Stock exchange

“ any body of individuals whether
incorporated or not, constituted
for the purpose of
assisting, regulating or controlling
the business of buying, selling or
dealing in securities Markets
9/13/2013prakash misal 1

 : The securities regulation act of 1956
defined stock exchange as “an association ,
organization , or aindividual which is
established for for the purpose of assisting
,regulating , and controlling business in
buying ,selling and dealingin securities.”
Meaning : This comes under treasury sector
,which providesservice to stock brokers &
traders to trade stocks ,bonds andsecurities.

 Stock exchanges helps the companies to raise
their fund.Therefore the companies needs to
list themselves in the StockExchange and the
shares will be issued which is known as
equity ora ordinary share and these
shareholders are the real owners of
thecompany the Board Of Directors of the
Company are elected out of these Equity
Shareholders only.

 It is an organized market
 It is a securities market
 It is an important constituent of capital
market i.e., market for long- term finance
 It is a voluntary association of persons
desirous of dealing in securities

 Stock exchange is a voluntary association, its
membership is not open to everybodyIn a
stock exchange, only the members can deal
in i.e., buy & sell securities
 The members of a stock exchange can buy
and sell securities either as brokers for & on
behalf of their client
 The dealings in a stock exchange are under
certain accepted code of conduct i.e., rules
and regulations

 Provide central and convenient meeting
places for sellers and buyer of securities
Increase the marketability and liquidity of
securities
 Contribute to stability of prices of securities
 Equalization of price of securities
 Smoothen price movement

 Help the investors to know the worth of
their holdings
 Promote the habit of saving and investment
 Help capital formation
 Help companies and government to raise
funds from the investors
 Provide forecasting service

 Stock markets are highly
correlated in the era of
globalisation. The world has
became a small global village.

 A stock market or equity market
is a market for the trading of
company stock (shares) and
derivatives at an agreed price.

 Shares represent a fraction of ownership in a
business. The common feature of all these is
equity participation. Different classes of
shares have different voting rights.
Ownership of shares is documented by a legal
document that specifies the amount of shares
owned by the shareholder, and other
specifics of the shares, such as the par value
or the class of the shares (if any).These days
these stock certificates have been
dematerialized.(No physical document!)

 A shareholder (or stockholder) is an individual or
company (including a corporation) that legally
owns one or more shares of a company.
Shareholders are granted privileges depending
on the class of stock, including the right to vote
on matters such as elections to the board of
directors, the right to share in distributions of
the company's income, the right to purchase new
shares issued by the company, and the right to a
company's assets during a liquidation of the
company.Shareholders vary from individual stock
investors to large hedge fund traders.

 A company may want additional capital to
invest in new projects. The promoters may
simply wish to reduce their holding, freeing
up capital for their own private use.Once a
company is listed, it will be able to issue
further shares via a rights issue, thereby
again providing itself with capital for
expansion without incurring any
debt.Financing a company through the sale of
stock in a company is known as equity
financing.

 Government of India set up the
Securities And Exchange Board of
India(SEBI) on April 12, 1988 on
the basis of the recommendation
committee on Stockexchange
reforms headed by G.S. patel.

 The members of the Board of
Management of the SEBI
Comprises those drawn from
Professional brokers, Financial
Consultant, Merchant
Bankers, Investors, Stock
exchanges Authorities and
Finance ministry

 The securities market has two interdependent
and inseparable segments, The new issues
(primary) market and Secondary market.
(stock market) The primary market provides
the channel for creation and sale of new
securities, The securities issued in the
primary market are issued by public limited
companies or by government agencies.

 The resources in this kind of market are
mobilized either through the public issue or
through private placement route. It is a public
issue if anybody and everybody can subscribe for
whereas if the issue is made available to a
selected group of persons it is termed as private
placement. There are two major types of issuers
of securities, the corporate entities who issue
mainly Debt and Equity instruments and the
government (central as well as state) who issue
debt securities (dated securities and treasury
bills).

 While the secondary market deals
in securities previously issued.
The secondary market enables
participants who hold securities to
adjust their holdings in response
to changes in their assessment of
risks and returns.

 Once the new securities are issued in the
primary market they are traded in the stock
(secondary) market. The secondary market
operates through two mediums, namely, the
over-the-counter (OTC) market and the
exchange-traded market. OTC markets are
informal markets where trades are
negotiated. Most of the trades in the
government securities are in the OTC market.

The Bombay Stock Exchange -oldest exchange in
Asia.
Bombay Stock Exchange (BSE), (Bombay Śhare
Bāzaār) is a stock exchange located on Dalal
Street, Mumbai, Maharashtra, India.
Established in 1875, BSE Ltd. (formerly known as
Bombay Stock Exchange Ltd)
BSE’s popular equity index - the SENSEX

 Better corporate profitability
 India’s equity capital markets are more developed
than China’s
 Greater exposure to the
private sector
 India’s driver of economic growth is consumption
instead of volatile exports.

 All the spot trades where securities are traded
for immediate delivery and payment take
place in the OTC market. The other option is
to trade using the infrastructure provided by
the stock exchanges. The exchanges in India
follow a systematic settlement period. All the
trades taking place over a trading cycle
(day=T) are settled together after a certain
time (T+2 day). The trades executed on
exchanges are cleared and settled In Case of
BSE “ trading system known as BOLT”

 A variant of the secondary market is the
forward market, where securities are traded
for future delivery and payment. A variant of
the forward market is Futures and Options
market. Presently only two exchanges
viz., National Stock Exchange of India Ltd.
(NSE) and Bombay Stock Exchange (BSE)
provides trading in the Futures & Options.

 Key strengths of the Indian securities markets The
key strengths of the Indian capital market include A
fully automated trading system on all stock
exchanges, a wide range of products, an integrated
platform for trading in both cash and derivatives, and
a nationwide network of trading through over 4,000
corporate brokers. The securities markets in India
have made enormous progress in developing
sophisticated instruments and modern market
mechanisms. The real strength of the Indian
securities market lies in the quality of regulation. The
market regulator, Securities and Exchange Board of
India (SEBI) is an independent and effective regulator.

 Exchange Board of India (SEBI) Is an independent
and effective regulator. :
 Exchange Board of India (SEBI) Is an independent
and effective regulator. It has put in place sound
regulations in respect of Intermediaries, trading
mechanism, Settlement cycles, Risk
management, Derivative trading and takeover
of companies. There is a well designed
disclosure based regulatory system. Information
technology is extensively used in the securities
market.

 The NSE and BSE have most advanced and scientific risk management systems. The
growing number of market participants, The growth in volume of securities
transactions, The reduction in transaction costs, The significant improvements in
efficiency, transparency and safety, and the level of compliance with international
standards have earned for the Indian securities market a new respect in the world.

Market Participants :
 Market Participants In every economic system, some units, individuals or
institutions, are surplus-generating, who are called savers, while others are deficit-
generating, called spenders. Households are surplus-generators and Corporate and
Government are deficit generators. Through the platform of securities markets, The
savings units place their surplus funds in financial claims or securities in turn get
benefits like interest, dividend, capital appreciation, bonus etc. These investors and
issuers of financial securities constitute two important elements of the securities
markets. The third critical element of markets are the intermediaries who act as conduits
between the investors and issuers.

 Bombay Stock Exchange• The oldest stock
exchange in Asia• Established as “The Native
Share &Stock Broker Association” in 1875•
Over the past 138 years, BSE has facilitated
the growth of the Indian Corporate Sector by
providing it with an efficient capital raising
platform• The equity market capitalization of
the companies listed on the BSE was US $
1.63 trillion as of Dec. 2010• BSE has the
largest number of listed companies in the
world

 National Stock Exchange (NSE)• NSE was set up
by leading institutions to provide a modern, fully
automated screen based trading system.•
Promoted by leading financial institutions at the
behest of the Government of India.• Incorporated
in Nov. 1992 as a tax paying company.• Today
NSE, network stretches to more than 1500
locations in the country and support more than
2,30,000 terminals.• Market Capitalization went
up to Rs. 6,009,173 crore at the end of march.

 Over The Counter Exchange Of India (OTCEI)•
Incorporated in 1990, setup to aid
enterprising promoters in raising finance for
new projects.• To provide investors with a
transparent efficient mode of trading.• OTCEI
introduced a screen based nation wide
trading.• OTCEI net profit is 17.81 lacs• Its
increases total turnover is Rs.1627 crore to
1678 crore

 Market Participants Regulatory bodies, which regulate the
functioning of the securities markets, constitute another
signifycant element of securities markets. The process of
mobilization of resources is carried out under the supervision
and overview of the regulators. The regulators develop fair
market practices and regulate the conduct of issuers of securities
and the intermediaries. They are also in charge of protecting the
interests of the investors. The regulator ensures a high service
standard from the intermediaries and supply of quality securities
and non-manipulated demand for them in the market. Thus, the
four important elements of securities markets are the
Investors, the Issuers, the Intermediaries and Regulators. “IIIR”


 STOCK MARKET WORKING REGULATORY FRAMEWORK WHY DO PEOPLE BUY
SHARES? WHY STOCK MARKET IS SO VOLATILE? HOW TO MAKE MONEY IN STOCK
MARKET? ROLE OF STOCK MARKET IN ECONOMY

Regulatory Framework :
 Regulatory Framework At present, the Six main Acts governing the securities
markets are (a) The SEBI Act, 1992; (b) The Companies Act, 1956, which sets out
the code of conduct for the corporate sector in relation to issuance, allotment and
transfer of securities, and disclosures to be made in public issues; (c) The
Securities Contracts (Regulation) Act, 1956, which provides for regulation of
transactions in securities through control over stock exchanges (d) The
Depositories Act, 1996 which provides for electronic maintenance and transfer of
ownership of demat shares (NSDL) (e) Prevention of Money Laundering Act, 2002.
(f) Capital Issues (Control) Act, 1947

SEBI Act, 1992 :

 SEBI Act, 1992 The SEBI Act, 1992 was enacted to empower SEBI with statutory powers for (a)
Protecting the interests of investors insecurities, (b) Promoting the development of the
securities market, (c) Regulating the securities market. (d) It can conduct enquiries, audits and
inspection of all concerned and adjudicate offences under the Act. (e) It has power to register
and regulate all market intermediaries and also to penalize them in case of violations of the
provisions of the Act, SEBI has full autonomy and authority to regulate and develop an orderly
securities market.

Securities Contracts (Regulation) Act, 1956 :
 Securities Contracts (Regulation) Act, 1956 It provides for direct and indirect control of virtually
all aspects of securities trading and the running of stock exchanges and aims to prevent
undesirable transactions in securities. It gives Central Government regulatory jurisdiction over
stock exchanges through a process of recognition and continued supervision (b) Contracts in
securities, and (c) Listing of securities on stock exchanges. As a condition of recognition, a
stock exchange complies with conditions prescribed by Central Government. Organized trading
activity in securities takes place on a specified recognized stock exchange.

Depositories Act, 1996 :

 Depositories Act, 1996 The Depositories Act, 1996 provides for the establishment of
depositories in securities with the objective of ensuring Free transferability of securities with
speed, accuracy and security by making securities of public limited companies freely
transferable subject to certain exceptions; (b) Dematerializing the securities in the depository
mode; and (c) Providing for maintenance of ownership records in a book entry form. (d) In
order to streamline the settlement process, the Act envisages transfer of ownership of
securities electronically by book entry without making the securities move from person to
person.

Companies Act, 1956 :
 Companies Act, 1956 It deals with issue, allotment and transfer of securities and various
aspects relating to company mgt. It provides for standard of disclosure in public issues of
capital, particularly in the fields of company management and projects, information about
other listed companies under the same management, and management perception of risk
factors. It also regulates underwriting, the use of premium and discounts on issues, rights and
bonus issues, payment of interest and dividends, supply of annual report and other
information.

Prevention of Money Laundering Act, 2002 :
 Prevention of Money Laundering Act, 2002

Index Services :

 Index Services A stock index consists of a set of stocks that are representative of either the
whole market, or a specified sector. It helps to measure the change in overall behavior of the
markets or sector over a period of time The are maintained professionally to ensure that it
continues to be a consistent benchmark of the equity markets, which involves inclusion and
exclusion of stocks in the index, day-to-day tracking and giving effect to corporate actions
on individual stocks

S&P CNX NIFTY (NIFTY 50) National Index of Fifty Shares :
 S&P CNX NIFTY (NIFTY 50) National Index of Fifty Shares Blue chip index of NSE Most popular
and widely used stock market indicator in the country. Diversified 50 stocks index accounting
for 22 sectors of the economy Top 50 liquid stocks in India Accounts for 58.64 % of total
market capitalization of CM For reflecting the stock market behavior accurately and also for
modern applications such as index funds and index Derivatives. Base capital of Rs.2.06 trillion.

CNX Nifty Junior :
 CNX Nifty Junior The next rung of liquid securities after Nifty 50 The maintenance of the Nifty
50 and the CNX Nifty Junior are synchronized so that the two indices will always be disjoint
sets Accounts for 9.60 % of the market capitalization of CM segment of NSE as at end March
2008. Introduced on January 1, 1997, with a base capital of Rs.0.43 trillion. (Approx 1 Laks
Crore Market Cap)


 CNX 100 :
 CNX 100 A diversified 100 stock index accounting for 35 sector of the economy A combination
of the Nifty 50 and CNX Nifty Junior

S&P CNX 500 :
 S&P CNX 500 India’s first broad-based benchmark of the Indian capital market for comparing
portfolio returns vis-a-vis market returns. Represents about 84.24 % of total market
capitalization and about 78.00% of the total turnover on the NSE as on March 30 2008. The S&P
CNX 500 companies are disaggregated into 72 industry indices viz. S&P CNX Industry Indices
Industry weight ages in the index reflect the industry weight ages in the market. For e.g. if the
banking sector has a 5% weight age in the universe of stocks traded on NSE, banking stocks in
the index would also have an approximate representation of 5% in the index.

SENSEX :
 SENSEX Blue chip index of the Bombay Stock Exchange (BSE). first compiled in 1986 and was
calculated on a “Market Capitalization-Weighted”Methodology of 30 component stocks
representing a sample of large, well-established and financially sound companies. Consist of A
basket of 30 constituent stocks representing a sample of large, liquid and representative
companies Base index value is 100.


 BSE-100 INDEX :
 BSE-100 INDEX Comprises of 100 stocks listed at five major stock exchanges in India at Mumbai, Calcutta
, Delhi, Ahmadabad and Madras. Criteria for selection had been market activity, due representation to various
industry groups and representation of trading activity on major stock exchanges. BSE also calculates a dollar-
linked version of BSE-100 Index. Base index value is 100.

BSE-500 INDEX • :
 BSE-500 INDEX • Consists of 500 scripts in its basket The changing pattern of the economy and that of the
market have been kept in mind while constructing this index. BSE-500 index . It represents nearly 93% of the
total market capitalization on Bombay Stock Exchange Limited. Means BSE-500 index ideally represents total
market. Represents all 20 major industries of the economy. Base index value is 1000.

Movement of Nifty, Sensex and NASDAQ, 2007-08 :
 Movement of Nifty, Sensex and NASDAQ, 2007-08

Derivatives Market :
 Derivatives Market A futures contract is a forward contract, which is traded on an Exchange. NSE commenced
trading in index futures on June 12, 2000. NSE defines the characteristics of the futures contract such as the
Underlying index, Market lot, and The maturity date of the contract. The futures contracts are available for
trading from introduction to the expiry date. Trading cycle S&P CNX Nifty futures contracts have a maximum of
3-month trading cycle - the near month (one), the next month (two) and the far month (three). A new contract is
introduced on the trading day following the expiry of the near month contract.


 Nifty Options :
 Nifty Options An option gives a person the right but not the obligation to buy or sell
something. An option is a contract between two parties wherein the buyer receives a privilege
for which he pays a fee (premium) and the seller accepts an obligation for which he receives a
fee. The premium is the price negotiated and set when the option is bought or sold. A person
who buys an option is said to be long in the option. A person who sells an option is said to be
short in the option.

Slide 34:
 First step to Investing in Stock market!!!!

JARGON OF EQUITY MARKET: :
 JARGON OF EQUITY MARKET: SECURITY BOND STOCK 1)COMMON STOCKS 2)PREFERRED
STOCKS SHARE MUTUAL FUNDS. PAR VALUE vs. MARKET VALUE BULLISH vs. BEARISH

How does the stock market function? :
 How does the stock market function? Stock exchanges Brokers Registrars Depositories and
their participants Securities and Exchange Board of India (SEBI)

Slide 37:

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