Securities and Exchange Board of India (SEBI)

History:

The Securities and Exchange Board of India (frequently abbreviated

SEBI) is the regulator for the securities market in India. It was established

on 12 April 1992 through the SEBI Act, 1992.

In 1988 the Securities and Exchange Board of India (SEBI) was

established by the Government of India through an executive resolution,

and was subsequently upgraded as a fully autonomous body (a statutory Board) in the year 1992 with the passing

of the Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992. In place of Government

Control, a statutory and autonomous regulatory board with defined responsibilities, to cover both development &

regulation of the market, and independent powers has been set up. Paradoxically this is a positive outcome of the

Securities Scam of 1990-91.

Parliament. SEBI is having its Headquarter at the business district of Bandra Kurla Complex in Mumbai, and has

Northern, Eastern, Southern and Western Regional Offices in New Delhi, Kolkata, Chennai and Ahmedabad

respectively. Controller of Capital Issues was the regulatory authority before SEBI came into existence; it derived

authority from the Capital Issues (Control) Act, 1947.

Initially SEBI was a non statutory body without any statutory power. However in the year of 1995, the SEBI was

given additional statutory power by the Government of India through an amendment to the Securities and

Exchange Board of India Act 1992. In April, 1998 the SEBI was constituted as the regulator of capital markets in

India under a resolution of the Government of India.

The SEBI is managed by its members, which consists of following: a) the chairman who is nominated by Union

Government of India. b) Two members, i.e. Officers from Union Finance Ministry. c) One member from The

Reserve Bank of India. d) The remaining 5 members are nominated by Union Government of India; out of them at

least 3 shall be whole-time members.

The office of SEBI is situated at SEBI Bhavan, Bandra Kurla Complex, Bandra East, Mumbai- 400051, with its

regional offices at Kolkata, Delhi, Chennai & Ahmadabad. It has recently opened local offices at Jaipur and

Bangalore and is planning to open offices at Guwahati, Bhubaneswar, Patna, Kochi and Chandigarh in Financial

Year 2013 - 2014.

Introduction:

The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875 as "The Native Share and

Stock Brokers Association", as a voluntary non-profit making association. It has evolved over the years into its

present status as the premier Stock Exchange in the country. It may be noted that the Stock Exchanges is the oldest

one in Asia, even older than the Tokyo Stock Exchange, which was founded in 1878.

The Exchange, while providing an efficient and transparent market for trading in securities, upholds the interests

of the investors and ensures redressal of their grievances, whether against the companies or its own member-

brokers. It also strives to educate and enlighten the investors by making available necessary informative inputs and

conducting investor education programmes.

A Governing Board comprising of 9 elected directors (one third of them retire every year by rotation), two SEBI

nominees, a Reserve Bank of India nominee, six public representatives and an Executive Director is the apex body,

which decides the policies and regulates the affairs of the Exchange.

The Executive Director as the Chief Executive Officer is responsible for the day-to-day administration of the

Exchange.

The average daily turnover of the Exchange during the year 2000-2001 (April-March), was Rs.3984.19 crores and

average number of daily trades was 5.69 lakhs. However, the average daily turnover of the Exchange during the

year 2001- 2002 has declined to Rs. 1244.10 crores and number of average daily trades during the period to 5.17

lakhs. The ban on all deferral products like BLESS and ALBM in the Indian capital Markets by SEBI w.e.f. July 2,

2001, abolition of account period settlements, introduction of Compulsory Rolling Settlements in all scrips traded

on the Exchanges w.e.f. December 31, 2001, etc. have adversely impacted the liquidity and consequently there is a

considerable decline in the daily turnover at the Exchange.

What is a share?

A share represents the smallest recognized fraction of ownership in a publicly held business. Each such fraction of

ownership is represented in the form of a certificate known as a share certificate. The breaking up of total

ownership of a business into small fragments, each fragment represented by a share certificate, enables them to be

easily bought and sold.

What is a stock exchange?

The institution where this buying and selling of shares essentially takes place is the Stock Exchange. In the

absence of stock exchanges, ie. Institutions where small chunks of businesses could be traded, there would be no

modern business in the form of publicly held companies. Today, owing to the stock exchanges, one can be part

owners of one company today and another company tomorrow; one can be part owners in several companies at the

same time; one can be part owner in a company hundreds or thousands of miles away; one can be all of these

things.

Thus by enabling the convertibility of ownership in the product market into financial assets, namely shares, stock

exchanges bring together buyers and sellers (or their representatives) of fractional ownerships of companies. And

for that very reason, activities relating to stock exchanges are also appropriately enough, known as stock market or

security market. Also a stock exchange is distinguished by a specific locality and characteristics of its own; mostly

a stock exchange is also distinguished by a physical location and characteristics of its own.

In fact, according to H.T.Parekh, the earliest location of the Bombay Stock Exchange, which for a long period was

known as “the native share and stock brokers’ association”, was probably under a tree around 1870! The stock

exchanges are the exclusive centers for the trading of securities. The regulatory framework encourages this by

virtually banning trading of securities outside exchanges. Until recently, the area of operation/ jurisdiction of

exchange was specified at the time of its recognition, which in effect precluded competition among the exchanges.

These are called regional exchanges. In order to provide an opportunity to investors to invest/ trade in the

securities of local companies, it is mandatory foe the companies, wishing to list their securities, to list on the

regional stock exchange nearest to their registered office.

Objectives:

The SEBI has been entrusted with both the regulatory and developmental functions. The objectives of SEBI are as

follows:

a. Investor protection, so that there is a steady flow of savings into the Capital Market.

b. Ensuring the fair practices by the issuers of securities, namely, companies so that they can raise resources at

least cost.

c. Promotion of efficient services by brokers, merchant bankers and other intermediaries so that they become

competitive and professional.

Pending the legislative sanction to SEBI it carried out the functions of supervisory and advisory body of the Govt.

It has initiated the basis for control and regulation of the market, arranged for the licensing of merchant banks,

mutual funds etc. and performed the advisoty functions to the Govt.

The legislation giving powers to SEBI was passed on 4th April 1992 in the form of the Securities & Exchange

Board of India Act to protect the interests of investors in securities and to promote the development of and to

regulate the securities market and for matters connected therewith or incidental thereto.

The basic objectives of the Board were identified as:

to protect the interests of investors in securities;

to promote the development of Securities Market;

to regulate the securities market and

for matters connected therewith or incidental thereto.

Exchange management:

In view of the less than satisfactory quality, of administration of broker-managed exchanges, the finance minister

in March 2001 proposed demutualization of exchanges by which ownership, management and trading membership

would be segregated from each other. The regulators are working towards implementing this. Of the 23 stock

exchanges in India, two stock exchanges viz., OTCEI and NSE are already demutualised. Board of directors,

which do not include trading members, manages these. These are purest form of demutualised exchanges, where

ownership, management and trading are in the hands of three sets of people.

The concept of demutualization completely eliminates any conflict of interest and helps the exchange to pursue

market efficiency and investors interest aggressively.

Characteristics of Stock Exchanges in India:

Traditionally, a stock exchange has been an association of individual members called member brokers (or

simply members or brokers), formed for the express purpose of regulating and facilitating buying and

selling of securities by the public and institution at large.

A stock exchange in India operates with due recognition from the government under the Securities and

Contracts (Regulations) Act, 1956. the member brokers are essentially the middlemen who carry out the

desired transactions in securities on behalf of the public(for a commission) or on their own behalf. New

membership to a Stock Exchange is through election by the governing board of that stock exchange.

At present, there are 23 stock exchanges in India, the largest among them being the Bombay Stock

Exchange. BSE alone accounts for over 80% of the total volume of transactions in shares.

Typically, a stock exchange is governed by a board consisting of directors largely elected by the member

brokers, and a few nominated by the government. Government nominee include representatives of the

ministry of finance, as well as some public representatives, who are expected to safeguard the public

interest in the functioning of the exchanges.

A president, who is an elected member, usually nominated by the government from among the elected

members, heads the board. The executive director, who is usually appointed by the by the stock exchange

with the government approval is the operational chief of the stock exchange. His duty is to ensure that the

day to day operations the Stock Exchange are carried out in accordance with the various rules and

regulations governing its functioning.

The overall development and regulation of the securities market has been entrusted to the Securities and

Exchange Board of India (SEBI) by an act of parliament in 1992. All companies wishing to raise capital

from the public are required to list their securities on at least one stock exchange. Thus, all ordinary shares,

preference shares and debentures of the publicly held companies are listed in the stock exchange.

Role of SEBI:

The SEBI, that is, the Securities and the Exchange Board of India, is the national regulatory body for the securities

market, set up under the securities and Exchange Board of India act, 1992, to “protect the interest of investors in

securities and to promote the development of, and to regulate the securities market and for matters connected

therewith and incidental too.”

SEBI has its head office in Mumbai and it has now set up regional offices in the metropolitan cities of Kolkata,

Delhi, and Chennai. The Board of SEBI comprises a Chairman, two members from the central government

representing the ministries of finance and law, one member from the Reserve Bank of India and two other

members appointed by the central government.

As per the SEBI act, 1992, the power and functions of the Board encompass the regulation of Stock Exchanges

and other securities markets; registration and regulation of the working stock brokers, sub-brokers, bankers to an

issue (a public offer of capital), trustees of trust deeds, registrars to an issues, merchant bankers, under writers,

portfolio managers, investment advisors and such other intermediaries who may be associated with the stock

market in any way; registration and regulations of mutual funds; promotion and regulation of self-regulatory

organizations; prohibiting Fraudulent and unfair trade practices and insider trading in securities markets; regulating

substantial acquisition of shares and takeover of companies; calling for information from, undertaking inspection,

conducting inquiries and audits of stock exchanges, intermediaries and self-regulatory organizations of the

securities market; performing such functions and exercising such powers as contained in the provisions of the

Capital Issues (Control) Act,1947 and the Securities Contracts (Regulation) Act, 1956, levying various fees and

other charges, conducting necessary research for above purposes and performing such other functions as may be

prescribes from time to time.

SEBI as the watchdog of the industry has an important and crucial role in the market in ensuring that the market

participants perform their duties in accordance with the regulatory norms. The Stock Exchange as a responsible

Self Regulatory Organization (SRO) function to regulate the market and its prices as per the prevalent regulations.

SEBI and the Exchange play complimentary roles to enhance the investor protection and the overall quality of the

market.

Membership:

The trading platform of a stock exchange is accessible only to brokers. The broker enters into trades in

exchanges either on his own account or on behalf of clients. The clients may place their order with them

directly or a sub-broker indirectly. A broker is admitted to the membership of an exchange in terms of the

provisions of the SCRA, the SEBI act 1992, the rules, circulars, notifications, guidelines, etc. prescribed there

under and the byelaws, rules and regulations of the concerned exchange. No stockbroker or sub-broker is

allowed to buy, sell or deal in securities, unless he or she holds a certificate of registration granted by SEBI. A

broker/sub-broker compiles with the code of conduct prescribed by SEBI.

The stock exchanges are free to stipulate stricter requirements for its members than those stipulated by SEBI.

The minimum standards stipulated by NSE for membership are in excess of the minimum norms laid down by

SEBI. The standards for admission of members laid down by NSE stress on factors, such as, corporate

structure, capital adequacy, track record, education, experience, etc. and reflect the conscious endeavors to

ensure quality broking services.

Listing:

Listing means formal admission of a security to the trading platform of a stock exchange, invariably evidenced

by a listing agreement between the issuer of the security and the stock exchange. ; Listing of securities on

Indian Stock Exchanges is essentially governed by the provisions in the companies act, 1956, SCRA, SCRR,

rules, bye-laws and regulations of the concerned stock exchange, the listing agreement entered into by the

issuer and the stock exchange and the circulars/ guidelines issued by central government and SEBI.

Index services:

Stock index uses a set of stocks that are representative of the whole market, or a specified sector to measure the

change in overall behavior of the markets or sector over a period of time. India Index Services & Products

Limited (IISL), promoted by NSE and CRISIL, is the only specialized organization in the country to provide

stock index services.

Trading Mechanism:

All stock exchanges in India follow screen-based trading system. NSE was the first stock exchange in the

country to provide nation-wide order-driven, screen-based trading system. NSE model was gradually emulated

by all other stock exchanges in the country. The trading system at NSE known as the National Exchange for

Automated Trading (NEAT) system is an anonymous order- driven system and operates on a strict price/time

priority. It enables members from across the countries to trade simultaneously with enormous ease and

efficiency.

NEAT has lent considerable depth in the market by enabling large number of members all over the country to

trade simultaneously and consequently narrowed the spreads significantly. A single consolidated order book

for each stock displays, on a real time basis, buy and sell orders originating from all over the country. The

bookstores only limit orders, which are orders to buy or sell shares at a stated quantity and stated price. The

limit order is executed only if the price quantity conditions match. Thus, the NEAT system provides an open

electronic consolidated limit order book (OECLOB).

The trading system provides tremendous flexibility to the users in terms of kinds of orders that can be placed

on the system. Several time-related (Good-Till-Cancelled, Good-Till Day, Immediate-or-Cancel), price related

(buy/sell limit and stop-loss orders) or volume related (All-or-None, Minimum Fill, etc.) conditions van be

easily built into an order. Orders are sorted and match automatically by the computer keeping the system

transparent, objective and fair. The trading system also provides complete market information on-line, which is

updated on real time basis. The trading platform of the CM segment of NSE is accessed not only from the

computer terminals from the premises of brokers spread over 420 cities, but also from the personal computers

in the homes of investors through the internet and from the hand-held devices through WAP. The trading

platform of BSE is also accessible from 400 cities.

Internet trading is available on NSE and BSE, as of now. SEBI has approved the use of Internet as an order

routing system, for communicating clients’ orders to the exchanges through brokers. SEBI- registered brokers

can introduce internet-based trading after obtaining permission from the respective Stock Exchanges. SEBI has

stipulated the minimum conditions to be fulfilled by trading members to start internet-based trading and

services.

BSE /NSE:

Mutual Funds Commodity

Listed Schemes Mutual Funds News

Open Ended Latest NAV's

Close Ended Agro Products

NCDEX Metals

MCX, NMCEIL, Bullion Many More...

NSE was the first exchange in the country to provide web-based access to investors to trade directly on the

exchange. It launched Internet trading in February 2000. It was followed by the launch of Internet trading by BSE

in March 2001. The orders originating from the personal computers (PCs) of investors are routed through the

Internet tot eh trading terminals of the designated brokers with whom they have relations and further to the

exchange of trade execution. Soon after these orders get matched and result into trades, the investors get

confirmation about them on their PCs through the same Internet routes.

SEBI approved trading through wireless medium or WAP platform. NSE is the only exchange to provide access to

its order book through the hand held devices, which use WAP technology. This serves primarily retail investors

who are mobile and want to trade from any place when the market prices for st0ocks of their choice are attractive.

Capital Listed & Market Capitalization:

The Stock Exchange, Bombay (BSE) is the premier Stock Exchange in India. The BSE accounted for 46 per cent

of listed companies on an all India basis as on 31st March 1994. It ranked first in terms of the number of listed

companies and stock issues listed. The capital listed in the BSE as on 31st March 1994 accounted for 50% of the

overall capital listed on all the stock exchanges. Its share of the market capitalization was around 74% as on the

same date. The paidup capital of equity, debentures/bonds and preference were 73%, 31%, 44% respectively of the

overall capital listed on all the Stock Exchanges as on the same date.

On the BSE, the Steel Authority of India had the largest market capitalization of Rs.19, 908 crores as on the 31st

March, 1994 followed by the State Bank of India with the market capitalization of Rs.16, 702 crores and

Mahanagar Telephone Nigam Limited with the market capitalization of Rs.11, 700 crores.

BSE SENSEX:

The BSE SENSEX, short form of Sensitive Index, first compiled

in 1986 is a “market Capitalization-Weighted” index of 30

component stocks representing a sample of large, well established

and financially sound companies. The index is widely reported in

both, the domestic international, print electronic media and is

widely used to measure the used to measure the performance of

the Indian stock markets.

The BSE SENSEX is the benchmark index of the Indian capital

market and one, which has the longest social memory. In fact the

SENSEX is considered to be the pulse of the Indian stock

markets. It is the oldest index in India and has acquired a unique

place in collective consciousness of the investors. Further, as the

oldest index of the Indian Stock Market, it provides time series

data over a fairly long period of time. Small wonder that the

SENSEX has over the years has become one of the most

prominent brands of the Country.

Findings:

The major findings of the study are summarized below:

1) Beneficiary Profile:

Eighty three per cent of the investors are above the age of 36, of which 48% are in the age group of

36-45.

Women investors form about 13% of the total number of investors.

The capacity to bear risk, to a large extent, depends on the gender.

2) Occupational analysis of investors:

Sixty two percent of the investors have regular income apart from the investments in the capital

market, as they are either permanent employees or professionals.

Ten percent of the investors are share brokers and the only source of income is the investment in the

capital market.

Investors do not depend wholly on the capital markets for their livelihood.

3) Experience of investors in the stock market operations:

Seventy four per cent of the investors in Kerala have less than 10 years of experience in the stock

market. Only 7% of the investors have an experience of more than 15 years.

There is substantial decrease in the number of investors with the increase in experience.

4) Participation of Investors in Stock Market Operations:

Fifty five per cent of the investors are not actively operating in the stock market. Twenty four

percent of the investors pointed out political instability as the major reason for this. For 19% of the

investors, deceitful practice by unscrupulous promoters is the reason for inactivity.

5) Loss due to political reasons:

Seventy-three percent of the investors suffered loss due to political reasons.

Seventy percent of the investors follow a 'wait and watch' policy when there is a political

uncertainty. Panic selling is resorted to by only 9% of investors.

There is a high degree of positive correlation between experience in stock market operation and the

precaution, 'no activity' to cover political risk.

The correlation between experience in stock market operations and the 'wait and watch' policy as a

precaution to cover political risk is highly negative.

There is a low negative correlation between experience in stock market operations and 'panic

selling'.

There is no gender difference in the matter of dealing with political risk.

Even if political risk is taken into account while making the investment decisions, the investor may

suffer loss.

6) Risk of bad delivery and delayed delivery:

Fifty-five percent of the investors have experienced bad delivery of which 90% were

rectified.

Thirty-five percent of the investors have experienced delayed delivery of which the

brokers cause 55%.

Thirty-eight percent of the investors have experienced delayed payment. In 14% of these

cases the delay exceeded 3 months.

7) Forged share certificates and loss of share certificates and odd lots:

Twelve percent of the investors received forged share certificates of which 83% got it

rectified.

Six percent of the investors lost their share certificate by theft of which 29% could not

be recovered. 17% of the investors lost their share certificates in transit, of which 40%

could not be traced.

Thirty Three percent of the investors hold odd lots. Of these 71% are retained as odd lots

itself.

Response of investors - Many investors are reluctant to complain about the hazards. The

investors complained 49% of the cases of bad delivery and 72% of the cases of forged

share certificates. Also, the victims brought 72% of the cases of delayed delivery and

41% of the delayed payment to the notice of the authority. The remaining cases of bad

delivery and delays were left unnoticed.

8) Dematerialization:

Many investors are yet to warm up to the dematerialization of their shares. Thirty four

percent of the investors have not yet converted their shares into the electronic form.

9) Market Risk & Default Risk:

Eighty percent of the investors have suffered loss due to market risk.

Sixty six percent of the investors follow the 'wait and watch' policy when faced with

market risk. Policies of 'no activity' and 'panic selling' are resorted to by 17% each of the

investors.

Eighteen percent of the investors have met with the default risk. Of these only 22% were

rectified later.

10) Holding securities of vanished companies:

Sixty one percent of the investors hold shares in companies, which have vanished.

Surprisingly, 8% of investors own shares in 10 or more of such companies. Further,

more than 500 shares of such companies are held by 34% of investors.

11) Finance

12) Short sale

13) Evaluation of Budgets

14) Diversification

15) Application of theories of evaluating securities

16) Seeking advice from brokers

17) Investor Protection

18) Ratings of publications about new equity issues.

19) Stress Management by Investors

20) Attending company meetings

21) Investment in shares

22) Deciding factors of Investment in shares

23) Type of shares selected by investors

24) Diversion of funds from the stock market

25) Involvement in Speculation

Conclusion:

The findings summarized in the previous section have lead to the following conclusions:

1) Youngsters in the state of Kerala are reluctant to enter into the capital market, partly because of low income

and partly due to their reluctance to risk.

2) The male investors dominate the Capital market.

3) After incurring losses most of the investors exit the market, consequently, the number of experienced

investor’s declines.

4) There is waning interest of investors in the capital market.

5) As the investors gain experience in the stock market operations, they can keep themselves away from the

market during a crisis.

6) Long run investing is the safe and sure path to wealth creation.

7) Those who are fresh to the capital market are in favour of following a 'wait and watch' policy when there is

a crisis.

8) Most of the investors are aware of the merits of diversification of portfolios.

9) Diversification helps in attaining the expected rate of return.

10) Most of the investors decide their portfolios without a scientific evaluation.

11) Increase in experience will not bring in additional investment in shares.

12) The Indian capital market is not providing sufficient support, encouragement and safety to the investors. So

the investors are wary of locking up their savings in the capital market.

13) Age has no significant influence on the investment in the secondary market.

14) Experienced investors look at the efficiency of the management of the company for making investment

decisions.

15) With the experience in the stock market, the tendency to buy growth shares does not increase.

16) With increase in experience in the stock market, people tend to speculate.

17) There is a general tendency to divert funds from the stock market.

18) Even if the objectives for which the investments are made are not attained, the investors may not withdraw

the amount from the stock market.

19) Diversion of funds takes place from both the primary market and the secondary market.

20) Most of the speculative transactions in shares result in loss.

21) As the investors age, the tendency to speculate weakens.

Suggestions:

Based on the findings and conclusions drawn from the study, the following suggestions seem feasible for

strengthening the capital market, especially the investors.

1) Investor protection continues to remain a dream despite a plethora of laws, rules and regulations and a host

of regulators in the form of RBI, the Company Law Board and the SEBI. Investor protection should be the

goal of the regulators. All the existing regulations and fresh regulatory proposals are to be reviewed,

aiming at this goal. It is time to take stock of the realities and make drastic measures to ensure safety of

investors.

2) Special regulation is needed to book the culprits in the case of vanishing companies. SEBI should be

empowered to award interest, costs and damages to investors who have suffered on account of cheating by

promoters. Provision should be made for personal liability of promoters, directors and concerned

intermediaries involved in vanishing companies. SEBI should have the powers to attach the property of the

defaulting company and then it should be allowed to sell the property to make good the losses suffered by

the investors. Entrepreneurs setting up new companies should be asked to furnish more details to the

regulators, such as photographs, passport number etc. and at least three references so that they do not

disappear into thin air.

3) There is a strong need for rating of public issues by authorized agencies like CRISIL, CARE, etc.

4) Investors should put forward their grievances to the regulatory bodies for redressal.

5) Appoint an Ombudsman for redressal of investor grievances.

6) Stock Exchange should remove inefficiencies and promote market access to be attractive to investors by

improving both the trading and settlement process. Assure fair deal to investors.

7) Probe into irregularities and manipulations in all transactions. The regulators should be able to take quick

corrective action, nip the problem in the bud, punish the guilty and plug the loopholes in the system.

8) Efforts should be made to revive the capital markets, both the primary and the secondary markets. Budget

proposals should include tax incentives for investment in public issues.

9) Ensure stability and integrity of the market. Monitor excessive volatility in the market and take prompt

action by imposing high margins. It acts as a 'brake' to excessive speed of volatility.

10) It is necessary to tighten our systems and procedures besides ensuring the surveillance mechanism across

the stock markets in line with the developed markets. Review the functions of the stock markets and

stipulate policy issues on market operations.

11) More information and greater transparency in the disclosure of information is required to inspire greater

investor confidence.

12) Wherever the regulator proposes to introduce a new system in the capital market it must allow sufficient

transition time to ensure smooth sailing. Otherwise, investors are prone to lose money.

13) Investors need to investigate events of unrealistic boom in the share prices to control the damage of a scam

that may happen.

14) Investors should try to attend company meetings to come to know about the policies of the company.

15) Diversification is a safe method of risk management. Diversify the portfolios, as it will help to reduce risks.

16) Investors should not run after hot tips. They should try to find out whether the price of a share is a real

reflection of the earning capacity and future prospects of the issuer. He should understand that long run

investing is safer. Investing requires caution; patience and hard work and the investor should never let

greed judge his sentiment.

17) As a precaution against stress, practicing yoga would be advisable.

Stock markets provide an attractive opportunity for making money. There is no other form of investment as on

today which can offer a better rate of return than that offered by shares. The other side of the picture is that the

companies may not line up to the expectations of the investors. Selecting only those shares in which he has a high

level of confidence regarding their stability and prosperity can minimize the risk.

The Indian stock market has made rapid strides. Its role in the Indian financial system is getting transformed from

being peripheral to becoming central. The stock markets' behaviour has a powerful influence on the course of

economic activity. Everybody today accepts that economic growth requires rising levels of investment. India, with

its vast investor base, strong capital market tradition and vibrant industry can optimally utilize the stock markets

to raise resources cheaply and provide an impetus for economic growth. But this could be possible only when we

learn to respect those investors who contribute to the stock markets' growth and help them to boost their

confidence. In this era of scams, it is absolutely imperative that the investor embraces and manages properly the

risks to make the extra buck, which bolsters his confidence.

The Future of Stock Exchanges:

The future of stock trading appears to be electronic, as competition is continually growing between the remaining

traditional New York Stock Exchange specialist systems against the relatively new, all Electronic Communications

Networks or ECNs. ECNs point to their speedy execution of large block trades, while specialist system proponents

cite the role of specialists in maintaining orderly markets, especially under extraordinary conditions or for special

types of orders.

The ECNs contend that an array of special interests profit at the expense of investors in even the most mundane

exchange-directed trades. Machine-based systems, they argue, are much more efficient, because they speed up the

execution mechanism and eliminate the need to deal with an intermediary.

Historically, the 'market' (which, as noted, encompasses the totality of stock trading on all exchanges) has been

slow to respond to technological innovation, thus allowing growing pure speculation to continue. Conversion to

all-electronic trading could erode/eliminate the trading profits of floor specialists and the NYSE's "upstairs

traders", who, like in September and October 2008, earned billions of dollars selling shares they did not have, and

days later buying the same amount of shares, but maybe 15 % cheaper, so these shares could be handed to their

buyers, thereby making the market fall deeply.

William Lupien, founder of the Instinet trading system and the OptiMark system, has been quoted as saying "I'd

definitely say the ECNs are winning... Things happen awfully fast once you reach the tipping point. We're now at

the tipping point."

One example of improved efficiency of ECNs is the prevention of front running, by which manual Wall Street

traders use knowledge of a customer's incoming order to place their own orders so as to benefit from the perceived

change to market direction that the introduction of a large order will cause. By executing large trades at lightning

speed without manual intervention, ECNs make impossible this illegal practice, for which several NYSE floor

brokers were investigated and severely fined in recent years. Under the specialist system, when the market sees a

large trade in a name, other buyers are immediately able to look to see how big the trader is in the name, and make

inferences about why s/he is selling or buying. All traders who are quick enough are able to use that information to

anticipate price movements.

ECNs have changed ordinary stock transaction processing (like brokerage services before them) into a commodity-

type business. ECNs could regulate the fairness of initial public offerings (IPOs), oversee Hambrecht's OpenIPO

process, or measure the effectiveness of securities research and use transaction fees to subsidize small- and mid-

cap research efforts.

Some however, believe the answer will be some combination of the best of technology and "upstairs trading" — in

other words, a hybrid model.

Trading 25,000 shares of General Electric stock (recent quote: $7.54; recent volume: 216,266,000) would be a

relatively simple e-commerce transaction; trading 100 shares of Berkshire Hathaway Class A stock (recent quote:

$72,625.00; recent volume: 877) may never be. The choice of system should be clear (but always that of the

trader), based on the characteristics of the security to be traded.

Even with ECNs forming an important part of a national market system, opportunities presumably remain to profit

from the spread between the bid and offer price. That is especially true for investment managers that direct huge

trading volume, and own a stake in an ECN or specialist firm. For example, in its individual stock-brokerage

accounts, " Fidelity Investments runs 29% of its undesignated orders in NYSE-listed stocks, and 37% of its

undesignated market orders through the Boston Stock Exchange, where an affiliate controls a specialist post."

Scope for Future Research:

On the basis of the investigations made by the researcher, the following areas related to the study are identified for

further research.

a. A detailed study on the role of the Regulators in protecting the interests of investors.

b. A study on profit maximization by investors.

c. Impact of dematerialization on investments.

d. A study on share price movements.