Session 3

Capital Market
Secondary market Organization Listing Trading and settlement, recent trends

Indian Capital Market Historical perspective

Stock Market was for a privileged few
Archaic systems - Out cry method Lack of Transparency - High txn costs

No use of Technology
Outdated banking system Volumes - less than Rs. 300 cr per day No settlement guarantee mechanism - High risks

Secondary market
The stock exchanges are the exclusive centers for trading of securities This is the market for common and preferred stock This market comprises the whole apparatus dedicated to helping people buy ,sell, price, select and finance the securities in which they invest or trade. This apparatus embodies brokers,dealers,investment bankers, security analysts, portfolio managers, professional investment advisors, banks and other financial institutions,SEBI.

Indian Capital markets Chronology

1994-Equity Trading commences on NSE 1995-All Trading goes Electronic 1996- Depository comes in to existence 1999- FIIs Participation- Globalisation 2000- over 80% trades in Demat form 2001- Major Stocks move to Rolling Sett 2003- T+2 settlements in all stocks 2003 - Demutualisation of Exchanges

Capital Markets - Reforms

Each scam has brought in reforms - 1992 / 2001 Screen based Trading through NSE Capital adequacy norms stipulated Dematerialisation of Shares - risks of fraudulent paper eliminated Entry of Foreign Investors Investor awareness programs Rolling settlements Inter-action between banking and exchanges

Capital Market Participants

Banks Exchanges Clearing Corporations Brokers Custodians Depositories Investors Merchant Bankers

Listing
Admission of securities of an issuer for trading purposes. It provides liquidity and marketability of securities.

Benefits of Listing
A premiere market place Visibility Largest exchange( NSE turnover Rs 2,752,023 Cr in 2008-09) Unprecedented reach(191 centers ) Transaction speed (11,260,392 trades are reported in May 11,2009) Short settlement cycle Trade statistics for listed companies.

Organization of stock exchange

BSE formed in 1875 more than a century old There are 24 stock exchange in India, along with 3 newly set up exchanges permitted to have nation wide trading-ICSE, NSE, OTCEI The organization of stock exchange varies. Some are public limited companies(12),while others are limited by guarantees(5),or as voluntary non profit making organisation(3)

Demutualization
Until the 1990s, exchanges across the globe survived predominantly on mutual ownership structures wherein the members of exchange enjoyed ownership, management, and trading rights of a particular stock exchange. This is the process through which member owned company becomes shareholder owned company. Now BSE has become BSE Ltd.The ownership and trading membership are separated prevent any conflicting interest among the member brokers.

Trading
Trading is done in T+2 rolling settlement
Day Time Description of activity

Sl no.

1 2

T T+1

By 11 a.m By 1.30 pm

T+2

By 11 am By 1.30 pm

Confirmation of all trades Processing and downloading of files Pay in securities and funds Pay out of securities and funds

FDI in bourses
NSE could attract foreign holding of 20% from NYSE along with three other financial institutions, namely, Goldman sachs, General Atlantic, and Softbank Asian Infrastructure Fund Impact: it divorces the ownership, voting rights and management from the right to trade. It enables the transformation of exchanges from mutual ownership structure to for-profit , public ex-changes.

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