BSE: Structure and Trading Mechanism

1. Presentation on
Bombay Stock Exchange
(BSE)
Presented by:
Ashutosh Sahu
MBA 3rd 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
Chairman
Shri Dhirendra
Swarup
Public interest
Directors
MD and CEO
Shri Ashish
Kumar Chauhan
Shareholder
Directors

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?