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SECURITY ANALYSIS AND POR TFOLIO MANAGEMENT

LESSON 14: BUYING & SELLING OF SHARES
Stock Markets in India
“Stock Exchange means any body or individuals whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing ins securities.” It is an association of member brokers for the purpose of self-regulation and protecting the interests of its members. With the stock exchanges becoming corporate bodies with demutualisation the control and ownership will be in different hands The above definition will change accordingly. It can operate only if it is recognized by the Government under the Securities Contracts (Regulation) Act, 1956. The recognition is granted under Section 3 of the Act by the Central Government, Ministry of Finance. The powers of the Central Government under the Act are farreaching and include the following in particular : i. Grant and withdrawal of recognition, approval or change of byelaws. ii. Call for periodical returns from the Stock Exchange. iii. Direct enquiries on the members or on the Stock Exchange. iv. Liability of the Exchange to submit annual reports. v. Directing the Stock Exchange to make certain rules. vi. Superscede the Governing Board of the Exchange. vii. Suspend the Governing Board of the Exchange. viii. Impose any other conditions or regulations for trading. Byelaws Besides the above Act, the Securities Contracts (Regulation) Rules were also made in 1957 to regulate certain matters relating to trading on the Stock Exchanges. There are also byelaws of the Exchanges, which are concerned with the following subjects Opening/Closing of the stock exchanges, administration timing of trading, regulation of blank transfers, regulation of badla or carryover business, control of the settlement and other activities of the Stock Exchange, fixation of margins, fixation of market prices or making up prices (Havala rates), regulation of taravani business (jobbing), etc., regulation of brokers’ trading, brokerage charges, trading rules on the Exchange, arbitration and settlement of disputes, settlement and clearing of the trading etc. Regulation of Stock Exchange The Securities Contracts (Regulation) Act is the basis for operations of the stock exchanges in India. No exchange can operate legally without the government permission or recognition. Stock exchanges are given monopoly in certain areas under Section 19 of the above Act to ensure that the control and regulation are facilitated. Recognition can be granted to a stock exchange provided certain conditions are satisfied and the necessary information is supplied to the government. Recognition can also be withdrawn, if necessary. Where there are no stock exchanges, the government can license some of the
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brokers (licensed dealers) to perform the functions of a stock exchange in its absence. Recognition by Government As referred to earlier, a Stock Exchange is recognized only after the government is satisfied that its Rules and Byelaws conform to the conditions prescribed for ensuring fair dealings and protection to investors. Government has also to be satisfied that it would be in the interest of the trade and public interest to grant such recognition. Mumbai, Calcutta, Delhi, Chennai, Ahmadabad, Hyderabad, Bangalore, Indore etc. have so far been granted permanent recognition. Others are granted temporary recognition from time to time. The rules of a recognized stock exchange relating in general to the constitution of the Exchange, the powers of management of its governing body and its constitution (including the appointment thereon of not more than three government nominees), the admission of members, the qualifications for membership, the expulsion, suspension and readmission of members, the registration of partnerships and the appointment of authorised representatives and clerks must be duly approved by Government. These rules can be amended, varied or rescinded only with the previous approval of government. Likewise, the byelaws of the recognised exchanges providing in detail for the regulation and control of contracts in securities and for every aspect of the trading activities of members must also be sanctioned by government and any amendments or modifications must be similarly approved. Government’s authority extends much further to make or amend suo motto any rules of byelaws of a recognised stock exchange, if it so considers desirable in the interest of trade and in public interest. The Act empowered the government with even more drastic powers - the power to make enquiries into the affairs of a recognized stock exchange and its members, to supersede the governing body and take over the property or a recognised exchange, to suspend its business, and lastly, to withdraw the recognition granted to an exchange should such steps be deemed indispensable in the interest of trade and in public interest. Government has thus complete control over the recognized stock exchanges. Licensed Dealers The recognised stock exchanges are the media through which government regulation of the stock market is made effective. Where there are no stock exchanges, the Securities Contracts (Regulation) Act, 1956 empowers government to license dealers in securities and prescribe the conditions subject to which they can carry on the business of dealig in securities. These licensed dealers are now operatig for OTCEI and NSE. Securities Contracts (Regulation) Rules, 1957 Under the Act, government has promulgated the Securities Contracts (Regulation) Rules, 1957 for carrying into effect the objects of the legislation. These rules provide, among other

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In fact. Indore. the Madras Stock Exchange was reconstituted and the Calcutta Stock Exchange had to undergo a major reorganisation as a condition procedent to their recognition by the Government of India. Bangalore. the control and ownership rested with the same member brokers. Present Recognised Stock Exchanges At present. inquiry into the affairs of recognised stock exchanges and their members . submission of periodical returns and annual reports by recognised stock exchanges . Educational Qualifications should be graduate. Both are owned by banks. and Pune. the interests of public and investors can be better taken care of by the vestingof control and regulation in a separate agency other than the trading members. for the procedure to be followd for recognition of stock exchanges. Members are prohibited from entering into contracts with perosns other than members or from dealing with clients as principals. Mangalore. there is a broad unifomity in their organisation.3 . They offer the most perfect type of market for various reasons. Ahmedabad. Ludhiana. Lastly. Visakhapatnam Stock Exchange was recognised in 1996 for electroic trading. machinery and equipment . They are located at Bombay. however. Bhywaneshwar.s byelaws and rgulations of the exchanges. Not compounded with the creditors. But in India the first attempt at Demutualisation was made by OTCEI set up in 1992 and NSE in 1994. But the government has permitted change in the byelaws of the exchanges to permit corporate and institutonal members and also grant permission for a member of any stock exchange to be a member of another stock exchange in 1993. No recognition has been sought for this body as the jurisdiction of the Securities Contracts (Regulation) Act. In consequence. subject to governmental approval. BSF has now chosen to become a corporate unit with its shares listed for trading with-in a short-time. so that purchases and sales are made in conditions of free and perfect competition. Sometimes the volumes go down and the capacity utilisation of the Stock Exchange infrastructure will be poor leading to poor return on investment. Qualifications for Membership The members of recognised stock exchanges should have the following qualifications : • • • • • • • sions of the Act. plant. Kanpur. It also has SECURITY ANALYSIS AND POR TFOLIO MANAGEMENT Age 21. Delhi. The barginas the are struck by members of the exchanges are the fairest price determined by the basic laws of supply and demand. 1956. Cochin. A stock exchange has also been set up at Gangtok. Delhi. there are 21 stock exchages recognised under the Securities Contracts (Regulation) Act. which are SROs. Traditionally. Advantages of Demutualisation Firstly. if they are registered with SEBI. Indore are voluntary non-profit-making associatons. amend and suspend the operation of the rule. There is an active bidding and in the case of shares and debentures a two-way auction trading. in Merrut and Vishakhapatnam Stock Exchanges. Not connected with a company or corporation. A decade ago. though gilt-edged securities represent ownership of public debt and share and debentures of joint-stock companies represent interest in industrial property . The rules are statutory and they constitute a code of standardised regulations uniformly applicable to all the recognised stock exchanges. Kanpur. Governing Body The governing body of a recognised stock exchange has wide governmental and administratie powers asnd is the decisionmaking body. The stock exchanges operate under the rules. Patna. Hyderabad. Bangalore. Contracts can be passed only by the members in the notified areas where the stock exchange exists. FIs and other agencies other than member brokers. Organisation The recognised stock exchanges at Mumbai. Indian Citizen. professionalism in Management is possible when it is owned by non-trading public. Madras. in India demutualisation may not be needed as the competition from the ATS and ECNs (Alternative trading system and Electronic trading) would not be there as the matching of Buy and sell orders in the broker firms is not allowed by SEBI. Demutualisation of Stock Exchanges What is Demutualisation ? It is dissociation of ownership from control and Regulation of Stock Market operations. 1956 has not so far been extended to the areas covered by the State. The Stock Exchanges are self Regulatory organisations. Not a defaulter of any other stock exchange.they become the most liquid of assets and capable of being easily negotiated. Secondly. Ahmedabad. It has the power. byelaws and regulations duly approved by government and constitute an organised marker for securities. Calcutta. Jaipur. to make. Spot delivery transactons are exempt fro the provi- 64 © Copy Right: Rai University 11. Not convicted for fraud or dishonesty. Thirdly. There is no trading. Not engaged in any other business except as agent or broker. there were hardly 8 stock exchanges in the country. Baroda Cochin. Guwahati. Secondly. The recently recognised stock exchanges are at Coimbatore and Meerut. Disadvantages Firstly. owned and regulated by the member brokers themselves. Sikkim early in 1986.mills and factories.things. the derivative markets can be better controlled and regulated by professionals and experts. if it is owned by the public profit motive and the return on investment become paramount concerns which is not good for regulation. under Article 226 of the constitution. it dilutes the regulatory authority given to Stock Exchanges. Since the Rules or Articles of Association defining the consttution of the recognised stock exchanges are approved by the Central Governent. and requirements for listig of securities.621. Gauhati and Kanara Stock Exchanges are joint-stock copanies limited by shares and the Chennai. Companies and financial institutions are not members as per the earlier rules. Ludhiana. while the Calcutta. Rajkot. the larger funds needed by the Stock Exchanges for infrastructure development and electronic trading can be better accessed from the Capital Market and the public. Hyderabad and Pune stock exchanges are companies limited by guarantee. The subbrokers can also pass valid contract notes or confirmation Notes. Fourthly. not bankrupt.

The listed companies SECURITY ANALYSIS AND POR TFOLIO MANAGEMENT 11. public investment is increased and companies were able to raise more funds.9% in 1989. This evidence the influence of the gilt-edged market and its vital significance in the economic life of the country. authorised clerks and employees. diversification and medernisation.5 crores due to sharp fall in prices during 1998 and zoomed up during the boom period of Jan. VicePresident and Treasurer. an increasingly large number of persons is being interested indirectly in Government securities. There are also three representatives from the Government. Functions of Stock Exchanges Stock exchanges provide liquidity to the listed companies.877 in 1999. The quoted companies with wide public interest have enjoyed some benefits and asset valuation has become easier for tax and other purposes. Less then one per cent is owned directly by individuals. It is. roughly estimated that the turnover of Bombay Stock Exchange is about 30% of the overall turnover of all the stock exchanges in the country and NSE accounts for more than 40% of the total all India figure. three from the public and one from the RBI on the Board to represent their interest. This trend got accentuated due to proportional allotement system imposed by SEBI. As per the SEBI guidelines. who iin turn elect a President. to warn. they help trading and raise funds from the market. 5 lakh crores in 1997 which has gone down to around Rs. the figure was more than Rs. 10 lakh crores during 2000-01 on the BSE and 14 lakh crores on NSE. the secondary market also expanded fast during this project. remisiers. The turnover of trading put through was as high as Rs.4% in 1984 to 45. to determine the mode and conditions of stock exchange business and regulate stock exchange trading in all its aspects and generally to supervise. Under the constitution.4% and 11. attorneys. the Life Insurance Corpn.13 lakh crores on the NSE.1. fine and suspend members and their partners.4% in 1989. By giving quotations to the listed companies. remisiers and authorised clerks. its power of management and control is almost absoute. Their number will grow as savings increase and development under the Five-Year Plans is financed by public borrowing on a more extensive scale. during Nineties. Municipal Corporations.000 by end 1999 from about 1. 10 crores and above. It was the first to be recognised on a permanent basis in 1957. direct and control all matters and activities affecting the stock exchange. shares and debentures for financing their day-to-day acitivities. The organisation of Bombay Stock Exchange is typical. organizing new ventures and completing projects of expansion.621.942 crores at end March 1999. and the share of individuals fell further. Mumbai ranked first. 3.42. 5. The share of corporate bodies has increased from 17.complete jurisdiction over all members and in practice. The number of stock exchanges has increased from 8 in 1980 to a total 23 in 1993 and Vishakhapatnam Stock Exchange was recognised for electronic trading in 1996. Bombay: Stock Exchange The Bombay Stock Exchange is the premier stock exchange in India. 2000 to Rs. Almost the entire outstanding rupee debt is owned by the commercial banks. trade and commerce . Provident Funds and chritable trusts. adjudicate disputes and impose penalties. censure. The Bombay Stock Exchange regularly publishes statistics on market turnover of securities though similar figures for the other exchanges are now available with the SEBI. Listed Paid-up Capital The paid-up share capital of listed companies in 1946 was Rs.. shares and securities provided by the recognised stock exchanges. The members on roll elect 16 members to be Directors on the Governing Board.8% in 1984 to 28. Savings of investors flow into public loans and to joint-stock enterprises because of this ready marketability and unequalled facility for transfer of ownership of stocks. Improvement Trusts. Therefore. The shares of corporate bodies and financial institutions have stood at around 28. But anyone who has a bank account or is a policyholder or a benficary of a public or private trust is basically involved in the ownrship of giltedged securities.200 a decade ago. however.10 lakh crores as against Rs. The capital listed in Mumbai accounted for about 40% of the overall capital listed on all the stock exchanges whereas its share of the market capitalisation amounted to around 90%. As a result. the governing body hs the power to admit and expel members. in recent years. The membership of the stock exchanges has also increased substantially to around 8.07 lakh. to enforce attendance and information. In tune with the growth in the ew issues market during the eighties. The growth and present position of stocks and shares of joint stock companies listed on the recongnised stock exchanges indicate a substantial increase in the public stake in listed stocks over the past. over the hundred and twenty years during which the stock exchanges have existed in this country and thorugh their medium.3 © Copy Right: Rai University 65 . The Executive Director is appointed by the government on the recommendation of the Governing Board to be the Chief Administrator of the Exchange. A study of the ownership pattern of the companies major category of holdersa although their share declined 56. By obtaining the listing and trading facilities.the backbone of the country’s economy -have secured capital of crores of rupees through the issue of stocks. the Central and State Government have raised crores of rupees by floating public loans. These securities constitute the largest amount of debt traded on the stock exchanges as the government sector is the major borrower in the economy. The total turnover at BSE during 2000-01 was Rs. The volume of daily turnover of trade has also increased more than ten-fold over the decade. Who Owns the Securities ? The gilt-edged securities are offically listed on the recognised stock exchanges as soon as they are issued by the authorities concerned. Local Bodies and State Finance Corporations have obtained from the public their financial requirements. In terms of the total number of companies and total number of stock issues listed also. The market capitalisation has also shown a substantial increase in teh eigthies and Nineties and stood at Rs.2% respectively in 1989. the Exchanges have agreed to have 50% representation to non-members on the Governing Board. and industry. The market value of the capital of these listed companies stood at around Rs. The listed companies of all stock exchanges stood at 9. to approve the formation and dissolution of partnerships and appointment of attorneys.270 crores while in 1997.

621. its price and speculative position in the market. or Surveillance Dept. The margin on purchase is at a rate of Rs. only authorised clerks of the members are permitted to enter the trading ring with their badges.500 is deposited wioth the Stock Exchange to the credit of the member. creation of a Customers’ Protection Fund and insurance cover for members of stock exchanges. 115. suspend trading and enquire into any special developments. The security guards provide physical help to the inspectors. 5 per scrip. Limits imposed on total trade by each of the members in all scrips together to keep a control on overtrading by members. etc. any indiscipline or violence or other malafide acts. etc. the clients are compensated upto a maximum which SECURITY ANALYSIS AND POR TFOLIO MANAGEMENT To examine the general functioning of the stock exchanges as an integral part of the financial system. the Exchanges have set up a Customer Protetion Fund. depending on conditions of trading in the scrip. In the light of the recommendations made by the Committee in their interim Report. The types of margins imposed are as follows : 1. 6. 3. the floor committee can officially intervene and give their judgement on the dispute. suspension of trading or collection of quotations. which is a margin on net sales. But they vary depending on the scrip.000 with a net sale position of 200 scrips. imposed specially on any scrip or scrips subject to high speculative attacks. The objective of the fund is to compensate the investor clients of member brokers who have defaulted. Trading Ring has lost its importance with the use of electronic type of trading and matching of purchase and sale transactions through the Exchange. Investor Protection Certain measures of investor protection adopted by the Exchange deserve special mention here. In all genuine cases of claims. 66 © Copy Right: Rai University 11. the government issued several guidelines and directives to the stock exchanges relating to matters of securities on the stock exchange. Firstly. Daily margins on purchases or sales of members at varying rates or on the total outstanding position in each scrip. in tune with guidelines issued by the Ministry of Finance. The terms of reference of the Committee included inter alia. giving of company information. Secondly. To look into the existing system of organisation and management of stock exchanges with a view to broadbase it so as to make it representative of all concerned interests and to suggest a uniform model of organisation. the the following: • • Fourthly. The inspection of trading operations is also done electronically. Sauda Block Books or confirmation Memos are provided by the Stock Exchange. Carry-over margins at the time of settlement on each of these scrips at varying rates upto 50% or more depending upon whether they are purchases or sales. 115-5 = 110.S. Patel Committee A high-powered committee under the chairmanship of Shri G. make any announcements at the time of trading. The price of the Century scrip is Rs. Suspension of trading in any scrip for any period of time. Entry into the Grading Ring is restricted to members and their authorised clerks. An amount of 500 × Rs. Patel. These rates are different for purchases and sales. Persons involved in such acts could be removed from the trading ring. These margins will apply in the same manner whether it is a daily gross or net position or carry-over net position. let us take the following cases : Member A has purchased 500 and sold 200 with a net position of 300 scrips.000 is kept with the Stock Exchange to the credit of the member. the Operations Department of the Stock Exchange will supervise the operations. Then the purchase price becomes Rs. To suggest measures to improve the overall service to investors by the members of stock exchanges and to encourage small investors particularly in semi . 400 = Rs. 3400 + 400 = Rs. the Monitoring Dept. whether relating to the price or quantity or the scrip or there can be administrative intervention by inspectors. The imposed margin is Rs. The price of the TISCO scrip is Rs. 4. It may impose ad hoc margins. To give examples of how margins operate on trading. After deliberations which lasted more than a year. former Chairman of the Unit Trust of India. This is a margin on the gross purchases. The fixation of different types of margins. shifting of a scrip from group A to group B and vice versa.400. making up prices (Havala rates) and supervision of trading etc.urban and rural areas to invest in industrial securities.on BSE was 5955 while the same on NSE was only 785 in 2000-01. sold 1. • Regulations on Trading As regards the regulations on trading in the ring of the Exchange. in the case of any disputes on the trading floor as between members or their authorised assistants. An amount of 200 × Rs. 3. The inspectors of the Stock Exchange visit the ring and check the presence of unauthorised persons. The acutions of shares and related matters connected with settlement are looked into by the Operations Department. etc. the Committee submitted its Report to the Union Finance Ministry in December 1985. of the Exchange keeps a watch on the price movements and the trading volume of the members and take such action as is necessary to control excessive trading and speculative fevour. suspended or punished otherwise. Fixation of minimum or maximum prices for any other scrips called filter levels circuit breakers are now used for rise or fall in prices of scrips beyond a stripulated level of 10% or 15% on any trading day. The objective of the fund. 5. was set up by the Union Government in May 1984 to make a comprehensive review of the functioning of the stock exchanges and make recommendations. 3. are the responsibility of the Executive Director.3 . Ad hoc margins. 5 = 2. etc. 2. in tune with guidelines issued by the Ministry of Finance. 400 per scrip Then the sale price becomes Rs.800. the Stock Exchange authorities operate a variety of regulations in the following ways: Firstly. Thirdly. The net price after adjustment of margins is used for the purpose of carry-over. Member B has opurchased 800. 80.

10 crores and if the delay is deliberate without adequate reasons. Clause 40 of the listing agreement has been replaced by 40A and 40B. if there is a take-over offer. The minimum capital for listing has been raised to Rs.varies from Exchange to Exchange. This was made quarterly publication of Results by the listed companies during 1999. Measures to Promote Healthy Stock Markets With a view to reduce delays in listing arising out of conversion. The offer should be made public and by a public announcement and notification to the stock exchange and SEBI with regard to the terms of offer. As many as thousands of compliants are received per month. The nature of complaints is non-receipt of refund order. The government has also notified certain guidelines for institutional transactions in shares. underwriting commission. STock exchanges have been directed to transfer the scrip of company from the sepcified section to the spot section if the company intends to come out with the rights issues. In view of this protection. the Bhansali Committee’s recommendation on share transfer procedures was implemented whereby the newlyallotted shares have to be treated on par with the old shares for 11. The Employees’ Option Scheme was partially modified restricting the allotment of the unavailed portion of the public/rights issues earmarked for employees only to financial or investment institutions or mutual funds. This Fund is financed by a levy on the turnover of members collected at the rate of one rupee for every Rs. was set up jointly by the Bank of India and the Stock Exchange. particularly with regard to book closure and record dates and to give more powers to the stock exchanges to monitor the allotment of new issues and to curb insider trading or takeover bids. The dividend can be deducted from the price for the new shares at not more than the amount of divident for one year. of which 90-95% are against the companies and the rest against the brokers. of odd lots. identify of the transferer. To expedite the process of delivery of shares in the settlement and clearing procedure of the Stock Exchange.. brokerage. The Government has amended the SCR rules in December 1988 to permit multiple membership of stock exchanges and to enable the granting of membership to financial and corporate institutions. 10 lakhs of turnover and by contributions from the listing fees. etc. about 50% are attended satisfactorily. 5 Crores or Rs. Under clause 40A. when any person acquires 5% or more of the shares of a company in terms of its nominal value. The service of purchase from investors of odd lots was later extended by the UTI. The Board of each financial SECURITY ANALYSIS AND POR TFOLIO MANAGEMENT © Copy Right: Rai University 67 . The actual delivery of shares as between the member brokers is now replaced by Delivery Slips. This odd lot trading has lost its significance with the dematerialisation of physical shares into entries. The service was strengthened to render expeditious service to the investors and to attend to their grievances. the BOI shareholdings Ltd. etc. collected at the rate of 2% from the companies. Another service provided was through Investor Complaints Cell set up a decade ago. the brokers can attest the signatures of transferers which will help quicken the process of share transfer. This requirement is necessary when any person acquires shares carrying 10% or more of the total voting rights of the company through their shareholdings or to secure control over the management of the company. The government has approved the creation of Over-theCounter Exchange of India (OTC) which would help the introduction of a multi-tiered market for securities. For any sale of over 1% of paid up capital of the company. 3 Crores of which Rs. Banks have been permitted to lend up to 90% of the value of shares to be acquired by the employees out of their quota of new issue subject to a ceiling. This was further raised to Rs.3 delivery purpose. As it has been found that the various stock exchanges are following different methods of calculating the amount of dividend to be deducted while trading in the new shares. Many Stock Exchanges have also provided a service to investors in the form of fixing up an odd lot trading session on every alternate Saturday and shortlisting a group of brokers who agreed to deal in odd lots for the benefit of purchase/sale/ consolidation etc. SEBI. identity of offeror and other terms and conditions and such information should be made available to all the shareholders of the offeree and offer or companies. the information regarding such transactions should be reported to the SEBI and the concerned stock exchanges and to the public within a day of the transaction through a press release. The investors can get quotations for odd lots in major scrips and deal in them more freely than before. by the intermediary or by the acquire.621. Agreement to enforce half-yearly publication to results of the working of the company. dividends. but rechristened as Investor Service Cell in some exchanges.. The guidelines for listing have also been amended. etc. subject to the adjustment of the dividend depending on the tie of allotment. Under clause 40B. the Govt has issued a circular authorising the stock exchanges to take action and monitor the issues of over Rs. This is comparable to the present day demat form of trading. a public announcement of the offer should be made both by the offeree and offerer. 1. which the brokers are subject to during their transactions with clients for delivery of shares for transfer. GIC and Canbank and others as an over-the-counter facility. the government has clarified in June 1990 that all stock exchanges should follow the same practice and the new shares should be traded and delivered along with old shares provided the new shares are traded and delivered at least one day in the relevant settlement period. and also take suitable action. loss of securities in transit. which are on a pari passu basis. This policy covers the perils of forgery. In October 1988. No physical transfer of shares takes place and hence it saves a lot of time involved in delivery after clearing. the stock exchange should be notified within two days of such acuisition or agreement to purchase by the company. This new organisation takes over the clearing and delivery of shares for both ‘A’ and ‘b’ Group shares on the Stock Exchange. Clause 41 was added recently to the listing. passed or credited and debited with BOI Holdings. Another service provided by major exchanges is to arrange an insurance policy to broker-members through the New India Assurance Co. allotment letters. 10 crores depending on the Stock Exchange from October 1995. fabrication of securities and transfer deeds and receipts. Mumbai in November 1989. the Exchange should report the matter to the Registrar of Companies.8 crores should have been issued to te public effective February 1989. Of the complaints received.

This will increase volumes in trading and there will be consequent increase in liquidity. If the level of 90% is not reached by the public subscription. Some 153 companies were earmarked for a Demat form of trading and compulsory Rolling settlement system. Badla system was streamlined and strengthened with better surveillance in selected scrips. set up mainly be NSE. in the case of a sick company. Electronic Form of Trading Globalisation of Stock Exchanges is now on way. The number of cities covered by NSE and BSF 68 © Copy Right: Rai University 11. Volumes of trading and liquidity had increased due to electronic trading. stricter enforcement of the trading regulations and listing norms and bettr disclosures for transprency. The rolling settlement was introduced from Jan. the companies have been instructed to refund all the application monies within 120 days of the opening of issue if a minimum of 90% subscription is not secured. The electronic age has come to the stock market. without the need for physical certificates. Trade guarantee fund and Investor Protection Funds were maintained in many Stock Exchanges.institution should lay down the criteria for such transactions. and such negotiated sale takes place. that should be disclosed to the public through a press release and also to the SEBI and the concerned stock exchange. operated by SEBI. Among other reforms mention may be made of broad basing the boards. This is in addition to existing NSDL. Weekly settlement system was enforced on all Stock Exchanges uniformly which was followed by Daily Rollover System in Selected Scrips from 1999. 10. quarterly publication of results and better disclosures were insisted upon the listed companies.3 . Customer Protection Funds. Uniform trading cycle. It is also essential for the promoters to make their subscriptions in advance before the public issue opens and give as certificate to this effect to the concerned Exchange. NSE has also planned for overseas centres for trading purposes. The stock exchanges and in particular the regional stock exchanges are thus given a crucial role in the allotment and listing of new issues. Broker Website Trading etc. SECURITY ANALYSIS AND POR TFOLIO MANAGEMENT Globalisation of Stock Exchanges Demat Form of Trading Majority of Scrips are put in Demat form for trading in the last few months during 1999. The SEBI has mandated that the major Stock Exchanges like NSE. although investors not trading can continue to keep their stock in physical form. Already compulsory Demat form was introduced to most of the “A” group scrips and some leading “B” group scrips. Clause 16 of the listing agreement has also been amended to require companies to fix the date of book closing and record dates either on the 1st or the 16th of any month and to give a notice to the Exchange of at least 42 days in advance. Ahmedabad and Calcutta should be connected to CDSL. The SEBI had announced early in Feb. Nearly 90% of trade is already in Demat form. are some of the examples of the recent Stock Market reforms. Besides no sale should be made at a negotiated price to non-institutional buyers. Nearly 100% of all transactions are executed through electronic media on line trading system. Similarly some companies which exhibited high volatility have been earmarked by the SEBI for trading on Rolling Settlement basis before June end 2000. weekly settlements. 2000 in selected scrips. clearance and settlement system. BOLT system was enlarged and more centres in India got connected for internet trading. setting up of Trade Guarantee Funds for ensuring settlements. quicker Settlements. The company is also required to undertake that the securities delivered for transfer will be transferred and dispatched within a period of two months from the date of receipt under the Law and within one month as per the Listing agreement. The clearing members have to compulsorily open a clearing account with a Depository participant. This allotment will not be permitted until the 90% limit of subscription is achieved. As regards the capital issues. The subscription amount would be kept in a specific bank account and companies will have no access to the funds unless the concerned stock exchange has permitted the allotment. If. CDSL : Central Depository Services Limited The CDSL is promoted by Bombay Stock Exchange. Enforcement of a code of corporate governance. Delhi. Shares of companies which have gone recently for initial public offering but are not yet listed will be traded only in a Demat form. During March to June 2000. effected by SEBI. This trend was facilitated by demat form of holdign shares. the strengthening of the Rolling settlement System which was done during 2000-2001. The guidelines also state that all purchases or sales should be for delivery and they should be made through approved brokers at market prices. Uniform settlemtn cycle of Monday to Friday on all Stock Exchange was also recommended by the SEBI. All pay ion and payout operations are to be settled in a Demat form. quicker weekly settlements and clearing supported by a powerful regulatory system. better surveillance over companies and brokers. The clearing members of these Exchanges should open accounts with CDSL to facilitate settlement of trade in Demat form. Such companies which have recently changed their names to represent their software business and some NBFCs which have been delicensed by the RBI would be on compulsory Demat form and on rolling settlement basis. The company should also ensure that the time gap between the book closures and record dates should be 90 days. the underwriters will have to make the subscriptions up to their limits of underwriting to achieve the minimum level of 90% subscription. these selected companies must have signed an agreement with Central Depository Services Limited and NSDL for compulsory dematerialisation of their stocks for trading in Demat form for all investors and their trading on the stock markets will be compulsorily done on rolling settlement basis. If the refund orders are not passed even on the expiry of 10 days after a period of 120 days. Bulk of the reforms during 1996 to 2000 encompass the electronic trading system. Rolling Settlement System The recent reforms of SEBI with regard to stock market include inter alia. 2000 that Stock Markets would move towards a rolling Settlment System for selected Scrips in ‘B’ group and trading for them in a Demat form. interest at the rate of 15% is payable. the management changes. clearance and settlement through Demat system. under-subscribed in the rights or public issues.621. Internet trading. with nearly 600 scrips in compulsory Demat trading as at end May 2000.

e-mail for transmission of funds. Trade is confirmed via the internet into time and by this method. Internet and one line trading facility is created in selected foreign centres. member. The other facilities include Basket trading.S. Automatic financing or margin buying and a host of other facilities on the Stock Exchanges. The regional stock exchanges and local trading became gradually redundant in the context of global trading. More and more brokers and sub brokers are getting into the internet trading system. The GDRs and ADRs of Indian Companies are well received in foreign markets and are traded freely in foreign stock markets. Slowly foreign companies would be listed on the Indian. rate at which the trade took place. Divisions of Wipro or Tatas. internet based trading etc. portfolio of investors may include a number of new products such derivatives and synthetics.621. Foreign Listing As the country opened upto foreign operations many more India Companies got listed on Foreign Stock Markets of London. SECURITY ANALYSIS AND POR TFOLIO MANAGEMENT Notes 11. Indian Mutual Funds are allowed to invest in Foreign Securities up to a limit. by end 2000. Tracker shares refer to the separate divisional shares of a company such I. company analysis and M.T. improves the liquidity position of brokers and gets funds one day after the pay out day to obviate possible defaults or cash out positions of brokers and sub-brokers. Freer flow of FDI funds into India and liberal borrowing facilities for Indian Companies abroad tended to globalise Indian markets. So far as the process is concerned. on would be able to trade instantly and transparently from any part of the world. badla trading on a daily basis. The web-site on the basis of investor’s portfolio can give the investor information on company results. Indian capital account controls are slowly getting dismantled and liberalised. There will be a number of improvements in the process as well as the products. On the inter-net. There will also be quicker settlements and collections. Nasdaq etc. on the companies in one’s portfolio are presented through the web-site. report cards.I.3 © Copy Right: Rai University 69 . trading in Index Funds. the investor comes to know immediately the trade. Tracker shares and complex derivatives. Internet Trading (e-Trading) The SEBI have allowed e-trading and brokers would rush to the web-sites and trading through web sites would increase. So far as product improvements are concerned. New York. Voting and Non-Voting shares.electronic network would have crosses 1000 mark. The facilitates quicker payments. electronic settlement and clearance. the brokers get their funds directly credited to their accounts and the clients can in-turn get their accounts credited or debited for the net funds to flow across the country. there will be settlements on a daily basis and on a rolling basis. time. company analysis and the performance of the company. institutionalised security lendign. There will be automatic borrowing and lending facilities. Electronic Fund Collection Under this system. Portfolio Tracker for valuation on web-site.