A Quick Survey to Gauge

Perceptions of Individual Investors

regarding Stock Exchanges

CENTRE FOR MONITORING INDIAN ECONOMY PVT LTD

December 2010
1 Objective of the Survey

The Securities and Exchange Board of India constituted a Committee under the
Chairmanship of Dr.Bimal Jalan to review issues related to the ownership and gov-
ernance of market infrastructure institutions. The Committee submitted its report
in November 2010.
The issues addressed by the Committee are best discussed in the light of the ex-
tensive research literature on the subject. However, the Committee has taken a
consultative approach. The Committee sought comments of stakeholders by send-
ing them a questionnaire and making the same available on SEBI’s website. The
Committee received 29 responses, of which six were from individuals.
This limited response from individuals is understandable. Individuals rarely interact
with an Exchange. Their interactions are mostly with their brokers. Arguably, the
issues addressed by the Committee are of considerable abstraction and they would
be the least likely of issues that could elicit a view from the general public. Besides,
it is unlikely that an individual investor would have a perception regarding issues
of ownership and governance of market infrastructure institutions.
However, the individual investor is the ultimate customer in whose service the mar-
ket institutions are supposed to work. There is therefore some merit in seeking
his/her views on the important issues on which the Committee has deliberated.
While it was possible for the Committee to send the questionnaire to several market
stakeholders, it could not do the same for individual stakeholders, although it did
place the questionnaire on SEBI’s website for public responses.
CMIE decided to take some of the questions of the Committee to the individual
investors. The Committee lists 18 general questions. Of these 5 relate to functions
of the market infrastructure institutions, 6 relate to ownership and governance,
another 6 are on market structure and one is on listing. We decided to take just
five questions to randomly selected set of individual investors.
To make the task simpler for the individual respondents, we have avoided asking
open-ended questions. We have stuck to multiple choice questions. And, instead
of asking questions regarding market infrastructure institutions (as it would take
significant effort to convey such a concept to the respondents) we stuck to asking
questions relating to only Stock Exchanges.
The five questions we asked are listed below along with their link with the questions
raised by the Committee:
1. Should a Stock Exchange be a commercial enterprise, a public utility or a
regulatory institution? (pick any one) (Question 1 of Jalan Committee)
2. How important is it to you that your broker is monitored?: Most important,
Important, Less Important? (pick any one) (Question 2 made more direct and
restricted to relative importance of regulating brokers)

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 3. Should your broker be monitored by SEBI, One Stock Exchange, Multiple
Stock Exchanges or by a Self Regulatory Organisation of Brokers? (Questions
3, 4 and 12 made more direct and restricted)
4. Where will you trust prices? An Exchange owned by a company or an Ex-
change owned by public institutions? (pick any one) This question is related to
ownership and governance but is posed as one related to the trust-worthiness
in service (which is reliable prices) from an Exchange.
5. How important is the regulation of the Stock Exchange? Most Important,
Important, Less Important (pick one) (Question 15 stated in a generalised
form)

2 An independent survey based on CMIE’s panel of

households

CMIE conducts a quarterly survey of a panel of 140,000 households. The panel

of households was selected through a stratified random sampling process from 98
separate rural regions and 300 cities. This is the Consumer Pyramids survey.
The objective of this Consumer Pyramids survey is to estimate the financial well-
being of Indian households. This includes estimating household income, expenses,
savings, investments, borrowings and ownership of assets.
This exercise leads to the collection of details of over 700,000 members of the panel
households. This includes, among others, information on education and financial
inclusion.
We used this database of over 700,000 members to draw the sample for a quick
survey related to the issues addressed in the Committee for Review of Ownership
and Governance of Market Infrastructure Institutions. We call this effort “A Quick
Survey to Gauge Perceptions of Individual Investors regarding Stock Exchanges”.
The approach was to target the survey at persons from the Consumer Pyramids
panel of households who had a demat account or those who had an outstanding
investment in equity markets or in mutual funds.
This survey to gauge the perceptions of investors is an initiative of the Centre
for Monitoring Indian Economy Pvt Ltd. This is an independent survey. CMIE
itself is an independent organisation, which is not funded by any financial market
intermediary, any private business conglomerate, any international donor agency
or any government agency. The Quick Survey to Gauge Perceptions of Individual
Investors regarding Stock Exchanges” is not funded, dictated or aided in any manner
by any external agency.
The sample for this Survey on Perceptions of Individuals draws upon the sample of
the Consumer Pyramids survey. It was conducted by the Field Information Officers
of CMIE spread across 22 CMIE offices. These Field Information Officers have been

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conducting surveys from these households regularly and thus they have a familiarity
with them. Most of the respondents were contacted over the phone and the survey
was conducted telephonically. Responses received were entered directly into the
database by the officers. The survey was conducted between 16 and 22 December
2010.

3 Sample size and response rate

The total sample size was 5,392 – drawn from a database of over 700,000 members of
140,000 households. These were all earning members from households that met one
of the following three conditions: had at least one member with a demat account,
or had an outstanding investment in listed shares or an outstanding investment into
mutual funds.
The sample of 5,392 is spread over 23 states. The north-eastern states are repre-
sented by only Assam. All other states are represented in the sample and in the
response. The geographical distribution of the sample reflects the distribution of in-
vestors. The sample includes rural households as well. Maharashtra has the largest
representation in the sample and in the respondents.
A total of 1,690 members responded to the telephonic interview. Thus, the response
rate was 31.3 per cent. The lowest response was from Delhi. A mere 13 per cent
responded to the calls. Among the larger states, the response from Rajasthan, Tamil
Nadu and Andhra Pradesh was over 50 per cent.
Nearly 90 per cent of the households in the sample (4,811 out of 5,392) had an annual
income of at least Rs.180,000 in 2009-10. Such households accounted for 87 per cent
of the respondents (1,460 out of 1,690). Of the 5,392 sample members, 3,113 (or 58
per cent) had completed their graduation. And of the 1,680 respondents, 1,032 or
61 per cent had completed their graduation.

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4 Findings of the Survey

4.1 Nearly 50% of respondents prefer Stock Exchanges to be like

Regulatory Institutions

All Graduates
Should a Stock Exchange be Count % of % of Count % of % of
sample respondents sample respondents
A commercial enterprise 370 6.9 22.0 224 7.2 21.7
A public utility 517 9.6 30.8 287 9.2 27.8
A regulatory body 793 14.7 47.2 521 16.7 50.5
Respondents 1,680 31.2 100.0 1,032 33.2 110.0
Total sample 5,392 100.0 3,113 100.0

4.2 Monitoring of broker is Most Important to 55% of

respondents

How important is it to you All Graduates

that your broker is Count % of % of Count % of % of
monitored? sample respondents sample respondents
Most important 912 16.9 54.9 591 19.0 57.9
Important 640 11.9 38.6 361 11.6 35.4
Less important 108 2.0 6.6 69 2.2 6.8
Respondents 1,660 30.8 100.0 1,021 32.8 100.0
Total sample 5,392 100.0 30.8 3,113 100.0 32.8

4.3 Over 55% of respondents say brokers should be monitored by

SEBI

Should your broker be All Graduates

monitored by Count % of % of Count % of % of
sample respondents sample respondents
SEBI 910 16.9 55.1 579 18.6 57.1
One Stock Exchange 152 2.8 9.2 86 2.8 8.5
Multiple Stock Exchanges 319 5.9 19.3 194 6.2 19.1
Self regulatory organisation (SRO)
of brokers 270 5.0 16.4 155 5.0 15.3
Respondents 1,651 30.6 100.0 1,014 32.6 100.0
Total sample 5,392 100.0 30.6 3,113 100.0 32.6

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4.4 75% of respondents say prices are more trusted from an
Exchange owned by public institutions

Which kind of a Stock All Graduates

Exchange will you trust Count % of % of Count % of % of
prices from? sample respondents sample respondents
Owned by a company 417 7.7 25.4 248 8.0 24.5
Owned by public institutions 1,228 22.8 74.7 764 24.5 75.5
Respondents 1,645 30.5 100.0 1,012 32.5 100.0
Total sample 5,392 100.0 30.5 3,113 100.0 32.5

4.5 Over 50% of repondents say regulating exchanges is Most

Important

How important is it to you All Graduates

that your stock exchange Count % of % of Count % of % of
is regulated? sample respondents sample respondents
Most important 826 15.3 50.2 518 16.6 51.1
Important 631 11.7 38.3 375 12.1 37.0
Less important 189 3.5 11.5 121 3.9 11.9
Total respondent to this question 1,646 30.5 100.0 1,014 32.6 100.0
Total sample 5,392 100.0 30.5 3,113 100.0 32.6