CBSE Book Class 12 Understanding NEAT System

Chapter 1 Understanding Neat System

Learning Objectives:

After reading this chapter, you should be able:

1. To identify the various market types under the capital market segment.

2. To understand the working of the IT system at NSE.

3. To understand the corporate hierarchy so as to analyse the responsibilities and powers at all levels.

4. To apply the acquired knowledge in real life trading system.

Your guide engine to learning:

1.1 Introduction

1.2 Trading network of NSE

1.3 NEAT System

1.4 Corporate hierarchy

1.5 Logging on to the neat system

1.5.1 User ID

1.5.2 Trading Member ID

1.5.3 Password

1.5.4 New Password

1.6 How to login

1.7 Exit from the system

1.1 Introduction

The trading on stock exchanges in India used to take place through open outcry without use of information technology for immediate matching or recording of trades. This was time consuming and inefficient. This imposedlimits on trading volumes and efficiency. In order to provide efficiency, liquidity and transparency, NSE introduced a nation-wide on-line fully-automated SCREEN BASED TRADING SYSTEM (SBTS) where a member can punch into the computer quantities of securities and the prices at which he likes to transact and the transaction is executed as soon as it finds a matching sale or buy order from a counter party.

SBTS electronically matches orders on a strict price/time priority and hence cuts down on time, cost and risk of error, resulting in improved operational efficiency. It allows faster incorporation of price sensitive information into prevailing prices, thus increasing the informational efficiency of markets. It enables market participants, irrespective of their geographical locations, to trade with one another simultaneously, improving the depth and liquidity of the market. It provides full anonymity by accepting orders, big or small, from members without revealing their identity. It also provides a perfect audit trail, which helps to resolve disputes by logging in the trade execution process in entirety. In the very first year of its operation, NSE became the leading stock exchange in the country.

Today India can boast that almost 100% trading takes place through electronic order matching. Technology was used to carry the trading platform from the trading hall of stock exchanges to the premises of brokers and to the PC’s at the residence of Investors through the Internet. This made a huge difference in terms of equal access to investors, in a geographically vast country like India.

1.2 Trading Network of NSE

The trading network is depicted in the following figure. NSE’s MAINFRAME Broker's premises NSE has main computer which is connected through Very Small Aperture Terminal (VSAT) installed at its office. The main computer runs on a fault tolerant mainframe computer at the Exchange. Brokers have terminals (identified as the PCs in the Figure 1) installed at their premises which are connected through VSATs/leased lines/modems. An investor informs a broker to place an order on his behalf. The broker enters the order through his PC, which runs under Windows NT and sends signal to the Satellite via VSAT/leased line/modem. The signal is directed to mainframe computer at NSE via VSAT at NSE's office. A message relating to the order activity is broadcast to the respective member.

The order confirmation message is immediately displayed on the PC of the broker. This order matches with theexisting passive order(s), otherwise it waits for the active orders to enter the system. On order matching, a message is broadcast to the respective member. The trading system operates on a strict price time priority. All orders received on the system are sorted, with the best priced order getting the first priority for matching i.e., the best buy orders match with the best sell order. Similar priced

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