Capital Markt in India

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CAPITAL MARKET IN INDIA

I NTRODUCTION A BOUT T HE C OMPANY

HISTORY

The south Gujarat shares &shares brokers Limited (SGSSL) is a

public limited company registered under company act 1956. Company

established with authorized share capital of RS.3 crores and its paid up

capital 1.27 crores.

The south Gujarat shares &shares brokers Limited started its activities

as an association of persons in 1992 and acted as sub brokers giving servicesfor buying and selling of securities to the retail investors from south Gujarat,

particularly in Surat. Mr. Anil Choksy, Mr. Ashok Mehta, Mr. Jagdish Patel

and Mr. Paresh Javeri who are the permanent directors of the company, took

initiative in forming a limited company, so as to become the member of the

National Stock Exchange of India Limited.

Accordingly, the company South Gujarat Shares & Share brokersLimited was registered under the companies act on the 5 th January 1995. To

begin with it conducted its trading business through other members of the

National Stock Exchange. During the first year of its operation ending on the

31st March 1995 it suffered a loss of Rs.80000 due to heavy establishment

expenses like assets purchase, maintenance, establishment, building,

furniture etc

The company had another poor year during 1995-96 and suffered a

further loss of Rs.1.18lacs. This was mainly because the company couldnt

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given many register sub-broker CTCL. Company also provide in outside of

Surat like Hazira, Navsari, and also in Bilimora.

In present condition company try to register its sub broker in SEBI. Now in present, company has 35 registered sub-brokers and other members

if they work then company insist to take registration.

In company there are 28 persons working. Company has 5 servers, in

this one server connect with NSE CTCL and second with disaster

management. In NSDL also their is one main server. Company provides 3

different rooms for on line trading to its clients and sub-broker with satellite

dish, Equara cable and modem. In back office with account package of

comtek also works actively with NSDL server.

The company has been stressing on the delivery oriented securities

trading and since inception has been consistently one of the major delivering

members. The company has been diligent ensuring compliance with the

securities trading and settlement regulations of the NSE. It has resulted in

ensuring cleaner operations.

The trading business of the company is rapidly expanding and its

volumes have now crossed Rs.2.5 to 3 corers per day. The company expects

the trading volume to at least double during the current year.

Mr. Anil Choksy, who is the chairman and the managing director of

the company, heads the operations of the company. He along with other full

time directors maintains a close hand on the operations. The company has its

own internal trading and settlement regulations, which are in conformity

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with the NSE and SEBI regulations. These regulations ensure that the

activities of the company are managed on the Cooperative basis and in the

best interest of the investors and the shareholders of the company.

MILESTONES

During the year ended 31 st march 1997. Company has turned the

corner.

The company has taken approval from NSDL to work as DP.

At present there are more than 12,000 holders having demate a/c inSGSSL.

Company has 35 registered sub-brokers.

Total income of company is Rs.96.58 lacks.

Net profit for current year is Rs.11.86 lacks as against 1.05 lacks of

previous year.

PROFILE OF THE COMPANY

1.) Name of the company:

South Gujarat Shares and Share-brokers Ltd.

2.) Registered office:

3 rd Floor, Belgium Chamber,

Opp. Liner Bus stop,

Ring Road,

Surat-395003.

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3.) Board of Directors:

Mr. Anil J. Choksy Chairman and M.D.

Mr. Bhadresh G. Kapadia Whole time DirectorMr. Shashikant R. Yadav Director

Mr. Aiyus M. Yacoobali Director

Mr. Bipinchandra Linewala Director

4.) Bankers:

Canara Bank

Karnataka Bank Ltd.

HDFC Bank Ltd.

5.) Auditors:

Ashok Rajpara

Chartered Accountants

Surat.

Internal Auditor:

P. H. Patel and Co.

Chartered Accountants

Surat.

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C APITAL M ARKET

CONCEPT

Capital market is the markets for funds which have a long or indefine

maturity i.e. It deal with long term funds. Generally capital market supplies

long term and medium term securities and funds, which have a maturity

period of above one year. Capital market generates the funds from the saver

and transfer to user. Generally it done with ordinary share, stocks,

debentures and bonds of corporations and securities of the government .They

do so by converting financial assets into productive physical assets.

Capital market provides a market mechanism for those who have

savings and to those who need funds for productive investments. It diverts

resources from wasteful and unproductive channels to productive

investment.

T HE C APITAL /S HARE M ARKET

The origination of the Indian securities market may be traced back to

1875, when 22 enterprising brokers under a Banyan tree established the

Bombay Stock Exchange (BSE). Over the last 125 years, the Indian

securities market has evolved continuously to become one of the most

dynamic, modern and efficient securities markets in Asia. Today, Indian

markets conform to international standards both in terms of structure and in

terms of operating efficiency.

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Structure and Size of the Markets

Corporation of the exchanges assumes the counter-party risk of each

member and guarantees settlement through a fine-tuned risk managementsystem 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. Today India has two

national exchanges, the Bombay Stock Exchange (BSE) and the National

Stock Exchange (NSE). Each has fully electronic trading platforms with

around 9400 participating broking outfits. Foreign brokers account for 29 of

these. There are some 9600 companies listed on the respective exchanges

with a combined market capitalization near $125.5bn. Any market that has

experienced this sort of growth has an equally substantial demand for highly

efficient settlement procedures. In India 99.9% of the trades, according to

the National Securities Depository, are settled in dematerialized form in a

T+2 rolling settlement environments. In addition, trades are guaranteed by

the National Clearing Corporation of India Ltd (NSCCL) and Bank of India

Shareholding Ltd (BOISL), Clearing Corporation houses of NSE and BSE

respectively. The main functions of the Clearing Corporation are to work out

(a) what counter parties owe and (b) what counter parties are due to receive

on the settlement date. Furthermore, each exchange has a Settlement

Guarantee Fund to meet with any unpredictable situation and a negligibletrade failure of 0.003%. The Clearing

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Highlights of the highly attractive Indian

capital markets

Two major reasons why Indian securities are now increasingly

regarded as attractive to international investors are the relatively high returns

compared with more developed global markets as well as the low correlation

with world markets. However until the early 90s, the foreign investors only

way of accessing the Indian capital markets was through listed country

funds.

INDIAS SECURITIES MARKET

A Brief History

The capital market is one of the most exciting

sectors in the financial system, marking an importantcontribution to economic development.

Asia Focus was launched by the Unit Trust of India (UTI) in

London in 1986. The success of this initiative ensured that this fund was

followed by numerous others. Indian companies are now also allowed to

raise equity capital in the international market through the issue of GDRs.

Today, there are 498 Foreign Institutional Investors who hold 1325 sub-

accounts with a net investment of approximately $15bn. Indias regulator,

the Securities Exchange Board of India (SEBI) is playing more of a

development role rather than being merely a watchdog. Transparency,

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competitiveness and equal opportunity to all market participants has been

the driving philosophy behind all the development and regulatory initiatives

of SEBI. This makes the market place attractive for foreign and domestic

investors. With SEBI recognizing the benefits of, and actively campaigningfor the adoption of Straight through Processing as the market standard, the

market is making significant progress towards the goal of executing and

settling the transactions without any human intervention the so called STP

nirvana. Successful implementation of STP will considerably reduce the

transaction processing cost in the market, eliminating the manual work

involved in transaction processing. Other aspects of the market such as the

increasing sophistication and range of tradable financial products add to the

attractiveness of the market as a whole. The availability of derivative

products including index futures, index options, individual stock futures and

individual stock options re-enforces the overall attractiveness of this market

to foreign and domestic investors. The derivatives market in only two years

has shown spectacular growth. Compared to last financial year the annual

turnover grew by over 300%. As if further evidence was needed of Indias

willingness to embrace change, the availability of Internet trading and dual

fungibles of American Depository Receipts (ADRs) and Global Depository

Receipts (GDRs) provides a clear indication of the vibrancy and dynamism

of the Indian securities market.

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MEANING OF C APITAL M ARKET

Capital market refers to the market for rising of financialresources by the business enterprises, firms, government, semi-

government bodies, public sector units and other organization.

Capital market is an organized market for long term funds required for

meeting long term needs of business enterprises. It converts savings into

profitable investments for industrial development.

Capital market is a wide term used to comprise all operation in the

new issues market and stock market. New issues made by the companies

constitute the Primary marker. While trading in the existing securities relates

to the secondary market. While we can only buy in the Primary market, we

can buy and sell securities in the secondary market. Market comprises some

who demand and other who supply these resources.

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CHART OF CAPITAL MARKET

CAPITAL MARKET

INDUSTRIAL GOVERNMENT LONG TERM

SECURITIES SECURITIES LOANS

MARKET MARKET MARKET

Primary Market

Secondary Market

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T YPES O F S ECURITIES M ARKET

The securities market can be divided in to three part:

1.) Industrial securities market2.) Government securities market

3.) Long term loans market

INDUSTRIAL SECURITIES MARKET

The industrial securities market consists of two complementary parts

i.e. the New Issue Market, and Secondary Market.It is a market for industrial securities namely:

(i) Equity shares or ordinary shares or common stock.

(ii) Preference shares

(iii) Debenture or Bonds.

The corporate sector raises their capital through these above three types of

securities. This is the physical or tangible asset through which the market

functions.

Company raises it capital in the primary market though:

1).Primary Market

Primary market is the market for those securities which are issued first

time in the market for the public. The New Issue Market deals with new

securities i.e. securities which were not previously availably and are offered

to the investing public for the first time. Primary market is a market for New

issues or New financial claims. Hence, it is called New Issue Market. The

market, therefore, derives its name from the fact that it makes available a

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New Block of Securities for public subscription. In the Primary market,

borrowers exchange new financial securities for long term funds. It

facilitates capital formulation.

Companies raise ite capital in the primary market though:(i) Public Issue

(ii) Right Issue

(iii) Primary placement/subscription

The most popular method of raising capital is sale of securities to the

public by new companies is called Public Issue. Right Issue means, when

existing company first offered. The security to existing shareholders on a Pre

emptive bases, while company want to raise additional capital is called

capital is called Right Issue. Private placement imagine private sale of

securities to small group investors.

2.) Secondary Market

Secondary market is the market for those securities which have

already been available in the market and listed on a stock exchange. The

main benefit of Secondary market is securities sold and purchased

continuously among investors without involvement of company. This

market consists of all stock exchange recognized by the Government of

India. The stock exchange in India are regulated under the securities

contracts (Regulation) Act, 1956.

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GOVERNMENT SECURITIES MARKET

The government securities market (G-secs) is the largest segment of

the long term debt market in India, accounting for nearly two-thirds of theissues in the primary market and more than four fifths of the turnover in the

secondary market.

It is otherwise called Gilt-Edged securities market. It is a market

where Government securities are traded. In India there are many kinds of

Government Securities-short term and long term. Long term securities are

traded in this market while short term securities are traded in the money

market. Securities issued by the Central Government, State Government,

Semi Government authorities like city Corporation, Port Trusts etc.

Improvement Trusts, State Electricity Boards, All India and State level

financial institutions and public sector enterprise are dealt in this market.

Participants in the G-secs Market

Banks are the largest holders of G-secs. About one third of the net

demand and time liabilities of the banks are partly in government securities

market mainly to meet statutory liquidity requirements and partly for

investment purpose. Apart from banks, insurance companies, and provident

funds have substantial holdings of G-secs almost one-fifth of the outstanding

G-secs are held by these institutions. Other investor in G-secs includes

mutual funds, primary and satellite dealers, and trusts.

Government securities are issued in denominations of RS. 100.

Interest is payable half- yearly and they carry tax exemptions also. The role

of brokers in marketing these securities is practically very limited and the

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major participant in this market in the commercial banks because they

hold a very substantial portion of these securities to satisfy their S.L.R.

requirements.

The secondary market for these securities is very narrow since most of

the institutional investors tend to retain these securities until maturity.

The Government securities are in many forms. These are generally:

(i) Stock certificates of inscribed stock

(ii) Promissory Notes

(iii) carrier Bonds which can be discounted.

Government securities are sold through the Public Debt Office of the

RBI while Treasury Bills are sold through auctions.

Government securities offer a good soured of raising inexpensive

finance for the Government exchequer and the interest on these securities

influences the prices and yields in this market. Hence this market also plays

a vital role in monetary management.

LONG TERM LOANS MARKET

Development banks and commercial banks play a significant role in

this market by supplying long term loans to corporate customers. Long term

loans market may further be classified into:(i) Term loans market

(ii) Mortgages market

(iii) Financial Guarantees market.

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1.) Term Loans Market

In India , many industrial financing institutions have been created by

the Government both at the national and regional levels to supply long term

and medium term loans to corporate customers directly as well as indirectly.

These development banks dominate the industrial finance in India.

Institutions like IDBI, IFCI, ICICI, and other state financial corporations

come under this category. These institutions meet the growing and varied

long term loans. They also help in identifying investment opportunities,

encourage new entrepreneurs and support modernization efforts.

2.) Mortgages Market

The mortgage market refers to these centres which supply mortgage

loan mainly to individual customers. A mortgage loan is a loan against the

security of immovable properly like real estate. The transfer of interest in a

specific immovable properly to secure a loan is called mortgage. This

mortgages may be equitable mortgage or legal one. Again it may be a first

charge of title deeds to properties as security whereas in the case of a legal

mortgage the title in the property is legally transferred to the lender by the

borrower. Legal mortgage is less risky.

Similarly, in the first charge, the mortgages transfer his interest in the

specific property to the mortgagee as security. When the properly in

question is already mortgaged once to another creditor, it becomes a second

charge when it is subsequently mortgaged to somebody else. The mortgagee

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can also further transfer his interest in the mortgaged property to another, In

such a case, it is called a sub mortgage.

The mortgage market may have primary market as well secondary

market. The primary market consists of original extension of credit and

secondary market has sales and re-sales of existing mortgages at prevailing

prices.

In India residential mortgages ate the most common ones. The

Housing and Urban Development Corporation and the LIC play a dominant

role in financing residential projects. Besides, the Land Development Banks provides cheap mortgages loans for the development of lands, purchase of

equipment etc. These development banks raise finance through the sale of

debentures which are treated as trustee securities.

3.) Financial Guarantees Market

A guarantees market is a centre where finance is provide against the

guarantee of a reputed person in the financial circle. Guarantee is a contract

to discharge the liability of a third party in case of his default. Guarantee acts

as a security from the creditors point of view. In case the borrower fails to

repay the loan, the liability falls on the shoulders of the guarantor. Hence the

guarantor must be known to both the borrower and the lender and he must

have the means to discharge his liability.

Though there are many types of guarantees, the common forms ate:

(i) Performance Guarantee

(ii) Financial Guarantee

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Performance guarantees cover the payment of earnest money, retention

money, advance payments, non-completion of contracts etc. On the other

hand financial guarantees cover only financial contracts.

In India, the market for financial guarantees is well organized. The

financial guarantees in India relate to:

(i) Deferred payments for imports and exports

(ii) Medium and long term loans raised abroad

(iii) Loans advanced by banks and other financial institutions.

These guarantees ate provided mainly by commercial banks,

development banks, Governments both central and states and other

specialized guarantee institutions like ECGC(Export Credit Guarantee

Corporation) and DICGO (Deposit Insurance and Credit Guarantee

Corporation). This guarantee financial service is available to both individual

and corporate customers. For a smooth functioning of any financial system,

this guarantee service is absolutely essential.

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C APITAL M ARKET I NSTRUMENT

The changes in the regulatory framework of the capital market and

fiscal policies have also resulted in newer kinds of financial instruments(securities) being introduced in the market. Also, a Jot of financial

innovation by companies who are now permitted to undertake treasury

operations, has resulted in newer kinds of instruments - all of which can be

traded - being introduced. The variations in all these instruments depend on

the tenure, the nature of security, the collateral security, the interest rate, the

trading features, tax breaks and purpose of issue.

DEBENTURES

These are issued by companies and regulated under the SEBI

guidelines of June 11, 1992. These are issued under a prospectus, which has

to be approved by SEBI like in the case of equity issues. The rights of

investors as debenture holders are governed by the Companies Act. The

following is an indicative list of types of debentures:-

Participating debentures

Convertible debentures with options

Zero coupon convertible notes

Secured premium notes

Zero interest fully convertible debentures

Fully convertible debentures with interest

Partly convertible debentures.

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BONDS

Indian development financial institutions like IDBI, ICICI, and IFCI,

have been raising capital for their operations by issuing of bonds. These too

are available in a large variety. These include:

Income bonds

Tax-free bonds

Capital gains bonds

Deep discount bonds

Infrastructure bonds

Retirement bonds

In addition to the interest rates and maturity profiles of these

instruments, the issuer institutions have been including a put/call option on

especially the very long-dated bonds like deep discount bonds. Put option

means investor opting to seek refund of investment from the issuer. Call

option means issuer opting to refund the amount to investors. Since the

tenures of some of these instruments spanned some 20 or 25 years during

which the interest rate regimes may undergo a complete change, the issuer

have kept the flexibility to retire the costly debt. This they do by exercising

their option to redeem the securities at pre-determined periods like at the end

of five or seven years. This has been witnessed in number of instruments

recently much to the chagrin of investors who were looking for secure and

hassle-free long-dated instruments.

P REFERENCE SHARES

Owners of preferential shares enjoy a preferential treatment over

equity shareholders with regard to corporate actions like dividend. They also

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have a right to receive their amounts before equity shareholders in case of

winding up of a company. Preference shareholders do not have voting rights.

They generally bear a fixed dividend, payable if the company declares

dividends. Preference shares have different features and are accordinglyavailable as:

Cumulative and non-cumulative preference shares

Redeemable and non-redeemable preference shares

Convertible and non-convertible preference shares

Preference shares with a combination of the above features.

E QUITY SHARES

Equity shares represent proportionate ownership in the company.

Investors who own equity shares of a company are entitled to ownership

rights, like voting for selection of directors on the Board, share in profits of

the company, etc. Investors who own equity shares in a company are called

shareholders. When the dematerialize their shares in a depository, they are

called beneficial owners. Beneficial owners are entitled to all rights,

privileges and liabilities that shareholders enjoy. A shareholder or a

beneficial owner can exit from the ownership by selling the shares. An

investor can become shareholder/beneficial owner of a company by

purchasing shares of the company. Shareholders are entitled to share profit

of the company in the form of "dividend" on "bonus shares", if Board of

Directors and majority of the shareholders agree. If a company is wound up

for any reason, equity shareholders may receive money from the residual

funds after satisfying all other liabilities.

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G OVERNMENT SECURITIES

The Central Government or State Governments issue securities

periodically for the purpose of raising loans from the public. There are two

types of Government Securities - Dated Securities and Treasury Bills. Dated

Securities have a maturity period of more than one year. Treasury Bills have

a maturity period of less than or up to one year. The Public Debt Office

(PDO) of the Reserve Bank of India performs all functions with regard to the

issue management, settlement of trade, distribution of interest and

redemption. Although only corporate and institutional investors subscribe to

government securities, individual investors are also permitted to subscribe tothese securities.

An investor has to approach RBI to receive government securities in

physical form. Investors can invest in book entry form with Banks and other

institutions like NSDL, SHCIL, and NSCCL etc. NSDL facility to buy and

hold government securities is convenient because of its reach and depository

account opened for other securities can be used for holding government

securities.

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C APITAL M ARKET P ROCESS

There are various processes that Issuers of securities follow or utilize

in order to tap the savers for raising resources. Some of the commonly used processes and methods are described below.

Initial Public Offering (IPO)

Companies, new as well as old, can offer their shares to the investors

in the primary market. This kind of tapping the savings is called an IPO or

Initial Public Offering. SEBI guidelines regulate various procedures

involved in making a public issue but price of shares, size of the issue,

timing of the issue, listing of the issue are decided by the issuer. Issuers have

to disclose all relevant facts and information [relevant for deciding on

whether to invest in those shares] in the prospectus. Prospectus also has to

disclose risk factors and management perception about those risks. Investors

may invest in the securities after examining the facts and information

disclosed in the prospectus. Large initial public offers are made through book building route. Under this route, market determines the price of issue

by offering bids. Companies Act was necessarily amended directing that all

public issues above Rs.10 crore have to be necessarily in demat form.

Investor can receive shares in a public issue by writing DP-ld and Client-Id

in the share application form.

Private Placement

Methods of raising funds directly from investors without issue of

prospectus to the public are known as private placement. SEBI has

prescribed the eligibility criteria for companies and instruments as well as

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procedures for private placement. Privately placed securities can also be

listed if such placements fulfill all listing criteria.

Preferential Offer/Rights IssueCompanies can expand their capital by offering the new shares to their

existing shareholders. Such offers for sale can be made to the existing

shareholders by giving them a preferential treatment in allocation or the

offer can be on a rights basis, i.e., the existing holders can get by way of

their right, allotment of new shares in certain proportion to their earlier

holding. If the shares are offered to a few of the existing shareholders

instead to all shareholders or at a price different from the price at which they

are issue to all, such issues are called preferential allotments. Preferential

allotments require shareholders approval in the general body meeting.

Further, all such offers have also to be in compliance with criteria laid down

by SEBI.

Stock TradingAn investor in securities needs assurance that they can convert their

security holdings to cash to meet their cash requirements. The ability to

convert value of securities into cash is called liquidity. The liquidity is

provided by the stock exchange. Stock exchange is a platform where buyers

and sellers of securities will match their bids and offers for securities and

exchange securities with cash. The offers and bids are routed throughmembers of the stock exchange, popularly known as a "broker". Stock

exchange regulates the transactions of the broker and ensures that the

transactions are conducted fairly and transparently with justice to both

buyers and sellers.

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Also the stock exchanges conduct clearing and settlement process to

give securities to the buyer and cash to the seller at the end of trade. Stock

exchanges are self-regulatory organizations. They are under the over allsupervision of SEBI.

Internet Broking

With the Internet becoming ubiquitous, many institutions have set up

securities trading agencies that provide online trading facilities to their

clients from their homes. This has been possible since all the players in the

securities market, viz., stockbrokers, stock exchanges, clearing corporations,

depositories, DPs, clearing banks, etc., are linked electronically. Thus,

information flows amongst them on a real time basis.

The trading platform, which was converted from the trading hall to the

computer terminals at the brokers' premises, are now shifting to the homes

of investors. The investor knows exactly when and at what rate his order was processed. It also creates an end-to-end audit trail that makes market

manipulation difficult. The availability of securities in demat form has given

a further fillip to this process.

Internet trading helps security-trading houses to expand their market

far and wide across the country and outside the country. This facility is

likely to bring about sustained changes in the trading practices.

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I MPORTANCE O F C APITAL M ARKET

Capital market is important as it plays an important role in bringing

rapid industrial development in a country. The savings are invested

profitably for economic development because of the services offered by

capital market. Mobilization of investable surplus and provision of expert

services to investors and companies are two significant activities undertaken

by the capital market. Capital market acts as a link between those who save

and those who need funds and are in a position to invest them with safety

and reasonable return. It is importance due to:

It enables the investors to adopt their investment to their

expectations which are constantly changing.

It acts as a link between those who save and those who are

interested in investing these savings.

It provided the capital to those enterprises which can apply it

profitably, productively and increase the aggregate national

income.

It provides proper flow of funds and brings about the rational

allocation of resources through the conversion of financial assets

into physical assets. Thus, the capital market facilitates capital

formation.

It provides incentives to saving and facilitates capital formation by

offering suitable rate of interest as the price of capital.

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It serves as an important source for technological upgradation in

industrial sector by utilizing the fund invested by the public.

It facilitated buying and selling of securities at listed price by

providing continuously marketability to the investors.

The securities offered in the capital market are transferable in

character.

The changing business conditions in the economy are immediately

reflected on capital market. Booms and depression can be

identified by capital market. So suitable monitory and fiscal

policies can be taken by government.

Capital market supplies securities of different kinds with different

maturity and yields in unable the investors to diversify their risk by

wider portfolio of investment.

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C HART O F C APITAL R AISED

(Amount in RS. mn)CATEGORY WISE

YEAR Public Issue Right IssueAmount Amount

2000/01 53784 72942001/02 65018 104132002/03 36387 43122003/

jan4649 8318

(Amount in RS. mn)ISSUE TYPE

28

53784

7294

65018

10413

36387

4312649

8318

010000200003000040000500006000070000

Amount

2000/012001/022002/03 2003 /Jan

2004 Year

Category Wise

Public Right


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YEAR Listed IPOsAmount Amount

2000/01 33854 272232001/02 63413 1509

2002/03 30316 103872003/ jan4

4660 4307

(Amount in RS. mn)INSTRUMENT WISE

YEAR Equities Bonds OthersAt par

(Amount)At

premium(Amount)

Amount Amount

2000/01 8178 24076 27040 3632001/02 1509 11213 56012 66962002/03 1425 13144 26000 1342003/

jan4 566 4400 4000 0

29

33854

27223

63413

1509

30316

10387

4660

4307

0

10000

20000

30000

40000

50000

60000

70000

A m o u n

2000/01 2001/02 2002/03 2003 /Jan 2004

Year

Issue Type

Listed IPOs


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30

8178

24076

1509

11213

1425

13144

566

4400

0

5000

10000

15000

20000

25000

A m o u n t

2000/01 2001/02 2002/03 2003 /

Jan 2004

Year

Equities

At Par At Premium


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N EW I SSUE M ARKET

31

27040

363

56012

6696

26000

1344000

0

0

10000

20000

30000

40000

50000

60000

A m o u n t

2000/01 2001/02 2002/03 2003 /

Jan 2004

Year

Bonds & Others

Bonds Others


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C ONCEPT O F N EW I SSUE M ARKET

While discussing the concept of the new issue market, the distinction

between the New Issue Market (NIM) and the stock exchanges must always be kept in mind since they differ from each other organizationally and as

regards, the nature of functions performance by them. In the first place, NIM

deals with new securities I.e. securities which were not previously

available and are offered to the investing Public for the first time. The

market therefore, derives its name from the fact that it makes available a

new block of securities for Public Subscription. The stock market on theother hand is a market for old securities i.e. those which have already been

issued and have been granted stock exchange listing.

A related aspect of these two parts is the nature of their contribution to

industries financing. The new issue market provided the issuing company

with additional fund for starting a new enterprise or for either expansion or

diversification of an existing one and thus its contribution to company

financing is direct.

F UNCTION O F N EW I SSUE M ARKET

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Many function services to gives maintain resources and the main

function of the New Issue market is to facilate the Transfer of resource

from serve to users. Conceptually, however, the NIM should not be

conceived as a platform only for the purpose of raising finance for new

capital expenditure but also for expansion of existing units. In this basis the

new issue market can be classified as:

1.) Market where firms go to the public for the first time

through initial public offering.

2.) Market where firms which are already trade raise additional

capital through seasoned equity offering.

Now, the main function of the new Issue market i.e. channeling of

investible funds can be divided, from the operational stand-point , in to a

triple service function.

a.) Origination

b.) Underwriting

c.) Distribution

(a) Origination

Origination refers to the work of investigation and analysis and

processing of new proposals.

i.) A preliminary investigation undertaken by the sponsors of the

issue. This involves a careful study of the technical, economic,

financial and legal aspects of the issuing companies to ensure that

it warrants the backing of the issue house.

ii.) Advisory services which improve the quality of capital issues and

ensure its success. The advisory services include:

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Determination of the class of security to be issued and price of

the issue in terms of market conditions;

The timing and magnitude of issues;

Method of flotation; and Technique of selling

The importance of the specialized services provided by the New Issue

Market organization in this respect can hardly be over-emphasized. On the

thoroughness of investigation and soundness of judgment of the sponsoring

institution depends, to a large extent, the allocative efficiency of the market.

The underwriting service is required because origination it self does not

guarantee the success of the issue.

(b.) Underwriting

Underwriting is an agreement whereby the underwriter promises to

subscribe to a specified number of shares or debentures or a specified

amount of stock in the event of public not subscribing to the issue. If the

issue is fully subscribed then there is no liability for the underwriter. If a part

of share issues remain unsold, the underwriter will buy the shares. Thus

underwriting is a guarantee for the marketability of shares.

Method of underwriting

The underwriting may take under the form:

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In the New Issue Market two type o players are exited one is player

for original, second is player for issues both are important to play a role

which is issued new share for investors.

1.] Player for New Issue

a.) Banker of merchant:- Merchant bankers are issued managers

rendering such service to industrial project or corporate unit as floatation of

new company. Preparation, Planning and execution of new project

consultancy and advise in technical financial managerial field.

b.) Registrars to the Issue:- These functions are next to merchant banker.

They collect applications form new issue cheque, stock invest etc. classify

and computerized them. They have to dispatch the latter of allotment, refund

order and share certificate within the time schedule. They have also be

satisfy the listing requirement and get them listed on one or more or stock

exchange.

c.) Collecting and co-coordinating merchant:- Collector banker collect

the subscription in cheque, cash, stock invest etc. Coordinating bankers

collect information on subscriptions and coordinate the collection work, they

monitor the work and keep inform them to the registrars and merchant

bankers. Collecting banker and coordinating banker may be the same bank

or different banks.

d.) Underwriters and Brokers:- Underwriter may financial institution,

Bank, Mutual fund, Broker etc. and under take to mobilizes to subscription

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as agreed to, they have to make good the short fall by their own

subscription.

Brokers along with the net work of sub-brokers market the new issues.

They send their own circulars and applications to the clients and do followup work to market the securities.

e.) Printers:- Advertising agency, mailing agency are the other

organization involves in the new issue market operation. Now second type

of player in the new issue market also gives good role in this situational.

2.] Players for original

The original player in the new issues are many and the more important

of them are directors, friend, employee, financial, NRI public etc.

Cash and credit are parts of money and these are provided by the

government, RBI and Banks and are used for purchase/ sale of securities,

borrowing and lending saving and any other bodies corporate or non-

corporate and these funds are used for purchase of securities or lending for any purpose borrowers or the government or companies or any other issues

of securities.

So for actual and original player, play under type of marker for new

issue market.

Promoters and directors

Associates and friends

Collaborators

Mutual funds, Banks, NRI etc.

S ECONDARY / S TOCK M ARKET

STOCK M ARKET O PERATIONS

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THE EVALUTION OF STOCK MARKET(ACCORDING TO SGSSL)

FLOOR TRADING

This was very old technique of transaction in securities. Though the

Bridge information, client contact to his Broker for making transaction in

banking stock exchange. Broker makes a list of all the order of client and

sends his jobber to stock exchange for the implementation of the orders.

This technique has very fluctuated nature because at the time of noting the

order, the rate are different than the time at stock exchange for implementing

them.

SCREEN BASED TRADING

Screen Based Trading means online. NSE started at 1994-95, it

provided OLRT (online real time) rate of NSE and BSE, OLRT charts and

technical, online news and analysis with news on fore, SGSSL now

introduced VSAT and cable or fax , LAM(local area network), WAN(wide

area network), the exiting and high tech, network of computerized trading,

Online trading and order processing system for NSE. The totally screen

based trading operations will not only provide the best possible rates, but

will also create an absolutely unbeatable position for the constituents in the

highly competitive market. The first such computerized trading hub is

already in place in Ahmedabad. The transactions are made fast through thescreen based trading and deliveries are made very fast then physical. This

sub-brokers and clients are making order so quickly to stock exchange.

TRADING IN DEMATERIALISED FORM

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Dematerialization is the process by which physical certificate of an

investors are converted to an equivalent number of securities in electronic

form and credited in the investors account with DP. Most of the active

scripts in the market including all the scripts of S & P CNXNIFTY and BSE

SENSEX have already joined NSDL. In dematerialization form, we can get

an update list of these companies form NSDL.

C.T.C (COMPUTER TO COMPUTER) NSE AT SGSSL DOORSSTEP

Though C.T.C, SGSSL is the first in India to start C.T.C network andis setting up major computerized Trading Hubs in major cities in entire

western India belt, starting with Ahmedabad. Brokers and investors can

transact business on NSE and BSE directly form the premises, on their

computers through the Hub. For this purpose, the computer will set up the

Computerized Trading Workstations (CTWs) at the brokers and investors

premises, which fully covered through latest communication technology and

trading environment available in the country. The CTW receive OLRT

information on scrip quotation form the various able to give buy and sale

orders through CTWs. Through, anyone can trade on the NSE / BSE form

own office, on the terminal, along with online technical and financial news.

I DEA O F S TOCK E XCHANGE

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Stock exchange is an organization, association or group of persons,

incorporated or not, which constitutes, maintains or provides a market place

or facilities for bringing together purchase and sellers of securities and

includes the market place and facilities maintained by such an exchange.

Thus in ordinary sense, its like BAZAAR of other thing, BAZAAR

of shares. All the orders of sell and purchase of shares are executed at stock

exchange. Stock exchange may be recognized or unrecognized. Recognized

stock exchange means a stock exchange which is for the time being

recognized by central government / SEBI under section 4 of SCRA(Securities Contract Regulation Act) 1956.

There are 23 stock exchange in all over India. In this BSE and NSE

are most active exchange.

T RADING R ING

Trading on the stock exchange used to be officially done in the trading

ring for five hours from 10:30 a.m. to 3:30 p.m. Under electronic trading,

house is also extended from 10:30 a.m. to 3:30 p.m. from Monday to Friday.

Trading before of after official hours is called kerb trading.

Trading MechanismThe trading system, known as the National Exchange for Automated

Trading (NEAT) system, is an on-line, fully-automated, nationwide,

anonymous, order-driven, screen-based trading system at which investor

client contact his broker through telegram, telephone, fax etc. or through

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intermediary or by directly and after they tells their broker about quantity of

security, price of security, name of security for buy or sale the security and

after this member/broker call the operator for punch into the computer

quantities of securities and the prices at which he likes to transact and thetransaction is executed as soon as it finds a matching sale or buy order from

a counter party. It electronically matches orders on a strict price/time priority

and hence cuts down on time, cost and risk of error, as well as on fraud

resulting in improved operational efficiency. It allows faster incorporation of

price sensitive information into prevailing prices, thus increasing the

informational efficiency of markets. It enables market participants to see the

full market on real-time, making the market transparent. It 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. It provides tremendous flexibility to the users in terms of kinds of

orders that can be placed on the system. It ensures full anonymity by

accepting orders, big or small, from members without revealing their

identity, thus providing equal access to everybody. It provides a perfect audit

trail which helps to resolve disputes by logging in the trade execution

process in entirety.

The trading platform of the CM segment is accessed not only from the

computer terminals from the premises of brokers spread over about 350

cities, but also from the personal computers in the homes of investorsthrough the Internet and from the hand-held devices through WAP.

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Block Book/ Sauda Book

After each order is executed, suitable entries are made in the

concerned members Block Book/Pass confirmation memos. This is a book

of transaction executed on the floor and appropriate entries are made after

every deal to record the number of shares traded, the prices of the purchase

and sale ,and the name or code number of the other member through whom

the deal was finalized.

Contract Note

From the sauda book /Block book the details are transferred tocontract note. It is important to ensure that the contract note is written up on

the day of the of the deal of the deal and posted to the client. This is a poof

that the contracts was executed on that day and not on any other day since

prices fluctuate every day.

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C LASSIFICATION O F S ECURITIES :

Group A Specified shares/Specified list

Group B Non-Specified shares/Cash listGroup C Odd lots

Group Z

Group A

Under this, only those actively traded are included. i.e. those security

which have high traded volume which are included in Group A. The criteria

for listing in specified group have been dealt with as follow:

1.) The shares should be fully paid up

2.) The companies paid up capital should be at least RS. 5 crores,

3.) The shares should has been actively traded while on the cash list

4.) The number of shareholders must be more than 20,000.

5.) The companys shares should have market capitalization of at least

RS.10 crores.

6.) The company should have a growth potential.

7.) The company should be a dividend paying one.

Group B

Those securities which have high traded volume less than the Group

A which are included in Group B. The shares which are traded on cash basisare called group shares. They are also called as cash shares. Group B share,

those which are first listed will be, kept in Non-specified. Non-specified

group split into B1 and B2 groups. The carry forward facility is not

available to group B shares.

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Group C

Those securities which have high traded volume less than the Group B

which are included in Group C. Under this, only for odd lots deal. Onlystandard trading units i.e. prescribed round lots are traded on the stock

exchange. Most of the companies have fixed market lot as 50 to100.

Anything less than the round lot (market lot) is odd lot. Odd lots arise from

the issue of bonus or right shares. E.g., if GCLLtd. declares a bonus issue in

ratio of 1:3 (Assume that market lot of company is 50), a shareholder who is

holding 50 shares gets 17 shares which is less than the market lot and

treated as an odd lot. If he holds 150 shares, he will get 50 bonus shares

which is clearly a market lot. If he holds 250 shares, he can avail 83 shares,

out of which 50 is market lot and the rest of 33 shares is an odd lot. Stock

exchange are now making alternative arrangement for dealing with odd lots

i.e. under Group C.

Group ZThose securities which are not follow the rules of the SEBI and which

have a high volatility (i.e. price of security is highly flexible) that type of

securities are included the Group Z.

Permitted securities

The securities which are listed with some of the recognized stock

exchanges, when permitted to be traded by those stock exchanges where

they are not listed are called permitted securities. Such permission is granted

as per rules and regulations of the stock exchange .

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STOCK E XCHANGE T RANSACTION / K INDS O F

D ELIVERY

Transaction on stock exchange are carried out on either cash basis or

carry over basis. Carry over is permitted only in respect of Group A

securities. The types of transactions on cash basis according to

arrangement for delivery are:

a.) Spot delivery

b.) Hand delivery

c.) Delivery for clearing

a.) Spot delivery

In case of spot delivery transaction, the delivery and payment are

completed on the same day of contract or on the next day. For completion of

the contract, the actual period for the send off of the securities or payment of

money through post is excluded in the computation when the parties to the

contract reside at different places.

b.) Hand delivery

When a transaction is settled by delivery and payment on the day

fixed at the time of entering into contract or within 14 days from the date of

the contract.

c.) Delivery for Clearing

All transaction in securities in the specified list are effected only

through the clearing house. The securities for delivery will be delivery to

the buyer within a week and the seller receive all member dues within the

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same time from the clearing house on the respective pay-in and pay-out

days.

Due to On Line screen based Trading above type of delivery now day

can not seen because all delivery are doing on the basis of T+2 rollingsettlement.

T YPES O F O RDER

Order for the sale and purchase of shares are valid for a certain time

period, usually a day. In actual practice, the broker requires investor to

renew the order every day. On the basis of price limits, they can be divided

into:

1) Nett rate orders

2) Market rate orders

3) Limited discretionary order

4) Best rate order

5) Stop loss order

E XECUTION O F O RDER

Big brokers transact their business through their authorized clerks.

Small ones carry out their business personally. Orders are executed in the

Trading ring of the stock exchange which works form 10:30 a.m. to 3:30 p.m. on all working day from Monday to Friday and a special one hours

session on Saturday. Trading outside the trading hours are called kerb

dealing.

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Order may be communicated to broker either orally or in writing. Oral

orders will be accepted by a broker only if the client is well known.

Acceptance of order may be communicated to the client orally or through

Order Confirmation Note.

In case the order related to a security listed in the stock exchange of

the broker, the order is executed in the following manner.

There are certain set hours on each working day of the stock exchange

when the brokers meet in the system to transact business on behalf of their

clients.

The trading system, known as the National Exchange for Automated

Trading (NEAT) system, is an on-line, fully-automated, nationwide,

anonymous, order-driven, screen-based trading system at which investor

client contact his broker through telegram, telephone, fax etc. or through

intermediary or by directly and after they tells their broker about quantity of

security, price of security, name of security for buy or sale the security and

after this member/broker call the operator for punch into the computer

quantities of securities and the prices at which he likes to transact and the

transaction is executed as soon as it finds a matching sale or buy order from

a counter party.

The broker intimates his client of the transactions done on his behalf by sending him a Contract Note. This original is retained by the client and

the copy returned with the clients signatures to the broker in confirmation

of that contract.

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iii.) Payment of allotment money and call money

In, most companies the face value of the share is not asked for with

application. The company fixed allotment money and call money per share

which asks the shareholders to pay at certain intervals decided by the board

of directors of that company.

iv.) Endorsement of payment on share certificate

In companies where share certificates are issued before call money on

those shares is received, the company makes an endorsement on the sharesto show that how many calls have been paid by the shareholders.

(b.) Purchase from secondary market

i.) Placing order with broker

In the case of purchasing shares of existing companies, the order must

be Placed with broker. The broker will require certain sum of money as

margin money to be given along with the order.

ii.) Receipt of contract note

When the shares are purchased a contract note is sent to the client as

to the number, rate and date of purchase. Many brokers requires their client

to pay the balance amount i.e. purchase price minus margin money, on

receipt of contract.

iii.) Intimation of delivery

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When broker receives the share certificate and transfer deed form the

seller he intimates the client to take those shares and make payment in case

it has been made. In case of outstation clients, the broker will call for

balance payment and then send the shares certificate and transfer deedthrough registered post.

iv.) Sending shares for transfer

The last stage is the transfer of shares in the name of the purchaser.

The buyer signs in the transferee column of transfer deed. The transfer deed

is filled up if not, already done. Share transfer stamps have to be affixed on

the back of transfer deed.

Thus, the share certificate and complete transfer deed are now ready

which are sent at the share transfer department of company concerned. The

share certificates are received duly transferred within 3 months.

Now a day for purchases the security/share from primary and

secondary market first of all investor has to open the demate account without demate account investors can not purchase the share form the

market . So it need not to Sending shares for transfer because of demate is

already made.

[B.] Sale of Shares

i.) Placing the order with the brokerThe order of sale of shares has to be placed with the broker, as an

individual can not sell or purchase shares at the stock exchange directly.

Only member of that particular stock exchange either for themselves or an

behalf of their clients. Usually along with the order the broker will ask

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investor to submit the share certificate and transfer deed. The seller must

sign at the transferor column on the transfer deed.

ii.) Receipt of contract note

On the sale of issues contracts note. A contract indicates the number

of share sold, the rate per share, the dare of sale and the terms and conditions

governing the sale. A contract note binds the broker and his client. In case

the client is not satisfied, he must notify his broker immediately on receipt of

the contract.

iii.) Delivery of share certificate and transfer deedThe share certificate and transfer deed have to be delivered by broker

to broker of same stock exchange, member of another stock exchange of

another of his clients, to whom he had sold the shares. The stock exchange

have fixed delivery days on this day, the members deliver to each other the

shares they have sold and purchased. The delivery day avoids the confusion

that would arise of members could deliver on any day of their choice.

iv.) Receipt of payment

Payment is made by the broker usually after 4 days from the day the

shares have been sold and the share certificates along with valid transfer for

same are given to the broker. The payment is made according to the rate

appearing on the contract as the rate is calculated after deducting the

commission payable to the broker.

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B

ASIC T

YPE

O

F T

RANSACTION

I

N

S

TOCK

E XCHANGE

A.) Long purchase

B.) Margin trading

C.) Short selling

A.) Long purchase

The long purchase is a transaction in which investors buy securities in

the hope that they will increase in value and can be sold at a later date for

profit. The object is to buy low and sell high. A long purchase is the most

common type of transaction. Each of basic types of orders described con be

used with long transactions. Because investor generally expect the price of

security to rise over the period of time they plan to hold it, their return

comes from any dividends or interest received during the ownership period ,

plus the difference between the price at which they sell the security and the

price paid to purchase it ( capital gains). This return is reduced by

brokerages fees paid to purchase and sell the securities.

B.) Margin TradingMost security purchases do not have to be made on cash basis,

borrowed fund can be used instead, this activity is called margin trading and

it is used for one basic reason i.e. to magnify return.

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Generally initial margin is set slightly higher by broker houses for added

protection of both broker and their customers. So, the maintenance margins

on equity rarely change.

Margin formula

A simple formula can be used with all types of purchases to determine

the amount of margin in the transaction at any given point. 2 things are

required:

i.) prevailing market value of securities being margin.

ii.) Amount of money being borrowed, it is also called debit balance

Value of securities - Debt balance

Margin =

Value of securities

Transactions:

Buy 1000 shares of ABC scrip at RS. 20 each. Initial margin is at 50% and

maintenance margin=30%.

Customers A/C

Stock (shares) RS. 20000 Debt RS. 10000

Equity RS. 10000

20,000- 10,000

Margin =

x 100

20,000

=50% (initial margin)

A.) share price moves down to RS.17

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Stock (shares) RS. 17,000 Debt RS. 10000

Equity RS. 7000

17,000- 10,000Margin =

x 100

17,000

=41.2%

B.) share price moves down to RS.13

Stock (shares) RS. 13,000 Debt RS. 10000Equity RS. 3000

13,000- 10,000

Margin =

x 100

13,000=23.09%

C.) share price moves UP to RS.25

Stock (shares) RS. 25,000 Debt RS. 10000

Equity RS. 15000

25,000- 10,000

Margin =

x 100

25,000

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=60%

The share falling price must be absorbed by the customers Equity

because the debt has not been repaid.

The maintenance margin of 30% will be reached under the following

conditions:

Debt balance

Market value of securities =

1 Maintenance margin

10,000=

1 0.30

= 14,286 RS.

It means, if value of securities/ shares move down from RS.14,286,

indicate at (beta) point in above Example, the maintenance margin falls

below 30%, the broker will send a maintenance margin call requiring thatthe customer supplies additional funds in cash or securities in 2 to 5 days

otherwise, the securities in his account will be sold and cash used to repay

the outstanding margin loan.

If value of the shares move up from RS.14, 286, margin moves up

from 30%. So, investor now has additional borrowing power he can borrow

to buy shares without depositing equity of his own.

C.) Short selling

Short selling is generally defined as the practice of selling borrowed

securities. Short sales start when securities that have been borrowed from

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broker are sold in the market place. Later, when the price of the issue has

declined, the short seller buys back the securities which are then returned to

the lender. Short sellers to make money by buying low and selling high. The

only difference is that they reverse the investment process by starting thetransaction with a sale and ending it with a purchase.

Short On Margin

With short selling, the term margin simply indicates the size of the

Equity deposit the investor must make in order to initiate the transaction.

There are no borrowed funds with margined short sales. Margined short

sales are executed in the same margin A/C as margined long transactions.

They are subject initial margin levels. In fact, the only thing that we do not

have to be concerned about with a margined short sale is the accounts debit

balance.

Shorting against the box

Shorting against the box is done after an investor has granted through

an earlier long transaction by falling it with a short sale. An investor also

own 100 equity shares would short on equal number of equity shares in

same company. By doing this, he is able to protect project already made in

long transaction.

T RANSACTION C HARGES

The maximum brokerage chargeable by trading member in respect of

trades effected in the securities admitted to dealing on the CM segment of

the Exchange is fixed at 2.5% of the contract price, exclusive of statutory

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levies like, SEBI turnover fee, service tax and stamp duty. This maximum

brokerage is inclusive of the brokerage charged by the sub-broker which

shall not exceed 1.5% of contract price. However, the brokerage charges as

low as 0.15% are also observed in the market.A member is required to pay the exchange transaction charges at the

rate of 0.004% (Rs. 4 per Rs. 1 lakh) of the turnover.

C LEARING & S ETTLEMENT P ROCEDURE

While NSE/BSE other Exchange provides a platform for trading to its

trading members, Clearing House determines the funds/securities obligations

of the trading members and ensures that trading members meet their

obligations. The core processes involved in clearing and settlement are:

(a) Trade Recording:

The key details about the trades are recorded to provide basis for

settlement. These details are automatically recorded in the electronic tradingsystem of the exchanges.

(b) Trade Confirmation :

The parties to a trade agree upon the terms of trade like security,

quantity, price, and settlement date, but not the counterparty which is the

Clearing house. The electronic system automatically generates confirmation

by direct participants.

(c) Determination of Obligation :

The next step is determination of what counter-parties owe, and what

counter-parties are due to receive on the settlement date. The Clearing house

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interposes itself as a central counterparty between the counterparties to

trades and nets the positions so that a member has security wise net

obligation to receive or deliver a security and has to either pay or receive

funds.

(d) Pay-in of Funds and Securities :

The members bring in their funds/securities to the Clearing house.

They make available required securities in designated accounts with the

depositories by the prescribed pay-in time. The depositories move the

securities available in the accounts of members to the account of the

Clearing house. Likewise members with funds obligations make available

required funds in the designated accounts with clearing banks by the

prescribed pay-in time. The Clearing house sends electronic instructions to

the clearing banks to debit member's accounts to the extent of payment

obligations. The banks process these instructions, debit accounts of members

and credit accounts of the Clearing house.

(e) Pay-out of Funds and Securities :

After processing for shortages of funds/securities and arranging for

movement of funds from surplus banks to deficit banks through RBI

clearing, the Clearing house sends electronic instructions to the

depositories/clearing banks to release pay-out of securities/ funds. The

depositories and clearing banks debit accounts of the Clearing house andcredit accounts of members. Settlement is complete upon release of pay-out

of funds and securities to custodians/members.

(f) Risk Management :

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A sound risk management system is integral to an efficient settlement

system. The Clearing house ensures that trading members' obligations are

commensurate with their net worth. It has put in place a comprehensive risk

management system, which is constantly monitored and upgraded to pre-empt market failures. It monitors the track record and performance of

members and their net worth; undertakes on-line monitoring of members'

positions and exposure in the market, collects margins from members and

automatically disables members if the limits are breached.

Settlement Cycles

Since the beginning of the financial year 2002, all securities are being

traded and settled under T+3 rolling settlement. (From April 1, 2003, trades

have been under T+2 rolling settlement). This is a step towards further

reducing the settlement cycle to T+1 in 2004. The Clearing House notifies

the consummated trade details to clearing members/custodians on the trade

day. The custodians affirm back the trades to Clearing House by T+1 day.Based on the affirmation, Clearing House nets the positions of

counterparties to determine their obligations. A clearing member has to pay-

in/pay-out funds and/or securities. A member has a security-wise net

obligation to receive/deliver a security. The obligations are netted for a

member across all securities to determine his fund obligations and he has to

either pay or receive funds. Members' pay-in/pay-out obligations are

determined latest by T+1 day and are forwarded to them on the same day so

that they can settle their obligations on T+2 day. The securities/funds are

paid-in/paid-out on T+2 day and the settlement is complete in 3 days from

the end of the trading day.

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The activity schedule for T+2 rolling settlement shall be as follows:

S.No. Day Time Description of Activity

1. T Trade day

2. T+1 By 11:00 a.m. Conformation of all trades( including

custodial trades.) Facility of an exception

window for the confirmations would be

made available by the exchange.By 1:30 pm. Processing and downloading of obligation

files to brokers/ custodians3. T+2 By 11:00 a.m. Pay in of securities and funds

By 1:3 p. Pay out of securities and funds

Development and adoptions under rolling settlement system are as

follows:

In January 2000, rolling settlement on a T+5 bases was introduced in 10

selected scrips.

From May 2000, NO of scrips are increase under T+5 systems from 10 to

163 scrips.

In March 2001, the announcement made by the finance minister to

introduce rolling settlement in200 scrips.

From July 2001, SEBI announced a list of 251 scrips for compulsory

rolling settlement.

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From December 31, 2001, rolling settlement was extended to remaining

scrips on all exchanges.

From 1 April 2002, the rolling settlement on a T+3 basis was introduced

for all securities of all exchanges.

From 1 April, 2003, the rolling settlement on a T+2 basis has since

introduced for all groups of securities in the equity segment F and G

groups.

The trades in rolling settlement are settled on at T+2 bases i.e. / on the

2nd working day. For arriving holidays, Saturday and Sundays are excluded.

Typically trades taking place on Monday are settled on Wednesday,

Tuesdays trades settled on Thursday and so on. A tabular representation of

the settlement cycle for rolling settlement is given bellow.

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Activity T+3 Rolling

Settlement(From

April 1,2002)

T+2 Rolling

Settlement(From

April 1,2003)

Trading

Custodial Confirmation

Determination of Obligation

Securities/FundsPay-in

Securities/Funds Pay-out

Valuation Debit

Auction

Bad Delivery Reporting

Auction Pay-in/Pay-out

Close Out

Rectified Bad Delivery Pay-

in/Pay-out

Re-bad Delivery Reporting

Close Out of Re-bad Delivery

T

T+1

T+2

T+3

T+3

T+3

T+4

T+5

T+6

T+6

T+7

T+9

T+10

T

T+1

T+1

T+2

T+2

T+1

T+3

T+4

T+5

T+5

T+6

T+8

T+9

T+1 means one working day after the trade day. Other T+ terms have similar

meanings.

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A UCTIONS

Auctions are arranged for scrips which could not be delivered even on

the final day. These auctions are tenders for sale of the desired scrips in the

quantities purchased but not delivered so that delivered can be effected to

the buyers. Auctions in group A is automatic when the seller fails to deliver

on the appointed day and at the request of the buyer in the case of group B.

Auctions are arranged by the stock exchange by inviting bids from members

to buy the shares on behalf of the member who could not deliver the shares.

C LEARING P ROCEDURE

The transactions in secondary market are processed through 3 distinct

phases viz: Trading, Clearing, Settlement.

While stock exchange provides a platform for trading to its tradingmembers, clearing corporation/Clearing House/ the National Securities

Clearing Corporation Ltd. (NSCCL) determines the funds/securities

obligations of the trading members and ensures that trading members meet

their obligations. Clearing Corporation and depositories provide the

necessary interface between custodian/ clearing members and trading

members.

The clearing process involves determination of what trading members

owe, and what trading members are due to receive on the settlement date.

So, clearing process is essentially the process of determination of obligations

after which the obligations are recovered by settlement.

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The clearing and settlement process for transactions in securities is

presented in the following diagram.

Clearing Procedure/Settlement Process

1

2 3

Custodians/ Clearing members

10 11

Explanations:

65

8 9

6

45

Stock Exchange

Depositories Clearing House Clearing

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(1) Trade details from Exchange to Clearing House (real-time and end of

day trade file).

(2) Clearing House notifies the consummated trade details to

CMs/custodians who affirm back. Based on the affirmation, ClearingHouse applies multilateral netting and determines obligations.

(3) Download of obligation and pay-in advice of funds/securities.

(4) Instructions to clearing banks to make funds available by pay-in time.

(5) Instructions to depositories to make securities available by pay-in-

time.

(6) Pay-in of securities (Clearing House advises depository to debit pool

account of custodians/CMs and credit its account and depository does

it).

(7) Pay-in of funds (Clearing House advises Clearing Banks to debit

account of custodians/CMs and credit its account and clearing bank

does it).

(8) Pay-out of securities (Clearing House advises depository to credit

pool account of custodians/CMs and debit its account and depository

does it).

(9) Pay-out of funds (Clearing House advises Clearing Banks to credit

account of custodians/CMs and debit its account and clearing bank

does it).

(10) Depository informs custodians/CMs through DPs.(11) Clearing Banks inform custodians/CMs.

F INDINGS

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The current trading system in the market is quick against

in the previous trading system. Due to screen based trading system and T+2 Rolling

settlement, the mobilization of money become speedily and less time. It is paper less process. No paper work is involved in

buying or selling of share because nowadays demit is compulsory and

account are debited and credited. Due to screen based trading, orders confirmations are

done within few second / minutes after punching the order.

Capital market supplies securities of different kind withdifferent maturity and yield in unable the investor to diversify their risk

by wider portfolio of investment.

The investor has high risk to invest in primary market

security but also have higher return compare to secondary market.

When market is hyper, try to liquidate the investment and

ask for tips to sell and not to buy.

In the case of online trading if your internet is not

working properly you cannot trade.

The investments are more safety in T+2 rolling

settlement than T+3, T+4 etc.

Demat opportunity zone has shown remarkable growth

over a last couple of years. And this growth is expected to continue in

future because of cease less expansion of product portfolio and customer

base.

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C ONCLUSION

Capital market is the market in which investor both small and big can

invest for the intention to gain the fixed interest, income and dividend etc.and also high profit for the high investment. The capital market is one of the

most vibrant sectors in the financial system, making an important

contribution to economic developments.

From the study of the project we can conclude that capital market

enable the investor to gain the maximum return by sort selling, speculation,

and investing long run, compare to invest or deposit the money in other

sources like bank, gold, etc. but even share market is more risky, investor

can gain the more profit and can reduce the risk by managing the good

portfolio management. From the study we can also conclude that in recent

time capital market become a safety compare to old market by regulation of

SEBI and compulsory demat account. Through on line trading investor can

save their time and contribute time in elsewhere.

More recently, the investors are trust on equity market because

generally, there is no speculation and number of restriction and rules govern

by SEBI against speculation.

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NSE Fact Book-2003.

SEBI BULLETIN-2004.

Capital Market in India Gordon and

Naturajon

Investment Management V.

Gangadhar

G. Ramesh Babu.

Investment Management

V.A.Avadhani

Web sites- www.capitalmarket.com

- www.nseindia.com

- www.bseindia.com
http://www.capitalmarket.com/http://www.nseindia.com/http://www.bseindia.com/http://www.capitalmarket.com/http://www.nseindia.com/http://www.bseindia.com/

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