As an Investment Advisor
Do's and Don't's
Don't deal with unregistered intermediaries, as this would expose you to counter party risk
Give clear and unambiguous instructions to your Broker / Sub-broker
Keep a record of all instructions issued to the Broker / Sub-broker.
Confirm with your Broker / Sub-broker whether delivery is in physical or demat form before selling shares.
Don't fall prey to promises of unrealistic high returns.
Don't indulge in speculative trading, go by fundamentals.
Trade within your predetermined limits.
Use the Investors' Grievance Redressal system of the Exchanges to redress your grievances if any.
Understand the working of the Investor Service Cell for complaint against listed companies / Brokers.
You can trade on your own through Internet based trading by registering with a Broker.
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Arbitration :
Settlement of claims differences or disputes between one member and another and between a member and his clients, authorised clerks, sub-brokers, etc., through appointed arbitrators. It is a quasi-judicial process that is faster and is an inexpensive way of resolving a dispute. The Exchange facilitates the process of arbitration between the members and their clients. The disputes between the parties are resolved through an arbitration in accordance with the bye-laws of the exchange.
Auction :
An auction is a mechanism utilised by the Exchange to fulfill its obligation to a counter party member when a member fails to deliver good securities or make the payment. Through auction, the Exchange arranges to buy good securities and deliver them to the buying broker or arranges to realise the cash and pay it to the selling broker.
Bad delivery cell :
When a delivery of shares turns out to be bad because of company objection etc., the investor can approach the bad delivery cell of the stock exchange through his broker for correction or replacement with good delivery.
Bid and offer :
Bid is the price of a share a prospective buyer is prepared to pay for particular scrip. Offer is the price at which a share is offered for sale.
Brokerage :
Brokerage is the commission charged by the broker for purchase/sale transaction through him. The maximum brokerage chargeable, as stipulated by SEBI, is at present 2.5% of the trade value.
Carry forward trading :
Carry forward trading has evolved in response to local needs in India and it refers to the trading in which the settlement is postponed to the next account period on payment of contango charges (known as 'vyaj badla') in which the buyer pays interest on borrowed funds or the backwardation charges (known as 'undha badla') in which the short seller pays a charge for borrowing securities.
Circuit breakers :
It is a mechanism by which Exchanges temporarily suspend the trading in a security when its prices are volatile and tend to breach the price band.
Clearing :
Clearing refers to the process by which all transactions between members is settled through multilateral netting.
Company objection :
An investor sends the certificate along with the transfer deed to the company for transfer. In certain cases the registration is rejected because of signature difference, or if the shares are fake, forged or stolen etc;. In such cases the company returns the shares along with a letter which is termed as a company objection.
Cum-bonus :
The share is described as cum-bonus when a purchaser is entitled to receive the current bonus.
Cum-rights :
The share is described as cum-rights when a purchaser is entitled to receive the current rights.
Day order :
A day order, as the name suggests, is an order which is valid for the day on which it is entered. If the order is not matched during the day, at the end of the trading day the order gets cancelled automatically.
Dematerialisation is the process by which shares in the physical/paper form are cancelled and credit in the form of electronic balance is maintained on highly secure systems at the depository.
Ex-bonus :
The share is described as ex-bonus when a purchaser is not entitled to receive the current bonus, the right to which remains with the seller.
Ex-rights :
The share is described as ex-rights when a purchaser is not entitled to receive the current rights, the right of which remains with the seller.
Forward trading :
Forward trading refers to trading where contracts traded today are settled at some future date at prices decided today.
Good-bad delivery :
A share certificate together with its transfer form which meet all the requirements of title transfer from seller to buyer is called good delivery in the market. Delivery of a share certificate, together with a deed of transfer, which does not meet requirements of title transfer from seller to buyer is called a bad delivery in the market.
Insider trading :
Trading in a Company's shares by a connected person having non-public, price sensitive information, such as expansion plans, financial results, takeover bids, etc., by virtue of his association with that Company, is called insider trading.
Jumbo certificate :
A jumbo share certificate is a single composite share certificate formed by consolidating/ aggregating a large number of market lots.
Market lot :
Market lot is the minimum number of shares of a particular security that must be transacted on the Exchange. Multiples of the market lot may also be transacted. In Demat Scrips the market lot is 1 share.
No-delivery period :
Whenever a book closure or record date is announced by a company, the Exchange sets a no-delivery period for that security. During this period, trading is permitted in that security. However, these trades are settled only after the no-delivery period is over. This is done to ensure that investor's entitlement for corporate benefits is clearly determined.
Odd lot :
A number of shares that are less than the market lot are known as odd lots. Under the scrip based delivery system, these shares are normally traded at a discount to the prevailing price for the marketable lot.
Order-driven trading :
It is a trading initiated by buy/sell orders from investors/brokers.
Pay-in :
Pay-in day is the designated day on which the securities or funds are paid in by the members to the clearing house of the Exchange.
Pay-out :
Pay-out is the designated day on which securities and funds are delivered / paid out to the members by the clearing house of the Exchange.
Price band :
The daily/weekly price limits within which price of a security is allowed to rise or fall.
Price rigging :
When a person or persons acting in concert with each other collude to artificially increase or decrease the prices of a security, that process is called price rigging.
Quote driven trading :
Trading where brokers/market makers give buy/ sell quote for a scrip simultaneously.
Record date :
Record date is the date on which the beneficial ownership of an investor is entered into the register of members. Such a member is entitled to get all the corporate benefits.
Rematerialisation of shares :
It is the process through which shares held in electronic form in a depository are converted into physical form.
Screen based trading :
When buying/selling of securities is done using computers and matching of trades is done by a stock exchange computer.
Settlement :
It refers to the scrip-wise netting of trades by a broker after the trading period is over.
Settlement guarantee :
Settlement guarantee is the guarantee provided by the clearing corporation for settlement of all trades even if a party defaults to deliver securities or pay cash.
Splitting/Consolidation :
The process of splitting shares that have a high face value into shares of a lower face value is known as splitting. The reverse process of combining shares that have a low face value into one share of higher value is known as consolidation.
Spot trading :
Trading by delivery of shares and payment for the same on the date of purchase or on the next day.
Stop transfer :
The instruction given by a registered holder of shares to the company to stop the transfer of shares as a result of theft, loss etc,.
Trade guarantee :
Trade guarantee is the guarantee provided by the clearing corporation for all trades that are executed on the Exchange. In contrast the settlement guarantee guarantees the settlement of trade after multilateral netting.
Trading for delivery :
Trading conducted with an intention to deliver shares as opposed to a position that is squared off within the settlement.
Transfer deed :
A transfer deed is a form that is used for effecting transfer of shares or debentures and is valid for a specified period. It should be sent to the company along-with the share certificate for registering the transfer. The transfer deed must be duly stamped and signed by or on behalf of the transferor and transferee and complete in all respects.
Transmission :
Transmission is the lawful process by which the ownership of securities is transferred to the legal heir/s of the deceased. The readers are requested to refer to the specific Acts, rules and regulations for exact details and clarifications and are reminded that this booklet does not purport to explain the laws or rules in force, with respect to any particular fact pattern. Answers to questions involving particular facts depend upon interpretations, administrative decisions and court actions. While every effort has been made to ensure the accuracy and completeness of the information contained, the Board assumes no liability for any errors or omission of information given above.
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Information About Demat
What is a Depository?
A depository is an organisation which holds securities of investors in electronic form at the request of the investors through a registered Depository Participant. It also provides services related to transactions in securities.
How is a depository similar to a bank?
It can be compared with a bank, which holds the funds for depositors. A Bank - Depository Analogy is given in the following table:
Holds funds in an account Hold securities in an account
Transfers funds between accounts on the instruction of the account holder Transfers securities between accounts on the instruction of the account holder
Facilitates transfer without having to handle money Facilitates transfer of ownership without having to handle securities
Facilitates safekeeping of money Facilitates safekeeping of securities
How many Depositories are registered with SEBI?
At present two Depositories viz. National Securities Depository Limited (NSDL) and Central Depository Services (I) Limited (CDSL) are registered with SEBI.
Who is a Depository Participant?
A Depository Participant (DP) is an agent of the depository through which it interfaces with the investor. A DP can offer depository services only after it gets proper registration from SEBI. Banking services can be availed through a branch whereas depository services can be availed through a DP.
Is it compulsory for every investor to open a depository account to trade in the capital market?
As per the available statistics at BSE and NSE, 99.9% settlement takes place in demat mode only. Therefore, in view of the convenience in settlement through demat mode, it is advisable to have a beneficiary owner (BO
What are the benefits of availing depository services?
The benefits are enumerated below:-
A safe and convenient way to hold securities;

Immediate transfer of securities;

No stamp duty on transfer of securities;

Elimination of risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc.;

Reduction in paperwork involved in transfer of securities;

Reduction in transaction cost;

No odd lot problem, even one share can be sold;

Nomination facility;

Change in address recorded with DP gets registered with all companies in which investor holds securities electronically eliminating the need to correspond with each of them separately;

Transmission of securities is done by DP eliminating correspondence with companies;

Automatic credit into demat account of shares, arising out of bonus/split/consolidation/merger etc.

Holding investments in equity and debt instruments in a single account.
Account opening
Why should an investor give his bank account details at the time of account opening?
It is for the protection of investor's interest. The bank account number will be mentioned on the interest or dividend warrant, so that such warrant cannot be encashed by any one else. Further, cash corporate benefits such as dividend, interest will be credited to the investors account directly through the ECS (Electronic Clearing Service) facility, wherever available, by the company.
Can an investor change the details of his bank account?
Yes. Since in the depository system monetary benefits on the security balances are paid as per the bank account details provided by the investor at the time of account opening, the investor must ensure that any subsequent change in bank account details is informed to the DP.
What should be done if the address of the investor changes?
Investor should immediately inform his/her DP, who in turn will update the records. This will obviate the need of informing different companies.
Does the investor have to keep any minimum balance of securities in his/her accounts?
Can an investor open a single account for securities owned in different ownership patterns such as securities owned individually and securities owned jointly with others?
No. The demat account must be opened in the same ownership pattern in which the securities are held in the physical form. e. g. if one share certificate is in the individual name and another certificate is jointly with somebody, two different accounts would have to be opened.
What is required to be done if one has physical certificates with the same combination of names, but the sequence of names is different i.e. some certificates with 'A' as first holder and 'B' as second holder and other set of certificates with 'B' as first holder and 'A' as the second holder?
In this case the investor may open only one account with 'A' & 'B' as the account holders and lodge the security certificates with different order of names for dematerialisation in the same account. An additional form called "Transposition cum Demat" form will have to be filled in. This would help you to effect change in the order of names as well as dematerialise the securities.
Can an investor operate a joint account on "either or survivor" basis just like a bank account?
No. The demat account cannot be operated on "either or survivor" basis like the bank account.
Can someone else operate the account on behalf of the BO on the basis of a power of attorney?
Yes. If the BO authorises any person to operate the account by executing a power of attorney and submit it to the DP, that person can operate the account on behalf of the BO.
Can addition or deletion of names of accountholders is permitted after opening the account?
No. The names of the account holders of a BO account cannot be changed. If any change has to be effected by addition or deletion, a new account has to be opened in the desired holding pattern (names) and then transfer the securities to the newly opened account. The old account may be closed.
Can an investor close his demat account with one DP and transfer all securities to another account with another DP?
Yes. The investor can submit account closure request to his DP in the prescribed form. The DP will transfer all the securities lying in the account, as per the instruction, and close the demat account.
Whether investors can freeze or lock their accounts?
Investors can freeze or lock their accounts for any given period of time, if so desired. Accounts can be frozen for debits (preventing transfer of securities out of accounts) or for credits (preventing any movements of hindrances into accounts) or for both.
What is dematerialisation?
Dematerialisation is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited into the investor's account with his/her DP.
How can one convert physical holding into electronic holding i.e how can one dematerialise securities?
In order to dematerialise physical securities one has to fill in a DRF (Demat Request Form) which is available with the DP and submit the same along with physical certificates one wishes to dematerialise. Separate DRF has to be filled for each ISIN Number. The complete process of dematerialisation is outlined below:

  • Surrender certificates for dematerialisation to your depository participant.
  • Depository participant intimates Depository of the request through the system.
  • Depository participant submits the certificates to the registrar of the Issuer Company.

  • Registrar confirms the dematerialisation request from depository.
  • After dematerialising the certificates, Registrar updates accounts and informs depository of the completion of dematerialisation.
  • Depository updates its accounts and informs the depository participant.
  • Depository participant updates the demat account of the investor.
  • What is an ISIN?
    ISIN (International Securities Identification Number) is a unique identification number for a security.
    Can odd lot shares be dematerialised?
    Yes, odd lot share certificates can also be dematerialised.
    Do dematerialised shares have distinctive numbers?
    Dematerialised shares do not have any distinctive numbers. These shares are fungible, which means that all the holdings of a particular security will be identical and interchangeable.
    Can electronic holdings be converted back into Physical Certificates?
    Yes. The process is called rematerialisation. If one wishes to get back his securities in the physical form one has to fill in the RRF (Remat Request Form) and request his DP for rematerialisation of the balances in his securities account. The process of rematerialisation is outlined below:

  • One makes a request for rematerialisation.
  • Depository participant intimates depository of the request through the system.
  • Depository confirms rematerialisation request to the registrar.
  • Registrar updates accounts and prints certificates.
  • Depository updates accounts and downloads details to depository participant.
  • Registrar dispatches certificates to investor.
  • Trading / Settlement
    What is the procedure for selling dematerialised securities?
    The procedure for buying and selling dematerialised securities is similar to the procedure for buying and selling physical securities. The difference lies in the process of delivery (in case of sale) and receipt (in case of purchase) of securities.

    In case of purchase:-
  • The broker will receive the securities in his account on the payout day
  • The broker will give instruction to its DP to debit his account and credit investor's account
  • Investor will give 'Receipt Instruction to DP for receiving credit by filling appropriate form. However one can give standing instruction for credit

  • in to ones account that will obviate the need of giving Receipt Instruction every time.

    In case of sale:-
    The investor will give delivery instruction to DP to debit his account and credit the broker's account. Such instruction should reach the DP's office at least 24 hours before the pay-in as other wise DP will accept the instruction only at the investor's risk.
    What is 'Standing Instruction' given in the account opening form?
    To give the delivery one has to fill a form called Delivery Instruction Slip (DIS). DIS may be compared to cheque book of a bank account. The following precautions are to be taken in respect of DIS:-

  • Ensure and insist with DP to issue DIS book.
  • Ensure that DIS numbers are pre-printed and DP takes acknowledgment for the DIS booklet issued to investor.
  • Ensure that your account number [client id] is pre-stamped.
  • If the account is a joint account, all the joint holders have to sign the instruction slips. Instruction cannot be executed if all joint holders have not signed.
  • Avoid using loose slips
  • Do not leave signed blank DIS with anyone viz., broker/sub-broker.
  • Keep the DIS book under lock and key when not in use.
  • If only one entry is made in the DIS book, strike out remaining space to prevent misuse by any one.
  • Investor should personally fill in target account -id and all details in the DIS.
  • Is it possible to give delivery instructions to the DP over Internet and if yes, how?
    Yes. Both NSDL and CDSL have launched this facility for delivering instructions to your DP over Internet, called SPEED-e and EASI respectively. The facility can be used by all registered users after paying the applicable charges.
    Corporate Benefits
    Is it possible to get securities allotted in public offering directly in the electronic form?
    Yes, it is possible to get securities allotted to in Public Offerings directly in the electronic form. In the public issue application form there is a provision to indicate the manner in which an investor wants the securities allotted. He has to mention the BO ID and the name and ID of the DP on the application form. Any allotment made will be credited into the BO account.
    How are cash corporate benefit such as dividend / interest received?
    The concerned company obtains the details of beneficiary holders and their holdings as on the date of the book closure / record date from Depositories. The payment to the investors will be made by the company through the ECS (Electronic Clearing Service) facility, wherever available. Thus the dividend / interest will be credited to your bank account directly. Where ECS facility is not available dividend / interest will be given by issuing warrants on which your bank account details are printed. The bank account details will be those which you would have mentioned in your account opening form or changed thereafter.
    How would one receive non-cash corporate benefit such as bonus etc.?
    The concerned company obtains the details of beneficiary holders and their holdings as on the date of the book closure / record date from depositories. The entitlement will be credited by the company directly into the BO account.
    Who should be contacted in case of discrepancies in corporate benefits?
    In case of discrepancies in corporate benefits, one can approach the company / its R&T Agent.
    Can one pledge dematerialised securities?
    Yes. In fact, pledging dematerialised securities is easier and more advantageous as compared to pledging physical securities.
    What should one do to pledge electronic securities?
    The procedure to pledge electronic securities is as follows:

  • Both investor (pledgor) as well as the lender (pledgee) must have depository accounts with the same depository;
  • Investor has to initiate the pledge by submitting to DP the details of the securities to be pledged in a standard format ;
  • The pledgee has to confirm the request through his/her DP;
  • Once this is done, securities are pledged.
  • All financial transactions between the pledgor and the pledgee are handled as per usual practice outside the depository system.
  • How can one close the pledge after repayment of loan?
    After one has repaid the loan, one can request for a closure of pledge by instructing the DP in a prescribed format. The pledgee on receiving the repayment will instruct his DP accordingly for the closure of the pledge.
    Can one change the securities offered in a pledge?
    Yes, if the pledgee [lender] agrees, one may change the securities offered in a pledge.
    Who would receive the corporate benefits on the pledged securities?
    The securities pledged are only blocked in the account of pledgor in favour of the pledgee. The pledgor would continue to receive all the corporate benefits.
    What is Lending and Borrowing of Securities?
    If any person required to deliver a security in the market does not readily have that security, he can borrow the same from another person who is willing to lend as per the Securities Lending and Borrowing Scheme.
    Can lending and borrowing be done directly between two persons?
    No. Lending and borrowing has to be done through an 'Approved Intermediary' registered with SEBI. The approved intermediary would borrow the securities for further lending to borrowers. Lenders of the securities and borrowers of the securities enter into separate agreements with the approved intermediary for lending and borrowing the securities. Lending and borrowing is effected through the depository system.
    Can I lend the securities lying in my account?
    Yes. You can lend your securities through Approved Intermediaries registered with SEBI.
    How would I lend my demat securities?
    You may enter into an agreement with the approved intermediary to be a lender under this scheme. After that, you may lend securities any time by submitting lending instruction to your DP.
    How would I get back the securities lent by me?
    Intermediary may return the securities at any time or at the end of the agreed period of lending. Intermediary has to repay the securities together with any benefits received during the period of the loan.
    How would I receive the corporate benefits which would accrue on these securities during the period of lending?
    The benefits will be given to the Intermediary/borrower. However, whenever the securities are being returned / recalled. Intermediary/borrower will return the securities together with benefits received.
    Who can nominate?
    Nomination can be made only by individuals holding beneficiary accounts either singly or jointly. Non-individuals including society, trust, body corporate, karta of Hindu Undivided Family, holder of power of attorney cannot nominate.
    Who can be a nominee?
    Only an individual can be a nominee. A nominee shall not be a society, trust, body corporate, partnership firm, Karta of Hindu Undivided Family or a power of attorney holder.
    Transmission of demat securities
    What is transmission of demat securities?
    Transmission is the process by which securities of a deceased account holder are of dematerialised holdings is more convenient as the transmission formalities for all securities held in a demat account can be completed by submitting documents to the DP, whereas in case of physical securities the legal heirs/nominee/surviving joint holder has to independently correspond with each company in which securities are held.
    In the event of death of the sole holder, how the successors should claim the securities lying in the demat account?
    The claimant should submit to the concerned DP an application Transmission Request Form (TRF) along with the following supporting documents

  • In case of death of sole holder where the sole holder has appointed a nominee

  • Notarised copy of the death certificate
  • In case of death of the sole holder, where the sole holder has not appointed a nominee

  • Notarised copy of the death certificate

    Any one of the below mentioned documents -
  • Succession certificate
  • Copy of probated will
  • Letter of Administration
  • The DP, after ensuring that the application is genuine, will transfer securities to the account of the claimant.
  • The major advantage in case of dematerialised holdings is that the transmission formalities for all securities held with a DP can be completed by interaction with the DP alone, unlike in the case of physical share certificates, where the claimant will have to interact with each Issuing company or its Registrar separately.
  • Inter Depository Transfers
    If my depository account is with NSDL/CDSL, can I receive my securities from an account holder having account with the other depository in India?
    Yes. Inter depository transfers are possible.
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    Information About Derivatives
    What are Derivatives?
    The term "Derivative" indicates that it has no independent value, i.e. its value is entirely "derived" from the value of the underlying asset. The underlying asset can be securities, commodities, bullion, currency, live stock or anything else. In other words, Derivative means a forward, future, option or any other hybrid contract of pre determined fixed duration, linked for the purpose of contract fulfillment to the value of a specified real or financial asset or to an index of securities.

    With Securities Laws (Second Amendment) Act,1999, Derivatives has been included in the definition of Securities. The term Derivative has been defined in Securities Contracts (Regulations) Act, as:-

    A Derivative includes: -
  • a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security;
  • a contract which derives its value from the prices, or index of prices, of underlying securities;
  • What is a Futures Contract?
    Futures Contract means a legally binding agreement to buy or sell the underlying security on a future date. Future contracts are the organized/standardized contracts in terms of quantity, quality (in case of commodities), delivery time and place for settlement on any date in future. The contract expires on a pre-specified date which is called the expiry date of the contract. On expiry, futures can be settled by delivery of the underlying asset or cash. Cash settlement enables the settlement of obligations arising out of the future/option contract in cash.
    What is an Option contract?
    Options Contract is a type of Derivatives Contract, which gives the buyer/holder of the contract the right (but not the obligation) to buy/sell the underlying asset at a predetermined price within or at end of a specified period. The buyer / holder of the option purchases the right from the seller/writer for a consideration which is called the premium. The seller/writer of an option is obligated to settle the option as per the terms of the contract when the buyer/holder exercises his right. The underlying asset could include securities, an index of prices of securities etc.

    Under Securities Contracts (Regulations) Act,1956 options on securities has been defined as "option in securities" means a contract for the purchase or sale of a right to buy or sell, or a right to buy and sell, securities in future, and includes a teji, a mandi, a teji mandi, a galli, a put, a call or a put and call in securities;

    An Option to buy is called Call option and option to sell is called Put option. Further, if an option that is exercisable on or before the expiry date is called American option and one that is exercisable only on expiry date, is called European option. The price at which the option is to be exercised is called Strike price or Exercise price.

    A Call option gives its holder the right to purchase an asset for a specified price, called the exercise or strike price, on or before the some specified expiration date.

    A Put option gives its holder the right to sell an asset for a specified exercise price on or before a specified expiration date.

    Therefore, in the case of American options the buyer has the right to exercise the option at anytime on or before the expiry date. This request for exercise is submitted to the Exchange, which randomly assigns the exercise request to the sellers of the options, who are obligated to settle the terms of the contract within a specified time frame.

    As in the case of futures contracts, option contracts can be also be settled by delivery of the underlying asset or cash. However, unlike futures cash settlement in option contract entails paying/receiving the difference between the strike price/exercise price and the price of the underlying asset either at the time of expiry of the contract or at the time of exercise / assignment of the option contract.
    What are Index Futures and Index Option
    Futures contract based on an index i.e. the underlying asset is the index, are known as Index Futures Contracts. For example, futures contract on NIFTY Index and BSE-30 Index. These contracts derive their value from the value of the underlying index.

    Similarly, the options contracts, which are based on some index, are known as Index options contract. However, unlike Index Futures, the buyer of Index Option Contracts has only the right but not the obligation to buy / sell the underlying index on expiry. Index Option Contracts are generally European Style options i.e. they can be exercised / assigned only on the expiry date.

    An index in turn derives its value from the prices of securities that constitute the index and is created to represent the sentiments of the market as a whole or of a particular sector of the economy. Indices that represent the whole market are broad based indices and those that represent a particular sector are sectoral indices.

    By its very nature, index cannot be delivered on maturity of the Index futures or Index option contracts therefore, these contracts are essentially cash settled on Expiry.
    What is minimum contract size?
    The Standing Committee on Finance, a Parliamentary Committee, at the time of recommending amendment to Securities Contract (Regulation) Act, 1956 had recommended that the minimum contract size of derivative contracts traded in the Indian Markets should be pegged not below Rs. 2 Lakhs. Based on this recommendation SEBI has specified that the value of a derivative contract should not be less than Rs. 2 Lakh at the time of introducing the contract in the market. In February 2004, the Exchanges were advised to re-align the contracts sizes of existing derivative contracts to Rs. 2 Lakhs. Subsequently, the Exchanges were authorized to align the contracts sizes as and when required in line with the methodology prescribed by SEBI.
    What is the lot size of a contract?
    Lot size refers to number of underlying securities in one contract. The lot size is determined keeping in mind the minimum contract size requirement at the time of introduction of derivative contracts on a particular underlying.

    For example, if shares of XYZ Ltd are quoted at Rs.1000 each and the minimum contract size is Rs.2 lacs, then the lot size for that particular scrips stands to be 200000/1000 = 200 shares i.e. one contract in XYZ Ltd. covers 200 shares.
    What is the margining system in the derivative markets?
    Two type of margins have been specified -
  • Initial Margin - Based on 99% VaR and worst case loss over a specified horizon, which depends on the time in which Mark to Market margin is collected.
  • Mark to Market Margin (MTM) - collected in cash for all Futures contracts and adjusted against the available Liquid Networth for option positions. In the case of Futures Contracts MTM may be considered as Mark to Market Settlement.

  • Mark to Market Margin

  • Options - The value of the option are calculated as the theoretical value of the option times the number of option contracts (positive for long options and negative for short options). This Net Option Value is added to the Liquid Networth of the Clearing member. Thus MTM gains and losses on options are adjusted against the available liquid networth. The net option value is computed using the closing price of the option and are applied the next day.
  • Futures - The system computes the closing price of each series, which is used for computing mark to market settlement for cumulative net position. If this margin is collected on T+1 in cash, then the exchange charges a higher initial margin by multiplying the price scan range of 3 s & 3.5 s with square root of 2, so that the initial margin is adequate to cover 99% VaR over a two days horizon. Otherwise if the Member arranges to pay the Mark to Market margins by the end of T day itself, then the initial margins would not be scaled up. Therefore, the Member has the option to pay the MTM margins either at the end of T day or on T+1 day.

  • Client Margins

  • Clearing Members and Trading Members are required to collect initial margins from all their clients. The collection of margins at client level in the derivative markets is essential as derivatives are leveraged products and non-collection of margins at the client level would provide zero cost leverage. In the derivative markets all money paid by the client towards margins is kept in trust with the Clearing House / Clearing Corporation and in the event of default of the Trading or Clearing Member the amounts paid by the client towards margins are segregated and not utilised towards the dues of the defaulting member.
  • Therefore, Clearing members are required to report on a daily basis details in respect of such margin amounts due and collected from their Trading members / clients clearing and settling through them. Trading members are also required to report on a daily basis details of the amount due and collected from their clients. The reporting of the collection of the margins by the clients is done electronically through the system at the end of each trading day. The reporting of collection of client level margins plays a crucial role not only in ensuring that members collect margin from clients but it also provides the clearing corporation with a record of the quantum of funds it has to keep in trust for the clients.
  • What are the exposure limits in Derivative Products?
    It has been prescribed that the notional value of gross open positions at any point in time in the case of Index Futures and all Short Index Option Contracts shall not exceed 33 1/3 (thirty three one by three) times the available liquid networth of a member, and in the case of Stock Option and Stock Futures Contracts, the exposure limit shall be higher of 5% or 1.5 sigma of the notional value of gross open position.
    What are the requirements for a NRI to invest in derivatives?
    NRIs are permitted in invest in exchange traded derivative contracts subject to the margin and other requirements which are in place for other investors. In addition, a NRI is subject to the following position limits:
    Index Options Index Futures Stock Options Single stock Futures Interest rate futures
    NRI level Disclosure requirement for any person or persons acting in concert holding 15% or more of the open interest of all derivative contracts on a particular underlying index Disclosure requirement for any person or persons acting in concert holding 15% or more of the open interest of all derivative contracts on a particular underlying index 1% of free float market capitalization or 5% of open interest on a particular underlying whichever is higher 1% of free float market capitalization or 5% of open interest on a particular underlying whichever is higher Rs. 100 Cr or 15% of total open interest in the market in exchange traded interest rate derivative contracts, whichever is higher.
  • S&P CNX Nifty futures contracts have a maximum of 3-month trading cycle - the near month (one), the next month (two) and the far month (three). A new contract is introduced on the trading day following the expiry of the near month contract. The new contract will be introduced for a three month duration. This way, at any point in time, there will be 3 contracts available for trading in the market i.e., one near month, one mid month and one far month duration respectively.
  • Expiryday
  • S&P CNX Nifty futures contracts expire on the last Thursday of the expiry month. If the last Thursday is a trading holiday, the contracts expire on the previous trading day.
  • TradingParameters
  • The value of the futures contracts on Nifty may not be less than Rs. 2 lakhs at the time of introduction. The permitted lot size for futures contracts & options contracts shall be the same for a given underlying or such lot size as may be stipulated by the Exchange from time to time.
  • Pricesteps
  • The price step in respect of S&P CNX Nifty futures contracts is Re.0.05.
  • BasePrices
  • Base price of S&P CNX Nifty futures contracts on the first day of trading would be theoretical futures price.. The base price of the contracts on subsequent trading days would be the daily settlement price of the futures contracts.
  • Pricebands
  • There are no day minimum/maximum price ranges applicable for S&P CNX Nifty futures contracts. However, in order to prevent erroneous order entry by trading members, operating ranges are kept at +/- 10 %. In respect of orders which have come under price freeze, members would be required to confirm to the Exchange that there is no inadvertent error in the order entry and that the order is genuine. On such confirmation the Exchange may approve such order.
  • Expiryday
  • S&P CNX Nifty futures contracts expire on the last Thursday of the expiry month. If the last Thursday is a trading holiday, the contracts expire on the previous trading day.
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    Information About Secondary Market
    What kind of details do I have to provide in Client Registration form?
    The brokers have to maintain a database of their clients, for which you have to fill client registration form. In case of individual client registration, you have to broadly provide following information:

  • Your name, date of birth, photograph, address, educational squalifications, occupation, residential status(Resident Indian/ NRI/others)
  • Unique Identification Number (wherever applicable)
  • Bank and depository account details
  • Income tax No. (PAN/GIR) which also serves as unique client code.
  • If you are registered with any other broker, then the name of broker and concerned Stock exchange and Client Code Number.
  • Proof of identity submitted either as MAPIN UID Card/Pan No./Passport/Voter ID/Driving license/Photo Identity card issued by Employer registered under MAPIN
  • For proof of address (any one of the following):
  • Passport
  • Rent Agreement
  • Voter ID
  • Ration Card
  • Driving license
  • Flat Maintenance Bill
  • Bank Passbook
  • Telephone Bill
  • Electricity Bill
  • Certificate issued by employer registered under MAPIN
  • Insurance Policy

  • Each client has to use one registration form. In case of joint names /family members, a separate form has to be submitted for each person.
    In case of Corporate Client, following information has to be provided:
  • Name, address of the Company/Firm
  • Unique Identification Number (wherever applicable)
  • Date of incorporation and date of commencement of business.
  • Registration number(with ROC, SEBI or any government authority)
  • Details of PAN Account Number:
  • Details of Promoters/Partners/Key managerial Personnel of the Company/Firm in specified format.
  • Bank and Depository Account Details
  • Copies of the balance sheet for the last 2 financial years (copies of annual balance sheet to be submitted every year)
  • Copy of latest share holding pattern including list of all those holding more than 5% in the share capital of the company, duly certified by the Company Secretary / Whole time Director/MD. (copy of updated shareholding pattern to be submitted every year)
  • Copies of the Memorandum and Articles of Association in case of a company / body incorporate / partnership deed in case of a partnership firm
  • Copy of the Resolution of board of directors' approving participation in equity / derivatives / debt trading and naming authorized persons for dealing in securities.
  • Photographs of Partners/Whole time directors, individual promoters holding 5% or more, either directly or indirectly, in the shareholding of the company and of persons authorized to deal in securities.
  • If registered with any other broker, then the name of broker and concerned Stock exchange and Client Code Number.
  • What is MAPIN?
    MAPIN is the Market Participants and Investors Integrated Database. The SEBI (Central Database of Market Participants) Regulations, 2003 were notified on November 20, 2003. As per these regulations, all the participants in the Indian Securities Market viz., SEBI registered intermediaries, listed companies and their associates and the investors would need to get registered and obtain a Unique Identification Number (UIN). The system for allotment of UIN involves the use of biometric impressions for natural persons.

    The major objective is creation of a comprehensive database of market participants. Once created, the database would not only help the regulator in establishing the identity of person(s) who have taken large exposures in the market and/or who are trading through a large number of different brokers but also enable the regulator to take adequate risk containment measures such as imposition of margins, trading or exposure limits etc., depending upon the exposures of various investors. Hence, in the event of a failure of market integrity, an immediate audit trail would be possible and the regulator would be able to take early preventive and / or remedial measures and track down the defaulters and / or manipulators.

    It has been decided to suspend all fresh registrations for obtaining UIN and the requirement to obtain/quote UIN under the MAPIN Regulations/Circulars with effect from July 01, 2005.

    What are the charges that can be levied on the investor by a stock broker/sub broker?
    The trading member can charge:

  • Brokerage charged by member broker.
  • Penalties arising on specific default on behalf of client (investor)
  • Service tax as stipulated.
  • Securities Transaction Tax (STT) as applicable.
  • The brokerage, service tax and STT are indicated separately in the contract note.
  • What is STT?
    Securities Transaction Tax (STT) is a tax being levied on all transactions done on the stock exchanges at rates prescribed by the Central Government from time to time. Pursuant to the enactment of the Finance (No.2) Act, 2004, the Government of India notified the Securities Transaction Tax Rules, 2004 and STT came into effect from October 1, 2004.
    What is an Account Period Settlement?
    An account period settlement is a settlement where the trades pertaining to a period stretching over more than one day are settled. For example, trades for the period Monday to Friday are settled together. The obligations for the account period are settled on a net basis. Account period settlement has been discontinued since January 1, 2002, pursuant to SEBI directives.
    What is a Rolling Settlement?
  • In a Rolling Settlement trades executed during the day are settled based on the net obligations for the day.
  • Presently the trades pertaining to the rolling settlement are settled on a T+2 day basis where T stands for the trade day. Hence, trades executed on a Monday are typically settled on the following Wednesday (considering 2 working days from the trade day).
  • The funds and securities pay-in and pay-out are carried out on T+2 day.
  • What is the pay-in day and pay- out day?
    Pay in day is the day when the brokers shall make payment or delivery of securities to the exchange. Pay out day is the day when the exchange makes payment or delivery of securities to the broker. Settlement cycle is on T+2 rolling settlement basis w.e.f. April 01, 2003. The exchanges have to ensure that the pay out of funds and securities to the clients is done by the broker within 24 hours of the payout. The Exchanges will have to issue press release immediately after pay out.
    What are the prescribed pay-in and pay-out days for funds and securities for Normal Settlement?
    The pay-in and pay-out days for funds and securities are prescribed as per the Settlement Cycle. A typical Settlement Cycle of Normal Settlement is given below:
    Activity Day
    Trading Rolling Settlement Trading T
    Clearing Custodial Confirmation

    Delivery Generation
    T+1 working days

    T+1 working days
    Settlement Securities and Funds pay in

    Securities and Funds pay out
    T+2 working days

    T+2 working days
    Post Settlement Valuation Debit


    Bad Delivery Reporting

    Auction settlement

    Close out

    Rectified bad delivery pay-in and pay-out

    Re-bad delivery reporting and pickup

    Close out of re-bad delivery
    T+2 working days

    T+3 working days

    T+4 working days

    T+5 working days

    T+5 working days

    T+6 working days

    T+8 working days

    T+9 working days
    Note: The above is a typical settlement cycle for normal (regular) market segment. The days prescribed for the above activities may change in case of factors like holidays, bank closing etc. You may refer to scheduled dates of pay-in/pay-out notified by the Exchange for each settlement from time-to-time.
    How long it takes to receive my money for a sale transaction and my shares for a buy transaction?
    Brokers were required to make payment or give delivery within two working days of the pay - out day. However, as settlement cycle has been reduced fromT+3 rolling settlement to T+2 w.e.f. April 01, 2003, the pay out of funds and securities to the clients by the broker will be within 24 hours of the payout.
    Is there any provision where I can get faster delivery of shares in my account?
    The investors/clients can get direct delivery of shares in their beneficiary accounts. To avail this facility, you have to give details of your beneficiary account and the DP-ID of your DP to your broker along with the Standing Instructions for 'Delivery-In' to your Depository Participant for accepting shares in your beneficiary account. Given these details, the Clearing Corporation/Clearing House shall send pay out instructions to the depositories so that you receive pay out of securities directly into your beneficiary account.
    What is an Auction?
    The Exchange purchases the requisite quantity in the Auction Market and gives them to the buying trading member. The shortages are met through auction process and the difference in price indicated in contract note and price received through auction is paid by member to the Exchange, which is then liable to be recovered from the client.
    What happens if the shares are not bought in the auction?
  • If the shares could not be bought in the auction i.e. if shares are not offered for sale in the auction, the transactions are closed out as per SEBI guidelines.
  • The guidelines stipulate that "the close out Price will be the highest price recorded in that scrip on the exchange in the settlement in which the concerned contract was entered into and upto the date of auction/close out OR 20% above the official closing price on the exchange on the day on which auction offers are called for (and in the event of there being no such closing price on that day, then the official closing price on the immediately preceding trading day on which there was an official closing price), whichever is higher.
  • Since in the rolling settlement the auction and the close out takes place during trading hours, the reference price in the rolling settlement for close out procedures would be taken as the previous day's closing price.
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