Download - Domestic Stock Markets
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Domestic Stock Markets
India has two major stock exchanges andRegional Exchanges
Several other exchanges: MCX-SX (Approved)
OTCEI
PXI
Indian Energy Exchange
MCX
NCDEX
Small companies, or those which do notmeet listing requirements may be tradedon the OTCEI
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NSE and BSE
Parameters NSE BSE
Establishment 1992 1875Year of Operations Debt and equities in
1994Derivatives in 2000
Floor trading toelectronic trading in1995Derivatives in 2000
Business Model Transaction fees Transaction fees
Listed Companies 2,000 5,000
Settlement Cycle T+2, rolling settlement T+2, rolling settleme
Market Model Price/time prioritymodel. Fullyautomated, screen-based trading system
Price/time prioritymodel. Fullyautomated, screen-based trading syste
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Types of Indices and Averages
The methods of index or average construction
Price Weighted
Capitalization Weighted
Stocks Day 1 Day 2
ABC (100 shares) 60 62
DEF (200 shares) 25 22
XYZ (300 shares) 43 45
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Price-weighted Average
A price-weighted average is calculated by adding up the prices othe index constituents and dividing by a divisor.
The divisor begins as the number of constituents, but will changeover time (to maintain price continuity) as:
Constituents change
Stocks are split or pay a big stock dividend
Divisions are spun off
On day 1, we start our average by adding up the prices anddividing by 3, to get a value of 42.67
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Capitalization-weighted
A capitalization-weighted index is weighted by the total value ofthe outstanding shares (price x shares) rather than stock price
The BSE Sensex is an index composed of 30 companies with thebase April 1979 = 100.
What is the composition of Nifty? What is the base?
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Capitalization-weighted
Calculated by dividing the total market cap of the stocks in theindex by the index divisor
The divisor is determined at inception by dividing the total marketcap by the desired beginning level of the index.
The divisor will occasionally be adjusted for splits, changingconstituents, spin-offs, etc.
Divisor
QP
IndexValue
N
i
ii
1
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Calculation
Suppose that we want to set the initial index value at 100.
First calculate the divisor
Now, calculate the index for each day.
Note that the split has no impact on the divisor.
239100
23900
100
300432002510060
Divisor
100
239
23900
239
3004320025100601
Day
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Clearing and Settlement
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What is a Depository?
A depository is like a bank wherein the deposits are securities (viz.shares, debentures, bonds, government securities, units etc.) inelectronic form.
There are two depositories in India which provide dematerializationof securities.
The National Securities Depository Limited (NSDL)
Central Depository Services (India) Limited (CDSL).
Dematerialization is the process by which physical certificates of aninvestor are converted to an equivalent number of securities inelectronic form and credited to the investors account with his
Depository Participant (DP).
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Clearing Corporation
A Clearing Corporation is a part of an exchange or a separateentity and performs three functions, namely, it clears and settles alltransactions
completes the process of receiving and delivering shares/funds to thebuyers and sellers in the market, it provides financial guarantee for alltransactions executed on the exchange and provides risk managemenfunctions
National Securities Clearing Corporation (NSCCL), a 100% subsidiaryof NSE, performs the role of a Clearing Corporation for transactionsexecuted on the NSE