anil project report

8/8/2019 anil project report

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A RESEARCH STUDY PROJECT REPORT

ON

SHARE MARKET & FINANCIAL SYSTEM

[SHARE KHAN LIMITED]

I S S U B M I T T E D B Y

ANIL KUMAR THAKURP G C P ( F I N A N C E + M A R K E T I N G )

T O

S U R Y A D A T T A I N S T I T U T E O F M A N A G E M E N T

& M A S S C O M M U N I C A T I ON

T O W A R D S P A R T I A L F U L F I L L M E N T O F T H E P A P E R O F T H E

I N T E R N S H I P P R O J E C T

( 2 0 0 7 - 2 0 0 9 )

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P REF ACE

T H E C O R P O R A T E P R O G R A M o f M B A c o u r s e i s a w e l ls t r u c t u r e d a n d i n t e g r a t e d p r o g r a m m e . T h e c o u r s e o f m a n a g e me n tg i v e s a p r a c t i c a l k n o w l e d g e i n o u r s t u d y c o u r s e . I n d u s t r i e s g i v eu s m u c h i n f o r m a t i o n a b o u t t h e d i f f e r e n t p r o d u c t a n d s e r v i c e s w eu s e i n o u r d a y t o d a y l i f e .

I t i s h i g h l y s a i d t h a t p r a c t i c e m a k e s a m a n p e r f e c t t h e s u m m e r p r o j e c t t r a i n in g w h i c h i s a p a r t o f M . B . A t o g e t a p r ac t i c a lu n d er s t an d i ng a n d t r a in i n g o f t h e b u s in e s s m a n ag e m en t . T h ust h e i n d u s t r i a l t r a i n i n g w h i c h i s a p a r t o f M . B . A c o u r s e h e l p s t h es t u d e n t t o g e t t h e k n o w l e d g e a b o u t t h e a c t u a l e n v i r o n m e n t o f a no r g a n i z a t i o n .

S h a r e k h a n s e cu r i t i es l t d . i s o n e o f s u ch c o m p an y d e a l i n g i nS ha re m ar ke t D er iv a t iv es , C o mm o d i t i e s , M ut ua l f un d I POd i s t r i b u t io n w i t h a l m o s t b r a n c h e s i n o v e r a l l I n d i a .

I t i n v o l v e d t h e s t u d y o f f i n a n c e a c t i v i t i e s o f t h e o r g a n i z a t io n . Ih a v e u n d e r t a k e n i n d u s t r i a l t r a i n i n g i n S h a r e k h a n s e c u r i t i e s l t d .a t P u n e c r o s s i n g f r o m 1 - j u n e 2 0 0 8 t o 3 1 - j u l y - 2 0 0 8 a s a p a r t o f m y P G C P c o u r s e c u r r i c u l u m a n d I t h u s , p r e s e n t a p r o j e c t r e p o r to n i t a t t h e b e s t o f m y a b i l i t y k n o w l e d g e a n d w o r k d o n e .

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ACKNOWLEDGEMENT

I f e e l p le a s u re f o r m a ki n g a r e p o r t w hi c h I v i s i t e d a t P un en a m e d S h a r e k h a n s e c u r i t i e s L t d . t h i s y e a r .

T h e m a i n o b j e c t i v e o f t h i s p r a c t i c a l t r a i n i n g i s t o g e ti n f o r m a t i o n a b o u t t h e r e a l e n v i r o n m e n t o f t h e f i r m .

I h e re b y a c k n ow l e d ge m y s i nc e re t h an k s a n d g r a t e f u l t o o u r

d i r ec to r M R S AN JA Y .B .C HO RD IY A. I a l s o t ha nk s t o o ur f a c u l t i e s , o u r o f f i c e s u p e r i o r s a n d m y f r i e n d p a r t n e r w h i c h g a v ef u l l r e s p o n s e t o u s .

A s a p a r t o f M BA p r o g r am me I h a v e t a k e n t r a i n i n g i n s t o c k m a r k et i n S h ar e k h an s e cu r i t i es L td a t P u n e f o r a p e r i o d o f 2m o n t h s a n d 2 5 d a y s.S u c ce s s c an no t c om e w i t h ou t i n sp i r a t i on , m o t iv a t i o n &i n n o v a t i o n . W e t h e p r o j e c t o r s a s c r i b e o u r s u c c e s s i n t h i s v e n t u r et o o u r g u id e A s m i t a J o s h i . W i t h o u t h e r g u id a nc e o u r p r o j e c t

c o m p l e t i o n i s a d i s t a n c e d r e a m .

I w i s h t o e x p re s s t o h u m bl e g r a t i t u de t o M r . D U RG A P A R S ADf o r h i s d i l ig e n t e f f o r t s i n p r o v i d i n g p a r t i c l e t i p s t o t ac k l ec o m p l i c a te d s i t u a t i o n w i t h l i m i t e d s o u r c e s , w h o s e e v e r p r e s e n c ei n m i nd w i t h h e l p in g a t t i t u d e t o e n c ou r a ge m e t o c o mp l e te t h i ss t u d y a n d f o r h i s u n t i r i n g h e l p a n d v a l u a b l e g u i d a n c e

A N I L K U M A R T H A K U R

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CONTENTS

1 . I n t r o d u c t i o nS t o c k m a r k e tH i s t o r yT r a d i n gM a r k e t p a r t i c i p a n t sI m p o r t a n c e o f s t o c k m a r k e tT h e b e h a v i o u r o f t h e s t o c k m a r k e tB o m b a y s t o c k e x c h a n g eB S E i n d i c e s

N a t i o n a l s t o c k e x c h a n g e

D e r i v a t i v e sF i n a n c i a l s y s t e mF l o w o f f u n dM a i n f u n c t i o n o f f i n a n c i a l s y s t e mF i n a n c i a l m a r k e tC a p i t a l m a r k e tS t o c k e x c h a n g eR e l a t i o n o f t h e s t o c k m a r k e t w i t h f i n a n c i a l s y s t e mT h e s t o c k m a r k e t , i n d i v i d u a l i n v e s t o r s , a n d f i n a n c i a l r i s k F u n c t i o n o f s t o c k e x c h a n g eS e r v i c e o f s t o c k e x c h a n g e

2 . P r o f i l e o f t h e b r o k i n g h o u s e i n t h e s t o c k m a r k e t

K o t a k s e c u r i t i e sS h a r e k h a nI n d i a i n f o l i n eB o n a n z aR e l i a n c e m o n e yK a r v yR e l i g a r e s e c u r i t i e sI n d i a b u l l sA n a n d r a t h i

3 . R e s e a r c h o b j e c t i v e

S t a t e m e n t o f p r o b l e mO b j e c t i v e o f t h e r e s e a r c h p r o j e c t

4 . R e s e a r c h m e t h o d o l o g y o b j e c t i v e a n d l i m i t a t i o n

P r o b l e m d e f i n i t i o n

J u s t i f i c a t i o n o f s t u d yO b j e c t i ve o f s t u d yR e s e a r c h d e s i g n

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S o u r c e o f d a t aL i m i t a t i o n o f s t u d y

5 . C o n c l u s i o n s a n d s u g g e s t i o n s6 . Q u e s t i o n n a i r e

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I NTRODUCTI ON

T h e B o m b a y S t o c k E x c h a n g e i n I n d i a

T y p e S t o c k E x c h a n g e

L o c a t i o n M u m b a i , I n d i aO w n e r

B o m ba y S t o c k E xc h a n g eL i m i t e d

K e y p e o p l e R a j n i k a n t P a t e l ( C E O )

C u r r e n c y I N R

N o . o f l i s t i ng s ~ 6 , 0 0 0

M a r k e t C a p U S $ 1 . 6 1 t r i l l i o n ( 2 0 0 6 )

V o l u m e U S $ 9 8 0 b i l l i o n ( 2 0 0 6 )

I n d e x e s B S E S e n s e x

W e b s i t e h t t p : / / w w w . b s e i n d i a . c o m /

S T O C K M A R K E T

A s t o c k m a r k e t , o r ( e q u i t y m a r k e t ) , i s a p r i v a t e o r p u b l i c m a r k e tf o r t h e t r a d i n g o f c o m p a n y s t o c k a n d d e r i v a t i v e s o f c o m p a n ys t o ck a t a n a g r ee d p r i c e ; t h e s e a r e s e c u r i t i e s l i s te d o n a s t o c k e x c h a n g e a s w e l l a s t h o s e o n l y t r a d e d p r i v a t e l y .

T h e s i ze o f t h e w o r l d s t o c k m a r k e t i s e s t i m a t ed a t a b ou t $ 5 1t r i l l i o n . T h e w o r l d d e r i v at i ve s m a r k et h a s b e en e s t i ma t ed a t

a b o u t $ 4 8 0 t r i l l i o n f a c e o r n o m in a l v a l u e , 1 2 t i me s t h e s i z e o f t h e e n t i r e w o r l d e c o n o m y . I t m u s t b e n o t e d t h o u g h t h a t t h e v a l u eo f t he d e r iv a t iv es m ar ke t , b ec au s e i t i s s t a te d i n t e r ms o f

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http://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Stock_Exchangehttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Chief_Executive_Officerhttp://en.wikipedia.org/wiki/INRhttp://en.wikipedia.org/wiki/Market_capitalizationhttp://en.wikipedia.org/wiki/US$http://en.wikipedia.org/wiki/BSE_Sensexhttp://en.wikipedia.org/wiki/Websitehttp://www.bseindia.com/http://en.wikipedia.org/wiki/Market_systemhttp://en.wikipedia.org/wiki/Tradehttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Image:Bombay-Stock-Exchange.jpghttp://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Stock_Exchangehttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Chief_Executive_Officerhttp://en.wikipedia.org/wiki/INRhttp://en.wikipedia.org/wiki/Market_capitalizationhttp://en.wikipedia.org/wiki/US$http://en.wikipedia.org/wiki/BSE_Sensexhttp://en.wikipedia.org/wiki/Websitehttp://www.bseindia.com/http://en.wikipedia.org/wiki/Market_systemhttp://en.wikipedia.org/wiki/Tradehttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Stock_exchange


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n o t i o n a l v a l u e s , a n d c a n n o t b e d i r e c t l y c o m p a r e d t o a s t o c k o r af i x e d i n c o m e s e c u r i t y , w h i c h t r a d i t i o n a l l y r e f e r s t o a n a c t u a l

v a l u e . M a ny s u ch r e la t iv e ly i l l i q ui d s e cu r i t i e s a r e v a lu e d a sm a r k e d t o m o d e l , r a t h e r t h a n a n a c t u a l m a r k e t p r i c e .

T h e s t o c k s a r e l i s te d a n d t r a d e d o n s t o ck e x c ha n g es w h i ch a r ee n t i t i e s a c o r p o r a t i o n o r m u t u a l o r g a n i z a t i o n s p e c i a l i z e d i n t h e

b u s i n e s s o f b r i n g i n g b u y e r s a n d s e l l e r s o f s t o c k s a n d s e c u r i t i est o ge t he r . T h e s t oc k m a r k et i n t h e U n i t ed S t a t e s i n c l u de s t h et r a di n g o f a l l s e c u r i t i e s l i s t e d o n t h e NYSE , t h e N A S D A Q , t h eA m e x , a s w e l l a s o n t h e m a n y r e g i o na l e x c h a n g es , e . g . O T C B Ba n d P i n k S h e e t s . E u r o p e a n e x a m p l e s o f s t o c k e x c h a n g e s i n c l u d et h e L o n d o n S t o c k E x c h a n g e , t h e D e u t s c h e B o r s e a n d t h e P a r i sB o u r s e .

H I S T O R Y

H i s t o r i a n F e r n a n d B r a u d e l s u gg e s t s t h a t i n C a i r o i n t h e 1 1 t hc e n t u r y M u s l i m a n d J e w i s h m e r c h a n t s h a d a l r e a dy s e t u p e v e ryf o r m o f t r a d e a s s o c i a t i o n a n d h a d k n o w l e d g e o f m a n y m e t h o d s o f c re di t a nd p ay me nt , d i s p r ov in g t he b e l ie f t ha t t he se w er ei n v e n t e d l a t e r b y I t a l i a n s . I n 1 2 t h c e n t u r y F r a n c e t h e c o u r r a t i er sd e c h an g e w e re c o nc e rn e d w i th m a n a gi n g a n d r e gu l a t i ng t h ed eb t s o f a gr ic u l tu ra l c om mu n i t i e s o n b eh a l f o f t he b an ks .B e ca u s e t h e s e m e n a l s o t r a d ed w i th d e b t s , t h e y c o u l d b e c a l le dt h e f i r s t b r o k e r s . I n l a t e 1 3 t h c e n t u r y B r u g e s c o m m o d i ty t r a d e r sg a t h e r e d i n s i d e t h e h o u s e o f a m a n c a l l e d V a n d e r B e u r s e , a n d i n1 3 0 9 t h e y b e c a m e t h e " B r ug s e B e ur s e " , i n s t i t u t i o n a l i z i ng w h a t

h a d b e en , u n t i l t h en , a n i n fo r ma l m e e t i n g . T h e i d e a q u ic k lys p r e a d a r o u n d F l a n d e r s a n d n e i g h b o r i n g c o u n t i e s a n d " B e u r z e n "s o o n o p e n e d i n G h e n t A n t w e r p a n d A m s t e r d a m .

I n t h e m id d l e o f t h e 1 3 t h c e n t u r y V e n e t i a n b a n ke r s b e g an t ot r a d e i n g o v e r n m e n t s e c u r i t i e s . I n 1 3 5 1 t h e V e n e t i a n g o v e r n m e n to u t la we d s pr ea d i ng r um or s i n t en de d t o l ow er t he p r i ce o f g o v e r n m e n t f u n d s . B a n k e r s i n P i s a , V e r o n a , G e n o a a n d F l o r e n c ea l s o b e ga n t r ad i ng i n g o ve r n m en t s e cu r i t i es d u r i n g t h e 1 4 t hc e n t u r y . T h i s w a s o n l y p o s s i b l e b e c a u s e t h e s e w e r e i n d e p e n d e n tc i t y s t a t e s n o t r u l e d b y a d u k e b u t a c o u n c i l o f i n f lu e n t i a lc i t i z e n s . T h e D u t ch l a t er s t a r t e d j o i n t s t o c k c o m p a n i e s, w h i c hl e t s h a r e h o l d e r s i n v es t i n b u s in e s s v e n t u re s a n d g e t a s h a re o f t h e i r p r o f i t s - o r l o s s e s . I n 1 6 0 2 , t h e D u t c h E a s t I n d i a C o m p a n yi s s u e d t h e f i r s t s h a r e s o n t h e A m s t e r d a m S t o c k E x c h a n g e . I t w a st h e f i r s t c o m p a n y t o i s s u e s t o c k s a n d b o n d s .

T h e A m s t e r d a m S t o c k E x c h a n g e ( o r A m st e r da m B e u rs ) i s a l s os a id t o h a ve b e en t h e f i r s t s to ck e x ch an ge t o i n t ro du cec o n t i n u o u s t r a d e i n t h e e a r l y 1 7 t h c e n t u r y . T h e D u t c h " p i o n e e r e ds h or t s e l l i ng , o p t i o n t r ad i ng , d e b t - e q u i t y s w a ps , m e r c h a n t

b a n k i n g , u n i t t r u s t s a n d o t h e r s p e c u l a t i v e i n s t r u m e nt s , m u c h a sw e k n ow t h em " ( M u r ra y S a y l e , " J ap a n G o es D u t c h" , L o n d onR e v i e w o f B o o k s X X I I I . 7 , A p r i l 5 , 2 0 0 1 ) . T h e r e a r e n o w s t o c k m ar k e t s i n v i r t u a l l y e v e r y d e v e l o p e d a n d m os t d e v e l o p in g

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http://en.wikipedia.org/wiki/Notional_amounthttp://en.wikipedia.org/wiki/Actual_cash_valuehttp://en.wikipedia.org/wiki/Actual_cash_valuehttp://en.wikipedia.org/wiki/Mark_to_modelhttp://en.wikipedia.org/wiki/New_York_Stock_Exchangehttp://en.wikipedia.org/wiki/NASDAQhttp://en.wikipedia.org/wiki/American_Stock_Exchangehttp://en.wikipedia.org/wiki/OTC_Bulletin_Boardhttp://en.wikipedia.org/wiki/London_Stock_Exchangehttp://en.wikipedia.org/wiki/Deutsche_Borsehttp://en.wikipedia.org/wiki/Paris_Boursehttp://en.wikipedia.org/wiki/Paris_Boursehttp://en.wikipedia.org/wiki/Fernand_Braudelhttp://en.wikipedia.org/wiki/Cairohttp://en.wikipedia.org/wiki/11th_centuryhttp://en.wikipedia.org/wiki/11th_centuryhttp://en.wikipedia.org/wiki/Muslimhttp://en.wikipedia.org/wiki/Radhanitehttp://en.wikipedia.org/wiki/Industry_trade_grouphttp://en.wikipedia.org/wiki/Francehttp://en.wikipedia.org/wiki/Stock_brokerhttp://en.wikipedia.org/wiki/Brugeshttp://en.wikipedia.org/wiki/Flandershttp://en.wikipedia.org/wiki/Ghenthttp://en.wikipedia.org/wiki/Antwerphttp://en.wikipedia.org/wiki/Amsterdamhttp://en.wikipedia.org/wiki/Venicehttp://en.wikipedia.org/wiki/Pisahttp://en.wikipedia.org/wiki/Veronahttp://en.wikipedia.org/wiki/Genoahttp://en.wikipedia.org/wiki/Florencehttp://en.wikipedia.org/wiki/14th_centuryhttp://en.wikipedia.org/wiki/14th_centuryhttp://en.wikipedia.org/wiki/Joint_stock_companyhttp://en.wikipedia.org/wiki/Shareholderhttp://en.wikipedia.org/wiki/Dutch_East_India_Companyhttp://en.wikipedia.org/wiki/Amsterdam_Stock_Exchangehttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Amsterdam_Stock_Exchangehttp://en.wikipedia.org/wiki/17th_centuryhttp://en.wikipedia.org/wiki/Short_(finance)http://en.wikipedia.org/wiki/Options_strategieshttp://en.wikipedia.org/wiki/Merchant_bankhttp://en.wikipedia.org/wiki/Merchant_bankhttp://en.wikipedia.org/wiki/Trust_lawhttp://en.wikipedia.org/wiki/Speculationhttp://en.wikipedia.org/wiki/April_5http://en.wikipedia.org/wiki/2001http://en.wikipedia.org/wiki/Notional_amounthttp://en.wikipedia.org/wiki/Actual_cash_valuehttp://en.wikipedia.org/wiki/Actual_cash_valuehttp://en.wikipedia.org/wiki/Mark_to_modelhttp://en.wikipedia.org/wiki/New_York_Stock_Exchangehttp://en.wikipedia.org/wiki/NASDAQhttp://en.wikipedia.org/wiki/American_Stock_Exchangehttp://en.wikipedia.org/wiki/OTC_Bulletin_Boardhttp://en.wikipedia.org/wiki/London_Stock_Exchangehttp://en.wikipedia.org/wiki/Deutsche_Borsehttp://en.wikipedia.org/wiki/Paris_Boursehttp://en.wikipedia.org/wiki/Paris_Boursehttp://en.wikipedia.org/wiki/Fernand_Braudelhttp://en.wikipedia.org/wiki/Cairohttp://en.wikipedia.org/wiki/11th_centuryhttp://en.wikipedia.org/wiki/11th_centuryhttp://en.wikipedia.org/wiki/Muslimhttp://en.wikipedia.org/wiki/Radhanitehttp://en.wikipedia.org/wiki/Industry_trade_grouphttp://en.wikipedia.org/wiki/Francehttp://en.wikipedia.org/wiki/Stock_brokerhttp://en.wikipedia.org/wiki/Brugeshttp://en.wikipedia.org/wiki/Flandershttp://en.wikipedia.org/wiki/Ghenthttp://en.wikipedia.org/wiki/Antwerphttp://en.wikipedia.org/wiki/Amsterdamhttp://en.wikipedia.org/wiki/Venicehttp://en.wikipedia.org/wiki/Pisahttp://en.wikipedia.org/wiki/Veronahttp://en.wikipedia.org/wiki/Genoahttp://en.wikipedia.org/wiki/Florencehttp://en.wikipedia.org/wiki/14th_centuryhttp://en.wikipedia.org/wiki/14th_centuryhttp://en.wikipedia.org/wiki/Joint_stock_companyhttp://en.wikipedia.org/wiki/Shareholderhttp://en.wikipedia.org/wiki/Dutch_East_India_Companyhttp://en.wikipedia.org/wiki/Amsterdam_Stock_Exchangehttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Amsterdam_Stock_Exchangehttp://en.wikipedia.org/wiki/17th_centuryhttp://en.wikipedia.org/wiki/Short_(finance)http://en.wikipedia.org/wiki/Options_strategieshttp://en.wikipedia.org/wiki/Merchant_bankhttp://en.wikipedia.org/wiki/Merchant_bankhttp://en.wikipedia.org/wiki/Trust_lawhttp://en.wikipedia.org/wiki/Speculationhttp://en.wikipedia.org/wiki/April_5http://en.wikipedia.org/wiki/2001


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w i l l a lw a y s p r o v i d e a b i d a n d a s k p r i ce a t w h i ch t h e y w i l la l w a y s p u r c h a s e o r s e l l ' t h e i r ' s t o c k .

T h e P a r is B o u rs e , n ow p a r t o f E u r o n e x t , i s a n o r de r -d r iv e n ,e l e c t r o n i c s t o c k e x c h a n g e . I t w a s a u t o m a t e d i n t h e l a t e 1 9 8 0 s .P r i o r t o t h e 1 9 8 0 s , i t c o ns i s t e d o f a n o p en o u tc r y e x c h an g e .S t o c k b r o k e r s m e t o n t h e t r a d i ng f l o or o r t h e P a l a i s B r o ng n i ar t .I n 1 9 8 6 , t h e C A T S t r a d i n g s y s t e m w a s i n t r o d u c e d , a n d t h e o r d e r m a t c h i n g p r o c e s s w a s f u l l y a u t o m a t e d .

F r o m t i m e t o t i m e , a c t i v e t r a d i n g ( e s p e c i a l l y i n l a r g e b l o c k s o f s ec ur i t i e s ) h av e m o v e d a wa y f ro m t he ' a c t iv e ' e xc ha ng es .S e c u r i t i e s f i r m s , l e d b y U B S A G , G o l d m a n S a c h s G r o u p I n c . a n dC r ed i t S u i ss e G r o up , a l r ea d y s t e er 1 2 p e r ce n t o f U . S . s e c ur i t yt r a de s a w a y f r o m t h e e x c ha n g es t o t h e i r i n t er n a l s y s t e ms . T h a ts h a r e p r o b a b l y w i l l i n c re a s e t o 1 8 p e r c e n t b y 2 0 1 0 a s m o r ei n v e s t m e n t b a n k s b y p a s s t h e N Y S E a n d N A S D A Q a n d p a i r b u y e r s

a n d s e l l e r s o f s e c u r i t i e s t h e m s e l v e s , a c c o r d i n g t o d a t a c o m p i l e d b y B o s to n- ba s ed A i t e G r o up L L C , a b ro ke r ag e- i n du st r yc o n s u l t a n t [ c i t a t i o n n e e d e d ] .

N o w t h a t c o m p u t e r s h a v e e l i m i n a t e d t h e n e e d f o r t r a d i n g f l o o r sl i k e t h e B i g B o a r d ' s , t h e b a l an c e o f p o w er i n e q u i t y m a r k e t s i ss h i f t i n g . B y b r i ng i n g m o r e o r d e r s i n - ho u s e , w h e re c l i e n t s c a nm o v e b ig b lo ck s o f s to ck a no n y m ou s l y , b r o k e r s p a y t h ee x ch a ng e s l e s s i n f e e s a n d c a p t u r e a b i gg e r s h a r e o f t h e $ 1 1

b i l l i on a y e a r t ha t i ns t i tu t i on a l i nv es to r s p ay i n t r a d i ngc o m m i s s i o n s

M A R K E T P A R T I C I P A N T S

M a n y y e a r s a g o , w o r l d w i d e , b u y e r s a n d s e l l e r s w e r e i n d i v i d u a li nv es to r s , s uc h a s w ea l t hy b us in es s m e n , w i t h l on g f am il yh i s to r i es ( a n d e m ot i o na l t i e s) t o p a r t i c u la r c o r p or a t io n s . O v e r t i m e , m a r k e t s h a v e b e c o m e m o r e " i n s t i t u t i o n a l i z ed " ; b u y e r s a n ds e l le r s a r e l a rg e l y i n s t i t u t i o n s ( e . g . , p e n s i o n f u n d s, i n s u r a n c ec o m p a n i e s , m u t ua l f u n ds , h e dg e f u nd s , i n v e s t o r g r o u p s , a n d

b a n k s ) . T h e r i s e o f t h e i n s t i t u t i on a l i n v e s t o r h a s b r o u g h t w i t h i ts o m e i m p r o v e m e n t s i n m a r k e t o p e r a t i o n s . T h u s , t h e g o v e r n m e n tw a s r e s p o n s i b l e f o r " f i x e d " ( a n d e x o r b i t a n t ) f e e s b e i n g m a r k e d l yr ed uc ed f o r t he ' s ma l l ' i nv es to r , b u t o n l y a f t e r t he l a r gei n s t i tu t io n s h a d m a n a ge d t o b r ea k t h e b r ok e rs ' s o l i d f r on t o nf e e s t h e y t h e n w e n t t o ' ne g o t i a t e d ' f ee s , b u t o n l y f o r l a r g ei n s t i t u t i o n s ) [ c i t a t i o n n e e d e d ] .

H o w e v e r , c o r p o r a t e g o v e r n a n c e ( a t l e a s t i n t h e W e s t ) h a s b e e nv e r y m u c h a d v e r s e l y a f f e c t e d b y t h e r i s e o f ( l a r g e l y ' a b s e n t e e ' )

i n s t i t u t i o n a l ' o w n e r s '

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I M P O R T A N C E O F S T O C K M A R K E TT h e s to ck m a rk e t i s o n e o f t he m os t i mp o r ta n t s o u rc es f o r c o m p a n i e s t o r a i s e m o n e y . T h i s a l l o w s b u s i n e s s e s t o b e p u b l i c l yt ra d e d , o r r a i s e a d d i t io n a l c a p i t a l f o r e x p a n s i o n b y s e l l i n gs h ar e s o f o w n e rs h ip o f t h e c o m p a n y i n a p u b l i c m a r k e t . T h el i q u i d i t y t h a t a n e x c h a n g e p r o v i d e s a f f o r d s i n v e s t o r s t h e a b i l i t yt o q u i ck l y a n d e as i l y s e l l s e c u r i t i e s . T h i s i s a n a t t r a c t iv ef e at u re o f i n ve s t i n g i n s t oc k s , c o mp a re d t o o t he r l e s s l i q u idi n v e s t m e nt s s u c h a s r e a l e s t a t e .

H i s t o r y h a s s h o w n t h a t t h e p r i c e o f s h a r e s a n d o t h e r a s s e t s i s a ni m p o r t a n t p a r t o f t h e d y na m i c s o f e c on o mi c a c t i v i t y , a n d c a ni n f l u e n c e o r b e a n i n d i c a t o r o f s o c i a l m o o d . R i s i n g s h a r e p r i c e s ,f o r i n s t a n c e , t en d t o b e a ss o c i a te d w i t h i n c r e as e d b u s i n e s si n v e s t m e nt a n d v i c e v e r s a . S h a r e p r i c e s a l s o a f f e c t t h e w e a l t h o f h o u s e h o l d s a n d t h e i r c o n s u m p t i o n. T h e r e f o r e , c e n t r a l b a n k s t e n dt o k e e p a n e y e o n t h e c o n t r o l a n d b e h a v i o r o f t h e s t o ck m a r k e ta n d, i n g e ne r a l , o n t h e s m o o th o p er a t i o n o f f i n a n c i a l s y s t e mf u nc t i o ns . F i n a nc i a l s t ab i l i t y i s t h e r a i so n d ' t r e o f c e nt r a l

b a n k s .

E x ch a n ge s a l s o a c t a s t h e c l e ar i n gh o u s e f o r e a c h t r a n s a c t i o n ,m e a n i n g t h a t t h e y c o l l e c t a n d d e l i v e r t h e s h a r e s , a n d g u a r a n t e e

p a ym e n t t o t h e s e l l e r o f a s e c ur i t y . T h i s e l i mi n a te s t h e r i s k t oa n i n d i v i d u a l b u y e r o r s e l l e r t h a t t h e c o u n t e r p a r t y c o u l d d e f a u l to n t h e t r a n s a c t io n .

T h e s mo ot h f un c t io n i ng o f a l l t he se a c t iv i t i e s f ac i l i t a t e se c o no m ic g r o wt h i n t ha t l ow er c os t s a nd e n t e r p r i s e r i s ks

p ro mo te t he p ro d u ct io n o f g oo ds a nd s e r v i ce s a s w el l a se m p l oy m e n t . I n t h is w a y t h e f i na n ci a l s y s t em c o n t r i b u t e s t oi n c r e a s e d p r o s p e r i t y .

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T H E B E H A V I O R O F T H E S T O C K M A R K E TF r o m e x p e r ie n c e w e k n o w t h a t i n v es t o r s m a y t e m p o ra r i ly p u l lf i n an c i a l p r i c e s a w a y f r o m t h e i r l o n g t e r m t r e nd l e v e l . O v e r -r e a c t i o n s m a y o c c u r s o t h a t e x c e s s i v e o p t i m i s m ( e u p h o r i a ) m a yd r i v e p r i c e s u n d u l y h i g h o r e x c e s s i v e p e s s i mi s m m ay d r i v e

p r ic e s u n du l y l o w. N e w t h eo r e t i ca l a n d e m p i r i ca l a r g u me n tsh a v e b e e n p u t f o r w a r d a g a i n s t t h e n o t i o n t h a t f i n a n c i a l m a r k e t sa r e e f f i c i e n t .

A cc or d i ng t o t he e f f i c ie n t m a r k et h y p o th e s i s ( E M H ) , o n ly

c h an g es i n f u nd a me n ta l f a c t o r s , s u ch a s p r o f i t s o r d i v i d en d s ,o u g h t t o a f f e c t s h a r e p r i c e s . ( B u t t h i s l a r g e l y t h e o r e t i c a c a d e m i cv i ew p oi n t a l s o p r ed i c t s t h a t l i t t l e o r n o t r ad i ng s h ou l d t a ke

p l ac e c o nt r a r y t o f a c t s i nc e p r ic e s a r e a l re a dy a t o r n e ar e q ui l ib r iu m , h a v i n g p r ic e d i n a l l p u b l i c k n ow l e d ge . ) B u t t h ee f f ic i e n t - m ar k e t h y p o t h es i s i s s o r e l y t e s te d b y s u c h e v e n t s a st h e s t o c k m ar k e t c r a s h i n 1 9 8 7 , w h en t he D o w J o n e s i n de x

p l u mm e t ed 2 2 . 6 p e r ce n t t h e l a r ge s t - e v e r o n e -d a y f a l l i n t h eU n i t e d S t a t e s . T h i s e v e n t d e m o n s t r a t e d t h a t s h a r e p r i c e s c a n f a l ld r a ma t i ca l ly e v e n t h o u g h , t o t h i s d a y , i t i s i m p o s s ib l e t o f i x ad e f i n i t e c a u s e : a t h o r o u g h s e a r c h f a i l e d t o d e t e c t a n y s p e c i f i c o r

u n e x p e c t e d d e v e l o p me n t t h a t m i g h t a c c o u n t f o r t h e c r a s h . I t a l s os e e m s t o b e t h e c a s e m o r e g e n e r a l l y t h a t m a n y p r i c e m o v e m e n t sa r e n o t o c c a s i o n e d b y n e w i n f o r ma t i on ; a s tu d y o f t h e f i f tyl a r g e s t o n e - d a y s h a r e p r i c e m o v e m e n t s i n t h e U n i t e d S t a t e s i nt h e p o s t -w a r p e r io d c o n f i r m s t h i s . [ 3 ] M o r eo v e r , w h i l e t h e E M H

p r e d i c t s t h a t a l l p r i c e m o v em e n t ( i n t h e a b s e n c e o f c h a ng e i nf u n da m en t a l i n f o r m a t i o n ) i s r a n do m ( i . e . , n o n - t r e n d i n g ) , m a n ys t u d i e s h a v e s h o wn a m a rk e d t e n d e n cy f o r t h e s t o ck m a rk e t t ot r e n d o v e r t i m e p e r i o d s o f w e e k s o r l o n g e r .

V ar i o u s e x p l a n a t i o n s f o r l a r g e p r i c e m ov e m en t s h a v e b e e n p ro mu lg a t ed . F or i ns t a nc e , s om e r es ea rc h h as s ho wn t ha tc h a n g e s i n e s t i m a t e d r i s k , a n d t h e u s e o f c e r t a i n s t r a t e g i e s , s u c ha s s t o p - l o s s l i m i t s a n d V a l u e a t R i s k l i m i t s , t h e o r e t i c a l l y c o u l dc a u s e f i n a n c i a l m a r k e t s t o o v e r r e a c t .

O t h e r r e s e a r c h h a s s h o w n t h a t p s y c h o l o g i c a l f a c t o r s m a y r e s u l ti n e x a gg e r a t e d s t o ck p r i ce m o v em e n ts . P s y ch o l og i c a l r e s ea r c hh as d em o n s t r a t ed t ha t p eo p l e a re p re d i sp o s ed t o ' s e e i ng '

p a t t e r n s , a n d o f t e n w i l l p e r c e i v e a p a t t e r n i n w h a t i s , i n f a c t , j u s t n o i s e . ( S o m e t h i n g l i k e s e e i n g f a m i l i a r s h a p e s i n c l o u d s o r

i n k b l o t s . ) I n t h e p r e s e n t c o n t e x t t h i s m e a n s t h a t a s u c c e s s i o n o f g o od n ew s i t e ms a b ou t a c om p an y m a y l ea d i n v es to r s t oo v e r r e a c t p o s i t iv e l y ( u n j u s t i f i a b l y d r i v i n g t h e p r i c e u p ) . A

1 1
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p e r i o d o f g oo d r e t u rn s a l s o b oo s ts t h e i nv es to r ' s s e l f -c o n f i d e n c e , r e d u c i n g h i s ( p s y c h o l o g i c a l ) r i s k t h r e s h o l d . [ 4 ] .

I n o n e p a p er t h e a u t h o r s d r a w a n a n a lo g y w i t h g a m b l i ng . [ 5 ] I nn o rm a l t i me s t h e m a r k et b e ha v es l i ke a g a me o f r o ul e t t e ; t h e

p r ob a bi l i t ie s a re k no w n a n d l a r ge ly i n de pe nd en t o f t hei n v e s t m e nt d e c i s i o n s o f t h e d i f f e r e n t p l a y e r s . I n t i m e s o f m a r k e ts t re s s , h o we v er , t h e g a me b e co m e s m o re l i ke p o ke r ( h e r d in g

b e h a v i o r t a k e s o v e r ) . T h e p l a y e r s n o w m u s t g i v e h e a v y w e i g h t t ot h e p s yc h o l o g y o f o t he r i n ve s to r s a n d h o w t h ey a r e l i k e ly t or e a c t p s y c h o l o g i c a l l y .

T h e s t o c k m a r k e t , a s a n y o t h e r b u s i n e s s , i s q u i t e u n f o r g i v i n g o f a m a t e u r s . I n e x p e r i e n c e d i n v e s t o r s r a r e l y g e t t h e a s s i s t a n c e a n ds u p p o r t t h e y n e e d . I n t h e p e r i o d r u n n i n g u p t o t h e r e c e n t N a s d a qc r a s h , l e s s t h a n 1 p e r c e n t o f t h e a n a l y s t ' s r e c o m m e n d a t io n s h a d

b e e n t o s e l l ( a n d e v e n d u r i n g t h e 2 0 0 0 - 2 0 0 2 c r a s h , t h e a v e r a g e

d id n o t r i s e a bo ve 5 %) . T h e m ed ia a mp l i f i ed t he g en er a le u ph o r i a , w i t h r e po r t s o f r a pi d ly r i s i n g s h a r e p r i c e s a n d t h en o t i o n t h a t l a r g e s u m s o f m o n e y c o u l d b e q u i c k l y e a r n e d i n t h es o - c a l l e d n e w e c o n o m y s t o ck m a r ke t . ( A n d l a t er a m p l i f i ed t h eg l o o m w h i c h d e s c e n d e d d u r i ng t h e 2 0 0 0 - 2 0 0 2 c r a s h , s o t h a t b ys u m m e r o f 2 0 0 2 , p r e d i c t i o n s o f a D O W a v e r a g e b e l o w 5 0 0 0 w e r eq u i t e c o m m o n .

I R R A T I O N A L B E H A V I O R

S o me t i me s t h e m a r k e t t e n ds t o r e a ct i r r a t i o na l l y t o e c o no m i c

n e w s , e v e n i f t h a t n e w s h a s n o r e a l e f f e c t o n t h e t e c h n i c a l v a l u eo f s e c ur i t ie s i t s e l f . T h e r e fo r e , t h e s t o ck m a rk e t c a n b e s w a ye dt re me n d o u s l y i n e i t h e r d i r e c t i on b y p r e s s r e l e a s e s , r u m or s ,e u p h o r i a a n d m a s s p a n i c .

O v e r t h e s h o r t - t e r m , s t o c k s a n d o t h e r s e c u r i t i e s c a n b e b a t t e r e do r b uo ye d b y a ny n um be r o f f a s t m ar ke t - ch an g i ng e ve n t s ,m a k i n g t h e s t o c k m a r k e t d i f f i c u l t t o p r e d i c t .

B o m b a y S t o c k E x c h a n g e

T h e B o m b a y S t o c k E x c h a n g e L i m i t e d ( H i n d i : M u m b a e y a r B j r ) ( f o r m e r l y , T h e S t o c k E x c h a n g e , M u m b a i ;

p o p u l a r l y c a l l e d T h e B o m b a y S t o c k E x c h a n g e , o r BSE) i s t h eo l d e s t s t o c k e x c h a n g e i n A s i a . I t i s a l s o t h e b i g g e s t s t o c k e x c h a n g e i n t h e w o r l d i n t e r m s o f l i s t e d c o m p a n i e s w i t h 6 , 0 0 0l i s t e d c o m p a n i e s a s o f A u g u s t 2 0 0 7 . [ 1 ] I t i s l o c a t e d a t D a l a lS t r e e t , M u m b a i , I n d i a . O n 3 1 D e c e m b e r 2 0 0 7 , t h e e q u i t y m a r k e tc a p i t a l i z a t i o n o f t h e c o m p a n i e s l i s t e d o n t h e B S E w a s U S $ 1 . 7 9t r i l l i o n , m a k i n g i t t h e l a r g e s t s t o c k e x c h a n g e i n S o u t h A s i a a n dt h e t e n t h l a r g e s t i n t h e w o r l d . [ 2 ]

T h e B o m b a y S t o c k E x c h a n g e w a s e s t a b l i s h e d i n 1 8 7 5 . A r o u n d6 , 0 0 0 I n d i a n c o m p a n i e s l i s t o n t h e s t o c k e x c h a n g e , [ 3 ] a n d i t h a sa s i g n i f i c a n t t r a d i n g v o l u m e . T h e B S E S E N S E X ( S E N S i t i v e

1 2
http://en.wikipedia.org/wiki/Stock_market#cite_note-3%23cite_note-3http://en.wikipedia.org/wiki/Stock_market#cite_note-4%23cite_note-4http://en.wikipedia.org/wiki/Nasdaqhttp://en.wikipedia.org/wiki/New_economyhttp://en.wikipedia.org/wiki/Euphoriahttp://en.wikipedia.org/wiki/Mass_panichttp://en.wikipedia.org/wiki/Mass_panichttp://en.wikipedia.org/wiki/Hindi_languagehttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Asiahttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Bombay_Stock_Exchange#cite_note-0http://en.wikipedia.org/wiki/Dalal_Streethttp://en.wikipedia.org/wiki/Dalal_Streethttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Market_capitalizationhttp://en.wikipedia.org/wiki/Market_capitalizationhttp://en.wikipedia.org/wiki/US$http://en.wikipedia.org/wiki/1000000000000_(number)http://en.wikipedia.org/wiki/South_Asiahttp://en.wikipedia.org/wiki/List_of_stock_exchangeshttp://en.wikipedia.org/wiki/Bombay_Stock_Exchange#cite_note-1http://en.wikipedia.org/wiki/Bombay_Stock_Exchange#cite_note-2http://en.wikipedia.org/wiki/BSE_Sensexhttp://en.wikipedia.org/wiki/Stock_market#cite_note-3%23cite_note-3http://en.wikipedia.org/wiki/Stock_market#cite_note-4%23cite_note-4http://en.wikipedia.org/wiki/Nasdaqhttp://en.wikipedia.org/wiki/New_economyhttp://en.wikipedia.org/wiki/Euphoriahttp://en.wikipedia.org/wiki/Mass_panichttp://en.wikipedia.org/wiki/Hindi_languagehttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Asiahttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Bombay_Stock_Exchange#cite_note-0http://en.wikipedia.org/wiki/Dalal_Streethttp://en.wikipedia.org/wiki/Dalal_Streethttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Market_capitalizationhttp://en.wikipedia.org/wiki/Market_capitalizationhttp://en.wikipedia.org/wiki/US$http://en.wikipedia.org/wiki/1000000000000_(number)http://en.wikipedia.org/wiki/South_Asiahttp://en.wikipedia.org/wiki/List_of_stock_exchangeshttp://en.wikipedia.org/wiki/Bombay_Stock_Exchange#cite_note-1http://en.wikipedia.org/wiki/Bombay_Stock_Exchange#cite_note-2http://en.wikipedia.org/wiki/BSE_Sensex


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i n d E X ) , a l s o c a l l e d t h e " B S E 3 0 " , i s a w i d e l y u s e d m a r k e t i n d e xi n I n d i a a n d A s i a . T h o u g h m a n y o t h e r e x c h a n g e s e x i s t , B S E a n dt h e N a t i o n a l S t o c k E x c h a n g e o f I n d i a a c c o u n t f o r m o s t o f t h et r a d i n g i n s h a r e s i n I n d i a

B S E I N D I C E S

T h e B S E S E N S EX ( a l s o k n o w n a s t h e B S E 3 0 i n d e x ) i s a v a l u e -w e ig h t ed i n d ex c o mp o s e d o f t h i r t y s c r i p s , w i th t h e b a s e A p r i l1 9 7 9 = 1 0 0 . T h e s e t o f c o m p a n ie s w h i c h m a k e u p t h e i n d ex h a s

b e e n c h a n g ed o n l y a f e w t i m e s i n t h e l a s t t w e nt y y e a r s . T h e s ec o m p a n i e s a c c o u n t f o r a r o u n d o n e - f i f t h o f t h e m a r k e tc a p i t a l i z a t i o n o f t h e B S E .

A p a r t f r o m B S E S E N S E X, w h i c h i s t h e m o s t p o p u l a r s t o c k i n d e x

i n I n d i a , B S E u s e s o t h e r s t o c k i n d i c e s a s w e l l :

B S E 5 0 0

B S E 1 0 0

B S E 2 0 0

B S E P S U

B S E M I D C A P

B S E S M L C A P

B S E B A N K E X

B S E T e c k

B S E A u t o B S E P h a r m a

B S E F a s t M o v i n g C o n s u m e r G o o d s ( F M C G )

B S E C o n s u m e r D u r a b l e s

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B S E B R O A D C A S T

T h e B SE B r o a dc a s t i s a l a rg e t i ck e r o n t h e w a l l o f t h e B S E ,w h ic h c o n t i n u ou s ly d i sp l ay s t h e l a te s t s t oc k q u o t e s f r om t h em a rk e t . I t a l so d i s p l ay s o n w h a t i s d e s c r i b e d a s I n d ia ' s a n dS o u t h A s i a ' s l a r g e s t v i d e o s c r e e n o n e o f t h e l e a d i n g b u s i n e s s -n e w s c h a n n e l s i n I n d i a : N D T V P r o f i t .

T h i s n e w s y s t e m w a s u n v e i l ed o n D e c e m b e r 1 5 , 2 0 0 6 , w h e n D r P r a n n o y R o y , t h e M a n ag i n g D i r e c to r o f N e w D e l h i T e le v i s i o n

( N D T V ) L t d , s t r u c k t h e B S E ' s o p e n i n g b e l l . M r D a m o d a r a n , t h eC h a i r m an o f t h e S e c u r i t i e s a n d E x c h a n g e B o a r d o f I n d i a ( S E B I ) ,s a i d t h a t t h e t i c k e r w o u l d p r o v id e i n f o r m a t i o n a n d a n a ly s i s o f t h e f i n a n c i a l w o r l d .

F o l l o w i ng i s t h e t i m e l i n e o n t h e r i s e a n d r i s e o f t h e S en s e xt h r o u g h I n d i a n s t o c k m a r k e t h i s t o r y .

1 0 0 0 , J u l y 2 5 , 1 9 9 0 O n J u l y 2 5 , 1 9 9 0 , t h e S e n s ex t o u ch e d t h em a gi c a l f o u r - d ig i t f i g u r e f o r t h e f i r s t t i m e a n d c l o s e d a t 1 , 0 01i n t h e w a k e o f a g o o d m o n s o on s e a so n a n d e x c el l e n t c o r po r a ter e s u l t s .

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2 0 0 0 , J a n u a r y 1 5 , 1 9 9 2 O n J a n u a r y 1 5 , 1 9 9 2 , t h e S e n s e x c r o s s e dt h e 2 , 0 0 0 - m ar k a n d c l o s e d a t 2 , 0 2 0 f o l lo w e d b y t h e l ib e r a le co n o mi c p o l i c y i n i t i a t i v e s u n d e r t a k e n b y t h e t h e n f in a n c em i n i s t e r a n d c u r r e n t P r i m e M i n i s t e r D r M a n m o h a n S i n g h .

3 0 0 0 , F eb r u a r y 2 9 , 1 9 9 2 O n F eb r u a r y 2 9 , 1 9 9 2 , t h e S en s e xs u r g e d p a s t t h e 3 0 0 0 m a r k i n t h e w a k e o f t h e m a r k e t - f r i e n d l y

B u d ge t a n n o un c e d b y t h e t h e n F i n a n ce M i n is t e r , D r M a n mo h a nS i n g h .

4 0 0 0 , M a r ch 3 0 , 1 9 9 2 O n M a r c h 3 0 , 1 9 9 2 , t h e S e n s e x c r o s s edt h e 4 , 0 0 0- m a r k a n d c l o s ed a t 4 , 0 9 1 o n t h e e x p e c t a t i o n s o f al i b e r a l e x p o r t - i m p o r t p o l i c y . I t w a s t h e n t h a t t h e H a r s h a d M e h t as c a m h i t t h e m a r k e t s a n d S e n s e x w i t n e s s e d u n a b a t e d s e l l i n g .

5 0 0 0 , O c t ob e r 8 , 1 9 9 9 O n O c t ob e r 8 , 1 9 9 9 , t h e S e n s e x c r o s s e dt h e 5 , 0 0 0 - m a r k a s t h e B J P - l ed c o a l i t i o n w o n t h e m a j o r i t y i n t h e1 3 t h L o k S a b h a e l e c t i o n .

6 0 00 , F e b r ua r y 1 1 , 2 0 00 O n F e br u ar y 1 1 , 2 0 00 , t h e i n fo t ec hb o o m h e l p e d t h e S e n s e x t o c r o s s t h e 6 , 0 0 0 - m a r k a n d h i t a n d a l lt i m e h i g h o f 6 , 0 0 6 .

7 0 0 0 , J u n e 2 0 , 2 0 0 5 O n J u n e 2 0 , 2 0 0 5 , t h e n e w s o f t h es e t t l em en t b e t we en t he A mb an i b ro th e r s b o o s t ed i nv es to r

s e nt i me n ts a n d t h e s c r i p s o f R I L , R e l i an c e E n e r gy , R e l i an c eC a p i ta l , a n d I P C L m a d e h u ge g a in s . T h is h e lp e d t h e S e n s exc r o s s e d 7 , 0 0 0 p o i n t s f o r t h e f i r s t t i m e .

8 0 00 , S e p t em b e r 8 , 2 0 05 O n S e p t em b er 8 , 2 0 05 , t h e B o mb a yS t o c k E x c h an g e ' s b e nc h ma r k 3 0 -s h ar e i n de x - - t h e S e n s ex - -c r os s ed t h e 8 0 00 l e ve l f o l l o wi n g b r is k b u yi n g b y f o re i gn a n dd o m e s t i c f u n d s i n e a r l y t r a d i n g .

9 0 00 , N o v e mb e r 2 8 , 2 0 0 5 T h e S e n s ex o n N o v e mb e r 2 8 , 2 0 0 5c r o s s e d t h e m ag i c a l f i g u r e o f 9 0 0 0 t o t o u c h 9 0 0 0 . 3 2 p o i n t s

d u r in g m i d- s e s s i o n a t t h e B o m b a y S t o c k E x c h an g e o n t h e b a c k o f f r an t i c b u yi n g s p re e b y f o re i g n i n s t i t u t i o na l i n ve s to r s a n dw e l l s u p p o r t e d b y l o c a l o p e r a t o r s a s w e l l a s r e t a i l i n v e s t o r s .

1 0 , 00 0 , F eb r u ar y 6 , 2 0 0 6 T he S en se x o n F eb ru ar y 6 , 2 00 6t o u ch e d 1 0 , 00 3 p o i n t s d u r in g m i d -s e s s io n . T h e S e ns e x f i n al l yc l o s e d a b o v e t h e 1 0 K - m a r k o n F e b r u a r y 7 , 2 0 0 6 .

1 1 , 00 0 , M a r c h 2 1 , 2 0 0 6 T h e S e n se x o n M a r ch 2 1 , 2 0 0 6 c r o ss e dt h e m a g i c a l f i g u re o f 1 1 ,0 0 0 a n d t o uc h ed a l i fe - t i m e p e ak o f 1 1 , 0 0 1 p o i n t s d u r i n g m i d - s e s s i o n a t t h e B o m b a y S t o c k E x c h a n g ef o r t h e f i r s t t i m e . H o w e ve r , i t w a s o n M a rc h 2 7 , 2 0 0 6 t h a t t h eS e n s e x f i r s t c l o s e d a t o v e r 1 1 , 0 0 0 p o i n t s .

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1 2 , 0 0 0 , A p r i l 2 0 , 2 0 0 6 T h e S e n s e x o n A p r i l 2 0 , 2 0 0 6 c r o s s e d t h e1 2 , 00 0 - ma r k a n d c l o s e d a t a p e a k o f 1 2 , 0 4 0 p o i n t s f o r t h e f i r s tt i m e .

1 3 , 0 0 0 , O c t o b e r 3 0 , 2 0 0 6 T he S en s e x o n O c t o b e r 3 0 , 2 0 0 6c r os s ed t h e m a g i ca l f i g u re o f 1 3 ,0 0 0 a n d c l os e d a t 1 3 ,0 2 4 . 2 6

p o i n t s , u p 1 1 7 . 4 5 p o i n t s o r 0 . 9 %. I t t o o k 1 3 5 d a y s f o r t heS e n s ex t o m o v e f r om 1 2 ,0 0 0 t o 1 3 ,0 0 0 a n d 1 2 3 d a y s t o m o vef r o m 1 2 , 5 0 0 t o 1 3 , 0 0 0 .

1 4 , 0 0 0 , D ec e m be r 5 , 2 0 0 6 T he S en s e x o n D ec e m be r 5 , 2 0 0 6c r o s s e d t h e 1 4 , 0 0 0 - m a r k t o t o u c h 1 4 , 0 2 8 p o i n t s . I t t o o k 3 6 d a y sf o r t h e S e n s e x t o m o v e f r o m 1 3 , 0 0 0 t o t h e 1 4 , 0 0 0 m a r k .

1 5 ,0 0 0 , J u ly 6 , 2 0 0 7 T h e S e n s ex o n J u l y 6 , 2 0 0 7 c r os s ed t h e

m a g i ca l f i gu r e o f 1 5 ,0 0 0 t o t o uc h 1 5 ,0 0 5 p o in t s i n a f te r no o nt r a d e . I t t o o k s e v e n m o n t h s f o r t h e S e n s e x t o m o v e f r o m 1 4 , 0 0 0t o 1 5 , 0 0 0 p o i n t s .

1 6 , 0 0 0 , S ep t e mb e r 1 9 , 2 0 0 7 T he S en se x s c a le d y e t a n o t h e r m i le s t on e d u r in g e a r ly m o r n i n g t r a de o n S e p te m be r 1 9 , 2 0 0 7 .W i t h i n m i n u t e s a f t e r t r a d i n g b e g a n , t h e S e n s e x c r o s s e d 1 6 , 0 0 0 ,r i s i n g b y 4 5 0 p o i n t s f r o m t h e p r e v i o u s c lo s e . T he 3 0 - sh a r eB o m b a y S t o c k E x c h a n g e ' s s e n s i t i v e i n d e x t o o k 5 3 d a y s t o r e a c h1 6 , 00 0 f r o m 1 5 , 0 0 0 . N i f ty a l s o t o u ch e d a n e w h i g h a t 4 6 5 9 , u p1 1 3 p o i n t s .

T h e S e n s ex f i n a l l y e n d ed w i th a g a i n o f 6 5 4 p o i n t s a t 1 6 , 32 3 .T h e N S E N i f t y g a i n e d 1 8 6 p o i n t s t o c l o s e a t 4 , 7 3 2 .

1 7 , 0 0 0 , S ep t e mb e r 2 6 , 2 0 0 7 T he S en se x s c a le d y e t a n o t h e r h e i g h t d u r in g e a r l y m or n i n g t r a d e o n S ep t e mb e r 2 6 , 2 0 0 7 .W i t h i n m in u t e s a f t e r t r a d i n g b e g a n , t h e S e n s e x c r o s s e d t h e1 7 , 0 0 0 - m ar k . S o m e p r o f i t t a k i n g t o w a r d s t h e e n d , s a w t h e i n d e xs l i p i n t o r e d t o 1 6 , 88 7 - d o w n 1 8 7 p o i n t s f r o m t h e d a y ' s h i g h .T h e S e n s e x e n d e d w i t h a g a i n o f 2 2 p o i n t s a t 1 6 , 9 2 1 .

1 8 , 00 0 , O c t o b er 0 9 , 2 0 0 7 T h e B S E S e n se x c r o s s e d t h e 1 8 , 00 0 -m a rk o n O c t o b e r 0 9 , 2 0 0 7 . I t t o o k j u s t 8 d a y s t o c r o s s 1 8 , 0 0 0

p o i n t s f r o m t h e 1 7 , 00 0 m a r k. T h e i n d e x z o o m e d t o a n e w a l l -t i me i n t r a - d ay h i g h o f 1 8 , 32 7 . I t f i n a l l y g a i n e d 7 8 9 p o i n t s t oc l o s e a t a n a l l - t i m e h i g h o f 1 8 , 2 8 0 . T h e m a r k e t s e t s e v e r a l n e wr e c or d s i n c l u d in g t h e b i g g e s t s i n g le d a y g a i n o f 7 8 9 p o i n t s a tc l o s e , a s w e l l a s t h e l a r g es t i n t r a -d a y g a i ns o f 9 9 3 p o i n ts i na b s o l u t e t e r m b a c k e d b y f r e n z i e d b u y i n g a f t e r t h e n e w s o f t h eU P A a n d L e f t m e e t in g o n O c to b e r 2 2 p u t a n e n d t o t h e w o r r i eso f a n i m p e n d i n g e l e c t i o n .

1 9 , 00 0 , O c to b e r 1 5 , 2 0 0 7 T h e S e n se x c r o s se d t h e 1 9 , 00 0 - ma r k b a c k e d b y r e v i v a l o f f u n d s - b a s e d b u y i n g i n b l u e c h i p s t o c k s i nm e t a l , c a p i t a l g o o d s a n d r e f i n e r y s e c t o r s . T h e i n d e x g a i n e d t h e

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l a s t 1 , 0 0 0 p o i n t s i n j u s t f o u r t r a d i n g d a y s . T h e i n d e x t o u c h e d af r e s h a l l - t i m e i n t r a - d ay h i g h o f 1 9 , 0 9 6 , a n d f i n a l l y e n d e d w i t h as m a r t g a i n o f 6 4 0 p o i n t s a t 1 9 , 0 5 9 . T h e N i f t y g a i n e d 2 4 2 p o i n t st o c l o s e a t 5 , 6 7 0 .

2 0 , 00 0 , O c t o b e r 2 9 , 2 0 0 7 T h e S e n se x c r o s s e d t h e 2 0 , 00 0 m a rk o n t h e b a c k o f a g g r e s s i v e b u y in g b y f u n d s a h e ad o f t he U SF e d e r a l R e s e r v e m e e t i n g . T h e i n d e x t o o k o n l y 1 0 t r a d i n g d a y s t og a in 1 , 0 0 0 p o in t s a f te r t h e i n de x c r os s ed t h e 1 9 ,0 0 0- m ar k o nO c t o b e r 1 5 . T h e m a j o r d r i v e r s o f t o d a y ' s r a l l y w e r e i n d e x

H e a v yw e i g h t s L a r s en a n d T o u b ro , R e l i a n ce I n du s t r i es , I C I C IB a n k , H D F C B a n k a n d S BI a m o n g o t h e r s . T h e 3 0 -s h ar e i n de xs p u r t e d i n t h e l a s t f i v e m i n u t e s o f t r a de t o f l y - p a s t t h e c r u c i a ll e v e l a n d s c a l e d a n e w i n t r a - d a y p e a k a t 2 0 , 0 2 4 . 8 7 p o i n t s b e f o r e

e n d in g a t i t s f r e s h c l o s i ng h i g h o f 1 9 , 97 7 . 67 , a g a i n o f 7 3 4 .5 0p o in t s . T h e N S E N i f t y r o se t o a r e c o rd h i gh 5 , 92 2 .5 0 p o in t s b e f o r e e n d i n g a t 5 , 9 0 5 . 9 0 , s h o wi n g a h e f t y g a i n o f 2 0 3 .6 0 p o i n t s .

2 1 , 0 0 0 , J a n u a r y 8 , 2 0 0 8 T h e s e n s e x c r o s s e d t h e 2 1 , 0 0 0 m a r k i ni n t r a - d a y t r a d i n g a f t e r 4 9 t r a d i n g s e s s i o n s . T h i s w a s b a c k e d b yh i g h m a r k e t c o n f i d en c e o f i n c re a s ed F I I i n v e s t me n t a n d s t r on gc o rp o ra t e r e su l t s f o r t h e t h i r d q u ar t er . H o w e v e r , i t l a t e r f e l l

b a c k d u e t o p r o f i t b o o k i n g .

1 5 ,2 0 0 , J u ne 1 3 , 2 0 08 T h e s e ns e x c l o s ed b e lo w 1 5 ,2 0 0 m a r k ,I n d i a n m a r k e t s u f f e r w i t h m a j o r d o w n f a l l f r o m J a n u a r y 2 1 , 2 0 0 8

1 4 , 22 0 , J u n e 2 5 , 2 0 0 8 T h e s e n s e x t o u c h ed a n i n t r a d a y l o w o f 1 3 , 7 3 1 d u r i n g t h e e a r l y t r a d e s , t h e n p u l l e d b a c k a n d e n d e d u p a t1 4 ,2 2 0 a m i d s t a n e ga t iv e s e n t i m e n t g e ne r a t ed o n t h e R e s e rv eB a nk o f I n d i a h i k i n g C R R b y 5 0 b p s . F I I o u t f l ow c o n t i n u ed i nt h i s w e e k .

1 2 ,8 22 , J u l y 2 , 2 00 8 T h e s en s e x h i t a n i n t r a d ay l ow o f 1 2 , 8 2 2 . 7 0 o n J u l y 2 n d , 2 0 0 8 . T h i s i s t h e l o w e s t t h a t i t h a s e v e r

b e e n i n t h e p a s t y e a r . S i x m o n t h s a g o , o n J a n ua r y 1 0 t h , 2 0 0 8 ,t h e m a r k et h a d h i t a n a l l t i me h i g h o f 2 1 2 0 6 . 70 . T h i s i s a b a dt im e f o r t h e I n d i a n m ar k e t s , a l t h o u g h R e l i a n c e a n d I n f o s y sc o n t i n u e t o l e a d t h e w a y w i t h m o s t l y p o s i t i v e r e s u l t s .B l o o mb e rg l i s t s t h e m a s t h e t o p t w o g a i n er s f o r t h e S e n s ex ,c l o s e l y f o l l o w e d b y I C I C I B a n k a n d I T C L t d

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N S E i s m u t u a l l y - o w n e d b y a s e t o f l e a d i n g f i n a n c i a li n s t i t u t io n s , b a n k s , i n s u r a n c e c o m p a n i e s a n d o t h e r f i n a n c i a li n t er m e di a r ie s i n I n d ia b u t i t s o w n er s h ip a n d m a n ag e m en to p e ra t e a s s e p ar a t e e n t i t i e s[ 2 ] . A s o f 2 0 0 6 , t h e N SE V S A T t e r m i n a l s , 2 7 9 9 i n t o t a l , c o v e r m o r e t h a n 1 5 0 0 c i t i e s a c r o s sI n d i a [ 3 ] . I n O c t o b e r 2 0 0 7 , t h e e q u i t y m a r k e t c a p i t a l i z a t i o no f t h e c o m pa n i es l i s t e d o n t h e N S E w a s U S $ 1 . 4 6 t r i l l i o n ,m a k i n g i t t h e s e c o n d l a r g e s t s t o c k e x c h a n g e i n S o u t h A s i a .

N S E i s t h e t h i r d l a rg e s t S t o c k E x c h an g e i n t h e w o r l d i nt e r m s o f t h e n u m b e r o f t r a d e s i n e q u i t i e s . [ 4 ] I t i s t h e s e c o ndf a s t e s t g r o w i n g s t o c k e x c h a n g e i n t h e w o r l d w i t h a r e c o r d e dg r o w t h o f 1 6 . 6 % . O r i g i n s

N S E b u i l d i n g a t B K C

T h e N a t i o n a l S t o c k E x c h a n g e o f I n d i a w a s p r o m o t e d b y l e a d i n gF i n a n c i a l i n s t i t u t io n s a t t h e b e h e s t o f t h e G o v e r n m e n t o f I n d i a ,a nd w as i nc or po r a te d i n N ov em be r 1 9 9 2 a s a t ax - p ay in gc o m p a n y . I n A p r i l 1 9 9 3 , i t w a s r e c o gn i z ed a s a s t o c k e x c h a n g eu n de r t h e S e c ur i t ie s C o n tr a c ts ( R eg u l a t i o n) A c t , 1 9 5 6 . N S Ec o mm e n ce d o p e ra t io n s i n t h e W h o le s a le D e b t M a r ke t ( W D M )s e g m e n t i n J u n e 1 9 9 4 . T h e C a p i t a l M a r k e t ( E q u i t i e s ) s e g m e n t o f t he N SE c om me nc ed o pe ra t i on s i n N ov em b er 1 9 9 4 , w h i l eo p e r a t i o n s i n t h e D e r i v a t i v e s s e g m e n t c o m m e n c ed i n J u n e 2 0 0 0 .[ [ I m a g e : N a t i o n a l S t o c k e x c h a n g e K o l k a t a .

I N N O V A T I O N S

N S E h a s r e m ai n e d i n t h e f o r ef r o n t o f m o d er n i za t i on o f I n d ia ' sc a p i t a l a n d f i n a n c i a l m a r k e t s , a n d i t s p i o n e e r i n g e f f o r t s i n c l u d e :

B e i n g t h e f i r s t n a t i o n a l , a n o n y m o u s , e l e c t r o ni c l i m i t o r d e r b o o k ( L O B ) e x c h a n g e t o t r a d e s e c u r i t i e s i n I n d i a . S i n c e t h es uc ce ss o f t he N SE , e x i s t en t m a rk e t a nd n ew m a rk e ts t r u c t u r e s h a v e f o l l o w e d t h e " N S E " m o d e l .

S e t t i n g u p t h e f i r s t c le a r in g c o rp o ra t i o n " N a t i on alS e c u r i t ie s C l e a r i n g C o r p o r a t i o n L t d . " i n I n d i a . N S C C L w a sa l an d m ar k i n p r o v i d i n g i n n o v a t io n o n a l l s p o t e q u i t ym a r k e t ( a n d l a t e r , d e r i v a t i v e s m a r k e t ) t r a d e s i n I n d i a .

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C o -p r om o t i n g a n d s e t t i n g u p o f N a t i o na l S e c u r i t i e sD e p o s i t o r y L i m i t e d , f i r s t d e p o s i t o r y i n I n d i a [ 2 ] .

S e t t i n g u p o f S & P C N X N i f t y . N SE p i o n e e r e d c o m me n c e m en t o f I n t e r n e t T ra d i n g i n

F e b r u a r y 2 0 0 0 , w h i c h l e d t o t h e w i d e p o p u l a r i z a t i o n o f t h eN S E i n t h e b r o k e r c o m m u n i t y .

B e i n g t h e f i r s t e x c h a n g e t h a t , i n 1 9 9 6 , p r o p o s e d e x c h a n g et ra d e d d e r i v a t iv e s , p a r t i c u la r l y o n a n e q u i t y i nd e x , i nI n d i a . A f t e r f o u r y e a r s o f p o l i c y a n d r e g u l a t o r y d e b a t e a n df o r m u l a t i o n , t h e N S E w a s p e r m i t t e d t o s t a r t t r a d i n g e q u i t yd e r i v a t i v e s

B e i n g t h e f i r s t a n d t h e o n l y e x c h a n g e t o t r a d e G O L D E T F s( e x c h a n g e t r a d e d f u n d s ) i n I n d i a .

N S E h a s a l s o l a u n c h e d t h e N S E - C N B C - T V 1 8 m e d i a c e n t r ei n a s s o c i a t i o n w i t h C N B C - T V 1 8

M A R K E T S

C u r r e n t l y , N S E h a s t h e f o l l o w i n g m a j o r s e g m e n t s o f t h e c a p i t a lm a r k e t :

E q u i t y F u t u r e s a n d O p t i o n s R e t a i l D e b t M a r k e t W h o l e s a l e D e b t M a r k e t

I N D I C E S

N S E a l so s e t u p a s i n de x s e rv i ce s f i r m k n ow n a s I n d i a I n de xS e rv i c es & P r o du c t s L i m i te d ( I I SL ) a n d h a s l a u nc h e d s e v e r a ls t o c k i n d i c e s , i n c l u d i n g :

S & P C N X N i f t y C N X N i f t y J u n i o r C N X 1 0 0 ( = S & P C N X N i f t y + C N X N i f t y J u n i o r ) S & P C N X 5 0 0 ( = C N X 1 0 0 + 4 0 0 m a j o r p l a ye r s a c r o ss 7 2

i n d u s t r i e s ) C N X M i d c ap ( i n t r o d uc e d o n 1 8 J u l y 2 0 0 5 r e p l a c in g C N X

M i d c a p 2 0 0 )

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C E R T I F I C A T I O N S

N S E a l s o c o n d u c t s o n l i n e e x a m i n a t io n a n d a w a r d s c e r t i f i c a t i o n ,u nd er i t s p ro gr am me s o f N S E' s C er t i f i ca t i on i n F in an c i a lM a r k e t s ( N C F M ) [ 3 ] . C u r r e n t l y , c e r t i f i c a t i o n s a r e a v a i l a b l e i n 1 9m o d u le s , c o ve r in g d i f f e re n t s e c t o rs o f f i na n c i a l a n d c a p i t a l

m a r k e t s . B r a n c h e s o f t h e N S E a r e l o c a t e d t h r o u g h o u t I n d i a .

D E R I V A T I V E

I n f i n a n c e , a s e c u r i t y w h o s e p r i c e i s d e p e n d e n t u p o n o r d e r i v e df r o m o ne o r m o r e i s u n d e r l y i n g a s s e t s . T h e d e r i v a t i v e i t s e l f i s m e r e l y a c o n t r a c t b e t w e e n t w o o r m o r e p a r t i e s . I t s v a l u ei s d e t e r m in e d b y f l u ct u a t io n s i n t h e u n d er l y i n g a s s e t . T h em o s t c o m m o n u n d e r l y i n g a s s e t s i n c l u d e s t o c k s ,

b o n d s , c o m mo d i t i e s , c u r re n c ie s , i n t er e s t r a t es a n d m a rk e ti n de x es . M o s t d e r i v at iv es a r e c h ar a ct e r i z e d b y h ig h

l e v e r a g e .

F u t u r e s c o n t r a c t s , f o r w a r d c o n t r a c t s , o p t i o n s a n d s w a p s a r e t h em o s t c o m m o n t y p e s o f d e r i v a t i v e s . B e c a u s e d e r i v a t i v e s a r e j u s tc o n t r ac t s , j u s t a b o u t a n y th i n g c an b e u s e d a s a n u n d e r ly in ga s s e t . T h e r e a r e e v e n d e r i v a t i v e s b a s e d o n w e a t h e r d a t a , s u c h a st h e a m o u nt o f r a i n o r t h e n u m be r o f s u n ny d a y s i n a p a r t i c u la r r e g i o n .

D e r i va t i v es a r e g e ne r a l l y u s ed t o h e dg e r i s k , b u t c a n a l s o b eu s e d f o r s p e c u l a t i v e p u r p o s e s . F o r e x a m p l e , a E u r o p e a n i n v e s t o r

p u r c h a s i n g s h a r e s o f a n A m e r i c a n c o m p a n y o f f o f a n A m e r i c ane x c h a n g e ( u s i n g A m e r i c an d o l l a r s t o d o s o ) w o u l d b e e x p o s e d t o

e x c h a n g e - r a t e r i s k w h i l e h o l d i n g t h a t s t o c k . T o h e d g e t h i s r i s k ,t he i nv es to r c ou ld p ur ch as e c ur re nc y f u t u r es t o l oc k i n as p e c i f i ed e x c ha n g e r a t e f o r t h e f u t u re s t o ck s a l e a n d c u r re n c yc o n v e r s i o n b a c k i n t o e u r o s .

T Y P E S O F T R A D E R S I N A D E R I V A T I V E S M A R K E T

H e d g e r s , s p e c u l a t o r s a n d a r b i t r a t o r s a r e t h e t y p e s o f t r a de r s i nd e r i v a t i v e s m a r k e t .

H E D G E R S :

H e d ge r s a re t ho se w ho p ro te c t t h em s el v es f r om t he r i s k a s so c ia t e d w i t h t h e p r i c e o f a n a s se t b y u s in g d e r i v at i ve s . A

p e r s o n k e e p s a c l o s e w a t c h u p o n t h e p r i c e s d i s c o v e r e d i n t r a d i n g

a n d w h e n t h e c o mf o r t a b l e p r i c e i s r e f l ec t ed a c c o rd i ng t o h i sw a n t s , h e s e l l s f u t u r e s c o n t r a c t s . I n t h i s w a y h e g e t s a n a s s u r e df i x e d p r i c e o f h i s p r o d u c e .

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I n g e n er a l , h e d g e r s u s e f u t u r e s f o r p r o te c t io n a g a in s t a d v er s ef u t u r e p r i c e m o v e m en ts i n t h e u n d e r l y in g c a s h c o m mo d i ty .H e d ge r s a r e o f t en b u s in e s s es , o r i n d iv i d ua l s , w h o a t o n e p o i n to r a n o t h e r d e a l i n t h e u n d e r l y i n g c a s h c o m m o d i t y .

T a k e a n e x a m p l e : A H e d g e r p a y m o r e t o t h e f a r m e r o r d e a l e r o f a p r o d u c e i f i t s p r i c e s g o u p . F o r p r o t e c t i o n a g a in s t h i g h e r

p r ic e s o f t h e p r od u ce , h e h e dg e t h e r i sk e x po s ur e b y b u yi n ge n o ug h f u t u r e c o n t r a c t s o f t h e p r o du c e t o c o v er t h e a m o u n t o f

p r o d u c e h e e x p e c t s t o b u y . S i n c e c a s h a n d f u t u r e s p r i c e s d o t e n dt o m o v e i n t a n d e m , t h e f u t u r e s p o s i t io n w i l l p r o f i t i f t h e p r i ceo f t h e p r o du c e r i s e e n o u g h t o o f f s e t c a s h l o s s o n t h e p r o d uc e .

S P E C U L A T O R S :

S p e cu l a to r s a r e s o me w h a t l i k e a m i d dl e m a n . T h ey a r e n e v e r i n t er e s t e d i n a c t ua l o w i ng t h e c o mm o d i t y . T h e y w i l l j u s t b u yf r o m o n e e n d a n d s e l l i t t o t h e o t h e r i n a n t ic i p a t i o n o f f u t u r e

p r i c e m o v e m e n t s . T h e y a c t u a l l y b e t o n t h e f u t u r e m o v e m e n t i nt h e p r i c e o f a n a s s e t .

T he y a r e t h e s e c o n d m aj or g r o u p o f f u t u r e s p l a ye r s . T he s e p a r t i c i pa n t s i n c lu d e i n d ep e n de n t f l o or t r a de r s a n d i n v es t o r s .T h e y h a n d l e t r a d e s f o r t h e i r p e r s o n a l c l i e n t s o r b r o k e r a g e f i r m s .

B u y i n g a f u t u r e s c o n t r a c t i n a n t ic i p a t i o n o f p r i ce i n c re a s es i sk n o w n a s g o i n g l o n g . S e l l i n g a f u t u r e s c o n t r a c t i n a n t i c i p a t io no f a p r i c e d e c r e as e i s k n o wn a s g o in g s h o r t . S p e cu l a t i ve

p a r t i c i p a t i o n i n f u t u re s t r a di ng h as i n cr e as ed w i t h t h ea v a i l a b i l i t y o f a l t e r n a t i v e m e t h o d s o f p a r t i c i p a t i o n .

S p e c u l a to r s h a v e c e r t a i n a d v a n t a g e s o v e r o t h e r i n v e s t m e n t s t h e y

a r e a s f o l l o w s :

I f t h e t r a d e r s j u d g m e n t i s g o o d , h e c a n m a k e m o r e m o n e yi n t he f u t u r es m ar ke t f a s t e r b ec au s e p r i ce s t en d , o na v e ra g e , t o c h a ng e m o r e q u i c k ly t h a n r e a l e s t a t e o r s t o ck

p r i c e s .

F u t u r e s a r e h i g h l y l e v e r a g e d i n v e s t m e n t s . T h e t r a d e r p u t su p a s m a l l f r a c t i o n o f t h e v a l u e o f t h e u n d e r l y i n g c o n t r a c ta s m a r g i n , y e t h e c a n r i d e o n t h e f u l l v a l u e o f t h e c o n t r a c ta s i t m o v e s u p a n d d o wn . T h e m o n ey h e p u t s u p i s n o t a

d o w n p a y m e n t o n t h e u n d e r l y i n g c o n t r a c t , b u t ap e r f o r m a nc e b o n d . T h e a c t u a l v a l u e o f t h e c o n t r a c t i s o n l ye x ch a ng e d o n t h os e r a re o c ca s io n s w h en d e l i v er y t a k e s

p l a c e .

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A R B I T R A T O R S :

A cc o r d i n g t o d i c t i o n a r y d e f i n i t io n , a p e r s o n w h o h a s b e e no f f i c i a l l y c h o s e n t o m ak e a d e c i s i o n b e t we e n t w o p e o p l e o r

g r o up s w h o d o n o t a g r ee i s k n o w n a s A r b i t r a to r . I n c o m mo d i tym a rk e t A r b i t r a t o r s a r e t h e p e r s o n w h o t a k es t h e a d v a n t ag e o f ad i s c r e p a n cy b e t w e e n p r i c e s i n t w o d i f f e r e n t m a r k e ts . I f h e f i n d sf u t u r e p r i c e s o f a c o m m o d i t y e d g i n g o u t w i t h t h e c a s h p r i c e , h ew i l l t a k e o f f s e t t i ng p o s i t i o ns i n b o t h t h e m a r k et s t o l o c k i n a

p r o f i t . M o v e o v e r t h e c o m m o d i t y f u t u r e s i n v e s t o r i s n o t c h a r g e di n t er e s t o n t h e d i f f e r en c e b e t w e e n m a r g in a n d t h e f u l l c o n t r ac tv a l u e

F I NANCI AL SYSTEM

T h e f i n a n c i a l s y s t e m i s o n e o f t h e m o s t i m p o r t a n t i n v e n t i o n s o f t he m o d e rn s oc ie ty . T h e p he no me no n o f i mb a l an ce i n t hed i s t r i b u t io n o f c a p i t a l o f f u n d s e x i s t s i n e v e r y e c o n o m y s y s t e m.T h e r e a r e a r e a s o r p e o p l e w i t h s u r p l u s f u n d s a s a l s o t h o s e w i t h ad e f i c i t . A f i n a n c i a l s y s t e m f u n c t i o n s a s a n i n t e r m e d i a r y a n d af a c i l i t a t e s t h e f l o w o f f u n ds f r o m t h e a r e a s o f s u r p l u s t o t h o s e

o f d e f i c i t . A f in an c i a l s y s te m i s a c om po s i t i on o f v a r io u si n s t i t u t i o n s , m a rk e t s , r e g u l a t io n s a n d l a ws , p r a c t i c es , m o n ey ,m a n a g e r s , a n a l y s t s , t r a n s a c t i o n s a n d c l a i m s a n d l i a b i l i t i e s .

T h e f i n a n c i a l s y s t e m h e l p s t o d e t e r m in e b o t h t h e c o s t a n d t h ev o lu m e o f c r ed i t . T h e s y s t em c a n a f fe c t a r i se i n t h e c o s t o f f un ds w hi ch a dv er se ly a f f ec t s c on su mp t i on , p r o du c t io n s ,e m pl o y me n t a n d g r o wt h o f t h e e c o no m y . s i m i la r l y , l o w er r i n gt h e c o s t p o s i t iv e d i r e c t i on s . T hu s w e f i n d t h a t a f i n an c i a ls y s t e m h a s a n i m p a c t o n t h e b a s i c e x i s t e n c e o f a n e c o n o m y a n di t s c i t i z e n s .

` T he f o u r m a i n f u n c t i o ns p e r fo r m ed b y a f i n an c i a l s y s te m a r eg i v e n b e l o w :

T h e s a v i n g f u n c t i o n

L i q u i d i t y f u n c t i o n

P a y m e n t f u n c t i o n

R i s k f u n c t i o n

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F L O W O F F U N D S

1 : T H E S A V I N G F U N C T I O N :

T h e p u b l i c s a v i n g f i nd s t h ei r w a y i n to t h e h a n ds o f t h os e i np r o du c t io n t h r ou g h t h e f i n an c i a l s y s t e m. F i n an c i a l c l a im s a r ei s s ue d i n t h e m o n e y a n d c a p i t a l m a r k e t s , w h i ch p r o mi s e f u t u r ei n c o m e f l o w s . T h e f u n d s i n t h e h a n d s o f t h e p r o d u c e r s r e s u l t i n

p r o du c t io n o f b e t te r g o o d s a n d s e r v i c e s , i n c re a s in g s o c ie t y ss t a n d a r d o f l i v i n g w he n s a v i n g f l o w s d e c l i n e . H ow ev e r t h e

g r o w t h o f t h e i n v e s t m e n t a n d l i v i n g s t a n d a r d b e g i n s t o f a l l

2 : L I Q U I D I T Y F U N C T I O N S :

O f a l l f i n a n c i a l i n s t r u m en t s , m on e y i s t h e f o r m o f d e p o s i t so f f e r s t h e l e a s t r i s k , b u t i t s v a l u e i s a l m o s t e r o d e d b yi n f l a t i o n s . T h a t i s w h y o n e a l w a y s p r e f e r s t o s t o r e t h e f u n d s i nf i n an c i a l i n s t r u me n t s l i k e s t o ck s , b o n ds , d e b en t u re s , e t c . t h ec o mp r o mi s e o n e m a ke s i n s u c h i n v e s t m en t i s ( 1 ) t h a t t h e r i s k i n v o l v e d i s m o re a n d ( 2 ) t h e d e g r e e o f l i q u i d i ty c o n ve r s io n o f t h e c l a i m s i n t o m o n e y i s l e s s . T h e f i n a n c i a l m a r k e t s p r o v i d e t h ei n v e s t o r t h e o p p o r t u n i t y t o l i q u i d a t e t h e i n v e s t m e n ts .

3 : P A Y M E N T F U N C T I O N :

T h e f i n a n c i a l s y s t e m o f f e r s a v e r y c o n v e n i e n t m o d e o f p a y m e n tf o r g o o d s a n d s e r v i c e s .

T h e c he qu e s ys te m a nd c re d i t c a r d s ys te m a re t he e as ie s tm et h o d s o f p a y me n t i n t h e e co n o my . t h e c o s t a n d t im e f o r t r a ns a c t i o n a r e d r a s t i c a l l y r e d uc e d . i n I n d ia , w hi l e t h e c h e qu es y s te m o f p a y me n t i s w i d e l y p r a c t i c e d , t h e c r e d i t c a r d s y s te m

2 4

S e e k e r s o f f u n d s ( m a i n l y b u s i n e s sf i r m s a n dg o v e r n m e n t )

S u p p l i e r s o f f u n d s( m a i n l yh o u s e h o l d )

F l o w o f f i n a n c i a ls e r v i c eI n c o m e a n d f i n a n c i a lc l a i m s

F l o w o f f u n d s


25/78

h a s e n t e r e d o n l y r e c e n t l y i n t o u r b a n I n d i a a n d i s w i d e l y u s e d i nt h e s e a r e a s f o r p a y m e n t s o f c o n s u m p t i o n e x p e n d i t u r e .

4 : R I S K F U N C T I O N :

T h e f i n a n c i a l m a r k e t s p r o v i d e p r o t e c t i o n a g a i n s t l i f e , h e a l t h a n di n co m e r i s k s . T h e s e g u ar a n t e e s a r e a c co m pl i sh e d t h ro u gh t h es a l e o f l i f e a nd h ea l t h i ns ur an ce , a nd p ro p e r l y i ns u r an ce

p o l ic i e s . t h e f i n an c i a l m a rk e t s p r o v id e i m me n s e o p p o r t u n i t i e sf o r t h e i n v e s t o r t o h e d g e h i m s e l f a g a i n s t o f r e d u c e t h e p o s s i b l er i s k i n v o l v e d i n v a r i o u s i n v e s t m e n ts .

F I N A N C I A L M A R K E T S

A f in an c i a l m a rk e t c an b e d e f in ed a s t he m ar ke t i n w hi chf i n a n c i a l a s s e t s a r e c r e a t e d o r t r a n s f e r r e d i n w h i c h f i n a n c i a la s s e t s r e p r e s e n t ed a c l a i m o f t h e p a y m e n t o f a s u m o f m o n e ys o m e t i m e i n t h e f u t u r e a n d p e r i o d i c p a y m e n t i n t h e f o r m o f i n t e r e s t o r d i v i d e n d . D e f i n i t i o n .

F i n a n c i a l m a r k e t s c o u l d m e a n :

1 . o r g a n i z a t i o n s t h a t f a c i l i t a t e t h e t r a d e i n f i n a n c i a l s e c u r i t i e s .i . e . S t o c k e x ch a ng e s f a c i l i t a t e t h e t r ad e i n s t oc k s , b o nd s a n dw a r r a n t s .

2 . t h e c o m in g t o g e t h e r o f b u y er s a n d s e l l e rs t o t r a d e f i n an c i a ls e c u r i t i e s . i . e . s t o c k s a n d s h a r e s a r e t r a d e d b e t w e e n b u y e r s a n ds e l l e r s i n a n um b er o f w a y s i n cl u d i n g: t he u s e o f s t oc k e x c h a n g e s ; d i r e c t l y b e t w e e n b u y e r s a n d s e l l e r s e t c .

I n a c a d e m i a , s t ud e n t s o f f i n a nc e w i l l u s e b o th m e a n in g s b u ts t u d e n t s o f e c o n o m i c s w i l l o n l y u s e t h e s e c o n d m e a n i n g .

F i n a n c i a l m a r k e t s c a n b e d o m e s t i c o r t h e y c a n b e i n t e r n a t i o n a l .

T Y P E S O F F I N A N C I A L M A R K E T S

T h e f i n a n c i a l m a r k e t s c a n b e d i v i d e d i n t o d i f f e r e n t s u b t y p e s :

C a p i t a l m a r k e t s w h i c h c o n s i s t o f : S t o c k m a r k e t s , w h i c h p r o v i d ef i n an c i ng t h r ou g h t h e i s s u a n ce o f s h a re s o r c o m m o n s t o c k , a n de n a b l e t h e s u b s e q u e n t t r a d i n g t h e r e o f .

2 5
http://en.wikipedia.org/wiki/Academiahttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Stock_markethttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Academiahttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Stock_markethttp://en.wikipedia.org/wiki/Stock


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B o n d m a r k e t s , w h i c h p r o v i d e f i n a n c i n g t h r o u g h t h e i s s u a n c e o f B o n d s , a n d e n a b l e t h e s u b s e q u e n t t r a d i n g t h e r e o f .

C om mo d i ty m ar k e t s , w h i c h f a c i l i t a t e t h e t r a d i n g o f c o m m o d i t i e s .

M o n ey m a r ke t s , w h ic h p r ov i de s h or t t e rm d e bt f i na n c i n g a n di n v e s t m e n t .

D e r iv a t iv e s m a r ke t s , w h i c h p r o v i d e i n s t r u m e n t s f o r t h em a n a g e m e n t o f f i n a n c i a l r i s k .

F u t u r e s m a r k e t s , w h i ch p r o v i d e s t a nd a r d i z e d f o r w a r d c o n t r a c t sf o r t r a d i ng p r o d u c t s a t s o m e f u t u r e d a t e ; s e e a l s o f o r w a r dm a r k e t .

I n s u r a n c e m a r k e t s , w h i c h f a c i l i t a t e t h e r e d i s t r i b u t i o n o f v a r i o u sr i s k s .

F o r e ig n e x ch a ng e m a r k e t s , w h i ch f ac i l i t a t e t h e t r ad in g o f f o r e i g n e x c h a n g e .

T h e c a p i t a l m a r k e t s c o n s i s t o f p r i m a r y m a r k e t s a n d s e c o n d a r ym a r k e t s . N e w l y f o r m e d ( i s s u e d ) s e c u r i t i e s a r e b o u g h t o r s o l d i n

p r im a r y m a r k et s . S e co n da r y m a r k e t s a l l o w i n ve s to r s t o s e l ls e c u r i t i e s t h a t t h e y h o l d o r b u y e x i s t i n g s e c u r i t i e s .

R A I S I N G C A P I T A L

T o u n de r s t a nd f i na n c i a l m a r k e t s , l e t u s l o o k a t w h at t h ey a r eu s e d f o r , i . e . w h a t i s t h e i r p u r p o s e ?

W i t h ou t f i na n ci a l m a r k et s , b o r r o we r s w o u l d h a ve d i f f i c u l t yf i n d i n g l e n d e r s t h e m s e l v e s . I n t e r m e d i a r ie s s u c h a s b a n k s h e l p i nt h i s p r o c e s s . B a n k s t a k e d e p o s i t s f r o m t h o s e w h o h a v e m o n e y t os a ve . T h e y c a n t h en l e n d m o n e y f r o m t h is p o o l o f d e po s i t e dm o n e y t o t h o s e w h o s e e k t o b o r r o w . B a n k s p o p u l a r l y l e n d m o n e yi n t h e f o r m o f l o a n s a n d m o r t g a g e s .

M o r e c o m p l ex t r a ns a c t i o n s t h a n a s i mp l e b a n k d e p o s i t r e q u i r em a r k e t s w h e r e l e n d e r s a n d t h e i r a g e n t s c a n m e e t b o r r o w e r s a n dt h e i r a g e n t s , a n d w h e r e e x i s t i n g b o r r o w i n g o r l e n d i n gc o m m i t me n t s c a n b e s o l d o n t o o t h e r p a r t i e s . A g o o d e x a m p l e o f a f i na n c i a l m a r k et i s a s t o ck e x c ha n g e . A c o mp a ny c a n r a i sem o n e y b y s e l l i n g s h a r e s t o i n v e s t o r s a n d i t s e x i s t i n g s h a r e s c a n

b e b o u g h t o r s o l d .

T h e f o l l o w i n g t a b l e i l l u s t r a t e s w h e r e f i n a n c i a l m a r k e ts f i t i n t h er e l a t i o n s hi p b e t w e e n l e n d e r s a n d b o r r o w e r s :

2 6
http://en.wikipedia.org/wiki/Bond_markethttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Commodity_marketshttp://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Derivatives_markethttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Futures_exchangehttp://en.wikipedia.org/wiki/Forward_contracthttp://en.wikipedia.org/wiki/Forward_markethttp://en.wikipedia.org/wiki/Forward_markethttp://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Foreign_exchange_markethttp://en.wikipedia.org/wiki/Foreign_exchange_markethttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Primary_markethttp://en.wikipedia.org/wiki/Secondary_markethttp://en.wikipedia.org/wiki/Secondary_markethttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Loanshttp://en.wikipedia.org/wiki/Mortgage_loanhttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/Investorshttp://en.wikipedia.org/wiki/Bond_markethttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Commodity_marketshttp://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Derivatives_markethttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Futures_exchangehttp://en.wikipedia.org/wiki/Forward_contracthttp://en.wikipedia.org/wiki/Forward_markethttp://en.wikipedia.org/wiki/Forward_markethttp://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Foreign_exchange_markethttp://en.wikipedia.org/wiki/Foreign_exchange_markethttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Primary_markethttp://en.wikipedia.org/wiki/Secondary_markethttp://en.wikipedia.org/wiki/Secondary_markethttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Loanshttp://en.wikipedia.org/wiki/Mortgage_loanhttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/Investors


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R e l a t i o n sh i p b e t w e e n l e n d e r s a n d b o r r o w e r s

L e n d e r sF i n a n c i a lI n t e r m e d i a

anil project report

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