How does Stock Market work?

In the 1600s, the Dutch East India Company employed hundreds of ships to trade goods
around the globe. In order to fund their voyages, the company turned to private citizens to
invest money to support trips in exchange for a share of the profits. In doing so, they
unknowingly invented the world’s first stock market.

So how do companies and investors use the market today?

Since than the companies have been collecting funds from willing investors to support all
kinds of business, and today the stock market is so huge that it has school careers and
separate TV channels, stock market is a whole different economic sector where people earn
and lose money. It provides bread and butter to number of people.

The modern stock market is significantly more complicated than its original incarnation. If a
new company wants to come into the market than the company will advertise its product or
services to the new investors, if any of the investors think it is a good idea than they get the
first crack at investing. Then the investors sponsor the company’s Initial Public Offering
(IPO). This launches the company into the official public market where any company or
individual can invest (buying stocks) in the company. Buying stocks in the company makes
the stock holder becomes partial owner in the business. If the companies is profitable there
will be more and more investment in the company as there is more investment the price of
stock also shoots up (demand increases, price increases), it is also called increasing the cost
for perspective buyers and raising the value of the stock people already own, this increase in
investment helps the company to boosts its overall market value. By showing how many
people are willing to invest in their idea. If a company seems less profitable the reverse can
also happen. If investors think that their stock value is declining they sell their shares with
hopes of making their profits before the value falls down more (demand for the stock declines
the price of the stock declines) with the falling price the market value of the company all
comes down, this can leave investors with big losses unless the company looks profitable
again.

This see-saw of supply and demand is influenced by many factors’ companies are under the
unavoidable influence of market forces such as fluctuating price of raw-materials, changes in
production technology and the labour cost. Investors are worried about bad leadership, bad
publicity or large factors as new laws and trade policies, all these variables which are day to
 day hurdles for the company which can make the company appear more or less successful,
which may get the company more or less investment.

Human confidence in the market has the power to trigger everything from economic boom to
financial crises.

An applicant who desires listing of its securities with NSE must fulfill the following pre-
requisites

Qualifications for listing Initial Public Offerings (IPO) are as below:

i. Paid up Capital

The paid up equity capital of the applicant shall not be less than 10 crores * and the
capitalisation of the applicant's equity shall not be less than 25 crores**

* Explanation 1

For this purpose, the post issue paid up equity capital for which listing is sought shall
be taken into account.

** Explanation 2

For this purpose, capitalisation will be the product of the issue price and the post issue
number of equity shares. In respect of the requirement of paid-up capital and market
capitalisation, the issuers shall be required to include, in the disclaimer clause of the
Exchange required to put in the offer document, that in the event of the market
capitalisation (Product of issue price and the post issue number of shares) requirement
of the Exchange not being met, the securities would not be listed on the Exchange.
ii. Conditions Precedent to Listing:

The Issuer shall have adhered to conditions precedent to listing as emerging from inter-
alia from Securities Contracts (Regulations) Act 1956, Companies Act 1956, Securities
and Exchange Board of India Act 1992, any rules and/or regulations framed under
foregoing statutes, as also any circular, clarifications, guidelines issued by the appropriate
authority under foregoing statutes.
iii. Atleast three years track record of either:
 the applicant seeking listing; or
 the promoters****/promoting company, incorporated in or outside India or
 Partnership firm and subsequently converted into a Company (not in existence as a
Company for three years) and approaches the Exchange for listing. The Company
subsequently formed would be considered for listing only on fulfillment of conditions
stipulated by SEBI in this regard.

For this purpose, the applicant or the promoting company shall submit annual reports of
three preceding financial years to NSE and also provide a certificate to the Exchange in
respect of the following:

 The company has not been referred to the Board for Industrial and Financial
Reconstruction (BIFR).
 The networth of the company has not been wiped out by the accumulated losses
resulting in a negative networth
 The company has not received any winding up petition admitted by a court.

****Promoters mean one or more persons with minimum 3 years of experience of each
of them in the same line of business and shall be holding at least 20% of the post issue
equity share capital individually or severally.
iv. The applicant desirous of listing its securities should satisfy the exchange on the
following:
 No disciplinary action by other stock exchanges and regulatory authorities in
past three years

There shall be no material regulatory or disciplinary action by a stock exchange or

regulatory authority in the past three years against the applicant company. In respect
of promoters/promoting company(ies), group companies, companies promoted by the
promoters/promoting company(ies) of the applicant company, there shall be no
material regulatory or disciplinary action by a stock exchange or regulatory authority
in the past one year.
  Redressal Mechanism of Investor grievance

The points of consideration are:

i. The applicant, promoters/promoting company(ies), group companies, companies

promoted by the promoters/promoting company(ies) track record in redressal of
investor grievances
ii. The applicant's arrangements envisaged are in place for servicing its investor.
iii. The applicant, promoters/promoting company(ies), group companies, companies
promoted by the promoters/promoting company(ies) general approach and
philosophy to the issue of investor service and protection
iv. defaults in respect of payment of interest and/or principal to the
debenture/bond/fixed deposit holders by the applicant, promoters/promoting
company(ies), group companies, companies promoted by the promoters/promoting
company(ies) shall also be considered while evaluating a company's application
for listing. The auditor's certificate shall also be obtained in this regard. In case of
defaults in such payments the securities of the applicant company may not be
listed till such time it has cleared all pending obligations relating to the payment of
interest and/or principal.
 Distribution of shareholding

The applicant's/promoting company(ies) shareholding pattern on March 31 of last

three calendar years separately showing promoters and other groups' shareholding
pattern should be as per the regulatory requirements.
 Details of Litigation

The applicant, promoters/promoting company(ies), group companies, companies

promoted by the promoters/promoting company(ies) litigation record, the nature of
litigation, status of litigation during the preceding three years period need to be
clarified to the exchange.
 Track Record of Director(s) of the Company

In respect of the track record of the directors, relevant disclosures may be insisted
upon in the offer document regarding the status of criminal cases filed or nature of the
 investigation being undertaken with regard to alleged commission of any offence by
any of its directors and its effect on the business of the company, where all or any of
the directors of issuer have or has been charge-sheeted with serious crimes like
murder, rape, forgery, economic offences etc.
Note:
a) In case a company approaches the Exchange for listing within six months of an IPO, the
securities may be considered as eligible for listing if they were otherwise eligible for listing at
the time of the IPO. If the company approaches the Exchange for listing after six months of
an IPO, the norms for existing listed companies may be applied and market capitalisation be
computed based on the period from the IPO to the time of listing1.

1
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