A6.

5(A): Investment Banking

1. Stock Market History in World and In India
 Role & Importance of Stock Markets in Economy:-
Roles :-

1.  The Stock market acts as a continuous market for securities

Investors can invest in any securities, but in case of any risk, they can exit from that security and freshly reenter
into whichever security they feel as secure. In this way the stock markets provides opportunities in ready and
continuous form for securities, where investors and traders and conduct buy and sell transactions in the stock
market.

2.  Stock market are responsible for Securities Evaluation

The stock price is based on demand and supply in market. If a company performs well, its stocks price
automatically increases as more investors are likely to invest and demand rises which affects stock price to rise. If a
company performs badly, its stocks price automatically decreases as more investors are likely to sell and supply
rises which affects stock price to fall. Thus stock price indicates the performance and stability of the company.
Through these investors decide according to their risk appetite whether to enter or exit or hold. The stock
exchange acts as a regulator for the securities price evaluation for all the listed stocks.

3.  Stock market Mobilizes savings

Most of the public cannot invest the bulk amount in securities, so they invest in indirect ways such as mutual funds
and investment trusts, and these are mobilized by stock exchanges.

4.  Stock market enables healthy speculation

Stock market encourages businessmen and provides healthy speculation opportunities to speculate and gain
profits from fluctuations in stock prices. The stock price is based on demand and supply. Due to the rules and
regulations of the artificial market, scarcity is prevented.

5.  Stock market Mobilizes funds

Stock market encourages both the companies and investors to sell or buy stocks and enables the availability of
funds. These actions strengthen the money market and ensure short-term funds to available. Banks also provide
funds in the form of loans for dealings in the stock market.

6.  Stock market Protect investors

Stock market ensures the protection of the funds of investors by allowing only genuine companies to be listed in
the stock exchange. The stock market also control the companies by its norms and conditions.

7.  Stock market provide opportunity for Capital formation

Stock market plays a key role in the capital formation for the listed companies. When a company is extending or
diversifying its needs to raise more fund, market make this very easy by issuing more shares, bonds, etc through
which they can issue more shares through rights shares or bonus shares, and thus the capital gets generated which
promotes economic growth.

8.  Stock market ensures Liquidity

Banks and some other institutions like Life Insurance Corporation (LIC) invest their funds in the stocks and earn a
profit within a short period and are sold immediately if there is any necessity of funds. Thus there is an opportunity
to liquidate immediately at any time if required in the stock market.

9.  Stock market act as an economic barometer

The country’s economic growth is measured with the trends in the stock market. An upward trend in the stock
market denotes growth potential and downward trend denotes the fall in the economy. Hence the stock exchange
is called as an economic barometer as it indicates conditions prevailing in the country. Generally, a politically and
economically strong government follows an upward trend in the stock market, and unstable government with
huge borrowings follows a downward trend in the stock market.

10.  Stock market have a Control on companies

Every company listed on an market must produce their annual reports and an audited balance sheet to the stock
exchange. It is open for all to go through, and investors invest according to these reports, and they get to know
how the company has been performing. Thus stock exchanges have a control on companies. Thus it stock
exchanges ensure that only genuine company’s shares are transacted in the market. Fraud companies once
identified will be blacklisted and will not be allowed to raise their capital through exchanges.

11.  Stock market attracts foreign capital

Foreign institutional investors (FII) are likely to invest in developing economy as the rate of returns will be high in
developing economies due to growth opportunities. Thus stock market help in attracting more foreign funds which
improves market rate of the currency, and thus more trade is undertaken by the government.

12.  Stock market manage Monetary and fiscal policies

The monetary policy must be in favor of the businessmen and producers, if it is not functioning then, suitable
actions can be taken by the government through stock market transactions.

13.  Stock market ensure Safety of Capital and Fair Dealing

The transactions made in the stock market are made available to the public under well-defined rules and
regulations abided by laws. This ensures safety and fair dealings for the average investors.

14.  Stock market ensure proper Channelization of Capital

Stock market ensure that the flow of savings is directed into the most productive and profitable channels.

15.  Stock market regulate company management - The firms wanting to get their securities listed must
follow certain rules and fulfill certain conditions. Stock exchanges safeguard the interest of the investors
and regulate the company management.
 Importance-
1. Mobilization Of Savings And Acceleration Of Capital Formation :-

In developing countries like India the importance of stock market is self evident. In this market, Various types of
securities helps to mobilize savings from various sectors of population. The twin Features of reasonable return
and liquidity in stock exchange are definite incentives to the people To invest in securities. This accelerates the
capital formation in the country.

2. Raising Long – Term Capital :-

The existence of a stock market enables companies to raise permanent capital. The investors Cannot commit their
funds for a permanent period but companies require funds permanently. The Stock market resolves this dash of
interests by offering an opportunity to investors to buy or Sell their securities, while permanent capital with the
company remains unaffected.

3. Promotion Of Industrial Growth :-

The stock market is a central market through which resources are transferred to the industrial Sector of the
economy. The existence of such an institution encourages people to invest in Productive channels. Thus it
stimulates industrial growth and economic development of the Country by mobilizing funds for investment in the
corporate securities.

4. Ready And Continuous Market :-

The stock market provides a central convenient place where buyers and sellers can easily Purchase and sell
securities. Easy marketability makes investment in securities more liquid as Compared to other assets.

5. Technical Assistance :-

An important shortage faced by entrepreneurs in developing countries is technical assistance. By Offering advisory
services relating to preparation of feasibility reports, identifying growth Potential and training entrepreneurs in
project management, the financial intermediaries in Capital market play an important role.

6. Reliable Guide To Performance :-

The stock market serves as a reliable guide to the performance and financial position of Corporate, and thereby
promotes efficiency.

7. Proper Channelization Of Funds :-

The prevailing market price of a security and relative yield are the guiding factors for the people To channelize
their funds in a particular company. This ensures effective utilization of funds in The public interest.

8. Provision Of Variety Of Services :-

The financial institutions functioning in the stock market provide a variety of services such as Grant of long term
and medium term loans to entrepreneurs, provision of underwriting facilities, Assistance in promotion of
companies, participation in equity capital, giving expert advice etc.
 9. Development Of Backward Areas :-

Stock l Markets provide funds for projects in backward areas. This facilitates economic Development of backward
areas. Long term funds are also provided for development projects in Backward and rural areas.

10. Foreign Capital :-

Capital markets makes possible to generate foreign capital. Indian firms are able to generate Capital funds from
overseas markets by way of bonds and other securities. Government has Liberalized Foreign Direct Investment
(FDI) in the country. This not only brings in foreign Capital but also foreign technology which is important for
economic development of the country.

11. Easy Liquidity :-

With the help of secondary market investors can sell off their holdings and convert them into Liquid cash.
Commercial banks also allow investors to withdraw their deposits, as and when they Are in need of funds

 Stock Markets in World & India:-

Stock Markets in India-

1. Bombay Stock Exchange (BSE)

BSE is a stock exchange located on Dalal Street, Mumbai, Maharashtra, India. It was
Established as “The Native Share & Stock Brokers’ Association” in 1875. It is the10th largest
Stock exchange in the world by market capitalization as on April 2018.Established in 1875. .
Over the past 137 years, BSE has facilitated the growth of the Indian corporate sector by
Providing it an efficient capital-raising platform.. More than 5000 companies are listed on BSE
Making it world’s No. 1 exchange in terms of listed members. The companies listed on BSE Ltd
command a total market capitalization of USD Trillion 2.1 as of march 2019. BSE Ltd is world's
fifth most active exchange in terms of number of transactions handled through its electronic
trading system. It is also one of the world’s leading exchanges (3rd largest in December 2012)
for Index options trading BSE also provides a host of other services to capital market
participants including risk management, clearing, settlement, market data services and BSE
provides trading facilities through BOLT (BSEOn-Line trading System ) BSE’s trading session
starts from 9 am – 15.30 pm (Monday to Fri-day). BSE provides depository services through its
Central Depository Services Ltd. (CDSL) BSE’s popular equity index - the S&P BSE SENSEX
[Formerly SENSEX ] - is India's most widely tracked stock market benchmark index.

2. The National Stock Exchange (NSE)

NSE is located in Mumbai, India. National Stock Exchange (NSE) was established in the mid
1990s as a demutualized electronic exchange. NSE provides a modern, fully automated screen-
based trading system, with over two lakh trading terminals, through which investors in every
nook and corner of India can trade. NSE has played a critical role in reforming the Indian
securities market and in bringing unparalleled transparency, efficiency and market integrity.
NSE has a market capitalization of more than US$2.27 trillion and 1,952 companies listed as on
April 2018. 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. NSE operates on the 'National Exchange for Automated
Trading' (NEAT) system NSE's flagship index, the CNX NIFTY 50, is used extensively by investors
in India and around the world to take exposure to the Indian equities market.

Stock Markets in World-

 New York Stock Exchange:-

The New York Stock Exchange (NYSE) is an American stock exchange on Wall Street in New
York City. With a market cap of more than US$16 trillion, the NYSE is the world's largest
stock exchange, averaging US$169 billion in daily trading value in 2013. As of 2014, the
NYSE (also known as "the Big Board") has a listing of nearly 1,900 companies, 1,500 of
which are U.S. companies. The NYSE is owned by Intercontinental Exchange and is
regulated by the Securities and Exchange Commission.

History Of The New York Stock Exchange

The NYSE was founded 17 May 1792 when 24 stockbrokers signed the Buttonwood
Agreement on Wall Street in New York City. Famously, they met beneath a Buttonwood tree
and formed a centralised exchanged for the burgeoning securities market in the United
States. The agreement eliminated the need for auctioneers—used frequently for wheat,
tobacco and other commodities—and set a commission rate. The organisation made the
Tontine Coffee House its headquarters and focused on government bonds.

Twenty-five years later, 8 March 1817, the organisation officially became the New York
Stock & Exchange Board, later simplified to the New York Stock Exchange. Throughout the
early 1800s, the NYSE expanded beyond government bonds and bank stocks. New York
itself soon surpassed Philadelphia as the financial center or the United States.

Advances in telegraphic communication allowed buying and selling through the telegraph,
creating a new ease in trading. Membership increased and became more exclusive. By the
start of the Civil War, securities, commodities and gold, discovered in California, excited
participation in the exchange.

The location changed several times before settling into its present location at 11 Wall Street
in 1865. The Neo-Classical building was registered as a Historic Landmark in 1978.

In 1878, telephones were installed, giving investors direct access to brokers on the floor of
the exchange. The increased activity made the exchange cap the number of members to
1,060, seats for which required purchase from retiring members.

Between the late 1800s and the end of World War I, the NYSE struggled in the wake of
international turmoil. Then the stock market crashed 23 October 1929, causing an 89%
drop in share prices. The crash led to heavy regulation by the U.S. government. The NYSE
subsequently registered with the United States Securities and Exchange Commission. On 19
October 1987 the Dow Jones Industrial Average dropped 508 points, the biggest crash since
1929.

Technology on the NYSE moved from early ticker tapes to handheld computation devices to
its current high-speed transactions.

 NASDAQ:-

The NASDAQ is an electronic exchange where stocks are traded through an automated network
of computers instead of a trading floor.

It stands for the National Association of Securities Dealers Automated Quotations System and is
the world’s second-largest stock exchange based on market capitalization. It trades listed stocks
as well as over-the-counter (OTC) stocks. As a general rule of thumb, it is where most
technology stocks are traded. A quick way to tell if a company is listed on the NASDAQ is to
check out the ticker symbol. (e.g. Microsoft = MSFT, Dell Computers = DELL, Cisco = CSCO).

Major stocks that trade on the NASDAQ include Apple, Amazon, Microsoft, Facebook, Gilead
Sciences, Starbucks, Tesla, Intel, and Oracle.

How The NASDAQ Was Created

In 1971, the National Association of Securities Details (NASD) set out to invent and create the
world’s first electronic stock market. When it opened its doors on February 8, 1971, the
NASDAQ couldn’t execute trades. Instead, it provided automated quotations. In the years
following its founding, the NASDAQ regularly facilitated OTC trading, so much so that NASDAQ
became synonymous with OTC and was often referred to as an OTC market in the media and
trade publications.

Later, it added automated trading systems that could create trade and volume reports, and
became the first exchange to offer online trading. Fast forward to the current day—the
NASDAQ lists more than 3,500 companies and boasts the highest trade volume in the U.S.
market. More than $10 trillion worth of companies trade on the NASDAQ.

NASDAQ Firsts

A history of the NASDAQ shows a track record of groundbreaking accomplishments. In addition

to being the first exchange to offer electronic trading, it was the first exchange to launch a
website, the first to store records in the cloud, and the first to sell its technology to other
exchanges.

In 2008, NASDAQ merged with OMX ABO, a Stockholm-based operator of Nordic and Baltic
regional exchanges. The new company, NASDAQ OMX Group, also offers trading in exchange
traded funds, debt, structured products, derivatives, and commodities.
NASDAQ Trading Hours

Just like the New York Stock Exchange (NYSE), the NASDAQ is open for trading between 9:30
a.m. and 4 p.m. ET. However, NASDAQ offers traders “pre-market” and “post-market” hours.
Pre-market hours are from 4 a.m. to 9:30 a.m. ET and post-market hours are from 4 p.m. to 8
p.m. ET.

 London Stock Exchange:-

The London Stock Exchange (LSE), which is based in London, the United Kingdom, is one of the
leading stock markets in the world. Owned by the London Stock Exchange Group, the LSE was
established in 1571, making it one of the oldest stock exchanges in the world. The LSE’s market
capitalization is estimated at US$4.59 trillion as of April 2018.

In October 2007, the London Stock Exchange merged with Milan Stock Exchange (Borsa Italiana)
and created the London Exchange Group. The London-based group is a stock exchange and
financial information company that owns Millennium IT, Russell Indexes, FTSE International,
and Exactpro. It also owns majority stakes in LCH and MTS. It also operates in North America,
Italy, France, and Sri Lanka

Primary Markets of the London Stock Exchange

The London Stock Exchange enables companies to join the equity market to raise capital and
increase their profile. Companies of different sizes can list on the LSE as the bourse runs several
markets for listing. It also offers different ways to raise capital.

For instance, international companies can list their shares and depositary receipts on the
exchange. In 2004, the LSE began operating in Hong Kong, allowing it to tap over 200
companies in the Asia-Pacific region.

The LSE operates the Premium Listed Main Market. It is designed for the biggest companies and
follows a Super Equivalence method, which states that the London Stock Exchange’s criteria
and UK Listing Authority’s conditions must be met. In May 2011, Glencore International Plc
raised $10 billion at admission, making it one of the largest IPOs completed on the LSE.

For small and medium-sized enterprises, the London Stock Exchange operates the Alternative
Investment Market (AIM). Different businesses such as startups join AIM to gain access to
growth capital. It is classified as a Multilateral Trading Facility. Its simpler admission process
makes it easier for companies to join the market and become publicly listed. For international
companies outside of the European Union, the LSE runs the Depositary Receipt scheme where a
depository bank-issued certificate, which is used to buy shares of foreign companies, creates a
security on the local exchange that is backed by those shares.
Through its primary markets, the LSE provides cost-efficient access to some of the world’s
deepest and most liquid pools of capital. It is home to a wide range of companies and provides
electronic equities trading for listed companies.

The LSE is the most international of all stock exchanges with thousands of companies from
more than 60 countries, and it is the premier source of equity-market liquidity, benchmark
prices, and market data in Europe. Linked by partnerships to international exchanges in Asia
and Africa, the LSE intends to remove cost and regulatory barriers from capital markets
worldwide.

The Main Market

The Main Market of the LSE is one of the world’s most diverse stock markets with companies
making up 40 different sectors. The Main Market offers companies access to robust, real-time
pricing; access to deep pools of capital; benchmarking through the FTSE UK Index Series; and
significant levels of media coverage, research, and announcements.

 Shanghai stock exchange :-

Shanghai is Mainland China’s first city to see the emergence of stocks, stock trading and
stock exchanges. Stock trading started in Shanghai as early as the 1860s. In 1891, the
Shanghai Share Brokers Association, an early form of stock exchange, was established in
Shanghai. Later in the 1920s, with the founding of the Shanghai Securities Goods Exchange
and the Shanghai Chinese Securities Exchange, Shanghai emerged as the financial centre of
the Far East, where both Chinese and foreign investors could trade stocks, bonds, and
futures. In 1946, the Shanghai Chinese Security Exchange was renamed the Shanghai
Securities Exchange Co., Ltd. Later in 1949, all securities trading venues were closed down.
Since 1980, China’s securities market has grown in tandem with the reform and opening up
of the country and the development of the socialist market economy. In 1981, the offering
of treasury bonds was resumed. In 1984, stocks and enterprise bonds were issued in
Shanghai and other regions. On November 26, 1990, the Shanghai Stock Exchange (the
Exchange) was established, and on December 19 of the same year, it started formal
operations.
Under the strong leadership of the CPC Central Committee and the State Council and the
direct guidance of the CSRC, along with fervent support from all sectors of society, the
Exchange makes it its mission to serve the nation’s reform and development initiatives. In
line with the principles of rule by law, regulation, self-discipline and compliance, the
Exchange has been committed to creating a transparent, open, reliable and efficient
marketplace and fulfilling its frontline role in market organization, oversight and
development over the past 20 plus years. Left: The Shanghai Stock Exchange's original site -
Astor House Hotel in the old financial street on the Bund. Right: Mr. Zhu Rongji attending
the opening ceremony of the Shanghai Stock Exchange. The event attracted more than 500
distinguished guests from home and abroad. The Shanghai Stock Exchange (SSE) is the largest
stock exchange in China by market capitalization, outstripping its rival the Shenzhen Stock
Exchange. The SSE has grown rapidly over the past decade and introduced new rules allowing
foreign shares to become listed.
In 2014 there were 997 listed stocks on SSE with a total market capitalization of RMB 15,116.53
billion. The Shanghai Stock Exchange and BM&F Bovespa, Latin America’s
biggest exchange operator, announced in February of 2011 that they would sign an agreement
that would lead to the cross-listings of stocks
On November 5, 2018 Chinese President Xi Jinping announced a new “technology innovation
board,” to be established by the Shanghai Stock Exchange, as Beijing takes steps to mitigate the
impact of the trade war between the U.S. and China. The new venue will be designed to make it
easier for high-tech companies to access funding for IPOs and would potentially compete with
Hong Kong or even the NYSE. 

 Hang Seng stock exchange:

When the Hang Seng Index was first published, its base of 100 points was set equivalent to the
stocks’ total value as of the market close on July 31, 1964. Its all-time low is 58.61 points,
reached retroactively on August 31, 1967, after the base value was established but before the
publication of the index. The Hang Seng passed the 10,000 point milestone for the first time in
its history on December 10, 1993 and, 13 years later, passed the 20,000 point milestone on
December 28, 2006. In less than 10 months, it passed the 30,000 point milestone on October
18, 2007. Its all-time high, set on January 26, 2018, was 33,223.58 points at closing. From
October 30, 2007 through March 9, 2008, the index lost 9,426 points or approximately 30%. On
September 5, it fell past the 20,000 mark the first time in almost a year to a low of 19,708.39,
later closing at 19,933.28. On October 8, 2008, the index closed at 15,431.73, over 50% less
than the all-time high and the lowest closing value in over two years. On October 27, 2008, the
index further fell to 10,676.29 points, having fallen nearly two-thirds from its all-time peak, but
passed the 20,000 point milestone again to 20,063.93 on 24 July 2009. The index reached
25,000.00 on August 19, 2014, reaching as high as 25,201.21 that day, later closing at 24,909.26
points. It continued rising to hit 26,000 on April 8, 2015 with a close of 26,236.86 The following
day, it rose to as much as 27,922.67 before closing at 26,944.39. Yet again, another milestone
was reached on April 13, 2015 rising to over 28,000 points, or closing to 28,016.34, the highest
since December 2007. On July 8, 2015, the index fell as much as 2139 points. On 21 August the
index entered a bear market. The index at that point hovered around 18000-19000 points, until
it ended in February 2016. In 24 June 2016, the market fell 1,000 points in response to UK EU
referendum results that “Leave” won the vote against “Remain”. Then, the markets
continuously fell on 27 and 28 June 2016 before recovered slightly on 29 June 2016.

HIS was started on November 24, 1969, and is currently compiled and maintained by Hang Seng
Indexes Company Limited, which is a wholly owned subsidiary of Hang Seng Bank, one of the
largest banks registered and listed in Hong Kong in terms of market capitalization. It is
responsible for compiling, publishing and managing the Hang Seng Index and a range of other
stock indexes, such as Hang Seng China Enterprises Index, Hang Seng China AH Index Series,
Hang Seng China H-Financials Index, Hang Seng Composite Index Series, Hang Seng China A
Industry Top Index, Hang Seng Corporate Sustainability Index Series and Hang Seng Total Return
Index Series. Hang Seng in turn, despite being a public company, is held in majority by another
listed international financial institution HSBC