Page 4 - Lesson Note 3

The computer screens display information on prices and also capital market developments that

influence share prices.

3. It increases the efficiency of operations, since there is reduction in time, cost and risk of

error.

4. People from all over the country and even abroad who wish to participate in the stock

market can buy or sell securities through brokers or members without knowing each other.
That is, they can sit in the broker’s office, log on to the computer at the same time and buy or

sell securities. This system has enabled a large number of participants to trade with each other,

thereby improving the liquidity of the market.

5. A single trading platform has been provided as business is transacted at the same time in all
the trading centres. Thus, all the trading centres spread all over the country have been brought

onto one trading platform, i.e., the stock exchange, on the computer. Now, screen-based

trading or on-line trading is the only way in which you can buy or sell shares. Shares can be held

either in physical form or an electronic book entry form of holding and transferring shares can

also be adopted. This electronic form is called dematerialized form.

Steps in the Trading and Settlement Procedure

It has been made compulsory to settle all trades within 2 days of the trade date, i.e., on
a T+2 basis, since 2003. Prior to the reforms, securities were bought and sold, i.e.,

traded and all positions in the stock exchange were settled on a weekly fortnightly

settlement cycle whether it was delivery of securities or payment of cash. This system
prevailed for a long time as it increased the volume of trading on the exchange and

provided liquidity to the system. However, since trades were to be settled on specified

dates, this gave rise to speculation and price of shares used to rise and fall suddenly due

to trading and defaults by brokers. A new system, i.e., rolling settlement, was

introduced in 2000, so that whenever a trade took place it would be settled after some
days. Since 2003, all shares have to be covered under the rolling settlement system on a