A SUMMER TRAINING PROJECT REPORT ON ORGANIZATIONAL STUDY & PROPOSED RESTRUCTURING OF REGIONAL STOCK EXCHANGES

ORG : UTTAR PRADESH STOCK EXCHANGE ASSOCIATION LTD ,KANPUR,UP

FOR THE PARTIAL FULFILLMENT OF POST GRADUATE DEGREE OF MASTERS IN BUSINESS ADMINISTRATION FROM AMITY BUSINESS SCHOOL ,NOIDA SUBMITTED TO :

FACULTY GUIDE INDUSTRY GUIDE Dr. RAJU G Mr. BK NADHANI HEAD ,FINANCE DEPT. EXECUTIVE DIRECTOR , UPSE

SUBMITTED BY:

AMITY UNIVERSITY

UTTAR PRADESH

AMITY BUSINESS SCHOOL

A SUMMER TRAINING PROJECT REPORT ON ORGANIZATIONAL STUDY ON UTTAR PRADESH STOCK EXCHANGE ASSOCIATION LTD

FACULTY GUIDE INDUSTRY GUIDE Dr RAJU G Mr. B.K NADHANI

PRESENTED BY : MBA CLASS OF 2010 ENROLLME NT NO- A0101908399

CERTIFICATE OF ORIGIN

This is to certify that MS. XXXXXX a student of Amity Business School, Noida, undertook a project on ORGANIZATIONAL STUDY & RESEARCH WORK ON PROPOSED RESTRUCTURING OF REGIONAL STOCK EXCHANGES at UTTAR PRADESH STOCK EXCHANGE ASSOC. LTD , KANPUR from 11TH MAY TO 6TH JULY.

Ms. SOMYA GARG has successfully completed the project under the guidance of Mr. B.K NADHANI, EXECUTIVE DIRECTOR OF UPSE. She is a sincere and hard-working student with pleasant manners.

We wish all success in her future endeavors.

Signature with date (Mr. BK NADHANI) (EXECUTIVE DIRECTOR) (UTTAR PRADESH STOCK EXCHANGE ASSOC. LTD)

ACKNOWLEDGEMENT

The satisfaction and euphoria that accompany the successful completion of any task would be incomplete without mentioning the name of the people whos constant guidance and encouragement has crowned all our efforts with success. Firstly I would like to thank Dr RAJU G who suggested me this topic & helped me a lot in completing this project. Going through this project was one of wonderful experiences as such it has overall enhanced my knowledge about the relevant area and its diverse aspects. Also throughout this project several outstanding individuals were integrally involved and had given their substantial contribution, for which I am very thankful to them for giving their precious time in completing this project. I would like to thank My Industry guide Mr. B.K. Nadhani, Executive Director of U.P. Stock Exchange & Mr. Rajendra Verma, Head , Research & Development Department, who helped me in performing this project i.e. ORGANIZATIONAL OF UPSE by providing me his useful guidance, books and matters related with my Research Study. I would also like to thank all those people for their immense co-operation and without help of these people this project never be completed successfully.

Sign: xxxxxxx

TABLE OF CONTENT

A- ORGANIZATIONAL STUDY
CHAPTER: 1 INTRODUCTION

1.1 STOCK EXCHANGES IN INDIA BACKGROUND. ..

1.2. SEBI GENISIS.. 1.3. CORPORATIZATION & DEMUTUALIZATION.. 1.4. NATIONAL STOCK EXCHANGE ( NSE) 1.5. BSE &OTCEI .. CHAPTER: 2 WORKING OF UTTAR PRADESH STOCK EXCHANGE ASSOC. LTD 2.1HEAD OF UPSE DEPARTMENTS...................... 2.2. HISTORY / BACKGROUND OF UPSE. 2.3.UPSE SECURITIES LTD ( SUBSIDIARY CO.). 2.4 LISTING & MEMBERSHIP DEPARTMENT..... 2.5 SECRETARIAL DEPARTMENT..... 2.6. FINANCE & ESTABLISHMNET DEPARTMENT... 2.7. MARKET OPERATION ( MARGIN DEPARTMERNT).. 2.8.CLEARING DEPARTMENT... 2.9 SURVEILLANCE DEPARTMENT 2.10 RESEARCH & DEVELOPMENT DEPARTMENT..

B- RESEARCH WORK ON PROPOSED RESTRUCTURING OF REGIONAL STOCK EXCHANGES

CHAPTER: 3 INTRODUCTION

3.1 BRIEF INTRODUCTION....

3.2. PROBLEM STATEMENT. 3.3. LITERATURE REVIEW 3.4. OBJECTIVE & PURPOSE OF STUDY 3.5. DATA & METHODOLOGY. CHAPTER: 4 DESCRIPTIVE STATISTICS & RESULTS 4.1SUMMARYSTATISTICS.. 4.2ANALYSIS..... 4.3.ASSUMPTIONS & ACHIEVEMNETS.................. 4.4 SUGGESTIONS & SOLUTIONS...... 4.5 RAY OF HOPE..... CHAPTER: 5

5.1CONCLUSION . 5.2 APPENDIX 5.3REFERENCE..

1.1 STOCK EXCHANGES OF INDIA- BACKGROUND

The stock exchanges concept is more than a century old for the economy of India. The Bombay stock exchange was formed in 1875, while Calcutta stock exchange and madras stock exchange was set up in 1908 and Delhi stock exchange was formed in year 1947. The multi-tier securities exchange model was adopted in our country in October 1990 with the establishment of OTCEI . high profile national stock exchange was set up in 1993 to encourage stock exchange reform through system modernization and competition. In common parlance, stock exchange means , a place where stocks are traded. The word stock means bond ,equity shares, preference shares, debentures etc. an exchange means trading, transaction. Stock exchange provides liquidity for stocks and the securities. it is the market that provides a platform to the owner of the

securities to sell their holding at reasonable prices and also provides an opportunities to the prospective buyers to purchase the same.. MEANING OF STOCK EXCHANGE According to securities contract ( regulation) act , 1956, A body of individuals whether incorporated or not constituted for the purpose of assisting or controlling the business of buying selling or dealing of securities. FUNCTIONS OF STOCK EXCHANGE A stock exchange has been variously described such as the barometer of adversity and prosperity of a nation, the nerve centre and politics of a nation as in most of the world. All the changing political, economic and industrial conditions of the nation are reflected on the stock exchange. A stock exchange gives encouragement the promotion of joint stock enterprises for the large manufacturing industries. It serves as a pivot of money market and fortress of capital . therefore stock exchange is an important system in the capitalist economy. A stock market is the market which aims at providing at continuous , free and fair market, where buyers and sellers can come in contact and deal in shares and debentures. It provides a ready market where share and securities can be exchanged and transferred with the minimum of time and maximum of profit . Unhealthy speculation and other undesirable practices are condemned; otherwise stock exchange will be a disaster.

Some of the economic functions of stock exchanges are as follows:

PROVIDES READY MARKETA stock exchange provides a free and fair market in securities. A holder of securities may at any time get back his money by selling of his holdings in a stock exchange. It promotes investment by offering a wide choice in securities both on consideration of yield and safety against depreciation in their values.

FACILITY FOR TRANSFRE OF SECURITIES

Stock exchange provides sufficient marketability of the securities dealth therein and ensures their price connectivity . in stock exchange , every security constitutes a separate market for itself. One cannot buy and sell securities unless some facility , by which buyers and sellers can meet together and delay in securities is provided .The stock market provides the facility as it is simply a place of traffic in stocks and shares.

MOBILITY OF CAPITAL In addition to provide a market, the stock exchange has largely helped in directing the accumulated wealth of the country into fruitful channels. The stock exchange is not like investment trust or any other investment institution. It merely provides an open market for the sale and purchase of securities. It directs the flow of new earnings into investment leading to the production of wealth into 2 ways: By purchase of securities by the buyers (savers) directly. Secondly by placing the saving with financial institutions to reinvest the funds and securities.

STABILITY AND LIQUIDITY OF CAPITAL An investor can withdraw his capital at anytime either for other investment or for personal need for selling the shares in the stock market. It is interesting to note that capital can be withdrawn without affecting the industry. Thus, the investment is made liquid and easily disposable.

INCREASES THE NUMBER OF DEALINGSThe stock exchange provides the facility for secondary distribution of new securities, after the original sale of securities. the supply of shares of a particular industry cannot be increased with every change in prices , though the stock available in the market at a particular time may vary a little. The stock exchange creates an interest and willingness in the mind of investors to invest in securities. It increases the marketability of security since some securities are bought and sold again and again. Readily salable securities serve good collateral securities for loans.

SAFETY OF DEALINGS-

An organized stock exchange functioning under government regulation provides a reasonable measure of security and safety of dealings in securities in the investors through its rules and regulations. The risk of the investor is considerably reduced when he purchases securities, which are ordinarily dealth in a stock exchange. The stock exchange before giving permission to deal , require the observance of a rigid set of rules by the company and call for certain information with a view to safeguard the interest of investors. The information supplied is examined impartially and then permission is granted. Thus, it creates confidence in the minds of investors.

FINANCING INDUSTRYThe stock exchange encourages investment in an industry more than any other institution The investment flows in corporate securities so that the nation can achieve industrial development and economic progress. Moreover, the condition of the company is visible since the price of securities shows the real worth , which depends upon the serving capacity and future development of the company. In short industrial development, savings investment and capital formation are the benefits of the stock exchange.

WIDER SHARE OWNERSHIP ESTABLISHMENT In addition to the basic function a well organized modern exchange is also expected to educate the masses in the art of investment in stock exchange and thereby, promote wider ownership amongst individuals is of particular significance to the developing countries wherein savings are scattered for further income. Through it new sources of capital can be tapped.

ECONOMIC BAROMETERAn ideal stock exchange serves to allocate only just enough funds for any industries and checks the flow of capital when an industry begins to show diminishing or uneconomical returns. This is achieved through keeping an eye on price movements of the securities.

OTHER FUNCTIONSOther functions performed by the stock exchange are that the market price established in trading is useful for tax purpose. The stipulation on disclosure and transparency ensures availability of information on listed companies, particularly in regard to financial conditions and protect investor interest by eliminating dishonest and irregular practices in the brokerage made.

INDIAN CAPITAL AND STOCK MARKETS

INTRODUCTION Capital market is the market for long term funds, just as money market for short term funds. It refer to all the facilities and the institutional arrangement for the borrowing and lending term funds(medium term and long term funds).The demand for long term capital fund comes. Predominantly from private sector manufacturing ,industrial, agriculture and from the government (largely for the purposed economic development).The supply of funds for the capital market comes largely from individuals servers, corporate saving banks, insurance companies, specialized financing agencies and the government.

INDIAN CAPITAL MARKET Indian capital market can be divided in to two market primary market (new issue)and secondary market.

PRIMARY MARKET The primary market helps the industry to raise funds by issuing different types of securities. Issue of securities in the primary market may be made through (i) prospectus (ii) Offer of sale and (iii) private placement. The securities offered to the public through prospectus are directly subscribed to by the investor. The issuing company widely publics the offer through various media. The securities exchange board of India (SEBI) has classified various issues in to three groups i.e. New issue, Right issue, Preferential issue.

The SEBI has issued various guidelines regarding proper disclosure for investors protection .These guidelines are required to be duly observed by the companies raising capital. The boom in the primary market, that started in mid eighties and accelerated there after, started slowing down by 1995.The low return on new issues and several low quality issues have led to stock market .Has (0) eroded the confidence of investors.

SECONDARY MARKET The secondary market is represent by stock exchange which provide on organized market place for the investors to trade in securities. It permits the prices of securities to be determined by market forces .The lining process how for demand and supply underlying each securities .Thus the specific price of securities in determined, in the manner of an auction. The stock exchange provides a market in which the members (share brokers) & investors participate to ensure liquidity. The secondary market of a boost when over the counter exchange of India (OTCEI) and national stock exchange(NSE) were established .NSE and OTCEI have been established by All India Financial Institutions ,while after stock exchanges are in the form of associations. STOCK MARKET The stock markets refers to the market of shares and debentures of new companies .The market is further divided in to the new issue market and the old capital market .The new issue market called primary market and the second one is secondary market. The new issue of primary market refers to the raising of new capital in the form of shares and debentures whereas the old market or secondary market deals with the securities already issued by the companies. Both markets are equally important.

INDIAN STOCK MARKET India has one of the oldest stock market in Asia. India also has the second largest holders next only to USA. The Indian figure look impressive but actually it constitutes only 1.5 per cent of total population. The country also has about 50 lacks market has appeared as a result of increasing industrialization are wing awareness among people and labialization of capital market . After the industrial revolution, as a size of business enter price grows, it was no longer possible for proprietors or even partnership to raise classical amount of money required for undertaking large entrepreneurial ventures. Such large requirement of capital could only be met by the very large member of individual also; their number running in to hundred, thousands and even millions depending the size of business ventures.

These ventures could be expected to invest activity in productive enterprise only of there was some mechanism by which they could sell a part of their state in the business whenever they wish to generate cash .This need for making investment liquid was necessary to be broken up in to a large number of small units, so that each unit could be independently bought and sold. This was achieved through shares and debentures (or bonds) representing small units of ownership and leading respectively ,by the public . Such breaking up of stake in to smaller denominations also help in enhancing small savings in the economy in to entrepreneurial ventures.

NEW ISSUE MARKET

INTRODUCTION New issue market helps the Industry to raise funds by issuing different types of securities .The securities exchange board of India(SEBI) has classified various issues in to three groups i.e. New issue, Right issue, Preferential issue. The boom in the issue market, that started in mid eighties and accelerated there after, started slowing down by 1995. The low return on new issues and several low quality issues have led to stock market fiasco, and eroded the confidence of investors.

VARIOUS INSTRUMENTS OF NEW ISSUE MARKET The following instruments can be made in new issue market: 1. Equity issues through prospectus or rights renounced by existing shareholders. 2. Preference shares with a fixed dividend either convertible in to equity or not. 3. Debentures of various categories-convertible fully convertible, partly convertible and not convertible debentures. 4. PSU bonds taxable or tax free with fixed interest rates. Investors should prefer debentures if they are interested in a fixed income .They may go for convertible debentures ,if they want to have to fixed income and likely capital appreciation in future .If they are risk taking and aim only at capital gains, then they may invest in equity shares .Of the new issues those of well established existing companies are least risky while those of new companies floated by little known new entrepreneurs are

most risky .In choosing the new issues for investment decision ,the investor has to ready a copy of the prospectus and note the following : 1. Who are the promoters and their past record 2. Products manufactured and demand for those products at home or abroad the competitors and the share of each in the market. 3. Availability of inputs, raw materials and accessories and the dependence on imports. 4. Project location and its advantages. 5. Prospectus through projected earnings, net profits and dividend paying capacity, waiting period involved etc. If the new issues belong to a company promoted by well known Business groups like Reliance, Infosys etc they are less risky .The company should belong to an industry which is expanding and has good potential like drugs, chemicals, steel etc the terms of offer should be attractive like conversion or immediate prospects of dividend etc.

1.2 SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

GENESIS:The SEBI was established on April 12,1988 through an administrative order,but it became a statutory and really powerful organization only since 1992.The CICA was replaced and the office of the CCI was abolished in 1992,and the SEBI was set up on 21 February 1992 through an ordinance issued on January 30 1992.The ordinance was replaced by the SEBI Act on April 4,1992.Certain powers under certain sections of SCRA and CA have been delegated to the SEBI .The regulatory powers of the SEBI were increased through the Securities Laws(Amendment) ordinance of January 1995 which was subsequently replaced by an Act of Parliament. The SEBI is under the overall control of the Ministry of Finance ,and has its head office at Mumbai .It has now become a very important constituent of the financial regulatory framework in India.

OBJECTIVES:The philosophy underlying the creation of the SEBI is that multiple regulatory bodies for securities industry mean that the regulatory system gets divided ,causing confusion among market participants as to who is really in command .In a multiple regulatory structure, there is also an overlap of functions of different regulatory bodies. Through the SEBI ,the regulation model which entrusted to a single highly visible and independent organization ,which is backed by a statue, and which is accountable to the Parliament and in which investors can have trust.

CONSTITUTION AND ORGANISATION:The SEBI is a body of six members comprising the chairman ,two members from amongst the officials of the ministries of the central government dealing with finance and law ,two members who are professionals and have experience or special knowledge relating to securities market, and one member from the RBI. All members, except the RBI member are appointed by the government, who also lays down their terms of office, tenure, and conditions of service, and who can also serve any member from office under certain circumstances .The Central government is empowered to supersede the SEBI in public interest ,of if on account of gave emergency it is unable to discharge its functions or duties, or if it presently defaults in complying with any direction issued by the government ,or if its financial position and administration deteriorates. The work of the SEBI has been organized into five operational departments each of which is

headed by an executive director who reports to the chairman. Besides, there is a legal department and the investigation department .The department have been divide into divisions. The various departments and the scope of their activities are as follows:-

The Primary Market Policy, Intermediaries Self Regulatory Organizations(ISRO) and Investors Grievance and Guidance Department:It looks after all policy matters regulatory issues in respect of the primary market registration merchant bankers, portfolio management service's investment advisors ,debenture trustees ,underwriter, SROs and investor grievance ,guidance ,education and association.

The Issue Management and Intermediaries Department:It is responsible for vetting of all prospectus and letters of offer for public and right issues for coordinating with the primary market policy ,for registration ,regulation and monitoring of issues related intermediaries.

The Secondary Market Policy, Operations and Exchange Administration, New Investment Products and Insider Trading Department:It is responsible for all policy and regulatory issues for secondary market and new investment products, registration and monitoring of members of stock exchanges ,administration of some of the stock exchanges, market surveillance and monitoring of price movements and insider trading, and EDP and SEBI's data base.

The Secondary Market Exchange Administration, Inspection and Non-member Intermediaries Department:It looks after the smaller stock exchanges of Guwahati, Indore, Bhubaneswar, ,Ludhiana and Cochin. It is also responsible for inspection of all stock exchanges and registration, regulation and monitoring of non-member intermediaries such as sub brokers.

Institutional Investment(Mutual Funds and Foreign Institutional Investment),Mergers and

Acquisitions,

Research and Publications, and International Relations and IOSCO Department:It looks after policy, registration, regulation and monitoring of Foreign Institutional Investors(FIIs),domestic mutual funds ,mergers and substantial acquisitions of shares.

1.3 CORPORATIZATION AND DEMUTUALIZATION 2005

Most of the Stock Exchanges around the world were set up as association of the Trading members. The objective to set up association was aimed to create a formal institution for mutually regulating the securities transactions among the members. Thus, most of the Stock Exchanges were promoted as non-profit organizations. While, the management of the Stock Exchange was generally vested with elected representative(s) of the trading members, executives carried out the day-to-day functioning of the Stock Exchange. However, during last two decades attempts have been made to change the profile of the Stock Exchange by demutualising them and reconstituting them as commercial corporate entities.1 Demutualization of a Stock Exchange entails that it is no longer remains entity for mutual benefit of Trading members but beholds the larger objective of becoming the system with adequate checks for proper mobilization of capital & protecting the interest of investors at large. Corporatization is a critical enabler that would support the efforts in expanding and strengthening the Indian capital market. While things are becoming more business oriented, the corporatized Stock Exchanges will improve its flexibility and efficiency in terms of its responsiveness to market needs2. The need for corporatization of Stock Exchanges in India has recently came into lime light after functioning of Mumbai Stock Exchange is alleged to have been manipulated by the some of the Trading members on governing Board of the exchange, which followed by stock markets crash inspite of what was seen as one of the favorable & progressive Union Budget in recent years3. After the stock scam of March 2001, the Government finally announced that all stock exchanges would have to mandatorily go in for demutualization within a specified timeframe4. This was aimed at preventing conflict of interests, which arise when stockbrokers are involved in the management of the stock exchanges also. It is in this context it becomes necessary to study the need and impact of Corporatization of Stock Exchanges and its relevance in Indian context before a clear roadmap could be prepared to take this process forward, for which SEBI constituted a Group under the Chairmanship of Justice M. H. Kania, former Chief Justice of India comprising of eminent personalities, in fields of law, accountancy, finance, company law affairs and taxation to advise SEBI on this matter and to recommend the steps that need to be taken to implement the announcement of the Government.

So as a result of this the Government has approved the corporatization of stock exchanges in India by which ownership and trading rights would be segregated from each other .corporatization and demutualization of stock exchanges are complex subjects and involve number of legal, accounting and company law issues. These roadmaps could be prepared to take process forward. Historically, brokers owned , controlled and used to manage stock exchanges. In case of dispute, the self often got procrdure over regulations leading inevitably to conflict interest. The regulator therefore focus on reducing the dominance of members in the management of stock exchanges and advised to reconstitute their governing council to provide atleast 50% non brokers representatives. This did not materially alter the situation. Thus finally in face of volatility in the securities market, government proposed in marc 2001 to corporatize the stock exchanges by which the ownership, management and trading members could be segregated from one another.

NATION

INTRODUCTION:

The national stock exchange is the In

towns across the country. NSE was s transparency, speed and efficiency ,

automated screen based trading syste

a model for the security industry in t

NSE has played a catalytic role in re

structure, market practices and tradin

OBJECTIVES NSE mission is setting the agenda for change in the securities market in India. The NSE was set up with the main objective of : Establishing a nation wide trading facility for equity ,debt instruments . Ensuring equal access to investors all over the country through an appropriate communication network, Providing a fair , efficient and transparent securities market to investors using electronic trading system Enabling shorter settlement cycles and book entry settlement system Meeting the current international standards of securities market

The standard set by NSE in terms of market practices and technology have become industry benchmark and are being emulated by other market participants. NSE is more than a mere market facilitator . its that force which is guiding the industry towards new horizons and greater opportunities.

TRADING SYSTEM the fully computerized , online trading system used in WDM segment of the exchange has changed the vary manner in which trading is perceived in the Indian securities market besides the fact that the system helped in increasing trading velocities and cut timeframes , it has also managed to incorporate the critical aspect of security in its function. The exchange provides the facility for screen based trading with order matching facility. The members are connected from their respective offices at dispersed locations to the main system at the NSE premises through a high speed , efficient satellite telecommunication network. The trading system is an order driven , automated order matching system which does not reveal the identity of the parties to an order or a trade. This help orders whether large or small to be placed without the members being disadvantaged by disclosure of their identity. The trading system operates on a price time priority . orders are matched automatically by the computer keeping the system transparent, objective and fair. Where an order does not find a match it remains in the system and is displayed to the whole market , till a fresh order which matches comes in or an earlier order is cancelled or modified. Trading system provides tremendous facility to the users in terms of the type of orders that can be placed on the system. Several time related , price related, or volume related conditions can easily be placed on an order, the

trading system also provides complete online market information through various enquiry facilities . detailed information on the total order debts in a security , the best buys and sells available in the market, the quantity traded in that security , the high , the low and last traded prices are available through various market screens at all points of time.

COMMUNICATION NETWORK Across the globe, developments in information, communication and network technology have created paradigm shifts in the securities market operations. Technology has enabled organizations to build new sources of competitive advantage , bring out innovations in products and services, and also provide for new business opportunities. Stock exchanges all over the world have realized the potential of IT and have moved over to electronic trading systems which are cheaper, have wider reach and provide a better mechanism for trade and post trade exhibition. NSE believes that technology will continue provide the necessary inputs for the organizations to retain its competitive edge and ensure timeliness and satisfaction in customer service. In recognition of the fact that technology will continue to redefine the shape of securities industry.NSE stresses on innovation and sustained investment in technology to remain ahead of competition. NSE IT set up is the largest by any company in India. It uses satellite communication technology to energize participation from around 400 cities spread all over the country . in the recent past , capacity enhancement measures were taken up in regard to the trading systems so as to effectively meet the requirements of increased users and associated trading loads. with up gradation of trading hardware ,NSE can handle up to 1 million traders per day. NSE has also put in place NIBIS ( NSEs internet based information system) for online real time dissemination of trading information over the internet. In order to capitalize on in house expertise in technology NSE set ups a separate company NSE.IT , in October 1999. This is expected to provide a platform for taking up new IT assignments both within and outside India and attaining global exposure. NEAT is a state -of art client server based application. At the servers end, all trading information is stored in an in-memory database to achieve minimum response time and maximum system availability for users. The trading server software runs on a fault tolerant STRATUS main frame computer while the client software runs under window on PCs. The telecommunication network uses X.25 protocol and is the backbone of the automated trading system. Each trading member trades on the NSE with other members through a PC located in the trading members office , anywhere in India. The trading members on the wholesale debt market segment are linked to the central computer at the NSE through the dedicated 64 Kbps leased lines lines and VSAT terminals. These leased lines

are multiplied using dedicated 2 Mbps , optical fibre links. The WDM participated connect to the trading system through dial up links. The exchanges uses powerful RISC based UNIX servers, procured from digital and HP for the back office processing. The latest software platforms like ORACLE7 RDBMS, GUPTA-SQL / ORACLE FORMS 4.5 Front Ends etc have been used for the exchange application . the exchange currently manages its data centre operations , system and database administration, design and development of the in house systems and design and implementation of telecommunication solutions. NSE is one of the largest interactive VSAT based stock exchange in the world. Today it supports 3000 VSATS & us expected to grow to more than 4000 VSATS in next year. The NSE network is the world largest private wide area network in the country and the first extended C band VSAT network in the world. Currently more than 9000 users are trading on the real time NSE application. There are over 15 large computer system which include non-stop fault tolerant computers and a high end UNIX servers, operational under one roof to support NSE application. This coupled with the nation wide VSAT network makes NSE the country largest information technology users. In an ongoing effort to improve NSE infrastructure a corporate network, has been implemented connecting all the offices at Mumbai, Delhi, Calcutta and chennai . this corporate network enables speedy interoffice communications and data and voice connectivity between offices In keeping with the current trend , NSE has gone online on the internet . apart from having a 2Mbps to VSNK and our own domain for internal browsing and email purposes we have also set up our own website.

1.4 BOMBAY STOCK EXCHANGE

INTRODUCTION The stock exchange , Mumbai ,popularly known as BSE was established in 1875 as THE NATIVE SHARE AND STOCK BROKERS ASSOCIATION. It is the oldest one in Asia , even older than Tokyo Stock Exchange , which was established in 1878. It is the voluntary non-profit making Association of persons (AOP) and is currently engaged in the process of converting itself into demutualized and corporate entity. It has evolved over the years into its present status as the premier stock exchange in the country. It is the first stock exchange in the country to have obtained permanent recognition in 1956 from the Govt. of india under the securities contracts (regulations) Act, 1956. The exchange while providing an efficient and transparent market for trading in securities, debt & derivatives uploads the interest of the investors and ensures redressal of their grievances whether against the companies or own member broker. It also strives to educate and enlighten the investors by conducting investor education programmes and making available to them necessary informative inputs. A governing board having 20 directors is an apex body , which decides policies and regulates the affairs of the exchange. The governing body consists of 9 elected directors, who are from broking community ( one third of them retire every year by rotation ) , three SEBI nominees , six public representatives and an executive director & chief executive officer and a chief operating officer. The executive director as the chief executive officer is responsible for the day to day administrations of the exchange and he is assisted by the chief operating officer and other heads of departments. The exchange has inserted new rule No. 126 A in its rules , bye laws & regulations pertaining to constitution of the executive committee of the exchange . Accordingly , an executive committee , consisting of three elected directors, three SEBI nominees or the public representatives , Executive director & CEO and chief operating officers has been constituted. The committee considers judicial & quasi matters in which the governing board has powers as an applete authority , matters regarding annulment of transactions , admission , continuance and suspension of member brokers , declaration of a member broker as defaulter , norms , procedures and other

matters relating to arbitration, fees , deposits margins and other monies payable by the member brokers of the exchange. Etc.

OVER THE COUNTER EXCHANGE OF INDIA( OTCEI)

The over the counter exchange of india ( OTCEI) was the first exchange to have started scrips trading and offered screen based trading in 1990 . It was established mainly to cater to small capitalized companies . the operations began with trading in debt instruments , in addition , equity debentures instruments of the companies listed on other stock exchange have been permitted for trading the OTCEI . Ihe turnover levels are extremely low, and are not viable for a large cross section . The OTCEI aimed to ensure settlement within three days .Investors trade with counter receipts , not share aimed to ensure settlement within three days . With settlement done on a spot basis , problems resulting from poor liquidity and delayed transfers have been reduced.

2.1 DEPARTMENTS OF U.P.S.E

CHAIRMAN

Mr. KD GUPTA

EXECUTIVE DIRECTOR

Mr. B.K NADHANI

U.P.S.E SECURITIES LTD( SUBSIDIARY CO.)

Mr. VED PRAKASH( CEO)

LISTING & MEMBERSHIP DEPT

Mr. BP GUPTA

SECRETARIAL DEPARTMENT

Mr. CHANDRA BABU PR

FINANCE & ACCOUNT

Mr. S.C KAPOOR

MARKET OPERATION / MARGIN

Mr. JK DIXIT

LEGAL DEPARTMENT

Mr. JN SHUKLA

CLEARING HOUSE

Mr. LS PANDEY

SURVEILLANCE DEPARTMENT

Mr. ATUL AGGARWAL

R& D / INVESTORS SERVICE CELL

Mr. RAJENDRA VERMA

2.2 UTTAR PRADESH STOCK EXCHANGE ( UPSE) ASSOC LTD. HISTORY/BACKGROUND

1. 2. 3. 4. Name of Stock Exchange Registered Address Date of Establishment Nature of organization : : : : The Uttar Pradesh Stock Exchange Association Ltd. `Padam Towers 14/113, Civil Lines, Kanpur 15th November, 1979 Corporate body.

(Whether a company or Association of persons) (If company, please indicate whether limited by guarantee or shares). (If company limited by shares, then indicate shareholding pattern) Public Limited Company registered under the Companies Act, 1956. Total Shares issued : 1000 (One share of Rs.2000/- each)

Shareholding pattern in the recognized Stock Exchange as on 30.09.2008

Category of Shareholder

No. of Shareholders

Total Number of Shares

Percentage of Shares

TRADING MEMBERS Individuals Corporates (Listed) Corporates (Unlisted) Any other (specify) TOTAL (A) 177 03 62 NIL 242 177 03 62 NIL 242 17.7 0.3 6.2 -24.2

PUBLIC Individuals Corporates (Listed) Corporates (Unlisted) Any other (specify) TOTAL (B) Total (A+B) 257 NIL 32 NIL 289 531 717 NIL 41 NIL 758 1000 71.7 NIL 4.1 NIL 75.8 100%

Uttar Pradesh Stock Exchange Association Ltd. was inaugurated on 27th August, 1982 and occupies one of the prominent place among 24 Stock Exchanges in India. It plays an important role in the development of the capital market of North India. Initially, it had only 350 members which has grown up to 540 at present. The membership is open to companies even beyond the territories of Uttar Pradesh. At present UPSE as 683 companies listed with the total capitalization of Rs 81,184 crores. The annual turnover of this exchange for past three years are : Year Total Turnover (Single Sided) (Rs. In Crores) 2006-07 2007-08 2008-09 31.10.2008) 806.50 476.39 (upto 170.60 0.28 0.98 0.05 0.03 0.21 0.03 Delivery turnover % of turnover to Delivery

This stock exchange is wedded to the investors protection and investors education as UPSE has firm conviction that any investor protection cannot be achieved without proper awareness and education of investors . thus, the exchange has a very active investor service cell and also a very equipped research and development wing in functioning. UPSE has also very effective system of readdressing of the investors complaints. The exchange is one of the best developed exchanges of the country so far its infrastructure is concerned . The Prime minister Dr. Manmohan singh, Finance minister shri Pranab Mukherjee , other central ministers and chief ministers of Uttar Pradesh have visited the exchange and had appreciated its efforts in maintaining the transparency and the integrity of the market. To keep pace of changing technology the exchange has embarked upon the project of screen based training. The online trading based on VECTOR software supplied by Cmc has commenced on UPSE from 11th November, 1997. To increase the further business and to facilitate the online trading facility to about 22 members at luck now an additional trading floor was established at lucknow. Seeing lack of participation by investors, UPSE has closed down its landmark Additional Trading Floor (ATF) at Lucknow. The ATF was set up initially to further increase business and to provide online trading facility to Lucknow based members. It commenced online trading in March 1999 with 22 members, who were allotted computer terminals at the ATF. The terminals were connected with UPSE's main server via VSAT.

It is noteworthy to note that at present out of 17 regional stock exchanges recognized in India only 2 regional stock exchanges are functioning and are still generating some turnover. UPSE is among those two regional stock exchange , the other one being Calcutta stock exchange. As per decision of SEBI for the revival of the smaller stock exchanges in the country, they can obtain the member stock exchanges like NSE, BSE, CSE etc by forming a subsidiary company of the exchange and in turn the members of the exchange can trade through the said subsidiary as sub- brokers. Accordingly they had incorporated a wholly owned subsidiary namely UPSEC and obtained the membership of BSE to enable the members of UPSE on BOLT. They are at present trying to get membership of NSE.

MAJOR OBJECTIVES OF UPSE

To organize and carry on the stock exchange and regulate the business of the exchange , stocks, shares , debentures , debenture stocks , government securities , bonds and equities of any description and with a view to establish and conduct stock exchange in Kanpur.

To acquire the membership of any other recognized exchange in India and abroad including membership of OTCEI , broad base the operation of stock exchange for the benefit of general public & investors.

To promote one or more subsidiary whether wholly or partly owned with object to promote & trade in shares & stocks , debenture bonds and other securities of any description issued by companies , statutory corporations, government of state or union Government , financial institutions.

2.3

UPSE SECURITIES LIMITED

(Commonly referred in as subsidiary company) The formation of UPSE securities ltd is the outcome of various underlying reasons. To understand that , time would have to be set back to late 20th century.. Prior to that ,the regional stock exchanges were receiving a great source of revenue as listing fees of various companies .Every company was supposed to list themselves in regional stock exchange where their head office existed .so besides mandatory listing in regional stock exchange ,it was the fashion among companies to list themselves in more and more stock exchange But slowly in 2003 ,SEBI totally called the mandate and awarded freedom to get listed in any stock exchange All factors contributed to companies to get delisted from regional stock exchanges. This move vanished the major source of revenue of RSE. So, it was decided in a meeting held on September 9,1999 to promote or float a subsidiary company to acquire membership right of other big stock exchanges i.e. NSE /BSE subject to under noted conditions: The subsidiary company shall be 100% owned by stock exchanges promoting/floating such subsidiary company. The name of the company shall not contain the word stock exchange.

The members of stock exchange shall register themselves as sub .brokers of subsidiary company to enable them through subsidiary company.

The subsidiary company shall register only the members of stock exchange, which is promoting the subsidiary company as its brokers, and no other client/sub broker shall be entertained by subsidiary company.

The sub broker of the subsidiary company shall maintain separate deposits with the subsidiary company. The Base Minimum Capital deposited by the sub broker with the promoting stock exchanges shall not be transferred to the subsidiary company.

The trading / exposure limit of the sub-brokers shall be based on the deposit received by the subsidiary company from the sub broker and these limits shall not exceed the limits as prescribed by the stock exchange of which the subsidiary company is a member.

The subsidiary company shall collect margins from the sub brokers for the payment of margins to the respective stock exchange of which subsidiary company is the member. The margin imposed by the subsidiary company on its sub broker shall not be less than the margin payable to the stock exchange of which the subsidiary company is the member.

The stock exchange shall incorporate the above mentioned condition in the Memorandum of association and Article of Association of the subsidiary company.

So based on this decision taken on the meeting it was decided by board of directors of UPSE to set up their wholly owned subsidiary named UPSE SECURITIES LIMITED. UPSE securities ltd., a wholly owned subsidiary of U.P Stock Exchange Assn. Ltd. was incorporated on 19.04.2000 with the object to obtain membership of larger Exchanges such as BSE/CSE and provide trading facilities on these exchanges to the member of U.P stock exchange as its sub brokers as per the policy/guidelines issued by SEBI. Accordingly the company acquired the membership of BSE and commenced on-line trading of BOLT with effect from 26.01.2001. The company is limited by shares and its 100% shares are held by UPSE .Its issued and subscribed share capital was of RS 1,80,73,700 which was its initial funding and till date their has been no subsequent funding. To facilitate pay-in and pay-out of funds ,the company has adopted the branch model of business module for settlement of transactions at company level and consequently separate bank account and beneficiary demat account ,designed to each of the active sub-broker ,treating it as a virtual branch of the company facilitating the accounting etc

Business Module Of UPSE Securities Ltd. (UPSEC) (part & parcel of the Business Rules) Based on SEBI(Stock-Brokers And Sub-Brokers)(Amendment) Regulations,2003 and format of Model Tripartite Agreement.

BUSINESS MODULE :

With the implementation of back office software Shilpi-cApex 3.5 developed by M/s Shilpi Computers Ltd., New Delhi, all the sub-brokers will be treated as separate virtual branch of the company under whom there can be multiple offices/trading terminals.

CLIENT REGISTRATION:

1. All the sub-brokers will be required to submit tripartite agreement with their clients and required to submit to UPSEC prior to commencement of trading by the client. 2. All the sub- brokers and their clients will be required to abide by the terms and conditions of the tripartite agreement executed. 3. Client of the sub-broker will be required to directly credit the securities in the CM pool account of UPSEC maintained at SHCIL, DP having account CMBP ID IN652365 for the purpose of pay-in. RISK MANAGEMENT

1. The deposits of the sub brokers, viz Base Minimum Capital , additional capital and margin advance is being treated as capital deposits for the purpose of computation and adjustment / collection of the margins. 2. The one third of the capital deposits of the respective sub-brokers is blocked as upfront margins and the rest two-third is available for trading. 3. At the end of the day, the total margin obligation for the day of the respective sub brokers are deducted from total capital deposits of the sub broker. 4.The remaining capital deposits of the respective sub brokers , after such deduction ,is treated as available in the same manner, as stated above for the next day trading of the sub broker . 5. The margin obligations for the day , so deducted ,if released after pay in of relevant settlement and the same is added back to the capital deposits of the sub brokers ,available for the subsequent trading. 6. The minimum capital required to trade as a sub broker in the company is Rs 1,50,000 and the additional capital may be deposited in the multiples of Rs 50,000 /- for enhancing the trading limits.

Some other basic information about the company are:

UPSEC will open equivalent number of bank accounts for each sub brokers in the name and style of UPSEC securities ltd. These banks accounts will be opened either with Standard Chartered Bank , M.G road, Kanpur or with UTI bank LTD, Mall road ,Kanpur as per the choice of the sub broker concerned. It will be the responsibility of the sub brokers to clear all the dues / pay in of their clients within time as per the schedule of the UPSEC i.e. T+1 basis. The shortfall in the pay in of the fund ,if met by the sub broker from their own account ,shall be credited to the contingency deposit account of the sub brokers. UPSEC will not pay any interest on this deposit. Every client of the sub- broker will have to clear his / her debit balance in respect of the transactions undertaken latest by T +4 days. UPSEC will issue the contract notes to all the clients of the sub- brokers on the regular basis. Brokerage will be charged from the clients of the sub brokers as per the instructions filled up in the client registration forms received through the sub-brokers or any written modification authorized by the clients and the sub brokers thereafter. The share of brokerage of UPSEC from the total brokerage charged to the clients of the sub-brokers shall be 0.009% subject to minimum of 1 paisa per share. UPSEC shall refund the excess brokerage to its sub brokers weekly. All other statutory and legal charges such as stock exchange turnover charges, stamp duty, STT, service tax etc as applicable will be levied separately in the contract notes issued to the clients of the sub brokers. Sub- brokers who are interested in second, third trading terminal are allowed to have them by allotting them separate ID on the following terms and conditions: Sub broker will have to pay a sum of Rs 5000 for each such trading terminal. Separate monthly charges such as TWS charges, VSAT support charges etc as applicable from time to time will have to be paid by the sub broker for each such terminal.

Each such terminal shall be subject to fulfillment of margin and other applicable business rules. Presently BSE has allowed trading only in cash segment. ----29-11-2001 113 70 8000(APPROX)

TRADING ON BSE STARTED ON NUMBER OF REGISTERED SUB-BROKERS NUMBER OF ACTIVE MEMBERS CURRENT NUMBER OF CLIENTS TURNOVERS: (IN CRORES) 2000-01( FROM 29-01-2001) 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

--------

67.99 981.88 1907.64 2334.55 2493.73 1813.24 2164.10

-- 3124.08

PROFIT / LOSS OF THE COMPANY YEARS 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 PROFIT/LOSS LOSS LOSS PROFIT PROFIT PROFIT 12,93,000 PROFIT AMT IN Rs 3,99,241.91 10,67,493.51 7,84,000 18,20,000

7,98,000 2006-07 2007-08 PROFIT 6,36,000 LOSS 21,964

Thus , the scope of UPSEC is indeed very wide and in future periods it will surely further expand the levels of business leading to the lucrative gains to the corporate ,investors and finally its members.

2.4 LISTING DEPARTMENT

Before talking about listing department I would like to throw light on the basic jargaon words used in this department. Listed company means a company which has any of its securities offered through an offer documents listed on recognized stock exchange and also includes public sector undertaking whose securities are listed on recognized stock exchange. Public issue means on an invitation by a company to the public to subscribe to the securities offered through a prospectus. Right issue means an issue of capital under sub section (1) of section of companies acts 1956 to be offered to the existing shareholder of company through a letter of offer. Composted issue means an issue of securities by listed by listed company on a public cum right basis offered through a single offer document wherein the allotment for pubic & right component of the issue is proposed to be made simultaneous. Offer document means prospectus in case of public issue of offer for sale & letter of offer in case of a right issue. Unlisted company means a company, which is not, listed company. Application for listing No company shall make any public issue of securities unless it has made an application for listing of those securities in stock exchange(s) Security At the time of public/right Issue Company deposit 1% security of the issue.50% in cash &50% in bank guarantees for protection of investors. Depository means a body corporate register under SEBI (Depositories and Participants) Regulation, 1996.

Listing Agreement At the time of listing it is a requirement of the exchange that there must be filed with the application an agreement in terms to qualify for admission and continuance of said securities upon the list of exchange. As per listing agreement companies agree to submit all the required documents with the exchange for the information.

Delisting There are two types of delisting: voluntary delisting & compulsory delisting. Voluntary delisting: Voluntary delisting being by the promoters of the company. Procedure for voluntary delisting: Any promoter or acquirer desirous of delisting securities of the company under the provision of these guidelines shall: a) Obtain the prior approval of the shareholders of the company by a special resolution passed at its general meeting. b) Make a public announcement in manner provided in these guidelines. c) Make an application to the delisting exchange. d) Comply with such other additional conditions as may be specified by the concerned stock exchange.

Compulsory delisting of companies by exchange

The stock exchange may delist companies which have been suspended for a minimum period of six months for non-compliance with the listing agreements. The stock exchanges may also delist companies as per norms provided in schedule.

The stock exchange shall give adequate & wide public notice through newspapers including (one English national daily of wide circulation) & through display of notice on the notice board/website/trading systems of the exchange. The stock exchange shall give a show -cause notice to the company or adopt procedure provided under part B of schedule III for delisting under clause15 (1) and (2).

Schedule of listing fees: Initial listing fees: Annual listing fees Up to 1 crores: Above 1 crores and up to 5 crores: Above 5 crores and up to 10 crores: Above 10 crores and up to 20 crores: Rs 600/Rs9000/Rs 14000/Rs 28000/Rs 10,500 /-

Companies which have a paid-up capital of more than Rs.20 crore will pay additional listing fees of Rs.600/- for every increase of Rs.1 crore or part thereof in the paid up share/debenture capital. NOTE: A discount of 50% will be applicable on the Annual Listing Fees for the companies whose registered office falls out outside the State of U.P. & Uttaranchal. This discount is not applicable to the companies whose securities are listed on this Exchange only. Last date of Payment of Listing fees - 30th April every year as per clause 38 of the Listing Agreement

Collection of fees for the last financial year Collection of fees at fifteen days prior to

Rs.25,55,850

the current inspection (as on 31.10.2008)

Rs.21,44,995 arrears)

At the start of the Financial year bills are issued for payment of listing fee (including subsequently reminders (twice) have been issued. - Following are the details given below for listing fees in last 4 years :

Particulars Total No. of companies listed Amount of listing fees collected (Rs.) Listing fee arrears (Rs.) No. of companies who have not paid listing fees(Rs.) % Defaulting Companies

Year 2006 713 32,21,75 0 3,51,13,3 21 238 66.62%

Year 2007 691 33,31,300 3,79,21,621 237 65.70%

Year2008 685 25,55,850 3,92,11,221 234 65.84%

Year (Upto 31.10.2008) 681 21,83,995

211 69.02%

Companies which have paid -up capital of more than 20 crore, pay additional fees of Rs600/- for every increase of Rs 1 crores or part thereof. Presently there are 713 companies listed with UPSE. Status of listed companies in past 3 years are:

Year1 2006-07

Year2 2007-08

Year3 2008-09 upto 31.10.2008 685

Number of companies as on 1 April Companies listed during the year

st

713 -

691 1

Companies Delisted during the year Number of companies as on 31st March

12 691

7 685

4 681

The companies which are not listed on the stock exchange should adopt a request letter of application for the enlistment of its securities therein. The company must apply for listing of the share in the prescribed application firm within 10 days of the filing of prospectus with the registrar of company along with certain documents i.e. Memorandum & article of association. Debenture trust deed. Prospectus. Underwriting agreement. Particulars of dividend , arrears of dividend. Directors report , balance sheet for the last 10 years. Short history of the company.

The company desiring of listing has to execute with the exchange a detailed agreement in the prescribed form. The listed company which needs further issue needs to apply in other prescribed letter of application and supporting documents. There are three steps of listing procedure : Applicant company communicates to the stock exchange. Preparation and printing of formal application. Investigation of committee of board of directors & payment of requisite fees.

List of Companies whose further Securities listed from 01.04.2006 to 31.10.2008 LIST OF COMPANIES WHOSE SECURITIES LISTED S.NO. NAME OF COMPANY EXCHANGE EXCHANGE REGIONAL / DATE OF

REGIONAL STOCK LISTING 1 JAIPRAKASH ASSOCIATES LTD. 31.05.2006

2 3 4 5 6 7 8 9 10 11 12 13 14 15. 16. 17. 18. 19. 20 21 22 23 24. 25. 26. 27. 28. 29. 30. 31 32 33. 34. 35.

Mirza International Ltd. Superhouse Leather Ltd. LML Limited. Mohan Steel Limited U.P.Asbestos Limited. LML Limited. Jaiprakash Associates Limited LML Limited LML Limited. Ashim Investment Company Limited. LML Limited LML Limited LML Limited Skipper Steels Limited Ridhi Sidhi Commercials Limited Yash Papers Limited Mirza International Limited Bihar Tubes Limited J.K.Cotton & Spinning & Weaving Mills Co. Amrit Corp. Limited Associates Cereals Limited GPT Infraprojects Limited Ganesh Polytex Limited GPT Infraprojects Limited Jaiprakash Enterprises Limited Bharat Immunologicals & Biologicals Limited Duke Commerce Limited Bihar Tubes Limited Electricals & Electronics (India) Limited Yash Papers Limited Surya Commercials Limited Skipper Steels Limited Ankita Pratishthan Limited Ganesh Polytex Limited

REGIONAL REGIONAL REGIONAL REGIONAL REGIONAL REGIONAL REGIONAL REGIONAL REGIONAL Non-REGIONAL REGIONAL REGIONAL Regional Non-Regional Regional Regional Regional Regional Regional Regional Non-Regional Non-Regional Regional Non-Regional Regional Regional Non- Regional Non-Regional Non-Regional Regional Regional Non-Regional Non-Regional Regional

05.04.2006 11.05.2006 11.05.2006 07.06.2006 07.06.2006 21.06.2006 10.07.2006 04.08.2006 18.08.2006 28.08.2006 06.09.2006 29.09.2006 10.07.2006 12.03.2007 10.04.2007 17.05.2007 17.05.2007 12.07.2007 30.07.2007 23.08.2007 12.09.2007 30.11.2007 12.12.2007 13.03.2008 04.03.2008 18.03.2008 24.03.2008 29.04.2008 17.07.2008 17.07.2008 02.08.2008 26.09.2008 26.09.2008 26.09.2008

2.4 MEMBERSHIP DEPARTMENT

The department mainly deals with Memberships/Membership Admission/Transfer/Conversion/Registration/Surrender of Certificate of Registration of SEBI. Admission to Membership of the Exchange is Governed by the eligibility criteria as specified in Article 19 of the Articles of the Exchange which states : An individual applying for Membership of Exchange should :1) Be not less than 21 years of age. 2) Have a qualification of Matriculation of equivalent examination (SEBI requires minimum Intermediate) 3) Be a citizen of India. 4) Possession a minimum of two years experience.

In dealing in securities or As portfolio manager or As investment constitute

Minimum net worth / capital of Rs.lac as certified by CA Its an undertaking to the effect that :-

He/ She is not associated with any defaulting member of Exchange. He/ She has not introduced any fake account /forge/stolen share in the market.

 No investigation /enquiry is pending against him/her in any Exchange.

BODY CORPORATE:1) Minimum net worth requirement for corporate seeking admission to membership of the Exchange, is Rs 20 lacs in case of direct corporate and Rs 10 lacs in case of conversion cases i.e. in case of individual to corporate . 2) Two Designated directors to remain on the Board of the Company. Eligibility criteria for designated directors to be the same in case of individuals. 3) Entity must have been incorporated under companies act 1956. 4) It must at all times maintain requisite net worth. 5) It should comply with section 12 of companies act. 6) And it should satisfy all such conditions as may be prescribed in the articles.

For any change in status and constitution of Members in terms of SEBI Cir No.30 dated 09.07.03 member is required to obtain prior Approval of exchange as well as SEBI. At the same time, of effecting any change member must ensure that all SEBI and Exchange dues have been paid.

AUDIT AND INSPECTION DEPARTMENT:1. Maintaining records of Audited Balance sheets of Members:Every year, every active member are required to submit their audited balance sheet and Net worth certificate in the Exchange.

The department is responsible for collection of the Audited balancesheets to be submitted by All active members and imposing penalties in cases of late submission of B/S beyond the stipulated time

2. Inspection of books of account of members:As per SEBI guidelines, Exchange is required to conduct inspection of 20% active members in each Financial year. Accordingly, the department selects the names of the members to be inspected (Finalized by Executive Director), on the basis of turnover in the manner that the cross section of all members is covered. Few names are selected against whom complaints have been lodged in the Grievances & Complain Department by Investors. Few other names are taken from the members against whom surveillance action has been initiated.

The work of inspection of brokers is assigned to independent Charted Accountants. The C.A. as per the checklist provided by the Exchange conducts inspection. Inspection reports are forwarded to members ,there by seeking replies. Inspection files are placed before the Disciplinary Committee for consideration and further action.

3. SEBI Registration fees paid by the Members:As per SEBI Stock Brokers and Sub Brokers Regulations 1992, every broker registered with SEBI and hold a certificate of Registration of SEBI , is required to pay SEBI fees based on his turnover through the Exchange. This work is also handled by the department.

Members are advised to summit a C.A. certificate showing their turnover under different heads i.e. jobbing of market trades etc. in the prescribed format in the Exchange with the prescribed limits.

4. SEBI Registration Fees/ SEBI Turnover fees/ SEBI fees:Schedule III of SEBI Stock Brokers and Sub Brokers Regulations 1992 specifies the fees to be paid by the stock brokers. Every Member is required to pay registration fees in the manner set out below: Where the annual turnover does not exceed Rs. 1 crore during any financial year, a sum of Rs 5000 for each financial year Where the annual turnover exceeds Rs 1 crore during any financial year, a sum of Rs 5000 plus one hundredth of one percent of the turnover excess of Rs 1 crore for each financial year. After the Expiry of of Five financial years from the date of initial registration as members , he is required to pay a sum of Rs 5000 for each and every block of five financial years commencing from the sixth financial year after the date of grant of initial registration. Every year , details of various components of the total turnover are to be finished by each and every Active Member in the Exchange within the prescribed time limit. Turnover shall be computed as aggregate of sale and purchase done by the Member in his own account and the account of his clients. In case of jobbing transactions which have been square off during the same day and such transactions have not been taken by the broker on the behalf of his clients fees at the rate of 0.005% is payable on the sale transaction i.e. Rs 500 on every Rs. 1crore .No fee is payable on

purchase Transaction. Thus at large, incidence of fees on total jobbing transaction comes to Rs. 250 per Rs.1 crore. In case of members fails to submit the transactions details then fee at a flat rate of 0.1% on the total turnover is payable by the member i.e Rs 1000 0n every Rs 1 crore turnover.

2.4 SECRETARIAL DEPARTMENT

Governing board : The governing board of Uttar Pradesh stock exchange association limited consisted or 13 members ,prior to SEBI step of appointing an administrator instead ,classified as follows: Six elected members under the provisions of the articles of association of exchange . 2 government nominees appointed by SEBI 4 public nominees(a list of 12 persons was sent by UPSE association limited board with the approval of SEBI . 1 member is Executive director who is appointed by the UPSE association limited board with the approval of SEBI. At every Annual general meeting of the exchange 1/3 of the members elected on the governing board retire by rotation; provided that where a person has been a member ,elected for 2 consecutive terms on the governing board, he shall not be eligible for reelection for a further period of 2 years. As per existing articles ,there is a provision for election of president of the exchange out of the non elected members on the governing board. He will hold the office of president for a period of 1 year. However w.e.f. 12 July, 2002 SEBI has supposed the governing board of the exchange & appointed an administrator and all the powers and functions of the governing board are with Administrator, under section 11 of the Securities Contract(Regulation)Act,1956. Statutory Committee In addition to the committee of Board of Directors, if any referred to in the above Article, the Board of Directors, every year and as early as convenient after every Annual General Meeting ,appoint the following committee, namely:

Arbitration Committee Defaults Committee

Disciplinary Committee

These committee consists of 60% non -members and 40% members with prior approval of SEBI. President and Executive Director are members of each of such committees and the President generally besides over each of the meetings of such committee.

Besides the above committees, the following committees are also constituted by the governing Board of Exchange every year: Computer Breakdown Committee. Ethics Committee. Screening Committee.(membership transfer, admission related) Compulsory delisting committee. Investors service committee.

Surpassing the Board by a single administrator all the powers have transferred to administrator. Besides handling the corresponding work with SEBI/Ministry/Income Tax the following works are also handled in secretarial section. Compiling and forwarding the monthly development, report of SEBI . Coordinating with other departments of the exchange for the implementation of various SEBI circulars. Compiling and forwarding the pre-inspection report. Compiling and forwarding the compliance report on the SEBI inspection report ( conducted every year). The section also fulfills all statutory requirements under companies act like: Preparation of board meeting, notices ,agenda ,minutes.

Preparation of notices calling AGM & EGM. To handle all the company related affairs under companies act.

Similarly works relating to UPSE Securities Ltd . ( a wholly subsidiary of UPSE Assoc Ltd ) are also handled by the section.

2.5 FINANCE & ESTABLISHMENT

Finance department keeps watch over the financial matters. Apart from keeping record of daily financial activities, the department also tackles the HR activities under establishment Department. The UPSE Assoc. Ltd is registered under section 12A of the income tax act 1961, the accounting standard 22 (Accounting for taxes on income) is not applicable to the company. Therefore, a statement of income & expenditure A/c is prepared in place of profit & loss A/c. And according to the taxation compliance , it has to spend its 85% of income on various valid heads ,if not ,it has to make declaration about expenditure plans. Membership fees Rs 6000 per annum. Listing fees based on paid up share capital. Interest on BMC and other securities. Maintenance charges of terminals. Penalties and fines. Transaction fees ( Minimum Rs 10000 and beyond graded system is applicable). 1% of listing fees (up to 2004-05 , it was 2%) is for investor service cell fund, 10% of which is transferred to UPSE investor protection fund. UPSE Investors protection fund is created to protect from the losses incurred due to exchanges exchange members. But exchanges ceils compensation limit Rs 10 lakh per broker. UPSE has a heavy infrastructure ( building & premise) that UPSE gives on rent to its members only for various purpose. Outsiders also may hire it for social or Academic purpose only.

The Exchanges are required to contribute 5% of the listing fees collected by them from companies to SEBI every year. The expenditure head also includes operational ,legal and other nominal expenditures. The department also maintains the regular records of its employees ,maintains their provident fund and also works for their welfare.

In terms of Rule 14 of the SC(R) Rules, 1957 every recognized Stock Exchange is required to maintain and preserve the following books of accounts and documents for a period of five years:

I.

Minute books of the meetings of A. B. C. Members Governing body Any standing committee or committees of the governing body or of the general body of members

II. III. IV. V. VI. VII. VIII. IX. X.

Register of members showing their full names and addresses. Where any member of the Stock Exchange is a firm, full names and addresses of all partners shall be mentioned. Register of authorized clerks. Register of remisiers or authorized assistants. Record of security deposits. Margin deposit book. Ledger. Journals. Cash Book. Bank Pass Book.

The Inspection Team may verify whether the Exchange has complied with the requirements of the above rule and check the said books.

2.7 MARKET OPERATION (MARGIN DEPARTMENT)

SEBI form time to time , put in place various risk containment measures to address the risks involved in the cash and derivative market. In order to contain risk arising out of the transactions entered into by the members in various script either on their own account or on behalf of their clients the exchange has .Therefore adopted a well defined risk management tool by the way of margin, the Exchange accordingly impose margins on the members. Other highlights of the department are: Base Minimum capital is Rs. 400000 is required without this trading is not allowed. 50% is in liquid assets (cash & FDR). 50% in other liquid assets (share and mutual funds) Members are allowed trading on the amount deposited over and above BMC. As soon as the margin touches the margin point , the terminal automatically gets prohibited for trading. There are three types of Margin in Stock Exchange :

Value at Risk. Mark to Market. Extreme Loss Margin.

All are calculated and applied on-line.

Margins are calculated on daily basis. M2M Loss is deducted from the deposits of members . Formula:Liquid assets M2M =Surplus Liquid Surplus Liquid-VAR ELM=Surplus. OVERVIEW: The core of the risk management system is a Liquid Asset , deposited by the members with the Exchange/Clearing corporation. These liquid assets shall cover the following four requirements/risks:

M2M LOSSES:- Mark to Market losses are on outstanding settlement obligation of the matter. VaR: - VaR margin is to cover potential losses for 99% of the days. ELM Margin:- Margin to cover the expected losses in situation thet lie outside the coverage of Var Margin.

M2M LOSSES:- M2M Losses shall be collected in following manner: The stock exchange shall collect M2M Margin from member/broker before the start of the trading day. The M2M Margin shall be collected/adjusted from/against the cash/equivalent component of the liquid net worth deposited with the Exchange. The M2M Margin shall be collected on the gross open position of the members. The gross open position for this purpose would mean the gross of all next position across all the clients of the members including his proprietor position.

 The margin so collected shall be also with the pay in including early pay-in of securities.

VaR Margin:- Computation The VaR Margin is the margin intended to cover the large loss that can be encountered on 99% of the days (99% value at risk) . For liquid stocks the margin covers one day losses while for liquid stocks it covers three days losses so as to allow clearing corporation to liquidate the position over three days . This leads to a scaling factor of square root of three for liquid stocks. For liquid stocks , the VaR Margins are also based on the votality of the stock while for other stock , the voltality of the market index is also used for computation. Computation of VaR Margin includes following terminologies:SCRIP SIGMA:- Scrip sigma means the volatility of the security computed as at the end of the previous day. The computation usage the exponentially weighted moving average manner as in the derivative market. SCRIP VaR:- Scrip VaR means the higher of 7.5% or 3.5% scrip sigma. INDEX SIGMA:- Index sigma means the daily voltality of the market index (S&P CNX NIFTY OR BSE SENSEX) computed as on the ending of the previous trading day.The computation usage the exponentially weighted average moving method applied to daily returns in the same manner as in derivative method.

INDEX VaR :- The higher of 5% or 3% of the higher of the Sensex VaR of Nifty VaR would be used for this purpose.The VaR Margins are specified as follows for different group of stock:-

LIQUIDITY CATERGORISATION

ONE DAY VaR

SCALING FACTOR VaR Margin FOR LIQUIDITY

Liquid Security (Group 1st)

Scrip VaR

1.00

Scrip VaR

Less Liquid Securities (group 2nd)

Higher of scrip VaR and three times of Index VaR

1.73(Square root of 3)

Higher of 1.73 times scrip VaR and 5.20 times Index VaR

Ill Liquid Securities (group 3rd)

Five times Index VaR 1.73

8.66 times Index VaR

Collection of VaR Margin:-

The VaR Margin shall be collected on an upfront basis by adjusting against the total liquid assests of the member at the time of trade collection of T+1 day is not acceptable.

The VaR Margin shall be collected on the gross open position of the Member.The Gross open position for this purpose would means the gross of all net position across all the clients of a member including his proprietary position.

For the purpose there would . The Var margin so collected shall be released along with the pay in including early pay-ion of securities.

EXTREME LOSS MARGIN: It covers the expected loss in situation that go beyond those envisaged in the 99% VaR estimated used in VaR margin. The ELM for any stock shall be higher of 5% or 1.5% times the Standard Deviation of daily logarithms return s of the stock price in the last six months. The computation shall be done at the end of month by taking the price data on a rolling basis of past six months and the resulting value shall be applicable for the next month. The ELM shall be collected/ adjusted against the total liquid assest of the member on a real time basis. The ELM shall be collected on the gross open position of the member. The gross open position would be same as mentioned above. The ELM so collected shall be release along with pay-in.

BASE MINIMUM CAPITAL:-

The Stock Exchange shall have the BMC requirement as provided below:-

BSE, NSE & CSE

Rs. 10 lakhs.

Ahemdabad stock exchange & DSE

Rs. 7 lakhs.

Other Stock exchanges.

Rs.4 lakhs

Provided that the Stock Exchange shall Maintain the BMC at Rs.1 lakh of the average daily turnover is less than Rs 1 crore for any three consecutive months.

BASE MINIMUM CAPITAL CAN BE EXPLAINED IN DETAIL:

Point no. 8 (1 ) Minimum Base Capital of the Exchange( Adjustable & Non Adjustable Capital ) Non Adjustable Capital required for all risk other than market risk ( for example operation risk and client claims ) 8(2) Composition of BMC Rs. 50,000.00 12.50% 37.50% Cash Cash/FDR SEBI Points Exchanges Reply

Rs. 1,50,000.00

Rs. 2,00,000.00

50.00%

Cash/FDR Approved Securities

8(3)

Minimum Period of validity Fixed Deposit.

2 / 3 years

8(4)

Procedure for continual monitoring expiry of BG and FDs

Monthwise reviewing the FDRs and necessary notices issued to the concerned members in advance for renewal and also sending the FDRs to the Bank for renewal.

At present there is no BG deposited in the Market Operation Department. 8(5) Institutions whose FDs/ BGs are accepted FDR accepted of all scheduled banks and Standard Chartered Bank, Vysya Bank 8(6) Securities accepted towards the BMC 8(7) Methodology & Frequency for valuation of Securities 8(8) Whether Securities Pledged in favour of the Exchange. 8(9) Safe custody of Securities (Custodian of the Exchange) Fire proof Almirah and details of Backup of Securities is kept in Bank Lockers. Demat securities are pledged Yes. Daily basis Yes.

with Stock Holding Corporation of India Ltd. 8 (10 ) Action taken if BMC falls below minimum prescribed. The trading terminal of the concerned member is deactivated automatically and efforts for the recovery of BMC are being made continuously. 8 (11 ) Process of replenishment of the shortfall in BMC Requiring the members concerned to complete the BMC through notice or telephonic mode and till completion of BMC the trading terminal of the concerned deactivated. 8 ( 12 ) Action taken by the Exchange against member for non replenishment of shortfall. 8 ( 13 ) Process of calculation of Free Capital. 8 ( 14 ) Process to replace existing collaterals of the banks from whom the collaterals were being discontinued to be accepted by the Exchange ( if any ) 8 ( 15 ) Note on Additional BMC requirement of the Exchange which includes the following among other things : Composition, 50 % of Liquid Assets and 50% of other liquid Nil As stated above member will remain

Procedure of continual monitoring 50 % of Liquid Assets and 50% of Withdrawal of Additional Capital, Manner and timing of collection. Period of lock-in. Procedure of release of Additional Capital. 8 ( 16 ) Please provide a note on the inter segment transfer of BMC. 8 ( 17 ) Please provide note on BMC requirements in case of composite members : 8 (18 ) Please provide the details with respect composition of BMC and AC in the following format for the above given sample dated 22.10.2008 As per details given below N.A. Not Transferable. other liquid As per members request releasing the excess Additional Capital.

2.8LEGAL DEPARTMENT

Legal Department is one of the key department of any organization as Law has to maintain certain compliances to maintain law and order. Stock Exchange has a legal department that deals with the legal matters. Legal department consists of a panel of legal experts who are legal representative of UPSE and take cares of its legal requirements. The main function of the department is to protect investors interest and to solve their grievances. However , grievance is tried to sort out at initials stage by Grievance Department working under Membership Department. If jugdement is not satisfactory , an Arbitrator is appointed . If still Member is not satisfied and further appeal is in court against Stock Exchange , Legal Department comes into action as representative of UPSE and pleased on behalf of UPSE.

The cases mainly related to: Cases filed against the members for bad delivers. Cases filed as an appeal in the District Court and then in High Court. Cases filed by the members and non members against any order passed by the Exchange. In cases any broker / member declared as defaulter. The legal department gives advice to various departments on legal matters when required. Whenever there is a proposed change in byelaws of exchange , the legal department takes proper steps for incorporation of such changes. Co ordination with other departments of the Exchange for implementation of various sebi circulars. Compiling and forwarding the pre inspection reports. Compiling and forwarding the compliance report on the SEBI inspection report( conducted every year). The section also fulfills all statutory requirements under Companies Act like:Preparation of board meetings Notice, agenda and minutes. Preparation of Notice calling AGM & EGM. To handle all the company related affairs under companies A ct.

Similar works relating to UPSE Securities ltd.( a wholly subsidiary of UPSE Assoc. Ltd.) are also handled by the section.

2.9 CLEARING DEPARTMENT

Clearing House is one of the important department of Uttar Pradesh Stock Exchange as it looks after the pay in and pay out of funds and shares .It acts as an effective mediator between the brokers of the exchange and investors who want to purchase or sell the securities .Clearing House

helps the stock exchange in providing the facilities of sales and purchases of shares to the client through their brokers ,and enabling the trading settlement as per the rules and regulations prescribed by the SEBI .In stock exchange nobody can sell or purchase securities directly, therefore clearing house makes an adjustment in transactions taking place and helps in evaluating the total sales and purchases of the stock exchange. Presently rolling settlement T+2 is applicable in the exchange .The settlement takes place as:

Timing Start Time Beginning of day Pre-open Session 9.42 9.50 9.35 9.42 End Time Remarks, if any All the application servers start in this session, but broker cannot login in this session. Members can login in this session and place limit orders (i.e., orders with price) only. The orders are not matched during this session Opening Session 9.50 9.55 During this session, the members could stay logged on but cannot put orders. During this session, opening price for each scrip is computed, based on the price which maximized trading volume i.e. price at which maximum trades can be executed based on the orders placed during pre-open session. In case there are not trades matched the previous days close price becomes the current days opening price. Activity Involved in this session

Trading Session Closing Session

9.55

3.30

Normal trading session. Members can place orders and do trading.

3.30

3.40

System is not available for use. Closing price for each scrip is computed based on weighted average of last half an hour trades in particular scrip. In case there is no trade during the last half an hour, the average of last five trades is taken for arriving at closing price.

Post Closing Session End of day Session Break Session Odd-Lot Session Spot session Auction Session

3.40

3.55

Only Broker can login and allowed to do client code rectifications only.

3.55

Members can download their trades.

No session

9.56

3.28

No Trading

No Trading

1.30

2.30

During this session only solicitor members (members other than member who failed to give delivery) can place orders. The solicitor orders once placed cannot be cancelled. Modification of orders is only allowed to the extent of bettering the price or increasing the qty.

When an investor sell their securities then it is necessary to deposit their shares and securities in the exchange's account in case of sale and in case of purchase the amount is paid to the exchange by the investor through their broker. If any broker / client fails to deposit their shares in the exchange upto the time of pay in of securities then those shares would be treated as shortage or short delivery. In case of short delivery shortage is recovered by on-line auction on T+2 day.If securities are not available in the on-line auction on T+2 day within the prescribed price limit then the transaction is closed out as per the rules and norms of the exchange. At the time of auction of short delivery the loss is borne by the defaulter broker and if profit is earned by auction then that profit is deposited in Investor Protection Endowment Fund account of the exchange .On T+3 day the settlement of auction delivery is done, therefore clearing house plays a significant role in the trading of shares/securities.

A BRIEF NOTE ON AUCTIONS & CLOSE OUT CARRIED OUT AT EXCHANGE

If securities are not available in online auction on T + 2 day within the prescribed price limit ( i.e 25% of the current market rate) , then the transaction is closed out as per the standard procedures specified by SEBI. The close out price will be the highest price recorded in that scrip on the exchange in the settlement in which the concerned contract was entered into and up to the date of auction / close out.

OR
20% above the official close price on which auction offers are called for ( and in the event of there being no such closing price on that day , then the official closing price on the immediately preceding trading day on which there was an official closing price).

WHICHEVER IS HIGHER
Since in the rolling settlement the auction and the close outtakes place during trading hours hence the reference price in the rolling settlement for the close out procedure would be taken as the latest available closing price at the exchange.

As per SEBI letter no.SMD / POLICY / CIR- 08 / 2002 dated 16th April 2002 that in cases of close out to the extent of short delivery if the shares cannot be acquired in auction or cum basis then the mark up price would be 10% instead of 20%

DEACTIVATION OF TRADING TERMINAL AND IMPOSITION OF PENALTY

In case of any default by a members regarding timely pay in of the fund trading terminals of the concerned members is being deactivated and penalty is also being imposed upon the concerned members as prescribed by the exchange from time to time. on the receipt of complete amount of the pay-in and penalty imposed the trading terminal of the concerned member is being reactivated.

2.10 SURVEILLANCE DEPARTMENT

One of the objectives of the exchange is to promote and inculcate honorable and just practices of trade in securities transactions and to discourage malpractice. the surveillance function at the

exchange has assumed greater importance over the years .SEBI has directed the exchange in August 1995 to set up a surveillance department with staff exclusively assigned to surveillance department to keep a close watch on price movements of scrip, detect market manipulations like price rigging etc, monitor abnormal price and volumes which are not consistent with normal trading pattern and keep a watch on the exposure of members .the surveillance department performs the following function: 1.RISK MANAGEMENT:- The Risk Management system has improved in the recent past because of positive steps taken by the exchange in terms of prescribing capital adequacy norms for members ,margins ,on-line surveillance and inspection of broker's books. The Margin system has become more sophisticated to consider the factors of volatility volumes and other factors. The Margins are required to be compulsorily collected from the client by the brokers. A Quarterly certificate has been prescribed for compliance of margin system with the infrastructure of risk management enhanced. The Stock Exchange as well as investors would be better protected towards risk of various scams that had shaken the market. The various Margins collected by the Exchange are:.Mark to market margin .Value at risk margin .Extreme loss margin 2.PRICE MANIPULATION:-The functions of price monitoring and investigation have been entrusted to the surveillance department, where large variation in the prices as wll as scrip is scrutinized and appropriate actions are taken. The scrip which reaches new high or new low and companies which have high turnover are watched. Also the prices and volumes in the newly introduced scrip are monitored. Detailed investigation are conducted in the cases where price manipulation is suspected and disciplinary actions are taken against the members concerned. 3.INSIDER TRADING:-The most important function of this department is to prohibit insider trading .Insider Trading denotes dealing in a company's security on the basis of confidential information related to the company .It generally means trading in shares of a company by a

person who is in the management of the company or are close to them on the basis of undisclosed price sensitive information regarding the working of the company that they know but is not available to others. 4.MEDIA ALERT:-This is also an important function, before the company information gets printed in newspapers, they have to be verified by the department. This is necessary in order to find out whether company is concealing any material facts. 5.OTHER MANIPULATIONS:-Other manipulations like carry forward trading are also taken care of.

PURPOSE OF SURVEILLANCE
Purpose of surveillance is to prevent risk which may arise due to : Carry forward trade Trade away from market price Price manipulation Insider trading Circular trading Creating false market In order to detect abnormal behavior / movement it is necessary to know the normal market behavior. The necessary actions are initiated like imposition of special margin , suspension and deactivation of terminals etc. to control abnormal market behavior the department carries out investigation , if necessary , based on preliminary examination Analysis and suitable actions are taken against members involved based on investigation. The detailed activities are as follows:

ONLINE SURVELLIANCE : one of the most important tool of surveillance is the

online real time surveillance system with main objective of detecting potential market abuses at a necessary stage to reduce the ability of the market participants. To unduly

influence the price and volume of the scripts traded at the exchange , improve the risk management system and strengthen the self regulatory mechanism at the exchange the system has a facility to generate the alerts online based on certain preset parameters like prices and volume variations in scripts , members crossing intraday limits or gross exposure limits.

OFFSHORE SURVEILLANCE : the offshore surveillance system comprises of various

reports based on different parameters and securities thereof: High / low difference in price % change in prices over a week / fortnight / month. Top scripts by turnover Scripts hitting new high / low etc

The surveillance actions or investigations are initiated in the scripts identified from the above stated reports.

2.11 R&D DEPARTMENT

R&D Department performs three works: Assistance to investors by Investors cell service. Maintains library. Provides stationary. Conduct research and development .

INVESTOR SERVICE CELL:This wing has been functioning since 1992 under SEBI directors & providing valuable services to investors. Investor service Cell has been made to help (potential) investors in many ways. Whether its about their queries of stock market or solving their investment problem. The assist them in their queries of stock market and solving their investment problems. The cell assist them in technical matters that consist of legal provision/procedure that secures their interest .Besides , cell works to aware investors about their rights and duties. INVESTA is an endeavor in this direction by SEBI. SEBI has designated different Stock E xchanges to arrange INVESTA zone wise. UPSE has been designated 176 places in UP and UTTARANCHAL for cause. The program also makes investors aware about the precaution to be taken while investing and investment decision is left on investors direction. The whole account of INVESTA is given by R&D Dept. to Finance dept. and to management of stock Exchange. All expenses are borne by SEBI for this sake a separate fund Investor Protection Fund is maintained. RECORDS TO BE MAINTAINED BY INVESTA:-

This is the duty of R&D dept. to maintain the necessary records of INVESTA because the same has to be submitted to the SEBI.The various record which is to be maintained by R&D dept. for INVESTA are: Schedule for monthly program to be approved by the administration. Attendance registers for INVESTA. Monthly statement of Program conducted. OTHER SERVICES: UPSE has set up UPSE & BSE Terminals for investors to enable them to know the quote of various scrip listed on that. Information regarding change of names of companies, mergers of companies, e-merger of companies is made available. Address of companies is can be known from here. IPOs forms of various companies are available. A view terminal has been provided on which the investors can watch CNBC, ZEE BUSINESS, NDTV PROFIT and other business news channels. If the investors have queries regarding any member, he can contact the Investor Service Committee, formed for this purpose.

LIBRARY AND STATIONARY:Departments maintains a rich library of various Acts , Laws ,Amendments, Articles regarding Capita Market like SEBI manual, Income Tax Act, Companies Act, Listing Agreements and the latest changes done by SEBI. Departments also subscribe various books, magazines and newspaper regularly, like The Times Of India, Economics Times, Business

Standard, The Financial Express, Business Line and all the other leading newspaper and Magazines like Dalal Street, Capital Market and various magazines are available for members/ investors.BSE quotations regarding book closure, dividend etc and financial reports of companies are also made available for their knowledge sake. Department also deals with Stationary cell. Share transfer deeds, challans, receipt books Bye laws etc. are sold on No profit No loss basis. The cell regularly maintains the stationary records (sale, purchase and stock) that is sent to and approved by the Accounts Department.

REFERENCE:

JOURNAL OF DALAL STREET. JOURNAL OF FINANCE http: //www.upse-india.com. http: // www.nse-india.com http:// www.sebi.gov.in http:// www.toi.com JOURNAL OF CAPITAL MARKET BY NSE.

AMITY UNIVERSITY
UTTAR PRADESH

AMITY BUSINESS SCHOOL

A SUMMER TRAINING RESEARCH WORK ON PROPOSED RESTRUCTURING OF REGIONAL STOCK EXCHANGES

FACULTY GUIDE INDUSTRY GUIDE Dr RAJU G Mr. BK NADHANI

FACULTY GUIDE INDUSTRY GUIDE Dr RAJU G Mr. B.K NADHANI

PRESENTED BY XXXXX MBA (G) CLASS OF 2010 ENROLLMENT NO99999999999

ACKNOWLEDGEMENT
The satisfaction and euphoria that accompany the successful completion of any task would be incomplete without mentioning the name of the people whos constant guidance and encouragement has crowned all our efforts with success. Firstly I would like to thank Dr RAJU G who suggested me this topic & helped me a lot in completing this project. Going through this project was one of wonderful experiences as such it has overall enhanced my knowledge about the relevant area and its diverse aspects. Also throughout this project several outstanding individuals were integrally involved and had given their substantial contribution, for which I am very thankful to them for giving their precious time in completing this project. I would also like to thank all those people for their immense co-operation and without help of these people this project never be completed successfully. At last I would like to thank My Industry guide Mr. B.K. Nadhani, Executive Director of U.P. Stock Exchange & Mr. Suresh Gupta, General Manager of UPSE Securities Ltd who helped me in performing this study i.e. PROPOSED RESTRUCTURING OF REGIONAL STOCK EXCHANGES by providing me his useful guidance, books and matters related with my Research Study.

ABSTRACT
This study investigated the real reason of downfall of regional stock exchanges and the possible solutions for its revival. To get answer s question it is necessary to know the viewpoints of people related with it i.e. Brokers, Investors & employees of these RSE whether they think that there is need for RSEs revival or not. In my research work I have worked on the basis of their responses for which I had prepared a questionnaire. In this questionnaire my focus was to cover up all possible aspects related with present situation of RSE in current Scenario. The result that could be concluded from the data analysis was quite interesting. More than half of the population surveyed still agrees that there is need for the revival of RSE & they even had number of possible solutions there upliftment. There were many other aspects which came out of this survey such as most of the population think that Demutualization has not actually served its purpose and they really think that if soon steps wont be taken by higher regulatory authorities such as SEBI then it may lead to a monopolistic situation by NSE. The majority of the 18 regional stock exchanges (RSEs) see minimal trading, the others none at all. Dozens of companies delist from these exchanges daily to seek their place on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE); their online trading and professional management make them the favorites of investors and companies alike. Deep down, they feel the need for radical change to revive themselves. Some consider the merger of all RSEs into one entity as the only long-term solution. Will RSE die our or will it survive in coming decade is a big question which yet needs to be answered and my study is trying to find out an apt answer for this big question. Here in my this research paper I have studied about the real reasons for downfall & the appropriate solutions for it in current scenario which if considered by higher authorities will surely prove to be an apt solution for Restructuring of regional stock exchanges.

3.1 INTRODUCTION:

The Regional Stock Exchanges are gradually losing their luster. The phenomenon is inevitable. My this study discusses some suggestions to the revival of these stock exchanges in the days to come. Change has become a ubiquitous phenomenon. Indeed, the intensity and speed of change in the marketplace is rendering all veterans, conventional and orthodox organizations and people redundant at an amazing speed. Unambiguously, markets have become merciless without any respect for the longstanding and accumulated expertise. Amidst such choppy waves, market participants are virtually left with two choices either change or perish. Apparently, nothing but change is stable in this world, which interestingly offers both opportunities and challenges. At this juncture, the study attempts to present the threats and opportunities of Regional Stock Exchanges (RSEs) in India & find out various alternatives available for its revival too. A good capital market is an essential prerequisite for industrial development of a country. It is an organized mechanism for effective and efficient transfer of capital or financial resources from the investing parties, i.e., individual or institutional savers to the entrepreneurs (individuals or institutions) engaged in industry or commerce in the private or public sectors of an economy. The capital market is divided into Primary Market (New Issue Market) and Secondary Market (Stock Exchanges). According to Section 2(3) of the Securities Contract (Regulation) Act 1956, the stock exchange has been defined as "any body of individuals whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities." Further, the stock exchanges are classified into National Stock Exchanges (NSEs) and Regional Stock Exchanges (RSEs). A RSE is recognized by the Central Government or Securities and Exchange Board of India (SEBI) under Section 4 of the Securities Contracts Regulations Act,

1955. These have been very popular in India. RSEs have flourished due to theoretical and practical anomalies in the pre-liberalization period, but not so in the post-liberalization era. Many of them are virtually non-operational. The NSE, since its establishment in 1994 has drastically changed the method of trading and settlement of securities in the country from open-outcry system to electronic trading and settlement on computer screens. RSEs lost their relevance due to their own investor-unfriendly practices and the changes in regulatory approach in the years following the creation of the NSE. FOR over 20 years regional stock exchanges created wealth for the country. It was all taken away in one blow. They now feel like step-children of the Securities Exchange Board of India (SEBI).

DOWN BUT NOT OUT

As business shifted out of the RSEs, so did their chances of survival. But unwilling to give up, the RSEs have come up with many plan for their revival: Indonext, a exchange where all companies with paid-up capital of up to Rs 20 crore will be traded exclusively. RSE stockbrokers automatically became members of the Indonext. INTERESTINGLY, Indonext is not the first attempt to bring all regional stock exchanges on a common platform. The ICSE was formed in 1998 to connect regional stock exchanges through a computerized circuit. Market men are optimistic about Indonext, especially in the light of sentiments today. More and more investors are showing interest in buying shares of small and medium-sized companies, which Indonext will focus on Fifteen RSEs became its members in the hope of breathing new life into their businesses. Today, ICSE itself doesnt have any trading turnover to speak of. What went wrong was that those RSEs listed on ICSE did not discontinue their local operations. This led to fragmentation of the market. But .Indonext will be independent of the RSEs and its members.

GROUND REALITY
WHILE the NSE has not shown any interest in the RSE revival plan, the BSE has come forward with its own suggestions. At a meeting held , BSE proposed to provide the common platform needed by RSEs. The BSE has suggested to the RSEs that it will extend its existing BOLT platform for their members to trade in the small-cap companies with paid-up capital up to Rs 20 crores listed at BSE and various RSEs in S group by creating a large single order book. In the face of stiff competition from NSE, such a segment will help bolster BSE volumes through new players. It will also be attractive to companies in far-flung areas of the country, which will be able to access deeper pockets. The Securities and Exchange Board of India (SEBI) is keen to support the revival of the regional exchanges.

THE DOWNSLIDE
THE decline of the regional stock exchanges began as early as 1996-97, when the fullycomputerized NSE was spreading its tentacles across the breadth of the country. While the BSE was quick to take a cue from it and begin online trading, the RSEs were caught napping. And by the time they woke up and decided to computerize, it was too late. The two national stock exchanges had already usurped their markets with their wide reach. More and more companies began listing at the national stock exchanges. Investors too preferred online trading. The system provides for fast and hassle-free delivery of shares, allowing us to go for higher number of transactions in a given time frame.

Another factor in the favour of NSE was its professional management. Unlike in the RSEs, no broker was allowed to be part of NSE management, thus making it more unbiased. As trading fell on the RSEs, so did transaction fees, the brokers primary source of income. The final blow came in April 2003, when the Ministry of Finance withdrew its order which made it mandatory for a company to list its securities on the stock exchange in the area where the registered office of the company was situated. Consequently, companies began delisting from their regional stock exchanges. With this rule RSEs had lost out on the listing fees, which was another major source of income for RSE. The results were devastating. While many brokers shifted to other fields of work, others went out of business. To save the rest from extinction, RSEs had to set up subsidiary companies. These subsidiaries, which are members of either NSE or BSE, allow RSE brokers to act as its sub-brokers. Suspended trading at regional exchanges also affected thousands of small investors adversely. There was no exit route for investments locked up in companies listed only on the RSEs. For instance, a majority of the 200,000 investors who were trading on the Vadodara Stock Exchange (VSE) seven years ago are now desperate for their money. Nearly all RSEs, and also the ICSE, had to take the subsidiary route to ensure their members survival. But for the stock exchanges themselves, there has been no reprieve. Their trading infrastructure, worth crores of rupees, is still lying idle and costs are still rising.

3.2 STATEMENT OF THE PROBLEM What are the reasons for this decline?

1-ABOLITION OF BADLA SYSTEM - Abolition of badla with effect from July 2, 2001, which acted as the backbone of trading at the Calcutta, Delhi, Ahmedabad and Ludhiana Stock Exchanges and also at a few other exchanges, which conducted badla trading but in a clandestine manner, dealt serious blow to trading at the RSEs. Introduction of uniform trading cycles at all the stock exchange, also effective from July 2,2001, reduced further the volume of trading at the RSEs due to diminished opportunities for arbitrage transactions. Introduction of compulsory rolling settlements, initially in a few securities and subsequently in all securities effective from December 31, 2001on a T+5 basis accelerated the reduction in turnover at the RSEs .The switch over of the rolling settlement to T+3 effective from April 1, 2002 and to T+2 with effect from April 1, 2003 sealed the fate of the RSEs.

2- Abolition of Compulsory listing in regional stock Exchanges - With the availability of nation wide access to a liquid market, the need for compulsory listing on the RSEs lost its relevance. Regional listing proved to be an unnecessary burden in terms of cost to companies which were listed on NSE and BSE. SEBI therefore issued the SEBI (Delisting of Securities) Guidelines, 2003 vide circular SMD/Policy/Cir-7/2003 dated February 17, 2003

which, inter-alia, did away with the requirement for existing companies to remain listed on any stock exchange merely because they were incorporated or did business from a region, provided such companies were also listed on either of the two national exchanges. Freedom was given to companies to list on a stock exchange of their choice. Companies, therefore, chose to remain listed on BSE and NSE and opted for delisting from the RSEs. This resulted in further loss of revenue by way of listing fees for RSE. The RSE were receiving a great source of revenue as listing fee of various Companies ( Body Corporate Houses). Besides mandatory listing in RSE ,it was the fashion among companies to get listed in more and more stock exchanges. In 1999, SEBI allowed companies to be de- listed from other stock exchanges ( which was restricted till then) except RSE, on fulfilling certain conditions. Consequent to issuance of the SEBIs circular referred to in the foregoing paragraph, the Government of India vide circular No.F.No.1/9/SE/2003 dated April 23, 2003 inter-alia, withdrawing its earlier circulars which required all companies including existing listed companies, to be listed on the stock exchanges located in the State where the registered office or the main works/fixed assets of the company are situated, has driven the last nail into the coffin of RSEs as companies have started lining up one after the other to get themselves delisted from RSE. Parallel to these , fast evolution of BSE & NSE started providing great exposure to companies .All factors contributed to companies to get de-listed from RSE. NOW, the companies considered itself unnecessary to be listed in more and more stock exchange, when they are free to be traded in across the country, if are listed in any designated stock exchanges i.e. BSE/NSE. Earlier in case of oversubscription of shares of company RSE used to approve allotment pattern which is not the case now. The reason was the absence of trading platform of shares of various companies in regional stock exchange. So., for them annual payment of listing fees in these regional stock exchanges was as mere wastage of money. This resulted in lack of trust of members and investors on RSEs and thus all the major operators are all these exchanges acquired memberships of either NSE or BSE or of both, while most others acquired the sub-broker ships of members of NSE/BSE and all of them switched over their operations completely to NSE and BSE. The results were devastating. While many brokers shifted to other fields of work, others went out of business.

3- WIDE COVERAGE OF NSE/BSE & ADVENT OF AUTOMATED

TRADING SYSTEM - NSE and BSE has set up around 450 terminals all over India .Thus
making it easy for a small investor to trade through these stock exchanges even after sitting in a remote location. It was the decision of SEBI to have an online trading system for trading. THE decline of the regional stock exchanges began as early as 1996-97, when the fully-computerized NSE was spreading its tentacles across the breadth of the country. This advent of automated trading and advancements in technology facilitated the BSE and NSE to expand their reach across the country. At present, both NSE and BSE have their terminals in more than 400 cities. This had an impact on the trading of securities in RSEs. In the absence of modern telecommunication and automation, listing of securities of companies was always permitted in more than one exchange. To encourage regional industrial development, the regional companies were compulsorily required to list on the RSE which was closest to the registered office of the company, in addition to any other stock exchange. In addition, shares listed in exchanges were also allowed to be traded on other exchanges as a class of permitted securities. It was, therefore, common for one company to be listed on BSE (and later on the NSE) as well as on one or more RSEs and also trade on multiple stock exchanges. But the expansion of the terminals of NSE and BSE across the country provided access to all investors to two large, liquid and deep national markets in all these securities. Other stock exchanges, thus, found little incentive to simultaneously expand their terminals. And by the time they woke up and decided to computerize , it was too late. The two national stock exchanges had already usurped their markets with their wide reach. More and more companies began listing at the national stock exchanges. Investors too preferred online trading. The system provides for fast and hassle-free delivery of shares, allowing us to go for higher number of transactions in a given time frame Technological Development and high tech Infrastructural facilities were required to have online trading system in all stock exchanges .only selective stock exchanges such as NSE ,BSE could fulfill these criteria . The NSE was established in 1994 with nation-wide electronic trading terminals.

Subsequently, in 1995, the Stock Exchange, Mumbai (BSE) also converted its manual trading system into a nation wide electronic trading system. While the BSE was quick to take a cue from it and begin online trading, the RSEs were caught napping. 4-MAINTAINANCE OF BASE MINIMUM CAPITAL.-

Maintenance of Base

Minimum capital at RSE despite zero volume of trading Amounting to over Rs 300 Crore has also hindered the growth of subsidiaries. Every broker is supposed to submit Rs 4lakh in each regional stock exchange and Rs 10 lakh in NSE and BSE. 5- GROWING ILLIQUIDITY- Growing Illiquidity of shares in regional exchanges forced the companies to delist their shares from these stock exchanges. Every company has to pay listing fees along with many other formalities to be complied with to list themselves in any stock exchange. They need to publish annual report in regional language where it is listed .Then they also need to have separate Department fulfilling all the formalities in their company .Advertisement in the newspaper once in a year is also must for the company .All these leads to additional cost to be incurred by the company. so it was proving a loss deal for the company to incur these expenses for the exchange where there shares are thinly traded or not even traded at all. A decline in liquidity and dwindling of business in the RSEs was inevitable. As the RSEs ceased to provide a liquid market in active stocks which were also listed on BSE/ NSE, the liquidity in the securities of companies which were exclusively listed on the RSEs also declined. The cost of membership in BSE and NSE was comparatively higher than in the RSEs and all large brokers in the RSEs obtained membership of BSE or NSE. They had little commercial interest to continue trading on the RSEs or promoting them. The smaller brokers were not able to garner sufficient resources to obtain membership of the two national exchanges. This, in turn, also led to increase in the number of inactive members in the RSEs. The business done on the RSEs was adversely affected as a result of the cumulative impact of these factors. Whatever business was left, was mainly on account of varied account period settlement cycles across the RSEs which allowed for a product differentiation of sorts among the RSEs.

6-PROGRESSIVE REDUCTION IN PUBLIC OFFER- There has been progressive reduction in public offer from 60% of issued capital to 25%for eligibility for listing due to few pricing of shares ,introduction of book building in respect of IPO ,introduction of order driven system and of rolling settlement etc have all cumulative been responsible for present state of illiquidity in Indian stock market.

3.3 LITERATURE REVIEW

There are some articles which talks about the need for revival of regional stock exchanges. Dr. Rajeev Kumar, FCS, Company Secretary, Chandigarh,2007 Although there are a number of Regional Stock Exchanges in India, the transactions done there are very negligible and some of these exchanges are almost extinct in terms of transaction. This is because companies and investors basically transact through the BSE and NSE. What could be done to revive the Regional Stock Exchanges and why the should be revived, have been dealt with in this article. According to him the most affected stakeholders have been the common investors who have been left with illiquid scrips. the brokers/jobbers who after spending years on the stock exchanges have been left to fend for themselves. Most of these brokers have changed their vocations in order to survive. The employees of these closed exchanges that have no means of lively hood. The indirect intermediaries connected with the floatation of public issues are left with no source of income. Moreover the society is the biggest affected stakeholder. This is due to the fact that lot of infrastructure of these stock exchanges is locked up with no productive remunerative use

of the same. For example the Delhi Stock Exchange owns assets worth Rs.100 crores. besides, cash balance of Rs.90 crores.. Due to these reasons the revival of the regional stock exchanges becomes all the more important. Some of these measures that can be explored in order to revive these stock exchanges are dealt in his article. Another important worth mentioning article has been of M. R. Mayya ,Chairman Interconnected Stock Exchanges of India Ltd. Indian securities market has large number of stocks. With the recent reforms in securities settlement in the Indian securities markets, regional stock exchanges lost their business making it harder for them to provide the liquidity. How to overcome this problem has been engaging the attention of regulators and the national level stock exchanges. Several rounds of discussions have also taken place among the representatives of regional stock exchanges on the best form of business model they should design in order to make them more relevant in the background of intense competition and heavy focus on technology. One major views that emerged in this regard are the consolidation of the stock exchange & in his this article he has focused on this aspect only i.e. setting up a common platform for trading for these regional stock exchanges. It was he who had introduced the concept of INDONEXT. Report of the Committee to Study the Future of RSEs Post- demutualization it was found necessary to examine the role and relevance of RSEs in the changed circumstances and the productive utilization of the available infrastructure in these RSEs. In order to deliberate on these issues and make suitable recommendations in this regard, SEBI constituted a Committee under the Chairmanship of Shri G.Anantharaman, Whole Time member , SEBI. This report basically has focused on all aspects right from reasons of downfall of RSE , to the suggestions made for the revival of RSE & what proposals have been made till date by NSE, BSE and ICSE for their revival. Apart from all these literature reviews there are many articles in TOI and HINDUSTAN TIMES which clearly depicts the present status of RSE and investors view about the their revival such as :

A knockout punch for regional stock exchanges Mandatory listing policy to be scrapped by Sarbajeet K Sen, K R Srivastav ,NEW DELHI, April 6, 2005.

BSE-Indonext: Many mid-cap firms feel entry norms stringent by C.R. Sukumar Hyderabad , Jan. 5 .2006.

3.4 PURPOSE & SIGNIFICANCE OF THE STUDY : The basic purpose of

this study is to find out viewpoints of people related with this business i.e. Brokers, Investors & Employees of these stock exchanges , whether they also feel that inspite of presence of NSE & BSE still there is need for RSE & what are the alternatives or solution available for their revival . Before reaching to the ways and means for the revival of RSE let us first go through the history present status & steps taken till date for the revival of these RSEs.

Historical Background of RSEs

The Bombay Stock Exchange (BSE), the Calcutta Stock Exchange (CSE) and the Ahmedabad Stock Exchange (ASE) were set up before independence and recognized in 1956 under the SCRA. Thereafter, 20 other stock exchanges were set up under the SCRA in various States including the Over the Counter Exchange of India (OTCEI) in 1990 and the National Stock Exchange (NSE) in 1994. The concept of RSEs has its genesis in a circular issued by Ministry of Finance, Government of India vide F. No. 14 (2)/SE/85 dated September 23, 1985 which stipulated that all then existing listed companies were required to be listed on the stock exchange located in an area where the registered office or the main works / fixed assets of the company were situated. When there was little automation and the modern advanced telecommunication systems were not available , these

stock exchanges catered to the needs of the industry for mobilization and regional allocation of capital and resources and also met the needs of regional investors in the remotest parts of the country.

What is the state of regional stock exchanges today? Out of the total 24 stock
exchanges existing in India including NSE & BSE , 6 stock exchanges have been derecognized by SEBI in year 2007. HYDERABAD, MAGADH, MANGLORE, SAURASHTRA KUTCH , KERELA, COIMBATORE STOCK EXCHANGES no longer exist .SEBI has refused renewal of recognition of these four stock exchanges .The reason was absence of total absence of trade in these stock exchanges with nil turnover.
NSE and BSE account for almost 100% of the total turnover. As far as RSEs are concerned, except for the Calcutta Stock Exchange (CSE) and the Uttar Pradesh Stock Exchange (UPSE), there is no trading on any other stock exchange and even on the CSE and UPSE, the business is almost nil.

Here is the list of stock exchanges present in India:

Ahmedabad Stock Exchange Bangalore Stock Exchange Bhubaneshwar Stock Exchange Calcutta Stock Exchange Cochin Stock Exchange Delhi Stock Exchange Guwahati Stock Exchange Jaipur Stock Exchange Ludhiana Stock Exchange Madhya Pradesh Stock Exchange Madras stock Exchange Meerut Stock Exchange OTC Exchange Of India

Pune Stock Exchange Uttar Pradesh Stock Exchange Vadodara Stock Exchange Interconnected Stock exchange MCX SX Commodity Exchange

TURNOVER OF REGIONAL STOCK EXCHANGES (IN CRORES)

SEs / YEARS BHUBNESHWAR KOLKATA COIMBATORE COCHIN PUNE VADODRA AHMEDABAD UTTAR PRADESH JAIPUR OTCEI LUDHIANA MADRAS HYDERABAD MAGADH SAURASHTRA KATCH 2000-01 0.02 355035 0 26 6171 0.85 54035 24741 0 126 9154 109 978 1 0 2001-02 0 2074 0 1 1150 10 14644 13337 0 4 857 24 41 .0041 0 2002-03 0 6539 0 0 2 260 15482 14763 0 0.54 0 38 5 1 0 2003-04 0 1927 0 0 0 0 5044 13130 0 16 0 99 3 0.09 0 2004-05 0 2714 0 0 0.37 0 8 5343 0 0.01 0 27 14 0 0 2005-06 0 2802 0 0 0 0 0 1487 0 0.01 0 5 97 91 0

BANGLORE DELHI GAUHATI MADHYA PRADESH INTERCONNECTED

10187 82996 0 4 237

934 5526 0 10 69

0.11 11 0 0 24

0.01 3 0 0 0.034

0 0 0 0 0

0 0 0 0 0

Except for the Calcutta stock Exchange (CSE) and the Uttar Pradesh Stock Exchanges (UPSE), there is no trading on the other 17 regional stock exchanges.

Will RSE die out in coming decade ? Till date there have been various measures taken up for the revival of these regional stock exchanges :
Considering that the RSEs had invested substantially in the infrastructure, which included building, hardware and software for automated trading, several initiatives were taken to revive these exchanges so that the infrastructure could be put to productive use. some initiative taken by the governing bodies were:

1-Setting up of the Inter-Connected Stock Exchange of India Limited (ICSE)

The first among them was the setting up of the ICSE platform to regroup the RSEs to provide a third national market. The ICSE was promoted in 1998 by 14 RSEs for providing an additional trading platform where the shares listed on any of these 14 exchanges would be traded. The ICSE was conceptualized as a stock exchange to provide a common trading platform to members of all participating stock exchanges, mainly with the objective of boosting trade in the securities listed on the participating stock exchanges. The inter-connectivity of stock exchanges was meant to facilitate the member of one stock exchange to deal with the member of another stock exchange through an electronically inter-connected market system, which was provided by ICSE. This system is referred to as a Central Limit Order Book (CLOB) in exchange parlance.

It was felt that such trading across different stock exchanges would generate renewed trading interest among investors by providing them an opportunity to trade in large number of shares that were listed on the participating exchanges. A CLOB should ideally have eliminated fragmentation of the market and consequently, created liquidity. But this did not happen. The existing regional order books of the participating exchanges continued alongside CLOB. This fragmented the order book and thus depleted the liquidity in the shares exclusively listed and traded on the RSEs. On account of lack of liquidity, ICSE did not succeed. Another reason of non-functioning of inter-connected stock exchange was lack of trust of other stock exchanges and improper administration of board of directors of this stock exchange.

2- PERMITTIING RSE TO FLOAT ITS SUBSIDIARY COMPANIES:

The second effort was to permit the RSEs to set up broking subsidiaries which could pool the financial resources of regional brokers and of the exchanges and obtain membership of the BSE and NSE. The regional brokers could then act as sub brokers to the subsidiaries (which had registered as brokers) and have access to the markets of BSE and NSE. Even the ICSE set up such a broking subsidiary. The setting up of the subsidiaries followed from the recommendation of an Expert Committee on revival of smaller stock exchanges constituted by SEBI. Based on the recommendations of the Committee, SEBI had vide Circular dated November 26, 1999, permitted the RSEs to form wholly owned subsidiaries which could then obtain membership of larger stock exchanges (primarily NSE & BSE). This route was envisaged as a temporary lifeline to the members of RSE and it was not contemplated that the arrangement would continue permanently. Though the scheme maintained the purity of the functions of the exchanges, though dysfunctional, most subsidiaries became successful brokers in the market of other exchange(s). Although the subsidiaries were basically brokers, there were several differences between them and corporate broking firms, primarily because these were subsidiaries of the stock exchanges.

Hence, different norms and criteria were applied to the subsidiaries as well as to the sub brokers of the subsidiaries who were actually also brokers of the parent exchanges. So, it was decided in a meeting held on September 9,1999 to promote or float a subsidiary company to acquire membership right of other big stock exchanges i.e. NSE /BSE subject to under noted conditions: The subsidiary company shall be 100% owned by stock exchanges promoting/floating such subsidiary company. The name of the company shall not contain the word stock exchange. The members of stock exchange shall register themselves as sub .brokers of subsidiary company to enable them through subsidiary company. The subsidiary company shall register only the members of stock exchange, which is promoting the subsidiary company as its brokers, and no other client/sub broker shall be entertained by subsidiary company. The sub broker of the subsidiary company shall maintain separate deposits with the subsidiary company. The Base Minimum Capital deposited by the sub broker with the promoting stock exchanges shall not be transferred to the subsidiary company. The trading / exposure limit of the sub-brokers shall be based on the deposit received by the subsidiary company from the sub broker and these limits shall not exceed the limits as prescribed by the stock exchange of which the subsidiary company is a member. The subsidiary company shall collect margins from the sub brokers for the payment of margins to the respective stock exchange of which subsidiary company is the member. The margin imposed by the subsidiary company on its sub broker shall not be less than the margin payable to the stock exchange of which the subsidiary company is the member. The stock exchange shall incorporate the above mentioned condition in the Memorandum of association and Article of Association of the subsidiary company.

3- SETTING UP OF BSE-INDONEXT After the failure of ICSE it was decided in

year 2004 to set up a trading platform which would enable the Small and Medium Enterprises (SMEs) to raise capital both debt and equity, as well as provide liquidity to such securities. To achieve this purpose a new platform was established whose charge was taken by BSE and called as BSE-INDONEXT. The BSE IndoNext has been set up as a separate trading platform under the present Bombay On Line Trading System (BOLT) of the BSE. It is a joint initiative of the BSE and the Federation of Indian Stock Exchanges (FISE) of which 18 Regional Stock Exchanges (RSEs) are members. The members of the RSEs have been allowed to trade in this market. The BSE IndoNext trading platform has introduced the concept of single order book for a security as against multiple listings permitted in other securities. Once a security is eligible for tradin g in the BSE IndoNext market, it will not be available for trading on any other exchange and orders from brokers of all exchanges in that security will flow only to this market. The objectives of the BSE IndoNext trading platform are: a) to provide a nation-wide trading platform for the SMEs already listed with the participating RSEs and BSE. b) to create liquidity in eligible securities listed on the participating RSEs. c) to create an avenue for the existing and new SME companies from various regions of the country to raise fresh capital, both equity and debt, which would help achieve balanced regional growth. d) to use the available infrastructure of the participating RSEs for productive purposes. The BSE IndoNext trading platform was to be implemented in phases. Honorable Finance Minister had inaugurated the BSE IndoNext trading platform on January 7, 2005 and operationalised the first phase of the BSE IndoNext platform. The BSE would transfer eligible securities within the range of paid-up capital between Rs.3 crore and Rs.20 crore, currently traded in the B1 and B2 groups in BSE against which there is no regulatory action. Similarly, the participating RSEs will also transfer eligible securities to BSE IndoNext to be traded as permitted

securities. At this stage, the entire responsibility for monitoring and surveillance is vested with BSE as the brokers who would be trading on the BSE IndoNext will be members of BSE. For this purpose, SEBI has already granted necessary approvals. The second phase when implemented will allow participation of all brokers of RSEs in the BSE IndoNext taking benefit of the recent amendment to the SC(R)A. For this, the BSE and the RSEs will have to amend the respective Bye-laws as well as enter into MoUs. These legal requirements are in progress. Once the Byelaws are approved by SEBI, the second phase will be implemented and the responsibility for surveillance, monitoring and compliance will be jointly shared between BSE and RSEs. In the third phase, the BSE as well as the RSEs will have to work out an effective marketing and business development strategy. The BSE IndoNext trading platform was thus supposed to be implemented in phases. But it has not yet gone beyond the first phase in which the major shares transferred are from the B1 and B2 group of the BSE and only a few shares of some of the RSEs have been transferred. Members of RSEs do not have trading access to the limited platform of securities on IndoNext as envisaged. Currently, shares of 520 companies are eligible to trade in the BSE IndoNext segment and its average daily trading turnover is over Rs.100 crores.

4- NEW FDI NORMS : New FDI norms which allow foreign investment up to 49% in
stock exchanges, depositories and clearing corporations ,with a cap on single investment direct or indirect at 5%.

5- INTRODUCTION OF THE CONCEPT OF DEMUTUALIZATION AND CORPORATIZATION :

Historically brokers owned & controlled the stock exchanges. In case of disputes ,the integrity of the exchanges suffered. Therefore the regulators focused on reducing the dominance of trading members in the management of stock exchanges and advised them to reconstitute their governing councils to provide for at least 5% non- members representatives. The SEBI has approved and notified the CORPORATIZATION & DEMUTUALIZATION scheme of 19 stock exchanges. This is the major step for modernization of securities market. India is the only country which has achieved this corporatization and demutualization in the

shortest possible time.NSE and OTECI was the first exchange in India to adopt pure demutualization governance structure where ownership ,management and trading are with 3 different sets of people .this completely eliminates any conflict of interest and helped NSE to aggressively pursue policies. Introduction of this concept helped in bringing transparency in RSE which would further help in attaining trust of investors in these RSEs. But due to some of the reasons these measures didnt proved to be fruitful for the revival of these RSE. Let us go through the reasons for the failure of these measures:

REVIEW OF FAILURE OF EXISTING ICSE &BSE INDONEXT

1-The ICSE was set up with the hope that it would become a viable third national platform with the participation of the RSEs to provide for a market in the securities listed exclusively in the participating RSEs. The success of the ICSE hinged on the willingness and co-operation of the participating RSEs and their members to actively support trading of the exclusively listed securities on the participating RSEs. This initiative, however, failed at the nascent stage itself because the RSEs were not willing to provide the extent of support and cooperation that was necessary and required for the success of this venture. But more importantly, there was no common order book and the order book was fragmented between the ICSE and the participating RSEs. Besides, it was not contemplated in the scheme of the ICSE to permit members of BSE and NSE to trade on ICSE. This subtracted a large body of well capitalized brokers from this market. There was lack of proper administration too in ICSE. At present the turnover of ICSE is almost nill. 2- In view of the failure of the ICSE to grow into a viable third trading platform and considering the need to provide an avenue to the SMEs to raise capital, BSE IndoNext was set up. As already discussed earlier in the report, BSE IndoNext was to be implemented in three phases : - In the first phase, the BSE would move the eligible securities in its B1 and B2 groups to be traded on this platform which would essentially be a separate screen of BSEs

BOLT system. Some of the exclusively listed securities of the RSEs would be permitted to trade on this platform. While the members of the BSE would be free to trade on this platform, the members of the RSEs would trade on this platform through the ir subsidiaries in the first phase. The risk management and the responsibility for regulatory compliance would remain with the BSE in this phase. -The second phase envisaged all the eligible securities which are exclusively listed on the RSEs to be traded in this segment and the responsibility for risk management, compliance and clearing & settlement would vest with the RSEs through an MoU to be entered between the RSEs and the BSE. In order to facilitate this process of trading of exclusively listed securities at a national level and to enable all members of RSEs to trade on the BSE in this segment and issue contract notes, sec. 13 of the SCRA was amended. Since the eligible securities that were exclusively listed on the RSEs fall in the SME category, it was hoped that BSE IndoNext would provide a viable market for the securities of SMEs besides addressing the issue of RSEs at the same time. - In the third phase, SMEs could raise capital and list on this platform with appropriate listing requirements and corporate governance procedures which the SMEs could easily comply with. However, this experiment too did not meet with any measure of success and the BSE IndoNext did not take off beyond the first phase. The failure in this case could be attributed to the reluctance on the part of BSE to dilute its entry norms and the eligibility criteria of securities for trading on this platform In the absence of a third platform, the SMEs in India would have virtually no avenue for raising capital from the public and this would not be in the interest of the Indian economy in the long run. Internationally, markets have developed and successfully grown such exclusive platforms for the SMEs. These platforms have acted as nurseries for nurturing the growth of SMEs into larger enterprises.

SO THE MOST SIGNIFICANT OBJECTIVE OF MY STUDY IS :

1- TO KNOW THE REASONS OF THE DOWNFALL OF RSES? 2- WHAT STEPS HAVE BEEN TAKEN BY SEBI & OTHER AUTHORITIES TILL DATE FOR THE REVIVAL OF RSE? 3- IS THERE ANY NEED FOR THE REVIVAL OF RSE? 4- WHAT ARE THE POSSIBLE ALTERNATIVES FOR THE RESTRUCTURING OF RSES? The first two questions of my study have already been answered by me in above paragraphs. let us now focus on the other two important questions which are yet to be answered.

3.5 DATA & METHODOLOGY :

-There are various types of research such as exploratory research, descriptive research, casual research. But since my survey is based on the response of certain segment of population based on primary data I have done descriptive research. -My target population are Brokers, Investors & Employees of Stock exchange. To get the view points of concerned person related with this business I have prepared a Questionnaire .The research question for this study will be to analyze the attitude of these concerned people about the revival of RSE & what are the possible solution for their revival .

-Source of Information Structured Questionnaire . - Sample size My sample Size is of 60 respondents from 3 stock exchanges i.e. UPSE, CSE ,DSE. -My sample represents the population of diversified educational background , income , stock exchanges and securities in which they trade the brief of which can be seen in the tables given below:

RESPONDENTS OCCUPATION Cumulative Frequency Valid BUSINESS RETIRED SERVICE Total 18 10 32 60 Percent 30.0 16.7 53.3 100.0 Valid Percent 30.0 16.7 53.3 100.0 Percent 30.0 46.7 100.0

RESPONDENTS GROUP Cumulative Frequency Valid BROKER EMPLOYEE INVESTOR Total 6 19 35 60 Percent 10.0 31.7 58.3 100.0 Valid Percent 10.0 31.7 58.3 100.0 Percent 10.0 41.7 100.0

MONTHLY INCOME OF RESPONDENTS Cumulative Frequency Valid BELOW 10000 10000-40000 40000-60000 60000-80000 80000-100000 Total 6 35 13 2 4 60 Percent 10.0 58.3 21.7 3.3 6.7 100.0 Valid Percent 10.0 58.3 21.7 3.3 6.7 100.0 Percent 10.0 68.3 90.0 93.3 100.0

RESPONDENTS EDUCATION Cumulative Frequency Valid ANY OTHER GRADUATE PROFESSIONAL POST GRADUATE Total 2 28 20 10 60 Percent 3.3 46.7 33.3 16.7 100.0 Valid Percent 3.3 46.7 33.3 16.7 100.0 Percent 3.3 50.0 83.3 100.0

NOTE- Copy of sample questionnaire in Appendix.

4. DESCRIPTIVE STATISTICS & RESULTS 4.1 SUMMARY STATISTICS :On the basis of data collected here is the statistical outcome
of my research work:

( 1)

THEY INVEST IN SECURITIES MARKET OR NOT

Frequency Percent 6.7 93.3 100.0 Valid Percent 6.7 93.3 100.0 Cumulative Percent 6.7 100.0

Valid

NO YES Total

4 56 60

IN GRAPHICAL FORM:

( 2)

IN WHICH STOCK EXCHANGE THEY TRADE?

Frequency Valid BOMBAY STOCK EXCHNAGE CALCUTTA STOCK EXCHANGE none NATIONAL STOCK EXCHNAGE UTTAR PRADESH STOCK EXCHNAGE Total 23

Percent 38.3

Valid Percent 38.3

Cumulative Percent 38.3

7 4 23

11.7 6.7 38.3

11.7 6.7 38.3

50.0 56.7 95.0

3 60

5.0 100.0

5.0 100.0

100.0

IN GRAPHICAL FORM

(3)

WHICH CATEGORY OF SHARES THEY HOLD

Frequency Percent 10.0 6.7 63.3 20.0 Valid Percent 10.0 6.7 63.3 20.0 Cumulative Percent 10.0 16.7 80.0 100.0

Valid

ANY OTHER none SENSEX/NIFTY THINLY TRADED

6 4 38 12

IN GRAPHICAL FORM:

( 4)

IS 19 RSE SUPERFLOUS & AGAINST REQUIREMENT?

Frequency Valid AGREE CAN'T SAY DISAGREE STRONGLY AGREE STRONGLY DISAGREE Total 11 13 19 9 8 60

Percent 18.3 21.7 31.7 15.0 13.3 100.0

Valid Percent 18.3 21.7 31.7 15.0 13.3 100.0

Cumulative Percent 18.3 40.0 71.7 86.7 100.0

IN GRAPHICAL FORM

(5)

REASONS FOR NON-FUNCTIONING OF RSE

Frequency Percent 3.3 10.0 11.7 25.0 50.0 100.0 Valid Percent 3.3 10.0 11.7 25.0 50.0 100.0 Cumulative Percent 3.3 13.3 25.0 50.0 100.0

Valid

ANY OTHER INVESTOR INSECURITY LACK OF PROPER ADMINISTRATION SEBI REGULATIONS WIDE COVERAGE OF NSE/BSE Total

2 6 7 15 30 60

IN GRAPHICAL FORM

(6)

WILL INVASION OF BANKS EFFECT BROKING BUSINESS

Frequency Percent 60.0 40.0 100.0 Valid Percent 60.0 40.0 100.0 Cumulative Percent 60.0 100.0

Valid

NO YES Total

36 24 60

IN GRAPHICAL FORM

(7)

IS COMMERCIAL CONSIDERATION OF BIG BROKERS BIG HURDLE FOR RSE Frequency Percent 25.0 21.7 41.7 6.7 5.0 100.0 Valid Percent 25.0 21.7 41.7 6.7 5.0 100.0 Cumulative Percent 25.0 46.7 88.3 95.0 100.0

Valid

CAN'T SAY INCORRECT SOMEWHAT CORRECT SOMEWHAT INCORRECT TOTALLY CORRECT Total

15 13 25 4 3 60

IN GRAPHICAL FORM

(8)

HAS DEMUTUALIZATION SERVED ITS PURPOSE

Frequency Percent 58.3 41.7 100.0 Valid Percent 58.3 41.7 100.0 Cumulative Percent 58.3 100.0

Valid

NO YES Total

35 25 60

IN GRAPHICAL FORM

(9)

IS NSE ALONE SOLVING PURPOSE OF RUNNING HEALTHY STOCK EXCHANGE Frequency Percent 33.3 13.3 21.7 21.7 10.0 100.0 Valid Percent 33.3 13.3 21.7 21.7 10.0 100.0 Cumulative Percent 33.3 46.7 68.3 90.0 100.0

Valid

AGREE CAN'T SAY DISAGREE STRONGLY AGREE STRONGLY DISAGREE Total

20 8 13 13 6 60

IN GRAPHICAL FORM

(10)

IS THERE NEED FOR REVIVAL OF RSE Frequency Percent 40.0 6.7 5.0 45.0 3.3 100.0 Valid Percent 40.0 6.7 5.0 45.0 3.3 100.0 Cumulative Percent 40.0 46.7 51.7 96.7 100.0

Valid

AGREE CAN'T SAY DISAGREE STRONGLY AGREE STRONGLY DISAGREE Total

24 4 3 27 2 60

IN GRAPHICAL FORM

(11)

WILL NSE SUCCEED IN CREATING MONOPOLISTIC SITUATION Frequency Percent 26.7 73.3 100.0 Valid Percent 26.7 73.3 100.0 Cumulative Percent 26.7 100.0

Valid

NO YES Total

16 44 60

IN GRAPHICAL FORM

(12)

SOLUTION AVAILABLE FOR REVIVAL OF RSE Frequency Percent 38.3 20.0 21.7 20.0 100.0 Valid Percent 38.3 20.0 21.7 20.0 100.0 Cumulative Percent 38.3 58.3 80.0 100.0

Valid

CONSOLIDATION OF RSE'S DEVELOPING NEW FINANCIAL INSTRUMENTS LISTING OF NEW COMPANIES TRADING PLATFORM OF SMALL CAP CO TO RSE Total

23 12 13 12 60

IN GRAPHICAL FORM

4.2 ANALYSIS BASED ON THESE STATISTICS: On the basis of outcome of data

collected we can conclude that: Out of the total respondents almost 93% of them invest in securities market. Around 77% population do trading from NSE & BSE terminals spread all over india. Almost 63% population is trading in Sensex i.e. in top 30 blue chip scrips of various companies. Around 20% population trades in thinly traded securities . 10% of respondents also invest in other financial instruments such as F & O , Midcap and small cap shares . Almost 60% respondents feels that invasion of banks in broking business will negatively effect business of brokers. The reason for this they think is the presence of number of

services provided by banks under one single roof i.e. opening current & savings account, getting Demat facility and acting as a broker for sale and purchase of shares. But still 40% respondents disagrees with this point because they think that the commission charged by banks for this brokerage facility is more than what is actually charged by normal brokers which cannot exceed more than 2.5 % of the value of scrip traded. The main objective of CORPORATIZATION & DEMUTUALIZATION SCHEME, 2005 was to segregate trading , ownership and administration of all stock exchanges .but from the response of respondents its very clear that this scheme of SEBI has not been fully successful in its purpose . 60% of the respondents still feel that big brokers still interrupt in decisions taken and policies framed by these stock exchanges. 46% of the respondents feel that commercial consideration of big brokers is big hurdle in development of RSE. Next very important issue which came out of this study was that is NSE alone solving the purpose of running a healthy stock exchange . the outcome which I got was that 55% of respondents feel that yes NSE is alone solving purpose of running healthy stock exchange mad 73% of the respondents feel that it may lead to monopolistic situation by RSE. At last the outcome of my main purpose of the study was quite interesting: Around 45 % population feels that running 19 RSE are needed although NSE & BSE covers almost 99 of total turnover .They suggested various reasons to support their this view . 50% agrees that wide coverage of NSE & BSE terminals all over the country and online trading facility has been the main reason for the non- functioning of RSE. Around 20% population responded that SEBI regulations are yet another major factor for non functioning of RSE.

85 % of respondents strongly agrees that there is need for the revival of RSE. There has been number of alternative solutions suggested by respondents for the revival of RSE. -Around 38 % respondents suggested that consolidation of all RSE is the best solution for their revival. -Around 22% respondents suggested that development of new financial instrument or entering into any other related business such as opening of depository or getting license to trade in F & O can boost the revenue of RSE. -The circular which was passed in 2003 , allowing non compulsion for listing of new companies in regional stock exchange should be non validated & rule should be passed for compulsory listing of new companies in their regional stock exchanges which will eventually increase revenue of RSE through listing fees they will get annually from these companies. Around 20% respondents support this alternative solution. -SMEs i.e. small medium enterprises have bright future. Agreeing with this point around 20% respondents feel that these mid cap and small cap companies should be exclusively listed in these RSE & those Midcap and small cap companies which are already listed in NSE or BSE should get delisted from their and get listed in any of the RSE.

4.3 ASSUMPTIONS & ACHIEVEMENTS :

The sample represents the population i.e 60 respondents are from diversified educational background and income .

Respondents have answered a survey truthfully &None of the respondents answer is missing.

Instruments used by me i.e. questionnaire and frequencies based on data collected provides adequate coverage to my topic.

There is no personal biasedness or any personal opinion in the outcome of any data collected.

ACHIEVEMENTS :

For getting authentic data from all sources I had collected my data from 3 stock exchanges i.e. Calcutta stock exchange (CSE), Uttar Pradesh Stock exchange( UPSE), & Delhi Stock Exchange ( DSE). DIRECTOR OF DELHI STOCK EXCHANGE, MR. H.S. SIDHU, appreciated my this attempt and gave his personal opinion about revival of RSE.

Apart from this I had also mailed my questionnaire to employees of NTPC , vidutnagar who are basically big investors.

I have also collected my data from various CA & CS who are well accustomed with the compliances of stock exchanges and its functioning.

Here are the suggestions provided by various respondents : -MR. H.S. SIDHU,DIRECTOR , DELHI STOCK EXCHANGE, ICWA, CS- I strongly believe that RSE can play very important role provided they merge into CTP i.e. common trading platform. Developing new financial instruments can enhance the revenue of various RSE.

-MR. SUTAPA BASU,CA, CALCUTTA STOCK EXCHANGE- The regional stock exchanges require the brokers and investors trust and proper administration for their revival.

-Mrs. SUMAN DEY, CALCUTTA STOCK EXCHANGE, PHD- RSE should take approval from SEBI for becoming NBFC and start operating like giving different loans , tie ups with insurance companies etc. they should go to big brokers and ask what they want .these people can bring the confidence of others. But providing trading platform to small cap companies is best solution for their revival.

-Mr. AMIT SANTRA, Sr OFFICER CALCUTTA STOCK EXCHANGE & INDIAN EXPRESS, CA,ICWA- The most important reason of non functioning of RSE is growing illiquidity. Listing of new companies with paid up share capital less than 2 crore is the good solution for the revival of RSE.

- Mrs. PRIYADARSHINI MUKHERJEE, SECRETARY OFFICER,CALCUTTA-With the extinction of the Regional Stock Exchanges NSE is likely to become a Monopoly which may prove to be harmful in the years to come. The RSEs must be merged to form a new exchange with the help of Institutional Investors which must rank parallel to NSE. Certain specifications in respect of nature of industry, market capitalization etc can be worked out for the two exchanges, so that companies can get listed with both the exchanges simultaneously. Result -A fair play.

- MR.

HANUMAN MAL CHORARIA,PCS - Regional Stock Exchange should be revived and

they should also learn to operate and run the show in line with NSE/ BSE with full transparency and keeping the interest of the Investors in their mind always RSE should not be used for the

benefit of its member/ office bearer / big operators and local peoples, further RSE can be used to develop the debt market and the market for medium ad small cap Companies.

-MR. DEBESH KUMAR ROUL, PGD, CALCUTTA STOCK EXCHANGE- Aggressive implementation of technology, enhancement of skills ,knowledge & attitude of existing employees ,rigorous surveillance, zero tolerance for any kind of financial flaws , financial benefit i.e. reduction of STT required for members who want RSE platform.

4.4SUGGESTIONS & SOLUTIONS

SUGGESTIONS
1- There is a need of Analysis of the financial conditions of the RSEs and their subsidiaries, and of the listing, trading and compliance status of the companies listed in these RSEs is equally important for a complete appreciation of the present conditions of the RSEs and the choices available with the subsidiaries. 2- The RSEs were established with the objective of providing a regional market for raising capital by companies in the respective regions by garnering regional savings to help achieve a balanced regional development and to spread the equity cult among investors in the country. This objective has been fairly served by the RSEs for a length of time. But with the advent of modern telecommunication and information technology and the symbiotic interaction of technology and the markets, which facilitated a fundamental transformation of the market micro structure, the scope of the RSEs became limited till they virtually lost their relevance. Although there are over 4000 companies exclusively listed on these RSEs, there has been no de facto trading in the listed securities of these companies. The sizeable capital investment made by the RSEs towards fixed assets and technology has thus become redundant. The large assets of the RSEs, especially the

land and buildings have good realizable value, but have been of little economic utility for the RSEs, listed companies or investors. Under these unenviable conditions, the RSEs were forced to take up ancillary activities such as training, investor education and depository services. The income generated from listing fees and the ancillary activities, return on the investments made by the RSEs and surplus generated by the subsidiaries became the main sources of revenue for the RSEs. In sum, most of the RSEs ceased to be markets where securities of companies listed on them are bought and sold. 3- The above situation naturally raises the basic question on the Requirement of the RSEs and their subsidiaries in the present market structure. When this question was posed before the RSEs in various meetings held in past , it did not evince any convincing response. They did not come with any specific viable business plan for the revival of the RSEs excepting pinning hopes on a future which might be bright. Most seemed keen to be part of a solution if an appropriate nucleus of leadership could be found. Moreover, all of them were looking to SEBI to assist in creating a viable business model for the future. There were some who were willing to participate in a common trading platform and also engage themselves in various capital market related activities. Some of them even suggested that such a trading platform could be set up on a regional basis in each of the four regions. A few of the RSEs were confident of being able to survive as independent exchanges, again with some support from SEBI. There were others who were not confident of the success of any of these models in the light of their past experiences and were willing to accept a financially attractive exit option. The ICSE which was set up as a common platform proved to be a failure. 4- There are certain deeply embedded behavioral issues which continue to dominate the mind set of the members of the RSEs and they seem to be coming in the way of some of the RSEs accepting the reality which demands sub-ordination of their individual and independent identity before the larger interest of the very survival of the RSEs.. Indeed, it was this attitude coupled with the equally uncompromising attitude of the business partners which were responsible for the failure of the various rehabilitatory measures taken in the past for the revival of the RSEs. Equally the members of the RSEs, by virtue of their access to national trading platforms through the subsidiary route did not find any incentive to trade and promote trading in the RSEs.RSE

belonging to various regions are not interested in consolidating with each other. Big regional stock exchanges consider it against its pride to consolidate itself with bigger stock exchanges. 5- There have also been serious regulatory concerns from time to time on the functioning of some of the RSEs which have been discussed above. These regulatory concerns had led SEBI to take recourse to the extreme measure of superseding the governing boards of some exchanges and even to withdraw the recognition in the case of one RSE. These regulatory concerns still remain in the case of some of the RSEs where the members continue to remain recalcitrant and resort to undesirable market and governance practices. 6- SEBI has come up with some guidelines for the revival of regional stock exchanges such as RSEs which do not want to continue as exchanges should be given an exit option, (b) the recognition of such of the RSEs which are notorious for their rank indiscipline besides giving rise to serious regulatory concerns should be compulsorily withdrawn and (c) a continuing option may be given to such of the RSEs which have the potential and the willingness to participate in any alternate trading. sections 4 and 5 of the SCRA sufficiently empower SEBI to withdraw recognition for both the category of exchanges whether an exchange is recognized permanently or from year to year. The withdrawal of recognition to the above two categories of RSEs would help clean up the system, besides reducing the regulatory hazard to the investors, various regulators including tax authorities and the government. The issue of distribution of assets would become relevant in the eventuality of withdrawal of recognition for any reason. There is at present no provision for such distribution either under the SCRA or within the regulatory framework of SEBI. As distribution of assets would be an impending consequence of any withdrawal of recognition of a stock exchange, there is an urgent need to formulate a permanent and appropriate scheme. suitable rules be formed under section 30 of the SCRA, for distribution of assets of any stock exchange which ceases to be a recognized stock exchange.

7)Suggestions for providing exit route for RSEs which desire withdrawal of recognition a) SEBI should come out with clear guidelines providing permission to such RSEs which

desire to exit the business of functioning as a stock exchange on a voluntary basis, spelling out the modalities for distribution of both financial and physical assets. b) Post withdrawal of recognition, the surviving entity which becomes a regular company should be allowed to utilize the infrastructure for any other business purposes as deemed fit by that entity. c) There could be companies which are exclusively listed only on a particular RSE which seeks voluntary withdrawal of recognition. Such companies should be allowed to get listing in the to be formed consolidated RSE. d) The entity which remains after withdrawal of recognition must immediately change its name and style and cannot continue in any business as a stock exchange. In case a stock exchange whose recognition is withdrawn has a subsidiary, such an entity would also have to change its name and style to avoid any representation of any present or past affiliation with an exchange. It would be up to the subsidiary to carry on broking operations as any other broking entity registered with SEBI subject to the same rights and duties The corpus of any stock exchange is made up of (1) the contribution of the members, (2) the income of the exchange, and (3) the fiscal incentives which had helped the accumulation of reserves. In addition, it may include an adventitious factor by way of appreciation in the value of the assets over a period of time. The net worth of the exchange after revaluation of the assets and liabilities based on market value could be apportioned on the basis of the three components of the corpus mentioned above. The share relating to the members contribution should be made available to the members. The balance will be transferred to an escrow account and then to a fund earmarked for the purpose of investor protection managed by SEBI. This scheme will need a proper methodology for valuation of the assets and liabilities as well as for determining the proportion mentioned above and should be carried out by an independent entity such as chartered Accountant. This distribution of assets will encourage RSE to opt for exit route 8- All the RSEs whose recognition has not been withdrawn either voluntarily or compulsorily must collectively choose (in order for it to succeed) either the BSE model or in the alternative,

the ICSE model. In order that the Public representative (PR) Directors are able to discharge their responsibilities, it is important that they are conversant with the governance of the RSEs, have a reasonable knowledge of the securities market and are aware of their own functions as PR Directors. SEBI should work out an appropriate training programme for the PR Directors. In case both of these models fail for whatever reasons, there would be no merit in the continuation of the RSEs and the recognition of all the RSEs will, therefore, have to be compulsorily withdrawn. Once the RSEs have chosen a particular model, such of the RSEs which are unwilling to accept that model should face compulsory withdrawal of recognition in the future as they provide neither a trading platform nor serve any public interest. 9- All stock exchanges may adopt the IPO route for increasing the public shareholding. The interest of the development of the stock exchanges can be developed by adding some strategic partners. . Any entity other than exchange, multilateral agency, insurance company, bank, depository and clearing corporation can be allowed to hold less than 15% of the share capital and voting rights of the stock exchange either singly or collectively along with persons acting in concert. However, in case a strategic partner is an exchange, multilateral agency, insurance company, bank, depository or clearing corporation, it would be allowed to hold upto a maximum of 26% of the share capital and voting rights of the stock exchange either singly or collectively along with persons acting in concert. Any strategic partner must comply with SEBI (Criteria for Fit and Proper Person) Regulations, 2004. The holding by any foreign entity including FIIs would be subject to the overall policy of the Government on FDI. 10- The greatest impact on account of withdrawal of recognition either on request or on compulsory direction on the companies exclusively listed on the RSEs and their shareholders would also need to be suitably addressed. There are about 4000 companies which are exclusively listed on the RSEs, a majority of which are listed in DSE and CSE. It is important to note that save a handful of these companies, there is no trading in any of the companies on the RSEs for the past several years. An analysis of the compliance status of these companies indicates that only about 500 companies are compliant with the continuous listing requirements. It is felt that such compliant companies in an exchange which will no longer remain recognized, should be

allowed to migrate to any other exchange with minimum procedure and hassle to the company. SEBI can prescribe that files of such compliant companies be moved interexchange with minimum burden on such companies to fulfill all formalities again.

Solution for the revival of the RSEs :

a) All the RSEs may be given a regulatory mandate to consolidate and form a third stock exchange, in addition to BSE and NSE i.e. create one single trading platform for all the RSE shutting down completely their local trading platform on the lines of EURONEX of Europe. b) The un-utilized funds lying with the RSEs may all be pooled in and transferred to a common stock exchange fund that could be used for funding securities market transactions. c) As some of the RSEs may not be viable and/or interested in their revival, region-wise consolidation of RSEs should be facilitated. An active market for trading in commodities could be developed by the stock exchanges in the southern region. Similarly, stock exchanges in the northern, eastern and western regions could be consolidated. Such circular has been passed by Delhi stock exchange to consolidate all four stock exchange of northern region i.e. consolidate Delhi stock exchange, Ludhiana ,UPSE and jaipur stock exchanges. For this purpose DSE has roped in major IT company including CMS ,financial technologies and TCS for developing a special software to inter-connect them. d) The IndoNext, which is presently under the aegis of BSE, may be shifted and given to the consolidated RSEs under a unified trading platform and clearing corporation. e) RSEs may be encouraged to consider any revival initiatives including corporate restructuring by merger with any of the premier stock exchanges subject to mutual agreement. They can also

open the ownership of these exchanges to new shareholders to ensure they have additional resources and means to achieve their objectives. f) There is a felt need expressed for an active and liquid market for SMEs .SMEs are considered of having a very bright future. The RSEs may not be able to survive independently in view of the changed circumstances in the Indian securities market. Therefore, some of the RSEs which are interested, financially sound and comply with the regulatory requirements may come together and set up a common trading platform for such SMEs which have sound financials and viable business strategies. g) In addition to providing specific trading platform for SMEs, the RSEs may be permitted to evolve an active market for structured products, securitized instruments and derivative products. For example UPSE stock exchange has got license of Depository participant. so , RSEs can launch new financial products other than plain vanilla Equity trading for which they need to advance themselves technologically. h) That RSEs be permitted to diversify into other areas like conducting training programs for participants in capital market, providing services to investors like MAPIN registration, redressing investor complaints by acting as local forums of arbitration, distributing mutual fund products, acting as Registrar and Transfer Agents, providing securities lending & borrowing scheme and playing an advisory role to the SMEs in their need for capital creation. RSEs should be allowed to diversify into other areas of business like commodity exchange or other such suitable business through creation of a special purpose vehicle. For example NSE &BSE is already conducting various exams such as NCFM and BCFM which apart from providing awareness by imparting knowledge also gets a source of income from the registration fees they get for giving its modular papers. i) RSEs may be permitted to establish a platform for book building, both for initial public offerings (IPOs) and follow-on public offerings (FPOs) and also for delisting of companies.

j) Those RSEs that are willing to exit the business of functioning as a stock exchange should be permitted to reverse merge with their subsidiaries. k) The present corpus of IPF and ISF should be retained with the RSEs so as to facilitate them in taking more initiatives for protecting the interests of the investors in the securities market. l) The disclosure norms for the companies that are presently listed at the RSEs may be diluted to incentivize the companies to remain listed in the RSEs. m) The members of the RSEs who were also members of the national level stock exchanges, viz., BSE/NSE should not be allowed to be on the Board of the respective RSEs, as it results in a conflict of interest due to dual membership and hamper any developmental initiatives for the RSEs. n) The issues on taxation regarding the investment of RSEs in their subsidiaries and the taxability of the accumulated reserves of the RSEs upon conversion into for-profit corporate entities needs to be sorted out, as it would otherwise be a drain on the already weak financials of the RSEs. o) BSE/NSE may be advised to share a part of their revenues with the RSEs based on the volume of transactions generated by the members of the RSEs. p) RSEs may be permitted to explore alternatives like liasioning with the other national level exchanges in their respective geographical locations, playing the role as local /nodal centers for the national level exchanges and acting as an extended arm of such national level exchanges for functions like handling investor grievances/complaints, conducting training programmes in securities market, etc. q) OTCEI may be recognized as a national level stock exchange. It may be provided

exclusivity for trading in securities of companies with a paid up capital below Rs. 20 crores, mutual fund units, privately placed corporate bonds etc. Post-demutualization, the securities of the BSE Ltd. should be listed in OTCEI. Maintenance of local securities commission sensitive to the needs of the business and to investor protection and thus engaged in efforts of cooperation & harmonization. s) RSE can also start trading in F & O . they have already got permission from SEBI to start trading in F & O. * Circular is attached regarding approval in principle to trade in F &O segment to major regional stock exchanges. t) Professionalize the management and segregate the ownership , trading right and administration completely. Although Demutualization had tried to achieve this objective but it was not completely successful because still the 50% ownership right is vested on stock brokers which ultimately effects the decision making negatively. Thus , as we can see in US there are around 55 stock exchanges but still each one have their own importance i.e. While NASDAQ in US is renowned for technological companies ,American stock exchange in London attracts SMEs from all over the world. Similarly, RSEs need to study the pattern of transactions happening to create their own niche.

4.5 RAY OF HOPE:

-Nasdaq, the largest electronic equity securities trading market in the US, is looking to partner with Ahmedabad Stock Exchange (ASE) - German multinational bank, Deutsche Bank is eyeing ownership of 5% stake in the Delhi Stock Exchange (DSE). -Even BSE has recently picked up 5% stake in the Calcutta Stock Exchange (CSE).

- Undoubtedly, the rising interest in the RSEs can be attributed to the new FDI norms, which allow foreign investments up to 49% in stock exchanges, depositories and clearing corporations, with a cap on single investment, direct or indirect at 5%. - Recently a new stock exchange known as MCX SX for currency derivatives have started its operations and it is expected to get a positive response . - four RSE of northern region i.e. Ludhiana, Delhi ,Kanpur, Jaipur have roped in major IT company including CMS ,financial technologies & TCS for developing a special software for interconnection. - Already companies such as NYSE Group, General Atlantic, Goldman Sachs and Softbank Asian Infrastructure Fund own a 5% stake each in NSE for around $460-490-mn. - Similarly, German exchange, Deutsche Boerse AG and Singapore Exchange hold 5% stake each in BSE. With the Indian economy is again on an upswing, analysts expect the SMEs to play a huge role in future exchanges. And RSEs are expected to provide these companies a stepping ladder to stardom. Agrees Harjit Singh Sidhu, executive director, DSE. You already have big names holding stake in the bigger stock exchanges. However, those left-out and want to be a part of the India growth story are turning to RSEs, reasons Sidhu.

- There has been a proposal made by BSE for the revival of these RSE. Below are salient
features of the proposal made by BSE : WHILE the NSE has not shown any interest in the RSE revival plan, the BSE has come forward with its own suggestions. At a meeting , BSE had proposed to provide the common platform needed by RSEs.

The BSE has suggested to the RSEs that it will extend its existing BOLT platform for their members to trade in the small-cap companies with paid-up capital upto Rs 20 crores listed at BSE and various RSEs in S group by creating a large single order book. The offer of BSE would be to those RSEs which do not opt either for voluntary withdrawal of recognition or in respect of whom SEBI does not withdraw recognition in terms of the provisions of the SCRA subject to certain conditions: All eligible trading members of the RSEs who accept the arrangement and who enter into the necessary agreements with BSE shall be allowed access to trade on the entire universe of securities listed on the all India trading platforms of BSE both in the cash and F&O segments. The trading members of RSEs shall be required and entitled to issue contract notes in their names as members of the respective RSE. Settlement obligations arising out of trades executed by the trading members of the RSEs shall be settled by the respective RSE. For the purpose of clearing of obligations, each of the participating RSE shall be allotted a Clearing ID by BSE. For discharging its settlement obligations, the RSEs shall have recourse to their trade guarantee fund. This is as a first line of defense and in all cases the settlement guarantee fund of BSE shall operate.

BSE shall be entitled to place restrictions on the RSEs with regard to admission of trading members in RSEs and the territories from which the trading members of RSEs may access the trading platforms of BSE.

Trading members of RSEs shall execute both proprietary and client orders in the cash segment only on the BSE trading platform and activities of the subsidiaries in the cash segment shall cease. Trading members of RSEs shall endeavor to build-up activity (both on proprietary and client account) in the F&O segment of BSE. Once BSE F&O segment gains viability and size, trading members of RSEs shall execute both proprietary and client orders in the F&O segment only on the BSE trading platform and activities of the subsidiaries in the F&O segment shall cease. BSE shall permit securities of companies, which have been compliant with the listing requirements of RSEs, which participate in this arrangement with BSE, to be traded under a separate segment on its trading network on an all-India order book platform. Members of BSE shall also be permitted to trade on this segment. RSEs would have to compulsorily delist all non-compliant companies before getting into any arrangement with BSE. The above proposal of BSE offers several benefits. One, it would enable compliant companies listed on the RSEs to have national reach. The investors in such companies will get the benefit of enhanced liquidity as a result of these securities being traded on national platform. Besides, the RSE members would be able to conduct business in their own names and issue their own contract notes (a topic of immense importance to RSE members, as was learnt during the meetings with RSEs, as the members of RSEs felt humiliated being reduced to sub-brokers and not being able to issue their own contract notes). The redressal of investor grievances in respect of trades of the members of the RSEs would be handled at the regional level in the respective RSEs and thus would be beneficial to the investors in the region. The RSE members would also gain access to the F & O segment of the BSE. It is likely that the enhanced participation of large number of brokers across the country would provide the much needed impetus and help kick start the F & O segment of the BSE. This, in turn, would fulfill the long standing demand of the members of the RSEs to participate in the F & O segment. The activation of the F & O segment on the BSE

would also provide desirable competition in the derivatives market. This initiative of the BSE will also obviate the need for the continuation of the subsidiaries in the long run. With the success of this initiative, it is possible that the SMEs will have a liquid market where they would be able to raise capital in the future.

5.1 CONCLUSION :

These RSE provide bread and butter to brokers and employees of stock exchanges . they are functioning on their own as an independent institution without any financial aid from SEBI. So SEBI or any other regulatory authority should not interrupt in this functioning if these RSE are running on their own. secondly if these RSE will be derecognized then it many create problem to regional companies which are still exclusively listed in these regional stock exchanges. Its only these RSE who can keep a close eye on local companies . Decadence of RSEs has not only affected the brokers of these exchanges to the extent it has hurt the millions of shareholders of the regionally listed companies who have awoken to find that there is no market for their holdings. To add to this, there are other disturbing developments like several of the flourishing companies going abroad to raise capital, some of the thriving companies, particularly multinational companies, delisting their shares, etc. Thus ,most of the population still agrees that there is certainly need for the revival of RSE. This will also stop the growing monopolistic situation of NSE who holds 99.6% of Derivative trade and almost 70% of total turnover in equity market. The various remedies suggested in my research needs serious consideration by the authorities concerned so that the benefits of fruits of development have a wider reach. Revival is possible, the only thing required is the necessary will and coordinated effort to take some concrete steps in this regard.

5.2

QUESTIONNAIRE (BROKERS
(DRAFT) FOR RESEARCH PROJECT ON

&INVESTORS)

PROPOSED RESTRUCTURING OF REGIONAL STOCK EXCHANGES

Respected Sir/Madam,
These sets of Questions is aimed at seeking information for doing Research Work for my MBA summer training programme project entitled Proposed

Restructuring of Regional Stock Exchanges .The basic

objective of this project work is to know the reasons of virtual extinction of Regional Stock Exchanges and find out ways for their Revival. I shall be greatful to you if you kindly extend cooperation by filling this Questionnaire at the earliest and enable me to pursue this academic assignment. If you come across any irrelevant question, please skip the same. I would also like to assure you that this information provided herein would be confidential and used only for academic purpose.

Thanking You Faithfully yours,

Somya Garg
AMITY BUSINESS SCHOOL MBA(G) CLASS OF 2010.

QUESTIONNAIRE FOR INVESTORS AND BROKERS PROPOSED RESTRUCTURING OF REGIONAL STOCK EXCHANGES (You can tick more than one answer and give comments too in each question, if desired)

A.PERSONAL DETAILS 1.NAME --------------------------------------------------------------------------------------------------------2.ADDRESS --------------------------------------------------------------------------------------------------------------------CITY________ PHONE MOBILE_________ 3. OCCUPATION [ ] Business [ ] Any other(Specify) 4. Tick to the group you belong. [ ] Broker [ ] Investor [ ] Employee of stock Exchange [ ] Retired [ ] Service DISTT.___________ EMAIL ___________ STATE____________

5. What is the Range of your monthly income in Rupees? [ ] Below 10000 [ ] 10000-40000 [ ] 40000-60000

[ ] 60000-80000 6. EDUCATION [ ] Graduate [ ] Any other (Specify)

[ ] 80000-100000

[ ] Above 100000

[ ] Post Graduation

[ ] professional

B.PERSONAL FINANCE 7. Do you invest in securities market? [ ] Yes [ ] No

8. Through which Stock Exchange do you trade? [ ] NSE [ ]UPSE [ ] BSE [ ] Any Other(Specify) [ ] CSE

9. Which of the following category of shares are held by you? Rank in order of values of holding, rank 1 for maximum holdings. [ ]Sensex/ Nifty [ ] Illiquid [ ] Thinly traded [ ] De-listed [ ] Z Group/T Group [ ] Anyother (Specify)

C.RESTRUCTURING OF REGIONAL STOCK EXCHANGE

10.Do you think that having 19 Regional Stock Exchanges all over the Country is [ ] Strongly Agree [ ] Disagree Superfluous and against requirement ? [ ] Agree [ ] Strongly Disagree [ ] Cant Say

11. What do you think has been the reason for non-functioning of RSE? [ ] SEBI Regulations [ ] Investors Insecurity and lack of trust [ ] Any other (specify)______ [ ] Lack of Proper Administration of RSE [ ] wide coverage by NSE & BSE

12. Do you agree that the Broking Business will be redundant or extinct in coming [ ] yes Decade Due to invasion of Banks and like institutions? [ ] No

13. Do you think that Commercial consideration of Big Brokers is a big hurdle in upliftment of RSE? [ ] Somewhat Correct [ ] Incorrect [ ] Cant Say

[ ] Totally Correct [ ] Somewhat Incorrect

14. Do you really think that Demutualization has solved its purpose of segregating Trading and ownership control in its right spirit? [ ] yes [ ] No

15. As there are Approx. 9000 + companies Listed in India, do you think that NSE alone is Solving the basic purpose of developing and running a healthy stock market which is a prerequisite of a developing Economy, where Top 50 securities are forming 55% of total trade in cash market and top 300 Securities form around 85% of total trade? [ ] strongly Agree [ ] disagree [ ] Agree [ ] strongly Disagree [ ] cant Say

16. Do you think there is a need for Revival of RSE? [ ] Strongly Agree [ ] Disagree [ ] Agree [ ] Strongly Disagree [ ] Cant say

17. Do you think that Virtual Extinction of Regional Stock Exchange Would lead to monopolistic Situation of NSE? [ ] Yes [ ] No

18. What do you think can be the solution of revival of Regional Stock Exchange? (Mark your preference on priority Basis Rating from 1-5,Rate 1 to the option you find most appropriate)

[ ]Consolidation of all RSE i.e. Setting Common trading Platform . [ ] Listing of new companies with paid up share Capital less than 2 crore in RSE . [ ] Providing trading Platform of small cap companies wholly to RSE . [ ] Developing new financial instruments specifically for these RSE. [ ] Any other (Specify) _______________________ 19. Please give your suggestions regarding this topic to us. (Subjective)

____________________________________________________________________________________

5.3 REFERENCES: -A knock out punch for regional stock exchanges/ Sarabjeet K Sen, KR Srivastav/ New Delhi /
April,6,2005. -Revival of Regional stock Exchanges / Dr. Rajeev Kumar FCS / Chandigarh / 2008. -Article by MR MAYYA/ ICSE/2003. -SEBI finalizes Exit Policy for RSE / Reena Zachariah-ET bureau/ 15 Dec 2008 -Report by committee on future of RSE- Post Demutualization. -BSE- Indonext many Mid cap firms feel entry norms stringent/ CR Sukumar / Hyderabad/January 5 ,2007.

-Book by V.A Avadhani/ Capital market management/ Himalaya Publication house. -Book by NSE & BSE. -journal of Dalal street. -http:// www.sebi.gov.in -http://www.nseindia.com -http://www.bseindia.com - -http:// www.rbi.com.