A

SUMMER TRAINING PROJECT REPORT

ON

Fundamentals Of Equity Market

At

Religare Securities Ltd.

Submitted In Partial Fulfillment of the Requirement of

MASTERS OF MANAGEMENT STUDIES

SUBMITTED TO: Oriental Institute of Management

SUBMITTED BY: Manan Desai

8168
MMS – B

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 ACKNOWLEDGEMENT

It is my pleasure to be indebted to various people, who directly or indirectly contributed

in the development of this work and who influenced my thinking, behavior, and acts
during the course of study.

I am thankful to Mr. Ajay Chaturvedi for his support, cooperation, and motivation
provided to me during the training for constant inspiration, presence and blessings.

Lastly, I would like to thank the almighty and my parents for their moral support and my
friends with whom I shared my day-to-day experience and received lots of suggestions
that improved my quality of work.

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 DECLARATION

I, Manan A. Desai , student of Oriental Institute of Management MBA 3rd Semester

hereby declare that the summer training report on Fundamentals of Equity Market
submitted to Oriental Institute of Management in partial fulfillment of Degree of
Masters of Management Studies is the original work conducted by me.

The information and data given in the report is authentic to the best of my knowledge.

This summer training report is not being submitted to any other University for award of
any other Degree, Diploma and Fellowship.

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 About The Company:

Religare Securities Limited (RSL), a 100% subsidiary of Religare Enterprises Limited

is a leading equity and securities firm in India. The company currently handles sizeable
volumes traded on NSE and in the realm of online trading and investments; it currently
holds a reasonable share of the market. The major activities and offerings of the company
today are Equity Broking, Depository Participant Services, Portfolio Management
Services, International Advisory Fund Management Services, Institutional Broking and
Research Services. To broaden the gamut of services offered to its investors, the
company offers an online investment portal armed with a host of revolutionary features.

• RSL is a member of the National Stock Exchange of India, Bombay Stock

Exchange of India, Depository Participant with National Securities Depository
Limited and Central Depository Services (I) Limited, and is a SEBI approved
Portfolio Manager.
• Religare has been constantly innovating in terms of product and services and to
offer such incisive services to specific user segments it has also started the NRI,
FII, HNI and Corporate Servicing groups. These groups take all the portfolio
investment decisions depending upon a client’s risk / return parameter.
• Religare has a very credible Research and Analysis division, which not only
caters to the need of our Institutional clientele, but also gives their valuable inputs
to investment dealers.

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Table of Contents:

Section. Contents Pg.

No.
1 Introduction To Equity Market 1

Developments In Equity Market………………………………... 2

Equity As An Investment……………………… ………………. 4

2 Primary Market 5

Methods Of Issuing Securities In Primary Market……………… 6

Intermediaries In Primary Market………………………………. 10
3 Secondary Market 12

Listing………………………………………………………….. 14
Intermediaries In Primary Market……………………………… 20

4 D-mat 23
5 Trading 24
6 Settlement 28
7 SEBI 30
8 FII’s And Indian Equity Market 33
9 Conclusion 35
10 Questionnaire 36

11 Bibliography 40

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 INTRODUCTION TO EQUITY MARKET:

Equity market is the market in which shares are issued and traded, it is one of the most
vital areas of a market economy as it provides companies with access to capital and
investors with a slice of ownership in the company and the potential of gains based on the
company's future performance.

In financial markets, stock is the capital raised by a corporation through the issue and
distribution of shares. A person or organization which holds shares of stocks is called a
shareholder. The aggregate value of a corporation's issued shares is its market
capitalization. When one buys a share of a company he becomes a shareholder in that
company. Shares are also known as Equities. Equities have the potential to increase in
value over time. It also provides the portfolio with the growth necessary to reach the
long-term investment goals. Equities are considered the most challenging and the
rewarding, when compared to other investment options.

Research studies have proved that investments in some shares with a longer tenure of
investment have yielded far superior returns than any other investment. However, this
does not mean all equity investments would guarantee similar high returns. Equities are
high-risk investments. One needs to study them carefully before investing.

Since 1990 till date, Indian stock market has returned about 17% to investors on an
average in terms of increase in share prices or capital appreciation annually and on an
average stock have paid 1.5 % dividend annually. Dividend is a percentage of the face
value of a share that a company returns to its shareholders from its annual profits. As
Compared to most other forms of investments, investing in equity shares offers the
highest rate of return, if invested over a longer duration.

The first company to issue shares of stock was the Dutch East India Company, in 1602.
The innovation of joint ownership made a great deal of Europe's economic growth
possible following the Middle Ages. The technique of pooling capital to finance the
building of ships, for example, made the Netherlands a maritime superpower. Before
adoption of the joint-stock corporation, an expensive venture such as the building of a
merchant ship could only be undertaken by governments or by very wealthy individuals
or families.

Equity markets, the world over, grew at a great speed in the decade of the nineties. After
the bear markets of the late eighties, the world markets saw one of the largest ever bull
markets of more than ten years. The opening up of Indian economy in the 1990's led to a
series of financial sector reforms, prominent being the capital market reforms.
The above reforms have led to the development of the Indian equity markets to the
standards of the major global equity markets.

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The introduction of dematerialization of shares, leading to faster and cheaper transactions
and introduction of derivative products and compulsory rolling settlement has followed
subsequently. Despite a series of stock market scams and crises beginning from 1992
Harshad Mehta's scam to the Ketan Parekh's 2001 scam, the Indian equity markets have
transformed themselves from a broker dominated market to a mass market.

The introduction of online trading has given a much-needed impetus to the Indian equity
markets. However, over the years, reforms in the equity markets have brought the country
on par with many developed markets on several counts.

Today, India boasts of a variety of products, including stock futures, an instrument

launched only by select markets. The introduction of rolling settlement is the latest step
in the direction of overhauling the stock market. The equity market of the country will
most likely be comparable with the world's most advanced secondary markets with
regard to international best practices. The market moved to compulsory rolling settlement
and now all settlements are executed on T+2 basis and market is gearing up for moving to
T+1 settlement.

The importance of equity market is increasing. Rightly, realizing the advantages of

resource allocation through market, Government of India and Reserve Bank of India have
been pushing reforms in equity markets. Series of steps are being taken to remove
hurdles, increase market efficiency and to make it attractive for the retail investors to take
part in the equity market. It may not be an exaggeration to say that the Indian markets are
resourceful to put themselves on par with the markets of the developed countries. The
Indian markets have assimilated in a relatively lesser time, many a developments that
took long time in the developed markets.

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DEVELOPMENTS IN EQUITY MARKET:
The Government of India has been trying to improve market efficiency, enhance
transparency and bring the Indian Equity Market up to international standards. Many
reform measures have been initiated in the 90s. The principal ones are the formation of
Securities Exchange Board of India (SEBI), repeal of the Capital Issues (Control) Act
1947, introduction of screen-based trading, shortening of trading cycle, demutualization
of stock exchanges, establishment of depositories disappearance of physical share
certificates and better risk management systems in stock exchanges.

The formation of SEBI was the first attempt towards integrated regulation of the
securities market. SEBI regulates all market intermediaries and has the powers to impose
monetary penalties for misconduct of any intermediary. One of the major stumbling
blocks in fair pricing of capital issues has been the Capital Issues (Control) Act, 1947.
The issuers were denied the opportunity to economically raise money from the capital
market. This is now a matter of the past thanks to the repeal of the Act itself. SEBI has
also issued Disclosure and Investor Protection (DIP) guidelines to ensure fair prices for
the investors, though however, many issuers in the 90s could unfairly price their capital
issues at the cost of the poor common investors.

The introduction of Screen Based Trading Systems (SBTS) by NSE is a major

development in the capital market. This made the markets more efficient. The
geographical barriers to trade were dismantled resulting in increased trading volumes.
This was possible due to the great advancements in the area of information technology.
SBTS electronically matches orders cutting down time, cost and errors, and minimizing
the chances of fraud. Very long settlement cycle was another major hindrance in effecting
deliveries in the equity market. Often the securities were delivered after 30 days or more
due to weekly/fortnightly settlements and carry forward transactions. SEBI has enforced
the discipline to compulsorily settle trades in T+3 days since April 2002. This is slated to
reduce to T+2 days from April 2003. All scrips are now under rolling settlement since
December 2001.

The Equity Market is incomplete without products to manage risks in portfolio values.
NSE was established as a demutualized structure separating the roles of ownership,
management and trading to eliminate any conflict of interest among the stakeholders to
improve market efficiency and to focus on investor interest. Another notable
development in the Indian equity market has been the introduction of depositories to
dematerialize the share certificates. This avoids physical movement of certificates, bad
deliveries and quicker transfer of ownership of shares. Presently all actively traded shares
are held, traded and settled in de-mat form. The setting up of National Securities Clearing
Corporation Ltd., (NSCCL) in April 1996 has been a major development in managing
counterparty risks in the equity market. This has helped in increasing trading volumes
since traders are now more confident about default-free settlements. While most of the

8
above measures have helped in reinforcing confidence in the Indian equity market by
providing more transparent and efficient buying, selling and transfer of shares.

EQUITY AS AN INVESTMENT:
Equity is:

1. Stock or any other security representing an ownership interest.

2. on the balance sheet, the amount of the funds contributed by the owners (the
Stockholders) plus the retained earnings (or losses), also referred to as "shareholder's
Equity"

3. In the context of margin trading, the value of securities in a margin account minus
what has been borrowed from the brokerage.

Equity is a term whose meaning depends very much on the context. In general, one can
think of equity as ownership in any asset after all debts associated with that asset are paid
off. For example, a car or house with no outstanding debt is considered the owner's equity
since he or she can readily sell the items for cash. Stocks are equity because they
represent ownership of a company, whereas bonds are classified as debt because they
represent an obligation to pay and not ownership of assets.

The ability of equities to deliver over longer time frames and even outperform other
investment avenues like gold, property and bonds is an often chronicled fact. However,
over shorter time frames, equities also hold the potential to be a very risky asset class and
expose the portfolio to high levels of volatility. This is the primary reason why any fund
manager worth his salt always recommends a sufficiently long (at least 3 years) time
frame for an equity-oriented investment. Similarly financial planners advocate pruning of
the equity holdings with advancement in the investor’s age, when the investor is typically
closer to retirement (shorter investment horizon) and has a lower risk appetite as well.

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PRIMARY MARKET
Primary market is the place where issuers create and issue equity, debt or hybrid
instruments for subscription by the public; the secondary market enables the holders of
securities to trade them.

Primary market is a market for raising fresh capital in the form of shares. Public limited
companies those are desirous of raising capital funds through the issue of securities
approach this market. The public limited and government companies are the issuers and
individuals, institutions and mutual funds are the investors in this market. The primary
market allows for the formation of capital in the country and the accelerated industrial
and economic development.

Everywhere in the world capital markets have originated as the new issues markets. Once
industrial companies are set up in a big number and with them a considerable volume of
business comes into existence a market for outstanding issues develops. In the absence of
secondary market or the stock exchange, the capital market will be paralyzed. This is on
account of the reason that the business enterprises borrow money from the capital market
for a very long period but the investors or savers whose savings are canalized through the
capital market generally wish to invest only for a short period. Existence of the stock
exchange provides a medium through which these two ends can be reconciled. It enables
the investors to sell their shares for money whenever they wish to do so. Thus, the
business enterprises keep the possession of permanent capital; the shares can keep on
changing hands.

In order to sell securities, the company has to fulfill various requirements and decide
upon the appropriate timing and method of issue. It is quite normal to obtain the
assistance of underwriters, merchant banks or special agencies to look after these aspects.

Features of primary markets are:

• This is the market for new long term capital. The primary market is the market
where the securities are sold for the first time. Therefore it is also called the new
issue market (NIM).
• In a primary issue, the securities are issued by the company directly to investors.
• The company receives the money and issues new security certificates to the
investors.
• Primary issues are used by companies for the purpose of setting up new business
or for expanding or modernizing the existing business.
• The primary market performs the crucial function of facilitating capital formation
in the economy.
• The new issue market does not include certain other sources of new long term
external finance, such as loans from financial institutions. Borrowers in the new
issue market may be raising capital for converting private capital into public
capital; this is known as "going public."
• The financial assets sold can only be redeemed by the original holder.

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Methods of issuing securities in the primary market are:
Initial Public Offering (IPO):

It is also referred to simply as a public offering or flotation. It is when a company issues

common stock or shares to the public for the first time. They are often issued by smaller,
younger companies seeking capital to expand, but can also be done by large privately-
owned companies looking to become publicly traded.

A public limited company can raise the amount of capital by selling its shares to the
public. Therefore, it is called public issue of shares or debentures. For this purpose it has
to prepare a 'Prospectus'. A prospectus is a document that contains information relating to
the company such as name, address, registered office and names and addresses of
company promoters, managers, Managing Director, directors, company secretary, legal
advisors, auditors and bankers. It also includes the details about project, plant location,
technology, collaboration, products, export obligations etc. The company has to appoint
brokers and underwriters to sell the minimum number of shares and it has to fix the date
of opening and closing of subscription list.

The new issue of shares or debentures of a company are offered for exclusive
subscription of general public. The prospectus should be approved by SEBI. A minimum
of 49 per cent of the amount of the issue at a time is to be offered to public. The company
makes a direct offer to the general public to subscribe the securities of a stated price. The
securities may be issued at par, at discount or at a premium. An existing company may
sell the shares at a premium. There is no practice of selling shares at a discount in India.
Public issue is a popular method of raising capital. It provides wide distribution of
ownership securities. It also promotes confidence of investors through transparency and
non-discriminatory basis of allotment. It satisfies compliance with the legal requirements.

Further Public Offering (FPO):

It is when the company which has already raised money from initial public offering but
still wants to raise money through public then the company can opt for FPO.

PRIVATE PLACEMENT:

A Company makes the offer of sale to individuals and institutions privately without the
issue of a prospectus. This saves the cost of issue of securities. The securities are placed
at higher prices to individuals and institutions. Institutional investors play a very
important role in the private placement. This has become popular in recent days.
This method is less expensive and time saving. The company has to complete a very few
formalities. It is suitable for small companies as well as new companies. This method can
be used when the stock market is bull. However, the private placement helps to
concentrate securities in the few hands. They can create artificial scarcity and increase the
prices of shares temporarily and then sell the shares in the stock market and mislead the

11
common and small investors. This method also deprives the common investors of an
opportunity to subscribe to the issue of shares.

OFFER FOR SALE:

A Company sells the securities through the intermediaries such as issue houses, and
stockbrokers. This is known as an offer for sale method. Initially, the company makes an
offer for sale of its securities to the intermediaries stating the price and other terms and
conditions. The intermediaries can make negotiations with the company and finally
accept the offer and buy the shares from the company. Then these securities or shares are
re-sold to the general investors in the stock market normally at a higher price in order to
get profit. The intermediaries have to bear the expenses of this issue. The object of this
issue is to save the time, cost and get rid of complicated procedure involved in the
marketing of securities. The issues can also be underwritten in order to ensure full
subscription of the issue. The general publics get the shares at a higher price the
middlemen are more benefited in this process.

BOUGHT OUT DEALS:

A Company makes an outright sale of equity shares to a single sponsor or the lead
sponsor and such deals are known as bought out deals. There are three parties involved in
the bought out deals. The promoters of the company, sponsors and co-sponsors, sponsors
are merchant bankers and co-sponsors are the investors. There is an agreement in which
an outright sale of a chunk of equity shares is made to a single sponsor or the lead
sponsor. The sale price is finalized through negotiations between the issuing companies
and the purchasers. It is influenced by various factors such as project evaluation,
reputation of the promoters, current market sentiments etc. Bought out deals are in the
nature of fund-based activity where the funds of the merchant bankers are locked in for at
least for a minimum period. These shares are sold at over the Counter Exchange of India
or at a recognized stock exchange. Listing takes place when the company gets profits and
performs well. The investor-sponsors make profits because the shares are listed at higher
price.

RIGHT ISSUE:

When an existing company issues shares to its existing shareholders in proportion to the
number of shares held by them, it is known as Rights Issue. Rights issue is obligatory for
a company where increase in subscribed capital is necessary after two years of its
formation or after one year of its first issue of shares, whichever is earlier.

SEBI has issued guidelines for issue of right shares. Accordingly, only a listed company
can make right issue. Rights issue can be made only in respect of fully paid up shares. No
reservation is allowed for rights issue of fully or partly convertible debentures. The
company has to make announcement of rights issue and once the announcement is made
it cannot be withdrawn. The company has to make the appointment Registrar but

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underwriting is optional. It has also to appoint category I Merchant Bankers holding a
certificate of registration issued by SEBI. Letter of offer should contain disclosures as per
SEBI requirements. The rights issue should be open for minimum period of 30 days, and
maximum up to 60 days. The company has to make an agreement with the depository for
materialization of securities to be issued in De-mat form. A minimum subscription of 90
per cent of the issue should be received. A no complaints certificate is to be filed by the
Lead Merchant Banker with the SEBI after 21 days from the date of issue of offer
document.

BONUS ISSUE:

Bonus shares are the shares allotted by capitalization of the reserves or surplus of a
company. Issue of bonus shares results in conversion of the company's profits or reserves
into share capital. Therefore, it is capitalization of company's reserves. Bonus shares are
issued to the equity shareholders in proportion to their holdings of the equity share capital
of the company. Issue of bonus shares does not affect the total capital structure of the
company. It is simply a capitalization of that portion of shareholders equity which is
represented by reserves and surplus. The issues of bonus shares are issued subject to
certain rules and regulations. Issue of bonus shares reduces the market price of the
company's shares and keeps it within the reach of ordinary investors. The company can
retain earnings and satisfy the desire of the shareholders to receive dividend. Issue of
bonus shares is generally an indication of higher future profits. Receipt of bonus shares as
compared to cash dividend generally results in tax advantage to the shareholder.

BOOK-BUILDING:

Companies generally raise capital through public issue. In these cases companies decide
the size of the issue and also the price at which the shares are to be offered to the
investors. However in this system the issuer is not able to ascertain the price that the
market may be willing to pay for the shares, before launching the issue. This is where
book building can come to their aid. This method is also known as the price discovery
method. This is a mechanism whereby the price is determined on the basis of actual
demand as evident form the offers given by the various institutional investors and the
underwriters.

In the actual public offer process, investors are not involved in determining the offer
price, whereas in book building pricing is determined on the basis of investor feedback
which assures investor demand. Since the issue price after the issue marketing there is
flexibility in the issue size and the price of the shares.
The option of book building is available to all body corporate, which are otherwise
eligible to make issue of capital to the public. The initial minimum size of issue through
book-building process was fixed at Rs. 100 crore. However, issue of any size was
allowed since 1996. Book-Building facility is available as an alternative to firm
allotment. A Company can opt for book-building process for the sale of securities to the
extent of the percentage of the issue that can be reserved for firm allotment.

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Book-Building method helps in evaluating the intrinsic worth of an instrument and the
company's credibility in the eyes of the investor. The company also gets firm
commitments on the basis of which it can decide whether to go or not to go for a
particular issue of securities. Book-Building process also provides reliable allotment
procedure and quick listing of shares on the stock exchanges. There is no price
manipulation because the price is determined on the basis of bids received' from the
investors. The following stages are involved in the book-building process:

(1) Appointment of book-runners.

(2) Drafting of prospectus and getting approval from SEBI.
(3) Circulating draft prospectus.
(4) Maintaining offer details.
(5) Intimation of aggregate orders to the book-runner.
(6) Bid analysis.
(7) Mandatory underwriting.
(8) Filing copy of prospectus with registrar of companies.
(9) Opening bank accounts for collection of application money.
(10) Collection of applications.
(11) Allotment of shares.
(12) Payment schedule and listing of shares.

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INTERMEDIARIES IN PRIMARY MARKET:

MERCHANT BANKERS:

Merchant bankers carry out the work of underwriting and portfolio management, issue
management etc. They are required to get separate registration with SEBI as portfolio
managers. Underwriting can be done without any additional registration. Only body
corporate with a net worth of Rs.5 crore are allowed to work as merchant bankers. They
have to carry out the work relating to new issue such as determination of security mix to
be issued, drafting of prospectus, application forms, allotment letters, appointment of
registrars for handling share applications and transfer, making arrangement for
underwriting placement of shares, appointment of brokers and bankers to issue, making
publicity of the issue. They are also known as lead managers to an issue.

Merchant bankers can act as consultants, advisers, portfolio managers and co-managers,
underwriters, advisors and consultants and category IV merchant bankers can act only as
advisers or consultants to a public issue. Merchant bankers have to fulfill the prescribed
minimum capital adequacy norms in terms of net worth and they should have adequate
and necessary infrastructure. They should also employ experts having professional
qualifications.

UNDERWRITERS:

The issuing company has to appoint underwriters in consultation with the merchant
bankers or lead manager. The underwriters play an important role in the development of
the primary market. The underwriters are the institutions or agencies, which provide a
commitment to take up the issue of securities in case the company fails to get full
subscription from the public. They get commission for their services. The underwriting
services are provided by the brokers, investment companies’ commercial banks and term
lending institutions.

BANKERS TO THE ISSUE:

The bankers play an important role in the working of the primary market. They collect
applications for shares and debentures along with application money from investors in
respect of issue of securities. They also refund the application money to the applicants to
whom securities could not be allotted on behalf of the issuing company. A company is
not authorized to collect the application money. The Companies Act, 1956, provides that
the money on account of issue of shares and debentures should be collected through the
banks. Therefore, an issuing company has to appoint bankers to collect money on behalf
of the company.

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REGISTRARS AND SHARES TRANSFER AGENTS:

Registrar is an intermediary which carries out functions such as keeping a proper record
of applications and money received from investors, assisting the companies in
determining the basis of allotment of securities as per stock exchange guidelines and in
consultation with stock exchanges assist in the finalization of allotment of securities and
processing and dispatching of allotment letters, refund orders, share certificates and other
documents related to the capital issues. Share Transfer Agents are also intermediaries
who carry out functions of maintaining records of holders of securities of the company
for and on behalf of the company and handling all matters related to transfer and
redemption of securities of the company. They also function as Depository Participants.
Registrar and share transfer agents are of two categories.
Category I carry out the activities of both registrars to an issue and of share transfer
agents.
Category II carries out the activity fielder of a registrar to an issue or as a share transfer
agent.

BROKERS TO AN ISSUE:

Brokers are the middlemen who provide a vital connecting link between the prospective
investors and the issuing company. They assist in the subscription of issue by the public.
However, appointment of brokers is not mandatory. Brokers get their commission from
the issuing company according to the provisions of the Companies Act and rules and
regulations. There is an agreement between the brokers and the issuing company. The
maximum brokerage rate is 1.5 per cent of the capital raised in case of public issue and
0.5 per cent in case of private placement. The brokerage covers the cost of mailing,
canvassing and all other expenses relating to the subscription of the issue.

The brokers should have an expert knowledge, professional competence and integrity in
order to carry out the overall functions of an issue. They have to obtain consent from the
stock exchange to act as a broker to the issuing company. The names and addresses of the
brokers to the issue are disclosed in the prospects by the company help the investors to
make a choice of the company for making their investments.

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SECONDARY MARKET:
A market, which deals in securities that have been already issued by companies, is called
as secondary market. It is also known as stock market. It is the base upon which the
primary market is depending. For the efficient growth of the primary market a sound
secondary market is an essential requirement. The secondary market offers an important
facility of transfer of securities activities of securities.
Secondary market essentially comprises of stock exchanges, which provide platform for
purchase and sale of securities by investors. In India, apart from the Regional Stock
Exchanges established in different centers, there are exchanges like the National Stock
Exchange (NSE), who provide nation wide trading facilities with terminals all over the
country. The trading platform of stock exchanges is accessible only through brokers and
trading of securities is confined only to stock exchanges.

The activities of buying and selling of securities in a market are carried out through the
mechanism of stock exchange. There are at present 24 Stock Exchanges in India,
recognized by the government. The first organized stock exchange was established in
India at Bombay in 1887. When the Securities Contracts (Regulation) Act was passed in
1956, only 7 stock exchanges were recognized. There are three important stock
exchanges in Bombay namely the Bombay Stock Exchange, National Stock Exchange
and over the Counter Exchange of India. There has been a substantial growth of capital
market in India during the last 25 years.

Corporate Securities:

There are 23 exchanges in the country, which offer screen based trading system. The
trading system is connected using the VSAT technology from over 357 cities. There were
9,368 trading members registered with SEBI as at end March 2004

The market capitalization has grown over the period indicating more companies using the
trading platform of the stock exchange. The all India market capitalization is estimated at
Rs. 1 Trillion at the end of as of June 3 2009. The market capitalization ratio defined as
the value of listed stocks divided by GDP is used as a measure of stock market size. It is
of economic significance since market is positively correlated with the ability to mobilize
capital and diversify risk. It increased sharply to 52.3% in 2003-04 against 28.5% in the
previous year. The trading volumes on exchanges have been witnessing phenomenal
growth over the past decade. The trading volume, which peaked at Rs. 28,809,900
million in 2000-01, fell substantially to Rs. 9,689,093 million in 2002-03.
However, the year 2003-04 saw a turnaround in the total trading volumes on the
exchanges. It registered a volume of Rs. 16,204,977 million. The turnover ratio, which
reflects the volume of trading in relation to the size of the market, has been increasing by
leaps and bounds after the advent of screen based trading system by the NSE. The
turnover ratio for the year 2003-04 accounted at 122.9%. The relative importance of
various stock exchanges in the market has undergone dramatic change during this decade.
The increase in turnover took place mostly at the big exchanges. The NSE yet again
registered as the market leader with more 85% of total turnover (volumes on all

17
segments) in 2003-04. Top 5 stock exchanges accounted for 99.88% of turnover, while
the rest 18 exchange for less than 0.12% during 2003-04. About ten exchanges reported
nil trading volume during the year.

REASONS FOR TRANSITING IN SECONDARY

MARKET:
There are two main reasons why individuals transact in the secondary market:

(1) INFORMATION MOTIVATED REASONS:

Information motivated investors believe that they have superior information about a
particular security than other market participants. This information leads them to believe
that the security is not being correctly priced by the market. If the information is good,
this suggests that the security is currently under-priced, and investors with access to such
information will want to buy the security. On the other hand, if the information is bad, the
security will be currently overpriced and such investors will want to sell their holdings of
the security.

(2) LIQUIDITY MOTIVATED REASONS:

Liquidity motivated investors, on the other hand, transact in the secondary market
because they are currently in a position of either excess or insufficient liquidity. Investors
with surplus cash holdings (e.g., as a result of an inheritance) will buy securities, where
as investors with insufficient cash (e.g., to purchase a Car) will sell securities.

FUNCTIONS OF THE SECONDARY MARKET:

1. To facilitate liquidity and marketability of the outstanding equity and debt instruments.

2. To contribute to economic growth through allocation of funds to the most efficient

channel through the process of disinvestments to reinvestment.

3. To provide instant valuation of securities caused by changes in the internal

environment (that is, company-wide and industry wide factors). Such valuation facilitates
the measurement of the cost of capital and the rate of return of the economic entities at
the micro level.

4. To ensure a measure of safety and fair dealing to protect investors’ interest. To induce
companies to improve performance since the market price at the stock exchanges reflects
the performance and this market price is readily available to investors.

18
LISTING:
Listing is a process involved in listing something with some one. It is a permission to
quote shares and debentures officially on the trading floor of the stock exchange. The
listed shares appear on the official list of securities for the purpose of trading security
listing is a step that is required to register and to place on record the security of a
company with the appropriate authority i.e. the recognized stock exchange. Securities are
required to be listed under Section 9 of the Securities Contract (Regulation) Act, 1956.
Thus, listing simply means the inclusion of any security for the purpose of trading in a
recognized stock exchange. Only public companies are allowed to list their securities in
the stock exchange. Private Limited companies cannot get listing facility. They shall first
convert themselves into public limited companies and their Articles of Association shall
contain prohibitions as laid down in the listing agreement and as applicable to public
limited companies.
The issuer wishing to have trading privileges for its securities satisfies listing
requirements prescribed in the relevant statutes and in the listing regulations of the
Exchange. It also agrees to pay the listing fees and comply with listing requirements on a
continuous basis. All the issuers who list their securities have to satisfy the corporate
governance requirement framed by regulators. The prices at which the securities are
traded in the stock exchange are published in the newspapers. Investors are able to know
these price trends from such publications. Compared to listed securities the trading of
unlisted securities is difficult. The price trends in respect of unlisted securities are seldom
known to the investors and the contract between the seller and buyer takes places mostly
on one to one basis.

LISTING PROCEDURE:

The listing procedure involves making a simple application by the company and payment
of listing fees as prescribed by the respective stock exchange. It is to be completed before
the offer of securities to the public and registration of prospectus with the Registrar of
Companies. The recognized stock exchange has to give approval and then make an
agreement stating the terms and conditions. Registration and recording is done for the
purpose of trading by the registered members of the stock exchange and for the official
quotation of the security price for the benefit of the public and the investors. The
company has to continue listing by paying renewal fees from time to time. Listing is
mandatory for a public company, which intends to offer its securities to the public by
issue of prospectus and which wishes to provide facilities to the securities being offered
to the public. Any allotment of securities made in the absence of listing or refusal of
listing is held to be void i.e. illegal. Again, any failure to comply with the Section 21 of
the Securities Contracts (Regulation) Act attracts penalty to the parties.

The authority of the stock exchange may refuse listing of the securities of a company.
The authorities should intimate the company within 15 days with the reasons for refusal.
The company can make an appeal to the Central Government within a prescribed period.

19
The Central Government may either grant or refuse to grant the permission for listing and
the decision of the Central Government would be informed to the stock exchange
concerned that shall act in conformity with such a decision. The stock exchange is
empowered to suspend or withdraw an admission to dealing in securities of company for
breach or non-compliance with the listing provision on giving an opportunity of being
heard in writing. In an eventuality where any withdrawal or suspension exceeds 3
months, the company may appeal to the SEBI who may either vary or set aside the
decision of the stock exchange.

CENTRAL LISTING AUTHORITY:

The compliance with the listing requirements was being hitherto seen by each stock
exchange on which the securities of the company are proposed to be listed. These
requirements defer from exchange to exchange. SEBI has initiated steps to set up of a
central listing authority, which would accord approval. This approval would enable all
the stock exchanges, on which the securities of the companies and Mutual Funds are
going to be listed, to list the securities at an early date. The central listing authority would
ad as a check on the fly by night operators who float public issues, since the listing norms
would be uniformly applied as against the current practice where the norms could be
flouted, if listing is to take place in a very small exchange where the listing requirements
may be lenient.

LISTING AGREEMENT:

All companies seeking listing of their securities on the Exchange are required to enter
into a listing agreement with the Exchange. The agreement specifies all the requirements
to be continuously complied with by the issuer for continued listing. The Exchange
monitors such compliance. Failure to comply with the requirements invites suspension of
trading, or withdrawal/delisting, in addition to penalty under the Securities Contracts
(Regulation) Act, 1956. The agreement is being increasingly used as a means to improve
corporate governance.

TYPES OF LISTING:

Listing of securities falls under 5 groups –

1. INITIAL LISTING: -
If the shares or securities are to be listed for the first time by a company on a stock
exchange is called initial listing.

2. LISTING FOR PUBLIC ISSUE: -

When a company whose shares are listed on a stock exchange comes out with a public
issue of securities, it has to list such issue with the stock exchange.
20
3. LISTING FOR RIGHTS ISSUE: -
When companies whose securities are listed on the stock exchange issue securities to
existing shareholders on rights basis, it has to list such rights issues on the concerned
stock exchange.

4. LISTING OF BONUS SHARES: -

Shares issued, as a result of capitalization of profit through bonus issue shall list such
issues also on the concerned stock exchange.

5. LISTING FOR MERGER OR AMALGAMATION: -

When an amalgamated company issues new shares to the shareholders of the
amalgamating company, such shares are also required to be listed on the concerned stock
exchange.

CHARACTERISTICS OF LISTING:
The following are the characteristics of listing of securities:

1. AGREEMENT: -
Listing agreement is made between the respective stock exchange and the company. The
company offers or issues the securities to the public through the issue of offer document
like prospectus or a letter of offer. The stock exchange is a recognized stock exchange
where the securities are listed for trading.

2. PURPOSE: -
The purpose of listing is to ensure free transferability of securities so as to facilitate clear
transparency and open disclosure of information relating to the affairs of the company
whose securities are listed. In addition, official quotation and liquidity in the trading of
listed securities is also ensured.

3. RESTRICTION: -
A company is free to have its securities listed in any number of stock exchanges.
It is important that the securities are listed at least on the regional stock exchange.

4. INVESTOR PROTECTION: -
Listing offers a measure of protection to the investors. It is a barometer of performance
and continued good performance of the company.

21
BENEFITS OF LISTING:
Listing of securities is beneficial to company as well as to investors:

1. TO THE COMPANY: -

1. The company enjoys concessions under Direct Tax Laws as such companies are known
as companies in which public are substantially interested resulting in low rate of income
tax payable by them.

2. The company gains national and international importance by share value quoted on
stock exchanges.

3. Financial institution and banks extend term loan facilities in the form of rupee currency
and foreign currency loan.

4. It helps the company to mobilize resources from the shareholders through ' Right Issue'
for programs of expansion and modernization without depending on the financial
institutions in line with the government policies.

5. It ensures wide distribution of shareholding thus avoiding fears of easy takeover of the
organization by others.

2. TO THE INVESTORS: -

1. Since the securities are officially traded, liquidity of investment by the investors is well
ensured.

2. Rights entitlement in respect of further issues can be disposed of in the market.

3. Listed securities are well preferred by the bankers for extending loan facilities.

4. Official quotations of the securities on the stock exchanges corroborate the valuation
taken by the investors for the purpose of assessment under Income Tax Act, Wealth
Tax Act etc.

5. Since securities are quoted, there is no secrecy of the price realization of securities sold
by the investors.

6. The rules of stock exchange protect the interest of the investors in respect of their
holding.

7. Listed companies are obliged to furnish un-audited financial results on quarterly basis.
The said details enable the investing public to appropriate financial results between the
financial periods.

22
8. Takeover offers concerning the listed companies are to be announced to the public.
This will enable the investing public to exercise their discretion on such matters.

OTHER BENEFITS:

1. Easy marketability and liquidity which also ensures easy rising of capital.

2. Easy evaluation of the real worth of securities.

3. High collateral value for bank loans.

4. Providing activities of quick transfer registration and company information.

5. There is a safety in dealing of securities.

6. It safeguards general public interest by ensuring equitable allotment, easy transfer, and
disclosure of proper information.

7. Tax incentives are available to listed securities.

8. Higher status and reputation for the company by enjoying the confidence of the
investing public.

9. Provides an assurance of an existence of good faith or an absence of fraud with regard

to the issue of securities.

10. Listing is made through analysis of a company's capital structure, management

pattern and business prospects. Hence, provides assurance of genuineness of securities.

DELISTING:

The securities listed can be de-listed from the Exchange as per the SEBI (Delisting of
Securities) Guidelines, 2003 in the following manner:

1. VOLUNTARY DE-LISTING OF COMPANIES: -

Any promoter or acquirer desirous of delisting securities of the company under the
provisions of these guidelines shall obtain: -

1. The prior approval of shareholders of the company by a special resolution passed at its
general meeting,

2. Make a public announcement in the manner provided in these guidelines,

23
3. Make an application to the delisting exchange in the form specified by the exchange.

4. Comply with such other additional conditions as may be specified by the concerned
stock exchanges from where securities are to be de-listed. Any promoter of a company
which desires to de-list from the stock exchange shall also determine an exit price for
delisting of securities in accordance with the book building process.

2. COMPULSORY DE-LISTING OF COMPANIES: -

The stock exchanges may de-list companies which have been suspended for a minimum
period of six months for non-compliance with the listing agreement. The stock exchanges
have to give adequate and wide public notice through newspapers & also give a show
cause notice to a company. The exchange shall provide a time period of 15 days within
which any person who may be aggrieved by the proposed delisting may make
representation to the exchange.

24
 INTERMEDARIES IN SECONDARY MARKET:

1. STOCK BROKER:

A Stock Broker plays a very important role in the secondary market helping both the
seller and the buyer of the securities to enter in to a transaction. The buyer and seller may
be either a broker or a client. A broker is an intermediary who arranges to buy and sell
securities on behalf of clients (the buyer and the seller). They get commission on these
transactions. About one fourth of the members of the stock exchange are specialist known
as market makers.
According to Rule 2 (e) of SEBI (Stock-Brokers and Sub-Brokers) Rules, 1992, a
stockbroker means a member of a recognized stock exchange. No stockbroker is allowed
to buy, sell or deal in securities, unless he or she holds a certificate of registration granted
by SEBI. A stockbroker shall not buy, sell, and deal in securities, unless he holds a
certificate granted by SEBI.

2. SUB BROKERS:

A sub-broker is a person who intermediates between investors and stockbrokers.

He acts on behalf of a stockbroker as an agent or otherwise for assisting the investors for
buying, selling or dealing in securities through such stockbroker. No sub-broker is
allowed to buy, sell, or deal in securities, unless he or she holds a certificate of
registration granted by SEBI. A sub-broker may take the form of a sole proprietorship, a
partnership firm or a company. Stockbrokers of the recognized stock exchanges are
permitted to transact with sub-brokers. He is also known as Remiseres.

3. CUSTODIAN:

Custodian of Securities means any person who carries on or proposes to carry on the
business of providing custodial services. Custodial Services in relation to securities
means safekeeping of securities of a client and providing services incidental thereto, and
includes-
1. Maintaining accounts of securities of a client;
2. Collecting the benefits or rights accruing to the client in respect of securities;
3. Keeping the client informed of the actions taken or to be taken by the issuer of
securities, having a bearing on the benefits or rights accruing to the client; and
4. Maintaining and reconciling records of the services.

4. JOBBER:

A jobber is a specialist and independent dealer in securities. A jobber has to give two
quotations as a dealer in securities. He gives lower quotation for buying and higher
quotation for selling the securities. Jobber deals only with the brokers and not with the
investors. His margin is fixed by competition among themselves as dealers. The margin is

25
narrow when there is keen competition. Every year, a member of the stock exchange has
to decide and declare in advance whether he proposes to act as a jobber or a broker. Each
jobber specializes in a certain group of securities. He ensures that the transactions are
carried out smoothly and promptly. The double quotation of jobber assures fair-trading to
investors.

5. TARANIWALA:

A jobber who makes an orderly and continues auction in the stock market is called
Taraniwala. He is a localized dealer who handles transactions on a commission basis for
other brokers who act on behalf of their customers. He trades in the stock market even for
small differences in price and helps to maintain liquidity in the stock market.

6. ODD LOT DEALER:

These are specialists who handle the odd lots. The standard trading unit for listed stock is
called ‘lot’. The shares are normally traded in the lots of 5, 50, 100 etc. However, the
minimum lot has become 1 due to dematerialization. But all the listed stocks are not
compulsorily in the de-mat form. Odd lot dealers buy odd lots, which other members
wish to sell for their customers and sell odd lots which others, want to buy. The price of
odd lots is determined by the round lot transactions. The odd lot dealer earns his profit on
the difference between the purchase and sales price.

7. ARBITRAGEUR:

An arbitrageur is a specialist in dealing with securities in different stock exchange centers

at the same time. He makes the profit by difference in the prices prevailing in different
centers of market activity. He carries out these transactions with a good communication
system and telephonic and tele-printer facility. He should have ability to get the prices
from different centers before other members trading in the stock market.

8. SECURITY DEALER:

The members who purchase and sale government securities on the stock exchange are
known as Security Dealers. Each transaction has to be separately negotiated. The dealers
should have information about the several kinds of government securities. They take risk
in ready purchase and sale of securities for current requirements. Their role is restricted
by the participation of LIC and Commercial Banks.

9. DEPOSITORIES:

A depository is an entity where the securities of an investor are held in electronic form.
The person who holds a de-mat account is a beneficiary owner. In case of a joint account,
the account holders will be beneficiary holders of that joint account. Depositories help in
the settlement of the dematerialized securities. Each custodian/clearing member is

26
required to maintain a clearing pool account with the depositories. He is required to make
available the required securities in the designated account on settlement day.

10. PORTFOLIO MANAGERS:

A Portfolio Manager is a professional with experience and expertise in the field.

He studies the market and adjusts the investment mix for his client on a continuing basis
to ensure safety of investment and reasonable returns there from. Any person who
pursuant to a contract or arrangement with a client, advises or directs or undertakes on
behalf of the client whether as a discretionary portfolio manager or otherwise the
management or administration of a portfolio of securities or the funds of the client, as the
case may be is a portfolio manager.

11. STOCK EXCHANGES:

A stock exchange or securities exchange is a marketplace where stocks offered for sale
are listed and exchanged. Typically, the exchange is made up of a Board of Governors
generally selected by the members, which is chosen to represent the interests of seat
holders. The Exchange usually assigns a number of seats to brokers.

27
DE-MAT:

De-mat is “dematerialization” on shares. Dematerialization is a process by which the

shares, debentures etc in the physical form get converted into the electronic form and are
stored in the computers by the depository. Earlier there used to be the hectic procedure of
physical delivery of shares. Dematerialization is a unique process of trading the shares in
the electronic form rather then the vulnerability of the physical delivery of the shares.
The introduction of NEAT and BOLT has increased the reach of capital market
manifolds. The increase in number of investors participating in the capital market has
increased the probability of being hit by a bad delivery. The cost and time spent by the
brokers for rectification of these bad deliveries tends to be higher. In this technological
world things are needed to move at a faster pace, and with the introduction of
dematerialization process the stock exchange has expanded its business at a tremendous
speed.

ADVANTAGES OF DEMAT:

1. Easy liquidity, trading in de-mat segment benefits elimination of bad deliveries and all
risks associated with physical certificate such as loss, theft, mutilation, forgery, etc

2. You can also expect a lower interest charge for loans taken against de-mat shares as
compared to the interest for loan against physical shares. This could result in a saving of
about 0.25% to 1.5%.

3. In case of transfer of electronic shares, you save 0.5% in stamp duty.

4. You also avoid the cost of courier/ notarization/ the need for further follow-up with
your broker for shares returned for company objection.

KNOW-HOW OF THE DEMAT ACCOUNT:

A person needs to have a De-mat Account in banks possessing de-mat units (depository
participants services), so that, if he is buying the shares, shares will be directly transferred
into his A/c by the broker after the payment, and if he is selling the shares, the shares will
directly be transferred to the brokers A/c and he will get the payment after the scripts
have reached on the counter side.

For this, an investor needs to submit his DP Id (depository participant’s Id), DP name and
Client Id to his broker. This DP Id is the bank’s Id; DP name is the banks name, and
Client Id is the number given by the bank to the person who opens a de-mat A/c. A
depository transfers securities as per the investor's instructions without actually handling
securities, through the electronic mode. The DP will maintain the account balances of
securities bought and sold by the investor from time to time. The DP will also give the
investor a statement of holdings, which is similar to a passbook. Basically the holding of
a De-mat Account is similar to holding a Current Account in the bank.

28
TRADING:
The act of buying and selling of securities on a stock exchange is known as Stock
Exchange Trading. Jobbers and brokers are the two categories of dealers in the stock
exchange. A jobber is a dealer in securities while a broker is an agent or seller of
securities. Every year a member has to decide and declare in advance whether he
proposes to act as a jobber or a broker. A jobber gives two quotations as a dealer in
securities, lower quotation for buying and higher one for selling. The difference between
the two quotations is his remuneration. This system enables specialization in the dealings
and each jobber specializes in a certain group of securities. It also ensures smooth and
prompt execution of transactions. The double quotation of a jobber assures fair-trading in
the market. A broker is merely an agent to buy or sell on behalf of his clients. He is a
generalist. Broker has to negotiate terms and conditions of sale or purchase and safeguard
his client's interest. He gets commission from his clients’ that is fixed by the stock
exchange.

TRADING PROCEDURE:
NSE was the first stock exchange in the country to provide nation-wide, anonymous,
order driven, screen-based trading system, known as the National Exchange for
Automated Trading (NEAT) system. The member inputs, in the NEAT system, the
details of his order such as the quantities and prices of securities at which he desires to
transact. The transaction is executed as soon as it finds a matching sale or buys order
from a counter party. All the orders are electronically matched on a price/time priority
basis. This has resulted in a considerable reduction in time spent, cost and risk of error, as
well as frauds, resulting in improved operational efficiency. It allows for faster
incorporation of price sensitive information into prevailing prices, as the market
participants can see the full market on real time basis. These increases informational
efficiency and makes the market more transparent. Further, the system allows a large
number of participants, irrespective of their geographical locations, to trade with one
another simultaneously, improving the depth and liquidity of the market. A single
consolidated order book for each stock displays, on a real time basis, buy and sell orders
originating from all over the country. The book stores only limit orders, which are orders
to buy or sell shares at a stated quantity and stated price, are executed only if the price
quantity conditions match. Thus, the NEAT system provides an Open Electronic
Consolidated Limit Order Book (OECLOB), which ensures full anonymity by accepting
orders, big or small, from members without revealing their identity. Thus, provides equal
access to all the investors. A perfect audit trail, which helps to resolve disputes by
logging in the trade execution process in entirety, is also provided. The trading platform
of the CM segment of NSE is accessed not only from the computer terminals, but also
from the personal computers of the investors through the Internet and from the hand-held
devices through WAP. SEBI has allowed the use of internet as an order routing system
for communicating investors’ orders to the exchanges through the registered brokers.

29
These brokers should obtain the permission from their respective stock exchanges. In
February 2000, NSE became the first exchange in the country to provide web-based
access to investors to trade directly on the Exchange followed by BSE in March 2001.
The orders originating from the PCs of investors are routed through the internet to the
trading terminals of the designated brokers with whom they have relations and further to
the exchange. After these orders are matched, the transaction is executed and the
investors get the confirmation directly on their PCs. SEBI has also allowed trading
through wireless medium or Wireless Application Protocol (WAP) platform. NSE is the
only exchange to provide access to its order book through the hand held devices, which
use WAP technology. This particularly helps those retail investors, who are mobile and
want to trade from any place.

The following are the steps involved in the trading of securities at a stock exchange:

1. PLACING ORDER: -

An order is to be placed by an investor with the broker either to buy or sale of certain
number of securities at a certain specified price. An order can be placed by telegram,
telephone, telex/ fax, and letter or in person. There are different types of orders.
When in the order the client places a limit on the price of the security it is called limit
order. Where the order is to be executed by the broker at the best price, such an order is
called 'Best Rate Order'. When the client does not fix any price limit or time limit on the
execution of the order and relies on the judgment of the broker is called 'Open Order'.

2. TRADE EXECUTION: -

The broker has to execute the order placed by his client during the trading hours. The
order is executed as per requirements of the client. The broker may negotiate with other
parties in order to execute the orders.

3. CONTRACT NOTE: -

When the order is executed, the broker prepares a contract note. It is the basis of the
transaction. Particulars such as price, quantity of securities, date of transaction, names of
the parties, brokerage etc. are entered in the contract note.

4. DELIVERIES AND CLEARING: -

Delivery of shares takes place through the instrument known as transfer deed. The
transfer deed is signed by the transferor (seller) and is authenticated by a witness. It
contains the details of the transferee, stamp of the selling broker, etc. Delivery and
payment may be completed after 14 days as specified at the time of negotiation. Delivery
and clearing of security takes place through a clearance house.

30
5. SETTLEMENT: -

The procedure adopted for the settlement of transactions varies depending upon the kind
of securities. On the date of settlement cheques/ drafts and securities are exchanged as
per the delivery order. The clearinghouse makes the payment and delivers the security
certificates to the members on the payout day. Each broker settles the account with every
client by taking delivery or giving delivery of securities certificates and receipts or
payment of cheques.

ONLINE TRADING: -

Online trading in shares and securities has already been started in India. It has been made
possible due to introduction of de-mat. ICICI Web Trade, HDFC Securities, Stock
Holding Corporation of India and many other institutions have started the online trading
system. The investors can carry out buying and selling of securities while sitting in the
house or office. Internet connection is required for this purpose. The investors have to
open an account with these institutions that provide online trading. There are three
accounts opened into one place, De-mat Account, Bank Account and Online Trading
Account. A password is given to each investor which is secret. Investors can carry out
buying and selling securities at BSE and NSE during normal trading hours. The
settlement is done automatically with the program of the computer. Margin Trading,
Options and Futures Trading are also possible in this method.

HOW TO TRADE ONLINE: -

1. Log on to the Broker's website.

2. Register yourself as a client.
3. Fill in the client broker agreement on stamp paper.
4. Log on the broker's site using secure user ID and password.
5. The market watch page shows real time data.
6. Trade shares directly by entering the symbol of securities.
7. The broker's server will check the limit on-line and the de-mat account for the number
of shares execute the trade.
8. Usually the order is executive in about 20 seconds and you get the confirmation.
9. The broker will send one e-mail confirmation and printed contract by mail.
10. on the settlement day de-mat and bank accounts will automatically get debited and
credited.

31
BENEFITS OF ONLINE TRADING: -

Online trading offers the investors the following benefits:

1. REACH: -
The reach of online trading spans to all areas where internet connectivity is available.

2. EMPOWERMENT: -
Since all decision-making is with the investor, with sufficient and relevant information on
his stocks, the investor is empowered to take decisions based on his own judgment.

3. CONVENIENCE: -
The share broking account integrates with the investors banking, broking and the share
depository accounts. This enables the investor to trade in shares without going through
the hassles of tracking settlement cycles, writing cheques and transfer instructions, and
chasing brokers for refund cheques.

4. SPEED: -
The speed of executing the transaction is more as compared to a phone-based trade.

5. CONTROL: -
With online trading, the investor can be assured of the execution of the transaction
placed, thereby having complete control over the trades.

32
SETTLEMENT:
The clearing and settlement mechanism in Indian securities market has witnessed
significant changes and several innovations during the last decade. These include use of
the state-of-art information technology, emergence of clearing corporations to assume
counterparty risk, shorter settlement cycle, dematerialization and electronic transfer of
securities, fine-tuned risk management system, etc., though many of these are yet to
permeate the whole market.
In order to bring settlement efficiency and reduce settlement risk, in 1989, the group of
30 had recommended that all secondary markets across the globe should adopt a rolling
settlement cycle on T+3 basis by 1992, i.e., the trades should be settled by delivery of
securities and payment of money within three business days after the trade day. But in
India, due to multiple problems faced by the secondary market like the open out cry
system, wide geographical coverage, settlement of securities in physical form, inadequate
banking and depository infrastructure, India could not implement the G30
recommendations within the stipulated time frame. In 1999, rolling settlements were
introduced in select scrips on a T+5 basis, which had got an effect from December 2001.
After successful implementation of rolling settlement on T+5 basis, SEBI moved the
settlement to T+3 basis with effect from April 2002. To carry the reforms further in this
area, the Indian equity market has reduced the settlement cycle to T+2 basis w.e.f. 1st
April, 2003. The main advantage of this T+1 settlement cycle is that as the trades spread
across all trading days, this reduces undue concentration of payment of money and
delivery of securities on a single day. As the settlement is spread across evenly, it results
in efficiency utilization of infrastructure and system capacity. In addition, trades are
guaranteed by the National Clearing Corporation. India Ltd. (NSCCL), and Bank of India
Shareholding Ltd. (BOISL), Clearing Corporation Houses of NSE and BSE respectively.
The main functions of Clearing Corporation are to work out:
(a) What counterparties owe and
(b) Why counterparties are due to receive on the settlement date.
Furthermore, each exchange has a Settlement Guarantee Fund to meet with any
unpredictable situation. The Clearing Corporation of the exchanges assumes the
counterparty risk of each member and guarantees settlement through a fine-tuned risk
management system and an innovative method of online position monitoring. It also
ensures the financial settlement of trades on the appointed day and time irrespective of
default by members to deliver the required funds and/or securities with the help of a
settlement guarantee fund.

33
ADVANTAGES OF ROLLING SETTLEMENT:

In rolling settlement, payments are quicker than in the weekly settlement. Thus, investors
benefits from increased liquidity. For example, in a rolling system, investors would
receive the payments on the fifth day after the sale. The National Stock Exchange was the
first to introduce rolling settlement in the country. Rolling settlement could not be
introduced earlier because India did not have depositories. Rolling settlement necessarily
requires electronic transfer of funds and de-mats facilities in respect of securities being
traded. This is because handling large volumes of paper on a daily basis is extremely
difficult for the clearinghouses of stock exchange. It is only now that India has adequate
facilities for electronic delivery of shares, which facilitates trading and clearing large
volumes on a daily basis. However, transfer of funds in India still takes two to three days.

34
 SEBI (SECURITIES & EXCHANGE BOARD OF
INDIA)
Government of India set up the Securities and Exchange Board of India (SEBI) on April
12, 1988. It was given a legal status under the ordinance of 1992. It was entrusted with a
wide range of responsibilities in regulating the activities of almost all the players in the
capital market. It aimed at creating a proper and conducive environment required for the
raising money from the capital market through rules, regulation, trade practices, customs
and relations among institutions, brokers, investors and companies. It also aimed at
endeavoring to restore and safeguard the trust of the investors, particularly the interest of
small investors. It has developed a proper infrastructure for facilitating automatic
expansion and growth of business of brokers, jobbers, mutual funds and merchant
bankers.

CONSTITUTION OF SEBI:

The Central Government has constituted a Board by the name of SEBI under Section 3 of
SEBI Act. The head office of SEBI is in Mumbai. SEBI may establish offices at other
places in India.
SEBI consists of the following members, namely: -
1. A Chairman;
2. Two members from amongst the officials of the Ministries of the Central
3. Government dealing with Finance and administration of Companies Act, 1956;
4. One member from amongst the officials of the Reserve Bank of India;
5. Five other members of whom at least three shall be whole time members to be
appointed by the Central Government.

The general superintendence, direction and management of the affairs of SEBI vests in a
Board of Members, which exercises all powers and do all acts and things which may be
exercised or done by SEBI. The Chairman and the other members are from amongst the
persons of ability, integrity and standing who have shown capacity in dealing with
problems relating to securities market or have special knowledge or experience of law,
finance, economics, accountancy, administration or in any other discipline which, in the
opinion of the Central Government, shall be useful to SEBI.

FUNCTIONS OF SEBI:

SEBI has been obligated to protect the interests of the investors in securities and to
promote and development of, and to regulate the securities market by such measures, as it
thinks fit. The measures referred to therein may provide for: -

(a) Regulating the business in stock exchanges and any other securities markets;

(b) Registering and regulating the working of stock brokers, sub-brokers, share transfer
agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant

35
bankers, underwriters, portfolio managers, investment advisers and such other
intermediaries who may be associated with securities markets in any manner;

(c) Registering and regulating the working of the depositories, participants, custodians of
securities, foreign institutional investors, credit rating agencies and such other
intermediaries as SEBI may, by notification, specify in this behalf;

(d) Registering and regulating the working of venture capital funds and collective
investment schemes including mutual funds;

(e) Promoting and regulating self-regulatory organizations;

(f) Prohibiting fraudulent and unfair trade practices relating to securities markets;

(g) Promoting investors' education and training of intermediaries of securities markets;

(h) Prohibiting insider trading in securities;

(i) Regulating substantial acquisition of shares and take-over of companies;

(j) Calling for information from, undertaking inspection, conducting inquiries and audits
of the stock exchanges, mutual funds, other persons associated with the securities market,
intermediaries and self-regulatory organizations in the securities market;

(k) Calling for information and record from any bank or any other authority or board or
corporation established or constituted by or under any Central, State or Provincial Act in
respect of any transaction in securities which is under investigation or inquiry by the
Board;

(l) Performing such functions and exercising according to Securities Contracts

(Regulation) Act, 1956, as may be delegated to it by the Central Government;

(m) Levying fees or other charges for carrying out the purpose of this section;

(n) Conducting research for the above purposes;

(o) Calling from or furnishing to any such agencies, as may be specified by SEBI, such
information as may be considered necessary by it for the efficient discharge of its
functions;

(p) Performing such other functions as may be prescribed.

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INVESTORS:
The investors in the past have suffered at the hands of insufficient stock exchanges and
greedy unprofessional brokers. This was one of the reasons why SEBI was created. The
investor today can look forward to redress of his grievances through SEBI.
Normally investors have complaints of following nature:
1. Delays in refund of application money.
2. Delay in receipt of dividend and / or interest warrants.
3. Delay in receiving the maturity value of fixed deposits or debentures on redemption.
4. Delay in receipt of share and debenture certificates after allotment.
Major part of the liberalization process was the repeal of the Capital Issues
(Control) Act, 1947, in May 1992. With this, Government’s control over issues of capital,
pricing of the issues, fixing of premium and rates of interest on debentures etc. ceased,
and the office which administered the Act was abolished, the market was allowed to
allocate resources to competing uses. However, to ensure effective regulation of the
market, SEBI Act, 1992 was enacted to establish SEBI with statutory powers for:
(a) Protecting the interests of investors in securities,
(b) Promoting the development of the securities market, and
(c) Regulating the securities market.
SEBI receives many such complaints regularly and tries to redress all such grievances.
SEBI has from time to time pulled up companies against whom the complaints are
received and has also initiated action against the defaulting companies.
SEBI has encouraged the registration of investors associations in various parts of the
country to organize investors into an effective force for protection of their own interests.
Some of the actions taken by SEBI can be summarized as below:

1. The introduction of screen based trading.

2. The ban on BadIa.
3. The dematerialization of shares.
4. The method of postal ballots so that small investors views are heard.
5. The book building process in buy-back of shares by the companies.
6. The capital adequacy norms for brokers.

SEBI may, for the protection of investors,

1. Specify, by regulations,
a) The matters relating to issue of capital, transfer of securities and other matters
incidental thereto; and
b) The manner in which such matters, shall be disclosed by the companies and

2. by general or special orders,

a) Prohibit any company from issuing of prospectus, any offer document, or
advertisement soliciting money from the public for the issue of securities, specify the
conditions subject to which the prospectus, such offer document or advertisement, if not
prohibited may be issued.

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FIIs & INDIAN EQUITY MARKET:
Investors worldwide tend to stay away from undertaking international investments. But
the fact is, by avoiding cross country investment, investors are actually causing the rise in
the risk of their portfolios. Cross-border investing develops asset classes with very low
correlation to the domestic holdings, in turn, contributing to a lesser volatility for
investments. This premise of investment theory has led to an increasing trend of FII
investments across the globe. India being an emerging economy with a capital market at
its peak, foreign investments have been a regular feature here. Such investments flood in
a country with sound macroeconomic and operational procedures in place. Steps taken by
India in these fronts have been commendable, but what is the key to attracting a
substantial slice of the cake and how can we sustain the pace?

The era of FIIs investments in India originated in 1993 and the net investment during the
year was $827.20 million. FIIs of different countries, mainly the US, started operating in
India. The number of FIIs in India has grown over the year to nearly 500.
The big names include Morgan Stanley, Templeton, Capital International, CDC,
Warburg, and JFAM.
As per the definition of RBI, a FII is an institution established or incorporated outside
India, which proposes to make investments in Indian securities. Such institutions have
been permitted to invest in Indian securities markets starting from September 1992 when
the then authorities issued suitable guidelines. The FIIs are subject to stringent
monitoring. They are required to register with RBI and the SEBI before they commence
their operations.

Foreign Institutional Investors (FIIs) during the last one-decade have become an integral
part of Indian equity markets. They have been an incredible source of money ever since.
The clout of the FIIs is such that the market players anticipate their arrival with breathless
anxiety. This reputation of the FIIs is a well-earned status. The authority of these
institutions is evident from the very fact that by the mere news of their arrival it is
sufficient for the market to supplement itself with a double-digit growth.
Truly, the FIIs have emerged as a masculine unit in recent times. FIIs support the markets
by unlocking their chests and rejuvenating the secondary markets. Performance of the
secondary market brings cheer to the new issues market thus allowing companies to raise
fresh capital. As evident, a healthy FII activity helps fund new projects and expansions,
creating new jobs and triggering all positive things that come as a surprise gift. From the
Central Bank's point of view, FIIs, investments impart confidence to the economy by
providing cushion in the form of forex reserves.

This trend of Indian equity markets to that of FIIs investment though encouraging, has to
be treated cautiously. Although the investments have provided with the much needed
liquidity and depth in the markets, the role played by the fly-by-night operators in
creating panic is some of the Asian economies do Indian markets face a risk. Portfolio
flows are notoriously volatile compared to other forms of capital flows, as FIIs usually
pull back portfolio investments at the slightest hint of trouble in the host country often

38
leading to disastrous consequences to its economy. FIIs have been blamed for
exacerbating small economic problems in a country by making large and concerted
withdrawals at the first sign of economic weakness. However, RBI and SEBI has been
prudent enough in enforcing strict guidelines for FIIs entering India and controlling the
repatriation of the investment.

Ever since they entered India in 1993, the market has moved nowhere between 1993 and
now. Despite an over burdened economy and infrastructure bottlenecks, companies like
RIL, HLL, HDFC, Infosys, Ranbaxy, and Dr. Reddy's have given consistently excellent
performance over the years and this has encouraged FIIs to invest in the stocks of these
companies which holds a major weightage in Sensex. For global fund managers, top
down is the preferred approach as their portfolios consist of securities across many
markets, which make it too cumbersome to follow a bottom-up strategy in each market.

39
CONCLUSION

Equity capital is a high risk-high reward, permanent source of long term finance for
corporate enterprises and short term earning for shareholders. The investors, who desire
to share the risk, return and control associated with ownership of companies would invest
in equity capital.
Today, the Indian Equity Market is one of the most technologically developed in the
world and is on par with other developed markets abroad. The introduction of on-line
trading system, dematerialization, ban of the badla system, and introduction of rolling
settlement have facilitated quick trading and settlements which lead to larger volumes.
The setting up of the National Stock Exchange of India Limited has revolutionized the
face of the stock market. NSE is the only stock exchange which covers majority equity
investments every day.
Also equity capital market encourages capital formation in the country. The specific
factor, which influences equity market, is the investor’s sentiment towards the stock
market as a whole. So investor first has to analyze and invest and not speculate in shares.
The introduction of online trading has given a much-needed impetus to the Indian equity
markets. In this technological world things are needed to move at a faster pace, and with
the introduction of methods of marketing securities in the equity market, the stock
exchange has expanded its business at a tremendous speed.

According to economic times, the research states the major reason behind the
irregularities of market (up and down in sale and purchase, price of share) is mainly
because of forecasting mind set of equity investors. So, the stock exchanges must
disregards the emotional component of trading by making investors decisions based upon
chart formations, assuming that prices reflect both facts and emotion. And also by
creating the awareness of fundamental analysis (Fundamental analysis is a method of
finding out the future price of a stock, which an investor wishes to buy) among the
investors to avoid the irregularities while trading.
So to increase the volume of equity investment, the stock exchanges should strive to
increase transparency, strictly enforce corporate governance norms, provide more value-
added services to investors, and take steps to increase investor confidence. These stock
exchanges will have to plan strategic tie-ups with their foreign counterparts to get an
international platform. A developed and vibrant secondary market can be an engine for
the revival and growth of the primary market. So, to encourage Indian investment and
face international competition every Indian stock exchange has to stress on innovation
and sustained investment in technology to remain ahead.

ANNEXURE
QUESTIONNAIRE

40
Dear Respondent,
I Manan Desai student of Otiental Institute of management; I am doing
this research to compare different charges and services provided by
trading firm to its clients.

1. Are you aware of online trading?

(a) Yes
(b) No

2. In which company you have a De-mat account?

(a) India Bulls
(b) Religare
(c) Angel Broking
(d) HDFC Securities
(e) Others

3. Have you heard about Religare?

(a) Yes
(b) No

4. Are you satisfy with your company services?

(a) Yes
(b) No

5. What are your company’s brokerage charges? (Intraday/Delivery)(In

paisa)
(a) 0-5/10-25
(b) 5-10/25-50
(c) 25-50/more than 1 rupee

6. How much Exposure your company provides you?

(a) 0-5 times
(b) 5-8 times
(c) 8-10 times

7. In which of these financial instruments would you like to invest into?

(a) Shares
(b) Mutual Funds
(c) Bonds
(d) Derivatives

8. Which factor you consider attractive to you before investing in a

particular company?
(a) Financial position
(b) Current market position

41
(c) Goodwill of a company
(d) Future prospect

Note: Number Of People Questioned: 50.

Results:
(1) 47 Replied Yes and
3 Replied No

(2) 8 Replied India Bulls

5 Replied Religare
7 Replied Angel Broking
5 Replied HDFC Securities and
25 Replied Others.

(3) 38 Replied with Yes And

12 Replied With No.

(4) 35 Replied With Yes And

15 Replied With No.

(5) 33 Replied With 0-5/10-25,

12 Replied With 5-10/25-50,
5 Replied With 25-50/more than 1 rupee.

(6) 40 Replied With 0-5,

8 Replied With 5-8,
2 Replied With 8-10.

(7) 34 Replied With Shares,

6 Replied With Mutual Funds,
0 Replied With Bonds,
10 Replied With Derivatives.

(8) 20 Replied With Financial Position,

25 Replied With Current Market Position,

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 4 Replied With Good Will,
1 Replied With Future Prospects Of A Company.

BIBLIOGRAPHY
Books Referred

1. Investment Management-Preeti Singh

2. Indian Financial Market-T R Venkatesh

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3. Financial Market-P K Bandgar

4. Merchant Banking & Financial Services-Anil Agashe.

Magazines

1. Business Today

2. India Today

3. Business World

Websites

1. www.nseindia.com

2. www.indiainfoline.com

3. www.hdfcsec.com

4. www.equitymaster.com

5. www.bseindia.com

6. www.sebi.gov.in

7. www.financialexpress.com

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