Securities Market and Trading Membership - Summary

Role of Primary & Secondary Markets

  • Primary Market: Raises resources for issuers (Govt & corps) via public issues or private placements.
  • Secondary Market: Trading of securities after primary issuance; includes equity, derivatives, & debt.

Key Indicators of Securities Market

  • Index: Tracks price movements (e.g., CNX NIFTY for NSE).
  • Market Capitalization: Value of listed shares calculated daily.
    • Formula: MarketCapitalisation=Closingpriceofshare∗NumberofoutstandingsharesMarket Capitalisation = Closing price of share * Number of outstanding shares
  • Market Capitalization Ratio: Market cap divided by GDP, indicating market size.
  • Turnover: Traded quantity multiplied by the price of the trade.
  • Turnover Ratio: Trading activity measure.
    • Formula: TurnoverRatio=TurnoveratExchange/MarketCapitalisationatExchangeTurnover Ratio = Turnover at Exchange / Market Capitalisation at Exchange

Market Products and Participants

  • Products: Securities (equities, debt, derivatives) that reallocate savings to entrepreneurs.
  • Participants: Investors, issuers, and intermediaries, all regulated by SEBI, RBI, MCA, and DEA.

Market Segments at NSE

  • Wholesale Debt Market (WDM): Trading platform for debt securities (Govt securities, T-Bills, PSU bonds, etc.).
  • Capital Market (CM): Trading of equity shares, warrants, debentures via NEAT system.
  • Futures & Options (F&O): Trading in derivatives (index/stock futures/options).
  • Currency Derivatives Segment (CDS): Trading in currency futures (USD-INR, Euro-INR, etc.) and interest rate futures.

Reforms in Indian Securities Markets (since 1992)

  • Creation of SEBI: Market regulator for investor protection, market development & regulation.
  • Screen Based Trading: Transition from open outcry to online systems (SBTS) for efficiency.
  • Reduction of Trading Cycle: Moving from 14-30 day cycles to T+2 days settlement.
  • Equity Derivatives Trading: Allowing trading in derivatives (index/stock futures/options).
  • Demutualisation: Separating ownership, management, and trading in exchanges.
  • Dematerialisation: Electronic transfer of securities via depositories (NSDL & CDSL).
  • Clearing Corporation: Establishment of NSCCL for managing counterparty credit risk.
  • Investor Protection: Funds (IEPF) and grievance cells for investor claims and awareness.
  • Globalization: Permitting overseas resource raising (ADRs, GDRs) and FII investments.
  • Launch of India VIX: Volatility index for market expectation of near-term volatility.
  • Direct Market Access: Allowing institutional investors direct access to exchange trading systems.
  • Securities Lending & Borrowing: Mechanism for participants to take short positions.
  • Currency Futures: Launching trading in currency future contracts.
  • ASBA: Blocking IPO application amounts in investors' accounts.
  • Interest Rate Futures: Launching futures on interest rates.
  • ICDR Regulations 2009: Governing disclosure norms for securities issuance.

Stock Brokers and NSE Membership

  • Stock Broker Definition: SEBI-registered member of a stock exchange.
  • NSE Membership: Open to various entities meeting eligibility criteria.

Trading Membership Criteria

  • Eligibility: Individuals, partnerships, LLPs, institutions (including bank subsidiaries), and body corporates.
    • Segments: WDM, CM, F&O, CD, and Clearing Membership.
    • Types of Membership: Normal (unrestricted) and Alpha (focused proprietary trading).
    • Deposit and Net Worth Requirements: Meeting financial standards for different segments.
    • Corporate Structure & Shareholding: Adhering to norms for dominant promoter/shareholder groups.

Admission, Surrender, Suspension, and Expulsion of Membership

  • Admission: Two-stage process involving examination and interview.
  • Surrender: Voluntary cessation of membership with conditions.
  • Suspension/Expulsion: Disciplinary actions for rule violations or misconduct.

Defaulter Declaration

  • Conditions: Inability to fulfill obligations or regulatory non-compliance.

Authorized Persons and Sub-brokers

  • Authorized Person: Agent providing trading platform access for a stock broker.
  • Sub-broker: SEBI-registered intermediary assisting investors; affiliated with one trading member.

Broker-Client Relationship

  • Client Registration: Agreements (MCA), KYC, and Risk Disclosure Document (RDD).
  • Unique Client Code (UCC): Mandatory for all clients.
  • Margins: Risk management for client default.
  • Order Execution: Following client instructions.
  • Contract Note: Trade confirmation with required details.
  • Payments/Delivery: Within one working day of pay-out.
  • Brokerage: Maximum 2.5% of contract price.
  • Separate Bank Accounts: Maintaining client funds separately.
  • Demat Account Segregation: Keeping client securities separate.

Sub-broker-Client Relationships

  • Tripartite Agreement: Agreement defining rights and obligations.
  • Contract Notes: Issued by the stock broker.
  • Securities/Funds: Direct settlement between stock broker and client.

Investor Service Cell and Code of Advertising

  • Investor Service Cell (ISC): Handles investor complaints and disputes.
  • Code of Advertising: Guidelines for trading member advertisements.