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Stock Exchanges in India

Stock exchanges provide an organised market for transactions in shares and other securities. As of 2003, there are 23 stock exchanges in the country, 20 of them being regional ones with allocated areas of operation. Of the 9,855 or so public companies that have listed their shares in stock exchanges, around 500 account for 99.6 per cent of the trading turnover, nearly all of which is on the primary exchanges i.e. Bombay Stock Exchange and National Stock Exchange. The pie chart in Figure 2.1 shows the distribution of trading activity in terms of volume in the exchanges. The Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) together account for nearly 72 per cent of all capital market activity in India. The other major exchanges are the Calcutta, Delhi, and Ahmedabad stock exchanges. The remaining exchanges account for only 4 per cent of the Indian capital market activity.

The number of regional stock exchanges in each of the four zones—east, west, north, south—that the country can be divided into is given in Table 2.1. The north zone has five stock exchanges. The east zone has three stock exchanges. The west and south zones have six stock exchanges each.

 

The share of the 20 regional bourses, which accounted for about 45.63 per cent of the total trading volumes in 1995–96, had reduced alarmingly to only about 16 per cent by 2001–02. The Bombay Stock Exchange, though initially established as a regional stock exchange has assumed a national perspective in recent years with the introduction of networking and online trading mechanisms.

Besides the regional stock exchanges, three national stock exchanges have been set up in India. They are the National Stock Exchange, Over the Counter Exchange of India Limited (OTCEI), and Interconnected Stock Exchange of India Limited (ISE). All these exchanges have their head office at Mumbai.

THE BOMBAY STOCK EXCHANGE

The Indian stock market is one of the oldest in Asia. Its history dates back to nearly two centuries. The earliest records of security dealings in India are meagre and obscure. The East India Company was the dominant institution in those days and business in its loan securities was transacted towards the close of the eighteenth century.

By the 1830s, business in corporate stocks and shares in bank and cotton presses took place in Bombay. Though the trading list was broader in 1839, there were only half a dozen brokers recognised by banks and merchants.

In 1860–61, the American Civil War broke out and cotton supply from the United States of America and Europe was stopped. This resulted in the “Share Mania” for cotton trading in India. The number of brokers increased to between 200 and 250. However, at the end of the American Civil War, in 1865, a disastrous slump began—for example, a Bank of Bombay share that had touched Rs 2,850 could only be sold at Rs 87.

At the same time, brokers found a place in Dalal Street, Bombay, where they could conveniently assemble and transact business. In 1887, they formally established the “Native Share and Stock Brokers’ Association”. In 1895, the association acquired premises in the same street; it was inaugurated in 1899 as the Bombay Stock Exchange.

The Bombay Stock Exchange is governed by a board, chaired by a non-executive chairman. The executive director is in charge of the administration of the exchange and is supported by elected directors, Securities Exchange Board of India (SEBI) nominees, and public representatives.

THE NATIONAL STOCK EXCHANGE

The National Stock Exchange of India Limited was set up to provide access to investors from across the country on an equal footing. NSE was promoted by leading financial institutions at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company, unlike other stock exchanges in the country.

On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the wholesale debt market (WDM) segment in June 1994. The capital market (equities) segment commenced operations in November 1994, and operations in the derivatives segment commenced in June 2000. The organisational structure of NSE (Figure 2.2) is through the link between National Securities Clearing Corporation Ltd. (NSCCL), India Index Services and Products Ltd. (IISL), National Securities Depository Ltd. (NSDL), Dot Ex International Limited (Dot Ex) and NSE.IT Ltd.

 

The National Securities Clearing Corporation Ltd., a wholly owned subsidiary of NSE, was incorporated in August 1995. It was set up to bring and sustain confidence in the clearing and settlement of securities, to promote and maintain short and consistent settlement cycles, and to provide counterparty risk guarantee.

India Index Services and Products Limited, a joint venture between NSE and the Credit Rating Information Services of India Limited (CRISIL), was set up in May 1998 to provide a variety of indices and index-related services and products for the Indian capital market. It has a consulting and licensing agreement with Standard and Poor’s (S&P) for co-branding equity indices.

In order to counteract the problems associated with trading in physical securities, NSE joined hands with the Industrial Development Bank of India (IDBI) and Unit Trust of India (UTI) to promote dematerialisation of securities. Together they set up the National Securities Depository Limited, the first depository in India.

NSDL commenced operations in November 1996. It has since established a national infrastructure of international standard to handle trading and settlement in dematerialised form and thus has completely eliminated the risks associated with fake/bad/stolen paper documents.

NSE.IT, a 100 per cent subsidiary of NSE, provides technical services and solutions in the area of trading, broker front-end and back-office, clearing and settlement, web-based trading, risk management, treasury management, asset liability management, banking, insurance, and so on. The company also plans to provide consultancy and implementation services in the areas of data warehousing, business continuity plans, mainframe facility management, site maintenance and backups, real time market analysis and financial news, and so on. NSE.IT is an export-oriented unit with Straight Through Processing (STP).

NSE.IT and i-flex Solutions Limited, a leader in e-enabling the global financial services industry, promoted Dot Ex International Limited. Dot Ex provides customer fulfillment infrastructure for the securities industry. The initial offering of Dot Ex is the Dot Ex Plaza where multiple market participants such as brokers, depository participants, and banks can offer web-based services to their customers. As a neutral aggregator and infrastructure provider, Dot Ex offers choice and convenience to investors.

OVER THE COUNTER EXCHANGE OF INDIA

The Over the Counter Exchange of India was incorporated in 1990 and is recognised as a stock exchange under the Securities Contracts (Regulation) Act, 1956. The exchange was set up to aid enterprising promoters in raising finance for new projects in a cost-effective manner and to provide investors with a transparent and efficient mode of trading. OTCEI has been co-promoted by the leading financial institutions of the country, namely, Unit Trust of India, ICICI, Industrial Development Bank of India, SBI Capital Markets Limited, Industrial Finance Corporation of India, Life Insurance Corporation of India, Canbank Financial Services Limited, and General Insurance Corporation of India and its subsidiaries. NSCCL and NSDL provide clearinghouse facility to OTCEI.

Modelled along the lines of the NASDAQ market of USA, OTCEI introduced many novel concepts to the Indian capital markets such as screen-based nationwide trading, sponsorship of companies, market making, and scripless trading. The exchange had 115 listings in 2002. Securities are traded on OTCEI through the “OTCEI Automated Securities Integrated System” (OASIS), a state-of the art screen-based trading system (SBTS). OASIS combines the principles of order-driven and quote driven markets and enables trading members to access a transparent and efficient market directly through a nationwide telecommunication network.

THE INTER-CONNECTED STOCK EXCHANGE OF INDIA

The Inter-connected Stock Exchange of India Limited has been set up at Mumbai in 1997. ISE is an association of the 14 regional stock exchanges—Bangalore, Bhubaneswar, Cochin, Coimbatore, Guwahati, Hyderabad, Jaipur, Madhya Pradesh, Madras, Magadh, Mangalore, Saurashtra Kutch, Uttar Pradesh, and Vadodara—acting as a single exchange.

ISE provides the member-brokers of these stock exchanges an access to the national market segment, which is in addition to the local trading segment presently available. ISE and the majority of the regional stock exchanges have adopted the screen based trading system to provide automated and modern facilities for trading in a transparent, fair, and open manner, with access to investors across the country.

ISE’s mission is to consolidate the small, fragmented, and less-liquid markets into a national-level integrated liquid market with state-of-the-art infrastructure and systems support.

ISE provides trading, clearing, settlement, risk management, and surveillance support to the interconnected market system. It aims to support small companies and retail investors by optimising the infrastructure.

ISE has also floated a wholly-owned subsidiary namely, ISE Securities and Services Limited (ISS) to take membership of NSE and BSE, so that traders and dealers through ISS can access other markets in addition to the local market and ISE. The ISE dealers are administratively supported through regional offices in Delhi, Kolkata, Chennai, and Nagpur. The facilities provided to the dealers include advanced computer and communication equipment, superior online risk management system, decentralised clearing and settlement procedures, electronic funds transfer, and centralised courier arrangements for movement of securities with transit insurance.

The cost of acquiring membership rights on ISE, is Rs 5,000 for traders and Rs 5 lakhs for dealers. These charges are nominal compared to the cost of acquiring membership rights on other premier stock exchanges such as NSE and BSE. This capital cost advantage helps traders and dealers on ISE to provide a cost-effective trading system. ISE is a national market with a retail focus, thereby expanding the market rather than just competing for the business of the existing stock exchanges.

The ISE segment uses the Online Regional Bourse Interconnected Trading (ORBIT) software for trading. The NSE segment of ISE uses the Open Dealer Integrated Network (ODIN) software for trading and Member Accounting and Trade Confirmation House (MATCH) software for clearing and settlement. The clearing banks of ISE provide instant funds transfer and relevant information sharing on margins, settlements, and capital adequacy positions through the establishment of extension counters at the premises of all the participating stock exchanges or through their branch network.

The operations of ISE and its clearing house are insured for risks of loss of securities in transit, bad/ counterfeit/fake/stolen shares, errors and omissions/computer crime, receiving members’ claim against defaulters, and cover for Settlement Guarantee Fund (SGF). The SGF guarantees settlement of all trades validly executed in the ISE system. The objective of SGF is to facilitate the smooth conduct of settlements with regard to trades and money payout. ISE has a real time risk management and surveillance system which ensures instant information to the participants. Gross exposures, intra-day trading exposures, cumulative loss positions of each trader and dealer, and audit trail facility are the tools used by ISE for detecting irregularities in scrip price movements. Information on suspension of traders/dealers/instrument on participating stock exchanges is also made available for prevention of price volatility and broker defaults.

STOCK EXCHANGE MEMBERS

Transactions in any stock exchange are executed by member brokers who deal with investors. A member of a stock exchange is an individual or a corporate body who holds the right to trade in the stocks listed on the exchange. A corporate body could have a partnership, corporate, or a composite corporate membership. All members are permitted to trade in the trading ring. They can trade in the ring on their own behalf or on behalf of non-members. An investor can buy or sell securities only through one of the members of the exchange. The Bombay Stock Exchange has, at present (2004), 678 members, of whom 192 are individual members and 486 are corporate members.

The brokers in a stock exchange act as retailers, that is, as a link between those who want to buy shares and those who want to sell the shares. A broker for this intermediary function is paid a commission called the brokerage. Brokers can appoint sub-brokers, who are not members of the exchange, to act on their behalf in various localities. Besides brokers, there are also jobbers in the secondary market. They are also called market makers in the exchange. They place both buy and sell orders for selected shares. Thus they give two quotations, the purchase price and the sale price, for the same share.

Brokers are categorised into foreign broker, industrial group, local bodies, subsidiary of financial institutions and banks, and subsidiary of stock exchange. A sample list of member categories from the Bombay Stock Exchange is given below.

Foreign brokers: ABN Amro Asia Equities (India) Ltd., Birla Sun Life Securities Ltd., Credit Suisse First Boston (India) Securities Pvt. Ltd.

Industrial groups: Apollo Sindhoori Capital Investments Ltd., Cholamandalam Securities Ltd., Reliance Shares and Stock Brokers Ltd.

Local bodies: A A Doshi Share and Stock Brokers Ltd., Abhipra Capital Ltd., Acme Shares and Stock Pvt. Ltd.

Subsidiaries of Indian financial institutions and banks: ICICI Brokerage Services Ltd., IDBI Capital Markets Services Ltd., SBI Capital Markets Ltd., UTI Securities Exchange Ltd.

Subsidiaries of stock exchanges: Cochin Stockbrokers Ltd., LSE Securities Ltd., MSE Financial Services Ltd.

FUNCTIONS OF STOCK EXCHANGE MEMBERS

Broker/Dealer

All stock exchange members are brokers/dealers though not all firms in practice act in this dual capacity. Opening a securities account with a broker involves establishing the client’s identity and depositing the requisite amount to cover the initial security purchase. The broker’s role includes seeking to execute the client’s orders at the best possible prices. In several accounts, the brokers also maintain securities on behalf of their clients and send them the dividend and interest cheques when these are received.

The brokerage is negotiable between the broker and the client. The maximum brokerage in the Bombay Stock Exchange, for instance, is subject to a ceiling of 2.5 per cent of the contract value. However, the average brokerage charged by the members from the clients is much lower. Typically there are different scales of brokerages for delivery transaction, trading transaction, and so on.

Market Makers

Market makers fulfil the traditional role of the wholesaler. A jobber is a wholesaler and also acts as a market maker offering dual quotes for scrips. They may also specialise in select scrips. Market makers will fill securities orders from their “book”, which is a common term used to describe stocks or shares owned by the market makers themselves. They will take positions in stocks by increasing their “book” in shares that are expected to rise in price, and reducing their “book” in shares that are expected to fall. The profitability, or otherwise, of a market maker will depend on correct anticipation of market movements.

A market maker is committed to quoting a buying or selling price on demand on Securities Exchange Automated Quotation (SEAQ) only in equities. Some firms will choose to be market makers in select shares, rather than be obliged to quote prices on every quoted share on the market.

Usually a market maker will deal “net”. This means that an investor who deals directly with the market maker will simply pay the market maker’s selling price (offer price), or receive the market maker’s buying price (bid price) without any commission being charged. The profit for the market maker is the spread between offer and bid price.

The function of a market maker is to provide liquidity so that investors can buy/sell at the current market price. Inter-dealer brokers (IDBs) act as intermediaries among market makers, thus aiding liquidity.

Agency Brokers

The agency broker is more commonly called a stockbroker. Agency brokers act as an intermediary between the investor and the market maker. They provide advice and charge a fee for this service. Some stockbrokers, however, do not provide any advice and render their service as “execution-only” brokers, that is, purely taking orders and carrying out deals but not providing advice.

Since there are no fixed rates of commission, execution-only brokers charge very low fees, sometimes well below that charged by ordinary agency brokers. These execution-only brokers provide a cheap dealing service for the investor who has knowledge and confidence to invest in the share market.

Investors use the services of commission/fee-charging intermediaries even though they could deal directly with the market maker without paying any commission/fee on a “net” basis. This preference by investors is due to the fact that these intermediaries perform additional services that are needed by an ordinary investor.

The reason for investors to prefer fee-charging brokers is that the brokers, being close to the market, are able to provide investment ideas, especially for investment in smaller companies that come for trading rarely. There are no conflicts of interest when an investor uses an agency broker because the function of these members of the stock exchange is to act in the best interests of their client. The investor gains from the research facilities and knowledge of the broker. This is not available to the investor if the dealings are through the market maker. Market makers will deal only with very large orders given directly by the client. For the market makers the client profile will be mostly institutions because they are the major buyers and sellers of shares of large value.

STOCK INDICES

Stock indices are devised by stock exchanges as representatives of market movements. The notable indices prevalent in the Bombay Stock Exchange are the BSE Sensex formed with 30 scrips and BSE composite index. The NSE market index is the S&P Nifty index.

COMPUTATION OF INDEX

Different methods have been suggested for the computation of stock indices. They are the market value weighted method, price weighted method, and equal weight method.

The market value weighted method computes a stock index in which each stock affects the index in proportion to its market value. This is also called the capitalisation-weighted index. The price weighted method gives weights to each security forming the index according to the price per share prevailing in the market. Weights can also be given equally to all the shares. This method of computing the index is known as equal weight method.

Example Assume that stocks A1, A2, and A3 constitute the sample companies for the computation of an index. The base index is 100 and the base date price and current market prices are given below. Compute the current stock index when no change in share representation takes place, dividends or stock splits have not occurred, and no additional shares have been issued. Use the market value weighted method; price weighted method, and equal weight method.

1. Market value weighted method
   

   Market value weighted index = (910,000,000/246,000,000) * 100 = 370

2. Price weighted method

   Share	Base Price	Current Price
   A1	120	200
   A2	150	900
   A3	110	150
   Total	380	1,250

   Market price weighted index = (1,250/380) * 100 = 329

3. Equal weight method
   

   Equal weighted index = 100 + 201.01 = 301.01

The stock exchanges in India compute and publish indices representing different sets of portfolios using the market capitalisation weighted average method. In this method, the number of equity shares outstanding is multiplied by the price to arrive at market capitalisation. This will ensure that each security will influence the index in proportion to its respective market importance. The current market capitalisation is compared with the base market capitalisation (base value) in order to get the index value at any point of time.

 

 

The financial year 1978–79 was chosen as the base year for BSE Sensex. Considerations for the choice were the price stability during that year and proximity to the period of introduction of the index.

The advantage of this method of compilation is that it has the flexibility to adjust for price changes caused by various corporate actions. The methodology of calculation is the same as the one employed in many of the popular indices such as the S&P 500, NASDAQ, Hang Seng Index, and FTSE 100 Index.

It is a wealth-measuring index where the prices are weighted by market capitalisation. In such an index, the base period values are adjusted for subsequent rights and new issue of equity. This adjustment prevents a distorted picture and gives an idea of the wealth created for shareholders over a period.

An index that calculates the performance of a group of stocks assuming that all dividends and distributions are reinvested is called the total return index. Examples of indices based on this computation method include the S&P 500 and Russell 2000 (American capital market). This method is usually considered to be a more accurate measure of actual performance than if the dividends and distributions were ignored.

All stock exchanges constitute an index committee to identify the representative shares for the index. The Index Committee meets frequently to review the indices. In case of a revision in the constituent scrips of the index, the announcement of the incoming and outgoing scrips will be made ahead of the actual revision of the index.

The selection of securities for the BSE index will be made on the basis of certain quantitative and qualitative criteria such as market capitalisation, liquidity, depth, trading frequency, and industry representation.

Quantitative Criteria

1. Market capitalisation: The scrip should be among the top listed companies by market capitalisation. Also, a stock exchange can insist that the market capitalisation of the participating scrips be more than a certain percentage of the total market capitalisation of the index. The BSE imposes a minimum weight of 0.5 per cent for a company’s scrip to be selected into the BSE Sensex. The average market capitalisation for the preceding six months gives the minimum weight requirement.
2. Liquidity: Liquidity is estimated with the help of the following measures.
   1. Number of trades: The scrip should be among the top listed companies when ranked by the average number of trades per day over a specified time period (say, six months, one year).
   2. Value of shares traded: The scrip should be among the top listed companies when ranked by the average value of shares traded per day over a specified time period.
   3. Trading frequency: The scrip should have been traded on each and every trading day over a specified time duration.
   4. Trading activity: The average number of shares traded per day as a percentage of the total number of outstanding shares of the company should be greater than a certain percentage for the specified time duration.
3. Continuity: Whenever the composition of the index is changed, the continuity of the historical series of index values is re-established by correlating the value of the revised index to the old index (index before revision). The back calculation over the preceding one-year period is carried out and the correlation of the revised index to the old index should not be less than a certain point, say 0.98. This ensures that the historical continuity of the index is maintained.
4. Industry Representation: Scrip selection would take into account a balanced representation of the listed companies from all the industries participating in the stock market. Further, the index companies should preferably be leaders in their industry group.
5. Listed History: The scrip to be included in an index should have a previous trading history in the respective stock exchange. For example, for inclusion of a scrip in the BSE Sensex, the security should have a listing history of at least six months on BSE.

Qualitative Criteria

Besides the quantitative criteria, a stock exchange can also list out certain qualitative factors for the inclusion of a company’s security in its index computation. The qualitative criteria for inclusion of a scrip in the BSE Sensex is that the company should preferably have a continuous dividend paying record or/and should be promoted by a management with a proven record. Also the scrip should preferably be from the ‘A’ group.

With the introduction of the online trading mechanism in many markets, index computation is also automatically generated by the system. During market hours, the prices of the index scrips at which trades are executed, are automatically used by the trading computer to calculate the index in a specified frequency by the system (15 seconds) and continuously updated on all the trading workstations connected to the trading computer in real time.

Adjustment for Bonus, Rights, and Newly Issued Capital: The computation of an index has to consider certain adjustments when the composition of the sample changes, when one of the component stocks pays bonus or issues right shares. If no adjustments are made, there would be discontinuity between the current value of the index and its previous value.

In case of a bonus issue, there is no change in the base value; only the number of shares in the formula is updated. When a company, included in the computation of the index, issues bonus shares, the new weighting factor will be the number of equity shares outstanding after the bonus issue. This new weighting factor will be used while computing the index from the day the change becomes effective.

The market value weighted method incorporates the adjustment effectively into the index while the other index computation methods do not show the effect of a bonus issue.

Example Compute the index using the market value weighted method and price weighted method for the following market information. The base index is 100.

Company A2 issued bonus shares in the ratio of 1:2. The current price reflects the share price after the bonus share has become effective in the market. There is no other change in other companies.

1. Market value weighted method

    

   Market value weighted index = (184,000,000/78,000,000) * 100 = 236

   

   * Outstanding shares for A2 after the issue of bonus will be 1,500,000

    

2. Market price weighted method

   Share	Base Price	Current Price
   A1	50	80
   A2	40	60
   A3	60	100
   Total	150	240

   Market price weighted index = (240 /150) * 100 = 160

When a company, included in the computation of the index, issues rights shares, the number of additional shares issued increases the weighting factor for that share. An offsetting or proportionate adjustment is then made to the base year average.

Weight factors get revised when new shares are issued by way of conversion of debentures, of loans into equity by financial institutions, mergers, and so on. The base year average is also suitably adjusted to offset the change in the market value thus added. Similarly, when convertible/non-convertible bonds/ debentures, preference shares, and so on are issued as rights to equity shareholders, the base year average is adjusted on the basis of the ex-right price of the equity shares.

For the computation of the index, the base value is adjusted and used as a denominator for arriving at the index value.

One of the important aspects of maintaining continuity with the past is to update the base year average. The base year value adjustment ensures that the rights issue and the new capital of the index scrips do not destroy the value of the index.

The changes are, in effect, proportional adjustments in the base year to offset the price changes in the market values upon which the index is based. The formula for changing the base year average is as follows:

Example A company included in the computation of the index issues rights shares which increases the market value of its shares by Rs 500 crores. If the existing base year average value is Rs 7,590 crores and the aggregate market value of all the shares included in the index before the right issue is Rs 9,586 crores, the revised base year average will then be computed as follows:

This calculated amount (Rs 7,985.89) will be used as the base year average for calculating the index number from then onwards till the next base change becomes necessary.

Dividend payment by the constituting company also needs to be adjusted against the ex-dividend price. The dividend declared per share is deducted from the cum dividend price per share. The ex-dividend price quoted in the market is taken as the price of the constituent security, which will be less than the price of the security earlier.

Example The following securities constitute the computation of an index. Security A2 declared a dividend of Rs 2 per share. The base price and the ex-dividend current price quoted in the market are given below. Compute the value-weighted index and price weighted index. Base index—100.

1. Market value weighted method
   

   Market value weighted index = (128,000,000/116,500,000) * 100 = 109.87

2. Market price weighted method

   Share	Base Price	Current Price
   A1	85	92
   A2	65	69
   A3	50	58
   Total	200	219

   Market price weighted index = (219/200) * 100 = 109.5

SECONDARY MARKET

The existence of secondary markets for shares is of advantage to both the company and the investors. As for the companies, a good performance of the company’s shares in the capital market creates a good image or goodwill for the company so that it can use this market information successfully for its future finance requirements. A successful company in this sense will get an over-subscription of applications in subsequent new issues and it will also be able to price its subsequent issues at a desired premium.

Investors also benefit from secondary markets. If not for the secondary markets, investors may not sell or buy shares from other market players. They would never be able to get capital appreciation benefits when they require funds for their immediate needs. Those who trade in the secondary market are given the option to sell or buy a share on any trading day, provided there is the requisite demand/supply. This assures investors that they can take back the investment when needed. Thus, the secondary market performs the economic function of transfer of funds between the public at large and the industry. A secondary market could provide quality service if it could assure its investors of fast, fair, orderly, and open system of purchase and sale of shares at known prices. Due to improved trading mechanisms and transparency in stock exchange operations, and monitoring by the regulatory body, the stock exchanges can perform their role efficiently to both the investors and the corporate entities.

Trading in stock exchanges has been made transparent and smooth through computerised trading. This has enabled online trading of shares in the secondary market. The online system is order-quote-driven and facilitates efficient processing, automatic order matching, and faster execution of orders in a transparent manner. This facility enables members to enter orders on the trader workstations (TWSs) from their offices instead of assembling in the trading ring. This facility has enabled many regional stock exchanges to widen their market nationally and internationally.

At the Bombay Stock Exchange, trading takes place in groups. The scrips traded on the exchange have been classified into A, B1, B2, F, G, T, and Z groups. The number of scrips listed on the exchange under A, B1, B2, and Z groups, which represent the equity segments, as at the end of June 30,2003, was 198,790,1830 and 2776 respectively. The number of securities listed in the G and F segment was 85 and 730 on the same date. The categories of securities traded under these groups are given below.

1. Group A - Specified shares
2. Group B - Non-specified shares (further classified into B1 and B2 groups)
3. Group C - Odd lots and permitted shares
4. Group F - Debt market (Fixed income securities)
5. Group G - Government Securities
6. Group Z - List of companies which have failed to comply with listing requirements and/or failed to resolve investor complaints

Besides the exchanges also has another segment called the “trade-to-trade” category that has been shifted to ‘T’ group. Trade-to-trade category was created as a preventive surveillance measure to ensure market safety and integrity.

Group A, includes only actively traded shares. The governing body of BSE includes only those shares in this group that satisfy certain conditions stated by the exchange. Given the stringent conditions laid down for being listed in this group, the shares of only a few companies get listed in this group. The rest of the shares are listed under Group B.

Group C has odd lots and permitted shares. Odd lots trading is allowed to enable trading in small quantities (less than market lots) to provide liquidity to such trading. Permitted shares are those that are not listed on the exchange, but are permitted to be traded since they are listed on other stock exchanges in India.

National Stock Exchange does not differentiate between Group A and B shares.

SECONDARY MARKET TRADING

Trading in any of these shares is done during trading hours fixed by the specific stock exchange. If trading is done before or after these fixed hours, it is called as kerb trading. During trading hours, members approach other brokers or jobbers who have an offer or sale quotations. Once the offer for sale and purchase is matched, a transaction takes place and is recorded by the concerned parties. At the end of each trading day, the brokers make a note of the transactions that actually took place, on whose behalf, and for what value. Though trading in shares takes place on all stock exchange working days, the settlements need not take place automatically.

The Settlement Committee of the exchanges fix the schedules of trading and settlement. In these schedules, the settlement for purchase or sale transactions may also take place once in a fortnight, that is, 10 or 15 trading days (excluding Saturdays, Sundays, and public holidays). After the fortnight, three days are offered as grace days. There might also be one or two additional days for correcting errors and omissions, and then securing a final settlement for each member’s position in respect of the shares dealt in. After consolidating both the purchase and sale transactions, the members arrive at the net settlement to be made for each company’s share.

On the specified settlement day, say alternate Fridays, two types of settlements may take place. One is on a cash basis and the other is a forward contract. Cash settlements imply that the sale and purchase of shares noted down by the brokers will be finalised through the act of receiving cash by the seller and the receipt of share documents by the buyer. Thus, the delivery of assets takes place on the settlement day.

In forward contracts of settlement, the transactions recorded are renewed by a carry forward contract. Here, the payment for sale and delivery of share certificate do not take place. However, on the cash settlement date, the speculator might ask for a postponement of the deal, that is, either to buy or sell a share on the next settlement date by fixing a charge as a penalty for not executing the deal. The original contract (buy/sell) price will be updated with this charge.

All deliveries for shares and payments due from forward contract adjustments have to be settled with respective deliveries and payments before the next settlement date. These forward contracts are entered in the settlement register and on the next settlement date, the transactions are executed and balance amounts transferred to the accounts of the respective investors.

With technology playing a major role in settlements, several stock exchanges have shifted to the Compulsory Rolling Settlement (CRS) system. Under this system, there is no physical delivery of securities. The CRS could be a T+5, T+3, T+2, T+1, or T+0 settlement. T+3 implies that the securities come for settlement three days after the trade has taken place, irrespective of the day of the week. A stock exchange that offers CRS, trades securities in a dematerialised form.

The delivery of share market dealings can be effected in any of the following ways: hand delivery, spot delivery, special delivery, or delivery for clearing. In case of hand delivery, the certificate to be delivered and the payment of cash should be completed on the date specified by the parties when drawing up the agreement. In spot deliveries, settlement takes place on the very next day or on the day of the contract. In case the parties are in different localities, the actual period of dispatch of securities or remittance of cash through post is excluded in the computation.

Special delivery takes place when the settlement is made any time after the specified settlement date but before two months after the expiry of the contract date or as stipulated by the governing board of the stock exchange. In delivery for clearing, the settlement takes place through a clearing house. For this purpose stock exchanges have an in-house clearing house or an external clearing agency working for the exchange, which acts as a dispatcher. The shares for delivery are handed over to the buyer in the stipulated time and the seller receives the dues the same time from the clearing house on the respective pay-in and pay out days.

The function of the clearing houses is restricted to the delivery of assets. It does not act as a collecting agent. Therefore, if a party defaults, then the other party must fulfil the obligations to the clearing house. Dealers in shares have to be sure of the integrity of the member with whom transactions are entered into. Otherwise, the loss would fall on the dealer.

TRADING LIMITS

Stock exchanges specify trading limits to scrutinise and monitor the trading activities of the market. In India, SEBI has prescribed the Intra-day Trading Limits (IDTL), gross exposure requirements, and margin requirements in the secondary market. The intra-day trading limit (gross purchases + gross sales) prescribed is 33.33 times of the base minimum capital and additional capital deposited by the members with the exchange. Institutional business, that is, transactions done on behalf of the scheduled commercial banks, Indian financial institutions, foreign institutional investors, and mutual funds registered with SEBI are not included while watching the compliance of the members with the intra-day trading limit.

The exchange provides online warning to the members when they reach 70 per cent, 80 per cent, and 90 per cent of their respective intra-day trading limit. However, when a member crosses 100 per cent of the intra-day trading limit, a message is flashed on the trading workstations that says “CAPITAL ADEQUACY LIMIT VIOLATED”. Immediately, all TWSs of the member get deactivated. The TWSs of the members, in such cases, are reactivated only after they deposit additional capital to cover their turnover in excess of the intra-day trading limit. A fine (Rs 5,000 in BSE) is levied if a member does not deposit the additional capital to cover the required turnover in excess of the intra-day trading limit on the day of the violation.

Gross Exposure Requirement SEBI has prescribed a ceiling on the gross exposure (scripwise cumulative net outstanding purchases + cumulative net outstanding sales) of members which is 15 times of the base minimum capital + the additional capital deposited by them with the exchange. Thus, the gross exposure is computed as the receivable obligations or purchase position of the previous settlement for which members have yet to make a pay-in in the weekly settlement category and outstanding unsettled (purchase + sale) positions in rolling settlements.

Institutional business, however, are excluded from the computation of gross exposure of the members. Sale transactions marked for physical delivery at the time of trade and subsequently delivered in demat (dematerialised) mode to the clearing house are not included in the gross exposure limits of the members.

Warnings are flashed on the TWSs of the members as soon as they reach 50 per cent, 70 per cent, and 90 per cent of their gross exposure limits. When a member crosses 100 per cent of the gross exposure limit, a message is flashed on the TWSs stating “GROSS EXPOSURE LIMIT EXCEEDED”. Subsequently, the TWSs are automatically deactivated. The TWSs of the members, in such cases, are reactivated only after they deposit additional capital to cover their exposure in excess of the gross exposure limit.

Margin Requirements Margins are required to cover trade exposures. Margins play an important role, controlling for liquidity and safety of trades in a stock market. The higher the margin requirement of an exchange, the better the safety of the transacted deal. However, this cautions investors to limit speculative transactions and also reduces liquidity in the market. The lower the margin requirements imposed by the exchange, the higher will be the liquidity, since this will encourage speculative trading in the market; and conversely lower will be the safety of the trades. These two relationships are given in Figure 2.3.

In India, compulsory collection of margins from clients including institutions is prevalent. Collection of margins on a portfolio basis is not allowed.

Securities that are bought from the stock market can be paid for by the investor with his own funds or a mix of personal and borrowed funds. Buying with borrowed funds permits the investor to enlarge the scope of his investment activities since it enables him to buy a security whenever it touches a good price. This is called as trading on borrowed funds or “margin trading”. Margin trading lets the investor borrow money from a bank or a broker to buy shares. In India, only brokers are allowed to provide the margins. Brokers borrow funds from a banker with the shares as collateral for the loan. The safety of this mechanism relies on the risk management capabilities of both the stockbroker and the banker.

The following margin system is followed in rolling and weekly settlements by BSE.

Compulsory Rolling Settlements

Compulsory rolling settlements may require a Value at Risk (VaR) margin, additional volatility margin, mark to market margin, special ad hoc margin, and special margin. These are discussed below.

Value at Risk Margin

The VaR margin calculation is based on the volatility of either the BSE Sensex or S&P CNX Nifty. The margin is calculated as the higher of scrip VaR and index VaR multiplied with a suitable multiplier.

Scrip-wise VaR: The scrip-wise daily volatility is calculated using the exponential moving weighted average method for the preceding six months. This method is also applied by other stock exchanges such as NSE.

The volatility at the end of day t (s _t ) is estimated using the previous volatility estimate (s_t-1 ) (as at the end of day t-1) and the return ( r_t ) observed in the market during day t as per the following formula:

where, ‘p’ is a parameter which determines how rapidly volatility estimates change. A value of 0.94, specified in the JR Varma Report on risk management, is used as the value of ‘p’ by the BSE.

Index VaR: The volatility for calculation of index VaR is estimated in the same manner as indicated above.

Further, as per a SEBI decision, the highest volatility as computed above is multiplied by a factor of 3.5 to satisfy the condition of 99 per cent confidence.

The margin percentage is calculated as 100*[exp. (3.5*volatility)-1]

The VaR margin rates computed at the end of a day are applied to the positions at the end of the following trading day. This ensures that the markets have prior information of the rates to be applied for the trading positions built by them on the following trading day.

The scrip-wise VaR margins are charged on the basis of the net position of a client across all the settlements for which the pay-in has not been effected. Taking an example of two clients, A and B of the same member and their positions in a specific scrip, the net margin quantity can be worked out as follows, given the net trade for both clients.

Settlement	Client A	Client B
T-3	500	−400
T-2	−200	+ 600
T-1	600	−200
T	−300	−300
Net Margin Quantity	600	−300

The member has to pay the VaR margin on the value of these 900 shares, that is, the total of each client’s net position across all unsettled settlements, including T day. While adding the positions across clients, the total quantity is considered ignoring the purchase or sale of the scrip.

Additional Volatility Margin

The members/custodians are required by SEBI to pay the additional volatility margin (AVM) on the net outstanding sale position of their institutional clients. In view of the introduction of the VaR margin system in CRS, SEBI has directed that the members/custodians would be required to pay AVM which is equal to the positive differential between the scrip VaR calculated and the minimum VaR (1.75 times of index VaR).

The AVM payable can be adjusted against unutilised additional capital deposited with the exchange. The AVM paid by the members in cash on the sale position of institutions is refunded to them in the pay-in of the concerned settlement.

Mark to Market Margin

For the mark to market (MTM) margin in the rolling settlement, the notional plus actual losses and profits in each scrip are calculated for the trade day. Then the profits and losses are netted to arrive at the scrip level profit or loss. Then the profits made in certain scrips are netted with losses in other scrips. If there is a net loss, the same is collected as the MTM margin over and above the daily VaR margin. However, if there is a net profit at the aggregate level, the same is ignored for the purpose of computing the MTM margin.

Example From the trades on a single day for a client, compute the mark to market margin. The daily VaR margin requirement is Rs 65,000.

The notional/actual profit or loss in each security is computed as follows:

Special Ad hoc Margin

As a risk management measure, the exchange may prescribe exposure limits in the scrips traded in CRS. At BSE, a 25 per cent special ad hoc margin (SAM) is collected if the exposure on a single scrip is equal or above Rs 100 lakhs and up to Rs 200 lakhs.

Special Margin

From time to time, the special margin is imposed as a surveillance measure on various scrips in CRS. The special margin is charged on the net purchase and/or sale position of members to the extent of the traded position per settlement. Further, a special margin is required to be paid in cash only on T+1 day and the margin, once collected, is released only on the pay-in day of the respective settlement. Further, it is not adjusted against the unutilised additional capital of the members as in the case of other margins. The rates of special margins on individual scrips (either on the sale and/or purchase) are notified by the exchange from time to time.

Weekly Settlements

The trading in scrips that come under weekly settlement will be regulated with the following margin requirements.

Gross Exposure Margin

The gross exposure margin is charged on the basis of the gross exposure of the members, that is, the purchase position of one client in a scrip is not netted against the sale position of another client in the same scrip. However, if the same client had purchased and sold the same scrip, then the margin is computed on the net position of the client. The gross exposure and the applicable margins are as under:

Gross Exposure (Rs Crores)	Margin Payable
Up to 5	7.5%
Above 5 and up to 10	0.375 plus 10% in excess of 5 crores
Above 10 and up to 15	0.875 plus 12.5% in excess of 10 crores
Above 15 and up to 20	1.5 plus 15% in excess of 15 crores
Above 20 and up to 100	2.25 plus 20% in excess of 20 crores
Above 100	18.25 plus 25% in excess of 100 crores

 

Members are required to pay the daily margin based on the gross exposure on T+1 day which is computed on the basis of their scripwise cumulative outstanding net purchases plus net sales as at the end of T day.

Mark to Market Margin

The mark to market margin computation is similar to that in the CRS category.

Additional Volatility Margin

The additional volatility margin is a scrip-specific margin. It is payable if the price of a scrip goes up or down beyond a certain limit over a rolling period of six weeks. The computation of volatility and the percentage of AVM applicable are as under:

 

Volatility percentage = { (6 week high - 6 week low) / 6 week low } * 100

Volatility (%)	Volatility Margin Applicable (%)
More than 60 and up to 100	10
More than 100 and upto 150	15
More than 150	25

 

The AVM is computed on the net outstanding position of the members in the weekly settlements. Where MTM margin and AVM are payable on the net outstanding position in a scrip, only the higher of the two margins is collected. However, at the aggregate level, all margins, that is, MTM and AVM are recovered from the members.

This margin is not charged for scrips quoting below Rs 40. As per a SEBI directive, it is charged only on the outstanding institutional sales positions in scrips in the weekly settlement. Further, the sales marked for delivery subject to actual demat deliveries effected in the clearing house are exempt from the payment of AVM.

Special Ad hoc Margin (SAM)

As a risk management measure, BSE has prescribed exposure limits in the B1 and B2 group scrips. A SAM of 25 per cent is required if the exposure in a single scrip in the B1 group is between Rs 2 crores and up to Rs 5 crores. The same margin percentage is applicable for exposure limits of Rs 50 lakhs and up to Rs 100 lakhs in the B2 group.

Special Margin

The special margin is a scrip-specific margin, generally imposed on fresh purchases made in scrips where price manipulation is suspected. This margin is also some times imposed on the sale positions of members. This margin is recovered in cash only, that is, it is not adjusted against the unutilised additional capital of the members as in the case of other margins. This margin is retained till the pay-in day, even if the position has been subsequently squared up. The margin imposed is generally at 25 per cent of the value of the scrip and is progressively increased if an unusual price rise and volumes do not come down.

Ad hoc Margin

As a risk management measure, this member-specific margin is imposed in cases where it is felt that the margin cover vis-a-vis the exposure of a member is inadequate or a member has a concentrated position in some scrip(s) or has common client(s) along with other members. This margin is over and above the normal margins paid by members and is payable in cash only. Once called, a member is given about two days to make the payment; in case the outstanding exposure is squared off or reduced, the margin may be reduced/waived after due authorisation.

OPPORTUNITIES AVAILABLE FOR FOREIGN INVESTORS

Investment through Stock Exchanges

Foreign institutional investors (FII), upon registration with the Securities and Exchange Board of India and Reserve Bank of India, are allowed to operate on the Indian stock exchanges subject to the guidelines issued for the purpose by SEBI.

The important guidelines are as follows.

• Portfolio investment in the primary or secondary market of a company by all registered FIIs, Non Resident Indians (NRIs), and Overseas Corporate Bodies (OCBs) is subject to a ceiling of 30/40 per cent of issued share capital. In any one company, holding by a single FII, NRI, or OCB is subject to a ceiling of 10 per cent of the total issued capital. However, in applying the ceiling of 30/ 40 per cent, the following are excluded:
  • Foreign investment under a financial collaboration that is permitted upto 51 per cent in all priority areas.
  • Investment by FIIs through offshore single/regional funds, GDRs, and euro convertibles.
• Disinvestment is allowed through a member broker of a stock exchange.
• A registered FII is required to buy or sell securities on the stock exchanges only for delivery. It is not allowed to offset a deal in the same settlement. It is also not allowed to sell short, that is, sell a security without having the stock in its portfolio.
• Foreign investors can invest in euro issues of Indian companies and in India-specific funds floated abroad.
• Foreign brokers, upon registration with SEBI, are allowed to route the business of their registered FIIs, through the members of stock exchanges.
• Foreign participation in asset management companies and merchant banking companies is also permitted.

SUMMARY

There are 23 stock exchanges catering to the capital market requirements in India. However, most of the traded volumes are centered in Bombay Stock Exchange and National Stock Exchange. A Board of Members governs the stock exchanges and each stock exchange has members/brokers who are the intermediaries between the exchange and the investors.

An exchange can have individual and institutional members. The brokers in an exchange act as dealers, market makers, or as agency brokers.

Each stock exchange has developed its own market index to represent the movement of scrips in the market. The trading in the market is regulated by SEBI.

CONCEPTS

• Specified securities	• Odd lots
• Permitted securities	• OTC market
• Stock index	• Margin trading
• Clearing house	• ISE

SHORT QUESTIONS

1. Who can acquire the membership of a stock exchange?
2. How is a stock index computed?
3. What is a regional stock exchange?
4. What are odd lot securities?
5. What are the margin requirements for the Compulsory Rolling Settlement category?
6. What are the margin requirements for the weekly settlement category?

ESSAY QUESTIONS

1. Explain the structure and characteristics of stock exchanges in India.
2. Explain the working of NSE.
3. Explain the features of OTCEI.
4. What are the functions of ISE?
5. Explain the trading system/mechanism in stock exchanges.

APPENDIX I

TERMS USED IN TRADING

Arbitrage: Taking advantage of the difference in the price of a security traded on two or more stock markets, by buying in one and selling in the other (or vice versa).

Arbitration: Settlement of claims, differences, or disputes between one member and another, and between members and their clients, sub-brokers, and so on through appointed arbitrators.

At best: An instruction from the client to the brokers that authorises the latter to use their discretion and try to execute an order at the best possible price. An “at best” order is valid only for the day it is placed.

Averaging: The process of proportionately buying more and more securities in a declining market (or selling in a rising market) in order to average out the purchase (or sale) price.

Badla: Carrying forward of a transaction from one settlement period to the next without effecting delivery or payment.

Bear: An individual who expects prices in the stock market to go down.

Bear Market: A weak or falling market, characterised by the absence of buyers.

Blue Chips: Shares of large, well-established, and financially sound companies with impressive records of earnings and dividends.

Bonus: A free allotment of shares made in proportion to the existing shares out of accumulated reserves. A bonus share does not constitute additional wealth to shareholders. It merely signifies the re-capitalisation of reserves into equity capital.

Book Closure: Dates between which a company keeps its register of members closed for updating prior to the payment of dividends or issue of new shares or debentures.

Bull: An individual expecting a rise in prices of shares so that he can later sell at a higher price.

Bull Market: A rising market with an abundance of buyers and few sellers.

Cash Settlement: Cash payment for transactions on the due date.

Clearing Days or Settlement Days: Dates fixed in advance by the exchange for the first and last business days of each clearing. The intervening period is called the settlement period, which is normally one week in the case of “specified” shares and ten days in the case of “non-specified” securities.

Clearing House: Each exchange maintains a clearing house to act as the central agency for effecting delivery and settlement of contracts among members. The days on which members pay or receive the amounts due to them are called pay-in or pay out days respectively.

Corner: A situation whereby a single interest or group has acquired such control of a security that these cannot be obtained or delivered for performance of existing contracts except at exorbitant prices. In such situations, the governing board may intervene to regulate or even prohibit further dealings in that security.

Correction: Temporary reversal of trend in share prices. This could be a reaction (a decrease following a consistent rise in prices) or a rally (an increase following a consistent fall in prices).

Crisis: Heavy short sales leading to unduly depressed prices. In such a situation, the governing board may prohibit short sales, fix minimum prices below which sales or purchases are not permitted and limit further dealings.

Cum: “With”. A cum price includes the right to any recently declared dividend (CD) or right share (CR) or bonus share (CB).

Delivery: Handing down of share certificates that have been traded in the market.

Ex: “Without”. A price so quoted excludes recently declared dividend right or bonus shares.

Fill or Kill Order: Instruction to the floor broker to buy or sell at a specified price and to immediately cancel the order if it is “unable” to be filled.

Floating Stock: The fraction of the paid-up equity capital of a company that normally participates in day-to-day trading. On an average, promoters hold about 30 per cent of equity capital; financial institutions hold another 30 per cent and the public, mostly for long term investment, holds the balance 40 per cent. Consequently, the floating stock of a company rarely exceeds 15–20 per cent of its equity capital. A low floating stock causes erratic price movement as in the case of securities in the non-specified shares.

Governing Board: A stock exchange functions under the direction and supervision of its governing board. It generally consists of a specified number of elected members, a whole time Executive Director and representatives of the government, Securities and Exchange Board of India, and public. The size and structure of the board varies from exchange to exchange.

Jobbers: Member brokers of a stock exchange who specialise in buying and selling of specific securities from and to fellow members. Jobbers do not have any direct contact with the public, but they render a useful function of imparting liquidity to the market.

Jobber’s Spread: The difference between the price at which a jobber is prepared to sell and the price at which he is prepared to buy. A large difference reflects an imbalance between supply and demand. Kerb Dealings: Transactions done on behalf of members after the official close of the trading hours, on the street or at the entrances to or in the vicinity of the stock exchange.

Limit Orders: Instructions given to the broker to limit buying (at a stated maximum price) or selling (at a stated minimum price). A limit order is an order to buy or sell at a designated price. Limit orders to buy are placed below the current price while limit orders to sell are placed above the current price. Even thought the investor may see the market touch a limit price several times, this does not guarantee or earn the investor a trade at that price. In most instances, the market must trade better than the limit price for the investor to get a trade.

Listed Company: A public limited company which satisfies certain listing conditions and signs a listing agreement with the stock exchange for trading in its securities. One important listing condition is that 25 per cent of the company’s issued capital should be offered to the public.

Long Position: A trading position to buy the share from the market.

Market If Touched (MIT) Order: Similar to a limit order in that a specific price is placed on the order. Buy MITs are placed below the current price and Sell MITs are placed above the current price. However, an MIT order becomes a market order once the limit price is touched or passed through. An execution may be at, above, or below the originally specified price.

Market Order: A market order does not specify a price; it is executed at the best possible price available. A market order can keep the investor from “chasing” a market.

Market On Close (MOC) Order: An order that will be filled during the final minutes of trading at whatever price is available.

Market On Opening (MOO) Order: An order that is executed during the opening range of trading at the best possible price obtainable within the opening range.

Moorat Trading: Auspicious trading during specified hours on Diwali.

One Cancels the Other (OCO) Order: A combination of two orders written on one order ticket. This order instructs the floor broker that once one side of the order is filled, the other side of the order should be cancelled. By placing both instructions on one order, rather than on two separate tickets, the customer eliminates the possibility of a double fill.

Or Better Order: A market order with a limit. The broker is obliged to get the best possible price for the investor. If the price does not have an OB next to it, and the market is considerably better, the broker may return the order for clarification, which could delay execution and possibly change the results of the order execution.

Pari Passu: New issues of securities that have the same rights as the issues already in existence.

Rights Issues: The issue of new shares to existing shareholders in a fixed ratio at a price that is generally below the market price of the old shares.

Selling Short: Normally, a security is bought and then sold later. This is described as going long and is profitable in rising markets. The reverse process—selling a security first and then buying it later—is called selling short. This is profitable in a declining market.

Settlement Period: For administrative convenience, a stock exchange has trading sessions. After each trading session, the transaction details of the trading session are submitted in the settlement period. The first and the last day trading of each settlement period are fixed in advance as are the settlement days for delivery and payment.

Specified Shares: For the purpose of trading, in BSE a security is categorised either as a “specified” share or a “non-specified” security. Stock exchange authorities determine this differentiation. Specified shares are ‘A’ group securities.

Stop Close Only Order: The stop price on a stop close only will only be triggered if the market touches the stop during the close of trading. The disadvantage of this order is that the last few minutes of trading in a fast market may cause the order to be filled at an undesirable price.

Stop Limit Order: A stop limit order lists two prices and is an attempt to gain more control over the price at which a client’s stop is filled. The first part of the order is written like the stop order. The second part of the order specifies a limit price. This indicates that once the client’s stop is triggered, he does not wish to be filled beyond the limit price. Stop limit orders should usually not be used when trying to exit a position.

Stop Order: A stop order is an order to buy or sell a share once the price reaches a specified price (stop price). When the specified price is reached, the order becomes a market order. Stop orders can be used for three purposes— to minimise a loss on a long or short position, protect a profit on an existing long or short position, or initiate a new long or short position.
A buy stop order is placed above the current market and is elected only when the market trades at or above, or is bid at or above, the stop price. A sell stop order is placed below the current market and is elected only when the market trades at or below, or is offered at or below, the stop price. Once the stop order is elected, the order is treated like a market order and will be filled at the best possible price.

Unit of Trading: The minimum number of shares of a company which are accepted for normal trading on the stock exchange. All transactions are generally done in multiple of trading units. Odd lots are generally traded at a small discount.

Volume of Trading: The total number of shares that change hands in a particular company’s securities. It is the sum of either purchases or sales that necessarily equal. This information is useful in explaining and interpreting fluctuations in share prices.

 

APPENDIX II

INDIAN STOCK EXCHANGES

1. Ahmedabad Stock Exchange Association Manek Chowk Ahmedabad 380 001	2. Bangalore Stock Exchange No 51 1st Cross, JC Road Bangalore 560 027
3. Bhubaneshwar Stock Exchange Association, 217 Budhraja Building Jharpara Cuttack Road Bhubaneshwar 751006	4. Calcutta Stock Exchange 7 Lyins Range Kolkata700001
5. Cochin Stock Exchnage Ltd. Exchange House 38/1431 Kaloor Road Extension Ernakulum, Kochi 682035	6. Coimbatore Stock Exchange Chamber Towers 8/732 Avinashi Road Coimbatore 641018
7. Delhi Stock Exchange Association 3 & 4/4B Asaf Ali Road, West Plaza, IG Stadium, New Delhi 110 002	8. Guwahati Stock Exchange Ltd. Saraf Building Annexe AT Road, Guwahati 781001
9. Hyberabad Stock Exchange Ltd. Bank Street Hyderabad 500 001	10. Inter-connected Stock Exchange of India Ltd, International Infotech Park, Tower 7, 5th Floor, Sector-30, Vashi, Navi Mumbai 400 703.
11. Jaipur Stock Exchange Ltd Rajasthan Chamber Bhawan M.I. Road, Jaipur 302 003	12. Ludhiana Stock Exchange Association Lajpat Rai Market, Clock Tower Ludhiana 141008
13. Madras Stock Exchange 11 Second Line Beach, Exchange Building Madras 600 004	14. Madhya Pradesh Stock Exchange Ltd. 67, Bada Sarafa Indore 452002
15. Mangalore Stock Exchange Limited (Served by India on Internet) 4th Floor, Rambhavan Complex Mangalore 575 003	16. Meerut Stock Exchange Ltd. Kings way Building 345 Bombay Bazar Meerut Cantonment 250 001
17. Mumbai Stock Exchange Dalal Street Mumbai 400 001	18. National Stock Exchange of India 1st Floor, RBC, Worli Mumbai400018
19. Pune Stock Exchange Ltd. 1177, Budhwar Peth Bankof Maharashtra Building, 2nd Floor Bajirao Road, Pune 411002	20. Saurashtra Kutch Stock Exchange Ltd. 4, Swaminarayan Gurukul Building Dhebarbhai Road Rajkot380002
21. Uttar Pradesh Stock Exchange Association Ltd. Padam Towers, 14/113 Civil Lines Kanpur208001	22. Vadodara Stock Exchange Ltd. 101 Paradise Complex Tilak Road, Sayaji Gunj Vadodara 390 005
23. OTC Exchange of India Mumbai 400 005

APPENDIX III

INTERNATIONAL STOCK INDICES

United States of America

Stock Exchange Index	Value
1. Nasdaq Composite Index	2,055.74
2. Dow Jones Industrial Average	10,150.55
3. Dow Jones Transportation Average	2,823.34
4. Dow Jones Utilities Average	292.25
5. Nasdaq Computer Index	1,070.28
6. CBOE Mexico Index	74.31
7. Amex S&P Midcap 400 Index-Mid	512.83
8. Amex Morgan Stanley Hi Tech 35	549.11
9. CBS Market Watch.com 75	92.64
10. CBOE Nasdaq 100 Index	1,666.58
11. NYSE Composite Index	589.71
12. S&P 100 Index	592.50
13. PSE Technology Index	719.19
14. Russell 3000 Index	642.07
15. Russell 1000 Index	612.17
16. Russell 2000 Index	497.90
17. Phlx Semiconductor Index	583.82
18. S&P500Index	1,160.71
19. CBOE Treasury Yield Option-Tnx	50.57
20. CBOE Treasury Yield Option-Tyx	55.00
21. Phlx Gold Silver Index	55.87
22. AMEX Composite	836.20
23. Amex Major Market Index	1,034.45
24. Amex Oil Index	513.34
25. Value Line Composite Index	375.64

Rest of America

Stock Exchange Index	Country	Value
1. BRSPBovespa Index	Brazil	14167.60
2. TSE 300 Index	Canada	7782.04
3. SASEGral Index	Chile	5364.34
4. MXSEIPCGral Index	Mexico	6641.14
5. LIMA General Index	Peru	1212.96
6. IBC Index	Venezuela	6612.09

Asia/Pacific

Stock Exchange Index	Country	Value
1. All Ordinaries	Australia	3354.90
2. SSE Composite	China	1561.35
3. Hang Seng Index	Hong Kong	11440.70
4. BSESensex	India	3396.00
5. JSX Index	Indonesia	391.498
6. NIKKEI 225 Index	Japan	10664.00
7. KLSE Composite	Malaysia	700.47
8. NZ Top 40 Cap	New Zealand	2084.68
9. Karachi 100 Index	Pakistan	1387.47
10. PHS Composite	Philippines	1183.68
11. STRAITS Time Index	Singapore	1686.20
12. KOSPI	South Korea	751.61
13. CSE All-share Index	Sri Lanka	592.24
14. Taiwan Weighted Ind	Taiwan	5109.24
15. Thailand SET	Thailand	319.24

Europe

Stock Exchange Index	Country	Value
1. ATX-Index Vienna	Austria	1114.72
2. BEL20 Index	Belgium	2649.08
3. PX50 Index	Czech Republic	401.40
4. KFX Index	Denmark	264.00
5. HEX General Index	Finland	8578.39
6. CAC 40 Index	France	4532.64
7. XETRA DAX Index	Germany	5204.99
8. Athens General Index	Greece	2587.95
9. Budapest SE Index	Hungary	7328.42
10. AEX- Index	Netherlands	491.48
11. OSE Bench Index_GI	Norway	167.10
12. BVL 30 General Index	Portugal	3719.15
13. MOS Times Index	Russia	3327.35
14. SAX Index	Slovakia	116.79
15. Madrid General Index	Spain	797.25
16. Swiss Market Index	Switzerland	6308.80
17. ISENational-100 Index	Turkey	14625.90
18. FTSE100Index	United Kingdom	5208.00

Africa/Middle East

Stock Exchange Index	Country	Value
1. Egypt CMAGeenral Index	Egypt	620.52
2. TA-100 Index	Israel	452.59
3. JSE All share Index	South Africa	10659.10

APPENDIX IV

BOMBAY STOCK EXCHANGE INDICES (JANUARY 2004)

National Stock Exchange Indices (January 2004)