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Subject COMMERCE

Paper No and Title 14: SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

Module No and Title 12: TRADING MECHANISM IN SECURITIES MARKET

Module Tag COM_P14_M12

COMMERCE PAPER No.14 : SECURITY ANALYSIS AND PORTFOLIO

MANAGEMENT
MODULE No.12 : TRADING MECHANISM IN SECURITIES
MARKET
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TABLE OF CONTENTS
1. LEARNING OUTCOMES
2. INTRODUCTION
3. STOCK EXCHANGES IN INDIA
4. TRADING MECHANISM
5. OPENING A DEMAT ACCOUNT
6. PURCHASING OF DEMATERIALISED SHARES
7. SELLING OF SHARES
8. SETTLEMENT CYCLE AND TRADING HOURS
9. SUMMARY

COMMERCE PAPER No.14 : SECURITY ANALYSIS AND PORTFOLIO

MANAGEMENT
MODULE No.12 : TRADING MECHANISM IN SECURITIES
MARKET
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1. LEARNING OUTCOMES

After studying this module, you shall be able to:

 Know the secondary market and its role.

 Know about various stock exchanges in India.
 Understand the mode of buying and selling of shares.
 Know the trading system on stock exchanges.

COMMERCE PAPER No.14 : SECURITY ANALYSIS AND PORTFOLIO

MANAGEMENT
MODULE No.12 : TRADING MECHANISM IN SECURITIES
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2. INTRODUCTION

Secondary Market refers to a market where those securities are traded which are already been offered to
the public by an Initial Public Office (IPO) in primary market. These securities to be traded on Stock
Exchange must be listed there. Majority of the trading is done in the secondary market. Secondary
market comprises of equity markets and the debt markets. For the general investor, the secondary
market provides an efficient platform for trading of his securities. It provides an opportunity to investors
to liquidate the securities as and when need. For the management of the company, Secondary equity
markets serve as a monitoring and control conduit—by facilitating value-enhancing control activities,
enabling implementation of incentive-based management contracts, and aggregating information that
guides management decisions.

3. STOCK EXCHANGES IN INDIA

The majority of trading in the Indian stock market takes place at two of its most famous stock exchanges
i.e. the BSE (Bombay stock exchange) and NSE (National stock exchange).However there are many
more stock exchanges in India such as Calcutta stock exchange, Delhi stock exchange, Ahmedabad
stock exchange Ltd etc.

COMMERCE PAPER No.14 : SECURITY ANALYSIS AND PORTFOLIO

MANAGEMENT
MODULE No.12 : TRADING MECHANISM IN SECURITIES
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Here is the list of stock exchanges. Some of them have expired and licences are required to be renewed:

Sr. Name of the Exchange Valid Upto

No.
1 Ahmedabad Stock Exchange Ltd. PERMANENT

Address: Kamdhenu Complex Opp, Sahajanand College, Panjarapole,

Ambawadi, Ahmedabad - 380001
2 BSE Ltd. PERMANENT

Address: P J Tower, Dalal Street, Mumbai 400023

3 Bhubaneswar Stock Exchange Ltd 04-JUN-2014

Address: Stock Exchange Bhavan, P- 2, Jayadev Vihar, P. O. -

Chandrasekharpur, Bhubaneswar - 751023
4 Calcutta Stock Exchange Ltd. PERMANENT

Address: 7, Lyons Range, Kolkata - 700001

5 Delhi Stock Exchange Ltd.,The PERMANENT

Address: DSE House, 3/1, Asaf Ali Road, New Delhi - 110002
6 Gauhati Stock Exchange Ltd.,The 30-APR-2013

Address: Saraf Building Annexe, A T Road, Gauhati - 781001

7 Jaipur Stock Exchange Ltd 08-JAN-2015
8 MCX - Stock Exchange Limited 15-SEP-2015

4th Floor, Vibgyor Tower, Plot No C 62, G Block, Bandra Kurla

COMMERCE PAPER No.14 : SECURITY ANALYSIS AND PORTFOLIO

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Complex (BKC), Bandra (E), Mumbai – 400051

9 Madhya Pradesh Stock Exchange Ltd PERMANENT

Address: Palika Plaza, Phase II, 201, 2nd Floor, MTH Compound,
Indore - 452001
10 Madras Stock Exchange Ltd. PERMANENT

Address: P O Box no 183, New No: 30 (old No: 11) Second Line
Beach, Chennai - 600001
11 Magadh Stock Exchange Ltd.

"SEBI vide order dated September 3, 2007 refused to renew the

recognition granted to Magadh Stock Exchange Ltd."
12 National Stock Exchange of India Ltd. PERMANENT

Address: Bandra Kurla Complex, Bandra (East) Mumbai 400051

13 OTC Exchange of India 22-AUG-2014

Address: 92, Maker Towers 'F', Cuffe Parade, Mumbai – 400005

14 Pune Stock Exchange Ltd 01-SEP-2014

Address: Shivleela Chambers, 752, Sadashiv Peth, RB Kumthekar

Marg Pune - 411030
15 The Vadodara Stock Exchange Ltd. 03-JAN-2015

Address: Fortune Tower, Sayajigunj, Vadodara - 390005

16 U.P. Stock Exchange Limited 02-JUN-2014

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MODULE No.12 : TRADING MECHANISM IN SECURITIES
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Address: Padam Towers, 14/113, Civil Lines, Kanpur - 208001

17 United Stock Exchange of India Limited 21-MAR-2015

Office no 3 to 6, 7th Floor, Arcadia Building, 195,N.C.P.A Marg,

Nariman Point, Mumbai-400021
Note: The Hyderabad Securities and Enterprises Ltd (erstwhile Hyderabad Stock Exchange),
Coimbatore Stock Exchange Ltd, Saurashtra Kutch Stock Exchange Ltd ,Mangalore Stock Exchange,
Inter-Connected Stock Exchange of India Ltd, Cochin Stock Exchange Ltd, Bangalore Stock
Exchange Ltd and Ludhiana Stock exchange Ltd have been granted exit by SEBI vide order dated
January 25, 2013, April 3, 2013, April 5, 2013, March 3,2014 December 08,2014 December 23,201
December 26,2014 and December 30,2014 respectively.

4. TRADING MECHANISM

In very simple words one can understand stock exchange as an intermediary or a point where buyers of
stocks and sellers of stocks come to meet each other. And if both of them match a deal with each other
they enter into a transaction.

Earlier, stockbrokers used to come together around Banyan trees to conduct trades of stocks. They used
to outcry for entering into transactions. As the number of brokers increased there started problems of
space scarcity and thus they used to shift from one place to another. Finally in 1854, they relocated to
Dalal Street, the place where the oldest stock exchange in Asia – the Bombay Stock Exchange (BSE) –
is now located. It is also India’s first stock exchange and has since then played an important role in the
Indian stock markets. The Bombay Stock Exchange Limited, or BSE has a nation-wide reach with a
presence in 417 cities and towns of India. Its index, or market indicator is known as the Sensex. Even
today, the BSE Sensex remains one of the parameters against which the robustness of the Indian
economy and finance is measured. In 1993, the National Stock Exchange or NSE was formed. Nifty, is
COMMERCE PAPER No.14 : SECURITY ANALYSIS AND PORTFOLIO
MANAGEMENT
MODULE No.12 : TRADING MECHANISM IN SECURITIES
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the leading index for large companies on the National

Stock Exchange of India. It consists of 50 companies representing 24 sectors of the economy

However with advent of internet technology most of the transactions nowadays are carried out with the
help of online facility. Trading at both the exchanges takes place through Open electronic limit order
book. With this the order matching is done by the computer. There are no market makers or specialist. It
means everything is based on matching of demand and supply i.e. market orders placed by investors are
automatically matched with the best limit orders. Thus buyers and sellers never come across each other.

All the orders in a stock exchange for buy or sell are placed through brokers. Brokers are the one who
are a link between stock exchanges and the investors. The brokers act as agents to trade in securities, i.e.
buy and sell securities, on behalf of clients (individual investors, companies etc.) for a commission and
may also act on their own account and risk.

Until the emergence of electronic trading in the form of dematerialized shares in 1993, trading was done
in the age-old style of open outcry system. In this system brokers used to assemble at a place called as
ring and start shouting about the deals. It was used to be a very chaotic atmosphere where everyone used
to shout and enter into deals.

With the introduction of online trading at stock exchanges brokers also preferred to provide online
trading. The on-line trading system of BSE is known as BOLT i.e. BSE's On-line Trading System and of
NSE is known as NEAT i.e. National Exchange for Automated Trading. Both BOLT and NEAT use
satellite communication for trading, using V-SAT. Nowadays brokers provide online trading facility to
their clients or customers. many such brokers like sharekhan, tradeji etc are there. Institutional investors
can also take advantage of the direct market access (DMA) option, in which they use trading terminals
provided by brokers for placing orders directly into the stock market trading system. The trading hours
at stock exchange Following will make more clear about the trading mechanism.

COMMERCE PAPER No.14 : SECURITY ANALYSIS AND PORTFOLIO

MANAGEMENT
MODULE No.12 : TRADING MECHANISM IN SECURITIES
MARKET
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5. OPENING A DEMAT ACCOUNT

The very first requirement for investing in stock market is of Demat Account. All the investors who
want to trade in this market must have a Demat or dematerialized account. Demat account is an account
in which the securities are hold in dematerialized form. Whenever securities are bought then money
value of securities will be taken out by bank from this account and the dematerialized securities will be
added to this account. In short cash goes and securities come. The opposite things happen at the time of
sale. In India, the government has mandated two entities –National Securities Depository, or NSDL, and
Central Depository Services (India), or CDSL – to be the custodian of dematerialized securities. A
depository interfaces with the investors through its agents called depository participants, or DPs. If an
investor wants to avail of services offered by the depository, the investor has to open a Demat account
with a DP.A stock broker can also be a depository participant.
6. PURCHASING OF DEMATERIALISED SHARES

The first requirement for buying securities is to give instruction to a broker. Now days this is done
online. As someone wants to buy a share he is required to make payment to his or her broker. the broker
then makes payment to clearing corporation .On payment by broker shares are received by the broker in
his clearing account or clearing member account.

Then the broker will give instruction to his depository participant to debit its clearing member account
and credit his client account (i.e. the account of person who wanted to buy the shares.).That very person
is required to give instruction to its depository participant. This instruction can be given at the time of
opening an account or at the time of every purchase for receiving Demat securities. Thus it is very
important that the broker transfers securities from his clearing member account to the investors
depository account.

COMMERCE PAPER No.14 : SECURITY ANALYSIS AND PORTFOLIO

MANAGEMENT
MODULE No.12 : TRADING MECHANISM IN SECURITIES
MARKET
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If the securities remain in the clearing account of the

broker, the company will give corporate benefits (dividend or bonus) to the broker.

7. SELLING OF SHARES

In case if someone wants to sell his shares he will do it through a broker on a stock exchange and then
he will instruct his or her depository participant to debit his account with the number of securities sold
and credit the broker's clearing account. This instruction is given through delivery instruction slip which
is provided at the time of opening Demat account. The broker gives instruction to its DP for delivery to
clearing corporation. After that broker receives money (payment for shares) from the stock exchange
clearing corporation. And you receive payment from the broker for the sale of securities.

8. SETTLEMENT CYCLE AND TRADING HOURS

At this point one should understand that although everything can be done online now but market follow
a T+2 rolling settlement i.e. trading day plus two days. This means that any trade taking place on
Monday, gets settled by Wednesday. All trading on stock exchanges takes place between 9:55 am and
3:30 pm, Monday through Friday.

9. SUMMARY
Although stock exchange is economic barometer of economy but trading on this platform also involved
so many intermediaries. There are so many brokers, clearing corporations, Depository participants and
investors. Each stock exchange has its own clearing corporation .Each and every member and
participant work with great care and synchronization that everything is done in very less time as
compared to earlier stock market. The introduction of information technology has really made trading
simpler and easier. NSDL and CDSL are playing the very important role of keeping each and every
record in dematerialized form.

COMMERCE PAPER No.14 : SECURITY ANALYSIS AND PORTFOLIO

MANAGEMENT
MODULE No.12 : TRADING MECHANISM IN SECURITIES
MARKET