An Overview

UNIT 2 SECURITIES MARKET

Objectives
After reading this unit you should be able to:
x Distinguish between primary and secondary markets;
x Understand the concept of Initial Public Offerings (IPOs);
x Discuss the evolution of Indian stock Market;
x Understand different types of stock markets;
x Understand the role of SEBI as a regulating body.
Structure
2.1 Introduction
2.2 Primary Markets
2.3 Initial Public Offerings (IPOs)
2.4 Secondary Markets
2.5 Indian Stock Market
2.6 Different Stock Markets
2.7 Securities Exchange Board of India (SEBI)
2.8 Summary
2.9 Key Words
2.10 Self Assessment Questions
2.11 Further Readings

2.1 INTRODUCTION
Market is a place where buyers and sellers meet and exchange products. This
definition is universal and applies to all markets. In this course, we will discuss
more about the market called capital market. It is a place, where capital of
different types is exchanged. Often individuals, like you, are the lenders or
the suppliers of capital. Companies and various other institutions are the
borrowers or the receivers of capital. The market is organized or divided into
different ways. At a very broad level, the market is divided into (a) Short-
term Capital Market (money market) and (b) Long term capital market (also,
called stock market). Another way of classifying the market is (a) Institutional
Market and (b) Direct Market. As an investor you can deal with the market in
different ways. Let us understand the market from individual’s perspective.
If the surplus money you have can be spared only for a short period, you have
to look for savings of short-duration. Since the amount available is fairly
small in such cases, you have to look for some institutional support for such
savings. In other words, individuals don’t directly deal with the money market,
which specialize in short-term capital.
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Often, individuals approach an institution for this purpose. You can save your Securities Market
short-term surplus in a bank deposit or a mutual fund, which offer money
market schemes. If the surplus money you have can be spared for a long-
term, you have to look for investments of longer duration. Again, you can go
to an institution, which offers long- term products or you can directly
participate in the market. That is, you can deposit your money in a long-term
fixed deposit or invest in a mutual funds scheme or directly buy securities in
the market. When you intend to deal with the market on your own, you can
deal with the market in two ways. The markets are accordingly classified into
primary and secondary market.
Primary market is the one in which the organization approaches investors to
raise capital. They can approach for debt capital or equity capital or
combination of both. Dealing in primary market is fairly simple today. Like
fixed deposit opening, you have to take up an application form of the issue
and deposit the amount after filling up the form. Brokers and sub-brokers
will normally help you to get forms and guide you to fill up the forms. What
is important is you have to make sure that investments fit with your objective.
The uncertainty of getting allotment forces many investors, who are directly
willing to deal with the market, to turn into secondary market. It is a place
where an investor sells to another investor. Since there are large number of
sellers and buyers, the market is dynamic. Securities prices change depending
on the demand and supply of the securities.
Secondary market exists for different types of securities like debt, equity and
others. Investment in secondary market has also become easy, thanks to
developments in Information and Computing Technologies. You have to open
an account with the members of any stock exchanges of your choice. The
procedure to open an account is fairly simple and it is somewhat similar to
opening a Savings Bank Account with your banker. You can place your buying
and selling orders over phone and often you get immediate confirmation of
your purchase or sale. Today, it is also possible for you to buy and sell securities
through internet. In this Unit, we will discuss more on how the stock market
is organized and how investors can transact in buying and selling of securities
in the market.

2.2 PRIMARY MARKETS

Primary market is the segment in which new issues are made whereas
secondary market is the segment in which outstanding issues are traded. It is
for this reason that the Primary Market is also called New Issues Market and
the Secondary Market is called Stock Market. In the primary market, new
issues May be made in three ways, namely, public issue, rights issue, and
private placement. Public Issues involves sale of securities to members of
public. Rights issue involves sale of securities to the existing shareholders/
debenture holders. Private placement involves selling securities privately to
a selected group of investors. In the primary market, equity shares, fully
convertible debentures (FCD), partially convertible debentures (PCD), and
non- convertible debentures (NCD) are the securities commonly issued by
non-government public limited companies. Government companies issue 29
An Overview equity shares and bonds. In the primary market, issues are made either ‘at
par’ or `at premium’. Pricing the new Issues is regulated under `Guidelines
on Capital Issues’ or what are also known as “Guidelines for Disclosure and
Investors Protection” issued by the Securities and Exchange Board of India
(SERI). The SEBI guidelines on Disclosure and Investor Protection is now
available in the SEBI website, www.sebi.gov.in.

2.3 INITIAL PUBLIC OFFERINGS (IPOS)

Concept
IPO stands for Initial Public Offering. It is the process by which a private
organization offers shares of its stock to the public for the first time. The
purpose of an IPO is to raise capital from public investors, allowing the
organization to grow and expand its business operations.
The process of going public through an IPO involves several steps, including
selecting an investment bank to lead the offering, preparing a prospectus that
outlines the organization’s business and financials, and setting an initial
offering price for the shares. The organization also needs to meet various
regulatory requirements before the IPO can take place.
Once the IPO is complete, the organization’s shares are listed on a stock exchange,
and they can be bought and sold by members of the public. The price of the
shares is determined by supply and demand, and can fluctuate based on various
factors, including the organization’s financial performance and market conditions.
IPOs can be a significant opportunity for investors to participate in the growth
of a promising organization, but they also come with risks. Investors need to
carefully evaluate the organization’s financials and business prospects before
investing, and they should be aware that the value of their shares can go up or
down depending on market conditions.
There have been many IPOs over the years, and some of the most high-profile
examples include:
Facebook: The social media giant went public in 2012, raising $16 billion in
one of the largest IPOs in history.
Alibaba: The Chinese e-commerce organization raised $25 billion in its 2014
IPO, which was the largest in history at the time.
Uber: The ride-hailing organization went public in 2019, raising $8.1 billion
in one of the most highly anticipated IPOs of the year.
Snowflake: The cloud-based data warehousing organization went public in
2020, raising $3.4 billion in the largest software IPO ever.
Airbnb: The online marketplace for vacation rentals went public in 2020,
raising $3.5 billion in one of the biggest IPOs of the year.
These are just a few examples of the many successful IPOs that have taken
place over the years, but it’s important to remember that not all IPOs are
30 successful, and investing in an IPO can be risky.
Eligibility for an IPO Securities Market

In India, eligibility for an Initial Public Offering (IPO) is regulated by the

Securities and Exchange Board of India (SEBI). To be eligible for an IPO, an
organization must fulfill certain criteria set by SEBI. The eligibility is amended
from time to time. As of now the eligibility for an IPO in India is as follows:
x Minimum net tangible assets of at least ` 3 crores for the preceding three
full years.
x The organization must have a minimum operating profit of at least `15
crores in each of the preceding three years.
x The organization must have a net worth of at least ` 1 crore in each of the
preceding three years.
x The organization must have a minimum of 1,000 shareholders and a
minimum public float of 25% of the issued capital.
x The organization must have a track record of distributable profits for at
least three out of the immediately preceding five years.
These are some of the broad eligibility criteria for an IPO in India, and there
may be additional requirements depending on the specific regulations and
guidelines issued by SEBI from time to time. It is recommended that students
refer to SEBI and other regulatory bodies to update themselves about the
eligibility of IPO.
IPO Process
The IPO process has evolved significantly over time, as markets, regulations,
and technology have changed. Here are a few key ways in which the IPO
process has evolved:
x Increased regulation: The IPO process has become more heavily
regulated over time, with requirements for financial reporting, disclosure,
and transparency. The Sarbanes-Oxley Act of 2002, for example, increased
the regulatory burden on public companies, making it more costly and
time-consuming to go public.
x Online investing: The rise of online brokerages and trading platforms
has made it easier for individual investors to participate in IPOs. In the
past, IPOs were typically only available to institutional investors and
high net worth individuals, but now anyone with an online brokerage
account can invest in an IPO.
x Direct listings: In a direct listing, a company goes public by selling its
existing shares directly to the public, rather than issuing new shares
through an investment bank. This approach has become more popular in
recent years, with companies like Spotify and Slack opting for direct
listings.
x Special purpose acquisition companies (SPACs): SPACs are companies
that are created specifically to acquire other companies and take them
public. They raise money through an IPO, and then use the proceeds to 31
An Overview identify and acquire a target company. SPACs have become increasingly
popular in recent years as a way for companies to go public without going
through the traditional IPO process.
The IPO process has become more complex and more diverse over time, with
organizations having a range of options for going public.
SEBI Guidelines for IPO’s
SEBI (Securities and Exchange Board of India) issues guidelines for Initial
Public Offerings (IPOs) in India to ensure that the process of raising capital
through the primary market is fair, transparent and efficient. Some of the key
SEBI guidelines for IPOs are:
Eligibility criteria: The issuer organization must meet certain eligibility
criteria to be able to issue shares through an IPO. The organization must have
a minimum net worth, a track record of profitability for a certain period, and
must not be undergoing any regulatory or legal action.
Disclosure requirements: The issuer organization is required to provide
complete and accurate disclosures in the prospectus. The disclosures must
include details about the organization’s financial performance, risk factors,
management structure, and other relevant information that can help investors
make an informed decision.
Pricing guidelines: SEBI guidelines provide a framework for determining
the price at which shares can be issued. The issuer organization is required to
disclose the rationale behind the price and the factors that have been taken
into consideration.
Use of proceeds: The issuer organization must disclose how the proceeds
from the IPO will be utilized. The disclosures must provide a clear
understanding of how the organization plans to use the funds and the expected
benefits to the organization and its stakeholders.
Book building process: SEBI guidelines provide a framework for the book
building process, which is used to determine the demand for the shares being
offered. The issuer organization can use either the fixed price method or the
book building method to determine the price of the shares.
Underwriting and merchant banking guidelines: SEBI guidelines also cover
the role of merchant bankers and underwriters in the IPO process. The
merchant bankers are responsible for preparing the prospectus and ensuring
that the issuer organization complies with all the regulatory requirements.
The underwriters are responsible for subscribing to the shares that are not
taken up by the public.
These guidelines are regularly updated by SEBI to ensure that the process of
raising capital through IPOs remains fair and transparent for all stakeholders
involved.

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 Securities Market
2.4 SECONDARY MARKETS
The secondary market is the segment in which outstanding issues are traded
and thus provide liquidity. Investors, who seek both profitability and liquidity,
need both primary and secondary markets. There is thus a direct and
complementary interface between the primary and secondary markets.
Secondary market exists both for short- term (money market) securities and
long-term securities. It exists for debt, equity and a variety of hybrid securities.
While the secondary market activities in money market securities are
conducted over phone or through market makers, the trading is more organized
for long-term securities and conducted through stock exchanges. Buying and
selling securities in secondary market is fairly simple. Investors have to open
an account with a member of stock exchange and then place orders through
the member.
For an orderly functioning of market, a set of institutions is required. The
role of institutions assumes importance in securities market because the market
deals with high value financial assets. Institutions connected with securities
markets are Stock Exchanges (http:// www.bseindia.com and http://
www.bseindia.com), Members of Stocks Exchanges (popularly called brokers),
Clearing Corporation, Depository (http://www.nsdl.co.in and http://
www.centraldepository.com) Transfer Agents and Securities and Exchange
Board of India (SEBI) (http://www.sebi.gov.in).
Technology has converted stock exchanges into a virtual institution. Earlier,
there was an importance for the physical location of stock exchange because
it was a place where brokers or their assistants negotiate the prices (outsiders
can hear only some noise but brokers understand the meaning) and enter into
transactions on behalf of their client-investors. Since the telecommunication
was very poor in India, one or two stock exchanges have been opened up in
every state to cater to the needs of the investors of the region. India is one of
the few countries with a large number of stock exchanges. Thanks to
development in telecommunication and information technology, the physical
constraint was removed during the last few years. National Stock Exchange
today has its presence everywhere in the country. Bombay Stock Exchange
has also expanded its network. Many other stock exchanges are finding it
difficult to compete with these two principal stock exchanges and trying to
come together and create new business. This new development has improved
transparency of operations and brought down the cost. Today, stockbrokers
are operating from their office through computer network and investors can
see the price at which the transactions are settled.Competition has brought
down the brokerage from 2% to in India around 0.5% and today the brokerage
rate in India is one of the lowest in the world. This transformation has taken
place in a matter of few months.
Members of stock exchanges, called stock brokers, are intermediary between
buyers and sellers. Buying and selling securities through members of stock
exchange is beneficial, legally and functionally. Entry of major institutions
like ICICI, Kotak Mahindra, into brokerage services and development in
technology including intenet based broking service have improved the quality
33
An Overview of service. Many of these brokerage houses offer a number of facilities to the
investors at no extra cost.
Clearing corporation enables the members to settle the transactions entered
among themselves on behalf of their client-investors. It operates something
similar to cheque clearing service offered by RBI for the banks. Earlier when
securities are traded in physical form, a large number of securities have to be
exchanged between members and clearing corporation had a major work on
this part. Today, after depository facility was introduced, the workload of the
clearing corporations has come down significantly. Clearing corporation today
facilitates the members to transfer (or receive) securities to (or from)
depositories and also settle monetary part of the transactions. It is an institution
exclusively serving the brokers.
Depository service is another major development in the Indian stock market.
It allows investors to hold securities in electronic form (like you are holding
cash in your bank account) and transfers electronically when they sell the
shares. The operation is fairly simple. Investors have to open a depository
account with a member of depository service provider (we have two depository
service providers in India - National Securities Depository Ltd and Central
Depository Services (India) Limited). Investors can give physical securities
that they are holding for cancellation (provided depository facility is available
for the securities/company) and convert them in to electronic holding. A large
number of companies have depository holding facility and SEBI has put it
compulsory to trade certain stocks only under depository mode. When an
investor apply new shares next time in the primary market, they can ask the
issuer to credit the depository account in the event of successful allotment.
Any new purchases in the secondary market can also be credited in the
depository account. Investors will get periodical statement on their holding
from the member with whom the depository account is maintained. Many
depository participants allow the investors to see their account through
Internet. There was some resistance from retail investors for this change but
today everyone started seeing the benefit of this service. A significant part of
volume traded today is settled through depository mode.
Apart from holding the stocks electronically, there are other benefits from
depository services.- There is no need to apply for transfer of shares after the
purchase of shares. If an investor buys securities in physical form and desire
to transfer the shares in her/his name, s/he has to fill-up the transfer deed,
affix transfer fee (0.5% of market value of stock) and then send the same to
transfer agent. There is a cost, time and uncertainty involved in the transfer.
Under depository mode, the shares are transferred in a short period of time
without any further action from your side. For more details about depository,
visit one of the web sites (http://www.nsdl.co.in or http://
www.centraldepository.com) of depository service providers or the members
of depository service providers.
Transfer agents maintains the members register of the companies. On the
instructions of the company, they transfer the shares from the existing members
to new member. When an investor buys a share in a physical mode and intend
34 to transfer the share in her/his name, s/he has to send the transfer deed along
with share certificate to the Transfer Agent. There are many transfer agents Securities Market
like Karvy Consultants Ltd (http://www.karvy.com) and MCS Ltd. After initial
verification, they will place the shares received for transfer for the approval
of company’s Board. The shares are transferred in the name of investors after
the approval of the Board and investor will receive communication to this
effect along with share certificates from the Transfer Agent. Some companies
perform this transfer of shares internally whereas many leading companies
have outsourced this service by appointing one of these transfer agents. The
process of verification and other formalities connected with transfer has been
simplified after the introduction of depository services.
Activity 1
i) Write brief note on a recent public issue of a company. The note may
include the size of the issue, type of security offered, price, justification
of premium, registrar, banker to issue, underwriter, etc.
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ii) Visit any one or more of the web sites and describe your additional
learning on the regulation of Primary and Secondary Markets.
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2.5 INDIAN STOCK MARKET

Evolution
Organizations and institutions, whether they are economic, social or political,
are products of historical events and exigencies. The events continually replace
and/or reform the existing organizations, so as to make them relevant and
operational in contemporary situations. It is, therefore, useful to briefly
acquaint ourselves with the evolution of the stock market in India. The Indian
stock market has undergone significant changes and evolved over the years.
Stock exchanges of India in a rudimentary form originated in 1800 and since
that time have developed through different stages.
Pre-independence era
1800-1865 (Pre-independence era: The East India Company and few
commercial banks floated shares sporadically, through a very small group of
brokers. According to a newspaper in 1850, in Bombay during 1840-1850
there were only half a dozen recognised brokers. The year 1850 marked a 35
An Overview watershed. A wave of company flotations took over the market ; the number
of brokers spurted to 60. The backbone of industrial growth and the resulting
boom in share flotation was the legendary personality of the financial world,
PremchandRoychand.
In 1860 the stock market created a unique history. The entire market was
gripped by what is known as ‘share mania’. The American Civil War created
cotton famine. Indian cotton manufacturers exploited this situation and
exported large quantities of cotton. The resulting increase in export earnings
opened opportunities for share investments. New companies started to come
up. Excessive speculation and reckless buying became the order of the day.
This mania lasted upto 1865. It marks the end of the first phase in the Indian
stock exchange history because with the cessation of the Civil War, demand
for Indian cotton slumped abruptly. The share became worthless pieces of
paper. To be exact, on July 1, 1865 all shares ceased to exist because all time
bargains which had matured could not be fulfilled.
1866-1900: We find another distinct phase during 1866-1900. The mania effect
haunted the stock exchange of Bombay during these 25 years. Above
everything else, it led to foundation of a regular market for securities. Since
the market was established in Bombay, it soon became and still is the leading
and the most organized stock exchange in India. A number of stock brokers
who geared up themselves, set up a voluntary organization in 1887, called
Native Share and Stockbrokers Association. The brokers drew up codes of
conduct for brokerage business and mobilized private funds for industrial
growth. It also mobilized funds for government securities (gilt edged
securities), especially of the Bombay Port Trust and the Bombay Municipality.
A similar organization was started at Ahmedabad in 1894.
1901-1913: Political developments gave a big flip to share investment. The
Swadeshi Movement led by Mahatma Gandhi encouraged the indigenous
trading and business class to start industrial enterprises. As a result, Calcutta
(Kolkata) became another major centre of share trading. The trading was
prompted by the coal boom of 1904- 1908. Thus the third stock exchange was
started by Calcutta stock brokers. During Inter-war years demand for industrial
goods kept increasing due to British involvement in the World Wars. Existing
enterprises in steel and cotton textiles, woolen textiles, tea and engineering
goods expanded and new ventures were floated. Yet another stock exchange
was started at Madras in 1920. The period 1935-1965 can be considered as
the period of development of the existing stock exchanges in India. In this
period industrial development planning played the pivotal role of expanding
the industrial and commercial base of the country. Post-independence era
At the time of Independence seven stock exchanges were functioning located
in the major cities of the country. Between 1946 and 1990, 12 more stock
exchanges were set up trading the shares of 4843 additional listed companies.
After independence in 1947, the government took steps to regulate the stock
market. In 1956, the Securities Contracts (Regulation) Act was passed to
regulate stock exchanges.

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1990s liberalization Securities Market

In the 1990s, India started opening up its economy and embracing economic
reforms. This led to a surge in foreign investments in the stock market, and
the government introduced measures to encourage more participation in the
stock market.
Introduction of NSE
In 1994, the National Stock Exchange (NSE) was established, which
introduced electronic trading in India. This helped to bring more transparency
and efficiency to the stock market.
Dematerialization
In 1996, the process of dematerialization of shares was introduced, which
allowed investors to hold and trade shares in electronic form, eliminating the
need for physical share certificates.
Online trading
In the late 1990s and early 2000s, online trading platforms were introduced,
which made it easier for investors to trade in the stock market from anywhere
in the world.
Derivatives trading
In 2000, the government allowed derivatives trading in the stock market, which
provided investors with more investment options and helped to increase
liquidity in the market.
Introduction of SEBI
The Securities and Exchange Board of India (SEBI) was established in 1992
as the regulator of the Indian securities market. SEBI has been instrumental
in regulating and developing the Indian stock market.
The Indian stock market has evolved significantly over the years, with the
introduction of new technologies and regulatory measures to ensure
transparency and efficiency in the market. The stock market has become an
important avenue for investment and wealth creation for millions of investors
in India.
There are several stock exchanges in India, but the major ones are:
National Stock Exchange of India (NSE): It is the largest stock exchange in
India in terms of market capitalization and trading volumes. It is located in
Mumbai and offers trading in equities, derivatives, mutual funds, and currency
futures.
Bombay Stock Exchange (BSE): It is the oldest stock exchange in Asia and
the first in India, established in 1875. It is also located in Mumbai and offers
trading in equities, derivatives, mutual funds, and currency futures.
Metropolitan Stock Exchange of India (MSEI): It is the third-largest stock
37
An Overview exchange in India and is located in Mumbai. It offers trading in equities,
currency derivatives, and debt instruments.
Indian Commodity Exchange (ICEX): It is a commodity futures exchange
and is located in Mumbai. It offers trading in commodity futures such as
gold, silver, and crude oil.
Multi Commodity Exchange (MCX): It is another commodity futures
exchange located in Mumbai. It offers trading in commodity futures such as
gold, silver, and crude oil.
National Commodity and Derivatives Exchange (NCDEX): It is a
commodity futures exchange located in Mumbai. It offers trading in
commodity futures such as agricultural products, metals, and energy.
These are some of the major stock exchanges in India.
Role and Functions
Stock exchanges play a crucial role in modern economies by providing a
platform for buying and selling securities, such as stocks, bonds, and
derivatives. Some of the key roles of stock exchanges include:
Facilitating trading: Stock exchanges provide a centralized marketplace
where buyers and sellers can come together to trade securities in a
transparent and regulated manner.
Price discovery: The stock market helps to determine the price of securities
through the forces of supply and demand. The prices of securities on the
exchange reflect the collective judgment of all the buyers and sellers
participating in the market.
Liquidity: By providing a platform for trading, stock exchanges enhance
the liquidity of securities. This means that investors can easily buy and
sell securities at any time, making it easier for them to manage their
portfolios and adjust their positions as needed.
Transparency: Stock exchanges provide transparent pricing and reporting
of trades, which helps to promote market efficiency and fairness.
Capital formation: Stock exchanges play a critical role in raising capital
for companies by facilitating the initial public offerings (IPOs) of new
companies and providing a platform for companies to issue additional
shares or bonds to raise more capital.
The stock exchanges are essential to the functioning of modern economies,
providing a vital platform for trading securities, setting prices, and
promoting transparency and liquidity in the market.
Market Types
NEAT system
NEAT stands for National Exchange for Automated Trading, which is a

38
 fully automated screen-based trading system that was introduced by the Securities Market
National Stock Exchange of India (NSE) in 1994. The NEAT system has
several different market types that are used for trading different types of
securities. These market types include:
Normal Market: This is the most commonly used market type, where
securities are traded in a regular manner based on their market price.
Odd Lot Market: This market type is used for trading securities in lots
that are less than the standard trading lot. This market is designed to
facilitate trading for small investors who cannot afford to buy or sell in
the standard trading lot.
Retail Debt Market: This market type is used for trading debt securities
such as bonds, debentures, and government securities.
Wholesale Debt Market: This market type is used for trading debt
securities in large quantities. It is primarily used by institutional investors
such as banks, mutual funds, and insurance companies.
Call Auction Market: This market type is used for trading securities at a
predetermined price. Orders are collected for a specific period, and the
system matches the buy and sell orders at the predetermined price.
Block Deal Market: This market type is used for trading large quantities
of securities. It is primarily used by institutional investors to trade in large
blocks of shares.
Overall, the NEAT system of market types provides a range of options for
investors to trade securities in a manner that suits their specific needs and
preferences.
Stock Market Information System
A stock market information system is a computer-based system that
provides investors and traders with real-time information about the stock
market. It allows users to access a variety of data, such as stock prices,
trading volumes, news articles, financial statements, and other market-
related information. Some of the key features of a stock market information
system include:
Real-time data: The system provides real-time information about the stock
market, allowing investors and traders to make informed decisions in a
timely manner.
Customizable dashboards: Users can customize their dashboards to
display the information that is most relevant to their needs, such as stock
prices, news headlines, and financial ratios.
Charting and technical analysis: The system provides advanced charting
and technical analysis tools that allow users to analyze market trends and
patterns, and make informed trading decisions.
News and analysis: The system provides access to news articles and
39
An Overview market analysis from a variety of sources, allowing users to stay up-to-
date on market developments and make informed decisions.
Portfolio management: The system allows users to manage their
investment portfolios, track their holdings, and monitor their performance
over time.
A stock market information system is a powerful tool for investors and
traders, providing them with the real-time data, analysis, and insights they
need to make informed decisions in the stock market.
Activity 2
1) Take a look at the Bombay Stock Exchange quotations published in
Economic Times and write out hereunder price quotations for five
Shares and five Debentures.
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2.6 DIFFERENT STOCK MARKETS

National Stock Exchange of India (NSE):It is the leading stock exchange in
India in terms of market capitalization and trading volumes. NSE was founded
in 1992 and is headquartered in Mumbai, India.
NSE offers a platform for trading in equities, equity derivatives, debt
instruments, currencies, and exchange-traded funds (ETFs). The exchange
operates on an electronic trading platform, which enables investors to trade
securities from anywhere in India through a network of brokers.
NSE has played a significant role in the development of the Indian capital
markets, introducing new products and services, and adopting best practices
in technology and regulation. NSE has also been instrumental in popularizing
equity investments among retail investors in India through initiatives like the
National Stock Exchange’s Certification in Financial Markets (NCFM)
program, which provides education and training in financial markets.
NSE is regulated by the Securities and Exchange Board of India (SEBI), which
sets the rules and regulations governing the exchange. The exchange is also a
member of the World Federation of Exchanges (WFE), which represents the
interests of the global exchange industry.
NSE is an important platform for investors to participate in the Indian capital
markets, providing a secure and transparent environment for trading in a wide
range of securities.
Bombay Stock Exchange (BSE) :It is one of the oldest and the first stock
exchanges in Asia, established in 1875 in Mumbai, India. BSE offers a platform
40 for trading in equities, equity derivatives, debt instruments, currencies, and
mutual funds. Securities Market

BSE operates on an electronic trading platform, similar to NSE, which enables

investors to trade securities from anywhere in India through a network of
brokers. BSE is also home to several prominent indices, including the BSE
Sensex, which is a benchmark index of the top 30 companies listed on the
exchange. BSE has played an important role in the development of the Indian
capital markets, introducing new products and services, and adopting best
practices in technology and regulation. BSE is also known for its initiatives
in investor education and protection, including setting up the Investor
Protection Fund to compensate investors in case of default by trading members.
BSE is regulated by the Securities and Exchange Board of India (SEBI), which
sets the rules and regulations governing the exchange. The exchange is also a
member of the World Federation of Exchanges (WFE), which represents the
interests of the global exchange industry.
Overall, BSE is an important platform for investors to participate in the Indian
capital markets, providing a secure and transparent environment for trading
in a wide range of securities.
Metropolitan Stock Exchange of India (MSEI): It is a stock exchange in
India that was founded in 2008 and received recognition as a stock exchange
in 2012. It is headquartered in Mumbai, India.
MSEI offers a platform for trading in equities, equity derivatives, and currency
derivatives. The exchange uses an electronic trading platform, similar to NSE
and BSE, which enables investors to trade securities from anywhere in India
through a network of brokers.
MSEI has been known for its innovative products, including its flagship
product, the Multi Commodity Exchange (MCX) Currency Futures, which
enables trading in currency derivatives. It has also been active in promoting
investor education and awareness programs to increase the participation of
retail investors in the Indian capital markets.
MSEI is regulated by the Securities and Exchange Board of India (SEBI),
which sets the rules and regulations governing the exchange. However, in
2019, MSEI was placed under a surveillance mechanism by SEBI due to
concerns over its financial viability and governance issues.
The MSEI is a relatively new player in the Indian stock exchange market,
and it has faced some challenges in gaining market share and maintaining
financial stability. However, it continues to offer a platform for trading in
equities and derivatives, and it has been active in promoting investor education
and awareness programs.
Indian Commodity Exchange Limited (ICEX): It is a national-level
commodity futures exchange in India that was launched in 2009. The exchange
offers a platform for trading in a wide range of commodities, including precious
metals, base metals, energy, and agricultural commodities.
ICEX uses an electronic trading platform, which enables investors to trade
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An Overview commodities from anywhere in India through a network of brokers. The
exchange operates on a transparent and regulated marketplace, with
standardized contracts, price discovery mechanisms, and risk management
systems. ICEX is known for its flagship product, the Diamond Futures
Contract, which enables trading in diamonds as a commodity. This product is
unique in the Indian commodity futures market and has helped to increase the
transparency and efficiency of the diamond trade in India.
ICEX is regulated by the Securities and Exchange Board of India (SEBI),
which sets the rules and regulations governing the exchange. The exchange
is also a member of the World Federation of Diamond Bourses (WFDB), which
represents the interests of the global diamond industry.
ICEX is an important platform for investors to participate in the Indian
commodity futures market, providing a secure and transparent environment
for trading in a wide range of commodities. The exchange has been innovative
in introducing new products and services, and it has played a significant role
in the development of the Indian commodity futures market.
National Commodity and Derivatives Exchange Limited (NCDEX): It is
a national-level commodity futures exchange in India that was launched in
2003. The exchange offers a platform for trading in a wide range of
commodities, including agricultural commodities, metals, energy, and other
raw materials.
NCDEX uses an electronic trading platform, which enables investors to trade
commodities from anywhere in India through a network of brokers. The
exchange operates on a transparent and regulated marketplace, with
standardized contracts, price discovery mechanisms, and risk management
systems. NCDEX is known for its flagship products, including futures
contracts for agricultural commodities like wheat, soybean, chana, and castor
seed. The exchange has been instrumental in improving the efficiency and
transparency of agricultural commodity trading in India, enabling farmers
and other stakeholders to hedge their price risks and access better prices.
NCDEX is regulated by the Securities and Exchange Board of India (SEBI),
which sets the rules and regulations governing the exchange. The exchange
is also a member of the World Federation of Exchanges (WFE), which
represents the interests of the global exchange industry.
The NCDEX is an important platform for investors to participate in the Indian
commodity futures market, providing a secure and transparent environment
for trading in a wide range of commodities. The exchange has played a
significant role in the development of the Indian commodity futures market,
particularly in the agricultural sector.
Multi Commodity Exchange of India Ltd. (MCX):It is India’s largest
commodity derivatives exchange, with a market share of over 90%. MCX
facilitates online trading of a wide range of commodities, including metals,
energy, agricultural commodities, and bullion. MCX was established in 2003
and has since become a leading player in the Indian commodities market.
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The exchange offers a range of futures contracts with different expiry dates, Securities Market
which allow market participants to hedge their price risk or speculate on the
price movements of various commodities. MCX operates through a network
of over 500,000 terminals, spread across more than 1,000 cities and towns in
India. The exchange has a state-of-the-art trading platform that provides real-
time price information, market news, and analysis to market participants. MCX
is regulated by the Securities and Exchange Board of India (SEBI), which
sets the rules and regulations governing the exchange. The exchange is also a
member of the Federation of Indian Commodity Exchanges (FICE), which
represents the interests of the commodity exchanges in India.
MCX plays an important role in the Indian commodities market, providing a
platform for price discovery and risk management for market participants.
MCX offers trading in a wide range of commodities, including metals, energy,
agricultural commodities, and bullion. Here are a few examples of the
commodities that are traded on MCX:
Gold: MCX is a major platform for trading in gold futures, with contracts for
different delivery months. The gold traded on MCX is 24 karat, and the
minimum contract size is one kilogram.
Crude oil: MCX also offers trading in crude oil futures, with contracts for
different delivery months. The crude oil traded on MCX is of the WTI (West
Texas Intermediate) variety, and the minimum contract size is 100 barrels.
Copper: MCX is a leading platform for trading in copper futures, with
contracts for different delivery months. Copper is a widely used metal in
construction and manufacturing, and its price movements are closely watched
by traders and investors.
Natural gas: MCX also offers trading in natural gas futures, with contracts
for different delivery months. Natural gas is a key source of energy, and its
price movements are influenced by factors such as supply and demand, weather
conditions, and geopolitical events.
The exchange offers a range of other commodities as well, such as silver,
zinc, lead, and agricultural products like cotton, soybean, and crude palm oil.

2.7 SECURITIES EXCHANGE BOARD OF INDIA

(SEBI)
SEBI (Securities and Exchange Board of India) is the regulatory body for the
securities market in India. It is responsible for regulating and supervising the
securities market in India and ensuring its proper functioning. SEBI issues
various guidelines from time to time to ensure that the market operates in a
fair and transparent manner. Some of the important SEBI guidelines are:
1. Insider Trading: SEBI has issued guidelines to prevent insider trading
in the stock market. Insider trading refers to the practice of buying or
selling securities by people who have access to non-public information
about the organization.
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An Overview 2. Takeover Code: SEBI has also issued guidelines for the takeover of
companies. The takeover code provides a framework for the acquisition
of shares and control of companies.
3. Listing Agreement: SEBI has mandated certain rules for companies that
are listed on the stock exchanges. These rules are included in the Listing
Agreement and cover areas such as financial reporting, shareholder
communication, and corporate governance.
4. Mutual Funds: SEBI has also issued guidelines for mutual funds. These
guidelines cover areas such as investment restrictions, disclosure
requirements, and management fees.
5. Primary Market: SEBI regulates the primary market through its
guidelines for initial public offerings (IPOs). These guidelines cover areas
such as the eligibility criteria for companies to go public, the process of
issuing shares to the public, and the disclosures required.
These are just a few examples of the guidelines issued by SEBI. SEBI
continuously updates and revises its guidelines to ensure that the securities
market in India operates in a fair and transparent manner.

2.8 SUMMARY
In this Unit, we have discussed two segments of Indian securities market
namely primary market or new issues market and secondary market or stock
market. We have highlighted recent trends in the primary market and discussed
various types of market players and trading arrangements which exist in the
Indian stock market. Different aspects of the Indian stock market and stock
market information system have been explained so that you are able to clearly
visualise the environment in which investment and portfolio management
decisions are made. The unit also discusses various types of stock markets
and the role of SEBI as a regulatory body.

2.9 KEY WORDS

Initial Public Offering (IPO) : It is the process by which a private
organization offers shares of its stock to
the public for the first time
Multi Commodity Exchange : It is India’s largest commodity derivatives
of India Ltd. (MCX) exchange.
National Stock Exchange : It is the largest stock exchange in India in
of India (NSE) terms of market capitalization and trading
volumes.
Primary Market : Are markets where companies can raise
capital by issuing new securities to the
public for the first time.

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Secondary Market : The secondary market is the segment in Securities Market
which outstanding issues are traded and
thus provide liquidity.

2.10 SELF ASSESSMENT QUESTIONS

1. What are the basic constituents of the securities market?
2. What are the different types of securities markets? What are their role
and functions?
3. What are different categories of players operating in primary and
secondary markets?
4. Write a brief note on the management of stock exchanges in India.
5. Briefly discuss recent trends in the development of the primary market
in India.
6. Describe NSE?

2.11 FURTHER READINGS

BSE (2023). https://www.bseindia.com/
Chandra, P. (2018). Investment Analysis & Portfolio Management (5e). Tata
McGraw Hill.
Fischer, D. E., Jordan, R. J., & Pradhan, A. K. (2018). Security Analysis
Portfolio Management (7th ed.). Pearson Education.
Gupta, L.C. (1992). Stock Exchange Trading in India-Agenda For Reform,
Society For Capital Market Research and Development, New Delhi.
IIT Kharagpur [nptelhrd]. (2012). Mod-01 Lec-02 Markets for Investment
[Video]. YouTube. https://www.youtube.com/watch?v=bp76hNEIjAs
National Stock Exchange (2023). https://www.nseindia.com/
Reilly, F. K., Brown, K. C., Gunasingham, B., Lamba, A., &Elston, F. (2019).
Investment Analysis & Portfolio Management. Cengage AU.
Rustagi, R. (2021). Investment Analysis & Portfolio Management. Sultan
Chand & Sons.
SEBI guidelines (2023) . https://www.sebi.gov.in/sebiweb/home/
HomeAction.do?doListing=yes&sid=1&ssid=5&smid=0
Tripathi, V. (2023). Taxmann’s Fundamentals of Investments. Taxmann
Publications Private Limited.

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