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Nehal Vora, Chief Regulatory officer at BSE Ltd. gives 'Gayan' on Stock Market at Vinod Gupta School of Management, IIT Kharagpur.
Many of us hold Demat accounts. Many of us trade through brokers. Many of us invest out hard earned money in stock markets to make fortunes. But how many of us think about the security and assurance of fair trade before we invest? 
How many of us think about the possible price manipulation techniques and fraudulent activities that have wrecked the investors in past and have the potential to do that again? And how many of us think about the fairness of price discovery mechanism and the transparency of trade that we carry out so leisurely?
Stock Market has always been a risky game but do we really know how much risky is it? To make you well versed with the meats and potatoes of the stock market allow me to take you through one of the most informational, enlightening and eye-opening guest lecture ever held at Vinod Gupta School of Management, IIT Kharagpur. 
Mr. Nehal Vora, our guest of the evening is Chief Regulatory officer at BSE limited. He took us through elaborate journey of evolution of stock market and SEBI in past one and a half decade where he emphasized on the role technology has played in the securities of market in India. 
Bombay Stock Exchange is the 10th largest stock exchange in the world by market capitalization. Established in 1875, BSE Ltd. is Asia’s first Stock Exchange and one of India’s leading exchange groups. But things were quite different at that time.
In his words, there used to be only physical trading, for which all the people used to gather in one hall. The orders were placed with brokers. The brokers used to collect all the orders and give at the particular counter where price decision was made seeing the supply and demand of that share. 
There was no time stamping technology so people were usually given shares at the highest of the day and sold at the lowest price. The fat margin used to find its way into the pocket of the brokers. The system had no transparency, no accountability and no competence. Vyaj Badla and Share badla used to be the ways of transaction and account settlement period used to be as high as 15 days.
After the Harshad Mehta Scam in 1992, to protect the interests of the investors in securities and to promote the development of the securities market a series of reforms and regulations took place in past one and a half decade. Physical trading was put to stop in 1995. Now trading can happen only through online platform, popularly known as electronic trading.
This platform along with it brought many advantages like culminating orders, a competent price discovery mechanism based on an algorithm accurate time stamping and shorter settlement cycles.
Then he introduced SEBI, Securities and Exchange Board of India which was established in the year 1988 and given statutory powers on 12 April 1992 through the SEBI Act, 1992. In April, 1998 the SEBI was constituted as the regulator of capital markets in India under a resolution of the Government of India.
KYC form was another revolutionizing step to transform the market scenario. Know your Client as it is called took care of client suitability and made him aware of the amount of risk involved in the market.  It reduced the chances of faking and forgery as all the KYC forms were uploaded on one server with the KYC registering authority. So every time you need to trade with a broker you don’t need to fill a form now as the broker can access it from the server.
With the improving market scenario and implementation of objective and transparent practices India was able to gain confidence of FII’s.
Next in line was the reform of dematerializing all the shares in the market and transform them into electronic certificates. Earlier physical shares could be stolen, sold in the market and culprit could go absconding without getting caught. Authorities gave option for converting shares into electronic forms. 
Now there were two prices for a share- one for the physical share and other for electronic one. Physical shares were to be sold at discounted prices at not more than 500 transactions a day. This eventually led to dematerialization of maximum shares in the market.
He also talked about how to ensure good delivery to all the investors by calculative risk management approach. If a broker defaults, stock exchange will default and this will eventually erode customer’s confidence in the stock exchange.
To do risk mitigation, the mean value of the share is calculated and some extra is margin is taken in advance. The margins are calculated on following formulas-
Mean value of the share price plus a margin of 3 x volatility of share.
For some shares with flat tail the formula changes to 
Mean value of the share price plus a margin of 3.5 x volatility of share.
System computes on real time basis the risk associated with each client’s portfolio which is updated every 1.5 hours. The margin amount is collected upfront. Special care is taken to evaluate risk precisely and not to under rate or over rate it.
He applauded the achievement of bringing down Clearing and settlement from 15 days to T+2 rolling days. Clearing corporations interpose between all legs of trade to facilitate this process. In US even today they T+3 rolling settlement. Indian stock market has raised the bars through series of reforms and regulations and has come to a point where the western world is looking upon us as role model for their markets.
In the last he talks about multi-level surveillance system of BSE Ltd. Recently E-boss was launched to add on to the safety and integrity of the BSE. It is a multilevel surveillance system which investigates in real time price and volume of shares. It sends alerts to brokers in case of significantly increase in client activity, Sudden trading activity in dormant account, Order book spoofing i.e. large orders away from market etc. 
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