stock exchange final

7/27/2019 Stock Exchange Final

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History of stock market

Historian Fernand Braudel suggests that in Cairoin the11th century,Muslim and Jewish merchants had already set up every form oftrade association

and had knowledge of many methods of credit and payment, disproving thebelief that these were originally invented later by Italians. In 12th century France thecourratiers de change were concerned with managing and regulating the debts ofagricultural communities on behalf of the banks. Because these men also traded withdebts, they could be called the first brokers. A common is belief is that in late 13thcentury Bruges commodity traders gathered inside the house of a man called Vander Beurze, and in 1309 they became the "Brugse Beurse", institutionalizing whathad been, until then, an informal meeting, but actually, the family Van der Beurzehad a building inAntwerp where those gatherings occurred ; the Van der Beurze hadAntwerp, as most of the merchants of that period, as their primary place for trading.

The idea quickly spread around Flanders and neigh boring counties and "Beurzen"soon opened in Ghentand Amsterdam. There are stock markets in virtually everypart of the world at this moment. Some of the important stock markets areUnited States.

In the middle of the 13th century,Venetianbankers began to trade ingovernmentsecurities. In 1351 the Venetian government outlawed spread ingrumors intended tolower the price of government funds. Bankers in Pisa, Verona, Genoa and Florencealso began trading in government securities during the 14th century. This was onlypossible because these were independent city states not ruled by a duke but acouncil of influential citizens. The Dutch later started joint stock companies, which let

share holders invest in business ventures and get a share of their profits - or losses.In 1602, the Dutch East India Company issued the first shares on the AmsterdamStock Exchange. It was the first company to issue stocks and bonds.

The Amsterdam Stock Exchange (or Amsterdam Beurs) is also said to have beenthe first stock exchange to introduce continuous trade in the early 17th century.The Dutch "pioneered short selling, option trading, debt-equity swaps, merchantbanking, unit trusts and otherspeculative instruments, much as we know them"(Murray Sayle, "Japan Goes Dutch", London Review of Books XXIII.7,April 5, 2001).There are now stock markets in virtually every developed and most developingeconomies, with the world's biggest markets being in the United States, Canada,

China (Hongkong), India, UK, Germany, France and Japan.

Function and purpose of stock market

The stock market is one of the most important sources forcompanies to raisemoney. This allows businesses to be publicly traded, or raise additional capital forexpansion by selling shares of ownership of the company in a public market. Theliquidity that an exchange provides affords investors the ability to quickly and easily

sell securities. This is an attractive feature of investing in stocks, compared to otherless liquid investments such as real estate.
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History has shown that the price ofshares and other assets is an important part ofthe dynamics of economic activity, and can influence or be an indicator of socialmood. An economy where the stock market is on the rise is considered to be anupcoming economy. In fact, the stock market is often considered the primaryindicator of a country's economic strength and development. Rising share prices, for

instance, tend to be associated with increased business investment and vice versa.Share prices also affect the wealth of households and their consumption. Therefore,central banks tend to keep an eye on the control and behaviour of the stock marketand, in general, on the smooth operation offinancial system functions.

Exchanges also act as the clearinghouse for each transaction, meaning that theycollect and deliver the shares, and guarantee payment to the seller of a security.This eliminates the risk to an individual buyer or seller that the counter party coulddefault on the transaction.

The smooth functioning of all these activities facilitates economic growth in that lower

costs and enterprise risks promote the production of goods and services as well asemployment. In this way the financial system contributes to increased prosperity.

Relation of the stock market to the modernfinancial systemThe financial system in most western countries has undergone a remarkabletransformation. One feature of this development is disintermediation. A portion of thefunds involved in saving and financing flows directly to the financial markets insteadof being routed via the traditional bank lending and deposit operations. The general

public's heightened interest in investing in the stock market, either directly orthrough mutual funds, has been an important component of this process. Statisticsshow that in recent decades shares have made up an increasingly large proportionof households' financial assets in many countries. In the 1970s, in Sweden, depositaccounts and other very liquid assets with little risk made up almost 60 percent ofhouseholds' financial wealth, compared to less than 20 percent in the 2000s. Themajor part of this adjustment in financial portfolios has gone directly to shares but agood deal now takes the form of various kinds of institutional investment for groupsof individuals, e.g., pension funds, mutual funds, hedge funds, insurance investmentof premiums, etc.

The trend towards forms of saving with a higher risk has been accentuated by newrules for most funds and insurance, permitting a higher proportion of shares tobonds. Similar tendencies are to be found in otherindustrialized countries. In alldeveloped economic systems, such as the European Union, the United States,Japan and other developed nations, the trend has been the same: saving hasmoved away from traditional (government insured) bank deposits to more riskysecurities of one sort or another.

The behavior of the stock marketFrom experience we know that investors may temporarily pull financial prices away

from their long term trend level. Over-reactions may occurso that excessive
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optimism (euphoria) may drive prices unduly high or excessive pessimism may driveprices unduly low.

According to the efficient market hypothesis (EMH), only changes in fundamentalfactors, such as profits or dividends, ought to affect share prices.(But this largely

theoretic academic viewpoint also predicts that little or no trading should takeplacecontrary to factsince prices are already at or near equilibrium, havingpriced in all public knowledge.) But the efficient-market hypothesis is sorely tested bysuch events as the stock market crash in 1987, when the Dow Jones indexplummeted 22.6 percentthe largest-ever one-day fall in the United States. Thisevent demonstrated that share prices can fall dramatically even though, to this day, itis impossible to fix a definite cause: a thorough search failed to detect any specific orunexpected development that might account for the crash. It also seems to be thecase more generally that many price movements are not occasioned by newinformation; a study of the fifty largest one-day share price movements in the UnitedStates in the post-war period confirms this. Moreover, while the EMH predicts that

all price movement (in the absence of change in fundamental information)is random (i.e., non-trending), many studies have shown a marked tendency for thestock market to trend over time periods of weeks or longer.

Various explanations for large price movements have been promulgated.For instance, some research has shown that changes in estimated risk, and the useof certain strategies, such as stop-loss limits and Value at Risk limits, theoreticallycould cause financial markets to overreact.

Other research has shown that psychological factors may result in exaggeratedstock price movements. Psychological research has demonstrated that people arepredisposed to 'seeing' patterns, and often will perceive a pattern in what is, in fact,just noise. (Something like seeing familiar shapes in clouds or ink blots.) In thepresent context this means that a succession of good news items about a companymay lead investors to over react positively (unjustifiably driving the price up).A period of good returns also boosts the investor's self-confidence, reducing his(psychological) risk threshold.

The stock market, as any other business, is quite unforgiving of amateurs.Inexperienced investors rarely get the assistance and support they need. In theperiod running up to the recent Nasdaq crash, less than 1 percent of the analyst's

recommendations had been to sell (and even during the 2000 - 2002crash, theaverage did not rise above 5%). The media amplified the general euphoria, withreports of rapidly rising share prices and the notion that large sums of money couldbe quickly earned in the so-called new economy stock market.

CrashesA stock market crash is often defined as a sharp dip in share prices ofequities listedon the stock exchanges. In parallel with various economic factors, areas on for stockmarket crashes is also due to panic. Often, stock market crashes end speculativeeconomic bubbles.
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There have been famous stock market crashes that have ended in the loss of billionsof dollars and wealth destruction on a massive scale. An increasing number ofpeople are involved in the stock market, especially since the social security andretirement plans are being increasingly privatized and linked to stocks and bondsand other elements of the market. There have been a number of famous stock

market crashes like the Wall Street Crash of 1929, The stock market crash of 19734, the Black Monday of 1987, the Dot-com bubble of 2000.

One of the most famous stock market crashes started October 24, 1929 on BlackThursday. The Dow Jones Industrial lost 50% during this stock market crash. It wasthe beginning of the Great Depression.

Another famous crash took place on October 19, 1987 Black Monday. On BlackMonday itself, the Dow Jones fell by 22.6% after completing a 5 year continuous risein share prices. This event not only shook the USA, but quickly spread across theworld. Thus, by the end of October, stock exchanges in Australia lost 41.8%, in

Canada lost 22.5%, in Hong Kong lost 45.8%, and in Great Britain lost 26.4%. Thenames Black Monday andBlackTuesday are also used for October 28-29, 1929, which followed Terrible Thursday--the starting day of the stock marketcrash in 1929. The crash in 1987 raised some puzzles-main news and events didnot predict the catastrophe and visible reasons for the collapse were not identified.Thisevent raised questions about many important assumptions of moderneconomics, namely, the theory of rational human conduct, the theory of marketequilibrium and the hypothesis of market efficiency. For some time after the crash,trading in stock exchanges worldwide was halted, since the exchange computers didnot perform well owing to enormous quantity of trades being received at one time.This halt in trading allowed the Federal Reserve system and central banks of othercountries to take measures to control the spreading of worldwide financial crisis.

In the United States the SEC introduced several new measures of control into thestock market in an attempt to prevent a re-occurrence of the events of BlackMonday. Computer systems were upgraded in the stock exchanges to handle largertrading volumes in a more accurate and controlled manner. The SEC modified themargin requirements in an attempt to lower the volatility of common stocks, stockoptions and the futures market. The New York Stock Exchange and the ChicagoMercantile Exchange introduced the concept of a circuit breaker.

Stock market indexThe movements of the prices in a market or section of a market are captured in priceindices called stock market indices, of which there are many, e.g., the S&P, theFTSE and the Euronext indices. Such indices are usually market capitalizationweighted, with the weights reflecting the contribution of the stockto the index.The constituents of the index are reviewed frequently toinclude/exclude stocks inorder to reflect the changing business environment.

Investment strategiesOne of the many things people always want to know about the stock market is, "How

do I make money investing?" There are many different approaches; two basicmethods are classified as eitherfundamental analysis ortechnical analysis.
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Fundamental analysis refers to analyzing companies by theirfinancial statementsfound in SEC Filings, business trends, general economic conditions, etc. Technicalanalysis studies price actions in markets through the use of charts and quantitativetechniques to attempt to forecast price trends regardless of the company's financialprospects. One example of a technical strategy is the Trend following method, used

by John W. Henry and Ed Seykota, which uses price patterns, utilizes strict moneymanagement and is also rooted in risk control and diversification.

Additionally, many choose to invest via the index method. In this method, one holdsa weighted or unweighted portfolio consisting of the entire stock market or somesegment of the stock market (such as the S&P 500orWilshire 5000).The principalaim of this strategy is to maximize diversification, minimize taxes from too frequenttrading, and ride the general trend of the stock market(which, in the U.S., hasaveraged nearly 10%/year, compounded annually, since World War II).

Stock exchange

A stock exchange is a form ofexchange which provides services forstock

brokers and traders to trade stocks, bonds, and othersecurities. Stock exchanges

also provide facilities for issue and redemption of securities and other financial

instruments, and capital events including the payment of income and dividends.

Securities traded on a stock exchange include shares issued by companies, unit

trusts, derivatives, pooled investment products and bonds.

To be able to trade a security on a certain stock exchange, it must be listed there.Usually, there is a central location at least for record keeping, but trade is

increasingly less linked to such a physical place, as modern markets are electronic

networks, which gives them advantages of increased speed and reduced cost of

transactions. Trade on an exchange is by members only.

The initial offering of stocks and bonds to investors is by definition done in

the primary market and subsequent trading is done in the secondary market. A stock

exchange is often the most important component of a stock market. Supply and

demand in stock markets are driven by various factors that, as in all free markets,

affect the price of stocks (see stock valuation).

There is usually no compulsion to issue stock via the stock exchange itself, nor must

stock be subsequently traded on the exchange. Such trading is said to be off

exchange orover-the-counter. This is the usual way that derivatives and bonds are

traded. Increasingly, stock exchanges are part of a global market for securities.

A stock exchange, securities exchange or (in Europe) bourse is a

corporation ormutual organization which provides "trading" facilities forstock

brokers and traders, to trade stocks and othersecurities. Stock exchanges also

provide facilities for the issue and redemption of securities as well as other financial
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instruments and capital events including the payment of income and

dividends.

The securities traded on a stock exchange include: shares issued by companies, unit

trusts and other pooled investment products and bonds. To be able to trade a

security on a certain stock exchange, it has to be listed there. There is usually nocompulsion to issue stock via the stock exchange itself, nor must stock be

subsequently traded on the exchange. Such trading is said to be off exchange

orover-the-counter. This is the usual way that bonds are traded. Increasingly, stock

exchanges are part of a global market for securities.

HISTORY

Securities markets took centuries to develop. The idea of debt dates back to

the ancient world, as evidenced for example by ancient Mesopotamian clay tablets

recording interest-bearing loans. There is little consensus among scholars as to

when corporate stock was first traded. Some see the key event as the Dutch East

India Company's founding in 1602, while others point to earlier developments.

Economist Ulrike Malmendier of the University of California at Berkeley argues that a

share market existed as far back as ancient Rome.

In the Roman Republic, which existed for centuries before the Empire was founded,

there were societates publicanorum, organizations of contractors or leaseholders

who performed temple-building and other services for the government. One such

service was the feeding of geese on the Capitoline Hill as a reward to the birds after

their honking warned of a Gallic invasion in 390 B.C. Participants in such

organizations had partes or shares, a concept mentioned various times by the

statesman and oratorCicero. In one speech, Cicero mentions "shares that had a

very high price at the time." Such evidence, in Malmendier's view, suggests the

instruments were tradable, with fluctuating values based on an organization'ssuccess. The societas declined into obscurity in the time of the emperors, as most of

their services were taken over by direct agents of the state.

Tradable bonds as a commonly used type of security were a more recent innovation,

spearheaded by the Italian city-states of the late medieval and

early Renaissance periods.

In 1171, the authorities of the Republic of Venice, concerned about their war-

depleted treasury, drew a forced loan from the citizenry. Such debt, known

as prestiti, paid 5 percent interest per year and had an indefinite maturity date.
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Initially regarded with suspicion, it came to be seen as a valuable investment that

could be bought and sold. The bond market had begun.

From 1262 to 1379, Venice never missed an interest payment, solidifying the

credibility of the new instruments. Other Italian city-states such as Florence and

Genoa became bond issuers as well, often as a means of paying for warfare. Bondswere traded widely in Italy and beyond, a business facilitated by bankers such as

the Medicis.

War between Venice and Genoa resulted in suspension of prestiti interest payments

in the early 1380s, and when the market was restored, it was at a lower interest rate.

Venice's bonds traded at steep discounts for decades thereafter. Other blows to

financial stability resulted from the Hundred Years War, which caused monarchs of

France and England to default on debts to Italian banks, and the Black Death, which

ravaged much of Europe. Still, the idea of debt as a tradable investment endured.

As with bonds, the concept of stock developed gradually. Some scholars place its

origins as far back as ancient Rome. Partnership agreements dividing ownership into

shares date back at least to the 13th century, again with Italian city-states in the

vanguard. Such arrangements, however, typically extended only to a handful of

people and were of limited duration, as with shipping partnerships that applied only

to a single sea voyage.

The forefront of commercial innovation eventually shifted from Italy to northern

Europe. The Hanseatic League, an alliance of mercantile cities such

asBruges and Antwerp, operated counting houses to expedite trade.

By the late 1500s, English merchants were experimenting with joint-stock companies

intended to operate on an ongoing basis; one such was theMuscovy Company,

which sought to wrest trade with Russia away from Hanseatic dominance.

The next big step occurred in the Netherlands. In 1602, the Dutch East India

Company was formed as a joint-stock company based in six locations with shares

that were readily tradable. The stock market had begun, but since stocks were not

allowed to be traded with multiple addresses for a company, the stocks were

redesignated as coming just from Amsterdam.

The Dutch East India Company, formed to build up the spice trade, operated as a

colonial ruler in what's now Indonesia and beyond, a purview that included

conducting military operations against recalcitrant natives and competing colonial

powers. Control of the company was held tightly by its directors, with ordinary

shareholders not having much influence on management or even access to the

company's accounting statements.

However, shareholders were rewarded well for their investment. The company paid

an average dividend of over 16 percent per year from 1602 to 1650. Financialinnovation in Amsterdam took many forms. In 1609, investors led by one Isaac Le
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Maire formed history's first bear syndicate, but their coordinated trading had only a

modest impact in driving down share prices, which tended to be robust throughout

the 17th century. By the 1620s, the company was expanding its securities issuance

with the first use of corporate bonds.

The Dutch West India Company was formed in 1621, bringing a new issuer to theburgeoning securities market. Amsterdam's growth as a financial center survived the

tulip mania of the 1630s, in which contracts for the delivery of flower bulbs soared

wildly and then crashed. New techniques and instruments proliferated for securities

as well as commodities, including options, repos and margin trading.[2]

Joseph de la Vega, also known as Joseph Penso de la Vega and by other variations

of his name, was an Amsterdam trader from a Spanish Jewish family and a prolific

writer as well as a successful businessman in 17th-century Amsterdam. His 1688

book Confusion of Confusions explained the workings of the city's stock market. It

was the earliest book about stock trading, taking the form of a dialogue between a

merchant, a shareholder and a philosopher, the book described a market that was

sophisticated but also prone to excesses, and de la Vega offered advice to his

readers on such topics as the unpredictability of market shifts and the importance of

patience in investment.

The year that de la Vega published also brought an event that helped spread

financial techniques and talent from Amsterdam to London. This was the "glorious

revolution," in which Dutch rulerWilliam of Orange also ascended to England's

throne. William sought to modernize England's finances to pay for its wars, and thusthe kingdom's first government bonds were issued in 1693 and the Bank of

England was set up the following year. Soon thereafter, English joint-stock

companies began going public.

London's first stockbrokers, however, were barred from the old commercial center

known as the Royal Exchange, reportedly because of their rude manners. Instead,

the new trade was conducted from coffee houses along Exchange Alley. By 1698, a

broker named John Castaing, operating out ofJonathan's Coffee House, was

posting regular lists of stock and commodity prices. Those lists mark the beginning of

the London Stock Exchange.

One of history's greatest financial bubbles occurred in the next few decades. At the

center of it were the South Sea Company, set up in 1711 to conduct English trade

with South America, and the Mississippi Company, focused on commerce with

France's Louisiana colony and touted by transplanted Scottish financierJohn Law,

who was acting in effect as France's central banker. Investors snapped up shares in

both, and whatever else was available. In 1720, at the height of the mania, there was

even an offering of "a company for carrying out an undertaking of great advantage,

but nobody to know what it is."
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By the end of that same year, share prices were collapsing, as it became clear that

expectations of imminent wealth from the Americas were overblown. In London,

Parliament passed the Bubble Act, which stated that only royally chartered

companies could issue public shares. In Paris, Law was stripped of office and fled

the country. Stock trading was more limited and subdued in subsequent decades.Yet the market survived, and by the 1790s shares were being traded in the young

United States.

The role of stock exchanges

Stock exchanges have multiple roles in the economy, this may include the following:

Raising capital for businesses

The Stock Exchange provides companies with the facility to raise capitalfor expansion through selling shares to the investing public.

Mobilizing savings for investment

When people draw their savings and invest in shares, it leads to a

morerationalallocation of resources because funds, which could have beenconsume

d, or kept in idle deposits with banks, are mobilized and redirected to promotebusiness activity with benefits for several economic sectors such as agriculture,

commerce and industry, resulting in strongereconomic growth and

higherproductivity levels and firms.

Facilitating company growth

Companies view acquisitions as an opportunity to expand product lines, increase

distribution channels, hedge against volatility, increase its market share, or acquire

other necessary business assets. A takeoverbid or a mergeragreement through the

stock market is one of the simplest and most common ways for a company to grow

by acquisition or fusion.

Redistribution of wealth

Stocks exchanges do not exist to redistribute wealth. However, both casual and

professional stock investors, through dividends and stock price increases

that may result incapital gains, will share in the wealth of profitable businesses.
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Corporate governance

By having a wide and varied scope of owners, companies generally tend to

improve on theirmanagementstandards and efficiency in order to satisfythedemands of these shareholders and the more str ingent rules for p

u bl ic c o r p o r a t i o n s i m p o s e d b y p u b l i c s t o c k e x c h a n g e s a n d t h e g

o v e r n m e n t . Consequently, it is alleged that public companies(companies that are

owned by shareholders who are members of the general public and trade shares on

public exchanges) tend to have better management records than privately-

held companies(those companies where shares are not publicly traded, often owned

by the company founders and/or their families and heirs, or otherwise by a small

group of investors).

However, some well-documented cases are known where it is alleged that

there has been considerable slippage in corporate governance on the part

of some public companies. The dot-com bubble in the early 2000s, and the

subprime mortgage crisis in 2007-08, are classical examples of corporate

mismanagement. Companies likePets.com(2000),Enron Corporation(2001),

One.Tel(2001),Sunbeam (2001),Webvan(2001),Adelphia (2002),MCI WorldCom(200

2),Parmalat(2003),Fannie Mae(2008),Freddie Mac(2008),Lehman Brothers(2008),

were among the most widely scrutinized by the media.

Creating investment opportunities for small investors

As opposed to other businesses that require huge capital outlay, investing in shares

is open to both the large and small stock investors because a person buys the

number of shares they can afford. Therefore the Stock Exchange provides the

opportunity for small investors to own shares of the same companies as large

investors.

Government capital-raising for development projects

Governments at various levels may decide to borrow money in order tofinance

infrastructure projects such as sewage and water treatment works or housing estates

by selling another category ofsecurities known as bonds. These bonds can be

raised through the Stock Exchange whereby members of the public buy them, thusloaning money to the government. The issuance of such bonds can obviate the need
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to directly tax the citizens in order to finance development, although by securing

such bonds with the full faith and credit of the government instead of with collateral,

the result is that the government must tax the citizens or otherwise raise additional

funds to make any regular coupon payments and refund the principal when

the bonds mature.

Barometer of the economy

At the stock exchange, share prices rise and fall depending, largely, on market

forces. Share prices tend to rise or remain stable when companies and the economy

in general show signs of stability and growth. An economic recession, depression,

orfinancial crisis could eventually lead to a stock market crash. Therefore themovement of share prices and in general of the stock indexes can be an indicator of

the general trend in the economy.

What Are Stocks?

The Definition of a Stock

Plain and simple, stock is a share in the ownership of a company. Stock represents aclaim on the company's assets and earnings. As one acquires more stock, his/herownership stake in the company becomes greater. Whether one says shares, equity,or stock, it all means the same thing.

Being an Owner

Holding a company's stock means that a person is one of the many owners

(shareholders) of a company, and, as such, he/she has a claim (albeit usually very

small) to everything the company owns. Yes, this means that technically the personowns a tiny sliver of every piece of furniture, every trademark, and every contract of

the company. As an owner, the person is entitled to his/her share of the company's

earnings as well as any voting rights attached to the stock.

A stock is represented by a stock certificate. This is a fancy piece of paper that isproof of a persons ownership. In today's computer age, we cant actually get to seethis document because the depository participant keeps these records electronically,which is also known as holding shares "in street name." This is done to make theshares easier to trade. In the past when a person wanted to sell his or her shares,

mouse or a phone call makes life easier for everybody.
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Being a shareholder of a public company does not mean the shareholder have a sayin the day-to-day running of the business. Instead, one vote per share to elect theboard of directors at annual meetings is the extent to which the holder has a sayin the company. For instance, being a Microsoft shareholder doesn't mean one cancall up Bill Gates and tell him how he thinks the company should be run. In the same

line of thinking, being a shareholder of Anheuser Busch doesn't mean oen can walkinto the factory and grab a free case of Bud Light!

The management of the company is supposed to increase the value of the firm forshareholders. If this doesn't happen, the shareholders can vote to have themanagement removed--well, this is the theory anyway. In reality, individual investorsgenerally dont own enough shares to have a material influence on the company.It's really the big boys like large institutional investors and billionaire entrepreneurs

who make the decisions.

Shareholders not being able to manage the company isn't too big a deal. After all,

the idea is that you don't want to have to work to make money? The importance ofbeing a shareholder is that the person is entitled to a portion ofthe companys profitsand have a claim on assets. Profits are sometimes paid out in the form of dividends.The more shares you own, the larger the portion of the profits you get. The claim onassets is only relevant if a company goes bankrupt. In case of liquidation,shareholders receive what's left after all the creditors have been paid. This lastpoint is worth repeating: the importance of stock ownership is your claim on assetsand earnings. Without this, the stock wouldn't be worth the paper it's printed on.

Another extremely important feature of stock is its limited liability. This is a legalterm, which means that the shareholder is not personally liable in the case of thecompany not being able to pay its debts. Other companies such as partnershipsare set up so that if the partnership goes bankrupt the creditors can come after thepartners (shareholders) personally and sell of their house, car, furniture, etc. Owningstock means that, no matter what, the maximum value one can lose is the value ofhis/her investment. Even if a company of which the person is a shareholder goesbankrupt, he/she can never lose his/her personal assets.

Debt vs. EquityWhy does a company issue stock? Why would the founders share the profits with

thousands of people when they could keep profits to themselves? There a son is that

at some point every company needs to raise money. To do this, companies can

either borrow it from somebody or raise it by selling part of the company, which is

known as issuing stock. A company can borrow by taking a loan from a bank or by

issuing bonds. Both methods fit under the umbrella of "debt financing." On the other

hand, issuing stock is called "equity financing."Issuing stock is advantageous for the

company because it does not require the company to pay back the money or make

interest payments along the way. All that the shareholders get in return for their

money is the hope that the shares will some day be worth more. The first sale of a

stock, which is issued by the private company itself, is called the initial public offering(IPO).


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It is important to understand the distinction between a company financing throughdebt and financing through equity. When a debt investment such as abond is bought, the return of money (the principal) along with promised interestpayments is guaranteed. This isn't the case with an equity investment. By becomingan owner, the shareholder assumes the risk of the company not being successful.

Just as a small business owner isn't guaranteed a return, neither is a shareholder.As an owner the shareholders claim on assets is lesser than that of creditors.This means that if a company goes bankrupt and liquidates, a shareholder doesn'tget any money until the banks and bondholders have been paid out; this is calledabsolute priority. Shareholders earn a lot if a company is successful, but theyalso stand to lose their entire investment if the company isn't successful.

RiskIt must be emphasized that there are no guarantees when it comes toindividualstocks. Some companies pay out dividends, but many others do not. And there is no

obligation to pay out dividends even for those firms that have traditionally giventhem. Without dividends an investor can make money on a stock only through itsappreciation in the open market. On the down side, any stock may go bankrupt,in which case your investment is worth nothing. Although risk might sound allnegative, there is also a bright side. Taking-on greater risk demands a greater returnon your investment. This is the reason why stocks have historically outperformedother investments such as bonds or savings accounts. Over the long term, aninvestment in stocks has historically had an average return of around 10%-12%. Agreat proof of the power of owning equities is General Electric. One share bought in1928 would be worth over $65,000 today!

Different Types of StockThere are two main types of stocks: common stock and preferred stock.

Common Stock

Common stock is, well, common. When people talk about stocks in general they aremost likely referring to this type. In fact, the majority of stock issued is in this form.Common shares represents ownership in a company and a claim on a portion ofprofits (dividends). Investors get one vote per share to elect the board members

who oversees the major decisions made by management.

Over the long term, common stock, by means of capital growth, yields higher returnsthan almost every other investment. This higher return comes at a cost as commonstocks entail the most risk. If a company goes bankrupt and liquidates, the commonshareholders will not receive money until the creditors, bondholders, and preferredshareholders are paid.

Preferred Stock

Preferred stock represents some degree of ownership in a company but usually

doesnt have the same voting rights (this may vary depending on the


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company). On preferred shares, investors are usually guaranteed a fixed dividendforever. This is different than common stock that has variable dividends that arenever guaranteed. Another advantage is in the event of liquidation preferredshareholders are paid off before the common share holder (but still after debtholders). Preferred stock may also be callable, meaning that the company has the

option to purchase the shares from shareholders at anytime for any reason(usually for a premium).

Some people consider preferred to be more like debt than equity. A good way tothink of these shares is in-between bonds and common shares.

Different Classes of StockCommon and preferred are the two main forms of stock. However, it's also possiblefor companies to customize different classes of stock in any way they want. Themost common reason for this is when a company wants voting power to remain

with a certain group. Hence, different classes of shares are given different votingrights. For example, one class of shares would be held by a select group and given10 votes per share while a second class would be issued to the majority of investorswith 1 vote per share. When there is more than one class of stock, the classes aretraditionally designated as Class A and Class B. Berkshire Hathaway (ticker: BRK),the company of Warren Buffett (one of the greatest investors of all time), has twoclasses of stock. The different forms are represented by placing the letter behind theticker symbol in a form like: "BRKa, BRKb" or "BRK.A, BRK.B".

How Stocks TradeMost stocks are traded on exchanges, which are places where buyers and sellersmeet and decide on a price. Some exchanges are physical locations wheretransactions are carried out on a trading floor. The other type of exchange is virtual,composed of a network of computers where trades are made electronically.

The purpose of a stock market is to facilitate the exchange of securities betweenbuyers and sellers, thus, reducing the risks of investing. A stock market is nothingmore than a super-sophisticated farmers market linking buyers and sellers.

What Causes Prices To Change?

Stock prices are changed everyday by market forces. It means that share priceschange because of supply and demand. If more people want to buy a stock(demand) than sell it (supply), then the price moves up. Conversely, if more peoplewant to sell a stock, there would be more supply than demand and the price wouldfall.

Understanding supply and demand is easy. What is difficult to comprehend is what

makes people like a particular stock yet dislike another stock. This comes down tofiguring out what news is positive for a company and what news is negative. There


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are many answers to this problem and just about any investor asked has theirown ideas and strategies.

That being said, the principal theory is that the price movement of a stock showswhat investors feel a company is worth. The value of a company is its market

capitalization, which is the stock price multiplied by the number of sharesoutstanding. For example, a company that trades at $100 per share and has1,000,000 shares outstanding is worth less that a company that trades at $50 buthas 5,000,000 shares outstanding. ($100 x 1,000,000 =$100,000,000 while $50 x5,000,000 = $250,000,000). To further complicate things, the price of a stock doesn'tjust reflect what a company is worth currently, it takes into account the growth thatinvestors expect in the future. The most important indicator of the worth of acompany is its earnings. Earnings are the profit a company makes, and in the longrun no company can survive without them. If a company never makes money, theyaren't going to stay in business. Public companies are required to report theirearnings 4 times a year (once each quarter).Wall Street watches with rabid attention

at this time that is referred to as earnings season. The reason behind this is becauseanalysts base their future value of a company on their earnings projection. If acompany's results surprise (are better than expected), the price jumps up. If acompany's results disappoint (are worse than expected), then the price will fall.

Of course, it's not just earnings that can change the price of a stock. It would be arather simple world if this were the case! A perfect example of this was the dot-combubble. Dozens of Internet companies rose to have marketcapitalizations in thebillions of dollars without ever making even the smallest profit. But these valuationsdid not hold and most of the Internet companies saw their values shrink to a fractionof their highs. Still, the fact that prices did move this much demonstrates that thereare factors other than earnings that influence stocks. Investors have developedliterally hundreds of thesevariables, ratios and indicators such as theP/E ratio, while

others areextremely complicated and obscure with names like Chaikin Oscillatoror Moving Average Convergence Divergence (MACD).

So, why do stock prices change? The best answer is that nobody really knows forsure. Some believe that it isn't possible to predict how stocks will change in pricewhile others think that by drawing charts and looking at past price movements, youcan determine when to buy and sell. The only thing we do know as a certainty is thatstocks are volatile and can change in price extremely rapidly.

The important things to grasp about this subject are:

1. Supply and demand in the market determine stock price.2. Price times the number of shares outstanding (market capitalization) is the valueof a company. Comparing just the share price of two companies is meaningless.3. Theoretically, earnings are what makes a company increase its value, but thereare other indicators which investors use to predict stock price.4. There is no consensus as to why stock prices move the way they do.


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Buying Stocks

There are two main ways to purchase stock:

Using a Brokerage

The most common method to buy stocks is to use a brokerage. Brokerages come intwo different flavors. Full-service brokerages offer you (supposedly) expert adviceand can manage your account but also charge a lot. Discount brokerages offer littlein the way of personal attention but are much cheaper.

It used to be that only the wealthy could afford a broker as full service brokers aren'tcheap! With the Internet came the explosion of online discount brokers. Because of

them nearly anybody can now afford to invest in the market.

DRIPs & DIPs

Dividend Reinvestment Plans (DRIPs) and Direct Investment Plans (DIPs) are plansin which individual companies allow shareholders to purchase stock directly from thecompany for a minimal cost. Drips are a great way to invest small amounts of moneyat regular intervals.

How to Read a Stock Table/Quote

Any financial paper has stock quotes that will look something like the image below:

Columns 1 & 2: 52-Week Hi and Low. These are the highest and lowest prices that astock has traded at over the previous 52-weeks (1 year). This typically does notinclude the previous day's trading.

Column 3: Company Name & Type of Stock. This column lists the name of the

company. If there are no special symbols or letters following the name, itIs common stock. Different symbols imply different classes of shares. For example,"pf" means the shares are preferred stock.

Column 4: Ticker Symbol. This is the unique alphabetic name which identifies thestock. If you watch financial TV the ticker tape will quote the latest prices alongsidethis symbol. If you are looking for stock quotes online, you always search fora company by the ticker symbol.

Column 5: Dividend Per Share.This indicates the annual dividend payment pershare. If this space is blank, the company does not currently pay out dividends.


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Column 6:Dividend Yield. This is the percentage return on the dividend. It iscalculated as annual dividends per share divided by price per share.Column 7: Price/Earnings Ratio. This is calculated by dividing the current stock priceby earnings per share from the last four quarters.

Column 8: Trading Volume. This figure shows the total number of shares traded forthe day, listed in hundreds. To get the actual number traded, add"00" to the end ofthe number listed.

Column 9 & 10: Day High & Low. This indicates the price range the stock has tradedat throughout the day's trading. In other words, these are the maximum and theminimum people have paid for the stock.

Column 11: Close. The close is the last trading price recorded when the marketclosed on the day. If the closing price is up or down mo re than 5%than the previousday's close, the entire listing for that stock is bold-faced. Keep in mind, you are not

guaranteed to get this price if you buy the stock the next day because the price isconstantly changing (even after the exchange is closed for the day). The close ismerely an indicator of past performance and except in extreme circumstancesserves as a ballpark of what you should expect to pay.

Column 12: Net Change. This is the dollar value change in the stock price from theprevious day's closing price. When you hear about a stock being "up for the day," itmeans the net change was positive.

The Bulls, the Bears, and the Farm

The Bulls

A bull market is when everything in the economy is great, people are finding jobs,GDP is growing, and stocks are rising. Things are just plain rosy! Picking stocksduring a bull market is easier because everything is going up. Bull markets cannotlast forever though, and sometimes they can lead to dangerous situations if stocks

become overvalued. If a person is an optimist, believing that stocks will go up, he iscalled a bull and said to have a bullish outlook.

The BearsA bear market is when the economy is bad, recession is looming, and stock pricesare falling. Bear markets make it tough for investors to pick profitable stocks. Onesolution to this is to make money when stocks are falling using a technique calledshort selling. Another strategy is to wait on the sidelines until you feel that the bearmarket is nearing its end and only then start buying in anticipation of a bull market. Ifa person is a pessimist, believing that stocks are going to drop, he is called a bearand said to have a bearish outlook.

The Other Animals on the Farm - Chickens and Pigs


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Chickens are afraid to lose anything. Their fear overrides their need to make profitsand so they turn to only money- market securities or get out of the markets alltogether. While it's true you should never investment in something that you losesleep over, if you avoid the market completely and never take any risk, you areguaranteed to never see any return.

Pigs are high risk investors looking for the one big score in a short period of time.Pigs buy on hot tips and invest in companies without doing their due diligence. Theyget impatient, greedy, and emotional about their investments, and are drawn to high-risk securities without putting in the proper time or money to learn about theseinvestment vehicles. Professional traders love the pigs, as it's often from their lossesthat the bulls and bears reap their profits.

INTRODUCTION OF DEPOSITORY

DepositoryA depository is an organization which holds securities of investors in electronicform at the request of the investors through a registered Depository Participant. Italso provides services related to transactions in securities.

In India ,Depository Act defines a depository to mean a company formed andregistered under Companies Act,1956 and which has been granted a certificate ofregistration under sub section(IA) of section 12 of Securities and Exchange Board ofIndia Act,1992.

DEPOSITORY SYSTEM

It is a system whereby the transfer and settlement of scripts take place not throughthe traditional method of transfer deeds and physical delivery of scripts but throughmodern system of effecting transfer of ownership of securities by means of bookentry on the ledgers or the depository without physical movement of scripts.

The new system thus eliminates paper work, facilitates automatic and transparenttrading in scripts, shortens the settlement period and ultimately contributes to theliquidity of investment in securities. This system is also known as Scriples tradingsystem.

CONSTITUENTS OF DEPOSITORY SYSTEM

There are essentially four players in the depository system:-

1. The Depository Participant2. The Beneficial Owner/Investor

3. The issuer4. The Depository


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FACILITIES OFFERED BY DEPOSITORY SYSTEM:

The following are some of important facilities offered by depository system:-

1. Dematerialization2. Rematerialisation3. Electronic settlement of trade4. Electronic credit of securities allotted in public, rights and bonus issue.5. Pledging or hypothecation of dematerialized securities.6. Freezing of demat account.

ADVANTAGES OF DEPOSITORY SYSTEM:

The system is expected to offer the much awaited custodial services to Indian andForeign investors together. It is likely to bring about the following benefits to variousinvestors, issuing companies as well as nation:

(A) Advantages to the Investors

Quick transfer of funds and securities. Elimination of all risks associated with physical certificates. Minimized chances of fraud, theft of securities. Statement of accounts.

(B) Advantages to the issuer:

Costs of registration & transfer of shares get reduced which wereearlier incurred by the issuer company.

Saving in cost involved at the time of public issues. Easy to attract foreign investors without any cost of issuance in

overseas market.

(C) Advantages to Intermediaries:

Faster settlement

Less risk of Bad Delivery Reduced chances of forgery, counterfeit certificates, loss in

transit, theft etc.

SOME IMPORTANT POINTS

Who is the depository participant?

A Depository Participant (DP) is an agent of the depository through which it

interfaces with the investor. A DP can offer depository services only after it


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gets proper registration from SEBI. Banking services can be availed through abranch whereas depository services can be availed through a DP.

What is the minimum net worth required depositary?

The minimum net worth stipulated by SEBI for a depository is Rs.100crore.

How many depository participants are registered with SEBI?

As on 31/03/2009, total of 711 DPs are registered with SEBI.

Can an investor operate a joint account on either or survivor basisjust like a bank account?

No. The demat account cannot be operated on either or survivor basis like

the bank account.

Can an investor close his demat account with one DP and transfer allsecurities to another account with another DP?

Yes. The investor can submit account closure request to his DP inthe prescribed form. The DP will transfer all the securities lying in the account,as per the instruction, and close the demat account.

Whether investors can freeze or lock their accounts?

Investors can freeze or lock their accounts for any given period of time,if so desired. Accounts can be frozen for debits (preventing transfer of securities out of accounts) or for credits (preventing any movements of hindrancesinto accounts) or for both.

Do dematerialised shares have distinctive numbers?

Dematerialized shares do not have any distinctive numbers. These shares arefungible, which means that all the holdings of a particular security will beidentical and interchangeable.

What is Standing Instruction given in the account opening form?

In a bank account, credit to the account is given only when a pay in slip issubmitted together with cash/cheque. Similarly, in a depository accountReceipt in form has to be submitted to receive securities in the account.However, for the convenience of investors, facility of standing instruction isgiven. If you say Yes for standing instruction, you need not submit Receiptin slip every time you buy securities. If you are particular that securities canbe credited to your account only with your consent, then do not say yes [ortick ] to standing instruction in the application form.


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Is it possible to give delivery instructions to the DP overInternet and ifyes, how?

Yes. Both NSDL and CDSL have launched this facility for deliveringinstructions to your DP over Internet, called SPEED-e and EASI respectively.

The facility can be used by all registered users after paying the applicablecharges.

Is it possible to get securities allotted in public offering directly in theelectronic form?Yes, it is possible to get securities allotted to in Public Offerings directly in theelectronic form. In the public issue application form there is a provision toindicate the manner in which an investor wants the securities allotted. He hasto mention the BO ID and the name and ID of the DP on the application form.Any allotment made will be credited into the BO account.

How cash corporate are benefit such as dividend / interestreceived?The concerned company obtains the details of beneficiary holders andtheir holdings as on the date of the book closure / record date fromDepositories. The payment to the investors will be made by the companythrough the ECS (Electronic Clearing Service) facility, wherever available.Thus the dividend / interest will be credited to your bank account directly.Where ECS facility is not available dividend / interest will be given by issuingwarrants on which your bank account details are printed. The bank accountdetails will be those which you would have mentioned in your account openingform or changed thereafter.

How would one receive non-cash corporate benefit such as bonus etc.?The concerned company obtains the details of beneficiary holders andtheir holdings as on the date of the book closure / record date fromdepositories.

The entitlement will be credited by the company directly into the BO account.

DEMAT ACCOUNT

The whole depository system is based on demats account. So it is necessary tounderstand the concept of demat accounts.

Whats a demat account?

Demat refers to a dematerialised account. Just as you have to openanaccount with a bank if you want to save your money, make cheque payments etc, you need to open a demat account if you want to buy or sell stocks. Soit is just like a bank account where actual money is replaced by shares. Youhave to approach the DPs (remember, they are like bank branches), to open

your demat account.


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Lets say your portfolio of shares looks like this: 40 of Infosys, 25 ofWipro, 45 of HLLand 100 of ACC. All these will show in your demat account. So you dont have topossess any physical certificates showing that you own these shares. They are allheld electronically in your account. As you buy and sell the shares, they are adjustedin your account. Just like a bank passbook or statement, the DP will provide you

with periodic statements of holdings and transactions.

Is a demat account a must?Nowadays, practically all trades have to be settled in dematerialised form.Although the market regulator, the Securities and Exchange Board of India(SEBI), has allowed trades of upto 500 shares to be settled in physical form,nobody wants physical shares any more. So a demat account is a mustfor trading and investing.

Why demat?

The demat account reduces brokerage charges, makes pledging/hypothecation of shares easier, enables quick ownership of securities on settlementresulting in increased liquidity, avoids confusion in the ownership title ofsecurities, and provides easy receipt of public issue allotments. It also helpsyou avoid bad deliveries caused by signaturemismatch, postal delays and loss of certificates in transit. Further, iteliminates risks associated with forgery,counterfeiting and loss due to fire, theft or mutilation. Demat account holderscan also avoid stamp duty (as against 0.5 per cent payable on physicalshares), avoid filling up of transfer deeds, and obtain quick receipt of suchbenefits as stock splits and bonuses.

Buying & Selling

The procedure for buying and selling dematerialized securities is similar tothe procedure for buying and selling physical securities. The differenceliesin the process of delivery (in case of sale) and receipt (in case of purchase) ofsecurities.

In case of purchase:-

The broker will receive the securities in his account on the payout day.

The broker will give instruction to its DP to debit his account and creditinvestors account.Investor will give Receipt Instruction to DP for receiving credit by fillingappropriate form. However one can give standing instruction.

For credit in to ones account that will obviate the need of giving ReceiptInstruction every time.

In case of sale:-


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The investor will give delivery instruction to DP to debit his account and credit thebrokers account. Such instruction should reach the DPs office at least 24hoursbefore the pay-in as other wise DP will accept the instruction only at the investorsrisk.

Demat Benefits

The benefits are enumerated below:-

A safe and convenient way to hold securities;

Immediate transfer of securities;

No stamp duty on transfer of securities;

Elimination of risks associated with physical certificates such as baddelivery, fake securities, delays, thefts etc.;

Reduction in paperwork involved in transfer of securities;

Reduction in transaction cost;

No odd lot problem, even one share can be sold;

Nomination facility;

Change in address recorded with DP gets registered with all companies inwhich investor holds securities electronically eliminating the need tocorrespond with each of them separately;

Transmission of securities is done by DP eliminating correspondence withcompanies;

Automatic credit into demat account of shares, arising out of bonus /split/consolidation/ merger etc.

Holding investments in equity and debt instruments in an account.

Demat Conversion

Converting physical holding into electronic holding (dematerializingsecurities)

In order to dematerialize physical securities one has to fill in a DRF (Demat RequestForm) which is available with the DP and submit the same along with physical


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certificates one wishes to dematerialize. Separate DRF has to be filledfor each ISINNumber.

The complete process of dematerialization is outlined below:

Surrender certificates for dematerialization to respective depository participant.

Depository participant intimates Depository of the request through the system.

Depository participant submits the certificates to the registrar of the IssuerCompany.

Registrar confirms the dematerialization request from depository.

After dematerialization of the certificates, Registrar updates accounts and informs

depository of the completion of dematerialization.

Depository updates its accounts and informs the depository participant.

Depository participant updates the demat account of the investor.

Fees Involved

NOW to the crux the cost of opening and holding a demat account. There arefour major charges usually levied on a demat account: Account opening fee, annualmaintenance fee, custodian fee and transaction fee. All the charges vary from DP toDP.

Account-opening fee

Depending on the DP, there may or may not be an opening account fee.Private banks, such as ICICI Bank, HDFC Bank and UTI Bank donothave one. However, players such as India Infoline Ltd., Karvy

Consultants and the State Bank of India do so. But most playerslevythis when the person re-opens a demat account, thoughthe Stock Holding Corporation offers a lifetime account opening fee, whichallows you to hold on to your demat account over a long period. This fee isrefundable.

Annual maintenance fee

This is also known as folio maintenance charges, and is generally leviedinadvance.

Custodian fee


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This fee is charged monthly and depends on the number of securities(international securities identification numbers ISIN) held in the account. Itgenerally ranges between Rs 0.5 to Rs 1 per ISIN per month. DPs will not chargecustody fee for ISIN on which the companies have paid one-time custody charges tothe depository.

Transaction fee

The transaction fee is charged for crediting/debiting securities to and from theaccount on a monthly basis. While some DPs, such as SBI, charge a flat feeper transaction, HDFC Bank and ICICI Bank peg the fee to the transactionvalue, subject to a minimum amount. The fee also differs based on the kind oftransaction (buying or selling). Some DPs charge only for debiting thesecurities while others charge for both. The DPs also charge if your instructionto buy/sell fails or is rejected. In addition, service tax is also charged by the

DPs.

In addition to the other fees, the DP also charges a fee for converting the sharesfrom the physical to the electronic form or vice-versa. This fee varies for both dematand remat requests. For demat, some DPs charge a flat fee per request in additionto the variable fee per certificate, while others charge only the variable fee.

For instance, Stock Holding Corporation charges Rs 25 as the request fee and Rs 3per certificate as the variable fee. However, SBI charges only the variable fee, whichis Rs 3 per certificate. Remat requests also have charges akin to that of demat.However, variable charges for remat are generally higher than demat. Some of theadditional features (usually offered by banks) are:

Some DPs offer a frequent trader account, where they charge frequenttraders at lower rates than the standard charges.

Demat account holders are generally required to pay the DP an advance feefor each account which will be adjusted against the various service charges.The account holder needs to raise the balance when it falls below a certainamount prescribed by the DP. However, if you also hold a savings account

with the DP you can provide a debit authorization to the DP for paying thischarge.

Finally, once you choose your DP, it will be prudent to keep all your accountswith that DP, so that tracking your capital gains liability is easier. This isbecause, for calculating capital gains tax, the period of holding will bedetermined by the DP and different DPs follow different methods. Forinstance, ICICI Bank uses the first in first out (FIFO) method to compute theperiod of holding. The proof of the cost of acquisition will be the contract note.The computation of capital gains is done account-wise.


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Rematerialisation

The process of converting electronic holdings (demat shares) back intoPhysical Certificates is called Rematerialisation.

If one wishes to get back his securities in the physical form one has to fill in the RRF(Remat Request Form) and request his DP for rematerialisation ofthe balances in his securities account. The process of rematerialisation isoutlined below;

One makes a request for rematerialisation.

Depository participant intimates depository of the request

through thesystem.

Depository confirms rematerialisation request to the registrar.

Registrar updates accounts and prints certificates.

Depository updates accounts and downloads details to depository participant.

Registrar dispatches certificates to investor.

Some important points

Can one pledge dematerialised securities?

Yes. In fact, pledging dematerialised securities is easier and moreadvantageous as compared to pledging physical securities.

What should one do to pledge electronic securities?

The procedure to pledge electronic securities is as follows:

Both investor (pledgor) as well as the lender (pledgee) must have depositoryaccounts with the same depository;

Investor has to initiate the pledge by submitting to DP the details of thesecurities to be pledged in a standard format ;

The pledgee has to confirm the request through his/her DP;

Once this is done, securities are pledged.


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All financial transactions between the pledgor and the pledgee arehandled asper usual practice outside the depository system.

How can one close the pledge after repayment of loan?

After one has repaid the loan, one can request for a closure of pledgeby instructing the DP in a prescribed format. The pl edge onreceiving the repayment will instruct his DP accordingly for the closure ofthe pledge.

TRANSACTION STATEMENTS

How does one know that the DP updated the account after eachtransaction?

The DP gives a Transaction Statement periodically, which will detailcurrent balances and various transactions made through the depositoryaccount. If so desired, DP may provide the Transaction Statement atintervals shorter than thestipulated ones, probably at a cost.

At what frequency will the investor receive his TransactionStatement from his DP?

DPs have to provide transaction statements to their clients once in a month, ifthere are transactions and once in a quarter, if there are no transactions.Moreover, DPs can provide transaction statement in electronic formunder digital signature subject to their entering into a legally enforceablearrangement with the BOs to this effect.

What is to be done if there are any discrepancies in transactionstatement?

In case of any discrepancy in the transaction statement, one can contact

his/her DP. If the discrepancy cannot be resolved at the DP level, one shouldapproach the Depository.

LENDING AND BORROWING

What is Lending and Borrowing of Securities?If any person required to deliver a security in from another person who iswilling to lend as per the Securities Lending and Borrowing Scheme.the

market does not readily have that security, he can borrow the same


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Can lending and borrowing be done directly between two persons?

No. Lending and borrowing has to be done through an ApprovedIntermediary registered with SEBI. The approved intermediary would borrowthe Securities for further lending to borrowers. Lenders of the securities and

borrowers of the securities enter into separate agreements with the approvedintermediary for lending and borrowing the securities. Lending and borrowingis effected through the depository system.

NOMINATION

Who can nominate?

Nomination can be made only by individuals holding beneficiary accountseither singly or jointly. Non-individuals including society, trust, bodycorporate, karta of Hindu Undivided Family, holder of power of attorneycannot nominate.

Who can be a nominee?

Only an individual can be a nominee. A nominee shall not be a society, trust,body corporate, partnership firm, Karta of Hi

stock exchange final

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