INDUSTRY PROFILE

STOCK MARKET

Stock Market represents the Secondary Market, where existing Securities, Shares and
Debentures are traded; A Stock Exchange provides an organized mechanism for purchase and
sales of the Securities. At present, there are 24 Stock Exchanges in our country. The investors
want liquidity for their investments. Stock Exchange provides a place, where Securities of
different companies can be purchased and sold.

Introduction to Stock market trading:

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 imposed limits 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, as well as on fraud
resulting in improved operational efficiency. SBTS 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.

STOCK EXCHANGE

A stock exchange, (formerly a securities exchange) is a corporation or mutual

organization which provides "trading" facilities for stock brokers and traders, to trade stocks and
other securities. Stock exchanges also provide facilities for the issue and redemption of securities
as well as other financial instruments and capital events including the payment of income and
dividends. The securities traded on a stock exchange includes: shares issued by companies, unit
trusts, derivatives, pooled investment products and bonds. To be able to trade a security on a
certain stock exchange, it has to be listed there. Usually there is a central location at least for
recordkeeping, but trade is less and less linked to such a physical place, as modern markets are
electronic networks, which gives them advantages of speed and cost of transactions. Trade on an
exchange is by members only. The initial offering of stocks and bonds to investors is by
definition done in the primary market and subsequent trading is done in the secondary market.

Securities Includes:

• Shares, scrip’s, Stocks, Bonds, Debentures stock or other marketable securities of a like
nature in or of any incorporated company or other body corporate;
• Government securities; and
• Rights or interest in securities.

HISTORY OF STOCK EXCHANGES

The history of stock exchanges can be traced to 12th century in France, when the first
brokers are believed to have developed, trading in debt and government securities. Unofficial
share markets existed across Europe through the 1600’s, became the first official stock exchange
when it began trading shares of the Dutch East India Company. These were the first company
shares ever issued

The origin of stock exchange in India can be to the latter half of 10th Century. After the American
civil war (1860-61) due to the share mania of the public the number of brokers dealing in the
share increased. July 9th 1875: Native brokers from Bombay started the native share and stock
brokers association with 318 members on the list.

There were many changes and re -organizations and amalgamations till 1969, during
which the “The New York Stock Exchange” was formed with a maximum membership limited
to 1100.
 The origin of Stock Exchanges in India is traceable in the latter half of the 19th century.
At that time, Capital Market dealings were limited to loan stock transactions of the East India
Company. By 1930, Stock Market took a turn with the emergency of some corporate stock and
development of textile mills that resulted due to the America civil war, which gave Indian
businessmen a global chance of quick profiteering by increasing exports of cotton to America
and Europe at exorbitant prices. The boom for Trade led to the establishment of the Stock
Exchange in Bombay, Ahmadabad, and Calcutta.

STOCK EXCHANGE STANDS FOR

The term “STOCK EXCHANGES” implies is evident from the following feature of an
exchange.

S - Securities provider for investor

T - Tax benefits, planning and examples
O - Optimum return of investments
C - Caution approach
K - Knowledge of Market
E - Eligibility for accruals
X - Exchange of securities transacted
C - Cyclopedia of listed companies
H - High yield
A - Authentic information
N - New entrepreneurs encouraged
G - Guidance to investors and companies
E - Equity cult

STOCK EXCHANGES IN INDIA

In 1860, the exchange flourished with 60 brokers. In fact the 'Share Mania' in India began
with the outbreak of American Civil war.
At the end of the war in 1874, the market found a place in a street (now called Dalal Street). In
1887, "Native Share and Stock Brokers' Association" was established.

The next Stock Exchange, which emerged in the country, was ‘Ahmadabad Share and
Stock Brokers Association’ which was established in 1894. The third Stock Exchange was set
up at Calcutta in the year, 1908. Though some Stock Exchanges were set up before the
Independence, there was no All India Legislation to regulate their working.

To rectify this situation and to regulate the working of Stock Exchanges in the country,
the Securities Contracts (Regulation) Act was passed in 1956.

At present, there are 24 Recognized Stock Exchanges (BSE, NSE and Regional Stock
Exchanges) in India.

• Bombay Stock Exchange –1875

• Ahmadabad Stock Exchange--1957

• Calcutta Stock Exchange association limited – 1957.

• Delhi Stock Exchange – 1957

• Madras Stock Exchange -1957

• Indore Stock brokers association – 1958

• Bangalore Stock Exchange – 1963

• Hyderabad Stock Exchange- 1963

• Cochin Stock Exchange- 1978

• Pune Stock Exchange – 1982

• U.P Stock Exchange association limited – 1982

• Ludhiana Stock Exchange association limited -1983

• Jaipur Stock Exchange association limited – 1983

• Gauhati Stock Exchange limited – 1984

• Mangalore Stock Exchange limited- 1985

 • Magadh Stock Exchange limited, Patna – 1986

• Bhubaneswar Stock Exchange association limited- 1989

• overthe Counter Exchange of India, Bombay- 1989

• Saurashtra Kutch Stock Exchange limited – 1990

• Vadodara Stock Exchange limited- 1991

• Coimbatore Stock Exchange limited- 1991

• The Meerut Stock Exchange limited – 1991

• National Stock Exchange limited – 1992

• Inter-connected Stock Exchange of India—1998

Names & Locations of various Stock Exchanges in India are:

 Bombay Stock Exchange (BSE) Ltd.,- Mumbai

 National Stock Exchange of India (NSE) Ltd., - Mumbai

 The Ahmadabad Stock Exchange., - Ahmadabad

 Bangalore Stock Exchange Ltd., - Bangalore

 Bhubaneswar Stock Exchange Association Ltd., - Bhubaneswar

 The Calcutta Stock Exchange Association Ltd., - Kolkata

 Cochin Stock Exchange Ltd.,- Kochi

 Coimbatore Stock Exchange Ltd.,- Coimbatore

 The Delhi Stock Exchange Association Limited - New Delhi

 The Guwahati Stock Exchange - Guwahati

 Hyderabad Stock Exchange Ltd., - Hyderabad
 Inter-connected Stock Exchange of India - Mumbai
 Jaipur Stock Exchange Limited- Jaipur
 The Ludhiana Stock Exchange Association Ltd., - Ludhiana
  Madhya Pradesh Stock Exchange Ltd., - Indore
 Madras Stock Exchange Ltd., - Chennai
 Mangalore Stock Exchange Ltd., - Mangalore
 Meerut Stock Exchange Ltd., - Meerut
 overthe Counter (OTC) Exchange of India- Mumbai
 Pune Stock Exchange Ltd., - Pune
 Saurashtra-Kutch Stock Exchange Ltd., - Rajkot
 The Uttar Pradesh Stock Exchange Ass. Ltd., - Kanpur
 Vadodara Stock Exchange Ltd., - Baroda
 The Magadh Stock Exchange Association- Patna

Securities and exchange board of India (SEBI):

SEBI was setup as an autonomous regulatory authority by the government of India “to
protect the interest of investors in securities and to promote the development of and to regulate
the securities market”. It is empowered by two acts namely the SEBI Act 1992 and securities
contract (regulation) Act 1956.

SEBI has come into force from January 30, 1992.under the provision of Act; it shall be
the duty of SEBI

(a) To protect the interest of investors in securities.

(b) Promote the development of the securities market.

(c) Regulate the securities market.

FACTORS INFLUENCING PRICES ON STOCK EXCHANGES:

• Financial Position of the company

• Demand and supply position of scrip’s

• Role of financial institutions

 • Lending rates

• Trade Cycles

• Speculation activities

• Government Control

CHARACTERISTICS OF STOCK EXCHANGES

• It is a place where securities are purchased and sold. A stock exchange is an association
of persons whether incorporated or not.

• Trading in stock exchanges are strictly regulated by the rules and regulations prescribed
by Stock Exchange Board of India (SEBI)

• Both genuine investors and speculators buy and sell shares in a Stock Exchange
Securities of corporation, trusts, Government, Municipal corporations etc., are traded at
stock exchanges.

FUNCTIONS OF STOCK EXCHANGE

• Ensures liquidity of capital

• Continuous market for securities

• The investors can evaluate the worth of their shares from the prices quoted at different
Stock Exchanges for those Securities

• Mobilizing surplus savings

• Helpful in raising new capital

• Platform for public debt

• Clearing house of business information and Safety in dealings

PROCEDURE FOR DEALING AT STOCK EXCHANGES:

The buying and selling at stock exchanges is not allowed to outsides. They have to approach
brokers who are members of the stock exchange. The following are the things that are involved
in dealing with Stock Exchanges:

1. Selection of a Broker:

The first thing to do is to select a broker through whom the purchase or sales is to be made.

2. Placing an Order:

After selecting the broker, the client places an order for purchase or sale of securities.

3. Making the contract:

The authorized clerk of the broker goes to the concerned post and expresses his intention
to buy and sell securities. A deal is struck when other party agrees.

4. Contract note:

The buying and selling brokers prepare notes after their mutual consent next day.

5. Settlement:

The spot dealings are settled there in full. The settlement for ready delivery and forward
contacts is done with a different procedure.

Market Types

The Capital Market system has four types of markets.

1. Normal Market:
 Normal market consists of various book types where in orders are Segregated as Regular
Lot Orders, Special Term Orders, Negotiated Trade Orders and Stop Loss Orders depending on
their order attributes.

2. Odd Lot Market:

The odd lot market facility is used for the Limited Physical Market.

3. Ret debt Market:

The RETDEBT market facility on the NEAT system of Capital Market Segment is used
for transactions in Retail Debt Market session. Trading in Retail Detail Market takes place in the
same manner as in equities (capital market) segment.

4. Auction Market:

In the Auction market, auctions are initiated by the Exchange on behalf of trading
members for settlement related reasons.

STOCK MARKET INTERMEDIARIES

Client Brokers:

They do simple brokering between buyers and sellers and earn only brokerage for their
services from the clients.

Floor Brokers:

They are authorized clerks and sub brokers who enter the trading floor and execute orders
for the clients or for members.

Jobbers and Market Makers:

 Jobbers/Market Makers are the members, who are ready to buy and sell simultaneously in
selected scrip’s, offering bid and offer rates for the brokers and sub-brokers on the trading floor
and earning profit through the margin between buying and selling rates

Arbitrageurs:

They are members who do inter market deals for a profit through differences in prices as
between markets.

Badla Financiers:

They are members who finance carry forward deals in specified group for a return in the form of
interest, called Badla Rate. They lend money or shares for the brokers who, over-buy or over-
sell respectively at the time of settlement. Badla is a carry forward facility from one settlement
to another without taking a delivery up to a maximum period of 90 days at a time, now reduced
to 7-15 days.

TYPES OF SPECULATORS

There are different types of speculators who are active on Stock Exchanges in India.
They are:

Bull:

A Bull (Tejiwala) is an operator who expects prices to rise in future and sells securities in
the future. A bull tends to throw his victims up in the air.

Bear:

A bear (Mandiwala) speculator expects prices to fall in future and sells securities at
present with a view to purchase them at lower prices in future. Just as bear presses, it’s victims
down to the ground.
Stag:

A Stag is a cautious speculator in the stock exchange. He applies for shares in new
companies and expects to sell them at premium if he gets an allotment. He sells the shares
before being called to pay the allotment money.

Lame duck:

When a bear finds it difficult to fulfill his commitment, he is called struggling like a lame
duck.

SECONDARY MARKET (STOCK EXCHANGES)

The stock exchanges are the secondary markets. They serve not only the private sector
but also the joint and public sectors by providing a facility for the transferability of shares held
by the public. Thus the stock exchange is a medium of transfer of resources for the securities,
which have been already issued in primary market.

The brokers, the investors, mutual funds, and the financial institutions are the important
constituents of the secondary market.

According to the Securities Contract (Regulation) Act 1956, the Stock Exchange can be
defined as “An association, organization or body of individuals, whether incorporated or not,
established for the purpose of assisting, regulating business in buying, selling and dealing in
securities”.

FUNCTIONS OF STOCK EXCHANGE:

• Ensure liquidity of capital

• Continues market for Securities

• Evaluation of Securities

• Mobilizing surplus savings

• Helpful in raising new capital

 • Safety in dealings

• Listing of securities

• Platform for public debt

• Centre for business information

SERVICES OF STOCK EXCHANGE:

There is a strong need for the growth of capital market and stock exchanges in any
country. The stock exchange operations in India have shown an increasing tendency during the
period under the review. The stock exchanges have increased in India to provided valuable
services to the community.

They are:

A) SERVICES TO THE NATION

• It leads to economic development of the Nation.

• They serve as an agency of the capital formation.

• Stock exchanges divert the savings towards productive channels.

• They provide liquidity and continuous market facility.

• They provide a forum for raising public debt for national important projects.

B) SERVICES TO THE INVESTORS

• It provides ready marketability of securities

• It ensures safe and fair dealings in securities

• It provides the facilities for quick disposal of securities

• It helps to educate the public by various methods

• They provide information about the listed companies

C) SERVICES TO THE CORPORATE SECTORS

• Helps in raising capital from public

• Listing of securities is a symbol of credit worthiness of the company

• Helps to new companies