y

4.6

Wires assisting the Financial Markets & Banking

The project contains a brief outlay on some of the helping hands in the Indian Economy. We have tried to highlight the various intermediaries & authoritative bodies along with their functioning. We hope that this project covers our curricular requirements.

Submitted to: Prof Jigam Gandhi

Members of Group 10

INDEX Sr. Particulars No

1 2 3 4 5 6 National Securities Depository Ltd. Clearing Corporation of India Ltd. National Securities Clearing Corporation Ltd Real Time Gross Settlement National Electronic Funds Transfer Society for Worldwide Interbank Financial Telecommunication, Webilography

Page no.
5 9 12 14 14 20

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Acknowledgement
It gives us immense pleasure in presenting our project on topic. We would firstly like to thank our institution & sincerely thank our principal Sir Prof. A.E.Lakdawala & Vice Principal Prof. Kamala for providing us support & giving us an opportunity for doing BBI course & completing project. We would also like to express our profound gratitude to our project guide Prof.Jigam Gandhi who has so ably guided our research project with his vast fund knowledge, advice & constant encouragement without which this project would have not been possible. We candidly appreciate his implicit & valuable contribution in drawing up this project work. We take this opportunity to highlight the valuable contribution our collogues & especially our parents who have always supported & encouraged. We also thank to all those who have helped us & whom we have forgotten to mention in this space.

NSDL {NATIONAL SECURITY DEPOSITORY LTD}

India had a vibrant capital market which is more than a century old, the paper-based settlement of trades caused substantial problems like bad delivery and delayed transfer of title till recently. The enactment of Depositories Act in August 1996 paved the way for establishment of NSDL, the first depository in India. This depository promoted by institutions of national stature responsible for economic development of the country has since established a national infrastructure of international standards that handles most of the securities held and settled in dematerialised form in the Indian capital market. Using innovative and flexible technology systems, NSDL works to support the investors and brokers in the capital market of the country. NSDL aims at ensuring the safety and soundness of Indian marketplaces by developing settlement solutions that increase efficiency, minimise risk and reduce costs. At NSDL, we play a quiet but central role in developing products and services that will continue to nurture the growing needs of the financial services industry. In the depository system, securities are held in depository accounts, which is more or less similar to holding funds in bank accounts. Transfer of ownership of securities is done through simple account transfers. This method does away with all the risks and hassles normally associated with paperwork. Consequently, the cost of transacting in a depository environment is considerably lower as compared to transacting in certificates.

Legal Framework As a part of its on-going market reforms, the Government of India promulgated the Depositories Ordinance in September 1995. Based on this ordinance, Securities and Exchange Board of India (SEBI) notified its Depositories and Participants Regulations in May 1996. The enactment of the Depositories Act the following August paved the way for the launch of National Securities Depository Ltd. (NSDL) in November 1996. The Depositories Act has provided dematerialisation route to book entry based transfer of securities and settlement of securities trade. In exercise of the rights conferred by the Depositories Act, NSDL framed its ByeLaws and Business Rules.The ByeLaws are approved by SEBI. While the ByeLaws define the scope of the functioning of NSDL and its business partners; the Business Rules outline the operational procedures to be followed by NSDL and its "Business Partners." Services Under the provisions of the Depositories Act, NSDL provides various services to investors and other participants in the capital market like, clearing members, stock exchanges, banks and issuers of securities. These include basic facilities like account maintenance, dematerialisation, rematerialisation, settlement of trades through market transfers, off market transfers & inter-depository transfers, distribution of non-cash corporate actions and nomination/ transmission The depository system, which links the issuers, depository participants (DPs), NSDL and clearing corporation/ clearing house of stock exchanges, facilitates holding of securities in dematerialised form and effects transfers by means of account transfers. This system which

facilitates scripless trading offers various direct and indirect services to the market participants. NSDL provides special services like pledge, hypothecation of securities, automatic delivery of securities to clearing corporations, distribution of cash and non-cash corporate benefits (Bonus, Rights, IPOs etc.), stock lending, demat of NSC/KVP, demat of warehouse receipts and Internetbased services such as SPEED-e and IDeAS. NSDL has also set-up a facility that enables brokers to deliver contract notes to custodians and/or fund managers electronically. This facility called STEADY (Securities Trading - information Easy Access and DeliverY) was launched by NSDL on November 30, 2002. STEADY is a means of transmitting digitally signed trade information with encryption across market participants electronically, through Internet. Joining NSDL NSDL carries out its activities through service providers like Depository Participants (DPs), Issuing companies and their Registrars and Share Transfer Agents, Clearing corporations/ Clearing Houses of Stock Exchanges. These entities are called business partners in NSDL terminology. These entities need to get integrated into NSDL depository system to be able to provide various services to the investors and Clearing Members. The investor can obtain depository services through a depository participant of NSDL. Just as one opens a bank account in order to avail of the services of a bank, an investor opens a depository account with a depository participant in order to avail of depository facilities. A clearing member can open a special account in the depository system for the purpose of settling trades done on stock exchanges. The clearing account enables the clearing member to receive securities from its clients for delivery to the Clearing House/Clearing Corporation as payin, and to distribute the pay-out to its clients received from the Clearing
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House/Clearing Corporation. Issuer can make dematerialization services available to their shareholders by signing an agreement to that effect with NSDL. After the agreement is entered into, an electronic link is established between NSDL, Issuer or its R & T Agent. The clearing corporations/houses of stock exchanges also have to be electronically linked to the depository in order to electronically receive securities delivered by clearing members towards pay-in and to give out securities to clearing members towards pay-out.

Clearing Corporation of India (CCIL)

The Clearing Corporation of India Ltd. (CCIL) was set up in April, 2001 for providing exclusive clearing and settlement for transactions in Money, GSecs and Foreign Exchange. The prime objective has been to improve efficiency in the transaction settlement process, insulate the financial system from shocks emanating from operations related issues, and to undertake other related activities that would help to broaden and deepen the money, debt and forex markets in the country. The company commenced operations on February 15, 2002 when the Negotiated Dealing System (NDS) of RBI went live. CCIL started providing the settlement of forex transactions since November 2002. CCIL launched the Collateralised Borrowing and Lending Obligation (CBLO) in January 2003, a money market product based on Gilts as collaterals. It has developed a forex trading platform FX-CLEAR which went live on August 7, 2003. CCIL has started the settlement of cross-currency deals through the CLS Bank from April 6, 2005. At the request of RBI, CCIL developed and currently manages the NDS-OM and NDS-CALL electronic trading platforms for trading in the government securities and call money. It has also developed the NDS-Auction module for Treasury Bills auction by RBI. CCIL has received the ISO/IEC 27001:2005 certification from M/s Det Norsk Veritas in 2006 for securing its information assets.

CCIL has introduced many innovative products/tools like ZCYC, Bond and T-Bills indices, Sovereign Yield Curve, Benchmark reference rates like CCIL-MIBOR/MIBID and CCBOR/CCBID, etc. CCIL regularly comes out with many publications for the benefit of the market participants.

Clearcorp Dealing Systems (India) Limited (Clearcorp), a wholly owned subsidiary of CCIL, was incorporated in June, 2003 to facilitate, set up and carry on the business of providing dealing systems/platform in Collateralised Borrowing and Lending Obligation(CBLO), Repos and all money market instruments of any kind and also in foreign exchange, foreign currencies of all kinds. Clearcorp has been set up to facilitate CCIL to segregate its other activities from the Clearing & Settlement activity, a risk bearing activity. Accordingly, the Shareholders of CCIL at their meeting held on June 4, 2003 resolved to transfer the activities of the Company relating to Forex Dealing Platform and Collateralised Borrowing and Lending (CBLO) dealing platform to Clearcorp and the same has been made operational from January 1, 2004.

Future Clearing Corporation of India has continuously extended its frontiers from the settlement of trades in the outright and repo segment of fixed income market and FOREX trades to developing trading platforms for transactions in the outright, FOREX and money market. CBLO, the money market instrument developed by CCIL has been able to capture significant volumes in the money market. Trading on this platform has been extended to Non-NDS members also. Cross-currency trades have been taken for settlement by CCIL through the CLS Bank. It has been
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the constant endeavor of CCIL to fulfill market requirements and expectations. Towards this end, CCIL plans to consider acceptance of Forward Trades from trade date itself for guaranteed settlement from the existing settlement of these trades under the Spot window. CCIL, in consultation with market users, has finalized the business model, including the risk management processes, for settlement of OTC trades in Rupee Derivative Products (Interest Rate Swaps and Forward Rate Agreements).

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NSCCL
The National Securities Clearing Corporation Ltd. (NSCCL), a wholly owned subsidiary of NSE, was incorporated in August 1995. NSCCL commenced clearing operations in April 1996. It was set up with the following objectives:

to bring and sustain confidence in clearing and settlement of securities; to promote and maintain, short and consistent settlement cycles; to provide counter-party risk guarantee, and to operate a tight risk containment system.

NSCCL carries out the clearing and settlement of the trades executed in the Equities and Derivatives segments and operates Subsidiary General Ledger (SGL) for settlement of trades in government securities. It assumes the counter-party risk of each member and guarantees financial settlement. It also undertakes settlement of transactions on other stock exchanges like, the Over the Counter Exchange of India. Clearing & Settlement by NSCCL: NSCCL carries out the clearing and settlement of the trades executed in the equities and derivatives segments of the NSE, It operates a welldefined settlement cycle and there are no deviations or deferments from this cycle. It aggregates trades over a trading period, nets the positions to determine the liabilities of members and ensures movement of funds and securities to meet respective liabilities. At the end of each trading day, concluded or locked-in trades are received from NSE by NSCCL. NSCCL determines the cumulative obligations of each member and electronically transfers the data to Clearing Members (CMs). All trades concluded during a particular trading period are settled together. A multilateral netting procedure is adopted to determine the net settlement obligations(delivery/receipt positions) of CMs. NSCCL then allocates or

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assigns delivery of securities inter se the members to arrive at the delivery and receipt obligation of funds and securities by each member. Settlement is deemed to be complete upon declaration and release of pay-out of funds and securities. On the securities pay-in day, delivering members are required to bring in securities to NSCCL. On pay-out day, the securities are delivered to the respective receiving members. Exceptions may arise because of short delivery of securities by CMs, bad deliveries or company objections on the pay-out day. NSCCL has set up the Settlement Guarantee Fund (SGF) through contributions of its trading members. The SGF is intended primarily to guarantee completion of settlement up to the normal pay-out for trades executed in the regular market and will not act as guarantee for company objection cases i.e., replacement of bad paper or payment of its equivalent financial value. The SGF therefore ensures that the settlement is not held up on account of failure of trading members to meet their obligations and all market participants (trading members, custodians, investors, etc.) who have completed their part of the obligations are not affected in any manner whatsoever. The securities are put up for auction by the NSE on account of nondelivery of securities by the selling trading member to ensure that the buying trading member receives the securities due to him. The nondelivery by the trading member could arise on account of short delivery, bad deliveries not rectified and company objections not rectified by them. The Exchange purchases the requisite quantity in the Auction Market and gives them to the buying trading member. If the shares could not be bought in the auction i.e., if shares are not offered for sale in the auction, the transactions are squared up as per SEBI Guidelines. As per the Guidelines in force, the transaction is squared up at the highest price on the NSE from the relevant trading period till the close-out day or at 20% above the last available trading price on the NSE, whichever is higher.

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Real Time Gross Settlement

Real time gross settlement systems (RTGS) are funds transfer systems where transfer of money or securities takes place from one bank to another on a "real time" and on "gross" basis. Settlement in "real time" means payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed. "Gross settlement" means the transaction is settled on one to one basis without bunching or netting with any other transaction. Once processed, payments are final and irrevocable.

NEFT Service
Like RTGS, RBI has introduced another type of funds transfer system called NEFT (National Electronic Funds Transfer). The NEFT Service is useful for the seamless transfer of funds from one branch to another without any delay procedural hassle. The operations and functions of the system are similar to RTGS. We have become active member NEFT system and introduced a new product called TMB e-Transfer (NEFT).

or

of

NEFT is the most suitable mode of payment for small value payments as the charges are cheaper and settlement is faster compared to other modes of payment. RBI has introduced NEFT system mainly to send small value payments at nominal cost. We can send funds from our bank to other bank, which is a part of NEFT network. So far, 89 banks have joined in this system and more than 55225 of their branches are under this network. More banks are expected to join in the days to come.

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In NEFT, there are 11 hourly settlements (9 am to 7 pm) for a day. In order to complete the processing cycle on a near real-time basis, RBI has introduced the concept of return within 2 hours of completion of a batch. The payment instructions received by RBI within each settlement batch will be consolidated and distributed to payee's bank after each settlement. Normally, payment transaction messages reach the receiving (beneficiary) bank within 15 to 30 minutes from the batch time. Banks are hard pressed to afford credit to beneficiary accounts immediately or else return the transactions within two hours of completion of the batch settlement.

For e.g.: A payment instruction sent to RBI for 12.00 clock settlement
batch, may reach the beneficiary bank by 12.30 P.M. If the beneficiary bank has STP (Straight Through process) facility, the amount will be credited immediately. In case, if the beneficiary bank wants to return the transaction for any reason, they should return the same within 2 PM batch on the same day. In order to encourage small value payments through NEFT, we have fixed nominal charges only. There is no minimum as well as maximum transfer amount limit. There are no charges for inward payments. NEFT Outward Charges: Less than Rs. 1 Lakh: Rs. 5/- per transaction. 1 Lakhs to Rs. 2 Lakhs: Rs. 15/- per transaction. Above 2 Lakhs: Rs. 25/- per transaction. For inward remittances, our customers are adviced to instruct their counterpart to quote correctly the full 15-digit account number for inward payment to identify the branch and credit their account immediately. If the message received is without 15-digit account number it will be rejected and returned automatically.

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QUESTIONS
Q.1. Are all bank branches in the country part of the NEFT funds transfer network? Ans: For being part of the NEFT funds transfer network, a bank branch has to be NEFT-enabled. As at endJanuary 2011, 74,680 branches / offices of 101 banks in the country (out of around 82,400 bank branches) are NEFT-enabled. Steps are being taken to further widen the coverage both in terms of banks and branches / offices. Q.2. Who can transfer funds using NEFT? Ans: Individuals, firms or corporates maintaining accounts with a bank branch can transfer funds using NEFT. Even such individuals, firms or corporates who do not have a bank account (walk-in customers) can also deposit cash at the NEFT-enabled branch with instructions to transfer funds using NEFT. A separate Transaction Code (No. 50) has been allotted in the NEFT system to facilitate walk-in customers to deposit cash and transfer funds to a beneficiary. Such customers have to furnish full details including complete address, telephone number, etc. NEFT, thus, facilitates originators or remitters to initiate funds transfer transactions even without the need for having a bank account. Q.3. Who can receive funds through the NEFT system? Ans: Individuals, firms or corporates maintaining accounts with a bank branch can receive funds through the NEFT system. It is, therefore,

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necessary for the beneficiary to have an account with the NEFT enabled destination bank branch in the country. The NEFT system also facilitates one-way cross-border transfer of funds from India to Nepal. This is known as the Indo-Nepal Remittance Facility Scheme. A remitter can transfer funds from any of the NEFTenabled branches in to Nepal, irrespective of whether the beneficiary in Nepal maintains an account with a bank branch in Nepal or not. The beneficiary would receive funds in Nepalese Rupees. A separate Transaction Code (No. 51) has been allotted in the NEFT system to facilitate the transfer of funds from India to Nepal. Further details on the Indo-Nepal Remittance Facility Scheme are available on the website of Reserve Bank of India at http://rbidocs.rbi.org.in/rdocs/content/pdfs/84489.pdf. Q.4. Is there any limit on the amount that could be transferred using NEFT? Ans: No. There is no limit either minimum or maximum on the amount of funds that could be transferred using NEFT. However, for walk-in customers mentioned at Q.4 and Q.5 above, including those remitting funds under the Indo-Nepal Remittance Facility Scheme, the maximum amount that could be transferred is Rs. 49,999. Q.5. How does the NEFT system operate? Step-1 : An individual / firm / corporate intending to originate transfer of funds through NEFT has to fill an application form providing details of the beneficiary (like, name of the beneficiary, name of the bank branch where the beneficiary has an account, IFSC of the beneficiary bank branch, account type and account number). The application form will be available at the originating bank branch. The remitter authorizes his/her bank branch to debit his account and remit the specified amount
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to the beneficiary. Customers enjoying net banking facility offered by their bankers can initiate the funds transfer request online. Some banks offer the NEFT facility even through the ATMs. Walk-in customers will, however, have to give their contact details (complete address and telephone number, etc.) to the branch. This will help the branch to refund the money to the customer in case credit could not be afforded to the beneficiarys bank account or the transaction is rejected / returned for any reason.

Step-2: The originating bank branch prepares a message and sends the message to its pooling centre (also called the NEFT Service Centre).

Step-3 : The pooling centre forwards the message to the NEFT Clearing Centre (operated by National Clearing Cell, Reserve Bank of India, Mumbai) to be included for the next available batch. Step-4: The Clearing Centre sorts the funds transfer transactions destination bank-wise and prepares accounting entries to receive funds from (debit) the originating banks and give the funds to (credit) the destination banks. Thereafter, bank-wise remittance messages are forwarded to the destination banks through their pooling centre (NEFT Service Centre). Step-5: The destination banks receive the inward remittance messages from the Clearing Centre and pass on the credit to the beneficiary accounts.

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Q.6. What are the other features of NEFT? Ans: Launched in October 2005, NEFT is an electronic payment system that uses a secure mode of transferring funds from one bank branch to another bank branch. NEFT uses the Public Key Infrastructure (PKI) technology to ensure end-to-end security and rides on the INdian FInancial NETwork (INFINET) to connect the bank branches for electronic transfer of funds. The participating banks, branch coverage and transaction volumes have been continuously increasing, which is reflective of the acceptance and popularity of the NEFT system.

How RTGS is different from National Electronics Funds Transfer System (NEFT)? Ans. NEFT is an electronic fund transfer system that operates on a Deferred Net Settlement (DNS) basis which settles transactions in batches. In DNS, the settlement takes place with all transactions received till the particular cut-off time. For example, currently, NEFT operates in hourly batches - there are eleven settlements from 9 am to 7 pm on week days and five settlements from 9 am to 1 pm on Saturdays. Any transaction initiated after a designated settlement time would have to wait till the next designated settlement time. Contrary to this, in the RTGS transactions are processed continuously throughout the RTGS business hours.

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SWIFT
SWIFT is the Society for Worldwide Interbank Financial Telecommunication, a memberowned cooperative through which the financial world conducts its business operations with speed, certainty and confidence. More than 9,000 banking organisations, securities institutions and corporate customers in 209 countries trust us every day to exchange millions of standardised financial messages. Our role is two-fold. We provide the proprietary communications platform, products and services that allow our customers to connect and exchange financial information securely and reliably. We also act as the catalyst that brings the financial community together to work collaboratively to shape market practice, define standards and consider solutions to issues of mutual interest. SWIFT enables its customers to automate and standardise financial transactions, thereby lowering costs, reducing operational risk and eliminating inefficiencies from their operations. By using SWIFT customers can also create new business opportunities and revenue streams. SWIFT has its headquarters in Belgium and has offices in the world's major financial centres and developing markets. SWIFT provides additional products and associated services through Arkelis N.V., a wholly owned subsidiary of SWIFT, the assets of which were acquired from SunGard in 2010.

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SWIFT does not hold funds nor does it manage accounts on behalf of customers, nor does it store financial information on an on-going basis. This activity involves the secure exchange of proprietary data while ensuring its confidentiality and integrity. Operations centers The SWIFT secure messaging network is run out of two redundant data centers, one in the United States and one in the Netherlands. These centers share information in near real-time. In case of a failure in one of the data centers, the other is able to handle the traffic of the complete network. Currently SWIFT is building a third data center in Switzerland, which is scheduled to start operating in the second half of 2009. Once this is completed, data from European SWIFT members will no longer be mirrored to the US data center. Also called Distributed Architecture will partition messaging into two zones, the European messaging zone and the Trans-Atlantic messaging zone. European Zone messages will be stored in the Netherlands and in a part of the Switzerland operating center, Trans-Atlantic Zone messages will be stored in the US and in a part of the Switzerland operating center that is segregated from the European Zone messages. Countries outside of Europe were by default allocated to the Trans-Atlantic Zone but could choose to have their messages stored in the European Zone. SWIFTNet Network SWIFT moved to its current IP Network infrastructure, known as SWIFTNet, from 2001 to 2005, providing a total replacement of the previous X.25 infrastructure. The process involved the development of new protocols that facilitate efficient messaging, using existing and new message standards. The adopted technology chosen to develop the protocols was XML, where it now provides a wrapper around all messages legacy or contemporary. The communication protocols can be broken down into:

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InterAct FileAct Browse SWIFTNet SWIFTNet FileAct InterAct Realtime Realtime SWIFTNet SWIFTNet Browse SWIFTNet FileAct InterAct Store and Store and Forward Forward Architecture SWIFT provides a centralized store-and-forward mechanism, with some transaction management. For bank A to send a message to bank B with a copy or authorization with institution C, it formats the message according to standard, and securely sends it to SWIFT. SWIFT guarantees its secure and reliable delivery to B after the appropriate action by C. SWIFT guarantees are based primarily on high redundancy of hardware, software, and people. SWIFT actually means several things in the financial world: 1. a secure network for transmitting messages between financial institutions; 2. a set of syntax standards for financial messages (for transmission over SWIFTNet or any other network) 3. a set of connection software and services, allowing financial institutions to transmit messages over SWIFT network.

SWIFT services There are four key areas that SWIFT services fall under within the Financial marketplace, Securities, Treasury & Derivatives, Trade Services and Payments & Cash Management.

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Securities

SWIFTNet FIX (obsolete) SWIFTNet Data Distribution SWIFTNet Funds

Treasury & Derivatives

Cash Management

Trade Services

SWIFTNet Accord SWIFTNet Affirmation SWIFTNet CLS Third Party Service

SWIFTNet Bulk Payments SWIFTNet Cash Reporting SWIFTNet Exceptions

SWIFTNet Trade Services Utility

SWIFTNet Mail SWIFT also offer a secure person-to-person messaging service, SWIFTNet Mail, which went live on 16 May 2007. SWIFT clients can configure their existing email infrastructure to pass email messages through the highly secure and reliable SWIFTNet network instead of the open Internet. SWIFTNet Mail is intended for the secure transfer of sensitive business documents, such as invoices, contracts and signatories, and is designed to replace existing telex and courier services, as well as the transmission of security-sensitive data over the open Internet. Eight financial institutions, including HSBC, FirstRand Bank, Clearstream, DnB NOR, Nedbank, Standard Bank of South Africa and Bear Stearns, as well as SWIFT piloted the service.

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1) SWIFT for broker/dealers 2) SWIFT for custodians 3) SWIFTs CLS Third Party Service 4) Clearing 5) Derivatives

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Webilography

1) www.wikipedia.com 2) www.nsdl.co.in 3) www.swift.com 4) www.ccilindia.com 5) www.rbi.org.in 6) www.e-investing.in 7) www.nseindia.com

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