E-Commerce in Security Market

8/2/2019 E-Commerce in Security Market

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E-Commerce in Security Market By M.SANGEETHA

E-COMMERCE IN SECURITY MARKET

(Source: Most of the Data & charts from NSE website)

(A) ABOUT E-COMMERCE

World Trade Organisation (WTO) defines E-Commerce as the production,

distribution, marketing, sale or delivery of goods and services by electronic

means.

The strategic benefit of making a business e-commerce enabled, is that it

helps reduce the delivery time, labour cost and the cost incurred in the

following areas:

Document preparation

Error detection and correction

Reconciliation

Mail preparation

Telephone calling

Data entry

Overtime

Supervision expenses

Further, it enables -

Easy reach to a fast growing online community

Unlimited shelf place for products and services

Fuse the global geographical and time zone boundaries

Reach national and global markets at low operating costs

The sudden spurt in growth of e-commerce in India is felt due to the following

favourable factors:

Rapidly increasing Internet user base

Technology advancements such as VOIP (Voice-over-IP) have bridged

the gap between buyers and sellers online

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The emergence of blogs as an avenue for information dissemination

and two-way communication for online retailers and E-Commerce

vendors

Improved fraud prevention technologies that offer a safe and secure

business environment and help prevent credit card frauds, identity

thefts and phishing

Longer reach - Consumers in the Tier II & Tier III cities are fast realizing

the potential of the Internet as a transacting medium

The young population find online transactions much easier

(B) ENTRY OF E-COMMERCE IN SECURITY MARKET

Stock market is a trading platform which provides an opportunity to buyers and

sellers of securities to do transactions. Stock markets all over the world have

realized the potential of IT and have moved over to electronic trading systems,

which are cheaper, have wider reach and provide a better mechanism for trade

and post-trade execution.

In 1992, the SEBI Act was enacted giving SEBI statutory status as an apex

regulatory body. And a series of reforms was introduced to improve investor

protection, automation of stock trading, integration of national markets, and

efficiency of market operations. One major policy initiated by SEBI from 1993

involved the shift of all stock exchanges to screen-based trading, motivated

primarily by the need for greater transparency.

At this point of time, a paradigm shift from the hitherto followed physical trade in

securities has happened and electronic trade has gained momentum. The three

noticeable changes that made it possible are

Noticeable changes in Security Market



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The Depositories Act was passed by the Parliament in 1995 and this paved the

way for conversion of physical securities into electronic format.

With establishment of National Stock Exchange, there was a significant change

in the level of technology used for the operation of stock market. It led to the

introduction of Screen Based Trading, thereby removing the earlier system

of open outcry where prices of securities were quoted by symbols.

Now, all the transactions happen with the help of a sophisticated electronic

network which is spread across country and connected to National Stock

Exchange through VSAT.

These two factors combined together helped in reducing the trading and

settlement cycle in Indian securities market which got reduced from as

long as 22 days to 2 days currently.

The first exchange to be based on an open electronic limit order book was the

National Stock Exchange (NSE), which started trading debt instruments in June

1994 and equity in November 1994. In March 1995, BSE shifted from open

outcry to a limit order book market. Currently 17 of Indias stock exchanges

have adopted open electronic limit order.

(C) TECHNOLOGY AND APPLICATION SYSTEMS IN NSE


(1)Dematerialisation

(2)Introduction of Screen

based trading

(3)Shortening of trading

and settlement cycles


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Since National Stock Exchange of India Ltd (NSE) is the pioneer Stock

Exchange to become E-Commerce enabled in India, most of the data and

charts for the theme on E-Commerce in Securities Market are sourced

from NSE website www.nseindia.com.

Important events in the history of NSE

Technology has been the backbone of the Exchange. Providing the services to

the investing community and the market participants using technology at the

cheapest possible cost has been its main thrust. NSE chose to harness

technology in creating a new market design. It believes that technology

provides necessary impetus for the organization to retain its competitive edge

and ensure timeliness and satisfaction in customer service. In recognition of the

fact that technology will continue to redefine the shape of the securities

industry, NSE stresses on innovation and sustained investment in technology

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2000Commencedoperations in

F&OSegme

nt


CM

Segment


WDMsegmen

t

April 1993Recognized asStock Exchange
http://www.nseindia.com/http://www.nseindia.com/


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to remain ahead of competition. NSE is the first exchange in the world to

use satellite communication technology for trading. It uses satellite

communication technology to energize participation from about 2,527 VSATs

from nearly 186 cities spread all over the country (Data as of 31.03.2010).

Its trading system, called National Exchange for Automated Trading (NEAT), is

a state of-the-art client server based application. At the server end all trading

information is stored in an in-memory database to achieve minimum response

time and maximum system availability for users. It has uptime record of

99.999%. For orders entered by the user, the response time within trading

system is around 5mts. NSE has been continuously undertaking capacity

enhancement measures so as to effectively meet the requirements ofincreased users and associated trading loads. NSE has also put in place NIBIS

(NSEs Internet Based Information System) for on-line real-time dissemination

of trading information over the Internet.

(i) VSAT

VSAT is the acronym for Very Small Aperture Terminal. A type of two-way

satellite that transmits both narrow and broadband data to satellites in orbit.The data is then redirected to other remote terminals or hubs around the

planet. VSATs are mainly used for wireless transmission of real-time data. The

National Stock Exchange (NSE) in India is one of the largest VSAT based

exchanges in the world. Supporting more than 3,000 terminals, the NSE

network is the largest private wide-area network in the country. The NSE uses

real-time online application, which is supported by 15 computer systems,

including nonstop, fault-tolerant computers and high-end UNIX servers.

(ii) Internet based trading services

NSE is also offering internet based trading services to NSE members. This

facility is branded as NOW Neat on Web NOW provides an internet portal for

NSE members and their authorized clients to transact orders and trades to the

various market of NSE viz. CM, F&O, WDM and Currency. The members can

also access NOW through their existing VSAT/ Leased line, in addition to

internet links. The various features provided by NOW are (a) comprehensive

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Administration features, flexible risk management system, high speed dealer

terminals and online trading facility for investors.

(iii)Trading through Mobiles

In September 2010, NSE had facilitated trading through Mobiles. With this

move, NSE hopes to use the same medium to ensure investor protection. Now

all investors who are registered on the Exchange website would receive an

SMS on the designated mobile number, at the end of each trading day, giving a

summation of the trading activity. Besides, an email would also be sent on the

registered email id, providing the trading details. This is in addition to the

existing facility of verifying trade details from the Exchange website.

(D) MARKET SEGMENTS AND PRODUCTS

NSE provides a trading platform for all types of securities for investors under

one roof Equity, Corporate Debt, Central and State Government Securities,

T-Bills, Commercial Paper (CPs), Certificate of Deposits (CDs), Warrants,

Mutual Funds (MFs) units, Exchange Traded Funds (ETFs), Derivatives like

Index Futures, Index Options, Stock Futures, Stock Options Currency Futures

and Interest Rate Futures. The Exchange provides trading in different

segments viz., Wholesale Debt Market (WDM) segment, Capital Market (CM)

segment, Futures & Options (F&O) segment, Currency Derivatives Segment

(CDS), etc.

(i) Capital Market Segment

The Capital Market segment offers a fully automated screen based trading

system, known as the National Exchange for Automated Trading (NEAT-CM).

The NEAT CM application has a split architecture wherein the split is on the

securities and users. The application runs on three Stratus systems with

communication over TCP IP protocol. The application has been benchmarked

to support 60,000 users and handle more than 30 million trades daily. This

application also provides data feed for processing to some other systems likeIndex, OPMS (Online Position Monitoring System) through TCP/IP. This is a

direct interface with the trading members of the CM segment of the Exchange



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for entering the orders into the main system. There is a two way communication

between the NSE main system and the front end terminal of the trading

member.

Various types of securities e.g. equity shares, warrants, debentures/ notes as

well as retail Gilts are traded on this system. In the year 2009-10, the trading

volumes increased by 50.36 % to Rs.4,138,023 crore (US $ 916,709 million)

from Rs.2,752,023 crore (US $ 540,142 million) during 2008-09. The average

daily trading volume increased from Rs.11,325 crore (US $ 2,223 million)

during 2008-09 to Rs.16,959 crore (US $ 3,757 million) during 2009-10. The

remarkable aspect was that the trading volumes in the year 2009-10 showed a

growth of 16.53 % over the trading volumes witnessed in 2007-08.

Business Growth of CM Segment from 1994-95 till 2009-10

(ii) F&O Segment

The derivatives trading system at NSE is called NEAT-F&O trading system. It

provides a fully automated screen-based trading for all kind of derivative

products available on NSE on a nationwide basis.

NEAT-F&O is a direct interface with the trading members of the F&O segment

of the Exchange for entering the orders into the main system. There is a two

way communication between the NSE main system and the front end terminal



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of the trading member. Futures & Options (F&O) segment of NSE provides

trading in derivatives instruments like Index Futures, Index Options, Stock

Options, Stock Futures. The F&O segment of NSE has made a mark for itself

globally. In the F&O segment, trading in S&P CNX Nifty Index, CNX IT index,

Bank Nifty Index, Nifty Midcap 50 index and single stocks are available.

Trading in Mini Nifty Futures & Options and Long term Options on S&P CNX

Nifty are also available. The average daily turnover in the F&O Segment of the

Exchange during 2009-10 was Rs.72,392 crore (US $ 16,097 million).

Business Growth of F&O Segment from 2000-01 till 2009-10

(iii) Wholesale Debt Market

The WDM trading system at NSE is called NEAT-WDM. It enables members

across the country to trade simultaneously with enormous ease and efficiency.

It supports an anonymous order driven market which operates on a price/time

priority and provides tremendous flexibility to users in terms of orders with

various time/price/quantity related conditions that can be placed on the system.

It also provides on-line market information like total order depth, best buys and

sells available, quantity traded, the high, low and last traded price for securities

are available at all points of time.



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The WDM Trading system provides two market sub-types: continuous market

and negotiated market. In the continuous market, the buyer and seller do not

know each other and they put their best buy/sell orders, which are stored in

order book with price/time priority. If orders match, it results into a trade. The

trades in WDM segment are settled directly between the participants, who take

an exposure to the settlement risk attached to any unknown counter- party. In

the NEAT-WDM system, all participants can set up their counter-party

exposure limits against all probable counter-parties. This enables the trading

member/participant to reduce/ minimize the counter-party risk associated with

the counter-party to trade. A trade does not take place if both the buy/ sell

participants do not invoke the counter-party exposure limit in the trading

system.

In the negotiated market, the trades are normally decided by the seller and the

buyer outside the exchange, and reported to the Exchange through a trading

member for approval. Thus, deals negotiated or structured outside the

exchange are disclosed to the market through NEAT-WDM system. In

negotiated market, as buyers and sellers know each other and have agreed totrade, no counter-party exposure limit needs to be invoked.

This segment provides a trading platform for a wide range of fixed income

securities that includes Central government securities, treasury bills (T-bills),

state development loans (SDLs), bonds issued by public sector undertakings

(PSUs), floating rate bonds (FRBs), zero coupon bonds (ZCBs), index bonds,

commercial papers (CPs), certificates of deposit (CDs), corporate debentures,

SLR and non-SLR bonds issued by Financial Institutions (FIs), bonds issued by

foreign institutions and units of Mutual Funds (MFs).

Business Growth of WDM Segment from 1994-95 till 2009-10



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(iv) Currency Derivatives Segment

The Currency derivatives trading system of NSE, called NEAT-CDS trading

system, provides a fully automated screen-based trading for currency futures

on a nationwide basis as well as an online monitoring and surveillance

mechanism. Two products, currency futures and interest rate futures trade on

this segment.

The NEAT-CDS system supports an order driven market, wherein orders matchautomatically. Order matching is essentially on the basis of security, its price

and time. All quantity fields are in contracts and price in Indian rupees. The

exchange notifies the contract size and tick size for each of the contracts

traded on this segment from time to time. When any order enters the trading

system, it is an active order. It tries to find a match on the opposite side of the

book. If it finds a match, a trade is generated. If it does not find a match, the

order becomes passive and sits in the respective order book in the system.

NSE commenced operations on CDS on August 29, 2008 with the launch of

Currency Futures Trading in US Dollar-Indian Rupee (USD-INR). On the very

first day of operations a total number of 65,798 contracts valued at Rs.291

crore were traded on the Exchange. Since then trading activity in this segment

has been witnessing a rapid growth.

Trading in Currency Futures contracts in other pairs- Euro-INR, Pound Sterling-INR and Japanese Yen-INR commenced on February 01, 2010. The average



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daily turnover in the Currency Futures during 2009-10 was Rs.7,428 crore (US

$ 1,646 million).

Trading in Interest Rate Futures (IRF) commenced on August 31, 2009.

Interest Rate Futures contracts are based on 10 year 7% Notional GOI Bond.

On its first day of trading, 14,559 contracts were traded with a total value of

Rs.267.31 crores.

Business Growth of CD Segment from Sep.2008 till Mar.2010

(v) Segment-wise Trading value

Segment-wise Trading value

(Period considered 2006-07 till 2009-10)

Segment/Year 2006-07 2007-08 2008-09 2009-10

CM 1945287 3551038 2752023 4138023

F&O 7356271 13090478 11010482 17663665

WDM 219106 282317 335952 563816

Currency Futures -- -- 162272 1782608

Interest Rate Futures -- -- -- 2975

Total 9520664 16923833 14260729 24151088

(vii) Mutual Fund Service System



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In November 2009, SEBI allowed transaction in Mutual Fund schemes through

the Stock Exchange infrastructure. Consequent to this market development,

NSE launched Indias first Mutual Fund Service System (MFSS) on November

30, 2009 through which an investor can subscribe or redeem units of a mutual

fund scheme. MFSS is an online order collection system provided by NSE to its

eligible members for placing subscription or redemption orders on the MFSS

based on orders received from the investors. This has made buying and selling

of mutual funds easier for investors. The subscription/redemption request

would thereafter get processed and investor would know about status of the

request only in the form of direct communication from Mutual Fund/AMC/RTA.

The NSE MFSS facilitates entry of both buy and sell orders. With the MFSS,

investors can place an order through a registered NSE member who is eligible

to participate in MFSS for subscription/redemption of units. In order to

subscribe units, members are required to place buy orders. A member who

wishes to redeem units of mutual fund scheme will be required to place sell

orders in the system. Participants can choose between physical mode and

depository mode while putting their subscription / redemption requests on the

MFSS. All orders are settled on order to order basis, on T+1 (working days).

As many as 17 fund houses have joined the NSE MFSS Platform and as on

March 31, 2010 there were 908 sub schemes available for trading. During

November 2009 to March 2010, there were 2,392 orders placed for

subscription worth Rs.91,932,291 and 274 orders worth Rs.26,217,352 were

redeemed.

(vi) Multi-market front end application

NSE is offering a multi-market front end application NEATPlus to its members.

This application provides a common trading platform to NSE members to trade

in Capital Market as well as Futures and Options Market segments at NSE.

Members can take login in CM and F&O segments in a single terminal with



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ability to monitor and trade in Equity securities as well as Equity derivatives

from single screen. Members can use the existing VSAT/Leased Line

connectivity for accessing the NEATPlus application. Multiple market watch

screens with Excel like features, ability to select various fonts, customizable

color schemes and themes are some of the other salient features of the

NEATPlus application.

(E) NSE STATISTICS AFTER E-COMMERCE ENABLED

If India is able to attract huge investments in securities now, it is not only

because of the inherent strength of the economy but also due to the

advancement of the stock markets that made outsiders to understand the

process in Indian market easily.

(i) Achievements (Figures as on March 31, 2010)

(ii) Internet Trading

At the end of March 2010, a total number of 363 members were permitted to

allow investors web based access to NSEs trading system. The members of

the exchange in turn had registered 5,143,705 clients for web based access as



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on March 31, 2010. During the year 2009-10, 11.13% of the trading value in the

Capital Market segment (Rs.692,789 - US$ 135,974 million) was routed and

executed through the internet. The table below shows the growth of internet

trading in the CM segment from the fiscal years 2006-07 till 2008-09.

Internet trading in the CM segment of NSE

YearEnabled

Members* Registered Clients

InternetTradingVolume(Rs.cr)

InternetTradingVolume(US$ mln)

% oftotall

tradingvolume

2006-07 242 2279098 337524 77432 17.35

2007-08 305 4405134 668399 167225 18.82

2008-09 349 5627789 692789 135974 25.17

2009-10 363 5143705 921380 204116 11.13

* At the end of the financial yearTrading volumes are calculated as buy side + sell side turnover

The chart below shows the growth of Internet trading volumes from the fiscal

years 2006-07 till 2008-09 in the CM segment of NSE in comparison with the

total traded volumes at NSE is furnished below.

Internet Trading volumes in CM Segmentin comparison with total trading volumes

(iii) Market Capitalisation

The total market capitalisation of securities available for trading on the CM

segment increased from Rs.363,350 crore (US$ 115,606 million) as at end



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March 1995 to Rs.6,009,173 crore (US$ 1,331,230 million) as at end March

2010. The Market capitalization witnessed an increase of 107.49 % during

2009-10 as compared to the market capitalization of Rs.2,896,194 crore (US$

568,439 million) in 2008-09. As compared with 2007-08, the market

capitalization in 2009-10 increased by 23.69%. The market capitalisation ratio

of NSE was 97.49% as of March 31, 2010.

(iv) Records reached

The growth in the stock market activity across the different market segments

and highest attained records is visible from the below facts and figures.

Parameter Date Magnitude

Capital Market Segment:

Number of trades May 19,2009 11260392

Traded Quantity May 19,2009 19225.95 lakh

Turnover May 19,2009 Rs.40151.91 cr

Market capitalization January 07,2008 Rs.6745724 cr

S&P CNX Nifty Index value January 08,2008 6357.10

CNX Nifty Junior Index value January 04,2008 13209.35Futures & Options Segment:

Number of trades January 28, 2008 1971214

Number of Contracts traded January 28,2008 6300279

Turnover January 28,2008 Rs.166193.03 cr

Currency DerivativesSegment (Currency Futures):

Number of trades January 11,2010 78935

Number of Contracts Traded March 30,2010 4353053

Turnover March 30,2010 Rs.19927 cr

Wholesale Debt MarketSegment:

Turnover August 25,2003 Rs.13911.57 cr

Note: Data from inception to March 31, 2010(F) FOREIGN INSTITUTIONAL INVESTMENTS IN EQUITY AND DEBT

RBIs general permission under FERA could enable the registered FII to buy,

sell and realise capital gains on investments made through initial corpus



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remitted to India, to invest on all recognised stock exchanges through a

designated bank branch, and to appoint domestic custodians for custody of

investments held.

As of March 2009, there were 1,626 FIIs registered with SEBI for dealing inIndian Security Market.

Foreign Institutional Investors (FIIs) were allowed to invest in the Indian capital

market securities from September 1992. However investment by them were

first made in January 1993. The Indian Gilts market was opened up for FII

investment in April 1998. Till December 1998, investments were related to

equity only as investments in debt were made from January 1999. FIIs

continued to invest large funds in the Indian securities market. For two

consecutive years in 2004-05 and 2005-06, net investment in equity showed

year-on-year increase of 10% to 11%. Highest net investment in equity by FIIs

was seen in 2007-08 of Rs. 534,038 million (US $ 13,361 million) an increase

of 112% over the 2006-07 net investment figure of Rs 252,370 million (US $

5,790 million). During 2008-09, highest net outflows in equity (since 2001-02)

was Rs.477,070 million (US $ 9,363 million) and inflow of Rs.18,950 million (US

$372 million) in debt instruments.

(G) INDIA & WORLD MACRO ECONOMIC FACTS - 2009

On a broader scale, among nations, India is positioned as a nation with a

strong savings rate, with a large penetration of mobile telephones. These and

certain other salient macroeconomic facts are presented in the following table.

India & World Macroeconomic Facts

Parameter US UK China India

GDP ($ trn 2009 Est.) 14.4 2.2 4.3 1.2

Population (in bn 2009) 0.3 0.06 1.3 1.12

Market Cap. ($ bn- Dec.2009) 11838

(NYSE)

2796

(LSE)

2705

(SSE)

1306

(BSE)

Gross household savings rate as % of 4.4% 2.5% 28% 32%

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disposable income (2008)

No. of tax payers (in mn -2007) 134 32 NA 32

No. of mobile phones (in mn 2009) 270 75 650 550

No. of internet users (in mn -2009) 230 50 30 80

Source:www.CIA.gov,www.world-exchanges.organd Others

Conclusion

The macroeconomic facts about India hosted in the website www.world-

exchanges.org reveals that a sizeable number of Indian population have

heightened household savings rate (32% in 2008) as compared to somecomparable nations. It also reveals facts about increased usage of latest

technologies among people, such as mobile phone (550 mln in 2009) and

internet (80 mln in 2009).

Urge for money multiplication in short span of time is picking up fast among

Indian population in this electronic era. Securities market works as an

investment vehicle for those people to make short coverings and for purpose of

investing for short term and long term duration. Basic attractions for the

securities market are growing internet user population (80 mln in 2009) and

extension of online trading facilities by stock exchanges. Online availability of

company performance guided by SEBI corporate governance norms,

convenience of online trading even from ones home and availability of online

brokers at affordable commission are sweet news for investors who trade

through internet. This route also pushes up the growth of security market. This

is evidenced from the Y-o-Y growing market capitalization.

S.Cecily M.SangeethaAuthor Co-Author

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