Operations Processes at the Exchanges in India 14th ACG Cross Training Seminar 29 May 2012, Mumbai Section Contents A Role and Functions of a Stock Exchange B Exchange Process Landscape 2 A. Role and Functions of a Stock Exchange 3 Business of Running the Exchange Marketplace • Providing Trading Floors / Market segments for Buying/Selling of securities (Price Discovery, Market Trading Business Quality, Formulating business rules for market activity) • Market Participants (On-boarding and Continued compliance) • Market Surveillance, Control and Disciplinary Actions • Participant Access (Empanelment of 3rd Party Brokerage Solution Providers) Listing Business Index Business • Initial Listing of Securities (IPO, OFS, PP, etc.) • Listing Compliance (On-going disclosure of corporate information) • Index definition and maintenance • Index Data Distribution • Index Licensing Data Business • Data Dissemination (Reference, Market, Corporate, Participants) • Data Vendor Enrollment • Providing/enabling IT and telecommunications infrastructure • Education, Certification & Research Initiatives Others • Investor protection • Corporate Branding • Treasury and Investments 4 Stock Exchanges - Indian Context In addition to the Stock Exchange business… Regulated Entity under Securities Contract (Regulation) Act (SCRA) 1956 and SEBI Act – SCRA provides for process of ‘Recognition’ and ‘Continual Supervision’ of Stock Exchanges, listing of securities and contracts in securities available for trading on a Stock Exchange – Listing norms of stock exchanges need to conform to the minimum listing criteria set out in the Rules – Competition from ATS regulated by regulation Public institution, more than 'commercial' responsibility Act as a Self Regulatory Organization (SRO) in addition to other functions Focus on investor interest and fair trading practices 5 BSE Group Board of Directors BSE Group Markets Infrastructure 100% 15% 15% 100% 54% BSE USE NPEX ICCL CDSL Equities Equity Derivatives Mutual Funds ETFs Currency Derivatives Interest Rate Power Carbon credits Clearing Depository Settlement Record Keeping Risk Management Derivatives Services SME Corporate Debt SLB 100% 30% 100% Marketplace Technologies IIAS* BSE Institute IT Services Network * As on 31st Dec 2011 Proxy Advisory Services Training Certification 6 B. Exchange Process Landscape 7 Key Drivers That Shape Up Business Processes Business / Market Environment Regulatory Environment Market Factors Operational Environment Roles & Responsibilities Customers Delegation Competition New Regulations Core Business Functions Compliance Framework Technology Environment Internal Automation Technological Innovations & Best Practices Governance Risk Management 8 Exchange Process Landscape Asset Classes Equity Derivatives Fixed Income Equity Local Index ETF/MF Warrants Foreign Index Interest Rate Currency Linkages Issuers Listing Market Intermediaries Regulatory / Statutory Bodies Data Agencies Listing Policy Membership Listing Operations Member Admission Surveillance Information Technology Investors Brokerage Solution Vendors Technology Vendors IT Operations IT Network IT Security Investor Services & Protection Research Education Helpdesk Certification Arbitration Training Investor Grievances Educational Institutions New Business Initiatives Media Admin Clearing Corporation IT Development Finance & Accounts Trading / Operating Rules Troubleshooting Trading Commercials Trading API Management Decision Support Tools Information Vending Disciplinary Action Shareholders Other Exchanges Off-line Surveillance Market Operations Trading Platform – New Development Member Inspection / Investigation Listing Compliance On-line Monitoring Member Compliance Trading Corporate Communications HR Internal Control IPF Management Data Products Policy Website Management Index Services Index Management Member Business Development Data Dissemination Operations Index Operations Legal & Secretarial 9 Process Overview : Listing Listing Operations Listing Policy & Compliance Admission of securities (Equities, Warrants, MF, etc) through various modes such as IPO, OFS, PP as per Listing Policy and Exchange Rules & Regulations Formulation and review of Listing Policy and Admission Norms Monitoring shareholding pattern De-listing, Re-listing/ Revocation Listing commercials (Listing Fees) Monitoring of insider trading activities and ensuring compliance Facilitating Buy-back of shares of promoter entity Liaison with SEBI for Listing Compliance matters Monitoring, dissemination, maintenance of corporate announcements, financial results of listed corporations Advisory support processing Determining trading eligibility and settlement mechanism of securities (Example – SPOS, Trade For Trade) MIS reporting Market Communication Listing Ceremony in Listing Applications 10 Process Overview : Membership & Compliance Membership Membership Inspection/Compliance Periodic Inspection (segment wise) of Member firms at member site Monitoring members Admission of Members as Trading/Clearing members for various segments – Equity, F&O, SLB, Debt as per Exchange Rules & Regulations Surrender of membership Registration & Appointment of Sub-brokers, Authorized Persons, Remisiers Approvals on various trading mechanisms – Internet Trading, Direct Market Access (DMA), Mobile Trading, Smart Order Routing (SOR), Algo Trading as per regulatory guidelines Monitoring of members’ Net-worth, Balance Sheet, Financial Statements on annual basis SEBI Turnover fees processing Maintenance of member information (shareholding pattern, designated directors, company status , membership transfer, etc.) MIS reporting Market Communication Client Registration Process by Documentation: KYC, Agreement, RDD Registering Unique Client Code (UCC) with Exchange Monitoring periodic submissions by members Annual System Audit Report Semi-Annual Internal Audit Report Margin trading Compliance Report Monthly Client Funding Report Registration of Trader IDs with respect to location & other details and assigning a unique location code Policy making and administration of penalties for non-compliance UCC non-registration Location code mismatch Non-submission of periodic reports 11 Process Overview : Surveillance & Supervision Online Surveillance Offline Surveillance On-line market monitoring to detect any irregular market practices Offline investigation for irregular market practices (circular trading, self trades, etc) Monitoring Market-wide Position Limits in F&O segment for various market participants Theme based/special investigation Security Surveillance Disciplinary actions on member, security Price band review and relaxation Shifting of securities in & out of T2T Online scrip suspension Monitoring RBI-specified FII, QFI limits on scrips Rumour Verification Regulatory Reporting Pre-market reporting EoD reporting Daily Market Summary Weekly surveillance meetings Publishing information on website on daily basis as per regulatory requirement – Trade statistics based on Client Types Block Deals, Bulk Deals 12 Process Overview : Trading Market Operations Trading System Development Administration and maintenance of market segments /trading floors (Equity, Debt, Derivatives, SME), market participants, securities and trading parameters on exchange trading platform Introduction/withdrawal of underlying (Index, Stock) for F&O trading as per entry /retention criteria prescribed by regulations Formulating and managing business rules for trading - Operating parameters, F&O contract specifications, revisions in tick size & market lot, corporate action adjustments Trading API Management Administration of special trading schemes such as liquidity enhancement schemes (governing rules, operating parameters, obligation monitoring & member benefits, etc.) Administration of trading commercials (transaction charges, special discounts/incentives) MIS reporting Market Communication New developments in core trading platforms & other allied systems (end-to-end cycle) from business standpoint New requirement definition/articulation, business impact assessment, functional design, UAT, mock drills, go-live support, post live support Identifying new development opportunities through market feedback, competition analysis Empanelment/approval of Brokerage Solution Vendors and broker firms with in-house software Managing new API releases, test market infrastructure, support and commercials Governance of decision support tools/ algorithms for API based trading as per prescribed regulations 13 Process Overview : Data, Index Business, IT, Corporate Website Information Vending Index Services New index conceptualization and launch Administration and maintenance of indices Formulation and review of Information product pricing policy Product Sale (real-time / delayed / historical data), Index data to data vendors, end customers Customer on-boarding (infrastructure, access, legal documentation, vendor enrollment) Billing / Collections (One-time/ Monthly/Annual billing , usage reports) Customer support SWIFT Project - Operation & maintenance of the SWIFT system Website Management Static data / content management Dynamic data management Subscription based services Periodic review of index constituents for eligibility and updates Changes in index constituents Corporate actions adjustments Re-balancing of indices Managing customized indices Industry classification Index licensing Information Technology Development of IT systems, application to support Exchange business Managing Daily System Operations Managing Network Connectivity – internal as well as external Monitoring & managing internal I.T. security Business continuity planning – managing DR site operations 14 Process Overview : Others Customer Servicing & Helpdesk Investor Services & Protection Investor grievances - Handling Redressal of investor complaints against members or companies Arbitration - Managing Arbitration cases for cases between 2 trading members or members with clients, appointing arbitrators & administer verdicts Investor Protection Fund - Managing of the fund as per prescribed guidelines Investor Awareness Programmes End-to-end daily operations of BSE Helpdesk Level 1 troubleshooting User management of all trading and allied systems Contingency pool operations Bulk SMS, Mailers, On-line messages Customer education and communication Awareness & training of Exchange systems to new members New features/functionalities Business processes, practices Regulatory notices/circulars Detailed troubleshooting and problem solving of live market related issues, queries reported by members, vendors, internal stakeholders, etc. Corporate Communications Official Media Releases & interaction with Print/Electronic Media Event Management Corporate & Product Branding Member Business Development New Member acquisition Competition tracking, Market feedback Member relationship management New Business Initiatives Cross border alliances for new products (Foreign indices) New Product Research Data Analytics 15 Thank You rajesh.saraf@bseindia.com 16