GROWTH AND EVALUATION OF STOCK EXCHANGE The history of stock exchanges can be traced to 12th century France, when the first brokers are believed to have developed, trading in debt and government securities. Unofficial share markets existed across Europe through the 1600s, where brokers would meet outside or in coffee houses to make trades. The Amsterdam Stock Exchange, created in 1602, became the first official stock exchange when it began trading shares of the Dutch East India Company. These were the first company shares ever issued. By the early 1700s there were fully operational stock exchanges in France and England, and America followed in the later part of the century. Share exchanges became an important way for companies to raise capital for investment, while also offering investors the opportunity to share in company profits. The early days of the stock exchange experienced many scandals and share crashes, as there was little to no regulation and almost anyone was allowed to participate in the exchange. Today, stock exchanges operate around the world, and they have become highly regulated institutions. Investors wanting to buy and sell shares must do so through a share broker, who pays to own a seat on the exchange. Companies with shares traded on an exchange are said to be 'listed' and they must 1
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GROWTH AND EVALUATION OF STOCK EXCHANGE
The history of stock exchanges can be traced to 12th century France, when the
first brokers are believed to have developed, trading in debt and government
securities. Unofficial share markets existed across Europe through the 1600s,
where brokers would meet outside or in coffee houses to make trades. The
Amsterdam Stock Exchange, created in 1602, became the first official stock
exchange when it began trading shares of the Dutch East India Company. These
were the first company shares ever issued.
By the early 1700s there were fully operational stock exchanges in France and
England, and America followed in the later part of the century. Share exchanges
became an important way for companies to raise capital for investment, while also
offering investors the opportunity to share in company profits. The early days of the
stock exchange experienced many scandals and share crashes, as there was little
to no regulation and almost anyone was allowed to participate in the exchange.
Today, stock exchanges operate around the world, and they have become highly
regulated institutions. Investors wanting to buy and sell shares must do so through
a share broker, who pays to own a seat on the exchange. Companies with shares
traded on an exchange are said to be 'listed' and they must meet specific criteria,
which varies across exchanges. Most stock exchanges began as floor exchanges,
where traders made deals face-to-face. The largest stock exchange in the world,
the New York Stock Exchange, continues to operate this way, but most of the
world's exchanges have now become fully electronic.
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1.1 Global, National, State Stock Exchanges
List Of Major Stock Exchanges in the world
1. American Stock Exchanges
American Stock Exchange (AMEX)
The American Stock Exchange is the third largest stock exchange in the U.S.
after the NYSE and the NASDAQ, handling approximately 10% of American trades.
The American Stock Exchange lists companies from all different industries and of all
different sizes. However, the exchange is known as having the least strict listing
requirements among the three top American exchanges, which results in many
small companies joining the exchange. Once a major competitor of the NYSE, the
American Stock Exchange is now mostly known for trading in small cap stocks,
options, and exchange traded funds. The exchange is owned by NASD (National
Association of Securities Dealers), but operated as a separate exchange from the
NASDAQ.
New York Stock Exchange (NYSE)
Trading approximately 1.46 billion shares each day, the New York Stock
Exchange (NYSE) is the leading stock exchange in the world. The exchange
trades stocks for some 2,800 companies, ranging from blue chips to new high
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growth companies. Each listed company has to meet strict requirements, as the
NYSE works to maintain its reputation of trading strong, high quality securities.
Operating as a continuous auction floor trading stock exchange, the major
players on the floor of the New York Stock Exchange are specialists and brokers.
Brokers are employed by investment firms and trade either on behalf of their
firm's clients or the firm itself. The broker moves around the floor, bringing buy
and sell orders to the specialists. Each specialist stands in one location on the
floor and deals in one or several specific stocks, depending on their trading
volume. The specialist's job is to accept buy and sell orders from brokers and
manage the actual auction. It is also the specialist's job to ensure that there is a
market for their specified stocks at all times, meaning they will invest their own
firm's capital at times to keep the market active and maintain the shares' liquidity.
Specialists and brokers interact to create an effective system that provides
investors with competitive prices based on supply and demand.
NASDAQ Stock Exchange
The NASDAQ, an acronym for National Association of Securities Dealers
Automated Quotations, is an electronic stock exchange with 3,300 company
listings. It currently has a greater trading volume than any other U.S. exchange,
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making approximately 1.8 billion trades per day. The NYSE is still considered the
biggest exchange because its market capitalisation far exceeds that of the
NASDAQ. The NASDAQ trades shares in a variety of companies, but is well known
for being a high-tech exchange, trading many new, high growth, and volatile stocks.
This is partially due to the fact that the listing fees on the NASDAQ are significantly
lower than those for the NYSE, with the maximum price only $150,000. The
NASDAQ is a publicly owned company, trading its shares on its own exchange
under the ticker symbol NDAQ.
2. European Stock Exchanges
London Stock Exchange (LSE)
The London Stock Exchange is the most important exchange in Europe and one
of the largest in the world. It lists over 3,000 companies and with 350 of the
companies coming from 50 different countries, the LSE is the most international
of all exchanges.
The London Stock Exchange is comprised of two different stock markets: the
Main Market and the Alternative Investment Market (AIM). The Main Market is
solely for established companies with high performance, and the listing
requirements are strict. Approximately 1,800 of the LSE's company listings trade
on the Main Market, and the total market capitalization is over 3,500 billion. The
Alternative Investment Market on the other hand trades small-caps, or new
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enterprises with high growth potential. Over 1,060 companies list on this market,
with a total capitalization of 37 billion.
Moscow Stock Exchange (MICEX)
The Moscow Interbank Currency Exchange Group (MICEX) is an independent
close joint-stock company established and owned by major Russian commercial
banks and the Central Bank of the Russian Federation from 1992. It is the group of
organizations providing trading, settlement, clearing and depository services for
Russian and foreign investors. The MICEX Group is comprised of the MICEX, the
MICEX Stock Exchange, the National Mercantile Exchange, the MICEX Settlement
House, the National Depositary Center, the National Clearing Center, and regional
exchanges.
The MICEX Stock Exchange (SE) lists securities of approximately 170 Russian
issuers such as blue chips Gazprom, LUkoil, or Novatek. About 550 organizations
with over 130 thousand registered investors trade on the MICEX SE. Corporate
bonds have recently become the main source for attracting investors in the MICEX.
The MICEX SE trades corporate bonds of over 210 Russian companies. Since
2003 the MICEX Corporate Bonds Index reflects the dynamics of the bonds market.
3. Middle Eastern Exchanges
Dubai Stock Exchange (DIFX)
The Dubai International Financial Exchange (DIFX) owned by the sole
shareholder Dubai International Financial Centre Authority (DIFC), launched
Dubai securities trading market in September 2005. As the DIFX is situated in the
newly established financial free zone DIFC, all the operations of the Exchange
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together with all other financial activities in the DIFC are regulated by the Dubai
Financial Services Authority (DFSA).
The DIFX is a fast-growing company seeking high goals. Although it started
operating with four members on the board, the Exchange already has 13
member banks. It is expecting to have up to 40 members by the 2006 year-end.
Also the governance of the DIFX is seeking to list 10 to 15 IPOs and to gain the
market capitalization of minimum US$ 50 million by the end of 2010.
4. African Stock Exchanges
Johannesburg Stock Exchange (JSE)
The Johannesburg Stock Exchange lists more than 400 companies and has
market capitalization of over $182 billion, making it the largest exchange in Africa
and among the top ten largest in the world. The exchange trades shares for a
wide variety of industries, with the largest portion of market capitalization coming
from the mining industry. The JSE just recently became a publicly held company
in July or 2005.
The JSE lists shares on two separate markets, the Mainboard and AltX. The
requirements for listing on the Mainboard are strict, while the AltX lists smaller
companies who fail to meet the Mainboard criteria. As a new branch of the JSE,
AltX companies currently make up a very small portion of JSE listings.
The exchange is fully electronic, using the JET System (Johannesburg Equities
Trading). This is an order-based system, whereby trades are automatically
executed when matching buy and sell prices are found.
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5. Asian and Pacific Stock Exchanges
Hong Kong Stock Exchange (HKSE)
lthough the trade of securities began in the middle of the 19th c., Hong Kong
Stock Exchange was established at the end of the century. Today with its total
securities market capitalization of a record sum of HK$ 8,260.3 billion (US$
1,063.9 trillion), the HKSE ranks 8th place by market capitalization in the world.
The HKSE has 4338 stocks listed on the exchange with the market turnover of
HK$4,520.4 billion (US$ 0,582.2 trillion) in 2010. The turnover increased by 14%
from the previous year. Local institutional and retail investors are the main
contributors of market turnover (56%). The exchange also has a leading
derivatives market in the Asia-Pacific region with the daily turnover of 103.332
contracts per day that has increased by even 30% from 2010.
Singapore Exchange (SGX)
With Singapore now a leading financial center in the Asia-Pacific, the Singapore
Exchange has become one of the premier exchanges in its region. The SGX has
approximately 659 companies listed on its exchange, and has a market
capitalization of $398.4 billion. It is a highly international exchange, with 40
percent of its market capitalization coming from foreign companies.
The SGX divides its company listings into the SGX Mainboard and the SGX
SESDAQ. The Mainboard lists companies that meet certain requirements
including market capitalization, pre-tax profits, and operating track record. The
SESDAQ, on the other hand, is for newer companies and there are no
quantitative requirements for listing. Companies listed on the SESDAQ may
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apply to be moved to the Mainboard if they have been listed for at least two years
and meet the minimum quantitative requirements.
Shanghai Stock Exchange (SSE)
The Shanghai Stock Exchange can stake a claim to fame to being both the first
and largest stock exchange on mainland China. The exchange has a total of
eight hundred and seventy-eight listed companies. The main indices used on the
exchange are:
• SSE 50 index
• SSE 180 Index
• SSE Composite Inde
• SHSE- SZSE 300 Index.
The Shanghai Stock Exchange works as a non profit institution administered by
the China Securities Regulatory Commission. The exchange lists two different
kinds of stocks: A and B shares. The difference between the two stocks is the
currency that they are traded in. The A shares is traded in the local Renminbi
yuan currency, whereas the B shares are traded in U.S. dollars. Traditionally A
shares were only traded within the country, but now both A and B shares may be
traded world wide. The majority of the stocks listed on the exchange are A
shares. There are eight hundred twenty-four A shares and fifty-four B shares
listed on the market.
Tokyo Stock Exchange (TSE)
The Tokyo Stock exchange is one of the more important world exchanges,
trading an average of 1,540 million shares per day. It is one of five exchanges in
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Japan, but with 2,276 companies listed, the Tokyo Stock Exchange is by far the
largest. Most of the TSE's listings are domestic, although it also trades shares for
30 international companies.
The Tokyo Stock Exchange uses an electronic, continuous auction system of
trading. This means that brokers place orders online and when a buy and sell
price match, the trade is automatically executed. Deals are made directly
between buyer and seller, rather than through a market maker. The TSE uses
price controls so that the price of a stock cannot rise or fall below a certain point
throughout the day. These controls are used to prevent dramatic swings in prices
that may lead to market uncertainty or stock crashes. If a major swing in price
occurs, the exchange can stop trading on that stock for a specified period of time.
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List Of Major Stock Exchanges in the india
1.Bombay Stock Exchange (BSE)
The Bombay Stock Exchange is known as the oldest exchange in Asia. It traces
its history to the 1850s, when stockbrokers would gather under banyan trees in
front of Mumbai's Town Hall. The location of these meetings changed many
times, as the number of brokers constantly increased. The group eventually
moved to Dalal Street in 1874 and in 1875 became an official organization known
as 'The Native Share & Stock Brokers Association'. In 1956, the BSE became the
first stock exchange to be recognized by the Indian Government under the
Securities Contracts Regulation Act.
The Bombay Stock Exchange developed the BSE Sensex in 1986, giving the
BSE a means to measure overall performance of the exchange. In 2000 the BSE
used this index to open its derivatives market, trading Sensex futures contracts.
The development of Sensex options along with equity derivatives followed in
2001 and 2002, expanding the BSE's trading platform.
Historically an open-cry floor trading exchange, the Bombay Stock Exchange
switched to an electronic trading system in 1995. It took the exchange only fifty
days to make this transition.
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As the first stock exchange in India, the Bombay Stock Exchange is considered
to have played a very important role in the development of the country's capital
markets. The Bombay Stock Exchange is the largest of 22 exchanges in India,
with over 6,000 listed companies. It is also the fifth largest exchange in the world,
with market capitalization of $466 billion.
The Bombay Stock Exchange uses the BSE Sensex, an index of 30 large,
developed BSE stocks. This index gives a measure of the overall performance of
the Bombay Stock Exchange, and is closely followed around the world. Based on
the Sensex, the BSE equity market has grown significantly since 1990.
In addition to individual stocks, the BSE also has a market in derivatives, which
was the first to be established in India. Listed derivatives on the exchange
include stock futures and options, index futures and options, and weekly options.
2. National Stock Exchange(NSE)
Capital market reforms in India and the launch of the Securities and Exchange
Board of India (SEBI) accelerated the incorporation of the second Indian stock
exchange called the National Stock Exchange (NSE) in 1992. After a few years
of operations, the NSE has become the largest stock exchange in India.
Three segments of the NSE trading platform were established one after another.
The Wholesale Debt Market (WDM) commenced operations in June 1994 and
the Capital Market (CM) segment was opened at the end of 1994. Finally, the
Futures and Options segment began operating in 2000. Today the NSE takes the
14th position in the top 40 futures exchanges in the world.
In 1996, the National Stock Exchange of India launched S&P CNX Nifty and CNX
Junior Indices that make up 100 most liquid stocks in India. CNX Nifty is a
diversified index of 50 stocks from 25 different economy sectors. The Indices are
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owned and managed by India Index Services and Products Ltd (IISL) that has a
consulting and licensing agreement with Standard & Poor's.
In the fast growing Indian financial market, there are 23 stock exchanges trading
securities. The National Stock Exchange of India (NSE) situated in Mumbai - is
the largest and most advanced exchange with 1016 companies listed and 726
trading members.
The NSE is owned by the group of leading financial institutions such as Indian
Bank or Life Insurance Corporation of India. However, in the totally de-
mutualised Exchange, the ownership as well as the management does not have
a right to trade on the Exchange. Only qualified traders can be involved in the
securities trading.
The NSE is one of the few exchanges in the world trading all types of securities
on a single platform, which is divided into three segments: Wholesale Debt
Market (WDM), Capital Market (CM), and Futures & Options (F&O) Market. Each
segment has experienced a significant growth throughout a few years of their
launch. While the WDM segment has accumulated the annual growth of over
36% since its opening in 1994, the CM segment has increased by even 61%
during the same period.
List of Regional Stock Exchanges in India
Ahmedabad
Bangalore
Bhubaneshwar
Calcutta
Cochin
Coimbatore
Delhi
Guwahati
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Hyderabad
Jaipur
Ludhiana
Madhya Pradesh
Madras
Magadh
Mangalore
Meerut
OTC Exchange Of India
Pune
Saurashtra Kutch
UttarPradesh
Vadodara
1.2 Analysis of Stock Market
1. Political and Legal Enviornment Analysis
The strict legal rules and regulations are made to avoids scams and other illegal
activities in the stock market.
STOCK MARKET AND SCAM
Harshad Mehta scam (4000 crores) : 1992
Ketan Parekh scam (2000 crores) : 2001
How to become a Stock Broker?
SEBI (STOCK BROKERS AND SUB-BROKERS)
RULES AND REGULATION,1992)
Registration of stock brokers
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Registration of sub-brokers
Code of conduct for stock brokers
Code of conduct for Sub-brokers
Regulation of transaction between clients and brokers
Risk disclosure document
Unique client code
Model tripartite agreement
Dealing by foreign brokers
Bitter & Curative experience in legal frame work
Badla in share market (Badla to Derivatives)
Harshad Mehta Scam and Others.
Settlement Period & Settlement Cycle
Know your customers (KYC Norms)
2. Economical Enviornment Analysis
Structure
• 191 companies listed under NSE and BSE
• Divided into four regions
North – 40%
South – 24%
East – 5%
West -- 31%
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Others60%
Kotak Securi-ties Ltd.
12%
India Info-line Ltd.
9%
IndiaBulls Securities
Ltd.6%
ICICI Securi-ties Ltd
8%
Geojit Financial Services Ltd.
3%HDFC Securities Ltd.
2%
%age market share (2011)
3. Sociocultural Enviornment Analysis
Social Responsibility
Provide the facility of free demonstrations
Limited number of clients under the relationship manager
Promotional activities for the awareness of the customer
Co-operation with other department and other branches
Should not give fake news to their customers
Complete information about products and services offered
Educate about the rules and regulations of SEBI to its customers
Health of Brokers
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Neck inclined to one side causes pain
Headache
Loss in Vision
Stress
Diabetes due to stress
4. Technological Enviornment Analysis
Development in information, communication and network technologies
Created a paradigm shift in securities market operations
Bringing about innovations in product and services
Provide new business opportunities
Insure timeliness and satisfaction in customer service
Technology of NSE
• IT set is largest by any company in India
• Use satellite communication technology
• Energize participation from around 200 cities spread all over the country
• With up gradation of trading hardware, NSE today can handle up to 15
million trades per day
Mobile Trading
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Broking houses are now betting on mobile trading to boost revenues
Provides a Java application for your cell phone
BSE launched its Mobitrack service
1.3 Current Trends, Major Players, Products/Services
1. Current Trends in Stock Market
Retrospection
Before we look at the recent trends in the Indian capital market, a retrospective
glance at the market will be relevant. Fortunately, India has been spared of any
major corporate debacles of the kind and magnitude the world witnessed in the
recent years. But, certain developments like
widespread industrial sickness - not attributable entirely to external factors
-capacity overhang constricting growth, unsustainably high IPO pricing by
companies who chose not to mix business with scruples, vanishing acts of
vampire companies, robbed the market of its buoyancy. Two scams of serious
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ramifications skimmed the investors’ confidence Bitten badly - not once, but twice
– investors became noticeably shy and even perceptibly paranoid. As a
consequence, secondary market slipped into slumber; primary market passed
into passivity. The damaging developments, however, had one redeeming
feature; one favourable fall out: Least resistance to the reform at the market. The
reform was needed to address the inadequacies and enhance the efficacy of the
market.
Reformation
The recent years witnessed significant reforms in the capital market. It is well
known that trading platform has become automatic, electronic, anonymous,
order-driven, nation-wide and screen-based. Shouting and gesticulations have
yielded place to punching and clicking. Speed and efficiency are the hallmark of
the current system. Across the system, multitude of market participants trade
with one another anonymously and simultaneously. On any trading day, more
than 10,000 terminals come alive, in 400 towns and cities; information is flashed
on real time basis. Equal opportunity is provided for all concerned to access the
information. Transparency is ensured in respect of dissemination of information,
price and quantum of the order; but, member’s identity is sought to be hidden to
prevent any bias in response. Today, a trading member need not wend his way
to the Jeejeebhoy Tower in Dalal Street, Mumbai or to any stock exchange
building elsewhere; he can comfortably sit at his computer terminal and execute
the order. Laptops, palmtops and hand mobiles, in fact, challenge the relevance
of the brick and mortar.
An investor, today, need not wait, with his fingers crossed, for a fortnight or more,
for getting crossed cheques or crisp notes for the sale proceeds of his securities.
The trading cycle has been shortened to T+2. This shortening of the cycle has
been done in a phased manner but in a rapid succession – from T+5 to T+3 to
T+2, all in a matter of two years.
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Another material development, which proved to be of immense relief to the
investors, was dematerialisation of the scrips. Now 99% of the scrips in the
market are dematerialised. Almost 100% of the trades are in D-mat form.
Inconvenience of physical custody and transfer, tedium of intimating change of
address and problems of bad delivery, late delivery, non delivery and the risks of
forgery and frauds have virtually disappeared – or shall I say - have been
dematerialised! The benefit is relished but not the cost. We should bear in mind
the maxim – no cost, no benefit. There is no free lunch in this world. Still, there is
no denying the fact that there could be a possibility for reduction in the cost; such
possibilities are explored.
At the stock exchanges, robust risk management system has been put in place,
Value-at-risk margining and exposure limits, on-line monitoring of margins and
positions, Clearing Corporation and Settlement Guarantee Fund mechanism for
trade settlement – all these have made Indian capital market now arguably world
class, in terms of transparency, efficiency and safety.
Antiquated and abused badla system or ALBM stands abolished. In its place, for
hedging and trading purposes, a number of derivatives – in the form of futures
and options, both index-based and stocks-specific have been introduced. The
sophistication of these products have not scared away our brokers and investors.
Instead, with their native intelligence, they are as comfortable in the F&O Quarter
as a fish in the water. The vibrancy of F&O segment has surpassed the cash
segment in terms of daily turnover within a short period.
Corporate bonds and Government Securities used to be traded via telephone
exchange. A beginning has been made for their trading on the stock exchange
now. As is natural, the weaning takes time!
Our accounting standards are already principle-based; they have been aligned
with international standards almost in all aspects, barring one or two. Our
disclosure requirements, both initial and continuing, are on par with global
practices.
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The corporate governance and corporate performance do reflect and get
reflected in the conditions of capital market. As a market regulator and protector,
SEBI is concerned with corporate governance practice on an ongoing basis.
According to the Economic Intelligence Unit Survey of 2003 regarding corporate
governance across the countries, “Top of the country class, as might be
expected, was Singapore followed by Hongkong and, somewhat surprisingly,
India.” It is significant to note that Singapore and Hongkong claiming the top
positions, was not a matter of surprise, but India coming as third, surprised the
world! It shall be our collective endeavour to eliminate the“surprise element”. As
part of its endeavour towards continual improvement, SEBI has got corporate
governance code and practice reviewed, by Narayana Murthy Committee. The
Committee’s recommendations for refinement were evolved through consultative
process, transparent deliberations and democratic approach. These were posted
on SEBI’s website for 21 long days. Thereafter, they were got incorporated in
Clause 49 of Listing Agreement. No sooner was this done, the corporate
quietitude was disturbed and a spate of representations followed. The three
major aspects, which disturbed the corporates, related to definition of
independent directors, their nine-year term and whistle blowing policy.
Resurgence
During the last one year, Indian capital market has been regaining its buoyancy.
Globally recognised economic fundamentals of the country and widely perceived
robustness of the Indian Capital Market system have gradually restored the
confidence of the investors, global and local, in the Indian market, to a
substantial degree. During the last one year, the sensex has risen by over 75%.
The Indian capital market has out performed many in the world. More
importantly, the primary market too has perked up. The depth and liquidity of the
market and its absorbing capacity has been indisputably proven. The fear of
failure of PSU disinvestments turned out to be unfounded. Some mistakes have
occurred. To err is human and occasional systemic fault / fatigue is not
uncommon. Mistakes may happen and do happen; but they should not lead to
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paralysis, panic and cynicism; nor should they be allowed to be exploited.
Mistakes if any should be rectified and rectified quickly and their recurrence
prevented. If by ignorance, one mistakes, by mistake one should learn.
Vigilance
However sophisticated, efficacious, fail-proof a system or technology may be,
human intervention is inevitable, for, the system is manned, managed or used by
human beings. Human nature being what it is, and as the human ingenuity
knows no bounds, constant regulatory surveillance and prompt action is
necessary. That is what SEBI is trying to do. Armed with statutory authority and
consumed by missionary zeal, SEBI keeps vigil, clamps down appropriate
surveillance actions. Any market misconduct or manipulation are sought to be
dealt with severely in the interest of the market and the investors. Investigations
into allegations of manipulations etc. are getting speeded up and necessary
regulatory action is taken, without bias or prejudice, with no fear or favour. At
times, the action may turn out to be deterrent in nature, as circumstances
warrant.
Furtherance
A few more things are on the anvil. Margin trading and securities lending have
been introduced with adequate checks and balances. The Central Listing
Authority has become operational to provide an independent entry-point scrutiny
of the corporates to be listed. Straight Through Processing will get broadened
market wide in another 3 month’s time. The Central Registry of market
intermediaries and professionals with unique identification number is under
construction. And, when RTGS is being ushered in, T+1 settlement cannot be far