Role of stock exchanges[edit]

Stock exchanges have multiple roles in the economy. This may include the following:[4]

Raising capital for businesses[edit]

The Stock Exchange provide companies with the facility to raise capital for expansion through selling shares to the investing public.[5] Common forms of capital raising[edit] Besides the borrowing capacity provided to an individual or firm by the banking system, in the form of credit or a loan, there are four common forms of capital raising used by companies and entrepreneurs. Most of these available options, might be achieved, directly or indirectly, involving a stock exchange.
Going public[edit]

Capital intensive companies, particularly high tech companies, always need to raise high volumes of capital in their early stages. For this reason, the public market provided by the stock exchanges has been one of the most important funding sources for many capital intensive startups. After the 1990s and early-2000s hi-tech listed companies' boom and bust in the world's major stock exchanges, it has been much more demanding for the high-tech entrepreneur to take his/her company public, unless either the company already has products in the market and is generating sales and earnings, or the company has completed advanced promising clinical trials, earned potentially profitable patents or conducted market research which demonstrated very positive outcomes. This is quite different from the situation of the 1990s to early-2000s period, when a number of companies (particularly Internet boom and biotechnology companies) went public in the most prominent stock exchanges around the world, in the total absence of sales, earnings and any well-documented promising outcome. Anyway, every year a number of companies, including unknown highly speculative and financially unpredictable hi-tech startups, are listed for the first time in all the major stock exchanges there are even specialized entry markets for these kind of companies or stock indexes tracking their performance (examples include the Alternext, CAC Small, SDAX, TecDAX, or most of the third market companies).
Limited partnerships[edit]

A number of companies have also raised significant amounts of capital through R&D limited partnerships. Tax law changes that were enacted in 1987 in the United States changed the tax deductibility of investments in R&D limited partnerships. In order for a partnership to be of interest to investors today, the cash on cash return must be high enough to entice investors. As a result, R&D limited partnerships are not a viable means of raising money for most companies, specially hi-tech startups.
Venture capital[edit]

A third usual source of capital for startup companies has been venture capital. This source remains largely available today, but the maximum statistical amount that the venture company firms in aggregate will invest in any one company is not limitless (it was

approximately $15 million in 2001 for a biotechnology company).[6] At those level, venture capital firms typically become tapped-out because the financial risk to any one partnership becomes too great.
Corporate partners[edit]

A fourth alternative source of cash for a private company is a corporate partner, usually an established multinational company, which provides capital for the smaller company in return for marketing rights, patent rights, or equity. Corporate partnerships have been used successfully in a large number of cases.

Mobilizing savings for investment[edit]

When people draw their savings and invest in shares (through an IPO or the issuance of new company shares of an already listed company), it usually leads to rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to help companies' management boards finance their organizations. This may promote business activity with benefits for several economic sectors such as agriculture, commerce and industry, resulting in stronger economic growth and higher productivity levels of firms. Sometimes it is very difficult for the stock investor to determine whether or not the allocation of those funds is in good faith and will be able to generate long-term company growth, without examination of a company's internal auditing.

Facilitating company growth[edit]

Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its market share, or acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion.

Profit sharing[edit]
Both casual and professional stock investors, as large as institutional investors or as small as an ordinary middle-class family, through dividends and stock price increases that may result in capital gains, share in the wealth of profitable businesses. Unprofitable and troubled businesses may result in capital losses for shareholders.

Corporate governance[edit]
By having a wide and varied scope of owners, companies generally tend to improve management standards and efficiency to satisfy the demands of these shareholders, and the more stringent rules for public corporations imposed by public stock exchanges and the government. Consequently, it is alleged that public companies (companies that are owned by shareholders who are members of the general public and trade shares on public exchanges) tend to have better management records than privately held companies (those companies where shares are not publicly traded, often owned by the company founders and/or their families and heirs, or otherwise by a small group of investors). Despite this claim, some well-documented cases are known where it is alleged that there has been considerable slippage in corporate governance on the part of some public companies.

The dot-com bubble in the late 1990s, and the subprime mortgage crisis in 200708, are classical examples of corporate mismanagement. Companies like Pets.com (2000), Enron Corporation (2001), One.Tel (2001), Sunbeam (2001), Webvan (2001), Adelphia (2002), MCI WorldCom (2002), Parmalat (2003), American International Group (2008), Bear Stearns (2008), Lehman Brothers (2008), General Motors (2009) and Satyam Computer Services (2009) were among the most widely scrutinized by the media. However, when poor financial, ethical or managerial records are known by the stock investors, the stock and the company tend to lose value. In the stock exchanges, shareholders of underperforming firms are often penalized by significant share price decline, and they tend as well to dismiss incompetent management teams.

Creating investment opportunities for small investors[edit]

As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small stock investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares of the same companies as large investors.

Government capital-raising for development projects[edit]

Governments at various levels may decide to borrow money to finance infrastructure projects such as sewage and water treatment works or housing estates by selling another category of securities known as bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them, thus loaning money to the government. The issuance of such bonds can obviate the need, in the short term, to directly tax citizens to finance developmentthough by securing such bonds with the full faith and credit of the government instead of with collateral, the government must eventually tax citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature.

Barometer of the economy[edit]

At the stock exchange, share prices rise and fall depending, largely, on economics forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.

What is SEBI and what is its role? The SEBI is the regulatory authority established under Section 3 of SEBI Act 1992 to protect the interests of the investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith and incidental thereto

SEBI: The Purpose, Objective and Functions of SEBI

Securities Exchange Board of India (SEBI) was set up in 1988 to regulate the functions of securities market. SEBI promotes orderly and healthy development in the stock market but initially SEBI was not able to exercise complete control over the stock market transactions. It was left as a watch dog to observe the activities but was found ineffective in regulating and controlling them. As a result in May 1992, SEBI was granted legal status. SEBI is a body corporate having a separate legal existence and perpetual succession. Reasons for Establishment of SEBI: With the growth in the dealings of stock markets, lot of malpractices also started in stock markets such as price rigging, unofficial premium on new issue, and delay in delivery of shares, violation of rules and regulations of stock exchange and listing requirements. Due to these malpractices the customers started losing confidence and faith in the stock exchange. So government of India decided to set up an agency or regulatory body known as Securities Exchange Board of India (SEBI). Purpose and Role of SEBI: SEBI was set up with the main purpose of keeping a check on malpractices and protect the interest of investors. It was set up to meet the needs of three groups. 1. Issuers: For issuers it provides a market place in which they can raise finance fairly and easily. 2. Investors: For investors it provides protection and supply of accurate and correct information. 3. Intermediaries: For intermediaries it provides a competitive professional market.

Objectives of SEBI: The overall objectives of SEBI are to protect the interest of investors and to promote the development of stock exchange and to regulate the activities of stock market. The objectives of SEBI are: 1. To regulate the activities of stock exchange. 2. To protect the rights of investors and ensuring safety to their investment. 3. To prevent fraudulent and malpractices by having balance between self regulation of business and its statutory regulations. 4. To regulate and develop a code of conduct for intermediaries such as brokers, underwriters, etc. Functions of SEBI: The SEBI performs functions to meet its objectives. To meet three objectives SEBI has three important functions. These are: i. Protective functions ii. Developmental functions iii. Regulatory functions. 1. Protective Functions: These functions are performed by SEBI to protect the interest of investor and provide safety of investment. As protective functions SEBI performs following functions: (i) It Checks Price Rigging: Price rigging refers to manipulating the prices of securities with the main objective of inflating or depressing the market price of securities. SEBI prohibits such practice because this can defraud and cheat the investors. (ii) It Prohibits Insider trading:

Insider is any person connected with the company such as directors, promoters etc. These insiders have sensitive information which affects the prices of the securities. This information is not available to people at large but the insiders get this privileged information by working inside the company and if they use this information to make profit, then it is known as insider trading, e.g., the directors of a company may know that company will issue Bonus shares to its shareholders at the end of year and they purchase shares from market to make profit with bonus issue. This is known as insider trading. SEBI keeps a strict check when insiders are buying securities of the company and takes strict action on insider trading. (iii) SEBI prohibits fraudulent and Unfair Trade Practices: SEBI does not allow the companies to make misleading statements which are likely to induce the sale or purchase of securities by any other person. (iv) SEBI undertakes steps to educate investors so that they are able to evaluate the securities of various companies and select the most profitable securities. (v) SEBI promotes fair practices and code of conduct in security market by taking following steps: (a) SEBI has issued guidelines to protect the interest of debenture-holders wherein companies cannot change terms in midterm. (b) SEBI is empowered to investigate cases of insider trading and has provisions for stiff fine and imprisonment. (c) SEBI has stopped the practice of making preferential allotment of shares unrelated to market prices. 2. Developmental Functions: These functions are performed by the SEBI to promote and develop activities in stock exchange and increase the business in stock exchange. Under developmental categories following functions are performed by SEBI: (i) SEBI promotes training of intermediaries of the securities market. (ii) SEBI tries to promote activities of stock exchange by adopting flexible and adoptable approach in following way: (a) SEBI has permitted internet trading through registered stock brokers.

(b) SEBI has made underwriting optional to reduce the cost of issue. (c) Even initial public offer of primary market is permitted through stock exchange. 3. Regulatory Functions: These functions are performed by SEBI to regulate the business in stock exchange. To regulate the activities of stock exchange following functions are performed: (i) SEBI has framed rules and regulations and a code of conduct to regulate the intermediaries such as merchant bankers, brokers, underwriters, etc. (ii) These intermediaries have been brought under the regulatory purview and private placement has been made more restrictive. (iii) SEBI registers and regulates the working of stock brokers, sub-brokers, share transfer agents, trustees, merchant bankers and all those who are associated with stock exchange in any manner. (iv) SEBI registers and regulates the working of mutual funds etc. (v) SEBI regulates takeover of the companies. (vi) SEBI conducts inquiries and audit of stock exchanges. The Organisational Structure of SEBI: 1. SEBI is working as a corporate sector. 2. Its activities are divided into five departments. Each department is headed by an executive director. 3. The head office of SEBI is in Mumbai and it has branch office in Kolkata, Chennai and Delhi. 4. SEBI has formed two advisory committees to deal with primary and secondary markets. 5. These committees consist of market players, investors associations and eminent persons. Objectives of the two Committees are: 1. To advise SEBI to regulate intermediaries.

2. To advise SEBI on issue of securities in primary market. 3. To advise SEBI on disclosure requirements of companies. 4. To advise for changes in legal framework and to make stock exchange more transparent. 5. To advise on matters related to regulation and development of secondary stock exchange. These committees can only advise SEBI but they cannot force SEBI to take action on their advice.

RBI Main functions[edit]

Bank of Issue[edit]
Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all denominations.(one rupee note and coin, which are issued by Ministry of finance). The distribution of one rupee notes and coins and small coins all over the country is undertaken by the Reserve Bank as agent of the government. The Reserve Bank has a separate Issue Department which is entrusted with the issue of currency notes. The assets and liabilities of the Issue Department are kept separate from those of the Banking Department.

Monetary authority[edit]
The Reserve Bank of India is the main monetary authority of the country and beside that the central bank acts as the bank of the national and state governments. It formulates, implements and monitors the monetary policy as well as it has to ensure an adequate flow of credit to productive sectors.

Regulator and supervisor of the financial system[edit]

The institution is also the regulator and supervisor of the financial system and prescribes broad parameters of banking operations within which the country's banking and financial system functions.Its objectives are to maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public. The Banking Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI) for effective addressing of complaints by bank customers. The RBI controls the monetary supply, monitors economic indicators like the gross domestic product and has to decide the design of the rupee banknotes as well as coins.[31]

Managerial of exchange control[edit]

The central bank manages to reach the goals of the Foreign Exchange Management Act, 1999. Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.

Issuer of currency[edit]
The bank issues and exchanges or destroys currency notes and coins that are not fit for circulation. The objectives are giving the public adequate supply of currency of good quality and to provide loans to commercial banks to maintain or improve the GDP. The basic objectives of RBI are to issue bank notes, to maintain the currency and credit system of the country to utilize it in its best advantage, and to maintain the reserves. RBI maintains the economic structure of the country so that it can achieve the objective of price stability as well as economic development, because both objectives are diverse in themselves.

Banker of Banks[edit]

RBI also works as a central bank where commercial banks are account holders and can deposit money.RBI maintains banking accounts of all scheduled banks.[32] Commercial banks create credit. It is the duty of the RBI to control the credit through the CRR, bank rate and open market operations. As banker's bank, the RBI facilitates the clearing of cheques between the commercial banks and helps inter-bank transfer of funds. It can grant financial accommodation to schedule banks. It acts as the lender of the last resort by providing emergency advances to the banks. It supervises the functioning of the commercial banks and take action against it if need arises.

Detection of Fake currency[edit]

In order to curb the fake currency menace, RBI has launched a website to raise awareness among masses about fake notes in the market.www.paisaboltahai.rbi.org.in provides information about identifying fake currency.[33]

Developmental role[edit]
The central bank has to perform a wide range of promotional functions to support national objectives and industries.[9] The RBI faces a lot of inter-sectoral and local inflation-related problems. Some of this problems are results of the dominant part of the public sector.[34]

Related functions[edit]
The RBI is also a banker to the government and performs merchant banking function for the central and the state governments. It also acts as their banker. The National Housing Bank (NHB) was established in 1988 to promote private real estate acquisition.[35] The institution maintains banking accounts of all scheduled banks, too. RBI on 7 August 2012 said that Indian banking system is resilient enough to face the stress caused by the drought like situation because of poor monsoon this year.[36]

E s t a b l i s h me n t

The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934.
C e n t r a l B oa r d

The Reserve Bank''s affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act
Ma in Funct ions Monetary Authority:

F o r m u l a t e s , i m p l em e n t s a n d m o n i t o r s t h e m o n e t a r y p o l i c y . O bj ect ive: m aint ai ni ng pri ce st abil it y and ensuri ng adequat e fl ow of cr edi t to pr oducti ve sect or s.

R e g u l a t o r a n d s u p e r v i s o r of t he f i na n c i a l s y s t e m :

P r e s c r i b e s b r o a d p a r a m et e r s o f b a n k i n g o p e r a t i o n s wi t h i n w h i c h t h e c o u n t r y ' ' s b a n k i n g a n d f i n a n c i a l s y s t em f u n c t i o n s . O b j e c t i v e : m a i n t a i n p u b l i c c o n f i d e n c e i n t h e s y s t em , p r o t e c t d e p o s i t o r s ' ' i n t e r e s t and pr ovi de cost - eff ect ive banki ng ser vices t o the pub li c. Regul at or and super vi sor of t he paym ent syst em s o A u t h o r i s e s s e t t i n g u p o f p a y m e n t s y s t em s o L a y s d o w n s t a n d a r d s f o r o p e r a t i o n o f t h e p a y m e n t s y s t em o I s s u e s d i r e c t i o n , c a l l s f o r r e t u r n s / i n f o r m a t i o n f r o m p a y m e n t s y s t em oper at ors.

M a na g e r o f F o re i g n E x c ha n g e

M a n a g e s t h e F o r e i g n E x c h a n g e M a n a g em e n t Ac t , 1 9 9 9 . O bj ect ive: to f acil it at e ext er nal tr ade and payment and pr om ot e or derl y devel opm ent and m ai nt enance of f or ei gn exchange m arket i n I ndi a.

I s s ue r o f c u r r e n c y :

I ssues and exchanges or dest roys cur r ency and coi ns not f it f or cir cul at i on. O bj ect ive: to gi ve t he publ ic adequat e quantit y of suppl i es of cur r ency not es and coi ns and i n good qual it y.

D e v e l o p m e nt a l r o l e

P e r f o r m s a wi d e r a n g e o f p r o m o t i o n a l f u n c t i o n s t o s u p p o r t n a t i o n a l o b j e c t i v e s .

Related Functions

B a n k e r t o t h e G o v e r n m e n t : p e r f o r m s m er c h a n t b a n k i n g f u n c t i o n f o r t h e c e n t r a l and t he st at e gover nm ent s; al so act s as thei r banker .

Banker to banks: m ai nt ains banki ng accounts of all schedul ed banks.

STOCK EXCHANGE XII COMMERCE SP NEW SYLLABUS

12.1 12.2 12.3 12.4 12.5 12.6 12.7 Introduction Stock Exchange - Meaning Functions of Stock Exchange Bombay Stock Exchange (BSE) National Stock Exchange of India (?~TSEII Trading Procedure Securities Exchange Board of India (SEBI)

12.1

INTRODUCTION

In the earlier chapters we have very well discussed about the sources of capital, meaning of owned and borrowed capital and just about the ways of raising capital. Is there any special market where securities (i.e. shares and debentures) are bought and sold? Let us go into details about this special market - `Stock Exchange'. The word `Stock' or stock market has become a key word and matter of interest to every one. The scenario of investments into stocks or securities was a preserve for a class of people who are rich with huge surplus and can afford risks - but now it is characterized by masses. It has become a magnetic attraction for a most common man for investing his little surplus into security market. This is of course possible due to information transmitting by electronic media and increasing awareness of investment opportunities along with a wonderful product option like SIP -Systematic Investment Plan - which is designed for a common man who, could conveniently go for an option of a SIP for Rs. 1000 p.m. Now with the help of SIP you can land into securities market.

Unit objectives : This unit will help students to understand The importance of stock or capital market The way of investment - procedure of entering into stock market The role of SEBI Different terms used in stock exchange

12.2

STOCK EXCHANGE

Meaning: Stock exchange is a specific place, where trading of the securities, is arranged in an organized method. In simple words, it is a place where shares, debentures and bonds (securities) are purchased and sold. The term securities include equity shares, preference shares, debentures, government bonds, etc. including mutual funds. The important features of a stock exchange are as follows Stock exchange is a place where buyers and sellers meet and decide on a price. Stock exchange is a place where stocks or all types of securities are traded. Stock exchange is at physical location, where transactions are carried out on a trading floor. The purpose of a stock exchange or market is to facilitate the exchange of securities between buyers and sellers, thus reducing the risk. A stock exchange provides a platform or mechanism to, the investors - individuals or institutions to purchase or sell the securities of the companies, Government or semi Government institutions. It is like a commodity market where securities are bought and sold. It is an important constituent of capital market. The stock exchange is also termed as 'Stock Market', 'Share Market' or `Share Bazaar'. Stock exchange or securities market is like a commodity market where securities are bought and sold. The security market is divided as follows. Security Market Primary Market Issuing Company Directly to Investors i.e. IPO Stock Exchange - Trading of Listed Securities - Second hand or Existing securities Secondary Market

Let us understand one by one both the markets Primary Market : As the diagram suggests here in primary market, new securities for the first and final time are floated by issuing companies themselves. Direct contact with the investors at large is established by the companies for selling of the securities in response to the direct appeal made by companies (through electronic media, print media) to investors. Secondary Market : As the diagram suggests a stock exchange is the single most important institution in the secondary market for the securities. It is the place where already issued and

. outstanding shares are bought and sold repeatedly. This is a specific place where trading of second hand or existing securities is arranged in an organized manner. Here investors can buy and sell securities from - to other investors. The securities in the stock exchange are traded, cleared and settled through intermediaries as per prescribed regulatory framework. The company needs to be listed on the stock exchange for the purpose of trading through stock exchange. Definition of stock exchange : According to the Securities Contracts (Regulation) Act 1956, the term 'stock exchange' is defined as ''An association, organization or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling of business in buying, selling and dealing in securities." Husband and Dockerary have defined stock exchange as : "Stock exchanges are privately organized market which are used to facilitate trading in securities." Management of stock exchange : An executive committee is constituted at each exchange to look after their management. The composition, powers and the name of the executive committee differ from exchange to exchange. The executive committee is known as 'Governing body' in Mumbai, Committee of management in Kolkatta and council of management in most of other stock exchanges. The constitution of committee is similar to the one found in other limited companies. There are other supporting committees to assist the executive committee like Advisory committee, Listing committee, Default committee, etc. Executive committee of stock exchange looks after the overall activities and management of stock exchange. Usually the period of the committee is one year and members retire by rotation. Organization: In India, the stock exchange may be organized in one of the following three forms. Voluntary Non profit making organization Companies with liability limited by shares Companies limited by guarantee.

The Securities Control (Regulations) Act 1956, provides rules for their functioning, licensing, recognition and for controlling speculations. Membership of stock exchange :

The membership of a stock exchange is given only to the individual persons of good moral character, competent, experienced and financially sound A company or an institution cannot become a member of the stock exchange.

Eligibility criteria includes 1. 2. 3. 4. Citizen of India Not less than 20 years Should not be bankrupt / insolvent / convicted of any fraud. Should not be director, partner or employee of the company dealing with securities.

Fees for membership Rs. 5000 - As entrance fees Rs. 20,000 - As securities Deposit After making detailed enquiry of a person he is granted membership and a membership card is issued. Role of stock exchange in the capital market :

While we study the role of stock exchange in the capital market, let us see what is mean by capital market.

Capital Market Capital market is the broad term which includes Primary market, secondary market, lending institutions, bank, investors and just about anybody and everybody who is engaged in providing long term capital (equity or debt) to the industrial sector. In this market medium term and long term capital is supplied and demanded. In Indian economy the dynamic growth of the capital market has been particularly marked during the period following the liberalization of economic policy in the industrial, financial and foreign trade sector in 1991. Though there have been shocking setbacks in certain years, the volume has no leaps and bounds.

Role of stock exchange in capital market Encourages capital formation : A common investor is attracted to capital market. Today investor is preferring to divert his surplus and savings in the securities like shares, debentures, mutual funds etc. As a result new capital formation is speeded up. Resource Mobilsation : Due to continuous buying and selling of the securities the resources of the economy flow from one company to other company giving comparatively higher returns. This helps mobilisation of resources. Help in repaid economic development : The stock exchanges help in the process of rapid economic development by speeding up the process of capital formation and resource mobilization. It helps in raising the medium and long term capital for the development and

expansion of the companies. New industries and commercial enterprises easily get capital funds through a stock exchange. Flexibility in investments : The stock exchanges provide liquidity to the investment made in the securities. As there are multiple options, investors can flexibly go on switching their investment where it is more beneficial. Value addition to the securities : Listing of shares on a stock exchange adds to the prestige and reputation to companies. With the advantage of listed shares it can raise loans from corporate sector.

12.3

FUNCTIONS OF STOCK EXCHANGE

Presence and vibrant functioning of a stock exchange is necessary for a developing economy. It reflects healthy financial and investment conducive atmosphere in the economy. The Indian securities market is considered as one of the most promising emerging markets. It is one of the top eight markets of the world. The stock exchange plays a vital role in the process of raising resources for the development of corporate sector. In the absence of the stock exchange it would be impossible for private enterprises, industries and entrepreneurs to survive and grow. A stock exchange performs various important functions as discussed below. Liquidity : It is the stock exchange that provides liquidity to private investment in corporate enterprises. It provides marketability along with liquidity to the product called securities. In other words, the facility of stock exchange provides a two-way outlet as it transforms money into investment and vice versa,'without much delay. Promotes capital formation : A stock exchange motivates the investors to invest their savings in the securities of the reputed companies. Stock exchange is the market where buying and selling of securities continually goes on. As a result, capital flows continually into business -field. Thus, formation of capital goes on., Fair evaluation of securities : A .stock exchange like any other market provides a mechanism for evaluating the prices of securities through the basic law of demand and supply. Stock exchange prices help to check the real worth of the securities in the market. The prices quoted on stock exchange are provided with wide, publicity through' electronic as well as print media. The working of stock exchanges is on line which help investors keep in touch with price update and know real worth of their investment. Protects investors interest : All the transactions in the stock exchanges are effected and controlled by the Securities Control (Regulation) Act 1956. The stock exchanges protect the interests of the investors through the strict enforcement of their rules and regulations. The malpractices of the brokers are punishable with heavy fine, suspension of their membership and. even imprisonment. .

Economic Barometer : A stock exchange serves as a reliable barometer of a country's economic status. Stock exchanges support and promote industrial development. It stimulates investment in productive sector which accelerates the process of economic development of the country. Motivation to Management : A stock exchange allows the trading of listed securities only. Listing procedure requires to comply with certain guidelines for protecting the interests of investors and obviously are under strict supervision of stock exchange. If companies do not comply with the rules and regulations of the exchange, the shares of a company can be delisted. To avoid such unfavorable and undesirable consequences every company manages its affairs more cautiously and effectively. Best utilization of capital : The stock exchange regulates and controls the flow of investment from unproductive to productive, uneconomic to economic, unprofitable to profitable enterprises. Thus, savings of the people are channalised into industry yielding good returns and underutilization of, capital is avoided.. As the stock exchange provides an account of price variations of the securities listed on it (upward or downward fluctuations) it would be an opportunity for the investors to switch their investments. This would, keep companies performing in the best possible way. 12.4 BOMBAY STOCK EXCHANGE : BSE

Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich heritage, popularly known as 'BSE'. It was established as " The Native Share and Stock Brokers Association" in 1875. It.is the first stock exchange in the country to obtain permanent recognition in 1956 from the Government of India under the Securities Contracts (Regulation) Act, 1956. The pivotal and pre-eminent role of BSE in the development of the Indian capital market is widely recognized. Earlier BSE was an Association of Persons (AOP) but now it is demutualised and corporatized entity which is incorporated under the provisions of the Companies Act 1956. BSE received its Certificate of Incorporation on 8th August 2005, and Certificate of Commencement of Business on 12th Aug, 2005. The name has been changed to `Bombay Stock Exchange Limited.' The operations and dealings of BSE are fully computerized and thus the auction system of share trading was replaced by screen based trading known as BOLT (Bombay On Line Trading System) as in other stock exchange around the world. The BSE Sensex (Sensitive Index) also called the BSE 30, is widely, used. The strategic objectives of BSE are as follows : To promote, develop and maintain a well regulated market for dealings in securities. To safeguard the interest of members and the investing public having dealings on the exchange. To promote industrial development in the country through efficient resource mobilization by way of investment in corporate securities.

To establish and promote honourable and fair practices in securities transactions. BSE WEBX CO. IN: BSE has launched internet trading system viz BSEWebx. Co. in - February 2001 with a view to provide an additional facility to the investors to put their orders for purchase or sale of securities using internet. The investors can visit BSE webx.co.in search of their member broker or sub broker and register with them on line trading world wide. The exchange provides an efficient and transparent market for trading in securities. BSE scrip is known by code no. For Example Infosys Tech- BSE Code- 500209. Its index is sensex. BSE is among the 8 biggest stock exchanges in the world in terms of transaction volume. The exchange has a nation-wide reach with a presence in 417 cities and towns of India. The systems and process of the Exchange are designed to safeguard market integrity and enhance transparency in operations. The clearing and settlement functions of the BSE are ISO 9001-2000 certified.

Management of BSE : The exchange is professionally managed under the overall direction of the Board of Directors, Governing Body, or Executive Committee. The Board comprises of eminent professionals, representatives of trading members and the Managing Director of the Exchange. The day-to-day operations of the exchange are managed by the managing Director and CEO and an expert Management Team of Professionals.

12.5

NATIONAL STOCK EXCHANGE OF INDIA (NSEI)

NSE is an All-India level stock exchange. It was incorporated in November 1992. It offers online trading system matching to international standards. The main features of NSE are as follows : It has nationwide coverage. The investor can make dealing through NSEI dealer. NSE is the first stock exchange in the world which uses communication technology for trading its securities. It is fully computerized, screen based and ringless system. It allows the investors to trade their securities from their offices or homes through network with direct satellite link up. There is transparency in dealings. The investors can check the exact price at which their transactions took place. NSE is a company promoted by IDBI, ICICI, LIC, GIC and its subsidiaries, commercial banks, SBI capital market limited.

The establishment of the NSE is an important step in upgrading trading facilities for investors and bringing Indian financial markets in line with international markets. The Index of NSE is called as 'The broader 50 share- NIFETY'.

12.6

TRADING PROCEDURE FOR AN INVESTOR

Equities are considered the most challenging and rewarding as compared to other investment options. Equities have the potential to appreciate in value over time. They can provide an investor's portfolio with the growth necessary to reach his longterm investment goals. Longer tenure of investment can yield for superior returns. However, all equity investments does not guarantee high returns. Equities are high risk investment. One needs to be selective while taking the risk. A carful study before investing into equities definitely prove beneficial. Following is the diagrammatic presentation of how a transaction takes place?

STOCK EXCHANGE Opening Demat Account Selection of a broker Getting Unique Client No. Entering ISIN of Scrip Placing of the order Contract Note Settlement

Procedure There are two ways to deal with investments in securities.

1.

An investor can invest directly in response to an issuing company's appeal i.e. IPO Public Issue i.e. (Primary Market) Investment from stock exchange i.e. secondary market While an investor purchases his shares from primary market, he needs to open Demat Account where shares are parked on electronic mode. Shares can be resold- or additional purchasing could be done here as represented in the diagram

2.

1. 2. 3. 4. 5. 6. 7.

Demat Account is opened. Selection of a broker i.e. an authorized broker: approved by stock exchange Getting unique client No. (Client ID) Entering ISIN No. of scrip i.e. No of shares to be purchased or sold. Placing of the order. Completing a contract note and Settlement of the transaction Collect news clippings about IPO issue of shares and discuss it in the class.

12.7

SECURITIES EXCHANGE BOARD OF INDIA (SEBI)

The capital market in India has witnessed tremendous growth since the beginning of 1990s when the process of liberalization initially was started. Under the impact of liberalization the industrial and financial policies were restructured. Resource mobilization in the stock markets was started increasing significantly. The liberalized investment policy of the Government, streamlining of industrial licensing policies and fiscal incentive to industry have led to the growth of the capital market significantly. With ever expanding response of investors and growing stock exchange operations, several malpractices started taking place on the part of companies, brokers, investment consultants. Some of the undesirable practices like insider trading, delay in allotment of shares, inadequate information to investors started disturbing the smooth functioning of the market. This has started discouraging the common investor from investing into securities. Hence, there felt the need to set up an exclusive monitoring institution which would regulate the working of stock exchange. The Government of India established the market watchdog SEBI i.e. Securities and Exchange Board of India (SEBI) in April 1988. SEBI as security exchange board of India became a statutory body under SEBI Act 1992, and its head office is located at Mumbai. At present SEBI has offices in Mumbai, Calcutta, New Delhi and Chennai.

Objectives of SEBI

The main objectives of SEBI are as under To promote fair dealing by the issuers of securities and to ensure a market place where companies or institutions can raise funds at a relatively low cost. To provide protection to the investors and protect their rights and interests so that there is a steady flow of savings into the market. To regulate and develop a code of conduct and fair practice by intermediaries like brokers etc. with a view to make them competitive and professional.

Functions of SEBI Regulating the business in stock exchanges and any other securities market. Registering and regulating the working of stock brokers, share transfer agents, sub brokers, bankers to an 'issue, etc. Promoting and regulating self regulatory organizations. Prohibiting fraudulent and unfair trade practices relating to securities market. Registering and regulating the working of venture capital funds and collective investment schemes including mutual funds. Promoting investors education and training of intermediaries of securities market. Prohibiting insider trading in securities. Conducting research and carrying out publications. Calling for information from undertaking inspection, conducting inquiries and audits of stock exchanges and market intermediaries.

Powers of SEBI SEBI has been given wide powers. Some of them are as follows. records. SEBI may ask a stock exchange or any member to fizrnish information and explanation concerning its affairs. SEBI can approve and amend bye-laws of stock exchanges. It can call periodical returns from stock exchanges. SEBI can license dealers in securities in some areas. SERI can ask stock exchanges to maintain the'prescribed documents and

It can ask a public limited company to list its shares and play supportive role when share market -is bearish. When an individual investor and even speculators try to play shy in stock market ( it means to hesitate to transact) it is the institutional investor who often accounts for bulk of trade. This helps sustaining for stock exchanges. Terms relating to stock exchange

Listing of securities : Listing of securities means incorporating the name of a company for its security in the official register of the stock exchange. Listing helps companies to get broader market for their securities. Stock Broker : He is a commission agent who transacts business on behalf of non-members but he himself is a member of a stock exchange who is licensed by stock exchange to buy or sell shares on his client's behalf. Jobber : A jobber is a dealer in stock exchange who carries on trading of securities in his own name. He is a professional speculator in the stock exchange. He is not permitted to deal with investors directly. Bull (Tejiwala) : A speculator who expects the price of a particular share to rise in the future and speculates with the hope of selling them at the higher prices to earn profits. His views are optimistic. Bear (Mandiwala) : A speculator who expects fall in the price of a security. He buys at a lesser price and sells at a little higher price. Stag : The stags are those who in general do not invest in the secondary market- Instead, they prefer to make their investment in the primary markets when new issues are made. Contract Note : It is a note given by a broker to his client. It will be in a specific form. It validates the transaction. Both the broker and the client will have one copy each immediately after the transaction within 24 hours. Trading Ring : The trading or auction of shares takes place on the floor of the stock exchange which is also known as Trading Ring. Trading takes place during. trading hours which is usually between 12 noon to 2.30 P.M. in most of the stock exchanges. Auction : The method of making offers and bids for shares or determining the prices of securities by auction by buyers and sellers transacting at a specified location. Institutional Investor : Mutual funds, unit trust, insurance companies, banks, financial institutions which make investment. in shares and bonds are termed as institutional investors. Since these institutes trade in large volumes they often play supportive role when share market is 'bearish. When an individual investor and even speculators try to play shy in stock market (it means to hesitate to transact) it is the institutional investor who often accounts for bulk of trade. This helps in sustaining for stock exchanges.

SUMMARY

Meaning of stock exchange : A specific place where trading of the securities is arranged in an organized manner. Stock exchange is a market for securities. Organization : The stock exchange can be organized in one of the three forms. a. b. c. Voluntary. non-profit making association Companies with liability limited by shares Companies limited by guarantee

Membership : The membership of the stock exchange is given only to individual persons of good moral character, competent, experienced and financially sound. Management of stock exchange : An executive committee is constituted at each exchange to look after management. It is also known as Governing body, who looks after the management of stock exchange. Role of stock exchange in the capital market Encourages capital formation Resource mobilization Helps in rapid economic development Flexibility in investment Value addition to securities

Functions of stock exchange Liquidity Promotes capital formation Fair evaluation of securities Protects investors interest Economic barometer Motivation to management Best utilization of capital

Bombay Stock Exchange (BSE) : BSE is the oldest stock exchange in Asia established as Native Share and Stock Brokers Association in 1875. BSE is among 8 biggest stock exchanges in the world in terms of transaction volume. National Stock Exchange : An all India level stock exchange incorporated in Nov 1992. It offers online trading system matching to international standards. NSE is a company promoted

by IDBI, ICICI, LIC and its subsidiaries. The establishment of the NSE is an important step in upgrading the facilities of trading securities. Role of SEBI : The' SEBI was established in the, -year 1988 and later in 1992 became a statutory body. SEBI performs the following functions Regulating the business in stock exchange Promoting self regulatory organization Prohibiting fraudulent practices Promoting investors education Prohibiting insider trading Powers of SEBI Can ask for maintaining documents Can ask for information

Can amend bye laws Can call for periodical returns