GREED IS GOOD (IN THE LONG TERM)

WHAT ARE CAPITAL MARKETS? The Capital Market deals in the long-term (for time-periods more than one year) capital Securities (Equity or Debt). The Securities and Exchange Board of India (SEBI) governs and regulates the Indian capital market. The capital market of India is among the top ten biggest capital markets of the world, and provides a variety of capital market instruments.

SIGNIFICANCE OF THE CAPITAL MARKETS

Mobilization of savings Capital formation Provision of investment avenues Speed up economic growth and development Proper regulation of funds Service provision Continuous availability of funds

History of Indian Capital Markets

The opening of the Suez Canal during the 1860s led to a tremendous increase in exports to the United Kingdom and United States. Several companies were formed during this period and many banks came to the fore to handle the finances relating to these trades. Registered under the British Companies Act, the Stock Exchange, Mumbai, came into existence in 1875.

It was an unincorporated body of stockbrokers, which started doing business in the city under a banyan tree. Business was essentially confined to company owners and brokers, with very little interest evinced by the general public.

CHAIN OF EVENTS/OVER THE YEARS

Sir Phiroze Jeejeebhoy was another who dominated the stock market scene from 1946 to 1980.

His word was law and he had a great deal of influence over both brokers and the government. Many crises were averted due to his wisdom and practicality.
To regulate the issue of share prices, the Controller of Capital Issues Act (CCI) was passed in 1947. The Securities Contract Regulation Act 1956 became the parent regulation after the Indian Contract Act 1872. The planning process started in India in 1951, with importance being given to the formation of institutions and markets .

MANY TURBULENT TIMES IN THE LAST 140 YEARS OF STOCK MARKETS

The imposition of wealth and expenditure tax in 1957 by Mr. T.T. Krishnamachari, the then finance minister, led to a huge fall in the markets. The dividend freeze and tax on bonus issues in 1958-59 also had a negative impact. War with China in 1962 was another memorably bad year, with the resultant shortages increasing prices all round. Multinational companies, with operations in India, were forced to reduce foreign share holding to below a certain percentage, which led to a compulsory sale of shares. CCI decided the price at which the shares could be issued. There was no free pricing and their formula was very conservative. The next big boom and mass participation by retail investors happened in 1980, with the entry of Mr. Dhirubhai Ambani.

REFORMS ANS SCAMS

Mr. V.P. Singhs fiscal budget in 1984 was path breaking for it started the era of liberalization. The removal of estate duty and reduction of taxes led to a swell in the new issue market. Mr. Manmohan Singh as Finance Minister came with a reform agenda in 1991. To be punctured by the Harshad Mehta scam in 1992. The setting up of the Securities and Exchange Board (SEBI) in 1992 was a landmark development. The mid-1990s saw a rise in leasing company shares, and hundreds of companies, mainly listed in Gujarat, and got listed in the BSE. The end-1990s saw the emergence of Ketan Parekh and the information, communication and entertainment companies came into the limelight. There was a melt down in software stock in early 2000. The setting up of the National Stock Exchange in 1984, the introduction of online trading in 1995, the establishment of derivatives trading in 2000.

PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING TO SECURITIES MARKET REGULATRION, 2003

In order to prohibit unfair and fraudulent trade practices in the securities market, SEBI issued reglations in oct 1995. these got repealed in 2003. The above mentioned prohobition relates to:
1) 2)

Prohibition of certain dealings in securuties. Prohibition of manipulative, fraudulent and unfair trade practices.

The act also defines dealing in securities and the term fraud.

Prohibition of certain dealings in securities

No person shall directly or indirectly(a) buy, sell or otherwise deal in securities in a fraudulent manner. (b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device in contravention of the Act. (c) employ any device or scheme to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange.

(d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under.

Prohibition of manipulative, fraudulent and unfair trade practices

Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include any of the 18 wrong practices as mentioned in the SEBI.

(a) indulging in an act which creates false or misleading appearance of trading in the securities market

(b) dealing in a security not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress or cause fluctuations in the price of such security for wrongful gain or avoidance of loss
(c) advancing or agreeing to advance any money to any person thereby inducing any other person to offer to buy any security in any issue only with the intention of securing the minimum subscription to such issue; (d) any act or omission amounting to manipulation of the price of a security

Trading Pattern of the Indian Stock Market

Types of Transactions

Over The Counter Exchange of India (OTCEI)

QUALIFIED INSTITUTIONAL PLACEMENT QIP means allotment of eligible securities by a listed issuer to qualified institutional buyers on private placement basis Eligible securities: Eligible Securities include equity shares, nonconvertible debt instruments and convertible securities other than warrants which are convertible to Equity shares. Private Placement Basis: The placement document for QIP shall clearly specify that no offer is being made to the public or any other class of investors.

Qualified institutional buyer

A QIB in law and finance, is a purchaser of securities that is legally recognized by security market regulator. A mutual fund, venture capital fund and foreign venture capital investor registered with the Board. A scheduled commercial bank. A state industrial development corporation. an insurance company registered with the Insurance Regulatory and Development Authority. A provident fund with minimum corpus of twenty five crore rupees. A pension fund with minimum corpus of twenty five crore rupees. insurance funds set up and managed by army, navy or air force of the Union of India

Minimum Number of Allottees:

ISSUE SIZE NO. OF ALLOTEES Less than INR 250 Cr. 2 More than INR 250 Cr. 5 Tenure of convertible instruments issued through QIP shall not exceed sixty months from the date of allotment. Aggregate of proposed QIP and all previous QIP in one FY shall not exceed 5 times of Networth of the Issuer. Eligible securities issued through QIP shall not be transferrable except on a recognized Stock Exchange.

 Minimum Issue Price: The average of the weekly high and low of the closing prices of the equity shares of the same class quoted on the stock exchange during the two weeks preceding the relevant date. Equity shares allotted pursuant to QIP shall be fully paid-up at the time of allotment.

The prices determined for qualified institutions placement shall be subject to appropriate adjustments in case of any Corporate Action.

Instrument of capital market

Secured premium notes Deep discount bonds Equity shares with detachable warrants Fully convertible debenture with interest EQUIPREF Sweat equity shares Tracking stock Disaster bonds Mortgage backed securities ADR/GDR FCCB Derivatives Participatory notes Hedge funds Fund of fund Exchange traded funds

PROHIBITION ON DEALING/COMMUNICATING/COUNSELLING ON MATTERS RELATING TO INSIDER TRADING ,1992 This act defines an insider as any person who, (i) is or was connected with the company or is deemed to have been connected with the company and is reasonably expected to have access to unpublished price sensitive information in respect of securities of a company, or (ii) has received or has had access to such unpublished price sensitive information Price sensitive information means any information which relates directly or indirectly to a company and which if published is likely to materially affect the price of securities of company.

The act states no insider shall (i) either on his own behalf or on behalf of any other person, deal in securities of a company listed on any stock exchange when in possession of any unpublished price sensitive information; Nor should he/she (ii) Communicate or counsel or procure directly or indirectly any unpublished price sensitive information to any person who while in possession of such unpublished price sensitive information shall not deal in securities.

THE CASE OF US-64/HARSHAD MEHTA/KETAN PAREKH SCAM

PRESENT AND FUTURE

The introduction of the Fraudulent Trade Practices Act, Prevention of Insider Trading Act, Takeover Code and Corporate Governance Norms, are major developments in the capital markets over the last few years that has made the markets attractive to foreign institutional investors. This history shows us that retail investors are yet to play a substantial role in the market as long-term investors. Investors who hold shares in limited companies and mutual fund units are about 2030 million. Those who participated in secondary markets are 2-3 million. Capital markets will change completely if they grow beyond the cities and stock exchange centers reach the Indian villages. Both SEBI and retail participants should be active in spreading market wisdom and empowering investors in planning their finances and understanding the markets.

THANK YOU

CREATED BY: Natasha Dudeja Mohit Nenwani Mohd. Shariq Kanaika Rai