D55b3 Indian Financial System
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Transcript of D55b3 Indian Financial System
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Indian Financial System
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Name of InstitutionCapital Markets:
• These include treasury bill market, call money market, inter bank market, bill market, government securities (gilt-edged)
• market, Industrial Securities market, Public debt market, etc.
• Range of services:• Management Marketing and underwriting of new issues• Project promotion services and project finance• Syndication of credit and other facilities• Leasing, including project leasing• Corporate advisory services• Investment advisory services• Bought out deals• Venture capital• Mutual funds and offshore funds• Investment Management including Discretionary Management• Assistance for technical or financial collaboration and joint ventures• Investment services for Non- Indians• Commercial paper- Management and dealing, etc
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SECONDARY MARKET
• Introduction• Control over Secondary Market
(I) i. Recognition of Stock Exchange
ii. Listing of Securities
iii. Registration of Broker• Functions/ Services of Stock Exchanges
i. Liquidity and Marketability of Securities
ii. Safety of Funds
iii. Supply of Long Term Funds
iv. Flow of Capital to Profitable Ventures
v. Motivation for Improved Performance
vi. Promotion of Investment
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vii. Reflection of Business Cycle
viii. Marketing of New Issues
ix. Miscellaneous Services- Wider Portfolio Choices
RECOGNITION PROCEDURE• Recognized by the Central Government under SCRA and SEBI• Grant of Recognition• Renewal of Recognition• Organization of Stock Exchanges in India• Traditional Structure of Stock Exchanges• Demutualization of Stock Exchanges• Management• Membership
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(II) Listing of Securities
Group A, Group B and Group C Shares (BSE)
Group A shares (Specified Shares or Cleared securities)
Group B shares (Non-Specified Shares or Non-Cleared Securities)
Group C shares (Only ODD Lots)
ADVANTAGES OF LISTING
i. Facilitates Buying and Selling Secrities
ii. Ensures Liquidity
iii. Offers Publicity
iv. Assures Finance
v. Enables Borrowing
vi. Protects Investors
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DRAWBACKS OF LISTING
i. Leads to Speculation
ii. Degrades Company’s Reputation
iii. Discloses vital information to competitors
LISTING PROCEDURE
Criteria for Listing
Listing Obligations
Additional Obligations
New Listing Obligations
Listing Agreement
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(III) Registration of Stock Brokers
Registration Procedure
Code of Conduct for Stock Brokers
Functions of stock Brokers
i. Client Registration
ii. Obtaining Margin Money
iii. Execution of Orders
iv. Supply of Necessary Slips
v. Issue of Contract Note
vi. Statement of Particulars in a Contract Note
vii. Payment/ Delivery of Securities
viii. Charging of Brokerage and other Charges
ix. Maintenance of Bank Accounts
x. Receipt of Interest, Dividend, Rights etc.
xi. Settlement of disputes
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REGISTRATION OF SUB-BROKERS
KINDS OF BROKERS AND THEIR ASSISTANTS
1. Jobbers
2. Tara Waril Walas
3. Commission Brokers
4. Sub-Brokers/ Remisiers
5. Authorized Clerks
Method of Trading in a Stock Exchange
i. Choice of a Broker
ii. Placement of Order
a) At Best Order
b) Limit order
c) Immediate or Cancel Order
d) Discretionary Order
e) Limited Discretionary Order
f) Open Order
g) Stop Loss Order
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iii. Execution of Orders
iv. Preparation of Contract Notes
v. Settlement of Transactions
a) Spot Delivery Settlement
b) Hand Delivery Settlement
c) Clearing Settlement
d) Special Delivery Settlement
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Current Settlement Procedure of Trading TransactionsTable: Showing Typical Settlement Cycle for various Activities
Item Activity Day
Trading Rolling Settlement Trading T
Clearing Custodial Confirmation
Delivery generation
T+1 working days
T+1 working days
Settlement Securities and funds pay-in
Securities and funds pay-out
T+2 working days
T+2 working days
Post Settlement Valuation Debit
Auction
Bad delivery reporting
Auction settlement
Close out
Rectified bad delivery pay-in and pay-out
Re-bad delivery reporting and pick up
Close up of re-bad delivery
T+2 working days
T+3 working days
T+4 working days
T+5 working days
T+5 working days
T+6working days
T+8 working days
T+9 working days
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• Settlement and Payment• Rolling Settlement• Pay-in Day and Pay-out Day• “Market Trade” and “Off Market Trade”• Good Delivery and Bad Delivery• Lodging for Transfer and Return Certificates
ONLINE TRADING
Online fully automated Screen Based Trading System (SBTS) almost 100% trading takes place through electronic Order Matching.
NSE has a main computer connected through Very Small Aperture Terminal (VSAT).
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Main computer runs on a fault tolerant STRATUS main computer at the exchange. Brokers have terminals which are connected through VSATS/ Leased Lines/ Modems. This system also provides complete market information on-line. The market screens at any point of time provides complete information as to:
i. Total order depth in a security
ii. The best five buys and sells in the market
iii. The quantity traded during the day in that security
iv. The last traded price for a security etc.
BSE- Bolt System
Bombay Online Trading-Brokers conduct trading from their Trading Work Stations (TSW) displays ‘touchline’-Best bid after- ‘Market View’
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Merits of Online Trading
i. Faster Trading
ii. Accessible to All
iii. Faster Incorporation of Price Sensitive Information
iv. Widening the market
v. Saving of time and cost
vi. Fully transparent
vii. No errors and frauds
viii. Perfect audit trial
Types Of Stock Market Orders (NSE – NEAT SYSTEM)
NEAT – National Exchange for automated trading
i. Time conditions
ii. Quantity conditions
iii. Price conditions
iv. Quantity freezes
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i. Time Conditionsa) Day orderb) GTC- A Good Till Cancelledc) GTD – A Good Till Daysd) IOC – Immediate or cancel order
ii. Quantity Conditionsa) DQ – Disclosed Quantityb) MF – Minimum Fill Orderc) AON – All or non order
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iii. Price Conditionsa) STOP – Loss orderb) MKT Order – Market Order. For which the price is specified
on ‘MKT’c) ATO – At the Open – Market orders entered during pre –
open staged) ABO – At Best Ordere) DO – Discretionary order
iv. Quantity Price Freezesa) Quantity Freeze – Quantity ordered in greater than 10% of
the issue size of the securityb) Price Freeze
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Carry over or Badla Transactions
Badla and Short Selling
Badla and Stock Landing
SEBI Guidelines
Genuine Trading vs Speculative Trading
Kind of Speculators
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Various Categories OF Stock Brokers
i. Client Brokers
ii. Floor Brokers
iii. Jobbers/ Taravani Walls : Specialize in selected scrips
iv. Badla Financers/ Badlawalls
v. Arbitragers
vi. Bulls/ Tejiwalls
vii. Bears/ Mandiwalls
viii. Other Speculators
a. Stags: Grey Market – unlisted securities
b. Wolves: Trade fast and make fast – buck, Not caught in the wrong foot
c. Lame Ducks – Sell securities without having shares caught in the wrong foot.
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Speculative Transactions
i. Option Dealing
ii. Wash Sales
iii. Arbitrage
iv. Cornering
v. Rigging the Market
vi. Blank Transfers
vii. Margin Trading
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OPTION DEALING
When the option gives the option holder a right to buy securities at a predetermined price – It is called Call Option, on the other hand when the option gives the option holder a right to sell securities at a predetermined price, it is called Put Option. When both rights are given it is called Double Option.
OPTIONS FOR HEADING
ii. Wash Sales – Speculator sells a security and then buys the same at a higher price through another broker. There is severe penalty for such sales.
iii. Arbitrage
iv. Cornering – Process of holding entire supply of a particular security.
Ragging the market – Market value of a particular share is pushed up – Speculators buy and sell to ‘ make a market’ and gradually sell the holdings to get huge profits.
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Blank TransfersWhen seller simply signs the transfer form without specifying the name of the buyer.
Margin TradingIt is carried on by the clients with funds borrowed from their brokers.
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Stock IndicesThe Stock Market index is a convenient and effective product due to the following reasons:
i. It acts as a barometer for market behaviorii. It is used to benchmark portfolio performanceiii. It helps to allocate scarce resources to the best performed
companies reflected through best performed scripsiv. It is used as a forecasting tool to predict the future movement of
stock indices and also the business cycles.v. It is used in derivative instruments like index futures and index
options.vi. It can be used for passive fund management as in the case of
index funds.
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Stock Indices of BSE NSEIndices of BSE: The base year for this index is April 1979.
i. Sensex – Launched on 2nd January, 1986. Originally 30 companies representing various sectors on the exchange. At present, all scrips are selected from specified groups only. This index is available online and it is updated continuously.
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ii. BSE National Index :This trade up of 100 scrips with 1982-84 as base year. It includes prices of scrips of Delhi, Calcutta, Ahmedabad and Madras. The average price of the scrip is taken for the compilation of the index.
iii. BSE-200 : Introduced in May, 1994 with 1989-90 as the base year. Consists of equity shares of 200 companies selected on the basis of market capitalization, volume of turnover and strength of the companies fundamentals. It comprises of scrips of both specified and non specified groups.
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iv. Dollex :
It is BSE-200 expressed in Dollar values so that it may be useful to foreign investors. In Dollex, the BSE-200 is modified by dividing the current rupee market value by rupee – dollar conversion rate.
v. BSE-500 :
Introduced in 1999 with the base year 1999. It is treated to be standard index covering all sections of the economy as well as the major part of the capital.
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Name of InstitutionThe Indian Financial system at present
INTERMEDIARIES:• Banking: RBI, Commercial banks, Co operative credit societies
and banks, Post office saving banks • Non- Banking: Provident funds, Pension funds, LIC,GIC,UTI,
Mutual funds, Investment companies, Finance corporations, Hire purchase and lease finance companies, National housing bank and other housing finance companies, HUDCO, Venture capital funds, National cooperative bank of India
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• Special Development : Industrial finance corporation of India (IFCI),ICICI,IDBI,IRBI,NABARD,IFCI, EXIM Bank, Agriculture finance Consultancy ltd., National Co operative Development corporation, NIDC,NSIC, State industrial Investment Corporations, SSIDCs, Power finance Corporation (PFC)
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Regulatory and Others:I. Regulatory: RBI, SEBI, BFIR, Board for financial
supervision, Insurance regulatory authority
II. Others: Deposit insurance and credit guarantee corporation, Export credit guarantee corporation, Stock holding corporation of India, CRISIL, ICRA, Merchant banks, Factoring companies, Depositories, Custodians
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• Instruments & Markets:• Instruments :Equity shares, preference shares,
Industrial debentures or bonds, Capital gains bonds, National development bonds, NSCs, CDs, CPs, Treasury bills, commercial bills, Social Security certificates, GDRs, foreign bonds, Floating rate notes (FRNs), Foreign currency convertible bonds, Zero coupon bonds, Non- voting shares, Indexed bonds, Future, option ,swaps and other financial derivatives
• Markets: Call money market, Treasury bills market, Government securities market, Foreign exchange market, Industrial securities market (stock market), OTCE, NSE, Derivatives market, Equity market
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Services: Hire purchase and installment credit, Merchant banking, Factoring, Stock holding, discounting and rediscounting, Underwriting, Leasing, Financial and performance guarantees, Acceptances, Fund transfer, Credit cards, Loan syndicating, Portfolio management, Managing Capital issues, Custodial services, Depository services