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STOCK EXCHANGE PRACTICES By MEGALATHA.S. DEFINITION OF STOCK EXCHANGE.
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STOCK EXCHANGE PRACTICES By MEGALATHA.S
DEFINITION OF STOCK EXCHANGE According to securities contract act, 1956, “Stock exchange means anybody or individuals whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling in securities”.
MARKETS PRIMARY MARKET New shares issues to raise capital SECONDARY MARKET Subsequent trading takes place
MARKET INDICES • 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 • Another index is the S&P CNX Nifty; it includes 50 shares listed on the NSE, which represent about 62% of its free-float market capitalization.
MAJOR STOCK EXCHANGES IN INDIA NSE BSE
MARKET REGULATIONS • The overall responsibility of development, regulation and supervision of the stock market rests with the Securities & Exchange Board of India (SEBI), which was formed in 1992 as an independent authority.
SECURITIES & EXCHANGE BOARD OF INDIA • The Securities and Exchange Board of India (frequently abbreviated SEBI) is the regulator for the securities market in India. It was established in the year 1988 and given statutory powers on 12 April 1992 through the SEBI Act, 1992
WHO CAN INVEST IN INDIA • FDI (Foreign direct investment) • FII (Foreign institutional investors) • FPI( Foreign portfolio investment)
SETTLEMENT CYCLE AND TRADING HOURS • T+2 Rolling settlement • Working hrs-9.55am &3.30pm • Monday through friday
LISTING The admission of the security of a public limited company on a recognized stock exchange for trading are called as listing
BULL MARKET • Expectation of a rise in their prices • Optimistic • Sell at higher prices • Also called Tejiwals
BEAR MARKET • Also called Mandiwals • Pessimist • Buy and Sell shares due to fall in the prices
LAME DUCK • Cannot fulfill his commitments • Not able to deliver the securities on fixed date
STAG • Sell the shares at a premium and makes a profit.
STOCK BROKERS Kinds of brokers • Commission brokers • Taraniwallas • Jobbers • Arbitrageur • Budliwalla
DIFFERENCE BETWEEN JOBBERS & BROKERS JOBBERS BROKERS Specialize in all types the securities. commission Buys and sell on behalf of the investors • Specialize in certain types of the securities. • Motto is profit • Buys for him and sell it to the brokers if the share prices are high
QUALIFICATION OF BROKERS • Complete 12th • Not a defaulter • Not engaged in any other business • Completed 21 yrs of age • Neither bankrupt not compounded with creditors
TYPES OF ORDERS • ODD LOT ORDERS Less than 100 stock of shares • ROUND LOT ORDERS Orders for 100 or multiples thereof • MARKET ORDERS Buys and sells at market current prices
TYPES OF ORDERS • LIMIT ORDERS Limit price is specified by the investors • STOP ORDERS Investor must specify a stop price • STOP LIMIT ORDERS Stop prices and Limit prices
CODE OF CONDUCT • Not discriminate • Issue a contract notes without any delay • Maintain a secrecy • Not purchase or sales • Misleading information • Possess adequate infra structures • Not adopt Unfair trade practices • Care , diligence, integrity and honesty • Maintain proper books
BADLA TRANSACTIONS Suppose A has to buy 100 shares of a company at Rs 50 each. But he doesn't have enough money now. But the value of shares is very less now, so in order to buy the shares at current prices, A can do a badla transaction. Now there is a badla financier B who has enough money to purchase the shares, so on A's request, B purchases the shares and gives the money to his broker. The broker gives the money to exchange and the shares are transferred to B. But the exchange keeps the shares with itself on behalf of B. Now, say one month later, when A has enough money, he gives this money to B and takes the shares. The money that A gives to B is slightly higher than the total value of the shares. This difference between the two values is the interest as badla finance is treated as a loan from B to A. The rate of interest is decided by the exchange and it changes from time to time.
DEMAT MEANING Converting the Physical share certificates into electronic form. PARTICIPANTS • National securities depositories limited(NSDL). • Central depository services ltd (CDSL)
CREDIT RATING Credit rating is an opinion on the credit quality of debt instruments offered by a credit rating company. It is symbolic indicator of the current opinion of the rating agency regarding the capability of an issuer of debt to service the debt obligations in future as per the terms of the contract.
CREDIT RATING OBJECTIVES • To provide superior information to the I • To provide superior information to the investors at a low cost. • To provide a sound basis for proper risk return structure. • To subject borrowers to a healthy discipline and • To assist in the framing of public policy guidelines on institutional investment
RATING RELATED PRODUCTS • Bonds / Debenture • Commercial paper • Structured finance products • Bank loans • Fixed deposits and Bank certificate of deposits • Mutual fund debt scheme • Initial public offer
CREDIT RATING AGENCIES • CRISIL(Credit rating Information service India Limited) • CARE(Credit analysis and research limited) • ICRA(Investment Information and credit rating agency of India) • FITCH INDIA • BRICK WORKS
COMPARATIVE RATING SYMBOLS FOR LONG TERM INSTRUMENTSCREDIT RATING AGENCIES
RULE OF THUMB • Stay the course. • Long-run returns reflect fundamental business prospects. • Dumb money ceases to be dumb when it realizes its limitations. • Don’t confuse luck with brains
RULE OF THUMB • Bulls make money, bears can make money, hogs get slaughtered. • Be skeptical of buy/sell recommendations. • Market professionals tend to be articulate, bright, well-trained, and make a very good living for themselves. • If everyone were right, everyone would be rich. • Significant capital accumulation requires time and money.
