STOCK EXCHANGE:

The stock exchange is the important segment of its capital

market. If the stock exchange is well-regulated function smoothly, then it is an
indicator of healthy capital market. If the state of the stock exchange is good,
the overall capital market will grow and otherwise it can suffer a great set back
which is not good for the country. The government at various stages controls
the stock market and the capitals market.

A capital market deals in financial assets, excluding coin and

currency. Banking accounts compromises the majority of financial assets.
Pension and provident funds insurance policies shares and securities.

Financial assets are claim of holders over issuer (business firms and
governments). They enter low different segment of financial market.

Those having short maturities that are nontransferable like bank savings
and current accounts set the identification of the monetary financial assets.
This market is known as money market, Equity, Preferential shares and bonds
and debentures issued by companies and securities issued by the
government constitute the financial assets, which are traded in the capital
market.

“Money Market and Capital Market”

Both money market and capital market constitute the financial
market. Capital market generally known as stock exchange. This is a
institution around which every activity of national capital market revolves.
Through the medium stock exchange the investor gets on impetus and
motivations to invest in securities without which they would not be able to
liquidate the securities. If there would have been no stock exchange many of
the savers would have hold their saving either in cash i.e. idle or in bank with
low interest rate or low returns. The stock exchange provides the opportunity
to investors for the continuous trading in securities. It is continuously engaged
in the capital mobilization process.
Another consequence of non-existence of stock exchange would have been
low saving of the community, which means low investment and lower
development of the country.

S          -           Securities provide for investor.

T          -           Tax Benefits planning and exemption.

O         -           Optimum return on investment.

C         -           Cautious Approach.

K         -           Knowledge of Market.

Ex        -           Exchange of Securities Transacted.

C         -           Cyclopedia of Listed Companies.

H         -           High Yield.

A         -           Authentic Information

N         -           New Entrepreneur encouraged.

G         -           Guidance of Investor & Company.

E          -           Equity

HISTORY OF STOCK EXCHANGE

     The first stock exchange was established in London in the year 1773. Just
after establishment of London stock exchange various countries like France,
Germany and USA also established their own stock exchange markets. In
India, the first exchange established in Bombay in the year 1875. Later, in
year 1908, Calcutta stock exchange was established which was recognized in
the company in 1923. Mean which in 1920 the madras stock exchange limited
in 1973. So far the government of India has recognized 22 stock exchanges,
which was located at major business centers in different parts of country.

Till the mid-fifties the stock exchange was governed by their own bye
laws and regulations with very little interface by the government. In the year
1925, the government of Bombay promulgated an act “securities contracts
and control act, 1625 for regulation and the stock exchange. During the world
was second trading outside the stock exchange flourished with adverse effect
on investor’s confidence due to base – less issues and higher rate of
liquidation of companies. In 1956, the center government passed contracts
(regulation) act 1956, which came into force throughout the country on
20th Feb. 1957.

SEBI Act :
The government of India has enacted an act (SEBI Act 1952), which
provides for the establishment of a board to protect the interest of
investor in securities. The SEBI has emerged as a monitoring institution of
the country fir the development and regulation of stock market, SEBI has
issued from time to time guideline to insider trading listing of securities,
registration of intermediaries mutual funds etc.

MANAGEMENT OF STOCK EXCHANGE

Management of stock exchange is done an elected body of

members. 
 These bodies are known by different names in different stock exchange
for example, the BOMBAY, INDORE and AHEMDABAD stock exchange are
managed by a ‘governing board’.  ‘Council of management’ governs the
MADRAS stock exchange. A committee manages the CALCUTTA stock
exchange. While the’ board of director’ manages stock exchange.

These governing bodies are powerful bodies enjoying extensive

administrative power of management and control over their respective stock
exchange the day-to-day function of the stock exchanges are executed by the
sub-committee like the ‘defaulters committee’ ‘listing committee’, ‘settlement
committee’ etc.

STOCK BROKERS

SEBI registered stock - brokers interested in providing Internet based

trading services will be required to apply to the respective stock exchange for
a formal permission. The stock exchange should grant approval or reject the
application as the case may be, and communicate its decision to the member
within thirty calendar days of the date of completed application submitted to
the exchange.

The Exchange closely monitors outstanding position of top buying

member-brokers and top selling member-brokers on a daily basis. For this
purpose, it has developed various market monitoring reports based on certain
pre-set parameters. These reports are scrutinized by officials of the
Surveillance Dept. to ascertain whether a member-broker has built up
excessive purchase or sale position compared to his normal level of business.
Further, it is examined whether purchases or sales are concentrated in one or
more scrip’s, whether the margin cover is adequate, whether transactions
have been entered into on behalf of institutional clients and even the quality of
scrip’s, i.e., liquid or illiquid is looked into in order to assess the quality of
exposure. The Exchange also scrutinizes the pay-in position of the member-
brokers and the member-brokers having larger funds pay-in positions are at
times, at the discretion of the Exchange, required to make advance pay-in on
T+1 day instead of on T+2 day.

BASIC REQUIREMENTS FOR STOCK BROKERS

 Trading will be on existing stock exchanges through order routing
system for execution of trades. Therefore, stockbrokers are to comply with the
following before the start of trade on Internet.

1. The broker must have a net worth of Rs. 50 lakh if he wants to avail the
facility of Internet for his own.
2. Provision for maintenance of adequate back up system.
3. The software system to be used by him should be secured and reliable.
4. To employ the qualified staff for this purpose.
5. To send order/trade confirmation to the client also through e-mail.
6. The contract notes must be issued to the clients as per existing
regulation within 24 hours of the execution of trades.
7. The broker and his client should use authentication technologies.

The above are some of the important pre-requisites for the stockbroker should
intend to take benefits of trading on Internet. However, detailed guidelines issued by the
SEBI for the stock exchange

KIND OF STOCK BROKERS

1.         Commission Broker

Near about all the brokers buy and sell securities for earning a  commission for investor
point of view he is the most important person and responsibility is to buy and sell stoke
for his customer. It means that he acts as an agent of investor and earns commission
for his services rendered. The broker is also an independent dealer in securities. He
purchases and sell securities in his own name but he is not allowed to deal with non-
member.

2.         Jobber

He is an professional speculator who works for a profit called ‘turn’ he makes a

continuous auction in the market in the stoke in which he specialized. He  trades in the
market evens for small difference in the prices and helps to maintain liquidity  in the
stoke exchange.

3.         Floor Broker
The floor broker buy and sell shares for the other broker on the floor of the exchange.
He is an individual member owns his seat and receives his own commission on the
orders he execute. He helps other brokers when they are buy and as compensation
receives a portion the broker.

4.         Odd lit dealer

For trading in stock exchange there a certain number of share a fixed to be transacted
in a lot, this is known as round lat which is usually a, 100 share a. Any thing less than
the round lot are add lot. If a person is in possession of add lot of share i.e. 10, 20, 30,
40 etc. They he will has to look for the add lot dealer.

5.         Budliwala

He is the person who finance or provide credit facilities to the market for this service he
charges a fees called contango or backwardation charges. The budliwala gives a fully
secured loan for period of 2 to 3 weeks.

6.         Arbitrageur

A person who is specialist in dealing with securities in different stoke exchange centers
at the same time. He makes a profit by the difference in the piece prevailing in different
centers of the market activity. For example the rte of a certain scrip is higher in some
stoke exchange than other on. In this case the broker will buy the scrip from the marked
lower price and will sell the scrip in the market at higher price. The profit of the
arbitrageur depends on the ability to get the prices from different centers before trading
in other stoke exchanges.

STOCK TRADING

OVERVIEW

The marketing of the securities on the stock exchange can be done

through member of the stock exchange. These members can be either
individuals or corporate bodies.
 For the process of trading in stock exchange there is the basic need for a
transaction between an individual and the broker execute customer’s order to buy or sell
on the stock exchange trading ring. The exchange of scrip between the member of the
exchange in from of buying or selling is called trading

Broker is the member of recognized stock exchange and helps the customers in
buying or selling the securities for the brokerage that he receives.

Trading Method

Listing securities are traded on the floor of recognized stock exchange

where its member traded. An investor is not permitted to enter the floor of
stock exchange and he has trust the broker to:

*. Negotiate the best price for the trade.

*. Settle the account, i.e. payment for securities sold on due date.

*. Take delivery of securities purchase.

TYPES OF TRADING

Trading in stock exchange is conducted in two ways:

Ø      Ready delivery contract.

Ø      Forward delivery contract.

BASKET TRADING SYSTEM

The Basket Trading System provides the arbitrageurs an opportunity to take

advantage of price differences in the underlying Sensex and Futures on the
Sensex by simultaneous buying and selling of baskets comprising the Sensex
scrip’s in the Cash Segment and Sensex Futures. This is expected to provide
balancing impact on the prices in both cash and futures markets.

The Exchange has commenced trading in the Derivatives Segment with effect from
June 9, 2000 to enable the investors to, inter-alias, hedge their risks. Initially, the facility
of trading in the Derivatives Segment was confined to Index Futures. Subsequently, the
Exchange has introduced the Index Options and Options & Futures in select individual
stocks. The investors in cash market had felt a need to limit their risk exposure in the
market to movement in Sensex.

To participate in this system, the member-brokers need to indicate number of Sensex

basket(s) to be bought or sold, where the value of one Sensex basket is arrived at by
the system by multiplying Rs.50 to prevailing Sensex. For e.g., if the Sensex is 4000,
then value of one basket of Sensex would be 4000 x 50= i.e., Rs. 2,00,000/-. The
investors can also place orders by entering value of Sensex portfolio to be brought or
sold with a minimum value of Rs. 50,000/- for each order.

PROCEDURE OF TRADING

1.Select of broker

The first step is buying or selling of share is to select a broker for transaction
business on behalf of the investor. The trading of securities on the stock exchange can
be done through members of the exchange.

 An investor prefers to select a broker who shall. 

 Act with due skill. Care and diligence in the conduct of all his business.
 Not create false market either singly or in concert with other.

2.Opening An Account With The Broker

The next step to open account with the broker. It helps the investor to
provide his credit worthiness, if the clients were not to do margin money with
the broker.

3.Selection Of Securities

This is application for buying securities. The investor may be consulted

with broker and take advise for selection of securities.

4.Selection Of Time For Trading

This is important to get the best advantage from buying or selling the securities.
5. Placing An Order

Various method of placing an order with the broker has been evolved to
give the broker leverage when he is on the floor of the stock exchange.

6. Preparation Of Contract Note

SEBI circular of 4th Feb. 1991 requires that all member of the recognized

stock exchange issue contract note to the investors on the execution of trade. Brokers,
therefore issue contract note to the client, which gives the name of the company, price
of trade, brokerage, time of execution, provision regarding arbitration etc. in term of the
bye-laws of stock exchange, this is statutory requirement and mandatory.

7. Settlement

The settlement is the process whereby payment is made by brokers who have
made purchase and share delivery by those brokers who have made sales.