Role of a Stock Exchange in buying and selling shares? • Trading platform provided by NSE is an electronic one and there is no need for buyers and sellers to meet at a physical location to trade.
Demutualisation of stock exchanges • Legal structure of an exchange whereby the ownership, the management and the trading rights at the exchange are segregated from one another. • How a demutualised exchange different from a mutual exchange? • The broker members of the exchange are both the owners and the traders on the exchange and they further manage the exchange as well.
Listing of Securities • A company can seek listing on more than one stock exchange but its compulsory to list on the regional stock exchange near its registered office. • A co. can seek listing if at least 10% of the securities subject to a minimum of Rs.20 Lakh offered to public for subscription. • Stock Exchanges levy annual listing fees.
Trading Arrangements • Screen Based Trading: NSE introduced a nationwide, on-line, fully automated screen based trading system (SBTS) where a member can punch into the computer the quantities of a security and the price at which he would like to transact, and the transaction is executed as soon as a matching sale or buy order from a counter party is found.
Types of Trading Systems • Order driven trading system: Orders from all over the country are entered into an electronic system and matched directly & continuously without the involvement of a jobber. • Quote driven system: Market Makers offers buy and sell quotes and are willing to buy and sell any quantity.
Trading & Settlement • In a trading cycle, trades accumulated till the end of a specified period and the positions were settled in the form of payment of cash & delivery of securities. • Under the rolling system, the transactions in trading cycle are settled in no. of days available. Eg: T+2 basis.
Dematerialization of Securities • An electronic book entry form of holding & transferring securities. • Securities issued through initial public offer can be settled only in dematerialized form. • Two depositories: National Security Depository Limited (NSDL) & Central Depository Service Limited (CDSL).
Stock Market Index • It is a barometer of market behaviour indicating market direction & day-to-day fluctuations in stock prices. • A good market index incorporates a set of scrips which have high market capitalization & high liquidity. • BSE Sensex is a weighted average of prices of 30 companies & S&P CNX Nifty of 50 select stocks.
Methodologies for Calculating Index • Market Capitalized Weighted (a) Full Market Capitalization Method: S&P 500 Index in USA, BSE Sensex and S&P CNX Nifty. (b) Free Float Market Capitalization Method:
Major Indicies in India • BSE Sensex: Large Market Capitalisation. Other criteria like number of trades, average value of shares traded per day. Scrip selection on balanced representation of industry, leadership position, Continuous dividend paying. • S&P CNX Nifty: Owned & managed by IISL (India Index services and products Ltd.)
Bombay Stock Exchange • It is voluntary, non-profit-making association of broker members. • Following BOLT ( BSE on-line Trading System) • Earlier BOLT was limited to Mumbai only but 1996 SEBI allowed BSE to use BOLT system nationwide.
Listing Categories • A Group: Large Turnover with large market capitalization ( Blue-Chip Companies). At present there are 150 scrips in the group. • B1 Group: Quality companies with an equity above Rs.3crore with high growth potential & trading frequency. (1083 scrips) • B2 Group: Group consisting of Low trading volume scrips with equity below Rs.3crore. (3219 Scrips)
New Listing Norms • Minimum networth of Rs.20crore • Profit making track record of three years • Minimum market capitalization at two times its paid-up capital • Dividend track record for three consecutive years with minimum dividend at least 10% • Two year track record of being listed on regional stock exchange.
National Stock Exchange of India • It was incorporated in 1992 • To establish a nationwide trading facilities for equities & debt instruments. • To ensure all investors all over the country having equal access through an appropriate communication network. • To provide a fair, efficient and transparent securities market to investors through an electronic system.
National Securities Clearing Corporation Limited • To undertake clearing & settlement at the exchange. • It operates with a well-defined settlement cycle, aggregates trades over a trading period, nets the position to determine the liabilities of the members, and ensures movement of funds & securities to meet respective liabilities.
Market Making System • To provide liquidity to illiquid scrips, market makers are required who will continuously provide two way quotes i.e. buy quote and sell quote • Market Maker is allowed to buy and sell at a different rate with the differential rate ranging from 3% to 10%.