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STOCK EXCHANGE
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STOCK EXCHANGE is an organized market place, either
corporation or mutual organization, where members of the
organization gather to trade company stocks or other securities.
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The Bombay Stock Exchange Limited, (formerly, the Stock
Exchange, Mumbai; popularly called as BSE) is the oldest Stock
Exchange in Asia with a rich heritage. It is located at Dalal Street,
Mumbai, India.
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BSE is one of the factors Indian Economy depends upon. BSE has played
a major role in the development of the country. Through BSE, Foreign
Investors have invested in India. Due to inward flow of foreign currency
the, the Indian economy have started showing the upward trend
towards the development of the country.
In most of major industrial cities all over the world, where the
businesses were evolving and required investment capital to grow and
thrive, stock exchanges acted as the interface between Suppliers and
Consumers of capital. One of the key advantages of the stock
exchanges is that they are efficient medium for raising resources and
channeling savings from the general public by the way of issue of Equity
/ Debt Capital by joint stock companies which are listed on stock
exchanges.
Not to forget that the taxes and other statutory charges paid by BSE are
substantial and make a sizeable contribution to the Government
exchequer (Financial resources; funds). For example, transactions on
the stock exchanges are subject to stamp duties, which is paid to the
State Government. The annual revenue from this source ranges from Rs
75 – 100 crores
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With no doubt we can clearly state without BSE, the Indian Economy
would have been a complete different story. Various companies wouldn’t
have been a strong and successful as they are today and the brokers
and traders would have been elsewhere.
BSE is an asset to our country and its existence plays a vital role in
many people’s life who depends on it. Indeed, BSE has made a major
contribution to the industrial and economic development of India.
FUNCTIONS OF BSE
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The Stock Market is a pivotal institution in the financial system. A
well-ordered stock market performs several economic functions:
Act of Magic:
Most of the investors are interested in short-term investments. The
requirements of companies are, however, long-term in nature—they
require equity capital on a more or less permanent basis and
debenture capital for 3 to 15 years. Thanks to the negotiability and
transferability of securities, through the stock market, it is possible
for companies to obtain their long-term requirements from
investors with short-term horizons. While one investor is
substituted by another when a security is transacted, the company
is assured of availability of funds.
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whereas companies which do not have such opportunities are
normally not able to do so. As a result, the stock market facilitates
the direction of the flow of capital in the most profitable channels.
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Public Limited Company.
• Public Listed Company
• Public Non-listed Company
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public. This can be done by issuing of Prospectus & Complying
with all The Provinces of Company Act 1956.
Each stock exchange has its own criteria for listing securities
which should also be met.
Eg: If company intends to get listed its securities in Bombay
Stock Exchange, Mumbai post issue capital (paid up capital after
proposed public issue) of such companies should be Rs. 10
Crores atleast.
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Demat Account is a compulsory Account for traders who want to
trade in stock market. This account is mainly used for buying and
selling of shares.
Trading:
Each Stock Exchange has listed and permitted securities that are
traded on it. There are two ways of organizing the trading activity.
Under the open outcry system traders shout and resort to signals
on the trading floor of the exchange which consists of several
‘notional’ trading posts for different securities. A member (or his
representative) wishing to buy or sell a certain security, reaches the
trading post where the security is traded. Here, he comes in contact
with others interested in transacting in that security. Buyers make
their bid and sellers make their offers and bargains are closed at
mutually agreed-upon prices. In stock where jobbing is done, the
jobber plays an important role. He stands ready to buy or sell on
his account. He quotes his bid (buying) and ask (selling) prices. He
provides some stability and continuity to the market.
Settlement:
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The settlement of transactions is done on a settlement period basis.
Earlier, the settlement period on the Indian Stock Exchanges was 7
days, but now it is T+1 settlement. T+1 includes the day of trade
and an additional day. During a settlement period, buying and
selling transactions in a particular security can be squared up.
Square off is a same day settlement cycle. At the end of settlement
period, transactions are settled on net basis. Since the settlement
period used to be 7 days and the settlement is for the net position,
most of the transactions are squared within the settlement period.
Clearly these transactions are motivated by a desire to profit from
price variations within the settlement period.
To mitigate the cost and the risks associated with the physical
delivery, settlement in the developed securities market is mainly
through electronic delivery facilitated by depositories. A ‘depository’
is an institution which immobilizes physical certificates (of
securities) and effect transfers of ownership by electronic book
entry. A beginning in the direction of electronic delivery has been
made in India with the establishment of the National Securities
Depository Limited (NSDL), India’s first depository, in 1996. As
NSDL expands its operations and as new depositories come into
being, settlement will progressively be done more by electronic
delivery and less by physical delivery.
INVESTMENT
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Investment means the use of money for the purpose of making
more money, to gain income or increase capital, or both.
It is more risky
A successful short term trading mindset instead requires iron
discipline, intense focus and steely devotion.
Short term trading can be divided in 3 sections
• Day Trading
• Swing Trading
• Position Trading
Day Trading
Day traders buy and sell stocks throughout the day in the hope that
the price of the stocks will fluctuate in value during the day,
allowing them to earn quick profits. A day trader will hold a stock
anywhere from a few seconds to few hours, but will always sell all
of those stocks close of the day. The day trader will therefore not
own any position at the close of the each day, and there is
overnight risk. The objective of day trading is to quickly get in and
out of any particular stock for profits anywhere from few cents to
several points per share on an intra-day basis. Day trading can be
further sub-divided into number of styles, including.
Scalpers: This style of day trading involves the rapid and repeated
buying and selling of a large volume of stocks within seconds or
minutes. The objective is to earn a small per share profit on each
transaction while minimizing the risk.
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Momentum Traders: This style of day trading involves identifying and
trading stocks that are in a moving pattern during the day, in an
attempt to buy stocks at bottoms and sell at tops.
Swing Trading
The principal difference between day trading and swing trading is that
swing traders will normally have a slightly longer time horizon than day
traders for holding a position in a stock. As is the case with day traders,
swing traders also attempt to predict the short term fluctuation in a
stock’s price. However swing traders are willing to hold the stocks for
more than one day, if necessary, to give to stock price some time to
move or to capture additional momentum in the stock’s price. Swing
traders will generally hold on to their stock positions anywhere from a
few hours to several days.
Swing trading has the capability of providing higher returns than day
trading. However, unlike day traders who liquidate their positions at the
end of each day, swing traders assume overnight risk. There are some
significant risks in carrying positions overnight. For example news
events and earnings warnings announced after the closing bell can
result in large, unexpected and possibly adverse changes to a stock's
price
Position Trading
A successful long term trading mindset requires, above all, patience and
perseverance. These are more difficult attributes to develop in the
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average trader. Too often the average short-term trader succumbs to
the markets lure and develops a frantic, get-it-now mindset believing
every price blip represents a trading opportunity. As this attitude is
fanned by the media and brokerage industry, more and more long term
traders have become aggressive swing traders and swing traders
become rabid day traders - more often than not with disastrous
consequences.
Long term trading results in less trades with fewer mistakes and lower
commission and slippage costs because overtrading is one of the biggest
sources of losses facing both new and established traders. Why is this
so? Obviously, more trades mean more commissions and more slippage.
Few short-term traders realize, however, that their total commission
and slippage costs in any year often exceed their total losses for the
year. In other words, many losing short-term traders would have
actually made money on an annual basis had they not incurred the
exorbitant commission and slippage costs of trading throughout the
year. Fewer trades mean fewer mistakes.
Long term trading unlike short term requires dramatically reduced time
for analysis and trading. If you are trading using weekly data, only one
to two hours each weekend are required to implement a sophisticated
long term trading system for 21 or more commodities. This includes the
time to completely download your quotes and update your data files,
verify which are the correct months to trade for each commodity, figure
out if you have any positions to rollover, generate your trading signals,
and write down orders to your broker. On the contrary a typical
successful day trader literally becomes a slave to their quote machines
during market hours.
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(a) THE KETAN PAREKH SCAM
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Foreign investment refers to investments made by residents of a
country in another country’s financial assets and production
processes. After the opening up of the borders for capital
movement, foreign investments in India have grown enormously. It
affects the productivity factor of the beneficiary or the receiver
country and has the potential to create a ripple effect on the
balance of payments of that country. In developing countries like
India, foreign capital helps in increasing the productivity of labor
and to build up foreign exchange reserves to meet the current
account deficit. It provides a channel through which these countries
can have access to foreign capital.
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The Ashok Lahiri Committee Report on encouraging FII Flows (Ministry
of Finance, the Government of India) mentions some reasons for the
need of FII flows. FII flows supplement and augment domestic savings
and domestic investment without increasing the foreign debt of our
country. Capital inflows to the equity market increase stock prices lower
the cost of equity capital and encourage investment by Indian firms.
The Indian stock markets are both shallow and narrow and the
movement of stocks depends on limited number of stocks. As FIIs
purchases and sells these stocks there is a high degree of volatility in
the stock markets. If any set of development encourages outflow of
capital that will increase the vulnerability of the situation. The high
degree of volatility can be attributed to the following reasons:
The change in the name of Asia's oldest stock exchange, from the Stock
Exchange, Mumbai to the Bombay Stock Exchange Ltd., (BSE Ltd.) is of
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more than cosmetic significance. Along with the change in name comes
a new perspective, one brought about by a comprehensive change in its
ownership and management. Until now, the BSE like most other
exchanges in India was owned and managed by brokers, who also had
the sole right to trade in the exchanges. Conflicts of interest were bound
to arise in such situations. Until the advent of the National Stock
Exchange in 1994, the BSE was India's pre-eminent exchange,
accounting for an overwhelmingly large proportion of the share market
transactions of the country. Companies wherever located were advised
to seek a listing of their shares on the BSE so that they could have
access to its large reservoir of capital and investor base. Legally
speaking, it was enough if they listed their shares on any one of the
regional stock exchanges, closest to their registered office. This last
rule, like so many others connected with the securities market, had to
be discarded in the wake of the sweeping changes in the financial
markets since the 1990s. Perceptions of both investors and regulators
changed dramatically forcing the stock exchanges to overhaul
themselves.
CONCLUSION
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The stock markets of the future will have a redefined pupose and
reinvented architecture due to the advent and widespread use of
technology. Information and stock price quotations are available
almost instantaneously, and, more importantly, investors can act on
this data by executing a trade from anywhere at anytime. This new
market will bring benefits to investors, the listed companies, and
the economies of the company. Trading will become cheaper, faster
and settlement will be simpler wit reduced risk. Raising capital for
companies will become easier, thereby contributing directly to the
Economic Growth.
BIBLIOGRAPHY
The information provided in this project have been taken from the
following sources:
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WEBSITES
• www.indiainfoline.com
• www.countercurrents.org
• www.icfai.org
• www.bseindia.com
• www.moneycontrol.com
• www.indlaw.com
• www.sebi.gov.in
• www.bombayfirst.org
BOOKS
• Fundamentals Of Financial Management
–PRASANNA CHANDRA
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