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What is SEBI?
Securities and Exchange Board of India = SEBI It regulates both the primary and secondary markets. (explained in my previous article) It protects the interests of the investors in securities It promotes the development of the securities market. SEBI was established in 1988 but was given statutory powers in 1992, and started working effectively since 1993.
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Computerized trading
First, physical, floor-based, brokers-dominated trading outside the eyes of the investors was replaced by anonymous, computerized order matching system where trading is done in front of the investors. The order-matching system is characterized by strict price-time priority, wherein an order is executed according to the price parameters set by the investors. The OTCEI, which was set up in 1992, was the first computerised exchange in India. NSE started operations in 1994 with electronic trading, while all other exchanges introduced electronic trading subsequently. By March 31, 1999, all the 23 stock exchanges in the country had computerised on-line screen based trading.
Satellite communication
to spread the reach of the exchange to all over the country was attempted successfully, for the first time, by NSE. This was in stark contrast to the other exchanges which till then had the reach limited to their cities of operation for over a century.
Professional managers
the traditional exchanges were and still are managed by the member brokers. This gave rise to many malpractices, a conflict of interest being the most important one. Since the brokers themselves were in charge of enforcement of rules and regulations, they never took a decision in favour of the investors that went against their interest. This gave rise to a conflict of interest between the members as brokers and members as responsible for enforcement of rules and regulations. NSE avoided this problem right from beginning because it was set up as a limited liability company with brokers as franchisees. This led to a situation where brokers were not held responsible for enforcement of rules and regulations, and those who were entrusted with enforcement (professional managers) were not brokers. As a result, NSEs staff is free of pressures from brokers and is better able to perform regulatory and enforcement functions.
Weekly settlement
If you buy shares from me, youve to give me the money in 1 week and Ive to give you the shares in the same 1 week. the traditional practice of fortnightly settlement cycle + system of badla that allowed extension of even this fortnightly cycle was replaced by a strict weekly settlement cycle without badla.
Result-BSE Is busted
Equity trading at NSE commenced in November 1994. Within one year of operation, NSE surpassed the BSE in terms of turnover. BSE was working since 1875, with monopoly now it had to face competition with N.S.E So in March 1995, BSE also adopted similar innovation to keep up in the race.
Improved Transparency:
Investors can see with their own eyes the prices that are currently being quoted in the market, and choose to trade or not.
Anonymity= no cartels
The electronic trading platform makes trading completely anonymous. Traditionally, lack of anonymity in trading in the floor-based system gave rise to cartels (of brokers) and made price manipulation easy. NSE was a break from this tradition as well and removed much of the scope for price manipulation. mrunal.org/2010/01/economy-4-newbie-sebi-stock-exchange.html
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price manipulation.
Demat account
You read above, how the bad delivery of shares was engineering by the brokers.+ the menace of counterfeit shares. And the fear of theft of shares. To curb this problem, SEBI came up with the novel idea that is Dematerialization of share holding This means, youve to get a Demat account in the bank and when you buy shares, you dont get a piece of paper. That share gets automatically credited to your demat account. In November 1996, the National Securities Depository Ltd. (NSDL), the first depository in India, was established For this purpose. SEBI played an active role in gradual shifting from physical certificates to dematerialised holding by introducing a mandatory element in the process. Currently almost cent percent trading and settlement are done in a dematerialised environment. But things are not that safe and sweet, thanks to IPO scam-Demat Queen Roopal Panchal
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divya
Reply to this comment its really helpfull..thank you so much.:):)
AJ
Reply to this comment Gud read, as always
Balamurali Krishna
Reply to this comment whats the need for launching The United Stock Exchange of India (USE) recently?
Abhishek Kumar
Reply to this comment That article is beyond awesome
Abhishek Kumar
Reply to this comment Sir, you taught us everything about stock exchange. But I have one easy question. Like I am a normal man sitting in my home seeing everyone is investing in shares. So from this condition how I start investing it??????
[Economy] LIST of All Articles published by me to clear the basic concepts of Economy for any recruitment exam or interview Mrunal
Reply to this comment [...] BSE and NSE: The Beginning of Sharemarket [...]
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