Stock Market In India

Covering in LessonVarious Markets & Its FeaturesDevelopment of securities market in IndiaRegulation of securities MarketPrimary marketSecondary marketTrading and settlementClearing and settlement procedures

Essential Features of a MarketExistence of buyers and sellersExistence of price for every assetAllocation of resourcesExistence of regulatory mechanism

Properties of efficient marketBreadth Depth Information arbitrage efficiency Fundamental valuation efficiency Full insurance efficiency Operational efficiencyAllocational efficiency

Classification of marketsSecurities marketEquity Market Debt MarketGovernment securities Market (gilt securities)Corporate Securities Money MarketDerivative Market Options MarketFutures MarketForeign exchange market

Functions of the marketPrimary 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 Market1875BSE established as 'the native Share and Stock Brokers Association1956BSE became the first stock exchange to be recognized under the Securities Contract Act.1993NSE recognized as a stock exchange.2000Commencement of Internet trading at NSE.2000NSE commences derivatives trading (Index futures)2001BSE 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 IndiaTo regulate the securities market

Important Functions of SEBIRegulating the business in stock exchanges and any other securities marketsRecognition and regulation of the stock exchangesRegistering and regulating the working of the depositories [participants], custodians of securities, foreign institutional investors, credit rating agenciesRegistration of FIIRegistering and regulating the working of venture capital funds and collective investment schemes, including mutual fundsPromotion and regulation of Self regulatory organization. Prohibiting fraudulent and unfair trade practices relating to securities markets 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 (ROs)

PRIMARY EQUITY MARKET

PUBLIC ISSUE RIGHTS ISSUE PRIVATE PLACEMENT PREFERENTIAL ALLOTMENT

ISSUE TYPEOFFER PRICEDEMANDPAYMENTFixed Price IssuesPrice at which the securities are offered and would be allotted is made known in advance to the investorsDemand for the securities offered is known only after the closure of the issue100 % advance payment is required to be made by the investors at the time of application.Book Building IssuesA 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 MarketSecondary 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.SEBIs role in Secondary Markets NSCCLListing 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 ListingInitial listingFirst time listingListing of public issue - Listing of additional shares or debentures of already listed entity.Listing of rights issue of shares and debenturesListing of Bonus issue of sharesListing 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 settlementMarket timingsTrading ProcessLocating a brokerPlacement of an order Order sent to stock exchangeOrder is executed.

Depository system

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 dematerializationInvestor 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 investors 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 investors name within a day of completion of settlement.Faster payment on sale of sharesNo scope for forgery of share certificates

Category of shares at BSEA 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 BOOKBuysideSellsideLimit PriceShares500 501 502503504 505506507508509510511512

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 brokers account. Such instruction should reach the DPs office at least 24 hours before the pay-in, failing which, DP will accept the instruction only at the BOs 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 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.