Trading Mechanism

2812 Words Feb 27th, 2013 12 Pages
Trading Mechanism in National Stock Exchange

1. Introduction

1.1 Meaning of Trading Mechanism

The trading mechanism in the stock exchange is based on a transaction between a buyer, seller, and a trading specialist who actually executes transactions in a stock exchange. In general, the trading mechanism is similar to a simple auction, with investors biddng on a particular stock or security. If the bid is accepted by the owner of the security, the trading specialist executes the sale. Most major stock exchanges trade a collection of stocks, bonds, and other domestic and foreign investments.

1.2 Purpose

The trading mechanism exists because of the constant need to channel money from investors into business entities. Investors range from
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2.3 Market Phases

The trading system is normally made available for trading on all days except Saturdays, Sundays and other holidays. Holidays are declared by the Exchange from time to time. A trading day typically consists of a number of discrete stages as below:

(i) Opening: The trading member can carry out the following activities after login to the NEAT system and before the market opens for trading: (a) Set up Market Watch (the securities which the user would like to view on the screen) (b) View Inquiry screens
At the point of time when the market is opening for trading, the trading member cannot login to the system. A message ‘Market status is changing. Cannot logon for sometime’ is displayed. If the member is already logged in, he cannot perform trading activities till market is opened.

(ii) Pre-open: The pre-open session is for duration of 15 minutes i.e. from 9:00 am to 9:15 am. The pre-open session is comprised of order collection period and order matching period. The order collection period of 8* minutes is provided for order entry, modification and cancellation. Order matching period starts immediately after completion of order collection period. Orders are matched at a single (equilibrium) price which will be open price. The order matching happens in the following sequence: • Eligible limit orders are matched with…

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