Stock Exchange - Yasshwanth S

Introduction: -

 The stock exchange is an important part of the financial system, where people can buy and sell
stocks and bonds. It contributes to economic growth by o ering a secure platform for trading
activities and facilitates the accumulation of capital. The stock exchange has grown from simple
meetings of traders to advanced online platforms that work worldwide.
 This project will explain what the stock exchange is, focusing on its history and how it works in
India. It will cover basic ideas, how it started, the rules that control it, and how trading happens.
This project demonstrates the stock exchange's role in the economy and how it works.
 This project includes an analysis of how the stock exchange operates, its rules, and new trends
like online trading. Practical examples and stories will show how trading is done and how stocks
are chosen.
 The stock exchange is vital for economic growth. This project will highlight its importance, how it
works, and the opportunities it o ers for learning about the financial world.

Meaning of Stock Exchange: -

 The stock exchange in India serves as a market where financial instruments like stocks, bonds and
commodities are traded
 It is a secure place where trading is done in a systematic way. the securities are bought and sold as
per well-structured rules and regulations.
 In this platform where buyers and sellers come together to trade financial instruments during
specific hours of a business day.
 The companies that are listed on a stock exchange are permitted to trade their securities.
 Stocks which are not listed on a stock exchange can still be traded in an ‘Over the Counter Market’.

History of Stock Exchange in India: -

Security trading in India goes back to the 18th century when the East India Company began trading in
loan securities. Corporate shares started being traded in the 1830s in Bombay (now Mumbai) with the
stock of Bank and Cotton presses. The simple and informal beginnings of stock exchanges in India
take one back to the 1850s when 22 stockbrokers began trading opposite the Town Hall of Bombay
under a banyan tree. The tree still stands in the area which is now known as Horniman Circle.
The venue then shifted to banyan trees at the Meadows Street junction, which is now known as
Mahatma Gandhi Road, a decade later. The shift continued taking place as the number of brokers
increased, finally settling in 1874 at what is known as Dalal Street. This as yet informal group known
as the Native Share and Stockbrokers Association organized themselves as the Bombay Stock
Exchange (BSE) in 1875.

The BSE is the oldest stock exchange in Asia and was the first to be granted permanent recognition
under the Securities Contract Regulation Act, 1956. The BSE was followed by the Ahmedabad Stock
Exchange in 1894 which focused on trading in shares of textile mills. The Calcutta Stock Exchange
began operations in 1908 and began trading shares of plantations and jute mills. The Madras Stock
Exchange followed, being set up in 1920.

Major Stock Exchanges in India: -

1. Bombay Stock Exchange (BSE).

National Stock Exchange (NSE).

NSE was established in 1992 as the first dematerialised electronic exchange in the country. It was
incorporated in 1992 as a tax-paying company and was recognised as a stock exchange in 1993 under
the Securities Contracts (Regulation) Act, 1956. It was set up by a group of leading Indian financial
institutions at the behest of the Government of India.

Instead of trading memberships being confined to a group of brokers, NSE ensured that anyone who
was qualified, experienced, and met the minimum financial requirements was allowed to trade. It was
the first exchange in the country to provide a modern, fully automated screen-based electronic trading
system.

It has an uptime record of 99.99% and processes more than a billion messages every day with a sub-
millisecond response time. It has a total market capitalization of more than $3.4 trillion, making it the
world's 9th largest stock exchange. NSE's flagship index, the NIFTY 50, is used intensively by investors
in India and around the world as a barometer of the Indian capital market. The NIFTY 50 index was
launched in 1996 by NSE.
Bombay Stock Exchange (BSE).

BSE Limited, also known as Bombay Stock Exchange, is the leading stock exchange under the
ownership of the Ministry of Finance, Government of India.

Established in 1875 by cotton merchant Premchand Roychand, a Jain businessman, it is the oldest
stock exchange in Asia, and also the 10th oldest in the world.

It is the 8th largest stock exchange with an overall market capitalization in the world, with more than
₹200 lakh crore.

The BSE launched its sensitivity index, the Sensex, now known as S&P BSE Sensex, in 1986. This is an
index of 30 companies and is a benchmark stock index measuring the overall performance of the
exchange.

BSE established India INX in 2016. India INX is the first international exchange of India.

In 1995, after following NSE's lead, the BSE switched to an electronic trading system known as BSE
Online Trading (BOLT), with a capacity of 8 million orders/day.

In 1957, the BSE became the first stock exchange to be recognized by the Indian Government under
the Securities Contracts Regulation Act.

After clocking a median trade speed of six microseconds, the Bombay Stock Exchange has become
the fastest in the world. It was demutualized and corporatized in 2007.

Stock Markets Regulatory in India: -

Securities and Exchange Board of India (SEBI), constituted in 1992 under the SEBI Act, regulates and
monitors stock markets in India. Along with the overall administrative control of stock markets, SEBI is
also entrusted with the role of conducting inspections and formulating rules for stock markets.

Functions of SEBI: -

Regulatory Functions:

1. Registration of brokers, sub-brokers, and other market players.

2. Registration of collective investment schemes and mutual funds.

3. Regulation of stock brokers, portfolio exchanges, underwriters, and merchant bankers, and
oversight of business in stock exchanges and other securities markets.
 4. Regulation of takeover bids by companies.

5. Requesting information, conducting inspections, inquiries, and audits of stock exchanges and
intermediaries.

Development Functions:

1. Training of intermediaries of the securities market.

2. Conducting research & publishing information useful to all market participants.

3. Undertaking measures to develop the capital markets by adopting a flexible approach.

Protective Functions:

1. Prohibition of fraudulent & unfair trade practices like making misleading statements,
manipulations, price rigging, etc.

2. Controlling insider trading & imposing penalties for such practices.

3. Undertaking steps for investor protection.

4. Promotion of fair practices & code of conduct in securities market.

Stockbrokers: -

It is imperative for you to understand that you can trade in stock markets only through a broker.
Stockbrokers are financial intermediaries, who enable you to trade while charging brokerage fees for
their services. Stockbrokers/ Brokerage firms are registered with SEBI and act as a link between the
investor and stock markets.

Trading in the Stock Market: -

Before the advent of the internet, you were required to physically visit brokers, and instruct them for
transactions. But now stockbrokers provide digital trading platforms, where you can trade through: A
bull market occurs when securities are on the rise, while a bear market occurs when securities fall for
a sustained period of time. It's important to understand the di erences between bull and bear
markets and how they impact your investment decisions.

Actual Trading Process: -

After providing the details of your Demat Account and Trading Account to the broker, you need to
specify the number of stocks to be sold or purchased. The broker checks whether your account has
the requisite funds. Your order is now passed for execution in the stock exchange. For instance, if you
have issued a purchase order, it will be matched with a similar sell order. You have to finalize a price,
following which the seller will confirm it. The exchange then confirms the transfer of ownership of
shares. You then receive an intimation about the settlement, and the shares will be reflected in your
account in two working days. Depending upon the market movement, you either make a profit or loss
from the transaction.

How to Evaluate Stocks?

The evaluation of a stock involves finding answers to some vital questions. Consider your evaluation
successful if you have concrete solutions to the questions below by the end of your analysis.

These include:

 What do I know about the company- why has it captured my attention or occupied my mind
space?

 Who are the competitors, and how are they di erent?

 Who are the promoters? Other details about the top management and their history of conduct

 How has the company performed financially over the past years? How are the debt levels?

 Has the company ever faced corporate government issues or scandals?

 How is the industry segment the company belongs to performing as a whole?

 Do the company’s prospects look promising?

Timming of Stock Exchange in India: -

The regular market trading hours are from 09:15 am to 3:30 pm. There is a pre-opening session before
09:15 am and a post-closing session after 03:30 pm. Apart from this, after-hours trading also takes
place after regular market hours.

Pre-Opening Session:

Section 1 (09:00 AM to 09:08 AM): During these 8 minutes, you can place orders to buy or sell
shares in the stock market, and you can also modify or cancel any orders. The orders placed
during this section get preference in the queue when normal trading begins at 09:15 am.

Section 2 (09:08 AM to 09:12 AM): During these 4 minutes, you cannot place, modify, or
cancel any orders. This section is necessary for price matching, which helps determine the
final prices at which di erent shares will be traded when the market opens.
 Section 3 (09:12 AM to 09:15 AM): This 3-minute window acts as a bu er to ease the transition
into the regular trading session. No orders can be placed, modified, or cancelled during this
time.

Normal Session (09:15 AM to 03:30 PM): Also known as the continuous trading session, you
can freely trade, place, modify, or cancel orders. A bilateral order matching system is followed,
matching each sell order with a buy order at the same stock price.

Post-Closing Session:

Section 1 (03:30 PM to 03:40 PM): In these 10 minutes, closing prices are calculated by taking
the weighted average of the stock prices traded between 03:00 PM and 03:30 PM. Closing
prices for indices like Sensex and Nifty are also calculated during this time.

Section 2 (03:40 PM to 04:00 PM): Orders can be placed but are confirmed only if there are
enough buyers and sellers in the market.

MUHURAT TRADING

The stock market typically remains closed on public and national holidays. However, on Diwali each
year, it is open for 1 hour for a Muhurat trading session; since Diwali is considered to be an auspicious
day. The time and date change each year. This year, the session was scheduled between 6:15 pm and
7:15 pm on 24 Oct, 2022. The pre-opening session was held from 6 pm to 6:15 pm. The benchmark
equity indices on BSE and NSE surged 0.9% higher.

Terminology in Stock Market: -

 Ask: The minimum amount a holder of a security is willing to sell for. A seller will sell the
security only if the bid price matches or exceeds the ask price.
 Initial Public O ering (IPO): The process in which a private company can go public by selling
its stock to the general public.
 Bear Market: A general decline in the stock market over a period of time, encouraging selling.
 Bull Market: A market in which share prices are rising, encouraging buying.
 Market Capitalisation: The value of a company that is traded on the stock market, calculated
by multiplying the total number of shares by the current share price.
 Volume: The total number of shares traded in a specified time frame in the stock market.
  Dividend: Distribution of profits/surplus by a corporation to its shareholders.
 Derivatives: A security whose price is derived from one or more underlying assets (stocks,
bonds, commodities, currencies, interest rates, and market indices).
 Foreign Portfolio Investment (FPI): Securities and other financial assets held by investors of
one country in another country.
 Large-cap Stocks: Companies that have a market capitalization of ₹20,000 crore or more.
 Mid-cap Stocks: Companies with a market capitalization between ₹5,000 crore to ₹20,000
crore.
 Small-cap Stocks: Companies that have a market capitalization of less than ₹5,000 crore.
 Fundamental Analysis (FA): Measures a security's intrinsic value by examining related
economic and financial factors.
 Electronic Communication Network (ECN): A computerized network that facilitates the
trading of financial products outside traditional stock exchanges.
 Bid: The highest price a buyer is willing to pay for a stock, opposite of ask/o er.
 Earnings Per Share (EPS): Indicates the profitability of a company, calculated by dividing the
company's net income by its total shares outstanding.
 Hedge: An investment made with the intention of reducing the risk of adverse price
movements of assets.

Topic on Process: -

1. Top 25 Companies (NSE)