INDEX

Chapter Title Page No:

I Introduction 1Need of the study 3

Objectives of the study 3

Scope of Study 3

Research Methodology 4

Limitations of Study 5

II Company Profile 11

Industry Profile 13

III Theoretical Frame Work 16

IV Data Analysis & Interpretation 48

V Conclusions and Suggestions 61

Suggestions 64

Conclusion 65

VI Annexure

Bibliography 67

1

CHAPTER-I

INTRODUCTION

2

Introduction of study the problem

SEBI In India's Capital Market:

SEBI from time to time have adopted many rules and regulations for enhancing the

Indian capital market. The recent initiatives undertaken are as follows:

Sole Control on Brokers:

Under this rule every brokers and sub brokers have to get registration with SEBI and any

stock exchange in India.

For Underwriters:

For working as an underwriter an asset limit of 20 lakhs has been fixed.

For Share Prices

According to this law all Indian companies are free to determine their respective share

prices and premiums on the share prices.

For Mutual Funds

SEBI's introduction of SEBI (Mutual Funds) Regulation in 1993 is to have direct control

on all mutual funds of both public and private sector.

Role of SEBI in Capital Market

SEBI’s Principal Tasks

To regulate the business in Stock Exchage &other Securities Market.

To register & regulate the working of Capitalmarket intermediaries.

To register & regulate the working of MutualFunds.

To promote & regulate Self-regulatoryOrganization

3

Purpose and Aims of SEBI

Regulating the business in the stock market andother securities market.

Registering and regulating the working of stockbrokers and other intermediaries

associatedwith the securities market.

Registering and regulating the working of collective investment schemes include

ingmutual funds.

Promoting and regulating the self-regulatery organizations.

Prohibiting fraudulent and unfair trade practices relating to securities market.

Promoting investors’ education and training ofintermediaries of securities market.

Prohibiting insider trading in securities.

2) Need for the study: the main objective of my study is tries to develop the

securities market. To improve about Promotes Investors Interest. To Makes rules and

regulations for the securities market.

3) Objectives Of the Studies

To know about Importance of SEBI

1. Regulates Capital Market

2. Checks Trading of securities.

3. Checks the malpractices in securities market.

4. It enhances investor's knowledge on market by providing education.

5. It regulates the stockbrokers and sub-brokers.

6. To promote Research and Investigation

4

SCOPE OF THE STUDY:

A big boom has been witnessed in Capital market in recent times. A large number of

new players have entered the market and trying to gain market share in this rapidly

improving market.

The research was carried on in Hyderabad. I had been sent at one of the branch of

K.P.Commodities. Hyderabad where I completed my Project work. I surveyed on my

Project Topic “A study of Securities and exchange board of India” on the visiting of

different investors in hyderabad

The study will help to know the preferences of the customers, which company, portfolio,

mode of investment and option for getting return and so on they prefer. This project

report may help the company to make further planning and strategy.

Methodology and data base

This report is based on primary as well secondary data, however primary data collection

was given more importance since it is overhearing factor in attitude studies. One of the

most important users of research methodology is that it helps in identifying the problem,

collecting, analyzing the required information data and providing an alternative solution

to the problem .It also helps in collecting the vital information that is required by the top

management to assist them for the better decision making both day to day decision and

critical ones.

Data sources:

Research is totally based on primary data. Secondary data can be used only for the

reference. Research has been done by primary data collection, and primary data has been

collected by interacting with various people. The secondary data has been collected

through various journals and websites.

5

Sampling procedure:

The sample was selected of them who are the customers/visitors of K.P.COMMODITIES

Securities Hyderabad Branch, irrespective of them being investors or not or availing the

services or not. It was also collected through personal visits to persons, by formal and

informal talks and through filling up the questionnaire prepared. The data has been

analyzed by using mathematical/Statistical tool.

Sample size:

The sample size of my project is limited to 200 people only. Out of which only 120

people had invested in Mutual Fund. Other 80 people did not have invested in Mutual

Fund.

Sample design:

Data has been presented with the help of bar graph, pie charts, line graphs etc.

6) Period of study:-45 Days

7) LIMITATIONS OF STUDY

To understand the overall working of share market, the period of 45 days is not

enough.

Moreover, very few investor and agents have a detail knowledge of the study.

The study was conducted in Hyderabad only.

The data provided by the investor and the agents can’t be held true as 100%

correct.

The study was conducted to understand with respect to Risk involved in broking

firm and investors, which is a part of the equity share market.

6

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

7

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!

8

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 called

member 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 the

Securities 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 the

Bombay 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 elected

by 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,

9

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 demutualization 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 demutualization

completely eliminates any conflict of interest and helps the exchange to pursue market

efficiency and investors interest aggressively.

10

CHAPTER-II

Company Profile

11

K.P.Commodities, a startup venture aimed at serving investors and traders in

commodity futures market, is floated by the professionals who have diverse

experience in the industry. Commodity futures trading is a very dynamic and

complex field which requires multi perspective outlook and well spread

knowledge to provide genuine service. We provide various commodity

consultancy services according to the needs of traders. The services offered

by the firm primarily fall into research and education which would be

itemized in services segment.

For K.P customer is the king and strives to make the market a level playing

field to every investor irrespective of his portfolio and financial strength.

Futures market is said to be not suitable for small investors who come with

little investment but we believe the market can be made appropriate for any

kind of investor if the strategy is correct. We help customers to design their

own strategies and trading plans depending upon their risk profile and

margin capacity. Personal attention is given to each and every client.

K.P. Commodities believes in “Knowledge is a prerequisite to success”.

Abiding by the same we design education programmes, which would cater

to the needs of all levels of market participants from students, amateur

traders, hedgers, arbitrageurs, speculators, jobbers and experts. The agenda

or curriculum of the education modules encompasses commodity trading,

economic indicators, fundamental analysis, technical analysis etc.

Team:

K.P. stands for (Krishna Pradeep) Lingala who conceived an idea of

establishing a firm with focus on research and education in commodities

markets is an MBA graduate and trained technical analyst. He has garnered

12

around 9 years of experience, specifically in technical analysis and designing

trading rules. His formulas or trading rules devised based on various

indicators of technical analysis have achieved high success rate and achieved

market’s attention. His 13 years stint in the industry and his association with

companies per se K.P.Commodities Commodities; JRG Wealth

Management; Vertex Securities has offered him complex challenges which

he handled efficiently. He has the credit of setting up research department at

K.P.Commodities as well as the commodities trading desk at Vertex

Securities. He majorly focuses on providing short term investment or

positional calls in the commodities segment with client safety as utmost

priority.

Satish Mandava, playing an advisory role for KP Commodities, is an MBA

graduate & Associate Financial Planner offering over 14 years of proven

skill-sets in leading banking & financial services companies and currently

pioneering his entrepreneurial venture Value Prop Corporate Solutions to

introduce the same to ‘success’. During his career he successfully provided

wealth management & investment consultancy services, handled commodity

& stock broking, and also managed various activities spanning banking,

mutual funds and insurance. As well he developed commodities hedging

strategies, managed spot & future arbitrages, traded in derivatives, futures &

equity, and ensured compliance with all related regulatory requirements. His

role as an advisor to K.P.Commodities includes steering forward the start-up

venture towards growth with suitable business development and brand

penetration strategies.

13

Services

Research

Ever wondered why many lose money in futures trading while a

few succeed. It is the just the expert edge that makes all the difference. The

difference is the way one trades, having or not having a trading plan, putting

and respecting stop loss, and honoring markets.

K.P’s Services

Research

Commodities Future Trading has a potential of generating very

handsome profits with very Low investment. But at the same time, if not

traded properly, it can lead to huge losses too. K.P.Commodities provides

highly accurate positional trading tips for Multi Commodity Exchange of

India Ltd.

K.P.Commdoties is committed to help clients cut their losses

and grow their money by increasing the profit percentages. Our tips are

based on immense technical analysis. Whether you are an intraday or short

term trader; or positional investor we are dedicated to give you informed

advice. Our recommendations have tight stop loss to protect the capital and

relaxed profit targets make good money for the clients in the markets. Apart

from technical indicators we also do a thorough study of fundamental factors

such as economic indicators and their impact on markets. Tracking global

markets, commodity news, market dynamics, forecasts et al we deliver the

best of the industry in the form of market live alerts, analysis,

14

recommendations et al.

K.P.Commodities aim to catch each and every fluctuation in

volatile commodities by using methods to maximize the return from

commodities.

K.P.Commodities values its customer’s utmost and strives to

serve them in the best way. For the registered clients calls would be

provided in the following means.

By Yahoo messenger, Google Talk and SMS.

Even the calls and market updates would be posted on the website.

The calls would be intraday, BTST/STBT as well as positional trading

calls.

Strict stop loss would be given to minimize the risk.

Complete follow-up of the calls would be given -> Entry, Exit, Stop

loss etc.

Education

Through its education wing K.P.Commodities engrosses in development of

education modules in the area of Technical Analysis, capital markets and

financial planning. Its target for education modules include those from

fresher’s in the markets like students to employees in the broking industry to

experienced clients. The focus of this service, apart from business

15

perspective, is to promote technical analysis education to facilitate the

market participants like clients, dealers, marketing staff to be more traders,

investors and advisers. The advantage with K.P.’s education program lies in

its small batch size that would allow one-to-one concentration, better faculty

interaction, and sharing ideas.

Apart from imparting education we also aim at doing research on different

aspects of Technical Analysis theory and design different trading rules that

suit the market environment.

16

CHAPTER-III

Theoretical Frame

Work

17

THEORETICAL FRAME WORK

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)

18

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.

19

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

20

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.

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

21

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

22

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.

23

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.

24

Objectives of SENSEX

The 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

25

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".

26

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.

27

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.

28

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

29

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.

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:

30

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.

31

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

Settlement

Pay-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

32

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.

33

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.

34

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

35

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

36

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%.

37

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

38

B) Objections

When 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

39

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

40

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.

DO’S AND DONT’S

41

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.

42

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

43

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 documents 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 SEBI.

Who is eligible to be a BRLM?

A Merchant banker possessing a valid SEBI registration in 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

comprehensive 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

44

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.

45

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 wit 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,

46

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.

Some however, 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 (recent quote: $7.54; recent

[] volume: 216,266,000) would be a relatively simple e-commerce transaction; trading

47

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."

48

CHAPTER-IV

Data Analysis &

Interpretation

49

Are you aware of online trading?

Particulars Yes No

Investors response 27 3

% of the sample 90 10

yes90%

no10%

response

yes

no

INTERPRETATION:

From the above graph we can say that 90% of the people are aware of online trading and

10% of them are not aware of it.

50

Do you actively participate in the share market?

Particulars Yes No

Investors response 19 11

% of the sample 63 37

yes63%

no37%

response

yes

no

INTERPRETATION:

From the above graph we can say that 63% people actively participate in share market

and 37% of do not participate.

51

Which online investor category you belong to?

Particulars Uncertain

newcomer

Moderate

active trader

Active day

trader

Hands in

every pot

Investors response 10 8 8 4

% of the sample 33 27 27 13

uncertain newcomer33%

moderate active trader27%

active day trader27%

hands in every pot13%

category

uncertain newcomer

moderate active trader

active day trader

hands in every pot

INTERPRETATION:

The above graph depicts that 33% of them are uncertain newcomer, 27% of them belong

to moderate active trader category and active day trader and 13% of them belongs to hand

in every pot category.

52

Do You Aware of SEBI Rules And Regulations On Online Trading

Particulars Yes No

Investors response 03 27

% of the sample 80 20

yesno

53

Do you have a Demat account?

Particulars yes No

Investors response 20 10

% of the sample 67 33

yes67%

no33%

responses

yes

no

INTERPRETATION:

From the above graph we can say that 67% of the investors have Demat account and 33%

of them doesn’t have Demat account.

54

Which depository do you take into consideration for accessing Demat account?

Particulars NSDL CDSL

Investors response 23 7

% of the sample 77 23

NSDL77%

CDSL23%

response

NSDL

CDSL

INTERPRETATION:

From the above graph we can say that 77%of the people are in favour of NSDL

depository and 23% are in favour of CDSL depository.

55

Are you in favour of Demat account?

Particulars Yes No

Investors response 23 7

% of the sample 77 23

YES77%

NO23%

response

YES

NO

INTERPRETATION:

From the above graph we can say that 77% of the people are in favour of demat account

and 20% of them are not in favour of it.

56

Which is the most preferable attribute while investing? Comment…

Particulars Rate of return Liquidity Convenience Regulation

Investors

response

12 13 2 3

% of the sample 40 43 7 10

Rate of return40%

Liquidity43%

Convinience7%

Regulation10%

response

Rate of return

Liquidity

Convinience

Regulation

INTERPRETATION:

From the above graph we can say that Liquidity(43%) is most preferable among all the

attributes.

57

Are you aware the nature of risk involved in online trading?

Particulars Yes No

Investors response 25 5

% of the sample 83 17

83%

17%

response

yes

no

INTERPRETATION:

From the above graph we can say that (83%)majority of the people are aware of risk

involved in online trading.

58

Do you check brokers activity involved in online trading?

Particulars yes no

Investors response 15 15

% of the sample 50 50

50%50%

Brokers activity

yes

no

INTERPRETATION:

From the above graph we can say that 50% of the investors check brokers activities and

50% do not check.

59

Do you feel any changes in earlier trading and at present trading?

Particulars yes No

Investors response 30 0

% of the sample 100 0

100%

changes

yes

no

INTERPRETATION:

From the above graph we can say that 90% of the people are aware of online trading and

10% of them are not aware of it.

60

Which system do you feel more convenient in trading?

Particulars Yes No

Investors response 6 24

% of the sample 20 80

20%

80%

convinience

outcry

screen based

INTERPRETATION:

From the above graph we can say that 80% of the people are in favour of screen based

trading and 20% of them in favour of outcry system.

NOTE: In the above analysis the sample size is 30 i.e N=30 .

61

CHAPTER-V

Conclusion and

Suggestions

62

CONCLUSION OF ANALYTICAL STUDY:

From the above analysis we have come to this conclusion that most of the people are

aware of online trading and very much interested in screen based trading.As we know

K.P.COMMODITIES Securities Limited started online trading system in 1997 before

this concept they use outcrysystem . After this study we can come to this conclusion as

below i.e

90% of investors are aware of online trading.

63.3% of investors participate in share market .

33.3% of investors are willing to go for option (A),26.7% of investors are

willing to go for option (B)& (C) and 13.3% of investors are willing for

option (D) where (A)uncertain newcomer(B) moderate active trader (C)active

day trader(D)hand in every pot.

66.7% of investors have Demat account.

76.6% of investors consider accessing of Demat account through National

securities depository limited(NSDL). And 23.3% of investor go with central

depository services limited(CDSL).

76.7% of investors are in favour of Demat account . And 23.3% of investors

are not in favour of Demat account.

40% of investors prefer (A)rate of returns, 43.3% of investors prefer (B)

liquidity, 6% of investors go for(C) convenience and 10% of investors prefer

(D) Regulation.

83.3% of investors are aware of risk involved in online trading .and 16.7% of

investors are not aware of risk involved in online trading.

50% of investor check brokers activity and 50% does not check.

100% of investors feel the changes in trading.

80% of investors feel screen-based system more convenient and 20% of

investors feel outcry system more-convenient. Hence online trading has a

positive impact on investors with respect to all above attributes.

63

Findings:

Online trading is more powerful & advantageous than manual trading.

The software or the systems used in online trading should be advanced and the

persons who operate should have minimum knowledge.

Tips are available for trading online and invest wisely. So that the investor can

avoid the fraud.

It should increase the speed of executing the orders.

Due to invention of online trading here has been greater benefit to the investors as

they could buy/sell shares as and when required.

It has to take necessary steps to attract the customers through the Internet.

Instant bank account should be provided as the other companies are providing.

It should have separate department for portfolio management.

Most of the investors like to trade along with brokers.

Online makes direct contact between the investors and it avoids the presence of

middleman.

Online trading reduces the trade time.

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SUGGESTIONS

The suggestion to exchange authorities is to take steps to educate investors

about their rights and obligation, try to increase investors confidence. I suggest the

exchange authorities to be vigilant to curb wide fluctuations of prices on the

exchanges in the prices ,not attracting to the genuine investors to the greater extents

towards the market .Try to explain them how fraud will take place so that they will be

alert and they can take necessary steps to avoid the frauds.

Genuine investors are not at all interested in the speculative gain as their

investment is based on the future profits, therefore the authorities of exchange should be

more vigilant in imposing heavy margin to curb the speculative of securities.

65

Conclusion

Due to changes in technology K.P.COMMODITIES Securities Limited has

changed its trading activities into online trading system. So that transactions will

be performed efficiently.

Things have changed for the better with the K.P.COMMODITIES Securities

Limited going online coupled with endeavors to stream line the whole trading

system, thing have changed dramatically over the last 3-4 years. New and

advanced technologies have breached geographical and cultural barriers and have

brought the country wide market to doorstep.

Border of the Regional Stock exchange(RSE) have suddenly been thrown to

intense competition from counter parts across the country. The RSE’s have

their own advantages like being nearer to the retail investors and to let the

RSE’s perish would be determined to stock market system there is no

brokerage firms with in India with national reach.

In the present scenario and to compete the RSE’s would require sound

infrastructure and trading as per international standards . The concept of

business have changed and today it has become service to clients or to

provide the best possible service to clients or to engage into new business

practices in the other exchanges of the world .

In order to stem the flow of business from the regional center to the

metro centers and to impart liquidity introductions of online trading is

necessary .i.e demand of the day presently.

66

Tips are available for trading online and to invest wisely, so that the investors

can avoid the frauds .

The introductions of online trading would influence in the investors

resulting in an increase in the business of the exchange. It has helped the

brokers handling a vast amount of transactions and this can be achieved

through delivering and settlement system with adequate protections to

investors system. The trading of K.P.COMMODITIES Securities Limited on

the first day was Rs 1.8 crores .

Due to invention of online trading there has been greater benefit to the

investors as they could sell /buy shares as and when required and that to with

online trading will inspire confidence in investors resulting in increase in

business of exchange.

The regional stock exchange has a greater scope than compared to the earlier

time because of invention of online trading.

The concept of business has changed , today it is a service oriented

industry hence the survival would require them to provide the best possible

service to the client .

The longer trading time has helped the investor as well as the broker to take

much interest in the trading of the securities as they have got extra time to

take in the security market.

The existing system can be further improved by introduction of stop loss

facility , which will help reduced investors losses.

Also there is need for exchanges to exchange to set up standing committee

into break down of online trading .

67

CHAPTER-VI

Annexure

68

BIBILIOGRAPHY

Reference Books:

How To trade In Stock Market – Aswin Gujral

Financial Management –Khan and Jain

Websites:

www.RELIGARE.in

www.nseindia.com

www.bseindia.com

www.siainvestor.com

www.indiainfoline.com

www.stcionline.com

www.sharekhan.com

www.capitalideasonline.com

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