Information about stock exchange and their features, role in capital market, Management, Trading Procedure and Some Terms related to Stock Exchange.

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Stock Exchange
The Financial market mobilizes short term, medium term, and long term funds. It provides finance for
industrial and commercial sector. The financial market is classified into money market and capital market. Money
market relates to short term funds. The capital market mobilizes long term funds and provides long term debt and
equity finance to the corporate sector and the government sector. The capital market is subdivided into primary market
and secondary market. Primary market is concerned with floatation of new issues of securities either by new companies
or by the existing companies. It is also known as ‘New Issue Market’. It facilitates the transfer of funds of those investors
who are willing to invest in corporate securities. The investors act on demand side while the issuing companies act on
the supply side.
Secondary market is a market where buying and selling of second hand or existing securities is carried out. This
market is known as ‘Stock Market or Stock Exchange’. It is a permanent public market for regular sales and purchase of
securities listed in a stock exchange. The investors act on demand side as well as supply side.
The stock exchange includes two concepts. Stock means bundles of securities and securities means financial
instruments issued by corporate or Govt. organizations for raising long term capital for the business. Exchange means
transfer of ownership from one to another. Therefore stock exchange means when securities are transfer one to
another by specific rules at specific place.
Definitions
1. “A stock exchange is an exchange or stock market where stock brokers and traders can buy and/or sell stock
(also called shares), bonds and other securities.”
2. “Stock exchanges are privately organized markets which are used to facilitate trading in securities”. ____
Husband and Dockerary.
3. “Stock Exchange is an association, organization or body of individuals, whether incorporated or not, established
for the purpose of assisting, regulating and controlling of business in buying, selling and dealing in securities”.
____ Sec 2 (3), Securities Contracts (Regulation) Act 1956.
4. “Stock Exchanges are an organized marketplace, either corporation or mutual organization, where members of
the organization gather to trade company stocks or other securities”.
5. “Stock Exchange is a secondary market of instruments where shares, debentures, bonds, stocks and fund units
of public companies or government companies are sold and bought”.
From the above definitions it is clear that stock exchange is the part of capital market related to the resale of shares
or debentures. It does not buy or sell securities just provide platform to the investors to transfer the ownership of
securities from one to another with help of members (brokers). It provides regular, efficient and effective market
mechanism for trading of securities and instruments. The establishment of Stock Exchange requires the recognition from
the central government and the SEBI. Only recognized stock exchanges are permitted to function in an Indian financial
system.
Features
1. Market for Securities: Stock exchange is a market for corporate and Govt. securities. It deals with different types of
instruments which are already issued to the investors by the companies. It is also considered as a secondary market.
It is a particular place where the authorized brokers come together and make securities transaction on behalf of his
client (investor).

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2. Deals in Second-hand Securities: The Capital Market is classified into primary market and secondary market.
Primary market is related to the transaction between corporate organization and investor. The secondary market is
related to the transaction between investors and investors. A Stock exchange is the single most important institution
in the secondary market for the securities. It is the place where already issued and outstanding shares are bought
and sold repeatedly. It provides platform to the people to purchase and sale securities from one to another. This is a
specific place where trading of second hand or existing securities is arranged in an organized manner.
3. Regulate Trade in Securities: Stock Exchange provides regular, efficient and effective market mechanism for trading
of securities and instruments. It regulates its trading business of different securities. The stock exchange and
members of the stock exchange never purchase or sale any securities on the own name. It just provide platform for
the buyers and sellers for securities. It is a connecting link between buyer and sellers for securities.
4. Listed Securities: Stock exchange deals with only listed securities. Listing means incorporating or registering the
company’s securities with stock exchange. A company may apply for listing of its securities which shall comply with
listing norms of the stock exchange. According to SEBI guidelines every company that wants to issue shares has to
list its shares with a recognized stock exchange. A company can list its shares on more than one stock exchange. It
only provide platform for listed securities. It never allows trading of unlisted securities.
5. Transactions only affected through Members: In the stock exchange only authorized brokers and members are
permitted to buy or sell securities on behalf his clients. Investor has to buy or to sell securities through the
authorized brokers. Even investors are not allowed in the trading circle of the stock exchange.
6. Specific Location: Stock Exchange is a particular market place where the authorized brokers comes together daily
(i.e. on working days) for buying and selling of securities. It is not open to public or investors. Due to modern
technology, every stock exchange becomes ring-less and provides virtual market place by the websites and on-line
trading. On the websites they provide account to the brokers for making the transactions.
Stock Exchange Location On-line Trading System
Bombay Stock Exchange Dalal Street, Mumbai BOLT
National Stock Exchange Bandra Kurla Complex, Mumbai NEAT
OTCEI Cuff Parade, Mumbai Totally Online
Calcutta Stock Exchange Lyons Range, Kolkata C-STAR
Ahmedabad Stock Exchange Ahmedabad ASETS
7. Working as per Law: Buying and selling transactions must be according to rules and regulations of the Stock
Exchange. These organizations established under specific act. They have own Memorandum of Association and
Articles of Associations. So every member of stock exchange must follow MOA and AOA. SEBI’s guidelines observed
by the brokers and members.
8. Recognized by Central Government: The capital market is fully organized market. Government frame special act and
establish government authority for securities transactions. Stock exchange is a part of capital market so require
proper permission from central government and SEBI. Only recognized stock exchanges are permitted to perform
functions in an Indian Financial System. Stock exchanges provide regular, efficient and effective market mechanism
for trading of securities. The stock exchange has to submit various reports and returns to SEBI and Government
Authorities.
9. Financial Barometer: Stock Exchanges are financial barometers and development indicators of national economy of
the country. Industrial growth and stability is reflected in the index of Stock Exchange. Every country is economically
symbolized by its most significant stock exchange. The Govt. progress and economic policy are reflected in the
Sensex of the stock exchange.
Nation Stock Exchange Sensex
USA New York Stock Exchange NYSE
UK/England London Stock Exchange LSE

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Japan Tokyo Stock Exchange Nikki
India Bombay Stock Exchange,
National Stock Exchange
BSE-30
Nifty
Role of stock exchange in Capital Market
1. Effective Mobilization of Saving: Stock Exchanges provide organized market for individual and institutional
investors. It deals in buying and selling of equity and debt securities. It is a resale market for long-term funds. It
regulates the trading transactions as per rules and regulations. It helps to consolidate the confidence of investors
and money-savers. It leads to effective mobilization of savings for investment from different quarters of country and
even society. Stock exchanges attract savings especially from large number of small investors.
2. Capital Formation: Stock exchange promotes capital formation for industrial and government sector of India. It
provides platform for investors for resale the securities. By the stock exchange investor and company know the
market value of securities. It provides correct market value and liquidity to corporate securities. Stock exchanges are
very instrumental for the formation of capital fulfilling the long –term capital requirements of different sectors of
the economy. Effective mobilization of savings certainly promotes capital formation. Corporate organization can use
the book building process while raising capital from IPO or FPO.
3. Wider Avenues for Investment: Companies from different sub-sectors like basic industries, textiles, cement,
fertilizers, transportation, industrial machinery, Fuels & Petroleum, pharmaceuticals, consumer goods, engineering
goods, metallurgical, chemicals etc. are listed on stock exchanges. Investors have various options for investment
such as equity shares, preference shares, debentures, bonds, options, derivatives, etc. Investors can buy or sell their
securities freely at any moment. The on-line quoting of prices and on-line facility of trading in all most all cities is
readily available. All these things provide wider avenues of investment in the investor’s home itself. All necessary
information and trading facilities are connected with computer-network throughout India. All stock exchanges
provide counter trading and over the counter trading for investors. All these facilities have made available wider
avenues of investments.
4. Liquidity of Investment: Stock exchanges provide liquidity of investment to investors. Investors can sell-out any
securities at any time during trading days and hours on stock exchange and can maintain the liquidity of their
investments. It provides ready market for converting the securities into cash in simpler and quicker manner through
on-line selling and settlement. Due to online trading and de-mat account the securities can be easily converted into
cash.
5. Investment Safety: Stock exchanges are instrumental and intermediary between investors and investee bodies. It
makes available the whole mechanism for mobilizing and channelizing investible funds to corporate bodies. Of
course it is associated with high degree of speculation. Even though the transactions of buying and selling on the
stock exchanges are safe, secured and transparent. It provides investors necessary safety of their investment. SEBI,
Government of India and stock exchanges gain the confidence of investors, through transparent procedures and
regulations. They issue the guidelines for investors and brokers regarding their securities transactions, if anybody
fails to follow guidelines, they are penalized by law.
6. Wide Marketability to Securities: On-line price quoting system and on-line selling buying has changed the nature
and working of stock exchanges. Formerly the transactions on stock exchanges were restricted to its headquarters
only and investors were absolutely in dark about prices and fluctuations on exchanges due to lack of information.
Today due to internet, on-line price quoting is available at your computer and you get information of price
fluctuations every second which took place on stock exchange. Certain TV channels also display on-line price quoting
of stocks. CNBC, Z Business, ND TV Profit channels, some Newspapers (Financial Express, Economics Times, Business
Line) and magazines (Money Outlook, Business Today, Money Control, Money Bazaar) are fully devoted for stock
market information and corporate news. It means that the modern stock exchanges provide wide marketability to

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securities through its on-line system for quoting, selling-buying and settlement. Dematerialization system has
discarded the time consuming procedure of share transfer and it also leads to wide marketability of securities.
Transfer of de-mat stocks is very simpler and quicker now a days. On-line quoting, on-line trading (BOLT, NEAT, C-
Star) and de-mat facility has brought full transparency and safety in the working of stock exchanges. Hence stock
exchanges have crossed their circle boundaries and even headquarters boundaries. The on-line network of stock
exchanges spread the marketability of Indian stocks, not only to natives but to NRIs and FIIs also.
7. Financial Resources for Business Sectors: Financial resources for public and private sector of the economy are made
available by the stock exchanges, through equity securities and debt securities. The long term capital requirements
of corporate sector are mostly fulfilled by issue of equity stocks and debt securities. Buying and selling of these
stocks and securities at stock exchanges makes such issues more successful and attracts the prospective investors.
Stock exchange provides the price discovery for securities and platform for resale securities, so people invest money
in primary market or secondary market. The commercial banks, insurance companies, provident fund companies
and mutual fund organizations invest their collection in corporate securities. Stock exchange is a significant
component of capital market which pulls financial resources from market for business sector.
8. Indicators of Industrial and Economic Development: Productive efficiency, growth of sector, earning capacity and
development of industry is reflected on stock exchanges in the relative prices of different securities, in their price
movements and fluctuations. Industrial changes, progress and development affect the market value of securities.
The market value of securities affects Sensex of stock exchange. The economic health and vitality of an industry and
even of individual units is indicated on stock exchanges. It means that stock exchanges are symbolic indicators of
industrial development of the country. The trend on stock exchange sounds the health of the economy and its
status. Bombay Stock Exchange (BSE) is internationally known as an indicator of Indian economy during pre and
post-independence. Mumbai is the economical/financial capital of India.
Functions of Stock Exchange
1. Act as a Clearing House of Securities: Stock exchange acts as a clearing house of securities. It provides platform for
the buyer and seller for trading of securities. It arranges delivery and payments of securities. It facilitates easy and
quick clearance of transactions between the buyers and sellers of securities (equity shares, preference shares,
debentures, bonds, options, derivatives, etc.) on the stock exchange.
2. Liquidity: Financial Institution like banks, insurance companies and mutual fund companies can invest their funds in
the stock exchange and earn profit even within a short period. When necessity arises, these securities can be
immediately sold for raising funds. Thus, it is the stock exchange which provides opportunities for converting
securities into cash within a short notice. So stock exchanges provide high degree of liquidity to investors.
3. Investor Protection: Stock exchange provides regular, efficient and effective market mechanism for trading of
securities and instruments. The dealings at stock exchanges are governed by well-defined rules and regulations of
Securities Contract (Regulation) Act, 1956 and SEBI. There is no scope for manipulating transactions. Every contact is
done according to the procedure laid down and there is no fear in the minds of contracting parties. The safety in
dealings brings confidence in the minds of all concerned parties and helps in increasing various dealings. So stock
exchanges protect interest of investors.
4. Listing Securities: Only listed securities can be purchased at stock exchanges. Every company desirous of listing its
securities will apply to the exchange authorities. The listing is allowed only after a critical examination of capital
structure, management and prospects of the company. The listing of securities gives privilege to the company. The
investors can form their own views about the securities because listing securities does not guarantee the financial
stability of the company.
5. Fair Evaluation of Securities: It the stock exchange, the prices of securities clearly indicate the performance of the
companies. It integrates the demand and supply of securities in an effective manner. It also clearly indicates the

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stability of companies. Stock exchanges are helpful in evaluating any type of securities listed there. Thus, investors
are in a better position to take stock of the position and invest according to their requirements.
6. Maintaining Records: Stock exchange is an organized market for buying and selling of corporate securities and
government securities. Every transaction of securities is done with help of authorized brokers and it also clear and
record by stock exchange. The stock exchange must maintain the records as per rules and regulations of Securities
Contract (Regulation) Act, 1956, Companies Act and SEBI guidelines. The books of accounts and other books
inspected by government authorities and SEBI. Stock exchange must preserve their documents up to 5years.
7. Filing of Periodical Returns to SEBI: Stock exchange is a most significant part of capital market. The stock exchange
must maintain the records as per rules and regulations of Securities Contract (Regulation) Act, 1956, Companies Act
and SEBI guidelines. SEBI is the regulating and controlling authority in capital market. So stock exchange submits
their periodical returns to SEBI. In the return involve all information regarding transactions of securities and brokers.
8. Registration of Broker: The stock exchange provides membership to the share brokers. SEBI conducts exams for
brokership. After passing the exam the broker get license for trading of securities. He can apply for membership
either individual or in group (Partnership firm and Company) to any one stock exchange. For the membership he
submits application fees, annual subscription and deposit of transactions. The stock exchange provides membership
after proper verification.
9. Economic Barometer: The most important function of a stock exchange is that it acts as an economic
indicator/barometer of conditions prevailing in the country. A politically and economically strong government will
have an upward trend in the stock market. Whereas an unstable government with heavy borrowings from other
countries will have a downward trend in the stock market. So, every government will adopt policies in such a
manner that the stock exchange remains dynamic.
Nation Stock Exchange Sensex
USA New York Stock Exchange NYSE
UK/England London Stock Exchange LSE
Japan Tokyo Stock Exchange Nikki
India Bombay Stock Exchange,
National Stock Exchange
BSE-30
Nifty
Management, Organization and Membership of Stock Exchange
 Management of Stock Exchange
The stock exchanges in India are managed by a governing board or executive committee or council of management.
The governing board consists of 16 members of the exchange elected on general election basis by the members of the
exchange, three persons appointed by the Central Government as its representatives, one representative of the Reserve
Bank of India appointed by the Central Government, three persons nominated as public representatives and a chairman
or executive director. The executive members elect from among themselves the president or chairman of the stock
exchange.
In day-to-day management, the governing board is assisted by a number of committees such as listing committee,
arbitration committee, defaulters committee, admission committee, advisory committee, etc. The governing board is
empowered to make rules and regulations in consultation with the Government and the members of the stock
exchange.
 Organization of Stock Exchange
The stock exchanges established under particular type of organization and specific act. These are as follows
1. Voluntary and Non-Profit Making Organization: In this organization members comes together voluntary and
register the organization under Trust Act. They make business without motive of profit. Before the

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independence in India Maximum stock exchanges were established under this type. E.g. Bombay Stock
Exchange, Ahmedabad Stock Exchange, Calcutta Stock Exchange.
2. Company Limited by Guarantee: In this type members establish stock exchange under Companies Act, but their
member liability is limited by guarantee. Members assure the pay annual subscription and provide funds when
require organization. E.g. Pune Stock Exchange, Hyderabad Stock Exchange, Madras Stock Exchange.
3. Company Limited by Shares: In this type, stock exchange is established under companies Act either Public
Limited or Private Limited. Members hold shares of stock exchange. After 1991 many stock exchanges are
demutualized from Non-Profit Association to Company Limited by shares. E.g. BSE, NSE, ASE, CSE, OTCEI,
Bangalore Stock Exchange, Kanpur Stock Exchange, Cochin Stock Exchange, etc.
 Membership of Stock Exchange
The membership of stock exchange of stock exchange is available to the brokers. For the brokerage business,
person requires to obtain license from SEBI. SEBI issues the brokership license to the individual person. The broker
can apply for membership of stock exchange either individual or in group (Partnership firm/Corporate Entity).
The members only enter into trading of stock exchange and carry on business. A non-member can buy or sell
securities through a member. Every stock exchange has its own rules and regulations for the admission of members.
Member of a stock exchange are allowed to appoint certain agents to do business on their behalf.
 Eligibility Criteria of Membership
1) Citizen of India; NRI with permission of RBI and ED
2) Age: Not less than 20 years (Individual/Partner/Director)
3) Sound mind, solvent and not disqualify by any law for making contract
4) Not be director or employee of the company which is listed their securities on the stock exchange.
5) Fees: The Membership fees differ from stock exchange to stock exchange. Normally for the Application fees
is 10,000/- , for Admission 5, 00,000/- and Deposit 25, 00,000/-.
 Types of Membership
1. Professional Clearing Member (PCM)
2. Trading Cum Clearing Member (TCM) and Self Clearing Member (SCM)
3. Trading Member (TM)
4. Limited Trading Member (LTM)
Trading Procedure on Stock Exchange
1. Selection of Broker: The buying and selling of securities can only be done through SEBI registered brokers who are
members of the Stock Exchange. The broker can be an individual, partnership firms or corporate bodies. So the first
step is to select a broker who will buy/sell securities on behalf of the investor or speculator.
2. Opening De-mat Account: Securities hold either in physical or electronic format. SEBI makes it compulsory to every
investor to hold securities in de-mat account. So, if any investor holds securities in physical format must convert
them in electronic format. He must open a de-mat account with help of Depository Participant. They act as an
intermediary between Depository and Investors.
De-mat Account just like Bank Account. Depository Participant provides denaturized service to the investors
with recording of transaction. Dematerialization process completed within 15 days. After this investor again contact
with the broker.
3. Placing the Order: After opening the De-mat Account, the investor can place the order. The order can be placed to
the broker either (DP) personally or through phone, email, etc. Investor must place the order very clearly specifying
the range of price at which securities can be bought or sold. Investor places the DIS to Depository Participant.
4. Contract Note/Executing the Order: As per the Instructions of the investor, the broker executes the order i.e. he
buys or sells the securities. Broker prepares a contract note for the order executed. The Contract Note is an

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agreement between investor and broker. It contains the name and the price of securities, duration of transaction,
name of parties and brokerage (commission) charged by him. Contract note is signed by the broker.
5. Settlement: This means actual transfer of securities. This is the last stage in the trading of securities done by the
broker on behalf of their clients. There can be two types of settlement.
a. Spot Settlement: It means settlement is done immediately. It follows T+0,T+1, T+2 rolling settlement. The
transaction is cleared by stock exchange within these periods.
b. Forward Settlement: It means settlement will take place on some future date. It can be T + 5 or T + 7, etc.
All trading in stock exchanges are takes place between 9.55 am and 3.30 pm. Monday to Friday. This
settlement is only available for blue chip companies shares/Group ‘A’ Shares.
Terms relating to Stock Exchange
1. Listing of Securities: It is an incorporating (registered) the name of company for its securities in the official register
of the stock exchange. A company may apply for listing of its securities which shall comply with listing norms of the
stock exchange. According to SEBI guidelines every company that wants to issue shares has to list its shares with a
recognized stock exchange. A company can list its shares on more than one stock exchange. It only provide platform
for listed securities.
a. Group ‘A’ Shares: These are listed equity shares of large and well-established companies having broad
investor based. These are blue-chip companies. These shares satisfy specific criteria of stock exchange such
as large-equity base market capitalization more than 4000 crores ( 20000 crores). Shareholders are more
than 25000 and other criteria. These shares get forward settlement facilities. These shares also carry one
accounting period to another period for settlement. These are highly speculative.
b. Group ‘B’ Shares: These are listed shares which does not satisfy the criteria of Group ‘A’ shares. Group ‘B’
shares are normally mid-cap companies. These shares are settled within a week.
c. Group ‘C’ Shares: Under this category, only odd lots and special permitted securities are included. These
shares are listed on another stock exchange and doing business on another stock exchange. These shares
get temporary transaction facilities.
d. Group ‘Z’ Shares: those companies that have defaulted due to not following the guidelines of SEBI, Stock
Exchange or Companies Act. These companies share considered as Group ‘Z’ shares. It is a risky investment.
Normally, these types of securities are traded on over the counter market.
e. Group ‘G’ Shares: This category belongs to securities issued by Central Government, State Government,
Semi-Government, Statutory Corporations and Govt. companies.
f. Small Cap: Cap means capitalization. In the share market consider market capital value. Small-cap means
those companies which have market capital value less than 250 crores. Presently this increase up to
5000 crores. The investment is risky.
g. Mid Cap: Mid-cap means medium-sized companies. The market capitalization between 250 crores to
4000 crores (Present limit 5000 crores to 20000 crores). The investment is secured as safe as compared
to small-cap.
h. Large Cap: These companies have huge capital and broad investor base. These are blue-chip companies. The
market value of company is more than 4000 crores (Present limit 20000 crores)
2. Broker: He is a commission agent who transacts business on behalf of non-member of the stock exchange. He never
buys or sells the securities on his own name. He only completes transactions on behalf of his client. He is a member
of stock exchange who gets license from SEBI for the business. He charges commission for his work. The commission
is known as brokerage. As per SEBI’s guidelines present brokerage rate is 2.5% of trade value.
3. Remisiers: They are agents of full-fledged members of a stock exchange. They are appointed to secure business for
the members. They cannot carry business on their own name. They are paid commission out of the brokerage

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collected by members on the business procured by the remisiers. They are also known as half-commission men or
sub-brokers.
4. Jobber: He is a speculator or dealer in the stock exchange. He purchase and sales the securities on his own name. He
works for profit. He deals with brokers. He doesn’t hold any license regarding business. He is a professional investor.
He may be classified as a bull, bear and stag.
5. Bulls: Those speculators in the stock exchange who purchase securities at a lower price and sales them at higher
price in future. He always thinks to increase the market value of securities. His views are optimistic (positive). He is
also known as ‘Tejiwala’.
6. Bears: Those speculators sales the securities at higher price and repurchase the same securities at lower price. He
always thinks that market will fall in future. His views are pessimistic (negative). He is also known ‘Mandiwala’.
7. Stag: Stag never directly purchase securities from the secondary market, but he sales in the secondary market. They
simply apply for subscription to newly issued shares (IPO or FPO). They purchase securities from primary market and
sales in secondary market.
8. Lame Duck: Lame Ducks are speculators who bear loss due to wrong moves in the stock market. They do not guess
correct market fluctuations and lost their money in market.
9. Wolves: They fast and smart speculators. They apply quickly for the market changes, trade the business and earn
maximum profits. They use sometimes unfair trade practices. They properly guess the market change and make
investment in securities.
10. Tarwaniwalas: A person who acts a broker as well as jobber in the stock market.
11. Trading Ring: The trading or auction of securities take place on the floor of the stock exchange which is known as
trading ring. Trading takes place during trading hours which is usually between 12 noon to 2.30 P.M. in most of the
stock exchanges. It is a platform or floor for the broker for making their transaction, but due to online and over the
counter trading, this ring are very less used by the broker. Many stock exchanges stopped the trading ring for
business.
12. Auction: The method of making offers and bids for shares or determining the prices of securities by auction by
buyers and sellers transacting at a specified location. It is a mechanism used by the exchange to fulfill its obligations
to counter party when broker fails to deliver good deals for securities that time are used by stock exchange.
13. Authorized Clerk: A member of the stock exchange can appoint authorized clerks or assistants to assist him. The
authorized clerks are merely employees of the members, and cannot do business in their own name. He gets salary
from the broker.
14. Insider Trading: It refers to trading in shares on the stock exchanges with sensitive information, which is not yet
published. The insiders include managers, directors, other employees, auditors, etc., who have hold over sensitive
information and accordingly buy or sell on the stock exchanges. It is an illegal act. It is restricted by stock exchange
and SEBI.
15. Investors: A person who invests money in the securities is known as investor. Investor may be a single person (retail)
or an institutional. Institutional investor includes mutual fund companies, financial institutions, provident fund
companies, insurance companies and merchant bankers. Institutional investors act as a supportive role in the stock
market.
16. Rolling Settlement: It refers to the settlement of trading cycle. The transactions of securities are completed in
specific days such as T+0, T+1, T+2, T+5 and T+7.
17. Prospectus [Sec 2 (70)]: “A prospectus means any documents described or issued as a prospectus and includes any
notices, circular, advertisement, or other documents inviting deposit from the public or documents inviting offer
from the public for the subscription of shares or debentures in a company”. Prospectus must be filed with the
Registrar 5 days before the allotment of shares or debentures is made.

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18. Statement in lieu of Prospectus: A public company, which does not raise its capital by public issue, need not issue a
prospectus. In such a case a statement in lieu of prospectus must be filed with the Registrar 3 days before the
allotment of shares or debentures is made. It should be dated and signed by each director or proposed director and
should contain the same particulars as are required in case of prospectus proper.
19. Abridged Prospectus [Sec 2(1)]: “Abridged prospectus means a memorandum containing such salient features of a
prospectus as may be specified by the SEBI by making regulations in this behalf. No form of application for the
purchase of any of the securities of a company shall be issued unless such form is accompanied by an abridged
prospectus. A copy of the prospectus shall, on a request being made by any person before the closing of the
subscription list and the offer, be furnished to him.”
20. Red-herring Prospectus: A prospectus that contains most of the information that will be presented in the final
prospectus but often does not mention a price and/or the number of securities. It can be distributed to potential
investors after the registration statement for securities offering has been filed with the securities commission. The
name is derived from the red legend printed across the body of the prospectus illustrating that the registration has
been filed but is not yet effective. A red-herring prospectus is alternatively known as a preliminary prospectus.
21. Pink-herring Prospectus: A prospectus that is issued without disclosure of the number of securities being offered or,
in an initial public offering, the estimated or indicative price range. It is a preliminary prospectus that precedes the
filing of a red-herring prospectus.
22. Free-writing Prospectus: Any sort of written, electronic, or graphic statement that describes an offer in terms of its
issuer or securities. It includes a legend stating that the investor can have a copy of the prospectus at the website of
relevant securities commission. Typically, the issuer must file this prospectus with the securities commission no later
than the first date it is obtained. In the case of inexperienced issuers, the securities commission may require that a
preliminary prospectus is filed before the filing of a free-writing prospectus.
23. Shelf Prospectus: A prospectus that describes a set of unissued, but registered securities. It is used in situations
where securities are issued in consecutive stages over a period of time because the size of issue is too large (and
funds to be raised are enormous, making the filing of prospectus each time very expensive). Later on, an issuer will
only need to file the so-called information memorandum with the relevant securities commission.
24. Deemed Prospectus: A prospectus that it is deemed to have been made by the issuer, though it is actually offered to
the public by a third party or the so-called issue house. The issuer saves the underwriting expenses in selling its
securities.