Bombay Stock Exchange

BSE: Structure and Trading Mechanism

1. Presentation on Bombay Stock Exchange (BSE) Presented by: Ashutosh Sahu MBA 3 rd Semester

2. Flow of Presentation Introduction Background Corporate Structure Vision and Mission Session timings BSE Index: Sensex Services provided by BSE How the Stock Market Works (Video-9 min)

3. BSE: Introduction The first and largest securities market in India, the Bombay Stock Exchange (BSE) was established in 1875 as the Native Share and Stock Brokers' Association. Based in Mumbai, India, the BSE lists close to 7,800 companies and is one of the largest exchanges in the world. However, only as many as 4000 shares are actively traded. The BSE is the world's 11th largest stock exchange with an overall market capitalization of more than $ 2 Trillion as of July, 2017

4. Continued… Over the past 133 years, BSE has facilitated the growth of the Indian corporate sector by providing it with an efficient access to resources. There is perhaps no major corporate in India which has not sourced BSE's services in raising resources from the capital market. BSE's popular equity index - the S&P BSE SENSEX - is India's most widely tracked stock market benchmark index. It is traded internationally on the EUREX as well as leading exchanges of the BRCS nations (Brazil, Russia, China and South Africa). 

5. Background It traces its history to the 1850s, when stockbrokers would gather under banyan trees in front of Mumbai's Town Hall. The location of these meetings changed many times, as the number of brokers constantly increased. The group eventually moved to Dalal Street in 1874 and in 1875 became an official organization known as 'The Native Share & Stock Brokers Association'. In 1956, the BSE became the first stock exchange to be recognized by the Indian Government under the Securities Contracts Regulation Act. The Bombay Stock Exchange switched to an electronic trading system in 1995.

6. Corporate Structure

7. Vision and Mission Vision: "Emerge as the premier Indian stock exchange with best-in-class global practice in technology, products innovation and customer service." Mission: The main aims and objectives of the BSE is to provide a market place for the purchase and sale of security evidencing the ownership of business property or of a public or business debt.

8. Session Timings Trading session   The pre-open session shall be for duration of 15 minutes i.e. from 9:00 am to 9:15 am. Pre-open session shall comprise of two sessions viz. Order Entry period. Order Matching period. After order matching period there are buffer period to facilitate transition between pre open and continuous session

9. Continued… Order Entry Period   The order entry period shall be for duration of 8* minutes, during which order entry, modification and cancellation shall be allowed. (* - System driven random stoppage between 7th and 8th minute). Both Limit and market order will be allowed. Dissemination of indicative equilibrium price, indicative match-able quantity & indicative index values

10. Continued… Order Matching Period   Order matching period will start immediately after completion of order entry period. No Order Addition/Modification/Cancellation shall be allowed Opening price determination, and trade confirmation.

11. Continued… Continuous Trading Session   9:15am – 3:30pm Trades occur continuously as orders match at time/price priority  With the introduction of the Call Auction session the trading day will look like:

12. The continuous trading session will commence only after the pre open session ends. The two trading sessions, continuous and call auction (pre-open) sessions will not run concurrently. The block deal trading session (35 minutes) will start with the commencement of the continuous session. Continued…

13. BSE Index: SENSEX Stock Market performance is quantified by calculating an index using the benchmark scrip’s and as known to all SENSEX (Sensitive Index) is associated with Bombay Stock Exchange.

14. How are the SENSEX 30 Stocks are selected? Listing History Trading Frequency Rank based on the Market Cap (Should be Among top 100) Market Capitalization weight Industry / sector they belong Historical Record

15. SENSEX SENSEX has been calculated since 1986 and initially it was calculated based on the Total Market Capitalization methodology and the methodology was changed in 2003 to Free Float Market Capitalization. Hence, these days, the SENSEX is based on the Free Floating Market cap of 30 SENSEX Stocks traded on the BSE relative to the base value which is 100(1978-79) and it is calculated for every 15 seconds.

16. SENSEX is calculated using the "Free-float Market Capitalization" methodology, wherein, the level of index at any point of time reflects the free-float market. It reflects value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization. Continued…

17. How SENSEX is calculated? The formula for calculating the SENSEX = (Sum of free flow market cap of 30 benchmark stocks)*Index Factor where, Index Factor = 100/Market Cap Value in 1978-79. 100 is the Index value during 1978-79.

18. Example Assume SENSEX has only 2 stocks namely SBI and RELIANCE. Total shares in SBI are 500 out of which 200 are held by Government and only 300 are available for public trading. RELIANCE has 1000 shares out of which 500 are held by promoters and 500 are available for trading. Assume price of SBI Stock is Rs.100 and Reliance is Rs.200. Then "free-Floating Market Cap" of these 2 companies

19. (300*100+500*200) = 30000+100000 = Rs. 130000 Assume Market Cap during the year 1978-79 was Rs.25000 Then SENSEX = 130000*100/25000 = 520. The methodology in the example is exactly followed to calculate the SENSEX, only difference being the inclusion of 30 stocks. Method

20. BSE has a wide range of services to empower investors and facilitate smooth transactions: Investor Services:   The Department of Investor Services redresses grievances of investors. BSE was the first exchange in the country to provide an amount of Rs.1 million towards the investor protection fund; it is an amount higher than that of any exchange in the country. BSE launched a nationwide investor awareness programme- 'Safe Investing in the Stock Market' under which 264 programmes were held in more than 200 cities. Services provided by BSE

21. Continued… BSEWEBX.com In February 2001, BSE introduced the world's first centralized exchange-based Internet trading system, BSEWEBX.com This initiative enables investors anywhere in the world to trade on the BSE platform. Surveillance :   BSE's On-Line Surveillance System (BOSS) monitors on a real-time basis the price movements, volume positions and members' positions and real-time measurement of default risk, market reconstruction and generation of cross market alerts.

22. Continued… The BSE On-line Trading (BOLT):   BSE On-line Trading (BOLT) facilitates on-line screen based trading in securities. BOLT is currently operating in 25,000 Trader Workstations located across over 359 cities in India. BSE Training Institute: BTI imparts capital market training and certification, in collaboration with reputed management institutes and universities. It offers over 40 courses on various aspects of the capital market and financial sector. More than 20,000 people have attended the BTI programmes  

23. How the Stock Market Works?