financial market ch -2

8/8/2019 Financial Market Ch -2

1/53

- Stock exchange & capitalmarket.


2/53

` M eans body of individuals , whether incorporatedor not, constituted before corporatization &demutualization under sebi act.


3/53

` To convert non for profit stock exchange into for profit company.

` Legal structure from a mutual form to a business

corporation form.`


4/53

` T here are 23 stock exchanges in the india` Including O TCE I , NS E & IC S E .` All regulated in terms of S CR A1956 & S EB I

1992.` B S E & ISE voluantary non-profit association` Some are companies limited by guarantee &

some by companies limited by shares.


5/53

` 1. B ombay stock exchange` 2.national stock exchange( M umbai)` 3. B anglore stock exchange` 4.Uttar pradesh stock exchange(kanpur)` 5. M agadh stock exchange(Patna)` 6.Ahmedabad stock exchange` 7.vadodara stock exchange( B aroda)` 8. B hubaneswar stock exchange` 9. C alcutta stock exchange(kolkata)` 10.madras stock exchange


6/53

` 11. C ochin stock exchange` 12.coimbatore stock exchange` 13.Gauhati stock exchange` 14.Hydrabad stock exchange` 15. M adhya pradesh stock exchange(indore)` 16.Jaipur stock exchange` 17.Ludhina stock exchange` 18. M angalore stock exchange` 19.Pune stock exchange` 20.saurashtrakutch stock exchange


7/53

` B ombay Stock E xchange is the oldest stockexchange in Asia What is now popularly known asthe B S E was established as " T he Native Share &Stock B rokers' Association" in 1875.

` B S E is the world's number 1 exchange in theworld in terms of the number of listed companies(over 4900). It is the world's 5th most active interms of number of transactions handled through

its electronic trading system.


8/53

` And it is in the top ten of global exchanges interms of the market capitalization of its listedcompanies (as of December 31, 2009). T hecompanies listed on B S E command a total marketcapitalization of USD T rillion 1.28 as of Feb, 2010.

`

B S E is the first exchange in India and the secondin the world to obtain an ISO 9001:2000

certification.


9/53

` he B S E or B ombay stock exchange sensitive Index is a valueweighted index. C omposed of 30stocks with the base April1979=100.

`

It consists of the 30largest and most actively traded stocks,representative of various sectors, on the B S E .

` T hese companies account for around one fifth of the marketcapitalization of the B S E .

`

` T he abbreviated from sensex was coined by Deepak mohoni around1990 while writing market analysis columns for some businessnewspaper.


10/53

` Sensex is an index, an index is basically an indicator. It givesyou a general idea about whether most of the stocks havegone up or most of the stocks have gonedown. T he sensex isan indicator of all the prices of the major companies of the

B S E (B ombay stock exchange).` Sensex was calculated using a marketcapitalization

weighted methodology. As per this methodology, the level of index at anypoint of time reflect the total market value of 30components stock relative to a base period. (the market

capitalization of a company is determined by multiplying theprice of its stock bythe number of shares issued by the company)


11/53

` Index level = (P1 * Q1) / (P0 * Q0)*` B ase index value.` P1= C urrent value securities` Q1 = No. of currently outstanding shares` P0 = B ase period price of securities` Q0 = B ase period quantity of securities.


12/53

` T he general guidelines for selection of constituents in S E NS EX are as follows: -` Listed History: T he scrip should have a listing history of at least 3 months at B S E .

E xception may be considered if full market capitalization of a newly listed companyranks among top 10 in the list of B S E universe. In case, a company is listed onaccount of merger/ demerger/ amalgamation, minimum listing history would not berequired.

Trading Frequency: T he scrip should have been traded on each and every tradingday in the last three months at B S E . E xceptions can be made for extreme reasonslike scrip suspension etc.

Final Rank: T he scrip should figure in the top 100 companies listed by final rank.T he final rank is arrived at by assigning 75% weightage to the rank on the basis of three-month average full market capitalization and 25% weightage to the liquidityrank based on three-month average daily turnover & three-month average impactcost.


13/53

` Market Capitalization Weightage: T he weightage of each scrip in S E NS EX basedon three-month average free-float market capitalization should be at least 0.5% of theIndex.

Industry/Sector Representation: Scrip selection would generally take into accounta balanced representation of the listed companies in the universe of B S E .

Track Record: In the opinion of the B S E Index C ommittee, the company should

have an acceptable track record.


14/53

` Free float capitalization weighted indices` Price weighted indices` Fundamentally based stock indices


15/53

` S E NS EX , first compiled in 1986, was calculated on a"M arket C apitalization-Weighted" methodology of 30component stocks representing large, well-establishedand financially sound companies across key sectors.

` T he base year of S E NS EX was taken as 1978-79.` Since September 1, 2003, S E NS EX is being

calculated on a free-float market capitalizationmethodology.


16/53

` T he "free-float market capitalization-weighted"methodology is a widely followed index constructionmethodology on which majority of global equity indices arebased;

` "Free-float M arket C apitalization" methodology, wherein,the level of index at any point of time reflects the free-floatmarket value of 30 component stocks relative to a baseperiod. T he market capitalization of a company isdetermined by multiplying the price of its stock by thenumber of shares issued by the company. T his marketcapitalization is further multiplied by the free-float factor todetermine the free-float market capitalization.


17/53

` Free-float methodology refers to an index constructionmethodology that takes into consideration only the free-float market capitalization of a company for the purpose of index calculation and assigning weight to stocks in theindex. Free-float market capitalization takes into

consideration only those shares issued by the companythat are readily available for trading in the market. Itgenerally excludes promoters' holding, governmentholding, strategic holding and other locked-in shares thatwill not come to the market for trading in the normal course.In other words, the market capitalization of each company

in a free-float index is reduced to the extent of its readilyavailable shares in the market.


18/53

` T he closing S E NS EX on any trading day is computed taking theweighted average of all the trades on S E NS EX constituents in thelast 30 minutes of trading session. If a S E NS EX constituent has nottraded in the last 30 minutes, the last traded price is taken for computation of the Index closure. If a S E NS EX constituent has nottraded at all in a day, then its last day's closing price is taken for computation of Index closure. T he use of Index C losure Algorithmprevents any intentional manipulation of the closing index value.


19/53

` T he B S E Index C ommittee meets every quarter todiscuss index related issues. In case of a revisionin the Index constituents, the announcement of the

incoming and outgoing scrips is made six weeks inadvance of the actual implementation of therevision of the Index.

`

`


20/53

` B S E also calculates a dollar-linked version of S E NS EX and historical values of this index areavailable since its inception. Dollex series of B S E

indices.


21/53

` Assignment.


22/53

` Incorporated 1992 , Pherwani committee` B ased on the recommendations, NS E was promoted by

leading Financial Institutions at the behest of theGovernment of India and was incorporated in November 1992 as a tax-paying company unlike other stockexchanges in the country

` T he National Stock E xchange (NS E ), located in B ombay,is India's first debt market.

` It opened for trading in mid-1994. It was recently

accorded recognition as a stock exchange by theDepartment of C ompany Affairs. T he instruments tradedare, treasury bills, government security and bondsissued by public sector companies


23/53

` T he National Stock E xchange of India (NS E ) situated in M umbai- is the largest and most advanced exchange with 1016companies listed and 726 trading members.

` T he NS E is owned by the group of leading financial institutions

such as IndianB

ank or Life InsuranceC

orporation of India.` T he National Stock E xchange of India Limited has genesis in

the report of the High Powered Study Group onE stablishment of New Stock E xchanges, which recommendedpromotion of a National Stock E xchange by financial

institutions (FIs) to provide access to investors from all acrossthe country on an equal footing.


24/53

` On its recognition as a stock exchange under the Securities C ontracts(R egulation) Act, 1956 in April 1993, NS E commenced operations in theWholesale Debt M arket (WD M ) segment in June 1994. T he C apitalM arket ( E quities) segment commenced operations in November 1994and operations in Derivatives segment commenced in June 2000.

The following years witnessed rapid development of Indian capitalmarket with introduction of internet trading, E xchange traded funds

(ET F), stock derivatives and the first volatility index - IndiaVI X in April2008, by NS E .

August 2008 saw introduction of C urrency derivatives in India with thelaunch of C urrency Futures in USD IN R by NS E . Interest R ate Futureswas introduced for the first time in India by NS E on 31st August 2009,exactly after one year of the launch of C urrency Futures.


25/53

` NSE Group:1. India Index Services & Products Ltd. (IISL)2. National Securities C learing C orporation Ltd.

(NS CC L)3. NS E .IT Ltd.4. National Securities Depository Ltd. (NSDL)5. Dot E x International Limited

` 6 . N CC L


26/53

` Nse connected to their work stations:-VSA TssatilliteInstalled 3900 Vsat s 366 cities.

` NS E Fifty rechrishtned S&P C NX Nifty on july

1998` C NX Nifty junior midcap index

1997.companies include traded with impact costof less than 2.5% on 85% of trading days.


27/53

` S&P C NX Nifty` C NX IT Index` C NX Nifty Junior ` C NX B ank Index` C NX 100` C NX FMC G Index` S&P C NX 500` C NX PS E Index` C NX M idcap` C NX M NC Index` Nifty M idcap 50` C NX Service Sector Index` S&P C NX Defty` S&P C NX Industry Indices` C ustomised Indices` C NX E nergy Index` C NX Pharma Index


28/53

` Electronic trading` E lectronic trading eliminates the need for physical trading floors.

B rokers can trade from their offices, using fully automatedscreen-based processes. T heir workstations are connected to aStock E xchange's central computer via satellite using Very Small

Aperture Terminus (VSATs) . T he orders placed by brokers reachthe E xchange's central computer and are matched electronically.

` Exchanges in India` T he Stock E xchange, M umbai (B SE) and the National Stock

E xchange (NSE) are the country's two leading E xchanges. T hereare 20 other regional E xchanges, connected via the Inter-C onnected Stock E xchange (ICSE) . T he B S E and NS E allownationwide trading via their VSA T systems.


29/53

` Execute an order ` Select a broker of your choice and enter into a broker-client agreement and fill

in the client registration form. Place your order with your broker preferably inwriting. Get a trade confirmation slip on the day the trade is executed and askfor the contract note at the end of the trade date.

` Need a broker ` As per S EB I (Securities and E xchange B oard of India.) regulations, only

registered members can operate in the stock market. One can trade byexecuting a deal only through a registered broker of a recognized StockE xchange or through a S EB I-registered sub-broker.

` Contract note` A contract note describes the rate, date, time at which the trade was transacted

and the brokerage rate. A contract note issued in the prescribed formatestablishes a legally enforceable relationship between the client and the

member in respect of trades stated in the contract note. T hese are made induplicate and the member and the client both keep a copy each. A client shouldreceive the contract note within 24 hours of the executed trade. C orporateB enefits/Action.


30/53

` Split` A Split is book entry wherein the face value of the share is altered to

create a greater number of shares outstanding without calling for freshcapital or altering the share capital account. For example, if a companyannounces a two-way split, it means that a share of the face value of R s 10 is split into two shares of face value of R s 5 each and a person

holding one share now holds two shares.` Buy Back` As the name suggests, it is a process by which a company can buy

back its shares from shareholders. A company may buy back its sharesin various ways: from existing shareholders on a proportionate basis;through a tender offer from open market; through a book-buildingprocess; from the Stock E xchange; or from odd lot holders.

` A company cannot buy back through negotiated deals on or off theStock E xchange, through spot transactions or through any privatearrangement.


31/53

` Settlement cycle` T he accounting period for the securities traded on the

E xchange. On the NS E , the cycle begins on Wednesdayand ends on the following T uesday, and on the B S E thecycle commences on M onday and ends on Friday. At the

end of this period, the obligations of each broker arecalculated and the brokers settle their respectiveobligations as per the rules, bye-laws and regulations of theC learing C orporation. If a transaction is entered on the firstday of the settlement, the same will be settled on the eighthworking day excluding the day of transaction. However, if

the same is done on the last day of the settlement, it will besettled on the fourth working day excluding the day of transaction.


32/53

` Rolling settlement` T he rolling settlement ensures that each day's trade is

settled by keeping a fixed gap of a specified number of working days between a trade and its settlement. Atpresent, this gap is five working days after the trading day.T he waiting period is uniform for all trades. In a R ollingSettlement, all trades outstanding at end of the day have tobe settled, which means that the buyer has to makepayments for securities purchased and seller has to deliver the securities sold. In India, we have adopted the T+ 5settlement cycle, which means that a transaction entered

into on Day 1 has to be settled on the Day 1 + 5 workingdays, when funds pay in or securities pay out takes place


33/53

` Short selling` Short selling is a legitimate trading strategy. It is a sale

of a security that the seller does not own, or any salethat is completed by the delivery of a securityborrowed by the seller. Short sellers take the risk thatthey will be able to buy the stock at a more favorableprice than the price at which they "sold short."

` T he selling of a security that the seller does not own,or any sale that is completed by the delivery of asecurity borrowed by the seller, Short sellers assumethat they will be able to buy the stock at a lower amount than the price at which they sold short.


34/53

` Bad Delivery` S EB I has formulated uniform guidelines for good

and bad delivery of documents. B ad delivery may

pertain to a transfer deed being torn, mutilated,overwritten, defaced, or if there are spellingmistakes in the name of the company or thetransfer. B ad delivery exists only when shares are

transferred physically. In "Demat" bad deliverydoes not exist.


35/53

` B ull M arket ( Tejiwala): In case of that theypurchase the shares at current prices to sell at ahigher price in the near future and makes a

profit if his expectations come true.he is alsocalled a long buyer.` B ear M arket ( M andiwala) : He sells security in

the hope that he will be able to buy them back at

lesser price.It is also called short selling.


36/53

` Lame duck : When a bear has made contractsto sell securities,find it difficult to meet hiscommitment due to non-availability of

security,,they always struggling..` Stag : He is that type of speculator who applies

for a large number of a shares in a new issuewith the intention of selling them at a

premium.He is bullish and very cautious


37/53

` T he members of the stock exchange can be divided intotwo parts:

` Broker: He is a commission agent who transactsbusiness in securities on behalf of non-members. T hey

may have number of sub-brokers to canvass and securebusiness for them.` J obber : He is an independent dealer securities.He

purchase and sells securities in his own name. He is notallowed to deal with non-members directly.He works for

profit.


38/53

` Non-members : T he following categories of nonmembers are also permitted to enter trading hall andtransact business on the behalf of members.

` Authorized clerks : T hey are the assistant or agents. T hey buy or sell on the behalf of employers. T heycan not transact business on their own account.

` Remisers : T hey are the sub-brokers. He is also calledthe half commission men.


39/53

` 1.D EM AND AND SUPPLY` 2. B ANK R ATE` 3.SP EC ULAT IVE P RE SSU RE` 4.A CT IONS OF UND ER WR ITER S AND O T HER

FINAN C IAL INS T IT UT IONS` 5. C HANG E IN C OM PANY S B OAR D OF DI RECT OR S` 6.FINAN C IAL POSI T ION OF T HE C OM PANY


40/53

` 7. TR AD E C YC LE` 8.POLI T IC AL FA CT OR S` 9.SY M PAT HET IC FLU CT UAT IONS`

10.OT

HER

FACT

OR

S:` A. EX P ECTE D M ONSOON` B .P ER SONAL H E ALT H OF H E AD OF

GOV ER NME NT O R C HAIRM AN OF T HE C OM PANY

` C .OIL P R ICE S IN T HE INTER NAT IONALM AR KET .


41/53

` D.C HANG E S IN EXC HANG E R ATE` E .B O R DER TE NSION` F.S T OC K BR OKER S S C AM LIKE HAR SHAD ME HT A

AND K ET HAN PA RE KH` G.S TR IKE S AND LO C K-OU T OF T HE C O M PANY.` H.N E W B UDG ET P R OPOSALS` I.LOBER LIZAT ION AND P R IVAT IZAT ION OF T HE

C OM PANY.


42/53

` B asically rating is given after see the company'image,management quality,assetsquality,auditors quality,accountingaccuracy. R ating is not fixed, it may be change.T

he rating grades are:` AAA: HIGH E S T SAF T Y` AA: HIGH SAF T Y` A: AD E QUATE SAF T Y` BBB : M OD ER ATE SAF T Y` BB : IN AD E QUATE SAF T Y` BC &D: HIGH R ISK AND D E FAULT


43/53

` 1. CR ISIL` 2.ICR A` 3. C ARE


44/53


45/53

` Settlement B asis` Spot basis` C ash basis


46/53

` Listed cleared securities` Permitted securities.


47/53

` An advance payment of a portion of the value of astock transaction. T he amount of a credit a broker or lender to a customer for stock purchase.


48/53

` Initial margin` M aintenance margin


49/53

` Book closure :-periodic closure of register of members & transfer books of thecompany(dividend , bonus etc.)

`

Record date :- on which record of companies areclosed for purpose of determining the stockholders to whom dividends , proxies right etc areto be sent.


50/53

` B earish .` B ullish .` R eactions.

` R allies


51/53

` B OLT ` Scrips classified A , B 1 , B 2 , F , G & Z.` CR S A , B I , B 2 & F T+ 3 basis,G&Z T+ 2.

` Surveillance function.` M arket abuse` C ircuit breakers Sebi 2001,10% 15% &20% ,

quarter basis applicability , via press release, on

index variation.


52/53

` NE AT` NE AT F&O` NE AT WD M

` Future contract based on S&P C NX NIFT Y ,maximun 3monthsexpiration cycle. Includes 1mnth, 2 mnth & 3mnth.

` Various condition good till date , good till cancled

,stop loss etc.


53/53

financial market ch -2

Documents