Secondary market

Prof. Rahul Mailcontractor,

KLS’s Institute of Management Education and Research,
Hindwadi, Belgaum
 Secondary market
• 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.
• The secondary market enables participants who hold securities to adjust their
holdings in response to changes in their assessment of risk and return. They
also sell securities for cash to meet their liquidity needs.
• Majority of the trading is done in the secondary market.
• Secondary market comprises of equity markets and the debt markets.
• The secondary market has further two components, namely the over-the-counter (OTC) market
and the exchange-traded market.
• OTC is different from the market place provided by the Over The Counter Exchange of India
Limited.
• OTC markets are essentially informal markets where trades are negotiated. Most of the trades in
government securities are in the OTC market.
• All the spot trades where securities are traded for immediate delivery and payment take place in
the OTC market.
• The exchanges do not provide facility for spot trades in a strict sense. Closest to spot market is
the cash market where settlement takes place after some time. Trades taking place over a trading
cycle, i.e. a day under rolling settlement, are settled together after a certain time (currently 2
working days).
• Trades executed on the leading exchange (National Stock Exchange of India Limited (NSE) are
cleared and settled by a clearing corporation which provides novation and settlement guarantee.
• Nearly 100% of the trades settled by delivery are settled in demat form.
• NSE also provides a formal trading platform for trading of a wide range of debt securities
including government securities.
 Role of the Secondary Market

• The secondary market provides an efficient platform for trading of

securities.
• For the management of the company, Secondary equity markets serve
as a monitoring and control conduit—by facilitating value-enhancing
control activities, enabling implementation of incentive-based
management contracts, and aggregating information (via price
discovery) that guides management decisions.
 Stock Exchange
• The stock exchanges in India, under the overall supervision of the regulatory
authority, the Securities and Exchange Board of India (SEBI), provide a
trading platform, where buyers and sellers can meet to transact in securities.
• The trading platform provided by Exchanges is an electronic and there is no
need for buyers and sellers to meet at a physical location to trade.
• They can trade through the computerized trading screens available with the
trading members or the internet based trading facility provided by the trading
members.
• The stock exchanges are the exclusive centres for trading of securities. Listing
of companies on a Stock Exchange is mandatory to provide an opportunity to
investors to invest in the securities of local companies.
• The trading volumes on exchanges have been witnessing phenomenal growth
for last few years.
• Since the advent of screen based trading system in 1994-95, it has been
growing by leaps and bounds crore during 2007-08.
• There are 23 stock exchanges in India.
 Bombay Stock Exchange(BSE)
• The first and largest securities market in India, the Bombay Stock Exchange (BSE) was
established in 1875 as the Native Share and Stock Brokers' Association. Based in Mumbai,
India,
• BSE lists close to 6,000 companies and is one of the largest exchanges in the world. The
BSE has helped develop the country's capital markets, including the retail debt market, and
helped grow the Indian corporate sector.
• BSE has facilitated the growth of the Indian corporate sector by providing it an efficient
capital-raising platform.
• BSE is a corporatized and demutualised entity, with a broad shareholder-base which
includes two leading global exchanges, Deutsche Bourse and Singapore Exchange as
strategic partners.
• BSE provides an efficient and transparent market for trading in equity, debt instruments,
derivatives, mutual funds.
• It also has a platform for trading in equities of small-and-medium enterprises (SME).
• In 1995 the BSE switched from an open-floor to an electronic trading
system.
• The companies listed on BSE command a total market capitalization
of USD 1.64 Trillion as of Sep 2015.
• It is also one of the world's leading exchanges (5th largest in
September 2015) for Index options trading (Source: World Federation
of Exchanges).
• BSE also provides a host of other services to capital market
participants including risk management, clearing, settlement, market
data services and education.
• The BSE's overall performance is measured by the Sensex, an index of
30 of the BSE's largest stocks covering 12sectors.
 National Stock Exchange Of India Limited – (NSE)
• The National Stock Exchange Of India Limited (NSE) is India's largest financial
market.
• Established in 1992, the NSE has developed into a sophisticated, electronic market,
which ranks third in the world for transacted volume.
• The NSE conducts transactions in the wholesale debt, equity and derivative markets
• Based in Mumbai, India, the National Stock Exchange is a leader in market
technology.
• The exchange's supports more than 3,000 VSAT terminals, making the NSE the
largest private wide-area network in the country.
• The National Stock Exchange has been a pioneer for Indian financial markets, being
the first electronic limit order book to trade derivatives and ETFs
• A stock index endorsed by Standard & Poor's and composed of 50 of
the largest and most liquid stocks found on the National Stock
Exchange (NSE) of India.
• It is commonly used to represent the market for benchmarking Indian
investments.
 Demutualisation of Stock Exchanges
• Demutualisation means the segregation of ownership and management
from the trading rights of the members of a recognized stock exchange
• Demutualization is the process through which a member-owned
company becomes shareholder-owned company.
• In January 2002, SEBI directed all the recognised stock exchanges that
no broker member of the stock exchanges shall be an office bearer of
an exchange, i.e. hold the position of President, Vice President,
Treasurer etc. This was done to give effect to the decision taken by
SEBI and the policy decision of Government in regard to
demutualisation/corporatisation of exchanges by which ownership,
management and trading membership would be segregated from each
other.
 Membership in Exchanges
• The trading platform of the Exchange is accessible to investors only
through the trading members who are subject to its regulatory discipline.
• Any person can become a member by complying with the prescribed
eligibility criteria and exit by surrendering trading membership without
any hidden/overt cost.
• There are no entry/exit barriers to trading membership.
• The standards for admission of members laid down by the Exchange
stress on factors such as, corporate structure, capital adequacy, track
record, education, experience, etc.
• This is done as an effort to ensure quality broking services so as to build
and sustain confidence among investors in the Exchange’s operations.
 Benefits to the trading members
1. Access to a nation-wide trading facility for equities, derivatives, debt
and hybrid instruments/products
2. Ability to provide a fair, efficient and transparent securities market to
the investors
3. Use of state-of-the-art electronic trading systems and technology
4. Dealing with an organisation which follows strict standards for trading
& settlement at par with those available at the top international bourses
5. A demutualised Exchange which is managed by independent and
experienced professionals
 New Membership
• Membership of Exchange is open to all persons desirous of becoming trading members,
subject to meeting requirements/criteria as laid down by SEBI and the Exchange.
• The different segments currently available on the Exchange for trading are:
A. Capital Market
B. Wholesale Debt Market
C. Derivatives (Futures and Options) Market
• Persons or Institutions desirous of securing admission as Trading Members (Stock Brokers)
on the Exchange may apply for any one of the following segment groups:
1. Wholesale Debt Market (WDM) segment
2. Capital Market segment
3. Capital Market (CM) and Wholesale Debt Market (WDM) segments
4. Capital Market (CM) and Futures & Options (F&O) segments
5. Capital Market (CM), Wholesale Debt Market (WDM) and Futures & Options (F&O)
segment,
6. Clearing Membership of National Securities Clearing Corporation Ltd. (NSCCL) as a
Professional Clearing Member (PCM)
Eligibility Criteria for Membership
 Admission:
• Admission is a two-stage process with applicants requiring to go through an examination
(a module of NCFM) followed by an interview. The examination is conducted so as to test
the knowledge of the people associated with the Exchange on different aspects of the
capital/financial markets in India, as it would ensure the conduct of fair, professional and
sound dealing practices.
• The purpose of the interview is to gain knowledge about the prospects as to their
capability and commitment to carry on stock broking activities, financial standing,
integrity, etc.
• Based on the performance of the applicant in the written test, the interview and fulfillment
of other eligibility criteria, the application is forwarded to SEBI.
• On obtaining SEBI Registration, the TM is enabled to trade on the system and issued user
ids after payment of fees/deposits, submission of relevant documents and satisfying all the
formalities and requirements with regard to the Exchange and NSCCL.
• The dealers on CM segment are required to clear the Capital Market (Dealers) Module of
NCFM while dealers on Futures & Options Segment are required to clear the Derivatives
Core Module of NCFM.
• This is a pre-requisite without which user-ids are not issued.
 Listing of securities
• Listing means admission of securities of an issuer to trading privileges
on a stock exchange through a formal agreement.
• The prime objective of admission to dealings on the Exchange is to
provide liquidity and marketability to securities and also to provide a
mechanism for effective management of trading.
• Listing agreement
• At the time of listing securities of a company on a stock exchange, the
company is required to enter into a listing agreement with the
exchange. The listing agreement specifies the terms and conditions of
listing and the disclosures that shall be made by a company on a
continuous basis to the exchange for the dissemination of information
to the market
 Listing Criteria
a. The company should have net tangible assets of at least Rs. 3 crore in each
of the preceding 3 full years (of 12 months each), of which not more than
50% is held in monetary assets;
b. The company should have a track record of distributable profits for at
least three (3) out of immediately preceding five (5) years;
c. The company should have a net worth of at least Rs. 1 crore in each of the
preceding 3 full years (of 12 months each);
d. In case the company has changed its name within the last one year, atleast
50% of the revenue for the preceding 1 full year is earned by the company
from the activity suggested by the new name; and
e. The aggregate of the proposed issue and all previous issues made in the
same financial year in terms of size (i.e. offer through offer document +
firm allotment + promoters’ contribution through the offer document),
does not exceed five (5) times its pre-issue networth as per the audited
balance sheet of the last financial year.
 Benefits of Listing
• Marketplace
• Visibility
• Unprecedented reach
• Modern infrastructure
• Transaction speed
• Short settlement cycles
• Broadcast facility for corporate announcements
• Trade statistics for listed companies
• Investor service centers
 Delisting of Securities
• The term delisting of securities means permanent removal
of securities of a listed company from a stock exchange. As a
consequence of delisting, the securities of that company would no
longer be traded at that stock exchange
• Delisting may be either voluntary or compulsory.
• Reinstatement of De-listed Securities
• Reinstatement of de-listed securities should be permitted by the stock
exchanges with a cooling period of 2 years.
• It should be based on the respective norms/criteria for listing at the
time of making the application for listing and the application should
be initially scrutinized by the CLA.
Common causes for compulsory delisting of securities are
• Non-payment of listing fees.
• Non-compliance with listing requirements.
• Non-compliance with provisions of the Listing Agreement.
• Absence of trading or negligible trading.
• Non-redressal of investors’ complaints despite repeated reminders.
• Unfair trading practices at the behest of the promoters / management.
• Other malpractices such as fake original or duplicate or share
certificates deliberately issued by the management.
• Whereabouts of the company and / or its promoters / directors not
known.
• Reduction in the number of public holders of securities.
Common causes for voluntary delisting of securities are
• A listed company finds the listing fees payable to the Stock Exchange burdensome and
disproportionate to the benefits accruing to the company and/or its security holders.
• The number of public holders of the listed securities is reduced to so low a level (due to
private placement issue or otherwise) that it does not justify the securities to continue to
be listed.
• Regional imbalance of the holders of the securities either due to shifting of the companies
registered office and / or location of manufacturing unit, or for any other reason.
• Negligible trading or total absence of trading for a considerably long period of time.
• The company has either suspended its business or is under closure or has become a sick
industrial company.
• Small capital base or failure to comply with the requirement of increasing the capital, not
justifying listing to be continued.
• Mergers, demergers, amalgamations, takeovers, etc.
 Trading Mechanism
• Open Outcry Method
• 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.
 Screen Based Trading System (SBTS)
• 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.
• Today India can boast that almost 100% trading takes place through electronic order
matching.
 Process of Trading
• 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
• The signal is directed to mainframe computer at NSE
• A message relating to the order activity is broadcast to the respective
member.
• The order confirmation message is immediately displayed on the PC
of the broker.
• This order matches with the existing passive order(s) otherwise it
waits for the active orders to enter the system. On order matching, a
message is broadcast to the respective member.
• The trading system operates on a strict price time priority. All orders
received on the system are sorted with the best priced order getting the first
priority for matching i.e., the best buy orders match with the best sell order.
• Similar priced orders are sorted on time priority basis, i.e. the one that came
in early gets priority over the later one.
• Orders are matched automatically by the computer keeping the system
transparent, objective and fair. If 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 (day, immediate or cancel), price-related (buy/sell
limit and stop loss orders) or volume related (Disclosed Quantity)
conditions can be easily built into an order.
• The trading system also provides complete market information on-
line.
• The market screen at any point of time provides 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.
 Market Types
• Normal Market
• All orders which are of regular lot size or multiples there of are traded
in the Normal Market.
• For shares that are traded in the compulsory dematerialised mode the
market lot of these shares is one.
• Normal market consists of various book types wherein orders are
segregated as Regular lot orders, Special Term orders, Negotiated
Trade Orders and Stop Loss orders depending on their order attributes
 Odd Lot Market
• An order is called an odd lot order if the order size is less than regular lot size.
These orders do not have any special terms attributes attached to them.
• In an odd-lot market, both the price and quantity of both the orders (buy and
sell) should exactly match for the trade to take place.
• Currently the odd lot market facility is used for the Limited Physical Market
as per the SEBI directives.
• Pursuant to the directive of SEBI to provide an exit route for small investors
holding physical shares in securities mandated for compulsory dematerialised
settlement, the Exchange has provided a facility for such trading in physical
shares not exceeding 500 shares. This market segment is referred to as
'Limited Physical Market' (small window). The trading members are required
to ensure that shares are duly registered in the name of the investor(s) before
entering orders on their behalf on a trade date.
 Auction Market
• An auction market is a market in which buyers enter competitive bids,
and sellers enter competitive offers at the same time. The price at
which a stock is traded represents the highest price that a buyer is
willing to pay and the lowest price that a seller is willing to sell.
Matching bids and offers are then paired together, and the orders are
executed. The NSE is an example of an auction market
• In the Auction Market, auctions are initiated by the Exchange on
behalf of trading members for settlement related reasons.
 Retail Debt Market
• In Retdebt market, government securities are traded. At present only
the Central Government Securities are allowed to trade.
 Corporate Hierarchy
(a) Corporate Manager: The corporate manager is a term
assigned to a user placed at the highest level in a trading firm.
Such a user receives the End of Day reports for all branches of the
trading member. The facility to set Branch Order Value Limits
and User Order Value Limits is available to the corporate
manager. Corporate Manager can view outstanding order and
trade of all users of the trading member. He can cancel/modify
outstanding order of all user of the trading member.
(b) Branch Manager: The branch manager is a term assigned to
a user who is placed under the corporate manager. The branch
manager receives End of Day reports for all the dealers under that
branch. The branch manager can set user order value limit for
each of his branch. Branch Manager can view outstanding order
and trade of all users of his branch. He can cancel/modify
outstanding order of all user of his branch.
(c) Dealer: Dealers are users at the lower most level of the
hierarchy. A dealer can view and perform order and trade related
activities only for oneself and does not have access to information
on other dealers under either the same branch or other branches.
 Market Phases
• The system is normally made available for trading on all days except
Saturdays, Sundays and NSE specified holidays. A trading day typically
consists of a number of discrete stages as explained below:
• Opening
• The trading member can carry out the following activities after login to the
system and before the market opens for trading:
(i) Set up Market Watch (the securities which the user would like to view on
the screen.
(ii) Viewing Inquiry screens.
At the point of time when the market is opening for trading, the trading member
cannot login to the system. A message ‘Market status is changing. Cannot logon
for sometime’ is displayed. If the member is already logged in, he cannot
perform trading activities till market is opened.
• Pre-open Trading Session:
• The country’s two premier bourses NSE and BSE introduced the 15-minute special pre-open
trading session, a mechanism under which investors can bid for stocks before the market opens.
• The pre-open session is for a duration of 15 minutes i.e. from 9:00 am to 9:15 am. The pre-
open session is comprised of Order collection period and order matching period. The price
band applicable for pre open session is 20%.
• The order collection period of 8* minutes shall be provided for order entry, modification and
cancellation. (* - System driven random closure between 7th and 8th minute). During this
period orders can be entered, modified and cancelled.
• The information like Indicative equilibrium / opening price of scrip, total buy and sell quantity
of the scrip is disseminated on the NEAT Terminal to the members on real time basis.
• Indicative NIFTY Index value & % change of indicative equilibrium price to previous close
price are computed based on the orders in order book and are disseminated during pre-open
session.
• Order matching period starts immediately after completion of order collection period. Orders
are matched at a single (equilibrium) price which will be open price. The order matching
happens in the following sequence:
• Eligible limit orders are matched with eligible limit orders
• Residual eligible limit orders are matched with market orders
• Market orders are matched with market orders
• Open Phase
• The open period indicates the commencement of trading activity.
• To signify the start of trading, a message is sent to all the trader
workstations.
• The market open time for different markets is notified by the Exchange
to all the trading members.
• Order entry is allowed when all the securities have been opened. During
this phase, orders are matched on a continuous basis.
• Trading in all the instruments is allowed unless they are specifically
prohibited by the exchange.
• The activities that are allowed at this stage are Inquiry, Order Entry,
Order Modification, Order Cancellation (including quick order
cancellation) Order Matching and trade cancellation.
• Market Close
When the market closes, trading in all instruments for that market
comes to an end. A message to this effect is sent to all trading members.
No further orders are accepted, but the user is permitted to perform
activities like inquiries and trade cancellation.
• Surcon
Surveillance and Control (SURCON) is that period after market close
during which, the users have inquiry access only. After the end of
SURCON period, the system processes the data for making the system
available for the next trading day. When the system starts processing
data, the interactive connection with the NEAT system is lost and the
message to that effect is displayed at the trader workstation
 Major Segments of the Electronic Screen
(a) Title bar: It displays trading system name, the date and the current time.
(b) Ticker Window: The ticker displays information of all trades in the system as and when it takes place.
The user has the option of selecting the securities that should appear in the ticker.
(c) Tool Bar: The toolbar has functional buttons which can be used with the mouse for quick access to
various functions such as Buy Orde,Entry, Sell Order Entry, Market By Price (MBP), Previous Trades (PT)
etc.
(d) Market Watch: The Market Watch window is the main area of focus for a trading member. This screen
allows continuous monitoring of the securities that are of specific interest to the user. It displays trading
information for the selected securities.
(e) Inquiry Window: This screen enables the user to view information such as Market By Price (MBP),
Previous Trades (PT), Outstanding Orders (OO), Activity Log (AL) and so on. Relevant information for the
selected security can be viewed.
(f) Snap Quote: The snap quote feature allows a trading member to get instantaneous market information
on any desired security.
(g) Order/Trade Window: This enables the user to enter/modify/cancel orders and for also to send the
request for trade cancellation.
(h) Message Window: This enables the user to view messages broadcast by the Exchange such as corporate
actions, any market news, auctions related information etc. and other messages like order confirmation,
order modification, order cancellation, etc
 Order Management
Order Management consists of entering orders, order modification, order
cancellation and order matching.
Entering Orders
The trading member can enter orders in the normal market and auction
market. A user can place orders in any of the markets by invoking the
respective order entry screens.
Active & Passive Orders: When any order enters the trading system, it is
an active order. It tries to find a match on the other side of the books. If it
finds a match, a trade is generated. If it does not find a match, the order
becomes a passive order and goes and sits in the order book.
 Order Books
• As and when valid orders are entered or received by the trading system, they
are first numbered, time stamped and then scanned for a potential match.
• This means that each order has a distinctive order number and a unique time
stamp on it.
• If a match is not found, then the orders are stored in the books as per the
price/time priority.
• Price priority means that if two orders are entered into the system, the order
having the best price gets the higher priority.
• Time priority means that if two orders having the same price are entered,
then the order that is entered first gets the higher priority.
• Best price for a sell order is the lowest price and for a buy order, best price is
the highest price.
 Order Types and Conditions
• The system allows the trading members to enter orders with various
conditions attached to them as per their requirements.
• These conditions are broadly divided into Time Conditions, Quantity
Conditions, Price Conditions and Other Conditions.
• Several combinations of the above are allowed thereby providing
enormous flexibility to the users. The order types and conditions are
summarised below:
 a) Time Conditions
• DAY : A DAY order, as the name suggests is an order that is valid for
the day on which it is entered. If the order is not executed during the
day, the system cancels the order automatically at the end of the day.
• IOC: An Immediate or Cancel (IOC) order allows the user to buy or
sell a security as soon as the order is released into the system, failing
which the order is cancelled from the system. Partial match is possible
for the order, and the unmatched portion of the order is cancelled
immediately.
 b) Quantity Conditions

• DQ: An order with a Disclosed Quantity (DQ) allows the user to

disclose only a portion of the order quantity to the market. For e.g. if
the order quantity is 10,000 and the disclosed quantity is 2,000, then
only 2,000 is disclosed to the market.
 c) Price Conditions
• Market Orders: Market orders are orders for which price is specified as 'MKT'
at the time the order is entered. For such orders, the system determines the price.
• Stop-Loss: This facility allows the user to release an order into the system, after
the market price of the security reaches or crosses a threshold price called trigger
price.
• Trigger Price: Price at which an order gets triggered from the stop loss book.
• Limit Price: Price of the orders after triggering from stop loss book.
• Price Freeze: Since no price bands are applicable in respect of securities on
which derivative products are available or securities included in indices on which
derivative products are available, in order to prevent members from entering
orders at non-genuine prices in such securities, the exchange has decided to
introduce operating range of 20% for such securities. Any order above or below
20% over the base price should come to the exchange as a price freeze.
 d) Other Conditions

PRO/CLI: A user can enter orders on his own account or on behalf of clients. By
default, the system assumes that the user is entering orders on the trading
member’s own account.
Participant Code: By default, the system displays the trading member id of the
user in the participant field. Thus, all trades resulting from an order are to be
settled by that trading member.
Non-custodial institutional trade (NCIT) orders can be marked by the user at the
order entry level itself. Only a valid participant code can be entered.
In case the participant is suspended a message to this effect is displayed to the
user on the order entry screen.
Branch Order Value Limit Check: In addition to the checks performed for the
fields explained above, every order entry is checked for the branch order value
limit. In case the set order value limit is exhausted the subsequent order is rejected
by the system.
• Order Modification
All orders can be modified in the system till the time they do not get fully traded
and only during market hours. Once an order is modified, the branch order value
limit for the branch gets adjusted automatically. Order modification is rejected if
it results in a price freeze, message displayed is ‘CFO request rejected’.

• Order Cancellation
Order cancellation functionality can be performed only for orders which have
not been fully or partially traded (for the untraded part of partially traded orders
only) and only during market hours and in preopen period.

• Order Matching
The buy and sell orders are matched on Book Type, Symbol, Series, Quantity
and Price.
 Order Matching Priority:
• The best sell order is the order with the lowest price and a best buy
order is the order with the highest price. The unmatched orders are
queued in the system by the following priority:
(a) By Price: A buy order with a higher price gets a higher priority and
similarly, a sell order with a lower price gets a higher priority. Ex.
Consider
the following buy orders:
1) 100 shares @ Rs. 35 at time 10:30 a.m.
2) 500 shares @ Rs. 35.05 at time 10:43 a.m.
The second order price is greater than the first order price and therefore
is the best buy order.
(b) By Time: If there is more than one order at the same price, the order
entered earlier gets a higher priority.
E.g. Consider the following sell orders:
1) 200 shares @ Rs. 72.75 at time 10:30 a.m.
2) 300 shares @ Rs. 72.75 at time 10:35 a.m.
Both orders have the same price but they were entered in the system at
different time. The first order was entered before the second order and
therefore is the best sell order.
• As and when valid orders are entered or received by the system, they
are first numbered, time stamped and then scanned for a potential
match.
• This means that each order has a distinctive order number and a unique
time stamp on it.
• If a match is not found, then the orders are stored in the books as per
the price/time priority.
 Trade Management
• A trade is an activity in which a buy and a sell order match with each
other. Matching of two orders is done automatically by the system.
• Whenever a trade takes place, the system sends a trade confirmation
message to each of the users involved in the trade.
• The trade confirmation slip gets printed at the trader workstation of the
user with a unique trade number.
• The system also broadcasts a message to the entire market through the
ticker window displaying the details of the trade.
• Trade Verification
• Trade details are available for verification on the same day (i.e. T itself) after
19:00 hours IST as well as trade details of all trades for the last 5 trading days
are available on the website. (i.e. trades executed on 'T' day, can be verified
till the T+4 th day. The investor needs to input minimum details of the trade
viz. client code (provided by the trading member), security details (symbol
and series), order number, trade number, trade quantity and price (excluding
brokerage)
• Trade Cancellation
• The user can use trade cancellation screen for cancelling trades done during
the day. If the user is a corporate manager of a trading member firm, he can
request for trade cancellation for the trades of any dealer of the trading
members firm and if he is a branch manager of a branch, then he can request
for trade cancellation for the trades for any dealer of the branch of the trading
member firm.
 Auction
• Auctions are initiated by the Exchange on behalf of trading members
for settlement related reasons. The main reasons are shortages, bad
deliveries and objections. There are three types of participants in the
auction market:
(a) Initiator: The party who initiates the auction process is called an
initiator.
(b) Competitor: The party who enters on the same side as of the initiator
is called a competitor.
(c) Solicitor: The party who enters on the opposite side as of the
initiator is called a solicitor.
 Auction process
• The trading members can participate in the Exchange initiated auctions by entering orders as a solicitor.
E.g. If the Exchange conducts a Buy-In auction, the trading members entering sell orders are called
solicitors.
• When the auction starts, the competitor period (Competitor period is the period during which competitor
order entries are allowed) for that auction also starts.
• Competitor orders are the orders which compete with the initiator’s order i.e. if the initiator’s order is a
buy order, then all the buy orders for that auction other than the initiator’s order are competitor orders
and if the initiator order is a sell order then all the sell orders for that auction other than the initiators
order are competitor orders.
• After the competitor period ends, the solicitor period for that auction starts.
• Solicitor period is the period during which solicitor order entries are allowed.
• Solicitor orders are the orders which are opposite to the initiator order i.e. if the initiator order is a buy
order, then all the sell orders for that auction are solicitor orders and if the initiator order is a sell order,
then all the buy orders for that auction are solicitor orders.
• After the solicitor period, order matching takes place.
• The system calculates trading price for the auction and all possible trades for the auction are generated at
the calculated trading price. After this the auction is said to be complete.
• Competitor period and solicitor period for any auction are set by the Exchange.
 Internet Broking
• SEBI Committee has approved the use of Internet as an Order Routing
System (ORS) for communicating clients' orders to the exchanges
through brokers.
• ORS enables investors to place orders with his broker and have control
over the information and quotes and to hit the quote on an on-line
basis.
• Once the broker’s system receives the order, it checks the authenticity
of the client electronically and then routes the order to the appropriate
exchange for execution.
• On execution of the order, it is confirmed on real time basis. Investor
receives reports on margin requirement, payments and delivery
obligations through the system.
• His ledger and portfolio account get updated online.
 Wireless Application Protocol
• 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.
 Insider Trading
• The SEBI (Prohibition of Insider Trading) Regulations, 1992 prohibit an
insider from Dealing in listed securities when in possession of ‘unpublished
price sensitive information’.
• Price sensitive information is any information, which if published, is likely
to materially affect the price of the securities of a company. Such
information may relate to the financial results of the company, intended
declaration of dividends, issue of securities or buy back of securities,
amalgamation, mergers, takeovers, any major policy changes, etc.
• Insider trading is prohibited and is considered an offence.
• SEBI may prosecute persons found prima facie guilty of insider trading in
an appropriate court or pass such orders as it may deem fit.
• In order to strengthen insider trading regulations, SEBI mandated a code of
conduct for listed companies, its employees, analysts, market intermediaries
and professional firms.
 Unfair Trade Practices
• The SEBI (Prohibition of Fraudulent and Unfair Trade Practices in
relation to the Securities Market) Regulations, 2003 enable SEBI to
investigate into cases of market manipulation and fraudulent and unfair
trade practices.
• These regulations empower SEBI to investigate into violations
committed by any person, including an investor, issuer or an
intermediary associated with the securities market.
• The regulations define frauds as acts, expression, omission or
concealment committed whether in a deceitful manner or not by a
person or by any other person or agent while dealing in securities
• The regulations specifically prohibit dealing in securities in a fraudulent
manner, market manipulation, misleading statements to induce sale or
purchase of securities, and unfair trade practices relating to securities.