Stock Exchange Market in India

7/30/2019 Stock Exchange Market in India

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Stock exchangeFrom Wikipedia, the free encyclopedia

Financial markets

Public market

Exchange

Securities

Bond market

Bond valuation

Corporate bond

Fixed income

Government bond

High-yield debt

Municipal bond

Stock market

Common stock

Preferred stock

Registered share

Stock

Stock certificate

Stock exchange

Voting share

Derivatives market

Credit derivative

Futures exchange

Hybrid security
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Securitization

Over-the-counter

Forwards

Options

Spot market

Swaps

Foreign exchange

Currency

Exchange rate

Other markets

Commodity market Money market

Reinsurance market

Real estate market

Practical trading

Clearing house

Financial market participants

Financial regulation

Financeseries

Banks and banking

Corporate finance

Personal finance

Public finance

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A stock exchange is a form ofexchangewhich provides services forstock brokersandtradersto

tradestocks,bonds, and othersecurities. Stock exchanges also provide facilities for issue and redemption of

securities and other financial instruments, and capital events including the payment of income anddividends.
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Securities traded on a stock exchange includesharesissued by companies,unit trusts,derivatives, pooled

investment products andbonds.

To be able to trade a security on a certain stock exchange, it must be listed there. Usually, there is a central

location at least for record keeping, but trade is increasingly less linked to such a physical place, as modern

markets areelectronic networks, which gives them advantages of increased speed and reduced cost of

transactions. Trade on an exchange is by members only.

The initial offering of stocks and bonds to investors is by definition done in theprimary marketand subsequent

trading is done in thesecondary market. A stock exchange is often the most important component of astock

market. Supply and demand in stock markets are driven by various factors that, as in allfree markets, affect the

price of stocks (seestock valuation).

There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently

traded on the exchange. Such trading is said to be off exchange orover-the-counter. This is the usual waythatderivativesandbondsare traded. Increasingly, stock exchanges are part of a global market for securities.

Contents

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1 History

2 Role of stock exchanges

o 2.1 Raising capital for businesses

2.1.1 Common forms of capital raising

2.1.1.1 Going public

2.1.1.2 Limited partnerships

2.1.1.3 Venture capital

2.1.1.4 Corporate partners

o 2.2 Mobilizing savings for investment

o 2.3 Facilitating company growth

o 2.4 Profit sharing

o 2.5 Corporate governance

o 2.6 Creating investment opportunities for small investors

o 2.7 Government capital-raising for development projects

o 2.8 Barometer of the economy

3 Speculation

4 Major stock exchanges
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5 Listing requirements

o 5.1 Requirements by stock exchange

6 Ownership

7 Other types of exchanges

8 See also

9 References

10 External links

[edit]History

Among many other things, theCode of Hammurabirecorded interest-bearing loans.

Securities markets took centuries to develop.[1]The idea of debt dates back to theancient world, as evidenced

for example by ancientMesopotamianclay tablets recording interest-bearing loans. There is little consensus

among scholars as to when corporatestockwas first traded. Some see the key event as theDutch East India

Company's founding in 1602, while others point to earlier developments. Economist Ulrike Malmendier of

theUniversity of California at Berkeleyargues that a share market existed as far back asancient Rome.

In theRoman Republic, which existed for centuries before theEmpirewas founded, there were societates

publicanorum, organizations of contractors or leaseholders who performed temple-building and other services

for the government. One such service was the feeding of geese on the Capitoline Hill as a reward to the birds

after their honking warned of a Gallic invasion in 390 B.C. Participants in such organizations hadpartes or

shares, a concept mentioned various times by the statesman and oratorCicero. In one speech, Cicero

mentions "shares that had a very high price at the time." Such evidence, in Malmendier's view, suggests the

instruments were tradable, with fluctuating values based on an organization's success. The societas declined
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into obscurity in the time of the emperors, as most of their services were taken over by direct agents of the

state.

Tradablebondsas a commonly used type of security were a more recent innovation, spearheaded by the

Italian city-states of the latemedievaland earlyRenaissanceperiods.

In 1171, the authorities of theRepublic of Venice, concerned about their war-depleted treasury, drew a forced

loan from the citizenry. Such debt, known asprestiti, paid 5 percent interest per year and had an indefinite

maturity date. Initially regarded with suspicion, it came to be seen as a valuable investment that could be

bought and sold. The bond market had begun.

From 1262 to 1379, Venice never missed an interest payment, solidifying the credibility of the new instruments.

Other Italian city-states such as Florence and Genoa became bond issuers as well, often as a means of paying

for warfare. Bonds were traded widely in Italy and beyond, a business facilitated by bankers such as

theMedicis.

War between Venice and Genoa resulted in suspension ofprestitiinterest payments in the early 1380s, and

when the market was restored, it was at a lower interest rate. Venice's bonds traded at steep discounts for

decades thereafter. Other blows to financial stability resulted from theHundred Years War, which caused

monarchs of France and England to default on debts to Italian banks, and theBlack Death, which ravaged

much of Europe. Still, the idea of debt as a tradable investment endured.

As with bonds, the concept of stock developed gradually. Some scholars place its origins as far back as ancient

Rome. Partnership agreements dividing ownership into shares date back at least to the 13th century, again

with Italian city-states in the vanguard. Such arrangements, however, typically extended only to a handful of

people and were of limited duration, as with shipping partnerships that applied only to a single sea voyage.

House Ter Beurze inBruges, Belgium.

The forefront of commercial innovation eventually shifted from Italy to northern Europe. TheHanseatic League,

an alliance of mercantile cities such asBrugesandAntwerp, operated counting houses to expedite trade.
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By the late 1500s, British merchants were experimenting with joint-stock companies intended to operate on an

ongoing basis; one such was theMuscovy Company, which sought to wrest trade with Russia away from

Hanseatic dominance.

The next big step occurred in the Netherlands. In 1602, the Dutch East India Company was formed as a joint-

stock company based in six locations with shares that were readily tradable. The stock market had begun, but

since stocks were not allowed to be traded with multiple addresses for a company, the stocks were

redesignated as coming just fromAmsterdam.

Abondissued by theDutch East India Company, dating from 7 November 1623, for the amount of 2,400florins.

The Dutch East India Company, formed to build up the spice trade, operated as a colonial ruler in what's now

Indonesia and beyond, a purview that included conducting military operations against recalcitrant natives and

competing colonial powers. Control of the company was held tightly by its directors, with ordinary shareholders

not having much influence on management or even access to the company's accounting statements.

However, shareholders were rewarded well for their investment. The company paid an average dividend of

over 16 percent per year from 1602 to 1650. Financial innovation in Amsterdam took many forms. In 1609,

investors led by oneIsaac Le Maireformed history's first bear syndicate, but their coordinated trading had only

a modest impact in driving down share prices, which tended to be robust throughout the 17th century. By the

1620s, the company was expanding its securities issuance with the first use of corporate bonds.

The Dutch West India Company was formed in 1621, bringing a new issuer to the burgeoning securities

market. Amsterdam's growth as a financial center survived the tulip mania of the 1630s, in which contracts for

the delivery of flower bulbs soared wildly and then crashed. New techniques and instruments proliferated for

securities as well as commodities, including options, repos and margin trading.[2]

Joseph de la Vega, also known as Joseph Penso de la Vega and by other variations of his name, was an

Amsterdam trader from a Spanish Jewish family and a prolific writer as well as a successful businessman in

17th-century Amsterdam. His 1688 book Confusion of Confusions explained the workings of the city's stock
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market. It was the earliest book aboutstock trading, taking the form of a dialogue between a merchant, a

shareholder and a philosopher, the book described a market that was sophisticated but also prone to excesses,

and de la Vega offered advice to his readers on such topics as the unpredictability of market shifts and the

importance of patience in investment.

The year that de la Vega published also brought an event that helped spread financial techniques and talent

from Amsterdam to London. This was the "glorious revolution," in which Dutch rulerWilliam of Orangealso

ascended to England's throne. William sought to modernize England's finances to pay for its wars, and thus the

kingdom's first government bonds were issued in 1693 and theBank of Englandwas set up the following year.

Soon thereafter, English joint-stock companies began going public.

London's first stockbrokers, however, were barred from the old commercial center known as the Royal

Exchange, reportedly because of their rude manners. Instead, the new trade was conducted from coffee

houses alongExchange Alley. By 1698, a broker named John Castaing, operating out ofJonathan's Coffee

House, was posting regular lists of stock and commodity prices. Those lists mark the beginning of theLondon

Stock Exchange.

One of history's greatestfinancial bubblesoccurred in the next few decades. At the center of it were theSouth

Sea Company, set up in 1711 to conduct English trade with South America, and theMississippi Company,

focused on commerce with France's Louisiana colony and touted by transplanted Scottish financierJohn Law,

who was acting in effect as France's central banker. Investors snapped up shares in both, and whatever else

was available. In 1720, at the height of the mania, there was even an offering of "a company for carrying out an

undertaking of great advantage, but nobody to know what it is."

By the end of that same year, share prices were collapsing, as it became clear that expectations of imminent

wealth from the Americas were overblown. In London, Parliament passed theBubble Act, which stated that

only royally chartered companies could issue public shares. In Paris, Law was stripped of office and fled the

country. Stock trading was more limited and subdued in subsequent decades. Yet the market survived, and by

the 1790s shares were being traded in the young United States.

[edit]Role of stock exchanges

New York Stock Exchange, New York City
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London Stock Exchange, theCity of London

Tokyo Stock Exchange, Tokyo

Hong Kong Stock Exchange, Hong Kong
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Shanghai Stock Exchange, Shanghai

Toronto Stock Exchange, Toronto

Bolsa de Madrid, Madrid
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Bombay Stock Exchange,Mumbai

So Paulo Stock Exchange, So Paulo

Australian Securities Exchange's Sydney exchange centre, Sydney

Frankfurt Stock Exchange, Frankfurt
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Paris Stock Exchange, Paris

Warsaw Stock Exchange,Warsaw

SWX Swiss Exchange, Zurich

Mexican Stock Exchange, Mexico City
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Borsa Italiana, Milan

Stock exchanges have multiple roles in the economy. This may include the following:[3]

[edit]Raising capital for businesses

The Stock Exchange providecompanieswith the facility to raisecapitalfor expansion through sellingsharesto

the investing public.[4]

[edit]Common forms of capital raising

Besides the borrowing capacity provided to an individual or firm by thebanking system, in the form ofcreditor

a loan, there are four common forms of capital raising used by companies and entrepreneurs. Most of these

available options, might be achieved, directly or indirectly, involving a stock exchange.

[edit]Going public

Capital intensivecompanies, particularlyhigh techcompanies, always need to raise high volumes of capital in

their early stages. For this reason, the public market provided by the stock exchanges has been one of the

most important funding sources for many capital intensivestartups. After the 1990s and early-2000s hi-tech

listed companies' boom and bust in the world's major stock exchanges, it has been much more demanding for

the high-tech entrepreneur to take his/her company public, unless either the company already has products in

the market and is generating sales and earnings, or the company has completed advanced promising clinical

trials, earned potentially profitable patents or conducted market research which demonstrated very positive

outcomes. This is quite different from the situation of the 1990s to early-2000s period, when a number of

companies (particularly Internet boom and biotechnology companies) went public in the most prominent stock

exchanges around the world, in the total absence of sales, earnings and any well-documented promising

outcome. Anyway, every year a number of companies, including unknown highly speculative and financially

unpredictable hi-tech startups, are listed for the first time in all the major stock exchanges there are even
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specialized entry markets for this kind of companies orstock indexestracking their performance (examples

include theAlternext,CAC Small,SDAX,TecDAX, or most of thethird marketcompanies).

[edit]Limited partnerships

A number of companies have also raised significant amounts of capital throughR&Dlimited partnerships. Taxlaw changes that were enacted in 1987 in the United States changed the tax deductibility of investments in

R&D limited partnerships. In order for a partnership to be of interest to investors today, thecash on cash

returnmust be high enough to entice investors. As a result, R&D limited partnerships are not a viable means of

raising money for most companies, specially hi-tech startups.

[edit]Venture capital

A third usual source of capital for startup companies has beenventure capital. This source remains largely

available today, but the maximum statistical amount that the venture company firms in aggregate will invest in

any one company is not limitless (it was approximately $15 million in 2001 for a biotechnology company).[5]

At

those level, venture capital firms typically become tapped-out because the financial risk to any one partnership

becomes too great.

[edit]Corporate partners

A fourth alternative source of cash for a private company is acorporate partner, usually an established

multinational company, which provides capital for the smaller company in return for marketing rights, patent

rights, or equity. Corporate partnerships have been used successfully in a large number of cases.

[edit]Mobilizing savings for investment

When people draw their savings and invest in shares (through anIPOor theissuance of new company

sharesof an already listed company), it usually leads torationalallocation of resources because funds, which

could have been consumed, or kept in idledepositswith banks, are mobilized and redirected to help

companies' management boards finance their organizations. This may promote business activity with benefits

for several economic sectors such as agriculture, commerce and industry, resulting in stronger economic

growth and higherproductivitylevels of firms. Sometimes it is very difficult for the stock investor to determine

whether or not the allocation of those funds is in good faith and will be able to generate long-term company

growth, without examination of a company'sinternal auditing.

[edit]Facilitating company growth

Companies view acquisitions as an opportunity to expandproduct lines, increase distribution channels, hedge

against volatility, increase itsmarket share, or acquire other necessary businessassets. Atakeoverbid or

amergeragreement through thestock marketis one of the simplest and most common ways for a company to

grow by acquisition or fusion.
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[edit]Profit sharing

Both casual and professionalstock investors, as large asinstitutional investorsor as small as an ordinary

middle-class family, throughdividendsandstock priceincreases that may result incapital gains, share in the

wealth of profitable businesses. Unprofitable and troubled businesses may result incapital lossesfor

shareholders.

[edit]Corporate governance

By having a wide and varied scope of owners, companies generally tend to improve management standards

andefficiencyto satisfy the demands of these shareholders, and the more stringent rules for public

corporations imposed by public stock exchanges and the government. Consequently, it is alleged that public

companies (companies that are owned by shareholders who are members of the general public and trade

shares on public exchanges) tend to have better management records thanprivately held companies(those

companies where shares are not publicly traded, often owned by the company founders and/or their families

and heirs, or otherwise by a small group of investors).

Despite this claim, some well-documented cases are known where it is alleged that there has been

considerable slippage incorporate governanceon the part of some public companies. Thedot-com bubblein

the late 1990s, and thesubprime mortgage crisisin 200708, are classical examples of corporate

mismanagement. Companies likePets.com(2000),Enron

Corporation(2001),One.Tel(2001),Sunbeam(2001),Webvan(2001),Adelphia(2002),MCI

WorldCom(2002),Parmalat(2003),American International Group(2008),Bear Stearns(2008),Lehman

Brothers(2008),General Motors(2009) andSatyam Computer Services(2009) were among the most widely

scrutinized by the media.

However, when poor financial, ethical or managerial records are known by thestock investors, the stock and

the company tend to lose value. In the stock exchanges, shareholders of underperforming firms are often

penalized by significant share price decline, and they tend as well to dismiss incompetent management teams.

[edit]Creating investment opportunities for small investors

As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large

and smallstock investorsbecause a person buys the number of shares they can afford. Therefore the Stock

Exchange provides the opportunity for small investors to own shares of the same companies as large investors.

[edit]Government capital-raising for development projects

Governments at various levels may decide to borrow money to finance infrastructure projects such as sewage

and water treatment works or housing estates by selling another category ofsecuritiesknown asbonds. These

bonds can be raised through the Stock Exchange whereby members of the public buy them, thus loaning

money to the government. The issuance of such bonds can obviate the need, in the short term, to directly tax
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hange&action=edit&section=14http://en.wikipedia.org/wiki/Stock_investorhttp://en.wikipedia.org/w/index.php?title=Stock_exchange&action=edit&section=13http://en.wikipedia.org/wiki/Stock_investorshttp://en.wikipedia.org/wiki/Satyam_Computer_Serviceshttp://en.wikipedia.org/wiki/General_Motors_Chapter_11_reorganizationhttp://en.wikipedia.org/wiki/Lehman_Brothershttp://en.wikipedia.org/wiki/Lehman_Brothershttp://en.wikipedia.org/wiki/Bear_Stearnshttp://en.wikipedia.org/wiki/American_International_Grouphttp://en.wikipedia.org/wiki/Parmalathttp://en.wikipedia.org/wiki/MCI_WorldComhttp://en.wikipedia.org/wiki/MCI_WorldComhttp://en.wikipedia.org/wiki/Adelphia_Communications_Corporationhttp://en.wikipedia.org/wiki/Webvanhttp://en.wikipedia.org/wiki/Sunbeam_Productshttp://en.wikipedia.org/wiki/One.Telhttp://en.wikipedia.org/wiki/Enron_Corporationhttp://en.wikipedia.org/wiki/Enron_Corporationhttp://en.wikipedia.org/wiki/Pets.comhttp://en.wikipedia.org/wiki/Subprime_mortgage_crisishttp://en.wikipedia.org/wiki/Dot-com_bubblehttp://en.wikipedia.org/wiki/Corporate_governancehttp://en.wikipedia.org/wiki/Privately_held_companyhttp://en.wikipedia.org/wiki/Efficiency_(economics)http://en.wikipedia.org/w/index.php?title=Stock_exchange&action=edit&section=12http://en.wikipedia.org/wiki/Capital_losshttp://en.wikipedia.org/wiki/Capital_gainhttp://en.wikipedia.org/wiki/Stock_pricehttp://en.wikipedia.org/wiki/Dividendhttp://en.wikipedia.org/wiki/Institutional_investorshttp://en.wikipedia.org/wiki/Stock_investorhttp://en.wikipedia.org/w/index.php?title=Stock_exchange&action=edit&section=11


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citizens to finance developmentthough by securing such bonds with the full faith and credit of the government

instead of with collateral, the government must eventually tax citizens or otherwise raise additional funds to

make any regular coupon payments and refund the principal when the bonds mature.

Stock Exchange Market in India

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