iNFO ABOUT Stock Exchanges

7/29/2019 iNFO ABOUT Stock Exchanges

1/10

STOCK EXCHANGES

The investor wants liquidity for their investments. The securities, which they hold should easily

be sold when they need cash. Similarly, there are others who want to invest in new securities.

There should be a place where the securities need to be sold and purchased. Stock Exchanges

provide a place where securities of different companies can be purchased and sold. Stock

Exchange is a body of persons, whether incorporated or not, formed, with a view to help,

regulate and control the business of buying and selling securities.

Stock Exchanges are organized and regulated markets for various securities issued by corporate

sector and other institutions. The Stock Exchanges enable flexible purchase and sale of securities

as commodity exchanges allow trading in commodities.

Stock Exchanges are an integral part of nations economic life. By virtue of holding the

responsibility of mobilizing savings of small and big investors and allocating them to the

business firms and for the entrepreneurs, towards productive investment. The following

definitions explain the meaning and scope of Stock Exchanges.

Definition:

According to the securities contract act, 1956

Stock Exchange means any body of individuals, whether incorporated or not, constituted for the

purpose of assisting, regulating or controlling the business of buying and selling in securities

Characteristics of Stock Exchanges:


2/10

The following are some of the salient features of Stock Exchange:

1) It is a place where securities are purchased and sold.

2) A Stock Exchange is an association of persons whether incorporated or not.

3) The trading in an exchange is strictly regulated and rules and regulations are prescribed

for various transactions.

4) Both genuine investors and speculators buy and shell shares.

5) The securities of corporations, trusts, governments, municipal corporations, etc., are

allowed to deal at Stock Exchanges.

Listing of securities:

The term listing means admission of securities of a company to dealing on a recognized Stock

Exchange. Listed securities are also known as quoted securities. With effect from 13 th February

1989, any company can list, de-list and re-list its securities by paying a stipulated fee, provided

its equity capital is at least Rs. 3 crore, and at least Rs.1.8 crore (i.e., 60%) of its capital is

offered for public subscription.

The main purpose for listing requirement is:

1) To ensure proper supervision and control of dealing in securities.

2) To protect the interests of shareholders and general investors

3) To avoid the concentration of economic power

4) To give promoters an opportunity to invest sufficiently in the company for their self-

benefit

5) To require promoters to have a reasonable stake in the company.

The securities of an entity may be listed at any of the following stages:


3/10

1) At the time of public issue of shares/debentures

2) At the time of right issue of shares/debentures

3) At the time of bonus issue

4) Shares issued on amalgamations/mergers.

ROLE AND FUNCTIONS OF STOCK EXCHANGE

The Stock Exchange plays important role in the economic development of a country. The

importance of Stock Exchange will be clear from the functions they perform:

1. Ensures liquidity of capital:

The exchanges provide a ready market where buyers and sellers are always available and those

who are in need of hard cash can sell their holdings. Had this not been possible then many

persons would have feared for blocking their savings in securities. It is because of exchanges that

many persons invest in securities and they can again convert them into cash.

a)Continuous market for securities:

The securities once listed continue to be traded at the exchange irrespective of the fact that their

owners changing, thus it provides a regular market for trading securities.

c)Evaluation of securities:

The investors can evaluate the worth of their holdings from the prices quoted at different Stock

Exchanges for those securities. The securities are quoted under the free atmosphere of demand

and supply and the prices are set on the basis of free market.

d)Mobilizing surplus savings:

The investors do not have any difficulty in investing their savings by purchasing shares, bonds

etc., from the exchange. If this facility was not there then many persons who want to invest their


4/10

savings will not find avenues to do so. In this way, Stock Exchanges play an important role in

mopping up surplus funds of investors.

d)Safety in dealings:

The dealings at Stock Exchanges are governed by well-defined rules and regulations of securities

contract (regulation) Act 1956. There is no scope for manipulating transactions. The safety in

dealings brings confidence in the minds of all concerned parties and helps in increasing various

dealings.

e)Listing of securities:

Only listed securities can be purchased and sold at Stock Exchanges. The listing is allowed only

after a critical examination of capital structure, management and prospects of the company. The

listing of securities gives privilege to the company. The investors can form their own views

about the securities because listing a security does not guarantee the financial stability of the

company.

f)Helpful in raising capital:

The new and existing concerns need capital for their activities. The new concerns raise capital

for the first time and existing units increase their capital for expansion and diversification

purposes. The exchanges are helpful in raising capital both by new and old concerns.

g)Clearing house of business information:

The companies listing securities with exchange have to provide financial statements, annual

reports and other reports to ensure maximum publicity of corporation operations and working.

The economic and other informations provide at Stock Exchanges help companies to decide

their policies.

ORGANISATION OF STOCK EXCHANGES

Some of the recognized Stock Exchanges in Mumbai, Ahmedabad and Indoor are voluntary non-

profit making organizations where those situated in Kolkata, Delhi and Bangalore function as

joint Stock Exchanges limited by shares and Stock Exchanges functioning in Chennai and


5/10

Hyderabad are formed as companies limited by guarantee. Uniformly in their organization is

ensured through Articles of Association, which define the constitution of the recognized Stock

Exchanges. The Stock Exchange Mumbai was the first to get permanent recognition followed by

Kolkata, Hyderabad, Indoor and Bangalore. The other exchanges were given, at the first

instance, official recognition for a period of five years and at the end of each term the recognition

has been renewed for another five-year period.

At, present there are more than 24 Stock Exchanges in India. As per the present guidelines, the

proposed region in which the Stock Exchange is to be set up must be industrially developed with

a sizable number of industrial units and should be able to attract at least 50 companies

independently.

SECURITIES CONTROL (REGULATION) ACT (SCR ACT) 1956

The Securities Control (regulation) Act is formed in 1956 with the main objective of controlling

and regulating the activities of Stock Exchanges in India. The Act sets up a general framework of

control, which makes government influence all pervasive. Any Stock Exchange has to be

recognized under the SCR before it starts its operations.

Stock Exchange is an association of member brokers for the purpose of self-regulation and

protecting the interests of its members.

The central government, ministry of Finance, and Stock Exchange Division grant the recognition

to Stock Exchanges under section 3 of the Act.

Bye-laws:

Besides the above Act, the Securities Contracts (regulation) Rules were also made in 1957 to

regulate certain matters of trading on the Stock Exchanges. There are also byelaws of the

Exchanges, which are concerned with the following subjects:

1) Opening/closing of the Stock Exchanges.


6/10

2) Tuning of trading

3) Regulation of blank transfers

4) Regulation of badla or carryover business

5) Control of the settlement and other activities of the Stock Exchanges

6) Fixation of margins, market prices or making up prices (Havala rates)

7) Regulation of taravani business (jobbing) etc

8) Regulation of brokers trading

9) Brokerage charges, trading rules on the exchange

10) Arbitration and settlement of disputes

11) Settlement and clearing of the trading

12) Regulation of Stock Exchanges

The SCR Act is the basis for operation of the Stock Exchanges in India.

RECOGNITION BY GOVERNMENT

Stock Exchange is recognized only after the Government is satisfied that its Rules and Byelaws

conform to the conditions prescribed for ensuring fair dealings and protection to investors.

Government has also to be satisfied that it would be in the interest of the trade and public interest

to grant such recognition. Mumbai, Calcutta, Delhi, Chennai, Ahmedabad, Hyderabad, Indore,


7/10

Bangalore etc have so far been granted permanent recognition. Others are granted temporary

recognition from time to time.

The rules can be amended, varied or rescinded only after with the approval of Government.

Likewise, the byelaws of the recognized exchanges in detail for the regulation and control of

contracts in securities and for eve of the trading activities of members must also be sanctioned by

Government amendments or modifications must be similarly approved.

The Act empowered the Government with power to make enquiries into the affairs of recognized

stock exchanges members, to suspend its business, and lastly, to withdraw the recognition to an

exchange should such steps be deemed indispensable in the public interest.

Securities and Exchange Board of India (SEBI)

SEBI was given statutory status by an Act of Parliament on April 4, 1992. SEBI was authorized

a) To regulate all merchant banks on issue activity

b) To lay guidelines, and supervise and regulate the working of mutual funds and

c) To oversee the working of Sock Exchanges in India.

Functions of SEBI:


8/10

Under the SEBI Act, SEBI has been assigned the following main functions:

1. Regulating the business in Stock Exchanges and other securities markets.

2. Registering and regulating the working of stock-brokers, sub-brokers, share transfer agents,

bankers to an issue, trustees of trust deals, registrars to an issue, merchant bankers,

underwriters, portfolio managers, and other intermediaries associated with the securities

markets.

3. Registering and regulating of collective investment schemes including mutual funds

4. Promoting and regulating the working of self-regulatory organizations

5. Prohibiting fraudulent and unfair trade practices relating to securities market.

6. Promoting investors education and training of intermediaries of Securities market

7. Prohibiting insiders trading in securities

8. Regulating substantial acquisition of shares and takeover of companies.

Recent developments in Secondary Market and Role of SEBI in regulating the markets:

The century-old Indian capital market is two steps forward and one step back, or vice-versa, but

whatever may be the phrase, according to some surveys made recently, it is found that though

Indian capital marker is firmly on the road to renewed growth, the investors confidence is totally

shattered and the SEBIs reformists will did not find much favor with investors, in restoring

their faith in the capital market. Since 1995-96, SEBI has been showing its reformist will in more

than one way. Several measures in conjunction with the stock exchanges were introduced by

SEBI, for safeguarding the investors interests by ensuring better transparency and efficiency of

markets. Some note worthy reforms in the capital market introduced by SEBI are as follows:


9/10

1) Electronic trading

2) De-mat trading

3) Stock watch surveillance system

4) Fast clearance of investigation

5) Levy of heavy penalty on defaulting brokers

6) Buy back of shares by the corporate

7) Compulsory rolling settlement

8) Swadeshi EDGAR (Electronic Data Gathering, Analysis and Retrieval) etc

The constitution of SEBI has heralded a new era in the Indian Capital Market with its

heavy agenda

1) To protect the interests of investors

2) To promote and regulate the securities market by regulating the business in stock

exchanges

3) To regulate the working of stock brokers, merchant bankers & other intermediaries

4) To regulate the working of depositories and participants

5) To regulate the working of venture capital funds and mutual funds

6) To prohibit the fraudulent and unfair trade practices


10/10

7) To promote investors education and to train intermediaries

Documents

iNFO ABOUT Stock Exchanges