Capital market

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  • The Stock Exchanges also issues rules of the game. The Stock Exchanges also issues rules of the game.
  • Capital market

    1. 1. INDIAN CAPITAL MARKET. By N.D.Jacob
    2. 2. CAPITAL MARKET MOBILISES CAPITAL FOR THE INDUSTRY. IT CREATES WEALTH THROUGH PRIMARY MARKET, AND DISTRIBUTES IT THRU SECONDARY MARKET ACTIVITIES.
    3. 3. LEGAL FRAMEWORK. <ul><li>1. Legislations. </li></ul><ul><li>2. Acts. </li></ul>
    4. 4. CAPITAL ISSUES CONTROL ACT. 1947. <ul><li>Had its origin in 1930 to raise resources for the war. </li></ul><ul><li>Retained with modifications to raise capital for companies and to protect the interest of investors. </li></ul><ul><li>Act was repealed in 1992. </li></ul>
    5. 5. SECURITIES CONTRACT REGULATION ACT. 1956. <ul><li>Recognition and supervision of Stock Exchanges. </li></ul><ul><li>Contracts in Securities. </li></ul><ul><li>Listing of Securities. </li></ul>
    6. 6. SEBI ACT 1992. <ul><li>Protect the interest of investors. </li></ul><ul><li>Promote the development of securities market. </li></ul><ul><li>Regulate Securities Market . </li></ul><ul><li>Conduct audits and inspections of all concerned; adjudicate offences under the Act. </li></ul><ul><li>Register and Regulate all market intermediaries. </li></ul><ul><li>and also to penalise them on violations of the Act. </li></ul><ul><li>Permits and Regulates Issuance of IPO’s, Acquisitions and Mergers and Take-Over </li></ul><ul><li>SEBI issues notifications, guidelines, and circulars which need to be complied with by market participants. The Stock Exchanges also issues rules of the game. </li></ul>
    7. 7. DEPOSITORIES ACT 1996. <ul><li>Securities of Public Ltd. Companies freely transferable. </li></ul><ul><li>Dematerialising the securities in the Electronic Mode. </li></ul><ul><li>Maintain Ownership Records in a Book-Entry Form. </li></ul>This facilitated free transfer; and dispensed with the Company’s discretion in effecting the transfer. Settlement Procedures in Stock Exchanges became quick; eliminated fraud and theft.
    8. 8. COMPANIES ACT 1956. <ul><li>Allotment and transfer of securities. </li></ul><ul><li>Disclosure about company management and projects. </li></ul><ul><li>Regulates underwriting, the use of premium and discounts on rights, and bonus issues. </li></ul><ul><li>Payment of interests and dividends, supply of annual reports. </li></ul>
    9. 9. REGULATORS. <ul><li>The regulators ensure that all the market participants perform in a desired manner so that the securities market continue to be a major source of finance for corporates and government; and the interest of investors are protected. The erstwhile Dept. of Economic Affairs. responsibilities are shared by </li></ul><ul><li>1. Dept. of Company Affairs. </li></ul><ul><li>2. Reserve Bank of India. </li></ul><ul><li>3. SEBI </li></ul><ul><li>4. Securities Appellate Tribunal. </li></ul>
    10. 10. MARKET SEGMENTS. <ul><li>1. PRIMARY MARKET (New Issue Market). </li></ul><ul><li>2. SECONDARY MARKET (Stock Market). </li></ul><ul><li>Both are interdependent and inseparable. </li></ul>
    11. 11. PRIMARY MARKET. <ul><li>A company after registration with the RoC, approaches the Public with a prospectus to raise Capital. </li></ul><ul><li>The Prospectus is a statutory document which ensures the Disclosure and Investor Protection Guidelines. </li></ul><ul><li>Anybody and everybody can subscribe for the securities. </li></ul>
    12. 12. PUBLIC ISSUES (INITIAL PUBLIC OFFERS –IPOs) <ul><li>1. Corporate Issues: Shares and Debentures. </li></ul><ul><li>2. Government (Central, State and Municipal Authorities) Issues: Bonds, Treasury Bills and Dated Securities. </li></ul>
    13. 13. LISTED AND PERMITTED SECURITIES . <ul><li>Companies have to list shares 7 days after finalisation of allotment. </li></ul><ul><li>Compulsory listing in Domestic SE and or any other SE. </li></ul><ul><li>SEs have different tariff of fees and Company’s have to satisfy all clauses in the Listing Agreements. </li></ul><ul><li>Violation of Agreement attracts delisting and fines. </li></ul><ul><li>Listed securities are traded as permitted securities in other SEs. </li></ul>
    14. 14. SECONDARY MARKET. <ul><li>The Secondary Markets are Stock Exchanges, which helps investors to adjust their holdings in response to changes in their assessment of risk and return. </li></ul><ul><li>Also to sell securities for cash to meet their liquidity needs. </li></ul>
    15. 15. MAJOR STOCK EXCHANGES. <ul><li>1 . Bombay Stock Exchange </li></ul><ul><li>2. National Stock Exchange Ltd. </li></ul><ul><li>3. Over the Counter Exchange of India Ltd. </li></ul><ul><li>4. Regional Stock Exchanges. </li></ul>
    16. 16. The Stock Exchange, Mumbai (BSE). <ul><li>Established in 1875, the oldest in Asia, constituted as a voluntary, non-profit making Association. </li></ul><ul><li>Number of Active Members:532. </li></ul><ul><li>Governed by a Board of Directors. </li></ul><ul><li>No. of Companies Listed: A-173, B1-560, B2-1930 and Z-3044. </li></ul><ul><li>Index-SENSEX. </li></ul>
    17. 17. NATIONAL STOCK EXCHANGE LTD. (NSE). <ul><li>Established in 1996, a limited Company jointly floated by UTI, IDBI, and other financial Institutions (demutualised). </li></ul><ul><li>Governed by a Board of Directors. </li></ul><ul><li>Offers the highest liquidity and turnover. </li></ul><ul><li>Index-NIFTY. </li></ul>
    18. 18. OVER THE COUNTER EXCHANGE OF INDIA LTD. <ul><li>Most of the trades in Government Securities are in the OTC Market. </li></ul><ul><li>Spot trades of securities for immediate delivery and payment. </li></ul><ul><li>It is considered an informal market. </li></ul>
    19. 19. REGIONAL EXCHANGES. <ul><li>23 Recognized Stock Exchange. </li></ul><ul><li>In 2001 the one-sided turnover of all the stock exchanges was Rs.300,0000 crore. </li></ul><ul><li>Regional Stock Exchanges were permitted to operate in the jurisdiction where they were instituted. When NSE was allowed to open screen-based terminals all over the country, RSEs lost business;and eventually many trading floors were closed. </li></ul>
    20. 20. COMPOSITION OF STOCK EXCHANGES . <ul><li>SEs are self constituted regulatory bodies of people. It can be a company, society or non-profit making organisations. </li></ul><ul><li>Governed by elected representatives and public representatives appointed by SEBI. </li></ul><ul><li>Recognition is accorded by SEBI. </li></ul><ul><li>All exchanges have to be demutualised by 2003 </li></ul><ul><li>(Ownership, management and trading would be segregated from each other to eliminate nepotism, interference, and fraud). </li></ul><ul><li>No trading member can hold official posts. </li></ul>
    21. 21. MEMBERSHIP CRITERA. <ul><li>1. Minimum age of 21 years. </li></ul><ul><li>2. Indian Citizen; relaxable by the Board. </li></ul><ul><li>3. Not declared bankrupt or insolvent. </li></ul><ul><li>4. Not compounded with his creditors. </li></ul><ul><li>5. Not convicted on criminal charges. </li></ul><ul><li>6. Not a principal employee in any other business. </li></ul><ul><li>7. Not declared a defaulter by other SEs. </li></ul><ul><li>8. Either matriculate, however preference is given to professionally qualified people. </li></ul>
    22. 22. DEMUTUALISATION OF SE’s. <ul><li>Most of the Exchanges in the country are organised as “mutuals” which was considered beneficial in terms of tax benefits and matters of compliance. The trading members, who provide broking services, also own, control and manage exchanges. This is not an effective model for self regulatory organisations as the regulator and regulated are the same. </li></ul><ul><li>Demutualisation segregates ownership, management and trading activity from one another. </li></ul><ul><li>NSE and OTCEI are demutualised exchanges. </li></ul>
    23. 23. TRADING. <ul><li>Fully automated, computerised on-line trading system. </li></ul><ul><li>Greater transparency, reliability. </li></ul><ul><li>Provides full anonymity. </li></ul><ul><li>Provides perfect audit trail, which helps to resolve disputes. </li></ul><ul><li>Accessed from any premises, anywhere. </li></ul><ul><li>“ Open Book”- order book is visible to all participants . </li></ul>
    24. 24. SETTLEMENT. <ul><li>Rolling Settlement-all transactions are settled on T+2 basis. It means that the final settlement of transactions done on T or trade day by exchange of moneys and securities, takes place on third business day after the trade day. </li></ul><ul><li>All securities have to be in Demat form. </li></ul><ul><li>“ Z” group shares are settled on trade to trade basis-no netting is allowed. </li></ul>
    25. 25. DEPOSITORY. <ul><li>Depositories Act 1996 was enforced on 20 th September 1996. </li></ul><ul><li>Dematerialisation is the process by which shares in the physical/paper form are cancelled and credit in the form of electronic balances are maintained on highly secure systems called the Depository. </li></ul><ul><li>Speedy transfer of shares from one account to another. </li></ul><ul><li>Eliminated fake shares and frauds. </li></ul><ul><li>Company objections and interference are eliminated. </li></ul>
    26. 26. INVESTOR COMPLIANCE . <ul><li>Investor has to register and sign an agreement with the Broker. </li></ul><ul><li>Open demat account. </li></ul><ul><li>Deposit margins when required. </li></ul><ul><li>Collect Contract/Trade Confirmation Memo on execution of orders, confirm quantity, rate and time. </li></ul><ul><li>Confirm all documents carry Broker/Sub-Broker SEBI Regn. Number. </li></ul><ul><li>Deliver securities, make payments, collect payments on schedule. </li></ul>
    27. 27. INVESTOR PROTECTION. <ul><li>All SEs have machinery to attend to grievances and settle disputes. </li></ul><ul><li>All grievances and disputes should have documentary evidence and claims should be filed on time. </li></ul><ul><li>All SEs have Investor Protection Fund. </li></ul>
    28. 28. INDEX-SENSEX. <ul><li>Compiled in 1986; oldest Indian index. </li></ul><ul><li>Managed by an Index Committee. </li></ul><ul><li>Consists of 30 most volatile scrips from the ‘A’ Group. </li></ul><ul><li>Calculation is based on “Market Capitalisation Weighted”. </li></ul><ul><li>Other BSE Indices: BSE-100, BSE-500, BSE Sectoral Indices , BSE PSU, BSE Tech and Dollex -30 </li></ul>
    29. 29. INDEX-NIFTY. <ul><li>Index Services & Products Ltd. manages </li></ul><ul><li>and maintains Nifty. </li></ul><ul><li>Consists of 50 stocks and calculated on Market Capitalisation Weightage. </li></ul><ul><li>The Base year is 1996 and the base value is 1000. </li></ul><ul><li>NSE maintains other indices also for less liquid and sector specific stocks. </li></ul>
    30. 30. SELECTION OF INDEX SCRIPS. <ul><li>Market Capitalisation: (number of tradable shares x market price). The company should be in the list of 100 companies by market capitalisation. </li></ul><ul><li>Continuously traded with good volume. </li></ul><ul><li>Historical continuity should be maintained. </li></ul><ul><li>A balanced representation of the listed companies; should be leaders in their group. </li></ul><ul><li>A listing history of at least six months. </li></ul><ul><li>Should have a continuous dividend paying track record. </li></ul>
    31. 31. INDEX COMPUTATION. <ul><li>“ Market Capitalisation-Weighted” index. </li></ul><ul><li>As per the methodology, the level of the Index reflects the total market value of all the component stocks from different industries related to a particular base period. The total market value of a company is determined by multiplying the price of its stock by the number of shares outstanding. Statisticians call an index of a set of variables (such as price and number of shares) a composite index. An index number is used to represent the results of this calculation. </li></ul>
    32. 32. MAJOR GLOBAL INDICES . <ul><li>1. DOW JONES – NEWYORK STOCK EXCHANGE. </li></ul><ul><li>2. NASDAQ – FOR TECHNOLOGY SCRIPS. </li></ul><ul><li>3. FTSE – LONDON </li></ul><ul><li>4. CAX – FRANCE </li></ul><ul><li>5. DAX – GERMANY </li></ul><ul><li>6. NIKKEI – JAPAN </li></ul><ul><li>7. HANGSENG – HONGKONG </li></ul><ul><li>8. KOSPI – KOREA. </li></ul>
    33. 33. PRODUCTS. <ul><li>Shares. </li></ul><ul><li>Mutual Funds. </li></ul><ul><li>Debt Instruments. </li></ul><ul><li>Derivatives . </li></ul>
    34. 34. TRADING. <ul><li>The usual trading time is 0955 to 1530. </li></ul><ul><li>Nation-wide on-line fully-automated screen based trading system 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 sell or buy order from a counter party. </li></ul><ul><li>It allows depth and liquidity, informational efficiency, anonymity and secrecy. </li></ul><ul><li>Today 100% trading takes place through electronic order matching. </li></ul><ul><li>All actively traded shares are settled in demat. </li></ul>
    35. 35. PRICE BANDS. <ul><li>To curb excessive volatility, SEBI has prescribed a system of price bands. The Price Bands or Circuit Breakers triggers a coordinated trading halt in all markets nationwide. An index-based market-wide circuit breaker system at three stages of the index movement at 10%, 15% & 20% has been prescribed. Nifty or Sensex, whichever is breached earlier, triggers the breakers. As an additional measure of safety, individual scrip-wise price bands of 20% either way have been imposed for all securities except those available for stock option. </li></ul>
    36. 36. CLEARING AND SETTLEMENT . <ul><li>On April 1, 2003 SEBI advised all exchanges to implement T+2 Rolling Settlement with the following activity schedule. </li></ul>Auction Pay-in and Pay-out. Not Later than T+6 5. Auction of Shortages of Deliveries. T+2 4. Securities and Funds Pay-in/Securities and Funds Pay-out. T+2 3. Net Obligation Report – NSCCL. T+1 2. Trade Day. T 1. Description of Activity. Day Sl. No
    37. 37. PRODUCTS .
    38. 38. Mutual Funds. <ul><li>Only close-ended MFs are listed in stock Exchanges. </li></ul><ul><li>Consequent to UTI debacle, most of the AMCs have only open-ended schemes. </li></ul><ul><li>NET ASSET VALUE (NAV) </li></ul><ul><li>MARKET VALUE OF THE FUND’S ASSETS, MINUS LIABILITIES, DIVIDED BY THE NUMBER OF SHARES OUTSTANDING AT ANY POINT IN TIME. </li></ul>
    39. 39. TYPES OF MUTUAL FUNDS <ul><li>EQUITY FUNDS </li></ul><ul><li>BOND FUNDS </li></ul><ul><li>HYBRID FUNDS (STOCKS AND BONDS) </li></ul><ul><li>INCOME FUNDS </li></ul><ul><li>MONEY MARKET FUNDS </li></ul><ul><li>INDEX FUNDS </li></ul>
    40. 40. EXCHANGE-TRADED FUNDS (ETFs) <ul><li>Relatively new, yet very popular. </li></ul><ul><li>Like closed-end funds, they trade like individual stocks. </li></ul><ul><li>Passively managed to mirror a market index, both broad and narrow. Composed of all shares in the Index in the correct proportions. India has only one at present – NIFTY BEES. </li></ul><ul><li>Low expenses, but do involve brokerage commissions. </li></ul>
    41. 41. DERIVATIVES. <ul><li>A derivative is an instrument whose value is derived from the value of one or more underlying, which can be commodities, precious metals, currency, bonds, stocks, stock indices. </li></ul><ul><li>Four most common examples of derivatives are Forwards, Futures, Options and Swaps. </li></ul>
    42. 42. FORWARDS AND FUTURES . <ul><li>A f orward contract is a customised contract between two parties, where the settlement takes place on a specific date in future at a price agreed today. </li></ul><ul><li>Futures are exchange-traded forward contracts to sell or buy financial instruments or physical commodities for future delivery at an agreed price. Today the contracts have some standardised specifications. </li></ul>
    43. 43. OPTIONS. <ul><li>A Call Option gives the holder (buyer) the right to buy specified quantity of the underlying asset at the strike price on or before the expiration date in case of a American option. The writer (seller) always has the obligation to deliver the underlying asset if the buyer decides to exercise his option to buy. </li></ul><ul><li>A Put Option gives the buyer the right to sell specified quantity of the underlying asset at the strike price on or before the expiry date in case of the American option. The seller of the option is obliged to buy the asset at the strike price if the buyer decides to sell. </li></ul>
    44. 44. Examples from everyday life: <ul><li>Mr.Ravi contracts to buy 5 cents of land from Mr.Anil at a rate of Rs.10,000/- per cent after one month and gives an advance payment of Rs.5000/-. Mr. Ravi comes to Mr.Anil with the balance amount on the stipulated date. Mr. Anil is obliged to give 5 cents of land on demand. </li></ul><ul><li>If Mr. Ravi chooses to exist from the contract, he loses only the advance. The buyer only has the right. </li></ul><ul><li>This is a typical Call Option situation. </li></ul>
    45. 45. Example Contd.. <ul><li>Anil is a farmer; and due to the excellent expected crop the price of paddy will fall from the present Rs.25 p/kg to 18 p/kg. To avoid loss he contracts to sell 500 kgs of paddy to Ravi @ Rs.20/- p/kg one month from hence and pays an assurance of Rs.50/-Anil is buying the right to sell. </li></ul><ul><li>On the stipulated time if the price is only Rs.15/- p/kg, Anil’s contract is profitable and he exercises his right and sells 500 kgs of paddy and collects the price @Rs.20/- p/kg. If the price is Rs.21/- p/kg he chooses not to exercise the right and exists losing Rs.50/-. </li></ul><ul><li>This is a typical Put Option situation. </li></ul>
    46. 46. FUTURES. OPTIONS. <ul><li>European Type. </li></ul><ul><li>Cash settled on the last Thursday of every month. </li></ul><ul><li>One month, Two months and Three months contracts </li></ul><ul><li>Both Seller and Buyer have obligation. </li></ul><ul><li>Both have to pay initial margin and mark to market margin. </li></ul><ul><li>Symmetric risk for both buyer and the seller. </li></ul><ul><li>The price is affected by the underlying asset only. </li></ul><ul><li>American Type. </li></ul><ul><li>Free to exit during anytime. </li></ul><ul><li>One Month, Two Months and Three Months contract. </li></ul><ul><li>Only seller has the obligation. </li></ul><ul><li>The Buyer always pays a premium and the loss is limited. </li></ul><ul><li>The seller gets only the premium as profit but loss is unlimited. </li></ul><ul><li>The price is influenced by many factors. </li></ul>
    47. 47. DEBT MARKET . <ul><li>It is the market where fixed income securities of various types and features are issued and traded. </li></ul><ul><li>These securities are issued by Central and State Governments, Corporations, Municipalities, Govt. Bodies and Commercial entities like Financial Institutions, Public Sector Units, Public Ltd. Companies and also structured finance instruments. </li></ul>
    48. 48. TYPES OF DEBT INSTRUMENTS. Debenures, Bonds, Com. Paper, Floating rate Bonds,Zero Coupon Bonds, Inter Corporate Deposits, Cert. of Deposits, Debentures, Bonds. Cert. of Deposit, Bonds. Corporate Banks, FIs Private Sector Govt. gauranteed Bonds,Debentures. PSU Bonds, Debentures, Commercial Paper. Govt. Agencies/Statutory Bodies. Public Sector. Public Sector. Zero Coupon Bonds, Coupon Bearing Bond, Treasury Bills. Coupon Bearing Bonds. Central Govt. State Govt. Govt.Securities. Instruments. Issuer. Market Segment.
    49. 49. READY FORWARD TRADE (REPO). <ul><li>In a Ready Forward Trade (Repo Trade), one party sells securities to the other with an agreement to purchase them back at a later date. The trade is called a Repo Transaction from the point of view of the seller; a Reverse Repo from the point of view of a buyer. </li></ul><ul><li>This is commonly used in the money market as instruments of short term liquidity management and are also called Collaterlised Lending and Borrowing Mechanism. Banks and Financial Institutions usually enter into such transactions for reserve requirements and liquidity purposes. </li></ul>
    50. 50. INDIAN CAPITAL MARKET. STATUTORY & POLICY REFORMS SINCE 1992.
    51. 51. Union Budgets. <ul><li>2001-02 Indian Cos were permitted to list in foreign SEs. </li></ul><ul><li>PAN made compulsory for all transactions over Rs.1Lakh. </li></ul><ul><li>02-03. Proposed regulations in Accounting Standards. </li></ul>
    52. 52. 1. Primary Market. <ul><li>Capital Issues Control Act 1947. </li></ul><ul><li>The act had its origin in 1943 when the objective was to support the war effort. It was retained with some modifications as means of controlling the raising of capital by companies and to ensure national resources were channeled into proper lines. Under the Act, any firm wishing to issue securities had to obtain approval from Central Government. This Act was repealed in 1992. </li></ul>
    53. 53. DISCLOSURE AND INVESTOR PROTECTION GUIDELINES 2000 <ul><li>Issuers to disclose the truth, the whole truth and nothing but the truth. The prospectus should be transparent and disclose any material “risk factor” and give justification for pricing. </li></ul><ul><li>Lead Managers to issue a “ due diligence certificate” stating that they have examined the prospectus . </li></ul><ul><li>Credit Rating proposed for IPOs. </li></ul>
    54. 54. IPO SYSTEMS AND BOOK BUILDING 2001. <ul><li>This is an innovative method of IPO. </li></ul><ul><li>Only companies with good track record and record of distributable profits, and net worth are eligible for “Book Building “ method. </li></ul><ul><li>Offer 60% to qualified Institutional Buyers (QIBs). </li></ul><ul><li>The issues are not appraised by competent agencies and no underwriter guarantee. </li></ul><ul><li>It favours the issuers – no level-playing field between promoters and investors. </li></ul>
    55. 55. BOOK BUILDING…… contd. <ul><li>All applicants above cut-off price get allotment. </li></ul><ul><li>Investors part with the money only after allocation; eliminates refund; reduces time for process. </li></ul><ul><li>Aims to achieve efficient “price discovery”; bids are collected from investors at various prices, which are above or equal to the floor price. The offer price is determined after the closing day. </li></ul><ul><li>The offer is open for five days; and the offer prices are to be announced every day on closing. </li></ul>
    56. 56. Promoters’ Contributions: <ul><li>Should contribute 20% of the capital. </li></ul><ul><li>Should bring in all the contributions one day prior to the issue. </li></ul><ul><li>Lock-in for three years; excess of 20% for one year. </li></ul><ul><li>Not applicable to listed, dividend paying and with no identifiable promoter group, for the rights issue. </li></ul>
    57. 57. Foreign Capital. <ul><li>No rights. </li></ul><ul><li>Two way fungibilty. </li></ul><ul><li>Protected from exchange rate risks. </li></ul><ul><li>Proceeds are used for repayment of FX loans; establishments of foreign outlets. </li></ul><ul><li>Marketing done thru road-shows. </li></ul><ul><li>Investors get the option to convert the bonds into shares after 45 days. </li></ul><ul><li>ADRs, GDRs, Yankee Bonds, Samurai Bonds. </li></ul>
    58. 58. <ul><li>Depositories Act 1996 . </li></ul><ul><li>The Act envisages transfer of ownership of securities electronically by book entry without making securities move from person to person. It helps the securities of all companies freely transferable, restricting the company’s right to discretion and the transfer deeds and other procedural requirements have been dispensed with. </li></ul><ul><li>Free transfer 2. dematerialize in the depository mode 3. maintain ownership records. </li></ul><ul><li>It helped to streamline settlement process. </li></ul>
    59. 59. SC(R)A AMENDMENT 2002. <ul><li>“ Securities” now include: </li></ul><ul><li>Shares, scrips, stocks, bonds, debentures, or other marketable securities of like nature in or of any incorporated company or body corporate; </li></ul><ul><li>Derivative; </li></ul><ul><li>Units or any other instrument issued by any collective investment scheme; </li></ul><ul><li>Security Receipts; </li></ul><ul><li>Government Securities; </li></ul><ul><li>Such other instruments as may be declared to be securities </li></ul><ul><li>Rights or interests in securities. </li></ul>
    60. 60. SECONDARY MARKET. DEMUTUALISATION OF SE’s . Most of the Exchanges in the country are organised as “mutuals” which was considered beneficial in terms of tax benefits and matters of compliance. The trading members, who provide broking services, also own, control and manage exchanges. This is not an effective model for self regulatory organisations as the regulator and regulated are the same. Demutualisation segregates ownership, management and trading activity from one another. NSE and OTCEI are demutualised exchanges.
    61. 61. Investor Protection. <ul><li>Clearing corporations emerged to assume counter party risk. </li></ul><ul><li>Trade and settlement guarantee funds were set up to guarantee settlement of trades irrespective of default by brokers. </li></ul><ul><li>Investor Protection Fund. </li></ul><ul><li>Investor Awareness Programmes. </li></ul><ul><li>Investors’ Associations. </li></ul><ul><li>Retail investment in IPOs is Rs.50,000 instead of below 1000 shares. </li></ul>
    62. 62. MARGIN TRADING <ul><li>A customer can pay part of the total amount due and borrow the remainder from the broker, who in turn typically borrows from a bank to finance customers. </li></ul><ul><li>Margin is that part of a transaction’s value that a customer must pay to initialize the transaction. It is part of the total value of the transaction that cannot be borrowed from the broker. </li></ul><ul><li>What is initial margin? </li></ul><ul><ul><li>Part of a transaction’s value that a customer must pay to initialize a transaction. 40% of the total value. </li></ul></ul><ul><li>What is maintenance margin? </li></ul><ul><ul><li>Minimum amount needed in the investors account at all times as compared to the market value. Marked to Market Margin. </li></ul></ul><ul><li>What is margin call? </li></ul><ul><ul><li>A margin call is issued when the actual margin declines </li></ul></ul>
    63. 63. STRUCTURAL REFORMS. <ul><li>1996 – NSSCL Central Counterparty for all clearing activities of NSE trades. </li></ul><ul><li>2001 – Rolling Settlement. T+5 gave way to T+3 from April 2002 and T+2 from April 2003. </li></ul><ul><li>Proposal to migrate to T+1 </li></ul><ul><li>Book closure period reduced from 30 days to 15 days. </li></ul><ul><li>ESOP guidelines reformed. </li></ul>

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