capital markt in india
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CAPITAL MARKET IN INDIA
I NTRODUCTION A BOUT T HE C OMPANY
HISTORY
The south Gujarat shares &shares brokers Limited (SGSSL) is a
public limited company registered under company act 1956. Company
established with authorized share capital of RS.3 crores and its paid up
capital 1.27 crores.
The south Gujarat shares &shares brokers Limited started its activities
as an association of persons in 1992 and acted as sub brokers giving servicesfor buying and selling of securities to the retail investors from south Gujarat,
particularly in Surat. Mr. Anil Choksy, Mr. Ashok Mehta, Mr. Jagdish Patel
and Mr. Paresh Javeri who are the permanent directors of the company, took
initiative in forming a limited company, so as to become the member of the
National Stock Exchange of India Limited.
Accordingly, the company South Gujarat Shares & Share brokersLimited was registered under the companies act on the 5 th January 1995. To
begin with it conducted its trading business through other members of the
National Stock Exchange. During the first year of its operation ending on the
31st March 1995 it suffered a loss of Rs.80000 due to heavy establishment
expenses like assets purchase, maintenance, establishment, building,
furniture etc
The company had another poor year during 1995-96 and suffered a
further loss of Rs.1.18lacs. This was mainly because the company couldnt
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given many register sub-broker CTCL. Company also provide in outside of
Surat like Hazira, Navsari, and also in Bilimora.
In present condition company try to register its sub broker in SEBI. Now in present, company has 35 registered sub-brokers and other members
if they work then company insist to take registration.
In company there are 28 persons working. Company has 5 servers, in
this one server connect with NSE CTCL and second with disaster
management. In NSDL also their is one main server. Company provides 3
different rooms for on line trading to its clients and sub-broker with satellite
dish, Equara cable and modem. In back office with account package of
comtek also works actively with NSDL server.
The company has been stressing on the delivery oriented securities
trading and since inception has been consistently one of the major delivering
members. The company has been diligent ensuring compliance with the
securities trading and settlement regulations of the NSE. It has resulted in
ensuring cleaner operations.
The trading business of the company is rapidly expanding and its
volumes have now crossed Rs.2.5 to 3 corers per day. The company expects
the trading volume to at least double during the current year.
Mr. Anil Choksy, who is the chairman and the managing director of
the company, heads the operations of the company. He along with other full
time directors maintains a close hand on the operations. The company has its
own internal trading and settlement regulations, which are in conformity
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with the NSE and SEBI regulations. These regulations ensure that the
activities of the company are managed on the Cooperative basis and in the
best interest of the investors and the shareholders of the company.
MILESTONES
During the year ended 31 st march 1997. Company has turned the
corner.
The company has taken approval from NSDL to work as DP.
At present there are more than 12,000 holders having demate a/c inSGSSL.
Company has 35 registered sub-brokers.
Total income of company is Rs.96.58 lacks.
Net profit for current year is Rs.11.86 lacks as against 1.05 lacks of
previous year.
PROFILE OF THE COMPANY
1.) Name of the company:
South Gujarat Shares and Share-brokers Ltd.
2.) Registered office:
3 rd Floor, Belgium Chamber,
Opp. Liner Bus stop,
Ring Road,
Surat-395003.
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3.) Board of Directors:
Mr. Anil J. Choksy Chairman and M.D.
Mr. Bhadresh G. Kapadia Whole time DirectorMr. Shashikant R. Yadav Director
Mr. Aiyus M. Yacoobali Director
Mr. Bipinchandra Linewala Director
4.) Bankers:
Canara Bank
Karnataka Bank Ltd.
HDFC Bank Ltd.
5.) Auditors:
Ashok Rajpara
Chartered Accountants
Surat.
Internal Auditor:
P. H. Patel and Co.
Chartered Accountants
Surat.
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CAPITAL MARKET IN INDIA
C APITAL M ARKET
CONCEPT
Capital market is the markets for funds which have a long or indefine
maturity i.e. It deal with long term funds. Generally capital market supplies
long term and medium term securities and funds, which have a maturity
period of above one year. Capital market generates the funds from the saver
and transfer to user. Generally it done with ordinary share, stocks,
debentures and bonds of corporations and securities of the government .They
do so by converting financial assets into productive physical assets.
Capital market provides a market mechanism for those who have
savings and to those who need funds for productive investments. It diverts
resources from wasteful and unproductive channels to productive
investment.
T HE C APITAL /S HARE M ARKET
The origination of the Indian securities market may be traced back to
1875, when 22 enterprising brokers under a Banyan tree established the
Bombay Stock Exchange (BSE). Over the last 125 years, the Indian
securities market has evolved continuously to become one of the most
dynamic, modern and efficient securities markets in Asia. Today, Indian
markets conform to international standards both in terms of structure and in
terms of operating efficiency.
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Structure and Size of the Markets
Corporation of the exchanges assumes the counter-party risk of each
member and guarantees settlement through a fine-tuned risk managementsystem and an innovative method of online position monitoring. It also
ensures the financial settlement of trades on the appointed day and time
irrespective of default by members to deliver the required funds and/or
securities with the help of a settlement guarantee fund. Today India has two
national exchanges, the Bombay Stock Exchange (BSE) and the National
Stock Exchange (NSE). Each has fully electronic trading platforms with
around 9400 participating broking outfits. Foreign brokers account for 29 of
these. There are some 9600 companies listed on the respective exchanges
with a combined market capitalization near $125.5bn. Any market that has
experienced this sort of growth has an equally substantial demand for highly
efficient settlement procedures. In India 99.9% of the trades, according to
the National Securities Depository, are settled in dematerialized form in a
T+2 rolling settlement environments. In addition, trades are guaranteed by
the National Clearing Corporation of India Ltd (NSCCL) and Bank of India
Shareholding Ltd (BOISL), Clearing Corporation houses of NSE and BSE
respectively. The main functions of the Clearing Corporation are to work out
(a) what counter parties owe and (b) what counter parties are due to receive
on the settlement date. Furthermore, each exchange has a Settlement
Guarantee Fund to meet with any unpredictable situation and a negligibletrade failure of 0.003%. The Clearing
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Highlights of the highly attractive Indian
capital markets
Two major reasons why Indian securities are now increasingly
regarded as attractive to international investors are the relatively high returns
compared with more developed global markets as well as the low correlation
with world markets. However until the early 90s, the foreign investors only
way of accessing the Indian capital markets was through listed country
funds.
INDIAS SECURITIES MARKET
A Brief History
The capital market is one of the most exciting
sectors in the financial system, marking an importantcontribution to economic development.
Asia Focus was launched by the Unit Trust of India (UTI) in
London in 1986. The success of this initiative ensured that this fund was
followed by numerous others. Indian companies are now also allowed to
raise equity capital in the international market through the issue of GDRs.
Today, there are 498 Foreign Institutional Investors who hold 1325 sub-
accounts with a net investment of approximately $15bn. Indias regulator,
the Securities Exchange Board of India (SEBI) is playing more of a
development role rather than being merely a watchdog. Transparency,
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competitiveness and equal opportunity to all market participants has been
the driving philosophy behind all the development and regulatory initiatives
of SEBI. This makes the market place attractive for foreign and domestic
investors. With SEBI recognizing the benefits of, and actively campaigningfor the adoption of Straight through Processing as the market standard, the
market is making significant progress towards the goal of executing and
settling the transactions without any human intervention the so called STP
nirvana. Successful implementation of STP will considerably reduce the
transaction processing cost in the market, eliminating the manual work
involved in transaction processing. Other aspects of the market such as the
increasing sophistication and range of tradable financial products add to the
attractiveness of the market as a whole. The availability of derivative
products including index futures, index options, individual stock futures and
individual stock options re-enforces the overall attractiveness of this market
to foreign and domestic investors. The derivatives market in only two years
has shown spectacular growth. Compared to last financial year the annual
turnover grew by over 300%. As if further evidence was needed of Indias
willingness to embrace change, the availability of Internet trading and dual
fungibles of American Depository Receipts (ADRs) and Global Depository
Receipts (GDRs) provides a clear indication of the vibrancy and dynamism
of the Indian securities market.
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CAPITAL MARKET IN INDIA
MEANING OF C APITAL M ARKET
Capital market refers to the market for rising of financialresources by the business enterprises, firms, government, semi-
government bodies, public sector units and other organization.
Capital market is an organized market for long term funds required for
meeting long term needs of business enterprises. It converts savings into
profitable investments for industrial development.
Capital market is a wide term used to comprise all operation in the
new issues market and stock market. New issues made by the companies
constitute the Primary marker. While trading in the existing securities relates
to the secondary market. While we can only buy in the Primary market, we
can buy and sell securities in the secondary market. Market comprises some
who demand and other who supply these resources.
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CHART OF CAPITAL MARKET
CAPITAL MARKET
INDUSTRIAL GOVERNMENT LONG TERM
SECURITIES SECURITIES LOANS
MARKET MARKET MARKET
Primary Market
Secondary Market
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T YPES O F S ECURITIES M ARKET
The securities market can be divided in to three part:
1.) Industrial securities market2.) Government securities market
3.) Long term loans market
INDUSTRIAL SECURITIES MARKET
The industrial securities market consists of two complementary parts
i.e. the New Issue Market, and Secondary Market.It is a market for industrial securities namely:
(i) Equity shares or ordinary shares or common stock.
(ii) Preference shares
(iii) Debenture or Bonds.
The corporate sector raises their capital through these above three types of
securities. This is the physical or tangible asset through which the market
functions.
Company raises it capital in the primary market though:
1).Primary Market
Primary market is the market for those securities which are issued first
time in the market for the public. The New Issue Market deals with new
securities i.e. securities which were not previously availably and are offered
to the investing public for the first time. Primary market is a market for New
issues or New financial claims. Hence, it is called New Issue Market. The
market, therefore, derives its name from the fact that it makes available a
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New Block of Securities for public subscription. In the Primary market,
borrowers exchange new financial securities for long term funds. It
facilitates capital formulation.
Companies raise ite capital in the primary market though:(i) Public Issue
(ii) Right Issue
(iii) Primary placement/subscription
The most popular method of raising capital is sale of securities to the
public by new companies is called Public Issue. Right Issue means, when
existing company first offered. The security to existing shareholders on a Pre
emptive bases, while company want to raise additional capital is called
capital is called Right Issue. Private placement imagine private sale of
securities to small group investors.
2.) Secondary Market
Secondary market is the market for those securities which have
already been available in the market and listed on a stock exchange. The
main benefit of Secondary market is securities sold and purchased
continuously among investors without involvement of company. This
market consists of all stock exchange recognized by the Government of
India. The stock exchange in India are regulated under the securities
contracts (Regulation) Act, 1956.
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GOVERNMENT SECURITIES MARKET
The government securities market (G-secs) is the largest segment of
the long term debt market in India, accounting for nearly two-thirds of theissues in the primary market and more than four fifths of the turnover in the
secondary market.
It is otherwise called Gilt-Edged securities market. It is a market
where Government securities are traded. In India there are many kinds of
Government Securities-short term and long term. Long term securities are
traded in this market while short term securities are traded in the money
market. Securities issued by the Central Government, State Government,
Semi Government authorities like city Corporation, Port Trusts etc.
Improvement Trusts, State Electricity Boards, All India and State level
financial institutions and public sector enterprise are dealt in this market.
Participants in the G-secs Market
Banks are the largest holders of G-secs. About one third of the net
demand and time liabilities of the banks are partly in government securities
market mainly to meet statutory liquidity requirements and partly for
investment purpose. Apart from banks, insurance companies, and provident
funds have substantial holdings of G-secs almost one-fifth of the outstanding
G-secs are held by these institutions. Other investor in G-secs includes
mutual funds, primary and satellite dealers, and trusts.
Government securities are issued in denominations of RS. 100.
Interest is payable half- yearly and they carry tax exemptions also. The role
of brokers in marketing these securities is practically very limited and the
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major participant in this market in the commercial banks because they
hold a very substantial portion of these securities to satisfy their S.L.R.
requirements.
The secondary market for these securities is very narrow since most of
the institutional investors tend to retain these securities until maturity.
The Government securities are in many forms. These are generally:
(i) Stock certificates of inscribed stock
(ii) Promissory Notes
(iii) carrier Bonds which can be discounted.
Government securities are sold through the Public Debt Office of the
RBI while Treasury Bills are sold through auctions.
Government securities offer a good soured of raising inexpensive
finance for the Government exchequer and the interest on these securities
influences the prices and yields in this market. Hence this market also plays
a vital role in monetary management.
LONG TERM LOANS MARKET
Development banks and commercial banks play a significant role in
this market by supplying long term loans to corporate customers. Long term
loans market may further be classified into:(i) Term loans market
(ii) Mortgages market
(iii) Financial Guarantees market.
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1.) Term Loans Market
In India , many industrial financing institutions have been created by
the Government both at the national and regional levels to supply long term
and medium term loans to corporate customers directly as well as indirectly.
These development banks dominate the industrial finance in India.
Institutions like IDBI, IFCI, ICICI, and other state financial corporations
come under this category. These institutions meet the growing and varied
long term loans. They also help in identifying investment opportunities,
encourage new entrepreneurs and support modernization efforts.
2.) Mortgages Market
The mortgage market refers to these centres which supply mortgage
loan mainly to individual customers. A mortgage loan is a loan against the
security of immovable properly like real estate. The transfer of interest in a
specific immovable properly to secure a loan is called mortgage. This
mortgages may be equitable mortgage or legal one. Again it may be a first
charge of title deeds to properties as security whereas in the case of a legal
mortgage the title in the property is legally transferred to the lender by the
borrower. Legal mortgage is less risky.
Similarly, in the first charge, the mortgages transfer his interest in the
specific property to the mortgagee as security. When the properly in
question is already mortgaged once to another creditor, it becomes a second
charge when it is subsequently mortgaged to somebody else. The mortgagee
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can also further transfer his interest in the mortgaged property to another, In
such a case, it is called a sub mortgage.
The mortgage market may have primary market as well secondary
market. The primary market consists of original extension of credit and
secondary market has sales and re-sales of existing mortgages at prevailing
prices.
In India residential mortgages ate the most common ones. The
Housing and Urban Development Corporation and the LIC play a dominant
role in financing residential projects. Besides, the Land Development Banks provides cheap mortgages loans for the development of lands, purchase of
equipment etc. These development banks raise finance through the sale of
debentures which are treated as trustee securities.
3.) Financial Guarantees Market
A guarantees market is a centre where finance is provide against the
guarantee of a reputed person in the financial circle. Guarantee is a contract
to discharge the liability of a third party in case of his default. Guarantee acts
as a security from the creditors point of view. In case the borrower fails to
repay the loan, the liability falls on the shoulders of the guarantor. Hence the
guarantor must be known to both the borrower and the lender and he must
have the means to discharge his liability.
Though there are many types of guarantees, the common forms ate:
(i) Performance Guarantee
(ii) Financial Guarantee
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Performance guarantees cover the payment of earnest money, retention
money, advance payments, non-completion of contracts etc. On the other
hand financial guarantees cover only financial contracts.
In India, the market for financial guarantees is well organized. The
financial guarantees in India relate to:
(i) Deferred payments for imports and exports
(ii) Medium and long term loans raised abroad
(iii) Loans advanced by banks and other financial institutions.
These guarantees ate provided mainly by commercial banks,
development banks, Governments both central and states and other
specialized guarantee institutions like ECGC(Export Credit Guarantee
Corporation) and DICGO (Deposit Insurance and Credit Guarantee
Corporation). This guarantee financial service is available to both individual
and corporate customers. For a smooth functioning of any financial system,
this guarantee service is absolutely essential.
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C APITAL M ARKET I NSTRUMENT
The changes in the regulatory framework of the capital market and
fiscal policies have also resulted in newer kinds of financial instruments(securities) being introduced in the market. Also, a Jot of financial
innovation by companies who are now permitted to undertake treasury
operations, has resulted in newer kinds of instruments - all of which can be
traded - being introduced. The variations in all these instruments depend on
the tenure, the nature of security, the collateral security, the interest rate, the
trading features, tax breaks and purpose of issue.
DEBENTURES
These are issued by companies and regulated under the SEBI
guidelines of June 11, 1992. These are issued under a prospectus, which has
to be approved by SEBI like in the case of equity issues. The rights of
investors as debenture holders are governed by the Companies Act. The
following is an indicative list of types of debentures:-
Participating debentures
Convertible debentures with options
Zero coupon convertible notes
Secured premium notes
Zero interest fully convertible debentures
Fully convertible debentures with interest
Partly convertible debentures.
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BONDS
Indian development financial institutions like IDBI, ICICI, and IFCI,
have been raising capital for their operations by issuing of bonds. These too
are available in a large variety. These include:
Income bonds
Tax-free bonds
Capital gains bonds
Deep discount bonds
Infrastructure bonds
Retirement bonds
In addition to the interest rates and maturity profiles of these
instruments, the issuer institutions have been including a put/call option on
especially the very long-dated bonds like deep discount bonds. Put option
means investor opting to seek refund of investment from the issuer. Call
option means issuer opting to refund the amount to investors. Since the
tenures of some of these instruments spanned some 20 or 25 years during
which the interest rate regimes may undergo a complete change, the issuer
have kept the flexibility to retire the costly debt. This they do by exercising
their option to redeem the securities at pre-determined periods like at the end
of five or seven years. This has been witnessed in number of instruments
recently much to the chagrin of investors who were looking for secure and
hassle-free long-dated instruments.
P REFERENCE SHARES
Owners of preferential shares enjoy a preferential treatment over
equity shareholders with regard to corporate actions like dividend. They also
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have a right to receive their amounts before equity shareholders in case of
winding up of a company. Preference shareholders do not have voting rights.
They generally bear a fixed dividend, payable if the company declares
dividends. Preference shares have different features and are accordinglyavailable as:
Cumulative and non-cumulative preference shares
Redeemable and non-redeemable preference shares
Convertible and non-convertible preference shares
Preference shares with a combination of the above features.
E QUITY SHARES
Equity shares represent proportionate ownership in the company.
Investors who own equity shares of a company are entitled to ownership
rights, like voting for selection of directors on the Board, share in profits of
the company, etc. Investors who own equity shares in a company are called
shareholders. When the dematerialize their shares in a depository, they are
called beneficial owners. Beneficial owners are entitled to all rights,
privileges and liabilities that shareholders enjoy. A shareholder or a
beneficial owner can exit from the ownership by selling the shares. An
investor can become shareholder/beneficial owner of a company by
purchasing shares of the company. Shareholders are entitled to share profit
of the company in the form of "dividend" on "bonus shares", if Board of
Directors and majority of the shareholders agree. If a company is wound up
for any reason, equity shareholders may receive money from the residual
funds after satisfying all other liabilities.
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G OVERNMENT SECURITIES
The Central Government or State Governments issue securities
periodically for the purpose of raising loans from the public. There are two
types of Government Securities - Dated Securities and Treasury Bills. Dated
Securities have a maturity period of more than one year. Treasury Bills have
a maturity period of less than or up to one year. The Public Debt Office
(PDO) of the Reserve Bank of India performs all functions with regard to the
issue management, settlement of trade, distribution of interest and
redemption. Although only corporate and institutional investors subscribe to
government securities, individual investors are also permitted to subscribe tothese securities.
An investor has to approach RBI to receive government securities in
physical form. Investors can invest in book entry form with Banks and other
institutions like NSDL, SHCIL, and NSCCL etc. NSDL facility to buy and
hold government securities is convenient because of its reach and depository
account opened for other securities can be used for holding government
securities.
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C APITAL M ARKET P ROCESS
There are various processes that Issuers of securities follow or utilize
in order to tap the savers for raising resources. Some of the commonly used processes and methods are described below.
Initial Public Offering (IPO)
Companies, new as well as old, can offer their shares to the investors
in the primary market. This kind of tapping the savings is called an IPO or
Initial Public Offering. SEBI guidelines regulate various procedures
involved in making a public issue but price of shares, size of the issue,
timing of the issue, listing of the issue are decided by the issuer. Issuers have
to disclose all relevant facts and information [relevant for deciding on
whether to invest in those shares] in the prospectus. Prospectus also has to
disclose risk factors and management perception about those risks. Investors
may invest in the securities after examining the facts and information
disclosed in the prospectus. Large initial public offers are made through book building route. Under this route, market determines the price of issue
by offering bids. Companies Act was necessarily amended directing that all
public issues above Rs.10 crore have to be necessarily in demat form.
Investor can receive shares in a public issue by writing DP-ld and Client-Id
in the share application form.
Private Placement
Methods of raising funds directly from investors without issue of
prospectus to the public are known as private placement. SEBI has
prescribed the eligibility criteria for companies and instruments as well as
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procedures for private placement. Privately placed securities can also be
listed if such placements fulfill all listing criteria.
Preferential Offer/Rights IssueCompanies can expand their capital by offering the new shares to their
existing shareholders. Such offers for sale can be made to the existing
shareholders by giving them a preferential treatment in allocation or the
offer can be on a rights basis, i.e., the existing holders can get by way of
their right, allotment of new shares in certain proportion to their earlier
holding. If the shares are offered to a few of the existing shareholders
instead to all shareholders or at a price different from the price at which they
are issue to all, such issues are called preferential allotments. Preferential
allotments require shareholders approval in the general body meeting.
Further, all such offers have also to be in compliance with criteria laid down
by SEBI.
Stock TradingAn investor in securities needs assurance that they can convert their
security holdings to cash to meet their cash requirements. The ability to
convert value of securities into cash is called liquidity. The liquidity is
provided by the stock exchange. Stock exchange is a platform where buyers
and sellers of securities will match their bids and offers for securities and
exchange securities with cash. The offers and bids are routed throughmembers of the stock exchange, popularly known as a "broker". Stock
exchange regulates the transactions of the broker and ensures that the
transactions are conducted fairly and transparently with justice to both
buyers and sellers.
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Also the stock exchanges conduct clearing and settlement process to
give securities to the buyer and cash to the seller at the end of trade. Stock
exchanges are self-regulatory organizations. They are under the over allsupervision of SEBI.
Internet Broking
With the Internet becoming ubiquitous, many institutions have set up
securities trading agencies that provide online trading facilities to their
clients from their homes. This has been possible since all the players in the
securities market, viz., stockbrokers, stock exchanges, clearing corporations,
depositories, DPs, clearing banks, etc., are linked electronically. Thus,
information flows amongst them on a real time basis.
The trading platform, which was converted from the trading hall to the
computer terminals at the brokers' premises, are now shifting to the homes
of investors. The investor knows exactly when and at what rate his order was processed. It also creates an end-to-end audit trail that makes market
manipulation difficult. The availability of securities in demat form has given
a further fillip to this process.
Internet trading helps security-trading houses to expand their market
far and wide across the country and outside the country. This facility is
likely to bring about sustained changes in the trading practices.
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I MPORTANCE O F C APITAL M ARKET
Capital market is important as it plays an important role in bringing
rapid industrial development in a country. The savings are invested
profitably for economic development because of the services offered by
capital market. Mobilization of investable surplus and provision of expert
services to investors and companies are two significant activities undertaken
by the capital market. Capital market acts as a link between those who save
and those who need funds and are in a position to invest them with safety
and reasonable return. It is importance due to:
It enables the investors to adopt their investment to their
expectations which are constantly changing.
It acts as a link between those who save and those who are
interested in investing these savings.
It provided the capital to those enterprises which can apply it
profitably, productively and increase the aggregate national
income.
It provides proper flow of funds and brings about the rational
allocation of resources through the conversion of financial assets
into physical assets. Thus, the capital market facilitates capital
formation.
It provides incentives to saving and facilitates capital formation by
offering suitable rate of interest as the price of capital.
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It serves as an important source for technological upgradation in
industrial sector by utilizing the fund invested by the public.
It facilitated buying and selling of securities at listed price by
providing continuously marketability to the investors.
The securities offered in the capital market are transferable in
character.
The changing business conditions in the economy are immediately
reflected on capital market. Booms and depression can be
identified by capital market. So suitable monitory and fiscal
policies can be taken by government.
Capital market supplies securities of different kinds with different
maturity and yields in unable the investors to diversify their risk by
wider portfolio of investment.
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C HART O F C APITAL R AISED
(Amount in RS. mn)CATEGORY WISE
YEAR Public Issue Right IssueAmount Amount
2000/01 53784 72942001/02 65018 104132002/03 36387 43122003/
jan4649 8318
(Amount in RS. mn)ISSUE TYPE
28
53784
7294
65018
10413
36387
4312649
8318
010000200003000040000500006000070000
Amount
2000/012001/022002/03 2003 /Jan
2004 Year
Category Wise
Public Right
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YEAR Listed IPOsAmount Amount
2000/01 33854 272232001/02 63413 1509
2002/03 30316 103872003/ jan4
4660 4307
(Amount in RS. mn)INSTRUMENT WISE
YEAR Equities Bonds OthersAt par
(Amount)At
premium(Amount)
Amount Amount
2000/01 8178 24076 27040 3632001/02 1509 11213 56012 66962002/03 1425 13144 26000 1342003/
jan4 566 4400 4000 0
29
33854
27223
63413
1509
30316
10387
4660
4307
0
10000
20000
30000
40000
50000
60000
70000
A m o u n
2000/01 2001/02 2002/03 2003 /Jan 2004
Year
Issue Type
Listed IPOs
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30
8178
24076
1509
11213
1425
13144
566
4400
0
5000
10000
15000
20000
25000
A m o u n t
2000/01 2001/02 2002/03 2003 /
Jan 2004
Year
Equities
At Par At Premium
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N EW I SSUE M ARKET
31
27040
363
56012
6696
26000
1344000
0
0
10000
20000
30000
40000
50000
60000
A m o u n t
2000/01 2001/02 2002/03 2003 /
Jan 2004
Year
Bonds & Others
Bonds Others
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C ONCEPT O F N EW I SSUE M ARKET
While discussing the concept of the new issue market, the distinction
between the New Issue Market (NIM) and the stock exchanges must always be kept in mind since they differ from each other organizationally and as
regards, the nature of functions performance by them. In the first place, NIM
deals with new securities I.e. securities which were not previously
available and are offered to the investing Public for the first time. The
market therefore, derives its name from the fact that it makes available a
new block of securities for Public Subscription. The stock market on theother hand is a market for old securities i.e. those which have already been
issued and have been granted stock exchange listing.
A related aspect of these two parts is the nature of their contribution to
industries financing. The new issue market provided the issuing company
with additional fund for starting a new enterprise or for either expansion or
diversification of an existing one and thus its contribution to company
financing is direct.
F UNCTION O F N EW I SSUE M ARKET
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Many function services to gives maintain resources and the main
function of the New Issue market is to facilate the Transfer of resource
from serve to users. Conceptually, however, the NIM should not be
conceived as a platform only for the purpose of raising finance for new
capital expenditure but also for expansion of existing units. In this basis the
new issue market can be classified as:
1.) Market where firms go to the public for the first time
through initial public offering.
2.) Market where firms which are already trade raise additional
capital through seasoned equity offering.
Now, the main function of the new Issue market i.e. channeling of
investible funds can be divided, from the operational stand-point , in to a
triple service function.
a.) Origination
b.) Underwriting
c.) Distribution
(a) Origination
Origination refers to the work of investigation and analysis and
processing of new proposals.
i.) A preliminary investigation undertaken by the sponsors of the
issue. This involves a careful study of the technical, economic,
financial and legal aspects of the issuing companies to ensure that
it warrants the backing of the issue house.
ii.) Advisory services which improve the quality of capital issues and
ensure its success. The advisory services include:
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Determination of the class of security to be issued and price of
the issue in terms of market conditions;
The timing and magnitude of issues;
Method of flotation; and Technique of selling
The importance of the specialized services provided by the New Issue
Market organization in this respect can hardly be over-emphasized. On the
thoroughness of investigation and soundness of judgment of the sponsoring
institution depends, to a large extent, the allocative efficiency of the market.
The underwriting service is required because origination it self does not
guarantee the success of the issue.
(b.) Underwriting
Underwriting is an agreement whereby the underwriter promises to
subscribe to a specified number of shares or debentures or a specified
amount of stock in the event of public not subscribing to the issue. If the
issue is fully subscribed then there is no liability for the underwriter. If a part
of share issues remain unsold, the underwriter will buy the shares. Thus
underwriting is a guarantee for the marketability of shares.
Method of underwriting
The underwriting may take under the form:
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In the New Issue Market two type o players are exited one is player
for original, second is player for issues both are important to play a role
which is issued new share for investors.
1.] Player for New Issue
a.) Banker of merchant:- Merchant bankers are issued managers
rendering such service to industrial project or corporate unit as floatation of
new company. Preparation, Planning and execution of new project
consultancy and advise in technical financial managerial field.
b.) Registrars to the Issue:- These functions are next to merchant banker.
They collect applications form new issue cheque, stock invest etc. classify
and computerized them. They have to dispatch the latter of allotment, refund
order and share certificate within the time schedule. They have also be
satisfy the listing requirement and get them listed on one or more or stock
exchange.
c.) Collecting and co-coordinating merchant:- Collector banker collect
the subscription in cheque, cash, stock invest etc. Coordinating bankers
collect information on subscriptions and coordinate the collection work, they
monitor the work and keep inform them to the registrars and merchant
bankers. Collecting banker and coordinating banker may be the same bank
or different banks.
d.) Underwriters and Brokers:- Underwriter may financial institution,
Bank, Mutual fund, Broker etc. and under take to mobilizes to subscription
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as agreed to, they have to make good the short fall by their own
subscription.
Brokers along with the net work of sub-brokers market the new issues.
They send their own circulars and applications to the clients and do followup work to market the securities.
e.) Printers:- Advertising agency, mailing agency are the other
organization involves in the new issue market operation. Now second type
of player in the new issue market also gives good role in this situational.
2.] Players for original
The original player in the new issues are many and the more important
of them are directors, friend, employee, financial, NRI public etc.
Cash and credit are parts of money and these are provided by the
government, RBI and Banks and are used for purchase/ sale of securities,
borrowing and lending saving and any other bodies corporate or non-
corporate and these funds are used for purchase of securities or lending for any purpose borrowers or the government or companies or any other issues
of securities.
So for actual and original player, play under type of marker for new
issue market.
Promoters and directors
Associates and friends
Collaborators
Mutual funds, Banks, NRI etc.
S ECONDARY / S TOCK M ARKET
STOCK M ARKET O PERATIONS
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THE EVALUTION OF STOCK MARKET(ACCORDING TO SGSSL)
FLOOR TRADING
This was very old technique of transaction in securities. Though the
Bridge information, client contact to his Broker for making transaction in
banking stock exchange. Broker makes a list of all the order of client and
sends his jobber to stock exchange for the implementation of the orders.
This technique has very fluctuated nature because at the time of noting the
order, the rate are different than the time at stock exchange for implementing
them.
SCREEN BASED TRADING
Screen Based Trading means online. NSE started at 1994-95, it
provided OLRT (online real time) rate of NSE and BSE, OLRT charts and
technical, online news and analysis with news on fore, SGSSL now
introduced VSAT and cable or fax , LAM(local area network), WAN(wide
area network), the exiting and high tech, network of computerized trading,
Online trading and order processing system for NSE. The totally screen
based trading operations will not only provide the best possible rates, but
will also create an absolutely unbeatable position for the constituents in the
highly competitive market. The first such computerized trading hub is
already in place in Ahmedabad. The transactions are made fast through thescreen based trading and deliveries are made very fast then physical. This
sub-brokers and clients are making order so quickly to stock exchange.
TRADING IN DEMATERIALISED FORM
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Dematerialization is the process by which physical certificate of an
investors are converted to an equivalent number of securities in electronic
form and credited in the investors account with DP. Most of the active
scripts in the market including all the scripts of S & P CNXNIFTY and BSE
SENSEX have already joined NSDL. In dematerialization form, we can get
an update list of these companies form NSDL.
C.T.C (COMPUTER TO COMPUTER) NSE AT SGSSL DOORSSTEP
Though C.T.C, SGSSL is the first in India to start C.T.C network andis setting up major computerized Trading Hubs in major cities in entire
western India belt, starting with Ahmedabad. Brokers and investors can
transact business on NSE and BSE directly form the premises, on their
computers through the Hub. For this purpose, the computer will set up the
Computerized Trading Workstations (CTWs) at the brokers and investors
premises, which fully covered through latest communication technology and
trading environment available in the country. The CTW receive OLRT
information on scrip quotation form the various able to give buy and sale
orders through CTWs. Through, anyone can trade on the NSE / BSE form
own office, on the terminal, along with online technical and financial news.
I DEA O F S TOCK E XCHANGE
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Stock exchange is an organization, association or group of persons,
incorporated or not, which constitutes, maintains or provides a market place
or facilities for bringing together purchase and sellers of securities and
includes the market place and facilities maintained by such an exchange.
Thus in ordinary sense, its like BAZAAR of other thing, BAZAAR
of shares. All the orders of sell and purchase of shares are executed at stock
exchange. Stock exchange may be recognized or unrecognized. Recognized
stock exchange means a stock exchange which is for the time being
recognized by central government / SEBI under section 4 of SCRA(Securities Contract Regulation Act) 1956.
There are 23 stock exchange in all over India. In this BSE and NSE
are most active exchange.
T RADING R ING
Trading on the stock exchange used to be officially done in the trading
ring for five hours from 10:30 a.m. to 3:30 p.m. Under electronic trading,
house is also extended from 10:30 a.m. to 3:30 p.m. from Monday to Friday.
Trading before of after official hours is called kerb trading.
Trading MechanismThe trading system, known as the National Exchange for Automated
Trading (NEAT) system, is an on-line, fully-automated, nationwide,
anonymous, order-driven, screen-based trading system at which investor
client contact his broker through telegram, telephone, fax etc. or through
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intermediary or by directly and after they tells their broker about quantity of
security, price of security, name of security for buy or sale the security and
after this member/broker call the operator for punch into the computer
quantities of securities and the prices at which he likes to transact and thetransaction is executed as soon as it finds a matching sale or buy order from
a counter party. It electronically matches orders on a strict price/time priority
and hence cuts down on time, cost and risk of error, as well as on fraud
resulting in improved operational efficiency. It allows faster incorporation of
price sensitive information into prevailing prices, thus increasing the
informational efficiency of markets. It enables market participants to see the
full market on real-time, making the market transparent. It allows a large
number of participants, irrespective of their geographical locations, to trade
with one another simultaneously, improving the depth and liquidity of the
market. It provides tremendous flexibility to the users in terms of kinds of
orders that can be placed on the system. It ensures full anonymity by
accepting orders, big or small, from members without revealing their
identity, thus providing equal access to everybody. It provides a perfect audit
trail which helps to resolve disputes by logging in the trade execution
process in entirety.
The trading platform of the CM segment is accessed not only from the
computer terminals from the premises of brokers spread over about 350
cities, but also from the personal computers in the homes of investorsthrough the Internet and from the hand-held devices through WAP.
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Block Book/ Sauda Book
After each order is executed, suitable entries are made in the
concerned members Block Book/Pass confirmation memos. This is a book
of transaction executed on the floor and appropriate entries are made after
every deal to record the number of shares traded, the prices of the purchase
and sale ,and the name or code number of the other member through whom
the deal was finalized.
Contract Note
From the sauda book /Block book the details are transferred tocontract note. It is important to ensure that the contract note is written up on
the day of the of the deal of the deal and posted to the client. This is a poof
that the contracts was executed on that day and not on any other day since
prices fluctuate every day.
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C LASSIFICATION O F S ECURITIES :
Group A Specified shares/Specified list
Group B Non-Specified shares/Cash listGroup C Odd lots
Group Z
Group A
Under this, only those actively traded are included. i.e. those security
which have high traded volume which are included in Group A. The criteria
for listing in specified group have been dealt with as follow:
1.) The shares should be fully paid up
2.) The companies paid up capital should be at least RS. 5 crores,
3.) The shares should has been actively traded while on the cash list
4.) The number of shareholders must be more than 20,000.
5.) The companys shares should have market capitalization of at least
RS.10 crores.
6.) The company should have a growth potential.
7.) The company should be a dividend paying one.
Group B
Those securities which have high traded volume less than the Group
A which are included in Group B. The shares which are traded on cash basisare called group shares. They are also called as cash shares. Group B share,
those which are first listed will be, kept in Non-specified. Non-specified
group split into B1 and B2 groups. The carry forward facility is not
available to group B shares.
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Group C
Those securities which have high traded volume less than the Group B
which are included in Group C. Under this, only for odd lots deal. Onlystandard trading units i.e. prescribed round lots are traded on the stock
exchange. Most of the companies have fixed market lot as 50 to100.
Anything less than the round lot (market lot) is odd lot. Odd lots arise from
the issue of bonus or right shares. E.g., if GCLLtd. declares a bonus issue in
ratio of 1:3 (Assume that market lot of company is 50), a shareholder who is
holding 50 shares gets 17 shares which is less than the market lot and
treated as an odd lot. If he holds 150 shares, he will get 50 bonus shares
which is clearly a market lot. If he holds 250 shares, he can avail 83 shares,
out of which 50 is market lot and the rest of 33 shares is an odd lot. Stock
exchange are now making alternative arrangement for dealing with odd lots
i.e. under Group C.
Group ZThose securities which are not follow the rules of the SEBI and which
have a high volatility (i.e. price of security is highly flexible) that type of
securities are included the Group Z.
Permitted securities
The securities which are listed with some of the recognized stock
exchanges, when permitted to be traded by those stock exchanges where
they are not listed are called permitted securities. Such permission is granted
as per rules and regulations of the stock exchange .
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STOCK E XCHANGE T RANSACTION / K INDS O F
D ELIVERY
Transaction on stock exchange are carried out on either cash basis or
carry over basis. Carry over is permitted only in respect of Group A
securities. The types of transactions on cash basis according to
arrangement for delivery are:
a.) Spot delivery
b.) Hand delivery
c.) Delivery for clearing
a.) Spot delivery
In case of spot delivery transaction, the delivery and payment are
completed on the same day of contract or on the next day. For completion of
the contract, the actual period for the send off of the securities or payment of
money through post is excluded in the computation when the parties to the
contract reside at different places.
b.) Hand delivery
When a transaction is settled by delivery and payment on the day
fixed at the time of entering into contract or within 14 days from the date of
the contract.
c.) Delivery for Clearing
All transaction in securities in the specified list are effected only
through the clearing house. The securities for delivery will be delivery to
the buyer within a week and the seller receive all member dues within the
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same time from the clearing house on the respective pay-in and pay-out
days.
Due to On Line screen based Trading above type of delivery now day
can not seen because all delivery are doing on the basis of T+2 rollingsettlement.
T YPES O F O RDER
Order for the sale and purchase of shares are valid for a certain time
period, usually a day. In actual practice, the broker requires investor to
renew the order every day. On the basis of price limits, they can be divided
into:
1) Nett rate orders
2) Market rate orders
3) Limited discretionary order
4) Best rate order
5) Stop loss order
E XECUTION O F O RDER
Big brokers transact their business through their authorized clerks.
Small ones carry out their business personally. Orders are executed in the
Trading ring of the stock exchange which works form 10:30 a.m. to 3:30 p.m. on all working day from Monday to Friday and a special one hours
session on Saturday. Trading outside the trading hours are called kerb
dealing.
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Order may be communicated to broker either orally or in writing. Oral
orders will be accepted by a broker only if the client is well known.
Acceptance of order may be communicated to the client orally or through
Order Confirmation Note.
In case the order related to a security listed in the stock exchange of
the broker, the order is executed in the following manner.
There are certain set hours on each working day of the stock exchange
when the brokers meet in the system to transact business on behalf of their
clients.
The trading system, known as the National Exchange for Automated
Trading (NEAT) system, is an on-line, fully-automated, nationwide,
anonymous, order-driven, screen-based trading system at which investor
client contact his broker through telegram, telephone, fax etc. or through
intermediary or by directly and after they tells their broker about quantity of
security, price of security, name of security for buy or sale the security and
after this member/broker call the operator for punch into the computer
quantities of securities and the prices at which he likes to transact and the
transaction is executed as soon as it finds a matching sale or buy order from
a counter party.
The broker intimates his client of the transactions done on his behalf by sending him a Contract Note. This original is retained by the client and
the copy returned with the clients signatures to the broker in confirmation
of that contract.
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iii.) Payment of allotment money and call money
In, most companies the face value of the share is not asked for with
application. The company fixed allotment money and call money per share
which asks the shareholders to pay at certain intervals decided by the board
of directors of that company.
iv.) Endorsement of payment on share certificate
In companies where share certificates are issued before call money on
those shares is received, the company makes an endorsement on the sharesto show that how many calls have been paid by the shareholders.
(b.) Purchase from secondary market
i.) Placing order with broker
In the case of purchasing shares of existing companies, the order must
be Placed with broker. The broker will require certain sum of money as
margin money to be given along with the order.
ii.) Receipt of contract note
When the shares are purchased a contract note is sent to the client as
to the number, rate and date of purchase. Many brokers requires their client
to pay the balance amount i.e. purchase price minus margin money, on
receipt of contract.
iii.) Intimation of delivery
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When broker receives the share certificate and transfer deed form the
seller he intimates the client to take those shares and make payment in case
it has been made. In case of outstation clients, the broker will call for
balance payment and then send the shares certificate and transfer deedthrough registered post.
iv.) Sending shares for transfer
The last stage is the transfer of shares in the name of the purchaser.
The buyer signs in the transferee column of transfer deed. The transfer deed
is filled up if not, already done. Share transfer stamps have to be affixed on
the back of transfer deed.
Thus, the share certificate and complete transfer deed are now ready
which are sent at the share transfer department of company concerned. The
share certificates are received duly transferred within 3 months.
Now a day for purchases the security/share from primary and
secondary market first of all investor has to open the demate account without demate account investors can not purchase the share form the
market . So it need not to Sending shares for transfer because of demate is
already made.
[B.] Sale of Shares
i.) Placing the order with the brokerThe order of sale of shares has to be placed with the broker, as an
individual can not sell or purchase shares at the stock exchange directly.
Only member of that particular stock exchange either for themselves or an
behalf of their clients. Usually along with the order the broker will ask
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investor to submit the share certificate and transfer deed. The seller must
sign at the transferor column on the transfer deed.
ii.) Receipt of contract note
On the sale of issues contracts note. A contract indicates the number
of share sold, the rate per share, the dare of sale and the terms and conditions
governing the sale. A contract note binds the broker and his client. In case
the client is not satisfied, he must notify his broker immediately on receipt of
the contract.
iii.) Delivery of share certificate and transfer deedThe share certificate and transfer deed have to be delivered by broker
to broker of same stock exchange, member of another stock exchange of
another of his clients, to whom he had sold the shares. The stock exchange
have fixed delivery days on this day, the members deliver to each other the
shares they have sold and purchased. The delivery day avoids the confusion
that would arise of members could deliver on any day of their choice.
iv.) Receipt of payment
Payment is made by the broker usually after 4 days from the day the
shares have been sold and the share certificates along with valid transfer for
same are given to the broker. The payment is made according to the rate
appearing on the contract as the rate is calculated after deducting the
commission payable to the broker.
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B
ASIC T
YPE
O
F T
RANSACTION
I
N
S
TOCK
E XCHANGE
A.) Long purchase
B.) Margin trading
C.) Short selling
A.) Long purchase
The long purchase is a transaction in which investors buy securities in
the hope that they will increase in value and can be sold at a later date for
profit. The object is to buy low and sell high. A long purchase is the most
common type of transaction. Each of basic types of orders described con be
used with long transactions. Because investor generally expect the price of
security to rise over the period of time they plan to hold it, their return
comes from any dividends or interest received during the ownership period ,
plus the difference between the price at which they sell the security and the
price paid to purchase it ( capital gains). This return is reduced by
brokerages fees paid to purchase and sell the securities.
B.) Margin TradingMost security purchases do not have to be made on cash basis,
borrowed fund can be used instead, this activity is called margin trading and
it is used for one basic reason i.e. to magnify return.
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Generally initial margin is set slightly higher by broker houses for added
protection of both broker and their customers. So, the maintenance margins
on equity rarely change.
Margin formula
A simple formula can be used with all types of purchases to determine
the amount of margin in the transaction at any given point. 2 things are
required:
i.) prevailing market value of securities being margin.
ii.) Amount of money being borrowed, it is also called debit balance
Value of securities - Debt balance
Margin =
Value of securities
Transactions:
Buy 1000 shares of ABC scrip at RS. 20 each. Initial margin is at 50% and
maintenance margin=30%.
Customers A/C
Stock (shares) RS. 20000 Debt RS. 10000
Equity RS. 10000
20,000- 10,000
Margin =
x 100
20,000
=50% (initial margin)
A.) share price moves down to RS.17
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Stock (shares) RS. 17,000 Debt RS. 10000
Equity RS. 7000
17,000- 10,000Margin =
x 100
17,000
=41.2%
B.) share price moves down to RS.13
Stock (shares) RS. 13,000 Debt RS. 10000Equity RS. 3000
13,000- 10,000
Margin =
x 100
13,000=23.09%
C.) share price moves UP to RS.25
Stock (shares) RS. 25,000 Debt RS. 10000
Equity RS. 15000
25,000- 10,000
Margin =
x 100
25,000
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=60%
The share falling price must be absorbed by the customers Equity
because the debt has not been repaid.
The maintenance margin of 30% will be reached under the following
conditions:
Debt balance
Market value of securities =
1 Maintenance margin
10,000=
1 0.30
= 14,286 RS.
It means, if value of securities/ shares move down from RS.14,286,
indicate at (beta) point in above Example, the maintenance margin falls
below 30%, the broker will send a maintenance margin call requiring thatthe customer supplies additional funds in cash or securities in 2 to 5 days
otherwise, the securities in his account will be sold and cash used to repay
the outstanding margin loan.
If value of the shares move up from RS.14, 286, margin moves up
from 30%. So, investor now has additional borrowing power he can borrow
to buy shares without depositing equity of his own.
C.) Short selling
Short selling is generally defined as the practice of selling borrowed
securities. Short sales start when securities that have been borrowed from
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broker are sold in the market place. Later, when the price of the issue has
declined, the short seller buys back the securities which are then returned to
the lender. Short sellers to make money by buying low and selling high. The
only difference is that they reverse the investment process by starting thetransaction with a sale and ending it with a purchase.
Short On Margin
With short selling, the term margin simply indicates the size of the
Equity deposit the investor must make in order to initiate the transaction.
There are no borrowed funds with margined short sales. Margined short
sales are executed in the same margin A/C as margined long transactions.
They are subject initial margin levels. In fact, the only thing that we do not
have to be concerned about with a margined short sale is the accounts debit
balance.
Shorting against the box
Shorting against the box is done after an investor has granted through
an earlier long transaction by falling it with a short sale. An investor also
own 100 equity shares would short on equal number of equity shares in
same company. By doing this, he is able to protect project already made in
long transaction.
T RANSACTION C HARGES
The maximum brokerage chargeable by trading member in respect of
trades effected in the securities admitted to dealing on the CM segment of
the Exchange is fixed at 2.5% of the contract price, exclusive of statutory
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levies like, SEBI turnover fee, service tax and stamp duty. This maximum
brokerage is inclusive of the brokerage charged by the sub-broker which
shall not exceed 1.5% of contract price. However, the brokerage charges as
low as 0.15% are also observed in the market.A member is required to pay the exchange transaction charges at the
rate of 0.004% (Rs. 4 per Rs. 1 lakh) of the turnover.
C LEARING & S ETTLEMENT P ROCEDURE
While NSE/BSE other Exchange provides a platform for trading to its
trading members, Clearing House determines the funds/securities obligations
of the trading members and ensures that trading members meet their
obligations. The core processes involved in clearing and settlement are:
(a) Trade Recording:
The key details about the trades are recorded to provide basis for
settlement. These details are automatically recorded in the electronic tradingsystem of the exchanges.
(b) Trade Confirmation :
The parties to a trade agree upon the terms of trade like security,
quantity, price, and settlement date, but not the counterparty which is the
Clearing house. The electronic system automatically generates confirmation
by direct participants.
(c) Determination of Obligation :
The next step is determination of what counter-parties owe, and what
counter-parties are due to receive on the settlement date. The Clearing house
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interposes itself as a central counterparty between the counterparties to
trades and nets the positions so that a member has security wise net
obligation to receive or deliver a security and has to either pay or receive
funds.
(d) Pay-in of Funds and Securities :
The members bring in their funds/securities to the Clearing house.
They make available required securities in designated accounts with the
depositories by the prescribed pay-in time. The depositories move the
securities available in the accounts of members to the account of the
Clearing house. Likewise members with funds obligations make available
required funds in the designated accounts with clearing banks by the
prescribed pay-in time. The Clearing house sends electronic instructions to
the clearing banks to debit member's accounts to the extent of payment
obligations. The banks process these instructions, debit accounts of members
and credit accounts of the Clearing house.
(e) Pay-out of Funds and Securities :
After processing for shortages of funds/securities and arranging for
movement of funds from surplus banks to deficit banks through RBI
clearing, the Clearing house sends electronic instructions to the
depositories/clearing banks to release pay-out of securities/ funds. The
depositories and clearing banks debit accounts of the Clearing house andcredit accounts of members. Settlement is complete upon release of pay-out
of funds and securities to custodians/members.
(f) Risk Management :
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A sound risk management system is integral to an efficient settlement
system. The Clearing house ensures that trading members' obligations are
commensurate with their net worth. It has put in place a comprehensive risk
management system, which is constantly monitored and upgraded to pre-empt market failures. It monitors the track record and performance of
members and their net worth; undertakes on-line monitoring of members'
positions and exposure in the market, collects margins from members and
automatically disables members if the limits are breached.
Settlement Cycles
Since the beginning of the financial year 2002, all securities are being
traded and settled under T+3 rolling settlement. (From April 1, 2003, trades
have been under T+2 rolling settlement). This is a step towards further
reducing the settlement cycle to T+1 in 2004. The Clearing House notifies
the consummated trade details to clearing members/custodians on the trade
day. The custodians affirm back the trades to Clearing House by T+1 day.Based on the affirmation, Clearing House nets the positions of
counterparties to determine their obligations. A clearing member has to pay-
in/pay-out funds and/or securities. A member has a security-wise net
obligation to receive/deliver a security. The obligations are netted for a
member across all securities to determine his fund obligations and he has to
either pay or receive funds. Members' pay-in/pay-out obligations are
determined latest by T+1 day and are forwarded to them on the same day so
that they can settle their obligations on T+2 day. The securities/funds are
paid-in/paid-out on T+2 day and the settlement is complete in 3 days from
the end of the trading day.
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The activity schedule for T+2 rolling settlement shall be as follows:
S.No. Day Time Description of Activity
1. T Trade day
2. T+1 By 11:00 a.m. Conformation of all trades( including
custodial trades.) Facility of an exception
window for the confirmations would be
made available by the exchange.By 1:30 pm. Processing and downloading of obligation
files to brokers/ custodians3. T+2 By 11:00 a.m. Pay in of securities and funds
By 1:3 p. Pay out of securities and funds
Development and adoptions under rolling settlement system are as
follows:
In January 2000, rolling settlement on a T+5 bases was introduced in 10
selected scrips.
From May 2000, NO of scrips are increase under T+5 systems from 10 to
163 scrips.
In March 2001, the announcement made by the finance minister to
introduce rolling settlement in200 scrips.
From July 2001, SEBI announced a list of 251 scrips for compulsory
rolling settlement.
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From December 31, 2001, rolling settlement was extended to remaining
scrips on all exchanges.
From 1 April 2002, the rolling settlement on a T+3 basis was introduced
for all securities of all exchanges.
From 1 April, 2003, the rolling settlement on a T+2 basis has since
introduced for all groups of securities in the equity segment F and G
groups.
The trades in rolling settlement are settled on at T+2 bases i.e. / on the
2nd working day. For arriving holidays, Saturday and Sundays are excluded.
Typically trades taking place on Monday are settled on Wednesday,
Tuesdays trades settled on Thursday and so on. A tabular representation of
the settlement cycle for rolling settlement is given bellow.
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Activity T+3 Rolling
Settlement(From
April 1,2002)
T+2 Rolling
Settlement(From
April 1,2003)
Trading
Custodial Confirmation
Determination of Obligation
Securities/FundsPay-in
Securities/Funds Pay-out
Valuation Debit
Auction
Bad Delivery Reporting
Auction Pay-in/Pay-out
Close Out
Rectified Bad Delivery Pay-
in/Pay-out
Re-bad Delivery Reporting
Close Out of Re-bad Delivery
T
T+1
T+2
T+3
T+3
T+3
T+4
T+5
T+6
T+6
T+7
T+9
T+10
T
T+1
T+1
T+2
T+2
T+1
T+3
T+4
T+5
T+5
T+6
T+8
T+9
T+1 means one working day after the trade day. Other T+ terms have similar
meanings.
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A UCTIONS
Auctions are arranged for scrips which could not be delivered even on
the final day. These auctions are tenders for sale of the desired scrips in the
quantities purchased but not delivered so that delivered can be effected to
the buyers. Auctions in group A is automatic when the seller fails to deliver
on the appointed day and at the request of the buyer in the case of group B.
Auctions are arranged by the stock exchange by inviting bids from members
to buy the shares on behalf of the member who could not deliver the shares.
C LEARING P ROCEDURE
The transactions in secondary market are processed through 3 distinct
phases viz: Trading, Clearing, Settlement.
While stock exchange provides a platform for trading to its tradingmembers, clearing corporation/Clearing House/ the National Securities
Clearing Corporation Ltd. (NSCCL) determines the funds/securities
obligations of the trading members and ensures that trading members meet
their obligations. Clearing Corporation and depositories provide the
necessary interface between custodian/ clearing members and trading
members.
The clearing process involves determination of what trading members
owe, and what trading members are due to receive on the settlement date.
So, clearing process is essentially the process of determination of obligations
after which the obligations are recovered by settlement.
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The clearing and settlement process for transactions in securities is
presented in the following diagram.
Clearing Procedure/Settlement Process
1
2 3
Custodians/ Clearing members
10 11
Explanations:
65
8 9
6
45
Stock Exchange
Depositories Clearing House Clearing
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(1) Trade details from Exchange to Clearing House (real-time and end of
day trade file).
(2) Clearing House notifies the consummated trade details to
CMs/custodians who affirm back. Based on the affirmation, ClearingHouse applies multilateral netting and determines obligations.
(3) Download of obligation and pay-in advice of funds/securities.
(4) Instructions to clearing banks to make funds available by pay-in time.
(5) Instructions to depositories to make securities available by pay-in-
time.
(6) Pay-in of securities (Clearing House advises depository to debit pool
account of custodians/CMs and credit its account and depository does
it).
(7) Pay-in of funds (Clearing House advises Clearing Banks to debit
account of custodians/CMs and credit its account and clearing bank
does it).
(8) Pay-out of securities (Clearing House advises depository to credit
pool account of custodians/CMs and debit its account and depository
does it).
(9) Pay-out of funds (Clearing House advises Clearing Banks to credit
account of custodians/CMs and debit its account and clearing bank
does it).
(10) Depository informs custodians/CMs through DPs.(11) Clearing Banks inform custodians/CMs.
F INDINGS
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The current trading system in the market is quick against
in the previous trading system. Due to screen based trading system and T+2 Rolling
settlement, the mobilization of money become speedily and less time. It is paper less process. No paper work is involved in
buying or selling of share because nowadays demit is compulsory and
account are debited and credited. Due to screen based trading, orders confirmations are
done within few second / minutes after punching the order.
Capital market supplies securities of different kind withdifferent maturity and yield in unable the investor to diversify their risk
by wider portfolio of investment.
The investor has high risk to invest in primary market
security but also have higher return compare to secondary market.
When market is hyper, try to liquidate the investment and
ask for tips to sell and not to buy.
In the case of online trading if your internet is not
working properly you cannot trade.
The investments are more safety in T+2 rolling
settlement than T+3, T+4 etc.
Demat opportunity zone has shown remarkable growth
over a last couple of years. And this growth is expected to continue in
future because of cease less expansion of product portfolio and customer
base.
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C ONCLUSION
Capital market is the market in which investor both small and big can
invest for the intention to gain the fixed interest, income and dividend etc.and also high profit for the high investment. The capital market is one of the
most vibrant sectors in the financial system, making an important
contribution to economic developments.
From the study of the project we can conclude that capital market
enable the investor to gain the maximum return by sort selling, speculation,
and investing long run, compare to invest or deposit the money in other
sources like bank, gold, etc. but even share market is more risky, investor
can gain the more profit and can reduce the risk by managing the good
portfolio management. From the study we can also conclude that in recent
time capital market become a safety compare to old market by regulation of
SEBI and compulsory demat account. Through on line trading investor can
save their time and contribute time in elsewhere.
More recently, the investors are trust on equity market because
generally, there is no speculation and number of restriction and rules govern
by SEBI against speculation.
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NSE Fact Book-2003.
SEBI BULLETIN-2004.
Capital Market in India Gordon and
Naturajon
Investment Management V.
Gangadhar
G. Ramesh Babu.
Investment Management
V.A.Avadhani
Web sites- www.capitalmarket.com
- www.nseindia.com
- www.bseindia.com
http://www.capitalmarket.com/http://www.nseindia.com/http://www.bseindia.com/http://www.capitalmarket.com/http://www.nseindia.com/http://www.bseindia.com/