UTTAR PRADESH STOCK EXCHANGE

Report on

Working of Uttar Pradesh Stock Exchange (UPSE)

With The Focus on the MARGIN DEPARTMENT

IN PARTIAL FULFILLMENT OF SUMMER TRAINING

FOR MBA PROGRAMME (2008-2010)

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 AKNOWLEDGEMENT

Training is essential to supplement theoretical knowledge with practical knowledge

and to include right attitude and conduct regarding the profession. It improves
efficiency, and acts as a driving force in focusing our goals. As we all are aware of the
most sought after work is “success” , everybody wants it and most some never realize
when they have got it. Most of us want to be successful and to achieve it we put in
our efforts we get support from our seniors and colleagues. So many things we learn
from them remain unnoticed that gets imbibed in us.

I also come across and availed one such opportunity by understanding my training at
UTTAR PRADESH STOCK EXCHANGE ASSOCIATION LTD, KANPUR which
had been a great learning experience, certainly would not have been possible without
sincere guidance and corporation of Rajendra sir.

I would like to sincerely thank and place on record gratitude in favor of Mr.
Rajendra Verma for his kind cooperation in all my effort.

I would not have imagined completing my specialization successfully. I am deeply

indebt and thankful to them for inspiring me in various activities to complete this
project and to make my training a successful event.

Date:

Place: (ALOK BHATT)

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 SPECIAL THANKS

I would like to thank Mr. Suresh Gupta (UPSE Securities) for his cooperation and help
in the training process. I would like to thank the staff of the UPSE and specially
Vivek Agnihotri (Clearing House)
L. S. Pandey (Clearing House)
B. K. Gupta (Surveillance Dept.)

Along with all the department heads

Atul Agrawal (Membership)

S C Kapoor (Listing)
Mr. Rajeev Rastogi (EDP, Computer)
Mr. J M Shulkla (Survellance)
Mr. Rajendra Verma (R & D)
Mr. V. P. Mishra (CEO, UPSE Securities)
Mr. Chandrababu, P. R. (Secretarial)
Mr. J. K. Dixit (Market operation, Margin)

They not only helped us understand the working of the stock exchange but also back
us to make enquiries. The enquiries were then patiently solved.

I am earnestly grateful to them for allowing me to work in their guidance and

encouraging me to develop this project report.

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 PREFACE

The main objective of the report is to enhance the knowledge of the investor so that
they are able to take their decision. This report will enable the investor to understand
the working of the stock exchange, the various laws and board that govern the
transaction of the securities transaction.

This report aims to generate an understanding among the investor, about stock
exchange. It has been generally found that people try to make investment without
prior knowledge of the working of the stock market. This often leads to the investor
unaware of their rights and duties. This gap in the knowledge of the investor is
detrimental to them and their investment. They fall trap to the false claims of the various
investment companies. They lose not only their investment but also their confidence in
the market.

So a well aware investor will not only be able to increase his wealth as well as
contribute to the growth of the economy of the country.

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 TABLE OF CONTENT

• Executive summary 6
• Introduction 7
• SEBI (Securities and Exchange Board of India) 12
• SAT (Securities Appellate Tribunal ) 22
• Depository 25
1. NSDL 27
2. CDSL 28
• Stock Exchange 30
1. NSE 37
2. BSE 38
3. UPSE 39
• UPSE Departments 44
1. R & D Department 45
2. Membership/Inspection/Grievances/Complain/Audit 46
3. Listing 49
4. Market operation department (Margin) 52
5. Secretarial department 53
6. Surveillance department 55
7. EDP (Computer) 57
8. Accounts 58
9. Legal 59
10. UPSE securities (Subsidiary company) 60
11. Clearing house 61
• Specialization in the margin department
Focus on the margin, its need, calculation and importance 64
• Future proposal 70
• Conclusion 71
• Keywords 72
• Bibliography 80

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 EXECUTIVE SUMMARY

This report is an effort to study the whole system of securities trade and various regulatory
bodies that govern the system.

The report brings to light the SEBI (Securities and Exchange Board of India) act that governs
the securities transactions and the working of the stock exchanges. The SEBI board
constituted under this act is the regulatory body that enforces the act and periodically makes
changes to the structure of the system in the interest of the investor. The SAT (Securities
Appetite Tribunal) decides any case that may arise due to the rulings of the SEBI board.

Next we have the depository (NSDL, CDSL) which registers and governs the depository
participants (Stock Holding Corporation of India Ltd.). The depositories are governed by the
SEBI and must follow the rules and regulation of the Depositories Act, 1996.

Then we would take a look of the various securities market. The history and the present
scenario of some of the major stock markets of India (BSE, NSE) are introduced.

This makes the ground for the detailed study of the UPSE (Uttar Pradesh Stock Exchange),
one of the only functional regional stock market in the north India other than NSE. The
functioning of the departments is explained with special emphasis on the margin department.

Hope this report will be able to enhance the knowledge of the investor about the stock
market.

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INTRODUCTION

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 FINANCIAL MARKET

A financial market is a place where creation and exchange of financial assets are
takes place. One participates in financial market in one way or other. This shows the
structure of it.

• Money market
It is the market in which funds are borrowed or loaned for short
period of time.

• Capital market
It is the market for stock and long term debt (more than one year).

• Primary market
Corporate institution raises capital by issuing new securities.

• Secondary market
Securities and other financial assets are traded.

MARKET PARTICIPATION:

Stock market intermediaries:-

The players in the market are the issuers of securities, namely companies, intermediaries like
broker, sub-brokers etc., and the investors who bring their saving and funds into the market.

“Stock broker” means a member of a stock exchange.

“Sub-broker” means any person not being a member of a stock exchange who acts on behalf
of a stock-broker as an agent or otherwise for assisting the investors in buying, selling or
dealing in securities through such stock-brokers.

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 The stock brokers are of various categories namely:

• Client broker- Doing simple broking between buyer and seller and earning only brokerage for
their service from the clients.

• Floor broker- Authorized clerk and sub-broker who enter the trading floor and execute the
orders for the client or for member. ( now obsolete)

• Jobber and market makers- Those member who are ready to buy and sell simultaneously in
selected scripts, offering bid and offer rates for the brokers and sub-broker on the trading floor
and earning profit through the margin between buying and selling rates. Market makers
undertake this work compulsory for some companies and bank finance is available to them.

• Arbitrageurs- Those who do inter market deals for a profit through difference in prices as
between market say buy in Calcutta and sell in Mumbai and vice versa.

• Badla financers- Those member who finance carry forward deals in specific group (A group)
for a return in the form of interest, called Badla rate. They lend money or share for brokers who
are overbought or oversold respectively at the same time of settlement. Badla is a carry –
forward facility from one settlement to another without taking delivery upto a maximum period
of 90 days at a time, now reduced 7 to 158 days.

• Broker- is registered member of stock exchange through whom investors transact. There are
about 10,000 brokers in India. In most circumstances a broker is a third party to an agreement to
purchase a commodity, the item being bought and sold is neither owned nor controlled by the
broker who simply acts as an intermediary and is normally paid on completion of an agreement.
Broker who also act as seller or as buyer become a principle party to the deal whereas an agent is
one who acts as seller or as buyers on behalf of a principal.

In accordance with the wording of the law, participants in the Indian capital market are
supposed to register with SEBI in order to carry their business these are:-

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 Stock broker, sub-broker, share transfer agent, broker to issue, registrar to issue, underwriter,
portfolio manager, investment advisor and other such intermediary who may be associated
with security market.

Venture capital fund and collective schemes including mutual fund also have to register with
SEBI.

The securities market is the market for equity, debt and derivatives, structure for this market
is s follows-

SECURITIES MARKET

• Equity market
• Debt market
• Derivatives market
• Government securities
• Money market
• Option market
• Future market

Except the derivatives market, each of the above market has two components-

• Primary market
• Secondary market

SECONDARY market and its operation:

The origin of the stock market in India goes back to the end of the eighteen century when
long term negotiable securities were first issued however for all practicable.

Purpose, the real beginning occurred in the middle of nineteenth century after the enactment
of the companies act in 1850, which introduced the featured of limited.

Liability and generated investor interested in corporate securities.

An important early event in the development of stock exchange in India was the formation of
the native shares and stock broker association at MUMBAI in 1875, the procurer of the
present day BSE. This was followed by the formation of many stock exchanges.

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 Establishment of SEBI

The Securities and Exchange Board of India was established by the

Government of India in 1988 through an executive resolution, and it was subsequently
upgraded as a fully autonomous body (a statutory Board) in the year1992 with the passing of
the Securities and Exchange Board of India Act on 30th January 1992. In place of
Government Control, a statutory and autonomous regulatory board with defined
responsibilities (covering both development & regulation of the market) and interdependent
powers has been set up. Paradoxically this is a positive outcome of the Securities Scam of
1990-91 (popularly identified as the Harshad Mehta Scam).

The basic objectives of the Board were identified as:

• To protect the interests of investors in securities;

• To promote the development of Securities Market;
• To regulate the securities market and
• For matters connected therewith or incidental thereto.

Since its inception SEBI has been attending to the fulfillment of its objectives with
commendable zeal and dexterity. The improvements in the settlements in the securities
markets like capitalization requirements, margining, establishment of clearing corporations
etc. reduced market and credit risks.

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 SEBI

SECURITIES AND EXCHANGE BOARD

OF INDIA

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The securities and Exchange Board of India Act, 1992 is having retrospective effect and is
deemed to have come into force on January 30, 1992.Relatively a brief act containing 35
sections, the SEBI Act governs all the Stock Exchanges and the Securities Transactions in
India.

A Board by the name of the Securities and Exchange Board of India (SEBI) was constituted
under the SEBI Act to administrator its provisions. It consists of one Chairman and five
members.

One each from the department of Finance and Law of the Central Government, one from the
Reserve Bank of India and two other persons and having its head office in Bombay and
regional offices in Delhi, Calcutta and Madras.

The Central Government reserves the right to terminate the services of the Chairman or any
member of the Board. The Board decides questions in the meeting by majority vote the
chairman having a second or casting vote.

Section 11 of the SEBI Act provides that to provide that to protect the interest of investors in
securities and to promote the development of and to regulate the securities market by such
measures, it is the duty of the board. It has given power to the Board to regulate the business
in Stock Exchanges, register and regulate the working of stock brokers, sub-brokers, share
transfer agents, bankers underwriters, portfolio managers, investment advisors, etc., also to
register and regulate the working of collective investment schemes including mutual funds,
to prohibit fraudulent and unfair trade practices and insider trading to regulate take-over, to
conduct enquiries and audits of the stock exchanges, etc.

All of the stock-brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of
trust deed, registrars to an issue, merchant bankers, underwriters, portfolio managers,
investment advisers and such other intermediary who may be associated with the Securities
Markets are to register with the Board under the provisions of the under the Act, under
section 12 of the SEBI act . The Board has the power to suspend or cancel such registration.
The Board is bound by the directions vested by the Central Government from time to time on
questions of policy and the Central Government reserves the right to supersede the Board.
The Board is also obliged to submit a report to the Central Government each year, giving true
and full account of its activities, policies and programs. Any one of the aggrieved by the
Board’s decisions is entitle to appeal to the Central Government.

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 SEBI guidelines for investor

Securities and Exchange Board of India, a statuary body constituted by the

Government of India, stands committed to the assigned objective of protecting investors in
the securities market.

Ensuring disclosure of full, fair and adequate in formation has been the hallmark of our
regulatory principal. In continuation of our efforts in that direction, we thought it fit and
timely to write to investor making investor aware of

• The right the investor has as a stake holder in a company,

• The responsibilities that are cast on investor,

• The risks that investor has assumed,

• The procedures relating to trading and transfer of the securities and

• The remedies for problem that investor may encounter.

We hope that this material will give investor appropriate guidance, though in brief, whenever
he will question in his mind. For detailed guidance, he may approach his broker, the investor
service centers of the stock exchanges, and of course, the Investor Guidance Division of the
Securities and Exchange Board of India.

Risk Revisited

When investor invested, he did so with certain expectations about the

performance of the company, the prospects of income from and/or the capital growth of the
securities that he now hold, the corporate benefits that may accrue to him etc.

While making that investment decision, investor should have, obviously, taken note of and
duly evaluated the attendant risks that go with such expectations.

Investor should remember that one such risk is that his expectations on income and/or growth
may not materialize.

An investor in the debt instruments, he can have resource against the company, besides the
market, for redeeming them. But, as an equity holder of a company, in order to realize the
value of such investment, he has resources only to the market.

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 And he would recollect that the dis-investment may result in capital losses also.

Further, he would also noted that apart from the above mentioned investment risks, he also
face the risk of running into problems with the trading and transfer of the securities.

Investors Rights

As a shareholder in a company, he enjoys certain rights, which are as follows:

• To receive the share certificates, on allotment or transfer as the case may be, in due
time.

• To receive copies of the abridged Annual Report, the Balance sheet and the P&L A/c
and the Auditor’s Report.

• To participate and vote in General Meetings either personally or through proxies.

• To receive corporate benefits like rights, bonus etc. once approved.

• To apply the Company Law Board (CLB) to call or direct the Annual General
Meeting.

• To inspect the minute books of the General Meetings and to receive copies thereof.

• To proceed against the company by way of civil or criminal proceedings.

• To apply for the winding-up of the Company.

• To receive the residual proceeds.

• Besides the above rights which he enjoys as an individual shareholder, he also enjoys
the following rights as a group.

• To requisition an Extra-ordinary General Meeting.

• To demand a poll on any resolution.

• To apply to CLB to investigate the affairs of the company.

• To apply to CLB for relief in cases of oppression and/or mismanagement.

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 As a debenture-holder, he has the right

• To receive interest/redemption in due time.

• To receive a copy of the trust deed on request.

• To apply for winding up of the company if the company falls to pay its debt.

• To approach the Debenture trustee with his grievance.

He may note that the above mentioned rights may not necessarily be absolute. For example,
the right to transfer securities is subject to the company’s right to refuse transfer as per
statuary provisions.

Investor Responsibilities

While investor may be happy to note that he has so many rights as a stakeholder in the
company, that should not lead him to complacency; because he have also certain
responsibilities to discharge. To be specific,

• To remain informed

• To be vigilant

• To participate and vote in general meetings

• To exercise his rights on his own or as a group

Trading of securities

Investor has the right to sell the securities that he holds at a price and time that he
may choose. He can do so personally with another person or through a stock exchange.
Similarly he has the right to buy securities from anyone or through a recognized stock
exchange at a mutually acceptable price and time.

Whenever it is a scale or purchase of securities, affected directly by him or

through an exchange, all trades should be executed by a valid, duly completed and stamped
transfer deed.

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If he chooses to deal (buy or sell) directly with another person, he is exposed to counter party
risk, i.e. the risk of non-performance by that party. However, if he deals through a stock
exchange, this counter party risk is reduced due to trade/settlement guarantee offered by the
stock exchange mechanism. Further, he also has certain protections against defaults by his
broker.

When investor operates through an exchange, he has the right to receive the best
price prevailing at that time for the trade and the right to receive the money or the shares on
time. He also has the right to receive a contract note from the broker confirming the trade and
indicating the time of execution of the order and other necessary details of the trade. He also
has the right to receive good delivery and the right to insist on rectification of bad delivery. If
he has a dispute with his broker, he can resolve t through arbitration under the aegis of the
exchange.

If investor decides to operate through an exchange, he has to avail the services of

a SEBI registered broker/sub-broker. He has to enter into a broker-client agreement and file a
client registration form. Since the contract note is a legally enforceable document, he should
insist on receiving it. He has the obligation to deliver the shares in case of sale or pay the
money in case of purchase with in the time prescribed. In case of bad delivery of securities
by him, he has the responsibility to rectify them or replace them with good ones.

Transfer of securities

Transfer of securities mean that the company has recorded in its books, a change
in the title of ownership of the securities affected either privately or through an exchange
transaction.

To affect a transfer, the securities should be sent to the company along with a
valid, duly executed and stamped transfer deed duly signed by or on behalf of the transferor
(seller) and transferee (buyer), it would be a good idea to retain photocopies of the securities
and the transfer deed when they are sent to the company for transfer. It is essential that he
send them by registered post with acknowledgement due and watch out for the receipt of the
acknowledgement card. If he does not receive the conformation of receipt within a
reasonable period, he should immediately approach the postal authorities for conformation.

Sometimes, for his own convenience, investor may choose not to transfer the
securities immediately. This may facilitate easy and quick selling of the securities. In that
case he should take care that the transfer deed remains valid. However, in order to avail the
corporate benefits like the Dividends, Bonus or Rights from the company, it is essential that
he get the securities transferred in his name.

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 On receipt of investor request for transfer, the company proceeds to transfer the
securities as per provisions of the law. In case they cannot affect the transfer, the company
returns back the securities giving details of the grounds under which the transfer could not be
affected. This is known as Company objection.

When investor happens to receive a company objection for transfer, he should

proceed to get the errors/discrepancies corrected. He may have to contact the transferor (the
seller) either directly or through his broker for rectification or replacement with good
securities. Then he can resubmit the securities and the transfer deed to the company for
affecting the transfer.

In case investor is unable to get the errors rectified or get them replaced, he has
recourse to the seller and his broker through the stock exchange to get back his money.
However, if he has transacted directly with the seller originally, he have to settle the matter
with the seller directly.

Sometimes, investor’s securities may be lost or misplaced. He should immediately

request the company to record a stop transfer of the securities and simultaneously apply for
issue of duplicate securities. For affecting stop transfer, the company may require him to
produce a court order or the copy of the FIR filed by him with the Police further, to issue
duplicate securities to him, the company may require him to submit indemnity bonds, and
affidavit, sureties etc. besides issue of a public notice. He has to comply with these
requirements in order to protect his own interest.

Sometimes, it may so happen that the securities are lost in transit either from
investor to the company or from the company to investor. Investor has to be on his guard and
write to the company within a month of him sending the securities to the company. The
moment it comes to his that either the company has not received the securities that he sent or
he did not receive the securities that the company claims to have sent to him, he should
immediately request the company to record stop transfer and proceed to apply for duplicate
securities.

Depository and dematerialization

Shares are traditionally held in physical or paper form. This method has its own
inherent weakness like loss/theft of certificates, forged/fake certificates, cumbersome and
time consuming procedure for transfer of shares etc. Therefore, to eliminate this weakness, a
new system called Depository System has been established.

• A depository is a system which holds the investor’s shares in the form of electronic
accounts in the same way a bank holds his money in savings account.

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• Depository system provides the following advantages to an investor.

• Investor shares cannot be lost or stolen or mutilated.

• Investor never need to doubt the genuineness of his shares i.e., whether they are
forged or fake.

• Share transactions like transfer; transmission etc. can be effected immediately.

• Transaction costs are usually lower than on the physical segment.

• There is no risk of bad delivery.

• Bonus/Rights shares allotted to investor will be immediately credited to his account.

• Investor will receive the statement of accounts of his transactions/ holdings

periodically.

When investor decides to have his shares in electronic form, he should approach a
Depository Participant (DP) who is an agent of the depository and open an account. He
should surrender his shares certificates in physical form and his DP will arrange to get them
sent to verified by the company and on confirmation credit his account with an equivalent
number of shares. This process is known as de-materialization. He can always reverse this
process if he so desire and get his shares reconverted into paper format. This process is
known as re-materialization.

Share transactions (like sale or purchase and transfer/transmission etc.) in the electronic form
can be effected in a much simpler and faster way. All investor need to do is that after
confirmation of sales/purchase transaction by his broker, he should approach his DP with a
request to debit/credit his account for the transaction. The Depository will immediately
arrange to complete the transaction by updating his account. There is need for separate
communication to the company to register the transfer.

Grievance Redressal

There will be occasions when investor has a grievance against the company in which he is a
stake-holder. It may be that he have not received the share certificates on Allotment or on
transfer; it may be that he have not receive the dividend/interest warrant or refund order;
perhaps he did not receive the Annual accounts etc. while he would first approach the
company in that regard, he may not be satisfied with the company’s response there to. He
would like to know whom he should turn to get his grievance redressed.

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 The following table would provide him the guidance in this regard.

In case of any Public Issue, non-receipt of

Nature of grievance Can be taken up with

Refund order SEBI

Interest on delayed refund Dept. of Company Affairs
Allotment advice Dept. of Company Affairs
Share certificates Stock Exchange
Duplicates for all of the above Registrars to the issue
Re-validations Registrars to the issue

In case of a listed security, non-receipt of the certificates after:

Transfer SEBI
Transmission SEBI
Conversion SEBI
Endorsement Dept. of Company Affairs
Consolidation Stock Exchange
Splitting Stock Exchange
Duplicates of securities Stock Exchange

Regarding listed Debentures, non-receipt of

Interest due SEBI
Redemption proceeds Dept. of Company Affairs
Interest on delayed payment The Debenture Trustees
Stock Exchange

Regarding bad delivery of shares Bad delivery cell of the stock exchange
Regarding shares or debentures in Dept. of Company Affairs
unlisted companies
Deposits in collective investment SEBI
schemes like plantations etc
Units of Mutual Funds SEBI
Fixed Deposits in Banks and Finance Reserve Bank Of India
companies
Fixed Deposits in manufacturing Dept. of Company Affairs
companies

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 Investor Information Centers have been set up in every recognized stock exchange which in
addition to the complaints to the securities traded/listed with them, will take up all other
complaints regarding the trades affected in the exchange and the relevant member of the
exchange.

Moreover two other avenues are always available to the investors to seek redressal of their
complaints which are through

• Complaints with Consumers’ Disputes Redressal Forums

• Suits in the Court of Law

Offices of SEBI

SEBI Offices Jurisdiction

For the companies having their Registered Offices in

Head Office:

Mittal Court,’B’ Wing, 1st Floor, 224 Nariman Point, MUMBAI-400021

Northern Regional Office:

Block No.-1, Rajendra Bhawan, Rajendra Place, Dist. Centre, NEW DELHI-110008

Eastern Regional Office:

FMC Fortuna, 5th Floor, 234/3A AJC Bose Road, KOLKATA-700020

Southern Regional Office:

3rd Floor, D’Monte Bidg. No.32, D’Monte Colony, TTK Road, Alwarpet, CHENNAI-600018

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SECURITIES APPELLATE TRIBUNAL

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 Establishment of Securities Appellate Tribunals

The Central Government shall, by notification, establish one or more Appellate

Tribunals to be known as the Securities Appellate Tribunal to exercise the jurisdiction,
powers and authority conferred on such Tribunal by or under this Act or any other law for the
time being in force.

The Central Government shall also specify in the notification referred to in subsection (1) the
matters and places in relation to which the Securities Appellate Tribunal may exercise
jurisdiction.

Composition of Securities Appellate Tribunal

A Securities Appellate Tribunal shall consist of a Presiding Officer and two other
Members, to be appointed, by notification of the Central Government:
Provided that the Securities Appellate Tribunal, consisting of one person only, established
before the commencement of the Securities and Exchange Board of India (Amendment) Act,
2002, shall continue to exercise the jurisdiction, powers and authority conferred on it by or
any other law for the time being in force till other Members are appointed under this section.

Orders constituting Appellate Tribunal to be final and not to be final and

not to invalidate its proceedings

No order of the Central Government appointing any person as the Presiding

Officer or a Member of a Securities Appellate Tribunal shall be called in question in any
manner, and no act or proceeding before a Securities Appellate Tribunal shall be called in
question in any manner on the ground merely of any defect in the constitution of a Securities
Appellate Tribunal.

Securities Appellate Tribunal

(1) Any person aggrieved: -

 By an order of the Board made, on and after the commencement of the Securities
Laws (Second Amendment) Act, 1999, under this Act, or the rules or regulations made there
under; or
(2) No appeal shall lie to the Securities Appellate Tribunal from an order made

 By the Board on and after the commencement of the Securities Laws (Second
Amendment) Act, 1999:

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 By an adjudicating officer, with the consent of the parties.

(3) Every appeal under sub-section (1) shall be filed within a period of forty-five days from
the date on which a copy of the order made by the Board or the adjudicating officer, as the
case may be, is received by him and it shall be in such from and be accomplished by such fee
as may be prescribed: Provided that the Securities Appellate Tribunal may entertain an
appeal after the expiry of the said period of forty-five days if it is satisfied that there was
sufficient cause for not filling it within that period.

(4) On receipt of an appeal under sub-section (1), the Securities Appellate Tribunal may,
after giving the parties to the appeal, an opportunity of being heard, pass such orders thereon
as it thinks it fit, confirming, modifying or setting aside the order appealed against.

(5) The appeal filled before the Securities Appellate Tribunal under sub-section (1) shall be
dealt with by it as expeditiously as possible and endeavor shall be made by it to dispose of
the appeal finally within six months from the date of receipt of the appeal.

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DEPOSITARY

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A Depository facilities holding of securities in the electronic form and enables securities
transactions to be processed by book entry by a Depository Participant (DP), who as an
agent of the depository, offer depository services to investors. According to SEBI
guidelines, financial institutions, banks, custodians, stockbrokers, etc. are eligible to act as
DPs. The investor who is known as beneficial owner (BO) has to open a demat account
through any DP for dematerialization of his holdings and transferring securities.

There are two depositories in India, NSDL (National Securities Depository Ltd.)
and CDSL (Central Depository Services Ltd.).

The balances in the investors account recorded and maintained with CDSL can
be obtained through the DP. The DP is required to provide the investor, at regular intervals,
a statement of account, which gives the details of the securities holdings and transactions.
The depository system has effectively eliminated paper-based certificates, which were
prone to be fake, forged, counterfeit resulting in bad deliveries. CDSL offers an efficient
and instantaneous transfer of securities.

Demat Account

Demat or Demateralized account is to store stocks in electronics form. It is just like

opening a bank account to store investor money. Now no body is interested to keep shares
in physical forms and going for electronic based filing of shares. This has changed the style
of operation in main Indian stock markets like BSE Sensex (Bombay Stock Exchange
Sensitive Index) and Nifty (National Stock Exchange of India) and its brokers.

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 Depository Participants

DPs are agents who connect depository with investors. It is like a bank with which investor
can open a demat account to buy or sell shares.

NSDL

Although India had a vibrant capital market which is more than a century old, the
paper-based settlement of trades caused substantial problems like bad delivery and delayed
transfer of title till recently. The enactment of Depositories Act in August 1996 paved the
way for establishment of NSDL, the first depository in India. This depository promoted by
institutions of national stature responsible for economic development of the country has since
established a national infrastructure of international standards that handles most of the
securities held and settled in dematerliasd form in the Indian capital market.

Using innovative and flexible technology systems, NSDL works to support the
investors and brokers in the capital market of the country. NSDL aims at ensuring the safety
and soundness of Indian marketplaces by developing settlement solutions that increase
efficiency, minimize risk and reduce costs. At NSDL, we play a quiet but central role in
developing products and services that will continue to the nurture the growing industry.

In the depository system, securities are held in depository accounts, which is more
or less similar to holding funds in bank accounts. Transfer of ownership of securities is done
through simple account transfers. This method does away with all the risks and hassles
normally associated with paperwork. Consequently, the cost of transacting in a depository
environment is considerably lower as compared to transacting in certificates.

27
 CDSL

CDSL was proposed by Bombay Stock Exchange (BSE) jointly with leading banks such as
State Bank of India, Bank of India, Bank of Baroda, HDFC Bank, Standard Chartered Bank,
Union Bank of India and Centurion Bank.

CDSL was set up with the objective of providing convenient, dependable and secure
depository services at affordable cost to all market participants. Some of the important
milestones of CDSL system are:

CDSL received the certificate of business from SEBI in February, 1999.

Honorable Union Finance Minster, Shri Yashwant Sinha flagged off the operations of CDSL
on July 15, 1999.

Settlement of trades in the demat mode through BOI Shareholding Limited, the clearing
house of BSE, started in July 1999.

All leading stock exchanges like the National Stock Exchange, Calcutta Stock Exchange,
Delhi Stock Exchange, The Stock Exchange, Ahmedabad, etc have established connectivity
with CDSL.

As at the end of Dec. 2007, over 5000 issuers have admitted their securities (equities, bonds,
debentures and commercial papers), units of mutual funds, certificate of deposits etc. into the
CDSL system.

28
 How to Open a Demat Account

It is like opening a bank account. Investor has to approach a depository participant

to open an online trading or demat account. Most of the banks are DPs too.

Documents Required

Investor will have to submit few documents with the application form to open a
demat account. As per latest Govt. of India rule PAN (Personal Account Number) card is
must for opening a demat account. These are the documents require to open a demat account.
1. Photo Copy of PAN Card (Mandatory)
2. Two passport size photos
3. Address Proof- Ration Card/Passport/Driving License/Voter’s ID Card/BSNL Telephone
Bill/ LIC Policy
4. Latest Bank Statement and photocopy of Bank Passbook

29
STOCK EXCHANGE

30
 Stock markets refer to a market place where investors can buy and sell stocks. The price at
which each buying and selling transaction takes is determined by the market forces (i.e.
demand and supply for a particular stock).

Let us take an example for a better understanding of how market forces determine stock
prices. ABC Co. Ltd. Enjoys high investor confidence and there is an anticipation of an
upward movement in its stock price. More and more people would want to buy this stock (i.e.
high demand) and very few people will want to sell this stock (i.e. less supply). Therefore,
buyers will have to a bid higher price for this stock to match the ask price from the seller
which will increase the stock price of ABC Co. Ltd. On the contrary, if there are more seller
than buyers (i.e. high supply and low demand) for the stock of ABC Co. Ltd. In the market,
its price will fall down.

In earlier times, buyers and sellers used to assemble at stock exchange to make a transaction
but now with the down of IT, most of the operations are done electronically and the stock
markets have become almost paperless. Now investors don’t have to gather at the Exchanges,
and can trade freely from their home or office over the phone or through Internet.

History of the Indian Stock Market-The Origin

One of the oldest stock markets in Asia, the Indian Stock Markets have a 200 years old
history.

18th Century East India Company was the dominant institution and by end of the
century, business in its loan securities gained full momentum

1830s Business on corporate stocks and shares in bank and Cotton presses started
in Bombay. Trading list by the end of the end of 1839 got broader

1840s Recognition from banks and merchants to about half a dozen brokers

1850s Rapid development of commercial enterprise saw brokerage business

attracting more people into the business

1860s The number of brokers increased to 60

1860-61 The American Civil War broke out which caused a stoppage of cotton
supply from United States of America; marketing the beginning of the
“Share Mania” in India

1862.63 The number of brokers increased to about 200 to 250

31
 1865 A disastrous slump began at the end of the American Civil War (as an
example, Bank of Bombay Share which had touched Rs. 2850 could only
be sold at Rs. 87)

Pre-Independence Scenario-Establishment of Different Stock Exchanges

1874 With the rapidly developing share trading business, used to gather at a street
(now well known as “Dalal Street”)

1875 “The Native Share and Stock Brokers’ Association” (also known as “The Bombay
Stock Exchange”) was established in Bombay

1880s Development of cotton mills industry and set up of many others

1894 Establishment of “The Ahmadabad Share and Stock Brokers’ Association”

1880-90s Sharp increase share prices of jute industries in 1870s was followed by a boom in
tea stocks and coal

1908 “The Calcutta Stock Exchange Association” was formed

1920 Madras witnessed boom and business at “The Madras Stock Exchange” was
transacted with 100 brokers

1923 When recession followed, number of brokers came down t 3 and the Exchange
was closed down

1934 Establishment of the Lahore Stock Exchange

1936 Merger of the Lahore Stock Exchange with the Punjab Stock Exchange

1937 Re-organization and set up of the Madras Stock Exchange Limited (Pvt.) Limited
led by improvement in stock market activities in South India with establishment of new textile
mills and plantation companies

1940 Uttar Pradesh Stock Exchange Limited and Nagpur Stock Exchange Limited was
established

1944 Establishment of “The Hyderabad Stock Exchange Limited”

1947 “Delhi Stock and Brokers Association Limited” and “The Delhi Stocks and
Shares Exchange Limited” were established and later on merged into “The Delhi
Stock Exchange Association Limited”

32
 Post Independence Scenario

The depression witnessed after the Independence led to closure of a lot of exchanges in
the country. Lahore Stock Exchange was closed down after the partition of India and later on
merged with the Delhi Stock Exchange. Bangalore Stock Exchange Limited was registered in
1957 and got recognition only by 1963.

S.No. As on 31st December 1946 1961 1971 1975 1980 1985 1991 1995
1 No. Of stock 7 7 8 8 9 14 20 22
Exchanges
2 No. of Listed Cos. 1125 1203 1599 1552 2265 4344 6229 8593

3 No. of Stock Issues 1506 2111 2838 3230 3697 6174 8967 11784
of Listed Cos.
4 Capital of Listed Cos. 270 753 1812 2614 3973 9723 32041 59583
(Cr. Rs.)
5 Market value of capital 971 1292 2675 3273 6750 25302 110279 478121
of Listed Cos. (Cr. Rs.)
6 Capital per Listed Cos. 24 63 113 168 175 224 514 693
(4/2)(Lakh Rs.)
7 Market value of Capital 86 107 167 211 298 582 1770 5564
Of capital per Listed
Cos. (Lakh Rs.) (52)
8 Appreciated Value of 358 170 148 126 170 260 344 803
Capital per Listed Cos.
(Lakh Rs.)

Most of the other Exchanges were in a miserable state till 1957 when they applied for
recognition under Securities Contracts (Regulations) Act, 1956. The Exchanges that were
recognized under the Act were:

a. Bombay
b. Calcutta
c. Madras
d. Ahmedabad
e. Delhi
f. Hyderabad
g. Bangalore
h. Indore

33
 Many more Stock Exchanges were established during 1980s, namely:

• Cochin Stock Exchange (1980)

• Uttar Pradesh Stock Exchange Association Limited (at Kanpur,1982)
• Pune Stock Exchange (1982)
• Ludhiana Stock Exchange Association Limited (1983)
• Gauhati Stock Exchange (1984)
• Knara Stock Exchange Limited (at Manglore, 1985)
• Magadh Stock Exchange Association (at Patna, 1986)
• Jaipur Stock Exchange Limited (1989)
• Bhubaneshwar Stock Exchange Association Limited (1989)
• Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989)
• Vadodara Stock Exchange Limited (at Baroda1990)
• Coimbatore Stock Exchange (1980)
• Meerut Stock Exchange (1980)

At present, there are twenty one recognized stock exchanges in India which does not include
the Over The Counter Exchange of India Ltd.(OTCEI) and the National Stock Exchange of
India Limited (NSEIL).

Government policies during 1980 have also played a vital role in the development of the
Indian Stock Markets. There was a sharp increase in number of Exchanges, listed companies
as well as their capital, which is visible from the following concept:

Types of Transactions

There are two types of transactions that can be carried out on the Indian Stock Exchange

1) Backward transaction

2) Forward transaction

34
 Indian Stock Exchange allows a member broker to perform following activities:

• Act as an agent,
• Buy and sell securities for his clients and charge commission for the same,
• Act as a trader or dealer as a principal,
• Buy and sell securities on his own account and risk.

Over The Counter Exchange of India (OTCEI)

Traditionally, trading in Stock Exchange in India followed a conventional style where

people used to gather at the Exchange and bids and offers were made by open outery.

This age-old trading mechanism in the Indian Stock Markets used to create much
functional inefficiency. Lack of liquidity and transparency, long settlement periods and
benami transactions are a few examples that adversely affected investors. In order to
overcome these inefficiency, OTCEI was incorporated in 1990 under the Companies Act
1956. OTCEI is the first screen based nationwide Stock Exchange in India Created by Unit
Trust of India, Industrial Credit and Investment Corporation of India, Industrial Development
Bank of India, SBI Capital Markets, Industrial Finance Corporation of India, General
Insurance Corporation and its subsidiaries and Can Bank Financial Services.

Advantages of OTCEI

• Greater liquidity and lesser risk of intermediary charges due to widely spread trading
mechanism across India
• The screen-based script less trading ensures transparency and accuracy of prices
• Faster settlement and transfer process as compared to other exchanges
• Shorter allotment procedure (in case of a new issue) than other exchanges.

35
 Stock Exchanges in India at present

1. Stock Exchange Association

2. Gauhati National Stock Exchange of India
3. Bombay Stock Exchange
4. Inter-connected Stock Exchange of India
5. Ahmedabad Stock Exchange
6. Bangalore Stock Exchange
7. Bhubaneshwar Stock Exchange Association
8. Calcutta Stock Exchange
9. Cochin Stock Exchange
10. Coimbatore Stock Exchange
11. Delhi Stock Exchange
12. Hyderabad Stock Exchange
13. Jaipur Stock Exchange
14. Ludhiyana Stock Exchange Association
15. Madhya Pradesh Stock Exchange
16. Madras Stock Exchange
17. Magadh Stock Exchange Association
18. Manglore Stock Exchange
19. OTC Exchange of India
20. Pune Stock Exchange
21. Uttar Pradesh Stock Exchange Association
22. Multi Commodity Exchange
23. National Commodity and Derivatives Exchange

The transformation in the securities market is the setting up of National Stock Exchange in
November 1992 and commencement of electronic networking of stock exchanges with
dealing brokers and introduction of on-line screen based trading. NSC is able to radically
transform the Indian Capital market during the decade of its existence. It has changed the
mindset of all market players and has built investor confidence in the secondary markets.
Around the year 1995 all stock Exchanges switched over from the open outery system to
screen based online trading. This enabled both NSE and BSE to spread their operations to
every nook and corner of the country. Market Integration is uniquely achieved through this
measure.

36
 NATIONAL STOCK EXCHANGE

In order to lift the Indian Stock Market trading system on par with the international
standards. On the basis of high powered Pherwani Committee, the National Stock Exchange
was incorporated in 1992 by Industrial Development Bank of India, Industrial Credit and
Investment Corporation of India, all Insurance Corporations, selected commercial banks and
others.

NSE provides exposure to investors in two types of markets, namely:

1. Wholesale debt market

2. Capital market

Wholesale Debt Market

Similar to money market operations, debt market operations involve institutional investors
and corporate bodies entering into transactions of high value in financial instruments like
treasury bills, government securities, commercial papers etc.

Trading at NSE

• Fully automated screen-based training mechanism

• Strictly follows the principle of an order-driven market
• Trading members are linked through a communication network.
• This network allows them to execute trade from their offices
• The price at which the buyer and seller are willing to transact will appear o the screen
• When the prices match the transaction will be completed
• A confirmation slip will be printed at the office of the trading member

Advantages of trading at NSE

• Integrated network for trading in stock market of India
• Fully automated screen based system that provides higher degree of transparency
• Investors can transact for many part of the country at uniform prices
• Greater functional efficiency supported by totally computerized network

37
38
 UPSE

U.P. Stock Exchange Association Ltd.

The UP Stock Exchange association limited, Kanpur is situated at a very important place.
It holds a very important position among other existing stock exchanges in India. The
exchange was inaugurated on 27th august 1982 by the then finance minister Shri Pranab
Mukherjee. From the very first day it has been playing role in the development of the capital
market of north India.

Incorporation in 15th NOV 1979 and Commencement of business on 5th May 1982 has
made a long way through the time.

The UP Stock Exchange association limited, Kanpur occupies a very prominent place
among the existing Stock Exchanges in India. The exchange was inaugurated on 27th august
1982 by the then finance minister Shri Pranab Mukherjee. Right from its inception it has
been playing a very prominent role in the development of capital market of northern India.
UPSE is the only. Initially it had 350 members which have now increased to 540 members
belonging to almost all important cities of the country. Members living outside Kanpur have
contributed a lot by creating the equity cult in whole of the Uttar Pradesh. Not only these
members are highly qualified and professional and devoted to the cause of capital
formulation in the country.

The Exchange was initially started in the rented building but with the efforts of our
members, a new complex was constructed and was inaugurated by his Excellency Shri R
Venkatraman the then President of India on 8th February, 1989.

At present we have 843 companies listed with the total capitalization of Rs. 81184
Crores. The annual turnovers of this Exchange for the last three years are : 1998-99: 18429
Crores, 1999-2000: 23876 Crores and 2000-01: 25112 Crores. Thus every year we have
increased our turnover creating more and more awareness among the people of Northern
India.

This stock Exchange is wedded to the investor’s protection and investor’s education as
we have 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 is functioning. We have also
a very effective system of readdressing the investor’s complaints.

39
 The Exchange has one of the best developed Exchanges of the country so far its
infrastructure is concerned. The Ex-Finance Minister Dr. Manmohan Singh, Ex-Commerce
Minister Shri Pranab Mukherjee, other central Ministers and Chief Ministers Uttar Pradesh
have visited this Exchange and 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 Trading. The On-Line 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 On-Line trading facility to about 22
members at Lucknow an additional trading Floor has been established at Lucknow. At
present at the additional trading at Lucknow 22 Lucknow based members have been allotted
Computer Terminals which have been connected with UPSE main server via VSAT.

As per recent decision of SEBI for the revival of the smaller Stock Exchanges in the
country, they can obtain the membership of big Stock Exchanges like, BSE, NSE, CSE etc.
through forming a subsidiary company of the Exchange and in turn the members of the
Exchange can trade through the said subsidiary as sub-broker(s).

Accordingly we have incorporated a wholly owned subsidiary namely UPSE Securities

Ltd. and obtained the membership of BSE to enable the members of UPSE on BOLT.

Main objective of UPSE

1. To organize and carry on the stock exchange and regulate the business
of exchange and stock and share, debentures and debenture stocks. Government securities, bonds
and equities of any description and with a view to establish and conduct stock exchange in
Kanpur.
2. To acquire the membership of any other recognized exchange in India and abroad
including membership of OCTEL, broad base the operations of the stock exchange for the
benefit of the general public and investor.
3. To promote one or more subsidiary whether wholly or partly owned, with object to
promote the trade in share and stocks, debenture bond and other securities of any description
issued by companies statutory corporation, government of state or union government, financial
institution.
4. Provides quotation for shares/stock for fascinating and marketability.

40
5. Extends liquidity (conversion in to cash) to such stock as they are easily
marketable and traded.
6. Provides an orderly regulated market for securities whose prices are
determined by the free market forces of supply and demand.
7. Promotes savings and investments in the economy by attracting funds
for investment in corporate share and securities.

Location and other communication details:

THE UTTAR PRADESH STOCK EXCHANGE ASSOCIATION LTD.

‘Padam Towers’, 14/113, Civil Lines, Kanpur-208001
Telephone No: 2338115, 2338074
Fax No: 0512-2338175/2338220
Email Address: upse@vsnl.in,
Website: upse-india.com

LIST OF DIRECTORS IN THE BOARD (UPSE) FOR THE YEAR 2008-2009

(Constituted on 29-03-09)

SL. No. Name of Director Particulars Telephone/ Fax Nos.

1. Shri K. D. Gupta Public Interest Director

Telephone No: 0512-2556585/2535356
Address: Flat No. 104, Ratan Bhawan 9336453452
7/108A, Swaroop Nagar, upstockexchange@gmail.com
Kanpur-208002
upse@vsnl.in

2. Shri A. K. Shah Public Interest Director

Telephone No: 0512-2550688/2540383
Address: Registrar of U.P. & Uttarakhand 0512-2540423 (Fax)
10/499-B, Allenganj, 9935606399
Kanpur-208002
Kashmir.kamboj@mca.gov.in

3. Shri T. K. Das Public Interest Director

Telephone No: 011-22756035
Address: Flat No. A-201, 9910518074
Anand Lok Society (purvasha),
Mayur Vihar, Phase-1
Delhi-110091
upse@vsnl.in

41
4. Shri B. K. Nadhani Executive Director
Telephone No: 0512-2338288, 2338153, 9793035588
Address: The U.P. Stock Exchange Assn. Ltd.
Padam Towers, 14/113, Civil Lines, Kanpur
Kanpur-208002
upstockexchange@gmail.com
upse@vsnl.in

5. Shri S. K. Kanodia Trading Member Director

Telephone No: 0512-2305958, 0512-2305883 (Fax), 9839035346
Address: Director
Kanodia Shares & Securities (P) Ltd.
407, Padam Towers, 14/113 Civil Lines, Kanpur

6. Shri Rajesh Agrawal Trading Member Director

Telephone No: 9336332505
Address: C/o. Haryana Securities
407, Padam Towers, 14/113 Civil Lines,
Kanpur

7. Shri G. S. Diwedi Trading Member Director

Telephone No: 0512-2338192, 193, 0512-264381 (R), 9415074767
Address: 49/62, Nayaganj,
Kanpur

8. Shri Ashok Sharma Shareholder Director

Telephone No: 0512-2366629, 0512-2363726, 0512-3042039 (R)
Address: Chartered Accountant
58/4, Birhana Road, 9839068023
Post Box No. 389, Kanpur-01

9. Shri Mukul Tandon Shareholder Director

Telephone No: 0512-2373680, 2393970, 9336114347, 9935568890
Address: 413, Plaza Kalpana
24/14-A, Birhana Road
Kanpur-01

10. Shri R. K. Agrawal Sahreholder Director

Telephone No: 9336117324, 9336222842
Address: 3/109, Vishnupuri
Kanpur-208001

11. Shri S. K. Jain FCA Sahreholder Director

Telephone No: 0512-2531195/2532110, 9871055255, 9839032305
Address: 113/233, Swaroop Nagar
Kanpur-208001
42
12. Shri S. K. Gupta Sahreholder Director
Telephone No: 0512-2302737, 9839084094, 9336103555
Address: 51/40, Goldiee House, NayaGanj
Kanpur-208001

13. Shri Vinod Kumar Sahreholder Director

Telephone No: 0522-2208030, 9415012598
Address: FF-2, Rajnigandha-2
Gulmohar Avenue
3-C, Gokhla Marg, Lucknow-226001

43
 DEPARTMENTS
1. R & D department
2. Membership Inspection / Grievances / Complain / Audit
3. Listing
4. Market operation department (Margin)
5. Secretarial Department
6. Surveillance Department
7. EDP (Computer)
8. Accounts
9. Legal
10. UPSE securities (Subsidiary Company)
11. Clearing House (Trade and Operation)

44
 1. R & D, Library and Investor service department
Research and development wing of the Uttar Pradesh Stock Exchange Association
Limited has been functioning eve since 1992 under SEBI direction and providing valuable
services to the investors. The wing presently names ‘investor service center’ has a well
maintained, library comprising of books, journals, periodicals, and newspapers on financial
market, annual reports of companies, prime directory etc.

They maintain the records of day to day quotations of major exchanges, the annual
reports of companies, PRIME directory, complete set of volumes of the Stock Exchange,
Mumbai Directories. Along with this it also maintains the news letters, daily bulletin, books
on Capital Markets, Investor awareness, Budget Taxation with other relevant books.

The UPSE has been organizing summer camps to give trainings to Company Securities
and MBAs different institutes giving those complete data and helping the student to know the
practical day-to-day working of the exchanges. Along with this it also organizes Investor
Awareness Shows.

The changing technology has helped the exchange to install a corporate database of over
7000 companies. The rates of UPSE, BSE, and NSE are displayed live for the benefit of
investors.

There are three main function of this department

• To render investor services

• To maintain library
• To conduct research and development

All the above facilities are provided free of cost to one and all any query is mandatory
attended by the help desk situated in the investor service center, headed by a responsible
official of the exchange.

45
 2. Membership and Grievances

There are two types of membership

1. Shareholder
2. Trading member

Eligibility for membership

To have the membership of the stock exchange one has to satisfy the following criteria

1. He has to be the citizen of India.

2. Experience of 2 year in the securities department.
3. Capital of 10 lakh (individual) and 20 lakh (company).
4. He must submit 4 lakh as Base Minimum Capital (BMC). This becomes operational
in the stock market.

a) The BMC must comprise of at least of 50% of cash or cash equivalents (FDR,
bank guarantee, etc)
b) Other 50% can comprise of the following type of assets (shares-valued on the
daily basis)

5. He must submit extra money as Margin, to trade in shares of the stock exchange.

a) The margin again has to be of 50% of cash or cash equivalents (FDR, bank
guarantee, etc.)
b) Other 50% can comprise of the following type of assets (shares-valued on the
daily basis)

6. No association with defaulter member, i.e. the member has to provide an undertaking
Of not being involved with defaulting broker.

Procedure to get membership

Application → screening committee (UPSE) → Board approval (UPSE) → SEBI

approval

46
 Grievances and problems

There are of two types of problem between the investor and the following parties
1. Companies
2. Broker

Transfer of share committee

This committee takes care of the hassle free transfer of the share from one party to
another.

Investor services committee

This committee helps solve problem between the broker and stock holder. There is no
charge for the resolution of the problem of the investor regarding the above parties.

Arbitration committee (upper committee)

To appeal against the decision of the Investor Service Committee (ISC), one has to
submit the decision of ICS along with Rs. 1000 in the arbitration committee.

The arbitration panel headed by presiding arbitrator appoints a sole arbitrator. The sole
arbitrator undertakes investigation and hearing of the case. Then arbitration award decision is
given. The execution of the order of the arbitration has to be made within 15 days.

Default committee
The department collects and keeps track of the various dues to the stock exchange. It also
takes action against the defaulting brokers and company.
It can invite investor claim by advertising in the newspapers.
The assets of the defaulting party are disbursed to the lenders and the surplus goes to the
investor protection fund (IPF).
If the asset of the defaulting party falls the lenders demand, 1 lakh (maximum) can be
released from the IPF, condition being it is per person case.

47
 Disciplinary committee

The department takes care of the imaginaries that occur that during the regular conduct of
the business of the stock exchange.

It can penalize the party involved in the earlier mentioned acts with following
1. Financial fines
2. Expulsion

Investor grievance with the broker or vise versa goes to the Investor Service Committee
(ISC).

Investor having complained against any company then the case goes to the Arbitration
committee.

Here the investor only has to deposit arbitration fees but no security. Whereas the brokers has
to deposit 100% of the award, given against him by the ISC.

The legal path for complaints of the investor is as follows:

ISC→ Arbitration committee → District judge→ High court→ Supreme court

The various measures that court can take on the litigation of this type are as follows:

1. Set aside
2. Confirm
3. Reprimand (send back the order to the lower court)

48
 3. LISTING
Recruitment with respect to the listing of securities on a recognized stock
exchange

A public company as defined under the act 1956, desirous of getting its securities listed
on a recognized stock exchange, shall apply for the purpose to the stock exchange and
forward alone with its application the following documents and particulars:

a) Memorandum and article of association and in case of a debenture issue, a copy of the trust
deed.

b) Copies of all prospectuses or statement in lieu of prospectuses issued by the company at any
time.

c) Copies of offer for the sale and circulars or advertisements offering any securities for
subscription or sale during the last five years.

d) Copies of balance sheet and audited accounts for the last five years, or in the case of new
companies, for such shorter period for which account have been made up.

e) A statement showing-
i. Dividend and cash bonuses, if any, paid during the last ten years (or such shorter
period as the company has been in existence, whether as a private or public
company).
ii. Dividend or interest in arrear, if any.

f) Certified copy of agreement or other documents relating to

arrangements with or
between: -

i. Vendors and /or promoters

ii. Underwriters and sub-underwriters.
iii. Broker and sub-broker.

g) Certified copies of agreement with—

i. Managing agents and secretaries and treasures.

ii. Selling agents
iii. Managing directors and technical directors

49
iv. General manager, sales manager, manager or secretary.

50
 h) Certified copy of every letter, report, balance sheet, valuation, contract, court
order or other document, or other document, part of which is referred to in any
prospectus, offer for sale, circular or advertisement offering securities for
subscription or sale, during the last five years.

i) A statement containing particulars of the date of, and parties to all material
contracts, agreements (including agreement for technical advice and collaboration)
concessions and similar other documents (except those entered into in the ordinary
courses of business carried on or intended to be carried on by the company)
together with a brief description of the terms, subject matter and general nature of
the documents.

j) A brief history of the company since its incorporation giving details of its
activities including any reorganization, reconstruction or amalgamation, changes in
its capital structure (authorized, issued and subscribed) and debenture borrowings if
any.

k) Particulars of shares and debentures issued—

i. For consideration other than cash, whether in whole or part,
ii. At a premium or discount or,
iii. In pursuance of an opinion.
l) A statement containing particulars of any commission, brokerage,
discount or other special terms including an opinion for the issue of any kind of
the securities granted to any person.

m) Certified copies of –

i. Acknowledgement card or the receipt of filling offer document with the

securities and exchange board of India.
ii. Agreement, if any, with the industrial finance corporation, industrial credit and
Investment Corporation and similar bodies.

n) Particulars of shares forfeited.

o) A list of highest ten holder of each class or kind of securities of the

company as on the date of application along with the particulars as to the number
of shares or debentures held by and the address of each such holders.

p) Particulars of shares or debentures for which permission to deal is

applied for:

Provided that a recognized stock exchange may either generally by its buy laws or in
any particular case call for such further particulars of documents, as it deems proper.

51
An initial listing fee for a company to get listed with the Uttar Pradesh Stock Exchange is
10500.

The Annual listing fees structure is as follows:

Capital (in crore) Fees

Up to 1 6000

1.5 9000

5.10 14000

10.20 28000

Each additional 1 crore over 20 crore onwards in the capital will attract Rs 4600 more in
addition to 28000.

If other company from different state listed with BSE or NSE the company will be
charged 50% of the above fees.

One day free run for the stock is provided to estimate the value of the stock. That is, there
is no circuit limits to the stock for the first day of the trading of a stock.

Indian primary market ushered in an era of free pricing in 1992. Following this, the
guidelines have provided that the issuer in consultation with Merchant Banker shall decide
the price. There is no price formula stipulated by SEBI. SEBI does not play any role in price
fixation. The company and merchant banker are however required to give full disclosures of
the parameters, which they had considered while deciding the issue price. There are two
types of issues one where company and LM fix a price (called fixed price) and other, where
the company and LM stipulate a floor price or a price band and leave it to market forces to
determine the final price (price discovery through book building process).

To have voluntary delisting, company must be listed in BSE and NSE.

For compulsory delisting, the stock exchange takes action against the company. If there is
violation of the listing clauses, the company can be listed.

52
 4. MARGIN DEPARTMENT
New scheme for margin is implemented from the date 30 June.

In the new system of margin there is the concept of “Upfront Margin”.

The upfront margins consist of the following types of margins VAT (Value at Risk) and
ELM (Extreme Loss Margin).

The VAR and ELM is fixed for the different scripts.

The Z group of shares can attract VAR and ELM of 100%, where as for the “B and A”
group share could attract lesser percentage.

Marked to Market is a special type of margin.

Further details please refer to the specialization portion of the report.

53
 5. SECRETARIAL
Governing Board

According to the article of association of the exchange governing board comprises of

1. Six director elected under the provision of the article of association of the exchange.
2. Person not exceeding two is nominated by SEBI as director
3. Four people from public as public representatives nominated by the governing board of the
exchange subject to SEBI approval.
4. One executive director appointed by the governing board subject to prior approval of SEBI.

However w.e.r. 12-07-2002 SEBI has suspended the governing board of the exchange
and appointed an administrator to perform the power and function of the governing board,
under section 11 of SCRA, 1956.

According to the new regulation every stock exchange will now have a board of director.

Power to Frame and Amend Regulations

Subject to the provisions of these Bye-laws and the Rules of The Exchange, the
Governing Board or the Committee appointed by the Governing Board shall have exclusive
powers to frame Regulations from time to time for efficient functioning and operations of the
Exchange and to regulate the functioning and activities of the trading members of the
Exchange, sub-brokers, remises, authorized persons, approved users, Clearing House or
Clearing Corporation, Clearing Banks, company or issuer and all other persons operating
under or through them or dealing with them both inter-se and in relation to the Exchange and
to regulate Listing of Securities by an issuer, including providing for arbitration between an
issuer or a company and an investor or any affected person. The Governing Board or the
Committee may, from time to time, amend, add to, alter, modify, delete or repeal any of the
provisions of the Regulations, as may be deemed necessary or appropriate or if so desired or
directed by SEBI. The Regulations shall provide for necessary authorization for effect. Any
amendments, additions or alterations to any Regulations made by the Governing Board or the
Committee in pursuance of the powers conferred by the Rules of the Exchange and these
Bye-laws, together with the reference to the Bye-law or Bye-laws to which such Regulations
relate to, shall be communicated to SEBI. The Regulations brought into force by a direction
of SEBI may be amended, added, or altered by the Governing Board or the Committee,
subject to the condition that such amendments, additions or alterations shall come into force
only after the prior approval of SEBI; except those amendments, additions or alterations

54
Which are stricter in its nature than those directed by SEBI.

Without prejudice to the generality of the foregoing, the Governing Board or the
Committee may time to time prescribe the Regulations with a view to organize, facilitate,
maintain, manage, control and regulate the operations, functions and supervision of the
exchange and to regulate the activities and functioning of the trading members, clearing
members, custodians, sub-brokers, remisiers, authorized persons, approved users and issuers
of securities, as may be necessary or expedient, and provide for necessary authorization
wherever requirements are operational in its nature and such requirements need to be
enforced with immediate effect in the following matters:

3.1.1 Listing of Securities

3.1.2 Trading on the exchange
3.1.3 Transaction in Securities Subject to Risk Management & Surveillance
3.1.4 Clearing and Settlement of Transactions
3.1.5 Conciliation and Arbitration
3.1.6 Setting-up of Settlement Guarantee Fund, Investors’ Protection Fund and Other
Funds

Subject to the provisions of SCRA, the SEBI Act and the Rules and Regulations framed
there under and the directives issued there under, the Governing Board shall have power to
vary, amend, add to, alter, modify, delete or repeal any of the provisions of the Rules and/or
Bye-laws of the exchange framed by it, as may be deemed necessary for the effective and
efficient management of the Exchange and to achieve its objects. Such changes in the Rules
and/or Bye-laws referred to above shall come into force only after prior approval of SEBI.
Such changes provided in the Bye-laws shall be subject to the requirement of the previous
publications in the Gazette of India and the official Gazette of the State in which the principal
office of the stock exchange is situate, and shall come into force only after prior approval of
SEBI> the Exchange shall place on its website any changes that amy be required to be
carried out in its Bye-laws for public comments simultaneously while publishing them in the
Gazette of India and the official Gazette of the State as required.

55
 UTTAR PRADESH STOCK EXCHANGE

Report on

Working of Uttar Pradesh Stock Exchange (UPSE)

With The Focus on the MARGIN DEPARTMENT

IN PARTIAL FULFILLMENT OF SUMMER TRAINING

FOR MBA PROGRAMME (2008-2010)

56
 AKNOWLEDGEMENT

Training is essential to supplement theoretical knowledge with practical knowledge

and to include right attitude and conduct regarding the profession. It improves
efficiency, and acts as a driving force in focusing our goals. As we all are aware of the
most sought after work is “success” , everybody wants it and most some never realize
when they have got it. Most of us want to be successful and to achieve it we put in
our efforts we get support from our seniors and colleagues. So many things we learn
from them remain unnoticed that gets imbibed in us.

I also come across and availed one such opportunity by understanding my training at
UTTAR PRADESH STOCK EXCHANGE ASSOCIATION LTD, KANPUR which
had been a great learning experience, certainly would not have been possible without
sincere guidance and corporation of Rajendra sir.

I would like to sincerely thank and place on record gratitude in favor of Mr.
Rajendra Verma for his kind cooperation in all my effort.

I would not have imagined completing my specialization successfully. I am deeply

indebt and thankful to them for inspiring me in various activities to complete this
project and to make my training a successful event.

Date:

Place: (ALOK BHATT)

57
 SPECIAL THANKS

I would like to thank Mr. Suresh Gupta (UPSE Securities) for his cooperation and
help in the training process. I would like to thank the staff of the UPSE and specially
Vivek Agnihotri (Clearing House)
L. S. Pandey (Clearing House)
B. K. Gupta (Surveillance Dept.)

Along with all the department heads

Atul Agrawal (Membership)

S C Kapoor (Listing)
Mr. Rajeev Rastogi (EDP, Computer)
Mr. J M Shulkla (Survellance)
Mr. Rajendra Verma (R & D)
Mr. V. P. Mishra (CEO, UPSE Securities)
Mr. Chandrababu, P. R. (Secretarial)
Mr. J. K. Dixit (Market operation, Margin)

They not only helped us understand the working of the stock exchange but also back
us to make enquiries. The enquiries were then patiently solved.

I am earnestly grateful to them for allowing me to work in their guidance and

encouraging me to develop this project report.

58
 PREFACE

The main objective of the report is to enhance the knowledge of the investor so that
they are able to take their decision. This report will enable the investor to understand
the working of the stock exchange, the various laws and board that govern the
transaction of the securities transaction.

This report aims to generate an understanding among the investor, about stock
exchange. It has been generally found that people try to make investment without
prior knowledge of the working of the stock market. This often leads to the investor
unaware of their rights and duties. This gap in the knowledge of the investor is
detrimental to them and their investment. They fall trap to the false claims of the
various investment companies. They lose not only their investment but also their
confidence in the market.

So a well aware investor will not only be able to increase his wealth as well as
contribute to the growth of the economy of the country.

59
 TABLE OF CONTENT

• Executive summary 6
• Introduction 7
• SEBI (Securities and Exchange Board of India) 12
• SAT (Securities Appellate Tribunal ) 22
• Depository 25
1. NSDL 27
2. CDSL 28
• Stock Exchange 30
1. NSE 37
2. BSE 38
3. UPSE 39
• UPSE Departments 44
1. R & D Department 45
2. Membership/Inspection/Grievances/Complain/Audit 46
3. Listing 49
4. Market operation department (Margin) 52
5. Secretarial department 53
6. Surveillance department 55
7. EDP (Computer) 57
8. Accounts 58
9. Legal 59
10. UPSE securities (Subsidiary company) 60
11. Clearing house 61
• Specialization in the margin department
Focus on the margin, its need, calculation and importance 64
• Future proposal 70
• Conclusion 71
• Keywords 72
• Bibliography 80

60
 EXECUTIVE SUMMARY

This report is an effort to study the whole system of securities trade and various regulatory
bodies that govern the system.

The report brings to light the SEBI (Securities and Exchange Board of India) act that governs
the securities transactions and the working of the stock exchanges. The SEBI board
constituted under this act is the regulatory body that enforces the act and periodically makes
changes to the structure of the system in the interest of the investor. The SAT (Securities
Appetite Tribunal) decides any case that may arise due to the rulings of the SEBI board.

Next we have the depository (NSDL, CDSL) which registers and governs the depository
participants (Stock Holding Corporation of India Ltd.). The depositories are governed by the
SEBI and must follow the rules and regulation of the Depositories Act, 1996.

Then we would take a look of the various securities market. The history and the present
scenario of some of the major stock markets of India (BSE, NSE) are introduced.

This makes the ground for the detailed study of the UPSE (Uttar Pradesh Stock Exchange),
one of the only functional regional stock market in the north India other than NSE. The
functioning of the departments is explained with special emphasis on the margin department.

Hope this report will be able to enhance the knowledge of the investor about the stock
market.

61
INTRODUCTION

62
 FINANCIAL MARKET

A financial market is a place where creation and exchange of financial assets are
takes place. One participates in financial market in one way or other. This shows the
structure of it.

• Money market
It is the market in which funds are borrowed or loaned for short
period of time.

• Capital market
It is the market for stock and long term debt (more than one year).

• Primary market
Corporate institution raises capital by issuing new securities.

• Secondary market
Securities and other financial assets are traded.

MARKET PARTICIPATION:

Stock market intermediaries:-

The players in the market are the issuers of securities, namely companies, intermediaries like
broker, sub-brokers etc., and the investors who bring their saving and funds into the market.

“Stock broker” means a member of a stock exchange.

“Sub-broker” means any person not being a member of a stock exchange who acts on behalf
of a stock-broker as an agent or otherwise for assisting the investors in buying, selling or
dealing in securities through such stock-brokers.

63
 The stock brokers are of various categories namely:

• Client broker- Doing simple broking between buyer and seller and earning only brokerage for
their service from the clients.

• Floor broker- Authorized clerk and sub-broker who enter the trading floor and execute the
orders for the client or for member. ( now obsolete)

• Jobber and market makers- Those member who are ready to buy and sell simultaneously in
selected scripts, offering bid and offer rates for the brokers and sub-broker on the trading floor
and earning profit through the margin between buying and selling rates. Market makers
undertake this work compulsory for some companies and bank finance is available to them.

• Arbitrageurs- Those who do inter market deals for a profit through difference in prices as
between market say buy in Calcutta and sell in Mumbai and vice versa.

• Badla financers- Those member who finance carry forward deals in specific group (A group)
for a return in the form of interest, called Badla rate. They lend money or share for brokers who
are overbought or oversold respectively at the same time of settlement. Badla is a carry –
forward facility from one settlement to another without taking delivery upto a maximum period
of 90 days at a time, now reduced 7 to 158 days.

• Broker- is registered member of stock exchange through whom investors transact. There are
about 10,000 brokers in India. In most circumstances a broker is a third party to an agreement to
purchase a commodity, the item being bought and sold is neither owned nor controlled by the
broker who simply acts as an intermediary and is normally paid on completion of an agreement.
Broker who also act as seller or as buyer become a principle party to the deal whereas an agent is
one who acts as seller or as buyers on behalf of a principal.

In accordance with the wording of the law, participants in the Indian capital market are
supposed to register with SEBI in order to carry their business these are:-

64
 Stock broker, sub-broker, share transfer agent, broker to issue, registrar to issue, underwriter,
portfolio manager, investment advisor and other such intermediary who may be associated
with security market.

Venture capital fund and collective schemes including mutual fund also have to register with
SEBI.

The securities market is the market for equity, debt and derivatives, structure for this market
is s follows-

SECURITIES MARKET

• Equity market
• Debt market
• Derivatives market
• Government securities
• Money market
• Option market
• Future market

Except the derivatives market, each of the above market has two components-

• Primary market
• Secondary market

SECONDARY market and its operation:

The origin of the stock market in India goes back to the end of the eighteen century when
long term negotiable securities were first issued however for all practicable.

Purpose, the real beginning occurred in the middle of nineteenth century after the enactment
of the companies act in 1850, which introduced the featured of limited.

Liability and generated investor interested in corporate securities.

An important early event in the development of stock exchange in India was the formation of
the native shares and stock broker association at MUMBAI in 1875, the procurer of the
present day BSE. This was followed by the formation of many stock exchanges.

65
 Establishment of SEBI

The Securities and Exchange Board of India was established by the

Government of India in 1988 through an executive resolution, and it was subsequently
upgraded as a fully autonomous body (a statutory Board) in the year1992 with the passing of
the Securities and Exchange Board of India Act on 30th January 1992. In place of
Government Control, a statutory and autonomous regulatory board with defined
responsibilities (covering both development & regulation of the market) and interdependent
powers has been set up. Paradoxically this is a positive outcome of the Securities Scam of
1990-91 (popularly identified as the Harshad Mehta Scam).

The basic objectives of the Board were identified as:

• To protect the interests of investors in securities;

• To promote the development of Securities Market;
• To regulate the securities market and
• For matters connected therewith or incidental thereto.

Since its inception SEBI has been attending to the fulfillment of its objectives with
commendable zeal and dexterity. The improvements in the settlements in the securities
markets like capitalization requirements, margining, establishment of clearing corporations
etc. reduced market and credit risks.

66
 SEBI

SECURITIES AND EXCHANGE BOARD

OF INDIA

67
The securities and Exchange Board of India Act, 1992 is having retrospective effect and is
deemed to have come into force on January 30, 1992.Relatively a brief act containing 35
sections, the SEBI Act governs all the Stock Exchanges and the Securities Transactions in
India.

A Board by the name of the Securities and Exchange Board of India (SEBI) was constituted
under the SEBI Act to administrator its provisions. It consists of one Chairman and five
members.

One each from the department of Finance and Law of the Central Government, one from the
Reserve Bank of India and two other persons and having its head office in Bombay and
regional offices in Delhi, Calcutta and Madras.

The Central Government reserves the right to terminate the services of the Chairman or any
member of the Board. The Board decides questions in the meeting by majority vote the
chairman having a second or casting vote.

Section 11 of the SEBI Act provides that to provide that to protect the interest of investors in
securities and to promote the development of and to regulate the securities market by such
measures, it is the duty of the board. It has given power to the Board to regulate the business
in Stock Exchanges, register and regulate the working of stock brokers, sub-brokers, share
transfer agents, bankers underwriters, portfolio managers, investment advisors, etc., also to
register and regulate the working of collective investment schemes including mutual funds,
to prohibit fraudulent and unfair trade practices and insider trading to regulate take-over, to
conduct enquiries and audits of the stock exchanges, etc.

All of the stock-brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of
trust deed, registrars to an issue, merchant bankers, underwriters, portfolio managers,
investment advisers and such other intermediary who may be associated with the Securities
Markets are to register with the Board under the provisions of the under the Act, under
section 12 of the SEBI act . The Board has the power to suspend or cancel such registration.
The Board is bound by the directions vested by the Central Government from time to time on
questions of policy and the Central Government reserves the right to supersede the Board.
The Board is also obliged to submit a report to the Central Government each year, giving true
and full account of its activities, policies and programs. Any one of the aggrieved by the
Board’s decisions is entitle to appeal to the Central Government.

68
 SEBI guidelines for investor

Securities and Exchange Board of India, a statuary body constituted by the

Government of India, stands committed to the assigned objective of protecting investors in
the securities market.

Ensuring disclosure of full, fair and adequate in formation has been the hallmark of our
regulatory principal. In continuation of our efforts in that direction, we thought it fit and
timely to write to investor making investor aware of

• The right the investor has as a stake holder in a company,

• The responsibilities that are cast on investor,

• The risks that investor has assumed,

• The procedures relating to trading and transfer of the securities and

• The remedies for problem that investor may encounter.

We hope that this material will give investor appropriate guidance, though in brief, whenever
he will question in his mind. For detailed guidance, he may approach his broker, the investor
service centers of the stock exchanges, and of course, the Investor Guidance Division of the
Securities and Exchange Board of India.

Risk Revisited

When investor invested, he did so with certain expectations about the

performance of the company, the prospects of income from and/or the capital growth of the
securities that he now hold, the corporate benefits that may accrue to him etc.

While making that investment decision, investor should have, obviously, taken note of and
duly evaluated the attendant risks that go with such expectations.

Investor should remember that one such risk is that his expectations on income and/or growth
may not materialize.

An investor in the debt instruments, he can have resource against the company, besides the
market, for redeeming them. But, as an equity holder of a company, in order to realize the
value of such investment, he has resources only to the market.

69
 And he would recollect that the dis-investment may result in capital losses also.

Further, he would also noted that apart from the above mentioned investment risks, he also
face the risk of running into problems with the trading and transfer of the securities.

Investors Rights

As a shareholder in a company, he enjoys certain rights, which are as follows:

• To receive the share certificates, on allotment or transfer as the case may be, in due
time.

• To receive copies of the abridged Annual Report, the Balance sheet and the P&L A/c
and the Auditor’s Report.

• To participate and vote in General Meetings either personally or through proxies.

• To receive corporate benefits like rights, bonus etc. once approved.

• To apply the Company Law Board (CLB) to call or direct the Annual General
Meeting.

• To inspect the minute books of the General Meetings and to receive copies thereof.

• To proceed against the company by way of civil or criminal proceedings.

• To apply for the winding-up of the Company.

• To receive the residual proceeds.

• Besides the above rights which he enjoys as an individual shareholder, he also enjoys
the following rights as a group.

• To requisition an Extra-ordinary General Meeting.

• To demand a poll on any resolution.

• To apply to CLB to investigate the affairs of the company.

• To apply to CLB for relief in cases of oppression and/or mismanagement.

70
 As a debenture-holder, he has the right

• To receive interest/redemption in due time.

• To receive a copy of the trust deed on request.

• To apply for winding up of the company if the company falls to pay its debt.

• To approach the Debenture trustee with his grievance.

He may note that the above mentioned rights may not necessarily be absolute. For example,
the right to transfer securities is subject to the company’s right to refuse transfer as per
statuary provisions.

Investor Responsibilities

While investor may be happy to note that he has so many rights as a stakeholder in the
company, that should not lead him to complacency; because he have also certain
responsibilities to discharge. To be specific,

• To remain informed

• To be vigilant

• To participate and vote in general meetings

• To exercise his rights on his own or as a group

Trading of securities

Investor has the right to sell the securities that he holds at a price and time that he
may choose. He can do so personally with another person or through a stock exchange.
Similarly he has the right to buy securities from anyone or through a recognized stock
exchange at a mutually acceptable price and time.

Whenever it is a scale or purchase of securities, affected directly by him or

through an exchange, all trades should be executed by a valid, duly completed and stamped
transfer deed.

71
If he chooses to deal (buy or sell) directly with another person, he is exposed to counter party
risk, i.e. the risk of non-performance by that party. However, if he deals through a stock
exchange, this counter party risk is reduced due to trade/settlement guarantee offered by the
stock exchange mechanism. Further, he also has certain protections against defaults by his
broker.

When investor operates through an exchange, he has the right to receive the best
price prevailing at that time for the trade and the right to receive the money or the shares on
time. He also has the right to receive a contract note from the broker confirming the trade and
indicating the time of execution of the order and other necessary details of the trade. He also
has the right to receive good delivery and the right to insist on rectification of bad delivery. If
he has a dispute with his broker, he can resolve t through arbitration under the aegis of the
exchange.

If investor decides to operate through an exchange, he has to avail the services of

a SEBI registered broker/sub-broker. He has to enter into a broker-client agreement and file a
client registration form. Since the contract note is a legally enforceable document, he should
insist on receiving it. He has the obligation to deliver the shares in case of sale or pay the
money in case of purchase with in the time prescribed. In case of bad delivery of securities
by him, he has the responsibility to rectify them or replace them with good ones.

Transfer of securities

Transfer of securities mean that the company has recorded in its books, a change
in the title of ownership of the securities affected either privately or through an exchange
transaction.

To affect a transfer, the securities should be sent to the company along with a
valid, duly executed and stamped transfer deed duly signed by or on behalf of the transferor
(seller) and transferee (buyer), it would be a good idea to retain photocopies of the securities
and the transfer deed when they are sent to the company for transfer. It is essential that he
send them by registered post with acknowledgement due and watch out for the receipt of the
acknowledgement card. If he does not receive the conformation of receipt within a
reasonable period, he should immediately approach the postal authorities for conformation.

Sometimes, for his own convenience, investor may choose not to transfer the
securities immediately. This may facilitate easy and quick selling of the securities. In that
case he should take care that the transfer deed remains valid. However, in order to avail the
corporate benefits like the Dividends, Bonus or Rights from the company, it is essential that
he get the securities transferred in his name.

72
 On receipt of investor request for transfer, the company proceeds to transfer the
securities as per provisions of the law. In case they cannot affect the transfer, the company
returns back the securities giving details of the grounds under which the transfer could not be
affected. This is known as Company objection.

When investor happens to receive a company objection for transfer, he should

proceed to get the errors/discrepancies corrected. He may have to contact the transferor (the
seller) either directly or through his broker for rectification or replacement with good
securities. Then he can resubmit the securities and the transfer deed to the company for
affecting the transfer.

In case investor is unable to get the errors rectified or get them replaced, he has
recourse to the seller and his broker through the stock exchange to get back his money.
However, if he has transacted directly with the seller originally, he have to settle the matter
with the seller directly.

Sometimes, investor’s securities may be lost or misplaced. He should immediately

request the company to record a stop transfer of the securities and simultaneously apply for
issue of duplicate securities. For affecting stop transfer, the company may require him to
produce a court order or the copy of the FIR filed by him with the Police further, to issue
duplicate securities to him, the company may require him to submit indemnity bonds, and
affidavit, sureties etc. besides issue of a public notice. He has to comply with these
requirements in order to protect his own interest.

Sometimes, it may so happen that the securities are lost in transit either from
investor to the company or from the company to investor. Investor has to be on his guard and
write to the company within a month of him sending the securities to the company. The
moment it comes to his that either the company has not received the securities that he sent or
he did not receive the securities that the company claims to have sent to him, he should
immediately request the company to record stop transfer and proceed to apply for duplicate
securities.

Depository and dematerialization

Shares are traditionally held in physical or paper form. This method has its own
inherent weakness like loss/theft of certificates, forged/fake certificates, cumbersome and
time consuming procedure for transfer of shares etc. Therefore, to eliminate this weakness, a
new system called Depository System has been established.

• A depository is a system which holds the investor’s shares in the form of electronic
accounts in the same way a bank holds his money in savings account.

73
• Depository system provides the following advantages to an investor.

• Investor shares cannot be lost or stolen or mutilated.

• Investor never need to doubt the genuineness of his shares i.e., whether they are
forged or fake.

• Share transactions like transfer; transmission etc. can be effected immediately.

• Transaction costs are usually lower than on the physical segment.

• There is no risk of bad delivery.

• Bonus/Rights shares allotted to investor will be immediately credited to his account.

• Investor will receive the statement of accounts of his transactions/ holdings

periodically.

When investor decides to have his shares in electronic form, he should approach a
Depository Participant (DP) who is an agent of the depository and open an account. He
should surrender his shares certificates in physical form and his DP will arrange to get them
sent to verified by the company and on confirmation credit his account with an equivalent
number of shares. This process is known as de-materialization. He can always reverse this
process if he so desire and get his shares reconverted into paper format. This process is
known as re-materialization.

Share transactions (like sale or purchase and transfer/transmission etc.) in the electronic form
can be effected in a much simpler and faster way. All investor need to do is that after
confirmation of sales/purchase transaction by his broker, he should approach his DP with a
request to debit/credit his account for the transaction. The Depository will immediately
arrange to complete the transaction by updating his account. There is need for separate
communication to the company to register the transfer.

Grievance Redressal

There will be occasions when investor has a grievance against the company in which he is a
stake-holder. It may be that he have not received the share certificates on Allotment or on
transfer; it may be that he have not receive the dividend/interest warrant or refund order;
perhaps he did not receive the Annual accounts etc. while he would first approach the
company in that regard, he may not be satisfied with the company’s response there to. He
would like to know whom he should turn to get his grievance redressed.

74
 The following table would provide him the guidance in this regard.

In case of any Public Issue, non-receipt of

Nature of grievance Can be taken up with

Refund order SEBI

Interest on delayed refund Dept. of Company Affairs
Allotment advice Dept. of Company Affairs
Share certificates Stock Exchange
Duplicates for all of the above Registrars to the issue
Re-validations Registrars to the issue

In case of a listed security, non-receipt of the certificates after:

Transfer SEBI
Transmission SEBI
Conversion SEBI
Endorsement Dept. of Company Affairs
Consolidation Stock Exchange
Splitting Stock Exchange
Duplicates of securities Stock Exchange

Regarding listed Debentures, non-receipt of

Interest due SEBI
Redemption proceeds Dept. of Company Affairs
Interest on delayed payment The Debenture Trustees
Stock Exchange

Regarding bad delivery of shares Bad delivery cell of the stock exchange
Regarding shares or debentures in Dept. of Company Affairs
unlisted companies
Deposits in collective investment SEBI
schemes like plantations etc
Units of Mutual Funds SEBI
Fixed Deposits in Banks and Finance Reserve Bank Of India
companies
Fixed Deposits in manufacturing Dept. of Company Affairs
companies

75
 Investor Information Centers have been set up in every recognized stock exchange which in
addition to the complaints to the securities traded/listed with them, will take up all other
complaints regarding the trades affected in the exchange and the relevant member of the
exchange.

Moreover two other avenues are always available to the investors to seek redressal of their
complaints which are through

• Complaints with Consumers’ Disputes Redressal Forums

• Suits in the Court of Law

Offices of SEBI

SEBI Offices Jurisdiction

For the companies having their Registered Offices in

Head Office:

Mittal Court,’B’ Wing, 1st Floor, 224 Nariman Point, MUMBAI-400021

Northern Regional Office:

Block No.-1, Rajendra Bhawan, Rajendra Place, Dist. Centre, NEW DELHI-110008

Eastern Regional Office:

FMC Fortuna, 5th Floor, 234/3A AJC Bose Road, KOLKATA-700020

Southern Regional Office:

3rd Floor, D’Monte Bidg. No.32, D’Monte Colony, TTK Road, Alwarpet, CHENNAI-600018

76
SECURITIES APPELLATE TRIBUNAL

77
 Establishment of Securities Appellate Tribunals

The Central Government shall, by notification, establish one or more Appellate

Tribunals to be known as the Securities Appellate Tribunal to exercise the jurisdiction,
powers and authority conferred on such Tribunal by or under this Act or any other law for the
time being in force.

The Central Government shall also specify in the notification referred to in subsection (1) the
matters and places in relation to which the Securities Appellate Tribunal may exercise
jurisdiction.

Composition of Securities Appellate Tribunal

A Securities Appellate Tribunal shall consist of a Presiding Officer and two other
Members, to be appointed, by notification of the Central Government:
Provided that the Securities Appellate Tribunal, consisting of one person only, established
before the commencement of the Securities and Exchange Board of India (Amendment) Act,
2002, shall continue to exercise the jurisdiction, powers and authority conferred on it by or
any other law for the time being in force till other Members are appointed under this section.

Orders constituting Appellate Tribunal to be final and not to be final and

not to invalidate its proceedings

No order of the Central Government appointing any person as the Presiding

Officer or a Member of a Securities Appellate Tribunal shall be called in question in any
manner, and no act or proceeding before a Securities Appellate Tribunal shall be called in
question in any manner on the ground merely of any defect in the constitution of a Securities
Appellate Tribunal.

Securities Appellate Tribunal

(1) Any person aggrieved: -

 By an order of the Board made, on and after the commencement of the Securities
Laws (Second Amendment) Act, 1999, under this Act, or the rules or regulations made there
under; or
(2) No appeal shall lie to the Securities Appellate Tribunal from an order made

 By the Board on and after the commencement of the Securities Laws (Second
Amendment) Act, 1999:

78
 By an adjudicating officer, with the consent of the parties.

(3) Every appeal under sub-section (1) shall be filed within a period of forty-five days from
the date on which a copy of the order made by the Board or the adjudicating officer, as the
case may be, is received by him and it shall be in such from and be accomplished by such fee
as may be prescribed: Provided that the Securities Appellate Tribunal may entertain an
appeal after the expiry of the said period of forty-five days if it is satisfied that there was
sufficient cause for not filling it within that period.

(4) On receipt of an appeal under sub-section (1), the Securities Appellate Tribunal may,
after giving the parties to the appeal, an opportunity of being heard, pass such orders thereon
as it thinks it fit, confirming, modifying or setting aside the order appealed against.

(5) The appeal filled before the Securities Appellate Tribunal under sub-section (1) shall be
dealt with by it as expeditiously as possible and endeavor shall be made by it to dispose of
the appeal finally within six months from the date of receipt of the appeal.

79
DEPOSITARY

80
A Depository facilities holding of securities in the electronic form and enables securities
transactions to be processed by book entry by a Depository Participant (DP), who as an
agent of the depository, offer depository services to investors. According to SEBI
guidelines, financial institutions, banks, custodians, stockbrokers, etc. are eligible to act as
DPs. The investor who is known as beneficial owner (BO) has to open a demat account
through any DP for dematerialization of his holdings and transferring securities.

There are two depositories in India, NSDL (National Securities Depository Ltd.)
and CDSL (Central Depository Services Ltd.).

The balances in the investors account recorded and maintained with CDSL can
be obtained through the DP. The DP is required to provide the investor, at regular intervals,
a statement of account, which gives the details of the securities holdings and transactions.
The depository system has effectively eliminated paper-based certificates, which were
prone to be fake, forged, counterfeit resulting in bad deliveries. CDSL offers an efficient
and instantaneous transfer of securities.

Demat Account

Demat or Demateralized account is to store stocks in electronics form. It is just like

opening a bank account to store investor money. Now no body is interested to keep shares
in physical forms and going for electronic based filing of shares. This has changed the style
of operation in main Indian stock markets like BSE Sensex (Bombay Stock Exchange
Sensitive Index) and Nifty (National Stock Exchange of India) and its brokers.

81
 Depository Participants

DPs are agents who connect depository with investors. It is like a bank with which investor
can open a demat account to buy or sell shares.

NSDL

Although India had a vibrant capital market which is more than a century old, the
paper-based settlement of trades caused substantial problems like bad delivery and delayed
transfer of title till recently. The enactment of Depositories Act in August 1996 paved the
way for establishment of NSDL, the first depository in India. This depository promoted by
institutions of national stature responsible for economic development of the country has since
established a national infrastructure of international standards that handles most of the
securities held and settled in dematerliasd form in the Indian capital market.

Using innovative and flexible technology systems, NSDL works to support the
investors and brokers in the capital market of the country. NSDL aims at ensuring the safety
and soundness of Indian marketplaces by developing settlement solutions that increase
efficiency, minimize risk and reduce costs. At NSDL, we play a quiet but central role in
developing products and services that will continue to the nurture the growing industry.

In the depository system, securities are held in depository accounts, which is more
or less similar to holding funds in bank accounts. Transfer of ownership of securities is done
through simple account transfers. This method does away with all the risks and hassles
normally associated with paperwork. Consequently, the cost of transacting in a depository
environment is considerably lower as compared to transacting in certificates.

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 CDSL

CDSL was proposed by Bombay Stock Exchange (BSE) jointly with leading banks such as
State Bank of India, Bank of India, Bank of Baroda, HDFC Bank, Standard Chartered Bank,
Union Bank of India and Centurion Bank.

CDSL was set up with the objective of providing convenient, dependable and secure
depository services at affordable cost to all market participants. Some of the important
milestones of CDSL system are:

CDSL received the certificate of business from SEBI in February, 1999.

Honorable Union Finance Minster, Shri Yashwant Sinha flagged off the operations of CDSL
on July 15, 1999.

Settlement of trades in the demat mode through BOI Shareholding Limited, the clearing
house of BSE, started in July 1999.

All leading stock exchanges like the National Stock Exchange, Calcutta Stock Exchange,
Delhi Stock Exchange, The Stock Exchange, Ahmedabad, etc have established connectivity
with CDSL.

As at the end of Dec. 2007, over 5000 issuers have admitted their securities (equities, bonds,
debentures and commercial papers), units of mutual funds, certificate of deposits etc. into the
CDSL system.

83
 How to Open a Demat Account

It is like opening a bank account. Investor has to approach a depository participant

to open an online trading or demat account. Most of the banks are DPs too.

Documents Required

Investor will have to submit few documents with the application form to open a
demat account. As per latest Govt. of India rule PAN (Personal Account Number) card is
must for opening a demat account. These are the documents require to open a demat account.
5. Photo Copy of PAN Card (Mandatory)
6. Two passport size photos
7. Address Proof- Ration Card/Passport/Driving License/Voter’s ID Card/BSNL Telephone
Bill/ LIC Policy
8. Latest Bank Statement and photocopy of Bank Passbook

84
STOCK EXCHANGE

85
 Stock markets refer to a market place where investors can buy and sell stocks. The price at
which each buying and selling transaction takes is determined by the market forces (i.e.
demand and supply for a particular stock).

Let us take an example for a better understanding of how market forces determine stock
prices. ABC Co. Ltd. Enjoys high investor confidence and there is an anticipation of an
upward movement in its stock price. More and more people would want to buy this stock (i.e.
high demand) and very few people will want to sell this stock (i.e. less supply). Therefore,
buyers will have to a bid higher price for this stock to match the ask price from the seller
which will increase the stock price of ABC Co. Ltd. On the contrary, if there are more seller
than buyers (i.e. high supply and low demand) for the stock of ABC Co. Ltd. In the market,
its price will fall down.

In earlier times, buyers and sellers used to assemble at stock exchange to make a transaction
but now with the down of IT, most of the operations are done electronically and the stock
markets have become almost paperless. Now investors don’t have to gather at the Exchanges,
and can trade freely from their home or office over the phone or through Internet.

History of the Indian Stock Market-The Origin

One of the oldest stock markets in Asia, the Indian Stock Markets have a 200 years old
history.

18th Century East India Company was the dominant institution and by end of the
century, business in its loan securities gained full momentum

1830s Business on corporate stocks and shares in bank and Cotton presses started
in Bombay. Trading list by the end of the end of 1839 got broader

1840s Recognition from banks and merchants to about half a dozen brokers

1850s Rapid development of commercial enterprise saw brokerage business

attracting more people into the business

1860s The number of brokers increased to 60

1860-61 The American Civil War broke out which caused a stoppage of cotton
supply from United States of America; marketing the beginning of the
“Share Mania” in India

1862.64 The number of brokers increased to about 200 to 250

86
 1865 A disastrous slump began at the end of the American Civil War (as an
example, Bank of Bombay Share which had touched Rs. 2850 could only
be sold at Rs. 87)

Pre-Independence Scenario-Establishment of Different Stock Exchanges

1875 With the rapidly developing share trading business, used to gather at a street
(now well known as “Dalal Street”)

1875 “The Native Share and Stock Brokers’ Association” (also known as “The Bombay
Stock Exchange”) was established in Bombay

1880s Development of cotton mills industry and set up of many others

1895 Establishment of “The Ahmadabad Share and Stock Brokers’ Association”

1880-90s Sharp increase share prices of jute industries in 1870s was followed by a boom in
tea stocks and coal

1909 “The Calcutta Stock Exchange Association” was formed

1920 Madras witnessed boom and business at “The Madras Stock Exchange” was
transacted with 100 brokers

1923 When recession followed, number of brokers came down t 3 and the Exchange
was closed down

1934 Establishment of the Lahore Stock Exchange

1938 Merger of the Lahore Stock Exchange with the Punjab Stock Exchange

1939 Re-organization and set up of the Madras Stock Exchange Limited (Pvt.) Limited
led by improvement in stock market activities in South India with establishment of new textile
mills and plantation companies

1940 Uttar Pradesh Stock Exchange Limited and Nagpur Stock Exchange Limited was
established

1945 Establishment of “The Hyderabad Stock Exchange Limited”

1947 “Delhi Stock and Brokers Association Limited” and “The Delhi Stocks and
Shares Exchange Limited” were established and later on merged into “The Delhi
Stock Exchange Association Limited”

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 Post Independence Scenario

The depression witnessed after the Independence led to closure of a lot of exchanges in
the country. Lahore Stock Exchange was closed down after the partition of India and later on
merged with the Delhi Stock Exchange. Bangalore Stock Exchange Limited was registered in
1957 and got recognition only by 1963.

S.No. As on 31st December 1946 1961 1971 1975 1980 1985 1991 1995
2 No. Of stock 7 7 8 8 9 14 20 22
Exchanges
2 No. of Listed Cos. 1125 1203 1599 1552 2265 4344 6229 8593

3 No. of Stock Issues 1506 2111 2838 3230 3697 6174 8967 11784
of Listed Cos.
4 Capital of Listed Cos. 270 753 1812 2614 3973 9723 32041 59583
(Cr. Rs.)
5 Market value of capital 971 1292 2675 3273 6750 25302 110279 478121
of Listed Cos. (Cr. Rs.)
6 Capital per Listed Cos. 24 63 113 168 175 224 514 693
(4/2)(Lakh Rs.)
9 Market value of Capital 86 107 167 211 298 582 1770 5564
Of capital per Listed
Cos. (Lakh Rs.) (52)
10 Appreciated Value of 358 170 148 126 170 260 344 803
Capital per Listed Cos.
(Lakh Rs.)

Most of the other Exchanges were in a miserable state till 1957 when they applied for
recognition under Securities Contracts (Regulations) Act, 1956. The Exchanges that were
recognized under the Act were:

a. Bombay
b. Calcutta
c. Madras
d. Ahmedabad
e. Delhi
f. Hyderabad
g. Bangalore
h. Indore

88
 Many more Stock Exchanges were established during 1980s, namely:

• Cochin Stock Exchange (1980)

• Uttar Pradesh Stock Exchange Association Limited (at Kanpur,1982)
• Pune Stock Exchange (1982)
• Ludhiana Stock Exchange Association Limited (1983)
• Gauhati Stock Exchange (1984)
• Knara Stock Exchange Limited (at Manglore, 1985)
• Magadh Stock Exchange Association (at Patna, 1986)
• Jaipur Stock Exchange Limited (1989)
• Bhubaneshwar Stock Exchange Association Limited (1989)
• Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989)
• Vadodara Stock Exchange Limited (at Baroda1990)
• Coimbatore Stock Exchange (1980)
• Meerut Stock Exchange (1980)

At present, there are twenty one recognized stock exchanges in India which does not include
the Over The Counter Exchange of India Ltd.(OTCEI) and the National Stock Exchange of
India Limited (NSEIL).

Government policies during 1980 have also played a vital role in the development of the
Indian Stock Markets. There was a sharp increase in number of Exchanges, listed companies
as well as their capital, which is visible from the following concept:

Types of Transactions

There are two types of transactions that can be carried out on the Indian Stock Exchange

3) Backward transaction

4) Forward transaction

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 Indian Stock Exchange allows a member broker to perform following activities:

• Act as an agent,
• Buy and sell securities for his clients and charge commission for the same,
• Act as a trader or dealer as a principal,
• Buy and sell securities on his own account and risk.

Over The Counter Exchange of India (OTCEI)

Traditionally, trading in Stock Exchange in India followed a conventional style where

people used to gather at the Exchange and bids and offers were made by open outery.

This age-old trading mechanism in the Indian Stock Markets used to create much
functional inefficiency. Lack of liquidity and transparency, long settlement periods and
benami transactions are a few examples that adversely affected investors. In order to
overcome these inefficiency, OTCEI was incorporated in 1990 under the Companies Act
1956. OTCEI is the first screen based nationwide Stock Exchange in India Created by Unit
Trust of India, Industrial Credit and Investment Corporation of India, Industrial Development
Bank of India, SBI Capital Markets, Industrial Finance Corporation of India, General
Insurance Corporation and its subsidiaries and Can Bank Financial Services.

Advantages of OTCEI

• Greater liquidity and lesser risk of intermediary charges due to widely spread trading
mechanism across India
• The screen-based script less trading ensures transparency and accuracy of prices
• Faster settlement and transfer process as compared to other exchanges
• Shorter allotment procedure (in case of a new issue) than other exchanges.

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 Stock Exchanges in India at present

1. Stock Exchange Association

2. Gauhati National Stock Exchange of India
3. Bombay Stock Exchange
4. Inter-connected Stock Exchange of India
5. Ahmedabad Stock Exchange
6. Bangalore Stock Exchange
7. Bhubaneshwar Stock Exchange Association
8. Calcutta Stock Exchange
9. Cochin Stock Exchange
10. Coimbatore Stock Exchange
11. Delhi Stock Exchange
12. Hyderabad Stock Exchange
13. Jaipur Stock Exchange
14. Ludhiyana Stock Exchange Association
15. Madhya Pradesh Stock Exchange
16. Madras Stock Exchange
17. Magadh Stock Exchange Association
18. Manglore Stock Exchange
19. OTC Exchange of India
20. Pune Stock Exchange
21. Uttar Pradesh Stock Exchange Association
22. Multi Commodity Exchange
23. National Commodity and Derivatives Exchange

The transformation in the securities market is the setting up of National Stock Exchange in
November 1992 and commencement of electronic networking of stock exchanges with
dealing brokers and introduction of on-line screen based trading. NSC is able to radically
transform the Indian Capital market during the decade of its existence. It has changed the
mindset of all market players and has built investor confidence in the secondary markets.
Around the year 1995 all stock Exchanges switched over from the open outery system to
screen based online trading. This enabled both NSE and BSE to spread their operations to
every nook and corner of the country. Market Integration is uniquely achieved through this
measure.

91
 NATIONAL STOCK EXCHANGE

In order to lift the Indian Stock Market trading system on par with the international
standards. On the basis of high powered Pherwani Committee, the National Stock Exchange
was incorporated in 1992 by Industrial Development Bank of India, Industrial Credit and
Investment Corporation of India, all Insurance Corporations, selected commercial banks and
others.

NSE provides exposure to investors in two types of markets, namely:

1. Wholesale debt market

2. Capital market

Wholesale Debt Market

Similar to money market operations, debt market operations involve institutional investors
and corporate bodies entering into transactions of high value in financial instruments like
treasury bills, government securities, commercial papers etc.

Trading at NSE

• Fully automated screen-based training mechanism

• Strictly follows the principle of an order-driven market
• Trading members are linked through a communication network.
• This network allows them to execute trade from their offices
• The price at which the buyer and seller are willing to transact will appear o the screen
• When the prices match the transaction will be completed
• A confirmation slip will be printed at the office of the trading member

Advantages of trading at NSE

• Integrated network for trading in stock market of India
• Fully automated screen based system that provides higher degree of transparency
• Investors can transact for many part of the country at uniform prices
• Greater functional efficiency supported by totally computerized network

92
93
 UPSE

U.P. Stock Exchange Association Ltd.

The UP Stock Exchange association limited, Kanpur is situated at a very important place.
It holds a very important position among other existing stock exchanges in India. The
exchange was inaugurated on 27th august 1982 by the then finance minister Shri Pranab
Mukherjee. From the very first day it has been playing role in the development of the capital
market of north India.

Incorporation in 15th NOV 1979 and Commencement of business on 5th May 1982 has
made a long way through the time.

The UP Stock Exchange association limited, Kanpur occupies a very prominent place
among the existing Stock Exchanges in India. The exchange was inaugurated on 27th august
1982 by the then finance minister Shri Pranab Mukherjee. Right from its inception it has
been playing a very prominent role in the development of capital market of northern India.
UPSE is the only. Initially it had 350 members which have now increased to 540 members
belonging to almost all important cities of the country. Members living outside Kanpur have
contributed a lot by creating the equity cult in whole of the Uttar Pradesh. Not only these
members are highly qualified and professional and devoted to the cause of capital
formulation in the country.

The Exchange was initially started in the rented building but with the efforts of our
members, a new complex was constructed and was inaugurated by his Excellency Shri R
Venkatraman the then President of India on 8th February, 1989.

At present we have 843 companies listed with the total capitalization of Rs. 81184
Crores. The annual turnovers of this Exchange for the last three years are : 1998-99: 18429
Crores, 1999-2000: 23876 Crores and 2000-01: 25112 Crores. Thus every year we have
increased our turnover creating more and more awareness among the people of Northern
India.

This stock Exchange is wedded to the investor’s protection and investor’s education as
we have 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 is functioning. We have also
a very effective system of readdressing the investor’s complaints.

94
 The Exchange has one of the best developed Exchanges of the country so far its
infrastructure is concerned. The Ex-Finance Minister Dr. Manmohan Singh, Ex-Commerce
Minister Shri Pranab Mukherjee, other central Ministers and Chief Ministers Uttar Pradesh
have visited this Exchange and 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 Trading. The On-Line 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 On-Line trading facility to about 22
members at Lucknow an additional trading Floor has been established at Lucknow. At
present at the additional trading at Lucknow 22 Lucknow based members have been allotted
Computer Terminals which have been connected with UPSE main server via VSAT.

As per recent decision of SEBI for the revival of the smaller Stock Exchanges in the
country, they can obtain the membership of big Stock Exchanges like, BSE, NSE, CSE etc.
through forming a subsidiary company of the Exchange and in turn the members of the
Exchange can trade through the said subsidiary as sub-broker(s).

Accordingly we have incorporated a wholly owned subsidiary namely UPSE Securities

Ltd. and obtained the membership of BSE to enable the members of UPSE on BOLT.

Main objective of UPSE

1. To organize and carry on the stock exchange and regulate the business
of exchange and stock and share, debentures and debenture stocks. Government securities, bonds
and equities of any description and with a view to establish and conduct stock exchange in
Kanpur.
2. To acquire the membership of any other recognized exchange in India and abroad
including membership of OCTEL, broad base the operations of the stock exchange for the
benefit of the general public and investor.
3. To promote one or more subsidiary whether wholly or partly owned, with object to
promote the trade in share and stocks, debenture bond and other securities of any description
issued by companies statutory corporation, government of state or union government, financial
institution.
4. Provides quotation for shares/stock for fascinating and marketability.

95
5. Extends liquidity (conversion in to cash) to such stock as they are easily
marketable and traded.
6. Provides an orderly regulated market for securities whose prices are
determined by the free market forces of supply and demand.
7. Promotes savings and investments in the economy by attracting funds
for investment in corporate share and securities.

Location and other communication details:

THE UTTAR PRADESH STOCK EXCHANGE ASSOCIATION LTD.

‘Padam Towers’, 14/113, Civil Lines, Kanpur-208001
Telephone No: 2338115, 2338074
Fax No: 0512-2338175/2338220
Email Address: upse@vsnl.in,
Website: upse-india.com

LIST OF DIRECTORS IN THE BOARD (UPSE) FOR THE YEAR 2008-2009

(Constituted on 29-03-09)

SL. No. Name of Director Particulars Telephone/ Fax Nos.

1. Shri K. D. Gupta Public Interest Director

Telephone No: 0512-2556585/2535356
Address: Flat No. 104, Ratan Bhawan 9336453452
7/108A, Swaroop Nagar, upstockexchange@gmail.com
Kanpur-208002
upse@vsnl.in

2. Shri A. K. Shah Public Interest Director

Telephone No: 0512-2550688/2540383
Address: Registrar of U.P. & Uttarakhand 0512-2540423 (Fax)
10/499-B, Allenganj, 9935606399
Kanpur-208002
Kashmir.kamboj@mca.gov.in

3. Shri T. K. Das Public Interest Director

Telephone No: 011-22756035
Address: Flat No. A-201, 9910518074
Anand Lok Society (purvasha),
Mayur Vihar, Phase-1
Delhi-110091
upse@vsnl.in

96
4. Shri B. K. Nadhani Executive Director
Telephone No: 0512-2338288, 2338153, 9793035588
Address: The U.P. Stock Exchange Assn. Ltd.
Padam Towers, 14/113, Civil Lines, Kanpur
Kanpur-208002
upstockexchange@gmail.com
upse@vsnl.in

5. Shri S. K. Kanodia Trading Member Director

Telephone No: 0512-2305958, 0512-2305883 (Fax), 9839035346
Address: Director
Kanodia Shares & Securities (P) Ltd.
407, Padam Towers, 14/113 Civil Lines, Kanpur

6. Shri Rajesh Agrawal Trading Member Director

Telephone No: 9336332505
Address: C/o. Haryana Securities
407, Padam Towers, 14/113 Civil Lines,
Kanpur

7. Shri G. S. Diwedi Trading Member Director

Telephone No: 0512-2338192, 193, 0512-264381 (R), 9415074767
Address: 49/62, Nayaganj,
Kanpur

8. Shri Ashok Sharma Shareholder Director

Telephone No: 0512-2366629, 0512-2363726, 0512-3042039 (R)
Address: Chartered Accountant
58/4, Birhana Road, 9839068023
Post Box No. 389, Kanpur-01

9. Shri Mukul Tandon Shareholder Director

Telephone No: 0512-2373680, 2393970, 9336114347, 9935568890
Address: 413, Plaza Kalpana
24/14-A, Birhana Road
Kanpur-01

10. Shri R. K. Agrawal Sahreholder Director

Telephone No: 9336117324, 9336222842
Address: 3/109, Vishnupuri
Kanpur-208001

11. Shri S. K. Jain FCA Sahreholder Director

Telephone No: 0512-2531195/2532110, 9871055255, 9839032305
Address: 113/233, Swaroop Nagar
Kanpur-208001
97
12. Shri S. K. Gupta Sahreholder Director
Telephone No: 0512-2302737, 9839084094, 9336103555
Address: 51/40, Goldiee House, NayaGanj
Kanpur-208001

13. Shri Vinod Kumar Sahreholder Director

Telephone No: 0522-2208030, 9415012598
Address: FF-2, Rajnigandha-2
Gulmohar Avenue
3-C, Gokhla Marg, Lucknow-226001

98
 DEPARTMENTS
1. R & D department
2. Membership Inspection / Grievances / Complain / Audit
3. Listing
4. Market operation department (Margin)
5. Secretarial Department
6. Surveillance Department
7. EDP (Computer)
8. Accounts
9. Legal
10. UPSE securities (Subsidiary Company)
11. Clearing House (Trade and Operation)

99
 3. R & D, Library and Investor service department
Research and development wing of the Uttar Pradesh Stock Exchange Association
Limited has been functioning eve since 1992 under SEBI direction and providing valuable
services to the investors. The wing presently names ‘investor service center’ has a well
maintained, library comprising of books, journals, periodicals, and newspapers on financial
market, annual reports of companies, prime directory etc.

They maintain the records of day to day quotations of major exchanges, the annual
reports of companies, PRIME directory, complete set of volumes of the Stock Exchange,
Mumbai Directories. Along with this it also maintains the news letters, daily bulletin, books
on Capital Markets, Investor awareness, Budget Taxation with other relevant books.

The UPSE has been organizing summer camps to give trainings to Company Securities
and MBAs different institutes giving those complete data and helping the student to know the
practical day-to-day working of the exchanges. Along with this it also organizes Investor
Awareness Shows.

The changing technology has helped the exchange to install a corporate database of over
7000 companies. The rates of UPSE, BSE, and NSE are displayed live for the benefit of
investors.

There are three main function of this department

• To render investor services

• To maintain library
• To conduct research and development

All the above facilities are provided free of cost to one and all any query is mandatory
attended by the help desk situated in the investor service center, headed by a responsible
official of the exchange.

100
 4. Membership and Grievances

There are two types of membership

3. Shareholder
4. Trading member

Eligibility for membership

To have the membership of the stock exchange one has to satisfy the following criteria

6. He has to be the citizen of India.

7. Experience of 2 year in the securities department.
8. Capital of 10 lakh (individual) and 20 lakh (company).
9. He must submit 4 lakh as Base Minimum Capital (BMC). This becomes operational
in the stock market.

a) The BMC must comprise of at least of 50% of cash or cash equivalents (FDR,
bank guarantee, etc)
b) Other 50% can comprise of the following type of assets (shares-valued on the
daily basis)

10. He must submit extra money as Margin, to trade in shares of the stock exchange.

a) The margin again has to be of 50% of cash or cash equivalents (FDR, bank
guarantee, etc.)
b) Other 50% can comprise of the following type of assets (shares-valued on the
daily basis)

6. No association with defaulter member, i.e. the member has to provide an undertaking
Of not being involved with defaulting broker.

Procedure to get membership

Application → screening committee (UPSE) → Board approval (UPSE) → SEBI

approval

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 Grievances and problems

There are of two types of problem between the investor and the following parties
3. Companies
4. Broker

Transfer of share committee

This committee takes care of the hassle free transfer of the share from one party to
another.

Investor services committee

This committee helps solve problem between the broker and stock holder. There is no
charge for the resolution of the problem of the investor regarding the above parties.

Arbitration committee (upper committee)

To appeal against the decision of the Investor Service Committee (ISC), one has to
submit the decision of ICS along with Rs. 1000 in the arbitration committee.

The arbitration panel headed by presiding arbitrator appoints a sole arbitrator. The sole
arbitrator undertakes investigation and hearing of the case. Then arbitration award decision is
given. The execution of the order of the arbitration has to be made within 15 days.

Default committee
The department collects and keeps track of the various dues to the stock exchange. It also
takes action against the defaulting brokers and company.
It can invite investor claim by advertising in the newspapers.
The assets of the defaulting party are disbursed to the lenders and the surplus goes to the
investor protection fund (IPF).
If the asset of the defaulting party falls the lenders demand, 1 lakh (maximum) can be
released from the IPF, condition being it is per person case.

102
 Disciplinary committee

The department takes care of the imaginaries that occur that during the regular conduct of
the business of the stock exchange.

It can penalize the party involved in the earlier mentioned acts with following
3. Financial fines
4. Expulsion

Investor grievance with the broker or vise versa goes to the Investor Service Committee
(ISC).

Investor having complained against any company then the case goes to the Arbitration
committee.

Here the investor only has to deposit arbitration fees but no security. Whereas the brokers has
to deposit 100% of the award, given against him by the ISC.

The legal path for complaints of the investor is as follows:

ISC→ Arbitration committee → District judge→ High court→ Supreme court

The various measures that court can take on the litigation of this type are as follows:

5. Set aside
6. Confirm
7. Reprimand (send back the order to the lower court)

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 3.LISTING
Recruitment with respect to the listing of securities on a recognized stock
exchange

A public company as defined under the act 1956, desirous of getting its securities listed
on a recognized stock exchange, shall apply for the purpose to the stock exchange and
forward alone with its application the following documents and particulars:

f) Memorandum and article of association and in case of a debenture issue, a copy of the trust
deed.

g) Copies of all prospectuses or statement in lieu of prospectuses issued by the company at any
time.

h) Copies of offer for the sale and circulars or advertisements offering any securities for
subscription or sale during the last five years.

i) Copies of balance sheet and audited accounts for the last five years, or in the case of new
companies, for such shorter period for which account have been made up.

j) A statement showing-
i. Dividend and cash bonuses, if any, paid during the last ten years (or such shorter
period as the company has been in existence, whether as a private or public
company).
ii. Dividend or interest in arrear, if any.

f) Certified copy of agreement or other documents relating to

arrangements with or
between: -

iv. Vendors and /or promoters

v. Underwriters and sub-underwriters.
vi. Broker and sub-broker.

g) Certified copies of agreement with—

v. Managing agents and secretaries and treasures.

vi. Selling agents
vii. Managing directors and technical directors

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viii. General manager, sales manager, manager or secretary.

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 h) Certified copy of every letter, report, balance sheet, valuation, contract, court
order or other document, or other document, part of which is referred to in any
prospectus, offer for sale, circular or advertisement offering securities for
subscription or sale, during the last five years.

i) A statement containing particulars of the date of, and parties to all material
contracts, agreements (including agreement for technical advice and collaboration)
concessions and similar other documents (except those entered into in the ordinary
courses of business carried on or intended to be carried on by the company)
together with a brief description of the terms, subject matter and general nature of
the documents.

j) A brief history of the company since its incorporation giving details of its
activities including any reorganization, reconstruction or amalgamation, changes in
its capital structure (authorized, issued and subscribed) and debenture borrowings if
any.

k) Particulars of shares and debentures issued—

iv. For consideration other than cash, whether in whole or part,
v. At a premium or discount or,
vi. In pursuance of an opinion.
l) A statement containing particulars of any commission, brokerage,
discount or other special terms including an opinion for the issue of any kind of
the securities granted to any person.

m) Certified copies of –

i. Acknowledgement card or the receipt of filling offer document with the

securities and exchange board of India.
ii. Agreement, if any, with the industrial finance corporation, industrial credit and
Investment Corporation and similar bodies.

n) Particulars of shares forfeited.

o) A list of highest ten holder of each class or kind of securities of the

company as on the date of application along with the particulars as to the number
of shares or debentures held by and the address of each such holders.

p) Particulars of shares or debentures for which permission to deal is

applied for:

Provided that a recognized stock exchange may either generally by its buy laws or in
any particular case call for such further particulars of documents, as it deems proper.

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An initial listing fee for a company to get listed with the Uttar Pradesh Stock Exchange is
10500.

The Annual listing fees structure is as follows:

Capital (in crore) Fees

Up to 1 6000

1.6 9000

5.11 14000

10.21 28000

Each additional 1 crore over 20 crore onwards in the capital will attract Rs 4600 more in
addition to 28000.

If other company from different state listed with BSE or NSE the company will be
charged 50% of the above fees.

One day free run for the stock is provided to estimate the value of the stock. That is, there
is no circuit limits to the stock for the first day of the trading of a stock.

Indian primary market ushered in an era of free pricing in 1992. Following this, the
guidelines have provided that the issuer in consultation with Merchant Banker shall decide
the price. There is no price formula stipulated by SEBI. SEBI does not play any role in price
fixation. The company and merchant banker are however required to give full disclosures of
the parameters, which they had considered while deciding the issue price. There are two
types of issues one where company and LM fix a price (called fixed price) and other, where
the company and LM stipulate a floor price or a price band and leave it to market forces to
determine the final price (price discovery through book building process).

To have voluntary delisting, company must be listed in BSE and NSE.

For compulsory delisting, the stock exchange takes action against the company. If there is
violation of the listing clauses, the company can be listed.

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 5. SECRETARIAL
Governing Board

According to the article of association of the exchange governing board comprises of

5. Six director elected under the provision of the article of association of the exchange.
6. Person not exceeding two is nominated by SEBI as director
7. Four people from public as public representatives nominated by the governing board of the
exchange subject to SEBI approval.
8. One executive director appointed by the governing board subject to prior approval of SEBI.

However w.e.r. 12-07-2002 SEBI has suspended the governing board of the exchange
and appointed an administrator to perform the power and function of the governing board,
under section 11 of SCRA, 1956.

According to the new regulation every stock exchange will now have a board of director.

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 9. Surveillance

This department was established in 1995 under the requirement of the SEBI. The main
objective of the surveillance function of the exchange is to manage risk by taking
necessary action timely. All instruments traded in the market come under the surveillance
umbrella of UPSE.

Purpose of the surveillance

Purpose of surveillance is to prevent risk which may arise due to-

a. Carry forward trade

b. Trade away from market price
c. Price manipulation
d. Insider trading
e. Circular trading
f. Creation of 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, suspensions, deactivation of terminals, etc. to control abnormal
behavior, the department carries out investigation. If necessary, based on the
preliminary examination/analysis and suitable action are taken against members
involved based on investigation. The detailed explanations of the various
surveillance activities are as follows:

On-line surveillance
One of the most important tools of the surveillance is the on-line 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 alters on-line based on certain
preset parameters like price and volume variation in scripts; members crossing
intra day limit or gross exposure limit.

Off-line surveillance
The of-line surveillance system comprises of the various reports based on
different parameters and securities, thereof.
1. High-low difference in price
2. Percentage change in price over a week/fortnight/month.
3. Top scripts by turnover
4. Scripts hitting new high/low, etc.

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

It takes finds the irregularities and ensures the proper working

of the stock exchange. Surveillance ensures risks arising of the daily trading are managed
efficiently, by enabling proper collection of the margins.
Settlement guarantee fund is made for the payment of the Clint
of a defaulting broker.

Various Forms of errors and mal practices are as follows

1. Insider trading is utilization of the internal information of a company
to manipulate the price of the share of the company, before that
information is made public.
To avoid such irregularities, the surveillance department
keep track of the people insider to the companies and their trading

2.Price rigging it is way by which a company tries to manipulate

the prices of the shares in the stock market.

3. Punching errors that occur while operator types the order on

the computer terminal.
4. Humors are another threat to the proper working of the stock
exchanges. These are false stories that are made up to manipulate
the prices of the share.

Humor verifications another function of the stock exchange

and specially the surveillance department.

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 7. EDP (Computer Department)
Stock trading has evolved tremendously. Since the very first
Initial Public Offering (IPO) in the 13th century, owning shares of a company has been a very
attractive incentive.

Even though the origins or stock trading go back to the 13th

century, the market as we know now today did not catch on strongly until the late 1800s. Co-
*operation between technology and society has led the push for effective and efficient way of
trading. Technology has allowed the stock market to grow tremendously, and all the while
society has encourage the growth. Within seconds of an order of a stock, the transaction can now
take the place. Most of the recent advancements with the trading have been due to Internet. The
interest has allowed online trading. In contrast to the past where only those who could afford the
expensive stock brokers could trade, but now anyone who wishes to be active in the stock market
can do so at a very low cost per transaction. Trading can even be done through computer-
mediated communication (CMC) using mobile devices such as handheld computers and cellular
phones. These advances in technology have made day trading possible.

The stock market has now grown so that some argue that it
represents a country’s economy. This growth has been enjoyed largely to the credibility and
reputation that the stock market has earned.

In the screen-based systems, the trading ring is replaced by the

computer screen and distant participants can trade the shares with each other through the
computer network. The screen-based trading system, enhance the information efficiency of the
marker as more participants trade at a faster speed. A large number of participants,
geographically separated, can trade simultaneously at high speed.

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