Capital Market – Industrial Securities Market

Market where industrial

concerns raise their capital or
debt by issuing appropriate
instruments – Equity,
Preference shares &
debentures/bonds

Primary/New issue Market Secondary Market

First time issue to public by
borrowers to exchange new
financial securities in long
term funds.
i.e. capital formation by new
issue
Dr. Ratnesh Chaturvedi, FMS, Session – 5-6
Securities which have
already passed through the
primary market. Buying and
selling of quoted / existing
securities.
Stock Exchange – Regulated
under the Security Contracts
(Regulation) Act,1956
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 Control over Secondary Market

For effective functioning of Secondary Market Control

is required
The process of control is exercised through by :

Recognition of Stock Listing of Securities Registration of Brokers

Exchanges

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Dr. Ratnesh Chaturvedi, FMS, Session – 5-6
 Stock Exchange

AS per Securities Contracts Regulation Act, 1956,

“ A stock exchange is an association, organisation or body of
individuals whether incorporated or not, established for the purpose of
assisting, regulating and controlling business in buying, selling and
dealing in securities.”

In brief, stock exchange constitute a market where securities issued by

the central and state governments, public bodies and joint stock
companies are traded.

Provides mechanism for

regular and continuous
purchase and sale of
securities
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Dr. Ratnesh Chaturvedi, FMS, Session – 5-6
 Functions/ Services of Stock Exchanges

Services to
Flow of Capital to Profitable
Investors Ventures
Companies
the economy as a whole Motivation for improved
performance

Liquidity and Marketability of Promotion of Investment

Securities

Reflection of Business Cycle

Safety of Funds
Marketing of new issues
Supply of Long Term Funds
Other Services
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Dr. Ratnesh Chaturvedi, FMS, Session – 5-6
 Recognition of Stock Exchange

The Stock Exchange in India have to be recognised by the Central Government under
SCRA and SEBI and they have to comply with the provisions of the SCRA and
SEBI and also the bye-laws and regulations duly approved by the Government

Process of Recognition In the prescribed manner to the Central

Government, accompanied by the
following documents :
- A copy of the bye-laws of the
stock exchange for its operation.
1. Submission of Application
- A copy of the rules relating to its
constitution, governing body,
powers and duties of the office-
bearers, the admission procedure,
etc.

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Dr. Ratnesh Chaturvedi, FMS, Session – 5-6
 Process of Recognition Recognition by the Central Govt.
provided the following conditions
are fulfilled :

3. The rules and bye-laws must

2. Grant of Recognition
ensure fair dealing and protect the
interest of investors
4. The stock exchange concerned
must be willing to comply with
other conditions that may be
imposed by the govt. time to time.
5. The grant of recognition must be
in the interest of trade as well as
in the public interest.

While granting recognition, the central government may prescribe

conditions regarding the qualifications for membership, the method
of entering contracts, the representation of the central govt. on the
stock exchange and the maintenance of accounts and their audit.
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Dr. Ratnesh Chaturvedi, FMS, Session – 5-6
 Process of Recognition
3. Renewal of Recognition
3. Withdrawal of Recognition
Dr. Ratnesh Chaturvedi, FMS, Session – 5-6
Fresh application to the central
government in the aforesaid
manner three months before the
expiry of the period of recognition
- By Central Government
- If recognition granted is against
the interest of trade or public
interest
- Provide opportunity to governing
body of stock exchange to explain
its position
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 Organisation of Stock Exchanges in India

Native Share and Stock Broker’s Association, in

First Stock Exchange in India
1875 in Bombay.
Bombay Stock exchange is the oldest one.
Indian Capital Market Participants as on 31st Mar.,2001
1. Depositories 2
2. Stock Exchange - 26
3. Listed Securities 9922
4. Brokers 9782
5. Foreign Brokers 38
6. Corporate Brokers 3808
7. Sub Brokers 9957
8. FIIs 527
9. Merchant Bankers 233
10. Bankers to an issue 69
11. Underwriters 56
12. Venture Capital Funds 35
13. Mutual Funds 39

Source – Indian Securities Market – A Review (NSE) 8

Dr. Ratnesh Chaturvedi, FMS, Session – 5-6
 Advantages of Listing Drawbacks

Facilitates Buying and Selling Leads to Speculation

securities
Degrades Companies
Ensures Liquidity Reputation

Offers wide Publicity Disclose Vital Information to

Competitors
Assures Finance

Enables Borrowings

Protects Investors

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Dr. Ratnesh Chaturvedi, FMS, Session – 5-6
 Listing Procedure :
The company concerned must apply in the prescribed form along with the following documents
and details :
-certified copies of MOA, AOA, Prospectus or In lieu of Prospectus, Underwriting agreements,
Agreements with vendors and Promoters’ etc.
-Specimen copies of Shares and debenture certificates, letter of call, allotment and acceptance
-Copies of B/s and P&L a/c of last five years
-Copies of offer for sale and circulars or advertisements offering any securities for subscription or
sale during the last 5 years
-Certified copies of agreements with managerial personnel
-Particulars of dividends and bonuses paid during the last 10 years
-A statement showing dividends or interest in arrears if any.
-A brief history of the company since its corporation, giving details of its activities.
-Particulars regarding its capital structure.
-Particulars of shares and debentures for which permission to deal is applied for and their issue.
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Dr. Ratnesh Chaturvedi, FMS, Session – 5-6
 Listing Procedure :
-Particulars of shares forfeited
-Certified copies of agreements if any with the Industrial Finance Corporation, ICICI,
etc.
- Listing agreement with the necessary initial and annual listing fee.

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Dr. Ratnesh Chaturvedi, FMS, Session – 5-6
 Listing Agreement

It is an agreement contains a list of conditions and obligations which the company

should strictly adhere. Failing to it may cause suspension or withdraw of the listing
facility.

Registration of Stock Brokers :

A stock broker must possess the following qualifications :
- Indian citizen with 21 years of age.
- Neither be a bankrupt nor compounded with creditors.
- Have not been convicted for any offence, fraud, etc.
- Not engaged in other business other than broker in securities
- Should not be defaulter of any stock exchange.
- Should have completed standard 12th exam.
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Dr. Ratnesh Chaturvedi, FMS, Session – 5-6
 Selection of Brokers by Selection
Who may be stock Individuals, corporate and
committee of Stock Exchange on
brokers institutional members
the basis of their qualification,
experience, financial status, etc.
Registration of Stock Brokers : Procedure
- Application to SEBI through SE
- SE forward it within 30 days of receipt.
- SEBI may call for additional information/clarification or request for physical appearance
- If eligible then certificate by SEBI and information to concerned SE
- The certified stock broker must abide by the prescribed code of conduct.
- Registration will be suspended if violation of Rules as per SEBI
- Cancellation of registration in case of criminal offence, guilty of fraud,
repeated guilty of violation of rules of SEBI
- Stock broker has to maintain a security deposit with the stock exchange.

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Dr. Ratnesh Chaturvedi, FMS, Session – 5-6
 Sub broker is a person who acts as an agent of a
stock broker. He transacts the securities trading
Registration of Stock
Brokers : Procedure business on behalf of his clients through stock-
brokers. They also have certificate of SEBI.
Registration process same as stock brokers.

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Dr. Ratnesh Chaturvedi, FMS, Session – 5-6
 Method of Trading in a Stock Exchange :

Choice of a Broker At best order

Limit order
Placement of Order
Immediate or
Execution of Orders cancel order

Preparation of Discretionary
Spot Delivery order
Settlement
Contract Notes

Settlement of Limited
Hand Delivery
transactions Discretionary
Settlement
order
Clearing Open order
Lodging for Transfer
Settlement
and Return of
Special Delivery Certificates
Settlement
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Dr. Ratnesh Chaturvedi, FMS, Session – 5-6