stock exchange in indian capital market icm

MATHIVANAN K.MBA 2014

SOURASHTRA COLLEGE,MADURAI

WHAT IS STOCK EXCHANGE 

Stock exchange is that place where trading of shares is done in terms of sale and purchase.

HISTORY STOCK EXCHANGE

The first organized stock exchange in India was started in Bombay.

The native share stock brokers association known as the Bombay

stock exchange (BSE)

BSE was Asia's oldest stock exchange

Ahmedabad stock exchange was started to facilitate dealings in the

shares of textile mills.

The Calcutta stock exchange was started in 1908 to provide a

market for shares of plantation and jute mills.

The second world war saw great speculative activity in the country

and the number of stock exchanges rose- 7 in 1939 to 21 in 1945.

There where also illegal “dabba’ market in which stocks and shares

were also bought and sold

At present, there are twenty one recognized stock

exchanges in India which does not include the Over The

Counter Exchange of India Limited (OTCEI) and the

National Stock Exchange of India Limited (NSEIL).

Government policies during 1980's also played a vital

role in the development of the Indian Stock Markets.

There was a sharp increase in number of Exchanges

NAME OF INDIAN STOCK EXCHANGES

1.Bombay stock exchange

2.national stock exchange(Mumbai)

3.Banglore stock exchange

4.Utter Pradesh stock exchange(kanpur)

5.Magadh stock exchange(Patna)

6.Ahmedabad stock exchange

7.vadodara stock exchange(Baroda)

8.Bhubaneswar stock exchange

9.Calcutta stock exchange(kolkata)

10.madras stock exchange

11.Cochin stock exchange

12.coimbatore stock exchange

13.Gauhati stock exchange

14.Hydrabad stock exchange

15.Madhya Pradesh stock exchange(indore)

16.Jaipur stock exchange

17.Ludhina stock exchange

18.Mangalore stock exchange

19.Pune stock exchange

20.saurashtrakutch stock exchange

BSE: THE BOMBAY STOCK EXCHANGE

Mumbai's (earlier known as Bombay), Bombay Stock Exchange is the largest, with over 6,000 stocks listed. The BSE accounts for over two thirds of the total trading volume in the country. Established in 1875, the exchange is also the oldest in Asia. Among the twenty-two Stock Exchanges recognized by the Government of India under the Securities Contracts (Regulation) Act, 1956, it was the first one to be recognized and it is the only one that had the privilege of getting permanent recognition ab-initio.

STRUCTURE OF INDIAN STOCK EXCHANGES

National Exchanges Regional Exchanges

BSE NSE 21 Other Regional Exchanges

SEBI

Stock Exchanges

SECURITIES AND EXCHANGE BOARD OF INDIAPERFORMS

Regulatoryo Operates the trading

of stock exchangeo Registration of

broker, transfer agents, merchant banks etc

o Abolition of internal trading

o Auditing of stock exchange

o Registration of credit rating agency

Developmento Research and

Developmento Publishing of Informationo Educates investorso Promoting Self operating

organisationo Control over fraud

NSE: NATIONAL STOCK EXCHANGE

The National Stock Exchange (NSE),

location

India's first debt market.

Year of inception - 1993

Year of operation - 1994

The instruments traded

Treasury Bills,

Government Security

Bonds Issued By Public Sector Companies

PURPOSE NSE

Establishing a National wide trading

facility for all type of securities.

Ensuring equal access to investor all over

the country through an appropriate

communication network

Providing for a Fair, efficient and

transparent securities market using

electronic Trading system

Enabling shorter Settlement cycles.

Meeting up with international benchmark

and standard

FEATURES OF STOCK EXCHANGE

It is an organized market

It is a securities market

It is an important constituent of capital

market i.e., market for long- term finance

It is a voluntary association of persons

desirous of dealing in securities

Stock exchange is a voluntary association,

its membership is not open to everybody

In a stock exchange, only the

members can deal in i.e., buy & sell

securities

The dealings in a stock exchange are

under certain accepted code of

conduct i.e., rules and regulations

The dealings in a stock exchange are

under certain accepted code of

conduct i.e., rules and regulations

IMPORTANT FUNCTION OF STOCK EXCHANGE

Provide central and convenient meeting

places for sellers and buyer of securities

Increase the marketability and liquidity of

securities

Contribute to stability of prices of

securities

Equalization of price of securities

Smoothen price movement

Help the investors to know the worth of their

holdings

Promote the habit of saving and investment

Help capital formation

Help companies and government to raise

funds from the investors

Provide forecasting service

ROLE OF NSE

Raising capital for businesses

Mobilizing savings for investment

Facilitating company growth

Profit sharing

Corporate governance

Barometer of the economy

NSE - TRADING:

Trading Fully automated screen-based trading

mechanism

Strictly follows the principle of an order-driven

market 

Trading members are linked through a

communication network

This network allows them to execute trade from

their offices

The prices at which the buyer and seller are

willing to transact will appear on the screen

When the prices match the transaction will be

completed

 confirmation slip will be printed at the office of

the trading member

SPECULATION : 

Definition : it involves the buying, holding, selling,

short-term selling of stocks, bonds. commodities,

currencies, collectibles or any valuable financial

instrument to profit from fluctuations in its price as

opposed to buying it for use or for income via

method like dividends or interest.

KINDS OF SPECULATION : Bull Market (Tejiwala): In case of that they

purchase the shares at current prices to sell at a higher price in the near future and makes a profit if his expectations come true. He is also called a long buyer.

Bear Market (Mandiwala) : He sells security in the hope that he will be able to buy them back at lesser price.It is also called “short selling”.

Lame duck : When a bear has made contracts to sell securities, find it difficult to meet his commitment due to non-availability of security, they always struggling.

Stag : He is that type of speculator who applies for a large number of a shares in a new issue with the intention of selling them at a premium. He is bullish and very cautious.

BENEFITS OF STOCK EXCHANGE : FROM THE POINT OF VIEW OF COMMUNITY: 

It assist the economist development by providing a body

of interested investors.

It uploads the position of superior enterprises and assist

them in raising further funds.

It encourages capital formation

Government can undertake projects of national

importance and social value raising funds through the

sale of its securities on the stock exchange.

It is the stock exchanges that central bank of a country

can control credit by undertaking open market

operations (purchase and sale of securities)

 FROM THE INVESTORS POINT OF VIEW 

Liquidity of the investment is increased

The securities dealt on a stock exchange are

good collateral security for loans.

The stock exchange safeguards interests of

investors through strict enforcement of rules and

regulations.

The present net worth of investments can be

easily known by the daily quotations.

His risk is considerably less when he holds or

purchases listed securities.

FROM THE COMPANY POINT OF VIEW

A company whose shares quoted on stock exchange they enjoy better reputation and credit

The market for the shares of such a company is naturally widened

The market price of securities is likely to be higher in relation to its earnings, dividends and property values

This raises the bargaining power of the company in the event of a takeover, merger or amalgamation

BROKER AND JOBBER

BROKER: He is one acts as a intermediary on behalf of

others. A broker in a stock exchange ,is a commission

agent who transacts business in securities on behalf of

non members.

JOBBER: He is not allowed to deal with the public

directly. He deals with brokers who are engaged with the

investors . Thus, the securities is bought by the jobber

from members and sells to members who are operating

on the stock exchange as broker.

DIFFERENCE BETWEEN A BROKER AND A JOBBER

Broker A broker deals with the

jobber on behalf of his clients. in other words, a broker is middleman between a jobber and clients

A broker is merely an agent, buying and selling securities on behalf of his clients

A broker gets only the commission for his dealing

A broker deals in all types of securities

Jobber A jobber is an independent

dealer in securities, purchasing or selling securities on his own account

Jobbers deals only with the brokers, does not deal with the general public

A jobber earns profit from his operations i.e., buying and selling securities

Each jobber specializes in certain group of securities

MEMBERS OF STOCK EXCHANGE

Only the members can make

transactions on a stock exchange.

A non member can buy or sell securities

through a member broker

In order to become a member, a person

must satisfy the qualification prescribed

by the stock exchange

Members can act as brokers and

jobbers

CURRENTLY, NSE HAS THE FOLLOWING MAJOR SEGMENTS OF THE CAPITAL MARKET:

Equity 

 Futures and Options

Retail Debt Market

Wholesale Debt Market

Currency futures

MUTUAL FUND

STOCKS LENDING & BORROWING

The Organisation: The National Stock Exchange of

India Limited has genesis in the report of the High

Powered Study Group on Establishment of New Stock

Exchanges, which recommended promotion of a

National Stock Exchange by financial institutions (FIs) to

provide access to investors from all across the country

on an equal footing.

Based on the recommendations, NSE was promoted by

leading Financial Institutions at the behest of the

Government of India and was incorporated in November

1992 as a tax-paying company unlike other stock

exchanges in the country

oNSE GROUP:

1. India Index Services & Products Ltd. (IISL)

2. National Securities Clearing Corporation Ltd.

(NSCCL)

3. NSE.IT Ltd.

4. National Securities Depository Ltd. (NSDL)

5. DotEx International Limited

OTCEI

Over the counter exchange of India was started in

1992

The OTCEI was started with the objective of providing a

market for the smaller companies that could not afford

the listing fees of the large exchanges and did not fulfill

minimum requirements for listing.

It aimed at creating a fully decentralised and

transparent market.

Over the counter means trading across the country in

scrips.

The counter refers to the location of the member or

dealer of the OTCEI where the deal or trade takes

place

Every counter is treated like trading floor for the OTCEI

where the investor can buy or sell

 The member or dealers of OTCEI counters are linked

to the central OTCEI computer

The member should have the computer and

telecommunication facility.

THE PROMOTERS

OTCEI is incorporated as a company under section 25(c)

of Indian companies act 1956. As per the registration

norms, OTCEI will be obliged to plough back all its

profits and will not be allowed to declare dividend on its

share capital.

The promoters are as follows

UTI GIC

ICICI SBI capital market

IDBI Canbank financial services

IFCI LIC

 PLAYERS IN THE OTCEI MARKET

The players on the OTCEI exchange are the

members and dealers.

The activities of members and dealers are

1. Act as broker, buy and sell securities

according to the instructions of investor

2. Market makers in securities, they quote the

prices at which members are willing to buy

and sell the specified no. of securities.

MEMBERS

Members may be public financial institutions,

scheduled banks, mutual funds , SEBI

approved merchant bankers, banking

subsidiaries, venture capital funds and other

non-banking financial companies with

minimum net worth of Rs 2.5 crores

Members pay a one time non-refundable admission fee of

rs 10 lakh and rs 5 lakh after one year.

The annual subscription fee is rs 1 lakh.

DEALERS

The dealers are individuals, partnership firm, and

corporate entities with a minimum net worth of Rs 5 lakh.

They should have adequate office space and

telecommunication facilities

They have to pay one time non-refundable fee of Rs 2

lakh and annual subscription fee of Rs 5000.

OTCEI may collect additional security deposit if it

considers necessary, depending upon the business

experience of applicant.

SCRIPS TO BE TRADED

The minimum capital requirement for a company to

be listed on the OTCEI is Rs 3 crores and the

maximum is Rs 50 crore.

For companies with an issued capital of more than 30

lakh but less than 300 lakhs, the minimum public offer

should be 25% of the issued capital or 20 lakhs worth

of shares in face value, which ever is higher

Companies with an issued capital of more than Rs 30

crores seeking to be listed have to comply with listing

requirements and guidelines that are applicable to such

companies in other stock exchanges.

SEBI – THE SECURITIES AND EXCHANGE BOARD OF INDIA

The Securities and Exchange Board of India

was established by the

government of India on 12  April 1988 as an interim

administrative body to  promote orderly and healthy

growth of the securities market and for investor

protection.

It was to function under the overall  administrative

control of the Ministry of Finance of the GOI.

HISTORY

The SEBI was given a statutory status on 30 Jan 1992

through an ordinance.

The ordinance was later replaced by an

Act of  Parliament known as the Securities and

Exchange Board of India Act 1992.

REASONS FOR ESTABLISHMENT OF SEBI

The capital market had witnessed a tremendous  growth

during the 1980·s characterized by the increasing

participation of the public.

This ever expanding investor population and

market capitalization led to a variety of malpractices on

the  part of companies, brokers, merchant bankers,

investment consultants and others involved in

the securities market.

The glaring examples of these malpractices

include existence of self styled merchant bankers,

unofficial   private placements, rigging of prices,

unofficial   premium on new issues, non adherence of

provisions of The Companies Act , violation of rules

and  regulations of stock exchanges and

listing requirements, delay in delivering shares etc.

These malpractices and unfair trade practices have eroded

investor confidence and multiplied investor  grievances

The government and the stock exchanges were

rather helpless in redressing the investors problems

because of lack of proper penal provisions in the

existing legislation.

Therefore the GOI decided to set up SEBI a

separate regulatory body PURPOSE & ROLE OF SEBI :

To the issuers it aims to provide a market place in which

they can confidently look forward to raising  finances they

need in an easy fair and efficient manner.

To the investors it provides protection of their rights and

interests through adequate accurate and  authentic

information and disclosure of information on a continuous

basis.

To the intermediaries it offers a

competitive, professionalized and expanding market

with adequate and efficient infrastructure so as to

render better service to investors and issuers.

OBJECTIVES

To regulate stock exchanges and the securities industry

and to promote their orderly functioning.

To guide , educate and protect the rights and  interests

of individual investors.

To prevent trading malpractices and achieve a balance

between self regulation by the securities industry and

its statutory regulation

To regulate and develop a code of conduct and

fair  practices by brokers , merchant bankers with

a view to make them competitive and professional.

FUNCTIONS OF SEBI

REGULATORY FUNCTIONS

Registration of brokers and sub brokers

and  other players in the market 

Registration of collective investment schemes and Mutual

Funds 

Prohibition of fraudulent and unfair trade  practices 

Controlling insider trading and takeover bids

and  imposing penalties for such practices 

DEVELOPMENT FUNCTIONS

Investor education 

Training of intermediaries

Promotion of fair practices and code of conduct of

all  SROs

Conducting research and publishing information useful

to all market participants