Indian Stock Market

Overview of Indian Stock Market Dr Saif Siddiqui Assistant Professor Centre for Management Studies Jamia Millia Islamia (A Central University) New Delhi - 110025

Introduction:

Health of the economy is reflected by growth of stock market

Firstly, brokers in Mumbai organized an informal association named ‘ the native stock and share brokers association’ in 1875

The market for long term securities like bonds, equity and preference shares etc is divided into primary and secondary market

Till recent past

Floor trading took place in all stock exchanges

Open out cry system during official trading hours

Trading post were assigned for different securities to buy and sell

System needed a face to face contact ,which reduces trading volume

Deals were not so transparent, favored brokers than investors

Setting of NSE and OTCEI resulted in screen based trading

Function of stock exchange

Maintains active trading

Price may vary from transaction to transaction

Increase liquidity and marketability of the shares traded

Fixation of the prices

Prices are determined by the transaction

Function of stock exchange

Ensure safe and fair dealing

Rules and regulation

transparency

Aids in financing the industry

Negotiability and transferability of the securities help companies to raise funds

Function of stock exchange cont...

Dissemination of the information

Various publication

Performance inducers

Price reflect the performance of the company

Self regulation

Monitor the integrity of the members , companies and clients

Settlement of disputes

Market Participants

Correlation of Global Markets (July 1990 to July 2007)

Resources Mobilized through Debt and Equity (Public Issues)

Regulatory framework

Capital issue (control) act ,1947

Securities contract (regulation) act, 1956

SEBI act, 1992

Depositories Act, 1996

Companies Act, 1956

Capital issue (control) act ,1947

Any firm, issuing shares needed central government permission

Also determine the amount and price of the issue

The act was repealed in 1992,

Market determined allocation started

Securities contract (regulation) act, 1956

It provided for control on :

all aspect of securities trading and

running of stock exchange to prevent undesirable transaction

It give central government regulatory jurisdiction over;

Stock exchanges : recognition and supervision

Contracts in securities

Listing of securities

Securities Contracts (Regulation) Act, 1956 cont….

Stock exchanges : recognition and supervision

processing application of recognition of stock exchanges

grant of recognition to stock exchange,

procedure of corporatisation and demutualization of stock exchanges,

withdrawal of recognition to stock exchange

Demutualisation and BSE

BSE has completed the process of Demutualisation in terms of The BSE (Corporatisation and Demutualisation) Scheme, 2005.

The Bombay Stock Exchange Limited has succeeded 'The Stock Exchange, Mumbai' in accordance with the Scheme

The Securities and Exchange Board of India (SEBI) had approved and published the Scheme of 'The Stock Exchange, Mumbai' vide notification No. S.O. 684(E), dated 20-5-2005.

This act also empowers the Central government to call for periodical returns and make direct enquiries.

to direct rules to be made and powers of SEBI to make or amend bye-laws of recognized stock exchanges have been laid down.

to supersede governing body of recognized stock exchange and vests with the Central Government

the power to suspend business of recognized stock exchanges

Contracts in Securities:

If the Central Government is not satisfied regarding the nature or the volume of transactions in securities it may, by notification in the Official gazette, declare contracts in notified areas illegal

Listing of Securities:

The act also provides conditions of

listing, delisting of securities,

right of appeal against refusal of stock exchanges to list securities of public companies,

right of appeal to SAT against refusal of stock exchange to list securities of public companies, procedures and powers of SAT,

Right to legal representation.

Penalties and Procedures:

The act also provides various cases when a person is liable for penalties such as when there is failure to :

Furnish information, return, etc.

Enter into agreements with clients

Redress investor's grievances

Segregate securities or moneys of client or clients

Comply with provision of listing and delisting conditions etc.

SEBI Act, 1992

The SEBI Act, 1992 was enacted to empower SEBI with statutory powers for

protecting the interests of investors in securities,

promoting the development of the securities market and

regulating the securities market by measures it thinks fit.

SEBI Act, 1992 cont….

The measure provide for :

Regulating the business in stock exchanges and other securities markets.

Registering and regulating the working of:

stock brokers, sub-brokers, share transfer agents

bankers to an issue, trustee of trust deeds, registrar to an issue,

merchant bankers, underwriters,

portfolio managers, investment advisers and

other intermediaries

Registering and regulating the working of the depositories, participants, foreign institutional investors, credit rating agencies and such other

Registering and regulating the working of venture capital funds and collective investment schemes, including mutual funds.

Prohibiting fraudulent and unfair trade practices relating to securities markets.

Promoting investors education and training of intermediaries of securities markets.

Prohibiting insider trading in securities

Regulating substantial acquisition in shares and takeover of companies.

undertaking inspection, conducting inquires and audits of the stock exchanges, mutual funds, other persons associated with the securities market,

Regulatory framework cont..

Companies Act, 1956

It deals with issue, allotment and transfer of securities and various aspects relating to company management

Provide for standard disclosure in public issues

Company management

Management perception of the risk factors

information about other listed companies under the same management

Company ‘s other projects

Regulatory framework cont..

Depository Act , 1996

Provides for the establishment of depositories in securities

Ensure free transferability of securities with speed and accuracy by

By making securities freely transferable

Dematerialising the securities

On line transfer

Depositories Act, 1996

The Depositories Act, 1996 provides for the establishment of depositories for securities to ensure transferability of securities with

speed,

accuracy and

security.

The act provides the rights and obligations of

depositories,

participants,

issuers and

beneficial owners.

Depositories Act, 1996 cont…

A depository is required to enter into an agreement with one or more participants as its agents.

Any person through a participant can enter into an agreement for availing its services.

Any person who enters into an agreement with depository should surrender the certificate of security for which he requires the services of a depository to the issuer

After the issuer receives the certificate of security, he should cancel the certificate of security and

substitute in its records the name of the depository as a registered owner in respect of that security

the depository should enter the name of the person who has entered into agreement, as the beneficial owner in its records.

After receiving intimation from the participant, every depository should register the transfer of security in the name of the transferee.

All securities held by a depository should be dematerialized and be in a fungible form.

The depositories should be deemed to be the registered owner for the purpose of effecting transfer of ownership of security on behalf of a beneficial owner.

the depository as a registered owner should not have any voting rights or other rights in the securities held by it.

A Beneficial owner, with the prior approval of the depository create a pledge or hypothecation of securities owned by him through a depository.

The depository is required to maintain a register and an index of beneficial owners.

The depositories are required to furnish information about the transfer of securities in the name of beneficial owners at such intervals and in such manner as may be specified by the bye-laws.

Types of order