STOCK MARKET
STOCK MARKET IN INDIA
The market where outstanding securities are traded is
referred as the secondary market or, more popularly, the stock market.
Undisputedly the Bombay Stock Exchange, the principal stock exchange in India,
seems to set the tone and tenor for the rest of the stock market in country.
The stock market in India consists of twenty-three regional stock exchanges and
two national exchanges, namely National Stock Exchange and Over-the-Counter
Exchange of India. The stock exchange is recognized by central government and
function within purview if the securities contracts (Regulation) Act., 1956,
bye-laws, and regulations duly approved by central government.
FUNCTIONS
The stock market is a pivotal institution in the financial
system. A well-ordered stock market performs several economic functions.
·
Measure of safety and fair dealing
·
Supply of long-term funds
·
Negotiability and transferability of securities
·
Flow of capital in profitable channels
·
Inducement to improve performance
LISTING
Listing is the means for admitting the securities of a
firm to the trading privileges of a stock exchange. While there is no statutory
obligation for a public limited company to get its securities listed on a stock
exchange, listing usually is unavoidable because:
(a)
Financial institutions, as a matter of policy. Stipulate
the requirement of listing when agreeing to underwrite or subscribe to a new
issue of capital;
(b)
The Securities and Exchange Board of India insists on
listing before granting consent to a new issue by a public limited company;
(c)
A company declaring its intent to apply for listing in
its prospectus is bound to seek listing; and
(d)
The central government can compel a public limited
company, when deemed necessary in public interest, to list its securities on a
recognized stock exchange.
Group A and
Group B shares
The listed shares are divided into two categories:
Group A shares (also referred to as cleared securities or
specified shares) and
Group B shares (also referred to as non-cleared
securities or non-specified shares).
For Group A
shares, the facility for carrying forward a transaction from one account period
to another is available; for Group B shares, it is not. Group A shares
represent large, well-established companies that have a broad investor base and
are very actively traded. Since transactions in these shares can be carried
forward, these shares attract a lot of speculative trading. This seems to be
the reason why these shares, considered other things equal, tend to command
higher price-earning multiples. This is clear from the fact that whenever a
shares is moved from Group B to Group A, its market price rises; likewise, when
a share is shifted from Group A to Group B, its market price declines.
Members of Stock Market
a)
Commission brokers, e) Floor brokers,
b)
Taravaniwalla, f) Dealers in non-cleared securities,
c)
Odd-lot dealers, g) Badliwallas,
d)
Arbitrageurs, and h) Dealers in government securities.
Buying and
Selling shares
Procedure for buying: - The steps are described below:
Locating a broker
Placement of order
Execution of order
Delivery of certificates
Lodging for transfer
Return of certificates
Procedure for selling: - This is simpler and less time consuming
Placement of order
Execution of order
Receipt of payment
Important
points relating to transactions
When you sell or buy shares, debentures (securities),
notice the following points: -
1.
The transfer deed that has to be lodged along with the
share certificate is valid for a period of one year or until the next book
closure date, whichever is later.
2.
As per the amended guidelines for listing, a company is
supposed to:
·
Close its transfer books only once in a year at the time
of annual general meeting and to have record dates for other purposes like
bonus issues, right issues, etc.;
·
Have uniform dates of book closing and record dates
either on 1st or 16th of any month and to give to the
exchange, notice in advance of at least 42 days or of as many as the exchange
may from time to time reasonably prescribe;
·
Accept registration transfers that are lodged with the
company up to the date of closure of the transfer books (or when the transfer
books are not closed, up to the record date) and the company will differ, until
the transfer books have re-opened, registration of any transfers which may be
received after the closure of the transfer books; and
·
Issue letters of allotment or letters of rights within
six weeks of the record date or date of reopening of the transfer books after
their closure for the purpose of making a bonus or right issues.
3.
On the stock market, the shares become ex-dividend (or
ex-bonus or ex-rights as the case may be) a few days before the book closure
date (record date). The stock exchange authorities normally fix the cut-off
date for ‘ex-dividend’ transactions. This is indicated by the abbreviation ‘xd’
affixed after the price of the price of the shares. Similarly, ‘xb’ stands for
‘ex-bonus’ ‘cb’ for cum-bonus’, ‘xr’ for ‘ex-right, and ‘cr’ for ‘cum-rights’
‘cd’ for ‘cum-dividend’.
4.
If you buy the shares ‘xd’ (or ‘xb’ or ‘xr’), you are not
entitled to dividend (or bonus shares or rights) for which the books are about
to be closed. In such a case, the share certificate along with the transfer
deed will be delivered to you after the books re-open.
5.
If you buy the share ‘cd’ (or ‘cb’ or ‘cr’ as the case
may be), you are entitled to the dividend (or bonus shares or rights) for which
the books are about to be closed. In such a case, you would receive the share
certificate along with the transfer deed in time so that you can lodge them for
transfer before the books closed. In case you do not receive them in time or do
not lodge them for transfer before the book closure, the company will send the
dividend warrant (or bonus shares or right as the case may be) to the previous
holder and not to you. However, through your broker you entitled to recover the
dividend (bonus/right shares) from the previous holder. Remember, the buyer is
legally entitled to the benefits (Dividend, Bonus shares, Right issues), which
accrue to the shareholder with effect from the date of purchase as shown in the
contract note.
6.
You can obtain information about book closure dates from
your broker or from the stock exchange. Some of the magazines and newspapers
also provide the informations.
Know the Bad
Deliveries
There are detailed guidelines regarding good or bad
delivery of documents. These guidelines will help you to identify the bad
deliveries.
1.
The transferor and the witness on the transfer deed are
each other’s spouse.
2.
The transfer deed is singed by or on behalf of a company
against which liquidation proceedings are pending.
3.
The name of company has been disfigured in the body of
the share certificate to affect it materially.
4.
An individual against whom insolvency proceedings are
pending signs the transfer deed.
5.
The name of the delivering broker and his all India code
number and the date are not mentioned at the back of the transfer deed.
6.
The share certificate/s and the transfer deed/s are not
attached together in a marketable lot.
7.
In case of partly
paid shares, when a call has been made but not paid and delivery is affected
during the period of ten days before the last date fixed for payment.
8.
In case of partly paid shares/bonds/debentures where
delivery is affected after the last date fixed for payment of call.
9.
There is a significant correction, erasure, overwriting,
crossing out, or alteration in the quantity of the shares, in the certificate
number or the distinctive numbers of shares, in the last registered holder’s
name, or in any material particulars on the share certificate.
National Stock
Exchange
Inaugurated in 1994, the National Stock Exchange seeks
to:
(a)
Establish a nationwide trading facility for equities,
debts, and hybrids;
(b)
Facilitate equal access to investors across the country;
(c)
Meet international securities market standards;
(d)
Shorten settlement cycles; and
(e)
Impart fairness, efficiency, and transparency to the
securities trading.
The distinctive features of NSE, as it functions
currently, are as follows:
·
It employs a screen-based trading system.
·
It has two segments: the Capital Market segment and the
wholesale debt market segment. The capital market segment covers equities, convertible
debentures, and retail trade in non-convertible debentures. The wholesale debt
market segment is a market for high-value transactions in government
securities, psu bonds, commercial
papers, and other debt instruments.
·
When the trade takes place, a trade confirmation slip is
printed at the trading member’s workstation. It gives details like quantity,
price, code number of counter party, and so on.
·
The identity of
a trading member is not revealed to others when he places an order or when his pending
orders are displayed. Hence, large orders can be placed in the NSE system
without the fear of influencing the market sentiment.
·
The trading members in the capital market segment are
connected to the central computer in Bombay through a satellite link-up using
VSATs (Vary Small Aperture
Terminals). The trading members in
the wholesale debt market segment are linked, through dedicated high-speed
lines, to the central computer at Bombay.
·
The NSE has opted for an order-driven system. When a
trading member places an order, an order confirmation slip is generated. The
computer stores the order as and when received in terms of price and time. It
automatically searches for a match and no sooner the same is found, the deal is
struck. Since the system the system is order-driven, the buy and sell rates are
independent. As a result the difference them is some times as small as just 25
paise, particularly for liquid securities.
·
On the eighth day of trading, each member gets a
statement showing his net position, the
amount of cash he has to transfer to the clearing bank, and the securities he
has to deliver to the clearinghouse.
·
Members are required to deliver securities and cash by
the thirteenth and fourteenth day, respectively. The fifteenth day is payout
day.
Over-The-Counter
Exchange of India
The Over-The-Counter Exchange of India (OTCEI) was set up
in 1992 to promote trading in an entirely new set of, companies ‘sponsored’ by
the members of the OTCEI. The distinctive features are described as follows.
·
It is a national, ring less, and computerized exchange.
Trading on the OTCEI takes place through a network of computers of OTC dealers
located at different places within the same city and even across cities. These
computers allow dealers to quote, query and transact through a central OTC
computer, using the telecommunication links.
·
Companies with an issued capital of Rs. 30 lacs to Rs.
2500 lacs may list on the OTCEI. Companies can go public on the OTCEI by two
methods, first through public second through sponsors. The sponsor would have
to appoint one member or dealer as an additional market maker.
The OTC Exchange appoints members and
dealers. These members and dealers may act as brokers serve like market makers.
The members, in addition, carry out the vital function of sponsorship (not the
dealers). This dealership involves;
(a)
Appraising a
company & the project,
(b)
Valuing the shares of company,
(c)
Obtaining governmental clearances for the issue of
securities,
(d)
Certifying to OTCEI the investment worth while ness of
the company and its projects;
(e)
Managing the public issue
(f)
Compulsorily serving as a market maker in the issued
scrip for at least three years from the date of commencement of trading.
·
In the OTCEI’s trading system, all quotes and
transactions are recorded in the central OTC computer, which can be accessed by
any dealer’s computer, through telephone lines with modems. The PTI OTC Scan at
each dealer’s counter continuously displays the best buy and sell quotes
offered by market makers, as also all the market-related information.
·
The two trading documents on the OTCEI are: (i) the
Counter Receipt (CR) issued to an investor who is buying the scrip. The CR is
tradable and contains all the information that appears on a share certificate.
(ii) The Sales Confirmation Slip (SCS) issued to an investor selling scrips.
Payment will be made to an investor against the SCS.
·
Each OTC counter
gets a scrip-wise net position (stock-in and stock-out) on the last day of the
week, i.e., Friday (T), at the end of trading hours. On Monday (T+3), the
counters are required to deliver the securities as per the stock-in-reports. On
Friday (T+7), stock out is done for the counters that have to receive the
securities. Cash pay-ins are effected on Tuesday (T+4), and cash pay-outs are
done on Friday (T+7).
Capital market has become sophisticated; to deal
effectively knowledge and prudence are needed. Equity research, debt research,
knowledge of market sentiments and forces, knowledge of fundamentals of
individual scrips and the market knowledge of ‘technical’ aspect of market
price movements, knowledge of the risk types and of managing the same, etc. are
needed. Capital market research is the route to obtain the knowledge and skill
needed.