The document provides information about the stock market, how it works, and its key participants. It discusses the primary and secondary markets, as well as authorities like SEBI that regulate the stock market and exchanges like NSE and BSE that facilitate trading. It also defines various stock market terms like intraday trading, insider trading, short delivery, bad delivery, and auction markets. In addition, it covers concepts like SPAN for calculating risk and margins in F&O portfolios and price rigging which refers to illegally fixing prices.

1. UNIT – 5
What is the Stock Market?
• The stock market or share market is a virtual marketplace where
companies sell their equity to investors to collect funds while investors
purchase shares to grow their wealth.
• Trades on this market are carried out by stock exchanges, which serve as
an interface between the different investors.
• Some of the assets traded in the stock market include shares, bonds,
derivatives, ETFs, forex, etc. Investors including both individuals and
institutions trade among themselves under an open pricing mechanism
that is derived from demand and supply in the market.
How Does the Stock Market Work?
Stock market is a virtual place that allows investors to grow their wealth
by purchasing company shares that are offered by organisations trying to
raise capital. SEBI regulates all stock market activities and ensures safe and
ethical trading practices. The two depositories manage all investors,
brokers and stock exchanges under the guidelines of SEBI to ensure the
free flow of investments and trading.

2. Stock market has two parts namely, primary and secondary markets. A stock
is first introduced in the primary market when a company launches its Initial
Public Offering (IPO). Companies offer their equity to the public to collect
additional funding for expansion or any other business plan. Primary
investors bid for IPO subscriptions and buy shares in lots in the primary
market.
Such investors put in their money to earn profits by reselling their stocks in
the secondary market. After launching an IPO, the stock is listed on the
secondary market and shares purchased by primary investors are sold to
other investors in this market the shares are then traded between investors
based on demand and supply which are influenced by company performance
and market capital.
All investors are required to have a DEMAT account to participate in the stock
market. These DEMAT accounts digitally store an investor’s assets and funds
with the depository and allow them to sell those assets when necessary.
Stock exchanges work as a platform for investors to access different shares
and other assets like mutual funds, bonds, etc. Stock exchanges study the
market and help companies and investors understand the market scenario
daily.

3. The performance of a sector and the whole market is represented by separate
indices. Nifty and Sensex are the two broad market indices of the NSE and BSE,
respectively. These indices calculate the market performance of top stocks from
all sectors and produce a value that is representative of the overall market
performance.
Who are the Participants of the Stock Market?
The various participants involved in the stock market function can be described in
two different categories:
1.Authorities
The regulatory authority and the various functionary bodies that it governs are
listed below. These organisations monitor and operate the stock market,
protecting the interests of all participants.
SEBI
The Securities and Exchange Board of India (SEBI) is a regulatory body under
the Government of India that is responsible for monitoring and governing all
activities related to the stock market and other relevant securities. SEBI has
several guidelines and requirements in place and all participants need to abide
by them to participate in the stock market.

4. Depositories
SEBI is the governing body for the stock market. It is responsible for individual
bodies known as depositories which keep a record of all existing accounts and
trades that take place in the stock market.
National Securities Depository Limited (NSDL) and Central Depository Services
(India) Limited (CDSL) are 2 depositories that operate in India. All participants
hold their investment accounts with either of these depositories. All activities
of participants in the stock market are recorded by these bodies.
Stock Exchanges
Stock exchanges are trading platforms where shares, derivatives, and bonds
are traded. These exchanges are registered with SEBI as are all market
participants. Stock exchanges in India facilitate transactions between investors
and stockbrokers electronically.
In India, there are two stock exchanges: National Stock Exchange
(NSE) and Bombay Stock Exchange (BSE) . A participant can invest through any
platform according to their preference.

5. 2.Members
The members of the stock market who operate in the market under SEBI are:
Companies
Companies are one of the primary participants in the stock market. They issue
equity to investors to collect funds for their business. The performance of a
company and its financial decisions directly affect its returns for investors.
Brokers (Middlemen)
Stockbrokers are intermediaries who take care of the financial requirements of
investors and work as a bridge between investors and the stock market. They
offer their services in exchange for a commission on your transaction value or
based on fixed charge. Brokers are available both offline and online.
Investors/ Traders
Investors/traders include any stock market participant who invests/trade in
stocks and other securities with the objective to earn profit. Investors are those
who hold stocks for a long time for profits. In contrast, traders are short-term
investors who target to earn quick profits from price fluctuations in a short time
span .
Primary investors buy stocks from companies directly in the primary stock
market. These investors then sell these stocks in the secondary market and these
stocks are traded back and forth between investors as demand and supply in the
market fall and rise.

6. What is Trading?
Trading involves vigorous participation in the financial markets in comparison to
investing, which works on a buy-and-hold strategy. The success of trading is
dependant on the ability of a trader to be profitable over a period of time.
A trader is a person who gets involved in buying and selling of a financial asset in any
financial market. He or she can buy or sell either for himself/herself or on behalf of
another individual or institution. The main difference between an investor and a
trader is the duration for which he or she holds on to the asset.
A trader is a person who engages in the short-term purchasing and selling of
an equity either for an institution or for themselves. The disadvantages of trading
include - capital gains taxes which is applicable to trades and the expenses of
paying brokers in the form of multiple commission rates.
What are the advantages of Trading?
Traders can work for financial institutions, in which case they will trade via
the funds and credits of a company, and they are paid a combination of
bonus and salary. As another option, traders can work for themselves too, as
in they can trade with their own money and credit. However, with this
option they will also keep all of the profit to themselves.

7. Latest Trends
When it comes to foreign trading, the following are the latest trends: 1. Forced dynamism 2.
Cooperation among coutries 3. Growth in emerging markets 4. Technology sharing 5.
Liberalisation of cross-border movements
Settlement Processes:
• Settlement can be defined as the process of transferring of funds through a central agency,
from payer to payee, through participation of their respective banks or custodians of funds.
The two key elements for payment processing are payment order or message requesting
the transfer of funds to the payee and the actual transfer of funds between the payer's bank
and the payee's bank. Settlement systems can be classified based on (i) time - designated-
time (or deferred) settlement systems and real-time (or continuous) settlement systems and
(ii) amount - gross settlement and net settlement. India has multiple payments and
settlement systems, for both gross and net settlement systems.
• Participants in PSS are exposed to two risks that need to be addressed, viz., credit risk and
liquidity risk. Credit risk, which may occur due to default of a counterparty, is the risk that a
counterparty will not meet an obligation when due. Liquidity risk is when a counterparty will
fail to settle an obligation for full value when due, but will do so at some unspecified time
thereafter. Both credit and liquidity risks together constitute settlement risk.

8. What is pay-in of securities?
Shares that the client wants to sell are picked up from
their Demat account and transferred to the broker’s account. All these
shares are then delivered to the clearing corporation.
What is pay-out of securities?
Shares that the client wants to buy are received from the clearing
corporation and then transferred to the broker’s account. This in turn is
made to reflect in the client’s demat account.
What is the difference between pay-in and pay-out date?
The date that shares are transferred to the custodian or broker or sub-
broker after an investors sells the shares is called the pay-in date. The day
that the buyer receives the shares from the broker is called the pay-out
date.

9. How long does it take for the shares to reflect in an investor’s demat account?
When a transaction happens the settlement date is generally two working
days from pay-out day (commonly referred to as T+2). It differs from stock to
stock but it is not more than two days from the date of the transaction. It
had been T+3 in the past but since April 01, 2003, the delivery of shares to
the client’s account has been reduced to within 24 hours of the payout.
What should investors do if the shares do not reflect in their account within
two working days?
It is very unlikely that this will happen as the process is entirely automated.
However, if it does happen, an investor should contact the broker who in
turn will contact the custodian and sort out the issue.

10. What Is Intraday Trading?
Purchasing and selling securities listed in a stock exchange on the same day is
known as intraday trading. The primary purpose of transacting in this method is
to realise capital gains on purchased securities as well as minimise risks by
keeping money invested for an extended period.
How to Do Intraday Trading?
It is essential to identify the best intraday stocks while undertaking such
investments, as it has relatively higher risks.
1.Choose Highly Liquid Stocks
Liquidity is a prime feature of intraday stocks, as without this feature, such
trade would not be possible. Equity shares of small and mid-cap companies can
be easily bought and sold, as well as experience tremendous volatility due to
market fluctuations.
The cyclical variations should be carefully observed by analysing 52-week high
and low values, as it gives a precise idea about whether an individual should
assume long or short positions while investing.

11. 2.Volatility
Best intraday stocks tend to possess medium to high volatility in price
fluctuations. Generally, market value fluctuations more than 3% should be
avoided while performing intraday trading, as the possibility of incurring a loss
is huge in case of an adverse downturn in the stock market in an economy.
3.Strong Correlation
It is ideal to purchase an intraday share having a high correlation with a
benchmark index of a reputed stock exchange. Thus, substantial movement in
share prices can be observed when index value tends to fluctuate.
Since benchmark indices consist of shares of top companies listed in a stock
exchange, it can be assumed that fluctuations will move in an upward
direction, barring any economic abnormalities. Thus, capital appreciation
through intraday trading will be substantial if this rule is followed.
4.Higher Trade Volume
Intraday investors can track the trade volume index of a particular security to
identify price fluctuations. A higher trade volume index reflects either
excessive demand or supply, depending upon an underlying company’s
performance. Capital appreciation gains can be earned through both purchase
and sale transactions in such cases.

12. Tips to Follow for Intraday Trading
1.Research: Thorough research and analysis of the present market scenario,
company fundamentals, and knowledge of macroeconomic factors, such
as the country's debt status or currency movements.
2.Invest the Extra: Intraday trading is fraught with danger. It is recommended
that you only invest what you can afford to lose.
3.Don't Overtrade: The stock market does not always follow a predictable
pattern. The best way to approach intraday trading is to trade only a few
scripts at a time.
4.Performance Evaluation: Intraday trading is fluid. Keeping track of your
results - wins and losses - will help you understand what worked and what
didn't. Past performance evaluations will assist you in making better
trading judgments in the future.
5.Intraday Trading Indicator: When it comes to booking profits in intraday
trading, you must conduct an extensive study. Certain signs must be
followed for the same aim. Intraday advice is frequently thought to be the
Holy Grail; however, this is not totally correct. Intraday trading indicators
can be useful when combined with a thorough plan to maximise returns.

13. What Is Insider Trading?
• Insider trading involves trading in a public company's stock or other
securities by someone with non-public, material information about the
company. Insider transactions are legal if the insider makes a trade and
reports it to the Securities and Exchange Commission, but insider trading
is illegal when the material information is still non-public.
• Those who commit insider trading face harsh consequences, so it's
important to know what it is and how to avoid it if you own company
shares and have information that can affect other investors.
Legal vs. Illegal Insider Trading:
• The Securities Exchange Act of 1934 was the first step in requiring the
disclosure of company stock transactions. Directors, executives, or anyone
else who has information or who holds more than 10% of any class of a
company's securities are considered insiders by the SEC.2
• Anyone who becomes an insider must file SEC Form 3, Initial Statement of
Beneficial Ownership of Securities, within 10 days of assuming an insider
role.

14. • If an insider makes a transaction, they must file Form 4, Statement of
Changes in Beneficial Ownership, within two business days of making the
transaction. This form serves to notify the public that an insider acted on a
security.4
• SEC Form 5, Annual Statement of Changes in Beneficial Ownership Of
Securities, is required no later than 45 days after a company's fiscal year
ends. The SEC requires its filing only if one or more transactions exempted
from Form 4 were not reported during the year
What is a Short Delivery?
Short delivery is an event when a trader fails to deliver the required number
of shares on the settlement date. There are various reasons why this scenario
might occur. One can be the loaned shares' inaccessibility or errors
committed during the settlement process. Another reason could be when
stocks hit the upper circuit, resulting in a lack of liquidity.

15. What is a Bad Delivery?
A bad delivery is a delivery of a stock that cannot be legally transferred to the
buyer. Often, the reasons are benign, and it may be possible to rectify the
situation so the stock can be successfully transferred. In cases where
fraudulent activities are involved, as when someone sells a stock without
actually having the title, the situation may be reported to regulatory
authorities for investigation and potential penalties such as fines or removal of
trading licenses.
What Is an Auction Market?
In an auction market, buyers enter competitive bids and sellers submit
competitive offers at the same time. The price at which a stock trades
represents the highest price that a buyer is willing to pay and the lowest price
that a seller is willing to accept. Matching bids and offers are then paired
together, and the orders are executed. The New York Stock Exchange (NYSE) is
an example of an auction market.

16. What is SPAN?
Standard Portfolio Analysis of Risk (SPAN) is used by exchanges
to calculate risk and margins for F&O portfolios. SPAN uses the
price and volatility of the underlying security along with several
other variables to determine the maximum possible loss for a
portfolio and determines an appropriate margin.
What Is Price Rigging?
Price rigging occurs when parties conspire to fix or inflate prices
to achieve higher profits at the expense of the consumer. Also
known as "price fixing" or "collusion," price rigging can take
place in any industry and is usually illegal.
As a term, "price rigging" is most commonly used in British
English, while "price fixing" is more common in North America.

17. Price Rigging and Regulation
• In the United States, price rigging is defined and prohibited in
the Sherman Antitrust Act (of 1890) as a federal offense. The Federal
Trade Commission (FTC) has jurisdiction over civil price-fixing cases, and
some states also prosecute price rigging antitrust cases, but most
regulation is overseen by the United States Department of Justice (DOJ).3
• In Canada, price rigging is a criminal act under Section 45 of the
Competition Act.4 Meanwhile, in the United Kingdom, cartels and price
rigging are regulated by several financial regulators. The leading force is
the Competition and Markets Authority (CMA), although anti-competitive
activity can also be reported to the regulator that governs the sector
where price rigging is occurring.