INTRODUCTION TO STOCK EXCHANGES IN INDIA

INTRODUCTION TO STOCK EXCHANGES IN INDIA

1 Stock Exchange
Securities contract act 1956, define stock exchange as the body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling and dealings in securities.
Thus, the stock exchange is the place or market where securities, shares, debentures, bonds, or mutual funds of various joint stock companies’ central, state or semi government, organizations, local bodies and foreign governments are bought and sold. The stock exchange is never center of capital market. It reflects the hopes, aspirations and fears of people regarding the performance of economy.

2 Origin and Development of Stock Exchange
The earliest records on security dealings indicate that trading in securities in India was vogue as early as 1793.
There was as major increase in the volume of trading only during the 19th century thanks to the enactment of Indian company’s act 1850 which introduced the concept of limited liability & the out break of American civil war which created huge demand for Indian cotton in Europe & which resulted in substantial export earning of country. The earnings were channeled into capital market. As the consequences the security market drew the attention of tremendous investor’s issue of shares & rampart speculation in the outstanding share of the existing company but when the American civil war came to end in 1853, there was disastrous slump in the capital market. This slump resulted in great disenchantment with the stock market & the criticism of broker community. The broker relies that investor interest in the security market can be sustained only by organizing themselves into well regulated body with definite rules and regulations. This lead to the formation of the “The native share and stock broker association” in 1857, which later came to called as “Bombay Stock Exchange”.
The formation of BSE was followed by one being set up as Ahmedabad by 1894 & the other at Calcutta in 1908. In 1956 the government came out with the comprehensive legislation called securities contract (Regulation) act 1956 to regulate the functioning in any notified state or area to obtain recognition from the central govt. and lay down the criteria such recognition.
The recognition accorded to the stock exchange is normally, valid for period of 5 years, subject to the satisfactory performance to the stock exchange during this period. However, the stock exchange located at Bombay, Madras, Ahmedabad, Delhi, Hyderabad, and Bangalore has been granted permanent recognition.
At present secondary market in India consist of 21 stock exchange (including NSE or OTCEI), recognized contracts (regulation) act 1956. These stock rules, by laws and regulations approved by the govt., which constitutes an original market for the outstanding securities.





3 Function of Stock Exchanges
ü The stock exchange provides a ready market, which is continuously available for conversion of existing securities into cash and vice versa.
ü The stock exchange provides appropriate conditions where by the purchase and sale of securities takes place at a reasonable and fair price.
ü To protect the interest of investors through strict enforcement of rules and regulations.
ü The stock exchange ensures inevitable funds for capital to flow in the most profitable enterprise.
ü The stock exchange plays an active role in encouraging people to invest their saving in industrial & govt. securities.

With the facilities provided by stock exchange for buying & selling securities. The demand and supply for particular securities are equalized & price fluctuations are kept within reasonable limits, people who expect rise in price of securities by them in advance to make profits when the prices go up as expected
.







4 List of various recognized stock exchanges in India
Name of Stock Exchange
Year of establishment
Type of Organization
1. Bombay Stock Exchange

2. Ahmedabad Stock Exchange

3. Calcutta Stock Exchange

4. Indore Stock Exchange

5. Madras Stock Exchange

6. Hyderabad Stock Exchange

7. Delhi Stock Exchange

8. Bangalore Stock Exchange

9. Cochin Stock Exchange

10. Kanpur Stock Exchange

11. Pune Stock Exchange

12. Ludhiana Stock Exchange

13. Jaipur Stock Exchange

14. Guwahati Stock Exchange

15. Magadh Stock Exchange

16. Bhubaneshwar Stock Exchange

17. Vadodara Stock Exchange

18. Mangalore Stock Exchange

19. National Stock Exchange

20. Coimbatore Stock Exchange

21. O.T.C.E.I Stock Exchange
1875

1897

1908

1930

1937

1943

1947

1957

1978

1982

1982

1983

1983

1984

1986

1989

1990

-

1994

1996

1997
Voluntary Non Profit

Voluntary Non Profit

Public Limited co.

Voluntary Non Profit

Co. Ltd. by guarantee

Co. Ltd. by guarantee

Public Limited co.

Public Limited co.

Public Limited co.

Public Limited co.

Co. Ltd. by guarantee

Public Limited co.

Public Limited co.

Public Limited co.

Co. Ltd. by guarantee

Co. Ltd. by guarantee

Co. Ltd. by guarantee

N.D.

N.D.

N.D.

N.D.


5 TYPES OF OPERATORS
Transaction of business on stock exchange is allowed to be undertaken only by members of exchange. There are 2 types of members to transact business in stock exchange:
· Broker: Broker is a commission agent who transacts business in securities on behalf of non-members.
· Jobber: Jobber is an independent dealer in securities.

6 TYPES OF SPECULATORS
Members who are engaged in speculation in stock exchange are given different names according to the nature of their speculative activity:
· Bulls: Those who expects rise in the price of certain securities and act on that basis are known as Bull speculators.
· Bears: A Bear speculator is one who anticipates fall in the price of particular securities.

1.7 Listing of Securities
Securities bought and sold in stock exchange may include shares and debentures, bonds and securities issued by various companies. But a stock exchange does not allow transaction in securities issued by all companies. Listing of securities mean inclusion of securities permitted to be traded in the official list of stock exchange. The names of companies of which securities are allowed to be traded are included in official trade list of stock exchange. Govt. securities do not require listing like other corporate securities.


Chapter – 2

Company Profile

2.1 Introduction to LSEA

Sh. S.P Oswal and Sh. B.M Munjal leading industrialists to fulfill a vital need of having a stock exchange in this region established LSE in 1983 with 220 members. Since its inspection LSEA has grown phonically switched form manual trading to screen based trading on 18th November 1996 and number of listed companies increased from 160 in 90’s to 450 as on 31 march of which 296 are regional and 154 are non regional companies.
LSEA has played an important role in generating for the companies in the state of Punjab, Haryana, Himachal Pradesh and Jammu & Kashmir. The daily turnover of LSEA has increased from few lakh to 58 crores. The number of members has now increased to 301 out of which 90 are corporate and others are individuals.

LSEA also have
Ø AUTHORISED SHARE CAPITAL: the authorized share capital of LSEA is RS. 6,00,00,000 divided into 30,000 shares of Rs. 2000 each.
Ø IT HAS ITS OWN BULLETIN: LSEA is continuously published LSEA Bulletin at the interval of quarter. It is also publishing LSE annual report, which provides information to the various users of the stock exchange.
Ø OWN BUILDING: LSEA had its own six stores ultra modern building at Feroz Gandhi market in Ludhiana. It started its operation on 16th Aug 1983.
Ø GOVERNING BODY: The LSEA is administered though a governing body comprising and nominated members.

From Sept.
Elected Members -- 6
SEBI nominees -- 2
Public nominees -- 4
Executive Directors -- 1

Ø ONLINE TRADING THROUGH VSAT: LSEA has chalked out an ambitious program to expand on line trading through VSAT to cities other than ludhiana and plans to take the trading facilities to the door step of investors in this year. The board of directors of LSE has approved the plan for expansion of online trading through VSAT with the objective of broad base business opportunities to the investors and members, the exchange has set up 30 trading terminals at remote sites and union territory of Chandigarh trading through VSAT’s has been smoothly conducted in October 1999.
Ø SCREEN BASED TRADING: it was stated as LSE on Nov. 18,1996. the requisite software is developed by CMC Ltd. this screen based trading is based on VECTOR (Versatile Engine for Centralized Trading and Online Reporting) system. This system displays funds with respect to opening prices of the stock exchange as well as last traded prices.
Ø SETTLEMENTS GUARANTEE FUND: It provides guarantee of all the genuine based trading system of the stock exchange and was implemented a settlement guarantee fund with effect from 6th April 1998.
Ø Investor Grievance Cell: LSE has made special arrangement to handle investor complaints and grievances. So, it has set up IGC, which received complaints from investors to ensure their satisfactory redressal. LSE has also setup investor protection fund IPF, in January 1990. The fund has corpus of 14695990.26 cr as on 31 March 2004. The exchange has also acquired the membership of NSE and BSE through its fully owned subsidiary
















The LSE Securities Limited.

The trade in market is through the authorized members who have duly registered with concerned stock exchange and SEBI.
A stock exchange discharges three important functions of capital market. These are:
i. It provides place for sale and purchase of securities i.e. shares, bonds and debentures etc.
ii. It provides linkage between the savings of household sector and investment in corporate sector and economy.
iii. It provides market quotations for shares, debentures and bonds and serves role of a barometer, not only of the state of health of individual companies, but also of the economy as whole.

The stock exchange discharge these functions by laying down a number of regulations, which is to compiled with while making public issues e.g. offerings at least a prescribed percentage of capital to the public, keeping subscription list open at least for three days making provisions for receiving applications, allotting the shares against on a fair and unconditional basis etc.
Traditionally, trading of scripts was done under the tree where three or four came and traded. The earliest records in security dealing indicate that trading in securities was vogue in India as early as 1973 but with the dev elopement of capital market, the need for proper place to trade was recognized, thus first stock exchange in India i.e. BOMBAY STOCK EXCHANGE (BSE) came into begin 1875. The process led to the establishment of stock exchanges, which gradually spread to other cities of the country like Ahmedabad, Calcutta, Madras etc.

2.2 Historical Perspective Of The Ludhiana Stock Exchange


2.3 Constitution and Shareholders

Name of stock exchange
The Ludhiana Stock Exchange association Ltd.
Date of establishment
Date of incorporation October 17, 1981
Date of recognition April 29, 1983
Nature of organization
Company limited by shares
Authorized share capital
6,00,00,000 Rs. (30,000 shares @ Rs. 2000 each)
Paid up Rs 5,51,00,000


2.4 Operations Of Ludhiana Stock Exchange

v Turnover
Ludhiana Stock Exchange is one the leading stock exchange among the regional stock exchange among the country and has been providing trading platform for the investors situated in Punjab, J&K, HP and Chandigarh.
It recorded a peak turnover of Rs. 9854 Cr. during financial year 2003-2004. The structural changes that took place in the recent past in the capital market of the country had a negative impact on the trading volume of the regional Stock Exchanges. There has been a significant reduction of turnover during year 2001-2002 but the turnover in the exchange has been more than adequately compensated by substantial rise in the turnover of LSE securities limited, a Subsidiary of LSE.



v Listing
It is one of the major functions of Stock Exchange where in the securities of the companies are listed for trading purposes. Any company incorporated under Companies Act 1956, coming out with IPO, has to mandatory list its shares on a stock exchange. Listing department of LSE deals with the listing of securities.

v Settlement Guarantee Fund (SGF)
The stock exchange established a SGF on April 6, 1998. It provides guarantee of all the genuine trades made through the screen based trading system of Stock Exchange. SGF had a corpus of Rs 5138330 Cr as on 31.3.2004.

2.5 Trading on Bigger Stock Exchanges through Subsidiary Route:

As state earlier, the exchange acquired the membership of NSE and BSE through its subsidiary the LSE securities ltd. with the objective of providing an enabling mechanism to its member brokers to trade on NSE and BSE as sub-broker of LSE securities ltd.
Trading at BSE and NSE was started through the subsidiary route from sep 2000 and Dec 2000 respectively, and the trading in F & O segment of NSE commenced in Feb 2002.






2.6 Investor Related Services
ü Investor Grievances:- The exchange has made special arrangements to handle investor’s complaints & grievance. In addition to this, the exchange has investor grievance committees, which are managed by Sh. Dina Nath Sharma, retired additional session Judge, & a public representative Director on the Board of Exchange.

ü Investor Service Center: The exchange has setup an investor service center in its premises for providing information relating to the Capita market to general public. The center has well equipped library, which subscribes to leading economic financial daily and periodicals. It also stores the annual reports of the companies listed at stock exchange. The investor service center is also equipped with a terminal for proving live rates of trading at LSE

2.7 Administration of LSEA
Board of Directors: Board of Directors governs The LSE, which has six elected directors, two directors nominated by SEBI and four public representative directors from academicians and experts from commerce, accounts, law and Business management. The board also include the executive director, who is full time director, and is responsible for the execution of the policy decisions taken by the Board, guidelines and directions received form SEBI and seeking compliance of articles, rules, by laws and regulations of the exchange. The over all management of LSE is vested with all these directors.

Composition Of BOARD OF DIRECTORS
The board of directors of the exchange has 13 directors, with the following representations.

Type of Directors
No of Directors
Elected Directors
6
SEBI Nominees
2 (earlier 3)
Public Representative
4 (earlier 3)
Executive Director
1

In LSE 6 elected directors are elected for years. Now after one year new directors will be appointed or reappointed by lection.


EXECUTIVE DIRECTOR

Sh. Harjit Singh Sidhu


PRESENT ELECTED DIRECTOR

Sr.No
Names of Elected Directors
Holding office
1
Sh. Jaspal Singh
As director
2
Sh. R.C Singla
As Director
3
Sh. S.K Sabharwal
As Director
4
Sh. R.K Bansal
As Director
5
Sh. Manoj Sarna
AS director
6
Sh. Rajnish Garg
As Director

PUBLIC NOMINEES

Sr.No
Names of Public Nominees
Holding office
1
Dr. O.P Sahni
As Public Representative
2
Sh. Dina Nath Sharma
As Public Representative
3
Dr. Ajit Singh Dua
As Public Representative
4
Prof. Rajinder Bhandari
As Public Representative



SEBI NOMINEES

Sr.No
Names of SEBI Nominees
Holding office
1
Sh. S.C Aggarwal, IAS
As SEBI Nominee
2
Sh. D. C Kawatra
As SEBI Nominee

Organization Chart: LSEA
2.8 Departments in LSE

1) COMPUTER SECTION:-

The growing technicalities and the increasing workload have enhanced the importance of computer dept. at LSE. At present computer section performs no function for LSE as no trading takes place through LSE rather it works for LSESL. The computer section of the stock exchange is the backbone of this organization and it remains active all the time and is directly or indirectly involved in all the activities of the exchange from beginning of the settlement period and till its end.
The computer section of LSESL prepares several reports namely:-
I. Scrip wise statement of each member for each settlement period.
II. Scrip’s states report for each settlement period.
III. Receive order detail statement.
IV. Delivery order detail statement
V. Different bill statement.
VI. Bank entry statement.
VII. Final Statement
Some of the above-mentioned reports are given to the brokers and some are kept by the stock exchange for their own records and last report is sent to bank. NSE, BSE and F&O send these reports to computer section separately.





2) CLEARING SECTION:-
Clearing section takes care of pay-in and payout of securities and funds as well as bad delivery of securities. It maintains DP for brokers to have the securities sold by them in their clearing member’s business partner identification number. Now Clearing section performs the functions for LSESL. There is T+2 settlement cycle prevailing at LSESL.

STATEMENT CYCLE SCHEDULE:-
Trading cycle [t] - Monday to Friday
Settlement Cycle - T+2
Pay in of securities - T+2, at 10:30 am.
Pay out of securities - T+2, at 1:30 pm

AUCTION:-
In case if the broker fails to deliver the scrips on the delivery date then he can deliver it on next working day up to 1 p.m. under intimation of the exchange, but with a penalty of 0.25% of the value of shares delivered in case of NSE and 1% in case of BSE still if he does not deliver the scrips then auction is conducted on T+3 after 4.30 p.m. The detail of scrips to be auctioned is displayed on the board by 1 p.m. on the same day against which closed bids are invited from members up to 5 p.m. on the same day and details of accepted bids is displayed on the notice board of the next working day.




3) SURVEILLANCE SECTION

The main task of this department is to see market sanctity and maintenance so that the investors are not cheated. This section works as monitoring section of the exchange and it monitors exposure of members on daily basis. As per the guidelines issued by SEBI, the exchanges are required to apply daily circuit filter scrip ensure that the price of scrip cannot move upward or downward beyond the limit set for a day and a settlement w.e.f 3rd July, 2000.

The surveillance section performs the following functions
§ Application of "Circuit Brokers" depending upon the situation
§ Pre issue and post issue monitoring of shares.
§ Suspension or trading in shares of company other than an account of Circuit Brokers applications subjects to prior approval as byelaws and regulation of exchange.
§ Shifting scrip of trading "Spot Basis" to prevent price manipulation subject to prior approval as required bye laws and regulation.
§ Inter exchange co-ordination regarding suspension of trading etc. to make the surveillance and maintaining more effective.


4) ACCOUNT SECTION:-

Most of the work in the account department of LSE is done manually although help is taken from computer for the purpose of making Trial balance, Income and expenditure statement and Balance sheets. The annual report of LSE is generally published in august every year. The account department of LSE performs the following functions: -
§ To keep the record of all incoming and outgoing money and preparation of financial statement.
§ To receive payments from the outside parties i.e. companies listed at LSE and brokers of LSE.
§ To disburse personal expenses.

Sources of funds of LSE :-
The important sources are as follows:-
Ø Membership fee from brokers at the beginning.
Ø Initial listing fee from company i.e. Rs. 15000/-
Ø Annual listing fee from companies.
Ø Annual membership fee from the brokers (Rs.5000).
Ø Annual fee from broker for their authorized representatives (Rs. 500 each). A broker is followed to have maximum 40 authorized representatives.
Ø Annual computer fee from broker (Rs. 5000/-)
Ø Annual library charges from brokers i.e.(Rs. 200/-)
Ø Brokers contribution to investor protection fund (Rs. 500/- per annual)
Ø Maintenance charges Rs. 13.50 per Sq. feet, per quarter from those members having rooms and those not having rooms are charged at the rate of Rs. 1800/-p.a.
Ø Fines and charges from brokers.
Ø Service charges from broker @.025% of annual turnover.
Ø Electricity charges Rs.3000 p.a. per room members having room & those not having room are charges @ Rs.1200 p.a.

Application Of Funds :-
Ø 5% of listing fee to SEBI each year.
Ø 20% for proving services to the investors out of listing fee annually to investor service fund.
Ø Personnel expenses.
Ø Administration expenses.
Ø 1% of listing fee is transferred annually to investor protection fund.
Ø 20% of listing fee was transferred annually to contingency fund for settlement.

5) INVESTOR GRIEVANCE SECTION:
LSE has a separate investor grievance section, which receives complaints from investors against companies and brokers. The main motive of the investor grievance section is to safeguard the investors’ interest through grievance section. Normally complaints received by LSE can be against two types of companies.
Ø Complaints against Listed Companies
Ø Complaints against Unlisted Companies
As far complaints regarding unlisted companies are concerned, it is not then headache of LSE, though LSE send those letters to Regional Stock Exchange of that company itself. First on the receipt of the investor’s complaint letter LSE writes two letters.

Ø To the Company
Where LSE directs the company respond (satisfy investor) within 15 days.
Ø To the Investor
LSE indicate that if you are not satisfied by the company within 30 days, then again write to these stock exchanges. But if the complaint is not satisfied by the company within limit aforesaid and investor to the stock exchange,
Following procedure is followed
Ø First Reminder (with in 15 days)
Ø Second reminder (Further 10 days)
Ø Third or final reminder (For 10 days)
Ø Show-Cause Notice.
Ø Investors Meet:
Ø Suspension of securities for 3 days.
Ø Suspension for Indefinite Period.

6) LEGAL & SECRETARIAL DEPARTMENT:
Legal Department : -
When two brokers or outside clients don’t settle their claims in between themselves, then the legal department comes into the picture. Legal department also insist the member investors to settlement their disputes through the arbitration committee, investor grievance committee so that the dispute may be settle at the earliest without incurring heavy dues or amount regarding court fee, advocate fee etc. the main objectives of the legal department is to streamline and to make effective, the rules and regulations of the exchange and to see the guidelines circulars and any amendments in the rules made by SEBI are enforced at the appropriate time so that future complication may be reduced or avoided. As the name ‘LEGAL DEPARTMENT’ suggests it is clearly mentioned and understood that each and every matter involving legally is to be solved by the department.

Secretarial department:-
The functions and duties of secretarial department include maintenance of record of minutes like:
a) Meeting of Board of Directors.
b) Meeting of Various Committees.
c) Meeting of Members.
d) Minutes of AGM.
e) Minutes of Extra Ordinary General Meeting (EGM).
These minutes are statutory and are preserved by secretarial department.
Another function of secretarial department is to send notices with the directions of Board of Directors to the respective directors to attend Board Meetings. It is also the duty of secretarial department to ensure that every meeting held is a "Valid Meeting" having a quorum required by the law otherwise it would effect towards unlawfulness. The decision taken in such a meeting cannot be rectified in another meeting.
The secretarial department also deals with transfer of shares. In such order to be a member of exchange a person has to at least one share. If the member wishes to sell his ticket, he has to intimate the secretarial department in advance. A notice is given thereafter in newspaper for objections within 10 days of such a notice; the clients can lodge their claims. A 10 days notice is also displayed in the notice board of the exchange for objections to be raised by the members.

7) MAINTENANCE DEPARTMENT:
This department has the responsibility of maintaining the premises of LSE, that include activities relating to the field of electricity, mechanical and civil engineering and the most important i.e. security and house keeping. This dept. has the following activities to work for:
Ø Telephone exchange.
Ø Security and house air conditioning plant.
Ø Electrification of building.
Ø Maintenance of lifts.
Ø Maintenance of generator sets.
Ø Maintenance cleaning.
Ø Maintenance of safety equipment.
For better arrangement of security and proper house, cleaning house exchange has given the contract for these activities to the Chandigarh based security company TERRIERS.
8) PERSONNEL DEPARTMENT:
Duties and responsibilities of personnel department are mentioned as under:
Ø Requirement of staff, maintaining employee record w.e.f. attendance, leave and overtime.
Ø Maintaining service book up to date and other details as per requirement to auditors at the time of inspection (from date of joining to resignation).
Ø Employee welfare schemes like loans.
Ø Organizing summer training for students.
Ø Other activities like staff Farewell party and Diwali puja.

9) LISTING DEPARTMENT:
This is one of the most important departments of the organization as listing fee is a major source of income for the exchange. At present any company incorporated under company’s act, 1956, coming out with an IPO, has to mandatory list its shares on a stock exchange. The listing department of LSE deals with listing of securities, further listing of issues like right and bonus issues Below is given the paid up capital and against that annual listing fee that the company has to pay to the exchange.
Document needed for listing
I. Memorandum of association
II. Article of association
III. Listing agreement
IV. Listing Application
V. Offer Document
VI. B.O.D Resolution
VII. Distribution schedule
VIII. Share holding pattern.
After getting listing approval, the company has to ensure and report compliance of the post listing requirements. A company should have minimum capital of Rs. 3 crores and at least 25% of its equity capital should be offered to public for listing. Also, company have to deposit 1% of its issued capital with the LSE as security, which is refundable after 6 months. The listing section of LSE monitors the post listing compliance of all the listed companies and follows up with the companies, which are found deficient in compliance.
Listing Fee Schedule
Issued Capital of Company
Charges (Rs)
Capital upto Rs. 1 crores
7000
Above Rs. 1 crores & upto Rs. 5 crores
10000
Above Rs. 5 crores & upto Rs. 10 crores
18000
Above Rs. 10 crores & upto Rs. 20 crores
36000
Above Rs. 20 crores & upto Rs. 50 crores
54000
Above Rs. 50 crores
90000

Company which have paid up share/debenture capital more than Rs. 50 crores will pay additional fee of Rs. 2500 for every increase of Rs. 5 crores or part thereof in the paid up share/debenture capital. And if Stock Exchange is not regional then 50% of the above fee is charged.

10) MEMBERSHIP DEPARTMENT:
It is the first and foremost department of the stock exchange. All members are required to comply with the rules under the securities contract (regulation) act 1956.
v This section looks after the activities relating to recruitment of personnel.
v Maintenance of attendance registers.
v Appointment and removal of floor clears and authorized representatives of brokers.
v Maintains the register of members.

There are total 294 members out of which 87 are corporate and 207 are individuals. Number of listed companies at LSE is 371. out of which 244 are regional and 127 are non-regoinal.

Eligibility
I. Age 21-60 years.
II. Education 10th standard
III. Experience 3 years in capital market
IV. Nationality Citizen of India
V. Not declared bankrupt
VI. Not engaged in any business other than securities. If so he should given as under taking to serve such connection on admission.
VII. He must not expel or declared a defaulter by any exchange and admission to membership within a period of one year.
VIII. He should not associate with any organization dealing in securities. If so he should given as under taking to serve such connection on admission.
IX. Subscription fee:-
§ For Corporate – 10 Lakh
§ For individual – 05 Lakh

Followed by:-
1) Written Test
2) Interview

For sub-broker:-
1) Minimum qualification : Intermediate
2) Experience : Three years in capital market

For a company:-
1) Company defined in company act 1956 should: Company should be formed in compliance section 322 of the company’s act 1956.
2) A majority of directors of such companies are share holders of such companies and also member of exchange.
3) The directors of such company who are member of stock exchange have unlimited liabilities in such company.
4) The boards of directors of the exchange are satisfied that are the directors of company having unlimited liabilities, are men of means and financial resources to meet the liabilities of the company.

Active and Inactive Member
A member is considered active for any particular year, if he has executed even a single trade during the said period, otherwise he will declare as inactive member, in year 2003, 181 member were active members and 120 were inactive member.
11) MARGIN SECTION
The basic function of margin section is to collect different type of margin from brokers as per regulations given by SEBI. The rationale behind is:
1) To prevent the brokers doing excessive speculative trading.
2) To keep track of base minimum capital (BMC) and additional base minimum capital (ABMC) and set exposure limits for each broker member. Margin section by keeping a track ensures that any member can buy or sell scrip in proportion to his net worth.

Base minimum capital: Each broker is required to deposit with stock exchange Rs.1 lakh, out of which Rs 50,000 is in cash form and Rs 50,000 in form of cash/FDR/bank guarantee or scrip from approved list.
Cash portion
Cash/FDR/BG/scrips
Cash track of BMC Rs.50,000
Rs.50, 000

Intra-day-gross exposure limit.
BSE- 25 Times Gross.
NSE- 25 Times Gross
Net outstanding position limit:
BSE- 6 Times Net
NSE- 8.5 Times Net

Types of Margins
1. Value at Risk Margin (VAR)
99% VAR based margin system is introduced w.e.f. July 2, 2001 for the scrips in the compulsory rolling settlement. This system covers 99% of market risk through the use of different statistical formula.
VAR MARGIN is developed by Chicago stock exchange. LSESL do not charge its own rates of margins BSE and NSE set these. VAR margin is calculated on daily basis.
2. Mark to Market Margin
Mark to market margin is calculated after the close of trading cycle. In each settlement, mark to market losses in a scrip would be netted against mark to market profits in other scrips. But such netting will be allowed only on the scrips prescribed by SEBI. Thus stock exchanges collect on daily basis 100% notional loss from each broker for every scrip. It is calculated as the difference between buying & selling price and current value (closing price) of that scrip at the end of the day.
3. Special Margin
Special margin is charged on scrips only when there are fluctuations in prices of scrips i.e., in case of abnormality. BSE and LSE charge special margin. NSE charge margin not on all the scrips but only on limited scrips that is scrips of some reputed companies.
2.9 LSE Securities Limited: Brief Profile
Birth of Subsidiary
To remove the draw back, SEBI at the initiative of LSE has permitted the regional stock exchanges to seek the member ship of bigger stock.
Objective
LSE security ltd. is a wholly owned subsidiary of the LSE. The main objective of company is “to establish and carry on the business of stock broking as a member of recognized stock exchange(s) in India or abroad and other allied matters and for this purpose to buy, obtain or acquire stock exchange membership or membership rights in India or abroad”. The company has authorized and paid up capital of Rs. 5.50 crore.














Governing council
The council of the management of the company comprises of 11 directors of which are broker members & 5 non-brokers. Among non-brokers member three are independent directors of eminent status from the field of finance, law and management. Remaining 2 are GM-cum-Company Secretary and executive directors of the holding, who are on the board of the company as ex-officio directors. Thus the council of management has representation of sub-brokers as well as professionals and subject specialists representing various fields of the business activities. Operations of the company are run by professionals who keep in view, the interest of investors as well as the other stakeholders.

CORPORATE MEMBERSHIP OF NSE
LSE after careful examination about the feasibility of acquiring corporate membership of NSE floated a scheme of provision rights/facilitates on NSE market as Sub-broker of the LSE securities ltd. on 24 December 1999.
The company has obtained corporate membership of NSE India ltd. In the capital market segment and has deposited Rs.2.50 cr towards “interest free securities deposits ” the company has also obtained SEBI regulations and is in advanced stages of registration of member brokers of the exchange as sub-broker of company.



CORPORATE MEMBERSHIP OF BSE
LSE after careful examination about the feasibility of acquiring corporate membership of BSE and after consulting the member at various forums floated a scheme of provisions of trading rights on BSE market as sub brokers of the LSE securities on 10.04.2002.
The company has obtained corporate membership of the stock exchange. Mumbai has deposited 50 lakhs towards the cost of membership. The company has also obtained SEBI registration and is in advance stage of registration of member broker of the exchange as sub broker of company.

TRADING AT NSE AND BSE
The LSE securities ltd. commenced trade operations ion capital market segment of BSE and NSE September, 2000 & December 2000 respectively. The turnover of the company of NSE is growing by leaps and bounds ever since it is incorporated. There was encouraging response from the sub-brokers especially at NSE counters. During the financial year 2001-2002. The company recorded a turnover of Rs. 4610 crores and Rs. 2160 crores in “Capital Market” segment of NSE and BSE respectively.
The average daily trading volumes on BSE, NSE (CM segment) and NSE (F &O) segment during the month of Jan and Feb 2003 has been Rs. 8 Crores, Rs. 18 crores and 44 crores respectively. Out of 117 sub-brokers registered for NSE, 82 have been trading on BSE. Further, there are 70 high value clients of the LSE Securities Limited who have been tading in F&O segment of NSE.

F&O SEGMENT OF NSE
The LSE securities Ltd. commenced trading operations in future and option segment of NSE in February 2002. The company became the list subsidiary of any regional stock exchange which commenced trading in F&O segment of NSE has been very encouraging and volumes generated in this segment soon exceeded those in “Capital Market” segment.