INVESTMENT

SACRIFICE OF SOME MONEY VALUE AT PRESENT WITH THE

EXPECTATIONS TO GAIN IN THE FUTURE.
DIMENSIONS OF INVESTMENT ARE SACRIFICE , FUTURITY ,
RISK AND EXPECTATION OF GAIN.

INVESTMENT OBJECTIVES :
1. CAREFULLY THOUGHT OF AND FACTS AND FIGURES
STUDIED.
2. WELL PLANNED AND LESS RISKY.
3. STUDY OF FUNDAMENTAL FACTORS ABOUT INVESTMENT
AVENUES.
4. GENERALLY LONG TERM HORIZON AND NORMAL RETURNS
EXPECTED.
5. EXPECTED THAT RETURNS WILL COMMENSURATE WITH RISK
TAKEN.
6. INVESTORS DO NOT BORROW FOR INVESTING.
7. SAFETY FIRST CRITERION AND TALKS ABOUT RETURNS.
 SPECULATION
STARTS WHERE INVESTMENT ENDS .INVESTOR TAKES MORE
RISK AS COMPARED TO PURE INVESTMENT.
MORE RISKY.
INVOLVES LESS TIME FRAME.
GENERALLY GIVES MORE RETURNS.
RETURNS FIRST CRITERION AND THEN TALKS ABOUT
SAFETY .
INVESTOR TALKS ABOUT POSITIVE ATTITUDE TOWARDS
LOSSES.
INVESTORS BORROW MONEY FOR MAKING INVESTMENTS
WITH EXPECTATIONS OF GAINING MORE THAN WHAT IS
BORROWED.
OBJECTIVES OF INVESTMENT
SAFETY : PROTECTION AGAINST LOSS . LOOKS FOR
AVENUE FREE FROM DEFAULT RISK. APPARENT IN
TREASURY BILL , GOVERNMENT SECURITIES , BANK AND
POST OFFICE DEPOSITS.
REGULARITY OF INCOME.
CAPITAL GAINS .
TAX SAVINGS .
LIQUIDITY .
SPECULATION : RISK BEING INHERENT FACTOR OF
INVESTMENT . HIGH RISK RESULTS IN SPECULATION ONLY
WHEN ONE STARTS ASSUMING THAN AVOIDING.
HEDGING : AN ACT OF BALANCING OR MINIMISING
ELEMENT OF RISK.
ARBITRAGE : AN ACT OF BUYING IN THE MARKET WHERE
PRICES ARE LOW AND SELLING THE SAME IN THE MARKET
WHERE PRICE ARE HIGH.
 SYSTEMATIC RISK
SYSTEMATIC RISK : NON DIVERSIFIABLE RISK AS THE SAME
CANNOT BE AVOIDED IN ALMOST ALL INVESTMENT AVENUES.
1. RISK OF INFLATION.
2. INTEREST RATE RISK : CONTROLLED BY RBI.
3. POLITICAL RISK: CHANGE OF GOVT. AND SENSEX CRASHES.
4. MARKET RISK:UTI UNIT 64 FIASCO.
5. GOVERNMENT POLICIES: CHANGES IN TAXATION, LICENSING ,
QUOTA RESTRICTIONS , FOREIGN TRADE POLICIES ETC..
6. NATURAL CALAMITIES: GUJARAT HIT BY PLAGUE AND
CYCLONE , STOCK MARKET GOT AFFECTED.
7. SCAMS: HARSHAD MEHTA , CRB SCAM , KETAN PAREEK SCAM .
8. MONSOON.
9. INTERNATIONAL EVENTS: ATTACK ON WTC , AMERICAN
ATTACK ON IRAQ AND AFGANISTAN .
10. WARS: KARGIL WAR .

A) MEASUREMENT OF SYSTEMATIC RISK IN TERMS OF BETA :BETA

IS THE SENSITIVITY MEASUREMENT INDICATING % CHANGE
IN THE RETURNS WHEN RETURNS ON A MARKET
PORTFOLIO/INDEX CHANGE BY 1%. BETA COEFFICIENT OF A
SECURITY IS DEFINED AS RATIO OF THE SECURITY’S
COVARIANCE OF THE RETURN WITH THE MARKET RETURN TO
THE VARIANCE OF MARKET RETURNS.
 NON SYSTEMATIC RISK
CREATED DUE TO INDUSTRY OR COMPANY SPECIFIC
FACTORS LIKE PERFORMANCE OF COMPANY , MERGER OR
ACQUISITION , INDUSTRY SPECIFIC ANNOUNCEMENT BY
GOVERNMENT ETC.
1. BUSINESS RISK : CREATED DUE TO OPERATING OF COMPANY
OR BUSINESS.ARISES DUE TO OPERATING LEVERAGE AND
WRONG PLANNING.
2. FINANCIAL RISK : WRONG FINANCIAL PLANNING. HIGH
DEGREE OF DEBT WILL HAVE AN ADVERSE AFFECT ON
EARNINGS ON THE COMPANY.
3. INDUSTRY SPECIFIC POLICIES : REMOVAL OF SUBSIDIES ,
CONCESSIONS OR IMPOSING BAN ON PRODUCT OR RAW
MATERIAL . EX. BAN ON USE OF POLYTHENE.
4. DISPUTES: RIL EPISODE IS RECENT EXAMPLE OF THIS TYPE
OF RISK. BIRLA FAMILY VERSUS LODHA’S. RANBAXY
DISPUTE BETWEEN ANALJIT SINGH , MALVINDER SINGH
AND SHIVENDER SINGH, BAJAJ GROUP FIASCO.
 STOCK MARKET
A MARKET WHICH PROVIDES AN OPPORTUNITY FOR THE
COMPANIES TO RAISE FUNDS DIRECTLY FROM THE
INVESTORS AS WELL AS OUTSTANDING SECURITIES ARE
BOUGHT AND SOLD IN THIS MARKET.
MARKET FUNCTIONS UNDER THE SUPERVISION OF
SECURITIES AND EXCHANGE BOARD OF INDIA(SEBI), THE
REGULATORY PROVISIONS REGULATING THE MARKET ARE
DERIVED FROM VARIOUS LAWS LIKE SCRA , CO’S ACT /
SEBI ACT , FEMA ACT ETC.
1. PRIMARY MARKET
PROVIDES A PLATFORM FOR NEW AS WELL AS OLD
COMPANIES TO RAISE FUNDS BY ISSUING SECURITIES
DIRECTLY TO THE ULTIMATE INVESTOR.A BRIDGE BETWEEN
SAVINGS AND INVESTMENTS. SECURITIES LIKE EQUITY
SHARES , PREFERENCE SHARES , DEBENTURES , BONDS
ETC., ARE ISSUED TO THE INVESTORS.
PUBLIC ISSUE / RIGHTS ISSUE / PRIVATE PLACEMENT /
PUBLIC ISSUE THROUGH BOOK BUILDING / BUYOUT DEALS.
 STOCK MARKET
1. PUBLIC ISSUE :PROCESS OF ISSUING SECURITIES BY A
PUBLIC LIMITED COMPANY.PUBLIC ASKED TO SUBSCRIBE
TOWARDS CAPITAL OF THE COMPANY.
SECURITIES TO BE LISTED ON STOCK EXCHANGE WITHIN 10
WEEKS OF CLOSING OF THE ISSUE.
SE SHOULD BE THE ONE MENTIONED IN THE PROSPECTUS.
SHARES CAN BE ISSUED AT PAR , PREMIUM OR AT A
DISCOUNT.
ALL THE REGULATORY FORMALITIES HAVE TO BE COMPLIED
AS SPECIFIED BY SEBI.
2. RIGHTS ISSUE : AN EXISTING COMPANY ISSUING SHARES
TO IT’S EXISTING SHAREHOLDERS ON PROPORTIONAL
BASIS IS CALLED A RIGHT’S ISSUE. ACCORDING TO LAW
OFFER HAS TO BE FOR EXISTING SHAREHOLDERS BUT CAN
BE ISSUED TO GENERAL PUBLIC IF EXISTING
SHAREHOLDERS DECLINE.THIS ISSUE CAN BE MADE TO
GENERAL PUBLIC AFTER A RESOLUTION TO THIS EFFECT IS
PASSED U/S 81 OF COMPANIES ACT.
 STOCK MARKET
3. PRIVATE PLACEMENT: PUBLIC IS NOT APPROACHED
INSTEAD COMPANY APPROACHES INVESTORS
INDIVIDUALLY.MAINLY USED BY PRIVATE LIMITED
COMPANIES AS A PRIVATE LIMITED COMPANY CANNOT
INVITE PUBLIC THROUGH ADVERTISEMENT FOR
SUBSCRIBING TOWARDS CAPITAL OF THE COMPANY.
 DONE THROUGH FINANCIAL INSTITUTIONS , MUTUAL
FUNDS, VENTURE CAPITAL FUNDS , BANKS ETC.
SHCIL IS A PUBLIC LIMITED COMPANY BUT IT HAS
RAISED SHARES THROUGH PRIVATE PLACEMENT ONLY.
BIKAJI FOODS PRIVATE LIMITED HAS ALSO ISSUED
SHARES THROUGH THIS MODE.
LISTING OF SECURITIES THROUGH THIS MECHANISM
CANNOT BE DONE ON STOCK EXCHANGE , THOUGH
DEBENTURES RAISED THROUGH THIS MECHANISM CAN
BE LISTED ON STOCK EXCHANGES ( 29 JUNE ‘2005
SEBI BULLETTIN).
 STOCK MARKET
4. PUBLIC ISSUE THROUGH BOOK BUILDING : MECHANISM OF
ISSUING SHARES TO GENERAL PUBLIC , BUT THE PRICE IS
NOT DECIDED BY THE COMPANY , INSTEAD PRICING IS
DONE BY INVITING BIDS FROM THE PUBLIC. INVESTOR
STATES THE NO. OF SHARES APPLIED AND THE PRICE
BID.INVESTOR CAN CHANGE HIS BID ANY NO. OF TIMES
BEFORE BIDDING CLOSES.
 MINIMUM 25% HAS TO BE ALLOTTED TO INDIVIDUALS
BIDDING UPTO 1000 SHARES , MINIMUM 15% TO
CORPORATES AND HNI’S BIDDING IN EXCESS OF 1000
SHARES AND 60% TO QUALIFIED INSTITUTIONAL BUYERS
SUCH AS FII’S , BANKS ETC.
 IN CASE OF OVERSUBSCRIPTION 25% AND 15% HAVE TO BE
ALLOTTED ON PROPORTIONAL BASIS AND REMAINING 60%
TO QIB QUOTA ON DISCRETIONARY BASIS.TYPICALLY
DISCRETIONARY QUOTA IS BASED ON QUALITY OF THE BID ,
BID PRICE AND BID DATE.
DECISION OF FINAL ISSUE PRICE , ACEPTANCE OF BIDS AND
BOOK RUNNING IS DONE BY SEBI.
 STOCK MARKET
5. BUY OUT DEALS :COMPANY ISSUES SHARES ON OTCEI THROUGH FOLLOWING
MECHANISM :
COMPANY NEGOTIATES WITH AT LEAST ONE DEALER OF THE EXCHANGE TO BUY THE
COMPLETE ISSUE AT A SPECIFIED PRICE.
IT IS WITH THE INTENTION THAT THE DEALER WILL SELL THESE SHARES IN THE
GENERAL MARKET IN THE FUTURE.
DEALER WILL HAVE NO MANAGERIAL CONTROL OVER THE COMPANY.
DEALER HAS THE FREEDOM TO SELL THROUGH THE STOCK EXCHANGE OR DIRECTLY
TO THE PUBLIC.

NASDAQ = NATIONAL ASSOCIATION OF SECURITIES DEALERS

AUTOMATED QUOTATION SYSTEM.

EARNINGS PER SHARE =PROFIT AFTER TAX – PREFERENCE

DIVIDEND
--------------------------------------------------
NUMBER OF OUTSTANDING SHARES

PRICE EARNING MULTIPLE( PE RATIO ) = MARKET PRICE

----------------------

EARNINGS PER SHARE

NET WORTH = EQUITY CAPITAL + RESERVES AND SURPLUS – DEBT.

 STOCK MARKET
SECONDARY MARKET :IT IS MARKET IN WHICH
OUTSTANDING SECURITIES OF THE CORPORATE HOUSES
AND GOVERNMENT ARE TRADED IN.ALL THE
TRANSACTIONS EXCEPT SPOT MUST BE EXECUTED ON A
RECOGNIZED STOCK EXCHANGE AS PER SCRA.
STOCK EXCHANGE : A REGULATED MARKET PLACE IN
WHICH LISTED SECURITIES ARE BOUGHT AND SOLD
THROUGH THE INTERVENTION OF MEMBERS ( BROKERS)
OF STOCK EXCHANGE BY FOLLOWING A OPEN SYSTEM OF
TWO WAY QUOTATION . THE SETTLEMENT OF TRADERS IS
DONE ACCORDING TO THE BYE LAWS OF THE SE.
SE HAS TO BE RECOGNIZED BY CENTRAL GOVT., U/S 4 OF
SCRA 1956.
PRESENTLY THERE ARE 23 SE’S IN INDIA.
MAJOR TRANSACTIONS ARE ON BSE AND NSE.
 STOCK EXCHANGE
BSE : OLDEST SE . FROM 1861 TO 1875 TRADING TOOK
PLACE UNDER A BANYAN TREE WHERE TODAY BSE IS
SITUATED.
IN 1875 FEW PEOPLE MADE AN ASSOCIATION BY THE NAME
NATIVE SHARE AND STOCK BROKERS ASSOCIATION . A
VOLUNTARY NPO SUBSEQUENTLY REGISTERED AS BSE IN
1887 AND RECOGNIZED AS SE.
OLD SYSTEM : MEMBERS AS WELL AS THEIR AUTHORIZED
REPRESENTATIVES WERE ALLOWED TO ENTER THE RING.
MEMBERS WERE PROVIDED CABINS AROUND TRADING RING.
MEMBERS USED TO SHOUT THEIR QUOTATION FOR BUYING
AND SELLING THE SHARES.AFTER NEGOTIATIONS ORDER
USED TO BE CONVERTED IN A TRADE.
MEMBERS WERE PROVIDED TELECOMMUNICATIONS WITHIN
THE TRADING RING THROUGH TELEPHONES AND HOTLINE.
COUNTERS FOR CERTAIN PROMINENT SHARES WERE
PROVIDED WITHIN THE TRADING RING TO FACILITATE
TRADERS IN THESE SHARES.
 STOCK EXCHANGE
DISPLAY OF PRICES ON PTI SCREEN.
REPORTING OF TRADES TO EXCHANGE OFFICIALS AT THE
END OF TRADING SESSION.
SETTLEMENT OF TRADES THROUGH INTERVENTION OF A
CLEARING HOUSE.

NEW SYSTEM :PHYSICAL PRESENCE OF THE MEMBERS OR

THEIR REPRESENTATIVES IN THE TRADING RING IS NOT
NEEDED.IT IS DONE THROUGH A NETWORK OF COMPUTERS
CONNECTED TO THE MAINFRAME OF THE
EXCHANGE.AUTOMATION SUPPORT , MAINFRAME , NETWORK
CONNECTIVITY THROUGH SATELLITE , ARRANGEMENT OF
NECESSARY INFRASTRUCTURE FOR TRADING ( SOFTWAE ,
HARDWARE ETC. ) IS PROVIDED BY THE SE.
EVERY MEMBER HAS A COMPUTER SET CALLED AS TRADERS
WORK STATION.
ORDERS ARE FED ON THE SYSTEM FOR OPEN DISPLAY.
COMPUTER DOES THE AUTOMATIC MATCHING OF THE
ORDERS ON PRICE AND TIME PRIORITY.
TRADES ARE IMMEDIATELY CONFIRMED ON THE COMPUTER
SCREEN OF THE RESPECTIVE BROKER.
CLEARING HOUSE DOES THE NETTING FOR THE SETTLEMENT
OF TRADES AS PER THE SETTLEMENT PROGRAMME.
 SETTLEMENT CYCLE
SETTLEMENT CYCLE (T+2)

DAY ACTIVITY

T TRADE
T+1 CUSTODIAL CONFIRMATION AND FINAL OBLIGATION
T+2 PAY IN/PAY OUT OF FUNDS AND SECURITIES
T+3 AUCTION FOR SHORTAGES
T+4 ---------------
T+5 PAY IN / PAY OUT OF FUNDS AND
SECURITIES FOR AUCTION
 STOCK EXCHANGE
AHMEDABAD SE STARTED IN 1894
CALCUTTA SE STARTED IN 1908
MADRAS SE STARTED IN 192
DELHI SE STARTED IN 1947

1. FEATURES OF STOCK EXCHANGES :

TRADING THROUGH MEMBERS / BROKERS.
TRADING IN LISTED SECURITIES.
OPEN SYSTEM OF SECURITIES.
COMPLETELY REGULATED.
SETTLEMENT THROUGH THE SE’S.
2. MEMBERSHIP QUALIFICATIONS :
CRITERION INDIVIDUAL/FIRM COMPANY
NET WORTH 100 LAKH 200 LAKH
INITIAL SECURITY 125 LAKH 250-275 LAKH
COLLATERAL SECURITY 25 LAKH 25 LAKH
ANNUAL SUBSCRIPTION 1 LAKH 2 LAKH
 FUNCTIONS OF STOCK EXCHANGE
1. AN ORGANISATION TO FACILITATE BUYING AND
SELLING OF SECURITIES IN AN ORDERLY MARKET.ALL
THE TRANSACTIONS ARE EXECUTED IN A REGULATED
ENVIRONMENT. TO FACILITATE SMOOTH TRADING AND
SETTLEMENT OF TRANSACTIONS A SE PERFORMS
FOLLOWING FUNCTIONS:
2. ENROLMENT OF MEMBERS: SE APPOINTS MEMBERS OF
THE SE WHO ARE AUTHORIZED TO CARRY OUT TRADING
IN SECURITIES.HE HAS TO FULFILL ALL THE
QUALIFICATION AS SPECIFIED BY THE BYE LAWS OF
THE SE AND SEBI.HE HAS TO GIVE INITIAL DEPOSIT AS
WELL AS MEMBERSHIP FEES TO THE SE.
3. MAKE BYE LAWS OF THE SE : A RECOGNIZED SE IS
REQUIRED TO HAVE IT’S SET OF BYE LAWS FOR
EFFECTIVE AND REGULATED FUNCTIONING OF SE.
LISTING AND DELISTING REQUIREMENTS/MEMBERSHIP
REQUIREMENTS /TRADING RULES AND PROCEDURES/
RULES FOR MARGINS/RULES FOR SETTLEMENT OF
TRADES BY CLEARING HOUSE / ARBITRATION RULES /
RULES FOR CHECKING GOOD BAD DELIVIRIES /
MISCELLANEOUS.
 FUNCTIONS OF STOCK EXCHANGE
4. PROVIDES FOR THE LISTING REQUIREMENTS : EVERY SE
MAKES NECESSARY ARRANGEMENTS AND RULES SO THAT
SECURITIES ISSUED BY THE COMPANIES CAN BE LISTED ON
THE SE FOR TRADING. IT INCLUDES MINIMUM ISSUE SIZE ,
MINIMUM PUBLIC OFFER , MANNER OF ALLOTMENT ETC.

5. PROVIDE FACILITIES FOR TRADING :

LISTING OF SECURITIES
FACILITIES NECESSARY FOR EXECUTING TRADE , LIKE
TRADING FLOOR , RULES FOR QUOTATION , RULES FOR
MATCHING ORDERS , COMMUNICATION FACILITIES FOR
TRADING.
ESTABLISHMENT OF CLEARING HOUSE FOR SETTLEMENT OF
TRADES.
PUBLICATION OF INFORMATION.

6. PROVIDE CLEARING SERVICES :TRANSACTIONS EXECUTED ON

THE FLOOR OF SE HAVE TO BE SETTLED THROUGH THE
INTERVENTION OF SE.FOR THIS PURPOSE CLEARING HOUSE
HAS TO FUNCTION.
 FUNCTIONS OF STOCK EXCHANGE
7. PUBLICATION OF INFORMATION : DISSEMINATION OF
INFORMATION HELPS MEMBERS AND INVESTORS TO TAKE
EFFECTIVE DECISIONS
DAILY RATE LIST
CORPORATE ACTION INFORMATION
LISTING RULES
TRADING RULES
MEMBERSHIP RULES
INFORMATION RECEIVED FROM COMPANIES ABOUT
MERGERS , MEETING, BOOK CLOSURE ETC.
CALCULATION OF INDEX AND PUBLICATION
GUIDELINES FOR GOOD AND BAD DELIVIRIES
OTHER EXCHANGE SPECIFIC INFORMATION.

8. ARBITRATION : ALL SE’S HAVE SEPARATE CELL FOR

SETTLEMENT FO DISPUTES ARISING BETWEEN MAMBERS OR
MEMBERS AND INVESTORS.THE DECISION OF THE CELL IS
FINAL AND BINDING ON ALL THE PARTIES WITH RESPECT
TO THE DISPUTES ABOUT TRADING AND SETTLEMENT.
 LISTING REQUIREMENTS
PRESENTLY THERE ARE 10,000 SECURITIES LISTED IN
VARIOUS SE’S IN INDIA.
COMPANY MUST HAVE MINIMUM ISSUED AND PAID UP
CAPITAL OF RS. 3 CRORES FOR LISTING AT A STOCK
EXCHANGE (FOR MUMBAI THIS AMOUNT IS 10 CRORES ).
OUT OF ISSUED CAPITAL MINIMUM PUBLIC OFFER SHOULD BE
25% FOR THE GENERAL PUBLIC WITHOUT ANY KIND OF
RESERVATIONFOR THIS PORTION. NO INDIVIDUAL
SHAREHOLDER SHOULD HOLD MORE THAN 0.5% OF THE PAID
UP CAPITAL OF THE COMPANY INDIVIDUALLY OR JOINTLY
EXCEPT BANKS / FINANCIAL INSTITUTIONS.
COMPANY IS TO DEPOSIT 1% OF THE ISSUE AMOUNT WITH
THE REGIONAL SE AS SECURITY DEPOSIT .
INITIAL AND ANNUAL LISTING FEE IS TO BE PAID BY YHE
COMPANY AS LAID DOWN BY THE SE.
ALLOTMENT OF SHARES IS TO BE FINALISED WITHIN 30 DAYS
FROM THE CLOSURE OF THE ISSUE.
COMPANY IS BOUND TO PROVIDE SIGNIFICANT DETAILS
ABOUT THE MEETING OF THE DIRECTORS AND
SHAREHOLDERS AS AND WHEN HELD.
 CONTROLLER OF CAPITAL ISSUES
1. CCI IS WORKING ON THE CONCEPT OF EXERCISING
CONTROL ON THE CAPITAL MARKET ACTIVITIES WITH
SPECIAL EMPHASIS ON THE PRIMARY MARKET ACTIVITIES.
PRICING OF ISSUE: MANDATORY FOR THE COMPANIES TO
GET CLEARANCE FROM CCI REGARDING FIXATION OF ISSUE
PRICE.COMPANIES COULD NOT CHARGE THE PRICE MORE
THAN THE PRICE SPECIFIED BY CCI.
TIMING OF ISSUE: CCI EXERCISED STRICT CONTROL OVER
THE TIMING OF THE ISSUE, WHICH IMPLIED THAT CCI HAD
POWER TO STOP THE COMPANIES FROM RAISING THE
CAPITAL FROM THE CAPITAL MARKET.PURPOSE WAS NOT
TO OVERCROWD THE MARKET WITH ISSUES.
CAPITAL STRUCTURE OF THE COMPANY : CCI ACT
PROVIDED STRICT ADHERENCE TO THE RULES ABOUT
CAPITAL STRUCTURE SPECIFIED IN THE ACT . LIKE
MAINTAINING DEBT EQUITY RATIO AS 2:1.
PERMISSION FOR THE ISSUE:PERMISSION REQUIRED FROM
CCI BEFORE ANY ISSUE CAN HIT THE MARKET.CCI CARRIED
OUT THOROUGH EXAMINATION OF THE PROSPECTUS OR
OFFER DOCUMENT ISSUED IN LIEU OF PROSPECTUS.
 REPEAL OF CONTROLLER OF CAPITAL ISSUES
1. IT ACTED AS CONTROLLER WHO DID NOT GIVE ANY
FREEDOM TO THE COMPANIES ABOUT RAISING CAPITAL.
2. DID NOT DO MUCH ABOUT INVESTOR EDUCATION AND
PROTECTION AS A RESULT OF WHICH INDIAN INVESTOR
REMAINED UNAWARE ABOUT DEVELOPMENTS AND NEW
PRACTICES IN THE CAPITAL MARKET.
STRICT CONTROL ON THE ISSUE PRICING WAS A HINDRANCE
IN THE INTRODUCTION OF FREE MARKET CONCEPT.
RESTRICTION ABOUT THE CAPITAL STRUCTURE AFFECTED
THE GROWTH OF THE COMPANIES.
INTERVENTION ABOUT THE TIMING OF THE ISSUE CREATED
DIFFICULTY IN RAISING CAPITAL AT THE DESIRED TIME.
THERE WERE NO PROVISION ABOUT THE TRANSPERANCY
AND FAIR DEALINGS IN THE PRIMARY MARKET .
AN INEFFICIENT AND INCOMPLETE CONTROL OVER THE
SECONDARY MARKET.
CAPITAL MARKET INTERMEDIARIES WERE NOT REGULATED.
 SECURITIES AND EXCHANGE BOARD OF INDIA ( SEBI ) ACT , 1992
1. THE ACT WAS IMPLEMENTED IN MAY’ 1992 AND IT REPLACED
CCI. SEBI ACT PROVIDES FOR THE REGULATION THROUGH
THE CONCEPT OF FULL DISCLOSURE AND TRANSPERANCY IN
THE CAPITAL MARKET ACTIVITIES . IT AIMS TO REGUATE
THE FOLLOWING :
PRIMARY MARKET ACTIVITIES .
SECONDARY MARKET ACTIVITIES.
INTERMEDIARIES OF. CAPITAL MARKET.
COMPANIES.
INVESTORS.

2. STRUCTURAL CHANGES IN THE CAPITAL MARKET

:IMPLEMENTATION OF SEBI ACT SEVERAL STRUCTURAL
CHANGES HAVE TAKEN PLACE :
FREE PRICING ISSUES
TRANSPERANCY AND FULL DISCLOSURE
SHIFT FROM CONTROL AND REGULATION
REGULATION OF STOCK MARKET AND IT’S INTERMEDIARIES
REGULATION OF PRIMARY MARKET AND IT’S
INTERMEDIARIES
REGULATION OF INSIDER TRADING
INVESTOR PROTECTION AND EDUCATION.
 SECURITIES AND EXCHANGE BOARD OF INDIA ( SEBI ) ACT , 1992
FREE PRICING ISSUE :FREE PRICING MEANS THE REGULATORY
BODY WILL NOT DECIDE ABOUT THE ISSUE OF THE PRICE OF
THE SECURITIES TO BE ISSUED IN THE PRIMARY MARKET
,INSTEAD THE ISSUING COMPANY WILL DECIDE.SEBI HAS
PROVIDED A SET OF BROAD GUIDELINES WITHIN WHICH A
COMPANY CAN DECIDE ABOUT THE PRICING.IT DOES NOT
INTERFERE ABOUT THE PREMIUM CHARGED BY THE COMPANY.
TRANSPERANCY AND FULL DISCLOSURE :SEBI HAS MADE IT
MANDATORY FOR THE COMPANIES TO HAVE COMPLETE
MATERIALISTIC DISCLOSURE IN THE PROSPECTUS AND THE
APPLICATION FORM ISSUED AT THE TIME OF RAISING CAPITAL
LIKE RISK FACTOR / BACKGROUND OF THE COMPANY /
BACKGROUND OF THE HOLDING OF PROMOTERS IN THE
COMPANY / EXPERIENCE AND AFFILIATION OF THE
DIRECTORS/PAST PERFORMANCE OF THE COMPANY /
EXPECTED PERFORMANCE OF THE COMPANY AND IT’S
ESTIMATES / JUSTIFICATION OF ISSUE PRICE / OTHER
RELEVANT INFORMATION.
 SECURITIES AND EXCHANGE BOARD OF INDIA ( SEBI ) ACT , 1992

SHIFT FROM CONTROL TO REGULATION : MISSION OF SEBI IS

NOT TE EXERCISE CONTROL BUT TO REGULATE THE
ACTIVITIES BY PROVIDING BROAD GUIDELINES. COMPANIES
ARE NOT REQUIRED TO TAKE PERMISSION FOR ISSUE OF
SECURITIES , INSTAED THE PROSPECTUS OR OFFER
DOCUMENT IS TO BE VETTED BY SEBI WHERE IT SEES THAT
THE COMPANY HAS PROVIDED FULL DISCLOSURE AND
MAINTAINED THE STANDARD OF TRANSPERANCY OR NOT.
REGULATION OF STOCK MARKET AND IT’S INTERMEDIARIES
:REGULATES STOCK MARKET ACTIVITIES BY PROVIDING
POLICY GUIDELINES FOR THE SE AND IT’S
INTERMEDIARIES.PROVIDES FOR REGISTRATION OF BROKERS
AND SUB BROKERS.
REGULATION OF PRIMARY MARKET AND IT’S
INTERMEDIARIES :SEBI TRIES TO BRING TRANSPERANCY IN
THE PRIMARY MARKET ACTIVITY.FOR THIS IT PROVIDES FOR
REGISTRATION OF ALL THE INTERMEDIARIES OF THE PRIMARY
MARKET WITH SEBI.THEY BEING BANKER’S TO THE ISSUE /
MERCHANT BANKERS / REGISTRAR TO THE ISSUE / TRANSFER
AGENTS / UNDERWRITERS / BROKERS TO THE ISSUE ETC.
 SECURITIES AND EXCHANGE BOARD OF INDIA ( SEBI ) ACT , 1992

REGULATION OF INSIDER TRADING : AN ACTIVITY OF BUYING

AND SELLING THE SECURITIES TO GENERATE PROFIT BY
USING PRICE SENSITIVE INFORMATION BEFORE SUCH
INFORMATION IS MADE PUBLIC.INSIDER BEING A PERSON OR
ORGANISATION WHO HAS AN ACCESS TO PRICE SENSITIVE
INFORMATION BEFORE SUCH INFORMATION IS MADE PUBLIC.

INVESTOR PROTECTION AND EDUCATION :RESPONSIBILITY OF

PROVIDING A SAFETY NET TO PROTECT THE INTEREST OF
INVESTORS AGAINST ALL MALPRACTICES AND FRAUDS.IT MAY
TAKE THE FORM OF PRICE RIGGING / INSIDER TRADING /
UNFAIR ALLOTMENT OF SHARES AND DEBENTURES / DELAY IN
ALLOTMENT OR REFUND / NON RECEIPT OF DIVIDEND OR
BONUS / DELAY IN TRANSFER OF SECURITIES / DELAY IN
PAYMENT OR DELIVERY BY BROKER / PROBLEMS RELATED TO
DEPOSITORY / PROBLEMS RELATED TO MUTUAL FUNDS AND
PORTFOLIO ETC.
 SECURITIES AND EXCHANGE BOARD OF INDIA ( SEBI ) ACT , 1992
1. ACHIEVEMENTS OF SEBI :
INTRODUCTION OF ONLINE TRADING
INTRODUCTION OF DEPOSITORY SYSTEM AND
DEMATERIALISATION
RESTRICTION ON SPECULATIVE ACTIVITIES
INTRODUCTION OF ROLLING SETTLEMENT
BAN ON BADLA
INTRODUCTION OF DERIVATIVE TRADING
PROVISION FOR TAKEOVER CODE OF CONDUCT
REGULATION OF MUTUAL FUNDS
INVESTOR PROTECTION AND EDUCATION
PROVISIONS TO CONTROL INSIDER TRADING
FREE PRICING ISSUES
REGULATION OF INTERMEDIARIES.
2. THESE ACHIEVEMENTS OF SEBI HAVE HELPED IN
BRINGING TRANSPERANCY AND FULL DISCLOSURE IN
THE CAPITAL MARKET ACTIVITIES WHICH HAVE
BENEFITTED THE INVESTORS AND ALL PARTIES
ASSOCIATED WITH THE CAPITAL MARKET.
 ROLLING SETTLEMENT
Rolling Settlement is a mechanism of settling trades done on a
stock exchange on T i.e. trade day plus "X" trading days, where
"X" could be 1,2,3,4 or 5 days. In other words, in T+5
environment, a trade done on T day is settled on the 5th working
day excluding the T day. In India, until recently, the settlement of
majority of trades was done on Account Period basis, where trades
done in a trading cycle of 5 days were consolidated, scrip-wise
netted and settlement of such netted trades took place on a single
day in the following week. Thus, it took anywhere between one to
two weeks for the investor, depending upon the day of his
transaction, to realize the money for shares sold or get delivery of
shares purchased.
However, in the Rolling Settlements, trades done on each single
day are settled separately from the trades done on earlier or
subsequent trading days. The netting of trades is done only for the
day and not for multiple days. Initially, the trades in Rolling
Settlements, to begin with, were settled after 5 trading days from
the day of trading. However, w.e.f. April 1, 2002, the trades in all
the scrips listed and traded on the exchange are now settled on
T+3 basis. The investors are advised to check with their broker
about the exact date of settlement, as deviations are possible on
account of intervening holidays etc.
 SECURITIES AND EXCHANGE BOARD OF INDIA ( SEBI ) ACT , 1992

1. DRAWBACKS OF SEBI :IN CERTAIN AREAS SEBI HAS NOT

BEEN ABLE TO DELIVER.

DELAY IN TAKING ACTION IN THE EVENT OF DEFAULT OR

SCAM.

LACK OF WARNING SYSTEM TO DETECT THE SCAM.

SEBI DOES NOT HAVE JUDICIAL POWERS.

OVERLAPPING OF CERTAIN PROVISIONS WITH OTHER

ACTS.

SLOW PROGRESS OF INVESTOR’S EDUCATION AND

PROTECTION PROGRAMME.

NO REGULATION OF PLANTATION AND NBFC’S.