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Nse Basics

Essay by   •  December 22, 2010  •  7,238 Words (29 Pages)  •  1,180 Views

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Issues prior to trading on the NSE

Dealing through NSE trading member/SEBI registered sub-broker

Whom should I approach for buying/selling shares on the NSE?

To buy or sell securities you could approach either:

1. SEBI registered trading member of the NSE, or

2. SEBI registered sub-broker of a trading member of the NSE

Why should I deal only with a trading member of NSE/SEBI registered sub-broker of NSE trading member?

The Exchange can ensure settlement and handle disputes/claims arising out of only those trades which are executed on NSE through registered trading members /registered sub-brokers. Hence for all trades done on NSE through an entity who is not registered, the investor has no recourse through the Exchange in case of non settlement or a claim/dispute arising out of the same.

How do I verify whether the entity is a NSE trading member (TM)/SEBI registered sub-broker?

You may ask the person to furnish documents such as SEBI registration certificate, registration with NSE, etc to verify the antecedents of the person. You can also approach the Exchange to countercheck whether the person holds a valid registration.

The NSE website also provides a directory of NSE trading members.

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Registering as a client

What are the formalities for registering as a client of a NSE trading member/SEBI registered sub-broker?

All investors should register themselves with registered trading members/sub-brokers by:

1. Filling a Client Registration Form, and

2. Signing a Member-Constituent Agreement (copy available with all NSE trading members)

The Member-Constituent Agreement contains the terms and conditions including order/trade confirmation, brokerage charged by a trading member, delivery of securities and funds and therefore helps reduce the chances of disputes in respect of the same. This Agreement is mandatory for all persons registering as a new client of a NSE trading member/SEBI registered sub-broker.

What precautions should I take before signing the Member-Constituent Agreement?

You should read the various terms and conditions carefully and understand their implications before entering into this agreement with your trading member.

1. Check whether it is on a Stamp Paper of requisite value and whether the Stamp Paper is valid (for e.g. Validity in Maharashtra is for 6 months from the date of issue of the stamp paper). Ensure that the date of agreement is not prior to the date mentioned on the stamp paper.

2. Check whether your name and the name of the trading member are clearly mentioned in the agreement.

3. Ensure that the trading member and you have signed on all the pages of the agreement. Also, check that the witnesses have signed and put their names against their signature.

4. Check whether the trading member or their representatives have the authority (such as Board Resolution, Power of Attorney, etc.) to sign the Member-Constituent Agreement.

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Trading related Issues

Giving purchase /sale instructions

How should I give my purchase/sale instructions to my trading member/sub-broker?

A trading member/client relationship is one of trust. However, it is very important that all your order instructions are given in writing and are duly acknowledged by the trading member. The order instructions should clearly indicate the scrip name, whether order is for buy or sell, the quantity for each of the scrips, rate specifications if any, and other relevant instructions. This reduces chances of miscommunication between you and your trading member/sub-broker at the time of placing deals on your behalf.

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Price at which trade executed

What is price-time priority?

The system arranges all orders in the priority of price and within price by time. You have, let us say,placed a buy order for 100 shares of company A at Rs. 285 and another investor has placed a buy order at Rs.290. So,anyone who places a sell order in company A will be first matched with the buy order of second investor as he has given a better price. This is price priority. Let us say both of you have quoted Rs. 285 as the price at which you want to buy shares of company A, then sell order which comes into the system at this price will be matched against the order which was placed first.

How do I know my trading member has given me the best price?

The NSE trading system matches orders in such a way that the order gets executed at a price which is either equal to or better than the specified price but never worse than it. Therefore, if you have given an order for selling 100 shares at the rate of Rs.50, your order will be traded in the system in such a way that you will get a sale price of Rs.50 or more but never less. Similarly, if you have given an order for buying 100 shares at the rate of Rs.50, your order will be traded in the system in such a way that you will get a buy price of Rs.50 or less but never more.

How do I ascertain the correct rate at which my deal has been executed?

The NSE trading system (NEAT) generates and maintains an audit trail of the orders entered on the system by assigning a unique order number to all the orders placed on the NEAT system. You should therefore ask your trading member to give you the unique order number that the system has assigned to your order.

Further, as soon as your order is executed, a trade confirmation slip is generated which displays the trade number, trade time, quantity and price at which your trade took place and the corresponding order number. Trading members are obligated to give their clients a trade confirmation slip the moment a trade takes place. By looking at the trade slip, you can actually verify the rate at which your order was traded.

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