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List of Abbreviations

ABC Additional Base Capital

AON All Or None

ATO At the Opening Order

BMC Base Minimum Capital

BSE Bombay Stock Exchange

CDSL Central Depositories Services Ltd.

CM Capital Market

Co. Company

DCA Department of Company Affairs

DEA Department of Economic Affairs

DP Depository Participant

DPG Dominant Promoter Group

DQ Disclosed Quantity

DvP Delivery versus Payment

FI Financial Institution

FII Foreign Institutional Investors

F&O Futures and Options

FTP File Transfer Protocol

GTC Good Till Cancelled

GTD Good Till Days

IOC Immediate or Cancel

IPF Investor Protection Fund

ISIN International Securities Identification Number

LTP Last Trade Price

MBP Market By Price

MTM Mark To Market

MF Minimum Fill

NSE National Stock Exchange

NSCCL National Securities Clearing Corporation Limited

NSDL National Securities Depository Ltd.

OTC Over The Counter

NEAT National Exchange for Automated Trading

NCFM NSE's Certification in Financial Markets

NSCCL National Securities Clearing Corporation Ltd.

RBI Reserve Bank of India

SAT Securities Appellate Tribunal

SBTS Screen Based Trading System

SC(R)A Securities Contracts (Regulation) Act, 1956

SC(R)R Securities Contracts (Regulation) Rules, 1957

SEBI Securities and Exchange Board of India

SGF Settlement Guarantee Fund

SRO Self Regulatory Organisation

T+5 Fifth day from the trading day

TM Trading Member

UTI Unit Trust of India

VaR Value at Risk

VSAT Very Small Aperture Terminal

WDM Wholesale Debt Market

References and suggested readings

The readings suggested here are supplementary in nature and would prove to be

helpful for those interested in acquiring advanced knowledge about Capital

Markets.

1. Indian Securities Market: A Review - NSEIL publication

2. NSE Newsletters

3. SC(R)A, 1956 & Rules

4. SEBI Act, 1992, Rules & Regulations

5. Depository Act, 1996 & Rules

6. Rules, Regulations and Byelaws of NSEIL & NSCCL

7. www.nseindia.com

8. www.sebi.gov.in

9. www.rbi.org.in

10. www.finmin.nic.in

Chapter 1

Trading

1.1 Introduction

The trading on stock exchanges in India used to take place through open outcry

without use of information technology for immediate matching or recording of

trades. This was time consuming and inefficient. This imposed limits on trading

volumes and efficiency. In order to provide efficiency, liquidity and transparency,

NSE introduced a nation-wide on-line fully-automated screen based trading system

(SBTS) where a member can punch into the computer quantities of securities and

the prices at which he likes to transact and the transaction is executed as soon as it

finds a matching sale or buy order from a counter party. SBTS electronically

matches orders on a strict price/time priority and hence cuts down on time, cost

and risk of error, as well as on fraud resulting in improved operational efficiency. It

allows faster incorporation of price sensitive information into prevailing prices,

thus increasing the informational efficiency of markets. It enables market

participants, irrespective of their geographical locations, to trade with one another

simultaneously, improving the depth and liquidity of the market. It provides full

anonymity by accepting orders, big or small, from members without revealing their

identity, thus providing equal access to everybody. It also provides a perfect audit

trail, which helps to resolve disputes by logging in the trade execution process in

entirety. This sucked liquidity from other exchanges and in the very first year of its

operation, NSE became the leading stock exchange in the country, impacting the

fortunes of other exchanges and forcing them to adopt SBTS also. Today India can

boast that almost 100% trading take place through electronic order matching.

Technology was used to carry the trading platform from the trading hall of stock

exchanges to the premises of brokers. NSE carried the trading platform further to

the PCs at the residence of investors through the Internet and to handheld devices

through WAP for convenience of mobile investors. This made a huge difference in

terms of equal access to investors in a geographically vast country like India.

The trading network is depicted in Figure 1.1. NSE has main computer which is

connected through Very Small Aperture Terminal (VSAT) installed at its office.

The main computer runs on a fault tolerant STRATUS mainframe computer at the

Exchange. Brokers have terminals (identified as the PCs in the Figure 1) installed at

their premises which are connected through VSATs/leased lines/modems.

An investor informs a broker to place an order on his behalf. The broker enters the

order through his PC, which runs under Windows NT and sends signal to the

Satellite via VSAT/leased line/modem. The signal is directed to mainframe

Figure 1.1: Trading Network

SATELLITE

Mainframe

INSAT - 2B

HUB

ANTENNA

NSE MAINFRAME Broker's premises

computer at NSE via VSAT at NSE's office. A message relating to the order

activity is broadcast to the respective member. The order confirmation message is

immediately displayed on the PC of the broker. This order matches with the

existing passive order(s), otherwise it waits for the active orders to enter the system.

On order matching, a message is broadcast to the respective member.

The trading system operates on a strict price time priority. All orders received on

the system are sorted with the best priced order getting the first priority for

matching i.e., the best buy orders match with the best sell order. Similar priced

orders are sorted on time priority basis, i.e. the one that came in early gets priority

over the later one. Orders are matched automatically by the computer keeping the

system transparent, objective and fair. Where an order does not find a match, it

remains in the system and is displayed to the whole market, till a fresh order comes

in or the earlier order is cancelled or modified. 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 till day, immediate or

cancel), price-related (buy/sell limit and stop loss orders) or volume related (all or

none, minimum fill, etc) conditions can be easily built into an order. The trading

system also provides complete market information on-line. The market screens at

any point of time provide complete information on total order depth in a security,

the five best buys and sells available in the market, the quantity traded during the

day in that security, the high and the low, the last traded price, etc. Investors can

also know the fate of the orders almost as soon as they are placed with the trading

members. Thus the NEAT system provides an Open Electronic Consolidated

Limit Order Book (OECLOB). Limit orders are orders to buy or sell shares at a

stated quantity and stated price. If the price quantity conditions do not match, the

limit order will not be executed. The term .limit order book. refers to the fact that

only limit orders are stored in the book and all market orders are crossed against

the limit orders sitting in the book. Since the order book is visible to all market

participants, it is termed as an .Open Book..

1.2 NEAT System

The NEAT system supports an order driven market, wherein orders match on the

basis of time and price priority. All quantity fields are in units and prices are quoted

in Indian Rupees. The regular lot size and tick size for various securities traded is

notified by the Exchange from time to time.

1.3 Market Types

The Capital Market system has two types of active market, namely Normal Market

and Auction Market.

1.3.1 Normal Market

Normal market consists of various book types wherein orders are segregated as

Regular Lot Orders, Special Term Orders, Negotiated Trade Orders and Stop Loss

Orders depending on their order attributes. All orders have to be of Regular Lot

size or multiples thereof. For shares which are traded in the compulsory

dematerialised mode, the market lot is one.

1.3.2 Auction Market

In the Auction market, auctions are initiated by the Exchange on behalf of trading

members for settlement related reasons. The main features of this market are

detailed in a separate section (1.13) on auction.

1.4 Corporate Hierarchy

The trading member has the facility of defining a hierarchy amongst its users of the

NEAT system. This hierarchy comprises:

Corporate Manager

Branch 1 Branch 2

Dealer 11 Dealer 12 Dealer 21 Dealer 22

The users of the trading system can logon as either of the user type. The

significance of each type is explained below:

Corporate Manager: The corporate manager is a term assigned to a user placed at

the highest level in a trading firm. Such a user receives the End of Day reports for

all branches of the trading member. The facility to set Branch Order Value Limits

and User Order Value Limits is available to the corporate manager.

Branch Manager: The branch manager is a term assigned to a user who is placed

under the corporate manager. The branch manager receives End of Day reports for

all the dealers under that branch. The branch manager can set user order value limit

for each of his branch.

Dealer: Dealers are users at the lower most level of the hierarchy. A dealer can

view and perform order and trade related activities only for oneself and does not

have access to information on other dealers under either the same branch or other

branches.

1.5 Local Database

The Local Database provides faster response time to users. All inquiries made by a

user for own orders/trades are serviced through the local database. If however, a

corporate manager/branch manager makes inquiries for orders of any

dealer/branch manager of the trading firm, then the inquiry is serviced by the host.

The data stored in the local database is namely, system messages, security related

information and order/trade related data of the user.

1.6 Market Phases

The system is normally made available for trading on all days except Saturdays,

Sundays and other holidays. Holidays are declared by the exchange from time to

time. A trading day typically consists of a number of discrete stages as explained in

the subsequent section.

1.6.1 Pre-Open Phase

The Pre-Open period is relevant only in the normal market. Order matching takes

place at the end of the session, based on which an opening price is computed and

assigned to all trades of pre-open. The trading member can carry out the following

activities at this stage:

� Set up Market Watch (the securities which the user would like to view on the

screen)

� Inquiries

� Order Entry (in normal market)

� Order Cancellation (quick order cancellation is not allowed)

� Order Modification

At the start of the pre-open phase, a message is displayed indicating that the normal

market is in pre-open phase. Currently, the pre-open phase is not in function in the

normal market.

1.6.2 Opening

In this period, all orders that have been entered in the pre-open phase are matched.

During this phase, the trading member cannot login to the system. A message

"Market status is changing. Cannot logon for sometime." is displayed. If the

member is already logged in, he cannot perform trading activities till market is

opened.

1.6.3 Open Phase

The open period indicates the commencement of trading activity. To signify the

start of trading, a message is sent to all the trader workstations. The market open

time for different markets is notified by the Exchange to all the trading members.

Order entry is allowed when all the securities have been opened. During this phase,

orders are matched on a continuous basis. Trading in all the instruments is allowed

unless they are specifically prohibited by the exchange. The activities that are

allowed at this stage are Inquiry, Order Entry, Order Modification and Order

Cancellation (including quick order cancellation).

1.6.4 Market Close

When the market closes, trading in all instruments for that market comes to an end.

A message to this effect is sent to all trading members. No further orders are

accepted, but the user is permitted to perform activities like inquiries.

1.6.5 Surcon

Surveillance and Control (SURCON) is that period after market close during

which, the users have inquiry access only. After the end of SURCON period, the

system processes the data for making the system available for the next trading day.

When the system starts processing data, the interactive connection with the NEAT

system is lost and the message to that effect is displayed at the trader workstation.

1.7 Logging On

On starting NEAT application, the logon screen appears with the following detail:

a) User ID

b) Trading Member ID

c) Password

d) New Password

In order to sign on to the system, the user must specify a valid User ID, Trading

Member ID and the corresponding password. A valid combination of User ID,

Trading Member ID and the password is needed to access the system.

a) User ID

Each trading member can have more than one user. The number of users allowed

for each trading member is notified by the Exchange from time to time. Each user

of a trading member must be registered with the exchange and is assigned an

unique user id.

b) Trading Member ID

The Exchange assigns a trading member id to each trading member. The trading

member id is unique and functions as a reference for all orders/trades of different

users. This id is common for all the users of a particular trading member. The

trading member id and user ids form a unique and valid combination.

It is the responsibility of the trading member to maintain adequate control over the

persons having access to user ids. The trading member should request the

Exchange for changes in user id user names especially when there are changes in

the users who are dealing on behalf of the trading member.

c) Password

When a user logs in for the first time, he has to enter the default password

'NEATCM' provided by the Exchange. On entering this password, the system

requests the user to enter a new password in the `New Password' field. On entering

the new password, the system requests for confirmation of this new password. This

new password is known to the user only.

The password should contain minimum of six characters and maximum of eight

characters in length. A combination of characters and numbers is allowed in the

password. The password can be changed if the user desires so and a new password

can be entered. The new password must be different from the old password.

Password appears in the encrypted form and thus complete secrecy is maintained.

The system ensures the change in password for all users (password expiry period is

parameterised by the Exchange). The user can logon by entering a new password as

per the procedure outlined above. In the event of the user forgetting his password,

the trading member is required to inform the Exchange in writing with a request to

reset the password. The user password is reset to the default password set by the

Exchange. The user can log on, on entering a new password as per the procedure

outlined above.

If three attempts are made by a user to log on with an incorrect password, then that

user is automatically disabled. In case of such an event, the trading member makes

a written request to the exchange for resetting of password. The user password is

reset to the default password set by the Exchange. The user can log on, on by

entering a new password as per the procedure outlined above.

Earlier, it was possible for the members having VSATs at more than one location

to use the allotted user ids interchangeably from either location. This gives rise to

various systems security related problems. To reduce such potential risks associated

with the member.s workstation, the Exchange assigns user id to a specific location.

On account of it, whenever a user attempts to log on to the trader workstation, the

system checks for a valid location for that user id in the database at the host end.

In case there is a mismatch between the user id and corresponding VSAT id, the

message is flashed on the log on screen. "You are trying to sign on from a different

location. Sign on is not allowed". Members connected through leased lines, high

speed dial up modems are also checked for the local address of their trading

terminals and the corresponding user ids. In case of mismatch between the two the

message "You are trying to sign on from a different location. Sign on is not

allowed" is flashed on the log on screen. Members maybe allowed logging in from

different VSAT ids only on specific written requests, which may be verified by the

Exchange with reference to the problem specified.

1.8 Log Off/Exit from the Application

One can exit from the application as and when one desires before the surcon

period. On invoking the log off screen, the following options are displayed to the

user:

a) Permanent sign off,

b) Temporary sign off, and

c) Exit

a) Permanent Sign Off

As the name suggests, a user can log off permanently from the trading system by

selecting this option. The user is logged off and the log on screen appears.

b) Temporary Sign Off

Temporary sign off is a useful feature that allows the user to disallow the use of the

trading software without actually logging off. During a temporary sign-off period,

the application continues to receive all market updates in the background.

However, the user cannot enter orders or make inquiries. This allows the user to

leave the trading system temporarily inactive and prevents unauthorized access to

the system. On selecting the temporary sign off option, a password entry screen is

displayed. The use of the NEAT system is enabled on entering the correct

password. The temporary sign off is automatically activated when the user is

inactive for a period of 5 minutes. The user has to enter the password to resume

activities. If three attempts are made to sign on with an incorrect password, the

user is permanently logged off. In this case the user has to log on again.

c) Exit

On selection of this option, the user comes out of sign off screen.

1.9 Major Segments of the NEAT Screen

The following windows are displayed on the Trader Workstation screen:

Title bar: It displays trading system name i.e. NEAT, the date and the current

time.

Ticker Window: The ticker displays information about any trade in the system as

and when it takes place. The user has the option of selecting the securities that

should appear in the ticker. Securities in ticker can be selected for each market type.

On the extreme right hand of the ticker is the on-line index window that displays

the current index value of NSE indices namely S&P CNX Nifty, S&P CNX Defty,

CNX Nifty Junior, S&P CNX500 and CNX Midcap 200. The ticker window will be

displaying securities of both derivatives and capital market segnments. The ticker

selection facility will be confined to the securities of capital segment only. The first

ticker window, by default, will display all the derivatives contracts traded in the

Futures and Options segment.

Tool Bar: The toolbar has functional buttons which can be used with the mouse

for quick access to various functions such as Buy Order Entry, Sell Order Entry,

Market By Price (MBP), Previous Trades (PT), Outstanding Order (OO), Activity

Log (AL), Order Status (OS), Market Watch (MW), Snap Quote (SQ), Market

Movement (MM), Market Inquiry (MI), Auction Inquiry (AI), Order Modification

(OM), Order Cancellation (OCXL), Security List, Net Position, Online Backup,

Supplementary Menu, Index Inquiry, Index Broadcast and Help. All these

functions are also accessible through the keyboard.

Market Watch: The Market Watch window is the main area of focus for a trading

member. This screen allows continuous monitoring of the securities that are of

specific interest to the user. It displays trading information for the selected

securities.

Inquiry Window: This screen enables the user to view information such as Market

By Price (MBP), Previous Trades (PT), Outstanding Orders (OO), Activity Log

(AL) and so on. Relevant information for the selected security can be viewed.

Order/Trade Window: This enables the user to enter/modify/cancel orders and

sends the request for trade cancellation and modification.

Message Window: This enables the user to view messages broadcast by the

Exchange such as corporate actions, any market news, auctions related information

etc. and other messages like order confirmation, order modification, order

cancellation, orders which have resulted in quantity freezes/price freezes and the

Exchange action on them, trade confirmation, trade cancellation/modification

requests and Exchange action on them, name and time when the user logs in/logs

off from the system, messages specific to the trading member, etc. These messages

appear as and when the event takes place in a chronological order.

1.10 Invoking an Inquiry Screen

All Inquiry screens have a selection where the security viewed can be selected. The

screen shows the details of the security selected for that inquiry. The details for

each inquiry screens are discussed further in this chapter.

1.10.1 Market Watch

The Market Watch window is the third window from the top of the screen that is

always visible to the user. The Market Watch is the focal area for users. The

purpose of Market Watch is to setup and view trading details of securities that are

of interest to users. For each security in the Market Watch, market information is

dynamically updated.

Market Information Displayed: The one line market information displayed in the

market watch screen is for current best price orders available in the Regular Lot

book. For each security the following information is displayed:

a) the corporate action indicator "Ex/Cum"

b) the total buy order quantity available at best buy price

c) best buy price

d) best sell price

e) total sell order quantity available at best sell price

f) the last traded price

g) the last trade price change indicator and

h) the no delivery period indicator "ND"

If the security is suspended, "SUSPENDED. appears in front of the security. If a

question mark (?) appears on the extreme right hand corner for a security, it

indicates that the information being displayed is not the latest and the system will

dynamically update it.

Information Update: In the Market Watch screen, changes in the best price and

quantities are highlighted on a dynamic basis (in all pages of Market Watch). For

example, if the best price changes as a result of a new order in the market, the new

details are immediately displayed. The changed details are highlighted with a change

of colour for a few seconds to signify that a change has occurred. The blue colour

indicates that price/quantities have improved, while the red colour indicates that

the price/quantities have worsened.

If the last traded price is better than the previous last traded price then the

indicator `+' appears or if the last traded price is worse than the previous last

traded price then the indicator `-' appears. If there is no change in the last traded

price, no indicator is displayed.

The list of securities that are available for trading on Capital Market segment is

available in the Security List box. The user has the option to setup securities

directly from the Security List without typing a single character on the market

watch screen. This is a quick facility to setup securities. If the user tries to setup a

security which is already present in the market watch one gets a message that the

security is already setup. The user also has the option to add and delete the security

set up in the market watch screen as many times as one desires. The user can print

the contents of the Market Watch setup by the user. The user can either print the

Market Watch on display or the Full Market Watch.

Market Watch Download: A user has to set up securities after the first download

of the software. After setting up the market watch, it is suggested that the user

should log out normally. This will help the user to save the freshly set up market

watch securities in a file. If at any given time, when the user has freshly set up a few

securities and encounters an abnormal exit, the newly set up securities are not saved

and the user may have to repeat the process of setting up securities. The Market

Watch setup is carried over to subsequent days, thus averting the need to set up the

Market Watch on daily basis. During the logon stage, the relevant Market Watch

details are downloaded from the trading system. The message displayed is `Market

Watch download is in progress'. The time taken for the Market Watch download

depends on the number of securities set up.

Special Features of Market Watch screen

a) One of the best features of this software is that the user has the facility to set

up 500 securities in the market watch. The user can set up a maximum of 30

securities in one page of the market watch screen.

b) The details of the current position in the Market Watch defaults in the order

entry screen and the inquiry selection screen. It is therefore possible to do

quick order entries and inquiries using this feature. The default details can also

be overwritten.

c) Market Watch setup can be sorted alphabetically.

d) An indicator for corporate actions for a security is another feature in market

watch. The indicators are as follows:

'XD' - ex-dividend

'XB' - ex-bonus

'XI' - ex-interest

'XR' - ex-rights

'CD' - cum-dividend

'CR' - cum-rights

'CB' - cum-bonus

'CI' - cum-interest

'C*' - in case of more than one of CD, CR, CB, CI

'X*' - in case of more than one of XD, XR, XB, XI

e) The ex indicator in the market watch screen appears till the end of no delivery

period in which the security goes ex benefit. In case, a security goes ex benefit

without having any no delivery period, ex indicator is displayed only on the ex

day.

1.10.2 Security Descriptor

The following information is displayed in the Security Descriptor - Security Name,

Book Closure Start and End Dates, Ex-Date, No-Delivery Start and End Dates,

Tick Size, Rating and Remarks. The label DPR i.e. Daily Price Range displays the

permissible price band for a security for the current trading day.

1.10.3 Market By Price

The purpose of Market By Price (MBP) is to enable the user to view outstanding

orders in the market aggregated at each price and are displayed in order of best

prices.

The fields that are available on the selection screen are Symbol, Series and Book

Type. The detailed MBP screen is split into First Line, Detail Line and Summary

Line. The first line displays Market Type, Symbol, Series, Total Traded Quantity,

Highest Trade Price, Lowest Trade Price, Last Trade Price, % Change in LTP from

Previous Day Close and Average Traded Price. The detail line displays Number of

Buy Orders, Total Buy Order Quantity at that price, Buy Order Price, Sell Order

Price, Total Sell Order Quantity at that price and Number of Sell Orders. The

summary line displays Total Buy Order Quantity and Total Sell Order Quantity.

Gross orders are displayed. For special term orders, the terms are not reflected in

the MBP screen. Buy orders are displayed on the left side of the window and sell

orders on the right. The orders appear in a price/time priority with the "best

priced" order at the top. When any Regular Lot information, currently displayed on

the window, is changed (for example as the result of a trade), this information is

automatically reflected in the MBP i.e. dynamic updation of MBP screen is present.

Special Features of MBP

1. Regular lot & special term orders can be viewed in the MBP.

2. The status of a security is indicated in this screen. 'P' indicates that the security is

in the pre-open phase and 'S' indicates that the security is suspended.

3. The percentage change for last trade price with respect to previous day's closing

price and the average trade price of the security in the given market are the

additional fields in the screen.

4. No untriggered stop-loss order will be displayed on the MBP screen.

5. Only orders for the best 5 prices, information is displayed.

1.10.4 Previous Trades

The purpose of this window is to provide security-wise information to users for

own trades. The fields that are available on the selection screen are Symbol, Series,

Market type, Auction No., Trading Member Id, Branch Id, Dealer, Cli/WHS and

Time. If the user selects the option to view Auction Market trade details, the

Auction No. has to be compulsorily entered. The Corporate Manager can view all

the trades for all branches or for a specific branch. Under the specific branch, the

user can view trade details for a specific dealer or for all dealers. Similarly, it is

possible to view all warehousing trades for a particular client or for all clients. The

Branch Manager can view all details under that branch i.e. all previous trades for all

dealers and for all clients or for all dealers or for a specific dealer. The dealer can

view previous trades for own user id only.

The detailed Previous Trade screen information is split into First Line, Detail Line

and Summary Line. The first line displays Market Type, Symbol, Series, Last Trade

Price, Last Trade Quantity, Last Trade Time and Total Traded Quantity. The detail

line contains Buy/Sell Indicator, Pro/Cli/WHS indicator (where P - PRO, C - CLI

and W - WHS), Order Number, Trade Number, Trade Quantity, Trade Price and

Trade Time. The summary line contains Total Number of Buy Trades, Total Buy

Quantity Traded, Total Buy Traded Value, Average Buy Traded Price, Total

Number of Sell Trades, Total Sell Quantity Traded, Total Sell Traded Value and

Average Sell Traded Price. Previous Trade Screen displays the client account

number also.

Trades are displayed in a reverse chronological order. First all buy trades are

displayed and then sell trades are displayed.

Special Features of Previous Trades

� Trade cancellation can be requested from the Previous Trade screen. This

facility is available only for member.s own trades. The Corporate Manager can

request for trade cancellation for any branch or any dealer. The Branch

Manager can request for trade cancellation for any dealer under that branch.

The dealer can request for trade cancellation only for trades under that user id.

� Trade modification can be requested from the Previous Trade screen. The user

can request the Exchange to modify only the trade quantity field. Moreover, the

new quantity requested must be lower than the original trade quantity.

1.10.5 Outstanding Orders

The purpose of Outstanding Orders (OO) is to enable the user to view the

outstanding orders for a security. An outstanding order is an order that has been

entered by the user, but which has not yet been completely traded or cancelled. The

user is permitted to see his own orders.

The fields which are available on the selection screen are Symbol, Series, Book

type, Auction No, Branch Id, Dealer, Pro/Cli/WHS and Time. The options

available in the Book type field are Regular Lot, Negotiated Trade, Stop Loss and

Auction. If the user selects the option to view Auction Market trade details, the

Auction No has to be compulsorily entered.

The corporate manager can view all the OO for all branches or for a specific

branch. Under the specific branch, the user can view OO details for a specific

dealer or for all dealers. Similarly it is possible to view all OO for a particular client

or for all clients under a dealer. The Branch Manager can view all OO details under

that Branch i.e. all OO for all dealers and for all clients or for all dealers or for a

specific dealer. The dealer can view OO for own user id only.

The detailed outstanding orders screen is split into First Line and Detail Line. The

first line contains Symbol, Series, Market Type, Security Status, Label, Current

Time and Current Date. The detail line contains Book Type, User Id, Client A/C

Number, Order Number, Order Quantity Pending and Order Price.

The orders are listed on the basis of price/time priority. The orders are displayed in

order of Regular Lot orders and then Stop Loss orders. Outstanding order screen is

not dynamically updated, but the user has option to refresh the OO screen by

reinvoking the inquiry.

Special Features of Outstanding Orders

a) The user can modify orders from the outstanding orders screen.

b) The user can cancel orders from the outstanding orders screen.

c) The user can view status of a particular order from the outstanding orders

screen.

1.10.6 Activity Log

The Activity Log (AL) shows all the activities that have been performed on any

order belonging to that user. These activities include order

modification/cancellation, partial/full trade, trade modification/cancellation. It

displays information of only those orders in which some activity has taken place. It

does not display those orders on which no activity has taken place.

The fields that are available on the selection screen are Symbol, Series, Market

Type, Branch Id, Dealer, PRO/CLI/WHS and Client Account No. The Symbol,

Series and Market Type fields are compulsory. The options available in the Market

Type field are Normal and Auction.

The detailed AL screen is split into first line and detail line. The first line displays

Market Type, Symbol, Series, Current Time and Current Date. The detail line

contains User Id, Order Number, PRO/CLI/WHS indicator (where P-PRO, C-

CLI and W-WHS), Buy/Sell Indicator, Order quantity, Order price, Order

Terms/Trade Number, Disclosed Quantity, MF Indicator, MF Quantity, Activity

Indicator and Activity Time. One line appears for each activity that has taken place

today. For example, if a buy order is traded against three separate sell orders, then

the activity log for the buy order shows three separate lines and the original order

details.

Special terms associated with the order are displayed to help identify the order.

The following activities are displayed:

B For buy orders, this indicates a match.

S For sell orders, this indicates a match.

OC This indicates an order was cancelled.

OM This indicates an order was modified. The details displayed are the order

after it was modified.

TC For both buy and sell orders this indicates that a trade involving this order

was cancelled.

TM For both buy and sell orders this indicates that a trade involving this order

was modified.

The AL gives details of all activities on chronological orders. Within the order

number, the details appear with the oldest activity first and the latest last. The

activity consists only of orders entered by the requesting trading member. This

inquiry option is not available to users in inquiry mode.

1.10.7 Order Status

The purpose of the Order Status (OS) is to look into the status of one of dealer.s

own specific orders. The screen provides the current status of orders and other

order details. The order status screen is not dynamically updated. In case the order

is traded, the trade details are also displayed. In case of multiple trades the display is

scrolled.

To view the status of a particular order, enter the order number for which the

order status is to be viewed in the selection screen of OS. The first part of the

order number (i.e. today's date) is defaulted. The user has to enter the second part

of the order number. If the user does not know the order number, then the user

can position the highlight bar on the desired order on the Outstanding Order

screen and then invoke the OS screen. The order number is directly defaulted in

the Order Status selection screen.

The detailed OS screen is divided into three parts. The first part covers order

related information, the second part covers the trade related information if the

order has resulted in a trade and the third part gives summary details.

The first part details are in two lines. The first line gives Book Type, Symbol,

Series, Order Number, Type (Buy/Sell), Total Order Quantity, Order Price,

PRO/CLI/WHS, Client A/C Number and Participant Id. The second line gives

Disclosed Quantity, MF/AON Indicator, MF Quantity, Trigger Price,

Day/GTD/GTC, Indicator 1 (Order Modified - MOD), Indicator 2 (Order

Cancelled - CXL) and Indicator 3 (Order Traded - TRD). The second part details

are Trade Quantity, Trade Price, Trade Time and Trade Number. The third part

details are Quantity Traded Today and Balance Quantity (remaining quantity).

The OS provides the user the current status of the order i.e. whether order has

been modified, order was cancelled, order was traded, order has been partially

traded on the previous day. It shows all the order details. It also shows the trade

details for each trade done against this order. The data is presented in chronological

order. One line appears for each activity that has taken place today. The dealer can

view order status of orders entered under that Dealer Id only. This Inquiry option

is not available to Users in Inquiry mode.

1.10.8 Snap Quote

The Snap Quote is a feature available in the system to get instantaneous market

information on a desired security. This is normally used for a security that is not

setup in the Market Watch window. The information displayed for the set up

security is same as that in Market Watch window i.e. Corporate action indicator

"Ex/Cum", the total buy order quantity, best buy price, best sell price, total sell

order quantity, last traded price, last trade price change indicator and the no

delivery indicator "ND".

The Snap Quote is displayed for the time specified by the Exchange from time to

time. The display position of Snap Quote is reserved and no other information

overlaps it. A user can therefore simultaneously view a regular inquiry (e.g. MBP)

and the Snap Quote display.

1.10.9 Market Movement

The purpose of the Market Movement screen is to provide information to the user

regarding the movement of a security for the current day. This inquiry gives the

snap shot for a particular security for a time interval as parameterised by the

Exchange. The fields that are available on the selection screen are Symbol, Series

and Market type. The user can select the Market Type as Normal.

The detailed output screen is given in two parts. The first part gives information

regarding the security for the entire day namely Symbol, Series, Market Type, Total

Buy Order Quantity, Total Sell Order Quantity, Total Traded Quantity, High Price,

Low Price, Open Price and Last Traded Price. The second part gives information

for a particular time interval namely Time Interval, Buy Order Quantity, Sell Order

Quantity, Traded Quantity, High Price and Low Price.

The user can save the Market Movement screen by specifying the directory and file

name to save the information. This file can be viewed in MSDOS editor. The

Market Movement screen provides information to the user regarding the

movement of a security for the current day on orders/trades done today. The

information displayed is from the time the market was opened today and in

chronological sequence.

1.10.10 Market Inquiry

The purpose of the Market Inquiry is to enable the user to view the market

statistics, for a particular market, for a security. It also displays the open price and

previous close price for a security.

The fields that are available on the selection screen are Symbol, Series and Market

type. The user can select market type as Normal.

The detailed output screen is given in two parts. The first line displays Symbol,

Series, Security Status, Corporate Actions Indicator 1, Corporate Actions Indicator

2, Corporate Actions Indicator 3, Total Traded Quantity, 52 Week High and 52

Week Low. The second line displays Closing Price, Opening Price, High Price, Low

Price, Last Traded Price and Net change from closing price. The third line displays

Last Traded Quantity, Last Traded Time and Last Traded Date. The fourth

line displays Trader Best Buy indicator, Best Buy Order Quantity, Best Buy Order

Price, Best Sell Order Price, Best Sell Order Quantity and Trader Best Sell

indicator.

This screen is not dynamically updated. It displays the security status of the security

selected. 'S' indicates that the security is suspended, 'P' indicates that the security is

in pre open (only for normal market) and in absence of the above indicators the

security is open for trading.

An indicator for corporate actions for a security is displayed on the screen. The

indicators are as follows:

"CD" = cum-dividend "XD" = ex-dividend

"CR" = cum-rights "XR" = ex-rights

"CB" = cum-bonus "XB" = ex-bonus

"CI" = cum-interest "XI" = ex-interest

The net change indicator for last trade price with respect to the previous day's

closing price and the net change percentage for the last trade price with respect to

the previous day's closing price are displayed.

The base price of a security for the day is equal to the previous day's closing price

of the security in normal circumstances. Thus, in the market inquiry screen the field

indicating the closing price also gives the base price for the day. If the base price is

manually changed (due to a corporate action) then the market inquiry will not

display the new base price in the closing price field.

1.10.11 Auction Inquiry

The purpose of Auction Inquiry (AI) is to enable the users to view the auction

activities for the current trading day. This window displays information about

auctions currently going on and auctions that have been completed.

The detailed line in the auction inquiry screen displays No. - Serial Number, St. -

Status of the auction security, Type - Buy/Sell auction, Symbol, Series, Best Buy

Qty, Best Buy Price, Best Sell Price, Best Sell Qty, Auction Qty, Auction Price and

Settlement Period.

The following are the different status displayed for an auction security:

S - Auction is in Solicitor Period

M - System is matching the orders

F - Auction is over

X - Auction is deleted

P - Auction is pending and yet to begin.

The user can view the auction details of a security setup in the market watch, by

invoking the auction inquiry screen after highlighting the auction security. To view

the auction details for all the securities, the user should blank out the contents of all

the fields in the auction inquiry selection screen. To view the auctions after a

particular number, the user should blank out the contents in Symbol & Series field

and enter the number in the auction number field on the selection screen. The

auction inquiry screen then displays all auctions from that number onwards.

1.10.12 Security/Portfolio List

This is a facility for the user for setting up the securities in the market watch screen.

This screen is also has a new facility of allowing the user to setup his own portfolio.

Security List. The user can select securities based on Symbol, Series, Instrument

Type and Market Type. A blank/partial search for Symbol and Series is also

possible. The Symbol, Series, Market Type and Security Name are displayed based

on the selection criteria. The user can also print the selected securities.

Portfolio List. Once the security is selected, the same can be used for setting up a

portfolio. The user can give a name to the list so selected. The existing portfolio

can be modified and/or removed. The user can also set-up a particular portfolio in

market watch.

1.10.13 Multiple Index Broadcast and Graph

This screen displays information of NSE indices namely S&P CNX Nifty, S&P

CNX Defty, CNX Nifty Junior, S&P CNX 500 and CNX Midcap 200. The indices

are labeled vertically and the information is displayed against each index

horizontally. The data displayed for each index is as follows:

- Current Index

- High Index

- Low Index

- Open Index

- Close Index

- % change in Current Index (w.r.t. previous close index)

- 52 week High

- 52 week low

- Up Moves

- Down Moves

- Market Capitalisation (in Rs. Lakh)

This information is displayed on-line for S&P CNX Nifty, S&P CNX Defty, CNX

Nifty Junior, S&P CNX 500 and CNX Midcap 200. The values for CNX Nifty

Junior are displayed as of previous trading day. At the end of the current trading

day along with S&P CNX Nifty Close Value, updated CNX Nifty Junior is

disseminated. Index Graph displays all the indices on a real time basis to the

market.

1.10.14 Online Backup

On Line Backup is a facility that the user can invoke to take a backup of all order

and trade related information for the user. The information available is for the

current day only.

The On Line Backup can also be taken without logging into NEATCM. On the

selection screen the user can select the various fields on which the output will be

filtered. The fields that can be filtered are CLI/WHS Account No., Market Type,

Book Type, Symbol, Series, Instrument Type, Date, Time, Order Indicator, Trade

Indicator, Buy/Sell Indicator, Order Numbers and Trade Numbers

The user is provided the option to copy the files to any drive of the computer or

on a floppy diskette. This utility generates two ASCII files namely Order.txt and

Trade.txt. The user can specify any filename for Orders and Trades. This utility will

help the user to generate the Contract Notes. The user is requested to take backup

first on the C:\drive and subsequently copy to A:\drive to avoid overloading PC

capacity and abnormal log-off.

1.10.15 Supplementary Functions

This section discusses certain supplementary functions of NEAT such as Branch

Order Value Limit, On-line Backup facility, Security List, Market Movement, Most

Active Securities, Colour Selection, Report Selection and Print System Message.

The supplementary menu list box has the following options:

� Report Selection

� Full Message Display

� Colour Selection

� Print System Message ON/OFF

� Print Order/Trade Confirmation Slips On/Off

� Ticker Selection

� Market Movement

� Most Active Securities

� Index Inquiry

� Offline Order Entry

� Order Limits

� Order Attribute Selection

� Yield Calculator

� Reprint Order/Trade Confirmation Slip

� Branch Order Value Limit

� About

� Net Position

� Back-up

� Online Backup

� One line/Tabular Slips

� User Order Value Limit

� Client Master Maintenance

� Basket Trading

� Index Trading

� Buy Back Trades

1.10.15.1 Report Selection.

Report selection window allows the user (corporate manager and branch

manager) to specify the number of copies to be printed for each report. The

screen also allows user to request for any of the reports to be printed at the end

of the day. The reports that are available to the trading member are Open Order

Today, Order Log, Trades Done Today and Market Statistics.

The user can update the number of copies for a report. The Report Selection

screen allows the user (Corporate manager and Branch Manager only) to specify

the number of copies to be printed for each report. All the reports are generated at

the end of day. Once the reports are printed, the Report Selection screen shows the

date and the time the reports were printed. The user can request for reprinting any

of the reports.

1.10.15.2 Full Message Display

This option enables the display of all the system messages right from the start of

the Pre-Open Phase. It is also possible to filter the messages depending on the

message code, symbol, series, PRO/CLI/WHS, Client, date and time. The system

messages can be printed, if needed.

The user can filter, print and save messages. In the message filtering screen the

message code by default shows All. The user has the option to select the desired

message code on which the messages can be filtered. The messages can also be

filtered on Symbol, Series, Trading member Code, PRO/CLI/WHS/ALL, Client

A/C No., Date and Time fields.

In case the user desires to filter messages for trading member's own order/trade

related messages, "PRO" has to be specified with the trading member code

defaulting in the "Client Account" field. In case the user desires to filter messages

for a particular client, "CLI" has to be specified with the client account code in the

"Client Account" field. In case the user desires to filter messages for warehouse

transactions, "WHS" has to be specified with the client account code in the "Client

Account" field. In case the user desires to view all messages, "All" has to be

specified and the "Client Account" field should be blank. The message filter

displays "All" by default when the user invokes the full message display screen.

The messages are filtered as per the selection criteria. The message codes on which

the selection can be made are:

Message Code Description of Messages Selected

ALL All messages

AUC Auction order/trade messages

AUI Auction initiation messages

LIS All listing related messages

ORD Order Related messages

OTH Miscellaneous

SPD Security Suspension/De-suspension

SYS System Messages

TRD Trades

The full message display and filtered messages can be printed by invoking the print

command by ensuring that the printer is online. The user can save messages by

invoking the Save option on the Full Message Display screen and by specifying the

directory and file name in the pop up box. Here an option is available to the user to

both specify the directory and file name to save messages, or to choose the default

directory i.e. nsecm\user directory. This file can be viewed in MS-DOS editor.

1.10.15.3 Colour Selection

The user can customise the colours for various inquiry and other trader

workstation screens as per choice. The background and the foreground colours can

be selected by invoking the Colour Selection option. The following is displayed on

the colour selection listbox:

List of Screens: Lists all the screens in NEAT system. The user has the option of

changing both the foreground and the background colours of any screen.

Display Window: Displays the screen with the changed colours. To change the

colour of a particular screen, the user has to position the highlight bar on the

desired screen and select any one of the sixteen colour buttons. The change in the

colour can be seen in the Display window. The user can reset the colour to default

setting by selecting the Default option. It is to be noted that the user cannot select

the same colour for foreground of an inquiry screen.

1.10.15.4 Print System Messages On/Off

The 'Print System Messages ON/OFF' enables/disables printing of the system

messages as and when they appear in the messages window. By default the option

is set to `OFF'. The user can change the On/Off position by pressing the space

bar. The current mode (On/Off) is displayed for this option on the Supplementary

Menu screen itself.

1.10.15.5 Print Order/Trade Confirmation Slips On/Off

The 'Print Order/Trade Confirmation ON/OFF' enables/disables printing of the

order/trade slips. By default the option is set to `ON'. The user can change the

On/Off position by pressing the space bar. The current mode (On/Off) is

displayed for this option on the Supplementary Menu screen itself.

1.10.15.6 Ticker Selection

The ticker selection screen allows the user to set up the securities that should

appear in the user.s ticker window. All the securities available in the system for a

particular market are displayed. If a security is deleted from the system, it is also

removed from the ticker selection display. The selection of securities can be done

for each market separately. The user can select one or all security type for display.

1.10.15.7 Most Active Securities

This screen displays the details of the most active securities based on the total

traded value during the day. The number `N' is parameterised by the Exchange.

The information provided on this screen is not dynamically updated. However, the

user can get the latest information by refreshing the screen by selecting Refresh.

1.10.15.8 Reprint Order/Trade Confirmation Slips

Although the order and trade slips for `confirmation', `modification', 'rejection' and

`cancellation' slips can be printed as and when a particular operation is performed.

However, the user can reprint these slips later during the trading day by using this

option.

The user can select the order or trade and the type of slips i.e. confirmation,

modification, cancellation or rejection. There is facility to select one or more

operations for printing the slips. E.g. one can select `confirmation' as well as

`modification' at a time. After the user specifies the type of slip to be printed, the

start and end order/trade numbers are automatically filled. The user has to specify

the range of order or trade nos. by appropriately selecting the start and the end

order/trade numbers. Initially, the options have such values that all the order

related slips can be printed. The start and the end order nos. contain order nos. that

was entered by the user on the current day. On selecting Print option all the

selected order/trade slips are printed and on selecting the Cancel option, no slips

are printed.

1.10.15.9 Offline Order Entry

A facility ' Offline Order Entry ' has been incorporated in the trading software

where the user can generate order file in a specific format outside the trading

system and upload the file in the system by invoking this facility. The user has to

specify the exact file location that can be a hard disk drive or a floppy drive. The

status of the orders so uploaded is recorded in last two fields of the same file. Once

the order processing is complete, the user can open the same file in MS-DOS

editor. If the system assigns an order number, the same is written against the

record. In case of any error(s), the corresponding error code is written against the

record.

The user has to specify the relevant order file name in the Offline Order Entry

pop-up box and then initiate the upload process. The user can also interrupt the

injection of the orders by using the Stop option. It should be noted that the file has

to be in the format as specified by the Exchange. To avoid potential difficulties

faced by the members while creating an order file, a program has been devised by

NSE in FoxPro for Windows to create order records in the specified format.

1.10.15.10 Branch Order Value Limit Setup

The purpose of this screen is to enable corporate manager to setup a limit on order

entry for each branch under the trading member firm. This option in

supplementary menu is available to the user only if the user is a corporate manager.

On selection, the Branch Order Value Limit Setup screen appears. To view the

limit for a particular branch, the user has to select the Branch Id and the details for

the branch i.e. branch name, the limit set and the used up value are displayed. The

values for the branch order limit are displayed in Rs. lakh.

To change the limit for a branch, the user has to select the `Limited. option and

enter the new limit in the .New Limit Value.. The new limits are then updated by

the system.

The corporate manager can also authorize a branch with unlimited order entry by

clicking on .Unlimited.. The user can also print the details of a branch by selecting

the Print option. Viewing and Modification is possible during market hours.

Whenever the corporate manager modifies the branch order limit of any of his

branches, the branch manager receives a message to that effect at his trader

workstation.

Example 1: The branch order value limit set on 15th January for branch A is Rs.110

lakh. A dealer has entered orders worth Rs.80 lakh from branch A, of which Rs.50

lakh got traded. Of the remaining orders, Rs.10 lakh worth are GTC orders. The

dealer has cancelled orders worth Rs.10 lakh which are not GTC orders. What will

be the branch order value limit available on 16th January, the next trading day?

Branch Order Value on 16th Jan. = Branch order value on 15th Jan. - GTC orders

= 110 -10 = Rs. 100 lakh

1.10.15.11 User Order Value Limit

In addition to Branch Order Value Limit functionality User Order Value Limit is

incorporated in the new version. User order value limit is the cumulative value of

orders placed by the user during the day across all securities. This enables the

corporate manager to set up different limits among the users depending upon the

permitted user activity in single/multiple scrips. For a new user the user order value

limit is set as zero by default.

Every order entry will be checked for user order value limit. A user is restricted to

enter orders greater than the order value limit specified by his corporate manager.

In case the user order value limit is exhausted a message .Order

number.........request rejected. Used limit cannot exceed the user order value limit..

is displayed on the message window screen.

Following are the main features of user order value limit functionality:

a) Only a corporate manager is allowed to set up branch order value limit and user

order value limit. A branch manager can also set up user order value limit for the

users under his branch. View access is provided to the branch manager to view the

user set limit and used limit for users under his branch. The corporate manager can

also query for order used limit of any branch under the trading member firm.

b) User order value limits are dependent on branch order value limit. It is not

possible for a corporate manager to set only branch order value limit and not assign

any user order value limit. It is mandatory for the corporate manager to configure

user order value limit. The branch manager may also set up the user order value

limit for users under his branch.

c) If a corporate manager sets the branch order value limit as unlimited then the

user order value limit can either be set unlimited or a specified limit. The

cumulative value of user order value limit should not exceed the corresponding

branch order value limit. Also, user order value limit cannot be set as unlimited if

branch order value limit is set as specific value. In case the corporate manager tries

to revise the branch order value limit to a value less than the user order value limit

a message .Cumulative user limit exceeded the branch limit. is displayed on the

branch order value limit screen.

d) When the corporate manager sets up the user order value limit as

specified/unlimited, a message "User order value limit for user no. ..... has been set

to Rs. ...... lakh/unlimited" is displayed on the message window screen of the

corporate manager, respective Branch Manager and the concerned user.

e) The user order value limit can be revised during trading hours.

Example 2: M/s. Agre Financial Services, a trading member on the NSE, has a

branch order value of Rs. 700 lakh for his Chennai branch and Rs. 650 lakh for

Calcutta branch. Chennai branch has two users 'X' and 'Y' with user order value

limits of Rs. 250 lakh and Rs. 300 lakh respectively. Kolkata branch has one user 'Z'

with user order value limit of Rs. 350 lakh. The member applies for a new user at

Chennai. What is the maximum user order value that can be set for the new user?

The maximum User Order Value limit for Chennai is

= Rs. 700 - (Rs. 250 + Rs. 300) = Rs.150 lakh

1.10.15.12 Order Limits

Order limits is a facility to enable the user to specify maximum value per order and

maximum quantity per order that can be entered from the trader workstation. At

the time of order entry and order modification this limit is checked by the system.

Order limits are set by individual users and are provided as safety measure against

any inadvertent error during data entry while entering orders.

For a user logging in for the first time, order limits are specified as unlimited by

default. In case specific value/quantity is to be specified, data has to be entered in

the respective input fields namely .Order Value (in lakh). & .Order Quantity.. In

case unlimited is to be specified, the checkbox allows the user to set .Unlimited. as

his limit.

The order limits can be modified during market hours. When the user modifies

these limits, a message .Max. Value/Qty for one order has been set to

Rs.......Lakh/....... is displayed on the message window screen. When the user sets

the limit as unlimited, a message .Max. Value/Qty for one order has been set to

unlimited. is displayed on the message window screen. While modifying the values

if either of the input fields is left blank, the dealer gets an error message, either

.Quantity Limit not Entered. or .Value Limit not Entered. respectively. In case the

user tries to modify without entering any new values, a message .Values not

changed. is displayed.

Whenever the user places an order, the order values are validated against these

values to confine the checking to the trader workstation. In case the user enters an

order that exceeds the specified quantity limit, a message .Order quantity entered

exceeds the order limit quantity. is displayed. In case the user enters an order which

exceeds specified order value (order price x order quantity) a message .Order value

exceeds order value limit. is displayed. The quantity check is always done prior to

order value check. Only if both values are not exceeded, the order is sent to the

system for further processing. In case of a market order if the order quantity

exceeds the order quantity limit, the checking is done at the trader workstation

itself as in the case of priced orders. However, for order value check, the check is

performed by the Host.

1.10.15.13 Index Inquiry

Index Inquiry gives information on Previous Close, Open, High, Low and Current

Index values of S&P CNX Nifty at the time of invoking this inquiry screen. This

screen displays information of S&P CNX Nifty as of the time the screen was

invoked on the current trading day. The data displayed is as follows:

- 52 week High

- 52 week Low

- Closing Index

- Opening Index

- High Index

- Low Index

- Current Index

- Net Change

- % Change

At the end of day after market closure the Previous Close field will display current

day's closing index value. The user requires to refresh the details of the screen by

re-invoking the screen.

1.10.15.14 Order Attribute Selection

The order attribute selection enables user to set default parameters for two fields .

PRO/CLI/WHS and Custodial Participant id fields in the order entry screens. The

selection screen provides a facility whereby users can select or deselect required

options. The PRO/CLI/WHS and custodial participant id options as selected by

the user is available in the order entry screen. In case the user deselects all options

for PRO/CLI/WHS the following error message is returned "Either PRO or CLI

or WHS must be selected.. If a member sets the default option in the

PRO/CLI/WHS field as .PRO., then each time the order entry screen is invoked,

.PRO. will be displayed and .CLI. and .WHS. will not be available to the user for

order entry. If a member selects .PRO. and .CLI., then each time the order entry

screen is invoked, .PRO. and .CLI. will be available and .WHS. will not be available

to the user for order entry. Similarly, if a member selects .NCIT. in the custodial

participant field, only .NCIT. will be displayed on invoking the order entry screen.

If a member selects broker id as default option in the custodial participant field,

then only the broker id will be displayed in the order entry screen.

By default this screen has all the options marked for display in the order entry

screen. Options can be changed during trading hours. However, if a user exits the

NEAT application and logs in again, the required parameters will have to be

selected again for order entry.

1.10.15.15 About

The 'About' window displays the software related version number details and

1.10.15.16 Net Position

An additional functionality is provided to enable user to interactively view his net

position across the securities. The Net Position screen displays Symbol, Series, Buy

Qty, Buy Value, Sell Qty, Sell Value, Gross Value, Net Qty and Net Value. It also

displays mark to market value scrip-wise and total net mark to market value.

1.10.15.17 Client Master Maintenance

This facility allows the user to have a drop down list of client codes at the account

field. The user can add, modify, upload or delete clients.

1.10.15.18 Basket Trading

The purpose of Basket Trading is to provide NEAT users with a facility to create

offline order entry file for a selected portfolio. On inputting the value, the orders

are created for the selected portfolio of securities according to the ratios of their

market capitalisations.

An icon has been provided in the Toolbar which can be selected by the mouse to

invoke the functionality.

In the Basket Trading functionality, the User First Selects a Portfolio from combo

box. The Portfolio in the combo box is user defined portfolios (which can be

created or edited from the Security List screen which is an existing functionality).

All Users defined Portfolios are automatically loaded in to the combo box. The

User then allocates an amount to the portfolio by mentioning the amount in the

'Amount' edit box. The amount entered is in lakh and must be less than or equal to

Rs. 3000 lakh. If the amount entered is not sufficient to buy/ sell a complete

basket, a message "Insufficient amount for creating the basket" is displayed. Then,

the User mentions whether he wants to buy or sell the Portfolio by selecting a

choice from BUY/SELL combo box. The User has to mention the name of offline

order file which would be generated. The Output Offline order file is always

generated in the Basket directory of the current selected login drive. If a file with

the given name already exists then it asks for overwriting the old file. A Reverse

File with the same name is also generated in 'R_Basket' directory of the current

contains sell orders and vice-versa). The user can mention order.s duration (IOC or

day) by selecting from a check box. The User can also specify Pro/Cli/Whs orders

by selecting from the combo box. In case of CLI & WHS orders it is compulsory

to mention the account no. in the edit box.

The Participant name can be mentioned. If mentioned it is verified whether it is a

valid participant or not.

The amount mentioned in the 'Amount Edit' Box is divided among the securities

of the portfolio, depending on their current market capitalisation, and the amount

allocated per security is used to calculate the no. of shares to be bought / sold for

that security which is reflected in the offline order file. The no. of shares is

rounded off to the nearest integer. If the basket contains any security whose regular

lot is not one, then the file will need to be corrected by the user to accommodate

shares in tradable lots.

If the portfolio contains a security which is suspended/not eligible in the chosen

market then an error message is displayed on the screen.

All the orders generated through the offline order file are priced at the available

market price.

Qunatity of shares of a particular security in portfolio are calculated as under:

No of Shares of a = Amount * Issued Capital for the security

security in portfolio Current Portfolio Capitalisation

where

Current Portfolio Capitalisation = Summation [Last Traded Price (Previous close

if not traded) * No. of Issued shares]

In case at the time of generating the basket if any of the constituents are not traded,

the weightage of the security in the basket is determined using the previous close

price. This price may become irrelevant if there has been a corporate action in the

security for the day and the same has not yet been traded before generation of the

file. Similarly, basket facility will not be available for a new listed security till the

time it is traded.

1.10.15.19 Index Trading

The purpose of Index Trading is to provide NEAT users with a facility of buying

and selling of Indexes, in terms of securities that comprises the Index. Currently,

the facility is only for NIFTY securities. The users have to specify the amount, and

other inputs which are sent to the host, and the host generates the orders.

Index trading screen can be invoked from Supplementary menu. The Index

Trading provides users with the choice of gaining with the rise/decline in Index

values either by buying or selling them. The buying and selling of Indices are

simulated by entering orders in securities in proportion to the composition of the

chosen index.

Quantity of shares of a particular security of NIFTY is calculated as under:

No. of Shares of a = Amount * Issued Capital for the security

security in index Current Market Capitalisation of the Index

where

Current Market Capitalisation = Summation [Last Traded Price (Previous close if

of the Index not traded) * No. of Issued Shares]

1.10.15.20 Buy Back Trades

The purpose of Buy Back Trade functionality is to give information to the market

about the buy back trades so far occurred in the securities whose buyback period is

currently on. It provides information about Symbol, Series, Day's high price, Day's

Low Price, Day.s Weighted Average Price, Day.s Volume, Total Volume,

Highest/Lowest/Weighted Average Prices till previous day, Buy Back Start & End

date.

The Buyback Trade functionality provides users with the information about the

buyback trades going in various securities. The front screen shows Symbol, Series,

Low price (Today), High price (Today), Weightage. Average price, Volume

(Today), and Previous day Volume.

1.11 Order Management

Order Management consists of entering orders, order modification, order

cancellation and order matching.

1.11.1 Entering Orders

The trading member can enter orders in the normal market and auction market. A

user can place orders in any of the above mentioned markets by invoking the

respective order entry screens. After doing so, the system automatically picks up

information from the last invoked screen (e.g. Market Watch/MBP/OO/SQ and

Security List). When the user invokes the order entry screen, the fields that get

defaulted are Symbol, Series and Book Type.

In case of other fields, the system takes the following defaults:

Qty : Regular lot quantity available at best price on counter side

Price : Price of best counter order

Pro : Trading member ID of the user

Order Duration : Day

Disclosed quantity : Fully Disclosed

Participant ID : Trading member ID of the user

Order Condition Matrix: The following attribute combinations can be specified

jointly in the order entry screen:

DQ MF AON SL IOC DAY GTC GTD

DQ N/A Y N N N Y Y Y

MF Y N/A N Y Y Y Y Y

AON N N N/A Y Y Y Y Y

SL N Y Y N/A Y Y Y Y

IOC N Y Y Y N/A N/A N/A N/A

DAY Y Y Y Y N/A N/A N N

GTC Y Y Y Y N/A N N/A N

GTD Y Y Y Y N/A N N N/A

where Y = Valid Combination

N = Invalid Combination

N/A = Not Applicable

Active & Passive Orders: When any order enters the trading system, it is an active

order. It tries to find a match on the other side of the books. If it finds a match, a

trade is generated. If it does not find a match, the order becomes a passive order

and goes and sits in the order book.

1.11.1.1 Order Books

As and when valid orders are entered or received by the trading system, they are

first numbered, time stamped and then scanned for a potential match. This means

that each order has a distinctive order number and a unique time stamp on it. If a

match is not found, then the orders are stored in the books as per the price/time

priority. Price priority means that if two orders are entered into the system, the

order having the best price gets the higher priority. Time priority means if two

orders having the same price is entered, the order that is entered first gets the

higher priority. Best price for a sell order is the lowest price and for a buy order, it

is the highest price.

The different order books in the Capital Market segment are as detailed below:

(a) Regular Lot Book: An order that has no special condition associated with it is a

Regular Lot order. When a dealer places this order, the system looks for a

corresponding Regular Lot or Special Term order existing in that market

(Passive orders). If it does not find a match at the time it enters the system, the

order is stacked in the Regular Lot book as a passive order. By default, the

Regular Lot book appears in the order entry screen in the normal market.

(b) Special Terms Book: Orders which have a special term attribute attached to it are

known as special terms orders. When a special term order enters the system, it

scans the orders existing in the Regular Lot book as well as Special Terms

Book.

traded price for that security in the normal market reaches or surpasses the

trigger price. Before triggering, the order does not participate in matching and

the order cannot get traded. Untriggered stop loss orders are stacked in the

stop loss book. The stop loss orders can be either a market order or a limit

price order. For buy SL orders, the trigger price has to be less than or equal to

the limit price. Similarly, for sell SL orders, the trigger price has to be greater

than or equal to the limit price.

(d) Negotiated Trade Book: Two trading members can negotiate a trade outside the

Exchange. To regularise the trade each trading member has to enter the

respective order in the system. To enter Negotiated Trade order details, select

book type as NT. It is mandatory for the trading member to enter the

counterparty trading member id. When both parties to a trade enter orders,

then the request goes to the Exchange for approval. The Exchange can either

approve the request or reject it. Further, the Exchange has the discretion to

send either of the two orders or both the orders to the Regular Lot book so

that the orders are available to the entire market.

(e) Auction Order Book: Auction order book stores orders entered by the trading

members to participate in the Exchange initiated auctions. Auction orders can

be initiator orders, competitor orders and solicitor orders. For further details

kindly refer to section on 'Auction'.

1.11.1.2 Symbol & Series

Securities can be defaulted to the order entry screen from any of the inquiry screens

such as MBP, OO, PT, AL, MI and SQ. In case the security is not set up in the

Market Watch screen, the Security List can also be used to default the codes.

Order entry in a security is not possible if that security is suspended from trading.

E.g. If a security is suspended in the normal market a message .Security is

suspended in the normal market. is displayed on the order entry screen. The label

.Suspended. is also displayed in the market watch screen for the setup security.

Order entry is also not possible in case the security is not eligible to trade in a

particular market. E.g. If a security is not eligible to trade in the normal market a

message .Security is not allowed to trade in normal market. is displayed on the

order entry screen. In case the user types the symbol series incorrectly a message

.Invalid symbol series. is displayed on the screen.

1.11.1.3 Quantity

When the buy/sell order entry screen is invoked, the regular lot size available at the

best price on the counter side gets defaulted in the order entry screen. In case of

negotiated trade or auction book is selected for display, the quantity has to be

specifically mentioned by the user. Quantity mentioned should be in multiples of

regular lot size for that security.

1.11.1.4 Price

A user has the option to either enter the order at the default price or overwrite it

with any other desired price. If a user mentions a price, it should be in multiples of

the tick size for that particular security and within the day.s minimum/maximum

price range, otherwise the order is not accepted by the system and an order

rejection message/confirmation slip is generated. If a price outside the Operational

Range is entered, the order results in a price freeze and is not accepted as a valid

order till the time the Exchange approves it. All negotiated trade orders and auction

orders require the user to mention a price.

In case the user enters an order with a .Market. price the order takes the last traded

price in the respective market as the market price, provided no passive order exists

on the same side or the counter side in that security and in that market. However, if

suitable orders exist on the counter side, then the order takes the price of the

counter order and a trade is generated. If an order exists on the same side but no

orders exists on the counter side, then the order takes the price of the best order on

that side and is stacked immediately below it. If the security has never been traded,

then the market order takes the value of the base price and sits in the books as a

passive order.

Another option provided in the pre-open phase of the normal market is .ATO. or

the .At Open Price. concept. .Market. orders entered in the pre-open are termed as

.ATO.. Based on the opening algorithm, the system computes a potential opening

price. Once the market is open for trading, the ATO orders take these prices.

In case of stop loss orders, a user has the flexibility of specifying a limit price along

with the trigger price. This limit price can be selected as equal to the trigger price in

the price field so as to leave it with the word .Price.. Alternatively, a user can

specify a limit price as .Market. price.

1.11.1.5 Order Types and Conditions

The system allows the trading members to enter orders with various conditions

attached to them as per their requirements. These conditions are broadly divided

into Time Conditions, Quantity Conditions, Price Conditions and Other

Conditions. Several combinations of the above are allowed thereby providing

enormous flexibility to the users. The order types and conditions are summarised

below:

a) Time Conditions.

DAY: A DAY order, as the name suggests is an order that is valid for the day

on which it is entered. If the order is not executed during the day, the system

cancels the order automatically at the end of the day.

GTC: A Good Till Cancelled (GTC) order remains in the system until it is

cancelled by the user. Consequently, it spans trading days, if not traded on the

day the order is entered. The maximum number of days an order can remain in

the system is notified by the Exchange from time to time after which the order

is automatically cancelled by the system. Each day counted is a calendar day

inclusive of holidays. The days counted are inclusive of the day on which the

order is placed and the order is cancelled from the system at the end of the day

of the expiry period.

Example 3: A trading member placed a GTC buy order of 1000 shares of

TISCO at Rs.150 on 1st of January (Tuesday) when the shares were being

traded at Rs.160. On January 3rd (Thursday), the prices moved between a high-

low of Rs.150 and Rs.145. Can the trade take place on Thursday?

No trade can take place on Thursday since the GTC order would have been

purged on Tuesday itself, due to Tuesday being the end of the trading cycle.

GTD: A Good Till Days (GTD) order allows the user to specify the number of

days/date till which the order should stay in the system if not executed. The

maximum days allowed by the system are same as in GTC order. At the end of

these days/date, the order is cancelled from the system. Each day/date counted

is a calendar day and inclusive of holidays. The days/date counted are inclusive

of the day/date on which the order is placed and the order is cancelled from

system at the end of the day/date of the expiry period.

Example 4: A member has placed a buy GTD order on Wednesday, 8th January

in scrip Nirwah Ltd. at a price of Rs.350 for 200 shares, with GTD condition of

6 days. When will the order be unavailable for trading? (Assume that order does

not get traded, cancelled or modified by member. Friday, Saturday and Sunday

are trading holidays).

The order will be available till Monday, 13th January and be unavailable from

14th January.

Example 5: A trading member places a GTD sell order of 1000 shares of ABC

Ltd. at Rs. 150 at the end of the trading session on 1st May (Tuesday). He

wants the order to be valid till 3rd May. The closing price of ABC Ltd. on 1st

May was Rs. 140. Whether the trade will take place?

The trade will not take place because the GTD order will be purged on

Tuesday itself, since it is the end of the trading cycle.

IOC: An Immediate or Cancel (IOC) order allows the user to buy or sell a

security as soon as the order is released into the system, failing which the order

is cancelled from the system. Partial match is possible for the order, and the

unmatched portion of the order is cancelled immediately.

b) Quantity Conditions

DQ: An order with a Disclosed Quantity (DQ) allows the user to disclose only

a portion of the order quantity to the market. For e.g. if the order quantity is

10,000 and the disclosed quantity is 2,000, then only 2,000 is disclosed to the

market. After this quantity is fully matched, a subsequent quantity of 2,000 is

disclosed. Thus, totally five disclosures with the same order number are shown

one after the other in the market.

MF: The Minimum Fill (MF) orders allow the user to specify the minimum

quantity for which an order should be traded. The quantity of trade involving

such an order condition should be at least this minimum quantity specified. E.g.

for a buy order of 10,000 units with a MF of 2,000 units maximum 5 trades is

possible with 2,000 units each or a minimum one trade of 10,000 units. If the

unmatched portion of an order is less than MF specified, the new MF quantity

is the remaining unmatched portion of the order. The minimum fill orders are

kept in special terms book in the system.

AON: All or None (AON) order allows the user to attach condition that the

full order quantity should be traded against. This may be by way of multiple

trades. If the full order is not completely traded, the order becomes a passive

order and is stored in the special terms book until traded or cancelled. E.g.

suppose a buy order of 10,000 shares with an AON condition is released in the

market, and then the trade has to take place for 10,000 shares, all at one time.

c) Price Conditions

Market: Market orders are orders for which price is specified as 'MKT' at the

time the order is entered. For such orders, the system determines the price.

Stop-Loss: This facility allows the user to release an order into the system, after

the market price of the security reaches or crosses a threshold price called

trigger price.

Example 6: If for stop loss buy order, the trigger is Rs.93.00, the limit price is

Rs.95.00 and the market (last traded) price is Rs.90.00, then this order is

released into the system once the market price reaches or exceeds Rs.93.00.

This order is added to the regular lot book with time of triggering as the time

stamp, as a limit order of Rs.95.00.

All stop loss orders are kept in a separate book (stop loss book) in the system

until they are triggered.

Trigger Price: Price at which an order gets triggered from the stop loss book.

Limit Price: Price of the orders after triggering from stop loss book.

At Opening Price (ATO): ATO price is the price arrived at by the system at the

end of pre-open phase.

Price Freeze: Since no price bands are applicable in respect of securities on which

derivative products are available or securities included in indices on which

derivative products are available, in order to prevent members from entering

orders at non-genuine prices in such securities, the exchange has decided to

introduce operating range of 20% for such securities. Any order above or

below 20% over the base price shall come to the exchange as a price freeze.

d) Other Conditions

PRO/CLI/WHS: A user can enter orders on his own account or on behalf of

clients or warehouse order on behalf of institutional clients. By default, the

system assumes that the user is entering orders on the trading member.s own

account.

The client account field is an alphanumeric field. It is not mandatory to enter

the client account number in the field provided. The system will assign a code

.Cli. to such an order. The user cannot specify the trading member code in the

client account field. Warehouse orders may be entered only in NM for book

type RL. In case a member tries to enter a warehouse order in other segments,

an error message .Invalid series for warehouse order. is displayed. To enter a

warehouse order with client account, in the Pro field select WHS and enter the

client account in the client account field. The client account field is an

alphanumeric field and does not accept client code same as trading member

code. In such a case an error message .Broker code not allowed as A/C No.

for WHS orders. is displayed.

Counterparty ID: In case a negotiated trade order is entered, the system

requests the user to enter the counterparty trading member id which is to be

obtained by the user from the counter party itself.

Participant Code: By default, the system displays the trading member id of the

user in the participant field. Thus, all trades resulting from an order are to be

settled by that trading member. NCIT orders can be marked by the user at the

order entry level itself. Only a valid participant code can be entered. In case the

participant is suspended a message to this effect is displayed to the user on the

order entry screen.

The user can also mark his orders at the order entry screen to disclose his open

or close orders. In the participant field, .O. has to be typed, for .Open. orders

and .C. has to be typed for .Close. orders. Warehousing is permitted where

registered custodian is involved for delivery/receipt of securities. The user has

to therefore enter a valid participant code other than .O., .C., .NCIT. and

broker code in the participant code field. In case of incorrect participant code a

message .This participant code is not valid for warehouse orders. is displayed.

All pending warehousing orders get purged at the end of the day processing.

Example 7: A trading member has placed a sell order of 700 shares in SBIN,

with 'O' in participant code field, on behalf of client A without having physical

possession of shares or squaring up of an earlier purchase. Afterwards on the

same trading day, he buys 700 shares in SBIN for client B without an intention

of taking delivery. He buys 700 shares for client C with an intention of taking

delivery. Now he wants to buy the same number of shares for client A to offset

client A's open position. What does the member have to enter in the participant

code field in the buy order entry screen?

C for 'Close'

Remarks: The remarks field is a description field within the order entry screen

provided to incorporate any remarks to be specified by the user at the time of

order entry.

Branch Order Value Limit Check: In addition to the checks performed for the

fields explained above, every order entry is checked for the branch order value

limit. In case the set order value limit is exhausted the subsequent order is

rejected by the system.

1.11.2 Order Modification

All orders can be modified in the system till the time they do not get fully traded

and only during market hours. Once an order is modified, the branch order value

limit for the branch gets adjusted automatically.

Following is the corporate hierarchy for performing order modification

functionality: -

� A dealer can modify only the orders entered by him.

� A branch manager can modify his own orders or orders of any dealer under his

branch.

� A corporate manager can modify his own orders or orders of all dealers and

branch managers of the trading member firm.

However, the corporate manager/branch manager cannot modify order details

such that it exceeds the branch order value limit set for the day. Order modification

cannot be performed by/for a trading member who is suspended or de-activated

by the Exchange for any reason.

Quantity Modification: If a security is not allowed to trade in a particular market then

the orders existing under all the securities within that market type are not allowed

to be modified. If MF/AON condition is (are) not allowed for a security, then the

user cannot modify orders in that security so as to attach the MF/AON condition.

A user cannot modify an order to a quantity less than the specified Regular Lot and

multiples of regular lot.

In case the order is modified to a very high quantity, the modification may result in

a quantity freeze and the order may not be accepted as a valid order unless the

Exchange approves. Orders cannot be modified to a quantity greater than the

issued capital for the security.

Disclosed quantity orders cannot be modified to such a quantity where the DQ is

greater than the order quantity. Further, a DQ order with a value less than one

regular lot or a value other than multiples of regular lot is not permitted.

MF orders cannot be modified to a MF quantity greater than the order quantity. If

the order also has a DQ condition attached, then the user cannot modify the MF

quantity to a value greater than DQ. Additionally, the MF quantity cannot be

modified to a value less than one regular lot or non-multiples of regular lot.

1.11.3 Order Cancellation

Order cancellation functionality can be performed only for orders which have not

been fully or partially traded (for the untraded part of partially traded orders only)

and only during market hours.

1.11.3.1 Single Order Cancellation

Single order cancellation can be done during trading hours either by selecting the

order from the outstanding order screen or from the function key provided. Order

cancellation functionality is available for all book types. But the user is not allowed

to cancel auction initiation and competitor orders in auction market. Order

cancellation is also not allowed for those negotiated trade orders that have not

resulted as an alert.

1.11.3.2 Quick Order Cancellation

Quick Order Cancellation (Cancel All) is an extension of Single Order Cancellation

enabling a user to cancel multiple outstanding orders in various trading books in

the following manner subject to the corporate hierarchy. The different filters

available for cancelling orders by using quick order cancellation facility are symbol,

series, book type, branch, user, PRO/CLI/WHS, client account number and

buy/sell. Quick order cancellation can be performed by invoking the function key

provided and cannot be done from the outstanding orders screen. If the criteria are

not found to be correct by a trading member then an error message is displayed

and the focus is set on the incorrect field to enable the user to correct it. If the

selection criteria are correct then a message appears on the quick order cancellation

screen stating the number of buy and sell orders to be cancelled. Quick order

cancellation can be done only during market hours.

1.11.3.3 Order Cancellation for Disabled Member

The Exchange disables a member from trading due to various reasons. In case a

member is disabled from trading by the Exchange, all pending orders in all books

except for Negotiated Trade orders of the member are immediately cancelled by

the system. A message:

.Order Number .......... cancelled due to suspension.

is displayed at the message window screen at the trader workstation. Inquiry

screens such as MBO, MBP, Market Watch and trader specific screens such as

Outstanding Orders, Activity Log etc. get updated accordingly.

1.11.4 Order Matching

The buy and sell orders are matched on Book Type, Symbol, Series, Quantity and

Price.

1.11.4.1 Matching Priority

The best sell order is the order with the lowest price and a best buy order is the

order with the highest price. The unmatched orders are queued in the system by

the following priority:

(a) By Price: A buy order with a higher price gets a higher priority and similarly, a

sell order with a lower price gets a higher priority. E.g. Consider the following buy

orders:

1) 100 shares @ Rs. 35 at time 9:30 a.m.

2) 500 shares @ Rs. 35.05 at time 9:43 a.m.

The second order price is greater than the first order price and therefore is the best

buy order.

(b) By Time: If there is more than one order at the same price, the order entered

earlier gets a higher priority. E.g. Consider the following sell orders:

1) 200 shares @ Rs. 72.75 at time 9:30 a.m.

2) 300 shares @ Rs. 72.75 at time 9:35 a.m.

Both orders have the same price but they were entered in the system at different

time. The first order was entered before the second order and therefore is the best

sell order.

As and when valid orders are entered or received by the system, they are first

numbered, time stamped and then scanned for a potential match. This means that

each order has a distinctive order number and a unique time stamp on it. If a match

is not found, then the orders are stored in the books as per the price/time priority.

An active buy order matches with the best passive sell order if the price of the

passive sell order is less than or equal to the price of the active buy order. Similarly,

an active sell order matches with the best passive buy order if the price of the

passive buy order is greater than or equal to the price of the active sell order.

1.11.4.2 Open Phase Matching

During this phase, orders are matched on a continuous basis in all book types. The

orders are arranged in the price/time priority. If there are more than one order of

the same security on the opposite side of the market, the order matches with best

order on the opposite side if the best buy price is greater than or equal to the best

sell price. Whenever a trade takes place, it takes place at the passive order price.

1.11.4.3 Regular Lot Matching

If the combined quantity of one or more matching orders on the opposite side of

the regular lot book is equal to or more than the quantity of active order, the active

order is completely traded.

If the combined quantity of one or more matching orders on the opposite side of

the regular lot book is equal to or less than the quantity of active order, the active

order is partially traded.

If after trading any quantity is left untraded, the order is added to the regular lot

book in the price/time priority.

The orders with the IOC attribute try to match maximum possible quantity after

they are entered. Any remaining quantity is cancelled.

The orders with DQ attribute disclose only a part of the total order quantity to the

market.

An active order with disclosed condition tries to maximise the quantity as possible

regardless of the disclosed quantity i.e. a single trade takes place for a quantity more

than the disclosed quantity.

If an active order with the disclosed quantity cannot trade its total quantity, it is

added to the regular lot book in the price/time priority. The disclosed order

quantity is determined as follows:

a) If the remaining order quantity is less than or equal to the original disclosed

quantity, the disclosed order quantity is set as equal to remaining order quantity.

b) If the remaining order quantity is more than the original disclosed quantity, the

disclosed order quantity is set to the original disclosed quantity.

Once an order with the disclosed quantity has become a passive order, it trades

only in units of disclosed quantity or less. However, if there is no other competing

order with the same price, a single trade of as much quantity as possible takes place

between the two orders.

When the entire disclosed order quantity is fully traded the disclosed quantity gets

replenished and this continues till the entire order quantity is fully traded. Each

time the disclosed quantity is replenished, the order is re-time stamped and added

to the regular order book as fresh order.

1.11.4.4 Special Terms Matching

(a) Minimum Fill (MF). An active special term order with MF attribute may match

with one or more passive orders so long as each match is for quantity equal to or

greater than the MF quantity. The order quantity retains its MF attribute and is

added to the special terms book. If the remaining order quantity is less than the

MF quantity, the order is added to the special terms book with MF quantity as the

remaining quantity.

A passive special terms order with MF attribute matches with an active order for as

much quantity as possible such that the quantity is equal to or greater the MF

quantity. If the remaining order quantity is less than the MF quantity, the order is

placed with MF quantity as the remaining quantity.

For special terms order that has both MF and DQ attribute, the MF should be less

than the DQ. An active order with DQ and MF attribute tries to maximise the

trade quantity as much as possible as long as each trade quantity is greater than or

equal to the MF quantity regardless of the disclosed quantity.

A passive order is added to the special terms book while retaining both its DQ and

MF attribute i.e. this order is shown in the special terms book as an order with a

quantity equal to the disclosed quantity having the MF attribute.

The disclosed quantity of a passive order is replenished when the remaining

disclosed quantity becomes less than the MF quantity. Each time the disclosed

quantity is replenished, the order is removed from its current position and re-time

stamped.

(b) All Or None (AON). These orders need to be completely filled in one

transaction or they do not match at all. An active AON order may trade with one

or more than one regular lot order resulting in multiple trades. However a passive

AON order has to be completely filled by one incoming active order for a trade to

take place.

After completely scanning the regular lot book for matches, if an active AON order

cannot match fully in the regular lot book, it is sent to the special terms book. The

active special term order matches with the passive orders in the special terms book

if matching of special terms orders with other special terms orders.

1.11.4.5 Stop Loss Matching

All stop loss orders entered into the system are stored in the stop loss book. These

orders can contain two prices.

Trigger Price. It is the price at which the order gets triggered from the stop loss book.

Limit Price. It is the price for orders after the orders get triggered from the stop loss

book.

If the limit price is not specified, the trigger price is taken as the limit price for the

order. The stop loss orders are prioritised in the stop loss book with the most likely

order to trigger first and the least likely to trigger last. The priority is same as that of

the regular lot book.

The stop loss condition is met under the following circumstances:

Sell Order - A sell order in the stop loss book gets triggered when the last traded

price in the normal market reaches or falls below the trigger price of the order.

Buy Order - A buy order in the stop loss book gets triggered when the last traded

price in the normal market reaches or exceeds the trigger price of the order.

When a stop loss order with IOC condition enters the system, the order is released

in the market after it is triggered. Once triggered, the order scans the counter order

book for a suitable match to result in a trade or else is cancelled by the system.

1.11.4.6 Negotiated Trade Matching

The negotiated trade entries are matched on the basis of the counterparty trading

member id entered at the time of the order entry. If the counter side entry of the

negotiated trade is not entered on the same day, then this trade entry is cancelled.

All the terms attached to a negotiated trade entry must be identical to the

corresponding entry made by the counterparty. The orders in the NT book can be

modified/cancelled till the time such alert is not created. All negotiated trades

require Exchange approval.

1.11.4.9 Auction Matching

All auction orders are entered into the auction order book. The rules for matching

of auctions are similar to that of the regular lot book except for the following

points:-

a) Auction order matching takes place at the end of the solicitor period for the

auction.

b) Auction matching takes place only across orders belonging to the same auction.

c) All auction trades take place at the auction price.

1.11.4.10 Validation Checks

While matching orders, the system performs following validation checks:

a) If the turnover limit of any trading member has already exceeded, a trade does

not take place.

b) If the participant of any of the orders is 'Suspended', the trade does not go

through.

1.12 Trade Management

A trade is an activity in which a buy and a sell order match with each other.

Matching of two orders is done automatically by the system. Whenever a trade

takes place, the system sends a trade confirmation message to each of the users

involved in the trade. The trade confirmation slip gets printed at the trader

workstation of the user with a unique trade number. The system also broadcasts a

message to the entire market through the ticker window displaying the details of

the trade.

This section describes trade-related activities like viewing the trades, trade

modification/cancellation, etc. Before the trade is effected, the system performs

checks with respect to the following parameters: -

a) The security in which the trade is to be effected is not suspended from

operations.

b) Trading members involved in the potential trade are not suspended from

operations.

c) Turnover limits for the trading members involved are not exceeded.

1.12.1 Trade Modification

The user can use trade modification facility to request for modifying trades done

during the day. The user can request the Exchange to modify only the trade

quantity field. Moreover, the new quantity requested must be lower than the

original trade quantity.

If the user is a Corporate Manager of a trading member firm, he can request for

trade modification for the trades of any dealer of the trading members firm and if

he is a Branch Manager of a branch, then he can request for trade modification for

any dealer of the branch of the trading member firm.

The user can request for trade modification either from the previous trades screen

or by using the function key provided in the workstation. Trade Modification

Request is sent to the Exchange for approval and message to that effect is

displayed in the message window. The counterparty to the trade also receives this

message. The counterparty then has to make a similar request for the same

modified quantity on the same trading day. Once both the parties to trade send

their respective trade modification requests, the Exchange either approves or

rejects it. The message to that effect is displayed in the message window.

In case a request for trade modification is approved by the Exchange, the parties to

trade receive a system message confirming the trade modification and the trade

modification slip is printed at their respective trader workstations. If the Exchange

rejects the trade modification request, the trade modification rejection slip will be

printed at their respective trader workstations.

1.12.2 Trade Cancellation

The user can use trade cancellation screen for cancelling trades done during the

day. If the user is a corporate manager of a trading member firm, he can request for

trade cancellation for the trades of any dealer of the trading members firm and if he

is a branch manager of a branch, then he can request for trade cancellation for the

trades for any dealer of the branch of the trading member firm.

The user can request for trade cancellation either from the previous trades screen

or by using the function key provided in the workstation. The trade cancellation

request is sent to the Exchange for approval and message to that effect is displayed

in the message window. The counterparty to the trade also receives the message.

The counterparty then has to make similar request on the same trading day. Once

both the parties to trade send the trade cancellation request, the Exchange either

approves or rejects it. The message to that effect is displayed in the message

window.

When a request for the trade cancellation is approved by the Exchange, the parties

to trade receive a system message confirming the trade cancellation and the trade

cancellation slip is printed at their respective trader workstations. If the Exchange

rejects the trade cancellation request, the trade cancellation rejection slip is printed

at their respective trader workstations.

1.13 Auction

Auctions are initiated by the Exchange on behalf of trading members for

settlement related reasons. The main reasons are Shortages, Bad Deliveries and

Objections. There are three types of participants in the auction market.

(a) Initiator: The party who initiates the auction process is called an initiator.

(b) Competitor: The party who enters on the same side as of the initiator is called

a competitor.

a solicitor.

The trading members can participate in the Exchange initiated auctions by entering

orders as a solicitor. E.g. If the Exchange conducts a Buy-In auction, the trading

members entering sell orders are called solicitors.

When the auction starts, the competitor period for that auction also starts.

Competitor period is the period during which competitor order entries are allowed.

Competitor orders are the orders which compete with the initiator.s order i.e. if the

initiator.s order is a buy order, then all the buy orders for that auction other than

the initiator.s order are competitor orders. And if the initiator order is a sell order

then all the sell orders for that auction other than the initiators order are

competitor orders.

After the competitor period ends, the solicitor period for that auction starts.

Solicitor period is the period during which solicitor order entries are allowed.

Solicitor orders are the orders which are opposite to the initiator order i.e. if the

initiator order is a buy order, then all the sell orders for that auction are solicitor

orders and if the initiator order is a sell order, then all the buy orders for that

auction are solicitor orders.

After the solicitor period, order matching takes place. The system calculates trading

price for the auction and all possible trades for the auction are generated at the

calculated trading price. After this the auction is said to be complete. Competitor

period and solicitor period for any auction are set by the Exchange.

1.13.1 Entering Auction Orders

Auction order entry allows the user to enter orders into auctions that are currently

running. To view the information about currently running auctions invoke .Auction

Inquiry. screen. The user can also view order information related to any auction by

invoking .MBO. for that auction.

Further one can view one's own outstanding orders for any auction by invoking

.Outstanding Order Inquiry. for auction market. Refer to .MBO. and .Outstanding

Order Inquiry. sections for more details. All auction orders are valid for the trading

day only.

The user can do auction order entry by entering .AU. in the book type of the order

entry screen. Symbol and Series that is currently selected in any of the market

information windows (i.e. MBO, MW) provides the defaults in the auction order

entry screen. If Auction OO or Auction MBO is up for an auction that is either in

a competitor or solicitor period, then the auction number has to be entered. All

fields in the auction order entry screen except auction number and settlement days

are same as normal market order entry screen. The screen also displays competitor

period and solicitor period.

The defaults that are provided on the auction inquiry screen are symbol, series,

auction number, settlement days and quantity (available for auction). The user can

edit the default values if required. The fields in the auction order entry screen that

has to be entered are PRO/CLI selection, account number (not mandatory),

participant and remarks.

Solicitor period for an auction starts as soon as the auction starts. The duration of

the solicitor period is set by the Exchange. The system accepts the solicitor orders

in any currently running auction only if the solicitor period for that auction is in

progress. Presently the trading members cannot initiate auctions in any security.

They can only participate as solicitors in auctions initiated by the Exchange. In

Exchange initiated auctions, the competitor period is set to zero and therefore only

solicitor period is available.

Entering Solicitor Order: To enter a solicitor order invoke auction order entry

screen and enter the auction number or symbol series in AUC NO. field. The AUC

No. and symbol series combination is validated and if an error is encountered then

an appropriate error message is displayed in the message window and the focus is

set on the AUC No. When the order details are found to be correct, the system

assigns a unique order number to the order and sends an order confirmation

message to the trader workstation. If the solicitor period for that auction is over,

the order is not accepted. Auction number for each security is displayed in the

Auction Inquiry screen.

Validation of Auction Orders: Following validation checks are performed, in

addition to the routine order entry validation checks, to verify initiator orders.

� If the auction market is not open for trading, the user is not allowed to enter an

auction order.

� If a trading member or a participant is suspended, then no auctions can be

entered for the trading member or for the participant.

� If the security is not allowed to trade in the auction market or if the security is

suspended, the orders for that security are not allowed.

� If the quantity entered exceeds Warning Quantity Percentage, the system asks

the user for confirmation of the order.

� Any order with a price outside the Day Min/Max range is not allowed.

Following validation checks are performed to verify the competitor and the

solicitor orders: -

� If a competitor order is entered, then a check is made if the auction in which

order entry is desired is in the competitor period.

� If a solicitor order is entered, then a check is made if the auction in which order

entry is desired is either in competitor period or solicitor period.

� Auction order entry in auctions which are yet in a pending state or which are

cancelled is prohibited.

1.13.2 Auction Order Modification

The user is not allowed to modify any auction orders.

1.13.3 Auction Order Cancellation

The user can cancel any solicitor order placed by him in any auction provided the

solicitor period for that auction is not over. The order cancellation procedure is

similar to that of normal market. The user can also use quick order cancellation key

to cancel his outstanding auction orders.

1.13.4 Auction Order Matching

When the solicitor period for an auction is over, auction order matching starts for

that auction. During this process, the system calculates the trading price for the

auction based on the initiator order and the orders entered during the competitor

and the solicitor period. At present for Exchange initiated auctions, the matching

takes place at the respective solicitor order prices.

Example 8: Member A places a buy order for 1000 shares of ABC Ltd. in the

NEAT system at 11:22:01 for Rs.155 per share. Member B places a sell order for

2000 shares of ABC Ltd. at 11:22:02 for Rs.150 per share. Assume that no other

orders were available in the system during this time. Whether the trade will take

place and if yes, at what price?

Yes, 1000 shares will get traded at Rs.155 per share (the passive price).

Example 8: Auction is held in TISCO for 5,000 shares.

a) The closing price of TISCO on that day was Rs.155.00

b) The last traded price of TISCO on that day was Rs.150.00

c) The price of TISCO last Friday was Rs.151.00

d) The previous days' close price of TISCO was Rs.160.00

What is the maximum allowable price at which the member can put a sell order in

the auction for TISCO? (assuming that the price band applicable for auction

market is +/-15%)

Max price applicable in auction = Previous days' close price * Price band

=Rs.160*1.15 =Rs.184.00

1.14 Trading Information downloaded to Trading Members

The Exchange downloads certain trading related reports and files to the trading

member on a regular basis. Following is the list of reports and files downloaded to

the members.

On-line Backup: The files are Trade.txt and Order.txt or file with user defined

name. Member can take on-line backup of orders and trades for the current trading

day only. The backup can be taken during market hours and till approximately 1

hour after the market close time. Refer to section trading for on-line backup screen.

Trader messages in Full message display: Full message area contains

member's own order and trade information across all securities. It is available for

current trading day only. An option to save as a text file is also provided. The

trading members are required to keep copy of full message area for a period as per

NSE regulations. Refer to section Full Message Display screen.

Bhav copy: Bhav copy is downloaded in \nsecmtdr\reports directory on a daily

basis. It is downloaded approximately 1 hour after the market close time. Users are

advised to check for message to this effect. The files downloaded are

ddmmxxxx.ms and ddmmxxxx.md where xxxx is the user id. The ms extension file

is formatted txt file whereas the md extension file has bhav copy records in CSV

(comma separated value) format. Only the last seven bhavcopy files are stored in

the reports directory. When bhav copy is broadcast, the system checks for the

number of bhav copy files. If it is seven the system deletes the earliest received file

and stores the current day.s file.

Security Information: The nttdrldb.exe file containing security information is

available to the member on the intranet in the common\ntneat directory. Members

should check for date and size of the file to ensure receipt of latest file. It contains

the updated security list and the latest data on corporate actions in securities. This

file should be inflated by member using nttdrldb -d -o command from the root

directory i.e. c:\. The new nttdrldb.exe file overwrites the previous file.

Circulars: Circulars as and when issued by NSE, are available to members on the

intranet in their respective trading member directory identified by their trading

member id. A message is flashed on the screen when the circular is downloaded.

The circular file is ********.wri where ******** is the department and Circular No.

Order/Trade slips: The order/trade slips are Confirmation/Modification/

Cancellation/Rejection slips. The trade and order slips are generated on-line. E.g.

The trade confirmation is generated when a trade is executed and order slip when a

member places an order. The option at the supplementary menu .Print Trade and

Order confirmation. should be set .ON.. Members can also take print of

confirmation slips at the end of the day from the reprint option in the

supplementary menu. The trading members are required to keep copy of the trade

confirmation slip for a period as per NSE regulations.

Reports: Once the market closes, the details of trading activities done by the user

are generated as trade reports. They are downloaded on the workstation of

Corporate/Branch manager. Downloaded reports are stored at the workstation as

well as sent to the printer. This allows the user to reprint any report any time.

Members can request for reports after the reports are generated by the system and

before the market opens for trading on the next trading day. A separate button

.Report. has been provided on the logon screen for requesting report download.

After reports are generated by the Exchange, a message .Interactive reports can be

taken now. is displayed on the message window in the market watch screen. The

member has to then request for the reports from the logon screen by entering the

user id, trading member id and password and by invoking .Report.. A message

.Downloading reports in nsecmtdr\reports directory. Please wait.. is then

displayed. In case of incorrect logon details a message .Invalid sign on. is

displayed.

The x25 address check is also performed by the system for report download and

therefore, allotted user ids cannot be used interchangeably from any other location

apart from the specified location. In case a user attempts to request for reports

from a location other than that specified to the user id a message .You are trying to

sign on from a different location. Sign on is not allowed.. is displayed at the logon

screen.

At the exact time of receipt of reports a pop up box stating the report name and its

receipt status appears. Check for the user id and the report receipt status for all the

three reports. A message .Report downloaded successfully. is displayed. The

reports are downloaded in NSECMTDR\REPORTS directory for the given

trading day and user id. Members can also view their reports in MSDOS editor.

The printer must be kept on-line at the time of report request for printing reports.

Reports can also printed later by invoking report requester. If a user attempts to

request for reports during market hours a message .Connection to the system

cannot be established. Report process may not be up on the host. is displayed.

reports are downloaded on request only from corporate manager and branch

manager. Reports are available as a spool file (printable format) and also as a data

file (comma delimited format). The corporate manager receives reports with

extension coo, col, ctd (printable format) and cod, cld, ctt (comma delimited

format). These reports contain branch-wise details of trades and orders of all

branches of the trading member and further, for all dealers of the firm. The branch

manager receives reports with extension boo, bol, btd (printable format) and bod,

bld, btt (comma delimited format). These reports contain dealer-wise details of

trades and orders for all dealers placed under that branch. The dealers are users at

the lower most level of the hierarchy. They do not have access to information on

other dealers, on the same branch or other branches of the same firm and

therefore, do not receive any reports. In case an inquiry user or dealer requests for

report download, a message .Only Corporate and Branch Managers are allowed to

request for reports. is displayed.

To ensure problem free download of reports, do not open any other application

besides NEAT trading system during download. It is also not advisable to change

password during the end of the day operations.

The following reports are available at the trader workstation:

Open Orders today: The purpose of this report is to show the pending orders

that can take part in trading when the market opens on the next trading day. This

report gives details for all dealers belonging to the trading member that are

currently outstanding or unmatched orders. In practice this means only valid,

unexpired GTC and GTD orders.

This report is available to the user as a spool file (formatted report) and also as data

file. The spool file nomenclature is given below:

X X X X X X X X . X X X

DD MM User Id C/B OO

DD MM Date and Month

User Id User Id of the User

C Corporate Manager

B Branch Manager

OO Open Orders Today

The Ascii file format is shown below:

Trading Member id

Branch Id

Dealer Id

Market Type

Order Number

Buy/Sell Indicator

Symbol

Series

Order Quantity

Disclosed Quantity

MF/AON Indicator

MF Quantity

Price

Trigger Price

Pro/Cli/Whs Indicator

Client Account Code

Balance Quantity

Terms

GTD Days

Participant Code

Order Time

The report is also available as a data file (comma delimited format) with extension

as cod/bod. The comma delimited file nomenclature is the same as the spool file

with each field being separated by a comma. This file can be viewed in MSDOS

editor.

Order Log: The purpose of this report is to give the activity log of the orders for

the dealers belonging to a trading member. This report shows Orders placed today,

orders modified today, orders cancelled and orders deleted by the system.

This report shows the activity log for the orders of a trading member. It shows the

details of the orders which are entered today, modified today, canceled by the

dealer today, deleted by the system (Expired DAY, GTD/GTC orders). For order

modification, the modified order details are shown for each modification done.

This report is available to the user as a spool file (formatted report) and also as data

file. The spool file nomenclature is given below:

X X X X X X X X . X X X

DD MM User Id C/B OL

DD MM Date and Month

User Id User Id of the User

C Corporate Manager

B Branch Manager

OL Order Log

The Ascii file format is shown below:

Trading Member id

Branch Id

Dealer Id

Market Type

Order Number

Buy/Sell Indicator

Symbol

Series

Order Quantity

Disclosed Quantity

MF/AON Indicator

MF Quantity

Price

Trigger Price

Traded Quantity

Pro/Cli/Whs Indicator

Client Account Code

Balance Quantity

Terms

GTD Days

Participant Code

Order Time

Activity Type

Trade Number

Trade Date

Trade Time

The report is also available as a data file (comma delimited format) with extension

as cld/bld. The comma delimited file nomenclature is the same as the spool file

with each field being separated by a comma. This file can be viewed in MSDOS

editor.

Trades Done Today: The purpose of this report is to show the details of the

trading activity by the trading member. This report gives details of trades done

today for all dealers belonging to the trading member firm. The report has details

for all the types of trades i.e. normal market trade and auction trade.

This report is available to the user as a spool file (Formatted report) and also as

data file. The spool file nomenclature is given below:

X X X X X X X X . X X X

DD MM User Id C/B TD

DD MM Date and Month

User Id User Id of the User

C Corporate Manager

B Branch Manager

TD Trades Done Today

The Ascii file format is shown below:

Trading Member Id

Branch Id

Dealer Id

Market Type

Trade Number

Order Number

Buy/Sell Indicator

Symbol

Series

Traded Quantity

Trade Price

Trade Value

Client Account Code

Participant Code

Trade Time

Trade Date

Activity

The report is also available as a data file (comma delimited format) with extension

as ctt/btt. The comma delimited file nomenclature is the same as the spool file with

each field being separated by a comma. This file can be viewed in MSDos editor.

The first three reports i.e. Open Orders, Activity Log, Trades Done Today are

downloaded for corporate managers and branch managers only.

Market Statistics Report: The purpose of this report is to show the market

statistics of that trading day. This report gives details related to all the securities

traded on that day. Information regarding the Open, High, Low, Close, Previous

Close and % change over the Previous Close of S&P CNX Nifty index and CNX

Nifty Junior index is also provided.

This report is available to the user as a spool file (Formatted report) and also as

data file. The spool file nomenclature is given below:

X X X X X X X X X X

DD MM User Id MS

DD MM Date and Month

User Id User Id of the User

MS Market Statistics report

The Ascii file format is shown below:

Market type

Symbol

Series

Previous Close

Open

High

Low

Ex Indicators

Net Traded Quantity

Net Traded Value

Previous 52 week High

Previous 52 week Low

The Ex indicators against a security indicates that the scrip is going ex benefit on a

given trading day. The ex indicators are as follows:

XD = Ex Dividend

XB = Ex Bonus

XI = Ex Interest

XR = Ex Rights

XO = Ex indicator for other corporate actions like AGM/EGM/Pref.

shares/Mergers and others.

X* = For multiple corporate actions at the same time.

If on a given trading day a security is traded in segment(s) other than the regular

EQ segment, the market statistics report displays Open, High and Low price as

zero. However, the close price is displayed which is computed on account of such

trades in non EQ segments. The security record in such cases is marked with a ' * '

indicator. The explanation for the same appears at the end of the Market Statistics

report.

The details of the trades effected in the depository segment of the Exchange are

provided separately in the Market Statistics report.

The market statistics is also available as a data file (comma delimited format) with

extension as md. The comma delimited file nomenclature is the same as the spool

file with each field being separated by a comma. This file can be viewed in MSDOS

editor.

1.15 Internet Broking

SEBI Committee has approved the use of Internet as an Order Routing System

(ORS) for communicating clients' orders to the exchanges through brokers. ORS

enables investors to place orders with his broker and have control over the

information and quotes and to hit the quote on an on-line basis. Once the broker.s

system receives the order, it checks the authenticity of the client electronically and

then routes the order to the appropriate exchange for execution. On execution of

the order, it is confirmed on real time basis. Investor receives reports on margin

requirement, payments and delivery obligations through the system. His ledger and

portfolio account get updated online.

NSE launched internet trading in early February 2000. It is the first stock exchange

in the country to provide web-based access to investors to trade directly on the

exchange. The orders originating from the PCs of the investors are routed through

the Internet to the trading terminals of the designated brokers with whom they are

connected and further to the exchange for trade execution. Soon after these orders

get matched and result into trades, the investors get confirmation about them on

their PCs through the same internet route.

1.16 Wireless Application Protocol (WAP)

SEBI has also approved trading through wireless medium on WAP Platform.

NSE.IT launched the Wireless Application Protocol (WAP) in November 2000.

This provides 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 stocks at their choice are

attractive.

Model Questions

1. Which of the following activities the user can carry out during Open phase in the

normal market on the NEAT system?

(a) Inquiry of different screens only.

(b) Order Entry, Order Modification and Order Cancellation only.

(d) None of the above

Ans. (c)

2. What is the purpose of 'Market Statistics' report on the NEAT system?

(a) To show the trades that was done by the trading member for the current trading

day.

(b) To show the market movement information for the current trading day.

(d) There is no report as Market Statistics report.

Ans. (c)

3. x.25 address check is performed in the NEAT system when the user ________.

(a) logs in for the first time in the NEAT system only.

(b) logs in to the NEAT system only.

(d) logs in to the NEAT system and during report download request.

Ans. (d)

4. Orders, in the 'Outstanding Orders' screen in the NEAT system, are displayed

________.

(a) on the basis of price/time priority in order of Regular Lot orders first and then

Stop Loss orders

(b) on the basis of time priority

(d) in ascending order of order numbers

Ans. (a)

5. What is an 'Immediate or cancel' order on the NEAT system?

(a) An order which will only be executed if it is filled immediately and in its entirety.

(b) An order which will automatically be cancelled if it is not filled immediately.

(d) None of the above

Ans. (b)

6. Which of the following is true about trade cancellation in the NEAT system?

(a) The user can use trade cancellation screen for cancelling trades done during the

day.

(b) The user can request for trade cancellation from the previous trades screen.

(d) All of the above

Ans. (d)

7. Which of the following is false about auctions in the NEAT system?

(a) Auctions are initiated by the Exchange on behalf of trading members for

settlement related reasons.

(b) If the Exchange conducts a Buy-In auction, the trading members enter sell

orders as solicitor orders.

(d) The trading members can participate in the Exchange initiated auctions by

entering orders as a competitor.

Ans. (d)

8. What is true about internet trades on NSEIL?

(a) NSEIL enables investors to place orders on the NEAT system directly through

the internet.

(b) NSEIL enables investors to use the internet as an order routing system.

(d) NSEIL uses internet in lieu of VSATs for trades in NEAT system.

Ans. (b)

Chapter .2

Clearing and Settlement

2.1 Introduction

The clearing and settlement mechanism in Indian securities market has witnessed

several innovations during the last decade. These include use of the state-of-art

information technology, compression of settlement cycle, dematerialisation and

electronic transfer of securities, securities lending and borrowing,

professionalisation of trading members, fine-tuned risk management system,

emergence of clearing corporations to assume counterparty risk etc., though many

of these are yet to permeate the whole market.

Till recently, the stock exchanges in India were following a system of account

period settlement for cash market transactions, except for transactions in a few

active securities, which were settled under T+5 rolling settlement. The rolling

settlement has now been introduced for all securities. The stock exchanges were

also offering deferral products to provide leverage to members to postpone their

settlement obligations. The transactions are not settled immediately but after 5 days

after the trade day. The members receive the funds/securities in accordance with

the pay-in/pay-out schedules notified by the respective exchanges. Given the

growing volume of trades and market volatility, the time gap between trading and

settlement gives rise to settlement risk. In recognition of this, the exchanges and

their clearing corporations employ risk management practices to ensure timely

settlement of trades. The regulators have also prescribed elaborate margining and

capital adequacy standards to secure market integrity and protect the interests of

investors. The exchanges not providing counter-party guarantee have been advised

by SEBI to set up trade guarantee funds, which would honour pay-in liabilities in

the event of default by a member. In pursuance to this, 16 out of 23 exchanges

have set up trade/settlement guarantee funds. The trades are settled irrespective of

default by a member and the exchange follows up the defaulting member

subsequently for recovery of his dues to the exchange. The market has full

confidence that settlements will take place in time and will be completed

irrespective of possible default by isolated trading members.

Movement of securities has become almost instantaneous in the dematerialised

environment. Two depositories viz., National Securities Depositories Ltd. (NSDL)

and Central Depositories Services Ltd. (CDSL) provide electronic transfer of

securities and more than 99% of turnover is settled in dematerialised form. All

actively traded scrips are held, traded and settled in demat form. The obligations of

members are downloaded to members/custodians by the clearing agency. The

members/custodians make available the required securities in their pool accounts

with depository participants (DPs) by the prescribed pay-in time for securities. The

depository transfers the securities from the pool accounts of members/custodians

to the settlement account of the clearing agency. As per the schedule determined by

the clearing agency, the securities are transferred on the pay-out day by the

depository from the settlement account of the clearing agency to the pool accounts

of members/custodians. The pay-in and pay-out of securities is effected on the

same day for all settlements.

Select banks have been empanelled by clearing agency for electronic transfer of

funds. The members are required to maintain accounts with any of these banks.

The members are informed electronically of their pay-in obligations of funds. The

members make available required funds in their accounts with clearing banks by the

prescribed pay-in day. The clearing agency forwards funds obligations file to

clearing banks which, in turn, debit the accounts of members and credit the

account of the clearing agency. In some cases, the clearing agency runs an

electronic file to debit members. accounts with clearing banks and credit its own

account. As per the schedule of allocation of funds determined by the clearing

agency, the funds are transferred on the pay-out day by the clearing banks from the

account of the clearing agency to the accounts of members. In some cases, the

clearing agency directly credits the members. accounts with clearing banks and

debits its own account. The pay-in and pay-out of funds as well as securities take

place 5 working days after the trade date.

2.1.1 Transaction Cycle

A person holding assets (securities/funds), either to meet his liquidity needs or to

reshuffle his holdings in response to changes in his perception about risk and

return of the assets, decides to buy or sell the securities. He finds out the right

broker and instructs him to place buy/sell order on an exchange. The order is

converted to a trade as soon as it finds a matching sell/buy order. The trades are

cleared to determine the obligations of counterparties to deliver securities/funds as

per settlement schedule. Buyer/seller delivers funds/securities and receives

securities/ funds and acquires ownership over them. A securities transaction cycle

is presented in Figure 2.1.

2.1.2 Settlement Process

While NSE provides a platform for trading to its trading members, the National

Securities Clearing Corporation Ltd. (NSCCL) determines the funds/securities

obligations of the trading members and ensures that trading members meet their

obligations. The clearing banks and depositories provide the necessary interface

between the custodians/clearing members (who clear for the trading members or

their own transactions) for settlement of funds/securities obligations of trading

members. The core processes involved in the process are:

Figure 2.1: Transaction cycle

(a) Trade Recording: The key details about the trades are recorded to provide basis

for settlement. These details are automatically recorded in the electronic trading

system of the exchanges.

(b) Trade Confirmation: The counterparties to trade agree upon the terms of trade

like security, quantity, price, and settlement date, but not the counterparty

which is the NSCCL. The electronic system automatically generates

confirmation by direct participants. The ultimate buyers/sellers of securities

also affirm the terms, as the funds/securities would flow from them, although

the direct participants are responsible for settlement of trade.

(c) Determination of Obligation: The next step is determination of what counter-

parties owe, and what counter-parties are due to receive on the settlement date.

The NSCCL interposes itself as a central counterparty between the

counterparties to trades and nets the positions so that a member has security

wise net obligation to receive or deliver a security and has to either pay or

receive funds.

(d) Pay-in of Funds and Securities: The members bring in their funds/securities to the

NSCCL. They make available required securities in designated accounts with

the depositories by the prescribed pay-in time. The depositories move the

securities available in the accounts of members to the account of the NSCCL.

Likewise members with funds obligations make available required funds in the

Clearing of

Trades

Decision to

Trade

Settlement

of Trades

Placing Order

Transaction Cycle

Trade

Execution

Funds/

Securities

designated accounts with clearing banks by the prescribed pay-in time. The CC

sends electronic instructions to the clearing banks to debit member.s accounts

to the extent of payment obligations. The banks process these instructions,

debit accounts of members and credit accounts of the NSCCL.

(e) Pay-out of Funds and Securities: After processing for shortages of funds/securities

and arranging for movement of funds from surplus banks to deficit banks

through RBI clearing, the NSCCL sends electronic instructions to the

depositories/clearing banks to release pay-out of securities/funds. The

depositories and clearing banks debit accounts of the NSCCL and credit

accounts of members. Settlement is complete upon release of pay-out of funds

and securities to custodians/members. The settlement process for transactions

in securities in the CM segment of NSE is presented in the Figure 2.2.

(f) Risk Management: A sound risk management system is integral to an efficient

settlement system. The NSCCL ensures that trading members. obligations are

commensurate with their net worth. It has put in place a comprehensive risk

management system, which is constantly monitored and upgraded to pre-empt

market failures. It monitors the track record and performance of members and

their net worth; undertakes on-line monitoring of members. positions and

exposure in the market, collects margins from members and automatically

disables members if the limits are breached.

2.1.3 Settlement Agencies

The NSCCL, with the help of clearing members, custodians, clearing banks and

depositories settles the trades executed on exchanges. The roles of each of these

entities are explained below:

(a) NSCCL: The NSCCL is responsible for post-trade activities of a stock

exchange. Clearing and settlement of trades and risk management are its central

functions. It clears all trades, determines obligations of members, arranges for

pay-in of funds/securities, receives funds/securities, processes for shortages in

funds/securities, arranges for pay-out of funds/securities to members,

guarantees settlement, and collects and maintains margins/collateral/base

capital/other funds.

(b) Clearing Members: They are responsible for settling their obligations as

determined by the NSCCL. They have to make available funds and/or

securities in the designated accounts with clearing bank/depositories, as the

case may be, to meet their obligations on the settlement day.

(c) Custodians: Custodian is a clearing member but not a trading member. He settles

trades assigned to him by trading members. He is required to confirm whether

he is going to settle a particular trade or not. If it is confirmed, the NSCCL

Figure 2.2: Settlement Process in CM segment of NSE

Explanations:

(1) Trade details from Exchange to NSCCL (real-time and end of day trade file).

(2) NSCCL notifies the consummated trade details to CMs/custodians who affirm

back. Based on the affirmation, NSCCL applies multilateral netting and

determines obligations.

(3) Download of obligation and pay-in advice of funds/securities.

(4) Instructions to clearing banks to make funds available by pay-in time.

(5) Instructions to depositories to make securities available by pay-in-time.

(6) Pay-in of securities (NSCCL advises depository to debit pool account of

custodians/CMs and credit its account and depository does it).

(7) Pay-in of funds (NSCCL advises Clearing Banks to debit account of

custodians/CMs and credit its account and clearing bank does it).

(8) Pay-out of securities (NSCCL advises depository to credit pool account of

custodians/CMs and debit its account and depository does it).

(9) Pay-out of funds (NSCCL advises Clearing Banks to credit account of

custodians/CMs and debit its account and clearing bank does it).

(10) Depository informs custodians/CMs through DPs.

(11) Clearing Banks inform custodians/CMs.

assigns that obligation to that custodian and the custodian is required to

settle it on the settlement day.

(d) Clearing Banks: Clearing banks are a key link between the clearing members

and NSCCL for funds settlement. Every clearing member is required to open

a dedicated clearing account with one of the clearing banks. Based on his

obligation as determined through clearing, the clearing member makes funds

available in the clearing account for the pay-in and receives funds in case of a

pay-out.

(e) Depositories: Depositories help in the settlement of the dematerialised

securities. Each custodian/clearing member is required to maintain a clearing

pool account with the depositories. He is required to make available the

required securities in the designated account on settlement day. The

depository runs an electronic file to transfer the securities from accounts of

the custodians/clearing member to that of NSCCL. As per the schedule of

allocation of securities determined by the NSCCL, the depositories transfer

the securities on the pay-out day from the account of the NSCCL to those of

members/custodians.

(f) Professional Clearing Member: NSCCL admits special category of members

namely, professional clearing members. Professional Clearing Member (PCM)

may clear and settle trades executed for their clients (individuals, institutions

etc.). In such an event, the functions and responsibilities of the PCM would

be similar to Custodians. PCMs may also undertake clearing and settlement

responsibility for trading members. In such a case, the PCM would settle the

trades carried out by the trading members connected to them. The onus for

settling the trade would be thus on the PCM and not the trading member. A

PCM has no trading rights but has only clearing rights, i.e. he just clears the

trades of his associate trading members and institutional clients.

2.1.4 Risks in Settlement

The following two kinds of risks are inherent in a settlement system:

(1) Counterparty Risk: This arises if parties do not discharge their obligations fully

when due or at any time thereafter. This has two components, namely

replacement cost risk prior to settlement and principal risk during settlement.

(a) The replacement cost risk arises from the failure of one of the parties to

transaction. While the non-defaulting party tries to replace the original

transaction at current prices, he loses the profit that has accrued on the

transaction between the date of original transaction and date of replacement

transaction. The seller/buyer of the security loses this unrealised profit if the

current price is below/above the transaction price. Both parties encounter

this risk as prices are uncertain. It has been reduced by reducing time gap

between transaction and settlement and by legally binding netting systems.

(b) The principal risk arises if a party discharges his obligations but the

counterparty defaults. The seller/buyer of the security suffers this risk when

he delivers/makes payment, but does not receive payment/delivery. This risk

can be eliminated by delivery vs. payment mechanism which ensures delivery

only against payment. This has been reduced by having a central counterparty

which becomes the buyer to every seller and the seller to every buyer.

A variant of counterparty risk is liquidity risk which arises if one of the parties

to transaction does not settle on the settlement date, but later. The

seller/buyer who does not receive payment/delivery when due, may have to

borrow funds/securities to complete his payment/delivery obligations.

Another variant is the third party risk which arises if the parties to trade are

permitted or required to use the services of a third party which fails to

perform. For example, the failure of a clearing bank which helps in payment

can disrupt settlement. This risk is reduced by allowing parties to have

accounts with multiple banks. Similarly, the users of custodial services face

risk if the concerned custodian becomes insolvent, acts negligently or

commits fraud.

(2) System Risk: This comprises of operational, legal and systemic risks. The

operational risk arises from possible operational failures such as errors, fraud,

outages etc. The legal risk arises if the laws or regulations do not support

enforcement of settlement obligations or are uncertain. Systemic risk arises

when failure of one of the parties to discharge his obligations leads to failure

by other parties. The domino effect of successive failures can cause a failure

of the settlement system. These risks have been contained by enforcement of

an elaborate margining and capital adequacy standards to secure market

integrity, settlement guarantee funds to provide counter-party guarantee, legal

backing for settlement activities and business continuity plan, etc.

2.2 Rolling Settlement

2.2.1 Introduction

Under rolling settlement, all trades executed on a trading day are settled X days

later. This is called .T+X. rolling settlement, where .T. is the trade date and .X.

is the number of business days after trade date on which settlement takes place.

The rolling settlement has started on T+5 basis in India, implying that the

outstanding positions at the end of the day .T. are compulsorily settled 5 days after

the trade date.

Rolling settlement was first introduced in India by OTCEI. As dematerialisation

took off, NSE provided an option to settle the trades in demat securities on rolling

basis. In January 2000, SEBI made rolling settlement compulsory for trades in 10

scrips selected on the basis of the criteria that they were in the compulsory demat

list and had daily turnover of about Rs.1 crore or more. This list, however, did not

include scrips, which had carried forward trading facility. SEBI reviewed the

progress of rolling settlement in February 2000. Consequent on the review, SEBI

added a total of 156 scrips under rolling settlement. 74 companies, which had

changed names to infotech companies, were included in compulsory rolling

settlement from May 8, 2000. 31 NBFCs, which are listed and traded on the BSE,

but whose applications for certificate of registration were rejected by RBI, were

covered under compulsory rolling settlement from May 8, 2000. 17 scrips, which

exhibited high volatility (i.e., of more than 110% for 7 weeks or more in the last 10

weeks) were also included in compulsory rolling settlement from May 8, 2000. In

addition, 34 companies out of 199 companies, which were already included in

compulsory demat trading for all investors and did not have carry forward facility

in any of the exchanges and had signed agreements with both the depositories were

included for compulsory rolling settlement from March 21, 2000.

Following Finance Minister.s announcement on March 13, 2001 that the rolling

settlement would be extended to 200 category .A. stocks in MCFS, ALBM and

BLESS by July, 2001, SEBI decided that all 263 scrips included in the

ALBM/BLESS or MCFS in any stock exchange or in the BSE-200 list would be

traded only in the compulsory rolling settlement on all the exchanges from July 2,

2001. Further, SEBI mandated rolling settlement for the remaining securities from

December 31, 2001.The settlement cycle would be reduced from T+5 to T+3 from

April 1, 2002.

Rolling settlement offers several advantages over account period settlement:

a) The account period settlement does not discriminate between an investor

transacting on the first day and an investor transacting on the last day of the

trading period, as trades are clubbed together for the purposes of settlement

and all investors realise the securities and/or funds together. Hence some

investors have to wait longer for settlement of their transactions. Under rolling

settlement, the investors trading on a particular day are treated differently

from the investors trading on the preceding or succeeding day. All of them

wait for .X. days from the trade date for settlement. Further, the gap between

the trade date and the settlement date is less under rolling settlement making

both securities and funds easily convertible.

b) The account period settlement combines the features of cash as well as futures

markets and hence distorts price discovery process. In contrast, rolling

settlement, which segregates cash and futures markets and thereby removes

excessive speculation, helps in better price discovery.

c) Account period settlement allows build up of large positions over a trading

period of five days and consequently, there is a pressure to close them out on

the last trading day, leading to significant market volatility. This does not

happen under rolling settlement, where positions can be built during a day

only.

d) There is scope for both intra-settlement and intra-day speculation under

account period settlement, which allows large outstanding positions and hence

poses greater settlement risks. In contrast, since all open positions under

rolling settlement at the end of a date .T. are necessarily settled .X. working

days later, it limits the outstanding positions and reduces settlement risk.

e) Till recently, it was possible to shift positions from one exchange to another

under account period as they follow different trading cycles. Rolling settlement

took care of this by making trading cycle uniform.

2.2.2 Settlement Cycle

The NSCCL clears and settles trades as per well-defined settlement cycle. The

settlement cycle for the CM segment of NSE is presented in Table 2.1. NSCCL

notifies the consummated trade details to clearing members/custodians on the

trade day. The custodians affirm back the trades to NSCCL by T+2 day. Based on

the affirmation, NSCCL nets the positions of counterparties to determine their

obligations. A clearing member has to pay-in/pay-out funds and/or securities. A

member has a security-wise net obligation to receive/deliver a security. The

obligations are netted for a member across all securities to determine his fund

obligations and he has to either pay or receive funds. Members. pay-in/pay-out

obligations are determined latest by T+2 day and are forwarded to them on the

same day so that they can settle their obligations on T+5 day. The securities/funds

are paid-in/paid-out on T+5 days and the settlement is complete in 5 days from

the end of the trade day.

2.2.3 Pay-in and Pay-out of Funds

NSCCL offers Clearing Members the facility of settlement of funds obligations

through 9 Clearing Banks, namely Canara Bank, HDFC Bank Ltd., Global Trust

Bank Ltd., IndusInd Bank Ltd., ICICI Bank Ltd., UTI Bank Ltd., Centurion Bank

Ltd., Bank of India and IDBI Bank Ltd. Clearing Members are required to open

clearing account with any one bank for the purpose of settlement of their

transactions. They are also required to authorise their Clearing Bank to access their

clearing account for debiting, crediting, reporting of balances and any other

information in accordance with the advice received from NSCCL. Clearing

accounts are used exclusively for clearing and settlement of transactions, i.e. for

settling funds and other obligations to/ from the NSCCL, including payments of

margins and penal charges. Clearing Banks debit/ credit the clearing account of

clearing members as per instructions received from the NSCCL electronically.

Members are informed of their funds obligation for various settlements through

the daily clearing data download. Members are also provided daily funds statement

which gives date-wise details of each debit/ credit transaction in the member.s

clearing account. The summary statement provided to members summarises the

debit/ credit information for a quick reference. Members can refer to these

statements and provide for funds accordingly.

Member's account may be debited for various types of transactions on a daily basis.

A member is required to ensure that adequate funds are available in the clearing

accounts towards all obligations, by the scheduled date and time. It is possible that

the total value of funds pay-in receivable by a bank is different from the value of

funds payout from the bank i.e. the pay-in may be either more than the payout in a

bank, or vice versa. In such cases, funds need to be transferred from the bank

where there is excess pay-in to the bank where there is a shortage in pay-in. Based

on estimated pay-in and pay-out of funds, on the day preceding the payout day,

NSCCL advises the banks having pay-in in excess of pay-out to issue pay orders to

the banks having pay-in less than the pay-out. The deficit banks accordingly get the

funds to facilitate timely payout.

On the scheduled day of pay-in, the clearing banks debit (credit) accounts of

members and credit (debit) NSCCL by pay-in (pay-out) amount at the scheduled

time i.e. 11 AM (2.30 pm). Pay-in and pay-out of funds takes place on the same

day.

The movement of funds for settling securities transactions is shown in Figure 2.3.

Assume that the funds pay-in is Rs. 100 crore of which Rs. 80 crore come into

bank A and Rs. 20 crore into bank B by 11 am. However, the pay-out is such that

Rs. 60 crore is to be paid out in bank A and Rs.40 crore in bank B. Bank A effects

pay-out at 2.30 pm by debiting account of NSCCL for Rs. 60 crore when it has a

balance of Rs. 80 crore. Bank B also effects pay-out at 2.30 pm by debiting

account of NSCCL for Rs. 40 crore when it has a balance of Rs. 20 crore received

as pay-in and Rs. 20 crore against the pay-order received from bank B.

2.2.4 Pay-in and Pay-out of Securities

In order to settle trades in the dematerialised securities, a clearing member needs to

open a clearing account with a depository participant (DP). Each clearing account

consists of three sub-accounts:

a) Pool Account: This is used by the clearing member to interface with his clients.

The clients deliver securities to this account of the clearing member. The

clearing member pools all client deliveries in this account before making a

delivery to NSCCL.

b) Delivery Account: This is used by the clearing member to deliver securities to

NSCCL. The clearing member moves net deliverable quantity of shares from

the pool account to the delivery account from where it comes to NSCCL.

c) Receipt Account: NSCCL gives pay-out to the clearing member in the receipt

account from where it is transferred to the pool account of the clearing

member.

Clearing members are informed of their securities obligation for various

settlements through the daily clearing data download. Clearing members are also

provided final delivery statement and delivery details statement.

Before pay-in, selling investors instruct DP to transfer security balances from their

beneficiary accounts to clearing member.s pool account. At or before the time and

day specified for pay-in by NSCCL, the clearing member instructs his DP to move

the required balance from his pool account to his delivery account. On the pay-in

day, the depository moves balances from all the clearing members delivery accounts

and sends them to NSCCL at the scheduled time i.e., 11.00 am. The balances in

respective clearing members' delivery accounts are first transferred to NSCCL.s

pool account which is then matched with the obligations generated by NSCCL

system. The quantity and securities matched are accepted and credited to the

Receipt Accounts of the receiving clearing members through depository. The

quantity and securities, not matched for any reason whatsoever, are not accepted

and as such credited back to Delivery Accounts of the delivering clearing members.

On receipt of pay-out instructions from NSCCL, the depository credits the receipt

accounts of the receiving clearing members from which the securities get

transferred to the clearing members' pool accounts. From the pool accounts, the

clearing members distribute the deliveries to the buying clients by issuing

instructions to his DP. The movement of securities for settling securities

transactions is shown in Figure 2.4.

2.3 Risk Containment Measures

There have been umpteen experiments with different risk containment measures in

the recent past. These measures have been repeatedly reviewed and revised. This

section, however, discusses the measures prevailing as in December 2001.

2.3.1 Capital Adequacy Requirements

As compared to the minimum statutory requirements as also those stipulated by

other stock exchanges, the capital adequacy requirements stipulated by the NSE are

higher. The capital adequacy norms to be followed by members are presented in

Table 2.2.

Out of the total capital provided by the TM (Base Minimum Capital and Additional

Base Capital), BMC can be utilised towards taking exposure/turnover only, whereas

the amount provided as ABC can be utilised towards margin payment if not used

up for taking Exposure/Turnover.

Table 2.2: Capital Adequacy Norms for Membership on NSE

(Rs. In lakh)

2.3.2 Trading and Exposure Limits

NSCCL imposes limits on turnover and exposure in relation to the base minimum

capital of a member, which is the amount of funds and securities that a member

keeps with the Exchange/NSCCL.

The members are subject to limits on trading volumes in a day as well as exposure

at any point of time. Gross intra-day turnover (Buy + Sell) of a member shall not

exceed 33 1/3 times of the capital available with NSCCL. Similarly, gross exposure

(aggregate of cumulative net outstanding positions in each security, at any point of

time) of a member shall not exceed 8.5 times of free base capital up to Rs. 1 crore.

If a member has free capital in excess of Rs. 1 crore, his exposure shall not exceed

Rs. 8.5 crore plus 10 times of the capital in excess of Rs. 1 crore.

Determination of Gross Exposure: The gross exposure of a member is computed

across all securities and across all open settlements in rolling settlement. Open

settlements are all those settlements for which trading has commenced and for

which pay-in is yet to be completed. It is arrived at by adding up the absolute

values of the products of net cumulative values and the specified adjustment factor,

for all securities in which a member has an open position. For this purpose, scrips

have been classified in to four groups, based on market capitalisation, impact cost

and number of trades. Groups I, II, III and IV have been assigned adjustment

factors of 1, 2, 3 and 5 respectively. The determination of gross exposure is

illustrated in the Table 2.3.

Table 2.3: Determination of Exposure for Exposure Limits

(Amount in Rs.)

Exposure Limit Violation: Members exceeding the gross exposure limit are not

permitted to trade with immediate effect until the member.s cumulative gross

exposure is reduced to below the gross exposure limits as defined above or any

such lower limits as applicable to the members. Alternatively, a member may bring

in additional base capital resulting in enhanced gross exposure limit.

A penalty of Rs. 5,000/- is levied for each violation of gross exposure limit and

intra-day turnover limit, which is paid by the trading member next day. The penalty

is debited to the clearing account of the member. Non-payment of penalty in time

attracts penal interest of 15 basis points per day till the date of payment. In respect

of violation of gross exposure limit on more than one occasion on the same day,

each violation is treated as a separate instance for the purpose of calculation of

penalty. The penalty is charged to the members irrespective of whether the member

brings in additional capital subsequently.

Early pay-in of funds/securities: If members meet funds obligations prior to the funds

pay-in day, after satisfying the applicable conditions, then the margin payable by the

member is re-computed after considering the funds pay-in. The value of the

advance pay-in made is reduced from the cumulative net outstanding position of

the member for the purpose of calculating gross exposure.

If members deliver securities prior to the securities pay-in day, after satisfying the

applicable conditions, then the margin payable by the member is recomputed after

considering the above pay-in of securities. The value of the advance pay-in made is

reduced from the cumulative net outstanding position of the member for the

purpose of calculating gross exposure.

On-line Exposure Monitoring: NSCCL has put in place an on-line monitoring and

surveillance system whereby exposure of the members is monitored on a real time

basis. A system of alerts has been built in so that both the member and NSCCL are

alerted as per pre-set levels (reaching 70%, 85%, 95% and 100%) when the

members approach their allowable limits. The system enables NSSCL to further

check the micro-details of members' positions, if required and take pro-active

action.

The on-line surveillance mechanism also generates various alerts/reports on any

price/volume movement of securities not in line with past trends/patterns. For this

purpose the exchange maintains various databases to generate alerts. Alerts are

scrutinised and if necessary taken up for follow up action. Open positions of

securities are also analysed. Besides this, rumors in the print media are tracked and

where they are price sensitive, companies are contacted for verification. Replies

received are informed to the members and the public.

Off-line Monitoring: Off-line surveillance activity consists of inspections and

investigations. As per regulatory requirement, a minimum of 10% of the active

trading members are to be inspected every year to verify the level of compliance

with various rules, byelaws and regulations of the Exchange. Usually, inspection of

more members than the regulatory requirement is undertaken every year. The

inspection verifies if investor interests are being compromised in the conduct of

business by the members. The investigation is based on various alerts, which

require further analysis. If further analysis reveals any suspicion of irregular activity

which deviates from the past trends/patterns and concentration of trading at NSE

at the member level, then a more detailed investigation is undertaken. If the

detailed investigation establishes any irregular activity, then disciplinary action is

initiated against the member. If the investigation suggests suspicions of possible

irregular activity across exchanges and/or possible involvement of clients, then the

same is informed to SEBI.

2.3.3 Margin Requirements

The daily margin in rolling settlement comprises of Mark to Market Margin (MTM

margin) and Value at Risk-based Margin (VaR-based margin).

The margins are computed at client level. A member entering an order, needs to

enter the client code. Based on this information, margin is computed at the client

level, which will be payable by the trading members on T+1 basis.

a. Mark to Market Margin. MTM is the notional loss, which a client would incur, if

the cumulative net outstanding positions in all securities were closed out at the

closing price of the securities at the end of the relevant day. In case a security

has not been traded on the relevant particular day, the latest available closing

price is considered as the closing price. For each security, this is worked out by

multiplying the difference between the close price and the price at which the

trade was executed by the cumulative buy and sell open position (for buy

position the close price being lower than the actual trade price and for sale

position, the close price being higher than the actual trade price). The aggregate

across all securities is the MTM margin payable by a member. MTM profit/loss

across different securities within the same settlement is set off to determine the

MTM loss for a settlement, but set off benefits across the settlements are not

allowed.

b. Value at Risk-based Margin. The VaR rate is applied to gross exposure to

determine VaR-based margin. The computation of the VaR rate as well as the

gross exposure on which VaR rate is applied is explained below:

Computation of VaR Rate

VaR rate is a single number, which encapsulates whole information about the

risk in a portfolio. It measures potential loss from an unlikely adverse event in a

normal market environment. It involves using historical data on market prices

and rates, the current portfolio positions, and models (e.g., option models,

bond models) for pricing those positions. These inputs are then combined in

different ways, depending on the method, to derive an estimate of a particular

percentile of the loss distribution, typically the 99th percentile loss. The step by

step computation of VaR-based margin is explained below.

! Obtain the closing price of the security (for the days on which it was traded

in the exchange) and closing index values for the previous one-year period.

Let these be

# Closing prices of the security $ CP0, CP1, CP2, .... CPn

# Closing values of index $ CV0, CV1, CV2, .... CVn

! Calculate the logarithmic returns with respect to previous day.s closing

price of the security/closing value of index for each day in the reference

period. Logarithmic return (Rn) for day .n. can be computed using the

formula:

# For scrip $Rn=LN(CPn/CPn-1)

# For index $ Rn=LN(CVn/CVn-1)

! Compute initial volatility by calculating the standard deviation of returns for

the one year period using the formula:

Standard deviation ó0 = ?�

i n R R

2 / ) (

where R is the average return for the reference period.

! Calculate daily volatility for subsequent days. For day 1, the volatility will be

1 ) 1 ( ) ( R o ë ó ë ó - + =

Similarly for day 2

1 2 ) 1 ( ) ( R ë ó ë ó - + =

Where, ë=0.94, a parameter which indicates how rapidly volatility estimate

changes. This value has been arrived at on the basis of the empirical study

done by Prof. J R Varma.

! Calculate VaR for the scrip at 3.5ó level and VaR for the index at 3ó level.

A higher ó level is used for the scrip because the scrip is expected to have

higher volatility as compared to the index, which is a portfolio. The

volatility estimate at 3ó level represents 99% VaR.

! Calculate VaR for a security or index for a particular day using the ó for

both long positions and short positions.

# For scrip,

VaR for short positions = Exponential (3.5ó)-1, and

VaR for long positions = 1- Exponential (-3.5ó).

# For index,

VaR for short positions = Exponential (3ó)-1, and

VaR for long positions = 1- Exponential (-3ó)

To ensure that risk for all possible situations is covered, long VaR or short

VaR, whichever is higher, is considered as the VaR for the scrip or index, as

the case may be.

The VaR calculated for Nifty as above is then compared with the Sensex VaR

for the Day. The higher of the two is considered as Index VaR. However a

Minimum Index VaR of 5% is stipulated by SEBI.

For application of VaR the scrips are divided into two groups and two

different methods are adopted.

1. For the 257 scrips which come under the list specified by SEBI, the VaR is

computed in the following way:

Derive index-based scrip VaR from the index VaR. The VaR Multiplier

(relative volatility of the scrip as compared to that of index) is multiplied

with index VaR to get the index-based scrip VaR. A minimum VaR

multiplier of 1.75 has been stipulated by SEBI for the calculation of index-

based scrip VaR. VaR multiplier for scrips is computed on a monthly basis

by dividing .average standard deviation of the scrip return for last six

months. by .average standard deviation of the index return for last six

months.. Index-based VaR or scrip VaR, whichever is higher, is used as

applicable VaR for the scrip.

2. VaR for the remaining scrips is directly taken as 3 times Index VaR.

An additional margin of 12% is added to this applicable VaR. This

additional margin is applied in order to safeguard against the remaining 1%

cases. The total VaR margin calculated using the above steps is rounded up

to the higher integer. This percentage so derived is the VaR margin rate,

applicable on the open position. Maximum VaR applicable on a scrip,

however, shall not exceed 100%

VaR margin for Institutional Trades. VaR margin is charged at differential rate on

the Net outstanding sale position of the client. However, such margins are

added up across all clients of the member or custodian and the same are

collected from the Trading Member or Custodian as the case may be.

NSE disseminates VaR margin rates to the members and public at large

through its web-site. VaR margin rate for each security is provided on a daily

basis, at the end of each trading day. These rates are applicable on the positions

at the end of next trading day. A separate file is also provided on a daily basis

for the VaR margin rates applicable for the institutional trades on the net

outstanding sale positions at the end of next trading day. A file on the

multiplier is provided on a monthly basis, detailing the multiplier to be applied

on each security in the following month.

All margins are payable on trade day plus one. Members are required to

compute their margin obligations and deposit the margin money in cash, bank

guarantee or FDRs, rounded off to the next higher multiple of Rs.10,000/-.

The margins deposited in cash on a given day are released to the member on

the subsequent day after adjustment for margin, ABC and any other funds dues

c. Determination of Exposure

The exposure to be reckoned for the purpose of applying VaR-based margin

rates is determined in the manner illustrated in Table 2.4. It is arrived at by

adding up the absolute values of the net cumulative positions for all securities

in which a member has an open position.

Table 2.4: Determination of Exposure for VaR Margins

(In Rs.)

Net Value

(buy value-sale value)

Cumulative Net Value*

Day

Scrip A Scrip B Scrip C Scrip A Scrip B Scrip C

Exposure

Day 1 -31000 -115000 -49900 -31000 -115000 -49900 195900

Day 2 52500 155000 146600 21500 40000 96700 158200

Day 3 -19600 -105000 198000 1900 -65000 294700 361600

Day 4 9900 103000 -750000 11800 38000 -455300 505100

Day 5 -29200 -31000 408500 13600 122000 3100 138700

Day 6 -5000 0 -104800 -43900 -33000 -248300 325200

Day 7 -35000 22000 345600 -59300 94000 -100700 254000

Day 8 36000 54300 320000 -33200 45300 969300 1047800

* It is the cumulative net values of the scrip for last four days ( T to T-3), as margins are

collected on T+1 basis. For example, the exposure at the end of day 6 is cumulative

open position of the scrips for days 3 to 6.

# It is the sum of absolute cumulative net values for all scrips.

2.3.4 Index-based Circuit Filters

An index based market-wide circuit breaker system applies at three stages of the

index movement either way at 10%, 15% and 20%. These circuit breakers bring

about a coordinated trading halt in all equity and equity derivatives markets nation

wide. The breakers are triggered by movement of either S&P CNX Nifty or Sensex,

whichever is breached earlier. As an additional measure of safety, individual scrip-

wise price bands of 20% either way have been imposed for all scrips including

debentures, warrants etc. Any order above or below 20% over the base price comes

to the Exchange as a .price freeze., NSE may suo moto cancel the orders in the

absence of any immediate confirmation from the members that these orders are

genuine or for any other reason as it may deem fit. The Exchange views entries of

non-genuine orders with utmost seriousness as this has market-wide repercussion.

2.3.5 Settlement Guarantee

After the execution of trade, the clearing corporation becomes the counter-party to

the transaction and ensures that funds and securities obligations are met. The

clearing corporation provides the guarantee and key link between clearing and

settlement activity. At NSE, a large Settlement Guarantee Fund, which stood at

Rs. 1,876 crore at the end of December 2001, provides the cushion for any residual

risk. It operates like a self-insurance mechanism where members contribute to the

Fund. In the event of failure of a trading member to meet settlement obligations or

committing a default, the Fund is utilised to the extent required for successful

completion of the settlement. This has eliminated counter-party risk of trading on

the Exchange. As a consequence, despite the fact that the daily turnover at times

exceeds Rs. 10,000 crore, credit risk no longer poses any threat in the market place.

The market has full confidence that settlement shall take place in time and shall be

completed irrespective of default by isolated trading members.

2.3.6 Direct Pay-out of Securities

NSCCL has put in place a system for giving direct pay-out of securities to

investor.s account. The system is applicable for both the depositories. An investor

who is expecting a pay-out is required to give his/her account details to the trading

member. The trading member in turn passes on this information to NSCCL. In

order to smoothen the back office work of the trading members for providing this

information, NSCCL has provided a front end for creating the file through which

the information is passed on to NSCCL. On the pay-out day, pay-out goes to such

investors' account directly from NSCCL. In case of any wrong information

provided by the trading member, the pay-out goes to the pool account of the

trading member.

2.3.7 Gross Margining

Presently margins are calculated for members security-wise on a net basis across

clients. SEBI has now directed the Exchanges that the members will be subjected

to margins on a gross basis across clients. Thus there will be no offsetting of

positions of different clients in the same security. This is effective from September

3, 2001.

2.3.8 No-delivery Period

Whenever a book closure or a record date is announced by a company, the

exchange sets up a .no-delivery. period for that security. During this period, trading

is permitted in the security. However, these trades are settled only after the no-

delivery period is over. This is done to ensure that investor.s entitlement for the

corporate benefits is clearly determined. However, there is no no-delivery period

on account of book closures and record dates for corporate actions, such as, issue

of dividend and bonus shares, in respect of the scrips which are traded in the

compulsory dematerialised mode. The time gap between two book closures/record

dates is 30 days.

2.3.9 Penalty Points and Penal Interest

NSCCL has instituted a penalty points system. Non performance in settlement by

way of non-payment of amounts, short delivery or bad delivery attracts penalty

points and a penal interest charge. The penalty interest and points are levied for a

month. The penalty points that are accumulated, and the penalty that would be

imposed for different types of violations, are made transparent to the members.

The strict implementation of this system acts as a strong deterrent for settlement

lapses. In addition, it also helps in identifying potential problem cases entailing

risks.

2.3.10 Indemnity Insurance

The Exchange has arranged a comprehensive insurance scheme to cover risks of

trading members. The Exchange has also taken an insurance cover of Rs. 50 crore

to protect against risks arising from settlement defaults and transit risk arising from

securities movement among its clearing centres.

2.4 International Securities Identification Number

SEBI being the National Numbering Agency for India has permitted NSDL to

allot International Securities Identification Number (ISIN) for demat shares. While

allotting ISINs, NSDL observes that:

� The ISINs allotted by NSDL does not at any point of time breach the

uniqueness of ISIN of physical form for the same security.

� ISIN for a security is allotted only when the security is admitted to NSDL.

� The numbering system is simple.

� The numbering system of ISIN is in compliance with the structure of ISIN

adopted by SEBI.

Numbering System of ISIN. The numbering structure for securities in NSDL is of 12

digit alpha numeric string. The first two characters represent country code i.e. IN

(in accordance with ISO 3166). The third character represents the Issuer Type as

detailed in Table 2.5.

The list may be expanded as per the needs. Maximum issuer types can be 35 (A to

Z and 0 to 8. The pro-rata dividend shares are identified by 9). The next 4

characters (fourth to seventh character) represent company identity. The first 3

characters are numeric. The fourth character is alpha character. The numbering

begins with .001A. and continues till .999A. and proceeds to .001B.. The next two

characters (the eight and ninth characters) represent security type for a given issuer.

Both the characters are numeric. The security types are planned which may be

expanded as per the need as detailed in Table 2.6.

Table 2.5: Issuers Type

Issuer Type Code

allotted

Central Government A

State Government B

Municipal Corporation C

Union Territories D

Company, Statutory Corporation, Banking Company E

Mutual Funds including UTI F

Table 2.6: Security Types

Security type Code

Equity 01

Non Voting Equity 02

Convertible Preference Shares 03

Non Convertible Preference Shares 04

Mutual Fund Units - Close ended 05

Mutual Fund Units - Open ended 06

Secured Debentures 07

Unsecured Debentures 08

Regular Return Bonds . Promissory Notes 09

Floating Rate Bonds 10

Deep Discount Bonds 11

Step Discount Bonds 12

Warrants 13

The next two characters (the tenth and eleventh characters) are serially issued for

each security of the issuer entering the system. Last digit is double-add-double

check digit.

2.5 Dematerialisation and Electronic Transfer of Securities

Traditionally, settlement system on Indian stock exchanges gives rise to settlement

risk due to the time that elapses before trades are settled. Trades are settled by

physical movement of certificates. This has two aspects: First relates to settlement

of trade in stock exchanges by delivery of shares by the seller and payment by the

buyer. The stock exchange aggregates trades over a period of time and carries out

net settlement through the physical delivery of securities. The process of physically

moving the securities from the seller to his broker to Clearing Corporation to the

buyer.s broker and finally to the buyer takes time with the risk of delay somewhere

along the chain. The second aspect relates to transfer of shares in favour of the

purchaser by the issuer. This system of transfer of ownership is grossly inefficient

as every transfer involves the physical movement of paper securities to the issuer

for registration, with the change of ownership being evidenced by an endorsement

on the security certificate. In many cases the process of transfer takes much longer

than the two months as stipulated in the Companies Act, and a significant

proportion of transactions end up as bad delivery due to faulty compliance of paper

work. Theft, forgery, mutilation of certificates and other irregularities are rampant,

and in addition the issuer has the right to refuse the transfer of a security. Thus the

buyer does not get good title of the securities after parting with good money. All

this adds to costs and delays in settlement, restricts liquidity and makes investor

grievance redressal time-consuming and at times intractable.

To obviate these problems, the Depositories Act, 1996 was passed to provide for

the establishment of depositories in securities with the objective of ensuring free

transferability of securities with speed, accuracy and security by

(a) making securities of public limited companies freely transferable subject to

certain exceptions;

(b) dematerializing the securities in the depository mode; and

In order to streamline both the stages of settlement process, the Depositories Act

envisages transfer ownership of securities electronically by book entry without

making the securities move from person to person. The Act has made the securities

of all public limited companies freely transferable by restricting the company.s right

to use discretion in effecting the transfer of securities, and dispensing with the

transfer deed and other procedural requirements under the Companies Act.

A depository holds securities in dematerialised form. It maintains ownership

records of securities and effects transfer of ownership through book entry. By

fiction of law, it is the registered owner of the securities held with it with the

limited purpose of effecting transfer of ownership at the behest of the owner. The

name of the depository appears in the records of the issuer as registered owner of

securities. The name of actual owner appears in the records of the depository as

beneficial owner. The beneficial owner has all the rights and liabilities associated

with the securities. The owner of securities intending to avail of depository services

opens an account with a depository through a depository participant (DP). The

securities are transferred from one account to another through book entry only on

the instructions of the beneficial owner.

In order to promote dematerialisation of securities, NSE joined hands with leading

financial institutions to establish the National Securities Depository Ltd. (NSDL),

the first depository in the country, with the objective of enhancing the efficiency in

settlement systems as also to reduce the menace of fake/forged and stolen

securities. This has ushered in an era of dematerialised trading and settlement.

SEBI has made dematerialised settlement mandatory in an ever-increasing number

of securities in a phased manner, thus bringing about an increase in the proportion

of shares delivered in dematerialised form. The share of demat delivery in total

delivery at NSE increased to 98% in value terms during 2000-2001 and to 99.8% in

December 2001. There is an increasing preference to settle trades, particularly in

high value securities, in demat form. Such high level of demat settlement reassures

success of rolling settlement.

2.6 Investor Protection Fund

Investor Protection Fund (IPF) has been set up as a trust under Bombay Public

Trust Act, 1950 under the name and style of National Stock Exchange Investor

Protection Fund Trust and is administered by the Trustees. The IPF is maintained

by NSE to make good investor claims, which may arise out of non-settlement of

obligations by the trading member, who has been declared defaulter, in respect of

trades executed on the Exchange. The IPF is utilised to settle claims of such

investors where the trading member through whom the investor has dealt has been

declared a defaulter. Payments out of the IPF may include claims arising of non

payment/non receipt of securities by the investor from the trading member who

has been declared a defaulter.

Quantum of Compensation. The maximum amount of claim payable from the

IPF to the investor (where the trading member through whom the investor has

dealt is declared a defaulter) is Rs.5 lakh.

Procedure for filing claims. A notice is published in widely circulated daily

newspapers notifying the trading member who has been declared defaulter. Claims

against the trading member specified in the notice are required to be made, on or

before three months from the date of such published notice. The claimant is

required to submit full details and all relevant facts of the case duly supported by

copies of the relevant documents.

The trustees in disallowing (whether wholly or partly) a claim for compensation

shall serve notice of such disallowance on the claimant. The trustees may at any

time and from time to time require any person to produce and deliver any

securities, documents or statements of evidence necessary to support any claim

made or necessary for the purpose of establishing his claims. In default of delivery

of such documents, the trustees may disallow (wholly or partly) any claim made by

him.

The trustees, if satisfied that the default on which the claim is founded was actually

committed, may allow the claim and act accordingly. The trustees have an absolute

discretion as regards the mode and method of assessing the nature of the claim

including their genuineness and at their discretion may accept, reject or partially grant

or allow claims and make payment thereof subject to the limits herein mentioned.

2.7 Clearing Software - Reports

2.7.1 Obligation Reports

1) Daily Obligation Statement. This report contains obligations of a Clearing

Member (computed after segregation of the custodial trades for Trading

Members). This is a daily report which is downloaded at the end of the trading

day to each Clearing Member. This report provides security-wise information

on:

(a) daily purchases and sales and their value.

(b) Cumulative purchases and sales, and their value for the trading period.

The Clearing member has to select settlement type, settlement number and trade

date for which the report is needed.

2) Daily Obligation Statement of No-Delivery Securities. This report is for the securities in

No-Delivery. This report provides daily as well as cumulative purchase and sale

position of Clearing Member for securities in no-delivery across the trading

periods. At the end of the No-Delivery period, these securities get added to the

obligation statement of the next settlement. This report also gives information on

No-Delivery period for a security and the settlement number in which it has to

be settled. The clearing member has to select settlement type and trade date for

which the report is needed.

3) Daily Obligation Statement of Custodial Trades. Only for Trading Members. This

report contains information on trades done by members on behalf of custodial

clients which are to be settled by the custodians. The Clearing member has to

specify the Settlement Type, Settlement No and Trade Date for which this report

is required.

4) Daily Obligation Statement of No-Delivery Custodial Trades. Only for Trading

Members. This report contains information on trades done by members for

securities in No-Delivery on behalf of custodial clients which has to be settled by

the custodians. The clearing member has to select settlement type, settlement

number and trade date for which the report is needed.

5) Final Settlement Obligations Statement. At the end of the trading period, members

receive Settlement Obligation Statement for funds and securities. This report

indicates the net obligation to deliver or receive for each security in which he has

had dealings and net obligation to pay or receive funds. The clearing member has

to select settlement type, settlement number for which the report is needed.

6) Final Settlement Obligations Statement of Custodial Trades. Only for Trading Members.

The Clearing Member also receives Custodian-wise Settlement Obligations

arising through the trades entered by the Trading Member on behalf of the

Custodial Participants. The Clearing Member has to select settlement type and

settlement number for which the report is needed.

2.7.2 Trade Reports

1) Custodial Trade Pending Confirmation. Only for Trading Members. This report

contains information of all Custodial trades which are not confirmed by the

Custodians as of the day of the report (within the Confirmation Window). The

Clearing member has to select settlement type, settlement number and trade

date for which the report is needed.

2) Trades Rejected by Custodian. Only for Trading Members. This report contains all

the trades that have been rejected by the custodian. The Clearing Member has

to select settlement type, settlement number and trade date for which the

report is needed.

3) Trades Change Statement. Only for Trading Members. All the trades reverted to a

Trading Member or vice-versa are displayed in this report. The Clearing

Member has to select settlement type, settlement number for which the report

is needed.

4) Security-wise daily trades statement for CP. This report gives the statement of all the

securities traded by the trading member for the respective Custodial

participants. The Clearing Member has to select settlement type, settlement

number, trade date and a Custodial participant code.

5) Security-wise daily trades statement for CP (No delivery). This report gives the

statement of all the securities which are in no deliveries and traded by the

Clearing Member for the respective Custodial participants. The Clearing

Member has to select settlement type, trade date and a Custodial participant

code.

6) Member-wise daily trades statement for CP. This report gives the statement of all the

securities traded by the trading member for the respective Custodial

participants. This report is sorted by trading members. The Clearing Member

has to select settlement type, trade date and a Custodial participant code.

7) Security-wise final trades statement for CP. This report gives the statement of all the

securities traded by the trading member for the respective Custodial

participants and for the given settlement type and settlement number. The

Clearing Member has to select settlement type, settlement number, and a

Custodial participant code.

2.7.3 Deliveries Reports

1) Final Delivery Statement. After allocation, the NSECM Clearing System generates

Trading Member-wise delivery statement. This delivery statement is security-

wise. Each delivery has a unique delivery number generated by the system. The

statement provides information on delivering centre, receiving centre, number

of shares to deliver for each security and also the code of the receiving entity.

The Clearing Member has to select settlement type, settlement number and

delivering centre code for which the report is needed.

2) Delivery Slip. It gives the details of delivering centre, receiving centre, quantity

of shares to be delivered, quantity of shares delivered, quantity short and

number of certificates. Delivery slips can be printed in two different formats.

1. Pre-printed stationary: Report is taken on pre-printed stationary. For this,

the stationary has to be in triplicate (i.e. 1:3). This prints the delivery slips

faster. 2. Plain stationary: Report is taken on plain stationary. Each page

contains 3 copies of the same delivery slip. One copy is for the Clearing

House, one for the member and one for the Exchange. The Clearing Member

has to select settlement type, settlement number, delivery type, delivery range

(start number - end number or all deliveries option) and delivering centre code

for which the delivery slips are needed.

3) Delivery Details Statement. This report gives a facility to list delivering centre,

receiving centre, all Certificate Numbers and DNR Numbers for deliveries of

the delivering Clearing Members. The Clearing Member has to select

settlement type, settlement number, delivery type, delivery range (start number

- end number or all deliveries option) and delivering centre code for which the

report is needed.

4) Security Shortage Statement. The Security Shortage Statement lists down the

shortage in the delivery of the securities as compared to the Clearing Members

obligation of securities pay-in. The details given in the list contain the

delivering centre, receiving centre, delivery number against which securities are

delivered short, the security, the quantity of shares delivered short, the

Valuation price and the amount to be debited to the delivering members

account for the quantity of shares delivered short, the receipt number and the

counter party receiving members name/code. The Clearing Member has to

select the settlement type, settlement number and delivering centre code for

which the Security Shortage Statement has to be printed.

2.7.4 Receipts Reports

Final Receipt Statement. This statement provides information security-wise on

receiving centre, delivering centre, the number of shares to receive, the code and

the name of the delivering Trading Member. The report gives the break up of

quantity of shares received in electronic form and physical form. The Clearing

Member has to select settlement type, settlement number and receiving centre code

for which the report is needed.

2.7.5 Bad Deliveries Reports

1) Unrectified Bad Delivery Statement. This report contains the list of deliveries

reported as bad against a delivering member and not rectified by the trading

member. The details given in the list contain the delivering centre, receiving

centre, delivery number for which the shares are not rectified, the security, the

quantity of shares not rectified, the Valuation price and the amount to be

debited to the delivering members account for the quantity of shares not

rectified, the receipt number, the counter party receiving members name/code

and the reason code of bad delivery. The Trading Member has to select the

settlement type, settlement number and delivering centre code for which the

Unrectified Bad Delivery Statement has to be printed.

2) Bad Deliveries to be Rectified Statement. This report contains the details of Bad

Deliveries which have to be rectified by the delivering member. The report

outlines the delivering centre, receiving centre, delivery number, the security,

the quantity of shares reported as bad to be rectified, the reason code for bad

delivery, the counter party receiving member name and code and the receipt

number. The Trading Member has to select the settlement type, settlement

number, bad delivery type and delivering centre code for which the Bad

Deliveries to be Rectified Statement has to be printed. The Trading Member

may include Inter-Regional Bad Deliveries in the report. Otherwise only the

Intra-Regional Bad Deliveries will be printed.

3) Rectified Bad Delivery Pay-out Statement. The Rectified Bad Delivery Pay-out

Statement gives the receiving centre, delivering centre, list of the deliveries

reported as bad by the receiving member and whether subsequently they have

been rectified by the delivering member. It gives the status of which bad

deliveries reported by the trading member have been rectified (in electronic

and/or in physical form) and which have not been rectified. The Trading

Member has to select the settlement type, settlement number, bad delivery

type and receiving centre code for which the Rectified Bad Delivery Pay-out

Statement has to be printed. The Trading Member may include Inter-Regional

Bad Deliveries in the report. Otherwise only the Intra-Regional Bad Deliveries

will be printed.

2.7.6 Funds Reports

Two Funds Reports are being provided through the clearing software i.e., Daily

Funds Summary Statement and Daily Funds Statement. Daily funds summary

statement will provide details about the transactions effected in the trading

members clearing account at the Clearing Bank. This statement is similar to the

Bank statement provided by the Clearing Bank. The debit appearing in the

summary statement is equal to the withdrawals as per the bank statement and the

credit is equal to the deposits as per the bank statement. Daily funds statement will

provide the break-up for each debit and credit appearing in your Daily funds

summary statement. Both the reports will be downloaded on a daily basis after the

debits/credits have been effected by the clearing bank.

1) Daily Funds Statement. This report gives the detailed break-up of debits/credits

effected to the clearing bank account as appearing in the daily funds summary

statement. The following parameters are to be entered in order to print the

Daily Funds Statement:

(i) From Transaction Date

(ii) To Transaction Date

(iii) Transaction Type

(iv) Segment Indicator

Trading member can print this report -

a) For a particular day by inputting the specified date as both from transaction

date and to transaction date;

b) For a period by inputting the from and to dates in the fields from

transaction date and to transaction date;

c) For a particular type of debit/credit (e.g. normal pay-in debit, squaring debit

etc.) by inputting the from / to dates and the debit/credit type known as

transaction type.

Transaction type is a two digit code representing a particular type of

debit/credit. The trading member can choose All or a specific transaction

type. If the option is All, then all transactions for the range of transaction

dates specified is printed. In case of a specific transaction type, then

transactions for the specific transaction type for the range of transaction

dates specified is printed.

d) For any particular segment, which the member may be operating in.

The report gives the details of the following:

Summary Transaction Number: This number is the transaction number as

appearing in the Daily funds summary statement. This number is the link

between the two statements. Daily funds summary statement would provide

total debit/credit carried out against each summary transaction number. The

debits/credits against each transaction number would be for a particular

transaction type. The Daily funds statement would provide the complete

details for the same transaction number and also a sub-total. This sub-total

would be equal to the debit/credit appearing in the Daily funds summary

statement against the transaction number.

Due Date: The date on which the transaction is due to be effected.

Description: The reason for the transaction along with the settlement type and

number will be given. In case of security shortages and bad deliveries valuation

transactions, the delivery number is mentioned. In case of auction trades, the

trade number is mentioned. In case of margin pay-in transactions the position

date for which margin is charged is mentioned.

Dr/Cr: Dr. is mentioned in case of a debit transaction. Cr. is mentioned in

case of a credit transaction.

Original Amount: The amount originally due for a transaction is the original

amount on that due date.

Due Amount: The amount due on a transaction date for a transaction is the due

amount.

2) Daily Funds Summary Statement. Daily funds summary statement will provide

details of debits/credits effected to the trading members clearing bank as on a

particular day. The trading member can print this report either for a particular

day or for a period. The following parameters are to be entered in order to

print the Daily Funds Summary Statement:

(i) From Transaction Date

(ii) To Transaction Date

(iii) Segment Type

The date on which the transaction was effected in the Clearing Bank is the

transaction date. If report for a single day needs to be printed the same date

should be entered for the from transaction date and to transaction date. If

reports for period need to be printed then the relevant dates have to be

entered.

The report gives the following details:

(a) Summary Transaction Number: This is a unique number for a transaction

effected at the Clearing Bank. This number is the link between the Daily funds

summary statement and the Daily funds statement.

(b) Settlement type and number: The settlement type and number for the effected

transaction is mentioned.

(c) Description: The reason for the transaction along with the settlement type

and number will be given.

(d) Debit Summary: The amount debited (withdrawn amount in the Bank

Statement provided by the Clearing Bank) for a summary transaction number.

(e) Credit Summary: The amount credited (credited amount in the Bank

Statement provided by the Clearing Bank) for a summary transaction number.

Example 10:

Daily funds summary statement

Transaction date: 17 Feb. 1996

______________________________________________________________________

Transaction Settlement type Description Dr. Summary/Cr. Summary

number /number ________________________

19960215000376 N 1996006 Margin Pay-in 150000

_________________________________________________________________________________________________

Daily funds statement

Transaction date: 17 Feb. 1996

___________________________________________________________________

Summary Due date Description Dr./ Original Due Actual Short

transaction no. Cr. amount amount amount amount

16-feb-96 Margin Dr. 100000 50000 50000 0

pay-in 16/02

17-feb-96 Margin Dr. 200000 200000 100000 100000

19960215000376 150000

______________________________________________________________________________________________

In the Daily funds summary statement for 17th February 96, one transaction

number 19960215000376 has been effected for Rs.150000 towards margin pay-in.

To know the details the corresponding daily funds statement for 17th February 96

should be viewed. The daily funds statement provides the break-up for the debit of

Rs.150000, margin amount of Rs.50000 towards 16th February 96 and margin

amount of Rs.100000 towards 17th February 96. While the full margin amount due

towards 16th February 96 has been debited, there is a shortage of Rs.10000 towards

margins for 17th February 96.

2.7.7 Auction Reports

1) Auction Square Up Debit Statement. This report gives details of unauctioned

deliveries that are squared-up by the Exchange. The report is to be printed by

the defaulting member on whose behalf the auction is conducted. In case the

auction is for short or bad deliveries, the delivering member is the defaulting

member and in cases of unrectified company objections, the objection

introducing member is the defaulting member. The report is downloaded at

the end of the auction trading day. This report gives the following details

(security wise):

a) Settlement type and number of the delivery that is auctioned.

b) Delivery type, centre code and number of the delivery that is auctioned.

c) Square up quantity, square up price and the square up amount.

Funds obligation to pay for all the cases squared up in the auction settlement.

The trading member can print the report by selecting the settlement type

(Auction) and the settlement number.

2) Auction Square Up Credit Statement. This report gives details of unauctioned

deliveries that are squared-up by the Exchange. This report is to be printed

by the receiving member. This report is downloaded at the end of the auction

trading day. This report gives the following details (security wise):

a) Settlement type and number of the delivery that is auctioned.

b) Delivery type, centre code and number of the delivery that is auctioned.

c) Square up quantity, square up price and the square up amount.

Fund obligation to receive, for the member for all the cases squared up in the

auction settlement. The trading member can print the report by selecting the

settlement type (Auction) and the settlement number.

3) Auction Difference Statement. This report gives details of the auctioned deliveries

for which the valuation price exceeds the auction traded price. This report is

to be printed by the defaulting member (a member who has delivered short

or not rectified a bad delivery). This report is downloaded at the end of the

auction trading day. This report gives the following details (security-wise):

a) Settlement type and number of the delivery that is auctioned.

b) Delivery type, centre code and number of the delivery that is auctioned.

c) The auction traded quantity, valuation and the auction amount of the

delivery.

Funds obligation to pay of the member for all the auction difference

amounts. The trading member can print the report by selecting the settlement

type (Auction) and the settlement number.

2.7.8 Objections Reports

1) Objection to be Rectified Statement. The Objection to be Rectified Statement lists

down all the objections that have been reported against or reported by a

trading member in a particular reporting period. The report contains details

such as Objection number, security symbol and series, objection quantity and

face value under objection, the counterparty introducing / reporting member

code, reason for objection and the original stamp amount paid by the buyer at

the time of lodgements with the company.

The trading member has to specify the settlement type and reporting date for

which the report has to be printed. The member also has to specify whether

the report is to be printed for the objection cases reported by him or reported

against him. For printing the details of objection reported against the trading

member, the member has to specify the Member type parameter as

Introducing Member and for printing the details of objection reported by the

trading member, the member has to specify the Receiving Member in the

Member type parameter.

2) Second Time Objections Statement. This Statement is similar to the Objection to be

rectified statement except that the report is to be printed for second time

objections. All the details contained in the above report are also printed in the

second time objection statement for rectified / replaced objections again

reported as under objections.

The trading member has to specify the settlement type and the objection

reporting period for which the report has to be printed. For printing the

details of objection reported against the trading member, the member has to

specify the Introducing member the Member type parameter and for printing

the details of objection reported by the trading member, the member has to

specify the Receiving Member in the Member type parameter.

3) Rectification Pay-in Date Change Statement. The rectification pay-in date of an

objection can change due to various reasons such as the rectification pay-in /

pay-out date being near the book closure start date / record date. As a result

the objection settlement to which the objection is assigned changes. The

Rectification Pay-in Date change statement contain the details of all the

objections whose rectifications have been changed(added) to the specified

objection settlement and also the details of the objections whose rectifications

have been moved away (deleted) from the specified objection settlement. The

report contains the details of whether the rectification has been changed to the

settlement or away from the settlement, Objection number, delivery number,

original rectification pay-in date and the original objection settlement, revised

rectification pay-in date and the revised objection settlement, security symbol

and series, objection quantity, receiving/introducing member code and name

and the receipt number.

The trading member has to specify the settlement type, settlement number and

the member type (Introducing Member / Receiving Member) for which the

report has to be printed.

4) Objections Withdrawal Statement. Objections can be withdrawn by either the

clearing house or the trading member for various reasons. The objection can

be withdrawn due to wrong reporting in the 6-C format, incomplete company

objection memo, etc. The Objection withdrawal statement gives details of the

objections withdrawn. This report gives detail of the part as well as full

withdrawal of quantity of shares under objections. The Objections

Withdrawal Statement contains details such as objection number, objection

settlement type and number, rectification pay-in date, symbol and series, face

value and the quantity of shares reported under objections, withdrawal

quantity, date of withdrawal, reason code for withdrawal, introducing/

receiving member code and name and the reason code for objection.

To print the report, the trading member has to select the objection settlement

type and period for objection withdrawal to be printed and the member type

(Introducing Member / Receiving Member).

5) Objections Status Statement. The Objection Status Statement details of the history

of objection from reporting to rectification and further whether the objection

is auctioned / squared off is printed. The details contained in the report

include the objection number, delivery number, security symbol and series,

quantity under objection, quantity replaced or rectified, face value of replaced

quantity, unrectified quantity, auction settlement number in which the

unrectified quantity will be auctioned/ squared off, break up of the shares to

be auctioned and the shares to be squared off. The statement also prints

details of rectified/ replaced quantity reported as bad, the auction number in

which the rectified/ replaced quantity reported as bad will be squared off and

the objection reason code.

The trading member has to specify the settlement type, objection settlement

number, member type (Introducing Member / Receiving Member) and the

objection number for which the report has to be generated.

6) Objections Unrectified Statement. This report is to be printed after the date of

rectification pay-in for the objection settlement. The objections unrectified

statement gives details about the objections unrectified by the trading member

in case of objections where he is the introducing member. The statement also

contains details of the unrectified objections in cases where the trading

member has reported the objections. The report includes details such as

objection number, delivery number, security symbol and series, objection

quantity and reported face value, unrectified quantity and the replacement face

value, receipt number, introducing / receiving member code and name.

The user has to select the settlement type, objection settlement number and

the member type (introducing member / receiving member) for which the

report has to be printed.

7) Objections Returned As Bad Delivery Statement. The objections rectified returned as

bad delivery statement gives details of the objection cases for which the

rectification / replacement of objection is reported as bad delivery. The report

contains details such as objection number, delivery number, security symbol

and series, rectified / replaced quantity, quantity of shares reported as bad

delivery, and Introducing member / receiving member code and name.

The report can be printed for objection cases where the trading member is

the introducing member as well as for cases where the trading member is the

receiving member.

The parameters to be specified to print the report are settlement type,

objection settlement number and the member type (introducing / receiving

member).

8) Stamp Duty Payable Report. The stamp duty payable report is provided to inform

the trading members about the stamp duty payable/ receivable in case of

objections. The report includes information about the objection number,

delivery / receipt number, security symbol and series, objection quantity,

original stamp amount paid by the investor / trading member reporting the

objection, quantity rectified, quantity unrectified, stamp amount payable /

receivable, stamp amount paid / received, receiving / introducing member

code and name, receipt / delivery number and the status of payment (paid or

pending). The stamp amount payable / receivable includes the differential

amount in case of shares rectified i.e. the stamp amount calculated at the

present consideration rate minus the original amount paid for the

proportionate quantity of shares rectified and in case of remaining shares i.e.

objection quantity minus rectified quantity, the amount of stamp calculated at

the present consideration rate for the remaining shares.

The trading member has to specify the settlement type, objection settlement

number, member type (introducing member / receiving member), and

whether the report has to be printed for cases where stamp amount is pending

payment / receipt, or for cases where the stamp amount has already been paid

/ received or for all the cases irrespective of the status of payment / receipt.

The trading member should also specify whether the report should be printed

for first time or second time objections.

9) Objection Settlement Schedule Statement. The objection settlement schedule

statement gives the dates for the reporting - rectification cycle of the objection

settlements. The report contains the objection settlement number, reporting

date, date of pickup by the introducing member for rectifying the objections,

rectification pay-in date, and the rectification pay-out date.

The trading member has to specify the objection settlement type and the range

of objection settlement numbers i.e. objection settlement number from and

objection settlement number to, to print the report.

2.7.9 Margin Reports

1) Member-wise Daily Margin Payable Statement (New). This report contains daily

margin amount payable by the members. This is a daily report which is

downloaded at the end of the trading day to each trading member. This

report provides information on the calculated margin amount, collateral

amount, amount paid till date and calculated value of cash margin payable

(+)/receivable (-).

The trading member has to select the margin trade date for which the report

is needed.

2) Memberwise Margin Payment Status Report (New). This report contains the margin

payment status of the member. This is a daily report which is downloaded at

the end of the trading day to each trading member. This report provides

information on the margin due date, cash margin pay-in (+)/pay-out (-),

amount transacted and amount short.

The trading member has to select the From date and To date for which the

report is needed.

3) Member-wise Daily Margin Payable Statement (Old). This report contains daily

margin amount payable by the members. This is a daily report which is

downloaded at the end of the trading day to each trading member. This

report provides information on the margin type namely mark to market loss,

gross exposure or net exposure, exposure amount, margin amount, highest

margin amount, margin payable till date and day margin amount. The trading

member has to select the margin trade date for which the report is needed.

4) Member-wise Margin Payment Status Report (Old). This report contains the margin

payment status of the member. This is a daily report which is downloaded at

the end of the trading day to each trading member. This report provides

information on the margin due date, cash margin payable, cash margin paid

and cash margin short. The trading member has to select the trading date for

which the report is needed.

2.7.10 Securities Reports

1) Securities Delivered Statement. This statement provides information on delivering

centre, total number of shares to deliver for each security, quantity delivered

and quantity of shares delivered short. The trading member has to select

settlement type and settlement number for which the report is needed.

2) Securities Received Statement. This statement provides information on delivering

centre, total number of shares to receive for each security, quantity received

and quantity received short. The trading member has to select settlement type

and settlement number, for which the report is needed.

2.7.11 Miscellaneous Reports

3) No Delivery Securities Statement. This report gives a listing of all the securities in

no delivery for a particular settlement type and settlement number. The

details outlined in this report are the security symbol and series, the no

delivery start date, the no delivery end date and the settlement type and the

settlement number in which the trades during the no delivery period will be

settled.

For printing this report the Trading Member has to choose the settlement

type and the settlement number for which details of the securities in no

delivery is required.

4) Corporate action statement. This report gives the statement of the corporate

actions falling between the dates entered by the user (i.e. dividend, AGM,

book closure date, record date etc.).

The trading member has to enter From date and To date.

5) Mode of Settlement Report for Securities. This report will display information

regarding Security Settlement Mode for a particular settlement type and

number. The clearing member has to enter settlement type and number.

2.8 File Transfer Protocol

A two way communication service is provided to the trading members based on

File Transfer Protocol (FTP) connections through VSAT, leased line and internet.

FTP may be used for accessing data that is general as well as member specific in

nature. Under this facility, a separate directory for each member has been created in

which member specific data files like trading data, clearing data, along with other

files like bills, trades done report etc. are routinely transferred. Each member has

been given access only to his/her own directory. Along with member specific

directories, there are some files like circulars, NCFM, bhav copy and related

software available in a .common. directory, which is accessible by all trading

members.

Members can access the files through extranet server using VSAT during off

trading hours (between 3:45 p.m. and 9:30 am) and through internet or lease lines

for all 24 hours a day.

For any Extranet connectivity problem, Helpdesk or Extranet team may be

contacted at 022-6598 178 to 188.

Model questions

1. Which one of the following is not an immediate measure taken by NSCCL in

case a member fails to meet any obligations?

(a) Uses trade guarantee fund to discharge his obligations.

(b) Reduces exposure limits.

(d) Disables trading terminal until member's obligations are fully discharged.

Ans. (a)

2. Net settlement obligation (delivery/receipt positions) of members is determined

by ______ netting.

(a) branch-wise

(b) multilateral

(d) bilateral

100

Ans. (b)

3. Under T+5 rolling settlement, as prevalent in India, pay-in and pay-out take

place on ________.

(a) 5th working day after trade date

(b) 4th and 5th day respectively after the trade date

(d) Delivery vs. Payment basis

Ans. (a)

4. The members/custodians make available the required securities in their

____________ with Depository Participants by the prescribed pay-in time for

securities.

(a) Delivery Account

(b) Receipt Account

(d) Client Account

Ans. (c)

5. A trading member is getting a message that he has violated the gross exposure

limit. The gross exposure at that point of time was Rs. 1535 lakh. What is the

existing effective deposit made by the member?

(a) Rs. 157.00 lakh

(b) Rs. 181.00 lakh

(d) Rs. 168.50 lakh

Ans. (d)

6. Gross intra-day turnover of a member shall not exceed ___ times of the capital

available with NSCCL.

(a) 8.50

(b) 10.00

(d) 20.00

Ans. (c)

7. Gross exposure shall not exceed Rs. __ crore if he has free capital of Rs. 2 crore.

(a) 18.5

(b) 8.5

(d) 20.0

Ans. (a)

101

8. Determine exposure at the end of day 6 under T+5 rolling settlement for

exposure limit of a member having following open positions in a security which

has an adjustment factor of 2:

Day Net Value

(Buy . sale)

1 -115000

2 155000

3 -105000

4 103000

5 -31000

6 0

7 22000

8 54300

(a) 122000

(b) 244000

(d) 7000

Ans. (b)

Computation: Cumulative net values from day 2 to 6 * the adjustment factor

= (155000-105000+103000-31000)*2 = Rs. 244000

9. Determine marginable position at the end of day 7 under T+5 rolling

settlement for VaR margins of a member having following open positions in a

security:

Day Net Value (Buy .

sale)

1 -115000

2 155000

3 -105000

4 103000

5 -31000

6 0

7 22000

8 54300

(a) 188000

(b) 94000

(d) -31000

Ans. (b)

102

Computation: Cumulative net values from day 4 to 7

= (103000-31000+0+22000) = Rs. 94,000

10. The daily margin in T+5 rolling settlement comprises of ___________.

(a) Mark to Market Margin and Gross Exposure Margin

(b) Mark to Market Margin and Value at Risk-based Margin

(d) Mark to Market Margin, Gross Exposure Margin and Value at Risk-based

Margin

Ans. (b)

11. Open position of a client for a day 'T' in three scrips A, B and C and the VaR

rate applicable on these positions are given in the following table:

Particulars Scrip A Scrip B Scrip C

Open position

(Buy - Sell) (in Rs.)

(-) 4,000

1,000

(-) 5,000

VaR rate applicable for

day "T"

25%

20%

30%

The following table gives the mark to market position of the client for four

settlements:

Settlement no. Scrip A Scrip B Scrip C

N1 (-) 100 (+) 50 (-) 50

N2 (+) 200 (-) 100 (-) 50

N3 (+) 50 (+) 50 (+) 50

N4 (-) 50 (-) 100 (-) 100

Calculate the margin payable by the trading member on behalf of the client for

day "T"

(a) Rs. 2,850

(b) Rs. 3,050

(d) Rs. 3,250

Ans. (b)

Computation:

VaR based Margin = Open position * VaR rate for each scrip

= (4000*25%) + (1000*20%) + (5000*30%) = Rs. 2,700

Mark to Market Margin = Rs. 350 (calculated in the following table)

103

Settlement no. Scrip A Scrip B Scrip C Positions

N1 (-) 100 (+) 50 (-) 50 (-) 100

N2 (+) 200 (-) 100 (-) 50 (+) 50

N3 (+) 50 (+) 50 (+) 50 (+) 150

N4 (-) 50 (-) 100 (-) 100 (-) 250

Net positions for MTM calculation (-) 350

Margin payable = Rs. 2,700 + Rs. 350 = Rs. 3,050

12. Which of the following agencies assigns ISINs to the securities in India?

(a) SEBI

(b) ANNA

(d) Stock Exchanges

Ans. (a)

13. The name of the ________appears in the records of the issuer as registered

owner of demat securities.

(a) depository

(b) actual owner

(d) depository participant

Ans. (a)

14. The final receipt statement generated in clearing software provides _________.

(a) securities received by the member for selected settlement.

(b) funds received by the member for selected settlement.

(d) securities delivered by the member for selected particular settlement.

Ans. (a)