The NSE provides a facility for screen based trading with order matching facility. The members are connected from their respective offices at dispersed locations to the main system at the NSE premises through a high- speed efficient satellite telecommunication network. The trading system is an order driven, automated order matching system which does not reveal the identity of parties to an order or a trade. This helps orders whether large or small to be placed without the members being disadvantaged by disclosure of their identity. Orders are matched automatically by the computer keeping the system transparent, objective and fair. Where an order does not find a match it remains in the system and is displayed to the whole market, till a fresh order which matches, comes in or the earlier order is cancelled or modified.

The trading system provides tremendous flexibility to the users in terms of the type of orders that can be placed on the system. Several time related, price related or volume related conditions can easily be placed on an order. The trading system also provides complete on-line market information through various inquiry facilities

The trading system recognizes three types of users - Trader, Privileged and Inquiry. Trading Members can have all the three user types whereas Participants are allowed privileged and inquiry users only.

The user-id of a trader gives access for entering orders or trades on the trading system. The privileged user has the exclusive right to set up counter party exposure limits. The Inquiry user can only view the market information and set up the market watch screen but cannot enter orders or trade or set up exposure limits.

Type of the market

The trades in the NSE trading system can be executed in the continuos or the negotiated market. In the continuous market, orders entered by the trading members are matched by the trading system. For each order entering the trading system, the system scans for a probable match in the order books. On finding a match, a trade takes place. In case, the order does not find a suitable counter order in the order books, it is added to the order books and is called a passive order. This could later match with any future order entering the order book and result into a trade. This future order, which results in matching of an existing order is
called the active order.

In a negotiated order, two parties enter into a contract with each other according to their terms and conditions. Unlike a continuos order, it is a contract entered into between those two parties only. The buyer and seller know each other and the contract is entered into at mutual understable terms and conditions.

Orders are matched on the basis of price-time priority. For non-repo trades, the best buy order is the one with the highest buy price and the best sell order is the one with the lowest sell price. Orders are matched automatically by the trading system based on passive order price. In case of repo trades, the best buy order is one with the lowest buy rate and the best sell order is one with the highest sell rate. The trade rate is
based on passive order rate.

NSE SGL a/c Facility for Constituents

SGL stands for ‘Subsidiary General Ledger’ accounts. It is a facility provided by RBI to large Banks and Financial Institutions to hold their investments in Government securities and Treasury bills in the electronic book-entry form. Such institutions can settle their trades for securities held in SGL through a Delivery-versus-Payments (DVP) mechanism, which ensures movement of funds and securities simultaneously. As all investors in Government securities do not have an access to the SGL accounting system, RBI has permitted such investors to hold their securities in physical stock certificate form. They may also open a Constituent SGL account with any entity authorized by RBI for this purpose and thus avail of the DVP settlement. Such client accounts are referred to as Constituent SGL accounts

Due to the wholesale nature of the market, retail investors usually loose their competitive strength due to their physical holdings. Further, absence of a common settlement agency makes it difficult for the retail investors to settle these transactions on a bilateral basis. To redress the problems faced by retail participants in the market, NSCCL offers Constituent SGL facility to such participants.

RBI has allowed NSCCL to open SGL and current accounts for this purpose. RBI has also permitted PFs/ Trusts to open their accounts with SCCL vide its letter PDO.SGL.07.18.21/ 97/98 dated March 30, 1998. SCCL is also taking steps to setup a common clearing and settlement framework for its SGL constituents. This endeavor will help the market to have uniform settlement procedures and will help evolve the market to a higher plane.

Settlement on NSE

Primary responsibility of settling trades concluded in the WDM segment rests directly with the participants and the exchange monitors the settlements. Trades are settled gross, i.e. on trade for trade basis directly between the constituents/participants to the trade and not through any Clearing House mechanism. Thus, each transaction is settled individually and netting of transactions is not allowed.

Settlement is on a rolling basis, i.e. there is no account period settlement. Each order has a unique settlement date specified upfront at the time of order entry and used as a matching parameter. It is mandatory for trades to be settled on the predefined settlement date. The Exchange currently allows settlement periods ranging from same day (T+0) settlement to a maximum of six working days (T+5).On the scheduled settlement date, the Exchange provides data/information to the respective member/participant regarding trades to be settled on that day with details like security, counterparty and consideration.

Government securities including treasury bills are settled by the participants through their Subsidiary General Ledger (SGL) account (a book entry settlement system) with RBI or through exchange of physical certificates. Other instruments are settled through delivery of physical securities. The required settlement details, i.e. certificate no., SGL form no., Cheque no., constituent etc. are reported by the member/participant to the Exchange. In case of Repo trades the settlement details of the forward leg is also reported.

The exchange closely monitors the settlement of transactions through the reporting of settlement details by members and participants. In case of deferment of settlement or cancellation of trade, participants are required to seek prior approval from the Exchange. For any dispute arising in respect of the trades or settlement, the exchanges has established arbitration mechanism for resolving the same.