Project

STUDY OF RELATIONSHIP BETWEEN
INDIAN STOCK MARKET

&
ASIAN STOCK MARKET
By
• ANUJ GOEL
• BIJAN SAHOO
• JINESH AGGARWAL
• KARAN MITTAL
• PARESH AGARWAL
• PAVANA v ISSAC
NATIONAL INSTITUTE FOR FINANCIAL MANAGEMENT

FARIDABAD
THE INSTITUTE OF CHARTERED ACCONTANTS OF INDIA

(A STATUTORY BODY CONSTITUTED UNDER THE ACT OF PARLIAMENT)
Study of Relationship Between Indian Stock Market and Asian Stock Markets
ABOUT THE STUDY GROUP
Unity in diversity is the foremost highlight of our nation INDIA and similarly we have our
group members for this study from six different states of the country relaying the richness
of six different fortes.
Starting with the group:-
• Anuj Goel from New Delhi
• Bijan Sahoo from Cuttack-orissa
• Jinesh aggarwal from Rewari-Haryana
• Karan Mittal from Jaipur-Rajasthan
• Paresh Agarwal from Galgoan- MAHARASTRA
• Pavana V Issac from Palakkad-Kerala
Study of Relationship Between Indian Stock Market and Asian Stock Markets
Acknowledgment
We would like to express our sincere gratitude to all the distinguished

personalities who have helped us a lot during this project work and without their
help our project would not have been completed.
We are thankful to Dr. A.M.Sherry and Mr.Shaleen Suneja who have always
guided us on various occasions. A special thanks to Cmdr.Ranjan Seth who has
directed us to conclude this project in a disciplined manner.
We gratefully appreciate the inspiration and encouragement offered by all other
faculties and staffs of NIFM, all along this three months residential training
programme. The facilities and services provided by the National Institute of
Financial Management, Faridabad have always resided as an endorsement
throughout this tenure. Also we have a handle on the support and amity cheered
upon us by all of our batch mates.
At the end we cordially convey our thankfulness to the Institute of Chartered
Accountants of India who gave us the opportunity to be a part of a premier
institute like NIFM and we feel proud to present this project and we hope that we
are able to cover all the aspects of this study to the finest extent.
Study of Relationship Between Indian Stock Market and Asian Stock

Markets
Preface
The stock market is witnessing heightened activities and is increasingly gaining
importance. In the current context of globalization and the subsequent integration
of the global markets this paper captures the trends, similarities and patterns in the
activities and movements of the Indian Stock Market in comparison to its Asian
counterparts.
The Indian stock market is one of the oldest and fastest growing financial markets
in the world and considered to the best among the markets of the emerging
economies. Much of the organized sector in India have been affected by high
growth and the stock markets played an all-inclusive role in sustaining that
growth. Many PSUs (Public Sector Undertakings) that decided to offload part of
their equity were also helped by the well-organized stock market in India.
This study covers major stock exchanges in China, Japan, Singapore, Taiwan,
Israel, Philippines, Indonesia, South Korea and Srilanka. Both the Bombay Stock
exchange (BSE) and the National Stock Exchange of Indian Limited (NSE) have
been used in the study as a part of Indian Stock Market. The time period has been
divided into various eras to test the correlation between the various exchanges to
prove that the Indian markets have become more integrated with its Asian
counterparts and its reaction are in tandem with them.
Sincere efforts have been made for preparation of project. It is expected that this
study would enable the readers in understanding the relationship between Indian
stock market and Various Asian Stock markets and its impact for gaining
conceptual Clarity.
Thank you,
Study Group

Markets
CONTENTS
1.0 INTRODUCTION
1.1 TITLE
1.2 OBJECTIVE OF STUDY
1.3 RELEVANCE OF THE STUDY
1.4 LIMITATION
2 MAJOR STOCK EXCHANGES IN ASIA
3 NAMES OF THE INDICES
4.0 INDIAN STOCK MARKET
4.1 HISTORIC BACK GROUND
4.2 SECURITIES LAWS IN INDIA
4.3 THE PRESENT SCENARIO
4.4 IMPACT OF STOCK MARKET ON ECONOMY
5 PAST STUDIES ON STOCK MARKETS
6 ORIGIN OF VARIOUS STOCK EXCHANGES
7.0 COMPARATIVE ANALYISIS
7.1 QUALITATIVE ANALYSIS
7.1.1 MARKET CAPITILIZATION
7.1.2 LISTED SECURITIES
7.1.3 LISTING AGREEMENTS
7.1.4 CIRCUIT FILTERS
7.1.5 TRADING AND SETTLEMENT CYCLE
7.2 QUANTITATIVE ANALYISIS
7.2.1 PRICE RELATIONSHIP
7.2.2 NSE Vs. HANG SENG
7.2.3 NSE Vs. KOREA STOCK EXCHANGE
7.2.4 STOCK PRICE CORRELATION AMONG STOCK EXCHANGES
7.2.5 EXPONENTIAL TREND
7.2.6 RISK AND RETURN
7.2.7 RISK RETURN COMPARISON
8 OTHER FACTORS INFLUENCING STOCK MARKETS
9 RELEVANCE OF STOCK MARKET ANALYSIS IN C.A
PROFESSION
10 CONCLUSIONS
11 REFERENCES

Markets
1.0 INTRODUCTION
In the current scenario the terms like Capital market, BSE (Bombay stock
exchange),NSE (National Stock Exchange),Shares are not strange to us. There are
many more Asian markets such as Shanghai Stock Exchange, Tokyo Stock
Exchange, Korea Exchange, Colombo Stock Exchange, Singapore Exchange, and
Korea Exchange which have great Impact on Indian markets.

Markets
Herewith We try to analyze the basic relationship between Indian stock market
and Various Asian Stock Markets.
1.1 Title
The study group has been named as “Relationship Between Indian Stock Market
and Asian Stock Market”.
We have analyzed this topic in detail and tried to cover each and every aspect of
this study.
1.2 Objective of Study

The main objective of this study is to capture the trends, similarities and patterns
in the activities and movements of the Indian Stock Market in comparison to its
Asian counterparts. The aim is to help the investors (current and potential)
understand the impact of important happenings on the Indian Stock exchange. This
is especially relevant in the current scenario when the financial markets across
Asia are getting integrated into one big market and the impact of one exchange on
the other exchanges. In other words, the intention is to test the hypothesis,
‘whether various stock exchanges in Asia have any impact on each other’ or they
are correlated in any way with regard to their movements and, if so, to what
extent. Arising out of the main hypothesis is the question - given the above
context: What impact would the result have on the understanding that international
diversification of investment is desirable and profitable with regard to both risk
and return?
1.3 Relevance of the Study

Markets
Presently, the fluctuations in the Indian market are attributed heavily to cross
border capital flows in the form of FDI, FII and to reaction of Indian market to
global market cues. In this context, understanding the relationship and influence of
various exchanges on each other is very important. This study that compares major
exchanges in Asia. With the cross border movements of capital like never before
in the form of FDI and FII, coupled with the easing of restrictions bringing various
stock exchanges at par in terms of system and regulations, it can be assumed
reasonably that a particular stock exchange will have some impact on other
exchanges.
1.4 Research Methodology

For the comparative analysis of the different stock exchanges, the period chosen is
from 1st January 1995 to 31st October, 2009. This period is divided into different
sets of years, like 1995-97, 1999-01, 2001-03, 2003-06 and 2006-09 in order to
capture the effect and movement of stock exchanges with each other during
different periods. The economic situation changes during different times. 1995-
1997 period represents the East Asian miracle and crisis period, 1999- 2001
represents technology boom and tech bubble bursting period, 2001-2003
represents the slow global recovery from the recession, 2003-2006 period
represents the investment boom period especially in the developing and emerging
markets.
For the purpose of study and preparation of the report we have taken the analysis
of various news items, Press releases by SEBI, Diagrams & Articles in the
Magazines and the Internet and various other means of acquiring secondary data
has been used.
1.5 Limitation

Markets
We Believe that sincere efforts has been made to study and analyze the whole
topic to present the same in a comprehensive manner. But due to different
constraints the study can be limited to a certain extent.
2 MAJOR STOCK EXCHANGES IN ASIA
CHINA
• Hong Kong Stock Exchange
It is the 7th largest and one of the most active stock exchanges in the world. The
Stock Exchange of Hong Kong Limited, Hong Kong Futures Exchanges Limited
and Hong Kong Securities Clearing Company Limited –these companies are the
property of Hong Kong Exchanges and Clearing Limited, which is enrolled on its
own exchange.
• Shanghai Stock Exchange
The Shanghai Stock Exchange can stake a claim to fame to being both the first and
largest stock exchange on mainland China. The exchange has a total of eight
hundred and seventy-eight listed companies. The main indices used on the
exchange are:
• SSE 50 index
• SSE 180 Index
• SSE Composite Inde
• SHSE- SZSE 300 Index.

Markets
The Shanghai Stock Exchange works as a non profit institution administered by
the China Securities Regulatory Commission. The exchange lists two different
kinds of stocks: A and B shares. The difference between the two stocks is the
currency that they are traded in. The A shares is traded in the local Renminbi yuan
currency, whereas the B shares are traded in U.S. dollars. Traditionally A shares
were only traded within the country, but now both A and B shares may be traded
world wide. The majority of the stocks listed on the exchange are A shares. There
are eight hundred twenty-four A shares and fifty-four B shares listed on the
market.
JAPAN
• Tokyo Stock Exchange
Located in Tokyo, Japan, is the second largest stock exchange in the world by
aggregate market capitalization of its listed companies, second only to the New
York Stock Exchange. As of 31 December 2007, the Tokyo Stock Exchange had
2,414 listed companies with a combined market capitalization of $4.3 trillion.
SINGAPORE
• Singapore Exchange
With Singapore now a leading financial center in the Asia-Pacific, the Singapore
Exchange has become one of the premier exchanges in its region. It is a highly
international exchange, with 40 percent of its market capitalization coming from
foreign companies.
The SGX divides its company listings into the SGX Mainboard and the SGX
SESDAQ. The Mainboard lists companies that meet certain requirements
including market capitalization, pre-tax profits, and operating track record. The
SESDAQ, on the other hand, is for newer companies and there are no quantitative
requirements for listing. Companies listed on the SESDAQ may apply to be

Markets
moved to the Mainboard if they have been listed for at least two years and meet
the minimum quantitative requirements.
The Singapore Exchange is a fully electronic exchange, using the Central Limit
Order Book (CLOB). Brokers place orders online and when a buy and sell order
match, the system automatically executes the order and notifies the brokers.
Trades that are not executed by the end of the day are terminated. Shares are
typically traded in lots of 1000.
The Singapore Exchange is also well known for its trading in a variety of
derivative securities via SGX-DT. It was the first exchange in Asia to offer equity
index futures, and now offers the world's widest range of Asian index futures.
SOUTH KOREA
• Korea Exchange
The South Korea Stock Exchange is one of the oldest stock markets in Asia. The
South Korea Stock Exchange determines the economy of the country of South
Korea. The South Korea Stock Exchange falls under the category of the stock
market of the stock exchange market of Korea division. The South Korea Stock
Exchange market provides an extensive field of opportunities to the stock brokers
and the traders who deal with the share market in South Korea. The South Korea
Stock Exchange market also gives out numerous offers to the companies and
financial organizations that invest their money in the South Korea Stock Market.
The South Korea Stock Exchange is an accumulation of all the stock exchanges
operating in south Korea. All these exchanges have been brought together under
certain rules and regulations as put forward by the Korea Stock and Futures
Exchange Act. All the issues related to the security and the operation of the
business divisions in the exchange market are controlled by the South Korea Stock
Exchange. The South Korea Stock Exchange stands in the 15th position in the

Markets
world as far as dealing with the financial market within the nation is concerned.
The trading capacity and the techniques of the South Korea Stock Exchange is
also admired all over the world for its expertise and precision. The South Korea
Stock Exchange deals with the largest number of financial transaction in the world
stock market scenario.
One who is not a South Korean citizen might have to go through long procedures
if he wants to buy stocks in the South Korea Stock Exchange. The South Korea
Stock Exchange market has different norms of working a thus, there is a huge
difference in the working method of the South Korea Stock Exchange than the
other stock exchange markets in the world.
TAIWAN
• Taiwan Stock Exchange
The Taiwan Stock Exchange Corporation is a financial institution, located in in

Taipei, Taiwan. The TSEC was established in 1961 and began operating as a stock
exchange on 9 February 1962. It is regulated by the Financial Supervisory
Commission.
The exchange has normal trading sessions from 09:00am to 01:30pm and post-
market sessions from 02:00pm to 02:30pm on all days of the week except
Saturdays, Sundays and holidays declared by the Exchange in advance.
The current chairman of the TSEC is Mr. Sean Chen.
INDONESIA
• Indonesia Stock Exchange

Markets
Indonesia Stock Exchange (IDX) or in Indonesian Bursa Efek Indonesia (BEI) is a
stock exchange based in Jakarta, Indonesia. It was previously known as Jakarta
Stock Exchange (JSX) before its name changed in 2007 after merging with
Surabaya Stock Exchange (SSX). As of 31 December 2007, the Indonesia Stock
Exchange had 383 listed companies with a combined market capitalization of
$212 billion.[1]
ISRAEL
• Tel-Aviv Stock Exchange
The Tel Aviv Stock Exchange colloquially known as the Boursa) in Tel Aviv is
Israel's only stock exchange.The TASE is the only public market for trading
securities in Israel. It plays a major role in the Israeli economy.
TASE lists some 660 companies, about 60 of which are also listed on stock
exchanges in other countries. TASE also lists some 180 exchange-traded funds
(ETFs), 60 government bonds, 500 corporate bonds, and more than 1000 mutual
funds.
There are 29 members that make up TASE.
SRILANKA
• Colombo Stock Exchange
The Colombo Stock Exchange (CSE) is the main stock exchange in Sri Lanka. As
of 31st May 2005, the exchange has 243 listed companies, and 20 business sectors
are represented. It has a market capitalization of over 497 billion rupees (over US
$ 4.9 billion) and this corresponds to approximately 24% of the country's GDP.
Two indices currently exist in the CSE - The All Share Price Index ( ASPI) and
The Milanka Price Index (MPI). It became the first South Asian member of the

Markets
World Federation of Stock Exchanges in 1998 and it is also a founding member of
the South Asian Federation of Exchanges (SAFE).
The Colombo Stock Exchange is organised in the form of limited liability

company under the Companies Act, and it functions as a non-profit organisation. It
has a mutual ownership structure and to date, has a membership of 15. All
members are corporate bodies, and each is licensed to carry out the duties as a
stock broker.
The Board of Directors is the policy making body of the CSE, which consists of 9
directors, and amongst the 9, one is elected as the Chairman. Of the nine directors,
five are elected by the members, and the Minister of Finance appoints the other
four.
The CSE has proven itself to be one of the top Emerging Markets stock exchange
in the world, with a recorded consistent annual growth of over 30% in 2002-2004,
and in 2006, an annual growth of 41.6% was attained. It continued to achieve
strong growth in 2007, which saw the stock exchange achieve a historic milestone
- ASPI surpassed the 3000 mark for the first time in history. The excellent
performance of CSE has been attributed to its advanced infrastructure of a fully
automated trading platform, therefore enhancing its competitive edge and
efficiency among the modern exchanges today.
PHILIPPINES
• Philippine Stock Exchange
The Philippine Stock exchange is the only existing stock exchange in the
Philippines and is one of the largest in Southeast Asia. The PSE Composite Index
(made up of 30 stocks) is the key indicator of share price movement in the market
six sub indices: Financials Index, the Industrial Index, the Holding Firms index,
the Property Indez, the Services Index, and the Mining & Oil Index.
Markets
The PSE is composed of two trading floors: one in Makati City; the other in Pasig
City. Despite this, it is still capable of achieving one stock price and one Market
Exchange through the MakTrade system. This single order book system warrants
that a customer's order is matched with the best bid/offer, irrespective of which
floor it was placed through. MakTrade facilitates the trading of securities through
a broker to broker market with automatic order, trade routing, and confirmation.
The stock exchange corporation is overseen by a Board of Directors. It consists of

15 members elected annually by stockholders. Additionally, at least 51% of the
members must always remain non-brokers as set out by the Securities Regulation
Code. The remaining Board members are broker-directors who represent
brokerage firms. The management of the Exchange is composed of the
President/CEO and a few other professional managers who ensure that the policies
and resolutions of the Board are carried out. They are also responsible for the daily
activities and operations of the Exchange and that the public's investments and
transactions are protected.

Markets
3 NAMES OF THE INDICES
In this paper, the names of the countries and the names of the indices of those
countries have been used interchangeably. Thus, the names of the countries
represent the indices for the purpose of analysis and they need to be interpreted
that way. Again, all the analyses have been done with the closing prices. The
following table gives the country and the exchange with the name of its indices.
Country Stock Exchange Name Indices Name

India Bombay Stock Exchange Sensex
India National Stock Exchange S & P Nifty
China Hong Kong Stock Exchange Hang Seng
China Shanghai Stock Exchange SSE Composite
Japan Tokyo Stock Exchange TOPIX
Singapore Singapore Exchange STI
South Korea Korea Exchange KRX 100
Taiwan Taiwan Stock Exchange TAIEX
Indonesia Indonesia Stock Exchange IDX
Israel Tel-Aviv Stock Exchange TA-25
Srilanka Colombo Stock Exchange ASPI
Philippines Philippine Stock Exchange PSEi

Markets
4.0 The Indian Stock Market
The Indian stock exchanges hold a place of prominence not only in Asia but also
at the global stage. The Bombay Stock Exchange (BSE) is one of the oldest
exchanges across the world, while the National Stock Exchange (NSE) is among
the best in terms of sophistication and advancement of technology. The working of
stock exchanges in India started in 1875. BSE is the oldest stock market in India.
The history of Indian stock trading starts with 318 persons taking membership in
Native Share and Stock Brokers Association, which we now know by the name
Bombay Stock Exchange or BSE in short. In 1965, BSE got permanent
recognition from the Government of India. National Stock Exchange comes
second to BSE in terms of popularity.
BSE and NSE represent themselves as synonyms of Indian stock market. The
Indian stock market is the world third largest stock market on the basis of investor
base and has a collective pool of about 20 million investors. There are over 9,000
companies listed on the stock exchanges of the country.

Markets
4.1 Historic background
The Indian Stock Market has a long and rich history. Originally based on what
would become the London Stock Exchange, traders gathered to trade local stock
and talk business. Eventually the Indian Stock Market became not just another
financial arena in southern Asia, but the most important financial arena outside of
Japan.
Today the Indian Stock Market still holds prominence in the region Indian Stock
Markets are one of the oldest in Asia. Its history dates back to nearly 200 years
ago. The earliest records of security dealings in India are meager and obscure. The
East India Company was the dominant institution in those days and business in its
loan securities used to be transacted towards the close of the eighteenth century.
By 1830's business on corporate stocks and shares in Bank and Cotton presses
took place in Bombay. Though the trading list was broader there but were only
half a dozen brokers recognized by banks and merchants.

Markets
The 1850's witnessed a rapid development of commercial enterprise and brokerage
businesses were attracted. The number of brokers increased to about 200 to 250.
At the end of the American Civil War, the brokers who thrived out of Civil War
in 1874, found a place in a street (now appropriately called as Dalal Street) where
they would conveniently assemble and transact business. In 1887, they formally
established in Bombay, the "Native Share and Stock Brokers' Association" (which
is alternatively known as “The Stock Exchange "). In 1895, the Stock Exchange
acquired a premise in the same street and it was inaugurated in 1899. Thus, the
Stock Exchange at Bombay was consolidated. a more recent establishment which
came into existence in 1992, is the largest and most advanced stock market in
India is also the third biggest stock exchange in Asia in terms of transactions. It is
among the 5 biggest stock exchanges in the world in terms of transactions volume
4.2 SECURITIES LAWS IN INDIA
4.2.01 (a): The Securities Transactions in India at present are mainly governed by
two Acts.
1. The Securities Contracts (Regulation) Act, 1956, and
2. The Securities & Exchange Board of India Act, 1992.
4.2.01 (b): THE DEPOSITORIES ACT, 1996:
The paper based ownership and transfer of securities has been a major drawback
of the Indian Securities Markets since it often resulted in delay in settlement and
transfer of securities and also lead to "bad delivery", theft, forgery etc. The

Markets
Depositories Act, 1996 was therefore enacted to pave the way for smooth and free
transfer of securities.
4.2.01 (c): The other relevant laws which affect the capital market are :-
1. The Foreign Exchange Regulations Act, 1973;
2. Arbitration and Conciliation Act, 1996;
3. Companies Act, 1956;
4. Debt Recovery Act (Bank and Financial Institutions Recovery of Dues Act,
1993);
5. Banking Regulation Act;
6. Benami Prohibition Act;
7. Indian Penal Code;
8. Indian Evidence Act, 1872 and;
9. Indian Telegraph Act, 1885.
4.2.02: THE SECURITIES CONTRACTS (REGULATION) ACT, 1956
4.2.02 (a): The Securities Contracts (Regulation) Act, 1956 (hereinafter referred to
as the "Act"), containing a mere 31 sections, keeps a tight vigil over all the Stock
Exchanges of India since 20th February, 1957. The provisions of the Act were
formally administered by the Central Government. However, since the enactment
of The Securities and Exchange Board of India Act, 1992 the Board established
under it (SEBI) is concurrently having powers to administer almost all the
provisions of the Act.

Markets
4.2.02 (b): By virtue of the provisions of the Act, carrying on the business of
dealing in securities without a license from SEBI is prohibited. Any Stock
Exchange which is desirous of being recognized has to make an application under
Section 3 of the Act to SEBI who is empowered to grant recognition and prescribe
conditions including that of having SEBI'S representation (maximum three
persons) on the Stock Exchange and prohibiting the Stock Exchange from
amending its rules without the SEBI's prior approval. The recognition can be
withdrawn in the interest of trade or public. SEBI is authorized to call for
periodical returns from the recognized Stock Exchanges and to make enquiries in
relation to their affairs. Every Stock Exchange is obliged to furnish annual reports
to SEBI. Stock Exchanges are allowed to make rules only with the prior approval
of SEBI. The Central Government and SEBI can direct Stock Exchanges to frame
rules. Recognized stock exchanges are allowed to make bye-laws for the
regulation and control of contracts but subject to the previous approval of SEBI
and SEBI has the power to amend these bye-laws. The Central Government and
SEBI have the power to supersede the governing body of any recognized stock
exchange and to suspend its business.
4.2.02 (c): A public limited company in India, has no obligation to have its shares
listed on a recognized Stock Exchange. But if a company intends to offer its shares
or debentures to the public for subscription by issue of a prospectus, it must,
before issuing such prospectus apply to one or more of the recognized stock
exchanges for permission to have the shares or debentures intended to be so
offered to the public to be dealt with in each of such stock exchange in terms of
Section 73 of the Companies Act, 1956. SEBI can however under the provisions
of Section 21 of the Securities Contracts (Regulation) Act, 1956 compel the listing
of securities by public companies if it is of an opinion that it is necessary or
expedient in the interest of trade or public. In the event of the Stock Exchange

Markets
refusing to list the securities of any public company an appeal to SEBI is provided
under the Act.
4.2.02 (d): A company on the grounds specified in Section 22A of the Act is
entitled to refuse to register transfer of any of its securities, notwithstanding
anything contained in its articles or Section 82 or Section 111 of the Companies
Act, 1956.
4.2.03: The Securities and Exchange Board of India Act, 1992.
4.2.03 (a): The Securities and Exchange Board of India Act, 1992 (hereinafter
referred as "The SEBI Act") is deemed to have come into force on January 30,
1992. Relatively a brief act containing only 35 sections, the SEBI Act governs all
the Stock Exchanges and the Securities Transactions in India.
4.2.03 (b): A Board by the name of the Securities and Exchange Board of India
(SEBI) consisting of one Chairman and five members, two from the department of
the Finance and Law of the Central Government, one from the Reserve Bank of
India and two other persons and having its head office in Bombay and regional
offices in Delhi, Calcutta and Madras has been constituted under the SEBI Act to
administer its provisions. The Central Government has the right to terminate the
services of the Chairman or any member of the Board. The Board decides all
questions in its meeting by majority vote with the Chairman having a second or
casting vote.
4.2.03 (c): Section 11 of the SEBI Act provides that it shall the duty of the Board
to protect the interest of investors in securities and to promote the development of
and to regulate the securities market by such measures as it thinks fit. It empowers
the Board to regulate the business in Stock Exchanges, to register and regulate the
working of stock brokers, sub-brokers, share transfer agents, bankers to an issue,
trustees of trust deeds, registrars to an issue, merchant bankers, underwriters,
Markets
portfolio managers, investment advisers, etc., to register and regulate the working
of collective investment schemes including mutual funds, to prohibit fraudulent
and unfair trade practices and insider trading, to regulate take-overs, to conduct
enquiries and audits of the stock exchanges, etc.
4.2.03 (d): As all Stock Exchanges are required to be registered with SEBI under
the provisions of the Act, under Section 12 of the SEBI Act all the stock brokers,
sub-brokers, share transfer agents, bankers to an issue, trustees of trust deed,
registrars to an issue, merchant bankers, underwriters, portfolio managers,
investment advisers and such other intermediary who may be associated with the
Securities Markets are obliged to register with the Board and the Board has the
power to suspend or cancel such registration. The Board is bound by the directions
given by the Central Government from time to time on questions of policy and the
Central Government has the right to supersede the Board. The Board is also
obliged to submit a report to the Central Government every year, giving true and
full account of its activities, policies and programmes. Any one aggrieved by the
Board's decision is entitled to appeal to the Central Government.
4.2.03 (e): The Central Government up till now has framed ten Rules by virtue of
Section 29 of the SEBI Act.
4.2.03 (f): The Board empowered by Section 30 of the SEBI Act has till now with
the previous approval of the Central Government made twelve regulations.
4.2.04: THE DEPOSITORIES ACT, 1996 AND REGULATIONS.
4.2.04 (a): With effect from 20th September 1995 an Act, to provide regulation of
Depositories in securities and for matters connected therewith and/or incidental
thereto has been enacted in India which is titled as "The Depositories Act, 1996".
It extends to the whole of India. As per the definition provided in Section 2(e) of
the said Act, a "Depository" means a company formed and registered under the
Markets
Companies Act, 1956 and which has been granted certificate of registration under
sub-Section (1A) of Section 12 of the Securities & Exchange Board of India Act,
1992.
4.2.04 (b): The Securities & Exchange Board of India have in exercise of the
powers conferred upon it made Regulations which are called "The Securities &
Exchange Board of India (Depositories & Participants) Regulations, 1996".
4.2.04 (c): Regulation 3 of the said Regulations provides as follows:
(1) An application for the grant of a certificate of registration as a Depository

shall be made to the Board by the sponsor in Form A, shall be accompanied by the
fee specified in Part A of the Second Schedule and be paid in the manner specified
in Part B thereof.
(2) The application shall be accompanied by draft bye-laws of the Depository

that is proposed to be set up.
4.2.04 (d): Regulation 6 provides that the Board shall not consider an application
under Regulation 3 for grant of a certificate for registration as a Depository unless
the sponsor belongs to one of the categories mentioned in Regulation 6.
Regulation 7 provides that after considering the application under Section 3 with
regard to the clarification specified in Regulation 6 if the Board is satisfied with
the company established by the sponsor being eligible to act as Depository, it may
grant a certificate of registration subject to the conditions mentioned in Regulation
7. A Depository which has been granted a certificate of registration under
Regulation 7 is obliged to make an application to the Board within one year from
the date of issue of the certificate of registration for commencement of business in
a prescribed form. Regulation 12 empowers the Board to ask the Depository to
furnish further information and/or clarification regarding the matters relevant for
the grant of certificate of commencement of business and Regulation 13 lays down
Markets
the matters which are relevant for considering grant of certificate for
commencement of business.
4.2.04 (e): The rights and obligations of Depository are provided in Chapter V of
the said Regulations. They inter alia provide for securities eligible for
dematerialization, Agreement between Depository and Issuer, internal and external
monitoring, review and evaluation of systems and controls, insurance against
risks, manner of keeping records, records to be maintained, prohibition of
assignment, agreement by participant, opening of separate accounts, transfer or
withdrawal by beneficial owner, reconciliation, manner of surrender of certificate
of security, manner of creating pledge or hypothecation, etc.
4.2.05: Take Over Code:
4.2.05 (a): SEBI under the provisions of Section 11 of the Securities Exchange
Board of India Act 1992 is inter alia empowered to regulate the securities market
by such measures as it may deem fit. One of the matters specified under that
Section is "regulating substantial acquisition of shares and take over of
companies". Section 30 of the same Act empowers SEBI to make regulations to
carry out the purposes of this Act. Empowered by these provisions of the Act
SEBI enacted "The Securities & Exchange Board of India (Substantial Acquisition
of Shares and Take Overs) Regulations, 1997. They came into effect on 20th
February 1997. and comprised of 47 Regulations.
4.2.05 (b): The Regulations, after defining, inter alia, as to what the terms
"acquirer" means, who could be called as "person acting in consort", what is meant
by "offer period", who is a "promoter", which is a "target company", etc. go to
provide:
(i) provisions of disclosures of shareholding and control in a listed company,

Markets
(ii) provisions for substantial acquisition of shares or voting rights in an
acquisition of control over a listed company,
(iii) provisions for bail out takeovers applicable to substantial acquisition of shares
in a financially weak company, not being a sick industrial company, in pursuance
to a scheme of rehabilitation approved by a public financial institution or a
scheduled bank.
4.2.05 (c): The Regulations also provide for SEBI's right to investigate into the
complaints on matters having a bearing on the substantial acquisition of shares and
take overs and provide for penalties for violation of any of the provisions of the
regulations. Adequate provisions have been made in the 1997 Regulations for:
a) Equality of treatment and opportunity to all shareholders
b) Protection of shareholders interest
c) Fair & truthful disclosure of all material information by the acquirer in all
public announcements and offer documents
d) Prohibiting the acquirer and other parties for furnishing information concerning
offer exclusively to one group of shareholders
e) Allowing sufficient time to shareholders for making uniform decisions
f) Announcing the offer only after most careful and responsible consideration
g) Highest standard of care and accuracy to be utilized in preparing offer

documents by the acquirer and all other intermediaries professionally involved in
the offer

Markets
h) Refraining from creating a false market in securities by all parties to an offer
i) Target company not to take any action to frustrate an offer without the approval
of the shareholders, etc.
The 1997 regulations repeal the earlier regulations.
4.2.06: FOREIGN EXCHANGE MANAGEMENT BILL 1998 (FEMA):
4.2.06 (a): As a part of the on going process of economic liberalization relating to

foreign investments and foreign trade in India and as a measure for closer
interaction with the world economy the Foreign Exchange Regulation Act, 1973
(FERA) was reviewed in the year 1993 and several amendments were made
therein. Further review of the FERA was undertaken by the Central Government
of India in the light of subsequent developments and on account of the experience
in relation to foreign trade and investment in India, the Central Government felt
that instead of further amending the FERA, the better course would be to repeal
the existing Act and to enact a new legislation in its place. In view of the same, the
RBI was asked to suggest a new legislation based on the report submitted by a task
force constituted for this purpose by the RBI recommending substantial changes in
FERA.
4.2.06 (b): There has been a substantial increase in the Foreign Exchange Reserves
of India. Since the year 1993, Foreign trade has grown up. Development has taken
place such as current account convertibility, liberalization in investments abroad,
increased access to external commercial borrowings by Indian Companies and
participation by foreign institutional investors in securities markets in India.
Keeping in view these changes the Central Government of India has introduced
the FEMA to repeal FERA.

Markets
4.2.06 (c): A marked digression from the general rule that the Accused is
presumed to be innocent until proved guilty beyond reasonable doubt, is found in
the FEMA. A presumption regarding documents, contained in this Bill is contrary
to the general rules of evidence. For example, when documents pertaining to a
crime under FEMA are discovered the Court will presume that the contents of the
documents are true and correct and will not go into the question whether the
incriminating documents may have been forged. Thus, it becomes the
responsibility of the Accused to prove, in case that the documents are fabricated.
The main change between FERA and FEMA is in the approach. FERA seeks to
regulate almost all the transactions involving foreign exchange and
inbound/outbound investments. In FERA every provision is restrictive and starts
with a negative proposition stating that whatever is mentioned in that section is
prohibited unless the prior permission either general or special, as may be required
in the specific case, of RBI is obtained. FERA provides that nothing can be done
without RBI's permission. In comparison to this existing negative piece of
legislation, the provisions of the proposed Bill has a positive approach. This can
be found from the provisions of FEMA dealing with capital account transactions
which are to be regulated. Unlike FERA which provides that these transactions
cannot be entered into without prior permission of RBI, FEMA provides that any
person may sell or draw foreign exchange for such transactions and then specifies
the powers of the RBI to regulate the class or limits of such capital account
transactions. Thus the basic proposition in the proposed FEMA Bill is positive.
FEMA classifies foreign exchange transactions into capital account transactions
and current account transactions and amongst the two regulates the former more
closely. Under FEMA residential status will not depend upon the intent of the
person to reside in India but would depend upon the exact period of his stay in
India.

Markets
4.2.06 (d): The provisions of the FEMA Bill aims at consolidating and amending
the law relating to foreign exchange with the object of facilitating external trade
and payments and for promoting the orderly payment and amendments in foreign
exchange markets in India. The FEMA Bill empowers the RBI to authorize
persons to deal in foreign securities specifying the conditions for the same. It also
provides for a person resident in India in holding, owning, transferring or investing
in foreign security and for a person resident out side India in holding, owning,
transferring or investing in Indian Securities.
4.3 The Present Scenario
Current condition of Indian markets has drastically improved. There is absolute

transparency and instant transactions. All Indian Stock markets are now
computerized and Internet Trading has become a common phenomenon. Indian
stock markets have also developed a dynamic nature and can change from a
bullish temperament to a bearish slide. Any small bit of information or even a
rumor from any part of the country can affect the market and is a fairly accurate
indicator of the prevalent atmosphere in the region or country.
People from across the country and globe get in touch with minute wise
readings on the stock market and gain a lot of trading aptitude after daily seeing
BSE Stock Gainers or BSE top losers list which does a world of good to their
investment portfolio.
4.4 Impact of stock market ON Economy

Markets
The stock market has both positive and negative effects on the Indian
Economy. Some of which are listed below
 Provides a source of funding for organizations

 An investment avenue
 A source of income for investors
 A source of revenue for the government in the form of taxes
 A source of employment opportunities
 Meeting place for investors and organizations
 Idle funds of common investors can be used for profitable purposes
The Indian Stock Markets can be a very rewarding avenue of investment but
the constant changes and the inherent dynamic nature of the markets can wipe out
your funds or savings within a minute. Thus, the key word for every retail investor
is to be constantly alert and very observant. Don't always rely on the daily list of
BSE top gainers or BSE top losers as it only takes a minute to get the things
changed here. Keeping ones eyes and ears open can insure the investor of any
major losses. Following such rules and with some experience and practice, one can
emerge victorious and can churn out a fortune for himself as well. Hence, it is a
way to turn your savings into a fortune.
5 Past Studies on Stock Markets

Markets
Poshakwale, Sunil (2002) examined the random walk hypothesis in the emerging
Indian stock market by testing for the nonlinear dependence using a large
disaggregated daily data from the Indian stock market. The sample used was 38
actively traded stocks in the BSE National Index. He found that the daily returns
from the Indian market do not conform to a random walk. Daily returns from most
individual stocks and the equally weighted portfolio exhibit significant non-linear
dependence. This is largely consistent with previous research that has shown
evidence of non-linear dependence in returns from the stock market indexes and
individual stocks in the US and the UK.
Noor, Azuddin Yakob, Diana Beal and Delpachitra, Sarath (2006) studied the
stock market seasonality in terms of day-of-the-week, month-of-the year, monthly
and holiday effects in ten Asian stock markets, namely, Australia, China, Hong
Kong, Japan, India, Indonesia, Malaysia, Singapore, South Korea and Taiwan. He
concluded that the existence of seasonality in stock markets and also suggested
that this is a global phenomenon.
Linkage patterns:
Masih, M.M. Abul and Masih, Rumi (1997) examined the dynamic linkage
patterns among
national stock exchange prices of four Asian newly industrializing countries -
Taiwan, South Korea, Singapore and Hong Kong. The sample used comprised
end-of-the-month closing share price indices of the four NIC stock markets from
January 1982 to June 1994. They concluded that the study of these markets are not
mutually exclusive of each other and significant shortrun linkages appear to run
among them.
Lau, S T and Diltz, J.D. (1994) studied the transfer of information among Tokyo
and New York stock exchanges.

Markets
Agarwal, R N (2000) examined the financial integration of capital markets in
developing nations gave insight with regards to the methodology and the area of
study followed.
In a similar study by Bae, K, Cha, B, and Cheung, Y (1999) the researchers tried
to show the information transmission mechanism that operates for stocks which
are dually listed. This has helped in understanding the channel of transmission of
information that makes the exchanges dependant on each other.
6 .0 Origin of Various stock Exchanges

Markets
Hong Kong Stock Exchange
Accounts of securities trading in Hong Kong go back to the middle of the 19th
century and fast economic development of Hong Kong directed to the formation of
three other exchanges, namely-in 1969,the Far East Exchange; in 1971,the Kam
Ngan Stock Exchange; in 1972, the Kowloon Stock Exchange. Stress to reinforce
market control and to unite the four exchanges directed the integration of the
Stock Exchange of Hong Kong Limited in 1980.On 27th March 1986, the trading
opearated by the four exchanges came to an end and on 2nd April 1986, the new
exchange started trading with a computerized system.In March 2000, the unified
stock exchange had 570 participating associations.
Hang Senge is the major index for trading share which comprise of the 33 largest
companies trading on the Hong Kong Stock Exchange and it symbolizes about
70% of the value of all stocks that purchased and sold on this exchange.This index
divided into four sub-indices-commerce, property, finance, utilities.
Shanghai Stock Exchange

The formation of the International Settlement (foreign concession
areas) in Shanghai as a result of the Treaty of Nanking of 1842
(which ended the First Opium War) and subsequent agreements
between the Chinese and foreign governments are crucial to the
development of foreign trade in China and of the foreign
community in Shanghai. The market for securities trading in
Shanghai begins in the late 1860s. The first share list appeared in
June 1866 and by then Shanghai's International Settlement had
developed the conditions conducive to the emergence of a share
market: several banks, a legal framework for joint-stock
companies, and an interest in diversification among the

Markets
established trading houses (although the trading houses
themselves remained partnerships).
In 1891 during the boom in mining shares, foreign businessmen founded the
"Shanghai Sharebrokers' Association" headquartered in Shanghai as China's first
stock exchange. In 1904 the Association applied for registration in Hong Kong
under the provision of the Companies ordinance and was renamed as "Shanghai
Stock Exchange". The supply of securities came primarily from local companies.
In the early days, banks dominated private shares but, by 1880, only the Hong
Kong and Shanghai local banks remained.
Later in 1920 and 1921, "Shanghai Securities & Commodities Exchange" and
"Shanghai Chinese Merchant Exchange" started operation respectively. An
amalgamation eventually took place in 1929, and the combined markets operated
thereafter as the "Shanghai Stock Exchange". Shipping, insurance, and docks
persisted to 1940 but were overshadowed by industrial shares after the Treaty of
Shimonoseki of 1895, which permitted Japan, and by extension other nations who
had treaties with China, to establish factories in Shanghai and other treaty ports.
Rubber plantations became the staple of stock trading beginning in the second
decade of the 20th century.
By the 1930s, Shanghai had emerged as the financial center of the Far East, where
both Chinese and foreign investors could trade stocks, debentures, government
bonds, and futures. The operation of Shanghai Stock Exchange came to an abrupt
halt after Japanese troops occupied the Shanghai International Settlement on
December 8, 1941. In 1946, Shanghai Stock Exchange resumed its operations
before closing again 3 years later in 1949, after the Communist revolution took
place.

Markets
After the Cultural Revolution ended and Deng Xiaoping rose to power, China was
re-opened to the outside world in 1978. During the 1980s, China's securities
market evolved in tandem with the country's economic reform and opening up and
the development of socialist market economy. On 26 November 1990, Shanghai
Stock Exchange was established again and began operation a few weeks later on
19 December.
Tokyo Stock Exchange

In the 1870's, a securities system was introduced in Japan and public bond
negotiation began. This resulted in the request for a public trading institution; and,
the "Stock Exchange Ordinance" was enacted in May 1878. Based on this
ordinance, the "Tokyo Stock Exchange Co., Ltd." was established on May 15,
1878; and trading began on June 1st.
In March 1943, the "Japan Securities Exchange Law" was enacted to reorganize
the Stock Exchange as a war-time controlled institution. On June 30, 1943, 11
stock exchanges throughout Japan were unified and a quasi-public corporation, the
"Japan Securities Exchange", was established (dissolved in April, 1947).
With worsening war conditions and air-raids on the main island of Japan, the
securities market was forced to suspend trading sessions on all securities markets
from August 10, 1945. It was difficult to re-open the Stock Exchange by a
Memorandum of Supreme Commander of Allied Powers (SCAP) in September
1945; however, trading was restarted by unofficial group transactions in December
of 1945.
The Securities and Exchange Law was enacted in March of 1947, and entirely
revised in April of 1948. On April 1, 1949, three stock exchanges were established
in Tokyo, Osaka and Nagoya. Trading on these exchanges began on May 16. In
July of that same year, five additional stock exchanges were established in Kyoto
(merged into Osaka Securities Exchange in March 2001), Kobe (dissolved in
October 1967), Hiroshima (merged into Tokyo Stock Exchange in March 2000),

Markets
Fukuoka, and Niigata (merged with Tokyo Stock Exchange in March 2000). In
addition, the Sapporo Securities Exchange was established in April 1950.
Consequently, Japan now has five stock exchange
Singapore Exchange
The Singapore Exchange was created in 1999, when the Stock Exchange of
Singapore (SES) and the Singapore International Monetary Exchange (SIMEX)
merged into one. The SIMEX had been a futures exchange, started in 1984, while
the SES had traded in stocks. At the end of 1998, the SES listed 307 companies
and had a total market capitalization of S$263 billion. Before the merger, both
companies were privately owned by the member firms of the exchanges.
In 2000, the Singapore Exchange became the first publicly held stock exchange in
the Asia-Pacific, and listed its shares on its own exchange.
Korea Exchange
Korea Exchange (KRX) was created through the integration of the three existing
Korean spot & futures exchanges (Korea Stock Exchange, Korea Futures
Exchange and KOSDAQ) under the Korea Stock & Futures Exchange Act.The
securities and futures markets of former exchanges are now operated as the
business divisions of the KRX: the Stock Market Division, KOSDAQ Market
Division and Derivatives Market Division. As of 31 December 2007, the Korea
Exchange had 1,757 listed companies with a combined market capitalization of
$1.1 trillion. The exchange has normal trading sessions from 09:00am to 03:00pm
on all days of the week except Saturdays, Sundays and holidays declared by the
Exchange in advance.
Taiwan Stock Exchange

Markets
With a view to establishing a sound capital market to encourage savings for the
formation of capital, the government of the Republic of China initiated a Stock
Market Research Task Force in 1959. The Securities and Exchange Commission
was set up in 1960 and the Taiwan Stock Exchange (TWSE) was incorporated in
1961. TWSE, funded by various private and state-owned enterprises, began
operation on February 9, 1962. This is the sole centralized securities market in
Taiwan. Under the Financial Supervisory Commission of the Executive Yuan,
TWSE aims to achieve four goals, namely, accelerating t h e internationalization o
f t h e s e c u r i t i e s mar k et , promot ing professionalism and innovation,
maintaining a n d i m p r o v i n g market operational mechanisms, and enhancing
efficiency and risk management. In accordance with government policy, TWSE
provides a fair, efficient and safe trading environment, and aims to lead the
Taiwan securities market into a new era of internationalization.
Indonesia Stock Exchange

Originally opened in 1912 under the Dutch colonial government,
it was re-opened in 1977 after several closures during World War
I and World War II. After being reopened in 1977, the exchange
was under the management of the newly created Capital Market
Supervisory Agency (Badan Pengawas Pasar Modal, or Bapepam),
which answered to the Ministry of Finance. Trading activity and
market capitalization grew alongside the development of
Indonesia's financial markets and private sector - highlighted by a
major bull run in 1990. On July 13, 1992, the exchange was
privatized under the ownership of Jakarta Exchange Inc. As a
result, the functions of Bapepam changed to become the Capital
Market Supervisory Agency. On March 22, 1995 JSX launched the
Jakarta Automated Trading System (JATS). In September 2007,

Markets
Jakarta Stock Exchange and Surabaya Stock Exchange merged
and named Indonesian Stock Exchange by Indonesian Minister of
Finance. The current location of the Indonesian Stock Exchange is
located in the IDX building in the Sudirman Central Business
District, South Jakarta, near the current site of the Pacific Place
Jakarta.
Tel-Aviv Stock Exchange

The precursor to the TASE was the Exchange Bureau for
Securities, founded by the Anglo-Palestine Bank (which became
Bank Leumi) in 1935. With rapid growth of the Israeli economy
after the founding of the state, a formal stock exchange was
incorporated and began operations in Tel Aviv in 1953. In 1983
the exchange moved to its current location in Tel Aviv.
In 1993 TASE had the third largest number of IPOs of all the world stock
exchanges.
In 1999 the exchange completed its turnover to fully computerized trading, with
the change orchestrated by Esther Levanon, who came to the exchange in January
1986 after 12 years with the Shin Bet, having set up and run the security agency's
computer department after her PhD work at the Technion. She later became CEO
of the exchange.
In 2005, non-Israeli investment in TASE reached an all-time high of NIS 2 billion.

Average daily share volume reached a record high of NIS 1 billion, double that of
2000 and 50% more than in 2004. The bond market saw a record high of NIS 1.3
billion daily average turnover, 40% more than in 2004. Non-governmental bonds
reached a daily average of NIS 220 million. Share issuance volume reached NIS
12.2 billion, around the same level of 2000 and 70% above the level of 2004. The
Markets
TA-25 increased 34%. By end of year foreign investment banks UBS, Deutsche
Bank, and HSBC had become members of TASE.
In September 2006, TASE bought out the shares of TASE Clearing House from
TASE members, making it a fully-owned subsidiary. The TASE Clearing House
maintained a NIS 620 million risk fund at the time as a primary cushion of
protection from potential risks, in addition to the NIS 30 million in shareholders
equity.
In February 2007 TASE and the London Stock Exchange and signed a
memorandum of understanding to formalise existing ties between the two
organisations, establish regular meetings between senior executives, and
information in order to facilitate orderly trading of the shares of companies
admitted to both markets. At the time, 50 Israeli companies were listed on the
London Stock Exchange's Main Market and Alternative Investment Market
(AIM). Of these, 36 had joined in the prior two years.
In November 2007 TASE and The Nasdaq Stock Market signed a memorandum of
understanding to formalize the relationship between the two markets developing
channels of communication between the two markets and working to facilitate
stronger trading of company shares admitted on both markets.NASDAQ at the
time had 70 Israeli companies listed on the exchange, with a combined global
market cap of over US$60 billion.
In 2007, 56 new companies raised more than $2.5 billion in initial public offerings
on the exchange, among them 20 hi-tech firms. Average daily share trading
volume set new records, averaging $500 million a day, a 55% jump over 2006.
Bond trading volume increased more than 100% from 2006 levels, to $800
million. Over 2007, the market for exchange-traded funds (ETFs) grew with the
addition of 150, bringing the total number of listed ETFs to 240, representing 18%

Markets
of the trading volume in shares and 10% of the trading volume in non-government
bonds. The public's holdings in ETFs reached more than $6 billion. The Tel Bond-
20 index was also launced, with the value of index products totalling $900
million.For the four years 2004-07, the TA-25 rose 175% -- more than four times
the figure for New York's markets for that timeframe.
In May 2008 Northern Trust started the first US exchange-traded fund on the
NYSE based on TASE's benchmark, the TA-25 Index.
In July 2008 TASE and NYSE Euronext entered into a memorandum of

understanding to increase the number of companies listed in both the US and
Israel, and boost trading. At the time seven Israeli companies traded on the NYSE.
Dual listings trading volume of NYSE Israeli companies had increased 31%
annually since 2001.
In November 2008 TASE and the Shanghai Stock Exchange signed a

memorandum of understanding, pursuant to which they agreed to exchange
delegations, to deepen Israeli businessmens' knowledge of the Chinese market and
Shanghai Stock Exchange, and vice versa.
Colombo Stock Exchange

The history of share trading in Sri Lanka dates back to 1896 with
the inception of share trading in limited liability companies under
the the Colombo Brokers Association. In 1985, the Colombo Stock
Exchange(CSE) took over the Stock Market from the Colombo
Shares Brokers Association, which administered the activities of
the Colombo Stock Market from 1896 to 1985. It was established
as a non-profit making limited liability company under the
Companies Act of Sri Lanka. In the following year, CSE became a

Markets
member of The International Federation of Stock Exchanges
(FIBV).
In 1991, the Central Depository System (CDS) was established, which introduced
the automation of the Clearing House of the Stock Exchange. An electronic and
settlement system for share transactions was also introduced together with the
CDS. In 1997, the stock exchange took another step forward towards a more
efficient market with the installation of the Automated Screen-Based Trading
System (ATS), which saw the automation of trading activity. Within 17 years of
establishment, a state-of-the-art technological infrastructure was developed, and it
significantly increased the competitiveness and efficiency of the market.
In 1996, a two-tier system - Board "A" and Board "B" was introduced. Board "A"
comprises of major companies while medium and small companies made up
Board "B". The stock exchange experienced an unprecedented surge in growth in
both indices after the ceasefire agreement was signed in 2001 by the Sri Lankan
government. This signified the end of a 20 year civil war which was highly
responsible for the rather sluggish performance of the market during the 1990s.
This led to a huge increase in foreign investment and over the years, the CSE has
seen a vast improvement in its performance, which saw the All Share Price Index
(ASPI) surpassing the 3000 mark this year for the first time in history on February
13. Fortune Magazine has recently highlighted the CSE as the second best
Emerging Markets stock exchange in the world.
Philippine Stock Exchange

The current Philippine Stock Exchange is a conjunction of the
Manila Stock Exchange (1927) and the Makati Stock Exchange
(1963). The Manila Stock Exchange, when in existence, was the
first exchange in Manila and the oldest in the Far East. Despite
Markets
having existed separately for nearly three decades, the two
bourses unified in 1992 under President Fidel Ramos. Unification
was deemed appropriate because the two exchanges essentially
traded the same listings. Ramos also aimed for a more efficient
capital market. In 1994, its operations were in full swing with two
trading floors - one in Pasig City; the other in Makati City.
On January 4 1993, the PSE incorporated the Stratus Trading System - a

computerized approach for their operations. Six months later, on June 15, they
also adopted the MakTrade trading system. Although the two systems were linked
on March 25 1994 to allow for the same opening and closing prices, it was not
until November 13 1995 that the systems were unified under the Unified Trading
System - operating under the MakTrade. In 1998 the Philippine Securities and
Exchange Commission named the PSE a self regulating organization, which
allowed it to implement its own policies and regulations. By 2001, the PSE had
formed into a stock-shareholder based organisation by taking the shape of a profit
earning corporation. It also began trading bonds.
By 2003, in an effort to be more publicly held, the exchange only allowed shares
to be listed through an introduction, rather than an initial public offering. Thus, in
2004 the PSE sold 6,077,505 shares of its un-issued capital to five investors:
PLDT Beneficial Trust Fund, SMC Retirement Fund, Government Service
Insurance System, Kim Eng Investment Ltd. and KE Strategic Pte Ltd.

Markets
7.0 Comparative Analysis
This is the main part of the study wherein the various stock exchanges have been
compared on certain parameters, both qualitatively and quantitatively.
7.1 QUALITATIVE ANALYSIS

In this section the various stock exchanges have been compared on the following
parameters;
1. Market Capitalization
2. number of listed securities
3. listing agreements
4. circuit filters
5. settlement
These parameters are used to look at selected important aspects of any stock
exchange, viz., the market capitalization gives an idea about the size of the
respective exchanges; whereas the number of listed securities acts as an indicator
for the volume and liquidity of any exchange. The listing agreements take care of
the governance issue, while circuit filters give an insight into the risk management
framework of the said exchange. Finally, the efficiency of a stock exchange has
been measured in terms of its settlement process.
7.1.1 Market Capitalization

Markets
Market capitalization is the measure of corporate size of a country. It shows the
current stock price multiplied by the number of outstanding shares. It is commonly
referred to as Market cap. It is calculated by multiplying the number of common
shares with the current price of those shares. This term is often confused with
capitalization, which is the total amount of funds used to finance a firm's balance
sheet and is calculated as market capitalization plus debt (book or market value)
plus preferred stock. While there are no strong definitions for market cap
categorizations, a few terms are frequently used to group companies based on its
capitalization.
The table below shows the market capitalization of various stock markets in Asia
as of October 2009
Country Market Cap (US $ % of World
million)
Bombay Stock Exchange 1144375 2.61
National Stock Exchange 1069909 2.44
Hong Kong Stock Exchange 2180399 4.97
Shanghai Stock Exchange 2430281 5.54
Tokyo Stock Exchange 3335316 7.609
Singapore Exchange 442174 1.008
Korea Exchange 765867 1.747
Taiwan Stock Exchange 575827 1.31
Indonesia Stock Exchange 196179 0.447
Tel-Aviv Stock Exchange 210185 0.479
Colombo Stock Exchange 8351 0.019
Philippine Stock Exchange 79074 0.18
Others 31394312 71.62
Total 43832252 100
(Source :www.world-exchanges.org)
Based on the above study, it can be observed that India is 13th in the world
ranking of Market capitalization. This is in spite of having the third largest
investor base, after Japan and USA, and having the largest number of companies
listed.

Markets
7.1.2 Listed Securities
Listing in a stock exchange refers to the admission of the securities of the
company for trade dealings in a recognized stock exchange. The securities may be
of any public limited company, Central or State Government, quasi-governmental
and other financial institutions/corporations, municipalities, etc. Securities of any
company are listed in a stock exchange to provide liquidity to the securities, to
mobilize savings and to protect the interests of the investors.
India has the highest number of companies listed in the stock market. Out of this,
about 75 % of the companies are listed with the Bombay Stock Exchange.
Indices
Name No. of Companies
Sensex 4951
S & P Nifty 1439
Hang Seng 1297
SSE Composite 868
TOPIX 2340
STI 769
KRX 100 1774
TAIEX 739
IDX 402
TA-25 627
ASPI 231
PSEi 248
7.1.3 Listing Agreements
7.1.3.1 Bomabay Stock Exchange
Eligibility Criteria for IPOs/FPOs: Companies have been classified as large cap
companies and small cap companies. Company with a minimum issue size of Rs.
10 crores and market capitalization small cap company is a company other than a
large cap company.

Markets
Parameters Small Cap Large Cap Companies
Companies
Min post issue paid up 3 Crores 3 Crores
capital
Min Issue size 3 Crores 10 Crores
Min market capitalization 5 Crores 25 Crores
Min public shareholders 1000
Min turnover 3 Crores in preceding 3
years
7.1.3.2 National Stock Exchange
Eligibility Criteria for New companies (IPOs)

Paid Up capital: Not less than 10 Crores
Market Capitalisation: Not less than 25 Crores
At least three years track record:
• The company has not been referred to the Board for Industrial and Financial
Reconstruction (BIFR).
• The networth of the company has not been wiped out by the accumulated losses
resulting in a negative networth.
• The company has not received any winding up petition accepted by a court.
• ‘Promoters’ mean one or more persons with a minimum 3 years’ experience of
each of them in the same line of business and shall be holding at least 20% of the
post issue equity share capital individually or severally
• No disciplinary action by other stock exchanges and regulatory authorities in past
three years.
Existing Companies listed on other stock exchanges

Markets
Paid up Capital: Not less than 10 Crores
Market Capitalization: Not less than 25 crores.
Minimum Listing Requirements for companies listed on other stock exchanges.
The company should have minimum issued and paid up equity capital of Rs. 3
crores. The Company should have profit making track record for last three years.
Minimum net worth of Rs. 20 crores
Minimum market capitalization of the listed capital should be at least
two times of the paid up capital.
7.1.3.3 Hong Kong Stock Exchange

Basic Listing Requirements for Equities
• Profit attributable to shareholders: At least HK$50 million in the last three
financial years
• Market Capitalisation: At least HK$200 million at the time of listing
• Revenue: At least HK$500 million for the most recent audited financial year
• Cashflow: Positive cashflow from operating activities of at least HK$100 million
in aggregate for the three preceding financial years
Spread of Shareholders:
• 100 shareholders for issuers with 24 months of active business pursuits.
• 300 shareholders for issuers with 12 months of active business pursuits.
Public float:
• At least 25% of the issuer's total issued share capital must at all times be held by
the public.
7.1.3.4 Shanghai Stock Exchange

According to the regulations of Securities Law of the People’s Republic of China
and Company Law of the People’s Republic of China, limited companies applying
for the listing of shares must meet the following criteria:

Markets
The shares must have been publicly issued following approval of the State Council
Securities Management Department.
The company’s total share capital must not be less than RMB 30 million.
The company must have been in business for more than 3 years and have made
profits over the last three consecutive years. This requirement also applies to
former state-owned enterprises reincorporating as private or public enterprises. In
the case of former state-owned enterprises re-established according to the law or
founded after implementation of the law and if their issuers are large and medium
state owned enterprises, it can be calculated consecutively. The number of
shareholders with holdings of values reaching in excess of RMB 1,000 must not be
less than 1,000 persons. Publicly offered shares must be more than 25% of the
company’s total share capital. For company whose total share capital exceeds
RMB 400 million, the ratio of publicly offered shares must be more than 15%.
The company must not have committed any major illegal activities or false
accounting records in the last three years.
Other conditions stipulated by the State Council.
China currently has a preference for domestic firms only to list onto their stock
exchanges; India has similar rules. However, China is considering opening up
their capital markets to foreign firms in 2010.
The conditions for applications for the listing of shares by limited companies
involved in high and new technology are set out separately by the State Council.
7.1.3.5 Tokyo Stock Exchange

Criteria for Listing
The number of shareholders:
• In case where the number of shares to be listed is less than 10 thousand units;
800 persons.
• In case where the number of shares to be listed is 10 thousand units or more but
less than 20 thousand units; 1,000 persons,
Markets
• In case where the number of shares to be listed is 20 thousand units or more;
1,200 persons.
Number of years since incorporation:
3 years or more have elapsed by the last day of a business year immediately prior
to the day of listing application
Amount of profit:
The amount of profit for the first year of the latest 2 years was 100 million
yen or more; and 400 million yen or more for the latest year, or
The amount of profit for the first year of the latest 3 years was 100 million
yen or more; 400 million yen or more for the latest one year of the latest 3 years;
and the aggregate amount of profits for all of the latest 3 years was 600 million
yen or more.
7.1.3.6 Singapore Exchange
Highlights of listing requirements - Mainboard
Criteria 1 Criteria 2 Criteria 3

Income Cumulative Cumulative N/A
consolidated pre- consolidated pre-
tax profit of at least tax profit of at least
S$7.5 million for S$10 million for
the last 3 years, the latest 1 or 2
with a pre-tax profit years
of at least S$1
million in each of
those 3 years
Market N/A N/A At least S$80
capitalisation million at the time
of the initial public
offering, based on
the issue price and
post invitation

Markets
issued share capital
Shareholding • Market capitalisation less than S$300 million : 25% of
spread enlarged share capital in public hand
• Market capitalisation between S$300 million - S$400
million : 20% of enlarged share capital in public hand
• Market capitalisation between S$400 million - S$1
billion : 15% of enlarged share capital in public hand
• Market capitalisation more than S$1 billion : 12% of

enlarged share capital in public hand
No of shareholders At least 5,000
Moratorium • Promoters' entire shareholding at the point of listing for
first 6 months after listing (Criteria 1 & 2)
• Promoters' entire shareholdings at the point of listing

for first 6 months after listing and at least 50% of
original shareholdings for the next 6 months (Criterion
3)
Financial position Healthy financial position with positive cash flow operating
and liquidity activities. All debts owing by directors, substantial
shareholders and companies controlled by directors and
substantial shareholders must be settled except subsidiaries
and associated companies of the issuer
Directors and • Directors and executive officers should have
management appropriate experience and expertise to manage the
group's business
• The character and integrity of the directors,
management and controlling shareholders of the issuer
will be a relevant factor for consideration
• At least 2 non-executive directors who are independent
and free of any material business or financial
connection with the issuer
• A foreign issuer must have at least two independent
directors, resident in Singapore
• Audit committee is required

Financial Singapore Financial Reporting Standards, U.S. Generally
reporting Accepted Accounting Principles or International Financial
Reporting Standards

Markets
7.1.3.7 Korea Exchange
Quantitative Requirement
No of Shares: At least 1million shares as of application date.
Net Worth: At least KRW 10 billion as of application date.
Sales Amount: At least KRW 30 billion for the latest fiscal year and
the average for the latest three fiscal years should be at least KRW 20 billion.
Financial Requirement
Profit: Must show operating profits, ordinary profits and net profits.
Profits for the latest fiscal year should be at least KRW 2.5 billion and
the sum for the latest three fiscal years should be KRW 5 billion.
Reserve Ratio: At least 50% (25% for large corporations) according to
the balance sheet of the latest fiscal year.
Reserve ratio = [(Net worth - Paid-in Capital) / Paid-in Capital] * 100
No of years since establishment: Have been operating without
interruption for at least 3 years since establishment.
7.1.3.8 Taiwan Stock Exchange

Where an issuing company applying for the listing of its stock meets the criteria
listed below, the TWSE will agree to list its stock:
1. Duration of corporate existence: It shall have been incorporated and registered
under the Company Act for at least three years at the time of the application for
listing; provided, this restriction shall not apply to public (state-owned) enterprises
or to privatized public enterprises.
2. Amount of capital stock: The amount of its paid-in capital shall be NT$600
million or more at the time when it applies for listing.
3. Profitability: The operating income and income before tax in its separate
financial statements, or in its consolidated financial statements prepared in

Markets
accordance with the Statement of Financial Accounting Standards No. 7, meet
either of the following criteria, and it does not have any accumulated deficit in the
final accounting for the most recent fiscal year. However, if it has prepared a
consolidated financial statement, the following criteria are not applicable to the
operating income stated in its separate financial statements:
(1) Each of the operating income and income before tax for the most recent two
fiscal years represents 6 percent or greater of the share capital stated on the
financial report for the annual final accounts, or the average operating income and
income before tax for the most recent two (2) fiscal years represent 6 percent or
greater [of the amount of paid-in capital in its final accounts] and the profitability
for the most recent fiscal year is greater than that for the immediately preceding
fiscal year; or
(2) Each of the operating income and income before tax for the most recent five
years represents 3 percent or greater of the share capital stated on the financial
report for the annual final accounts.
4. Dispersion of shareholdings: The number of registered shareholders shall be
1,000 or more. Excluding company insiders and any juristic persons in which such
insiders hold more than 50 percent of the shares, the number of registered
shareholders shall be at least 500, and the total number of shares they hold shall be
20 percent or greater of the total issued shares, or at least 10 million.
For the profitability in the consolidated financial statements referred to in
subparagraph 3 of the preceding paragraph, the influence of net profit (loss) of
minority interest on it shall not be taken into account.
A state-owned enterprise applying for listing of its stock shall have its financial
report for the most recent fiscal year audited and attested by a certified public
accountant, and shall prepare it in the form of a two-year comparative report. For
other fiscal years if the stock was not yet publicly issued, the audit report issued by
the auditing agency may be used instead.

Markets
7.1.3.9 Indonesia Stock Exchange
Stock listed in the Indonesia Stock Exchange is classified into 2 listing boards:
Main Board and Development Board. The placement of the Issuer and prospective
Issuer’s Listing depends on the fulfillment of the initial listing requirements on
each Board.
Main Board is intended for listed big companies that have track records, while the
Development Board is intended for companies that have not yet fulfill the listing
requirements of the Main Board, including prospective companies that have not
produce any profits, and companies that are on the state of reorganization.
General Requirement Listing on the Jakarta Stock Exchange
Issuers can list their stocks in the Exchange if they have already fulfilled the
following requirements:
1. Registration statement has been stated effective by the Bapepam

2. The issuer is not in lawsuit that could influence the existence of the
company
3. Its business field is directly or indirectly not prohibited by the prevailing
law of Indonesia
4. Particularly for issuers in manufacturing field, they are not in pollution
problem (this is proved by the AMDAL certificate) and for issuers in
forestry field must have ecolabelling certificate
5. Especially for issuer in mining field, it must have a managing license that is
still valid at least for 15 years; have at least 1 Mining Authority Contract or
Regional Mining License; one director with technical skill and experience
in mining field; and have had a proven deposit or equivalent
6. Especially for business that needs managing license (like highway
construction, forestry), it must own the license at least for 15 years.
Markets
7. Subsidiary and/or holding company of a listed company in Jakarta Stock
Exchange that contribute 50% of its consolidation income to the listed
company cannot be listed in the Exchange
8. Financially related requirements of the initial listing must base on the last
audited annual financial report.
Criteria of Initial Listing on the Main Board
Prospective issuers will be listed for the first time in the Main Board if they have
fulfilled the requirements below:
No Criteria
1. Have fulfilled general requirements for stock listing
2. Until the proposal of listing, the company has been running its
operational activities in the same core business for at least 36
months in sequent
3. Have audited the last three years Financial Reports, and have
received Proper Opinion Without Exception for the last 2 years
audited financial report and Interim Audited Income Statement (if
exists)
4. Based on the last Audited Financial Report, the company must have
at least an amount of Rp 100,000,000,000 (one hundred billion
rupiah) as Net Tangible Asset
5. The amount of shares owned by the minority shareholders after
public offering is at least 100,000,000 (a hundred million) shares or
35% of paid up capital (depends on which one is smaller)
6. The number of shareholders is at least 1.000 (a thousand)
shareholders, who already have accounts in one of the Exchange
Memberss, with the provisions below:
 For issuer that performs public offering, the number of its
shareholders is the number of shareholders after the initial
public offering.
 For issuer that comes from a public company, the number of
its shareholders is the last number of shareholders at least 1
month before proposing the listing application.
 For issuer listed in another Bourse, the number of its

Markets
shareholders is counted based on the average of the last six
months.
Criteria of Initial Listing on the Development Board
No Criteria
1. Have fulfilled general requirements for stock listing
operational activities in the same core business for at least 12 months in
sequent
operational activities in the same core business for at least 12 months in
sequent
4. Have net tangible assets of at least Rp 5,000,000,000 (five billions
Rupiah)
5. If issuer experiences operating loss or does not produce any profit yet or
operates less than 2 years, it is obligated to:
 achieve profit and net income on the end of the second book year
based on the financial projection announced in the Exchange.
 Especially for issuer, whose field of business needs longer time

to reach break event point (such as infrastructures, agricultures of
hard plants, Forest Managing Right concession or Industry Plan
Forestry or others business field related to public services) shoul
achieve profit and net income at least at the end of the sixth year
since the listing
6. The amount of shares owned by the minority shareholders after public
offering of five days before the listing proposal (for public company
which shares have not been listed) is at least 50,000,000 (fifty million)
shares or 35% of paid up capital (depends on which one is smaller)
7. The number of shareholders is at least 500 (five hundred) shareholders,
who already have accounts in one of the Exchange Members, with the
provisions below:
 For issuer that performs public offering, the number of its

shareholders is the number of shareholders after the initial public
offering
 For issuer that comes from a public company, the number of its
shareholders is the last number of shareholders at least 1 month

Markets
before proposing the listing application
 For issuer listed in another Bourse, the number of its shareholders

is counted based on the average of the last six months
8. Especially for issuer who is going tohold an IPO, the Underwriter has to
use the principle of full commitment
7.1.3.10 Tel-Aviv Stock Exchange

Listing requirements excluding R&D companies
Companies choosing to list on the TASE may qualify from among the following
criteria: (numbers are in NIS millions)
Procedure Procedure Procedure

1 2 3
Shareholders’ equity after listing 25 35 -
Public-float value 20 30 80
Period of activity 12 months 12 months -
Added value in the 12 months 4 - -
preceding listing *
Value of issue - - 80
Value of the company’s shares - - 200
*Added value: Profit (loss) before taxes, plus payroll expenses, depreciation, and
financing expenses, less financing income.
Public float for newly listed companies excluding R&D companies

The public float rate in a newly listed company must be equal to, or higher than,
one of the following:
The public float rateWhen the public float value

Markets
(%) must be at least (in NIS m) is greater than
25 20
20 30
15 40
10 50
7.5 200
Special listing rules for R&D companies
An R&D company is a company that has invested at least NIS 3 million in R&D
over the last three years, including investments of funds received from the Office
of the Chief Scientist at the Ministry of Industry and Trade.
The applicant company's main area of activity must be R&D, or the production
and marketing of products resulting from its own R&D.
The public float rate in a newly listed R&D company must meet the following:
The public float rateWhen the public float value

(%) must be at least (in NIS m) is greater than
10 16
7.5 50
Following an initial public offering, shareholder’s equity must be a minimum of

NIS 8 million.
7.1.3.11 Colombo Stock Exchange

Eligibility to be listed on the Main Board
(i) an issued and paid up capital of Rs 75,000,000.00 (Seventy Five Million) or
where the Company is incorporated/established outside Sri Lanka a value
equivalent thereto
(ii) a profit before tax for three consecutive years immediately preceding the date
of application.
(iii) 25% of the issued capital must be held by/ offered to the public.
Markets
Eligibility to be listed on the Second Board
(i) an issued and paid up capital of Rs 5,000,000.00 (five million) or where the
Company is incorporated/ established/ situated outside Sri Lanka a value
equivalent thereto
(ii) at the time of listing 10% of the issued capital must be held by the public
7.1.3.12 Philippine Stock Exchange
GENERAL CRITERIA
FIRST BOARD SECOND BOARD SME BOARD

a. A track record of a. The applicant The applicant company
profitable operations for company must shall be evaluated based
three (3) full fiscal years; demonstrate its potential on the following:
or for superior growth to the
b. A market Exchange; a. The integrity and
capitalization of P500 m, b. It must have an capability of the
provided that it has a five- operating history of at company’s management
year operating history; or least one (1) year prior to and its controlling
its listing; and stockholders;
c. Net tangible assets b. The company’s
of P500 m, provided that c. At listing, the prospects of further
it has a five-year market capitalization of growth and profitability;
operating history. the company must be at c. The viability of the
least P250 m. business and sustainability
of the projected earning
stream; and
d. The company’s
lack of existing
material conflicts of
interest.
TRACK RECORD REQUIREMENT

Markets
A company must have a None, but must The applicant company
cumulative consolidated demonstrate a potential should have been
pre-tax profit of at least at for superior growth, operational for at least
least P50 Million and a through the submission of one (1) year with
minimum pre-tax profit of Statement of Active positive net operating
P10 Million for each of Business Pursuits and income (income before
interest, taxes,
the three (3) full fiscal Objectives.
depreciation and
years immediately amortization-EBITDA)
preceding the application during the last
for listing. For purposes financial year.
of this rule, pre-tax profit
shall not include non-
recurring and
extraordinary income, nor
shall it be reduced by
non-recurring and
extraordinary loss. The
applicant must further be
engaged in materially the
same businesses and must
have a proven track
record of management
throughout the last three
(3) years prior to the
filing of the application.
Exceptions to the 3 year

track record rule:
a. The applicant
company has been
operating for at least Ten
(10) years prior to the
filing of the application.
The applicant company
shall have a cumulative
pre-tax profit of at least
P50 Million, excluding
non-recurring and
extraordinary income
and/or loss, for the last

Markets
Three (3) fiscal years
immediately preceding
the application for listing.
No net operating loss
must have been registered
in the fiscal year
immediately preceding
the filing of the
application;
b. The applicant
company is a newly
formed holding company
which uses the
operational track record
of its subsidiary(ies). The
company, however, is
prohibited from divesting
its shareholdings in the
said subsidiary(ies) for a
period of three (3) years
from the listing of its
securities. The prohibition
shall not apply if a
divestment plan is
approved by majority of
the applicant company’s
stockholders.
NUMERICAL CRITERIA

Authorized Capital Stock- Authorized Capital Stock- Authorized Capital
Stock-
Minimum- Minimum- Minimum-
P400,000,000.00 P 100,000,000.00 P 20,000,000.00
Maximum-
Subscription & Paid-up- Subscription & Paid-up- P 100,000,000.00
Minimum- Minimum-
Subscription & Paid-

Markets
P100,000,000.00 P 25,000,000.00 up-
Minimum-
Condition on Paid-up: at 25% of the ACS
least 75% of the paid-up
must have already been * The applicant
disbursed to the project, company should have
net tangible assets of
venture or business
at least Five Million
referred to in the business Pesos (P
plan 5,000,000.00). The net
tangible assets
requirement is not
applicable to
information technology
companies.
OPERATING HISTORY

For a track record of At least one (1) year prior At least one (1) year
profitable operations- At to listing. from filing
least three (3) full fiscal
years prior to the filing of
the listing application if
with track record
For a market
capitalization or net
tangible assets of P500M
- at least five (5) years.

Markets
7.1.4 Circuit filters
Stock Markets have the dubious reputation of crashing without a warning

taking with the savings of numerous investors. A stock market crash is a sudden
dramatic decline of stock prices across a significant cross-section of a market.
Crashes are driven by panic as much as by underlying economic factors. They
often follow speculative stock market bubbles such as the dot-com bubble.
The study is restricted to the performance of the Indian Stock market and
Asian Stock exchanges. Hence we will be concentrating on the Asian Financial
Crisis and Dot-Com Bubble.
As a counter measure to the instability of the stock market, various
measures were introduced by to avoid huge losses. One such solution is circuit
breakers. Circuit Breakers are “a point at which a stock market will stop trading
for a period of time in response to
substantial drops in value.” They are also referred to as trading curb in certain
stock
markets like DJIA and NYSE. This was first introduced after Black Monday.
Black Monday is the name given to Monday, October 19, 1987, when the Dow
Jones Industrial Average (DJIA) fell 22.6%.(12). This was done with an aim to
avert panic in the market and to avoid panic selling.
The Circuit Filters operate according to the rules and requirements of the
stock Market in question.
Exchange Percentage change to trigger circuit breakers

Markets
Bombay Stock Exchange Market wide
3 stages-10%,15%,20% of index movement
Individual scrips(depending upon type of scrip)
2%,5%,10% movement of individual scrip
National Stock Exchange Market wide
3 stages-10%,15%,20% of index movement
Individual scrips(depending upon type of scrip)
2%,5%,10% movement of individual scrip
Hong Kong Stock
Exchange
Shanghai Stock Exchange
Tokyo Stock Exchange 2 stages-5%,10%
Singapore Exchange
Korea Exchange Single stage -10%
Taiwan Stock Exchange
Indonesia Stock Exchange
Tel-Aviv Stock Exchange
Colombo Stock Exchange
Philippine Stock
Exchange
REMARKABLE FEATURES OF CIRCUIT FILTERS IN SOME

STOCK EXCHANGES
Bombay Stock Exchange
Scrip wise Price Bands
1. For scrips (53 scrips) on which derivative products are available and scrips
which are included in indices on which derivative products are available, there is
no circuit filter.
However, the Exchange has imposed dummy circuit fitters on these scrips to avoid
punching error, if any.
2. Other Scrips which are not included in above-mentioned category have a circuit
filter limit of 20%.

Markets
Market Wide Circuit Breakers
In addition to the above-stated price bands on individual scrips, SEBI has
decided to implement index based market wide circuit breakers system with effect
from July 02, 2001.The circuit breakers are applicable at three stages of the index
movement either way at 10%, 15% and 20%. These circuit breakers will bring
about a coordinated trading halt in both Equity and Derivative market.
The market wide circuit breakers can be triggered by movement of either
BSE SENSEX or the NSE NIFTY, whichever is breached earlier. The percentage
movements are calculated on the closing index value of the quarter. These
percentages are translated into absolute points of index variation (rounded off to
the nearest 25 points in case of SENSEX). At the end of each quarter, these
absolute points of index variations are revised and made applicable for the next
quarter. The absolute points of SENSEX variation triggering market wide circuit
breaker for a specified time period for any day of the quarter is informed by the
Exchange through Press Release from time to time.
National Stock Exchange

Index-based Market-wide Circuit Breakers
The index-based market-wide circuit breaker system applies at three stages of
the index movement, either way viz. at 10%, 15% and 20%. These circuit
breakers, when triggered, bring about a coordinated trading halt in all equity and
equity derivative markets nationwide. The market-wide circuit breakers are
triggered by movement of either the BSE Sensex or the NSE S&P CNX Nifty,
whichever is breached earlier.
• In case of a 10% movement of either of these indices, there would be a one-hour
market halt if the movement takes place before 1:00 p.m. In case the movement
takes place at or after 1:00 p.m. but before 2:30 p.m., there would be trading halt
for ½ hour. In case movement takes place at or after 2:30 p.m., there will be no
trading halt at the 10% level and market shall continue trading.
Markets
• In case of a 15% movement of either index, there shall be a two-hour halt if the
movement takes place before 1 p.m. If the 15% trigger is reached on or after 1:00
p.m. but before 2:00 p.m., there shall be a one hour halt. If the 15% trigger is
reached on or after 2:00 p.m., the trading shall halt for the remainder of the day.
• In case of a 20% movement of the index, trading shall be halted for the
remainder of the day.
These percentages are translated into absolute points of index variations on a
quarterly
basis. At the end of each quarter, these absolute points of index variations are
revised for the applicability for the next quarter. The absolute points are calculated
based on closing level of index on the last day of the trading in a quarter and
rounded off to the nearest 10 points in case of S&P CNX Nifty.
In addition to this, there are also price bands for individual securities. Daily
price bands are applicable on securities as below:
• Daily price bands of 2% (either way) on specified securities.
• No price bands are applicable on scrips on which derivative products are
available or scrips included in indices on which derivative products are available.
• Price bands of 20% (either way) on all remaining scrips (including debentures,
warrants, preference shares etc). The price bands for the securities in the Limited
Physical Market are the same as those applicable for the securities in the Normal
Market. For Auction market the price bands of 20% are applicable.
• In order to prevent members from entering orders at non-genuine prices in such
securities, the Exchange has fixed operating range of 20% for such securities.

Markets
Hong Kong Stock Exchange
Though a circuit-breaker has not been adopted yet, a two-tier circuit-
breaker is being
considered, under which trading would stop for half an hour in the event of a 15%
fluctuation over the previous day’s close, and for one hour in the event of a 25%
fluctuation. Another option being considered is an individual circuit-breaker per
stock, which would cause a ten minute open-outcry auction to be initiated every
time a stock price varied more than 10% over last day’s close.
Tokyo Stock Exchange

There are two circuit breakers which last for only 15 minutes after the price limit
is hit.
The first circuit breaker takes effect when the price is 5% above or below the
previous trading day’s settlement price. Another 5% change in the same direction,
or a total of 10%, will trigger the second circuit breaker. Limits do not apply to the
last 30 minutes of the trading day, unless the 15-minute cooling period spills into
that time frame. There are no limits for the last day of trading for the contract
nearest to expiry.
Korea Exchange
Daily price change limit
To avoid abnormal price fluctuations caused by imbalance in supply and
demand, the KRXStock Market places ± 15% of limit that the prices on individual
stocks can change during a day, thus preventing fall or rise of the price of
individual stock more than 15 percent of the previous day’s closing price.
Circuit Breakers
The KSE introduced the Circuit Breakers in December 1998. In order to
pacify the overreaction of investors, when the stock price drops suddenly below

Markets
certain level (more than 10% of the closing price of the previous day and such
situation continues for longer than one minute), the circuit breakers system was
introduced on December 7, 1998. The trading, which resumes by periodic call
auction where the orders submitted during the first 10 minutes after the trading
halt ended, are matched at a single price.
Regulation on program trading
As a measure used to minimize possible impacts of futures market on cash
market, thus maintaining the stability of the cash market, when the price of the
most active futures
contract continues to change 5 % or more than the base price for one minute,
execution of all program trading orders in the cash market is delayed for 5
minutes.
Trading Halt
In order to protect investors, when, due to rumors or reports on the matters
(e.g., bank defaults, bankruptcy, corporate restructure, etc.) that have major
implication on corporate management, sudden and drastic change of trading value
and volume is anticipated, the trading of such issues may be halted. In such a case,
the concerned corporation is asked to make an inquiry into such rumors or reports
and disclose findings.
7.1.5 Trading and Settlement Cycle

Markets
This segment takes care of the efficiency issue of the said stock exchange. It
basically looks into the speed at which any of the numerous transactions affected
in the market gets settled. This is especially crucial given the volume. We see that
Indian exchanges are at par with the best in the world when it comes to efficient
settlement. It can even go one up if the proposed ‘T+1’system is put in place.
Below are the various settlement cycles for the stock exchanges.
Exchange Settlement Cycle

Bombay Stock Exchange T+2
National Stock Exchange T+2
Hong Kong Stock Exchange T+2
Shanghai Stock Exchange T+1
Tokyo Stock Exchange T+3, T+1
Singapore Exchange T+3(Cash)
T+1(Derivatives)
Korea Exchange T+2, T, T+1
Taiwan Stock Exchange T+2
Indonesia Stock Exchange T+3, T1-T7, T+1
Tel-Aviv Stock Exchange T+0, T+1
Colombo Stock Exchange T+3, T+1
Philippine Stock Exchange T+3
(Source :www.world-exchanges.org)
7.2 QUANTITATIVE ANALYSIS
The hypothesis that the exchanges impact each other has been tested through
various statistical methods with data on price, returns collected from the

Markets
exchanges. Mainly the correlation analysis, exponential trend analysis and the
risk-return analysis has been used to validate the hypothesis.
7.2.1 Price Relationship
Correlation is a numerical summary measure that indicates the strength of

relationships between the pairs of variables. A correlation is very useful but it has
its limitations. That is, it can only measure the strength of a linear relationship.
The numerator of the above formula is also a measure of association between two
variables X and Y which is called the covariance between X and Y. Similar to
correlation, a covariance is a single number that measures the strength of the linear
relationship between the two variables. It is by looking at the sign of the
correlation or the covariance, i.e. positive or negative, that we can tell whether the
two variables are positively or negatively related.
Therefore the correlation is better because, unlike the covariance, the
correlations are not affected by the units in which the variables are measured. All
the correlations are between +1 and -1, inclusive. The sign determines whether the
relationship is positive or negative. The strength of the relationship is measured by
the absolute value or the magnitude of the correlation. The closer it is to +1 the
stronger the relationship is and the closer to zero indicates that there is practically
no linear relationship. At the extreme a correlation equal to1 -1 or +1 occurs only
when the linear relationship is perfect.
In this part the price data of NSE, Hang Seng and Korea stock exchanges
are collected and subjected to a correlation test in order to find out the influence
that they have on each other. In other words, an effort has been made to gain
insight into how far the price movements of the exchanges are related with one
another.

Markets
7.2.2 NSE vs. Hang Seng
Fig 1.1
In Fig1.1, period 1 shows that there is almost no correlation between these two
exchanges.
Hang Seng was rising very sharply because of the East Asian miracle. Whereas
India, not part of this success story, remained almost untouched by this boom.
NSE is almost constant during this period. During period 2, Hang Seng crashed 50
percent and then rose back 100 percent. Thus, it showed very high volatility
during this period. NSE also rose during this period because of pervasive tech
boom but the rise was not as spectacular as Hang Seng. Hang Seng might also
have risen sharply because of its previous low levels. Period 3, Hang Seng was
falling steadily; showing a downward trend. This might be due to the fear of
global recession. But the NSE was not much affected. During Period 4, NSE was
rising in almost identical manner with the Hang Seng. This shows the larger
integration of the Indian economy in the foreign market. This might also be due to

Markets
the fact that this boom was led by FII and other foreign investors. Hence, NSE is
showing higher correlation during this period.
7.2.3 NSE vs. Korean stock exchange

Fig 1.2
The above diagram shows that, during 1995, both the stock exchanges were at the
same
level. But due to East Asian crisis, Korean stock exchange was much more
affected because its economy was more integrated with those East Asian
economies. During period 2, both the stock exchanges moved in almost identical
manner. The returns were almost nearly equal during this period, since both the
stock exchanges rose very sharply. But, the rise in the NSE was much sharper.
Still, we can say that the two exchanges were moving more or less in same
fashion.

Markets
We have tried to take a look at the impact of various stock exchanges on each
other in this section. Therefore, we have divided our time period from 1995-2006
June into sub-sets depending on the happening of certain changes caused by events
or policy decisions. This has the purpose of finding out the extent of impact that
the markets have on each other.
7.2.5 Stock Price Correlation among Stock Exchanges

Year/variables Korean Hong Kong NSE
1995-1997
Korean 1.000
Hong Kong -0.868 1.000
NSE -0.277 0.421 1.000
1998-2000
Korean 1.000
Hong Kong 0.603 1.000
NSE 0.826 0.810 1.000
2001-2003
Korean 1.000
Hong Kong 0.171 1.000
NSE 0.395 0.789 1.000
2004-2006
Korean 1.000
Hong Kong 0.156 1.000
NSE 0.925 0.336 1.000
(This correlation figures were extracted from the study on “Comparative Analysis of Indian Stock
Market with International Markets” cunducted by Debjiban Mukherjee, T. A. Pai Management
Institute, Manipal, India )
The period 1995-97, characterized by the South East Asian currency crisis
and other economic events, did not have integration of different markets at high

Markets
levels. This is especially true in case of India. Our country was in its inception
stage as a globalized economy and hence distinctly protected from foreign
exposure. The capital market was slowly evolving at that point of time, putting
systems in place. That is to say, India had only limited foreign exposure which
somewhat insulated the country’s economy from foreign economic upheavals.
This is clearly reflected in the following table of correlations which clearly shows
that, in that period, very little correlation was existent among the exchanges. This
signifies that the impact of other exchanges was negligible on the Indian capital
markets. The almost non-existent effect of the South Asian Currency crisis, which
affected Korea, on the Indian market validates our observation. The correlation
shows negative for Korean exchange. During the period 1998-2000, Indian
economy faced a recession as well as a period of heightened business activity.
Mainly, the capital market started to consolidate across the globe. This is reflected
by increasing impact of various exchanges on the New York Stock Exchange. The
point to note is that it is mainly the Asian markets that have started impacting the
New York Stock Exchange. The Korean market started to cast its effect along with
the Hong Kong market. This maybe because a lot of MNCs made their Asian base
in those two countries and they also operated in India, hence the impact.
The period 2001-03 faced another major economic dampener in the form
of the 9/11 attacks in USA. This left the world economy in a state of shock. As
could be expected, the economies across the globe faced recessionary situation.
However, this time also, except for the Hong Kong bourses, none else had any
significant impact on the Indian counterpart. 2004-06 is termed as the period when
the various world markets started to converge. In the global scenario also, we find
that the economies facing downturn were making a comeback – Japan and USA.
Our expectation to find high level of impact of other markets on Indian market
gets validated as shown by the significant correlation figures in the table.
However, one thing to notice is the lessened impact of the Hong Kong market on
the Indian market which, going by the past trend, comes as a surprise. This maybe

Markets
due to easing of restrictions which previously insulated the economy from foreign
exposures. The increased cross border flow of capital also contributed to this
phenomenon.
7.2.6 Exponential Trend

In contrast to a linear trend, an exponential trend is appropriate when the
time series changes by a constant percentage (as opposed to a constant amount)
each period. One important characteristic of exponential trend is that, if a time
series exhibits an exponential trend, a plot of its logarithm should be appropriately
linear. This equation can be interpreted that the coefficient b is approximately the
percentage change per period. Whenever there is a time series that is increasing at
an increasing rate or decreasing at a decreasing rate, an exponential trend model
proves apt.
In this context, the method has been used to understand the trend existing
in the movement of the exchanges and whether the trends have commonality. In
other words, an attempt has been made to find whether two or more exchanges
follow the same pattern in their movements of price and, if so, to what extent they
are related.

Markets
Markets
Markets
In the above figures, it can be seen that NSE seemed to follow the
exponential trend quite reasonably before the technology boom had hit the Indian
stock market in the year 2003. After that NSE has much larger rise which could
not be captured in the exponential trend. For, both the stock exchanges of Korea
and Honk Kong have shown very high volatility over this period and have not
risen consistently enough. Thus exponential trend line is not able to explain the
price behavior of these exchanges satisfactorily. The R-square values are very low
0.07 and 0.13 for Korean and Hang Sang respectively.
7.2.7 Risk and Return
This section tries to compare the various exchanges on the basis of returns and the
corresponding risks associated with it, returns being, perhaps, the single most
important factor affecting the performance of any index. While risk can be termed
as the major factor underlying all activity, it becomes imperative to compare the
exchanges based on this parameter. Table 2 exhibits the historical risk-return
figures of the exchanges. NSE seems to have followed or moved in tandem with
the NYSE more after year 2000. Hang Seng exchange follows long cycles. If
returns turn negative, they remain negative for two or three years. Similarly if
return turns positive, then they remain so again for two or more years.
Year /
Variables NSE Hong Kong Korean

Markets
Risk Return Risk Return Risk Return
1995 60.1 -26% 323.5 20% 40 -14%
1996 100.4 -1% 418.7 30% 71.4 -31%
1997 82.4 14% 905.1 -20% 108.3 -55%
1998 115.4 -20% 637.9 -20% 88.2 38%
1999 184.0 51% 784.0 54% 156.8 56%
2000 157.2 -23% 521.8 -18% 143.8 -74%

2001 129.2 -17% 659.8 -21% 48.1 29%
2002 67.7 4% 336.5 -17% 80.0 -14%
2003 254.2 54% 654.9 36% 84.2 24%
2004 159.0 8% 371.2 9% 53.1 9%
2005 263.5 29% 278.3 7% 136.3 43%
2006 252.3 10% 335.0 15% 60.3 -3%
(This risk return figures were extracted from the study on “Comparative Analysis of Indian Stock
Market with International Markets” cunducted by Debjiban Mukherjee, T. A. Pai Management
Institute, Manipal, India )
7.2.8 Risk Return Comparison

Korean stock market is also very stable form the standard deviation
angle. But this market has also not much appreciated over these years and it
remains more or less range- bound. Hang Seng has shown the highest volatility as
it is a much traded stock exchange. Also, the events like East Asian crisis have
also affected the volatility of this exchange. But, nevertheless, the volatility has
reduced in the recent years than it has in the period 1997-1999. The volatility of
the NSE has risen steadily over these years as the trading and market capitalization
of the companies has increased. Now the volatility of NSE is almost at par with
the other exchanges.

Markets
8 OTHER FACTORS INFLUENSING STOCK
MARKETS
Impact of Terrorism on Asian Stock Markets.
The prices of individual stocks reflect investors' hopes and fears about the future
and taken in aggregate, stock price movements can generate a tidal wave of
activity. Because of their liquidity, events like terrorist attacks, military invasions
and other unforeseen disastrous occurrences can have serious implications for the
prices of the stocks and bonds. The event study methodology is used to assess the
effect of terrorism (September 11, 2001 terrorist attack) on Asian capital markets.
In the present study, an attempt is made to examine how the Indian stock markets
and their various indices (Bombay Stock Exchange and National Stock Exchange)
reacted to the September 11th, 2001 terrorist attack and how the Asian stock
Markets
markets reacted to it. The study found that among the Asian stock markets, Indian
stock markets are more resilient than in the past and they recovered sooner from
terrorist attacks than other Asian stock markets.
Impact of Global recession in India as well as Asian stock

market
Toronto, ON, Canada, — The United States is heading toward recession. This is
no longer conjecture -- the threat is real. This was indirectly acknowledged by the
White House on Jan.18 with the unveiling of an economic aid package that
practically confirmed everyone's worst fears.
The signs have been apparent since last June or July. The stock market has been
moving sideways rather than up. There were signals that the economy, which had
been hopping from one record to another for the last six years, needed a breather.
Then the sub-prime loan crisis began to unfold. Banks and financial institutions
began to take losses, followed by other related companies. Later the housing
market began to collapse, induced by the sub-prime loan crisis. When this was
followed by less-than-spectacular Christmas retail sales, the "R"' word began to be
uttered.
The recession will not be officially confirmed for awhile, and rapid interest rate
cuts announced on Jan. 22 may reduce its impact. A near agreement between
Congress and the White House on an additional aid package as unveiled on Jan. 24
may further reduce the impact of the upcoming slowdown -- yet a general
slowdown is inevitable.

Markets
Half a trillion dollars spent on the Iraq war, $200 billion in losses in the sub-prime
loan crisis, and a huge trade deficit with China are structural factors that cannot be
helped by any aid package.
Global stock markets suffered catastrophic losses on Jan. 21. Japan's stock market
dropped 6 percent, India's 8 percent, Canada's 4.5 percent and European markets
fell from 4 to 6 percent. The U.S. market, closed for a holiday, was spared
catastrophic losses.
Luckily for U.S. markets, the Federal Reserve stepped in on the morning of Jan.
22 and cut interest rates by 75 basis points, which had the desired effect. It curbed
investors' rush to sell, and a day later profiteers stepped in to buy stocks cheap,
which helped reduce losses.
India suffered miserably on Jan. 21, as well as a few days prior to that day of
infamy. Institutional investors from abroad, who had driven the Indian stock
market sky high, pulled back. As in the United States, the investors were back the
next day, helping the stock market recover some of its losses.
The Chinese are not immune to the worldwide financial crisis, although they are
less exposed to institutional investors. Their worst nightmare may be yet to come.
With reduced merchandize exports, factories will be idle. Layoffs may follow and
social unrest begin -- not good for the upcoming Olympics in Beijing.
When the United States goes through a slowdown, Canada is next, followed by
Europe and the rest of the world. The impact of a U.S. slowdown will be:
a) A fall in commodity prices; oil for example would be out of reach at US$100 a
barrel;

Markets
b) Layoffs and the closure of factories will send the unemployment rate soaring,
with the side effect of high benefits payments;
c) With less money to spend, consumers will leave their wallets and credit cards at
home, reducing retail sales. Sales of housing, cars and other big-ticket items will
undergo a dramatic drop;
d) Stock markets in upcoming months will perform miserably. The value of

people's assets and other holdings will contract. They will be less likely to indulge
in cruises or holidays or other extravagances;
e) With less money all around, there will be less for the United States to spend on
war on terror in Iraq and Afghanistan. It is possible that the United States may
prematurely wind up and leave the war halfway;
f) There may be a complete re-look at the North American Free Trade Agreement,
which has moved jobs to Mexico and Canada;
g) Unequal China trade, which has been a sore point for quite some time, may
come under the scanner. The dollar-yuan currency relationship may be revised or,
in the worst-case scenario, a few countervailing duties may be applied. In other
words, a long-avoided protectionism may creep into the U.S. political thought
process.
Apart from whatever happens in the United States, India and China will be at the
receiving end of a few unpleasant jolts. China's ever-increasing exports to the
United States may find an uneven reception. India may suffer the consequences of
the withdrawal of investments from the stock market.
In China itself the booming real estate cum infrastructure reconstruction may
cease. Cities in China are on a spending binge to boast of new infrastructure,

Markets
which they finance by borrowing from the banks without adequate checks and
balances. When all hell breaks loose, banks will either go insolvent or foreign
reserves stashed in the United States -- now US$1.3 trillion -- will have to be
transferred to keep them afloat. That is one reason China has been keeping its
foreign reserves close to its chest.
This will cool off the overheated Chinese economy by a few percentage points.
Domestic consumption may be increased to offset the decline in exports. China
may also begin investing in U.S. companies with financial troubles, like their
US$5 billion investment in Morgan Stanley. A much greater U.S. buying binge by
China is unlikely, however. There are domestic consequences to worry about, and
cash stashed away as reserves may be urgently needed at home.
The impact on India will be indirect. Globalization, in which India is a small fry,
will impact it less. It is the institutional investors who will place India on the
slippery slopes. In seven days including Jan. 21, the Indian stock market lost 8
percent of its value. This translates to about US$400 billion of investors' paper
money wiped out, or about two years of steady gains made by the little guys in the
market.
The U.S. recession will thus lower expectations in India but will not have
consequences as severe as in China. An already unhappy textile export sector may
find it difficult to achieve its 2008 export target. Alternatively, a boom in the
information technology and business processing outsourcing sector will continue.
U.S. companies looking for cheaper alternatives may outsource additional work.
One salient feature of India's spectacular economic performance in the last six
years is that it is driven by domestic consumption. Not being dependent upon the
United States makes the impact of the U.S. recession a bit more manageable. This

Markets
is completely opposite for China, where exports drive the economy and domestic
life may be ruined if orders dry up.
India will have to worry about rapid interest rate cuts by the U.S. Federal Reserve
Board. That would widen the gap between Indian and U.S. commercial interest
rates, resulting in a capital outflow from U.S. to India where interest rates are still
high.
The arrival of excessive cash in India would not be welcome today. India would
not know what to do with a huge inflow, and would have to cut its interest rates
appropriately. Combine this with a weakening dollar and it would erode any
export advantage. Hence additional rapid interest rate cuts by the Fed would
require an appropriate response from India.
In the end the world may emerge out of this U.S. slowdown much more sober. The
United States will develop a bit of a protectionist attitude. China's free reign of
cheap exports may be a thing of the past. Domestic demand will keep India's
growth high, though a drop by a few percentage points for miscellaneous reasons
is not unexpected. India's stock market will receive a sobering lesson on
overemphasizing foreign investors. Foreign investors will remain, but in a much
more controlled manner.
A few other countries have seen the rate of growth of GDP decrease, generally
attributed to reduced liquidity, sector price inflation in food and energy, and the
U.S. slowdown. These include the United Kingdom, Ireland, Canada, Japan,
China, India, New Zealand and many countries within the EEA. In some, the
recession has already been confirmed by experts, while others are still waiting for
the fourth quarter GDP growth data to show two consecutive quarters of negative
growth. India along with China is experiencing an economic slowdown but not a
recession. Also Africa and South Africa are experiencing economic slowdown and

Markets
global outbreak. Australia avoided a technical recession in 2009, and had positive
growth against the overall global economic downturn.
Impact of Inflation in stock market
inflation is a state in the economy of a country, when there is a price rise of goods
as well as services. To meet the required price rise, individuals have to shell out
more than is presumed. With increase in inflation, every sector of the economy is
affected. Ranging from unemployment, interest rates, exchange rates, investment,
stock markets, there is an aftermath of inflation in every sector. Inflation is bound
to impact all sectors, either directly or indirectly. Inflation and stock market have a
very close association. If there is inflation, stock markets are the worst affected.
Inflation and stock market- the logistics:

Prices of stocks are determined by the net earnings of a company. It depends on
how much profit, the company is likely to make in the long run or the near future.
If it is reckoned that a company is likely to do well in the years to come, the stock
prices of the company will escalate. On the other hand, if it is observed from
trends that the company may not do well in the long run, the stock prices will not
be high. In other words, the price of stocks are directly proportional to the
performance of the company. In the event when inflation increases, the company
earnings (worth) will also subside. This will adversely affect the stock prices and
eventually the returns.
Effect of inflation on stock market is also evident from the fact that it increases the
rates if interest. If the inflation rate is high, the interest rate is also high. In the
wake of both (inflation and interest rates) being high, the creditor will have a
tendency to compensate for the rise in interest rates. Therefore, the debtor has to

Markets
avail of a loan at a higher rate. This plays a significant role in prohibiting funds
from being invested in stock markets.
When the government has enough fund to circulate in the market, the cost of
goods, services usually go up. This leads to the decrease in the purchasing power
of individuals. The value of money also decreases. In a nut shell, for the economy
to flourish, inflation and stock market ought to be more conforming and
predictable.
9 relevance of stock market analysis

in c.a profession
Qualified Chartered Accounts who have gone through the grill of Audit, Taxation
have been playing a tremendous role in enhancement of transparency in a
Corporate Structure for years. Sustaining the importance over the years and
attracting best young talent to the profession itself is a proof of the effective role,
which a Chartered Accountant plays in a Corporate Set up Economy has largely
moved from capital intensive to knowledge driven spectrum. Chartered
Accountants with the intensive training, background Institute support to
Markets
knowledge development are correctly poised to take a huge advantage of the
knowledge sector including financial services, KPO etc. In a typical capital market
scenario of the financial services sector, Intermediaries, Investors, Issuers,
Corporate and Regulatory Authority relies largely on skills of the Chartered
Accountants in discharging their respective obligations to the investors. The entire
field of Financial Services has opened new avenues for the Chartered Accountants
to excel. Financial analyst, media expert covering the capital markets, financial
advertisement, investment advisor, financial services marketing are some of the
emerging avenues for the Chartered Accountants to deploy their skills effectively.
Chartered Accountants play the following roles in the capital markets.

• As an advisor to the company tapping the capital markets.
• As an auditor to the company tapping the capital markets.
• As a regulator working for SEBI or Stock Exchanges.
• As an intermediary
• As an Investment Banker
• As a Fund Manager
• As an Equity Trader
• As an Institutional Sales
• As a Dealer
• As a Research Analyst
Scope depth and range of services undertaken under all the above activities is
fairly comprehensive and large.
Advisory role:
The advisory role has evolved from being an advisor on tax and related matters to
positioning the company amongst the knowledgeable investors, advising the
company on the value chain which they need to pursue etc, and continued

Markets
feedback on the key acts which the Company must do to sustain its valuation,
attract quality investors interest -etc
g capital markets in India, the skills
Audit role:
With the World Com, Dabhol, vanishing companies background, increasingly the
audit role has become more demanding. Independent Directors in the Board of the
Company demands a whole lot of quality inputs to discharge their responsibilities
effectively. This has tremendously increased the focus on the quality of the audit,
approach etc
Entrepreneurial Role:
Chartered Accountants from the traditional practice have moved into being
intermediaries in the capital market themselves. New Investment banking firms,
broking entities and the Regulatory environment has encouraged professionals to
be an entrepreneur by themselves. With the better understanding of the financial
products, Chartered Accountants have become an effective entrepreneurs in
distribution, wealth management etc.
Supporting services:
More and more service providers like investment bankers, insurance agencies rely
on the skills of the Chartered Accountant in discharging their obligations.
Emerging employment role:

Equity sales, research, portfolio management, media tracker, career in financial
advertising and televisions, global outsourcing partners are the emerging
employment opportunities for a young chartered accountant along with their
interest in taxation, audit, controls

Markets
Emerging practice role:
The whole approach towards risk management, controls have changed with the
opening up of the economy. Managements are increasing providing a better budget
for risk management and Chartered Accountants plays an important role as Chief
Risk Officer, or Chief Internal Control. Knowledge of accounts, accounting
finance and financial analysis and law pertaining to issue of securities with regards
to provisions of the Companies Act, Securities Contracts Act, SEBI and RBI do
help in achieving excellence in execution. In addition, knowledge of the client or
the Issuers business helps in profiling and positioning of the business to the
outside world at large. This is the key ingredient to any fund raising plan. As an
Advisor and Investment Banker, a Chartered Accountant also helps in formulating
financial strategy to successfully tap the capital markets and ensure success for the
fund raising plan. Putting together an efficient capital structure, creating financial
model, profiling business promoters and management and advising on valuation
are the other key ingredients for successful capital market entry. Chartered
Accountants do and certainly can help in all the above and can act as sounding
boards to accomplish this. Chartered Accountants can work as a regulator either
for Stock Exchange or SEBI. As a regulator, chartered accountants can be
skillfully employed in policymaking, monitoring review, surveillance and
investigation.
Role in the IPO Process

To comply with the public issue disclosure norms, SEBI specifies with the issuer
company states and restates financial statements for the last five years of the
company going public and Chartered Accountant must certify all figures and give
a comfort letter to the Lead Manager.
Undertaking Due Diligence

Markets
Initial public offerings (IPO) are often considered to be the ultimate goal for any
entrepreneurial venture. An IPO is offering stock to the public on an open market
for the first time. Once a company decides to go public, it needs to pick its IPO
team, consisting of the lead investment bank, an accountant and a law firm. The
IPO process officially begins with what is typically called a “kick-off ” meeting.
All the members of the IPO team plan a timetable for going public and assign
certain duties to each member. One of the most critical documents that need to be
developed by this group is the prospectus. The prospectus is an offer document
that is used to describe all aspects of the company - its financial data for the past
five years, the management team, the target market, competitors and growth
strategy. This document is all thatthe company can tell prospective investors about
itself so its accuracy and in formativeness is a vital part of the IPO. The
independent accountant’s role in the IPO process includes auditing the financial
statements, restating them in compliance SEBI requirements, resolving accounting
issues. Increasing emphasis is being placed on the scope of “comfort letters”
which a company’s auditor provides to the underwriters and the company’s board
as part of their due diligence. Commentary on accounting policies and problems,
improper revenue recognition, changes merely for the purpose of inflating profits
are few of the areas, the accountants insight are sought. In many instances, the
financial statements must also be prepared in accordance with U.S. GAAP or
reconciliation between the Indian GAAP and U.S GAAP is required. In many
cases, auditors are required to review and offer comments on consolidated
accounts. Accountants can also leverage their experience during the planning
phase to help ensure that the company’s house is in order before the IPO process.
Accountants play a key role in advising on/certifying the following:
1. Compliance with the corporate governance.
2. Promoter contribution in a project.
3. Amount deployed/spent on project.

Markets
Requirements to capitalise
With the expansion in the role, approach and accountability there is a tremendous
responsibility cast on the Chartered Accountants to play their role effectively and
stay ahead in the competition. Most of the emerging roles are not going to be a
dominant field for chartered accountants alone similar to audit or taxation. It
would be purely a market driven demand, which would move with the perceived
value accretion with the person associated rather than the faculty, which he
belongs to. While the degree and the training provides an entry into the financial
service universe, how well one capitalise depends on how best he/she could
capitalise the opportunity.
10 CONCLUSIONS
The study brings forth some distinct conclusions many of which validate
popular beliefs. The objective of the whole research was to try and compare the
various stock exchanges based on certain parameters in order to understand the
impact of integration of the financial world on the various entities within it
especially in the context of globalization and increased interest in the capital
markets fuelled by surging growth.
The various research papers that have been studied traced the gradual
‘coming of age’ of the Indian stock market over the past decade without actually
Markets
arriving at any conclusive evidence on the comparative position of our stock
exchange with that of other global ones. The studies mainly looked at various
aspects of efficiency in the stock market on a standalone basis and tried to draw
conclusion regarding the state of our maturity. However, we have tried to use the
comparison method to benchmark the performance of our stock market with that
of a selection of asian stock exchanges on the basis of their diversity with respect
to geo-sociopolitico-economy.
With regard to the initial hypothesis of this study, it is clearly found that
the stock markets do impact each other, more so in the recent times, i.e. post-2000.
This has been due to the fact that ‘cross holdings’ are increasingly becoming
common wherein the geographical barrier is dissolving with respect to investing.
In India also, deliberations are on to ‘cross list’ Indian shares in Asian exchanges
to start off. This will increase the degree of integration manifold. Moreover, the
automation of the exchanges has played a vital role in making the financial
markets integrated. In this context, the pioneer is the Swiss exchange, followed by
Brussels as an early adapter. The spate of ‘ADR’s and ‘GDR’s, along with the
increased opening up of various economies, increasing foreign trade and the rise
of the ‘MNC’s have contributed immensely to the integration process. It leaves us
with the conclusion that the strategy of globally diversifying investments is slowly
losing its profitability. Especially after 2000, the markets are fast converging. It
has now become a global market operating 24 hours, with opening of markets in
different time zones at various points of time appearing to be seamless. Thus, in
hindsight, it would not be an exaggeration to say that the impact of the South East
Asian currency crisis, if happened today, would have much more drastic effect on
India, as the country is more in sync with the global markets. Actually, it can be
said that, in the current scenario, any apprehension about stocks in one country can
escalate into a panic selling. However, a caveat needs to be put here with respect
of the attractiveness of the global diversification strategy. In a way, though the
attractiveness of the strategy is gradually diminishing, it can still be profitably

Markets
used for investing in countries whose stock exchanges do not yet have high
correlation amongst each other. Moreover, although the stocks listed in the stock
exchanges of the sample in this study do impact each other and move in tandem,
the magnitude of that movement as a result of reacting to global cues varies and, to
that limited extent of variation, the global diversification strategy can prove useful.
In short, the ‘transaction cost’ for investment is coming down as is ‘informational
cost’.
Qualitatively, the comparison showed that Indian stock exchange has the
governance system and an efficient mechanism in place to be a world class
institute, specially the requirements of Clause 49 promulgated by SEBI and the
advanced trading and settlement mechanism of NSE, respectively. However,
unfortunately our implementation of the same remains a problem area with almost
15-20% of the listed companies yet to align their operations as required under the
law.
Moreover, there are also issues regarding the extent to which the
sophisticated systems of the stock exchanges (NSE, BSE) are utilized in terms of
the volume and frequency of transactions and the range of instruments traded. The
commodity segment, derivatives and such other segments are yet to see activities
like the equity segment of the market. The reasons that can be attributed to this is
the fact that it has been only 9 years (derivatives started in 2000) that the various
segments, apart from equity and debt, have started operating and hence it is
reasonably nascent compared to its asian counterparts. It would, therefore, not be
unjustified to say that the system is still evolving and it would take some time not
only to attain efficiency of operation, but also to generate increased interest and
awareness about the various other segments of the market. Then only can we
expect the operations to match its asian counterparts in terms of volumes,
frequency and variety of instruments traded.
One more reason that can be attributed for the lag between a global
benchmark and BSE or NSE can be the fact that, in our country, listing of foreign

Markets
companies are still not allowed on the lines of ADRs or GDRs. This can be due to
lack of depth and breadth of the market. Again, as this study points out, the listing
criteria differ in terms of size as well as
their disclosure norms. This implies that the depth of the market judged by the
total capitalization is less for the Indian markets compared to its counterparts.
Moreover, the disclosure norms affect the governance aspect as also the
information availability.
Innovative financial instruments like CAT Bonds, or dealing in Junk
Bonds as a cheap source of finance or sophisticated derivative instruments are yet
to catch up in our country.This is partly because of the regulations that are
gradually being eased out and also due to the risk appetite of the investors in this
country. The opening up of the economy and its subsequent impact on the
financial sector has only started barely in the last six years and, hence, the
‘teething problems’ of initial skepticism, lack of awareness and interest exist,
besides cautious approach towards bringing about changes with keenly monitored
impact of those changes.
If we go to the specifics, then we find that the Clause 49, our counterpart
of the famed Sarbannes-Oxley Act of USA, has brought us to the global standards.
But, because of the early stages (only a year), the implementation is causing a
hindrance in attaining the requisite level with regard to governance. Again the risk
management system in our country is very elaborate and the mechanism in place is
very efficient as also effective. It actually matches the level of a well established
benchmark like Newyork Stock Exchange. However, the only difference is in
terms of risk appetite of the investors which causes the level and operation of
‘circuit breakers’ to vary.
However, Indian stock market is very much at the same pedestal and, in
fact, better than most of its Asian counterparts especially the emerging economies.
Indian system enjoys creditability even when compared with a stock exchange like
Nikkei (Japan). If we look at the efficiency of trading captured by the ‘trading and

Markets
settlement’ mechanism, then we can find out that the Indian mechanism is faster
than the Newyork Stock Exchange and at par with the best in the world. In fact, it
is one of the fastest.
One problem area that came out as a possible barrier in the path of Indian
stock exchanges attaining global level is the fact that India has a very low rank in
terms of market capitalization (ranked 14th). This is in spite of the fact that Indian
stock exchanges have the highest number of companies listed (around 9000) and
BSE accounting for almost 75%. Therefore, volume-wise, Indian market is still
pretty small.
One more aspect that we have tried to look at in this study is the extent of
influence the various stock markets cast on each other, specifically the impact of
other stock exchanges on their Indian counterpart. In order to understand, we
divided our study period in parts based on certain events that had economic
implications. Here, we found the results validating popular belief that the markets
in general and Indian market in particular became more integrated with other
exchanges from 2002-03.
To sum up:
Finally, we can sum up with the following observations:
• The markets have indeed started to integrate and Indian market is no exception
especially after 2002-03.
• The regulatory authorities must remove any ambiguity that may be existing when
compared to the regulations of other exchanges before they can actually make the
grade.
• Lastly, although it has to be accepted that the market is evolving but the Indian
system has already attained the minimum level of robustness and efficiency to be
counted among the best in the world and stand equipped to attain higher
sophistication as well as heightened activities. As for the existence of any signals

Markets
or patterns among the stock exchanges, it can safely be said that the markets do
react to global cues and any happening in the global scenario be it macro
economic or country specific (foreign trade channel) affect the various markets.
In short, the Indian exchanges are ready to make the transition should the
government decides to further relax the regulations and open up. The financial
sector as a whole, with the stock markets as its indicator, has indeed come a long
way and are ready for the next level with regards to efficient trading and variety in
the instruments traded. Thus this study validates the popular belief that the
markets in general and Indian market in particular is more integrated with other
asian exchanges from 2002-03 onwards. This can very well be seen since the
South Asian crisis of the mid- late nineties barely affected us particularly because
we were insulated due to government policies and was just making the transition.
However, in the later time periods, the influence of other stock markets increased
on our BSE or NSE, but at a very low almost insignificant level. At the time of
9/11 incident, Newyork Stock Exchange had started to exert its influence on us but
at lower levels and hence the economic downturn did not impact for long. The
increased trend of Indian companies going for ADR and GDR issues has also
contributed as a channel for information transfer between the exchanges where the
particular company is listed. This has not only facilitated the integration process
but also increased the sensitivity of the home country’s stock exchange to the
movements of various other exchanges especially where the home company is
listed. As for the existence of any signals or patterns among the stock exchanges, it
can safely be said that the markets do react to global cues and any happening in
the global scenario be it macro economic or country specific (foreign trade
channel) affect the various markets.

Markets
11 REFERENCES
Articles
Masih, A. M. M. & Masih, R. (1997). A comparative analysis of the propagation

of stock market fluctuations in alternative models of dynamic causal linkages.
Applied Financial
Economics, 7 (1), 59-74.
Agarwal, R N (2000): ‘Financial Integration and Capital Markets in Developing

Countries: A Study of Growth, Volatility and Efficiency in the Indian Capital
Market’, mimeo, Institute of Economic Growth, Delhi.

Markets
Bae, K, Cha, B, & Cheung, Y (1999): ‘The Transmission of Pricing Information of
Dually- Listed Stocks’, Journal of Business Finance and Accounting, 26 (5) and
(6), June/July,709-23.
Becker, K, Finnerty, J., & Gupta, M. (1990): ‘The Intertemporal Relation between
the US and Japanese Stock Markets’, Journal of Finance, 45, 1297-1306.
Bennett, P., & Keller, J. (1988): ‘The International Transmission of Stock Price
Disruption in October 1987’, Federal Reserve Bank of New York Quarterly
Review, Summer, 17-33.
Froot, K., & Dabora, E. (1999): ‘How are Stock Prices Affected by the Location
of Trade?’, Journal of Financial Economics, 53, 189- 216.
Hansda, S. K., & Ray, P. (2002): ‘BSE and Nasdaq: Globalisation, Information
Technology and Stock Prices’, Economic and Political Weekly, 37 (5), February
2, 459- 468.
Howe, J S., & Madura, J. (1990): ‘The Impact of International Listings on Risk:
The Implications for Capital Market Integration’, Journal of Banking and Finance,
14, 1133- 42.
Lau, S T., & Diltz, J.D. (1994): ‘Stock Returns and the Transfer of Information
Between the New York and Tokyo Stock Exchanges’, Journal of International
Money and Finance, 13 (2), 211-22.
Yakob, N. A., Beal, D., & Delpachitra, S. (2005) Seasonality in the Asia Pacific
stock markets. Journal of Asset Management, 6 (4), 298-318.

Markets
Poshakwale, S. (2002). The Random Walk Hypothesis in the Emerging Indian
Stock Market. Journal of Business Finance & Accounting, 29 (9&10), 1275-1299.
Websites Referred
www.bseindia.com
www.nse-india.com
www.ebsco.com
www.tse.or.jp/english/index.shtml
www.hkex.com.hk/
www.krx.co.kr/webeng/index.jsp
www.tse.or.jp/english/index.shtml
www.nyse.com
www.rts.ru
www.kse.or.kr

Markets

Project

Caricato da

Informazioni sul documento

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Project

Caricato da

Copyright:

Formati disponibili

STUDY OF RELATIONSHIP BETWEEN

INDIAN STOCK MARKET

NATIONAL INSTITUTE FOR FINANCIAL MANAGEMENT

THE INSTITUTE OF CHARTERED ACCONTANTS OF INDIA

Starting with the group:-

• Anuj Goel from New Delhi

• Bijan Sahoo from Cuttack-orissa

• Jinesh aggarwal from Rewari-Haryana

• Karan Mittal from Jaipur-Rajasthan

• Paresh Agarwal from Galgoan- MAHARASTRA

• Pavana V Issac from Palakkad-Kerala

We would like to express our sincere gratitude to all the distinguished

Study of Relationship Between Indian Stock Market and Asian Stock

Study of Relationship Between Indian Stock Market and Asian Stock

Study of Relationship Between Indian Stock Market and Asian Stock

Study of Relationship Between Indian Stock Market and Asian Stock

1.2 Objective of Study

1.3 Relevance of the Study

Study of Relationship Between Indian Stock Market and Asian Stock

1.4 Research Methodology

Study of Relationship Between Indian Stock Market and Asian Stock

2 MAJOR STOCK EXCHANGES IN ASIA

• Hong Kong Stock Exchange

• Shanghai Stock Exchange

• SSE 180 Index

• SSE Composite Inde

• SHSE- SZSE 300 Index.

Study of Relationship Between Indian Stock Market and Asian Stock

Study of Relationship Between Indian Stock Market and Asian Stock

Study of Relationship Between Indian Stock Market and Asian Stock

The Taiwan Stock Exchange Corporation is a financial institution, located in in

The current chairman of the TSEC is Mr. Sean Chen.

Study of Relationship Between Indian Stock Market and Asian Stock

There are 29 members that make up TASE.

Study of Relationship Between Indian Stock Market and Asian Stock

The Colombo Stock Exchange is organised in the form of limited liability

The stock exchange corporation is overseen by a Board of Directors. It consists of

Study of Relationship Between Indian Stock Market and Asian Stock

Country Stock Exchange Name Indices Name

Study of Relationship Between Indian Stock Market and Asian Stock

Study of Relationship Between Indian Stock Market and Asian Stock

half a dozen brokers recognized by banks and merchants.

4.2 SECURITIES LAWS IN INDIA

1. The Securities Contracts (Regulation) Act, 1956, and

2. The Securities & Exchange Board of India Act, 1992.

4.2.01 (b): THE DEPOSITORIES ACT, 1996:

Study of Relationship Between Indian Stock Market and Asian Stock

1. The Foreign Exchange Regulations Act, 1973;

2. Arbitration and Conciliation Act, 1996;

3. Companies Act, 1956;

5. Banking Regulation Act;

6. Benami Prohibition Act;

7. Indian Penal Code;

8. Indian Evidence Act, 1872 and;

9. Indian Telegraph Act, 1885.

4.2.02: THE SECURITIES CONTRACTS (REGULATION) ACT, 1956

Study of Relationship Between Indian Stock Market and Asian Stock

Study of Relationship Between Indian Stock Market and Asian Stock

4.2.03: The Securities and Exchange Board of India Act, 1992.

4.2.04: THE DEPOSITORIES ACT, 1996 AND REGULATIONS.

4.2.04 (c): Regulation 3 of the said Regulations provides as follows:

(1) An application for the grant of a certificate of registration as a Depository

(2) The application shall be accompanied by draft bye-laws of the Depository