A stock market or equity market is the aggregation of buyers and sellers (a loose network of economic transactions, not a physical

facility or discrete entity) of stocks (shares); these are securities listed on a stock exchange as well as those only traded privately.

Stock exchanges[edit]
A stock exchange is a place to trade stocks. Companies may want to get their stock listed on a stock exchange. Other stocks may
be traded "over the counter", that is, through a dealer. A large company will usually have its stock listed on many exchanges across
the world.[4]

Market participants include individual retail investors and traders, institutional investors such as mutual funds, banks, insurance
companies and hedge funds, and also publicly traded corporations trading in their own shares. Some studies have suggested that
institutional investors and corporations trading in their own shares generally receive higher risk-adjusted returns than retail
investors.[5] This may be attributable to their tendencies to hold investments for longer periods of time.
The BSE and NSE
Most of the trading in the Indian stock market takes place on its two stock exchanges: the Bombay Stock Exchange (BSE) and
the National Stock Exchange (NSE). The BSE has been in existence since 1875. The NSE, on the other hand, was founded in 1992 and
started trading in 1994. However, both exchanges follow the same trading mechanism, trading hours, settlement process, etc. At the
last count, the BSE had about 4,700 listed firms, whereas the rival NSE had about 1,200. Out of all the listed firms on the BSE, only
about 500 firms constitute more than 90% of its market capitalization; the rest of the crowd consists of highly illiquid shares.

Almost all the significant firms of India are listed on both the exchanges. NSE enjoys a dominant share in spot trading, with about 70%
of the market share, as of 2009, and almost a complete monopoly in derivativestrading, with about a 98% share in this market, also as
of 2009. Both exchanges compete for the order flow that leads to reduced costs, market efficiency and innovation. The presence
of arbitrageurs keeps the prices on the two stock exchanges within a very tight range. (To learn more, see The Birth Of Stock
Exchanges.)

History[edit]

Established in 1875, theBombay Stock Exchange is Asia's first stock exchange

In 12th century France the courretiers de change were concerned with managing and regulating the debts of agricultural
communities on behalf of the banks. Because these men also traded with debts, they could be called the first brokers. A common
misbelief is that in late 13th centuryBruges commodity traders gathered inside the house of a man called Van der Beurze, and in
1409 they became the "Brugse Beurse", institutionalizing what had been, until then, an informal meeting, but actually, the family Van
der Beurze had a building in Antwerp where those gatherings occurred;[8] the Van der Beurze had Antwerp, as most of the
merchants of that period, as their primary place for trading. The idea quickly spread around Flanders and neighboring counties and
"Beurzen" soon opened in Ghent and Rotterdam.

In the middle of the 13th century, Venetian bankers began to trade in government securities. In 1351 the Venetian government
outlawed spreading rumors intended to lower the price of government funds. Bankers in Pisa, Verona, Genoa and Florence also
began trading in government securities during the 14th century. This was only possible because these were independent city states
not ruled by a duke but a council of influential citizens. Italian companies were also the first to issue shares. Companies in England
and the Low Countries followed in the 16th century.

The Dutch East India Company (founded in 1602) was the first joint-stock company to get a fixed capital stock and as a result,
continuous trade in company stock occurred on the Amsterdam Exchange. Soon thereafter, a lively trade in various derivatives,
among which options and repos, emerged on the Amsterdam market. Dutch traders also pioneered short selling a practice which
was banned by the Dutch authorities as early as 1610.[9]

There are now stock markets in virtually every developed and most developing economies, with the world's largest markets being in
the United States, United Kingdom, Japan, India, China, Canada, Germany (Frankfurt Stock Exchange), France, South Korea and
the Netherlands.[10]
5. INFORMATION TECHNOLOGYS ROLE TO REGULATE STOCK MARKET

In the 21st century the business world is marked by drastic changes. These changes are paced by

continuous innovations in computer & telecommunicating technologies. The choice of a relevant

IT is a crucial decision as it is bound to have a long term & lasting impact on the future of the

enterprise. Up-gradation of technology helps in increasing productivity, reducing cost & in

improving total quality. IT is being helpful & has a great impact in business.

IT can help to identify the critical areas for competitive advantage of business organization.

Competitive advantages may be achieved by various techniques is business with the help of

IT.

Helps in managing strategic alignment of critical business process.

Decision-making and operational control by managers has been improved by IT.

IT can help in maintaining the changing relationship with customers, suppliers, trials,

potential new entrants, etc.

IT in business results in improved communication, decreased costs, reduceing decision making

time, monitoring the competitors and better control on transaction.

IT can be used as innovation in functioning of the complete business system during strategic

business planning.

IT is helpful in increasing the speed of flow of trade, reducing paperwork & emergence of

global financial system.

9. INFORMATION TECHNOLOGY (IT) SHAPING INDIAN STOCK MARKET

Traditionally stock trading is done through stock brokers, personally or through telephones. As

number of people trading in stock market increase enormously in last few years, some issues like

location constrains, busy phone lines, miss communication etc start growing in stock broker

offices. Information technology (stock market software) helps stock brokers in solving these

problems with online stock trading. It is an internet based stock trading facility. Investor can trade

shares through a website without any manual intervention from stock Broker. In this case these

online stock trading companies are stock broker for the investor. They are registered with one or

more Stock Exchanges. Mostly online trading websites in India trades in BSE and NSE. Installable

Software Based Stock Trading Terminals and Web (Internet) Based Trading Applications are two

different type of trading environments available for online equity trading.

INDIAN SECURITY MARKET

Primary market[edit]
Main article: Primary market

The primary market is that part of the capital markets that deals with the issue of new securities. Companies, governments or
public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate
of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale
is a public offering. Dealers earn a commission that is built into the price of the security offering, though it can be found in the
prospectus. Primary markets create long term instruments through which corporate entities borrow from capital market.

Features of primary markets are:

This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first
time. Therefore it is also called the new issue market (NIM).
In a primary issue, the securities are issued by the company directly to investors.
The company receives the money and issues new security certificates to the investors.
Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing
business.
The primary market performs the crucial function of facilitating capital formation in the economy.
The new issue market does not include certain other sources of new long term external finance, such as loans from financial
institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is
known as "going public."

Secondary market[edit]
Main article: Secondary market

The secondary market, also known as the aftermarket, is the financial market where previously issued securities and financial
instruments such as stock, bonds, options, and futures are bought and sold. The term "secondary market" is also used to refer to
the market for any used goods or assets, or an alternative use for an existing product or asset where the customer base is the
second market (for example, corn has been traditionally used primarily for food production and feedstock, but a "second" or "third"
market has developed for use in ethanol production). Stock exchange and over the counter markets.
With primary issuances of securities or financial instruments, or the primary market, investors purchase these securities directly from
issuers such as corporations issuing shares in an IPO or private placement, or directly from the federal government in the case of
treasuries. After the initial issuance, investors can purchase from other investors in the secondary market.

The secondary market for a variety of assets can vary from loans to stocks, from fragmented to centralized, and from illiquid to very
liquid. The major stock exchanges are the most visible example of liquid secondary markets - in this case, for stocks of publicly
traded companies. Exchanges such as the New York Stock Exchange, Nasdaq and the American Stock Exchange provide a
centralized, liquid secondary market for the investors who own stocks that trade on those exchanges. Most bonds and structured
products trade over the counter, or by phoning the bond desk of ones broker-dealer. Loans sometimes trade online using a Loan
Exchange

Money market
As money became a commodity, the money market became a component of the financial markets for assets involved in short-
term borrowing,lending, buying and selling with original maturities of one year or less. Trading in the money markets is done over
the counter and iswholesale. Various instruments exist, such as Treasury bills, commercial paper, bankers'
acceptances, deposits, certificates of deposit, bills of exchange, repurchase agreements, federal funds, and short-lived mortgage-,
and asset-backed securities.[1] It provides liquidity funding for theglobal financial system. Money markets and capital markets are
parts of financial markets. The instruments bear differing maturities, currencies, credit risks, and structure. Therefore they may be
used to distribute the exposure.[2]

Participants[edit]
The money market consists of financial institutions and dealers in money or credit who wish to either borrow or lend. Participants
borrow and lend for short periods of time, typically up to thirteen months. Money market trades in short-term financial
instruments commonly called "paper." This contrasts with the capital market for longer-term funding, which is supplied
by bonds and equity.

The core of the money market consists of interbank lendingbanks borrowing and lending to each other using commercial
paper, repurchase agreements and similar instruments. These instruments are often benchmarked to (i.e. priced by reference to)
the London Interbank Offered Rate (LIBOR) for the appropriate term and currency.

Finance companies typically fund themselves by issuing large amounts of asset-backed commercial paper (ABCP) which is secured
by the pledge of eligible assets into an ABCP conduit. Examples of eligible assets include auto loans, credit card receivables,
residential/commercial mortgage loans, mortgage-backed securities and similar financial assets. Certain large corporations with
strong credit ratings, such as General Electric, issue commercial paper on their own credit. Other large corporations arrange for
banks to issue commercial paper on their behalf via commercial paper lines.

In the United States, federal, state and local governments all issue paper to meet funding needs. States and local governments
issue municipal paper, while the US Treasury issuesTreasury bills to fund the US public debt:

Trading companies often purchase bankers' acceptances to be tendered for payment to overseas suppliers.
Retail and institutional money market funds
Banks
Central banks
Cash management programs
Merchant banks

Functions of the money market[edit]

The money market functions are:[5][6]
1. Financing Trade:

Money Market plays crucial role in financing both internal as well as international trade. Commercial finance is made available to the
traders through bills of exchange, which are discounted by the bill market. The acceptance houses and discount markets help in
financing foreign trade.

2. Financing Industry:

Money market contributes to the growth of industries in two ways:

(a) Money market helps the industries in securing short-term loans to meet their working capital requirements through the system of
finance bills, commercial papers, etc.

(b) Industries generally need long-term loans, which are provided in the capital market. However, capital market depends upon the
nature of and the conditions in the money market. The short-term interest rates of the money market influence the long-term interest
rates of the capital market. Thus, money market indirectly helps the industries through its link with and influence on long-term capital
market.

3. Profitable Investment:

Money market enables the commercial banks to use their excess reserves in profitable investment. The main objective of the
commercial banks is to earn income from its reserves as well as maintain liquidity to meet the uncertain cash demand of the
depositors. In the money market, the excess reserves of the commercial banks are invested in near-money assets (e.g. short-term
bills of exchange) which are highly liquid and can be easily converted into cash. Thus, the commercial banks earn profits without
losing liquidity.

4. Self-Sufficiency of Commercial Bank:

Developed money market helps the commercial banks to become self-sufficient. In the situation of emergency, when the
commercial banks have scarcity of funds, they need not approach the central bank and borrow at a higher interest rate. On the other
hand, they can meet their requirements by recalling their old short-run loans from the money market.

5. Help to Central Bank:

Though the central bank can function and influence the banking system in the absence of a money market, the existence of a
developed money market smoothens the functioning and increases the efficiency of the central bank.

Money market helps the central bank in two ways:

(a) The short-run interest rates of the money market serves as an indicator of the monetary and banking conditions in the country
and, in this way, guide the central bank to adopt an appropriate banking policy,

(b) The sensitive and integrated money market helps the central bank to secure quick and widespread influence on the sub-markets,
and thus achieve effective implementation of its policy.

Common money market instruments[edit]

Certificate of deposit - Time deposit, commonly offered to consumers by banks, thrift institutions, and credit unions.
Repurchase agreements - Short-term loansnormally for less than two weeks and frequently for one dayarranged by selling
securities to an investor with an agreement to repurchase them at a fixed price on a fixed date.
Commercial paper - short term usanse promissory notes issued by company at discount to face value and redeemed at face
value
Eurodollar deposit - Deposits made in U.S. dollars at a bank or bank branch located outside the United States.
Federal agency short-term securities - (in the U.S.). Short-term securities issued by government sponsored enterprises such
as the Farm Credit System, the Federal Home Loan Banks and the Federal National Mortgage Association.
 Federal funds - (in the U.S.). Interest-bearing deposits held by banks and other depository institutions at the Federal Reserve;
these are immediately available funds that institutions borrow or lend, usually on an overnight basis. They are lent for
the federal funds rate.
Municipal notes - (in the U.S.). Short-term notes issued by municipalities in anticipation of tax receipts or other revenues.
Treasury bills - Short-term debt obligations of a national government that are issued to mature in three to twelve months.
Money funds - Pooled short maturity, high quality investments which buy money market securities on behalf of retail or
institutional investors.
Foreign exchange swaps - Exchanging a set of currencies in spot date and the reversal of the exchange of currencies at a
predetermined time in the future.
Short-lived mortgage- and asset-backed securities

Discount and accrual instruments[edit]

There are two types of instruments in the fixed income market that pay the interest at maturity, instead of paying it as
coupons. Discount instruments, like repurchase agreements, are issued at a discount of the face value, and their maturity value is
the face value. Accrual instruments are issued at the face value and mature at the face value plus interest. [7]

Capital market

Capital markets are financial markets for the buying and selling of long-term debt or equity-backed securities. These markets
channel the wealth of savers to those who can put it to long-term productive use, such as companies or governments making long-
term investments.[1]Financial regulators, such as the UK's Bank of England (BoE) or the U.S. Securities and Exchange
Commission (SEC), oversee the capital markets in their jurisdictions to protect investors against fraud, among other duties.

Modern capital markets are almost invariably hosted on computer-based electronic trading systems; most can be accessed only by
entities within the financial sector or the treasury departments of governments and corporations, but some can be accessed directly
by the public.[2]There are many thousands of such systems, most serving only small parts of the overall capital markets. Entities
hosting the systems include stock exchanges, investment banks, and government departments. Physically the systems are hosted
all over the world, though they tend to be concentrated in financial centres like London, New York, and Hong Kong. Capital markets
are defined as markets in which money is provided for periods longer than a year.[3]

A key division within the capital markets is between the primary markets and secondary markets. In primary markets, new stock or
bond issues are sold to investors, often via a mechanism known as underwriting. The main entities seeking to raise long-term funds
on the primary capital markets are governments (which may be municipal, local or national) and business enterprises (companies).
Governments tend to issue only bonds, whereas companies often issue either equity or bonds. The main entities purchasing the
bonds or stock includepension funds, hedge funds, sovereign wealth funds, and less commonly wealthy individuals and investment
banks trading on their own behalf. In the secondary markets, existing securities are sold and bought among investors or traders,
usually on an exchange, over-the-counter, or elsewhere. The existence of secondary markets increases the willingness of investors
in primary markets, as they know they are likely to be able to swiftly cash out their investments if the need arises. [4]

A second important division falls between the stock markets (for equity securities, also known as shares, where investors acquire
ownership of companies) and the bond markets(where investors become creditors)

Difference between money markets and capital markets

The money markets are used for the raising of short term finance, sometimes for loans that are expected to be paid back as early as
overnight. Whereas the capital markets are used for the raising of long term finance, such as the purchase of shares, or for loans
that are not expected to be fully paid back for at least a year.[3]

Funds borrowed from the money markets are typically used for general operating expenses, to cover brief periods of illiquidity. For
example a company may have inbound payments from customers that have not yet cleared, but may wish to immediately pay out
cash for its payroll. When a company borrows from the primary capital markets, often the purpose is to invest in additional
physical capital goods, which will be used to help increase its income. It can take many months or years before the investment
generates sufficient return to pay back its cost, and hence the finance is long term.[4]

Together, money markets and capital markets form the financial markets as the term is narrowly understood.[5] The capital market is
concerned with long term finance. In the widest sense, it consist of a series of channels through which the savings of the community
are made available for industrial and commercial enterprises and public authorities.

Capital controls
Capital controls are measures imposed by a state's government aimed at managing capital account transactions - in other words,
capital market transactions where one of the counter-parties[13] involved is in a foreign country. Whereas domestic regulatory
authorities try to ensure that capital market participants trade fairly with each other, and sometimes to ensure institutions like banks
don't take excessive risks, capital controls aim to ensure that the macroeconomic effects of the capital markets don't have a net
negative impact on the nation in question. Most advanced nations like to use capital controls sparingly if at all, as in theory allowing
markets freedom is a win-win situation for all involved: investors are free to seek maximum returns, and countries can benefit from
investments that will develop their industry and infrastructure. However sometimes capital market transactions can have a net
negative effect - for example, in a financial crisis, there can be a mass withdrawal of capital, leaving a nation without sufficient
foreign currency to pay for needed imports. On the other hand, if too much capital is flowing into a country, it can push up inflation
and the value of the nation's currency, making its exports uncompetitive. Some nations such as India have also used capital controls
to ensure that their citizens' money is invested at home, rather than abroad. [1

ROLE OF DEMAT

In India, shares and securities are held electronically in a Dematerialized (or "Demat") (/dimt/;) account, instead of the investor
taking physical possession of certificates. A Dematerialized account is opened by the investor while registering with an investment
broker (or sub-broker). The Dematerialized account number is quoted for all transactions to enable electronic settlements of trades
to take place. Every shareholder will have a Dematerialized account for the purpose of transacting shares.

Access to the Dematerialized account requires an internet password and a transaction password. Transfers or purchases
of securities can then be initiated. Purchases and sales of securities on the Dematerialized account are automatically made once
transactions are confirmed and completed.

Goal of Demat System[edit]

India adopted the Demat System for electronic storing, wherein shares and securities are represented and maintained
electronically, thus eliminating the troubles associated with paper shares. After the introduction of the depository system by the
Depository Act of 1996, the process for sales, purchases and transfers of shares became significantly easier and most of the risks
associated with paper certificates were mitigated.

Demat benefits[edit]
The benefits of demat are enumerated[by whom?] as follows:

Easy and convenient way to hold securities

Immediate transfer of securities
 No stamp duty on transfer of securities
Safer than paper-shares (earlier risks associated with physical certificates such as bad delivery, fake securities, delays, thefts
etc. are mostly eliminated)
Reduced paperwork for transfer of securities
Reduced transaction cost
No "odd lot" problem: even one share can be sold
Change in address recorded with a DP gets registered with all companies in which investor holds securities eliminating the
need to correspond with each of them separately.
Transmission of securities is done by DP, eliminating the need for notifying companies.
Automatic credit into demat account for shares arising out of bonus/split, consolidation/merger, etc.
A single demat account can hold investments in both equity and debt instruments.
Traders can work from anywhere (e.g. even from home).
Benefit to the company

The depository system helps in reducing the cost of new issues due to lower printing and distribution costs. It increases the
efficiency of the registrars and transfer agents and the secretarial department of a company. It provides better facilities for
communication and timely service to shareholders and investors.

Benefit to the investor

The depository system reduces risks involved in holding physical certificates, e.g., loss, theft, mutilation, forgery, etc. It ensures
transfer settlements and reduces delay in registration of shares. It ensures faster communication to investors. It helps avoid bad
delivery problems due to signature differences, etc. It ensures faster payment on sale of shares. No stamp duty is paid on transfer of
shares. It provides more acceptability and liquidity of securities.

Benefits to brokers

It reduces risks of delayed settlement. It ensures greater profit due to increase in volume of trading. It eliminates chances of forgery
or bad delivery. It increases overall trading andprofitability. It increases confidence in their investors.

Advantages and disadvantages of stock market flotation

Even if your business is suited to flotation, it may not be the right choice for you. Being a public company can present a range of benefits to your business, but there are also issues
that might require careful consideration.

The benefits of stock market flotation could include:

giving access to new capital to develop the business
making it easier for you and other investors - including venture capitalists - to realise their investment
allowing you to offer employees extra incentives by granting share options - this can encourage and motivate your employees to work towards long-term goals
placing a value on your business
increasing your public profile, and providing reassurance to your customers and suppliers
allowing you to do business - eg acquisitions - by using quoted shares as currency
creating a market for the company's shares
However, you should also consider the following potential problems:
Market fluctuations - your business may become vulnerable to market fluctuations beyond your control - including market sentiment, economic conditions or developments in
your sector.
Cost - the costs of flotation can be substantial and there are also ongoing costs of being a public company, such as higher professional fees.
Responsibilities to shareholders - in return for their capital, you will have to consider shareholders' interests when running the company - which may differ from your own
objectives.
The need for transparancy - public companies must comply with a wide range of additional regulatory requirements and meet accepted standards of corporate governance
including transparancy, and needing to make announcements about new developments.
Demands on the management team - managers could be distracted from running the business during the flotation process and through needing to deal with investors afterwards.
Investor relations - to maximise the benefits of being a public company and attract further investor interest in shares, you will need to keep investors informed.
Employees may become demotivated - if shares are only offered to selected employees, there could be resentment. Shareholding employees could feel that there is little left to
work for if they are sitting on valuable shares

Development of Securities Market

A satisfactory pace of economic growth in any economy is contingent

upon availability of adequate capital. A well-developed securities market, while

acting as provider of funding for economic activity at macro level, plays the

specific roles in an economy, viz., diffusing stress on the banking sector by

diversifying credit risk across the economy; supplying funds for long-term

investment needs of the corporate sector; providing market-based sources of

funds for meeting governments financing requirements; providing products

with flexibility to meet the specific needs of investors and borrowers; and

allocating capital more efficiently.

The main impulse for developing securities markets, including both

equity and debt segments, depends on country-specific histories and more

specifically, in the context of the financial system, it relates to creating more

complete financial markets, avoiding banks from taking on excessive credit, risk

diversification in the financial system, financing government deficit, conducting

monetary policy, sterilising capital inflows and providing a range of long-term

assets. Prior to the early 1990s, most of the financial markets in India faced

controls of pricing, entry barriers, transaction restrictions, high transaction costs

and low liquidity. A series of reforms were undertaken since the early 1990s so

as to develop the various segments of financial markets by phasing out

administered pricing system, removing barrier restrictions, introducing new

instruments, establishing institutional framework, upgrading technological

infrastructure and evolving efficient, safer and more transparent market

practices.

Against this backdrop, this paper essentially brings to the fore the

evolutionary process that has occurred in the securities markets in India along

with an assessment of the impact of reform. Following this introduction, section

II and III set out the developments in corporate equity and debt markets,

respectively. Section IV discusses the developments in the Government securities

market. The paper concludes with a broad assessment of the developments in the

securities markets and outlines the way forward for bringing the Indian

securities market on par with international counterparts.

Conclusion

Companies come to the stock market in a variety of different ways and for a variety of reasons.
As a private investor, you can sometimes get an allocation of newly-issued shares, but often the issue will be confined to
institutional investors. With internet shares, and the movement towards direct online IPOs, this may change for the
better.
Most of the time you will be trading in a company's ordinary shares on the secondary market.
Companies issue other types of share - notably preference shares, convertibles, and warrants - and even if you don't
own them they may have an effect on your dividend entitlement if they dilute earnings.
A scrip issue is designed to improve marketability of ordinary shares, and does not dilute your ownership.
A rights issue is designed to raise more money for the company, and existing shareholders will be invited to buy first.
You have a choice about whether to exercise your rights, but if you do not, your ownership may be diluted.