Concept: Meaning of Sensex and NIFTY
The index of financial market – the Sensex —
BSE- BSE, the first ever stock exchange in Asia established in 1875
Sensex- The SENSEX, launched in 1986 is made up of 30 of the most actively traded stocks in the market
NSE- NSE was incorporated in 1992. It was recognised as a stock exchange by SEBI in April 1993 and commenced operations in 1994
Nifty - The NIFTY 50 index was launched in 1996 by NSE.
Have you counted the number of times newspaper headlines in the past few weeks have been discussing the SENSEX? It goes up and down all the time and seems to be a very important part of business and economic news. Has that made you wonder what the SENSEX actually is?
Respective Industries.
Since the BSE has been the leading exchange of the Indian secondary market, the SENSEX has been an important indicator of the Indian stock market. It is the most frequently used indicator while reporting on the state of the market. An index has just one job: to capture the price movement. So a stock index will reflect the price movements of shares while a bond index captures the manner in which bond prices go up or down. If the SENSEX rises, it indicates the market is doing well. Since stocks are supposed to reflect what companies expect to earn in the future, a rising index indicates that investors expect better earnings from companies. It is also a measure of the state of the Indian economy. If Indian companies are expected to do well, obviously the economy should do well too.
Concept :
Introduction and concept of Financial Market:
Business needs finance from the time an entrepreneur like Deepinder Goyal and Pankaj Chaddah makes the decision to start it. Business needs finance both for working capital requirements such as payments for raw materials, salaries to its employees, and fixed capital expenditure such as the purchase of machinery or building or to expand its production capacity. The above example gives a fair picture of how companies need to raise funds from the capital markets. In this chapter you will study concepts like
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Private placement, |
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Initial public Offer (IPO) and |
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Capital markets |
Business can raise these funds from various sources and in different ways through financial markets. This chapter provides a brief description of the mechanism through which finances are mobilised by a business organisation for both short term and long term requirements. It also explains the institutional structure and the regulatory measures for different financial markets.
Meaning of Financial Market:
A financial market is a market for the creation and exchange of financial assets.
Let us understand with an example:
A business is a part of an economic system that consists of two main sectors –
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Ram Lal -households which save funds and |
Banks -Financial Intermidation |
Zomoto - business firms which needs these funds. |
A financial market helps to link the savers and the business by mobilizing funds between them. By doing this financial market performs an allocative function. Financial markets allocates or directs funds available for investment into their most productive investment opportunity. When the allocative function is performed well, two consequences follow:
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The rate of return offered to households would be higher |
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Scarce resources are allocated to those firms which have the highest productivity for the economy. |
There are two major alternative mechanisms through which allocation of funds can be done:
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via banks- Households can deposit their surplus funds with banks, who in turn could lend these funds to business firms. |
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or via financial markets- Alternately, households can buy the shares and debentures offered by a business using financial markets. |
Banks and financial markets are competing intermediaries in the financial system, and give households a choice of where they want to place their savings.
Concept :
Functions of Financial Market
Financial markets play an important role in the allocation of scarce resources in an economy by performing the following four important functions.
MRF Liquidity to Financial Assets
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1.M |
Mobilisation of savings and channeling them into the most Productive Uses: |
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2.R |
Reducing the cost of transactions: |
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3.F |
3Facilitating Price Discovery: |
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4.Liquidity position |
Providing Liquidity to Financial assets: |
Explanation :-
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1.M |
Mobilization of savings and channeling them into the most Productive Uses: |
Zomoto :Goel and chaddha : A financial market facilitates the transfer of savings from savers to Business. It gives savers the choice of different investments and thus helps to channelise surplus funds into the most productive use. |
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2.R |
Reducing the cost of transactions: |
Financial markets provide valuable information about securities being traded in the market. It helps to save time, effort and money that both buyers and sellers of a financial asset would have to otherwise spend to try and find each other. The financial market is thus, a common platform where buyers and sellers can meet for fulfillment of their individual needs. |
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3.F |
3Facilitating Price Discovery: |
You all know that the forces of demand and supply help to establish a price for a commodity or service in the market. In the financial market, the households are suppliers of funds and business firms represent the demand. The interaction between them helps to establish a price for the financial asset which is being traded in that particular market. |
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4. Liquidity position |
Providing Liquidity to Financial assets: |
Financial markets facilitate easy purchase and sale of financial assets. In doing so they provide liquidity to financial assets, so that they can be easily converted into cash whenever required. Holders of assets can readily sell their financial assets through the mechanism of the financial market. |
Concept : Types of financial Markets
There two types of Financial Markets
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Money Market |
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capital Market |
Money Market
Money market is place or way or means through which companies and government can meet their short term borrowings needs.
The major participants in the money market are the reserve Bank of India (RBI), Commercial Banks, Non- Banking Finance Companies, State Governments, Large Corporate Houses and Mutual Funds.
So Money market is a market for short term funds which deals in monetary assets (cash, bank , bonds, short term debt securities etc). These assets are close substitutes for money. It is a market where low risk, unsecured and short term debt instruments are issued and actively traded everyday. It has no physical location, but is an activity conducted over the telephone and through the internet. It enables the raising of short-term funds for meeting the temporary shortages of cash and obligations and the temporary deployment of excess funds for earning returns.
Following are types of money markets :
Concept : Types of Money Market Instrument
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Treasury Bill: |
A Treasury bill is basically an instrument of short-term borrowing by the Government of India maturing in less than one year. They are also known as Zero Coupon Bonds issued by the Reserve Bank of India on behalf of the Central Government to meet its short-term requirement of funds. Treasury bills are issued in the form of a promissory note. They are highly liquid and have assured yield and negligible risk of default. They are issued at a price which is lower than their face value and repaid at par. The difference between the price at which the treasury bills are issued and their redemption value is the interest receivable on them and is called discount. Treasury bills are available for a minimum amount of` 25,000 and in multiples thereof. Example: Suppose an investor purchases a 91 days Treasury bill with a face value of ` 1,00,000 for` 96,000. By holding the bill until the maturity date, the investor receive`1,00,000. The difference of ` 4,000 between the proceeds received at maturity and the amount paid to purchase the bill represents the interest received by him. |
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Commercial Paper: |
Adani Enterprises and Ramlal: Ramm lal ke pass funds hai and uske pass two option hain , bank mein jama kare yak ahi invest kare -Drama Commercial paper is a short-term unsecured promissory note, negotiable and transferable by endorsement and delivery with a fixed maturity period. It is issued by large and creditworthy companies to raise short-term funds at lower rates of interest than market rates. It usually has a maturity period of 15 days to one year. The issuance of commercial paper is an alternative to bank borrowing for large companies that are generally considered to be financially strong. It is sold at a discount and redeemed at par. The original purpose of commercial paper was to provide short-terms funds for seasonal and working capital needs. For example companies use this instrument for purposes such as bridge financing. Example: Suppose a company needs long-term finance to buy some machinery. In order to raise the long term funds in the capital market the company will have to incur floatation costs (costs associated with floating of an issue are brokerage, commission, printing of applications and advertising, etc.). Funds raised through commercial paper are used to meet the floatation costs. This is known as Bridge Financing. |
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Call Money: |
Scenario : IDFC AND ICICI BANK Call money is short term finance repayable on demand, with a maturity period of one day to fifteen days, used for inter-bank transactions. Commercial banks have to maintain a minimum cash balance known as cash reserve ratio. The Reserve Bank of India changes the cash reserve ratio from time to time which in turn affects the amount of funds available to be given as loans by commercial banks. Call money is a method by which banks borrow from each other to be able to maintain the cash reserve ratio. The interest rate paid on call money loans is known as the call rate. It is a highly volatile rate that varies from day-to- day and sometimes even from hour-to- hour. There is an inverse relationship between call rates and other short-term money market instruments such as certificates of deposit and commercial paper. A rise in call money rates makes other sources of finance such as commercial paper and certificates of deposit cheaper in comparison for banks raise funds from these sources. |
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Certificate of Deposit: |
Certificates of deposit (CD) are unsecured, negotiable, short-term instruments in bearer form, issued by commercial banks and development financial institutions. They can be issued to individuals, corporations and companies during periods of tight liquidity when the deposit growth of banks is slow but the demand for credit is high. They help to mobilise a large amount of money for short periods. |
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commercial bill: |
A commercial bill is a bill of exchange used to finance the working capital requirements of business firms. It is a short-term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms. When goods are sold on credit, the buyer becomes liable to make payment on a specific date in future. The seller could wait till the specified date or make use of a bill of exchange. The seller (drawer) of the goods draws the bill and the buyer (drawee) accepts it. On being accepted, the bill becomes a marketable instrument and is called a trade bill. These bills can be discounted with a bank if the seller needs funds before the bill matures. When a trade bill is accepted by a commercial bank it is known as a commercial bill. |
Concept : Introduction of Capital market
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Capital markets is market where company raises funds for running and expanding business by selling its share or bonds. Capital markets are composed of primary and secondary markets. Primary market : primary market is a source of new securities- IPO Secondary market or stock market The secondary market is where investors buy and sell securities they already own. In secondary market constitute - Bombay stock exchange, and NSC: National stock exchange
Now : let us understand with real life case studies: Zomato was founded by Deepinder Goyal and Pankaj Chaddah as Foodiebay. The registered office of the company is Nehru Place, New Delhi. on April 5, 2021 the name of its Company was changed to “Zomato Limited” upon conversion into a public limited company. generated bids worth Rs 2 trillion as it was subscribed over 38. The issue price was set at Rs 72-76 apiece.
What is Initial Public Offering (IPO): A company’s first issue of shares to general public. IPOs are issued by smaller, younger companies seeking funds for expansion and growth, but large companies also practice this to become publicly traded companies.
Stock Exchange There are primarily two stock exchanges in India, the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Companies list their shares for the first time on a stock exchange through an IPO. Investors may then trade in these shares through the secondary market.
Listed Stocks: The shares of a company that are traded on the stock exchange. The company has to pay fees to be listed in the stock exchange and abide by the regulations of the stock exchange to maintain listing privilege.
Stock exchange provides a platform for buying and selling of existing securities. As a market, the stock exchange facilitates the exchange of a security (share, debenture etc.) into money and vice versa. Stock exchanges help companies raise finance, provide liquidity and safety of investment to the investors and enhance the credit worthiness of individual companies.
Bollywood Example with example of SEBI AND THEN SUBSEQUENT TRADING OF SHARE IN STOCK MARKET. SUPPOSE Two persons Rakesh Jhunjhunwala , Ramdev both are investor. Rakesh Jhunjhunwala -GET 10000 SHARE IN PRIMARY MARKET. BUT Ramdev MISSED THE CHANNCE . NOW Ramdev WILL BUY SHARE FROM SECONDARRY MARKET . BOLE TOH Ramdev WILL BUY SHARE FROM BOMBAY STOCK EXCHANGE OR FROM NSC .
STOCK MARKET. Or Secondary Market OR SHARE MARKET. The secondary market is also known as the stock market or stock exchange. It is a market for the purchase and sale of existing securities. It helps existing investors to disinvest and fresh investors to enter the market. It also provides liquidity and marketability to existing securities. It also contributes to economic growth by channelising funds towards the most productive investments through the process of disinvestment and reinvestment. Securities are traded, cleared and settled within the regulatory framework prescribed by SEBI. Advances in information technology have made trading through stock exchanges accessible from anywhere in the country through trading terminals. Along with the growth of the primary market in the country, the secondary market has also grown significantly during the last ten years. Functions of a Stock Exchange The efficient functioning of a stock exchange creates a conducive climate for an active and growing primary market for new issues. An active and healthy secondary market in existing securities leads to positive environment among investors. The following are some of the important functions of a stock exchange.
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Face Value |
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Concept : Meaning of Capital Market
Channel of Capital Market
The term capital market refers to facilities and institutional arrangements through which long-term funds, both debt and equity are raised and invested. It consists of a series of channels through which savings of the community are made available for industrial and commercial enterprises and for the public in general. It directs these savings into their most productive use leading to growth and development of the economy. The capital market consists of
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Development banks |
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commercial banks and |
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stock exchanges. |
An ideal capital market is one where finance is available at reasonable cost. The process of economic development is facilitated by the existence of a well functioning capital market. In fact, development of the financial system is seen as a necessary condition for economic growth. It is essential that financial institutions are sufficiently developed and that market operations are free, fair, competitive and transparent. The capital market should also be efficient in respect of the information that it delivers, minimise transaction costs and allocate capital most productively.
Concept : Types of capital market
The Capital Market can be divided into two parts:
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Primary Market |
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Secondary Market |
Methods of Floatation of security in Primary Market :
The primary market is also known as the new issues market. It deals with new securities being issued for the first time. The essential function of a primary market is to facilitate the transfer of investible funds from savers to entrepreneurs seeking to establish new enterprises or to expand existing ones through the issue of securities for the first time. The investors in this market are banks, financial institutions, insurance companies, mutual funds and individuals.
JAMTO -A company can raise capital through the primary market in the form of equity shares, preference shares, debentures, loans and deposits. Funds raised may be for setting up new projects, expansion, diversification, modernisation of existing projects, mergers and takeovers etc.
Methods of Floatation of security in primary market :
There are various methods of floating new issues in the primary market :
POORI
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1.P |
Private Placement: |
Private placement is the allotment of securities by a company to institutional investors and some selected individuals. It helps to raise capital more quickly than a public issue. Access to the primary market can be expensive on account of various mandatory and non-mandatory expenses. Some companies, therefore, cannot afford a public issue and choose to use private placement. |
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2.O |
Offer through Prospectus: |
Offer through prospectus is the most popular method of raising funds by public companies in the primary market. This involves inviting subscription from the public through issue of prospectus. A prospectus makes a direct appeal to investors to raise capital, through an advertisement in newspapers and magazines. The issues may be underwritten and also are required to be listed on at least one stock exchange. The contents of the prospectus have to be in accordance with the provisions of the Companies Act and SEBI disclosure and investor protection guidelines. |
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3.O |
Offer for sale |
Under this method securities are not issued directly to the public but are offered for sale through intermediaries like issuing houses or stock brokers. In this case, a company sells securities enbloc at an agreed price to brokers who, in turn, resell them to the investing public. |
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4.R |
rights issue: |
This is a privilege given to existing shareholders to subscribe to a new issue of shares according to the terms and conditions of the company. The shareholders are offered the ‘right’ to buy new shares in proportion to the number of shares they already possess. |
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5.I |
e-iPOs: |
A company proposing to issue capital to the public through the on-line system of the stock exchange has to enter into an agreement with the stock exchange. This is called an Initial Public Offer (IPO). SEBI registered brokers have to be appointed for the purpose of accepting applications and placing orders with the company. The issuer company should also appoint a registrar to the issue having electronic connectivity with the exchange. The issuer company can apply for listing of its securities on any exchange other than the exchange through which it has offered its securities. The lead manager coordinates all the activities amongst intermediaries connected with the issue. |
Concept : How Stocks are purchased or sold in stock market
Scene of old Sale Purchase :
There was a time when in the open outcry system, securities were bought and sold on the floor of the stock exchange. Under this auction system, deals were struck among brokers, prices were shouted out and the shares sold to the highest bidder.
However, Trading in securities is now executed through an on-line, screen-based electronic trading system. Simply put, all buying and selling of shares and debentures are done through a computer terminal.
Now almost all exchanges have gone electronic and trading is done in the broker’s office through a computer terminal. A stock exchange has its main computer system with many terminals spread across the country. Trading in securities is done through brokers who are members of the stock exchange. Trading has shifted from the stock market floor to the brokers office.
Every broker has to have access to a computer terminal that is connected to the main stock exchange. In this screen-based trading, a member logs on to the site and any information about the shares (company, member, etc.) he wishes to buy or sell and the price is fed into the computer. The software is so designed that the transaction will be executed when a matching order is found from a counter party. The whole transaction is carried on the computer screen with both the parties being able to see the prices of all shares going up and down at all times during the time that business is transacted and during business hours of the stock exchange. The computer in the brokers office is constantly matching the orders at the best bid and offer price. Those that are not matched remain on the screen and are open for future matching during the day
Now, screen-based trading or on-line trading is the only way in which you can buy or sell shares. Shares can be held either in physical form or an electronic book entry form of holding and transferring shares can also be adopted. This electronic form is called dematerialized form.
It has been made compulsory to settle all trades within 2 days of the trade date, i.e., on a T+2 basis, since 2003. Prior to the reforms, securities were bought and sold, i.e., traded and all positions in the stock exchange were settled on a weekly/ fortnightly settlement cycle whether it was delivery of securities or payment of cash. This system prevailed for a long time as it increased the volume of trading on the exchange and provided liquidity to the system. However, since trades were to be settled on specified dates, this gave rise to speculation and price of shares used to rise and fall suddenly due to trading and defaults by brokers. A new system, i.e, rolling settlement, was introduced in 2000, so that whenever a trade took place it would be settled after some days. Since 2003, all shares have to be covered under the rolling settlement system on a T+2 basis, meaning thereby that transactions in securities are settled within 2 days after the trade date. Since rolling settlement implies fast movement of shares, it requires effective implementation of electronic fund transfer and dematerialization of shares.
Electronic trading systems or screen-based trading has certain advantages:
TELS :
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Transparency |
It ensures transparency as it allows participants to see the prices of all securities in the market while business is being transacted. They are able to see the full market during real time. |
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Efficiency of information |
It increases efficiency of information being passed on, thus helping in fixing prices efficiently. The computer screens display information on prices and also capital market developments that influence share prices. |
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Efficiency of operation |
It increases the efficiency of operations, since there is reduction in time, cost and risk of error. |
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L |
People from all over the country and even abroad who wish to participate in the stock market can buy or sell securities through brokers or members without knowing each other. That is, they can sit in the broker’s office, log on to the computer at the same time and buy or sell securities. This system has enabled a large number of participants to trade with each other, thereby improving the liquidity of the market. |
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S |
A single trading platform has been provided as business is transacted at the same time in all the trading centres. Thus, all the trading centres spread all over the country have been brought onto one trading platform, i.e., the stock exchange, on the computer. |
Concept : Distinction between Capital Market and Money Market
DIL SE Participants
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1.D |
Duration: |
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2.I |
Investment Outlay: |
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3.L |
Liquidity: |
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4.S |
Safety: |
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5.E |
Expected return: |
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6.P |
Participants: |
The major points of distinction between the two markets are as follows:
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Capital Markets |
Money Market |
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1.D |
Duration: |
The capital market deals in medium and long term securities such as equity shares and debentures. |
Money market instruments have a maximum tenure of one year, and may even be issued for a single day. |
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2.I |
Investment Outlay: |
Investment in the capital market i.e. securities does not necessarily require a huge financial outlay. The value of units of securities is generally low i.e. rs 10, rs 100 and so is the case with minimum trading lot of shares which is kept small i.e. 5, 50, 100 or so. This helps individuals with small savings to subscribe to these securities. |
In the money market, transactions entail huge sums of money as the instruments are quite expensive. |
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3.L |
Liquidity: |
Capital market securities are considered liquid investments because they are marketable on the stock exchanges. However, a share may not be actively traded, i.e. it may not easily find a buyer. |
Money market instruments on the other hand, enjoy a higher degree of liquidity as there is formal arrangement for this. The Discount Finance House of India (DFHI) has been established for the specific objective of providing a ready market for money market instruments. |
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4.S |
Safety: |
Capital market instruments are riskier both with respect to returns and principal repayment. Issuing companies may fail to perform as per projections and promoters may defraud investors |
. But the money market is generally much safer with a minimum risk of default. This is due to the shorter duration of investing and also to financial soundness of the issuers, which primarily are the government, banks and highly rated companies. |
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5.E |
Expected return: |
The investment in capital markets generally yield a higher return for investors than the money markets. The possibility of earnings is higher if the securities are held for a longer duration. First, there is the scope of earning capital gains in equity share. Second, in the long run, the prosperity of a company is shared by shareholders by way of high dividends and bonus issues. |
Less expected earning
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6.P |
Participants: |
The participants in the capital market are financial institutions, banks, corporate entities, foreign investors and ordinary retail investors from members of the public. |
Participation in the money market is by and large undertaken by institutional participants such as the RBI, banks, financial institutions and finance companies. Individual investors although permitted to transact in the secondary money market, do not normally do so. |
Concept: Trading and settlement procedure or steps involved in the screen-based trading for buying and selling of securities:
The following steps are involved in the screen-based trading for buying and selling of securities:
SOPMEIDSDT
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Steps 1 |
Selection of broker and opening of trading Account |
If an investor wishes to buy or sell any security he has to first approach a registered broker or sub-broker and enter into an agreement with him. The investor has to sign a broker-client agreement and a client registration form before placing an order to buy or sell securities. He has also to provide certain other details and information. These include: PAN number (This is mandatory) Date of birth and address. Educational qualification and occupation. Residential status (Indian/ NrI). Bank account details. Depository account details. Name of any other broker with whom registered. Client code number in the client registration form. The broker then opens a trading account in the name of the investor. |
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Opening De mat Account |
The investor has to open a ‘demat’ account or ‘beneficial owner’ (BO) account with a depository participant (DP) for holding and transferring securities in the demat form. He will also have to open a bank account for cash transactions in the securities market. |
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Placing the order |
The investor then places an order with the broker to buy or sell shares. Clear instructions have to be given about the number of shares and the price at which the shares should be bought or sold. The broker will then go ahead with the deal at the above mentioned price or the best price available. An order confirmation slip is issued to the investor by the broker |
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Match the order |
The broker then will go on-line and connect to the main stock exchange and match the share and best price available. |
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Executing the order |
Trade confirmation slip When the shares can be bought or sold at the price mentioned, it will be communicated to the broker’s terminal and the order will be executed electronically. The broker will issue a trade confirmation slip to the investor. |
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Issue of contract notes |
After the trade has been executed, within 24 hours the broker issues a Contract Note. This note contains details of the number of shares bought or sold, the price, the date and time of deal, and the brokerage charges. This is an important document as it is legally enforceable and helps to settle disputes/claims between the investor and the broker. A Unique Order Code number is assigned to each transaction by the stock exchange and is printed on the contract note. |
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Delivery of shares and making payment |
Now, the investor has to deliver the shares sold or pay cash for the shares bought. This should be done immediately after receiving the contract note or before the day when the broker shall make payment or delivery of shares to the exchange. This is called the pay-in day. |
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Settlement cycles |
Cash is paid or securities are delivered on pay-in day, which is before the T+2 day as the deal has to be settled and finalised on the T+2 day. The settlement cycle is on T+2 day on a rolling settlement basis, w.e.f. 1 April 2003.
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Delivery of share or payment by Exchange to Broker |
On the T+2 day, the exchange will deliver the share or make payment to the other broker. This is called the pay-out day. The broker then has to make payment to the investor within 24 hours of the pay-out day since he has already received payment from the exchange. |
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Transfer of shares from demat to demat account |
The broker can make delivery of shares in demat form directly to the investor’s demat account. The investor has to give details of his demat account and instruct his depository participant to take delivery of securities directly in his beneficial owner account. |
Concept : Depositories
In India, there are two depositories: National Securities Depositories Ltd (NSDL) and Central Securities Depositories Ltd (CDSL)
Working of the Demat System
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A depository participant (DP), either a bank, broker, or financial services company, may be identified. |
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An account opening form and documentation (PAN card details, photograph, power of attorney) may be completed. |
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The physical certificate is to be given to the DP along with a dematerialisation request form. |
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If shares are applied in a public offer, simple details of DP and demat account are to be given and the shares on allotment would automatically be credited to the demat account. |
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If shares are to be sold through a broker, the DP is to be instructed to debit the account with the number of shares. |
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6 |
The broker then gives instruction to his DP for delivery of the shares to the stock exchange. |
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7 |
The broker then receives payment and pay the person for the shares sold. |
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8 |
All these transactions are to be completed within 2 days, i.e., delivery of shares and payment received from the buyer is on a T+2 basis, settlement period. |
Concept : National stock exchange of India (NSE)
National Stock Exchange was incorporated in 1992 and was recognised as a stock exchange in April 1993. It started operations in 1994, with trading on the wholesale debt market segment. Subsequently, it launched the capital market segment in November 1994 as a trading platform for equities and the futures and options segment in June 2000 for various derivative instruments.
The National Stock Exchange is the latest, most modern and technology driven exchange.. NSE has set up a nationwide fully automated screen based trading system.
The NSE was set up by leading financial institutions, banks, insurance companies and other financial intermediaries. It is managed by professionals, who do not directly or indirectly trade on the exchange. The trading rights are with the trading members who offer their services to the investors. The Board of NSE comprises senior executives from promoter institutions and eminent professionals, without having any representation from trading members.
Concept : Bombay stock exchange and objective of BSE
BSE ltd (formerly known as Bombay Stock Exchange ltd) was established in 1875 and was Asia’s first Stock Exchange. It was granted permanent recognition under the Securities Contract (regulation) Act, 1956. It has contributed to the growth of the corporate sector by providing a platform for raising capital. It is known as BSE ltd but was established as the Native Share Stock Brokers Association in 1875. Even before the actual legislations were enacted, BSE ltd already had a set of rules and regulations to ensure an orderly growth of the securities market. As discussed earlier, a stock exchange can be set up as a corporate entity with different individuals (who are not brokers) as members or shareholders. BSE is one such exchange set up as a corporate entity with a broad shareholder base.
It has the following objectives:
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To provide an efficient and transparent market for trading in equity, debt instruments, derivatives, and mutual funds. |
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To provide a trading platform for equities of small and medium enterprises. |
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To ensure active trading and safeguard market integrity through an electronically-driven exchange |
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To provide other services to capital market participants, like risk management, clearing, settlement, market data, and education |
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To conform to international standards. |
Besides having a nation-wide presence, BSE has a global reach with customers around the world. It has stimulated innovation and competition across all market segments. It has established a capital market institute, called the BSE Institute ltd, which provides education on financial markets and vocational training to a number of people seeking employment with stock brokers. The exchange has about 5000 companies listed from all over the country and outside, and has the largest market capitalisation in India.
Concept : Introduction of SEBI RECORDED ( CLASS 6 OF BCK )
SEBI Act 1992 replaced old Act, Capital Issue (Control) Act, 1947.
The Securities and Exchange Board of India (SEBI) was established by the Government of India on 12th April 1988 and given statutory powers in 1992 with SEBI Act, 1992 being passed in the Parliament.
The SEBI Act, 1992 has come into force with effect from 30th January, 1992.
SEBI is an authority to regulate and develop the Indian capital market and protect the interest of investors in the capital market.
SEBI has its headquarters at the business district of Bandra Kurla Complex in Mumbai, and has Northern regional office in New Delhi, Eastern Regional Offices in Kolkata .Southern regional office in chenai and Western Regional Offices Ahmedabad.
Controller of Capital Issues (CCI) was the regulatory authority before SEBI came into existence. it derived authority from the Capital Issues (Control) Act, 1947.
Concept : Reasons for the establishment of SEBI
The capital market has witnessed a tremendous growth during 1980’s, characterised particularly by the increasing participation of the public. This ever expanding investors population and market capitalisation led to a variety of malpractices on the part of companies, brokers, merchant bankers, investment consultants and others involved in the securities market. The glaring examples of these malpractices include existence of self
– styled merchant bankers unofficial private placements, rigging of prices, unofficial premium on new issues, non-adherence of provisions of the Companies Act, violation of rules and regulations of stock exchanges and listing requirements, delay in delivery of shares etc. These malpractices and unfair trading practices have eroded investor confidence and multiplied investor grievances. The Government and the stock exchanges were rather helpless in redressing the investor’s problems because of lack of proper penal provisions in the existing legislation. In view of the above, the Government of India decided to set- up a separate regulatory body known as Securities and Exchange Board of India.
Concept : PURPOSE, Responsibility, and role of SEBI
Already recorded
The Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India as “... to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected there with or incidental there to”.
Responsibility
SEBI has to be responsive to the needs of three groups, which constitute the market:
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1 |
The issuers of securities- Company |
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2 |
The investors- |
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3 |
The market intermediaries. |
Role of SEBI
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1 |
Develop Capital Market |
SEBI is responsible for the development of India’s capital market i.e. market for the corporate issues of capital. For example, it facilitates public offering of capital by the company. Thus, these companies are able to access the capital market for their funding requirements. |
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2 |
Trading in secondary market |
It also oversees the subsequent trading of their shares on the floor of the stock exchanges |
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3 |
Helping foreign investors to invest in India |
It even facilitates overseas entities desirous of participating in Indian capital markets and the domestic capital market entities desirous of participation in overseas markets. It coordinates with the market developers and regulators aboard. |
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4 |
Retain investors faith |
It is responsible for investors’ faith in the functioning of the capital markets and thus assures the corporates of steady flow of funds. |
Concept : Objectives of SEBI
The overall objective of SEBI is to protect the interests of investors and to promote the development of, and regulate the securities market. This may be elaborated as follows:
To regulate stock exchanges and the securities industry to promote their orderly functioning.
To protect the rights and interests of investors, particularly individual investors and to guide and educate them.
To prevent trading malpractices and achieve a balance between self regulation by the securities industry and its statutory regulation.
To regulate and develop a code of conduct and fair practices by intermediaries like brokers, merchant bankers etc., with a view to making them competitive and professional.
Concept : Functions of SEBI
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1.R |
regulatory Functions |
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2.P |
Protective Functions |
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3.D |
Development Functions |
Keeping in mind the emerging nature of the securities market in India, SEBI was entrusted with the twin task of both regulation and development of the securities market. It also has certain protective functions.
regulatory Functions
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1 |
registration of brokers and sub- brokers and other players in the market. |
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2 |
registration of collective investment schemes and Mutual Funds |
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3 |
regulation of stock brokers, portfolio exchanges, underwriters and merchant bankers and the business in stock exchanges and any other securities market. |
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4 |
regulation of takeover bids by companies. |
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5 |
Calling for information by under- taking inspection, conducting enquiries and audits of stock exchanges and intermediaries. |
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6 |
leaving fee or other charges for carrying out the purposes of the Act. |
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7 |
Performing and exercising such power under Securities Contracts (regulation) Act 1956, as may be delegated by the Government of India |
Development Functions
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1 |
Training of intermediaries of the securities market. |
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2 |
Conducting research and publishing information useful to all market participants. |
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3 |
Undertaking measures to develop the capital markets by adapting a flexible approach. |
Protective Functions
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1 |
Prohibition of fraudulent and unfair trade practices like making mis- leading statements, manipulations, price rigging etc. |
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2 |
Controlling insider trading and imposing penalties for such practices. |
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3 |
Undertaking steps for investor protection. |
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4 |
Promotion of fair practices and code of conduct in securities market. |
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