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SECURITIES MARKET

In the share market, purchases and sales of shares are effected in conditions of free competition. A Stock Exchange is an association of member brokers for the purpose of self-regulation and protecting the interests of its members. The recognized Stock Exchanges are the media through which government regulation of the securities market is made effective. Stock Exchanges in the world made a humble geginning with the establishement of the Amsterdam Stock Exchange in the year 1494. The first Stock Exchange that was established in South Easter Countries was the Bombay Stock Exchange in the year 1875. Prior to that it was known as the Native Share Brokers Association Ahmadabad and Calcutta Stock Exchanges came to be established before the First World War. Madras Stock Exchange, a pioneer in South India was first established in April 1920. Many people took to the share broking business but in a short span of 3 years they came to the conclusion that share broking business was not a profitable one and as a result th Exchange was would up in 1923. Even then, there were certain people who continued in the broking business in the share and securities of companies listed on Bombay, Ahmadabad and Calcutta. The most active scrips were Jute, Tea, Textile and Banks. As activity broadened, the persons transacting securities business felt that there should be an association to monitor, control and regulate the function which had in August 1937 resulted in the formation of the Madras Stock Exchange Association. It was inaugurated on September 4, 1937 by Sir William Wright, the then Managing Director of E.I.D. Parry Co. Ltd. Regulations Governing Stock Exchanges Besides SC(R) Act, 1956 the Securities Contracts (Regulation) Rules were also made in 1957 to regulate certain matters of trading on the Stock Exchanges. There are also byelaws of the Exchanges, which are concerned with the following subjects: Opening / Closing of the stock exchanges, timing of trading, regulation of blank transfers, regulation of badla or carryover business, control of the settlement and other activities of the Stock Exchange, fixation of margins, fixation of market prices or making up prices (Havala rates), regulation of taravani business (jobbing), etc., regulation of brokers trading, brokerage charges, trading rules on the Exchange, arbitration and settlement of disputes, settlement and clearing of the trading etc. Securities Contracts (Regulation) Rules, 1957 Under the Act, government has promulgated the Securities Contracts (Regulation) Rules, 1957 for carrying into effect the objects of the legislation. These rules provide, among other things, for the procedure to be followed for recognition of stock exchanges, inquiry into the affairs of recognized stock exchanges and their members; and requirements for listing of securities. The rules are statutory and they constitute a code of standardized regulations uniformly applicable to all the recognized stock exchanges. Recognition by Government A Stock Exchange is recognized only after the government is satisfied that its Rules and Byelaws conform to the conditions prescribed for ensuring fair dealings and protection to investors. A government has also to be satisfied that it would be in the interest of the trade and public interest to grant such recognition. Mumbai, Calcutta, Delhi, Chennai, Ahmadabad Hyderabad, Bangalore, Indore etc. have so far been granted permanent recognition. The rules of a recognized stock exchange relating in general to the constitution of the Exchange, the powers of management of its governing body and its constitution (including the appointment thereon of not more than three government nominees), the admission of members, the registration of partnerships and the appointment of authorized representatives and clerks must be duly approved by Government. These rules can be amended, varied or rescinded only with the previous approval of government. Likewise, the byelaws of the recognized exchanges providing in detail for the regulation and control of contracts in securities and for every aspect of the trading activities of members must also be sanctioned by government and any amendments or modifications must be similarly approved. Governments authority extends much further to make or amend suo motto any rules or byelaws of a recognized stock exchange, if it so considers desirable in the interest of trade and in public interest.

The stock exchanges operate under the rules, byelaws and regulations duly approved by government and constitute an organized market for securities. They offer the most perfect type of market for various reasons. There is an active bidding and in the case of shares and debentures a two-way auction trading, so that purchases and sales are made in conditions of free and perfect competition. The bargains that are struck by members of the exchanges are the fairest price determined by the basic laws of supply and demand. In consequence, though giltedged securities represent ownership of public debt and shares and debentures of Joint-stock companies represent interest in industrial property mills and factories, plant, machinery and equipment they become the most liquid of assets and capable of being easily negotiated. Organization The recognized stock exchanges at Mumbai, Ahmadabad, Indore are voluntary non-profit-making associations, while the Calcutta, Delhi, Bangalore, Cochin, Kanpur, Ludhiana, Guwahati and Kanara Stock Exchanges are join-stock companies limited by shares and the Mumbai, Hyderabad and Pune stock Exchanges are companies limited by guarantee. Since the Rules of Articles of Association defining the constitution of the recognized stock exchanges are approved by the Central Government, there is an uniformity in their organisation. Stock Exchanges Governing Body The governing body of a recognized stock exchange has wide governmental and administrative powers and is the decision taking body. It has the power, subject to governmental approval, to make, amend and suspend the operation of the rules, byelaws and regulations of the exchanges. It also has complete jurisdiction over all members and in practice, its power of management and control are almost absolute. Under the constitution, the governing body has the power to admit and expel members, to warn, censure, fine and suspend members and their partners, attorneys, remisiers, authorized clerks and employees, to approve the formation and dissolution of partnerships and appointment of attorney, remisiers and authorized clerks, to enforce attendance and information, adjudicate disputes and impose penalties, to determine the mode and conditions of stock exchange business and regulate stock exchange trading all its aspects and generally to supervise, direct and control all matters and activities affecting the stock exchange. The organisation of Mumbai Stock Exchange is typical. The members on roll elect 16 members to be Directors on the Governing Board, who in turn elect a President. Vice-President and Treasurer. The Executive Director is appointed by the government on the recommendation of the Governing Board to the Chief Administrator of the Exchange. There are also three representatives from the Government, three from the public and one from the RBI on the Board to represent their interests. As per the SEBI guidelines, the Exchanges have agreed to have 50% representation to non-members on the Governing Board. Role of Stock Exchanges Stock exchanges provide liquidity to the listed companies. by giving quotations to the listed companies, they help trading and raise funds from the market. Savings of investors flow into public loans and to joint-stock enterprises because of this ready marketability and unequalled facility for transfer of ownership of stocks, shares and securities provided by the recognized stock exchanges. AS a result, over the hundred and twenty years during which the stock exchanges have existed in this country and through their medium, the Central and State Government have raised crores of rupees by floating public loans; municipal Corporations, Improvement Trusts, Local Bodies and State Finance Corporations have obtained from the public their financial requirements, and industry, trade and commerce the backbone of the countrys economy have secured capital of crores of rupees through the issue of stocks, shares and debentures for financing their day-to-day activities, organizing new venture and completing projecs of expansion, diversification and modernization. By obtaining the listing and trading facilities, public investments is increased and companies were able to raise more funds. The quoted companies with wide public interest have enjoyed some benefits and asset valuation has become easier for tax and other purposes.

Types of Securities on the Stock Exchange Equity Shares Preference Shares Debentures/Bonds Securities issued by Central / State Governments, Electricity Boards, financial institutions. Units of Unit Trust of India Master Share, Securities issued by Mutual Funds, Public Sector Corporation Bonds, Equity Shares, Securities issued by Private and Public Sector Mutual Funds, Warrants, SPN etc.

What are the types of bargains The business that takes place on the Indian Stock Exchanges can be classified into trading for clearing and treading for cash/ had delivery bargains. The term trading for clearing relates to the operation on forward trading basis, which has been banned by the Government in June, 1969. The term Hand delivery bargains refers to the Cash transactions where delivery and payment are required to be completed within a period of 14 days from the date of the transaction. Forward trading transactions are permitted to be carried on form settlement to settlement, by payment of interest charges which are termed as Cantango/Backwardation (Badla Charges). Qualities for membership of a recognized stock exchange Following conditions are prescribe to become a Member of a recognized Stock Exchange: The member Should be an Indian citizen and should have attained 21 years of age, Should not have compounded with creditors Should not be convicted for fraud/dishonesty. Should not be engaged in any other business except as agent or broker. Should not be defaulter of any other stock exchange Has worked or agrees to work for at leas 2 years, as a partner, representative member, authorized assistant, authorized clerk, or he has succeeded to the established of any of his close relative due to his death or retirement.

Accounts of members Every member of a Recognized Stock Exchange is required to maintain the following books of account and documents. Register of transactions known as Sauda Book Clients Ledger General Ledger Journal Cash Book Bank Pass Book Document Register showing full particulars of shares and securities received and delivered Members Contract books showing details of all contracts entered into by him with other members Counterfolio/duplicates of contract notes issued to clients

Audit to accounts of members

Every member when so required by the Central Government must get his accounts audited by a Chartered Accountant. Accounts of stock exchange Every recognized Stock Exchange must maintain and preserve for 5 years the following books of accounts and documents. Minute books of the meeting of (i) members (ii) governing body (iii) any standing committee(s) of the governing body or the general body of members. Register of members showing their full names and addresses. Register of authorized clerks. Register of remissors or authorized assistants. Record of security deposits Margin deposits book Ledgers Journals Cash book Bank Pass Book

Annual report and return of stock exchange Every recognized Stock Exchange must furnish to the Central Government an annual report of the activities during the preceding calendar year by the 31st January next year. The report must contain detailed information about the changes in rules and byelaws, changes in the composition of the governing body or sub-committee(s), admissions, re-admissions, death or resignation of members; disciplinary action against securities listed and delisted and securities brought on or removed from forward list A Stock Exchange is also required to furnish to the Central Government a copy of its audited balance sheet and profit and loss account for each financial year within one month of the date of holding its AGM. In India, there are 23 recognized Stock Exchanges which are as follows. 1. The Ahmadabad Stock Exchange 2. The Stock Exchange, Bombay 3. The Bangalore Stock Exchange 4. The Calcutta Stock Exchange Association 5. The Cochin Stock Exchange Association Ltd. 6. The Gauhati Stock Exchange Ltd. 7. The Hyderabad Stock Exchange Ltd. 8. The Mangalore Stock Exchange Ltd. 9. The Ludhiana Stock Exchange Ltd. 10. The Madras Stock Exchange Ltd. 11. The Madhya Pradesh Stock Exchange Ltd. 12. The Pune Stock Exchange Ltd. 13. The Uttar Pradesh Stock Exchange Ltd. 14. The Magadh Stock Exchange Ltd. 15. The Jaipur Stock Exchange Ltd. 16. Bhubaneswar Stock Exchange Association Ltd, 17. Saurashtra Kutch Stock Exchange Ltd. 18. Vadodara Stock Exchange Ltd. 19. Coimbatore Stock Exchange Ltd. 20. Meerut Stock Exchange Ltd, 21. OTC Exchange of India. 22. National Stock Exchange of India Ltd.

The Indian Capital Market witnessed many event during the post independence period, notable among them are: ban on forward trading, bank Nationalization, FERA dilution. Curb on Payment of dividend, Indo-China War and indo-Pakistan War. With many foreign companies disinvesting their holdings by transfer of India

operations, the capital market received a hitherto unknown boost during he second half of 1970s and early 1980s. the investments climate had a change for the better and both the primary and the secondary market began to attract a good percentage of investing population. The number of companies listed on the Stock Exchanges was on the increase, resulting in the spread of equity cult among the investing public. Traditional investments have way to a different type of investment namely Stock Exchange Securities. There was also a remarkable growth in the membership of the Stock Exchanges, the Government of India set up in 1984 as high powered Committee under the Chairmanship of Shri G.S. Patel to go into the working of Stock Exchanges and suggest measures to tone up the Exchanges. The various suggestions made by the Committee are being implemented in stages. The Government is taking a number of measures to provide a healthy stock market. Stock Exchanges are also governed by Securities & Exchange Board of India (Stock Brokers & Sub Brokers) Rules 1992 securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Rules and Regulations, 1992. Developing capital markets With the relaxation of restrictions on foreign investment in the past six years, Indias equity market has attracted significant non-debt financial resources from foreign institutional investors such as mutual funds, pension funds and insurance companies seeking international asset diversification. At the same time, the opening of the equity market to foreign investors has highlighted the need for continued reform of capital markets, including. Developing a deep and liquid corporate bond market. Creating the necessary policy and regulatory framework for modernization of securities depository and clearing system; Strengthen the regulatory framework for investor protection; and Reforming the insurance industry. To that end, GOI has introduced important measures over the past six ten years. Statutory power has been given to the Securities Exchange Board of India (SEBI) to regulate the functioning of Securities market and Securities industry intermediaries and oversee corporate acquisition industry intermediaries and oversee corporate acquisition and takeovers. GOI has directed the Stock Holding Corporation of India Ltd., to establish a National Clearing and Settlement System and a Central Depository Trust for Securities. In addition, in an effort to enhance investor protection. SEBI has issued detailed guidelines governing the various stages of public capital issues, in particular, the obligations of underwriters. SEBI has also made several important changes, including registering Secondary market intermediaries, establishing and customer protection fund and an Investors Grievances Cell an each Stock Exchange, broadbasing the governing bodies of the Stock Exchanges, and increasing the number of Stock Exchanges

Mumbai stock exchange The Stock Exchange, Mumbai, which was established in 1875 as the Native Share and Stockbrokers Association (a voluntary non-profit making association), has evolved over the years into its present status as the premier Stock Exchange in the country. It may be noted that the Stock Exchange is the oldest one in Asia, even older than the Tokyo Stock Exchange, which was founded in 1875. It is the most active stock market in the country accounting over 70 per cent of the listed capital in the country while in terms of market capitalisation its share is over 75 per cent. The turnover on the Exchange accounts for nearly 1/3 of the total turnover in securities all over India. The Exchange while providing an efficient market also uphold the interest of the investors and ensures redressal of their grievances, whether against the companies or the brokers. It also strives to educate and enlighten investors by making available necessary informative inputs. The strategic objective of BSE To promote, develop and maintain a well regulated market for dealing in securities. To safeguard the interest of members and the investing public having dealings on the exchange.

To promote industrial development in the country through efficient resource mobilization by way of investment in corporate securities. To establish and promote honorable and just practices in securities transactions. To receive material information from the company. Prompt service from company such as transfers, sub divisions and consolidation of holdings in the company. Equity holders have a right to subscribe to further issue of capital by the company. Brokerage not to exceed 2.5 percent of the contract price. Receipt of the contract note from the broker in the specified format showing transaction price and brokerage separately. Investors can expect delivery of shares purchased / value of shares sold within 2 days after the pay-out day. Access to the Exchange arbitration facilities in case of dispute with brokers.

Rights of investors of BSE

Constitution of Stock Exchange A Governing Board comprising of 9 elected director (one third of them retire every year by rotation), an Executive Director, three Government nominees, a Reserve Bank of India nominee and five public representatives, is the apex body which regulates the Exchange and decides its policies. A President, a VicePresident and an honorary Treasurer are annually elected from among the elected directors, by the Governing Board following the election of directors. The Executive Directors as the Chief Executive Officer is responsible for the day-to-day administration of the Exchange. Earliest records of securities trading in India are available from the end of the eighteenth century. Before 1850, there was business conducted in Mumbai in shares of banks and the securities of the East India Company which were considered as securities for buying, selling and exchange. The shares of the Commercial Bank, Mercantile Bank and Bank of Bombay were some of the prominent shares traded. The business was conducted under sprawling banyan tree in front of the Town Hall, which is now in the Horniman Circle Park. In 1850, the Companies Act was passed and that heralded the commencement of joint stock companies in India, It was the American civil war that helped Indians to establish broking business. The leading broker, Shri Premchand Roychand was responsible for developing conventions and procedures. In 1874, the Dalal Street became the prominent place of meeting of the brokers to conduct their business. The brokers organized and Association on 9th July 1875 known as the Native Share Brokers Association to protect character, status and interest of the Native Brokers and that was the foundation of the Stock Exchange, Mumbai. The Exchange was established with 318 members. The number increased to 333 in 1896 and a present, it is 641. The membership fee has increased gradually from Rs. 1 in 1887 to Rs. 1,000.- in 1896, Rs. 48,000/- in 1920, Rs. 7.51 lakhs in 1986 and Rs. 55 lakhs at present. In 1950, Stock Exchanges became an exclusively Central Government subject following adoption of the Constitution of India. In 1956, the Securities Contracts (Regulation) Act was passed. In 1992, the Securities and Exchange Board of India Act was passed though the Securities Exchange Board of India (SEBI) came into existence in 1988. In the last three years, SEBI has been empowers by the Central Government to regulate and develop capital markets in India. In 1992, the Over the Counter Exchange of India (OTCEI) came into existence where equities of small Companies are listed. In 1994, birth of the National Stock Exchange took place, in 1995, the Exchange rapidly computerized its trading operations and thus the open cut-cry system of share trading was replaced by screen

based trading in the Stock Exchange, Mumbai. In January 1996, the revised carry forward system was introduced. In September 1997, BSE On-Line Trading System network went nationwide.

Over the Counter Exchange of India Need for OTCE1 The traditional stock exchanges have failed to provide adequate liquidity to small scrips and access to small investors. Investors are losing confidence in the market because of lack of transparency of operations, redressal of investors grievances and prompt settlement of transactions. Keeping in view the problem, the need for a stock exchange is felt which can help in solving the problems of liquidity and inaccessibility and redress the problem of investors efficiently. Meaning Over the Counter Exchange of India (OTCEI) is a company incorporated under Sec. 25 of the Companies Act, 1956, with the objective of establishing a national, ringless, screen-based, automated stock exchange. OIC market refers to a way of trading securities through a network of brokers-dealers spread over different locations and connected to each other by modern communication systems. The OTCEI aims at creating stock exchange which will facilitate small companies to raise funds from the capital market in a cost effective manner and provide a convenient and efficient avenue of capital market investment for small investors. Promoters of OTC OTC Exchange recognized as a stock exchange under section 4 of the Securities (Contracts) Regulation Act, 1956 is promoted by the All India Financial Institutions, Insurance Companies and Merchant Banking Subsidiaries of Banks. OTCEI has been modeled on the Over the Counter Market in US called NASBAQ operated and regulated by National Association of Securities Dealer (NASD) in USA. NASD is a selfregulatory organisation. OTCEI is the first exchange in India to introduce the concept of Market Making in the Securities listed on the Exchange. Market making implies facilitation trading whereby a member makes market in the securities by offering two say quotes, continuously for a period of one and half years. The market maker stands by his quote and readily accepts to buy or sell the securities at the prices given by him. The mechanism of market making results in efficient pricing and ensures liquidity in the securities. Objective of OTCEI It aims at creating a stock exchange which will facilitate small companies to augment resources from the capital market in a cost effective manner and provide a convenient and efficient avenue of capital market investment for small investors. It aims at strengthening investors confidence in the market to provide best prices to the investors, to ensure transparency and to redress investors complaints.

Feature of OTCEI OTCEI offers small and medium sized companies access to a market nation wide as well as chance to raise finance from capital markets cost effectively. It provides a convenient avenue of capital market investment for investors. It implements a computerized, ringless, scripless, stock exchange with trading and settlement standards in tune with global standards. Trading on the OTC Exchange Every counter has a OTC Scan and the Counter Computer through which transaction take place. The trading steps are: Investor buying

Investor walks up to counter, sees prices, decides to buy. Investor gives in cheque for transaction value inclusive of brokerage, receives temporary counter receipt (TCR) Investor returns within a week when cheque has cleared, receives permanent counter receipt (PCR).

Investor selling Investor walks up to counter, sees prices, decides to sell. Investor hands over PCR with transfer deed, if applicable to counter, receives sale confirmation slip. Investor returns within a week, when PCR has been validated, receives cheque for payment.

Trading Instruments Following are the various instruments traded on the OTC Exchange: Listed equities Listed debentures Permitted equities Permitted debentures TCR PCR SCS TD AAS Temporary Counter Receipt Permanent Counter Receipt Sale Confirmed Slip Transfer Deed Application Acknowledgement slip

Trading documents

Services Application Form Deal Form Unlike a conventional exchange where the trading document is a Share Certificate, trading on OTC Exchange is undertaken with the help of Counter Receipts (CRs). These are issued in lieu of Share Certificates, which are custodized at the time of trading. The investor at any point of time has the flexibility to convert his CRs into Share Certificates, by invoking what is known as Investor Services facility at any counter. Trading documents The counter with whom the investor does a transaction or applies for an investor service in referred to as a local counter. Any other counter on whose behalf transactions are made in called a remote counter. All the buy/sell deals are classified under either of the two categories: Direct Deals When the local counter effects a transaction with the details specified by the investor, and the local counter is also the remote counter offering the quote, then the deal is known as a direct deal. Put through deals If either the local counter is not a market maker or is not offering the best quote for the share, then the local counter will put-through the deal to the market maker offering the best quote. Transaction have to be executed at the market price or at the negotiated price.

Settlement on OTCEI Settlement on OTCEI for listed securities takes place on a T + 3 rolling basis, OTCEIs depository system minimizes the possibilities of bad deliveries on the exchange by ensuring the validity of the sellers transfer deed at the time of sale rather than at the time of transfer followed in other exchanges. OTCEI continuously monitors the functioning of the registrars empanelled by it for all OTC issues to ensure timely service to the investors. OTCEI Market Operations Members and Dealers are the important players at the OTCEI, The members of OTCEI are required to sponsor the initial listing of scrips. Without a sponsor, an new coapny cannot get listing of its scrip at OTCEI. The sponsor is responsible to conduct technical, financial, managerial, commercial and economic feasibility study of the project so as to \ensure that the company is viable and investment worthy. After having satisfied about the project and the company, the sponsor is required to fix the price at which shares will be offered to the public/members and dealer of OTCEI. The sponsor is responsible for fair allotment of shares to the Public as per the guidelines prescribed by the OTCEI and the Government. In case direct offer for sale is made by the Company or the members or dealers of the OTCEI to the public, it must be accompanied with a prospectus. The sponsors are required to appoint manages to the issue of securities for public subscription. The companies and their sponsors will have to complete the process of allotment of securities, compilation of the list of allottees and refunds, mailing of allotment advice, mailing of refunds and mailing of share certificates etc. with in the time prescribed by the OTCEI. Members and Dealers of OTCEI conduct their transactions from their offices through a Computer terminal linked toe OTCEI Central Computer System by way of telecommunication network. The Computer System replaces the open outcry system as the prices of the scrips are disseminated on the screen of the computer placed at each counter operated by these members/dealers. Besides, all related data regarding the companies are also flashed on the screen. As in the case of any other stock exchange the investor places his order with a member or a dealer of OTCEI. the member may be a market maker in the scrip by himself, in which case he does a direct trade with the investor at the best market price at that point of time. In case the members is not a market maker in that scrip or it not willing to offer the best quote to the investor, then he concludes the deal for the investor from the market maker which gives the best quote at that point of time. In both the cases, the order is fed into the computer at the members office and the trade confirmed by OTCEI system. The confirmation is received forthwith by the member / dealer and a trade confirmation is printer on line. Participants in OTCEI Following are the various participants in OTCEI: Members, dealers and representative offices operate OTC Counters which are linked to a central OTCEI computer. Companies, whose securities are listed on OTCEI and are sponsored by Members. Investors, who trade and avail of investor services through any on the OTC counters. A Registrar, for transfers and related activities. A Settlement Bank, that clears the payment between counters. SEBI and Government that exercise on overall supervision on stock exchange in the country.

Guidelines for Listing of Companies in OTCEI The Ministry of Finance, Department of Economic Affairs (vide notification dated 9-5-1991) has issued guidelines for the listing of companies on OTCEI. The relaxed guidelines are also furnished in next page.

The OTC Exchange can list companies with issued capital from Rs. 30 lakhs upto Rs. 25 crores. The eligibility criteria for listing of companies are as follows: Companies with issued capital from Rs. 30 lakhs to less than Rs. 3 crores should make a minimum public offer of 40% of their capital or Rs. 20 lakhs in face value, whichever is higher. Companies with issued capital from Rs. 3 crores to Rs. 25 crores should satisfy the listing requirements and guidelines as currently applicable on other exchanges; Venture Capital Companies/funds approved by the Department of Economic Affairs. Ministry of Finance or such other authority nominated by the Central Government, should make a minimum public offer of 20% of their issued capital in relaxation of rule 19(2)(b) of the Securities Contracts (Regulation) Rules 1957; Companies engaged in hire purchase finance/leasing / amusement parks etc., shall not be eligible for listing on the OTC Exchange; Companies covered under the then MRTP/FERA Act may be listed on the OTC Exchange if they satisfy listing guidelines as on other recognized stock exchanges such as minimum issued equity capital or Rs. 30 lakhs or such other limit as prescribed. A company which is listed on any other stock exchange in India would not simultaneously be eligible for listing on the OTC Exchange;

The guidelines governing the OTC Exchange has been revised by the Finance Ministry. The Ministry has at present decided to allow listing of Closely held existing corporate house upto Rs. 100 crores New companies with paid up capital based of upto Rs. 50 crores and All currently listed companies on various stock exchanges.

As per the earlier guidelines, it was mandatory that the companies listed on OTC Exchange would have to go in for a minimum public offer of 40%. The Ministry has now decided to relax this stipulation to a 20% public offer for closely held and new companies. The Ministry has also stipulated that the premium on the public issue on the exchange will be entirely determined by market forces. Criteria for admission of Companies for listing on the OTC Exchange of India The company should be sponsored by a member of the OTCEI. The sponsor should certify to OTCEI that it has appraised the company and its project and has found the scrips proposed to be listed on the OTC Exchange to be investment worthy. The sponsor to certify that all the scrips proposed to be offered for trading on OTC Exchange have already been subscribed to by members and dealers of OTCEI. The Company agrees to abide by all statutory and OTCEIs providers for listing. The company agrees to enter into an agreement with OTCEI in a prescribed format.

Listing on OTCEI guidelines relaxed Securities and Exchange Board of India has decided to do away with the following restrictions in the existing guidelines for listing of companies on OTCEI, vide dated 6.3.1995. Prohibition form listing on the OTCEI for companies engaged in investments, leasing, finance, hirepurchase, amusement parks etc. Requirement of minimum public offer of 10% of the issued capital or Rs. 20 lakhs worth of shares in value, whichever was higher, for companies with an issued equity capital of more than Rs. 30 lakhs but less than Rs. 3 crores.

Requirement that the companies covered under the MRTP Act/FFRA are to be listed on the OTCEI only if they satisfy the guidelines for listing on other stock exchanges. The requirements mentioned below, which have become redundant due to the abolition of office OTCCI. Whenever securities are issued at a price above par, the premium will be determined by the CCI. Set up support agencies, viz., (i) National clearing and settlement corporation to administer the clearing and settlement functions at national level, (ii) A Central depository trust and (iii) A securities facilities support corporation responsible for network between exchanges.

Promote a new stock exchange at New Bombay as a model stock exchange and to act as a national stock exchange. Establishment of NSE The National Stock Exchange (NSC) has been incorporated in November 1992 with an equity capital of Rs. 25 crore. It started operations in November 1994. The NSE initially began with debt instruments like UTI Units, PSU Bonds, Treasury Bills, Government Securities and Call Money. Equities and debentures also have been added on the trading list after some time. Companies with a minimum capital of Rs. 10 crores are eligible for being listed on the NSE, the same limit as at the MSE. The NSE is established to provide a nation-wide stock trading facilities to investors. The NSE, besides operating the traditional market for equities, convertible debentures, non-convertible debentures etc will also operate a wholesale debt market. The wholesale debt market termed as money market segment for convenience will be a separate segment of the NSE as distinct from the capital market segment. While the whole sale debt market segment is meant for banks, financial institutions and other institutional participants and intermediaries to enter into high value transaction in PSU Bonds, T-Bills, etc., Capital market segment covers trading in equities, convertible debentures etc. NSE Objectives Following are the various objectives of the National Stock Exchange. The establishment of a nationwide trading facility for equities, debt and hybrids. Facilities equal access to investors across the country. To ensure fairness, efficiency and transparency of securities trading. To have shorter settlement cycles and book entry settlement. To meet international securities market standards.

Market Operations National Stock Exchange provides nation-wide trading facilities and equal access to investors from all over the country. High quality service to investors will be maintained through an efficient, transparent and fair trading system. Nation wide equal access to stock trading will be provided through a network of trading members all over the country. There will be not trading floor. Instead, each trading member will have a computer at his own office, anywhere in India. This computer will be connected to the central computer at the NSE by telecommunication link. The trading system provides a lot of flexibility to trading members. Trading members can easily exercise the various options which are traditionally available to them on trading floor. When entering the order, a trading member can place various conditions on the order. The system will provide complete transparency. The identity

of the trading members entering orders in the system will be protected and revealed only on confirmation of a trade to the respective counter parties. The automated trade matching system is a highly efficient means of trading. Unlike the open outcry system on trading floors where physical constraints often prevent a large number of orders from being executed, the trading member of NSE can put in a large number of transactions and carry out a high volume of business efficiently. The trading member and investors are ensured at all times that they are getting the best price in the market. Securities of medium and large companies with nation-wide investors will be treated on the NSE. This will include securities which are today being treated on other stock exchanges. By virtue of equal access nation wide, such securities can be raded at the same price from any where in the country. This will provide good trading and investment opportunities; increase the volume of trade and improve liquidity considerably. As and when securities are sold and delivery made to the clearing system, they will be transferred to a depository. Each trading member will have a pass book account in the depository wherein securities deposited by the trading member will be recorded. Every client of the trading member will have a sub-account where record or share holding of the client will be maintained. As and when delivery is made or received by each trading member, the pass book of the trading member and the client concerned will be updated by electronic book entry transfer. Advantages The NSE System provides numerous advantages to investors, trading members and issues. Advantages to issuers As they can provide nationwide access by a single listing, their listing costs are reduced substantially. Advantages of investors: Settlement is quick and money/securities are received promptly, thereby increasing liquidity. The investor is assured of the best price in the NSE market. The system will be better monitored and regulated ensuring a fair deal to investors.

Advantages of trading members Members can benefit from high growth in trading volumes By installing a computer net work of their own to receive their client order which they can interface with the Exchange, leading to a large increase in business. Members can provide efficient service to their clients.

Index of NSE : NSE.50 Vision NSE has launched a new index of stock prices known as NSE.50 vision in April 1996. It has a heavy weightage of financial sector companies out of 50 companies, 9 are from financial segment including SBI, IDBI, IFCI, ICICI and HDFC these constitute 21.3 percent of weight. Auto industry has a weight of 12.64%, health care 9.75%, steel 5.32% and diversified companies 14.45%. the index has included big market capital stcks and is aimed to reflect day-to-day activity in the market. The base day for the index is 3rd November, 1995 when the trading inequities completed one year on the NSE and base value has been taken as 1000. It will be published daily.

NSE-50 companies are leaders in their segment and have a good share of sales or profit in their respective sector. The index will be periodically reviewed in each quarter to give representation to various industries.

Securities and Exchange Board of India


Introduction Shri Rajiv Gandhi, the then Prime Minister and Minister of Finance, while presenting the Finance bill for 1987-88, observed for the healthy development of capital market. As in the case of Securities Exchange Commission (SEC) in United States, Government of India had determined to constitute a separate Board for the purpose of ensuring investor protection and regulation and orderly functioning of Stock Exchanges. Dr. Manmohan Singh, the then Finance Minister in his budget speech for 1990-91 observed. The previous Government had announced the formation of SEBI in 1989. Three years have passed and the legislation for giving statutory authority to SEBI has not been introduced. We will ensure that this is done in this budget session. Accordingly, the Securities and Exchange Board of India which was constituted as an administrative body in April 1988 was given statutory status on January 30, 1992 by promulgation of SEBI ordinance which was later replaced by the Securities and Exchange Board of India Act, 1992. Objectives of SEBI According to the preamble to the SEBI Act, the objectives of SEBI are enumerated below: To protect the interests of investors in securities; To promote the development of securities market; To regulate the securities market.

SEBI can exercise its powers by way of regulations. SEBI is bound by Central Governments directions on questions of policy and is obliged to make an annual report to the Government giving therein a true and full account of the activities, policies and programmes. Powers of SEBI Following powers have been given to SEBI under the Securities Contracts (Regulation) Act, 1956; Power to call for periodical returns from recognized stock exchanges. Power to call for any information or explanation from recognized stock exchanges or its members. Power to direct inquires to be made in relation to affairs of stock exchanges or its members. Power to grant approval to byelaws of recognized exchanges Power to make or amend byelaws of recognized exchanges Power to invoke Section 17 of the Securities Contracts (Regulation) Act in may State or Area and to grant licenses to dealers in securities. Power to compel listing of securities by public companies. Power to control and regulate stock exchanges. Power to grant registration to market intermediaries. Power to register and regulate working of collective investment schemes including mutual funds. Power to promote and regulate self-regulatory bodies. To prohibit fraudulent and unfair trade practices relating to securities. Power to prohibit insider trading Power to promoter investors education and training of intermediaries in capital market. To regulate substantial acquisition of shares and takeover of companies. Power to levy less.

Power to conduct research and other functions.

Concurrent Powers of SEBI The Government has concurrently delegated to SEBI some of its powers under the Securities Contracts (Regulation) Act, 1956, with a view to ensuring more effective protection of interests of investors along with creating on efficient and wellregulated stock market. Since the powers have been delegated concurrently both the Ministry of Finance and SEBI will continue to exercise dual jurisdiction. The concurrent powers relate to following matters. Submission of application, granting and withdrawal of recognition of the Stock Exchanges. Making or amending rules of Articles of Association of a stock exchange regarding voting rights to its members at any meeting. Notifying applicability of Section 13 of SCRA to an area, so that contracts issued in that area otherwise than between members of a recognized stock exchange or through or with such member shall be illegal. Regulation and control of Business of dealing in spot delivery contracts. Hearing appeals submitted by companies against refusal of a stock exchange to list their securities. Issue of notification specifying any class of contracts as contracts to which the SCR Act or any provision contained therein shall not apply. To regulate matters relating to issue of capital, transfer of securities and connected matters. To issue direction to any relevant person in the interest of investors and securities market to carry out its mandate. To improve monetary penalties on capital market intermediaries with powers of adjudication given to the Adjudicating Officer. To summon the attendance of an call for documents from all categories of market intermediaries, including persons in the securities market, in order to enable SEBI to investigate irregularities. To make regulation with regard to depositories, custodians of securities, credit rating agencies and such other intermediaries. To grant recognition to stock exchanges and matters relating thereto. To prescribe qualifications for membership of a stock exchange To direct the government body of a stock exchange to take disciplinary action against a member To make an enquiry in relation to the affairs of the Governing Body of a Stock exchange. Stock exchanges to submit their annual reports to SEBI. To waive the requirement of minimum 25% public offer for listing of securities.

Additional Powers under SEBI Act, 1992 delegated w.e.f. 25.1.1995

Additional powers under SC(R) Rules, 1957 have been delegated on 23.12.1996

Role of SEBI in the Capital Market Since SEBI became a statutory body in 1992, a number of steps have been taken to strengthen SEBI and reinforce its autonomy. SEBI has been playing a very active role in the capital market to achieve its objectives as enumerate earlier. With a view to develop and regulate the capital market, SEBI ahs notified several rules and regulations for brokers, subbrokers, merchant bankers, bankers to issue, portfolio managers, registrars and share transfer agents, underwriters, debenture trustees etc. SEBI has issued guidelines for Disclosure and Investor protecting and as many as twenty one clarifications on the same so far to be followed by companies making public issue of capital. These guidelines clarifications contain a number of disclosures to be made in prospectus of companies making issues of capital, to enable the prospective investors to be stock informed before subscribing to the issue. Introduction of stock invest instrument by SEBI has been another welcome step for the investors at large. To protect further the interest of investors, SEBI has framed SEBI (insider Trading) Regulations 1992 and SEBI (Prohibition of Fraudulent and Unfair Trade practices relating to Securities Markets) Regulations, 1995, While the former set of regulations ban insider trading and treat it as a serious offence, the latter prohibit manipulation of prices in the stock market, making misleading statements to induce sale or purchase of securities and unfair trade practices relating to securities. SEBI endeavors to provide a regulatory framework which would facilitate an efficient mobilization and allocation of resources through the securities market. This will ensure that the necessary services are provide to industry and commerce and private investors in the most efficient and economical manner, stimulate competition, encourage

innovation and be responsive to international developments. The SEBI has also formed a framework which is flexible and at the same time cost effective, thereby providing it with the clarity to guide and not cramp the changes. It also serves the purpose of inspiring confidence on the part of the investors and other users of the market by ensuring the market place is clean to do business in fair, transparent and efficient manner. SEBI Market Regulator and Investors Protector SEBI is required to create a proper and conducive atmosphere required for raising money from the capital market. The atmosphere includes the rules, regulations, trade practices, customs and relations among institutions, brokers, investors and companies. it shall endeavour to restore the trust of investors and particularly to safeguard the interest of the small investors. This can be achieved by meeting the needs of the persons connected with the security market and establishing proper coordination among the three main groups directly connected with its operations, namely, (a) investors, (b) corporate sectors and (c) intermediaries. SEBI is expected to educate investors and make them aware of their rights in clear and specific terms. It shall provide investors with information and see that the market maintains liquidity, safety and profitability of the securities which are crucial for any investments. SEBI shall create a proper investments climate and enable the corporate sector to raise industrial securities easily, efficiently and at affordable minimum cost. SEBI shall develop a proper infrastructure so that the market automatically facilitate expansion and growth of business to middlemen like brokers, jobbers, commercial banks, merchant bankers, mutual funds, etc, Thus, it will ensure that they provide efficient service to their constituents, namely, investors and the corporate sector at a competitive price. SEBI shall make more effective the law in the existing status as far as they relate to the industrial securities, mutual funds, investments in Units, LIC savings plan. Chit-Fund companies and securities issued by housing/industrial societies and corporations with the purpose of making investments in housing/industrial projects. SEBI shall create the framework for more open, orderly, and unprejudiced conduct in relation to takeover and mergers in the corporate sector to ensure fair and equal treatment to all the security holders, and to facilitate such takeovers and mergers in the interest of efficient by prescribing a mechanism for more orderly conduct.