February 2019 - Page 2 of 2

Auction in Indian Stock Exchanges

7th February 2019 by stocksbaazigar

What are Auctions? Auctions are initiated by the Exchanges on behalf of trading members for settlement-related reasons. If a Trade happens today (T-day), the settlement of shares takes place on (T+2) days. In some cases, due to some reasons, the obligations of delivery of shares fails. The main reasons are shortages, bad deliveries, and objections. Normally during short-selling position taken with a delivery option if the trader fails to buy-back the equal quantity of shares to square-off the position his broker will take part in Auction on behalf of him to settle the positions. The failure of the seller to deliver the shares to the buyer on T+2 obligated is called short delivery. The auction is conducted every day from 2:00 p.m. to 2:45 p.m. The exchange does not specify any ‘auction price’. It allows the participants of the auction to sell shares within a specified range. This range is normally +/-20% of the T+1 day closing Price. i.e. if Share closed on Rs. 100 on T+1 day then Upper limit of the range will be ‘100+ (20% of 100) = Rs 120’ and the lower price of the range will be ‘100 – (20% of 100) = Rs. 80’. In this case, orders will be placed between 80-120 range only. There are three types of participants on the auction market: Initiator, Competitor and Solicitor. Types of Participants in Auction Initiator: The party who initiates the auction process is called an initiator. Competitor: The party who enters on the same side as of the initiator is called a competitor. Solicitor: The party who enters on the opposite side as of the initiator is called a solicitor. Auction Process The trading members can participate in the Exchange initiated auctions by entering orders as a Solicitors. e.g. If the exchange conducts a Buy-in auction as an initiator while the trading members entering sell orders are called solicitors. When the auction starts, the competitor period for that auction also starts. Competitor period is the period during which competitor order entries are allowed. Competitor orders are the orders which compete with the initiator’s order. i.e. if the initiator’s order is a buy order, then all the buy order for that auctions other than the initiator’s order are competitor orders. And if the initiator’s order is a sell order then all the sell orders for that auction other than initiators order are competitor orders. After the competitor period ends, the solicitor period for that auction starts. Solicitor period is the period during which solicitor order entries are allowed. Solicitor orders are the orders which are opposite to the initiator order i.e. if the initiator order is a buy order, then all the sell orders for that auction are solicitor orders and if the initiator order is sell order, then all the buy orders for that auction are solicitor orders. After the solicitor period, order matching takes place. The system calculates the trading price for the auction and all possible trades for the auctions are generated at the calculated trading price. After this the auction is said to be complete. Competitor period and solicitor period for any auction are set by the Exchange. Entering Auction Orders: Auction order entry allows the user to enter orders into auctions that are currently running. – Auction Order Modification: The user is not allowed to Modify any auction orders. Auction Order Cancellation: The user can cancel any solicitor order placed by him in any auction provided the solicitor period for that auction is not over. Auction Order Matching: When the solicitor period for an auction is over, auction order matching starts for that auction. During this process, the system calculates the trading price for the auction based on the initiator order and the orders entered during the competitor and the solicitor period. At present for Exchange initiated auctions, the matching takes place at the respective solicitor order prices The rules for matching of auctions are similar to that of the regular lot book except for the following points: Auction order matching takes place at the end of the solicitor period for the auction. Auction matching takes place only across orders belonging to the same auction. All auction trades take place at the auction price.

Order and Trade Management in stock exchange

5th February 2019 by stocksbaazigar

Using the Screen Based Trading System (SBTS), an Investor enters a trade in the computer system. Depending on the type or order the order gets stacked in the corresponding Order book. If a perfect match is found the order gets executed which results in a trade. Let’s understand the entire process after Order placement. Order Modification All orders can be modified in the system until the time they do not get fully traded and only during market hours. Once an order is modified, the branch order value limit for the branch gets adjusted automatically. Order modification is rejected if it results in a price freeze, message displayed is ‘CFO request reject’. Order Cancellation Order cancellation functionality can be performed only for orders which have not been fully or partially traded (for the untraded part of partially traded orders only) and only during market hours and in a pre-open period. Order Matching The buy he and sell orders are matched on Book type, Symbol, Quantity and Price. Matching Priority: The best sell order is the order with the lowest price and the best buy order is the order with the highest price. The unmatched orders are queued in the system by the following priority: a) By Price: A buy order with a higher price gets a higher priority and similarly, a sell order with a lower price gets a higher priority. E.g. consider the following buy orders: 1)100 shares @ Rs. 35 at time 10:30 a.m. 2) 500 shares @ Rs. 35.05 at time 10:43 a.m. The second order price is greater than the first order price and therefore is the best buy order. b) By Time: If there is more than one order at the same price, the order entered earlier gets a higher priority. E.g. Consider the following sell orders: 1) 200 shares @ Rs. 72.75 at time 10:30 a.m. 2)300 shares @ Rs. 72.75 at time 10:35 a.m. Both orders have the same price but they were entered in the system at different time. The first order was entered before the second order and therefore is the best sell order. As and when valid orders are entered or received by the system, they are first numbered, time-stamped and then scanned for a potential match. This means that each order has a distinctive order number and a unique time stamp on it. If a match is not found, then the orders are stored in the books as per the price/time priority An active buy order matches with the best passive sell order if the price of the passive sell order is less than or equal to the price of the active buy order. Similarly, an active sell order matches with the best passive buy order if the price of the passive buy order is greater than or equal to the price of the active sell order. Trade Management A trade is an activity in which a buy and a sell order match with each other. Matching of two orders is done automatically by the system. Whenever a trade takes place, the system sends a trade confirmation to each of the users involved in the trade. The trade confirmation slip gets printed at the work station of the user with a unique trade number. The system also broadcasts a message to the entire market through the ticker window displaying the details of the trade. Trade Verification Trade details are available for verification on the same day (i.e. T-day itself) after 19:00 hrs. As well as trade details of all trades for last 5 trading days are available on the website of Exchanges. The investor needs to put client code, security details, order number, trade number, trade quantity and price to verify the trade. If the match is not found, investors are advised to contact their trading member for verification. The trader can use trade cancellation screen for canceling trades done during the day. The trade cancellation request is sent to the Exchange for approval and message to that effect is displayed in the message window. The counter-party to the trade also receives the message. Once both the parties to trade send the trade cancellation request, the exchange either approves it or rejects it.

Types of Orders

5th February 2019 by stocksbaazigar

Order types and conditions The system allows the trading members to enter orders with various conditions attached to them as per their requirement. These conditions are broadly divided into Time conditions, Quantity Conditions, Price Conditions and Other Conditions. Several combinations of the above are allowed thereby providing enormous flexibility to the users. 1) Time Conditions: a) Day Order: A Day order, as the name suggests is an order that is valid for the day on which it is entered. It the order is not executed during the day, the system cancels the order automatically at the end of the day. b) IOC Order: An Immediate or Cancel (IOC) order allows the user to buy or sell a security as soon as the order is released into the system, failing which the order is canceled from the system. Partial match is possible for the order, and the unmatched portion of the order is canceled immediately. 2) Quantity Conditions: a) Disclosed Quantity Order An order with a Disclosed Quantity (DQ) allows the user to disclose only a portion of the order quantity to the market. For e.g. if the order quantity is 10,000 and the disclosed quantity is 2000 then only 2000 is disclosed to the market b) Security Wise Under Order Quantity Limit (SUOQL) An additional facility for setting up Security Wise Under Order Quantity Limit (SUOQL) for buy and/or sell has now been provided. a) The corporate manager is allowed to set the SUOQL separately for buy and sell orders for each security for all the Branch Managers (BMs) and Dealers (except inquiry only users) under him including himself. b) It is possible to modify the SUOQL anytime during trading hours. SUOQL should not be set lower than the user limit for that security. For a Symbol, both Buy and Sell quantity can be set to unlimited. c) The used limit field is displayed for buy and sell separately for each security. d) Any activity like order modification or cancellation gets reflected in used limit figure for the respective security and respective side. e) The limit is applicable for a symbol across all series, across all the markets. SUOQL setting option is given in supplementary menu. f) A bulk upload facility to set the security wise buy sell limit through a (comma separated values) csv file has been provided. In case of failure to upload a particular record/s failure message is written in the input file in the form of an error code. The file is reusable. g) SUOQL bulk upload facility is not available during the market hours. h) After the limit is set successfully, the message is sent to the respective CM/BM/dealer. i) A facility to limit trading to the securities set up in the SUOQL has been provided. If limit trading option is set for a user, then the user is allowed to place orders only for Symbols set in the SUOQL list by the CM. It should however be possible to enable this facility without having any security in the SUOQL list, which in turn prevents the user from entering of any fresh orders. j) Corporate Manager has been given a facility to allow or disallow a user from entering Index orders. By default all dealers will be allowed to place index orders. Index orders are not validated for the SUOQL limits. However, order since once entered are updated in the used limits. k) It is possible that dealer is restricted to enter order in particular security, but allowed to enter index order and that restricted security is a part of Nifty. l) If the order is modified by CM/BM for a respective dealer then the used limit will be updated accordingly, but in this case it can exceed the set limit. m) SUOQL used limit will not be validated and updated for Auction orders. Quantity Freeze All orders with very large quantities receive quantity alert at member terminal. If members enter any order exceeding the lowest of the quantity given below, it results in an alert which reads as ‘Order entered exceeds alert quantity limit. Confirm availability of adequate capital to proceed and only after the member clicks the button ‘Yes’ the order will be further processed for execution. Quantity Freeze Parameters 0.5% of the issue size of the security or Value of the order is around Rs. 2.5 Crores or A Global alert quantity limit of more than 25000 irrespective of the issue size of the security, whichever is less. 3) Price Conditions a) Market Order Market orders are orders for which price is specified as ‘MKT’ at the time the order is entered. For such orders, the system determines the price. • b) Stop Loss Order The facility allows the user to release an order into the system after the market price of the security reaches or crosses a threshold price called trigger price. Trigger Price: Price at which an order gets triggered from stop loss book. Limit Price: Price of the orders after triggering from stop loss book. Price Freeze Since no price bands are applicable in respect of securities on which products are available, in order to prevent members from entering orders at non-genuine prices in such securities, the exchange has decided to introduce operating range of 20% for such securities. Any order above or below 20% over the base price should come to the exchange as a price freeze. Market Price Protection Market Price Protection functionally gives an option to a trader to limit the risk of a market order, within a pre-set percentage of the Last Trade Price. The pre-set Market price protection percentage is by default set to 5% of the LTP. The users can change the pre-set Market Price Protection from the Order Limit Screen which can be invoked from the Supplementary Menu. The set percentage will be applicable till the Ntreldr EXE is re-inflated. At the time of order entry, the user can press (page up) when the cursor is in the price field. … Read more

Segments of Scrips traded

3rd February 2019 by stocksbaazigar

On the Stock Exchanges in India there are thousands of listed companies. Some companies are very large and some companies have small market capitalization. Therefore, the risk involved in investing in these companies varies accordingly. To help Investors in making well-informed decision both the exchanges have divided the Securities in different categories. The scrips traded on the NSE have been divided by the exchange into normal and trade to trade segments whereas in BSE the scrips traded have been classified by the Exchange into A, B1, B2, G, T, F, TS and Z groups Segments of Scrips traded on BSE Group ‘A’ The ‘A’ group contains the list of the most popular stocks. Stocks that are actively traded. Group ‘Z’ •The ‘Z’ Group consists of Equity stocks which are either blacklisted for not following Exchange rules and regulations or has pending complaints from investors or have not made arrangements for dematerialization of their shares. This is a temporary measure for companies till they make arrangements for dematerialization of their securities. Group ‘T’ The ‘T’ Group consists of stocks that form part of the Trade to trade segment. Trade for trade segment is a segment in which no intraday trading is allowed. All trades result in delivery. ‘A’, ‘B1’ and ‘B2’ group securities which have put by the exchanges in the trade-to-trade segment as surveillance measures and trades which are settled in without netting are included in this group ‘T’. Group ‘B’ The ‘B’ category includes stocks which don’t form part of any of the above Equity groups. Group ‘C’ BSE also provides a facility to the market participants of online trading in ‘C’ group which covers the odd lot securities (i.e. less than the market lot) in A,B1, B2, T,S, TS, and Z groups and Rights renunciations in all the groups of scripts in the equity segment. The facility of trading in odd lot structures not only offers an exit route to investors to dispose of their odd lots of securities but also provides them an opportunity to consolidate their securities into market lots. The ‘C’ group facility at BSE can also be used by investors for selling up to 500 shares in physical form which is called as an Exit Route Scheme. Group ‘F’ Additionally, BSE also has the ‘F’ group which denotes the Debt market segment. Fixed Income Securities like bonds and debentures issued by the listed companies or institutions trade under this group. Group ‘M’ and ‘MT’ ‘M/MT’ group consist of stocks forming part of BSE’s SME (Small & Medium enterprise) Group ‘S’ ‘S’ group which is ‘BSE indo-next segment’ contains the share of companies listed on Regional Stock Exchanges having capital of Rs. 3 Crores to Rs. 30 Crores and of those companies already listed on BSE in B1 and B2 groups are allowed to be traded. It gives exit routes to Investors who traded in RSE and companies a chance to mobilize fresh capital from market. Group ‘TS’ ‘TS’ group at BSE consists of scrips in the BSE-indonext segment, which are settled on a trade-to-trade basis as a surveillance measure. Group ‘G’ ‘G’ group consists of Government securities available for retail investors. Government securities are available on both NSE and BSE. Group ‘I’ ‘I’ group consists of Interest rate underlying securities. Group ‘E’ ‘E’ group consisting of ETF’s (Exchange Traded Funds) What are ‘Permitted Securities’? • Apart from these segments to facilitate the market participants to trade in securities of the companies which are actively traded at other Regional Stock Exchanges but are not listed on NSE or BSE, both the exchanges had permitted trading in securities of companies listed on other Stock Exchanges as ‘Permitted Securities’ It is subject to the companies meeting certain norms specified by the Exchanges in this regard. This segment has been discontinued from the NSE but still exists on the BSE.

Types of order books in trading

3rd February 2019 by stocksbaazigar

Trading System The trading system operates on a strict price-time priority. Best priced order gets the first priority for matching. Orders are matched automatically by the computer. If an order does not find a match, it remains in the system and is displayed to the whole market, till a fresh order comes in or the earlier order is canceled or modified. Order Management Order Management consists of entering orders, order modification, order cancellation and order matching. The trading member can enter orders in the normal market or auction market When any order enters the trading system, it is an active order. If it finds a match, a trade is generated. If it doesn’t match, the order becomes passive. Order Book An order book is an electronic list of buy and sell for a specific security or financial instrument, organized by price level. An order book is dynamic and continuously updated in real time throughout the day. There are different types of order books based on the types of orders. 1) Pre-open book An order during the pre-open session is called pre-open order. Orders in pre-open session are stacked in book called pre-open book in order entry screen. At the end of the pre-open phase, the matching of pre-open orders takes place at the final opening price. 2) Regular lot book An order that has no special condition associated with it is a regular lot order. Computer matches regular lot orders with the passive orders in the system. If it does not find a match, it gets stacked in the Regular Lot book as a passive order. Buyback orders are placed through the Regular Lot (RL) book. 3) Limit Order Book Limit orders are orders to buy or sell shares at stated quantity and stated price. If the price quantity conditions do not match, the limit order will not be executed. Limit order book’ also known as ‘open book’ refers to the fact that only the limit orders are stored in the book and all market orders are crossed against the limit order present in the book. 4) Special Term Book Orders with special term attributes attached to it are knows as ‘special term orders’. Currently this facility is not available in the trading system but it will be introduced soon. A special term order entered in system scans Regular Lot book as well as special term books for matching to find the match 5) Stop loss book Stop loss orders are very popular due to their use in risk management. They get executed only when market prices surpass the trigger price. Till then they are stacked in Stop-Loss book. The SL order is either a market order or a limit price order. 6) Odd lot book The Odd lot book can be selected, by selecting the book type OL, to trade in the Odd Lot Market. Lot size is normally 100 shares. Below 100 shares the lot becomes odd lot. Order matching in this market takes place between two orders on the basis of quantity and price. 7) RETDEBT Order Book RETDEBT market orders can be entered into the system by selecting RETBEDT order book denoted as ‘D’. These orders scan only the RETDEBT Order Book for potential matches. If no suitable match found, it remains as passive order. 8) Auction Price Book A trading members who participates in the exchange initiated auction places orders in Auction Price book. Auctions orders can be initiator orders, competitor orders and solicitor orders.

Stock Trading on NEAT and BOLT

2nd February 2019 by stocksbaazigar

Trading, Clearing and Settlement The trading in securities is buying and selling of securities listed on the recognized stock exchanges. The clearing is a process of determination of obligations of member-brokers by the stock exchanges after which the same are discharged by the concerned parties by settlement. The settlement is a process of settling of transactions in securities between buyers and sellers by exchange of money and securities respectively. Stock trading The trading on stock exchanges in India was in open outcry manner till mid 1990s. In order to provide efficiency, liquidity and transparency, NSE introduced, a nationwide, on-line, fully-automated Screen based trading system (SBTS) in November 1994 known as National Exchange for Automated Trading (NEAT) system. BSE online trading (BOLT) by BSE started in March 1995 Screen based trading system NEAT and BOLT are state-of-the-art client-server based applications where at the server end all trading information is stored in in-memory databases to achieve minimum response time and maximum system availability for users. A member, broker enter orders from the Trader Work Stations (TWSs) installed in their offices. A client of these broker can place orders through phone/internet for which he should enter Model Agreement with brokers first. Internet based trading There are many brokers who provide internet based trading facility to their clients. Investors can buy/sell securities through Trader Terminals downloaded on their computers, Trading Apps on their mobiles etc. Both NSE and BSE systems run on ‘Order driven’ systems What is ‘order-driven’ system? In an order-driven system, the traders only put their orders for buying or selling of securities whereas, in ‘quote-driven’ system, the jobbers put buy as well as sell quotes in the same scrip with a price difference. The order-driven system ensures faster processing, matching and execution of orders in a transparent manner. NSE system, is order driven from the beginning while BSE system turned completely order-driven after 13th August 2001. Till then it was both order and quote driven. Trading Hours Regular Trading in equities on the NEAT and BOLT systems are conducted from Monday to Friday between 9:15 a.m. to 3:30 p.m. Thus uniform trading hours are followed by both the stock exchanges. Pre-open session : 9:00 to 9:08 Block deal sessions: 8:45 a.m – 9:00 a.m and 2:05 p.m. – 2:20 p.m Closing session: 15:40 hrs to 16:00 hrs Why trade on recognized stock exchanges only? Investors do not get any protection if he trades outside a stock exchange. Investors gets best prices prevailing in the market on Stock Exchanges No counter-party risk involved Access to investor grievance and redressal mechanism of stock exchanges Protection up to a prescribed limit from the Investor protection fund How to know if the broker or sub broker is registered? Investor should check the Registration Certificate issued by SEBI A broker’s registration number begins with letters ‘INB’ and that of a sub-broker with the letters ‘INS’ The maximum brokerage that can be charged by a broker from his clients as commission cannot be more than 2.5% of the value mentioned in the respective purchase or sale note. What is contract note? Contract Note is a confirmation of trades done on a particular day on behalf of the client by a trading member. It imposes a legally enforceable relationship between the client and the trading member with respect to purchase/sale and settlement of trades. It also helps to settle the disputes/claims between the investor and trading member.