D55b3 Indian Financial SystemPresentation Transcript
Indian Financial System
These include treasury bill market, call money market, inter bank market, bill market, government securities (gilt-edged)
market, Industrial Securities market, Public debt market, etc.
Range of services:
Management Marketing and underwriting of new issues
Project promotion services and project finance
Syndication of credit and other facilities
Leasing, including project leasing
Corporate advisory services
Investment advisory services
Bought out deals
Mutual funds and offshore funds
Investment Management including Discretionary Management
Assistance for technical or financial collaboration and joint ventures
Investment services for Non- Indians
Commercial paper- Management and dealing, etc
Control over Secondary Market
i. Recognition of Stock Exchange
Listing of Securities
Registration of Broker
Functions/ Services of Stock Exchanges
Liquidity and Marketability of Securities
Safety of Funds
Supply of Long Term Funds
Flow of Capital to Profitable Ventures
Motivation for Improved Performance
Promotion of Investment
Reflection of Business Cycle
Marketing of New Issues
Miscellaneous Services- Wider Portfolio Choices
Recognized by the Central Government under SCRA and SEBI
Grant of Recognition
Renewal of Recognition
Organization of Stock Exchanges in India
Traditional Structure of Stock Exchanges
Demutualization of Stock Exchanges
Listing of Securities
Group A, Group B and Group C Shares (BSE)
Group A shares (Specified Shares or Cleared securities)
Group B shares (Non-Specified Shares or Non-Cleared Securities)
Group C shares (Only ODD Lots)
ADVANTAGES OF LISTING
Facilitates Buying and Selling Secrities
DRAWBACKS OF LISTING
Leads to Speculation
Degrades Company’s Reputation
Discloses vital information to competitors
Criteria for Listing
New Listing Obligations
Registration of Stock Brokers
Code of Conduct for Stock Brokers
Functions of stock Brokers
Obtaining Margin Money
Execution of Orders
Supply of Necessary Slips
Issue of Contract Note
Statement of Particulars in a Contract Note
Payment/ Delivery of Securities
Charging of Brokerage and other Charges
Maintenance of Bank Accounts
Receipt of Interest, Dividend, Rights etc.
Settlement of disputes
REGISTRATION OF SUB-BROKERS
KINDS OF BROKERS AND THEIR ASSISTANTS
Tara Waril Walas
Method of Trading in a Stock Exchange
Choice of a Broker
Placement of Order
At Best Order
Immediate or Cancel Order
Limited Discretionary Order
Stop Loss Order
Execution of Orders
Preparation of Contract Notes
Settlement of Transactions
Spot Delivery Settlement
Hand Delivery Settlement
Special Delivery Settlement
Current Settlement Procedure of Trading Transactions Table: Showing Typical Settlement Cycle for various Activities T+2 working days T+2 working days Securities and funds pay-in Securities and funds pay-out Settlement T+2 working days T+3 working days T+4 working days T+5 working days T+5 working days T+6working days T+8 working days T+9 working days Valuation Debit Auction Bad delivery reporting Auction settlement Close out Rectified bad delivery pay-in and pay-out Re-bad delivery reporting and pick up Close up of re-bad delivery Post Settlement T+1 working days T+1 working days Custodial Confirmation Delivery generation Clearing T Rolling Settlement Trading Trading Day Activity Item
Settlement and Payment
Pay-in Day and Pay-out Day
“ Market Trade” and “Off Market Trade”
Good Delivery and Bad Delivery
Lodging for Transfer and Return Certificates
Online fully automated Screen Based Trading System (SBTS) almost 100% trading takes place through electronic Order Matching.
NSE has a main computer connected through Very Small Aperture Terminal (VSAT).
Main computer runs on a fault tolerant STRATUS main computer at the exchange. Brokers have terminals which are connected through VSATS/ Leased Lines/ Modems. This system also provides complete market information on-line. The market screens at any point of time provides complete information as to:
Total order depth in a security
The best five buys and sells in the market
The quantity traded during the day in that security
The last traded price for a security etc.
BSE- Bolt System
Bombay Online Trading-Brokers conduct trading from their Trading Work Stations (TSW) displays ‘touchline’-Best bid after- ‘Market View’
Merits of Online Trading
Accessible to All
Faster Incorporation of Price Sensitive Information
Widening the market
Saving of time and cost
No errors and frauds
Perfect audit trial
Types Of Stock Market Orders (NSE – NEAT SYSTEM)
NEAT – National Exchange for automated trading
GTC- A Good Till Cancelled
GTD – A Good Till Days
IOC – Immediate or cancel order
DQ – Disclosed Quantity
MF – Minimum Fill Order
AON – All or non order
STOP – Loss order
MKT Order – Market Order. For which the price is specified on ‘MKT’
ATO – At the Open – Market orders entered during pre – open stage
ABO – At Best Order
DO – Discretionary order
Quantity Price Freezes
Quantity Freeze – Quantity ordered in greater than 10% of the issue size of the security
Carry over or Badla Transactions
Badla and Short Selling
Badla and Stock Landing
Genuine Trading vs Speculative Trading
Kind of Speculators
Various Categories OF Stock Brokers
Jobbers/ Taravani Walls : Specialize in selected scrips
Badla Financers/ Badlawalls
Stags: Grey Market – unlisted securities
Wolves: Trade fast and make fast – buck, Not caught in the wrong foot
Lame Ducks – Sell securities without having shares caught in the wrong foot.
Rigging the Market
When the option gives the option holder a right to buy securities at a predetermined price – It is called Call Option, on the other hand when the option gives the option holder a right to sell securities at a predetermined price, it is called Put Option. When both rights are given it is called Double Option.
OPTIONS FOR HEADING
Wash Sales – Speculator sells a security and then buys the same at a higher price through another broker. There is severe penalty for such sales.
Cornering – Process of holding entire supply of a particular security.
Ragging the market – Market value of a particular share is pushed up – Speculators buy and sell to ‘ make a market’ and gradually sell the holdings to get huge profits.
When seller simply signs the transfer form without specifying the name of the buyer.
It is carried on by the clients with funds borrowed from their brokers.
The Stock Market index is a convenient and effective product due to the following reasons:
It acts as a barometer for market behavior
It is used to benchmark portfolio performance
It helps to allocate scarce resources to the best performed companies reflected through best performed scrips
It is used as a forecasting tool to predict the future movement of stock indices and also the business cycles.
It is used in derivative instruments like index futures and index options.
It can be used for passive fund management as in the case of index funds.
Stock Indices of BSE NSE
Indices of BSE : The base year for this index is April 1979.
Sensex – Launched on 2 nd January, 1986. Originally 30 companies representing various sectors on the exchange. At present, all scrips are selected from specified groups only. This index is available online and it is updated continuously.
BSE National Index :
This trade up of 100 scrips with 1982-84 as base year. It includes prices of scrips of Delhi, Calcutta, Ahmedabad and Madras. The average price of the scrip is taken for the compilation of the index.
Introduced in May, 1994 with 1989-90 as the base year. Consists of equity shares of 200 companies selected on the basis of market capitalization, volume of turnover and strength of the companies fundamentals. It comprises of scrips of both specified and non specified groups.
It is BSE-200 expressed in Dollar values so that it may be useful to foreign investors. In Dollex, the BSE-200 is modified by dividing the current rupee market value by rupee – dollar conversion rate.
Introduced in 1999 with the base year 1999. It is treated to be standard index covering all sections of the economy as well as the major part of the capital.
The Indian Financial system at present
Banking: RBI, Commercial banks, Co operative credit societies and banks, Post office saving banks
Non- Banking: Provident funds, Pension funds, LIC,GIC,UTI, Mutual funds, Investment companies, Finance corporations, Hire purchase and lease finance companies, National housing bank and other housing finance companies, HUDCO, Venture capital funds, National cooperative bank of India
Special Development : Industrial finance corporation of India (IFCI),ICICI,IDBI,IRBI,NABARD,IFCI, EXIM Bank, Agriculture finance Consultancy ltd., National Co operative Development corporation, NIDC,NSIC, State industrial Investment Corporations, SSIDCs, Power finance Corporation (PFC)
Regulatory and Others:
I. Regulatory: RBI, SEBI, BFIR, Board for financial supervision, Insurance regulatory authority
II. Others: Deposit insurance and credit guarantee corporation, Export credit guarantee corporation, Stock holding corporation of India, CRISIL, ICRA, Merchant banks, Factoring companies, Depositories, Custodians
Instruments & Markets:
Instruments :Equity shares, preference shares, Industrial debentures or bonds, Capital gains bonds, National development bonds, NSCs, CDs, CPs, Treasury bills, commercial bills, Social Security certificates, GDRs, foreign bonds, Floating rate notes (FRNs), Foreign currency convertible bonds, Zero coupon bonds, Non- voting shares, Indexed bonds, Future, option ,swaps and other financial derivatives