Module 4: Secondary Market & Trading

Recognition of stock exchanges is governed by Sections 3-5 of the Securities Contracts (Regulation) Act, 1956 (SCRA). SEBI exercises powers delegated by the Central Government.

SEBI (Stock Exchanges and Clearing Corporations) Regulations, 2018 require a minimum net worth of Rs. 100 crores for stock exchange recognition.

Demutualization separates ownership, management, and trading rights to prevent conflicts of interest between exchange operations and member brokers.

NSE was incorporated in 1992 and commenced trading in 1994. BSE was established in 1875 as the oldest exchange in Asia.

No single entity can hold more than 5% in a stock exchange without SEBI approval. Up to 15% requires approval; beyond 15% requires special approval.

Main board listing requires minimum paid-up capital of Rs. 10 crores post-issue. SME platform requires only Rs. 1 crore.

Market making is mandatory for 3 years on SME platforms to ensure liquidity for investors.

SEBI Listing Obligations and Disclosure Requirements Regulations, 2015 is the comprehensive framework for listed companies.

At least one-third of exchange board must be public interest directors nominated by SEBI to ensure market integrity and investor protection.

SME platform has a minimum trading lot of Rs. 1 lakh, which limits retail participation compared to main board (1 share lot).

India completed transition to T+1 settlement in January 2023, becoming one of the first major markets to achieve this milestone.

A stop-loss order is triggered when the market price reaches the stop price, then converts to market or limit order for execution.

Normal market hours are 9:15 AM to 3:30 PM. Pre-open is 9:00-9:15 AM and closing session is 3:40-4:00 PM.

Market-wide circuit breakers trigger at 10%, 15%, and 20% movement in SENSEX or NIFTY from previous close.

VaR (Value at Risk) margin covers potential loss at 99% confidence level based on historical volatility.

Block deals occur during 8:45 AM to 9:00 AM window, separate from normal market to avoid price impact.

A trade qualifies as bulk deal when 0.5% or more of equity shares are traded. It is disclosed by the exchange.

IOC stands for Immediate or Cancel - the order executes immediately or is cancelled; unexecuted portion does not remain in order book.

At upper circuit, only sell orders can be placed. Buyers queue without execution. Opposite applies at lower circuit.

Margin pledge is done through depository system (NSDL/CDSL). Securities remain in client account but marked as pledged for transparency.

SEBI (Stock Brokers) Regulations, 1992 is the primary regulation governing stockbroker registration and conduct in India.

Trading Member (Cash segment only) requires minimum net worth of Rs. 50 lakhs. F&O segment requires Rs. 1 crore.

Without running account authorization, broker must settle client funds within 1 working day of payout.

Client securities must be kept in segregated client beneficiary account, separate from broker's proprietary holdings.

NISM certification is mandatory for dealers, compliance officers, and sales personnel of stockbrokers.

Margin shortfall penalty is 0.5% per day for shortfall up to Rs. 1 lakh; 1% per day for higher amounts.

SEBI registration certificate is valid for 5 years and must be renewed.

SCORES (SEBI Complaints Redress System) is the online platform for investor grievances against market intermediaries.

Misuse of client funds can attract criminal liability under SEBI Act, potential fraud charges, and registration cancellation.

Fit and proper criteria includes integrity/reputation, financial solvency, absence of convictions, and competence including experience and qualifications.

NSDL was established in 1996 as India's first depository. CDSL followed in 1999.

ISIN stands for International Securities Identification Number, a unique 12-character alphanumeric code for each security.

SEBI is the National Numbering Agency (NNA) for India responsible for ISIN allocation.

Under Section 10, beneficial owner is the person whose name is recorded in the depository's records, entitled to all rights and benefits.

DRF stands for Dematerialization Request Form, used to convert physical certificates to electronic form.

Dematerialization typically takes 15-21 days including RTA verification within 15 days.

Basic Services Demat Account (BSDA) is for small investors holding up to Rs. 10 lakhs with reduced/zero AMC charges.

Section 12 of Depositories Act, 1996 provides that pledge/hypothecation through depository is valid and equivalent to delivery.

Section 16 of Depositories Act provides for depository to indemnify beneficial owner for loss due to its negligence.

Securities in depository are fungible - same class securities are interchangeable, enabling efficient electronic transfer.

IMSS (Integrated Market Surveillance System) collects data from all exchanges for cross-market surveillance.

ASM stands for Additional Surveillance Measures applied to securities showing unusual activity.

Trade-to-trade (T-segment) requires compulsory delivery - no intraday squaring off permitted. Used as surveillance measure.

MWPL stands for Market Wide Position Limit - the maximum derivative positions allowed on a stock.

At 95% MWPL, fresh positions are banned; only squaring off is allowed. Ban lifts when MWPL falls below 80%.

Naked short selling is prohibited in India. Short sellers must have arrangement to borrow (SLB) before selling.

SLB stands for Securities Lending and Borrowing, the mechanism for covered short selling in India.

GSM (Graded Surveillance Measure) applies based on financial and compliance parameters like negative net worth, non-submission of results.

F&O eligible securities have dynamic bands initially at +/- 10% with automatic relaxation when price sustains at band.

Repeated upper circuits with low delivery suggests potential manipulation/operator activity - circular trading to create artificial demand before dumping.