBI registered Broker / Sub - broker after

due diligence. Details of the BSE Brokers can be obtained from the
Member's List published by BSE and from the website :

2. Entering into an Agreement

• Fill in a Client registration form with the Broker / Sub - broker

• Enter into Broker / Sub - broker - Client Agreement. This

agreement is mandatory for all investors for registering as a client of a
BSE Trading Member. Ensure the following before entering into an
agreement:

Carefully read and understand the terms and conditions of the agreement
before executing the same on a valid stamp paper of the requisite value.
Agreement to be signed on all the pages by the Client and the Member or
their representative who has the authority to sign the agreement.
Agreement has also to be signed by the witnesses by giving their names
and addresses.

Please note that Regulatory Authorities have not stipulated for execution
of any document other than Broker/ Sub - Broker / Client Agreement.

3. Transacting
 • Specify to the Broker / Sub - broker, the exchange through which
your trade is to be executed and maintain separate account for each
exchange.

• Obtain a valid Contract Note from the Broker / Sub-broker within

24 hours of the execution of the trade.

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

on behalf of a client in a format prescribed by BSE. It establishes a legally
enforceable relationship between the Trading Member and his Client in
respect of settlement of trades executed on BSE as stated in the Contract
Note.
Contract Notes are made in duplicate, and the Trading Member and Client,
both keep one copy each. The Client is expected to sign on the duplicate
copy of the Contract Note, confirming receipt of the original.

a. Contract Note - Form 'A' - Contract Note issued where

Member is acting for constituents as brokers/ agents.
b. Contract Note - Form 'B' - Contract Note issued by Members
dealing with constituents as principals.
• Ensure that the Contract Note contains:
 SEBI registration number of the Trading Member/ Sub – broker
 Details of trade such as, Order no, trade no., trade time, quantity,
price, brokerage, settlement number, details of other levies.
 Trade price should be shown separately from the brokerage charged.
As stipulated by SEBI, the maximum brokerage that can be charged is
2.5% of the contract price. This maximum brokerage is inclusive of
the brokerage charged by the sub-broker (Sub-brokerage cannot
 exceed 1.5% of the contract price.) Any additional charges that a
Trading Member can charge are Service Tax on the brokerage, any
penalties arising on behalf of client and Securities Transaction Tax
(STT).
The brokerage, service tax and STT are indicated separately in the
Contract Note.
 Signature of authorized representative. Arbitration clause stating that
the trade is subject to the jurisdiction of Mumbai must be present on
the face of the Contract note.

4. Settlement

• Ensure delivery of securities /payment of money to the broker

immediately upon getting the Contract Note for sale / purchase but in any
case, before the prescribed pay-in-day.

• Member should pay the money or securities to the investor

within 24 hours of the payout.

• Open a demat account.

• Opt for buying and selling shares in demat form.

• For delivery of shares from demat account, give the Depository

Participant (D P) 'Delivery out' instructions to transfer the same from the
beneficiary account to the pool account of broker through whom shares
and securities have been sold.
 The following details to be given to the DP: details of the pool a/c of
broker to which the shares are to be transferred, details of scrip, quantity
etc. As per the requirement of depositories the 'Delivery out' Instruction
should be given at least 48 hours prior to the cut-off time for the
prescribed securities pay-in.

• For receiving shares in your demat account, give the Depository

Participant (D P) 'Delivery in' instructions to accept shares in beneficiary
account from the pool account of broker through whom shares have been
purchased.

• If physical deliveries are received check the deliveries received

as per Good/Bad delivery guidelines issued by SEBI.

• Bad delivery cases should be sorted out through BSE

mechanism immediately.

• Ensure that all registration of physical shares for ownership by

transfer should be executed by a valid, duly completed and stamped
transfer deed.

Rights of Investors

• To receive all benefits/ material information declared for the investors

by the Company.
• Prompt services from the Company such as transfers, Sub-divisions
and consolidation of holdings in the Company.
• As an equity holder have a right to subscribe to further issue of capital
by the Company.
 • Brokerage not to exceed 2.5% of the contract price.
• Receipt of the Contract Note from the broker in the specified format
showing transaction price, brokerage, Service Tax and STT, separately.
• Expect delivery of shares purchased/value of shares sold within 24
hours from pay-out.

• Approach concerned Regional Arbitration Centre’s of BSE, by

confirming geographical jurisdiction .

The Complaint against trading members of the Exchange or Applications

for Arbitration should be filed at the concerned Regional Arbitration Centre
referred to in column 1 below covering that State or Union Territory of
India, referred to in Column 2 below, within which the most recent address /
registered office address of the constituent, as duly communicated in writing
to the trading member in accordance with law, is located. Provided in
respect of a non-resident Indian Constituent, the Seat of Arbitration shall be
Regional Arbitration Centre which covers the States and Union Territories
given in Column 2, in which lies the address or the Registered Office
address, as the case may be, of the trading member, depending upon
corporate or non-corporate membership of the trading member. The hearings
shall be held in the concerned Regional Arbitration Centre in which the
Applicant had duly filed the Application for Arbitration.
 ANNEXURE

1) How Bombay Stock Exchange has established?

2) What are the various types of scrips traded on BSE?

3) How the trading took place at BSE?

4) What are the technologies used by BSE?

5) How BOLT helps the invertors?

6) What are the various types of BSE indices?

7) What is BSE derivative?

8) How the settlement took place @ BSE?

9) How the risks are managed by BSE?

10) What are investors right’s given by BSE?

11) BSE safeguard for investors