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Need for Bombay Stock Exchange

BSE is one of the factors Indian Economy depends upon. BSE has played a major role in the development of the
country. Through BSE, Foreign Investors have invested in India. Due to inward flow of foreign currency the, the Indian
economy have started showing the upward trend towards the development of the country. BSE provides employment
fr many people. Trading in BSE is also a business for a few, their family income depends on it, that is the reason
why when scandals occur in the stock market it not only affects the companies listed but also affects many families.
In the few extreme cases, it is observed that the bread winner of a family tends to suicide due to the losses occurred.
In most of major industrial cities all over the world, where the businesses were evolving and required investment
capital to grow and thrive, Stock exchanges acted as the interface between Suppliers and Consumers of capital. One
of the key advantages of the Stock exchanges is that they are efficient medium for raising resources and channeling
Savings from the general public by the way of issue of Equity Debt Capital by joint stock companies which are listed
on stock exchanges. Not to forget that the taxes and other statutory charges paid by BSE are substantial and make a
sizeable contribution to the Government exchequer (Financial resources; funds). For example, transactions on the
stock exchanges are subject to stamp duties, which is paid to the State Government. The annual revenue from this
source ranges from Rs 75 100 crores With the opening up of the financial markets to Foreign Investors a number of
foreign institutional investors and brokers have established a sizeable presence in Mumbai. With no doubt we can
clearly state without BSE, the Indian Economy would have been a complete different story. Various companies
wouldnt have been a strong and successful as they are today and the brokers and traders would have been
elsewhere. BSE is an asset to our country and its existence plays a vital role in many peoples life who depends on it.
Indeed, BSE has made a major contribution to the industrial and economic development of India.
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Function of Bombay Stock Exchange


The Stock Market is a pivotal institution in the financial system. A well-ordered
stock market performs several economic functions: It ensures the measure of
safety and fair dealing It performs an act of magic by translating short-term
investments into long-term funds for companies. It directs the flow of capital in
the most profitable
channels.

It induces companies to raise their standard of


performance. It offers guidance to management about the cost of captal

Measure of Safety and Fair Dealing:


The Bombay stock exchanges operate under a regulatory framework which seeks to
protect the interest of investors. The rules, regulations, and bye-laws of a stock
exchange, which are approved by the central government, are meant to ensure that a
reasonable measure of safety is provided to investors and transactions take place in
competitive conditions which are fair to all concerned.
Act of Magic:
Most of the investors are interested in short-term investments. The
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LISTING OF TIE CIMW II"AWIES (I)N STOCK EX("II. ANGE

Iublic Limited Company.


Public Listed Company
Public Non-listed Company
*Listed Company" means a public ltd Co which is:
1. Listed on any one or more recognized stock exchanges in India. 2. Securities (shares:
debentures) of such company are traded on
Such stock c*changes. l'nlisted company" therefore means a company whose securities
are not listed on any of recognized stock exchanges in India.
Why Companies get Listed with Stock Exchange?
Companies get listed with Stock Exchange for following reasons:
Securities are freely transferable, Easy liquidity of Securities, Easy availability of prices of
securities. Reputation, Image, Goodwill.
Public awareness.

More transparency. Helps in obtaining loans from Banks/Institutions. Helps in marketing its Products.
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Procedure for converting the physical shares into electronic form.


To convert the shares into electronic form the investor should open an account with any of the depository participants.
For opening an account the investor has to fill up the account opening form. An account number (client ID) will be
allotted after signing the agreement which defines the rights and duties of the DP and the investor wishing to open
the account. The client ID along with the DPID gives a unique identification in the depository system. Any number of
depository accounts can be opened.
After opening an account with the DP the investor should surrender the physical certificates held in his name to a
depository participant. These certificates will be sent to the respective companies where they will be cancelled after
dematerialization and will credit the investors account with the DP. The securities on dematerialisation will appear as
balances in the depository account. These balances can be transferred like the shares held in physical form.
Dematerialised shares are in the fungible form and do not have any distinctive or certificate numbers The securities in
the dermat can again be converted into physical form which is called as rematerialisation.

Sasety to the investor


* Securities Exchange Board of India (SEBI) has laid down certain rules and regulations for getting registered as a
depository participant. With the recommendation of the Depsitory and SEBI's own independent evaluation a DP will
be registered under SEBI.
* The investors account will be credited/debited by the DP only on the basis of valid instruction from the client.
* The system driven mandatory reconciliation is done between the DP and NSDL.
* Periodic inspections of both DP and R&T agent are conducted by NSDL
* The data interchange between NSDL and its business partners is protected by standard protection measures such
as encryption.
* No direct communication links exist between two business partners and all communications are routed through
NSDL.
* A statement of account is received periodically by the investors. NSDL sends statement of account to a random
Sample of investors as a counter check.
* The investor has the right to approach NSDL if the grievances of the investors are not resolved by the concerned
DP.
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was one of the major scam in India after Harshad Mehta which lost the confidence of investors in investing in share
market. KPs scam is also regarded as one man army scam.
(b) FOREIGN INSTITUTIONAL INVESTORS (FII)
Foreign investment refers to investments made by residents of a country in another country's financial assets and
production processes. After the opening up of the borders for capital movement, foreign investments in India have
grown enormously. It affects the productivity factor of the beneficiary or the receiver country and has the potential to
create a ripple effect on the balance of payments of that country. In developing countries like India, foreign capital
helps in increasing the productivity of labor and to build up foreign exchange reserves to meet the current account
deficit. It provides a channel through which these countries can have access to foreign capital. Foreign investment
can be of two forms. Foreign direct investment (FDI) and Foreign portfolio investment (FPI). FDI involves direct
production activity and has a medium to long term investment plans. In contrast the FPI has a short term investment
horizon. They mostly investment in the financial markets which consist of Foreign Institutional Investors (FIIs). They
invest in domestic financial markets like money market, stock market, foreign exchange market etc. According to
Michael Frenkel and Lukas Menkhoff, FIIs are beneficial for an economy under specific institutional conditions. It is
defining characteristic of an emerging market that these conditions are often not met. Foreign institutional investors
investments are volatile in nature, and they mostly invest in the emerging markets. They usually keep in mind the
potential of a particular market to grow. FII has lead a significant improvement in India relating to the flow of foreign
capital during the period of post economic reforms. The inflow of FII investments has helped the stock market to raise
at a greater height according to financial analysts. Sensex touched a new height. It crossed 10000-mark in January
2006, which was 8073 on November 2, 2005, and 9323 in December 2005 FII participation in the Indian stock market
triggers its upward movement, but, at the same time, increased liquidity through FII investment inflow increases
volatility too.
s" .
The Ashok Lahiri Committee Report on encouraging FII Flows (Ministry of Finance, the Government of India)
mentions some reasons for the need of FII flows. Fll flows supplement and augment domestic Sawings and domestic
investment without increasing the foreign debt of our country. Capital inflows to the equity market increase Stock
prices lower the cost of equity capital and encourage investment by Indian firms. The Indian stock markets are both
shallow and narrow and the movement of stocks depends on limited number of stocks. As FIIs purchases and sells
these stocks there is a high degree of volatility in the stock markets. If any set of development encourages outflow of
capital that will increase the vulnerability of the situation. The high degree of volatility can be attributed to the
following reasons
. The increase in investment by FIIs increases stock indices in turn increases the stock prices and encourages further
investments. In this event when any correction takes place the stock prices declines and there will be full out by the
FIIs in large number as earning per share declines. The FIIs manipulate the situation of boom in such a manner that
they wait till the index raises up to a certain height and exit at an appropriate time. This tendency increases the
volatility further.
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LIINI"|-||I/M||

With the increasing Globalization, the Stock Exchange's have tremendously affected the
financial conditions of India. The stock markets of the future will have a redefined
pupose and reinvented architecture due to the advent and widespread use otechnology.
Information and stock price quotations are available almost instantaneously, and, more
importantly, investors can act on this data by executing a trade from anywhere at
anytime. This new market will bring benefits to investors, the listed companies, and the
economies of the company. Trading will become cheaper, faster and settlement will be
simpler wit reduced risk Raising capital for companies will become easier, thereby
contributing directly to the Economic Growth. Already, BSE has shown its proactive
response by increasingly using leading edge to technologies to effectively compete in
the global environment. In the not too distant future, once full capital account
convertibility is permitted in India, one could well witnessan expansion of trading
volumes and its resultant economic benefits to the thriving and ever young metropolis of
Mumbai. Inspite of all these positive predictions, the future of Stock Exchanges is likely
to be uncertain and even their survival is a major question mark.
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