The document discusses stock exchanges in India, including their history, evolution, and regulations. It provides details on key stock exchanges like BSE and NSE, how trading works on the exchanges through electronic trading and T+2 settlement, and regulations around insider trading, fraudulent practices, and listing requirements set by SEBI. The stock exchanges serve important economic functions like being a barometer of the economy, facilitating capital allocation, and promoting savings and investment.

1. Unit-3

2. Contents
Capital Market - Secondary Market: Secondary Market System and
Regulations in India - Stock Exchanges in India: Evolution and importance -
Stock Exchange Mechanism: Trading, Settlement, Risk Management - Stock
Exchange Regulations-Listing of Scripts.

3. WHAT IS STOCK EXCHANGE
● Stock exchange are the place where stocks are traded.
● They allow investors to buy and sell shares of the company
among each other in regulated physically or electronic
space.
● A stock exchange in india aderes to set rules and
regulations directed by SECURITIES AND EXCHANGE
BOARD OF INDIA(SEBI).

4. HOW DOES THE STOCK EXCHANGE IN
INDIA WORKS
Platform where buyers and sellers comes together to tarde
financial tools during specific hours of any business day with
the guideline of SEBI.
Stock should be listed in the reputed stock exchange before
trading.
Stock exchange in india works independently as no “market
markers” or “specialists” are present in them.
The entire process of trading in stock exchange in india is
order-driven and conducted over and electronic limit order

5. HISTORY AND EVOLUTION OF STOCK
EXCHANGE IN INDIA
● India stock market marks to be one of the oldest stock
market in asia,
● In the 1830’s trading on corporate stocks and shares in
bank and cotton presses took place in bombay. Trading
widened with hardly half dozen brokers during 1840 and
1850.
● An informal group of 22 stock brokers began trading under

6. ● In 1928, the plot of land on which BSE building now
stands at the Dalal Street,Mumbai was acquired, and the
constructed and occupied in 1930.
● Premchand Roychand ( founder of BSE) was a leading
stock broker of that time and he assisted in setting out
traditions, conventions, and procedures for the trading of
stocks at Bombay Stock Exchange and they are still being
followed.
● In 1956, the Government of India recognized the bombay

7. STOCK EXCHANGES IN INDIA
● BOMBAY STOCK EXCHANGE (BSE)
● NATIONAL STOCK EXCHANGE(NSE)
● CALCUTTA STOCK EXCHANGE(CSE)
● METROPOLITAN STOCK EXCHANGE(MSE)
● INDIAN INTERNATIONAL STOCK EXCHANGE( INDIAN
INX)(GUJARAT)
● NSE IFSC(NSE INTERNATIONAL STOCK EXCHANGE)

8. IMPORTANT FUNCTION OF STOCK
EXCHANGE IN INDIA
Economic Barometer:
A stock exchange is a reliable barometer to measure the
economic condition of a country.Every major change in country
and economy is reflected in the prices of shares. The rise or fall
in the share prices indicates the boom or recession cycle of the
economy. Stock exchange is also known as a pulse of economy

9. Pricing of Securities:
The stock market helps to value the securities on the basis of
demand and supply factors. The securities of profitable and
growth oriented companies are valued higher as there is more
demand for such securities. The valuation of securities is useful
for investors, government and creditors. The investors can know
the value of their investment, the creditors can value the
creditworthiness and government can impose taxes on value of

10. Contributes to Economic Growth:
In stock exchange securities of various companies are bought
and sold. This process of disinvestment and reinvestment helps
to invest in most productive investment proposal and this leads
to capital formation and economic growth.
Spreading of Equity Cult:
Stock exchange encourages people to invest in ownership
securities by regulating new issues, better trading practices and

11. Better Allocation of Capital:
The shares of profit making companies are quoted at higher
prices and are actively traded so such companies can easily
raise fresh capital from stock market. The general public
hesitates to invest in securities of loss making companies. So
stock exchange facilitates allocation of investor’s fund to
profitable channels.
Promotes the Habits of Savings and Investment:

12. Secondary Market - Definition
• This is the market wherein the trading of securities is done.
Secondary market consists of both equity as well as debt markets.
• Securities issued by a company for the first time are offered to the
public in the primary market. Once the IPO is done and the stock is
listed, they are traded in the secondary market.
• The main difference between the two is that in the primary market,
an investor gets securities directly from the company through IPOs,
while in the secondary market, one purchases securities from other
investors willing to sell the same.
• Equity shares, bonds, preference shares, treasury bills, debentures,
etc. are some of the key products available in a secondary market.
SEBI is the regulator of the same

13. Segments in Indian Secondary Market

14. Types of Deals in Stock Market
• Bulk deals are defined as “all transactions in a scrip (on an exchange)
where total quantity of shares bought/sold is more than 0.5% of the
number of equity shares of the company listed on the exchange.”
• A block deal is defined as “a trade, with a minimum quantity of
500,000 shares or minimum value of Rs.5 crore executed through a
single transaction on the separate window of the stock exchange”

15. Trading Mechanism
• Floor Trading/Open Out cry system
• Electronic Trading
• Algo Trading

16. Settlement Mechanism
• T+2 Settlement

17. Risk Management

18. Stock Exchange Regulations
• The power of SEBI to administer the secondary markets and stock exchanges is provided for specifically
under Section 11(2) of the SEBI Act. This provision inter alia empowers SEBI to regulate stock exchanges,
stock brokers, sub-brokers, share transfer agents and other intermediaries associated with secondary
markets.
• It also empowers SEBI to prohibit fraudulent and unfair trade practices relating to securities markets and
prohibiting insider trading in securities.
• Based on these powers, SEBI administers the working of the stock exchanges and secondary markets through
issue of regulations and circulars from time to time.
• Section 12 of the SEBI Act provides that all intermediaries and persons associated with securities market
shall buy, sell or deal in securities only after obtaining a certificate of registration from SEBI.
• Accordingly, as far as the secondary market is concerned, stock brokers, sub-brokers, share transfer agents,
portfolio managers, investment advisers, custodians, depositories and participants, FPIs, mutual funds and
collective investment schemes are subject to registration with SEBI.
• SEBI issued regulations for registration and governance of each of these intermediaries and investors in the
secondary markets.
• In addition to the SEBI Act, the SCRA also imposes the responsibility on SEBI to administer the securities
markets.

19. • Under Section 30 of SCRA, the powers for carrying out the purposes
of the Act are vested with SEBI. Similarly, the Securities Contracts
(Regulation) Rules, 1957 are exercisable by SEBI.
• With regard to market practices, SEBI issued the SEBI (Prohibition of
Insider Trading) Regulations, 1992 and the SEBI (Prohibition of
Fraudulent and Unfair Trade Practices relating to Securities Markets)
Regulations, 2003.

20. Insider Trading
• According to the Regulations, an Insider means “any person who, is or was
connected with the company or is deemed to have been connected with
the company and who is reasonably expected to have access to
unpublished price sensitive information in respect of securities of a
company or who has received or has had access to such unpublished price
sensitive information.”
• Regulation 3 specifically prohibits an insider from dealing in securities of a
company listed on any stock exchange when in possession of any
unpublished price sensitive information either on own or other account.
• Similarly, no company shall do so in the securities of another company or
associate of that other company. Restrictions also apply in procuring or
passing on price sensitive information from an insider to another person.

21. • . In grave cases of insider trading, SEBI may initiate prosecution under
Section 24 of the Act which provides for a maximum imprisonment of
10 years or a fine of `25 crore (250 million) or both.

22. Fraudulent and unfair trade Practices
Regulations
• The SEBI Regulations on unfair trade practices define such practices
broadly so as to capture a wide variety of transactions in the
securities markets that are intended to deceive or accrue unfair gains.
Such practices are also extended to the activities of intermediaries
and providers of information.
• Similarly, circular transactions and mis-selling of financial securities or
mutual fund schemes are also considered unfair practices.
Unregistered collective investment schemes are also prohibited under
the regulations. SEBI exercises its investigative powers under the
regulations to act against parties perpetrating such practices and
takes necessary punitive action.

23. ICDR regulations
• Issue of Capital and Disclosure Requirements (ICDR)
regulations
• IPOs only above Rs 100 crore are monitored.
• Under the current arrangement, the issuer makes necessary
preparations for the use of proceeds of the IPO to be monitored
by a public financial institution or by one of the scheduled
commercial banks named in the offer document as bankers of
the issuer.

24. Listing of Scripts