BBA 502

INDIAN FINANCIAL
SYSTEM
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BBA 502 : INDIAN FINANCIAL SYSTEM

Section I
 Financial system in India: RBI and financial system, money market, characteristics,
instruments, role of DFID, introduction to capital market, its role, significance.
 History of stock exchanges, regulations of stock exchanges, licensed dealer, online trading
concept, qualification for membership, functions of stock exchanges, regulations on trading,
measures to promote healthy stock markets.

Section II
 Structure of Indian Financial markets; Major players in the capital market – NSE,
OTCEL, Regional Exchanges; Role of Broker, merchant banker, underwriter, depository
 Types of instruments in the Indian Market - Equity, Preference Shares, Debentures,
Bonds, Warrants, Options, Convertible securities, Fixed deposits, Derivatives, Debt
Securitization, Commercial Paper, Euro Issue etc.

Section III
 Regulations of the capital market in India; Securities and contracts Regulation Act; SEBI
 Evolution of Merchant Banking, scope, functions and its role in Indian context. SEBl
Guidelines for Merchant Bankers.
 SEBI Guidelines on Issue Management, Pre-Issue & Post Issue work; Designing & pricing
of Instruments preparing for public issues
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Section I
 Financial system in India: RBI and financial system, money
market, characteristics, instruments, role of DFID,
introduction to capital market, its role, significance.
 History of stock exchanges, regulations of stock exchanges,
licensed dealer, online trading concept, qualification for
membership, functions of stock exchanges, regulations on
trading, measures to promote healthy stock markets.

• FINANCIAL SYSTEM IN INDIA

A financial system (within the scope of finance) is a system that allows the exchange of funds
between lenders, investors, and borrowers. Financial systems operate at national, global, and firm-
specific levels. They consist of complex, closely related services, markets, and institutions used to
provide an efficient and regular linkage between investors and depositors.

Money, credit, and finance are used as media of exchange in financial systems. They serve as a
medium of known value for which goods and services can be exchanged as an alternative to
bartering. A modern financial system may include banks (operated by the government or private
sector), financial markets, financial instruments, and financial services. Financial systems allow
funds to be allocated, invested, or moved between economic sectors. They enable individuals and
companies to share the associated risks
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Indian Financial System

Financial System refers to the financial needs of different sectors of the economy and the ways and
means to meet such needs efficiently and economically. Funds are required for meeting various
monetary needs.

The financial needs are met from different sources and agencies.

Indian financial system are given in the diagram below.

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The formal financial system consists of four components:

1. Financial institutions,
2. Financial markets,
3. Financial instruments and
4. Financial services.
The financial system acts as a connecting link between savers of money and users of money and
thereby promotes faster economic and industrial growth.

Thus financial system may be defined as “a set of markets and institutions to facilitate the
exchange of assets and risks.”

Efficient functioning of the financial system enables proper flow of funds from investors to
productive activities which in turn facilitates investment.

Classification of Financial Market in India

Type of financial market are given in the diagram below.

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.The financial markets are classified into two groups:

Capital Market Money Market

1. Corprate Market 1. Unorganized Market

 Primary Market  Money Lenders

 Secondary Market  Indigenous Bankers

2. Government Securities Markets  Chit Funds

3. Long Term Loans Markets 2. Organized Money Market

 Term Loan Markets  Treasury Bills

 Mortgages Markets  Commercial Paper (CP)

 Financial Guarantees Markets  Certificate Of Deposit (CD) etc

 Call Money Market

 Commercial Bill Market

Capital Market

A capital market is an organized market. It provides long term finance for business. According to
Shri, K.S. “Capital Market refers to the facilities and institutional arrangements for borrowing and
lending long-term funds.”

Capital Market is divided into three groups:

1. Industrial / Corporate Securities Market

It is a market for industrial securities. Corporate securities are equity and preference shares,
debentures and bonds of companies. Industrial security's market is very Sensitive and Active
Financial Market.

It can be divided into two groups: Primary and Secondary Market

 Primary Market: It is a market for new issue of securities, which are issued to the public for
first time. It is also called as New Issue Market.

 Secondary Market: In the secondary market, there is a sale of secondary securities. It is also
called as Stock Market. It facilitates buying and selling of securities.
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2. Government Securities Market

In this market, government securities are bought and sold. It is also called as Gilt-Edged Securities
Market. The securities are issued in the form of bonds and credit notes. The buyers of such
securities are Banks, Insurance Companies, Provident funds, RBI and Individuals. These securities
may be of short-term or long term.

3. Long-Term Loans Market

Banks and Financial institutions provide long-term loans to firms, for modernization, expansion and
diversification of business.

Long-Term Loan Market can be divided into:

 Term Loans Market: Banks and Financial Institutions provide term loans to companies for a
period of one year. The financial institutions help in recognizing investment opportunities to
motivate emerging businessmen. They also give encouragement to modernization.

 Mortgages Market: It provides loans against securities of immovable assets like land and
buildings.

 Financial Guarantees Market: Financial Institutions (FIS) and banks provide financial
guarantees on behalf of their clients to third parties.

Money Market

Money Market is the market for short term funds i.e. for a period up to one year.

The money market is divided into two: Unorganized and Organized Money Market.

1. Unorganized Market

Unorganized market consists of: Money lenders, Indigenous Bankers, Chit Funds, etc.

 Money Lenders: Money Lenders lend money to individuals at a high rate of interest.

 Indigenous Bankers: They operate like money lenders. They also accept deposits from
public.

 Chit Funds: These collect funds from members and provide loans to members and others.

2. Organized Money Market

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Organized Markets work as per the rules and regulations of the RBI. RBI keeps a strict control over
the Organized Financial Market in India.

Organized Market consists of: Treasury Bills, Commercial Paper (CP), Certificate Of Deposit(CD), Call
Money Market, Commercial Bill Market.

 Treasury Bills: To raise short term funds treasury bills are issued by Government. It is
purchased by Commercial Banks. At present, Government issues 91 days and 364 days
treasury bills.

 Commercial Paper (CP): Commercial paper is issued by companies who are listed on Stock
Exchange. CP is issued at discount and repaid at face value. The maturity period ranges from
7 days to one year. CP's are issued in multiple of 5 lakh. The company issuing CP must have
tangible net worth of at least 4 crore.

 Certificate Of Deposit (CD): CD's are used by Commercial Banks and Financial Institutions to
raise finance from the market. The maturity period for CD's is between 7 days to 1 year.
CD's is issued at a discount and repaid at face value. CD's is issued for a minimum of 25
lakhs.

 Call Money Market: A loan which is taken or given for a very short period, that is for one
day is called Call Money Market. It involves lending and borrowing of money on a daily
basis. No security is required for these very short-term loans.

 Commercial Bill Market (CBM): This market deals with Bills of exchange. The drawer of the
bill can get the bills discounted with Commercial Banks. The Commercial Banks can get the
bills rediscounted with Financial Institutions.

RBI : An Overview

The Reserve Bank of India (åा]Jी ]Ņ ) is India's central banking institution, which controls
the monetary policy of the Indian rupee. It commenced its operations on 1 April 1935 during the
British Rule in accordance with the provisions of the Reserve Bank of India Act, 1934. The original
share capital was divided into shares of 100 each fully paid, which were initially owned entirely by
private shareholders. Following India's independence on 15 August 1947, the RBI was nationalised
on 1 January 1949.

The general superintendence and direction of the RBI is entrusted with the 21-member Central
Board of Directors: the Governor, 4 Deputy Governors, 2 Finance Ministry representatives, 10
government-nominated directors to represent important elements from India's economy, and 4
directors to represent local boards headquartered at Mumbai, Kolkata, Chennai and New Delhi.
Each of these local boards consists of 5 members who represent regional interests, and the
interests of co-operative and indigenous banks.
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The bank is also active in promoting financial inclusion policy and is a leading member of the
Alliance for Financial Inclusion (AFI).

STRUCTURE OF RBI

RBI runs a monetary museum in Mumbai

The Central Board of Directors is the main committee of the Central Bank. The Government of India
appoints the directors for a 4-year term. The Board consists of a Governor, and not more than 4
Deputy Governors, 4 [30] Directors to represent the regional boards, 2 from the Ministry of Finance
and 10 other directors from various fields. RBI wants to create a post of Chief Operating Officer
(COO) and re-allocate work between the five of them(4 Deputy Governor and COO)

Major functions of the RBI are as follows:

1. Issue of Bank Notes:

The Reserve Bank of India has the sole right to issue currency notes except one rupee notes which
are issued by the Ministry of Finance. Currency notes issued by the Reserve Bank are declared
unlimited legal tender throughout the country.
This concentration of notes issue function with the Reserve Bank has a number of advantages: (i) it
brings uniformity in notes issue; (ii) it makes possible effective state supervision; (iii) it is easier to
control and regulate credit in accordance with the requirements in the economy; and (iv) it keeps
faith of the public in the paper currency.
2. Banker to Government:

As banker to the government the Reserve Bank manages the banking needs of the government. It
has to-maintain and operate the government’s deposit accounts. It collects receipts of funds and
makes payments on behalf of the government. It represents the Government of India as the
member of the IMF and the World Bank.

3. Custodian of Cash Reserves of Commercial Banks:

The commercial banks hold deposits in the Reserve Bank and the latter has the custody of the cash
reserves of the commercial banks.

4. Custodian of Country’s Foreign Currency Reserves:

The Reserve Bank has the custody of the country’s reserves of international currency, and this
enables the Reserve Bank to deal with crisis connected with adverse balance of payments position.

5. Lender of Last Resort:

The commercial banks approach the Reserve Bank in times of emergency to tide over financial
difficulties, and the Reserve bank comes to their rescue though it might charge a higher rate of
interest.
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6. Central Clearance and Accounts Settlement:

Since commercial banks have their surplus cash reserves deposited in the Reserve Bank, it is easier
to deal with each other and settle the claim of each on the other through book keeping entries in
the books of the Reserve Bank. The clearing of accounts has now become an essential function of
the Reserve Bank.

7. Controller of Credit:

Since credit money forms the most important part of supply of money, and since the supply of
money has important implications for economic stability, the importance of control of credit
becomes obvious. Credit is controlled by the Reserve Bank in accordance with the economic
priorities of the government.

Policy Rates, Reserve Ratios, Lending and Deposit Rates as of 05 April 2017

Bank Rate 7.00%

Repo Rate 6.25%

Reverse Repo Rate 6.00%

Cash Reserve Ratio (CRR) 4%

Statutory Liquidity Ratio (SLR) 20%

MSF 6.5%

Base Rate 9.1%–9.6%

Savings Deposit Rate 4%

Term Deposit Rate 7.25%–8.00%

MONEY MARKET (Meaning and Features):

The money market is a market for short-term instruments that are close substitutes for money. The
short term instruments are highly liquid, easily marketable, with little change of loss. It provides for
the quick and dependable transfer of short term debt instruments maturing in one year or less,
which are used to finance the needs of consumers, business agriculture and the government. The
money market is not one market but is “a collective name given to the various form and
institutions that deal with the various grades of near money.”
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In other words, “it is a network of market that are grouped together because they deal in financial
instruments that have a similar function in the economy and are to some degree substitutes from
the point of view of holders.”

Thus the money market consists of call and notice market, commercial bills market; commercial
paper market, treasury bills market, inter-bank market and certificates of deposit market. All these
markets are closely interrelated so as to make the money market. It is a wholesale market where
large numbers of financial assets or instruments are traded.

The money market is divided into direct, negotiated, or customers’ money market and the open or
impersonal money market. In the former, banks and financial firms supply funds to local customers
and also to larger centres such as London for direct lending. In the open money market, idle funds
drawn from all- over the country are transferred through intermediaries to the New York City
market or the London market.

These intermediaries comprise the Federal Reserve Banks in the USA or the Bank of England in
England, commercial banks, insurance companies, business corporations, brokerage houses,
finance companies, state and local government securities dealers. The money market is a dynamic
market in which new money market instruments are evolved and traded and more participants are
permitted to deal in the money market.
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Institutions of the Money Market:

The various financial institutions which deal in short term loans in the money market are its
members. They comprise the following types of institutions:

1. Central Bank:

The central bank of the country is the pivot around which the entire money market revolves. It acts
as the guardian of the money market and increases or decreases the supply of money and credit in
the interest of stability of the economy. It does not itself enter into direct transactions. But controls
the money market through variations in the bank rate and open market operations.

2. Commercial Banks:

Commercial banks also deal in short-term loans which they lend to business and trade. They
discount bills of exchange and treasury bills, and lend against promissory notes and through
advances and overdrafts.

3. Non-bank Financial Intermediaries:

Besides the commercial banks, there are non-bank financial intermediaries which lend short-term
funds to borrowers in the money market. Such financial intermediaries are savings banks,
investment houses, insurance companies, provident funds, and other financial corporations.

4. Discount Houses and Bill Brokers:

In developed money markets, private companies operate discount houses. The primary function of
discount houses is to discount bills on behalf of other. They, in turn, form the commercial banks
and acceptance houses. Along-with discount houses, there are bill brokers in the money market
who act as intermediaries between borrowers and lenders by discounting bills of exchange at a
nominal commission. In underdeveloped money markets, only bill brokers operate.

5. Acceptance Houses:

The institution of acceptance houses developed from the me change bankers who transferred their
headquarters to the London Money Market in the 19th and the early 20 the century. They act as
agents between exporters and importers and between lender and borrower traders. They accept
bills drawn on merchants whose financial standing is not known in order to make the bills
negotiable in the London Money Market. By accepting a trade bill they guarantee the payment of
bill at maturity. However, their importance has declined because the commercial banks have
undertaken the acceptance business.

All these institutions which comprise the money market do not work in isolation but are
interdependent and interrelated with each other.

Instruments of the Money Market:

The money market operates through a number of instruments.

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1. Promissory Note:

The promissory note is the earliest types of bill. It is a written promise on the part of a businessman
today to another a certain sum of money at an agreed future data. Usually, a promissory note falls
due for payment after 90 days with three days of grace. A promissory note is drawn by the debtor
and has to be accepted by the bank in which the debtor has his account, to be valid. The creditor
can get it discounted from his bank till the date of recovery. Promissory notes are rarely used in
business these days, except in the USA.

2. Bill of Exchange or Commercial Bills:

Another instrument of the money, market is the bill of exchange which is similar to the promissory
note, except in that it is drawn by the creditor and is accepted by the bank of the debater. The
creditor can discount the bill of exchange either with a broker or a bank. There is also the foreign
bill of exchange which becomes due for payment from the date of acceptance. The rest of the
procedure is the same as for the internal bill of exchange. Promissory notes and bills of exchange
are known as trade bills.

3. Treasury Bill:

But the major instrument of the money markets is the Treasury bill which is issued for varying
periods of less than one year. They are issued by the Secretary to the Treasury in England and are
payable at the Bank of England. There are also the short-term government securities in the USA
which are traded by commercial banks and dealers in securities. In India, the treasury bills are
issued by the Government of India at a discount generally between 91 days and 364 days. There
are three types of treasury bills in India—91 days, 182 days and 364 days.

4. Call and Notice Money:

There is the call money market in which funds are borrowed and lent for one day. In the notice
market, they are borrowed and lent upto 14 days without any collateral security. But deposit
receipt is issued to the lender by the borrower who repays the borrowed amount with interest on
call. In India, commercial banks and cooperative banks borrow and lend funds in this market but
mutual funds and all-India financial institutions participate only as lenders of funds.

5. Inter-bank Term Market:

This market is exclusively for commercial and cooperative banks in India, which borrow and lend
funds for a period of over 14 days and upto 90 days without any collateral security at market-
determined rates.

6. Certificates of Deposits (CD):

Certificates of deposits are issued by commercial banks at a discount on face value. The discount
rate is determined by the market. In India the minimum size of the issue is Rs. 25 lakhs with the
minimum subscription of Rs. 5 lakhs. The maturity period is between 3 months and 12 months.
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7. Commercial Paper (CP):

Commercial papers are issued by highly rate companies to raise short-term working capital
requirements directly from the market instead of borrowing from the banks. CP is a promise by the
borrowing company to repay the load at a specified date, normally for a period of 3 months to 6
months. This instrument is very popular in the USA, UK, Japan, Australia and a number of other
countries. It has been introduced in India in January 1990.

Working of the Money Market:

The money market consisting of commercial banks, discount houses, bill brokers, acceptance
houses, non-bank financial houses and the central bank operates through the bills, securities,
treasury bills, government securities and call loans of various types. As the money market consists
of varied types of institutions dealing in different types of instruments, it operates through a
number of sub-markets.

First, the money market operates through the call loan market. It has been defined as “a market for
marginal funds, for temporarily unemployed or unemployable funds.” In this market the
commercial banks use their un-sued funds to lend for very short periods to bill brokers and dealers
in stock exchange. In developed countries, even big corporations lend their dividends before
distribution to earn interest for a very short period.

The central bank also lends to commercial bank is for very short periods. Such loans are mostly for
a week even for a day or a night and can be recalled at a very short notice. That is why a short
period loan is known as call loan or call money market. Bill brokers and stock brokers who borrow
such funds use them to discount or purchase bills or stocks.

Such funds are borrowed at the “call rate” which is generally one per cent below the bank rate. But
this rate varies with the volume of funds lent by the bank. If the brokers are asked to pay off loans
immediately, then they are forced to get funds from large corporations and even from the central
bank at high interest rate.

Second, the money market also operates through the bill market. The bill market is the short-
period loan market. In this market, loans are made available to businessmen and the government
by the commercial banks, discount houses and brokers. The instruments of credit are the
promissory notes. Internal bills of exchange and treasury bills.

The commercial banks discount bills о exchange, lend against promissory notes or through
advances or overdrafts to the business community. Similarly, the discount houses and bills brokers
lend to businessmen by discounting their bills of exchange before they mature within 90 days. On
the other hand, government borrows through the treasury bills from the commercial banks and
non-bank financial institutions. Third, the money market operator through the collateral loan
market for a short period.

The commercial banks lend to brokers and discount houses against collateral bonds, stock,
securities, etc. In case of need, commercial banks themselves borrower from the large banks and
the central bank on the basis of collateral securities.
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Finally, the other important sub-market through which the money market operates is the
acceptance market. The merchant bankers accept bills drawn on domestic and foreign traders
whose financial standing is not known. When they accept a domestic or foreign trade bill, they
guarantee its payment at maturity. In recent years, the commercial banks have also stared the
acceptance business.

Functions of a Money Market:

A money market performs a number of functions in an economy.

1. Provides Funds:

It provides short-term funds to the public and private institutions needing such financing for their
working capital requirements. It is done by discounting trade bills through commercial banks,
discount houses, brokers and acceptance houses. Thus the money market helps the development
of commerce, industry and trade within and outside the country.

2. Use of Surplus Funds:

It provides an opportunity to banks and other institutions to use their surplus funds profitably for a
short period. These institutions include not only commercial banks and other financial institutions
but also large non-financial business corporations, states and local governments.

3. No Need to Borrow from Banks:

The existence of a developed money market removes the necessity of borrowing by the
commercial banks from the central bank. If the former find their reserves short of cash
requirements they can call in some of their loans from the money market. The commercial banks
prefer to recall their loans rather than borrow from the central banks at a higher rate of interests.

4. Helps Government:

The money market helps the government in borrowing short-term funds at low interest rates on
the basis of treasury bills. On the other hand, if the government were to issue paper money or
borrow from the central bank. It would lead to inflationary pressures in the economy.

5. Helps in Monetary Policy:

A well developed money market helps in the successful implementation of the monetary policies of
the central bank. It is through the money market that the central banks are in a position to control
the banking .system and thereby influence commerce and industry.

6. Helps in Financial Mobility:

By facilitating the transfer for funds from one sector to another, the money market helps in
financial mobility. Mobility in the flow of funds is essential for the development of commerce and
industry in an economy.
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7. Promotes Liquidity and Safety:

One of the important functions of the money market is that it promotes liquidity and safety of
financial assets. It thus encourages savings and investments.

8. Equilibrium between Demand and Supply of Funds:

The money market brings equilibrium between the demand and supply of loanable funds. This it
does by allocating saving into investment channels. In this way, it also helps in rational allocation of
resources.

9. Economy in Use of Cash:

As the money market deals in near-money assets and not money proper, it helps in economising
the use of cash. It thus provides a convenient and safe way of transferring funds from one place to
another, thereby immensely helping commerce and industry.

Role of DFID

The Department for International Development (DfID) is a United Kingdom government

department responsible for administering overseas aid. The goal of the department is "to promote
sustainable development and eliminate world poverty".

DfID's main programme areas of work are Education, Health, Social Services, Water Supply and
Sanitation, Government and Civil Society, Economic Sector (including Infrastructure, Production
Sectors and Developing Planning), Environment Protection, Research, and Humanitarian Assistance.

Mission

The main piece of legislation governing DfID's work is the International Development Act, which
came into force on 17 June 2002, replacing the Overseas Development and Co-operation Act
(1980). The Act makes poverty reduction the focus of DfID's work, and effectively outlaws tied aid.

As well as responding to disasters and emergencies, DfID works to support the United Nations'
eight Millennium Development Goals, namely to:

 halve the number of people living in extreme poverty and hunger

 ensure that all children receive primary education
 promote sexual equality and give women a stronger voice
 reduce child death rates
 improve the health of mothers
 combat HIV & AIDS, malaria and other diseases
 make sure the environment is protected
 build a global partnership for those working in development.
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CAPITAL MARKET, ITS ROLE, SIGNIFICANCE

Concept and Meaning of Capital Market

Capital Market is one of the significant aspect of every financial market.Broadly speaking the
capital market is a market for financial assets which have a long or indefinite maturity. Unlike
money market instruments the capital market instruments become mature for the period above
one year. It is an institutional arrangement to borrow and lend money for a longer period of time. It
consists of financial institutions like IDBI, ICICI, UTI, LIC, etc. These institutions play the role of
lenders in the capital market. Business units and corporate are the borrowers in the capital market.
Capital market involves various instruments which can be used for financial transactions. Capital
market provides long term debt and equity finance for the government and the corporate sector.
Capital market can be classified into primary and secondary markets. The primary market is a
market for new shares, where as in the secondary market the existing securities are traded. Capital
market institutions provide rupee loans, foreign exchange loans, consultancy services and
underwriting.

Role or Functions of Capital Market

Like the money market capital market is also very important. It plays a significant role in the
national economy. A developed, dynamic and vibrant capital market can immensely contribute for
speedy economic growth and development.

The important functions and role of the capital market are as follows:-

Mobilization of Savings : Capital market is an important source for mobilizing idle savings from the
economy. It mobilizes funds from people for further investments in the productive channels of an
economy. In that sense it activate the ideal monetary resources and puts them in proper
investments.

Capital Formation : Capital market helps in capital formation. Capital formation is net addition to
the existing stock of capital in the economy. Through mobilization of ideal resources it generates
savings; the mobilized savings are made available to various segments such as agriculture, industry,
etc. This helps in increasing capital formation.

Provision of Investment Avenue : Capital market raises resources for longer periods of time. Thus
it provides an investment avenue for people who wish to invest resources for a long period of time.
It provides suitable interest rate returns also to investors. Instruments such as bonds, equities,
units of mutual funds, insurance policies, etc. definitely provides diverse investment avenue for the
public.

Speed up Economic Growth and Development : Capital market enhances production and
productivity in the national economy. As it makes funds available for long period of time, the
financial requirements of business houses are met by the capital market. It helps in research and
development. This helps in, increasing production and productivity in economy by generation of
employment and development of infrastructure.
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Proper Regulation of Funds : Capital markets not only helps in fund mobilization, but it also helps
in proper allocation of these resources. It can have regulation over the resources so that it can
direct funds in a qualitative manner.

Service Provision : As an important financial set up capital market provides various types of
services. It includes long term and medium term loans to industry, underwriting services,
consultancy services, export finance, etc. These services help the manufacturing sector in a large
spectrum.

Continuous Availability of Funds : Capital market is place where the investment avenue is
continuously available for long term investment. This is a liquid market as it makes fund available
on continues basis. Both buyers and seller can easily buy and sell securities as they are continuously
available. Basically capital market transactions are related to the stock exchanges. Thus
marketability in the capital market becomes easy.

These are the important functions of the capital market.

CAPITAL MARKET IN INDIA

Primary market Secondary market

a) Primary Market :-

Primary market is the new issue market of shares, preference shares and debentures of non-
government public limited companies and issue of public sector bonds.

b) Secondary Market:-

This refers to old or already issued securities. It is composed of industrial security market or stock
exchange market and gilt-edged market.

Conclusion on Capital Market

The lack of an advanced and vibrant capital market can lead to underutilization of financial
resources. The developed capital market also provides access to the foreign capital for domestic
industry. Thus capital market definitely plays a constructive role in the over all development of an
economy.

History of stock exchanges

The stock exchange or market is a place where stocks, shares and other long-term commitments or
investment are bought and sold.
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 The economic significance of a stock market results from the increased marketability
resulting from a stock exchange share quotation. The stock exchange is an essential
institution for the existence of the capitalist system of the economy and for the smooth
functioning of the corporate form of organisation.
 The Securities Contracts (Regulation) Act of 1-956 defines, a stock exchange as “an
association, organisation or body of individuals, whether incorporated or not, established
for the purpose of assisting, regulating and controlling, business in buying, selling and
dealing in securities.”
 Stock Exchanges are noted as “an essential concomitant of the Capitalistic System of
economy. It is indispensable for the proper functioning of corporate enterprise. It brings
together large amounts of capital necessary for the economic progress of a country. It is a
citadel of capital and pivot of money market. It provides necessary mobility to capital and
indirect the flow of capital into profitable and successful enterprises. It is the barometer of
general economic progress in a country and exerts a powerful and significant influence as a
depressant or stimulant of business activity.”

History of Stock Exchange in India:

The first organised stock exchange in India was started in 1875 at Bombay and it is stated to be the
oldest in Asia. In 1894 the Ahmedabad Stock Exchange was started to facilitate dealings in the
shares of textile mills there. The Calcutta stock exchange was started in 1908 to provide a market
for shares of plantations and jute mills.

Then the madras stock exchange was started in 1920. At present there are 24 stock exchanges in
the country, 21 of them being regional ones with allotted areas. Two others set up in the reform
era, viz., the National Stock Exchange (NSE) and Over the Counter Exchange of India (OICEI), have
mandate to have nation-wise trading.

They are located at Ahmedabad, Vadodara, Bangalore, Bhubaneswar, Mumbai, Kolkata, Kochi,
Coimbatore, Delhi, Guwahati, Hyderabad, Indore, Jaipur’ Kanpur, Ludhiana, Chennai Mangalore,
Meerut, Patna, Pune, Rajkot.

The Stock Exchanges are being administered by their governing boards and executive chiefs.
Policies relating to their regulation and control are laid down by the Ministry of Finance.
Government also Constituted Securities and Exchange Board of India (SEBI) in April 1988 for orderly
development and regulation of securities industry and stock exchanges.

REGULATIONS OF STOCK EXCHANGES

The Indian stock market is regulated as per the guidelines laid down by the Securities and Exchange
Board of India (SEBI).
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A regulating body called the Securities and Exchange Board of India (SEBI) was established in 1992
with a view of protecting the interest of investors. This body lays down regulations in order to
ensure orderly growth and smooth functioning of the Indian capital market.

Some of the most important functions of SEBI to regulate the Indian stock market are listed
below:

1. Specifying rules and regulations

SEBI has the authority to specify rules and regulations to control the stock exchange. For
instance, the opening (9.15 am) and closing (3.30 pm) time of the market has been determined
by SEBI, and it has the right to change the timing if deemed necessary.

2. Providing licenses to dealers and brokers

No dealer or broker can start distributing securities to investors without getting a prior approval
and license from SEBI. It also has the right to withhold or cancel the license of brokers and
dealers not adhering to the specified guidelines.

3. Auditing the performance of various stock exchanges

The regulating body is also responsible for auditing the performances of various stock
exchanges and bringing transparency in their functioning.

4. Controlling mergers, acquisitions and take-overs of the companies

Some companies try to manipulate stocks and buy a majority stake in other companies with an
intention of a take-over. SEBI controls and prohibits such movements if it is not in the interest
of the company.

5. Prohibiting unfair trade practices in the market

While SEBI has laid down specific guidelines that promote fair trade practices, many companies
occasionally undertake activities that are not healthy for the market. SEBI has the power to
prohibit such activities and take action against the parties involved in such a trade.

Apart from these important functions, SEBI has many other responsibilities, which it exercises
appropriately in order to regulate the Indian stock market.
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LICENSED dealer (Broker / Dealer)

Definition:

A stockbroker is a member of a stock exchange who acts as a financial service agent to help
customers buy and sell securities in financial market. He can sell securities to investors and provide
insight on the market to his clients. This job requires fast thinking and excellent customer service
skills to survive in this highly competitive industry.

Duties and Responsibilities:

A stockbroker serves the financial interests of his clients. He sells securities and commodities to
individual clients, advises clients on what investments suit their financial situations and can manage
clients' investment portfolio. He executes trades and sells for clients in the exchange market. A
broker must stay on top of the market at all times by analyzing, monitoring and researching the
performance of stocks, trade markets and acquisitions. A broker has a fiduciary duty to protect the
interests of his clients; therefore, he cannot engage in trades or offer financial advice that benefits
himself financially.

Qualifications:

Most brokerage firms in India look for at least a bachelor’s degree in a related filed – accounting,
finance, business or economics. An applicant with a master's of business administration can receive
higher-level positions and compensation than an applicant with a bachelor’s degree. On-the-job
training is provided by the hiring firm. Having natural decision-making skills, math skills and taking
initiative are important qualities in a successful candidate.

ONLINE TRADING CONCEPT

Online trading is the act of placing buy/sell orders for financial securities and/or currencies with the
use of a brokerage's internet-based proprietary trading platforms. The use of online trading
increased dramatically in the mid- to late-'90s with the introduction of affordable high-speed
computers and internet connections.

Stocks, bonds, options, futures and currencies can all be traded online.

 The use of online trades has increased the number of discount brokerages because internet
trading allows many brokers to further cut costs and part of the savings can be passed on to
customers in the form of lower commissions.
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 Another benefit of online trading is the improvement in the speed of which transactions can
be executed and settled, because there is no need for paper-based documents to be copied,
filed and entered into an electronic format.

INTERNET TRADING / ONLINE TRADING: FAQ

1 What is online trading in securities?

Online trading in securities refers to the facility of investor being able to place his own orders using
the internet trading platform offered by the trading member viz., the broker. The orders so placed
by the investor using internet would be routed through the trading member.

2 How can one start trading online?

To start with, investor needs to identify a trading member who offers internet trading facility and
register with the trading member for availing the internet trading facility.

3 How to choose an online stock broker?

Many of the big and medium sized trading members offer internet trading facility. Investor can get
the details of trading members of the Exchange on the website of stock exchange. Identify brokers
offering internet trading facility; check their references from persons having knowledge about
financial markets and select a broker who has good reputation and capability to deliver all the
services that are expected by the investor. Particular attention should be paid by the investor to
the availability of support in case of technical problems while choosing the broker.

4 Who could use online trading?

Usually, a person familiar in using computer, conversant with the use of internet and who is able to
tackle routine problems associated with use of personal computers may opt for online trading.

5 Are there additional documents to be executed for registering as internet customer?

As per SEBI and Exchange stipulations, in addition to execution of regular KYC documents, the
investor would have to execute a specific Member- client agreement for internet trading which
broadly spells out the rights and obligations of trading member and Investor besides alerting on
system related risk, confidentiality of user id and password. Further, Member and investor may
also agree amongst themselves in execution of other documents like Power of Attorney for DP
operations, Opening of DP and bank account etc.,

6 What documents are received usually after registration as an online trading client?
On registering as online trading client with the trading member, normally investor receives a
welcome kit containing the user-id and password allotted to the client.

7 What precautions an online investor must take on starting online trading?

Investor has to take care that:
1. The Default password provided by the broker is changed before placing of order. Ensure that
password is not shared with others. Change password at periodic interval.
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2. He has understood the manner in which the online trading software has to be operated.
3. He has received adequate training on usage of software
4. The system has facility for order and trade confirmation after placing the orders

8 What should investor know about failure of system that is being used for placing orders?
Every online trading client should understand that there could be a possibility of failure of system
which could include failure at various points including network failure, connectivity failure etc.
Generally, the trading members have alternate ways of servicing the investors in the eventuality of
such failures. In order to mitigate risks arising from such failures, investor before starting trading
should understand from the trading member about ways and means of dealing with such failures,
steps that investor needs to take for knowing his position, closing the position etc.

9 What are the other safety measures online client must observe?
1. Avoid placing order from the shared PC’s / through cyber cafés.
2. Log out after having finished trading to avoid misuse.
3. Ensure that one does not click on “remember me” option while signing on from nonregular
location.
4. Do not leave the terminal unattended while one is “signed-on” to the trading system.
5. Protect your personal computer against viruses by placing firewall and an anti-virus solution.
6. You should not open email attachments from people you do not know.

10 How can one investor make sure that his access to trading is continuously available?
In the course of his dealing, investor should always make sure that sufficient funds and securities
are available in his account with the trading member and that he is regular in payment of margins
so as to avoid blocking of account by the trading member. Where due to shortage of margin or
funds not paid, the account is blocked and positions are squared off or securities are sold by the
trading member, investor may get the details of such square-up, sales from the trading member.

11. Where online trades are being done is there any documents that I need to receive from the
trading member for the trades executed?
For every trade that takes place on the Exchange, the trading member needs to issue contract note
within 24 hours from the date of execution of the trade. Generally, internet based investors opt for
Digital contract notes. Hence, at the time of client registration investor should provide an email id
which is regularly used. In case investor wishes to receive physical contract notes, he may specify
so in the client registration document and cut off the email id column. Investor needs to regularly
check the contract notes and if any variation in the trades is found needs to take up the issue with
the trading member immediately.
Besides the Contract Notes, trading member needs to issue quarterly statement of funds and
securities to the investor and such statement can be digitally issued if investor has opted for digital
document.
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QUALIFICATION FOR MEMBERSHIP

Eligibility Criteria
The following are eligible to apply for membership subject to the regulatory norms and provisions
of SEBI and as provided in the Rules, Regulations, Byelaws and Circulars of the Exchange -
Individuals (Sole Proprietor)
Criteria
Status Indian Citizen
Age Minimum age : 21 years
Education At least HSC or equivalent qualification
Applicant should have an experience for not less than two years as a partner
Experience with, or an authorised assistant or authorised clerk or remisier or apprentice
to, a member.
Partnership Firms registered under the Indian Partnership Act, 1932;
Where the applicant is a partnership firm, the applicant shall identify a Dominant Promoter Group
as per the norms of the Exchange at the time of making the application. Any change in the
shareholding of the partnership firm including that of the said Dominant Promoter Group or their
sharing interest shall be effected only with the prior permission of NSEIL/SEBI.
Criteria
Status Registered Partnership firm under Indian Partnership Act, 1932
Designated Identify at least two partners as designated partners who would be taking care
Partners of the day to day management of the limited liability partnership
Age Minimum age of designated partner(s) : 21 years
Designated
Partners Designated Partners should be at least HSC or equivalent qualification
Education
Should have a minimum of 2 years experience in an activity related to dealing
in securities or as portfolio manager or as investment consultant or as a
Designated merchant banker or in financial services or treasury, broker, sub broker,
Partners authorised agent or authorised clerk or authorised representative or remisier
Experience or apprentice to a member of a recognised stock exchange, dealer, jobber,
market maker, or in any other manner in dealing in securities or clearing and
settlement thereof.
Dominant
Identify partner's sharing interest as per Exchange DPG norms
Promoter Norms

Limited Liability Partnership

A Limited Liability Partnership as defined in the Limited Liability Partnership Act, 2008 (6 of 2009),
shall be eligible to be admitted as a member of a Stock Exchange if:
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 such 'limited liability partnership' undertakes to comply with such financial requirements
and norms as may be specified by the Securities and Exchange Board of India for the
registration of such limited liability partnerships under sub-section (1) of section 12 of the
Securities and Exchange Board` of India Act, 1992 (15 of 1992);
 the designated partners of the ‘limited liability partnership’ are not disqualified from being
members of a stock exchange under sub-rule (1) of rule 8 [except sub-clauses (b) and (f)
thereof] or sub-rule (3) of rule 8 [except sub-clauses (a) and (f) thereof] of the Securities
Contracts (Regulation) Rules, 1957 and the designated partners of the ‘limited liability
partnership’ had not held the offices of Directors in any company or body corporate or
partner in any firm or ‘limited liability partnership’, which had been a member of the stock
exchange and had been declared defaulter or expelled by the stock exchange
CRITERIA
Registered Limited Liability Partnership under Limited Liability
Status
Partnership Act, 2008
Identify at least two partners as designated partners who would be
Designated Partners taking care of the day to day management of the limited liability
partnership
Age Minimum age of designated partner(s) : 21 years
Designated Partners Designated Partners should be at least HSC or equivalent
Education qualification
Should have a minimum of 2 years’ experience in an activity related
Designated Partners
to dealing in securities or as portfolio managers or as investment
Experience
consultants
Dominant Promoter Norms Identify partner's sharing interest as per Exchange DPG norms
Corporations, Companies or Institutions
Corporations, Companies or Institutions or subsidiaries of such Corporations, Companies or
Institutions set up for providing financial services;
A Company as defined in the Companies Act, 1956 (1 of 1956), shall be eligible to be admitted as a
member of a Stock Exchange provided:
 such company is formed in compliance with the provisions of Section 12 of the said Act;
 it undertakes to comply with such other financial requirements and norms as may be
specified by the Securities and Exchange Board of India for the registration of such company
under sub-section (1) of section 12 of the Securities and Exchange Board of India Act, 1992
(15 of 1992);
 The directors of such company are not disqualified for being members of a stock exchange
under clause (1) of rule 8 [except sub-clauses (b) and (f) thereof] or clause (3) of rule 8
[except sub-clauses (a) and (f) thereof] of the Securities Contracts (Regulation) Rules, 1957
and the directors of the company had not held the offices of the directors in any company
which had been a member of the stock exchange and had been declared defaulter or
expelled by the stock exchange
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CRITERIA
Status Corporate registered under The Companies Act, 1956 (Indian)
Minimum Paid up Equity
30 lakhs
Capital
Identification of at least two directors as designated directors who
Designated Directors
would be managing the day to day trading operations
Age Minimum age of designated director(s) : 21 years
Each of the Designated Directors should be at least HSC or equivalent
Education
qualification
Should have a minimum of 2 years experience in an activity related
to dealing in securities or as portfolio manager or as investment
consultant or as a merchant banker or in financial services or
Designated Directors treasury, broker, sub broker, authorised agent or authorised clerk or
Experience authorised representative or remisier or apprentice to a member of
a recognised stock exchange, dealer, jobber, market maker, or in any
other manner in dealing in securities or clearing and settlement
thereof.
Dominant Promoter Norms Identify dominant group as per Exchange DPG norms

Professional Clearing Member (PCM)

The following persons are eligible to become PCMs of NSCCL provided they fulfill the prescribed
criteria:
 SEBI Registered Custodians; or
 Banks recognised by NSEIL/NSCCL for issuance of bank guarantees
Banks for Currency Derivative Segment
Further to Circular No: 648 with Download No: NSE/MEMB/11148 dated August 19, 2008, the
eligibility membership criteria for banks in the Currency Derivatives segment is as follows:
Banks authorized by the Reserve Bank of India under section 10 of the Foreign Exchange
Management Act, 1999 as ‘AD Category - I bank’ are permitted to become trading and clearing
members of the currency futures market of the recognized stock exchanges, on their own account
and on behalf of their clients, subject to fulfilling the following minimum prudential requirements:
 Minimum net worth of 500 crores.
 Minimum CRAR of 10 per cent.
 Net NPA should not exceed 3 per cent.
 Made net profit for last 3 years.
The AD Category - I banks which fulfill the prudential requirements are required to lay down
detailed guidelines with the approval of their Boards for trading and clearing of currency futures
contracts and management of risks.
AD Category - I banks which do not meet the above minimum prudential requirements and AD
Category - I banks which are Urban Co-operative banks or State Co-operative banks can participate
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in the currency futures market only as clients, subject to approval therefore from the respective
regulatory Departments of the Reserve Bank.

Other Eligibility Criteria

At any point of time the applicant has to ensure that either the proprietor/one designated
director/partner or the Compliance Officer of the applicant entity should be successfully certified
either in Securities Market (Basic) Module or Compliance Officers (Brokers) Module or the relevant
module pertaining to the segments wherein membership of the Exchange has been sought.i.e.
 Capital Market (Dealers) Module
 Derivatives Market (Dealers) Module
 National Institute of Securities Markets (NISM) Series I – Currency
 Derivatives Certification Examination
The above norm would be a continued admittance norm for membership of the Exchange.
The Exchange may specify such standards for investor service and infrastructure with regard to any
category of applicants as it may deem necessary, from time to time.
Who cannot become a member
Further to the capital and network requirements, No entity shall be admitted as a member/partner
or director of the member if
 It has been adjudged bankrupt or a receiver order in bankruptcy has been made against him
or he has been proved to be insolvent even though he has obtained his final discharge;
 it has compounded with his creditors for less than full discharge of debts;
 it has been convicted of an offence involving a fraud or dishonesty;
 it is engaged as a principal or employee in any business other than that of Securities, except
as a broker or agent not involving any personal financial liability or for providing merchant
banking, underwriting or corporate or investment advisory services, unless he undertakes to
severe its connections with such business on admission, if admitted;
 it has been at any time expelled or declared a defaulter by any other Stock Exchange or he
has been debarred from trading in securities by an Regulatory Authorities like SEBI, RBI etc;
 it incurs such disqualification under the provisions of the Securities Contract (Regulations)
Act, 1956 or Rules made there-under so as to disentitle such persons from seeking
membership of a stock exchange;
 it incurs such disqualification consequent to which NSE determines it to be not in public
interest to admit him as a member on the Exchange, provided that in case of registered
firms, body corporates and companies, the condition from (will apply to, all partners in case
of partnership firms, all directors in case of companies; NSE may from time to time modify /
expand the scope of activities that could be considered as relevant experience for the above
purpose.
Disclaimer - The Exchange reserves the right to accept or reject any application or amends the
terms & conditions without assigning any reasons whatsoever. The number of members to be
admitted shall be at the sole discretion of the Exchange.
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FUNCTIONS OF STOCK EXCHANGES

Some of the Important Functions of Stock Exchange/Secondary Market are listed below:

1. Economic Barometer:
A stock exchange is a reliable barometer to measure the economic condition of a country. Every
major change in country and economy is reflected in the prices of shares. The rise or fall in the
share prices indicates the boom or recession cycle of the economy. Stock exchange is also known as
a pulse of economy or economic mirror which reflects the economic conditions of a country.

2. Pricing of Securities:
The stock market helps to value the securities on the basis of demand and supply factors. The
securities of profitable and growth oriented companies are valued higher as there is more demand
for such securities. The valuation of securities is useful for investors, government and creditors. The
investors can know the value of their investment, the creditors can value the creditworthiness and
government can impose taxes on value of securities.

3. Safety of Transactions:
In stock market only the listed securities are traded and stock exchange authorities include the
companies names in the trade list only after verifying the soundness of company. The companies
which are listed they also have to operate within the strict rules and regulations. This ensures
safety of dealing through stock exchange.

4. Contributes to Economic Growth:

In stock exchange securities of various companies are bought and sold. This process of
disinvestment and reinvestment helps to invest in most productive investment proposal and this
leads to capital formation and economic growth.

5. Spreading of Equity Cult:

Stock exchange encourages people to invest in ownership securities by regulating new issues,
better trading practices and by educating public about investment.

6. Providing Scope for Speculation:

To ensure liquidity and demand of supply of securities the stock exchange permits healthy
speculation of securities.

7. Liquidity:
The main function of stock market is to provide ready market for sale and purchase of securities.
The presence of stock exchange market gives assurance to investors that their investment can be
converted into cash whenever they want. The investors can invest in long term investment projects
without any hesitation, as because of stock exchange they can convert long term investment into
short term and medium term.
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8. Better Allocation of Capital:

The shares of profit making companies are quoted at higher prices and are actively traded so such
companies can easily raise fresh capital from stock market. The general public hesitates to invest in
securities of loss making companies. So stock exchange facilitates allocation of investor’s fund to
profitable channels.

9. Promotes the Habits of Savings and Investment:

The stock market offers attractive opportunities of investment in various securities. These
attractive opportunities encourage people to save more and invest in securities of corporate sector
rather than investing in unproductive assets such as gold, silver, etc.

REGULATIONS ON TRADING
Government Regulations on the Stock Market
The government regulates much of the stock market.

The stock market is a major financial entity with players both large and small. The market facilitates
public ownership of corporations while also providing a trading industry with many different types
of careers. The federal government regulates much of the stock market activity to protect investors
and ensure the fair exchange of corporate ownership on the open markets.

 Day Trading
Day trading is the practice of buying and selling stock shares on the same day. While nearly anyone
can buy stock to sell at a later time, day trading carries strict restrictions. This protects novice
traders from themselves in a highly risky form of stock market participation, where ignorant traders
can quickly lose extraordinary sums of money. Additionally, the restriction reduces use of the stock
market as a form of gambling for the common man. Day traders are required to use only margin
accounts, a type of brokerage account that gives clients access to cash on loan from the broker.

 Going Public
The stock market primary purpose is to facilitate public ownership of a corporation. When a
company chooses to "go public," it has access to large investment capital from the investing public.
But to ensure that the public has accurate knowledge of a company’s health, regulations require
public businesses to disclose much more information than private companies. The company must
file regular financial statements that provide a comprehensive look at the company’s debt,
earnings, salaries of its principal officers and other information.

 Broker Registration
Brokers are the middle men who provide the investing public with access to activity on a stock
market exchange. Without a broker, most investors are unable to buy and sell shares. The
government regulates the actions of brokers to ensure fairness in this large part of the stock
market industry. The most important regulation determines who in fact may operate as a broker.
Registration with the Securities and Exchange Commission is a fundamental requirement for any
company that engages in stock market transactions on behalf of a client. The regulations further
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distinguish between brokers and "dealers," who execute stock transactions for the own corporate
accounts. Many companies operate as both brokers and dealers, which requires the corporation to
file under both roles.

 Trading Business
Some people earn their living mostly or entirely through stock market trading. For these
individuals, the government regulates how their capital gains are taxed. The Internal Revenue
Service provides a special "trader status" to individuals who meet certain criteria. Once granted
trader status, these individuals are not restricted to many of the limitations associated with capital
gains taxes. Instead, their trading activity is treated as regular income. To qualify, a trader must
demonstrate that she earns the majority of her income from trading and that her profits are
significantly affected by daily fluctuations in market activity. Her trading records must indicate a
year-round daily participation in the markets to demonstrate full-time work.

Regulations in India
Indian Capital Markets are regulated and monitored by the Ministry of Finance, The Securities and
Exchange Board of India and The Reserve Bank of India.

The Ministry of Finance regulates through the Department of Economic Affairs - Capital Markets
Division. The division is responsible for formulating the policies related to the orderly growth and
development of the securities markets (i.e. share, debt and derivatives) as well as protecting the
interest of the investors. In particular, it is responsible for
 institutional reforms in the securities markets,
 building regulatory and market institutions,
 strengthening investor protection mechanism, and
 providing efficient legislative framework for securities markets.

The Division administers legislations and rules made under the

 Depositories Act, 1996,
 Securities Contracts (Regulation) Act, 1956 and
 Securities and Exchange Board of India Act, 1992.

MEASURES TO PROMOTE HEALTHY STOCK MARKETS

With a view to reduce delays in listing arising out of conversion, the Govt has issued a circular
authorising the stock exchanges to take action and monitor the issues of over Rs. 10 crores and if
the delay is deliberate without adequate reasons, the Exchange should report the matter to the
Registrar of Companies, SEBI, etc., and also take suitable action.

 The Government has amended the SCR rules in December 1988 to permit multiple
membership of stock exchanges and to enable the granting of membership to financial and
corporate institutions. In October 1988, the Bhansali Committee’s recommendation on
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share transfer procedures was implemented whereby the newlyallotted shares have to be
treated on par with the old shares for delivery purpose, subject to the adjustment of the
dividend depending on the tie of allotment. The minimum capital for listing has been raised
to Rs. 3 Crores of which Rs. 1.8 crores should have been issued to te public effective
February 1989.

 This was further raised to Rs. 5 Crores or Rs. 10 crores depending on the Stock Exchange
from October 1995. The guidelines for listing have also been amended, particularly with
regard to book closure and record dates and to give more powers to the stock exchanges to
monitor the allotment of new issues and to curb insider trading or takeover bids. Banks
have been permitted to lend up to 90% of the value of shares to be acquired by the
employees out of their quota of new issue subject to a ceiling.

 The government has approved the creation of Over-theCounter Exchange of India (OTC)
which would help the introduction of a multi-tiered market for securities. Stock exchanges
have been directed to transfer the scrip of company from the sepcified section to the spot
section if the company intends to come out with the rights issues. The Employees’ Option
Scheme was partially modified restricting the allotment of the unavailed portion of the
public/rights issues earmarked for employees only to financial or investment institutions or
mutual funds.

 As it has been found that the various stock exchanges are following different methods of
calculating the amount of dividend to be deducted while trading in the new shares, which
are on a pari passu basis, the government has clarified in June 1990 that all stock exchanges
should follow the same practice and the new shares should be traded and delivered along
with old shares provided the new shares are traded and delivered at least one day in the
relevant settlement period. The dividend can be deducted from the price for the new shares
at not more than the amount of divident for one year.

 The offer should be made public and by a public announcement and notification to the
stock exchange and SEBI with regard to the terms of offer, identity of offer or and other
terms and conditions and such information should be made available to all the shareholders
of the offeree and offer or companies.

 The government has also notified certain guidelines for institutional transactions in shares.
For any sale of over 1% of paid up capital of the company, the information regarding such
transactions should be reported to the SEBI and the concerned stock exchanges and to the
public within a day of the transaction through a press release. institution should lay down
the criteria for such transactions.

 The guidelines also state that all purchases or sales should be for delivery and they should
be made through approved brokers at market prices. Besides no sale should be made at a
negotiated price to non-institutional buyers. If, in the case of a sick company, the
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management changes, and such negotiated sale takes place, that should be disclosed to the
public through a press release and also to the SEBI and the concerned stock exchange.

 Among other reforms mention may be made of broad basing the boards, better surveillance
over companies and brokers, stricter enforcement of the trading regulations and listing
norms and bettr disclosures for transprency. Weekly settlement system was enforced on all
Stock Exchanges uniformly which was followed by Daily Rollover System in Selected Scrips
from 1999. Trade guarantee fund and Investor Protection Funds were maintained in many
Stock Exchanges. Enforcement of a code of corporate governance, quarterly publication of
results and better disclosures were insisted upon the listed companies.

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