The document discusses stock markets and how they operate. It provides background on key stock exchanges in India like the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). It then summarizes the different types of markets (primary, secondary, capital, derivative markets). The rest of the document discusses derivatives trading in more detail, including the history and types of derivative products. It also compares derivatives trading at NSE and BSE.

1. Stock Market as a type of market
Group no.02
FYBMS
Sydenham College of Commerce and
Economics

2. Stock Market
Stock market: A stock market is a physical place,
sometimes known as a stock exchange, where
brokers gather to buy and sell stocks and other
securities.
The term is also used more broadly to include
electronic trading that takes place over computer
and telephone lines

3. List of Stock Exchanges India

4. Screen-based trading and
Dematerialization
NSE arrived with a fully computerized order book in 1994 called NEAT (National
Exchange for Automated Trading).
This enabled it to spread across to various towns and cities in India by setting up
terminals connected to the central system through VSAT.
Trading in 1363 securities through 2856 VSAT terminals (servicing 9000 users)
spread across 354 cities

5. Conclusion
• Both buyers and sellers are price takers. ×
• The number of firms/individuals is large. 
• There are no barriers to entry. ×
• The firms' products are identical. 
• There is complete information. ×
• There are no regulations. ×
• Thus under normal circumstances a stock market
nearly resembles a perfectly competitive market
structure

6. MAJOR STOCK EXCHANGES
BSE-Bombay Stock Exchange Ltd
NSE-National Stock Exchange

7. BSE-Bombay Stock Exchange Ltd
• Asia’s first Stock Exchange and one of India’s leading exchange groups.
• Growth of the Indian corporate sector by providing it an efficient capital-raising
platform.
• More than 5000 companies are listed on BSE making it world's No. 1 exchange in terms
of listed members.
• provides a host of other services to capital market participants including risk
management, clearing, settlement, market data services and education

8. • global reach with customers around the world.
• has been a pioneer in several areas over the decades and has many firsts
and key achievements to its credit.
• BSE has taken large strides in product and service innovation for the
benefit of its members and investors
• As a pioneering financial institution in the Indian capital market, BSE
has won several awards and recognitions that acknowledge the work
done and progress made.

9. NSE-National Stock Exchange
• set up by Government of India on the recommendation of Pherwani
Committee in 1991
• Objectives
-Establishing nationwide trading facilities for all types of securities.
-Ensuring equal access to investors all-over the country through an appropriate
communication network.
-Meeting international benchmarks and standards.
-Enabling shorter settlement cycles and book entry settlements

11. Market
Primary
IPO
Private
placement
Rights
Issue
Secondary
Capital Derivative

12. Capital Market
• The market where investment instruments like
bonds, equities and mortgages are traded is known
as the capital market.
• The primal role of this market is to make investment
from investors who have surplus funds to the ones
who are running a deficit.
• The capital market offers both long term and
overnight funds.
• The different types of financial instruments that are
traded in the capital markets are:
– Debt instruments
– Shares/Scrips/Eqiuty/Stock
– Bonds etc.

13. History of capital market in India
• East India company in 18th century
• By the end of the 19th century securities trading was
unorganized and the main trading centers were
Bombay (now Mumbai) and Calcutta (now Kolkata)
• During the American Civil War (1860-61),Bombay
was an important source of supply for cotton.
– trading activities flourished during the period, resulting in a boom in
share prices.
– First boom in the history of the Indian capital market lasted for a
half a decade

14. Ctd.
• Trading was at that time limited to a dozen brokers
• Trading place was under a banyan tree in front of the
Town hall in Bombay.
• Stock brokers organized informal association in 1897
– Native Shares and Stock Brokers Association, Bombay.
• The Stock exchanges in Calcutta ad Ahmedabad also
industrial and trading centers, came up later.
• The Bombay Stock Exchange in May 1927 under the
Bombay Securities Contracts Control Act, 1925.

15. Participants in capital market
• Stock exchanges
• Brokers
• Sub brokers
• Custodians
• Depositories
• Depository participants
• Merchant bankers
• Underwriters
• Portfolio managers
• Mutual funds
• FIIs etc.

17. Comparison of Capital market in NSE and
BSE

20. • Meaning
Derivatives
– The term ‘Derivative’ stands for a contract whose
price is derived from or is dependent upon an
underlying asset, which can be commodities,
precious metals, currency, bonds, stocks, stocks
indices, etc. Forwards, Futures, Options and Swaps.
Derivatives
Forward Future Option
Call Put
Warrant

21. History of derivative market
• First forward trade - Chicago Board of Trade(CBOT) in 1848.
• First ‘exchange traded” derivatives contract - Chicago
Mercantile Exchange (CME)
• First exchange-traded financial derivatives emerged in
1970’s - collapse of fixed exchange rate system and
adoption of floating exchange rate systems
• In 1973, the Chicago Board of Trade (CBOT) created the
Chicago Board Options Exchange (CBOE) to facilitate the
trade of options on selected stocks.
• The first stock index futures contract was traded at Kansas
City Board of Trade.
• Currently the most popular stock index futures contract
• in the world is based on S&P 500 index, traded on Chicago
Mercantile Exchange

22. History of Derivative Trading at NSE
• Derivatives trading on the NSE commenced on June 12,
2000 with futures trading on S&P CNX Nifty Index.
• Index options and options on individual securities
commenced on June 4, 2001 and July 2, 2001.
• Single stock futures were launched on November 9, 2001.
• Today, both in terms of volume and turnover, NSE is the
largest derivatives exchange in India.
• Derivatives contracts have a maximum of 3-month
expiration cycles except for a long dated Nifty Options
contract which has a maturity of 5 years.
• Contracts are available for trading, with 1 month, 2
months and 3 months to expiry

23. Types of derivative products
• Forwards: customized contract between two
entities, where settlement takes place on a specific
date in the future at today’s pre-agreed price.
• Futures: agreement between two parties to buy or
sell an asset at a certain time in the future at a
certain price. Futures contracts are special types of
forward contracts in the sense that the former are
standardized exchange-traded contracts, such as
futures of the Nifty index.

24. • Options: contract which gives the right, but not an
obligation, to buy or sell the underlying at a stated
date and at a stated price. While a buyer of an
option pays the premium and buys the right to
exercise his option, the writer of an option is the
one who receives the option premium and
therefore obliged to sell/buy the asset if the buyer
exercises it on him. Options are of two types - Calls
and Puts options:
– ‘Calls’ give the buyer the right but not the obligation to
buy a given quantity of the underlying asset, at a given
price on or before a given future date.
– ‘Puts’ give the buyer the right, but not the obligation to
sell a given quantity of underlying asset at a given price
on or before a given future date

25. • What is an ‘Option Premium’?
• At the time of buying an option contract, the buyer has to
pay premium. The premium is the price for acquiring the
right to buy or sell. It is price paid by the option buyer to
the option seller for acquiring the right to buy or
sell.Option premiums are always paid upfront.
• Warrants: Options generally have lives of up to one year.
The majority of options traded on exchanges have
maximum maturity of nine months.Longer dated options
are called Warrants and are generally traded over-the-counter.

26. Participants in a Derivative Market
• Hedgers
– Investors with a present or anticipated exposure to the
underlying asset which is subject to price risks.
– Hedgers use the derivatives markets primarily for price risk
management of assets and portfolios.
• Speculators
– Individuals who take a view on the future direction of the
markets.
– They take a view whether prices would rise or fall in future and
accordingly buy or sell futures and options to try and make a
profit from the future price movements of the underlying asset.
• Arbitrageurs
– They take positions in financial markets to earn riskless profits.
The arbitrageurs take short and long positions in the same or
different contracts at the same time to create a position which
can generate a riskless profit

30. Comparison of Derivative market in NSE
and BSE

33. Introduction to Stock Market Trends
• The best way to understand how
the market fluctuates is to study
trends(Changes in market).
• Many factors affect prices in the
stock market, Inflation , interest
rate, energy prices, and
international issues, such as war,
crime, fraud and political unrest.

34. 2001 to 2005
1st Mar 2001
Corporatization of Exchanges
proposed by the Union Govt.
15th Feb 2002
Negotiated Dealing System (NDS)
established
1st Jan 2003
India 's first ETF on S&P BSE
SENSEX - ‘SPICE' introduced
17th May 2004
Second biggest fall of all time,
Circuit filters used twice in a day
(564.71 points, 11.14%)
8th Aug 2005
Incorporation of Bombay Stock
Exchange Limited
19th Aug 2005 BSE becomes a Corporate Entity

35. 2006 To 20010
2nd Jan 2007
Launch of Unified Corporate Bond
Reporting platform : Indian
Corporate Debt Market (ICDM)
1st Oct 2008 Currency Derivatives Introduced
25th Nov 2009
BSE launches FASTRADE™ - a new
market access platform
4th Dec 2009
BSE Launches BSE StAR MF –
Mutual Fund trading platform
21st Sep 2010
First to introduce Mobile-based
Trading
27th Dec 2010
Commencement of S&P BSE
Shariah Index

36. 2011 Onwards
7th Jan 2011
BSE Training Institute Ltd. with
IGNOU launched India's first 2 year
full time MBA program specializing
in Financial Market
15th Jan 2011
Co-location facility at BSE - tie up
with Netmagic
17th Nov 2011
Maharashtra and United Kingdom
Environment Ministers launched
Concept Note for S&P BSE Carbon
Index
22nd Feb 2012
Launch of S&P BSE-GREENEX to
promote investments in Green India
13th Mar 2012
Launch of BSE - SME Exchange
Platform
30th Mar 2012
BSE launched trading in
BRICSMART indices derivatives

37. Scams

38. Capital market scam?
It is basically fraud done in the
capital market with the investors by
manipulating the facts in order to
attain enormous profit

39.  HARSHAD MEHTA- story
• was an Indian stockbroker.
• is alleged to have engineered the rise in
the BSE stock exchange in 1992
• Exploiting several loopholes in the banking
system, Mehta and his associates siphoned off
funds from inter-bank transactions and bought
shares heavily at a premium across many
segments, triggering a rise in the Sensex.

40. • litigations still pending against him
• When the scheme was exposed, banks
started demanding their money back,
causing the collapse.
• Mehta died in 2002 with many
litigations still pending against him

41. Contd….
his Favourate stock included
Tata iron and
steel company
reliance -ACC
- apolo tyres Videocon - BPL

42. The Mechanics of the Scam
• 3 STEPS INVOLVED
1) The settlement process in the govt securities
market become broker intermediate that is
delivery and payment started getting routed
through a broker instead of being made directly
between the transacting banks

43. 2) The broker through whom the payment passed on its way
from one bank to another found a way of crediting the
money into his account though the account payee cheque
was drawn in favor of bank
3) While the 2 steps transformed an ready forward deal
from a loan to a broker, it would still be a secured loan.
However, the brokers soon found a way of persuading the
lending bank to dispense with security for the loan or to
accept worthless security

44. Where has all the fraud money gone?
Based on result of investigation and reporting so
far , the following are the possibilities
1) Large amount of money invested in shares
2) It is rumored that a part of money was sent to
the Havalarackent , converted into dollar
pounds and brought back as India development
bonds
3) In the scam foreign banks including city
bank,standard charter and ANZ grindlays were
involved

45. IMPACT OF THE SCAM
• The immediate impact of the scam was a
sharp fall in the shares prices . The index fell
from 4500 to 2500 representing a loss of Rs.
100000 crores in the market capitalization
• In the scam state bank of india suffered the
loss of 660 crores
• The government liberlisation policies came
under sever critism after the scam with
harshad mehta

46. SEBI
The Securities and Exchange Board of India (frequently abbreviated SEBI) is
the regulator for the securities market in India. It was established on 12 April
1992 through the SEBI Act, 1992.[1]
An Act to provide for the establishment of a Board to protect the interests of
investors in securities and to promote the development of, and to regulate,
the securities market and for matters connected therewith or incidental
thereto.

47. Functions of sebi
SEBI has to be responsive to the needs of three
groups, which constitute the market:
• the issuers of securities
• the investors
• the market intermediaries
• It drafts regulations in its legislative capacity
• it conducts investigation and enforcement action
in its executive function
• it passes rulings and orders in its judicial capacity.

48. Powers of sebi
For the discharge of its functions efficiently, SEBI
has been vested with the following powers:
• to approve by−laws of stock exchanges.
• to require the stock exchange to amend their
by−laws.
• inspect the books of accounts and call for
periodical returns from recognized stock
exchanges.
• inspect the books of accounts of a financial
intermediaries.

49. • compel certain companies to list their shares in
one or more stock exchanges.
• levy fees and other charges on the intermediaries
for performing its functions.
• grant license to any person for the purpose of
dealing in certain areas.
• delegate powers exercisable by it.
• prosecute and judge directly the violation of
certain provisions of the companies Act.
• power to impose monetary penalties.

50. Securities and Exchange Board of
India

51. SEBI
The Securities and Exchange Board of India (frequently abbreviated SEBI) is
the regulator for the securities market in India. It was established on 12 April
1992 through the SEBI Act, 1992.[1]
An Act to provide for the establishment of a Board to protect the interests of
investors in securities and to promote the development of, and to regulate,
the securities market and for matters connected therewith or incidental
thereto.

52. Functions of sebi
SEBI has to be responsive to the needs of three
groups, which constitute the market:
• the issuers of securities
• the investors
• the market intermediaries
• It drafts regulations in its legislative capacity
• it conducts investigation and enforcement action
in its executive function
• it passes rulings and orders in its judicial capacity.

53. Powers of sebi
For the discharge of its functions efficiently, SEBI
has been vested with the following powers:
• to approve by−laws of stock exchanges.
• to require the stock exchange to amend their
by−laws.
• inspect the books of accounts and call for
periodical returns from recognized stock
exchanges.
• inspect the books of accounts of a financial
intermediaries.

54. • compel certain companies to list their shares in
one or more stock exchanges.
• levy fees and other charges on the intermediaries
for performing its functions.
• grant license to any person for the purpose of
dealing in certain areas.
• delegate powers exercisable by it.
• prosecute and judge directly the violation of
certain provisions of the companies Act.
• power to impose monetary penalties.

55. Recent Developments in Indian
Capital Market
1. New Measures of Risk Management System in
Indian Capital Market
2. Investigations
3. Investor Awareness Campaign

56. New Measures of Risk Management
System in Indian Capital Market
{ A }Measures for Reducing Price Volatility
Price volatility is the relative rate at which the price of a security moves up
and down.
{B} Place Circuit Breakers
This is another recent development in Indian Capital Market. SEBI has
introduced it.. Risky for every investor. system which stops to trade in stock
market when prices move after a specific level.

57. {C} Intraday Trading Limit
Intraday Trading, also known as Day Trading, is the system where you take a
position on a stock and release that position before the end of that day's trading
session.
{D}Mark to Market Margin
MTM margin is imposed to cover loss that a member may incur, in case the
transaction is closed out at a closing price different from a price at which the
transaction has been entered.