Summer Internship Report

On

ORGANIZATIONAL STUDY & RESEARCH WORK

ON RESTRUCTURING OF REGIONAL STOCK EXCHANGES

By
SOMYA GARG
A0101908399
MBA Class of 2010

Under the Supervision of

Dr. RAJU G.
Professor
Department of Finance

In Partial Fulfillment of Award of Master of Business Administration

AMITY BUSINESS SCHOOL

AMITY UNIVERSITY UTTAR PRADESH
SECTOR 125, NOIDA - 201303, UTTAR PRADESH, INDIA
2009
1
 AMITY UNIVERSITY
UTTAR PRADESH
AMITY BUSINESS SCHOOL
A SUMMER TRAINING PROJECT REPORT ON

ORGANIZATIONAL STUDY

ON

UTTAR PRADESH STOCK EXCHANGE ASSOCIATION LTD

FACULTY GUIDE INDUSTRY GUIDE

Dr RAJU G Mr. B.K NADHANI

SUBMITTED BY:

SOMYA GARG

MBA CLASS OF 2010

ENROLLMENT NO- A0101908399

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 ACKNOWLEDGEMENT

The satisfaction and euphoria that accompany the successful completion of any task would
be incomplete without mentioning the name of the people whos constant guidance and
encouragement has crowned all our efforts with success.

Firstly I would like to thank Dr RAJU G who suggested me this topic & helped me a lot
in completing this project.

Going through this project was one of wonderful experiences as such it has overall
enhanced my knowledge about the relevant area and its diverse aspects. Also throughout
this project several outstanding individuals were integrally involved and had given their
substantial contribution, for which I am very thankful to them for giving their precious
time in completing this project.

I would like to thank My Industry guide Mr. B.K. Nadhani, Executive Director of U.P.
Stock Exchange & Mr. Rajendra Verma, Head , Research & Development Department,
who helped me in performing this project i.e. ORGANIZATIONAL OF UPSE by
providing me his useful guidance, books and matters related with my Research Study.

I would also like to thank all those people for their immense co-operation and without
help of these people this project never be completed successfully.

Somya Garg

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 CERTIFICATE

This is to certify that SOMYA GARG, a bonafide student of Master of Business

Administration (General), class of 2010, Amity Business School, Amity University,
A0101908399, has undertaken the Summer Internship Training at UTTAR PRADESH
STOCK EXCHANGE ASSOC. LTD during May 11, 2009 to July 6, 2009 under my
close supervision and guidance. She has conducted a survey, undergone proper training and
completed the Research Work on Restructuring of Regional Stock Exchange and
Organizational Study of the company. She has also been guided by Dr. Raju G,
Faculty, Amity Business School, Amity University, Noida, UP.

This project report is prepared in partial fulfillment of Master of Business Administration

(General) to be awarded by Amity University, Uttar Pradesh.

Mr. B. K NADHANI

EXECUTIVE DIRECTOR

UTTAR PRADESH STOCK EXCHANGE ASSOC. LTD

4
 CERTIFICATE

This is to certify that SOMYA GARG, a bonafide student of Master of Business

Administration (General), class of 2010, Amity Business School, Amity University,
A0101908399, has undertaken the Summer Internship Training at UTTAR PRADESH
STOCK EXCHANGE ASSOC. LTD during May 11, 2009 to July 6, 2009 under my
close supervision and guidance. She has conducted a survey, undergone proper training and
completed the Research Work on Restructuring of Regional Stock Exchange and
Organizational Study of the company. She has also been guided by Dr. Raju G,
Faculty, Amity Business School, Amity University, Noida, UP.

This project report is prepared in partial fulfillment of Master of Business Administration

(General) to be awarded by Amity University, Uttar Pradesh.

Dr. RAJU G

PROFFESOR

DEPARTMENT OF FINANCE

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TABLE OF CONTENT

A- ORGANIZATIONAL STUDY
CHAPTER: 1
INTRODUCTION

1.1 STOCK EXCHANGES IN INDIA BACKGROUND. ..7- 12

1.2. SEBI GENISIS.. . 13-16

1.3. CORPORATIZATION & DEMUTUALIZATION 17-18

1.4. NATIONAL STOCK EXCHANGE ( NSE)19-22

1.5. BSE &OTCEI 23-24

CHAPTER: 2
WORKING OF UTTAR PRADESH STOCK EXCHANGE ASSOC. LTD

2.1HEAD OF UPSE DEPARTMENTS...................... ..25

2.2. HISTORY / BACKGROUND OF UPSE. 26-29

2.3. UPSE SECURITIES LTD ( SUBSIDIARY CO.).... 30-35

2.4 LISTING & MEMBERSHIP DEPARTMENT....36-45

2.5 SECRETARIAL DEPARTMENT.....46-48

2.6. FINANCE & ESTABLISHMNET DEPARTMENT....49-50

2.7. MARKET OPERATION (MARGIN DEPARTMERNT)....51-58

2.8. CLEARING & LEGAL DEPARTMENT...59-60

2.9 SURVEILLANCE & RESEARCH DEPARTMENT.61-67

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B- RESEARCH WORK ON

PROPOSED RESTRUCTURING OF REGIONAL STOCK EXCHANGES

CHAPTER: 3
INTRODUCTION

3.1 BRIEF INTRODUCTION......74-77

3.2. PROBLEM STATEMENT.. 78-81

3.3. LITERATURE REVIEW..82-83

3.4. OBJECTIVE & PURPOSE OF STUDY. 84-93

3.5. DATA & METHODOLOGY94-95

DESCRIPTIVE & INFERENTIAL STATISTICS & RESULTS

4.1SUMMARYSTATISTICS....96-107

4.2ANALYSIS.....108-109

4.3. ASSUMPTIONS & ACHIEVEMNETS.......................110-111

4.4 SUGGESTION & SOLUTIONS...... 112-119

4.5 RAY OF HOPE.....120-123

CHAPTER: 5
5.1CONCLUSION .124

5.2 APPENDIX.125-128

5.3REFERENCE129

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CHAPTER 1

1.1 STOCK EXCHANGES OF INDIA- BACKGROUND

The stock exchanges concept is more than a century old for the economy of India. The
Bombay stock exchange was formed in 1875, while Calcutta stock exchange and madras
stock exchange was set up in 1908 and Delhi stock exchange was formed in year 1947.
The multi-tier securities exchange model was adopted in our country in October 1990 with
the establishment of OTCEI. High profile national stock exchange was set up in 1993 to
encourage stock exchange reform through system modernization and competition.

In common parlance, stock exchange means, a place where stocks are traded. The word
stock means bond, equity shares, preference shares, debentures etc. an exchange means
trading, transaction. Stock exchange provides liquidity for stocks and the securities. It is
the market that provides a platform to the owner of the securities to sell their holding at
reasonable prices and also provides an opportunity to the prospective buyers to purchase
the same.

MEANING OF STOCK EXCHANGE

According to securities contract (regulation) act, 1956, A body of individuals whether

incorporated or not constituted for the purpose of assisting or controlling the business of
buying selling or dealing of securities.

FUNCTIONS OF STOCK EXCHANGE

A stock exchange has been variously described such as the barometer of adversity and
prosperity of a nation, the nerve centre and politics of a nation as in most of the world. All
the changing political, economic and industrial conditions of the nation are reflected on the
stock exchange. A stock exchange gives encouragement the promotion of joint stock
enterprises for the large manufacturing industries. It serves as a pivot of money market and
fortress of capital . therefore stock exchange is an important system in the capitalist
economy.

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A stock market is the market which aims at providing at continuous , free and fair market,
where buyers and sellers can come in contact and deal in shares and debentures. It provides
a ready market where share and securities can be exchanged and transferred with the
minimum of time and maximum of profit .

Unhealthy speculation and other undesirable practices are condemned; otherwise stock
exchange will be a disaster.

Some of the economic functions of stock exchanges are as follows:

PROVIDES READY MARKET-

A stock exchange provides a free and fair market in securities. A holder of
securities may at any time get back his money by selling of his holdings in a stock
exchange. It promotes investment by offering a wide choice in securities both on
consideration of yield and safety against depreciation in their values.

FACILITY FOR TRANSFRE OF SECURITIES

Stock exchange provides sufficient marketability of the securities dealth therein and
ensures their price connectivity . in stock exchange , every security constitutes a
separate market for itself. One cannot buy and sell securities unless some facility ,
by which buyers and sellers can meet together and delay in securities is provided
.The stock market provides the facility as it is simply a place of traffic in stocks and
shares.

MOBILITY OF CAPITAL
In addition to provide a market, the stock exchange has largely helped in directing
the accumulated wealth of the country into fruitful channels. The stock exchange is
not like investment trust or any other investment institution. It merely provides an
open market for the sale and purchase of securities. It directs the flow of new
earnings into investment leading to the production of wealth into 2 ways:
- By purchase of securities by the buyers (savers) directly.
- Secondly by placing the saving with financial institutions to reinvest the funds
and securities.
-

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 STABILITY AND LIQUIDITY OF CAPITAL
An investor can withdraw his capital at anytime either for other investment or for
personal need for selling the shares in the stock market. It is interesting to note that
capital can be withdrawn without affecting the industry. Thus, the investment is
made liquid and easily disposable.

INCREASES THE NUMBER OF DEALINGS-

The stock exchange provides the facility for secondary distribution of new
securities, after the original sale of securities. the supply of shares of a particular
industry cannot be increased with every change in prices , though the stock
available in the market at a particular time may vary a little. The stock exchange
creates an interest and willingness in the mind of investors to invest in securities. It
increases the marketability of security since some securities are bought and sold
again and again. Readily salable securities serve good collateral securities for loans.

SAFETY OF DEALINGS-
An organized stock exchange functioning under government regulation provides a
reasonable measure of security and safety of dealings in securities in the investors
through its rules and regulations. The risk of the investor is considerably reduced
when he purchases securities, which are ordinarily dealth in a stock exchange. The
stock exchange before giving permission to deal , require the observance of a rigid
set of rules by the company and call for certain information with a view to
safeguard the interest of investors. The information supplied is examined
impartially and then permission is granted. Thus, it creates confidence in the minds
of investors.

FINANCING INDUSTRY-
The stock exchange encourages investment in an industry more than any other
institution The investment flows in corporate securities so that the nation can
achieve industrial development and economic progress. Moreover, the condition of
the company is visible since the price of securities shows the real worth , which
depends upon the serving capacity and future development of the company. In short
industrial development, savings investment and capital formation are the benefits of
the stock exchange.

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 WIDER SHARE OWNERSHIP ESTABLISHMENT
In addition to the basic function a well organized modern exchange is also expected
to educate the masses in the art of investment in stock exchange and thereby,
promote wider ownership amongst individuals is of particular significance to the
developing countries wherein savings are scattered for further income. Through it
new sources of capital can be tapped.

ECONOMIC BAROMETER-
An ideal stock exchange serves to allocate only just enough funds for any
industries and checks the flow of capital when an industry begins to show
diminishing or uneconomical returns. This is achieved through keeping an eye on
price movements of the securities.
OTHER FUNCTIONS-
Other functions performed by the stock exchange are that the market price
established in trading is useful for tax purpose. The stipulation on disclosure and
transparency ensures availability of information on listed companies, particularly in
regard to financial conditions and protect investor interest by eliminating dishonest
and irregular practices in the brokerage made.

INDIAN CAPITAL AND STOCK MARKETS

INTRODUCTION

Capital market is the market for long term funds, just as money market for short term
funds. It refer to all the facilities and the institutional arrangement for the borrowing and
lending term funds(medium term and long term funds).The demand for long term capital
fund comes. Predominantly from private sector manufacturing ,industrial, agriculture and
from the government (largely for the purposed economic development).The supply of
funds for the capital market comes largely from individuals servers, corporate saving
banks, insurance companies, specialized financing agencies and the government.

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INDIAN CAPITAL MARKET

Indian capital market can be divided in to two market primary market (new issue)and
secondary market.

PRIMARY MARKET

The primary market helps the industry to raise funds by issuing different types of
securities. Issue of securities in the primary market may be made through (i) prospectus

(ii) Offer of sale and (iii) private placement. The securities offered to the public through
prospectus are directly subscribed to by the investor. The issuing company widely publics
the offer through various media. The securities exchange board of India (SEBI) has
classified various issues in to three groups i.e. New issue, Right issue, Preferential issue.

The SEBI has issued various guidelines regarding proper disclosure for investors
protection .These guidelines are required to be duly observed by the companies raising
capital. The boom in the primary market, that started in mid eighties and accelerated there
after, started slowing down by 1995.The low return on new issues and several low quality
issues have led to stock market .Has (0) eroded the confidence of investors.

SECONDARY MARKET

The secondary market is represent by stock exchange which provide on organized market
place for the investors to trade in securities.

It permits the prices of securities to be determined by market forces .The lining process
how for demand and supply underlying each securities .Thus the specific price of securities
in determined, in the manner of an auction. The stock exchange provides a market in which
the members (share brokers) & investors participate to ensure liquidity. The secondary
market of a boost when over the counter exchange of India (OTCEI) and national stock

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exchange(NSE) were established .NSE and OTCEI have been established by All India
Financial Institutions ,while after stock exchanges are in the form of associations.

STOCK MARKET

The stock markets refers to the market of shares and debentures of new companies .The
market is further divided in to the new issue market and the old capital market .The new
issue market called primary market and the second one is secondary market. The new
issue of primary market refers to the raising of new capital in the form of shares and
debentures whereas the old market or secondary market deals with the securities already
issued by the companies. Both markets are equally important.

INDIAN STOCK MARKET

India has one of the oldest stock market in Asia. India also has the second largest holders
next only to USA. The Indian figure look impressive but actually it constitutes only 1.5 per
cent of total population. The country also has about 50 lacks market has appeared as a
result of increasing industrialization are wing awareness among people and labialization of
capital market .

After the industrial revolution, as a size of business enter price grows, it was no longer
possible for proprietors or even partnership to raise classical amount of money required
for undertaking large entrepreneurial ventures. Such large requirement of capital could
only be met by the very large member of individual also; their number running in to
hundred, thousands and even millions depending the size of business ventures.

These ventures could be expected to invest activity in productive enterprise only of

there was some mechanism by which they could sell a part of their state in the business
whenever they wish to generate cash .This need for making investment liquid was
necessary to be broken up in to a large number of small units, so that each unit could be

13
independently bought and sold. This was achieved through shares and debentures (or
bonds) representing small units of ownership and leading respectively ,by the public .

Such breaking up of stake in to smaller denominations also help in enhancing small

savings in the economy in to entrepreneurial ventures.

NEW ISSUE MARKET

INTRODUCTION

New issue market helps the Industry to raise funds by issuing different types of
securities .The securities exchange board of India(SEBI) has classified various issues in to
three groups i.e. New issue, Right issue, Preferential issue. The boom in the issue market,
that started in mid eighties and accelerated there after, started slowing down by 1995.

The low return on new issues and several low quality issues have led to stock market
fiasco, and eroded the confidence of investors.

VARIOUS INSTRUMENTS OF NEW ISSUE MARKET

The following instruments can be made in new issue market:

1. Equity issues through prospectus or rights renounced by existing shareholders.

2. Preference shares with a fixed dividend either convertible in to equity or not.
3. Debentures of various categories-convertible fully convertible, partly convertible
and not convertible debentures.
4. PSU bonds taxable or tax free with fixed interest rates.
Investors should prefer debentures if they are interested in a fixed income .They may go
for convertible debentures ,if they want to have to fixed income and likely capital
appreciation in future .If they are risk taking and aim only at capital gains, then they may
invest in equity shares .Of the new issues those of well established existing companies are
least risky while those of new companies floated by little known new entrepreneurs are

14
most risky .In choosing the new issues for investment decision ,the investor has to ready a
copy of the prospectus and note the following :

1. Who are the promoters and their past record

2. Products manufactured and demand for those products at home or abroad the
competitors and the share of each in the market.

3. Availability of inputs, raw materials and accessories and the dependence on imports.

4. Project location and its advantages.

5. Prospectus through projected earnings, net profits and dividend paying capacity, waiting
period involved etc.

If the new issues belong to a company promoted by well known Business groups like
Reliance, Infosys etc they are less risky .The company should belong to an industry which
is expanding and has good potential like drugs, chemicals, steel etc the terms of offer
should be attractive like conversion or immediate prospects of dividend etc.

1.2 SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

GENESIS:-

The SEBI was established on April 12,1988 through an administrative order ,but
it became a statutory and really powerful organization only since 1992.The CICA was
replaced and the office of the CCI was abolished in 1992,and the SEBI was set up on 21
February 1992 through an ordinance issued on January 30 1992.The ordinance was
replaced by the SEBI Act on April 4,1992.Certain powers under certain sections of SCRA
and CA have been delegated to the SEBI .The regulatory powers of the SEBI were
increased through the Securities Laws(Amendment) ordinance of January 1995 which was

15
subsequently replaced by an Act of Parliament. The SEBI is under the overall control of
the Ministry of Finance ,and has its head office at Mumbai .It has now become a very
important constituent of the financial regulatory framework in India.

OBJECTIVES:-

The philosophy underlying the creation of the SEBI is that multiple regulatory
bodies for securities industry mean that the regulatory system gets divided ,causing
confusion among market participants as to who is really in command .In a multiple
regulatory structure, there is also an overlap of functions of different regulatory bodies.
Through the SEBI ,the regulation model which entrusted to a single highly visible and
independent organization ,which is backed by a statue, and which is accountable to the
Parliament and in which investors can have trust.

CONSTITUTION AND ORGANISATION:-

The SEBI is a body of six members comprising the chairman ,two members
from amongst the officials of the ministries of the central government dealing with finance
and law ,two members who are professionals and have experience or special knowledge
relating to securities market, and one member from the RBI. All members, except the RBI
member are appointed by the government, who also lays down their terms of office, tenure,
and conditions of service, and who can also serve any member from office under certain
circumstances .The Central government is empowered to supersede the SEBI in public
interest ,of if on account of gave emergency it is unable to discharge its functions or duties,
or if it presently defaults in complying with any direction issued by the government ,or if
its financial position and administration deteriorates.

The work of the SEBI has been organized into five operational departments
each of which is headed by an executive director who reports to the chairman. Besides,
there is a legal department and the investigation department .The department have been
divide into divisions. The various departments and the scope of their activities are as

16
follows:-

The Primary Market Policy, Intermediaries Self Regulatory Organizations(ISRO) and

Investors Grievance and Guidance Department:-

It looks after all policy matters regulatory issues in respect of the primary
market registration merchant bankers, portfolio management service's investment advisors
,debenture trustees ,underwriter, SROs and investor grievance ,guidance ,education and
association.

The Issue Management and Intermediaries Department:-

It is responsible for vetting of all prospectus and letters of offer for public
and right issues for coordinating with the primary market policy ,for registration ,regulation
and monitoring of issues related intermediaries.

The Secondary Market Policy, Operations and Exchange Administration, New Investment
Products and Insider Trading Department:-

It is responsible for all policy and regulatory issues for secondary market
and new investment products, registration and monitoring of members of stock exchanges
,administration of some of the stock exchanges, market surveillance and monitoring of
price movements and insider trading, and EDP and SEBI's data base.

The Secondary Market Exchange Administration, Inspection and Non-member

Intermediaries Department:-

It looks after the smaller stock exchanges of Guwahati, Indore, Bhubaneswar,

,Ludhiana and Cochin. It is also responsible for inspection of all stock exchanges

17
and registration, regulation and monitoring of non-member intermediaries such as sub
brokers.

Institutional Investment(Mutual Funds and Foreign Institutional

Investment),Mergers and Acquisitions,

Research and Publications, and International Relations and IOSCO Department:-

It looks after policy, registration, regulation and monitoring of Foreign

Institutional Investors(FIIs),domestic mutual funds ,mergers and substantial acquisitions of
shares.

1.3 CORPORATIZATION AND DEMUTUALIZATION 2005

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

18
Stock Exchange by demutualising them and reconstituting them as commercial corporate
entities.1 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.
Corporatization is a critical enabler that would support the efforts in expanding and
strengthening the Indian capital market. While things are becoming more business
oriented, the corporatized Stock Exchanges will improve its flexibility and efficiency in
terms of its responsiveness to market needs .
The need for corporatization of Stock Exchanges in India has recently came into lime light
after functioning of Mumbai Stock Exchange is alleged to have been manipulated by the
some of the Trading members on governing Board of the exchange, which followed by
stock markets crash inspite of what was seen as one of the favorable & progressive Union
Budget in recent years.
After the stock scam of March 2001, the Government finally announced that all stock
exchanges would have to mandatorily go in for demutualization within a specified
timeframe4. This was aimed at preventing conflict of interests, which arise when
stockbrokers are involved in the management of the stock exchanges also.
It is in this context it becomes necessary to study the need and impact of Corporatization of
Stock Exchanges and its relevance in Indian context before a clear roadmap could be
prepared to take this process forward, for which SEBI constituted a Group under the
Chairmanship of Justice M. H. Kania, former Chief Justice of India comprising of eminent
personalities, in fields of law, accountancy, finance, company law affairs and taxation to
advise SEBI on this matter and to recommend the steps that need to be taken to implement
the announcement of the Government.
So as a result of this the Government has approved the corporatization of stock exchanges
in India by which ownership and trading rights would be segregated from each other
.corporatization and demutualization of stock exchanges are complex subjects and involve
number of legal, accounting and company law issues. These roadmaps could be prepared
to take process forward.

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Historically, brokers owned , controlled and used to manage stock exchanges. In case of
dispute, the self often got procedure over regulations leading inevitably to conflict interest.
The regulator therefore focus on reducing the dominance of members in the management
of stock exchanges and advised to reconstitute their governing council to provide atleast
50% non brokers representatives. This did not materially alter the situation. Thus finally in
face of volatility in the securities market, government proposed in marc 2001 to
corporatize the stock exchanges by which the ownership, management and trading
members could be segregated from one another.

1.4 NATIONAL STOCK EXCHANGE

OBJECTIVES

NSE mission is setting the agenda for change in the securities market in India. The NSE
was set up with the main objective of :

Establishing a nation wide trading facility for equity ,debt instruments .

Ensuring equal access to investors all over the country through an appropriate
communication network,

20
 Providing a fair , efficient and transparent securities market to investors using
electronic trading system
Enabling shorter settlement cycles and book entry settlement system
Meeting the current international standards of securities market

The standard set by NSE in terms of market practices and technology have become
industry benchmark and are being emulated by other market participants. NSE is more
than a mere market facilitator . its that force which is guiding the industry towards new
horizons and greater opportunities.

TRADING SYSTEM

the fully computerized , online trading system used in WDM segment of the exchange has
changed the vary manner in which trading is perceived in the Indian securities market
besides the fact that the system helped in increasing trading velocities and cut timeframes ,
it has also managed to incorporate the critical aspect of security in its function.

The exchange provides the facility for screen based trading with order matching facility.
The members are connected from their respective offices at dispersed locations to the main
system at the NSE premises through a high speed , efficient satellite telecommunication
network. The trading system is an order driven , automated order matching system which
does not reveal the identity of the parties to an order or a trade. This help orders whether
large or small to be placed without the members being disadvantaged by disclosure of their
identity. The trading system operates on a price time priority . orders are matched
automatically by the computer keeping the system transparent, objective and fair.

Where an order does not find a match it remains in the system and is displayed to the
whole market , till a fresh order which matches comes in or an earlier order is cancelled or
modified.

Trading system provides tremendous facility to the users in terms of the type of orders that
can be placed on the system. Several time related , price related, or volume related
conditions can easily be placed on an order, the trading system also provides complete

21
online market information through various enquiry facilities . detailed information on the
total order debts in a security , the best buys and sells available in the market, the quantity
traded in that security , the high , the low and last traded prices are available through
various market screens at all points of time.

COMMUNICATION NETWORK

Across the globe, developments in information, communication and network technology

have created paradigm shifts in the securities market operations. Technology has enabled
organizations to build new sources of competitive advantage , bring out innovations in
products and services, and also provide for new business opportunities. Stock exchanges
all over the world have realized the potential of IT and have moved over to electronic
trading systems which are cheaper, have wider reach and provide a better mechanism for
trade and post trade exhibition.

NSE believes that technology will continue provide the necessary inputs for the
organizations to retain its competitive edge and ensure timeliness and satisfaction in
customer service. In recognition of the fact that technology will continue to redefine the
shape of securities industry.NSE stresses on innovation and sustained investment in
technology to remain ahead of competition. NSE IT set up is the largest by any company
in India. It uses satellite communication technology to energize participation from around
400 cities spread all over the country . in the recent past , capacity enhancement measures
were taken up in regard to the trading systems so as to effectively meet the requirements of
increased users and associated trading loads. with up gradation of trading hardware ,NSE
can handle up to 1 million traders per day. NSE has also put in place NIBIS ( NSEs
internet based information system) for online real time dissemination of trading
information over the internet. In order to capitalize on in house expertise in technology
NSE set ups a separate company NSE.IT , in October 1999. This is expected to provide a
platform for taking up new IT assignments both within and outside India and attaining
global exposure.

22
NEAT is a state -of art client server based application. At the servers end, all trading
information is stored in an in-memory database to achieve minimum response time and
maximum system availability for users. The trading server software runs on a fault tolerant
STRATUS main frame computer while the client software runs under window on PCs.

The telecommunication network uses X.25 protocol and is the backbone of the
automated trading system. Each trading member trades on the NSE with other members
through a PC located in the trading members office , anywhere in India. The trading
members on the wholesale debt market segment are linked to the central computer at the
NSE through the dedicated 64 Kbps leased lines lines and VSAT terminals. These leased
lines are multiplied using dedicated 2 Mbps , optical fibre links. The WDM participated
connect to the trading system through dial up links.

The exchanges uses powerful RISC based UNIX servers, procured from digital and HP
for the back office processing. The latest software platforms like ORACLE7 RDBMS,
GUPTA-SQL / ORACLE FORMS 4.5

Front Ends etc have been used for the exchange application . the exchange currently
manages its data centre operations , system and database administration, design and
development of the in house systems and design and implementation of telecommunication
solutions.

NSE is one of the largest interactive VSAT based stock exchange in the world. Today it
supports 3000 VSATS & us expected to grow to more than 4000 VSATS in next year. The
NSE network is the world largest private wide area network in the country and the first
extended C band VSAT network in the world. Currently more than 9000 users are trading
on the real time NSE application. There are over 15 large computer system which include
non-stop fault tolerant computers and a high end UNIX servers, operational under one roof
to support NSE application. This coupled with the nation wide VSAT network makes NSE
the country largest information technology users.

In an ongoing effort to improve NSE infrastructure a corporate network, has been

implemented connecting all the offices at Mumbai, Delhi, Calcutta and chennai . this

23
corporate network enables speedy interoffice communications and data and voice
connectivity between offices

In keeping with the current trend , NSE has gone online on the internet . apart from
having a 2Mbps to VSNK and our own domain for internal browsing and email purposes
we have also set up our own website.

1.5 BOMBAY STOCK EXCHANGE

INTRODUCTION

The stock exchange , Mumbai ,popularly known as BSE was established in 1875 as
THE NATIVE SHARE AND STOCK BROKERS ASSOCIATION. It is the oldest one in

24
Asia , even older than Tokyo Stock Exchange , which was established in 1878. It is the
voluntary non-profit making Association of persons (AOP) and is currently engaged in the
process of converting itself into demutualized and corporate entity. It has evolved over the
years into its present status as the premier stock exchange in the country. It is the first
stock exchange in the country to have obtained permanent recognition in 1956 from the
Govt. of india under the securities contracts (regulations) Act, 1956.

The exchange while providing an efficient and transparent market for trading in securities,
debt & derivatives uploads the interest of the investors and ensures redressal of their
grievances whether against the companies or own member broker. It also strives to
educate and enlighten the investors by conducting investor education programmes and
making available to them necessary informative inputs. A governing board having 20
directors is an apex body , which decides policies and regulates the affairs of the exchange.
The governing body consists of 9 elected directors, who are from broking community ( one
third of them retire every year by rotation ) , three SEBI nominees , six public
representatives and an executive director & chief executive officer and a chief operating
officer.

The executive director as the chief executive officer is responsible for the day to day
administrations of the exchange and he is assisted by the chief operating officer and other
heads of departments.

The exchange has inserted new rule No. 126 A in its rules , bye laws & regulations
pertaining to constitution of the executive committee of the exchange . Accordingly , an
executive committee , consisting of three elected directors, three SEBI nominees or the
public representatives , Executive director & CEO and chief operating officers has been
constituted. The committee considers judicial & quasi matters in which the governing
board has powers as an applete authority , matters regarding annulment of transactions ,
admission , continuance and suspension of member brokers , declaration of a member
broker as defaulter , norms , procedures and other matters relating to arbitration, fees ,
deposits margins and other monies payable by the member brokers of the exchange. Etc.

25
 OVER THE COUNTER EXCHANGE OF INDIA( OTCEI)

The over the counter exchange of india ( OTCEI) was the first exchange to have started
scrips trading and offered screen based trading in 1990 . It was established mainly to cater
to small capitalized companies . the operations began with trading in debt instruments , in
addition , equity debentures instruments of the companies listed on other stock exchange
have been permitted for trading the OTCEI . Ihe turnover levels are extremely low, and are
not viable for a large cross section .

The OTCEI aimed to ensure settlement within three days .Investors trade with counter
receipts , not share aimed to ensure settlement within three days . With settlement done on
a spot basis , problems resulting from poor liquidity and delayed transfers have been
reduced.

CHAPTER 2

2.1 DEPARTMENTS OF U.P.S.E

CHAIRMAN Mr. KD GUPTA

EXECUTIVE DIRECTOR Mr. B.K NADHANI

U.P.S.E SECURITIES LTD( SUBSIDIARY CO.) Mr. VED PRAKASH

LISTING & MEMBERSHIP DEPT Mr. BP GUPTA

SECRETARIAL DEPARTMENT Mr. CHANDRA BABU

26
FINANCE & ACCOUNT Mr. S.C KAPOOR

MARKET OPERATION / MARGIN Mr. JK DIXIT

LEGAL DEPARTMENT Mr. JN SHUKLA

CLEARING HOUSE Mr. LS PANDEY

SURVEILLANCE DEPARTMENT Mr. ATUL AGGARWAL

R& D / INVESTORS SERVICE CELL Mr. RAJENDRA VERMA

2.2 UTTAR PRADESH STOCK EXCHANGE ( UPSE) ASSOC LTD.

HISTORY/BACKGROUND

1. Name of Stock Exchange : The Uttar Pradesh Stock Exchange Association Ltd.

2. Registered Address : `Padam Towers 14/113, Civil Lines, Kanpur

3. Date of Establishment : 15th November, 1979

4. Nature of organization : Corporate body.

(Whether a company or Association of persons)

(If company, please indicate whether limited by guarantee or shares).
(If company limited by shares, then indicate shareholding pattern)

Public Limited Company registered under the Companies Act, 1956.

Total Shares issued : 1000 (One share of Rs.2000/- each)

27
 Shareholding pattern in the recognized Stock Exchange as on
30.09.2008

Category of No. of Total Number of Percentage of Shares

Shareholde Shareholders Shares

TRADING MEMBERS

Individuals 177 177 17.7

Corporates (Listed) 03 03 0.3

Corporates 62 62 6.2
(Unlisted)

Any other (specify) NIL NIL --

TOTAL (A) 242 242 24.2

PUBLIC

Individuals 257 717 71.7

Corporates (Listed) NIL NIL NIL

Corporates 32 41 4.1
(Unlisted)

Any other (specify) NIL NIL NIL

TOTAL (B) 289 758 75.8

Total (A+B) 531 1000 100%

Uttar Pradesh Stock Exchange Association Ltd. was inaugurated on 27th August, 1982 and
occupies one of the prominent place among 24 Stock Exchanges in India. It plays an
important role in the development of the capital market of North India.

28
Initially, it had only 350 members which has grown up to 540 at present. The membership
is open to companies even beyond the territories of Uttar
Pradesh. At present UPSE as 683 companies listed with the
total capitalization of Rs 81,184 crores. The annual turnover of this exchange for past three
years are :

Year Total Turnover Delivery % of turnover

turnover to Delivery
(Single Sided)

(Rs. In Crores)

2006-07 806.50 0.28 0.03

2007-08 476.39 0.98 0.21

2008-09 (upto 170.60 0.05 0.03

31.10.2008)

This stock exchange is wedded to the investors protection and investors education as UPSE
has firm conviction that any investor protection cannot be achieved without proper
awareness and education of investors . thus, the exchange has a very active investor service
cell and also a very equipped research and development wing in functioning. UPSE has
also very effective system of readdressing of the investors complaints.

The exchange is one of the best developed exchanges of the country so far its infrastructure
is concerned . The Prime minister Dr. Manmohan singh, Finance minister shri Pranab
Mukherjee , other central ministers and chief ministers of Uttar Pradesh have visited the
exchange and had appreciated its efforts in maintaining the transparency and the integrity
of the market. To keep pace of changing technology the exchange has embarked upon the
project of screen based training. The online trading based on VECTOR software supplied
by Cmc has commenced on UPSE from 11th November, 1997.

29
To increase the further business and to facilitate the online trading facility to about 22
members at luck now an additional trading floor was established at lucknow. Seeing lack
of participation by investors, UPSE has closed down its landmark Additional Trading
Floor (ATF) at Lucknow. The ATF was set up initially to further increase business and to
provide online trading facility to Lucknow based members. It commenced online trading in
March 1999 with 22 members, who were allotted computer terminals at the ATF. The
terminals were connected with UPSE's main server via VSAT.

It is noteworthy to note that at present out of 17 regional stock exchanges recognized in

India only 2 regional stock exchanges are functioning and are still generating some
turnover. UPSE is among those two regional stock exchange , the other one being Calcutta
stock exchange.

As per decision of SEBI for the revival of the smaller stock exchanges in the country, they
can obtain the member stock exchanges like NSE, BSE, CSE etc by forming a subsidiary
company of the exchange and in turn the members of the exchange can trade through the
said subsidiary as sub- brokers.

Accordingly they had incorporated a wholly owned subsidiary namely UPSEC and
obtained the membership of BSE to enable the members of UPSE on BOLT. They are at
present trying to get membership of NSE.

MAJOR OBJECTIVES OF UPSE

To organize and carry on the stock exchange and regulate the business of the
exchange , stocks, shares , debentures , debenture stocks , government securities ,
bonds and equities of any description and with a view to establish and conduct
stock exchange in Kanpur.

To acquire the membership of any other recognized exchange in India and abroad
including membership of OTCEI , broad base the operation of stock exchange for
the benefit of general public & investors.

30
 To promote one or more subsidiary whether wholly or partly owned with object to
promote & trade in shares & stocks , debenture bonds and other securities of any
description issued by companies , statutory corporations, government of state or
union Government , financial institutions.

2.3 UPSE SECURITIES LIMITED

(Commonly referred in as subsidiary company)

The formation of UPSE securities ltd is the outcome of various underlying reasons. To
understand that , time would have to be set back to late 20th century.. Prior to that ,the
regional stock exchanges were receiving a great source of revenue as listing fees of various
companies .Every company was supposed to list themselves in regional stock exchange
where their head office existed .so besides mandatory listing in regional stock exchange ,it
was the fashion among companies to list themselves in more and more stock exchange But
slowly in 2003 ,SEBI totally called the mandate and awarded freedom to get listed in any
stock exchange All factors contributed to companies to get delisted from regional stock
exchanges. This move vanished the major source of revenue of RSE. So, it was decided in
a meeting held on September 9,1999 to promote or float a subsidiary company to acquire
membership right of other big stock exchanges i.e. NSE /BSE subject to under noted
conditions:

The subsidiary company shall be 100% owned by stock exchanges

promoting/floating such subsidiary company. The name of the company shall not
contain the word stock exchange.
The members of stock exchange shall register themselves as sub .brokers of
subsidiary company to enable them through subsidiary company.
The subsidiary company shall register only the members of stock exchange, which
is promoting the subsidiary company as its brokers, and no other client/sub broker
shall be entertained by subsidiary company.

31
 The sub broker of the subsidiary company shall maintain separate deposits with the
subsidiary company. The Base Minimum Capital deposited by the sub broker
with the promoting stock exchanges shall not be transferred to the subsidiary
company.
The trading / exposure limit of the sub-brokers shall be based on the deposit
received by the subsidiary company from the sub broker and these limits shall not
exceed the limits as prescribed by the stock exchange of which the subsidiary
company is a member.
The subsidiary company shall collect margins from the sub brokers for the
payment of margins to the respective stock exchange of which subsidiary company
is the member. The margin imposed by the subsidiary company on its sub broker
shall not be less than the margin payable to the stock exchange of which the
subsidiary company is the member.
The stock exchange shall incorporate the above mentioned condition in the
Memorandum of association and Article of Association of the subsidiary company.

So based on this decision taken on the meeting it was decided by board of directors of
UPSE to set up their wholly owned subsidiary named UPSE SECURITIES LIMITED.

UPSE securities ltd., a wholly owned subsidiary of U.P Stock Exchange Assn. Ltd. was
incorporated on 19.04.2000 with the object to obtain membership of larger Exchanges such
as BSE/CSE and provide trading facilities on these exchanges to the member of U.P stock
exchange as its sub brokers as per the policy/guidelines issued by SEBI. Accordingly the
company acquired the membership of BSE and commenced on-line trading of BOLT with
effect from 26.01.2001. The company is limited by shares and its 100% shares are held by
UPSE .Its issued and subscribed share capital was of RS 1,80,73,700 which was its initial
funding and till date their has been no subsequent funding.

To facilitate pay-in and pay-out of funds ,the company has adopted the branch model of
business module for settlement of transactions at company level and consequently separate
bank account and beneficiary demat account ,designed to each of the active sub-broker
,treating it as a virtual branch of the company facilitating the accounting etc

32
 Business Module
Of
UPSE Securities Ltd. (UPSEC)
(part & parcel of the Business Rules)

Based on SEBI(Stock-Brokers And Sub-Brokers)(Amendment)

Regulations,2003 and format of Model Tripartite Agreement.

BUSINESS MODULE :
With the implementation of back office software Shilpi-cApex 3.5 developed by M/s
Shilpi Computers Ltd., New Delhi, all the sub-brokers will be treated as separate virtual
branch of the company under whom there can be multiple offices/trading terminals.

CLIENT REGISTRATION:

1. All the sub-brokers will be required to submit tripartite agreement with their clients and
required to submit to UPSEC prior to commencement of trading by the client.
2. All the sub- brokers and their clients will be required to abide by the terms and
conditions of the tripartite agreement executed.
3. Client of the sub-broker will be required to directly credit the securities in the CM pool
account of UPSEC maintained at SHCIL, DP having account CMBP ID IN652365 for
the purpose of pay-in.

RISK MANAGEMENT

33
1. The deposits of the sub brokers, viz Base Minimum Capital , additional capital and
margin advance is being treated as capital deposits for the purpose of computation and
adjustment / collection of the margins.

2. The one third of the capital deposits of the respective sub-brokers is blocked as upfront
margins and the rest two-third is available for trading.

3. At the end of the day, the total margin obligation for the day of the respective sub
brokers are deducted from total capital deposits of the sub broker.

4.The remaining capital deposits of the respective sub brokers , after such deduction ,is
treated as available in the same manner, as stated above for the next day trading of the sub
broker .

5. The margin obligations for the day , so deducted ,if released after pay in of relevant
settlement and the same is added back to the capital deposits of the sub brokers ,available
for the subsequent trading.

6. The minimum capital required to trade as a sub broker in the company is Rs 1,50,000
and the additional capital may be deposited in the multiples of Rs 50,000 /- for enhancing
the trading limits.

Some other basic information about the company are:

UPSEC will open equivalent number of bank accounts for each sub brokers in the
name and style of UPSEC securities ltd. These banks accounts will be opened
either with Standard Chartered Bank ,
M.G road, Kanpur or with UTI bank LTD, Mall road ,Kanpur as per the choice of
the sub broker concerned.
It will be the responsibility of the sub brokers to clear all the dues / pay in of their
clients within time as per the schedule of the UPSEC i.e. T+1 basis.
The shortfall in the pay in of the fund ,if met by the sub broker from their own
account ,shall be credited to the contingency deposit account of the sub brokers.
UPSEC will not pay any interest on this deposit.

34
 Every client of the sub- broker will have to clear his / her debit balance in respect
of the transactions undertaken latest by T +4 days.
UPSEC will issue the contract notes to all the clients of the sub- brokers on the
regular basis.
Brokerage will be charged from the clients of the sub brokers as per the
instructions filled up in the client registration forms received through the sub-
brokers or any written modification authorized by the clients and the sub brokers
thereafter.
The share of brokerage of UPSEC from the total brokerage charged to the clients of
the sub-brokers shall be 0.009% subject to minimum of 1 paisa per share. UPSEC
shall refund the excess brokerage to its sub brokers weekly.
All other statutory and legal charges such as stock exchange turnover charges,
stamp duty, STT, service tax etc as applicable will be levied separately in the
contract notes issued to the clients of the sub brokers.
Sub- brokers who are interested in second, third trading terminal are allowed to
have them by allotting them separate ID on the following terms and conditions:
- Sub broker will have to pay a sum of Rs 5000 for each such trading terminal.
- Separate monthly charges such as TWS charges, VSAT support charges etc as
applicable from time to time will have to be paid by the sub broker for each
such terminal.
- Each such terminal shall be subject to fulfillment of margin and other
applicable business rules.
- Presently BSE has allowed trading only in cash segment.
TRADING ON BSE STARTED ON -- 29-11-2001
NUMBER OF REGISTERED SUB-BROKERS -- 113
NUMBER OF ACTIVE MEMBERS -- 70
CURRENT NUMBER OF CLIENTS --
8000(APPROX)
TURNOVERS: (IN CRORES)
2000-01( FROM 29-01-2001) -- 67.99

2001-02 -- 981.88
2002-03 -- 1907.64
2003-04 -- 2334.55
2004-05 -- 2493.73
2005-06 -- 1813.24
2006-07 -- 2164.10
2007-08 -- 3124.08

35
 PROFIT / LOSS OF THE COMPANY

YEARS PROFIT/LOSS AMT IN Rs

2000-01 LOSS 3,99,241.91

2001-02 LOSS 10,67,493.51

2002-03 PROFIT 7,84,000

2003-04 PROFIT 18,20,000

2004-05 PROFIT
12,93,000
2005-06 PROFIT
7,98,000
2006-07 PROFIT
6,36,000
2007-08 LOSS
21,964

Thus , the scope of UPSEC is indeed very wide and in future periods it will surely further
expand the levels of business leading to the lucrative gains to the corporate ,investors and
finally its members.

36
2.4 LISTING DEPARTMENT
Before talking about listing department I would like to throw light on the basic jargaon
words used in this department.

Listed company means a company which has any of its securities offered through an offer
documents listed on recognized stock exchange and also includes public sector undertaking
whose securities are listed on recognized stock exchange.

Public issue means on an invitation by a company to the public to subscribe to the

securities offered through a prospectus.

Right issue means an issue of capital under sub section (1) of section of companies acts
1956 to be offered to the existing shareholder of company through a letter of offer.

Composted issue means an issue of securities by listed by listed company on a public cum
right basis offered through a single offer document wherein the allotment for pubic & right
component of the issue is proposed to be made simultaneous.

Offer document means prospectus in case of public issue of offer for sale & letter of offer
in case of a right issue.

Unlisted company means a company, which is not, listed company.

Application for listing No company shall make any public issue of securities unless it has
made an application for listing of those securities in stock exchange(s)

Security At the time of public/right Issue Company deposit 1% security of the issue.50%
in cash &50% in bank guarantees for protection of investors.

Depository means a body corporate register under SEBI (Depositories and Participants)
Regulation, 1996.
Listing Agreement At the time of listing it is a requirement of the exchange that there must
be filed with the application an agreement in terms to qualify for admission and
continuance of said securities upon the list of exchange.

As per listing agreement companies agree to submit all the required documents with the
exchange for the information.

Delisting There are two types of delisting: voluntary delisting & compulsory delisting.

Voluntary delisting: Voluntary delisting being by the promoters of the company.

Procedure for voluntary delisting: Any promoter or acquirer desirous of delisting securities
of the company under the provision of these guidelines shall:

a) Obtain the prior approval of the shareholders of the company by a special resolution
passed at its general meeting.

b) Make a public announcement in manner provided in these guidelines.

c) Make an application to the delisting exchange.

d) Comply with such other additional conditions as may be specified by the concerned
stock exchange.

Compulsory delisting of companies by exchange

The stock exchange may delist companies which have been suspended for a minimum
period of six months for non-compliance with the listing agreements.

The stock exchanges may also delist companies as per norms provided in schedule.

38
The stock exchange shall give adequate & wide public notice through newspapers
including (one English national daily of wide circulation) & through display of notice on
the notice board/website/trading systems of the exchange.

The stock exchange shall give a show -cause notice to the company or adopt procedure
provided under part B of schedule III for delisting under clause15 (1) and (2).

Schedule of listing fees:

Initial listing fees: Rs 10,500 /-

Annual listing fees

Up to 1 crores: Rs 6000/-

Above 1 crores and up to 5 crores: Rs9000/-

Above 5 crores and up to 10 crores: Rs 14000/-

Above 10 crores and up to 20 crores: Rs 28000/-

Companies which have a paid-up capital of more than Rs.20 crore will pay
additional listing fees of Rs.600/- for every increase of Rs.1 crore or part thereof
in the paid up share/debenture capital.

NOTE: A discount of 50% will be applicable on the Annual Listing Fees for the
companies whose registered office falls out outside the State of U.P. & Uttaranchal. This
discount is not applicable to the companies whose securities are listed on this Exchange
only.

Last date of Payment of Listing fees - 30th April every year as per clause 38 of the Listing
Agreement

39
 Collection of fees for the last financial year - Rs.25,55,850
Collection of fees at fifteen days prior to
the current inspection (as on 31.10.2008) - Rs.21,44,995

At the start of the Financial year bills are issued for payment of listing fee (including
arrears) subsequently reminders (twice) have been issued.

- Following are the details given below for listing fees in last 4 years :

Particulars Year Year 2007 Year2008 Year (Upto

2006 31.10.2008)
Total No. of companies listed 713 691 685 681
Amount of listing fees 32,21,75 33,31,300 25,55,850 21,83,995
collected (Rs.) 0
Listing fee arrears (Rs.) 3,51,13,3 3,79,21,621 3,92,11,221
21
No. of companies who have 238 237 234 211
not paid listing fees(Rs.)
% Defaulting Companies 66.62% 65.70% 65.84% 69.02%

Companies which have paid -up capital of more than 20 crore, pay additional fees of
Rs600/- for every increase of Rs 1 crores or part thereof.

Presently there are 713 companies listed with UPSE. Status of listed companies in past 3
years are:

Year1 Year2 Year3

2006-07 2007-08 2008-09
upto

40
 31.10.2008
st
Number of companies as on 1 April 713 691 685
Companies listed during the year - 1
Companies Delisted during the year 12 7 4
Number of companies as on 31st March 691 685 681

The companies which are not listed on the stock exchange should adopt a request letter of
application for the enlistment of its securities therein. The company must apply for listing
of the share in the prescribed application firm within 10 days of the filing of prospectus
with the registrar of company along with certain documents i.e.

Memorandum & article of association.

Debenture trust deed.
Prospectus.
Underwriting agreement.
Particulars of dividend , arrears of dividend.
Directors report , balance sheet for the last 10 years.
Short history of the company.
The company desiring of listing has to execute with the exchange a detailed agreement in
the prescribed form. The listed company which needs further issue needs to apply in other
prescribed letter of application and supporting documents. There are three steps of listing
procedure :

Applicant company communicates to the stock exchange.

Preparation and printing of formal application.
Investigation of committee of board of directors & payment of requisite fees.

List of Companies whose further Securities listed from 01.04.2006 to 31.10.2008

LIST OF COMPANIES WHOSE SECURITIES LISTED

S.NO. NAME OF COMPANY EXCHANGE / DATE OF

41
 REGIONAL STOCK LISTING
EXCHANGE
1 JAIPRAKASH ASSOCIATES LTD. REGIONAL 31.05.2006
2 Mirza International Ltd. REGIONAL 05.04.2006
3 Superhouse Leather Ltd. REGIONAL 11.05.2006
4 LML Limited. REGIONAL 11.05.2006
5 Mohan Steel Limited REGIONAL 07.06.2006
6 U.P.Asbestos Limited. REGIONAL 07.06.2006
7 LML Limited. REGIONAL 21.06.2006
8 Jaiprakash Associates Limited REGIONAL 10.07.2006
9 LML Limited REGIONAL 04.08.2006
10 LML Limited. REGIONAL 18.08.2006
11 Ashim Investment Company Limited. Non-REGIONAL 28.08.2006
12 LML Limited REGIONAL 06.09.2006
13 LML Limited REGIONAL 29.09.2006
14 LML Limited Regional 10.07.2006
15. Skipper Steels Limited Non-Regional 12.03.2007
16. Ridhi Sidhi Commercials Limited Regional 10.04.2007
17. Yash Papers Limited Regional 17.05.2007
18. Mirza International Limited Regional 17.05.2007
19. Bihar Tubes Limited Regional 12.07.2007
20 J.K.Cotton & Spinning & Weaving Mills Co. Regional 30.07.2007
21 Amrit Corp. Limited Regional 23.08.2007
22 Associates Cereals Limited Non-Regional 12.09.2007
23 GPT Infraprojects Limited Non-Regional 30.11.2007
24. Ganesh Polytex Limited Regional 12.12.2007
25. GPT Infraprojects Limited Non-Regional 13.03.2008
26. Jaiprakash Enterprises Limited Regional 04.03.2008
27. Bharat Immunologicals & Biologicals Limited Regional 18.03.2008
28. Duke Commerce Limited Non- Regional 24.03.2008
29. Bihar Tubes Limited Non-Regional 29.04.2008
30. Electricals & Electronics (India) Limited Non-Regional 17.07.2008
31 Yash Papers Limited Regional 17.07.2008
32 Surya Commercials Limited Regional 02.08.2008
33. Skipper Steels Limited Non-Regional 26.09.2008
34. Ankita Pratishthan Limited Non-Regional 26.09.2008
35. Ganesh Polytex Limited Regional 26.09.2008
2.4 MEMBERSHIP DEPARTMENT

42
The department mainly deals with Memberships/Membership
Admission/Transfer/Conversion/Registration/Surrender of Certificate of Registration of
SEBI.

Admission to Membership of the Exchange is Governed by the eligibility criteria as

specified in Article 19 of the Articles of the Exchange which states :-

An individual applying for Membership of Exchange should :-

1) Be not less than 21 years of age.
2) Have a qualification of Matriculation of equivalent examination (SEBI requires
minimum Intermediate)
3) Be a citizen of India.
4) Possession a minimum of two years experience.

In dealing in securities or
As portfolio manager or
As investment constitute

Minimum net worth / capital of Rs.lac as certified by CA

Its an undertaking to the effect that :-

He/ She is not associated with any defaulting member of Exchange.

He/ She has not introduced any fake account /forge/stolen share in the
market.
No investigation /enquiry is pending against him/her in any Exchange.

BODY CORPORATE:-

1) Minimum net worth requirement for corporate seeking admission to membership

of the Exchange, is Rs 20 lacs in case of direct corporate and Rs 10 lacs in case of
conversion cases i.e. in case of individual to corporate .
2) Two Designated directors to remain on the Board of the Company. Eligibility
criteria for designated directors to be the same in case of individuals.

43
 3) Entity must have been incorporated under companies act 1956.
4) It must at all times maintain requisite net worth.
5) It should comply with section 12 of companies act.
6) And it should satisfy all such conditions as may be prescribed in the articles.

For any change in status and constitution of Members in terms of SEBI Cir No.30
dated 09.07.03 member is required to obtain prior Approval of exchange as well as
SEBI. At the same time, of effecting any change member must ensure that all SEBI
and Exchange dues have been paid.

AUDIT AND INSPECTION DEPARTMENT:-

1. Maintaining records of Audited Balance sheets of Members:-

Every year, every active member are required to submit their audited balance sheet
and Net worth certificate in the Exchange.
The department is responsible for collection of the Audited balancesheets to be
submitted by
All active members and imposing penalties in cases of late submission of B/S
beyond the stipulated time

2. Inspection of books of account of members:-

As per SEBI guidelines, Exchange is required to conduct inspection of 20%
active members in each Financial year.
Accordingly, the department selects the names of the members to be inspected
(Finalized by Executive Director), on the basis of turnover in the manner that the
cross section of all members is covered. Few names are selected against whom
complaints have been lodged in the Grievances & Complain Department by
Investors. Few other names are taken from the members against whom
surveillance action has been initiated.

The work of inspection of brokers is assigned to independent Charted

Accountants.

44
 The C.A. as per the checklist provided by the Exchange conducts inspection.
Inspection reports are forwarded to members ,there by seeking replies. Inspection
files are placed before the Disciplinary Committee for consideration and further
action.

3. SEBI Registration fees paid by the Members:-

As per SEBI Stock Brokers and Sub Brokers Regulations 1992, every broker
registered with SEBI and hold a certificate of Registration of SEBI , is required to
pay SEBI fees based on his turnover through the Exchange.
This work is also handled by the department.

Members are advised to summit a C.A. certificate showing their turnover under
different heads i.e. jobbing of market trades etc. in the prescribed format in the
Exchange with the prescribed limits.

4. SEBI Registration Fees/ SEBI Turnover fees/ SEBI fees:-

Schedule III of SEBI Stock Brokers and Sub Brokers Regulations 1992 specifies
the fees to be paid by the stock brokers.
Every Member is required to pay registration fees in the manner set out below:-
Where the annual turnover does not exceed Rs. 1 crore during any financial
year, a sum of Rs 5000 for each financial year
Where the annual turnover exceeds Rs 1 crore during any financial year, a sum of
Rs 5000 plus one hundredth of one percent of the turnover excess of Rs 1 crore
for each financial year.
After the Expiry of of Five financial years from the date of initial registration as
members , he is required to pay a sum of Rs 5000 for each and every block of
five financial years commencing from the sixth financial year after the date of
grant of initial registration.

Every year , details of various components of the total turnover are to be finished by
each and every Active Member in the Exchange within the prescribed time limit.

Turnover shall be computed as aggregate of sale and purchase done by the Member in his
own account and the account of his clients.

45
In case of jobbing transactions which have been square off during the same day and
such transactions have not been taken by the broker on the behalf of his clients fees at the
rate of 0.005% is payable on the sale transaction i.e. Rs 500 on every Rs. 1crore .No fee
is payable on purchase Transaction. Thus at large, incidence of fees on total jobbing
transaction comes to Rs. 250 per Rs.1 crore.

In case of members fails to submit the transactions details then fee at a flat rate of 0.1%
on the total turnover is payable by the member i.e Rs 1000 0n every Rs 1 crore turnover.

2.5 SECRETARIAL DEPARTMENT

Governing board : The governing board of Uttar Pradesh stock exchange association
limited consisted or 13 members ,prior to SEBI step of appointing an administrator
instead ,classified as follows:

Six elected members under the provisions of the articles of association of

exchange .
2 government nominees appointed by SEBI

46
 4 public nominees(a list of 12 persons was sent by UPSE association limited board
with the approval of SEBI .
1 member is Executive director who is appointed by the UPSE association limited
board with the approval of SEBI.
At every Annual general meeting of the exchange 1/3 of the members elected on
the governing board retire by rotation; provided that where a person has been a
member ,elected for 2 consecutive terms on the governing board, he shall not be
eligible for reelection for a further period of 2 years.
As per existing articles ,there is a provision for election of president of the exchange
out of the non elected members on the governing board. He will hold the office of
president for a period of 1 year.

However w.e.f. 12 July, 2002 SEBI has supposed the governing board of the exchange &
appointed an administrator and all the powers and functions of the governing board are
with Administrator, under section 11 of the Securities Contract(Regulation)Act,1956.

Statutory Committee

In addition to the committee of Board of Directors, if any referred to in the above Article,
the Board of Directors, every year and as early as convenient after every Annual General
Meeting ,appoint the following committee, namely:

Arbitration Committee
Defaults Committee
Disciplinary Committee

These committee consists of 60% non -members and 40% members with prior
approval of SEBI. President and Executive Director are members of each of such

47
 committees and the President generally besides over each of the meetings of such
committee.

Besides the above committees, the following committees are also constituted by the
governing Board of Exchange every year:

Computer Breakdown Committee.

Ethics Committee.
Screening Committee.(membership transfer, admission related)
Compulsory delisting committee.
Investors service committee.

Surpassing the Board by a single administrator all the powers have transferred to
administrator.

Besides handling the corresponding work with SEBI/Ministry/Income Tax the following
works are also handled in secretarial section.

Compiling and forwarding the monthly development, report of SEBI .

Coordinating with other departments of the exchange for the implementation of
various SEBI circulars.
Compiling and forwarding the pre-inspection report.
Compiling and forwarding the compliance report on the SEBI inspection report
( conducted every year).
The section also fulfills all statutory requirements under companies act like:

Preparation of board meeting, notices ,agenda ,minutes.

Preparation of notices calling AGM & EGM.
To handle all the company related affairs under companies act.

48
Similarly works relating to UPSE Securities Ltd . ( a wholly subsidiary of UPSE Assoc Ltd
) are also handled by the section.

2.6 FINANCE & ESTABLISHMENT

49
Finance department keeps watch over the financial matters. Apart from keeping record of
daily financial activities, the department also tackles the HR activities under establishment
Department.

The UPSE Assoc. Ltd is registered under section 12A of the income tax act 1961, the
accounting standard 22 (Accounting for taxes on income) is not applicable to the company.

Therefore, a statement of income & expenditure A/c is prepared in place of profit & loss
A/c. And according to the taxation compliance , it has to spend its 85% of income on
various valid heads ,if not ,it has to make declaration about expenditure plans.

Membership fees Rs 6000 per annum.

Listing fees based on paid up share capital.
Interest on BMC and other securities.
Maintenance charges of terminals.
Penalties and fines.
Transaction fees ( Minimum Rs 10000 and beyond graded system is applicable).
1% of listing fees (up to 2004-05 , it was 2%) is for investor service cell fund, 10%
of which is transferred to UPSE investor protection fund.
UPSE Investors protection fund is created to protect from the losses incurred due
to exchanges exchange members. But exchanges ceils compensation limit Rs 10
lakh per broker.
UPSE has a heavy infrastructure ( building & premise) that UPSE gives on rent to
its members only for various purpose. Outsiders also may hire it for social or
Academic purpose only.
The Exchanges are required to contribute 5% of the listing fees collected by them
from companies to SEBI every year.
The expenditure head also includes operational ,legal and other nominal expenditures.
The department also maintains the regular records of its employees ,maintains their
provident fund and also works for their welfare.

50
In terms of Rule 14 of the SC(R) Rules, 1957 every recognized Stock Exchange is required to
maintain and preserve the following books of accounts and documents for a period of five
years:

I. Minute books of the meetings of

A. Members
B. Governing body
C. Any standing committee or committees of the governing body or of the
general body of members
II. Register of members showing their full names and addresses. Where any member of
the Stock Exchange is a firm, full names and addresses of all partners shall be
mentioned.
III. Register of authorized clerks.
IV. Register of remisiers or authorized assistants.
V. Record of security deposits.
VI. Margin deposit book.
VII. Ledger.
VIII. Journals.
IX. Cash Book.
X. Bank Pass Book.

The Inspection Team may verify whether the Exchange has complied with the requirements
of the above rule and check the said books.

51
2.7 MARKET OPERATION (MARGIN DEPARTMENT)

SEBI form time to time , put in place various risk containment measures to address the
risks involved in the cash and derivative market. In order to contain risk arising out of the
transactions entered into by the members in various script either on their own account or
on behalf of their clients the exchange has .Therefore adopted a well defined risk
management tool by the way of margin, the Exchange accordingly impose margins on the
members. Other highlights of the department are:

Base Minimum capital is Rs. 400000 is required without this trading is not allowed.

50% is in liquid assets (cash & FDR).

50% in other liquid assets (share and mutual funds)

Members are allowed trading on the amount deposited over and above BMC.

As soon as the margin touches the margin point , the terminal automatically gets
prohibited for trading.

There are three types of Margin in Stock Exchange :

Value at Risk.
Mark to Market.
Extreme Loss Margin.

All are calculated and applied on-line.

Margins are calculated on daily basis. M2M Loss is deducted from the deposits of
members .

Formula:-

Liquid assets M2M =Surplus Liquid

52
Surplus Liquid-VAR ELM=Surplus.

OVERVIEW:

The core of the risk management system is a Liquid Asset , deposited by the members
with the Exchange/Clearing corporation. These liquid assets shall cover the following
four requirements/risks:

M2M LOSSES:- Mark to Market losses are on outstanding settlement obligation of the
matter.

VaR: - VaR margin is to cover potential losses for 99% of the days.

ELM Margin:- Margin to cover the expected losses in situation thet lie outside the
coverage of Var Margin.

M2M LOSSES:- M2M Losses shall be collected in following manner:-

The stock exchange shall collect M2M Margin from member/broker before the
start of the trading day.
The M2M Margin shall be collected/adjusted from/against the cash/equivalent
component of the liquid net worth deposited with the Exchange.
The M2M Margin shall be collected on the gross open position of the members.
The gross open position for this purpose would mean the gross of all next
position across all the clients of the members including his proprietor position.
The margin so collected shall be also with the pay in including early pay-in of
securities.

VaR Margin:- Computation

53
 The VaR Margin is the margin intended to cover the large loss that can be
encountered on 99% of the days (99% value at risk) . For liquid stocks the margin
covers one day losses while for liquid stocks it covers three days losses so as to allow
clearing corporation to liquidate the position over three days . This leads to a scaling
factor of square root of three for liquid stocks.

For liquid stocks , the VaR Margins are also based on the votality of the stock while
for other stock , the voltality of the market index is also used for computation.

Computation of VaR Margin includes following terminologies:-

SCRIP SIGMA:- Scrip sigma means the volatility of the security computed as at the
end of the previous day. The computation usage the exponentially weighted moving
average manner as in the derivative market.

SCRIP VaR:- Scrip VaR means the higher of 7.5% or 3.5% scrip sigma.

INDEX SIGMA:- Index sigma means the daily voltality of the market index (S&P
CNX NIFTY OR BSE SENSEX) computed as on the ending of the previous trading
day.The computation usage the exponentially weighted average moving method
applied to daily returns in the same manner as in derivative method.

INDEX VaR :- The higher of 5% or 3% of the higher of the Sensex VaR of Nifty VaR
would be used for this purpose.The VaR Margins are specified as follows for different
group of stock:-

54
LIQUIDITY ONE DAY VaR SCALING FACTOR VaR Margin
CATERGORISATION FOR LIQUIDITY

Liquid Security Scrip VaR 1.00 Scrip VaR

(Group 1st)

Less Liquid Securities Higher of scrip VaR 1.73(Square root of 3) Higher of 1.73 times
and three times of scrip VaR and 5.20
(group 2nd)
Index VaR times Index VaR

Ill Liquid Securities Five times Index VaR 1.73 8.66 times Index VaR

(group 3rd)

Collection of VaR Margin:-

The VaR Margin shall be collected on an upfront basis by adjusting against the
total liquid assests of the member at the time of trade collection of T+1 day is not
acceptable.
The VaR Margin shall be collected on the gross open position of the
Member.The Gross open position for this purpose would means the gross of all
net position across all the clients of a member including his proprietary position.

55
 For the purpose there would .
The Var margin so collected shall be released along with the pay in including
early pay-ion of securities.

EXTREME LOSS MARGIN:-

It covers the expected loss in situation that go beyond those envisaged in the
99% VaR estimated used in VaR margin.
The ELM for any stock shall be higher of 5% or 1.5% times the Standard
Deviation of daily logarithms return s of the stock price in the last six months.
The computation shall be done at the end of month by taking the price data on a
rolling basis of past six months and the resulting value shall be applicable for the
next month.
The ELM shall be collected/ adjusted against the total liquid assest of the member
on a real time basis.
The ELM shall be collected on the gross open position of the member. The gross
open position would be same as mentioned above.
The ELM so collected shall be release along with pay-in.

BASE MINIMUM CAPITAL:-

The Stock Exchange shall have the BMC requirement as provided below:-

BSE, NSE & CSE Rs. 10 lakhs.

Ahemdabad stock exchange & DSE Rs. 7 lakhs.

Other Stock exchanges. Rs.4 lakhs

Provided that the Stock Exchange shall Maintain the BMC at Rs.1 lakh of the average
daily turnover is less than Rs 1 crore for any three consecutive months.

56
BASE MINIMUM CAPITAL CAN BE EXPLAINED IN DETAIL:

Point SEBI Points Exchanges Reply

no.

8 (1 ) Minimum Base Capital of the Non Adjustable

Exchange( Adjustable & Non
Capital required for all risk other than
Adjustable Capital )
market risk ( for example operation risk
and client claims )

8(2) Composition of BMC Rs. 50,000.00 12.50% Cash

Rs. 1,50,000.00 37.50% Cash/FDR

Rs. 2,00,000.00 50.00% Cash/FDR

Approved

Securities

8(3) Minimum Period of validity Fixed 2 / 3 years

Deposit.

8(4) Procedure for continual Monthwise reviewing the FDRs and

monitoring expiry of FDs necessary notices issued to the
concerned members in advance for
renewal and also sending the FDRs to
the Bank for renewal. .

8(5) Institutions whose FDs/ BGs are FDR accepted of all scheduled banks
accepted and Standard Chartered Bank, Vysya
Bank

8(6) Securities accepted towards the Yes.

BMC

57
8(7) Methodology & Frequency for Daily basis
valuation of Securities

8(8) Whether Securities Pledged in Yes.

favour of the Exchange.

8(9) Safe custody of Securities
(Custodian of the Exchange)
Fire proof Almirah and details of Back-
up of Securities is kept in Bank
Lockers. Demat securities are pledged
with Stock Holding Corporation of India
Ltd.

8 (10 ) Action taken if BMC falls below The trading terminal of the concerned
minimum prescribed. member is deactivated automatically and
efforts for the recovery of BMC are
being made continuously.

8 (11 ) Process of replenishment of the Requiring the members concerned to

shortfall in BMC complete the BMC through notice or
telephonic mode and till completion of
BMC the trading terminal of the
concerned member will remain
deactivated.

8 ( 12 ) Action taken by the Exchange As stated above

against member for non
replenishment of shortfall.

8 ( 13 ) Process of calculation of Free 50 % of Liquid Assets and 50% of

Capital. other liquid

8 ( 14 ) Process to replace existing Nil

collaterals of the banks from
whom the collaterals were being
discontinued to be accepted by the

58
 Exchange ( if any )

8 ( 15 ) Note on Additional BMC

requirement of the Exchange
which includes the following
among other things :

Composition,

Procedure of continual monitoring

50 % of Liquid Assets and 50% of

other liquid
Withdrawal of Additional Capital,
As per members request releasing the
Manner and timing of collection.
excess Additional Capital.
Period of lock-in.

Procedure of release of Additional

Capital.

8 ( 16 ) Please provide a note on the inter Not Transferable.

segment transfer of BMC.

8 ( 17 ) Please provide note on BMC N.A.

requirements in case of composite
members :

8 (18 ) Please provide the details with As per details given below
respect composition of BMC and
AC in the following format for the
above given sample dated
22.10.2008

59
2.8LEGAL DEPARTMENT

Legal Department is one of the key department of any organization as Law has to
maintain certain compliances to maintain law and order.

60
Stock Exchange has a legal department that deals with the legal matters. Legal
department consists of a panel of legal experts who are legal representative of UPSE
and take cares of its legal requirements.

The main function of the department is to protect investors interest and to solve their
grievances. However , grievance is tried to sort out at initials stage by Grievance
Department working under Membership Department. If jugdement is not satisfactory , an
Arbitrator is appointed . If still Member is not satisfied and further appeal is in court
against Stock Exchange , Legal Department comes into action as representative of
UPSE and pleased on behalf of UPSE.

The cases mainly related to:-

Cases filed against the members for bad delivers.

Cases filed as an appeal in the District Court and then in High Court.
Cases filed by the members and non members against any order passed by the
Exchange.
In cases any broker / member declared as defaulter.
The legal department gives advice to various departments on legal matters when
required.
Whenever there is a proposed change in byelaws of exchange , the legal department
takes proper steps for incorporation of such changes.
Co ordination with other departments of the Exchange for implementation of
various sebi circulars.
Compiling and forwarding the pre inspection reports.
Compiling and forwarding the compliance report on the SEBI inspection
report( conducted every year).
The section also fulfills all statutory requirements under Companies Act like:-
Preparation of board meetings Notice, agenda and minutes.
Preparation of Notice calling AGM & EGM.
To handle all the company related affairs under companies A ct.

Similar works relating to UPSE Securities ltd.( a wholly subsidiary of UPSE

Assoc. Ltd.) are also handled by the section.

61
2.8 CLEARING DEPARTMENT

Clearing House is one of the important department of Uttar Pradesh Stock Exchange as it
looks after the pay in and pay out of funds and shares .It acts as an effective mediator
between the brokers of the exchange and investors who want to purchase or sell the
securities .Clearing House helps the stock exchange in providing the facilities of sales and
purchases of shares to the client through their brokers ,and enabling the trading settlement
as per the rules and regulations prescribed by the SEBI .In stock exchange nobody can sell

62
or purchase securities directly, therefore clearing house makes an adjustment in
transactions taking place and helps in evaluating the total sales and purchases of the stock
exchange.

Presently rolling settlement T+2 is applicable in the exchange .The settlement

takes place as:

Timing

Start End Time Remarks, if Activity Involved in this session

Time any

Beginning 9.35 9.42 All the application servers start in this session,
of day but broker cannot login in this session.

Pre-open 9.42 9.50 Members can login in this session and place
Session limit orders (i.e., orders with price) only. The
orders are not matched during this session

Opening 9.50 9.55 During this session, the members could stay
Session logged on but cannot put orders. During this
session, opening price for each scrip is
computed, based on the price which maximized
trading volume i.e. price at which maximum
trades can be executed based on the orders
placed during pre-open session. In case there
are not trades matched the previous days close
price becomes the current days opening price.

Trading 9.55 3.30 Normal trading session. Members can place

63
Session orders and do trading.

Closing 3.30 3.40 System is not available for use. Closing price
Session for each scrip is computed based on weighted
average of last half an hour trades in particular
scrip. In case there is no trade during the last
half an hour, the average of last five trades is
taken for arriving at closing price.

Post 3.40 3.55 Only Broker can login and allowed to do client
Closing code rectifications only.
Session

End of day 3.55 Members can download their trades.

Session

Break - - No session
Session

Odd-Lot 9.56 3.28 No Trading

Session

Spot - - No Trading
session

Auction 1.30 2.30 During this session only solicitor members

Session (members other than member who failed to give
delivery) can place orders. The solicitor orders
once placed cannot be cancelled. Modification
of orders is only allowed to the extent of
bettering the price or increasing the qty.

64
 When an investor sell their securities then it is necessary to deposit their shares and
securities in the exchange's account in case of sale and in case of purchase the amount is
paid to the exchange by the investor through their broker.
If any broker / client fails to deposit their shares in the exchange upto the time of pay in of
securities then those shares would be treated as shortage or short delivery.

In case of short delivery shortage is recovered by on-line auction on T+2 day.If

securities are not available in the on-line auction on T+2 day within the prescribed price
limit then the transaction is closed out as per the rules and norms of the exchange.

At the time of auction of short delivery the loss is borne by the defaulter broker
and if profit is earned by auction then that profit is deposited in Investor Protection
Endowment Fund account of the exchange .On T+3 day the settlement of auction delivery
is done, therefore clearing house plays a significant role in the trading of shares/securities.

A BRIEF NOTE ON AUCTIONS & CLOSE OUT CARRIED OUT AT

EXCHANGE

If securities are not available in online auction on T + 2 day within the prescribed price
limit ( i.e 25% of the current market rate) , then the transaction is closed out as per the
standard procedures specified by SEBI.

The close out price will be the highest price recorded in that scrip on the exchange in the
settlement in which the concerned contract was entered into and up to the date of auction /
close out.

OR

20% above the official close price on which auction offers are called for ( and in the event
of there being no such closing price on that day , then the official closing price on the
immediately preceding trading day on which there was an official closing price).

65
 WHICHEVER IS HIGHER

Since in the rolling settlement the auction and the close outtakes place during trading
hours hence the reference price in the rolling settlement for the close out procedure would
be taken as the latest available closing price at the exchange.

As per SEBI letter no.SMD / POLICY / CIR- 08 / 2002 dated 16th April 2002 that in cases
of close out to the extent of short delivery if the shares cannot be acquired in auction or
cum basis then the mark up price would be 10% instead of 20%

DEACTIVATION OF TRADING TERMINAL AND IMPOSITION OF

PENALTY

In case of any default by a members regarding timely pay in of the fund trading
terminals of the concerned members is being deactivated and penalty is also being imposed
upon the concerned members as prescribed by the exchange from time to time. on the
receipt of complete amount of the pay-in and penalty imposed the trading terminal of the
concerned member is being reactivated.

2.9 SURVEILLANCE DEPARTMENT

One of the objectives of the exchange is to promote and inculcate honorable and just
practices of trade in securities transactions and to discourage malpractice. the surveillance
function at the exchange has assumed greater importance over the years .SEBI has directed
the exchange in August 1995 to set up a surveillance department with staff exclusively
assigned to surveillance department to keep a close watch on price movements of scrip,

66
detect market manipulations like price rigging etc, monitor abnormal price and volumes
which are not consistent with normal trading pattern and keep a watch on the exposure of
members .the surveillance department performs the following function:

1.RISK MANAGEMENT:- The Risk Management system has improved in the recent
past because of positive steps taken by the exchange in terms of prescribing capital
adequacy norms for members ,margins ,on-line surveillance and inspection of broker's
books. The Margin system has become more sophisticated to consider the factors of
volatility volumes and other factors. The Margins are required to be compulsorily collected
from the client by the brokers. A Quarterly certificate has been prescribed for compliance
of margin system with the infrastructure of risk management enhanced. The Stock
Exchange as well as investors would be better protected towards risk of various scams that
had shaken the market.
The various Margins collected by the Exchange are:-
.Mark to market margin
.Value at risk margin
.Extreme loss margin

2.PRICE MANIPULATION:-The functions of price monitoring and investigation

have been entrusted to the surveillance department, where large variation in the prices as
wll as scrip is scrutinized and appropriate actions are taken. The scrip which reaches new
high or new low and companies which have high turnover are watched. Also the prices and
volumes in the newly introduced scrip are monitored. Detailed investigation are conducted
in the cases where price manipulation is suspected and disciplinary actions are taken
against the members concerned.

3.INSIDER TRADING:-The most important function of this department is to prohibit

insider trading .Insider Trading denotes dealing in a company's security on the basis of
confidential information related to the company .It generally means trading in shares of a

67
company by a person who is in the management of the company or are close to them on the
basis of undisclosed price sensitive information regarding the working of the company that
they know but is not available to others.

4.MEDIA ALERT:-This is also an important function, before the company information

gets printed in newspapers, they have to be verified by the department. This is necessary in
order to find out whether company is concealing any material facts.

5.OTHER MANIPULATIONS:-Other manipulations like carry forward trading are

also taken care of.

PURPOSE OF SURVEILLANCE
Purpose of surveillance is to prevent risk which may arise due to :
Carry forward trade
Trade away from market price
Price manipulation
Insider trading
Circular trading
Creating false market
In order to detect abnormal behavior / movement it is necessary to know the normal
market behavior. The necessary actions are initiated like imposition of special
margin , suspension and deactivation of terminals etc. to control abnormal market
behavior the department carries out investigation , if necessary , based on
preliminary examination Analysis and suitable actions are taken against members
involved based on investigation. The detailed activities are as follows:

ONLINE SURVELLIANCE : one of the most important tool of surveillance

is the online real time surveillance system with main objective of detecting
potential market abuses at a necessary stage to reduce the ability of the market

68
 participants. To unduly influence the price and volume of the scripts traded at the
exchange , improve the risk management system and strengthen the self regulatory
mechanism at the exchange the system has a facility to generate the alerts online
based on certain preset parameters like prices and volume variations in scripts ,
members crossing intraday limits or gross exposure limits.

OFFSHORE SURVEILLANCE : the offshore surveillance system comprises of

various reports based on different parameters and securities thereof:
High / low difference in price
% change in prices over a week / fortnight / month.
Top scripts by turnover
Scripts hitting new high / low etc
The surveillance actions or investigations are initiated in the scripts identified from
the above stated reports.

2.10 R&D DEPARTMENT

R&D Department performs three works:-

Assistance to investors by Investors cell service.

69
 Maintains library.
Provides stationary.
Conduct research and development .

INVESTOR SERVICE CELL:-

This wing has been functioning since 1992 under SEBI directors & providing valuable
services to investors. Investor service Cell has been made to help (potential) investors in
many ways. Whether its about their queries of stock market or solving their investment
problem. The assist them in their queries of stock market and solving their investment
problems. The cell assist them in technical matters that consist of legal
provision/procedure that secures their interest .Besides , cell works to aware investors
about their rights and duties. INVESTA is an endeavor in this direction by SEBI. SEBI has
designated different Stock E xchanges to arrange INVESTA zone wise.

UPSE has been designated 176 places in UP and UTTARANCHAL for cause. The program
also makes investors aware about the precaution to be taken while investing and
investment decision is left on investors direction.

The whole account of INVESTA is given by R&D Dept. to Finance dept. and to
management of stock Exchange. All expenses are borne by SEBI for this sake a separate
fund Investor Protection Fund is maintained.

RECORDS TO BE MAINTAINED BY INVESTA:-

This is the duty of R&D dept. to maintain the necessary records of INVESTA because the
same has to be submitted to the SEBI.The various record which is to be maintained by
R&D dept. for INVESTA are:-

Schedule for monthly program to be approved by the administration.

Attendance registers for INVESTA.
Monthly statement of Program conducted.

OTHER SERVICES:-

70
 UPSE has set up UPSE & BSE Terminals for investors to enable them to know the
quote of various scrip listed on that.
Information regarding change of names of companies, mergers of companies, e-
merger of companies is made available.
Address of companies is can be known from here.
IPOs forms of various companies are available.
A view terminal has been provided on which the investors can watch CNBC, ZEE
BUSINESS, NDTV PROFIT and other business news channels.
If the investors have queries regarding any member, he can contact the Investor
Service Committee, formed for this purpose.

LIBRARY AND STATIONARY:-

Departments maintains a rich library of various Acts , Laws ,Amendments, Articles

regarding Capita Market like SEBI manual, Income Tax Act, Companies Act, Listing
Agreements and the latest changes done by SEBI. Departments also subscribe various
books, magazines and newspaper regularly, like The Times Of India, Economics
Times, Business Standard, The Financial Express, Business Line and all the other
leading newspaper and Magazines like Dalal Street, Capital Market and various
magazines are available for members/ investors.BSE quotations regarding book
closure, dividend etc and financial reports of companies are also made available for
their knowledge sake.

Department also deals with Stationary cell. Share transfer deeds, challans, receipt
books Bye laws etc. are sold on No profit No loss basis. The cell regularly maintains
the stationary records (sale, purchase and stock) that is sent to and approved by the
Accounts Department.

REFERENCE:

JOURNAL OF DALAL STREET.

JOURNAL OF FINANCE
http: //www.upse-india.com.

71
 http: // www.nse-india.com
AMITY UNIVERSITY
http:// www.sebi.gov.in
http:// www.toi.com
JOURNAL OF CAPITAL UTTAR PRADESH
MARKET BY NSE.
AMITY BUSINESS SCHOOL
A SUMMER TRAINING RESEARCH WORK ON

RESTRUCTURING OF REGIONAL STOCK EXCHANGES

FACULTY GUIDE INDUSTRY GUIDE

Dr RAJU G Mr. BK NADHANI

FACULTY GUIDE INDUSTRY GUIDE

Dr
RAJU G Mr. B.K NADHANI

PRESENTED BY
SOMYA GARG
MBA (G) CLASS OF 2010
ENROLLMENT NO- A0101908399

72
73
 ACKNOWLEDGEMENT

The satisfaction and euphoria that accompany the successful completion of any task would
be incomplete without mentioning the name of the people whos constant guidance and
encouragement has crowned all our efforts with success.

Firstly I would like to thank Dr RAJU G who suggested me this topic & helped me a lot
in completing this project.

Going through this project was one of wonderful experiences as such it has overall
enhanced my knowledge about the relevant area and its diverse aspects. Also throughout
this project several outstanding individuals were integrally involved and had given their
substantial contribution, for which I am very thankful to them for giving their precious
time in completing this project.

I would also like to thank all those people for their immense co-operation and without
help of these people this project never be completed successfully.

At last I would like to thank My Industry guide Mr. B.K. Nadhani, Executive Director of
U.P. Stock Exchange & Mr. Suresh Gupta, General Manager of UPSE Securities Ltd who
helped me in performing this study i.e. RESTRUCTURING OF REGIONAL STOCK
EXCHANGES by providing me his useful guidance, books and matters related with my
Research Study.

74
 ABSTRACT

This study investigated the real reason of downfall of regional stock exchanges and the
possible solutions for its revival.

To get answer s question it is necessary to know the viewpoints of people related with it
i.e. Brokers, Investors & employees of these RSE whether they think that there is need for
RSEs revival or not. In my research work I have worked on the basis of their responses for
which I had prepared a questionnaire. In this questionnaire my focus was to cover up all
possible aspects related with present situation of RSE in current Scenario.

The result that could be concluded from the data analysis was quite interesting. More than
half of the population surveyed still agrees that there is need for the revival of RSE & they
even had number of possible solutions there upliftment.

There were many other aspects which came out of this survey such as most of the
population think that Demutualization has not actually served its purpose and they really
think that if soon steps wont be taken by higher regulatory authorities such as SEBI then
it may lead to a monopolistic situation by NSE. The majority of the 18 regional stock
exchanges (RSEs) see minimal trading, the others none at all. Dozens of companies delist
from these exchanges daily to seek their place on the National Stock Exchange (NSE) and
the Bombay Stock Exchange (BSE); their online trading and professional management
make them the favorites of investors and companies alike.

Deep down, they feel the need for radical change to revive themselves. Some consider the
merger of all RSEs into one entity as the only long-term solution.

Will RSE die our or will it survive in coming decade is a big question which yet needs to
be answered and my study is trying to find out an apt answer for this big question.

75
Here in my this research paper I have studied about the real reasons for downfall & the
appropriate solutions for it in current scenario which if considered by higher authorities
will surely prove to be an apt solution for Restructuring of regional stock exchanges.

CHAPTER 3

3.1 INTRODUCTION:

The Regional Stock Exchanges are gradually losing their luster. The phenomenon is
inevitable. My this study discusses some suggestions to the revival of these stock
exchanges in the days to come.

Change has become a ubiquitous phenomenon. Indeed, the intensity and speed of change
in the marketplace is rendering all veterans, conventional and orthodox organizations and
people redundant at an amazing speed. Unambiguously, markets have become merciless
without any respect for the longstanding and accumulated expertise. Amidst such choppy
waves, market participants are virtually left with two choices either change or perish.
Apparently, nothing but change is stable in this world, which interestingly offers both
opportunities and challenges. At this juncture, the study attempts to present the threats and
opportunities of Regional Stock Exchanges (RSEs) in India & find out various alternatives
available for its revival too.

A good capital market is an essential prerequisite for industrial development of a country.

It is an organized mechanism for effective and efficient transfer of capital or financial
resources from the investing parties, i.e., individual or institutional savers to the
entrepreneurs (individuals or institutions) engaged in industry or commerce in the private
or public sectors of an economy. The capital market is divided into Primary Market (New
Issue Market) and Secondary Market (Stock Exchanges). According to Section 2(3) of the

76
Securities Contract (Regulation) Act 1956, the stock exchange has been defined as "any
body of individuals whether incorporated or not, constituted for the purpose of assisting,
regulating or controlling the business of buying, selling or dealing in securities."

Further, the stock exchanges are classified into National Stock Exchanges (NSEs) and
Regional Stock Exchanges (RSEs). A RSE is recognized by the Central Government or
Securities and Exchange Board of India (SEBI) under Section 4 of the Securities Contracts
Regulations Act, 1955. These have been very popular in India. RSEs have flourished due
to theoretical and practical anomalies in the pre-liberalization period, but not so in the post-
liberalization era. Many of them are virtually non-operational. The NSE, since its
establishment in 1994 has drastically changed the method of trading and settlement of
securities in the country from open-outcry system to electronic trading and settlement on
computer screens. RSEs lost their relevance due to their own investor-unfriendly practices
and the changes in regulatory approach in the years following the creation of the NSE.

FOR over 20 years regional stock exchanges created wealth for the country. It was all
taken away in one blow. They now feel like step-children of the Securities Exchange
Board of India (SEBI).

DOWN BUT NOT OUT

As business shifted out of the RSEs, so did their chances of survival. But unwilling to give
up, the RSEs have come up with many plan for their revival: Indonext, a exchange where
all companies with paid-up capital of up to Rs 20 crore will be traded exclusively.

RSE stockbrokers automatically became members of the Indonext. INTERESTINGLY,

Indonext is not the first attempt to bring all regional stock exchanges on a common
platform. The ICSE was formed in 1998 to connect regional stock exchanges through a
computerized circuit.

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Market men are optimistic about Indonext, especially in the light of sentiments today.
More and more investors are showing interest in buying shares of small and medium-sized
companies, which Indonext will focus on Fifteen RSEs became its members in the hope of
breathing new life into their businesses. Today, ICSE itself doesnt have any trading
turnover to speak of.

What went wrong was that those RSEs listed on ICSE did not discontinue their local
operations. This led to fragmentation of the market. But .Indonext will be independent of
the RSEs and its members.

GROUND REALITY

WHILE the NSE has not shown any interest in the RSE revival plan, the BSE has come
forward with its own suggestions. At a meeting held , BSE proposed to provide the
common platform needed by RSEs.

The BSE has suggested to the RSEs that it will extend its existing BOLT platform for their
members to trade in the small-cap companies with paid-up capital up to Rs 20 crores listed
at BSE and various RSEs in S group by creating a large single order book.

In the face of stiff competition from NSE, such a segment will help bolster BSE volumes
through new players. It will also be attractive to companies in far-flung areas of the
country, which will be able to access deeper pockets.

The Securities and Exchange Board of India (SEBI) is keen to support the revival of the
regional exchanges.

THE DOWNSLIDE

THE decline of the regional stock exchanges began as early as 1996-97, when the fully-
computerized NSE was spreading its tentacles across the breadth of the country.

While the BSE was quick to take a cue from it and begin online trading, the RSEs were
caught napping.

78
And by the time they woke up and decided to computerize, it was too late. The two
national stock exchanges had already usurped their markets with their wide reach. More
and more companies began listing at the national stock exchanges. Investors too preferred
online trading. The system provides for fast and hassle-free delivery of shares, allowing us
to go for higher number of transactions in a given time frame.

Another factor in the favour of NSE was its professional management. Unlike in the RSEs,
no broker was allowed to be part of NSE management, thus making it more unbiased.

As trading fell on the RSEs, so did transaction fees, the brokers primary source of income.
The final blow came in April 2003, when the Ministry of Finance withdrew its order which
made it mandatory for a company to list its securities on the stock exchange in the area
where the registered office of the company was situated.

Consequently, companies began delisting from their regional stock exchanges. With this
rule RSEs had lost out on the listing fees, which was another major source of income for
RSE.

The results were devastating. While many brokers shifted to other fields of work, others
went out of business.

To save the rest from extinction, RSEs had to set up subsidiary companies. These
subsidiaries, which are members of either NSE or BSE, allow RSE brokers to act as its
sub-brokers.

Suspended trading at regional exchanges also affected thousands of small investors

adversely. There was no exit route for investments locked up in companies listed only on
the RSEs. For instance, a majority of the 200,000 investors who were trading on the
Vadodara Stock Exchange (VSE) seven years ago are now desperate for their money.

Nearly all RSEs, and also the ICSE, had to take the subsidiary route to ensure their
members survival. But for the stock exchanges themselves, there has been no reprieve.
Their trading infrastructure, worth crores of rupees, is still lying idle and costs are still
rising.

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3.2 STATEMENT OF THE PROBLEM

What are the reasons for this decline?

1-ABOLITION OF BADLA SYSTEM - Abolition of badla with effect from July

2, 2001, which acted as the backbone of trading at the Calcutta, Delhi, Ahmedabad and
Ludhiana Stock Exchanges and also at a few other exchanges, which conducted badla
trading but in a clandestine manner, dealt serious blow to trading at the RSEs. Introduction
of uniform
trading cycles at all the stock exchange, also effective from July 2,2001, reduced further
the volume of trading at the RSEs due to diminished opportunities for arbitrage
transactions. Introduction of compulsory rolling settlements, initially in a few securities
and subsequently in all securities effective from December 31, 2001on a T+5 basis
accelerated the reduction in turnover at the RSEs .The switch over of the rolling settlement

80
to T+3 effective from April 1, 2002 and to T+2 with effect from April 1, 2003 sealed the
fate of the RSEs.

2- Abolition of Compulsory listing in regional stock Exchanges - With the

availability of nation wide access to a liquid market, the need for compulsory listing on the
RSEs lost its relevance. Regional listing proved to be an unnecessary burden in terms of
cost to companies which were listed on NSE and BSE. SEBI therefore issued the SEBI
(Delisting of Securities) Guidelines, 2003 vide circular SMD/Policy/Cir-7/2003 dated
February 17, 2003 which, inter-alia, did away with the requirement for existing companies
to remain listed on any stock exchange merely because they were incorporated or did
business from a region, provided such companies were also listed on either of the two
national exchanges. Freedom was given to companies to list on a stock exchange of their
choice. Companies, therefore, chose to remain listed on BSE and NSE and opted for
delisting from the RSEs. This resulted in further loss of revenue by way of listing fees for
RSE. The RSE were receiving a great source of revenue as listing fee of various
Companies ( Body Corporate Houses). Besides mandatory listing in RSE ,it was the
fashion among companies to get listed in more and more stock exchanges. In 1999, SEBI
allowed companies to be de- listed from other stock exchanges ( which was restricted till
then) except RSE, on fulfilling certain conditions. Consequent to issuance of the SEBIs
circular referred to in the foregoing paragraph, the Government of India vide circular
No.F.No.1/9/SE/2003 dated April 23, 2003 inter-alia, withdrawing its earlier circulars
which required all companies including existing listed companies, to be listed on the stock
exchanges located in the State where the registered office or the main works/fixed assets of
the company are situated, has driven the last nail into the coffin of RSEs as companies
have started lining up one after the other to get themselves delisted from RSE. Parallel to
these , fast evolution of BSE & NSE started providing great exposure to companies .All
factors contributed to companies to get de-listed from RSE. NOW, the companies
considered itself unnecessary to be listed in more and more stock exchange, when they are
free to be traded in across the country, if are listed in any designated stock exchanges i.e.

81
BSE/NSE. Earlier in case of oversubscription of shares of company RSE used to approve
allotment pattern which is not the case now.
The reason was the absence of trading platform of shares of various companies in
regional stock exchange. So., for them annual payment of listing fees in these regional
stock exchanges was as mere wastage of money. This resulted in lack of trust of members
and investors on RSEs and thus all the major operators are all these exchanges acquired
memberships of either NSE or BSE or of both, while most others acquired the sub-broker
ships of members of NSE/BSE and all of them switched over their operations completely
to NSE and BSE.

The results were devastating. While many brokers shifted to other fields of work, others
went out of business.

3- WIDE COVERAGE OF NSE/BSE & ADVENT OF AUTOMATED

TRADING SYSTEM - NSE and BSE has set up around 450 terminals all over
India .Thus making it easy for a small investor to trade through these stock exchanges even
after sitting in a remote location.
It was the decision of SEBI to have an online trading system for trading. THE decline of
the regional stock exchanges began as early as 1996-97, when the fully-computerized NSE
was spreading its tentacles across the breadth of the country. This advent of automated
trading and advancements in technology facilitated the BSE and NSE to expand their reach
across the country. At present, both NSE and BSE have their terminals in more than 400
cities. This had an impact on the trading of securities in RSEs.

In the absence of modern telecommunication and automation, listing of securities of

companies was always permitted in more than one exchange. To encourage regional
industrial development, the regional companies were compulsorily required to list on the
RSE which was closest to the registered office of the company, in addition to any other
stock exchange. In addition, shares listed in exchanges were also allowed to be traded on
other exchanges as a class of permitted securities. It was, therefore, common for one
company to be listed on BSE (and later on the NSE) as well as on one or more RSEs and

82
also trade on multiple stock exchanges. But the expansion of the terminals of NSE and
BSE across the country provided access to all investors to two large, liquid and deep
national markets in all these securities. Other stock exchanges, thus, found little incentive
to simultaneously expand their terminals.

And by the time they woke up and decided to computerize , it was too late. The two
national stock exchanges had already usurped their markets with their wide reach. More
and more companies began listing at the national stock exchanges. Investors too preferred
online trading.

The system provides for fast and hassle-free delivery of shares, allowing us to go for
higher number of transactions in a given time frame Technological Development and high
tech Infrastructural facilities were required to have online trading system in all stock
exchanges .only selective stock exchanges such as NSE ,BSE could fulfill these criteria .
The NSE was established in 1994 with nation-wide electronic trading terminals.
Subsequently, in 1995, the Stock Exchange, Mumbai (BSE) also converted its manual
trading system into a nation wide electronic trading system. While the BSE was quick to
take a cue from it and begin online trading, the RSEs were caught napping.

4-MAINTAINANCE OF BASE MINIMUM CAPITAL.- Maintenance of

Base Minimum capital at RSE despite zero volume of trading Amounting to over Rs 300
Crore has also hindered the growth of subsidiaries. Every broker is supposed to submit Rs
4lakh in each regional stock exchange and Rs 10 lakh in NSE and BSE.

5- GROWING ILLIQUIDITY- Growing Illiquidity of shares in regional exchanges

forced the companies to delist their shares from these stock exchanges. Every company
has to pay listing fees along with many other formalities to be complied with to list
themselves in any stock exchange. They need to publish annual report in regional
language where it is listed .Then they also need to have separate Department fulfilling all
the formalities in their company .Advertisement in the newspaper once in a year is also
must for the company .All these leads to additional cost to be incurred by the company. so

83
it was proving a loss deal for the company to incur these expenses for the exchange where
there shares are thinly traded or not even traded at all.
A decline in liquidity and dwindling of business in the RSEs was inevitable. As the RSEs
ceased to provide a liquid market in active stocks which were also listed on BSE/ NSE, the
liquidity in the securities of companies which were exclusively listed on the RSEs also
declined. The cost of membership in BSE and NSE was comparatively higher than in the
RSEs and all large brokers in the RSEs obtained membership of BSE or NSE. They had
little commercial interest to continue trading on the RSEs or promoting them. The smaller
brokers were not able to garner sufficient resources to obtain membership of the two
national exchanges. This, in turn, also led to increase in the number of inactive members in
the RSEs. The business done on the RSEs was adversely affected as a result of the
cumulative impact of these factors. Whatever business was left, was mainly on account of
varied account period settlement cycles across the RSEs which allowed for a product
differentiation of sorts among the RSEs.

6-PROGRESSIVE REDUCTION IN PUBLIC OFFER- There has been

progressive reduction in public offer from 60% of issued capital to 25%for eligibility for
listing due to few pricing of shares ,introduction of book building in respect of IPO
,introduction of order driven system and of rolling settlement etc have all cumulative been
responsible for present state of illiquidity in Indian stock market.

3.3 LITERATURE REVIEW

There are some articles which talks about the need for revival of regional stock
exchanges.

Dr. Rajeev Kumar, FCS, Company Secretary, Chandigarh,2007 Although there are a
number of Regional Stock Exchanges in India, the transactions done there are very
negligible and some of these exchanges are almost extinct in terms of transaction. This is

84
because companies and investors basically transact through the BSE and NSE. What could
be done to revive the Regional Stock Exchanges and why the should be revived, have been
dealt with in this article. According to him the most affected stakeholders have been the
common investors who have been left with illiquid scrips.
the brokers/jobbers who after spending years on the stock exchanges have been left
to fend for themselves. Most of these brokers have changed their vocations in order
to survive.
The employees of these closed exchanges that have no means of lively hood.
The indirect intermediaries connected with the floatation of public issues are left
with
no source of income.
Moreover the society is the biggest affected stakeholder. This is due to the fact that
lot of infrastructure of these stock exchanges is locked up with no productive
remunerative use of the same. For example the Delhi Stock Exchange owns assets
worth Rs.100 crores. besides, cash balance of Rs.90 crores..
Due to these reasons the revival of the regional stock exchanges becomes all the more
important. Some of these measures that can be explored in order to revive these stock
exchanges are dealt in his article.

Another important worth mentioning article has been of M. R. Mayya ,Chairman

Interconnected Stock Exchanges of India Ltd. Indian securities market has large number
of stocks. With the recent reforms in securities settlement in the Indian securities markets,
regional stock exchanges lost their business making it harder for them to provide the
liquidity. How to overcome this problem has been engaging the attention of regulators and
the national level stock exchanges. Several rounds of discussions have also taken place
among the representatives of regional stock exchanges on the best form of business model
they should design in order to make them more relevant in the background of intense
competition and heavy focus on technology. One major views that emerged in this regard
are the consolidation of the stock exchange & in his this article he has focused on this

85
aspect only i.e. setting up a common platform for trading for these regional stock
exchanges. It was he who had introduced the concept of INDONEXT.

Report of the Committee to Study the Future of RSEs Post- demutualization it was
found necessary to examine the role and relevance of RSEs in the changed circumstances
and the productive utilization of the available infrastructure in these RSEs. In order to
deliberate on these issues and make suitable recommendations in this regard, SEBI
constituted a Committee under the Chairmanship of Shri G.Anantharaman, Whole Time
member , SEBI. This report basically has focused on all aspects right from reasons of
downfall of RSE , to the suggestions made for the revival of RSE & what proposals have
been made till date by NSE, BSE and ICSE for their revival.

Apart from all these literature reviews there are many articles in TOI and
HINDUSTAN TIMES which clearly depicts the present status of RSE and investors
view about the their revival such as :
A knockout punch for regional stock exchanges Mandatory listing policy to
be scrapped by Sarbajeet K Sen, K R Srivastav ,NEW DELHI, April 6, 2005.

BSE-Indonext: Many mid-cap firms feel entry norms stringent by C.R.

Sukumar Hyderabad , Jan. 5 .2006.

3.4 PURPOSE & SIGNIFICANCE OF THE STUDY : The basic

purpose of this study is to find out viewpoints of people related with this business i.e.
Brokers, Investors & Employees of these stock exchanges , whether they also feel that
inspite of presence of NSE & BSE still there is need for RSE & what are the alternatives

86
or solution available for their revival Before reaching to the ways and means for the
revival of RSE let us first go through the history present status & steps taken till date for
the revival of these RSEs.

Historical Background of RSEs

The Bombay Stock Exchange (BSE), the Calcutta Stock Exchange (CSE) and the
Ahmedabad Stock Exchange (ASE) were set up before independence and recognized in
1956 under the SCRA. Thereafter, 20 other stock exchanges were set up under the SCRA
in various States including the Over the Counter Exchange of India (OTCEI) in 1990 and
the National Stock Exchange (NSE) in 1994.
The concept of RSEs has its genesis in a circular issued by Ministry of Finance,
Government of India vide F. No. 14 (2)/SE/85 dated September 23, 1985 which stipulated
that all then existing listed companies were required to be listed on the stock exchange
located in an area where the registered office or the main works / fixed assets of the
company were situated. When there was little automation and the modern advanced
telecommunication systems were not available , these stock exchanges catered to the needs
of the industry for mobilization and regional allocation of capital and resources and also
met the needs of regional investors in the remotest parts of the country.

What is the state of regional stock exchanges today? Out of the total 24 stock
exchanges existing in India including NSE & BSE , 6 stock exchanges have been
derecognized by SEBI in year 2007. HYDERABAD, MAGADH, MANGLORE,
SAURASHTRA KUTCH , KERELA, COIMBATORE STOCK EXCHANGES no longer
exist .SEBI has refused renewal of recognition of these four stock exchanges .The reason
was absence of total absence of trade in these stock exchanges with nil turnover.

NSE and BSE account for almost 100% of the total turnover. As far as RSEs are concerned,
except for the Calcutta Stock Exchange (CSE) and the Uttar Pradesh Stock Exchange (UPSE),

87
there is no trading on any other stock exchange and even on the CSE and UPSE, the business is
almost nil.

Here is the list of stock exchanges present in India:

Ahmedabad Stock Exchange

Bangalore Stock Exchange

Bhubaneshwar Stock Exchange

Calcutta Stock Exchange

Cochin Stock Exchange

Delhi Stock Exchange

Guwahati Stock Exchange

Jaipur Stock Exchange

Ludhiana Stock Exchange

Madhya Pradesh Stock Exchange

Madras stock Exchange

Meerut Stock Exchange

OTC Exchange Of India

Pune Stock Exchange

Uttar Pradesh Stock Exchange

Vadodara Stock Exchange

Interconnected Stock exchange

MCX SX Commodity Exchange

88
TURNOVER OF REGIONAL STOCK EXCHANGES (IN CRORES)

SEs / YEARS 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

BHUBNESHWAR 0.02 0 0 0 0 0

KOLKATA 355035 2074 6539 1927 2714 2802

COIMBATORE 0 0 0 0 0 0

COCHIN 26 1 0 0 0 0

PUNE 6171 1150 2 0 0.37 0

VADODRA 0.85 10 260 0 0 0

AHMEDABAD 54035 14644 15482 5044 8 0

UTTAR 24741 13337 14763 13130 5343 1487

PRADESH

JAIPUR 0 0 0 0 0 0

OTCEI 126 4 0.54 16 0.01 0.01

LUDHIANA 9154 857 0 0 0 0

MADRAS 109 24 38 99 27 5

HYDERABAD 978 41 5 3 14 97

MAGADH 1 .0041 1 0.09 0 91

SAURASHTRA 0 0 0 0 0 0

89
KATCH

BANGLORE 10187 934 0.11 0.01 0 0

DELHI 82996 5526 11 3 0 0

GAUHATI 0 0 0 0 0 0

MADHYA 4 10 0 0 0 0
PRADESH

INTER- 237 69 24 0.034 0 0

CONNECTED
Except for the Calcutta stock Exchange (CSE) and the Uttar Pradesh Stock
Exchanges (UPSE), there is no trading on the other 17 regional stock exchanges.

Will RSE die out in coming decade ?

Till date there have been various measures taken up for the revival of
these regional stock exchanges :

Considering that the RSEs had invested substantially in the infrastructure, which included
building, hardware and software for automated trading, several initiatives were taken to
revive these exchanges so that the infrastructure could be put to productive use. some
initiative taken by the governing bodies were:

1-Setting up of the Inter-Connected Stock Exchange of India Limited

(ICSE)
The first among them was the setting up of the ICSE platform to regroup the RSEs to
provide a third national market. The ICSE was promoted in 1998 by 14 RSEs for providing
an additional
trading platform where the shares listed on any of these 14 exchanges would be traded.

90
The ICSE was conceptualized as a stock exchange to provide a common trading platform
to
members of all participating stock exchanges, mainly with the objective of boosting trade
in the securities listed on the participating stock exchanges. The inter-connectivity of stock
exchanges was meant to facilitate the member of one stock exchange to deal with the
member of another stock exchange through an electronically inter-connected market
system, which was provided by ICSE. This system is referred to as a Central Limit Order
Book (CLOB) in exchange parlance.
It was felt that such trading across different stock exchanges would generate renewed
trading interest among investors by providing them an opportunity to trade in large number
of shares that were listed on the participating exchanges. A CLOB should ideally have
eliminated fragmentation of the market and consequently, created liquidity. But this did not
happen. The existing regional order books of the participating exchanges continued
alongside CLOB. This fragmented the order book and thus depleted the liquidity in the
shares exclusively listed and traded on the RSEs. On account of lack of liquidity, ICSE did
not succeed.
Another reason of non-functioning of inter-connected stock exchange was lack of trust of
other stock exchanges and improper administration of board of directors of this stock
exchange.

2- PERMITTIING RSE TO FLOAT ITS SUBSIDIARY COMPANIES:

The second effort was to permit the RSEs to set up broking subsidiaries which could pool
the financial resources of regional brokers and of the exchanges and obtain membership of
the BSE and NSE. The regional brokers could then act as sub brokers to the subsidiaries
(which had registered as brokers) and have access to the markets of BSE and NSE. Even
the ICSE set up such a broking subsidiary. The setting up of the subsidiaries followed from
the recommendation of an Expert Committee on revival of smaller stock exchanges
constituted by SEBI. Based on the recommendations of the Committee, SEBI had vide
Circular dated November 26, 1999, permitted the RSEs to form wholly owned subsidiaries

91
which could then obtain membership of larger stock exchanges (primarily NSE & BSE).
This route was envisaged as a temporary lifeline to the members of RSE and it was not
contemplated that the arrangement would continue permanently. Though the scheme
maintained the purity of the functions of the exchanges, though dysfunctional, most
subsidiaries became successful brokers in the market of other exchange(s). Although the
subsidiaries were basically brokers, there were several differences between them and
corporate broking firms, primarily because these were subsidiaries of the stock exchanges.
Hence, different norms and criteria were applied to the subsidiaries as well as to the sub
brokers of the subsidiaries who were actually also brokers of the parent exchanges.
So, it was decided in a meeting held on September 9,1999 to promote or float a subsidiary
company to acquire membership right of other big stock exchanges i.e. NSE /BSE subject
to under noted conditions:

The subsidiary company shall be 100% owned by stock exchanges

promoting/floating such subsidiary company. The name of the company shall not
contain the word stock exchange.
The members of stock exchange shall register themselves as sub .brokers of
subsidiary company to enable them through subsidiary company.
The subsidiary company shall register only the members of stock exchange, which
is promoting the subsidiary company as its brokers, and no other client/sub broker
shall be entertained by subsidiary company.
The sub broker of the subsidiary company shall maintain separate deposits with the
subsidiary company. The Base Minimum Capital deposited by the sub broker
with the promoting stock exchanges shall not be transferred to the subsidiary
company.
The trading / exposure limit of the sub-brokers shall be based on the deposit
received by the subsidiary company from the sub broker and these limits shall not
exceed the limits as prescribed by the stock exchange of which the subsidiary
company is a member.
The subsidiary company shall collect margins from the sub brokers for the
payment of margins to the respective stock exchange of which subsidiary company
is the member. The margin imposed by the subsidiary company on its sub broker

92
 shall not be less than the margin payable to the stock exchange of which the
subsidiary company is the member.
The stock exchange shall incorporate the above mentioned condition in the
Memorandum of association and Article of Association of the subsidiary company.

3- SETTING UP OF BSE-INDONEXT After the failure of ICSE it was decided

in year 2004 to set up a trading platform which would enable the Small and Medium
Enterprises (SMEs) to raise capital both debt and equity, as well as provide liquidity to
such securities. To achieve this purpose a new platform was established whose charge was
taken by BSE and called as BSE-INDONEXT.
The BSE IndoNext has been set up as a separate trading platform under the present
Bombay On Line Trading System (BOLT) of the BSE. It is a joint initiative of the BSE and
the Federation of Indian Stock Exchanges (FISE) of which 18 Regional Stock Exchanges
(RSEs) are members. The members of the RSEs have been allowed to trade in this market.
The BSE IndoNext trading platform has introduced the concept of single order book for a
security as against multiple listings permitted in other securities. Once a security is eligible
for trading in the BSE IndoNext market, it will not be available for trading on any other
exchange and orders from brokers of all exchanges in that security will flow only to this
market. The objectives of the BSE IndoNext trading platform are:
a) to provide a nation-wide trading platform for the SMEs already listed with the
participating RSEs and BSE.
b) to create liquidity in eligible securities listed on the participating RSEs.
c) to create an avenue for the existing and new SME companies from various regions of the
country to raise fresh capital, both equity and debt, which would help achieve balanced
regional growth.
d) to use the available infrastructure of the participating RSEs for productive purposes.
The BSE IndoNext trading platform was to be implemented in phases. Honorable Finance
Minister had inaugurated the BSE IndoNext trading platform on January 7, 2005 and
operationalised the first phase of the BSE IndoNext platform. The BSE would transfer

93
eligible securities within the range of paid-up capital between Rs.3 crore and Rs.20 crore,
currently traded in the B1 and B2 groups in BSE against which there is no regulatory
action. Similarly, the participating RSEs will also transfer eligible securities to BSE
IndoNext to be traded as permitted
securities. At this stage, the entire responsibility for monitoring and surveillance is vested
with BSE as the brokers who would be trading on the BSE IndoNext will be members of
BSE. For this purpose, SEBI has already granted necessary approvals. The second phase
when implemented will allow participation of all brokers of RSEs in the BSE IndoNext
taking benefit of the recent amendment to the SC(R)A. For this, the BSE and the RSEs will
have to amend the respective Bye-laws as well as enter into MoUs. These legal
requirements are in progress. Once the Bye-laws are approved by SEBI, the second phase
will be implemented and the responsibility for surveillance, monitoring and compliance
will be jointly shared between BSE and RSEs. In the third phase, the BSE as well as the
RSEs will have to work out an effective marketing and business development strategy.
The BSE IndoNext trading platform was thus supposed to be implemented in phases. But it
has not yet gone beyond the first phase in which the major shares transferred are from the
B1 and B2 group of the BSE and only a few shares of some of the RSEs have been
transferred. Members of RSEs do not have trading access to the limited platform of
securities on IndoNext as envisaged. Currently, shares of 520 companies are eligible to
trade in the BSE IndoNext segment and its average daily trading turnover is over Rs.100
crores.

4- NEW FDI NORMS : New FDI norms which allow foreign investment up to 49%
in stock exchanges, depositories and clearing corporations ,with a cap on single investment
direct or indirect at 5%.

5- INTRODUCTION OF THE CONCEPT OF DEMUTUALIZATION

AND CORPORATIZATION :

94
Historically brokers owned & controlled the stock exchanges. In case of disputes ,the
integrity of the exchanges suffered. Therefore the regulators focused on reducing the
dominance of trading members in the management of stock exchanges and advised them to
reconstitute their governing councils to provide for at least 5% non- members
representatives.
The SEBI has approved and notified the CORPORATIZATION & DEMUTUALIZATION
scheme of 19 stock exchanges. This is the major step for modernization of securities
market. India is the only country which has achieved this corporatization and
demutualization in the shortest possible time.NSE and OTECI was the first exchange in
India to adopt pure demutualization governance structure where ownership ,management
and trading are with 3 different sets of people .this completely eliminates any conflict of
interest and helped NSE to aggressively pursue policies.
Introduction of this concept helped in bringing transparency in RSE which would further
help in attaining trust of investors in these RSEs.
But due to some of the reasons these measures didnt proved to be fruitful for the
revival of these RSE. Let us go through the reasons for the failure of these measures:

REVIEW OF FAILURE OF EXISTING ICSE &BSE

INDONEXT

1-The ICSE was set up with the hope that it would become a viable third national platform
with the participation of the RSEs to provide for a market in the securities listed
exclusively in the
participating RSEs. The success of the ICSE hinged on the willingness and co-operation of
the participating RSEs and their members to actively support trading of the exclusively
listed securities on the participating RSEs. This initiative, however, failed at the nascent
stage itself because the RSEs were not willing to provide the extent of support and
cooperation
that was necessary and required for the success of this venture. But more importantly, there
was no common order book and the order book was fragmented between the ICSE and the

95
participating RSEs. Besides, it was not contemplated in the scheme of the ICSE to permit
members of BSE and NSE to trade on ICSE. This subtracted a large body of well
capitalized brokers from this market. There was lack of proper administration too in ICSE.
At present the turnover of ICSE is almost nill.
2- In view of the failure of the ICSE to grow into a viable third trading platform and
considering the need to provide an avenue to the SMEs to raise capital, BSE IndoNext was
set up. As already discussed earlier in the report, BSE IndoNext was to be implemented in
three phases :
- In the first phase, the BSE would move the eligible securities in its B1 and B2
groups to be traded on this platform which would essentially be a separate screen of BSEs
BOLT system. Some of the exclusively listed securities of the RSEs would be permitted to
trade on this platform. While the members of the BSE would be free to trade on this
platform, the members of the RSEs would trade on this platform through their subsidiaries
in the first phase. The risk management and the responsibility for regulatory compliance
would remain with the BSE in this phase.
-The second phase envisaged all the eligible securities which are exclusively listed on the
RSEs to be traded in this segment and the responsibility for risk management, compliance
and clearing & settlement would vest with the RSEs through an MoU to be entered
between the RSEs and the BSE. In order to facilitate this process of trading of exclusively
listed securities at a national level and to enable all members of RSEs to trade on the BSE
in this segment and issue contract notes, sec. 13 of the SCRA was amended. Since the
eligible securities that were exclusively listed on the RSEs fall in the SME category, it was
hoped that BSE IndoNext would provide a
viable market for the securities of SMEs besides addressing the issue of RSEs at the same
time.
- In the third phase, SMEs could raise capital and list on this platform with appropriate
listing requirements and corporate governance procedures which the SMEs could easily
comply with. However, this experiment too did not meet with any measure of success and
the BSE IndoNext did not take off beyond the first phase. The failure in this case could be

96
attributed to the reluctance on the part of BSE to dilute its entry norms and the eligibility
criteria of securities for trading on this platform
In the absence of a third platform, the SMEs in India would have virtually no avenue for
raising capital from the public and this would not be in the interest of the Indian economy
in the long run. Internationally, markets have developed and successfully grown such
exclusive platforms for the SMEs. These platforms have acted as nurseries for nurturing
the growth of SMEs into larger enterprises.

SO THE MOST SIGNIFICANT OBJECTIVE OF MY STUDY IS :

1- TO KNOW THE REASONS OF THE DOWNFALL OF RSES?

2- WHAT STEPS HAVE BEEN TAKEN BY SEBI & OTHER AUTHORITIES TILL
DATE FOR THE REVIVAL OF RSE?
3- IS THERE ANY NEED FOR THE REVIVAL OF RSE?
4- WHAT ARE THE POSSIBLE ALTERNATIVES FOR THE RESTRUCTURING
OF RSES?
The first two questions of my study have already been answered by me in above
paragraphs. let us now focus on the other two important questions which are yet to be
answered.

3.5 DATA & METHODOLOGY :

-There are various types of research such as exploratory research, descriptive
research, casual research. But since my survey is based on the response of certain
segment of population based on primary data I have done descriptive research.

-My target population are Brokers, Investors & Employees of Stock exchange.
To get the view points of concerned person related with this business I have prepared a
Questionnaire .The research question for this study will be to analyze the attitude of these
concerned people about the revival of RSE & what are the possible solution for their
revival

97
.
-Source of Information Structured Questionnaire .

- Sample size My sample Size is of 60 respondents from 3 stock exchanges i.e. UPSE,
CSE ,DSE.

-My sample represents the population of diversified educational background ,

income , stock exchanges and securities in which they trade the brief of which can be
seen in the tables given below:

RESPONDENTS OCCUPATION

Cumulative
Frequency Percent Valid Percent Percent

Valid BUSINESS 18 30.0 30.0 30.0

RETIRED 10 16.7 16.7 46.7

SERVICE 32 53.3 53.3 100.0

Total 60 100.0 100.0

RESPONDENTS GROUP

Cumulative
Frequency Percent Valid Percent Percent

Valid BROKER 6 10.0 10.0 10.0

EMPLOYEE 19 31.7 31.7 41.7

INVESTOR 35 58.3 58.3 100.0

Total 60 100.0 100.0

98
 MONTHLY INCOME OF RESPONDENTS

Cumulative
Frequency Percent Valid Percent Percent

Valid BELOW 10000 6 10.0 10.0 10.0

10000-40000 35 58.3 58.3 68.3

40000-60000 13 21.7 21.7 90.0

60000-80000 2 3.3 3.3 93.3

80000-100000 4 6.7 6.7 100.0

Total 60 100.0 100.0

RESPONDENTS EDUCATION

Cumulative
Frequency Percent Valid Percent Percent

Valid ANY OTHER 2 3.3 3.3 3.3

GRADUATE 28 46.7 46.7 50.0

PROFESSIONAL 20 33.3 33.3 83.3

POST GRADUATE 10 16.7 16.7 100.0

Total 60 100.0 100.0

NOTE- Copy of sample questionnaire in Appendix.
CHAPTER 4

4. DESCRIPTIVE & INFERENTIAL STATISTICS & RESULTS

4.1SUMMARY STATISTICS :On the basis of data collected here is the statistical
outcome of my research work:

99
 ( 1) THEY INVEST IN SECURITIES MARKET OR NOT

Frequency Percent Valid Percent Cumulative Percent

Valid NO 4 6.7 6.7 6.7

YES 56 93.3 93.3 100.0

Total 60 100.0 100.0

IN GRAPHICAL FORM: Figure 1

( 2) IN WHICH STOCK EXCHANGE THEY TRADE?

100
 Frequency Percent Valid Percent Cumulative Percent

Valid BOMBAY STOCK

23 38.3 38.3 38.3
EXCHNAGE

CALCUTTA STOCK
7 11.7 11.7 50.0
EXCHANGE

none 4 6.7 6.7 56.7

NATIONAL STOCK
23 38.3 38.3 95.0
EXCHNAGE

UTTAR PRADESH STOCK

3 5.0 5.0 100.0
EXCHNAGE

Total 60 100.0 100.0

IN GRAPHICAL FORM- figure 2

101
 (3) WHICH CATEGORY OF SHARES THEY HOLD

Frequency Percent Valid Percent Cumulative Percent

Valid ANY OTHER 6 10.0 10.0 10.0

none 4 6.7 6.7 16.7

SENSEX/NIFTY 38 63.3 63.3 80.0

THINLY TRADED 12 20.0 20.0 100.0

IN GRAPHICAL FORM- figure 3

102
 ( 4) IS 19 RSE SUPERFLOUS & AGAINST REQUIREMENT?

Frequency Percent Valid Percent Cumulative Percent

Valid AGREE 11 18.3 18.3 18.3

CAN'T SAY 13 21.7 21.7 40.0

DISAGREE 19 31.7 31.7 71.7

STRONGLY AGREE 9 15.0 15.0 86.7

STRONGLY DISAGREE 8 13.3 13.3 100.0

Total 60 100.0 100.0

IN GRAPHICAL FORM figure 4

103
 (5) REASONS FOR NON-FUNCTIONING OF RSE

Frequency Percent Valid Percent Cumulative Percent

Valid ANY OTHER 2 3.3 3.3 3.3

INVESTOR INSECURITY 6 10.0 10.0 13.3

LACK OF PROPER
7 11.7 11.7 25.0
ADMINISTRATION

SEBI REGULATIONS 15 25.0 25.0 50.0

WIDE COVERAGE OF NSE/BSE 30 50.0 50.0 100.0

Total 60 100.0 100.0

IN GRAPHICAL FORM figure 5

104
 (6) WILL INVASION OF BANKS EFFECT BROKING BUSINESS

Frequency Percent Valid Percent Cumulative Percent

Valid NO 36 60.0 60.0 60.0

YES 24 40.0 40.0 100.0

Total 60 100.0 100.0

IN GRAPHICAL FORM- figure 6

105
 (7) IS COMMERCIAL CONSIDERATION OF BIG BROKERS BIG HURDLE FOR RSE

Frequency Percent Valid Percent Cumulative Percent

Valid CAN'T SAY 15 25.0 25.0 25.0

INCORRECT 13 21.7 21.7 46.7

SOMEWHAT CORRECT 25 41.7 41.7 88.3

SOMEWHAT INCORRECT 4 6.7 6.7 95.0

TOTALLY CORRECT 3 5.0 5.0 100.0

Total 60 100.0 100.0

106
 IN GRAPHICAL FORM- figure 7

(8) HAS DEMUTUALIZATION SERVED ITS PURPOSE

Frequency Percent Valid Percent Cumulative Percent

Valid NO 35 58.3 58.3 58.3

YES 25 41.7 41.7 100.0

Total 60 100.0 100.0

IN GRAPHICAL FORM- figure 8

107
(9) IS NSE ALONE SOLVING PURPOSE OF RUNNING HEALTHY STOCK EXCHANGE

Frequency Percent Valid Percent Cumulative Percent

Valid AGREE 20 33.3 33.3 33.3

CAN'T SAY 8 13.3 13.3 46.7

DISAGREE 13 21.7 21.7 68.3

STRONGLY AGREE 13 21.7 21.7 90.0

STRONGLY DISAGREE 6 10.0 10.0 100.0

Total 60 100.0 100.0

108
 IN GRAPHICAL FORM figure 9

(10) IS THERE NEED FOR REVIVAL OF RSE

Frequency Percent Valid Percent Cumulative Percent

Valid AGREE 24 40.0 40.0 40.0

CAN'T SAY 4 6.7 6.7 46.7

DISAGREE 3 5.0 5.0 51.7

STRONGLY AGREE 27 45.0 45.0 96.7

STRONGLY DISAGREE 2 3.3 3.3 100.0

Total 60 100.0 100.0

109
 IN GRAPHICAL FORM figure 10

(11) WILL NSE SUCCEED IN CREATING MONOPOLISTIC SITUATION

Frequency Percent Valid Percent Cumulative Percent

Valid NO 16 26.7 26.7 26.7

YES 44 73.3 73.3 100.0

Total 60 100.0 100.0

110
IN GRAPHICAL FORM figure 11

111
 (12) SOLUTION AVAILABLE FOR REVIVAL OF RSE

Frequency Percent Valid Percent Cumulative Percent

Valid CONSOLIDATION OF RSE'S 23 38.3 38.3 38.3

DEVELOPING NEW FINANCIAL

12 20.0 20.0 58.3
INSTRUMENTS

LISTING OF NEW COMPANIES 13 21.7 21.7 80.0

TRADING PLATFORM OF
12 20.0 20.0 100.0
SMALL CAP CO TO RSE

Total 60 100.0 100.0

IN GRAPHICAL FORM figure 12

CROSS TABULATION

112
While frequencies show the numbers of cases in each level of a categorical variable, they
do not give information about the relationship between categorical variables .The
Crosstabs procedure is useful for investigating this type of information because it can
provide information about the intersection of two variables. Based on the data collected
here is the cross tabulation of some important variables:

RESPONDENTS GROUP * IS 18 RSE SUPERFLOUS CROSSTABULATION

Tota
IS 18 RSE SUPERFLOUS
l
AGREE CAN'T DISAGREE STRONGLY STRONGLY
BROKER Count 1 1 0 1 3 6

% within
100.
RESPONDEN 16.7% 16.7% .0% 16.7% 50.0%
0%
TS GROUP

EMPLOYEE Count 2 5 7 0 5 19

% within
100.
RESPONDEN 10.5% 26.3% 36.8% .0% 26.3%
0%
TS GROUP

INVESTOR Count 10 7 10 3 5 35

% within
100.
RESPONDEN 28.6% 20.0% 28.6% 8.6% 14.3%
0%
TS GROUP

Count 13 13 17 4 13 60
TOTAL
% within
100.
RESPONDENTS 21.7% 21.7% 28.3% 6.7% 21.7%
0%
GROUP

113
RESPONDENTS GROUP * REASONS FOR NON-FUNCTIONING OF RSE CROSSTABULATION

REASONS FOR NON-FUNCTIONING OF RSE

LACK OF WIDE

PROPER COVERAG

INVESTOR ADMINISTRATI SEBI E OF

INSECURITY ON REGULATIONs NSE/BSE total

Count 0 0 3 3 6

BROKER
% within

RESPOND
.0% .0% 50.0% 50.0% 100.0%
ENTS

GROUP

EMPLOYEE Count 1 1 3 14 19

% within

RESPOND
5.3% 5.3% 15.8% 73.7% 100.0%
ENTS

GROUP

INVESTO Count 5 6 9 15 35

R
% within
RESPOND
14.3% 17.1% 25.7% 42.9% 100%
ENTS

GROUP

Count 6 7 15 32 60

TOTAL
% within

RESPONDE
10.0% 11.7% 25.0% 53.3% 100.0%
NTS

GROUP

114
 RESPONDENTS GROUP * IS THERE NEED FOR REVIVAL OF RSE CROSSTABULATION

IS THERE NEED FOR REVIVAL OF RSE

STRONG

LY

STRONGL DISAGRE

AGREE CAN'T SAY DISAGREE Y AGREE E Total

BROKER Count 3 0 0 3 0 6

% within

RESPONDENTS 50.0% .0% .0% 50.0% .0% 100.0%

GROUP

EMPLOYEE Count 8 0 1 10 0 19

% within

RESPONDENTS 42.1% .0% 5.3% 52.6% .0% 100.0%

GROUP

INVESTOR Count 12 4 2 15 2 35

% within

RESPONDENTS 34.3% 11.4% 5.7% 42.9% 5.7% 100.0%

GROUP

Count 23 4 3 28 2 60
TOTAL
% within

RESPONDENTS 38.3% 6.7% 5.0% 46.7% 3.3% 100.0%

GROUP

115
RESPONDENTS GROUP * SOLUTION AVAILABLE FOR REVIVAL OF RSE CROSSTABULATION

SOLUTION AVAILABLE FOR REVIVAL OF RSE

TRADING

DEVELOPING PLATFORM

CONSOLIDA NEW LISTING OF OF SMALL

TION OF FINANCIAL NEW CAP CO TO

RSE'S INSTRUMENT COMPANIES RSE Total

BROKER Count 2 2 2 0 6

% within
100.0
RESPONDENTS 33.3% 33.3% 33.3% .0%
%
GROUP

EMPLOYEE Count 7 3 5 4 19

% within
100.0
RESPONDENTS 36.8% 15.8% 26.3% 21.1%
%
GROUP

INVESTOR Count 14 6 7 8 35

% within
100.0
RESPONDENTS 40.0% 17.1% 20.0% 22.9%
%
GROUP

Count 23 11 14 12 60
TOTAL
% within
100.0
RESPONDENTS 38.3% 18.3% 23.3% 20.0%
%
GROUP

116
4.2 ANALYSIS BASED ON THESE STATISTICS: On the basis of outcome of
data collected we can conclude that:

Out of the total respondents almost 93% of them invest in securities market.
Around 77% population do trading from NSE & BSE terminals spread all over
india.
Almost 63% population is trading in Sensex i.e. in top 30 blue chip scrips of
various companies. Around 20% population trades in thinly traded securities . 10%
of respondents also invest in other financial instruments such as F & O , Midcap
and small cap shares .
Almost 60% respondents feels that invasion of banks in broking business will
negatively effect business of brokers. The reason for this they think is the presence
of number of services provided by banks under one single roof i.e. opening current
& savings account, getting Demat facility and acting as a broker for sale and
purchase of shares.
But still 40% respondents disagrees with this point because they think that the
commission charged by banks for this brokerage facility is more than what is
actually charged by normal brokers which cannot exceed more than 2.5 % of the
value of scrip traded.
The main objective of CORPORATIZATION & DEMUTUALIZATION
SCHEME, 2005 was to segregate trading , ownership and administration of all
stock exchanges .but from the response of respondents its very clear that this
scheme of SEBI has not been fully successful in its purpose . 60% of the
respondents still feel that big brokers still interrupt in decisions taken and policies
framed by these stock exchanges. 46% of the respondents feel that commercial
consideration of big brokers is big hurdle in development of RSE.
Next very important issue which came out of this study was that is NSE alone
solving the purpose of running a healthy stock exchange . the outcome which I got
was that 55% of respondents feel that yes NSE is alone solving purpose of running

117
 healthy stock exchange mad 73% of the respondents feel that it may lead to
monopolistic situation by RSE.
At last the outcome of my main purpose of the study was quite interesting:
Around 45 % population feels that running 19 RSE are needed although NSE &
BSE covers almost 99 of total turnover .They suggested various reasons to support
their this view .
50% agrees that wide coverage of NSE & BSE terminals all over the country and
online trading facility has been the main reason for the non- functioning of RSE.
Around 20% population responded that SEBI regulations are yet another major
factor for non functioning of RSE.
85 % of respondents strongly agrees that there is need for the revival of RSE.
There has been number of alternative solutions suggested by respondents for the
revival of RSE.
-Around 38 % respondents suggested that consolidation of all RSE is the best
solution for their revival.
-Around 22% respondents suggested that development of new financial instrument
or entering into any other related business such as opening of depository or getting
license
to trade in F & O can boost the revenue of RSE.
-The circular which was passed in 2003 , allowing non compulsion for listing of
new companies in regional stock exchange should be non validated & rule should
be passed for compulsory listing of new companies in their regional stock
exchanges which will eventually increase revenue of RSE through listing fees they
will get annually from these companies. Around 20% respondents support this
alternative solution.
-SMEs i.e. small medium enterprises have bright future. Agreeing with this point
around 20% respondents feel that these mid cap and small cap companies should be
exclusively listed in these RSE & those Midcap and small cap companies which are
already listed in NSE or BSE should get delisted from their and get listed in any of
the RSE.

4.3 ASSUMPTIONS & ACHIEVEMENTS :

118
 The sample represents the population i.e 60 respondents are from diversified
educational background and income .
Respondents have answered a survey truthfully &None of the respondents answer
is missing.
Instruments used by me i.e. questionnaire and frequencies based on data collected
provides adequate coverage to my topic.
There is no personal biasedness or any personal opinion in the outcome of any data
collected.

ACHIEVEMENTS :

For getting authentic data from all sources I had collected my data from 3 stock
exchanges i.e. Calcutta stock exchange (CSE), Uttar Pradesh Stock
exchange( UPSE), & Delhi Stock Exchange ( DSE). DIRECTOR OF DELHI
STOCK EXCHANGE, MR. H.S. SIDHU, appreciated my this attempt and gave his
personal opinion about revival of RSE.
Apart from this I had also mailed my questionnaire to employees of NTPC ,
vidutnagar who are basically big investors.
I have also collected my data from various CA & CS who are well accustomed with
the compliances of stock exchanges and its functioning.

Here are the suggestions provided by various respondents :

-MR. H.S. SIDHU,DIRECTOR , DELHI STOCK EXCHANGE, ICWA, CS- I
strongly believe that RSE can play very important role provided they merge into CTP i.e.
common trading platform. Developing new financial instruments can enhance the revenue
of various RSE.

-MR. SUTAPA BASU,CA, CALCUTTA STOCK EXCHANGE- The regional stock

exchanges require the brokers and investors trust and proper administration for their
revival.
-Mrs. SUMAN DEY, CALCUTTA STOCK EXCHANGE, PHD- RSE should take
approval from SEBI for becoming NBFC and start operating like giving different loans ,
tie ups with insurance companies etc. they should go to big brokers and ask what they want

119
.these people can bring the confidence of others. But providing trading platform to small
cap companies is best solution for their revival.

-Mr. AMIT SANTRA, Sr OFFICER CALCUTTA STOCK EXCHANGE & INDIAN

EXPRESS, CA,ICWA- The most important reason of non functioning of RSE is growing
illiquidity. Listing of new companies with paid up share capital less than 2 crore is the
good solution for the revival of RSE.

- Mrs. PRIYADARSHINI MUKHERJEE, SECRETARY OFFICER,CALCUTTA-

With the extinction of the Regional Stock Exchanges NSE is likely to become a
Monopoly which may prove to be harmful in the years to come. The RSEs must be merged
to form a new exchange with the help of Institutional Investors which must rank parallel to
NSE. Certain specifications in respect of nature of industry, market capitalization etc can
be worked out for the two exchanges, so that companies can get listed with both the
exchanges simultaneously. Result -A fair play.

-MR. HANUMAN MAL CHORARIA,PCS - Regional Stock Exchange should be

revived and they should also learn to operate and run the show in line with NSE/ BSE with
full transparency and keeping the interest of the Investors in their mind always RSE
should not be used for the benefit of its member/ office bearer / big operators and local
peoples, further RSE can be used to develop the debt market and the market for medium ad
small cap Companies.

-MR. DEBESH KUMAR ROUL, PGD, CALCUTTA STOCK EXCHANGE-

Aggressive implementation of technology, enhancement of skills ,knowledge & attitude of
existing employees ,rigorous surveillance, zero tolerance for any kind of financial flaws ,
financial benefit i.e. reduction of STT required for members who want RSE platform.

4.4SUGGESTIONS & SOLUTIONS

120
SUGGESTIONS
1- There is a need of Analysis of the financial conditions of the RSEs and their
subsidiaries, and of the listing, trading and compliance status of the companies listed in
these RSEs is equally important for a complete appreciation of the present conditions of
the RSEs and the choices available with the subsidiaries.

2- The RSEs were established with the objective of providing a regional market for raising
capital by companies in the respective regions by garnering regional savings to help
achieve a balanced regional development and to spread the equity cult among investors in
the country. This objective has been fairly served by the RSEs for a length of time. But
with the advent of modern telecommunication and information technology and the
symbiotic interaction of technology and the markets, which facilitated a fundamental
transformation of the market micro structure, the scope of the RSEs became limited till
they virtually lost their relevance. Although there are over 4000 companies exclusively
listed on these RSEs, there has been no de facto trading in the listed securities of these
companies. The sizeable capital investment made by the RSEs towards fixed assets and
technology has thus become redundant. The large assets of the RSEs, especially the
land and buildings have good realizable value, but have been of little economic utility for
the RSEs, listed companies or investors. Under these unenviable conditions, the RSEs were
forced to take up ancillary activities such as training, investor education and depository
services. The income generated from listing fees and the ancillary activities, return on the
investments made by the RSEs and surplus generated by the subsidiaries became the main
sources of revenue for the RSEs. In sum, most of the RSEs ceased to be markets where
securities of companies listed on them are bought and sold.
3- The above situation naturally raises the basic question on the Requirement of the RSEs
and their subsidiaries in the present market structure. When this question was posed before
the RSEs in various meetings held in past , it did not evince any convincing response. They
did not come with any specific viable business plan for the revival of the RSEs excepting

121
pinning hopes on a future which might be bright. Most seemed keen to be part of a solution
if an appropriate nucleus of leadership could be found. Moreover, all of them were looking
to SEBI to assist in creating a viable business model for the future. There were some who
were willing to participate in a common trading platform and also engage themselves in
various capital market related activities. Some of them even suggested that such a trading
platform could be set up on a
regional basis in each of the four regions. A few of the RSEs were confident of being able
to survive as independent exchanges, again with some support from SEBI. There were
others who were not confident of the success of any of these models in the light of their
past experiences and were willing to accept a financially attractive exit option. The ICSE
which was set up as a common platform proved to be a failure.

4- There are certain deeply embedded behavioral issues which continue to dominate the
mind set of the members of the RSEs and they seem to be coming in the way of some of
the RSEs accepting the reality which demands sub-ordination of their individual and
independent identity before the larger interest of the very survival of the RSEs.. Indeed, it
was this attitude coupled with the equally uncompromising attitude of the business partners
which were responsible for the failure of the various rehabilitatory measures taken in the
past for the revival of the RSEs. Equally the members of the RSEs, by virtue of their
access to national trading platforms through the subsidiary route did not find any incentive
to trade and promote trading in the RSEs.RSE belonging to various regions are not
interested in consolidating with each other. Big regional stock exchanges consider it
against its pride to consolidate itself with bigger stock exchanges.

5- There have also been serious regulatory concerns from time to time on the functioning
of
some of the RSEs which have been discussed above. These regulatory concerns had led
SEBI to take recourse to the extreme measure of superseding the governing boards of some
exchanges and even to withdraw the recognition in the case of one RSE. These regulatory

122
concerns still remain in the case of some of the RSEs where the members continue to
remain recalcitrant and resort to undesirable market and governance practices.

6- SEBI has come up with some guidelines for the revival of regional stock exchanges
such
as RSEs which do not want to continue as exchanges should be given an exit option, (b)
the recognition of such of the RSEs which are notorious for their rank indiscipline besides
giving rise to serious regulatory concerns should be compulsorily withdrawn and (c) a
continuing option may be given to such of the RSEs which have the potential and the
willingness to participate in any alternate trading. sections 4 and 5 of the SCRA
sufficiently
empower SEBI to withdraw recognition for both the category of exchanges whether an
exchange is recognized permanently or from year to year. The withdrawal of recognition to
the above two categories of RSEs would help clean up the system, besides reducing the
regulatory hazard to the investors, various regulators including tax authorities and the
government. The issue of distribution of assets would become relevant in the eventuality of
withdrawal of recognition for any reason. There is at present no provision for such
distribution either under the SCRA or within the regulatory framework of SEBI. As
distribution of assets would be an
impending consequence of any withdrawal of recognition of a stock exchange, there is an
urgent need to formulate a permanent and appropriate scheme. suitable rules be formed
under section 30 of the SCRA, for distribution of assets of any stock exchange which
ceases to be a recognized stock exchange.

7)Suggestions for providing exit route for RSEs which desire withdrawal of
recognition
a) SEBI should come out with clear guidelines providing permission to such RSEs which
desire to exit the business of functioning as a stock exchange on a voluntary basis,
spelling out the modalities for distribution of both financial and physical assets.

123
b) Post withdrawal of recognition, the surviving entity which becomes a regular company
should be allowed to utilize the infrastructure for any other business purposes as
deemed fit by that entity.
c) There could be companies which are exclusively listed only on a particular RSE which
seeks voluntary withdrawal of recognition. Such companies should be allowed to get
listing in the to be formed consolidated RSE.
d) The entity which remains after withdrawal of recognition must immediately change its
name and style and cannot continue in any business as a stock exchange. In case a stock
exchange whose recognition is withdrawn has a subsidiary, such an entity would also have
to change its name and style to avoid any representation of any present or past affiliation
with an exchange. It would be up to the subsidiary to carry on broking operations as any
other broking entity registered with SEBI subject to the same rights and duties

The corpus of any stock exchange is made up of (1) the contribution of the members, (2)
the
income of the exchange, and (3) the fiscal incentives which had helped the accumulation of
reserves. In addition, it may include an adventitious factor by way of appreciation in the
value
of the assets over a period of time. The net worth of the exchange after revaluation of the
assets and liabilities based on market value could be apportioned on the basis of the three
components of the corpus mentioned above. The share relating to the members
contribution
should be made available to the members. The balance will be transferred to an escrow
account and then to a fund earmarked for the purpose of investor protection managed by
SEBI. This scheme will need a proper methodology for valuation of the assets and
liabilities
as well as for determining the proportion mentioned above and should be carried out by an
independent entity such as chartered Accountant. This distribution of assets will encourage
RSE to opt for exit route

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8- All the RSEs whose recognition has not been withdrawn either voluntarily or
compulsorily must collectively choose (in order for it to succeed) either the BSE model or
in the alternative, the ICSE model. In order that the Public representative (PR) Directors
are able to discharge their responsibilities, it is important that they are conversant with the
governance of the RSEs, have a reasonable knowledge of the securities market and are
aware of their own functions as PR Directors. SEBI should work out an appropriate
training programme for the PR Directors. In case both of these models fail for whatever
reasons, there would be no merit in the continuation of the RSEs and the recognition of all
the RSEs will, therefore, have to be compulsorily withdrawn. Once the RSEs have chosen
a particular model, such of the RSEs which are unwilling to accept that model should face
compulsory withdrawal of recognition in the future as they provide neither a trading
platform nor serve any public interest.

9- All stock exchanges may adopt the IPO route for increasing the public shareholding.
The interest of the development of the stock exchanges can be developed by adding
some strategic partners. . Any entity other than exchange, multilateral agency, insurance
company, bank, depository and clearing corporation can be allowed to hold less than 15%
of the share capital and voting rights of the stock exchange either singly or collectively
along with persons acting in concert. However, in case a strategic partner is an exchange,
multilateral agency, insurance company, bank, depository or clearing corporation, it would
be allowed to hold upto a maximum of 26% of the share capital and voting rights of the
stock exchange either singly or collectively along with persons acting in concert. Any
strategic partner must comply with SEBI (Criteria for Fit and Proper Person) Regulations,
2004. The holding by any foreign entity including FIIs would be subject to the overall
policy of the Government on FDI.

10- The greatest impact on account of withdrawal of recognition either on request or on

compulsory direction on the companies exclusively listed on the RSEs and their
shareholders would also need to be suitably addressed. There are about 4000 companies
which are exclusively listed on the RSEs, a majority of which are listed in DSE and CSE.

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It is important to note that save a handful of these companies, there is no trading in any of
the companies on the RSEs for the past several years. An analysis of the compliance status
of these companies indicates that only about 500 companies are compliant with the
continuous listing requirements. It is felt that such compliant companies in an exchange
which will no longer remain recognized, should be
allowed to migrate to any other exchange with minimum procedure and hassle to the
company. SEBI can prescribe that files of such compliant companies be moved
interexchange
with minimum burden on such companies to fulfill all formalities again.

Solution for the revival of the RSEs :

a) All the RSEs may be given a regulatory mandate to consolidate and form a third stock
exchange, in addition to BSE and NSE i.e. create one single trading platform for all the
RSE shutting down completely their local trading platform on the lines of EURONEX of
Europe.

b) The un-utilized funds lying with the RSEs may all be pooled in and transferred to a
common stock exchange fund that could be used for funding securities market
transactions.

c) As some of the RSEs may not be viable and/or interested in their revival, region-wise
consolidation of RSEs should be facilitated. An active market for trading in commodities
could be developed by the stock exchanges in the southern region. Similarly, stock
exchanges in the northern, eastern and western regions could be consolidated. Such
circular has been passed by Delhi stock exchange to consolidate all four stock exchange of
northern region i.e. consolidate Delhi stock exchange, Ludhiana ,UPSE and jaipur stock

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exchanges. For this purpose DSE has roped in major IT company including CMS
,financial technologies and TCS for developing a special software to inter-connect them.

d) The IndoNext, which is presently under the aegis of BSE, may be shifted and given to
the consolidated RSEs under a unified trading platform and clearing corporation.

e) RSEs may be encouraged to consider any revival initiatives including corporate

restructuring by merger with any of the premier stock exchanges subject to mutual
agreement. They can also open the ownership of these exchanges to new shareholders to
ensure they have additional resources and means to achieve their objectives.

f) There is a felt need expressed for an active and liquid market for SMEs .SMEs are
considered of having a very bright future. The RSEs may not be able to survive
independently in view of the changed circumstances in the Indian securities market.
Therefore, some of the RSEs which are interested, financially sound and comply with the
regulatory requirements may come together and set up a common trading platform for such
SMEs which have sound financials and viable business strategies.
g) In addition to providing specific trading platform for SMEs, the RSEs may be
permitted to evolve an active market for structured products, securitized instruments
and derivative products. For example UPSE stock exchange has got license of Depository
participant. so , RSEs can launch new financial products other than plain vanilla Equity
trading for which they need to advance themselves technologically.

h) That RSEs be permitted to diversify into other areas like conducting training programs
for participants in capital market, providing services to investors like MAPIN
registration, redressing investor complaints by acting as local forums of arbitration,
distributing mutual fund products, acting as Registrar and Transfer Agents, providing
securities lending & borrowing scheme and playing an advisory role to the SMEs in
their need for capital creation. RSEs should be allowed to diversify into other areas of
business like commodity exchange or other such suitable business through creation of a

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special purpose vehicle.
For example NSE &BSE is already conducting various exams such as NCFM and BCFM
which apart from providing awareness by imparting knowledge also gets a source of
income from the registration fees they get for giving its modular papers.

i) RSEs may be permitted to establish a platform for book building, both for initial public
offerings (IPOs) and follow-on public offerings (FPOs) and also for delisting of
companies.

j) Those RSEs that are willing to exit the business of functioning as a stock exchange
should be permitted to reverse merge with their subsidiaries.

k) The present corpus of IPF and ISF should be retained with the RSEs so as to facilitate
them in taking more initiatives for protecting the interests of the investors in the securities
market.

l) The disclosure norms for the companies that are presently listed at the RSEs may be
diluted to incentivize the companies to remain listed in the RSEs.
m) The members of the RSEs who were also members of the national level stock
exchanges, viz., BSE/NSE should not be allowed to be on the Board of the respective
RSEs, as it results in a conflict of interest due to dual membership and hamper any
developmental initiatives for the RSEs.

n) The issues on taxation regarding the investment of RSEs in their subsidiaries and the
taxability of the accumulated reserves of the RSEs upon conversion into for-profit
corporate entities needs to be sorted out, as it would otherwise be a drain on the already
weak financials of the RSEs.

o) BSE/NSE may be advised to share a part of their revenues with the RSEs based on the
volume of transactions generated by the members of the RSEs.

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p) RSEs may be permitted to explore alternatives like liasioning with the other national
level exchanges in their respective geographical locations, playing the role as local
/nodal centers for the national level exchanges and acting as an extended arm of such
national level exchanges for functions like handling investor grievances/complaints,
conducting training programmes in securities market, etc.

q) OTCEI may be recognized as a national level stock exchange. It may be provided

exclusivity for trading in securities of companies with a paid up capital below Rs. 20
crores, mutual fund units, privately placed corporate bonds etc. Post-demutualization,
the securities of the BSE Ltd. should be listed in OTCEI.

Maintenance of local securities commission sensitive to the needs of the business and to
investor protection and thus engaged in efforts of cooperation & harmonization.
s) RSE can also start trading in F & O . they have already got permission from SEBI to
start trading in F & O. * Circular is attached regarding approval in principle to trade in F
&O segment to major regional stock exchanges.
t) Professionalize the management and segregate the ownership , trading right and
administration completely. Although Demutualization had tried to achieve this objective
but it was not completely successful because still the 50% ownership right is vested on
stock brokers which ultimately effects the decision making negatively.
Thus , as we can see in US there are around 55 stock exchanges but still each one have
their own importance i.e. While NASDAQ in US is renowned for technological companies
,American stock exchange in London attracts SMEs from all over the world.
Similarly, RSEs need to study the pattern of transactions happening to create their own
niche.

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4.5 RAY OF HOPE:

-Nasdaq, the largest electronic equity securities trading market in the US, is looking to
partner with Ahmedabad Stock Exchange (ASE)

- German multinational bank, Deutsche Bank is eyeing ownership of 5% stake in the Delhi
Stock Exchange (DSE).

-Even BSE has recently picked up 5% stake in the Calcutta Stock Exchange (CSE).

- Undoubtedly, the rising interest in the RSEs can be attributed to the new FDI norms,
which allow foreign investments up to 49% in stock exchanges, depositories and clearing
corporations, with a cap on single investment, direct or indirect at 5%.

- Recently a new stock exchange known as MCX SX for currency derivatives have started
its operations and it is expected to get a positive response .

- four RSE of northern region i.e. Ludhiana, Delhi ,Kanpur, Jaipur have roped in major
IT company including CMS ,financial technologies & TCS for developing a special
software for interconnection.

- Already companies such as NYSE Group, General Atlantic, Goldman Sachs and Softbank
Asian Infrastructure Fund own a 5% stake each in NSE for around $460-490-mn.

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- Similarly, German exchange, Deutsche Boerse AG and Singapore Exchange hold 5%
stake each in BSE.

With the Indian economy is again on an upswing, analysts expect the SMEs to play a huge
role in future exchanges. And RSEs are expected to provide these companies a stepping
ladder to stardom. Agrees Harjit Singh Sidhu, executive director, DSE. You already have
big names holding stake in the bigger stock exchanges. However, those left-out and want
to be a part of the India growth story are turning to RSEs, reasons Sidhu.

- There has been a proposal made by BSE for the revival of these RSE. Below are
salient features of the proposal made by BSE :

WHILE the NSE has not shown any interest in the RSE revival plan, the BSE has come
forward with its own suggestions. At a meeting , BSE had proposed to provide the
common platform needed by RSEs.

The BSE has suggested to the RSEs that it will extend its existing BOLT platform for their
members to trade in the small-cap companies with paid-up capital upto Rs 20 crores listed
at BSE and various RSEs in S group by creating a large single order book.

The offer of BSE would be to those RSEs which do not opt either for voluntary withdrawal
of
recognition or in respect of whom SEBI does not withdraw recognition in terms of the
provisions of the SCRA subject to certain conditions:

All eligible trading members of the RSEs who accept the arrangement and who enter
into the necessary agreements with BSE shall be allowed access to trade on the entire
universe of
securities listed on the all India trading platforms of BSE both in the cash and F&O
segments.

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The trading members of RSEs shall be required and entitled to issue contract notes in
their
names as members of the respective RSE.

Settlement obligations arising out of trades executed by the trading members of the
RSEs
shall be settled by the respective RSE.

For the purpose of clearing of obligations, each of the participating RSE shall be
allotted a
Clearing ID by BSE.

For discharging its settlement obligations, the RSEs shall have recourse to their trade
guarantee fund. This is as a first line of defense and in all cases the settlement guarantee
fund
of BSE shall operate.

BSE shall be entitled to place restrictions on the RSEs with regard to admission of
trading
members in RSEs and the territories from which the trading members of RSEs may access
the
trading platforms of BSE.

Trading members of RSEs shall execute both proprietary and client orders in the cash
segment only on the BSE trading platform and activities of the subsidiaries in the cash
segment shall cease.

Trading members of RSEs shall endeavor to build-up activity (both on proprietary and
client

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account) in the F&O segment of BSE. Once BSE F&O segment gains viability and size,
trading members of RSEs shall execute both proprietary and client orders in the F&O
segment only on the BSE trading platform and activities of the subsidiaries in the F&O
segment shall cease.

BSE shall permit securities of companies, which have been compliant with the listing
requirements of RSEs, which participate in this arrangement with BSE, to be traded under
a
separate segment on its trading network on an all-India order book platform. Members of
BSE shall also be permitted to trade on this segment.

RSEs would have to compulsorily delist all non-compliant companies before getting
into any arrangement with BSE.
The above proposal of BSE offers several benefits. One, it would enable compliant
companies listed on the RSEs to have national reach. The investors in such companies will
get the benefit of enhanced liquidity as a result of these securities being traded on national
platform. Besides, the RSE members would be able to conduct business in their own
names and issue their own contract notes (a topic of immense importance to RSE
members, as was learnt during the meetings with RSEs, as the members of RSEs felt
humiliated being reduced to sub-brokers and not being able to issue their own contract
notes). The redressal of investor grievances in respect of trades of the members of the
RSEs would be handled at the regional level in the respective RSEs and thus would be
beneficial to the investors in the region. The RSE members would also gain access to the F
& O segment of the BSE. It is likely that the enhanced participation of large number of
brokers across the country would provide the much needed impetus and help kick start the
F & O segment of the BSE. This, in turn, would fulfill the long standing demand of the
members of the RSEs to participate in the F & O segment. The activation of the F & O
segment on the BSE would also provide desirable competition in the derivatives market.
This initiative of the BSE will also obviate the need for the continuation of the subsidiaries

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in the long run. With the success of this initiative, it is possible that the SMEs will have a
liquid market where they would be able to raise capital in the future.

CHAPTER 5
5.1 CONCLUSION :

These RSE provide bread and butter to brokers and employees of stock exchanges . they
are functioning on their own as an independent institution without any financial aid from
SEBI. So SEBI or any other regulatory authority should not interrupt in this functioning if
these RSE are running on their own. secondly if these RSE will be derecognized then it
many create problem to regional companies which are still exclusively listed in these
regional stock exchanges. Its only these RSE who can keep a close eye on local
companies . Decadence of RSEs has not only affected the brokers of these exchanges to
the extent it has hurt the millions of shareholders of the regionally listed companies who
have awoken to find that there is no market for their holdings. To add to this, there are
other disturbing developments like several of the flourishing companies going abroad to
raise capital, some of the thriving companies, particularly multinational companies,
delisting their shares, etc.

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Thus ,most of the population still agrees that there is certainly need for the revival of RSE.
This will also stop the growing monopolistic situation of NSE who holds 99.6% of
Derivative trade and almost 70% of total turnover in equity market.
The various remedies suggested in my research needs serious consideration by the
authorities concerned so that the benefits of fruits of development have a wider reach.
Revival is possible, the only thing required is the necessary will and coordinated effort to
take some concrete steps in this regard.

5.2 QUESTIONNAIRE (BROKERS &INVESTORS)

(DRAFT)

FOR RESEARCH PROJECT

ON

RESTRUCTURING OF REGIONAL STOCK EXCHANGE

Respected Sir/Madam,
These sets of Questions is aimed at seeking information for doing Research Work for
my MBA summer training programme project entitled Restructuring of
Regional Stock Exchanges .The basic objective of this project work is to

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know the reasons of virtual extinction of Regional Stock Exchanges and find out ways
for their Revival.

I shall be greatful to you if you kindly extend cooperation by filling this Questionnaire
at the earliest and enable me to pursue this academic assignment. If you come across
any irrelevant question, please skip the same. I would also like to assure you that this
information provided herein would be confidential and used only for academic
purpose.

Thanking You

Faithfully yours,

Somya Garg
AMITY BUSINESS SCHOOL
MBA(G) CLASS OF 2010.

QUESTIONNAIRE FOR INVESTORS AND BROKERS

RESTRUCTURING OF REGIONAL STOCK EXCHANGES

(You can tick more than one answer and give comments too in
each question, if desired)

A.PERSONAL DETAILS

1.NAME ---------------------------------------------------------------------------------------------------------

2.ADDRESS

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 ----------------------------------------------------------------------------------------------------------------------

CITY________ DISTT.___________ STATE____________

PHONE MOBILE_________ EMAIL ___________

3. OCCUPATION

[ ] Business [ ] Retired [ ] Service

[ ] Any other(Specify)

4. Tick to the group you belong.

[ ] Broker [ ] Investor [ ] Employee of stock

Exchange

5. What is the Range of your monthly income in Rupees?

[ ] Below 10000 [ ] 10000-40000 [ ] 40000-60000

[ ] 60000-80000 [ ] 80000-100000 [ ] Above 100000

6. EDUCATION

[ ] Graduate [ ] Post Graduation [ ] professional

[ ] Any other (Specify)

B.PERSONAL FINANCE

7. Do you invest in securities market?

[ ] Yes [ ] No

8. Through which Stock Exchange do you trade?

[ ] NSE [ ] BSE [ ] CSE

[ ]UPSE [ ] Any Other(Specify)

9. Which of the following category of shares are held by you? Rank in order of
values of holding, rank 1 for maximum holdings.

[ ]Sensex/ Nifty [ ] Thinly traded [ ] Z Group/T

Group

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 [ ] Illiquid [ ] De-listed [ ] Anyother
(Specify)

C.RESTRUCTURING OF REGIONAL STOCK EXCHANGE

10.Do you think that having 19 Regional Stock Exchanges all over the Country
is Superfluous and against requirement ?

[ ] Strongly Agree [ ] Agree [ ] Cant Say

[ ] Disagree [ ] Strongly Disagree

11. What do you think has been the reason for non-functioning of RSE?

[ ] SEBI Regulations [ ] Lack of Proper Administration

of RSE

[ ] Investors Insecurity and lack of trust [ ] wide coverage by NSE & BSE

[ ] Any other (specify)______

12. Do you agree that the Broking Business will be redundant or extinct in
coming Decade Due to invasion of Banks and like institutions?

[ ] yes [ ] No

13. Do you think that Commercial consideration of Big Brokers is a big hurdle
in upliftment of RSE?

[ ] Totally Correct [ ] Somewhat Correct [ ] Cant Say

[ ] Somewhat Incorrect [ ] Incorrec

14. Do you really think that Demutualization has solved its purpose of
segregating Trading and ownership control in its right spirit?

[ ] yes [ ] No

15. As there are Approx. 9000 + companies Listed in India, do you think that
NSE alone is Solving the basic purpose of developing and running a healthy
stock market which is a prerequisite of a developing Economy, where Top 50
securities are forming 55% of total trade in cash market and top 300 Securities
form around 85% of total trade?

[ ] strongly Agree [ ] Agree [ ] cant Say

[ ] disagree [ ] strongly Disagree

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16. Do you think there is a need for Revival of RSE?

[ ] Strongly Agree [ ] Agree [ ] Cant say

[ ] Disagree [ ] Strongly Disagree

17. Do you think that Virtual Extinction of Regional Stock Exchange Would lead
to monopolistic Situation of NSE?

[ ] Yes [ ] No

18. What do you think can be the solution of revival of Regional Stock
Exchange?

(Mark your preference on priority Basis Rating from 1-5,Rate 1 to the option you find most appropriate)

[ ]Consolidation of all RSE i.e. Setting Common trading Platform .

[ ] Listing of new companies with paid up share Capital less than 2 crore in RSE .

[ ] Providing trading Platform of small cap companies wholly to RSE .

[ ] Developing new financial instruments specifically for these RSE.

[ ] Any other (Specify) _______________________

19. Please give your suggestions regarding this topic to us. (Subjectiv

5.3 REFERENCES:

-A knock out punch for regional stock exchanges/ Sarabjeet K Sen, KR Srivastav/ New
Delhi / April,6,2005.

-Revival of Regional stock Exchanges / Dr. Rajeev Kumar FCS / Chandigarh / 2008.

-Article by MR MAYYA/ ICSE/2003.

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-SEBI finalizes Exit Policy for RSE / Reena Zachariah-ET bureau/ 15 Dec 2008

-Report by committee on future of RSE- Post Demutualization.

-BSE- Indonext many Mid cap firms feel entry norms stringent/ CR Sukumar /
Hyderabad/January 5 ,2007.

-Book by V.A Avadhani/ Capital market management/ Himalaya Publication house.

-Book by NSE & BSE.

-journal of Dalal street.

-http:// www.sebi.gov.in

-http://www.nseindia.com

-http://www.bseindia.com

- -http:// www.rbi.com.

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