Bombay Stock Exchange

Bombay Stock Exchange
Introduction
BSE Limited is the oldest stock exchange in Asia What is now popularly known as the BSE was established as "The Native Share & Stock Brokers' Association" in 1875. Over the past 135 years, BSE has facilitated the growth of the Indian corporate sector by providing it with an efficient capital raising platform. Today, BSE is the world's number 1 exchange in the world in terms of the number of listed companies (over 4900). It is the world's 5th most active in
1
terms of number of transactions handled through its electronic trading system. And it is in the top ten of global exchanges in terms of the market capitalization of its listed companies (as of December 31, 2009). The companies listed on BSE command a total market capitalization of USD Trillion 1.28 as of Feb, 2010. BSE is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certification. 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, we 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.
BSE continues to innovate:

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 inhouse 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
2
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 initiatives in Corporate Social Responsibility (CSR).
Other 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.
3
Vision
"Emerge as the premier Indian stock exchange by establishing global
benchmarks"
Logo
The Stock Exchange, Mumbai is now BSE Limited a new name, and an entirely new perspective... a perspective born out of corporatisation and demutualisation. As a corporate entity, our new logo reflects our new mission... smoother, seamless, and efficient, whichever way you look at it. BSE is Asia's oldest stock exchange...carrying the depth of knowledge of capital markets acquired since its inception in 1875. Located in Mumbai, the financial capital of India, BSE has been the backbone of the country's capital markets
Heritage
The first ever stock exchange in Asia (established in 1875) and the first in the country to be granted permanent recognition under the Securities Contract Regulation Act, 1956, BSE Limited has had an interesting rise to prominence over the past 133 years While BSE Limited is now synonymous with Dalal Street, it was not always so. The first venues of the earliest stock broker meetings in the 1850s were in rather natural environs under banyan trees - in front of the Town Hall, where Horniman Circle is now situated. A decade later, the brokers moved their venue to another set of foliage, this time under
banyan trees at the junction of Meadows Street and what is now called Mahatma Gandhi Road. As the number of brokers increased, they had to shift from place to place, but they always overflowed to the streets. At last, in 1874, the brokers found a permanent place, and one that they could, quite literally, call their own. The new place was, aptly, called Dalal Street (Brokers' Street). In 2002, the name "The Stock Exchange, Mumbai" was changed to Bombay Stock Exchange. Subsequently on August 19, 2005, the exchange turned into a corporate entity from an Association of Persons (AoP) and renamed as Bombay Stock Exchange Limited. BSE Limited, which had introduced securities trading in India, replaced its open outcry system of trading in 1995, with the totally automated trading through the BSE Online trading (BOLT) system. The BOLT network was expanded nationwide in 1997.
Prominent Position
The journey of BSE Limited is as eventful and interesting as the history of India's securities market. In fact, as India's biggest bourse, in terms of listed companies and market capitalization, BSE Limited has played a pioneering role in the development of the
5
Indian securities market. It is surely BSE Limited pride that almost every leading corporate in India has sourced BSE Limited services in capital raising and is listed with BSE Limited. Even in terms of an orderly growth, much before the actual legislations were enacted, BSE Limited had formulated a comprehensive set of Rules and Regulations for the securities market. It had also laid down best practices which were adopted subsequently by 23 stock exchanges which were set up after India gained its independence. BSE Limited, as a brand, has been and is synonymous with the capital market in India. Its SENSEX is the benchmark equity index that reflects the health of the Indian economy.
Several Firsts
At par with the international standards, BSE Limited has in fact been a pioneer in several areas. It has several firsts to its credit even in an intensely competitive environment. First in India to introduce Equity Derivatives. First in India to launch a Free Float Index. First in India to launch US$ version of BSE Limited. First in India to launch Exchange Enabled Internet Trading Platform. First in India to obtain ISO certification for a stock exchange. 'BSE On-Line Trading System' (BOLT) has been awarded the globally recognised the Information Security Management System standard BS7799-2:2002 First to have an exclusive facility for financial training. First in India in the financial services sector to launch its website in Hindi and Gujarati. Shifted from Open Outcry to Electronic Trading within just 50 days. First bell-ringing ceremony in the history of the Indian capital markets (listing ceremony of Bharti Televentures Ltd. on February 18, 2002)
Investor Education
An equally important accomplishment of BSE Limited is its nationwide investor awareness campaign - "Safe Investing in the Stock Market"- under which awareness campaigns and dissemination of information through print and electronic medium is undertaken across the country. BSE Limited also actively promotes the securities market
6
awareness campaign of the Securities and Exchange Board of India.
Hours of operation
Session
Timing
Beginning of the Day Session 8:30 - 9:00 pre-open trading session Trading Session Position Transfer Session Closing Session Option Exercise Session Margin Session Query Session End of Day Session 9:00 - 9:15 9:15 - 15:30 15:30 - 15:50 15:50 - 16:05 16:05 - 16:35 16:35 - 16:50 16:50 - 17:25 17:30
The hours of operation for the BSE quoted above are stated in terms the local time (i.e. GMT +5:30) in Mumbai , India. BSE's normal trading sessions are on all days of the week except Saturday, Sundays and holidays declared by the Exchange in advance.
Timeline
Following is the timeline on the rise of the SENSEX through Indian stock market history. 1830's Business on corporate stocks and shares in Bank and Cotton presses started in Mumbai. 1860-1865 Cotton price bubble as a result of the American Civil War. 1870 - 90's Sharp increase in share prices of jute industries followed by a boom in tea stocks and coal 1978-79 Base year of SENSEX, defined to be 100. 1986 SENSEX first compiled using a market Capitalization-Weighted methodology for 30 component stocks representing well-established companies across key sectors. 30 October 2006 The SENSEX on October 30, 2006 crossed the magical figure of 13,000 and closed at 13,024.26 points, up 117.45 points or 0.9%. It took 135 days
8
for the SENSEX to move from 12,000 to 13,000 and 123 days to move from 12,500 to 13,000. 5 December 2006 The SENSEX on December 5, 2006 crossed the 14,000-mark to touch 14,028 points. It took 36 days for the SENSEX to move from 13,000 to the 14,000 mark. 6 July 2007 The SENSEX on July 6, 2007 crossed the magical figure of 15,000 to touch 15,005 points in afternoon trade. It took seven months for the SENSEX to move from 14,000 to 15,000 points. 19 September 2007 The SENSEX scaled yet another milestone during early morning trade on September 19, 2007. Within minutes after trading began, the SENSEX crossed 16,000, rising by 450 points from the previous close. The 30-share Bombay Stock Exchange's sensitive index took 53 days to reach 16,000 from 15,000. Nifty also touched a new high at 4659, up 113 points. The SENSEX finally ended with a gain of 654 points at 16,323. The NSE Nifty gained 186 points to close at 4,732. 26 September 2007 The SENSEX scaled yet another height during early morning trade on September 26, 2007. Within minutes after trading began, the SENSEX crossed the 17,000-mark. Some profit taking towards the end saw the index slip into red to 16,887 - down 187 points from the day's high. The SENSEX ended with a gain of 22 points at 16,921. 9 October 2007 The BSE SENSEX crossed the 18,000-mark on October 9, 2007. It took just 8 days to cross 18,000 points from the 17,000 mark. The index zoomed to a new all-time intra-day high of 18,327. It finally gained 789 points to close at an alltime high of 18,280. The market set several new records including the biggest single day gain of 789 points at close, as well as the largest intra-day gains of 993 points in absolute term backed by frenzied buying after the news of the UPA and Left meeting on October 22 put an end to the worries of an impending election. 15 October 2007 The SENSEX crossed the 19,000-mark backed by revival of fundsbased buying in blue chip stocks in metal, capital goods and refinery sectors. The index gained the last 1,000 points in just four trading days. The index touched a fresh all-time intra-day high of 19,096, and finally ended with a smart gain of 640 points at 19,059.The Nifty gained 242 points to close at 5,670. 29 October 2007 The SENSEX crossed the 20,000 mark on the back of aggressive buying by funds ahead of the US Federal Reserve meeting. The index took only 10 trading days to gain 1,000 points after the index crossed the 19,000-mark on October 15. The major drivers of today's rally were index heavyweights Larsen and Toubro, Reliance Industries, ICICI Bank, HDFC Bank and SBI among others. The 30-share
9
index spurted in the last five minutes of trade to fly-past the crucial level and scaled a new intra-day peak at 20,024.87 points before ending at its fresh closing high of 19,977.67, a gain of 734.50 points. The NSE Nifty rose to a record high 5,922.50 points before ending at 5,905.90, showing a hefty gain of 203.60 points. 8 January 2008 The SENSEX peaks. It crossed the 21,000 mark in intra-day trading after 49 trading sessions. This was backed by high market confidence of increased FII investment and strong corporate results for the third quarter. However, it later fell back due to profit booking. 13 June 2008 The SENSEX closed below 15,200 mark, Indian market suffer with major downfall from January 21, 2008 25 June 2008 The SENSEX touched an intra-day low of 13,731 during the early trades, then pulled back and ended up at 14,220 amidst a negative sentiment generated on the Reserve Bank of India hiking CRR by 50 bps. FII outflow continued in this week. 2 July 2008 The SENSEX hit an intra-day low of 12,822.70 on July 2, 2008. This is the lowest that it has ever been in the past year. Six months ago, on January 10, 2008, the market had hit an all time high of 21206.70. This is a bad time for the Indian markets, although Reliance and Infosys continue to lead the way with mostly positive results. 6 October 2008 The SENSEX closed at 11801.70 hitting the lowest in the past 2 years. 10 October 2008 The SENSEX today closed at 10527, 800.51 points down from the previous day having seen an intraday fall of as large as 1063 points. Thus, this week turned out to be the week with largest percentage fall in the SENSEX 18 May 2009 After the result of 15th Indian general election SENSEX gained 2100.79 points from the previous close of 12173.42, a record one-day gain. In the opening trade itself the SENSEX evinced a 15% gain over the previous close which led to a two-hour suspension in trading. After trading resumed, the SENSEX surged again, leading to a full day suspension of trading. 19 October 2010 BSE introduced the 15-minute special pre-open trading session, a mechanism under which investors can bid for stocks before the market opens. The mechanism, known as 'pre-open session call auction', lasted for 15 minutes (from 9:00-9:15 am). 5 November 2010 BSE SENSEX crossed the 21000 mark (exactly 21004.96). 27 December 2010 BSE SENSEX was at 20,028.93.
10
Indices :SENSEX Period : ( Jan 11 to Oct 11 )
Month
Open
High
Low
Close
Price/ Earnings 22.00 19.67 20.04 21.05 19.59 19.37 19.60 18.36 18.35 18.07
Price/ Book value 3.62 3.40 3.46 3.65 3.45 3.55 3.44 3.34 3.36 3.32
Dividend Yield 1.08 1.16 1.13 1.07 1.14 1.16 1.43 1.51 1.52 1.54
Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11
20,621.61 20,664.80 18,038.48 18,327.76 18,425.18 18,690.97 17,295.62 17,823.40 17,982.28 19,575.16 17,792.17 19,445.22 19,463.11 19,811.14 18,976.19 19,135.96 19,224.05 19,253.87 17,786.13 18,503.28 18,527.12 18,873.39 17,314.38 18,845.87 18,974.96 19,131.70 18,131.86 18,197.20 18,352.23 18,440.07 15,765.53 16,676.75 16,963.67 17,211.80 15,801.01 16,453.76 16,255.97 17,188.55 15,745.43 17,085.34
11
Sensex Growth
The graph of SENSEX from July 1997 to March 2011 The launch of SENSEX in 1986 was later followed up in January 1989 by introduction of BSE National Index (Base: 1983-84 = 100). It comprised 100 stocks listed at five major stock exchanges in India - Mumbai, Calcutta, Delhi, Ahmedabad and Madras. The BSE National Index was renamed BSE-100 Index from October 14, 1996 and since then, it is being calculated taking into consideration only the prices of stocks listed at BSE. BSE launched the dollar-linked version of BSE-100 index on May 22, 2006. BSE launched two new index series on 27 May 1994: The 'BSE-200' and the 'DOLLEX-200'. BSE-500 Index and 5 sectoral indices were launched in 1999. In 2001, BSE launched BSE-PSU Index, DOLLEX-30 and the country's first free-float based index - the BSE TECk Index. Over the years, BSE shifted all its indices to the free-float methodology (except BSE-PSU index). BSE disseminates information on the Price-Earnings Ratio, the Price to Book Value Ratio and the Dividend Yield Percentage on day-to-day basis of all its major indices. The values of all BSE indices are updated on real time basis during market hours and displayed
12
through the BOLT system, BSE website and news wire agencies. All BSE Indices are reviewed periodically by the BSE Index Committee. This Committee which comprises eminent independent finance professionals frames the broad policy guidelines for the development and maintenance of all BSE indices. The BSE Index Cell carries out the dayto-day maintenance of all indices and conducts research on development of new indices. SENSEX is significantly correlated with the stock indices of other emerging markets
Milestones
13
Date 9th Jul 1875 2nd Feb 1921
BSE Milestones 1875 To 1995 The Native Share & Stock Broker's Association formed
Clearing House started by Bank of India BSE granted permenant recognition under Securities Contracts 31st Aug 1957 (Regulation) Act (SCRA) SENSEX, country's first equity index launched (Base Year:1978-79 2nd Jan 1986 =100) 10th Jul 1987 Investor's Protection Fund (IPF) introduced 3rd Jan 1989 25th Jul 1990 15th Jan 1992 BSE Training Institute (BTI) inaugurated SENSEX closes above 1000 SENSEX closes above 2000
30th Mar 1992 SENSEX closes above 4000 SEBI Act established 1st May 1992 ( An Act to protect, develop and regulate the securities market) 29th May 1992 Capital Issues (Control) Act repealed 1992 Securities Appellate Tribunal (SAT) established 14th Mar 1995 BSE On-Line Trading (BOLT) system introduced 1996 To 2000 Date BSE Milestones 19th Aug 1996 First major SENSEX revamp 12th May 1997 Trade Guarantee Fund (TGF) introduced 21st Jul 1997 1997 1st Jun 1999 Brokers Contingency Fund (BCF) introduced BSE On-Line Trading (BOLT) system expanded nation-wide
Interest Rate Swaps (IRS) / Forward Rate Agreements (FRA) allowed Central Depository Services Ltd.(CDSL) set up with other financial 22nd Mar 1999 institutions
14
15th Jul 1999 11th Oct 1999 11th Feb 2000 9th Jun 2000
CDSL commences work SENSEX closed above 5000 SENSEX crosses 6000 intra-day Equity Derivatives introduced
2001 To 2005 Date 1st Mar 2001 1st Feb 2001 4th Jun 2001 15th Jun 2001 1st Jun 2001 2nd Jul 2001 9th Jul 2001 11th Jul 2001 25th Jul 2001 1st Nov 2001 31st Dec 2001 1st Apr 2002 15th Feb 2002 1st Feb 2002 1st Sep 2003 1st Jan 2003 16th Jan 2003 1st Apr 2003 1st June 2003 BSE Milestones Corporatisation of Exchanges proposed by the Union Govt. BSE Webx Launched BSE PSU index introduced WDM operations at commenced Index Options launched VaR model introduced for margin requirement calculation Stock options launched BSE Teck launched, India 's First free float index Dollex 30 launched Stock futures launched All securities turn to T+5 T+3 settlement Introduced Negotiated Dealing System (NDS) established Two way fungibility for ADR/GDR SENSEX shifted to free-float methodology India 's first ETF on SENSEX - SPICE' introduced Retail trading in G Sec T+2 settlement Introduced Bankex launched
15
29th Nov 2001 100% book building allowed
1st Dec 2003
T group launched Second biggest fall of all time, Circuit filters used twice in a day 17th May 2004 (564.71 points, 11.14%) 2nd Jun 2004 SENSEX closes over 6000 for the first time The BSE (Corporatisation and Demutualisation) Scheme, 2005 20th May 2005 (the Scheme) announced by SEBI 8th Aug 2005 Incorporation of Bombay Stock Exchange Limited 12th Aug 2005 Certificate of Commencement of Business 19th Aug 2005 BSE becomes a Corporate Entity 2006 To 2010 Date 7th Feb 2006 7th Jul 2006 BSE Milestones SENSEX closed above 10000 BSE Gujarati website launched
21 st Oct 2006 BSE Hindi website launched iShares BSE SENSEX India Tracker listed at Hong Kong Stock 2nd Nov 2006 Exchange Launch of Unified Corporate Bond Reporting platform : Indian 2nd Jan 2007 Corporate Debt Market (ICDM) Singapore Exchange Limited entered into an agreement to invest in 7th Mar 2007 a 5% stake in BSE Appointed Date under the Scheme i.e. Date on which 16th May 2007 Corporatisaton and Demutualisation was achieved.Notified by SEBI in the Official Gazette on 29.06.2007 10th Jan 2008 SENSEX All-time high 21206.77 1st Oct 2008 Currency Derivatives Introduced The SENSEX raised 2110.70 points (17.34%) and Index-wide 18th May 2009 upper circuit breaker applied BSE - USE Form Alliance to Develop Currency & Interest Rate 7th Aug 2009 Derivatives Markets 24th Aug 2009 BSE IPO Index launched
16
Bombay Stock Exchange introduces trade details facility for the Investors BSE Introduces New Transaction Fee Structure for Cash Equity 5th Oct 2009 Segment 25th Nov 2009 BSE launches FASTRADE - a new market access platform 1st Oct 2009 BSE Launches BSE StAR MF Mutual Fund trading platform Launch of clearing and settlement of Corporate Bonds through Indian 7th Dec 2009 Clearing Corporation Ltd. 14th Dec 2009 Marathi website launched 4th Dec 2009 18th Dec 2009 BSE's new derivatives rates to lower transaction costs for all 4th Jan 2010 Market time changed to 9.0 a.m. - 3.30 p.m. 20 th Jan 2010 BSE PSU website launched New DBM framework @ Rs.10 lakhs - 90% reduction in Membership 22nd Apr 2010 Deposit 12th May 2010 Dissemination of Corporate Action information via SWIFT platform 23rd July 2010 Options on BOLT 11th Oct 2010 21st Sep 2010 29th Sep 2010 4th Oct 2010 Launch of Fastrade on Web (FoW) - Exchange hosted platform First to introduce Mobile-based Trading Introduction of Smart Order Routing (SOR) EUREX - SENSEX Futures launch
22nd Nov 2010 Launch of SLB 12th Nov 2010 Commencement of Volatility Index 10th Dec 2010 Launch of SIP 27th Dec 2010 Commencement of Shariah Index 2011 Date 15th Jan 2011 BSE Milestones Co-location facility at BSE - tie up with Netmagic
17
Management Team
(As of July 2011) Sl. No. 1 2 3 4 5 6 7 8 9 Name Designation PJ. Towers Floor 15th 15th 13th 14th 28th 28th 15th 25th 24th 25th
Mr. MADHU KANNAN Mr. ASHISH KUMAR CHAUHAN Mr. KERSI TAVADIA Mr. NEHAL VORA Dr. SAYEE SRINIVASAN Mr. JAMES E. SHAPIRO Mr. RAHUL PARULEKAR Mr. V.K.R AGRAWAL Mr. LAKSHMAN GUGULOTHU
Managing Director & Chief Executive Officer Dy. Chief Executive Officer Chief Information Officer Chief Regulatory Officer Head - Product Strategy Head - Corporate Strategy Chief Business Officer and Head of Markets Chief Financial Officer CEO - SME Exchange
10 Mr. BALASUBRAMANIAM Head - Business Operations V.
18
Income statement of Bombay Stock Exchange for the quarte ended 30.06.2011
(Rs. in Lakhs) Particulars INCOME Operating Income Other Income Total Income EXPENDITURE Employee Costs Administration and Other Expenses Depreciation Total Expenditure 1,968.34 1,565.14 801.95 5,513.94 7,002.81 5,825.93 6,180.72 3,779.16 22,788.62 Computer Technology Related Expenses 1,178.50 13,867.08 686.02 14,553.10 49,766.27 4,038.48 53,804.75 For The Quarter Ended 30.06.11 (Unaudited) For The Year Ended 31.03.11 (Audited)
Profit Before Interest, Exceptional Item & 9,039.16 Tax Interest Profit before tax Tax Expenses Net Profit For The Period
19
31,016.13 75.70 30,940.43 7,766.79 23,173.64
37.24 9,001.92 2,585.53 6,416.39
Less: Minority Interest Add: Share of Profit of Associate (Net) Profit after tax and share of associate Paid up Equity Capital (Face Value Per Share Re. 1 Each) Reserves (Excluding Revaluation Reserve) Basic EPS after Extraordinary Item (*Not Annualised) Diluted EPS after Extraordinary Item (*Not Annualised) Notes:
732.87 5,683.52 1,034.08 4.67* 4.67*
1,967.53 358.38 21,564.49 1,034.08 211,446.73 19.05 19.05
1. The above unaudited financial results for the quarter and period ended June 30, 2011 have been reviewed by the Audit Committee and approved by the Board of Directors on 24th August, 2011. 2. The Statutory Auditors have carried out a Limited Review of the financial results. 3. As per the definition of 'business segment' and 'geographical segment', contained in Accounting Standard-17 "Segment Reporting", the Management is of the opinion that the Exchange's operations comprise of two segments viz. a) Stock Exchange Activity b) Depository Services
20
(Rs. in Lakhs) Particulars I Segment Revenue 10,684.73 3,237.20 13,921.93 13,921.93 For the Quater Ended June 30, 2011
(a) Stock Exchange Activity (b) Depository Activity Total Less: Inter Segment Revenue Total Income II Segment Results
(a) Stock Exchange Activity (b) Depository Activity Total Add : Unallocated Corporate Income Less : Unallocated Corporate Expenses Profit before tax Tax Expenses Profit after tax
7,078.99 2,452.52 9,531.51 631.17 1,160.75 9,001.93 2,585.53 6,416.40 As at June 30,2011 189,933.97 27,719.63 481.53 218,135.13
21
III
Capital Employed
(a) Stock Exchange Activity (b) Depository Activity (c) Unallocated Total
4. The Company appropriates income earned (net of taxes) on earmarked funds to the respective fund balances under Reserves & Surplus. Earnings per share for the respective periods is computed after adjusting for appropriations in respect of the earmarked funds. 5. The Company in the current quarter has distributed dividend of Rs. 4/- per share aggregating Rs. 4,916.11 Lakhs (including Dividend Distribution Tax) as declared in its Annual General Meeting dated 29th June, 2011. 6. Pursuant to the BSE (Corporatisation & Demutualisation) Scheme, 2005, (the Scheme) the Company intends to reorganize its operations through a Court approved Scheme of Arrangement by transferring its Clearing & Settlement business and related assets and liabilities to Indian Clearing Corporation Limited effective April 01, 2011. This proposed reorganization would be subject to receipt of necessary approvals/registrations from statutory authorities and the approval of the Scheme by the Court. 7. The group commenced presentation of consolidated financial results from half year ended September 30, 2010, hence comparative figures for the previous period are not presented. For and on behalf of Board of Directors of Mumbai, August 24, 2011 BSE s LIMITED
22
Madhu Kannan MD & CEO
Scams
Harshad Shantilal Mehta -- the magician during the rise in the Bombay Stock Exchange in 1992 -- was also the architect of India's biggest, largest and the most devastating stock markets scam. TIMES NOW scoops out the Rs 5,000 crore securities scam that created craters in the banks treasury and left thousands of investors gasping. Harshad Mehta was an Indian stockbroker and is alleged to have engineered the rise in the BSE stock exchange in the year 1992. Exploiting several loopholes in the banking system, Harshad and his associates siphoned off funds from inter-bank transactions and bought shares heavily at a premium
23
across many segments, triggering a rise in the Sensex. When the scheme was exposed, the banks started demanding the money back, causing the collapse. He was later charged with 72 criminal offenses and more than 600 civil action suits were filed against him. He died in 2002 with many litigations still pending against him. Harshad Shantilal Mehta was born on 29 July in a Gujarati Jain family of modest means. His early childhood was spent in Mumbai (Kandivali) where his father was a small-time businessman. Later, the family moved to Raipur in Chattisgarh after doctors advised his father to move to a drier place on account of his indifferent health. He studied in Holy Cross Higher Secondary School, Byron Bazar, Raipur, but Raipur could not hold back Mehta for long and he was back in the city after completing his schooling. Mehta gradually rose to become a stock broker on the Bombay Stock Exchange and had an expensive lifestyle. He lived in a 15,000 square feet (1,400 m2) apartment, which had a swimming pool as well as a golf patch. By 1990 Harshad Mehta had risen to prominence in the stock market. He had been buying shares heavily. The shares which attracted attention were those of Associated Cement Company (ACC). The price of ACC was bid up to Rs 10,000. For those who asked, Mehta had the replacement cost theory as an explanation. The theory basically argues that old companies should be valued on the basis of the amount of money which would be required to create another such company. Through the second half of 1991 Mehta had earned the sobriquet of the ?Big Bull?, who was said to have started the bull run. On April 23, 1992, journalist Sucheta Dalal in a column in The Times of India, exposed the dubious ways of Harshad Mehta. The broker was dipping illegally into the banking system to finance his buying.
24
The authors explain: ?The crucial mechanism through which the scam was effected was the ready forward (RF) deal. The RF is in essence a secured short-term (typically 15-day) loan from one bank to another. Crudely put, the bank lends against government securities just as a pawnbroker lends against jeweller. The borrowing bank actually sells the securities to the lending bank and buys them back at the end of the period of the loan, typically at a slightly higher price. It was this ready forward deal that Harshad Mehta and his cronies used with great success to channel money from the banking system. A typical ready forward deal involved two banks brought together by a broker in lieu of a commission. The broker handles neither the cash nor the securities, though that wasnt the case in the lead-up to the scam. ?In this settlement process, deliveries of securities and payments were made through the broker. That is, the seller handed over the securities to the broker, who passed them to the buyer, while the buyer gave the cheque to the broker, who then made the payment to the seller.In this settlement process, the buyer and the seller might not even know whom they had traded with, either being known only to the broker. This the brokers could manage primarily because by now they had become market makers and had started trading on their account. To keep up a semblance of legality, they pretended to be undertaking the transactions on behalf of a bank. Another instrument used in a big way was the bank receipt (BR). In a ready forward deal, securities were not moved back and forth in actuality. Instead, the borrower, i.e. the seller of securities, gave the buyer of the securities a BR. As the authors write, a BR Confirms the sale of securities . It acts as a receipt for the money received by the selling bank. Hence the name bank receipt. It
25
promises to deliver the securities to the buyer. It also states that in the mean time, the seller holds the securities in trust of the buyer. Having figured this out, Mehta needed banks, which issue fake BRs, or BRs not backed by any government securities. Two small and little known banks the Bank of Karad (BOK) and the Metropolitan Co-operative Bank (MCB) came in handy for this purpose. These banks were willing to issue BRs as and when required, for a fee,? the authors point out. Once these fake BRs were issued, they were passed on to other banks and the banks in turn gave money to Mehta, obviously assuming that they were lending against government securities when this was not really the case. This money was used to drive up the prices of stocks in the stock market. When time came to return the money, the shares were sold for a profit and the BR was retired. The money due to the bank was returned. The game went on as long as the stock prices kept going up, and no one had a clue about Mehta?s modus operandi. Once the scam was exposed though, a lot of banks were left holding BRs which did not have any value - the banking system had been swindled of a whopping Rs 4,000 crore. When the scam was finally revealed, the Chairman of the Vijaya Bank committed suicide by jumping from the office roof because he knew that if people come to know about his involvement in issuing cheques to Harshad Mehta, people would accuse him. Mehta made a brief comeback as a stock market guru, giving tips on his own website as well as a weekly newspaper column. This time around, he was in cahoots with owners of a few companies and recommended only those shares. This game, too, did not last long.Interestingly, by the time he died, Mehta had been convicted in only one of the many cases filed against him.
26
BSE categories
Bombay Stock Exchange or the BSE is the largest stock exchange in India in terms of highest number of companies listed with the stock exchange. If you consider the market capitalization of the companies listed with BSE even then the stock exchange is the largest in the country. There are thousands of companies listed at the stock exchange and they are divided into different categories depending on various factors including market capitalization, parameters set by the Securities and Exchange Board of India or the SEBI, number of years of listing at the exchange, equity capital of the company, liquidity of the company and so many other factors. Market capitalization of the company is a determining factor for dividing the stocks in different groups. Market capitalization of a company is calculated by multiplying the number of outstanding stocks of the company at the market with the current price of the stock at the market. Along with that the bonds at the debt market of the company are also taken into consideration. Depending on the market capitalization stocks are divided mainly into three categories the large cap stocks, mid cap stocks and the small cap stocks. Generally the biggest companies with a market capital of more than $10 billion are considered to be large cap stocks. The range for determining the mid cap stocks is between $ 2 billion to $ 10 billion. Companies that have a market capitalization of the less than $ 2 billion are grouped under the small cap stocks. Securities and Exchange Board of India is the governing body for all the stock exchanges in India and they frame the rules and regulations for the stock exchanges. Starting right from the listing of the companies, issuing of securities, trading of stocks at the stock market, everything is controlled by the Securities and Exchange Board of India or SEBI. Based on the guideline and parameters of trading by the SEBI authorities, the stocks listed at the BSE are divided. That means there are different trading guidelines and rules for each of the categories of stocks listed at the Bombay Stock Exchange. Other factors like the number of years of listing of the company are considered for determining the authenticity of the company and the business
27
potential of the company. The equity capital of the company and the asset of the companies are also considered for examining the financial potential of the company. When a company applies for listing at the Bombay Stock Exchange they have to fulfill all the set conditions and then the BSE authority carries out a due diligence to examine the company. After that depending on the parameters of the categorization the company is listed at the appropriate group. Often times listed stocks are rearranged by the BSE. That is the group or the category of the stocks is changed on the basis of the parameters that are set for determining the category of the stock. Here we are presenting the existing groups or categories in which the BSE stocks are divided. Primarily there are five groups in which the listed stocks are divided and they are A, B, T, Z, and F. A The A group comprises stocks that have fairly good growth rate. These companies offer dividend to the investors and have good capital appreciation over the time. The stocks that are listed with A category have the facility to carry forward to the next settlement cycle. This is an advantage from the margin and derivative trading point of view. B The category B is basically a subset of all the listed stocks and the stocks listed in this category have greater market capitalization that the rest of the stocks. The trading of the stocks that are listed in the T category needs to be settled on the very trading day and the deals can not be carried forward. This is done by BSE to restrict any unwanted movement in these scripts. Z The stocks in the Z group are marked for not complying with the rules and regulations of the stock exchange and these stocks are often suspended from trading. F The F group is reserved for the stocks listed at the debt market.
28
Need for Bombay Stock Exchange
BSE is one of the factors Indian Economy depends upon. BSE has played a major role in the development of the country. Through BSE, Foreign Investors have invested in India. Due to inward flow of foreign currency the, the Indian economy have started showing the upward trend towards the development of the country. BSE provides employment for many people. Trading in BSE is also a business for a few, their family income depends on it, that is the reason why when scandals occur in the stock market it not only affects the companies listed but also affects many families. In the few extreme cases, it is observed that the bread winner of a family tends to suicide due to the losses occurred. In most of major industrial cities all over the world, where the businesses were evolving and required investment capital to grow and thrive, stock exchanges acted as the interface between Suppliers and Consumers of capital. One of the key advantages of the stock exchanges is that they are efficient medium for raising resources and channeling savings from the general public by the way of issue of Equity Debt Capital by joint stock companies which are listed on stock exchanges. Not to forget that the taxes and other statutory charges paid by BSE are substantial and make a sizeable contribution to the Government exchequer (Financial resources; funds). For example, transactions on the stock exchanges are subject to stamp duties, which is paid to the State Government. The annual revenue from this source ranges from Rs 75 100 crores With the opening up of the financial markets to Foreign Investors a number of foreign institutional investors and brokers have established a sizeable presence in Mumbai. With no doubt we can clearly state without BSE, the Indian Economy would have been a complete different story. Various companies wouldnt have been a strong and successful as they are today and the brokers and traders would have been elsewhere.
29
BSE is an asset to our country and its existence plays a vital role in many peoples life who depends on it. Indeed, BSE has made a major contribution to the industrial and economic development of India.
Function of Bombay Stock Exchange
The Stock Market is a pivotal institution in the financial system. A well-ordered stock market performs several economic functions: It ensures the measure of safety and fair dealing It performs an act of magic by translating short-term investments into long-term funds for companies. It directs the flow of capital in the most profitable channels. It induces companies to raise their standard of performance. It offers guidance to management about the cost of captal
Measure of Safety and Fair Dealing:

The Bombay stock exchanges operate under a regulatory framework which seeks to protect the interest of investors. The rules, regulations, and bye-laws of a stock exchange, which are approved by the central government, are meant to ensure that a reasonable measure of safety is provided to investors and transactions take place in competitive conditions which are fair to all concerned.
Act of Magic:
Most of the investors are interested in short-term investments. The requirements of companies are, however, long-term in nature they require equity capital on a more or less permanent basis and debenture capital for 3 to15 years. Thanks to the negotiability and transferability of securities, through the Bombay stock exchange, it is possible for companies to obtain their long-term requirements from
30
investors with short-term horizons. While one investor is substituted by another when a security is transacted, the company is assured of availability of funds.
Flow of Capital in the Most Profitable Channels:

Companies which have more profitable investment opportunities are normally able to raise substantial funds through the stock market, whereas companies which do not have such opportunities are normally not able to do so. As a result, the Bombay stock exchange facilitates the direction of the flow of capital in the most profitable channels.
Inducement to Companies to Raise their Standard of Performance:

When the equity capital of a company is listed on a stock exchange, the performance of the company is reflected in the market price of the equity stock, which is readily available for public consumption. Put differently, the companys performance is more visible in the eyes of public. Such a public exposure normally induces companies to raise their standard of performance.
Guidance of Cost of Capital:

The market value of the securities of company are required for computing its cost of capital. Such values can be obtained from stock market quotations. Hence the Bombay stock exchange offers guidance on cost of capital.
31
LISTING OF THE COMPANIES ON STOCK EXCHANGE Public Limited Company. Public Listed Company Public Non-listed Company Listed Company means a public ltd Co which is: 1. Listed on any one or more recognized stock exchanges in India. 2. Securities (shares: debentures) of such company are traded on such stock exchanges. Unlisted company therefore means a company whose securities are not listed on any of recognized stock exchanges in India. Why Companies get Listed with Stock Exchange? Companies get listed with Stock Exchange for following reasons: 1. 2. 3. 4. 5. 6. 7. 8. Securities are freely transferable. Easy liquidity of securities. Easy availability of prices of securities. Reputation, Image, Goodwill. Public awareness. More transparency. Helps in obtaining loans from Banks/Institutions. Helps in marketing its Products.
In order to list securities of a company & get its shares traded on any recognized stock exchanges, the Public Ltd Company may either come out with a public issue (i.e. to offer further securities to public) or make an offer for sale of existing securities to public. This can be done by issuing of Prospectus & Complying with all The Provinces of Company Act 1956. Each stock exchange has its own criteria for listing securities which should also be met. E.g.: If company intends to get listed its securities in Bombay Stock Exchange, Mumbai post issue capital (paid up capital after
32
proposed public issue) of such companies should be Rs. 10 Crores atleast. The Company enters into a listing agreement with concerned stock exchange & on receipt of permission from concerned Stock Exchange, company is listed and securities are thereafter traded on such stock exchange.
Dematerialisation
Dematerialisation is the process of converting the physical form of shares into electronic form. Prior to dematerialisation the Indian stock markets have faced several problems like delay in the transfer of certificates, forgery of certificates etc. Dematerialisation helps to overcome these problems as well as reduces the transaction time as compared to the physical segment. The article discusses the procedures, advantages and problems of dematerialisation. The Indian Stock markets have seen a major change with the introduction of depository system and scrip less trading mechanism. There were various problems like inordinate delays in the transfer of share certificates, delay in receipt of securities and inadequate infrastructure in banking and postal segments to handle a large volume of application and storage of share certificates .To overcome these problems physical dealing in securities should be eliminated . The Indian stock market introduced the system of dematerialisation recognizing the need for scrip less trading. According to the Depositories Act, 1996, an investor has the option to hold shares either in physical or electronic form .The process of converting the physical form of shares into electronic form is called dematerialisation or in short demats. The converted electronic data is stored with the depository from where they can be traded. It is similar to a bank where an investor opens an account with any of the depository participants. Depository participant is a representative of the depository .The DP maintains the investors securities account balances and intimates him about the status of holdings.
33
Procedure for converting the physical shares into electronic form.

To convert the shares into electronic form the investor should open an account with any of the depository participants. For opening an account the investor has to fill up the account opening form. An account number (client ID) will be allotted after signing the agreement which defines the rights and duties of the DP and the investor wishing to open the account. The client ID along with the DP ID gives a unique identification in the depository system. Any number of depository accounts can be opened. After opening an account with the DP the investor should surrender the physical certificates held in his name to a depository participant. These certificates will be sent to the respective companies where they will be cancelled after dematerialization and will credit the investors account with the DP. The securities on dematerialisation will appear as balances in the depository account. These balances can be transferred like the shares held in physical form. Dematerialised shares are in the fungible form and do not have any distinctive or certificate numbers .The securities in the demat can again be converted into physical form which is called as rematerialisation.
Safety to the investor

* Securities Exchange Board of India (SEBI) has laid down certain rules and regulations for getting registered as a depository participant. With the recommendation of the Depository and SEBI's own independent evaluation a DP will be registered under SEBI. * The investors account will be credited/debited by the DP only on the basis of valid instruction from the client. * The system driven mandatory reconciliation is done between the DP and NSDL. * Periodic inspections of both DP and R&T agent are conducted by NSDL * The data interchange between NSDL and its business partners is protected by standard protection measures such as encryption.
34
* No direct communication links exist between two business partners and all communications are routed through NSDL. * A statement of account is received periodically by the investors. NSDL sends statement of account to a random sample of investors a s a counter check. * The investor has the right to approach NSDL if the grievances of the investors are not resolved by the concerned DP.
Advantages of dematerialisation
* There is no risk due to loss on account of fire, theft or mutilation. * There is no chance of bad delivery at the time of selling shares as there is no signature mismatch. * Transaction costs are usually lower than that in the physical segment. * The bonus /rights shares allotted to the investor will be immediately credited into his account. * Share transactions like sale or purchase and transfer/transmission etc. can be effected in a much simpler and faster way.
Problems of Dematerialisation.
Prior to dematerialization there was almost a gap of three months between application date and listing of shares .Dematerialisation has reduced this gap to a great extent. But quick money brings with itself a host of problems. Current regulations prohibit multiple bids or applications by a single person.But the investors open multiple demat accounts and make multiple applications to subscribe to IPO's in the hope of getting allotment. The recent IPO allotment scam proves that even a highly automated system is not the solution to prevent malpractices, if there is laxity. The scam of Yes
35
bank and IDFC reveal that the investor banker has failed to weed out multiple applications either direct or benami. Not only the investor banker the DP and the depository failed to detect the large number of demat accounts opened with the same address but different names. Lack of coordination between banks, DP's, brokers depositories, registrars and investment bankers and clarity of their roles has given rise to such problems.
Remedial measures
* To prevent the sprouting of fictitious demat accounts at DP's the allotment of shares should be checked thoroughly. * The concerned DP should strictly enforce the Know your client (KYC) norms rather than relying on bank documents and verification of brokers. * DP's should be asked to give monthly figure of accounts opened for the public. * Coordination and Clear definition of roles is important to weed out manipulations. Though dematerialisation has several benefits the recent scam has the potential to adversely affect the confidence of retail investors in the capital market .To reap the benefits of dematerialisation SEBI, as a regulator has to place a system that is alert and vigilant against unjust gains.
36
TRADING & SETTLEMENT Demat Account is a compulsory Account for traders who want to trade in stock market. This account is mainly used for buying and selling of shares. Trading Each Stock Exchange has listed and permitted securities that are traded on it. There are two ways of organizing the trading activity.
1. Open Outcry System

Under the open outcry system traders shout and resort to signals on the trading floor of the exchange which consists of several notional trading posts for different securities. A member (or his representative) wishing to buy or sell a certain security, reaches the trading post where the security is traded. Here, he comes in contact with others interested in transacting in that security. Buyers make their bid and sellers make their offers and bargains are closed at mutually agreed-upon prices. In stock where jobbing is done, the jobber plays an important role. He stands ready to buy or sell on his account. He quotes his bid (buying) and ask (selling) prices. He provides some stability and continuity to the market.
2. Screen Based System

In the screen-based system the trading ring is replaced by the computer screen and distant participants can trade with each other through the computer network. A large screen based trading system (a) enhances the informational efficiency of the market as more participants trade at a faster speed; (b) permits the market participants to get a full view of the market, which increases their confidence in the market; and (c) establishes transparent audit trails.
37
Settlement:
The settlement of transactions is done on a settlement period basis. Earlier, the settlement period on the Indian Stock Exchanges was 7 days, but now it is T+1 settlement. T+1 includes the day of trade and an additional day. During a settlement period, buying and selling transactions in a particular security can be squared up. Square off is a same day settlement cycle. At the end of settlement period, transactions are settled on net basis. Since the settlement period used to be 7 days and the settlement is for the net position, most of the transactions are squared within the settlement period. Clearly these transactions are motivated by a desire to profit from price variations within the settlement period. Traditionally, trades have been settled by physical delivery. This means that the securities have to physically move from the seller to the sellers broker, from the sellers broker to the buyers broker (through the clearing house of the exchange or directly), and from the buyers broker to the buyer. Further the buyer has to lodge the securities with the transfer agents of the company and the process of the transfer may take one to three months. This leads to high paperwork cost and creates bad paper risks. To mitigate the cost and the risks associated with the physical delivery, settlement in the developed securities market is mainly through electronic delivery facilitated by depositories. A depository is an institution which immobilizes physical certificates (of securities) and effect transfers of ownership by electronic book entry. A beginning in the direction of electronic delivery has been made in India with the establishment of the National Securities Depository Limited (NSDL), Indias first depository, in 1996. As NSDL expands its operations and as new depositories come into being, settlement will progressively be done more by electronic delivery and less by physical delivery.
38
INVESTMENT Investment means the use of money for the purpose of making more money, to gain income or increase capital, or both. Short Term Investment Long Term Investment
1. Short Term Investment:

It is more risky A successful short term trading mindset instead requires iron discipline, intense focus and steely devotion. Short term trading can be divided in 3 sections Day Trading Swing Trading Position Trading
Day Trading Day traders buy and sell stocks throughout the day in the hope that the price of the stocks will fluctuate in value during the day, allowing them to earn quick profits. A day trader will hold a stock anywhere from a few seconds to few hours, but will always sell all of those stocks close of the day. The day trader will therefore not own any position at the close of the each day, and there is overnight risk. The objective of day trading is to quickly get in and out of any particular stock for profits anywhere from few cents to several points per share on an intra-day basis. Day trading can be further sub-divided into number of styles, including. Scalpers: This style of day trading involves the rapid and repeated buying and selling of a large volume of stocks within seconds or minutes. The objective is to earn a small per share profit on each
39
transaction while minimizing the risk. Scalpers: This style of day trading involves the rapid and repeated buying and selling of a large volume of stocks within seconds or minutes. The objective is to earn a small per share profit on each transaction while minimizing the risk. Momentum Traders: This style of day trading involves identifying and trading stocks that are in a moving pattern during the day, in an attempt to buy stocks at bottoms and sell at tops.
Swing Trading
The principal difference between day trading and swing trading is that swing traders will normally have a slightly longer time horizon than day traders for holding a position in a stock. As is the case with day traders, swing traders also attempt to predict the short term fluctuation in a stocks price. However swing traders are willing to hold the stocks for more than one day, if necessary, to give to stock price some time to move or to capture additional momentum in the stocks price. Swing traders will generally hold on to their stock positions anywhere from a few hours to several days. Swing trading has the capability of providing higher returns than day trading. However, unlike day traders who liquidate their positions at the end of each day, swing traders assume overnight risk. There are some significant risks in carrying positions overnight. For example news events and earnings warnings announced after the closing bell can result in large, unexpected and possibly adverse changes to a stock's price
Position Trading
Position trading is similar to swing trading, but with a longer time horizon. Position traders hold stocks for a time period anywhere from one day to several weeks or months. These traders seek to identify
40
stocks where the technical trends suggest a possible large movement in price is likely to occur, but which may not be fully played out for several weeks or months.
2.Long Term Investment:

A successful long term trading mindset requires, above all, patience and perseverance. These are more difficult attributes to develop in the average trader. Too often the average short-term trader succumbs to the markets lure and develops a frantic, get-it-now mindset believing every price blip represents a trading opportunity. As this attitude is fanned by the media and brokerage industry, more and more long term traders have become aggressive swing traders and swing traders become rabid day traders - more often than not with disastrous consequences. Long term trading results in less trades with fewer mistakes and lower commission and slippage costs because overtrading is one of the biggest sources of losses facing both new and established traders. Why is this so? Obviously, more trades mean more commissions and more slippage. Few short-term traders realize, however, that their total commission and slippage costs in any year often exceed their total losses for the year. In other words, many losing short-term traders would have actually made money on an annual basis had they not incurred the exorbitant commission and slippage costs of trading throughout the year. Fewer trades mean fewer mistakes. Long term trading unlike short term requires dramatically reduced time for analysis and trading. If you are trading using weekly data, only one to two hours each weekend are required to implement a sophisticated long term trading system for 21 or more commodities. This includes the time to completely download your quotes and update your data files, verify which are the correct months to trade for each commodity, figure out if you have any positions to rollover, generate your trading signals, and write down orders to your broker. On the contrary a typical successful day trader literally becomes a slave to their quote machines during market hours.
41
Factors Affecting Bombay Stock Exchange There are various factors that affects BSE: 1)Scams like the following one:THE KETAN PAREKH SCAM Ketan Parekh was a graduate from HR College and CA by profession. Ketan Parekhs scam was often referred to as the one-man army or Pentafour Bull. The 176-point Sensex crash on March 1, 2001 came as a major shock for the Government of India, the stock markets and the investors alike This sudden crash in the stock markets prompted the Securities Exchange Board of India (SEBI) to launch immediate investigations into the volatility of stock markets. The scam shook the investor's confidence in the overall functioning of the stock markets. By the end of March 2001, at least eight people were reported to have committed suicide and hundreds of investors were driven to the brink of bankruptcy. The first arrest in the scam was of the noted bull, Ketan Parekh (KP), on March 30, 2001, by the Central Bureau of Investigation (CBI). Soon, reports abounded as to how KP had single handedly caused one of the biggest scams in the history of Indian financial markets. He was charged with defrauding Bank of India (BoI) of about $30 million among other charges. KP's arrest was followed by yet another panic run on the bourses and the Sensex fell by 147 points. By this time, the scam had become the 'talk of the nation,' with intensive media coverage and unprecedented public outcry. Bank of India along with Punjab National Bank and SBI were at the receiving end. Madhavapura Bank and Classic Cooperative Bank are the others affected. Ketan Parekh owes around Rs1.3bn to the Bank of India KPs scam was one of the major scam in India after Harshad Mehta which lost the confidence of investors in investing in share market. KPs scam is also regarded as one man army scam.
42
(b) FOREIGN INSTITUTIONAL INVESTORS (FII) Foreign investment refers to investments made by residents of a country in another countrys financial assets and production processes. After the opening up of the borders for capital movement, foreign investments in India have grown enormously. It affects the productivity factor of the beneficiary or the receiver country and has the potential to create a ripple effect on the balance of payments of that country. In developing countries like India, foreign capital helps in increasing the productivity of labor and to build up foreign exchange reserves to meet the current account deficit. It provides a channel through which these countries can have access to foreign capital. Foreign investment can be of two forms: Foreign direct investment (FDI) and Foreign portfolio investment (FPI).FDI involves direct production activity and has a medium to long term investment plans. In contrast the FPI has a short term investment horizon. They mostly investment in the financial markets which consist of Foreign Institutional Investors (FIIs). They invest in domestic financial markets like money market, stock market, foreign exchange market etc. According to Michael Frenkel and Lukas Menkhoff, FIIs are beneficial for an economy under specific institutional conditions. It is defining characteristic of an emerging market that these conditions are often not met. Foreign institutional investors investments are volatile in nature, and they mostly invest in the emerging markets. They usually keep in mind the potential of a particular market to grow. FII has lead a significant improvement in India relating to the flow of foreign capital during the period of post economic reforms. The inflow of FII investments has helped the stock market to raise at a greater height according to financial analysts. Sensex touched a new height. It crossed 10000-mark in January 2006, which was 8073 on November 2, 2005, and 9323 in December 2005 FII participation in the Indian stock market triggers its upward movement, but, at the same time, increased liquidity through FII investment inflow increases volatility too.
43
FIIs IMPACT ON THE INDIAN ECONOMY. The Ashok Lahiri Committee Report on encouraging FII Flows (Ministry of Finance, the Government of India) mentions some reasons for the need of FII flows. FII flows supplement and augment domestic savings and domestic investment without increasing the foreign debt of our country. Capital inflows to the equity market increase stock prices lower the cost of equity capital and encourage investment by Indian firms. The Indian stock markets are both shallow and narrow and the movement of stocks depends on limited number of stocks. As FIIs purchases and sells these stocks there is a high degree of volatility in the stock markets. If any set of development encourages outflow of capital that will increase the vulnerability of the situation. The high degree of volatility can be attributed to the following reasons se in investment by FIIs increases stock indices in turn increases the stock prices and encourages further investments. In this event when any correction takes place the stock prices declines and there will be full out by the FIIs in large number as earning per share declines. that they wait till the index raises up to a certain height and exit at an appropriate time. This tendency increases the volatility further. So even though the portfolio investment by FIIs increases the flow of money in the economic system, it may create problems of inflation TRANSFORMATION OF THE STOCK EXCHANGE, MUMBAI TO BSE LTD. The change in the name of Asia's oldest stock exchange, from the Stock Exchange, Mumbai to the Bombay Stock Exchange Ltd., (BSE Ltd.) is of more than cosmetic significance. Along with the change in name comes a new perspective, one brought about by a comprehensive change in its ownership and management. Until now, the BSE like most other exchanges in India was owned and managed by brokers, who also had the sole right to trade in the exchanges. Conflicts of interest were bound
44
to arise in such situations. Until the advent of the National Stock Exchange in 1994, the BSE was India's pre-eminent exchange, accounting for an overwhelmingly large proportion of the share market transactions of the country. Companies wherever located were advised to seek a listing of their shares on the BSE so that they could have access to its large reservoir of capital and investor base. Legally speaking, it was enough if they listed their shares on any one of the regional stock exchanges, closest to their registered office. This last rule, like so many others connected with the securities market, had to be discarded in the wake of the sweeping changes in the financial markets since the 1990s. Perceptions of both investors and regulators changed dramatically forcing the stock exchanges to overhaul themselves. A series of securities scams through the 1990s in which brokers were invariably held accountable, the inability of the broker-dominated exchanges to check malfeasance, and a vastly expanding role for the capital market in the national economy necessitated a thorough review of the age-old stock market structure. In the new demutualised and corporatised exchanges that came about as part of a major capital market reform a time-bound program for 10 other exchanges has since been announced the right to trade is segregated from the right to own and manage the exchange. The transition is not going to be easy as it involves the imparting of a much greater degree of professionalism. Stock market professionals from outside the broking community are reportedly in short supply. By far the biggest unknown factor relates to the future ownership of the exchange. Brokers will cede control and investors including retail ones will hold a substantial portion of the exchange's equity. Apart from this being totally new to India, it does raise the possibility of other conflicts of interest including the one connected with the listing of its own shares.
45
CONCLUSION With the increasing Globalization, the Stock Exchanges have tremendously affected the financial conditions of India. The stock markets of the future will have a redefined pupose and reinvented architecture due to the advent and widespread use of technology. Information and stock price quotations are available almost instantaneously, and, more importantly, investors can act on this data by executing a trade from anywhere at anytime. This new market will bring benefits to investors, the listed companies, and the economies of the company. Trading will become cheaper, faster and settlement will be simpler wit reduced risk. Raising capital for companies will become easier, thereby contributing directly to the Economic Growth. Already, BSE has shown its proactive response by increasingly using leading edge to technologies to effectively compete in the global environment. In the not too distant future, once full capital account convertibility is permitted in India, one could well witness an expansion of trading volumes and its resultant economic benefits to the thriving and ever young metropolis of Mumbai. Inspite of all these positive predictions, the future of Stock Exchanges is likely to be uncertain and even their survival is a major question mark.
46

Bombay Stock Exchange

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Bombay Stock Exchange

Uploaded by

Copyright:

Available Formats

Bombay Stock Exchange