1.

Introduction to Financial Market
Introduction Financial market is an institution that facilitates the exchange of financial instruments. In general, the financial market divided into two parts, Money market and capital market. Securities market is an important, organized capital market where transaction of capital is facilitated by means of direct financing using securities as a commodity. Securities market can be divided into a primary market and secondary market. The stock market can be a great source of confusion for many people. The average person generally falls into one of two categories. The first believe investing is a form of gambling; they are certain that if you invest, you will more than likely end up losing your money. Often these fears are driven by the personal experiences of family members and friends who suffered similar fates or lived through the Great Depression. These feelings are not ground in facts and are the result of personal experience. Someone who believes along this line of thinking simply does not understand what the stock market is or why it exists. The second category consists of those who know they should invest for the longrun, but don t know where to begin. Many feel like investing is some sort of blackmagic that only a few people hold the key to. More often than not, they leave their financial decisions up to professionals, and cannot tell you why they own a particular stock or mutual fund. Their investment style is blind faith or limited to this stock is going up. We should buy it. This group is in far more danger than

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the first. They invest like the masses and then wonder why their results are mediocre (or in some cases, devastating). In this series of lessons, I set out to prove that the average investor can evaluate the balance sheet of a company, and following a few relatively simple calculations, arrive at what they believe is the real , or intrinsic value of the company. This will allow a person to look at a stock and know that it is worth, for instance, $40 per share. This gives each investor the freedom to know when a security is undervalued, increasing their long-term returns substantially. Before we examine how to value a company, it is important to understand the nature of businesses and the stock market. This is the cornerstone of learning to invest well.

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1.2 Primary Market The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. Features of Primary Market:  This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM).  In a primary issue, the securities are issued by the company directly to investors.  The company receives the money and issues new security certificates to the investors.  Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business.  The primary market performs the crucial function of facilitating capital formation in the economy.  The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as "going public."
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1.3 Secondary Market The secondary market is an on-going market, which is equipped and organized with a place, facilities and other resources required for trading securities after their initial offering. It refers to a specific place where securities transaction among many and unspecified persons is carried out through intermediation of the securities firms, i.e., a licensed broker, and the exchanges, a specialized trading organization, in accordance with the rules and regulations established by the exchanges. A bit about history of stock exchange they say it was under a tree that it all started in 1875.Bombay Stock Exchange (BSE) was the major exchange in India till 1994.National Stock Exchange (NSE) started operations in 1994. NSE was the first to introduce electronic screen based trading. BSE was forced to follow suit. The present day trading platform is transparent and gives investors prices on a real time basis. With the introduction of depository and mandatory dematerialization of shares chances of fraud reduced further. The trading screen gives you top 5 buy and sell quotes on every scrip. A typical trading day starts at 9 ending at 3.30. Monday to Friday. BSE has 30 stocks which make up the Sensex .NSE has 50 stocks in its index called Nifty. FII s Banks, financial institutions mutual funds are biggest players in the market. Then there are the retail investors and speculators. The last ones are the ones who follow the market morning to evening; Market can be very addictive like blogging though stakes are higher in the former.

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2. Secondary Market
2.1 Meaning & Definition The secondary market, also known as the aftermarket, is the financial market where previously issued securities and financial instruments such

as stock, bonds, options, and futures are bought and sold. The term "secondary market" is also used to refer to the market for any used goods or assets, or an alternative use for an existing product or asset where the customer base is the second market (for example, corn has been traditionally used primarily for food production and feedstock, but a "second" or "third" market has developed for use in ethanol production). Another commonly referred to usage of secondary market term is to refer to loans which are sold by a mortgage bank to investors . The secondary market for a variety of assets can vary from loans to stocks, from fragmented to centralized, and from illiquid to very liquid. The major stock exchanges are the most visible example of liquid secondary markets - in this case, for stocks of publicly traded companies. Exchanges such as the New York Stock Exchange, Nasdaq and the American Stock Exchange provide a

centralized, liquid secondary market for the investors who own stocks that trade on those exchanges. Most bonds and structured products trade over the counter, or by phoning the bond desk of one s broker-dealer. Loans sometimes trade online using a Loan Exchange.

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2.2 History of Stock Exchange Do you know that the world's foremost marketplace New York Stock Exchange (NYSE), started its trading under a tree (now known as 68 Wall Street) over 200 years ago? Similarly, India's premier stock exchange Bombay Stock Exchange (BSE) can also trace back its origin to as far as 125 years when it started as a voluntary non-profit making association. News on the stock market appears in different media every day. You hear about it any time it reaches a new high or a new low, and you also hear about it daily in statements like 'The BSE Sensitive Index rose 5% today'. Obviously, stocks and stock markets are important. Stocks of public limited companies are bought and sold at a stock exchange. But what really are stock exchanges? Known also as the stock market or bourse, a stock exchange is an organized marketplace for securities featured by the centralization of supply and demand for the transaction of orders by member brokers, for institutional and individual investors.

The exchange makes buying and selling easy. For example, you don't have to actually go to a stock exchange, say, BSE - you can contact a broker, who does business with the BSE, and he or she will buy or sell your stock on your behalf.

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2.3 Origin of Indian Stock Market The origin of the stock market in India goes back to the end of the eighteenth century when long-term negotiable securities were first issued. However, for all practical purposes, the real beginning occurred in the middle of the nineteenth century after the enactment of the companies Act in 1850, which introduced the features of limited liability and generated investor interest in corporate securities. An important early event in the development of the stock market in India was the formation of the native share and stock brokers 'Association at Bombay in 1875, the precursor of the present day Bombay Stock Exchange. This was followed by the formation of associations/exchanges in Ahmadabad (1894), Calcutta (1908), and Madras (1937). In addition, a large number of ephemeral exchanges emerged mainly in buoyant periods to recede into oblivion during depressing times subsequently. Stock exchanges are intricacy inter-woven in the fabric of a nation's economic life. Without a stock exchange, the saving of the community- the sinews of economic progress and productive efficiency- would remain underutilized. The task of mobilization and allocation of savings could be attempted in the old days by a much less specialized institution than the stock exchanges. But as business and industry expanded and the economy assumed more complex nature, the need for 'permanent finance' arose. Entrepreneurs needed money for long term whereas investors demanded liquidity the facility to convert their investment into cash at any given time. The answer was a ready market for investments and this was how the stock exchange came into being.

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Stock exchange means any body of individuals, whether incorporated or not, constituted for the purpose of regulating or controlling the business of buying, selling or dealing in securities. These securities include: (i) Shares, scrip, stocks, bonds, debentures stock or other marketable securities of a like nature in or of any incorporated company or other body corporate. (ii)Government securities. (iii) Rights or interest in securities. The Bombay Stock Exchange (BSE) and the National Stock Exchange of India Ltd (NSE) are the two primary exchanges in India. In addition, there are 22 Regional Stock Exchanges. However, the BSE and NSE have established themselves as the two leading exchanges and account for about 80 per cent of the equity volume traded in India. The NSE and BSE are equal in size in terms of daily traded volume. The average daily turnover at the exchanges has increased from Rs 851 crore in 1997-98 to Rs 1,284 crore in 1998-99 and further to Rs 2,273 crore in 1999-2000 (April - August 1999). NSE has around 1500 shares listed with a total market capitalization of around Rs 9, 21,500 crore. The BSE has over 6000 stocks listed and has a market capitalization of around Rs 9, 68,000 crore. Most key stocks are traded on both the exchanges and hence the investor could buy them on either exchange. Both exchanges have a different settlement cycle, which allows investors to shift their positions on the bourses. The primary index of BSE is BSE Sensex comprising 30 stocks. NSE has the S&P NSE 50 Index (Nifty) which consists of fifty stocks. The BSE Sensex is the older and more widely followed index.

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Both these indices are calculated on the basis of market capitalization and contain the heavily traded shares from key sectors. The markets are closed on Saturdays and Sundays. Both the exchanges have switched over from the open outcry trading system to a fully automated computerized mode of trading known as BOLT (BSE on Line Trading) and NEAT (National Exchange Automated Trading) System. It facilitates more efficient processing, automatic order matching, faster execution of trades and transparency; the scrip's traded on the BSE have been classified into 'A', 'B1', 'B2', 'C', 'F' and 'Z' groups. The 'A' group shares represent those, which are in the carry forward system (Badla). The 'F' group represents the debt market (fixed income securities) segment. The 'Z' group scrip's are the blacklisted companies. The 'C' group covers the odd lot securities in 'A', 'B1' & 'B2' groups and Rights renunciations. The key regulator governing Stock Exchanges, Brokers, Depositories, Depository participants, Mutual Funds, FIIs and other participants in Indian secondary and primary market is the Securities and Exchange Board of India (SEBI) Ltd.

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1. Traditional Structure of Indian Stock Exchange According to legal structure, the Stock Exchange in India could be separated into  2 broad groups  20 stock exchanges which were set up as companies, either limited by guarantees or by shares  3 stock exchanges which are functioning as associations of persons (AOP) viz. BSE, NSE and Madhya Pradesh Stock Exchange The 20 stock exchanges which are companies are the stock exchanges of: Bangalore Stock Exchange Bhubaneswar Stock Exchange Calcutta Stock Exchange Cochin Stock Exchange Coimbatore Stock Exchange Delhi Stock Exchange Gauhati Stock Exchange Hyderabad Stock Exchange Interconnected Stock Exchange Jaipur Stock Exchange Ludhiana Stock Exchange Madras Stock Exchange Magadh Stock Exchange Mangalore Stock Exchange NSE Stock Exchange Pune Stock Exchange OTCEI Stock Exchange Saurashtra-Kutch Stock Exchange Uttar Pradesh Stock Exchange Vadodara Stock Exchange

Apart from NSE, all stock exchanges whether established as corporate bodies or Association of Persons (AOPs), are non-profit making organizations.

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2. Demutualization of Stock Exchanges The transactions process of an exchange from a mutually-owned association to a company owned by shareholders is called demutualization. In other words, transforming the legal structure, of an exchange from a mutual form to a business corporation form is referred to as demutualization. The demutualized Stock Exchange in India are: y The National Stock Exchange (NSE) y Over the Counter Exchange of India (OTCEI)

3. Corporation of Stock Exchanges Corporation of Stock Exchanges is the process of converting the organizational structure of the stock exchange from a non-corporate structure to a corporate structure. Traditionally, some of the stock exchanges in India were established as "Association of persons", like BSE, ASE and MPSE. Corporation of these exchanges is the process of converting them into incorporated Companies. 4. Management of Stock Exchange The recognized stock exchanges are managed by Governing Board . The

governing board consists of elected member directors from stock broker members, public representatives and government nominees nominated by the SEBI.

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The government has also power to nominate President and Vice-President of stock exchange and to approve the appointment of the Chief Executive and public representatives. The major stock exchanges are managed by the Chief Executive Officer and the smaller stock exchanges are under the control of secretary. The Governing Boards have power such as:  Selection of office bearers and setting up of committees like Listing Committee, Arbitration Committee, Defaulters Committee, etc.,  Admission or expulsion of members,  Management of the properties and finances of the exchange,  Framing and interpretation of rules, bye-laws etc. for the regulation of stock exchange,  Adjudication of disputes among members or outsiders,  Management of the affairs of the exchange in the best interest of the investors and public interest. 5. Membership To become a member of a recognized stock exchange, a person must posses the following qualifications:  He should be a citizen of India,  He should not be less than 21 year of age,  He should not have been adjudged bankrupt or insolvent,  He should not have been convicted for an offence involving fraud or dishonesty.

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He should not be engaged in any other business except dealing in securities,  He should not have been expelled by any other stock exchange or declared a defaulter by any other stock exchange. Apart from individuals, a company is also eligible to become a member provided it satisfies the conditions imposed by the stock exchange concerned.

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2.4 Features of Stock Exchange  Organized Market Stock exchange is an organized market. It deals with the securities such as shares, debentures and bonds. It provides common platform to the members of the exchange for carrying out transactions in securities. The transaction is carried out through the authorized broker or member of the stock exchange. It provides ready market to securities.  Private Status Stock exchange is an association of persons. It is a privately owned association. Some of the stock exchanges are the joint stock companies, while some of them are association of persons. The stock exchange should be registered with the government.  Government Control Stock exchange operates under the control of the government. Today SEBI has been controlling stock exchange in India. There are wide powers granted to SEBI by the government to regulate and control the stock exchange, particularly after securities scams.

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Rules & Regulations Stock exchange is an organized market which operated under well defined rules & regulations. Every stock exchange has it s own constitutions, bye-laws with managing body for orderly functioning of the exchange. The bye- laws contain detailed rules & regulations for carrying out securities transactions.  Security Contracts Every transaction entered into by the parties in the stock exchange is a contract governed under the Securities Contracts (Regulation) Act, 1956. Therefore, the provision of the Securities Contract Act, have to be followed in day to day operations of the stock exchange.  Nerve Center of Economy Stock exchange considered as a nerve center of the economy of any country. It is connected with the saving, investment and capital formation in the country. The country s economy is closely connected with the performance of the stock market.  Sensitive Stock exchange are sensitive to the economic, political and social evens in the country as well as world events such as war, earthquake, flood, political charge, economic crisis affect the stock prices.

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2.5 Functions of Stock Exchanges The stock market occupies a pivotal position in the financial system. It performs several economic functions and renders invaluable services to the investors, companies, and to the economy as a whole. These are summarized as follows: y Liquidity & Marketability of Securities Stock exchange provides liquidity to the securities since securities can be converted in to cash at any time according to the discretion of the investor by selling them at listed price. They facilitates buying and selling of the securities at listed price by providing continuous marketability to the investors in respect of securities they hold intended to hold. Thus, they create a ready outlet for dealing in securities. y Safety of Funds Stock exchange ensures safety of funds invested because they have to function under strict rules and regulation and bye-laws are meant to ensure safety of investible funds. Overtrading, illegitimate speculations, etc. are prevented through carefully designed set of rules. This would strengthen the investor s confidence and promote large investment. y Supply of Long Term Funds The securities traded in the stock market are negotiable and transferable in character and such as they can be transferred with minimum of formalities from one hand to another, but company is assured of long term availability of funds.

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y Flow of Capital to Profitable Ventures The profitability and popularity of companies are reflected in stock prices. The price quoted indicates the relative profitability and performance of the companies and this facilitates the flow of capital in profitable channels. y Reflection of Business Cycle The changing business conditions in the economy are immediately reflects through capital formation. But for these stock exchanges, surplus funds available with individuals and institutions would not have gone for productive and remunerative ventures. y Speculations The stock exchange helps to make speculations in the market. Healthy speculations keep the exchange active. Normal speculations are not harmful but it provides more business to the exchanges. Therefore, stock exchanges encourage speculations in securities.

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2.6 Products deals in Secondary Market  Equity Shares: An equity share, commonly referred to as ordinary share also represents the form of fractional ownership in which a shareholder, as a fractional owner, undertakes the maximum entrepreneurial risk associated with a business venture. The holders of such shares are members of the company and have voting rights.  Rights Issue / Rights Shares: The issue of new securities to existing shareholders at a ratio to those already held. 

Bonus Shares: Shares issued by the companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years. 

Preferred Stock / Preference shares: Owners of these kinds of shares are entitled to a fixed dividend or dividend calculated at a fixed rate to be paid regularly before dividend can be paid in respect of equity share. They also enjoy priority over the equity shareholders in payment of surplus. But in the event of liquidation, their claims rank below the claims of the company s creditors, bondholders / debenture holders.

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Cumulative Preference Shares: A type of preference shares on which dividend accumulates if remains unpaid. All arrears of preference dividend have to be paid out before paying dividend on equity shares. 

Cumulative Convertible Preference Shares: A type of preference shares where the dividend payable on the same accumulates, if not paid. After a specified date, these shares will be converted into equity capital of the company. 

Participating Preference Share: The right of certain preference shareholders to participate in profits after a specified fixed dividend contracted for is paid. Participation right is linked with the quantum of dividend paid on the equity shares over and above a particular specified level. 

Security Receipts: Security receipt means a receipt or other security, issued by a securitisation company or reconstruction company to any qualified institutional buyer pursuant to a scheme, evidencing the purchase or acquisition by the holder thereof, of an undivided right, title or interest in the financial asset involved in securitisation. 

Government securities: These are credit risk-free coupon bearing instruments which are issued by the Reserve Bank of India on behalf of Government of India, in lieu of the Central
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Government's market borrowing programme. These securities have a fixed coupon that is paid on specific dates on half-yearly basis. These securities are available in wide range of maturity dates, from short dated (less than one year) to long dated (up to twenty years).  Debentures: Bonds issued by a company bearing a fixed rate of interest usually payable half yearly on specific dates and principal amount repayable on particular date on redemption of the debentures. Debentures are normally secured / charged against the asset of the company in favour of debenture holder.  Bond: A negotiable certificate evidencing indebtedness. It is normally unsecured. A debt security is generally issued by a company, municipality or government agency. A bond investor lends money to the issuer and in exchange, the issuer promises to repay the loan amount on a specified maturity date. The issuer usually pays the bond holder periodic interest payments over the life of the loan.  Commercial Paper: A short term promise to repay a fixed amount that is placed on the market either directly or through a specialized intermediary. It is usually issued by companies with a high credit standing in the form of a promissory note redeemable at par to the holder on maturity and therefore, doesn t require any guarantee. Commercial paper is a money market instrument issued normally for tenure of 90 days.  Treasury Bills: Short-term (up to 91 days) bearer discount security issued by the Government as a means of financing its cash requirements.

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2.8 Services of Stock Exchanges Stock Exchange provides variety of services which are useful to the following parties: 1. Services to the Investors Investors in the country are the important component in secondary market. They invest their savings in the stock market in order to get more return on their investment. The stock exchange provides the following services to these investors:  Liquidity to their investment is ensured by enabling them to sell securities whenever they need liquid funds.  Information about the prices of securities listed on the exchange through daily quotations.  Safety and security to the transactions entered into by the investor in the market.  Better price for the securities through the sensitive and continuous operations.  Guidance to the investors regarding the choice of security to be purchased.  Wide market is provided to the listed securities with the help of large number of brokers, investors and market makers.

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2. Services to The Companies The stock exchange acts as financial intermediary between the corporate sector and the investors in the country. Companies need capital which is raised from the public through public issues. The public issues are successful because of the services rendered by the stock exchanges. The securities issued by the companies are exchanged in the stock market. Thus, the following services are rendered by the stock exchanges to the companies:  Wide market for the listed securities.  Enhance the goodwill and the reputation of the companies who have listed their securities with the exchange.  Facilitate fair pricing of the listed securities.  Provide better response from the investors for the public issues.  Facilities for selling securities quickly and easily.  Maintaining the confidence of the investors in the capital market.  Facilitates high valuation of the securities at the time of merger, amalgamation, etc.

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3. Services to The Community The stock exchange plays a very important role in the country. It involves investors, companies, government and financial intermediaries. Therefore, it also provides the following valuable services to the economy or community:  It encourages the savings habit among the people in the country.  It helps to achieve capital formation and economic development.  It also helps to diversify investments in the profitable manner.  It provides the medium of evaluation regarding the worth of different securities listed in market.  It also enables companies to raise capital and thereby provide employment opportunities for the people in the country.  It also helps the consumers in the country to meet their needs from the goods or services provided by the listed companies.

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2.9 Regulation Business of Stock Exchange Under the SEBI Act, 1992, the SEBI has been empowered to conduct inspection of stock exchanges. The SEBI has been inspecting the stock exchanges once every year since 1995-96. During these inspections, a review of the market operations, organizational structure and administrative control of the exchange is made to ascertain whether:  The exchange provides a fair, equitable and growing market to investors.  The exchange's organization, systems and practices are in accordance with the Securities Contracts (Regulation) Act (SC(R) Act), 1956 and rules framed there under.  The exchange has implemented the directions, guidelines and instructions issued by the SEBI from time to time.  The exchange has complied with the conditions, if any, imposed on it at the time of renewal/ grant of its recognition under section 4 of the SC(R) Act, 1956. During the year 1997-98, inspection of stock exchanges was carried out with a special focus on the measures taken by the stock exchanges for investor's protection. Stock exchanges were, through inspection reports, advised to effectively follow-up and redress the investors' complaints against

members/listed companies. The stock exchanges were also advised to expedite the disposal of arbitration cases within four months from the date of filing.

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During the earlier years' inspections, common deficiencies observed in the functioning of the exchanges were delays in post trading settlement, frequent clubbing of settlements, delay in conducting auctions, inadequate monitoring of payment of margins by brokers, non-adherence to Capital Adequacy Norms etc. It was observed during the inspections conducted in 1997-98 that there has been considerable improvement in most of the areas, especially in trading, settlement, collection of margins etc.

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2.10 SEBI and its role in Secondary Market The SEBI is the regulatory authority established under Section 3 of SEBI Act 1992 to protect the interests of the investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith and incidental thereto. The following departments of SEBI take care of the activities in the secondary market. Sr.No. Name of the Department 1. Market Intermediaries Registration and Supervision department (MIRSD) Registration, supervision, compliance Major Activities

monitoring and inspections of all market intermediaries in respect of all segments of the markets viz. equity, equity derivatives, debt and debt related derivatives.

2.

Market Regulation Department (MRD)

Formulating new policies and supervising the functioning and operations (except relating to derivatives) of securities exchanges, their subsidiaries, and market institutions such as Clearing and settlement organizations and Depositories (Collectively referred to as Market SROs .)

3.

Derivatives and New Products Departments (DNPD)

Supervising trading at derivatives segments of stock exchanges, introducing new products to be traded, and consequent policy changes.

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2.11 Weakness of Stock Exchanges in India  Excessive Speculation It has been estimated that genuine investment transactions represent hardly 10 percent of the total transaction. Speculation to certain extent keeps the market active. However, excessive speculations are undesirable and dangerous. The character of Indian stock market has been undergoing a distinct change in recent years, from a saving and investment center for investors to a playground for speculators. This situation is alarming; SEBI appears to be a helpless watchdog in this regard. The excessive speculation must be stopped effectively.  Lack of Professionalism in the Functioning Indian stock exchange operates in traditional line. The methods used are old and outdated. The operators are not well trained and professional in their approach. This affects the liquidity and volume of business. The openness in the transactions is also limited.  Ineffective Regulation or Stock Exchange In India, self regulation of stock exchange is limited. Even the eternal regulation through SEBI and Government is not effective. Security scams, excessive speculations and wide variations in shares price are the indicators of ineffective regulations of Indian Stock Exchanges.

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Unethical Practices Unethical practices are followed by brokers and other operators in the stock market. Moreover, strict actions are also not taken against such operators. As a result, such undesirable practices continue without any check.  Domination of Foreign Buyers and Financial Institutions Indian stock exchanges are dominated by financial institutions and influential buyers including foreign buyers. Their purchase, sales decisions affects the mood of the market. Stock exchange price index goes up when foreign buyers purchase securities in large scale. It also comes down when such support is not available.  Absence of Outside Representation There is not outside representation on the governing bodies of exchanges except government nominees. Such representation is necessary for democratic management of stock exchanges. This will be useful for better self regulation of stock exchanges.  Absence of Openness in the Operations Openness is practically absent in the working of Indian stock exchanges. This secrecy affects the free and fair working of exchanges. Brokers and financial institutions keep secrecy as regards their transactions.

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Periodical Crises Stock Exchange in India has to face periodical crisis due to lack of effective control on the activities and operations of dealers. Securities scams are the best example of this.

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2.12 Stock Exchange Terms  Bull: Bull is a speculator on the stock exchange who expects a rise in the price of a certain security. He buys the security to sell it in future when the price goes up. It is also called as Tejiwala .  Bear: Bear is also a kind of speculator on the stock exchange who expects a fall in the price of securities. In order to take the benefits of future situation, he agrees to sell for delivery on a fixed dates such securities which are not in his possession. Before the delivery date, he purchases securities at a lower price and settles his deal at a higher price and earns profit. A bear is also called Mandiwala .  Speculations: Speculation is an anti-social activity undertaken for the profit maximization. Speculators estimate the possible future trend in the stock exchange and makes transactions in the present period.  Scriptless Trading: This means trading in electronic shares where there are no physical certificates. Such trading is safe, quick and to the benefit of investors. Its use is restricted to those stock exchanges which have electronic clearing houses.

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Dematerialization: It is a process by which an investor get his physical share certificates converted into electronic shares maintain in his account with the participant in the depository system.  Depository: A depository is like a bank wherein the deposits are securities such as shares, debentures, bonds, government securities, units, etc in electronic form.  Custodian: A Custodian is basically an organization which helps register and safeguard the securities of the clients.

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3. BOMBAY STOCK EXCHANGE (BSE)
The Bombay Stock Exchange is the oldest stock exchange in Asia and has the greatest number of listed companies in the world, with more than 4850 listed as of December 2009. It is located at Dalal Street, Mumbai, India. On 31 December 2009, the equity market capitalization of the companies listed on the BSE was US$ 1.79 trillion, making it the largest stock exchange in South Asia and the 12th largest in the world. With over 4850 Indian companies listed on the stock exchange it has a significant trading volume. The BSE SENSEX also called the "BSE 30", is a widely used market index in India and Asia. Though many other exchanges exist, BSE and the National Stock Exchange of India account for most of the trading in shares in India.

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1) Hours of operation: The hours of operation for the BSE quoted above are stated in terms of the local time (i.e. GMT +5:30) in Mumbai (Bombay), India. BSE's normal trading sessions are on all days of the week except Saturdays, Sundays and holidays declared by the Exchange in advance. Sr. No. 1 2 3 4 5 6 7 8 Session Beginning of the Day Session Trading Session Position Transfer Session Closing Session Option Exercise Session Margin Session Query Session End of Day Session

Timing 8:00 - 9:00 9:00 - 15:30 15:30 - 15:50 15:50 - 16:05 16:05 - 16:35 16:35 - 16:50 16:50 - 17:35 17:35

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2) History The Bombay Stock Exchange is known as the oldest exchange in Asia. It traces its history to the 1850s, when stockbrokers would gather under banyan trees in front of Mumbai's Town Hall. The location of these meetings changed many times, as the number of brokers constantly increased. The group eventually moved to Dalal Street in 1874 and in 1875 became an official organization known as 'The Native Share & Stock Brokers Association. In 1956, the BSE became the first stock exchange to be recognized by the Indian Government under the Securities Contracts Regulation Act. The Bombay Stock Exchange developed the BSE Sensex in 1986, giving the BSE a means to measure overall performance of the

exchange. In 2000 the BSE used this index to open its derivatives market, trading Sensex futures contracts. The development of Sensex options along with equity derivatives followed in 2001 and 2002, expanding the BSE's trading platform. Historically an open-cry floor trading exchange, the Bombay Stock Exchange switched to an electronic trading system in 1995. It took the exchange only fifty days to make this transition.

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3) Services BSE provides an efficient and transparent market for trading in equity, debt instruments and derivatives. It has a nation-wide reach with a presence in more than 359 cities and towns of India. BSE has always been at par with the international standards. The systems and processes are designed to safeguard market integrity and enhance transparency in operations. BSE is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certifications. BSE continues to innovate. In recent times, it has become the first national level stock exchange to launch its website in Gujarati and Hindi to reach out to a larger number of investors. It has successfully launched a reporting platform for corporate bonds in India christened the ICDM or Indian Corporate Debt Market and a unique ticker-cum-screen aptly named 'BSE Broadcast' which enables information dissemination to the common man on the street. In 2006, BSE launched the Directors Database and ICERS (Indian Corporate Electronic Reporting System) to facilitate information flow and increase transparency in the Indian capital market. While the Directors Database provides a single-point access to information on the boards of directors of listed companies, the ICERS facilitates the corporate in sharing with BSE their corporate announcements.

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4) Investor Services The Department of Investor Services redresses grievances of investors. BSE was the first exchange in the country to provide an amount of Rs.1 million towards the investor protection fund; it is an amount higher than that of any exchange in the country. BSE launched a nationwide investor awareness programme- 'Safe Investing in the Stock Market' under which 264 programmes were held in more than 200 cities. 5) BSE On-line Trading (BOLT) BSE On-line Trading (BOLT) facilitates on-line screen based trading in securities. BOLT is currently operating in 25,000 Trader Workstations located across over 359 cities in India. 6) BSEWEBX.com In February 2001, BSE introduced the world's first centralized exchange-based Internet trading system, BSEWEBX.com. This initiative enables investors anywhere in the world to trade on the BSE platform. 7) BSE indices For the premier stock exchange that pioneered the securities transaction business in India, over a century of experience is a proud achievement. A lot has changed since 1875 when 318 persons by paying a then princely amount of Re. 1, became members of what today is called Bombay Stock Exchange Limited (BSE).

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Over the decades, the stock market in the country has passed through good and bad periods. The journey in the 20th century has not been an easy one. Till the decade of eighties, there was no measure or scale that could precisely measure the various ups and downs in the Indian stock market. BSE, in 1986, came out with a Stock Index-SENSEX- that subsequently became the barometer of the Indian stock market. The launch of SENSEX in 1986 was later followed up in January 1989 by introduction of BSE National Index (Base: 1983-84 = 100). It comprised 100 stocks listed at five major stock exchanges in India - Mumbai, Calcutta, Delhi, Ahmadabad and Madras. The BSE National Index was renamed BSE-100 Index from October 14, 1996 and since then, it is being calculated taking into consideration only the prices of stocks listed at BSE. BSE launched the dollarlinked version of BSE-100 index on May 22, 2006. BSE disseminates information on the Price-Earnings Ratio, the Price to Book Value Ratio and the Dividend Yield Percentage on day-to-day basis of all its major indices. The values of all BSE indices are updated on real time basis during market hours and displayed through the BOLT system, BSE website and news wire agencies. All BSE Indices are reviewed periodically by the BSE Index Committee. This Committee which comprises eminent independent finance professionals frames the broad policy guidelines for the development and maintenance of all BSE indices. The BSE Index Cell carries out the day-to-day maintenance of all indices and conducts research on development of new indices.
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8) Awards y The World Council of Corporate Governance has awarded the Golden Peacock Global CSR Award for BSE's initiatives in Corporate Social Responsibility (CSR). y The Annual Reports and Accounts of BSE for the year ended March 31, 2006 and March 31 2007 have been awarded the ICAI awards for excellence in financial reporting. y The Human Resource Management at BSE has won the Asia - Pacific HRM awards for its efforts in employer branding through talent management at work, health management at work and excellence in HR through technology

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4. NATIONAL STOCK EXCHANGE (NSE)
Introduction The National Stock Exchange of India Limited (NSE), is a Mumbai-based stock exchange. It is the largest stock exchange in India in terms of daily turnover and

number of trades, for both equities and derivative trading. NSE has a market capitalization of around Rs

47,01,923 crore (7 August 2009) and is expected to become the biggest stock exchange in India in terms of market capitalization by 2009 end Though a number of other exchanges exist, NSE and the Bombay Stock Exchange are the two most significant stock exchanges in India, and between them are responsible for the vast majority of share transactions. The NSE's key index is the S&P CNX Nifty, known as the Nifty, an index of fifty major stocks weighted by market capitalization.

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NSE is mutually-owned by a set of leading financial institutions, banks, insurance companies and other

financial intermediaries in India but its ownership and management

operate as separate entities. There are at least 2 foreign investors NYSE Euro next and Goldman Sachs who have taken a stake in the NSE. As of 2006, the NSE VSAT terminals, 2799 in total, cover more than 1500 cities across India. In October 2007, the equity market capitalization of the companies listed on the NSE was US$ 1.46 trillion, making it the second largest stock exchange in South Asia. NSE is the third largest Stock Exchange in the world in terms of the number of trades in equities. It is the second fastest growing stock exchange in the world with a recorded. 1. Origins The National Stock Exchange of India was promoted by leading financial institutions at the best of the Government of India, and was incorporated in November 1992 as a tax-paying company. In April 1993, it was recognized as a stock exchange under the Securities Contracts (Regulation) Act, 1956. NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment of the NSE commenced operations in November 1994, while operations in the Derivatives segment commenced in June 2000.

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2. Innovations NSE has remained in the forefront of modernization of India's capital and financial markets, and its pioneering efforts include: y Being the first national, anonymous, electronic limit order book (LOB) exchange to trade securities in India. Since the success of the NSE, existent market and new market structures have followed the "NSE" model. y Setting up the first clearing corporation "National Securities Clearing Corporation Ltd." in India. NSCCL was a landmark in providing innovation on all spot equity market (and later, derivatives market) trades in India. y Co-promoting and setting up of National Securities Depository Limited, first depository in India. y Setting up of S&P CNX Nifty. y NSE pioneered commencement of Internet Trading in February 2000, which led to the wide popularization of the NSE in the broker community. y Being the first exchange that, in 1996, proposed exchange traded derivatives, particularly on an equity index, in India. After four years of policy and regulatory debate and formulation, the NSE was permitted to start trading equity derivatives y Being the first and the only exchange to trade GOLD ETFs (exchange traded funds) in India. y NSE has also launched the NSE-CNBC-TV18 media centre in association with CNBC-TV18.

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3. Markets Currently, NSE has the following major segments of the capital market
y y y y y

Equity Futures and Options Retail Debt Market Wholesale Debt Market Currency futures

NSE became the first stock exchange to get approval for Interest rate futures as recommended by SEBI-RBI committee, on 31 August,2009, a futures contract based on 7% 10 Year GOI bond (NOTIONAL) was launched with quarterly maturities. 4. Hours NSE's normal trading sessions are conducted from 9:00 am India Time to 3:30 pm India Time on all days of the week except Saturdays, Sundays and Official Holidays declared by the Exchange (or by the Government of India) in advance. The exchange in association with BSE (Bombay Stock Exchange Ltd.,) thinking to revise its timings from 9.00 am India Time till 5.00 pm India Time. There were System Testing going on and opinions, suggestions or feedback on the New Proposed Timings are being invited from the brokers across India. And finally on Nov 18, 2009 regulator decided to drop their ambitious goal of longest Asia Trading Hours due to strong opposition from its members.

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On December 16, 2009, NSE announced that it would pre-pone the market opening at 9am from Dec 18, 2009. So NSE trading hours will be from 9:00 am till 3:30 pm India Time. However, on December 17, 2009, after strong protests from brokers, the Exchange decided to postpone the change in trading hours till Jan 04, 2010. NSE new market timing from Jan 04, 2010 is 9:00 am till 3:30 pm India Time. 5. Indices NSE also set up as index services firm known as India Index Services & Products Limited (IISL) and has launched several stock indices, including:
y y y y y

S&P CNX Nifty(Standard & Poor's CRISIL NSE Index) CNX Nifty Junior CNX 100 (= S&P CNX Nifty + CNX Nifty Junior) S&P CNX 500 (= CNX 100 + 400 major players across 72 industries) CNX Midcap (introduced on 18 July 2005 replacing CNX Midcap 200)

6. Certifications NSE also conducts online examination and awards certification, under its programmers of NSE's Certification in Financial Markets (NCFM). Currently, certifications are available in 19 modules, covering different sectors of financial and capital markets. Branches of the NSE are located throughout India.

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5. LISTING OF SECURITIES
5.1 Meaning & Definition: Listing means admission of securities to dealings on a recognized stock exchange. The securities may be of any public limited company, Central or State Government, quasi governmental and other financial institutions/corporations, municipalities, etc. The objectives of listing are mainly to:  Provide liquidity to securities  Mobilize savings for economic development;  Protect interest of investors by ensuring full disclosures. The Bombay Stock Exchange (BSE) has a dedicated Listing Department to grant approval for listing of securities of companies in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956, Securities

Contracts (Regulation) Rules, 1957, Companies Act, 1956, Guidelines

issued by Security Exchange Board of India (SEBI) and Rules, Bye-laws and Regulations of BSE.

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BSE has set various guidelines and forms that need to be adhered to and submitted by the companies. These guidelines will help companies to expedite the fulfillment of the various formalities and disclosure requirements that are required at various stages of  Public Issues y Initial Public Offering y Further Public Offering  Preferential Issues  Indian Depository Receipts  Amalgamation  Qualified Institutions Placements

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5.2 Classification of Listing 1. Group "A" Shares These are referred to as Cleaned Securities or Specified shares". The facility for carrying forward a transaction from one account period to another is available for these shares. Group "A" shares represent companies, with huge amount of capital, and equally a large scope for investment. These shares are frequently traded and command higher price earning multiples.

2. Group B Shares These are referred to as None cleaned securities or Non-specified shares . For these groups facility of carrying forward is not available. Whenever a share is moved from Group "B" to Group "A" its market price rises; likewise, when a share is shifted from Group "A" to Group "B", its market price declines. There are some criteria and guide lines, laid down by stock exchange, for shifting stocks from the non-specified list to the specified list. 3. Group C Shares Under group C , only odd lots and permitted securities are included. A number of shares that are less then the market lot are known as odd lots. Old lots have settlement once in a fortnight.

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5.3 Advantages  Facilitates Buying & Selling Securities Listing gives way for easy buying and selling of securities. Constant marketing facilities are assured for listed securities.  Ensures Liquidity The prices of listed securities are quoted daily in the market. Hence securities can be converted in to cash readily at quoted price and thus listing ensures liquidity. 

Offers wide Publicity Listed securities give wide publicity to the company concerned. It is also because the name of the listed companies are frequently mentioned in the stock market reports, TV, Newspapers and Radios, etc. this has an advertising effect for such companies and this will automatically widen the market for their securities.

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Assures Finance The very fact that a security is listed in a recognized stock exchange adds the prestige of that company and it enables the company to raise the necessary finance by the issue of such securities.  Enables Borrowing Listed securities are preferred as collateral securities by commercial banks and other lending institutions because they are rated high in the market quotation and there is a ready market for them also. Thus borrowings are made easier against the securities of the listed companies.  Protect Investors Listing companies have to necessarily submit themselves to the various regulatory measures by disclosing vital information about their assets, capital structure, profits, dividend policy, allotment procedure, bonuses etc. hence, listing aims at protecting the interest of investors to a great extent.

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5.4 Disadvantages of Listing y Leads to Speculations Listed securities offer wide scope for the speculators to manipulate the values in such a way as may be detrimental to the interest of the company. In such situation, artificial forces play a more dominant role than the free market forces. Because of this the stock market may not reflect the true picture of listed securities. y Degrades Company s Reputation Some times listed securities are subject to wide fluctuation in their values. They may become a victim of depression. They are immediately reflected on the stock exchange whereas unlisted securities escape from the misery. These wide fluctuations in their values have the effect of degrading the company s reputation and image in the eyes of the public as well the financial intermediaries. y Discloses Vital Information to Competitors For getting the securities listed a company has to disclose vital information such as, dividend and bonuses declared, a brief history of the company, sales, remuneration to managerial personnel and so on. Because of this may be there are chances of leaking of secrecy of the company s operations to trade rivals.

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5.5 Listing Procedures As earlier said, listing enables a company to include its securities in the official list of one or more recognized stock exchanges for the purpose of trading. A company which requires its securities to be listed must comply with the following formalities: The company concerned must apply in the prescribed form along with the following documents and details:  Certified copies of Memorandum and Articles of Association, Prospectus or Statement in Lieu of Prospectus, Underwriting agreements, agreements with venders and promoters.  Specified copies of shares and debenture certificates, letter of call, allotment, acceptance and renunciation.

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5.6 Criteria for Listing  Minimum Listing Requirements for New Companies The following eligibility criteria have been prescribed effective August 1, 2006 for listing of companies on BSE, through Initial Public Offerings (IPOs) & Follow-on Public Offerings (FPOs): 1. Companies have been classified as large cap companies and small cap companies. A large cap company is a company with a minimum issue size of Rs. 10 crore and market capitalization of not less than Rs. 25 crore. A small cap company is a company other than a large cap company. A. In respect of Large Cap Companies i. The minimum post-issue paid-up capital of the applicant company (hereinafter referred to as "the Company") shall be Rs. 3 crore. ii. The minimum issue size shall be Rs. 10 crore. iii. The minimum market capitalization of the Company shall be Rs. 25 crore (market capitalization shall be calculated by multiplying the post-issue paid-up number of equity shares with the issue price).

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B. In respect of Small Cap Companies i. The minimum post-issue paid-up capital of the Company shall be Rs. 3 crore. ii. iii. The minimum issue size shall be Rs. 3 crore. The minimum market capitalization of the Company shall be Rs. 5 crore (market capitalization shall be calculated by multiplying the post-issue paid-up number of equity shares with the issue price) iv. The minimum income/turnover of the Company shall be Rs. 3 crore in each of the preceding three 12-months period. v. The minimum number of public shareholders after the issue shall be 1000. vi. A due diligence study may be conducted by an independent team of Chartered Accountants or Merchant Bankers appointed by BSE, the cost of which will be borne by the company. The requirement of a due diligence study may be waived if a financial institution or a scheduled commercial bank has appraised the project in the preceding 12 months.

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2. For all companies : a. In respect of the requirement of paid-up capital and market capitalization, the issuers shall be required to include in the disclaimer clause forming a part of the offer document that in the event of the market capitalization (product of issue price and the post issue number of shares) requirement of BSE not being met, the securities of the issuer would not be listed on BSE. b. The applicant, promoters and/or group companies, shall not be in default in compliance of the listing agreement. c. The above eligibility criteria would be in addition to the conditions prescribed under SEBI (Disclosure and Investor Protection) Guidelines, 2000.

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Minimum Listing Requirements for Companies already Listed on Other Stock Exchanges The listing norms for companies already listed on other stock exchanges and seeking listing at BSE, made effective from August 6, 2002, are as under: 1. The company shall have a minimum issued and paid up equity capital of Rs. 3 crore. 2. The company shall have a profit making track record for the preceding last three years. The revenues/profits arising out of extra ordinary items or income from any source of non-recurring nature shall be excluded while calculating the profit making track record. 3. Minimum net worth shall be Rs. 20 crore (net worth includes equity capital and free reserves excluding revaluation reserves). 4. Minimum market capitalization of the listed capital shall be at least two times of the paid up capital. 5. The company shall have a dividend paying track record for at least the last 3 consecutive years and the dividend should be at least 10% in each year. 6. Minimum 25% of the company's issued capital shall be with NonPromoter shareholders as per Clause 35 of the Listing Agreement. Out of above Non-Promoter holding, no single shareholder shall hold more than 0.5% of the paid-up capital of the company individually or jointly with others except in case of Banks/Financial Institutions/Foreign Institutional Investors/Overseas Corporate Bodies and Non-Resident Indians.

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7. The company shall have at least two years listing record with any of the Regional Stock Exchanges. The company shall sign an agreement with CDSL and NSDL for demat trading.  Minimum Requirements for Companies Delisted by BSE seeking Relisting on BSE Companies delisted by BSE and seeking relisting at BSE are required to make a fresh public offer and comply with the extant guidelines of SEBI and BSE regarding initial public offerings.  Permission to Use the Name of BSE in an Issuer Company's Prospectus Companies desiring to list their securities offered through a public issue are required to obtain prior permission of BSE to use the name of BSE in their prospectus or offer for sale documents before filing the same with the concerned office of the Registrar of Companies. BSE has a Listing Committee, comprising of market experts, which decides upon the matter of granting permission to companies to use the name of BSE in their prospectus/offer documents. This Committee evaluates the promoters, company, project, financials, risk factors and several other aspects before taking a decision in this regard. Decision with regard to some types/sizes of companies has been delegated to the Internal Committee of BSE.

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1. Submission of Letter of Application As per Section 73 of the Companies Act, 1956, a company seeking listing of its securities on BSE is required to submit a Letter of Application to all the stock exchanges where it proposes to have its securities listed before filing the prospectus with the Registrar of Companies. 2. Allotment of Securities As per the Listing Agreement, a company is required to complete the allotment of securities offered to the public within 30 days of the date of closure of the subscription list and approach the Designated Stock Exchange for approval of the basis of allotment.

In case of Book Building issues, allotment shall be made not later than 15 days from the closure of the issue, failing which interest at the rate of 15% shall be paid to the investors. 3. Trading Permission As per SEBI Guidelines, an issuer company should complete the formalities for trading at all the stock exchanges where the securities are to be listed within 7 working days of finalization of the basis of allotment. A company should scrupulously adhere to the time limit specified in SEBI (Disclosure and Investor Protection) Guidelines 2000 for allotment of all securities and dispatch of allotment letters/share certificates/credit in depository accounts and refund orders and for obtaining the listing permissions of all the exchanges whose names are stated in its prospectus or offer document. In the event of listing permission to a company being
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denied by any stock exchange where it had applied for listing of its securities, the company cannot proceed with the allotment of shares. However, the company may file an appeal before SEBI under Section 22 of the Securities Contracts (Regulation) Act, 1956. 4. Requirement of 1% Security Companies making public/rights issues are required to deposit 1% of the issue amount with the Designated Stock Exchange before the issue opens. This amount is liable to be forfeited in the event of the company not resolving the complaints of investors regarding delay in sending refund orders/share certificates, non-payment of commission to underwriters, brokers, etc. 5. Payment of Listing Fees All companies listed on BSE are required to pay to BSE the Annual Listing Fees by 30th April of every financial year as per the Schedule of Listing Fees prescribed from time to time. The schedule of Listing Fees for the year 2009-10, prescribed by the Governing Board of BSE, is given here under:

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SCHEDULE OF LISTING FEES FOR THE YEAR 2009-10 Securities * other than Privately Placed Debt Securities Sr. No. 1 2 Initial Listing Fees Annual Listing Fees (i) Companies with listed capital* up to Rs. 5 crore 15,000.00 (ii) Above Rs. 5 crore and up to Rs. 10 crore 30,000.00 (iii) Above Rs. 10 crore and up to Rs. 20 crore Companies which have a listed capital* of more than Rs. 20 crore are required to pay an additional fee @ Rs. 750 for every additional Rs. 1 crore or part thereof. NOTE: In case of debenture capital (not convertible into equity shares), the fees will be 25% of the above fees. *includes equity shares, preference shares, fully convertible debentures, partly convertible debentures and any other security convertible into equity shares. 45000.00 Particulars Amount (Rs.) 20,000.00 10,000.00

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Privately Placed Debt Securities Sr. No. 1 2 Particulars Initial Listing Fee Annual Listing Fees i) Issue size up to Rs.5 crore ii) Above Rs.5 crore and up to Rs.10 crore iii) Above Rs.10 crore and up to Rs.20 crore iv) Above Rs.20 crore Amount (Rs.) NIL Rs. 2,500.00 Rs.3,750.00 Rs.7,500.00 Additional fee of Rs.200.00 for every additional Rs.1 crore or part thereof Subject to a maximum of Rs.30,000.00 per instrument.

The cap on the annual listing fee of debt instruments per issuer is Rs.5,00,000 per annum.

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Mutual Funds Particulars Initial listing fee Annual Listing Fee: Issue size up to Rs.100 Crores Above Rs.100 Crores and up to Rs.300 Crores. Above Rs.300 Crores and up to Rs.500 Crores. Above Rs.500 Crores and up to Rs. 1000 Crores Above 1000 Crores y Applicability: The above schedule of Listing Fee is uniformly applicable for all companies irrespective of whether BSE is the designated stock exchange or not. y Payment Date The last date for payment of Listing Fee for the year 2009-10 is April 30, 2009. Failure to pay the Listing Fee (for equity and/or debt segment) by the due date will attract interest @ 12% per annum w.e.f. May 1, 2009. y Service Tax Service Tax is payable on the listing fee at the applicable rates. Amount (Rs.) NIL Full Year 32,000 58,000 94,000 1,56,000 2,50,000 Less than 6 months 16,000 29,000 47,000 78,000 1,25,000

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5.7 Obligations of Listing A company whose securities have been listed on stock exchange has to perform certain obligations also. Some of the important obligations given hereunder:  The date of the board of the board meeting at which the declaration or recommendation of dividend or the issue of right or bonus share will be considered.  Any change in company s directorate or managerial personnel by death, resignation, removal or otherwise.  Any issue of new shares, rights shares or otherwise as well as the issue of any privileges or bonuses to members, even before they are intimated to shareholders.  Any change in the company s capital structure.  Any material change in the general character or nature of the company s business.  Any re-issue of forfeited securities or the issue of any other securities held in reserve for future issue.  Any action which will result in the redemption, cancelation or retirement of any security listed on the stock exchange.  Any intention to make a drawing of the listed company.  Any other information necessary to enable the share holders to appraise the company s so as to avoid the establishment of a false market in the shares of the company.

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5.8 Listing Agreement The stock exchange authorities will scrutinize the applications carefully and if they satisfied with all the particulars / documents submitted, they will call upon the company to execute a Listing Agreement. This agreement a list of conditions and obligations which the company should strictly observe, failing which, the stock exchange may suspend or withdraw the listing facility. Many conditions for listing of investors and to ensure that applicants for large blocks of shares are not given undue preference over others.

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5.8 Compliance with the Listing Agreement Companies desirous of getting their securities listed at BSE are required to enter into an agreement with BSE called the Listing Agreement, under which they are required to make certain disclosures and perform certain acts, failing which the company may face some disciplinary action, including suspension/delisting of securities. As such, the Listing Agreement is of great importance and is executed under the common seal of a company. Under the Listing Agreement, a company undertakes, amongst other things, to provide facilities for prompt transfer, registration, sub-division and consolidation of securities; to give proper notice of closure of transfer books and record dates, to forward 6 copies of unabridged Annual Reports, Balance Sheets and Profit and Loss Accounts to BSE, to file shareholding patterns and financial results on a quarterly basis; to intimate promptly to the Exchange the happenings which are likely to materially affect the financial performance of the Company and its stock prices, to comply with the conditions of Corporate Governance, etc. The Listing Department of BSE monitors the compliance by the companies with the provisions of the Listing Agreement, especially with regard to timely payment of annual listing fees, submission of results, shareholding patterns and corporate governance reports on a quarterly basis. Penal action is taken against the defaulting companies.

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6. Stock Broker
6.1 Meaning & Definition A broker is none other than a commission agent who transacts business in securities on behalf of his clients who are non-members of a stock exchange. Thus, a non-member can purchase and sell securities only through a broker who is a member of the stock exchange. To deal in securities on recognized stock exchanges, the broker should register. A stock broker must possess the following qualifications to register as a broker:  He must be a citizen with 21 years of age.  He should neither e a bankrupt not compounded with creditors  He should not have been convicted for any offence, fraud.  He should not have engaged in any other business other than that of a broker in securities.  He should not have engaged in any other business other than that of a broker in securities.  He should not be a defaulter of any stock exchange.  He should not be a defaulter of any stock exchange.  He should have completed 12th standard examination.

Apart from individuals, corporate and institutional members can also become brokers. Brokers will be selected by the selection committee of the stock exchange on the basis of their qualifications, experience, financial status, their performance in the written test, interview etc.

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6.2 Registration Procedure  The prospective broker must apply through the stock exchange of which he is a member.  The stock exchange should forward the application within 30 days of receipt of the application.  After going through the application the security exchange board may call for additional information or clarifications if necessary regarding the dealings in securities. They may also request the applicant to appear before it for personal representation.  After ascertaining whether the applicant is eligible to be admitted as a member and whether he has the necessary infrastructure facilities, they may grant a certificate to the stock broker. The stock exchanges concerned will be duly informed of the same.  The certified stock broker must abide by the prescribed code of conduct.  The stock broker has to pay the prescribed registration fees.  The registration of a broker will be suspended if the broker violates and provisions of the rules and regulations of the exchange and if he does not follow the prescribed code of conduct.  The registration will be cancelled if the broker is convicted of a criminal offence or guilty of fraud or if he repeatedly violates the provisions of the rules and regulations of the stock exchange or the prescribed code of conduct.  Every stock broker has to maintain a minimum amount of deposit called security deposit or base minimum capital with the stock exchange.

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6.3 Code of Conduct for Brokers To discharge the duties on the best interest of investors and other stock brokers, a code of conduct has been prescribed for brokers in accordance with the statutory requirements. They have been briefly summarized below:  A stock broker must honestly and promptly execute all orders for buying and selling of securities of the best possible market price. He must make prompt payment to his clients in the case of sales and prompt delivery in the case of purchases.  He must issue a contract note for all transactions as specified by the stock exchange without any delay.  He must maintain complete secrecy of his client s personal investments and other information s of a confidential nature.  He should not induce or initiate purchases or sales just for the sake of his brokerage or commission.  He should not give any false or misleading information with a view to encouraging purchases or sales and thereby getting his commission.  He should not entertain those clients who have failed to carry out their commitments in respect of securities with other stock brokers.  The capacity in which he is acting must be duly informed to his client . In other words, he must disclose whether he is acting as a principal or as an agent. In all cases, he must give top priority to his client s interest.  He is not expected to render ay investment advice except under those circumstances which warrant it.  He must possess adequate infrastructure facilities and maintain proper staff to render prompt, efficient and fair services to his clients.
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He should not advertise his business publicly except when it is permitted by the stock exchange.  He should not adopt any unfair practices with a view to attracting clients from other brokers.  He should not knowingly and willfully deliver documents which constitute bad delivery.  He should not fail to submit the necessary returns to the stock exchange as and when they have to be submitted as per the statutory regulations. These returns should not contain any false or misleading information.  He must exercise reasonable care, diligence and skill in the discharge of his functions as brokers.  He must maintain high standards of integrity and honesty, promptness and fairness in the conduct of all his business.  Above all, he should not indulge in fraudulent or deceptive transactions or spread rumors with a view to creating a false market and making personal gains.  He must maintain proper books of account, records and documents as required by the various regulating authorities.  He must produce the above books and records for inspection whenever an inspection is undertaken as per the provisions of exchange.

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6.4 Functions of Brokers The following are the important functions generally performed by all the brokers. 1. Client registration First of all, a trading broker has to enter into an agreement in the specified format with his client before accepting any orders on his client's behalf. The said agreement has to be executed on non-judicial stamp paper, duly signed by both the parties on all the pages. In addition to the agreement, the broker shall seek other information about the client in the client registration form. The information may relate to:  Investor s financial profile.  Investors risk profile and risk taking ability.  Investor s social profile.  Investor s identification details.  Family, income age and employment details.  Details of investments in other assets.  Financial liabilities etc. The broker has to obtain recent passport size photos in the case of individual clients and of all partners in the case of partnership firms. In the case of corporate customers, he has to obtain the photos of dominant promoters. The broker should not forget to take proof of identification of the client. It is also mandatory to give a unique code for each client for easy identification. There is no limit on the maximum number of clients for a broker.

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2. Obtaining margin money It is also mandatory for the broker to collect margins from his clients in all cases where the margin in respect of the client in settlement, would work out to be more than Rs. 50,000. The margins so collected must be kept separately in the client s bank account and it must be utilized for making payment or settlement in respect of that client. 3. Execution of orders The important function of a broker is to execute his client orders swiftly and carefully. Hence, he has to obtain clear cut confirmed order instructions from the clients to that the necessary orders may be placed on the system. To execute a trade order for a client, he broker must obtain specific instructions as to:  The name of the company whose securities have to be bought or sold.  The precise number of shares required.  The limit or market price conditions etc.

4. Supply of necessary slips On execution of the trade, the broker the trading member should inform his client the order number. He should also give copies of the trade confirmation slip, modification slip, cancellation slip to enable the client to take necessary follow up action.

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5. Issue of contract note The broker should then issue a contract note to his clients for all trades, whether for purchase or sale of securities, executed with all relevant details. This contract note should be issued within 24 hours of the execution of the contract. It should be duly signed by the broker or his authorized signatory or client attorney. Every broker is expected to maintain the duplicate copy of each contract not issued for five years.

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6.5 Kinds of Brokers 1. Jobbers A jobber is professional independent broker who deals in securities on his own behalf. His main job is to earn a margin of profit due to price variations of securities. He buys securities as a owner, keep them for a very short period and sell them for profit known as the Jobber s turn . 2. Tarawaniwalas Tarawaniwalas is an active member of the stock exchanges. These peoples buy securities from investors on low price and sell them the same investors on high price. 3. Commission Brokers A commission broker is nothing but a broker. He buys and sell securities on behalf of his clients for a commission. He does not purchase or sell in his own name. 4. Sub-Brokers / Remisiers A Sub-broker is a agent of stock broker. He helps clients to buy or sell securities through stock brokers because he is not a member of stock exchange. 5. Authorized Clerks An authorized clerk is one appointed by stock broker to assist him in the business trading, because a stock broker is can not be present always on the trading floor of a stock exchange.

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7. Badla Transactions
It refers to postponement of the settlement of a transaction till the next settlement period. It s nothing but facility to carry forward the transaction from one settlement period to another. It involves payment of some charges known as BADLA CHARGES by the

speculator. Badla charges are fixed based on demand and supply conditions in the market. To effect Badla transaction, two bargains have to be made.  First is to cancel out the original transaction by squaring it up. This cancellation is affected at making up price which is decided by exchange.  The second is to reopen the original bargain for next settlement period. If Buyer has bought XYZ Co s share in February contract and wants to carry forward his position say to next month (March). So he has to first sell the same share in February contract before the expiry date and second he has to create fresh buying (Long) position in March contract. If Seller has sold ABC Co s share in February contract and wants to carry forward his position say to next month (March). So he has to first buy the same share in February contract before the expiry date and second he has to create fresh selling (Short) position in March contract.

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8. Process of Trading
The normal course of online trading in the Indian market context is placed below:  Investor / trader decides to trade  Places order with a broker to buy / sell the required quantity of respective securities  Best priced order matches based on price-time priority  Order execution is electronically communicated to the broker s terminal  Trade confirmation slip issued to the investor / trader by the broker  Within 24 hours of trade execution, contract note is issued to the investor / trader by the broker  Pay-in of funds and securities before T+2 day  Pay-out of funds and securities on T+2 day In case of short or bad delivery of funds / securities, the exchange orders for an auction to settle the delivery. If the shares could not be bought in the auction, the transaction is closed out as per SEBI guidelines

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9. Settlement procedure of Trading Transaction
1. Account Period Settlement An account period settlement is a settlement where the trades pertaining to a period stretching over more than one day are settled. For example, trades for the period Monday to Friday are settled together. The obligations for the account period are settled on a net basis. Account period settlement has been discontinued since January 1, 2002, pursuant to SEBI directives. 2. Rolling Settlement In a Rolling Settlement, trades executed during the day are settled based on the net obligations for the day. Presently the trades pertaining to the rolling settlement are settled on a T+2 day basis where T stands for the trade day. Hence, trades executed on a Monday are typically settled on the following Wednesday (considering 2 working days from the trade day). The funds and securities pay-in and pay-out are carried out on T+2 day.

3. The pay-in day and pay- out day Pay in day is the day when the brokers shall make payment or delivery of securities to the exchange. Pay out day is the day when the exchange makes payment or delivery of securities to the broker. Settlement cycle is on T+2 rolling settlement basis w.e.f. April 01, 2003. The exchanges have to ensure that the pay out of funds and securities to the clients is done by the broker within 24 hours of the payout. The Exchanges will have to issue press release immediately after pay out.
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4. The prescribed pay-in and pay-out days for funds and securities for Normal Settlement The pay-in and pay-out days for funds and securities are prescribed as per the Settlement Cycle. A typical Settlement Cycle of Normal Settlement is given below:

Activity Trading Clearing Rolling Settlement Trading Custodial Confirmation Delivery Generation Settlement Securities and Funds pay in Securities and Funds pay out Post Settlement Auction Bad Delivery Reporting Auction settlement Close out Rectified bad delivery pay-in and pay-out Re-bad delivery reporting and pickup Close out of re-bad delivery Valuation Debit T

Day

T+1 working days T+1 working days T+2 working days T+2 working days T+2 working days

T+3 working days T+4 working days T+5 working days T+5 working days T+6 working days

T+8 working days

T+9 working days

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Note: The above is a typical settlement cycle for normal (regular) market segment. The days prescribed for the above activities may change in case of factors like holidays, bank closing etc. You may refer to scheduled dates of payin/pay-out notified by the Exchange for each settlement from time-to-time.

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10. The Bombay On-line Trading System (BOLT)
A. Meaning The Bombay On-line Trading System (BOLT) is CMC's on-line Trading System for trading in Stocks. The System is operational at Bombay Stock Exchange - the premier Stock Exchange in the South East Asian region since March 1995. It is one of the few Stock Trading systems around the globe, which handles hybrid/mixed mode of trading i.e. Order driven as well as quote driven. B. Objectives of BOLT System  Reduce and eliminate operational inefficiencies inherent in manual systems.  Increases trading capacity of the stock exchange.  Improve market transparency, eliminate unmatched trades and delayed reporting.  Promote fairness and speedy matching.  Provide for on-line and off-line monitoring, control and surveillance of the market.  Smooth market operations using technology while retaining the flexibility of conventional trading practices.  Set up various limits, rules and controls centrally.  Provide brokers with their trade data on electronic media to interface with the Broker's Back Office system.  Provide a sophisticated, easy to use, graphical user interface (GUI) to all the users of the system.  Provide public information on scrip prices, indices for all users of the system and allow the stock exchange to do information vending.  Provide analytical data for use of the Stock Exchange.

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C. Infrastructure of Online Trading System Trading on CMC's Trading system BOLT can be carried out for Normal segment as well as in the Auction, Odd lot segment, Continuous Net Settlement, etc. The system is capable of handling 2.5 million orders per day. Today, there are around 9000+ BSE trading terminals spread across India. The brokers / traders operate from their own offices and send their quotes, orders, negotiated deals, in-house deals, auction orders as the case may be to the Central Trading Engine (CTE) through the Broker Work Station (BWS). The Best Bid and the Best Offer (based on price and time priority) in the market form what is known as the Best Bid and Offer (BBO) for each scrip. The BBO of all the scrips in the market are available to all the BWS through a mechanism called broadcast of the market information. The buy and sell orders placed by the broker / trader will be matched at the best available price in the market for that scrip, at the time of the order. Subsequent to matching, trade confirmations are sent to the respective workstations, which can be printed online. BOLT was developed on Non Stop Tandem platform keeping in view the criticality of the application. Online trading in India is the internet based investment activity that involves no direct involvement of the broker. There are many leading online trading portals in India along with the online trading platforms of the biggest stock houses like the National stock exchange and the Bombay stock exchange. The total portion of
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online share trading India has been found to have grown from just 3 per cent of the total turnover in 2003-04 to 16 per cent in 2006-07. D. Facilities of the Online Trading System of India The investor has to register with an online trading portal and get into an agreement with the firm to trade in different securities following the terms and conditions listed down on the agreement. The order processing is done in correct timings as the servers of the online trading portal are connected to the stock exchanges and designated banks all round the clock. They can also get updates on the trading and check the current status of their orders either through e-mail or through the interface. Brokerages also provide research content on their websites, such that the clients can take their own decisions on stocks before investing. E. Product & Service of the Online Trading in India The major financial products and services of the Online trading in India are like equities, mutual funds, life insurance, general insurance, loans, share trading, commodities trading, portfolio management and financial planning.

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11. Depositories and Dematelisation of Securities 
Introduction: Prior to 1996, the stock markets in India were characterized by lack of transparency, complex trading procedure, outdated settlement system, etc. the settlement system called for physical transfer of shares certificates to change the ownership of shares. There were number of risks associated with such physical transfer of shred, such as bad delivers, delays in transfer and registration, loss forgery and theft of certificates. The share transfer used to take about 2 months of more. Therefore, there was great need for introducing modern means of shares. To overcome the problems of physical transfer of shares, the Government introduced the Depository Act, 1996. The depository system (electronic system) replaced the manual system of shares transfer, and settlement of transaction.  Meaning: A depository can be defined as an institution which transfer the ownership of securities in electronic mode on behalf of its members. A depository is a nominee of the investor, who keeps the shares on their behalf. Therefore, the depository acts as a custodian of securities. The two depositors in India are National Securities Depository Limited- NDSL and Central Depository Service India CDSL.

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NDSL: It was set up in 1996. It was promoted by IDBI , UTI , and NSE. At present stock exchanges like NSE, BSE, Calcutta SE, Delhi SE, OTCEI, Ludhiana SE, and Bangalore SE have established connectivity with NDSL.  CDSL: It was set up by BSE and co- sponsored by SBI, Bank of India, Bank of Baroda, and HDFC Bank. It began its operations in 1999. It performs the same function as that of NDSL.  Depository Participates Similar to the brokers who trade on your behalf in and outside the Stock Exchange; a Depository Participant (DP) is your representative (agent) in the depository system providing the link between the Company and you through the Depository. Your Depository Participant will maintain your securities account balances and intimate to you the status of your holding from time to time. According to SEBI guidelines, Financial Institutions like banks, custodians, stockbrokers etc. can become participants in the depository. A DP is one with whom you need to open an account to deal in electronic form. While the Depository can be compared to a Bank, DP is like a branch of your bank with whom you can have an account.

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Benefits of having a Demat Account: 1. Trading in the shares of the Company is now under the compulsory demat segment. With SEBI making demat mandatory on most of the traded scrips, electronic transaction will be the only way everyone will trade.

2. No stamp duty for transfer of securities in the electronic form. In case of transfer of physical shares, stamp duty of 0.5 percent is payable on the market value of shares being transferred.

3. All risks associated with physical certificates such as delays, loss, in transit, theft, mutilation, bad deliveries, etc. eliminated. Your shares can be kept in the Frozen Mode by your Depository Participant under your specific instructions. 4. The concept of an odd lot in respect of dematerialized shares stands abolished, i.e. in the demat mode, market lot becomes one share. 5. Dematerialised securities are most preferred by banks and other financiers for providing credit facility against securities. Generally, demat securities attract lower margin and lower rates of interest compared to physical securities. 6. Even in the electronic mode of trading, the payment mechanism (usually through a broker) between the buyer and seller continues to be as before. Also the usual brokerage charges would have to be incurred. However, after the settlement, pay in and pay out are on the same day for scripless trading which means you get your securities as well as cash immediately.
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7. Shares bought or sold are transferred in your name on the very next day of pay out. In case of physical shares, transfer of ownership takes 30 days or sometimes even more. 8. No courier / postal charges for sending share certificates / transfer deeds.

9. Facility for freezing / locking of investor accounts, which enables you to make your account non-operational, for instance if you are abroad. 10. Facility to pledge and hypothecate your securities available. 11. As the Depository System becomes popular, brokers will be increasingly reluctant to deal with physical shares.

12. Investors prefer to buy shares which are already in dematerialised form.

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11. Conclusion
The stock market can be a great source of confusion for many people. The average person generally falls into one of two categories. The first believe investing is a form of gambling; they are certain that if you invest, you will more than likely end up losing your money. Often these fears are driven by the personal experiences of family members and friends who suffered similar fates or lived through the Great Depression. These feelings are not ground in facts and are the result of personal experience. Someone who believes along this line of thinking simply does not understand what the stock market is or why it exists. The second category consists of those who know they should invest for the longrun, but don t know where to begin. Many feel like investing is some sort of blackmagic that only a few people hold the key to. More often than not, they leave their financial decisions up to professionals, and cannot tell you why they own a particular stock or mutual fund. Their investment style is blind faith or limited to this stock is going up. We should buy it. This group is in far more danger than the first. They invest like the masses and then wonder why their results are mediocre (or in some cases, devastating). In this series of lessons, I set out to prove that the average investor can evaluate the balance sheet of a company, and following a few relatively simple calculations, arrive at what they believe is the real , or intrinsic value of the company. This will allow a person to look at a stock and know that it is worth, for instance, $40 per share. This gives each investor the freedom to know when a security is undervalued, increasing their long-term returns substantially.
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Before we examine how to value a company, it is important to understand the nature of businesses and the stock market. This is the cornerstone of learning to invest well.

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12. Bibliography 

Reference Books: 1. Principles of Financial Markets Fourth edition by P.C. Tripathi & P.N. Reddy. Tata McGraw Hill Publishing Company Ltd. New Delhi. 2. Indian Financial System by Gordon & Natrajan Himalaya Publishing House. 3. Secretarial Practice by Michal Vaz Manan Publication House, Mumbai. 

1. 2. 3. 4.

Internet:
www.bse.com www.nse.com www.rbi.com www.moneycontrol.com 

Images:
1. 2. 3. 4. www.google/images www.bse.co/multi/ www.google/dalal/bse www.yahoo.com

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