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Stock Exchange
Securities Contract Regulations Act (SCRA) 1956 defines Stock exchange as any body of individuals whether incorporated or not constituted for the purpose of assisting, regulating and controlling the business of buying and selling in securities. Stock market represents secondary market where existing securities (shares and debentures) are traded and Stock exchange provides an organized mechanism for purchase and sale of existing Securities. Investors want liquidity for their investment. The security they hold should be easily sold out when they require cash. Similarly, if some others want to invest in new securities there should be a place where securities can be easily purchased and sold. Stock exchanges are organized and regulated market for dealing in various securities issued by corporate sector and other institutions.

Functions of Stock Exchange

1. Ensure liquidity of capital where shares are easily converted into cash at the time of requirement. 2. Continuous market for securities: - The securities once listed are continued to be traded at the exchanges irrespective of the fact that the owners are going to change. 3. Evaluation of Securities: - Investors can evaluate their worth of holdings from the prices quoted from the different exchanges based on supply and demand of securities. 4. Mobilising surplus saving: - Stock exchanges play an important role in mopping up surplus funds of investors. 5. Providing safety for the investors with the help of SEBI guidelines and SERA rules and regulations. 6. Distribution of new securities through new issues. 7. Allows for quick capital formation and thereby engineering industrial and economic development. 8. Motivates investors to save more and more and invest in high yielding securities and thereby encouraging healthy speculative training. 9. Fair or sound price setting of securities by determining the current market prices based on supply and demand. 10. Serves as financial barometers of the economy

2 11. Through dissemination of market data, it serves as in formation hub of trade and industry of an economy (signaling business booms and depressions, share prices, volume of trade financial position of the company etc. 12. Provides perfect competition and market conditions transaction cost and carrying cost are least among the dealers where

13. Provides seasoning of securities: - Stock market players such as underwriters, brokers, dealers and speculators temporarily hold the securities issued by new companies which is called Seasoning of Securities. These securities are gradually released when the market is prepared to absorb the new issue. It ensures better benchmarking and market for securities. 14. Investor education: - Educate investors in selecting the securities and designing their own portfolio. 15. Platform for Public Debt: - By serving as an organised market for securities stock exchange allows for raising huge resources of finance required by the Government for financing the development activities.

Worlds Important Stock Exchanges

London Stock Exchange (LSE) Tokyo Stock Exchange (Worlds largest Stock Exchange) New York Stock Exchange(NYSE) American Stock Exchange (AMEX)(1953) Australian Stock Exchange(ASX) NASDAQ System: - National Association of Securities Dealers Automated Quotation System is the largest OTC counter in the world, started in 1971. Round the clock trading is available to investors from around the world through a fully computerized system. National Association of Securities Dealers regulates it. JASDAQ (Japanese ASDAQ)

BSE

3 Origin dates back to 1875 (It was a voluntary and non-profit making association at that time.) with the name The Native Share and Stock Brokers Association. This is the oldest stock exchange in Asia and got recognition as a permanent body stock exchange in 1957 with the BSE

Objectives
1. To safe guard the interest of investing public having dealing in exchange. 2. To establish and promote efficient market mechanism in security transactions. 3. To educate and enlighten investors by providing necessary input in portfolio dealings. 4. To promote industrial development in the country through efficient resource mobilisation by way of investment in corporate securities. BOLT In 1995 March BSE have introduced screen based trading called BOLT (i.e., Bombay On-Line Trading). This is designed to get the bids and offers from jobbers book as well as the best buy and best sells orders from the order book. BOLT has a nation wide network . Trading work stations are connected with main computer at Mumbai. Through WAN. The securities traded in BSE are classified in to three groups: 1. Specified group or group A (companies with large outstanding shares, good track record good financial performance and large volume of business in the secondary market. 2. non specified shares and B1 group and B group (relative liquid securities come under B1 group and remaining come under B group) There is a best surveillance system department (SSD) in the stock exchange which aims at: providing free and fair market arresting unsystematic risk from entering in to the system and managing overall risk Moreover, the surveillance department keeps close watch over price movement of scrips and aims at early determination of market manipulation like price rigging. The price surveillance is effectively carried out mainly through circuit filter and margins. Circuit filters - decides the range with in which traded price of a scrip can vary on a day compare to the previous days closing price. The filter percentages are entered in to the system. The quote orders outside the prescribed filter band cannot be traded. Margins Here the trading members deposit part of their trades as margin to the exchange which varies for Type-1 members (members who trade in A group) and type 2 members (members who trade in B1 group and B group) BSE have a tie up with New India Assurance Company Ltd. which provides an integrated comprehensive insurance policy for exchange to its

4 members a clearing house (where clearing house has the coverage of 16 Billion rupees and individual members have the 10 Million rupees (below Rs. 25000 losses will not be concerned under insurance coverage.) To protect the investor and trading members against default of another member, several funds have been set up by the stock exchange. 1. Customer protection fund with the objectives of providing insurance to the investors in case of default by members. 2. Trade guarantee fund to guarantee the bonafide transactions of members of exchange inter-se which forms a part of stock exchange settlement. 3. Brokers contingency funds to grant refundable advance to the members who have temporary mismatch of funds

NSE

NSE became operation on Nov. 1994 in Mumbai based on the recommendations of Pherwani committee, which pointed out that existing system are outdated, lack of liquidity in the securities market, lack of transparency etc. Objectives: 1. To establish national wide trading facility for equities and debt instruments and hybrids. 2. To ensure equal access to investors all over the country through appropriate communication network. 3. To provide fair, efficient and transparent securities market to investors using electronic communication network. 4. To enable shorter settlement cycle and book entry settlement system. 5. To meet current international standards securities market.

Promoters of NSE
IDBI, ICICI, GIC, SBI, BANK OF Baroda, Canara Bank, Indian Bank, Corporation Bank, Punjab National Bank, Union Bank, SBI Capital Market, stockholding Corporation of India, Infrastructure Leasing and Financial Service are promoters of NSE. The companies with minimum paid up capital of 10 crores are listed in NSE (in BSE 5 crores) the software in NSE trading system NEAT (National Exchange for Automated Trading) where the trade take place entirely through computer network. The trading members will be connected with central computer at NSE through leased lines and VSAT (Very Small Aperture Terminals) which are small dish antenna and communication is carried out through satellites. Network management centre set up to enable remote diagnosing and solving problems related to network throughout the day so that trading activities carried out with minimum interruption. The clearing and settlement operations are managed by its wholly owned subsidiary of NSE called National Security Clearing Corporation (NSCCL).

OTCEI

5 Started in 1992 with the object of providing market for smaller companies that could not afford the listing free of larger exchanges and which did not fulfill the minimum capital requirement for listing. It aimed at creating fully decentralized and transparent market. OTC means trading across the counter in scripts. The member or dealer of OTCEI counters are linked to the central OTCEI computer where every counter is treated as trading floor for the OTCEI where the investor can buy and sell. The OTCEI is incorporated as a company under section 25 of the companies act 1956 promoted by UTI, ICICI, IDBI, IFCI, LIC, GIC, SBI capital markets and Can Bank Financial Service. OTCEI have special feature of screen based trading with wide network coverage rolling settlement and market making. (Market makers in securities quote the prices at which members are willing to buy and sell the specified number of securities. NSE is supporting OTCEI in terms of systems and hardware.