A detailed study on The Working of Stock Markets in India

A Project submitted to

University of Mumbai for Partial Completion of the Degree

Of Bachelor in Commerce (Accounting and Finance)

Under the Faculty of Commerce

(SEMESTER - VI)

By MR. VAIBHAV SOMNATH PATIL

Under the guidance of

MR.PRAVAR SHARMA

RAMSHETH THAKUR COLLEGE OF COMMERCE AND SCIENCE

PLOT NO.1.SECTOR 33. KHARGHAR

NAVI MUMBAI – 410210

ACADEMIC YEAR

2022-23

A PROJECT ON

1
SUBMITTED BY: PROJECT GUIDE:

MR.VAIBHAV PATIL MR.PRAVAR SHARMA

Student Registration No.

IN PARTIAL FULFILLMENT FOR THE AWARD OF THE DEGREE OF

“BACHELOR OFACCOUNTING AND FINANCE TYBAF” SEMESTER-
VI

RAMSHETH THAKUR COLLEGE OF COMMERCE AND SCIENCE

PLOT NO.1.SECTOR 33. KHARGHAR NAVI MUMBAI - 410210

SUBMITTED BY: MR.ROHIT PATIL.

Declaration

I the undersigned MR.VAIBHAV PATIL here by, declare that the work
embodied in thisproject work titled “A DETAILED STUDY ON THE
WORKING OF STOCK MARKET IN INDIA”, forms my own contribution to

2
the research work carried out under the guidance of MR.PRAVAR SHARMA is a
result of my own research work and has not been previously submitted to any other
University for any other Degree/ Diploma to this or any other University.

Wherever reference has been made to previous works of others, it has been clearly
indicated as such and included in the bibliography.

I, here by further declare that all information of this document has been obtained
and presented in accordance with academic rules and ethical conduct.

Name and Signature of the learner

MR.ROHIT PATIL

Certified by

Name and signature of the Guiding Teacher

MR.PRAVAR SHARMA

Acknowledgment

To list who all have helped me is difficult because they are so numerous and the
depth is so enormous.

I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.

3
I take this opportunity to thank the University of Mumbai for giving me chance to
do this project.

I would like to thank my principle ,MR.Rupendra Gaikwad providing the

necessary facilities required for completion of this project.

I would also like to express my sincere gratitude towards my project guide

MR.Pravar Sharma whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various reference
books and magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly
helped me in the completion of the project especially my Parents and Peers who
supported me throughout my project.

A
DETAILED
STUDY

4
 ON THE
WORKING
OF
STOCK MARKET
IN
INDIA

Objectives:

● To get a basic understanding of the products, principal investment, players and

functioning of the stock market.

● To understand the terms and jargons used in the financial newspaper,

● To know the regulatory framework for the Indian Stock market.

● To understand the concept of stocks and stock market.

● To also get important lessons about the economy and financial responsibility.

5
● To learn about trading of stocks in the stock exchanges.

● To get in depth study of Indian and other global stock markets.

● To organize stocks in a fair, transparent and competitive way.

INDEX

Chapter TITLE OF CHAPTER PAGE NO.

NO.

1. INTRODUCTION OF STOCK MARKET 8

1.1 ● WHAT IS STOCK MARKET ?

● CAPITAL MARKET
● PRIMARY MARKET

1.2 ● SECONDARY MARKET.

1.3 ● FORMER STOCK EXCHANGE IN INDIA

6
1.4 ● MARKET REGULATIONS
1.5 ● OPERATING STOCK EXCHANGE IN INDIA
● NATIONAL STOCK EXCHANGE
❖ FEATURES OF NSE
● BOMBAY STOCK EXCHANGE
❖ FEATURE OF BSE
● OTC

2. RESEARCH AND METHODOLOGY 34

2.1 SCOPE OF STUDY AND LIMITATION

2.2 ● CORE STUDY
2.3 ● SEBI
2.4 ● DERIVATIVES
● SCOPE OF STUDY
● OBJECTIVES OF THE STUDY
● DEFINITION OF KEY TERM
A. FUTURE & OPTION SEGMENT
B. HEDGE
C. SECULATION
D. FUTURE CONTRACT
E. CASH SETTLEMENT
F. CONTRACT MONTH
G. RISK MANAGEMENT
H. MARGIN MONEY
I. STRIKE PRICE
J. OPTION PREMIUM
K. OPTION HOLDER
L. OPTION CONTRACT
M. MARKET LOT SIZE
N. LONG TERM & SHORT
2.5 POSITION
● COMMODITY MARKET
● Money Market
3. LITERATURE REVIEW 50

3.1 ● REGULATION OF INDIAN STOCK MARKET

● RESERVE BANK OF INDIA(RBI)
● SECURITIES EXCHANGE BOARD OF
INDIA
● THE ROLE OF THE STOCK
EXCHANGE IN A ECONOMY

3.2 ● WHAT IS STOCK INDEX ?

7
 ● TYPE OF INDICES
● INDIAN STOCK INDICES

3.3 ● WHAT IS SENSEX ? HOW IT IS

3.4 CALCULATED ?
● CALCULATE BROKERAGE RATES AND
TAXES

4. 61
TRADING OF STOCKS

● MERITS OF OWNING STOCKS

● DEMERITS OF OWNING STOCKS
● WHAT IS TRADING STOCKS ?
● WHO IS A STOCKBROKER ?
● ROLE OF STOCKBROKER IN A STOCK
MARKET
● MARKET TRENDS
● BULLS AND BEARS
● BULLISH AND BEARISH

5) CONCLUSIONS 73

REFERENCE

7) 88

8
 CHAPTER 1

INTRODUCTION

INTRODUCTION

1.1 WHAT IS STOCK MARKET ?

CAPITAL MARKET

Definition of 'Stock Market'

The market in which shares of publicly held companies are issued and traded either through
exchanges or over-the-counter markets. Also known as the equity market, the stock market is one
of the most vital components of a free-market economy, as it provides companies with access to
capital in exchange for giving investors a slice of ownership in the company. The stock market
makes it possible to grow small initial sums of money into large ones, and to become wealthy

9
without taking the risk of starting a business or making the sacrifices that often accompany a
high-paying career.
The stock market lets investors participate in the financial achievements of the companies whose
shares they hold. When companies are profitable, stock market investors make money through
the dividends the companies pay out and by selling appreciated stocks at a profit called a capital
gain. The downside is that investors can lose money if the companies whose stocks they hold
lose money, the stocks' prices goes down and the investor sells the stocks at a loss.

The capital market is divided further into two markets:

● Primary market
● Secondary market

PRIMARY MARKET

Definition of 'Primary Market'

"A market that issues new securities on an exchange. Companies, governments and other groups
obtain financing through debt or equity based securities. Primary markets are facilitated by
underwriting groups, which consist of investment banks that will set a beginning price range for
a given security and then oversee its sale directly to investors.
Also known as "new issue market" (NIM).
The primary markets are where investors can get first crack at a new security issuance. The
issuing company or group receives cash proceeds from the sale, which is then used to fund
operations or expand the business. Exchanges have varying levels of requirements which must be
met before a security can be sold.

10
Once the initial sale is complete, further trading is said to conduct on the secondary market,
which is where the bulk of exchange trading occurs each day. Primary markets can see increased
volatility over secondary markets because it is difficult to accurately gauge investor demand for a
new security until several days of trading have occurred.

There are three ways in which a company may raise equity capital in the primary market:

❖ PUBLIC ISSUE:
Issue of stock on a public market rather than being privately funded by the companies own
promoters), which may not be enough capital for the business to start up, produce, or continue
running. By issuing stock publically, this allows the public to own a part of the company, though
not be a controlling factor.

• IPO: Intial Public Offer

Initial public offering (IPO) or stock market launch is a type of public offering where shares of
stock in a company are sold to the general public, on a securities exchange, for the first time.
An initial public offering, or IPO, is the first sale of stock by a company to the public. A
company can raise money by issuing either debt or equity. If the company has never issued
equity to the public, it's known as an IPO.

Companies fall into two broad categories: private and public.

A privately held company has fewer shareholders and its owners don't have to disclose much
information about the company. Anybody can go out and incorporate a company: just put in
some money, file the right legal documents and follow the reporting rules of your jurisdiction.
Most small businesses are privately held. But large companies can be private too. Did you know
that IKEA, Domino's Pizza and Hallmark Cards are all privately held?
It usually isn't possible to buy shares in a private company. You can approach the owners about
investing, but they're not obligated to sell you anything. Public companies, on the other hand,
have sold at least a portion of themselves to the public and trade on a stock exchange. This is
why doing an IPO is also referred to as "going public."

Public companies have thousands of shareholders and are subject to strict rules and regulations.

They must have a board of directors and they must report financial information every quarter. In
the United States, public companies report to the Securities and Exchange Commission (SEC). In
other countries, public companies are overseen by governing bodies similar to the SEC. From an
investor's standpoint, the most exciting thing about a public company is that the stock is traded in
the open market, like any other commodity. If you have the cash, you can invest. The CEO could
hate your guts, but there's nothing he or she could do to stop you from buying stock.

➢ RIGHTS ISSUES:

11
An issue of rights to a company's existing shareholders that entitles them to buy additional shares
directly from the company in proportion to their existing holdings, within a fixed time period. In
a rights offering, the subscription price at which each share may be purchased in generally at a
discount to the current market price. Rights are often transferable, allowing the holder to sell
them on the open market. A rights issue is when a company issues its existing shareholders a
right to buy additional shares in the company. The company will offer the shareholder a specific
number of shares at a specific price. The company will also set a time limit for the shareholder to
buy the shares. The shares are often offered at a discounted price to encourage shareholders to
take the company up on their offer.
existing
If a shareholder does not take the company up on their rights issue then they have the option to
sell their rights on the stock market just as they would sell ordinary shares, however their
shareholding in the company will weaken.
Companies with a poor cash flow will often use a rights issue to increase cash flow and pay off
existing debts. Rights issues however are sometimes issued by companies with healthy balance
sheets in order to fund research and development projects or to purchase new companies.
Discounted shares issued by a company can be tempting but it is important to find out first the
reason for the rights issue of shares. A company, for example, may be using the rights issue as a
quick cash fix to pay off debts masking the real reason for the company's cash flow failing such
as bad leadership. Caution is advised when offered with a rights issue.

➢ PREFERENTIAL ISSUE:
A preferential issue is an issue of shares or of convertible securities by listed companies to a
select group of persons under Section 81 of the Companies Act. 1956 which is neither a rights
issue nor a public issue. This is a faster way for a company to raise equity capital. The issuer
company has to comply with the Companies Act and the requirements contained in Chapter
pertaining to preferential allotment in SEBI (DIP) guidelines which inter-alia include pricing,
disclosures in notice etc. Preferred stock is a different class than the better-known common
stock, with different characteristics. Thus, companies have reasons for issuing preferred stock
that may differ from the reasons they "go public" by issuing common stock to everyday
investors.
Preferred stock is still considered equity -- an ownership stake, rather than debt - - but
it often functions more like a bond than a share. Preferred stock is so named because, on a
company's hierarchy of debts, it is favored over common stock -- that is, its owners are paid
before owners of common shares. However, preferred stock normally does not convey voting
rights to owners as common shares do. Preferred stocks attract investors looking for dividends,
which provide owners with a fixed rate of return rather than returns that rise and fall with the
stock market. Thus, it acts more like a bond with its -- usually -- fixed payout. Preferred shares
also provide the company with flexibility for other nondividend-related reasons. For instance.
they provide issuers with an extra ownership option in addition to common stock and bonds. In

12
addition, because these shares are a cut above common stock, they can be used as incentives
during transactions because they offer more security to the buyer and a fiscal guarantees to the
seller.

1.2 SECONDARY MARKET

Definition of 'Secondary Market'

"A market where investors purchase securities or assets from other investors, rather than from
issuing companies themselves. The national exchanges - such as the NATIONAL STOCK
EXCHANGE and the BOMBAY STOCK EXCHANGE are secondary markets."
Secondary markets exist for other securities as well, such as when funds, investment banks, or
entities such as Fannie Mae purchase mortgages from issuing lenders. In any secondary market
trade, the cash proceeds go to an investor rather than to the underlying company/entity directly.
A newly issued IPO will be considered a primary market trade when the shares are first
purchased by investors directly from the underwriting investment bank; after that any shares
traded will be on the secondary market, between investors themselves. In the primary market
prices are often set beforehand, whereas in the secondary market only basic forces like supply
and demand determine the price of the security.

13
In the case of assets like mortgages, several secondary markets may exist, as bundles of
mortgages are often re-packaged into securities like GNMA Pools and re-sold to investors.

In the secondary market, securities are sold by and transferred from

one investor or speculator to another. It is therefore important that the secondary market be
highly liquid(originally, the only way to create this liquidity was for investors and speculators to
meet at a fixed place regularly; this is how stock exchanges originated. As a general rule, the
greater the number of investors that participate in a given marketplace, and the greater the
centralization of that marketplace, the more liquid the market.

Fundamentally, secondary markets mesh the investor's preference for liquidity (i.e., the investor's
desire not to tie up his or her money for a long period of time, in case the investor needs it to deal
with unforeseen circumstances) with the capital user's preference to be able to use the capital for
an extended period of time.

Accurate share price allocates scarce capital more efficiently when new projects are financed
through a new primary market offering, but accuracy may also matter in the secondary market
because:

1) price accuracy can reduce the agency costs of management, and make hostile takeover a less
risky proposition and thus move capital into the hands of better managers, and

2) Accurate share price aids the efficient allocation of debt finance whether debt offerings or
institutional borrowing.

1.3 Former stock exchanges

Ahmedabad Stock Exchange(closed in 2018) :- The Ahmedabad Stock Exchange (ASE) is the
second oldest exchange of India located in the city of Ahmedabad in the Western part of the
country and is fully owned by the Government of India. It is recognised by Securities Contract

14
(Regulations) Act, 1956 as a permanent stock exchange. Its logo consists of the Swastika, which
is one of the most auspicious symbols of Hinduism depicting wealth and prosperity.

In April 2018, the SEBI permitted the Ahmedabad stock exchange to exit the stock exchange
business. Under the agreement, ASE will cease its activities and change its name to remove the
phrase "stock exchange" from it.

Delhi Stock Exchange(closed in 2017) :- Delhi Stock Exchange (DSE) is a defunct stock
exchange located in New Delhi.
It was incorporated on 25 June 1947 and was allowed to exit business by SEBI in January 2017.
The exchange is an amalgamation of Delhi Stock and Share Brokers' Association Limited and
the Delhi Stocks and Shares Exchange Limited.[2] It was India's fifth exchange and was one of
the premier stock exchanges in India.
The Delhi Stock Exchange was well connected to 50 cities with terminals in North India and had
over 3,000 listed companies. It had received the market regulator's permission from BSE and had
become a member. It used to facilitate the DSE members to trade on the BSE terminals. The
exchange was also considered the same from NSE.
Delhi Stock Exchange has paired up with the National Securities Depository Limited (NSDL),
and commenced trading in dematerialised shares. This started September, 1988. However, the
option for delivering shares either in physical or demat form started in November 1998.[citation needed]
DSE initialised its Rs. 1.25 billion Trade Guarantee Fund on 27 July 1998. TGF guarantees all
the transactions of the DSE interse through the stock exchange. If a member fails to honour the
settlement commitment, TGF undertakes to fulfil the commitment and complete all the
settlement without disruption

15
Guwahati Stock Exchange (GSE) is a defunct stock exchange located in Gauhati, Assam.[1]
It was incorporated on 29 November 1983 and it was recognised by the Government of India on
1 May 1984 and was permitted to be closed by market regulator SEBI in January 2015.[2]
By 1999–2000, the exchange had a total of 206 brokers, out of which 5 were corporate brokers.
Among 206 brokers, there were 200 proprietor brokers, 1 partnership broker and 5 corporate
brokers; only 4 sub-brokers registered. At the time of exit, the GSE had 290 listed companies.
The GSE was inter-connected with the National Stock Exchange of India (NSE) through the ISE
Securities and Services Ltd. (ISS). ISS is the subsidiary of Inter-connected Stock Exchange of
India Ltd. and GSE is one of the associated exchange of it. The trading of GSE is done through
screen-based trading system.

Jaipur Stock Exchange (JSE) was located in Jaipur Rajasthan. JSE closed operations and was
issued closure by SEBI in March 2015.[1]
JSE was founded and recognized in 1989. JSE was at one time third largest exchange in India in
terms of membership. Dr. J N Dhankhar started as Executive Director of JSE. Within seven years
of its incorporation, i.e. by January 1996, JSE managed to list 750 companies and volume of
daily turnover rose to average of Rs.80 million.

16
JSE was one of the 15 regional Stock Exchanges which promoted Inter-connected Stock
Exchange of India Ltd. by paying the Initial Capital of Rs.1 crore (Rs.5 lakhs as admission fee
and Rs.95 lakhs as infrastructure fee).

Madhya Pradesh Stock Exchange (MPSE) was a stock exchange located at Indore, Madhya
Pradesh, India. It was a SEBI recognized Permanent Stock Exchange, until its de-recognition in
2015. Established in 1919, it was 3rd oldest stock exchange in India, and a leading stock
exchange under outcry system.

The Madras Stock Exchange (MSE) was a stock exchange in Chennai, India. The now defunct
MSE was the fourth stock exchange to be established in the country and the first in South India.[1]

17
It had a turnover (2001) of ₹ 3,090 crore ($440 million), but was a fraction (below 3.5 per cent)
of the turnover generated by the Bombay Stock Exchange and National Stock Exchange of India.
The turnover of the stock exchange was 19,907 Crore as of the financial year 2012.

Pune Stock Exchange (PSE) was established in 1982. The Securities and Exchange Board of
India(SEBI) allowed the exchange to exit bourse business with an order on 13 April 2015.
Earlier, the SEBI had allowed various stock exchanges including OTC Exchange of India,
Cochin Stock Exchange, Ludhiana Stock Exchange, Gauhati Stock Exchange, Bhubaneswar
Stock Exchange, Hyderabad Stock Exchange, Coimbatore Stock Exchange, Inter-connected
Stock Exchange of India & Bangalore Stock Exchange to exit from the bourse business.

UP Stock Exchange (UPSE) is a Kanpur-based stock exchange.[1] It occupied a prominent place

among the Stock Exchanges in India. The Exchange was inaugurated on 27 August 1982 by the
then Finance Minister Pranab Mukherjee. It played an important role in the development of the
capital market of North India. Initially, it had only 350 members which grew up to 540.
UPSE is the only stock exchange in Uttar Pradesh and the membership is not restricted to the
people of Uttar Pradesh only. Members living outside Kanpur has
contributed a lot by creating the equity cult in whole of the Uttar Pradesh

18
Vadodara Stock Exchange (VSE) is a defunct stock exchange located in the city of Vadodara,
and fully owned by Government of India[1] in Western India.[2] It was established in 1990 at
Vadodara. It is the only existing stock exchange in the state of Gujarat along with Ahmedabad.
[2]
It is recognized by the Securities Contract (Regulations) Act of 1956 as a permanent stock
exchange.[3]
From a humble beginning in 1986 with the Vadodara Stock Brokers' Association having 150
members, it was incorporated on 22 January 1990 as Vadodara Stock Exchange Limited. By
1999, the exchange had a total of 321 brokers, of which 65 were corporate brokers, 253 were
proprietor brokers, and 3 were partnership brokers. Then, there were only 85 sub-brokers
registered.

Bangalore Stock Exchange (BgSE), was a public stock exchange based in Bangalore, India fully
owned by Government of India.[1][2] It was founded in 1963 and had 595 regional and non-
regional companies listed. In September 2005, the BgSE announced plans to go public by
divesting at least 51% of its ownership. The stock exchange was managed by a Council of
Management, consisting of members appointed by the Securities and Exchange Board of India. It
was the first stock exchange in South India to start electronic trading of securities in 1996.

19
To keep pace with the fast changing technology and financial system, the Exchange went online
in 1996. The Exchange had came a long way since the launch of BEST (Bangalore Electronic
Securities Trading), its online trading system on 29 July 1996.
The Exchange had 241 members serving the diverse needs of investors. The corporate members
constitute more than 25% of the total membership of the Exchange. Members operate within the
overall framework of policies and practices developed over a period of time by the Exchange. As
on 7 Jan 2014, 330 companies were listed on the Exchange.[3]
In December 2008, SEBI had issued guidelines and laid down the framework for exit by stock
exchanges. As per SEBI norms, a stock exchange, whose annual trading turnover on its platform
was less than Rs 1,000 crore, can apply for voluntary surrender of recognition and exit, while a
bourse which fails to achieve a turnover of Rs 1,000 crore, would be subject to compulsory exit
process.
The shareholders of BgSE in its annual general body meeting held on 21 September 2013 passed
the resolution to apply to SEBI for exiting as a stock exchange through voluntary surrender of
recognition. Following this, BgSE had made a request to SEBI for its exit as stock exchange on 8
October 2013.

Cochin Stock Exchange (CSE or CoSE) was an Indian stock exchange in Kochi, Kerala fully
owned by the Government of India. It was incorporated in 1978. At its peak, it had almost 500
Indian companies listed, and with a daily turnover of ₹70–₹100 crore (equivalent to ₹506 crore
or US$63 million in 2020), it was the fourth largest exchange in India.[1]

20
Cochin Stock Brokers, which provides trading facilities on the Bombay Stock Exchange, and
CSE Institute, an educational organisation, continue to operate beyond the closure of the
exchange.

Ludhiana Stock Exchange (LSE) is a defunct stock exchange that was fully owned by
Government of India.[1] It was established in the year 1983. By 1999-2000, the exchange had a
total of 285brokers, out of which 79 were corporate brokers. Among 284 brokers, it was further
classified as 212 proprietor broker, 2 partnership broker and 70 corporate broker. Then, there
was only 2 sub-brokers registered.
Ludhiana Stock Exchange became the second bourse in India to introduce modified carry
forward system after Bombay Stock Exchange on 6 April 1998. On the same date, LSE also
introduced a settlement guarantee fund (SGF). The SGF guarantees settlement of transactions
and the carry forward facility provides liquidity to the stock market.
LSE became the first in India to start LSE Securities Ltd., a 100% owned subsidiary of the
exchange. The LSE Securities got the ticket as sub-broker of the NSE. In 1998, the exchange
also got permission to start derivative trading.
For the settlement of dematerialised securities, the Ludhiana Stock Exchange has also been
linked up with National Securities Depository Limited.

Bhubaneswar Stock Exchange (BhSE) is a defunct stock exchange located in Bhubaneswar,

Odisha, India. It was incorporated on 17 April 1989, and granted recognition to the Stock
Exchange on 5 June 1989, by the Ministry of Finance, Govt. of India. It is one among the 21 odd
regional stock exchanges in India.
By 1999–2000, the exchange had a total of 234 brokers, out of which 15 were corporate brokers.
Among 234 brokers, it was further classified as 209 proprietor and 15 corporate broker. Then,
there was only 17 sub-brokers registered. The trading membership strength of Bhubaneswar
Stock Exchange is 196 at present against the sanctioned strength of 350.[1]

21
On 15 September 2005, SEBI approved the corporatisation and demutualisation schemes of the
Bhubaneshwar Stock Exchange which were required in accordance with the provisions of the
Securities Contracts (Regulation) Act, 1956

Mangalore stock exchange Limited (MGSE), is located in Mangalore, Karnataka, India. It is

under the ownership of Ministry of Finance , Government of India. It was incorporated on 31
July 1984 as a public limited company. The Exchange was recognised by the Central
Government for an initial period of 5 years on 9 September 1985 under section 4 of the
Securities Contracts (Regulation) Act, 1956 and later on the period of recognition was extended
by one year, from 9 September 1990 to 8 September 1991. The last recognition was valid up to 8
September 2003. On 31 August 2004, SEBI decided to derecognize the Mangalore Stock
Exchange.[1]
Chief Minister S.M. Krishna laid the foundation stone for the new building of the Mangalore
Stock Exchange (MgSE) at Kulur on Sept 28, 2001. The MgSE has been granted 3 acres (12,000
m2) of land by the state government.

The Calcutta Stock Exchange (CSE), located at the Lyons Range, Kolkata, India, is a stock
exchange under the ownership of Ministry of Finance, Government of India. It is the second
oldest stock exchange in Asia. It was founded on 1 December 1863 by sixteen of Calcutta's
leading stockbrokers, beginning its work in rented premises at 11 Strand Road.[1] It was
reconstituted in its current form in 1908, and is the second largest bourse in India.[2] The Calcutta
Stock Exchange has been asked to exit by SEBI, but the matter is sub judice before the Calcutta
High Court; thirteen other regional stock exchanges have closed in the last three years under
SEBI's exit policy, including the Bangalore Stock Exchange, the Hyderabad Stock Exchange and
the Madras Stock Exchange.[3] Since 2013, there has been no trading on the CSE trading
platform.[4]

22
Hyderabad Stock Exchange (HSE) was a stock exchange established in 1941 located in
Hyderabad, India. The exchange was disbanded in 2007 by SEBI and since January 2013, HSE
was conditionally permitted to function as regular broking or corporate entity.[1]

Magadh Stock Exchange Association Ltd (MSEA) is located in Patna, India. It was established
in the year 1986.[1] It is one among the 25 odd regional stock exchanges in India. The exchange
was disbanded on 3 September 2007 by Securities and Exchange Board of India (SEBI).

1.4 MARKET REGULATION

Securities and Exchange Board of India (SEBI) has the overall responsibility of supervising,
regulating and developing the policy issues related with the Indian Stock Market. Formed in
1992 as a regulating authority, SEBI enjoys quite autonomous status today and exercises a great
control over several issues in Stock Market. Since its inception, it has consistently laid down the
rules for promoting best market practices and enjoys vast powers to impose penalties also in case
of defaults.

In India, the foreign/outside investment could start only after 1990s particularly which is also
known as liberalization in the economy. Being an emerging market, India shows up all signs of
being a high potential market which is developing as a faster growth engine. It has a growth at
parity with global market. Several financial instruments like currency, derivatives, commodity
have been introduced which has helped Indian stock market to lure more investors. Now they can
invest in almost anything like shares, bonds and other complex instrument like future, options,
swaps, forward etc.

An exchange affords the liquidity that facilitates its investors to quickly sell and purchase their
holdings. The ultimate benefit of investing in stocks is that it offers comparatively more liquidity
than other types of securities including immovable assets. But growth has its own consequences
and challenges. Currently, only a very low percentage of the household savings of Indians are
invested in the domestic stock market but as financial market is more stable now, we might see
more money joining the race. SEBI has put some hard measures to ensure investor protection but
there is a lot of work to be done yet i.e., Investor Awareness Program.This present study attempts
to identify the trends of Indian security market using various parameters and challenges faced by
SEBI in protecting interest of investors and making exchange a fair game.

1.5 Operating stock exchanges

23
 Bombay Stock Exchange

The Bombay Stock Exchange is the oldest exchange in Asia. It traces its history to 1855, when
four Gujarati and one Parsi stockbroker would gather under banyan trees in front of Mumbai's
Town Hall. The location of these meetings changed many times as the number of brokers
constantly increased. The group eventually moved to Dalal Street in 1874 and in 1875 became an
official organization known as 'The Native Share & Stock Brokers Association".

On 31 August 1957, the BSE became the first stock exchange to be recognized by the Indian
Government under the Securities Contracts Regulation Act. In 1980, the exchange moved to the
Phiroze Jeejeebhoy Towers at Dalal Street, Fort area. In 1986, it developed the BSE SENSEX
index, giving the BSE a means to measure overall performance of the exchange. In2000, the BE
used this index to open its derivatives market, trading SENSEX futures contracts.

The development of SENSEX options along with equity derivatives followed in 2001 and 2002.
expanding the BSE's trading platform. Established in 1875, BSE Ltd. (formerly known as
Bombay Stock Exchange Ltd. and established as "The Native Share and Stock Brokers'

24
Association") is one of Asia's fastest stock exchanges, with a speed of 200 microseconds and one
of India's leading exchange groups. BSE is a corporatized and demutualised entity, with a broad
shareholder-base that includes two leading global exchanges, Deutsche Bourse and Singapore
Exchange, as strategic partners. BSE provides an efficient and transparent market for trading in
equity, debt instruments, derivatives, and mutual funds. It also has a platform for trading in
equities of small-and- medium enterprises (SME). Over the past 139 years, BSE has facilitated
the growth of the Indian corporate sector by providing an efficient capital-raising platform.

More than 5000 companies are listed on BSE, making it the world's top exchange in terms of
listed members. The companies listed on BSE Ltd. command a total market capitalization of
USD 1.51 Trillion as of May 2014.LIt is also one of the world's leading exchanges (3rd largest in
March 2014) for Index options trading (Source: World Federation of Exchanges).

BSE also provides a host of other services to capital market participants, including risk
management, clearing, settlement, market data services, and education. It has a global reach with
customers around the world and a nation-wide presence. BSE systems and processes are
designed to safeguard market integrity, drive the growth of the Indian capital market, and
stimulate innovation and competition across all market segments. BSE is the first exchange in
India and the second in the world to obtain an ISO 9001:2000 certification and the Information
Security Management System Standard BS 7799-2-2002 certification for its On- Line trading
System (BOLT). It operates one of the most respected capital market educational institutes in the
country (the BSE Institute Ltd.). BSE also provides depository services through its Central
Depository Services Ltd. (CDSL) arm.

BSE's popular equity index - the S&P BSE SENSEX (Formerly SENSEX - is India's most
widely tracked stock market benchmark index. It is traded internationally on the EUREX as well
as leading exchanges of the BRCS nations (Brazil, Russia, China and South Africa). On
Tuesday, 19 February 2013 BSE entered into Strategic Partnership with S&P DOW JONES
INDICES and the SENSEX has been renamed as "S&P BSE SENSEX ''.

25
Advantages of trading at BSE

● Historically an open outcry floor trading exchange, the Bombay Stock Exchange
switched to an electronic trading system developed by CMC Ltd in 1995. It took the
exchange only fifty days to make this transition. This automated, screen-based trading
platform called BSE On- line trading (BOLT) had a capacity of 8 million orders per day.
The BSE has also introduced the world's first centralized exchange-based internet trading
system, BSEWEBx.co.in to enable investors anywhere in the world to trade on the BSE
platform.

26
History and milestones:

Here is the latest history and milestone of NSE (2011-2014):

● 17 November 2011 Maharashtra and United Kingdom Environment Ministers launched

Concept Note for BSE Carbon Index`

● 30 December 2011, picks up a stake in the proxy advisory firm, Institutional Investor
Advisory Services India Limited (TiAS)

● 7 January 2011 BSE Training Institute Ltd. with IGNOU launched India's first 2 year
full-time MBA programme specialising in Financial Market

● 15 January 2011 Co-location facility at BSE - tie up with Netmagic.com

● 22 February 2012 Launch of BSE-GREENEX to promote investments in Green India

● 13 March 2012 Launch of BSE - SME Exchange Platform

● 30 March 2012 BSE launched trading in BRICSMART indices derivatives

● 19 February 2013 - SENSEX becomes S&P SENSEX as BSE ties up with Standard and
Poor's to use the S&P brand for Sensex and other indices

● 28 November 2013 Launch of Currency Derivatives (BSE CDX)

● 28 January 2014 Launch of Interest Rate Futures (BSE -IRF)

● 11 Feb 2014 Launch of Institutional Trading Platform on BSE SME

● 07 Apr 2014 Launch of Equity Segment on BOLT Plus with Median Response Time of
200.

27
 National Stock Exchange

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 Exchange has brought about
unparalleled transparency, speed & efficiency, safety and market integrity. It has set up facilities
that serve as a model for the securities industry in terms of systems, practices and procedures.

NSE has played a catalytic role in reforming the Indian securities market in terms of
microstructure, market practices and trading volumes. The market today uses state-of-art
information technology to provide an efficient and transparent trading, clearing and settlement
mechanism. and has witnessed several innovations in products & services viz. demutualisation of
stock exchange governance, screen based trading, compression of settlement cycles,
dematerialisation and electronic transfer of securities.securities lending and borrowing,

28
professionalization of trading members, fine-tuned risk management systems, emergence of
clearing corporations to assume counterparty risks, market of debt and derivative instruments
and intensive use of information technology. The National Stock Exchange of India Ltd. (NSE)
located in the financial capital of India, Mumbai. National Stock Exchange (NSE) was
established in the mid 1990s as a demutualised electronic exchange. NSE provides a modern,
fully automated screen-based trading system, with over two lakh trading terminals, through
which investors in every nook and corner of Indiacan trade.

NSE has a market capitalisation of more than US$1.5 trillion and Number of securities (equities
segment) available for trading are 3,091 as on June 2014.121 Though a number of other
exchanges exist, NSE and the Bombay Stock Exchange are the two most significant stock
exchanges in India, and between them are responsible for the vast majority of share transactions.
NSE's flagship index, the S&P CNX NIFTY, is used extensively by investors in India and
around the world to take exposure to the Indian equities market.

NSE was started by a clutch of leading Indian financial institutions at the behest of the
Government of India to bring transparency to the Indian market, and has a diversified
shareholding comprising domestic and global investors. The domestic investors includes Life
Insurance Corporation of India, GIC, State Bank of India and Infrastructure Development
Finance Company (IDFC) Ltd, while the foreign investors include MS Strategic
(Mauritius)Limited, Citigroup Strategic Holdings Mauritius Limited, Tiger Global Five Holdings
and Norwest Venture Partners X FII-Mauritius. It offers trading, clearing and settlement services
in equity, debt and equity derivatives. It is India's largest exchange, globally in cash market
trades, in currency trading and index options. As on June 2013, NSE has 1673 SAT terminals
and 2720 leaselines, spread over more than 2000 cities across India.

The exchange was incorporated in 1992 as a tax-paying company and was recognized as a stock
exchange in 1993 under the Securities Contracts (Regulation) Act, 1956, when Mr. P.
V.Narasimha Rao was the Prime Minister of India and Dr. Manmohan Singh was the Finance
Minister. NSE commenced operations in the Wholesale Debt Market (WDM) segment in June
1994. The Capital market (Equities) segment of the NSE commenced operations in November
1994, while operations in the Derivatives segment commenced in June 2000.

Trading at NSE

● Fully automated screen-based trading mechanism

● Strictly follows the principle of an order-driven market
● Trading members are linked through a communication network
● This network allows them to execute trade from their offices
● The prices at which the buyer and seller are willing to transact will appear on the screen

29
 ● When the prices match the transaction will be completed
● A confirmation slip will be printed at the office of the trading member

Advantages of trading at NSE

● Integrated network for trading in stock market of India

● Fully automated screen based system that provides higher degree of transparency
● Investors can transact from any part of the country at uniform prices
● Greater functional efficiency supported by totally computerized network.

March 24, 2014 Commencement of trading of CNX NIFTY Futures on OSE.

February 26. 2014 USE Launches VIX Futures - Futures on India VIX index

January 21, 2014 NSE Launches 'NSE Bond Futures II'

May 13, 2013 NSE launches the first dedicated Debt Platform on the
Exchange

30
 January 10, 2013 Agreement on Launch of S&P CNX NIFTY Futures in Japan

January 03, 2013 NSCCL Rated CCR AAA for fifth consecutive year

September 18, 2012 NSE launches SME operations

June 27, 2012 NSE launches financial literacy initiative ' Jagruti in Mohali,
in partnership with India Post

May 03. 2012 Futures and Options contracts on FTSE 100

March 22, 2012 NSE and India Post start Unique Financial Inclusion
Initiative "Jagruti"

March 14, 2012 NSE launches "EMERGE" - SME Platform

December 2011 NSCCL Rated "CCR AAA" for fourth consect utive vear -
28th Dec 2011

September 2011 Launch of derivatives on CNX PSE and CNX Infrastructure

Indices

August 2011 Launch of derivatives on Global Indices

July 2011 Commencement of trading in 91 Day GOI Treasury Bill -

Futures

January 2011 NSE receives "Financial Inclusion" Award.

FEATURES OF BSE AND NSE:

The leading stock exchanges in India have developed itself to a large extentsince its emergence.
These stock exchanges aim at offering the investors and traders better transparency, genuine
settlement cycle, honest transaction and to reduce and solve investor grievances if any. Please
Note: The researcher has not covered all the operational features of both the stock exchanges, but
has taken into consideration only the ones which are important to understand the thesis. The aim

31
to describe these operational features is for better understanding of the working of stock
exchanges. This is done for the purpose of easy understanding from the reader's point of view.
Let us see and understand its general operational features.

1. Market Timings:
Trading on the equities segment takes place on all
days of the week (except Saturdays and Sundays and holidays declared by the Exchange in
advance). The market timings of the equities
segment die.
Normal Market Open: 09:55 hours
Normal Market Close: 15:30 hours
The Post Closing Session is held between 15.50 to 16.00 hours.

2. Automated Trading System:

Today our country has an advanced trading system which is a fully automated screen based
trading system. This system adopts the principle of an order driven market as opposedto a quote
driven system.

● NSE operates on the 'National Exchange for Automated Trading(NEAT) system.

● BSE operates on the „BSE"s Online Trading" (BOLT) system.

➢ Order Management in Automated Trading System:

The trading system provides complete flexibility to members in the kinds of orders that can be
placed by them. Orders are first numbered and time-stamped on receipt and then immediately
processed for potential match. Every order has a distinctive order number and a unique time
stamp on it. If a match is not found, then the orders are stored indifferent 'books'. Orders are
stored in price-time priority in various books in the following sequence:
Best Price, Within Price, by time priority.

Price priority means that if two orders are entered into the system, the order having the best price
gets the higher priority. Time priority means if two orders having the same price are entered, the
order that is entered first gets the higher priority.

32
 ➢ Order Matching Rules in Automated trading system:
The best buy order is matched with the best sell order. An order may match partially with
another order resulting in multiple trades. For order
matching, the best buy order is the one with the highest price and the best sell order is the one
with the lowest price. This is because the system views all buy orders available from the point of
view of a seller and all sell orders from the point of view of the buyers in the market.So, of all
buy orders available in the market at any point of time, a seller would obviously like to sell at the
highest possible buy price that is offered. Hence, the best buy order is the order with the highest
price
and the best sell order is the order with the lowest price.Members can proactively enter orders in
the system, which will be displayed in the system till the full quantity is matched by one or more
of counter-orders and result into trade(s) or is cancelled by the member. Alternatively, members
may be reactive and put in orders that match with existing orders in the system. Orders lying
unmatched
in the system are 'passive' orders and orders that come in to match the existing orders are called
'active' orders. Orders are always matched at the passive order price. This ensures that the earlier
orders get priority over the orders that come in later.

➢ Order Conditions in Automated Trading System:

A TradingMember can enter various types of orders depending upon his/her requirements. These
conditions are broadly classified into three categories:
● Time Related Condition
● Price Related Condition

33
 ● Quantity Related Condition

● Time Conditions
a) Day Order -
A Day order, as the name suggests, is an order which is valid for the day on which it is
entered. If the order is not matched during the day, the order gets cancelled automatically at the
end of the trading day.

b) GTC Order -
Good Till Cancelled (GTC) order is an order that remains in the system until it is cancelled by
the Trading Member. It will therefore be able to span trading days if it does not get matched. The
maximum number of days a GTC order can remain in the system is notified by the Exchange
from time to time.

c) GTD -
A Good Till Days/Date (GTD) order allows the Trading Member to specify the days/date up to
which the order should stay in the system. At the end of this period the order will get flushed
from the system. Each day/date counted is a calendar day and inclusive of holidays. The
days/date counted are inclusive of the day/date on which the order is placed. The maximum
number of days a GTD order can remain in the system is notified by the Exchange from time to
time.

d) IOC
An Immediate or Cancel (IOC) order allows a Trading Member to buy or sell a security as soon
as the order is released into the market, failing which the order will be removed from the market.
Partial match is possible for the order, and the unmatched portion of the order is cancelled
immediately.

● Price Conditions

a) Limit Price/Order -
An order that allows the price to be specified while entering the order into the system.
b) Market Price/Order -
An order to buy or sell securities at the best price obtainable at the time of entering the order.

c) Stop Loss (SL) Price/Order -

The one that allows the Trading Member to place an order which gets activated only when the
market price of the relevant security reaches or crosses a threshold price. Until then the order
does not enter the market.A sell order in the Stop Loss book gets triggered when the last traded
price in the normal market reaches or falls below the trigger price of the order. A buy order in the

34
Stop Loss book gets triggered when the last traded price in the normal market reaches or exceeds
the trigger price of the order.

E.g. If for stop loss buy order, the trigger is 93.00, the limit
price is 95.00 and the market (last traded) price is 90.00, then this order is released into the
system once the market price reaches or exceeds 93.00. This order is added to the regular lot
book with time of triggering as the time stamp, as a limit order of 95.00

● Quantity Conditions:

a) Disclosed Quantity (DO)-

An order with a DQ condition allows the Trading Member to disclose only a part of the order
quantity to the market. For example, an order of 1000 with a disclosed quantity condition of 200
will mean that 200 is displayed to the market at a time. After this is traded, another 200 is
automatically released and so on till the full order is executed. The Exchange may set a
minimum disclosed quantity criteria from time to time.

b) MF - Minimum Fill (MF)

orders allow the Trading Member to specify the minimum quantity by which an order should be
filled. For example, an order of 1000 units with minimum fill 200 will require that each trade be
for at least 200 units. In other words there will be a maximum of 5 trades of 200 each or a single
trade of 1000. The Exchange may lay down norms of MF from time to time.

c) AON - AlI Or None (AON)

All or None orders allow a Trading Member to impose the condition that only the full order
should be matched against. This may be by way of multiple trades. If the full order is not
matched it will stay in the books till matched or cancelled.

Note: Currently, AON and MF orders are not available on the system as per SEBI directives.

3. Market Segments
The Exchange operates the following sub-segments in the Equities segment:

● Rolling Settlement
In a rolling settlement, each trading day is considered as a trading period and trades executed
during the day are settled based on the net obligations for the day.
At NSE, trades in rolling settlement are settled on a T+2 basis ie. on the 2nd working day. For
arriving at the settlement day all intervening holidays, which include bank holidays, NSE

35
holidays, Saturdays and Sundays are excluded. Typically trades taking place on Monday are
settled on Wednesday, Tuesday's trades settled on Thursday and so on.

● Limited Physical Market

Pursuant to the directive of SEBI to provide an exit route for small investors holding physical
shares in securities mandated for compulsory dematerialised settlement, the Exchange has
provided a facility for such trading in physical shares not exceeding 500 shares. This market
segment is referred to as 'Limited Physical Market' (small window). The Limited Physical
Market was introduced on June 7, 1999.

Limited Physical Market - Salient Features

★ Trading is conducted in the Odd Lot market (market type _0') with Book Type _OL' and
series _IT’.
★ Order quantities should not exceed 500 shares.

36
 ★ The base price and price bands applicable in the Limited Physical Market are same as
those applicable for the corresponding Normal Market on that day.
★ Trading hours are the same as that of the normal market and order entry during the pre-
open
★ and post-close sessions are not allowed.
★ Settlement for all trades would be done on a trade-for-trade basis and delivery obligations
arise out of each trade.
★ Orders get matched when both the price and the quantity match in the buy and sell order.
★ Orders with the same price and quantity match on time priority ie. orders which have
come into the system before will get matched first.
★ All Good-till-cancelled (GTC)/Good-till-date (GTD) orders placed and remaining as
outstanding orders in this segment at the close of market hours shall remain available for
next trading day. All orders in this segment, including GTC/GTD orders, will be purged
on the last day of the settlement.
★ Trading Members are required to ensure that shares are duly registered in the name of the
investors) before entering orders on their behalf on a trade date.

4. Settlement Cycle
Settlement for trades is done on a trade-for-trade basis and delivery obligations arise out of each
trade. The settlement cycle for this segment is same as for the rolling settlement viz.

37
 Activity Day

Trading Rolling Settlement Trading T

Clearing Custodial Confirmation T+1 working days

Delivery Generation T+2 working days

Settlement Securities and Funds pay in T+2 working days

Securities and Funds pay out T+2 working days

Post settlement Assigning of shortages for close out T+3 working days

Reporting and pick-up of bad delivery T+4 working days

Close out of shortages T+5 working days

Replacement of bad delivery T+6 working days

Reporting of re-bad and pick-up T+8 working days

Close out of re-bad delivery T+9 working days

Delivery of shares in street name and market delivery (clients holding physical shares purchased
from the secondary market) is treated as bad delivery. The shares standing in the name of
individuals/HUF only would constitute good delivery. The selling/delivering member must
necessarily be the introducing member.
Any delivery of shares which bears the last transfer date on or after the introduction of the
security for trading in the LP market is construed as bad delivery.
Any delivery in excess of 500 shares is marked as short and such deliveries are compulsorily
closed-out.
Shortages, if any, are compulsorily closed-out at 20% over the actual traded price. Uncertified
bad delivery and re-bad delivery are compulsorily closed-out at 20% over the actual traded price.
All deliveries are compulsorily required to be attested by the introducing delivering member.
The buyer must compulsorily send the securities for transfer and dematerialization, latest within
3 months from the date of pay-out.
Company objections arising out of such trading and settlement in this market are reported in the
same manner as is currently being done for normal market segment. However securities would
be accepted as valid company objection,only if the securities are lodged for transfer within 3
months from the date of pay-out.

Company objections arising out of such trading and settlement in this market are reported in the
same manner as is currently being done for the normal market segment. However, securities

38
would be accepted as valid company objections, only if the securities are lodged for transfer
within 3 months from the date of pay-out.

5. Brokerage And Other Transaction Costs:

Brokerage is negotiable. The Exchange has not prescribed any minimum brokerage. The
maximum brokerage is subject to a ceiling of 2.5 percent of the contract value. However, the
average brokerage charged by the members
to the clients is much lower. Typically there are different scales of brokerages for delivery
transactions, trading transactions, etc.
The Stamp Duty on transfer of securities in physical form is to be paid by the seller but in
practice it is paid by the buyer while registering the shares in his name. In case of transfer of
shares, the rate is 50 paise for every Rs.100/- or
part thereof on the basis of the amount of consideration and that for transter of debentures the
rate of stamp duty varies from State to State, where the registered office of a Company issuing
the debentures is located.

6.Transfer Of Ownership
Transfer of ownership of securities, if the same is not delivered in demat form by the seller, is
effected through a date stamped transfer-deed which is signed by the buyer and seller. The duly
executed transfer-deed along with the share certificate has to be lodged with the company for
change in the ownership.A nominal duty becomes payable in the form of stamps to be affixed on
the Transfer-deed remains valid for twelve months or the next book closure following the
stamped date whichever occurs later for transfer of shares in the name of buyer.
However, for delivery of shares in the market, transfer deed is valid till book closure date of the
Company

39
 OVER THE COUNTER EXCHANGE OF INDIA (OTCEI)

The OTC Exchange Of India (OTCEl), also known as the Over-the-Counter Exchange of India,
is based in Mumbai, Maharashtra. An electronic stock exchange based in India that is comprised
of small- and medium-sized firms looking to gain access to the capital markets. Like electronic
exchanges in the U.S. such as the Nasdaq, there is no central place of exchange and all trading is
done through electronic networks.

It is India's first exchange for small companies, as well as the first screen-based nationwide stock
exchange in India. OTCEI was set up to access high-technology enterprising promoters in raising
finance for new product development in a cost-effective manner and to provide a transparent and
efficient trading system to investors.

OTCEI is promoted by the Unit Trust of India, the Industrial Credit and Investment Corporation
of India, the Industrial Development Bank of India, the Industrial Finance Corporation of India,
and other institutions, and is a recognised stock exchange under the SCR Act.

OTC Exchange Of India also known as Over-the-Country Exchange of India or OTCEl was set
up to access high-technology enterprising promoters in raising finance for new product
development in a cost effective manner and to provide a transparent and efficient trading system
to the investors.

The OTC Exchange Of India was founded in 1990 under the Companies Act 1956 and was
recognized by the Securities Contracts Regulation Act, 1956 as a stock exchange.

40
Features of OTCEI:-

● Introduced Screen Based trading for the first time in Indian Stock market
● Trading takes place through a network of computers of over the counter (OTC dealers
located at several places, linked to central OTC computers.
● All the activities of OTC trading process was fully computerized.

Services of OTC Exchange of India

OTC Exchange Of India introduced certain new concepts in the Indian trading system:

● screen based nationwide trading known as OTCEI Automated Securities Integrated

System or OASIS
● Market Making
● Sponsorship of companies
● Trading done in share certificates
● Weekly Settlement Cycle
● Short Selling
● Demat trading through National Securities Depository Limited for convenient paperless
trading
● Tie-up with National Securities Clearing Corporation Ltd for Clearing.

41
 CHAPTER 2

RESEARCH AND
METHODOLOGY

2.1 LIMITATIONS:-

42
Limitations are the limiting lines that restrict the work in some way or other. In this research
study also their were some limiting factors, some of them are as under:

1. Data Collection:
The most important constraint in this study was data collection as Secondary data was selected
for study. Secondary data means data that are already available ie. they refer to the data which
have already been collected and analyzed by someone else.

2. Time Period:
Time period was one of the main factor as only one month was allotted and the topic covered in
research has a wide scope. So, it was not possible to cover it in a short span of time.

3. Reliability:
The data collected in research work was secondary data, So, this puts a question mark on the
reliability of this data, which a very important factor of this study as conclusion has been derived
from this secondary data only.

4. Accuracy:
The facts and findings of the data cannot be accepted as accurate to some extent as firstly,
secondary data was collected. Secondly, for doing descriptive research time needed to be more,
because in short period you cannot cover each point accurately.

2.2 Core study

43
Stock market

A stock market is a public market for the trading of company stock and derivatives at an agreed
price; these are securities listed on a stock exchange as well as those only traded privately.

The size of the world stock market was estimated at about $36.6 trillion US at the beginning of
October 2008. The total world derivatives market has been estimated at about $791 trillion face
or nominal value, 11 times the size of the entire world economy. The value of the derivatives
market, because it is stated in terms of notional values, cannot be directly compared to a stock or
a fixed income security, which traditionally refers to an actual value. Moreover, the vast majority
of derivatives 'cancel' each other out (i.e., a derivative bet' on an event occurring is offset by a
comparable derivative 'bet' on the event not occurring.). Many such relatively illiquid securities
are valued as marked to model, rather than an actual market price.)

The stocks are listed and traded on stock exchanges which are entities a corporation or mutual
organization specialized in the business of bringing buyers and sellers of the organizations to a
listing of stocks and securities together. The stock market in the United States includes the
trading of all securities listed on the NYSE, the NASDAQ, the Amex, as well as on the many
regional exchanges, e.g. OTCBB and Pink Sheets. European examples of stock exchanges
include the London Stock Exchange, the Deutsche Börse and the Paris Bourse, now part of
Euronext.

Function and purpose

The stock market is one of the most important sources for companies to raise money. This allows
businesses to be publicly traded, or raise additional capital for expansion by selling shares of
ownership of the company in a public market. The liquidity that an exchange provides affords
investors the ability to quickly and easily sell securities. This is an attractive feature of investing
in stocks, compared to other less liquid investments such as real estate.

History has shown that the price of shares and other assets is an important part of the dynamics
of economic activity, and can influence or be an indicator of social mood. An economy where
the stock market is on the rise is considered to be an up and coming economy. In fact, the stock
market is often considered the primary indicator of a country's economic strength and
development. Rising share prices, for instance, tend to be associated with increased business
investment and vice versa.

44
Share prices also affect the wealth of households and their consumption. Therefore, central banks
tend to keep an eye on the control and behavior of the stock market and, in general, on the
smooth operation of financial system functions. Financial stability is the raison d'être of central
banks.

Exchanges also act as the clearinghouse for each transaction, meaning that they collect and
deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk to an
individual buyer or seller that the counterparty could default on the transaction.

The smooth functioning of all these activities facilitates economic growth in that lower costs and
enterprise risks promote the production of goods and services as well as employment. In this way
the financial system contributes to increased prosperity.

● Relation of the stock market to the modern financial system

The financial system in most western countries has undergone a remarkable transformation. One
feature of this development is disintermediation. A portion of the funds involved in saving and
financing flows directly to the financial markets instead of being routed via the traditional bank
lending and deposit operations.

The general public's heightened interest in investing in the stock market, either directly or
through mutual funds, has been an important component of this process. Statistics show thatin
recent decades shares have made up an increasingly large proportion of households' financial
assets in many countries. In the 1970s, in Sweden, deposit accounts and other very liquid assets
with little risk made up almost 60 percent of households' financial wealth, compared to less than
20 percent in the 2000s.

The major part of this adjustment in financial portfolios has gone directly to shares but a good
deal now takes the form of various kinds of institutional investment for groups of individuals,
e.g., pension funds, mutual funds, hedge funds, insurance investment of premiums, etc. The trend
towards forms of saving with a higher risk has been accentuated by new rules for most funds and
insurance, permitting a higher proportion of shares to bonds. Similar tendencies are to be found
in other industrialized countries.

In all developed economic systems, such as the European Union, the United States, Japan and
other developed nations, the trend has been the same: saving has moved away from traditional
(government insured bank deposits to more risky securities of one sort or another.

45
 ● The stock market, individual investors, and financial risk

Riskier long-term saving requires that an individual possess the ability to manage the associated
increased risks. Stock prices fluctuate widely, in marked contrast to the stability of (government
insured) bank deposits or bonds. This is something that could affect not only the individual
investor or household, but also the economy on a large scale. The following deals with some of
the risks of the financial sector in general and the stock market in particular. This is certainly
more important now that so many newcomers have entered the stock market, or have acquired
other 'risky' investments (such as 'investment' property, i.e., real estate and collectables).
With each passing year, the noise level in the stock market rises. Television commentators,
financial writers, analysts, and market strategists are all overtaking each other to get investors'
attention. At the same time, individual investors,

immersed in chat rooms and message boards, are exchanging questionable and often misleading
tips. Yet, despite all this available information, investors find it increasingly difficult to profit.
Stock prices skyrocket with little reason, then plummet just as quickly, and people who have
turned to investing for their children's education and their own retirement become frightened.
Sometimes there appears to be no rhyme or reason to the market, only folly.

This is a quote from the preface to a published biography about the long-term value-oriented
stock investor Warren Buffett. [4] Buffett began his career with $100, and $105,000 from seven
limited partners consisting of Buffett's family and friends.

Over the years he has built himself a multi-billion-dollar fortune. The quote illustrates some of
what has been happening in the stock market during the end of the 20th century and the
beginning of the 21st century.

46
 2.3 Securities and Exchange Board of India

SEBI Bhavan, Mumbai Headquarters of SEBI

Organization Details

Headquarters 🇮🇳Mumbai, Maharashtra, India

Established - 1992

Jurisdiction - India

Head - Chairman

Chairman - C B Bhave

Term - February 16, 2008 -

Total Staff [11 525

Official Website

Website www.sebi.gov.in

SEBI is the Regulator for the Securities Market in India. Originally set up by the Government of
India in 1988, it acquired statutory form in 1992 with SEBI Act 1992 being passed by the Indian
Parliament.Chaired by C B Bhave, SEBI is headquartered in the popular business district of
Bandra-Kurla complex in Mumbai, and has Northern, Eastern, Southern and Western regional
offices in New Delhi, Kolkata, Chennai and Ahmedabad.

Organization Structure
Chandrasekhar Bhaskar Bhave is the sixth chairman of the Securities Market Regulator. Prior to
taking charge as Chairman SEBI, he had been the chairman of NSDL (National Securities
Depository Limited) ushering in paperless securities.

Prior to his stint at NSDL, he had served

SEBI as a Senior Executive Director. He is a former Indian Administrative Service officer of the
1975 batch. The Board comprises [2}

47
 NAME DESIGNATION AS PER

CB Bhave Chairman SEBI CHAIRMAN (S.4(1)(a) of the

SEBI Act, 1992)

Mr KP Krishnan Joint Secretary, Ministry of Member (S.4(1)(b) of the

Finance SEBI Act, 1992)

Mr Anurag Goel Secretary, Ministry of Member (S.4(1)(b) of the

Corporate Affairs SEBI Act, 1992)

Dr G Mohan Gopal Director, National Judicial Member (S.4(1)(d) of the

Academy, Bhopal SEBI Act, 1992)

Mr MS Sahoo Whole Time Member, SEBI Member (S.4(1)(d) of the

SEBI
[Act, 1992)

Dr KM Abraham Whole Time Member, SEBI Member (S.4(1)(d) of the

SEBI
Act, 1992)

Mr Mohandas Pai Director, Infosys Member (S.4(1)(d) of the

SEBI
Act, 1992)
Functions and Responsibilities

SEBI has to be responsive to the needs of three groups, which constitute the market:
★ the issuers of securities
★ the investors
★ the market intermediaries
SEBI has three functions rolled into one body quasi-legislative,Quasi- judicial and quasi-
executive. It drafts regulations in its legislative capacity, it conducts investigation and
enforcement action in its executive function and it passes rulings and orders in its judicial
capacity. Though this makes it very powerful, there is an appeals process to create
accountability. There is a Securities Appellate Tribunal which is a three member tribunal and is
presently headed by a former Chief Justice of a High court - Mr. Justice NK Sodhi. A second
appeal lies directly to the Supreme Court. SEBI has enjoyed success as a regulator by pushing
systemic reforms aggressively and successively (e.g. the quick movement towards making the
markets electronicand paperless rolling settlement on T+2 basis). SEBI has been active in setting
up the regulations as required under law.

48
2.4 DERIVATIVES

49
Derivatives are an important breed of financial instrument which are central to today‘s financial
markets. In India, the derivative market segment is very popular and quite active. It is very clear
that in currency markets, commodity markets and stock markets involving all the market
participants face considerable risk on account of price fluctuations regarding assets traded in
these markets. In a financial market system, derivatives can improve a market‘s efficiency by
price discovery, liquidity and transfer of risk. Moreover, investors and business houses use
derivatives to hedge or manage their risks. The unfamiliarity and complexity of trading in
derivatives has created an air of doubt among the investors inducing them to take differing
perspectives on derivatives.

A derivative instrument helps to hedge the risk involved in the trading of an underlying asset. In
short derivatives are those financial instruments which derive value from an underlying asset or
index. The underlying assets are of two types, namely commodities like gold, cotton, pepper etc.
and financial assets like shares, currencies, bonds etc. Based on the underlying assets, the
derivatives are classified into commodity and financial derivatives. The basic purpose of these
instruments is to provide commitments to prices for future dates for giving protection against
adverse movements in future prices, in order to reduce the extent of financial risks. Not only this,
they also provide opportunities to earn profit for those persons who are ready to go for higher
risks. In other words, these instruments, indeed, facilitate to transfer the risk from those who
wish to avoid it to those who are willing to accept the same. Therefore, by lock-in asset prices
investors can minimize the impact of price fluctuations with profitability.

SCOPE OF THE STUDY

50
The study on investor's preference towards Futures and Options is limited to
Ernakulam District. The study aims to bring out the level of satisfaction, risk and returns
and problems faced by an investors trading in financial derivatives in the state of Kerala.
The study is aimed to motivate the investors in investing derivative market segment and
to highlight the derivatives as a best choice of investment in the present scenarios. The study was
carried out for a period of seven months, starting from March 1S 2016 to September 30 2016.

OBJECTIVES OF THE STUDY

● 10 analyze the relationship between the risk and returns from Futures and
Options trading to an investor in Ernakulam District.
● To examine the reasons considered for trading in Futures and Options
derivatives.
● To assess the level of financial satisfaction from derivative trading.
● To identify the problems faced by the investors in Futures and Options trading.

DEFINITION OF KEY TERMS

Derivatives: Derivatives are broad set of instruments whose value depend on some
underlying assets. The value is derived from underlying financial or physical assets. It is
a financial instrument which derives its value/price from the underlying assets.

F&O Segment: The organized exchanges provide trading facilities for the trading in
derivatives. The National Stock Exchange (NSE) and Bombay Stock Exchange (BSE)
have commenced trading in derivative market instruments, now trading in Index futures,
IndexOptions and Stock options and futures.

Risk Management: Risk management is the process of evaluating the chance of loss of
or harm and then taking steps to combat the potential risk.

Hedge: A hedge in an investment is done to reduce the risk of price movements in an

asset. It's a risk management strategy used in limiting or offsetting probability of loss
from fluctuations in the prices of commodities, currencies or securities. It's a transfer of
risk without insurance.

Speculation: Speculation involves trading in a financial instrument involving high risk,

in expectation of significant returns. The motive is to take maximum advantage from
fluctuations in the market.
Futures Contract: Futures Contract means a legally binding agreement to buy or sell
the underlying security on a future date. Future contracts are the organized/standardized
contracts in terms of quantity, quality (in case of commodities), delivery time and place

51
for settlement on any date in future. The contract expires on a pre-specified date which
is called the expiry date of the contract. On expiry, futures can be settled by delivery of
the underlying asset or cash. Cash settlement enables the settlement of obligations
arising out of the future contract in cash.

Cash Settlement: It is process of performing a futures contract by payment of money

difference rather than physical delivery of the commodity.

Contract Month: Contract month means the month in which the F&O Segment of the
exchange require a contract to be finally settled.

Margin Money: When a person enters a futures contract, he need not pay the full value
of the contract upfront-only a small percentage needs to be paid. That payment is called
margin money. Usually margin money would be a percentage ranging from 10% to as
high as 35 or 40% in times of heavy volatility. For example - the margin required for
buying 1 lot of reliance futures now is 15.70%. I.e., approximately Rs 29,000.00. The
actual margin money required to be maintained changes every day, specified by the
NSE.

Display on the Trading Screen: Futures are displayed on the trading screen just like
equities. Each future contract will be in a coded form just like equities. Future contracts
are displayed in alphabetical order. For a share / index / commodity, 3 contracts will be
displayed. The near month contracts are listed first. The trading screen would also show
the open price, high, low, traded quantity etc.

Long and Short Positions: Unsettled or open purchase position at any point of time is
called a long position and unsettled sales position at any time point of time is called a
short position.

Marked to Market: Futures contracts are monitored regularly by the authorities.

Hence, Futures prices are marked to market. It means that every change in value to the investor
is shown in the investor's account at the end of each trading day. Theimplication is that, if your
futures position is in profits on a particular day, your account is credited with that much of
profits(which would be taken away, if the prices fall onthe next day). This process would
keepgoing until you settle the contract. At the same time, if your position is in loss, the loss will
be shown in your account on theend of the trading day and if such loss is beyond your initial
margin you've given, you will have to pay the difference.
Options Contract: Options Contract is a type of Derivatives Contract which gives the
buyer/holder of the contract the right (but not the obligation) to buy/sell the underlying
asset at a predetermined price within or at end of a specified period. This contract gives
the buyer or holder of the contract the right (but not an obligation) to buy or sell the

52
underlying security at a predetermined price.

Market Lot Size:Regular lot or Market Lot Size means the number of units that can be
bought or sold in a specified derivatives contract as may be specified by the exchange
from time to time.

Option Premium - This is the price paid by the buyer to the seller to acquire the right
to buy or sell.

Strike Price or Exercise Price - The strike or exercise price of an option is the
specified/ pre-determined price of the underlying asset at which the same can be bought
or sold if the option buyer exercises his right to buy sell on or before the expiration day.

Option Holder: Is the one who buys an option which can be a call or a put option. He
enjoys the right to buy or sell the underlying asset at a specified price on or before
specified time. His upside potential is unlimited while losses are limited to the Premium
paid by him to the option writer.

2.5 India Commodity Market

53
The vast geographical extent of India and her huge population is aptly complemented by the size
of her market. The broadest classification of the Indian Market can be made in terms of the
commodity market and the bond market. Here, we shall deal with the former in a little detail.

The commodity market in India comprises of all palpable markets that we come across in our
daily lives. Such markets are social institutions that facilitate exchange of goods for money. The
cost of goods is estimated in terms of domestic currency.

India Commodity Market can be subdivided into the following two categories:

➢ Wholesale Market
➢ Retail Market
Let us now take a look at what the present scenario of each of the above markets is
Like.

The traditional wholesale market in India dealt with whole sellers who bought goods from the
farmers and manufacturers and then sold them to the retailers after making a profit in the
process. It was the retailers who finally sold the goods to the consumers. With the passage of
time the importance of whole sellers began to fade out for the following reasons:

The whole sellers in most situations, acted as mere parasites who did not add any value to the
product but raised its price which was eventually faced by the consumers.

The improvement in transport facilities made the retailers directly interact with the producers and
hence the need for whole sellers was not felt.

In recent years, the extent of the retail market (both organized and unorganized) has evolved in
leaps and bounds. In fact, the success stories of the commodity market of India in recent years
has mainly centered around the growth generated by the Retail Sector. Almost every commodity
under the sun both agricultural and industrial are now being provided at well distributed retail
outlets throughout the country.
Moreover, the retail outlets belong to both the organized as well as the unorganized sector. The
unorganized retail outlets of the yesteryears consist of small shop owners who are price takers
where consumers face a highly competitive price structure. The organized sector on the other
hand are owned by various business houses like Pantaloons, Reliance, Tata and others. Such

54
markets are usually selling a wide range of articles both agricultural and manufactured, edible
and inedible perishable and durable. Modern marketing strategies and other techniques of sales
promotion enable such markets to draw customers from every section of the society.
However the growth of such markets has still centered around the urban areas primarily due to
infrastructural limitations.

Considering the present growth rate, the total valuation of the Indian Retail Market is estimated
to cross Rs 10,000 billion by the year 2010. Demand for commodities is likely to become four
times by 2010 than what it presently is.

Money Market

When the stock prices show a downward trend, then it becomes risky to keep savings there.
Although the stock market is associated with high risks and high returns, many are risk averse
and prefer to invest in the more secure money market.

The money market deals with very short term debt securities that mature in less than a year.
Since the money market is extremely safe, it yields very low returns unlike the bond market. The
money market securities that are issued by the government or financial institutions or large
corporations are very liquid. Since the money market securities trade at very high denominations
it becomes very difficult for the individual investors to have access to it.

The money market is a type of a dealer market where firms purchase securities in their own
account by assuming the risks themselves. Unlike the stock exchanges the money market
securities do not operate in exchanges or through brokers. Transactions take place over phone or
the electronic system.

One may browse through the following links to have a more detailed information about money
market.

55
 Money Market Definition

Money Market Definition is simply meant as the short-term debt market. Treasury Bills and
certificate of deposits are regarded as the instruments in the money market.

World Money Market

World Money Market has been providing origination, trading and the distribution of short-term
debt instruments across different regions over the world. Find detailed on the world money
Market.

Money Market Index

Money Market Index is a true indicator of the prevailing money market, which renders a clear-
cut idea on making investment.

Money Market Rates

Money Market Rates can be simply defined as the market rates including the broker call loan
rate, federal funds rate, rates on bankers' acceptance etc. Get the method of finding the money
market rates.

Major Factors That Affect Stock Price in stock market globally

When you wish to invest in the stock market, then you should always make a good survey of
the whole market. As you know that you cannot predict the stock market, so in that case you
need to know the functioning of the market. There are some major factors that affect stock price .
So let us discuss the different factors affecting the stock price in this article.

Demand AND SUPPLY

One of the major factors affecting stock price is demand and supply. The trend of the stock
market trading directly affects the price. When people are buying more stocks, then the price of
that particular stock increases. On the other hand if people are selling more stocks, then the price
of that stock falls. So, you should be very careful when you decide to invest in the Indian stock
market.
Market Cap
Never try to guess the worth of a company simply by comparing the price of the stock. You
should always keep in mind that it is not the stock but the market capitalization of the company
that determines the worth of the company. So market cap is another factor that affects stock
price.

56
"Market Capitalization"?

You probably think that you have never heard of the term "market capitalization" before. You
have! When you are talking about "mid-cap", "small-cap" and "Large-cap" stocks, you are
talking about market capitalization!

Market cap or market capitalization is simply the worth of a company in terms of it's shares! To
put it in a simple way, if you were to buy all the shares of a particular company, what is the
amount you would have to pay? That amount is called the "market capitalization"!

To calculate the market cap of a particular company, simply multiply the "current share price" by
the "number of shares issued by the company"! Just to give you an idea, ONGC, has a market
cap of "Rs. 170,705.21 Cr" (when this article was written)Depending on the value of the market
cap, the company will either be a "mid-cap" or "large-cap" or "small-cap" company! Now the
question is, how do YOU calculate the market cap of a particular company? You don't! Just go to
a website like MoneyControl.com and look up the company whose market cap you are interested
in finding out! The figure in front of "Mkt. Cap" will be the market cap value.

News
When you get positive news about a company then it can increase the buying interest in the
market. On the other hand, when there is a negative press release, it can ruin the prospect of a
stock. In this case you should remember that news should not matter much but the overall
performance of the company matters more. So, news is another factor affecting stock price.

Earning/Price Ratio
Another important factor affecting stock price is the earning/price ratio. This gives you a fair
idea of a company's share price when it is compared to its earnings. The stock becomes
undervalued if the price of the share is much lower than the earnings of a company. But if this is
the case, then it has the potential to rise in the near future. The stock becomes overvalued if the
price is much higher than the actual earning. So, these are the major factors that affect stock
price.

57
 3. CHAPTER

LITERATURE
REVIEW

3.1 THE INDIAN STOCK MARKET

REGULATORS IN INDIAN

The two main important regulators in Indian Stock Market are:

58
 ➢ Reserve Bank Of India
➢ Securities Exchange Board Of India

➢ RESERVE BANK OF INDIA

Reserve Bank of India is the apex monetary Institution of India. It is also called as the central
bank of the country.

THE RBI BUILDING IN SOUTH MUMBAI

The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of
the Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank was initially
established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is
where the Governor sits and where policies are formulated. Though originally privately owned,
since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.

59
It acts as the apex monetary authority of the country. The Central Office is where the Governor
sits and is where policies are formulated. Though originally privately owned sice
nationalization in 1949, the Reserve Bank is fully owned by the Government of India.
Thepreamble of the reserve bank of India is as follows:
'..to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary
stability in India and generally to operate the currency and credit system of the country to its
advantage."
The RBI plays an important part in the Development Strategy of the Government of India. It is a
member bank of the Asian Clearing Union. The general superintendence and direction of the
RBI is entrusted with the 21-member Central Board of Directors: the Governor, 4 Deputy
Governors, 2 Finance Ministry representatives, 10 government-nominated directors to represent
important elements from India's economy, and 4 directors to represent local boards
headquartered at Mumbai, Kolkata, Chennai and New Delhi. Each of these local boards consists
of 5 members who represent regional interests, as well as the interests of co-operative and
indigenous banks.

● SECURITIES AND EXCHANGE BOARD OF INDIA

SEBI Act, 1992: Securities and Exchange Board of India (SEBI) was first established in the year
1988 as a non-statutory body for regulating the securities market. It became an autonomous body
in 1992 and more powers were given through an ordinance. Since then it regulates the market
through its independent powers.

THE SEBI BUILDING IN MUMBAI

● FUNCTIONS

The Preamble of the Securities and Exchange Board of India describes the basic functions of the
Securities and Exchange Board of India as "..to protect the interests of investors in securities and
to promote the development of, and to regulate the securities market and for matters connected

60
therewith or incidental thereto"

SEBI has to be responsive to the needs of three groups, which constitute the market:

● the issuers of securities

● the investors
● the market intermediaries.

SEBI has three functions rolled into one body:

● Quasi-legislative
● quasi-judicial and
● quasi-executive

It drafts regulations in its legislative capacity, it conducts investigation and enforcement action in
its executive function and it passes rulings and orders in its judicial capacity. Though this makes
it very powerful, there is an appeal process to create accountability. There is a Securities
Appellate Tribunal which is a three-member tribunal. A second appeal lies directly to the
Supreme Court. SEBI has taken a very proactive role in streamlining disclosure requirements
to international standards.
For the discharge of its functions efficiently, SEBI has been vested with the following powers:

1. to approve by-laws of stock exchanges. SEBI

2. to require the stock exchange to amend their by-laws.
3. inspect the books o accounts and call for periodical returns from recognized stock

61
exchanges.
4. inspect the books of accounts of a financial intermediaries.
5. compel certain companies to list their shares in one or more stock exchanges.
6. registration brokers.
The Role of the Stock Exchange in the Economy

Stock exchanges play a vital role in the functioning of the economy by providing the backbone to
a modern nation's economic infrastructure. Stock exchanges help companies raise money to
expand. They also provide individuals the ability to invest in companies. Stock exchanges
provide order and impose regulations for the trading of stocks. Finally, stock exchanges and all
of the companies that are associated with the stock exchanges provide hundreds of thousands of
jobs.

● Business Expansion
Stock exchanges provide companies the ability to raise capital to expand their businesses. When
a company needs to raise money they can sell shares of the company to the public. They
accomplish this by listing their shares on a stock exchange. Investors are able to buy shares of
public offerings and the money that is raised from the investors is used by the company to
expand operations, buy another company or hire additional workers. All of this leads to increased
economic activity which helps drive the economy.

● Widespread Investing
Stock exchanges allow any person to invest in the greatest companies in the world. Investors,
both large and small, use the stock exchanges to buy into a company's future. Investing would
not be possible for the average person if there was not a centralized place to trade stocks. The
ability for the average person to invest in these companies leads to increased wealth for the
investors. This increased wealth then leads to additional economic activity when the investors
spend their money.

● Direct Jobs
The stock exchanges and all of the companies that serve the stock exchanges such a brokerage
firms, investment banks and financial news organizations employ hundreds of thousands of
people. Most of the jobs related to stock exchanges are well paying and career orientated jobs.
As a result, the employees of these firms are able to help spur economic activity.

● Warning
If the stock exchanges do not fully carry out their duty of overseeing the stock trading process
the investing public will lose faith in the fairness and safety of the stock market. If this happens
then all of the economic activity that the stock exchanges create will decrease and this will lead
to an overall drop in economic activity. The stock exchanges must be sure that investors are not

62
taken advantage of and that investors continue to have confidence in the system the stock
exchanges created.

● Profit sharing
They help both casual and professional stock investors. to get their share in the wealth of
profitable businesses.

● Corporate governance
By having a wide and varied scope of owners, companies generally tend to improve on their
management standards and efficiency in order to satisfy the demands of these shareholders and
the more stringent rules for public corporations imposed by public stock exchanges and the
government.
Consequently, it is alleged that public companies (companies that are owned by shareholders
who are members of the general public and trade shares on public exchanges) tend to have better
management records than privately-held companies (those companies where shares are not
publicly traded, often owned by the company founders and/or their families and heirs, or
otherwise by a small group of investors). However, some well-documented cases are known
where it is alleged that there has been considerable slippage in corporate governance on the part
of some public companies. The dot-com bubble in the early 2000s, and the subprime mortgage
crisis in 2007-08, is classical examples of corporate mismanagement. Companies like Pets.com
(2000), Enron Corporation (2001),One.Tel (2001), Sunbeam (2001), Wevan (2001), Adelphia
(2002), MCI WorldCom (2002), Parmalat (2003), American International Group (2008), Lehman
Brothers (2008), and Satyam Computer Services (2009) were among the most widely scrutinized
by the media.

● Creating investment opportunities for small investors

As opposed to other businesses that require huge capital outlay, investing in shares is open to
both the large and small stock investors because a person buys the number of shares they can
afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares
of the same companies as large investors.

● Government capital raising for development projects

Governments at various levels may decide to borrow money in order to finance infrastructure
projects such as sewage and water treatment works or housing estates by selling another category
of securities known as bonds. These bonds can be raised through the Stock Exchange whereby
members of the public buy them, thus loaning money to the government. The issuance of such
bonds can obviate the need to directly tax the citizens in order to finance development, although
by securing such bonds with the full faith and credit of the government instead of with collateral,
the result is that the government must tax the citizens or otherwise raise additional funds to make

63
any regular coupon payments and refund the principal when the bonds mature.and They help to
government to raise funds for developmental activities through the issue of bonds. An investor
who buys them will be lending money to the government, which is more secure, and sometimes
enjoys tax benefits also.

● Barometer of the economy

At the stock exchange, share prices rise and fall depending, largely, on market forces. Share
prices tend to rise or remain stable when companies and the economy in general show signs of
stability and growth. An economic recession, depression, or financial crisis could eventually lead
to a stock market crash. Therefore the movement of share prices and in general of the stock
indexes can be an indicator of the general trend in the economy. They maintain the stock indexes
which are the indicators of the general trend in the economy. They also regulate stock price
fluctuations.

● Mobilizing savings for investment

They help public to mobilize their savings to invest in high yielding economic sectors, which
results in higher yield, both to the individual and to the national economy. When people draw
their savings and invest in shares, it leads to a more rational allocation of resources because
funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and
redirected to promote business activity with benefits for several economic sectors such as
agriculture, commerce and industry, resulting in stronger economic growth and higher
productivity levels and firms.

64
 3.2 WHAT IS A STOCK INDEX?

STOCK INDEX.

The stock index function as an indicator of the general economic scenario of a country / region /
sector. If the stock market indices are growing. it indicates that the overall general economy o the
country is stable and that the investors have faith in the growth story of the economy. If,
however, there is a plunge in the stock market index over a period of time, it indicates that the
economy of the country is in troubled waters. It'a also an indication of what the corporates in that
country are facing.

65
A stock index is created by selecting a group of high performing stocks. For example - The
FTSE 100 ( the stock index of London stock exchange is constructed from the top 100
companies trading in the London stock exchange. If the FTSE 100 records a jump over a period
of time, it indicates that most of the top 100 companies in England are doing well at that point of
time and that the investors are positive about putting their money in England.

TYPES OF INDICES

There are different types of indices and FTSE 100 was just an example. Stock indices can be
constricted _
● For the entire world ( global indices)
● For an entire continent (regional indices - for example S&P Latin america 40)
● For an entire country (national indices - for example Sensex & NIFTY for India)
● For a particular sector in a country - ( sectoral indices - for example BSE BANKEX
which tracks top banking companies in India)
● For any other theme / group of economy / companies you want to track. (example Dow
Jones Islamic world market index)

The MSCI global and the S & P Global 100 are examples of world stock indices which tracks the
largest companies in the world irrespective of their country of origin. The MSCI global id an
index with over 6000 stocks included from different parts of the developed world. It specifically
excludes companies from emerging economies.
When stock indices are constructed to track the performance of the economy of a country (like
Sensex in India), it called a national index.
Irrespective of the type of index, the purpose of any index is the same. It provides to the public, a
quick view of how the economy (based on which the index is constructed) is functioning. A
sudden slide in indices denotes that the investors have lost faith. There could be several reasons
for that like poor economic reforms, high inflation, high borrowing costs, amendments in laws

66
that not well received by the business community, downgrades by world credit rating agencies,
scams, corruption .. the list is end less.
These indices also serve as benchmarks for measuring performance of fund managers or for
measuring the performance of an individual's stock portfolio.

CONSTRUCTION OF STOCK INDEX

A stock index can be calculated in two wavs -
• By considering the price of the component stocks alone. This method is called the price-
weighted method.
By considering the market value or size of the company - called the capitalization weighted
method.
To conclude, stock indices are barometers to measure general economic performance of a
particular country / sector. It's updated every second throughout on every trading so as to reflect
the exact picture of the economy. It's also a permanent record of the history of markets - it's
highs and lows, booms and crashes.
As said before our national indices are NIFTY which is followed for nse and sensex which is
followed for bse, I will be further explaining NIFTY and sensex in short.

INDIAN STOCK INDICES

There are two main indices of the Indian stock market:

➢ NIFTY
➢ SENSEX

NIFTY
NIFTY is a major stock index in India introduced by the National stock exchange.
NIFTY was coined for the two words 'National 'and 'FIFTY'. The word fifty is used because; the
index consists of 50 actively traded stocks from various sectors.
So the NIFTY index is a bit broader than the Sensex which is constructed using 30 actively
traded stocks in the BSE.
NIFTY is calculated using the same methodology adopted by the BSE in calculating the Sensex
- but with three differences.
They are:
● The base year is taken as 1995
● The base value is set to 1000
● NIFTY is calculated on 50 stocks actively traded in the NSE
● 50 top stocks are selected from 24 sectors.

The CNX NIFTY, also called the NIFTY 50 or simply the NIFTY, is National Stock Exchange
of India's benchmark index for Indian equity market. NIFTY is owned and managed by India

67
Index Services and Products Ltd. (ISL), which is a wholly owned subsidiary of the NSE
Strategic Investment Corporation Limited. ISL is India's first specialized company focused upon
the index as a core product. IISL has a marketing and licensing agreement with Standard &
Poor's for co-branding equity indices. 'CNX' in its name stands for CRISIL NSE Index'.
CNX NIFTY has shaped up as a largest single financial product in India, with an ecosystem
comprising: exchange traded funds (onshore and offshore), exchange-traded futures and options
(at NSE in India and at SGX and CME abroad), other index funds and OTC derivatives (mostly
ofishore).

The CNX NIFTY covers 22 sectors of the Indian economy and offers investment managers
exposure to the Indian market in one portfolio. During 2008-12, CNX NIFTY 50 Index share of
NSE market capitalisation fell from 65% to 29%[1] due to the rise of sectoral indices like CNX
Bank, CNXIT, CNX Mid Cap, etc. The CNX NIFTY 50 Index gives 29.70% weightage to
financial services, 0.73% weightage to industrial manufacturing and nil weightage to agricultural
Sector.

The CNX NIFTY index is a free float market capitalisation weighted index. The index was
initially calculated on füll market capitalisation methodology. From June 26, 2009, the
computation was changed to free float methodology. The base period for the CNX NIFTY index
is November 3, 1995, which marked the completion of one year of operations of National Stock
Exchital Market Segment. The base value of the index has been set at 1000, and a base capital of
Rs 2.06 trillion. The CNX NIFTY Index was developed by Ajay Shah and Susan Thomas. The
CNX NIFTY currently consists of the following 50 major Indian companies:
Kindly Note, post expiration of agreement between ISL and Standard and Poor's Financial
Service LLC (S&P) on 31st Jan 2013, index is addressed as CNX NIFTY Index. Formerly, S&P
CNX NIFTY Index)

68
Here is the list of 50 companies that form part of CNX NIFTY Index as on 3 March 2014:

69
with effect from March 28, 2014 Tech Mahindra Ltd. and United Spirits Limited are replacing
Jaiprakash Associates Ltd.and Ranbaxy Laboratories Ltd. respectively.
➢ Major falls
On the following dates, the CNX NIFTY index suffered major single-day falls (of 150 or more
points)
16 Aug 2013 --- 234.45 Points(because of rupee depreciation)
27 Aug 2013 --- 189.05 Points
03 Sep Aug 2013 --- 209.30 Points
In 1991, New Delhi kickstarted the economic reforms process owing mainly to the serious
balance of payments crisis it was facing.
1997 Asian Financial Crisis - Investors deserted emerging Asian shares, including an overheated
Hong Kong stock market. Crashes occur in Thailand, Indonesia, South Korea, Philippines, and
elsewhere, reaching a climax in the October 27, 1997 mini-crash.

The selection criteria for the 50 stocks are also similar to the methodology adopted by the
Bombay stock exchange.

70
 3.3 WHAT IS SENSEX? HOW IS IT CALCULATED?

SENSEX
The SENSEX-(or SENSitve indEX) was introduced by the Bombay stock exchange on January
1986. It is one of the prominent stock market indexes in India. The Sensex is designed to reflect
the overall market sentiments. It comprises of 30 stocks. These are large, well-established and
financially sound companies from main sectors.

METHOD ADOPTED FOR SENSEX CALCULATION

The method adopted for calculating Sensex is the market capitalisation weighted method in
which weights are assigned according to the size of the company. Larger the size, higher the
weightage.
The base year of Sensex is 1978-79 and the base index value is set to 100 for that period.

The total value of shares in the market at the time of index construction is assumed to be '100' in
terms of points'. This is for the purpose of ease of calculation and to logically represent the
change in terms of percentage. So, next day, if the market capitalization moves up 10%, the
index also moves 10% to 110.

HOW IS THE INDEX CONSTRUCTED?

The construction technique of index is quite easy to understand if we assume that there is only
one stock in the market. In that case, the base value is set to 100 and let's assume that the stock is
currently trading at 200. Tomorrow the price hits 260 (30% increase in price) so, the index will

71
move from 100 to 130 to indicate that 30% growth. Now let's assume that on day 3, the stock
finishes at 208. That's a 20% fall from 260. So, to indicate that fall, the Sensex will be corrected
from 130 to 104(20%fall.

As our second step to understand the index calculation, let us try to extend the same logic to two
stocks - A and B. A is trading at 200 and let's assume that the second stock 'B' is trading at 150.
Since the Sensex follows the market capitalization weighted method, we have to find the market
capitalization (or size of the company- in terms of price) of the two companies and proportionate
weightage will have to be given in the calculation.

Multiply the total number of shares of the company by the market price. This figure is
technically called 'market capitalization'.

Back to our example-

We assume that company A has 100,000 shares outstanding and B has 200,000 shares
outstanding. Hence, the total market capitalization is (200 × 100000 + 150 × 200000) Rs 500
lakhs. This will be equivalent to 100 points.

Lets assume that tomorrow, the price of A hits 260 (30% increase in price) and the price of B hits
135. (10% drop in price). The market capitalization will have to be reworked. It would be - 260 ×
100,000 + 135 x 200,000 = 530 lakhs. That means, due to the changes in price, the market
capitalization has moved from 500 lakhs to 530 indicating a 6% increase. Hence, the index
would move from 100 to 106 to indicate the net effect.

This logic is extended to many selected stocks and this calculation process is done every minute
and that's how the index moves!

CALCULATION OF SENSEX.
What we said was the general method to construct indices. Since, the Sensex consists of 30 large
companies and since it's shares may be held by the government or promoters etc, for the purpose
of calculating market capitalization only the free float market value is considered, instead of the
total number o† shares.

What is free float?

That's the total number of shares available for the public to trade in the market. It excludes shares
held by promoters, governments or trusts, FDIs etc...

72
To find the free float market value, the total value of the company (total shares × market price) is
further multiplied by a free float market value factor, which is nothing but the percentage of free
float shares of a particular company.

So logically, the company which has more public holding will have the highest free float factor
in the Sensex. This equalizes everything,
Example- let's assume that the market value of a company is Rs 100,000 Crore and it has 100
Crore shares having a value of Rs 1,000 each but only 20% of it are available to the public for
trade. The free float factor would be 20/100 or 0.20 and the free float market value would be .20
× 100,000 = 20,000 Crores.

You need not calculate the free float market capitalization since its available straight on the BSE
website.

NOW, LET'S SE HOW THE SENSEX MOVES.

Sensex value = Current free-float market value of constituents stocks/Index Divisor
So, the numerator is available straight from the BS site. It's the total of free float factors of 30
stocks x market capitalization.

NOW, THE DENOMINATOR.

The index divisor nothing but the present level of index.

So, now, we have all the figures.

Lets assume that the free-float market capitalisation is Rs 10,00,000 Crore. At that point, the
Sensex is at 12500. What would be the value of Sensex if the free-float market capitalization is
Rs 11.50.000 Crore?

.......The answer is 14,375.

73
The BSE Sensex currently consists of the following 30 major Indian companies as of 10 April
2014:

74
 3.4 CALCULATE BROKERAGE RATES AND TAXES

Let's see how to calculate Brokerage and taxes for intraday trading and for delivery trading in the
Indian Stock Market.

The current maximum intraday brokerage offered is 0.05% for buying and 0.05% for selling (we
provide 0.03% for buying and 0.03% for selling, these rates can be reduced further if you do
daily high volume trading)

Brokerage calculation for day trading (intraday trading)

● Taxes :

1. The service tax is of 10.36% only on brokerage. (Update Mar 09- The service tax is reduced to
10.30% including education cess )
2. The STT (Security Transaction Tax) is of 0.025% only selling amount.
3. The stamp duty on total turnover for a day which is 0.002%.
4. and finally you have to pay Regulatory charges on total turnover for a day which is 0.004%.

Please note - These all taxes will add up to very small amount at the end of the day compared to
your profits.

● Brokerage:

A tee charged by an agent, or agents company to facilitate transactions between buyers and
sellers. The brokerage fee is charged for services such as negotiations, sales, purchases, delivery
or advice on the transaction.
There are many types of brokerage fees added in areas such as insurance, realty, delivery
services or stocks. Brokerage fees will usually be based on a either a percentage of the
transaction or a flat fee. They can also be a combination of the two.

Here is an example of the fee breakdown from a typical stock brokerage:

Stock Price Over $2: $28 flat rate up to 999 shares, 3 cents per share over 999 shares.

Stock Price $2 and Under: 1.4% of principal trade with a minimum of $28 charged.

One example is explained to understand how to calculate brokerage and taxes.

75
Example :-
Suppose the shares of Kotak Bank has been bought at Rs.315, quantity - 100 so the amount
comes to Rs.315 x 100 = Rs.31500.

Now let's see how to calculate the brokerage and taxes.

Your buying amount

Rs.31500 (Rs.315x100 Qty shares)

Brokerage charge
0.03% as brokerage (It's our brokerage rates) on 31,500 which comes to Rs.9.45
Service Tax
The service tax is 10.36% only on brokerage, so 10.36 % on Rs.9.45 comes to Rs 0.98.
Total charges you have pay on buying amount is
The total brokerage + service tax which come to Rs.9.45 + Rs.0.98 = Rs. 10.43

Now let's calculate the brokerage and taxes on selling amount:

Your selling amount

Suppose you sold Kotak Bank shares at Rs.316, Qty - 100 so the amount comes to Rs.31,600
(Rs.316 x 100 Qty shares)
Brokerage charge
0.03% brokerage on 31600, comes to Rs.9.48

Service Tax:
The service tax is 10.36% only on brokerage, so 10.36 % on Rs.9.48 comes to Rs 0.99.

STT(Service Transaction Tax) only on selling amount

The STT (Service Transaction Tax) is 0.025% on selling amount (the selling amount is 31,600)
which comes to Rs.6.32.

Total charges you have pay on Selling amount is

Total brokerage + service tax + STT on selling amount is = Rs.9.48 + Rs.0.99 + Rs.6.32
= Rs. 16.79
Total amount you have to pay on buying and selling is = Rs. 10.43 (buying) + Rs. 16.79 (selling)
= Rs.27.22

Also you have to pay stamp duty and regulatory charges on total turnover.

76
Your total turn over is calculated by adding the buying amount and selling amount.
Buying amount is 31500 and selling amount is 31600 which adds up to Rs. 61300. Stamp duty i
0.002% and Regulatory charges are 0.004% which adds up to 0.006% So on total turnover
amount (Rs. 61300) the stamp duty and regulatory charges comes to Rs 3.8.

So the total amount you have to pay including brokerage and all taxes is only
Rs 27.22 + 3.8 = 31.02

Conclusion
So now the conclusion is you are paying Rs.31.02 while you earned the profit of Rs. 100.
So your profit is Rs 100-31 = 69

So don't you think more then 69% profit in single trade is quite enough to do thousands per day.
If you continue doing such small trades with such small profits then you will end up with big
amount at the end of the day.

Please visit below link if you are interested to know how to add thousands in a day and earn
minimum 30% returns in single month at below link, its free.
Let's see how to calculate Brokerage charges for Delivery trading

For delivery trading the brokerage rates are 0.5% for buying and 0.5% for selling ( we charge
0.3% for buying and 0.3% for selling)

Remaining all taxes are same except STT (security transaction tax).
STT is not applicable for delivery based trading.
But in delivery trading DP charges are applicable when you sell shares from your demat
Account.

77
5. CHAPTER

DATA ANALYSIS
AND
INTERPRETATION

TR
ADING OF STOCKS

78
 4.1 MERITS OF OWNING STOCKS

● Earn dividends.
Dividends are nothing but a part of company's profits distributed to its share holders.
The company's management may declare dividends either in between a financial year (called
interim dividends) or at the end of the financial year (called final dividends. However, it is not
mandatory for the companies to pay dividends. It can use the profits for alternative uses like
expansion. The decision to pay or not to pay dividends is taken at the annual meeting by the
majority voting of the shareholders. Blue-chip companies (large companies) generally are
consistent dividend payers.

● Capital appreciation.
As the company expands and grows, it acquires more assets and makes more profit. As a result,
the value of its business increases. This, in turn, drives up the value of the stock. So when you
sell, you will receive a premium over what you paid. This is known as capital gain and this is the
main reason why people invest in stocks. They aim capital appreciation.

● Receive bonus shares

For the time being, let us understand that bonus shares are - Free shares are given to you Later on
we will discuss about bonus shares in detail.

● Rights issue
A company may require more funds to expand it's business and for that, it may need more funds.
I such cases, the company can issue further shares to the public. However, before approaching
the public, the existing shareholders will be given a chance to subscribe to more shares if they
want. That's called a rights issue. This is done in order to ensure that the existing shareholders
maintain the same degree of control in the company. Thus you can maintain the participation in
the company profits.

● Stocks can be pledged

Stocks are considered as assets and hence, banks accept shares as security for raising loans.
Should there be an an emergency, shares can quickly pledged to raise funds. Apart from that,
Brokerage firms allow you to borrow money from their account based on the current share
holding you have in your demat account maintained with them. If you want to utilize a sudden
surprise opportunity in markets, but if you don't have the cash right now, you can adopt this
Route.

● High liquidity
Stocks are highly liquid. It can be converted into cash in no time. With online trading, all it takes
Is the click of button to sell you holdings. You can receive your cash in two days.
● Capital appreciation or dividends?

79
The above mentioned income sources may not be present in every company you buy. For
example- if you're buying company that has a huge potential to grow, it may not pay it's surplus
as dividends. Instead, it will be used for further growth. In such cases, huge capital appreciation
may happen. So depending upon your investment strategy, you'll have to choose what you want.
It's always wise to go for capital appreciation rather than dividends.

4.2 DEMERITS OF OWNING STOCKS

• Since common stock represents ownership of a business, stockholders are the last to get paid,
like all other owners. A company must first pay its employees, suppliers, creditors, maintain its
facilities and pay its taxes. Any money left can then be distributed among its
OWICIo.

• While shareholders are company owners, they do not enjoy all of the rights and privileges that
the owners of privately held companies do. For example, they cannot normally walk in and
demand to review in detail the company's books.

• Investors in a company may not know all that there is to know about the company. This limited
information can sometimes cause investment decision-making to be difficult.

• Stock prices tend to be volatile. Prices can be erratic, rising and declining quickly. Such
declines often cause investors to panic and sell, which actually only serves to lock in their losses.

• Stock values can sometimes change for no apparent reason, which can be quite frustrating for
the investor who is trying to anticipate the stock's behavior based on the actual performance of
the company.

4.3 WHAT IS TRADING OF STOCKS?

80
Most stocks are traded on exchanges, which are places where buyers and sellers meet and decide
on a price. Some exchanges are physical locations where transactions are carried out on a trading
floor. You've probably seen pictures of a trading floor, in which traders are wildly throwing their
arms up, waving, yelling, and signaling to each other. The other type of exchange is virtual,
composed of a network of computers where trades are made electronically.

The purpose of a stock market is to facilitate the exchange of securities between buyers and
sellers, reducing the risks of investing. Just imagine how difficult it would be to sell shares if you
had to call around the neighborhood trying to find a buyer. Really, a stock market is nothing
more than a super-sophisticated farmers' market linking buyers and sellers.

4.4 WHO IS A STOCKBROKER?

Definition of 'Stockbroker'

1. An agent that charges a fee or commission for executing buy and sell orders submitted by an
Investor.

2. The firm that acts as an agent for a customer, charging the customer a commission for its
Services.

A stockbroker is an individual / organization who are specially given license to participate in the
securities market on behalf of clients. The stockbroker has the role of an agent. When the
Stockbroker acts as agent for the buyers and sellers of securities, a commission is charged for
this service.
As an agent the stock broker is merely performing a service for the investor. This means that the
broker will buy for the buyer and sell for the seller, each time making sure that the best price is
obtained for the client.
An investor should regard the stockbroker as one who provides valuable service and information
to assist in making the correct investment decision. They are adequately qualified to provide
answers to a number of questions that the investor might need answers to and to assist in
participating in the regional market. Here are some questions which arise in the minds of the
investors before the take help of the brokers for investing their money in a particular company.
Are they governed by any Rules and Regulations?
Of course, yes. Stock brokers are governed by SEBI Act, 1992, Securities Contracts (Regulation)
Act, 1956, Securities and Exchange Board of India [SEBI (Stock brokers and Sub brokers) Rules
and Regulations, 1992], Rules, Regulations and Bye laws of stock exchange of which he is a

81
member as well as various directives of SEBI and stock exchange issued from time to time.
Every stock broker is required to be a member of a stock exchange as well as registered with
SEBI. Examine the SEBI registration number and other relevant details can be found out from
the registration certificate issued by SEBI.

• How do I know whether a broker is registered or not?

Every broker displays registration details on their website and on all the official documents. You
can confirm the registration details on SEBI website. The SEBI website provides the details of
all registered brokers. A broker's registration number begins with the letters "INB" and that of a
sub broker with the letters "INS".

What are the documents to be signed with stock broker?

Before start of trading with a stock broker, you are required to furnish your details such as name,
address, proof of address. etc. and execute a broker client agreement. You are also entitled to a
document called Risk Disclosure Document', which would give you a fair idea about the risks
associated with securities market. You need to go through all these documents carefully.

➢ SUB BROKERS
According to the BSE website - "Sub-broker" means any person not being a member of a Stock
Exchange who acts on behalf of a member-broker as an agent or otherwise for assisting the
investors in buying, selling or dealing in securities through such member-brokers.
All Sub-brokers are required to obtain a Certificate of Registration from SEBI without which
they are not permitted to deal in securities. SEBI has directed that no broker shall deal with a
person who is acting as a sub-broker unless he is registered with SEBI and it shall be the
responsibility of the member-broker to ensure that his clients are not acting in the capacity of a
sub-broker unless they are registered with SEBI as a sub-broker.
It is mandatory for member-brokers to enter into an agreement with all the sub-brokers. The
agreement lays down the rights and responsibilities of member-brokers as well as sub-brokers.

STOCK BROKERS IN INDIA.

There are a number of broking houses all over India. Many of them have International presence
too. Following are some of the leading Stock Broking firms in India.
IndiaInfo line
● ICICIdirect
● Share khan
● India bulls
● Geojit Securities
● HDFC
● Reliance Money
● Religare

82
 ● Angel Broking
Investors have to check the broker's terms and conditions and decide about opening a trading
account. Only Govt. tax rates like, security transaction tax, stamp duty and service tax are
uniform other charges like brokerage for delivery trades, intraday trades, minimum transaction
charge, statement charges, DP charges, annual maintenance charges etc., may vary from one
broker to another.

4.5 ROLE OF STOCK BROKER IN A STOCK MARKET

When you plan to start investing in a stock market, the first thing you have to do is to choose a
stock broker. It is just like choosing a car you think is most suitable for you. You can thoroughly
research the whole market in order to find the best car for you but require a medium or a venue
to execute the actual transaction. The same strategy is needed when you want to buy stock in a
stock market. You can select a company to invest in by conducting detailed research about its
future prospects but you still need to have a broker to make the final transaction and
purchase its stock from the stock market.

A stock broker acts as the agent of an investor and represents his clients to buy or sell
stOcKs. derivatives and other securities.

The term stock broker applies to companies that deal in securities as well as to its employees
who are technically working for the brokerage and are its registered representatives. Most stock
brokers work far away from stock trading floors. The primary role of a stock broker is to execute
transactions on behalf of his clients by buying and selling securities in the stock market.

As a representative of his clients, a stock broker seeks the best deals to buy and sell stock.
They usually deal in all types of securities and also handle derivatives, such as commodity
futures. They also advise their clients about when to make transactions and guide them about
what to look for in market dealings. However, they are not licensed investment advisor and
therefore, you should always consult Your Personal Financial Mentor before making any
financial investment decision in a stock market. After completion of the transaction, they
forward related information to their clients and make transfer arrangements of stock certificates
or other paperwork.

Stock brokerage firms and individual stock brokers are regulated by the Securities and Exchange
Commission and other specific markets. An individual broker must pass a test administered by
concerned regulatory authorities and must complete his registration through brokerage firms,
which in some cases require registration with a concerned securities commission.

83
 A PHOTO OF STOCK BROKERS PERFORMING THE ONLINE TRADING

Stock brokers are paid commissions which usually consist of a percentage of a value of the
trade transaction in a stock market.

Brokerage firms are also known as discount brokers as they offer trade transactions at a single
price. They provide recommendations only on those investments that meet financial goals and
needs of a client. A stock broker provides advisory services for investing in a stock market and in
return, an investor pays a fixed fee to them. They also offer special features, such as check
writing, interest-bearing accounts, credit cards and direct deposits and hence, play a role of
providing these limited banking services. Margin interest payments are charged to investors for
borrowing against the brokerage account for investment in a stock market. They also take service
charges from their clients for performing administrative tasks, such as for handling Individual
Retirement Account (IRA) and for mailing stocks in the form of certificates. They can also
purchase options, exchange traded funds (ETFs), bonds, shares, mutual funds, and other
investments on your behalf.

84
 4.6 MARKET TREND

A market trend is a tendency of a financial market to move in a particular direction over time.
These trends are classified as secular for long time frames, primary for medium time frames, and
secondary for short time frames. Traders identify market trends using technical analysis, a
framework which characterizes market trends as predictable price tendencies within the market
when price reaches support and resistance levels, varying over time.

The terms bull market and bear market describe upward and downward market trends,
respectively, and can be used to describe either the market as a whole or specific sectors and
securities.

There are three types of market trends in stock market:

● Secular market trend
● Primary market trend
● Secondary market trend

● Secular market trend:

A secular market trend is a long-term trend that lasts y to 25 vears and consists of a series o
primary trends. A secular bear market consists of smaller bull markets and larger bear markets; a
secular bull market consists of larger bull markets and smaller bear markets.

● Primary market trend:

A primary trend has broad support throughout the entire market (most sectors) and lasts for a
year of mole.

● Bull market
A bull market is a period of generally rising prices. The start of a bull market is marked by
widespread pessimism.

• Bear market:
A bear market is a general decline in the stock market over a period of time. It is a transition
from high investor optimism to widespread investor tear and pessimism.

85
• Market top:
A market top (or market high) is usually not a dramatic event. The market has simply reached the
highest point that it will, for some time (usually a few years. It is retroactively defined as market
participants are not aware of it as it happens. A decline then IOllows, usually gradually at trst
and later with more rapidity.

• Market bottom:
A market bottom is a trend reversal, the end of a market downturn, and precedes the beginning of
an upward moving trend (bull market).
It is very difficult to identify a bottom (referred to by investors as "bottom picking") while it is
occurring. The upturn following a decline is often short-lived and prices might resume their
decline. This would bring a loss for the investor who purchased stock(s) during a misperceived
or "false" market bottom.

● Secondary market:
Secondary trends are short-term changes in price direction within a primary trend. The duration
is a few weeks or a few months.
One type of secondary market trend is called a market correction. A correction is a short term
price decline of 5% to 20% or so. A correction is a downward movement that is not large enough
to be a bear market (ex post).

Another type of secondary trend is called a bear market rally (sometimes called "sucker's rally"
or "dead cat bounce") which consist of a market price increase of only 10% or 20% and then the
prevailing, bear market trend resumes. Bear market rallies occurred in the Dow Jones index after
the 1929 stock market crash leading down to the market bottom in 1932, and throughout the late
1960s and early 1970s. The Japanese Nikkei 225 has been typified by a number of bear market
rallies since the late 1980s while experiencing an overall long-term downward trend.
4.7 BULLS AND BEARS

The two most commonly used terms in stock markets

A common story is that the terms "Bull market and 'Bear market are derived from the way those
animals attack. Bulls are supposed to be aggressive and attacking while bears would wait for the
prey to come down.

86
Another story is that long back, bear trappers would first trade in the market and fix a price for
bear skins, which they actually didn't own. Once the price is fixed, they would go hunting for
bear skins. So eventually even if the prices go down, they will still be able to sell if for a high
price. This term eventually was used to describe short sellers and speculators who sell what they
do not own and buy it when the price comes down and makes money in the process.

➢ What are Bears?

Definition of 'Bear Market'

A market condition in which the prices of securities are falling, and widespread pessimism
causes the negative sentiment to be self-sustaining. As investors anticipate losses in a bear
market and selling continues, pessimism only grows. Although figures can vary, for many,
downturn of 20% or more in multinle broad market indexes. such as the Dow Jones Industrial

87
Average (DJIA) or Standard & Poor's 500 Index (S&P 500), over at least a two-month period, is
considered an entry into a bear market.

Bear:
An operator who expects the share price to fall. A bear market is the opposite of a bull market.
When the prices of stocks moves crashes rapidly cracking previous lows, you may assume that
it's a bear market. Generally markets must fall by more than 20% to confirm that it' a bear
Market.

Bear Market:
A weak and falling market where buyers are absent.

➢ What are Bulls?

Definition of 'Bull Market'

88
A financial market of a group of securities in which prices are rising or are expected to rise.
The term "bull market" is most often used to refer to the stock market, but can be applied to
anything that is traded, such as bonds, currencies and commodities.

Bull:
An operator who expects the share price to rise and takes position in the market to sell at a later
date.

When the prices of stocks moves up rapidly cracking previous highs, you may assume that it's a
bull market.If there are many bullish days in a row you can consider that as a 'bull market run'.
Technically a bull market is a rise in value of the market by at least 20%.

Bull Market: rising market where buyers far outnumber the sellers.
A bull market is one where prices are rising, whereas a bear market is one where prices are
falling. The two terms are also used to describe types of investors.

A stock market bull is someone who has a very optimistic view of the market; they may be
stock-holders or maybe investors who aggressively buy and sell stocks quickly. A bear investor,
on the other hand, is pessimistic about the market and may make more conservative stock
choices. Sometimes, the terms are used to refer to specific funds or stocks. Bear market funds,
for example, are those that are falling and faring poorly. Investors sometimes refer to bull stocks
to describe securities that are aggressively rising and making their investors money.

89
Knowing what is meant by the bear and bull market can help you understand whether the market
is currently rising or falling. There is no need to get frightened by a bear market indicator;
however, as experts agree that the market is cyclical. When prices start falling, they
will eventually rise too.

4.8 BULLISH AND BEARISH BEHAVIOR

The terms bullish and bearish are often used to describe the conditions in the market or the
sentiment of investors. They are very important terms and are used in nearly all types of trading,
from currencies to stocks. Traders can take advantage of both bullish and bearish markets if they
have sufficient knowledge of the market conditions that are associated with these cycles. When
traders understand the meaning of bearish and bullish and are able to identify the cycles, they
will know how to profit off of any market condition

90
 5. CHAPTER

CONCLUSION

On the basis of above stated study it has been assorted that with respect to technology, listing
fees, listing procedure, eligibility criteria of listing & listing requirements the National Stock
Exchange has the edge. Despite the fact that Bombay Stock Exchange is older & has high level
of trading volume. However, Many market Players, Brokers, sub-brokers, trading firms etc. deal
through the Bombay Stock Exchange. Indian stock market now grown into a great material with
a lot of qualitative inputs and emphasis on investor protection and disclosure norms. The market

91
has become automated, transparent and self-driven. It has integrated with global markets, with
Indian companies seeking listing on foreign capital markets exchange, off shore investments
coming to India and foreign funds floating their schemes and thus bringing expertise in to our
markets. India has achieved the distinction of possessing the largest population of investors next
to the U.K., perhaps ours is the country to have the largest number of listed companies with
around several equity fund management avenues and National Fund managers most of them
automated. India now has world class regulatory system in place. Thus, at the dawn of the new
millennium, the equity funds market has increased the wealth of Indian companies and investors.
No doubt strong economic recovery, upturn in demand, improved market structure, and other
measures have also been the contributory driving forces. Even though Covid pandemic has fall in
India stock market, it recovered with huge hikes along with the economic recovery of the nation.

92