Y Y NATIONAL STOCK EXCHANGE OF INDIA LIMITED NINETEENTH ANNUAL REPORT Y

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1 Y Y Y NATIONAL STOCK EXCHANGE OF INDIA LIMITED NINETEENTH ANNUAL REPORT Y

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3 NATIONAL STOCK EXCHANGE OF INDIA LIMITED Nineteenth Annual Report BOARD OF DIRECTORS Dr. Vijay L. Kelkar Mr. C. Achuthan : Chairman Mr. Anjan Barua Mrs. Ranjana Kumar Mr. A.P. Kurian Dr. Rajiv B. Lall Mr. S. B. Mainak Mr. Y.H. Malegam Mr. S. B. Mathur Dr. K.R.S. Murthy Dr. R.H. Patil Mrs. Bhagyam Ramani Dr. V.A. Sastry Mr. Deepak Satwalekar Mr. Ravi Narain : Managing Director Ms. Chitra Ramkrishna : Joint Managing Director MANAGEMENT TEAM* Mr. J. Ravichandran : Director (F&L) & Company Secretary Mr. R. Sundararaman # : Senior Vice President Mr. Yatrik R. Vin Mr. R. Nanda Kumar : : Senior Vice President Senior Vice President Mr. Ravi Varanasi : Senior Vice President Mr. Vidhu Shekhar Ms. K. Kamala : : Vice President Vice President Mr. Nirmal Mohanty : Vice President Mr. Hari K Mr. Suresh Narayan : : Vice President Vice President Mr. T. Venkat Rao : Vice President & Head-Northern Region Mr. Chandrashekhar Mukherjee Mr. Suprabhat Lala : : Vice President Vice President Mr. Mahesh Haldipur : Asst. Vice President Mr. C.N. Upadhyay Mr. Arup Mukherjee : : Asst. Vice President Asst. Vice President Mr. R. Jayakumar # Mr. Ravindra Mohan Bathula : : Asst. Vice President Asst. Vice President Ms. Nisha Subhash : Asst. Vice President Mr. Nilesh Tinaikar Ms. Rana Usman # : : Asst. Vice President Asst. Vice President Mr. Mayur Sindhwad : Asst. Vice President Mr. Nagendra Kumar # Mr. Vitthal More : : Asst. Vice President Asst. Vice President Mr. Sandip Mehta : Asst. Vice President Mr. Sumit Tyagi Mr. Amol Mahajan : : Head- Sales & Marketing Asst. Vice President Ms. Divya Malik Lahiri : Asst. Vice President Mr. Rehena D sauza Mr. Sunitha Anand : : Asst. Vice President Asst. Vice President & Head Southern Region AUDITORS : M/s. Khandelwal Jain & Co. Chartered Accountants 12-B, Baldota Bhavan, 5th Floor Maharshi Karve Road Churchgate, Mumbai REGISTERED OFFICE : Exchange Plaza Plot C-1, Block G Bandra Kurla Complex, Bandra (East), Mumbai REGISTRAR & TRANSFER AGENTS : Link Intime India Pvt. Ltd. C-13, Pannalal Silk Mills Compound L B S Marg, Bhandup (West) Mumbai # on deputation to NSCCL

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5 NATIONAL STOCK EXCHANGE OF INDIA LIMITED Nineteenth Annual Report To, The Members, DIRECTORS REPORT Your Directors have pleasure in presenting the Nineteenth Annual Report and Audited Accounts of the Company for the year ended March 31, OPERATIONS AND MAJOR DEVELOPMENTS DURING THE YEAR 1.1 Global rankings- Equity Derivatives Market Stock Futures During the year 2010, NSE continued to rank as the 2nd largest exchange in respect of contracts traded in stock futures. The details of top 5 exchanges trading stock futures is given in Table 1 below: Table 1 Sr. No. Exchange Contracts traded during 2010 (in millions) 1 NYSE Liffe Europe National Stock Exchange of India Eurex JSE Korea Exchange Source: WFE Index Options NSE continues to be ranked as the 2nd largest exchange in the world in index options. The details of top 5 exchanges in index options are given in Table 2 below: Table 2 Sr. No. Exchange Contracts traded during 2010 (in millions) 1 Korea Exchange 3, National Stock Exchange of India Eurex Chicago Board Options Exchange Taifex Source: WFE 1

6 NATIONAL STOCK EXCHANGE OF INDIA LIMITED Nineteenth Annual Report Index Futures NSE continues to be ranked as the 3rd largest exchange in the world in index futures. The details of top 5 exchanges in index futures are given in Table 3 as under: Table 3 Sr. No. Exchange Contracts traded during 2010 (in millions) 1 CME Group Eurex National Stock Exchange of India Osaka SE NYSE Liffe Europe Source: WFE Nifty Index Global rankings Nifty Index options ranked 4th across the top 20 Index options traded globally during the year Nifty Index futures ranked 9th across the top 20 Index futures traded globally during the year (Source: rankings based on number of contracts traded or cleared between Jan 10 - Dec 10) All products NSE ranked 5th across all the Derivatives exchanges in the world based on the volume of contracts traded during the year (Source: rankings based on number of contracts traded or cleared between Jan 10 - Dec 10) 1.2 Global rankings-capital Market In capital market segment, NSE continues to remain the fourth largest exchange in the world based on the number of transactions during the calendar year The details of top 10 Exchanges are given in the Table 4 below. Table 4 Sr. No. Exchange No. of transactions (in Thousands) 1 NYSE Euronext (US) 2,050, NASDAQ OMX 1,743, Shanghai SE 1,661, National Stock Exchange of India 1,556, Shenzhen SE 1,329, Korea Exchange 921, Bombay SE 555, Tokyo SE Group 334, Taiwan SE Corp. 232, London SE Group 207,497.8 Source: WFE. The sale and purchase of a share are counted as one transaction 2

7 NATIONAL STOCK EXCHANGE OF INDIA LIMITED Nineteenth Annual Report 1.3 Membership at NSE 92 new members (61 in CM, F&O and CD segments; 18 in CM and F&O segments; 12 in CD segment; and 1 in CM and CD segments) were registered during the Financial Year The Exchange also granted additional segment membership to 68 members during the Financial Year Table 5 showing membership details for the Financial Year Particulars CM WDM F&O CD segment segment segment segment SEBI registered trading members 1, , Members registered in additional segments Registered Sub-brokers / Authorised persons 54,290 Nil 44,731 3,020 Surrender of membership Wholesale Debt Market (WDM) segment The WDM segment provides a trading platform for trading of a wide range of fixed income securities. Initially, government securities, treasury bills and bonds issued by public sector undertakings (PSUs) were made available for trading. This range has been widened to include non-traditional instruments like floating rate bonds, zero coupon bonds, index bonds, structured products, corporate debentures, state government loans, SLR and non-slr bonds issued by financial institutions, units of mutual funds and Supra Institutions (Foreign institutions). There were 4,479 securities available for trading as on March 31, 2011 all belonging to listed category. The turnover on WDM segment decreased in the financial year The turnover decreased from Rs 5,63, crores in to Rs 5,59, crores in registering a decline of 0.77%. The average daily turnover decreased to Rs 2, crores in from Rs 2, crores in The business growth on the WDM segment of the Exchange is presented in Figure 1. Figure 1 3

8 NATIONAL STOCK EXCHANGE OF INDIA LIMITED Nineteenth Annual Report Turnover in WDM segment for FY is presented in Figure 2 as under:- Figure 2 Avgdaily Value (`.Cr.) The transaction in government securities account for a substantial share of transaction on the WDM segment with 54.49% in Market capitalisation of the WDM segment has witnessed a constant increase indicating an increase in the number of securities available for trading on this segment. Total market capitalisation of the securities available for trading on WDM segment stood at Rs 35,94, crores as on March 31,2011. Table 6: Trades in WDM segment Particulars Number of Trades 20,383 24,069 Average monthly number of trades 1,699 2,006 Average daily number of trades Average Trade Value (Rs. in crores) Average Daily Turnover (Rs. in crores) 2, , Turnover (Rs. in crores) 5,59, ,63, Number of Active Scrips 1,111 1,144 Number of Active members Securities Profile The turnover of government securities in WDM segment decreased by 7.02 % during Its share in total turnover decreased from 58.15% in to 54.49% in The share of Treasury Bills increased from 16.49% in to 17.64% in The turnover of Non Government securities in WDM segment increased by 9.01% during During , the share of Non Government Securities in total turnover increased to 27.87% as compared to 25.37% in

9 NATIONAL STOCK EXCHANGE OF INDIA LIMITED Nineteenth Annual Report Table 7 and Figure 3 represent security-wise distribution of turnover. Table 7: Security-wise Distribution of Turnover Securities Turnover % of Turnover % of (Rs. in crores) Turnover (Rs.in crores) Turnover Government Securities 3,04, ,27, T-Bills 98, , PSU Bonds 53, , Institutional Bonds 55, , Bank Bonds and others 2, , Corporate Bonds 43, , Total 5,59, ,63, Figure 3: Security wise Distribution of Turnover WDM Security Trades for Issuance in WDM A total of 1080 securities were listed during the financial year As at end of March 2011, 4,479 securities were available for trading on the WDM segment. Details of Issuance in WDM are provided in Table 8. Table 8: Issuance in WDM Financial Year No. of Total No. of Market Capitalisation New Securities Securities (at year end Rs. in Crs) Listed (at year end) ,299 3,097 14,61, ,177 15,67, ,252 17,84, ,566 21,23, ,026 3,954 28,48, ,140 31,65, ,080 4,479 35,94,

10 NATIONAL STOCK EXCHANGE OF INDIA LIMITED Nineteenth Annual Report Market Capitalisation Total Market capitalisation of the securities available for trading in WDM segment increased to Rs 35,94, crores in from Rs. 31,65, crores in the previous year registering a growth of %. The Central Government securities accounted for the largest share of the market capitalisation with 60.80% while Non Government Securities accounted for %. The composition of market capitalisation of various securities on WDM is presented in Table 9. Table 9: Market Capitalisation of WDM segment Securities As on March 2011 As on March 2010 Market % of total Market % of total Capitalisation Capitalisation (Rs.in crores) (Rs. in crores) Central Government Securities 21,85, ,50, PSU Bonds 1,90, ,62, State Loans 6,22, ,36, T-Bills 1,37, ,35, Others 4,58, ,79, Total 35,94, ,65, Figure 4: Market Capitalisation of WDM segment Corporate Bond Market Currently for reporting trades in Corporate bonds, Exchanges provides two platform namely NEAT WDM and Report CBT. The average daily traded value reported through corporate bond for was Rs crores (NEAT WDM & Report CBT) as compared to Rs crores for with an average of around 32 trades being reported on a daily basis as compared to 51 trades for

11 NATIONAL STOCK EXCHANGE OF INDIA LIMITED Nineteenth Annual Report Turnover of Corporate Bond is presented in Table 10 and Figure 5 Table 10: Corporate Bond Turnover Corporate Bond Turnover % Change Total Turnover (Rs Crs) 1,55, ,56, (0.42) Average Daily Turnover (Rs Crs) (4.04) Total Number of Trades 8,006 12,231 (34.54) Average Daily Trades (37.25) Figure 5: Corporate Bond Turnover for FY Capital Market (CM) segment The total turnover of CM segment in the year is Rs. 35,77,410 crores as compared to Rs. 41,38,023 crores in the year , showing a decrease of 14 %. The average daily traded value in is Rs. 14, Crores as compared to Rs. 16, crores in As on March 31, 2011, the number of listed companies available for trading was 1,484 compared to 1,359 at the end of March 31, In the current year, Exchange allowed trading facility in 61 securities in permitted to trade category. Figure 6: Month-wise Turnover and Average Daily Turnover in CM segment Traded Value Avgdaily Value (`.Cr.) 7

12 NATIONAL STOCK EXCHANGE OF INDIA LIMITED Nineteenth Annual Report The changes in turnover statistics over the preceding year are presented in Table No. 11 Table 11: Turnover Statistics on CM segment Sr. Details %Rise/(Fall) No. in Total Number of trades (in lakhs) 15,507 16,816 (7.78) 2 Total no. of shares traded (in lakhs) 18,24,515 22,15,530 (17.65) 3 Total Turnover (Rs. Cr.) 35,77,410 41,38024 (13.55) 4 Market Capitalisation at the end of year (Rs. Cr.) 67,02,616 60,09, Turnover of S&P CNX Nifty Securities (Rs. Cr.) 16,89, ,46, (21.25) 6 Total number of listed companies. 1,574 1, Index Movement:- S & P CNX Nifty saw an upward movement of 11.14% moving from 5, to 5, over the financial year During the year , the S&P CNX Nifty touched a high of 6, on November 05, 2010 and low of 4, on May 25, Movement of S&P CNX Nifty is shown in Figure 7 The turnover of S&P CNX Nifty securities was Rs. 16,89, crores in the year as compared to Rs. 21,46, crores. The contribution of S&P CNX Nifty securities turnover to total turnover during the year was 47.21% compared to 51.86% in the year Figure 7: S & P CNX Nifty movement Market Capitalisation The market capitalisation of securities available for trading on CM segment has increased by 11.54% during from Rs. 60,09,173 crores as on March 31, 2010 to Rs. 67,02,616 crores as on March 31, Increase in market capitalisation is mainly on account of listing of new securities in capital market segment. The market capitalisation growth is shown in Figure 8. During the year, the market capitalisation of S&P CNX Nifty and S&P CNX Nifty Junior also increased by 15.10% and 8.28% respectively. 8

13 NATIONAL STOCK EXCHANGE OF INDIA LIMITED Nineteenth Annual Report Figure 8 - Market Capitalisation during year Distribution of Turnover Turnover-wise distribution of trading members About 74.04% of the trading members had an average daily turnover of Rs. 1 crore or more in as compared to 79.27% in the previous year. In around 28% of the trading members have daily turnover more than Rs. 10 crores as against 34% in Figure No. 9 9

14 NATIONAL STOCK EXCHANGE OF INDIA LIMITED Nineteenth Annual Report Listing: Initiatives taken during the financial year i) NEAPS The Exchange has launched the online web based application - NEAPS (NSE Electronic Application Processing System) to facilitate web based filing of applications for further issues by listed companies. In the first phase, the facility has been made available for the following further issues - FCCB, ADR, GDR, Bonus, QIP and ESOP. Salient features of NEAPS are as under: Submission of application with digital signature. Online processing of the listing application by the Exchange. Status of application and intimation of expected response time by the Exchange. Online intimation of pending requirement, in-principle approval letter, etc. Immediate updation of status of the application to the company and alert. This initiative has enhanced the quality and speed of processing the applications and will facilitate the companies to move towards paperless processing. ii) iii) iv) Compliance Calendar All listed companies are required to comply with the various clauses of Listing Agreement quarterly, annually and on happening of event in certain cases. In order to facilitate the compliances of critical clauses by listed companies within stipulated time, the compliance calendar has been provided on the Exchange website. Know Your NSE' Program Know your NSE' is an initiative aimed at building relationship with corporates and to provide an insight into functioning of the Exchange. An overview about live trading, capital market, futures and options, clearing, settlement, risk management, listing and surveillance was imparted during the session. The program organised at Mumbai and Hyderabad was attended by the Chief Financial Officers and Company Secretaries from corporates. More such programs are proposed to be organised in other cities. Corporate Homepage on Exchange website The corporate homepage has been redesigned with enhanced features to facilitate stake holders to get the information relating to corporates in a comprehensive and more user friendly manner. A quick grasp of the features are as under: Standardisation of Company Names. Search Facility with multiple parameters like Company Name, Symbol, Short Description, Industry, Period of Broadcast, etc. Links to other sub-sections within the corporate pages. Subject standardisation. Export the data to CSV formats New Developments during the year In year , various new developments have been taken by the Exchange. The details of the same are given below:- 10

15 NATIONAL STOCK EXCHANGE OF INDIA LIMITED Nineteenth Annual Report June 2010 Introduction of Indian Depository Receipt IDRs are negotiable receipts issued by an Indian bank or trust company, the depositary, to evidence ownership of a stated number of shares of the securities of a foreign company that the company or shareholder has deposited with the depositary's branch office, affiliate, or agent in the foreign country. IDR has not only given international market exposure to Indian investors but also created a new asset class for the investor. The first IDR of Standard Chartered Bank is listed and available for trading on Exchange on June 11, July 2010 Real-time dissemination of India VIX The Exchange started real - time calculation of India Volatility Index (India VIX) w.e.f. July 19, Volatility Index is a measure of market's expectation of volatility over the near term. Volatility is often described as the "rate and magnitude of changes in prices" and in finance often referred to as risk. India VIX is a volatility index computed by NSE based on the order book of NIFTY Options. For this, the best bid-ask quotes of near and next-month NIFTY options contracts which are traded on the F&O segment of NSE are used. India VIX indicates the investor's perception of the market's volatility in the near term i.e. it depicts the expected market volatility over the next 30 calendar days. Higher the India VIX values, higher the expected volatility and vice-versa. India VIX uses the computation methodology of CBOE, with suitable amendments to adapt to the NIFTY options order book using cubic splines, etc. Investors use it to gauge the market volatility and base their investment decisions accordingly. October 2010 Launch of Call Auction in Pre - Open Session The Exchange has introduced call auction in pre-open session w.e.f. October 18, Pre open phase is the session prior to the continuous trading. The session allows liquidity to be pooled during this session by allowing the participants to place buy as well as sell orders. No matching takes place when the market is in pre-open phase. The users are allowed to enter / modify / cancel orders. Pre-open session provides a trading facility where orders are batched together for simultaneous execution at a predefined time and at a single price which best equates the aggregated buy and sell. The pre-open session helps in better discovery of opening price, minimises opening volatility of prices of securities and also allows for overnight news in securities to be suitably reflected in the opening price. The salient features of call-auction in pre-open session are given below:- The pre-open session is introduced in securities forming part of Nifty indices. The pre-open session is for 15 minutes; out of which first 8 minutes is for order entry with last minutes will have a random closure. 4 minutes for order matching and trade confirmation and 3 minutes is buffer timings. The equilibrium price of pre-open is an opening price of a security. The equilibrium price is a price at which maximum value is executable. All unmatched order in pre-open is shifted to normal market. Risk management at order level in pre-open session. 1.6 FUTURES AND OPTIONS SEGMENT The financial year witnessed an increase of 65.58% in volumes and 54.94% in average open interest. The number of contracts traded also increased by 52.25% vis-à-vis in the F&O segment of the Exchange. Average contribution of proprietary category increased to 38.14% in from 31.66% in

16 NATIONAL STOCK EXCHANGE OF INDIA LIMITED Nineteenth Annual Report Comparison of the close prices of the NIFTY Near Month Futures Contract (F&O segment) with the underlying movement of the NIFTY Index (Cash segment) along with the Daily Traded value of the F&O segment (Figure 10): Note: Muhurat trading on October 17, Records achieved in the F&O segment during (Table 12): Index Futures (traded value in Rs. crores) 40, Nov-10 Index Options (traded value in Rs. crores) 1,98, Feb-11 Stock Options (traded value in Rs. crores) 6, Aug-10 Total F&O Traded value (in Rs. crores) 2,77, Feb-11 Number of trades 30,29, Feb-11 Number of contracts traded 1,04,97, Feb-11 Open Interest on Contract Expiry (number of contracts) 74,36, Aug-10 It may be observed that during , new records were set on most of the categories. 12

17 NATIONAL STOCK EXCHANGE OF INDIA LIMITED Nineteenth Annual Report (a) Basic Statistics of the F&O Segment (Table 13): Particulars Apr 10 July 10 Oct 10 Jan % Change to Jun 10 to Sep 10 to Dec 10 to Mar 11 Traded Value (Rs. in crores) Daily Average 92,567 1,01,847 1,27,304 1,39,500 1,15,150 72, Number of Contracts Daily Average 34,32,844 36,08,592 42,16,291 50,57,126 40,71,701 27,83, Open Interest (Rs. in crores) End of day averages 1,29,826 1,74,467 1,63,368 1,40,566 1,52,057 98, % of Open interest to Daily Average Traded value (b) A graphical presentation of monthly product- wise contribution is given below (Figure 11): It may be observed that contribution of Index Option to Total Turnover has increased from 54.17% in April 2010 to 71.18% in March Institutional Retail & Proprietary Investors - Turnover Analysis (Table 14): No. Year Institutional investors Retail Proprietary Average Percentage Average Percentage Average Percentage Gross Contribution Gross Contribution Gross Contribution Traded Traded Traded Value Value Value (Rs. in Crs.) (Rs. in Crs.) (Rs. in Crs.) ,97, ,93, ,31, ,18, ,96, ,59, It may be observed that average contribution of proprietary category has increased in the year as compared to the year

18 NATIONAL STOCK EXCHANGE OF INDIA LIMITED Nineteenth Annual Report Comparative analysis of the Traded Value in the F&O segment with the Cash segment (Figure 12): The ratio of F&O segment turnover to cash segment turnover was 8.18 for the year as compared to 4.27 for Product-wise Basic Statistics (Table 15): Category Product Apr 10 July 10 Oct 10 Jan % Change to Jun 10 to Sep 10 to Dec 10 to Mar 11 Traded Value (Rs. in crores) Daily Stock Futures 20,052 22,696 24,709 18,966 21,637 21, Average Index Futures 16,626 14,960 17,969 19,143 17,153 16, Stock Options 3,621 4,355 4,505 3,724 4,056 2, Index Options 52,268 59,835 80,121 97,669 72,305 32, Number of Contracts Daily Stock Futures 6,26,377 7,59,445 8,14,926 7,26,782 7,32,447 5,96, Average Index Futures 6,83,546 5,66,674 6,24,427 7,28,437 6,49,699 7,30, Stock Options 1,04,234 1,36,471 1,38,611 1,32,256 1,27,986 57, Index Options 20,18,687 21,46,001 26,38,326 34,69,651 25,61,569 13,99, Open Interest (end of respective expiry day) Average Stock Futures 38,039 49,470 47,804 36,059 42,843 31, Value in Index Futures 22,545 26,891 24,042 21,591 23,767 18, Rs. Crore Stock Options 8,917 10,873 9,675 7,911 9,344 6, Index Options 85,500 1,13,233 1,04,039 98,185 1,00,239 61, Average Stock Futures 13,10,639 17,40,756 16,96,819 14,60,460 15,52,169 9,45, Number Index Futures 9,09,602 10,08,691 8,40,109 8,28,001 8,96,601 8,23, of Stock Options 2,92,478 3,68,112 3,31,485 3,05,785 3,24,465 2,11, contracts Index Options 32,91,548 40,08,950 34,93,658 35,30,581 35,81,184 26,09, Number of trading Days 14

19 NATIONAL STOCK EXCHANGE OF INDIA LIMITED Nineteenth Annual Report TOP 5 TRADED SYMBOLS Futures (Figure -13): Options (Figure 14): New Developments during the year April 2010 Standardisation of Market Lot of Stock Derivative Contracts: Based on new SEBI guidelines, Exchange has standardised market lot of derivative contracts on individual securities from April Under the new method, market lots are standardised for different underlying price ranges. The Exchange computes one month's average price of the underlying to arrive at its revised lot size as per the specified price ranges. Further, on SEBI's recommendation, Exchange has started reviewing and revising market lots once in every six months Development in Index Options: The Index options volume in the Exchange has witnessed a substantial rise in 2010 as compared to Approximately 530 million contracts were traded in 2010 over 321 million contracts in 2009 showing a staggering 65% increase in the volumes. 15

20 NATIONAL STOCK EXCHANGE OF INDIA LIMITED Nineteenth Annual Report The share of Index options among all other product types in equity derivatives segment on NSE rose to 59% on a daily average in 2010 from less than 50% in The Exchange took some initiatives in building up the options volume and making it a preferred product choice for traders. After rationalising the daily price range of options based on options delta value, the Exchange further optimised the price range by increasing the minimum price range from Re. 1 to Rs. 3. Considering the market demand in popular Nifty options, the Exchange also revised the strike scheme of Index Options and increased its minimum index coverage percentage from 10% to 20% for all short term options and from 20% to 40% for all Nifty long term options. The equity stock options volume in the Exchange has also witnessed a steady and substantial rise in 2010 as compared to Approximately 28 million contracts were traded in 2010 over 14 million contracts in 2009 showing a strong 50% increase in volumes. January 2011 Development in Stock Options: The Exchange introduced Stock options with European style of exercise from January 2011 expiry onwards. With this, all Index and Stock options now follow European exercise method only. 1.7 Currency Derivatives segment The financial year witnessed a phenomenal growth in Currency Derivatives (Currency Futures and Options). The average daily turnover in currency derivatives, for the financial year stood at Rs.13,855 crores, a growth of approximately 87% from Rs. 7,428 crores for the previous financial year. The number of members registered in currency derivative segment stands at 742, of which 31 are banks and 3 Primary dealers. Turnover in Currency futures for the financial year was Rs. 32,79,002 crores as compared to Rs. 17,82,608 crores during the previous financial year. Trading in USD-INR currency options was introduced on 29th Oct Turnover in currency options was 1,70,786 crores for a period of five months. The growth in volume in currency options has been considerable with the average daily volume for the period October, 2010 to March 2011 being 3,56,382 contracts, with 8,34,111 contracts being traded on average in the month of March, The launch of currency options has seen a significant increase in the average open interest in currency derivatives from 6,65,054 contracts in April 2010 to 36,30,057 contracts in March Total volume in Interest Rate futures has dropped to Rs.62 Crores. Figure 15 TURNOVER IN CURRENCY DERIVATIVES 16

21 NATIONAL STOCK EXCHANGE OF INDIA LIMITED Nineteenth Annual Report Figure 16 AVERAGE VOLUME AND OPEN INTEREST IN CURRENCY DERIVATIVES 1.8 Surveillance System The principal objective of surveillance function of the Exchange is to help maintain fair and efficient markets for securities. The Exchange achieves this objective through a combination of state of the art surveillance system, wide ranging use of cutting edge data analytics and experienced team of analysts. The surveillance system which monitors trading activity at every order and trade level has been developed piecing together experience gathered over the years. The system generates alerts based on multiple parameters using a complex algorithm. The parameters and the thresholds beyond which alerts are generated have been decided after detailed statistical analysis and back testing. A brief perspective on how complex the task of surveillance has become over the years is given as under:- On an average about 3.40 crore orders are entered and about 70 lakh trades get executed in a day on the capital market segment of the Exchange. This translates to an average of about 1500 orders and about 300 trades every second. Added to this, there are about 1.28 crore investors registered with trading members of the Exchange for trading on capital market segment. Unlike most advanced markets in US and Europe, retail investors directly participate in the market. On NSE more than 40% of total trading activity is on account of individual clients. Surveillance system has been designed and tuned to sift through this gigantic mix of orders, trades & investors to generate meaningful alerts that point to possible market abuse. Wherever market abuse practice is suspected, the system can replay the market at a much slower pace so as to enable the analysts to examine the identified deviant activity order by order to piece together evidence for proving manipulation. The exchanges in India are in a unique position to identify and monitor trading activity at client level unlike most markets in US and Europe where exchanges have access only up to the first layer of market participants, namely, the trading members. During the period from April 1, 2010 to March 31, 2011, 248 reports on the investigations conducted were completed of which 215 reports were submitted to SEBI. NSE's expertise in putting data analytics tools to optimum use to mine this wealth of data to establish patterns in trading activity at client level enables the Exchange to quickly identify potential market abuse and refer the 17

22 NATIONAL STOCK EXCHANGE OF INDIA LIMITED Nineteenth Annual Report matter to the Regulator. The Exchange has implemented series of pattern recognition models which unearth manipulative activity such as Front running, insider trading, circular trading, etc. 2. SERVICES TO INVESTORS The Exchange attaches high importance to investor safety and investor empowerment. Towards this direction, in order to spread awareness about market, products, operational aspects of market, etc., the Exchange regularly conducts investor awareness programs in various cities of the country. During the year, the Exchange conducted 1,382 programs. During the year, the Exchange also issued 371 investor alerts in 37 newspapers and in 8 languages. Important Investor Awareness message showcasing various do's and don'ts were broadcasted over electronic media in form of animation films in popular TV shows and through investor friendly messages on FM Radio channels. In addition, to enhance general safety levels, the Exchange has started a new service to disseminate trade information directly to investors through s and sms on their registered ids and mobile numbers. The Exchange has also has a user friendly trade verification facility on its website wherein common investor can check the trades that have taken place in their account. In order to reach out to a mass, the Exchange has initiated the idea of investor education and financial information on wheels wherein Rajdhani Express is being used to disseminate information on markets, products, flagship index, etc., to help investors understand how to use product & protect themselves. This train is currently running on Delhi - Sealdah (Kolkata) route and in Delhi - Chennai/Bangalore/ Trivandrum routes. The Exchange constantly endeavors to resolve disputes between investor and the trading members through its intervention. 3. NSE's KNOWLEDGE INITIATIVES Several initiatives have been taken over the last few years with a view to develop the skills of market intermediaries, educate the investors and promote high quality research in the securities market. Such initiatives include certification programs, high school level courses, development of educational materials on financial markets, etc. NSE's Certification in Financial Markets (NCFM) National Stock Exchange's Certification in Financial Markets (NCFM), is an online testing and certification process which tests the practical knowledge and skills that are required to operate in the financial markets. NCFM offers a comprehensive range of modules covering many different areas in finance. The entire process from generation of question papers to testing, assessing, scores reporting and certifying is fully automated. NCFM currently tests expertise in about 32 modules. So far more than 12 lakhs tests have been conducted in various modules. NSE Certified Capital Market Professional (NCCMP) National Stock Exchange in collaboration with reputed colleges and institutes in India, has been offering a short-term course called NSE Certified Capital Market Professional (NCCMP) since August The aim of the NCCMP Program is to develop skills and competencies in securities markets. It is a 100 hours program, spanning over 3-4 months, covering theory and practical training. Around 50 agreements have been signed so far under NCCMP. Financial Literacy in schools of Tamil Nadu state National Stock Exchange in association with the Higher Education Department, Tamil Nadu has launched a financial literacy program at the school level, in the state of Tamil Nadu. The curriculum designed by 18

23 NATIONAL STOCK EXCHANGE OF INDIA LIMITED Nineteenth Annual Report NSE comprises of theory subjects as well as practical. This program has been launched in the year in around 200 schools and is mandatory for class VIII & class XI. The program would be extended to more schools from the academic year NSE-Manipal Education Training Programs on Stock Markets National Stock Exchange has joined hands with Manipal Education, one of India's premier educational institutions, to impart training with the aim of improving the participants' understanding of how the stock markets function. These programs are designed to cater to people interested in a career in stock markets and other related financial services and also to those who wish to learn about the functioning of the securities markets. It provides relevant tools and techniques that give an in-depth understanding of the various facets of the stock market. So far more than 1600 candidates have undergone this training program. Visit to NSE Program It has been the endeavor of National Stock Exchange to spread knowledge about financial markets as widely as possible. As part of this endeavor, NSE has been organising the Visit to NSE' Program, under which groups of students visit NSE to attend a 2-hour session. The session includes lecture on Overview of the Exchange', Capital Markets', Derivative Markets' and NSE's NCFM certification which not only expands their knowledge base, but also improves their career prospects. In this session, the students learn about stock exchange structure, its operations, products traded on it and so on. More than 150 colleges have visited the Mumbai office as well as the regional offices located at Delhi, Kolkata and Chennai during the year NSE's Research Initiative Knowledge management is very important in today's competitive world. It acts as a tool which helps to acquire the cutting edge in a globalised financial market. The regulators and SROs have been actively promoting academicians and market participants to carry out research on the various segments of securities markets. The completed papers are available on the NSE website 4. KNOWLEDGE MANAGEMENT OR REPOSITORY CREATION INITIATIVE A Knowledge Management project was initiated last year to create an environment and to apply techniques to discover, formally document, manage and maintain the tacit, individual or personal, context specific, experiential and unstructured knowledge, which can be shared and used easily avoiding systemic glitches, rework, undue noise (unwarranted communication) in the system and also reduce the time to market or turnaround time. All the creation / documentation of the Knowledge has been completed for the NSCCL systems, Back office systems, Trading systems as well as Index and Quarter Sigma systems. The format defined was to keep the documents lean, tabulated and carry all the organisational knowledge capturing the processes, inputs and its business validations, business rules, outputs, formats and structures, interface details, triggers for the processes, dependencies, sample calculations, if required, etc. All these documents were reviewed by the respective development group as well as in case of back office and trading by the end users (operations) groups. All the knowledge has been made available in a Knowledge Management portal and to the stake holders with due access / security measures in place. Along with this, the process for the ongoing maintenance of the same has been defined and implemented in the Knowledge Management portal for keeping the knowledge up to date. 19

24 NATIONAL STOCK EXCHANGE OF INDIA LIMITED Nineteenth Annual Report 5. FINANCIAL RESULTS AND APPROPRIATION OF PROFITS The working of the Company during the year has resulted in a net profit after tax of Rs crores as per particulars given in Table 16 below:- Table 16 Particulars (Rs. in crores) (Rs. in crores) Income 1, , Expenditure (excluding Depreciation) Profit before depreciation, prior-period adjustment and tax Depreciation Profit before prior period adjustments Add/(Less): Prior period adjustment (0.74) (0.34) Profit before tax Provision for tax Profit after tax Surplus brought forward from previous year Excess Corporate Dividend Tax for last year transferred back Amount available for appropriation Appropriations General Reserve Investor Compensation Reserve Proposed Dividend Corporate Dividend Tax Staff Welfare Reserve Balance carried to Balance Sheet DIVIDEND In view of the above results, your Directors recommend payment of dividend of Rs. 21/- per share for the year SUBSIDIARY COMPANIES 7.1 National Securities Clearing Corporation Limited (NSCCL) CM segment: NSCCL successfully continued its track record of completing all settlements in a timely manner. During the period under review, 255 rolling settlements were handled in de-materialised mode. The per settlement figures in value terms in the current year are higher than the previous year as given below: The average value of securities handled per settlement was Rs. 3,840 crores in compared to Rs. 3,761 crores in The average funds pay-in per settlement during the above periods was Rs 1,150 crores and Rs. 1,141 crores respectively. The average number of shares processed per settlement was about Rs. 1,954 lakhs in compared to Rs. 1,946 lakhs in Short deliveries per settlement averaged around 0.13% in as compared to 0.18% in

25 NATIONAL STOCK EXCHANGE OF INDIA LIMITED Nineteenth Annual Report The highest deliverable value of Rs.8, crores was observed on November 9, Percentage of number of shares deliverable to number of shares traded increased to 27.51% in from 21.52% in Percentage of value of shares deliverable to value of shares traded increased to 27.47% in from 22.22% in The Settlement Guarantee Fund stood at Rs. 5, crores as on 31st March F&O segment: The period April March 2011 witnessed an increase in the total amount settled. The total value of settlement increased from around Rs. 4, crores in March 2010 to Rs. 5, crores in March The highest monthly settlement was Rs.11, crores in the month of November The highest trading volumes on NSE during this period were Rs. 2,77, crores, witnessed on February 24, 2011 with total of 1,04,97,798 contracts being traded. Currency Derivatives segment: Currency Derivatives trading commenced from August 29, 2008 with the introduction of futures on USD-INR as the currency pair. Futures on multiple currency pairs namely Euro-INR, Pound Sterling- INR and Japanese Yen-INR were introduced in February In October 2010, option contracts were introduced on the USD-INR pair. Based on the guidelines issued by SEBI, NSE introduced trading in IRF contracts on 10 year notional 7% coupon bearing GOI security on August 31, Mutual Fund Service System (MFSS) Securities Exchange Board of India (SEBI) vide circular dated November 9, 2010 issued revised guidelines for facilitating transactions in Mutual Fund schemes through the Stock Exchange infrastructure. As on March 31, 2011, 25 mutual fund houses with 1,338 schemes were enabled under the revised MFSS scheme. NSCCL carries out settlement for redemption of units in dematerialised form and funds settlement for subscription requests. Details are as under: The average daily value of funds settled for subscription of mutual fund units for the period January 1, 2011 to March 31, 2011 was Rs lakhs. The average daily quantity of units allotted under subscription for the period January 1, 2011 to March 31, 2011 was 3.89 lakhs. The average daily value of funds settled for redemption of mutual fund units for the period January 1, 2011 to March 31, 2011 was Rs lakhs. The average daily quantity of units redeemed for the period January 1, 2011 to March 31, 2011 was 1.83 lakhs. During the financial year , NSCCL earned net profit after tax of Rs crores as compared to net profit after tax of Rs crores during The Board of NSCCL has recommended a dividend of Rs. 20/- per equity share to its shareholders in respect of the financial year NSE.IT Limited (NSE.IT) With an objective to become a leading vertical specialist enterprise offering end-to-end Information Technology (IT) products, solutions and services as well as specialising in providing complete IT solutions to Stock Exchanges, Clearing Corporations, Brokerage Firms, Insurance Firms and other organisations in the Capital Market, Banking and Insurance industry, NSE. IT, achieved a robust turnover of Rs.10,304 lakhs during the year which was 28% higher than the previous corresponding year. Continuing with its foray in online examinations, the IRDA project for achieving 100% online examination status by year end was undertaken by the Company across the country and implemented in record time of 9 months. This also included achieving important milestones of 100 new centers within 6 months and 200+ centers going live by end of December 2010 within six months of starting the project. The assessments are conducted pan India for the insurance companies and the Company executes the end-to-end process from registration to examination certificates. During the year the Company worked on adding new customers and bid for various 21

26 NATIONAL STOCK EXCHANGE OF INDIA LIMITED Nineteenth Annual Report tenders and requirements. The Company was successful in adding new clients etc to its customer list. During the year the Company embarked on quality journey to certify its online examination centers for ISO 9001:2008 certification. NSE.IT through all the steps of ISO such as gap analysis, documentation, implementation of documented processes, internal auditing, training and awareness. After extensive rounds of internal and external quality implementation efforts in past six months and audits conducted across country by Bureau Veritas Certification India (BVCI) auditors till first week of March, NSE.IT has been certified for ISO 9001:2008 by BVCI for its Online Examination Services. During the year, Company has added to its product portfolio with the introduction of an Algorithmic Trading solution, called AlgoStudio. The product provides various standard algorithmic trading strategies (viz. Cash- Futures arbitrage, Futures-Futures arbitrage, Cash-Cash arbitrage, Conversion/Reversal, Box Spread) as well as custom strategies, taken up as be-spoke development. The most important achievement for the Tea Board e-auction project this year, was winning the coveted Bronze medal in the National e-governance Awards 2011, under the category - Specific Sectoral Award (Focus Sector for Agriculture). The e-auction program went 100% live in Siliguri this year. This marked 100% sale of tea through e-auction route across all the six auction centres. Around 370 million kg of tea was sold this year, totaling the sales figure to 610 million kg since inception with a monetary worth of around Rs crore During the financial year , NSE.IT earned a net profit after tax of Rs crores as compared to Rs crores in the previous year. The Board of Directors of NSE.IT has recommended a dividend of Rs. 4/- per equity share to its shareholders in respect of the financial year DotEx International Limited (DotEx) DotEx manages the data feed of NSEIL and supplies the same to its clients. Currently, the following products are offered by DotEx:- 1) Real Time Data 2) Snapshot Data 3) End of Day Data 4) Historical Data 5) Corporate Data The products related to real time data, snapshot data, end of day data and historical data are further segregated into the following segments: (i) Capital Market [CM] segment (ii) Futures and Options Market [F&O] segment (iii) Wholesale Debt Market [WDM] segment (iv) Securities Lending & Borrowing Market [SLBM] segment (v) Currency & Interest Rate Futures Market segment Currently, real time feed is being subscribed by 33 clients, snapshot feed by 36 clients, end of day feed by 23 clients and Corporate data by 2 clients. DotEx also operationalised the tick by tick data feed and the 1 minute snapshot feed during this financial year. DotEx also provides a shared platform called NEAT on Web (NOW) which is a shared CTCL and risk management tool for the trading members. 22

27 NATIONAL STOCK EXCHANGE OF INDIA LIMITED Nineteenth Annual Report During the year the DotEx started providing the following additional facilities through NOW platform viz., access to NSE IPO segment, access to Ace Commodity Exchange (ACE) markets, provision of Direct Market Access (DMA) facility and provision of news from Newswire 18. With the objective of improving the reach and providing stable connectivity to members, the following new initiatives were taken:- Mobile platform to provide live streaming data and trading capability. Market Data is made available as an open application for any investor or potential investor who registers on NSE website. For investors desirous of trading, they can avail the facility from any NOW enabled trading member. Tied up with private VSAT service providers to make NOW available through private VSAT Network. This facility has been proved to be a boon to users in northeast regions where even basic internet connectivity is an issue. The above initiatives have resulted in an increase in trading turnover through NOW platform during the financial year During the year , DotEx earned a profit of Rs. 1, lakhs as compared to a profit of Rs. 1, lakhs during The financial position of DotEx has improved in the current financial year by virtue of income generated through increase in the number of vendors and the end user clients. The Board of DotEx has recommended a dividend of Rs. 1.50/- per equity share to its shareholders in respect of the financial year India Index Services and Products Limited (IISL) During the year under review, IISL continued to be the primary provider of indices and related products and services to various participants in the Capital Market in India, in the thirteenth year of its operation. IISL has granted eight additional licenses to asset management/ insurance companies for launching Exchange traded/ Index funds/ Insurance Funds. Currently, there are around 34 funds linked to IISL's indices. IISL provides index and index related services to various stock exchanges, asset management companies, investment banks and other organisations across the globe for business purposes. Apart from the indices being used for Index Funds and trading of index based derivative contracts, the indices of IISL are being used by the mutual funds for benchmarking the performance of their funds. The demand for index related data has increased in past year in line with the improved condition of the equity market. During the year, IISL provided licenses to various clients for using IISL's indices as underlyings for their products. These clients issue products such as index linked notes / certificates, index linked bonds, index linked certificates of deposit, Exchange Traded Funds (ETFs), etc., using IISL Indices as the underlying for their products. IISL also provides annual licenses to its Clients who issue many structured products with IISL indices as underlying for such products. During the year under review, IISL has widened the client base which uses its Indices and index data. IISL has the following major sources of income viz. income from licensing indices to stock exchanges for trading in derivative contracts linked to such indices, income from licensing indices to Index Funds/Exchange Traded Funds, income from licensing indices to finance and insurance companies for debentures/ insurance products, income from licensing indices to investment banks for structured products and income from data subscription services. During the year , IISL earned a profit of Rs. 1, lakhs as compared to a profit of Rs lakhs during The Board of IISL has recommended a dividend of Rs. 9/- per equity share to its shareholders in respect of the financial year