Secondary Market

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SECONDARY MARKET Overview of : 1.) Trading and Settlement. 2.) Order Management. Dr. VENKAT RAO 9848473235

Transaction Cycle:

Transaction Cycle

Trading & Settlement Process:

Trading & Settlement Process



Market Participants:

Market Participants Exchange – NSE/BSE Depository – NSDL/CDSL Custodian Depository Participants Clearing Corporation – NSCCL/BOI share Holding Stock Broker A broker is an intermediary who arranges to buy and sell securities on behalf of clients (the buyer and the seller) also known as CM – Clearing Member Sub –Broker Investors

Trading At NSE:

Trading At NSE The trading on stock exchanges in India used to take place through open outcry NSE introduced a nation-wide on-line fully-automated screen based trading system NEAT) SBTS electronically matches orders on a strict price/time priority

Order Placement:

Order Placement NSE has main computer which is connected through Very Small Aperture Terminal (VSAT) installed at its office . Brokers have terminals (identified as the PCs in the Figure 1) installed at their premises which are connected through VSATs/leased lines/modems . An investor informs a broker to place an order on his behalf. The broker enters the order through his PC, which runs under Windows NT and sends signal to the Satellite via VSAT/leased line/modem. The signal is directed to mainframe

Contd …..:

Contd ….. The order confirmation message is immediately displayed on the PC of the broker. This order matches with the existing passive order(s), otherwise it waits for the active orders to enter the system. On order matching, a message is broadcast to the respective member.

Contd ….:

Contd …. All orders received on the system are sorted with the best priced order getting the first priority for matching i.e., the best buy orders match with the best sell order. Similar priced orders are sorted on time priority basis, i.e. the one that came in early gets priority over the later one. Orders are matched automatically by the computer keeping the system transparent, objective and fair. Where an order does not find a match, it remains in the system and is displayed to the whole market, till a fresh order comes in or the earlier order is cancelled or modified.

Clearing & Settlement:

Clearing & Settlement The clearing and settlement mechanism in Indian securities market has witnessed significant changes and several innovations during the last decade. T+2 rolling settlement has now been introduced for all securities. The members receive the funds/securities in accordance with the pay-in/pay-out schedules notified by the respective exchanges.

Contd …..:

Contd ….. The obligations of members are downloaded to members/custodians by the clearing agency. The members/custodians make available the required securities in their pool accounts with depository participants (DPs) by the prescribed pay-in time for securities.

Contd …:

Contd … The depository transfers the securities from the pool accounts of members/custodians to the settlement account of the clearing agency . The securities are transferred on the pay-out day by the depository from the settlement account of the clearing agency to the pool accounts of members/custodians.

Process :

Process (1) Trade details from Exchange to NSCCL (real-time and end of day trade file). (2) NSCCL notifies the consummated trade details to CMs/custodians who affirm back. Based on the affirmation, NSCCL applies multilateral netting and determines obligations. (3) Download of obligation and pay-in advice of funds/securities. (4) Instructions to clearing banks to make funds available by pay-in time. (5) Instructions to depositories to make securities available by pay-in-time. (6) Pay-in of securities (NSCCL advises depository to debit pool account of custodians/CMs and credit its account and depository does it). (7) Pay-in of funds (NSCCL advises Clearing Banks to debit account of custodians/CMs and credit its account and clearing bank does it). (8) Pay-out of securities (NSCCL advises depository to credit pool account of custodians/CMs and debit its account and depository does it). (9) Pay-out of funds (NSCCL advises Clearing Banks to credit account of custodians/CMs and debit its account and clearing bank does it). (10) Depository informs custodians/CMs through DPs. (11) Clearing Banks inform custodians/CMs.

Slide 14:

Flow: Trade Processing Exchange Customer Broker Trading Terminal Place order Enters order Order confirm Clearing Corporation Depository Trade Details Obligation report Clearing Banks Funds Availability Security Availability DP Security Transfer Security transfer To CM pool acct Security transfer CC a/c


Auctions Initiated by Exchange on behalf of trading members for settlement related reasons. On the securities pay-in day, NSCCL identifies short deliveries and the respective clearing member is debited by an amount equivalent to the securities not delivered by him and valued at a valuation price NSCCL conducts a buying-in auction for security shortages on the day after the pay-out day through the NSE trading system. If the buy-in auction price is more than the valuation price, the member is required to make good the difference. Close Out – all shortages not bought are deemed closed at highest price of the trading period or closing price on auction day plus 20%

Order Management:

Order Management NSE is Order driven market Order management consists of Entering orders Order modification Order cancellation Order matching

Entering Order:

Entering Order Active vs. Passive Order (price, time stamping) Order Book Regular lot, Stop loss, special terms, retail debt order, auction orders Symbol and Series Quantity Price Principal or Client Order types/conditions

Order modification:

Order modification Modify during market hours Change unexecuted quantity, price Cannot change client code Cannot exceed price limits User value is adjusted


Order Types/Conditions Time Day, IOC Price Market, Stop loss, Limit, ATO Quantity DQ, MF, AoN , Quantity Freeze Other conditions Pro, Client, Warehouse

Order Matching:

Order Matching Touch Line Best buy order, Best sell order By Price By Time Trade Management Matching of orders Trade verification Trade Modification Trade Cancellation

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