SECONDARY MARKET AND

STOCK EXCHANGE IN INDIA.

Submit by
Deesha Dutta
Rahul Anand
Sudeep Tirkey

What is a Secondary Market ?

Secondary Market: A market in which existing
securities are traded; as opposed to a primary
market where securities are sold for the first time. In
most cases a stock exchange largely fulfils the role
of a secondary market, with the flotation of new
issues representing only a small proportion of its
total business. However, it is the existence of a
flourishing secondary market, providing liquidity and
the spreading of risk.

 Role of Secondary Markets

Provides liquidity to security purchasers
Provides continuous pricing mechanism
Organized Securities Exchanges: centralized
institutions in which transactions are made in already
outstanding securities
Over-the-counter (OTC) Market: widely scattered
telecommunications network in which transactions are
made in both initial public offerings and already outstanding
securities
Indian secondary market is segregated into The different recognized stock exchange.
NSE
OTCEI
ISE

What is a Stock Exchange?

Stocks are issued by companies in order to raise capitals and are
bought by investors in order to acquire a portion of the company.
A Stock market is the place where buying and selling of stocks
takes place. Nowadays due to internet and advanced technology
buying and selling of stocks takes place anywhere in India and also
from foreign country, there is no need to be physical present in
exchanges like NSE and BSE. Stock markets are perfect
competitive market.
It involves the buying,holding,selling, short term selling of stocks,
bonds,commodities,collectibles or any valuable financial instrument
to profit from fluctuations in its price as opposed to buying it for
use or for income via method dividends or interest.

OVERVIEW OF STOCK EXCHANGE IN INDIA

India's oldest and first stock exchange: Mumbai
(Bombay) Stock Exchange. Established in 1875. More
than 6,000 stocks listed.
The BSE accounts for over two thirds of the total trading
volume in country.
Total number of stock exchanges in India: 22
They are in: Ahmadabad, Bangalore, Calcutta, Chennai, Delhi etc.
There is also a National Stock Exchange (NSE) which is located
in Mumbai.
There is also an Over The Counter Exchange of India (OTCEI)
which allows listing of small and medium sized companies.
The regulatory agency which oversees the functioning of stock
markets is the Securities and Exchange Board of India (SEBI),
which is also located in Bombay

The objectives & Functions of the Stock

Exchanges
To provide market place or facilities for bringing together buyers and
sellers for trading of securities;
Listing of the securities;
Provide investment opportunities for all groups of investors through
quick, easy and accurate transaction;
To ensure orderly market, fair trading and protect investors in the
securities in compliance of laws.
It also encourages capital formation.
Provides direction to invest capital.
Stock Exchanges basically function as Self-regulatory Organization
(SRO).
A company whose shares are quoted on stock exchange they enjoy a
better reputation and credit.
The securities dealt on stock exchange are good collateral securities for
loans.
It has the power to take punitive measures against the listed companies
for violation of any rules and regulations.

Name of Indian stock exchange

1.Bombay stock exchange
2.national stock exchange(Mumbai)
3.Banglore stock exchange
4.Utter Pradesh stock exchange
(Kanpur)
5.Magadh stock exchange(Patna)
6.Ahmedabad stock exchange
7.vadodara stock exchange(Baroda)
8.Bhubaneswar stock exchange
9.Calcutta stock exchange(Kolkata)
10.madras stock exchange

11.Cochin stock exchange

12.coimbatore stock exchange
13.Gauhati stock exchange
14.Hydrabad stock exchange
15.Madhya Pradesh stock
exchange(Indore)
16.Jaipur stock exchange
17.Ludhina stock exchange
18.Mangalore stock exchange
19.Pune stock exchange
20.saurashtrakutch stock exchange

NASDAQ: National Association of Securities Dealers Automated

Quotation or NASDAQ was established in 1971. This was the first stock
exchange to introduce the concept of electronics in stock trading.
(America)

TWO MAJOR STOCK MARKETS IN INDIA

BSE
(BOMBAY STOCT
EXCHANGE )

NSE
(NATIONAL
STOCK
EXCHANGE)

Bombay Stock Exchange

Is the oldest Stock Exchange in Asia with a rich
heritage.
BSE was established in 1875 as The Native Share &
Stock Brokers.
First Stock Exchange in the country to obtain permanent
recognition in 1956 from GOI.
Around 4700 Indian companies listed with Stock
Exchange.
As of 2005, it is among the five biggest Stock
Exchanges in the world in terms of transactions volume.
The BSE sensitive index (SENSEX) is a value weighted
index composed of 30 stocks. Base index value is 100.
The abbreviated form SENSEX was coined by Deepak
Mohoni around 1990 while writing market analysis in a
business magazine.
The index has increased by over 13 times from June
1990 till today.

National Stock Exchange

In the year 1991 Pherwani Committee
recommended to establish National Stock
Exchange (NSE) in India.
In National Stock Exchange there is trading
of equity shares, bonds and government
securities.
The NSE India ranked 3rd position since last 4
years in terms of total number of trading per
calendar year.
Presently there are 24 stock exchanges in
India, out of which 20 have exchanges
National Stock Exchange (NSE).
Located in Mumbai , it consists of a group of
50 stocks.
It has a base index value of 1000.
It has 726 members.

The NSE operates in:

Wholesale Debt market
Capital Market.

Objectives:
To establish nation wide trading facility for all types of securities.
Ensuring equal access to investors all over the country through an
appropriate telecommunication network
Providing fair, efficient & transparent securities market using
electronic trading system
Enabling shorter settlement cycles and book entry settlements
Meeting International benchmarks and standards

Securities and Exchange Board of India(SEBI)

The SEBI was constituted in 1988 by a resolution of GOI and it was made a
statutory body by the Securities and and Exchange Board of India Act, 1992.
The Act empowers the Central Government to supersede SEBI if on account of
emergency, SEBI is unable to perform the functions and duties under any
provision of the ACT.
Objective:
To protect the interests of investors in securities and to promote the development
of and to regulate the securities market for matters connected therewith.

Listing
Any company intending to get its securities at an exchange has to fulfill certain
condition , listing of securities means permission to quote share and debentures
officially on the trading floor of the stock exchange. Every securities issued by
companies cannot be traded a stock exchange. The stock exchanges fix certain
standard which the company must fulfill before getting the securities listed.

Requirements for listing

Some of the requirements are as under :
Memorandum and articles of association, Copies of all prospectus or statements
in lieu of prospectus.
Copies of balance sheets, audited accounts, agreements, promotes, underwriters,
brokers etc.
Letter of consent from controller of capital issue.
Detail of share and debentures issued and shares forfeited
Detail of issue of bonuses and dividends disclosed.
History of the company in brief.
Agreement with managing director etc.

Stock Broker
A stockbroker is person who is licensed to trade in shares.
Brokers also have direct access to the share market and can
act as your agent in share transactions.
For this service they charge a fee i.e. brokerage.
They can also offer additional services like advice on shares,
debentures, government bonds and listed property trusts and
non-listed investment options (cash management trusts,
property and equity trusts.

Market Indexes
The two prominent Indian market indexes are Sensex and Nifty.
Sensex is the oldest market index for equities; it includes shares
of 30 firms listed on the BSE, which represent about 45% of the
index's free-float market capitalization. It was created in 1986
and provides time series data from April 1979, onwards.

S&P CNX Nifty is the other index it includes 50 shares listed

on the NSE, which represent about 62% of its free-float market
capitalization. It was created in 1996 and provides time series
data from July 1990, onward.

Trading Mechanism
Working
Indian Stock Exchange work through a sophisticated screen based
system called SBTS. Trading system at NSE is termed as National
Exchange for automated trading . It is called NEAT and for BSE ,
BSE online trading system . It is called BOLT.

Procedure
The market regulator, the Securities and Exchange Board of India
(SEBI), has made it compulsory to open the demat account if you
want to buy and sell stocks.
A person want to buy/sell stocks in the stock market has to first place
his/her order with a broker or can do themselves using online trading
systems.
The stocks purchased will be sent to the your demat account. This
process is called Rolling Settlement Cycle.

 Order Matching The trading system sorts pending orders in

price-time priority for order matching purposes by matching
the best buy order and best sell order. Best buy order is the one
with the highest price and the best sell order is the one with the
lowest price (the system sorts buy orders from the seller point
of view and vice versa). Orders may match with more than one
order resulting in multiple trades for an order.

Member broker can place market orders (which will be

matched with the best available order) or limit orders (wherein
member can specify the price for the order) which will remain
a part of order books until matching.

 The orders are processed for potential match. Pending orders

are stored in different books based on price-time priority in
the following sequence:
All orders received on the system are sorted with the best price
order getting the 1st priority for matching the best buy order
match with the best sell order.
Similarly price order are sorted on time priority the one that
came in early gets priority over the later one orders are
matched automatically by the computer keeping the system
transparent, objective and fair.
Where orders does not find a match it remains in the system
and it displayed to the whole market till a fresh order comes in
or earlier order is canceled or modified.

What is Demat account?

DEMAT stands for DEMATerialization. It is process in which
physical paper shares are converted into paperless
(computerized) form.
In India there are two Depository organizations called NSDL
(National Securities Depository Ltd.) &CDSL (Central Depository
Services India Ltd.)
Brokers and most of Banks provides facility to open demat
account.

Buying and selling of dematerialised securities

The procedure for selling dematerialized securities is very simple. After you have
sold the securities, you would instruct your DP (depository participant) to debit
your account with the number of securities sold by you and credit your broker's
clearing account. This delivery instruction has to be given to your DP using the
delivery instruction slips given to you by your DP at the time of opening the
account.

TERMS RELATED TO STOCK MARKET.

Open- The stock price in beginning of Day(i.e. in morning).

High - The stock price reached at the highest level in a day.
Low - The stock price reached the lowest level in a day.
Close - The stock price at which it remains after the end of market
timings or the final price of the stock when the market closes for a day.
Volume - Volume is nothing but quantity.
Bid - The Buying price is called as Bid price.
Offer - The selling price is called offer price.

Short Term Trading - Stock trading done from one week to couple of
months is called short term.
Mid term Trading - Stock trading done from one month to couple of
months, say six to eight months is called mid term trading.

Long term trading-Stock trading done form couple of months to

couple of years is called long term trading.
Companies whose fundamentals are good and have good future plans
then the stocks of these companies are used for long term trading.

Stock Market Conditions

There are two ways to describe the general conditions of the stock market:

1)BULL MARKET
2)BEAR MARKET

Bull Market -

A bull market is when the market appears to be in a longterm climb. Bull markets tend to develop when the economy is strong,
the unemployment rate is low, and inflation is under control. The
emotional and psychological state of investors also affects the market.
For example, if investors have faith that the upward trend in stock prices
will continue, they are likely to buy more stocks. If there are more buyers
interested in buying shares at a given price than there are sellers who
are willing to part with their shares at that price, stock prices will
continue to rise.

BEAR MARKET
A bear market describes a market that appears to be in a
long-term decline. Bear markets tend to develop when the
economy enters a recession, unemployment is high, and
inflation is rising. Investors lose faith in the market as a
whole, which in turn decreases the demand for stocks.
Keep in mind that a sustained bear market is something
that you should expect to occur from time to time, and that,
in the past, the stock market has risen more than it has
declined.

How to Trade in the Stock Exchange

Trading of securities on the stock exchanges can only be done
through brokers of the concerned exchanges;
An investor is required to open an account with a broker by
filling-in a prescribed Customers Account Information Form;
For trading in the demated securities it is required to have a
Beneficiary Owners (BO) account with a Depository Participant
(DP) in addition to the aforesaid account;
An investor can trade through a broker either in cash or credit;
The credit transaction, however, is subject to the provisions of
Margin Rules, 1999;
Trading in the securities can be executed through written orders
submitted to the concerned broker;
Telephonic orders can also be submitted provided that such orders
shall be confirmed in writing with in 24 hours;
The price of the securities can not go beyond specified circuit
breaker range and an investor can quote at the tick price of the
securities as specified by the exchanges.

Circuit Breakers

An index based market-wide circuit breaker system applies at three stages of

the index movement either way at 10%, 15% and 20%.
The breakers are triggered by movement of either S&P CNX Nifty or Sensex,
whichever is breached earlier

Types of Order
Based on price, orders may be of the following
categories, namely:Limit order; and
Market order
Limit order: Limit order must have a price limit which
ensures that the order shall be traded at the price equal to
or better than the limit price.
Market order: Market order is the order to be executed at
the touchline price. A market order is matched immediately
on arrival in to the trading engine at the touchline price.

How to receive income from shares?

We invest in shares to make money either through a shares capital
growth, i.e. the amount by which the share price increases in value over
time, or through the dividends it pays to its shareholders. Dividends are
payments made by companies to shareholders from their profits.

How Sensex Index is calculated?

The formula for calculating the sensex =
(sum of Free Float Market capitalization of 30 benchmark stocks)* Index Factor

Where;
Index Factor = 100/market cap value in 1978-79.

EXAMPLE:
Assume sensex has only 2 stocks namely SBI and RELIANCE. Total
shares in SBI are 500 out of 200 are held by government and only 300 are
available for public trading. Reliance has 1000 shares out of which 500 are
held by promoters and 500 are available for trading. Assume price of SBI
stock is Rs. 100 & Reliance is RS. 200.
Solution
Then Free Float Cap of these two company
= (300*100+500*200)
= 30,000+1,00,000
= 1,30,000
Assume market cap during the year 1978-79 was 25000
Then SENSEX = 1,30,000*100/25000
= 520
The National Stock Exchange (NSE) is associated with Nifty
The calculation of Nifty is same as we calculated
SENSEX. But with two key differences.
1. Base year is 1995 and base value is 1000
2. Nifty is calculation based on 50 stocks.
everything else remaining the same in nifty index calculation
as well.

Benefits of investing in shares

Possibility of increase in
value of share
Income from dividends
Easy liquidity
Tax benefits on income
earned

CAUSES OF PRICE FLUCTUATION

1.DEMAND AND SUPPLY
2.BANK RATE
3.SPECULATIVE PRESSURE
4. ACTIONS OF UNDERWRITERS AND OTHER FINANCIAL INSTITUTIONS
5.CHANGE IN COMPANYS BOARD OF DIRECTORS
6.FINANCIAL POSITION OF THE COMPANY.
7.TRADE CYCLE.
8.POLITICAL FACTORS.
9.OIL PRICES IN THE INTERNATIONAL MARKET.

CONCLUSION.
The stock market has, perhaps, the most exciting investment
opportunities for the investor community. At the same time, it could
be unnerving and scary. In fact, equity investment has always
remained a big challenge, not only for retail but institutional
investors, too. In short, investing in equities can be a difficult
proposition for retail investors. However, equity must form a part of
every investors portfolio. The proportion could vary, depending on
the investors age, monetary requirements, risk appetite, etc.
To cope with volatility, it is important to have a disciplined and
systematic approach to equity investment. Setting of own rules and
more importantly, follow them religiously would always lead to a
better return.