Page 38 - DCOM507_STOCK_MARKET_OPERATIONS

Unit 2: Securities Market: An Overview

The tenure of lending/borrowing would be fixed as standardised contracts. Accordingly Notes
the return of securities by borrower is scheduled on the respective reverse leg settlement
day. Each reverse leg settlement date is assigned a specific series number. The tenure of
lending and borrowing ranges from 1 month up to a maximum period of 12 months.
The first leg of the transactions across all series including early recall/repayment transactions
are settled on T+1 day on a gross basis. The settlement of lending and borrowing transactions
would be independent of normal market settlement.

The settlement of the lending and borrowing transactions should be done on a gross basis at the
level of the clients i.e. no netting of transactions at any level will be permitted.
NSCCL, as an Approved Intermediary (AI) launched the Securities Lending & Borrowing Scheme
from April 21, 2008. Lending & Borrowing is carried on an automated screen based platform
where the order matching is done on basis of price time priority.

Direct Market Acess: During April 2008, Securities & Exchange Board of India (SEBI) allowed the
direct market access (DMA) facility to the institutional investors. DMA allows brokers to offer
clients direct access to the exchange trading system through the broker’s infrastructure without
manual intervention by the broker. DMA facility gives clients direct control over orders, help in
faster execution of orders, reduce the risk of errors from manual order entry and lend greater
transparency and liquidity. DMA also leads to lower impact cost for large orders, better audit
trails and better use of hedging and arbitrage opportunities through the use of decision support
tools/algorithms for trading.
Volatility Index: With rapid changes in volatility in securities market from time to time, a need
was felt for an openly available and quoted measure of market volatility in the form of an index
to help market participants. On January 15, 2008, Securities and Exchange Board of India
recommended Exchange to construct and disseminate the volatility index. Volatility Index is a
measure, of the amount by which an underlying Index is expected to fluctuate, in the near term,
(calculated as annualised volatility, denoted in percentage e.g. 20%) based on the order book of
the underlying index options. On April 08, 2008, NSE launched the Volatility Index, India VIX,
based on the Nifty 50 Index Option prices. From the best bid-ask prices of Nifty 50 Options
contracts, a volatility figure (%) is calculated which indicates the expected market volatility over
the next 30 calendar days. The India VIX is a simple but useful tool in determining the overall
volatility of the market

Cross Margining: Many trading members undertake transactions on both the cash and derivative
segments of an Exchange. They keep separate deposits with the exchange for taking positions in
two different segments. In order to improve the efficiency of the use of the margin capital by
market participants and as in initial step towards cross margining across cash and derivatives
markets SEBI allowed Cross Margining benefit in May 2008.
For Cross margining the stock positions of the institutions in capital market segment after
confirmation by the custodian on T+1 day shall be compared with the stock futures position of
the same institution in derivative segment based on the CP code of the institution at the end of
the day. The position shall be considered for cross margining only if the position in the capital
market segment off set the position in the derivative segment.
SEBI has allowed the following to start with: (a) Cross margin is available for institutional
trades. (b) Cross margin is available to positions in cash market having corresponding off-
setting positions in the stock futures market. (c) For positions in the cash market which have
corresponding offsetting positions in the stock futures, VaR margin is not be levied on the cash
market position to the extent of the off-setting stock futures market position. (d) Extreme Loss
margin and Market to Market margin shall continue to be levied on the entire cash market

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