SECONDARY MARKET

STOCKS OFF TO SCHOOL WHERE

THEIR FORTUNES WILL BE MADE
3.1 SECONDARY MARKET DESIGN
• It’s the place for sale and
purchase of existing
securities.
• The market essentially
compromises of the stock
exchanges which provide
platform for trading of
securities and a host of
intermediaries who assist
in trading of securities
,clearing and settlement
of trades.
SECONDARY MARKET DESIGN
• The secondary market is the market for trading securities that
have been sold or issued in the primary market and already in
the hands of the public. Once securities have been successfully
issued in the primary market, they are subsequently traded in
the secondary market. This is where stock markets, stock
exchanges or OTC markets by whichever name the market may
be referred to, provide the facilities for secondary trading.
• The stock exchanges in India, under the overall supervision of
the regulatory authority, the Securities and Exchange Board of
India (SEBI), provide a trading platform, where buyers and sellers
can meet to transact in securities. The trading platform provided
by NSE is an electronic one and there is no need for buyers and
sellers to meet at a physical location to trade. They can trade
through the computerized trading screens available with the
NSE trading members or the internet based trading facility
provided by the trading members of NSE. 
• Buying client or selling client approaches stockbroker, opens an A/c and pays for an order;
either provide funds or give securities to broker and broker acknowledges
• If buying broker has securities or sell order for securities sought or, required at ordered
price, broker sells directly to the client
• If buying broker has no selling orders for securities and or price given by sellers, the
broker contacts the other brokers seeking securities required.
• Buying stockbroker and selling stockbroker attends trading sessions at the trading floor.
All stockbrokers attend the session and all report:
– traded securities – prices, volumes and securities
– Buying orders outstanding positions –price, volumes and securities
– Selling orders outstanding positions –price, volumes and securities
• CMAC compiles market report and distribute to the market and Public through the media.
• On settlement day, CMAC clears the trades for settlement of securities against funds
between stockbrokers.
• CMAC sends matched transfers to the Registrar for registration and change of ownership.
• Selling stockbroker pays the selling client
• Registrar transfers ownership from the seller to the buyer.
•   The buying stockbroker delivers the new bond or share certificate to the  Buying client.
SECONDARY MARKET DESIGN
• At the beginning of every trading session, all members shall
be required to report and display their existing and
outstanding buying and selling positions for all the securities
that they have orders for. This will be equivalent to
presenting their order books. Trading is conducted by the
members’ representative calling out their highest bids
(buying positions) and their lowest offers (selling positions).
• In addition, the members/traders must also call out all
transactions that they had executed in their offices
immediately after the last trading session and immediately
before the opening of the current session. Transactions on
the trading boards will be concluded when the first two
counterparty bid price and the offer price are the same
price.
• Settlement
Settlement is the delivery of funds or payment for securities
bought and delivery of the securities sold.
 3.1.1 SECONDARY MARKET
DESIGN
•
Stock exchange
Stock exchanges are exclusive centers for trading
of securities. The regulatory framework favors
them heavily by almost banning trading of
securities outside exchanges.
• Listing of companies on the local exchanges is
mandatory to provide an opportunity to
investors to invest in the securities of local
companies.
• We have 24 exchanges in India and still adding.
• NSE and BSE are the major exchanges having
nation wide operations.
 A SCENE….
• Most of the Stock Exchanges around the world were set up as association
of the Trading members. The objective to set up association was aimed to
create a formal institution for mutually regulating the securities
transactions among the members. Thus, most of the Stock Exchanges
were promoted as non-profit organizations.
• While, the management of the Stock Exchange was generally vested with
elected representative(s) of the trading members, executives carried out
the day-to-day functioning of the stock exchange.
• However, during last two decades attempts have been made to change
the profile of the Stock Exchange by demutualising them and
reconstituting them as commercial corporate entities.
•  Demutualization of a Stock Exchange entails that it is no longer remains
entity for mutual benefit of Trading members but beholds the larger
objective of becoming the system with adequate checks for proper
mobilization of capital & protecting the interest of investors at large.
 3.1.1 SECONDARY MARKET
DESIGN
Corporatization and demutualization of stock exchange
• Demutualisation refers to the legal structure
of an exchange whereby the ownership, the
management and the trading rights at the
exchange are segregated from one another. 
• Demutualisation refers to the transition
process of an exchange from a "mutually-
owned" association to a company "owned by
shareholders". In other words, transforming
the legal structure of an exchange from a
mutual form to a business corporation form
is referred to as demutualisation.
 3.1.1 SECONDARY MARKET
DESIGN
Corporatization and demutualization of stock exchange
Currently are there any demutualised stock exchanges
in India?
Yes currently there are two stock exchanges in
IndiaThe National Stock Exchange (NSE)
Over the Counter Exchange of India (OTCEI)
What is meant by corporatisation of stock exchanges?
Corporatisation of Stock Exchanges is the process of
converting the organizational structure of the stock
exchange from a non-corporate structure to a
corporate structure. Traditionally, some of the stock
exchanges in India were established as "Association
of persons", like BSE, ASE and MPSE. Corporatisation
of these exchanges is the process of converting them
into incorporated Companies.
 3.1.1 SECONDARY MARKET
DESIGN
Corporatization and demutualization of stock exchange
What steps have been taken by SEBI to give a head start
to the process of demutualisation in India?
SEBI had formed a Group on Corporatisation and
Demutualisation of Stock Exchanges under the
Chairmanship of Justice M H Kania, former Chief
Justice of India, for advising SEBI on corporatisation
and demutualisation of exchanges and to recommend
the steps that need to be taken to implement the
same. The Group submitted its Report to SEBI on
August 28, 2002. SEBI has taken up with Central
Government to amend the SC( R) A to effect
Corporatisation and Demutualization .
 3.1.1 SECONDARY MARKET
DESIGN
Stock Exchanges Subsidiary
SEBI required with effect from February 28,2003 that the small stock exchanges
are permitted to promote/ float/ a subsidiary/ company on their own following
the guidelines below.
1. Company should have a CEO not holding concurrent position elsewhere.
2. Their appointment and termination should be subject to approval from SEBI.
3. The governing board of subsidiary should have following composition CEO OF
SUBSIDIARY should be DIRECTOR OF BOARD OF SUBSIDIARY or Should not be a
broker of the parent exchange.
4. 50 percent of directors representing on the governing board of subsidiary
company should not be sub brokers of subsidary company or brokers of the
promoter company or holding exchange and these directors are called as PUBLIC
REPRESENTATIVES. These representatives are there for 1 year or till annual
general meeting which ever is first.
5. The subsidiary company to have its own staff not concurrently working
elsewhere.
6. The parent exchange should be responsible for all risk management of the
subsidiary company and should have appropriate mechanism in place for
supervision.
3.1.2 SECONDARY MARKET
DESIGN
Membership In NSE
NSE offers multi-asset class products
and services and operates trading
platforms and the Clearing and
Settlement platform is operated by
NSCCL, a wholly owned subsidiary of
NSE. Participation on the Exchange in
each of the products is through the
Member of the Exchange who is
registered for the product. 
3.1.2 SECONDARY MARKET
DESIGN
Membership In NSE
Eligibility Criteria

The following are eligible to apply for membership subject to the regulatory
norms and provisions of SEBI and as provided in the Rules, Regulations,
Byelaws and Circulars of the Exchange -
 
1. Individuals;
2.
 Partnership Firms registered under the Indian Partnership Act, 1932;
3.
 Corporations, Companies or Institutions or subsidiaries of such Corporations,
Companies or Institutions set up for providing financial services;
4.
 Banks for Currency Derivative Segments
 
5. Such other person as may be permitted under the Securities Contracts
(Regulation) Rules 1957.
  

Individuals (Sole Proprietor)

CRITERIA

Age Minimum age : 21 years

Status Indian Citizen
At least HSC or equivalent
Education
qualification
Applicant should have an
experience for not less than two
years as a partner with, or an
Experience
authorized assistant or authorized
clerk or remisier or apprentice to,
a member.
 Partnership Firms
CRITERIA
Age Minimum age of partner(s) : 21 years
Status Registered Partnership firm under Indian Partnership Act,
1932
Education Partners should be at least HSC or equivalent qualification
Designated Identify at least two partners as designated partners who
Partners would be taking care of the day to day management of the
partnership firm
Designated Should have a minimum of 2 years experience in an activity
Partners related to dealing in securities or as portfolio manager or as
Experience investment consultant or as a merchant banker or in financial
services or treasury, broker, sub broker, authorised agent or
authorised clerk or authorised representative or remisier or
apprentice to a member of a recognised stock exchange,
dealer, jobber, market maker, or in any other manner in
dealing in securities or clearing and settlement thereof.
Dominant Identify partner’s sharing interest as per Exchange DPG norms
Promoter  
Norms
Corporations, Companies or
Institutions
CRITERIA
Age Minimum age of director(s) : 21 years
Status Corporate registered under The Companies Act, 1956 (Indian)
Minimum Rs.30 lakhs
Paid up
Equity Capital
Designated Identification of at least two directors as designated directors
Directors who would be managing the day to day trading operations
Education Each of the Designated Directors should be at least HSC or
equivalent qualification
Designated Should have a minimum of 2 years experience in an activity
Directors related to dealing in securities or as portfolio manager or as
Experience investment consultant or as a merchant banker or in financial
services or treasury, broker, sub broker, authorised agent or
authorised clerk or authorised representative or remisier or
apprentice to a member of a recognised stock exchange,
dealer, jobber, market maker, or in any other manner in
dealing in securities or clearing and settlement thereof.
Dominant Identify dominant group as per Exchange DPG norms
Promoter
Norms
 3.1.2 SECONDARY MARKET
DESIGN
Eligibility Criteria for NSE Membership
 3.1.3 Eligibility Criteria for
Listing
The amount of
NSE - Equities - Listing Eligibility - IPOs by
money that Companies
has been
received by
1. Paid up Capital-
The paid up equity capital of the applicant shall not be less than Rs. 10 crores
shareholders * and the capitalisation of the applicant’s equity shall not be less than Rs. 25
who have crores** 
completely Explanation 1
paid for their
For this purpose, the post issue paid up equity capital for which listing is
purchased sought shall be taken into account.
shares. This
would not ** Explanation 2
include any For this purpose, capitalisation will be the product of the issue price and the
shares that post issue number of equity shares. In respect of the requirement of paid-up
have been bid capital and market capitalisation, the issuers shall be required to include, in
the disclaimer clause of the Exchange required to put in the offer document,
on, but not yet that in the event of the market capitalisation (Product of issue price and the
purchased. post issue number of shares) requirement of the Exchange not being met, the
securities would not be listed on the Exchange.
 3.1.3 Eligibility Criteria for
Listing
2. Conditions Precedent to Listing:
3. Atleast three years track record
• For this purpose, the applicant or the promoting
company shall submit annual reports of three preceding
financial years to NSE and also provide a certificate to the
Exchange in respect of the following: 
• The company has not been referred to the Board for
Industrial and Financial Reconstruction (BIFR).
• The networth of the company has not been wiped out
by the accumulated losses resulting in a negative
networth
• The company has not received any winding up petition
admitted by a court.
 3.1.3 Eligibility Criteria for
Listing
4. The applicant desirous of listing its securities
should satisfy the exchange on the following:
a) No disciplinary action by other stock
exchanges and regulatory authorities in past
three years .
b) Redressal Mechanism of Investor grievance
c) Distribution of shareholding
d) Details of Litigation
e) Track Record of Director(s) of the Company
 EDIFAR
In association with NATIONAL
INFORMATICS CENRE(NIC), SEBI set
up an Electronic Data information •P/L
STATEMENT
filing and retrieval (EDIFAR) system •BALANCE
to facilitate an electronic filing of SHEETS
•CORPORATE
certain time sensitive corporate GOVERANCE
REPORTS
information by listed company thus •SHARE
accelerating the process for the HOLDING
PATTERN
benefit of various classes of market •ANY REPORT
AGAINST
participants. COMPANY.

http//sebiedifar.nic.in
3.1.4 DELISTING OF SECURITIES
SEBI (DELISTING OF EQUITY SHARES) REGULATIONS, 2009
These Regulations provide three
different set of provisions for
delisting of equity shares
under different circumstances.
1. The main delisting provision
pertains to the voluntary
delisting sought by the
promoters of a company.
2. The second delisting provision
relates to those circumstances
where a stock exchange is as
per its guidelines forces a
company to delist its equity
shares.
3. The third provision pertains to
delisting of small companies.
SALIENT FEATURES FOR
VOLUNTARY DELISTING
1. Approval of shareholders of the
company is a mandate by a special
resolution passed at its general meeting,
making a public announcement.
2. Deciding the exit price as determined
through book building process.
3.Stock exchange should provide
necessary infrastructure facility to display
the price at the trading terminal to enable
investor access the price on the screen
to avoid manipulation.
4. A company must buyback the shares
so as to either increase its shareholding
to 90% or the level of promoter
shareholding post offer is the aggregate
percentage of pre-offer promoters
holding 
The stock exchange may delist companies for 6
months for non compliance of listing agreement .
BENEFITS OF LISTING ON NSE

• A premier market place

• Visibility
• Largest exchange
• Unprecedented reach
• Modern infrastructure
• Transaction speed
• Short settlement cycle
• Broadcast facility for corporate announcements
• Short settlement cycle
• Trade statistics
• Investor service centers
• Nominal listing fees.
 CM SEGMENT?
National Stock Exchange of India Limited (NSE) was incorporated
in 1992 and was given recognition as a stock exchange in
April 1993. It started operations in June 1994, with trading on
the Wholesale Debt Market Segment. Subsequently it
launched the Capital Market Segment in November 1994 as a
trading platform for equities and the Futures and Options
Segment in June 2000 for various derivative instruments.
Market Segments
The Exchange operates three market segments, namely
Capital Market Segment (started in November 1994),
Wholesale Debt Market Segment (started in June 1994) and
Futures an Options segment (started in June 2000). 
 Capital Market 
NSE commenced trading on the CM segment on November 3,
1994 and within a year it established itself as the largest
stock exchange in India in terms of trading volumes. The CM
segment provides a trading platform for equities, preference
shares, ETFs, and retail Government securities etc. NSE today
accounts for nearly 68% of the total trading value of all stock
exchanges in the India. The trading value of the CM segment
has increased rapidly from Rs. 1,805 crore during the first
year of its operation to Rs. 1,140,072 crore during 2004-05.
The average daily trading value have also increased by leaps
and bounds from Rs. 17 crore in 1994-95 to Rs. 4,506 crore
during 2004-05. The total market capitalization of securities
available for trading on the CM segment as on March 2005
was Rs. 1,585,585 crore. 
Listing Fees in the CM Segment

Sr.no Listing Fees Amount

- Rs
1 Initial Listing Fees 25000
2 Annual Listing Fees (based on paid up share,
bond and/ or
debenture and/or debt capital, etc.)
Upto Rs. 1 Crore 10000
Above Rs. 10 Crore and upto Rs.20 Crores 45000
Above Rs. 450 Crore and upto Rs.500 Crores 375000
Criteria Initial Public Offerings (IPOs)
Paid-up Equity PUEC ≥ Rs. 10 cr. and
Capital (PUEC)/ MC ≥ Rs. 25 cr.
Market
Capitalisation
(MC) /Net Worth
Company/ Atleast 3 years track record of either
Promoter’s Track a) the applicant seeking listing OR
Record b) the promoters/promoting
company incorporated in or
outside India OR
c) Partnership firm and subsequently
converted into Company not
in existence as a Company for
three years) and approaches
the Exchange for listing. The
Company subsequently formed
would be considered for listing
only on fulfillment of conditions
stipulated by SEBI in this regard.
Dividend Record /
Net worth /
Distributable Profits
Listing
Other Requirements No disciplinary action by other
stock exchanges/regulatory
authority in past 3 yrs.
(b) Satisfactory redressal mechanism
for investor grievances,
(c) distribution of shareholding
(d) details of litigation record in past
Companies listed on other exchanges
PUEC ≥ Rs. 10 cr. and
MC ≥ Rs. 25 cr. OR
PUEC ≥ Rs. 25 cr. OR
MC ≥ Rs. 50 cr. OR
The company shall have a net worth of
not less than Rs.50 crores in each of the
preceding financial years.
Atleast three years track record of
either
a) the applicant seeking listing; OR
b) the promoters/promoting company,
incorporated in or outside India.
Dividend paid in at least 2 out of the
last 3 financial years immediately
preceding the year in which the
application has been made OR The
networth of the applicants atleast
Rs.50 crores OR The applicant has
distributable profits in at least two out
of the last three financial years.
Listed on any other stock exchange for
at least last three years OR listed on the
exchange having nationwide trading
terminals for at least one year.
(a)No disciplinary action by other
stock exchanges/regulatory authority in past 3 yrs.
(b) Satisfactory redressal mechanism for
investor grievances,
(c ) distribution of shareholding and
(d) details of litigation record in past 3 years.
(e) Track record of Directors of the Company
3.1.6 Dematerialization
Basis Of
S.
Differentiati Bank Account Demat Account
No.
In finance and fin on

ancial law,  Form of

1. Holdings/De Funds Securities
dematerialization posits
 refers to the 2. Used for Safekeeping of money Safekeeping of shares
substitution Transfer of money Transfer of shares
of paper- 3. Facilitates (without actually (without actually
handling money) handling shares)
form
Where to A DP of choice (can be
securities by 4. A bank of choice
open a bank)
book-entry  Requiremen
Mandatory (effective
5. t of PAN Not Mandatory
securities. Number
from April 01, 2006)

Interest income is
Interest No interest accruals on
subject to the
6. accrual on securities held in demat
applicable rate of
holdings account
interest
Minimum AQB* maintainance is
7. balance specified for certain No such requirement
requirement bank accounts

Either or
8. Survivor Available Not available
facility
3.2Understanding Neat System

Out cry system

NSE introduced a nation-wide on-line fully-

automated
SCREEN BASED TRADING SYSTEM (SBTS)
where a member can punch into
the computer quantities of securities and
the prices at which he likes to
transact and the transaction is executed as
soon as it finds a matching sale or
buy order from a counter party.
3.2.1Trading Network of NSE

satellite

Brokers
premises

NSE Mainframe
NSE has main computer which is connected through Very Small Aperture
Terminal (VSAT) installed at its office. The main computer runs on a fault
tolerant mainframe computer at the Exchange. 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
computer at NSE via VSAT at NSE's office. A message relating to the order
activity is broadcast to the respective member. 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.
The trading system operates on a strict price time priority. 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 oSimilar priced orders are
sorted on time priority basis, i.e. the one that came in earlier gets
priority over the later order. Orders are matched automatically by the computer
keeping the system, transparent and fair. Where an order does not find a
match, it remains in the system for the day till a fresh order comes in or the
earlier order is cancelled or modified.
 Market Types in NEAT System
The NEAT system has four types of market. They are:
1. Normal Market
All orders which are of regular lot size or multiples thereof are traded in the
Normal Market. For shares that are traded in the compulsory dematerialised
mode the market lot of these shares is one. Normal market consists of various
book types wherein orders are segregated as Regular lot orders, Special Term
orders, Negotiated Trade Orders and Stop Loss orders depending on their order
attributes.
2. Odd Lot Market
All orders whose order size is less than the regular lot size are traded in the
odd-lot market. An order is called an odd lot order if the order size is less than
regular lot size. These orders do not have any special terms attributes attached
to them. In an odd-lot market, both the price and quantity of both the orders
(buy and sell) should exactly match for the trade to take place. Currently the
odd lot market facility is used for the Limited Physical Market as per the SEBI
directives.
3. Auction Market
In the Auction Market, auctions are initiated by the Exchange on behalf of
trading members for settlement related reasons. There are 3 participants in
this market.
(i) Initiator - the party who initiates the auction process is called an
initiator
(ii) Competitor - the party who enters orders on the same side as of the
initiator
(iii) Solicitor - the party who enters orders on the opposite side as of the
initiator
4. RETDEBT Market
The RETDEBT market facility on the NEAT system of capital market segment is
used for transactions in Retail Debt Market session. Trading in Retail Detail
Market takes place in the same manner as in equities (capital market) segment.
 Corporate hierarchy

Corporate Manager: - The corporate manager is a term assigned to a user

placed at the highest level in a trading firm. Such a user receives at the End of
the Day Reports for all branches of the trading member. The facility to set
Branch Order Value Limits and User Order Value Limits is available to the
corporate manager.
Branch Manager: - The branch manager is a term assigned to a user who is
placed under the corporate manager. The branch manager receives at End of
the Day reports for all the dealers under that branch. The branch manager can
set user order value limit for each of his branch.
Dealer: - Dealers are users at the lower most level of the hierarchy. A dealer
can view and perform order and trade related activities only for himself and
does not have access to information about other dealers under the same
branch or other branches.
 Market Phases
The system is normally made available for trading
on all days except Saturdays, Sundays and NSE
specified holidays.
A typical trading days has 3 phases
1. Open phase:-
2. Market Phase
3. Surcon ( Surveillance and control) is the period
after market close during which, the users have
inquiry access only.
 NEAT
Screen
 TOOL
BAR

MESSAGE WINDOW

Title bar- TICKER

NEAT ORDER WINDOW

-TRADE
WINDOW
MARKET
WATCH

INQUIRY
WINDOW
 BASKET TRADING
What Does Basket Trade Mean?
A single order to buy or sell a set of 15 or more securities. Basket trading is performed
by sophisticated traders, usually institutional traders, who trade in large quantities.
Basket trading lets you create a list of up to 50 stocks, called a basket, that you can
save, trade, manage and track as one entity. Use the baskets you create to invest in
and track stocks grouped by investment style, market sector, life event, or any
classification you choose.
• When can I place a basket trading order?
Basket trading orders are eligible for execution only during standard market hours (9:30
a.m. - 4:00 p.m. ET). However, you can create and save baskets during non-market
hours. 
• How do I cancel a basket?
All orders in a basket are market orders. You can attempt to cancel an individual order
from the Order Details page if an order has not executed, and re-enter a new order in
basket trading. However, use caution when entering the new order, as most market
orders receive an execution. Cancel and Replace functionality is not available on
basket trades.