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Stocksbaazigar Mr. Deepak Doddamani is a Founder of Ratneya Group and Ashwamedh Foundation. He is an entrepreneur since age of 21 and have worked in various sectors like Education, Media, Personal Finance and Social work. More about Mr. Deepak Doddamani MBA (Marketing), B.Tech (Oils), NET qualified in Management, NSE's Certified Investment Analysis Professional, NSE's Certified Marketing Professional Level -4. 15+ years of experience Founder of Ratneya Group Founder of Ashwamedh Foundation Founder of Stocksbaazigar Entrepreneur and Educator Shortfilms Maker Social Entrepreneur Blogger

Circuits in share market

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Many retail investors buy stocks which have some corporate governance issues just because they are trading at cheaper prices after the heavy selling. But they don’t understand that catching a falling knife is the biggest mistake which they are doing. In such cases, those stocks closes Circuit-to-circuit on consecutive days destroying huge capital of investors. If they are lucky they get a chance to exit the stock after a few days to avoid further losses. I have seen many traders who don’t know what are the circuit levels for some particular security they are trading and end-up placing a Stop loss at such a deep level that they actually incur more losses in SL itself. Therefore, to avoid such things, one should know what the concept of circuit breakers in the Secondary Market. Let’s see what are the index-based market-wide circuit breakers and what are scrip-wise circuit breakers? Index-based Circuit breaker system An Index based market-wide circuit breaker system applies at three stages of the index movement either way at 10%, 15% and 20%. These circuit breakers bring about a coordinated trading halt in trading on all equity and equity derivatives markets across the country. The breakers are triggered by movements in either Nifty 50 or Sensex, whichever is breached earlier. 10% Circuit rules In the case of 10% movement in either of these indices, there would be a one-hour market halt if the movement takes place before 1:00 p.m. In case the movement takes place at or after 1:00 p.m. but before 2:30 p.m. there would be trading halt for ½ hour. In case movement takes place at or after 2:30 p.m. there will be no trading halt at the 10% level and market would continue trading. 15% Circuit Rules In case of a 15% movement of either index, there should be a two-hour halt if the movement takes place before 1 p.m. If the 15% trigger is reached on or after 1:00 p.m. but before 2:00 p.m., there should be a one-hour halt. If the 15% trigger is reached on or after 2:00 p.m. the trading should halt for the remainder of the day. 20% Circuit Rules In case of 20% movement of the index, trading should be halted for the remainder of the day. Scrip-wise Price Band Daily Price Bands of 2% (either way) on set of specified securities. Daily price bands of 5% (either way) on a set of specified securities. Daily price bands of 10% (either way) on a set of specified securities). Price bands of 20% (either way) on all the remaining securities (including debentures, warrants, preference shares etc. which are traded on CM segment of NSE) No price bands are applicable on scrip on which derivative products are available or scrips included in indices on which derivative products are available. However, in order to prevent members from entering an order at non-genuine prices in such securities, the Exchange has fixed an operating range of 20% for such securities. The Price bands for the securities in the Limited Physical Market are the same as those applicable for the securities in the Normal Market. For Auction Market the price bands of 20% are applicable The exchange views entries of non-genuine orders with utmost seriousness as this has market-wide repercussion. It may suo-moto cancel the orders in the absence of any immediate confirmation from the members that these orders are genuine or for any other reason as it may deem fit.

Online and Offline Monitoring

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In Indian share market Harshad Mehta and Ketan Parekh Scams have forced Stock Exchanges to be very stringent about their rules and regulations. To protect the interest of Investor, maximum use of technology and minimum interference of human was needed. Through their NEAT and BOLT screen-based trading system NSE and BSE respectively, achieved this to some extent. But apart from this there was a strong need to put an Online as well as Offline Monitoring system to keep track on the activities of Trading Members. Cases of Insider Trading, Share Price Manipulations, Operator-driven scrips have always created risk and posed new challenges in front of SEBI. We will see how these Monitoring systems are used in Risk Management. Online Monitoring NSCCL has put in place an on-line monitoring and surveillance system whereby exposure of the members is monitored on a real-time basis. A system of alerts has been built in so that both member and NSCCL are alerted as per pre-set levels (reaching 70%, 85%, 90%,95%, and 100%) when the members approach their allowable limits. The system enables NSCCL to further check the micro-details of member’s positions, if required and take proactive active action. The on-line surveillance mechanism also generates various alerts/reports on any price/volume movement of securities not in line with past trend/patterns. For this purpose the exchange maintains various databases to generate alerts. Alerts are scrutinized and if necessary taken up for follow up action. Open positions of securities are also analyzed. Besides this, rumors in the print media are tracked and where they are price sensitive, companies are contacted for verification. Replies received are informed to the members and the public. Offline Monitoring Off-line surveillance activity consists of inspections and investigations. As per regulatory requirement, a minimum of 20% of the active trading members are to be inspected every year to verify the level of compliance with various rules, bylaws and regulations of the Exchange. Usually, inspection of more members than the regulatory requirement is undertaken every year. The inspection verifies if investor interests are being compromised in conduct of business by the members. The investigation is based on various alerts, which require further analysis. If further analysis reveals any suspicion of irregular activity which deviates from the past trends/patterns and concentration of trading at NSE at the member level, then a more detailed investigation is undertaken. If the detailed investigation establishes any irregular activity, then disciplinary action is initiated against the member. If the investigation suggests suspicions of possible regular activity across exchanges and/or possible involvement of clients, then the same is informed to SEBI.

Margin

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What is Margin? Margin is the difference between the total value of securities held in an investor’s account and the loan amount from a broker. Borrowing on margin is the act of borrowing money to buy securities. The practice includes buying an asset where the buyer pays only a percentage of the asset’s value and borrows the rest from the bank or broker. The broker acts as a lender and the securities in the investor’s account act as collateral. Importance of Margin Margin form a key part of the risk management system. The uncertainty in the movement in the share prices leads to risk which is addressed by margining system of stock markets. Margins ensures that buyers bring money and sellers bring shares to complete their obligations even though the prices have moved down or up. Example of Margin Suppose an Investor purchases 1000 Quantities of ABC Ltd shares at a price Rs 100/- per share on 1st Jan 2019 Then the total Purchase amount = 1 Lac For Margin ( Initial Token Payment ) of 15% Investor have to give 15,000/- to Broker before buying the stocks. For every Buyer there is a Seller. To ensure that Seller gives 100 shares similar margin is levied on him. Imposition of Margin Impact Cost Impact cost shall be calculated on the 15th of each month on a rolling basis considering the order book snapshots f the previous six months. For Group 1, Impact cost less than or equal to 1 For Group 2, Impact cost is more than 1 On the basis of the impact cost so calculated, the scrips shall move from one group to another group from the 1st of the next month. For securities that have been listed for less than 6 months, the trading frequency and the impact cost shall be computed using the entire trading history of the security. For the first month and till the time of monthly review a newly listed security shall be categorized in that group where the market capitalization of the newly listed security exceeds or equals the market capitalization of 80% of the securities in that particular group. Subsequently,  after one month, whenever the next monthly review is carried out, the actual trading frequency and impact cost of the security shall be computed, to determine the liquidity categorization of the security. In case any corporate action results in a change in ISIN, then the securities bearing the new ISIN shall be treated as newly listed security for group categorization. Daily Margin payable by Members Value at Risk Margin Extreme Loss Margin Mark-To-Market Margin Daily margin, comprising of the sum of  VaR Margin, Extreme Loss Margin and Mark-to Margin is payable. VaR Margin Suppose you have Rs. 10 Lac in holding and you want to know how much your portfolio can lose in a ‘single day’? For 5% Value at Risk you will lose Rs12,500 per day. It means a)You are 95% confident that, maximum loses will not exceed Rs.12,500 in single day b) There is a 5% chance that portfolio losses will be minimum 12,500  or more in a single day   The VaR(5%) of Rs.12500 indicates that there will be a 5% chance that on any given day, the portfolio will experience a loss of Rs. 12500 or more. Definition of VaR VaR is the Rupee or Percentage loss in Portfolio value that will be equaled or exceeded only ‘X’ percent of the time. VaR is a single number, which encapsulates whole information about the risk in a portfolio. It measures potential loss from an unlikely adverse event in a normal market environment.  How VaR is calculated? Var is computed using exponentially weighted moving averages (EWMA) methodology. Based on statistical analysis, 94% weight is given to volatility on ‘T-1’ day and 6% weight is given to ‘T’ day returns. To compute volatility of 1st Jan 2019, first we need to compute day’s return for Jan 1st 2019 by using Ln (close price on Jan 1 2019/Close price on 31st Dec 2018) .Take volatility computed as on 31st Dec 2018. Use the following formula to calculate volatility for 1st Jan 2019    Square root of [0.94*(Dec 31, 2018 volatility)*(Dec 31, 2018 volatility) + 0.06*(Jan 1st 2019 LN return)*(Jan 1st 2019 LN return)] Example – Share of ABC Ltd Volatility on December 31, 2018 = 0.0314 Closing price on December 31, 2018 = Rs. 360 Closing price on January 1, 2019 = Rs. 330 January 1, 2019 volatility = Square root of [(0.94*(0.0314)*(0.0314) + 0.06 (0.08701)* (0.08701)] = 0.037 or 3.7% VaR Margin is a margin intended to cover the largest loss that can be encountered on 99% of the days (99% Value at Risk). For liquid securities, the margin covers one-day losses while for illiquid securities, it covers three-day losses so as to allow the clearing corporation to liquidate the position over three days. This leads to a scaling factor of square root of three for illiquid securities. For liquid securities, the VaR margin are based only on the volatility of the security while for other securities, the volatility of the market index is also used in the computation. VaR margin specified as per groups Liquidity Categorization One-Day VaR Scaling Factor for illiquidity VaR margin Group I Security VaR  1.00 Security VaR Group II  Higher of Security VaR and 3 times Index VaR  1.73 (square root of 3.00) Higher of 1.73 times Security VaR and 5.20 times Index VaR Group III Five Times Index VaR 1.73 (square root of 3.00) 8.66 times Index VaR Extreme Loss Margin The extreme loss margin aims at covering the losses that could occur outside the coverage of  VaR margins. The extreme loss margin for any security shall be higher of: 5% or 1.5 times the standard deviation of daily logarithmic returns of the security price in the last six months. How Extreme Loss Margin is computed? The margin rate is fixed at the beginning of every month, by taking the price data on a … Read more

Capital Adequacy Requirement

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Risks involved in Clearing and Settlement process of the Secondary Market are removed by implementing proper Risk Management System. NSCCL provides a transparent clearing and settlement system with no counter-party risk. It has created some frameworks and norms for its members based on some risk containment aspects. Risk containment includes: Capital Adequacy Requirement Stringent Margins requirement Online Exposure Monitoring Off-line Monitoring Index-based Market-wide Circuit breakers /Price bands for securities Settlement Guarantee Mechanism Investor Protection Fund Capital Adequecy Requirement The core of risk management is the liquid assets deposited by members with the exchange/clearing corporation. Members are required to provide liquid assets which adequately cover various margins and base minimum capital requirements. Liquid assets of the member include their Initial Membership Deposit including security deposits. Member may provide additional collateral deposits towards liquid assets, over and above their minimum membership deposit requirements. Let’s see some acceptable forms of capital towards liquid assets and applicable haircuts. Cash and Cash Equivalents Cash, Bank Fixed Deposits with approved custodians, Bank Guarantees from approved banks, Government Securities with 10% haircut, Units of liquid mutual funds or gilt funds with 10% haircut. Other Liquid Assets Liquid (Group I) Equity Shares in demat form, as specified by NSCCL from time to time deposited with approved custodians. Haircut applied are equivalent to VaR margin for the respective securities. Mutual Fund units other than those listed under cash equivalents decided by NSCCL from time to time. Haircut equivalent to the VaR margin for the units computed and traded price if available or else, using the NAV of the unit treating it as a liquid security. Capital Adequacy Norms for Membership of NSE Particulars (all values in Rs. Lakh) CM and F & O Segment CM,WDM and F & O Segment Net Worth 100 200 Interest Free Security Deposit (IFSD) 125 275 Collateral Security Deposit (CSD) 25 25 Annual Subscription 1 2 Additional Base Capital Clearing Members may provide additional base capital/collateral deposit (additional base capital) to NSCCL and/or may wish to retain deposits and/or such amounts which are receivable from NSCCL, over and above their minimum deposit requirements, towards initial margin and/or other obligations. Clearing member may submit such deposits in any one form or combination of the following . 1) Cash 2) Fixed Deposits Receipts with approved custodians 3) Bank Guarantee from approved banks 4) approved securities in demat form deposited with approved custodians. Effective Deposits All collateral deposits made by CMs are segregated into cash component and non-cash component. For additional capital, cash component means cash, bank guarantee, fixed deposit receipts, T-Bills and dated Government Securities. Non-cash component shall mean all forms of collateral deposits like deposit of approved demand securities. At least 50% of the Effective Deposits should be in the form of cash. Liquid Networth Liquid Networth is computed as total liquid assets less than initial margin payble at any point in time. The liquid Networth maintained by CMs at any point in time should not be less than Rs.50 lakhs (referred to as Minimum Liquid Net Worth)

Book Review: ‘Guide to Technical Analysis and Candlesticks’ by Ravi Patel

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Author: Ravi Patel Pages: 224 pages Publisher: Buzzingstock Publishing House; 1st edition (1 May 2010) Language: English Table of contents: Stock Market Basics Introduction to Stock Market Analysis Basics of Technical Analysis Introduction to Candlestick Introduction to Chart Patterns Introduction to Technical Indicators Technical Analysis Steps Stop Loss Theory Stock Selection Strategies Case Studies of Technical Analysis Source of Information   Pros:  Really lucid language and simple English is use Most of the basic concepts covered before starting Technical Analysis & Candlesticks explanation All the important charts and patterns are discussed with black and white images. Technical Indicators and their uses are explained really very well. Risk Management techniques like Stop loss, trailing stop loss etc. explained Stocks Selection Strategies are briefly explained. Case studies on Technical Analysis included Really good book for New traders and Beginners who don’t have any knowledge of technical analysis. Cons: The book is made keeping beginners in mind, so traders who already know basics of Technical Analysis doesn’t get anything new. For them it is just a revision You have to read book again and again to finally understand the concept better. This happens due to author’s attempt to include many concepts in one book. Book touches all the concepts once and doesn’t gives in-depth discussion on the same. Clearly you can’t start earning Money directly after reading this book. This book will help you get started your studies. Guide to Technical Analysis and Candlesticks is really good book for New Traders and Beginners who wants to understand  Basics of Technical Analysis subject. There are many better books available by foreign authors on this subject. So those who aren’t interested in reading big books and need a simply written book on Technical Analysis keeping Indian traders in mind. This is the right book for their book-shelf . Review by Stocksbaazigar

Risks in Settlement

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There are two types of risks in settlement system. Counterparty risk System Risk 1) Counterparty Risk      Counterparty risk arises if parties do not discharge their obligations fully when due or at any time thereafter. These have two major components, replacement cost risk prior to settlement and principal risk during the settlement 1.1) Replacement Cost Risk The replacement cost risk arises from the failure of one of the parties to the transaction. While the non-defaulting party tries to replace the original transaction at current prices, he loses the profit that has accrued on the transaction between the date of the original transaction and date of replacement transaction. The seller/buyer of the security loses the unrealized profit if the current price is below/above the transaction price. Both parties encounter the risk as prices are uncertain. It has been reduced by reducing the time gap between transaction and settlement and by legally binding netting systems. 1.2) Principal Risk The Principal Risk arises if a party discharges his obligations but the counterparty defaults. The seller/buyer of the security suffers this risk when he delivers/makes payment, but does not receive payment/delivery. This risk can be eliminated by delivery vs. payment mechanism which ensures delivery only against payment. This has been reduced by having a central counterparty (NSCCL) which becomes the buyer to every seller and the seller to every buyer 1.3) Liquidity Risk A variant of counterparty risk is ‘liquidity risk’ which arises if one of the parties to transaction does not settle on the settlement date, but later. The seller/buyer who does not receive payment/delivery when due, may have to borrow funds/securities to compete his payment/delivery obligations. 1.4) Third Party Risk Another variant is the third party risk which arises if the parties to trade are permitted or required to use the services of a third party which fails to perform. For example, the failure of a clearing bank which helps in payment can disrupt settlement. This risk is reduced by allowing parties to have accounts with multiple banks. Similarly the users of custodial services face risk if the concerned custodian becomes insolvent, acts negligently etc. 2) System Risk This comprises of operational, legal and systematic risks etc. The operational risk arises from possible operational failures such as errors, fraud, outages etc. The legal risk arises if the laws or regulations do not support enforcement of settlement obligations or are uncertain. Systematic risk arises when the failure of one of the parties to discharge his obligations leads to failure by other parties. The domino effect of successive failures can cause a failure of the settlement system. These risks have been contained by enforcement of an elaborate margining and capital adequacy standards to secure market integrity, settlement guarantee funds to provide counter-party guarantee, legal backing for settlement activities and business continuity plan etc.

Settlement Agencies

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Several entities are involved in the process of clearing. These are clearing corporation,  clearing members, custodians, Clearing banks, Depositories etc. Lets study the roles of each of these entities. Clearing Corporation The clearing corporation is responsible for post-trade activities such as risk management and clearing and settlement of trades executed on a stock exchange. The National Securities Clearing Corporation Ltd (NSCCL) while Clearing House of BSE called Bank of India Shareholding Ltd (BOISL) handles the clearing and settlement operations on behalf of respective exchanges. Clearing Corporations clear all trades, determine obligations of members, arranges for pay-in of funds/securities, receives funds/securities, processes for shortages in funds/securities, arranges for pay-out of funds/securities, guarantees settlement, and collects and maintains margins/collateral/base capital/other funds. Clearing Member Clearing members are responsible for settling their obligations as determined by the clearing corporation. They have to make available funds/or securities in the designated accounts with clearing bank/depositories, as the case may be, to meet the obligations on the settlement day. In the capital market segment, all trading members of the Exchange are required to become the Clearing Member of the Clearing Corporation. Custodians Custodians are clearing members but not trading members.  They settle trades on behalf of trading members when a particular trade is assigned to them for settlement. The custodian is required to confirm whether he is going to settle the trade or not. If he confirms to settle the trade, then clearing corporation assigns that particular obligation to him. If he rejects the trade, the obligation is assigned back to the trading/clearing member. Custodians empanelled by NSCCL are: Deutshe Bank A.G. ,HDFC Bank Ltd ,HSBC Ltd ,ICICI Bank Ltd ,Standard Chartered bank Ltd ,Axis bank Ltd ,Stock Holding Corporation of India Ltd ,DBS Bank Ltd ,J P Morgan Chase Bank ,Kotak Mahindra Bank Ltd ,SBI,Citibank N.A.,Obris Financial Corporation Ltd. ,IL&FS Ltd Clearing Banks Clearing Banks are a key link between the Clearing Member and Clearing Corporation to effect settlement of funds. Every clearing member is required to open a dedicated clearing account with one of the designated clearing banks. Based on the clearing member’s obligations as determined through clearing, the clearing member makes funds available in the Clearing account for the pay-in and receives funds in case of pay-out. Designated Clearing Banks: Axis Bank Ltd ,Bank of India Ltd ,Canara Bank Ltd ,Citibank N.A. ,HSBC Ltd ,HDFC Bank Ltd,ICICI Bank Ltd, IDBI Bank Ltd,Indusind Bank Ltd ,Kotak Mahindra Bank ,Standard Chartered Bank, State Bank of India Union Bank of India Depositories Depositories hold securities in dematerialized form for the investors in their beneficiary accounts. NSDL & CDSL are the two depositories of India Each clearing member is required to maintain a clearing pool account with the depositories. He is required to make available the required securities in the designated account on settlement day. The depository runs an electronic file of transfer of securities from accounts of custodians/clearing member of NSCCL and visaversa as per the schedule of allocation of Securities. Professional Clearing Member NSCCL admits a special category of members known as professional clearing members (PCMs). PCMs may clear and settle trades executed for their clients (individuals, institutions etc.) In such cases, the functions and responsibilities of the PCM are similar to that of custodians. PCMs also undertake clearing and settlement responsibilities of the trading members. The PCM in this case has no trading rights, but has clearing rights i.e. he clears the trades of his associate trading members and institutional clients

Clearing and Settlement

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Clearing refers to the process of comparing trades before settlement date or the determination of the net obligation of the broker participants (for both securities and cash) The settlement process refers to the exchange of cash and securities on the contractual settlement date. The settlement date can be agreed upon at trade execution or can be prescribed by local trading conventions Clearing and Settlement mechanism in India has witnessed several innovations wiz State-of-art information technology, Compression of Settlement Cycle, Dematerialization and electronic transfer of securities, Securities lending and borrowing, Professionalization of trading members, Fine-tuned risk management system, Emergence of clearing corporations to assume counterparty risk etc. Transaction Cycle A transaction cycle depicts the steps followed by a client in order to execute a trade wherein a buy order matches with a sell order. Step 1:  Decision to trade Step 2:  Placing Order Step 3:  Trade Execution Step 4: Clearing of trades Step 5: Settlement of trades Step 6: Funds/Securities DAY Timings Job Performed T (Trade Day) 9:55 a.m to 3:30 p.m Buy/Sell securtities T+1 By 11:00 a.m. Confirmation of all trades By 1:30 p.m. Processing and downloading of files to brokers/custodians T+2 By 11:00 a.m. Pay-in of securities and funds By 1:30 p.m. Pay-out of Securities and Funds Why Clearing? Clearing is necessary for the matching of all buy and sell orders in the market. It provides smoother and more efficient markets. Parties can make transfers to the clearing corporation, rather than to each individual party with whom they have transacted. The agency reports discrepancies to traders in case the reports do not match, who then try to resolve them. It ensures that trades are settled in accordance with market rules by managing past trading and pre-settlement credit exposures. Settlement Settlement takes place once clearing process in performed. The settlement agency receives cash from buyers and securities from sellers and, at the end of the process, gives the securities to the buyer and the cash to the seller. The timing of payment will depend on the settlement time of the transaction. The buyer must make payment within the settlement period, while the seller must deliver the purchased security within this period. Core Functions Involved in Settlement Process Trade recording:  Key details about the trades Trade Confirmation: Counterparties agree upon the terms of trade Determination of Obligation: determine what they owe/dues Pay-in of Funds and Securities: Funds/securities are brought in to NSCCL/CH Pay-out of funds and Securities: Release of pay-out out of funds/securities Risk Management: For an efficient settlement system.

Auction in Indian Stock Exchanges

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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

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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.

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