THE BSE (CORPORATISATION AND DEMUTUALISATION) SCHEME, 2005 LOGO STOCK EXCHANGE

INTRODUCTION THE BSE (CORPORATISATION AND DEMUTUALISATION) SCHEME, 2005

Bombay Stock Exchange Limited (the Exchange) is the oldest stock exchange in Asia with a rich heritage. Pop larly known as !BSE!" it was established as !#he $ati%e Share & Stock Brokers Association! in 1'(). *t is the +irst stock exchange in the co ntry to obtain permanent recognition in 1,)- +rom the .o%ernment o+ *ndia nder the Sec rities /ontracts (0eg lation) Act" 1,)-.#he Exchange1s pi%otal and pre2 eminent role in the de%elopment o+ the *ndian capital market is widely recogni3ed and its index" SE$SE4" is tracked worldwide. Earlier an Association o+ Persons (A5P)" the Exchange is now a dem t ali3ed and corporati%e entity incorporated nder the pro%isions o+ the /ompanies Act" 1,)-" p rs ant to the BSE(/orporatisation and 6em t ali3ation) Scheme" 788) noti+ied by the Sec rities and Exchange Board o+ *ndia (SEB*).Bombay Stock Exchange Limited recei%ed its /erti+icate o+ *ncorporation on 'th A g st" 788) and /erti+icate o+ /ommencement o+ B siness on 17th A g st" 788). #he 16 e 6ate1 +or taking o%er the b siness and operations o+ the BSE" by the Exchange was +ixed +or 1,th A g st" 788)" nder the Scheme. #he Exchange has s cceeded the b siness and operations o+ BSE on going concern basis and its recognition as an Exchange has been contin ed by SEB*. 9ith dem t ali3ation" the trading rights and ownership rights ha%e been de2linked e++ecti%ely addressing concerns regarding percei%ed and real con+licts o+ interest. #he Exchange is pro+essionally managed nder the o%erall direction o+ the Board o+ 6irectors. #he Board comprises eminent pro+essionals" representati%es o+ #rading :embers and the :anaging 6irector o+ the Exchange. #he Board is incl si%e and is designed to bene+it +rom the participation o+ market intermediaries. *n terms o+ organi3ation str ct re" the Board +orm lates larger policy iss es and exercises o%er2all control. #he committees constit ted by the Board are broad2based.

#he day2to2day operations o+ the Exchange are managed by the :anaging 6irector & /E5 and a management team o+ pro+essionals. #he Exchange has a nation2wide reach with a presence in ;1( cities and towns o+ *ndia. #he systems and processes o+ the Exchange are designed to sa+eg ard market integrity and enhance transparency in operations. 6 ring the year 788;2788)" the trading %ol mes on the Exchange showed rob st growth. #he Exchange pro%ides an e++icient and transparent market +or trading in e< ity" debt instr ments and deri%ati%es. #he BSE1s 5n Line #rading System (B5L#) is a proprietary system o+ the Exchange and is BS 7799-2-2002 certi+ied. #he s r%eillance and clearing & settlement + nctions o+ the Exchange are ISO 9001:2000 !"#$%$!&'

LOGO

#he Stock Exchange" : mbai" is now Bombay Stock Exchange Limited. #he Exchange has a new name" and an entirely new perspecti%e. A perspecti%e born o t o+ corporatisation and dem t ali3ation. Bombay Stock Exchange Limited is Asia=s oldest stock exchange. *t carries within itsel+ the depth o+ knowledge o+ capital markets ac< ired since its inception in 1'(). Located in : mbai" the +inancial capital o+ *ndia" it has been the backbone o+ the co ntry=s capital markets. As a corporate entity" o r new identity re+lects o r new perspecti%e. Smoother" seamless" and e++icient. 9hiche%er way yo look at it.

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STOCK EXCHANGE
S#5/? E4/@A$.E is an organi3ed market place" either corporation or m t al organi3ation" where members o+ the organi3ation gather to trade company stocks or other sec rities. Stock Exchange also +acilitates +or the iss e and redemption o+ sec rities and other +inancial instr ments incl ding the payment o+ income and di%idends. #he trade on an exchange is only by members and stock broker who ha%e a seat on the exchange. Some o+ the Stock Exchanges are --$ew Aork Stock Exchange ($ASE) 22$ational Stock Exchange ($SE) 22Bombay Stock Exchange (BSE) 220egional Stock Exchange (0SE) Stock Exchange being a %ery %ast topic" we are +oc sing on B5:BAA S#5/? E4/@A$.E (BSE).

BOMBA( STOCK EXCHANGE (BSE)

#he Bombay Stock Exchange Limited" (+ormerly" the Stock Exchange" : mbaiB pop larly called as BSE) is the oldest Stock Exchange in Asia with a rich heritage. *t is located at 6alal Street" : mbai" *ndia. BSE was established in 1'() as C#he $ati%e Share & Stock BrokersD. *t was the +irst Stock Exchange in the co ntry to obtain permanent recognition in 1,)- +rom #he .o%ernment o+ *ndia nder #he Sec rities /ontracts (0eg lation) Act 1,)-. #here are aro nd >)88 *ndian companies listed with Stock Exchange and has a signi+icant trading %ol me. #he Exchange is pro+essionally managed nder the o%er all direction o+ the Board 5+ 6irectors. #he Board comprises eminent pro+essional" representati%e o+ #rading :embers and the :anaging 6irectors o+ the Exchange. #he Board is incl si%e & is designed to bene+it +rom the participation o+ market intermediaries. As o+ E ly =8)" the market /apitali3ation o+ BSE was abo t 0s.78 #rillion (FS G;-- Billion). As o+ 788)" it is among the +i%e biggest Stock Exchanges in the world in terms o+ transactions %ol me. Along with $SE" the companies listed on BSE ha%e a combined market /apitali3ation o+ FS G17).) Billion.

NEED )OR BSE

BSE is one o+ the +actors *ndian Economy depends pon. BSE has played a maHor role in the de%elopment o+ the co ntry. #hro gh BSE" Ioreign *n%estors ha%e in%ested in *ndia. 6 e to inward +low o+ +oreign c rrency the" the *ndian economy ha%e started showing the pward trend towards the de%elopment o+ the co ntry. BSE pro%ides employment +or many people. #rading in BSE is also a b siness +or a +ew" their +amily income depends on it" that is the reason why when scandals occ r in the stock market it not only a++ects the companies listed b t also a++ects many +amilies. *n the +ew extreme cases" it is obser%ed that the bread winner o+ a +amily tends to s icide d e to the losses occ rred. *n most o+ maHor ind strial cities all o%er the world" where the b sinesses were e%ol%ing and re< ired in%estment capital to grow and thri%e" stock exchanges acted as the inter+ace between S ppliers and /ons mers o+ capital. 5ne o+ the key ad%antages o+ the stock exchanges is that they are e++icient medi m +or raising reso rces and channeling sa%ings +rom the general p blic by the way o+ iss e o+ E< ity J 6ebt /apital by Hoint stock companies which are listed on stock exchanges. $ot to +orget that the taxes and other stat tory charges paid by BSE are s bstantial and make a si3eable contrib tion to the .o%ernment exche< er (Iinancial reso rcesB + nds). Ior example" transactions on the stock exchanges are s bHect to stamp d ties" which is paid to the State .o%ernment. #he ann al re%en e +rom this so rce ranges +rom 0s () K 188 crores

9ith the opening p o+ the +inancial markets to Ioreign *n%estors a n mber o+ +oreign instit tional in%estors and brokers ha%e established a si3eable presence in : mbai. 9ith no do bt we can clearly state witho t BSE" the *ndian Economy wo ld ha%e been a complete di++erent story. Lario s companies wo ldn=t ha%e been a strong and s ccess+ l as they are today and the brokers and traders wo ld ha%e been elsewhere. BSE is an asset to o r co ntry and its existence plays a %ital role in many people=s li+e who depends on it. *ndeed" BSE has made a maHor contrib tion to the ind strial and economic de%elopment o+ *ndia.

)UNCTIONS O) BSE

#he Stock :arket is a pi%otal instit tion in the +inancial system. A well2ordered stock market per+orms se%eral economic + nctionsM *t ens res the meas re o+ sa+ety and +air dealing *t per+orms an Nact o+ magic= by translating short2term in%estments into long2 term + nds +or companies. *t directs the +low o+ capital in the most pro+itable channels. *t ind ces companies to raise their standard o+ per+ormance. *t o++ers g idance to management abo t the cost o+ capital. M!*+,"! -% S*%!#. */& )*$" D!*0$/1: #he stock exchanges operate nder a reg latory +ramework which seeks to protect the interest o+ in%estors. #he r les" reg lations" and bye2laws o+ a stock exchange" which are appro%ed by the central go%ernment" are meant to ens re that a reasonable meas re o+ sa+ety is pro%ided to in%estors and transactions take place in competiti%e conditions which are +air to all concerned. A # -% M*1$ : :ost o+ the in%estors are interested in short2term in%estments. #he re< irements o+ companies are" howe%er" long2term in nat reOthey re< ire e< ity capital on a more or less permanent basis and debent re capital +or > to 1) years. #hanks to the negotiability and trans+erability o+ sec rities" thro gh the stock market" it is possible +or companies to obtain their long2term re< irements +rom in%estors with short2term hori3ons. 9hile one in%estor is s bstit ted by another when a sec rity is transacted" the company is ass red o+ a%ailability o+ + nds. )0-2 -% C*3$#*0 $/ #4! M-+# P"-%$#*50! C4*//!0+:
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/ompanies which ha%e more pro+itable in%estment opport nities are normally able to raise s bstantial + nds thro gh the stock market" whereas companies which do not ha%e s ch opport nities are normally not able to do so. As a res lt" the stock market +acilitates the direction o+ the +low o+ capital in the most pro+itable channels. I/&, !6!/# #- C-63*/$!+ #- R*$+! #4!$" S#*/&*"& -% P!"%-"6*/ !: 9hen the e< ity" capital o+ a company is listed on a stock exchange" the per+ormance o+ the company is re+lected in the market price o+ the e< ity stock" which is readily a%ailable +or p blic cons mption. P t di++erently" the company=s per+ormance is more N%isible= in the eyes o+ p blic. S ch a p blic expos re normally ind ces companies to raise their standard o+ per+ormance. G,$&*/ ! -% C-+# -% C*3$#*0: #he market %al e o+ the sec rities o+ company are re< ired +or comp ting its cost o+ capital. S ch %al es can be obtained +rom stock market < otations. @ence the stock market o++ers g idance on cost o+ capital.

LISTING O) THE COMPANIES ON STOCK EXCHANGE

P,50$ L$6$#!& C-63*/.' P,50$ L$+#!& C-63*/. P,50$ N-/-0$+#!& C-63*/.

NListed /ompany= means a p blic ltd /o which is 22Listed on any one or more recogni3ed stock exchanges in *ndia. 22Sec rities (sharesM debent res) o+ s ch company are traded on s ch stock exchanges. NFnlisted company= there+ore means a company whose sec rities are not listed on any o+ recogni3ed stock exchanges in *ndia.

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74. C-63*/$!+ 1!# L$+#!& 2$#4 S#- 8 E9 4*/1!: /ompanies get listed with Stock Exchange +or +ollowing reasonsM 22Sec rities are +reely trans+erable. 22Easy li< idity o+ sec rities. 22Easy a%ailability o+ prices o+ sec rities. 220ep tation" *mage" .oodwill. 22P blic awareness. 22:ore transparency. 22@elps in obtaining loans +rom BanksJ*nstit tions. 22@elps in marketing its Prod cts.

*n order to list sec rities o+ a company & get its shares traded on any recogni3ed stock exchanges" the P blic Ltd /ompany may either come o t wit ha p blic iss e (i.e. to o++er + rther sec rities to p blic) or make an o++er +or sale o+ existing sec rities to p blic. #his can be done by iss ing o+ Prospect s & /omplying with all #he Pro%inces o+ /ompany Act 1,)-. Each stock exchange has its own criteria +or listing sec rities which sho ld also be met. EgM *+ company intends to get listed its sec rities in Bombay Stock Exchange" : mbai post iss e capital (paid p capital a+ter proposed p blic iss e) o+ s ch companies sho ld be 0s. 18 /rores atleast. #he /ompany enters into a listing agreement with concerned stock exchange & on receipt o+ permission +rom concerned Stock Exchange" company is listed and sec rities are therea+ter traded on s ch stock exchange.
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TRADING ; SETTLEMENT
6emat Acco nt is a comp lsory Acco nt +or traders who want to trade in stock market. #his acco nt is mainly sed +or b ying and selling o+ shares. T"*&$/1: Each Stock Exchange has listed and permitted sec rities that are traded on it. #here are two ways o+ organi3ing the trading acti%ity.

O3!/ O,# ". S.+#!6 Fnder the open o tcry system traders sho t and resort to signals on the trading +loor o+ the exchange which consists o+ se%eral Nnotional= trading posts +or di++erent sec rities. A member (or his representati%e) wishing to b y or sell a certain sec rity" reaches the trading post where the sec rity is traded. @ere" he comes in contact with others interested in transacting in that sec rity. B yers make their bid and sellers make their o++ers and bargains are closed at m t ally agreed2 pon prices. *n stock where Hobbing is done" the Hobber plays an important role. @e stands ready to b y or sell on his acco nt. @e < otes his bid (b ying) and ask (selling) prices. @e pro%ides some stability and contin ity to the market.

S "!!/ B*+!& S.+#!6

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*n the screen2based system the trading ring is replaced by the comp ter screen and distant participants can trade with each other thro gh the comp ter network. A large screen based trading system (a) enhances the in+ormational e++iciency o+ the market as more participants trade at a +aster speedB (b) permits the market participants to get a + ll %iew o+ the market" which increases their con+idence in the marketB and (c) establishes transparent a dit trails. S!##0!6!/#: #he settlement o+ transactions is done on a settlement period basis. Earlier" the settlement period on the *ndian Stock Exchanges was ( days" b t now it is #P1 settlement. #P1 incl des the day o+ trade and an additional day. 6 ring a settlement period" b ying and selling transactions in a partic lar sec rity can be s< ared p. S< are o++ is a same day settlement cycle. At the end o+ settlement period" transactions are settled on net basis. Since the settlement period sed to be ( days and the settlement is +or the net position" most o+ the transactions are s< ared within the settlement period. /learly these transactions are moti%ated by a desire to pro+it +rom price %ariations within the settlement period. #raditionally" trades ha%e been settled by physical deli%ery. #his means that the sec rities ha%e to physically mo%e +rom the seller to the seller=s broker" +rom the seller=s broker to the b yer=s broker (thro gh the clearing ho se o+ the exchange or directly)" and +rom the b yer=s broker to the b yer. I rther the b yer has to lodge the sec rities with the trans+er agents o+ the company and the process o+ the trans+er may take one to three months. #his leads to high paperwork cost and creates bad paper risks. #o mitigate the cost and the risks associated with the physical deli%ery" settlement in the de%eloped sec rities market is mainly thro gh electronic
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deli%ery +acilitated by depositories. A Ndepository= is an instit tion which immobili3es physical certi+icates (o+ sec rities) and e++ect trans+ers o+ ownership by electronic book entry. A beginning in the direction o+ electronic deli%ery has been made in *ndia with the establishment o+ the $ational Sec rities 6epository Limited ($S6L)" *ndia=s +irst depository" in 1,,-. As $S6L expands its operations and as new depositories come into being" settlement will progressi%ely be done more by electronic deli%ery and less by physical deli%ery.

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IN<ESTMENT
*n%estment means the se o+ money +or the p rpose o+ making more money" to gain income or increase capital" or both.

Short #erm *n%estment Long #erm *n%estment

S4-"# T!"6 I/=!+#6!/#: *t is more risky A s ccess+ l short term trading mindset instead re< ires iron discipline" intense +oc s and steely de%otion. Short term trading can be di%ided in > sections 6ay #rading Swing #rading Position #rading D*. T"*&$/1 6ay traders b y and sell stocks thro gho t the day in the hope that the price o+ the stocks will +l ct ate in %al e d ring the day" allowing them to earn < ick pro+its. A day trader will hold a stock anywhere +rom a +ew seconds to +ew ho rs" b t will always sell all o+ those stocks close o+ the day. #he day trader will there+ore not own any position at the close o+ the each day" and there is o%ernight risk. #he obHecti%e o+ day trading is to < ickly get in and o t o+ any partic lar stock +or pro+its anywhere +rom +ew cents to se%eral points per share

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on an intra2day basis. 6ay trading can be + rther s b2di%ided into n mber o+ styles" incl ding. ScalpersM #his style o+ day trading in%ol%es the rapid and repeated b ying and selling o+ a large %ol me o+ stocks within seconds or min tes. #he obHecti%e is to earn a small per share pro+it on each transaction while minimi3ing the risk. :oment m #radersM #his style o+ day trading in%ol%es identi+ying and trading stocks that are in a mo%ing pattern d ring the day" in an attempt to b y stocks at bottoms and sell at tops. S2$/1 T"*&$/1 #he principal di++erence between day trading and swing trading is that swing traders will normally ha%e a slightly longer time hori3on than day traders +or holding a position in a stock. As is the case with day traders" swing traders also attempt to predict the short term +l ct ation in a stock=s price. @owe%er swing traders are willing to hold the stocks +or more than one day" i+ necessary" to gi%e to stock price some time to mo%e or to capt re additional moment m in the stock=s price. Swing traders will generally hold on to their stock positions anywhere +rom a +ew ho rs to se%eral days. Swing trading has the capability o+ pro%iding higher ret rns than day trading. @owe%er" nlike day traders who li< idate their positions at the end o+ each day" swing traders ass me o%ernight risk. #here are some signi+icant risks in carrying positions o%ernight. Ior example news e%ents and earnings warnings anno nced a+ter the closing bell can res lt in large" nexpected and possibly ad%erse changes to a stock1s price

P-+$#$-/ T"*&$/1
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Position trading is similar to swing trading" b t with a longer time hori3on. Position traders hold stocks +or a time period anywhere +rom one day to se%eral weeks or months. #hese traders seek to identi+y stocks where the technical trends s ggest a possible large mo%ement in price is likely to occ r" b t which may not be + lly played o t +or se%eral weeks or months. L-/1 T!"6 I/=!+#6!/#: A s ccess+ l long term trading mindset re< ires" abo%e all" patience and perse%erance. #hese are more di++ic lt attrib tes to de%elop in the a%erage trader. #oo o+ten the a%erage short2term trader s cc mbs to the markets l re and de%elops a +rantic" get2it2now mindset belie%ing e%ery price blip represents a trading opport nity. As this attit de is +anned by the media and brokerage ind stry" more and more long term traders ha%e become aggressi%e swing traders and swing traders become rabid day traders 2 more o+ten than not with disastro s conse< ences. Long term trading res lts in less trades with +ewer mistakes and lower commission and slippage costs beca se o%ertrading is one o+ the biggest so rces o+ losses +acing both new and established traders. 9hy is this soQ 5b%io sly" more trades mean more commissions and more slippage. Iew short2term traders reali3e" howe%er" that their total commission and slippage costs in any year o+ten exceed their total losses +or the year. *n other words" many losing short2 term traders wo ld ha%e act ally made money on an ann al basis had they not inc rred the exorbitant commission and slippage costs o+ trading thro gho t the year. Iewer trades mean +ewer mistakes. Long term trading nlike short term re< ires dramatically red ced time +or analysis and trading. *+ yo are trading sing weekly data" only one to two ho rs
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each weekend are re< ired to implement a sophisticated long term trading system +or 71 or more commodities. #his incl des the time to completely download yo r < otes and pdate yo r data +iles" %eri+y which are the correct months to trade +or each commodity" +ig re o t i+ yo ha%e any positions to rollo%er" generate yo r trading signals" and write down orders to yo r broker. 5n the contrary a typical s ccess+ l day trader literally becomes a sla%e to their < ote machines d ring market ho rs.

INDICES

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Indices: Sensex For the period :From year 2001 to

P"$ ! >E*"/$/1+

year 2007
P"$ !> B--8 =*0,! D$=$&!/& ($!0&

D*#! (!*" 2001 (!*" 2002 (!*" 200? (!*" 200A (!*" 2005 (!*" 200@ (!*" 2007

O3!/

H$14

L-2

C0-+!

?,990'@5

A,A@2'11

2,59A'B7

?,2@2'??

1(.-8

7.)1

1.'>

?,2@2'01

?,75B'27

2,B2B'AB

?,?77'2B

1).77

7.>8

7.1;

?,?B?'B5

5,920'7@

2,90A'AA

5,B?B'9@

1).87

7.;,

7.1;

5,B72'AB

@,@17'15

A,227'50

@,@02'@9

1(.7-

>.7'

7.81

@,@2@'A9

9,AA2'9B 1A,0?5'? 0 1B,?27'A 2

@,0@9'??

9,?97'9? 1?,7B@'9 1 1B,2B0'2 A

1-.71

>.,;

1.)'

9,A22'A9 1?,B27'7 7

B,799'01 12,?1@'1 0

78.1'

;.()

1.>)

71.1(

).8-

1.1-

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)ACTORS A))ECTING BSE

#here are %ario s +actors that a++ects BSEM THE KETAN PAREKH SCAM ?etan Parekh was a grad ate +rom @0 /ollege and /A by pro+ession. ?etan Parekh=s scam was o+ten re+erred to as the one2man army or Penta+o r B ll. #he 1(-2point Sensex crash on :arch 1" 7881 came as a maHor shock +or the .o%ernment o+ *ndia" the stock markets and the in%estors alike #his s dden crash in the stock markets prompted the Sec rities Exchange Board o+ *ndia (SEB*) to la nch immediate in%estigations into the %olatility o+ stock markets. #he scam shook the in%estor1s con+idence in the o%erall + nctioning o+ the stock markets. By the end o+ :arch 7881" at least eight people were reported to ha%e committed s icide and h ndreds o+ in%estors were dri%en to the brink o+ bankr ptcy. #he +irst arrest in the scam was o+ the noted b ll" ?etan Parekh (?P)" on :arch >8" 7881" by the /entral B rea o+ *n%estigation (/B*). Soon" reports abo nded as to how ?P had single handedly ca sed one o+ the biggest scams in the history o+ *ndian +inancial markets. @e was charged with de+ra ding Bank o+ *ndia (Bo*) o+ abo t G>8 million among other charges. ?P1s arrest was +ollowed by yet another panic r n on the bo rses and the Sensex +ell by 1;( points. By this time" the scam had become the 1talk o+ the nation"1 with intensi%e media co%erage and nprecedented p blic o tcry. Bank o+ *ndia along with P nHab $ational Bank and SB* were at the recei%ing end. :adha%ap ra Bank and /lassic /ooperati%e Bank are the others a++ected. ?etan Parekh owes aro nd 0s1.>bn to the Bank o+ *ndia ?P=s scam was one o+ the maHor scam in *ndia a+ter H*"+4*& M!4#* which lost the con+idence o+ in%estors in in%esting in share market. ?P=s scam is also regarded as one mans army scam.

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(5) )OREIGN INSTITUTIONAL IN<ESTORS ()II) Ioreign in%estment re+ers to in%estments made by residents o+ a co ntry in another co ntry=s +inancial assets and prod ction processes. A+ter the opening p o+ the borders +or capital mo%ement" +oreign in%estments in *ndia ha%e grown enormo sly. *t a++ects the prod cti%ity +actor o+ the bene+iciary or the recei%er co ntry and has the potential to create a ripple e++ect on the balance o+ payments o+ that co ntry. *n de%eloping co ntries like *ndia" +oreign capital helps in increasing the prod cti%ity o+ labor and to b ild p +oreign exchange reser%es to meet the c rrent acco nt de+icit. *t pro%ides a channel thro gh which these co ntries can ha%e access to +oreign capital. Ioreign in%estment can be o+ two +ormsM Ioreign direct in%estment (I6*) and Ioreign port+olio in%estment (IP*).I6* in%ol%es direct prod ction acti%ity and has a medi m to long term in%estment plans. *n contrast the IP* has a short term in%estment hori3on. #hey mostly in%estment in the +inancial markets which consist o+ Ioreign *nstit tional *n%estors (I**s). #hey in%est in domestic +inancial markets like money market" stock market" +oreign exchange market etc. According to :ichael Irenkel and L kas :enkho++" CI**s are bene+icial +or an economy nder speci+ic instit tional conditions. *t is de+ining characteristic o+ an emerging market that these conditions are o+ten not metD. Ioreign instit tional in%estors Nin%estments are %olatile in nat re" and they mostly in%est in the emerging markets. #hey s ally keep in mind the potential o+ a partic lar market to grow. I** has lead a signi+icant impro%ement in *ndia relating to the +low o+ +oreign capital d ring the period o+ post economic re+orms. #he in+low o+ I**
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in%estments has helped the stock market to raise at a greater height according to +inancial analysts. Sensex to ched a new height. *t crossed 188882mark in Ean ary 788-" which was '8(> on $o%ember 7" 788)" and ,>7> in 6ecember 788) I** participation in the *ndian stock market triggers its pward mo%ement" b t" at the same time" increased li< idity thro gh I** in%estment in+low increases %olatility too.

)II+C IMPACT ON THE INDIAN ECONOM('

#he Ashok Lahiri /ommittee 0eport on enco raging I** Ilows (:inistry o+ Iinance" the .o%ernment o+ *ndia) mentions some reasons +or the need o+ I** +lows. I** +lows s pplement and a gment domestic sa%ings and domestic in%estment witho t increasing the +oreign debt o+ o r co ntry. /apital in+lows to the e< ity market increase stock prices lower the cost o+ e< ity capital and enco rage in%estment by *ndian +irms. #he *ndian stock markets are both shallow and narrow and the mo%ement o+ stocks depends on limited n mber o+ stocks. As I**s p rchases and sells these stocks there is a high degree o+ %olatility in the stock markets. *+ any set o+ de%elopment enco rages o t+low o+ capital that will increase the % lnerability o+ the sit ation. #he high degree o+ %olatility can be attrib ted to the +ollowing reasonsM #he increase in in%estment by I**s increases stock indices in t rn increases the stock prices and enco rages + rther in%estments. *n this e%ent when any

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correction takes place the stock prices declines and there will be + ll o t by the I**s in large n mber as earning per share declines. #he I**s manip late the sit ation o+ boom in s ch a manner that they wait till the index raises p to a certain height and exit at an appropriate time. #his tendency increases the %olatility + rther. So e%en tho gh the port+olio in%estment by I**s increases the +low o+ money in the economic system" it may create problems o+ in+lation.

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TRANS)ORMATION O) THE STOCK EXCHANGE, MUMBAI TO BSE LTD'

#he change in the name o+ Asia1s oldest stock exchange" +rom the Stock Exchange" : mbai to the Bombay Stock Exchange Ltd." (BSE Ltd.) is o+ more than cosmetic signi+icance. Along with the change in name comes a new perspecti%e" one bro ght abo t by a comprehensi%e change in its ownership and management. Fntil now" the BSE like most other exchanges in *ndia was owned and managed by brokers" who also had the sole right to trade in the exchanges. /on+licts o+ interest were bo nd to arise in s ch sit ations. Fntil the ad%ent o+ the $ational Stock Exchange in 1,,;" the BSE was *ndia1s pre2eminent exchange" acco nting +or an o%erwhelmingly large proportion o+ the share market transactions o+ the co ntry. /ompanies where%er located were ad%ised to seek a listing o+ their shares on the BSE so that they co ld ha%e access to its large reser%oir o+ capital and in%estor base. Legally speaking" it was eno gh i+ they listed their shares on any one o+ the regional stock exchanges" closest to their registered o++ice. #his last r le" like so many others connected with the sec rities market" had to be discarded in the wake o+ the sweeping changes in the +inancial markets since the 1,,8s. Perceptions o+ both in%estors and reg lators changed dramatically +orcing the stock exchanges to o%erha l themsel%es. A series o+ sec rities scams thro gh the 1,,8s in which brokers were in%ariably held acco ntable" the inability o+ the broker2dominated exchanges to check mal+easance" and a %astly expanding role +or the capital market in the national economy necessitated a thoro gh re%iew o+ the age2old stock market str ct re. *n the new dem t alised and corporatised exchanges that came abo t as part o+ a maHor capital market re+orm a time2bo nd program +or 18 other exchanges has since been anno nced O the right to trade is segregated +rom the right to own and manage the exchange. #he transition is not going to be easy as it in%ol%es the imparting o+ a m ch greater degree o+ pro+essionalism. Stock market
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pro+essionals +rom o tside the broking comm nity are reportedly in short s pply. By +ar the biggest nknown +actor relates to the + t re ownership o+ the exchange. Brokers will cede control and in%estors incl ding retail ones will hold a s bstantial portion o+ the exchange1s e< ity. Apart +rom this being totally new to *ndia" it does raise the possibility o+ other con+licts o+ interest incl ding the one connected with the listing o+ its own shares.

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CONCLUSION
9ith the increasing .lobali3ation" the Stock Exchange has tremendo sly a++ected the +inancial conditions o+ *ndia. #he stock markets o+ the + t re will ha%e a rede+ined p rpose and rein%ented architect re d e to the ad%ent and widespread se o+ technology. *n+ormation and stock price < otations are a%ailable almost instantaneo sly" and" more importantly" in%estors can act on this data by exec ting a trade +rom anywhere at anytime. #his new market will bring bene+its to in%estors" the listed companies" and the economies o+ the company. #rading will become cheaper" +aster and settlement will be simpler wit red ced risk. 0aising capital +or companies will become easier" thereby contrib ting directly to the Economic .rowth. Already" BSE has shown its proacti%e response by increasingly sing leading edge to technologies to e++ecti%ely compete in the global en%ironment. *n the not too distant + t re" once + ll capital acco nt con%ertibility is permitted in *ndia" one co ld well witness an expansion o+ trading %ol mes and its res ltant economic bene+its to the thri%ing and e%er yo ng metropolis o+ : mbai. *nspite o+ all these positi%e predictions" the + t re o+ Stock Exchanges is likely to be ncertain and e%en their s r%i%al is a maHor < estion mark.

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BIBLIOGRAPH(
#he in+ormation pro%ided in this proHect ha%e been taken +rom the +ollowing so rcesM 9EBS*#ES www.indiain+oline.com www.co nterc rrents.org www.ic+ai.org www.bseindia.com www.moneycontrol.com www.indlaw.com www.sebi.go%.in www.bombay+irst.org

B55?S I ndamentals o+ Iinancial :anagement KP0ASA$$A /@A$60A Port+olio 5rgani3er (#he */IA* Fni%ersity Press) K EditionM 6ec=8)" :ar=8-" :ay=8-" E n=8-

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