PROJECT REPORT ON

“SECURITY MARKET IN INDIA: AN OVERVIEW”

In Partial Fulfillment of the course

Financial Regulatory System and Institutions

Under the Guidance of

DR. RAJESH CHAKRABARTI

B.Sc. (Calcutta University); PGDM (IIM, Ahmedabad); Ph.D.

(University of California)

Submitted By

Parag Dahiya (MBA 2016-18) (20162163)

Lakshay Goyal (BBA LLB 2013) (20131377)

Anandita (MBA 2016-18) (20162129)

Chahat (BBA LLB) (20151112)

Jindal Global Business School, O.P Jindal Global University

Sonipat, Haryana

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Table of content

1> INTRODUCTION………………………………………………………………………………3
2> Market Segments……………………………………………………………………………4
3> Securities……………………………………………………………………………………….6
4> HISTORY OF STOCK MARKET: Emergence of need to regulate………..6
5> Market Participants………………………………………………………………………8
6> Important Concepts in Securities Market……………………………………..9
7> Regulators…………………………………………………………………………………...10
8> Regulatory framework…………………………………………………………………10

10>REGULATION OF SECURITY MARKET……………………………………………10

11>Legislations ……………………………………………………………………………….11

12>Recent initiatives and developments in Indian Securities Markets…14

13>CHALLENGES OF THE SECURITY MARKET……………………………………….21

14> ALTERNATES AND POLICY SUGGESTIONS…………………………………….29

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SECURITY MARKET IN INDIA: AN OVERVIEW

1> INTRODUCTION
The Global Financial System is widely growing, Especially, in developing countries, like India,
where the potential of the markets is heading towards its highs. The Capital Market holds a
major portion of the Financial system. For every sound economy, proper and efficient
mobilization of savings is very necessary and nowadays Capital Market, in specific security
market, is the hot selling choice. As more and more people are getting educated and aware,
investments in security market is touching new skies every other day. This culture also
promotes companies to raise public money in order to grow and the moment public money
comes in, the need for regulating the market get very high. Impact of Information
Technology in security market has perhaps been the most important driving force. The
revolution of information technology in the last two decades has impacted various areas,
besides playing a vital role in security market. Technology has reduced the distance between
countries. Trading of securities can now take place in real time.

In various countries trade and tax policies affected the expected rate of return on
investment, for example in the mid- to late 1970s, large capital flows resulted from the
recycling of the oil export surpluses of the Organization of Petroleum Exporting Countries.
This was the time when developing countries took capital flight and came up with
uncompetitive interest rates and exchange rates, large fiscal deficits, and high external debt
burdens took a toll in those countries.

Foreign banks with U.S. branches and agencies first became subject to federal regulation
with the adoption of the International Banking Act of 1978. Additional regulatory authority
was provided by the Foreign Bank Supervision Enhancement Act in 1991.

Differences in the mix of fiscal and monetary policies between the United States and other
industrial countries over the past decade have directly affected exchange rates for the
dollar. The large movements of the dollar against other major currencies since the 1980s, in

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turn, have contributed to increases in sales and purchases of dollar-denominated securities
and the expansion of foreign-currency trading.

2> Market Segments

A Securities Market, refers to the market for trading of financial
instruments/claims/obligations. This Market is used by corporations for raising
Equity(capital) and debt. The security Market has two major channels one for the newly
formed securities (Primary Market) and other for the already existing securities (Secondary
Market). The major Marketable Securities are Shares, Debentures, Treasury Bills etc.

The Security Market does not operate directly, it operates through Stock Exchanges, For ex.
BSE & NSE in India, NASDAQ in USA. These Stock Exchanges has a network of individual and
organisational brokers who then deals with the Individual.

2.1> Primary Market

The securities advertise has two associated and indivisible portions, the new issues
(essential) showcase and the stock (auxiliary) showcase. The essential market gives the
channel to creation and offer of new securities, while the auxiliary showcase bargains in
securities beforehand issued. The securities issued in the essential market are issued by
open restricted organizations or by government offices. The assets in this sort of market are
prepared either through people in general issue or through private position course. It is an
open issue on the off chance that anyone and everyone can subscribe for it, though if the
issue is made accessible to a chosen gathering of people it is named as private position.
There are two noteworthy sorts of guarantors of securities, the corporate elements who
issue essentially obligation and value instruments and the administration (focal and in
addition state) who issue obligation securities (dated securities and treasury bills). The
primary market provides the channel for sale of new securities, while the secondary market
deals in securities previously issued. The issuer of securities sells the securities in the
primary market to raise funds for investment. In other words, the market wherein resources
are mobilised by companies through issue of new securities is called the primary market.
These resources are required for new projects as well as for existing projects with a view to
expansion, modernisation, diversification and upgradation. Major FII (Foreign Institutional

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Investment), FDI (Foreign Direct Investment) is through the primary market in any country.
Moreover, the Primary market forms a basis for existence of Secondary Market.

2.2> Secondary Market

The secondary market is a market for trading of already existing market securities thereby it
enables those who already hold securities to make changes in their assessment of risk and
return. The secondary Market is highly liquidated, and securities can be easily converted
into money or exchanged for other securities. The trading platform of stock exchanges are
accessible only through brokers and trading of securities is confined only to stock
exchanges. The existence of this market is the reason for high level public participation and
investments, as it gives the investor surety of him getting liquidity of his investment in
comparison to other investment options.

The auxiliary market empowers members who hold securities to alter their property
considering changes in their evaluation of dangers and returns. Once the new securities are
issued in the essential market they are exchanged the stock (auxiliary) advertise. The
optional market works through two mediums the over-the-counter (OTC) advertise and the
trade exchanged market. OTC markets are casual markets where exchanges are arranged.
Most of the exchanges the administration securities are in the OTC market. All the spot
exchanges where securities are exchanged for prompt conveyance and instalment happen
in the OTC market. The other choice is to exchange utilizing the framework gave by the
stock trades. The trades in India take after an efficient settlement period. Every one of the
exchanges occurring over an exchanging cycle (day=T) are settled together following a
specific time (T+2 day). The trades executed on exchanges are cleared and settled by a
clearing corporation. The clearing corporation acts as a counterparty and guarantees
settlement. A variant of the secondary market is the forward market, where securities are
traded for future delivery and payment. A variant of the forward market is Futures and
Options market. Presently only two exchanges viz., National Stock Exchange of India Ltd.
(NSE) and Bombay Stock Exchange (BSE) provides trading in the Futures & Options.

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 3> Securities
As per the Securities Contracts (Regulation) Act, 1956, securities include

▪ shares
▪ bonds
▪ scrips
▪ stocks
▪ other marketable securities of like nature in or of any incorporate company or body
corporate
▪ government securities
▪ derivatives of securities
▪ units of collective investment scheme
▪ interest and rights in securities
▪ security receipt
▪ any other instruments so declared by the central government.

4> HISTORY OF STOCK MARKET: Emergence of need to regulate

It was in 1500’s that the first open markets emerged. The earliest example of brokerage can
be traced back to France in 1100s where agricultural debts were supervised by courtiers de
change, and not banks. In the 13th century, merchants of Venice actively traded securities,
followed by cities of Pisa, Verona etc. Even in India, there are such money lenders who sell
their Bucket of debt to others.

In 1400s and 1500s places like Netherlands etc. hosted a stock market system, however
Antwerp in Belgium was the main commercial centre. Although the system and structure
were like today’s stock markets, stocks were missing. The world’s first publicly traded
company was ‘The Dutch East India Company’ in 1602 when it released its shares at the
Amsterdam Stock Exchange. It would be surprising to note that the earliest stock markets
were the coffee shops where handwritten shares were bought and sold.

The bubble of such trade soon burst as there was no regulation or distinction between
legitimate and illegitimate companies, which led to banning of shares by Government of
England till 1825. Despite this ban the London Stock Exchange and the New York Stock
Exchange were formed in 1801 and 1817 respectively.

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 Nowadays all countries of the world have stock exchanges and stocks are actively traded
daily. The stock market contributes to the national economy of the country.

One cannot overlook the side effects of securities market. Stock markets often crash. Some
major events have been including Black Thursday or Terrible Thursday of 1929, which was
followed by Black Monday and Black Tuesday, during which millions of dollars were wiped
out, leading to a worldwide economic depression.

Other major stock market crashes include:

• Stock Market Crash of 1973-1974

• Black Monday of 1987

• Stock Market Crash of 2008.1

1947
Capital Issues (Control) Act, 1947

1956
Securities Contracts (Regulation) Act, 1956
Companies Act, 1956

1992
Repeal of Capital Issues (Control) Act, 1992
SEBI Act, 1992 to:
a. protects interest of investors
b. promote development of securities market
c. regulate the securities market
SEBI has powers
a. to investigate and examine companies
b. to visit their premises
c. to inspect records and personnel and
d. to impose penalties that are commensurate with any misconduct.

1993
National Stock Exchange was set-up. Today, the National Stock Exchange of India Limited is

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 the third largest exchange in the world in terms of the number of equity transactions, after
the New York Stock Exchange and NASDAQ.

1996
Depositories Act, 1996

2001
▪ Rolling settlement on a T + 5 basis was introduced
▪ Trading in index options commencement
▪ Launch of future contracts on individual stocks

2002
▪ Rolling settlement on a T + 3 basis was introduced
▪ Negotiated Dealing System (NDS) and Clearing Corporation of India Limited
(CCIL) commenced operations

2003
Rolling settlement on a T + 2 basis was introduced
Futures and options on individual securities

5> Market Participants

In every economic system, some units, individuals or institutions, are surplus-generating,
who are called savers, while others are defy city- generating, called spenders. Households
are surplus-generators and corporate and Government are defying city generators. Through
the platform of securities markets, the savings units place their surplus funds in fi noncoal
claims or securities at the disposal of the spending community and in turn get benefit like
interest, dividend, capital appreciation, bonus etc. These investors and issuers of fi noncoal
securities constitute two important elements of the securities markets. The third critical
element of markets are the intermediaries who act as conduits between the investors and
issuers. Regulatory bodies, which regulate the functioning of the securities markets,
constitute another significant element of securities markets. The process of mobilisation of
resources is carried out under the supervision and overview of the regulators. The
regulators develop fair market practices and regulate the conduct of issuers of securities
and the intermediaries. They are also in charge of protecting the interests of the investors.
The regulator ensures a high service standard from the intermediaries and supply of quality
securities and non-manipulated demand for them in the market.

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 5.1> Market Participants in Securities Market

▪ Securities Appellate Tribunal

▪ Regulators – SEBI, RBI, DCA, DEA
▪ Depositories
▪ Stock Exchanges
▪ Brokers
▪ Corporate Brokers
▪ Sub-broker
▪ FIIs
▪ Portfolio Manager
▪ Custodians
▪ Share Transfer Agent
▪ Primary Dealers
▪ Merchant Bankers
▪ Bankers to an Issue
▪ Debenture Trustee
▪ Underwriters
▪ Venture Capital Funds
▪ Foreign Venture Capital Investors
▪ Mutual Funds
▪ Collective Investment Schemes

6> Important Concepts in Securities Market

It is important that we be aware of some of the Important Concepts as relates to Securities
Market in India.

▪ Legal Framework
▪ Trade Confirmation
▪ Settlement Cycle
▪ Central Counter-parties
▪ Securities Lending
▪ Central Securities Depositories
▪ Delivery versus Payment (DvP)
▪ Timing of Settlement Finality
▪ CSD risk controls to address participant’s failures to settle
▪ Cash settlement Assets
▪ Operational Reliability
▪ Protection of Customers’ securities
▪ Governance
▪ Access
▪ Efficiency
▪ Communications Procedures and Standards
▪ Transparency
▪ Regulation and Oversight

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▪ Risks in cross-border links

7> Regulators
The absence of conditions of perfect competition in the securities market makes the role of
regulator extremely important. The regulator ensures that the market participants behave
in a desired manner so that securities market continue to be a major source of fi nuance for
corporate and government and the interest of investors are protected. The responsibility for
regulating the securities market is shared by Department of Economic Affairs (DEA), Ministry
of Company Affairs (MCA), Reserve Bank of India (RBI) and SEBI. The activities of these
agencies are coordinated by a High-Level Committee on Capital Markets.
The orders of SEBI under the securities laws are appealable before a Securities Appellate
Tribunal. Most of the powers under the SCRA are exercisable by DEA while a few others by
SEBI. The powers of the DEA under the SCRA are also con-currently exercised by SEBI. The
powers in respect of the contracts for sale and purchase of securities, gold related
securities, money market securities and securities derived from these securities and ready
forward contracts in debt securities are exercised concurrently by RBI. The SEBI Act and the
Depositories Act are mostly administered by SEBI. The rules under the securities laws are
framed by government and regulations by SEBI. All these are administered by SEBI.
The powers under the Companies Act relating to issue and transfer of securities and non-
payment of dividend are administered by SEBI in case of listed public companies and public
companies proposing to get their securities listed. The SROs ensure compliance with their
own rules as well as with the rules relevant for them under the securities laws.

8> Regulatory framework

At present, the five principle Acts overseeing the securities markets are
(a) the SEBI Act, 1992
(b) the Companies Act, 1956, which sets out the set of principles for the corporate division
in connection to issuance, distribution and exchange of securities, furthermore, revelations
to be made in broad daylight issues
(c) the Securities Contracts (Regulation) Act, 1956, which accommodates direction of
exchanges in securities through control over stock trades
(d) the Depositories Act, 1996 which accommodates electronic upkeep and exchange of
responsibility for offers and
(e) Prevention of Money Laundering
Act, 2002.

9> REGULATION OF SECURITY MARKET

The need for regulation of Security Market is high because of the direct involvement of
public money in the market. Regulation is necessary to promote healthy working culture in
the country. The process of trading in securities has been completely digitised by SEBI for

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safety purposes. That means each investor trades through a DEMAT Account instead of
holding a physical share certificate. The investor must deal through a registered Share
Broker, who has a licence for brokerage. For reference In India, at present, the five main
Acts governing the securities markets are:

(a) the Security and Exchange Board of India Act, 1992; SEBI is the primary regulator as far
as the Market is concerned, so far it has been very successful in its functions of saving a
common man form the illegal uncertainties in the market.

(b) the Companies Act, 1956, which sets the code of conduct for the corporate sector in
relation to issuance, allotment and transfer of securities, and disclosures to be made in
public issues;

(c) the Securities Contracts (Regulation) Act, 1956, which provides for regulation of
transactions in securities through control over stock exchanges

(d) the Depositories Act, 1996 which provides for electronic maintenance and transfer of
ownership of demat shares and

(e) Prevention of Money Laundering Act, 2002.

(f) The Reserve Bank of India: Even the RBI plays a crucial role as a regulator as it formulates
and implements the credit and the monetary policy of the country which has a direct and
huge impact on domestic and foreign investments in the market.

The regulations in the Indian Market is very strict as it requires regular Audits, disclosure of
various kind of information etc. But still due to technological advancement security market
faces various challenges every now and then the need for more and more regulation is
emerging as the market is growing very rapidly as the market is growing with the pace of 20
times every decade.

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10> Legislations

Capital Issues (Control) Act, 1947

The Act had its source amid the war in 1943 when the goal was to channel assets to help the
war exertion. It was held with a few changes as a method for controlling the raising of
capital by organizations and to guarantee that national assets were diverted into legitimate
lines, i.e., for attractive purposes to serve objectives and needs of the legislature, and to
secure the premiums of financial specialists. Under the Act, any firm wishing to issue
securities needed to get endorsement from the Central Government, which additionally
decided the sum, sort and cost of the issue. As a piece of the progression procedure, the Act
was canceled in 1992 clearing path for showcase decided distribution of assets.

SEBI Act, 1992

The SEBI Act, 1992 was ordered to engage SEBI with statutory forces for (a) ensuring the
premiums of financial specialist’s instabilities, (b) advancing the advancement of the
securities market, and (c) controlling the securities showcase. Its administrative locale
stretches out finished corporates in the issuance of capital and exchange of securities,
notwithstanding all go-betweens and people related with securities showcase. It can direct
enquiries, reviews and examination of all concerned and arbitrate offenses under the Act. It
has energy to enrol and control all market delegates and furthermore to punish them in the
event of infringement of the arrangements of the Act, Rules and Regulations made there
under. SEBI has full independence and expert to direct and build up a precise securities
showcase.

Securities Contracts (Regulation) Act, 1956

It accommodates immediate and backhanded control of basically all parts of securities

exchanging and the running of stock trades and expects to avoid unfortunate exchanges in
securities. It gives Central Government administrative locale more than (a) stock trades
through a procedure of acknowledgment and proceeded with supervision, (b) contracts in
securities, and (c) posting of securities on stock trades. As a state of acknowledgment, a
stock trade consents to conditions recommended by Central Government. Sorted out
exchanging movement in securities happens on a specified perceived stock trade. The stock

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trades decide their own posting controls which need to fit in with the base posting criteria
set out in the Rules.

Depositories Act, 1996

The Depositories Act, 1996 accommodates the foundation of stores in securities with the
target of guaranteeing free transferability of securities with speed, exactness and security
by (a) making securities of open constrained organizations unreservedly transferable subject
to specific exemptions; (b) dematerialising the securities in the storehouse mode; and (c)
accommodating support of proprietorship records in a book passage frame. With a specific
end goal to streamline the settlement procedure, the Act visualizes exchange of
responsibility for electronically by book passage without influencing the securities to move
from individual to individual. The Act has made the securities of all open constrained
organizations unreservedly transferable, limiting the organization's entitlement to utilize
carefulness in affecting the exchange of securities, and the exchange deed and other
procedural prerequisites under the Companies Act have been abstained from.

Companies Act, 1956

It manages issue, distribution and exchange of securities and different viewpoints

identifying with organization administration. It accommodates standard of divulgence in
broad daylight issues of capital, especially in the fields of organization administration and
activities, data about other recorded organizations under a similar administration, and
administration impression of hazard factors. It additionally manages guaranteeing, the
utilization of premium and rebates on issues, rights and extra issues, instalment of intrigue
and profits, supply of yearly report and other data.

Prevention of Money Laundering Act, 2002

The essential target of the Act is to forestall tax evasion and to accommodate reallocation of
property got from or engaged with illegal tax avoidance. The term tax evasion is
characterized as whoever secures, claims, have or, on the other hand exchanges any returns

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of wrongdoing; or intentionally goes into any exchange which is identified with continues of
wrongdoing either straightforwardly or in a roundabout way or hides or helps in the disguise
of the returns or picks up of wrongdoing inside India or outside India confers the offense of
tax evasion. Other than giving discipline to the offense of illegal tax avoidance, the Act
additionally gives different measures to counteractive action of Money Laundering. The Act
likewise throws a commitment on the middle people, saving money organizations and so
forth to outfit data, of such endorsed exchanges to the Financial Intelligence Unit-India, to
designate a vital officer, to keep up specific records and so on.

Rules and Regulations

The Government have confined principles under the SCRA, SEBI Act and the Depositories
Act. SEBI has surrounded controls under the SEBI Act and the Depositories Act for
enlistment and direction of all market mediators, and for counteractive action of out of line
exchange rehearses, insider exchanging, and so on. Under these Acts, Government and SEBI
issue notifications, rules, and brochures which should be followed by advertise members.
The SROs like stock trades have likewise set out their standards and controls

11> Recent initiatives and developments in Indian Securities Markets

Corporatisation and Demutualization of Stock Exchanges

To enhance the administration component of stock trades and to ensure the enthusiasm of
financial specialists in securities advertise, corporatisation and demutualization of stock
trades was commanded through a change to the Securities law in 2004. The benefits of
demutualisation, other than rectifying the conflicts of interest’s circumstance in
administration of stock trades, incorporate streamlining of business operations reliable with
showcase needs, streamlined basic leadership by an expert administration and ability to
raise capital which can be utilized to enhance innovation, look for developments or, on the
other hand securing of different markets. Out of the 23 stock trades, 18 have since been
corporatized and demutualised in 2007-08. One stock trade, i.e. Hyderabad Stock Exchange,
neglected to demutualise by the due date and has along these lines been de-perceived.
Saurashtra Kutch Stock trade, Mangalore Stock trade and Magadha Stock trade have been
de-perceived for different abnormalities/non-compliances. As respects Coimbatore Stock

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Exchange which had looked for intentional withdrawal of acknowledgment, the issue is sub-
judice.

Corporate Bond Markets

The Government and controllers have very much perceived that an all-around created
corporate security showcase is basic for money related framework effectiveness, soundness
and general monetary development. A well working security advertise accommodates
money related broadening and encourages fundamental financing for AAA-evaluated
corporate as well as less outstanding, sub speculation level corporate and framework
engineers. Considering that this market isn't all around created in the nation, the
Government had set up a High-Level Expert Committee on Corporate Bonds and
Secularization (PatilCommittee) to look in to lawful, administrative, assessment and market
configuration issues in the improvement of the corporate security showcase. The
Committee presented its answer to the Government in December 2005. The Budget of
2006-07 declared that the Government has acknowledged the proposals of the Report and
that means would be taken to make a solitary, bound together trade exchanged market for
corporate securities. The measures officially taken in regard of usage of the suggestions of
the Patil Committee include: (an) Amendment to the Securities Contracts (Regulation) Act,
1956 to incorporate securitized instruments inside the ambit of 'securities'. (b) Amendment
to the RBI Act to enable RBI to create and manage advertise for Repos in corporate
securities; (c) Enhancement of cut-off of FII Investment in corporate obligation from US$ 0.5
bn to US$ 1.5 bn and further to US $ 3 bn.;(d) operationalising of exchange announcing and
exchanging stages for corporate securities at the real trades; (e) Waiver of TDS from
corporate securities exchanged on trades.

Foreign investment in stock exchanges

Foreign Investment up to 49% has been allowed in December 2006 in infrastructure

companies in the securities markets, viz. stock exchanges, depositories and clearing
corporations, with separate Foreign Direct Investment (FDI) cap of 26% and Foreign
Institutional Investment (FII) cap of 23%.

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National Institute of Securities Markets (NISM)

In the Budget of 2005-06, SEBI was approved to set up NISM for instructing and preparing
mediators in the securities showcases and advancing exploration. NISM has since been set
up and is practical. It has been set up as an open trust and is situated in Mumbai, India. The
SEBI, by setting up NISM, has imagined an expansive and broad vision to explain the want
communicated by the Indian government to advance securities advertise training and
research. This vision shows a sweeping instructive activity important for the securities
markets of rising countries. This is the main brought together endeavour of such greatness
and cognizance in the securities showcases anyplace. It is a one of a kind analysis being
developed of new branch of information applicable for rising securities markets. Towards
fulfilling the want of Government of India and vision of SEBI, NISM has propelled a push to
convey financial and securities training at different levels and crosswise over different
fragments in India and abroad.

Securities Contracts (Regulation) Amendment Act, 2007

It was perceived that in India, the market for securitised obligation stays immature.
Regardless of two noteworthy activities, to be specific, the change of the National Housing
Bank Act, 1987 (NHB Act) in 2000; and institution of the Securitisation what's more,
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI
Act), the market did not get because the office of exchanging on stock trades was not
accessible. This was, to some extent because of the way that securitisation exchanges under
the NHB Act were not secured under the definition of 'securities' in the SCR Act. As an
outcome, purchasers of securitised financial instruments have few leave choices.
Consequently, the Securities Contracts Regulation Act, 1956 was altered in 2007 to
incorporate securitised instruments under the definition of 'securities' and accommodate
exposure based direction for issue of the securitized instruments and the strategy thereof.
This has been finished keeping in see that there is impressive potential in the securities
showcase for the certificates or instruments under securitisation exchanges. The

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improvement of the securitised obligation showcase is basic for meeting the tremendous
prerequisites of the framework segment, especially lodging segment, in the nation.

Replication of the securities markets structure for these instruments would encourage
exchanging on stock trades and thus help advancement of the market as far as profundity
and liquidity.

PAN as the sole identification number

The requirement for a Unique Identification Number (UIN) for advertise members in the
securities markets was felt in the enthusiasm of requirement activity. By and by, a man has
assortment of identification numbers, for example, Permanent Account Number (PAN) from
CBDT, Depository Account Numbers from separate stores, Bank Account Numbers from
separate banks, MAPIN from SEBI, Unique Client Code from Exchanges, Director
Identification Number from MCA, and so on and there is no course of action to interface
these numbers.

It was felt that the PAN issued by the CBDT could be a UIN for advertise members. A PAN
could recognize all members also, the record administrators (Depositories, Banks,
Exchanges, Insurance Companies, Pension Fund Managers, Post Offices, also, Intermediaries
and so on.) must utilize these numbers. Following a spending declaration to this impact in
the financial plan of 2007-08, SEBI has announced PAN the sole identification number for all
exchanges in securities advertise. It is a financial specialist neighbourly measure as he
doesn't need to keep up various identification numbers for various types of exchanges/
diverse fragments in financial markets. In the Budget of 2008-09 it was suggested that the
necessity of PAN be stretched out to all exchanges in the financial

advertise subject to appropriate edge exclusion limits.

IPO grading

SEBI has made it compulsory for companies coming out with IPOs of equity shares to get
their IPOs graded by at least one credit rating agency registered with SEBI from May 1, 2007.
This measure is intended to provide the investor with an informed and objective opinion
expressed by a professional rating agency after analysing factors like business and financial
prospects, management quality and corporate governance practices etc. The grading would
be disclosed in the prospectus, abridged prospectus and in every advertisement for IPOs.

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Real Estate Mutual Funds

After watchful and definite thoughts and discussion process, SEBI affirmed the dispatch of
Real Estate Mutual assets (REMFs) and likewise made important alterations to the SEBI
(Mutual Fund) Regulations 1996 in April, 2008This item would permit retail financial
specialists to put resources into land in a substantially more flexible and helpful way. A
REMF has speculation target to put specifically or in a roundabout way in land property.
Land the biggest resource class on the planet, may fill in as a support against other resource
classes like obligation or value. By incorporating it in one’s portfolio, a financial specialist
decreases hazard and can accomplish stable returns. Not at all like other resource classes,
land occasionally procures negative returns, and does not endure high instability. Over
years, the estimation of land often builds complex. This additionally makes it a great fence
against inflation. Land is a decent long-haul venture.

New derivative products

The Mini Derivative Futures & Options contract was introduced for trading on S&P CNX Nifty
on January 1, 2008 while the long-term option contracts on S&P CNX Nifty were introduced
for trading on March 3, 2008.

Volatility Index

With quick changes in unpredictability in securities showcase every now and then, a need
was felt for a transparently accessible and cited measure of market unpredictability as a
record to help showcase members. On January 15, 2008, Securities what's more, Exchange
Board of India prescribed Exchange to develop and scatter the unpredictability list.
Instability Index is a measure, of the sum by which a hidden Index is relied upon to
fluctuate, in the close term, (ascertained as annualized unpredictability, meant in rate e.g.
20%) in view of the request book of the basic file alternatives. On April 08, 2008, NSE
propelled the Volatility Index, India VIX, considering the Nifty 50 Index Option costs. From
the best offer solicit costs from Nifty 50 Options gets, an unpredictability figure (%) is
ascertained which shows the normal market instability throughout the following 30

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schedule days. The India VIX is a basic yet valuable device in deciding the general
unpredictability of the market

Short selling

There were administrative limitations in the Indian markets which empowered just retail
financial specialists to short offer. In this manner, there was no level playing field between
different classes of financial specialists. A need was felt to connect this hole and give
measure up to utilizing open doors for all classes of financial specialists. After due discussion
process the SEBI set out the expansive structure to allow all classes of financial specialists to
short offer, in December 2007. Certain conditions were forced on the FIIs while undertaking
a short offering exchange. These, between alia, incorporate that obtaining of value shares
by FIIs would be with the end goal of conveyance into short deal what's more, that the
edge/security would be kept up by FIIs just as money. All the while, the extent of the current
securities loaning and acquiring plan was augmented into a full-fledged loaning and
obtaining plan empowering support of all classes of financial specialists, including retail
speculators. This short offering and securities loaning and getting plan was operationalised
with impact from April 21, 2008.

Investment options for Navaratna and Miniratna Public Sector Enterprises

The Navaratna and Miniratna Public Sector Enterprises have been allowed to invest in public
sector mutual funds subject to the condition that they would not invest more than 30% of
the available surplus funds in equity mutual funds and the Boards of PSEs would decide the
guidelines, procedures and management control systems for such investment in
consultation with their administrative Ministries.
Investor Protection and Education Fund (IPEF)
SEBI has set up the Investor Protection and Education Fund (IPEF) with the reason for
financial specialist instruction and related exercises. SEBI has contributed an entirety of
Rs.10 crore toward the underlying corpus of the IPEF from the SEBI General Fund.
Moreover following sums will likewise be credited to the IPEF to be specific: (I) Grants and
gifts given to IPEF by the Focal Government, State Governments or any organization
endorsed by SEBI with the end goal of the IPEF;(ii) Interest or other pay got out of the
speculations produced using the IPEF; and (iii) Such other sum that SEBI may indicate in the
premiums of the financial specialists.

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Direct Market Access
Amid April 2008, Securities and Exchange Board of India (SEBI) permitted the immediate
market get to (DMA) office to the institutional financial specialists. DMA enables merchants
to offer customers guide access to the trade exchanging framework through the merchant's
foundation without manual mediation by the representative. DMA office give customers
coordinate control over requests, help in quicker execution of requests, decrease the
danger of mistakes from manual request section and loan more prominent
straightforwardness and liquidity. DMA likewise prompts bring down effect cost for
expansive requests, better review trails and better utilization of supporting and arbitrage
openings using choice help apparatuses/calculations for exchanging.

Technology and Application Systems in NSE

Innovation has been the foundation of the Exchange. Giving the administrations to the
contributing group and the market members utilizing innovation at the least expensive
conceivable cost has been its central purpose. NSE bridled innovation in making another
market outline. It trusts that innovation gives the important impulse to the association to
hold its focused edge and guarantee convenience and fulfilment in client benefit. In
acknowledgment of the way that innovation will keep on redefine the state of the securities
business, NSE weights on development and maintained speculation in innovation to stay in
front of rivalry. NSE is the first trade on the planet to utilize satellite correspondence
innovation for exchanging. It utilizes satellite correspondence innovation to empower
interest from around 2,956 VSATs from almost 245 urban areas spread everywhere
throughout the nation.

Domestic offering
Through asset activation from the essential market through value ventures was slow in
2009, both regarding number of issues and take after on-open offerings, the year 2010 saw
a recuperation in the issuances of residential instruments including introductory open
offerings of value or obligation instruments, take after on offerings, rights issues, warrant
issues, composite issues, particular issues of securities, qualified institutional situations and
safe receipts The year 2010 highlighted 70 open issues, i.e. 62 IPOs and 8 FPOs. The assets
raised through open issues totalled about US$ 15,625 million. A noteworthy lump of the
sum raised through offer deal - i.e. US$ 10,974 million - originated from the administration
stripping its stake in broad daylight segment organizations. In contrast with 2009, the year
2010 saw a reasonable recovery in the Indian essential market when just 20 organizations
raised near US$ 4394 million. The biggest open issue in 2010 was that of Coal India IPO,
leaving a mark on the world as the biggest open issue ever in the Indian capital market, with
the issue measure surpassing US$ 3296 million. The terrific achievement of Coal India's IPO
was additionally found in the take after on offer of NMDC, NTPC's FPO and Power Grid
Corporation of India Ltd.’s FPO Public issues were seen crosswise over divisions, for

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example, keeping money, influence, social insurance, minerals, framework and realty,
among others, showing that financial specialists' general trust in the essential market is on a
high. The turbulent markets in any case, imaginative structures for money related
instruments have been developed to ensure against advertise unpredictability, venture
confinements and securities tricks, fence speculation dangers and different dangers. New
instruments, for example, stapled securities, over-the-counter value swaps, speculation
trusts, subordinates and convertibles are likewise picking up notoriety.

International offering

The growth of Indian companies has been fuelled by investments such as ADRs GDRs, FCCBs,
ECBs, euro issues, AIM listings, foreign currency exchangeable bonds and other such new
and hybrid instruments. Thirteen Indian companies are already listed on NYSE, and there are
currently 66 Indian or India focussed companies on the London Stock Exchange’s markets.
Listings on the Singapore Stock Exchange, the Luxembourg Stock Exchange, AIM and various
international capital markets by eminent Indian companies such as India bulls, Unitech, ICICI
and Reliance Petroleum have exposed many international investors to the Indian markets.
Essar Energy's $2.5bn initial public offering on the London Stock Exchange would be the
biggest ever overseas IPO by an Indian company. The two-way flexibility of these
instruments which enhances liquidity has also attracted foreign investors.
Other big fund raisers through ADR/GDR route were by the world's sixth largest steel maker
Tata Steel Limited, India's largest private power producing company Tata Power and the
world's fifth-largest wind-turbine maker Suzlon Energy Limited. The Tata Steel GDR being
the largest issue by an Indian company.

Trading Mechanism

Trading at both the exchanges takes place through an open electronic limit order book, in
which order matching is done by the trading computer. There are no market
makers or specialists and the entire process is order-driven, which means that market
orders placed by investors are automatically matched with the best limit orders. As a result,
buyers and sellers remain anonymous. The advantage of an order driven market is that it
brings more transparency, by displaying all buy and sell orders in the trading system.
However, in the absence of market makers, there is no guarantee that orders will be
executed.

All orders in the trading system need to be placed through brokers, many of which
provide online trading facility to retail customers. Institutional investors can also take
advantage of the direct market access (DMA) option, in which they use trading terminals
provided by brokers for placing orders directly into the stock market trading system. (For
more, read Brokers and Online Trading: Accounts And Orders.)

Who Can Invest in India?

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India began allowing outside speculations just in the 1990s. Outside ventures are ordered
into two classifications: remote direct speculation (FDI) and outside portfolio speculation
(FPI). All interests in which a financial specialist partakes in the everyday administration and
operations of the organization, are dealt with as FDI, while interests in shares with no power
over administration and operations, are dealt with as FPI. For making portfolio interest in
India, one ought to be enrolled either as a remote institutional financial specialist (FII) or as
one of the sub-records of one of the enlisted FIIs. The two enlistments are allowed by the
market controller, SEBI. Remote institutional financial specialists for the most part comprise
of common assets, annuity reserves, gifts, sovereign riches stores, insurance agencies,
banks, resource administration organizations and so forth. At display, India does not enable
outside people to put specifically into its securities exchange. In any case, high-total assets
people (those with a total asset of at any rate $US50 million) can be enrolled as sub-records
of a FII. Outside institutional financial specialists and their sub records can put
straightforwardly into any of the stocks recorded on any of the stock trades. Most portfolio
speculations comprise of interest in securities in the essential and auxiliary markets,
including offers, debentures and warrants of organizations recorded or to be recorded on a
perceived stock trade in India. FIIs can likewise put resources into unlisted securities outside
stock trades, subject to endorsement of the cost by the Reserve Bank of India. At last, they
can put resources into units of common assets and subordinates exchanged on any stock
trade. A FII enlisted as an obligation only FII can put 100% of its venture into obligation
instruments. Different FIIs must contribute at least 70% of their interests in value. The
adjust of 30% can be put resources into obligation. FIIs must utilize extraordinary non-
occupant rupee financial balances, with a specific end goal to move cash all through India.
The equalizations held in such a record can be completely repatriated. (For related perusing,
see Re-assessing Emerging Markets.)

12> CHALLENGES OF THE SECURITY MARKET

One of the biggest threats for local organizations and business revolve around advanced
persistent threats and ransom ware-type threats, both impacting services, data availability,
and sometimes even critical infrastructures. While these treats are not new, they’re still
actively being deployed affecting both physical and virtual environments alike. Sometimes
severely impacting business operations for banking, insurance & financial services, IT,
transportation, and telecommunication, APTs have caused the security market to actively
develop new proactive security mechanism designed at minimizing potential damages and
loss.
Cloud-based business operations relying on virtualization have increased in adoption,
offering new opportunities for the security market in terms of expanding their technological
reach and effectiveness. This change is of major benefit to both organizations and security
vendors as it allows for new business opportunities, new technological advancements, and
greater flexibility in terms of implementing new security mechanism aimed at thwarting
threats for both physical and virtual environments.

Not every security start-up makes its founders multi-millionaires. For every billion-dollar
success story, thousands of companies will develop security products you will never hear

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about, let alone buy. There isn’t much specific data about security start-up failures, though
around 90% of technology start-ups fail within the first three years, regardless of funding.

The odds are stacked against every new business, especially tech start-ups. However, by
getting just five key elements right – leadership, staffing, product differentiation, engaging
the market, and launch timing – a start-up maximizes its chances of future prosperity.

A strong leadership team provides a solid base for growth. Founders must be cognizant of
their own strengths and weaknesses and make tactical hires to fill skills gaps. With security
engineering skills likely covered, the gap is usually business acumen, and that can easily be
plugged with a seasoned entrepreneur.

When Eric Schmidt joined Google he was the ‘grownup’ needed to provide structure and
bring investors onboard, propelling it forward. Security leadership teams need a blend of
product development, sales, marketing and people skills to complement technical expertise.

Building on Strong Foundations

Many start-ups grow organically and steadily over time, while others expand rapidly with
direct investment to exploit a market opportunity. Recruiting staff who share the founders’
vision, are prepared to work long hours, and can adapt to the changing demands of a
fledgling business is no easy task, but is crucial for strong growth and preservation of the
culture the founders instil in the company.

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Once the talent is onboard, the business must lock it in, keep employees engaged, and give
them the responsibility and freedom to contribute towards company goals. Shedding those
who don’t contribute is harsh, but start-ups cannot afford to carry extra weight.

To ensure availability of talent, especially those with niche security skills, location is an
important factor. Much of the UK’s technical security expertise is based in and around
Cheltenham, due in no small part to the GCHQ connection. Basing a fledgling business
elsewhere may require flexibility around remote working.

A World of Difference

Differentiating a product from the competition is key. Incumbent security suppliers have a
terrific advantage over newcomers because, unless there is a strong reason to change
providers, the status quo endures. Security doesn’t lend itself well to ‘killer features’ and
most security product features are anything but exciting.

However, the killer feature that allowed VHS to triumph over Betamax in the videotape wars
was simply a 120-minute tape length, which was long enough to store a full feature film and
therefore the clear choice for video rental businesses. It doesn’t have to be revolutionary, it
just needs to solve a problem current offerings do not address, or solve the same problem
more efficiently.

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A Two-Way Conversation

It is greatly important, however, to be able to communicate to the market about the

product and what it can do better than any other security solution. Established players
spend millions on marketing and advertising while start-ups must compete (in comparison)
on a shoestring budget. Start-ups must use social media to engage the community, and
provide thought leadership to generate ‘buzz’ and demonstrate their security credentials.

An online presence is however no substitute for interacting with the security community
face-to-face and listening as well as talking.

Security products must function properly from day one and problems in a production
environment can destroy confidence among early adopters. The first to market certainly has
an advantage, but this should not be at the expense of a quality product. It must be
thoroughly tested, piloted with multiple customers for detailed feedback, and revised
before launch. Extra functionality can always be added later. Above all, the software must
never become a security issue itself due to sloppy coding!

While the failure rate is high, there is no reason to abandon all hope. Financial investment is
eventually key to company expansion, especially into the lucrative US market, but startups
joining the playing field also benefit from the support and mentoring provided by the UK’s
accelerator and incubator scene. Not that this alone guarantees success and riches, nothing
does, but it may at the very least allow security startups to ‘fail fast’ or ‘fail better’, as folks
in Silicon Valley like to say.

The Major challenges faced by the market are:

A. CYBER ATTACK

Markets all over the world are being revolutionized by technology, especially internet.
Information flow knows no boundaries. At the click of a button, swift actions can be
taken, and that too costless. Mutual funds and corporates use the internet to
communicate to savers and investors. All large and small issuers use internet to offer

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 their shares, bypassing the traditional system. On line trading is the norm of the day;
thereby saving time and money. The increasing reliance on Technology and Computers
for efficient and fluent trade comes with a cost. The cost for using the ease of
technology is high risk of Cyber Attacks. Cyber Attacks in a layman-ishexplaination
means that a system or a Hacker who is remotely accessing the Market takes full or
partial control over the operationality of the whole market through a virus or through a
ransomware and then make some illegal transfers to make undue benefit or breaks the
encryption of the data leading to leakage of sensitive information.

Over the globe, cyber‐attacks are expanding in recurrence and advancement. It has been
assessed that such assaults cost the worldwide economy one for each penny of yearly
GDP2 and cybercrime up to $575b per year3. The FS division is a key target and there
are many all-around pitched cases including FIs. The money related framework depends
on keeping up the strict secrecy of information. A digital assault can make individual and
business information be lost or bargained, and keep imperative administrations from
being given. Monetary foundations (FIs) and their clients can likewise confront huge
money related misfortune from digital assaults. Digital dangers are just set to develop as
FIs turn out to be more information driven advanced organizations, and as more
budgetary administrations are conveyed on the web. Just those FIs who have powerful
digital security and digital hazard administration will be able to hold clients, trust and an
aggressive edge. The International Organization of Securities Commissions (IOSCO) has
called digital hazard "a developing and critical danger to the trustworthiness,
effectiveness and soundness of money related markets around the world". The earth
depicted above has made overseeing digital dangers a need for industry, arrangement
producers and controllers.2

13.1> Ransom ware Attack

All around the globe, the government’s cyber security arm has asked their central bank,
stock exchanges, the National Payments Corp. of India (NPCI) (Example of India) and other

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vital institutions to safeguard their systems against the latest cyberattack that has infected
thousands of systems globally and may escalate further. The Indian Computer Emergency
Response Team (CERT-In), the central agency in India is making efforts on cyber security
issues, has issued a “critical alert” and has advised the installation of relevant “patches” to
protect against any data breaches.

A major such example is the virus named Wannacry, a so-called ransomware, which locked
up more than 100,000 computers and sent cybersecurity experts scrambling to patch
computers and restore infected ones. I was said that the ransomware worm has stopped car
factories, hospitals, shops and schools in more than 100 countries. Indian officials, security
officers and senior executives in charge of running the information technology operations in
Indian enterprises have been rushing to protect their computer systems against the attack.
“The number of systems being patched (which means a security plug-in is applied to prevent
a loophole in software being exploited) in the past 48 to 72 hours in India is
unprecedented,”

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Some facts about Cyber security in India:

• Cyber-attacks have been increasing at 83% CAGR in the last 5 years. The no. of
attacks in FY11 was 13,601 whereas by FY15 it has reached 2,78,912 attacks. That’s
almost 20 times in 5 years.

• Android Malware has increased more than 20 times in the last 4 years.

Facts about the market potential of internet security in India:

• Mobile phone user-base is growing at 25% CAGR.

• PC installations has grown 10% CAGR in the last 3 years.

• By 2019, 40% of all devices expected to be smartphones.

• 74% of all devices will become mobile connected by 2019.

13.2> INSIDER TRADING

Insiders are people who are directly involved in Effective Management of the companies
and hold essential information. Insiders are legally allowed to buy and sell stocks. The
SEBI requires insiders to disclose their trades, and the financial newspapers report such
trading. Investors find this information a source of valuable clues about companies. (It is
possible that even without the SEBI requirement, shareholders would require their
executives and directors to declare their trades.) But it is a risk for the security market
when these insiders start trading without disclosing the sensitive information. This is
when these people start taking unfair advantage of the security market, and thus the
fairness aspect of the security market is hampered with.

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 13.3> KNOWLEDGE OF INVESTOR

Due to increase in trend of investment and stock market being a hot topic, nowadays,
even less educated people have started investing today. This is a very good sign but
these people are very vulnerable to frauds and mishaps. They might not be fully
prepared to operate a proper De-Mat and can be an easy target. There are cases where
less educated people are even fooled by the brokers and stock Agents. With emerging
prospects of Equity Linked Mutual funds pitching in and other portfolios through
nationalized banks this risk is steadily increasing.

Another trend that can be observed globally is the shareholder’s behavior. The Stock
Market Crash of 1987, which saw the Dow plummet 507.99 points, or 22.61% on Oct. 19,
1987, was blamed on program that depicted herd tendency. Flash traders tend to create
heavy volatility as they indulge in heavy volume buying and selling. There is an increased
obsession for short term returns, quarterly performances etc. which leads to a greater
turnover.

The Security Market faces many other problems and challenges and is highly debated
whenever there is a policy change either from Govt. or RBI.

13> ALTERNATES AND POLICY SUGGESTIONS

The whole idea of regulation is to make a safer and investment friendly market. To promote
investment and public interest in the security market, the regulator or the government have
to make improvements every day and night. For curtailing over the Cyber Attack problems
some basic policy suggestions are:

Decreasing of Settlement Days: Presently a period of 3 days has been kept for a stock
settlement of companies. Though it will increase the pressure on the server, but it is an
effective way to curtail cybercrime upto an extent.

Introducing Better Encryption can also be a technological way of securing the server.

Making the System of trading even more Transparent and giving some individual freedom of
trading (restricted) can also bring the chances of frauds down.

Making Insiders responsible through stricter insider trading rules, highly regulating the
Employee Stock Options and Sweat Equity Shares, will help reducing the insider trading.

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The Inventor Awareness programme should be led through TV programmes and News
Channels which are widely viewed by the investor and a helpline for instant query
settlement can also be set up for investor protection.

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