Fact Book 2008 NATIONAL STOCK EXCHANGE OF INDIA LIMITED

Transcription

1

2 Fact Book 2008 NATIONAL STOCK EXCHANGE OF INDIA LIMITED June 2008

3

4 C O N T E N T S SECTION 1 NATIONAL STOCK EXCHANGE OF INDIA Genesis... 3 Ownership And Management... 3 Market Segments And Products... 3 Achievements / Milestones... 6 Facts And Figures Technology Application Systems NSE Family NSCCL NSDL NSE Infotech Services Ltd NSE.IT IISL NCDEX NCCL PXI SECTION 2 MEMBERSHIP ADMINISTRATION Eligibility Criteria Trading Membership Clearing Membership Growth And Distribution Of Members Transaction Charges SECTION 3 LISTING OF SECURITIES Benefits Of Listing On NSE Listing Criteria Listing Agreement Compliance By Listed Companies Disclosures By Listed Companies De-Listing CM Segment Listing Fees i

5 C O N T E N T S Shareholding Pattern WDM Segment Funds Mobilisation On The Exchange Initial Public Offerings (IPO s) FPOs Rights Issues Preferential Allotment / Private Placement QIPs SECTION 4 CAPITAL MARKET SEGMENT NEAT System Market Performance Trading Volume Liquidity Distribution of Turnover Market Capitalisation Sectoral Distribution Trading Records during Internet Trading FII Turnover on NSE On-line IPOs Indices Volatility Index Mutual Funds And Exchange Traded Funds Transaction Charges Clearing & Settlement Settlement Agencies Settlement Cycles Settlement Statistics Risk Management System Capital Adequacy Margin Requirements Categorisation of newly listed securities ii

6 C O N T E N T S Value at Risk Margin Extreme Loss Margin Mark to Market Margin Index-based Circuit Filters Settlement Guarantee Fund Surveillance, Investigation & Inspection Surveillance & Investigation Inspection SECTION 5 WHOLESALE DEBT MARKET SEGMENT Trading Mechanism Market Performance Turnover Market Capitalisation Transaction Charges Settlement Constituent SGL Facility FIMMDA-NSE MIBID/MIBOR Zero Coupon Yield Curve NSE-VAR System GOI-bond Index SECTION 6 FUTURES & OPTIONS SEGMENT Trading Mechanism Contract Specification Selection Criteria For Stocks And Index Eligibility For Trading Trading Value & Contract Traded Product wise turnover on F&O Segment Futures and Options on Benchmark Indices Sectorwise Stock Futures & Options Turnover Participant wise turnover on F&O Segment FII Turnover on NSE Memberwise turnover on the Exchange High Volume Members iii

7 C O N T E N T S Internet Trading Traded Value Records Top 20 Futures And Option Contracts Number Of Trades Charges Clearing And Settlement Settlement Statistics Clearing Mechanism Settlement Mechanism Risk Management System NSE- SPAN Margins Position Limits SECTION 7 INVESTOR GRIEVANCES, ARBITRATION Investor Grievances Arbitration SECTION 8 KNOWLEGDE INITIATIVE NSE S Certification in Financial Markets NCFM Online Payment System NCFM Tests conducted in other languages CBSE- NSE Certification in Financial Markets NSE Research Initiative iv

8 C O N T E N T S TABLES SECTION Board of Directors Executive Committees SECTION (a) Eligibility Criteria for Membership (b) Requirements for Professional Clearing Membership Growth and Distribution of Members SECTION Listing Criteria for Companies on CM Segment of NSE Companies Listed/ Permitted to Trade/Available for Trading on the CM Segment Share holding Pattern at the end of March 2008 of Companies Listed on NSE Eligibility Criteria for Securities on WDM Segment Securities Available for Trading on WDM Segment (as on March 31) Initial Public Offerings (IPOs) during FPOs during Rights Issues during Preferential Allotments by NSE Listed Companies during Amount raised through QIP during SECTION Business Growth of CM Segment Percentage Share of Top N Securities /Members in Turnover Most Active Securities during in Terms of Trading Value Top 50 Companies by Market Capitalisation as on March 31, Industry Wise Classification of Top 50 Companies by Trading Volume and Market Capitalisation v

9 C O N T E N T S 4-6 NSE s Most Active Trading days during the year Individual Securities Single day Trading Records FII turnover on derivative Market Segment of Exchange Market Capitalisation of Securities in the CM Segment Composition of S&P CNX Nifty Index as on March 31, Composition of CNX NIFTY Junior Index - as on March 31, Industry-wise Weightages of S&P CNX NIFTY Securities as on 31st March, S&P CNX NIFTY Index CNX NIFTY Junior Index Performance of NSE Indices during the year Details of Mutual Funds and Exchange Traded Funds Listed on NSE (a) List of Mutual Funds (MF s) and Exchange Traded Funds (ETF s) (b) No of Trades and Trading Value Settlement Cycle and Process in CM Segment & Settlement Process Settlement Statistics in CM Segment SECTION Business Growth of WDM Segment WDM Transactions in Government Securities Security-wise and Participant wise Distribution of WDM Trades Share of Top N Securities/Trading Members/ Participants in Turnover in WDM Segment Market Capitalisation of WDM Securities FIMMDA NSE-MIBID/MIBOR Rates day Value-at-Risk (99%) for Government of India Securities Traded as on March 31, vi

10 C O N T E N T S SECTION List of Securities on which Futures & Options available at NSE along with their market lot (as on 20th June 2008) Contract Specification for Index Futures and Options Contract Specification for Stock Futures and Options Business Growth of Futures & Options Market Segment Sector-wise Trading Value of Top 5 companies in the F&O Segment ( ) Participant wise Trading Value in the F&O Segment ( ) FII Gross turnover on derivative Market Segment of Exchange (a) Number of Members in different turnover brackets during (b) No. of members in different Turnover Brackets in Futures and Options Segment for (c) Segment wise Contribution of Top N Members to turnover on Futures and Options segment Top 20 Futures contracts according to number of contracts Top 20 Option contracts according to no. of contracts traded Number of trades in the Futures & Options Segment Settlement Statistics in F&O Segment SECTION Receipt and Disposal of Investor Grievance Status Report of Arbitration Matters SECTION NCFM Modules Studies under the NSE Research Initiative vii

11 C O N T E N T S CHARTS SECTION Market Segment Indications - Trading Volume Market Segment Indicators - Market Capitalisation... 6 SECTION No. of Companies Listed SECTION Business Growth of Capital Market Segment Movement of Sectoral Indices : SECTION Business Growth of WDM Segment (a) Security-wise Distribution of WDM Trades ( ) (b) Participant-wise distribution of WDM trades ( ) Overnight MIBID/MIBOR Rates, from 3 April 2007 to 31st March Zero Coupon Yield Curve, SECTION Business Growth of F&O Segment Product wise Number of Contracts Traded during Product wise trading volumes during Participant wise F&O Turnover during viii

12 National Stock Exchange of India 1

13 2

14 National Stock Exchange of India 1 Genesis NSE was given recognition as a stock exchange in April 1993 and started operations in June 1994, with trading on the Wholesale Debt Market Segment. Subsequently, it launched the Capital Market Segment in November 1994 as a trading platform for Equities and the Futures and Options segment in June 2000 for various derivative instruments. Ownership and Management The NSE is owned by a set of leading financial institutions, banks, insurance companies and other financial intermediaries. It is managed by professionals, who do not directly or indirectly trade on the Exchange. The trading rights are with trading members who offer their services to the investors. The Board of NSE comprises of senior executives from promoter institutions and eminent professionals, without having any representation from trading members. While the Board deals with the broad policy issues, the Executive Committees (ECs), which include trading members, formed under the Articles of Association and the Rules of NSE for different market segments, set out rules and parameters to manage the day-to-day affairs of the Exchange. The day-to-day management of the Exchange is delegated to the Managing Director and CEO who is supported by a team of professional staff. Therefore, though the role of trading members at NSE is to the extent of providing only trading services to the investors, the Exchange involves trading members in the process of consultation and participation in vital inputs towards decision making. Tables 1-1 and 1-2 gives the composition of its Board of Directors and the Executive Committees. Market Segments and Products NSE provides a trading platform for of all types of securities for investors under one roof Equity, Corporate Debt, Central and State Government Securities, T-Bills, Commercial Paper (CPs), Certificate of Deposits (CDs), Warrants, Mutual Funds (MFs) units, Exchange Traded Funds (ETFs), Derivatives like Index Futures, Index Options, Stock Futures, Stock Options. The Exchange provides trading in 3 different segments viz., Wholesale Debt Market (WDM) segment, Capital Market (CM) segment and the Futures & Options (F&O) segment The Wholesale Debt Market segment provides the trading platform for trading of a wide range of debt securities which includes State and Central Government securities, T-Bills, PSU Bonds, Corporate debentures, CPs, CDs etc. However, along with these financial instruments, NSE has also launched various products e.g. FIMMDA-NSE MIBID/MIBOR 3

15 owing to the market need. A reference rate is said to be an accurate measure of the market price. In the fixed income market, it is the interest rate that the market respects and closely matches. In response to this, NSE started computing and disseminating the NSE Mumbai Inter-bank Bid Rate (MIBID) and NSE Mumbai Inter-Bank Offer Rate (MIBOR). Owing to the robust methodology of computation of these rates and its extensive use, this product has become very popular among the market participants. Keeping in mind the requirements of the banking industry, FIs, MFs, insurance companies, who have substantial investments in sovereign papers, NSE also started the dissemination of its yet another product, the Zero Coupon Yield Curve. This helps in valuation of sovereign securities across all maturities irrespective of its liquidity in the market. The increased activity in the government securities market in India and simultaneous emergence of MFs (Gilt MFs) had given rise to the need for a well defined bond index to measure the returns in the bond market. NSE constructed such an index the, NSE Government Securities Index. This index provides a benchmark for portfolio management by various investment managers and gilt funds. The Capital Market segment offers a fully automated screen based trading system, known as the National Exchange for Automated Trading (NEAT) system. This operates on a price/time priority basis and enables members from across the country to trade with enormous ease and efficiency. Various types of securities e.g. equity shares, warrants, debentures etc. are traded on this system. The average daily turnover in the CM Segment of the Exchange during was nearly Rs. 14,148 crore. (US $ 3,540 million). Futures & Options segment of NSE provides trading in derivatives instruments like Index Futures, Index Options, Stock Options, Stock Futures. Though only eight years into its operations, the futures and options segment of NSE has made a mark for itself globally. In the Futures and Options segment, trading in S&P CNX Nifty Index, CNX IT index, Bank Nifty Index, CNX Nifty Junior, CNX 100 index, Nifty Midcap 50 index and single stocks are available. The average daily turnover in the F&O Segment of the Exchange during was nearly Rs. 52,153 cr. (US $ 13,048 millions). The statistical details of these segments are presented in the tables and charts below : Market Segments Selected Indicators At end of March 2008 Segments No. of Members No. of Securities/Contracts Available CM 1,069 1,236 a WDM 62 3,566 F&O ,466 b Total 1,075 c 28,268 4

16 a b c Excludes suspended securities. 3 Nifty index Futures, 3 CNX IT Futures, 3 Bank Nifty Futures, 3 CNX 100 futures, 3 Nifty Junior index futures, 3 Nifty Midcap50 futures, 3 Mini Nifty Futures, 681 stock futures, 520 Nifty index options, 124 CNX IT options, 296 Bank Nifty options, 146 CNX 100 options, 312 Nifty Junior index options, 112 Nifty Midcap 50 options, 142 Mini Nifty Options, 21,094 stock option and 18 interest rate futures contracts. Do not add up to total because of multiple membership. Trading Value (Rs. cr) Segment/Year CM 1,140,072 1,569,558 1,945,287 3,551,038 F&O 2,547,053 4,824,250 7,356,271 13,090,478 WDM 887, , , ,317 Total 4,574,418 6,869,332 9,520,664 16,923,833 Market Segments Indicators- Trading Volume 5

17 Market Capitalisation (As at end March) (Rs. cr) Segment/Year Mar-05 Mar-06 Mar-07 Mar-08 CM 1,585,585 2,813,201 3,367,350 4,858,122 WDM 1,461,734 1,567,574 1,784,801 2,123,346 Total 3,047,319 4,380,775 5,152,151 6,981,468 Market Segment Indicators- Market Capitalisation Achievements/Milestones Month/Year November 1992 April 1993 June 1994 November 1994 March 1995 April 1995 July 1995 October 1995 April 1996 April 1996 Event Incorporation Recognition as a stock exchange. WDM segment goes live. CM segment goes live through VSAT. Establishment of Investor Grievance Cell. Establishment of NSCCL, the first Clearing Corporation. Establishment of Investor Protection Fund. Became largest stock exchange in the country. Commencement of clearing and settlement by NSCCL. Launch of S&P CNX Nifty. Contd... 6

18 Contd... Month/Year June 1996 November 1996 November 1996 December 1996 December 1996 December 1996 November 1997 May 1998 May 1998 July 1998 August 1998 April 1999 October 1999 January 2000 February 2000 June 2000 September 2000 June 2001 July 2001 November 2001 December 2001 January 2002 May 2002 October 2002 January 2003 June 2003 August 2003 June 2004 August 2004 Event Establishment of Settlement Guarantee Fund. Setting up of National Securities Depository Ltd., first depository in India, co-promoted by NSE. Best IT Usage award by Computer Society of India. Commencement of trading/settlement in dematerialised securities. Dataquest award for Top IT User. Launch of CNX Nifty Junior. Best IT Usage award by Computer Society of India. Promotion of joint venture, India Index Services & Products Limited (IISL) (along with CRISIL) for index services. Launch of NSE s Web-site : Launch of NSE s Certification Programme in Financial Markets. (NCFM) CYBER CORPORATE OF THE YEAR 1998 award. CHIP Web Award by CHIP magazine. Setting up of NSE.IT Ltd. Launch of NSE Research Initiative. Internet Trading in CM segment. Commencement of Derivatives Trading (in Index Futures). Launch of Zero Coupon Yield Curve. Commencement of Trading in Index Options Commencement of Trading in Options on Individual Securities Commencement of Trading in Futures on Individual Securities Launch of NSE VAR for Government Securities Launch of Exchange Traded Funds (ETFs). NSE wins the Wharton-Infosys business Transformation Award in the organization-wide transformation category Launch of Government Securities Index Launch of Retail Debt of Government Securities Launch of Exchange Traded Interest Rate derivatives on Notional 91 day T-bills and Notional 10 year bonds Launch of Futures and Options on CNX IT Index Launch of STP Interoperability Launch of NSE electronic interface for listed companies Contd... 7

19 Contd... Month/Year March 2005 June 2005 August 2006 December 2006 January 2007 March 2007 March 2007 June 2007 Event India Innovation Award by EMPI Business School, New Delhi Launch of Futures & Options on BANK Nifty Index Setting up of NSE Infotech Services Ltd. Derivative Exchange of the Year, by Asia Risk magazine Launch of NSE CNBC TV 18 media centre NSE, CRISIL announce launch of India Bond Watch.com Launch of Gold BeES- Exchange Traded Fund (ETF).(First Gold ETF) Launch of Futures & Options on CNX 100 and CNX Nifty Junior contracts. October 2007 Launch of Futures & Options on Nifty Midcap 50 January 2008 Launch of Mini Nifty derivative contracts March 2008 Launch of long term option contracts on S&P CNX Nifty Index. April 2008 Launch of Securities Lending & Borrowing Scheme April 2008 Launch of - India VIX - The Volatility Index June 2008 Setting up of Power Exchange India Ltd. Developments during the year. New Products in the F & O Segment Based on the evolving needs of the market and the investors, NSE introduced futures and options trading on Nifty Midcap 50 index in October It is a gateway for investors to invest in the medium capitalised segment of the stock market which is being increasingly perceived as an attractive investment strategy with high growth potential. Mini Nifty derivative were available for trading from 01st January It provides an opportunity and easier access for small investors to invest in derivatives. Index is the most actively traded index based derivative product in India. The long term options contract which was introduced in March 2008 has expected to deepen this market further. Securities Lending and Borrowing SEBI issued a SLB scheme on December 20, The salient features of the scheme are as under: To begin with, the SLB would be operated through Clearing Corporation/Clearing House of stock exchanges having nation-wide terminals who will be registered as Approved Intermediaries (AIs) under the SLS,

20 The SLB would take place on an automated, screen based, order-matching platform which will be provided by the AIs. This platform would be independent of the other trading platforms. To begin with, the securities traded in derivatives segment would be eligible for lending & borrowing under the scheme. All categories of investors including retail, institutional etc. will be permitted to borrow and lend securities. The borrowers and lenders would access the platform for lending/borrowing set up by the AIs through the clearing members (CMs) who are authorized by the AIs in this regard. The tenure of lending/borrowing would be fixed as standardised contracts. To start with, contracts with tenure of 7 trading days may be introduced. The settlement cycle for SLB transactions would be on T+1 basis. The settlement of lending and borrowing transactions would be independent of normal market settlement. The settlement of the lending and borrowing transactions should be done on a gross basis at the level of the clients i.e. no netting of transactions at any level will be permitted. NSCCL, as an Approved Intermediary (AI) launched the Securities Lending & Borrowing Scheme from April 21, Lending & Borrowing is carried on an automated screen based platform where the order matching is done on basis of price time priority. The borrowing has a fixed tenure of seven days with the first leg settlement on T+1 day and reverse leg settlement on T+8 day. Direct Market Acess During April 2008, Securities & Exchange Board of India (SEBI) allowed the direct market access (DMA) facility to the institutional investors. DMA allows brokers to offer clients direct access to the exchange trading system through the broker s infrastructure without manual intervention by the broker. DMA facility give clients direct control over orders, help in faster execution of orders, reduce the risk of errors from manual order entry and lend greater transparency and liquidity. DMA also leads to lower impact cost for large orders, better audit trails and better use of hedging and arbitrage opportunities through the use of decision support tools/algorithms for trading. Volatility Index The India VIX, the volatility Index was launched on 08th April, A Volatility Index reflects the market s expectation of volatility over the near term. The index captures the implied volatility embedded in option prices. Volatility is often described as the rate and magnitude of changes in prices and, in, finance often referred to as risk. 9

21 Volatility Index is a measure, of the amount by which an underlying Index is expected to fluctuate, in the near term, (calculated as annualised volatility, denoted in percentage e.g. 20%) based on the order book of the underlying index options. Market volatility keeps changing as new information flows into the market. It would be imperative for market participants to have an index designed to track market volatility. The India VIX is a simple but useful tool in determining the overall volatility of the market. Cross Margining Many trading members undertake transactions on both the cash and derivative segments of an Exchange. They keep separate deposits with the exchange for taking positions in two different segments. In order to improve the efficiency of the use of the margin capital by market participants and as in initial step towards cross margining across cash and derivatives markets SEBI allowed Cross Margining benefit in May For Cross margining the stock positions of the institutions in capital market segment after confirmation by the custodian on T+1 day shall be compared with the stock futures position of the same institution in derivative segment based on the CP code of the institution at the end of the day. The position shall be considered for cross margining only if the position in the capital market segment off set the position in the derivative segment. SEBI has allowed the following to start with: a. Cross margin is available for institutional trades. b. Cross margin is available to positions in cash market having corresponding offsetting positions in the stock futures market. c. For positions in the cash market which have corresponding offsetting positions in the stock futures, VaR margin is not be levied on the cash market position to the extent of the off-setting stock futures market position. d. Extreme Loss margin and Market to Market margin shall continue to be levied on the entire cash market position. e. The near-month stock futures positions are not considered for cross-margin benefit three days prior to expiry (the last Thursday of every month) and there will be no change in the margins on the F & O positions. Power Exchange India Limited Power Exchange India Limited (PXI) a joint venture of National Stock Exchange of India Ltd (NSE) and National Commodity & Derivatives Exchange Ltd (NCDEX) has been set up in response to the guidelines issued by Central Electricity Regulatory Commission (CERC). PXI would be operating as a National Level electricity exchange covering the entire Indian electricity market. It will provide a common electronic platform for trading of electricity. It is proposed that the initial trading would be done on a day-ahead basis with voluntary participation. New contracts would be introduced after taking feedback form the market and obtaining approval from CERC. 10

22 Facts And Figures The growth in the stock market activity across the different market segments and products is visible from records reached as at the end of March 2008 as sited in the table below : Stock Market Records Sr. No. Parameter Date Magnitude Capital Market Segment 1 Record number of trades January 03, ,812,991 2 Record daily turnover (quantity) September 26, ,353 lakhs 3 Record daily turnover (value) November 01, 2007 Rs.28, cr. (US $ 7, mn.) 4 Record market capitalisation January 07, 2008 Rs.6,745, cr. (US $ 1,687, mn.) 5 Record value of S&P CNX Nifty Index January 08, Record value of CNX Nifty Junior Index January 04, Clearing & Settlement Record Pay-in/Pay-out (Rolling Settlement): 1 Funds Pay-in/Pay-out October 23,2007 * Rs.4, cr. (US $ 1, mn.) 2 Securities Pay-in/Pay-out (Value) December 31,2007 * Rs.9, cr. (US $ 2, mn.) 3 Securities Pay-in/Pay-out (Qty) October 01,2007 * 2, lakhs * Settlement Date Derivatives (F&O segment) 1 Record number of trades October 18,2007 1,420,967 2 Record daily turnover (value) October 18,2007 Rs. 110,563 cr. (US $ 27, mn.) Wholesale Debt Market Segment 1 Record daily turnover (value) August 25,2003 Rs.13, cr. (US $ 3, mn.) Technology Technology has been the backbone of the Exchange. Providing the services to the investing community and the market participants using technology at the cheapest possible cost has been its main thrust. NSE chose to harness technology in creating a new market design. It believes that technology provides the necessary impetus for the organisation to retain its 11

23 competitive edge and ensure timeliness and satisfaction in customer service. In recognition of the fact that technology will continue to redefine the shape of the securities industry, NSE stresses on innovation and sustained investment in technology to remain ahead of competition. NSE is the first exchange in the world to use satellite communication technology for trading. It uses satellite communication technology to energise participation from about 2,956 VSATs from nearly 245 cities spread all over the country. Its trading system, called National Exchange for Automated Trading (NEAT), is a state of-the-art client server based application. At the server end, all trading information is stored in an in-memory database to achieve minimum response time and maximum system availability for users. It has uptime record of 99.7%. For all trades entered into NEAT system, there is uniform response time of less than 1.5 seconds. NSE has been continuously undertaking capacity enhancement measures so as to effectively meet the requirements of increased users and associated trading loads. NSE has also put in place NIBIS (NSE s Internet Based Information System) for on-line real-time dissemination of trading information over the Internet. As part of its business continuity plan, NSE has established a disaster back-up site at Chennai along with its entire infrastructure, including the satellite earth station and the high-speed optical fibre link with its main site at Mumbai. This site at Chennai is a replica of the production environment at Mumbai. The transaction data is backed up on near real time basis from the main site to the disaster back-up site through the 2 mbps high-speed link to keep both the sites all the time synchronized with each other. Application Systems The various application systems that NSE uses for its trading as well clearing and settlement and other operations form the backbone of the Exchange. The application systems used for the day-to-day functioning of the Exchange can be divided into (a) Front end applications and (b) Back office applications. In the front end, there are 6 applications: (i) NEAT CM system takes care of trading of securities in the Capital Market segment that includes equities, debentures/notes as well as retail Gilts. The NEAT CM application has a split architecture wherein the split is on the securities and users. The application runs on three Stratus systems with Open Strata Link (OSL). The application has been benchmarked to support 15,000 users and handle more than 15 million trades daily. This application also provides data feed for processing to some other systems like Index, OPMS through TCP/IP. This is a direct interface with the trading members of the CM segment of the Exchange for entering the orders into the main system. There is a two way communication between the NSE main system and the front end terminal of the trading member. (ii) NEAT WDM system takes care of trading of securities in the Wholesale Debt Market (WDM) segment that includes Gilts, Corporate Bonds, CPs, T-Bills, etc. This is a direct interface with the trading members of the WDM segment of the Exchange for entering the orders/trades into the main system. There is a two way communication between the NSE main system and the front end terminal of 12

24 the trading member. (iii) NEAT F&O system takes care of trading of securities in the Futures and Options (F&O) segment that includes Futures on Index as well as individual stocks and Options on Index as well as individual stocks. This is a direct interface with the trading members of the F&O segment of the Exchange for entering the orders into the main system. There is a two way communication between the NSE main system and the front end terminal of the trading member. (iv) NEAT IPO system is an interface to help the initial public offering of companies which are issuing the stocks to raise capital from the market. This is a direct interface with the trading members of the CM segment who are registered for undertaking order entry on behalf of their clients for IPOs. NSE uses the NEAT IPO system that allows bidding in several issues concurrently. There is a two way communication between the NSE main system and the front end terminal of the trading member. (v) NEAT MF system is an interface with the trading members of the CM segment for order collection of designated Mutual Funds units (vi) Surveillance system offers the users a facility to comprehensively monitor the trading activity and analyse the trade data online and offline. In the back office, the following important application systems are operative : (a) NCSS (Nationwide Clearing and Settlement System) is the clearing and settlement system of the NSCCL for the trades executed in the CM segment of the Exchange. The system has 3 important interfaces OLTL (Online Trade loading) that takes each and every trade executed on real time basis and allocates the same to the clearing members, Depository Interface that connects the depositories for settlement of securities and Clearing Bank Interface that connects the thirteen clearing banks for settlement of funds. It also interfaces with the clearing members for all required reports. Through collateral management system it keeps an account of all available collaterals on behalf of all trading/clearing members and integrates the same with the position monitoring of the trading/clearing members. The system also generates base capital adequacy reports. (b) FOCASS is the clearing and settlement system of the NSCCL for the trades executed in the F&O segment of the Exchange. It interfaces with the clearing members for all required reports. Through collateral management system it keeps an account of all available collaterals on behalf of all trading/clearing members and integrates the same with the position monitoring of the trading/clearing members. The system also generates base capital adequacy reports. (c) OPMS the online position monitoring system that keeps track of all trades executed for a trading member vis-à-vis its capital adequacy, (d) PRISM is the parallel risk management system for F&O trades using Standard Portfolio Analysis (SPAN). It is a system for comprehensive monitoring and load balancing of an array of parallel processors that provides complete fault tolerance. It provides real time information on initial margin value, mark to market profit or loss, collateral amounts, contract-wise latest prices, contract-wise open interest and limits. The system also tracks online real time client level portfolio base upfront margining and monitoring (e) Data warehousing that is the central repository of all data in CM as well as F&O segment of the Exchange, (f) Listing system that captures the data from the companies which are listed in the Exchange for corporate governance and integrates the same to the trading system for necessary broadcasts for data dissemination process and (g) Membership system that keeps track of all required details of the Trading Members of the Exchange. 13

25 NSE Family NSCCL National Securities Clearing Corporation Ltd. (NSCCL), a wholly-owned subsidiary of NSE, was set up in August It was the first clearing corporation in the country to provide novation/settlement guarantee that revolutionized the entire concept of settlement system in India. It commenced clearing operations in April It has been set up to bring and sustain confidence in clearing and settlement of securities; to promote and maintain short and consistent settlement cycles; to provide counter-party risk guarantee, and to operate a tight risk containment system. It carries out the clearing and settlement of the trades executed in the equities and derivatives segments of the NSE. It operates a well-defined settlement cycle and there are no deviations or deferments from this cycle. It aggregates trades over a trading period T, nets the positions to determine the liabilities of members and ensures movement of funds and securities to meet respective liabilities. It also operates Subsidiary General Ledger (SGL) for settling trades in government securities for its constituents. It has been managing clearing and settlement functions since its inception without a single failure or clubbing of settlements. It assumes the counter-party risk of each member and guarantees financial settlement. It also undertakes settlement of transactions on other stock exchanges like the Over the Counter Exchange of India. It operates Mutual Fund Service System to clear and settle purchase and redemption of mutual fund units for individual investors. It has tied up with 13 Clearing Banks viz., Canara Bank, Citi bank N.A, HSBC Ltd., HDFC Bank, IndusInd Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank Lt,. Bank of India, IDBI Bank, Standard Chartered Bank, State Bank of India and Union Bank of India for funds settlement while it has direct connectivity with depositories for settlement of securities. It has also initiated a working capital facility in association with the clearing banks that helps clearing members to meet their working capital requirements. Any clearing bank interested in utilizing this facility has to enter into an agreement with NSCCL and with the clearing member. NSCCL has also introduced the facility of direct payout to clients account on both the depositories. It ascertains from each clearing member, the beneficiary account details of their respective clients who are due to receive pay out of securities. It has provided its members with a front-end for creating the file through which the information is provided to NSCCL. Based on the information received from members, it sends payout instructions to the depositories, so that the client receives the pay out of securities directly to their accounts on the pay-out day. NSCCL currently settles trades under T+2 rolling settlement. It has the credit of continuously upgrading the clearing and settlement procedures and has also brought Indian financial markets in line with international markets. It has put in place online real-time monitoring and surveillance system to keep track of the trading and clearing members outstanding positions and each member is allowed to trade/operate within the 14

26 pre-set limits fixed according to the funds available with the Exchange on behalf of the member. The online surveillance mechanism also generates various alerts/reports on any price/volume movements of securities not in line with the trends/patterns. NSDL Prior to trading in a dematerialized environment, settlement of trades required moving the securities physically from the seller to the ultimate buyer, through the seller s broker and buyer s broker, which involved lot of time and the risk of delay somewhere along the chain. Further, the system of transfer of ownership was grossly inefficient as every transfer involved physical movement of paper to the issuer for registration, with the change of ownership being evidenced by an endorsement on the security certificate. In many cases, the process of transfer took much longer than stipulated in the then regulations. Theft, forgery, mutilation of certificates and other irregularities were rampant. All these added to the costs and delays in settlement, restricted liquidity. To obviate these problems, NSE to promote dematerialization of securities joined hands with UTI and IDBI to set up the first depository in India called the National Securities Depository Limited (NSDL). The depository system gained quick acceptance and in a very short span of time it was able to achieve the objective of eradicating the paper from the trading and settlement of securities, and was also able to get rid of the risks associated with fake/forged/stolen/bad paper. Dematerialized delivery today constitutes almost 100% of total of the total delivery based settlement. NSE Infotech Services Ltd NSE Infotech Services Ltd Information Technology has been the back bone of conceptualization, formation, running and the success of National Stock Exchange of India Limited (NSE). NSE has been at the forefront in spearheading technology changes in the securities market. It was important to give a special thrust and focus on Information Technology to retain the primacy in the market. Towards this a wholly owned subsidiary M/s. NSE Infotech Services Limited (NSETECH) was incorporated to cater to the needs of NSE and all it s group companies exclusively. NSE.IT NSE.IT Limited, a 100% technology subsidiary of NSE, was incorporated in October 1999 to provide thrust to NSE s technology edge, concomitant with its overall goal of harnessing latest technology for optimum business use. It provides the securities industry with technology that ensures transparency and efficiency in the trading, clearing and risk management systems. Additionally, NSE.IT provides consultancy services in the areas of data warehousing, internet and business continuity plans. Amongst various products launched by NSE.IT are NEAT XS, a Computer-To-Computer Link (CTCL) order routing system, NEAT ixs, an internet trading system and Probos, professional broker s back office system. NSE.IT also offers an e-learning portal, finvarsity ( dedicated to the finance sector. The site is powered by Enlitor - a 15

27 learning management system developed by NSE.IT jointly with an e-learning partner. New initiatives include payment gateways, products for derivatives segments and Enterprise Management Services. IISL India Index Services and Products Limited (IISL), a joint venture of CRISIL and NSE, was set up in May 1998 to provide indices and index services. It has a licensing and marketing agreement with Standard and Poor s (S&P), the world s leading provider of investible equity indices, for co-branding equity indices. IISL is India s first specialized company focusing upon the index as a core product. It provides a broad range of services, products and professional index services. It maintains over 96 equity indices comprising broad-based benchmark indices, sectoral indices and customised indices. Many investment and risk management products based on IISL indices have developed in the recent past, within India and abroad. These include index based derivatives on NSE and on Singapore Exchange, India s first exchange traded fund, a number of index funds, and Licensing of the Index for various structured products NCDEX NSE joined hand with other financial institutions in India to promote the NCDEX which provides for a world class commodity exchange platform for Market Participants to trade in wide spectrum of commodity derivatives. Currently NCDEX facilitates trading of 48 agro based commodities, 2 precious metal, 6 base metal, 3 energy products and 3 polymers. NCCL National Commodity Clearing Limited (NCCL) is a company promoted by National Stock Exchange of India Limited (NSEIL). It was incorporated in the year One of the objectives of NCCL is to provide and manage clearing and settlement, risk management and collateral management services to commodity exchanges. NCCL is having the requisite experience and exposure in providing clearing and settlement facility, risk and collateral management services in the commodities market including funds settlement with multiple clearing banks. Currently NCCL is providing clearing and settlement services to NCDEX. PXI A National Level Power Exchange by the name of Power Exchange India Limited (PXI) has been set up through a Joint Venture by India s two leading Exchanges, National Stock Exchange of India Ltd (NSE) and National Commodity & Derivatives Exchange Ltd (NCDEX). PXI has got the in-principle approval from CERC to set up and operate the power exchange and will operate as a National Level electricity exchange covering the entire Indian electricity market. 16

28 Table 1-1 : Board of Directors* 1 Mr. S. B. Mathur Chairman 2 Mr. Ravi Narain National Stock Exchange of India Ltd. 3 Ms. Chitra Ramkrishna National Stock Exchange of India Ltd. 4 Mr. C. Achuthan Former Presiding Officer, Securities Appellate Tribunal 5 Mr. Anjan Barua Chief General Manager ( Global Markets), State Bank of India MD & CEO Deputy Managing Director Director Director 6 Rear Admiral Madan Mohan Chopra AVSM (Retd.) Director 7 Mr. A. P. Kurian Chairman, Association of Mutual Funds in India 8 Dr. Rajiv B. Lall Managing Director & CEO, Infrastructure Development Finance Company Limited 9 Mr. Lawrence Leibowitz Group EVP and Head of US Markets & Global Technology NYSE Euronext 10 Mr. Anand G. Mahindra Vice Chairman & Managing Director, Mahindra & Mahindra Ltd. 11 Mr. Y. H. Malegam Chairman Emeritus, M/s. S.B. Billimoria & Co. Chartered Accountants 12 Prof. (Dr.) K. R. S. Murthy Professor & Former Director, Indian Institute of Management, Bangalore 13 Dr. R. H. Patil Chairman, The Clearing Corporation of India Limited 14 Ms. Bhagyam Ramani General Manager, General Insurance Corporation of India Director Director Director Director Director Director Director Director 15 Dr. V. A. Sastry Director 16 Mr. Onkar Nath Singh Ex-Chairman & Mananging Director Industrial Investment Bank of India Ltd. 17 Mr. Justice B.N.Srikrishna (Retd.) Former Judge, Supreme Court of India 18 Mr. T. S. Vijayan Chairman Life Insurance Corporation of India Director Director Director * As of July 15,

29 Table 1-2 : Executive Committees I CM & WDM SEGMENTS 1 Mr. Ravi Narain MD & CEO, National Stock Exchange of India Ltd. Chairman 2 Mr. Ashok Kumar Agarwal Chairman, Globe Capital Market Ltd. Trading Member 3 Mr. D. C. Anjaria Director, International Financial Solutions Pvt. Ltd. 4 Mr. Vimal Bhandari Country Manager India AEGON International NV 5 Mr. C. J. George Managing Director, Geojit Financial Services Ltd. 6 Mr. Y. H. Malegam Chairman Emeritus, S.B.Billimoria & Co. Chartered Accountants 7 Ms. Chitra Ramkrishna Deputy Managing Director, National Stock Exchange of India Ltd Public Representative Public Representative Trading Member Public Representative Other Nominees 8 Mr. Rashesh Shah Director, Edelweiss Securities Pvt. Ltd. Trading Member 9 Mr. Ramesh Kumar Somani Whole-time Director, Eureka Stock & Share Broking Services Ltd Trading Member 10 Mr. P. M. Venkatasubramanian Ex-Managing Director, GIC Other Nominees 11 Mr. Gagan Rai Managing Director & CEO, National Securities Depository Limited Other Nominees II F&O MARKET SEGMENT 1 Mr. Ravi Narain MD & CEO, National Stock Exchange of India Ltd. 2 Mr. D.C.Anjaria Director, International Finance Solutions Pvt. Ltd. 3 Prof. V. Ravi Anshuman Indian Institute of Management Bangalore 4 Mr. Sunil Godhwani Managing Director, Religare Securities Ltd. Chairman Public Representative Public Representative Trading Member 5 Mr. Shailesh Haribhakti Chairman Haribhakti Group Public Representative 6 Mr. Ketan Marwadi Managing Director, Marwadi Shares and Finance Limited 7 Mr. M. Raghavendra Ex-General Manager, General Insurance Corporation of India 8 Ms. Chitra Ramkrishna Deputy Managing Director, National Stock Exchange of India Ltd 9 Ms. T. S. Jagadharini Vice President, National Stock Exchange of India Limited Trading Member Other Nominees Other Nominees Other Nominees * As of July 15,

30 2 Membership Administration

31 20

32 Membership Administration 2 The trading in NSE has a three tier structure-the trading platform provided by the Exchange, the broking and intermediary services and the investing community. The trading members have been provided exclusive rights to trade subject to their continuously fulfilling the obligation under the Rules, Regulations, Byelaws, Circulars, etc. of the Exchange. The trading members are subject to its regulatory discipline. Any person can become a trading 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. Eligibility Criteria The Exchange stresses on factors such as corporate structure, capital adequacy, track record, education, experience, etc. while granting trading rights to its members. This reflects a conscious effort by the Exchange to ensure quality broking services which enables to build and sustain confidence in the Exchange s operations. The standards stipulated by the Exchange for trading membership are substantially in excess of the minimum statutory requirements as also in comparison to those stipulated by other exchanges in India. The exposure and volume of transactions that can be undertaken by a trading member are linked to liquid assets in the form of cash, bank guarantees, etc. deposited by the member with the Exchange as part of the membership requirements. The trading members are admitted to the different segments of the Exchange subject to the provisions of the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992, the rules, circulars, notifications, guidelines, etc., issued there under and the byelaws, Rules and Regulations of the Exchange. All trading members are registered with SEBI. Trading Membership A prospective trading member is admitted to any of the following combinations of market segments: Wholesale Debt Market (WDM) segment, Capital Market (CM) and the Futures and Options (F&O) segments, CM Segment and the WDM segment, or CM Segment, the WDM and the F&O segment. In order to be admitted as a trading member, the individual trading member/at least two partners of the applicant firm/at least two directors of the applicant corporate must be graduates and must possess at least two years experience in securities markets. The applicant for trading membership/any of its partners/ 21

33 shareholders/directors must not have been declared defaulters on any stock exchange, must not be debarred by SEBI for being associated with capital market as intermediaries and must not be engaged in any fund-based activity. For the F&O segment, at least two dealers should also have passed SEBI-approved certification test for derivatives. In case of corporate applicant, the minimum paid up capital should be Rs. 30 lakh and the dominant promoter/shareholder group should hold at least 51% (40% in case of listed companies) of paid-up equity capital of such corporate entity. The net worth required for trading members on CM & F&O Segment is 100 lakh, however, a net worth of Rs. 300 lakh is required for members clearing for self as well as for other trading members. Clearing Membership The trades executed on the Exchange may be cleared and settled by a clearing member. The trading members in the CM segment are also clearing members. In the F&O segment, some members, who are registered with SEBI as self-clearing members, clear and settle their own trades. Certain others, registered as trading member-cum-clearing member, clear and settle their own trades as well as trades of other trading members. Besides this, there is a special category of members, called professional clearing members (PCMs), who do not trade but only clear trades executed by others. This means that some members clear and settle their trades through a trading member-cum-clearing member or a PCM, not themselves. The members clearing their own trades or trades of others, and the PCMs are required to bring in additional security deposits in respect of every trading member whose trades they undertake to clear and settle. The requirements of trading membership and clearing membership are presented in Tables 2-1A and 2-1B. Growth and Distribution of Members As at end March 2008, the Exchange had 1,075 members. A large majority (91.72 %) of them were corporate members, and the remaining, individuals and firms. There were 1,069, 63 and 942 members in the CM, WDM and F&O segments respectively. The growth of membership on NSE is presented in Table 2-2. The distribution of trading members on the Exchange as at end March 2008 is presented below: Distribution of Trading Members (as on March 31, 2008) CM Segment WDM Segment CM & WDM Segment CM, WDM & F&O Segment CM & F&O Segment Total Corporates Individuals Firms Total ,075 22