PROJECT

STOCK MARKET IN INDIA

AND ITS
REGULATION

SUBMITTED TO: SUBMITTED BY:

Ms. Mansi Kanojia Aditi Agarwal
Roll no.- 763
B.com(H)- C
Stock Market
As per the Wikipedia, a stock market, equity market or share market is the
aggregation of buyers and sellers (a loose network of economic transactions, not a
physical facility or discrete entity) of stocks (also called shares), which represent
ownership claims on businesses. These may include securities listed on a public stock
exchange as well as those only traded privately.
Examples of the latter include shares of private companies which are sold
to investors through equity crowdfunding platforms. Stock exchanges list shares of
common equity as well as other security types, e.g. corporate bonds and convertible
bonds.
In other words, a stock exchange is an exchange (or bourse) where stock brokers and
traders can buy and sell shares of stock, bonds, and other securities.
Many large companies have their stocks listed on a stock exchange. This makes the
stock more liquid and thus more attractive to many investors. The exchange may also
act as a guarantor of settlement. Other stocks may be traded "over the counter"
(OTC), that is, through a dealer. Some large companies will have their stock listed on
more than one exchange in different countries, so as to attract international
investors.
Stock exchanges may also cover other types of securities, such as fixed interest
securities (bonds) or (less frequently) derivatives which are more likely to be traded
OTC.

Size of the Market

Stocks are categorised in various ways. One way is by the country where the
company is domiciled. For example, Nestlé and Novartis are domiciled in Switzerland,
so they may be considered as part of the Swiss stock market, although their stock
may also be traded on exchanges in other countries, for example, as American
depository receipts (ADRs) on U.S. stock markets.
As of mid- 2017, the size of the world stock market (total market capitalisation) was
about US$76.3 trillion. By country, the largest market was the United States (about
34%), followed by Japan (about 6%) and the United Kingdom (about 6%). These
numbers increased in 2013.
History of the Stock Market
The first genuine stock markets didn’t arrive until the 1500s. However, there were
plenty of early examples of markets which were similar to stock markets.
In the 1100s, for example, France had a system where courretiers de change
managed agricultural debts throughout the country on behalf of banks. This can be
seen as the first major example of brokerage because the men effectively traded
debts.
Later on, the merchants of Venice were credited with trading government securities
as early as the 13th century.
The world’s first stock markets are generally linked back to Belgium. Bruges,
Flanders, Ghent, and Rotterdam in the Netherlands all hosted their own “stock”
market systems in the 1400s and 1500s.
However, it’s generally accepted that Antwerp had the world’s first stock market
system. Antwerp was the commercial center of Belgium and it was home to the
influential Van der Beurze family. As a result, early stock markets were typically
called Beurzen.
All of these early stock markets had one thing missing: stocks. Although the
infrastructure and institutions resembled today’s stock markets, nobody was actually
trading shares of a company. Instead, the markets dealt with the affairs of
government, businesses, and individual debt.
However, modern stock trading is generally recognized as starting with the trading of
shares in the East India Company in London.

The Early Days of Investment Trading

Throughout the 1600s, British, French, and Dutch governments provided charters to
a number of companies that included East India in the name. All goods brought back
from the east were transported by sea, involving risky trips often threatened by
severe storms and pirates. To mitigate these risks, ship owners regularly sought out
investors to proffer financing collateral for a voyage. In return, investors received a
portion of the monetary returns realized if the ship made it back successfully, loaded
with goods for sale. These are the earliest examples of limited liability companies
(LLCs).
The first stock exchange

Despite the ban on issuing shares, the London Stock Exchange was officially formed
in 1801. Since companies were not allowed to issue shares until 1825, this was an
extremely limited exchange. This prevented the London Stock Exchange from
preventing a true global superpower.
That’s why the creation of the New York Stock Exchange (NYSE) in 1817 was such an
important moment in history. The NYSE has traded stocks since its very first day.
The London Stock Exchange was the main stock market for Europe, while the New
York Stock Exchange was the main exchange for America and the world.

Trade in the Stock Market

Trade in stock markets means the transfer for money of a stock or security from a
seller to a buyer. This requires these two parties to agree on a price.
Participants in the stock market range from small individual stock investors to
larger trader investors, who can be based anywhere in the world, and may
include banks, insurance companies, pension funds and hedge funds. Their buy or
sell orders may be executed on their behalf by a stock exchange trader.

Some exchanges are physical locations where transactions are carried out on a
trading floor, by a method known as open outcry. This method is used in some stock
exchanges and commodity exchanges, and involves traders shouting bid and offer
prices. The other type of stock exchange has a network of computers where trades
are made electronically. An example of such an exchange is the NASDAQ.

A potential buyer bids a specific price for a stock, and a potential seller asks a specific
price for the same stock. Buying or selling at the market means you will
accept any ask price or bid price for the stock. When the bid and ask prices match, a
sale takes place, on a first-come, first-served basis if there are multiple bidders or
askers at a given price.
The purpose of a stock exchange is to facilitate the exchange of securities between
buyers and sellers, thus providing a marketplace. The exchanges provide real-time
trading information on the listed securities, facilitating price discovery.

 The New York Stock Exchange (NYSE) is a physical exchange, with a hybrid
market for placing orders electronically from any location as well as on
the trading floor. Orders executed on the trading floor enter by way of
exchange members and flow down to a floor broker, who submits the order
electronically to the floor trading post for the Designated Market
Maker ("DMM") for that stock to trade the order. The DMM's job is to
maintain a two-sided market, making orders to buy and sell the security when
there are no other buyers or sellers. Computers play an important role,
especially for program trading.
 The NASDAQ is a virtual exchange, where all of the trading is done over a
computer network. The process is similar to the New York Stock Exchange.
One or more NASDAQ market makers will always provide a bid and ask price
at which they will always purchase or sell 'their' stock.
 The Paris Bourse, now part of Euronext, is an order-driven, electronic stock
exchange. It was automated in the late 1980s. Prior to the 1980s, it consisted
of an open outcry exchange. Stockbrokers met on the trading floor of the
Palais Brongniart. In 1986, the CATS trading system was introduced, and
the order matching process was fully automated.

People trading stock will prefer to trade on the most popular exchange since this
gives the largest number of potential counterparties and probably the best price.
However, there have always been alternatives such as brokers trying to bring parties
together to trade outside the exchange. Some third markets that were popular
are Instinet, and later Island and Archipelago (the latter two have since been
acquired by Nasdaq and NYSE, respectively). the commissions of the exchange.

There are now stock markets in virtually every developed and most developing
economies, with the world's largest markets being in the United States, United
Kingdom, Japan, India, China, Canada, Germany (Frankfurt Stock Exchange),
France, South Korea and the Netherlands.
Origin and Growth of Stock Market in India

The origin of stock market in India can be traced to the end of the 18 century when
the securities of East India Company were traded in Bombay (now, Mumbai) and
Calcutta (now, Kolkata).
During that time brokers used to gather under a banyan tree in Mumbai and under a
neem tree in Kolkata to trade in securities. As the number of brokers increased and
the streets overflowed, in 1854, they relocated to Dalal Street, the place where the
oldest stock exchange in Asia – the Bombay stock Exchange is now located.

 In Mumbai high speculation in securities dealings during 1860s brought

brokers together and in July 1875 they formed first formally organised stock
exchange in India viz “The Native Shares and Stock Brokers Association”,
which is now popularly known as Bombay Stock Exchange (BSE). The BSE is
one of the premier stock exchanges in India and the oldest in Asia.

 The second stock exchange came into existence in 1894 under the name of
“The Ahmedabad Shares and Stock Brokers Association” and later, the name
of this exchange was changed to Ahmedabad Stock Exchange.
 In the year1908 the Calcutta Stock Exchange Association came into existence
and later it is called Calcutta Stock Exchange.
 The Indore Stock Exchange came into existence in 1930, Madras Stock
Exchange in 1937, Hyderabad Stock Exchange in 1943 and Delhi Stock
Exchange in 1947.
 As a result, during 1947 there were 7 stock exchanges in India.
  In 1993, the National Stock Exchange or NSE was formed. Within a few years,
trading on both the exchanges shifted from an open outcry system to an
automated trading environment.

THERE ARE TWO KINDS OF SHARE MARKETS – PRIMARY AND SECONDARY

MARKETS.

Primary Market:
This where a company gets registered to issue a certain amount of shares and raise
money. This is also called getting listed in a stock exchange.
A company enters primary markets to raise capital. If the company is selling shares
for the first time, it is called an Initial Public Offering (IPO). The company thus
becomes public.

Secondary Market:
Once new securities have been sold in the primary market, these shares are traded in
the secondary market. This is to offer a chance for investors to exit an investment
and sell the shares. Secondary market transactions are referred to trades where one
investor buys shares from another investor at the prevailing market price or at
whatever price the two parties agree upon.
Normally, investors conduct such transactions using an intermediary such as a
broker, who facilitates the process.
Stock Exchange
Stock exchanges are intricacy inter-woven in the fabric of a nation's economic life.
Without a stock exchange, the saving of the community 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.

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; and

(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.
As of now there are 23 SEBI approved Stock Exchanges in the country.
Stock market is managed and regulated by the Securities and Exchange Board of
India (SEBI).
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.

BSE is one of the world's fastest stock exchanges, with a median trade speed of 6
microseconds. is the world's 11th largest stock exchange with an overall market
capitalization of $1.83 Trillion as of March, 2017. More than 5500 companies are
publicly listed on the BSE.
On the other hand, NSE was the first exchange in the country to provide a modern,
fully automated screen-based electronic trading system which offered easy trading
facility to the investors spread across the length and breadth of the country. The NSE
has a total market capitalization of more than US$1.41 trillion, making it the world's
12th-largest stock exchange as of March 2016.
Both exchanges - BSE and NSE - follow the same trading mechanism, trading hours,
settlement process, etc.

Name of all the approved stock exchange in India is given below:-

1. U.P. Stock Exchange, Kanpur
2. Vadodara Stock Exchange, Vadodara
3. Koyambtour Stock Exchange, Coimbatore
4. Meerut Stock Exchange, Meerut
5. Mumbai Stock Exchange, Mumbai
6. Over the Counter Exchange of India, Mumbai
7. National Stock Exchange, Mumbai
8. Ahmedabad Stock Exchange, Ahmedabad
9. Bangalore Stock Exchange, Bangalore
10. Bhubaneshwar Stock Exchange, Bhubaneshwar
11. Calcutta Stock Exchange, Kolkata
12. Cochin Stock Exchange, Cochin
13. Delhi Stock Exchange, Delhi
14. Guwahati Stock Exchange, Guwahati
15. Hyderabad Stock Exchange, Hyderabad
16. Jaipur Stock Exchange, Jaipur
17. Canara Stock Exchange, Mangalore
18. Ludhiana Stock Exchange, Ludhiana
19. Chennai Stock Exchange, Chennai
20. M. P. Stock Exchange, Indore
21. Magadh Stock Exchange, Patna
22. Pune Stock Exchange, Pune
23. Capital Stock Exchange Kerala Ltd., Thiruvananthapuram, Kerala

On July 9, 2007 SEBI has withdrawn its approval from Saurashtra Stock Exchange,
Rajkot due to its passive working. Hence the number of approved stock exchanges
have come down to 23.

Members of Stock Exchange

Members or brokers of a stock exchange can be classified into commission brokers,
jobbers, tarawaniwalas and security dealers.

Basic Stock Market Terms

 Agent:
An agent is a brokerage firm which does buying/selling of shares on behalf of the
investor in the stock market.
 Ask/Offer:
It refers to the lowest price at which the owner of the equity shares is ready to sell
the shares in the stock market.

 Broker:
A person who purchases or sells an investment on behalf of the investor/trader in
return for a commission.
 Bear Market:
It refers to a period in which the prices of equity shares fall consistently. You may
look at it like beginning of a downward trend in the stock market.
 Bull Market:
An opposite of bear market, a bull market situation in which the prices of the stocks
are increasing over a prolonged period of time. A single stock and a sector can be
bullish at one time and bearish at another time.
 Beta:
It measures the association between price of one equity share and the overall
movement of stock market. Beta of the market is assumed to be 1. A stock’s beta of
more than 1 shows a higher risk than the market. A beta of less than 1 shows that
stock is less risky than the market.
 Bid:
It is the highest price that the buyer of a stock is ready to pay for a particular stock.
 Board Lot:
Each exchange board defines a standard trading unit which relies on the per share
price. Some of the popular board lot sizes are 50, 100, 500, 1000 units.
 Bonds:
A bond is a fixed income investment which is issued by the government or a
company to its buyers. It shows a specified amount which an investor lends to the
issuer of the bond for a specified period of time at a variable or fixed interest rate.
 Call Option:
In this, the buyer of the option gets a right not an obligation to purchase the
underlying asset at a specified price and time.
 Close Price:
It is the final price on a specific trading day at which the equity shares of a company
are sold or traded.
 Convertible Securities:
It is a security like preferred stocks, bonds, debentures which are issued by an issuer
capable of being converted into other securities of that issuer.
 Delta:
A delta relates to the ratio of change in the price of a derivative in response to
change in the price of the underlying asset. A higher delta suggests higher sensitivity
of the delta to the price changes in the underlying asset.
 Face value:
It relates to the amount of money or the value in cash that the holder of a security
will obtain from the issuer of the security when the security matures at the specific
date.
 Spread
It refers to the difference between the bid and the ask prices of an equity share. You
may perceive it as the difference between the amount at which you would like to
buy and the amount at which you would like to sell a stock.

 Volatility
It refers to the fluctuations in the price of an equity share. Highly volatile stocks
witness severe ups and downs during trading sessions. These are highly risky bets
which can bring large amount of profits for the skilled intra-day trader.
 Volume
It shows the average number of shares of stock which are traded during a particular
time period usually the daily trading volume. It can also convey the number of shares
which you are allowed to purchase of a given stock.
 Yield
You may use the yield to calculate the return on an investment which you get after
receiving dividend on a share. You can find the yield by dividing the annual amount
of dividend by the price paid for the stock.

Stock Market Trading Mechanism

Trading at both the exchanges takes place through an open electronic limit order
book, in which order matching is done by the trading computer. There are no market
makers or specialists and the entire process is order-driven, which means
that market orders placed by investors are automatically matched with the best limit
orders.
As a result, buyers and sellers remain anonymous. The advantage of an order driven
market is that it brings more transparency, by displaying all buy and sell orders in the
trading system. However, in the absence of market makers, there is no guarantee
that orders will be executed.
All orders in the trading system need to be placed through brokers, many of which
provide online trading facility to retail customers.
Institutional investors can also take advantage of the direct market access (DMA)
option, in which they use trading terminals provided by brokers for placing orders
directly into the stock market trading system.

Settlement Cycle and Trading Hours

Equity spot markets follow a T+2 rolling settlement. This means that any trade taking
place on Monday, gets settled by Wednesday. All trading on stock exchanges takes
place between 9:15 am and 3:30 pm, Indian Standard Time (+ 5.5 hours GMT),
Monday through Friday. Delivery of shares must be made in dematerialized form,
and each exchange has its own clearing house, which assumes all settlement risk, by
serving as a central counterparty.

Market Indexes in India

Index is the benchmark of both stock exchange for tracking of market status or
checking upward or downward movement of stock. It consists of basket of stocks of
companies which are listed under exchange under regulation of SEBI.
Sensex and Nifty are two of the prominent market indexes in India.
 The Sensex, also known as S&P BSE Sensex or S&P Bombay Stock Exchange
Sensitive Index or BSE 30, is a free-float market-weighted stock market index
of 30 well-established and financially sound companies listed on Bombay
Stock Exchange. Published since January 1, 1986, the Sensex is regarded as
the pulse of the domestic stock markets in India. One of the oldest market
indexes for equities.
Sensex represents about 45 % of the index's free-float market capitalization.
  The S&P CNX Nifty or Nift 50 or simply Nift is NSE's benchmark stock market
index for Indian equity market. It was launched on April 21, 1996. It is owned
and managed by India Index Services and Products (IISL), which is a wholly
owned subsidiary of the NSE Strategic Investment Corporation Limited. Nifty
includes 50 shares listed on the NSE, which represent about 62 per cent of its
free-float market capitalization.

Stock Market Regulation

The overall responsibility of development, regulation and supervision of the stock
market rests with the Securities & Exchange Board of India (SEBI), which was formed
in 1992 as an independent authority. Since then, SEBI has consistently tried to lay
down market rules in line with the best market practices. It enjoys vast powers of
imposing penalties on market participants, in case of a breach.

Who Can Invest In India?

India started permitting outside investments only in the 1990s. Foreign investments
are classified into two categories: foreign direct investment (FDI) and foreign
portfolio investment (FPI). All investments in which an investor takes part in the day-
to-day management and operations of the company, are treated as FDI, whereas
investments in shares without any control over management and operations, are
treated as FPI.

For making portfolio investment in India, one should be registered either as a foreign
institutional investor (FII) or as one of the sub-accounts of one of the registered FIIs.
Both registrations are granted by the market regulator, SEBI. Foreign institutional
investors mainly consist of mutual funds, pension funds, endowments, sovereign
wealth funds, insurance companies, banks, asset management companies etc. At
present, India does not allow foreign individuals to invest directly into its stock
market. However, high-net-worth individuals (those with a net worth of at least
$US50 million) can be registered as sub-accounts of an FII.

Foreign institutional investors and their sub accounts can invest directly into any of
the stocks listed on any of the stock exchanges. Most portfolio investments consist of
investment in securities in the primary and secondary markets, including shares,
debentures and warrants of companies listed or to be listed on a recognized stock
exchange in India. FIIs can also invest in unlisted securities outside stock exchanges,
subject to approval of the price by the Reserve Bank of India. Finally, they can invest
in units of mutual funds and derivatives traded on any stock exchange.

An FII registered as a debt-only FII can invest 100% of its investment into debt
instruments. Other FIIs must invest a minimum of 70% of their investments in equity.
The balance of 30% can be invested in debt. FIIs must use special non-resident rupee
bank accounts, in order to move money in and out of India. The balances held in such
an account can be fully repatriated.

Regulation of business in the Indian stock Market

The Indian stock market is regulated as per the guidelines laid down by the Securities
and Exchange Board of India (SEBI).
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.

Some of the most important functions of SEBI to regulate the Indian stock market are
listed below:

 Specifying rules and regulations

SEBI has the authority to specify rules and regulations to control the stock
exchange. For instance, the opening (9.15 am) and closing (3.30 pm) time of the
market has been determined by SEBI, and it has the right to change the timing if
deemed necessary.
 Providing licenses to dealers and brokers
No dealer or broker can start distributing securities to investors without getting a prior
approval and license from SEBI. It also has the right to withhold or cancel the license
of brokers and dealers not adhering to the specified guidelines.
 Auditing the performance of various stock exchanges
The regulating body is also responsible for auditing the performances of various stock
exchanges and bringing transparency in their functioning.
 Controlling mergers, acquisitions and take-overs of the companies
Some companies try to manipulate stocks and buy a majority stake in other companies
with an intention of a take-over. SEBI controls and prohibits such movements if it is
not in the interest of the company.
 Prohibiting unfair trade practices in the market
While SEBI has laid down specific guidelines that promote fair trade practices, many
companies occasionally undertake activities that are not healthy for the market. SEBI
has the power to prohibit such activities and take action against the parties involved
in such a trade.
Apart from these important functions, SEBI has many other responsibilities, which it
exercises appropriately in order to regulate the Indian stock market.
Dematerialization

Dematerialization in short called as 'demat' is the process by which an investor can

get physical certificates converted into electronic form maintained in an account
with the Depository Participant. The investors can dematerialize only those share
certificates that are already registered in their name and belong to the list of
securities admitted for dematerialization at the depositories.

Depository: The organization responsible to maintain investor's securities in the

electronic form is called the depository. In other words, a depository can therefore
be conceived of as a "Bank" for securities.
In India there are two such organizations viz. NSDL and CDSL. The depository
concept is similar to the Banking system with the exception that banks handle funds
whereas a depository handles securities of the investors. An investor wishing to
utilize the services offered by a depository has to open an account with the
depository through Depository Participant.

Depository Participant: The market intermediary through whom the depository

services can be availed by the investors is called a Depository Participant (DP). As per
SEBI regulations, DP could be organizations involved in the business of providing
financial services like banks, brokers, custodians and financial institutions.
This system of using the existing distribution channel (mainly constituting DPs) helps
the depository to reach a wide cross section of investors spread across a large
geographical area at a minimum cost. The admission of the DPs involves a detailed
evaluation by the depository of their capability to meet with the strict service
standards and a further evaluation and approval from SEBI. Realizing the potential,
all the custodians in India and a number of banks, financial institutions and major
brokers have already joined as DPs to provide services in a number of cities .