Evolution & Development of Stock Exchanges in INDIA

Financial Institutions & Markets Presentation Report

Evolution & Development of Stock Exchanges in INDIA

PROJECT SUBMITTED BY:

GROUP-II

Abhisek MitraAyodhya Nath PaikarayBhabani Shankar ChayaniBighnaraj SahuBijay Kumar Mangaraj

Xavier Institute Of Management, Bhubaneswar

1

1

Financial Institutions & Markets Presentation Report

Bijay Kumar Mudali

Concept of Stock Exchange:

The Securities Contracts (Regulation) Act, 1956, has defined Stock Exchange as an “ association, organisation or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating & controlling business of buying , selling & dealing in Securities”.

Features:

A stock exchange is a mutual organization which provides "trading" facilities for stock brokers and traders, to trade stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts, derivatives, pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of speed and cost of transactions. Trade on an exchange is by members only. The initial offering of stocks and bonds to investors is done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets is driven by various factors which, as in all free markets, affect the price of stocks.

In general, different stock exchanges have different listing criteria. Once listed the Stock exchanges provide the necessary infrastructure for secondary trading of securities issued by the various companies to the public at large thereby ensuring liquidity in their stock and enhancing investor confidence.

In return the companies are required to provide

– Periodic listing fees to the exchange and

– The company is also required to provide the exchange on a regular basis, information about the following :

• Quarterly and annual financial statements

• Date of the upcoming board meetings and decisions taken in previous board meetings

• Information about dates of their AGM, decisions regarding dividends, rights issue, bonus issue, mergers, details of changes in the board of directors etc.

Xavier Institute Of Management, Bhubaneswar

2

2

Financial Institutions & Markets Presentation Report

This is to ensure that all price sensitive information is communicated to the exchange first, which in turn makes it available to the public so that everybody gets access to this information almost at the same time. This helps in minimizing the possibility of asymmetry in information among investors, to bring about fairness in the markets.

Role of Stock exchange:

Raising capital for businesses- The Stock Exchange provides companies with the facility to raise capital for expansion through selling shares to the investing public.

Mobilizing savings for investment- When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to promote business activity with benefits for several economic sectors such as agriculture, commerce and industry, resulting in stronger economic growth and higher productivity levels of firms.

Facilitate company growth- Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its market share, or acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion.

Redistribution of wealth- Both casual and professional stock investors, through dividends and stock price increases that may result in capital gains, will share in the wealth of profitable businesses.

Corporate governance- By having a wide and varied scope of owners, companies generally tend to improve on their management standards and efficiency in order to satisfy the demands of these shareholders and the more stringent rules for public corporations imposed by public stock exchanges and the government. Consequently, it is alleged that public companies (companies that are owned by shareholders who are members of the general public and trade shares on public exchanges) tend to have better management records than privately-held companies (those companies where shares are not publicly traded, often owned by the company founders and/or their families and heirs, or otherwise by a small group of investors).

Creates investment opportunities for small investors- As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small stock investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares of the same companies as large investors.

Xavier Institute Of Management, Bhubaneswar

3

3

Financial Institutions & Markets Presentation Report

Government capital-raising for development projects - Governments at various levels may decide to borrow money in order to finance infrastructure projects such as sewage and water treatment works or housing estates by selling bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them, thus loaning money to the government. Also the Government can go for equity disinvestment in the PSU companies to raise money (through primary markets) & subsequently the Stock Exchange provides liquidity options to the buyer, who buys the share of such companies in the primary market.

Barometer of the economy- At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.

Evolution of Indian Stock Exchange:

The origin of the stock market relates back to the year 1494, when the Amsterdam Stock Exchange was set up. In India it dates back to the 18th century, an era when the East India Company was a dominant Institution in India.

"The Bombay Stock Exchange" (BSE) was founded in the year 1875. "The Ahmedabad Shares and Stock Association" was formed in the year 1894. The Calcutta Stock Exchange Association was formed by about 150 brokers on 15th

June 1908. In the year 1920, one stock exchange was established in Northern India and one in

Madras called "The Madras Stock Exchange". "The Madras Stock Exchange Association Pvt. Ltd." was established in the year 1941. On 29th April 1959, it was reorganized as a company limited by guarantee under the name and style of "Madras Stock Exchange" (MSE).

The Lahore Stock Exchange was formed in the year 1934. However in the year 1936 after the Punjab Stock Exchange Ltd. came into existence, the Lahore Stock Exchange merged with it.

In Calcutta, a second Stock Exchange by name "The Bengal Share & Stock Exchange Ltd." was established in the year 1937 and likewise once again in the year 1938, Bombay also witnessed a rival Stock Exchange formed in the name of "Indian Stock Exchange Ltd."

Xavier Institute Of Management, Bhubaneswar

4

4

Financial Institutions & Markets Presentation Report

The U.P. Stock Exchange was formed in Kanpur and the Nagpur Stock Exchange Ltd. in Nagpur in the year 1940.

The Hyderabad Stock Exchange Ltd. was incorporated in the year 1944. Two stock exchanges which came into being in Delhi by the name "The Delhi Stock &

Share Brokers Association Ltd." and "The Delhi Stocks & Shares Exchange Association Ltd." were amalgamated into "The Delhi Stock Exchange Association Ltd." in the year 1947.

Subsequently the Bangalore Stock Exchange was registered in the year 1957 and recognized in the year 1963.

The third stock exchange in the state of Gujarat the "Vadodara Stock Exchange Ltd." was incorporated in 1990.

The Over the Counter Exchange of India (OTCEI) broadly based on the lines of NASDAQ (National Association of Securities Dealers Automated Quotation) of the USA was promoted and approved on August 1989.

The National Stock Exchange of India Ltd. was incorporated in November 1992.

Today there are 23 Stock Exchanges in India, including the 3 Stock Exchanges in Mumbai - Bombay Stock Exchange (BSE), National Stock Exchange (NSE) and Over the Counter Exchange of India (OTCEI).

Xavier Institute Of Management, Bhubaneswar

5

5

Financial Institutions & Markets Presentation Report

History of Capital Markets in India:

The history of the capital market in India dates back to the eighteenth century when East India Company securities were traded in the country. Until the end of the nineteenth century, securities trading was unorganized and the main trading centres were Bombay and Calcutta. Of the two, Bombay was the chief trading centre wherein bank shares were the major trading stock. During the American Civil War (1860-61), Bombay was an important source of supply for cotton.  Hence, trading activities flourished during the period, resulting in a boom in share prices. This boom, the first in the history of the Indian capital market, lasted for a half a decade. The bubble burst on July 1, 1865, when there was tremendous slump in share prices.

Trading was at that time limited to a dozen brokers; their trading place was under a banyan tree in front of the Town Hall in Bombay. These stockbrokers organized an informal association in 1875-Native Shares and Stock Brokers Association, Bombay. The stock exchanges in Calcutta and Ahmedabad, also industrial and trading centres, came up later. The Bombay Stock Exchange was recognized in May 1927 under the Bombay Securities Contracts Control Act, 1925.

The capital market was not well organized and developed during the British rule because the British government was not interested in the economic growth of the country. As a result, many foreign companies depended on the London capital market for funds rather than on the Indian capital market.

In the post-independence period also, the size of the capital market remained small. During the first and second five-year plans, the government's emphasis was on the development of the agricultural sector and public sector undertakings. The public sector undertakings were healthier than the private undertakings in terms of paid-up capital but their shares were not listed on the stock exchanges. Moreover, the Controller of Capital Issues (CCI) closely supervised and controlled the timing, composition, interest rates, pricing, allotment, and floatation costs of new issues. These strict regulations demotivated many companies from going public for almost four and a half decades.

In the 1950s, Century Textiles, Tata Steel, Bombay Dyeing, National Rayon, and Kohinoor Mills were the favorite scrips of speculators. As speculation became rampant, the stock market came to be known as 'Satta Bazaar'. Despite speculation, non-payment or defaults were not very frequent. The government enacted the Securities Contracts (Regulation) Act in 1956, which was also characterized by the establishment of a network for the development of financial institutions and state financial corporations.

The 1960s was characterized by wars and droughts in the country which led to bearish trends. These trends were aggravated by the ban in 1969 on forward trading and 'badla', technically called 'contracts for clearing.' 'Badla' provided a mechanism for carrying forward positions as

Xavier Institute Of Management, Bhubaneswar

6

6

Financial Institutions & Markets Presentation Report

well as borrowing funds. Financial institutions such as LIC and GIC helped to revive the sentiment by emerging as the most important group of investors. The first mutual fund of India, the Unit Trust of India (UTI) came into existence in 1964.

In the 1970s, badla trading was resumed under the disguised form of 'hand-delivery contracts-A group.' This revived the market. However, the capital market received another severe setback on July 6, 1974, when the government enforced the Dividend Restriction Ordinance, restricting the payment of dividend by companies to 12 per cent of the face value or one-third of the profits of the companies (that can be distributed as computed under section 369 of the Companies Act), whichever was lower. This led to a slump in market capitalization at the BSE by about 20 per cent overnight and the stock market did not open for nearly a fortnight. Later came a buoyancy in the stock markets when the multinational companies (MNCs) were forced to dilute their majority stocks in their Indian ventures in favour of the Indian public under FERA, 1973. Several MNCs opted out of India. One hundred and twenty-three MNCs offered shares, which were lower than their intrinsic worth. It was the spate of FERA issues that gave a real fillip to the Indian stock markets. For the first time, many investors got an opportunity to invest in the stocks of such MNCs as Colgate, and Hindustan Liver Limited. Then, in 1977, a little-known entrepreneur, Dhirubhai Ambani, tapped the capital market with Reliance Textiles, which is the base on which today’s entire Reliance empire is based on.

The 1980s witnessed an explosive growth of the securities market in India, with millions of investors suddenly discovering lucrative opportunities. Many investors jumped into the stock markets for the first time. The government's liberalization process initiated during the mid-1980s, spurred this growth. Participation by small investors, speculation, defaults, ban on badla, and resumption of badla continued. Convertible debentures emerged as a popular instrument of resource mobilization in the primary market. The introduction of public sector bonds and the successful mega issues of Reliance Petrochemicals and Larsen and Toubro gave a new lease of life to the primary market. This, in turn, enlarged volumes in the secondary market. The decade of the 1980s was characterized by an increase in the number of stock exchanges, listed companies, paid up-capital, and market capitalization.

The 1990s will go down as the most important decade in the history of the capital market of India. Liberalisation and globalization were the new terms coined and marketed during this decade. The Capital Issues (Control) Act, 1947 was cancelled in May 1992. The decade was characterized by a new industrial policy, emergence of SEBI as a regulator of capital market, advent of foreign institutional investors, euro-issues, free pricing, new trading practices, new stock exchanges, entry of new players such as private sector mutual funds and private sector banks, and primary market boom and bust.

Major capital market scams took place in the 1990s. These shook the capital market and drove away small investors from the market. The securities scam of March 1992 involving Harshad Mehta, a broker as well as bankers was on of the biggest scams in the history of the capital market. In the subsequent years owing to free pricing, many unscrupulous promoters, who

Xavier Institute Of Management, Bhubaneswar

7

7

Financial Institutions & Markets Presentation Report

raised money from the capital market, proved to be fly-by-night operators. This led to an erosion in the investors' confidence. The M S Shoes case, one such scam which took place in March 1995, put a break on new issue activity.

The 1991-92 securities scam revealed the inadequacies of and inefficiencies in the financial system. It was the scam, which prompted a reform of the equity market. The Indian stock market witnessed a sea change in terms of technology and market prices. Technology brought radical changes in the trading mechanism. The Bombay Stock Exchange was subject to nationwide competition by two new stock exchanges-the National Stock Exchange, set up in 1994, and Over the Counter Exchange of India, set up in 1992. The National Securities Clearing Corporation (NSCCL) and National Securities Depository Limited (NSDL) were set up in April 1995 and November 1996 respectively. These institutions improved clearing and settlement and brought about dematerialized trading. The Securities Contracts (Regulation) Act, 1956 was amended in 1995-96 for introduction of options trading. Moreover, rolling settlement was introduced in January 1998 for the dematerialized segment of all companies. With automation and geographical spread, stock market participation increased.

In the late 1990s, the Information Technology (IT) scrips were dominant on the Indian bourses. These scrips included Infosys, Wipro, and Satyam. They were a part of the favourite scrips of the period, also known as 'New Economy' scrips, alongwith telecommunications and media scrips.

The Indian capital market entered the twenty-first century with the Ketan Parekh scam. As a result of this scam, badla was discontinued from July 2001 and rolling settlement was introduced in all scrips. Trading of futures commenced from June 2000, and Internet trading was permitted in February 2000. On July 2, 2001, the Unit Trust of India announced suspension of the sale and repurchase of its flagship US-64 scheme due to heavy redemption leading to panic on the bourses. Then, the government's decision to privatize oil PSUs in 2003 fuelled stock prices. One big divestment of international telephony major VSNL took place in early February 2002. Foreign institutional investors have emerged as major players on the Indian bourses since then. NSE has an upper hand over its rival BSE in terms of volumes not only in the equity markets but also in the derivatives market.

It has been a long journey for the Indian capital market. Now the capital market is organized, fairly integrated, mature, more global and modernized. The Indian equity market is one of the best in the world in terms of technology. Advances in computer and communications technology, coming together on Internet are shattering geographic boundaries and enlarging the investor class. Internet trading has become a global phenomenon. The Indian stock markets are now getting integrated with global markets.

Xavier Institute Of Management, Bhubaneswar

8

8

Financial Institutions & Markets Presentation Report

Bombay Stock Exchange (BSE)

Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage, now spanning three centuries in its 134 years of existence. What is now popularly known as BSE was established as "The Native Share & Stock Brokers' Association" in 1875.

BSE is the first stock exchange in the country which obtained permanent recognition (in 1956) from the Government of India under the Securities Contracts (Regulation) Act 1956. BSE's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized. It migrated from the open outcry system to an online screen-based order driven trading system in 1995. Earlier an Association Of Persons (AOP), BSE is now a corporatised and demutualised entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualisation) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI). With demutualisation, BSE has two of world's best exchanges, Deutsche Börse and Singapore Exchange, as its strategic partners.

Over the past 134 years, BSE has facilitated the growth of the Indian corporate sector by providing it with an efficient access to resources. There is perhaps no major corporate in India which has not sourced BSE's services in raising resources from the capital market.

Today, BSE is the world's number 1 exchange in terms of the number of listed companies and the world's 5th in transaction numbers. The market capitalization as on December 31, 2007 stood at USD 1.79 trillion. An investor can choose from more than 4,700 listed companies, which for easy reference, are classified into A, B, S, T and Z groups.

The BSE Index, SENSEX, is India's first stock market index that enjoys an iconic stature , and is tracked worldwide. It is an index of 30 stocks representing 12 major sectors. The SENSEX is constructed on a 'free-float' methodology, and is sensitive to market sentiments and market realities. Apart from the SENSEX, BSE offers 21 indices, including 12 sectoral indices. BSE has entered into an index cooperation agreement with Deutsche Börse. This agreement has made SENSEX and other BSE indices available to investors in Europe and America. Moreover, Barclays Global Investors (BGI), the global leader in ETFs through its iShares® brand, has created the 'iShares® BSE SENSEX India Tracker' which tracks the SENSEX. The ETF enables investors in Hong Kong to take an exposure to the Indian equity market.

The first Exchange Traded Fund (ETF) on SENSEX, called "SPIcE" is listed on BSE. It brings to the investors a trading tool that can be easily used for the purposes of investment, trading, hedging and arbitrage. SPIcE allows small investors to take a long-term view of the market.

BSE provides an efficient and transparent market for trading in equity, debt instruments and derivatives. It has a nation-wide reach with a presence in more than 359 cities and towns of India. BSE has always been at par with the international standards. The systems and processes are designed to safeguard market integrity and enhance transparency in operations.

Xavier Institute Of Management, Bhubaneswar

9

9

Financial Institutions & Markets Presentation Report

BSE is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certification. It is also the first exchange in the country and second in the world to receive Information Security Management System Standard BS 7799-2-2002 certification for its BSE On-line-Trading-System(BOLT).

BSE continues to innovate. In recent times, it has become the first national level stock exchange to launch its website in Gujarati and Hindi to reach out to a larger number of investors. It has successfully launched a reporting platform for corporate bonds in India christened the ICDM or Indian Corporate Debt Market and a unique ticker-cum-screen aptly named 'BSE Broadcast' which enables information dissemination to the common man on the street.

In 2006, BSE launched the Directors Database and ICERS (Indian Corporate Electronic Reporting System) to facilitate information flow and increase transparency in the Indian capital market. While the Directors Database provides a single-point access to information on the boards of directors of listed companies, the ICERS facilitates the corporates in sharing withBSE their corporate announcements.

National Stock Exchange (NSE)

The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges. It recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the country.

On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000.

The following years witnessed rapid development of Indian capital market with introduction of internet trading, Exchange traded funds (ETF), stock derivatives and the first volatility index - IndiaVIX in April 2008, by NSE.

August 2008 saw introduction of Currency derivatives in India with the launch of Currency Futures in USD INR by NSE. Interest Rate Futures was introduced for the first time in India by NSE on 31st August 2009, exactly after one year of the launch of Currency Futures.

Xavier Institute Of Management, Bhubaneswar

10

10

Financial Institutions & Markets Presentation Report

Development trends in Indian Stock Exchanges…

Emergence of SEBI

The Securities and Exchange Board of India was established on April 12, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992 to act as a regulator of the capital market in India.

The Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India as

“…..to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto”

In particular, SEBI has powers for:- Regulating the business in stock exchanges and any other securities markets- Registering and regulating the working of stock brokers, sub–brokers etc.- Promoting and regulating self-regulatory organizations- Prohibiting fraudulent and unfair trade practices- Calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges, intermediaries, self –regulatory organizations, mutual funds and other persons associated with the securities market.

Changes in the trading process in Stock Exchanges in India

Earlier, stock exchanges in India used to function using an ‘open outcry system’. The exchanges used to have a physical location (which many regional stock exchanges still have now) and the brokers buying and selling on behalf of their clients used to assemble at a place called the floor or trading post of the exchange. During trading hours, once the investor placed an order with the broker (to buy or sell), the broker used to contact the ‘dealer’ (or the jobber) to execute the order, who is required to maintain an inventory in stocks assigned to them. The dealer in turn used to quote a ‘bid’ (to buy) or ‘ask’ (to sell) price using open outcry, and transaction was executed after deducting the broker’s commission. This system was called a ‘quote driven ‘system. This process was time consuming, inefficient and lacked transparency.

To counter this, NSE introduced a nationwide fully automated screen based trading system (SBTS) where the member brokers can enter the price and the number of shares he wants to buy (or sell) on behalf of their clients, and the transaction gets executed as soon as the system finds a matching sale (or buy) order. Buyers and sellers can find a mutually agreeable price without the intervention of the dealers. There may be specialists /dealers in this system also, who are assigned one or more

Xavier Institute Of Management, Bhubaneswar

11

11

Financial Institutions & Markets Presentation Report

securities and they pitch in their buy and sell orders in case there is large imbalance in the normal flow of buy and sell orders and in the process ‘make the market’.

The SBTS matches orders as per price/time priority i.e it matches the best prices first (that is highest bid with the lowest ask) and between two orders of same prices it matches based on time (first come first serve basis). This ensures faster transactions

and one can see full market on screen i.e all the orders against a stock at a particular point of time and hence also ensures transparency. This system is an order driven market. The biggest advantage of this system is transparency as it clearly shows the market orders and what price people are willing to buy at or sell for.

However, the drawback of this system is that, there is no guarantee that the order will be executed because the system may not find a matching order, but in a quote driven market as the buyer or seller is directly dealing with one party (i.e the dealer), the chances of execution of an order are more.

Extensive use of IT in order to fully automate the transactions.

The 1991-92 securities scam revealed the inadequacies of and inefficiencies in the financial system. It was the scam, which prompted a reform of the equity market. The Indian stock market witnessed a sea change in terms of technology and market prices. Technology brought radical changes in the trading mechanism.

Establishment of Investor Grievance Cell.

Investor grievance cell was established by BSE in 1986 to address the grievances of investors against listed companies & members of the exchange. Similar institution was established by NSE in March 1995.

Establishment of NSCCL by NSE in 1995, the first Clearing Corporation of India to facilitate settlement of share market transactions efficiently.

The National Securities Clearing Corporation (NSCCL) was set up in April 1995 by National Stock Exchange which improved the clearing and settlement of share market transactions in India. It was the first institution of its kind, which brought about lot of transparency in the system & reduced the risk of defaults to a great extent.

Setting up of National Securities Depository Limited, first depository in India, co-promoted by NSE in Nov 96’.

The National Securities Depository Limited (NSDL) was set up in November 1996, co-promoted by NSE. This institution brought about dematerialized trading, which again bought about lot of transparency in the system & the risk of fraudulent activities involving fake share certificates was eradicated.

Xavier Institute Of Management, Bhubaneswar

12

12

Financial Institutions & Markets Presentation Report

Moving to rolling settlement in all share market transactions & further reducing the settlement period to T+2 days.

Rolling settlement was first introduced in January 1998 for only the dematerialized segment of all companies. The Indian capital market entered the twenty-first century with the Ketan Parekh scam. As a result of this scam, rolling settlement was introduced in all scrips from July 2001.

Commencement of Internet Trading in Feb 2000.

Internet trading was permitted in India from February 2000.

Commencement of Derivatives Trading from the year 2000.

Trading of futures in India commenced from June 2000 in NSE. First, it started with Index futures. Subsequently, trading in Index Options started in June 2001 & trading in Options on Individual Securities started in July 2001. Trading in Futures on Individual Securities commenced from November 2001.

Demutualisation of stock exchanges in INDIA.

Demutualisation refers to the legal structure of an exchange whereby the ownership, the management and the trading rights at the exchange are segregated from one another. However, in a mutual exchange, the three functions of ownership, management and trading are concentrated into a single Group. Here, the broker members of the exchange are both the owners and the traders on the exchange and they further manage the exchange as well. This at times can lead to conflicts of interest in decision making.

Launch of Exchange Traded Funds (ETFs), Volatility Index Trading (India VIX), Currency derivatives trading, interest rate futures & stock lending & borrowing scheme.

New initiatives in the stock exchanges in India includes:

- The launching of various exchange traded funds of close-ended mutual funds (to provide liquidity options to the investors of such funds),

- Launching of Volatility Index Trading,

- Launching of interest rate futures &

- Launching of stock lending & borrowing scheme.

Conclusion:

Xavier Institute Of Management, Bhubaneswar

13

13

Financial Institutions & Markets Presentation Report

The Stock Exchange comes close enough to a perfectly competitive market allowing the forces of demand and supply a reasonable degree of freedom to operate as compared to other markets specially the commodity markets. This segment of the factor market can be considered as a perfect or a nearly perfect market. Apart from providing a mechanism for transacting business in stock and shares it generates genuine potential for a new entrepreneur to take up initiative in the private sector enterprises and allows the expansion of investing community by offering gainful development of their otherwise sluggish or shy capital. The Stock Exchange must assume the responsibility of protecting the rights of investors specially the small investors in the Joint Stock Companies.

It has been a long journey for the Indian capital market. Now the capital market is organized, fairly integrated, mature, more global and modernized. The Indian equity market is one of the best in the world in terms of technology. Advances in computer and communications technology, coming together on Internet are shattering geographic boundaries and enlarging the investor class. Internet trading has become a global phenomenon. The Indian stock markets are now getting integrated with global markets.

As we can see that the stock exchange is now seen increasingly for what it really is, namely an essential financial infrastructure for any economy. It is this view of the exchange as infrastructure that motivated the Indian government to encourage the establishment of the National Stock Exchange of India at Mumbai, which in a few short years completely revolutionized the Indian capital market. The transparency of the price discovery process which results, especially in technology driven stock exchanges encourages participation in economic activity and enhances the efficient utilization of resources. In addition, the stock market is increasingly perceived as an electronic marketplace for buyers and sellers of securities to transact their business, under the full view of observers.

References:

Bhole L.M., Mahakud J, (5th Edition ), “Financial Institutions and Markets” , TMH, New Delhi

Demiguc Kunt, A and R Levine, (1999), Bank-based and Market-based Financial Systems: Cross Country Comparison, World Bank Policy Research Working Paper No. 2143.

Allen, Franklin and Douglas Gale, (2000), Comparing Financial Systems, Cambridge, MA; MITT Press.

Reserve Bank Of India . Report on Currency and finance, 1999-2000 and 2000-01

Xavier Institute Of Management, Bhubaneswar

14

14

Financial Institutions & Markets Presentation Report

Robinson, R I and Wrightsman, D, (1981), Financial Markets, Mc-Graw Hill, London.

www.bseindia.com

www.nseindia.com

www.sebi.org

www.religaresecurities.com

www.kotaksecurities.com

www.karvy.com

www.financewise.com

www.optionxpress.com

Xavier Institute Of Management, Bhubaneswar

15

15

Financial Institutions & Markets Presentation Report

Xavier Institute Of Management, Bhubaneswar

16

16