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