Indian Capital Market Reforms

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Indian Capital Market Reforms

  1. 1. A PRESENTATION ON INDIAN CAPITAL MARKET REFORMS PREPARED BY :- SEM SHAIKH THE M.S. UNIVRSITY OF BARODA MASTEROF COMMERCE FACULTY OF POST GRADUATE
  2. 2. Why Capital Markets Exist Capital markets facilitate the transfer of capital (i.e. financial) assets from one owner to another. They provide liquidity. ◦ Liquidity refers to how easily an asset can be transferred without loss of value. A side benefit of capital markets is that the transaction price provides a measure of the value of the asset.
  3. 3. Growth of Capital Markets in India • Origins of trading- East India company • Post independence- Capital issues control act • Only nationalized companies allowed to raise capital • The securities contract regulation ACT 1956 • Only stock exchanges recognized by the government of India permitted to function • Foreign exchange regulations ACT 1973
  4. 4. Historically Speaking • Started in 1850 in front of Town-Hall in Bombay currently known as Horniman circle • Formed in 1875 as Bombay Stock Exchange • In 1986 launched its first stock index named ‘SENSEX’ with base year 1978-79 • Non-profit association & evolved as the premier stock exchange • Oldest stock exchange of Asia • Accounts for 75% of listed capital & 75% of shares in terms of market capitalization • Its turnover is 1/3rd of the total turnover in securities in India
  5. 5. Role of Capital Markets Mobilization of Savings & acceleration of Capital Formation Promotion of Industrial Growth Raising of long term Capital Ready & Continuous Markets Proper Channelization of Funds Provision of a variety of Services
  6. 6. Functions of a capital market  Disseminate information efficiently  Enable quick valuation of financial instruments –both equity and debt  Provide insurance against market risk or price risk  Enable wider participation  Provide operational efficiency through  -simplified transaction procedure  - lowering settlement timings and  - lowering transaction costs
  7. 7. Factors contributing to growth of Indian Capital Market • Establishment of Development banks & Industrial financial institution. • Legislative measures • Growing public confidence • Increasing awareness of investment opportunities • Growth of underwriting business • Setting up of SEBI • Mutual Funds • Credit Rating Agencies
  8. 8. Indian Capital markets - Chronology 1994-Equity Trading commences on NSE 1995-All Trading goes Electronic 1996- Depository comes in to existence 1999- FIIs Participation- Globalisation 2000- over 80% trades in Demat form 2001- Major Stocks move to Rolling Sett 2003- T+2 settlements in all stocks 2003 - Demutualisation of Exchanges
  9. 9. Capital Markets - Reforms Each scam has brought in reforms - 1992 / 2001 Screen based Trading through NSE Capital adequacy norms stipulated Dematerialization of Shares - risks of fraudulent paper eliminated Entry of Foreign Investors Investor awareness programs Rolling settlements Inter-action between banking and exchanges
  10. 10. CAPITAL MARKET REFORMS IN INDIA • The 1990s have witnessed the emergence of the securities market as a major source of finance for trade and industry in India. • A growing number of companies have been accessing the securities market rather than depending on loans from financial institutions / banks. • The corporate sector is increasingly depending on external sources for meeting its funding requirements.
  11. 11. Companies free to raise funds from securities markets after filing prospectus with SEBI SEBI introduces regulation for primary & other secondary market intermediaries Listed Co’s to furnish annual statement to the exchanges Book Building introduced for institutional investors SEBI introduces regulations governing substantial acquisition of shares and takeovers.
  12. 12. NSE establishment as a stock exchange with national wide electronic trading BSE introduces screen based trading Capital adequacy requirement for brokers System of mark to market margins introduced Stock Lending schemes introduced NSCCL setup by NSE
  13. 13. SEBI strengthen surveillance mechanisms and have a separate surveillance departments with all stock exchanges Depositories act introduces for Electronic transfer of shares. Permission to access in international capital markets by Indian companies through Euro issues FDI allowed in stock broking ,AMC’s, Merchant Bankers , NBFC’s. FII’s allowed to access Indian capital markets
  14. 14. Reforms / Initiatives post 2000 Corporatization of exchange memberships Banning of Badla / ALBM Introduction of Derivative products - Index / Stock Futures & Options Reforms/Changes in the margining system STP - electronic contracts Margin Lending Securities Lending
  15. 15. MARKET STRUCTURE (JULY 31, 2005)  22 Stock Exchanges,  Over 10000 Electronic Terminals at over 400 locations all over India.  9108 Stock Brokers and 14582 Sub brokers  9644 Listed Companies  2 Depositories and 483 Depository Participants  128 Merchant Bankers, 59 Underwriters  34 Debenture Trustees, 96 Portfolio Managers  83 Registrars & Transfer Agents, 59 Bankers to Issue  4 Credit Rating Agencies
  16. 16. Reforms Undertaken in BSE • January 2000: rolling settlement system (T+5 system) –Started with 10 scrips –Later 153 were brought under • January 2001: BLESS was introduced • July 2001: badla was wholly replaced by rolling settlement system • January 2002: all the shares in BSE were brought under this scheme
  17. 17. BSE Post Reforms • Badla and BLESS were banned • Short selling banned from March 2001 to July 2001 • 20% circuit filter for stocks in rolling settlement • Index based filter (10%, 15%, 20%) • Introduction of margin trading in September 2001

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