: Explain the role of capital market in the economic development of anation?Ans: SIGNIFICANCE OF CAPITAL MARKETS IN INDIA*...
institutions.^ Debentures floated by corporates.iii) The Equity Market:^ Corporates raise preference / equity share capita...
country.~ The volume of capital formation depend s on the efficiency and intensitywith which these activities are carried ...
~ Developmental financial institutions like IDBI, IFCI, ICICI, etc providefinance to industries to adopt modern techniques...
viii) EMPLOYMENT GENERATION:~ Capital markets provide Direct Employment in capital market relatedactivities like stock mar...
~ They provide medium / long term loan to industrial and other sectors andalso undertake project feasibility studies and s...
~ It values companies accurately and thus promotes efficiency.~ This leads to efficient resource allocation and economic d...
iii) Long Term Loans market / Developmental Financial Institutions.iv) Financial Intermediaries.i)GILD-EDGED MARKET:~ This...
# PRIMARY MARKET:^ It is a market for new issues. It deals with those securities that are issuedto the public for the firs...
^ The secondary market deals with securities that are already issued bycompanies.^ It facilitates trading in securities an...
iii) LONG TERM LOANS MARKET / DEVELOPMENT FINANCIALINSTITUTIONS:~ Developmental financial institutions were established to...
^ Thus, they encourage new entrepreneurs, help in identifying investmentopportunities and support modernisation efforts.*M...
technology.*CONCLUSION:~ Thus the capital market structure in India is complex and covers widerange of activities.~ Throug...
*FACTORS RESPONSIBLE L,DNKLFOR THE GROWTH OF CAPITALMARKETS IN INDIA:i)GROWTH OF STOCK EXCHANGES IN INDIA:~ Capital Market...
Import Bank of India (EXIM BANK), State Finance Corporations (SFCs),state Industrial Corporations (SIDCs), etc.iii) GROWTH...
vi) DEVELOPMENT OF VENTURE CAPITAL FUNDS:~ Venture Capital is the investment made in a highly risky project with aview to ...
ix) GENERAL AWARENESS:~ There is a general awareness about the capital market among thepeople.~ Massive publicity campaign...
~ They collect these funds through capital markets by issue of shares anddebentures or through loans from banks and financ...
economic development of a nation.~ So, the Government of India and the SEBI introduced various reforms inthe capital marke...
and was given wide regulatory powers.~ SEBI has become an important part of the financial regulatory system inthe country....
~ SEBI has permitted the foreign institutional investors to invest in theIndian Capital Markets.~ FIIs such as mutual fund...
out by merchant bankers.ix) INTERMEDIARIES UNDER SEBIs REGULATION:~ Financial Intermediaries have been brought under the p...
~ A number of reforms were initiated by the Government and the SEBI forthe growth of secondary capital market in India.~ T...
~ Over the Counter Exchange of India was set up in 1992 by a consortiumof leading financial institutions in India like IDB...
~ The Indian Stock Exchanges underwent modernisation withcomputerised Screen Based Trading System (SBTS).~ It electronical...
^ It will change from ‘not-for-profit organisation to a ‘for profit organisation.This will clearly strengthen the capital ...
~ Under the rolling system all trades executed on a trading day (T) have tobe settled after certain days (N).~ This is cal...
~ It, thus, avoids the risk of payment crisis on the NSE.x) DERIVATIVE TRADING:~ Derivatives are contracts between counter...
through screen-based trading system of stock exchanges.~ Retail investors can now buy and sell govt- securities participat...
~ Thus, they have emerged as significant avenues for finance and anotable intermediary in the Indian capital market.~ SEBI...
~ The Securities and Exchange Board of India (SEBI) was established as anon-statutory organisation but it received its sta...
matters related to the issue of capital.~ These include information disclosures, operational transparency andinvestor prot...
~ SEBI also regulates the working of portfolio managers.~ No person / institution can operate as a portfolio manager witho...
x) INVESTORS EDUCATION:~ SEBI educates investors about securities market.~ It spreads awareness among investors on various...
exchanges.~ It also inspects all stock exchanges and regulates non-memberintermediaries such as sub-brokers.xiv) INSTITUTI...
vi) It has taken various investor protection measures.vii) It has tightened norms for share transfer.viii) It has prohibit...
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Capital market in india

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Capital Market in India

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Capital market in india

  1. 1. : Explain the role of capital market in the economic development of anation?Ans: SIGNIFICANCE OF CAPITAL MARKETS IN INDIA*INTRODUCTION:~ Capital market is the market for leading and borrowing of medium andlong term funds.~ The demand for long-term funds comes from industry, trade, agricultureand government (central and state).~ The supply for funds comes from individual savers, corporate savings,banks, insurance companies, specialized financial institutions andgovernment.~ Capital market has three different categories:-i) Government securities market:^ It is also called Gilt-edged market.^ It deals in interest bearing and dated government securities.^ This market is regulated by the RBI.ii) Corporate Debt MarketThis market deals in :^ Binds floated by public sector units, nationalised banks and financial
  2. 2. institutions.^ Debentures floated by corporates.iii) The Equity Market:^ Corporates raise preference / equity share capital in this market.^ These shares can be sold / purchased and thus provide liquidity tomarkets.*SIGNIFICANCE:~ A sound and efficient capital market is extremely vital for the economicdevelopment of a nation.~ So, the significance of capital market has increased.~ The following points clearly bring out the role and significance of capitalmarket in India.i)CAPITAL FORMATION:~ Capital market encourages capital formation as it ensures speedyeconomic development. The process of capital formation includescollection of saving effective mobilisation of these savings for productiveinvestment.~ Thus three distinctive inter-related activities i.e. collection of savings,mobilisation of savings and investment lead to capital formation in the
  3. 3. country.~ The volume of capital formation depend s on the efficiency and intensitywith which these activities are carried on.ii) ECONOMIC GROWTH:~ Capital market plays a vital role in the growth and development of aneconomy by channelising funds in developmental and productiveinvestments.~ The financial intermediaries channel funds into those investments thatare more important for economic development.iii) INDUSTRIAL DEVELOPMENT:~ Capital market promotes industrial development and motivates industrialentrepreneurship.~ It provides cheap, adequate and diversified funds for industrial purposessuch as expansion, modernisation, technological upgradation,establishment of new units, etc.~ It also provides services like provision of underwriting facilities,participation in equity capital, credit-rating, consultancy services, etc.vi) MODERNISATION AND REHABILITATION OF INDUSTRIES:~ Capital markets also contribute towards modernisation and rehabilitationof industries.
  4. 4. ~ Developmental financial institutions like IDBI, IFCI, ICICI, etc providefinance to industries to adopt modern techniques and new upgradedmachinery.~ They also participate in the equity capital of industries.v) RIVIVAL OF SICK UNITS:~ Commercial and financial institutions provide adequate funds to viablesick unit to overcome their industrial sickness.~ Bank and FIs may also write off a part of the loan or re-schedule the loanto offer payment flexibility to weak units.vi) TECHNICAL ASSISTANCE:~ The financial intermediaries in the capital market stimulate industrialentrepreneurship by providing technical and advisory services likepreparation of feasibility reports, identifying growth potential, and trainingentrepreneurs in project management.~ This promotes industrial investment and leads to economic development.vii) DEVELOPMENT OF BACKWARD AREAS:~ Capital markets provide funds for projects in backward area and facilitatetheir economic development.~ Long-term funds are also provided for development projects inbackward / rural areas.
  5. 5. viii) EMPLOYMENT GENERATION:~ Capital markets provide Direct Employment in capital market relatedactivities like stock markets, banks and financial institutions.~ Indirect Employment is provided in all the sectors of the economy throughvarious funds disbursed for developmental projects.ix) FOREIGN CAPITAL:~ Capital markets make it possible to generate foreign capital by enablingIndian firms to raise capital from overseas market through bonds and othersecurities.~ Such foreign exchange funds have a great impact on the economicdevelopment of the nation.~ Moreover, foreign direct investments (FDIs) also bring in foreign capitalas well as foreign technology that leads to greater economic development.x) DEVELOPMENT OF STOCK MARKETS:~ Capital markets lead to development of stock markets by encouraginginvestors to invest in shares and debentures and to trade in stocks.~ FIIs are also allowed to deal in Indian stock exchange.xi) FINANCIAL INSTITUTIONS:~ Financial institutions play a major role in capital markets.
  6. 6. ~ They provide medium / long term loan to industrial and other sectors andalso undertake project feasibility studies and surveys.~ They refinance commercial banks and rediscount their bills of exchange.~ They provide merchant banking services.~ They subscribe to equity capital of the firms.xii) INVESTMENT OPPORTUNITY:~ Capital markets provide various alternative sources of investment to thepeople.~ People can invest in shares and debentures of public companies andearn good returns.xiii) INVESTMENT IN INDUSTRIAL SECURITIES:~ Secondary market in securities encourage investors to invest in industrialsecurities by providing facilities for continuous, regular and ready buyingand selling of these securities.~ This facilitates industries to raise substantial funds from various sectorsof the economy.xiv) RELIABLE GUIDE TO PERFORMANCE:~ Capital market serves as a reliable guide to the performance of corporateinstitutions.
  7. 7. ~ It values companies accurately and thus promotes efficiency.~ This leads to efficient resource allocation and economic development.*CONCLUSION:~ Thus we can say that capital markets play a crucial role in the economicdevelopment of a nation.~ A sound and efficient capital market is one of the most instrumentalfactors in the development of a nation.Q2: Explain the structure of Capital Market in India?Ans: STRUCTURE OF CAPITAL MARKET IN INDIA.*INTRODUCTION:~ Capital market is the market for lending and borrowing of medium termand long term funds.~ A sound and efficient capital market can bring about speedy economicdevelopment of a nation.*STRUCTURE:~ Indian Capital Market is broadly composed of:i) Gild Edged Market / Government Securities Market.ii) Corporate / industrial Securities market.
  8. 8. iii) Long Term Loans market / Developmental Financial Institutions.iv) Financial Intermediaries.i)GILD-EDGED MARKET:~ This market deals in government and semi government securities and soit is also called ‘Government securities market.~ This market deals with securities such as bonds issued by Central / StateGovernment and these securities carry fixed interest rates.~ The investors in government securities are mainly financial institutionslike commercial banks, IFCI, LIC, GIC, SFC, SIDC, Provident funds, RBIand individuals. These institutions are often compelled by the law to investa certain % of their funds in government securities.~ RBI plays a very important role in this market.ii) CORPORATE / INDUSTRIAL SECURITIES MARKET;~ The Corporate Security Market provides long – term funds to thecompanies.~ It deals with shares and debentures of old and new companies.~ This market is further divided into:^ Primary market (new issues market)^ Secondary Market (old issues market).
  9. 9. # PRIMARY MARKET:^ It is a market for new issues. It deals with those securities that are issuedto the public for the first time. So, it is also called New Issues Market.^ It deals with the raising of fresh capital in the form of equity shares,preference shares, debentures, bonus, right issues, deposits, etc.^ It includes all institutions dealing in the issue of fresh claims.^ Resources in equity market can be raised / mobilised through: EquityIssues (domestic and external)Debt issues (domestic and external)^ Domestic equity issues include equity shares, preference shares, rightissues and units of mutual funds in the country.^ External equity issues include equity shares through the issue of GlobalDepository Receipts (GDR) andAmerican Depository Receipts (ADR).^ Domestic debt issues include fixed deposits, bonds, debentures(convertible and non-convertible)^ External debt issues are funds mobilised in the form of debt fromoverseas.# SECONDARY MARKET:
  10. 10. ^ The secondary market deals with securities that are already issued bycompanies.^ It facilitates trading in securities and operates through stock exchanges.^ The secondary market helps to provide liquidity and marketability to theoutstanding equity and debt instruments.^ It provides immediate valuation of securities and thus induces company toperform efficiently.^ The secondary market has three types of stock exchanges that provideliquidity to the investor through trading transactions (buying and selling ofsecurities) with the help of brokers and other financial intermediaries. The 3types of stock exchanges are: Regional Stock Exchange.: National Stock Exchange.: Over the Counter Exchange of India.^ Out of the 23 recognised stock exchanges in India, The National StockExchange (NSE) and The Bombay Stock Exchange (BSE) are the twopremier stock exchanges.^ They operate under the rules and regulations of the Government andSEBI.^ Thus, the secondary market in India deals in scrips of a large number oflisted companies and provides a world class trading due to wide range ofproduct availability with a fast growing derivatives market.
  11. 11. iii) LONG TERM LOANS MARKET / DEVELOPMENT FINANCIALINSTITUTIONS:~ Developmental financial institutions were established to provide mediumterm / long term loans to the industrial sector.~ These institutions include Industrial Finance Corporation of India (IFCI),Industrial Development Bank of India (ICICI), Industrial Development Bankof India (IDBI), Industrial Investment Bank of India (IIBI), The Export andImport Bank of India (EXIM BANK), State Finance Corporations (SFCs),state Industrial Corporations (SIDCs), etc.~ The long term loans obtained from these institutions can be used forexpansion and modernisation~ These institutions also subscribe to shares and debentures of new /oldcompanies and underwrite new issues.~ These institutions raise funds by way of term deposits, Certificates ofdeposits and borrowings.~ Long term loans can be classified into: Term Loans Market: Mortgages Market: Financial Guarantees Market.*Term loans market: Developmental financial institutions provide term loansfor a period of 1 year.
  12. 12. ^ Thus, they encourage new entrepreneurs, help in identifying investmentopportunities and support modernisation efforts.*Mortgages market: financial institutions provide loans against security ofimmovable assets such as land and building.^ The transfer of interest in an immovable property to the lender is called‘mortgage.*Financial guarantee market: Financial Institutions provide financialguarantee on behalf of their clients.^ Incase the client does not perform the contract appropriately; a penalty isimposed on the client. If the client fails to pay the imposed penalty thefinancial institution issuing the guarantee is held liable.iv) FINANCIAL INTERMEDIARIES:~ They comprise of merchant banks, mutual funds, leasing companies,venture capital companies, etc.~ Merchant banks manage and underwrite new issues, and advisecorporate on various financial aspects.~ Leasing companies provide funds for purchasing plant and machinery.~ Mutual funds mobilise savings of the people and invest them in stockmarkets.~ Venture capital companies provide financial support to new ideas and
  13. 13. technology.*CONCLUSION:~ Thus the capital market structure in India is complex and covers widerange of activities.~ Through provision of long term loans, the capital market brings abouteffective functioning of various sectors of the economy. This is veryinstrumental for the economic development of a nation.Q3) Which factors are responsible for the growth of capital markets inIndia?Ans: FACTORS RESPOSIBLE FOR THE GROWTH OF CAPITALMARKRTS IN INDIA.*INTRODUCTION:~ Capital markets deal in lending and borrowing of long term and mediumterm funds.~ So, capital markets play a significant role in the economic development ofa nation.~ Capital markets in India have grown considerably over the years and thishas been very crucial for the nations economic development.~ Various factors are responsible for the growth of capital markets in India.
  14. 14. *FACTORS RESPONSIBLE L,DNKLFOR THE GROWTH OF CAPITALMARKETS IN INDIA:i)GROWTH OF STOCK EXCHANGES IN INDIA:~ Capital Markets originated with the setting up of Bombay StockExchange, followed by the formation of stock exchanges in Ahmedabad,Calcutta and Madras.~ At present, there about 24 stock exchanges in India recognized by theGovernment, The National Stock Exchange (NSE) being the largest in thecountry, followed by the Bombay Stock Exchange (BSE).~ The stock exchanges lead to growth of capital markets as they make itpossible to: List the shares of public companies trade in share.ii) GROWTH OF FINANCIAL INSTITUTIONS:~ Growth of developmental financial institutions in India has given a boostto capital markets.~ Developmental financial institutions raise funds by way of bonds andsecurities and then lend such funds to corporate firms.~ They also subscribe to the issue of shares and debentures in the primarymarkets and trade in secondary markets.~ These institutions include Industrial Finance Corporation of India (IFCI),Industrial Development Bank of India (ICICI), Industrial Development Bankof India (IDBI), Industrial Investment Bank of India (IIBI), The Export and
  15. 15. Import Bank of India (EXIM BANK), State Finance Corporations (SFCs),state Industrial Corporations (SIDCs), etc.iii) GROWTH OF MUTUAL FUNDS:~ The investment by mutual funds has also enhanced the capital marketsin India.~ The first mutual fund to be set up in India was the Unit Trust of India (UTI)in 1964.~ Mutual funds collect funds from the people and invest them in primary /secondary markets.iv) GROWTH OF MERCHANT BANKING IN INDIA:-~ Merchant Banking plays an important role in the capital market.~ It provides a number of services like capital issue market, provision ofconsultancy services, corporate restructuring etc.~ Merchant Bank services were first initiated in India by the Grindlays Bank(1967) followed by the Citibank (1970).v) DEVELOPMENT OF CREDIT RATING AGENCIES:~ The development of Credit rating agency in India was CRISIL.~ Other credit rating agencies are CARE, ICRA, etc.~ Investment in companies depend on the credit rating of the company.
  16. 16. vi) DEVELOPMENT OF VENTURE CAPITAL FUNDS:~ Venture Capital is the investment made in a highly risky project with aview to earn a high rate of return.~ Venture Capital proved profitable for those firms who find in difficult toraise funds from primary market or obtain medium / long term loans frombanks or financial institution.vii) SETTING UP OF SEBI:~ SEBI (The Securities and Exchange Board of India) was set up by theGovernment of India to regulate the activities connected with the marketingof securities and investments in the capital market.~ The main objective of the SEBI is to protect the interest of the investors inthe primary and secondary capital markets.~ this has helped the growth of capital market in India.viii) THE NATIONAL SECURITIES CLEARING CORPORATION LTD(NSCL):~ The NSCL was setup to guarantee all trades on the NSE (National StockExchange).~ NSCL interposes between parties to the trade to ensure that every tradeon the NSE is freed from the risk of counterparty defaulting.~ This helps to avoid the risk of payment crisis on the NSE.
  17. 17. ix) GENERAL AWARENESS:~ There is a general awareness about the capital market among thepeople.~ Massive publicity campaigns and public issue of shares and debentureshas created this awareness among the people.~ Thus, more and more people are investing money in the primary andsecondary capital markets and also in the bonds issued by FIs and otherorganizations.x) CORPORATE GOVERNANCE:~ Corporate Governance has been very conducive to the growth of capitalmarket in India.~ It ensures proper governance on the part of Board of Directors and goodmanagement by the companies to protect the interest of its stakeholders.~ The code of corporate governance has been divided into mandatory andnon-mandatory requirement on the part of the companies listed on thestock exchange.xi) GROWTH OF MULTI-NATIONAL COMPANIES (MNCs):~ Post –liberalization a lot of MNCs have evolved in India.~ MNCs need long-term / medium term funds for setting up new projects orfor expansion and modernisation.
  18. 18. ~ They collect these funds through capital markets by issue of shares anddebentures or through loans from banks and financial institutions.xii) PUBLIC CONFIDENCE:~ A good number of the members of the public have started developingconfidence and trust in the capital market.~ They purchase bonds issued by financial institutions and also invest inprimary and secondary capital markets.xiii) GROWTH OF ENTREPRENEURS:~ The growth of entrepreneurs has resulted in more demand for short-termand long-term funds.~ Financial institutions, banks and stock markets enable entrepreneurs toraise the funds required by them.~ This has also led to the growth of capital markets in India.Q4: Write a note on Capital Market Reforms?Ans: CAPITAL MARKET REFORMS:*INTRODUCTION:~ Capital market is the market for borrowing and lending of medium term /long term loans.~ A sound an efficient capital market act as a catalyst in the process of
  19. 19. economic development of a nation.~ So, the Government of India and the SEBI introduced various reforms inthe capital market to strengthen it and make it more effective.*REFORMS:~ The reforms in the capital market can be explained with respect to:Primary market reforms.: Secondary market reforms# PRIMARY MARKET REFORMS:~ The following reforms were taken to develop and strengthen primarycapital market in India:-i) ABOLITION OF CONTROLLER OF CAPITAL ISSUE:~ The Capital Issues (Control) Act, 1947 governed capital issue in India.~ The Narshimam Committee recommended the abolition of the Controllerof Capital issues and induced SEBI to take over the regulatory andadministrative functions of the CCI.~ Thus, companies are allowed to approach the capital market without priorconsent of the Government, provided all documents are cleared by SEBI.ii) SETTING UP OF SEBI:~ Securities And Exchange Board Of India (SEBI) became a statutory body
  20. 20. and was given wide regulatory powers.~ SEBI has become an important part of the financial regulatory system inthe country.iii) DISCLOSURE STANDARDS:~ It is mandatory for companies to disclose all material facts and specificrisk factors associated with their projects.~ SEBI has also introduced a code of advertisement for public issues forensuring fair and truthful disclosures.iv) FREEDOM TO DETERMINE THE PAR VALUE OF SHARES:~ SEBI has permitted companies to determine the par value of sharesissued by them.~ Thus, companies can issue IPOs through "book building" process.v) UNDERWRITING MADE OPTIONAL:~ In India, underwriting of shares is made optional to reduce the cost ofpublic issue.~ However, if the issue is not underwritten and the issuer fails to collect90% of the amount offered to the public, the entire amount collected shouldbe refunded to investors.vi) ENTRY OF FOREIGN INSTITUTIONAL INVESTORS: (FIIs)
  21. 21. ~ SEBI has permitted the foreign institutional investors to invest in theIndian Capital Markets.~ FIIs such as mutual funds and pension funds can invest in equity sharesand debt market as well as in dated Government Securities and treasurybills.vii) ACCESS TO GLOBAL MARKET FUNDS:~ With the introduction of the Foreign Exchange Management Act 1999,Indian companies can raise funds from global finance markets and benefitfrom the lower cost of funds.~ Indian companies can issue American Depository Receipts (ADRs),Global Depository Receipts (GDRs) , Foreign Currency Convertible Bonds(FCCBs) and External Commercial Borrowings.(ECBs)~ They can list their shares on Foreign Stock Exchanges.~ Also, Indian financial system is opened up for investment of foreign fundsthrough NRIs, FIIs and OCBs (Overseas Corporate Bodies).viii) BAN ON MERCHANT BANKING CARRYING FUND BASEDACTIVITIES:~ Merchant Bankers are prohibited from undertaking funds based activitiesother than those related exclusively to the capital market.~ The activities undertaken by Non-Banking Finance Companies (NBFCs)such as accepting deposits, leasing, bill discounting, etc cannot be carried
  22. 22. out by merchant bankers.ix) INTERMEDIARIES UNDER SEBIs REGULATION:~ Financial Intermediaries have been brought under the purview of theSEBI.~ These include merchant bankers, mutual funds, portfolio managers,underwriting agents, share transfer agents, registrars to an issue, bankersto an issue, debenture trustees, custodian of securities and venture capitalfunds.x) CREDIT-RATING AGENCIES:~ Various credit rating agencies such as Credit Rating and InformationServices of India Ltd. (CRISIL), Investment Information and Credit RatingAgency (ICRA), Credit Analysis and Research Ltd (CARE), etc were set upby the Government to meet the emerging needs of the growing capitalmarkets.~ Credit Rating Agencies provide rating to the issue of securities in theprimary markets.~ This imposes a healthy discipline on the borrowers and providesguidance to the investors.~ They also help financial intermediaries in discharging their functionsrelated to debt issues.# SECONDARY MARKET REFORMS:
  23. 23. ~ A number of reforms were initiated by the Government and the SEBI forthe growth of secondary capital market in India.~ The following are the important reforms:i) SETTING UP OF NATIONAL STOCK EXCHANGE (NSE):~ The National Stock Exchange was set up in 1992 and it started itsoperations in 1994.~ It was sponsored by the IDBI. The co-sponsorers were otherdevelopmental financial institutions, LIC, GIC, Commercial Banks, SBI,Stock Holding Corporation of India LTD, etc~ The NSE was set up to provide a nation-wide trading facility in equities,debt, instruments and hybrids.~ It also facilitated equal access to investors across the country byproviding a fair, efficient and transparent securities trading system.~ It also offered shorter settlement cycles and book entry settlementsystem.~ These measures brought the Indian Stock market at par with internationalmarkets.~ At present, the NSE has spread its business in 200 cities with more than1000 terminals and its ranks 3rd among the biggest exchange in the world.ii) OVER THE COUNTER EXCHANGE OF INDIA (OTCEI):
  24. 24. ~ Over the Counter Exchange of India was set up in 1992 by a consortiumof leading financial institutions in India like IDBI, ICICI, LIC, UTI, IFCI, etc.~ It is an electronic national stock exchange that lists entirely new setcompanies which will not be listed on other Stock exchanges i.e. thecompanies listed on OTCEI cannot be listed on any other stock exchanges.~ Companies with issued capital from Rs 30 lakhs to Rs 25 crores.~ OTCEI gives an access to small and medium sized companies to capitalmarket as well as a convenient mode of investment to investors.~ It eliminates the problem of illiquid securities, delayed settlements andunfair prices faced by investors.iii) DISCLOSURE AND INVESTOR PROTECTION (DIP) GUIDELINESFOR NEW ISSUES:~ SEBI has given DIP guidelines to govern the new issue activities so as toremove the systematic deficiencies and to protect the interests of investors.~ Companies issuing capital in the primary market are now required todisclose all material facts and specify risk factors with their projects.~ If the company issues IPO through ‘book-building, it will have to disclosethe price, the issue size and number of securities to be offered to thepublic.iv) SCREEN BASED TRADING:
  25. 25. ~ The Indian Stock Exchanges underwent modernisation withcomputerised Screen Based Trading System (SBTS).~ It electronically matches orders on a strict price / time priority.~ It considerably reduces time, cost, risk of error and fraud and therebyimproves operational efficiency.~ This trading system also provides complete on line market informationand thus increases the depth and liquidity of the market.v) CORPORATION AND DEMUTUALISATION OF STOCK EXCHANGES:# Corporatisation: -^ BSE has ceased to be an Association of persons and became a companyunder the Companies Act.^ This leads to segregation of ownership, management and trading rightsfrom each other.^ The change in ownership is expected to make BSE a modern,professionally managed, transparent, competitive and an efficient stockexchange.# Demutualisation:-^ Demutualisation of BSE is in process whereby the BSE will be convertedinto a join stock company.
  26. 26. ^ It will change from ‘not-for-profit organisation to a ‘for profit organisation.This will clearly strengthen the capital markets.vi) DEPOSITORY SYSTEM:~ A major reform in the Indian Stock Market has been the introduction ofdepository system and scripless trading mechanism.~ This system overcomes problems based on physical transfer of securitieslike inordinate delays, bad deliveries, counterfeit scrips, forged certificates,wrong signatures, etc.~ Depository is an organisation that holds the securities of shareholders inelectronic form, transfers securities between account holders, facilitatestransfer of ownership without handling securities, etc.~ Dematerialisation of share certificates through depositories is anessential aspect of securities with speed, accuracy and security.~ National Securities Depositories LTD. (NSDL) and Central DepositoriesServices LTD ( CDSL) have been established for this purpose.vii) ROLLING SETTLEMENT:~ ‘Rolling Settlement is an important measure to improve the integrity andefficiency of the securities market.~ The shift from the traditional settlement to rolling settlement is a welcomechange in the stock market.
  27. 27. ~ Under the rolling system all trades executed on a trading day (T) have tobe settled after certain days (N).~ This is called ‘T+N rolling settlement.~ In April 2003, the NSE introduced T+2 rolling settlement.~ This has considerably reduced undue speculation in the market.viii) INVESTOR PROTECTION MEASURES:~ The SEBI has introduced an automated complaints handling system todeal with investor complaints.~ It spreads awareness among the investors on various issues related tothe securities market and their rights and remedies.~ The Government has also set up the IEPF (Investor Education andprotection fund) that will be utilized for promotion of awareness amongstinvestors and protection of their interest.ix) THE NATIONAL SECURITIES CLEARING CORPORATION LTD(NSCL):~ The NSCL was set up in 1996 to guarantee all trades in NSE.~ The NSCL is responsible for post-trade activities of the NSE like clearingand settlement of trades and risk management.~ It interposes between parties to trade on the NSE.
  28. 28. ~ It, thus, avoids the risk of payment crisis on the NSE.x) DERIVATIVE TRADING:~ Derivatives are contracts between counterparties whose value is derivedfrom the value of the underlying asset like equity, forex, etc.~ Financial markets are highly volatile due to fluctuations in asset prices.~ So the investors resort to derivative trading whereby they lock-in assetprices and reduce the price risks.~ At present, there are four equity derivative products in India:^ Stock options^ Stock futures^ Index options^ Index futures.~ Derivatives trading is permitted only on the NSE and the BSE.xi) TRADING IN CENTRAL GOVERNMENT SECURITIES:~ Trading in Central Government Securities has been introduced since Jan2003 so as to encourage wider participation of all classes of investors,including retail investors.~ Trade in government securities can be carried out throughout the country
  29. 29. through screen-based trading system of stock exchanges.~ Retail investors can now buy and sell govt- securities participation inretail market is open to individuals, firms, companies, corporate bodies,institutions, or any other entity approved by the RBI.xii) ENTRY OF FIIs:~ Foreign Institutional Investors (pension funds, mutual funds, investmenttrust, portfolio management companies, etc.) have been allowed to investin Indian capital markets.~ However, they have to be registered with the SEBI.xiii) PAN MADE MANDATORY:~ PAN has been made mandatory since Jan 2007 so as to strengthen the‘know your client norms and to facilitate sound auditing in the securitiesmarket.~ It is mandatory for operating a beneficiary Owner Account and for tradingin cash segments.xiv) REGULATION OF MUTUAL FUNDS:~ Emergence of diversified mutual funds is an important development ofIndian Capital Market.~ It mobilises the savings of the general public and invests them in stockmarket securities.
  30. 30. ~ Thus, they have emerged as significant avenues for finance and anotable intermediary in the Indian capital market.~ SEBI supervises and regulates the working of mutual funds.xv) STOCK EXCHANGES PERMITTED TO SET TRADING HOURS:~ Stock Exchanges have been permitted to set trading hours (in cash andderivative segments).~ However, the trading hours should be between 9.00a.m to 5.00p.m.~ Corporate Governance and buy back of shares are other secondarymarket reforms.*CONCLUSION:-~ Thus, the reforms in the capital market have been conducive to its growthand development.~ Also, it has made the capital markets have shown greater efficiency andnow provide world class trading and settlement systems.~ This leads to speedy development of an economy.Q5: Write a note on SEBI?Ans: SECURITIES AND EXCHANGE BOARD OF INDIA*INTRODUCTION:
  31. 31. ~ The Securities and Exchange Board of India (SEBI) was established as anon-statutory organisation but it received its statutory status in January1992.~ SEBI has wide regulatory powers and is a very important constituent ofthe financial regulatory network of India.~ In fact, it is under the overall control of the Finance Ministry of thecountry.~ SEBI aims at protecting the interest of investor, brining professionalism inthe working of intermediaries in the capital markets and creating a goodfinancial environment in the markets.*ROLE OF SEBI:i)PROMOTION AND DEVELOPMENT OF CAPITAL MARKET:~ The promotion and development of the capital market is one of the mostimportant roles of SEBI.~ It regulates the business in stock exchanges and other securities marketand prevents trading malpractices.~ It creates a healthy financial environment for the development of capitalmarkets.ii) GUIDELINES ON CAPITAL ISSUES:~ As a part of its regulatory role, SEBI issues guidelines in respect of
  32. 32. matters related to the issue of capital.~ These include information disclosures, operational transparency andinvestor protection, development of financial institutions, pricing of issues,preferential issues, etc.iii) REGULATES WORKING OF MUTUAL FUNDS:~ In order to regulate the working of mutual funds, SEBI has laid downrules and regulations.~ All mutual have to comply with the regulations paid down by the SEBI.~ Necessary modifications are made in the regulations from time to time.iv) REGULATES MARCHANT BANKING:~ SEBI has laid down regulations on merchant banking activities in India.~ They are in respect of registration, code of conduct, submission of halfyearly results, etc.v) REGULATES STOCK BROKERS ACTIVITIES:~ SEBI regulates the activities of brokers and sub-brokers.~ No broker / sub-broker is allowed to buy, sell or trade in securities withoutregistration with the SEBI.vi) PORTFOLIO MANAGEMENT:
  33. 33. ~ SEBI also regulates the working of portfolio managers.~ No person / institution can operate as a portfolio manager withoutregistration with the SEBI.~ They have to follow relevant regulations.vii) REGULATES TAKE-OVER / MERGERS:~ SEBI has issued guidelines to be followed by corporations at the time ofmergers / take – overs.~ These guidelines protect the interest of investors in case of take-overs ormergers.viii) RESTRICTION ON INSIDER TRADING:~ SEBI prohibit insider trading in order to prevent price manipulations.~ SEBI has also banned negotiated and cross deals to ensure greatermarket transparency.ix) PROTECTION OF INTEREST OF INVESTORS:~ SEBI aims at protecting the interest of investors in securities and it hastaken various measures for the same.~ It spreads awareness among investors and provides them a high degreeof protection of their rights and interests through adequate, accurate andauthentic information on a continuous basis.
  34. 34. x) INVESTORS EDUCATION:~ SEBI educates investors about securities market.~ It spreads awareness among investors on various issue related tosecurities market and on their rights and remedies.xi) INVESTORS GRIEVANCES REDRESSAL:~ SEBI has introduced automated complaints handling system to deal withinvestor complaints.~ The Investor Grievances Redressal and Guidance Division of SEBI helpsinvestors who want to make complaints to SEBI against listed companies.xii) PRIMARY MARKET POLICY:~ SEBI looks after all the policy matters and regulatory issues related toprimary markets.~ These include vetting of prospectuses and letters of offer for public andright issues, co-ordinating with primary market policy, registration,regulation and monitoring issue related intermediaries.xiii) SECONDARY MARKET POLICY:~ SEBI is responsible for all policy and regulatory issues for secondarymarket.~ It is also responsible for registering and monitoring of members of stock
  35. 35. exchanges.~ It also inspects all stock exchanges and regulates non-memberintermediaries such as sub-brokers.xiv) INSTITUTIONAL INVESTMENT POLICY:~ SEBI registers, regulates and monitors FIIs and domestic mutual funds.xv) MOBILISATION OF RESOURCES:~ SEBI facilitates efficient mobilisation and allocation of resources throughthe securities market.~ It stimulates competition and encourages innovations.*POLICY MEASURES BY SEBI:i) It prohibits fraudulent and unfair trade practise relating to securities.ii) It imposes penal margins on net undelivered portion at the end of thesettlement.iii) It has issued guidelines to tighten entry norms for companies accessingcapital market.iv) SEBI has allowed stock exchanges to expand their on-line screen basedtrading terminals.v) It has notified ‘Custodian of Securities Regulations and ‘Depositoriesand Participant Regulators to contain prudential norms.
  36. 36. vi) It has taken various investor protection measures.vii) It has tightened norms for share transfer.viii) It has prohibited ‘insider trading and ‘badla.ix) It has taken various steps to improve corporate Governance.x) It has allowed companies to raise funds from abroad through ADRs,GDRs, FCCBs and ECBs,xi) It registers and regulates the intermediaries associated with the capitalmarket.xii) It has issued guidelines for Anti Money Laundering measures.*CONCLUSION:~ Thus, the SEBIs task is challenging and complex SEBI has taken variousmeasures to bring sufficiency in the capital markets leading to growth anddevelopment of the economy

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