CENTRAL UNIVERSITY

OF SOUTH BIHAR

…………………………………………………………………………
…

PROJECT ON :- PUBLIC INTEREST LITIGATION AND

ITS SUCCESS IN PREVENTION OF WATER POLLUTION

…………………………………………………………………………………
….

Submitted by: - Submitted to:-

Bablu kumar sharma Poonam Kumari
B.sc.LLb (Hons.) Assistant professor
7th semester School of law and governance
CUB1413115008 CUSB
 Acknowledgement

I hereby take the opportunity thank Dr P.K Das sir, for his consent and the inspiration that he
radiates. His jovial behaviour and ease making attitude eased my tension and the initial doubts
that I had about my potentialities. I also want to thank my friends who helped me a lot in
preparing this project. I have also taken help from several books and websites for doing this.
Ultimately, I once again thank Das sir, who made indelible impact on me which shall go beyond
the pages of this project and reflect in all my endeavours of life.

Hoping Acceptance and Appreciation from you, I hereby submit this project.

- Bablu kumar sharma

Table of content

Chapter Content Page No.

01 Introduction
02 Secondary Market
03 Stock Exchange
3.1 Stock exchange in India
3.2 Function of Stock Exchange
3.3 Regulation of Stock Exchange
04 Intermediaries in secondary market
05 Process of Trading in Secondary Market
06 Margin Money
07 Development in the secondary Market
 List of Acronyms &Abbreviations

AC Appeal Cases
AIR All India Reporter
All ER All England Reporter
CIT Commissioner of Income Tax
AMEX American Stock Exchange
NYSE New York Stock Exchange
OTC Over the counter
NASDAQ National Association of Securities Dealers Automated Quotations
System
SEBI Security Exchange Board of India
BSE Bombay Stock Exchange
NSE National stock exchange
MCX Multi commodity Exchange
MCX-SXAT MCX Stock Exchange Limited
CD Currency Derivatives
RBI Reserve Bank of India
MCX-SXAT- MCX-SXAT Clearing Corporation Ltd.
CCL
OTCEI Counter Exchange of India
Title of the proposed study

Secondary market-meaning, significance, functions, and intermediaries. A study of the

provision under the Finance Market and its regulation.

Literature Survey/Review

The following Primary and Secondary sources have been referred to

Primary Sources

 Books Referred

The following textbooks have been referred to:

1. Preethi Singh, Investment Management - Security Analysis and Portfolio Management,

(Himalaya Publishing House, New Delhi 2nd Edition 2015)
2. M. Sulochana, Investment Management, (Kalyani Publishers, New Delhi, 2nd Edition
2003).
3. J.M. Laderman,, Business Weeks: Mutual Guide to Mutual Funds,( Tata McGraw-Hill,
New Delhi 5th Edition, 1991)
4. V. A. Advani, Investment Management, Himalaya Publishing House, Mumbai, 5th
Edition, 2006)
5. Waghmare, Tashar, The Future of Fund Management in India, Tata McGraw-Hill, New
Delhi, 3rd Edition, 1998)

 Statutes Referred
(i) The Companies Act,1956
(ii) The Companies Act, 2013

Secondary Sources

 Indian journal referred

1. Abhijeet Chandra and Dinesh Sharma (2010), “Investment Management by
Individual Investors: A Behavioural Approach” The IUP journal of behavioural
finance, vol.7, no.1&2, 7-18
 2. Mehru.K.D. (2004), “Problems of Mutual Funds in India”, Finance India,
vol.18, no.1, 220-224

 website refereed
1. www.uticm.com
2. www.psgin
3. www.icandi.info
4. www.seb.gov.in
5. www.manupatra.com
6. https://www.nseindia.com/

Hypotheses

The following hypotheses would be taken account of in this study and they have been examined
in the course of discussion. A conclusion has been drawn to assess whether the hypotheses
proposed were true to their extent of statement.

1. secondary market provide a platform to collect the capital from public domain
2. how the stock exchanges performs its function in India
3. What is the process of trading in secondary market

Research design/methodology

In accordance with the objectives of the present study, doctrinal research design has been
adopted. The doctrinal design has been used to study the provisions related to Secondary market-
meaning, significance, functions, and intermediaries. Doctrinal Research is a research, as we all
know, based on the principles or the propositions made earlier. It is more based on the sources
like books of the library, and through resources collected through access to various websites. For
the purpose of the Research Project, the Researcher has collected relevant materials from books
on investment law and also from various websites. The Research has been done primarily with
the help of case laws and leading judgements of various courts as well as legislative provisions.
Various articles from the internet sources have also been referred.
 CHAPTER 01

INTRODUCTION
The capital market apart from the primary market also includes the secondary market where
the existing issues are traded. These secondary markets also referred to as stock markets- deals
in stock or equity.

The Capital market in India consists of two kinds

1. Primary market

2. Secondary Market

Secondary market deals with existing claims. This market renders a very important service to the
primary market by providing a ready market for trading the securities. Existing financial assets of a
company are purchased and sold in this market the existence of this market for financial assets incises
its liquidity.1

For example if a person buys share of Tata motor in the primary market, he can claim easily sell it for
cash in the secondary market. All the necessary is to inform a broker about the decision to sell the share
of Tata mortar

Secondary market, also known as the aftermarket, is the market where the trading of the
previous issued securities is conducted. On a secondary market, an investor buys securities
from another investor instead of the issuer. It is important that the secondary market provides
liquidity and therefore provides continuous information about the market price of the securities.
Secondary markets are mainly organized in two ways. One is to form a centralized and
organized exchange where all buyers and sellers (or their representative agents) meet and
conduct trading. The more investors participate in a market, the greater the centralization of
that market, and the more liquid the market. Some examples of this form of secondary markets
are New York Stock Exchange (NYSE) and American Stock Exchange (AMEX). The other
way is Over-the-counter (OTC) market which a secondary market where securities are
traded directly between two parties. Trading occurs via dealers who carry inventories of
securities and contact each other by computer, telephone or other electronic network instead of
a physical trading floor. Over-the-counter dealers quote a bid price at which they would buy,

1
http://epgp.inflibnet.ac.in/epgpdata/uploads/epgp_content/commerce/16._financial_mark Last
Accessed on 20 March 2018
and an ask price at which they would sell. An example of an over-the-counter securities market
is the National Association of Securities Dealers Automated Quotations System (NASDAQ)2.

2
http://valuationacademy.com/introduction-to-the-securities-markets-primary-and-secondary-markets/ Last
accessed on March 20 20018
 CHAPTER 02
SECONDARY MARKET

When one investor purchase the share from another investor through stock exchange the
transaction is said to take place in secondary market. The secondary market deals with
exchange of securities that have been listed through the primary market, where the price of
share is predetermined, the price in secondary market is determined on the basis of demand
and supply besides other number of factors. Secondary market provides liquidity and tradability
to the shares issued by a company to general public. In no case, the number of shares being
traded in the secondary market be greater the number of shares sold through the primary
market.3

DISTINCTION BETWEEN PRIMARY MARKET AND SECONDARY MARKET 4

The main points of distinction between the primary market and secondary market are as
follows:

1. Definition: In Primary Market an investor purchase share directly from the company whereas
in secondary market, an investor purchase the share from another investor through stock
exchange.

2. Function: The main function of primary market is to raise long-term funds through fresh
issue of securities whereas in secondary market, they provide continuous and ready market for
the existing long-term securities.

3. Participants: The major players in the primary market are financial institutions, mutual funds,
underwriters and individual investors, while the major players in secondary market are all of
these and the stockbrokers who are members of the stock exchange.

4. Determination of prices: In primary market, the prices are determined by the management
with due compliance with SEBI requirement for new issue of securities. But in case of
secondary market, the price of the securities is determined by forces of demand and supply of
the market

3
https://mail-attachment.googleusercontent.com/attachment/u/0/?ui=2&ik=121996d824& last
accessed on 25 March 2018
4
J.M. Laderman,, Business Weeks: Mutual Guide to Mutual Funds,( Tata McGraw-Hill, 105, New Delhi 5th
Edition, 1991)
 CHAPTER 03

STOCK EXCHANGE

As mention above that stock exchange is the term commonly used for a secondary market,
which provide a place where different types of existing securities such as shares, debentures,
bonds, and government securities can be bought and sold on a regular basis The securities of
companies which raises money from the general public and other investors are required to enlist
their securities in stock exchanges. Once the securities are listed on the stock exchanges, the
buying and selling in those securities among different investors begins. Thus, stock exchanges
help in providing liquidity to securities of companies5

3.1 STOCK EXCHANGES IN INDIA:

The first organised stock exchange in India was started in Mumbai known as Bombay Stock
Exchange (BSE). It was followed by Ahmedabad Stock Exchange in 1894 and Kolkata Stock
Exchange in 1908. The Security Contracts (Regulation) Act was passed in 1956 for recognition
and regulation of Stock Exchanges in India. At present we have 21 stock exchanges in the
country. Of these, the most prominent stock exchanges are Bombay stock exchange (BSE),
National stock exchange (NSE) and Multi commodity Exchange (MCX). Most of the trading
in the Indian stock market takes place on its three stock exchanges: the Bombay Stock
Exchange (BSE), National Stock Exchange (NSE) and MCX. The BSE has been in existence
since 1875. The NSE, on the other hand, was founded in 1992 and started trading in 1994.
However, both exchanges follow the same trading mechanism, trading hours, settlement
process, etc. At the last count, More than 5000 companies are listed on BSE, making it the
world's top exchange in terms of listed members. The companies listed on BSE Ltd.6

Command a total market capitalization of USD 1.24 Trillion as of March 2014. It is also one
of the world’s leading exchanges (3rd largest in March 2014) for Index options trading (Source:
World Federation of Exchanges), whereas NSE has a market capitalisation of more than
US$1.5 trillion and Number of securities (equities segment) available for trading are 3,091 as
on June 2014. MCX Stock Exchange Limited (MCX-SXAT) is an Indian stock exchange. It

5
http://kalyan-city.blogspot.in/2010/11/what-is-stock-exchange-its-definitions.html last accessed on 28March
2018
6
https://www.nseindia.com/ last accessed on 28 March 2018
commenced operations in the Currency Derivatives (CD) segment on October 7, 2008 under
the regulatory framework of Securities and Exchange Board of India (SEBI) and Reserve Bank
of India (RBI). The Exchange is recognised by SEBI under Section 4 of Securities Contracts
(Regulation) Act, 1956. In line with global best practices and regulatory requirements, clearing
and settlement is conducted through a separate clearing corporation, MCX-SXAT Clearing
Corporation Ltd. (MCX-SXAT CCL). MCX-SX was granted the status of a “recognized stock
exchange” by the Ministry of Corporate Affairs (MCA), Government of India on December
21, 2012. It received “commencement certificate” from market regulator SEBI for trading in
new segments such as Equity, Futures and Options on Equity, Interest Rate Derivatives and
Wholesale Debt Market on December 19, 2012. Another stock exchange that needs special
mention is Over the Counter Exchange of India (OTCEI). It was also promoted by the financial
institutions like UTI, ICICI, IDBI, IFCI, LIC etc. in September 1992 specially to cater to small
and medium sized companies with equity capital of more than Rs.30 lakh and less than Rs.25
crore. It helps entrepreneurs in raising finances for their new projects in a cost effective manner.

3.2 FUNCTIONS OF A STOCK EXCHANGE7

The functions of stock exchange can be enumerated as follows:

1. It provides ready and continuous market: By providing a place where listed securities can
be bought and sold regularly and conveniently, a stock exchange ensures a ready and
continuous market for various shares, debentures, bonds and government securities. This lends
a high degree of liquidity to holdings in these securities as the investor can encash their holdings
as and when they want.

2. It Provides information about prices and sales: A stock exchange maintains complete
record of all transactions taking place in different securities every day and supplies regular
information on their prices and sales volumes to press and other media. In fact, now-a-days,
you can get information about minute to minute movement in prices of selected shares on TV
channels like CNBC AWAAZ, Zee Business, NDTV Profit and ET NOW. This enables the
investors in taking quick decisions on purchase and sale of securities in which they are
interested.

7
M. Sulochana, Investment Management, (Kalyani Publishers, New Delhi, 92, 2nd Edition
2003).
3. It Provides safety to dealings and investment: Transactions on the stock exchange are
conducted only amongst its members with adequate transparency and in strict conformity to its
rules and regulations which include the procedure and timings of delivery and payment to be
followed. This provides a high degree of safety to dealings at the stock exchange. Securities
and Exchange Board of India (SEBI) also regulates the business in stock exchanges in India
and the working of the stock brokers.

4. It helps in mobilisation of savings and capital formation: Efficient functioning of stock

market creates a conducive climate for an active and growing primary market. Good
performance and outlook for shares in the stock exchanges imparts buoyancy to the new issue
market, which helps in mobilising savings for investment in industrial and commercial
establishments

5. It is a Barometer of economic and business conditions: Stock exchanges reflect the

changing conditions of economic health of a country, as the shares prices are highly sensitive
to changing economic, social and political conditions. It is observed that during the periods of
economic prosperity, the share prices tend to rise. Conversely, prices tend to fall when there is
economic stagnation and the business activities slow down as a result of depressions.

3.3 REGULATIONS OF STOCK EXCHANGES

Hence, as early as 1956, the Securities Contracts (Regulation) Act was passed which provided
for recognition of stock exchanges given by Government (Central). Provisions are also made
for framing of good bylaws given by each and every stock exchange. This is done for regulation
and control of their functioning. It is again based on the approval by the Government. The
Securities Contracts Regulation Act of1956 provides inter alia for8

 Recognition of Stock Exchanges and regulation of their functioning

 Licensing dealers
 Recognition of Contracts
 Controlling Speculations
 Restricting rights of equitable holders of shares

8
V. A. Advani, Investment Management, Himalaya Publishing House, Mumbai, 72, 5th
Edition, 2006)
All stock exchanges are required submit information relating to its affairs as required by the
Government from time to time. The Government was given wide powers relating to listing of
securities, make or amend bylaws, withdraw recognition to, or supersede the governing bodies
of stock exchange in extraordinary/abnormal situations. Under the Act, the Government
promulgated the Securities Regulations (Rules) 1957, which provided inter alia for the
procedures to be followed for recognition of the stock exchanges, submission of periodical
returns and annual returns by recognised stock exchanges, inquiry into the affairs of recognised
stock exchanges and their members, and requirements for listing of securities.
 CHAPTER 04

INTERMEDIARIES IN SECONDARY MARKET9

The Secondary market consists of different players which includes market regulators and
facilitators besides buyer and seller in the market. The important ones are listed below:

 Regulators: The securities market assist in channelization of funds from surplus sector
to deficit sector or from unproductive sector to productive sector which is very vital for
the development of economy, any failure in the system could have adverse effect on
the sentiments of the players in the market. It is therefore very necessary to have proper
regulatory mechanism which should monitor the market.
a) Securities and Exchange Board of India: It keeps watch over the activities taking place
within the securities market.
b) Reserve Bank of India: It keeps watch over the activities relating to financing of players
in the market through banks.

Depositories and Custodian: In the past, corporate securities were traded in the physical form.
The system was inherited with number of limitations such as delay in transfer of securities, loss
due to theft, etc. Keeping in view these problems, the physical form of securities was
considered unsafe and it was decided that the securities shall be traded in dematerialized form.
This implies that the securities shall not possess physical or material structure. In order to
facilitate trading of securities in dematerialized form or scrip less trading, a different set of
institution was brought in the financial market. These are known as Depositories. The
custodians are the institutions which hold securities on behalf of security holder.

 Brokers and Sub brokers: An investor intending to purchase or sell his securities
through stock exchange cannot directly execute his transaction on his own. For this
purpose, he has to take the help of registered member of the stock exchange. These
registered members are known as brokers. Thus, a broker acts as a legal agent of his
client (investor) while transacting shares on his behalf. A stock broker is expected to
maintain high standard of fairness and integrity while conducting business for his client.

9
http://www.rifm.in/unit-5-investment-planning/145-5-2-other-entities-facilitating-market-play-and-
intermediation/376-5-2-4-primary-and-secondary-market-intermediaries-merchant-ba last Accessed on 2 April
2018
 Foreign Institutional Investors: These are the investors from countries outside India.
They are required to be registered with SEBI and RBI before dealing in securities
market. A registered FII is required to buy or sell securities on the stock exchange only
for delivery. FIIs cannot invest in shares for jobbing purpose i.e. immediate buy and
sell.
 Portfolio Managers: According to SEBI guidelines, "portfolio manager" means any
person who pursuant to a contract or arrangement with a client, advises or directs or
undertakes on behalf of the client (whether as a discretionary portfolio manager or
otherwise) the management or administration of a portfolio of securities or the funds of
the client, as the case may be.
 Merchant Bankers: Merchant bankers are the financial intermediaries, which assist
corporate entities in raising funds from different sources. It could be in the form of
equity shares or loan from financial institution. Merchant bankers are required to be
registered with SEBI under Securities and Exchange Board of India (Merchant
Bankers') Regulations, 1992.
 Underwriters: According to Companies Act, 1956 if any issue of equity share of
company is not subscribed up to 90% of the total issue size, the allotment of shares in
such a case is considered irregular allotment. Therefore, a company when comes out
with public issue and have apprehension that perhaps its issue may not be subscribed
to the extent of 90% enters into an agreement with certain merchant bankers who acts
as underwriters for the company.
 Securities Appellate Tribunal: This is a forum where any investor, listed company
or any participant of securities market can approach for remedial action issued against
an order issued by SEBI. The Securities Appellate Tribunal provides an opportunity of
being heard to both the parties and issues order which is binding on SEBI as well as the
other party.
 CHAPTER 05

PROCESS OF TRADING IN SECONDARY MARKET10

The Procedure of trading in securities can be explained with the help of an example given
below:

 Placement of Order and Execution of Transaction: Investor a want to sell 1000

shares of ONGC Ltd and Investor B want to purchase the same shares. Both the
investors would first contact their respective brokers. Let X be the broker of A and Y
be the broker of B. A would place his sell order through X and B would place his buy
order through Y. The Transaction would take place only if the price of the two investors
would match. Now brokers X and Y will have to issue contract notes to their respective
client A and B respectively. The contract note is an evidence of the fact that the broker
has executed a transaction in a given security for his client.
 Payment and Delivery: The seller client A after receiving the contract note will have
to transfer shares in the broker account and the buyer client, after receiving the
contract note from his broker will have to deposit money in the brokers account for
the shares purchased by him.
 Settlement of Transaction in stock exchange: The stock exchanges have the
responsibility of settling the transactions among its brokers. Therefore for each
trading day, there is pay in and pay out of securities and funds.
 The Brokers X and Y after having received funds and shares for their respective
clients would transfer them in their account.

10
: A Behavioural Approach” The IUP journal of behavioural finance, vol.7, no.1&2, 7-18
 CHAPTER 06

MARGIN MONEY11

Margin Money: margin money is a fund deposited by brokers in the exchange depending upon
the amount of transactions conducted or proposed to be conducted by them in the securities.
Stock exchanges stipulate following kind of margins to cover risk relating to price fluctuation
in share prices

Types of Margin Money

 Gross Exposure Margin: The margin linked to the total amount of transaction conducted
by the broker on the exchange. For example, A broker sold 100 shares of Wipro Ltd for
Rs 80,000 for one client and purchased 100 shares of TCS ltd for Rs.90,000 for his
other client. The net liability of the broker towards exchange will be Rs +80000-
Rs90000= Rs.10000since he will be getting Rs 80000 from the exchange for selling
shares and would be paying Rs 90000 to the exchange for the shares bought by him.
Though the liability is Rs 10000 on net basis but it is Rs.1,70,000 on gross basis
 Net Exposure Margin: Ne exposure margin is charged at the rate of 10% on the excess
purchases over sale by a broker or vice-versa.
 Mark to market margin: The share price are subject to frequent change therefore the
price at which the transaction has been conducted in the exchange may not be equal to
the closing price of the share at the end of the day.

11
Preethi Singh, Investment Management - Security Analysis and Portfolio Management,
(Himalaya Publishing House, New Delhi, 212 2nd Edition 2015)
 CHAPTER 07

DEVELOPMENT IN THE SECONDARY MARKET12

SEBI and Stock exchanges have provided number of provisions to regulate and protect interest
of investors in secondary market regulations

 Rolling Settlement: Earlier trading in the stock exchange was done without the use of
computers and the advanced computer software as it is today. Today, with the electronic
/ computer based system of recording and carrying out of share transactions, stock
exchanges go in for ‘rolling settlement’. That means, transaction are settled after a fixed
number of days of the transaction rather than on a particular day of the week. For
example, if a stock exchange goes in for ‘T+2’ days of rolling settlement, the
transaction is settled within two working days of occurring of the transaction, ‘T’ being
the day of the transaction. In T+7’ days of rolling settlement, the transaction is settled
on the 7th day after the transaction. This is facilitated through electronic transfer of
shares, through Dematerialised Account or Demat Account i.e., the share does not have
a physical form of a paper document, but is a computerized record of a person holding
a share, and through transfer of money electronically or through cheques payment is
settled.
 Circuit Breakers: To curb excessive volatility, SEBI has prescribed a system of circuit
breakers. The circuit breakers bring about a nation-wide coordinated halt in trading on
all the equity and equity derivatives markets. An index based market-wide circuit
breaker system applies at three stages of the index movement either way at 10%, 15%
and 20%. The breakers are triggered by movement of either S&P CNX Nifty or Sensex,
whichever is breached earlier.
 Imposition of Circuit filter: SEBI has introduced circuit filters for shares being traded
in the stock exchanges and also for the stock index. According to this a share cannot
move beyond +/- 5% of its previous day closing price. For example share closed at a

12
Waghmare, Tashar, The Future of Fund Management in India, Tata McGraw-Hill, New
Delhi, 245, 3rd Edition, 1998)
price of Rs.100 then, next day it cannot trade beyond the price range of Rs 95 and
Rs.105.
CONCLUSION
Secondary markets have become an important sector of the economic in recent time. This are
generally market that offer outlets for the purchase and resale of unwanted goods. Key to the
success of the secondary market is the presence of an effective reverse logistic system. This
paper has explored trends in the field of reverse logistics and the secondary market with aim
of determining the future of this field. Evidence suggests that the secondary market, and
consequently, the field of reverse logistics will continue to grow in the future due to pressure
from various factors with the legal, technological, economic, and sociocultural environment.
 BIBLIOGRAPHY

Primary Sources

 Books Referred

The following textbooks have been referred to:

1 Preethi Singh, Investment Management - Security Analysis and Portfolio Management,

(Himalaya Publishing House, New Delhi 2nd Edition 2015)
2 M. Sulochana, Investment Management, (Kalyani Publishers, New Delhi, 2nd Edition
2003).
3 J.M. Laderman,, Business Weeks: Mutual Guide to Mutual Funds,( Tata McGraw-Hill,
New Delhi 5th Edition, 1991)
4 V. A. Advani, Investment Management, Himalaya Publishing House, Mumbai, 5th
Edition, 2006)
5 Waghmare, Tashar, The Future of Fund Management in India, Tata McGraw-Hill, New
Delhi, 3rd Edition, 1998)

 Statutes Referred
(i) The Companies Act,1956
(ii) The Companies Act, 2013

Secondary Sources

 Indian journal referred

1) Abhijeet Chandra and Dinesh Sharma (2010), “Investment Management by
Individual Investors: A Behavioural Approach” The IUP journal of behavioural
finance, vol.7, no.1&2, 7-18
2) Mehru.K.D. (2004), “Problems of Mutual Funds in India”, Finance India, vol.18,
no.1, 220-224

 website refereed
1) www.uticm.com
2) www.psgin
3) www.icandi.info
4) www.seb.gov.in
5) www.manupatra.com
6) https://www.nseindia.com/