Operations Processes at the Exchanges in India

1. Operations Processes at the Exchanges in India 14th ACG Cross Training Seminar 29May 2012, Mumbai

2. A Role and Functions of a Stock Exchange B Exchange Process Landscape A

3. A. Role and Functions of a Stock Exchange 3

4. Business of Running the Exchange Marketplace • Providing Trading Floors / Market segments for Buying/Selling of securities (Price Discovery, Market 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) Trading Business Listing 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 Index Business • Data Dissemination (Reference, Market, Corporate, Participants) • Data Vendor Enrollment Data Business • Providing/enabling IT and telecommunications infrastructure • Education, Certification & Research Initiatives • Investor protection • Corporate Branding • Treasury and Investments Others 4

5. 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

6. 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 • SME • Corporate Debt • SLB • Currency Derivatives • Interest Rate Derivatives • Power • Carbon credits • Clearing • Settlement • Risk Management • Depository • Record Keeping Services 30% 100% 100% Marketplace Technologies BSE Institute IIAS* • IT Services • Network • Training • Certification • Proxy Advisory Services * As on 31st Dec 2011 6

7. B. Exchange Process Landscape 7

8. Key Drivers That Shape Up Business Processes Operational Environment Technology Environment Regulatory Environment Business / Market Environment Market Factors Roles & Responsibilities Internal Automation Customers Delegation Technological Innovations & Best Practices New Regulations Competition Governance Compliance Framework Core Business Functions Risk Management 8

9. Exchange Process Landscape Asset Classes Equity Fixed Income ETF/MF Warrants Derivatives Linkages Equity Local Index Foreign Index Interest Rate Currency Issuers Listing Membership Trading Market Intermediaries Listing Policy Listing Operations Member Admission Member Compliance Market Operations Troubleshooting Regulatory / Statutory Bodies Trading Commercials Listing Compliance Member Inspection / Investigation Trading Platform – New Development Data Agencies Trading API Management Surveillance Investors Information Technology Trading / Operating Rules Decision Support Tools On-line Monitoring Off-line Surveillance IT Development IT Operations Brokerage Solution Vendors Disciplinary Action Information Vending IT Network IT Security Technology Vendors Data Products Policy Data Dissemination Operations Research Education Investor Services & Protection Shareholders Website Management Helpdesk Certification Arbitration IPF Management Other Exchanges Index Services New Business Initiatives Training Investor Grievances Index Management Index Operations Educational Institutions Media Admin Corporate Communications Member Business Development Legal & Secretarial Clearing Corporation Internal Control Finance & Accounts HR 9

10. Process Overview : Listing Listing Policy & Compliance • Formulation and review of Listing Policy and Admission Norms • Monitoring shareholding pattern • Monitoring of insider trading activities and ensuring compliance • Liaison with SEBI for Listing Compliance matters • Advisory support in Listing Applications processing Listing Operations • Admission of securities (Equities, Warrants, MF, etc) through various modes such as IPO, OFS, PP as per Listing Policy and Exchange Rules & Regulations • De-listing, Re-listing/ Revocation • Listing commercials (Listing Fees) • Facilitating Buy-back of shares of promoter entity • Monitoring, dissemination, maintenance of corporate announcements, financial results of listed corporations • Determining trading eligibility and settlement mechanism of securities (Example – SPOS, Trade For Trade) • MIS reporting • Market Communication • Listing Ceremony

11. Process Overview : Membership & Compliance Membership Inspection/Compliance • Periodic Inspection (segment wise) of Member firms at member site • Monitoring Client Registration Process by members • 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 Membership • 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

12. Process Overview : Surveillance & Supervision Offline Surveillance • Offline investigation for irregular market practices (circular trading, self trades, etc) • Theme based/special investigation • Disciplinary actions on member, security Online Surveillance • On-line market monitoring to detect any irregular market practices • Monitoring Market-wide Position Limits in F&O segment for various market participants • Security Surveillance • 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

13. Process Overview : Trading Trading System Development • 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 Trading API Management • 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 Market Operations • 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 • 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

14. Process Overview : Data, Index Business, IT, Corporate Website Index Services • New index conceptualization and launch • Administration and maintenance of indices • 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 Website Management • Static data / content management • Dynamic data management • Subscription based services Information Vending • 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

15. Process Overview : Others Customer Servicing & Helpdesk • 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. 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 New Business Initiatives • Cross border alliances for new products (Foreign indices) • New Product Research • Data Analytics 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

16. Thank You rajesh.saraf@bseindia.com