Role & Functions

of
Stock Exchanges

NISM Program
August 2018

1
 Indian Capital Markets –
1 Regulatory Landscape and Market Structure
 Indian Capital Markets - Regulatory Landscape

GOI GOI
Ministry of Finance Dept of Co. Affairs
FIU

AML / STRs Reporting Registrar of

SEBI RBI
Companies

Stock Commodity Clearing FIIs / Mutual Primary

Depositories Banks Companies
Exchanges Exchanges Corporations DFIs Funds Dealers

Merchant Depository Stock Exchanges

Members ** RTAs
Bankers Participants

SEBI
** Trading Members, Brokers, Authorized Persons, Clearing Members

SAT / High Court

Supreme Court

3
Indian Capital Markets - SECC Regulations
SEBI, has promulgated Stock Exchanges and Clearing Corporations Regulations in June 2012 (amended 28 September 2015).
Recognition as a Stock Exchange
• Limited company
• Demutualised (ownership and management of the company is segregated from trading or clearing rights)
• Company, its directors and its shareholders who hold or intend to hold shares, are fit and proper persons
• Satisfies requirements relating to
- Specified ownership and governance structure
- Specified net-worth requirements
- Financial capacity, functional expertise and infrastructure
Governance Structure
• SECC Regulations mandate Stock Exchanges to constitute a tight governance structure

Governing Board Oversight Committees

• Member Regulation
• Shareholder Directors
• Listing Functions
• Public Interest Directors
• Trading and
• MD & CEO
Surveillance

• Code of conduct for the Board, MD & CEO, KMPs

• Chinese Wall" policy separating regulatory departments from other departments
• Approvals to be sought for new product launches / major initiatives

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Indian Capital Market Structure - Highlights
Trading Session Equity
Pre Opening Session 9:00 am to 9:15 am
Continuous Session 9:15 am to 3:30 pm
Block Deals 9:15 am to 9:50 am
9:30 am to 3:30 pm (on
Periodic Call Auction Hourly basis)
Post Closing Session 3:40 pm to 4:00 pm

Trading Session Currency / IRD

Continuous Session 9:00 am to 7:30 pm

Trading Session Equity Derivatives

Continuous Session 9:15 am to 3:30 pm

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 Internal

Trading & Settlement Mechanism

 BOLT Plus Trading System –
• Anonymous Order matching system

• Based on Price and Time Priority

 Settlement : T+2 , Rolling Basis

6
Indian Capital Market Structure - Highlights

7
 Internal

2 Stock Exchange of Today

 Internal

A Modern Exchange with an ancient history……

9
Indian Stock Exchanges – A Bird’s Eye View

Asia’s Oldest Stock Exchange, 140+ Market Infrastructure Institution (MII)

Long years of existence (since 1875) • Self Regulatory Role
History Dual Role • In the ‘Business of Compliance’
Commercial Entity
Stock Exchange goes public (listed
Public company) Feb 2017 Full bouquet of products
Listing Extensive (Secondary market, Primary market)
Product
IFSC and International Exchange Coverage
Int’nl Set Up
Exchange Clearing Corporation, Benchmark Index
Ecosystem of Providers
Large World’s largest corporate listings Operations
(~4500)
Corporate
Listings
Low latency trading infrastructure,
Large number SME listings (250+) Advanced Automation, AI
SME Technology
Market

10
 Internal

Continuous Evolution – Hallmark of a great institution

First Wave Migration from open out-cry to online screen-based order

(1995) driven trading system
Second
Wave Corporatization & Demutualization from an Association of
(2007) Persons (AOP)
Third Transformation to Integrated transaction processing
Wave company in the Financial Infrastructure Space
(2010)
Forth
Wave Listing of BSE IPO
(2017)
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 Internal

Stock Exchange – A Diversified Group

BSE *

DOMESTIC IFSC-GIFT CITY

Central Central Securities Exchange Central

Exchange
Counter Party Depository (CSD) Counter Party
(CCP) (CCP )
24% 100%
100%
100% Central 100%
India
BSE Ltd. Depositary
Indian International India
Services Ltd
BSE Clearing Exchange (IFSC) International
CDSL Ventures
Investments Corporatio Ltd. Clearing
Ltd.
Ltd n Ltd Corporation
CDSL Insurance (IFSC) Limited
Repository Ltd.
CDSL Commodity
Repository Limited
SERVICES

100%
100% 50% 51.2% 100% 100%
BSE Institute BFSI Sector Skill
Market Place Asia BSE CSR BSE
Ltd. Council of India
Technologies Index Integrated Sammaan
Pvt Ltd. BSE Skills Ltd Pvt (Section 8 Foundation CSR
Ltd. company) [Section 8 Limited
Market place  BIL- Ryerson Technology  BSE-48.78% Company]
Tech Infra Startup Incubator
Services Pvt Foundation [Section 8 BSE Institute Ltd. BSE-80%
Ltd. company] (Stake 51%) (BIL) – 2.44% BSE Subsidiaries -20%
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 Internal

3 Stock Exchange Functions & Processes

Key Drivers That Shape Up Business Processes

Business / Market Regulatory Operational Technology

Environment Environment Environment Environment

Market
Roles &
Factors Internal Automation
Responsibilities

Customers Technological
Delegation
Innovations &
Best Practices
New
Competition Regulations Governance

Compliance
Core Business Risk
Framework
Functions Management

Stock Exchange 14
Indian Stock Exchanges – Functional Landscape
Equity Fixed Income Warrants, ETF MF
Asset
Linkages Classes
Derivatives Equity Local Index Foreign Index Interest Rate Currency
Issuers

Market
Intermediaries Listing Membership Trading
Regulatory / Listing Listing Member Member Trading Troubleshooting
Statutory Policy Operations Admission Compliance Operations
Bodies
Trading
Data Listing Member Trading Commercials
Agencies Compliance Inspection / Platform –
Investigation New Trading API
Investors Development Management
Surveillance
Information Technology Trading /
Decision
Brokerage Operating
On-line Off-line Support
Solution IT IT Rules
Monitoring Surveillance Tools
Vendors Development Operations
Technology Disciplinary SEBI Order Information Vending
Vendors Action Compliance IT Network IT Security
Data Data
Products Dissemination
Shareholders Investor Services Policy Operations
Research Education
Other
& Protection
Website Management
Exchanges Helpdesk Training Arbitration IPF
Management Index Services
Educational New
Institutions Corporate Investor
Business Grievances
Index Index
Media Initiatives Comm Management Operations

Clearing Admin
Corporation
HR Internal Control Member Legal Secretarial
Business
Depository Finance & Accounts Development
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Process Overview : Listing
Listing Operations Listing Policy & Compliance
 Admission of securities (Equities, Warrants, MF,  Formulation and review of Listing Policy and
etc) through various modes such as IPO, OFS, PP Admission Norms
as per Listing Policy and Exchange Rules &
Regulations  Monitoring shareholding pattern
 Voluntary Re-listing/ Revocation  Monitoring of insider trading activities and
 Listing commercials (Listing Fees) ensuring compliance
 Facilitating Buy-back of shares of promoter  Liaison with SEBI for Listing Compliance matters
entity
 Advisory support in Listing Applications
 Monitoring, dissemination, maintenance of processing
corporate announcements, financial results of
listed corporations  Compulsory Delisting of companies
 Determining trading eligibility and settlement
mechanism of securities (Example – SPOS, Trade
For Trade)
 MIS reporting
 Market Communication
 Listing Ceremony

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Process Overview : Membership & Compliance
Membership
 Admission of Members as Trading/Clearing
members for various segments – Equity, F&O,
SLB, Debt as per Exchange Rules & Regulations
 Surrender of membership
 Registration & Appointment of Sub-brokers,
Authorized Persons, Remisiers
 Approvals on various trading mechanisms –
Internet Trading, Direct Market Access (DMA),
Mobile Trading, Smart Order Routing (SOR),
Algo Trading as per regulatory guidelines
 Monitoring of members’ Net-worth, Balance
Sheet, Financial Statements on annual basis
 SEBI Turnover fees processing
 Maintenance of member information
(shareholding pattern, designated directors,
company status , membership transfer, etc.)
 MIS reporting
 Market Communication
Membership Inspection/Compliance
 Monitoring compliance of members wrt
Exchange Rules, Regulations & Bye-Laws
 Periodic Inspection (segment wise) of Member
firms at member site
 Monitoring Client Registration Process by
members
 Documentation: KYC, Agreements
 Unique Client Code (UCC) registration
 Monitoring periodic submissions by members
 Annual System Audit Report
 Semi-Annual Internal Audit Report
 Margin trading Compliance Report
 Monthly Client Funding Report
 Registration of Trader IDs with respect to
location & other details and assigning a unique
location code
 Policy making and administration of penalties for
non-compliance
 UCC non-registration
 Location code mismatch
 Non-submission of periodic reports
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Process Overview : Surveillance & Supervision
Online Surveillance Offline Surveillance
 On-line market monitoring to detect any  Offline investigation based on various sources
irregular market practices for irregular market practices (circular trading,
 Monitoring Market-wide Position Limits in pump-dump, self trades, etc)
derivatives segments for various market  Theme based/special investigation
participants
 Disciplinary actions on member, security
 Security Surveillance
 Price band review and relaxation  Compliance wrt regulatory directions (SEBI
 Shifting of securities in & out of T2T orders)
 Online scrip suspension
 Surveillance Frameworks  MIS Reporting
 Rumour Verification  Market Communication
 Regulatory Reporting
 Pre-market reporting
 EoD reporting
 Daily Market Summary
 MIS Reporting

 Market Communication

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Process Overview : Trading
Market Operations
 Administration and maintenance of market
segments /trading floors (Equity, Debt, Derivatives,
SME), market participants, securities and trading
parameters on exchange trading platform
 Introduction/withdrawal of underlying (Index,
Stock) for F&O trading as per entry /retention
criteria prescribed by regulations
 Formulating and managing business rules for
trading -
 Operating parameters, F&O contract specifications,
revisions in tick size & market lot, corporate action
adjustments
 Administration of special trading schemes such as
liquidity enhancement schemes (governing rules,
operating parameters, obligation monitoring &
member benefits, etc.)
 Administration of trading commercials (transaction
charges, special discounts/incentives)
 MIS reporting
 Market Communication
Trading System Development
 New developments in core trading platforms &
other allied systems (end-to-end cycle) from
business standpoint
 New requirement definition/articulation, business
impact assessment, functional design, UAT, mock
drills, go-live support, post live support
 Identifying new development opportunities
through market feedback, competition analysis
Trading API Management
 Empanelment/approval of Brokerage Solution
Vendors and broker firms with in-house software
 Managing new API releases, test market
infrastructure, support and commercials
 Governance of decision support tools/ algorithms
for API based trading as per prescribed regulations
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Process Overview : Data, Index Business, IT, Corporate Website
Information Vending
 Formulation and review of Information product
pricing policy
 Product Sale (real-time / delayed / historical
data), Index data to data vendors, end
customers
 Customer on-boarding (infrastructure, access,
legal documentation, vendor enrollment)
 Billing / Collections (One-time/ Monthly/Annual
billing , usage reports)
 Customer support
Website Management
 Static data / content management
 Dynamic data management
 Subscription based services
Index Services
 New index conceptualization and launch
 Administration and maintenance of indices
 Periodic review of index constituents for eligibility
and updates
 Changes in index constituents
 Corporate actions adjustments
 Re-balancing of indices
 Managing customized indices
 Industry classification
 Index licensing
Information Technology
 Development of IT systems, application to support
Exchange business
 Managing Daily System Operations
 Managing Network Connectivity – internal as well
as external
 Monitoring & managing internal I.T. security
 Business continuity planning – managing DR site
operations
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Process Overview : Others
Customer Servicing & Helpdesk Investor Services & Protection
 End-to-end daily operations of BSE Helpdesk  Investor grievances - Handling Redressal of investor
 Level 1 troubleshooting
complaints against members or companies
 User management of all trading and allied
systems  Arbitration - Managing Arbitration cases for cases
 Contingency pool operations between 2 trading members or members with
 Bulk SMS, Mailers, On-line messages clients, appointing arbitrators & administer verdicts
 Investor Protection Fund - Managing of the fund as
 Customer education and communication
 Awareness & training of Exchange systems to
per prescribed guidelines
new members  Investor Awareness Programmes
 New features/functionalities
 Business processes, practices Member Business Development
 Regulatory notices/circulars
 New Member acquisition
 Detailed troubleshooting and problem solving  Competition tracking, Market feedback
of live market related issues, queries reported  Member relationship management
by members, vendors, internal stakeholders,
etc. New Business Initiatives
 Cross border alliances for new products (Foreign
Corporate Communications
 indices)
Official Media Releases & interaction with
 New Product Research
Print/Electronic Media
 Data Analytics
 Event Management
 Corporate & Product Branding
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Thank You

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Extra Slides

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 Internal

StAR MF

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 Internal

BSE SME

61% of Market Share in terms of number of SMEs listed

As on August 9, 2018 – 256 Companies Listed

Market capitalisation of companies as on August 9,

2018 – INR 19,933.04 Cr

Total Amount of Money Raised as on August

9, 2018 – INR 2,494.61 Cr.
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 BSE Measures - Whistleblower
Market participants can submit any information or any concern related to Market Manipulation, Market Abuse, Market Irregularity,
Suspicious Trading, Insider, Fraud, Violation, Rigging, etc. on BSE website

 To provide any anonymous tip-offs related to listed companies / trading members.

 Toll free number already in existence for more than 5 years

 Dedicated section on Website ‘Attention Investors’ on unsolicited SMS tips

 Dedicated mobile number to report unsolicited SMS tips received by investors
(+91 7506840578)

Anonymous Confidential

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