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Study of Relationship Between Indian Stock Market and Asian Stock Markets
ABOUT THE STUDY GROUP
Unity in diversity is the foremost highlight of our nation INDIA and similarly we have our
group members for this study from six different states of the country relaying the richness
of six different fortes.
Study of Relationship Between Indian Stock Market and Asian Stock Markets
Acknowledgment
This study covers major stock exchanges in China, Japan, Singapore, Taiwan,
Israel, Philippines, Indonesia, South Korea and Srilanka. Both the Bombay Stock
exchange (BSE) and the National Stock Exchange of Indian Limited (NSE) have
been used in the study as a part of Indian Stock Market. The time period has been
divided into various eras to test the correlation between the various exchanges to
prove that the Indian markets have become more integrated with its Asian
counterparts and its reaction are in tandem with them.
Sincere efforts have been made for preparation of project. It is expected that this
study would enable the readers in understanding the relationship between Indian
stock market and Various Asian Stock markets and its impact for gaining
conceptual Clarity.
Thank you,
Study Group
In the current scenario the terms like Capital market, BSE (Bombay stock
exchange),NSE (National Stock Exchange),Shares are not strange to us. There are
many more Asian markets such as Shanghai Stock Exchange, Tokyo Stock
Exchange, Korea Exchange, Colombo Stock Exchange, Singapore Exchange, and
Korea Exchange which have great Impact on Indian markets.
1.1 Title
The study group has been named as “Relationship Between Indian Stock Market
and Asian Stock Market”.
We have analyzed this topic in detail and tried to cover each and every aspect of
this study.
1.5 Limitation
CHINA
It is the 7th largest and one of the most active stock exchanges in the world. The
Stock Exchange of Hong Kong Limited, Hong Kong Futures Exchanges Limited
and Hong Kong Securities Clearing Company Limited –these companies are the
property of Hong Kong Exchanges and Clearing Limited, which is enrolled on its
own exchange.
The Shanghai Stock Exchange can stake a claim to fame to being both the first and
largest stock exchange on mainland China. The exchange has a total of eight
hundred and seventy-eight listed companies. The main indices used on the
exchange are:
• SSE 50 index
JAPAN
• Tokyo Stock Exchange
Located in Tokyo, Japan, is the second largest stock exchange in the world by
aggregate market capitalization of its listed companies, second only to the New
York Stock Exchange. As of 31 December 2007, the Tokyo Stock Exchange had
2,414 listed companies with a combined market capitalization of $4.3 trillion.
SINGAPORE
• Singapore Exchange
With Singapore now a leading financial center in the Asia-Pacific, the Singapore
Exchange has become one of the premier exchanges in its region. It is a highly
international exchange, with 40 percent of its market capitalization coming from
foreign companies.
The SGX divides its company listings into the SGX Mainboard and the SGX
SESDAQ. The Mainboard lists companies that meet certain requirements
including market capitalization, pre-tax profits, and operating track record. The
SESDAQ, on the other hand, is for newer companies and there are no quantitative
requirements for listing. Companies listed on the SESDAQ may apply to be
The Singapore Exchange is a fully electronic exchange, using the Central Limit
Order Book (CLOB). Brokers place orders online and when a buy and sell order
match, the system automatically executes the order and notifies the brokers.
Trades that are not executed by the end of the day are terminated. Shares are
typically traded in lots of 1000.
The Singapore Exchange is also well known for its trading in a variety of
derivative securities via SGX-DT. It was the first exchange in Asia to offer equity
index futures, and now offers the world's widest range of Asian index futures.
SOUTH KOREA
• Korea Exchange
The South Korea Stock Exchange is one of the oldest stock markets in Asia. The
South Korea Stock Exchange determines the economy of the country of South
Korea. The South Korea Stock Exchange falls under the category of the stock
market of the stock exchange market of Korea division. The South Korea Stock
Exchange market provides an extensive field of opportunities to the stock brokers
and the traders who deal with the share market in South Korea. The South Korea
Stock Exchange market also gives out numerous offers to the companies and
financial organizations that invest their money in the South Korea Stock Market.
The South Korea Stock Exchange is an accumulation of all the stock exchanges
operating in south Korea. All these exchanges have been brought together under
certain rules and regulations as put forward by the Korea Stock and Futures
Exchange Act. All the issues related to the security and the operation of the
business divisions in the exchange market are controlled by the South Korea Stock
Exchange. The South Korea Stock Exchange stands in the 15th position in the
One who is not a South Korean citizen might have to go through long procedures
if he wants to buy stocks in the South Korea Stock Exchange. The South Korea
Stock Exchange market has different norms of working a thus, there is a huge
difference in the working method of the South Korea Stock Exchange than the
other stock exchange markets in the world.
TAIWAN
• Taiwan Stock Exchange
The exchange has normal trading sessions from 09:00am to 01:30pm and post-
market sessions from 02:00pm to 02:30pm on all days of the week except
Saturdays, Sundays and holidays declared by the Exchange in advance.
INDONESIA
• Indonesia Stock Exchange
ISRAEL
• Tel-Aviv Stock Exchange
The Tel Aviv Stock Exchange colloquially known as the Boursa) in Tel Aviv is
Israel's only stock exchange.The TASE is the only public market for trading
securities in Israel. It plays a major role in the Israeli economy.
TASE lists some 660 companies, about 60 of which are also listed on stock
exchanges in other countries. TASE also lists some 180 exchange-traded funds
(ETFs), 60 government bonds, 500 corporate bonds, and more than 1000 mutual
funds.
SRILANKA
• Colombo Stock Exchange
The Colombo Stock Exchange (CSE) is the main stock exchange in Sri Lanka. As
of 31st May 2005, the exchange has 243 listed companies, and 20 business sectors
are represented. It has a market capitalization of over 497 billion rupees (over US
$ 4.9 billion) and this corresponds to approximately 24% of the country's GDP.
Two indices currently exist in the CSE - The All Share Price Index ( ASPI) and
The Milanka Price Index (MPI). It became the first South Asian member of the
The Board of Directors is the policy making body of the CSE, which consists of 9
directors, and amongst the 9, one is elected as the Chairman. Of the nine directors,
five are elected by the members, and the Minister of Finance appoints the other
four.
The CSE has proven itself to be one of the top Emerging Markets stock exchange
in the world, with a recorded consistent annual growth of over 30% in 2002-2004,
and in 2006, an annual growth of 41.6% was attained. It continued to achieve
strong growth in 2007, which saw the stock exchange achieve a historic milestone
- ASPI surpassed the 3000 mark for the first time in history. The excellent
performance of CSE has been attributed to its advanced infrastructure of a fully
automated trading platform, therefore enhancing its competitive edge and
efficiency among the modern exchanges today.
PHILIPPINES
• Philippine Stock Exchange
The Philippine Stock exchange is the only existing stock exchange in the
Philippines and is one of the largest in Southeast Asia. The PSE Composite Index
(made up of 30 stocks) is the key indicator of share price movement in the market
six sub indices: Financials Index, the Industrial Index, the Holding Firms index,
the Property Indez, the Services Index, and the Mining & Oil Index.
Study of Relationship Between Indian Stock Market and Asian Stock
Markets
The PSE is composed of two trading floors: one in Makati City; the other in Pasig
City. Despite this, it is still capable of achieving one stock price and one Market
Exchange through the MakTrade system. This single order book system warrants
that a customer's order is matched with the best bid/offer, irrespective of which
floor it was placed through. MakTrade facilitates the trading of securities through
a broker to broker market with automatic order, trade routing, and confirmation.
By 1830's business on corporate stocks and shares in Bank and Cotton presses
took place in Bombay. Though the trading list was broader there but were only
At the end of the American Civil War, the brokers who thrived out of Civil War
in 1874, found a place in a street (now appropriately called as Dalal Street) where
they would conveniently assemble and transact business. In 1887, they formally
established in Bombay, the "Native Share and Stock Brokers' Association" (which
is alternatively known as “The Stock Exchange "). In 1895, the Stock Exchange
acquired a premise in the same street and it was inaugurated in 1899. Thus, the
Stock Exchange at Bombay was consolidated. a more recent establishment which
came into existence in 1992, is the largest and most advanced stock market in
India is also the third biggest stock exchange in Asia in terms of transactions. It is
among the 5 biggest stock exchanges in the world in terms of transactions volume
4.2.01 (a): The Securities Transactions in India at present are mainly governed by
two Acts.
The paper based ownership and transfer of securities has been a major drawback
of the Indian Securities Markets since it often resulted in delay in settlement and
transfer of securities and also lead to "bad delivery", theft, forgery etc. The
4.2.01 (c): The other relevant laws which affect the capital market are :-
4. Debt Recovery Act (Bank and Financial Institutions Recovery of Dues Act,
1993);
4.2.02 (a): The Securities Contracts (Regulation) Act, 1956 (hereinafter referred to
as the "Act"), containing a mere 31 sections, keeps a tight vigil over all the Stock
Exchanges of India since 20th February, 1957. The provisions of the Act were
formally administered by the Central Government. However, since the enactment
of The Securities and Exchange Board of India Act, 1992 the Board established
under it (SEBI) is concurrently having powers to administer almost all the
provisions of the Act.
4.2.02 (c): A public limited company in India, has no obligation to have its shares
listed on a recognized Stock Exchange. But if a company intends to offer its shares
or debentures to the public for subscription by issue of a prospectus, it must,
before issuing such prospectus apply to one or more of the recognized stock
exchanges for permission to have the shares or debentures intended to be so
offered to the public to be dealt with in each of such stock exchange in terms of
Section 73 of the Companies Act, 1956. SEBI can however under the provisions
of Section 21 of the Securities Contracts (Regulation) Act, 1956 compel the listing
of securities by public companies if it is of an opinion that it is necessary or
expedient in the interest of trade or public. In the event of the Stock Exchange
4.2.02 (d): A company on the grounds specified in Section 22A of the Act is
entitled to refuse to register transfer of any of its securities, notwithstanding
anything contained in its articles or Section 82 or Section 111 of the Companies
Act, 1956.
4.2.03 (a): The Securities and Exchange Board of India Act, 1992 (hereinafter
referred as "The SEBI Act") is deemed to have come into force on January 30,
1992. Relatively a brief act containing only 35 sections, the SEBI Act governs all
the Stock Exchanges and the Securities Transactions in India.
4.2.03 (b): A Board by the name of the Securities and Exchange Board of India
(SEBI) consisting of one Chairman and five members, two from the department of
the Finance and Law of the Central Government, one from the Reserve Bank of
India and two other persons and having its head office in Bombay and regional
offices in Delhi, Calcutta and Madras has been constituted under the SEBI Act to
administer its provisions. The Central Government has the right to terminate the
services of the Chairman or any member of the Board. The Board decides all
questions in its meeting by majority vote with the Chairman having a second or
casting vote.
4.2.03 (c): Section 11 of the SEBI Act provides that it shall the duty of the Board
to protect the interest of investors in securities and to promote the development of
and to regulate the securities market by such measures as it thinks fit. It empowers
the Board to regulate the business in Stock Exchanges, to register and regulate the
working of stock brokers, sub-brokers, share transfer agents, bankers to an issue,
trustees of trust deeds, registrars to an issue, merchant bankers, underwriters,
Study of Relationship Between Indian Stock Market and Asian Stock
Markets
portfolio managers, investment advisers, etc., to register and regulate the working
of collective investment schemes including mutual funds, to prohibit fraudulent
and unfair trade practices and insider trading, to regulate take-overs, to conduct
enquiries and audits of the stock exchanges, etc.
4.2.03 (d): As all Stock Exchanges are required to be registered with SEBI under
the provisions of the Act, under Section 12 of the SEBI Act all the stock brokers,
sub-brokers, share transfer agents, bankers to an issue, trustees of trust deed,
registrars to an issue, merchant bankers, underwriters, portfolio managers,
investment advisers and such other intermediary who may be associated with the
Securities Markets are obliged to register with the Board and the Board has the
power to suspend or cancel such registration. The Board is bound by the directions
given by the Central Government from time to time on questions of policy and the
Central Government has the right to supersede the Board. The Board is also
obliged to submit a report to the Central Government every year, giving true and
full account of its activities, policies and programmes. Any one aggrieved by the
Board's decision is entitled to appeal to the Central Government.
4.2.03 (e): The Central Government up till now has framed ten Rules by virtue of
Section 29 of the SEBI Act.
4.2.03 (f): The Board empowered by Section 30 of the SEBI Act has till now with
the previous approval of the Central Government made twelve regulations.
4.2.04 (a): With effect from 20th September 1995 an Act, to provide regulation of
Depositories in securities and for matters connected therewith and/or incidental
thereto has been enacted in India which is titled as "The Depositories Act, 1996".
It extends to the whole of India. As per the definition provided in Section 2(e) of
the said Act, a "Depository" means a company formed and registered under the
Study of Relationship Between Indian Stock Market and Asian Stock
Markets
Companies Act, 1956 and which has been granted certificate of registration under
sub-Section (1A) of Section 12 of the Securities & Exchange Board of India Act,
1992.
4.2.04 (b): The Securities & Exchange Board of India have in exercise of the
powers conferred upon it made Regulations which are called "The Securities &
Exchange Board of India (Depositories & Participants) Regulations, 1996".
4.2.04 (d): Regulation 6 provides that the Board shall not consider an application
under Regulation 3 for grant of a certificate for registration as a Depository unless
the sponsor belongs to one of the categories mentioned in Regulation 6.
Regulation 7 provides that after considering the application under Section 3 with
regard to the clarification specified in Regulation 6 if the Board is satisfied with
the company established by the sponsor being eligible to act as Depository, it may
grant a certificate of registration subject to the conditions mentioned in Regulation
7. A Depository which has been granted a certificate of registration under
Regulation 7 is obliged to make an application to the Board within one year from
the date of issue of the certificate of registration for commencement of business in
a prescribed form. Regulation 12 empowers the Board to ask the Depository to
furnish further information and/or clarification regarding the matters relevant for
the grant of certificate of commencement of business and Regulation 13 lays down
Study of Relationship Between Indian Stock Market and Asian Stock
Markets
the matters which are relevant for considering grant of certificate for
commencement of business.
4.2.04 (e): The rights and obligations of Depository are provided in Chapter V of
the said Regulations. They inter alia provide for securities eligible for
dematerialization, Agreement between Depository and Issuer, internal and external
monitoring, review and evaluation of systems and controls, insurance against
risks, manner of keeping records, records to be maintained, prohibition of
assignment, agreement by participant, opening of separate accounts, transfer or
withdrawal by beneficial owner, reconciliation, manner of surrender of certificate
of security, manner of creating pledge or hypothecation, etc.
4.2.05 (a): SEBI under the provisions of Section 11 of the Securities Exchange
Board of India Act 1992 is inter alia empowered to regulate the securities market
by such measures as it may deem fit. One of the matters specified under that
Section is "regulating substantial acquisition of shares and take over of
companies". Section 30 of the same Act empowers SEBI to make regulations to
carry out the purposes of this Act. Empowered by these provisions of the Act
SEBI enacted "The Securities & Exchange Board of India (Substantial Acquisition
of Shares and Take Overs) Regulations, 1997. They came into effect on 20th
February 1997. and comprised of 47 Regulations.
4.2.05 (b): The Regulations, after defining, inter alia, as to what the terms
"acquirer" means, who could be called as "person acting in consort", what is meant
by "offer period", who is a "promoter", which is a "target company", etc. go to
provide:
(iii) provisions for bail out takeovers applicable to substantial acquisition of shares
in a financially weak company, not being a sick industrial company, in pursuance
to a scheme of rehabilitation approved by a public financial institution or a
scheduled bank.
4.2.05 (c): The Regulations also provide for SEBI's right to investigate into the
complaints on matters having a bearing on the substantial acquisition of shares and
take overs and provide for penalties for violation of any of the provisions of the
regulations. Adequate provisions have been made in the 1997 Regulations for:
c) Fair & truthful disclosure of all material information by the acquirer in all
public announcements and offer documents
d) Prohibiting the acquirer and other parties for furnishing information concerning
offer exclusively to one group of shareholders
f) Announcing the offer only after most careful and responsible consideration
i) Target company not to take any action to frustrate an offer without the approval
of the shareholders, etc.
4.2.06 (b): There has been a substantial increase in the Foreign Exchange Reserves
of India. Since the year 1993, Foreign trade has grown up. Development has taken
place such as current account convertibility, liberalization in investments abroad,
increased access to external commercial borrowings by Indian Companies and
participation by foreign institutional investors in securities markets in India.
Keeping in view these changes the Central Government of India has introduced
the FEMA to repeal FERA.
People from across the country and globe get in touch with minute wise
readings on the stock market and gain a lot of trading aptitude after daily seeing
BSE Stock Gainers or BSE top losers list which does a world of good to their
investment portfolio.
The Indian Stock Markets can be a very rewarding avenue of investment but
the constant changes and the inherent dynamic nature of the markets can wipe out
your funds or savings within a minute. Thus, the key word for every retail investor
is to be constantly alert and very observant. Don't always rely on the daily list of
BSE top gainers or BSE top losers as it only takes a minute to get the things
changed here. Keeping ones eyes and ears open can insure the investor of any
major losses. Following such rules and with some experience and practice, one can
emerge victorious and can churn out a fortune for himself as well. Hence, it is a
way to turn your savings into a fortune.
In 1891 during the boom in mining shares, foreign businessmen founded the
"Shanghai Sharebrokers' Association" headquartered in Shanghai as China's first
stock exchange. In 1904 the Association applied for registration in Hong Kong
under the provision of the Companies ordinance and was renamed as "Shanghai
Stock Exchange". The supply of securities came primarily from local companies.
In the early days, banks dominated private shares but, by 1880, only the Hong
Kong and Shanghai local banks remained.
Later in 1920 and 1921, "Shanghai Securities & Commodities Exchange" and
"Shanghai Chinese Merchant Exchange" started operation respectively. An
amalgamation eventually took place in 1929, and the combined markets operated
thereafter as the "Shanghai Stock Exchange". Shipping, insurance, and docks
persisted to 1940 but were overshadowed by industrial shares after the Treaty of
Shimonoseki of 1895, which permitted Japan, and by extension other nations who
had treaties with China, to establish factories in Shanghai and other treaty ports.
Rubber plantations became the staple of stock trading beginning in the second
decade of the 20th century.
By the 1930s, Shanghai had emerged as the financial center of the Far East, where
both Chinese and foreign investors could trade stocks, debentures, government
bonds, and futures. The operation of Shanghai Stock Exchange came to an abrupt
halt after Japanese troops occupied the Shanghai International Settlement on
December 8, 1941. In 1946, Shanghai Stock Exchange resumed its operations
before closing again 3 years later in 1949, after the Communist revolution took
place.
Singapore Exchange
The Singapore Exchange was created in 1999, when the Stock Exchange of
Singapore (SES) and the Singapore International Monetary Exchange (SIMEX)
merged into one. The SIMEX had been a futures exchange, started in 1984, while
the SES had traded in stocks. At the end of 1998, the SES listed 307 companies
and had a total market capitalization of S$263 billion. Before the merger, both
companies were privately owned by the member firms of the exchanges.
In 2000, the Singapore Exchange became the first publicly held stock exchange in
the Asia-Pacific, and listed its shares on its own exchange.
Korea Exchange
Korea Exchange (KRX) was created through the integration of the three existing
Korean spot & futures exchanges (Korea Stock Exchange, Korea Futures
Exchange and KOSDAQ) under the Korea Stock & Futures Exchange Act.The
securities and futures markets of former exchanges are now operated as the
business divisions of the KRX: the Stock Market Division, KOSDAQ Market
Division and Derivatives Market Division. As of 31 December 2007, the Korea
Exchange had 1,757 listed companies with a combined market capitalization of
$1.1 trillion. The exchange has normal trading sessions from 09:00am to 03:00pm
on all days of the week except Saturdays, Sundays and holidays declared by the
Exchange in advance.
In 1993 TASE had the third largest number of IPOs of all the world stock
exchanges.
In 1999 the exchange completed its turnover to fully computerized trading, with
the change orchestrated by Esther Levanon, who came to the exchange in January
1986 after 12 years with the Shin Bet, having set up and run the security agency's
computer department after her PhD work at the Technion. She later became CEO
of the exchange.
In September 2006, TASE bought out the shares of TASE Clearing House from
TASE members, making it a fully-owned subsidiary. The TASE Clearing House
maintained a NIS 620 million risk fund at the time as a primary cushion of
protection from potential risks, in addition to the NIS 30 million in shareholders
equity.
In February 2007 TASE and the London Stock Exchange and signed a
memorandum of understanding to formalise existing ties between the two
organisations, establish regular meetings between senior executives, and
information in order to facilitate orderly trading of the shares of companies
admitted to both markets. At the time, 50 Israeli companies were listed on the
London Stock Exchange's Main Market and Alternative Investment Market
(AIM). Of these, 36 had joined in the prior two years.
In November 2007 TASE and The Nasdaq Stock Market signed a memorandum of
understanding to formalize the relationship between the two markets developing
channels of communication between the two markets and working to facilitate
stronger trading of company shares admitted on both markets.NASDAQ at the
time had 70 Israeli companies listed on the exchange, with a combined global
market cap of over US$60 billion.
In 2007, 56 new companies raised more than $2.5 billion in initial public offerings
on the exchange, among them 20 hi-tech firms. Average daily share trading
volume set new records, averaging $500 million a day, a 55% jump over 2006.
Bond trading volume increased more than 100% from 2006 levels, to $800
million. Over 2007, the market for exchange-traded funds (ETFs) grew with the
addition of 150, bringing the total number of listed ETFs to 240, representing 18%
In May 2008 Northern Trust started the first US exchange-traded fund on the
NYSE based on TASE's benchmark, the TA-25 Index.
In 1991, the Central Depository System (CDS) was established, which introduced
the automation of the Clearing House of the Stock Exchange. An electronic and
settlement system for share transactions was also introduced together with the
CDS. In 1997, the stock exchange took another step forward towards a more
efficient market with the installation of the Automated Screen-Based Trading
System (ATS), which saw the automation of trading activity. Within 17 years of
establishment, a state-of-the-art technological infrastructure was developed, and it
significantly increased the competitiveness and efficiency of the market.
In 1996, a two-tier system - Board "A" and Board "B" was introduced. Board "A"
comprises of major companies while medium and small companies made up
Board "B". The stock exchange experienced an unprecedented surge in growth in
both indices after the ceasefire agreement was signed in 2001 by the Sri Lankan
government. This signified the end of a 20 year civil war which was highly
responsible for the rather sluggish performance of the market during the 1990s.
This led to a huge increase in foreign investment and over the years, the CSE has
seen a vast improvement in its performance, which saw the All Share Price Index
(ASPI) surpassing the 3000 mark this year for the first time in history on February
13. Fortune Magazine has recently highlighted the CSE as the second best
Emerging Markets stock exchange in the world.
By 2003, in an effort to be more publicly held, the exchange only allowed shares
to be listed through an introduction, rather than an initial public offering. Thus, in
2004 the PSE sold 6,077,505 shares of its un-issued capital to five investors:
PLDT Beneficial Trust Fund, SMC Retirement Fund, Government Service
Insurance System, Kim Eng Investment Ltd. and KE Strategic Pte Ltd.
This is the main part of the study wherein the various stock exchanges have been
compared on certain parameters, both qualitatively and quantitatively.
Based on the above study, it can be observed that India is 13th in the world
ranking of Market capitalization. This is in spite of having the third largest
investor base, after Japan and USA, and having the largest number of companies
listed.
Eligibility Criteria for IPOs/FPOs: Companies have been classified as large cap
companies and small cap companies. Company with a minimum issue size of Rs.
10 crores and market capitalization small cap company is a company other than a
large cap company.
Amount of profit:
The amount of profit for the first year of the latest 2 years was 100 million
yen or more; and 400 million yen or more for the latest year, or
The amount of profit for the first year of the latest 3 years was 100 million
yen or more; 400 million yen or more for the latest one year of the latest 3 years;
and the aggregate amount of profits for all of the latest 3 years was 600 million
yen or more.
Stock listed in the Indonesia Stock Exchange is classified into 2 listing boards:
Main Board and Development Board. The placement of the Issuer and prospective
Issuer’s Listing depends on the fulfillment of the initial listing requirements on
each Board.
Main Board is intended for listed big companies that have track records, while the
Development Board is intended for companies that have not yet fulfill the listing
requirements of the Main Board, including prospective companies that have not
produce any profits, and companies that are on the state of reorganization.
Issuers can list their stocks in the Exchange if they have already fulfilled the
following requirements:
Prospective issuers will be listed for the first time in the Main Board if they have
fulfilled the requirements below:
No Criteria
1. Have fulfilled general requirements for stock listing
2. Until the proposal of listing, the company has been running its
operational activities in the same core business for at least 36
months in sequent
3. Have audited the last three years Financial Reports, and have
received Proper Opinion Without Exception for the last 2 years
audited financial report and Interim Audited Income Statement (if
exists)
4. Based on the last Audited Financial Report, the company must have
at least an amount of Rp 100,000,000,000 (one hundred billion
rupiah) as Net Tangible Asset
5. The amount of shares owned by the minority shareholders after
public offering is at least 100,000,000 (a hundred million) shares or
35% of paid up capital (depends on which one is smaller)
6. The number of shareholders is at least 1.000 (a thousand)
shareholders, who already have accounts in one of the Exchange
Memberss, with the provisions below:
For issuer that performs public offering, the number of its
shareholders is the number of shareholders after the initial
public offering.
For issuer that comes from a public company, the number of
its shareholders is the last number of shareholders at least 1
month before proposing the listing application.
For issuer listed in another Bourse, the number of its
No Criteria
1. Have fulfilled general requirements for stock listing
2. Until the proposal of listing, the company has been running its
operational activities in the same core business for at least 12 months in
sequent
3. Until the proposal of listing, the company has been running its
operational activities in the same core business for at least 12 months in
sequent
4. Have net tangible assets of at least Rp 5,000,000,000 (five billions
Rupiah)
5. If issuer experiences operating loss or does not produce any profit yet or
operates less than 2 years, it is obligated to:
achieve profit and net income on the end of the second book year
based on the financial projection announced in the Exchange.
*Added value: Profit (loss) before taxes, plus payroll expenses, depreciation, and
financing expenses, less financing income.
An R&D company is a company that has invested at least NIS 3 million in R&D
over the last three years, including investments of funds received from the Office
of the Chief Scientist at the Ministry of Industry and Trade.
The applicant company's main area of activity must be R&D, or the production
and marketing of products resulting from its own R&D.
The public float rate in a newly listed R&D company must meet the following:
GENERAL CRITERIA
d. The company’s
lack of existing
material conflicts of
interest.
a. The applicant
company has been
operating for at least Ten
(10) years prior to the
filing of the application.
The applicant company
shall have a cumulative
pre-tax profit of at least
P50 Million, excluding
non-recurring and
extraordinary income
and/or loss, for the last
b. The applicant
company is a newly
formed holding company
which uses the
operational track record
of its subsidiary(ies). The
company, however, is
prohibited from divesting
its shareholdings in the
said subsidiary(ies) for a
period of three (3) years
from the listing of its
securities. The prohibition
shall not apply if a
divestment plan is
approved by majority of
the applicant company’s
stockholders.
NUMERICAL CRITERIA
OPERATING HISTORY
Korea Exchange
Daily price change limit
To avoid abnormal price fluctuations caused by imbalance in supply and
demand, the KRXStock Market places ± 15% of limit that the prices on individual
stocks can change during a day, thus preventing fall or rise of the price of
individual stock more than 15 percent of the previous day’s closing price.
Circuit Breakers
The KSE introduced the Circuit Breakers in December 1998. In order to
pacify the overreaction of investors, when the stock price drops suddenly below
Below are the various settlement cycles for the stock exchanges.
(Source :www.world-exchanges.org)
The hypothesis that the exchanges impact each other has been tested through
various statistical methods with data on price, returns collected from the
In Fig1.1, period 1 shows that there is almost no correlation between these two
exchanges.
Hang Seng was rising very sharply because of the East Asian miracle. Whereas
India, not part of this success story, remained almost untouched by this boom.
NSE is almost constant during this period. During period 2, Hang Seng crashed 50
percent and then rose back 100 percent. Thus, it showed very high volatility
during this period. NSE also rose during this period because of pervasive tech
boom but the rise was not as spectacular as Hang Seng. Hang Seng might also
have risen sharply because of its previous low levels. Period 3, Hang Seng was
falling steadily; showing a downward trend. This might be due to the fear of
global recession. But the NSE was not much affected. During Period 4, NSE was
rising in almost identical manner with the Hang Seng. This shows the larger
integration of the Indian economy in the foreign market. This might also be due to
The above diagram shows that, during 1995, both the stock exchanges were at the
same
level. But due to East Asian crisis, Korean stock exchange was much more
affected because its economy was more integrated with those East Asian
economies. During period 2, both the stock exchanges moved in almost identical
manner. The returns were almost nearly equal during this period, since both the
stock exchanges rose very sharply. But, the rise in the NSE was much sharper.
Still, we can say that the two exchanges were moving more or less in same
fashion.
The period 1995-97, characterized by the South East Asian currency crisis
and other economic events, did not have integration of different markets at high
This section tries to compare the various exchanges on the basis of returns and the
corresponding risks associated with it, returns being, perhaps, the single most
important factor affecting the performance of any index. While risk can be termed
as the major factor underlying all activity, it becomes imperative to compare the
exchanges based on this parameter. Table 2 exhibits the historical risk-return
figures of the exchanges. NSE seems to have followed or moved in tandem with
the NYSE more after year 2000. Hang Seng exchange follows long cycles. If
returns turn negative, they remain negative for two or three years. Similarly if
return turns positive, then they remain so again for two or more years.
Year /
Variables NSE Hong Kong Korean
The prices of individual stocks reflect investors' hopes and fears about the future
and taken in aggregate, stock price movements can generate a tidal wave of
activity. Because of their liquidity, events like terrorist attacks, military invasions
and other unforeseen disastrous occurrences can have serious implications for the
prices of the stocks and bonds. The event study methodology is used to assess the
effect of terrorism (September 11, 2001 terrorist attack) on Asian capital markets.
In the present study, an attempt is made to examine how the Indian stock markets
and their various indices (Bombay Stock Exchange and National Stock Exchange)
reacted to the September 11th, 2001 terrorist attack and how the Asian stock
Study of Relationship Between Indian Stock Market and Asian Stock
Markets
markets reacted to it. The study found that among the Asian stock markets, Indian
stock markets are more resilient than in the past and they recovered sooner from
terrorist attacks than other Asian stock markets.
Toronto, ON, Canada, — The United States is heading toward recession. This is
no longer conjecture -- the threat is real. This was indirectly acknowledged by the
White House on Jan.18 with the unveiling of an economic aid package that
practically confirmed everyone's worst fears.
The signs have been apparent since last June or July. The stock market has been
moving sideways rather than up. There were signals that the economy, which had
been hopping from one record to another for the last six years, needed a breather.
Then the sub-prime loan crisis began to unfold. Banks and financial institutions
began to take losses, followed by other related companies. Later the housing
market began to collapse, induced by the sub-prime loan crisis. When this was
followed by less-than-spectacular Christmas retail sales, the "R"' word began to be
uttered.
The recession will not be officially confirmed for awhile, and rapid interest rate
cuts announced on Jan. 22 may reduce its impact. A near agreement between
Congress and the White House on an additional aid package as unveiled on Jan. 24
may further reduce the impact of the upcoming slowdown -- yet a general
slowdown is inevitable.
Global stock markets suffered catastrophic losses on Jan. 21. Japan's stock market
dropped 6 percent, India's 8 percent, Canada's 4.5 percent and European markets
fell from 4 to 6 percent. The U.S. market, closed for a holiday, was spared
catastrophic losses.
Luckily for U.S. markets, the Federal Reserve stepped in on the morning of Jan.
22 and cut interest rates by 75 basis points, which had the desired effect. It curbed
investors' rush to sell, and a day later profiteers stepped in to buy stocks cheap,
which helped reduce losses.
India suffered miserably on Jan. 21, as well as a few days prior to that day of
infamy. Institutional investors from abroad, who had driven the Indian stock
market sky high, pulled back. As in the United States, the investors were back the
next day, helping the stock market recover some of its losses.
The Chinese are not immune to the worldwide financial crisis, although they are
less exposed to institutional investors. Their worst nightmare may be yet to come.
With reduced merchandize exports, factories will be idle. Layoffs may follow and
social unrest begin -- not good for the upcoming Olympics in Beijing.
When the United States goes through a slowdown, Canada is next, followed by
Europe and the rest of the world. The impact of a U.S. slowdown will be:
a) A fall in commodity prices; oil for example would be out of reach at US$100 a
barrel;
c) With less money to spend, consumers will leave their wallets and credit cards at
home, reducing retail sales. Sales of housing, cars and other big-ticket items will
undergo a dramatic drop;
e) With less money all around, there will be less for the United States to spend on
war on terror in Iraq and Afghanistan. It is possible that the United States may
prematurely wind up and leave the war halfway;
f) There may be a complete re-look at the North American Free Trade Agreement,
which has moved jobs to Mexico and Canada;
g) Unequal China trade, which has been a sore point for quite some time, may
come under the scanner. The dollar-yuan currency relationship may be revised or,
in the worst-case scenario, a few countervailing duties may be applied. In other
words, a long-avoided protectionism may creep into the U.S. political thought
process.
Apart from whatever happens in the United States, India and China will be at the
receiving end of a few unpleasant jolts. China's ever-increasing exports to the
United States may find an uneven reception. India may suffer the consequences of
the withdrawal of investments from the stock market.
In China itself the booming real estate cum infrastructure reconstruction may
cease. Cities in China are on a spending binge to boast of new infrastructure,
This will cool off the overheated Chinese economy by a few percentage points.
Domestic consumption may be increased to offset the decline in exports. China
may also begin investing in U.S. companies with financial troubles, like their
US$5 billion investment in Morgan Stanley. A much greater U.S. buying binge by
China is unlikely, however. There are domestic consequences to worry about, and
cash stashed away as reserves may be urgently needed at home.
The impact on India will be indirect. Globalization, in which India is a small fry,
will impact it less. It is the institutional investors who will place India on the
slippery slopes. In seven days including Jan. 21, the Indian stock market lost 8
percent of its value. This translates to about US$400 billion of investors' paper
money wiped out, or about two years of steady gains made by the little guys in the
market.
The U.S. recession will thus lower expectations in India but will not have
consequences as severe as in China. An already unhappy textile export sector may
find it difficult to achieve its 2008 export target. Alternatively, a boom in the
information technology and business processing outsourcing sector will continue.
U.S. companies looking for cheaper alternatives may outsource additional work.
One salient feature of India's spectacular economic performance in the last six
years is that it is driven by domestic consumption. Not being dependent upon the
United States makes the impact of the U.S. recession a bit more manageable. This
India will have to worry about rapid interest rate cuts by the U.S. Federal Reserve
Board. That would widen the gap between Indian and U.S. commercial interest
rates, resulting in a capital outflow from U.S. to India where interest rates are still
high.
The arrival of excessive cash in India would not be welcome today. India would
not know what to do with a huge inflow, and would have to cut its interest rates
appropriately. Combine this with a weakening dollar and it would erode any
export advantage. Hence additional rapid interest rate cuts by the Fed would
require an appropriate response from India.
In the end the world may emerge out of this U.S. slowdown much more sober. The
United States will develop a bit of a protectionist attitude. China's free reign of
cheap exports may be a thing of the past. Domestic demand will keep India's
growth high, though a drop by a few percentage points for miscellaneous reasons
is not unexpected. India's stock market will receive a sobering lesson on
overemphasizing foreign investors. Foreign investors will remain, but in a much
more controlled manner.
A few other countries have seen the rate of growth of GDP decrease, generally
attributed to reduced liquidity, sector price inflation in food and energy, and the
U.S. slowdown. These include the United Kingdom, Ireland, Canada, Japan,
China, India, New Zealand and many countries within the EEA. In some, the
recession has already been confirmed by experts, while others are still waiting for
the fourth quarter GDP growth data to show two consecutive quarters of negative
growth. India along with China is experiencing an economic slowdown but not a
recession. Also Africa and South Africa are experiencing economic slowdown and
inflation is a state in the economy of a country, when there is a price rise of goods
as well as services. To meet the required price rise, individuals have to shell out
more than is presumed. With increase in inflation, every sector of the economy is
affected. Ranging from unemployment, interest rates, exchange rates, investment,
stock markets, there is an aftermath of inflation in every sector. Inflation is bound
to impact all sectors, either directly or indirectly. Inflation and stock market have a
very close association. If there is inflation, stock markets are the worst affected.
Effect of inflation on stock market is also evident from the fact that it increases the
rates if interest. If the inflation rate is high, the interest rate is also high. In the
wake of both (inflation and interest rates) being high, the creditor will have a
tendency to compensate for the rise in interest rates. Therefore, the debtor has to
When the government has enough fund to circulate in the market, the cost of
goods, services usually go up. This leads to the decrease in the purchasing power
of individuals. The value of money also decreases. In a nut shell, for the economy
to flourish, inflation and stock market ought to be more conforming and
predictable.
Advisory role:
The advisory role has evolved from being an advisor on tax and related matters to
positioning the company amongst the knowledgeable investors, advising the
company on the value chain which they need to pursue etc, and continued
Entrepreneurial Role:
Chartered Accountants from the traditional practice have moved into being
intermediaries in the capital market themselves. New Investment banking firms,
broking entities and the Regulatory environment has encouraged professionals to
be an entrepreneur by themselves. With the better understanding of the financial
products, Chartered Accountants have become an effective entrepreneurs in
distribution, wealth management etc.
Supporting services:
More and more service providers like investment bankers, insurance agencies rely
on the skills of the Chartered Accountant in discharging their obligations.
10 CONCLUSIONS
The study brings forth some distinct conclusions many of which validate
popular beliefs. The objective of the whole research was to try and compare the
various stock exchanges based on certain parameters in order to understand the
impact of integration of the financial world on the various entities within it
especially in the context of globalization and increased interest in the capital
markets fuelled by surging growth.
The various research papers that have been studied traced the gradual
‘coming of age’ of the Indian stock market over the past decade without actually
Study of Relationship Between Indian Stock Market and Asian Stock
Markets
arriving at any conclusive evidence on the comparative position of our stock
exchange with that of other global ones. The studies mainly looked at various
aspects of efficiency in the stock market on a standalone basis and tried to draw
conclusion regarding the state of our maturity. However, we have tried to use the
comparison method to benchmark the performance of our stock market with that
of a selection of asian stock exchanges on the basis of their diversity with respect
to geo-sociopolitico-economy.
With regard to the initial hypothesis of this study, it is clearly found that
the stock markets do impact each other, more so in the recent times, i.e. post-2000.
This has been due to the fact that ‘cross holdings’ are increasingly becoming
common wherein the geographical barrier is dissolving with respect to investing.
In India also, deliberations are on to ‘cross list’ Indian shares in Asian exchanges
to start off. This will increase the degree of integration manifold. Moreover, the
automation of the exchanges has played a vital role in making the financial
markets integrated. In this context, the pioneer is the Swiss exchange, followed by
Brussels as an early adapter. The spate of ‘ADR’s and ‘GDR’s, along with the
increased opening up of various economies, increasing foreign trade and the rise
of the ‘MNC’s have contributed immensely to the integration process. It leaves us
with the conclusion that the strategy of globally diversifying investments is slowly
losing its profitability. Especially after 2000, the markets are fast converging. It
has now become a global market operating 24 hours, with opening of markets in
different time zones at various points of time appearing to be seamless. Thus, in
hindsight, it would not be an exaggeration to say that the impact of the South East
Asian currency crisis, if happened today, would have much more drastic effect on
India, as the country is more in sync with the global markets. Actually, it can be
said that, in the current scenario, any apprehension about stocks in one country can
escalate into a panic selling. However, a caveat needs to be put here with respect
of the attractiveness of the global diversification strategy. In a way, though the
attractiveness of the strategy is gradually diminishing, it can still be profitably
To sum up:
Finally, we can sum up with the following observations:
• The markets have indeed started to integrate and Indian market is no exception
especially after 2002-03.
• The regulatory authorities must remove any ambiguity that may be existing when
compared to the regulations of other exchanges before they can actually make the
grade.
• Lastly, although it has to be accepted that the market is evolving but the Indian
system has already attained the minimum level of robustness and efficiency to be
counted among the best in the world and stand equipped to attain higher
sophistication as well as heightened activities. As for the existence of any signals
Articles
Becker, K, Finnerty, J., & Gupta, M. (1990): ‘The Intertemporal Relation between
the US and Japanese Stock Markets’, Journal of Finance, 45, 1297-1306.
Bennett, P., & Keller, J. (1988): ‘The International Transmission of Stock Price
Disruption in October 1987’, Federal Reserve Bank of New York Quarterly
Review, Summer, 17-33.
Froot, K., & Dabora, E. (1999): ‘How are Stock Prices Affected by the Location
of Trade?’, Journal of Financial Economics, 53, 189- 216.
Hansda, S. K., & Ray, P. (2002): ‘BSE and Nasdaq: Globalisation, Information
Technology and Stock Prices’, Economic and Political Weekly, 37 (5), February
2, 459- 468.
Howe, J S., & Madura, J. (1990): ‘The Impact of International Listings on Risk:
The Implications for Capital Market Integration’, Journal of Banking and Finance,
14, 1133- 42.
Lau, S T., & Diltz, J.D. (1994): ‘Stock Returns and the Transfer of Information
Between the New York and Tokyo Stock Exchanges’, Journal of International
Money and Finance, 13 (2), 211-22.
Yakob, N. A., Beal, D., & Delpachitra, S. (2005) Seasonality in the Asia Pacific
stock markets. Journal of Asset Management, 6 (4), 298-318.
Websites Referred
www.bseindia.com
www.nse-india.com
www.ebsco.com
www.tse.or.jp/english/index.shtml
www.hkex.com.hk/
www.krx.co.kr/webeng/index.jsp
www.tse.or.jp/english/index.shtml
www.nyse.com
www.rts.ru
www.kse.or.kr