Page 216 - DCOM510_FINANCIAL_DERIVATIVES

Unit 13: Regulatory Framework

efficient, and transparent securities market using an electronic trading system, (d) enabling Notes
shorter settlement cycles and book entry settlements; and (e) meeting the international
benchmarks and standards. Within a short span of time, these objectives have been realised,
and the Exchange has played a leading role in transforming the Indian Capital Market to
its present form.
NSE has set up an infrastructure that serves as a role model for the securities industry in
terms of trading systems, and clearing and settlement practices and procedures. The
standards set by NSE in terms of market practices, products, technology, and service
standards have become industry benchmarks, and are being replicated by other market
participants. It provides a screen-based automated trading system with a high degree of
transparency and equal access to investors irrespective of geographical location. The high
level of information dissemination through its online system has helped in integrating
retail investors on a national basis. NSE has been playing the role of a catalytic agent in
reforming the market in terms of microstructure and market practices.
Right from its inception, the Exchange has adopted the purest form of a demutualised
setup, whereby the ownership, management, and trading rights are in the hands of three
different sets of people. This has completely eliminated any conflicts of interest and has
helped NSE to aggressively pursue policies and practices within a public interest
framework. It has helped in shifting the trading platform from the trading hall in the
premises of the exchange to the computer terminals at the premises of the trading members
located across the country, and subsequently, to the personal computers in the homes of
investors. Settlement risks have been eliminated with NSE’s innovative endeavors in the
area of clearing and settlement, namely, the reduction of the settlement cycle,
professionalisation of the trading members, a fine-tuned risk management system, the
dematerialisation and electronic transfer of securities, and the establishment of a clearing
corporation.
Consequently, the market today uses state-of-the-art technology to provide an efficient
and transparent trading, clearing, and settlement mechanism. NSE provides a trading
platform for of all types of securities—equity, debt, and derivatives. Following its
recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in
April 1993, it commenced operations in the Wholesale Debt Market (WDM) segment in
June 1994, in the Capital Market (CM) segment in November 1994, and in the Equity
Derivatives segment in June 2000. The Exchange started providing trading in retail debt of
government securities in January 2003, and trading in currency futures in August 2008.

NSE started providing trading in currency option in October 2010 and launched futures &
options contracts based on global indices S&P 500 and DJIA in August 2011. The WDM
segment provides the trading platform for the trading of a wide range of debt securities.
Its product, the FIMMDA NSE MIBID/MIBOR—which is now disseminated jointly with
the FIMMDA—is used as a benchmark rate for the majority of the deals struck for Interest
Rate Swaps, Forwards Rate Agreements, Floating Rate Debentures, and Term Deposits in
the country. Its Zero Coupon Yield Curve as well as the NSE-VaR for Fixed Income
Securities have also become very popular for the valuation of sovereign securities across
all maturities irrespective of liquidity, and have facilitated the pricing of corporate papers
and the GOI Bond Index.
NSE’s Capital Market segment offers a fully automated screen-based trading system,
known as the National Exchange for Automated Trading (NEAT) system, which operates
on a strict price/time priority. It enables members from across the country to trade
simultaneously with enormous ease and efficiency. NSE’s Equity Derivatives segment
provides the trading of a wide range of derivatives such as Index Futures, Index Options,

Contd.....

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