FMM Ch1 and 2 (Miss Notes)

Primary Market

Gives issuers (Government and corporations) the opportunity to raise resources to meet investment requirements; securities are issued at face value, discount, or premium.

Secondary Market

Where instruments are traded after being offered to the public or listed on the Exchange; operates via an informal negotiated platform and a formal exchange-traded platform.

Public Issue

Allotment to 50 or more investors.

Private Placement

Issuance to not more than 49 investors.

OTC Market

An informal platform where trades are negotiated directly between parties.

Stock Market Index

Gives information about price movements; created by selecting a group of stocks representative of the whole market or a sector.

NSE Bluechip Index

CNX NIFTY (Nifty 50).

Market Capitalisation Formula

Closing Price of Share multiplied by Number of Outstanding Shares.

Market Capitalisation Ratio Formula

Total value of listed shares divided by GDP; used as a measure of overall size relative to the economy.

Turnover Formula

Quantity traded multiplied by the price at which the trade takes place.

Turnover Ratio Formula

Value traded on an exchange for a period divided by the total value of listed shares at the end of that period; used as a measure of trading activity or liquidity.

Securities under SC(R)A 1956

Includes shares, bonds, scrips, stocks; instruments issued by the government; derivatives; units of collective investment schemes; interest and rights in such instruments, and security receipts.

Three Types of Securities

Equities, debt instruments, and derivatives.

Three Market Participant Categories

Those who provide capital (individual, corporate, FVCIs, FIIs); those who raise capital (companies/governments); and facilitators (brokers, sub-brokers, depositories, portfolio managers, merchant bankers, mutual funds).

Four Regulators of Securities Market

SEBI, RBI, Ministry of Corporate Affairs, and the Department of Economic Affairs.

NSE Segment Launch Dates

Debt segment: June 1994. Equity/cash segment: November 3 1994. Futures and options segment: June 2000. Currency segment: August 2008.

SEBI Establishment

Established under an Act passed in 1992, with objectives to protect investor interests, promote development, and regulate the market.

T+2 Settlement Cycle

From April 2003, all trades settle on the second working day after the trading day.

Equity Derivatives Trading Start

An amendment in 1995 lifted a ban on options; index futures and options trading began in 2000.

Demutualisation (NSE)

A structure where ownership, management, and trading are handled by three separate sets of people.

Depositories Act 1996

Passed in 1996, established two organisations that hold securities electronically, eliminating bad deliveries.

NSCCL

The clearing corporation set up by NSE, which commenced operations in April 1996.

IEPF

A fund established by the Central Government in October 2001 for investor education and protection.

India VIX

Measures the market's expectation of volatility over the near term; launched by NSE in April 2008.

DMA (Direct Market Access)

Allowed by SEBI in April 2008; gives a category of investors direct access to the Exchange trading system through broker infrastructure.

SLBS

A scheme allowed in April 2008 enabling market participants to take short positions with less cost.

ASBA

A major IPO reform where the application amount is blocked in the investor's own account and released only on allotment.

ICDR Regulations 2009

Regulations that replaced earlier disclosure guidelines, governing capital issue and disclosure norms.

Stock Broker

An intermediary who arranges to buy and sell securities on behalf of clients; must hold exchange membership and a registration certificate from the regulator.

Registration Conditions for Broker

Holding exchange membership; abiding by exchange rules; obtaining prior permission for status changes; paying fees; redressing investor grievances within one month.

Eligible Persons for NSE Membership

Individuals; partnership firms; limited liability partnerships; institutions or bank subsidiaries; banks (for the currency segment only); body corporates.

Two Types of NSE Membership

One allowing unrestricted business expansion, and one tailored for focused proprietary trading with limited clientele.

IFSD

A deposit that must be maintained entirely in liquid cash.

CSD

A deposit that can be maintained in cash or non-cash form.

Non-Allowable Assets (for Net Worth)

Include fixed assets, pledged securities, bad debts/deliveries, intangible assets, and prepaid expenses.

NSE Membership Admission Procedure

Apply with documents and fees; a recommendation committee scrutinises the application and interviews dominant promoters; names are forwarded to an approval committee/board; on approval, provisional admission is given; after the certificate is granted, deposits are remitted; finally the applicant is enabled on the trading system.

Dealer Certification by Segment

Cash segment dealers need the Capital Market Dealers module; futures and options dealers need the Derivatives Market Dealers module; currency segment dealers need a separate currency derivatives certification.

Surrender Conditions

Clearing all dues owed to the exchange and clearing corporation; notifying other members; public notification in leading dailies; dismantling and returning leased lines/equipment.

Surrender Lock-In Exemption

There is no lock-in period if the applicant was registered but never enabled, or enabled but never actually traded.

Suspension Consequences

Cannot conduct business on the Exchange; cannot transfer rights or create a charge/lien on deposits; cannot sell or dispose of Exchange property in their possession.

Grounds for Suspension

Being in default of payment or delivery; violating rules and bye-laws; being subject to disciplinary proceedings; failing to maintain required deposit levels.

Expulsion Consequences

Loss of all rights, privileges, and standing; deposits applied to outstanding dues; remaining amount returned after obligations are met.

Defaulter Declaration Grounds

Being unable to fulfil obligations; failing to pay amounts due in time; failing to pay damages on close-out; failing to deliver securities or statements on time; filing for insolvency or winding up.

Authorised Person (AP)

A person or entity appointed by a stock broker, providing trading platform access as an agent; paid only by the broker and cannot charge clients directly.

Sub-Broker

A person affiliated to a stock broker as an agent, assisting investors in buying, selling, or dealing in securities through that broker.

Sub-Broker Eligibility

Not less than 21 years old; no conviction for fraud or dishonesty; passed 12th standard, or 10th standard with 2 years of relevant market experience; not debarred by the regulator.

Notice Gap Rule for Cancellation

The difference between proof of delivery of the termination notice and the date of application to the Exchange must be 30 days or more.

Client Registration Documents

An agreement between the member and client; a Know-Your-Client form; a risk disclosure document; and a unique code registration.

UCC (Unique Client Code)

A code assigned to each client; all of that client's orders must be tagged with it.

Contract Note

Confirmation of trade(s) done on a particular day for a client; must be issued within 24 hours, signed by an authorised signatory, and retained for a minimum of five years.

Maximum Brokerage Rule

Capped at 2.5% of the contract price in the cash segment, exclusive of statutory levies, and inclusive of any sub-brokerage; must be shown separately from the price on the confirmation slip.

Brokerage Worked Example

10,000 shares at ₹50 each gives a maximum chargeable amount of ₹12,500.

Payment/Delivery Timeline to Clients

Within one working day of pay-out, unless the client has requested otherwise.

Separate Bank Accounts Rule

Client funds must be kept in a separate account from the firm's own funds; money only moves from the client side for that client's pay-in obligations.

Demat Account Segregation

Separate electronic holding accounts must be maintained for the firm's own securities and for client securities — these cannot be mixed.

Investor Services Cell (ISC)

Handles grievances and complaints against trading members, and educates investors about trading and the market.

Code of Advertisement (Key Points)

All promotional material must be truthful, fair, and not misleading; past performance cannot be projected as a future indicator; risk factors must be disclosed clearly.

Open Outcry System

The old method where brokers physically assembled at a central location and traded with each other; time-consuming, inefficient, with limited volumes and hours.

SBTS Launch

A nation-wide, online, fully automated trading system introduced for the cash segment on November 3 1994.

SBTS Advantages

Improved operational efficiency through strict priority matching; faster incorporation of price-sensitive information; improved depth and liquidity; full anonymity; a complete audit trail.

NEAT

NSE's fully automated screen-based trading system, providing a consolidated electronic order book.

OECLOB

An order book that matches trades on strict price-time priority.

Network Path for Order Transmission

A broker enters an order on their PC, which is sent via satellite link (or leased line/modem) to a mainframe computer at the exchange, and the resulting activity is broadcast back to the member.

Trading System Users' Hierarchy

Three levels exist within a member firm: a top-level firm-wide role, a branch-level role beneath it, and an individual terminal-operator role at the bottom.

Local Database Use

Provides a faster response for a user's own order/trade inquiries; stores system messages, security information, and that user's own data.

Cross-User Inquiry Rule

If a higher-level user inquires about the orders of someone below them, that inquiry is serviced centrally rather than locally.

Six Phases of the Trading Day

Opening/pre-open, pre-open order entry, the continuous open phase, market close, a restricted post-close window, and a final surveillance period.

Pre-Open Session Timing

9:00 AM to 9:15 AM; used for setup and order entry, with a call auction for benchmark index securities to determine where trading will begin.

Normal Market Open Phase

Begins at 9:15 AM; continuous matching where inquiry, entry, modification, cancellation, matching, and trade cancellation are all allowed.

Post-Close Market Session

Runs from 3:40 PM to 4:00 PM; only orders at the closing price are allowed — special term, stop-loss, and disclosed quantity instructions are not permitted.

SURCON

A period after market close offering inquiry access only, during which the system processes data for the next day before the connection is dropped.

Login Credential Rules

Each user has a unique identifying code and password; only one active session per identifier is permitted at a time; a change is forced at first use; the account locks after a fixed number of failed attempts.

Normal vs Abnormal Exit

A clean exit saves the personal watchlist setup for the next session; an unexpected exit may not save it, requiring the setup to be redone.

Trading Screen Components

A bar showing exchange/date/time/index info; a window for live scrolling trades; a window for the user's chosen securities; a results window for queries; a window for order/trade details; and a window for system alerts.

Watchlist — Key Details Shown

A corporate action flag; total quantity and price on the buy side; total quantity and price on the sell side; the most recent trade price; a directional indicator; and percentage change from the prior close.

Watchlist Capacity

Up to 500 instruments can be set up, with up to 30 visible on a single page.

Watchlist Colour Code

One colour signals a rise in price or quantity; the other signals a fall.

Default Order Duration

All instructions currently in the system are treated as expiring at the end of that trading day.

Immediate-or-Cancel Instruction

Released into the system for matching at once; whatever portion fails to match — whether all or part — is cancelled immediately, though partial fills are possible.

Disclosed Quantity Condition

Lets the user reveal only a portion of the total instruction size to the market at any given time, regardless of the full amount entered.

Market Order

Price is left to be determined automatically by the system at the best available level.

Stop-Loss Mechanism

Held in a separate book and only released for normal processing once the market price reaches or crosses a pre-set threshold.

Stop-Loss Buy Example

With a threshold of ₹93, a placement price of ₹95, and a market price of ₹90 — the instruction activates once the market reaches ₹93, then enters the book at ₹95.

Threshold Price vs Placement Price

One is the level at which an instruction moves out of the holding book; the other is the price it carries once it does.

Account-Type Tags

One tag marks an instruction as being on the firm's own account; the other marks it as being on behalf of an outside party.

Buy/Sell Entry Keys

One function key opens the buy entry screen; the next one opens the sell entry screen.

Quantity Freeze Threshold

An alert is triggered once a single instruction's size exceeds 25,000 units.

Modification Consequence

Changing price, size, or conditions causes the instruction to lose its place in the queue and receive a new timestamp.

Cancellation Rules

Done from a dedicated outstanding-items screen during trading hours; items that are already fully matched or already cancelled cannot be touched further; higher-level users can act on behalf of those beneath them.

Matching Logic

Best-priced instructions are matched first; on the buy and sell sides, the best prices are paired; among equally priced instructions, the one entered earlier wins.

Circuit Breaker Start Date

Implemented in compulsory rolling settlement effective July 02 2001.

Circuit Breaker Trigger Logic

Activated by movement in either of the two major benchmark indices, whichever crosses the threshold first.

Daily Price Band Structure

5% on some specified instruments; 10% on others; no fixed limit (instead a 10% operating range) where derivative products exist on that instrument; and 20% on all remaining cases including debentures, preference shares, and auction-only instruments.

Internet-Based Trading Access

Lets investors access the trading platform from their own device via the internet; introduced in February 2000 and rebranded since.

Co-location

A facility letting members place their servers physically inside the exchange's own data centre, cutting transmission delay and enabling high-frequency strategies.

Mobile Trading Protocol

Lets investors trade from mobile devices; requires an identifying code, password, and PIN to log in; mainly used for monitoring and simple order placement.