CAPITAL MARKET

TRADING MECHANISM OF STOCK

EXCHANGE
 INTRODUCTION
◻ The trading on stock exchange in INDIA
was open outcry method.
◻ This was time consuming and inefficient.

◻ This imposed limits on trading volumes

and efficiency.
◻ In order to provide efficiency, liquidity, and

transparency NSE and BSE introduced

nation wide online fully automated
“SCREEN BASED TRADING SYSTEM”
 SCREEN BASED TRADING

◻ SCREEN BASED TRADING NSE’s screen

based trading is known as NEAT­ National
exchange for automated trading.
◻ BSE’S screen based trading is known as

BOLT­ Bombay online trading.

◻ Here order are match on the basis of time

and price priority.

 TRADING PROCEDURES
◻ A non member is not permitted to enter the
hall of the stock exchange and cannot carry
on biz transactions personally.

◻ Following are the steps involved in the trading

(buying & selling) on the stock exchange
 TRADING PROCEDURES

◻ STEP 1 : FINDING A BROKER

◻ STEP 2 : OPENING AN ACCOUNT
WITH THE BROKER
◻ STEP 3 : PLACING THE ORDER

◻ STEP 4 : EXECUTING THE ORDER

◻ STEP 5 : PREPRATION OF CONTRACT

NOTES
◻ STEP 6 : SETTLEMENT OF CONTRACTS
STEP 1 : FINDING A
BROKER
◻ Select a broker for transacting business on
behalf of the investor.
◻ The stock broker is a licensed member of a
stock exchange. A buyer of securities selects
a broker who­
i. Provide information about the available
investment opportunities
ii. Provide necessary financial periodicals,
prospectus and reports of companies.
iii.
Provide competent representatives who can
solve the investment problems.
STEP 2 : OPENING AN ACCOUNT
WITH
THE BROKER
◻ After selection of the broker the investor will
proceed to open an account with the broker.
A broker opens an account in the name of
prospective client only if he is satisfied about
the credit worthiness of the investor. If the
broker is satisfied, he will open an account in
the name of that customer by writing his
name in the brokers book.
STEP 3 : PLACING THE ORDER
◻ After selection of broker & opening an account,
the investor places an order to buy a specified
no of shares of a specified company.
◻ Order can be placed by telephone, fax or in
person.
◻ The order should be in clear and precise terms
Different types of orders

◻ BUY ORDERS
Buy orders are placed when the security price is expected
to rise in price. If the investor is satisfied by the current
price, he can decide how much quantity to be bought at a
prescribed rate .
◻ SELL ORDERS
Placed when you want to dispose the security your own,
usually at a estimated price or when a decline in price is
expected.
 Different types of orders (Cotn)

◻ Limit order
It is an order for the purchase or sale of securities at
a fixed price specified by the client.
“ buy at Rs. 50 or less”
“ sell at Rs. 60 or more”
No guarantee that limit order will be executed
◻ Fixed price order

When the client specifies the price at which the

shares are to be purchased, it is known as fixed price
order.
◻ Stop loss order

It is an order to sell as soon as the price falls up to a

particular level or to buy when the price rises up to a
specified level. This is mainly to protect the clients
against a heavy fall or rise in price. So that they may not
suffer more than the specified unit.
 Different types of orders (Cotn)

◻ Stop loss sell order ­ A sell order in the Stop Loss

book gets triggered when the last traded price in the
normal market reaches or falls below the trigger price
of the order.
◻ Stop loss buy order ­ A buy order in the Stop Loss
book gets triggered when the last traded price in the
normal market reaches or exceeds the trigger price
of the order.
◻ Best price/ Market orders
A market order is an order executed at the current
market price. It will be executed at the prevailing
price on the exchange.
 Different types of orders (Cotn)

◻ Discretionary Order
It is an order to buy or sell securities at whatever
price the broker thinks reasonable. This is possible
when the client has complete faith on the broker.
◻ Limited Discretionary Order

It is an order to buy or sell securities within a

specified price range and within the given time
period as per the judgment of the broker.
◻ Immediate or Cancel Order

A trader releases this type of order in to the market

for immediate execution. If the price is not matched,
the order is cancelled, and fresh order has to be
placed.
 Different types of orders (Cotn)

◻ Day Order
These orders are valid for the day in which they
were put in to the system. If they are not
executed till the close of the trading on the day,
at the end of the day they are automatically
cancelled.
◻ Good Till Day Order

A trader can place an order specifying the no of

days up to which it can remain open. If the price
did not reach at the ordered level, at the end of
the period the order is automatically cancelled.
 Different types of orders (Cotn)

◻ (Un)Disclosed value order
This type of order enables an investor to release part of the
order value to the market without disclosing the full value.
■ Minimum fill order

A trader can specify the minimum number of orders that

should be filled by fixing upper and lower limits.
■ All or None order

A trading member can stipulate conditions that the full order

should be matched. The orders received are processed
immediately to check matching. Unmatched orders are
stored in different books in the sequence of best prices and
time priority.
 TYPES OF ORDERS
A. Buy orders
B. Sell orders
C. Price based orders
i. Price limit
ii. order Stop loss
D. Best order Market
price/
orders
E. Time based orders
i. Day order
ii.
Good till day order
iii.
Immediate or cancel order
F. Discretionary order
G. Volume condition
i. (Un)Disclosed value order
ii. Minimum fill order
iii. All or none order
 STEP 4 : EXECUTING THE
ORDER
◻ The execution of the orders submitted by
clients takes place between brokers acting on
behalf of the investors/clients.
◻ Buy orders are matched with sell orders.
◻ In the automated system, trading is carried
out in an anonymous environment and the
orders are matched by the computer system.
 STEP 5 : PREPRATION OF CONTRACT
NOTES
◻ A contract note is a written agreement
between the broker and his client for the
transaction executed.
◻ It contains the details of the contract made for
the purchase or the sale of securities, the
brokerage chargeable, the name of the
company, number of shares bought or sold,
net rate etc..
 STEP 6 :SETTLEMENT OF
CONTRACTS
◻ Settlement is made by means of delivering the
share certificates along with the transfer deed
◻ Settlement of trade is carried out through a

separate agency known as clearing house

which functions in each stock exchange.
 Market phases
◻ Opening
◻ Pre open(9.00am to 9.15am)

◻ Market close(3.50 to 4.00pm) normal

market
 Logging on

◻ User id
◻ Trading member id
◻ password
 MECHANISM OF ONLINE
TRADING
◻ MECHANISM OF ONLINE TRADING
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.
 HOW TO PLACE ORDER

◻ An investor informs 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.
The signal is directed to mainframe
computer at NSE via VSAT at NSE’s
office. A message relating to the order
activity is broad casted to respective
member.
 To enter a buy order
◻ BASIS OF OPERATION :
◻ BASIS OF OPERATION The online
trading operates on the strict basis of
PRICE PRIORITY and TIME PRIORITY
◻
HOW TO ENTER SELL ORDER :
◻ HOW TO ENTER SELL ORDER Same

as the process involved in the placing of

the buy order
 To enter a Sell order
◻ LOGGING ON :

◻ LOGGING ON On starting NEAT

application, the logon screen appears
with the following details. USER ID
TRADING MEMBER ID PASSWORD
NEW PASSWORD.
 TERMINOLOGIES OF ONLINE
TRADING

Snap quote:­ feature available to

get instantaneous market information on a
desired security.
Active and Passive orders:­ when any
order enters the trading system, it is an active
order. It tries to find a match on the other
side of books. If it finds a match trade is
generated,
if does not finds match it turns to
passive order which is stored in order book.
 Cont.........
◻ Previous trade:­ it is to provide security
wise information to user for own trades.
◻ outstanding order:­Purpose of

outstanding order is to enable user to

view the outstanding order for a security.
Which has not yet been completely traded
or cancelled.
◻ Purpose of MBP is to enable user to view

outstanding order in the market, at each

price and are display in order of best
price.