Recent Reforms

7/26/2019 Recent Reforms

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RECENT REFORMS IN

INDIAN CAPITALMARKET

Presentation By:

Manoj Verma

Asstt. Professor (Sr. Scale)

Maharaja Agrasen Institute of Management Studies

E.mail: [email protected]


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INDIAN CAPITAL MARKET-

HISTORICAL PERSPECTIVE

Stock Market was for a Privileged Few

Lack of Transparency High Costs

No use of Technology

Outdated Banking SystemVolumes Less than Rs. 300 cr per day

No Settlement Guarantee Mechanism High

Risks


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INDIAN CAPITAL MARKETS

CHRONOLOGY

1994:- Equity Trading Commences on NSE

1995:- All Trading goes Electronic

1996:- Depository comes into Existence

1999:- FIIs Participation- Globalization2000:- Over 80% Trades in Demat Form

2001:- Major Stocks move to Rolling Settlement

2003:- T+2 Settlements in all Stocks

2003:- Demutualization of Exchanges


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CAPITALMARKET

CONTEMPORARY CAPITAL MARKET AT AGLANCE

Second fastest growing economies after China with

an average annual growth rate of more than 8 per

cent in the last three years.

Indian companies may issue shares under Employee

Stock Option Scheme to its employees who areresident outside.

Foreign Institutional Investors are allowed to invest

in India under the Foreign Institutional Investment

scheme.Private equity is allowed as an alternative form of

investment


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CAPITALMARKET

COND

NSE (Indias National Stock Exchange) is the

third largest in the world in the number of trades

after NYSE and NASDAQ.

India has 23 small and 2 big stock exchanges.

The 2 big stock exchanges (National Stock

Exchange and Bombay Stock Exchange) account

for 90 per cent of trade.

Over 7000 listed companies on the stock

exchanges largest in the world.


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CAPITALMARKET

COND

39 mutual funds with over 500 schemes for

investment.There are 86 venture capital funds and 54 foreignventure capital investors.

FIIs can invest on behalf of their clients through sub-accounts.

For normal FIIs, limit for investment in equity is atleast 70 per cent while the rest could be invested indebt up to a maximum limit of 30 per cent.

9040 brokers in cash segment and 1064 in derivativesegment of the market.

122 investment bankers in the market.58 under writers to support primary issues.34 foreign venture capital funds &120 Portfoliomanagers


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MARKET STRUCTURE (JULY 31, 2005)

Over 10000 electronic terminals at over 400

locations all over India.

9108 stock brokers and 14582 sub brokers

9644 listed companies2 depositories and 483 depository participants

128 merchant bankers, 59 underwriters

34 debenture trustees, 96 Portfolio managers

83 registrars and transfer agents,59 bankers toissue

4 credit rating agencies


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CAPITALMARKET

WHY TO INVEST IN

INDIAN

CAPITAL MARKET

?


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CAPITALMARKET

BECAUSE:

Indias accounting standards are closer tointernational standards.

SEBI has made corporate governanceguidelines mandatory for listed companies.

Mutual funds are permitted to investoverseas up to $3 billion.

Almost 100 per cent risk free electronicsettlement through depository system .


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CAPITALMARKET

CONTD.

In India the transactions are totallyelectronic on a real time basis.

Business Week says that of 100 emergingmarket firms which are rapidly globalizing21 are Indian firms.

Economists project India to become thethird largest economy in the world by 2040.


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FACTS ABOUT CAPITAL MARKET

REFORMS

Extensive Capital Market Reforms wereundertaken during the 1990s encompassinglegislative regulatory and institutional reforms.

Although dematerialisation started in 1997 afterthe legal foundations for electronic book keepingwere provided and depositories created theregulator mandated gradually that trading inmost of the stocks take place only indematerialised form.


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CAPITAL MARKETS- REFORMS

A series of Reforms 1992/2001

Screen Based Trading through NSE

Capital Adequacy Norms Stipulated

Dematerialization of Shares- Risks of FraudulentPaper Eliminated

Entry of foreign Investors

Investor Awareness Programs

Rolling SettlementsInter- action between Banking and Exchanges


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CAPITAL MARKET REFORMS IN INDIA

The 1990s have witnessed the emergence of the

securities market as a major source of finance for

trade and industry in India.

A growing number of companies have been

accessing the securities market rather than

depending on loans from financial institutions /

banks.


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CHANGING TIMES

Simple to ComplexSupply > DemandInformation TechnologyOne worldNew Type of IndustryJob Profile ChangingSecurity to Performance

Eligibility of Jobs-Not Qualification but Uniqueness


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CAPITAL MARKET

Legislations

Capital Issues (Control) Act,1947SEBI Act, 1992Securities Contract (Regulation) Act,1956Depositories Act, 1996

Companies Act, 1956 RegulatorsRBI and SEBI

Instruments

Traditional

Modern-Derivatives, Exchange Traded Funds, EuroIssues etc. Services

Underwriting, Merchant Banking, Custodial Services Intermediaries

Underwriter, Broker, Banker, Registrar, Advisors etc.


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CAPITAL MARKET REFORMS

ObjectivesImproving Market Efficiency

Enhancing Transparency

Preventing Unfair Trade Practices

Integration with International Markets

ActionsLiberalise

Regulate

Develop


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SEBI ACT,1992Protect-Promote-Regulate

Disclosure and Investor Protection Guidelines (DIP)

Free PricingBook Building

Screen Based Trading

Internet Trading-Mobile Trading


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Trading CycleT+5, T+3, T+2, T+1

Derivatives Trading (June 2000)

Demutalisation and CorporatisationOwnership-Management-Trading Membership

DepositoriesNSDL and CDSL

Risk ManagementCapital Adequacy, Margin, monitoring,Trade/Settlement Guarantee Fund

Investor Protection and Education


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GlobalisationADR, GDR, FCCBs, ECBs, FIIs, IDRs

Miscellaneous

e-IPOs,

ESOPs,

Buy back,

Private Placement,

Bought out Deals,

OTCEI, NSE, ICSEI,

Regional Stock Exchanges


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HOW TRADING MECHANISMS HAVE

CHANGED

Technology has been a change driver

Created Virtual market place

Widened reach

Increased market efficienciesCompetitive market structures


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IMPACT OF CHANGES

ReachGeographical

Made a distribution framework availableProduct Diversity

EfficienciesBetter order executions

Increased liquidity


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IMPACT OF CHANGES(CONTD.)

Price transparency

Cost reduction

Shorter settlement cycles

Full line service from order capture to settlement and

risk managementRegulatory issues with each new development


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MAJOR CHANGES

The open outcry trading system, prevalent till 1995,

was replaced by the On-line screen based electronic

trading.

In all, 23 stock exchanges have approximately 8,000

trading terminals spread all over India.

Trading and settlement cycles were uniformly

trimmed from 14 days to 7 days in August 1996.

Rolling settlement (T+5) was introduced in January

1998. With effect from December 31, 2001, all scrips

have come under rolling settlement .

The settlement cycle have shortened from T+5 to

T+3 with effect from April1, 2002.


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CONTINUED ..

To enhance the level of Investor protection, theprocess of De-materialization of securities throughthe depository system and their transfer throughelectronic book entry is pursued vigorously.

To enable this NSDL was set up in November1996 and CDSL in February 1999.

All actively traded securities are held, traded andsettled in demat form.

Badla- carry forward trading mechanism whichwas reinstated in January 1996, with safeguardsin line with recommendations of PatelCommittee(1995) and Varma Committee (1996),have been discontinued from July 2001 followingthe scam of March 2001.


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MAJOR RECENT CHANGES

Rolling settlement

Book Building

Circuit Breakers

Listing of securitiesDerivatives

Client-level approach


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MAJOR RECENT CHANGES

Rolling settlement:In a trading cycle, tradesaccumulated till the end of a specified period andpositions were settled in the form of payment ofcash and delivery of securities.After the reforms,

the trading and settlement cycle was trimmedfrom 14 days to 7 days. Under the T+5 basisrolling settlement system the trading cyclecomprises one day and transactions are settled 5days after the trade date.

Book Building:is a process by which demandfor the proposed issued is elicited and built-upand the price at which the securities will beissued is determined on the basis of bidsreceived.


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Circuit Breakers:To contain excessivevolatility in prices, SEBI introduced, in 1995,

scrip wise daily Circuit Breakers/ Price Bands.

The CBs bring about a halt/ suspension in

trading automatically for a specified period. CBsdo not halt trading but no order is permitted if it

falls out of the specified price range.


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ANY QUESTIONS


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CAPITAL

MARKET THANK YOU

Recent Reforms

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