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In the partial fulfillment of the requirement of the course BY TUSHAR DILIP PARAB





STATEMENT BY THE CANDIDATE I, Tushar dilip parab, wish to state that the work embodied is this project entitled IT in stock exchange is carried out under the supervision of prof. Prathama nemane, department of B.M.S., D. G. Ruparel College, Mumbai. This work has not been submitted for any other degree of this or any other universities.





I feel deeply in debted towards people who have guided me in this project. It would have not been possible to make such an extensive report without their help and guidance. I would firstly like to express my gratitude towards my guide Prof. Prathama nemane. for having shown so much of flexibility in guiding and always encouraged me. She helped me in deciding the project topic. She showed a lot of openness in her approach and I would like to thank her for her support in a way that has lead to proper & effective learning. Last but not least I am grateful to all my family members & my friends for being my side always. Without their help and Motivation it would have been impossible to complete my project.


Chapt er 1 2 3 TITLE Introduction to stock exchange. Financial market. Technology at stock exchange. i) ii) iii) NSE. BSE. SEBI. Pg no. 6 - 10 11- 17 18 19 32 33 39 40 4 5 6 7 8 9 A successful trading architecture. Changing scenario/benefits Adverse impact of IT on stock exchange. Future outlook. Conclusion. Bibliography 44 45 55 56 61 62 64 65 66 67 68




Increase of consistency, stabilization and reinforcement of market and governmental organization, also transformation in technology and inspecting environment, change the competitive criterion in stock exchange industry. Consequently, stock organizations like commercial firms going to adapt with new environment via IT, cost minimizing, and revenue maximizing, changes in organizational structure and establish strategic alliances, due to compete in augmentation of market share and etc. Increasing the development of computer technology, lead to IT appearance beside of expansion of telecommunication infrastructures. IT as one of the new human technologies not only affected by deep transformations but also it is affecting on human life patterns quickly and it is an important growth factor and a device of other sectors too. The plans of other countries show that effects of IT are too deep and if we ignore it, it would lead us to have no status in the future. Changing approach of global business from concentration knowledge, on made industry many to emphasis for on information and challenges different countries,

particularly for developing countries. Under this circumstance, investment in national economy to reach micro-economical and macro-economical goals has an obvious role. Now, stock exchange in advanced countries is the core of investment and every year conduct too much wandering -6

capital to active and generative units of society like production and service units. Recently, financial departments emphasize on applying IT and global trading. Regarding of stock exchange role in structure improvement and economical development, increasing the importance of IT prospective world and effective and efficient usage of IT in stock exchange, may be progress and advantage key in future stock market and realization of national goals. Therefore, this study investigates the advanced IT application on stock exchange on market characteristics like trade volume, outcome instability, cash and market efficiency. The growth in technology and communications has impacted every aspect of our business in some or the other form. These effects are enduring and have changed the very way in which business is carried out. The stock market is one such institution whose very existence has been challenged by the growth in information technology. IT has turned the very idea of a stock market on its head. The following study is an attempt to study the impact of information technology perspective. The study starts with an assessment of the impact of dematerialization on the stock markets. Dematerialization is perhaps the single most important factor that has changed every aspect of working of a stock market. Next we examine the impact IT has on the revenue and cost models of the stock exchange. on the stock market, with an Indian


We also examine IT-enabled linkages between exchanges and also have a look at RTGS (Real time Gross settlement).

PRE-REFORM PHASE:As of 1992 the Bombay stock exchange ltd was a monopoly. It was an association of brokers, and imposed entry barriers, which led to increased cost of intermediation. Trading took place by open out cry on the trading floor which was inaccessible to users. It was usual for the brokers to charge the investors a much higher price for that actually traded at. As with all trading floors there was no price time priority, so users of the market were not assured that the trade was executed at the best possible price. A variety of manipulative practices prevailed, so that external users of the market often found themselves at the losing end of the price movements. No strict actions could be taken against errant brokers. Retail brokers and particularly users of the market outside Mumbai, accessed market liquidity. Through a chain of intermediaries called sub-broker. Each sub broker in the chain mark-up in the price and the investors thus had to pay a much higher price than the actual traded price. The market used future style settlements with fortnightly

settlements. This means that the trading was supposed to take place for a fortnight until a predetermined expiration date.


A peculiar market practice called Badla allowed brokers to carry positions across settlements periods. In other words even open positions at the end of the fortnightly settlements cycle. The efficiencies of the exchange clearing house only applied for the largest 100 stocks. For other stocks, clearing, and settlements were done bilaterally which introduced further inefficiencies and costs.


Financial institutions increasingly use technology to operation smoothing, commercial and service activities, service development and improvement, risk reduction decreasing the cost of deals. These institutions transfer and distribute the risk by using service information networks facilities, more efficiently. Network establishing has been developed by reaching one of the important IT goals: quick and communal access to information resources. News transmission highways, internet, is one of the most efficient and useful computer networks in the world that many different activities can be performed in it and it has many facilities. According to National Association In Capitalization (NAIC) comment, private investors rate the internet in the first place as a source of information for investing, because people can study annual reports of companies and analysis of analyst, adopt specifications stock, goods and etc, and engaged in business

operations by visiting different websites. Using electronic networks to data, production, service and money exchanging between people (consumers) and companies, companies with each others, peoples with each others, citizens and governments, and at last companies and governments, is called electronic financial services. -9

A lot has been written about the relevance and importance of stock exchanges in the economy. However, at the cost of repetition, some salient points are highlighted here.

One of the key advantages is that stock exchanges are an efficient medium for raising resources and channeling savings from the public by way of issue of equity / debt capital by joint stock companies listed on the stock exchanges. The second main benefit is the wide dispersal of information and the need to disclose adequate information not only the quarterly or year-end financial results, but also major events that have an impact on the working of the company.

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We know that, money always flows from surplus sector to deficit sector. That means persons having excess of money lend it to those who need money to fulfill their requirement. Similarly, in business sectors the surplus money flows from the investors or lenders to the businessmen for the purpose of production or sale of goods and services. So, we find two different groups, one who invest money or lend money and the others, who borrow or use the money. Now you think, how these two groups meet and transact with each other. The financial markets act as a link between these two different groups. It facilitates this function by acting as an intermediary between the borrowers and lenders of money. So, financial market may be defined as a transmission mechanism between investors (or lenders) and the borrowers (or users) through which transfer of funds is facilitated. It consists of individual investors, financial institutions and other intermediaries who are linked by a formal trading rules and communication network for trading the various financial assets and credit instruments. Before reading further let us have an idea about some of the credit instruments:A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of a certain - 11

person, or to the bearer of the instrument. To clarify the meaning let us take an example. Suppose Gopal has given a loan of Rs. 50,000 to Madan, which Madan has to return. Now, Gopal also has to give some money to Madhu. In this case, Gopal can make a document directing Madan to make payment up to Rs. 50,000 to Madhu on demand or after expiry of a specified period. This document is called a bill of exchange, which can be transferred to some other persons name by Madhu. A promissory note is an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument. Suppose you take a loan of Rs. 20,000 from your friend Jagan. You can make a document stating that you will pay the money to Jagan or the bearer on demand. Or you can mention in the document that you will pay the amount after three months. This document, once signed by you, duly stamped and handed over to Jagan, becomes a negotiable instrument. Now Jagan can personally present it before you for payment or give this document to some other person to collect money on his behalf. He can endorse it in somebody elses name who in turn can endorse it further till the final payment is made by you to whosoever presents it before you. This type of a document is called a Promissory Note. The financial markets can broadly be divided into money and capital market.

a. MONEY MARKET:The money market is a mechanism that deals with the lending and borrowing of short term funds. The India Money Market has come of age in the past two decades. In order to study the money market of India in detail, we at first need to understand the parameters - 12

around which the money market in India revolves. The performance of the Indian Money Market is heavily dependent on real interest rate that is the interest rate that is inflation adjusted. Though the money market is free from interest rate ceilings, structural barriers and other institutional factors can be held responsible for creating distortions in India Money Market. Apart from the call market rates, the other interest rates in the Indian Money Market usually do not change in the short run. It is due to this disparity between the opposite forces that is prevalent in the money market in India that a well defined income path cannot be traced. Money market is a market for debt securities that pay off in the short term Usually less than one year, for example the market for 90-days treasury bills. This market encompasses the trading and issuance of short term non equity debt instruments including treasury bills, commercial papers, bankers acceptance, certificates of deposits, etc.

Capital market is a market where long term funds can be raised either through issue of securities or by borrowing from certain institutions short term funds can also be borrowed from various agencies. Thus business units can raise capital from issue of securities and borrowings (long term and short-term). The lenders of funds include the individual investors, the institutional investors, banks and special industrial financial institutions. Capital market is a market for long-term debt and equity shares. In this market, the - 13

capital funds comprising of both equity and debt are issued and traded. This also includes private placement sources of debt and equity as well as organized markets like stock exchanges. Capital market can be further divided into primary and secondary markets. i. Primary markets:The Primary Market consists of arrangements, which facilitate the procurement of long term funds by companies by making fresh issue of shares and debentures. You know that companies make fresh issue of shares and/or debentures at their formation stage and, if necessary, subsequently for the expansion of business. It is usually done through private placement to friends, relatives and financial institutions or by making public issue. In any case, the companies have to follow a well-established legal procedure and involve a number of intermediaries such as underwriters, brokers, etc. who form an integral part of the primary market. You must have learnt about many initial public offers (IPOs) made recently by a number of public sector undertakings such as ONGC, GAIL, NTPC and the private sector companies like Tata Consultancy Services (TCS), Biocon, Jet-Airways and so on. Primary markets or the new issue market is also called the IPO (initial

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public offering) market. Money is raised in the primary market for long term needs in the form of shares or debentures. ii. Secondary Markets Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets. For the general investor, the secondary market provides an efficient platform for trading of his securities. For the management of the company, Secondary equity markets serve as a monitoring and control conduitby facilitating value-enhancing control activities, enabling implementation of incentive-based management contracts, and aggregating information (via price discovery) that guides management decisions.

Difference between primary market and secondary market:

The main points of distinction between the primary market and secondary market are as follows: 1. Function : While the main function of primary market is to raise long-term funds

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through fresh issue of securities, the main function of secondary market is to provide continuous and ready market for the existing long-term securities. 2. Participants: While the major players in the primary market are financial institutions, mutual funds, underwriters and individual investors, the major players in secondary market are all of these and the stockbrokers who are members of the stock exchange. 3. Listing Requirement: While only those securities can be dealt with in the secondary market, which have been approved for the purpose (listed), there is no such requirement in case of primary market. 4. Determination of prices: In case of primary market, the prices are determined by the management with due compliance with SEBI requirement for new issue of securities. But in case of secondary market, the price of the securities is determined by forces of demand and supply of the market and keeps on fluctuating.

Reasons of applying electronic financial services in are:

a) Quick development of electronic exchanges:

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The portion of stocks that exchanged by direct electronic exchange in industrial countries has reached 90% from 28% in 2007. This quick development of electronic services is an evidence of importance of it. b) Intense change in financial structure and nature: Electronic financial services by inputting external suppliers with internal suppliers causes cost reduction and augmentation of competition in this sector. c) Government role in modification of financial sector: Government interference in financial sector usually has not enough efficiency to State ownership of banks, to prevent development of financial sector, and to increases the risk of financial crisis appearance. This management method is always failed or leads to support special group's benefits and finally results augmentation in financial supplying costs in economy. Therefore, supervisory role of government becomes basic and coordinator. d) Globalization of investment and stock exchange process: IT causes capital establishment and stock exchanging transferred to the international financial centers. Result of these matters is intense augmentation of capital establishment and stock exchanging contribution, especially in new markets. Normal level of capital establishment for partnership in international markets increased from 5 billion dollar in 1990to 30 billion dollar in 2000. e) Ensures transparency in exchange of stocks:

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Information technology can be said to be the Messiah of the stock exchange because it has helped to curb a lot of fraudulent schemes from dubious stock brokerages and issuing houses as well as providing a transparent and more efficient mode of operation for this gold mining sector. This Messianic effect can be seen from the changes that have occurred in the recent past. The importance of Information Technology on the capital market would not be complete without a mention of the internet boom as communication with stockbrokers and shareholders have improved so also information like market capitalization, all share index, value and volume of stock traded, bulls and bears, are all available.


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The city of Bombay, now re-christened Mumbai, has always been the financial capital of India. The Bombay Stock Exchange (BSE LTD , now known as The Stock Exchange, Mumbai) and more recently the National Stock Exchange of India (NSE) are both headquartered in Mumbai. BSE LTD was established in 1875 and is the oldest in Asia. BSE LTD was formed as "The Native Share and Stockbrokers Association" (a voluntary non-profit association). It has evolved over the years into its present status as one of the two leading stock exchanges in India. Till recently, the exchange was broker-managed. Now the exchange plans to demutualise and convert itself into a corporate entity, with management clearly separated from ownership. The NSE was established as a corporate body in 1993 with the primary objectives of ensuring nationwide electronic trading, high levels of transparency and faster settlement cycles. Since inception, the exchange has been demutualised, with the owners Hip, management and trading in the hands of three different sets of people. The NSE has been playing a catalytic role and has significantly contributed to the reforming of the secondary markets in India in terms of microstructure, market practices, trading volumes and use of state-of-theart technology. The use of satellite Communication technology for trading using Very Small Aperture Terminals (VSATs) enabled NSE to rapidly expand across the length and breadth of the country. Subsequently, after BSE LTD was granted the required site permissions, it expanded its trading facilities to the remote corners of the land.

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The National Stock Exchange (NSE) is India's leading stock exchange covering various cities and towns across the country. NSE was set up by leading institutions to provide a modern, fully automated screen-based trading system with national reach. The Exchange has brought about unparalleled transparency, speed & efficiency, safety and market integrity. It has set up facilities that serve as a model for the securities industry in terms of systems, practices and procedures. NSE has played a catalytic role in reforming the Indian securities market in terms of microstructure, market practices and trading volumes. The market today uses state-of-art information technology to provide an efficient and transparent trading, clearing and settlement mechanism, and has witnessed several innovations in products & services viz. demutualization of stock exchange governance, screen based trading, compression of settlement cycles, dematerialization and electronic transfer of securities, securities lending and borrowing, professionalization of trading members, finetuned risk management systems, emergence of clearing corporations to assume counterparty risks, market of debt and derivative instruments and intensive use of information technology. The National Stock Exchange (NSE), located in Bombay, is India's first debt market. It was set up in 1993 to encourage stock exchange reform through system modernization and competition. It opened for trading in mid-1994. It was recently accorded recognition as a stock exchange by the Department of Company Affairs. The instruments traded are, treasury bills, government security and - 20

bonds issued by public sector companies. The number of members trading on the exchange has been on a steady increase, helping integrate the national market and providing a modern system with a complete audit trail of all transactions. MEMBERSHIP 1026 trading members on the Capital Market segment, of which around 86% account for corporate, and the remaining individuals and firms. 113 trading members on the Wholesale Debt Market segment, all of which account for corporate. (Out of these 113 trading members, 106 are members of the Capital Market segment also and are included in the 1026 members indicated above). GEOGRAPHIC DISTRIBUTION Over 2600 trading terminals Over 1500 VSATs across the country with a 24 hour Network monitoring system in over 160 cities as of December 31st, 1997. NUMBER OF COMPANIES On the Capital Market segment, 600 securities are listed and 762 securities are permitted to trade as of December 31st, 1997. On the Wholesale Debt Market segment, 470 securities are listed and 369 securities are permitted to trade as of December 31st, 1997. Of the 470 securities listed, 267 are Government Securities, T-Bills and the balance account for other securities. - 21


NSE is working to increase the capacity of the trading system from the present 4,00,000 trades per day to more than 10,00,000 trades per day. The average daily numbers of trades have gone up from over 893 trades in November-94 to over 1,48,783 trades in November 97. On August 7, 97 the number of trades reached a record high of 2,36,411 which makes NSE one of the largest stock exchanges in the world. Average daily traded value has increased from Rs.7 crores in November-94 to more than Rs. 1480 crores in December-97 with a high of Rs.3,080.61 crores recorded on 26th June-97. Number of shares traded has increased from 76.10 lakhs in November-94 to 11,148.21 lakhs in December-97. Net traded value has increased from Rs.125 crores in November -94 to Rs. 32,549 crores in December-97. Delivered value (settlement wise) has increased from Rs.60 crores in November -94 to Rs.5,008 crores in December -97. Number of shares traded (depository segment) has increased from 200 shares in December -96 to 1,19,102 shares in December-97. Net traded value (depository segment) has increased from Rs.0.43 lakhs in December -96 to Rs.185.44 lakhs in December-97.

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Market share of cities other than five metros (Mumbai, Delhi, Calcutta, Chennai & Ahmedabad) which was about 16% in first quarter of 1996 grew to as high as 24% during the last quarter of 1997.

The ratio of contribution to turnover from Non Stock Exchange centres to Stock Exchange centres has risen from 0.36% in first quarter (Jan to Mar) of 1996 to over 10% in fourth quarter of 1997.

The market capitalization of companies has increased from Rs. 292637 crores in November'94 to Rs. 4571663 crores in February'98.

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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. - 25

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.


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The trading network is depicted in the above figure. 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 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 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 - 27

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 9 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.

TECHNOLOGY AT NSE:Across the globe, developments in information, communication and network technologies have created paradigm shifts in the securities market operations. Technology has enabled organizations to build new sources of competitive advantage, bring about innovations in products and services, and to provide for new business opportunities. Stock exchanges all over the world have realized the potential of IT and have moved over to electronic trading systems, which are cheaper, have wider reach and provide a better mechanism for trade and post trade execution. - 28

NSE believes that technology will continue to provide the necessary impetus for the organization to retain its competitive edge and ensure timeliness and satisfaction in customer service. In recognition of the fact that technology will continue to redefine the shape of the securities industry, NSE stresses on innovation and sustained investment in technology to remain ahead of competition. NSE's IT set-up is the largest by any company in India. It uses satellite communication technology to energize participation from around 320 cities spread all over the country. In the recent past, capacity enhancement measures were taken up in regard to the trading systems so as to effectively meet the requirements of increased users and associated trading loads. With upgradation of trading hardware, NSE can handle up to 6 million trades per day in Capital Market segment. In order to capitalize on in-house expertise in technology, NSE set up a separate company, NSE.IT, in October 1999. This is expected to provide a platform for taking up new IT assignments both within and outside India and attaining global exposure. NSE is one of the largest interactive VSAT based stock exchanges in the world. Today it supports more than 3000 VSATs. The NSE- network is the largest private wide area network in the country and the first extended C- Band VSAT network in the world. Currently more than 9000 users are trading on the real time-online NSE application. There are over 15 large computer systems which include non-stop fault-tolerant computers and high end UNIX servers, operational under one roof to support the NSE applications. This coupled with the nation wide VSAT network makes NSE the country's largest Information Technology user. In an ongoing effort to improve NSE's infrastructure, a corporate network has been implemented, connecting all the offices - 29

at Mumbai, Delhi, Calcutta and Chennai. This corporate network enables speedy inter-office communications and data and voice connectivity between offices. In keeping with the current trend, NSE has gone online on the Internet. Apart from having a 2mbps link to VSNL and our own domain for internal browsing and e-mail purposes, we have also set up our own Web site. Currently, NSE is displaying its live stock quotes on the web site (www.nseindia.com) which are updated online.

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Telecommunication Network of NSE

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NSE uses satellite communication technology through VSATs to energize participation from around 400 cities spread all over the country. NSE can handle up to 1 million trades per day. The telecommunications network uses X.25 protocol (an International Standardization Telecommunication Sector (ITU-T) Union-Telecommunication standard for WAN protocol

communications that defines how connections between user devices and network devices are established and maintained). It is the backbone of the automated trading system. The trading members on the Wholesale Debt Market segment are linked to the central computer at the NSE through dedicated 64Kbps leased lines and VSAT terminals. These leased lines are multiplexed using dedicated 2 MBPS, optical-fibre links. The WDM participants connect to the trading system through dial-up links.

IS an International Telecommunication UnionTelecommunication Standardization Sector (ITU-T) protocol standard for WAN communications that defines how connections between user devices and network devices are established and maintained. X.25 is designed to operate effectively regardless of the type of systems connected to the network. It is typically used in the packet-switched networks (PSNs) of common carriers, such as the telephone companies. Subscribers are charged based on their use of the network. The development of the X.25 standard was initiated by the common carriers in the 1970s. At that time, there was a need for WAN protocols capable of providing connectivity across public data networks (PDNs). X.25 is now administered as an international standard by the ITU-T.

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SUMMARY: X.25 is an ITU-T standard protocol that defines how connections between user devices and network devices are established and maintained, and that operates effectively regardless of the type of systems connected to the network. X.25 devices include DTEs, DCEs, and PSNs. X.25 connections contain both SVCs and PVCs within the physical circuit. X.25 uses the following three protocols, which map to the bottom three layers of the OSI reference model: PLP, which maps to the network layer LAPB, which maps to the data link layer X.21bis, EIA/TIA-232, EIA/TIA-449, EIA-530, and G.703, which map physical layer

to the

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THE BSE LTD (CORPORATISATION AND DEMUTUALISATION) SCHEME, 2005 Bombay Stock Exchange Limited (the Exchange) is the oldest stock exchange in Asia with a rich heritage. Popularly known as "BSE LTD ", it was established as "The Native Share & Stock Brokers Association" in 1875. It is the first stock exchange in the country to obtain permanent recognition in 1956 from the Government of India under the Securities Contracts (Regulation) Act, 1956.The Exchange's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized and its index, SENSEX, is tracked worldwide. Earlier an Association of Persons (AOP), the Exchange is now a demutualised and corporatized entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE LTD (Corporatization and Demutualization) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI).Bombay Stock Exchange Limited received its Certificate of Incorporation on 8th August, 2005 and Certificate of Commencement of Business on 12th August, 2005. The 'Due Date' for taking over the business and operations of the BSE LTD, by the Exchange was fixed for 19th August, 2005, under the Scheme. The Exchange has succeeded the business and operations of BSE LTD on going concern basis and its recognition as an Exchange has been continued by SEBI. With demutualization, the trading rights and ownership rights have been de-linked effectively addressing concerns regarding - 34

perceived Directors.

and The








professionally managed under the overall direction of the Board of Board comprises eminent professionals, representatives of Trading Members and the Managing Director of the Exchange. The Board is inclusive and is designed to benefit from the participation of market intermediaries. In terms of organization structure, the Board formulates larger policy issues and exercises over-all control. The committees constituted by the Board are broad-based. The day-to-day operations of the Exchange are managed by the Managing Director & CEO and a management team of professionals. The Exchange has a nation-wide reach with a presence in 417 cities and towns of India. The systems and processes of the Exchange are designed to safeguard market integrity and enhance transparency in operations. During the year 2004-2005, the trading volumes on the Exchange showed robust growth. The Exchange provides an efficient and transparent market for trading in equity, debt instruments and derivatives. The BSE LTDs On Line Trading System (BOLT) is a proprietary system of the Exchange and is ISO-27001 certified. The surveillance and clearing & settlement functions of the Exchange are ISO 9001:2000 certified.


BSE LTD computerized its trading and settlement activities by following a three phased approach. Phase I: The primary objective of this phase was the real time dissemination of price data through the Display Information Driver System (DIDS). DIDS was commissioned in November, 1992 to - 35

disseminate bids, offers, actual rates of transactions and indices on a real time basis. Phase II: In 1994, settlement related daily transactions inputs and outputs were uploaded and downloaded from the TWS in the brokers offices. Phase III: Commissioned on March 14, 1995. Although, screen based trading started with 818 scrips, by the 70th day of its commissioning, all scripts-exceeding 5000 had been put on the BOLT system. The BOLT system was commissioned with the Himalaya K 10,000 central trading computer hardware. Since then the hardware has been upgraded to the Himalaya K 20,000 system. The system provides for a response time of two seconds and can handle more than two hundred thousand trades in a day

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BSE LTD places great deal of emphasis on Information Technology to strengthen its functioning and performance. 'Operations & Trading Department' continuously upgrades the hardware, software and networking systems, thus enabling the Exchange to enhance the quality and standard of service provided to its members and other market intermediaries. To facilitate smooth transaction, BSE LTD had replaced its open outcry system with BSE LTD On-line Trading (BOLT) facility in 1995. This totally automated screen based trading in securities was put into practice nation-wide within a record time of just 50 days. The BOLT platform capacity has been enhanced to 70 lakhs orders per day by upgrading the hardware. BOLT has been certified by DNV for conforming to ISO27001 security standards. Exchange has also introduced the world's first centralized exchange based Internet trading system, BSE LTD WEBx.com. The - 37

initiative enables investors anywhere in the world to trade on the BSE LTD platform. BSE LTDs website www.bseindia.com provides comprehensive information on the stock market. It is one of the most popular financial websites in India and is regularly visited by financial organizations and other stakeholders for updates. BSE LTD 's team of experts and professionals, along with its strategic partners have put into place several critical systems such as Derivatives Trading & Settlement System (DTSS), Electronic Contract Notes (ECN), Unique Client Code registration (UCC), Real time data dissemination - system - Data feed, Integrated Back office System CDB / IDB, Book Building System (BBS) & Reverse Book Building System (RBBS) etc. BSE LTD also operates one of the largest private networks in India, comprising campus LAN; WAN set up within Mumbai and across some major metros in India and VSAT set up across the country. BSE LTDs Campus LAN covers around 350 member offices across three BSE LTD buildings P.J.Towers, Rotunda and Cama building. BSE LTD WAN setup connects approximately 2000 member offices within Mumbai and some major metros to BSE LTD systems. Leased MLLN circuits from MTNL / BSNL are provided with ISDN / TTML leased circuit backup. Around 300 circuits are of 2Mbps capacity and rests all are of 64Kbps capacity. In year 2000 BSE LTD set up its own VSAT Master Earth Station (HUB), which uses full transponder on INSAT 3B satellite to cater to roughly 2000 locations in over 400 cities across the country? - 38

Regional Hubs for local fan out of leased lines within Metros backed by high availability trunk backbone to BSE LTD. The regional technology hubs are commissioned in Ahmedabad, Bangalore, Chandigarh, Chennai, Delhi, Hyderabad, Indore, Jaipur, Kolkata, Ludhiana, Pune and Rajkot provide cost-effective reliable services to members. The trading and settlement activities of the member-brokers are closely monitored through On-line Real Time System known as BSE LTD Online Surveillance System (BOSS). The system enables the Exchange to detect market abuses at a nascent stage, improve the risk management system and strengthen the self-regulatory mechanisms. Currently, BSE LTD is in the process of evolving an

integrated system for online surveillance of Cash and Derivatives Segment through BSE LTD Online Surveillance System - Integrated (BOSS I ). BSE LTD uses higher end fault tolerant systems for its trading and related functionalities. It uses Integrity Non-stop systems for its online trading systems (BOLT). The systems have been designed to deliver the best performance without compromising on key factors of availability, scalability, ROI and TCO. There are powerful RISC based Unix severs rp8420 from hp for our Derivatives, Settlement, Back office, Data feed, BBS, RBBS and other systems related to trading / non-trading and related functionalities. The systems are facilitated by the use of the robust and high available storage subsystems from hp. We use one of the most powerful Intel blade servers for our Internet based trading system (ITS) enabling the end user to carry out the trading activities from any location facilitated by the internet. - 39

We also use Intel blade servers for BSE LTD india.com web site, one of the best portals on information related to capital markets. BSE LTD strictly adheres to IS policies and IS Security policies and procedures for its day to day operational activities on 24 x 7 bases which have enabled us to achieve the ISO27001 certification. In addition, BSE LTD has also been successful in maintaining systems and processes uptime of 99.99%.

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The securities and exchange board of India (SEBI) was set up in 1988 was given statuary recognition in 1992 on recommendations of the Narsimha Committee. Following the recommendations of this committee the capital issues (control) act 1947, was repealed in May 1992 and SEBI was made the regulatory authority in regard to new issue of companies. An amendment to the SEBI act 1992 carried out on march 25, 1995 has empowered SEBI to register and regulate new intermediaries in the capital market. With this empowerment all intermediaries associated with the securities market are now regulated by SEBI


AUTOMATION :The underlying philosophy for the SEBIs information technology strategy is to equip its officers with an electronic office wherein the required information is readily available at their desktop itself. The SEBI is in the process of implementing an organizationwide database from which individual officers would draw information to facilitate their day to day work. In a fast evolving environment, the speedy and effective communication between the SEBIs own departments at Mumbai and its regional offices spread throughout the country are critical prerequisites for quick and timely response. To achieve this objective it is necessary to network all the computers in a manner - 41

that they act as a single corporate resource. Initiatives were taken in 1997-98 to implement a Local Area Network (LAN). This is expected to provide the basic infrastructure for unified database access, client-server computing as well as the foundation for sharing information. As part of the SEBIs information technology plan, the entire computing infrastructure was upgraded during the previous year with the introduction of 250 "Pentium" workstations. These were supplemented in the year under review with the addition of 100 "Pentium" workstations and over 50 high end multimedia computers. These computers were provided with the latest productivity tools including software products for word processing, spreadsheets and presentations. With the implementation of the LAN, officers were also being provided with e-mail and Internet access to encourage the transmission of electronic information and to help users access the vast resources of the Internet relating to securities markets. A training programme was organized to enable users to make effective use of information technology and computing resources within the SEBI. Database servers were acquired to initiate the development of the SEBIs own database and application systems. These servers are equipped with fault tolerant and security features to ensure uninterrupted and controlled access. The SEBIs web site is hosted at http://www.sebi.gov.in. This site was heavily accessed during the year. In response to the needs and comments of users, the site was substantially redesigned during the year. The site contains statutes, rules, regulations, guidelines relating to SEBI; annual reports, draft prospectuses, press releases and investor related information. A mirror site is also hosted at http://www.sebi.com. - 42

New technologies such as imaging, document management, workflow, video conferencing and electronic data interchange are being explored for their feasibility and introduction within the organization. STATUS OF INFORMATION TECHNOLOGY IN SEBI:The SEBI has continuously been in the process of adopting emerging technologies to maintain the status of advanced users of the modern techniques. During 1999-2000, the SEBI initiated the process of consolidation of databases to implement effective Management Information Systems on the securities market, enhancement of Network Communication and implementation of workflow applications. SEBIS DATABASES:With the installation of state-of-the-art database servers, during the year 1999-2000, the emphasis was given to migration and re-engineering of SEBIs internal databases from legacy systems to Relational Database Management Systems (RDBMS). The internal database primarily comprises of information pertaining to initial public offers, securities market intermediaries, Investments by Foreign Institutional Investors (FII), investigations/action taken, legislation matters, Investor Grievances and Internal Administration. Consequently the application software packages have been developed and deployed for up-to-date maintenance of these databases. A suitable security and audit mechanism has also been implemented to protect the data from unauthorized access. - 43

With the strengthening of the team of IT Professionals at SEBI, the application software development is being done in-house, with an aim to provide Executive Information System and to provide quick response to the departmental needs. NETWORKING:During the year 1999-2000, the Network Communication Systems were enhanced. The local area network (LAN) was established at all the regional offices for implementing the basic infrastructure for client-server computing. With the installation of LAN at the Regional Offices, Database applications, E-mail, Internet and Intranet were all configured in tandem with the head-office. As part of the Wide Area Network (WAN) between SEBI offices and the offices in Mumbai have been inter-connected by Integrated Services Digital Network (ISDN) link for the unified Database Applications and Web access. A feasibility study has also been initiated to form a SEBI-Net linking Head-Office and the Regional Offices. SEBI WEB SITE:As part of our constant endeavor in promoting the development of the securities market by providing the latest information, the official web site of SEBI http://www.sebi.gov.in was enhanced during the year 1999-2000. The enhancements included Daily Market Trends pertaining to FII and Mutual Funds, Hosting Draft Prospectus, Contents, etc. SEBI Bulletin, Department-Wise Classification of

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ELECTRONIC OFFICE:Pursuing the philosophy of "Less Paper" office, Intranet and workflow applications have been implemented, featuring hosting of internal circulars, various application formats etc. and enhancement of the correspondence tracking system. The Work has been initiated to foster the knowledge base management, by way of electronic hosting of internal bulletin and discussion forums. During 1999-2000 state-of-the-arts multimedia notebook computers equipped with latest office automation tools for presentations and mobile computing were procured.

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INDIAN EXCHAGES:The NSE and BSE LTD are among the largest exchanges in the country. They handle very large daily trading volumes, support large amounts of data traffic, and have a very large nationwide network. The trading volume figures in both the exchanges are huge. The average daily turnover in the capital markets segment at NSE is around Rs 2300 crore and in the derivatives segment, around Rs 1300 crore. The average daily traffic volume is around one million trades per day in the capital markets segment and around 50,000 trades per day in the derivatives segment. There are around 13,000 registered users in both segments and an average of around 9500 users is logged in at a time. At BSE LTD the average daily turnover in 2001-2002 (AprilMarch) was Rs 1244.10 crore and the number of average daily trades was Rs 5.17 lakhs. As promised by technology visionaries and forecast groups over the last decade, the Internet has indeed opened up new avenues for conducting business. Stock exchanges worldwide now conduct a bulk of its business online through its brokers and partners, a major shift from the traditional method. In developed countries, almost all exchange transactions are conducted online. The trend has slowly picked up in India and two of the largest exchanges, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE LTD) have been conducting online trade successfully for some time now. - 46

NETWORK DESIGN:Needless to say, any online exchange needs to be alwayson, secure, redundant, and have adequate backup and recovery processes. G.M Shenoy, VP, NSE-IT, talks about the design philosophy of his online exchange. "The basic design objective was to provide fair, equal, and transparent access across all our nationwide locations. An important aspect was to provide connectivity to our trading members as soon as possible." "The telecom sector is fairly liberal today. Back in 1993, the technology was maturing and was costly. Leased lines cost almost ten times as much as it does today. Satellite technology was a boon since it allowed quicker deployment than leased lines. NSE now has the country's largest VSAT network with over 3000 VSATs and expects to grow to more than 4000 VSATs soon."

NETWORK ELEMENTS:A look at the massive trading volumes and traffic bulk is enough proof of the critical nature of systems. It makes one shudder to think of the expected losses in case of a ten minute downtime when daily trade crosses Rs 3000 crore. Network elements like storage, security, backup and recovery processes, availability, and the different applications must be carefully planned and commissioned. Then one has to follow stringent RBI regulations to store at least 7 years of transactional and financial data.

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Storage: For such high amounts of critical data it's natural to deploy network-based storage like NAS or SAN. NSE is implementing a SAN as it feels that its data volumes have grown 'phenomenally'. Security: This should be a vital and integral part of the design architecture. The hardware and software elements should be built around layered security architecture. And it should be held in place with a well-documented security policy. Backup and recovery: This has emerged as one of the vital aspects of business continuity. When online exchanges were designed a few years ago, perhaps a lot of emphasis was not placed on this aspect, as it is today. However it's not difficult to add business continuity processes to an existing network. As a backup to our VSAT network at NSE, a terrestrial-based trading network was deployed in the middle of 2000. NSE has more than 850 leased lines connecting nationwide locations. NSE is the only stock exchange in the country to have a fully-redundant business continuity site in Chennai. Availability: Ideally online exchanges should have 'five-nine'

availability. Exchanges usually prefer to host its infrastructure inhouse and not use the services of an external data center. Applications: It's difficult to deploy out-of-the-box applications at exchanges as each has a unique architecture based on factors like operations flow, trading volumes, number of members, number of users, and number of locations. The applications like trading, clearing, risk-management, surveillance, index computation, listing, membership, and accounts may be developed in-house or by external software developers.

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NSE and BSE LTD, the 'big two' exchanges believe in updating and upgrading its technology systems to keep delivering according to commitments and promises made to its members, partners, and customers.

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NSE has deployed NIBIS (NSE's Internet Based Information System) for real-time dissemination of trading information over the Internet and NEAT a client-server-based application to help its operations.

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NEAT stores all trading information in an in-memory database at the server end to achieve minimum response time and maximum system availability for users. The trading server software runs on a fault-tolerant STRATUS mainframe and the client software runs on Windows PCs. The telecommunications network uses the X.25 protocol and is the backbone of the automated trading system. Each trading member trades on the NSE with other members through a PC located in the trading member's office. The trading members on the Wholesale Debt Market segment are linked to the central computer at the NSE through dedicated 64 Kbps leased lines and VSAT terminals. These leased lines are multiplexed using dedicated 2 MB optical-fiber links. The WDM participants connect to the trading system through dial-up links. The exchange uses RISC-based UNIX servers from Digital and HP for back office processing. Applications like Oracle 7 and SQL/Oracle Forms 4.5 front ends are used for the exchange functions. 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. NEAT is a state-of-the-art client server based application. At the server end, all trading information is stored in an in-memory database to achieve minimum response time and maximum system availability for users. The trading server software runs on a fault tolerant STRATUS main frame computer while the client software runs under Windows on PCs.


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BSE LTD has deployed an Online Trading system (BOLT) on March 14, 1995. It works on a nonstop platform .The nonstop systems act as the backend to more than 12000 Trader Workstations networked on Ethernet, VSAT and Managed Leased Data Network (MLDN). The systems claim to handle up to three million trades a day. BOLT has a two-tier architecture. The trader workstations are connected directly to the backend server which acts as a communication server and a Central Trading Engine (CTE). Other services like information dissemination, index computation, and position monitoring are also provided by the system. A transaction monitoring facility in the Tandem architecture helps keep data integrity through non-stop SQL. With the help of MTNL, BSE LTD has setup a MLDN Network comprising 300 2 Mbps lines and 1500 64 Kbps lines which connect all regional stock exchanges and offices in Mumbai. Access to market related information through the trader workstations is essential for the market participants to act on real-time basis and take instantaneous decisions. BOLT has been interfaced with various - 53

information vendors like Bloomberg, Bridge, and Reuters. Market information is fed to news agencies in real time. The Exchange plans to enhance the capabilities further to have an integrated two-way information flow.

BOLT i.e., BSE LTDs online trading system is designed and developed by CMC LTD, now a Tata Group company. This screenbased trading system replaced the manual out-cry method of trading in the ring and went live on March 1995.This enabled BSE LTD to provide floorless and fully automated screen-based trading facilities in capital market (CM) instruments with equal access to investors all over the country. Currently, BSE LTD with around 685 members has seen an average daily turnover of Rs. 1,162 crore in July 2002. For further expansion of its activities, BSE LTD decided to provide web-based trading facility to the members as it was felt that Internet trading would fundamentally change the way exchange and brokers interact with their customers. Tata Consultancy Services developed the system (BSE LTD WebX) with the objective of enabling the exchange to service its members and the customers of the members in an efficient and cost-effective manner using the Internet Applications used by BSE LTD Windows, SQL Server 2000, and IIS Server.

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Reduce and eliminate operational inefficiencies inherent in manual systems, Increases trading capacity of the stock exchange, Improve market transparency, eliminate unmatched trades and delayed reporting, Promote fairness and speedy matching , Provide for on-line and off-line monitoring, control and surveillance of the market, Smooth market operations using technology while retaining the flexibility of conventional trading practices, Set up various limits, rules and controls centrally , Provide brokers with their trade data on electronic media to interface with the Broker's Back Office system, Provide a sophisticated, easy to use, graphical user interface (GUI) to all the users of the system, Provide public information on scrip prices, indices for all users of the system and allow the stock exchange to do information vending, Provide analytical data for use of the Stock Exchange.

Trading on CMC's Trading system BOLT can be carried out for Normal segment as well as in the Auction, Odd lot segment, Continuous Net Settlement, etc. The system is capable of handling 2.5 million orders per day. Today, there are around 9000+ BSE LTD trading terminals spread across India. The brokers / traders operate from their own offices and send their quotes, orders, negotiated deals, in-house deals, auction orders as the case may be to the Central Trading Engine (CTE) through the Broker Work Station (BWS). The Best Bid and the Best Offer (based - 55

on price and time priority) in the market form what is known as the Best Bid and Offer (BBO) for each scrip. The BBO of all the scrips in the market are available to all the BWS through a mechanism called broadcast of the market information. The buy and sell orders placed by the broker / trader will be matched at the best available price in the market for that scrip, at the time of the order. SuBSE LTD quent to matching, trade confirmations are sent to the respective workstations, which can be printed on-line. BOLT was developed on Non Stop Tandem platform keeping in view the criticality of the application.


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Reduces or eliminates operational inefficiencies inherent in manual systems, Increases the trading capacity of the stock exchange,

Improves transparency, eliminates unmatched trades, no delay in reporting,

Smooth market operations using the latest technology ,

Allows setting of various checks, limits, for better control,

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Provides trade data using electronic media to the broker using an interface with the broker's back-office system,

Provides user information (like scrip prices and indices) to all users,

Provides analytical data to the stock exchange.

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While the NSE modernized the trading system, it was helpless against paper related problems, fake and forged shares and signature mismatches. Its reaction was to promote a Depository to push the move towards paper less trading. The Stock Holding Corporation of India, set up in the early eighties had not made much headway in transiting to a depository and continued to operate as a custodian, for the investments of financial institutions. Initially, the NSE tried to work with the SHCIL, but in 1996 it decided to pitch for setting up the depository on its own. In less than two years, the National Share Depository Ltd. has made rapid strides and the value of shares dematerialised has crossed Rs one trillion. The introduction of compulsory dematerialization in select scrips by SEBI has enabled it to move towards a rolling settlement in a few of these stocks. Dematerialization in simple terms means the conversion of shares from physical to electronic form. Demat, enabled by the use of technology is probably is single most important factor which has repercussions on every aspect of the stock markets. Demat in India started with the creation of NSDL (National stock depository limited) in 1996. UTI was one of the first institutions to use Demat when it decided to dematerialize 50% of its holdings in 1997. SEBI gave a boost to Demat, with compulsory trading on shares in Demat form in specified scrips by institutional investors from Jan 15, 1998.

Dematerialization has benefited the market and the market players in more than one way. Demat is instrumental in Abolition of market lots - 59

Introduction of rolling settlements Enhancing liquidity Bringing stamp duty to zero Reducing chances of bad delivery Increased lending by banks and other FIs SEBI extended Demat to IPOs during capital reforms in capital markets in 2002. The premise being elimination of problems due to loss of allotment letters, share certificates etc., encouraging shareholders to opt for Demat credit of allotments, trading compulsorily in Demat form with an option of holding shares in physical form for retail investors. BSE LTD is the first exchange to be set up in India, started as a floor-based exchange. However, NSE, setup as an alternative to BSE LTD, was an electronic (computerized) exchange. With advancements in technology, both these exchanges moved to SBTS (Screen Based Trading System) in 1997.While NSE introduced NEAT (NSEs Online Trading System) in May 1997, BSE LTD introduced BOLT (BSE LTDs Online Trading System) in September 1997 in Mumbai. The outcome has phenomenal with respect to the number of trades taking place on these two exchanges.

Online trading:An online trading account is more than a brokerage account. It offers you a unique 3-in-1 feature, which integrates your Brokerage, Bank and one or more Demat accounts. This means that you can buy and sell shares and forget about the hassles of settlements. Transfers of shares from/to your Demat account and transfer of money from/to - 60

your Bank account take place automatically with no paperwork. Online investing is just a click away and settlements are no longer a problem.

Circuit breakers/ price bands:Circuit breakers were first introduced in 1987 in the US in the wake of sharp fall in the share prices. To contain abnormal price variations, scrip-wise specify daily price bands or circuits breakers in India were introduced in 1995 where by the trading automatically got suspended if the price varied either side beyond 8 percent; further trading was allowed to the price band. Price band which were originally fixed at 8 percent, were relaxed in January 2000, whereby a further variation of 4 percent in the scrip beyond 8 percent, after a cooling off period of 30 minutes, was allowed. In June 2000, for all scrips under compulsory rolling settlement, the price band was relaxed by 8 percent (from 4 percent earlier) with half an hour cooling period the scrips had hit the initial price band of 8 percent.

Internet Broking:SEBI Committee has approved the use of Internet as an Order Routing System (ORS) it communicates 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 brokers 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. - 61

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.

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. Only SEBI registered members who have been granted permission by the Exchange for providing Internet based trading services can introduce the service after obtaining permission from the Exchange.

RTGS (REAL TIME GROSS SETTLEMENT):The continuous settlement of payments on an individual order basis without netting debits with credits across the books of a central bank. Basically, this is a system for large-value interbank funds transfers. This system lessens settlement risk because interbank settlement happens throughout the day, rather than just at the end of the day.

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RTGS now has been implemented in major countries all over the world. A look at the RTGS systems in place around the world indicates that these systems have been responsible for reduction in systematic risks and increased trading in the financial markets including stock markets. Back home in India, spurred by similar systems all over the world and partly by the BASEL-II regulations, RBI went live with the RTGS system in March 2004. Starting with State Bank of India, HDFC Bank, Standard Chartered Bank, and Saraswat Co-operative bank the system now includes 23 banks. India is already ahead of the world in terms of being at T+2 settlements. For example, in New York, T+3 settlement is used, which means that they have to wait one extra day (compared to India) in order to get money for shares sold. One major factor, which has held back the move to T+1, is the weak banking system. In August 2004, The Reserve Bank of India (RBI) enabled RTGS for straight through processing (STP). The measure is expected to pave the way for T+1 settlement for stock exchanges and lead to settlement of securities one day after the day of trade.

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OTHER BENEFITS : Transparency - Users could look at price at computer screen before placing order at the screen. Anonymity - Electronic trading is completely transparent about prices and quantities and completely opaque about identities. Competition in the brokerage industry - As a result of which NSE about 1000 new brokerage firms have entered the markets. This has reduced transaction costs sharply. Operational efficiency automation eliminated vagaries of

manipulative trading. Gains out side Mumbai- NSEs satellite based trading gave equal assess to the trading flow from all locations in India. This has helped the user outside Mumbai and has been a major impetus to the development of financial sector outside Mumbai.


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Some other interesting observations about impact of technology on stock markets Vintage capital model teaches us that technological change destroys old capital. We have gone further and argued that major technological changelike the IT revolution destroys old firms. It does so by making machines, workers, and managers obsolete. Product-market entry of new firms and new capital takes time, and their stock-market entry takes even longer. In the meantime, the stock market declines. We have argued that aggregate valuation can fall below the present value of dividends because capital may "disappear" right after a major technological shift, as new capital forms in small, private companies. Later, these companies are IPOs, and only then does their value become a part of stock-market capitalization. Volatility: The degree to which the price of a security, commodity, or market rises or falls within a short-term period. An obvious reason for market volatility is technology. more kinds of financial instruments. This includes more timely The faster information is information dissemination, improved technology to make trades and disseminated, the quicker markets can react to both negative and positive news. Improved trading technology makes it easier to take advantage of arbitrage opportunities, and the resulting price alignment arbitrage causes. Finally, more kinds of financial instruments allow investors more opportunity to move their money to more kinds of investment positions when conditions change.


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Email alerts:Interested investors or potential investors may conveniently receive E-mail alert messages whenever certain new company information is posted to the site. The fluctuations in the stock market are also alerted to the users by the help of email messages

Portfolio:Creating a portfolio helps to Track holdings, view all the latest news, monitor the profit/loss, chart the historical valuation of the portfolio and compare and chart your portfolio performance against indices or sectors.

Company watch:Concise reports designed to give a rapid understanding of anycompa nis financial health with a graphical five-year overview of its strengths, weaknesses and financial trends.

Exchange insight:Access to level 1 and level 2 real-time prices and a wide range of premium data, tools and analysis including stock screeners and heat maps.

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Helps to create a watch lists to monitor potential investment opportunities at a glance. You can quickly and easily transfer a stock from a watchlist to a portfolio.


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With increasing globalization and consolidation amongst exchanges, the future of the regional stock exchanges, around 22 in India, is likely to be very uncertain and even their very survival is a question mark. Sebi has permitted the regional exchanges to form subsidiary companies, which are akin to super brokers. These companies have acquired membership of both BSE LTD and NSE at confessional entry fees and permitted their members to trade on the BSE LTD and NSE thus increasing trade volumes and business in both BSE LTD and NSE. The stock markets of the future will have a redefined purpose and reinvented architecture due to the advent and widespread use of technology. Information and stock price quotations are available almost instantaneously and more importantly investors can act on this data by executing a trade from anywhere at any time. This new market will bring benefits to investors, listed companies, and the economies of countries. Trading will be cheaper, faster and settlement will be simpler and with reduced risk. Raising capital for companies will be easier, thus contributing directly to economic expansion. The leaders in this new world of investing will be the ones willing to be agents of change, to best meet the needs of investors and companies, and to do what is best for these two principal stakeholders in the capital markets. If done right, the stock markets of the future will be even better vehicles than today in helping companies grow, creating jobs, providing fair investment opportunities for people, and in improving economies. - 68

Both the exchanges, BSE LTD and NSE, are visionary, proactive and increasingly use leading-edge technologies to effectively compete in the global environment. In the not-too-distant future, once full capital account convertibility is permitted in India one could well witness an expansion of trading volumes and its resultant economic benefits to the thriving and ever-young metropolis of Mumbai.

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As a human being, we all think about our development. As we plan for our development we also have to decide our working area, or the most possible / approachable area. Everyone likes to cover bigger area as much as he can cover. Initially we had a small area of operation in each segment of life. But as the technology developed, we become part of global market and now we are able to cope with the market development at large. Information technology has made a tremendous development in respect of our approach at amass level. It opens the door of several avenues as well as has brought in several threats, which should be analyzed carefully. Due to development in technology, the information can be transferred from one place to another in very short span of time, earlier which required lot of time. Transfer of large information and storing capacity for a long period also has some draw backs, inherent in the process itself. For example manipulation of message is very easy and it requires small level of technical literacy. It is also observed that master in a subject may not be many times able to express his views effectively as compared to a person having less knowledge of subject but more computer literacy, who can make better presentations. Here the knowledge part of the core subject has been compromised with proficiency with technology. All in all, the development of new information technology should be welcomed because it is the need of the hour. And all of us should prepare ourselves to make it easier for us and should use it in ethical ways then only we would be able to survive in the global market.

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To sum up, we can say that computerization and automation are not to be avoided. Technology has been able to make the stock markets accessible to every individual. It has also led to positive developments in terms of reduced costs and fewer errors. But, as some experiences have indicated, it cannot be applied as a panacea for all problems. Regulation and knowledge dissemination are still important. The use of technology should be preceded by a detailed study and assessment of all other alternatives. The key to successful use to technology is the appreciation of its constraints.

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www.bseindia.com www.nseindia.com www.sebi.gov.in www.icicidirect.com

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