Financial Markets and Services

Dr. N.G.P.
Arts And Science College (Autonomous)

(An Autonomous Institution Affiliated to Bharathiar University, Coimbatore)
Approved by Government of Tamil Nadu and Re-Accredited with NAAC with ‘A’ Grade
DST-FIST | DBT – Star College Scheme
DR. N.G.P. KALAPATTI ROAD, COIMBATORE-641048
COURSE : FINANCIAL MARKETS & SERVICES
Dr. N. Ramya
Assistant Professor
DEPARTMENT OF COMMERCE (PA)
Dr. N.G.P. ARTS AND SCIENCE COLLEGE
Dr. N.G.P. - KALAPATTI ROAD
COIMBATORE-641 048
1
TOPICS TO BE DISCUSS
UNIT-III
About Secondary Market
Regulation of Stock Exchange
Trading in Stock Exchange
Role of Secondary Market
Various Speculative Transactions
Role of SEBI
Dr. NGPASC
COIMBATORE | INDIA 2
SECONDARY MARKET
 The financial market where existing securities are traded is referred to as the
Secondary market or stock market.
 It provides liquidity to financial instruments which are already issued in primary
market.
 For effective functioning of the secondary market, proper control is exercised
through the following three important processes:
– Recognition of stock exchanges
– Listing of securities in stock exchanges
– Registration of brokers
Dr. NGPASC
DEFINITION
The securities Contract regulation act of 1956 defined stock

exchange as “an association, organization or an individual whether
incorporated or not , established for the purpose of assisting, regulating
and controlling business in buying, selling and dealing in securities.”
Dr. NGPASC 4
COIMBATORE | INDIA
HISTORY OF STOCK EXCHANGE
 The first organized stock exchange in India is BSE which was established
in 1875 but trading in securities used to take place much earlier in the
18th century.
 Evidence of the existence of the trading in stocks of banks and certain
companies is available in price quotations in newspapers.
 Shares of banks like the “ Corporation Bank”, the “Chartered Mercantile
Bank”, the “Oriental Bank”, and the old “Bank of Bombay” were traded.
Dr. NGPASC
 In 1839 the trading list was broader, where newspapers gave
quotations of “Agra bank”, “union bank”, etc..
 Brokerage business became attractive and in 1860 there were
60 brokers.
 By the mid 19th century, railways were extended, telegraph
were introduced, and hence communication expended that led
to rapid development of commercial activity.
Dr. NGPASC
INDIAN STOCK EXCHANGE
 Before World War I – 3 exchanges
Bombay stock exchange (1875)
Ahmadabad stock exchange (1894)
Calcutta stock exchange (1908)

 After World War II – 1956
SCRA granted to establish regional stock exchanges.
Dr. NGPASC
MODES OF ORGANISATION
 Voluntary Associations – BSE, Ahmadabad Stock Exchange
and Indore Stock exchange.
 Public Ltd companies – Exchanges in Calcutta, Chennai,
Delhi, Bangalore, Cochin, etc..
 Companies Ltd by guarantee – Exchanges in Hyderabad,
Pune, Bhubaneswar, etc..
Dr. NGPASC
REGULATION OF STOCK EXCHANGE
All stock exchanges were subject to self-regulation till 1956, but now there is a 3-tier
regulation.
First level – Central government (Ministry of Finance).
Second level – SCRA, SEBI.
Third level – Self regulation

Listing Department
Operations Department
Computer and EDP Department
Inspection and Audit Department
Monitoring Department
Investor Service Department
Dr. NGPASC
BOMBAY STOCK EXCHANGE(BSE)
 Year of Establishment – 1875.
 Index - S&P BSE SENSEX (30 stock index).
 Trading Time - Monday to Friday (9:15 a.m. - 3:30 p.m. ).
 No. of Companies Listed – More than 5500 (world's No. 1 exchange in

terms of listed members).
 Settlement Cycle – T+ 2 days.
 BSE On-Line Trading (BOLT) has a capacity of 8 million orders per day.

Dr. NGPASC
NATIONAL STOCK EXCHANGE(NSE)
 Year of Establishment – 1992 ( first exchange in the country to
provide a modern, fully automated screen-based electronic trading
system).
 Index – S&P CNX NIFTY (50 stock index).
 No. of Companies Listed – More than 1300.
 The world’s 12th-largest stock exchange as of 23 January 2015.
Dr. NGPASC
 Automated, screen-based trading platform – National Exchange
for Automated Trading (NEAT).
 Instrumental in creating the National Securities Depository
Limited (NSDL) which allows investors to securely hold and
transfer their shares and bonds electronically.
Dr. NGPASC
MULTI COMMODITY STOCK EXCHANGE(MCX)
 India’s first listed exchange, commodity futures exchange that facilitates
online trading and clearing and settlement of commodity futures
transactions, thereby providing a platform for risk management.
 Started operations in November 2003, operates under the regulatory
framework SEBI.
 MCX offers trading in varied commodity futures contracts across

segments including bullion, industrial metals, energy and
agricultural commodities.
Dr. NGPASC
 Index – MCX -COMDEX, is a real-time composite commodity
futures price index which gives information on market
movements.
 Other indices developed by the exchange include MCX Agri,
MCX Energy, MCX Metal.
Dr. NGPASC
OVER THE COUNTER EXCHANGE OF INDIA (OTCEI)
 OTCEI was incorporated in 1990 and is recognized as a stock exchange under Section 4 of
the Securities Contracts Regulation Act, 1956.
 The Exchange was set up to aid enterprising promoters in raising finance for new projects in a
cost effective manner and to provide investors with a transparent & efficient mode of trading.
 No. of Companies Listed – 115.
 High-technology enterprises.
Dr. NGPASC
 Companies focused on new product development.
 Companies with paid-up capital below Rs. 3 crores.
 Start-up enterprises that do not have 3-year track record.
 Companies that do not have 10% equity / debt participation

by banks / financial institutions.
Dr. NGPASC
STOCK EXCHANGE REFORMS
 Capital issues(control) Act, 1947.
 SEBI came into existence from 1992.
i) To protect investors of participant in stock market.
ii) To regulating the securities market.
Dr. NGPASC
 Permission of FII’s to access Indian Capital Market on
registration with SEBI
i) Liberalization of investment norms for NRIs.
ii) Indian companies permitted to access international capital

markets.
iii) NSDL and CDSL set up to provide electronic transfer of

securities through Demat settlement.
iv) Commencement of operations of OTCEI and NSE with

nation-wide stock trading.
Dr. NGPASC
RECENT REFORMS
 Reduction of Trading Cycle - settlement period was reduced
progressively from T+5 to T+3 days. From April 2003 onwards, T+2 days
settlement cycle is being followed.
 Equity Derivatives Trading – To assist market participants in managing
risks better through hedging, speculation and arbitrage, the market offers
index futures, index options, single stock futures and single stock options.
 Clearing Corporation - National Securities Clearing Corporation Ltd.
(NSCCL), commenced its operations in April 1996.
Dr. NGPASC
 Globalization - Indian companies have been permitted to raise
resources overseas through issue of ADRs, GDRs and FCCBs.
 Direct Market Access - DMA allows brokers to offer their
respective clients, direct access to the Exchange trading system
through the broker’s infrastructure without manual intervention by
the broker.
 Market Surveillance Mechanism.
 Launch of Securities Lending & Borrowing Scheme - Allows

market participants to take short positions effectively with less cost.
 Launch of mobile trading for all investors.
Dr. NGPASC
TRADING & SETTELMENT IN STOCK EXCHANGE
The transactions in secondary market pass through 3 phases
i) Trading
ii) Clearing
iii)Settlement
 Stock Exchange Provides the platform for trading.
The clearing corporation determines the funds and securities

obligations of the trading members and ensures that the trade is
settled through exchange of obligations.
Dr. NGPASC
 The clearing banks and the depositories provide the necessary
interface between the custodians/clearing members for settlement
of funds and securities obligations of trading members.
Dr. NGPASC
STEPS IN STOCK TRADING
 Client Registration
 Agreement
 Order Placing
 Order Confirmation
 Trade Confirmation
 Contract Note
Dr. NGPASC
SETTELMENT
 The process of fulfillment of the obligations of the trade by the
parties to the transactions is known as ‘Settlement’.
 Rolling Settlement – Settlement cycle T+2, implies that the trades
executed on the first day (say on Monday) have to be settled on the
3rd day (on Wednesday), i.e. after a gap of 2 days.
Dr. NGPASC
CLEARING CORPORATION
 National Securities Clearing Corporation Ltd. (NSCCL) is

responsible for post-trade activities such as risk management and
clearing and settlement of trades executed on a stock exchange.
i) Clearing Members: Responsible for settling their obligations

as determined by the clearing corporation.
ii) Custodians: Clearing members but not trading members.

iii) Clearing banks: key link between the clearing members and
Clearing Corporation to effect settlement of funds.
Dr. NGPASC
PLAYERS IN THE SECONDARY MARKET
 SEBI (As a Regulator)

 Stock Exchange (As a facilitator of trading)
 Stock Brokers/ Trading Members
 Retail Investors
 DII and FII
 Speculators
 Clearing Corporation
 Clearing Members/ Custodians
 Depositories
 Clearing Bank
Dr. NGPASC
ROLES OF SECONDARY MARKET
 Ideal Meeting Place
 Providing safety to investors
 Liquidity
 Speculative trading
 price setting
 Economic barometer
 Dissemination of market data
 Perfect market conditions
Dr. NGPASC
 Efficient channeling of savings
 Optimal resource allocation
 Platform for public debt
 Motivation for Improved performance by companies
 Availability of business information
 Evaluation of securities
 Investor education
 Industrial financing and Company regulation
 Enable the investors to reduce their risks through diversified portfolio
Dr. NGPASC
LIMITATIONS OF SECONDARY MARKET
 Speculation
 Neglect of small investors
 Bad trading practice
 Lack of integration
 Inefficient banking system
 Inadequate Infrastructure
 Inadequacy of investor service
Dr. NGPASC
SPECULATION
 The Speculators attempt to make money in both rising and falling
markets.
 Speculators buy and sell stocks, attempting to anticipate price
movements in order to profit.
 Speculators are not genuine investors, they buy securities with a
hope to sell them in future at a profit.
 They are not interested in holding the securities for longer period.
 They are interested only in price differentials.
Dr. NGPASC
TYPES OF SPECULATORS
The Speculators are classified into four categories such as
Bull
 Bear
 Stag
 Lame Duck
Bull : Enters into purchase transactions with view to sell them at a
profit in the future.
Bear : Speculator who expects a sharp fall in the prices of certain

securities. He enters into selling contracts in certain securities on a
future date.
Dr. NGPASC
Stag: They will buy securities in a new issue market at low price. They
hold securities for a shorter period of time and earn a good profit.
Lame Duck: They will struggle to sell the securities. They will enter
into future/option contract.
Dr. NGPASC
VARIOUS SPECULATIVE TRANSACTIONS
 Option dealings
 Margin Trading
 Arbitrage
 Wash Sales
 Blank Transfer
 Carry over
 Cornering
 Rigging the Market
Dr. NGPASC
 Option Dealings: Option dealing is an arrangement of right to buy
or sell a certain number of specified securities at a predetermined
price within a prescribed time.
 Margin Trading: Margin Trading is a system of purchasing
securities with funds borrowed from brokers.
 Arbitrage: It is undertaken to make profit out of the differences in
prices of security in two different markets. The speculator buys
the security in one market where its price is cheaper and sells it in
another market where its price is high.
Dr. NGPASC
 Wash sales: Under this method, the speculator sells his securities and then
repurchases the same through a broker at a higher prices. No
transactions takes place in the wash sales.
 Blank Transfer: Blank transfer is the routine method of transferring the
securities from one person to another. That means, a method of transferring
without mentioning the name of the transferee in the transfer deed.
 Carry Over: In case of forward delivery contracts, if both the parties
agree, the contract can be settled in the next statement date(probably in
the next month or fortnight). Such postponement is called “Carry Over”.
Dr. NGPASC
 Cornering: A Cornering is the condition of the market in which an
individual or a group of individuals holds almost the entire supplier
of a particular security.
 Rigging the Market: Rigging means artificially forcing up the market
price of a particular security. The Bull speculators generally carry on
this activity. When the price rise, they will sell the securities and
make the profit.
Dr. NGPASC
ABOUT SEBI
 Securities and Exchange Board of India (SEBI) was first established

in 1988 (originally formed in 1992) as a non-statutory body for
regulating the securities market.
 It became an autonomous body on 12 April 1992 and statutory
powers with the passing of the SEBI Act 1992 by the
Indian Parliament.
 Soon SEBI was constituted as the regulator of capital markets in
India under a resolution of the Government of India.
Dr. NGPASC
THE BOARD SHALL CONSISTS OF FOLLOWING MEMBERS:-
1.Chairman
2. Two members, one from amongst the officials of the central

government dealing with finance and another from the administration
of companies act of 1956.
3. One members from amongst the officials of the reserve bank of

India.
4. Five other members of whom atleast three shall be the whole-time

members to be appointed by the central government.
Dr. NGPASC
OBJECTIVES OF SEBI
 To protect the interest of investors, so that , there is a steady flow
of savings into to the capital market.
 To regulate the securities market and ensure fair practices.
 To promote efficient services by brokers , merchant bankers and
financial intermediaries, so that, they become competitive and
professional.
Dr. NGPASC
FUNCTIONS OF SEBI
The SEBI act 1992 has entrusted with two functions they are
1.Regulatory functions
2. Developmental functions
Dr. NGPASC
REGULATORY FUNCTIONS
Registration and regulation of stock brokers , sub-brokers ,
registrars of all issues, merchant bankers, underwriters, portfolio
managers etc.
Registration and regulation of the working of collective investment
schemes including mutual funds.
Prohibition of fraudulent and unfair trade practices relating to
securities market.
Prohibiting of insider trading.
Regulating substantial acquisition of shares and takeovers of the
company.
Dr. NGPASC
DEVELOPMENTAL FUNCTIONS
 Promoting investors education.
Training of intermediaries.
Conducting research and publishing information useful to all

market participants.
Promoting of fair practices.
Promotion of self regulatory organizations.
Dr. NGPASC
POWERS OF SEBI
 Power to call periodical returns from recognized stock exchanges .
 Power to compel listing of securities by public companies.
 Power to levy fees or other changes for carrying out the purposes of
regulation.
 Power to call information or explanation from recognized stock
exchanges or their members.
 Power to grant approval to bye-laws of recognized stock exchanges.
 Power to control and regulate stock exchanges.
Dr. NGPASC
 Power to direct enquiries to be made in relation to affairs of
stock exchanges or their members.
 Power to grant registration to market intermediaries.
 Power to declare applicability of section 17 of the securities

contract (regulation) act 1956 in any state or area to grant
licenses to dealers.
ROLE OF SEBI
 Protecting the interests of investors in securities and promoting

and regulating the development of the securities market.
 Regulating the business in stock exchanges.
 Registering and regulating the working of stock brokers, sub–

brokers, share transfer agent etc.
 Registering and regulating the working of venture capital funds,
collective investment schemes (like mutual funds) etc.
 Promoting investor’s education and training intermediaries.
Dr. NGPASC
 Promoting and regulating self-regulatory organizations.
 Prohibiting fraudulent and unfair trade practices.
 Calling for information, undertaking inspection, conducting

inquiries and audits of the stock exchanges, intermediaries, self –
regulatory organizations, mutual funds and other persons associated
with the securities market.
Dr. NGPASC
THANK YOU
Dr. NGPASC
COIMBATORE | INDIA
47

Financial Markets and Services

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Financial Markets and Services

Uploaded by

Copyright:

Available Formats

Dr. N.G.P.

Arts And Science College (Autonomous)

COURSE : FINANCIAL MARKETS & SERVICES

The securities Contract regulation act of 1956 defined stock

Bombay stock exchange (1875)

Ahmadabad stock exchange (1894)

Calcutta stock exchange (1908)

SCRA granted to establish regional stock exchanges.

Second level – SCRA, SEBI.

Third level – Self regulation

 Index - S&P BSE SENSEX (30 stock index).

 Trading Time - Monday to Friday (9:15 a.m. - 3:30 p.m. ).

 No. of Companies Listed – More than 5500 (world's No. 1 exchange in

 No. of Companies Listed – More than 1300.

 The world’s 12th-largest stock exchange as of 23 January 2015.

 MCX offers trading in varied commodity futures contracts across

 Companies with paid-up capital below Rs. 3 crores.

 Start-up enterprises that do not have 3-year track record.

 Companies that do not have 10% equity / debt participation

 SEBI came into existence from 1992.

i) To protect investors of participant in stock market.

ii) To regulating the securities market.

i) Liberalization of investment norms for NRIs.

ii) Indian companies permitted to access international capital

iii) NSDL and CDSL set up to provide electronic transfer of

iv) Commencement of operations of OTCEI and NSE with

 Launch of Securities Lending & Borrowing Scheme - Allows

The transactions in secondary market pass through 3 phases

The clearing corporation determines the funds and securities

 National Securities Clearing Corporation Ltd. (NSCCL) is

i) Clearing Members: Responsible for settling their obligations

ii) Custodians: Clearing members but not trading members.

 SEBI (As a Regulator)

 Providing safety to investors

 Dissemination of market data

 Perfect market conditions

 Optimal resource allocation

 Platform for public debt

 Motivation for Improved performance by companies

 Availability of business information

 Industrial financing and Company regulation

 Enable the investors to reduce their risks through diversified portfolio

 Neglect of small investors

 Bad trading practice

 Inefficient banking system

 Inadequacy of investor service

 They are interested only in price differentials.

Bear : Speculator who expects a sharp fall in the prices of certain

 Rigging the Market

 Securities and Exchange Board of India (SEBI) was first established

2. Two members, one from amongst the officials of the central

3. One members from amongst the officials of the reserve bank of

4. Five other members of whom atleast three shall be the whole-time

 To protect the interest of investors, so that , there is a steady flow

of savings into to the capital market.

 To regulate the securities market and ensure fair practices.

 To promote efficient services by brokers , merchant bankers and

financial intermediaries, so that, they become competitive and

Conducting research and publishing information useful to all

Promotion of self regulatory organizations.

 Power to compel listing of securities by public companies.

 Power to control and regulate stock exchanges.

 Power to declare applicability of section 17 of the securities