Date post: | 29-Dec-2015 |
Category: |
Documents |
Upload: | mohammedumair |
View: | 69 times |
Download: | 3 times |
By :Charles Ambrose
Secondary Markets
Overview2
Meaning Functions Structure Players in the Stock Market Merits and Demerits of Stock Market Reforms in Stock market OTCEI & NSE- Origin , Functions, Merits and
Demerits Trading and Settlement System of Stock
Exchange Transactions
Process of Control over Stock exchange3
I. Recognition of SEII. Listing of SecuritiesIII. Registration of stock brokers
1.Recognition of Stock Exchange
4
As per the Securities Contracts Regulations Act 1956, a Stock Exchange is Defined as follows:
“It is an association, organization or body of individuals whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities.”In other words,Stock exchanges constitute a market where securities issued by the central and state governments, public bodies and joint stock companies are traded.
Functions or Services of Stock Exchanges
5
Liquidity and Marketability of
Securities
Safety of Funds
Functions or Services of Stock Exchanges
6
Supply of Long term Funds
Flow of Capital to Profitable Ventures
Motivation for Improved Performance
Functions or Services of Stock Exchanges
7
Promotion of Investment
Reflection of Business
Cycle
Functions or Services of Stock Exchanges
8
Marketing of New Issues
Miscellaneous Services
SEs in India - Structure National level stock
exchanges
Bombay Stock Exchange(BSE) National Stock Exchange of
India (NSE)
List of Regional Stock Exchanges in India
Ahmedabad Stock Exchange Bangalore Stock Exchange Bhubaneshwar
Stock Exchange Calcutta Stock Exchange Cochin Stock Exchange Coimbatore Stock Exchange
Delhi Stock Exchange Guwahati Stock Exchange Hyderabad Stock Exchange Jaipur Stock Exchange Ludhiana Stock Exchange Madhya Pradesh Stock Excha
nge Madras Stock Exchange Magadh Stock Exchange Mangalore Stock Exchange Meerut Stock Exchange OTC Exchange Of India Pune Stock Exchange Saurashtra
Kutch Stock Exchange Uttar Pradesh Stock Exchange Vadodara Stock Exchange
9
10
Stock
Exchanges
in India
2. Listing of Securities11
Listing means admission of securities of an issuer to trading privileges on a stock exchange through a formal agreement. The prime objective of admission to dealings on the Exchange is to provide liquidity and marketability to securities, as also to provide a mechanism for effective management of trading.
Listing of Securities12
Meaning – admission of securities for trading in a recognized SE
Categories: Group A shares (Specified shares or
cleared securities) Group B shares (non- specified shares or
non-cleared securities) Group C Shares ( Odd lots and permitted
securities)
Listing of Securities
Advantages Facilitates buying and
selling of securities Ensures liquidity Offers wide publicity Assures finance Enables borrowing Protects investors
Disadvantages Leads to speculation Degrades Company’s
Reputation Discloses vital
information to competitors
13
Listing Criteria14
As per SEBI directive, an unlisted company may make an initial public offering (IPO) of equity shares or any other security which may be converted into or exchanged with equity shares at a later date, only if it meets all the following conditions: (a) The company should have net tangible assets of at
least Rs. 3 crore in each of the preceding 3 full years (of 12 months each), of which not more than 50% is held in monetary assets;
(b) The company should have a track record of distributable profits in terms of section 205 of the Companies Act, 1956, for at least three (3) out of immediately preceding five (5) years;
Listing Criteria15
(c) The company should have a net worth of at least Rs. 1 crore in each of the preceding 3 full years (of 12 months each);
(d) In case the company has changed its name within the last one year, at least 50% of the revenue for the preceding 1 full year is earned by the company from the activity suggested by the new name; and
(e) The aggregate of the proposed issue and all previous issues made in the same financial year in terms of size (i.e. offer through offer document + firm allotment + promoters’ contribution through the offer document), does not exceed five (5) times its pre-issue networth as per the audited balance sheet of the last financial year.
Why should one trade on a recognized stock exchange only for buying/selling shares?
16
An investor does not get any protection if he trades outside a stock exchange. Trading at the exchange offers investors the best prices prevailing at the time in the market, lack of any counter-party risk which is assumed by the clearing corporation, access to investor grievance and redressal mechanism of stock exchanges, protection up to a prescribed limit, from the Investor Protection Fund etc
What is Demutualization of stock exchanges?
17
Demutualization refers to the legal structure of an exchange whereby the ownership, the management and the trading rights at the exchange are segregated from one another.
How is a demutualized exchange different from a mutual exchange?
18
In a mutual exchange, the three functions of ownership, management and trading are concentrated into a single Group. Here, the broker members of the exchange are both the owners and the traders on the exchange and they further manage the exchange as well. This at times can lead to conflicts of interest in decision making. A demutualized exchange, on the other hand, has all these three functions clearly segregated, i.e. the ownership, management and trading are in separate hands.
Registration of Brokers19
Meaning – A broker is a commission agent who transacts business in securities on behalf of his clients who are non-members of a SE
Qualifications: Indian citizen – 21 years of age Not be bankrupt or compounded by creditors Not be convicted for any offence, fraud, etc Not be engaged in any other business Not be a defaulter of a SE Education – 12th Std
Functions of Brokers
Client Registration Obtaining margin
money Execution of orders Supply of necessary
slips Issue of contract note Particulars in contract
note
Payment /delivery of securities
Charging brokerage and other charges
Maintenance of bank accounts
Receipt of interest, dividends, etc
Settlement of disputes
20
The maximum brokerage that can be charged by a broker from his clients as commission cannot be more than 2.5% of the value mentioned in the respective purchase or sale note.
One can confirm it by verifying the registration certificate issued by SEBI. A broker's registration number begins with the letters ‘INB’ and that of a sub broker with the letters ‘INS’.
21
What is the maximum brokerage that a broker can charge?
How to know if the broker or sub broker is registered?
Kinds of brokers22 • A jobber is a Professional independent broker who
deals in securities on his own behalf. His main job is to earn a margin of profit due to price variations. He buys securities as a owner, keeps them for a very short period and sells them for profit known as the “jobber’s turn”
• Does not work on commission basis, but works for profit
Jobbers
• He acts both as a broker as well as a jobber.• The drawback of this system is that he can
act against the interest of investors.
Tarawaniwalas
• He buys and sells securities on behalf of his clients for a commission.
• He does not purchase or sell in his own name.
Commission Brokers
• Sub broker is an agent of a Broker, he helps the clients to buy and sell securities only through the stock broker.Sub Broker
• An authorized clerk is one who is appointed by a stock broker to assist him in the business of securities Trading. A broker cannot be present always on the trading floor of a SE, and therefore requires an assistance of a Authorized clerks. Each broker can employ only a specified number of authorized clerks as per SE rules.
Authorized Clerks
23
Difference Between Investor & Speculator
24
Kinds of Speculators25
Bulls Bears Stags
Wolves Lame ducks
26
• A Bull also called as Tejiwala is an operator who is hopeful of price rise in the near future. In anticipation of price rise he makes purchases of shares and other securities with the intention of selling them at higher prices in future
Bulls• A bear or a Mandiwala on the other hand is a
speculator who is expecting a fall in prices and hence sells securities so that he may buy them at cheap price in future. A bear does not have securities at present but sells them at higher prices in anticipation that he will supply them business purchasing at lower prices in the future
Bears
• A stag is that type of speculator who treads his path very carefully. He applies for shares in new companies and expects to sell them at a premium if he gets an allotment. He selects those companies whose shares are most in demand and are likely to carry a premium.
Stags
• A Lame Duck is nothing but a stressed bear. When a bear finds it difficult to complete his promise he is labeled as a lame duck.
Lame Duck
• These are brokers who are fast speculators, they are very quick to perceive changes in the trends of the market and trade fast to make quick bucks. They are generally not caught in the wrong foot.
Wolves
Trading vs SpeculationKinds of speculators
27
1. Client brokers2. Floor brokers3. Jobbers/taravaniwallas4. Badla financiers/badliwalas5. Arbitrageurs6. Bulls/tejiwallas7. Bears/mandiwallas8. Other speculators
i. Stagsii. Wolvesiii. Lame ducks
Speculative transactions28
Option dealingOption contract gives the option holder
the right and not the obligation to buy or sell securities at a predetermined price on or before the specified date in future.
29
Wash SalesA device through which a speculator reaps
huge profits by creating a misleading picture in the market.
In other words, it is a kind of fictitious transaction in which a speculator sells a security and then buys the same at a higher price through another broker.
Speculative transactions
30
Arbitrageit is undertaken to make profit out of the
differences in prices of security in two different markets
CorneringProcess of holding the entire supply of a
particular security by an individual or a group of individuals with a view to dictating terms to short-sellers and earning more profits (Prohibited)
Speculative transactions
31
Rigging the marketCreating an artificial condition in the
market, whereby the market value of a particular security is pushed up.
Margin TradingMargin Trading is carried on by the clients with funds borrowed from their brokers. It a popular method of speculative Trading. The client also agrees to maintain a minimum margin of amount in his account.
Speculative transactions
SCREEN SHOT OF A TRADING ACCOUNT & BANK NIFTY WATCH
33
34
Players in the Stock Market or Market Participants
35
Market participants include: Individual retail investors, Institutional investors such as mutual
funds, banks, insurance companies and hedge funds,
Publicly traded corporations trading in their own shares.
Institutional Investor vs. Retail Investor
Institutional investor
An institutional investor is an investor, such as a bank, insurance company, retirement fund, hedge fund, or mutual fund, that is financially sophisticated and makes large investments, often held in very large portfolios of investments. Because of their sophistication, institutional investors may often participate in private placements of securities, in which certain aspects of the securities laws may be inapplicable.
Retail investorA retail investor is an individual investor possessing shares of a given security. Retail investors can be further divided into two categories of share ownership. A Beneficial Shareholder is a retail
investor who holds shares of their securities in the account of a bank or broker, also known as “in Street Name.” The broker is in possession of the securities on behalf of the underlying shareholder.
A Registered Shareholder is a retail investor who holds shares of their securities directly through the issuer or its transfer agent. Many registered shareholders have physical copies of their stock certificates.
36
Defects of Indian Stock Market/Capital Market
37
Absence of Genuine investors
Presence of Price Rigging
Prevalence of Insider Trading
Lack of Liquidity
Scarcity of Floating Securities
Lack of transparency
Poor response of Indian Household
Defects of Indian Stock Market/Capital Market
38
Cumbersome procedures of Settlement
Problem of Odd Lots
Dominance of Financial Institutions
Lack of Professionalism
Dominance of Public Sector
Unhealthy competition of merchant Bankers
Other Defects
REFORMS IN STOCK MARKET OR RECENT DEVELOPMENTS
39
Regulation of Intermediaries
Change in the Management Structure
Insistence of Quality Services
Prohibition of Insider Trading
Transparency of Accounting Practices
Strict Supervision of Stock Market Operations
Prevention Price Rigging
40
Protection of Investors Interest
Setting up of Credit Rating Agencies
Introduction to Electronic Trading
Establishment of OTCEI/NSE
Introduction to Depository System
Trading in Derivatives
REFORMS IN STOCK MARKET OR RECENT DEVELOPMENTS
41
Introduction42
The National Stock Exchange (NSE) is India's leading stock exchange covering various cities and towns across the country.
NSE was set up by leading institutions to provide a modern, fully automated screen-based trading system with national reach.
The National Stock Exchange (NSE) is a stock exchange located in Mumbai, India.
It is the 11th largest stock exchange in the world by market capitalization and largest in India by daily turnover and number of trades, for both equities and derivative trading.
The NSE's key index is the S&P CNX Nifty, known as the NSE NIFTY (National Stock Exchange Fifty), an index of fifty major stocks weighted by market capitalization.
Organization43
NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the country.
The National Stock Exchange (NSE) operates a nation-wide, electronic market, offering trading in Capital Market, Derivatives Market and Currency Derivatives segments including equities, equities based derivatives, Currency futures and options, equity based ETFs, Gold ETF and Retail Government Securities. Today NSE network stretches to more than 1,500 locations in the country and supports more than 2, 30,000 terminals.
44
FUNCTIONS
45
Establishing nationwide trading facilities for all types of securities.
Ensuring equal access to investors all-over the country through an appropriate
communication network.
Meeting international benchmarks and standards.
Enabling shorter settlement cycles and book entry settlements
46
Products47
Equities Equities Indices Mutual Funds Exchange Traded Funds Initial Public Offerings Security Lending and Borrowing Scheme Derivatives Equity Derivatives Currency Derivatives Interest Rate Futures Debt Retail Debt Market Wholesale Debt Market Corporate Bonds
Method of Trading in Stock Exchange48
Locating a Broker
Placement of Order• At best order• Limit order• Stop loss order
Execution of Order
Preparation of Contract
Notes
Settlement of Transactions
49
National Exchange for Automated Trading (NEAT)
Bombay Online Trading (BOLT)
OVER THE COUNTER EXCHANGE OF INDIA (OTCEI)
50
Introduction51
OTCEI was incorporated in 1990 under the Companies Act 1956 and is recognized as a stock exchange under Section 4 of the Securities Contracts Regulation Act, 1956. The Exchange was set up to aid enterprising promoters in raising finance for new projects in a cost effective manner and to provide investors with a transparent & efficient mode of trading.
Modeled along the lines of the NASDAQ market of USA, OTCEI introduced many novel concepts to the Indian capital markets such as screen-based nationwide trading, sponsorship of companies, market making and scripless trading.
Mission Statement of OTCEI52
Promoters of OTCEI53
OTCEI is promoted by : Unit Trust of India (UTI) Industrial Credit and Investment
Corporation of India(ICICI) Industrial Development Bank of India(IDBI) Industrial Finance Corporation of India(IFCI) and others and is a recognized stock exchange under the SCR Act.
Some Facts about OTCEI54
OTCEI... is the first screen based nationwide stock exchange in India
Is the first exchange to introduce Market Making in India Is the first exchange to introduce Sponsorship of
companies in India Is the only exchange to allow listing of companies with
paid-up below Rs.3 crores Is the only exchange to allow companies with less than
3 year track record to tap capital market has shifted trading from counter receipts to share
certificates has introduced Weekly Settlement Cycle allows short selling allows demat trading through NSDL has tied-up with NSCCL for Clearing
Need for OTCEI?55
Studies by NASSCOM, Software Technology Parks of India, the venture capital funds and the government's IT Task Force, as well as the rising interest in information technology, pharmaceutical, biotechnology and media shares have repeatedly emphasized the need for a national stock market for innovative and high growth companies.
The key issue for these companies is raising timely, cost effective and long term capital to sustain their operations and enhance growth. Such companies, particularly those that have been in operation for a short time, are unable to raise funds through the traditional financing methods, because they have not yet been evaluated by the financial world.
Who would find OTCEI helpful..?
56
high-technology enterprises companies with high growth potential companies focused on new product development . entrepreneurs seeking finance for specific
business projects OTCEI, with its entry guidelines and eligibility requirements tailored for such innovative and growth oriented companies, is ideally positioned as the preferred route for raising funds through Initial Public Offer (IPOs) or primary issues, in this country.
57
1. A company should have a minimum paid-up capital of Rs. 30 lakhs and the minimum offer to the public should be 25% of the issued capital or Rs. 20 lakhs worth of shares in face value, whichever is higher. SEBI Guidelines on Disclosure and Investor Protection will be applicable to all OTCEI issues.
2. Every company that intends to get listed has to be sponsored by a merchant banker ( Member/ Sponsor) of the Exchange. The Sponsor of the issue must arrange for Market Makers to give Buy & Sell quotes in the securities for an initial period of 18 months
3. Relaxation in Listing norms as compared to other stock exchanges
Participants in the OTCEI Market
58
Members & dealers appointed by OTCEI
Companies, whose securities are listed on OTCEI
Investors who trade in the OTCEI
Registrar- who keeps custody of share certificates and maintains the registers
Settlement BankSEBI & GOVT which exercises an overall supervision & control
Who is a Sponsor ….?59
A Sponsor is a financial intermediary duly registered on OTC as a Sponsor and is normally a SEBI registered Merchant Banker.
He helps a company, desirous of coming out with a Public Issue, to raise funds while complying with all the regulatory requirements. The sponsor guides the company through the various legal requirements and accounting processes.
Appointment of a sponsor by a prospective issuer is mandatory for all OTCEI IPOs.
Currently there are 117 sponsors registered with OTC Exchange of whom more than 75 continue to hold SEBI registration as Merchant Bankers.
The services of the sponsor would complement the advice and consultation that the companies would receive from their professional investment bankers, law and accounting firm.
Thank you
60