Professional Documents
Culture Documents
SEMESTER 5th
Submitted By
Roll no. 07
Project Guide
Submitted to
UNIVERSITY OF MUMBAI
Academic Year
2010-2011
VPM’S
I would like to extend my sincere gratitude to all those people who have
helped me in the successful completion of my Project.
We thank them for being informative and tolerant. We would not have been
able to complete our project without sincere guidance and effort of above
mentioned people, whose presence was blessing in disguise for me, which
motivated us to complete our project on time.
And at last but not the least, a special thank to my parents for their constant
support & assistance, to make these project worth presenting before you.
DECLARATION
I further declare that information presented in this project is true and original
to the best of my knowledge.
1 Title Page
2 Certificate
3 Acknowledgement
4 Declaration
5 Index
7 Researcher methodology
8 Chapter Schemes
2 Secondary market
2.1 Introduction
2.2 Definition
2.3 Features of secondary market
2.4 Advantages of secondary market
2.5 Ingredients of secondary market
2.6 Innovation in secondary market
3 Study on Bombay Stock Exchange
3.1 Introduction
3.2 History of BSE
3.3 Milestones of BSE
3.4 Achievements & Awards by BSE
4 Finding @ BSE
9 Bibliography
10 Annexure
List of chart and Diagram
Sr. no. List
OBJECTIVES OF PROJECT
• Internet
• Prospectus of BSE
RESEARCH DESIGN
1. Primary Data.
2. Secondary Data.
• Primary Data
SOURCE Sample
Interview at BSE Questionnaire 20
• Secondary Data
The methodology for collecting data with reference to the secondary data
was taken from the following:-
• Books
• Journals
• Magazines
LIMITATIONS
The project has been limited to the visit on Bombay Stock Exchange. During
research for the project it was noticed that the officers of the above
mentioned, were hesitant to provide general information as regards the
functioning of the Exchange
At the same time they were reluctant to disclose information such as the
accurate facts and figures (commission for mercantile services etc.) as they
were being considered to be confidential.
Thankfully, these limitations did not act as hindrances for completion of the
project.
F Provision of Liquidity
N Mobilization of Savings
1. Provision of liquidity
2. Mobilization of Savings
Most of the small investors are risk-averse with their small holding of
savings. So, they hesitate to invest directly in stock market. On the other
hand, the financial intermediaries collect the saving from individual saver
and distribute them over different investment units with their high
knowledge and expertise. Thus, the risks of individual investors get
distributed. This risk transformation function promotes industrial
development. Moreover, various risk mitigating tools are available in the
financial system like hedging, insurance, use of derivatives etc.
1.3 COMPONENTS OF THE FINANCIAL SYSTEM
2. Financial markets,
4. Financial services.
1. Financial Institutions
In the post- reforms era, the role and nature of activity of these financial
institutions have undergone a tremendous change. Banks have now
undertaken non- bank activities and financial institutions have taken up
banking functions. Most of the financial institution now resorts to financial
markets for raising funds.
2. Financial Markets
The main organized financial markets in India are the money market and
the capital market. The first is a market for short- term securities while the
second is a market for long- term securities, i.e., securities having a maturity
period of one year or more.
3. Financial Instruments
4. Financial Services
Financial services are those that help with borrowing and funding,
lending and investing, buying and selling securities, making and enabling
payments and categories of financial services are funds intermediation,
payments mechanism, and provision of liquidity, risk management and
financial engineering.
b. Mortgages market
b. Mortgages market
The mortgages market refers to those centers which supply mortgage loan
mainly to individual customers. A mortgage loan is a loan against the
security of immovable property like real estate. This mortgage may be
equitable mortgage or legal one.
i Public issue
ii Rights issue
Stock exchanges are the important ingredient of the capital market. They
are the theatres of trading in securities and as such they assist and control the
buying and selling of securities. The stock exchanges in India are regulated
under the Securities Contract (Regulation) Act, 1956. The Bombay Stock
Exchange is the principal stock exchange in India which sets the tone of the
stock markets.
CHAPTER: 2 SECONDARY MARKET
2.1 INTRODUCTION
* Equity Shares
* Preference Shares
* Bonus Shares
* Bonds
* Debentures
* Commercial Papers
* Treasury Bills
2.2 DEFINATION
Stock exchanges are the important ingredient of the secondary market.
They are the citadel of capital and fortress of finance. They are the theatres
of trading in securities and as such they assist and control the buying and
selling of securities. Thus, according to Husband and Dockeray “securities
or stock exchange are privately organized markets which are used to
facilities trading in securities”. However at present stock exchanges need not
necessarily be privately organized ones.
In brief, stocks exchanges constitute a market where securities issued by
central and state government, public bodies and joint stock companies are
traded.
2.3 FEATURES OF SECONDARY MARKET
Chart 2.1 Features of Secondary Market
(Source: By Researcher)
Stock exchange is a mechanism, which facilitates listing and trading in
securities. The main features of stock exchange are as follows:
1.Organized body:-
A stock exchange is an organized association or corporate body. The
organized stock exchanges can take any of the following forms:
• Public Limited by Guarantee.
• Companies Limited by Guarantee.
• Voluntary Non- profit Organization.
2.Facilitates Listing Of Shares :-
The stock exchanges facilities listing of shares issued by public limited
companies. The companies that issue shares to the public can get their shares
listed on one or more stock exchange in the country. The listing of shares is
done through the listing agreement. The listing agreement is signed by the
shares issuing company and the concerned stock exchange. Due to listing of
shares, companies are able to raise long term funds through the issue of
shares.
3.Facilities Trading of Securities :-
The stock exchange facilitate of shares. The shares listed on the exchange
can be traded. The shares can be traded between the sellers and buyers on
the stock exchange. The trading of shares brings liquidity to the shares. The
investors can sell the shares and realize cash as and when they are in need of
funds, or as and when they want to book profits.
4. Controlled by SEBI:-
The activities of stock exchanges are controlled by SEBI. SEBI has
framed rules and regulations to be followed by stock exchanges. If the rules
and regulations are not followed, SEBI may cancel the registration of such
stock exchange. SEBI may also impose penalty on defaulting stock
exchange.
5. Membership:-
Every stock exchange has its members. The members are normally the
stock brokers. Membership charges must be paid to become members of the
stock exchange. The membership fees include:
• Entrance fees.
• Membership security deposit.
• Annual subscription fees.
The membership charges vary depending upon the stock exchange. The
highest membership charges are at Bombay Stock Exchange and Calcutta
stock Exchange.
6. Governing Body:-
The stock exchanges are managed by Governing Body/ Board. The
Governing board consists of:
• President and Vice- president.
• Chief Executive.
• Directors.
• Public Representative.
• Government Nominees.
The Government nominates the president and Vice-president.
Government nominees are nominated by SEBI. The Directors are elected by
the stock broker members. The governing body has administrative powers
relating to the functioning of the stock exchange.
Ingredients are citadel of capital and fortress of finance. They are the
theatres of trading in securities and as such they assist and control the
buying and selling of securities. Ingredients of secondary market are as
follow:-
G Jobbers
E Tarawaniwala
I commission Brokers
N Sub-Brokers / Remisiers
S Authorized Clerks
(Source: By researcher)
1. Stock Exchanges:-
2. Jobbers:-
3. Tarawaniwalas:-
4. Commission Brokers:-
6. Authorized Clerks:-
Many steps have been taken in recent years to reform the secondary
market so that it may function efficient and effectively. Steps are also being
taken to broaden the market and make it function with greater degree of
transparency and in the best interest of investors. Some of the developments
in the secondary market are as following:-
The SEBI has directed that all offer of public/ rights issue/ offer for sale
should only be of ‘dematerialized shares’. So, the investors will be
compulsorily required to open a depository account with a Depository
Participant (DP) for making an application. All DPs will act as collection
agents.
Credit rating agencies have been set up for awarding credit rating to the
money market instruments, deposits and even to equity shares also. Now, all
debt instruments must be compulsorily credit rated by a credit rating agency
so that the investing public may not be deceived by financially unsound
companies. It is a healthy trend towards a developed capital market.
The OTCEI has started its trading operations through the electronic
media. Similarly, BSE switched over to electronic trading system in January
1995, called BOLT. Again, NSE went over to screen based trading with a
national network. Under this system, investment counters can be spread
throughout the country under the electronic network. The buyers and sellers
living apart from each other can trade in corporate securities through
electronic media and through telephone/ teller / computer in the case of
OTC. Hence, there is a national market with no physical location, no trading
ring, no stock exchange building, no hustle, and bustle scenes etc. which are
commonly found in conventional stock exchanges.
8. Trading in Derivatives:-
Dr. L. C. Gupta committee which had gone into the question of
introduction of derivative trading has recommended introducing trading in
Index Futures to start with and then trading in options. Bye-laws have
already been framed by NSE and BSE based on the recommendation of the
Committee. Trading in derivatives has been introduced by bringing
necessary amendment to the Securities Contract Regulation Act. These
measures would make the capital market active.
A separate window has been created in both BSE and NSE for executing
huge block deals to check intra-day volatility on this count on the bourses.
Large intra-day volatility was experienced on the stock exchanges when
these block deals were carried out. Keeping them outside the purview of the
time after the first half-an hour will stem this volatility.
KYC norms are providing quite a deterrent for the population to put its
money into various investment channels. The hassles of KYC
documentation are creating obstacles in the path of investor and advisors
alike.
In 2002, KYC norms were introduced in India with the RBI directing all
Bank and Financial Institution to put in place a policy framework to Know
Their Customer. The basic purpose of KYC was to prevent identity theft,
money laundering, terrorist financing etc. this involve verifying customer’s
identity and address by asking them to submit document that are accepted as
relevant proof.
CHAPTER 3: STUDY ON BOMBAY STOCK EXCANGE
3.1 INTRODUCTION
BSE is the first exchange in India and the second in the world to obtain
an ISO 9001:2000 certifications. It is also the first Exchange in the country
and second in the world to receive Information Security Management
System Standard BS 7799-2-2002 certification for its BSE On-Line trading
System (BOLT). Presently, BSE are ISO 27001:2005 certified, which is a
ISO version of BS 7799 for Information Security.
The BSE Index, SENSEX, is India's first and most popular Stock Market
benchmark index. Exchange traded funds (ETF) on SENSEX, are listed on
BSE and in Hong Kong. Futures and options on the index are also traded at
BSE.
Vision
"Emerge as the premier Indian stock exchange by establishing global
benchmarks"
Mission
The Bombay Stock Exchange developed the BSE Sensex in 1986, giving
the BSE a means to measure overall performance of the exchange. In 2000
the BSE used this index to open its derivatives market, trading Sensex
futures contracts. The development of Sensex options along with equity
derivatives followed in 2001 and 2002, expanding the BSE's trading
platform.
Historically an open-cry floor trading exchange, the Bombay Stock
Exchange switched to an electronic trading system in 1995. It took the
exchange only fifty days to make this transition.
Date Milestones
9th Jul 1875 The Native Share & Stock Broker's Association formed
2nd Jan 1986 SENSEX, country's first equity index launched (Base Year:1978-79 =100)
SEBI Act established ( An Act to protect, develop and regulate the securities
1st May 1992
market)
1st Jun 1999 Interest Rate Swaps (IRS) / Forward Rate Agreements (FRA) allowed
22ndMar 1999 Central Depository Services Ltd.(CDSL) set up with other financial institutions
2nd Jul 2001 VaR model introduced for margin requirement calculation
11th Jul 2001 BSE Teck launched, India 's First free float index
1st Jan 2003 India 's first ETF on SENSEX - ‘SPICE' introduced
Second biggest fall of all time, Circuit filters used twice in a day
17thMay 2004
(564.71 points, 11.14%)
2nd Jun 2004 SENSEX closes over 6000 for the first time
2nd Nov 2006 iShares BSE SENSEX India Tracker listed at Hong Kong Stock Exchange
1st Oct 2009 Bombay Stock Exchange introduces trade details facility for the Investors
5th Oct 2009 BSE Introduces New Transaction Fee Structure for Cash Equity Segment
25th Nov 2009 BSE launches FASTRADE™ - a new market access platform
4th Dec 2009 BSE Launches BSE StAR MF – Mutual Fund trading platform
4th Jan 2010 Market time changed to 9.0 a.m. - 3.30 p.m.
(Source: www.bseindia.com)
Landmark Achievements:
Some of the landmarks achieved by the BSE are mentioned as under:
• Became the first national exchange to launch its website in Gujarati and
Hindi and now Marathi
• Purchased of Marketplace Technologies in 2009 to enhance the in-house
technology development capabilities of the BSE and allow faster time-to-
market for new products
• Launched a reporting platform for corporate bonds christened the ICDM
or Indian Corporate Debt Market
• Acquired a 15% stake in United Stock Exchange (USE) to drive the
development and growth of the currency and interest rate derivatives
markets
• Launched 'BSE StAR MF' Mutual fund trading platform, which enables
exchange members to use its existing infrastructure for transaction in MF
schemes.
• BSE now offers AMFI Certification for Mutual Fund Advisors through
BSE Training Institute (BTI)
• Co-location facilities for Algorithmic trading
• BSE also successfully launched the BSE IPO index and PSU website
• BSE revamped its website with wide range of new features like 'Live
streaming quotes for SENSEX companies', 'Advanced Stock Reach',
'SENSEX View', 'Market Galaxy', and 'Members'
• Launched 'BSE SENSEX MOBILE STREAMER'
With its tradition of serving the community, BSE has been undertaking
Corporate Social Responsibility (CSR) initiatives with a focus on Education,
Health and Environment. BSE has been awarded by the World Council of
Corporate Governance the Golden Peacock Global CSR Award for its
initiative in Corporate Social Responsibility (CSR).
Awards:
• The Annual Reports and Accounts of BSE for the year ended March
31, 2006 and March 31, 2007 have been awarded the ICAI awards for
excellence in financial reporting.
• The Human Resource Management at BSE has won the Asia - Pacific
HRM awards for its efforts in employer branding through talent
management at work, health management at work and excellence in
HR through technology
Drawing from its rich past and its equally robust performance in the
recent times, BSE will continue to remain an icon in the Indian capital
market.
Groups
The scrips traded on BSE have been classified into various groups.
BSE has, for the guidance and benefit of the investors, classified the scrips
in the Equity Segment into 'A', ‘B’,'T', ‘S', ‘TS' and 'Z' groups on certain
qualitative and quantitative parameters.
The "T" Group represents scrips which are settled on a trade-to-trade basis
as a surveillance measure.
The 'Z' group was introduced by BSE in July 1999 and includes companies
which have failed to comply with its listing requirements and/or have failed
to resolve investor complaints and/or have not made the required
arrangements with both the depositories, viz., Central Depository Services
(I) Ltd. (CDSL) and National Securities Depository Ltd. (NSDL) for
dematerialization of their securities.
BSE also provides a facility to the market participants for on-line trading
of odd-lot securities in physical form in 'A', 'B', 'T', 'S', 'TS' and 'Z' groups
and in rights renunciations in all groups of scrips in the Equity Segment.
With effect from December 31, 2001, trading in all securities listed in the
Equity segment takes place in one market segment, viz., Compulsory
Rolling Settlement Segment (CRS).
The scrips of companies which are in demat can be traded in market lot of
1. However, the securities of companies which are still in the physical form
are traded in the market lot of generally either 50 or 100. Investors having
quantities of securities less than the market lot are required to sell them as
"Odd Lots". This facility offers an exit route to investors to dispose of their
odd lots of securities, and also provides them an opportunity to consolidate
their securities into market lots.
Listed Securities
The securities of companies, which have signed the Listing Agreement
with BSE, are traded as "Listed Securities". Almost all scrips traded in the
Equity segment fall in this category.
Permitted Securities
Tick Size:
Tick size is the minimum differences in rates between two orders on the
same side i.e., buy or sell, entered in the system for particular scrip. Trading
in scrips listed on BSE is done with the tick size of 5 paise.
However, in order to increase the liquidity and enable the market
participants to put orders at finer rates, BSE has reduced the tick size from 5
paise to 1 paise in case of units of mutual funds, securities traded in "F"
group and equity shares having closing price up to Rs. 15 on the last trading
day of the calendar month. Accordingly, the tick size in various scrips
quoting up to Rs.15 is revised to 1 paise on the first trading day of month.
The tick size so revised on the first trading day of month remains unchanged
during the month even if the price of scrips undergoes a change.
BSE has commenced trading in the Derivatives Segment with effect from
June 9, 2000 to enable investors to hedge their risks. Initially, the facility of
trading in the Derivatives Segment was confined to Index Futures.
Subsequently, BSE has introduced the Index Options and Options & Futures
in select individual stocks.
Investors in the cash market had felt a need to limit their risk exposure in
the market to the movement in Sensex. With a view to provide investors the
facility of creating Sensex-linked portfolios and also to create a linkage of
market prices of the underlying securities of Sensex in the Cash Segment
and Futures on Sensex, BSE has provided to the investors as well as to its
Members a facility of Basket Trading System on BOLT with effect from
August 14, 2000. In the Basket Trading System, the investors through the
Members are able to buy/ sell all 30 scrips of Sensex in one go in the
proportion of their respective weights in the Sensex. The investors need not
calculate the quantity of Sensex scrips to be bought or sold for creating
Sensex-linked portfolios and this function is performed by the system. The
investors can also create their own baskets by deleting certain scrips from 30
scrips in the Sensex. Further, the investors can alter the weights of securities
in such profiled baskets and enter their own weights. The investors can also
select less than 100% weightage to reduce the value of the basket as per their
own requirements.
The Basket Trading System thus meets the need of investors and also
improves the depth in cash and futures markets.
The trades executed under the Basket Trading System are subject to intra-
day trading and gross exposure limits available to the Members. The VaR,
MTM margins etc, as are applicable to normal trades in the Cash Segment,
are also recovered from the Members.
• SENSEX: -
• BSE-100:-
After the launch of SENSEX, a need was felt for a more broad-based
index, which reflect the movement of stock prices on a national scale.
Initially, the BSE 100 National Index was calculated by taking prices of its
constituents from five major stocks exchange in the country viz. Mumbai,
Calcutta, Delhi, Ahmadabad and Madras. A distinction was made between
“local scrips” for which prices were taken from only one exchange and
“Inter-Exchange Scrips” for which an average of the prices quoted on two or
more exchanges was considered for index compilation.
BSE launched “BSE PSU Index” on 4th June 2001. Like other on- line
Indies, the BSE-PSU Index is also displayed on- line on the BOLT. BSE
PSU Index tracks the performance of the listed PSU stocks on exchange.
BSE PPSU index is a sub-set of BSE-500 index and hence all its
constituents are part of the BSE-500 index. The BSE PSU Index ensure a
reasonable measure of how the Government wealth fluctuation on the
bourses.
• BSE-500:-
Although BSE-100 and BSE- 200 indices are broad- based indices, a
need was felt to construct BSE-500 index to represent all segment of listed
stocks and to give more coverage in term of number of scrips, market
capitalization and turnover. The BSE-500 represent around 94% of the total
listed market capitalization of BSE and around 99% of the average daily
turnover on the exchange.
• BSE Mid-Cap and BSE Small-Cap:-
BSE introduced the new index series called ‘BSE Small-Cap’ index on
11th April 2006 to track the performance of the companies with relatively
small market capitalization that would exclusively represent the mid and
small cap companies listed on the Stock Exchange. BSE Mid-Cap and BSE
Small-Cap index have proved to be great utility to the investing community
as they would truly capture the movement of the segment they are represent
(mid and small).
• BSE BANKEX:-
BOLT
To facilitate smooth transactions, BSE had replaced its open outcry system
with the BSE On-line Trading (BOLT) facility in 1995. This totally
automated, screen-based trading in securities was put into practice nation-
wide within a record time of just 50 days. BOLT has been certified by DNV
for conforming to ISO 27001:2005 security standards.
BSEWebx.co.in
BSE has also introduced the world's first centralized exchange based
Internet trading system, BSEWEBx.co.in. The initiative enables investors
anywhere in the world to trade on the BSE platform.
bseindia.com
BSE, along with its strategic partners, have put into place several critical
processes/systems such as
BSE WAN:
TDM / MPLS lines from different service providers cater to connectivity
requirements of market participants across the country. Wired / Wireless
media is used.
VSATs:
Nature of Risks:
The Exchange has been exposed to a large number of risks, which have
been inherently borne by the member brokers for all times. Since the
introduction of the screen based trading the nature of risks to which the
members of the Exchange are exposed to has undergone radical
transformation. At the same time the inherent risk involved with the trading
of paper based securities still remains. Though the process of
dematerialization has already begun, till such that it is made compulsory in
all scrips, the risk of trading in fake/forged shares and instances of loss of
shares etc. will continue to exist. The safe custody of these shares in
physical form in the Exchange as well as in the member broker’s offices is
of prime importance.
The Exchange maintains a database on all the shares that have been
reported as lost, stolen, duplicate etc. by the Companies / registrars. The
information available through the database is time relevant thus the database
is modified on a regular basis and is downloaded by the members through
BOLT on a weekly basis. This database is also provided to the Clearing
House. The member brokers can thus reduce the instances of delivery of
shares that have been reported by the Company as bad delivery by checking
all the deliveries in their office with the database provided. The Exchange
has designed and developed a software module for the above for the benefit
of the members.
The Clearing House also uses the database. At the time of pay-in the
members of the Exchange are required to submit the details of the shares
being deposited in the pay-in in a softcopy in a prescribed format.. These
details are checked against the database and a report is generated in case a
match is found. Such shares are then reported as bad delivery in the
Exchange. Further follow-up is done with the delivering broker and they are
directed to lodge a police complaint against the client introducing the stolen
shares
Presently, all active Members obtain the said policy directly from the
insurance companies and then inform BSE about the same.
4.5 DERIVATIVE
Introduction
September 13, 2004 marked another milestone in the history of the Indian
capital market, when BSE launched Weekly Options, a unique product
unparalleled worldwide in the derivatives markets. BSE permitted trading in
weekly contracts in options in the shares of four leading companies namely
Reliance Industries, Satyam, State Bank of India, and TISCO ( now Tata
Steel) in addition to the flagship index-Sensex.
Currency Derivatives:
Futures on BOLT
These are some of the safeguards the investors should keep in mind
before trading in the securities market.
1. Selecting a Broker/ Sub - Broker
Carefully read and understand the terms and conditions of the agreement
before executing the same on a valid stamp paper of the requisite value.
Agreement to be signed on all the pages by the Client and the Member or
their representative who has the authority to sign the agreement.
Agreement has also to be signed by the witnesses by giving their names
and addresses.
Please note that Regulatory Authorities have not stipulated for execution
of any document other than Broker/ Sub - Broker / Client Agreement.
3. Transacting
• Specify to the Broker / Sub - broker, the exchange through which
your trade is to be executed and maintain separate account for each
exchange.
4. Settlement
Rights of Investors