STUDY MATERIAL FOR Financial Market and Institutions

Financial institution

In financial economics, a financial institution is an institution that provides financial services for its
clients or members. Probably the most important financial service provided by financial institutions is
acting as financial intermediaries. Most financial institutions are highly regulated by government bodies.
Broadly speaking, there are three major types of financial institution[1]:

1. Deposit-taking institutions that accept and manage deposits and make loans (this category
includes banks, credit unions, trust companies, and mortgage loan companies);
2. Insurance companies and pension funds; and
3. Brokers, underwriters and investment funds.

1. Commercial bank

Commercial bank is a type of financial intermediary and a type of bank. Commercial

banking is also known as business banking. It is a bank that provides checking accounts,
savings accounts, and money market accounts and that accepts time deposits.

After the Great Depression, the U.S. Congress required that banks engage only in banking
activities, whereas investment banks were limited to capital market activities. As the two
no longer have to be under separate ownership under U.S. law, some use the term
"commercial bank" to refer to a bank or a division of a bank primarily dealing with deposits
and loans from corporations or large businesses. In some other jurisdictions, the strict
separation of investment and commercial banking never applied. Commercial banking
may also be seen as distinct from retail banking, which involves the provision of financial
services direct to consumers. Many banks offer both commercial and retail banking
services.

The role of commercial banks

Commercial banks engage in the following activities:

• processing of payments by way of telegraphic transfer, EFTPOS, internet banking, or other

means
• issuing bank drafts and bank cheques
• accepting money on term deposit
• lending money by overdraft, installment loan, or other means
• providing documentary and standby letter of credit, guarantees, performance bonds, securities
underwriting commitments and other forms of off balance sheet exposures
• safekeeping of documents and other items in safe deposit boxes
• sale, distribution or brokerage, with or without advice, of insurance, unit trusts and similar
financial products as a “financial supermarket”
• traditionally, large commercial banks also underwrite bonds, and make markets in currency,
interest rates, and credit-related securities, but today large commercial banks usually have an
investment bank arm that is involved in the mentioned activities.

Function of commercial banks

Financial institutions provide service as intermediaries of the capital and debt markets. They are
responsible for transferring funds from investors to companies, in need of those funds. The presence of
financial institutions facilitate the flow of money through the economy. To do so, savings are pooled to
mitigate the risk brought to provide funds for loans. Such is the primary means for depository
institutions to develop revenue. Should the yield curve become inverse, firms in this arena will offer
additional fee-generating services including securities underwriting, and prime brokerage.

2. National Bank for Agriculture and Rural Development

(NABARD)

National Bank for Agriculture and Rural Development (NABARD) is an apex development bank in
India. It has been accredited with "matters concerning policy, planning and operations in the field of
credit for agriculture and other economic activities in rural areas in India".

History

NABARD was established by an act of Parliament on 12 July 1982 to implement the National Bank for
Agriculture and Rural Development Act 1981. It replaced the Agricultural Credit Department (ACD)
and Rural Planning and Credit Cell (RPCC) of Reserve Bank of India, and Agricultural Refinance and
Development Corporation (ARDC). It is one of the premeire agency to provide credit in rural areas.

Role

NABARD:

1. serves as an apex financing agency for the institutions providing investment and
production credit for promoting the various developmental activities in rural areas
2. takes measures towards institution building for improving absorptive capacity of the
credit delivery system, including monitoring, formulation of rehabilitation schemes,
restructuring of credit institutions, training of personnel, etc.
3. co-ordinates the rural financing activities of all institutions engaged in
developmental work at the field level and maintains liaison with Government of
India, State Governments, Reserve Bank of India (RBI) and other national level
institutions concerned with policy formulation
4. undertakes monitoring and evaluation of projects refinanced by it.

NABARD's refinance is available to State Co-operative Agriculture and Rural Development Banks
(SCARDBs), State Co-operative Banks (SCBs), Regional Rural Banks (RRBs), Commercial Banks
(CBs) and other financial institutions approved by RBI. While the ultimate beneficiaries of investment
credit can be individuals, partnership concerns, companies, State-owned corporations or co-operative
societies, production credit is generally given to individuals.

NABARD has its head office at Mumbai, India

NABARD operates throughout the country through its 28 Regional Offices and one Sub-office, located
in the capitals of all the states/union territories.Each Regional Office[RO] has a Chief General Manager
[CGMs] as its head, and the Head office has several Top executives like the Executive Directors[ED],
Managing Directors[MD], and the Chairperson.It has 336 District Offices across the country, one Sub-
office at Port Blair and one special cell at Srinagar. It also has 6 training establishments.
NABARD is also known for its 'SHG Bank Linkage Programme' which encourages India's banks to lend
to self-help groups (SHGs). Because SHGs are composed mainly of poor women, this has evolved into
an important Indian tool for microfinance. As of March 2006 2.2 million SHGs representing 33 million
members had to been linked to credit through this programme..[1]

3. Merchant bank

In banking, a merchant bank is a financial institution primarily engaged in offering financial services
and advice to corporations and to wealthy individuals. The term can also be used to describe the private
equity activities of banking.[1] The chief distinction between an investment bank and a merchant bank is
that a merchant bank invests its own capital in a client company whereas an investment bank purely
distributes (and trades) the securities of that company in its capital raising role. Both merchant banks
and investment banks provide fee based corporate advisory services including in relation to mergers and
acquisitions.

History

Merchant banks, now so called, are in fact the original "banks". These were invented in the Middle Ages
by Italian grain merchants. As the Lombardy merchants and bankers grew in stature based on the
strength of the Lombard plains cereal crops, many displaced Jews fleeing Spanish persecution were
attracted to the trade. They brought with them ancient practices from the middle and far east silk routes.
Originally intended for the finance of long trading journeys, these methods were now utilized to finance
the production of grain.

The Jews could not hold land in Italy, so they entered the great trading piazzas and halls of Lombardy,
alongside the local traders, and set up their benches to trade in crops. They had one great advantage over
the locals. Christians were strictly forbidden the sin of usury. The Jewish newcomers, on the other hand,
could lend to farmers against crops in the field, a high-risk loan at what would have been considered
usurious rates by the Church, but did not bind the Jews. In this way they could secure the grain sale
rights against the eventual harvest. They then began to advance against the delivery of grain shipped to
distant ports. In both cases they made their profit from the present discount against the future price. This
two-handed trade was time consuming and soon there arose a class of merchants, who were trading
grain debt instead of grain.

The Jewish trader performed both finance (credit) and an underwriting (insurance) functions. He would
derive an income from lending the farmer money to develop and manufacture (through seeding,
growing, weeding and harvesting) his annual crop (the crop loan at the beginning of the growing
season). He would underwrite (insure) the delivery of the crop (through crop or commodity insurance) to
the merchant wholesaler who was the ultimate purchaser of the farmer’s harvest. And he would make
arrangements to supply this buyer through alternative sources (the merchant function) of supply (such as
grain stores or alternate producer markets), should any particular farming district suffer a seasonal crop
failure. He could also keep the farmer (or other commodity producer) in business during a drought or
other crop failure, through the issuance of a crop (or commodity) insurance against the hazard of failure
of his crop.

Thus in his underlying financial function the merchant banker (trader) would ensure the continuous
smooth flowing of the commodity (crop, wool, salt; salt-cod, etc.) markets by providing both credit and
insurance.

It was a short step from financing trade on their own behalf to settling trades for others, and then to
holding deposits for settlement of "billete" or notes written by the people who were still brokering the
actual grain. And so the merchant's "benches" (bank is a corruption of the Italian for bench, banca, as in
a counter) in the great grain markets became centers for holding money against a bill (billette, a note, a
letter of formal exchange, later a bill of exchange, later still, a cheque).

These deposited funds were intended to be held for the settlement of grain trades, but often were used
for the bench's own trades in the meantime. The term bankrupt is a corruption of the Italian banca rotta,
or broken bench, which is what happened when someone lost his traders' deposits. Being "broke" has the
same connotation.

A sensible manner of discounting interest to the depositors against what could be earned by employing
their money in the trade of the bench soon developed; in short, selling an "interest" to them in a specific
trade, thus overcoming the usury objection. Once again this merely developed what was an ancient
method of financing long distance transport of goods.

Islam makes similar condemnations of usury as Christianity.

The medieval Italian markets were disrupted by wars and in any case were limited by the fractured
nature of the Italian states. And so the next generation of bankers arose from migrant Jewish merchants
in the great wheat growing areas of Germany and Poland. Many of these merchants were from the same
families who had been part of the development of the banking process in Italy. They also had links with
family members who had, centuries before, fled Spain for both Italy and England.

This course of events set the stage for the rise of banking names which still resonate today: Schroders,
Warburgs, Rothschilds, even the ill-fated Barings, were all the product of the continental grain trade,
and indirectly, the early Iberian persecution of Jews. These and other great merchant banking families
dealt in everything from underwriting bonds to originating foreign loans. Bullion trading and bond
issuing were some of the specialties of the Rothschild family.

Modern practices

Known as “accepting and issuing houses” in the U.K. and “investment banks” in the U.S., modern
merchant banks offer a wide range of activities, including portfolio management, credit syndication,
acceptance credit, counsel on mergers and acquisitions, insurance, etc.

Of these two classes of merchant banks, the U.S. variant initiates loans and then sells them to investors.
[2]
Even though these companies call themselves "merchant banks," they have few, if any, of the
characteristics of former merchant banks.

Goldman Sachs, Morgan Stanley, The Weston Group, maintain an active merchant banking precense.

4. Industrial Development Bank of India (IDBI)

The Industrial Development Bank of India (IDBI) was established on July 1, 1964 under an Act of
Parliament as a wholly owned subsidiary of the Reserve Bank of India. In 16 February 1976, the
ownership of IDBI was transferred to the Government of India and it was made the principal financial
institution for coordinating the activities of institutions engaged in financing, promoting and developing
industry in the country. Although Government shareholding in the Bank came down below 100%
following IDBI’s public issue in July 1995, the former continues to be the major shareholder (current
shareholding: 52.3%). During the four decades of its existence, IDBI has been instrumental not only in
establishing a well-developed, diversified and efficient industrial and institutional structure but also
adding a qualitative dimension to the process of industrial development in the country. IDBI has played
a pioneering role in fulfilling its mission of promoting industrial growth through financing of medium
and long-term projects, in consonance with national plans and priorities. Over the years, IDBI has
enlarged its basket of products and services, covering almost the entire spectrum of industrial activities,
including manufacturing and services. IDBI provides financial assistance, both in rupee and foreign
currencies, for green-field projects as also for expansion, modernization and diversification purposes. In
the wake of financial sector reforms unveiled by the government since 1992, IDBI evolved an array of
fund and fee-based services with a view to providing an integrated solution to meet the entire demand of
financial and corporate advisory requirements of its clients. IDBI also provides indirect financial
assistance by way of refinancing of loans extended by State-level financial institutions and banks and by
vway of rediscounting of bills of exchange arising out of sale of indigenous machinery on deferred
payment terms.

IDBI has played a pioneering role, particularly in the pre-reform era (1964-91),in catalyzing broad based
industrial development in the country in keeping with its Government-ordained ‘development banking’
charter. In pursuance of this mandate, IDBI’s activities transcended the confines of pure long-term
lending to industry and encompassed, among others, balanced industrial growth through development of
backward areas, modernisation of specific industries, employment generation, entrepreneurship
development along with support services for creating a deep and vibrant domestic capital market,
including development of apposite institutional framework.

Narasimam committee recommends that IDBI should give up its direct financing functions and
concentrate only in promotional and refinancing role. But this recommendation was rejected by the
government. Latter RBI constituted a committee under the chairmanship of S.H.Khan to examine the
concept of development financing in the changed global challenges. This committee is the first to
recommend the concept of universal banking. The committee wanted to the development financial
institution to diversify its activity. It recommended to harmonise the role of development financing and
banking activities by getting away from the conventional distinction between commercial banking and
developmental banking.

In September 2003, IDBI diversified its business domain further by acquiring the entire shareholding of
Tata Finance Limited in Tata Home finance Ltd., signaling IDBI’s foray into the retail finance sector.
The fully-owned housing finance subsidiary has since been renamed ‘IDBI Home finance Limited’. In
view of the signal changes in the operating environment, following initiation of reforms since the early
nineties, Government of India has decided to transform IDBI into a commercial bank without eschewing
its secular development finance obligations. The migration to the new business model of commercial
banking, with its gateway to low-cost current, savings bank deposits, would help overcome most of the
limitations of the current business model of development finance while simultaneously enabling it to
diversify its client/ asset base. Towards this end, the IDB (Transfer of Undertaking and Repeal) Act
2003 was passed by Parliament in December 2003. The Act provides for repeal of IDBI Act,
corporatisation of IDBI (with majority Government holding; current share: 58.47%) and transformation
into a commercial bank. The provisions of the Act have come into force from July 2, 2004 in terms of a
Government Notification to this effect. The Notification facilitated formation, incorporation and
registration of Industrial Development Bank of India Ltd. as a company under the Companies Act, 1956
and a deemed Banking Company under the Banking Regulation Act 1949 and helped in obtaining
requisite regulatory and statutory clearances, including those from RBI. IDBI would commence banking
business in accordance with the provisions of the new Act in addition to the business being transacted
under IDBI Act, 1964 from October 1, 2004, the ‘Appointed Date’ notified by the Central Government.
IDBI has firmed up the infrastructure, technology platform and reorientation of its human capital to
achieve a smooth transition.

IDBI Bank, with which the parent IDBI was merged, was a vibrant new generation Bank. The Pvt Bank
was the fastest growing banking company in India. The bank was pioneer in adapting to policy of first
mover in tier 2 cities. The Bank also had the least NPA and the highest productivity per employee in the
banking industry.

On July 29, 2004, the Board of Directors of IDBI and IDBI Bank accorded in principle approval to the
merger of IDBI Bank with the Industrial Development Bank of India Ltd. to be formed incorporated
under the Companies Act, 1956 pursuant to the IDB (Transfer of Undertaking and Repeal) Act, 2003 (53
of 2003), subject to the approval of shareholders and other regulatory and statutory approvals. A
mutually gainful proposition with positive implications for all stakeholders and clients, the merger
process is expected to be completed during the current financial year ending March 31, 2005.

The immediate fall out of the merger of IDBI and idbi bank was the exit of employees of idbi bank. The
cultures in the two organizations have taken its toll. The IDBI BANK now is in a growing fold. With its
retail banking arm expanding further after the merger of United western Bank.

IDBI would continue to provide the extant products and services as part of its development finance role
even after its conversion into a banking company. In addition, the new entity would also provide an
array of wholesale and retail banking products, designed to suit the specific needs cash flow
requirements of corporates and individuals. In particular, IDBI would leverage the strong corporate
relationships built up over the years to offer customised and total financial solutions for all corporate
business needs, single-window appraisal for term loans and working capital finance, strategic advisory
and “hand-holding” support at the implementation phase of projects, among others.

IDBI’s transformation into a commercial bank would provide a gateway to low-cost deposits like
Current and Savings Bank Deposits. This would have a positive impact on the Bank’s overall cost of
funds and facilitate lending at more competitive rates to its clients. The new entity would offer various
retail products, leveraging upon its existing relationship with retail investors under its existing Suvidha
Flexi-bond schemes. In the emerging scenario, the new IDBI hopes to realize its mission of positioning
itself as a one stop super-shop and most preferred brand for providing total financial and banking
solutions to corporates and individuals, capitalising on its intimate knowledge of the Indian industry and
client requirements and large retail base on the liability side.

IDBI upholds the highest standards of corporate governance in its operations. The responsibility for
maintaining these high standards of governance lies with its Board of Directors. Two Committees of the
Board viz. the Executive Committee and the Audit Committee are adequately empowered to monitor
implementation of good corporate governance practices and making necessary disclosures within the
framework of legal provisions and banking conventions.

5. ICICI

• 1955 The Industrial Credit and Investment Corporation of India Limited (ICICI) was
incorporated at the initiative of World Bank, the Government of India and representatives of
Indian industry, with the objective of creating a development financial institution for providing
medium-term and long-term project financing to Indian businesses.
• 1994 ICICI established Banking Corporation as a banking subsidiary.formerly Industrial Credit
and Investment Corporation of India. Later, ICICI Banking Corporation was renamed as 'ICICI
Bank Limited'. ICICI founded a separate legal entity, ICICI Bank, to undertake normal banking
operations - taking deposits, credit cards, car loans etc.
• 2001 ICICI acquired Bank of Madura (est. 1943). Bank of Madura was a Chettiar bank, and had
acquired Chettinad Mercantile Bank (est. 1933) and Illanji Bank (established 1904) in the 1960s.
• 2002 The Boards of Directors of ICICI and ICICI Bank approved the reverse merger of ICICI,
ICICI Personal Financial Services Limited and ICICI Capital Services Limited, into ICICI Bank.
 After receiving all necessary regulatory approvals, ICICI integrated the group's financing and
banking operations, both wholesale and retail, into a single entity.

Also in 2002, ICICI Bank bought the Shimla and Darjeeling branches that Standard Chartered
Bank had inherited when it acquired Grindlays Bank.
ICICI started its international expansion by opening representative offices in New York and
London.

• 2003 ICICI opened subsidiaries in Canada and the United Kingdom (UK), and in the UK it
established an alliance with Lloyds TSB.

It also opened an Offshore Banking Unit (OBU) in Singapore and representative offices in Dubai
and Shanghai.

• 2004 ICICI opens a rep office in Bangladesh to tap the extensive trade between that country,
India and South Africa.
• 2005 ICICI acquired Investitsionno-Kreditny Bank (IKB), a Russia bank with about US$4mn in
assets, head office in Balabanovo in the Kaluga region, and with a branch in Moscow. ICICI
renamed the bank ICICI Bank Eurasia.

Also, ICICI established a branch in Dubai International Financial Centre and in Hong Kong.

• 2006 ICICI Bank UK opened a branch in Antwerp, in Belgium. ICICI opened representative
offices in Bangkok, Jakarta, and Kuala Lumpur.
• 2007 ICICI amalgamated Sangli Bank, which was headquartered in Sangli, in Maharashtra
State, and which had 158 branches in Maharashtra and another 31 in Karnataka State. Sangli
Bank had been founded in 1916 and was particularly strong in rural areas.

ICICI also received permission from the government of Qatar to open a branch in Doha.
ICICI Bank Eurasia opened a second branch, this time in St. Petersburg.

• 2008 The US Federal Reserve permitted ICICI to convert its representative office in New York
into a branch.

ICICI also established a branch in Frankfurt.

6. Exim Bank (India)

Exim Bank (full name: The Export-Import Bank of India) is an Indian government-owned financial
institution for the public sector created by and Act of the Parliament of India: the Export-Import Bank of
India Act 1981.

Exim Bank is managed by a Board of Directors, which has representatives from the Government,
Reserve Bank of India, Export Credit Guarantee Corporation of India (ECGC), a financial institution,
public sector banks, and the business community.

The Bank's functions are segmented into several operating groups including:

Corporate Banking Group which ABN,MNhandles a vairety of financing programmes for Export
Oriented Units (EOUs), Importers, and overseas investment by Indian companies.
Project Finance / Trade Finance Group handles the entire range of export credit services such as
supplier's credit, pre-shipment credit, buyer's credit, finance for export of projects & consultancy
services, guarantees, forfaiting etc.

Lines of Credit Group Lines of Credit (LOC) is a financing mechanismand export transactions in the
agricultural sector for financing.

Small and Medium Enterprises Group to the specific financing requirements of export oriented SMEs.
The group handles credit proposals from SMEs under various lending programmes of the Bank.

Export Services Group offers variety of advisory and value-added information services aimed at
investment promotion

Fee based Export Marketing Services Bank offers assistance to porate Affairs.

Organization

Exim Bank is managed by a Board of Directors, which has representatives from the Government,
Reserve Bank of India, Export Credit Guarantee Corporation (ECGC) of India, a financial institution,
public sector banks, and the business community.

The Bank's functions are segmented into several operating groups including:

Corporate Banking Group which handles a variety of financing programmes for Export Oriented Units
(EOUs), Importers, and overseas investment by Indian companies.

Project Finance / Trade Finance Group handles the entire range of export credit services such as
supplier's credit, pre-shipment Agri Business Group, to spearhead the initiative to promote and support
Agri-exports. The Group handles projects and export transactions in the agricultural sector for financing.

Small and Medium Enterprise: The group handles credit proposals from SMEs under various lending
programmes of the Bank.

Export Services Group offers variety of advisory and value-added information services aimed at
investment promotion

Export Marketing Services Bank offers assistance to Indian companies, to enable them establish their
products in overseas markets.

Besides these, the Support Services groups, which include: Research & Planning, Corporate Finance,
Loan Recovery, Internal Audit, Management Information Services, Information Technology, Legal,
Human Resources Management and Corporate Affairs.

7. Unit Trust of India

'Unit Trust of India was created by the UTI Act passed by the Parliament in 1963.For more than two
decades it remained the sole vehicle for investment in the capital market by the Indian citizens. In mid-
1980s public sector banks were allowed to open mutual funds. The real vibrancy and competition in the
MF industry came with the setting up of the Regulator SEBI and its laying down the MF Regulations in
1993.UTI maintained its pre-eminent place till 2001, when a massive decline in the market indices and
negative investor sentiments after Ketan Parekh scam created doubts about the capacity of UTI to meet
its obligations to the investors. This was further compounded by two factors; namely, its flagship and
largest scheme US 64 was sold and re-purchased not at intrinsic NAV but at artificial price and its
Assured Return Schemes had promised returns as high as 18% over a period going up to two
decades..!!

Fearing a run on the institution and possible impact on the whole market Government came out with a
rescue package and change of management in 2001.Subsequently, the UTI Act was repealed and the
institution was bifurcated into two parts .UTI Mutual Fund was created as a SEBI registered fund like
any other mutual fund. The assets and liabilities of schemes where Government had to come out with a
bail-out package were taken over directly by the Government in a new entity called Specified
Undertaking of UTI, SUUTI. SUUTI holds over 27% stake Axis Bank. In order to distance Government
from running a mutual fund the ownership was transferred to four institutions; namely SBI, LIC, BOB
and PNB, each owning 25%. Certain reforms like improving the salary from PSU levels and effecting a
VRS were carried out UTI lost its market dominance rapidly and by end of 2005,when the new share-
holders actually paid the consideration money to Government its market share had come down to close
to 10%!

A new board was constituted and a new management inducted. Systematic study of its problems role
and functions was carried out with the help of a reputed international consultant. Fresh talent was
recruited from the private market, organizational structure was changed to focus on newly emerging
investor and distributor groups and massive changes in investor services and funds management carried
out. Once again UTI has emerged as a serious player in the industry. Some of the funds have won
famous awards, including the Best Infra Fund globally from Lipper. UTI has been able to benchmark its
employee compensation to the best in the market, has introduced Performance Related Payouts and
ESOPs.

The UTI Asset Management Company has its registered office at: UTI Tower, Gn Block, Bandra —
Kurla Complex, Bandra (East), Mumbai - 400 051.It has over 70 schemes in domestic MF space and has
the largest investor base of over 9 million in the whole industry. It is present in over 450 districts of the
country and has 100 branches called UTI Financial Centres or UFCs. About 50% of the total IFAs in the
industry work for UTI in distributing its products! India Posts, PSU Banks and all the large Private and
Foreign Banks have started distributing UTI products. The total average Assets Under Management
(AUM) for the month of June 2008 was Rs. 530 billion and it ranked fourth. In terms of equity AUM it
ranked second and in terms of Equity and Balanced Schemes AUM put together it ranked FIRST in the
industry. This measure indicates its revenue- earning capacity and its financial strength.

Besides running domestic MF Schemes UTI AMC is also a registered portfolio manager under the SEBI
(Portfolio Managers) Regulations. It runs different portfolios for is HNI and Institutional clients. It is
also running a Sharia Compliant portfolio for its Offshore clients. UTI tied up with Shinsei Bank of
Japan to run a large size India-centric portfolio for Japanese investors.

For its international operations UTI has set up its 100% subsidiary, UTI International Limited, registered
in Guernsey, Channel Islands. It has branches in London, Dubai and Bahrain. It has set up a Joint
Venture with Shinsei Bank in Singapore. The JV has got its license and has started its operations.

In the area of alternate assets, UTI has a 100% subsidiary called UTI Ventures at Banglore This
company runs two successful funds with large international investors being active participants. UTI has
also launched a Private Equity Infrastructure Fund along with HSH Nord Bank of Germany and Shinsei
Bank of Japan.
LIC

Brief History Of Insurance

The story of insurance is probably as old as the story of mankind. The same instinct that prompts
modern businessmen today to secure themselves against loss and disaster existed in primitive men also.
They too sought to avert the evil consequences of fire and flood and loss of life and were willing to
make some sort of sacrifice in order to achieve security. Though the concept of insurance is largely a
development of the recent past, particularly after the industrial era – past few centuries – yet its
beginnings date back almost 6000 years.

Life Insurance in its modern form came to India from England in the year 1818. Oriental Life Insurance
Company started by Europeans in Calcutta was the first life insurance company on Indian Soil. All the
insurance companies established during that period were brought up with the purpose of looking after
the needs of European community and Indian natives were not being insured by these companies.
However, later with the efforts of eminent people like Babu Muttylal Seal, the foreign life insurance
companies started insuring Indian lives. But Indian lives were being treated as sub-standard lives and
heavy extra premiums were being charged on them. Bombay Mutual Life Assurance Society heralded
the birth of first Indian life insurance company in the year 1870, and covered Indian lives at normal
rates. Starting as Indian enterprise with highly patriotic motives, insurance companies came into
existence to carry the message of insurance and social security through insurance to various sectors of
society. Bharat Insurance Company (1896) was also one of such companies inspired by nationalism. The
Swadeshi movement of 1905-1907 gave rise to more insurance companies. The United India in Madras,
National Indian and National Insurance in Calcutta and the Co-operative Assurance at Lahore were
established in 1906. In 1907, Hindustan Co-operative Insurance Company took its birth in one of the
rooms of the Jorasanko, house of the great poet Rabindranath Tagore, in Calcutta. The Indian
Mercantile, General Assurance and Swadeshi Life (later Bombay Life) were some of the companies
established during the same period. Prior to 1912 India had no legislation to regulate insurance business.
In the year 1912, the Life Insurance Companies Act, and the Provident Fund Act were passed. The Life
Insurance Companies Act, 1912 made it necessary that the premium rate tables and periodical valuations
of companies should be certified by an actuary. But the Act discriminated between foreign and Indian
companies on many accounts, putting the Indian companies at a disadvantage.

The first two decades of the twentieth century saw lot of growth in insurance business. From 44
companies with total business-in-force as Rs.22.44 crore, it rose to 176 companies with total business-
in-force as Rs.298 crore in 1938. During the mushrooming of insurance companies many financially
unsound concerns were also floated which failed miserably. The Insurance Act 1938 was the first
legislation governing not only life insurance but also non-life insurance to provide strict state control
over insurance business. The demand for nationalization of life insurance industry was made repeatedly
in the past but it gathered momentum in 1944 when a bill to amend the Life Insurance Act 1938 was
introduced in the Legislative Assembly. However, it was much later on the 19th of January, 1956, that
life insurance in India was nationalized. About 154 Indian insurance companies, 16 non-Indian
companies and 75 provident were operating in India at the time of nationalization. Nationalization was
accomplished in two stages; initially the management of the companies was taken over by means of an
Ordinance, and later, the ownership too by means of a comprehensive bill. The Parliament of India
passed the Life Insurance Corporation Act on the 19th of June 1956, and the Life Insurance Corporation
of India was created on 1st September, 1956, with the objective of spreading life insurance much more
widely and in particular to the rural areas with a view to reach all insurable persons in the country,
providing them adequate financial cover at a reasonable cost.
LIC had 5 zonal offices, 33 divisional offices and 212 branch offices, apart from its corporate office in
the year 1956. Since life insurance contracts are long term contracts and during the currency of the
policy it requires a variety of services need was felt in the later years to expand the operations and place
a branch office at each district headquarter. re-organization of LIC took place and large numbers of new
branch offices were opened. As a result of re-organisation servicing functions were transferred to the
branches, and branches were made accounting units. It worked wonders with the performance of the
corporation. It may be seen that from about 200.00 crores of New Business in 1957 the corporation
crossed 1000.00 crores only in the year 1969-70, and it took another 10 years for LIC to cross 2000.00
crore mark of new business. But with re-organisation happening in the early eighties, by 1985-86 LIC
had already crossed 7000.00 crore Sum Assured on new policies.

Today LIC functions with 2048 fully computerized branch offices, 100 divisional offices, 7 zonal offices
and the Corporate office. LIC’s Wide Area Network covers 100 divisional offices and connects all the
branches through a Metro Area Network. LIC has tied up with some Banks and Service providers to
offer on-line premium collection facility in selected cities. LIC’s ECS and ATM premium payment
facility is an addition to customer convenience. Apart from on-line Kiosks and IVRS, Info Centres have
been commissioned at Mumbai, Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, New Delhi,
Pune and many other cities. With a vision of providing easy access to its policyholders, LIC has
launched its SATELLITE SAMPARK offices. The satellite offices are smaller, leaner and closer to the
customer. The digitalized records of the satellite offices will facilitate anywhere servicing and many
other conveniences in the future.

LIC continues to be the dominant life insurer even in the liberalized scenario of Indian insurance and is
moving fast on a new growth trajectory surpassing its own past records. LIC has issued over one crore
policies during the current year. It has crossed the milestone of issuing 1,01,32,955 new policies by 15th
Oct, 2005, posting a healthy growth rate of 16.67% over the corresponding period of the previous year.

From then to now, LIC has crossed many milestones and has set unprecedented performance records in
various aspects of life insurance business. The same motives which inspired our forefathers to bring
insurance into existence in this country inspire us at LIC to take this message of protection to light the
lamps of security in as many homes as possible and to help the people in providing security to their
families.

Some of the important milestones in the life insurance business in India are:

1818: Oriental Life Insurance Company, the first life insurance company on Indian soil started
functioning.

1870: Bombay Mutual Life Assurance Society, the first Indian life insurance company started its
business.

1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance
business.

1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical
information about both life and non-life insurance businesses.

1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of
protecting the interests of the insuring public.
1956: 245 Indian and foreign insurers and provident societies are taken over by the central government
and nationalised. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of
Rs. 5 crore from the Government of India.

The General insurance business in India, on the other hand, can trace its roots to the Triton Insurance
Company Ltd., the first general insurance company established in the year 1850 in Calcutta by the
British.

Some of the important milestones in the general insurance business in India are:

1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of general
insurance business.

1957: General Insurance Council, a wing of the Insurance Association of India, frames a code of
conduct for ensuring fair conduct and sound business practices.

1968: The Insurance Act amended to regulate investments and set minimum solvency margins and the
Tariff Advisory Committee set up.

1972: The General Insurance Business (Nationalisation) Act, 1972 nationalised the
general insurance business in India with effect from 1st January 1973.

107 insurers amalgamated and grouped into four companies viz. the National
Insurance Company Ltd., the New India Assurance Company Ltd., the
Oriental Insurance Company Ltd. and the United India Insurance Company
Ltd. GIC incorporated as a company.

Objectives of LIC

• Spread Life Insurance widely and in particular to the rural areas and to the socially and economically
backward classes with a view to reaching all insurable persons in the country and providing them adequate
financial cover against death at a reasonable cost.

• Maximize mobilization of people's savings by making insurance-linked savings adequately attractive.

• Bear in mind, in the investment of funds, the primary obligation to its policyholders, whose money it holds in
trust, without losing sight of the interest of the community as a whole; the funds to be deployed to the best
advantage of the investors as well as the community as a whole, keeping in view national priorities and
obligations of attractive return.

• Conduct business with utmost economy and with the full realization that the moneys belong to the
policyholders.

• Act as trustees of the insured public in their individual and collective capacities.

• Meet the various life insurance needs of the community that would arise in the changing social and economic
environment.

• Involve all people working in the Corporation to the best of their capability in furthering the interests of the
insured public by providing efficient service with courtesy.

Promote amongst all agents and employees of the Corporation a sense of participation, pride and job satisfaction
through discharge of their duties with dedication towards achievement of Corporate Objective.
IFCI

GENESIS OF IFCI
At the time of independence in 1947, India's capital market was relatively under-developed.
Although there was significant demand for new capital, there was a dearth of providers. Merchant
bankers and underwriting firms were almost non-existent. And commercial banks were not
equipped to provide long-term industrial finance in any significant manner.

It is against this backdrop that the government established The Industrial Finance Corporation of
India (IFCI) on July 1, 1948, as the first Development Financial Institution in the country to cater to
the long-term finance needs of the industrial sector. The newly-established DFI was provided access
to low-cost funds through the central bank's Statutory Liquidity Ratio or SLR which in turn enabled it
to provide loans and advances to corporate ‘borrowers at concessional rates.

LIBERALIZATION - CONVERSION INTO COMPANY IN 1993

By the early 1990s, it was recognized that there was need for greater flexibility to respond to the
changing financial system. It was also felt that IFCI should directly access the capital markets for its
funds needs. It is with this objective that the constitution of IFCI was changed in 1993 from a
statutory corporation to a company under the Indian Companies Act, 1956. Subsequently, the name
of the company was also changed to "IFCI Limited" with effect from October 1999.

Guidelines for Listing at BSE

Listing means admission of securities to dealings on a recognised stock exchange. The securities may be of any
public limited company, Central or State Government, quasi governmental and other financial
institutions/corporations, municipalities, etc.

The objectives of listing are mainly to :

• provide liquidity to securities;

• mobilize savings for economic development;
• protect interest of investors by ensuring full disclosures.

[I] Minimum Listing Requirements for New Companies

The following eligibility criteria have been prescribed effective August 1, 2006 for listing of companies on BSE,
through Initial Public Offerings (IPOs) & Follow-on Public Offerings (FPOs):

1. Companies have been classified as large cap companies and small cap companies. A large cap company
is a company with a minimum issue size of Rs. 10 crore and market capitalization of not less than Rs. 25
crore. A small cap company is a company other than a large cap company.

a. In respect of Large Cap Companies

i. The minimum post-issue paid-up capital of the applicant company (hereinafter referred to
as "the Company") shall be Rs. 3 crore; and
ii. The minimum issue size shall be Rs. 10 crore; and
iii. The minimum market capitalization of the Company shall be Rs. 25 crore (market
capitalization shall be calculated by multiplying the post-issue paid-up number of equity
shares with the issue price).

b. In respect of Small Cap Companies

 i. The minimum post-issue paid-up capital of the Company shall be Rs. 3 crore; and
ii. The minimum issue size shall be Rs. 3 crore; and
iii. The minimum market capitalization of the Company shall be Rs. 5 crore (market
capitalization shall be calculated by multiplying the post-issue paid-up number of equity
shares with the issue price); and
iv. The minimum income/turnover of the Company shall be Rs. 3 crore in each of the
preceding three 12-months period; and
v. The minimum number of public shareholders after the issue shall be 1000.
vi. A due diligence study may be conducted by an independent team of Chartered
Accountants or Merchant Bankers appointed by BSE, the cost of which will be borne by
the company. The requirement of a due diligence study may be waived if a financial
institution or a scheduled commercial bank has appraised the project in the preceding 12
months.

2. For all companies :

a. In respect of the requirement of paid-up capital and market capitalization, the issuers shall be
required to include in the disclaimer clause forming a part of the offer document that in the event
of the market capitalization (product of issue price and the post issue number of shares)
requirement of BSE not being met, the securities of the issuer would not be listed on BSE.
b. The applicant, promoters and/or group companies, shall not be in default in compliance of the
listing agreement.
c. The above eligibility criteria would be in addition to the conditions prescribed under SEBI
(Disclosure and Investor Protection) Guidelines, 2000.

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[II] Minimum Listing Requirements for Companies already Listed on Other Stock Exchanges

The listing norms for companies already listed on other stock exchanges and seeking listing at BSE, made
effective from August 6, 2002, are as under:

1. The company shall have a minimum issued and paid up equity capital of Rs. 3 crore.
2. The company shall have a profit making track record for the preceding last three years. The
revenues/profits arising out of extra ordinary items or income from any source of non-recurring nature
shall be excluded while calculating the profit making track record.
3. Minimum net worth shall be Rs. 20 crore (net worth includes equity capital and free reserves excluding
revaluation reserves).
4. Minimum market capitalisation of the listed capital shall be at least two times of the paid up capital.
5. The company shall have a dividend paying track record for at least the last 3 consecutive years and the
dividend should be at least 10% in each year.
6. Minimum 25% of the company's issued capital shall be with Non-Promoter shareholders as per Clause 35
of the Listing Agreement. Out of above Non-Promoter holding, no single shareholder shall hold more than
0.5% of the paid-up capital of the company individually or jointly with others except in case of
Banks/Financial Institutions/Foreign Institutional Investors/Overseas Corporate Bodies and Non-Resident
Indians.
7. The company shall have at least two years listing record with any of the Regional Stock Exchanges.
8. The company shall sign an agreement with CDSL and NSDL for demat trading.

[III] Minimum Requirements for Companies Delisted by BSE seeking Relisting on BSETop

Companies delisted by BSE and seeking relisting at BSE are required to make a fresh public offer and comply
with the extant guidelines of SEBI and BSE regarding initial public offerings.

[V] Submission of Letter of Application

As per Section 73 of the Companies Act, 1956, a company seeking listing of its securities on BSE is required to
submit a Letter of Application to all the stock exchanges where it proposes to have its securities listed before filing
the prospectus with the Registrar of Companies.

[VI] Allotment of Securities

As per the Listing Agreement, a company is required to complete the allotment of securities offered to the public
within 30 days of the date of closure of the subscription list and approach the Designated Stock Exchange for
approval of the basis of allotment.

In case of Book Building issues, allotment shall be made not later than 15 days from the closure of the issue,
failing which interest at the rate of 15% shall be paid to the investors.

[VII] Trading Permission

As per SEBI Guidelines, an issuer company should complete the formalities for trading at all the stock exchanges
where the securities are to be listed within 7 working days of finalization of the basis of allotment.

A company should scrupulously adhere to the time limit specified in SEBI (Disclosure and Investor Protection)
Guidelines 2000 for allotment of all securities and dispatch of allotment letters/share certificates/credit in
depository accounts and refund orders and for obtaining the listing permissions of all the exchanges whose
names are stated in its prospectus or offer document. In the event of listing permission to a company being
denied by any stock exchange where it had applied for listing of its securities, the company cannot proceed with
the allotment of shares. However, the company may file an appeal before SEBI under Section 22 of the Securities
Contracts (Regulation) Act, 1956.

[VIII] Requirement of 1% Security

Companies making public/rights issues are required to deposit 1% of the issue amount with the Designated Stock
Exchange before the issue opens. This amount is liable to be forfeited in the event of the company not resolving
the complaints of investors regarding delay in sending refund orders/share certificates, non-payment of
commission to underwriters, brokers, etc.

[IX] Payment of Listing Fees

All companies listed on BSE are required to pay to BSE the Annual Listing Fees by 30th April of every financial
year as per the Schedule of Listing Fees prescribed from time to time.

The schedule of Listing Fees for the year 2009-10, prescribed by the Governing Board of BSE, is given here
under:

SCHEDULE OF LISTING FEES FOR THE YEAR 2009-10

Securities *other than Privately Placed Debt Securities

Sl. No. Particulars Amount (Rs.)

1 Initial Listing Fees 20,000.00

2 Annual Listing Fees

(i) Companies with listed capital* upto Rs. 5 crore 10,000.00

(ii) AboveRs. 5 crore and upto Rs. 10 crore 15,000.00

(iii)Above Rs. 10 crore and upto Rs. 20 crore 30,000.00

 Companies which have a listed capital* of more than Rs. 20 crore are required to pay an
additional
fee @ Rs. 750 for every additional Rs. 1 crore or part thereof.

NOTE: In case of debenture capital (not convertible into equity shares) , the fees will be
25% of the above fees.

*includes equity shares, preference shares, fully convertible debentures, partly convertible debentures and any
other security convertible into equity shares.

The cap on the annual listing fee of debt instruments per issuer is Rs.5,00,000.00 per annum.

NSE
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. It 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.

On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993,
NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market
(Equities) segment commenced operations in November 1994 and operations in Derivatives segment
commenced in June 2000.

August 2008 saw introduction of Currency derivatives in India with the launch of Currency Futures in USD INR
by NSE. Interest Rate Futures was introduced for the first time in India by NSE on 31st August 2009, exactly
after one year of the launch of Currency Futures.

With this, now both the retail and institutional investors can participate in equities, equity derivatives,
currency and interest rate derivatives, giving them wide range of products to take care of their evolving
needs.

Listing at NSE
Eligibility Criteria for Listing

An applicant who desires listing of its securities with NSE must fulfill the following pre-requisites:

For Initial Public Offerings (IPOs)

For Securities of Existing Companies

Eligibility Criteria for Listing
IPOs by Companies

Qualifications for listing Initial Public Offerings (IPO) are as below:

1. Paid up Capital

The paid up equity capital of the applicant shall not be less than Rs. 10 crores * and the capitalisation
of the applicant’s equity shall not be less than Rs. 25 crores**

Provided however that where the market capitalisation (at issue price) of the applicant’s equity is not
less than Rs.100 crores, the paid up capital of the applicant can be less than Rs. 10 crores but in any
case it shall not be less Rs. 5 crores.

* Explanation 1

For this purpose, the post issue paid up equity capital for which listing is sought shall be taken into
account.

2. Atleast three years track record of either:

For this purpose, the applicant or the promoting company shall submit annual reports of three
preceding financial years to NSE and also provide a certificate to the Exchange in respect of the
following:

• The company has not been referred to the Board for Industrial and Financial Reconstruction (BIFR).

• The networth of the company has not been wiped out by the accumulated losses resulting in a
negative networth

• The company has not received any winding up petition admitted by a court.

The applicant desirous of listing its securities should satisfy the exchange on the following:

a) No disciplinary action by other stock exchanges and regulatory authorities in past three
years

There shall be no material regulatory or disciplinary action by a stock exchange or regulatory authority in the
past three years against the applicant company. In respect of promoters/promoting company(ies), group
companies, companies promoted by the promoters/promoting company(ies) of the applicant company, there
shall be no material regulatory or disciplinary action by a stock exchange or regulatory authority in the past
one year.

Eligibility Criteria for Listing

Securities of Existing Companies

Existing Companies listed on other stock exchanges

1. Paid up Capital & Market Capitalisation

a. The paid-up equity capital of the applicant shall not be less than Rs. 10 crores * and the
market capitalisation of the applicant’s equity shall not be less than Rs. 25 crores**

Provided that the requirement of Rs. 25 crores market capitalisation under this clause 1(a)
shall not be applicable to listing of securities issued by Government Companies, Public Sector
 Undertakings, Financial Institutions, Nationalised Banks, Statutory Corporations and Banking
Companies who are otherwise bound to adhere to all the relevant statutes, guidelines,
circulars, clarifications etc. that may be issued by various regulatory authorities from time to
time.

or

b. The paid-up equity capital of the applicant shall not be less than Rs. 25 crores * (In case the
market capitalisation is less than Rs. 25 crores, the securities of the company should be
traded for at least 25% of the trading days during the last twelve months preceding the date
of submission of application by the company on at least one of the stock exchanges where it is
traded.)

or

c. The market capitalisation of the applicant’s equity shall not be less than Rs. 50 crores. **

or

d. The applicant Company shall have a net worth of not less than Rs.50 crores in each of the
three preceeding financial years. The Company shall submit a certificate from the statutory
auditors in respect of networth as stipulated above***.

* Explanation 1 For this purpose the existing paid up equity capital as well as the paid up
equity capital after the proposed issue for which listing is sought shall be taken into account.

** Explanation 2 The market capitalisation shall be calculated by using a 12 month moving

average of the market capitalisation over a period of six months immediately preceding the
date of application. For the purpose of calculating the market capitalisation over a 12 month
period, the average of the weekly high and low of the closing prices of the shares as quoted on
the National Stock Exchange during the last twelve months and if the shares are not traded on
the National Stock Exchange such average price on any of the recognised Stock Exchanges
where those shares are frequently traded shall be taken into account while determining
market capitalisation after making necessary adjustments for Corporate Action such as
Rights / Bonus Issue/Split.

*** Explanation 3 Networth means Paid up equity capital + Free Reserves i.e. reserve, the
utilization of which is not restricted in any manner may be taken into consideration excluding
revaluation reserves – Miscellaneous Expenses not written off – Balance in profit and loss
account to the extent not set off.
2. Atleast three years track record of either:

For this purpose, the applicant or the promoting company shall submit annual reports of three
preceding financial years to NSE and also provide a certificate to the Exchange in respect of the
following:

o The company has not been referred to the Board for Industrial and Financial Reconstruction
(BIFR)
o The networth of the company has not been wiped out by the accumulated losses resulting in a
negative networth.
o The company has not received any winding up petition admitted by a court.

The applicant should have been listed on any other recognized Stock Exchange Listed for atleast last
three years or listed on the exchange having nationwide trading terminals for at least one year.

a. The applicant has paid dividend in atleast 2 out of the last 3 financial years immediately
preceding the year in which listing application has been made

or
 The applicant has distributable profits ( as defined under section 205 of the Companies Act,
1956) in at least two out of the last three financial years (an auditors certificate must be
provided in this regard).

or

The networth of the applicant is atleast Rs. 50 crores******

Listing Procedure

An Issuer has to take various steps prior to making an application for listing its securities on the NSE. These
steps are essential to ensure the compliance of certain requirements by the Issuer before listing its securities
on the NSE. The various steps to be taken include:

• Approval of Memorandum and Articles of Association

• Approval of draft prospectus
• Submission of Application
• Listing conditions and requirements

In case your company fulfils the criteria, please send the following information for further processing :

1. A brief note on the promoters and management.

2. Company profile.
3. Copies of the Annual Report for last 3 years.
4. Copies of the Draft Offer Document.
5. Memorandum & Articles of Association.

Insider trading
Insider trading is the trading of a corporation's stock or other securities (e.g. bonds or stock options) by
individuals with potential access to non-public information about the company. In most countries,
trading by corporate insiders such as officers, key employees, directors, and large shareholders may be
legal, if this trading is done in a way that does not take advantage of non-public information. However,
the term is frequently used to refer to a practice in which an insider or a related party trades based on
material non-public information obtained during the performance of the insider's duties at the
corporation, or otherwise in breach of relationship of trust and confidence or where the non-public
information was misappropriated from the company.[1]

In the United States and several other jurisdictions, trading conducted by corporate officers, key
employees, directors, or significant shareholders (in the U.S., defined as beneficial owners of ten percent
or more of the firm's equity securities) must be reported to the regulator or publicly disclosed, usually
within a few business days of the trade. Illegal insider trading is believed to raise the cost of capital for
securities issuers, thus decreasing overall economic growth.[2]

Material information: news that can affect a company’s stock price,

for better or worse

This includes knowledge of:

• takeover
• accounting problems
• dividend change
• blockbuster product
 • earnings better or worse than expected

Legal insider trading

Legal trades by insiders are common, as employees of publicly-traded corporations often have stock or
stock options. These trades are made public For example, if a corporate insider plans on retiring after a
period of time and, as part of his or her retirement planning, adopts a written, binding plan to sell a
specific amount of the company's stock every month for the next two years, and during this period the
insider comes into possession of material nonpublic information about the company, any subsequent
trades based on the original plan might not constitute prohibited insider trading.

Illegal insider trading

Rules against insider trading on material non-public information exist in most jurisdictions around the
world, though the details and the efforts to enforce them vary considerably. The United States is
generally viewed as having the strictest laws against illegal insider trading, and makes the most serious
efforts to enforce them.[4]

Definition of "insider"

Insiders are defined as a company's officers, directors and any beneficial owners of more than ten
percent of a class of the company's equity securities. Trades made by these types of insiders in the
company's own stock, based on material non-public information, are considered to be fraudulent since
the insiders are violating the trust or the fiduciary duty that they owe to the shareholders. The corporate
insider, simply by accepting employment, has made a contract with the shareholders to put the
shareholders' interests before their own, in matters related to the corporation. When the insider buys or
sells based upon company owned information, he is violating his contract with the shareholders.

For example, illegal insider trading would occur if the chief executive officer of Company A learned
(prior to a public announcement) that Company A will be taken over, and bought shares in Company A
knowing that the share price would likely rise.

Liability for insider trading

For example, if Company A's CEO did not trade on the undisclosed takeover news, but instead passed
the information on to his brother-in-law who traded on it, illegal insider trading would still have
occurred.

Over-The-Counter Exchange Of India - OTCEI

What Does Over-The-Counter Exchange Of India - OTCEI Mean?

An electronic stock exchange based in India that is comprised of small- and medium-sized firms looking to gain
access to the capital markets. Like electronic exchanges in the U.S. such as the Nasdaq, there is no central place
of exchange and all trading is done through electronic networks.

Over-The-Counter Exchange Of India - OTCEI

The first electronic OTC stock exchange in India was established in 1990 to provide investors and companies with
an additional way to trade and issue securities. This was the first exchange in India to introduce market makers,
which are firms that hold shares in companies and facilitate the trading of securities by buying and selling from
other participants.

In general, the reason for which a stock is traded over-the-counter is usually because the company is small,
making it unable to meet exchange listing requirements. Also known as "unlisted stock", these securities are
traded by broker-dealers who negotiate directly with one another over computer networks and by phone.

Although Nasdaq operates as a dealer network, Nasdaq stocks are generally not classified as OTC because the
Nasdaq is considered a stock exchange. As such, OTC stocks are generally unlisted stocks which trade on the
Over the Counter Bulletin Board (OTCBB) or on the pink sheets. Be very wary of some OTC stocks, however; the
OTCBB stocks are either penny stocks or are offered by companies with bad credit records.

Instruments such as bonds do not trade on a formal exchange and are, therefore, also considered OTC
securities. Most debt instruments are traded by investment banks making markets for specific issues. If an
investor wants to buy or sell a bond, he or she must call the bank that makes the market in that bond and asks for
quotes.