Stock Market In India

Covering in Lesson

Various Markets & Its FeaturesDevelopment of securities market

in IndiaRegulation of securities MarketPrimary marketSecondary marketTrading and settlementClearing and settlement procedures

Essential Features of a Market

Existence of buyers and sellers Existence of price for every asset Allocation of resources Existence of regulatory mechanism

Properties of efficient market

Breadth Depth Information arbitrage efficiency Fundamental valuation efficiency Full insurance efficiency Operational efficiencyAllocational efficiency

Classification of markets

Securities market– Equity Market – Debt Market

• Government securities Market (gilt securities)

• Corporate Securities • Money Market

– Derivative Market • Options Market• Futures Market

Foreign exchange market

Functions of the market

Primary Market: it deals in the issuance of new securities and bring the savers and users of capital together.

Secondary Market: it is the financial market where previously issued securities and financial instruments such as stock, bonds, options, and futures are bought and sold.

It provide liquidity to the investors. It helps the players to keep transaction

cost very low.

Milestones in development of Indian Stock Market1875 BSE established as 'the native Share and

Stock Brokers Association‘1956 BSE became the first stock exchange to

be recognized under the Securities Contract Act.

1993 NSE recognized as a stock exchange.2000 Commencement of Internet trading at

NSE.2000 NSE commences derivatives trading

(Index futures)2001 BSE commences derivatives trading29 August 2008 NSE started trading in currency

derivatives

Securities and exchange board of India Objectives:

– To protect the interest of the investors in securities

– To promote the development of securities market in India

– To regulate the securities market

Important Functions of SEBI1. Regulating the business in stock exchanges and any other

securities markets2. Recognition and regulation of the stock exchanges3. Registering and regulating the working of the depositories

[participants], custodians of securities, foreign institutional investors, credit rating agencies

4. Registration of FII5. Registering and regulating the working of venture capital

funds and collective investment schemes, including mutual funds

6. Promotion and regulation of Self regulatory organization. 7. Prohibiting fraudulent and unfair trade practices relating to

securities markets 8. Conducting research relating to securities market.

Departments of SEBI1)MARKET INTERMEDIARIES REGULATION AND SUPERVISION DEPARTMENT (MIRSD) 2)   MARKET REGULATION DEPARTMENT (MRD)3)  DERIVATIVES AND NEW PRODUCTS DEPARTMENT (DNPD)4) CORPORATION FINANCE DEPARTMENT (CFD)5) INVESTMENT MANAGEMENT DEPARTMENT (IMD)6) INTEGRATED SURVEILLANCE DEPARTMENT (ISD) 7) INVESTIGATIONS DEPARTMENT (IVD)8)  ENFORCEMENT DEPARTMENT (EFD) 9)   LEGAL AFFAIRS DEPARTMENT (LAD)10 ) ENQUIRIES AND ADJUDICATION DEPARTMENT (EAD)11) OFFICE OF INVESTOR ASSISTANCE AND EDUCATION (OIAE). 12 ) GENERAL SERVICES DEPARTMENT (GSD) 13)RESEARCH AND TRAINING DEPARTMENT (RTD). 14) OFFICE OF THE CHAIRMAN (OCH)15) THE REGIONAL OFFICES (RO’s)

PRIMARY

EQUITY MARKET

• PUBLIC ISSUE

• RIGHTS ISSUE

• PRIVATE PLACEMENT

• PREFERENTIAL ALLOTMENT

ISSUE TYPE OFFER PRICE DEMAND PAYMENT

Fixed Price Issues

Price at which the securities are offered and would be allotted is made known in advance to the investors

Demand for the securities offered is known only after the closure of the issue

100 % advance payment is required to be made by the investors at the time of application.

Book Building Issues

A 20 % price band is offered by the issuer within which investors are allowed to bid and the final price is determined by the issuer only after closure of the bidding.

Demand for the securities offered , and at various prices, is available on a real time basis..

10 % advance payment is required to be made by the QIBs along with the application, while other categories of investors have to pay 100 % advance along with the application.

Reverse Book BuildingThe reverse book building is an efficient price discovery mechanism of de-listing of securities, which is provided for capturing the sell orders on online basis from the shareholders through respective BRLM.

Secondary Market

Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange.

SEBI’s role in Secondary Markets

NSCCL

Listing of Securities

Objectives of the listing

Provide liquidity to securities; Mobilize savings for economic

development; Protect interest of investors by ensuring

full disclosures

Types of the Listing

Initial listing—First time listing Listing of public issue - Listing of

additional shares or debentures of already listed entity.

Listing of rights issue of shares and debentures

Listing of Bonus issue of shares Listing of shares issued on

amalgamation, mergers etc. 

Trading and settlement

Screen based system started by NSE which is followed by BSE and other regional stock exchanges

NSE has an order driven systemOTCEI is a quote BOLT (BSE Online trading) is a mix

of order driven and quote driven system

Trading and settlement

Market timingsTrading Process

– Locating a broker– Placement of an order – Order sent to stock exchange– Order is executed.

Depository system BANK DEPOSITORY

Holds funds in an account Holds securities in an account

Transfers funds between accounts on the instruction of the accountholder

Transfers securities between accounts on the instruction of the BO account holder

Facilitates transfer without having to handle money

Facilitates transfer of ownership without having to handle securities

Facilitates safekeeping of money

Facilitates safekeeping of securities

Functions of Depository

Dematerialization Account transfer and recognition Corporate actionsPledge and hypothecation Linkages with clearing system

Depository participants (DP)

A depository participants is an agent of the depository and intermediaries between the depository and the investors.

A DP has to register with SEBI to offer depository related services.

Process of dematerialization Investor approach DP to open an account. Then he has to submit the shares in physical

form to DP for dematerialization. DP will intimate the NSDL about the investor’s

intention and then submit the share certificates to the registrar and transfer agent.

On confirming the genuineness of certificates the registrar destroys them and sends the confirmation of dematerialization of shares to NSDL.

Advantage of the depository system Filling up transfer deeds and lodging the

same with the company for transfer is not necessary.

There would not be any bad deliveries. Exemptions from paying stamp duty on

transfer of shares. Shares purchased in electronic form will

be transferred to the investor’s name within a day of completion of settlement.

Faster payment on sale of sharesNo scope for forgery of share

certificates

Category of shares at BSE

A groupB1 Group (medium Sized,

Inconsistent profit, less liquidity)B2 Group (Small companies, very

low trading, poor in profit generation)

Z Group (non compliance, poor companies)

F Group (debt Market)

LIMIT ORDER BOOK

Buyside Sellside

Limit Price

Shares

500 501 502 503 504 505 506 507 508 509 510 511 512

TYPES OF ORDERS

Limit Order Those who place limit order supply liquidity

Market Order Those who place market order demand liquidity

SETTLEMENT

• Security transactions are settled through electronic

delivery facilitated by depositories

• Presently, the settlement of all trades is a rolling

settlement on a T+2 basis

In case of sale:- BO will give delivery instruction through Delivery Instruction Slip (DIS) to DP to debit his account and credit the broker’s account. Such instruction should reach the DP’s office at least 24 hours before the pay-in, failing which, DP will accept the instruction only at the BO’s risk.

ETF

An ETF is a basket of securities that is traded on the stock exchange, akin to a stock. So, unlike conventional mutual funds, ETFs are listed on a recognised stock exchange. Their units can be bought and sold directly on the exchange, through a stockbroker during the trading hours.

Circuit Breakers

In case of a 10% movement of either of these indices, there would be a 1-hour market halt if the movement takes place before 1 p.m. In case the movement takes place at or after 1 p.m. but before 2.30 p.m. there will be a trading halt for ½ hour. In case the movement takes place at or after 2.30 p.m. there will be no trading halt at the 10% level and the market will continue trading.

In case of a 15% movement of either index, there will be a 2-hour market halt if the movement takes place before 1 p.m. If the 15% trigger is reached on or after 1 p.m. but before 2 p.m., there will be a 1 hour halt. If the 15% trigger is reached on or after 2 p.m. the trading will halt for the remainder of the day.

In case of a 20% movement of the index, the trading will be halted for the remainder of the day.

Circuit filters On individual stocks

When applied to individual stocks, circuit filters are known as price bands or price filters.

There are no circuits on the 30 stocks included in the Sensex or the 50 included in the Nifty.

The filter bands are in the range of 2%, 5%, 10% and 20%.

Buy back of shares

Buyback is the reverse of issue of shares by a company. In buy back, company offers to take back its shares owned by the investors at a specified price; this offer can be binding or optional to the investors.