STOCK MARKET

Wednesday, 31 October 2012

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

The securities and exchange board of India was constituted in 1988 under a resolution of government of India. It was later made statutory body by the SEBI act 1992.according to this act, the SEBI shall constitute of a chairman and four other members appointed by the central government.

With the coming into effect of the securities and exchange board of India act, 1992 some of the powers and functions exercised by the central government, in respect of the regulation of stock exchange were transferred to the SEBI.

OBJECTIVES AND FUNCTIONS OF SEBI

Ø To protect the interest of investors in securities.

Ø Regulating the business in stock exchanges and any other securities market.

Ø Registering and regulating the working of intermediaries associated with securities market as well as working of mutual funds.

Ø Promoting and regulating self-regulatory organizations.

Ø Prohibiting insider trading in securities.

Ø Performing such functions and exercising such powers under the provisions of capital issues (control) act, 1947and the securities to it by the central government.

SEBI GUIDELINES TO SECONDARY MARKETS: (STOCK EXCHANGES):

Board of Directors of Stock Exchange has to be reconstituted so as to include non-members, public representatives and government representatives to the extent of 50% of total number of members.Capital adequacy norms have been laid down for the members of various stock exchanges depending upon their turnover of trade and other factors.All recognized stock exchanges will have to inform about transactions with in 24 hrs.

REGULATORY FRAME WORK OF STOCK EXCHANGE

A comprehensive legal framework was provided by the “Securities Contract Regulation Act, 1956” and “Securities Exchange Board of India 1952”. Three tier regulatory structure comprising

Ø Ministry of finance

Ø The Securities And Exchange Board of India

Ø Governing body

Members of the stock exchange:

The securities contract regulation act 1956 has provided uniform regulation for the admission of members in the stock exchanges. The qualifications for becoming a member of a recognized stock exchange are given below:

Ø The minimum age prescribed for the members is 21 years.

Ø He should be an Indian citizen.

Ø He should be neither a bankrupt nor compound with the creditors.

Ø He should not be convicted for fraud or dishonesty.

Ø He should not be engaged in any other business connected with a company.

Ø He should not be a defaulter of any other stock exchange.

Ø The minimum required education is a pass in 12 standard examination.

BSE

The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875 as "The Native Share and Stock Brokers Association". It is the oldest one in Asia, even older than the Tokyo Stock Exchange, which was established in 1878. It is a voluntary non-profit making Association of Persons (AOP) and is currently engaged in the process of converting itself into demutualised and corporate entity. It has evolved over the years into its present status as the premier Stock Exchange in the country. It is the first Stock Exchange in the Country to have obtained permanent recognition in 1956 from the Govt. of India under the Securities Contracts (Regulation) Act 1956.The Exchange, while providing an efficient and transparent market for trading in securities, debt and derivatives upholds the interests of the

investors and ensures redresses of their grievances whether against the companies or its own member-brokers. It also strives to educate and enlighten the investors by conducting investor education programmers and making available to them necessary informative inputs.

A Governing Board having 20 directors is the apex body, which

decides the policies and regulates the affairs of the Exchange. The

Governing Board consists of 9 elected directors, who are from the

broking community (one third of them retire ever year by rotation),

three SEBI nominees, six public representatives and an Executive

Director & Chief Executive Officer and a Chief Operating Officer .

The Executive Director as the Chief Executive Officer is responsible for

the day-to-day administration of the Exchange and the Chief Operating

and other Heads of Department assist him.

The Exchange has inserted new Rule No.126 A in its Rules, Byelaws pertaining to constitution of the Executive Committee of the Exchange. Accordingly, an Executive Committee, consisting of three elected directors, three SEBI nominees or public representatives, Executive Director & CEO and Chief Operating Officer has been constituted. The Committee considers judicial & quasi matters in which the Governing Board has powers as an Appellate Authority, matters regarding annulment of transactions, admission, continuance and suspension of member-brokers, declaration of a member-broker as defaulter, norms, procedures and other matters relating to arbitration, fees, deposits, margins and other monies payable by the member-brokers to the Exchange, etc.

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NSE

NSE's mission is setting the agenda for change in the securities

Markets in india. The NSE was set-up with the main objectives of:

Ø Establishing a nation-wide trading facility for equities and debt instruments.

Ø Ensuring equal access to investors all over the country through an appropriate communication network.

Ø Providing a fair, efficient and transparent securities market to investors using electronic trading systems.

Ø Enabling shorter settlement cycles and book entry settlements systems, and Meeting the current international standards of securities markets.

Ø Meeting the current international standards of securities markets.

The standards set by NSE in terms of market practices and technology, have become industry benchmarks and are being emulated by other market participants. NSE is more than a mere market facilitator. It's that force which is guiding the industry towards new horizons and greater opportunities.

STOCK MARKET

Financial markets are helpful to provide liquidity in the system and for smooth functioning of the system. These markets are the centers that provide facilities for buying and selling of financial claims and services. The financial markets match the demands of investment with the supply of capital from various sources.

According to functional basis financial markets are classified into two types.

They are:

Ø Money markets (short-term)

Ø Capital markets (long-term)

According to institutional basis again classified in to two types. They are

Ø Organized financial market

Ø Non-organized financial market

The organized market comprises of official market represented by recognized institutions, bank and government (SEBI) registered/controlled activities and intermediaries. The unorganized market is composed of indigenous bankers, moneylenders, individual professional and non-professionals.

MONEY MARKET:

Money market is a place where we can raise short-term capital.

Again the money market is classified in to

Ø Inter bank call money market

Ø Bill market and

Ø Bank loan market Etc.

Ø E.g.; treasury bills, commercial papers, CD's etc.

Capital market:

The capital market is the market for securities, where companies and the

Government can raise long term funds.The capital market includes the

Stock market and the bond market.Financial regulators ensure that investors are protected against fraud .The capital markets consist of the primary market,where new issues are distributes to investors,and the secondary market ,where existing securities are traded.

Capital market plays a vital role in channelizing the saving of individuals for investment in the economic development of the country. As a result the investors are not constrained by their individual abilities,but by the abilities of the companies,which in turn enhance the saving and the investments in the country, liquidity of capital market is an important factor affecting growth.

Since projects require long term finance,but on the other hand,the investor may not like to relinquish control over their saving for a long time.A liquid stock market ensures a quick exit without incurring heavy losses or costs.Thus development of efficient market system is necessary for creating conductive climate for investment and economic growth.

Capital market is a place where we can raise long term market.

Again capital market is classified in to two types and they are

Ø Primary market and

Ø Secondary market.

Ø E.g.: Shares, Debentures, and Loans etc.

PRIMARY MARKET:

Primary market is generally referred to the market of new issues or market for mobilization of resources by the companies and government undertakings, for new projects as also for expansion, modernization, addition, diversification and up gradation. Primary market is also referred to as New Issue Market. Primary market operations include new issue of shares by new and existing companies, further and right issues to existing shareholders, public offers, and issue of debt instruments such as debentures, bonds, etc.

The primary market is regulated by the Securities and Exchange Board of India (SEBI a government regulated authority).

Function:

The main services of the primary market are origination, underwriting, and distribution. Origination deals with the origin of the new issue. Underwriting contract make the shares predictable and remove the element of uncertainty in the subscription. Distribution refers to the sale of securities to the investors.

The following are the market intermediaries associated with the market:

1. Merchant banker/book building lead manager

2. Registrar and transfer agent

3. Underwriter/broker to the issue

3. Adviser to the issue

5. Banker to the issue

4. Depository

7. Depository participant

Investors’ protection in the primary market:

To ensure healthy growth of primary market, the investing public should be protected. The term investor protection has a wider meaning in the primary market. The principal ingredients of investors’ protection are:

Ø Provision of all the relevant information

Ø Provision of accurate information and

Ø Transparent allotment procedures without any bias.

SECONDARY MARKET:

The primary market deals with the new issues of securities. Outstanding securities are traded in the secondary market, which is commonly known as stock market or stock exchange. “The secondary market is a market where scrip’s are traded”. It is a market place which provides liquidity to the scrip’s issued in the primary market. Thus, the growth of secondary market depends on the primary market. More the number of companies entering the primary market, the greater are the volume of trade at the secondary market. Trading activities in the secondary market are done through the recognized stock exchanges which are 23 in number including Over The Counter Exchange of India (OTCE), National Stock Exchange of India and

Interconnected Stock Exchange of India.

Secondary market operations involve buying and selling of securities on the stock exchange through its members. The companies hitting the primary market are mandatory to list their shares on one or more stock exchanges in India. Listing of scrip’s provides liquidity and offers an opportunity to the investors to buy or sell the scrip’s.

The following are the intermediaries in the secondary market:

1. Broker/member of stock exchange – buyers broker and sellers broker

2. Portfolio Manager

3. Investment advisor

3. Share transfer agent

5. Depository

6. Depository participants.

STOCK MARKETS IN INDIA:

Stock exchanges are the perfect type of market for securities whether of government and semi-govt bodies or other public bodies as also for shares and debentures issued by the joint-stock companies. In the stock market, purchases and sales of shares are affected in conditions of free competition. Government securities are traded outside the trading ring in the form of over the counter sales or purchase. The bargains that are

struck in the trading ring by the members of the stock exchanges are at the fairest prices determined by the basic laws of supply and demand.

Definition of a stock exchange:

“Stock exchange means any body or individuals whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities.” The securities include:

Ø Shares of public company.

Ø Government securities.

Ø Bonds

History of Stock Exchanges:

The only stock exchanges operating in the 19 th century were those of Mumbai setup in 1875 and Ahmadabad set up in 1894. These were organized as voluntary non-profit-marking associations of brokers to regulate and protect their interests. Before the control on securities under the constitution in 1950, it was a state subject and the Bombay securities contracts (control) act of 1925 used to regulate trading in securities. Under this act, the Mumbai stock exchange was recognized in 1927 and Ahmadabad in 1937. During the war boom, a number of stock exchanges were organized. Soon after it became a central subject, central legislation was proposed and a committee headed by A.D.Gorwala went into the bill for securities regulation. On the basis of the committee’s recommendations and public discussion, the securities contract (regulation) act became law in 1956.

Functions of Stock Exchanges:

Stock exchanges provide liquidity to the listed companies. By giving quotations to the listed companies, they help trading and raise funds from the market. Over the hundred and twenty years during which the stock exchanges have existed in this country and through their medium, the central and state government have raised crores of rupees by floating public loans. Municipal corporations, trust and local bodies have obtained from the public their financial requirements, and industry, trade and commerce- the backbone of the country’s economy-have secured capital of

crores or rupees through the issue of stocks, shares and debentures for financing their day-to-day activities, organizing new ventures and completing projects of expansion, diversification and modernization. By obtaining the listing and trading facilities, public investment is increased and companies were able to raise more funds. The quoted companies with wide public interest have enjoyed some benefits and assets valuation has become easier for tax and other purposes.