HIGHLIGHTS OF NSE

NATIONAL STOCK EXCHANGE OF INDIA LIMITED NEWSLETTER

September 2009

ARTICLES
Mutual Funds– Are they for Mutual Benefit? By Anupam Mitra, Deputy Director, Ministry of Finance
The article analyses various facets of the growth experience of the mutual fund industry. It attempts to answer questions such as:
has the industry been successful in carrying forward the objective with which it commenced operations; how has
it evolved over the years; what have been its unique selling propositions; have the innovative products created by the industry
served the purpose of the investors and how has the industry responded to the challenges and opportunities confronting it?

SPOTLIGHT

NSE Launches Interest Rate Futures

Þ On August 31, 2009, NSE launched Interest Rate Futures (IRFs) for trading on the currency derivatives segment
On its first day of trading, IRFs recorded 1,475 trades in 14,559 contracts traded at a total value of Rs.267.31 crores
Þ
Out of the two quarterly contracts available for trading, December 2009 was the most active with 13,789 contracts being
Þ
traded

R E G U L ATO RY C H A N G E S

Introduction of payment of commission for Application Supported by Blocked Amount (ASBA) in issue process
Þ
Exit load parity established for all mutual fund holders
Þ
SEBI amends rights issue norms
Þ
Deadline for approved users of currency derivatives segment to obtain NISM Series-I:Currency Derivative Certification
Þ
extended from August 10, 2009 to September 30, 2009

NSE NEWS
No additional deposits required by clearing members for currency derivatives segment on behalf of trading member
Þ
NSE introduces functionality to put orders with Disclosed Quantity in currency derivatives segment
Þ
Change in Index
Þ

NCFM NEWS
NCFM launches tests for 'Financial Markets: A Beginners' Module' in Gujarati & Hindi languages
Þ
NSE introduces NCMP (NSE's Certified Market Professional) Certification
Þ

I N T E R N AT I O N A L N E W S
Deutsche Börse Systems launches ultra-low latency infrastructure connecting the financial centers-London and
Þ
Frankfurt
Financial Industry Regulatory Authority (FINRA) fines Credit Suisse $275,000 for failing to comply with terms
Þ
of global research analyst settlement agreement
FINRA & Securities and Exchange Commission warn retail investors about investing in leveraged or inverse
Þ
exchange traded funds
Osaka Securities Exchange revises futures & options trading rules and introduces new derivatives trading system
Þ
Bursa Malaysia, CME Group to establish strategic partnership in derivatives markets
Þ
Deutsche Bank lists first money market exchange traded fund on Singapore Exchange
Þ
 HIGHLIGHTS OF NSE NEWSLETTER
September 2009

MARKET REVIEW
Performance of select sectors vis-a-vis Nifty
Nifty Movements vis-a-vis other International Indices 230 (Rebased to 100 for March 31, 2009)

(Rebased to 100 for March 31, 2009) 210

170 190
170
150 150
130
130
110
110 90
70
90 50
31-Mar-09 30-Apr-09 30-May-09 30-Jun-09 31-Jul-09 31-Aug-09 31-Mar-09 30-Apr-09 30-May-09 30-Jun-09 31-Jul-09 31-Aug-09
CNX IT CNX FMCG INDEX
Nifty Dow Jones NIKKIE Hang seng Nasdaq S&P CNX Finance S&P CNX Petrohemicals
S&P CNX Pharmaceuticals CNX Bank Nifty
CNX Infrastructure S&P CNX Nifty

Capital Market Segment F&O Segment

5000 300 18000 1000
Avg. Daily Trading Value

Avg. Daily Trading Value

250 15000
800
Trading Value

4000

Tradin g Valu e
200 12000
3000 600
150 9000
2000 6000 400
100

1000 50 3000 200

Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08

Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Currency Derivatives Segment WDM Segment
1000 50 600 30
Avg. Daily Trading Value

Avg. Daily Trading Value

800 40 500 25
Trading Value
Trading Value

400 20
600 30
300 15
400 20
200 10
200 10 100 5
0 0 0 0
Jan-09
Feb-09

Mar-09
Apr-09

May-09

Jun-09
Jul-09
Aug-09
Sep-08

Oct-08
Nov-08

Dec-08

Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08

Trading Value (Rs.hundred crore) Avg. Daily Trading Value (Rs.hundred crore)

NSE MARKET STATISTICS NSE's GLOBAL RANKINGS

Turnover for Percentage Average daily Market Parameters Rank
August 2009 Change over Turnover Capitalisation Single Stock Futures 3
rd

Segments (Rs.crore) July 2009 (Rs. crore) (Rs.crore) Stock Index Options 3
rd

rd
CM 364,969 -14.36 17,379 4,975,800 Stock Index Futures 3
th
WDM 38,232 -25.36 1,912 2,970,459 No. of Trades 4
th
Market Capitalisation 12
F&O 1,473,646 -6.35 70,174
Source: WFE (Rankings done for the period Jan – Jun 2009).
CDS 90,396 -6.35 4,520 Ranking for single stock futures, stock index options and
TOTAL 1,967,243 -8.39 stock index futures is based on number of contracts traded.

Prepared by SBU-EDUCATION
National Stock Exchange of India Ltd.
Exchange Plaza, Bandra Kurla Complex, Bandra (E) Mumbai - 400051
022-26598163
For detailed NSE Newsletter log on to www.nseindia.com> Press Room> NSE Newsletter
For Market Data refer to www.nseindia.com> Research> Datazone
 Sept 2009 1
N S E N E W S L E T T E R

A R T I C L E S

MUTUAL FUNDS– ARE THEY FOR MUTUAL BENEFIT?

By Anupam Mitra*

“Two roads diverged in a wood and I - I took the one less travelled by, and that has made all the difference.”
- Robert Frost

The journey of mutual funds in India formally began way back in 1964 with the establishment of a public sector monopoly
Unit Trust of India (UTI). It all began as a Government initiative to prod the small investor to savour the benefits of stock
market investing in an affordable manner and inculcate a habit of financial saving as opposed to physical saving. UTI ex-
isted till 2000 after which it was bifurcated into UTI Mutual Fund and Specified Undertaking of UTI, the former being regis-
tered with SEBI. SBI Mutual Fund was the first non-UTI mutual fund established in 1987. This was followed by other public
sector mutual funds like Canbank Mutual fund, LIC Mutual Fund, Indian Bank Mutual Fund etc. Since the launching of Kothari
Pioneer Mutual Fund in 1993 as the first private sector mutual fund, the industry has indeed come a long way. SEBI (Mutual
Funds) Regulations, which came into effect from 1993, detailed specific procedures to be followed for sale, distribution
advertising disclosure, compliance etc. Over the years, particularly in the later part of nineties, the industry has also gone
through some degree of consolidation through mergers and acquisitions.

In this article, various facets of the growth experience of the mutual fund industry are analyzed ( Exchange traded funds and fund
of funds are not considered in this article) . Has the industry been successful in carrying forward the objective with which it com-
menced? How has it developed and evolved over the years? What have been its unique selling propositions? Are the potential
investors spread far and wide across the length and breadth of this country aware of the existence of this industry? Have
the innovative products created by the industry served the purpose of the investors? How has the industry responded to the
challenges and opportunities confronting it? In the course of the analysis attempt is made to explore the answers to some of
these questions.

This article is structured as follows. Section 1 analyzes the importance of mutual funds in the portfolio of the investor vis-à
-vis other competing financial products. This section also looks at the international experience in this regard. Section 2 de-
liberates on the issues relating to regulation of the mutual fund industry. Section 3 analyzes the salient features of the
growth of the industry over the last ten years. Using tenure based classification and investment objective based classifica-
tion, this section will concentrate on relative performance of various types of mutual funds (open ended, closed ended, eq-
uity oriented etc.) in asset mobilization, geographical penetration etc. It also looks at the degree of concentration in the
industry in the last four years. Section 4 deals with an analysis of the unit holding pattern of mutual funds and investment
pattern of mutual funds. Section 5 concludes after flagging various pertinent issues that confront the industry today.

Section 1: Status of the mutual fund industry

The ratio of mutual funds to total gross household savings, in India, increased from 5.5% in 1993-94 to 7.9% in 2007-08. Over
the same period share of deposits with banks have increased from 27.3% to 54.9%, share of insurance funds has increased
from 8.7% to 20.1% and pension funds down from 16.7% to 9.5%.

* The author is Deputy Director, Ministry of Finance. He would like to acknowledge that discussion with Dr. K.P.Krishnan Joint Secretary,
Ministry of Finance, Mr. CKG Nair Director in Ministry of Finance and Mr. Parag Parikh, Chairman Parag Parikh Financial Advisory Ser-
vices were helpful in writing this article. Views expressed are personal.
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 Sept 2009 2
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Table 1 (at annex) shows the distribution of gross financial saving of the household sector. It shows that, compared to
deposits with banks, small savings schemes and insurance funds, stock markets in general and mutual funds in particu-
lar have fared poorly. Only a small proportion of household savings goes into equities and debentures- 0.8% of GDP
and about 12% of gross financial savings (2007-08). Per contra, 48% of household savings in the United States have
exposure to mutual funds. From the further discussion to follow will see whether the household sector has failed the
mutual funds or is it the obverse.

The share of mutual funds as a percentage of GDP is 67% in USA and 83% in Australia. Again the contribution of mutual
funds to the growth of capital markets measured on the basis of mutual fund assets as a percentage of market capi-
talization is 10% for India compared to 28% for UK, 81% for Brazil, 76% for France, 104% for USA, and 123% for Austra-
lia. However the mutual fund industry is growing at a much higher rate in India as compared to the other major coun-
tries. The Compound Annual Growth Rate over a period of ten years for mutual fund industry in India is 22% as com-
pared to USA (5.7%), UK (6.6%), France (9.8%) and Australia (11%). This shows the tremendous scope and potential for
growth of mutual funds in India.

Section 2: Regulation of Mutual Fund Industry

The industry is fully regulated by SEBI and governed broadly by the comprehensive SEBI Mutual Funds Regulations
1993. Prior to SEBI taking over the reins of the industry, mutual funds were regulated through guidelines of the Minis-
try of Finance and RBI. Sadhak (2003) argues that there were no regulatory guidelines for the mutual fund industry till
the first such guidelines were issued by RBI in 1989 for mutual funds floated by banks. The Ministry guidelines empow-
ered RBI to be the regulator of Money Market Mutual Funds (MMMFs) set up by banks. These guidelines, inter-alia set
precedence for regulation by entity rather than regulation by domain. The regulation also overlooked the inherent
conflict of interest that the central bank would face in developing the money market (and indirectly its participants
including MMMFs) and the competition MMMFs could potentially pose to banks. The implications of this conflict of in-
terest have been comprehensively examined by Roy (2005). In short, guidelines relating to lock –ins, minimum matur-
ity periods for MMMFs etc ensured that banks do not face undue pressure. The Ministry guidelines also designated SEBI
as the regulator of MMMFs floated by non bank mutual funds. Coordination of regulations issued by the two regulators
was ensured by requiring SEBI’s guidelines for MMMFs to be in conformity with those issued by RBI. Dual parentage of
mutual fund industry ended in 2000 when all mutual funds were brought under regulatory jurisdiction of SEBI. Over
the years regulations have been strengthened and streamlined by SEBI, often as a response to market crisis to develop
the market and protect the interests of the investors. The twin strands of reforms initiated by SEBI are stricter pru-
dential norms (restricting parking of funds in short term deposits, stipulating stricter guideline for advertisements,
removing discrimination on levy of exit loads etc.) and deregulation of operating environment (raising aggregate in-
dustry wise ceiling for overseas investments by mutual funds in ADR, GDR, foreign security, overseas ETF; enabling
shortselling etc).

Section 3: Growth of the industry

Over the last 40 years the mutual fund industry has seen impressive growth. The Asset Under Management of mutual
funds increased from Rs.18 crore in 1970-71 to Rs. 1, 53,802 crore in 2007-08. Since 1994 the number of mutual funds
has increased from 12 to 43 in 2008-09.
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 Sept 2009 3
N S E N E W S L E T T E R

The trend in gross resource mobilization by public sector mutual funds, private sector mutual funds and UTI since 1993-94
may be seen in Table 2. The importance of UTI has declined since 2000 while the private sector mutual funds have rapidly
increased their share.

Mutual funds are classified based on tenure (open ended or closed ended) and also according to investment objectives (like
equity oriented, debt oriented, balanced, sector specific, exchange traded, fund of funds etc). The total number of schemes
(excluding ETFs and fund of funds) offered by mutual fund houses have increased from 394 in 2000-01 to 974 in 2008-09. Ta-
ble 3 gives an overview of the various types of mutual fund schemes classified both according to tenure and investment ob-
jectives. It is a debatable issue whether in a mutual fund scheme the investor should be given the option of free exit or
should he require getting himself replaced by another as in the case of a share of a company (Sethu 2006). Thus an open
ended scheme treats the investor as a “customer” while a closed ended scheme treats him as a “shareholder”. Table 3 shows
that the proportion of open ended schemes increased from 63% in 2000-01 to 90% in 2004-05. Since 2005-06 the proportion of
open ended schemes has declined from 78% to 58% in 2008-09. While it is true that fund houses have offered various tailor
made schemes to suit risk return profile of a wide spectrum of investors it still appears that there are too many very similar
kind of schemes. Perhaps to bring in more discipline it may be worth considering a suggestion made by Dr. Tarapore of link-
ing the number of schemes to net owned funds (Tarapore 2009). The decision whether to let a particular fund grow larger or
to start a new fund should not be guided by the differential between the commission on new funds and trail commission on
existing ones. From Table 4 it is seen that more than 75% of the asset base of the mutual fund lies in debt schemes, with
equity oriented schemes accounting for about 20%, the balance left for hybrid schemes.

Money market mutual funds (MMMFs) are defined in SEBI regulations as “a scheme of a mutual fund which has been set up
with the objective of investing exclusively in money market instruments” where money market instruments includes
“commercial papers (CP), commercial bills, treasury bills, Government securities having an unexpired maturity up to one
year, call or notice money, certificate of deposit, usance bills, and any other like instruments as specified by the Reserve
Bank of India from time to time”. The advantage of MMMFs is that they enable a retail investor ( who do not have easy ac-
cess to T-Bill , call lending, CP, either due to high denomination or lengthy , cumbersome procedures) to enjoy money mar-
ket yields . It may be noted from Table 5 that the implicit cut off yield on 91 day treasury bills as well as average weighted
call/ notice money (proxy for money market yields) rate is far higher than savings bank deposit rates.

As seen from Table 5 AUM, under liquid /MMMF as a proportion of AUM under all debt oriented funds has consistently in-
creased from 7% in 2000-01 to 51% 2004-05. The decline since 2004-05 could be attributed to the Bull Run in the equity mar-
ket as captured by Nifty.

Despite the large number of mutual fund houses, the top five mutual fund houses account for 56% of the AUM whereas the
top ten mutual fund houses account for as much as 78% of AUM in 2009. There is counterintuitive evidence of increasing con-
centration despite increase in number of players as seen from Table 6. The spatial distribution of Mutual Funds Investors is
very skewed towards urban areas. As can be seen from Table 7, 71% of Mutual Fund investors accounting for 86% of net as-
sets of Mutual Funds belong to urban areas. Public Sector Mutual Funds have a relatively greater penetration in rural areas.

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 Sept 2009 4
N S E N E W S L E T T E R

Section 4: Unit Holding and Investment Pattern of Mutual Funds

An analysis unit holding pattern of Mutual funds (Table 8) shows that the retail investors for whom Mutual Funds were ex-
pected to be the primary investment vehicle, hold only 37% of total net assets of Mutual Funds industry. In contrast, the corpo-
rates hold around 56% of net assets. The situation is slightly better for Public Sector Mutual Funds where retail investor have
41% share of net assets.

Table 9 shows Asset Under Management held by various categories of investors in liquid, debt oriented, equity oriented and
balanced funds. It is seen that retails investors account for just 0.75% of total AUM in liquid and money market Mutual Funds.
Thus despite the fact that there has been a significant expansion of AUM under liquid and MMMFs as seen from Table 4.4, retail
investment has been marginal. The corporate driven nature of MMMFs is clear from the fact that though MMMFs were allowed
since 1992, they were floated only when corporate were eligible to invest in 1996-97(Roy 2005). The primary objective of
introducing MMMFs to allow retail participation in money markets remains largely unfulfilled. For debt oriented funds, retail
investors accounted for 4% of total AUM. In contrast, retail participation is as high as 65% in equity oriented funds and 68% in
balanced funds. The high share of corporate in debt oriented funds could possibly be traced the scope for tax arbitrage. One
way of tackling this lopsided distribution of AUM could be to designate some schemes exclusively for retail (Tarapore 2009).

A study was done to analyze the investment pattern of top ten schemes of top ten mutual funds based on AUM for the month
of May 2009. The results are summarized in Table 10. It is seen that mutual funds invest a significant portion of their portfolio
in banks and financial sector.

Tables 9 and 10 point at a disturbing trend of excessive concentration, both from subscription side and investment side. Exces-
sive concentration on subscription side can create pressure leading to biased investment decisions which may not be in the
interests of minority retail holders. During the recent liquidity crisis, huge withdrawals by corporate from money market mu-
tual funds created serious liquidity issues for the mutual funds. In any market heterogeneity amongst investors is a desired
quality as it lowers market volatility. When all players are similar in style and approach then there are liquidity ‘black holes’
wherein all are buyers or sellers at the same time. Thus, by having different kinds of investors one can decrease the volatility
in the market. Similarly excessive concentration on investment side may create extreme volatility in NAV. We should not for-
get the pitfalls of excessive concentration in few sectors as one of the many lessons learnt from the US 64 scam. In heady days
of raging bull market it would be prudent to remember that those who do not learn from history are condemned to repeat it.

The direct result of the concentration of corporates in asset base of the mutual funds was the major redemption pressure
faced by mutual funds during October, 2008 as a direct fall out of the liquidity crisis. While the average daily redemption in
the early period of October, 2008 was around two thousand crore, it rose to around five thousand crore during mid October. In
contrast, though pullouts from equity funds did pick up a little after January 2008 corrections, they declined gradually and re-
mained low thereafter. Even in October 2008 when the market crashed after the collapse of Lehman Brothers in September,
redemption pressure from retail investors was low even as new fund inflow dropped. According to media reports investors
took out only Rs.2652 crore in October 2008 compared to Rs.7536 crore in January 2008 when the market peaked. Retail in-
vestors have thus emerged as a more stable investor entity than corporates.

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 Sept 2009 5
N S E N E W S L E T T E R

Poor credit offtake had prompted banks to park their funds in Mutual Funds. This is profitable for banks as they get a
return of 4.5% to 5% by investing their surplus funds in liquid schemes of Mutual Funds as compared to 3.25% available
from RBI’s reverse repo window. There is however a very high concentration risk to which the Mutual Funds get exposed
if few big investors of the same class contribute a major portion of the funds. The Mutual Fund portfolio will get ad-
versely affected if a significant chunk of the current investment is redeemed, once credit offtake begins. Since all banks
have similar risk profile it is likely that if one bank redeems, others will soon follow suit. High concentration of homoge-
nous investors is thus risky whether it is corporate or banks. In particular, media reports of ‘round tripping’ involving
funds mobilized by banks and mutual funds needs to be looked into. If it is the case that banks are parking their funds
with mutual funds who are in turn subscribing to their equities, then it poses serious risk of systemic stability as well.

Section 5: Conclusion

Besides concentration of portfolio some other issues requiring attention are as follows.

Churning of portfolios- while it is difficult to determine the optimum level of churning some funds undertake excessive
level of churning. It is the duty of the trustees to check that such churning is in the interest of the investors. Media re-
ports speak of schemes where churning is as high as 20 times making the mutual fund look more like a trader than a long
term investor (Tarapore, 2009). This is all the more important in view of empirical evidence* and theoretical research
that shows it is difficult to consistently beat the market.

Issues relating to governance of mutual funds- To ensure that serious players operate in the market, the capital require-
ment and fit and proper criteria may be more stringent. To begin with the regulatory capital required for an Asset Man-
agement Company (AMC ) may be gradually raised from the current level of Rs. 10 crore. Remuneration of the trustee
needs to be commensurate with their duties and responsibilities. Further trustees need to be possess necessary educa-
tional qualifications and experience to discharge their responsibility. To address issues of conflict of interest high Chi-
nese walls need to exist among sponsors, trustees and AMCs.

Greater disclosures -Greater disclosure of information regarding churning of portfolio should be made available. There
should be an upper bound to churning and churning in excess of the prescribed level should be ratified by trustees. SEBI
has recently decided to migrate from the system of fixed commission to mutual fund agents and replacing the same by a
system of fee paid by investors based on the investor advice. The distributors are also required to disclose all the com-
missions in the form of trail commission or any other mode payable to them for all the different schemes of different
mutual funds.

Our markets are passing through turbulent times. While the pace differs growth has slowed down everywhere. Inflation-
ary pressures are likely to become strong given the failure of monsoon. However the long run growth story for India is
intact. Mutual funds would have to strive to gain a greater share of the financial savings of the households by penetrating
hitherto uncharted areas. This will be a win-win model for both the investors and mutual funds. As discussed earlier mu-
tual funds have the potential to grow fast.

*According to Efficient Market Hypothesis in an efficient market actual prices of individual securities already reflect the effects of
information based both on events that have already occurred and on events which as of now, the market expects to take place in
the future. The implication is that in the long run active fund management is not likely to provide a premium over random stock selec-
tion. The solution according to proponents of this theory is to invest in broad based index funds. 5
 Sept 2009 6
N S E N E W S L E T T E R

However the beacon light is this long journey should be ethics and good governance. This should be the unique selling
proposition of mutual funds. Even as mutual funds operate in a competitive market environment, as systemically impor-
tant institution they are expected to be responsible risk takers balancing their private gain with fiduciary responsibility of
loyalty, trust and competence.

Mutual fund industry needs to stress on financial inclusion. Financial inclusion is just not access to financial resources; it
also considers ease of access. Without dithering further the industry should strengthen their distribution network by
evolving innovative business models leveraging the distributional network of post office, banks etc. financial innovation
should not be financial circumvention. The objective of the industry to self regulates itself by adopting checks and bal-
ances to manage and eliminate conflicts of interest wherever they exist. According to a British Parliamentarian of the
bygone era, the measure of a man’s real character is what he would do if he knew he would never be found out. This is
the test which the financial industry in general and mutual fund industry in particular should apply to themselves.

Bibliography :

1. New Commonsense Guide to Mutual Funds, Mary Rowland, Vision Books

2. All about Mutual Funds, Bruce Jacobs, Mc Graw Hill company.
3. The winning Portfolio, How to choose best Mutual funds, Paul B. Farell, Vision Books.
4. Mutual Funds in India-Marketing Strategies and Investment Practices, H. Sadhak, Sage Publications.
5. Mutual Fund Masters: A Revealing Look Into the Minds and Strategies of Wall Street's Best and Brightest by Bill Griffeth
(Hardcover - Dec 1994)
6. Governance of Mutual funds and Institution of Trustee, G. Sethu, Economic and Political Weekly, April 15, 2006.
7. Money Market Mutual Funds, A macro perspective, S. Manjesh Roy, Economic and Political Weekly, March 19, 2006.
8. Taxation and Capital Market Developments, M.K. Daktar, Economic and Political Weekly, July 29, 2000.
9. Plain Truths about Mutual Funds, Debashis, Basu, Kensource 2006..
10. India’s Financial Markets: An insiders view to how the market work, Ajay Shah, et.al, Academic Press.
11. Stocks to Riches, Parag Parikh, Tata Mc Graw Hill.
12. Mutual Funds: Need for Reforms, S. S. Tarapore, Business Line, 24. 06. 2009.

6
 Sept 2009 7
N S E N E W S L E T T E R

ANNEX

Table 1: Distribution of financial savings of the household sector. (As percent to total financial savings)

Year Deposits Shares & Units of Units of Small sav- Insurance Provident
with debentures1 UTI mutual ings funds and pen-
banks funds2 schemes sion funds
1993-94 27.3 13.5 4.3 1.2 5.9 8.7 16.7
1994-95 35.3 11.9 2.7 1.1 9.0 7.8 14.7
1995-96 26.3 7.3 0.2 0.3 7.4 11.2 18.0
1996-97 25.7 6.6 2.4 0.3 7.0 10.2 19.2
1997-98 37.8 2.9 0.3 1.1 11.3 11.3 18.8
1998-99 33.7 3.4 0.9 0.8 13.0 11.3 22.4
1999-00 30.8 7.7 0.8 3.4 11.3 12.1 22.8
2000-01 32.5 4.1 -0.4 1.3 14.0 13.6 19.3
2001-02 35.3 2.7 -0.6 1.8 12.1 14.2 16.10
2002-03 35.5 1.7 -0.5 1.3 14.9 16.1 15.0
2003-04 37.4 0.1 -2.3 1.2 15.5 13.7 13.6
2004-05 36.4 1.1 -0.7 0.4 19.5 16.0 12.9
2005-06 46.7 4.9 -0.1 3.6 12.2 14.2 10.5
2006-07 47.8 9.0 0.0 5.3 2.7 17.7 11.1
2007-08 50.4 12.4 0.0 7.9 -1.9 18.0 9.9
#
2008-09 54.9 2.6 -0.4 -1.4 1.4 20.1 9.5
Notes: 1. Includes units of UTI and mutual funds; 2. Other than UTI ; # Provisional
Source: Annual Report of RBI, various issues.

Table. 2: Trends in resource mobilization by Mutual Funds (in %)

Year Private Sector Public Sector UTI Total

1993-94 2.49 15.34 82.15 100
1994-95 15.18 15.61 69.2 100
1995-96 4.79 4.54 90.65 100
1996-97 7.24 3.16 89.59 100
1997-98 17.3 2.91 79.78 100
1998-99 34.59 7.35 58.09 100
1999-00 71.39 6.23 22.36 100
2000-01 80.69 5.95 13.35 100
2001-02 89.83 7.34 2.82 100
2002-03 90.27 7.47 2.25 100
2003-04 90.58 5.34 4.06 100
2004-05 87.7 6.73 5.55 100
2005-06 83.29 10.04 6.65 100
2006-07 82.53 10.12 7.33 100
2007-08 84.68 7.75 7.55 100

Source: SEBI Handbook of Statistics on the Indian Securities Markets 2008

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 Sept 2009 8
N S E N E W S L E T T E R

Table 3: Status of mutual fund industry in India 2000-01 to 2008-09

Year Number of Per Number of Per cent Number Per cent Total
Income/ cent to Equity and to total of Bal- to total
debt ori- total growth ori- anced
ented ented funds
funds schemes in-
(including cluding ELSS1
gilt funds)

2000-01 open 114 29 110 28 28 7 394

closed 61 15 77 20 4 1
2001-02 open 156 37 120 29 31 7 417
closed 49 12 58 14 3 1
2002-03 open 168 41 135 33 34 8 406
closed 34 8 33 8 2 0
2003-04 open 186 46 143 35 34 8 403
closed 11 3 26 6 3 1
2004-05 open 200 44 169 38 34 8 450
closed 27 6 19 4 1 0
2005-06 open 213 36 216 36 34 6 592
closed 112 19 15 3 2 0
2006-07 open 216 29 235 31 34 5 755
closed 234 31 32 4 4 1
2007-08 open 297 31 251 27 31 3 943
closed 296 31 62 7 6 1
2008-09 open 253 26 279 29 30 3 974
closed 280 29 59 6 5 1
Note: 1. Equity Linked Savings Scheme
Source : Calculated using data from SEBI website.
Table 4 : AUM under various schemes as a percent to annual average net AUM

Year Income/ debt ori- Equity and growth ori- Balanced funds
ented funds ented schemes including
(including gilt, liquid ELSS

2000-01 61 18 21

2001-02 68 16 17

2002-03 74 13 13

2003-04 79 18 3

2004-05 71 26 3

2005-06 54 43 3

2006-07 63 34 3

2007-08 64 33 3

2008-09 77 21 2

Source: Calculated using data from SEBI website.

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 Sept 2009 9
N S E N E W S L E T T E R

Table 5: AUM under liquid/MMMFs

Year AUM under liquid/MMMF as a S&P Average Savings Implicit cut-

percentage of CNX call/notice Account off yield of
Nifty money rate deposit 91 day
Index rate. Treasury
AUM under average an- Bills
income / nual net AUM
debt ori-
ented
schemes1
2000-01 7 5 1148.2 9.15 4 8.98
2001-02 12 8 1129.6 7.16 4 6.88
2002-03 17 13 978.2 5.89 3.5 5.73
2003-04 38 30 1771.9 4.33 3.5 4.63
2004-05 51 36 2035.7 4.55 3.5 4.89
2005-06 49 27 3402.6 5.36 3.5 5.51
2006-07 44 28 3821.6 7.22 3.5 6.8
2007-08 30 19 4734.5 6.07 3.5 7.11
2008-09 33 25 3021.0 7.06 3.5 6.96

Note : 1. Debt oriented schemes include besides MMMFs gilt funds, debt funds offering assured returns and those not offering assured
returns.

Source: Compiled from data collected from SEBI website, various issues of Annual reports of RBI, NSE website.

Table 6: Market share of top ten and top five mutual funds based on AUM
2006 2007 2008 2009
Number of mutual funds 31 34 37 43

Market share of top five mutual 49 52 52 56

funds as % of AUM
Market share of top ten mutual 75 74 73 78
funds as % of AUM

Source: Calculated using data from AMFI (Association of Mtutal Funds of India) website

9
 Sept 2009 10
N S E N E W S L E T T E R

Table 7: Rural urban distribution of mutual fund investors and investment

Per cent of total Per cent of
investors total net
assets
All mutual funds Urban areas 71 86
Rural/ Other areas 29 14
Public sector mutual funds Urban areas 61 70
Rural/ Other areas 39 30
Private sector mutual funds Urban areas 73 88
Rural/ Other areas 27 12
Top ten mutual funds Urban areas 76 86
Rural/ Other areas 24 14

Note: Figures given in the table above are calculated using data collected from 35 active mutual funds as on June 30, 2008. Public
sector mutual funds include UTI mutual fund, SBI mutual fund, LIC mutual fund and Canara Robeco mutual fund.

Source: SEBI

Table 8: Unit holding pattern of mutual funds on ownership basis (As on March 2009)

Investor Classification Per cent of total investor account (Per cent of total net assets)

Mutual fund industry Public sector mutual Private sector mutual

funds funds
Retail 96.75 (37.03) 97.82 (41.01) 96.21(36.06)

NRIs 2.04 (5.44) 0.99 (2.11) 2.58 (6.25)

FIIs 0.00 (1.19) 0.00 (0.12) 0.00 (1.45)

Corporate / 1.21 (56.34) 1.20 (56.76) 1.22 (56.23)

Institutions/ others
Source.: Complied using data collected from SEBI website.

Table 9 : Unitholding pattern of various schemes of mutual funds classified as per investment objective (As on
March 2009)

Per cent of AUM

Investor Classifi- Liquid / Money market Debt oriented funds Equity ori- Balanced funds
cation mutual funds including gilt funds ented funds

Corporate 73.65 63.47 12.07 9.09

Banks/ FIs 16.15 1.56 1.70 0.45

FIIs 1.60 0.62 0.76 0.01

High net worth 7.86 30.34 20.63 22.23

individuals
Retail 0.75 4.0 64.84 68.21

10
Source: SEBI
 Sept 2009 11
N S E N E W S L E T T E R

Table 10: Investment pattern of top ten schemes1 of top ten mutual funds based on AUM (as on May 2009)

Mutual Funds 1* 2* 3* 4* 5* 6* 7* 8* 9* 10*

%of total AUM ac- 81 84 86 77 79 78 96 90 65 80

counted for by top 10
schemes

Sectors

Banks 36. 19 37 59 54 35 19 47 22 40

Finance 15 41 11 9 18 7 41 21 23 21

Central govt. securi- 6 0 12 0 11 13 0 15 0 6

ties
Current asset 20 16 21 10 0 6 16 10 5 15

Others2 23 24 56 81 71 26 24 7 50 18

Total 100 100 100 100 100 100 100 100 100 100

Notes:

1
Includes equity oriented, debt oriented and balanced schemes.

2
Includes sectors such has auto, consumer durables and non durables, telecom, construction, pharmaceuticals, power, industrial
capital goods, textile , travel, software and hardware etc.

1. Reliance Mutual Fund 2. HDFC Mutual Fund

3. ICICI Prudential Mutual Fund 4. UTI Mutual Fund

5. Birla Sunlife 6. SBI Mutual Fund

7. LIC Mutual Fund 8. Kotak Mahindra Mutual Fund

9. Franklin Templeton Mutual Fund 10. Tata Mutual Fund

Source: Report submitted by Ms. Bhawna Joshi to Ministry of Finance for her internship. Data was collected from Newswire and
individual AMCs through AMFI.

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S P O T L I G H T

NSE Launches Interest Rate Futures

National Stock Exchange became the first exchange to receive approval from SEBI to introduce Ex-
change traded Interest Rate Futures (IRF) contracts for trading on the Currency Derivatives Segment
of the exchange. Trading in IRF commenced on August 31, 2009. On its first day of trading, 14,559
contracts being traded at a total value of Rs 267.31 crores.

About the product

• 10YGS7 Interest Rate Futures contract will be based on notional 10 year coupon bearing GOI secu
rity.
• The notional coupon will be 7% per annum with semi-annual compounding.
• 10YGS7 futures contracts will have a maximum of 12 month expiration cycle.
• Quarterly contracts will be available for trading. To begin with December 2009 and March 2010
contracts will be made available for trading. A new quarterly expiry contract will be introduced
on the expiration of a contract.
• The 10YGS7 futures contracts will expire seven working days prior to the last business day of the
expiry month. The IRF contracts will expire at the normal market closing time on the expiry day.
• Permitted lot size for 10YGS7 future contracts will be Rs 2 lacs face value of GOI securities
equivalent to 2000 units.
• Members will place orders in terms of number of lots.
• The day count convention for interest payments would be on the basis of a 360-day year, consist-
ing of 12 months of 30 days each and half yearly coupon payment.
• Price steps (tick size) in respect of all IRF contracts admitted to dealing on the Exchange will be
Rs.0.0025.
• The contract will be settled by physical delivery of deliverable grade securities using the elec-
tronic book entry system of the existing Depositories, namely, National Securities Depositories
Ltd. and Central Depository Services (India) Ltd. and Public Debt Office of the Reserve Bank.
• NSE has constituted a group of market participants to advise the Exchange/Clearing Corporation
on the securities which may be included in the deliverable basket. Based on the recommendations
of this group, it has been decided that GoI securities maturing at least 8 years but not more than
12 years from the first day of the delivery month with minimum total outstanding stock of Rs
10,000 crore will be eligible deliverable grade securities.
• Quantity Freeze for IRF contracts will be 501 lots or greater i.e. orders having quantity up to 500
lots will be allowed.

Membership and trading

• For participating in Interest Rate Futures (IRF) all members registered by SEBI for trading in Cur-
rency Derivatives Segment (CDS)/ Futures & Options (F&O) Segment are eligible to trade in IRF,
subject to meeting the Balance Sheet net worth requirement of Rs. 1 crore for a trading member
and Rs 10 crores for a clearing member.

• New members interested in participating in IRF would be required to register in CDS.

• RBI-SEBI standing Technical Committee has also allowed FIIs and NRIs to trade in the Interest Rate
Futures.
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N S E N E W S L E T T E R

S P O T L I G H T ( C o n t d … )

Transaction charges

In order to encourage active participation in Interest Rate Futures trading, it has been decided that
no transaction charges will be levied on trades done in Interest Rate Futures contracts up to Decem-
ber 31, 2009. However, every Trading Member participating in the trading of Interest Rate Futures
contracts at any time during the above mentioned period will be required to make a lump sum contri-
bution of Rs. 500/- to the Investor Protection Fund.

Interest Rate Futures (Reserve Bank) Directons, 2009

The Reserve Bank of India (RBI) issued Interest Rate Futures (Reserve Bank) Directions, 2009, on 28th
August, 2009, covering the framework for trading of IRFs in recognized exchanges for persons dealing
in the instrument. The highlights of the directions are:
-These directions define the Interest Rate futures product; list out the permitted instruments and fea-
tures of the product.
- Foreign Institutional Investors, registered with Securities and Exchange Board of India, have been
permitted to purchase or sell Interest Rate Futures subject to the condition that the total gross long
(bought) position in cash and Interest Rate Futures markets taken together does not exceed their indi-
vidual permissible limit for investment in government securities and the total gross short (sold) posi-
tion, for the purpose of hedging only, does not exceed their long position in the government securities
and in Interest Rate Futures at any point in time.
-No scheduled bank or such other agency falling under the regulatory purview of the Reserve Bank
under the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949 or any other Act or in-
strument having the force of law is allowed to participate in the Interest Rate Futures market without
the permission from the respective regulatory Department of the Reserve Bank.
-The agencies falling under the regulatory purview of any other regulator established by law are not
allowed to participate in Interest Rate Futures market except with the permission of their respective
regulators and participation of such agencies as members or clients will be in accordance with the
guidelines issued by the regulator concerned.

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N S E N E W S L E T T E R

R E G U L A T O R Y C H A N G E S

1. Introduction of Payment of commission for Application Supported by Blocked Amount (ASBA)

in issue process

SEBI, while reviewing the Application Supported by Blocked Amount (ASBA) process, noted that one of
the reasons for poor response to ASBA is lack of incentive for Self Certified Syndicate Banks (SCSBs) to
do the assigned task of accepting ASBAs. It was noted that while commission is being paid for non-
ASBA applications, no commission was being paid for ASBA applications.

SEBI, vide circular dated August 5, 2009, has clarified that in a public issue, both the type of applica-
tions i.e. ASBA applications (uploaded by Self Certified Syndicate Banks) as well as non-ASBA applica-
tions (uploaded by Syndicate Members), will be treated on par for the purpose of payment of commis-
sion and the commission will be paid accordingly to Self Certified Syndicate Banks or Syndicate Mem-
bers as the case may be.

2. Exit load Parity established for all mutual fund holders

SEBI had, in May 2008, simplified the formats for Offer Document and Key Information Memorandum
of Mutual Funds Schemes. The simplified Scheme Information Document format provides that
“Wherever quantitative discounts are involved the following shall be disclosed – The Mutual Fund may
charge the load within the stipulated limit of 7% and without any discrimination to any specific group
of unit holders. However, any change at a later stage shall not affect the existing unit holders ad-
versely”.
However, it was observed by SEBI that the mutual funds are making distinction between the unit hold-
ers by charging differential exit loads based on the amount of subscription. In order to have parity
among all classes of unit holders, it has now been decided that no distinction among unit holders
should be made based on the amount of subscription while charging exit loads. The principle that
“any imposition or enhancement in the load shall be applicable on prospective investments only” shall
be followed. The parity among all classes of unit holders in terms of charging exit load shall be made
applicable at the portfolio level. A circular to this effect was issued on 7th August, 2009.

3. SEBI amends rights issue norms

Rights issues are further issuances of capital made by listed entities to existing shareholders. These
shareholders are generally in possession of basic information about the issuer company and are up-
dated on major developments in the company on a continuous basis. In order to encourage listed com-
panies to look at rights issues as a viable form of capital SEBI has made certain amendments in the
‘Rights Issue’ norms laid down in the SEBI (Disclosures and Investor Protection) Guidelines, 2000.
These changes are:
1. Rationalisation of Disclosure Requirements: The disclosure requirements for rights issues has
been rationalized. Accordingly, the issuer companies are required to disclose only minimum infor-
mation that will help in making the issuance process faster and also help in reducing cost.
2. Utilization of issue proceeds after finalization of the basis of allotment in the issue: Earlier,
the issuer company was allowed to utilise the rights issue proceeds after satisfying the designated
stock exchange that its ‘rights offer had received minimum 90% subscription’. SEBI has reduced
the time period taken for finalization of basis of allotment in the rights issues to 15 days from the
earlier period of 42 days from the date of closure of the issue. In view of this, SEBI has now de-
cided to amend clause 8.19 of the SEBI (DIP) Guidelines to provide that the issuer company can
utilize the issue proceeds only after the basis of allotment is finalized.
3. Applications Supported by Blocked Amount (ASBA) in Rights issue: SEBI has extended the facil-
ity of ‘application supported by blocked amount’ (ASBA) to all rights issue which enables an inves-
tor to apply for an issue without making payment. Instead, the amount is blocked in investor’s
personal account with the designated syndicate bank and only the required funds will be debited
from the account upon allocation of shares.
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R E G U L A T O R Y C H A N G E S

4. Deadline for approved users of currency derivatives segment to obtain NISM Series Certifi-
cation in Currency Derivatives Certification extended from August 10, 2009 to September 30,
2009
NSE Circular dated July 20, 2009 required that all the approved users /sales personnel of the trading
members of the Currency Derivatives Segment of a recognized stock exchange shall obtain Series-I:
Currency Derivative Certification by August 10, 2009.
In view of the difficulties expressed by the industry and keeping in view the need to have qualified
people to operate in the Currency Derivates segment, SEBI has decided to extend the aforesaid time
till September 30, 2009, for obtaining the aforesaid certification. SEBI has also stated that no further
extension of time shall be granted.

NSE NEWS

1. No additional deposits required by clearing members for currency derivatives segment on be-
half of trading members
NSE circular of August 19, 2008 required that for every trading member under a clearing member,
clearing member had to deposit an additional amount of Rs. 10 Lakhs with NSCCL (Rs. 5 Lakhs in cash
towards Interest free cash security deposit and Rs. 5 Lakhs in form of collateral security deposit).
The Exchange has now decided that a clearing member need not deposit the additional amount of Rs.
10 lakhs for clearing every trading member's trades in the Currency Derivatives Segment. Further,
such deposits so collected till date from the existing Clearing Members, in respect of every trading
member under him, would be refunded to them on receipt of suitable request from the concerned
clearing member provided such deposits are not utilized for margins.
2. NSE introduces functionality to put orders with Disclosed Quantity (DQ) in currency de-
rivatives
Based on the feedback received from members, the Exchange has decided to introduce a facility to
put orders with Disclosed Quantity (DQ) in Currency Derivatives Segment. The details of this new fa-
cility are as follows:
Disclosed quantity (DQ): A disclosed quantity order is designed to allow a dealer to purchase/sell a
certain total quantity by disclosing only a pre-specified proportion of the total ordered quantity at a
time.
Orders with Disclosed Quantity (DQ): Matching an order with a disclosed quantity is similar to a regu-
lar lot book with the following additions:
If an active order with disclosed quantity cannot trade its total quantity, it will be written on to the
RL book in the Price-Time priority. The disclosed order quantity will be determined as follows:
- If the remaining order quantity is less than or equal to the original disclosed quantity,
the disclosed order quantity attribute will be lost and set to the remaining order quantity
- Each time the disclosed quantity is replenished; the order will be removed from its cur-
rent position, re-timestamp and added to the RL Book

Disclosed Quantity (DQ) Percentage

The value set for this parameter ensures that a minimum disclosed quantity is entered as compared
with the total order quantity. The DQ percentage will be set at 10% by the Exchange. For example,
for an order with total quantity of 100, the Disclosed Quantity has to be at least 10 or more.
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R E G U L A T O R Y C H A N G E S

3. Change in Index

The Index Maintenance Sub-Committee has decided to make the following changes in the following
indices

Exclusion:

Company Name Index Date w.e.f / Reason

Matrix Laboratories S&P CNX 500 August 14, 2009

Due to Voluntary delisting pursuant to

the SEBI (Delisting of Securities) Guide-
lines, 2003.

Inclusion:

Company Name Index Date w.e.f

Indiabulls Securi- S&P CNX 500 August 14, 2009

ties Ltd.
Matrix Laborato- CNX Midcap August 14, 2009
ries Ltd.

NCFM NEWS
1. NCFM launches tests for ‘Financial Markets: A Beginners’ Module in Gujarati and Hindi lan-
guages

NSE’s certification in Financial Markets (NCFM) introduced the Financial Markets: A Beginners’ Module
in Gujarati and Hindi languages. The workbook for the module remains in English but the online test
will be conducted in Gujarati and Hindi languages.

2. NSE introduces NCMP (NSE Certified Market Professional) Certification

With effect from August 17, 2009, NSE will offer “NSE Certified Market Professional (NCMP)” certifi-
cates to those who have cleared NCFM modules (stated in Table 1 below) as per the following eligibil-
ity criteria:

⇒ NCMP Level 1 : 3 – 4 modules

⇒ NCMP Level 2 : 5 – 6 modules

⇒ NCMP Level 3 : 7 – 8 modules

⇒ NCMP Level 4 : 9 or more modules

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 Sept 2009 17
N S E N E W S L E T T E R

R E G U L A T O R Y C H A N G E S

Table 1 : List of the modules qualifying for NCMP certification *

Sr. No. Name of Module

1 Capital Market (Dealers) Module

2 Commodities Market Module
3 Derivatives Market (Dealers) Module
4 FIMMDA-NSE Debt Market (Basic) Module
5 Financial Markets: A Beginners’ Module
6 Mutual Funds : A Beginners' Module
7 NSDL–Depository Operations Module
8 Options Trading Strategies Module
9 Securities Market (Basic) Module

* More modules may be added to this list in future.

This hierarchy of certifications is aimed at enabling the candidates to better demonstrate their do-
main knowledge relating to financial markets.

Candidates are requested to kindly take note of the following:

• Only valid NCFM certificates (i.e. certificates not yet time-barred) for the modules stated in Table
1, obtained on or after August 17, 2007, will be taken into account for NCMP certification. However,
the NCMP certificate itself would have no validity period.

• At most one Beginners’ module will be counted towards certification for Level 1 and not more
than two Beginners’ modules will be counted towards certification for Level 2 and above.

• Only successful attempts for distinct modules will be considered. In other words, if a candidate
has successfully cleared the same module more than once, then only one of those attempts of that
particular module will be considered for the NCMP certification.

• In case a candidate is found to be eligible for more than one level, then only the certificate for
the highest level will be issued to the candidate. (For example: As of today if a candidate already
holds 7 valid certificates since August 17, 2007, then he/she will be directly eligible for NCMP Level 3
certification.)

• The NCMP certificates will be given in addition to the usual NCFM certificates that are issued to
candidates.

• The NCMP certificates will be generated on a monthly basis and will be dispatched in the subse-
quent month.

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 Sept 2009 18
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I N T E R N A T I O N A L N E W S

1. Deutsche Börse Systems launches ultra-low latency infrastructure connecting the financial
centres-London and Frankfurt

Deutsche Börse Systems announced on August 4, 2009 that it started installing a new ultra-low latency
infrastructure connecting the financial centres London and Frankfurt. By upgrading its telecommuni-
cation backbone network, Deutsche Börse Systems will provide unparalleled ultra low latency access
from the UK to Deutsche Börse’s trading systems Eurex and Xetra as well as to external customers and
partners. The network latency will be reduced to below 5 milliseconds, setting new standards in the
industry.

The network connectivity will comprise of four links of 10 Gbit/s capacity each, provided by the net-
work providers Level 3 Communications, Interoute and COLT. The connectivity combines new routing
paths across the shortest geographical distance with diverse routing options and the latest optical
transmission technology. The new design means the lowest possible latency is achieved while satisfy-
ing needs for highest availability without any single points of failure. Thus, these measures meet the
ever increasing demands for highest data throughput and ultra low latency.

2. Financial Industry Regulatory Authority (FINRA) fines Credit Suisse $275,000 for failing to com-
ply with terms of global research analyst settlement agreement

FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securi-
ties firms doing business in the United States. FINRA is dedicated to investor protection and market
integrity through comprehensive regulation. FINRA touches virtually every aspect of the securities
business - from registering and educating all industry participants to examining securities firms; writ-
ing and enforcing rules and the federal securities laws; informing and educating the investing public;
providing trade reporting and other industry utilities; and administering the largest dispute resolution
forum for investors and firms.

The Financial Industry Regulatory Authority (FINRA) imposed a fine of $275,000 against Credit Suisse
Securities (USA), LLC, for failing to comply fully with one of the key terms of the 2003 Global Re-
search Analyst Settlement. That settlement, which was between regulators and 13 leading financial
services firms, required those firms to make independent research available to their customers. The
requirement was intended to restore investor confidence in a research industry badly tarnished by the
firms' misconduct. The requirement to provide customers with independent research was part of
SEC’s final agreement with Credit Suisse and was incorporated into a separate agreement with FINRA.

3. FINRA & Securities Exchange Commission warn retail investors about investing in leveraged or
inverse exchange traded funds (ETF)

The Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC)
have issued an investor alert called Leveraged and Inverse ETFs: Specialized Products with Extra Risks
for Buy-and-Hold Investors warning retail investors of the risks associated with investing in these
highly complex financial products. This investor alert follows a recent FINRA Regulatory Notice re-
minding securities firms and brokers of their sales practice obligations relating to leveraged and in-
verse exchange-traded funds (ETFs).

Traditional ETFs are designed to track an index, such as the S&P 500, or the price of an individual as-
set. Leveraged ETFs seek to deliver multiples of the performance of the index or benchmark (such as
commodities or currencies) they track. Inverse ETFs (also called "short" funds) seek to deliver the op-
posite of the performance of the index or benchmark they track and are often marketed as a way for
investors to profit from, or at least hedge their exposure to, downward moving markets. Both lever-
aged and inverse ETFs pursue a range of investment strategies through the use of swaps, futures con- 18
tracts and other derivative instruments.
 Sept 2009 19
N S E N E W S L E T T E R

I N T E R N A T I O N A L N E W S
( c o n t d . . )
The SEC and FINRA are advising investors to consider leveraged and inverse ETFs only if they are con-
fident the product can help meet their investment objectives and they are knowledgeable about and
comfortable with the risks associated with these specialized ETFs. Because these products are com-
plex and can be confusing, investors should consider seeking the advice of an investment professional
who understands these products, can explain whether or how they fit with the individual investor's
objectives, and who is willing to monitor the specialized ETF's performance for his or her customers.

4. Osaka Securities Exchange revises futures & options trading rules and introduces of new de-
rivatives trading system

OSE is in process of preparing for the introduction of a new derivatives trading system equipped with
the standard trading functions and the highest level of order processing performance in the world,
from the viewpoint of further improving the international competitiveness of the OSE markets. OSE
will revise the futures and options trading rules as below with the launch of the system in order to
increase liquidity of the OSE markets and improve the convenience for investors.

5. Bursa Malaysia, CME Group to establish strategic partnership in derivatives markets

Bursa Malaysia and the CME Group announced on August 10, 2009 that they are working towards a col-
laboration involving trade matching services, product licensing and minor cross-equity investments.
The CME Group equity stake will relate to Bursa Malaysia's derivatives business. Specific terms will be
announced at a later date. Both parties announced that this initiative is subject to regulatory ap-
proval. With this strategic partnership, CME Group will use Bursa Malaysia's RM-denominated CPO fu-
tures contract (FCPO) settlement prices, which will enable CME Group to develop a USD-denominated
cash-settled CPO futures contract and its related options for listing on one of CME Group's US regis-
tered exchanges. This product is expected to be traded on CME Globex, which is CME Group's elec-
tronic trading platform.

The proposed collaboration will contribute to the overall growth of the Malaysian capital market and
globalize the Malaysian crude palm oil (CPO) futures market. Consequently, part of this proposed col-
laboration will enable Bursa Malaysia Derivatives to list its derivatives products on CME Globex.

6. Deutsche bank lists first money market exchange traded fund on Singapore Exchange

On August 27, 2009, Deutsche Bank and Singapore Exchange Limited (SGX) announced the launch of
Asia’s first money market ETF on SGX – the db x-trackers US Dollar Money Market ETF. The db x-
trackers is Deutsche Bank’s Exchange Traded Funds (ETF) business.

The ETF tracks the Fed Funds Effective Rate Total Return Index, which is intended to reflect the per-
formance of a deposit earning the United States Federal Funds Effective Rate interest at daily rest.
The Fed Funds Effective Rate represents the weighted average inter-bank interest rate in the US. As
such, the ETF provides investors with access to the overnight US Dollar money market, and charges a
low all-in annual fee of up to 0.15% per annum. This listing follows the introduction of other market
firsts by db x-trackers in Asia, including the region’s first inverse ETF, which was listed on SGX in Feb-
ruary 2009; and Singapore’s first Vietnam equity ETF, listed on SGX the following month.

With the launch of this ETF, SGX currently has 39 ETFs covering worldwide equity markets such as
Singapore, India, North Asia, ASEAN, United States, Eastern Europe, Latin America and emerging mar-
kets as well as commodities, including gold. db x-trackers was the first ETF provider to launch a
money market ETF in Europe, with its EONIA Euro money market ETF seeing more investor inflows
than any other ETF globally in 2008.
19
 Sept 2009 1
N S E N E W S L E T T E R

MANAGERIAL PERSONNEL OF NSEIL

NAME DESIGNATION DEPARTMENT TEL. NO. EXTN.
Mr Ravi Narain Managing Director and CEO 26598122 7050
Ms Chitra Ramkrishna Dy. Managing Director 26598123 7051
Mr J Ravichandran Director Finance & Accounts, Legal & Secre- 26598203 5005
tarial
Mr. Ravi Apte Chief Technology Offi- 26598316 5004
cer
Mr R Sundararaman Sr. Vice President NSCCL 26598212 4006
Mr Yatrik R Vin Sr. Vice President Finance & Accounts 26598213 3008
Ms. Kamala Vice President Compliance, Inspection, Member- 26598220 3006
ship, Arbitration, Defaulters Section
& Investor Service Cell
Mr. Nirmal Mohanty Head - SBU EDU SBU - EDUCATION 26598372 3007
Mr R Nanda Kumar Vice President NSCCL - Development & NCCL, 26598223 3000
NOW, Web Team
Mr Ravi Varanasi Vice President Investigation, Surveillance & In- 26598225 5003
spection
Ms T. S. Jagadharini Vice President Trade (Capital Market, Currency 26598435 4002
Derivatives, F&O & WDM), Devel-
opment, IPO, CRM, Marketing &
International Business
Mr. Vidhu Shekhar Vice President New Products & Six Sigma Initia- 26598209 4007
tives
Mr Arup Mukherjee Asst. Vice President SBU - EDUCATION 26598217 3002
Mr C. N. Upadhyay Asst. Vice President Inspection & Compliance 26598210 5002
Mr Dhruvkumar Patil Asst. Vice President Arbitration, Defaulters Section & 26598190 5006
Investor Service Cell
Mr Hari K Asst. Vice President Listing & Corporate Communica- 26598452 5058
tions
Mr Mahesh Haldipur Asst. Vice President Premises 26598211 4003
Mr Mayur Sindhwad Asst. Vice President NOW, Dotex International Ltd. 26598312 3102
Mr. Nilesh Tinaikar Asst. Vice President Development 26598445 5090
Ms Nisha Subhash Asst. Vice President Investigation 26598162 5088
Mr R Jayakumar Asst. Vice President Secretarial 26598222 5023
Ms. Rana Usman Asst. Vice President NSCCL - Securities & Data Supply 26598267 4048
Mr Ravindra Mohan Asst. Vice President Legal 26598197 5047
Bathula
Mr Suprabhat Lala Asst. Vice President Trade - Capital Market, F&O, Cur- 26598154 6026
rency Derivatives & WDM
Mr Suresh Narayan Asst. Vice President India Index Services & Products Ltd. 26598221 2004
& Dotex Int'l
Mr T Venkat Rao Branch In-charge Regional Office - New Delhi (011) 23344335 127
Mr Ajith Kumar V Manager Administration & Development 26598146 4094
Ms. Aparna Bhat Manager NSCCL -Risk Management 26598168 4036
Mr. Amit Bhobe Manager NCCL 26592312 3103
Mr Amol Mahajan Manager Finance & Accounts 26598139/40 3081
Ms. Anuradha Guru Officer on Special SBU - EDUCATION (011) 23344507 180
Duty
Mr. Arvind Goyal Manager CDS- Trade 26598152 6028
Mr. Avinash Kharkar Manager Listing 26598452 5057

1
 N S E N E W S L E T T E R 2
Sept 2009

MANAGERIAL PERSONNEL OF NSEIL

NAME DESIGNATION DEPARTMENT TEL. NO. EXTN.
Mr. Bireshwar Chatterjee Manager Investigation 26598366 5146

Ms Himabindu Vakkalanka Manager Development 26598453 5155

Mr. Huzefa Mahuvawala Manager NSCCL -Risk Management 26598168 4040

Mr. Janardhan Gujaran Manager F&O Trade 26598152 6029
Ms Jayna Gandhi Manager Finance & Accounts 26598141 3066
Mr. Johnson Joseph Chiriyath Manager Arbitration & Investor Service 26598192 5078
Cell
Mr. Kiran Dusane Manager Premises 26598454 4112
Mr. Kiran Sawant Manager NSCCL - Collaterals 26598265 4088
Ms. Pareezad Deboo Manager NSCCL - Currency Derivatives 26598310 4130
Mr. Prashanto Banerjee Manager Marketing 26598350 1228
Mr. Ram Surve Manager Human Resources 26598224 3125
Ms. Rehana D'Souza Manager Membership 26598295 4116
Mr. Sandeep Dandapat Branch In-charge Regional Office - Kolkata (033) 2463 117
1792
Mr. Sandeep Manoharan Manager NSCCL - Development 26598253 3089
Mr. Shekhar Rao Manager Finance & Accounts 26598143 3051
Ms. Sonali Karnik Manager Surveillance 26598166 6013
Mr. Sunil Gawde Manager Capital Market 26598448 6033
Ms. Sunitha Anand Branch In-charge Regional Office - Chennai & Hy- (044) 100
derabad 28332512
Ms. Sushama Bhagchandani Manager Finance & Accounts 26598144 3041

Mr. Vinayak Shenoy Manager Finance & Accounts 26598139 3076

MANAGERIAL PERSONNEL OF NSE INFOTECH SERVICES LTD

NAME Designation Projects Tel. No. Ext
Mr. N Muralidaran CEO Projects 26598205 2001
Mr. G. M. Shenoy Senior Vice Presi-
dent Projects 26598207 2000
Mr. M. R. Krishnan Vice President Infrastructure 26598132 2003
Ms. Hema Iyer Vice President Risk Management 26598254 2002
Mr. Mahesh Soparkar Group Head Projects 26598100 2005
Mr. P. R. Visvas Assistant Vice Presi- Internal Systems - Listing, DBA/
dent SysAdmin, DWH 26598270 1189
Ms. Mamatha Rangaprasd Assistant Vice Presi-
dent Trade 26598100 1168
Mr. Mahesh Basrur Assistant Vice Presi-
dent FOCAS 26598100 2072

2
N S E N E W S L E T T E R Sept 2009 3

MANAGERIAL PERSONNEL OF NSE INFOTECH SERVICES LTD

NAME
Designation Projects Tel. No. Ext
Mr. Hemant Patade
Assistant Vice President BCP 26598100 2067
Mr. Deviprasad Singh
Assistant Vice President Telecom 26598262 2122
Ms. Smrati Kaushik
Senior Manager Trade 26598271 6082
Mr. Viral Mody
Senior Manager Trade 26598100 2078
Mr. Hitesh Shah
Senior Manager DBA /Sys Admin 26598270 2102
Mr. Sujoy Das
Senior Manager PRISM / TAP 26598275 2032
Mr. Sudhir Sawant
Senior Manager Project Management Office 26598100 2112
Mr. Pranav Gupta
Senior Manager Risk Management 26598100 1165
Mr. Rajanish Nagwekar
Senior Manager Index / Neat Plus 26598100 2130
Mr. Nipun Dave
Senior Manager Architecture 26598100 2024
Mr. Bineet Jha
Senior Manager HWARE SUPPORT 26598396 1570
Ms. Geeta Mathew
Senior Manager ASG / Operations 26598100 2077
Mr. Mathew Joseph K
Senior Manager NCSS 26598100 2055
Mr. Benny Sebastian
Senior Manager Membership 26598100 1142
Mr. Manoj Joshi
Manager Projects 6598231 1190
Ms. Anuja Joshi
Manager BCP 26598100 1124
Mr. Suresh Chandani
Manager Trade 26598100 6083
Mr. Shibu Tomy
Manager NFA/FAMS 26598100 1154
Ms. Pranali Taskar
Manager Telecom 26598277 2096
Mr. Umesh Agroya
Manager Telecom 26598277 2105
Mr. Joy John
Manager BCP - Chennai 044-28473702 141
Mr. Narayan Neelakanthan
Manager Telecom 26598100 2113
Ms. Bernadine Swamy
Manager HRD 26598100 2135
Mr. Mahesh Dere
Manager Membership 26598100 1163
Mr. Anoop Kumar Rawat
Consultant DBA 26598100 2094
Mr. Nitin Gupte
Manager Telecom 26598100 2087
Mr. Sandeep Kumar Gupta
Manager ASG 26598100 2085
Mr. Tushar H. Kulkarni
Manager C2N 26598100 1171
Mr. Prasad Addagatla
Manager SysAdmin 26598100 6087
Mr. Suraj P Bangera
Manager Web 26598100 1110
Mr. Manoj Kumar Singh
Manager TECH - Delhi (011) 23346978 109
Mr. Sagar Joshi
Manager Project Management Office 26598100 2111
Mr. Shreekantha Velankar
Manager DWH 26598100 2119
Mr. Balakrishnan M
Manager FOCASS 26598100 2019
Mr. Aditya Agarwal
Manager Architecture 26598100 2141
Ms. Meena Hajare
Manager Listing 26598100 1123
Mr. Nishant Jha
Manager OPMS 26598100 1166
Ms. Veena Khilnani
Manager DBA 26598100 2104
Mr. Vinit Naik
Manager Survellience 26598100 1160
Ms. Vishakha Shenoy Manager PRISM 26598100 2042
3
 N S E N E W S L E T T E R Sept 2009 4

MANAGERIAL PERSONNEL OF NSEIT

NAME Designation Dept Tel No. Extn.
Mr Ramesh Padmanabhan CEO CEO's office 9820187572
Mr Vinay Patkar SVP New Initiatives 9821524635
Mr Manoj Uppal SVP Quality & Delivery 9322404060
Mr V Rajaraman VP EMS 9820444452 7727
Mr Anand Pachchhapur VP Customer Support 9820345089 7609
Mr Shailesh Chitre VP Marketing 9820058329 7605
Mr R V Krishnan AVP MKT 9322641956
Mr Aditya Garg AVP Quality 9930822377
Mr Deepak Salvi
Head Turnkey Projects Projects 9892404250
Mr Kankesh Kamath Head - Fin & Accounts Accts 9820677419
Mr Ravindra Sant Sr.Manager MKT 9821735452
Mr. Mudit Sharma Sr.Manager BAT 9324178475
Mr. Pravin Pillai Delivery Manager Projects 9820211736
Mr. Surendra Saraf Delivery Manager Projects 9765409721
Mr. Satish Chincholi Head-Customer Support IMS 9322599995
Mr Sumeet Batra Manager TECH 011-23344512 100
Mr Ushanas Shastri Manager ProBos 9820225580
Mr Cletus Pais Manager HRD 9867622314
Mr Atul Shahapurkar Manager NCDEX 9821216692
Mr Tushar Kulkarni Manager Projects 9819413589
Mr Santosh Shet Manager Projects 9892555457
Mr Mangesh Sardesai Manager Ensettle 9821228281
Ms Yogita Dere Manager NCDEX 9820656418
Ms Swati Agarwal Manager Company Sec. 9819007581
Mr Abhijit Kshirsagar Manager Administration 9833087126
Mr Rahul Bajaj Manager Marketing 9811584877
Mr Sunil Desai Manager Marketing 9320297809
Mr. Nikhil Chande Manager NOW 9821840559
Mr. Raju Ghosh Manager Online exam 9836300612
Mr. Vishal Sawant Manager HRD 9892041854
Mr. Vishnu Dev Manager Online exam 9999822843
Mr. Prasad Jadhav Manager Administation 9930510006
Mr Vinod Alex Manager Online exam 9567763733
Mr Ravi Kiran M Manager Online exam 9030991055
Mr Rohit Rajani Manager Online exam 9920130300
Mr. Rohit Sinha Manager Online exam 9871724864