CHAPTER-1 INTRODUCTION

A mechanism that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and services. Modern traders instead, generally negotiate through a medium of exchange, such as money. As a result, buying can be separated from selling, or earning. The invention of money (and later credit, paper money and non-physical money) greatly simplified and promoted trade. Trade between two traders is called bilateral trade, while trade between more than two traders is called multilateral trade. Trade exists for many reasons. Due to specialization and division of labor, most people concentrate on a small aspect of production, trading for other products. Trade exists between regions because different regions have a comparative advantage in the production of some tradable commodity, or because different regions' size allows for the benefits of mass production. As such, trade at market prices between locations benefits both locations. Trading can also refer to the action performed by traders and other market agents in the financial markets. The only stock exchange operating in the 19th century were those of Bombay set up in 1875 and Ahmedabad set up in 1894 these were organized as voluntary non-profit making organization of brokers to regulate and protect interest. Before the control insecurities trading became a central subject under the constitution in 1950, it was a state subject and the Bombay securities contract (CONTROL) Act of 1952 used to regulate trade in securities. Under this act, the Bombay stock exchange in 1927 and Ahmedabad in 1937.During the war boom, a number of stock exchanges were organized in Bombay, Ahmedabad and other centers, but they were not recognized. Soon after it became a central subject, central legislation was proposed and a committee headed by A.D. Gorwala went in to the bill for securities regulation. On the basis of committees recommendations and public discussions the securities contracts (regulations) Act became law in 1956.

SCOPE OF THE PROJECT

Investor can assess the company financial strength and factors that effect the company. Scope of the study is limited. We can say that 70% of the analysis is proved good for the investor, but the 30% depends upon market sentiment. The topic is selected to analyses the factors that affect the future EPS of a company based on fundamentals of the company. The market standing of the company studied in the order to give a better scope to the Analysis is helpful to the investors, share holders, creditors for the rating of the company.

OBJECTIVES OF THE PROJECT

To study the nature and structure of capital market.
To know the functioning of co.. To perform the equity analysis.

To provide the way of approach for the investor to invest wisely in the market.
The purpose of doing this project is mainly to the facts - that affects the company

performance. To assess the future EPS of the company.

METHODOLOGY
PRIMARY SOURCE Gathered information by co. journal (Associate Vice President), INDIa info. SECONDARY SOURCE:
I referred EQUITY related articles from various magazines, newspapers and journals.

Material provided by co.

Browsing the concerned sites.

The collected data was analyzed by using graphs relative rating methods.

We did a sample survey for to find how many people aware of equity and how many people invested in equity market.

LIMITATIONS OF THE PROJECT

Time constraint was a major limiting factor.
Forty five days were insufficient to even grasp the theoretical concepts.

Several other strategies that could have been studied were not done. Lack of knowledge with the brokers. Difference of theory from practice. Absence of required knowledge and technology.

C A T R H P E -2

R V WO L E A U E E IE F IT R T R

F A C LM R E S IN N IA A KT

DEFINITION:
THE TERM FINANCIAL MARKETS CAN BE A CAUSE OF MUCH CONFUSION. FINANCIAL

MARKETS COULD MEAN:

1. Organizations that facilitate the trade in financial products. i.e. Stock exchanges facilitate the trade in stocks, bonds and warrants. 2. The coming together of buyers and sellers to trade financial products. i.e. stocks and shares are traded between buyers and sellers in a number of ways including: The use of stock exchanges; directly between buyers and sellers etc. In academia, students of finance will use both meanings but students of economics will only use the second meaning. Financial markets can be domestic or they can be international.

TYPES OF FINANCIAL MARKETS

The financial markets can be divided into different subtypes: Capital markets which consist of:
Stock markets, which provide financing through the issuance of shares or common

stock, and enable the subsequent trading thereof. Bond markets, which provide financing through the issuance of Bonds, and enable the subsequent trading thereof.

 Commodity markets, which facilitate the trading of commodities. Money markets,

which provide short term debt financing and investment.

Derivatives markets, which provide instruments for the management of financial risk.

Futures markets, which provide standardized forward contracts for trading products at some future date; see also forward market.
Insurance markets, which facilitate the redistribution of various risks. Foreign exchange markets, which facilitate the trading of foreign exchange

Capital market
The capital market is the market for securities, where companies and the government can raise long-term funds. The capital market includes the stock market and the bond market. Financial regulators, such as the U.S. Securities and Exchange Commission, oversee the capital markets in their designated countries to ensure that investors are protected against fraud. The capital markets consist of the primary market, where new issues are distributed to investors, and the secondary market, where existing securities are traded. The capital markets consist of primary markets and secondary markets. Newly formed (issued) securities are bought or sold in primary markets. Secondary markets allow investors to sell securities that they hold or buy existing securities.

SHARE

What is share?
In finance a share is a unit of account for various financial instruments including stocks, mutual funds, limited partnerships, and REITs. In British English, the usage of the word share alone to refer solely to stocks is so common that it almost replaces the word stock itself .In simple Words, a share or stock is a document issued by a company, which entitles its holder to be one of the owners of the company. A share is issued by a company or can be purchased from the stock market. By owning a share you can earn a portion and selling shares you get capital gain. So, your return is the dividend plus the capital gain. However, you also run a risk of making a capital loss if you have sold the share at a price below your buying price.
A company's stock price reflects what investors think about the stock, not necessarily what the company is "worth." For example, companies that are growing quickly often trade at a higher price than the company might currently be "worth." Stock prices are also affected by all forms of company and market news. Publicly traded companies are required to report quarterly on their financial status and earnings. Market forces and general investor opinions can also affect share price.

Types of Shares:
1. Equity Shares: An equity share, commonly referred to as ordinary share, represents the
form of fractional ownership in a business venture.

What is an Equity/Share?
Total equity capital of a company is divided into equal units of Small denominations, each called a share. For example, in a company the total equity capital of Rs 2,00,00,000 is divided into 20,00,000 units of Rs 10 each. Each such unit of Rs 10 is called a Share. Thus, the company then is said to have 20,00,000 equity shares of Rs 10 each. The holders of such shares are members of the company and have voting rights.

2. Rights Issue/ Rights Shares:

The issue of new securities to existing shareholders at a ratio to those already held, at a price. For e.g. a 2:3 rights issue at Rs. 125, would entitle a shareholder to receive 2 shares for every 3 shares held at a price of Rs. 125 per share.

3. Bonus Shares:
Shares issued by the companies to their shareholders free of cost based on the number of shares the shareholder owns.

4.Preference shares:
Owners of these kind of shares are entitled to a fixed dividend or dividend calculated at a fixed rate to be paid regularly before dividend can be paid in respect of equity share. They also enjoy priority over the equity shareholders in payment of surplus. But in the event of liquidation, their claims rank below the claims of the companys creditors, bondholders/debenture holders. Shares of a firm that encompass preferential rights over ordinary common shares, such as the first right to dividends and any capital payments.

5.Cummulative Preference Shares:

A type of preference shares on which dividend accumulates if remained unpaid. All arrears of preference dividend have to be paid out before paying dividend on equity shares.

6.Cummulative Convertible Preference Shares:

A type of preference shares where the dividend payable on the same accumulates, if not paid. After a specified date, these shares will be converted into equity capital of the company.

7. Bond:
Bond is a negotiable certificate evidencing indebtedness. It is normally unsecured. A debt security is generally issued by a company, municipality or government agency. A bond investor lends money to the issuer and in exchange, the issuer promises to repay the loan
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amount on a specified maturity date. The issuer usually pays the bond holder periodic interest payments over the life of the loan. The various types of Bonds are as Follows:
Zero Coupon Bond:

Bond issued at a discount and repaid at a face value. No periodic interest is paid. The difference between the issue price and redemption price represents the return to the holder. The buyer of these bonds receives only one payment, at the maturity of the bond.
Convertible Bond:

A bond giving the investor the option to convert the bond in to equity at a fixed conversion price.

Treasury Bills:
Short-term (up to one year) bearer discount security issued by government as a means of financing their cash requirements.

Dividends
If you've ever owned stocks or held certain other types of investments, you might already be familiar with the concept of dividends. Even those people who have made investments that paid dividends may still be a little confused as to exactly what dividends are, however after all, just because a person has received a dividend payment doesn't mean that they fully appreciate where the payment is coming from and what its purpose is. If you have ever found yourself wondering exactly what dividends are and why they're issued, then the information below might just be what you've been looking for.

Defining the Dividend

Dividends are payments made by companies to their stock holders in order to share a portion of the profits from a particular quarter or year. The amount that any particular stockholder receives is dependent upon how many shares of stock they own and how much the total amount being divided up among the stockholders amounts to. This means that after a particularly profitable quarter a company might set aside a lump sum to be divided up amongst all of their stockholders, though each individual share might be worth only a very small amount potentially fractions of a cent, depending upon the total number of shares issued and the total amount being divided. Individuals who own large amounts of stock receive much more from the dividends than those who own only a little, but the total per-share amount is usually the same.

When Dividends Are Paid

How often dividends are paid can vary from one company to the next, but in general they are paid whenever the company reports a profit. Since most companies are required to report their profits or losses quarterly, this means that most of them have the potential to pay dividends up to four times each year. Some companies pay dividends more often than this, however, and others may pay only once per year. The more time there is between dividend payments can indicate financial and profit problems within a company, but if the company simply chooses to pay all of their dividends at once it may also lead to higher per-share payments on those dividends.

DEBT INSTRUMENT
What is a Debt Instrument?

Debt instrument represents a contract whereby one party lends money to another on predetermined terms with regards to rate and periodicity of interest, repayment of principal amount by the borrower to the lender. In the Indian securities markets, the term bond is used for debt instruments issued by the Central and State governments and public sector organizations and the term debenture is used for instruments issued by private corporate

What are the features of debt instruments?

Each debt instrument has three features: Maturity, coupon and principal.

Maturity:
Maturity of a bond refers to the date, on which the Bond matures, which is the date on which the borrower has agreed to repay the principal. Term-to-Maturity refers to the number of years remaining for the bond to mature. The Term-to-Maturity changes everyday, from date of issue of the bond until its maturity. The term to maturity of a bond can be calculated on any date, as the distance between such a date and the date of maturity. It is also called the term or the tenure of the bond.

Coupon:
Coupon refers to the periodic interest payments that are made by the borrower (who is also the issuer of the bond) to the lender (the subscriber of the bond). Coupon rate is the rate at which interest is paid, and is usually represented as a percentage of the par value of a bond.

Principal:
Principal is the amount that has been borrowed, and is also called the par value or face value of the bond. The coupon is the product of the principal and the coupon rate. The name of the bond itself conveys the key features of a bond. For example, GS CG2008 11.40% bond refers to a Central Government bond maturing in the year 2008 and paying a coupon of 11.40%. Since Central Government bonds have a face value of Rs.100 and normally pay coupon semiannually, this bond will pay Rs. 5.70 as six- monthly coupon, until maturity.

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What is meant by Interest payable by a debenture or a bond?

Interest is the amount paid by the borrower (the company) to the lender (the debenture-holder) for borrowing the amount for a specific period of time. The interest may be paid annual, semiannually, quarterly or monthly and is paid usually on the face value (the value printed on the bond certificate) of the bond.

What are the Segments in the Debt Market in India?

There are three main segments in the debt markets in India, viz., (1) Government Securities, (2) Public Sector Units (PSU) bonds, and (3) Corporate securities. The market for Government Securities comprises the Centre, State and State-sponsored securities. In the recent past, local bodies such as municipalities have also begun to tap the debt markets for funds. Some of the PSU bonds are tax free, while most bonds including government securities are not tax-free. Corporate bond markets comprise of commercial paper and bonds. These bonds typically are structured to suit the requirements of investors and the issuing corporate, and include a variety of tailor- made features with respect to interest payments and redemption.

Who are the Participants in the Debt Market?

Given the large size of the trades, Debt market is predominantly a wholesale market, with dominant institutional investor participation. The investors in the debt markets are mainly banks, financial institutions, mutual funds, provident funds, insurance companies and corporates.

How can one acquire securities in the debt market?

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You may subscribe to issues made by the government corporates in the primary market. Alternatively ,you may purchase the same from the secondary market through the stock exchanges.

DERIVATIVE
What is a Derivative?
Derivative is a product whose value is derived from the value of one or more basic variables, called underlying. The underlying asset can be equity, index, foreign exchange (forex), commodity or any other asset. Derivative products initially emerged as hedging devices against fluctuations in commodity prices and commodity-linked derivatives remained the sole form such products for almost three hundred years. The financial derivatives came into spotlight in post-1970 period due to growing instability in the financial markets. However, since their emergence, these products have become very popular and by 1990s, they accounted for about two thirds of total transactions in derivative products.

What are Types of Derivatives?

Forwards:

A forward contract is a customized contract between two entities, where settlement takes place on a specific date in the future at todays pre-agreed price.
Futures:

A futures contract is an agreement between two parties to buy Or sell an asset at a certain time in the future at a certain price.
Options:

An Option is a contract which gives the right, but not an obligation, to buy or sell the underlying at a stated date and at a stated price.

Options are of two types - Calls and Puts options:

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 Calls give the buyer the right but not the obligation to buy a given quantity of the underlying

asset, at a given price on or before a given future date. Puts give the buyer the right, but not the obligation to sell a Given quantity of underlying asset at a given price on or before a given future date. Presently, at NSE futures and options are traded on the Nifty, CNX IT, BANK Nifty and 116 single stocks.

Warrants:
Options generally have lives of up to one year. The majority of options traded on exchanges have maximum maturity of nine months. Longer dated options are called Warrants and are generally traded over-the counter.

What is an Option Premium?

At the time of buying an option contract, the buyer has to pay premium. The premium is the price for acquiring the right to buy or sell. It is price paid by the option buyer to the option seller for acquiring the right to buy or sell. Option premiums are always paid upfront.

What is Commodity Exchange?

A Commodity Exchange is an association, or a company of any other body corporate organizing futures trading in commodities. In a wider sense, it is taken to include any organized market place where trade is routed through one mechanism, allowing effective competition among buyers and among sellers this would include auction-type exchanges, but not wholesale markets, where trade islocalized, but effectively takes place through many nonrelated individual transactions between different permutations of buyers and sellers.

What is meant by Commodity?

FCRA Forward Contracts (Regulation) Act, 1952 defines goods as every kind of movable property other than actionable claims, money and securities. Futures trading is organized in such goods or commodities as are permitted by the Central Government. At present, all goods

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and products of agricultural (including plantation), mineral and fossil origin are allowed for futures trading under the auspices of the commodity exchanges recognized under the FCRA.

What is Commodity derivatives market?

Commodity derivatives market trade contracts for which the Underlying asset is commodity. It can be an agricultural commodity like wheat, soybeans, rapeseed, cotton, etc or precious metals like gold, silver, etc.

What is the difference between Commodity and Financial derivatives?

The basic concept of a derivative contract remains the same whether the underlying happens to be a commodity or a financial asset. However there are some features which are very peculiar to commodity derivative markets. In the case of financial derivatives, most of these contracts are cash settled. Even in the case of physical settlement, financial assets are not bulky and do not need special facility for storage. Due to the bulky nature of the underlying assets, physical settlement in commodity derivatives creates the need for warehousing. Similarly, the concept of varying quality of asset does not really exist as far as financial under lying are concerned. However in the case of commodities, the quality of the asset underlying a contract can vary at times.

What is a Mutual Fund?

A Mutual Fund is a body corporate registered with SEBI (Securities Exchange Board of India) that pools money from individuals/corporate investors and invests the same in a variety of different financial instruments or securities such as equity shares, Government securities, Bonds, debentures etc. Mutual funds can thus be considered as financial intermediaries in the investment business that collect funds from the public and invest on behalf of the investors. Mutual funds issue units to the investors. The appreciation of the portfolio or securities in which the mutual fund has invested the money leads to an appreciation in the value of the units held by investors. The investment objectives outlined by a Mutual Fund in its prospectus are

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binding on the Mutual Fund scheme. The investment objectives specify the class of securities a Mutual Fund can invest in. Mutual Funds invest in various asset classes like equity, bonds, debentures, commercial paper and government securities.

SECURITIES
What is meant by Securities?
The definition of Securities as per the Securities Contracts Regulation Act (SCRA), 1956, includes instruments such as shares, bonds, scrips, stocks or other marketable securities of similar nature in or of any incorporate company or body corporate, government securities, derivatives of securities, units of collective investment scheme, interest and rights in securities, security receipt or any other instruments so declared by the Central Government.

INDEX
What is an Index?
An Index shows how a specified portfolio of share prices are moving in order to give an indication of market trends. It is a basket of securities and the average price movement of the basket of securities indicates the index movement, whether upwards or downwards. An index is a number used to represent the changes in a set of values between a base time period and another time period. A stock index is a number that helps measure the levels of the market. Return on the index are expected to represent return that an investor can get if he has the portfolio representing the entire market .various indices are computed for use by the investors. Market indices have always been of great important in the world of security analysis and portfolio management. People from all walks of life are affected by market indexes. Economists, technicians and statisticians use stock marker indexes to study long term growth patterns on the economy, to forecast business cycle patterns Investors use the market index as a bench mark against which to evaluate the performance of the it own or institutional portfolios.

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Technical analysts, base their decision to buy and sell on tha pattern that appears in tha time series of the market indexes. Market indexes are also used as economics indicators. The various indexes that are complied in the Indian markets are:

A) BSE Sensitive Index :

The Bombay stock exchange had started its own price index since 1986. Called the BSE Sensitive Index. It consists of 30 scrips which actively traded. Many of which are in Group A (specified shares) and a few in Group B (non-specified). It represents all the major industries quoted on the exchange and has a base-year 1978-79.

B) BSE National index:

The BSE National Index was started by the Bombay Stock Exchange in 1988-89 with the base year 1983-84. This series consists of 100 scrips belonging to NSE sensitive series. These 100 scrips are chosen from all industrial group which represent the listing on all major exchanges The method of complication is similar to that of BSE sensitive Index.

C) BSE200 ARE Dollex:

Two other indexes are complied by BSE since 1993. With base year 1989-90. Both include activity traded scrips. BSE 200 is in rupee terms while the Dollex is in dollar terms.

D) S & P CNX Nifty:

It is a well diversified 50 stock index accounting for 25 sectors of the economy. It has 1995 as the base year. Unlike other indices, the base value is fixed at 1000.

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E) RBI Index:
The RBI complied security indices form 1949 onwards. These were classified under the following heads: 1 Govt. and semi-Govt. securities 2 Debentures of companies. 3 Equity shares of companies

DEMAT ACCOUNT
What's a demat account?
Demat refers to a dematerialized account. Just as you have to open an account with a bank if you want to save your money, make cheque payments etc, you need to open a demat account if you want to buy or sell stocks. So it is just like a bank account where actual money is replaced by shares. You have to approach the DPs (remember, they are like bank branches), to open your demat account. Let's say your portfolio of shares looks like this: 40 of Infosys, 25 of Wipro, 45 of HLL and 100 of ACC. All these will show in your demat account. So you don't have to possess any physical certificates showing that you own these shares. They are all held electronically in your account. As you buy and sell the shares, they are adjusted in your account.

What is Dematerialization?

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Dematerialization is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited to the investors account with his Depository Participant (DP).

DEPOSITORY
What is a Depository?
A depository is like a bank wherein the deposits are securities (viz. shares, debentures, bonds, government securities, units etc.) in electronic form. A depository is an organization where the securities of a shareholder are held in the electronic from though the medium of a depository participant The function of a depository are similar to that of a bank. If an investor desires to utilize the services of a depository the investor has to open an account with the depository through a depository participant. A Depository participant is the reprehensive (agent) in the depository system. The D.P will maintain the securities account balances and intimate to the Holder about their holdings form time to time. SEBI has permitted banks, financial institutions, custodies, stock brokers, etc, to become participants in the depository. The main objective of a depository is to minimize the paper works involved with the ownership, trading and transfer of securities. If an investor intends to get back his securities in the physical form he can do so by requesting the Depository participant. This is known as Dematerialization.

What's the difference between a depository and a depository participant?

A depository is a place where the stocks of investors are held in electronic form. The depository has agents who are called depository participants (DPs). Think of it like a bank. The head office where all the technology rests and details of all accounts held is like the depository. And the DPs are the branches that cater to individuals. There are only two depositories in India -- the National Securities Depository Ltd (NSDL) and the Central Depository Services Ltd (CDSL). There are over a 100 DPs.

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Is a demat account a must?

Nowadays, practically all trades have to be settled in dematerialized form. Although the market regulator, the Securities and Exchange Board of India (SEBI), has allowed trades of up to 500 shares to be settled in physical form, nobody wants physical shares any more. So a demat account is a must for trading and investing. Most banks are also DP participants, as are many brokers. You can choose your very own DP. To get a list, visit the NSDL and CDSL websites and see who the registered DPs are. A broker is separate from a DP. A broker is a member of the stock exchange, who buys and sells shares on his behalf and on behalf of his clients.

Where do I begin?

Look for a DP to have an account with Most banks are also DP participants, as are many brokers. You can choose your very own DP.

To get a list, visit the NSDL and CDSL websites and see who the registered DPs are. A broker is separate from a DP. A broker is a member of the stock exchange, who buys and sells shares on his behalf and on behalf of his clients. A DP will just give you an account to hold those shares. You do not have to take the same DP that your broker takes. You can choose your own. But many brokers offer special incentives in the form of lower charges for opening demat accounts with their DPs.

Get your documents in place

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Once you approach your DP, you will be guided through the formalities of opening an account. You must fill up an account opening form and sign an agreement with your DP. The DP will ask for some documents as proof of your identity and address. Check with them what they require. For instance, some may accept a driver's license, others may not. Here is a broad list (you won't need all of them though) ?PAN card ?Voter's ID ?Passport ?Ration card ?Driver's license ?Photo credit card ?Employee ID card ?Bank attestation ?IT returns ?Electricity/ Landline phone bill While they only ask for photocopies of the documents, they will need the originals for verification. You will have to submit a passport size photograph on which you sign across.

How many shares you need to have to open an account When opening an account with a bank, you need a minimum balance.

Not so with a demat account. A demat account can be opened with no balance of shares. And there is no minimum balance to be maintained either. You can have a zero balance in your account.

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What will it cost? The charges for account opening, annual account maintenance fees and transaction charges vary between DPs. To get a comparative idea, visit the websites of NSDL and CDSL.

Can I nominate? Sure. You can nominate whoever you like by filling up the

nomination details in the account opening form. This is to enable the nominee to receive the securities after the death of the holder of the demat account.

STOCK MARKET
A stock market is a private or public market for the trading of company stock and derivatives of company stock at an agreed price; both of these are securities listed on a stock exchange as well as those only traded privately. Stock market is also referred to as the Corporate Debt or Capital Market. While the money market, which deals with short-term financial needs of business and industry, is restricted to funds needed for a period of one year or less, instruments of the debt/capital markets are raised for medium or long term needs. Indian Stock Market consists of three distinct segments: 1. The Public Debt Market i.e. the market for Government securities, (also called Giltedged Market). These are interest bearing and dated securities. This market is regulated by RBI, the Central Bank and Banker to the Government. 2. PSU Bonds Market i.e. Bonds floated by public Sector units, Nationalized banks and financial Institutions for raising Tier-II capital and also debentures floated by Corporates. This is represented as the Corporate Debt Market. 3. The Equity Market for raising of equity or preference share capital by all corporates. Money invested in company shares is not refundable, but if the shares are listed in a stock exchange these can be sold or purchased, thus providing liquidity to such investments. Shares do not carry interest, but shareholders can participate in sharing the
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profits of the corporate body declared by way of Dividends, bonus shares etc. While the hope of receiving attractive dividends motivates the public to subscribe to the share capital, declaring dividend is not a legal obligation on the part of the Companies, and hence not a right on the part of the shareholders. But shareholders enjoy various other rights as conferred by the Indian Companies Act, 1956. Indian Public companies generally follow the objective of increasing shareholders wealth as the prime goal of financial management At this context it is relevant to mention about two categories of stock market, i.e.

Primary Market covering new public issues of all categories of securities, including Gsec, bonds and equity/preference capital. Secondary market, which deals with already issued securities of all types. Transactions of the secondary market are carried out through one of the authorized stocks exchanges, where the traded security is listed.

The expression 'stock market' refers to the system that enables the trading of company stocks (collective shares), other securities, and derivatives. Bonds are still traditionally traded in an informal, over-the-counter market known as the bond market. Commodities are traded in commodities markets, and derivatives are traded in a variety of markets

Trading
Participants in the stock market range from small individual stock investors to large hedge fund traders, who can be based anywhere. Their orders usually end up with a professional at a stock exchange, who executes the order.Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as open outcry. This type of auction is used in stock exchanges and commodity exchanges where traders may enter "verbal" bids However, buyers and sellers are electronically matched. One or more NASDAQ market makers will always provide a bid and ask price at which they will always purchase or sell 'their' stock. The Paris Bourse, now part of Euronext, is an order-driven, electronic stock
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exchange. It was automated in the late 1980s. Prior to the 1980s, it consisted of an open outcry exchange. Stockbrokers met on the trading floor or the Palais Brongniart. In 1986, the CATS trading system was introduced, and the order matching process was fully automated.From time to time, active trading (especially in large blocks of securities) have moved away from the 'active' exchanges. Securities firms, led by UBS AG, Goldman Sachs Group Inc. and Credit Suisse Group, already steer 12 percent of U.S. security trades away from the exchanges to their internal systems. That share probably will increase to 18 percent by 2010 as more investment banks bypass the NYSE and NASDAQ and pair buyers and sellers of securities themselves, according to data compiled by Boston-based Aite Group LLC, a brokerage-industry consultant

Market participants
Many years ago, worldwide, buyers and sellers were individual investors, such as wealthy businessmen, with long family histories (and emotional ties) to particular corporations. Over time, markets have become more "institutionalized"; buyers and sellers are largely institutions (e.g., pension funds, insurance companies, mutual funds, hedge funds, investor groups, and banks). The rise of the institutional investor has brought with it some improvements in market operations. Thus, the government was responsible for "fixed" (and exorbitant) fees being markedly reduced for the 'small' investor.

Capital Market in India

This is the market consisting of large number of individual investors, household savers, professionals, and agriculturists, who are able to a preserve, a part of their current earnings to invest in securities. They form the class of capital providers. On the other side the corporate bodies engaged in Industry, trade and other business ventures are the productive users of very large amount of capital. It is the capital market that transforms the savings of large number of individuals to productive channel to meet the demands of capital for Industry, trade and business. The financial/security market intermediaries serve as the link between capital providers and capital seekers.

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The individual savers are not organised. They can invest if they could secure the trust and confidence that the funds invested would be prudently employed and they could confidently expect to get a fair return/reward on their hard-earned savings. This is the function of organised capital market to regulate market forces to ensure fair dealings, to motivate savings on the part of the investors and to secure smooth flow of savings/capital from investors to capital seekers for productive needs. This supervisory and regulatory function is performed by SEBI, the market regulator and market developer The capital market consists of the following components:

The scattered investors, who are regular savers and the purveyors of capital needed by business and industry. Inter-se they are not organised. The Corporate and Business houses who are the users or seekers of this capital, who are mutually better organised. The Financial Intermediaries who link the investors and the capital seekers/users, who are professionals. SEBI, the market developer and market regulator (the apex organization).

The Corporate Sector draws its capital requirements from the following sources:

Promoters Contribution; Equity Capital raised from the shareholders (generally referred to as equity capital); Preference share capital raised from the shareholders Bonds/Debentures raised from the Public (generally referred to as Debt Capital); Term Loans from Banks & Financial Institutions; Short-term Working Capital from Banks; Unsecured Loans & Deposits; and Internal generation of Funds (Profits/surpluses reproached and held as Reserves).

Stock market is also referred to as the Corporate Debt or Capital Market. While the money market, which deals with short-term financial needs of business and industry is restricted to
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funds needed for a period of one year or less, instruments of the debt/capital markets are raised for medium or long term needs. Indian Stock Market consists of three distinct segments:

The Public Debt Market i.e. the market for Government securities (also called Giltedged Market). These are interest bearing and dated securities. This market is regulated by RBI, the Central Bank of the country and banker to the Government.

PSU Bonds Market i.e. Bonds floated by public Sector units, nationalized banks and financial Institutions for raising Tier-II capital and also debentures floated by corporates. This is represented as the Corporate Debt Market.

The Equity Market for raising of equity or preference share capital by all corporates. Money invested in company shares is not refundable, but if the shares are listed in a stock exchange these can be sold or purchased, thus providing liquidity to such investments. Shares do not carry interest, but shareholders can participate in sharing the profits of the corporate body declared by way of dividends, bonus shares etc. While the hope of receiving attractive dividends motivates the public to subscribe to the share capital, declaring dividend is not a legal obligation on the part of the companies, and hence not a right on the part of the shareholders. But shareholders enjoy various other rights as conferred by the Indian Companies Act, 1956. Indian Public companies generally follow the objective of increasing shareholders wealth as the prime goal of financial management.

At this context it is relevant to mention about two categories of stock market, i.e.

Primary market covering new public issues of all categories of securities, including Gsec, bonds and equity/preference capital. Secondary market, which deals with already issued securities of all types. Transactions of the secondary market are carried out through one of the authorized stock exchanges, where the traded security is listed.

Functions of the Capital Market

25

The organised and regulated capital market motivates individual to save and invest funds. The availability of safe and profitable sources of investment is an essential criterion to create propensity to save and invest on the part of the earning public;

It provides for the investors a safe and productive channel for investment of savings and secures the recurring benefit of return thereon, as long as the savings are retained; t provides liquidity to the savings of the investors, by developing a secondary capital market, and thus makes even short term savings, consistently available for long-term users;

It thus mobilizes savings of large number of individuals, families and associations and makes the same available for meeting the large capital needs of organised industry, trade and business and for progress and development of the country as a whole and its economy.

To discharge these functions, the organised capital market accepts a dual responsibility

To develop the market and to promote savings & investment; To regulate the players in the market vis-a-vis the investor and to enforce market discipline, through market regulators and registered intermediaries. Such that the unorganised small man is able to deal safely and conveniently through these regulatory bodies and the intermediaries, and need not

necessarily has to come into direct contact with the ultimate seekers of his savings.

To understand the regulatory and control systems in-built in the market, we must study the structural framework of the capital market. The capital market consists of the following segments.

The Primary Stock Market

It is also called the market for public issues. This market refers to the raising of new capital (equity or debt i.e. equity shares, preference shares, debentures or Rights Issues) by corporates. Newly floated companies or existing companies may tap the equity market by offering public
26

issues. When equity shares are exclusively offered to the existing shareholders, it is called "Rights Issue". When a Company after incorporation initially approaches the public for the first time for subscription of its public issue it is called Initial Public Officer (IPO). Successful floating of a new issue requires careful planning, timing of the issue and comprehensive marketing efforts. The services of specialized institutions, like underwriters, merchant bankers and registrars to the issue are available for the corporate body to handle this specialized job. Underwriters are financial institutions, which undertake to secure a committed quantum of equity/debt subscribed by the public, failing which they accept these shares/bonds as their own investment. It is referred to as the issue or that part of getting devolved on the underwriters. The transactions relating to the primary market i.e. public/rights issues are not carried out through stock exchanges. However there is effective regulation of SEBI at every stage of a public issue. This is done through merchant bankers, underwriters and registrars to the issue each acting at different points. Subscriptions to the new issue are collected at specific branches of one or more collecting banks prescribed span of time, represented by the dates of opening of the issue and closing of the issue.

Initial public offering (IPO),

also referred to simply as a "public offering," is the first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded. In an IPO, the issuer may obtain the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market. IPOs can be a risky investment. For the individual investor, it is tough to predict what the stock will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value.

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Reasons for listing

When a company lists its shares on a public exchange, it will almost invariably look to issue additional new shares in order to raise extra capital at the same time. The money paid by investors for the newly-issued shares goes directly to the company (in contrast to a later trade of shares on the exchange, where the money passes between investors). An IPO, therefore, allows a company to tap a wide pool of stock market investors to provide it with large volumes of capital for future growth. The company is never required to repay the capital, but instead the new shareholders have a right to future profits distributed by the company. The existing shareholders will see their shareholdings diluted as a proportion of the company's shares. However, they hope that the capital investment will make their shareholdings more valuable in absolute terms. In addition, once a company is listed, it will be able to issue further shares via a rights issue, thereby again providing itself with capital for expansion without incurring any debt. This regular ability to raise large amounts of capital from the general market, rather than having to seek and negotiate with individual investors, is a key incentive for many companies seeking to list.

Procedure
IPOs generally involve one or more investment banks as "underwriters." The company offering its shares, called the "issuer," enters a contract with a lead underwriter to sell its shares to the public. The underwriter then approaches investors with offers to sell these shares. The sale (that is, the allocation and pricing) of shares in an IPO may take several forms. Common methods include:

Dutch auction Firm commitment Best efforts Bought deal Self Distribution of Stock

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A large IPO is usually underwritten by a "syndicate" of investment banks led by one or more major investment banks (lead underwriter). Upon selling the shares, the underwriters keep a commission based on a percentage of the value of the shares sold. Usually, the lead underwriters, i.e. the underwriters selling the largest proportions of the IPO, take the highest commissionsup to 8% in some cases. Multinational IPOs may have as many as three syndicates to deal with differing legal requirements in both the issuer's domestic market and other regions. For example, an issuer based in the E.U. may be represented by the main selling syndicate in its domestic market, Europe, in addition to separate syndicates or selling groups for US/Canada and for Asia. Usually, the lead underwriter in the main selling group is also the lead bank in the other selling groups. Usually, the offering will include the issuance of new shares, intended to raise new capital, as well the secondary sale of existing shares. However, certain regulatory restrictions and restrictions imposed by the lead underwriter are often placed on the sale of existing shares. Public offerings are primarily sold to institutional investors, but some shares are also allocated to the underwriters' retail investors. A broker selling shares of a public offering to his clients is paid through a sales credit instead of a commission. The client pays no commission to purchase the shares of a public offering, the purchase price simply includes the built-in sales credit. The issuer usually allows the underwriters an option to increase the size of the offering by up to 15% under certain circumstance known as the green shoe or over allotment option.

Auction
A venture capitalist named Bill Hambrecht has attempted to devise a method that can reduce the inefficient process. He devised a way to issue shares through a Dutch auction as an attempt to minimize the extreme under pricing that underwriters were nurturing. Underwriters, however, have not taken to this strategy very well. Though not the first company to use Dutch auction, Google is one established company that went public through the use of auction. Google's share price rose 17% in its first day of trading despite the auction method. Perception of IPOs can be controversial. For those who view a successful IPO to be one that raises as much money as possible, the IPO was a total failure. For those who view a successful IPO

29

from the kind of investors that eventually gained from the under pricing, the IPO was a complete success.

Pricing
Historically, IPOs both globally and in the US have been under priced. The effect of Under pricing an IPO is to generate additional interest in the stock when it first becomes Publicly traded. This can lead to significant gains for investors who have been allocated shares of the IPO at the offering price. However, under pricing an IPO results in "money left on the table" lost capital that could have been raised for the company had the stock been offered at a higher price. The danger of overpricing is also an important consideration. If a stock is offered to the public at a higher price than what the market will pay, the underwriters may have trouble meeting their commitments to sell shares. Even if they sell all of the issued shares, if the stock falls in value on the first day of trading, it may lose its marketability and hence even more of its value. Investment banks, therefore, take many factors into consideration when pricing an IPO, and attempt to reach an offering price that is low enough to stimulate interest in the stock, but high enough to raise an adequate amount of capital for the company. The process of determining an optimal price usually involves the underwriters ("syndicate") arranging share purchase commitments from lead institutional investors.

How is the issue price decided on?

A company that is planning an IPO appoints lead managers to help it decide on an appropriate price at which the shares should be issued. There are two ways in which the price of an IPO can be determined: either the company, with the help of its lead managers, fixes a price or the price is arrived at through the process of book building. Note: Not all IPOs are eligible for delivery settlement through the DTC system, which would then either require the physical delivery of the stock certificates to the clearing agent bank's custodian, or a delivery versus payment ("DVP") arrangement with the selling group brokerage firm. This information is not sufficient.

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Secondary Stock Market

The Secondary Market deals with the sale/purchase of already issued equity/debts by the corporates and others. The sale/purchase of these securities are carried out at the specific Stock Exchange(s), where the companies get their public issues listed for trading. The main function of the secondary market is to provide liquidity to the listed securities by enabling a holder to easily convert the securities into cash through the stock exchanges. An individual or an Institution can either hold a portfolio of securities as a permanent investment, or he can hold a basket of securities for short-periods and engage in buying and selling them to gain from market fluctuations. The secondary market also acts as an important indicator of the investment climate in the economy. When prices of existing securities are rising and there is large trading in the existing shares, such a boom in the secondary market correspondingly signifies that new issues if floated at that point of time would be successfully subscribed.

Investors: On the one hand are the innumerable and not organised savers. Capital Seekers: At the other end are those seeking capital from the capital market; Regulatory Body: SEBI (the Securities & Exchange Board of India) an autonomous and

statutory body acts as the market regulator and market developer. It regulates and controls the capital users and all functionaries between the users and the investors.

The Stock Exchanges: There are 23 Stock Exchanges registered with SEBI and under its

regulation. They provide a transparent and safe (risk-free) forum of a market for investors to transact and invest their funds.

The Depositories: The depositories are innovative institutions, who are able to render the

market paperless by holdings securities electronically, providing ease and speed for those transacting in the market.

The Registered Intermediaries: They consist of brokers, sub-brokers, trading and

clearing members, portfolio managers, bankers to issue, merchant bankers, registrars, underwriters and credit rating agencies. They all provide a basket of services to the investors to lesson risk and make transacting easier and smooth. They are all registered

31

with SEBI and act under the regulation of SEBI abiding by the Code of Conduct prescribed for each of them governing their respective roles. So vast and well established is the market that the daily turn over in the main Stock Exchange in the Country National Stock Exchange of India averages Rs.10000 Crore presently (in the equities segment alone) and bound to multiply further in the coming future.
The maximum brokerage that a NSE trading member/registered sub-broker can charge as per SEBI Stipulations.

1. As stipulated by SEBI, the maximum brokerage that can be charged is 2.5% of the trade value. This maximum brokerage is inclusive of the brokerage charged by the sub-broker (sub-brokerage cannot exceed 1.5% of the trade value). However the trading member can charge additionally2. Service Tax @ 5% of the brokerage. 3. Transaction Charge levied by NSE. 4. Penalties rising on behalf of client (investor).
5. The brokerage and service tax is indicated separately in the contract note. Procedure for Buying & Selling

If a client desires to buy or sell shares & securities, he has to transact in the secondary market i.e. through the stock exchange. He cannot do so directly, but has to deal through a broker recognized by SEBI He has to enlist the service of a SEBI registered trading member or SEBI registered sub-broker of a trading member of a registered Stock Exchange. Different stock exchanges have different bylaws though they all exhibit common safeguards and precautions. In our study we restrict to overview the system adopted in National Stock Exchange (NSE) and The Stock Exchange Mumbai (BSE) the leading stock exchanges of India, which together cover over 75% of the transactions.

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After approaching the broker/sub-broker of NSC/BSE to ensure verification of bonafide membership investor may ask the broker/sub-broker to furnish documents such as SEBI registration certificate, Registration with NSE/BSE etc to verify the antecedents of the person. He can also approach the exchange to counter check whether the person holds the valid registration. When a client instructs his broker to enter into a transaction, he may ask him to buy or sell at the best price and leave the matter to broker's judgment or he may specify reasonable price limits. For instance, The client may specify " Buy at 110 max." In such a case, The broker may not be able to execute the order even though the quotations of the day would be "Rs110, 111,112,113" as jobber's spread of say Rs.2 would make the share available for purchase at a price not lower than Rs. 112.

Procedure for Dealing through a Stock Exchange

We have seen that a client deciding to operate through an exchange, has to avail the services of a SEBI registered broker/sub-broker. He has to enter into a broker-client agreement client, his broker is supposed to give him a contract note having details of the transaction as directed by the client. Since the contract note is a legally enforceable document, the client should insist on receiving it. The client has the obligation to deliver the shares in case of sale or pay the money in case of purchase within the time prescribed. If he has opted for transaction in physical mode, in case of bad delivery of securities by him, he has the responsibility to rectify them or replace them with good ones.
For Securities in Physical Mode - How Does Transfer of Securities Take Place?

To effect a transfer in the physical mode the securities should be sent to the company along with a valid, duly executed and stamped transfer deed duly signed by or on behalf of the transferor (seller) and transferee (buyer). It would be a good idea to retain photocopies of the securities and the transfer deed(s) when they are sent to the company for transfer. It is essential

33

that the client sends them by registered post with acknowledgement due and watches out for the receipt of the acknowledgement card. If he does not receive the confirmation of receipt within a reasonable period, he should immediately approach the postal authorities for confirmation. Sometimes, for his own convenience, the client (while buying securities) may choose not to transfer the securities immediately.
Procedure to be Followed for Transfer of Securities

On receipt of the client's request for transfer, the company proceeds to transfer the securities as per provisions of the law. In case they cannot affect the transfer, the company returns back the securities giving details of the grounds under which the transfer could not be effected. This is known as Company Objection.

CHAPTER-3 INDUSTRY PROFILE

INDIAN CAPITAL MARKET

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Capital market is the market for long term funds. Just as the money market is the market for short-term funds. It refers to all the facilities and the institutional arrangements for borrowing and lending term funds (medium-term and long term funds). It does not deal in capital goods but is concerned for long-term money capital comes predominantly from private sector manufacturing industries and agriculture sector and from the government for the purpose of economic development.
CONSTITUENTS OF INDIAN CAPITAL MARKET

The Indian capital market is divided into gilt-edged market and the industrial securities market. The gilt-edged market refers to the market for government and semi-government securities, backed by RBI, The securities traded in this market are stable in value and are much sought after by bank and other institutions. The industrial securities market refers to the market of shares and debentures of old and new companies. The industrial market is further dividend into the new issue market and the old capital market i.e., the Stock Exchange. The new issue market refers to rising of new capitals in the form of shares and debentures. Where as stock exchanges deal with securities already issued by companies. Both markets are equally important hut often the new issue market is much more important from point of view of economic growth. However, the functioning of the new issue market will he facilitated only when there are abundant facilities of transfer of existing securities. The capital market is also classified into primary capital market and secondary Capital market. The primary market refers to new issue market which relates to the issue of shares, preferences share and debentures of non-government public limited companies, and also the raising of fresh capital by government companies and the issue of public sector.

HISTORICAL BACKGROUND
The stock market provides a market place for the purchase and sale of securities evidencing the ownership of business debt. Stock Exchanges are the most perfect type of market securities

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whether of Government or Semi-Government bodies or other public bodies as also for shares and debentures issued by the joint stock companies.

CAPITAL MARKET Primary Market (New Issue Market):

This method includes the data collected from the personal discussions with the authorized clerks and members of the Exchange. The primary market provide channel for sale of new securities primary market provide opportunity to issue of securities .

Secondary Market:
The secondary collection method includes the lectures of the superintend of the Department of Market Operations, EDP etc, and also the data collected from the News, Magazines of the NSE, HSE and different books issue of this study.

STOCK MARKETS OF INDIA

The origin of the stock market commences from the last quarter of 18th century when long term securities representing property or promises to pay were first issued and made transferable. The real beginning occurred in the middle of the 1 9th century after the enactment of the companys act 1850 which introduced the feature of limited liability and generated investors interest in corporate sector. From 1850 to 1865 there was arise of power of the brokers. The broking business proved to be profitable. This has lead to the increase in number of brokers to 60. An important event in the development of stock market in India was the formation of Native share and Stock brokers association in Bombay in 1875. this was the followed by the formation of associations in Ahmedabad (1894), Calcutta (1908) and Madras (1937).

REGULATION

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same time they are under the supervision and control of government. On 26th January 1950 the constitution o9f India came into force and under item 4 or the union list, stock exchange became exclusively a central subject. In the following year a draft bill for stock exchange regulation was prepared and referred to an expert committee under the chairmanship of Sri Goranwala. The stock exchanges are regulated by securities (contract) regulation act 1956.And securities contract rules 1957. The securities contracts (regulation) act 1956 permits only those stock exchanges which are recognized by the central government to function in any notified area or state. The recognized stock exchange is thus placed in a privileged position .

STOCK EXCHANGES
At present there are 27 stock exchanges recognized under the securities contracts (Regulation) act 1956. They are located at Ahmedahad, Bangalore, Bhuhhneshwar, Mumbai, Calcutta, Cochin, Coimbatore, Delhi, Guwahati, Hyderabad, Indore, Jaipur, Kunpur, Ludhiana, Mangalore, Meerut, Patna and Rajkot in addition to the above stock exchanges, screen based exchanges like National Stock Exchange Of India, OTCET are also set up. The recognized stock exchanges mobilize and direct the flow of savings of general public into productive channels of investment. The Hyderabad Stock Exchange (HSE) was the sixth stock exchange recognized under the securities contract (Regulation)

STOCK EXCHANGES CITY Bombay YEAR OF TYPE OF YEAR OF ESTABLISHMENT ORGANIZATION RECOGNITION 1875 Voluntary non 1957 profit making

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Association Calcutta 1908 Public limited company Company limited by guarantee Voluntary non profit making Association Public limited company Company limited by guarantee 1980

Madras

1937

1982

Ahmedabad

1894

1982

Delhi

1947

1982

Hyderabad

1943

1983

SECONDARY MARKET The segment of secondary market is a place where script are traded to provide liquidity to scripts which were issued in the primary market. Thus the growth of the secondary market is very much dependant upon the primary market. The more the number of companies enters the primary market the greater is the volume trade at the secondary market. The trading activities in the secondary market is done through the recognized stock exchange i.e. ICSE (inter connected stock exchange of India) is yet to make its beginning shortly. Mainly the secondary market operations involved in buying and selling of securities on the stock exchange through its members the companies hitting the primary market are mandatory including a regional stock exchange. The following intermediaries are involved in the secondary market. 1. Members I broker of a stock exchange i.e., for buying and selling of scripts. 2. Portfolio Manager. 3. Investment Manager.
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4. Transfer Agent. SEBI has issued several guidelines and regulations on secondary market, conduct and registration of brokers, portfolio managers. SEBI has taken several steps to control and regulate the secondary market in India which includes expansion of stock exchange centers and their integration, improvement in trading system and settlement procedures. Registration of brokers, sub-brokers prohibition of insider trading, transparency in trading activities, eligibility norms of membership, capital adequacy norms, margins. Further mutual funds have also been brought under the purview of the SEBI

DEVELOPMENTS IN SECONDARY MARKET

1. SEBI has issued Capital Adequacy Norms for brokers consisting of base Minimum Capital, Additional capital related to volume of business. 2. NSE was incorporated to compete with other stock exchanges which went fully automated and available to a common investor by means of terminals spreading all over the country 3. Circuit Breakers system was introduced at Mumbai stock exchange and other exchanges to stop trading in particular scrip fluctuating beyond 8% in some scripts for the previous days closing prices. 4. OTCEI was permitted to trade in unlisted scripts, hut listed on Mumbai stock exchange along with debentures. 5. Apart from this, Odd Lot trading sessions was separated to ensure trading in odd lots conveniently. Brokers were advised to keep separate accounts for clients and not to touch the funds of clientele sale realizations. 6. Forward trading was banned from 15th march 1994. 7. Capital gain Tax Rules were liberalized. 8. Compulsory Market Making concept was introduced. 9. Jumbo share concept of larger denomination share certificates was introduced with a view to mitigate the problems of custodian of Indian and Foreign Financial Institutions. 10. The systems of corporate members were introduced in all exchanges and the Exemption of capital gain was extended till 3l December 1998.
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11. The Demit system was started i.e., trading the scripts in the dematerialized form for the purpose of avoiding Bad deliveries, Delay in transfers, Reduction of transfer expenses, Reducing settlement delays and reducing market lot share to 1. 12. Rolling settlement was introduced in some shares for the purpose of encouraging the buying and selling shares only by the genuine buyers or investors and to avoid excess speculation.

ROLE OF SEBI
Securities and exchange Board of India was set up in 1988 and became a statutory organization from January 1992. it was given a statutory status for healthy regulation of capital markets. Office of Capital Issues (OCI) was abolished and the companies were to approach market directly subject to SEBI guidelines relating to disclosures and other measures of investors protection. This led to removal of hurdles i.e., getting permission from CCI, MRTP commissioner, Company Law Board, Ministry of Finance, Industrial, Registrar of companies etc. The Securities and Exchange Board of India Act (SEBI) empowers SEBI to: 1. Regulate the business of stock exchanges. 2. Register and regulate intermediaries associated with the securities market as well as working of mutual funds. 3. Promote and regulate self Regulatory organizations. 4. Prohibit fraudulent and unfair trade practices relating to securities transactions. SEBI directed that all Stock Exchanges should computerize their operations to have better transparency and. efficient screen based trading system and also permitted most of the stock exchanges to have their additional trading floors at different places through VSATS or WAN/LAN systems to suit their requirements. This has facilitated members and investors to do their trading activities in a more and competitive way.
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The system of insurance of brokers was made mandatory; the norms for bad deliveries were standardized.

ONLINE TRADING
In India first fully automated stock exchange was formed in the year 1994 with fully automated trading system called screen based trading or Online trading basing on computers this system has brought revolutionary changes in the secondary markets in India. This system is mainly helpful for the purpose of protecting the investors from the brokers in the price rigging. The NSE has used the software called NEAT (National Exchange for Automated Trading). After NSE starting the Online trading the Indias premier stock exchanges followed the way of NSE and BSE. Objectives of Online Trading: Providing a Nation wide trading facility for all type of securities. Ensuring equal access to investors to all over the country through communication network. Providing a fair, efficient and transparent securities market using an electronic trading system. Enabling the use of shorter settlement cycles and book entry settlement system.

OUTCRY SYSTEM
Trading on stock exchanges used to take place through open outcry without use of technology for immediate matching or recording of trades. This was a time consuming and inefficient system. The practice of physical trading imposed limits on trading volumes and hence the slow speed with which new information was incorporated into price.

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NSE is the first exchange in the world to use satellite communication technology for trading. Its trading system, called National Exchange for Automated Trading (NEAT), is a state of-theart client server based application. At the server end all trading information is stored in an in memory database to achieve minimum response time and maximum system availability for users. It has uptime record of 99.7%. For all trades entered into NEAT system, there is uniform response time of less than one second.
DEMATERALISATION

The decade of Lhe9Os witnessed a revolution in the clearing and settlements functions in he Indian securities market. Promulgation of the Depositories Ordinance in 1995 and establishment in this revolution which sought to eliminate the ills associated with paper base securities system such as delay in transfer, bad delivery, theft, fake and forged shares, and synchronize the settlement of trade transfer of securities irrespective of geographical locations. Although in the first phase, SEB1 has made Demat trading for selected scripts, efforts should be made to bring in all major exchanges within a well defined time frame for acceptance of Demat Trading. With SEBI allowing Demat delivery even in the fiscal segment more and more retail investor are likely to get in to the system which ultimately encourage more brokers also to become to become depository participants and educate the retail investor. The advantage of script less trading and the need for such Demat trading compulsorily could also be explored. Apart from this the banking network in the country could be used for this purpose by providing tow way quotes to take up this work.

Stock exchange:
A stock exchange or bourse is a corporation or mutual organization which provides the facilities for stock brokers to trade company stocks and other securities. Stock exchanges instruments and capital events including the payment of income and dividends.
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The securities traded on a stock exchange include shares issued by companies, unit trusts and other pooled investment products as well as bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at lest for recordkeeping, but trade is less linked to such a physical place, as modern markets are electronic networks, which gives the advantages of speed and cost of transactions. Trade on an exchange is by members only; a stock broker is said to have a seat on the exchange. A stock exchange is often the most important component of a stock market. There is usually no compulsion to issue stock via the stock exchange itself, nor must . The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. Increasingly all stock exchanges are part of a global market for securities, supply and demand in stock markets is driven by various factors which, as in all free markets, affect the price of stocks (see stock valuation).

HISTORY OF THE STOCK EXCHANGE

In 12th century France the curators de change were concerned with managing and regulating the debts of agricultural Communities on behalf of the banks. As these men also traded in debts. They could he called the first brokers. Some stories suggest that the origins of the term bourse come from the Latin bursa meaning a bag because, in 13e. Bruges, the sign of a purse hung on the front of the house where mere chats met. However, it is more likely that in the late 13th century commodity traders in Bruges gathered inside the house of a man called van deer Burse, and in 1309 they institutionalized this until

43

now informal meeting and became the Bruges Bourse. The idea spread quickly around Flanders and neighboring counties and Bourse. In the middle of the 13th century Venetian bankers began to trade in government securities. In 1351 the Venetian Government outlawed spreading rumors intended Intended to lower the price of government funds. There were people in Pisa. Verona, Genoa and Florence who also began trading in government securities during the 14th century. This was only possible because these were independent city states not ruled by a duke but a council of influential citizens. The Dutch later started joint stock companies, which let shareholders invest in business ventures and get a share of their profits or losses. In 1602, the Dutch East India Company issued the first shares on the Amsterdam Stock Exchange. It was the first company to issue stocks and bonds.

Other types of exchange

In the 19th century, exchanges were opened to trade forward contracts on commodities. Exchange traded forward contracts are called futures contracts. These commodity exchanges later started offering future contracts on other products on other products. Such as interest rates and shares, as well as options Contracts. They are now generally known as futures exchanges. This is a list of stock exchanges. Those futures exchanges that also offer trading in securities besides trading in futures contracts are listed both here and the List of futures exchanges

LIST OF STOCK EXCHANGES IN WORLD CONTENTS:

1. North America 2. Europe 3. Asia 4. South America
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5. Oceania 6. Africa

USA:
1. Archipelago Exchange, merged with NYSE 2. Arizona Stock Exchange, closed down 3. American Stock Exchange (AMEX) 4. Boston Stock Exchange 5. Chicago Stock Exchange 6. Hedge Steel 7. NASDAQ 8. National Stock Exchange 9. New York Stuck Exchange 10. Pacific Exchange (PCX) 11. Philadelphia Stock Exchange (PHLX)

INDIA:
1. Ahmedabad Stock Exchange 2. Bangalore Stock Exchange 3. Bhubaneswar Stock Exchange Association 4. Bombay Stock Exchange (B SE) 5. Calcutta Stock Exchange 6. Coimbatore Stock Exchange 7. Delhi Stock Exchange Association 8. Gauhati Stock Exchange 9. Hyderabad Stock Exchange 10. Inter-connected Stock Exchange of India 11. Jaipur Stock Exchange
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12. Ludhiana Stock Exchange Association 13. Madhya Pradesh Stock Exchange 14. Mangalore Stock Exchange 15. Mumbai Stock Exchange 16. National Stock Exchange of India (NSE) 17. 0TC Exchange of India 18. Pune Stock Exchange 19. Saurashira -Kutch Stock Exchange HISTORY OF BSE Indian has a long history of securities markets, which is largely driven by the Stock Exchange, Mumbai. Indias An indigenous into enterprise high street set up about more 130 than year a ago century amidst ago. the backdrop of British supremacy in international finance: BSE has been the hallmark of initiative finance As cheque red and exciting its more than a century of existence has been, equally swift and smooth was the transformation of BSE into one of the most modern stock exchanges in the Asian region. It has several firsts to its credit even in the intensely competitive environment. BSE was first to introduce concepts such as free float indexing, obtain ISO certification for surveillance, establish huge infrastructure to enhance knowledge .know-how, put in place a trading platform that works on a sub second response time - and capacity of 4 million trades a day, export of trading platform technology to other stock exchange in Middle east, report highest delivery ratio among the major exchanges, lowest transaction costs, a record of lowest defaults, offer highest compensation for investor in cases of valid and approved claims. The origin of the Bombay (Mumbai) Stock Exchange dated back to 1875. it was organized under the name of the Native Stock and Share Brokers Association as a voluntary and non- profit making association. It as recognized on a permanent basis in 1957. This premier stock exchange is the oldest stock exchange in Asia.

NSE-50 INDEX (NIFTY)

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This Index is built by India Services Product Ltd (IISL) and Credit Rating Information Services of India Ltd (CRISIL). NSE-50 Index was introduced on April 22, 1996 to serve as an appropriate index for the new segment of futures and options. Nifty means National Index for Fifty Stocks. The selection criteria are the market capitalization and liquidity. The market capitalization of the companies should be Rs. 5 billion or more. The company scrip should be traded for 85% of the trading days at an impact cost less than 1.5%. The base period for the Nifty index is the closing prices on November 31st1995.The base period selected to commensurate the completion of one year operation of NSE in the stock market. The base value of index at 1000 with the base capital of Rs.2.06 of trillion. The NSE Madcap Index or the Junior Nifty comprises 50 stocks that represents 21board industry groups and will provide proper representation of the madcap segment of greater than Rs.200 crors and should have traded 85% of trading days at an impact cost of less than 2.5%. The base period for the index is Nov 4, 1996. which signifies two years for completion of operations of the capital market segment of the operations. The base value of the index has been set at 1000.

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CHAPTER-6 SUGGESTIONS

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1. Before buying the share it is essential that investor must shack the position of liquidity (all
A group shares has high liquidity). The source of information about liquidity can get from the brokers 2. Avoid buying shares of the company with an equity capital less than Rs.1 cr. 3. Avoid buying the share 9f the company with the number of share holders less than 5000. 4. Avoid buying shares of the company which are traded infrequently. 5. Avoid buying shares of the company which are not traded on your stock exchange. 6. Investor must show interest in steady and fast growth shares only. 7. Avoid buying Turn rounds (making loss continuously), Cyclical (cycles of good and bad performance), Dog shares (very inactive or passive). 8. Avoid companies with low PIE ratio relative to the market as always. 9. If the investor is confident of EPS moving up and expects PIE to increase as well stick to the shares and be patients. 10. Another side of the analysis is that investor must also know the factors. Is the market in a good mood or not at that time? How will the market feel about the share?

CHAPTER-7 CONCLUSION
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Let me end by bringing in the beginning. It is globally recognized that the growth of the economy depends to a large extent globally on the growth of the Securities Market as it provides the vehicle for raising resources and managing risks. Today, the wheels of the economy cannot move without the Securities Market. Indeed, it is a modern marvel for accomplishing astonishing numbers in terms of economic growth. Further, todays Securities Markets are absolutely different from what they were 10 years ago or will be in the next 10 years. They would remain in transition. There would be ups and downs. Many would succeed and many would vanish along the transformation journey. This would always be the reconfirmation of the point that businesses are no more businesses; they have become battles of competency. To conclude, I would say that the Securities Market opportunity zone is contracting somewhere and expanding somewhere. This may appear paradoxical. It must be understood that leadership demands a brilliant focus on emerging opportunities, competence building, strategies for the leadership position in the opportunity zones and principles-centered business practices. Therefore, we need to create a culture, which embraces change and moves ahead with an objective to lead. Let us compete for the future global opportunities.

CHAPTER-8 BIBLIOGRAPHY

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BOOKS:
1. Khan.M.Y, 2006, Financial Services, 3rd Edition, Tata Mcgraw Hill, New delhi-8. 2. Rejda.G.E, 2002, Principles of Risk Management & Insurance, 7th Edition, Pearson

Education.
3. Gordon & Natarajan, 2006, Financial Market and Services, 3rd Edition, Himalaya

Publishing House, Mumbai. 4. Learning cycle in capital market in India By R.khannan.

WEBSITES:
www.nseindia.com. www.bseindia.com. www.capitalmarket in India.com. www.wikipedia.org/wiki/capitalmarkets. www.sebi.gov.in www.rbi.org.in

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