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CHAPTER 1

1.1Meaning and Definition


MEANING: Stock Exchange also called stock market. It is a market place where securities are bought and sold. It is an organized market for buying and selling corporate securities. Like any other centralized market, stock market facilitates buyers and sellers to do business at the fairest price. As public is not admitted to the trading floor, business has to be done through registered brokers. A stock exchange is the central place or market where industrial securities are bought and sold under a code of rules and regulation. A stock exchange is the place where any body who wants to buy a particular security can find an immediate seller, or anybody who wants to sell his holdings can find a buyer at a fair price. The stock market or exchange is a place where long-term commitments or investments are bought and sold. For the existence of corporate form of organization, the stock exchange is an essential institution. DEFINITION: According to K.L. Garg, A stock exchange is an association of persons engaged in the buying and selling of stocks, bonds and share for the public on commission are guided by certain rules and usages.

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According to Pyle, Stock exchanges are market places where securities that have been listed thereon, may be bought and sold for either investment or speculation. Securities contracts (Regulation) Act, 1956 under section 2(J) has defined, stock exchange as any body of individuals whether incorporated or not, constituted for the purpose or assisting , regulating or controlling the business of buying , selling or dealing in securities

1.2 History of Indian Stock Exchange


Indian stock market marks to be one of the oldest stock market in Asia. It dates back to the close of 18th century when the East India Company used to transact loan securities. In the 1830s, trading on corporate stocks and shares in Bank and Cotton presses took place in Bombay. Though the trading was broad but the brokers were hardly half dozen during 1840 and 1850.An informal group of 22 stockbrokers began trading under a banyan tree opposite the Town Hall of Bombay from the mid-1850s, each investing a (then) princely amount of Rupee 1. This banyan tree still stands in the Horniman Circle Park, Mumbai. In 1860, the exchange flourished with 60 brokers. In fact the 'Share Mania' in India began with the American Civil War broke and the cotton supply from the US to Europe stopped. Further the brokers increased to 250. The informal group of stockbrokers organized themselves as the The Native Share and Stockbrokers Association which, in 1875, was formally organized as the Bombay Stock Exchange (BSE).BSE was shifted to an old building near the Town Hall. In 1928, the plot of land on which the BSE building now stands (at the
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intersection of Dalal Street, Bombay Samachar Marg and Hammam Street in downtown Mumbai) was acquired, and a building was constructed and occupied in 1930.Premchand Roychand was a leading stockbroker of that time, and he assisted in setting out traditions, conventions, and procedures for the trading of stocks at Bombay Stock Exchange and they are still being followed. Several stock broking firms in Mumbai were family run enterprises, and were named after the heads of the family. The following is the list of some of the initial members of the exchange, and who are still running their respective business: D.S. Prabhudas & Company (now known as DSP, and a joint venture partner with Merrill Lynch) Jamnadas Morarjee (now known as JM) Champaklal Divides (now called Cifco Finance) Brijmohan Laxminarayan. In 1956, the Government of India recognized the Bombay Stock Exchange as the first stock exchange in the country under the Securities Contracts (Regulation) Act. The most decisive period in the history of the BSE took place after 1992. In the aftermath of a major scandal with market manipulation involving a BSE member named Harshad Mehta, BSE responded to calls for reform with intransigence. The foot-dragging by the BSE helped radicalise the position of the government, which encouraged the creation of the National Stock Exchange (NSE), which created an electronic marketplace. NSE started trading on 4 November 1994. Within less than a year, NSE turnover exceeded the BSE. BSE rapidly automated, but it never caught up with NSE spot market turnover. The
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second strategic failure at BSE came in the following two years. NSE embarked on the launch of equity derivatives trading. BSE responded by political effort, with a friendly SEBI chairman (D. R. Mehta) aimed at blocking equity derivatives trading. The BSE and D. R. Mehta succeeded in delaying the onset of equity derivatives trading by roughly five years. But this trading, and the accompanying shift of the spot market to rolling settlement, did come along in 2000 and 2001 - helped by another major scandal at BSE involving the then President Mr. Anand Rathi. NSE scored nearly 100% market share in the runaway success of equity derivatives trading, thus consigning BSE into clearly second place. Today, NSE has roughly 66% of equity spot turnover and roughly 100% of equity derivatives turnover.Stock Exchange provides a trading platform, where buyers and sellers can meet to transact in securities. Capital Market: The capital market is divided into two segments viz: a) Primary Market b) Secondary Market a) Primary Market: Most companies are usually started privately by their promoters. However the promoters capital and the borrowed capital from banks or financial institutions might not be sufficient for running the business over the long term. That is when corporate and the government looks at the primary market to raise long term funds by issuing securities such as debt or equity. These securities may be issued at face value, at premium or at discount. Let us understand the meaning of these terms:

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Face Value: Face value is the original cost of the security as shown in the certificate/instrument. Most equity shares have a face value of Rs. 1, Rs. 5, Rs. 10 or Rs. 100 and do not have much bearing on the actual market price of the stock. When issuing securities, they may be offered at a discount or at a premium. Premium: When the security is offered at a price higher than the face value it is called a premium Discount: When the security is offered at a price lower than the face value it is called a discount. b) Secondary Market: The secondary market provides liquidity to the investors in the primary market. Today we would not invest in any instrument if there was no medium to liquidate our position. The secondary markets provide an efficient platform for trading of those securities initially offered in the primary market. Also those investors who have applied for shares in an IPO may or may not get allotment. If they dont then they can always buy the shares (sometimes at a discount or at a premium) in the secondary market. Trading in the secondary market is done through stock exchange. The Stock exchange is a place where the buyers and sellers meet to trade in shares in an organized manner. The stock exchange performs the following functions: Provide trading platform to investors and provide liquidity Facilitate Listing of securities Registers members - Stock Brokers, sub brokers Make and enforce by-laws
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Manage risk in securities transactions Provides Indices There are two leading stock exchanges in India, they are as follows: 1. National Stock Exchange: National Stock Exchange incorporated in the year 1992 provides trading in the equity as well as debt market. Maximum volumes take place on NSE and hence enjoy leadership position in the country today. 2. Bombay Stock Exchange: BSE on the other hand was set up in the year 1875 and is the oldest stock exchange in Asia. It has evolved in to its present status as the premier stock exchange. About National Stock Exchange: The National Stock Exchange (NSE) is India's leading stock exchange covering 364 cities and towns across the country. NSE was set up by leading institutions to provide a modern, fully automated screen-based trading system with national reach. The Exchange has brought about unparalleled transparency, speed & efficiency, safety and market integrity. It has set up facilities that serve as a model for the securities industry in terms of systems, practices and procedures. NSE has played a catalytic role in reforming the Indian securities market in terms of microstructure, market practices and trading volumes. The market today uses state-of-art information technology to provide an efficient and transparent trading, clearing and settlement mechanism, and has witnessed several innovations in products & services viz. demutualization of stock exchange governance, screen based trading, compression of
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settlement cycles, dematerialization and electronic transfer of securities, securities lending and borrowing, professionalization of trading members, fine-tuned risk management systems, emergence of clearing corporations to assume counterparty risks, market of debt and derivative instruments and intensive use of information technology. The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges, which recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the country. On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000. The standards set by NSE in terms of market practices and technologies have become industry benchmarks and are being emulated by other market participants. NSE is more than a mere market facilitator. It's that force which is guiding the industry towards new horizons and greater opportunities. Till the advent of NSE, an investor wanting to transact in a security not traded on the nearest exchange had to route orders through a series of correspondent brokers to the appropriate exchange. This resulted in a great deal of uncertainty and high transaction
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costs. One of the objectives of NSE was to provide a nationwide trading facility and to enable investors spread all over the country to have an equal access to NSE. NSE has made it possible for an investor to access the same market and order book, irrespective of location, at the same price and at the same cost. NSE uses sophisticated telecommunication technology through which members can trade remotely from their offices located in any part of the country. NSE trading terminals are present in 363 cities and towns all over India. NSE is one of the first demutualised stock exchanges in the country, where the ownership and management of the Exchange is completely divorced from the right to trade on it. Though the impetus for its establishment came from policy makers in the country, it has been set up as a public limited company, owned by the leading institutional investors in the country. From day one, NSE has adopted the form of a demutualised exchange - the ownership, management and trading is in the hands of three different sets of people. NSE is owned by a set of leading financial institutions, banks, insurance companies and other financial intermediaries and is managed by professionals, who do not directly or indirectly trade on the Exchange. This has completely eliminated any conflict of interest and helped NSE in aggressively pursuing policies and practices within a public interest framework. The NSE model however, does not preclude, but in fact accommodates involvement, support and contribution of trading members in a variety of ways. Its Board comprises of senior executives from promoter institutions, eminent professionals in the fields of law,

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economics, accountancy, finance, taxation, etc, public representatives, nominees of SEBI and one full time executive of the Exchange. While the Board deals with broad policy issues, decisions relating to market operations are delegated by the Board to various committees constituted by it. Such committees include representatives from trading members, professionals, the public and the management. The day-to-day management of the Exchange is delegated to the Managing Director who is supported by a team of professional staff. About Bombay Stock Exchange: As we read in the history of Indian stock exchange; the stock exchange, Mumbai, popularly known as BSE". BSE was established in 1875 as The Native Share and Stock Brokers Association". It is the oldest one in Asia, even older than the Tokyo Stock Exchange, which was established in 1878. It is a voluntary non-profit making Association of Persons (AOP) and has converted itself into demutualised and corporate entity. It has evolved over the years into its present status as the Premier Stock Exchange in the country. It is the first Stock Exchange in the Country to have obtained permanent recognition in 1956 from the Govt. of India under the Securities Contracts (Regulation) Act, 1956. The Exchange, while providing an efficient and transparent market for trading in securities, debt and derivatives upholds the interests of the investors and ensures redressal of their grievances whether against the companies or its own member-brokers. It also strives to educate and enlighten the investors by conducting investor education programmes and making available to them necessary informative inputs.
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A Governing Board having 20 directors is the apex body, which decides the policies and regulates the affairs of the Exchange. The Governing Board consists of 9 elected directors, who are from the broking community (one third of them retire every year by rotation), three SEBI nominees, six public representatives and an Executive Director & Chief Executive Officer and a Chief Operating Officer. The Executive Director as the Chief Executive Officer is responsible for the day-to-day administration of the Exchange and he is assisted by the Chief Operating Officer and other Heads of Department. The Exchange has inserted new Rule in its Rules, Bye-laws & Regulations pertaining to constitution of the Executive Committee of the Exchange. Accordingly, an Executive Committee, consisting of three elected directors, three SEBI nominees or public representatives, Executive Director & CEO and Chief Operating Officer has been constituted. The Committee considers judicial & quasi matters in which the Governing Board has powers as an Appellate Authority, matters regarding annulment of transactions, admission, continuance and suspension of member-brokers, declaration of a member-broker as defaulter, norms, procedures and other matters relating to arbitration, fees, deposits, margins and other monies payable by the member-brokers to the Exchange, etc. About Pune Stock Exchange: Pune Stock Exchange: There are many regional stock exchanges in India. Our regional stock exchange i.e. Pune Stock Exchange Limited stands 7th in the country. Pune Stock

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Exchange Ltd. is a company limited by guarantee. The Exchange was established on 2nd Sept. 1982 to cater to the needs of the growing investor community in the city. Starting small, with 35 members and a few lakhs rupees business initially, the exchange has grown tremendously to over 185 members and about 15-20 crores of business daily. Much of the work is computerised with a smooth settlement system. Over 310

companies are listed with the Stock Exchange. The Exchange, while providing an efficient market also upholds investors interests and ensures redressal of their grievances. It also strives to educateand enlighten investors by making available necessary information inputs. Pune Stock Exchange opted for the on-line screen based trading in 1995. The Exchange has been successfully using a screen based Trading System, based on VECTOR (Versatile Engine for Centralised Trading and On-line Reporting) and developed and implemented by CMC Ltd. The present operations cover 183 broker members and 9 workstations for administration, Market Operations and Surveillance activities of PSE. Pune Stock Exchange has been looking into the possibilities of widening its activities to different parts of Pune city and to other cities like Satara, Sangli, Solapur, Kolhapur, Ahmednagar, Aurangabad, Nashik and Mumbai. On 30th October 1982 the first trading at PSE was conducted in which 22 listed scripts were traded. Initially the trading was allowed only in the securities which were listed on PSE. Thereafter the trading was also allowed in the securities which were listed on the other stock Exchanges, under "Permitted Securities". Due to this, the turnover was

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increased substantially. From October 1982 to February 1996 the trading was conducted in the traditional fashion i.e. in the trading ring by way of open cry out system. On 15th March 1996 the trading activities were switched over to the most advanced computerised system to fall in the line with the system prevalent in USA & Europe. PSE was the first regional stock Exchange to implement the online trading system. The project of online trading system was undertaken by CMC Ltd., a Govt. Enterprise and the same was completed successfully under the name style as VECTOR SYSTEM. With this new system, the brokers now need not assemble in the trading ring for execution of their orders. They can conduct the trading by sitting in their offices from which their computers are connected to the main computer of the Exchange through Local Area Network. The orders are compiled by the main system during trading hoursand are matched by computers with the principle of "best bid is matched with the best order." The moment trade is matched, it is instantly informed to the members which he can visualise on his computer screen. The system has also created transparency to the investors as far as the rates of the securities, the general market trend, liquidity etc. is concerned. The members are also benefited as far as their data regarding pending orders, day to day position about the business recorded is being generated expeditiously through the system.

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1.3 Objectives of Study


To study the Stock Exchange Market fully in depth. To examine the working of stock exchange. To study its role in financial market. To know the characteristics of stock exchange. To see what are the functions of stock exchange. To find out various advantages and disadvantages of stock exchange. To know what services are offered by the Stock Exchange

1.4 Research Methodology


Secondary data is used in this project. To collect enough data for analysis websites and printed data is used and it has framed accordingly.

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CHAPTER 2

2.1Types of Stock
There are different types of stocks to choose in the stock market. Preferred Stocks and Common Stocks: All stocks are generally designated as preferred or common. Common stocks are stocks that offer you a bit of ownership of a company. Each common stock you have offers you a specific amount of ownership, entitles you to some dividends and allows you one vote for each share you own in electing directors or making key business decisions. Common stocks in this sense are different from debentures or bonds, which are money given to a company as a loan in return for the promise of specific interest.

Preferred stock offers you preferential treatment when it comes to paying out of dividends. If the company goes bankrupt, stocks holders holding preferred equities get faster access to any assets not used towards paying debts. If you have preferred cumulative stock, your position is secure. This type of stock allows unpaid dividends to be accrued. If a company cannot pay dividends one year, your dividends accrue until the company can pay. During such period all the money owed over the previous years will be paid. Those holding preferred types of stock usually have no voting ability and these stocks only get their pre-determined dividend and not more than that. This is to offset the other advantages of preferred status.

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Growth Stocks: Growth stocks are stocks of companies that are experiencing rapid growth and are expected to continue growing in the future. A company with growth stocks is generally a stable company that is experiencing larger sales as well as incurring reasonable expenses. Such a company invests money in new products. These stocks are attractive to investors since they allow investors to make money from a growing and prospering company. However, these stocks can also be a risk. These stocks are often expensive, and of course there is no guarantee that a company will continue to grow and prosper as projected Dividend Stocks Dividend stocks are those stocks that pay a yearly dividend or cash amount in addition to having an inherent buying and selling value. Having high dividend stocks means that you make money each year that a company profits. This article takes you through: Dividend stocks are those stocks that pay a yearly dividend or cash amount in addition to having an inherent buying and selling value. Having high dividend stocks means that you make money each year that a company profits. The best dividend stocks are used by wealthy people in order to create a passive income. Thanks to the Internet, almost any investor can start investing in these stocks. It is easy to find a list of dividend paying stocks and even get newsletters that feature monthly dividend stocks right in your mailbox or email inbox. If you want to make money regularly from your investments, as well as make money when buying and selling your securities, dividend yielding stocks may be the solution.

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2.2 Features of Stock Exchange


1. Market for securities: Stock exchange is a market, where securities of corporate bodies, government and semi-government bodies are bought and sold. 2. Deals in second hand securities: It deals with shares, debentures bonds and such securities already issued by the companies. In short it deals with existing or second hand securities and hence it is called secondary market. 3. Regulates trade in securities: Stock exchange does not buy or sell any securities on its own account. It merely provides the necessary infrastructure and facilities for trade in securities to its members and brokers who trade in securities. It regulates the trade activities so as to ensure free and fair trade 4. Allows dealings only in listed securities: In fact, stock exchanges maintain an official list of securities that could be purchased and sold on its floor. Securities which do not figure in the official list of stock exchange are called unlisted securities. Such unlisted securities cannot be traded in the stock exchange. 5. Transactions effected only through members: All the transactions in securities at the stock exchange are affected only through its authorized brokers and members. Outsiders or direct investors are not allowed to enter in the trading circles of the stock exchange. Investors have to buy or sell the securities at the stock exchange through the authorised brokers only. 6. Association of persons: A stock exchange is an association of persons or body of individuals which may be registered or unregistered.
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7. Working as per rules: Buying and selling transactions in securities at the stock exchange are governed by the rules and regulations of stock exchange as well as SEBI Guidelines. No deviation from the rules and guidelines is allowed in any case. 8. Specific location: Stock exchange is a particular market place where authorised brokers come together daily (i.e. on working days) on the floor of market called trading circles and conduct trading activities. The prices of different securities traded are shown on electronic boards. After the working hours market is closed. All the working of stock exchanges is conducted and controlled through computers and electronic system. 9. Financial Barometers: Stock exchanges are the financial barometers and development indicators of national economy of the country. Industrial growth and stability is reflected in the index of stock exchange. 10. Securities Contracts (Regulation)Act, 1956 : Stock Exchange is controlled by the Central Government under the Special Act called Securities Contracts(Regulation) Act, 1956. In India, SEBI also keeps supervision and control on stock exchanges and intermediaries operating on the Stock Exchange.

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2.3Functions of Stock Exchange


The main functions of Stock Exchange are as follows: 1. Continuous and ready market of securities: Stock exchange provides a ready and continuous market for purchase and sale of securities. It provides ready outlet for buying and selling of securities. Stock exchange also acts as an outlet/counter for the sale of listed securities 2. Facilitates evaluation of securities Stock exchange is useful for the evaluation of industrial securities. This enables investors to know the true worth of their holdings at any time. Comparison of companies in the same industry is possible through stock exchange quotations (i.e price list). 3. Encourages capital formation Stock exchange accelerates the process of capital formation. It creates the habit of saving, investing and risk taking among the investing class and converts their savings into profitable investment. It acts as an instrument of capital formation. In addition, it also acts as a channel for right (safe and profitable) investment. 4. Provides safety and security in dealings Stock exchange provides safety, security and equity (justice) in dealings as transactions are conducted as per well defined rules and regulations. The managing body of the exchange keeps control on the members. Fraudulent practices are also checked effectively. Due to various rules and regulations, stock exchange functions as the

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custodian of funds of genuine investors. 5. Regulates company management Listed companies have to comply with rules and regulations of concerned stock exchange and work under the vigilance (i.e supervision) of stock exchange authorities. 6. Facilitates public borrowing Stock exchange serves as a platform for marketing Government securities. It enables government to raise public debt easily and quickly. 7. Provides clearing house facility Stock exchange provides a clearing house facility to members. It settles the transactions among the members quickly and with ease. The members have to pay or receive only the net dues (balance amounts) because of the clearing house facility. 8. Facilitates healthy speculation Healthy speculation, keeps the exchange active. Normal speculation is not dangerous but provides more business to the exchange. However, excessive speculation is undesirable as it is dangerous to investors & the growth of corporate sector. 9. Serves as Economic Barometer Stock exchange indicates the state of health of companies and the national economy. It acts as a barometer of the economic situation / conditions. 10. Facilitates Bank Lending Banks easily know the prices of quoted securities. They offer loans to customers against corporate securities. This gives convenience to the owners of securities.

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2.4Advantages of Stock Exchange


1. Economies of Scale One of the advantages of the stock exchange is that is enjoys economies of scale because so much money passes through it. This helps to keep costs low, making it less expensive to buy and sell stocks. A stock exchange can use millions of transactions to spread fixed costs of setting up and maintaining orderly and secure trading, whether it's done on the computer or the exchange floor. The bigger a stock exchange is, the cheaper it is to trade an individual stock on it. 2. Investor Protection Stock exchanges require listed companies to meet strict regulatory requirements with regard to financial reporting, corporate governance and disclosure. In the U.S., the regulatory agency is the Securities and Exchange Commission. Investors get access to all relevant information about the listed companies so they can make informed decisions about whether to buy or sell shares. 3. Secure Clearing A stock exchange provides a reliable and secure clearing mechanism. You can be sure that the stocks you buy will be delivered to you, no matter what happens to the party you bought them from.

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2.5Disadvantages of Stock Exchange


There are following weaknesses or drawbacks of stock exchanges despites their numerous users and functions: 1. Fluctuations in Securities Prices: Excessive fluctuations in the value of securities are undesirable which in turn causes heavy losses to investors as well as producers. 2. Inefficient And Inexperienced Persons: There remains greater possibility of risk due to the introduction of inefficient and inexperienced persons. Sometimes this institution is misutilised by some inefficient and inexperienced operators who not only ruin their career but causes a lot of inconvenience to the public. 3. Unhealthy And Undesirable Speculation: The stock exchange provides opportunities for speculative business. When speculation degenerates as gambling, it ceases to be useful for the fulfillment of economic objectives of stock exchanges. Stock markets have become notorious for a number of unfair practices and undesirable activities all of which are made go in the name of speculation.

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CHPTER 3 3.1Role of Stock Exchange In Capital Market Of India Stock Exchanges play a crucial role in the consolidation of a national economy in general and in the development of industrial sector in particular. It is the most dynamic and organized component of capital market. Especially, in developing countries like India, the stock exchanges play a cardinal role in promoting the level of capital formation through effective mobilization of savings and ensuring investment safety. The role of stock exchange can be discussed under the following head: 1. Effective Mobilization of savings Stock exchanges provide organized market for an individual as well as institutional investors. They regulate the trading transactions with proper rules and regulations in order to ensure investor's protection. This helps to consolidate the confidence of investors and small savers. Thus, stock exchanges attract small savings especially of large number of investors in the capital market. 2. Promoting Capital formation The funds mobilised through capital market are provided to the industries engaged in the production of various goods and services useful for the society. This leads to capital formation and development of national assets. The savings mobilised are channelised into appropriate avenues of investment. 3. Wider Avenues of investment Stock exchanges provide a wider avenue for the investment to the people and organisations with investible surplus. Companies from diverse industries like Information
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Technology, Steel, Chemicals, Fuels and Petroleum, Cement, Fertilizers, etc. offer various kinds of equity and debt securities to the investors. Online trading facility has brought the stock exchange at the doorsteps of investors through computer network. Diverse type of securities is made available in the stock exchanges to suit the varying objectives and notions of different classes of investor. Necessary information from stock exchanges available from different sources guides the investors in the effective management of their investment portfolios 4. Liquidity of investment Stock exchanges provide liquidity of investment to the investors. Investors can sell out any of their investments in securities at any time during trading days and trading hours on stock exchanges. Thus, stock exchanges provide liquidity of investment. The on-line trading and online settlement of demat securities facilitates the investors to sellout their investments and realise the proceeds within a day or two. Even investors can switch over their investment from one security to another according to the changing scenario of capital market. 5. Investment priorities Stock exchanges facilitate the investors to decide his investment priorities by providing him the basket of different kinds of securities of different industries and companies. He can sell stock of one company and buy a stock of another company through stock exchange whenever he wants. He can manage his investment portfolio to maximise his wealth.

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6. Investment safety Stock exchanges through their by-laws, Securities and Exchange Board of India (SEBI) guidelines, transparent procedures try to provide safety to the investment in industrial securities. Government has established the National Stock Exchange (NSE) and Over The Counter Exchange of India (OTCEI) for investors' safety. Exchange authorities try to curb speculative practices and minimise the risk for common investor to preserve his confidence. 7. Wide Marketability to Securities Online price quoting system and online buying and selling facility have changed the nature and working of stock exchanges. Formerly, the dealings on stock exchanges were restricted to its head quarters. The investors across the country were absolutely in dark about the price fluctuations on stock exchanges due to the lack of information. But today due to Internet, on line quoting facility is available at the computers of investors. As a result, they can keep track of price fluctuations taking place on stock exchange every second during the working hours. Certain T.V. Channels like CNBC are fully devoted to stock market information and corporate news. Even other channels display the on line quoting of stocks. Thus, modern stock exchanges backed up by internet and information technology provide wide marketability to securities of the industries. Demat facility has revolutionised the procedure of transfer of securities and facilitated marketing. 8. Financial resources for public and private sectors Stock Exchanges make available the financial resources available to the industries in public and private sector through various kinds of securities. Due to the assurance of
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liquidity, marketing support, investment safety assured through stock exchanges, the public issues of securities by these industries receive strong public response (resulting in oversubscription of issue). 9. Funds for Development Purpose Stock exchanges enable the government to mobilise the funds for public utilities and public undertakings which take up the developmental activities like power projects, shipping, railways, telecommunication, dams & roads constructions, etc. Stock exchanges provide liquidity, marketability, price continuity and constant evaluation of government securities. 10. Indicator of Industrial Development Stock exchanges are the symbolic indicators of industrial development of a nation. Productivity, efficiency, economic-status, prospects of each industry and every unit in an industry is reflected through the price fluctuation of industrial securities on stock exchanges. Stock exchange sensex and price fluctuations of securities of various companies tell the entire story of changes in industrial sector. 11. Barometer of National Economy Stock exchange is taken as a Barometer of the economy of a country. Each economy is economically symbolized (indicators) by its most significant stock exchange. New York Stock Exchange, London Stock Exchange, Tokyo Stock Exchange and Bombay Stock Exchange are considered as barometers of U.S.A, United Kingdom, Japan and India respectively. At both national and international level these stock exchanges represent the progress and conditions of their economies.
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3.2 Objectives Of Stock Exchange


Following are the objectives of Stock Exchange: 1. Capital Formation One of the most important objectives of a stock exchange is capital formation. This refers to the accumulation of vast quantities of money necessary to start large ventures. Power plants, automobile production facilities, computer chip manufacturers and many other endeavors require tens or hundreds of millions of dollars of investment before they can produce any profit. Without corporate organization, which accumulates capital (money) while dispersing ownership, many of these projects would not be possible. 2. Connecting Traders The stock exchange also facilitates trading. One of the advantages of corporate organization is that stakeholders may sell their interest to another party. At any one time, hundreds or even thousands of individuals may wish to sell their shares of stock, while as many investors may wish to purchase the same security. Stock exchanges put in place the infrastructure necessary to connect these buyers and sellers. Many stock exchanges occupy physical buildings in which traders, brokers and other agents of the system work. Other exchanges occupy no centralized physical location and operate through telecommunication and computer networks. 3. Security The operators of stock exchanges, in cooperation with their governments, have designed and implemented laws and regulations determining how the system should function.
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These rules are intended to protect the investor from unfair advantages taken by people possessing special knowledge. They also obligate people who have entered into contracts to honor those contracts or face criminal prosecution. The goal of regulation is to allow people who may not always trust each other to do business with each other, because they trust the system. Some regulation is put in place to protect against unintended consequences of an unregulated market. For example, the "uptick rule" states that before a short contract (a "bet" that a stock will decline) can be written on a security, the price must increase, at least incrementally. This prevents a struggling stock from being shorted, which can decrease confidence in its strength and lead to more shorting and a further decline. 4. Economic Indicator Though not originally intended to function as such, stock exchanges also work as instruments to quantify the state of an economy. Even a casual observation of the general trends on major stock exchanges can give some insight into the state of a national or regional economy, or even the global economy.

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3.3Chllanges of Stock Market


Many beginning investors see the stock market as a place to become extraordinarily wealthy. Indeed, many fortunes are made on the stock market; however, there are many risks and challenges faced by those attempting to get involved in the stock market. These include the uncertainty of a volatile market and the challenges of long-term growth, among other. Some of the challenges are as follows:

1. Volatility
One of the most obvious risks or challenges of the stock market is the volatility inherent in the various markets. Volatility refers to the way the values of stocks rise and fall. The higher the highs and lower the lows, the greater the volatility. While investors obviously enjoy the extreme upward swings in the stock market, they are very concerned with the potential for significant losses in value made possible by the negative side of stock market volatility.

2. Long-term Growth
Another concern of investors is the long-term growth of their portfolios. Few investors have the mentality of a day trader, seeking short-term growth from many trades while holding a security for only a short period of time. A significant challenge is to select stocks and underlying companies that have a strong potential for long-term growth.

3. Diversification
Many investors become attracted to certain high-growth industries they feel have the potential to grow rapidly, making them a fortune. The downside to this strategy is that too
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many investors fail to consider the need to diversify their portfolios into a variety of stocks. A portfolio should be diversified based on growth potential as well as industry to maintain a relatively steady overall portfolio return and to neutralize, to some extent, the volatility that is also a concern for investors

3.4 Services of the Stock Exchange

Services Of The Stock Exchange

Service To Companies

Services To Investors

Services To Econimy

A) Services given by Stock Exchange to Investors: 1. Provides liquidity to investment: Stock exchange provides liquidity (i.e. easy convertibility to cash) to investment in securities. An investor can sell his securities at any time because of the ready market
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provided by the stock exchange. Stock exchange provides easy marketability to corporate securities. 2. Provides collateral value to securities: Stock exchange provides better value to securities as collateral for a loan. This facilitates borrowing from a bank against securities on easy terms. Offers opportunity to participate in the industrial growth: Stock exchange provides capital for industrial growth. It enables an investor to participate in the industrial development of the country. 3. Estimates the worth of securities: Stock exchange provides the facility of knowing the worth (i.e. true market value) of investment due to quotations (i.e. price list) and reports published regularly by the exchange. This type of information guides investors as regards their future investments. They can purchase or sell securities as per the price trends (i.e. latest price value) in the market. 4. Offers safety in corporate investment: An investor can invest his surplus money (i.e extra money) in the listed securities with reasonable safety. The risk in such investment is reduced considerably due to the supervision of stock exchange authorities on listed companies. Moreover, securities are listed only when the exchange authorities are satisfied as regards legality and solvency of company concerned. Such scrutiny (detailed checking) avoids listing, of securities of unsound companies (i.e companies with bad financial status).

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B) Services given by Stock Exchange to Companies: 1. Widens market for securities: Stock exchange widens the market for the listed securities and enables the companies to collect capital for promotion, expansion and modernization purpose. It indirectly provides financial support to companies / corporations. 2. Creates goodwill and reputation: Stock exchange enhances the goodwill and the reputation of the companies whose securities are listed. Listing acts as a character certificate given to a company. It gives prestigious position to company. 3. Facilitates fair pricing of listed securities: The market price of listed securities tends to be slightly higher in relation to earnings and property values. 4. Provides better response from investors: Listed securities get better response from the investor due to safety and security. Listing of securities is a unique service which stock exchanges offer to companies. It is a moral support given to stable companies. 5. Facilitates quick selling of securities: Stock exchange enables companies to sell their securities easily and quickly. This is natural as investors always prefer to invest money in listed securities.

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C) Service given by Stock Exchange to Economy: Brings economic development: Stock exchanges bring rapid economic development through mobilization of funds for productive purposes. This facilitates the process of economic growth.

CHAPTER 4

4.1 Role Functions Of SEBI in Monitoring The Stock Exchange


Securities and Exchange Board of India (SEBI) is an apex body for overall development and regulation of the securities market. It was set up on April 12, 1988. To start with, SEBI was set up as a non-statutory body. Later on it became a statutory body under the Securities Exchange Board of India Act, 1992. The Act entrusted SEBI with comprehensive powers over practically all the aspects of capital market operations. Role Functions of SEBI

The role or functions of SEBI are discussed below. To protect the interests of investors through proper education and guidance as regards their investment in securities. For this, SEBI has made rules and regulation to be followed by the financial intermediaries such as brokers, etc. SEBI looks after the complaints received from investors for fair settlement. It also issues booklets for the guidance and protection of small investors. To regulate and control the business on stock exchanges and other security markets. For this, SEBI keeps supervision on brokers. Registration of brokers and
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sub-brokers is made compulsory and they are expected to follow certain rules and regulations. Effective control is also maintained by SEBI on the working of stock exchanges. To make registration and to regulate the functioning of intermediaries such as stock brokers, sub-brokers, share transfer agents, merchant bankers and other intermediaries operating on the securities market. In addition, to provide suitable training to intermediaries. This function is useful for healthy atmosphere on the stock exchange and for the protection of small investors. To register and regulate the working of mutual funds including UTI (Unit Trust of India). SEBI has made rules and regulations to be followed by mutual funds. The purpose is to maintain effective supervision on their operations & avoid their unfair and anti-investor activities. To promote self-regulatory organization of intermediaries. SEBI is given wide statutory powers. However, self-regulation is better than external regulation. Here, the function of SEBI is to encourage intermediaries to form their professional associations and control undesirable activities of their members. SEBI can also use its powers when required for protection of small investors. To regulate mergers, takeovers and acquisitions of companies in order to protect the interest of investors. For this, SEBI has issued suitable guidelines so that such mergers and takeovers will not be at the cost of small investors. To prohibit fraudulent and unfair practices of intermediaries operating on securities markets. SEBI is not for interfering in the normal working of these
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intermediaries. Its function is to regulate and control their objectional practices which may harm the investors and healthy growth of capital market. To issue guidelines to companies regarding capital issues. Separate guidelines are prepared for first public issue of new companies, for public issue by existing listed companies and for first public issue by existing private companies. SEBI is expected to conduct research and publish information useful to all market players (i.e. all buyers and sellers). To conduct inspection, inquiries & audits of stock exchanges, intermediaries and self-regulating organizations and to take suitable remedial measures wherever necessary. This function is undertaken for orderly working of stock exchanges & intermediaries. To restrict insider trading activity through suitable measures. This function is useful for avoiding undesirable activities of brokers and securities scams.

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CHAPTER 5

5.1 Conclusion & Recommendation


Stock market fluctuates by the external environment. Stock market is all about future prediction. Stock market is very sensitive market. It is based on high risk and high return. Comparatively stock market is less risky than the other market and generates more money for the economy One who have good knowledge in stock market, may survive in the market and generates profits or good return whether the market is down Investors should not invest on the basis of rumors they must observe the market condition or trends Indian economy and than invest If they want to generate good return.

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CHAPTER 6

6.1Bibliography
TEXTS & PRINTED MATERIALS : Investment Management- M.Com. Part-II Banking S. Parveen Financial markets Of IndiaGorden Natrajan WEBSITES & PORTALS : 1. http://www.sebi.com 2. http://en.wikipedia.org/wiki/stock exchange (stock exchange- History) 3. http://ehow.com 4. http://www.nseindia.com/content/ncfm/Surveillance

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