Stock Market

And Trading
Mechanism Chapter - 2
Contents
◦ BSE, NSE, OTCE, SME etc.

◦ Stock Exchange Trading Mechanism – Margins, Book Closure and

Record Date – Settlement Systems – Compulsory Rolling Settlement –
Demat of Shares – Trading Cycle – Clearing Mechanism.

◦ Primary Market – Issue Mechanism.

◦ Secondary Market – E – Broking, Contract Notes – Intra – Day Trade,

Short Selling, Trading Cycle.

◦ Money Market – Features & Role – Instruments – Factoring – Bill

Discounting.
Bombay Stock Exchange
Introduction
◦ Established in 1875 as the Native Share and Stock Brokers' Association.

◦ The FIRST, LISTED and Largest Securities Market in India.

◦ Asia’s Largest and World’s Second Largest and Fastest.

◦ ISO 9001:2000 Certification and Information Security Management System

Standard BS 7799-2-2002 Certification for BOLT - First in India and Second in the

world.

◦ Contribution in developing the CM and growing CS.

 Contd.
◦ BSE SME - Platform for trading in equities of small-and-medium enterprises.

◦ Subsidiary - India INX, India's 1st International Exchange, located at GIFT CITY IFSC.

◦ Securities - Stocks, Stock Futures, Stock Options, Index Futures, Index Options, and Weekly Options.

◦ The S&P BSE SENSEX / BSE 30 / SENSEX - An index of 30 of the BSE's largest stocks covering 12 sectors. BSE's

popular equity index and India's most widely tracked Stock Market Benchmark Index.

◦ S&P BSE SENSEX Next 50 - 50 largest and liquid stocks, S&P BSE 100 - 100 largest and most liquid Indian companies

within the S&P BSE LargeMidCap, S&P BSE Bharat 22 Index - 22 select companies disinvested by the CGI.

◦ Internationally Trading - EUREX and Leading Exchanges of the BRCS Nations

Products
◦ Cash Market (Equities)

◦ Mutual Funds

◦ Exchange Traded Fund

◦ Initial Public Offerings

◦ Offer for Sale

◦ Institutional Placement Program (FPO)

◦ Security Lending and Borrowing Scheme (Short Selling)

◦ Sovereign Gold Bonds Scheme

◦ Derivatives.
Other Services
◦ Risk Management

◦ Clearing

◦ Settlement

◦ Market Data Services

◦ Education.
Associate Companies
◦ BSE Institute Ltd.

◦ CDSL

◦ ICCL

◦ India INX

◦ India ICC

◦ Marketplace Technologies
National Stock Exchange
of India Limited
 https://
www.youtube.com/watch?v=d
_xqhSD44gY
 https://
www.thequint.com/explainers
/where-is-the-rs-24000-crore-l
ost-in-the-harshad-mehta-sec
urities-scam
Introduction
◦ Leading Stock Exchange of India and world’s 12th Largest and the fourth largest by equity

trading volume in 2015.

◦ Total Market Capitalization - US$1.41 Trillion.

◦ Established in November 1992 and located in Mumbai.

◦ Brought a paradigm shift.

◦ 1992 Security Scam.

◦ To provide equal access to investors from all across the nation and make participating in

stock market easier.

◦ Recommended by High Powered Study Group on Establishment of New Stock Exchanges.

 Contd.
◦ Key Investors - Life Insurance Corporation of India, State Bank of India, IFCI Limited,

IDFC Limited and Stock Holding Corporation of India Limited.

◦ Recognized as a Stock Exchange under the Securities Contracts (Regulation) Act,

1956 in April 1993.

◦ Separation of Ownership, Management and Trading.

◦ Operations

◦ Wholesale Debt Market (WDM) – June, 1994.

◦ Equity Segment – November, 1994.

◦ Derivatives Segment – June, 2000.

NIFTY 50
◦ The flagship index on the National Stock Exchange of India Ltd. (NSE).

◦ Tracks the behavior of a portfolio of blue chip companies, the largest and most liquid Indian

securities.

◦ Includes 50 of the approximately 1600 companies listed on the NSE, captures approximately

65% of its float-adjusted market capitalization and is a true reflection of the Indian stock

market.

◦ Covers major sectors of the Indian economy and offers investment managers exposure to the

Indian market in one efficient portfolio.

◦ Owned and managed by India Index Services and Products Ltd. (IISL) - India's first specialized

company focused on an index as a core product.

Features of NSE
◦ An order-driven but not quote-driven market.

◦ Fully Automated Screen – NEAT.

◦ Order Management System.

◦ Order Matching System.

◦ Permission to members to specify conditional clauses –

◦ Time - Day order, Good Till Cancelled (GTC) Order, Good Till Date (GTD) Order and
Immediate or Cancel (IOC) Order.

◦ Price - Limit Price/Order, Market Price/Order and Stop Loss (SL) Price/Order.

◦ Quantity - Disclosed Quantity (DQ) Order, Minimum Fill (MF) Order and All or None
(AON) Order .

◦ Rolling Settlement Mechanism.

Functions of NSE
◦ Establishing a nation-wide trading facility for equities, debt and other hybrid instruments.

◦ Ensuring equal access to investors across the nation through an appropriate

communication network.

◦ Providing a Fair, Efficient and Transparent Securities Market to investors using Electronic

Trading Systems.

◦ Enabling Shorter Settlement Cycles.

◦ Meeting the current international standards of securities markets.

Achievements of NSE
◦ Establishment of the First Electronic Stock Market of the nation.

◦ Settlement Cycle and Its Speed - T+3 to T+2 and 1994 – 2, 2001 – 60, 2019 - 1,60,000 OPS.

◦ Contributory in creating NSDL - The first depository in India, allowing investors to hold and

trade securities electronically; increased transparency and real time access of pricing information.

◦ Trading Terminals - 363 Cities and towns across India and accessible globally through brokers.
Segments of NSE
◦ Equities
◦ Equities
◦ Indices
◦ Mutual Funds
◦ Exchange Traded Funds
◦ Initial Public Offerings
◦ Security Lending and Borrowing Scheme
◦ Derivatives
◦ Equity Derivatives
◦ Currency Derivatives
◦ Interest Rate Futures
◦ Debt
◦ Corporate Bonds
Trading schedule of NSE
◦ Pre-open session

◦ Order Entry and Modification Open: 09:00 hrs.

◦ Order Entry and Modification Close: 09:08 hrs.

◦ Regular Trading Session

◦ Normal/Retail Debt/Limited Physical Market Open: 09:15 hrs.

◦ Normal/Retail Debt/Limited Physical Market Close: 15:30 hrs.

◦ Equity Trading:

◦ All days, except for Saturdays, Sundays and other holidays declared by NSE in

advance.
Mumbai's Money Madness
https://
www.youtube.com/watch?
v=VfW-jmQvv8I
 Over The Counter
Exchange of India (OTCEI)
Introduction
◦ A stock exchange without a proper trading floor.

◦ Incorporated u/s 25 of the Companies Act.

◦ Recognized under the Securities Contract (Regulation) Act.

◦ August 23, 1989 initially for a period of 5 years, which was

subsequently renewed from time to time.

◦ Promoted for a common cause of promoting the interest of small

and medium companies.
 Contd.
◦ Promoted by a group of financial institutions owned by the
Government of India - UTI, ICICI, IDBI, SBI Capital Market, IFCI, LIC,
GIC and Can Bank Financial Services.

◦ Connected through a computer network and the transactions are

taking place through computer operations.

◦ A new Stock exchange with flexible conditions for small and medium
companies

◦ Stepping stone for listing with major stock exchanges.

Exit
◦ Non Compliance with SEBI Norms –

◦ Annual Trading Turnover

◦ Less than Rs. 1,000 crore - Apply for voluntary surrender of recognition and

exit.

◦ Fails to achieve ATT - Compulsory Exit.

◦ OTCEI in January, 2015: Request to SEBI to exit as stock exchange.

 BSE SME
https://www.chittorgarh.com/
faq/what_is_sme_ipo_in_india/
182
/
Introduction
◦ Platform for the Start Ups and SMEs to get listed on the bourses without IPO.

◦ As per Chapter XC - ICDR Guidelines - SEBI - Listing on the Exchange is possible without IPO.

◦ SEBI - 8th October Notification and Circular on 24th October, 2013.

◦ Benefits of Listing on ITP:

◦ Facilitate capital raising by SMEs and Start-up companies at their early stages of growth.

◦ Easier entry and exit options for informed investors like Angel Investors, VCFs and PEs etc.

◦ Provide better visibility and wider investor base.

◦ Relaxed compliance and cost effective listing.

◦ Tax benefits to long term Investors.

Eligibility Criteria for the Listing of Company

◦Regulatory Criteria:
◦ The Willful Defaulters List - The Company, Its Promoter, Group Company or
Director does not appear; RBI - CIBIL.
◦ No Winding Up Petition Against There is the company that has been
admitted by a competent court.
◦ BIFR Referral - The company, group companies or subsidiaries have not been
referred within a period of five years prior to the date of application for listing.
◦ No Regulatory Action: Against the Company, Its Promoter or Director, by the
Board, RBI, IRDA or MCA within a period of five years prior to the date of
application for listing.
 Contd.
◦Exchange Criteria: The Company shall satisfy AT LEAST ONE of
the following criteria as on date of application:-
◦ Net Tangible Assets of Minimum Rs. 1 Crore. (Net Fixed Assets plus
Net Current Assets) OR
◦ Net Income (excluding extraordinary and other income) of Rs. 50
Lacs as per the Latest Audited Financials.
◦ No change in the promoters of the Company in preceding one year
from date of filing application to BSE for Listing on ITP Segment.
◦ Mandatorily signing Tripartite Agreement with both the
depositories.
 Contd.
◦ Financial Criteria:

◦ Paid Up Capital – Company has not exceeded 25 crore rupees in any of the previous FY.

◦ Audited Financial Statements: At least one full year AFS for the immediately preceding financial
year at the time of making listing application.

◦ Time Period - The company has not completed a period of more than 10 years after incorporation
and its revenues have not exceeded 100 crore rupees in any of the previous financial years

◦ At least one of the following criteria:

◦ At least one alternative Investment Fund, VCF or other category of investors/lenders approved by
the Board has invested a minimum amount of 50 lakh rupees in equity shares of the company.

◦ At least one angel investor who is a member of an association/group of angel investors which
fulfils the criteria laid down by the recognized stock exchange, has invested a minimum amount
of 50 lakh rupees in the equity shares of the company through such association/group.
 Contd.
◦ The company has received Finance from a Scheduled Bank for its project financing or working
capital requirements and a period of 3 years has elapsed from the date of such financing and the
funds so received have been fully utilized.

◦ A registered MB has exercised due diligence and has invested not less than 50 lakh
rupees in equity shares of the company which shall be locked in for a period of three years from
the date of listing. The same merchant banker is also required to submit a Due Diligence Certificate
as per format given in Form A & Form H of Schedule VI of SEBI (ICDR) Regulations, 2009.

◦ A QIB has invested not less than 50 lakh rupees in the E/S of the company which shall be
locked in for a period of three years from the date of listing.

◦ A specialized international multilateral agency or domestic agency or a public financial

institution as defined under section 4A of the Companies Act, 1956 has invested in the equity
capital of the company.
Listing Process on BSE SME
◦ Planning

◦ The Issuer Company consults and appoints the Merchant Banker/s in an advisory capacity.

◦ Preparation

◦ The Merchant Banker prepares the documentation for filing after:

◦ conducting due diligence regarding the Company i.e. checking the documentation
including all the financial documents, material contracts, Government Approvals,
Promoter details etc. and

◦ planning the IPO structure, share issuances, and financial requirements.

◦ Process - Application procedure:

◦ Submission of DRHP/Draft Prospectus - Prepared by the Merchant Banker and filed

with the Exchange as well as with SEBI as per requirements.

◦ Verification of the documents and Site Visit.

 Contd.
◦ Interview - The Promoters are called for an interview with the Listing Advisory Committee.

◦ Approval - BSE issues an In Principle approval on the recommendation of the Committee,

provided all the requirements are compiled by the Issuer Company.

◦ Filing of RHP/Prospectus - Merchant Banker files these documents with the ROC
indicating the opening and closing date of the issue.

◦ Intimation to the Exchange - Once approval is received from the ROC, they intimate the
Exchange regarding the opening dates of the issue along with the required documents.

◦ Public Offering

◦ The Initial Public Offer opens and closes as per schedule. After the closure of IPO, the
Company submits the documents as per the checklist to the Exchange for finalization of
the basis of allotment.

◦ Post Listing

◦ BSE finalizes the basis of allotment and issues the Notice regarding Listing and Trading.
 Suggested Reading and References
◦ Criteria for New Listing - BSE SME

◦ https://www.bsesme.com/static/getlisted/criteriaisting.aspx?expandable=0

◦ Criteria for Direct Listing - BSE SME

◦ https://

www.bsesme.com/RegionalSME/static/English/getlisted/CriteriaforDirectListing.as

px?expandable=0&lang=en-US

◦ How to List on BSE SME Exchange – Listing Requirements

◦ https://www.indiafilings.com/learn/list-bse-sme-exchange-listing-requirements/
 Stock Exchange
Trading Mechanism
Introduction
◦ The logistics behind trading assets and securities, regardless of the type of market. These

markets can be exchanges, dealers or OTC markets.

◦ Takes place through an open electronic limit order book in which order matching is done by

the trading computer.

◦ No market makers or specialists and the entire process is order-driven.

◦ Display of all buy and sell orders: Transparency.

◦ Absence of market makers - no guarantee of orders execution.

◦ Orders need to be placed through brokers - Direct Market Access (DMA).

Settlement and Trading Hours

◦ T+2 Rolling Settlement.

◦ Time and Days - 9:55 am and 3:30 pm IST (+ 5.5 hours GMT) &

Monday through Friday.

◦ Delivery - DEMATERIALIZED FORM.

◦ Clearing House - Each exchange has its own CH which assumes all

settlement risk by serving as a central counterparty.

Important Terminologies
◦ Margins –

◦ The process whereby individual investors buy more stocks than they can afford to.

◦ Book Closure –

◦ A time period during which a company will not handle adjustments to the register, or
requests to transfer shares.

◦ Companies will often use the book closure date to identify the cut-off date for determining
which investors of record will receive a particular dividend payment.

◦ Record Date –

◦ The cut-off date established by a company in order to determine which shareholders are
eligible to receive a dividend or distribution.
Important Terminologies
◦ Settlement Systems –

◦ A business process whereby securities or interests in securities are delivered,

usually against (in simultaneous exchange for) payment of money, to fulfill

contractual obligations, such as those arising under securities trades.

◦ Demat of Shares –

◦ The process through which an investor's physical share certificate gets converted

to electronic format which is maintained in an account with the Depository

Participant.
Important Terminologies
◦ Trading Cycle –

◦ The Indian share market has a complex mechanism that ensures investors receive the shares they

bought or the money they made by selling the same.

◦ The process by which the shares are settled in the Indian stock market is called the trading cycle.

◦ Trading - The process of buying the security of a company.

◦ Clearing - The process by which an organization acts as a link between a buyer and a seller to

ensure a smooth transaction of money and the shares.

◦ Settlement - When the Demat of the investor is credited with the shares he/she bought, or his/her

bank account is credited with the money they earned on selling the shares, the settlement is said to

have occurred.
Clearing and Settlement Proce
ss
◦ What happens when you buy a stock?
◦ Day 1 – The trade (T Day), Monday
◦ Assume on 03rd March 2020 (Tuesday) you buy 100 shares of Reliance Industries at
Rs.1,000/- per share. The total buy value is Rs.100,000/- (100 * 1000). The day you make
the transaction is referred to as the trade date, represented as ‘T Day’.
◦ By the end of trade day, your broker will debit Rs.100,000/- and the applicable charges
towards your purchase. Assuming the trade is executed through RZ.
◦ So an amount of Rs.100,000/- plus Rs.103.93/- (which includes all the applicable charges)
totaling Rs.100,103.93/- will be debited from your trading account the day you make the
transaction. Do remember, the money goes out of your account but the stock has not come
into your DEMAT account yet.
◦ Also, on the same day, the broker generates a ‘contract note’ and sends you a copy of the
same. A contract note is like a bill generated detailing every transaction you made. This is
an important document that is worth saving for future reference. A contract note typically
shows a break up of all transactions done during the day along with the trade reference
number. It also shows the breakup of charges charged by the broker.
 Day 2 – Trade Day + 1 (T+ day,
Wednesday)
◦ The day after you made the transaction is called the T+1 day. On T+1 day you can sell the
stock that you purchased the previous day. If you do so, you are basically doing a quick trade
called “Buy Today, Sell Tomorrow” (BTST) or “Acquire Today, Sell Tomorrow” (ATST).
Remember the stock is not in your DEMAT account yet. Hence, there is a risk involved, and
you could be in trouble for selling a stock that you don’t really own. This doesn’t mean, every
time you do a BTST trade you end up in trouble, but it does once in a way especially when
you trade B group and illiquid stocks. The reason why this happens is a little convoluted, and
we deliberately will not touch this topic now.

◦ If you are starting fresh in the markets, I would suggest you do not do BTST trades unless you
understand the risk involved.

◦ From your perspective, nothing happens on T+1 day. However, in the background, the money
required to purchase the shares is collected by the exchange along with the exchange
transaction charges and Security transaction tax.
 Day 3 – Trade Day + 2 (T+2 day,
Thursday)
◦ On day 3 or the T+2 day, around 11 AM shares are debited from the person who sold you the

shares and credited to the brokerage with whom you are trading, who will in turn credit it to

your DEMAT account by end of the day. Similarly, money that was debited from you is

credited to the person who sold the shares.

◦ The shares will now start reflecting in the DEMAT account indicating that you own 100 shares

of Reliance.

◦ So for all practical purposes, if you buy a share on day T Day, you can expect to receive the
 What happens when you sell a stock?

◦ The day you sell the stocks is again called the trade day, represented as ‘T Day’.

The moment you sell the stock from your DEMAT account, the stock gets blocked.

Before the T+2 day, the blocked shares are given to the exchange. On T+2 day you

would receive the funds from the sale which will be credited to your trading account

after deduction of all applicable charges.

Primary Market – Issue
Mechanism
 Introduction
◦ A public issue does not limit anyone (individual, organization, or corporate) in investing, while in private
placement, the issuance is done to select a number of people.

◦ Allotment done to more than 200 people, becomes public allotment

◦ Allotment done to less than 200 people, becomes private allotment

◦ Since the securities are directly issued by the companies to its investors, the company receives the
money and issues certificate of security to the investor.

◦ The securities issued to the investors in the primary market in:

◦ Face value

◦ Premium value

◦ Par value

◦ When the issue of securities closes, then the securities are traded on the secondary market such as stock
exchange, bonds market, derivative exchange.
 Types of issues in Primary
Market
◦ Public Issue:
◦ When a company raises funds by selling its securities through an issue of the offer
document. It is further classified into:
◦ IPO: when a company makes a fresh issue of securities to the general public for
the first time.
◦ FPO: when a public limited company that is already listed on exchanges issue
additional shares to the general public.
◦ Rights Issue:
◦ When a listed company makes an issue of fresh securities only to its existing
shareholders it is known as the right issue.
◦ Preferential issue:
◦ When a listed company issues securities to a selected group of individuals in order
to raise additional funds, it is known as a preferential issue.
 Why companies
issue shares to the public?
◦ Companies come to the primary market to raise money for expansion. As each and
every company requires capital for expansion and growth.

◦ The capital can be in the form of:

◦ Equity

◦ Debt

◦ The money raised in the primary market goes directly to issuing company. It is a
place where capital formation takes place.
 Important Terminologies
◦ Offer Document:
◦ Consists of all the relevant information about the company.
◦ Includes companies promoters, projects undertook, financial condition, the
objective of raising money, etc.
◦ Used for inviting subscriptions.
◦ Price Band:
◦ It is a range of price within which an investor can bid for securities.
◦ Cut-off Price:
◦ The price decided by the issuer in consultation with the merchant banker at which
the securities will be offered.
◦ Floor Price:
◦ The minimum price at which bids can be made for an IPO.
◦ Face Value:
◦ It is the minimum value below which the price of the stocks won’t fall.
 Operating Procedure to apply
for an IPO
1. Visit broker’s website and mention the required details.

2. Click on Profile Request, then on IPO Prefilled Form.

3. Capture the Bid Details.

4. Check the total amount and download the form.

5. Visit your nearest broker’s branch and ask for the bidding number.

6. Submit the form to the branch.

7. After 15 days the shares get allotted to the investors and the amount get deducted. Incase

the shares are not allotted then the amount blocked will be released back to the investors.
 E-broking
◦ A brokerage house that allows you to buy and sell stocks
and obtain investment information from its Web site.

◦ Allows users to buy and sell stocks electronically and

obtain information with the help of a website by simple
sign-up.

◦ Makes user own financial manager.

◦ Outcome of widespread Internet connectivity and smart

devices.
 Contract Note
◦ The legal record of any transaction carried out on a stock exchange through a stock

broker.

◦ Serves as the confirmation of trade done on a particular day on behalf of a client

on a stock exchange (BSE/NSE).

◦ Receives this document from broker at end of day if you have bought or sold share

through him.

◦ Available in digitally signed electronic format and generally processed by the

Broker after market hours & is sent via E-Mail to the Clients Registered E-Mail ID.
 Contents
◦ The evidence of the trade done by the investor.

◦ Regulated under the directions of the Securities & Exchange Board of India (SEBI).

◦ Includes a Reference Number which can be used to cross-check the details of the transaction with the

stock exchanges.

◦ A valid contract note should have following details in structured format

◦ Client – Name, Address, PAN, Unique Client Code etc.,

◦ Order Number, Trade Time, Trade Number, Name and Symbol of the security traded, Action Carried Out

i.e. Buy or Sell, Quantity traded, Trade Price of the security, Closing rate per unit (Only for Derivatives),

Total Charges before Brokerage and Statutory levies

Payment
Details
 Usage
◦ Calculation of Capital Gains

◦ Calculation of total brokerage charged

◦ Calculation of data for filing Income Tax Return

◦ Legal Proof in case of dispute with broker

◦ Cross examining genuineness of the transactions

 Intraday
◦ Within the day.

◦ Buying and selling your holdings during the same trading day.

◦ The main objective is to make profits by taking the advantage of stock market movements.

◦ The level of profits depend on the extent of fluctuations in the prices of the stocks that the

trader holds in his portfolio.

◦ Participants - Bankers, Investment Firm and Home Investors.

◦ - https://cleartax.in/s/intraday-trading
 How Does it Work?
◦ Trading Account and DEEMAT

◦ Price fluctuation of given security.

◦ Intraday Trading Charts - Express price movements over the course of a trading day

and are usually measured hour-by-hour during trading time.

◦ Used to determine the correct time to enter or exit a trade.

◦ They implement trading strategies and capitalize on short-term price fluctuations.

Important points
◦ Stocks liquidity

◦ High Trading Volume

◦ Updated with stock market news

◦ Use of stop loss strategy

◦ Analysis before trading

◦ Avoidance of trading in penny stocks

◦ Selection of stocks that are sensitive to news

 Some Important
◦ Stock Trading App
• Upstox Pro Mobile App
• 5Paisa Mobile App
• Angel Broking Mobile App
• Kite Mobile App by Zerodha
• IIFL Markets Mobile App
◦ Websites for Learning Stock Trading and Investment
• Money control
• Investopedia
• Equity Master
◦ Virtual Site for Stock Trading Practice
• Moneybhai
• Dalal street
• ChartMantra
 Short Selling
◦A trading strategy that seeks to capitalize on an anticipated decline

in the price of a security.

◦The practice where an investor sells shares that he does not own at

the time of selling them.

◦He sells them in the hope that the price of those shares will decline,

and he will profit by buying back those shares at a lower price.

 How does Short Selling work?
◦Borrow shares.

◦Sell the shares.

◦Repurchase the shares.

◦Return the shares to whoever you borrowed.

 Participants
◦Allowed - Retail Investors

◦Institutional Investors — Domestic Mutual Funds and Foreign

Institutional Investors registered with the SEBI, Banks and Insurance

companies — are prohibited from short-selling and are mandatorily

required to settle on the basis of deliveries of securities owned and

held by them.
 Trading Cycle
◦ https://adityatrading.in/knowledge/introduction/trading-mechanism-of-securities.aspx
 Step 1: Finding a Broker
◦ An Intermediary or A Mediator

◦ Transfer of Order Electronically From The Investor To The Exchange.

◦fees taken for opening an online trading account

◦ratings and customer service.

◦Brokerage charge for intraday trading

◦Brokerage charge on selling a long held share

◦Margin provided by the broker on intraday trading

◦information regarding investment opportunities on a regular basis.

Step 2: Opening Account With the Broker

◦Open an online trading account with the broker.

◦A trading account in the name of the investor/client

◦Satisfaction about the credit worthiness.

◦Required Documents.
 Step 3: Placing the Order
◦ Buy Orders
◦ Sell Orders
◦ Limit Order
◦ Stop Loss order
◦ Fixed Price order
◦ Market order
◦ Discretionary order
◦ Cancel order
◦ Day order
◦ Market Depth
 Step 4:Execution of the Order

◦The orders are executed by the broker on behalf of the clients.

◦Paid service.

◦Order Matching - Automatically and adjustment.

 Step 5: Preparation of Contract Notes

◦Preparation and its execution.

◦Legal document enable to know total daily orders and net

due

◦Net due effected through Bank Account.

 Step 6: Contract Settlement
◦The settlement is done by the clearing agency.

◦Delivers the share certificates by the end of the day.

 Factoring/Receivables Factoring/ Debtor
Financing
◦ When a company buys a debt or invoice from another company.

◦ Accounts receivable are discounted in order to allow the buyer to

make a profit upon the settlement of the debt.

◦ Transfers the ownership of accounts to another party that then

chases up the debt.

◦ Relieves the first party of a debt for less than the total amount
providing them with working capital to continue trading, while the
buyer, or factor, chases up the debt for the full amount and profits
when it is paid.
 Contd.

◦ The factor is required to pay additional fees, typically a small percentage,

once the debt has been settled. The factor may also offer a discount to

the indebted party.

◦ Very common method used by exporters to help accelerate their cash

flow.

◦ Enables the exporter to draw up to 80% of the sales invoice’s value at the

point of delivery of the goods and when the sales invoice is raised.
Factoring
 Factoring Companies in India
◦ IFCI Factors Ltd.

◦ SBI Global

◦ Standard Chartered Band

◦ Canbank Factors Ltd.

◦ ECGC India Ltd.

 Bills Discounting

◦ A method of trading or selling the bill of exchange to any financial institution like

banks before it becomes matured with a less price than its par value.

◦ An advance against the bill.

◦ Discount on a bill of exchange is based on the remaining time for a maturity of it.

◦ A bill of discounting involves trade debts which are backed by account receivables.
 Bill Discounting Vs. Factoring

◦Meaning

◦Legal Existence

◦Settlement of Finance

◦Parties involved

◦Fees