Newsletter

Volume 1, Issue 4
November, 2009
National Institute of
Securities Markets
Foreword
Financial literacy refers to the ability to make informed judgements and to take
effective decisions about the use and management of money. It can be defined
Inside this issue: as “the capacity to have familiarity with and understanding of financial market
products, especially rewards and risk in order to make informed choices”.
With about only 1% of the population in India invested in the capital market and
even lesser being financially literate, National Institute of Securities Markets
Foreword 1 (NISM) aims at creating a general level of financial awareness among people
through its various training programmes and workshops organized across the
country for different segments of the society inclusive of school teachers,
Events at NISM 2-4 students and common investors at large. NISM, in association with Madras
Stock Exchange and Rotary Club of Madras, would be organizing a financial
literacy workshop for school teachers in Chennai.
“R” 5
Further, NISM is also involved in training intermediaries and participants of
capital markets from other jurisdictions including SAARC nations and IOSCO
A note on Oil Stabilization nations. NISM would be conducting refresher programme for “Internal Audit of
6-7
Fund
Stock Brokers” during November. A series of corporate governance workshops
are being organized for directors across cities such as Mumbai, Chennai,
Kolkata and Delhi.
Team NISM 8
The Network for Securities Markets Data (NSMD) would be entering its beta
testing stage in the next month.
Editorial Committee:
A workshop titled “Essential Econometrics for Research Scholars” is slated for
December. Registration for this workshop is now open and many participants
G. Sethu
have registered. A workshop for computational finance is another initiative in
Rajnish Kumar planning stages.
Shobana. B
The next few pages furnish details of the activities delivered during the month of
October, 2009.
For further communication Please send us your feedback at editor@nism.ac.in
please contact:
National Institute of Securities Editorial Committee
Markets (NISM)
5th Floor, Plot No. 82, Sector-
17, Vashi, Navi Mumbai- Receiver’s Address
400705, Phone No. 022-
27883001

www.nism.ac.in
editor@nism.ac.in
Volume 1, Issue 4 National Institute of Securities Markets
Page 2

Training for Securities Board of Nepal & Government of Nepal

At the request of Securities Board of Nepal, a five day
training programme was conducted by NISM for the
committee formed by Ministry of Finance, Nepal. The
committee consisted of Joint Secretary & Under Secretary of
Ministry of Finance, officials from Securities Board of Nepal
& Citizen Investment Trust. A study team of six people
attended this training programme from October 26, 2009 to
October 30, 2009 at SEBI Bhavan, Bandra-Kurla complex.
The programme was inaugurated by Mr. M. S. Sahoo
(Whole Time Member of SEBI). The training programme
specifically dealt with mutual funds, depositories and
Participants with the members of UTI Mutual Fund at
portfolio management. The topics covered under the training Bandra-Kurla Complex of UTI Mutual Fund
programme were: evolution of depository regulatory
framework in India; functions, regulations, inspection and
compliance of depositories in India; evolution of mutual fund
industry in India; functions, components, regulations,
distributional issues and challenges and investor services in
mutual funds. The speakers were from Securities and
Exchange Board of India (SEBI), National Securities
Depository Ltd (NSDL), ICICI Prudential, Fortis Investments
Ltd, Indian Institute of Capital Market (IICM) and NISM. The
programme was highly appreciated by the participants.
Mr. Vijay Gurung, (Manager, Securties Board of Nepal)
receiving certification of participation from Mr. Jaideep
Bhattacharya, UTI Asset Management Company

Monthly updates on certificate examinations

With the view to enhancing market quality and setting minimum proficiency standards , NISM has launched a
series of mandated examinations:
 NISM Series-I: Currency Derivatives Certification Examination,
 NISM-Series-II-A: Registrars to an Issue and Share Transfer Agents - Corporate Certification
Examination and
 NISM-Series-II-B: Registrars to an Issue and Share Transfer Agents - Mutual Funds Certification
Examination.
As on October 31, 2009, 9041 candidates have appeared for the Currency Derivatives Certification
Examination. The other two examinations, i.e., Registrars to an Issue and Share Transfer Agents - Corporate
Certification Examination and Registrars to an Issue and Share Transfer Agents - Mutual Funds Certification
Examination which were launched on August 3, 2009 have 63 and 57 candidates enrolled respectively.
NISM would be launching examination for compliance officers soon.
Newsletter National Institute of Securities Markets
Page 3

Refresher Programme for Internal Audit of Stock Brokers

NISM, in co-ordination with BSE, NSE and MCX–SX, is organizing a one-day “Refresher Programme for
Internal Audit of Stock Brokers” for chartered accountants, cost accountants and company secretaries. The
refresher programme seeks to discuss the good practices noticed in the internal audit reports received by
stock exchanges and share the experiences of the professional audit firms in such audits.

The programme is proposed to be conducted in Mumbai, Delhi, Chennai and Kolkata. The programme faculty
has been drawn from SEBI, stock exchanges and professional audit firms.

Date and Venue of Mumbai Programmes:

 Two programmes - November 14, 2009 and November 21, 2009.

 Venue - Centre for Excellence in Telecom Technology and Management (CETTM), Opp. Hiranandani
Hospital, Technology Street, Hiranandani Garden, Powai, Andheri (East), Mumbai.

Registration Process:

The programme fee would be Rs. 1,600/- (inclusive of service tax) per participant. The programme fee
covers courseware, lunch and tea. Participants may download the registration form from www.nism.ac.in and
register for these programmes by sending the registration form along with Pay Order / Demand Draft for Rs.
1,600/- favoring “National Institute of Securities Markets” payable at Mumbai to:

National Institute of Securities Markets

5th Floor, Plot No. 82, Sector 17, Vashi, Navi Mumbai 400705

Details of the programme in other cities (Delhi, Kolkata and Chennai) would soon be updated on the website.

For further details / clarifications:

Please visit: www.nism.ac.in
or contact: Mr. Chaitanya Nemali (022-27883044)
or mail to: training@nism.ac.in

Behavioral workshop for officers of SEBI Batch 2009

At the request of Securities and Exchange Board of India (SEBI), NISM conducted a full day workshop on
“Interpersonal Relationship Orientation” for the newly recruited managers and legal officers of SEBI on
October 12, 2009 at SEBI Bhavan, Bandra-Kurla Complex.
NISM resource person Ms. Sivakami Rajamuthiah, Clinical Psychologist & Therapist conducted this
workshop. The objective of conducting this workshop was to gain understanding of behavioral temperaments
of the participants and to optimally channelize their capabilities. Psychometrics instruments FIRO-B and
MBTI were used for this purpose. Team management, leadership abilities, time management and goal setting
were areas that were discussed.
Volume 1, Issue 4 National Institute of Securities Markets
Page 4

NISM-UTI Workshop on ‘Building an Investment Advisory Business’

At the request of UTI Asset Management Company, National Institute of Securities Markets (NISM) has been
conducting two day workshops for UTI distributors and officials on the theme ‘Building an Investment Advi-
sory Business’ across the country. The workshop was designed to enhance the professional capacity of dis-
tributors to become independent financial advisors. It was planned to conduct 30 workshops.
In the month of October, NISM resource persons Mr. Amit Trivedi, Mr. Shibaji Bose, Mr. Harish Rao and Mr.
Rajiv Satija conducted the aforesaid workshop in four cities (Pune, Lucknow, Patna, Hyderabad). NISM has
conducted 14 such workshops till now.
The feedback received for the workshops have been very encouraging. The participants have appreciated
the session on mathematics of advisory business. They have requested more computational sessions and
hands on experience for using and learning the excel tools as most of them do not have exposure to the use
of computers. Also, a brief session on understanding investor psychology and developing soft skills to re-
cover the advisory fees from the clients was recommended by the participants.
The forthcoming workshops would be organized at Nagpur during 6 -7 November, 2009 and at Ahmedabad
during 7-8 November, 2009.

Essential Econometrics for Research in Securities Markets

A workshop on “Essential Econometrics for Research in Securities Markets” is being organized by National
Institute of Securities Markets from December 26-30, 2009. The proposed workshop aims to provide inputs
on empirical research methods for undertaking research in finance. The workshop would be relevant for:
 University teachers who are working for their doctoral degrees.
 Research scholars who are in the middle of their M. Phil. / Ph. D. (should have identified research
problem)
 For university teachers who offer Empirical Research Methods (or Econometrics) course and would
like to enrich themselves with application orientation and would like to use relevant econometric
software.
The primary objective of the workshop is to provide “hands on” application orientation to essential
econometrics relevant for research in finance.
Venue and Duration of Workshop
The duration of the workshop is 5 days (4 sessions each day; each session 90 minutes). In total there would
be 30 hours of class room teaching. The workshop will be held at NISM, Vashi, Navi Mumbai.
Coverage of the programme
The workshop covers: basic descriptive stylized facts of financial data; hypothesis testing; regression analysis
(including dummy variable regression and logistic regression); time series analysis (ARMA and GARCH
frameworks). The workshop format is designed to offer overview of relevant statistical techniques in financial
markets by reviewing underlying theory and relevant research articles. The participants can expect hands on
practice on statistical packages such as R / EViews with a variety of assignments. At the end of the
workshop, participants would be able to appreciate what kind of statistical techniques suit their data.

For details please visit: www.nism.ac.in OR contact: Mr. Rajnish Kumar (rajnish.kumar@nism.ac.in)
Newsletter National Institute of Securities Markets
Page 5

R is a popular programming language used by data analysts in corporations and academia. R is becoming
the day-to-day part of financial modeling, data-mining and statistical analysis. Companies like Google (for ad
pricing trends), Bank of America (for research) and many more are using R. Many hedge funds have trading
algorithms that are written using R-environment that takie the place of the human trading decisions. R doesn’t
require in-depth programming skills and is very easy to use.

R is an open-source program. Open-source software is free for anyone to use and modify. Open-source
Linux operating system competes with Windows from Microsoft. Some more examples of open-source are
Apache (Most Web sites are displayed using Apache), MySQL database, Firefox Web browser, etc. Over the
course of many years open-source has managed to rise from an unknown entity to one that has gained
approval from governments around the world. Unlike other similar software (Matlab or SAS), in R one can
improve the software’s code or write variations for specific tasks. SAS and Matlab are having tough time
maintaining their business growth, specifically in academia, because of these unique features of R.

About 2000 packages for R reside on CRAN (http://cran.r-project.org/) apart from the many more available on
other websites. These packages are growing exponentially over the past couple of years. One package
called Quantmod is designed to assist the quantitative trader in the development, testing, and deployment of
statistically based trading models. Another such example would be Rmetrics, which covers data analysis and
statistical modeling for computational finances community. R has packages even for trading workstations
(Rbloomberg, IBrockers).

R was first written by Ross Ihaka and Robert Gentleman in 1996 for their statistics students because at that
time, persons with no computer background found it difficult to use other comparable softwares.

Many argue that users should shift from “spreadsheet addictions” to R. There are many reasons: R offers
transparency, quality (most packages are written by top class academicians) and, of course, new ideas that
are floating around R-mailing-lists.

It is common misconception that it is difficult to handle large datasets (high-frequency-data) using R. It is true
that while using R, particular care must be taken when considering loops. R also provides a interface to run
C/C++, FORTRAN and Perl. If one can blend these programming with R, there is no limitation in R. There are
also several S language programs written and available on the net, which can also be used in R.

NISM uses R for teaching and high-frequency-data analysis.

Suneel Sarswat
Academic Associate
NISM
M.Sc (Statistics and Informatics, IIT Bombay)
Volume 1, Issue 4 National Institute of Securities Markets
Page 6

A Note on Oil Stabilization Funds

Volatility in the price of oil has often been the source of upheavals in the stock markets across the globe. For
oil exporting countries this volatility poses challenge of a different kind. Particularly, such countries are faced
with two important policy issues. First, the policy makers need to account for the sudden fluctuations in the
price of oil and adjust the government expenditure accordingly. Second, oil being a natural resource, policy
makers need to determine the allocation of oil income across generations (Fasano, 2000). The problem is
accentuated owing to the fact that oil is an exhaustible resource. One of the ways in which oil exporting
countries have attempted to tackle this issue is through establishment of either stabilization funds or saving
funds. The objective of stabilization funds is “to minimize the transmission of oil price volatility to fiscal policy
by smoothing budgetary revenue”. The issue related to intergenerational allocation of oil revenue is handled
by saving funds. In this article we would be focusing specifically on oil stabilization funds.

Most oil exporting countries, namely, Norway, State of Alaska, Ecuador, Venezuela, Kuwait and Oman, have
an oil stabilization fund in place. In recent years, Russia and Iran have also created a similar fund for fiscal
management. The economic principle underlying the creation and use of the oil fund is that the budget will be
balanced over the oil price cycle, instead of business cycle. Taxes and expenditures of the government are
set to balance at the 'average' oil price over a period of years, often a moving average of prices. Depending
on whether the price of oil is above or below the average, the oil fund will accumulate surplus or incur deficit.
The surplus is used in paying off debt and the deficits are financed by acquiring debt, rendering the debt-GDP
ratio constant over the cycle.

It can be argued that if this principle is implemented then oil funds across countries should be successful and
lead to fiscal sustainability. In this context, Fasano, after reviewing the performance of oil funds in Alaska,
Norway, Kuwait, Oman, Venezuela, has found mixed evidence so far as performance of the respective oil
funds are concerned. In particular he finds that the stabilization funds have succeeded in enhancing the
effectiveness of the fiscal policy to a considerable extent in all the countries reviewed, except for Venezuela
and Oman. In Norway, when there is an upswing in oil prices, the government adopts a tightening fiscal
stance thereby sterilizing the impact of high oil revenue on domestic demand and containing inflationary
pressures and the possibility of exchange rate appreciation. On the other hand, in case of decline in oil
prices, the previously accumulated funds are drawn upon to restrict adverse impact of the reduced oil prices
on investment and growth.

In case of Venezuela and Oman, on the other hand, the failure of the stabilization funds has been attributed
to “frequent changes in the fund’s rules and the deviation from its intended purpose”. Cueva (2008) also
shows that one weakness of the oil fund based fiscal policy in Ecuador has been the frequent changes in the
rules and regulations pertaining to the use of oil fund by the government fuelled by the desire to gain more
discretion in the use of funds thereby leading to a dilution of the main purpose for which the fund has been
created.

This issue has been well articulated by Robert Skidelsky in his blog, where he says that “the key to the
success is to realize that an oil fund is a limited instrument for a specific purpose”- the purpose being macro-
stabilization. However, often the funds are used for political gains, thereby leading to diversion of funds from
its intended use. The second problem is that the fund might be viewed be seen as a means to combat the so-
called ‘Dutch disease’ whereby earnings from oil exports increase the value of the currency resulting in the
reduction of the competitiveness of other domestic products. This phenomenon of the Dutch disease can be
counteracted if the surplus oil fund is invested in foreign securities to prevent the exchange rate from rising.
This may appear to be a more subtle problem nevertheless it leads to a diversification of the fund.

Dutch disease, as Robert Skidelsky suggests, could be countered by paying off foreign debt instead.
However, a more serious concern is posed by the first problem mentioned above. One way to resolve this
Newsletter National Institute of Securities Markets
Page 7

problem is to maintain the fund with an independent central bank. An alternative is to specify the situations
under which funds can be drawn and such withdrawals be passed by the parliament as is done in Norway. In
this context, Chile for its copper fund has constituted a structural fiscal target, corrected by the impact of
economic cycle as a medium term objective. Cueva (2008), on the other hand, proposes stringent
accountability norms as a measure to counter misuse of oil funds.

The broad objective of the policy measures as discussed above is to ensure a sound fiscal policy for nations
dependent on oil revenues by limiting the expenditure during the normal times and using this fund as a
cushion for meeting debt when times are bad. As Davies et. al. (2001) have argued, the existing oil
stabilization funds have rarely been able to address the issue of volatility of oil prices and especially that of
savings for future uses to the expected standard and hence there seems to exist a strong case for the
respective governments to take a relook at the existing policies pertaining to oil funds and their dynamics with
fiscal policy.

Poonam Mehra

Assistant Professor (NISM)

Phd from IGIDR on "Mergers and Acquisitions: Firm Size, Market Structure and Regulation"

Reference:
Cueva, S. (2008) “Ecuador: Fiscal Stabilization Funds and Prospects” Country Department Andean
Group Working Paper 059 Inter-American Development Bank

Davis, J.,R. Ossowski, J.Daniel, and S. Barnett.(2001).“Stabilization and Savings Funds for
Nonrenewable Resources — Experience and Fiscal Policy Implications.” Occasional Paper,
International Monetary Fund, Washington, D.C.

Fasano, U. (2001) “Review of the Experience with Oil Stabilization and Saving Funds in Selected
Countries”, IMF Working Paper No. WP/00/112

Skidelsky, R. (2003) “Russia’s Oil Stabilization Fund is Good News”, available at http://
www.skidelskyr.com/site/article/russias-oil-stabilization-fund-is-good-news/
Volume 1, Issue 4 National Institute of Securities Markets
Page 8

Team at NISM
Academic Staff
G Sethu
Officer on Special Duty & In Charge of NISM
B.Tech (IIT-Kharagpur),M.Tech (IIT- Madras), FPM (Finance ,IIM-A)
Sunder Ram Korivi
Visiting Professor
M.A (Economics & Political Science), PhD (Mumbai), Fellow (ICAI), Associate (ICWA) Associate ( Insurance Institute of India)
Kiran Kumar
Assistant Professor
PhD (Finance, IISC- Bangalore), M.A. (Economics, Hyderabad Central University).
Poonam Mehra
Assistant Professor
PhD (Economics, IGIDR), M.Sc (Economics, University of Burdwan)
Kavitha Ranganathan
Academic Associate
M.Phil ( Commerce, Madurai Kamaraj University), M.Com (Mumbai University),
Rajnish Kumar
Academic Associate
M.Sc (Economics, IGIDR), B. A (Hons)(Economics, Delhi University)
Shobana Balasubramaniam
Academic Associate
M.Sc (Economics, IGIDR), B. A (Economics- Statistics, Mumbai University)
Suneel Sarswat
Academic Associate
M.Sc (Statistics and Informatics, IIT Bombay)

Managerial Staff
Paritosh Sharma Gargi Datta
Advisor Project Manager
MBA (XLRI- Jamshedpur) M.B.A. Finance (NMIMS) M.Sc. Mathematics (BITS Pilani)
Vikas Chaturvedi Chaitanya Nemalli
OSD, SEBI Project Manager
Chartered Accountant MBA (Finance-NMIMS), B.Tech (Computer Science and I.T.,
JNTU)
Anupam Tandon
General Manager Naresh Sabbani
MBA (Lucknow University) Project Manager
MBA (Finance- JBIMS), B.E (Electronics)
N. Murlikrishnan
Deputy General Manager Nikhil Shinde
Project Manager
Jitender Aggarwal
MBA (Finance- JBIMS), B.E ((I.T.)
Project officer
Masters in Finanacial Management (JBIMS),Post graduate Sushant Gholap
diploma (operations management), Manager
B.Com
Devvya Sharma
Project Manager Monali Maduskar
MBA (Finance-NMIMS), B.E (I.T.) Head Knowledge Management
M.L.I.Sc., B.Sc. (Botany)