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Indian Stock Market

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Indian Stock Market Indian Stock Market Presentation Transcript

  • 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    • The act was repealed in 1992,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.
  • Securities Contracts (Regulation) Act, 1956 cont….
    • 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
  • Securities Contracts (Regulation) Act, 1956 cont….
    • 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
  • Securities Contracts (Regulation) Act, 1956 cont….
    • 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.
  • Securities Contracts (Regulation) Act, 1956 cont….
    • 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
  • SEBI Act, 1992 cont….
    • 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.
  • SEBI Act, 1992 cont….
    • 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
  • Depositories Act, 1996 cont…
    • 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.
  • Depositories Act, 1996 cont…
    • 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.
  • Depositories Act, 1996 cont…
    • 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
    • Limit orders
      • Limited by fixed prices
        • Buy ABC Ltd for Rs. 100
    • Best rate order
      • Gives freedom to broker to execute the order at the best available price
  • Types of orders
    • Discretionary order
      • Broker use discretion to buy with in specified limit
        • Buy ABC Ltd at around Rs 100
    • Stop loss order
      • Given to reduce the loss due to unfavorable market condition
        • Sell ABC Ltd at Rs 25, stop loss at Rs 22
  • Brokerage information
    • Brokers must make their business on following lines
      • Office with adequate financial information
      • Advisor to enable investors to make decision
      • When and where to find best unlisted securities for the investors
      • They must arrange membership of any major stock exchange
  • thanks