Secondary Market in India

Additional trading floor means a trading ring or trading facility offered by a recognized stock exchange outside its area of operation to enable the investors to buy and sell securities through such trading floor under the regulatory framework of that stock exchange.

In accordance with Section 13A of the Securities Contracts (Regulation) Act, 1956, a stock exchange may establish an additional trading floor with the prior approval of the SEBI in accordance with the terms and conditions stipulated by the SEBI. Earlier, the trading in the stock exchange was with the physical presence of brokers on the trading floor of a stock exchange. Now, all stock exchanges have screen-based trading. Further, the brokers can have terminals at any place in India and hence the concept of 'trading floor’ has become obsolete.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 2(b) (Syllabus 2017).

(i)The block deal is also open for individual investors subject to the minimum order size for execution of trades in the Block deal window shall be Rs. 10 Crore.

(ii)Morning Block Deal Window: This window shall operate between 08:45 AM to 09:00 AM.

Afternoon Block Deal Window: This window shall operate between 02:05 PM to 2:20 PM.

(iii)It is mandatory for investors to first take up their grievances for redressal with the entity concerned, through their designated persons/officials who handle issues relating to compliance and redressal of investor grievances. In case, the entity concerned fails to redress the complaint within the timeline, the investor may then file their complaint in SCORES. Investors who wish to lodge a Complaint on SCORES (complainant) are required to register themselves with SCORES portal.

(iv)The types of Preventive Surveillance restrictions that can be imposed by the Stock Exchange are:

(a)Stringent On boarding norms for Trading Members - Stringent net worth, back ground, viability etc. checks while on boarding Trading Members.

(b)Index circuit filters - It brings coordinated trading halt in all equity and equity derivative markets at 3 stages of the index movement, either way viz., at 10%, 15% and 20% based on previous day closing index value.

(c)Trade Execution Range - Orders are matched and trades take place only if the trade price is within the reference price and execution range.

(d)Order Value Limitation - Maximum Order Value limit allowed per order.

(e)Cancel on logout - All outstanding orders are cancelled, if the enabled user logs out.

(f)Kill switch - All outstanding orders of that trading member are cancelled if trading member executes kill switch.

(g)Risk reduction mode - Limits beyond which orders level risk management shall be initiated instead of trade level.

(h)Compulsory close out - Incoming order, if it results in member crossing the margins available with the exchange, such order will be partially or fully cancelled, as the case may be, and further disallow the trading member to create fresh positions.

(i)Capital adequacy check - Refers to monitoring of trading member’s performance and track record, stringent margin requirements, position limits based on capital, online monitoring of member positions and automatic disablement from trading when limits are breached.

(j)Fixed Price Band/Dynamic Price band - Limits applied within which securities shall move; so that volatility is curbed orderliness is bought about. For non-derivative securities price band is 5%, 10% & 20%. For Derivative products an operating range of 10% is set and subsequently flexed based on market conditions.

(k)Trade for Trade Settlement - The settlement of scrip’s available in this segment is done on a trade for trade basis and no netting off is allowed.

(l)Periodic call auction - Shifting the security form continuous to call auction method.

(m)Rumour Verification - Any unannounced news about listed companies is tracked on online basis and letter seeking clarification is sent to the companies and the reply received is disseminated.

(v)In the given case, Technet Ltd. is in business of data analytics since last two years and wishes to list its securities with the stock exchange, by floating an IPO. An issuer not satisfying the condition stipulated in regulation 6(1) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, shall be eligible to make an initial public offer only if the issue is made through the book-building process and the issuer undertakes to allot at least seventy five per cent. of the net offer to qualified institutional buyers and to refund the full subscription money if it fails to do so.

Therefore, Technet Ltd. opt for the route as available under Regulation 6(2) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 for making an initial public offer and listing thereof.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 1(a) (Syllabus 2022).

Block Deal

In order to facilitate execution of large trades, the stock exchanges are permitted to provide a separate trading window. A trade executed on this separate trading window is termed as ‘block deal’. SEBI introduced a new block window mechanism for the block trades from January 01, 2018. A trade, with a minimum quantity of 5,00,000 shares or minimum value of Rs.5 crore executed through a single transaction on this separate window of the stock exchange will constitute a “block deal”.

Session Timings:

o Morning Block Deal Window: The window shall operate between 08.45 AM to 09.00 AM

o Afternoon Block Deal Window: This window shall operate between 02:05 PM to 2.20 PM

•In the block deal the minimum order size for execution of trades in the Block deal window shall be Rs.10 Crore.

•The orders placed shall be within ±1% of the applicable reference price in the respective windows as stated above.

•The stock exchanges disseminates the information on block deals such as the name of the scrip, name of the client, quantity of shares bought/sold, traded price, etc to the general public on the same day, after the market hours.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 6(c) (Syllabus 2017).

SEBI vide its circular MRD/DoP/SE/Cir-19/2005 dated September 02, 2005 prescribed guidelines for execution of large size trade through a single transaction. In order to facilitate execution of such large trades, stock exchanges were permitted to provide a separate trading Window. A trade executed on this separate trading window was termed as ‘block deal’.

Execution of Block Deal

i.Session timings:

(a)Morning Block Deal Window: This window shall operate between 08:45 AM to 09:00 AM.

The reference price for execution of block deals in this window shall be the previous day closing price of the stock.

(b)Afternoon Block Deal Window: This window shall operate between 02:05 PM to 02:20 PM.

The reference price for block deals in this window shall be the volume weighted average market price (VWAP) of the trade executed in the stock in the cash segment between 01:45 PM to 02:00 PM.

ii.The minimum order size for execution of trades in the block deal window shall be ₹10 crores.

iii.The orders placed shall be within ± 1% of the applicable reference price in the respective windows as stated above.

iv.Every trade executed in the block deal Windows must result in delivery and cannot be squared off or reversed.

v.The stock exchanges disseminate the information on block deals such as the name of the script, name of the client, quantity of shares bought/sold, price, etc. to the general public on the same day, after the market hours.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 6A(i) (Syllabus 2017).

(a)Bulk deal is a transaction, where total quantity bought or sold is more than 0.5% of the number of equity shares of a listed company on the exchange. The first transaction is 44.5% and the second one is 5%. Hence both are bulk trade. The third transaction is of 0.5% between the buyer and seller and therefore, totalling to more than 0.5% and hence qualify as bulk trade transaction.

(b)The execution of bulk deal should be notified to the exchange immediately upon the execution of the trade order. If it happens through multiple trades, it should be notified to the exchange within one hour from the closure of the trading.

(c)The stock broker, ABC Ltd, who facilitates the trade, is required to reveal to the stock exchange about the bulk deals on a daily basis.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2A(iii) (Syllabus 2022).

Bulk deal is a trade, where total quantity bought or sold is more than 0.5% of the number of equity shares of a listed company, Bulk deal can be transacted by the normal trading window provided by brokers throughout the trading hours in a day. Bulk deals are market driven and take place throughout the trading day. The stock broker, who facilitates the trade, is required to reveal to the stock exchange about the bulk deals on a daily basis.

Bulk orders are visible to everyone. If the bulk deal happens through a single trade, it should be notified to the exchange immediately upon the execution of the order. If it happens through multiple trades, it should be notified to the exchange within one hour from the closure of the trading.

Difference between bulk deal and block deal

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 6A(ii) (Syllabus 2017).

Bulk deal is a trade, where total quantity bought or sold is more than 0.5% of the number of equity shares of a listed company.

Bulk deal can be transacted by the normal trading window provided by brokers throughout the trading hours in a day. Bulk deals are market driven and take place throughout the trading day.

The stock broker, who facilitates the trade, is required to reveal to the Stock Exchange about the bulk deals on daily basis.

Bulk orders are visible to everyone. If the bulk deal happens through a single trade, it should be notified to the Stock Exchange immediately upon the execution of the order. If it happens through multiple trades, it should be notified to the exchange within one hour from the closure of the trading.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 6(e) (Syllabus 2017).

Classification of scrip traded on BSE

The scrips traded on BSE have been classified into various groups:

For the guidance and benefits of the investors, BSE has classified the scrips in the Equity segment into A, B, F, G, T, Z groups on certain qualitative and quantitative parameters;

-The A Group is the most tracked class of scripts consisting of about 200 scripts. Market capitalization is one key factor in deciding which scrip should be classified in Group A.

-The B Group represents two scrips ‘B1’ which consists of scrips relatively liquid and with good track record. ‘B2’ which consists of scrips with comparatively low liquidity.

-The F group represents the fixed income securities.

-The G group represents trading in Government Securities by the retail investors.

-The T group represents scrips which are settled on a trade to trade basis as a surveillance measure.

-The Z group includes companies which have failed to comply with its listing requirements and/or have failed to resolve investor complaints and/or have not made the required arrangements with the depositories for dematerialization of their securities.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 2(e) (Old syllabus).

Clearing corporation means an entity that is established to undertake the activity of clearing and settlement of trades in securities or other instruments or products that are dealt with or traded on a recognized stock exchange. For settlement of securities transaction in stock exchanges, the Clearing Corporation plays a major role for smooth functioning of capital market by being responsible towards many key functions.

Clearing Corporation is responsible: -

•for clearing and settlement of all trades executed on Stock Exchange and deposit and collateral management and risk management functions;

•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.

Section 8A(1) of the Securities Contracts (Regulation) Act, 1956 provides that a recognized stock exchange may with the prior approval of the SEBI, transfer the duties and functions of a clearing house to a clearing corporation, being a company incorporated under the Companies Act, 2013, for the purpose of -

(a)the periodical settlement of contracts and differences thereunder;

(b)the delivery of, and payment for, securities;

(c)any other matter incidental to or connected with such transfer.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 3(c) (Syllabus 2017).

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 1(a) (Old syllabus).

Currency derivatives

Currency derivatives are financial contracts between the buyer and seller involving the exchange of two currencies at a future date, and at a stipulated rate. Currency Derivative Trading is similar to Stock Futures and Options trading. However, the underlying asset are currency pairs (such as USDINR or EURINR) instead of Stocks. Currency Options and Currency Futures trading is done in the Foreign Exchange markets. Forex rates are the value of a foreign currency relative to domestic currency. The major participants of Currency Trading in India are banks, corporations, exporters and importers. Benefits of currency derivatives include:

•Diversification to investments,

•Hedging opportunities to importers & exporters, for their future payables and receivables,

•Trading opportunities because of volatility in currency,

•Transparent rates to traders as it is exchange-traded.

Commodity Derivatives

Commodity is a physical good attributable to a natural resource that is tradable and supplied without substantial differentiation by the general public. Commodities trade in physical (spot) markets and in futures and forward markets. Spot markets involve the physical transfer of goods between buyers and sellers; prices in these markets reflect current (or very near term) supply and demand conditions.

Commodity derivatives are financial instruments whose value is based on underlying commodities, such as oil, gas, metals, agricultural products and minerals. Other assets such as emissions trading credits, freight rates and even the weather can also underlie commodity derivatives. Commodity Derivatives markets are a good source of critical information and indicator of market sentiments. Since, commodities are frequently used as input in the production of goods or services, uncertainty and volatility in commodity prices and raw materials make the business environment erratic, unpredictable and subject to unforeseeable risks.

Volatility in raw material costs affects businesses and can be significant given that commodity prices are driven by supply and demand from domestics as well as global markets. Ability to manage or mitigate risks by using suitable hedging in commodity derivative products, can positively affect business performance.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2(d) (Syllabus 2022).

(i)Calculation of Profit/loss on cash market

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 6A(i) (Syllabus 2017).

(i)A currency future, also known as Forex future, is a future contract to exchange one currency for another at a specified date in the future at a price (exchange rate) that is fixed on the purchase date. Generally, the price of a future contract is in term of INR per unit of other currency e.g. US Dollar. Currency future contracts allow investors to hedge against foreign exchange risk.

(ii)Mr. R has purchased European options. He can exercise them only on expiry. He would exercise a call option only if the share price (S = 1100) is greater than the strike price. It should be noted that the call options are right to buy the underlying, therefore he would act as under:

Exercise Emkey @ 1050 call (1100 > 1050), by doing so, he makes a gain of ₹ 50. Not exercise Emkey @1120 Call (1100 < 1120). This is because he can buy stocks cheaper at ₹1100 in the market rather than exercising at ₹ 1120.

He would exercise a put option only if the stock price (S=590) is less than the strike Price. It is the right to sell the underlying. Therefore, he would act as under:

Not exercise Giganet @525 Put (590 > 525) Not exercise Giganet @580 Put (590 > 580)

This is because he can sell stocks at a higher rate of ₹ 590 in the market rather than exercising the puts at lower rates.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 5(a) (Syllabus 2017).

Currency Derivatives Currency derivatives are financial contracts between the buyer and seller involving the exchange of two currencies at a future date, and at a stipulated rate. Currency Derivative trading is similar to Stock Futures and Options trading. However, the underlying asset are currency pairs (such as USDINR or EURINR) instead of stocks. Currency Options and Currency Futures trading is done in the Foreign Exchange markets. Forex rates are the value of a foreign currency relative to domestic currency. The major participants of Currency trading in India are banks, corporations, exporters and importers. In August 2008, SEBI permitted Exchange traded Currency Derivatives on the Indices. The clearing of the currency derivatives market should be done by an independent Clearing Corporation, which satisfies the eligibility for a clearing corporation.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 6(a) (Syllabus 2017).

Derivative

A derivative is a financial instrument that derives its value from an underlying asset. This underlying asset can be stocks, bonds, currency, commodities, metals and even intangible, assets like stock indices. Derivatives can be of different types like futures, options, swaps, caps, floor, collars etc. The most popular derivative instruments are futures and options.

Derivative includes: -

a)a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security;

b)a contract which derives its value from the prices, or index of prices, of underlying securities;

c)commodity derivatives; and

d)such other instruments as may be declared by the Central Government to be derivatives.

Currency Derivatives

Currency derivatives are financial contracts between the buyer and seller involving the exchange of two currencies at a future date, and at a stipulated rate. Currency Derivative trading is similar to Stock Futures and Options trading. However, the underlying asset are currency pairs (such as USDINR or EURINR) instead of Stocks. Currency Options and Currency Futures trading is done in the Foreign Exchange markets. Forex rates are the value of a foreign currency relative to domestic currency. The major participants of Currency Trading in India are banks, corporations, exporters and importers.

Benefits of currency derivatives include:

Commodity Derivatives

Commodity is a physical good attributable to a natural resource that is tradable and supplied without substantial differentiation by the general public. Commodities trade in physical (spot) markets and in futures and forward markets. Spot markets involve the physical transfer of goods between buyers and sellers; prices in these markets reflect current (or very near term) supply and demand conditions.

Commodity derivatives are financial instruments whose value is based on underlying commodities, such as oil, gas, metals, agricultural products and minerals. Other assets such as emissions trading credits, freight rates and even the weather can also underlie commodity derivatives.

Commodity Derivatives markets are a good source of critical information and indicator of market sentiments. Since, commodities are frequently used as input in the production of goods or services, uncertainty and volatility in commodity prices and raw materials makes the business environment erratic, unpredictable and subject to unforeseeable risks.

Volatility in raw material costs affects businesses and can be significant given that commodity prices are driven by supply and demand from domestics as well as global markets. Ability to manage or mitigate risks by using suitable hedging in commodity derivative products, can positively affect business performance.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 6A(i) (Syllabus 2017).

Options Contract give its holder the right, but not the obligation, to take or make delivery on or before a specified date at a stated price. But this option is given to only one party in the transaction while the other party has an obligation to take or make delivery. Since the other party has an obligation and a risk associated with making good the obligation, he receives a payment for that. This payment is called as option premium.

Classification of Option Contracts

Option contracts are classified into two types on the basis of which party has the option:

•Call option - A call option is with the buyer and gives the holder a right to take delivery.

•Put option - The put option is with the seller and the option gives the right to take delivery.

Option Contracts are classified into two types on the basis of time at which the option can be exercised:

•European Option - European style options are those contacts where the option can be exercised only on the expiration date. Options traded on Indian stock exchanges are of European Style.

•American Option - American style options are those contacts where the option can be exercised on or before the expiration date.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 5(b) (Syllabus 2017).

(a)Future refers to a future contract which means an exchange traded forward contract to buy or sell a predetermined quantity of an asset on a predetermined future date at a predetermined price. Contracts are standardized and there's centralized trading ensuring liquidity. There are two positions that one can take in a future contract:

•Long Position - This is when a futures contract is purchased and the buyer agrees to receive delivery of the underlying asset. (Stock/Indices/ Commodities)

•Short Position - This is when a futures contract is sold and the seller agrees to make delivery of the underlying asset. (stock/Indices/Commodities)

(b)Profit or loss in case of buying 500 shares of PQR Ltd.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 6A(i) (Syllabus 2017).

Options Contract give its holder the right, but not the obligation, take or make delivery on or before a specified date at a stated price.

Option Contracts are classified into two types on the basis of which party has the option:

a.Call Option – A call option is with the buyer and gives the right to take delivery. The buyer of the call option has a right to buy the underlying asset from the option seller.

b.Put Option – The put option is with the seller and the option gives the right to take delivery. The buyer of the put option has a right to sell the underlying asset to the option seller.

(iv)For Mr. XY : Loss = [{Rs. -70 + Rs. 48} + Rs. 8] = - Rs. 14

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 5(a) (Syllabus 2017).

Direct Market Access

Direct Market Access (DMA) is a facility which allows brokers to offer clients direct access to the exchange trading system through the broker’s infrastructure without manual intervention by the broker. Some of the advantages offered by DMA are direct control of clients over orders, faster execution of client orders, reduced risk of errors associated with manual order entry, greater transparency, increased liquidity, lower impact costs for large orders, better audit trails and better use of hedging and arbitrage opportunities through the use of decision support tools / algorithms for trading.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 2(b) (Old syllabus).

•An Exchange traded fund (ETF) is a security that tracks an index, commodity, bonds, or a basket of assets like an index fund and is traded in the securities market. In simple words, ETFs are funds that track indexes such as Sensex, Nifty, etc.

•When any investor buy shares/ units of an ETF, he buys shares/ units of a portfolio that tracks the performance of the index. ETFs just reflect the performance of the index they track.

•Unlike regular mutual funds, ETFs trade like a common stock on the stock exchange and the price of an ETF changes as per the trading in the market takes place.

•The trading value of an ETF depends on the net asset value of the underlying stock that it represents. ETFs, generally, have higher daily liquidity and lower fees than mutual fund schemes.

Therefore, ETF possesses Lower risk due to its diversification across various market securities rathe then being limited to performance of single entity.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2(c) (Syllabus 2022).

Since monetary policies are influenced by inflation and inflationary expectations in the economy, it is therefore critical that inflation index should be able to predict future inflation with reasonable accuracy. Generally, when a country is operating in a low interest rate regime, borrowers can borrow money at a lower interest rate. This aids in increased purchased power of the consumers. The demand for the goods increases and subsequently sensing a higher demand, the prices will also raise. This condition drives the inflation rates higher. When the inflation rates have raised more than the optimal levels, the Reserve Bank of India (RBI) steps in to increase interest rate to control inflation rate. When inflationary pressure starts building in the economy, RBI hikes the repo rate and/ or cash reserve ratio (CRR) to manage the money supply causing higher inflation. This ultimately impact the supply of money in the Stock Market.

Maintaining an optimal inflation rate is the primary task of Monetary Policy decision makers of any nation. An optimal inflation rate ensures a healthy economy. More often than not, the policy makers tend to spur growth in a stalled economy by slashing the interest rates, thereby increasing the money available in the markets. However, in order to implement such rate cuts the inflation rate should be at an optimal level. So, it becomes the prime responsibility of Reserve Bank to monitor Wholesale Price Index (WPI) and Consumer Price Index (CPI) to ensure that economy is balance.

A rise in the inflation rate impacts market sentiments. A higher inflation rate drives the interest rates higher and hence borrowing becomes costly for the banks, corporates and financial institutions. Therefore, the valuations of capital-intensive companies and sectors may come under pressure as their margins decrease due to the higher interest burden.

However, the markets are governed by many factors and the direction cannot be determined by reading just one factor. Global sentiments and global funds inflows are other crucial factors that impact the direction of stock markets significantly.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 2(a) (Syllabus 2022).

The Federal Funds Rate is the interest rate at which the top US banks borrow overnight money from common reserves. All American banks are required to park a portion of their deposits with the Federal Reserve in cash, as a statutory requirement.

The Fed Fund Rate gives the direction in which US interest rates should be heading at any given point of time. If the Fed is increasing the interest rates, lending rates for companies and retail borrowers will go up and vice versa. In India, hike in repo rate may not impact the countries outside India. On the other hand, US interest rates matter a lot to global capital flows.

Some of the world’s richest institutions and investors have their base in USA. They constantly compare Fed rates with interest rates across the world to make their allocation decisions.

In the globalised world, markets are connected. An increase in Fed rates will be negative in general for the US stock market and if it leads to another round of sell-offs, it will also have ripple effects on the Indian market.

Any changes in the Fed Fund Rates impact the domestic borrowing market to a large extent. For instance, if the Fed rates go up, it will make the RBI hesitant in cutting rates at that time. The reason is that if RBI cut rates it will lead to heavy pullout of foreign investors from the Indian bond market.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2A(iii) (Syllabus 2022).

Repo Rate : The rate at which the Commercial Banks borrow money from RBI. Reduction in Repo Rate helps the Commercial Banks to get money at a cheaper rate and an Increase in Repo Rate discourages the Commercial Banks to get money as the rate increases and becomes expensive. The increase in the Repo Rate will increase the cost of borrowing and lending of the banks which will discourage the public to borrow money and encourages them to deposit.

Reverse Repo Rate (RRR) : The rate at which the RBI borrows money from the Commercial Banks. An increase in the reverse repo rate will decrease the money supply and vice-versa, other things remaining constant. An increase in Reverse Repo Rate means that Commercial Banks will get more incentives to park their funds with the RBI, therefore decreasing the supply of money in market. An increase in the Repo Rate and the Reverse Repo Rate indicates strengthening of RBI’s Monetary Policy.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 6(a) (Syllabus 2017).

FED POLICY

The Federal Reserve System is the central bank of the United States. It performs five general functions to promote the effective operation of the U.S. economy and, more generally, the public interest. The Federal Reserve:

•conducts the nation's monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy;

•promotes the stability of the financial system and seeks to minimize and contain systemic risks through active monitoring and engagement in the U.S. and abroad;

•promotes the safety and soundness of individual financial institutions and monitors their impact on the financial system as a whole;

•fosters payment and settlement system safety and efficiency through services to the banking industry and the U.S. government that facilitate U.S.-dollar transactions and payments; and

•promotes consumer protection and community development through consumer-focused supervision and examination, research and analysis of emerging consumer issues and trends, community economic development activities, and the administration of consumer laws and regulations.

The Fed Funds Rate is the interest rate at which the top US banks borrow overnight money from common reserves. All American banks are required to park a portion of their deposits with the Federal Reserve in cash, as a statutory requirement.

Actually, fed fund rate gives the direction in which US interest rates should be heading at any given point of time. If the Fed is increasing the interest rates, lending rates for companies and retail borrowers will go up and vice versa. In India, hike in repo rate may not impact the countries outside India. On the other hand, US interest rates matter a lot to global capital flows. Some of the world's richest institutions and investors have their base in USA. They constantly compare Fed rates with interest rates across the world to make their allocation decisions.

In the globalised world, markets are connected. An increase in Fed rates will be negative in general for the US stock market and if it leads to another round of sell-offs, it will also have ripple effects on the Indian market.

Any changes in the Fed Fund Rates impact the domestic borrowing market to a large extent. For instance, if the Fed rates go up, it will make the RBI hesitant in cutting rates at that time. The reason is that if RBI cut rates it will lead to heavy pullout of foreign investors from the Indian bond market.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 6A(iii) (Syllabus 2017).

Repo & Reverse Repo Rate

Repo Rate - The rate at which the Commercial Banks borrow money from RBI. Reduction in Repo Rate helps the Commercial Banks to get money at a cheaper rate and an Increase in Repo Rate discourages the Commercial Banks to get money as the rate increases and becomes expensive. The increase in the Repo Rate will increase the cost of borrowing and lending of the banks which will discourage the public to borrow money and encourages them to deposit.

Reverse Repo Rate - The rate at which the RBI borrows money from the Commercial Banks. An increase in the reverse repo rate will decrease the money supply and vice-versa, other things remaining constant. An increase in Reverse Repo Rate means that Commercial Banks will get more incentives to park their funds with the RBI, therefore decreasing the supply of money in Market. An increase in the Repo Rate and the Reverse Repo rate indicates strengthening of RBI's Monetary Policy.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 6(b) (Syllabus 2017).

The Federal Reserve System is the central bank of the United States. It performs five general functions to promote the effective operation of the U.S. economy and, more generally, the public interest. The Federal Reserve:

•conducts the nation's monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy;

•promotes the stability of the financial system and seeks to minimize and contain systemic risks through active monitoring and engagement in the U.S. and abroad;

•promotes the safety and soundness of individual financial institutions and monitors their impact on the financial system as a whole;

•fosters payment and settlement system safety and efficiency through services to the banking Industry and the U.S. government that facilitate U.S.-dollar transactions and payments; and

•promotes consumer protection and community development through consumer-focused supervision and examination, research and analysis of emerging consumer issues and trends, community economic development activities, and the administration of consumer laws and regulations.

The Fed Funds Rate is the interest rate at which the top US banks borrow overnight money from common reserves. All American banks are required to park a portion of their deposits with the Federal Reserve in cash, as a statutory requirement.

Actually, fed fund rate gives the direction in which US interest rates should be heading at any given point of time. If the Fed is increasing the interest rates, lending rates for companies and retail borrowers will go up and vice versa. In India, hike in repo rate may not impact the countries outside India.

On the other hand, US interest rates matter a lot to global capital flows. Some of the world's richest institutions and investors have their base in USA. They constantly compare Fed rates with interest rates across the world to make their allocation decisions.

In the globalised world, markets are connected. An increase in Fed rates will be negative in general for the US stock market and if it leads to another round of sell-offs, it will also have ripple effects on the Indian market.

Any changes in the Fed Fund Rates impact the domestic borrowing market to a large extent. For instance, if the Fed rates go up, it will make the RBI hesitant in cutting rates at that time. The reason is that if RBI cut rates it will lead to heavy pullout of foreign investors from the Indian bond market.

Rupee Vs Dollar

If the Fed rates are hiked, the value of the dollar would go up, thus weakening Indian rupee in comparison. This might hurt India’s forex reserves and imports. However, the weaker rupee is good for India’s exports but low global demand and stiff competition would not leave much room for Indian exporters to capitalise the situation. DBS said that India’s financing requirements will keep the rupee vulnerable to rising US rates this year.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 6A(ii) (Syllabus 2017).

Key differences between Wholesale Price Index (WPI) & Consumer Price Index (CPI)

•Primary use of WPI is to have inflationary trend in the economy as a whole. However, CPI is used for adjusting income and expenditure streams for changes in the cost of living.

•WPI is based on wholesale prices for primary articles, administered prices for fuel items and ex-factory prices for manufactured products. On the other hand, CPI is based on retail prices, which include all distribution costs and taxes.

•Prices for WPI are collected on voluntary basis while price data for CPI are collected by investigators by visiting markets.

•WPI covers all goods including intermediate goods transacted in the economy while CPI covers only consumer goods and consumer services.

•WPI weights primarily based on national accounts and enterprise survey data and CPI weights are derived from consumer expenditure survey data.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2A(ii) (Syllabus 2022).

Inflation is a rise in prices, which can be translated as the decline of purchasing power over time. Inflation rate is the measure of the increase or rate of increase in the general price of selected goods and services over a determined period. Inflation can indicate a decline in the purchasing power or value of a nation's currency and is typically recorded and reported as a percentage.

Inflation rate is important because as the average cost of items increases, currency loses value as it takes more and more funds to acquire the same goods and services as before. This fluctuation in the value of any currency impacts the cost of living and the economy.

Calculation of Inflation Rate:

Inflation Rate Formula: (B – A)/A x 100

Where, A is the price paid in the previous year/ earlier year and B is the price paid in the current year/later year.

In the given situation, M bought his morning coffee for ₹12 in 2019 and now he is paying ₹ 16 in 2023.

Inflation Rate = (₹ 16 – ₹12)/ ₹12 x 100 = 33.33%

Therefore, the inflation rate for M’s cup of coffee in the year 2023 is 33.33% comparing the price which M had paid in the year 2019.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 5(c) (Syllabus 2017).

Inflation Index

An index is just a collection of data that serves as a baseline for future reference. We use the index model in all areas of life, from the stock market, to inflation. We index wage levels, corporate profits as a percentage of GDP, and almost anything else that can be measured. We do this to compare where we are now to where we have been in the past.

An inflation index is an economic tool used to measure the rate of inflation in an economy. There are several different ways to measure inflation, leading to more than one inflation index with different economists and investors preferring one method to another, sometimes strongly.

In India, Consumer Price Index (CPI) and Wholesale Price Index (WPI) are two major indices for measuring inflation. In United States, CPI and PPI (Producer Price Index) are two major indices. The Wholesale Price Index (WPI) was main index for measurement of inflation in India till April 2014 when RBI adopted new Consumer Price Index (CPI) (combined) as the key measure of inflation.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 6(d) (Syllabus 2017).

An inflation index is an economic tool used to measure the rate of inflation in an economy. There are several different ways to measure inflation. In India, Consumer Price Index (CPI) and Wholesale Price Index (WPI) are two major indices for measuring inflation. In United States, CPI and PPI (Producer Price Index) are two major indices. The Wholesale Price Index (WPI) was main index for measurement of inflation in India till April 2014 when RBI adopted new Consumer Price Index (CPI) (combined) as the key measure of inflation.

Key differences between WPI & CPI

•Primary use of WPI is to have inflationary trend in the economy as a whole. However, CPI is used for adjusting income and expenditure streams for changes in the cost of living.

•WPI is based on wholesale prices for primary articles, administered prices for fuel items and ex-factory prices for manufactured products. On the other hand, CPI is based on retail prices, which include all distribution costs and taxes.

•Prices for WPI are collected on voluntary basis while price data for CPI are collected by Investigators by visiting markets.

•CPI covers only consumer goods and consumer services while WPI covers all goods including goods transacted in the economy.

•WPI weights primarily based on national accounts and enterprise survey data and CPI weights are derived from consumer expenditure survey data.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 6A(iii) (Syllabus 2017).

Key difference between Wholesale Price Index (WPI) & Consumer Price Index (CPI)

i.Primary use of WPI is to have inflationary trend in the economy as a whole. However, CPI is used for adjusting income and expenditure streams for changes in the cost of living.

ii.WPI is based on wholesale prices for primary articles, administered process for fuel items and ex-factory prices for manufactured products. On the other hand, CPI is based on retail prices, which include all distribution costs and taxes.

iii.Prices of WPI are collected on voluntary basis while price data for CPI is collected by Investigators by visiting markets.

iv.CPI covers only consumer goods and consumer services while WPI covers all goods including intermediate goods transacted in the economy.

v.WPI weights primarily based on national accounts and enterprise survey data and CPI weights are derived from consumer expenditure survey data.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 6(b) (Syllabus 2017).

Handling of complaints by Investor Grievance Redressal Committee (IGRC)

In order to further strengthen the Investor Grievance Redressal Mechanism, the SEBI vide its circular dated 6th November, 2020 specified that for Complaints related to trade, settlement and ‘deficiency in services’, resulting into any financial loss, the stock exchange shall resolve the complaint on its own as per the time lines prescribed. However, if complaint is not resolved amicably, the same shall be referred to the IGRC, after recording the reasons in writing by the Chief Regulatory Officer of the Stock Exchange or any other officer of the Stock Exchange authorized in this behalf by the Managing Director.

i.IGRC shall have a time of 15 working days to amicably resolve the investor complaint through conciliation process. If IGRC needs additional information, then IGRC may request the Stock Exchange to provide the same before the initiation of the conciliation process. In such case, where additional information is sought, the timeline for resolution of the complaint by IGRC shall not exceed 30 working days.

ii.IGRC shall not dispose the complaint citing “Lack of Information and complexity of the case”. The IGRC shall give its recommendation to Stock Exchange.

iii.IGRC shall decide claim value admissible to the complainant, upon conclusion of the proceedings of IGRC. In case claim is admissible to the complainant, Stock Exchanges shall block the admissible claim value from the deposit of the member as specified in this regard.

iv.Expenses of IGRC shall be borne by the respective Stock Exchange and no fees shall be charged to the complainant/member.

v.The Stock Exchange shall organize regular training program for IGRC members in consultation with National Institute of Securities Markets (“NISM”). The cost of such program shall be borne by Investor Service Fund (“ISF”) of the Stock Exchange.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 2(e) (Syllabus 2017).

On 03/09/2023, balance is less than maintenance margin i.e. (1,15,000 – 30,000), Margin call would be made to maintain the initial margin of Rs. 1,20,000. Thus, a margin call of Rs. 35,000 would be made.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 6A(i) (Syllabus 2017).

Margins : An advance payment of a portion of the value of a stock transaction. The amount of credit a broker or lender extends to a customer for stock purchase.

Margin is of two types:

1.“Initial margin” in this context means the minimum amount, calculated as a percentage of the transaction value, to be placed by the client, with the broker, before the actual purchase. The broker may advance the balance amount to meet full settlement obligations.

2.“Maintenance margin” means the minimum amount, calculated as a percentage of market value of the securities, calculated with respect to last trading day's closing price, to be maintained by client with the broker.

When the balance deposit in the client's margin account falls below the required maintenance margin, the broker shall promptly make margin calls. However, no further exposure can be granted to the client on the basis of any increase in the market value of the securities.

The broker may liquidate the securities if the client fails to meet the margin calls made by the broker or fails to deposit the cheques on the day following the day on which the margin call has been made or the cheque has been dishonoured.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 6(c) (Syllabus 2017).

Note to Managing Director on Market Making

Market making is a process where the market makers offers a two way quote (both buy and sell) to increase the supply and demand of the scrip. This increase the liquidity in the stock.

Market-making is aimed at infusing liquidity in securities that are not frequently traded on stock exchanges. A market-maker is responsible for enhancing the demand supply situation in securities such as stocks and futures & options (F&O).

To understand this concept better, it would be helpful to have an idea about the existing screen based electronic trading system. In this system, orders placed by buyers and sellers are matched by a computer system (run by stock exchanges). This system is beneficial for actively-traded stocks, but not for lesser-traded ones. Investors usually ignore thinly-traded stocks despite good fundamentals due to fears that they might not be able to trade more frequently in them. The introduction of the market-making facility could be a possible means to infuse liquidity into such shares. In overseas markets, a market-maker is usually a broker or an institution. As a result, there is an incentive for the broker to recommend securities for which he creates a market.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 2A(i) (Old syllabus).

Jobber

Member brokers of a stock exchange who specialize, by giving two way quotations, in buying and selling of securities from and to fellow members. Jobbers do not have any direct contact with the public but they serve the useful function of imparting liquidity to the market.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 2(e) (Old syllabus).

Market Surveillance is broadly categorised in 2 parts viz, Preventive Surveillance and Post trade Surveillance.

Post trade surveillance -

•End of day alert – Alerts generated using statistical tools. The tool highlights stocks which have behaved abnormally form its past behavior.

•Pattern recognition model – Models designed using high end tools and trading patterns which itself.

•Transaction alerts for member - As part of surveillance obligation of members the alerts are downloaded to members under various different heads.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 6(e) (Syllabus 2017).

Post Trade Surveillance

It is one of the category of market surveillance which plays a vital role in ensuring market integrity, which is the core objective of regulators. It includes following:

•End of day alert – Alerts generated using statistical tools. The tool highlights stocks which have behaved abnormally form its past behaviour.

•Pattern recognition model - Models designed using high end tools and trading patterns which itself identifies suspects involving in unfair trading practice.

•Transaction alerts for member - As part of surveillance obligation of members the alerts are downloaded to members under 14 different heads.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 6(b) (Syllabus 2017).

Key features of Preventive Surveillance

Following are some important features or ingredients of preventive surveillance:

1.Stringent On boarding norms for Trading Members - Stringent net worth, back ground, viability etc. checks while on boarding Trading Members.

2.Index circuit filters - It brings coordinated trading halt in all equity and equity derivative markets at 3 stages of the index movement, either way viz., at 10%, 15% and 20% based on previous day closing index value.

3.Trade Execution Range - Orders are matched and trades take place only if the trade price is within the reference price and execution range.

4.Order Value Limitation - Maximum Order Value limit allowed per order.

5.Cancel on logout - All outstanding orders are cancelled, if the enabled user logs out.

6.Kill switch - All outstanding orders of that trading member are cancelled if trading member executes kill switch.

7.Risk reduction mode - Limits beyond which orders level risk management shall be initiated instead of trade level.

8.Compulsory close out - Incoming order, if it results in member crossing the margins available with the exchange, such order will be partially or fully cancelled, as the case may be, and further disallow the trading member to create fresh positions.

9.Capital adequacy check - Refers to monitoring of trading member's performance and track record, stringent margin requirements, position limits based on capital, online monitoring of member positions and automatic disablement from trading when limits are breached.

10.Trade for Trade Settlement - The settlement of scrip's available in this segment is done on a trade for trade basis and no netting off is allowed.

11.Periodic call auction - Shifting the security form continuous to call auction method.

12.Rumour Verification - Any unannounced news about listed companies is tracked on online basis and letter seeking clarification is sent to the companies and the reply received is disseminated.

13.End of day alert – Alerts generated using statistical tools. The tool highlights stocks which have behaved abnormally form its past behaviour.

14.Pattern recognition model – Models designed using high end tools and trading patterns which itself identifies suspects involving in unfair trading practice.

15.Transaction alerts for member - As part of surveillance obligation of members the alerts are downloaded to members under 14 different heads.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 6(a) (Syllabus 2017).

Market Abuse

Market abuse is a broad term which includes abnormal price/volume movement, artificial transactions, false or misleading impressions, insider trading etc. The department uses various tools to determine normal and abnormal market behaviour. The necessary actions are initiated like imposition of special margin, reduction of circuit filters, trade to trade settlement, suspensions, de-activation of terminals etc. to control abnormal market behaviour. The department carries out investigation, if necessary, based on the preliminary examination/analysis and suitable actions are taken against members involved based on the investigation.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 2(a) (Old syllabus).

Market Surveillance plays a vital role in ensuring market integrity which is the core objective of regulators. Market integrity is achieved through combination of surveillance, inspection, investigation and enforcement of relevant laws and rules. Exchange adopt automated surveillance tools that analyse trading patterns and are installed with a comparative alert management system.

Preventive Surveillance –

•Stringent on boarding norms for Trading Members - Stringent net worth, back ground, viability etc. checks while on boarding Trading Members.

•Index circuit filters - It brings coordinated trading halt in all equity and equity derivative markets at 3 stages of the index movement, either way viz., at 10%, 15% and 20% based on previous day closing index value.

•Trade Execution Range - Orders are matched and trades take place only if the trade price is within the reference price and execution range.

•Order Value Limitation - Maximum Order Value limit allowed per order.

•Cancel on logout - All outstanding orders are cancelled, if the enabled user logs out.

•Kill switch - All outstanding orders of that trading member are cancelled if trading member executes kill switch.

•Risk reduction mode - Limits beyond which orders level risk management shall be initiated instead of trade level.

•Compulsory close out - Incoming order, if it results in member crossing the margins available with the exchange, such order will be partially or fully cancelled, as the case may be, and further disallow the trading member to create fresh positions.

•Capital adequacy check - Refers to monitoring of trading member’s performance and track record, stringent margin requirements, position limits based on capital, online monitoring of member positions and automatic disablement from trading when limits are breached

•Fixed Price Band / Dynamic Price band - Limits applied within which securities shall move; so that volatility is curbed orderliness is bought about. For non-derivative securities price band is 5%, 10% & 20%. For Derivative products an operating range of 10% is set and subsequently flexed based on market conditions.

•Trade for Trade Settlement - The settlement of scrip’s available in this segment is done on a trade for trade basis and no netting off is allowed.

•Periodic call auction - Shifting the security form continuous to call auction method

•Rumour Verification - Any unannounced news about listed companies is tracked on online basis and letter seeking clarification is sent to the companies and the reply received is disseminated.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 6A(i) (Syllabus 2017).

Market surveillance plays a vital role in ensuring market integrity which is the core objective of regulators. Market integrity is achieved through combination of surveillance, inspection, investigation and enforcement of relevant laws and rules. In India, the primary responsibility of market surveillance has been entrusted to Stock exchanges and is being closely monitored by SEBI. Millions of Orders are transmitted electronically every minute and therefore surveillance mechanisms to detect any irregularities must also be equally developed. Exchanges adopt automated surveillance tools that analyse trading patterns. Market Surveillance is broadly categorised in two parts as under:

A.Preventive Surveillance

–Stringent on boarding norms for Trading Members - Stringent net worth, back ground, viability etc. checks while on boarding Trading Members.

–Index circuit filters - It brings coordinated trading halt in all equity and equity derivative markets at 3 stages of the index movement, either way viz., at 10%, 15% and 20% based on previous day closing index value.

–Trade Execution Range - Orders are matched and trades take place only if the trade price is within the reference price and execution range.

–Order Value Limitation - Maximum Order Value limit allowed per order.

–Cancel on logout - All outstanding orders are cancelled, if the enabled user logs out.

–Kill switch - All outstanding orders of that trading member are cancelled if trading member executes kill switch.

–Risk reduction mode - Limits beyond which orders level risk management shall be initiated instead of trade level.

–Compulsory close out - Incoming order, if it results in member crossing the margins available with the exchange, such order will be partially or fully cancelled, as the case may be, and further disallow the trading member to create fresh positions.

–Capital adequacy check - Refers to monitoring of trading member’s performance and track record, stringent margin requirements, position limits based on capital, online monitoring of member positions and automatic disablement from trading when limits are breached

–Fixed Price Band / Dynamic Price band - Limits applied within which securities shall move; so that volatility is curbed orderliness is bought about. For non-derivative securities price band is 5%, 10% & 20%. For Derivative products an operating range of 10% is set and subsequently flexed based on market conditions.

–Trade for Trade Settlement - The settlement of scrip’s available in this segment is done on a trade for trade basis and no netting off is allowed.

–Periodic call auction - Shifting the security form continuous to call auction method

–Rumour Verification - Any unannounced news about listed companies is tracked on online basis and letter seeking clarification is sent to the companies and the reply received is disseminated

B.Post trade surveillance

–End of day alert – Alerts generated using statistical tools. The tool highlights stocks which have behaved abnormally form its past behavior.

–Pattern recognition model – Models designed using high end tools and trading patterns which itself identifies suspects involving in unfair trading practice.

–Transaction alerts for member - As part of surveillance obligation of members the alerts are downloaded to members under 14 different heads.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 6A(i) (Syllabus 2017).

On-line Surveillance

One of the most important tools of the surveillance is the on-line Real Time Surveillance system which was commissioned in 1999 with main objectives of detecting potential market abuses at a nascent stage to reduce the ability of the market participants to unduly influence the price and volumes of the scrips traded at the Exchange, improve the risk management system and strengthen the self-regulatory mechanism at the exchange. System also provides facility to access trades and orders of members.

•The system has a facility to generate the alerts on-line, in real time, based on certain preset parameters like price and volume variations in scrips.

•An Alert occurs in the Surveillance system when a metric behaves significantly differently from its benchmark.

The alerts generated by the system are analyzed and corrective action based on preliminary investigations is taken in such cases.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 2(a) (Old syllabus).

Market Surveillance plays a vital role in ensuring market integrity which is core objective of regulators. Market integrity is achieved through combination of surveillance, inspection, investigation and enforcement of relevant laws and rules. Globally Market Surveillance is either conducted by the regulators or Exchanges or both. In India, the primary responsibility of market surveillance has been entrusted to Stock exchanges and is being closely monitored by SEBI. Market Surveillance is broadly categorized in two parts, viz. Preventive Surveillance and Post Trade Surveillance.

Preventive Surveillance

—Stringent on-boarding norms for Trading members – Stringent net worth, back ground, viability, etc. checks while on boarding Trading members.

—Index Circuit Filters – It brings coordinated trading halt in all equity and equity derivative markets at 3 stages of the index movement, either way viz. at 10%, 15% and 20% based on previous day closing index value.

—Trade Execution range – Orders are matched and trades take place only if the trade price is within the reference price and execution range.

—Order Value Limitation – Maximum Order Value limit allowed per order.

—Cancel on Logout – All outstanding orders are cancelled, if the enabled user logs out.

—Kill Switch – All outstanding orders of the trading member are cancelled if trading members executes kill switch.

—Risk Reduction Mode – Limits beyond which order level risk management shall be initiated instead of trade level.

—Compulsory Close out – Incoming order, if it results in members crossing the margins available with the exchange, such order will be partially or fully cancelled, as the case may be, and further disallow the trading member to create fresh positions.

—Capital Adequacy Check – Refers to monitoring of trading member’s performance and track record, stringent margin requirements, position limits based on capital, online monitoring of member positions and automatic disablement from trading when limits are breached.

—Fixed Price Band / Dynamic Price band – Limits applied within which securities shall move; so that volatility is curbed, orderliness in brought about. For non-derivative securities, price band is 5%, 10% & 20%. For derivative products as operating range of 10% is set and subsequently flexed based on market conditions.

—Trade for Trade Settlement – The settlement of scrip’s available in this segment is done on a trade for trade basis and netting off is allowed.

—Periodic Call Auction – Shifting the security form continuous to call auction method.

—Rumour Verification – Any unannounced news about listed companies is tracked on online basis and letter seeking clarification is sent to the companies and the reply received is disseminated.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 5(c) (Syllabus 2017).

Market abuse is a broad term which includes abnormal price/volume movement, artificial transactions, false or misleading impressions, insider trading, etc. In order to detect aberrant behaviour/movement, it is necessary to know the normal market behaviour.

The concerned department of the stock exchange uses various tools to determine normal and abnormal market behaviour. The department carries out investigations based on the preliminary examination/analysis, and suitable actions are taken against members involved based on the investigation.

Functions of Price Monitoring

The functioning of the Price Monitoring is broadly divided into following activities:

(a)Online Surveillance

(b)Offline Surveillance

(c)Derivative Market Surveillance

(d)Investigations

(e)Surveillance Actions

(f)Rumour Verification

(g)Pro-active Measures.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 2A(iii) (Old syllabus).

Total premium paid on purchasing a call and put option

= (₹ 30 per share x 100) + (₹ 5 per share x 100)

=₹ 3,000 + ₹ 500 = ₹ 3,500

(i)Net Pay-off if there is no change in price

In this case, Naresh exercises neither the Call option nor the Put option as both will result in a loss for him.

Thus, Ending value = − ₹ 3,500 + Zero gain = − ₹ 3,500

Since the price of the stock is below the exercise price of the Call, it will not be exercised. Only Put is valuable hence it will be exercised.

Thus, Ending value = − ₹ 3,500 + [(₹ 450 - ₹ 350) x 100] = − ₹ 3,500 + 10,000 = ₹ 6,500

Net gain is ₹ 6,500

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 5(a) (Syllabus 2017).

Since the market price at the end of 3 months falls to ₹ 400 which is below the exercise price i.e. ₹ 550 under the call option, the call option will not be exercised. Only put option becomes viable.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2(c) (Syllabus 2022).

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 5(a) (Syllabus 2017).

Since the market price at the end of 3 months falls to ₹ 350 which is below the exercise price under the call option, the call option will not be exercised. Only put option becomes viable.

The gain will be:

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 6A(i) (Syllabus 2017).

(i)

Hence, Ravi will have a profit of ₹ 8 per share.

(ii)

Net profit to Narain from the transaction will be ₹ 5 per share.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 5(b) (Syllabus 2017).

a)To protect against downward movement of share price, he should buy the put option.

(b)Gain on option: = (1.00-0.97) * ₹ 1, 50,000 = ₹ 4,500

Premium paid = 1.5% of ₹ 1, 50,000 = ₹ 2,250

Net gain = ₹ 4,500 — ₹ 2,250 = ₹ 2,250

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 6A(ii) (Syllabus 2017).

Tarun has purchased European option. Therefore, he can exercise them only on expiration date.

(i)He would exercise a call option only if the stock price (S=835) is greater than the strike price (X). Call option are right to buy the underlying. Therefore, he would exercise TCS 830 call (835>830). By doing this he makes a gain of Rs. 5.

(ii)He would exercise a put option only if the stock price (S=565) is less than the strike price (X). Put options are right to sell the underlying. Therefore, he would not exercise ACC 510 Put (565 >510). This is because he can sell stocks at a higher rate of Rs. 565 in the market rather than exercising the put at lower rate.

(iii)He would not exercise TCS 840 call (835<840). This is because he can buy stocks cheaper at Rs. 835 in the market rather than exercising at Rs. 840.

(iv)He would exercise a put option only if the stock price (S=565) is less than the strike price (X). Put options are right to sell the underlying. Therefore, he would not exercise ACC 520 Put (since 565>520). This is because he can sell stocks at a higher rate of Rs. 565 in the market rather than exercising the put at lower rate.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 5(a) (Syllabus 2017).

If price of stock fell to ₹90

The price of the stock fell to ₹90. The market price is lower than the strike price, the investor will lose the call premium and gain in put option. Eknath has a right to sell 1000 shares at ₹105, the price of which is ₹90. By exercising put option, Eknath will earn ? 105 - ₹90 = ₹15 per share (lot of 1000 shares in put option).

Net Profit = profit on put – Cost/loss on premium paid on call & put option

= (₹15 per share on put × 1000 shares) - ₹9000

= ₹15000 - ₹9000

= ₹6000/- If price of stock escalates to ₹120

The total premium paid is same as in 1st case i.e. ₹9000

The investor will now lose in put option and gain in call option. By exercising call option, Eknath will earn ₹120 - ₹105 = ₹15 per share. (lot of 1000 shares in call option).

Net Profit = Profit on call – Cost/loss on premium paid on call & put option

= (₹15 per share on call × 1000 shares) - ₹9000

= ₹15000 - ₹9000)

= ₹6000/-

In both the scenario, the net profit will remain the same.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 5(a) (Syllabus 2017).

Cost of Put Option = (₹1 per share) x (100 share put)

i.e. = ₹100

The price of the stock falls to ₹36. Since, the market price is lower than the strike price, the investor will gain as below:

= (₹4 per stock gain on put) x 100

Gain = ₹400

Net Profit = Gain minus Cost of put

= ₹400 - ₹100 or

Therefore, Net Profit = ₹300

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 1(c) (Old syllabus).

Computation of Profit and loss for Ganesh

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 5(a) (Syllabus 2017).

(i)Total premium paid on purchasing a call and put option:

= (₹25 per share x 100 shares) + (₹5 per share x 100 shares)

In this case, Naman neither exercises the call option nor the put option, as both will result in a loss for him.

(ii)The price of stock is below the exercise price of the call, the call will not be exercised but put is valuable and is exercised.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 5(a) (Syllabus 2017).

Trading in the Indian stock market majorly takes place in the two stock exchanges, namely BSE Limited (formerly Bombay Stock Exchange) and NSE (National Stock Exchange of India).

The regulation of buying, selling and dealing in securities such as shares of company, units of mutual funds, Derivatives etc and stock exchange, commodity derivative exchanges and depositories comes within the purview of Securities and Exchange Board of India (SEBI) in terms of SEBI Act, 1992 and various SEBI Regulations/ Circulars/ Guidelines/ Directives etc.

SEBI was established on April 12, 1988 as non-statutory body and later on in 1992 was recognized as statutory body in accordance with the provisions of the SEBI Act. The mandate of SEBI is to protect the interest of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto.

At present, the four main legislations governing “the securities market” are;

i)The SEBI Act, 1992, which empowers SEBI with statutory powers for:

a)Protecting the interest of investors in securities,

b)Promoting development of the securities market, and

c)Regulating the securities market.

ii)The Companies Act, 2013 which provides regulation for issuance, allotment and transfer of securities, and related matters in public issues of securities.

iii)The Securities Contracts (Regulation) Act, 1956, which provides for recognition and regulation of transactions in securities in Stock Exchange.

iv)The Depositories Act, 1996, which provides for electronic maintenance and transfer of ownership of dematerialized (demat) shares.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 2(a) (Syllabus 2022).

Rights Entitlement (RE)

Rights Entitlement (RE) is the rights issued by the company to the existing shareholders to subscribe to the new shares / other securities that the shareholder of a company is eligible to apply for under the rights offer. REs are offered to shareholders based on a ratio of existing equity shares held as on the record date. Rights Entitlements (REs) are issued in dematerialised form under a separate ISIN created by the Company.

Physical shareholders shall be required to provide their demat account details to Issuer / Registrar to the Issue for credit of REs not later than two working days prior to issue closing date, such that credit of REs in their demat account takes place at least one day before issue closing date.

Renunciation of Rights Entitlements

(i)On Market Renunciation - The Investors may renounce the Rights Entitlements, credited to their respective demat accounts by trading/selling them on the secondary market platform of the Stock Exchanges through a registered stock broker in the same manner as trading / selling Equity Shares of the Company.

(ii)Off Market Renunciation - The Investors may renounce the Rights Entitlements, credited to their respective demat accounts by way of an off-market transfer through a depository participant. The Rights Entitlements can be transferred in dematerialised form only. Eligible Equity Shareholders must ensure that renunciation through offmarket transfer is completed in such a manner that the Rights Entitlements are credited to the demat account of the Renouncees on or prior to the Issue Closing Date.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 2A(i) (Syllabus 2022).

Various key risk management measures initiated by SEBI, to mitigate operational risks of Stock Exchanges operations are as under:

(i)Categorization of securities into groups 1, 2 and 3 for imposition of margins based on their liquidity and volatility.

(ii)VaR (value at risk) based margining system.

(iii)Specification of mark to Market margins.

(iv)Specification of Intra-day trading limits and Gross Exposure Limits.

(v)Real time monitoring of the Intra-day trading limits and Gross Exposure Limits by the Stock Exchanges.

(vi)Specification of time limits of payment of margins.

(vii)Collection of margins on upfront basis.

(viii)Index based market wide circuit breakers.

(ix)Automatic de-activation of trading terminals in case of breach of exposure limits.

(x)VaR based margining system has been put in place based on the categorization of stocks based on the liquidity of stocks depending on its impact cost and volatility. It addresses 99% of the risks in the market.

(xi)Additional margins have also been specified to address the balance 1% cases.

(xii)Collection of margins from institutional clients on T+1 basis.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 2(b) (Syllabus 2022).

Some of the key risk management measures initiated by SEBI in the Secondary Market are as under:

(a)Categorization of securities into groups 1, 2 and 3 for imposition of margins based on their liquidity and volatility.

(b)VaR based margining system.

(c)Specification of mark to Market margins.

(d)Specification of Intra-day trading limits and Gross Exposure Limits.

(e)Real time monitoring of the Intra-day trading limits and Gross Exposure Limits by the Stock Exchanges.

(f)Specification of time limits of payment of margins.

(g)Collection of margins on upfront basis.

(h)Index based market wide circuit breakers.

(i)Automatic de-activation of trading terminals in case of breach of exposure limits.

(j)VaR based margining system has been put in place based on the categorization of stocks based on the liquidity of stocks depending on its impact cost and volatility. It addresses 99% of the risks in the market. • Additional margins have also been specified to address the balance 1% cases.

(k)Collection of margins from institutional clients on T+1 basis.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 6A(ii) (Syllabus 2017).

Grievance redressal mechanism at stock exchange

-An aggrieved investor shall firstly send his/her complaint to Investor Services Cell (ISC) of Stock Exchanges (SE)/Depositories through SCORES. Stock exchanges have been advised to redress the complaint within 15 working days.

-If not satisfied, the aggrieved investor shall Approach Depository/Investor Grievance Redressal Committee (IGRC) of SEs. The complaints not redressed through ISCs also get referred to IGRCs.

-IGRC shall have statutory time period of 15 working days to amicably resolve the investor complaint and if not, IGRC to ascertain the value of the claim admissible to the investor and the amount is blocked in Investors Protection Fund (IPF). Further Members be given 7 days from the date of IGRC to inform whether he would pursue arbitration. In case of "YES", Stock exchange shall release 50% of the admissible value or 2 lakhs whichever is less is given to the investor from IPF. In other case, the stock exchange shall release the amount to the investor.

-If one party feels that satisfactory redressal of grievance has not taken place at IGRCs, he/she can opt for Arbitration (a quasi-judicial process of settlement of dispute). If arbitration is in the favour of investor and the member decides to make application in appellate arbitrator panel, then the positive difference of the following is paid from IPF of the exchange:

(A)50% of the amount mentioned in the arbitration award or 3 lakhs which is less and

(B)Amount already released to the investor earlier.

-In case of Appellate Arbitrator Panel, if arbitration is in the favour of investor and the member decides to make application to the next higher court, then the positive difference of the following is paid from IPF of the exchange:

(A)75% of the amount mentioned in the appellate award or 5 lakhs which is less and

(B)Amount already released to the investor earlier.

-In case of further proceeding to court, undertaking given by the investor to stock exchange to return the amount released to him, in case the proceedings are decided against the investor, or he decides not to pursue further.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 6A(iii) (Old syllabus).

(a)Techno AVR Ltd. is incorporated under the Companies Act, 1956 (now Companies Act, 2013), hence it can be listed on BSE SME Platform provided it fulfils other criteria required for SME Listing on BSE.

(b)Net Tangible Assets of Techno AVR Ltd. should be Rs 1.5 Crore in last preceding (full) financial year.

(c)The post issue paid up capital of Techno AVR Ltd. shall not be more than Rs. 25 crores.

(d)It is mandatory for Techno AVR Ltd. to facilitate trading of securities only in demat form and enter into an agreement with both the depositories i.e. NSDL and CDSL.

(e)There should not be any change in the promoters of the company in preceding one year from date of filing the application to BSE for listing under SME segment. Since, defined period of one year has not yet been passed, hence Techno AVR Ltd. will not be eligible for listing.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2A(ii) (Syllabus 2022).

Screen based trading : It is a form of trading that uses modern telecommunication and computer technology to combine information transmission with trading in financial markets. Investors, who are desirous of buying securities, purchase them through registered broker/sub-broker of the stock exchange.

Screen based trading has started since 1995.

Offer for subscription to securities to the public is a public offer. All public offers must be made through prospectus. Prospectus is the offer documents that is filed with the regulators like SEBI, RoC and stock exchanges when the company goes for a public issue.

Difference between two securities market i.e. Primary and Secondary Market

•Primary market is the market place for issuing fresh securities and the secondary market is the market place for trading already issued securities.

•Primary market is to raise fund whereas secondary market is for buying, selling, or dealing in already issued securities. Primary market includes issuance of new securities through Initial Public Offer (IPO) whereas secondary market includes the further trading of securities already offered to the public.

•The primary market is also known as new issue market / IPO Market and secondary market is known as After issue market.

•In primary market investors can purchase securities directly from the Company and in secondary market purchase and sale of securities is done by the investors among themselves.

•Primary market provides funds to new and old companies for their expansion and diversification whereas secondary market does not provide funding to companies.

•The parties to transactions are Company and Investors in primary market whereas Investors among themselves are parties in secondary market.

•Major Intermediaries in primary market is underwriter whereas in secondary market, Brokers are major intermediaries.

•In primary market, price is provided in the offer document /red herring prospectus whereas in secondary market price fluctuates i.e. depends on demand and supply forces.

•Fund gained from primary market becomes the capital of the company whereas Fund received from secondary market becomes income of investors.

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Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 1(a) (Syllabus 2022).

—Securities’ lending describes the market practice whereby securities are temporarily transferred to another (borrower) by the lender via an approved intermediary. The borrower is obliged to return them either on demand or at the end of an agreed term. Lender may recall securities at any time within the normal market settlement cycle. Securities lending helps in improving market liquidity, more efficient settlement, tighter dealer prices and perhaps a reduction in the cost of capital.

—Securities lending and borrowing (SLB) scheme for all market participants in the Indian securities market under the over-all framework of “Securities Lending Scheme, 1997” of SEBI specified by SEBI vide circular No. SMD/POLICY/SL/ CIR-09/97 dated May 07, 1997 to provide a mechanism for borrowing of securities to enable settlement of securities sold short.

—The SLB shall be operated through Clearing Corporation/Clearing House of stock exchanges having nation-wide terminals who will be registered as Approved Intermediaries (AIs) under the SLS, 1997.

—The SLB shall take place on an automated, screen based, order-matching platform which will be provided by the AIs. This platform shall be independent of the other trading platforms.

—All categories of investors including retail, institutional etc. will be permitted to borrow and lend securities. The AIs, Clearing Members (CMs) and the clients shall enter into an agreement specifying the rights, responsibilities and obligations of the parties to the agreement. The agreement shall include the basic conditions for lending and borrowing of securities as prescribed under the scheme.

—The AIs shall allot a unique ID to each client which shall be mapped to the Permanent Account Number (PAN) of the respective clients. The tenure of contracts in SLB may be upto a maximum period of 12 months. The Approved Intermediary (Clearing corporation/ Clearing House) shall have the flexibility to decide the tenure (maximum period of12 months).

—The settlement cycle for SLB transactions shall be on T+1 basis.

—AIs shall disseminate in public domain, the details of SLB transactions executed on the platform provided by them and the outstanding positions on a weekly basis. The frequency of such disclosure may be reviewed from time to time with the approval of SEBI.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 2A(ii) (Old syllabus).

As a segment of the capital market, Stock Exchanges perform an important function in mobilizing and channelizing resources which remain otherwise scattered. Thus, the Stock Exchanges tap the new resources and stimulate a broad based investment in the capital structure of industries.

Stock Exchanges perform the following roles –

1)Acts as a continuous market for securities: Investors can invest in any securities, but in case of any risk, they can exit from that security and freshly re-enter into whichever security they feel as secure.

2)Responsible for Securities Evaluation: The stock price indicates the performance and stability of the company. Through these investors decide according to their risk appetite whether to enter or exit or hold. The stock exchange acts as a regulator for the securities price evaluation for all the listed stocks.

3)Mobilizes savings: Most of the public cannot invest the bulk amount in securities, so they invest in indirect ways such as mutual funds and investment trusts, and these are mobilized by stock exchanges.

4)Enables healthy speculation: Stock exchange encourages businessmen and provides healthy speculation opportunities to speculate and gain profits from fluctuations in stock prices.

5)Protect investors: Stock exchange ensures the protection of the funds of investors by allowing only genuine companies to be listed in the stock exchange.

6)Ensures Liquidity: Banks and some other institutions invest their funds in the stocks and earn a profit within a short period and are sold immediately if there is any necessity of funds. Thus, there is an opportunity to liquidate immediately at any time if required in the stock market.

7)Acts as an economic barometer: The country’s economic growth is measured with the trends in the stock market. An upward trend in the stock market denotes growth potential and downward trend denotes the fall in the economy. Hence the stock exchange is called as an economic barometer as it indicates conditions prevailing in the country.

8)Exercise Vigilance / Control on Companies: Every company listed on an exchange must produce their annual reports and an audited balance sheet to the stock exchange Such reports being available in public domain promotes transparency

9)Attracts foreign capital: Foreign institutional investors (FII) are likely to invest in developing economy as the rate of returns will be high in developing economies due to growth opportunities.

10)Stock exchanges ensure Safety of Capital and Fair Dealing: The transactions made in the stock exchange are made available to the public under well-defined rules and regulations abided by laws. This ensures safety and fair dealings for the average investors.

11)Regulate company management: The firms wanting to get their securities listed must follow certain rules and fulfil certain conditions. Stock exchanges safeguard the interest of the investors and regulate the company management.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 6A(iii) (Syllabus 2017).

Stock Market Index

An Index is used to give information about the price movements of products in the financial, commodities or any other markets. Financial indexes are constructed to measure price movements of stocks, bonds, T-bills and other forms of investments. Stock market indexes are meant to capture the overall behaviour of equity markets. A stock market index is created by selecting a group of stocks that are representative of the whole market or a specified sector or segment of the market. An Index is calculated with reference to a base period and a base index value.

Stock market indexes are useful for a variety of reasons. Some of them are -

•They provide a historical comparison of returns on money invested in the stock market against other forms of investments such as gold or debt.

•They can be used as a standard against which to compare the performance of an equity fund.

•It is a lead indicator of the performance of the overall economy or a sector of the economy.

•Stock indexes reflect highly up to date information.

•Modern financial applications such as Index Funds, Index Futures, Index Options play an important role in financial investments and risk management.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 6(b) (Syllabus 2017).

NIFTY

National Stock Exchange Fifty or Nifty is the market indicator of NSE. It is a collection of 50 stocks. It is also referred to as Nifty 50. It is owned and managed by India Index Services and Products Ltd. (IISL).

Nifty is calculated through the free-float market capitalization weighted method. It multiplies the Equity capital (expressed in terms of number of shares outstanding) with a price to derive the market capitalization. To determine the Free-float market capitalization, equity capital (as stated earlier) is multiplied by a price which is further multiplied with IWF (Investible Weight Factors) which is the factor for determining the number of shares available for trading freely in the market. The Index is determined on a daily basis by taking into consideration the current market value (free float market capitalization) divided by base market capital and then multiplied by the Base Index Value of 1000.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 6(d) (Syllabus 2017).

Steps to calculate Sensex

•The market capitalization is taken into account. This is done by multiplying all the shares issued by the company with the price of its stock.

•BSE determines a Free-Float factor that is a multiple of the market capitalization of the company. This helps in determining the Free-Float market capitalization based on the details submitted by the company.

•Ratio and Proportion are used based on the base index of 100. This helps to determine the Sensex.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 6(b) (Syllabus 2017).

Nifty

National Stock Exchange’s Fifty or Nifty is the market indicator of NSE. It is a collection of 50 stocks. It is also referred to as Nifty 50. It is owned and managed by India Index Services and Products Ltd. (IISL). Nifty is calculated through the free-float market capitalization weighted method. It multiples the Equity capital (expressed in terms of number of shares outstanding) with a price to derive the market capitalization. To determine the Free-float market capitalization, equity capital (as stated earlier) is multiplied by a price which is further multiplied with Investable Weight Factor (IWF) which is the factor for determining the number of shares available for trading freely in the market. The Index is determined on a daily basis by taking into consideration the current market value (free float market capitalization) divided by base market capital and then multiplied by the Base Index Value of 1000.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 6(c) (Syllabus 2017).

Sensitive Index or Sensex is the stock market index for the BSE. It is also sometimes referred to as BSE S&P Sensex. The calculation of Sensex is done by a Free-Float method that came into existence from September 1, 2003. The level of Sensex is direct indication of the performance of 30 stocks in the market. The free-float method takes into account the proportion of the shares that can be readily traded in the market. This does not include the ones held by various shareholders and promoters or other locked-shares not available in market.

Steps to calculate Sensex

—The market capitalization is taken into account. This is done by multiplying all the shares issued by the company with the price of its stock.

—BSE determines a Free-Float factor that is a multiple of the market capitalization of the company. This helps in determining the free-float factor market capitalization based on details submitted by the company.

—Ratio and Proportion are used based on the base index of 100. This helps to determine the Sensex.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 6(c) (Syllabus 2017).

In the Indian securities market, various products are traded like equity shares, warrants, debenture, etc. The trading in the securities of the company takes place in dematerialised form in India. Dematerialization is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited to the investor's account with his Depository Participant (DP). Trading in the securities of the company takes place on the screen based platforms provided by the Exchanges. Currently for equity shares the settlement cycle is (T+2 days) (T means trading day/ Transaction day). Any shares which are traded on the Exchange are required to be settled by the clearing corporation of the exchange on 2 working day.

In electronic trading order received are matched electronically on a strict price/time priority and hence cuts down on time, cost and risk of error, as well as on fraud resulting in improved operational efficiency. It enables market participants, irrespective of their geographical locations, to trade with one another simultaneously. It provides full anonymity by accepting orders, big or small, from brokers without revealing their identity, thus providing equal access to everybody. It also provides a perfect audit trail, which helps to resolve disputes by logging in the trade execution process in entirety.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 6(d) (Syllabus 2017).