SUMMER TRAINING PROJECT REPORT

ON

SUCCESS STORY OF JETKING

A report submitted to Ishan Institute of Management & Technology, Greater Noida as a partial fulfillment to full time Post Graduate Diploma in Business Management

SUBMITTED TO: SUBMITTED

Dr. D. K. Garg Vikash Kr. Gupta

Chairman Sir ENR: 6023 (MM)

IIMT, Greater Noida Section: BBatch: 17th

ISHAN INSTITUTE OF MANAGEMENT & TECHNOLOGY

1A, KNOWLEDGE PARK -1, GREATER NOIDA, DIST. G. B. NAGAR (U.P.)

Website – www.ishanfamily.com, E-mail – student@ishanfamily.com

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PREFACE

The project which is being studied here is related to the “Success Story of Jetking”. The

main objective of this project is to discuss about the how Jetking is successfully run in

India.

The project also discusses some rules and regulation in the capital market. And what is

the operating system of the stock exchange over the entire world and how they do the

trading. The project also consist the overview about the stock exchange in the developed,

developing and underdeveloped countries.

Also there is another process which is being carried out after the trading process is the

clearing and settlement process. In this project there has been the analysis of the various

steps being involved in the clearing and settlement process and also to study the various

parties involved in the clearing and settlement. When there is the discussion and detailed

study about the capital market then it is necessary to clear the basics involved in the

capital market and to make clear the background of the capital market. In this process the

objective of preparing this project was to give a complete study about the capital market

and the types of the capital market which are the primary market and the secondary

market. Also there has been a detailed study of the money market and the instruments

involved in the money market. Actually the basic study of the market starts from this end.

Through this project there has been a complete study on the various types of market. Also

without knowing the various regulations involved in the trading process it is very difficult

to involve in the capital market. There has been a detailed study of the various regulations

involved in the capital market and the study of the regulatory framework of the capital

market so as to give you an overview of the rules and regulation being made by SEBI and

their proper implementation.

Also there has been the detailed study of the Stock broker including the evolution of the

stock broker and their role and the functions of the stock broker And there is detail

comparative study of the different stock exchange over the entire world, along with at last

project also suggest some recommendation, suggestion, and learning.

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ACKNOWLEDGEMENT

With immense pleasure, I would like to present this project report for the topic

‘SUCCESS STORY OF JETKING’. As a student of ISHAN INSTITUTE OF

MANAGEMENT AND TECHNOLOGY, I owe my gratitude to all the people who

have made this dissertation possible. First and foremost, I would like to thank my guide

Mr. Shariq Shiddiqui (Business Manager) for giving me an invaluable opportunity to

work on challenging and extremely interesting projects during my summer training. He

always made himself available for help and advice. It has been a pleasure to work with

and learn from such extraordinary person. In addition, I am very thankful for the

enormous support of Mr. Dhiman (Branch Manager) that have provided by him to make

my project successfully completed. I am thankful to our college for organizing such

training programme, especially Chairman Sir “Dr. D.K. Garg” who gave me an

opportunity to gain experience of working in an organization and to know the working

culture of the corporate and to analyze about the working how to take appointment. I

would like to express my sincere thanks to my Professors & other faculty members of

management department of IIMT, Greater Noida, for developing their guidance & help. I

would like to thanks my seniors for their support and guidance which made my project

fruitful. Without their guidance and support this project was incomplete. I also convey

my love & regard to staffs & workers, who made my stay at Jetking Infotrain, a

memorable part of my life. I owe my deepest thanks to my family - my mother and father

who have always stood with me & guided me through my career, and have supported me

with every endeavour I take on. They guided me in proper and right way and encouraged

me to make this project in a proper way. Words cannot express the gratitude I owe them.

Lastly I would like to thank God to give me enough strength to prepare this project with

sincerity and honesty and with proper dedication so as to make it successful.

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DECLARATION

The summer training project on SUCCESS STORY OF JETKING. under the guidance

of Mr. Shariq Shiddiqui (name of the guide & Business manager) is the original work

done by me. This is the property of the Institute & use of this report without prior

permission of the Institute will be illegal & actionable.

Date: Signature:

09/07/2012 (Vikash Kumar Gupta)

ENR NO.: MMR 6023

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REVIEW OF THE LITERATURE

I had chosen this particular topic as we gone through many magazines; I had seen many

times that why there are many difficulties in capital market. During the summer training

program I choose this particular topic because I want to see the how the Capital market

sold his product in this competitive market.

I know there are many research on capital market. I want to reviews all that research and

try to analysis all that researched. And try to give a detail knowledge about the capital

market in India and Global Market.

And after summer training I found that there is very big difference between to read about

the stock market and work in the stock market.

With the help of my senior I worked on my project report and under them guideline I

choose the topic which explore my knowledge about the stock market

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Table of Content

Page No.

CHAPTER- 1 9-10

Introduction 9

Executive summary 10

CHAPTER- 2 11-24

About share khan ltd. 12

Historical background 13

Joint venture 14

Founders and promoters 15

Products and Services 17

COMPANY PROFILE:- 20

Key events and milestones/ Brand identity 21

Vision and mission 22

CHAPTER-3 25-61

• Capital market in India 25

• Components of capital market 26

• Products and services in capital market 27

• Global market 31

• Products and services in global markets 48

CHAPTER-4 62-115

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• Trading in capital market in India 62

• Trading in global capital market 99

CHAPTER-5 116-124

• Rules and regulation in Indian capital market 116

• Rules and regulation in global capital market 121

CHAPTER-6 125-159

Different countries share market indices 125 World’s leading stock market 129 Operating system in different stock market 131

CHAPTER-7 160-188

Stock market in developed countries 160 Stock market in developing countries 170 Stock market in under developed countries 176

CHAPTER-8 189-223

• Comparative study between Indian capital market 189and Global Capital market

CHAPTER-9 224-225

• Working process of sharekhan ltd. 224

CHAPTER-10 226-233

LIMITATIONS 226

SUGGESTIONS 227

LEARNINGS AND FINDINGS 228

RECOMMENDATIONS 230

BIBLIOGRAPHY 231

ANNEXURE 233

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Chapter:-1

EXECUTIVE SUMMARY

New ideas and innovations have always been the hallmark of progress made by mankind.

At every stage of development, there have been two core factors that drive man to ideas

and innovation. These are increasing returns and reducing risk, in all facets of life.

The financial markets are no different. The endeavor has always been to maximize

returns and minimize risk. A lot of innovation goes into developing financial products

centered on these two factors. It has spawned a completely new area called financial

engineering.

In the current scenario everything is examined on the global parameter. And capital

market have no difference from other thing. So it is our try to understand global capital

market . and compare it with indian capital market. And try to see what the difference

why one market is growing fastly and other faces losses. And try to understand capital

market in developed, developing and underdeveloped countries.

We have tried to present in a lucid and simple manner, the capital market, so that the

individual investor is educated and equipped to become a dominant player in the market.

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Introduction:-

Here I am giving the introduction of my project report. In this project report you will find

the complete knowledge about the Indian capital market, Global capital market and along

with this you will find the detail about the Sharekhan Ltd. the structure of company the

working process of company and many more.

In this project I defined the Indian capital market and the product of India capital market.

And with this I also defined the global market capital market. There are no any

international capital market where all the country stock exchange jointly worked so in the

Global capital market I explained the different stock market of U.S., ASIA and Europe.

I defined the rules and regulation, trading process, and operating system of different stock

market

And at the last I compared the different countries stock market with Indian capital

market.

Along with that I also try to define the capital market condition in developed, developing

and underdeveloped countries.

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Chapter-2

SHAREKHAN- ONE OF THE FASTEST GROWING

FINANCIAL

SERVICES COMPANY IN INDIA

Company profile

INTRODUCTION

Sharekhan is one of the top retail brokerage houses in India with a strong online trading

platform. The company provides equity based products (research, equities, derivatives,

depository, margin funding, etc.). It has one of the largest networks in the country with

1288 share shops in 325 cities and India’s premier online trading portal

www.sharekhan.com. With their research expertise, customer commitment and superior

technology, they provide investors with end-to-end solutions in investments. They

provide trade execution services through multiple channels - an Internet platform,

telephone and retail outlets.

It is the retail broking arm of the Mumbai-based SSKI [SHANTILAL SHEWANTILAL

KANTILAL ISWARNATH LIMITED] Group. .Sharekhan is online stock trading

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company of SSKI Group, provider of India-based investment banking and corporate

finance service. Sharekhan is one of the largest stock broking houses in the country. Shri

Shantilal Shewantilala Kantilal Ishwarlal Securities Limited (SSKI) has been among

India’s leading broking houses for more than a century.

It has a client base of 1.5 Corers. Launched on 8th February, 2000 as an

online trading portal, Sharekhan offers its clients trade execution facilities for cash as

well as derivatives, on BSE and NSE, depository services, equities, initial public

offerings (IPOs), and commodities trading facilities on MCX and NCDEX. Besides high

quality investment advice from an experienced research team Sharekhan provides market

related news, stock quotes fundamental and statistical information across equity, equities,

IPOs and much more. Sharekhan is also about focus. Sharekhan does not claim expertise

in too many things. Sharekhan’s expertise lies in stocks and that's what he talks about

with authority. To sum up, Sharekhan brings to you a user- friendly online trading

facility, coupled with a wealth of content that will help you stalk the right shares.

History of ShareKhan

Sharekhan is online stock trading company of SSKI Group, provider of India-based

investment banking and corporate finance service. Sharekhan is one of the largest stock

broking houses in the country. Shri Shantilal Shewantilal Kantilal Ishwarlal

Securities Limited (SSKI) has been among India’s leading broking houses for more than

a century.

SSKI which is established in 1930 is the parent company of Sharekhan ltd. With a legacy

of more than 80 years in the stock markets, the SSKI group ventured into institutional

broking and corporate finance over a decade ago. Presently SSKI is one of the leading

players in institutional broking and corporate finance activities. Sharekhan offers its

customers a wide range of equity related services including trade execution on BSE,

NSE, and Derivatives. Depository services, online trading, Investment advice,

Commodities, etc.

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Sharekhan Ltd is India's leading online retail broking house with its presence through

1288'Share Shops' in 398 cities. It has a client base of 1.5 Corers.

Sharekhan Ltd. is a brokerage firm which is established on 8 th February 2000 and now it

is having all the rights of SSKI.

The Company's online trading and investment site - www.Sharekhan.com - was also

launched on Feb 8, 2000. This site gives access to superior content and transaction

facility to retail customers across the country. Known for its jargon-free, investor friendly

language and high quality research, the content-rich and research oriented portal has

stood out among its contemporaries because of its steadfast dedication to offering

customers best-of-breed technology and superior market information.

Launched on 8th February, 2000 as an online trading portal, Sharekhan offers its clients

trade execution facilities for cash commodities as well as derivatives, on BSE and NSE,

depository services, equitiess, initial public offerings (IPOs), and commodities trading

facilities on MCX and NCDEX.

On April 17, 2002 Sharekhan launched Speed Trade, a net-based executable

application that emulates the broker terminals along with host of other information

relevant to the Day Traders. This was for the first time that a net based trading

station of this caliber was offered to the traders. In the last six months Speed Trade has

become a de facto standard for the Day Trading community over the net.

The company was awarded the 2005 Most Preferred Stock Broking Brand by Awwaz

Consumer Vote. It is first brokerage Company to go online.

Sharekhan’s ground network includes over 331 centers in 137 cities in India which

provide a host of trading related services.

Sharekhan's management team is one of the strongest in the sector and has positioned

Sharekhan to take advantage of the growing consumer demand for financial services

products in India through investments in research, pan-Indian branch network and an

outstanding technology platform. Further, Sharekhan's lineage and relationship with

SSKI Group provide it a unique position to understand and leverage the growth of the

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financial services sector. We look forward to providing strategic counsel to Sharekhan's

management as they continue their expansion for the benefit of all shareholders."

Sharekhan has always believed in investing in technology to build its business. The

company has used some of the best-known names in the IT industry, like Sun

Microsystems, Oracle, Microsoft, Cambridge Technologies, Nexgenix, Vignette,

Verisign Financial Technologies India Ltd, Spider Software Pvt Ltd. To build its trading

engine and content. The Morakhiya family holds a majority stake in the company.

HSBC, Intel & Carlyle are the other investors. With a legacy of more than 80 years in the

stock markets, the SSKI group ventured into institutional broking and corporate finance

18 years ago. Presently SSKI is one of the leading players in institutional broking and

corporate finance activities. SSKI holds a sizeable portion of the market in each of these

segments. SSKI’s institutional broking arm accounts for 7% of the market for Foreign

Institutional portfolio investment and 5% of all Domestic Institutional portfolio

investment in the country. It has 60 institutional clients spread over India, Far

East, UK and US. Foreign Institutional Investors generate about 65% of the

organization’s revenue, with a daily turnover of over US$ 2 million. The

Corporate Finance section has a list of very prestigious clients and has many ‘firsts’ to its

credit, in terms of the size of deal, sector tapped etc. The group has placed over US$ 1

billion in private equity deals. Some of the clients include BPL Cellular Holding,

Gujarat Pipavav, Essar, Hutchison, Planetasia, and Shopper’s Stop.

Share khan has one of the best states of art web portal providing fundamental and

statistical information across equity, equities and IPOs. One can surf across 5,500

companies for in-depth information, details about more than 1,500 equities schemes and

IPO data. One can also access other market related details such as board meetings, result

announcements, FII transactions, buying/selling by equities and much more.

SSKI Corporate Finance Private Limited (SSKI) is a leading India-based investment bank

with strong research-driven focus. Their team members are widely respected for their

commitment to transactions and their specialized knowledge in their areas of strength.

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The team has completed over US$5 billion worth of deals in the last 5 years - making it

among the most significant players raising equity in the Indian market. SSKI, a veteran

equities solutions company has over 8 decades of experience in the Indian stock markets.

"Sharekhan has always believed in collaborating with like-minded Corporate into

forming strategic associations for mutual benefit relationships" says Jaideep Arora,

Director - Sharekhan Limited.

SHAREKHAN LIMITED’S MANAGEMENT TEAM

TOP MANAGEMENT

Mr.Tarun.Shah

CEO,Sharekhan

A Science graduate from St. Xavier’s College, Mumbai, Tarun

Shah started his professional life in sales and marketing in a

chemicals company. His hands-on approach and rich

experience in sales led him to higher challenges that the

capital markets provided.

In 1987, Mr Shah joined SSKI, a brokerage firm with over five decades of legendary

service to its credit. The capital market at that time was undergoing a sea change in terms

of character and SSKI under the vision and guidance of Shripal Morakhia and the

commitment and hard work of Mr Shah was able to change and adopt the new business

practices to achieve a significant growth in a competitive environment. Since then SSKI

has achieved growth in each of its businesses: Institutional broking, retail broking and

corporate Finance. Starting with the retail broking business of SSKI in Bombay and

developing a sub-broker network across the country, Mr Shah was also instrumental in

successfully setting up the Institutional Trading Desk of SSKI.

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Accepting new challenges is a way of life for Mr Shah. To ensure that SSKI’s foray into

retail stock broking business through Sharekhan is as successful as every other venture of

SSKI, Mr Shah moved in to spearhead this new effort as the CEO of Sharekhan, the retail

broking arm of SSKI.

Mr.Jaideep.Arora

Director,Product.Development

Jaideep Arora, completed his B.Tech from IIT (Kanpur) and his

PGDM from IIM, Kolkata.

He worked with ICICI for 8 years where his work spanned a gamut

of functions, which included project finance, equity sales and

brokerage, investments etc. During his tenure there he set up and

headed the Institutional Equity Brokerage Desk at ICICI Securities & Finance Co. Ltd.

Mr Arora joined Sharekhan in June 2000 as the head of the Product development

division. A year later he took over the reins of the online business of Sharekhan. At

present Mr Arora’s responsibilities include spearheading Sharekhan’s online foray as

well as its overall customer acquisition effort.

Mr.Shanker.Vailaya

Director, Operations, Finance and Legal Functions

A graduate in Commerce from the University of Mangalore and an

Associate of The Member of the Institute of Chartered

Accountants of India, Shankar Vailaya heads the operations, finance and legal functions

of Sharekhan. He is responsible for settlements, depository operations, risk and

compliance, regulatory and other legal commitments and treasury.

Mr Vailaya has managed Sharekhan’s broking operations through the most turbulent

times in the aftermath of the securities scam in 1992 and successfully steered the

company clear of a flurry of bad papers that hit the market during 1994-95.

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4. Pathik Gandotra : Head of Research

5. Rishi kohili : Vice President of Equity Derivatives

6. Nikhil Vora : Vice President of Research

The different types of products and services offered by Sharekhan Ltd. are as

follows:

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Get anything you need at a sharekhan outlet.

All you have to do is walk into any of our 640 share shops across 280 cities in India to

get a host of trading related serviced – our friendly customer service staff will also help

you with any account related queries you may.

A sharekhan outlet offer the following services .

1. Online BSE and NSE execution (through blot and neat terminal).

2. Free access to the investment advice from share khan’s research team.

3. Sharekhan value line ( a monthly population with review of recommendation,

stock to watch out for etc.)

4. Daily research reports and market review (High Noon & Eagle Eye)

5. Pre-market Report (Morning Cuppa)

6. Daily trading calls based on Technical Analysis

7. Cool trading products (Daring Derivatives and Market Strategy)

8. Personalized Advice

9. Live Market Information

10. Depository Services: Demat & Remat Transactions

11. Derivatives Trading (Futures and Options)

12. Commodities Trading

13. IPOs & Equities Distribution

14. Internet-based Online Trading: SpeedTrade

FINANCIAL CAPABILITY

Taking in to consideration all its assets and liabilities company is valued at around Rs.

750-850 crores.

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USP OF SHAREKHAN LTD.

1. Experience

SSKI has more than eight decades of trust and credibility in the Indian stock market. In

the Asia Money broker's poll held recently, SSKI won the 'India's best broking house

for 2004' award. Ever since it launched Sharekhan as its retail broking division in

February 2000, it has been providing institutional-level research and broking services to

individual investors.

2. Technology

With their online trading account one can buy and sell shares in an instant from any PC

with an internet connection. Customers get access to the powerful online trading tools

that will help them to take complete control over their investment in shares.

3. Accessibility

Sharekhan provides services for investors. These services are accessible through many

centers across the country (Over 650 locations in 150 cities), over the Internet (through

the website www.sharekhan.com) as well as over the Voice Tool.

4 .Knowledge

In a business where the right information at the right time can translate into direct profits,

investors get access to a wide range of information on the content-rich portal,

www.sharekhan.com. Investors will also get a useful set of knowledge-based tools that

will empower them to take informed decisions.

5.

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Convenience

One can call Sharekhan’s Dial-N-Trade number to get investment advice and execute

his/her transactions. They have a dedicated call-center to provide this service via a Toll

Free Number 1800-22-7500 & 39707500 from anywhere in India.

6. Customer Service

Its customer service team assists their customer for any help that they need relating to

transactions, billing, Demat and other queries. Their customer service can be contacted

via a toll- free number, email or live chat on www.sharekhan.com.

7. Investment Advice

Sharekhan has dedicated research teams of more than 30 people for fundamental and

technical research. Their analysts constantly track the pulse of the market and provide

timely investment advice to customer in the form of daily research emails, online chat,

printed reports etc.

PROFILE OF THE COMPANY

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Name of the company : Sharekhan ltd.

Year of Establishment : 1922

Headquarter : ShareKhan SSKI A-206 Phoenx

House,

Phenoix mills Compound lower parel

Mumbai Maharashtra , INDIA400013

Nature of Business : Service Provider

Services : : Depository services

Online Services and .

Technical Research

Number of Employees : Over 3500

Website : www.sharekhan.com

Slogan : Your Guide to The isition effort.

ACHIEVEMENTS OF SHAREKHAN

A rated among the top 20 wired companies along with Reliance, HUJl, Infosys,

etc by ‘Business Today’, January 2004 edition.

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Awarded ‘Top Domestic Brokerage House’ four times by Euro money and Asia

money.

Pioneers of online trading in India amongst the top 3 online trading websites

from India.

Most preferred financial destination amongst online broking customers.

Winners of “Best Financial Website” award.

India’s most preferred brokers within 5 years. “Awaaz customers Award 2005”.

Future Plans

2,00,000 plus retail customers being serviced through centralized call centers/

web solutions.

Branches / Semi branches servicing affluent / aggressive traders through high skill

financial advisor.

250 independent investment managers/ franchisee servicing 50,000 highly valued

clients

New initiative Portfolio management Services and commodities trading.

Vision:

To be the best retail brokering brand in the retail business of stock marketing.

Mission:

To educated and empower the individual investor to make better investment better

decision through the quality advice and superior services.

Sharekhan is infect:

1. Among the top three branded retail service provider.

2. No.1 player in the on line trading business.

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3. Largest network of branded broking outlet in the country service more than 700000

clients.

HIERARCHY IN SHAREKHAN

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25

CEO

Vice president

Assistant

vice president manager

Country head

regional sales manager(Branch manager)

Area sales manager

Territory mangerAssi

stant

sales

manager/HNI Sale

s Asst.Manager/

Relationship Manager/Equit

y advisor.

Senior sales

executives

Sales ex

ecutives/dealer

Super trainees

Trainees

HIERARCHY IN SHAREKHAN

There are 13 main hierarchical levels in Sharekhan:

1) Trainees

2) Super trainees

3) Sales executives/dealer

4) Senior sales executives

5) Assistant sales manager/HNI Sales Asst.Manager/Relationship Manager/Equity

advisor.

6) Territory manger

7) Area sales manager

8) regional sales manager(Branch manager)

9) Country head

10) Assistant vice president manager

11) Vice president

12) Directors

13) CEO

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Chapter-3

Indian capital market overview

Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200

years ago. The earliest records of security dealings in India are meagre and obscure. The

East India Company was the dominant institution in those days and business in its loan

securities used to be transacted towards the close of the eighteenth century.

By 1830's business on corporate stocks and shares in Bank and Cotton presses took place

in Bombay. Though the trading list was broader in 1839, there were only half a dozen

brokers recognized by banks and merchants during 1840 and 1850.

The 1850's witnessed a rapid development of commercial enterprise and brokerage

business attracted many men into the field and by 1860 the number of brokers increased

into 60.

In 1860-61 the American Civil War broke out and cotton supply from United States of

Europe was stopped; thus, the 'Share Mania' in India begun. The number of brokers

increased to about 200 to 250. However, at the end of the American Civil War, in 1865, a

disastrous slump began (for example, Bank of Bombay Share which had touched Rs 2850

could only be sold at Rs. 87).

At the end of the American Civil War, the brokers who thrived out of Civil War in 1874,

found a place in a street (now appropriately called as Dalal Street) where they would

conveniently assemble and transact business. In 1887, they formally established in

Bombay, the "Native Share and Stock Brokers' Association" (which is alternatively

known as " The Stock Exchange "). In 1895, the Stock Exchange acquired a premise in

the same street and it was inaugurated in 1899. Thus, the Stock Exchange at Bombay

was consolidated.

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Components of capital market

Capital Market in India

The capital market has 3 components - the equity market, the debt market, and the

derivative market. It consists of all those connected with issuing and trading in equity

shares and also medium and long term debt instruments, namely, bonds and debentures. It

is well accepted that tenures less than one year are considered as short term; while

tenures more than one year and up to three years may be taken as medium term while

more than three years can be considered as long term.

Both equity and debt market have 2 segments - the primary market dealing with new

issues of equity and debt instruments and the secondary market which facilitates trading

in equity and debt instruments thereby imparting liquidity to the instruments and making

it possible for people with different liquidity preferences to participate in the market.

The capital market operations are regulated by the Securities and Exchange Board of

India [SEBI]

Part of capital market

1. Equity market

2. Debt market

3. Derivative market

Primary Market

The primary market provides a channel for sale of new securities. This market provides

opportunity to issuers of securities, the government as well as corporate, to raise

resources to meet their requirements of investments and/or discharge their obligations.

28

They may issue securities at face value, discount, or premium. They may also issue the

securities in the domestic market and/or the international market.

Secondary Market

The secondary market facilitates trading in equity and long term debt instruments, and

therefore imparts liquidity and price discovery. It is an equity-trading venue in which the

already existing or pre-issued securities are traded among investors. This market could be

either the auction-market or the dealer market. While stock exchange is the part of the

auction market, OTC is a part of the dealer market.

Derivatives

Derivative is a product whose value is derived from the value of one or more basic

variables, called underlying. The underlying asset can be equity, index, foreign exchange

(Forex), commodity, or any other asset.

Product and services in Indian capital market

In primary market

1. Initial Public Offering [IPO] - An initial public offering is when an unlisted

company makes either a fresh issue of securities of an offer for sale of its existing

securities or both for the first time to the public.

2. Further Issue - A follow on public offering is known as further issue. This is

offered through an offer document when an already listed organization makes

either a fresh issue of securities to the public or an offer for sale to the public.

3. Rights Issue - Here, a listed organization proposes to issue fresh securities to its

existing shareholders as on a record date. The rights are offered in a particular

ratio to the number of securities held prior to the issue. This route is best suited

for organizations who would like to raise capital without diluting the stake of its

existing shareholders.

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4. Preferential Issue - This is an issue of either shares or convertible securities by

listed organizations to a select group of people under Section 81 of the Companies

Act,1956. This issue is neither a Rights issue nor Public issue and is a faster way

for any organization to raise capital.

In secondary market

EQUITY: The ownership interest in a company of holders of its common and preferred

stock. The various kinds of equity shares are as follows –

EQUITY SHARES: An equity share, commonly referred to as ordinary share also

represents the form of fractional ownership in which a shareholder, as a fractional owner,

undertakes the maximum entrepreneurial risk associated with a business venture. The

holders of such shares are members of the company and have voting rights. A company

may issue such shares with differential rights as to voting, payment of dividend, etc.

RIGHTS ISSUE/ RIGHTS SHARES: The issue of new securities to existing

shareholders at a ratio to those already held.

BONUS SHARES: Shares issued by the companies to their shareholders free of cost by

capitalization of accumulated reserves from the profits earned in the earlier years.

 PREFERRED STOCK/ PREFERENCE SHARES: Owners of these kind of shares

are entitled to a fixed dividend or dividend calculated at a fixed rate to be paid regularly

before dividend can be paid in respect of equity share. They also enjoy priority over the

equity shareholders in payment of surplus. But in the event of liquidation, their claims

rank below the claims of the company’s creditors, bondholders / debenture holders.

 CUMULATIVE PREFERENCE Shares. A type of preference shares on which

dividend accumulates if remains unpaid. All arrears of preference dividend have to be

paid out before paying dividend on equity shares.

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 CUMULATIVE CONVERTIBLE PREFERENCE SHARES: A type of preference

shares where the dividend payable on the same accumulates, if not paid. After a

specified date, these shares will be converted into equity capital of the company.

 PARTICIPATING PREFERENCE SHARE: The right of certain preference

shareholders to participate in profits after a specified fixed dividend contracted for is

paid. Participation right is linked with the quantum of dividend paid on the equity shares

over and above a particular specified level.

SECURITY RECEIPTS: Security receipt means a receipt or other security, issued by a

securitisation company or reconstruction company to any qualified institutional buyer

pursuant to a scheme, evidencing the purchase or acquisition by the holder thereof, of an

undivided right, title or interest in the financial asset involved in securitisation.

GOVERNMENT SECURITIES (G-Secs): These are sovereign (credit risk-free)

coupon bearing instruments which are issued by the Reserve Bank of India on behalf of

Government of India, in lieu of the Central Government's market borrowing programme.

These securities have a fixed coupon that is paid on specific dates on half-yearly basis.

These securities are available in wide range of maturity dates, from short dated (less than

one year) to long dated (upto twenty years).

DEBENTURES: Bonds issued by a company bearing a fixed rate of interest usually

payable half yearly on specific dates and principal amount repayable on particular date on

redemption of the debentures. Debentures are normally secured/ charged against the asset

of the company in favour of debenture holder.

BOND: A negotiable certificate evidencing indebtedness. It is normally unsecured. A

debt security is generally issued by a company, municipality or government agency. A

bond investor lends money to the issuer and in exchange, the issuer promises to repay the

loan amount on a specified maturity date. The issuer usually pays the bond holder

periodic interest payments over the life of the loan. The various types of Bonds are as

follows-

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ZERO COUPON BOND: Bond issued at a discount and repaid at a face value. No

periodic interest is paid. The difference between the issue price and redemption price

represents the return to the holder. The buyer of these bonds receives only one payment,

at the maturity of the bond

CONVERTIBLE BOND: A bond giving the investor the option to convert the bond into

equity at a fixed conversion price.

COMMERCIAL PAPER: A short term promise to repay a fixed amount that is placed

on the market either directly or through a specialized intermediary. It is usually issued by

companies with a high credit standing in the form of a promissory note redeemable at par

to the holder on maturity and therefore, doesn’t require any guarantee. Commercial paper

is a money market instrument issued normally for tenure of 90 days.

  TREASURY BILLS: Short-term (up to 91 days) bearer discount security issued by the

Government as a means of financing its cash requirements.

IN DERIVATIVES MARKET

Types of derivatives:

Various types of derivatives relating to shares are:

Forwards - This is a customized contract between two entities, where settlement

takes place on a specific date in the future at today�s pre-agreed price.

Futures - It is an agreement between two parties to buy or sell an asset at a certain

time in the future at a certain price.

Options - An option is a contract which gives the right, but not an obligation, to

buy or sell the underlying at a stated date and a stated price.

Warrants - Options generally have lives of up to one year. Most of the options on

exchanges have maximum maturity of nine months. Longer dated options are

called warrants and these are generally traded over-the-counter

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Interest rate derivatives:

Swaps involve exchange of one stream of interest payments for another stream of interest

payments. For example, an organization that has taken a loan at fixed interest rate may

like to convert it to a floating rate loan. The organization can enter into a swap

transaction with a bank to get interest at fixed rate and pay interest on the same notional

capital, the amount of the loan at floating rate. Banks offer interest rate swaps to its

customers.

Commodity derivatives:

A commodity exchange is an organization, such as stock exchange, organizing futures

trading in commodities. The main commodity exchanges in India are the NCDEX and

MCX both of which offer on line trading facility. These markets trade contracts for which

the underlying asset is commodity. It can be an agricultural commodity such as wheat,

soybeans, rapeseed, cotton, or precious metals like gold.

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Global market

Global capital market mainly consists and depends on three continents:

1. US

2. ASIA

3. EURPOE

1.US CAPITAL MARKET

A. NEW YORK STOCK EXCHANGE

The New York Stock Exchange (NYSE) is a stock exchange located at 11 Wall Street in

Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange

by market capitalization of its listed companies at US$13.39 trillion as of Dec 2010.

Average daily trading value was approximately US$153 billion in 2008.

The NYSE is operated by NYSE Euronext, which was formed by the NYSE's 2007

merger with the fully electronic stock exchange Euronext. The NYSE trading floor is

located at 11 Wall Street and is composed of four rooms used for the facilitation of

trading. A fifth trading room, located at 30 Broad Street, was closed in February 2007.

The main building, located at 18 Broad Street, between the corners of Wall Street and

Exchange Place, was designated a National Historic Landmark in 1978, as was the 11

Wall Street building.

B. DOW JONES STOCK EXCHNAGE

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The Dow Jones Industrial Average (Dow or DJIA) is one of the most closely followed

stock market indexes in the world. Although the Dow is watched by millions of people on

a daily basis, many of its viewers neither understand what the Dow really measures or

represents, nor do they understand how to capitalize on the information provided to them.

Let’s look at the structure of the Dow, an important type of investment vehicle that

replicates the performance of the Dow, and three investment strategies you can use to

bolster your investment knowledge, experience and net worth.

Structure of the Dow Jones Industrial Average

The DJIA was created in 1896, and it is the second-oldest stock market index in the U.S.

Only the Dow Jones Transportation Average has a longer history. The DJIA consists of

30 large-cap blue chip companies that are, for the most part, household names. Ironically,

the DJIA is no longer a true proxy for the industrials sector, because only a fraction of the

companies that make up the Dow are classified as industrials. The remaining companies

are assigned to one of the remaining sectors found in the Global Industry Classification

System. As the chart below shows, the only sector that is not represented by a company

in the DJIA is the utilities sector.

In addition to the sector diversity of the Dow, further diversification is provided by the

multinational operations of its constituents. This means that investors can gain indirect

exposure to the international markets, and use the global diversification of the companies

in the index to hedge against the negative impact of a weak U.S. economy. Moreover, the

companies that make up the Dow generate a significant amount of revenue each year.

This helps to reduce the business risk of the companies that make up the index

Introduction to NASDAQ Stock Exchange    

Introduction

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NASDAQ, the first electronic securities market without a trading hall, was founded in

1971. The shares in the market had been more than 5700 by May 31, 2004. The Chinese

public companies here have been 15. Three parts make up NASDAQ stock exchange:

The NASDAQ National Market, NASDAQ Small Cap Market, and OTCBB (Over The

Counter Bulletin Board). Among the public companies in NASDAQ, finance category

occupies 19%, technology 18%, manufacturing 11%, communication 70%. At present

93.6% of the software industry, 84.8% of the semiconductor industry, 84.5% of the

computer and peripheral units, 87.1% of the communication industry have been public in

NASDAQ. The famous high-tech companies like Microsoft, Intel, Yahoo, ipod and Dell

as well as some foreign companies like TOYOTA, Ecricsson, Canon, NEC, China

Qiaoxing Universal, China.com, Yaxin, Sina, Netease, are listing in the market too. The

trading volume of the NASDAQ from 1990 to 1998 has been increased 1120%, far

higher than the 452% of the NYSE. And NASDAQ has been the winner of the shares

trading volume increase.

Not long ago many companies have been proud of being public in NASDAQ. NASDAQ

becomes the names for technology and new public companies. In 2002, the fall of the

four kings in NASDAQ – Microsoft, Cisco, Intel and Dell leads to the lowest return rate

in the composite Index in the history, that is, 39.2%. Meanwhile NASDAQ is the most

speculative stock market. The listed Qualcomm in here increase d by 3000% in 1999,

eToys (ETYS) 99%.

2. ASIA stock market

A. Tokyo Stock Exchange

Location Tokyo, Japan

Founded 1878

36

Owner Tokyo Stock Exchange Group, Inc.

Key people Taizo Nishimuro, Chairman

Atsushi Saito, President & CEO

Yasuo Tobiyama, MD, COO & CFO

Currency Japanese yen

No. of listings 2,292

MarketCap US$3.8 trillion (Dec 2010)[1]

Volume US$3.7 trillion (Dec 2009)

Indexes TOPIX

Nikkei 225

Website TSE.or.jp

The main trading room inside TSE Arrows of the Tokyo Stock Exchange, where trading

is currently completed through computers.

The Tokyo Stock Exchange, called Tōshō or TSE for short, is located in Tokyo, Japan

and is the third largest stock exchange in the world by aggregate market capitalization of

its listed companies. The Tokyo Stock Exchange had 2,292 listed companies with a

combined market capitalization of US$3.8 trillion as of Dec 2010.

Structure

The TSE is incorporated as a kabushiki kaisha with nine directors, four auditors and eight

executive officers. Its headquarters are located at 2-1 Nihonbashi-kabutocho, Chūō,

Tokyo. "Kabutocho" is the largest financial district in Japan. Its operating hours are from

9:00 to 11:00 am, and from 12:30 to 3:00 pm. From April 24, 2006, the afternoon trading

session started at its usual time of 12:30 p.m.

37

Stocks listed on the TSE are separated into the First Section for large companies, the

Second Section for mid-sized companies, and the Mothers (Market of the high-growth

and emerging stocks) section for high-growth startup companies. As of October 31, 2010,

there are 1,675 First Section companies, 437 Second Section companies and 182 Mothers

companies.

The main indices tracking the TSE are the Nikkei 225 index of companies selected by the

Nihon Keizai Shimbun (Japan's largest business newspaper), the TOPIX index based on

the share prices of First Section companies, and the J30 index of large industrial

companies maintained by Japan's major broadsheet newspapers.

92 domestic and 10 foreign securities companies participate in TSE trading. See:

Members of the Tokyo Stock Exchange

On 15 June 2007, the TSE paid $303 million to acquire a 4.99% stake in Singapore

Exchange Ltd.

B. NIKKEI 225 STOCK EXCHANGE

The Nikkei 225 , more commonly called the Nikkei, the Nikkei index, or the Nikkei

Stock Average is a stock market index for the Tokyo Stock Exchange (TSE). It has been

calculated daily by the Nihon Keizai Shimbun (Nikkei) newspaper since 1950. It is a

price-weighted average (the unit is yen), and the components are reviewed once a year.

Currently, the Nikkei is the most widely quoted average of Japanese equities, similar to

the Dow Jones Industrial Average. In fact, it was known as the "Nikkei Dow Jones Stock

Average" from 1975 to 1985.

The Nikkei 225 began to be calculated on September 7, 1950, retroactively calculated

back to May 16, 1949.

Since January 2010 the index is updated every 15 seconds during trading sessions.

38

The Nikkei 225 Futures, introduced at Singapore Exchange (SGX) in 1986, the Osaka

Securities Exchange (OSE) in 1988, Chicago Mercantile Exchange (CME) in 1990, is

now an internationally recognized futures index.

The Nikkei average has deviated sharply from the textbook model of stock averages

which grow at a steady exponential rate. The average hit its all-time high on December

29, 1989, during the peak of the Japanese asset price bubble, when it reached an intra-day

high of 38,957.44 before closing at 38,915.87, having grown sixfold during the decade.

Subsequently it lost nearly all these gains, closing at 7,054.98 on March 10, 2009—

81.9% below its peak twenty years earlier.

Another major index for the Tokyo Stock Exchange is the Topix.

On March 15, 2011, the second working day after the massive earthquake in the northeast

part of Japan, the index dropped over 10% to finish at 8605.15, a loss of 1,015 points.

This put it at its lowest close since March 10, 2009.

C. Straits Times Index stock exchange

The FTSE Straits Times Index (STI) is a capitalization-weighted stock market index

that is regarded as the benchmark index for the Singapore stock market. It tracks the

performance of the top 30 companies listed on the Singapore Exchange. It is jointly

calculated by Singapore Press Holdings (SPH), Singapore Exchange (SGX) and FTSE

Group (FTSE).

History

The STI has a history dating back to 1966. Following a major sectoral re-classification of

listed companies by the Singapore Exchange, which saw the removal of the "industrials"

category, the STI replaced the Straits Times Industrials Index (STII) and began trading on

31 August 1998 at 885.26 points, in continuation of where the STII left off. At the time, it

represented 78% of the average daily traded value over a 12-month period and 61.2% of

39

total market capitalization on the exchange. The STI was constructed by SPH, the

Singapore Exchange and SPH's consultant, Professor Tse Yiu Kuen from the Singapore

Management University (formerly from the National University of Singapore). It came

under formal review at least once annually and was also reviewed on an ad-hoc basis

when necessary. One such review, for instance, raised the number of stocks from 45 to

50, which took effect when trading resumed on 18 March 2005. This change reduced the

index representation of the average daily traded value to 60%, while increasing its total

market capitalization to 75%.

The STI was again revamped and relaunched in January 2008. As part of a new

partnership between SPH, SGX and FTSE, the number of constituent stocks was reduced

from about 50 to 30 and the index was re-calculated using FTSE's methodology. Besides

the STI, the partners also developed a family of indices including the FTSE ST Dividend

Index, FTSE ST China Top tradable index, FTSE ST Catalist Index and FTSE ST

Maritime Index as well as 19 Supersector and 39 Sector indices. For the purposes of

computing the indices, stocks are classified using the Industry Classification Benchmark

(ICB).

D. HANG SENG STOCK EXCHANGE

Type Stock exchange

Location Victoria, Hong Kong, Hong Kong

Founded 1891

Owner Hong Kong Exchanges and Clearing

Currency Hong Kong dollar

No. of listings 1,421

Market Cap USD$2.67 trillion (Feb 2011)

Indexes Hang Seng Index

40

Website hkex.com.hk

Hang Seng Index (HSI) is one of the best-known indexes in Asia , Hang Seng Index

(HSI) is the benchmark of the Hong Kong stock market, and is widely used by fund

managers as their performance benchmark.

Hong Kong Futures Exchange (HKFE) first introduced Hang Seng futures contracts in

May 1986 followed by the introduction of Hang Seng options contracts in March 1993.

These contracts provide investors with a set of effective instruments to manage portfolio

risk and to capture index arbitrage opportunities. The popularity of Hang Seng futures

and options has developed gradually, with increasing domestic and international

investors' participation.

The Hang Seng Index (HSI) is a market capitalization-weighted index (shares

outstanding multiplied by stock price) of the thirty-three constituent stocks. The influence

of each stock on the Index's performance is directly proportional to its relative market

value. Constituent stocks with higher market capitalization will have greater impact on

the Index's performance than those with lower market capitalization. The thirty-three

constituent stocks are grouped under Commerce and Industry, Finance, Properties, and

Utilities sub-indices. These stocks account for about 70% of the total market

capitalization of all stocks listed on The Stock Exchange of Hong Kong Ltd.

E. Introduction of TWSE

TWSE, Taiwan Stock Exchange Corporation, maintains stock price indices, to allow

investors to grab both overall market movement and different industrial sectors'

performances conveniently. The indices may be grouped into market value indices and

price average indices. The former are similar to the Standard & Poor's Index, weighted by

the number of outstanding shares, and the latter are similar to the Dow Jones Industrial

Average and the Nikkei Stock Average. The Taiwan Stock Exchange Capitalization

41

Weighted Stock Index ("TAIEX") is the most widely quoted of all TWSE indices. The

base year value as of 1966 was set at 100. TAIEX is adjusted in the event of new listing,

de-listing and new shares offering to offset the influence on TAIEX owing to non-trading

activities.

TAIEX covers all of the listed stocks excluding preferred stocks, full-delivery stocks and

newly listed stocks, which are listed for less than one calendar month.

The other market value indices are calculated and adjusted similarly to that of TAIEX

only with different groupings of stocks included for calculation. Non-Finance Sub-Index,

Non-Electronics Sub-Index, and Non-Finance Non-Electronics Sub-Index include stocks

in non-finance sector, non-electronics sector, and non-finance ＆ non-electronics sector,

out of the TAIEX Component Stocks.

The Industrial Sub-Indices are calculated for different industrial sectors. Starting

December 1986, eight Industrial Sub-Indices were introduced, i.e. Glass and Ceramic,

Textile, Food, Plastic and Chemical, Electrical, Paper and Pulp, Building Material and

Construction, Finance and Insurance. In August 1995, TWSE introduced additional 14

Industrial Sub-Indices, i.e. Cement, Plastic, Electric Machinery, Electric and Cable,

(Chemical, Biotechnology, and Medical Care), Glass and Ceramic, Iron and Steel,

Rubber, Automobile, Electronics, Shipping and Transportation, Tourism, Trading and

Consumers' Goods, Other. In July 2007, TWSE also introduced additional 11 Industrial

Sub-Indices, i.e. Chemical, Biotechnology and Medical Care, (Oil, Gas and Electricity),

Semiconductor, Computer and Peripheral Equipment, Optoelectronic, Communications

and Internet, Electronic Parts/Components, Electronic Products Distribution, Information

Service, Other Electronic. This expansion is to give a broader perspective of industrial

performances and a more comprehensive comparison with the overall market trend.

42

3.STOCKEXCHANGE IN EUROPE

A. London stock exchange

43

Type Stock Exchange

Location London, United Kingdom

Founded 1801

Owner London Stock Exchange Group

Key people

Christopher S. Gibson-Smith,

(Chairman)

Xavier Rolet, (CEO)

Currency GBX

No. of listings 2,966 (Dec 2010)

MarketCap US$3.6 trillion (Dec 2010)[1]

Volume US$1.7 trillion (Dec 2009)

Indexes

FTSE 100 Index

FTSE 250 Index

FTSE 350 Index

FTSE SmallCap Index

FTSE All-Share Index

Website londonstockexchange.com

44

The London Stock Exchange is a stock exchange located in the City of London,

London, United Kingdom. As of December 2010, the Exchange had a market

capitalization of US$3.6 trillion, making it the fourth-largest stock exchange in the world

by this measurement (and the largest in Europe).

The Exchange was founded in 1801 and its current premises are situated in Paternoster

Square close to St Paul's Cathedral in the City of London. The Exchange is part of the

London Stock Exchange Group

B. CAC 40 STOCK EXCHNAGE

Foundation 1987

Operator Euronext

Exchanges Euronext Paris

Constituents 40

Type Large cap

Market cap €1.031 trillion (end 2009)

Weighting

method

Market value-weighted

Related

indices

CAC Next 20, CAC Mid 60, CAC

Small

Website www.nyse.com/cac40

The CAC 40 is a benchmark French stock market index. The index represents a

capitalization-weighted measure of the 40 most significant values among the 100 highest

45

market caps on the Paris Bourse (now Euronext Paris). It is one of the main national

indices of the pan-European stock exchange group Euronext alongside Brussels' BEL20,

Lisbon's PSI-20 and Amsterdam's AEX.

The CAC 40 takes its name from the Paris Bourse's early automation system Cotation

Assistée en Continu (Continuous Assisted Quotation). Its base value of 1,000 was set on

31 December 1987, equivalent to a market capitalisation of 370,437,433,957.70 French

francs.[2] In common with many major world stock markets, its all-time high to date

(6922.33 points) was reached at the peak of the dot-com bubble in September 2000. In 1

December 2003, the index's weighting system switched from being dependent on total

market capitalisation to free float market cap only, in line with other leading indices.

C. DAX

DAX 30 chart in the Frankfurt Stock Exchange

Foundation 1 July 1988

Operator Deutsche Börse

Exchanges Frankfurt Stock Exchange

Constituents 30

Type Large cap

Market cap €442.5 billion (end 2008)

Weighting

method

Market value-weighted

Related

indices

MDAX, TecDAX, ÖkoDAX

46

Website DAX homepage

The DAX (Deutscher Aktien IndeX, formerly Deutscher Aktien-Index (German stock

index) is a blue chip stock market index consisting of the 30 major German companies

trading on the Frankfurt Stock Exchange. Prices are taken from the electronic Xetra

trading system. According to Deutsche Börse, the operator of Xetra, DAX measures the

performance of the Prime Standard’s 30 largest German companies in terms of order

book volume and market capitalization.

The L-DAX Index is an indicator of the German benchmark DAX index's performance

after the Xetra electronic-trading system closes based on the floor trading at the Frankfurt

Stock Exchange. The L-DAX Index basis is the "floor" trade (Parketthandel) at the

Frankfurt stock exchange; it is computed daily between 09:00 and 17:30 Hours CET. The

L-DAX index (Late DAX) is calculated from 17:30 to 20:00 CET. The Eurex, a

European electronic futures and options exchange based in Zurich, Switzerland with a

subsidiary in Frankfurt, Germany, offers options (ODAX) and Futures (FDAX) on the

DAX from 08:00 to 22:00 CET.

The Base date for the DAX is 30 December, 1987 and it was started from a base value of

1,000. The Xetra system calculates the index after every 1 second since January 1, 2006.

PRODUCT AND SERVICE IN GLOBAL MARKET

Product and service in U.S. capital market: U.S. capital markets cover the two main

stock exchanges which are following.

i. Product and service in Dow Jones Stock Exchange

DOW JONES INDEX

Dow Jones Indexes licenses its index families to qualified institutions for use as the basis

of investment products, such as ETFs, mutual funds, exchange-traded derivatives and

47

structured products. Available for licensing are all Dow Jones-branded equity indexes as

well as fixed-income, alternative and portfolio indexes.

If you are interested in licensing Dow Jones Indexes as the basis of investment products,

please contact your local product licensing representative. To view indexes currently

licensed as the basis of investment products, please view our client list.

DATA SERVICES

Dow Jones Indexes licenses its index data and other related data in various packages and

formats designed to meet the needs of financial institutions and media. Real-time and

delayed index values are available for licensing for display and distribution on a variety

of media and platforms. End-of-day index values and index component data are offered

for research and analysis, and for use as the basis for financial products. Total-return data

services are offered for U.S.-traded companies seeking to fulfill proxy compliance

requirements.

CUSTOM SOLUTION

Dow Jones Indexes is your premier partner for customized indexes to suit your special

requirements. With our wealth of expertise and resources we can help you find a new

approach to measuring most any equity market. We'll develop a methodology to meet

your index needs and can calculate and disseminate the index according to your

specifications.

Whether you are looking for a unique basis for a range of investment products, require

Intraday Indicative Values (IIVs), or would like to align an existing index with your

specific investment mandates, the possibilities are endless.

48

Through Dow Jones Indexes Custom Solutions, we provide pension plans, consultants,

asset managers, brokerages, research firms, media and exchanges with indexes made to

measure the markets from new angles.

For examples of custom indexes currently calculated or maintained by Dow Jones

Indexes, please visit our Custom Indexes page.

ii. Product and service in NASDAQ

NASDAQ OMX Global Data Products

NASDAQ OMX Global Data Products is focused on creating innovative data

products that provide unsurpassed market transparency to institutional, retail and

individual investors. Product offerings include real-time data feeds, web-based

reports and plug-and-play technology for instant access to market data. Covering

the exchanges in the United States, Copenhagen, Stockholm, Helsinki, Iceland,

Riga, Tallinn and Vilnius, and most recently NASDAQ OMX Europe, Global

Data Products is your source for market information worldwide.

Global Data Products is a recognized exchange leader in the market data space

and we continue to provide all customers with innovative data products that

provide transparency into the market and help to facilitate strong business

decisions when making investments.

NASDAQ OMX Global Data Products offers customers:

World-Class Products — Providing superior speed and incomparable

market depth through innovative, global market data products designed to

meet new industry challenges.

World-Class Service — Representing the best data feeds from the

leading exchange, achieving recognition from the Software & Information

49

Industry Association’s (SIIA) Financial Information Services Division

(FISD) for exemplary customer service and communications.

World-Class Distribution — revolutionizing the market data industry

with new plug-and-play applications.

World-Class Transparency — Delivering unsurpassed market

transparency and constantly striving to improve upon the best and most

complete view of the market.

PRODUCT AND SERVICE IN ASIA MARKET

i. Product and service in NIKKEI 225 Stock exchange

Product & Services

The basic definition of stock index is a statistical measure of the changes in a

portfolio of stocks representative the overall market. In doing an investment, investor

will face come risk from the changes of the stock price. There is alternative investment

in trading stock that could minimize the risks and would protect from the adverse of

price fluctuating, this kind of investment is called future contacts or index future.

A future contract is an obligation to receive or to deliver a financial instrument or contract

50

sometime in the future but a price that is agreed upon today. In index future investor is

able to take a short position first or sell the contract on hopes that the price will go down

or the investor may able to take long position or buy the contracts on hope that the price

will go up.

Nikkei 225

Nikkei 225 is based on the Nikkei 225 Index (Nikkei Stock Average), a well-known

global benchmark index representative the trend of Japanese stocks. Nikkei 225 consists

of 225 stocks that are listed on Tokyo Stock Exchange (TSE). Until now Nikkei 225 is a

best indicator to representative the movement stock of prices in TSE. The index was

introduced by Nihon Keizai Shimbun on May 16th 1949. Today Nikkei 225 futures

continue to be one of the worlds leading stock INDEX Futures products

ii. Product service in hang seng stock exchange

Funds ETF

Indexes under the Hang Seng Family of Indexes are widely used by investors worldwide

to create index-linked products and derivatives including structured products, index funds

and Exchange-traded funds("ETFs"). A licence is required for the creation of ETFs and

index funds which track the performance of a particular index in the Hang Seng Family

of Indexes.

Data Dissemination

 

The Hang Seng Family of Indexes offers valuable information for market analysis and

product creation. Real-time index data and Delayed index data for the Hang Seng Family

of Indexes is available from Hang Seng Indexes or from Hang Seng Indexes’ major

information vendors.

Licences are available from Hang Seng Indexes for the dissemination of the Hang Seng

Family of Indexes regardless on a real-time or delayed basis.

51

Data Products

The Hang Seng Family of Indexes offers valuable information for market analysis and product

creation.

1. Data Product Service

Data Product Service is available for subscription by companies and includes the following data

files:

 Index Files: provides end-of-day and next day open reference index level data, including daily

high, low and close values

 Constituent Files: provides end-of-day and next day open reference data, including number of

issued shares, market capitalisation, freefloat-adjusted factor and constituents' weighting

 Corporate Action File: summarizes constituents' corporate actions (e.g. Rights Issues, Bonus

Issues, Stock Splits, and Stock Consolidation)

 Dividend File and Post ex-date Adjustment File: provides constituents' dividend data and

ex-dividend dates

Data files will be available on daily basis and distributed directly through us via email or through

our designated data vendors.

For product specification and sample data files, please contact us for more information.

2. Historical Data

The following data packages are available for subscription by companies or individuals:

  Daily intraday index value

  Daily open-high-low-close index value

Customised Indexes

52

  In addition to the compilation of the Hang Seng Family of Indexes, Hang Seng

Indexes also provides tailor-made indexing solutions for different clients according

to their benchmarking or product structuring requirements.

 

Classification System

 

  The Hang Seng Industry Classification System (“HSICS”) is a

comprehensive industry classification system designed for the Hong

Kong stock market. Prompted by the listing of a wide variety of

companies in different industries in Hong Kong, it meets the need for a

detailed industry classification that reflects stock performance in

different sectors. Covering 11 industries and 28 sectors, the two-tier

HSICS caters for the unique characteristics of the Hong Kong stock

market while maintaining international compatibility with mapping to

international industry classification systems.

Classification Guidelines

The primary parameter of industry classification is the sales revenue

from each business area of a listed company. Profit or assets will also

be taken into consideration where these better reflect the company’s

business.

A company will be assigned to a sector if the majority of its sales

revenue (or profit or assets if relevant) are derived from that sector or

its business fits most closely within that sector.

To preserve stability in the classification of a company, once a

company is classified to a sector, it will remain there unless there is a

53

significant change in how the company derives its revenue (or profit or

assets if relevant).

Source of Information

The industry classification of each listed company is based on audited

financial information of the latest financial year contained in the

company’s annual report. Other publicly available information, such as

prospectuses, interim reports or company announcements will be used

if relevant.

Newly Listed Companies

Industry classification of an IPO stock will be undertaken before a

company is listed. The assessment of sector classification of an IPO

stock will be based on information obtained from the company’s IPO

prospectus.

System Review

A review of the HSICS will be conducted annually. Changes to the

HSICS, if any, will be made in line with the developments in the

market environment

Product and service in Shanghai comp. stock exchange

1．Course of Development

Pan-China Assets Appraisal Co., Ltd. is reformed from the former China Financial Consulting

Co., Ltd., Pan-China Assets Appraisal Co., Ltd. and Beijing Dewai Appraisal Co., Ltd.

Of these companies, the former Pan-China Assets Appraisal Co., Ltd. used to be a most

54

important role in the assets appraisal sector in China, and was one of the most influential

assets appraisal institutions in China;

The former China Financial Consulting Co., Ltd. used to be a professional institution

established by the Ministry of Finance in 1982, which was one of the earliest professional

institutions in China to provide consulting services for enterprises including assets appraisal

service and one of the largest assets appraisal companies in the assets appraisal sector in

China;

And the former Beijing Dewai Appraisal Co., Ltd., formed in 1993, used to be the earliest

professional institution specializing in assets approval in China, which completed its

reorganization by the end of the year 1999 and became one of the large-scale assets

appraisal institutions in China.

Pan-China Assets Appraisal Co., Ltd. after the merger has maintained its leading position in

the assets appraisal sector in terms of the scope of service, the number of appraisers, the

level of expertise and the concept of service, ranking itself as one of the most competitive

and innovative institutions in the sector of certified public assets appraisal in China.

2.Core Values

Seek Credibility with Quality Adhering to Moral Ethics

Abide by the profession tenet of “service, dedication, cooperation, excellence”

Persist in the profession principle of “independence, objectivity, fairness and justice”

People-oriented Common Development

Uphold people-oriented development concept Seek coordination of personal and

collective interests

Realize common development of Tianjian Xingye and customers

Professionalism Combination of Chinese and Western Elements

Inherit excellent traditions of Chinese culture

55

Win market with superior professional service Gain social recognition with outstanding

expertise

Progressive Innovation Seeking Superiority

Keep abreast with the times Aim at revitalizing, pushing forward and reinforcing Chinese

certified public valuer industry

Work persistently Avail of superior expertise to offer top professional value-increasing

service to customers .

3. Staff composition

After nearly two decades of growth, our professional team has attracted and gathered

a galaxy of experts and talents who are equipped with professional knowledge, strong

business quality, pioneering spirit, commitment to work, organization skill, service

awareness,and rich experience. In the process of years of work, a team consisting of

senior and medium level engineering technology experts, covering steel iron,

petrol-chemicals, non-ferrous metals, building materials, agriculture, pharmaceuticals,

machinery and new high-tech companies, pools efforts together.

The Company boasts over its team of 200 experts, nearly 100 Chinese certified

public valuers and over 10 mineral right appraisers, many of whom hold multiple

professional qualifications at hand including Certified Public Accountant, Certified Real

Estate Appraiser, Land Value Estimator, and Cost Engineer, etc.

4. Distribution of Service Departments

The Head Office of the Company is located in Biejing, with branches established in Shanghai,

Shenzhen, Liaoning, Jiangsu, Sandong, Hunan and Anhui and representative offices in

Wulumuqi, Shijianzhuang, Xi’an, Taiyuan, Chongqing, Wuhan, Chengdu, Zhengzhou and

Fuzhou. In addition, the Company has closely-cooperated structures in many other cities in

China, which are able to arrange the Company’s branches to provide their convenient and

56

fast services based on the distribution of the assets of the customers and on the basis of

the principle of vicinity.

9. Professional Supeirority

Professional Team

The Company takes pride in its over 200 professional workers, more than 100 certified

public valuers,more than 30 real estate appraisers, and more than 10 land valuers, a

large part of whom hold certified public accountant qualification, adept at finance,

accounting and financial analysis, capable of appraisal from financial analysis perspective,

while cooperating impeccably with accounting firms.

Hundreds of technological experts specialized in various sciences such as steel iron,

petrol-chemicals, non-ferrous metals, building materials, agriculture, pharmaceuticals,

machinery and new high-tech, are cooperating with the Company to ensure professional

standard of the appraisal services.

Professional Experience

The Company offers asset evaluation and the relevant consulting services of over ten

thousand items of appraisal businesses for various purposes to hundreds of enterprises

engaged in all industries in the national economy. These services extend to all the

provinces and cities in China.

Areas of service cover finance, insurance ， electricity, petroleum, chemicals,

telecommunications, broadcasting, metallurgy, machinery, electronics, building material,

business, agriculture, etc. Thd aculmulated appraised asset has surpassed RMB 15, 000

billion, which makes the Company leader in the domestic asset appraisal industry. The

income of asset appraisal business has also stayed in the leading position of the industry

for years running.

Professional Technology

57

The Company has formulated its strict working procedure and confidential working quality

control principle, proud of its advanced software and hardware support system and

complete knowledge base, as well as scientific work flow, a perfect internal control system

and a professional continuing education and training system. The Company has an expert

back-up team composed of experienced experts in the related science working in research

institutes. With the strong support by the related government authorities and the science

and research institutes, a high-level professional guidance over various complicated

projects can be ensured.

Professional Network

The success of the Group asset appraisal business based on superior expertise lies in the

concerted cooperation among the local business divisions of Beijing, Shanghai, Shenzhen,

Liaoning, Jiangshu, Shandong, Hunan and Anhui, etc. and the local offices covering

Wulumuqi, Wuhan, Chengdu, Xi’an, Chongqing, Jinani, ShiJiazhuang, Taiyuan, Zhengzhou

and Fuzhou, etc, under the leadership of project control center; thanks to state-of-the-art

software and hardware support system, complete knowledge base, scientific work flow

and perfect internal control system, which provide convenient, simple, low cost network

services for the customers of the Group.

Professional Communication

The Company is known for its honesty, rigorousness, cooperation and innovation, and its

quality of work has been highly acclaimed by the relevant government supervision

department, industry supervision department and customers. Zero penalty from supervisiory

organs at all levels and departments, zero complaints from customers, and perfect

occupational reputation have, as a result, established a good communication channel with

the government supervisory authorities, the industry supervisory authorities and the other

cooperated institutions.

58

10. Research and Innovation

Research and Innovation’s not just a slogan, but, rather, an action taken. This

strategy has long been sustaining the technological superiority in the industry.

From: Huaneng Power International ,Inc.( N-share and H-share as well as A-share listed)

is the first Chinese mainland company listed in the New York Stock Exchange, and

its appraisal report is the exclusive one recognized by the New York Stock

Exchange, which was prepared by a China appraisal company.

To: The international merger of Huaneng Power with Shandong Huaneng (H-share and

N-share listed company) is approved by the state gaverment, achieving the

enterprise value maximization. It is the first case of major acquisition in international

capital markets in the Chinese mainland where international capital market evaluation

practice is adopted.

To: CATIC Shenzhen Company Limited is an H-share listed enterprise, the first A-stock

company in China to be listed overseas as a capital-injected company.

To: The restructuring and listing of China Bank of Communications, which is the first

large-scale state-owned bank in China to undergo restructuring and listing.

We have solved one tough professional problem after another for our customers and,

in the meantime, provide one classical example after another for China’s appraisal

industry.

In the appraisal of the bank bad assets, we employ generalized non-linear regression

theory in the evaluation of batch assets, and work in cooperation with four major assets

management companies in the in-depth researches of the fair value of the bank bad

assets.

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In the appraisal of insurance industry, we undertake appraisal of life insurances of many

companies like China Life Insurance Company, China Xinhua Insurance Company, and

China Re-insurance Company as well as property insurances, pioneeringly suggesting that

the value of a life insurance company is composed of the book value and the business

value as reflected in the financial statements and reports.

In the appiasal of derivative fiancial instruments, we apply Monte Carlo Simulation

approach to achieve the probability of future interest rate, having initiated the beginning

of derivative fiancial instruments appraisal in China.

In the appiasal of power enterprises, we conduct evaluations of coal-fired power,

hydropower, wind-mill power, and nuclear power by adopting cost method, income

approach and market method respectively, having thus accumulated rich experiences.

In the appiasal of intellectual property rights, we, as entrusted by the National Property

Right Bureau, undertake financial analyses and researches on the intellectual property

right assessment, and decode the mystery of the assessment of the intellectual property

right from the financial prospective.

We take an active part in the stipulation of appraisal criteria, solely undertaking the

compilation of guides to appraisal of state-owned financial assets and contributing to the

development of the evaluation industry.

11. International Professional Platform

Hanhua Appraisal Value Co., Ltd. is a professional platform for international appraisal

businesses of our Company, which has, ever since its formation, provided customers

with appraisal services in areas including industry, business land property, machine

equipment, intangable assets and infra-structure facilities, overall enterprise value and

various derivative financial projects.

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Hanhua Appraisal Value Co., Ltd. is a professional appraisal value service company

registered in Hong Kong. Since its formation in 1997, the company has provided, with its

comprehensive, rich international experiences, independent, objective and impartial

professional appraisal value services for domestic and overseas companies and entities

that invest in China. Its headquarters is located in Hong Kong, with its operation general

office in Beijing. To satisfy the ever-growing domestic demands, the company has set up

its business representative offices in Shanghai, Chongqing and Fuzhou respectively and

its liason offices in Chongqing, Fuzhou, Guangzhou and Harbin. In addition, the company

has expanded its allies in Asian-Pacific regions (including Australia and Japan), Europe

(Britain), and America (the United States), as well as mainland of China, Hong Kong,

Macao and Taiwan.

The principal members of the company are all qualified for professional practice in

countries and regions including Britain, the United States, Australia and Hong Kong, rich

in experiences in appraisal theory and practice, and having acted in important positions

in world-famous appraisal value companies and accomplished a great number of major

appraisal projects.

Product and service in Europe capital market

a. Product and service in FTSE stock exchange

Real time Data

A real time market data service provides all the activity of the London Stock Exchange

markets, live, as it happens. This section provides more details on the different levels of

data available

Trading in Domestic and international services

Our trading platforms are designed to maximise liquidity in the stocks traded on them.

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Issuer Services and Annual Report Services

Generate Global Visibility

The London Stock Exchange’s Annual Reports Service will build awareness for your

company through a global network of media partners reaching 100 million individual

investors.

The Annual Reports Service puts your company’s information in the hands of interested

investors while helping you maximize the efficiencies of your IR budget.

Matching and reconcilation

UnaVista is a global, hosted platform for all matching, validation & reconciliation needs.

UnaVista offers a range of business solutions including Post-Trade Services, Data

Solutions & Reconciliations.

Connectivity

The Exchange currently offers several types of connectivity with varying levels of

management and performance. This section provides more information about connecting

to the Exchange

References and Historical data

Every second of the trading day the London Stock Exchange generates masses of

information – ranging from data on individual trades and share price movements to

company announcements.

b. Product and service in DAX Stock exchange

Direct Data Feeds

Deutsche Börse’s real-time data feeds provide market participants with trading relevant

information at highest speed.

Algo Trading Products

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Deutsche Börse offers a full range of data solutions to support algo traders in the

development and execution of sophisticated trading algorithms. Our state-of-the-art

network infrastructure ensures that our clients receive data with minimum latency.

Market Data

Our market data Information Products contain data from a wide range of sources and

satisfy the needs of traders, algo traders, investment advisors, fund managers, data

vendors and other market participants.

Historical Market Data

Historical Market Data from Deutsche Börse provides a reliable and solid basis for the

development and execution of investment strategies and risk analyses.

News Services

Deutsche Börse provides leading edge news services to its clients. AlphaFlash® and the

Market News International (MNI) products benefit from the fact that our subsidiary MNI

is a fully accredited news agency whose experienced journalists have direct access to

government lock-up rooms and embargoed news.

Analytics & Reporting Services

Our analytics and reporting services support our clients when it comes to fulfilling

reporting requirements and risk management needs.

Reference Data

Deutsche Börse offers a range of reference data services that help market participants

improve process and settlement quality. Most of the services are based on WSS

(Securities Service System) which is also used to feed Deutsche Börse’s trading and

settlement systems.

Chapter-4

Trading Pattern of the Indian Stock Market

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Trading in Indian stock exchanges is limited to listed securities of public limited

companies. They are broadly divided into two categories, namely, specified securities

(forward list) and non-specified securities (cash list). Equity shares of dividend paying,

growth-oriented companies with a paid-up capital of atleast Rs.50 million and a market

capitalization of atleast Rs.100 million and having more than 20,000 shareholders are,

normally, put in the specified group and the balance in non-specified group.

Two types of transactions can be carried out on the Indian stock exchanges: (a) spot

delivery transactions "for delivery and payment within the time or on the date stipulated

when entering into the contract which shall not be more than 14 days following the date

of the contract" : and (b) forward transactions "delivery and payment can be extended by

further period of 14 days each so that the overall period does not exceed 90 days from the

date of the contract". The latter is permitted only in the case of specified shares. The

brokers who carry over the outstandings pay carry over charges (cantango or

backwardation) which are usually determined by the rates of interest prevailing.

A member broker in an Indian stock exchange can act as an agent, buy and sell securities

for his clients on a commission basis and also can act as a trader or dealer as a principal,

buy and sell securities on his own account and risk, in contrast with the practice

prevailing on New York and London Stock Exchanges, where a member can act as a

jobber or a broker only.

The nature of trading on Indian Stock Exchanges are that of age old conventional style of

face-to-face trading with bids and offers being made by open outcry. However, there is a

great amount of effort to modernize the Indian stock exchanges in the very recent times.

Over The Counter Exchange of India (OTCEI)

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The traditional trading mechanism prevailed in the Indian stock markets gave way to

many functional inefficiencies, such as, absence of liquidity, lack of transparency, unduly

long settlement periods and benami transactions, which affected the small investors to a

great extent. To provide improved services to investors, the country's first ringless,

scripless, electronic stock exchange - OTCEI - was created in 1992 by country's premier

financial institutions - Unit Trust of India, Industrial Credit and Investment Corporation

of India, Industrial Development Bank of India, SBI Capital Markets, Industrial Finance

Corporation of India, General Insurance Corporation and its subsidiaries and Can Bank

Financial Services.

Trading at OTCEI is done over the centres spread across the country. Securities traded on

the OTCEI are classified into:

Listed Securities - The shares and debentures of the companies listed on the OTC

can be bought or sold at any OTC counter all over the country and they should not

be listed anywhere else

Permitted Securities - Certain shares and debentures listed on other exchanges and

units of mutual funds are allowed to be traded

Initiated debentures - Any equity holding at least one lakh debentures of a

particular scrip can offer them for trading on the OTC.

OTC has a unique feature of trading compared to other traditional exchanges. That is,

certificates of listed securities and initiated debentures are not traded at OTC. The

original certificate will be safely with the custodian. But, a counter receipt is generated

out at the counter which substitutes the share certificate and is used for all transactions.

In the case of permitted securities, the system is similar to a traditional stock exchange.

The difference is that the delivery and payment procedure will be completed within 14

days.

65

Compared to the traditional Exchanges, OTC Exchange network has the following

advantages:

OTCEI has widely dispersed trading mechanism across the country which

provides greater liquidity and lesser risk of intermediary charges.

Greater transparency and accuracy of prices is obtained due to the screen-based

scripless trading.

Since the exact price of the transaction is shown on the computer screen, the

investor gets to know the exact price at which s/he is trading.

Faster settlement and transfer process compared to other exchanges.

In the case of an OTC issue (new issue), the allotment procedure is completed in a

month and trading commences after a month of the issue closure, whereas it takes

a longer period for the same with respect to other exchanges.

Thus, with the superior trading mechanism coupled with information transparency

investors are gradually becoming aware of the manifold advantages of the OTCEI.

National Stock Exchange (NSE)

With the liberalization of the Indian economy, it was found inevitable to lift the Indian

stock market trading system on par with the international standards. On the basis of the

recommendations of high powered Pherwani Committee, the National Stock Exchange

was incorporated in 1992 by Industrial Development Bank of India, Industrial Credit and

Investment Corporation of India, Industrial Finance Corporation of India, all Insurance

Corporations, selected commercial banks and others.

Trading at NSE can be classified under two broad categories:

(a) Wholesale debt market and

(b) Capital market.

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Wholesale debt market operations are similar to money market operations - institutions

and corporate bodies enter into high value transactions in financial instruments such as

government securities, treasury bills, public sector unit bonds, commercial paper,

certificate of deposit, etc.

There are two kinds of players in NSE:

(a) trading members and

(b) participants.

Recognized members of NSE are called trading members who trade on behalf of

themselves and their clients. Participants include trading members and large players like

banks who take direct settlement responsibility.

Trading at NSE takes place through a fully automated screen-based trading mechanism

which adopts the principle of an order-driven market. Trading members can stay at their

offices and execute the trading, since they are linked through a communication network.

The prices at which the buyer and seller are willing to transact will appear on the screen.

When the prices match the transaction will be completed and a confirmation slip will be

printed at the office of the trading member.

NSE has several advantages over the traditional trading exchanges. They are as follows:

NSE brings an integrated stock market trading network across the nation.

Investors can trade at the same price from anywhere in the country since inter-

market operations are streamlined coupled with the countrywide access to the

securities.

Delays in communication, late payments and the malpractice’s prevailing in the

traditional trading mechanism can be done away with greater operational

efficiency and informational transparency in the stock market operations, with the

support of total computerized network.

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Unless stock markets provide professionalized service, small investors and foreign

investors will not be interested in capital market operations. And capital market being one

of the major source of long-term finance for industrial projects, India cannot afford to

damage the capital market path. In this regard NSE gains vital importance in the Indian

capital market system.

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Timing

Trading on the BOLT System is conducted from Monday to Friday between 9:15 a.m. and 3:30 p.m.

normally. Refer Notice No. 20101014-8 for call auction. 

Groups

The scrips traded on BSE have been classified into various groups.

BSE has, for the guidance and benefit of the investors, classified the scrips in the Equity Segment into 'A',

'B', 'T' and 'Z' groups on certain qualitative and quantitative parameters. Criteria for "A" Group Companies

The "F" Group represents the Fixed Income Securities.

The "T" Group represents scrips which are settled on a trade-to-trade basis as a surveillance measure.

Trading in Government Securities by the retail investors is done under the "G" group.

The 'Z' group was introduced by BSE in July 1999 and includes companies which have failed to comply

with its listing requirements and/or have failed to resolve investor complaints and/or have not made the

required arrangements with both the depositories, viz., Central Depository Services (I) Ltd. (CDSL) and

National Securities Depository Ltd. (NSDL) for dematerialization of their securities.

BSE also provides a facility to the market participants for on-line trading of odd-lot securities in physical

form in 'A', 'B', 'T' and 'Z' groups and in rights renunciations in all groups of scrips in the Equity Segment.

With effect from December 31, 2001, trading in all securities listed in the Equity segment takes place in

one market segment, viz., Compulsory Rolling Settlement Segment (CRS).

The scrips of companies which are in demat can be traded in market lot of 1. However, the securities of

companies which are still in the physical form are traded in the market lot of generally either 50 or 100.

Investors having quantities of securities less than the market lot are required to sell them as "Odd Lots".

This facility offers an exit route to investors to dispose of their odd lots of securities, and also provides

them an opportunity to consolidate their securities into market lots.

This facility of selling physical shares in compulsory demat scrips is called an Exit Route Scheme. This

facility can also be used by small investors for selling up to 500 shares in physical form in respect of scrips

of companies where trades are required to be compulsorily settled by all investors in demat mode.

Listed Securities

The securities of companies, which have signed the Listing Agreement with BSE, are traded as "Listed

Securities". Almost all scrips traded in the Equity segment fall in this category.

Permitted Securities

To facilitate the market participants to trade in securities of such companies, which are actively traded at

other stock exchanges but are not listed on BSE, trading in such securities is facilitated as " Permitted

Securities" provided they meet the relevant norms specified by BSE

Trading in global capital market

1. Trading in U.S. capital market

a.)Trading in NASDAQ Stock exchange

The NASDAQ is a virtual listed exchange, where all of the trading is done over a

computer network. The process is similar to the New York Stock Exchange. However,

buyers and sellers are electronically matched. One or more NASDAQ market makers will

always provide a bid and ask price at which they will always purchase or sell 'their' stock.[4]

The Paris Bourse, now part of Euronext, is an order-driven, electronic stock exchange. It

was automated in the late 1980s. Prior to the 1980s, it consisted of an open outcry

exchange. Stockbrokers met on the trading floor or the Palais Brongniart. In 1986, the

CATS trading system was introduced, and the order matching process was fully

automated.

From time to time, active trading (especially in large blocks of securities) have moved

away from the 'active' exchanges. Securities firms, led by UBS AG, Goldman Sachs

Group Inc. and Credit Suisse Group, already steer 12 percent of U.S. security trades away

from the exchanges to their internal systems. That share probably will increase to 18

percent by 2010 as more investment banks bypass the NYSE and NASDAQ and pair

buyers and sellers of securities themselves, according to data compiled by Boston-based

Aite Group LLC, a brokerage-industry consultant.[5]

Now that computers have eliminated the need for trading floors like the Big Board's, the

balance of power in equity markets is shifting. By bringing more orders in-house, where

clients can move big blocks of stock anonymously, brokers pay the exchanges less in fees

and capture a bigger share of the $11 billion a year that institutional investors pay in

trading commissions as well as the surplus of the century had taken place.

Market participants

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A few decades ago, worldwide, buyers and sellers were individual investors, such as

wealthy businessmen, usually with long family histories to particular corporations. Over

time, markets have become more "institutionalized"; buyers and sellers are largely

institutions (e.g., pension funds, insurance companies, mutual funds, index funds,

exchange-traded funds, hedge funds, investor groups, banks and various other financial

institutions).

The rise of the institutional investor has brought with it some improvements in market

operations. Thus, the government was responsible for "fixed" (and exorbitant) fees being

markedly reduced for the 'small' investor, but only after the large institutions had

managed to break the brokers' solid front on fees. (They then went to 'negotiated' fees, but

only for large institutions.

However, corporate governance (at least in the West) has been very much adversely

affected by the rise of (largely 'absentee') institutional 'owners'

1. Trading in Asia capital market

a)Trading in Taiwan Stock exchange

Listing of Securities

A public company applying for listing has to meet certain financial and operational criteria.

After close examination by TWSE’s listing functions, the application is submitted to the

“Securities Listing Review Committee” for consideration. Thereafter, the application needs

to be confirmed by a resolution from the Board of Directors for endorsement, before being

submitted to the Securities and Futures Bureau (SFB) for final approval. After the listing

application has been approved by the SFB, the public company pays listing fees, and

submits its quarterly certified financial reports to TWSE for examination.

TWSE actively promotes corporate governance of listed companies, supervises and

regulates listed companies’ financial and operational status on a routine basis, and carries

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out investigations into unusual circumstances, and verifies material information disclosed

by listed companies. In addition, in order to enhance the quality of information disclosure

in the securities market, TWSE works with GreTai Securities Market to manage a “Market

Observation Post System”, and an “Information Disclosure Evaluation System”.

TWSE has focused on developing new products to enhance diversification of securities and

provide investors with hedging tools. TWSE began to accept listing applications of put

warrants in January 2003, launched the first Exchange Traded Fund (ETF) on June 30,

2003, and launched ETF warrants in July 2004. Listed securities on TWSE currently

include stocks, entitlement certificates of convertible bonds, convertible bonds, government

bonds, beneficiary certificates, call warrants, put warrants, ETFs and Taiwan Depository

Receipts (TDRs).

Trading of Securities

When TWSE was established, trading in the centralized market place was carried out on an

open trading floor. However, to meet the changing needs of the market environment, the

trading system has progressed through several phases. In August 1985, the open trading

floor was gradually replaced by a computer-aided trading system (CATS), which was

eventually upgraded to a fully automated securities trading (FAST) system in 1993. The

fully computerized trading system has helped boost the trading capacity and efficiency of

the stock market.

The trading hours of the centralized market trading session are as follows:

Trading Sessions Trading Days Trading Hours

Regular TradingMonday -

Friday09:00 ~ 13:30

Off-hour TradingMonday -

Friday14:00 ~ 14:30

Odd-lot TradingMonday -

Friday13:40 ~ 14:30

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Block Trading Non-paired Trade Monday - Friday 09:00 ~ 17:00

Paired TradeMonday -

Friday

08:00 ~ 08:30

（Pre-opening trading hours）

09:00 ~ 17:00

（In case of settlement on T Day, the quote

shall be completed by 13:50.）

Investors may place an order in person, by phone, fax or Internet. Orders are entered via

terminals on securities firms’ premises into TWSE’s main computer, and are processed and

executed by the trading system on a price-and-time-priority principle. In special cases,

listed stocks may be traded through negotiation, auction, tender or other means.

Trading prices are decided by call auction. TWSE conducts “intra-day volatility

interruptions” to prevent over-volatility of stock prices, and also discloses prices and a

volume of unexecuted orders at the 5 best bids/asks. At the end of the trading session, the

trading system accumulates orders for 5 minutes (from 1:25 p.m. to 1:30 p.m.) before the

closing call auction in order to form fair closing prices.

Computer and Information Safety

The computerized trading, settlement, and information transmission of TWSE is highly

efficient. For the purpose of maintaining market integrity and safeguarding investor rights,

TWSE pays close attention to information and communication safety mechanisms. TWSE

has a full capacity back-up computer system to guard against any possible system failure.

TWSE has been awarded an ISO9001 quality system certificate for its computer system,

and received ISO27001 authentication for its IT Security Management System.

Market Surveillance

A healthy and orderly market should be able to protect investors’ rights and privileges, and

suppress manipulation and insider trading. In accordance with the Market Surveillance

Regulations, TWSE daily discloses information about abnormal securities trading to alert

investors, thereby protecting investors’ rights. TWSE may take disciplinary measures, as

defined in the Regulations, to constrain abnormal market behavior, and prevent damage to

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the market.

Clearing and Settlement

According to the Securities and Exchange Act and TWSE’s own operational rules, TWSE

acts as clearinghouse for all trades executed in the market. All securities firms have to

fulfill settlement obligations to TWSE, which takes on the final responsibility for ensuring

the completion of the settlement process in the market.

TWSE employs a multilateral net settlement to calculate the net amounts of securities and

funds receivables and payables between securities firms and TWSE. The settlement of

shares and payments between securities firms and TWSE is processed on T+2. In cases of

block trades, investors can choose the settlement day to be either T+2 or T.

The securities broker and dealer is responsible to TWSE for completing all the obligations

of clearing and settlement and other related responsibilities arising from trading on TWSE.

If the securities firm can not fulfill securities settlement obligations because of a defaulting

client, erroneous trade, or other reasons, it may apply to TWSE to borrow securities to

complete the settlement through the securities borrowing system. When the securities firm

applies to borrow securities, it deposits collateral with TWSE. When the securities firm can

not borrow a sufficient amount of securities through the securities borrowing system,

TWSE issues a due bill to cover the gap. The securities firm has to provide collateral as

well.

If any securities firm fails to fulfill its settlement obligations, TWSE designates other

securities brokers or dealers to complete its settlement. The resultant price differences and

the expenses incurred are first covered by the Joint Settlement and Clearing Fund (JSCF)

contributed by the defaulting securities firm, and then the Special Clearing Fund maintained

by TWSE, followed by the left portion of JSCF contributed by other securities firms.

TWSE Securities Borrowing and Lending System

TWSE established a Securities Borrowing and Lending System (SBL) on June 30, 2003.

Participants include institutional investors such as securities firms, banks, insurance

companies and foreign institutional investors, while TWSE serves as an intermediary. The

74

system provides three kinds of transactions: fixed-rate transactions, competitive auction

transactions and negotiated transactions. Upon collecting borrowers’ collateral in fixed-rate

and competitive auction transactions, TWSE assumes the role and risks of a guarantor. The

introduction of SBL mechanism in Taiwan not only increases the liquidity of the Taiwan

securities market, but also attracts foreign investors to our market and makes our market

more competitive.

Internationalization of Securities Market

In order to enhance international information-exchange and cooperation, TWSE has entered

into Memoranda of Cooperation with more than 20 foreign stock exchanges, and actively

participated in international securities meetings and organizations, such as WFE, EAOSEF,

ANNA and IOSCO.

To speed up the liberalization and internationalization of the Taiwan securities market,

TWSE has actively reached out to the world in recent years. We have held promotional

tours to the major financial centers in the world and other promising areas such as the

Middle East. We wish to connect the entrepreneurial spirit of Taiwan with foreign

investors’ funds, and in turn enhance the market depth of the stock market. In addition,

TWSE has held conferences or meetings, at which famous foreign scholars or experts are

invited to talk to the local market about current market trends and at the same time inform

foreign investors of the continuing liberalization of our stock market.

In order to keep up with the international trend of developing index-related products,

TWSE, in association with FTSE, has launched a series of tradable indices in Taiwan: the

“TWSE Taiwan 50 Index” on October 29, 2002, “TWSE Taiwan Mid-cap 100 Index” and

“TWSE Taiwan Technology Index” on November 29, 2004, “TWSE Taiwan eight

industries Index” and “TWSE Taiwan dividend+ Index” on January 15, 2007. TWSE will

continue to cooperate with FTSE, in accordance with international standards, to compile

more indices to be used as underlying indices of new financial products.

Monitoring of Securities Firms

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According to the Securities and Exchange Law, the establishment of a securities firm and

its branch has to be approved and licensed in advance by the relevant authority. Prior to

participating in the market, a securities firm must sign a contract with TWSE and deposit a

settlement and clearing fund with TWSE, who then set up a fund management committee to

manage this fund. The securities firm is responsible for its employees in both sales

representation and ethical behavior when conducting centralized market business.

To enhance the financial structure and risk management, all securities firms must meet the

regulatory capital adequacy ratio to maintain regular business. All securities dealers are

required to set aside a monthly trading-loss reserve, and securities brokers are required to

set aside a defaulting-loss reserve. All reserves are accumulated up to a specified amount.

To maintain an orderly and safe market, TWSE regularly sends inspectors to check the

securities brokers and dealers on-site to see whether their business operations and financial

status meet all these requirements. In addition, TWSE maintains a warning system for

scrutinizing the operational risk of securities firms, and also sets up a risk control database

for margin trading to strengthen the risk management of securities firms.

For the purpose of simplifying and reducing paperwork of trading participants, TWSE

established a unified reporting system in 1999 for securities brokers to file all TWSE-

required reports through a single electronic user interface. TWSE also provides securities

brokers with e-mail trading and direct market access (DMA) to make full use of the most

advanced technology. Furthermore, TWSE has relaxed securities firms’ sites and facilities

requirements and encouraged their automation effort so as to reduce operation cost.

Investors Service

An investor wishing to conduct securities transactions first opens an account with a

securities brokerage firm, and signs a “Trustee Agreement” to grant the broker permission

to act as his/her agent. Following the Executive Yuan’s revision of the “Regulations

Governing Investment in Securities by Overseas Chinese and Foreign Nationals” and the

abolition of the QFII system, TWSE has simplified the process of admitting foreign

investment into the Taiwan stock market. The review process for foreign investment has

76

changed from a “permission” to a “registration” system. As a result, foreign investors can

now qualify for domestic investment after completing registration at TWSE.

TWSE employs television, newspapers, magazines, posters and other media for

promotional purposes, and holds various promotional activities such as workshops and

seminars to inform and educate investors as regards investment and finance. Investors are

welcome to ask questions concerning securities investments by calling the Investor Service

Center (886-2) 8101-3101 or 8101-3873.

To enhance and protect investors’ rights and interests, TWSE and other securities-related

institutions jointly established the “Securities Investors’ Protection Fund”. Following the

promulgation of the “Securities Investors and Futures Traders Protection Act”, which

became effective on January 1, 2003, the “Securities and Futures Investors Protection

Center” was established. The Center manages the protection fund to compensate investors

should securities or futures companies be unable to do so due to financial difficulties.

According to Article 18 of the Act, TWSE and other securities-related institutions are

required to contribute funds to the Center.

TWSE has implemented a “investor personal data inquiry system”. This system helps to

reduce the manual handling of personal data processing. It also provides speedy and

convenient responses to personal information inquiries, thus helping to lower the possibility

of fraud or forgery.

Securities Information

To enhance the fairness and efficiency of securities trading, as well as providing a computer

system for stock trading and matching, TWSE uses various channels such as a website and

publications to give investors easy access to securities information.

TWSE’s website ( http://www.twse.com.tw/ ) carries official announcements concerning

securities listing and trading, as well as other securities information for investors’

77

consultation. In addition, the following 3 websites established by TWSE can be accessed

from TWSE’s home page.

1. Market Information System ( http://mis.twse.com.tw/ ): This website provides real-time

trading information about the market and individual stocks, including “Market Summary”,

“Sector Group Quotes”, “Five Best Bids and Asks”, “ETF Quotes”, “Stock Borrowing

Quotes” and “Market Announcements”, etc.

2. Market Observation Post System ( http://emops.twse.com.tw/emops_all.htm ): This

website provides financial and operational information about listed companies, including

company profiles, financial statements, operational summaries and material information.

3. Data e Shop ( http://dataeshop.twse.com.tw/ ): This website provides data vendors and

investors with on-line subscriptions to data services, including end-of-day market data,

index constituents data and historical trading data.

To provide investors with versatile reference data, TWSE publishes a “Stock Chart of

Taiwan Stock Exchange Capitalization Weighted Stock Index and Trading Volume &

Value” at the beginning of each year, showing market trends since 1977 (in Chinese only).

In addition, TWSE also puts out the following periodicals, which are also available on

TWSE’s website:

1. Taiwan Stock Exchange Review Monthly (monthly)

2. Taiwan Stock Exchange Statistical Data (annual)

3. Highlights of TWSE Listed Securities (annual)

4. Status of Securities Listed on Taiwan Stock Exchange (monthly)

5. Taiwan Stock Exchange Annual Report (annual)

6. Fact Book (annual)

To inform and educate investors, TWSE has compiled a series of booklets. Investors can

either access the booklets on TWSE’s website ( http://www.twse.com.tw/ ), or obtain hard

copies at securities firms premises.

TWSE has established an “Investors Reading Room” (3F, No. 7, Sec. 5, Xinyi Rd., Taipei)

to display prospectuses and quarterly financial reports of all listed companies, as well as

78

monthly and semiannual financial reports of all securities brokers and dealers.

To bring the public closer to the stock market, TWSE set up an Information Center in mid-

2008. The Center provides the following information:

● market data displays such as trading graphs, international stock market data, foreign

exchange rates, trade data displays etc.

● current trends in TWSE

● trading simulation systems and educational network services

● interactive inquiries and display systems

● live broadcasts of ceremonies and speeches

c) Trading in KOSPI Stock exchange

General Procedures of Trading

In order for an investor to trade in the KRX securities markets, he/she has to first open a

trading account at one of the security companies (or Financial Investment Business

entities as defined in the 'Capital Markets and Financial Investment Business Act') with

KRX membership (member firms). With such trading account, the investor are able to

place trading orders to the member firms, which will subsequently submit (quote) those

customer orders to the Exchange.

Member firms entrusted with customer orders are obliged to immediately submit (quote)

those orders to the KRX. Trading orders from foreign investors should by-pass FSS

(Financial Supervisory Service) Foreign Investors Management System (FIMS) for

foreign investors' share-holding cap check on certain issues. Non-member firms also have

to quote customer orders to designated member firms.

All trading orders submitted to the KRX by member firms shall be traded in accordance

with the matching principles specified in business regulations of the KRX. Immediately

after the transaction, KRX shall inform (in electronic format) member firms of the trading

results which shall then be notified to respective customers.

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Customers shall conduct settlement of their transaction with member firms by deposit of

money or relevant securities for buying or selling securities on T+2 (exact time for

settlement deadlines are set by each member firms). Entire process of a trade will be

complete when every member firms complete their required settlement transaction with

KRX (as a CCP) by 16:00 of T+2.

Trading Hours

Quotation Receiving Hours Trading Hours

Regular Session 08:00 ~ 15:00 09:00 ~ 15:00

Off-hours

Session

Pre-hours 07:30 ~ 08:30 07:30 ~ 08:30

Post-hours 15:00 ~ 18:00 15:10 ~ 18:00

Contents Manager :

KOSPI Market Division/Stock Trading Rules & Regulations/Joong-Suk

Han(02-3774-8595)

※ Data and information on the KRX website are provided for the purpose of improving

availability of information for investment, not for trading securities. In spite of the efforts

made in ensuring the accuracy of data and information, the KRX recognizes that

unintentional and chance errors and delays occur. The KRX is not responsible for any

loss resulted from the investments made using the data and information provided on its

website

d)Trading in Shanghai comp. Stock exchange

Trading Overview

Trading Overview

Trading business falls into two categories depending on whether it is provided through

the trading system, namely, trading system-based business and non-trading system-

based business. Trading system-based business can be further grouped into two types:

centralized trading business and trading-related services. Non-trading system-based

80

business includes negotiated transfer, warrant creation and cancellation, etc.

Centralized trading refers to the change of securities ownership effected through price

inquiry, quotation and auction via the trading system of the stock exchange. Trading-

related services refer to the services provided by the stock exchange through the

trading system that relate to offering, entitlement or trading relationship that is closely

associated with the centralized trading of securities. Compared with similar services

offered through over-the-counter market, centralized trading has the following main

differences: (1) services are provided through the trading system; (2) specific

securities codes are assigned; and (3) trading is conducted through a broker.

SSE is open for trading from Monday to Friday. In the morning session, the market

opens with a call auction between 9:15 am and 9:25 am, which is followed by a

continuous auction between 9:30 am and 11:30 am. The afternoon session begins with

a continuous auction between 13:00 pm to 15:00 pm and then block trading takes

place between 15:00 am -15:30 am. The market is closed on the weekends and other

public holidays as announced by SSE.

Securities are traded on SSE on a market-driven and free auction basis. Limit orders

and market orders are accepted in line with market conditions. At present, trading in A

Shares, B Shares and securities investment funds is subject to a 10% daily price up

and down limit, except for the first trading day. Special treatment shares, or ST shares,

are subject to a 5% daily price up and down limit. The price limits on warrants are

based on that of their corresponding underlying securities and are determined by

multiplying the conversion ratio by a certain coefficient. The price of a block trade of

securities with a price limit is determined by the buyer and seller within the price limit

applicable to such securities on the day of trading. The price of a block trade of

securities without any price limit is negotiated by the buyer and seller within 30% of

the previous closing price or between the highest and lowest traded prices on the day

of trading. In the absence of any transaction for a particular stock, the closing price of

the previous trading day will be the execution price.

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Securities trading on SSE are conducted on an agency basis. All the investors that

trade securities on SSE must first appoint a member of SSE as an agent and sign an

agreement with the agent for trading and clearing securities on their behalf. No trading

is allowed before the investor's trading account is registered with the member's trading

seat.

SSE has adopted a primary dealer system in warrant trading. Primary dealers are the

securities firms that are designated by SSE for providing bilateral quotations for

warrant trading. In addition, institutional market participants recognized by SSE may

provide daily bilateral quotations for bonds traded on SSE's block trading system, with

the specific bonds and the spreads to be determined at their discretion to the extent

permitted by SSE rules.

SSE makes timely releases of trading data and information to members and investors.

Daily real-time market quotations, stock indices, clearing data, market reports and

daily transaction data are transmitted to member's counter terminals via satellite

communications system or optical fiber communications system. The transaction data

is instantaneously transmitted to each member via a two-way satellite system and

optical fiber communications system. Since September 22, 2003, SSE has started

disclosing five best quotations. Block trade data is published in SSE-designated media

and released simultaneously on SSE's website (www.sse.com.cn). Apart from that,

SSE also discloses more detailed information about the daily top gainers and losers on

the securities market in line with the trading rules.

2. Trading in Europe Capital market

a)Trading in Russia Stock exchange

"Russian Trading System" Stock Exchange

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Established in 1995, as the first regulated stock market in Russia, RTS Stock Exchange

now trades the full range of financial instruments from cash equities to commodity

futures.

The RTS Index first calculated on September 1, 1995, has since become the main

benchmark for the Russian securities industry and is based on the Exchange’s 50 most

liquid and capitalized shares.

Today’s RTS product line includes:

RTS Standard, a new front-rank equity market for the most liquid Russian

securities characterized by absence of 100% asset depositing, standard T+4

settlement in roubles, use of CCP technology, consolidated cash position on RTS

Standard and on FORTS, RTS derivatives section and portfolio-style approach to

margining spot and derivatives markets positions.

RTS Classica, the only trading platform in Russia that allows for settlement in

both rubles and foreign currency.  RTS Classica is equally accessible to both

Russian and foreign investors. The standard settlement cycle is T+4 DVP. There

are no requirements to deposit securities and cash before a trade. Over 500

securities are trading on this market.

RTS T+0 Market, securities trading for retail investors with full preliminary

deposit of assets and ruble settlement.

RTS Board, the quote-driven market for unlisted stocks and bonds.

FORTS, futures and options market with ruble settlement. Trading since 2001.

Today, 47 contracts are offered (34 futures and 13 options) on shares of Russian

companies, bonds, short term interest rates, currency, RTS Indices, oil, oil

products, metals and sugar. The most active contract is futures on the RTS Index.

RTS Group operates the central counterparty, the settlement securities depository and the

settlement house for rubles and foreign currencies.

International members of RTS include Deutsche Bank, CSFB, UBS, Morgan Stanley etc.

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Both the RTS Stock Market and the FORTS market are traded on robust international

standard electronic platforms which allow for direct market access and algorithmic

trading.

The core of the RTS Group is Open Joint Stock Company RTS where the trading is

facilitated. The key shareholders include global investment banks, like UBS, Credit

Suisse, Deutsche Bank.

RTS website - http://www.rts.ru/en/

President - Roman Goryunov

Public Relations – Varvara Inozemtseva

Head of Market Data – Denis Avetisyan

For additional information please contact international@rts.r

b)Trading in DAX Stock exchange

Trading Hours

The trading hours of Frankfurt stock exchange run from 9am to 5.30pm. Late DAX runs

from 5.45pm to 8pm and the X-DAX runs from 5.45pm to 10pm. The stock trading of the

Trading Time Floor starts from 9am and ends at 8pm while the stock trading for Trading

Time Xetra starts from 9am and ends at 5.30pm.

Normally, there is trading from Monday to Friday with the exception of a few holidays

which would be declared by the exchange in advance. Some of these holidays are

Christmas Eve, New Year's Eve, Good Friday, Easter Monday and Boxing Day.

Trading Segments

The Frankfurt stock exchange encompasses the full spectrum of services and products

that are part of exchange trading. These include trading from derivatives and securities by

84

means of provision of market information and transactions and also the operation and

development of electronic trading systems.

The trading process is carried out by brokers on the traditional floor trading and also by

Xetra, the electronic trading system. The companies that are quoted on the Frankfurt

stock exchange can enter the market in any of these three ways:

Prime Standard - If the company chooses this method of entry to the market then

it must observe the EU rules.

General Standard - The companies that chooses this method to enter the market

are regulated by the EU rules, just like the Prime Standard method.

Entry Standard - This is a very easy way of entering the capital market. The

exchange authorities supervise companies choosing this method directly.

Main Stock Indices

The main stock indices of the Frankfurt stock exchange are:

DAX - This is a blue chip index which consists of thirty of the major companies

in Germany that are trading on the FSE. The Xetra trading system provides the

prices. This index also measures the performance of the German companies of

Prime Standard in terms of their market capitalization and order book volume.

MDAX - This is a stock index which comprises of German companies. Its owner,

Deutsche Borse, calculates the index. It lists 50 Prime Standard shares from

different sectors that are found immediately after the companies listed in the DAX

index.

SDAX - This is a selection index for fifty of the smaller German companies, also

known as small caps. These companies are listed below the MDAX index and

Xetra generates its prices. The companies are ranked according to their market

capitalization and order book volume.

TecDAX - This stock index tracks thirty of the largest German companies from

the technology sector that rank below the companies listed in the DAX index.

VDAX - This index depicts the variation margin of the DAX anticipated.

85

Euro Stoxx 50 - Another important stock index of the Frankfurt Stock Exchange,

this is designed by Stoxx Ltd for the purpose of blue-chip representation of

Supersector leaders.

Exchange History

The exchange history of the Frankfurt stock exchange is one of the oldest in the world. It

dates back to the year 1585 when a bourse was created for the purpose of trading. Hence

the FSE was founded in 1585. In the year 1874, the location of this stock exchange was

shifted to a new building at Borsenplatz. After the Second World War, in the year 1949,

it was finally successful in establishing itself as one of Germany's leading stock

exchange.

In the 1990s period, the Frankfurt stock exchange also functioned as a bourse for the

Neuer Market. In 1993 it became Deutsche Borse AG. In the year 2002 and 2004 there

were advanced negotiations for taking over the London Stock Exchange, which was the

fourth largest stock exchange in the world, but the discussions broke down in the year

2005 and no attempts have been made in this direction ever since.

Chapter-5

Rules and regulation in Indian capital market

Overview

In keeping with the broad thrust of the ongoing programs of economic reform, the

mechanism of administrative controls over capital issues has been dismantled and pricing

of capital issues is now essentially market determined. Regulation of the capital markets

and protection of investor's interest is now primarily the responsibility of the Securities

and Exchange Board of India (SEBI), which is located in Bombay.

86

Accordingly, SEBI's functions include:

Regulating the business in stock exchanges and any other securities markets

Registering and regulating the working of collective investment schemes,

including mutual funds.

Prohibiting fraudulent and unfair trade practices relating to securities markets.

Promoting investor's education and training of intermediaries of securities

markets.

Prohibiting insider trading in securities, with the imposition of monetary

penalties, on erring market intermediaries.

Regulating substantial acquisition of shares and takeover of companies.

Calling for information from, carrying out inspection, conducting inquiries and

audits of the stock exchanges and intermediaries and self regulatory organizations

in the securities market.

Keeping this in view, SEBI has issued a new set of comprehensive guidelines governing

issue of shares and other financial instruments, and has laid down detailed norms for

stock-brokers and sub-brokers, merchant bankers, portfolio managers and mutual funds.

On the recommendations of the Patel Committee report, SEBI on 27 July 1995, permitted

carry forward deals. Some of the major features of the revised carry-forward transactions

as directed by SEBI are:

Carry forward deals permitted only on stock exchanges which have screen based

trading system.

Transactions carried forward cannot exceed 25% of a broker's total transactions

on any one day.

90-day limit for carry forward and squaring off allowed only till the 75th day (or

the end of the fifth settlement).

Daily margins to rise progressively from 20% in the first settlement to 50% in the

fifth.

87

On 26 January1995, the government promulgated an ordinance amending the SEBI Act,

1992, and the Securities Contracts (Regulation) Act, 1956.

In accordance with the amendment adjudicating mechanism will be created within SEBI

and any appeal against this adjudicating authority will have to be made to the Securities

Appellate Tribunal, which is to be separately constituted. These appeals will be heard

only at the High Courts.

The main features of the amendment to the Securities Contract (Regulation) Act, 1956,

are:

The ban on the system of options in trading has been* lifted.

The time limit of six months, by which stock exchanges could amend their bye-

laws, has been reduced to two months.

Additional trading floors on the stock exchanges can be established only with

prior permission from SEBI.

Any company seeking listing on stock exchanges would have to comply with the

listing agreements of stock exchanges, and the failure to comply with these, or

their violation, is punishable.

Fraudulent and Unfair Trade Practices

SEBI is vested with powers to take action against these practices relating to securities

market manipulation and misleading statements to induce sale/purchase of securities.

Inspection and Enforcement

SEBI has the powers of a civil court in respect of discovery and production of books,

documents, records, accounts, summoning and enforcing attendance of company/person

and examining them under oath. SEBI can levy fines for violations related to failure to

submit information to SEBI / to enter into agreements with clients / to redress investor

grievances, violations by mutual funds/stock brokers and violations related to insider

trading, takeovers etc.

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SEBI In India's Capital Market

SEBI from time to time have adopted many rules and regulations for enhancing the

Indian capital market. The recent initiatives undertaken are as follows:

Sole Control on Brokers: Under this rule every brokers and sub brokers have to

get registration with SEBI and any stock exchange in India.

For Underwriters: For working as an underwriter an asset limit of 20 lakhs has

been fixed.

For Share Prices: According to this law all Indian companies are free to

determine their respective share prices and premiums on the share prices.

For Mutual Funds: SEBI's introduction of SEBI (Mutual Funds) Regulation in

1993 is to have direct control on all mutual funds of both public and private

sector.

Capital Issue Guidelines

Following the abolition of the office of Controller of Capital Issues and the consequent

removal of administrative control over the pricing of new issues, the capital markets now

enjoy a considerable degree of freedom. New companies, being set up by existing

companies; with a five year track record of profitability, are free to price issues, provided

the participation of the promoters is not less than 25% of the equity of the new company

and the pricing is made applicable to all new investors symmetrically.

Where a new company is set up by existing private sector companies along with a state

level agency, or a government company, or a foreign collaborator, it will be sufficient if

the private sector companies alone satisfy the requirements of five year track record of

profitability.

Existing profitable companies issuing capital for augmenting their own capital base are

free to price their issue. At the same time, the practice of making preferential allotment of

shares, unrelated to the prevailing market prices was stopped by SEBI.

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In any capital issue to the public, there is a specified minimum capital contribution to be

made by the promoters.

To reduce the cost of the issue, underwriting by issues has been made optional, subject to

the condition that if an issue is not underwritten, and is not able to collect 90% of the

amount offered to the public, the entire amount collected would be refunded to the

investors.

Where fully convertible debentures (FCDs) are to be issued, the interest rate can be freely

determined by the issuer.

Companies are required to create a Debenture Redemption Reserve (DRR) equivalent to

50% of the amount of debenture issue before debenture redemption commences.

The cost of issuing capital, as of December 1992, was estimated at approximately 9-19%

of the issue. This included fees for issue management, underwriting fees, stationary costs,

advertisement and publicity costs, mailing costs, brokerage, etc. Companies have a

variety of options which entail lower issue costs, such as GDR issues, private placement,

and bought-out deals.

SEBI's intention of passing on some part of its responsibility to the lead managers is

reflected in the new guidelines announced in May 1995. The major decisions were:

SEBI has decided to stop vetting of rights issues all together. The onus of this

responsibility will now rest with the lead managers. The procedure for clearance

would be that the merchant banker would have to file the offer document with

SEBI six weeks prior to the proposed date of offer of rights issue. If SEBI does

not ask for clarifications within 21 days from the date of filing, the company and

the lead manager can proceed with the issue.

SEBI revised the guidelines for reservation in public issues. As per the new

guidelines which will take effect from 1 June 1995, half of the net public offer

should be reserved for small applicants, i.e. those applying for less than 1,000

shares/securities. The other half would be reserved for the corporate applicants.

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A committee comprising chiefs of senior executive directors of the five divisions

of SEBI has been formed which will clear all public issues which are more than

Rs. 100 crore. Formerly, all the issues were cleared by the primary markets

division. Issues less than Rs. 20 crore would be cleared by the division chiefs,

those between Rs. 20 crore and Rs. 50 crore by the executive directors and those

between Rs. 50 crore and Rs. 100 crore by the the senior executive director.

Rules and regulation in global capital market

Market Supervision

The Market Supervision Division is responsible for monitoring the trade and primarily

deals in securities, while also monitoring the electronic channels and websites to ensure

that there are no unlawful acts or practices against Capital Market Law and its

implementing regulations. The Division also responsible to ensure that Listed

Companies, Board of Directors, Senior Executives and Substantial Shareholders comply

with the continuous disclosure requirements and any instructions or directives issued by

CMA. In addition to this, it also ensures the Listed Companies compliance with

requirements of the Corporate Governance Regulations.

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The Division's roles and responsibilities are as follows:

1. Monitoring of trading transactions and conducting preliminary reviews to ensure a

full compliance of the participants under the Capital Market Law and its

Implementing Regulations. This is mainly to protect Investors and traders against

any unfair or deceptive acts or practices through advanced surveillance systems

and tools.

2. Monitoring of electronic channels for any acts or practices against Capital Market

Law and its implementing regulations.

3. Monitoring compliance of listed companies’ compliance with the continuous

discloser requirements. This includes listed companies annual, quarterly and non-

current continuous obligations and review of financial reports to ensure the

discloser’s adequacy and fairness.

4. Ensure that Board of Directors, Senior Executives and Substantial shareholders

comply with discloser requirements stated in CMA’s regulations.

5. Ensuring that the compliance of listed companies is in line with the requirements

of the Corporate Governance Regulations.

6. Establishing the culture of corporate governance by enhancing awareness of best

practices.

The Market Supervision Division consists of three departments as follows:

The Continuous Disclosure Department:

The Continuous Disclosure Department is responsible for following up and supervising

listed companies in order to ensure the best practices of disclosure and transparency in

the capital market. The Department undertakes the promoting of disclosure and

transparency of listed companies and investors. The department has contributed in many

developments with regard to regulations and procedures for disclosure of listed

companies and is still working to promote and improve their procedures and regulations.

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The main functions of the Department include:

Monitoring of announcements developed by listed companies on the website of

The Saudi Stock Exchange (Tadawul).

Monitoring of disclosure forms.

Monitoring ownership activities of Board Members, Senior Executives and major

Shareholders of listed companies.

Monitoring investment activities of listed companies in the capital market.

Reviewing the annual and interim financial statements of listed companies.

Surveillance Department:

The Surveillance Department is responsible for monitoring trade operations by using

daily analysis for the market trades, writing periodic reports, and using the latest

surveillance systems in the global market. The goal is to ensure compliance of the capital

market participants to CMA rules and regulations , in order to regulate the market and

provide the necessary protection to investors.

The processes of market surveillance are as follows:

Analyzing market trades on a daily basis and writing reports of all unusual

behavior that occurred to it.

Extensive research is conducted on all transactions through the analysis of market

data and executed orders.

The monitoring system (SMART) issues alerts about any practices or transactions

may be suspected of being in violation of the capital market law and its

regulations.

After analyzing the alerts, a report of any suspected violation of the Capital

Market Law and its Implementing Regulations must be prepared, and forwarded

93

to the concerned department in Capital Market Authority to investigate the issue

and take necessary decisions on it.

A surveillance inquiry (soft enforcement) will take place for any conduct or

practice suspected of violating the Capital Market Law and its regulations.

Screening electronic media channels to ensure that there is no practices or acts

that violate the Capital Market Law and its Implementing Regulations.

Corporate Governance Department:

The Corporate Governance Department is responsible for mentoring listed companies

with corporate governance regulations in order to ensure strict adherence to best

corporate governance practices that protect the rights of shareholders and the rights of

stakeholders. The Department has developed many goals that will help to gain access to

implementing the best corporate governance practices of listed companies, such as:

Increase the awareness of listed companies with the corporate governance

regulations and good governance practices, while promoting a culture of good

governance with listed companies in the Capital Market.

Promote the concepts of transparency, responsibility, and fairness in addition to

raising the awareness of investors regarding good governance.

Enhance communication with professional international and local organizations

related to corporate governance as well as institutional investors in order to

introduce and develop corporate governance practices in the Kingdom.

Develop clear and effective procedures to the department to oversee the

governance practices of listed companies in the capital market, which ensures the

protection of investors in the capital market.

Encourage self-enforcement of good practices of corporate governance and

promote a culture of governance in listed companies through the continuous

communication.

Develop and use appropriate tools to ensure the effective application of the

statutory requirements for corporate governance.

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The Market Supervision Division has posted on the CMA website all disclosure

templates, forms and special guidance manuals to help participants to comply with CMA

requirements.

Chapter -6

1.Global Stock Market Indices

1. Dow jones stock

exchange

95

Dow Jones Industrial

Average Index (DJIA:DJI)

12,582.77 +168.43

+1.36%

NYSE Composite Index

(NYSEI:NYA.X)

8,423.57 +104.86 +1.26%

2. NYSE Composite Index

3. NASDAQ

composite index

4. NASDAQ 100

Index

5. FTSE 100 Index

6. FTSE 250 Index

96

NASDAQ Composite

Index (NASDAQI:COMPX)

- - -

NASDAQ 100 Index

(NASDAQI:NDX.X)

2,361.33 +36.45 +1.57%

FTSE 100 Index

(FTSE:UKX)

5,989.76 +44.05 +0.74%

7. FTSE 350

Index

8. FTSE

Techmark 100

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FTSE 250 Index

(FTSE:MCX)

12,040.28 +106.24

+0.89%

FTSE 350 Index

(FTSE:NMX)

3,187.62 +24.08 +0.76%

FTSE Techmark 100

(FTSE:T1X)

2,218.71 +16.85 +0.77%

9. FTSE AIM All Share

Index

10. S&P/TSX Composite

Index

11. Bovespa Index

12. DAX Index

98

S&P/TSX Composite

Index (TSX:OSPTX)

13,300.87 +111.93

+0.85%

FTSE AIM All Share

Index (FTSE:AXX)

864.23 +6.27 +0.73%

Bovespa Index

(BOV:IBOV)

63,394.35 +990.71

+1.59%

DAX Index (DBI:DAX)

7,419.44 +43.20 +0.59%

13. MDAX Index

14. Hnag Seng Index

15.BSE

Sensex

16.S&P/ASX

200 INDEX

99

Hang Seng Index

(HKEX:HSI.X)

22,397.25 0.00 0.00%

MDAX Index

(DBI:MDAX)

10,991.29 +58.96 +0.54%

Bse Sensex

(BSE:SENSEX)

18,753.32 -58.73 -0.31%

S&P/ASX 200 Index

(ASX:XJO)

4,588.30 -16.50 -0.36%

17. Nikkei 225 Index

2. World leading stocks

1.Leading stock exchanges by value of trades in 2008:

(trillion dollars)

1. Nasdaq Stock Market 36.45

2. NYSE Group 33.64

3. London Stock Exchange 6.47

4. Tokyo Stock Exchange 5.59

5. Euronext 4.45

6. Deutsche Boerse 3.88

7. Shanghai Stock Exchange 2.59

8. BME Spanish Exchanges 2.44

9. TSX (Toronto) 1.74

10. Hong Kong Stock Exchange 1.63

11. Borsa Italiana 1.53

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Nikkei 225 Index

(NIKKEI:NI225)

9,868.07 +51.98 +0.53%

12. Swiss Exchange 1.51

13. Korea Stock Exchange 1.46

14. OMX (Nordic & Baltic exchanges) 1.34

15. Australian Stock Exchange 1.26

Source: World Federation of Exchanges

2. Leading derivatives exchanges by contract volume:

(Jan-June 2008, million contracts)

1. CME Group 1,551.4

2. Korea Exchange 1,172.7

2. Eurex (Deutsche Boerse) 1,146.1

4. Liffe (NYSE Euronext) 565.8

5. Chicago Board Options Exchange 557.8

6. ISE (Deutsche Boerse) 505.3

7. Philadelphia Stock Exchange 261.1

8. National Stock Exchange of India 234.3

9. New York Mercantile Exchange 217.7

10. JSE (South Africa) 216.2

11. NYSE Arca Options 215.7

11. Bolsas de Mercadorias & Futuros 214.8

12. Bolsa de Valores de Sao Paulo 153.1

14. Dalian Commodity Exchange 136.7

15. RTS (Russia) 123.7

Source: Futures Industry Association

3. Leading exchange groups by market capitalisation:

(billion dollars)

1. CME Group (CME.O) 11.30

2. Deutsche Boerse (DB1Gn.DE) 10.47

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3. Hong Kong Exchanges and Clearing (0388.HK) 8.83

4. NYSE Euronext (NYX.N) 5.52

5. Bovespa (Brazil) (BVMF3.SA) 5.47

6. Nasdaq OMX Group (NDAQ.O) 4.40

7. Intercontinental Exchange (ICE.N 4.09

8. Singapore Exchange (SGXL.SI) 3.52

9. ASX (Australia) (ASX.AX) 2.96

10. Bolsas y Mercados Espanoles (BME) (BME.MC) 2.01

11. London Stock Exchange (LSE.L) 1.82

12. TSX Group (Toronto) (X.TO) 1.82

Source: Reuters data

(Reporting by Peter Starck, editing by Dan Lalor)

Operating system in different stock market

1)Operating system in US market

a) Operating system in Dow Jones stock exchange

Participants in the stock market range from small individual stock investors to large

hedge fund traders, who can be based anywhere. Their orders usually end up with a

professional at a stock exchange, who executes the order.

Some exchanges are physical locations where transactions are carried out on a trading

floor, by a method known as open outcry. This type of auction is used in stock exchanges

and commodity exchanges where traders may enter "verbal" bids and offers

simultaneously. The other type of stock exchange is a virtual kind, composed of a

network of computers where trades are made electronically via traders.

Actual trades are based on an auction market model where a potential buyer bids a

specific price for a stock and a potential seller asks a specific price for the stock. (Buying

or selling at market means you will accept any ask price or bid price for the stock,

102

respectively.) When the bid and ask prices match, a sale takes place, on a first-come-first-

served basis if there are multiple bidders or askers at a given price.

The purpose of a stock exchange is to facilitate the exchange of securities between buyers

and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-

time trading information on the listed securities, facilitating price discovery.

Market participants

A few decades ago, worldwide, buyers and sellers were individual investors, such as

wealthy businessmen, usually with long family histories to particular corporations. Over

time, markets have become more "institutionalized"; buyers and sellers are largely

institutions (e.g., pension funds, insurance companies, mutual funds, index funds,

exchange-traded funds, hedge funds, investor groups, banks and various other financial

institutions).

The rise of the institutional investor has brought with it some improvements in market

operations. Thus, the government was responsible for "fixed" (and exorbitant) fees being

markedly reduced for the 'small' investor, but only after the large institutions had

managed to break the brokers' solid front on fees. (They then went to 'negotiated' fees, but

only for large institutions.

However, corporate governance (at least in the West) has been very much adversely

affected by the rise of (largely 'absentee') institutional 'owners'

b)Operating system in New York Stock Exchange

The New York Stock Exchange

103

The New York Stock Exchange is a physical exchange, also referred to as a listed

exchange – only stocks listed with the exchange may be traded. Orders enter by way of

exchange members and flow down to a floor broker, who goes to the floor trading post

specialist for that stock to trade the order. The specialist's job is to match buy and sell

orders using open outcry. If a spread exists, no trade immediately takes place—in this

case the specialist should use his/her own resources (money or stock) to close the

difference after his/her judged time. Once a trade has been made the details are reported

on the "tape" and sent back to the brokerage firm, which then notifies the investor who

placed the order. Although there is a significant amount of human contact in this process,

computers play an important role, especially for so-called "program trading".

c)Operating system in NASDAQ

The NASDAQ is a virtual listed exchange, where all of the trading is done over a

computer network. The process is similar to the New York Stock Exchange. However,

buyers and sellers are electronically matched. One or more NASDAQ market makers will

always provide a bid and ask price at which they will always purchase or sell 'their' stock.[4]

The Paris Bourse, now part of Euronext, is an order-driven, electronic stock exchange. It

was automated in the late 1980s. Prior to the 1980s, it consisted of an open outcry

exchange. Stockbrokers met on the trading floor or the Palais Brongniart. In 1986, the

CATS trading system was introduced, and the order matching process was fully

automated.

From time to time, active trading (especially in large blocks of securities) have moved

away from the 'active' exchanges. Securities firms, led by UBS AG, Goldman Sachs

Group Inc. and Credit Suisse Group, already steer 12 percent of U.S. security trades away

from the exchanges to their internal systems. That share probably will increase to

18percent by 2010 as more investment banks bypass the NYSE and NASDAQ and pair

buyers and sellers of securities themselves, according to data compiled by Boston-based

Aite Group LLC, a brokerage-industry consultant.[5]

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Now that computers have eliminated the need for trading floors like the Big Board's, the

balance of power in equity markets is shifting. By bringing more orders in-house, where

clients can move big blocks of stock anonymously, brokers pay the exchanges less in fees

and capture a bigger share of the $11 billion a year that institutional investors pay in

trading commissions as well as the surplus of the century had taken place.

Market participants

A few decades ago, worldwide, buyers and sellers were individual investors, such as

wealthy businessmen, usually with long family histories to particular corporations. Over

time, markets have become more "institutionalized"; buyers and sellers are largely

institutions (e.g., pension funds, insurance companies, mutual funds, index funds,

exchange-traded funds, hedge funds, investor groups, banks and various other financial

institutions).

The rise of the institutional investor has brought with it some improvements in market

operations. Thus, the government was responsible for "fixed" (and exorbitant) fees being

markedly reduced for the 'small' investor, but only after the large institutions had

managed to break the brokers' solid front on fees. (They then went to 'negotiated' fees, but

only for large institutions.

However, corporate governance has been very much adversely affected by the rise of

(largely 'absentee') institutional 'owners'.

105

Operating system in Asia Market

Operating system in Nikkei 225

The Nikkei Stock Average is the average price of 225 stocks traded on the first section of

the Tokyo Stock Exchange, but it is different from a simple average in that the divisor is

adjusted to maintain continuity and reduce the effect of external factors not directly

related to the market.

Equation

Nikkei Average =

Sum of stock prices of 225 constitutents

Divisor

a) Stocks that do not have a par value of 50 yen are converted to 50 yen par value.

b) Numbers are rounded to two digits after the decimal point, or hundredths, to calculate

the average.

c) Priority in the usage of prices are:

1. Current special quotation (closing special quotation).

2. Current price (closing price).

3. Standard price, which is defined as follows:

The theoretical price of ex-rights, a special quotation from the previous day or the closing

price from the previous day, in this order of priority.

Adjustment of divisors

When components change or when they are affected by changes outside of the market,

the divisor is adjusted to keep the index level consistent.

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1) In the case of ex-rights

New Divisor =

Old Divisor X(sum of stock prices cum rights - sum of rights prices)

sum of stock prices cum rights

Rights prices = last cum stock price - theoretical value of ex-rights

Theoreti

cal

value of

ex-

rights

=

last cum stock price+paid-in amount

X paid-in allotment ratio

paid-in allotment ratio + split

allotment ratio

When there is no split or a reverse split, the split-allotment ratio shall be one.

2) In case of capital decrease

Theoretical value of ex-rights =

last cum stock price

1-ratio of capital decrease

3) In the case of replacement of components in the average

Rights price = price of replaced components - price of added components

4) In the case of stock buyback by issuer

Divisor not adjusted

Magnifications

Adjusted magnification= 225

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divisor

Adjusted

magnification=

Adjusted average

=

sum of stock

prices

/

sum of stock

prices

=

225

mathematical

averagedivisor 225 divisor

The concepts of "Periodic Review" and "Extraordinary Review" were redefined, and

timing for the reviews was changed. The primary purpose of the Periodic Review is to

annually reconsider component issues from the standpoint of changes in the industrial

and market structures. The Extraordinary Review is for deleting and adding components

in response to extraordinary developments, such as bankruptcies or mergers.

Periodic Review Standards

In principle, the Periodic Review shall be conducted annually in October in line with the

rules in place. The Periodic Review may, however, be carried out more than once a year

if necessary.

Active Approach To Deletions/Additions

The most important changes is that the Periodic Review process is carried out in a far

more comprehensive and dynamic manner. The rules previously required replacement of

an issue if liquidity had declined significantly, or if a company was delisted.

The revised rules call for a more active approach to deletions and additions by requiring

consideration of changes in the industrial structure and market environment, in addition

to liquidity. In view of the desire for a more dynamic review process, no limit is placed

on the number of issues that can be replaced.

Assessing Liquidity

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While the principle of favoring highly liquid stocks was maintained, the yardstick for

assessing liquidity was revised. The former measures of "Trading Volume" and "Price

Fluctuation to Volume" were replaced by "Trading Value" and "Rate of Price Fluctuation

to Volume."

The new measures are seen as better gauges of liquidity because they combine Trading

Value, a standard for measuring turnover, and Rate of Price Fluctuation to Trading

Volume, which is important in view of the increase in the number of high-priced issues.

Trading Value is calculated by multiplying the average of four prices (open, high, low

and close) by number of shares traded. The period over which liquidity is measured was

shortened to five years, from 10. The primary reason for this is to track changes in the

market as closely as possible while eliminating the impact of factors that temporarily

increase liquidity in the market.

Selection of Highly Liquid Stocks

The practice of assigning highly liquid stocks to the "High-liquidity Group" has not

changed. Formerly, all stocks on the first section of the Tokyo Stock Exchange were

ranked in order of liquidity and the top 50% were considered high-liquidity issues. This

approach has been replaced with one in which the 450 most liquid issues are chosen (a

figure double the 225 component stocks of the index).

The approach of selecting the top 50% was abandoned because the number of issues

listed on the first section of the TSE is growing and there was concern that the method

would not result in a list representative of highly liquid issues. A predetermined figure

that limits the population to a number double the component count was considered to be

more practical and reasonable.

Mandatory Deletion/Addition

109

The rule mandating deletion of issues that fall outside the high-liquidity group remains

unchanged. Since the high-liquidity group is now limited to 450 stocks, all issues ranked

451 and below are automatically excluded.

Another important change involves elimination of the rule stating that only six issues

could be removed from the index in a single review period. This was replaced by a rule

requiring that the 75 most liquid issues (one-third of the component count of the Nikkei

average) be included in the index.

Deletion/Addition Based on Sector Balance

A new concept based on six industrial sectors was adopted with these revisions. This was

accomplished by consolidating Nikkei's 36 industrial categories into six: Technology,

Financials, Consumer Goods, Materials, Capital Goods/Others, and

Transportation/Utilities. Component stocks of the Nikkei average are balanced among

these six sectors.

Choice of the sector approach reflects a belief that actively rebalancing component stocks

from a broader perspective is required to accurately represent dynamic changes in the

industrial structure. Procedures for inter-sector rebalancing are as follows.

(a) The 450 high-liquidity issues are classified into the six sector categories. Half of the

number of issues in each sector will be considered the "Appropriate Number of Issues"

for that sector to be included in the index. This percentage reflects the fact that the

number 450 is double the number of Nikkei average components.

(b) The Mandatory Deletion / Addition rule is applied to the Appropriate Number of

Issues to show if too many or too few have been chosen. For example, if the number of

issues appropriate for a sector is 30 and the actual number of issues obtained after

applying the rule is only 28, then two issues will be added to bring the sector's count to

30.

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Adjustments will be made for excesses or shortages in each sector as follows. If the

number of companies for a specific sector in the top 75 most liquid issues that will be

automatically included in the 225 components excesses in the Appropriate number of

Issues for a sector, the excess is ignored and all issues are initially included.

(c) The excess in a sector resulting from automatic inclusion as described above is

adjusted by removing an equivalent number of issues from the sector, starting with the

issue exhibiting the lowest level of liquidity.

(d) Shortage will be filled up by adding an equivalent number of issues from among

companies currently excluded, starting with the issue exhibiting the highest level of

liquidity.

This sector-based breakdown and the underlying industry classifications may be modified

to reflect changes in the industrial structure. The 36 Nikkei industrial classifications

included in the six sector categories are as follows:

Technology -- Pharmaceuticals, Electrical Machinery, Automobiles, Precision

Machinery, Telecommunications

Financials -- Banks, Miscellaneous Finance, Securities, Insurance

Consumer Goods -- Marine products, Food, Retail, Services

Materials -- Mining, Textiles, Paper & Pulp, Chemicals, Oil, Rubber, Ceramics, Steel,

Nonferrous metals, Trading House

Capital Goods/Others -- Construction, Machinery, Shipbuilding, Transportation

Equipment, Miscellaneous Manufacturing, Real estate

Transportation and Utilities -- Railroads & Buses, Trucking, Shipping, Airlines,

Warehousing, Electric Power, Gas.

Extraordinary Deletion

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Basically, the rule requiring that a component stock be deleted when it is removed from

the first section of the TSE (that is moved to the Liquidation post known as "Seiri Post"),

delisted due to a merger or insolvency (insolvency is assumed when a company files for

protection from creditors) or singled out for some other extraordinary reason has not been

changed.

A component stock moved to "Kanri Post" (Post for stocks under supervision) is in

principle a candidate for deletion.

Stocks are moved to Kanri Post for a variety of reasons, including likely delisting or

during a temporary period of investigation and monitoring. In such cases, the decision to

delete a stock from the average will depend on circumstances particular to the issue in

question.

If one or more component stocks is deleted from the average, the schedule for filling the

resulting opening is as follows:

(1) The "Shortage Ratio" was used previously for choosing the issue to replace a deleted

component, with priority given to the most underrepresented industrial classifications.

The new Periodic Review system focuses on the sector with the vacancy and requires

selection of the stock with the highest liquidity among sector issues that have not been

included in the average in the past. Given one deletion in financials, a newly-selected

issue will come from financials.

(2) As a rule, replacement will be effective on the day an opening emerges. If a

component is moved to Seiri Post, the change goes into effect on the day the issue is

moved.

If a vacancy develops suddenly on a day the market is closed, a certain interim period

may be allowed before the opening is filled, to announce the date and details of

replacement ahead of time. This rule is used in cases where a company files for

protection under the Corporate Reorganization Law at night or on a public holiday.

Other Revisions

112

The rules under "Exceptions to Addition Policy" and "Special Additions" have been

abolished. Exceptions to Addition Policy rules stated that companies qualifying for an

exceptional addition had to be listed on the first section of the TSE for more than 3 years

and have a float exceeding 6 million shares. Special Additions rule stated that a firm

considered representative of its industry by TSE would be included.

Some companies may be delisted as they move forward with restructuring or

diversification programs. In such cases, component issues will be replaced in accordance

with the following procedures, depending upon the nature of the reorganization.

 Replacement procedures will not be implemented immediately but held pending until the

next Periodic Review so that liquidity can be monitored around the time of the

reorganization and the new entity's status measured in terms of its being representative of

its industry. This means that the delisting process will be handled as before.

 It should also be noted that in the following cases, the issue may not necessarily be

included at the next Periodic Review.

(1) If a non-component issue becomes the surviving entity in a merger between TSE first

section companies, and the current component issue is the company absorbed by the

surviving entity, the surviving non-component issue may be included in the index.

(2) When a component issue is delisted following the formation of a holding company

(including formation of a holding company by several listed firms), the newly established

"Holding Company" may be included as an index component.

Revisions to the Nikkei Indices Selection Rules 2002

Nikkei Inc. revised the component selection rules for the Nikkei Stock Average (Nikkei

Average or Nikkei 225), Nikkei Stock Index 300 and Nikkei 500 Stock Average from

February 1, 2002.

The previous rule stipulated that the constituents were to be removed and added

immediately after corporate failure events. When constituents filed for bankruptcy or

113

were moved to Seiri-Post by the Tokyo Stock Exchange, changes to the indices were

made after the close of the same day.

However, in the face of recent economic conditions, to enable the users respond to the

changes smoothly and to make the changes better known to the public, new constituents

are added after an interval under the revised rules.

The interval is approximately two days and the exact number of days will be announced

at each event. Constituents which are moved to Seiri-Post continue to be removed on the

day of the event. The Nikkei Average will be calculated with fewer than 225 constituents

before the addition of new components.

Operating System in Taiwan Index

Listing of Securities

A public company applying for listing has to meet certain financial and operational criteria.

After close examination by TWSE’s listing functions, the application is submitted to the

“Securities Listing Review Committee” for consideration. Thereafter, the application needs

to be confirmed by a resolution from the Board of Directors for endorsement, before being

submitted to the Securities and Futures Bureau (SFB) for final approval. After the listing

application has been approved by the SFB, the public company pays listing fees, and

submits its quarterly certified financial reports to TWSE for examination.

TWSE actively promotes corporate governance of listed companies, supervises and

regulates listed companies’ financial and operational status on a routine basis, and carries

out investigations into unusual circumstances, and verifies material information disclosed

by listed companies. In addition, in order to enhance the quality of information disclosure

in the securities market, TWSE works with GreTai Securities Market to manage a “Market

Observation Post System”, and an “Information Disclosure Evaluation System”.

TWSE has focused on developing new products to enhance diversification of securities and

provide investors with hedging tools. TWSE began to accept listing applications of put

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warrants in January 2003, launched the first Exchange Traded Fund (ETF) on June 30,

2003, and launched ETF warrants in July 2004. Listed securities on TWSE currently

include stocks, entitlement certificates of convertible bonds, convertible bonds, government

bonds, beneficiary certificates, call warrants, put warrants, ETFs and Taiwan Depository

Receipts (TDRs).

Trading of Securities

When TWSE was established, trading in the centralized market place was carried out on an

open trading floor. However, to meet the changing needs of the market environment, the

trading system has progressed through several phases. In August 1985, the open trading

floor was gradually replaced by a computer-aided trading system (CATS), which was

eventually upgraded to a fully automated securities trading (FAST) system in 1993. The

fully computerized trading system has helped boost the trading capacity and efficiency of

the stock market.

The trading hours of the centralized market trading session are as follows:

Trading SessionsTrading

DaysTrading Hours

Regular TradingMonday -

Friday09:00 ~ 13:30

Off-hour TradingMonday -

Friday14:00 ~ 14:30

Odd-lot TradingMonday -

Friday13:40 ~ 14:30

Block

Trading

Non-paired

Trade

Monday -

Friday09:00 ~ 17:00

Paired Trade Monday -

Friday

08:00 ~ 08:30

（Pre-opening trading hours）

09:00 ~ 17:00

（In case of settlement on T Day, the quote

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shall be completed by 13:50.）

Investors may place an order in person, by phone, fax or Internet. Orders are entered via

terminals on securities firms’ premises into TWSE’s main computer, and are processed and

executed by the trading system on a price-and-time-priority principle. In special cases,

listed stocks may be traded through negotiation, auction, tender or other means.

Trading prices are decided by call auction. TWSE conducts “intra-day volatility

interruptions” to prevent over-volatility of stock prices, and also discloses prices and

volumes of unexecuted orders at the 5 best bids/asks. At the end of the trading session, the

trading system accumulates orders for 5 minutes (from 1:25 p.m. to 1:30 p.m.) before the

closing call auction in order to form fair closing prices.

Computer and Information Safety

The computerized trading, settlement, and information transmission of TWSE is highly

efficient. For the purpose of maintaining market integrity and safeguarding investor rights,

TWSE pays close attention to information and communication safety mechanisms. TWSE

has a full capacity back-up computer system to guard against any possible system failure.

TWSE has been awarded an ISO9001 quality system certificate for its computer system,

and received ISO27001 authentication for its IT Security Management System.

Market Surveillance

A healthy and orderly market should be able to protect investors’ rights and privileges, and

suppress manipulation and insider trading. In accordance with the Market Surveillance

Regulations, TWSE daily discloses information about abnormal securities trading to alert

investors, thereby protecting investors’ rights. TWSE may take disciplinary measures, as

defined in the Regulations, to constrain abnormal market behavior, and prevent damage to

the market.

Clearing and Settlement

According to the Securities and Exchange Act and TWSE’s own operational rules, TWSE

acts as clearinghouse for all trades executed in the market. All securities firms have to

116

fulfill settlement obligations to TWSE, which takes on the final responsibility for ensuring

the completion of the settlement process in the market.

TWSE employs a multilateral net settlement to calculate the net amounts of securities and

funds receivables and payables between securities firms and TWSE. The settlement of

shares and payments between securities firms and TWSE is processed on T+2. In cases of

block trades, investors can choose the settlement day to be either T+2 or T.

The securities broker and dealer is responsible to TWSE for completing all the obligations

of clearing and settlement and other related responsibilities arising from trading on TWSE.

If the securities firm can not fulfill securities settlement obligations because of a defaulting

client, erroneous trade, or other reasons, it may apply to TWSE to borrow securities to

complete the settlement through the securities borrowing system. When the securities firm

applies to borrow securities, it deposits collateral with TWSE. When the securities firm

cannot borrow a sufficient amount of securities through the securities borrowing system,

TWSE issues a due bill to cover the gap. The securities firm has to provide collateral as

well.

If any securities firm fails to fulfill its settlement obligations, TWSE designates other

securities brokers or dealers to complete its settlement. The resultant price differences and

the expenses incurred are first covered by the Joint Settlement and Clearing Fund (JSCF)

contributed by the defaulting securities firm, and then the Special Clearing Fund maintained

by TWSE, followed by the left portion of JSCF contributed by other securities firms.

TWSE Securities Borrowing and Lending System

TWSE established a Securities Borrowing and Lending System (SBL) on June 30, 2003.

Participants include institutional investors such as securities firms, banks, insurance

companies and foreign institutional investors, while TWSE serves as an intermediary. The

system provides three kinds of transactions: fixed-rate transactions, competitive auction

transactions and negotiated transactions. Upon collecting borrowers’ collateral in fixed-rate

and competitive auction transactions, TWSE assumes the role and risks of a guarantor. The

introduction of SBL mechanism in Taiwan not only increases the liquidity of the Taiwan

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securities market, but also attracts foreign investors to our market and makes our market

more competitive.

Internationalization of Securities Market

In order to enhance international information-exchange and cooperation, TWSE has entered

into Memoranda of Cooperation with more than 20 foreign stock exchanges, and actively

participated in international securities meetings and organizations, such as WFE, EAOSEF,

ANNA and IOSCO.

To speed up the liberalization and internationalization of the Taiwan securities market,

TWSE has actively reached out to the world in recent years. We have held promotional

tours to the major financial centers in the world and other promising areas such as the

Middle East. We wish to connect the entrepreneurial spirit of Taiwan with foreign

investors’ funds, and in turn enhance the market depth of the stock market. In addition,

TWSE has held conferences or meetings, at which famous foreign scholars or experts are

invited to talk to the local market about current market trends and at the same time, inform

foreign investors of the continuing liberalization of our stock market.

In order to keep up with the international trend of developing index-related products,

TWSE, in association with FTSE, has launched a series of tradable indices in Taiwan: the

“TWSE Taiwan 50 Index” on October 29, 2002, “TWSE Taiwan Mid-cap 100 Index” and

“TWSE Taiwan Technology Index” on November 29, 2004, “TWSE Taiwan eight

industries Index” and “TWSE Taiwan dividend+ Index” on January 15, 2007. TWSE will

continue to cooperate with FTSE, in accordance with international standards, to compile

more indices to be used as underlying indices of new financial products.

Monitoring of Securities Firms

According to the Securities and Exchange Law, the establishment of a securities firm and

its branch has to be approved and licensed in advance by the relevant authority. Prior to

participating in the market, a securities firm must sign a contract with TWSE and deposit a

settlement and clearing fund with TWSE, who then set up a fund management committee to

manage this fund. The securities firm is responsible for its employees in both sales

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representation and ethical behavior when conducting centralized market business.

To enhance the financial structure and risk management, all securities firms must meet the

regulatory capital adequacy ratio to maintain regular business. All securities dealers are

required to set aside a monthly trading-loss reserve, and securities brokers are required to

set aside a defaulting-loss reserve. All reserves are accumulated up to a specified amount.

To maintain an orderly and safe market, TWSE regularly sends inspectors to check the

securities brokers and dealers on-site to see whether their business operations and financial

status meet all these requirements. In addition, TWSE maintains a warning system for

scrutinizing the operational risk of securities firms, and also sets up a risk control database

for margin trading to strengthen the risk management of securities firms.

For the purpose of simplifying and reducing paperwork of trading participants, TWSE

established a unified reporting system in 1999 for securities brokers to file all TWSE-

required reports through a single electronic user interface. TWSE also provides securities

brokers with e-mail trading and direct market access (DMA) to make full use of the most

advanced technology. Furthermore, TWSE has relaxed securities firms’ sites and facilities

requirements and encouraged their automation effort so as to reduce operation cost.

Investors Service

An investor wishing to conduct securities transactions first opens an account with a

securities brokerage firm, and signs a “Trustee Agreement” to grant the broker permission

to act as his/her agent. Following the Executive Yuan’s revision of the “Regulations

Governing Investment in Securities by Overseas Chinese and Foreign Nationals” and the

abolition of the QFII system, TWSE has simplified the process of admitting foreign

investment into the Taiwan stock market. The review process for foreign investment has

changed from a “permission” to a “registration” system. As a result, foreign investors can

now qualify for domestic investment after completing registration at TWSE.

TWSE employs television, newspapers, magazines, posters and other media for

promotional purposes, and holds various promotional activities such as workshops and

seminars to inform and educate investors as regards investment and finance. Investors are

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welcome to ask questions concerning securities investments by calling the Investor Service

Center (886-2) 8101-3101 or 8101-3873.

To enhance and protect investors’ rights and interests, TWSE and other securities-related

institutions jointly established the “Securities Investors’ Protection Fund”. Following the

promulgation of the “Securities Investors and Futures Traders Protection Act”, which

became effective on January 1, 2003, the “Securities and Futures Investors Protection

Center” was established. The Center manages the protection fund to compensate investors

should securities or futures companies be unable to do so due to financial difficulties.

According to Article 18 of the Act, TWSE and other securities-related institutions are

required to contribute funds to the Center.

TWSE has implemented a “investor personal data inquiry system”. This system helps to

reduce the manual handling of personal data processing. It also provides speedy and

convenient responses to personal information inquiries, thus helping to lower the possibility

of fraud or forgery.

Securities Information

To enhance the fairness and efficiency of securities trading, as well as providing a computer

system for stock trading and matching, TWSE uses various channels such as a website and

publications to give investors easy access to securities information.

TWSE’s website ( http://www.twse.com.tw/ ) carries official announcements concerning

securities listing and trading, as well as other securities information for investors’

consultation. In addition, the following 3 websites established by TWSE can be accessed

from TWSE’s home page.

1. Market Information System ( http://mis.twse.com.tw/ ): This website provides real-time

trading information about the market and individual stocks, including “Market Summary”,

“Sector Group Quotes”, “Five Best Bids and Asks”, “ETF Quotes”, “Stock Borrowing

Quotes” and “Market Announcements”, etc.

2. Market Observation Post System ( http://emops.twse.com.tw/emops_all.htm ): This

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website provides financial and operational information about listed companies, including

company profiles, financial statements, operational summaries and material information.

3. Data e Shop ( http://dataeshop.twse.com.tw/ ): This website provides data vendors and

investors with on-line subscriptions to data services, including end-of-day market data,

index constituents data and historical trading data.

To provide investors with versatile reference data, TWSE publishes a “Stock Chart of

Taiwan Stock Exchange Capitalization Weighted Stock Index and Trading Volume &

Value” at the beginning of each year, showing market trends since 1977 (in Chinese only).

In addition, TWSE also puts out the following periodicals, which are also available on

TWSE’s website:

1. Taiwan Stock Exchange Review Monthly (monthly)

2. Taiwan Stock Exchange Statistical Data (annual)

3. Highlights of TWSE Listed Securities (annual)

4. Status of Securities Listed on Taiwan Stock Exchange (monthly)

5. Taiwan Stock Exchange Annual Report (annual)

6. Fact Book (annual)

To inform and educate investors, TWSE has compiled a series of booklets. Investors can

either access the booklets on TWSE’s website ( http://www.twse.com.tw/ ), or obtain hard

copies at securities firms premises.

TWSE has established an “Investors Reading Room” (3F, No. 7, Sec. 5, Xinyi Rd., Taipei)

to display prospectuses and quarterly financial reports of all listed companies, as well as

monthly and semiannual financial reports of all securities brokers and dealers.

To bring the public closer to the stock market, TWSE set up an Information Center in mid-

2008. The Center provides the following information:

● market data displays such as trading graphs, international stock market data, foreign

exchange rates, trade data displays etc.

● current trends in TWSE

● trading simulation systems and educational network servic

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s

● interactive inquiries and display systems

● live broadcasts of ceremonies and speeches

Operating system in Shanghai Comp.

Trading business falls into two categories depending on whether it is provided through the

trading system, namely, trading system-based business and non-trading system-based

business. Trading system-based business can be further grouped into two types:

centralized trading business and trading-related services. Non-trading system-based

business includes negotiated transfer, warrant creation and cancellation, etc.

Centralized trading refers to the change of securities ownership affected through price

inquiry, quotation and auction via the trading system of the stock exchange. Trading-

related services refer to the services provided by the stock exchange through the trading

system that relate to offering, entitlement or trading relationship that is closely associated

with the centralized trading of securities. Compared with similar services offered through

over-the-counter market, centralized trading has the following main differences: (1)

services are provided through the trading system; (2) specific securities codes are

assigned; and (3) trading is conducted through a broker.

SSE is open for trading from Monday to Friday. In the morning session, the market opens

with a call auction between 9:15 am and 9:25 am, which is followed by a continuous

auction between 9:30 am and 11:30 am. The afternoon session begins with a continuous

auction between 13:00 pm to 15:00 pm and then block trading takes place between 15:00

am -15:30 am. The market is closed on the weekends and other public holidays as

announced by SSE.

Securities are traded on SSE on a market-driven and free auction basis. Limit orders and

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market orders are accepted in line with market conditions. At present, trading in A Shares,

B Shares and securities investment funds is subject to a 10% daily price up and down

limit, except for the first trading day. Special treatment shares, or ST shares, are subject to

a 5% daily price up and down limit. The price limits on warrants are based on that of their

corresponding underlying securities and are determined by multiplying the conversion

ratio by a certain coefficient. The price of a block trade of securities with a price limit is

determined by the buyer and seller within the price limit applicable to such securities on

the day of trading. The price of a block trade of securities without any price limit is

negotiated by the buyer and seller within 30% of the previous closing price or between the

highest and lowest traded prices on the day of trading. In the absence of any transaction

for a particular stock, the closing price of the previous trading day will be the execution

price.

Securities trading on SSE are conducted on an agency basis. All the investors that trade

securities on SSE must first appoint a member of SSE as an agent and sign an agreement

with the agent for trading and clearing securities on their behalf. No trading is allowed

before the investor's trading account is registered with the member's trading seat.

SSE has adopted a primary dealer system in warrant trading. Primary dealers are the

securities firms that are designated by SSE for providing bilateral quotations for warrant

trading. In addition, institutional market participants recognized by SSE may provide daily

bilateral quotations for bonds traded on SSE's block trading system, with the specific

bonds and the spreads to be determined at their discretion to the extent permitted by SSE

rules.

SSE makes timely releases of trading data and information to members and investors.

Daily real-time market quotations, stock indices, clearing data, market reports and daily

transaction data are transmitted to member's counter terminals via satellite

communications system or optical fiber communications system. The transaction data is

instantaneously transmitted to each member via a two-way satellite system and optical

fiber communications system. Since September 22, 2003, SSE has started disclosing five

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best quotations. Block trade data is published in SSE-designated media and released

simultaneously on SSE's website (www.sse.com.cn). Apart from that, SSE also discloses

more detailed information about the daily top gainers and losers on the securities market

in line with the trading rules.

Operating system in Europe market

Operating system in London Stock Exchange

Participants in the stock market range from small individual stock investors to large

hedge fund traders, who can be based anywhere. Their orders usually end up with a

professional at a stock exchange, who executes the order.

Some exchanges are physical locations where transactions are carried out on a trading

floor, by a method known as open outcry. This type of auction is used in stock exchanges

and commodity exchanges where traders may enter "verbal" bids and offers

simultaneously. The other type of stock exchange is a virtual kind, composed of a

network of computers where trades are made electronically via traders.

Actual trades are based on an auction market model where a potential buyer bids a

specific price for a stock and a potential seller asks a specific price for the stock. (Buying

or selling at market means you will accept any ask price or bid price for the stock,

respectively.) When the bid and ask prices match, a sale takes place, on a first-come-first-

served basis if there are multiple bidders or askers at a given price.

The purpose of a stock exchange is to facilitate the exchange of securities between buyers

and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-

time trading information on the listed securities, facilitating price discovery.

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Operating system in FTSE

The FTSE 100 consists of the largest 100 UK companies, by full market value, which are

eligible for inclusion in the index.

To qualify, companies must have a premium listing on the London Stock Exchange with

a Sterling denominated price on SETS, subject to eligibility screens.

The FTSE Europe/Middle East/Africa Regional Committee will meet quarterly to review

the constituents of the FTSE 100. The meetings to review the constituents will be held on

the Wednesday after the first Friday in March, June, September and December. Any

constituent changes will be implemented on the next trading day following the expiry of

the LIFFE futures and options contracts, which normally takes place on the third Friday

of the same month.

Market capitalization rankings are calculated using data as at the close of business on the

day before the review.

Companies must have a minimum trading record of 20 days at the review.

A security will be inserted at the periodic review if it rises above the position stated

below when the eligible securities for each FTSE Index are ranked by market value:

- Risen to 90th or above

A security will be deleted at the periodic review if it falls below the position stated below

when the eligible securities for each FTSE Index are ranked by market value:

- Fallen to 111th or below

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Changes made to the FTSE 100 at the periodic review will be made automatically to the

FTSE 350 and FTSE 350 Yield Indices.

Where a greater number of companies qualify to be inserted in an index than those

qualifying to be deleted, the lowest ranking constituents presently included in the index

will be deleted to ensure that an equal number of companies are inserted and deleted at

the periodic review. Likewise, where a greater number of companies qualify to be deleted

than those qualifying to be inserted the securities of the highest ranking companies which

are presently not included in the index will be inserted to match the number of companies

being deleted at the periodic review.

Companies that are large enough to be constituents of the FTSE 100 but do not pass the

liquidity test shall not be included. At the next annual review they will be re-tested

against all eligibility screens.

A constant number of constituents will be maintained for the FTSE 100.

The Secretary to the FTSE Europe/Middle East/Africa Regional Committee will be

responsible for publishing the six highest ranking non-constituents of the FTSE 100

Index at the time of the periodic review. The appropriate Reserve List will be used in the

event that one or more constituents are deleted from the FTSE 100 during the period up

to the next quarterly review.

If a new issue is larger than 1% of the full market capitalization of FTSE All-Share it will

normally be included in the FTSE 100 after close on the first day of official trading. The

lowest ranking constituent will be removed.

Operating system in DAX

The DOW Jones Average is made up of 30 companies on the New York Stock exchange.

As of January of 2009 there were 3,615 companies listed. In March of 2006 the NYSE

had a market capitalization valued at $43.6 trillion dollars. Market Capitalization equals

the stock price multiplied by the number of outstanding shares. Outstanding shares refer

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only to the public side of the company and therefore only measured public failure or

success not what may be held privately in the same company.

In March of 2008 the New York Stock Exchange market capitalization was valued at

$27.3 trillion dollars. Today the estimated value is $15 trillion dollars. Since some say

there is only $7 trillion dollars of money in the United Statesone might wonder where did

the other vast sums come from or go to for that matter? Of course that money is just on

paper and one can see how easy it is to evaporate and re-materialize wealth almost

whimsically.

As mentioned the DOW Jones is made up of 30 companies out of 3,615 on the NYSE.

Not to mention the other 7,000 technology-Nasdaq, transportation and utility companies

in the United States that are not represented. This means that the concept governing this

index is not one of diversification even though the Dow is made up of stocks from

companies most widely held in the country.

All 30 of these companies with the exception of Intel and Microsoft, (They are a part of

the Nasdaq.) are members of the New York Stock Exchange. In fact only due to a recent

change in the rules, which precluded non NYSE members, allowed their inclusion. The

fact these companies are some of the most widely held stocks are one of the few pros that

seem to stand-up to why they could possibly be used as a true indicator. Yet there are

many more reasons why they fail to give us a true picture what the real market is doing.

Here are some of the many cons.

First, the DOW Jones Index is a price weighted average. This means that the higher value

stocks are given more weight than the lower priced stocks. Or put another way smaller

companies on the DOW can have and often times do have a bigger impact on the index

than larger companies. Thus the weighted average has nothing to do with the companies

overall size. That means if the more expensive stocks are doing well than the index is

doing well and visa versa.

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The Dow works by establishing a divisor based on the weighted average. Once the

divisor has been calculated the percent change is muted. So a $1 decrease in value of a

stock worth $10 per share or $1 decrease in value of a stock worth $100 per share is

indexed the same. So the average is not one where you can add up the price of 30 stocks

and then divide by 30.

There is also another calculated caveat. If any one of the stocks splits the average will

remain the same. The index does not change instead the price and divisor, are adjusted.

Thus price of a stock goes down as a result of the spilt but the indicator stays the same.

These are a few mathematical manipulations of the index. Yet there is a bigger question

and it has little to do with the math.

Based on the quality and strategy of the 30 stocks picked, the question, is the DOW Jones

Average a good representation of how the market is actually doing? Or stated another

way, how can a market such as the New York Exchange and the broader markets in

general justify such psychological wealth being evaporated based on the volatility of 30

companies?

It starts with this sticking point. The divisor is adjusted only when there is a recalculation

of the price weighted average. This is done when stocks are rotated in and off the roles of

the DOW. Here’s how it is works.

The method of selection for these 30 companies is conducted through an annual review

process done by Dow Jones & Company perhaps in conjunction with the Wall Street

Journal. They use seven criteria to decide what companies should stay and which ones

should go.

Essentially a public relations strategy, the index is designed to put the best face on Wall

Street. The process is about establishing what is called The Dow Jones Sustainability

Index and it is design to make sure only those corporations that represent the top 10% of

the leading sustainable companies in a given industrial sector are represented.

The first criteria, is classified as Sector Sustainability. The companies are reviewed with

respect to their primary revenue source. In the case of Bank of America, Citigroup, GM

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and JP Morgan Chase & Co their main source of income is now the tax payer! These

sources of income and sectors are judged on their ability to sustain a certain level of

performance.

The second criteria, is Corporate Sustainability. Each company is required to be

evaluated. The results are tallied and a score assigned. Here the focus is on shareholder

value, company management, economic goals and the company’s relationship with the

community. For example, has the company always paid a dividend and how much. It is

essentially a risk assessment. The survey of the company is as much subjective as

objective.

Third the company is given a ranking within the Sector. This is based on the Corporate

Sustainability score.

Fourth is the Eligible Industrial Groups. This primarily is an evaluation of the sectors in

conjunction with the corporation. Only those companies that rank a high percentage of

the maximum score in a given sustainable sectors can earn further consideration.

Fifth is Eligible Companies. Those sectors and corporations qualifying under the forth

criteria, companies that are in the top 50% percentile of a sector are eligible for further

consideration.

Sixth is the Component Selection. Overall the top 10% companies are selected. Then

from each sector based on the corporate sustainability score the top 7% of the companies

per sector are selected. If the required number is not reached by then the top 10% in a

sector are selected. If still the required number is not reached then the standards are

lowered until the desired amount has been reached.

Seven is the Market Capitalization Coverage. The DJSI establishes a free floating target

market capitalization for each subsector. This floating capitalization number is based on a

percentage of the market capitalization of a larger super sector. If companies exceed this

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market capitalization then they are selected. If the required number is not met after this

iteration then the floating target market capitalization number is adjusted down.

This process is of course very detailed and much more technical than the length of this

article permits. None the less the review takes place annually and sometimes quarterly as

needed. The point is Dow Jones & Company go through this elaborate process to put the

best face possible on the market. Since the Dow Jones Industrial Average is the most

recognizable index in the world. The controversy about whether it adequately represents

the real market is the point and it is a hotly debatable.

In March of 2008 the Dow Jones market capitalization was less than 10% of the New

York Stock Exchange. Under some circumstances 10% might work as a good indicator.

But keep in mind the NYSE does not include The Nasdaq, Transportation, Utilities,

Preferred Stock, or privately held companies. Then there are the dubious companies, a

part of the DJIA like Citigroup and General Motors. Is it a wonder people are beginning

to ignore the Dow Jones all together and the world is looking for a suitable replacement

based on a combination of US, Euro and Asian copulations.

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Chapter – 7

Stock market in developed countries

Developed International Markets

Understanding developed international markets is key to learning how to invest in them.

Developed markets are much like the US, in that they are strong opportunities that offer

good return on investments. Emerging markets are those just fresh on the books.

Remember, though, that the age of the country and the overall impression you have of

that country may not define the investment opportunities there. The US market was

considered emerging less than 100 years ago, after all.

Developed international markets are those similar to the United States. According to the

2008 Emerging Economy Report, emerging economies and markets are "regions of the

world that are experiencing rapid informationalization under conditions of limited or

partial industrialization.” On the other hand, developed international markets are

countries well developed and pose less of a risk.

Which countries are considered to be developed international markets? According to

Morgan Stanley Capital International, here is a list of the current developed countries:

Australia

Austria

Belgium

Canada

Denmark

Finland

France

Germany

Greece

Hong Kong

Japan

Netherlands

New Zealand

Norway

Portugal

Singapore

Spain

Sweden

Switzerland

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Ireland

Italy

United Kingdom

United States

Those who are interested in understanding developed international markets will want to

take a good look at how the United States' markets work, as these are some of the most

commonly used trading locations. What does trading in the United States mean in

general?

To most individuals, trading in developed markets means stability. While there is a large

amount of movement in most stock markets, especially the US markets, there is much

less risk of losing it all. The country is developed enough to the point of being able to

give people the information they need to make key decisions on whether they should or

should not invest there.

Another benefit to investing in developed international markets is the range of

opportunities available. There are thousands of companies that you could invest in, here.

Many of them are from various sectors, giving you plenty of room to expand your

portfolio to include various assets. As one type of asset falls in value on those markets,

there are other assets likely doing well. Therefore, developed markets do offer some

benefits especially to those who want a steadier return on investment.

On the other hand, there are some benefits to investing in emerging markets as well.

Emerging markets are those that are more risky, which may mean that you have to put a

lot of faith in what you are investing in. Unfortunately, some information may be more

difficult to obtain from these markets. So, why do so many people see emerging markets

as an ideal investment arena? The answer to this may lie in the profit they offer. Since

these countries are growing at a rapid pace, and there are more opportunities for ground

floor businesses to do well, there is a potential for a higher return on investment.

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Understanding international developed markets is likely to take a great deal of study and

research, but for many, these markets are an opportunity for lower, but less risky

investments.

Oslo Stock Exchange (Norway Stock Exchange)

Oslo Stock Exchange

Oslo Børs

Type Stock Exchange

Location Oslo, Norway

Coordinates

59°54′31.31″N

10°44′52.06″E59.9086972°N

10.7477944°E

Founded 1819

Owner Oslo Børs ASA

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Key peopleBente A. Landsnes (CEO)

Leiv Askvig (Chairman)

No. of listings 219

MarketCap US$ 346,2 billion (2010)

Volume NOK 2,585 billion (2010)

Indexes OBX, OSEAX

Website http://oslobors.no

Oslo Børsen Building 2011

The Oslo Stock Exchange (Norwegian: Oslo Børs) (OSE: OSLO) serves as the main

market for trading in the shares of Norwegian companies. It opens at 9:00am and closes

5:30pm local time (CET). In additional to a wide range of domestic companies, the OSE

attracts a lot of international companies within petroleum, shipping and other related

areas.

The exchange has pre-market sessions from 08:15am to 09:00am, normal trading sessions

from 09:00am to 05:20pm and post-market sessions from 05:20pm to 05:30pm on all

days of the week except Saturdays, Sundays and holidays declared by the Exchange in

advance.

The Oslo Stock Exchange started life as Christiania Børs in 1819. In the beginning, there

was no organized listing or stock exchange; the Børs served as a meeting place for

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investors auctioning ships, shares in ships, commodities, and foreign currencies. Stocks

and bonds only started trading on the exchange in 1881.

In 1988, the exchange introduced an electronic trading support system, and replaced the

old auction model with continuous trading of listed shares throughout the day. Trading

became fully electronic in 1999 and the trading floor was discontinued.

OBX Index

The OBX Index is a list of the 25 most liquid companies on the Oslo Stock Exchange

main index. The companies have their own index common OBX index. All stocks on the

OBX list can be traded with options and futures which are listed on the SOLA derivative

platform. The companies on the OBX list are rotated twice a year, on the third Friday of

June and December.

Ownership

The Oslo Stock Exchange remained a self-owning institution until 2001 when it

converted into a joint stock company and offered shares to the public in an IPO. DnB

NOR now owns 18% of the company, with the rest of the shares held mostly by many

foreign and domestic investors. On October 6, 2006, the larger market and pan-

Scandinavian stock exchange group OMX acquired a 10% strategic stake

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Irish Stock Exchange, Anglesea Street

History

The Irish Stock Exchange (ISE) (Irish: Stocmhalartán na hÉireann) is Ireland's only

stock exchange and has been in existence since 1793. It is an Irish private company

limited by guarantee. It was first recognised by legislation in 1799 when the Irish

Parliament passed the Stock Exchange (Dublin) Act. At different periods in its history,

the ISE included a number of regional exchanges, including the Cork and Dublin

exchanges. In 1973, the Irish exchange merged with the other British and Irish stock

exchanges becoming part of the International Stock Exchange of Great Britain and

Ireland (now called the London Stock Exchange).Between 1973 and 1986 there were no

new company listings.[1]

In 1995, it became independent again and since then has expanded internationally and

established itself as a global listing centre for international fund and debt securities.

Markets

The Irish Stock Exchange operates three markets:

The Main Securities Market (MSM), the principal market for Irish and overseas

companies, which admits a wide range of security types such as shares, bonds and funds

to listing and trading. The Main Securities Market is a regulated market as defined by

Markets in Financial Instruments Directive (MiFID). It is the principal market of the ISE

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for larger, more established companies - Irish and international - from a broad range of

industry sectors including financial services, building, oil and gas, utilities and food.

The Enterprise Securities Market (ESM), an equity market designed for growth

companies. The ESM is an exchange regulated market and multi-lateral trading facility

(MTF) as defined by MiFID. It is the ISE market for smaller, growth companies and has

been specifically designed to meet the funding needs of companies at earlier stages in

their development.

The Global Exchange Market (GEM), a specialist debt market for professional investors.

GEM is an Exchange regulated market and MTF as defined by MiFID.

Current Operations

The exchange is owned by Irish Stockbrokers and the country currently has two large,

and half a dozen medium-sized, brokerages but most observers believe this cannot

continue indefinitely, as sales from trading commissions and fees from corporate deals

tumble because of the recession.[2]

On 6 June 2000, the ISE closed its trading floor in Anglesea Street ( a listed building)[3],

Dublin 2, and switched to an electronic trading platform called ISE Xetra which has

enabled it to expand its membership base to include international banks and)used by the

Deutsche Börse Group. Trading on the ISE is settled via the CREST settlement system

which is operated by Euroclear (UK and Ireland) and cleared by Eurex Clearing AG. It

operates three markets – the Main Securities Market, the principal market for Irish and

overseas companies; the Enterprise Securities Market (ESM), an equity market designed

for growth companies; and the Global Exchange Market (GEM), a specialist debt market

for professional investors.

The published index of shares is known as the Irish Stock Exchange Quotient or ISEQ

Overall Index. Other indexes of the exchange include the ISEQ ESM Index, the ISEQ

20, the ISEQ General, ISEQ SmallCap, and ISEQ Financial. The ISE also has two other

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ISEQ 20 based indices, the ISEQ 20 Capped Index and the ISEQ 20 Leveraged Strategy

Index.

The exchange is regulated by the Central Bank of Ireland under the Markets in Financial

Instruments Regulations (MiFID) and is a member of the World Federation of Exchanges

and the Federation of European Stock Exchanges.

Criticism

Two reports of an investigation into the "wholly inappropriate sale of perpetual bonds"

by Davy Stockbrokers to credit unions failed to involve any of the credit unions affected,

leaving them "in the dark and powerless to add any value to the findings of this

investigation”. The ISE, who have Davy as one of its largest shareholders, then declined

to give them access to the reports. The Chairman of one the Credit Union's who suffered

large losses told his members ‘‘The failure to publish the reports is to place the

complaints process in a shroud of secrecy. Such a failure of openness, transparency and

fairness can only serve to undermine confidence in the complaints process, forcing those

with grievances into the courts. Such a course of action is not in the interest of any of the

stakeholders.”[4]

The number of equity companies quoted is dwindling as companies go broke, de-list or

move overseas but their lucrative fund and debt securities listings could prove attractive

to other exchanges, although a parliamentary committee in December 2009 was told that

they do not intend to merge with a larger rival.[5]

In April 2010, the chief executive of Financial Regulation at the Central Bank of Ireland

told the same committee that "senior management of the exchange should step up to the

plate" after failing to help charities, credit unions and rich individuals who received

letters informing them that many investments made by stockbrokers over the past decade

are now worthless.[6][7]

It employs 92 people who are paid an average of €98,000 when pensions and employer

contributions are taken into account

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Our Business

The Irish Stock Exchange provides access to capital markets for investors, financial

institutions and companies.  As an independent exchange in existence for over 200 years,

the ISE:

Has a choice of markets to meet issuer and investor needs,

Is a leading listing centre for international fund and debt securities,

Acts as a centre for Irish companies to raise funds for growth and as a focal point

of liquidity for trading in Irish equities and the trade reporting of Irish Government

bonds,

Provides best in class trading, clearing and settlement infrastructure, through our

partnership arrangements with international providers,

Provides information services to the wider financial community through the

dissemination of quality real-time and historical information supporting market

integrity and transparency, and

Offers a competitive pricing structure to its clients

Our Organisation

ISE Corporate Structure

The Irish Stock Exchange Limited (“the Company”) is an Irish private company limited

by guarantee. This legal structure was adopted in 1995 by the then founding member

firms of the ISE who formed the guarantors of the Company.

Board Members

The Company has a Board of thirteen directors (twelve non-executive directors and one

executive director). Seven of the non-executive directors are elected directors, being

partners or directors in stockbroker member firms. In addition, there are five other non-

executive directors who represent wider market interests and are not employees or

persons associated with member firms of the ISE. The Chief Executive of the ISE also

sits on the main Board.

The appointment of all directors is subject to prior approval of the Financial Regulator,

Board Committees

The Board Committees which are concerned with the governance of the Company are:

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the Audit Committee,

the Senior Appointments and Remuneration Committee, and  

the Investment Committee.  

Markets and Securities

The ISE operates a choice of three markets:

The Main Securities Market (MSM), the principal market for Irish and overseas

companies, which admits a wide range of security types such as shares, bonds and

funds to listing and trading. The Main Securities Market is a regulated market as

defined by Markets in Financial Instruments Directive (MiFID); 

the Enterprise Securities Market (ESM), an equity market designed for growth

companies. The ESM is an exchange regulated market and multi-lateral trading

facility (MTF) as defined by MiFID; and

the Global Exchange Market (GEM), a specialist debt market for professional

investors. GEM is an Exchange regulated market and MTF as defined by MiFID.

For more information on securities listing and trading on the ISE please use the following

links:

Equities and other corporate securities

Irish Government bonds

Exchange Traded Funds (ETFs)

Investment Funds

Debt Securities

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Stock market in developing countries

1. Egyptian Exchange

Egypt's Stock Exchange, now renamed Egyptian Exchange (EGX) and formerly known

as the Cairo and Alexandria Stock Exchange (CASE), comprises two exchanges, Cairo

and Alexandria, both of which are governed by the same board of directors and share the

same trading, clearing and settlement systems. In March 2009, the CASE 30 Index (made

up of the 30 largest companies being traded) changed its name to the EGX 30 Index.

The Alexandria Stock Exchange was officially established in 1883, with Cairo following

in 1903. Both exchanges were very active in the 1940s, and the combined Egyptian Stock

Exchange ranked fifth in the world. The central planning and socialist policies adopted in

the mid-1950s led to the exchange becoming dormant between 1961 and 1992.

In the 1990s, the Egyptian government's restructuring and economic reform programme

resulted in the revival of the Egyptian stock market, and a major change in the

organisation of the Cairo and Alexandria stock exchanges took place in January 1997

with the election of a new board of directors and the establishment of a number of board

committees.

Under the then chairman, Sherif Raafat, the board of directors determined to modernise

the exchange. Steps taken since then have included:

Creating a coherent organisation structure with a clear division of authority and

responsibilities;

Deciding to install a new state-of-the-art trading, clearing and settling system

conforming to international standards (in May 1998 a contract was signed with EFA

Software Ltd., a Canadian company, to this end);

Developing new membership and trading rules, as well as arbitration and dispute

resolution procedures;

Planning the improvement of the clearing, settlement and payment systems.

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By the end of November 1998, these efforts had started to bear fruit and there were 833

listed companies on the Egyptian Stock Exchange with a market capitalisation of

approximately L.E. 71.3 billion (up from 627 companies listed in 1991 with a market

capitalisation of L.E. 8.8 billion).

Hours

The exchange has normal trading sessions from 8.30am to 2.30pm, local time, on all

weekdays, except Fridays, Saturdays and holidays declared by the exchange in advance.[1]

2011 events

The Egyptian stock exchange plummeted 6.25% following the beginning of the

Revolution of 2011 on 25 January.

The Egyptian Stock Exchange closed at the end of trading on the 27th January after the

benchmark EGX 30 Index (EGX30) plunged 16 percent that week amid the uprising. The

exchange reopened on Wednesday 23rd March after being closed for almost 8 weeks.

The market fell by a further 8.9% on reopening

The trading system at EGX has perceived gradual development from an outcry system

(prior to 1992) to an automated order-driven system. As a result of the growth in

business, the Exchange got hold of a proven and scalable system conforming to

international standards and up to date technology.

In May 1998, EGX contracted with "efa", a Canadian software company (which was first

bought by the Australian Computershare company and was recently acquired by the

leading international technology provider "OMX"), to provide a new trading, clearing and

settlement system. The trading component of this system started operations in May 2001,

after applying a locally developed automated trading system for almost 9 years.

In its endeavor to keep abreast with the latest technological advancements, based on its

vision to become the financial hub and investment gateway in the Middle East and North

African (MENA) Region that best serves its stakeholders, EGX has upgraded its trading

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platform to OMX high performance "X-Stream" solution, and launched it on 27

November 2008, replacing the old trading system "EFA Horizon".

X-stream is designed to support the increasing volume of trading on EGX as well as the

simultaneous trading multiple product classes including equities, debt, commodities,

ETFs, futures and options in both an exchange traded and cash/OTC/derivatives

environment. X-stream has the capacity to meet the future needs of EGX.

Moreover, EGX offers an in-house developed OPR program that deals with the IPO's and

private placements before execution in the market. This program facilitates orders'

registrations and cancellations, assures accurate calculations of the allocation percentages

and enables the market to absorb efficiently the surge in the amount of placements.

Trading Procedures at EGX

How transactions or trades are carried out on EGX?

Before investors can trade listed or un-listed securities on the Egyptian Exchange

(EGX), investors must open a trading account with one of the licensed members

or brokerage firms by the Capital Market Authority. Investors can only buy or sell

shares through licensed member firms. All investors must open accounts with

custodians, which are mainly banks and few member firms, in order that EGX can

check on line their outstanding balances prior to any sale transactions.

All members trading in listed or unlisted securities (stocks, bonds, close-ended

mutual funds) on EGX must trade via EGX Trading System (CTS).

Members must record their customers’ orders immediately after receiving them.

Recording includes the details of the order: order number, security name, client

account number, quantity and exact time that the order was received etc.

Members must ensure that the securities being sold are available before execution

of the orders and if members are buying securities, they must ensure that the

necessary funds are available before the execution of the trade.

Trading starts with an order given by a client or customer to the member firm to

buy (or sell) a specified number of shares of a given company at a specified price.

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This order will be queued into EGX electronic trading system terminal either at

EGX trading floor or the members’ premises. The order is then sent through the

trading system to EGX central computers. An order confirmation is immediately

routed back to the member firm.

2. Indonesia Stock Exchange

Type Stock exchange

Founded 1912

Headquarters Jakarta, Indonesia

Key people Ito Warsito, CEO

Website www.idx.co.id

Indonesia Stock Exchange (IDX) or in Indonesian Bursa Efek Indonesia (BEI) is a

stock exchange based in Jakarta, Indonesia. It was previously known as Jakarta Stock

Exchange (JSX) before its name changed in 2007 after merging with Surabaya Stock

Exchange (SSX). As of 28 June 2010, the Indonesia Stock Exchange had 341 listed

companies with a combined market capitalization of $269.9 billion.[1] On May 23, 2011

the Indonesia Stock Exchange increasing the number of issuers at the exchange to 425.[2]

On April 20, 2011 the Jakarta Composite Index hits new record and closed at 3,794.76.

Trading volume was about Rp.5.9 trillion ($0.68 billion) and the overall market

capitalization up to Rp.3,384 trillion ($389 billion).[3] In July 8, 2011 IDX Composite

Index broke the psychological barrier of 4,000 and closed at the record of 4,003.69.[4]

Currently opens from 9:30 a.m. to 4:00 p.m. local time, but since March 2011 has made

rehearsal opens since 9:00 a.m. at the weekends when the bourse closed and will be fully

implemented in the second half of 2011. The plan to open trading at either 9 a.m. or 8:30

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a.m. with closing time will remain unchanged is to accommodate trading hours which

fund managers setting strategies based on Singapore and Hong Kong stock exchange.

History

Originally opened in 1912 under the Dutch colonial government, it was re-opened in

1977 after several closures during World War I and World War II. After being reopened

in 1977, the exchange was under the management of the newly created Capital Market

Supervisory Agency (Badan Pengawas Pasar Modal, or Bapepam), which answered to

the Ministry of Finance. Trading activity and market capitalization grew alongside the

development of Indonesia's financial markets and private sector - highlighted by a major

bull run in 1990. On July 13, 1992, the exchange was privatized under the ownership of

Jakarta Exchange Inc. As a result, the functions of Bapepam changed to become the

Capital Market Supervisory Agency. On March 22, 1995 JSX launched the Jakarta

Automated Trading System (JATS). In September 2007, Jakarta Stock Exchange and

Surabaya Stock Exchange merged and named Indonesian Stock Exchange by Indonesian

Minister of Finance. The current location of the Indonesian Stock Exchange is located in

the IDX building in the Sudirman Central Business District, South Jakarta, near the

current site of the Pacific Place Jakarta.

Stock Indices

Two of the primary stock market indices used to measure and report value changes in

representative stock groupings are the Jakarta Composite Index and the Jakarta Islamic

Index (JII). The JII was established in 2002 to act as a benchmark in measuring market

activities based on Sharia (Islamic law). Currently, there are approximately 30 corporate

stocks listed on the JII.[7] The FTSE/ASEAN Indices were launched by the five ASEAN

exchanges (Singapore Exchange, Bursa Malaysia, The Stock Exchange of Thailand,

Jakarta Stock Exchange, and The Philippine Stock Exchange) and global index provider

FTSE on September 21, 2005. The indices, covering the five ASEAN markets, are

designed using international standards, free float adjusted, and based on the Industry

Classification Benchmark (ICB). The indices comprise FTSE/ASEAN Benchmark Index

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and FTSE/ASEAN 40 tradable index. The FTSE/ASEAN 40 index is calculated on a

real-time basis from 9:00 a.m. and the closing index is calculated at 6:00 p.m. (Singapore

time). The FTSE/ASEAN benchmark index is calculated on end-of-day basis.

Besides Jakarta Composite Index and JII, IDX also has 4 more types of index, namely

Individual Index, Sector Stock Price Index, LQ 45 Index, Main Board and Development

Board Indices.[8]

At May 12, 2011 Indonesia Stock Exchnage officially launched a new Indonesia Sharia

Stock Index (ISSI), which comprises 214 Indonesian stocks which have been screened by

the Majelis Ulama Indonesia (Indonesia Ulema Council).[9] Fatwa Number 80 from

Indonesia Ulema Council is expected to make public no longer have any doubt to make

sharia investment in the capital market to eventually increase the number of the domestic

investors in the Indonesia Stock Exchange

Stock market in under developed countries

1. Stock market in Afghanistan

146

Afghanistan Financial Services has automated the primary and secondary market for

capital notes by creating a secure online trading system for DAB, the Central Bank of

Afghanistan. This is part of the bigger Afghanistan Stock Exchange concept for the future

of Afghanistan.

Afghanistan has emerged from over 20 years of conflict and is rapidly growing at nearly

double digit real GDP growth annually. Access to capital is citied as fourth highest

constraint to private businesses after electricity, access to land and corruption. Although a

growing number of microfinance companies, banks, and public institutions provide

financing solutions for businesses, the need for capital remains vast. The government

continues to pass favorable laws to setup a legal framework that attracts foreign

investment and regulates business. By steadily developing a culture of using public

capital markets as well as financial and business transparency, the Afghanistan Stock

Exchange envisions growing to be the preferred source of capital for business and as well

as target for wealth investment. Job creation in the sectors of financial auditing, market

research, credit checks, etc is expected to take place, in addition to direct foreign

investment in Afghan companies. AFX will drive the growth of agricultural sector of the

country. By expanding the economy, the country’s GDP is expected to be significantly

positively impacted.

AFX assists in meeting three main objectives, as outlined in the ANDS:

Facilitate private sector companies to raise capital for new businesses and to expand

existing firms.

Facilitate the privatization of public sector owned companies.

Enable local investors to participate in the growth of the Afghan economy.

What are the major benefits to SME’s provided by AFX?

Access to capital: Gaining access to capital is a struggle for SMEs in developing

economies for three reasons. Firstly, most financial institutions are risk-averse and

perceive lending to the SME sector to be inordinately risky. Secondly, interest rates are

often punitive on debt finance in the emerging markets. And thirdly, SMEs frequently

147

lack both the collateral and appropriately prepared financial accounts to meet banks

lending requirements. In contrast, public equity can redress this gap by considering a

broader range of criteria–most importantly quality of management and growth prospects–

when evaluating SME financing. It can also mitigate risk by actively participating in

investee companies through board representation. Sectoral development: The organic

expansion of SMEs through injections of risk capital, combined with their exposure to

more sophisticated managerial and financial practices, technology and know-how helps

to foster indigenous sectoral development. In successful investments, the close

relationship between investor and investee promotes productivity, competitiveness,

innovation and entrepreneurship in the latter. In response, other SMEs in the sector often

strive to emulate and supersede these advances in order to safeguard market share and/or

remain competitive. In consequence, the sector as a whole deepens and progresses.

Economic linkages: SMEs that expand generate vital linkages which cross-cut economic

and social boundaries. They connect formal markets with informal markets and small-

scale producers with large-scale producers. They also draw the poor further into the cash

economy and provide low-income workers with more opportunities to increase their

incomes and accumulate wealth. A corollary of this process is the graduation of firms

from micro-enterprises to small businesses, from small to medium-sized businesses and,

eventually, from medium-sized to large businesses.

Market integration: As SMEs grow and their participation in the supply and demand

chains of large enterprises increases, market integration occurs. This helps to erode

imbalances of economic power and resources between large companies and smaller

players. In many emerging markets, these imbalances thwart steadier economic growth

and present significant barriers to entry.

Export and investment development: Lack of resources, information and economies of

scale often prevents SMEs from developing export markets. International public equity

helps to educate SMEs about export opportunities and to incorporate export development

into wider growth strategies. Not only does this mitigate the risk that SMEs face in the

148

form of sudden changes in domestic market conditions, but also, it provides vital access

to foreign currency.

Sustainability: AFX could become a fully self-sustainable company within five years.

As with most other stock exchanges, fees can be increased as the stock exchange

becomes more liquid. While the majority of revenue is expected from transaction charges

per trade, there are a number of other sources as well, such as: annual company listing

fees, individual trader account fees, brokerage connection account fees, interest accrued

on account balances, IPO fees, audit fees, and so on.

There is little question that a country cannot become really independent and have a

reasonable business environment without a stock exchange to offer its firms an

opportunity to grow, expand and create jobs. The Dari and Pashtu term for

“businessman” is “tujar”- which literally means “trader.” AFX provides a twenty first

century platform for a spirit of trading in Afghanistan is as old as the silk route

Afghanistan Financial Services has automated the primary and secondary market for

capital notes by creating a secure online trading system for DAB, the Central Bank of

Afghanistan. This is part of the bigger Afghanistan Stock Exchange concept for the future

of Afghanistan.

Afghanistan has emerged from over 20 years of conflict and is rapidly growing at nearly

double digit real GDP growth annually. Access to capital is citied as fourth highest

constraint to private businesses after electricity, access to land and corruption. Although a

growing number of microfinance companies, banks, and public institutions provide

financing solutions for businesses, the need for capital remains vast. The government

continues to pass favorable laws to setup a legal framework that attracts foreign

investment and regulates business. By steadily developing a culture of using public

capital markets as well as financial and business transparency, the Afghanistan Stock

Exchange envisions growing to be the preferred source of capital for business and as well

as target for wealth investment. Job creation in the sectors of financial auditing, market

research, credit checks, etc is expected to take place, in addition to direct foreign

149

investment in Afghan companies. AFX will drive the growth of agricultural sector of the

country. By expanding the economy, the country’s GDP is expected to be significantly

positively impacted.

AFX assists in meeting three main objectives, as outlined in the ANDS:

Facilitate private sector companies to raise capital for new businesses and to expand

existing firms.

Facilitate the privatization of public sector owned companies.

Enable local investors to participate in the growth of the Afghan economy.

What are the major benefits to SME’s provided by AFX?

Access to capital: Gaining access to capital is a struggle for SMEs in developing

economies for three reasons. Firstly, most financial institutions are risk-averse and

perceive lending to the SME sector to be inordinately risky. Secondly, interest rates are

often punitive on debt finance in the emerging markets. And thirdly, SMEs frequently

lack both the collateral and appropriately prepared financial accounts to meet banks

lending requirements. In contrast, public equity can redress this gap by considering a

broader range of criteria–most importantly quality of management and growth prospects–

when evaluating SME financing. It can also mitigate risk by actively participating in

investee companies through board representation. Sectoral development: The organic

expansion of SMEs through injections of risk capital, combined with their exposure to

more sophisticated managerial and financial practices, technology and know-how helps

to foster indigenous sectoral development. In successful investments, the close

relationship between investor and investee promotes productivity, competitiveness,

innovation and entrepreneurship in the latter. In response, other SMEs in the sector often

strive to emulate and supersede these advances in order to safeguard market share and/or

remain competitive. In consequence, the sector as a whole deepens and progresses.

Economic linkages: SMEs that expand generate vital linkages which cross-cut economic

and social boundaries. They connect formal markets with informal markets and small-

scale producers with large-scale producers. They also draw the poor further into the cash

150

economy and provide low-income workers with more opportunities to increase their

incomes and accumulate wealth. A corollary of this process is the graduation of firms

from micro-enterprises to small businesses, from small to medium-sized businesses and,

eventually, from medium-sized to large businesses.

Market integration: As SMEs grow and their participation in the supply and demand

chains of large enterprises increases, market integration occurs. This helps to erode

imbalances of economic power and resources between large companies and smaller

players. In many emerging markets, these imbalances thwart steadier economic growth

and present significant barriers to entry.

Export and investment development: Lack of resources, information and economies of

scale often prevents SMEs from developing export markets. International public equity

helps to educate SMEs about export opportunities and to incorporate export development

into wider growth strategies. Not only does this mitigate the risk that SMEs face in the

form of sudden changes in domestic market conditions, but also, it provides vital access

to foreign currency.

Sustainability: AFX could become a fully self-sustainable company within five years.

As with most other stock exchanges, fees can be increased as the stock exchange

becomes more liquid. While the majority of revenue is expected from transaction charges

per trade, there are a number of other sources as well, such as: annual company listing

fees, individual trader account fees, brokerage connection account fees, interest accrued

on account balances, IPO fees, audit fees, and so on.

There is little question that a country cannot become really independent and have a

reasonable business environment without a stock exchange to offer its firms an

opportunity to grow, expand and create jobs. The Dari and Pashtu term for

“businessman” is “tujar”- which literally means “trader.” AFX provides a twenty first

century platform for a spirit of trading in Afghanistan is as old as the silk route

151

2. Nepal Stock Exchange

Nepal Stock Exchange, in short NEPSE, is established under the company act, operating

under Securities Exchange Act, 1983.

The basic objective of NEPSE is to impart free marketability and liquidity to the

government and corporate securities by facilitating transactions in its trading floor

through member, market intermediaries, such as broker, market makers etc. NEPSE

opened its trading floor on 13th January 1994.

Government of Nepal, Nepal Rastra Bank, Nepal Industrial Development corporation and

members are the shareholders of NEPSE.

History

The history of securities market began with the floatation of shares by Biratnagar Jute

Mills Ltd. and Nepal Bank Ltd. in 1937. Introduction of the Company Act in 1964, the

first issuance of Government Bond in 1964 and the establishment of Securities Exchange

Center Ltd. in 1976 were other significant development relating to capital markets.

Securities Exchange Center was established with an objective of facilitating and

promoting the growth of capital markets. Before conversion into stock exchange it was

the only capital markets institution undertaking the job of brokering, underwriting,

managing public issue, market making for government bonds and other financial

services. Nepal Government, under a program initiated to reform capital markets

converted Securities Exchange Center into Nepal Stock Exchange in 1993.

Members

Members of NEPSE are permitted to act as intermediaries in buying and selling of

government bonds and listed corporate securities. At present, there are 23 member

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brokers and 2 market makers, who operate on the trading floor as per the Securities

Exchange Act, 1983, rules and bye-laws.

Besides this, NEPSE has also granted membership to issue and sales manager securities

trader (Dealer). Issue and sales manager works as manager to the issue and underwriter

for public issue of securities whereas securities trader (Dealer) works as individual

portfolio manager.

At present there are 11 sales and issue manager and 2 dealers (Secondary market). Click

here to get information of NEPSE members.

The tenure of the membership is one year. The license should be renewed within 3

months after the closure of the fiscal year. If not, it can be done within another three

months by paying 25% penalty.

Trading

NEPSE the only Stock Exchange in Nepal introduced fully automated screen based

trading since 24th August, 2007.

The NEPSE trading system is called ‘NEPSE Automated Trading System ‘(NATS) is a

fully automated screen based trading system, which adopts the principle of an order

driven market.

Market Timings

Trading on equities takes place on all days of week (except Saturdays and holidays

declared by exchange in advance). On Friday only odd lot trading is done.

The market timings of the equities are:-

Market Open: - 12:00 Hours

Market Close: - 15:00 Hours

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Odd Lot Trading is done on Fridays. For Odd Lot Trading Market Timings are

Market Open: - 12:00 Hours

Market Close: - 13:00 Hours

Note:- The exchange may however close the market on days other than schedule holidays

or may open the market on days originally declared as holidays. The exchange may also

extend, advance or reduce trading hours when it deems fit necessary.

Securities Available for Trading

NEPSE facilitates trading in the following instruments

A. Shares

• Equity Shares

• Preference Shares

B. Debentures

C. Government Bonds

D. Mutual Funds

Circuit Breakers

NEPSE has implemented index-based circuit breakers with effect from 2064/6/4 (21

September 2007). In addition to the circuit breakers, price range is also applicable on

individual securities.

Index-based Circuit Breakers

The index-based circuit breaker system applies at 3 stages of the NEPSE index

movement of 3%, 4% and 5%, . These circuit breakers when triggered bring about a

trading halt in all equity.

• In case of 3% movement either way, there would be a market halt for 15 minutes if the

movement takes place during first hour of trading i.e. 13:00 hours. In case this movement

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takes after 13:00 hours there will be no trading halt at this level and market shall continue

trading.

• In case of 4% movement either way, there would be a market halt for half an hour if the

movement takes place before 14:00 hours. In case this movement takes after 14:00 hours

there will be no trading halt at this level and market shall continue trading.

• In case of 5% movement in either way, trading shall be halted for the remainder of the

day.

Price Range

Price Range is applicable on individual securities. The trading of the individual securities

are not halted but allowed to trade within the price range.

• The price band is 10% of previous close on either way. *

* During the ATO session the range is 5% on either way of Previous Close Price. After

the band is 2% on either way of the Last traded price till it reaches to 10% of the previous

close.

Trading Location

The trading can be done either from NEPSE’s trading floor or from the broker’s office.

NEPSE uses sophisticated technology through brokers can trade remotely from their

office located inside the Kathmandu valley. This remote trading facility was started from

1 November 2007.

Trading System

NEPSE operates on the ‘NEPSE Automated Trading System ‘(NATS), a fully screen

based automated trading system, which adopts the principle of an order driven market.

Order Matching Rules

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The system adopts principle of order driven market. The best buy order is matched with

the best sell order. An order may match partially with another order producing multiple

trades. For order matching the best buy order is the one with the highest price and the

best sell order is the one with the lowest price. This is because the system views all buy

orders available from the point of view of the sellers and all sell orders from the point of

view of the buyers in the market. So, of all buy orders available in the market at any point

of time, a seller would obviously like to sell at the highest possible buy price that is

offered. Hence, the best buy order is the order with the highest price and the best sell

order is the order with the lowest price.

Settlement

NEPSE has adopted a T+3 settlement system. Settlement will be carried out on the basis

of paper verses payment. The trading is done at "T" and at T+1; the buying brokers have

to submit bank vouchers for settlement with covering letter. At T+2, the selling brokers

must submit share certificate with covering letter. At T+3, NEPSE prepares billing for

payment and this will be forwarded to the bank.

Once the settlement is done the buying brokers with the consultation of the clients must

decide and present the purchased shares if they want to record it as blank transfer. This

must be completed within T+5.

Blank Transfer

Under this mechanism an opportunities to derive the market benefit is provided. But

presently, the buying brokers must complete the BT process within T+5. The transactions

that are executed can be recorded in different way and NEPSE has considered all possible

retention. The followings are the major key points to be considered.

1. This is related only with buy of the securities.

2. The buyer may decide to have market benefit either to have capital gains or to

minimize the loss.

3. In order to do this s/he may partly send for name transfer or may register it in blank

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transfer.

4. If s/he register total purchase in blank transfer and can put for sale and if only the part

of the shares are subscribed then s/he can handover the part and the part can be forwarded

for name transfer to the concerned company. In order to do this s/he has to cancel the

blank transfer for that portion.

3. Zimbabwe Stock Exchange

Zimbabwe Stock Exchange

Industry Finance

Founded 1993

Headquarters Harare

Key people

Mukadira T Compliance

Madziva F Trading

Mashava RK Listings

Munyukwi EH CEO

Products Stock trading services

Website http://www.zse.co.zw/

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The Zimbabwe Stock Exchange, or ZSE, is the official stock exchange of Zimbabwe. It

has been open to foreign investment since 1993. The exchange has about a dozen

members and over 65 listed securities. There are two indices, the Zimbabwe Industrial

Index and the Zimbabwe Mining Index.

History

The first stock exchange in Zimbabwe opened its doors shortly after the arrival of the

Pioneer Column in Bulawayo in 1896. However, it only operated for about six years.

Other stock exchanges were established in Gwelo (Gweru) and Umtali (Mutare). The

Mutare Exchange, also opened in 1896, thrived on the success of local mining, but with

the realisation that deposits in the area were not extensive, activity declined and it closed

in 1924. After World War II a new exchange was founded in Bulawayo by Alfred

Mulock Bentley and dealing started in January 1946.

A second floor was opened in Salisbury (Harare) in December 1951 and trading between

the two centres took place by telephone. Traders continued working by telephone until it

was decided that legislation should be enacted to govern the rights and obligations of the

members of the exchange and the general investing public.

The Rhodesia Stock Exchange Act reached the statute book in January 1974. The

members of the exchange continued to trade as before and for legal reasons it became

necessary to create a new exchange coincidental with the passing of the legislation. The

exchange dates from the passing of the act in 1974, and is operated and regulated in

accordance with the act and its amendments, including 1996's Zimbabwe Stock Exchange

Act: Chapter 24:18.

On achieving independence from Britain in 1980, the exchange changed its name from

the Rhodesia to the Zimbabwe Stock Exchange.

With the decline of the Zimbabwean economy, hyperinflation rendered the Zimbabwean

dollar useless and the US-Dollar was adopted as the legal tender for trading on the

exchange in February 2009.

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As of March 2009, trade has been very thin, with very few foreign investors willing to

risk trading on the market. Most stocks trade in the US-cent range, with at least 26

different stocks not trading at all

CHAPTER-8

Comparative study between Indian capital market and Global

Capital market

Comparative Analysis

This is the main part of the study wherein the various stock exchanges of

159

the sample have been compared on certain parameters, both qualitatively and

quantitatively.

Qualitative Analysis

In this section the various stock exchanges have been compared on

the following parameters;

1. Market Capitalization

2. Number of listed securities

3. Listing agreements

4. Circuit filters

5. Settlement

These parameters are used to look at selected important aspects of any

stock exchange, viz., the market capitalization gives an idea about the

size of the respective exchanges; whereas the number of listed securities

acts as an indicator for the volume and liquidity of any exchange. The

listing agreements take care o f the governance issue, while circuit filters give an

insight into the risk management framework of the said exchange. Finally,

the efficiency of a stock exchange has been measured in terms of its

settlement process.

Market Capitalization

Market capitalization is the measure of corporate size of a country. It shows

the current stock price multiplied by the number of outstanding shares. It is

commonly r e fe r r ed to as Market cap. It is calculated by multiplying the

number of common shares with the current price of those shares. This term is

often confused with capitalization, which is the total amount of funds used

to finance a firm's balance sheet and is calculated as market

capitalization plus debt (book or market value) plus preferred stock. While

there are n o strong definitions for market cap categorizations, a few terms are

frequently used to group companies based on its capitalization. The table below

shows the market capitalization of various stock markets in the world.

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Based on the above study, it can be observed that India is 15th in the world

ranking of Market capitalization. This is in spite of having the third largest

investor base, after Japan and USA, and having the largest number of

companies listed. United States leads the list of countries with the highest

market capitalization. It is interesting to note that the total market

capitalization of all the companies listed on the New York Stock Exchange is

greater than the amount of money in the United States. As mentioned

earlier, the above data pertain to the year 2005. The individual and global

economy has grown since then. As on March 2006, the global market

capitalization for all stock markets was $43600 billion.

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Listed Securities

Listing in a stock exchange refers to the admission of the securities of the

company for trade dealings in a recognized stock exchange. The securities

may be of any public limited company, Central or State Government,

quasi-governmentaland other financial institutions/corporations,

municipalities, etc. Securities of any company are listed in a stock exchange

to provide liquidity to the securities, to mobilize savings and to protect the

interests of the investors. India has the highest number of companies listed in

the stock market. Out of this, about 75% of the companies are listed with the

Bombay Stock Exchange. After India, United States has the highest number of

companies listed.

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163

Indices

Listing Agreements

Bombay Stock Exchange

Eligibility Criteria for IPOs/FPOs: Companies have been classified as large

cap companies and small cap companies. Company with a minimum issue

size of Rs. 10 crores and market capitalization small cap company is a

company other than a large cap company.

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National Stock Exchange

Eligibility Criteria for New companies (IPOs)

Paid Up capital: Not less than 10 Crores

Market Capitalization: Not less than 25 Crores At least three years track

record:

• The company has not been referred to the Board for Industrial

and Financial

Reconstruction (BIFR).

• The net worth of the company has not been wiped out by the

accumulated losses resulting in a negative networth.

• The company has not received any winding up petition accepted by a

court.

• ‘Promoters’ mean one or more persons with a minimum 3 years’

experience of each of them in the same line of business and shall be

holding at least 20% of the post issue equity share capital individually

or severally

• No disciplinary action by other stock exchanges and regulatory

authorities in past three years.

Existing Companies listed on other

stock exchanges

Paid up Capital: Not less than 10 Crores

Market Capitalization: Not less than 25 Crores.

Minimum Listing Requirements for companies listed on other stock

exchanges. The company should have minimum issued and paid up equity capital

of Rs. 3crores. The Company should have profit making track record for last

three years.

Minimum net worth of Rs. 20 Crores

Minimum market capitalization of the listed capital should be at least two

times of the paid up capital

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New York Stock Exchange

Domestic listing on NYSE requires minimum certain minimum standards to be

met.

Distribution and size criteria

Distribution of shares c a n be attained through U.S. Public of fer ings ,

acquisitions made i n the U.S., or by other similar means.

Financial Criteria

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(A) The number of beneficial holders of stock held in "street name" will

be considered in addition to the holders of record. The Exchange will make

any necessary check of such holdings that are in the name of Exchange

member organizations.

(B) In connection with initial public offerings, spin-offs and carve-outs, the

NYSE will accept an undertaking from the company's underwriter to ensure

that the offering will meet or exceed the NYSE's standards.

(C) If a company either has a significant concentration of stock or changing

market forces have adversely impacted the public market value of a company

that otherwise would qualify for an Exchange listing, such that its public

market value is no more than 10 percent below the minimum, the

Exchange will consider stockholders' equity of $60 million or $100 million,

as applicable, as an alternate measure of size.

(D) Pre-tax income is adjusted for various items as defined in Section

102.01C of the NYSE Listed Company Manual.

(E) Represents net cash provided by operating activities excluding the

changes in working capital or in operating assets and liabilities, as adjusted

for various items as defined in Section

102.01C of the NYSE Listed Company Manual. Average global market

capitalization for already existing public companies is represented by the most

recent six months of trading history. For IPOs, spin-offs and carve-outs, it

is represented by the valuation of the company as represented by, in

the case of a spin-off, the distribution ratio as priced, or, in the case of an

IPO/carve-out, the as-priced offering in relation to the total company's

capitalization.

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Tokyo Stock Exchange

Criteria for Listing

The number of shareholders:

• In case where the number of shares to be listed is less than 10

thousand units; 800 persons.

• In case where the number of shares t o be listed is 10 thousand units or

more but less than 20 thousand units; 1,000 persons,

• In case w h e r e the number o f shares t o be listed is 20 thousand units or

more; 1,200 persons.

Number of years since incorporation:

3 years or more have elapsed by the last day of a business year

immediately prior to the day of listing application

Amount of profit:

The amount of profit for the first year of the latest 2 years was 100 million

yen or more;

And 400 million yen or more for the latest year, or The amount of profit for

the first year of the latest 3 years was 100 million yen or more; 400 million

yen or more for the latest one year of the latest 3 years; and the aggregate

amount of profits for all of the latest 3 years was 600 million yen or more.

Hong Kong Stock Exchange

Basic Listing Requirements for Equities

• Profit attributable to shareholders: At least HK$50 million in the last

three financial years

• Market Capitalization: At least HK$200 million at the time of listing

• Revenue: At least HK$500 million for the most recent audited financial

year

• Cash flow: Positive cash flow from o p e r a t i n g activities of a t least

HK$100 million i n aggregate for the three preceding financial years

Spread of Shareholders:

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• 100 shareholders for issuers with 24 months of active business pursuits.

• 300 shareholders for issuers with 12 months of active

business pursuits. Public float:

• At least 25% of the issuer's total issued share capital must at all times be

held by the public.

Korea Stock Exchange

Quantitative Requirement

No of Shares: At least 1million shares as of application date.

Net Worth: At least KRW 10 billion as of application date.

Sales Amount: At least KRW 30 billion for the latest fiscal year and the

average for the latest three fiscal years should be at least KRW 20 billion.

Financial Requirement

Profit: Must show operating profits, ordinary profits and net profits.

Profits for the latest fiscal year should be at least KRW 2.5 billion and

the sum for the latest three fiscal years should be KRW 5 billion.

Reserve Ratio: At least 50% (25% for large corporations) according to the

balance sheet of the latest fiscal year.

Reserve ratio = [(Net worth - Paid-in Capital) / Paid-in Capital] * 100

No of years since establishment: Have been operating without

interruption for at least 3 years since establishment.

Circuit filters

Stock Markets have the dubious reputation of crashing without a warning

t ak ing with the savings of numerous investors. A stock market crash is a

sudden dramatic decline of stock prices across a significant cross-section of

a market. Crashes are driven by panic as much as by underlying economic

factors. They often follow speculative stock market bubbles such as the dot-

169

com bubble.

The study is restricted to the performance of the Indian Stock market,

Japan, Hong Kong, Korean, Russian and the New York Stock exchanges. Hence

we will be concentrating on the Asian Financial Crisis, Dot-Com Bubble, and the

Russian Financial Crisis etc.

As a counter measure to the instability of the stock market, various

measures were introduced by to avoid huge losses. One such solution is

circuit breakers. Circuit Breakers are “a point at which a stock market

will stop trading for a period of time in response to substantial drops

in value.”(11) They are also referred to as trading curb is certain stock

markets like DJIA and NYSE. This was first introduced after Black Monday.

Black Monday is the name given to Monday, October 19, 1987, when the

Dow Jones Industrial Average (DJIA) fell 22.6%.(12). This was done with an

aim to avert panic in the market and to avoid panic selling. The Circuit

Filters operate according to the rules and requirements of the stock

Market in question.

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NATIONAL STOCK EXCHANGE

Index-based Market-wide

Circuit Breakers

The index-based market-wide circuit breaker system applies at three

stages of the index movement, either way viz. at 10%, 15% and 20%. These

circuit breakers, when triggered, bring about a coordinated trading halt in all

equity and equity derivative markets nationwide. The market-wide circuit

breakers are t r iggered by movement of either the BSE Sensex or the NSE S&P

CNX Nifty, whichever is breached earlier.

• In case of a 10% movement of either of these indices, there would be a one-

hour market halt if the movement takes place before 1:00 p.m. In case the

movement takes place at or after 1:00 p.m. but before 2:30 p.m., there

would be trading halt for ½ hour. In case movement takes place at or

after 2:30 p.m., there will be no trading halt at the 10% level and market

shall continue trading.

• In case of a 15% movement of either index, there shall be a two-hour halt

if the movement takes place before 1 p.m. If the 15% trigger is reached on

or after 1:00 p.m. but before 2:00 p.m., there shall be a one hour halt. If

the 15% trigger is reached on or after 2:00 p.m., the trading shall halt for

the remainder of the day.

• In case of a 20% movement of the index, trading shall be halted for the

remainder of the day.

These percentages are translated into absolute points of index variations on

a quarterly basis. At the end of each quarter, these absolute points of index

variations are revised for the applicability for the next quarter. The absolute

points are calculated based on closing level of index on the last day of the

trading in a quarter and rounded off to the nearest 10 points in

Case of S&P CNX Nifty.

171

In addition to this, there are also price bands for individual securities. Daily

price bands are applicable on securities as below:

• Daily price bands of 2% (either way) on specified securities.

• Daily price bands of 5% (either way) on specified securities.

• Daily price bands of 10% (either way) on specified securities.

• No price bands are applicable on scrips on which derivative products

are available or scrips included in indices on which derivative products

are available.

• Price bands of 20% (either way) on all remaining scrips (including

debentures, warrants, preference shares etc). The price bands for

the securities in the Limited Physical Market are the same as those

applicable for the securities in the Normal Market. For Auction

market the price bands of 20% are applicable.

• In order to prevent members from entering orders at non-genuine

prices in such securities, the Exchange has fixed operating range of

20% for such securities.

BOMBAY STOCK EXCHANGE

Scrip wise Price Bands

1. For scrips (53 scrips) on which derivative products are available and

scrips which are included in indices on which derivative products are

available, there is no circuit filter. However, the Exchange has imposed

dummy circuit fitters on these scrips to avoid punching error, if any.

2. Other Scrips which are not included in above-mentioned category have a

circuit filter limit of 20%.

Market Wide Circuit Breakers

In addition to the above-stated price bands on individual scrips, SEBI

has decided to implement index based market wide circuit breakers system

172

with effect from July 02, 2001.The circuit breakers are applicable at three

stages of the index movement either way at 10%, 15% and 20%. These

circuit breakers will bring about a coordinated trading halt in both Equity

and Derivative market.

The market wide circuit breakers can be triggered by movement of

either BSE SENSEX or the NSE NIFTY, whichever is breached earlier. The

percentage movements are calculated on the closing index value of the

quarter. These percentages are translated into absolute points of index

variation (rounded off to the nearest 25 points in case of SENSEX). At the

end of each quarter, these absolute points of index variations are revised and

made applicable for the next quarter. The absolute points of SENSEX

variation triggering market wide circuit breaker for a specified time period

for any day of the quarter is informed by the Exchange through Press

Release from time to time.

Tokyo Stock Exchange

There are two circuit breakers which last for only 15 minutes after the

price limit is hit. The first circuit breaker takes effect when the price is 5%

above or below the previous trading day’s settlement price. Another 5%

change in the same direction, or a total of 10%, will trigger the second circuit

breaker. Limits do not apply to the last 30 minutes of the trading day, unless

the 15-minute cooling period spills into that time frame. There are no limits

for the last day of trading for the contract nearest to expiry.

NYSE

Trading halts are applied by the New York Stock Exchange (“NYSE”) under

conditions of extreme market volatility. The circuit breaker trigger

points are set at three levels representing 10%, 20% and 30% of the

Dow Jones Industrial Average. The levels are calculated by the NYSE at the

beginning of each calendar quarter, using the average closing value of the

DJIA for the preceding month and each trigger is rounded to the nearest

173

50 points. For the third quarter 2006, the following triggers are in place.

Level 1 circuit breaker triggered if losses are 10% or 1,050 points.

(a) Before 2:00 p.m. – halted one hour;

(b) At 2:00 p.m. or later but before 2:30 p.m. – halted 30 minutes;

(c) At 2:30 p.m. or later - trading shall continue, unless there is a Level 2 or 3

halt.

Level 2 circuit breaker triggered if losses are 20% or 2,100 points

(a) Before 1:00 p.m. – halted two hours;

(b) At 1:00 p.m. or later but before 2:00 p.m. – halted one hour;

(c) At 2:00 p.m. or later - trading shall halt and not resume for the remainder

of the day.

Level 3 circuit breaker triggered if losses are 30% or 3,150 points

(a) At any time - trading shall halt and not resume for the remainder of the

day.

Korean Stock Exchange

Daily price change limit

To avoid abnormal price fluctuations caused by imbalance in supply and

demand, the KRX- Stock Market places ± 15% of limit that the prices on

individual stocks can change during a day, thus preventing fall or rise of the

price of individual stock more than 15 percent of the previous day’s closing

price.

Circuit Breakers

The KSE introduced the Circuit Breakers in December 1998. In order to pacify

the over- reaction of investors, when the stock price drops suddenly below

certain level (more than 10% of the closing price of the previous day and

such situation continues for longer than one minute), the circuit breakers

system was introduced on December 7, 1998. The trading, which resumes by

periodic call auction where the orders submitted during the first 10 minutes

after the trading halt ended, are matched at a single price.

174

Regulation on program trading

As a measure used to minimize possible impacts of futures market on

cash market, thus maintaining the stability of the cash market, when

the price of the most active futures contract continues to change 5 % or

more than the base price for one minute, execution of all program trading

orders in the cash market is delayed for 5 minutes.

Trading Halt

In order to protect investors, when, due to rumors or reports on the

matters (e.g., bank defaults, bankruptcy, corporate restructure, etc.) that

have major implication on corporate management, sudden and drastic

change of trading value and volume is anticipated, the trading of such

issues may be halted. In such a case, the concerned corporation is asked

to make an inquiry into such rumors or reports and disclose findings.

Hong Kong Stock Exchange

Though a circuit-breaker has not been adopted yet, a two-tier

circuit-breaker is being considered, under which trading would stop for half

an hour in the event of a 15% fluctuation over the previous day’s close, and

for one hour in the event of a 25% fluctuation. Another option being

considered is an individual circuit-breaker per stock, which would cause a

ten- minute open-outcry auction to be initiated every time a stock price

varied more than 10% over last day’s close.

Trading and Settlement Cycle

This segment takes care of the efficiency issue of the said stock exchange.

It basically looks into the speed at which any of the numerous transactions

affected in the market gets settled. This is especially crucial given the

volume. We see that Indian exchanges are at par with the best in the world

when it comes to efficient settlement. It can even go one up if the proposed

‘T+1’system is put in place.

175

Below are the various settlement cycles for the stock exchanges.

Quantitative Analysis.

The hypothesis that the exchanges impact each other has been tested

through various statistical methods with data on price, returns collected

from the exchanges. Mainly the correlation analysis, exponential trend

analysis and the risk-return analysis has been used to validate the hypothesis.

Price Relationship

Correlation is a numerical summary measure that indicates the strength

of relationships between the pairs of variables. A correlation is very useful

but it has its limitations. That is, it can only measure the strength of a linear

relationship. The numerator of the above formula is also a measure of

association between two variables X and Y which is called the covariance

between X and Y. Similar to correlation, a covariance is a single number

that measures the strength of the linear relationship between the two

variables. It is by looking at the sign of the correlation or the covariance,

i.e. positive or negative, that we can tell whether the two variables are

positively or negatively related.

Therefore the correlation is better because, unlike the covariance, the

correlations are not affected by the units in which the variables are

measured. All the correlations are between +1 and -1, inclusive. The sign

176

determines whether the relationship is positive or negative. The strength

of the relationship is measured by the absolute value or the magnitude

of the correlation. The closer it is to +1 the stronger the relationship is

and the closer to zero indicates that there is practically no linear

relationship. At the extreme a correlation equal to1 -1 or +1 occurs only when

the linear relationship is perfect. In this part the price data of the various

exchanges are collected and subjected to a correlation test in order to find

out the influence that they have on each other. In other words, an effort has

been made to gain insight

into how far the price movements of the exchanges are related

with one another.

NSE vs. Russian Stock Exchange

In the above figure, during period 1, the two stock exchanges have moved

in a very narrow range. The volatility is much higher in the NSE than in

the Russian stock exchange. There seemed to be low connectivity between

the two exchanges. In period 2, The Russian stock exchange had seen a peak

and also a very heavy drop. But at the same time, NSE did not show so much

177

variation as shown by Russian stock exchange. The Russian stock

exchange was awarded as the best performing stock exchange in the year

1997. But the very next year it crashed. The event started with collapse of

one of the largest bank in Russia and, for the first time ever, a country

defaulted on its government securities. Then the political environment

became volatile, which led to the ouster of Boris Yeltsin and then Putin came

to power. NSE again moved in a range but showed much higher volatility

than the previous period. The Russian market showed the characteristics of

a ‘grave yard’ market wherein there is so much wealth loss due to decline of

the indices that those who are in the market cannot sell off and come out as

no one is willing to buy and get into the market at that current scenario.

Period 3 saw reversal of roles of earlier period. NSE went up and reached a

peak and then came down whereas the Russian stock exchange remained

stagnant. NSE rose because of tech boom till mid of 2000. Subsequently it

collapsed and went back to its level of 1998 in the year 2001. Till

2003, NSE remained at the level that it attained in the year 1998. But

volatility was much higher in this period. Russian stock suffered from the

period of stagnation in this period. The stock exchange did not respond at

all to the tech boom. After the bubble collapse this exchange started to

move up slowly. NSE moved up very sharply responding to the favorable

interest rate regimes and other macroeconomic factors. Growth was very

sharp in this period for NSE. Russian stock exchange also rose but

marginally. But the volatility is higher which shows that the trading activity

has started to pick up. During period 4, both the exchanges rose sharply and

moved in an almost identical fashion. Correlation is also very high during

this period. This shows a lot more integration of two markets with each other.

178

NSE vs. Hang Seng

period 1 shows that there is almost no correlation between these two

exchanges. Hang Seng was rising very sharply because of the East Asian

miracle. Whereas India, not part of this success story, remained almost

untouched by this boom. NSE is almost constant during this period. During

period 2, Hang Seng crashed 50 percent and then rose back 100 percent. Thus,

it showed very high volatility during this period. NSE also rose during this

period because of pervasive tech boom but the rise was not as spectacular

as Hang Seng. Hang Seng might also have risen sharply because of its previous

low levels. Period 3, Hang Seng was falling steadily; showing a downward

trend. This might be due to the fear of global recession. But the NSE was not

much affected. During Period 4, NSE was rising in almost identical manner

with the Hang Seng. This shows the larger integration of the Indian economy in

the foreign market. This might also be due to the fact that this boom was led

by FII and other foreign investors. Hence, NSE is showing higher correlation

during this period.

179

NSE vs. NYSE

Here, NYSE was a success story in this period. Led by the tech companies,

the US economy was at its pink which is reflected in the NYSE. But the

NSE did not appreciate much. In the NYSE the tech boom was saturating.

The NYSE did not appreciate much in the initial period. But in the year 1999

and mid of 2000, NSE was rising with the NYSE because India had benefited

much from the tech boom in this period along with the NYSE. The high

dependence of India on the US in trade was reflected by the two stock

exchanges. During this period, both the stock exchanges has risen sharply.

Although the percentage change in the NSE was much larger, but

the manner in which they were moving was highly correlated.

NSE vs. Korean stock exchange

180

The above diagram shows that, during 1995, both the stock exchanges were

at the same level. But due to East Asian crisis, Korean stock exchange was

much more affected because its economy was more integrated with those East

Asian economies. During period 2, both the stock exchanges moved in almost

identical manner. The returns were almost nearly equal during this period,

since both the stock exchanges rose very sharply. But, the rise in the NSE

was much sharper. Still, we can say that the two exchanges were moving

more or less in same fashion. We have tried to take a look at the impact of

various stock exchanges on each other in this section. Therefore, we have

divided our time period from 1995-2006 June into sub-sets depending on

the happening of certain changes caused by events or policy decisions. This

has the purpose of finding out the extent of impact that the markets have on

each other.

181

Stock Price Correlation among Stock Exchanges

Y

ear/

K

orean

R

ussian

Hong

Kong

New

York

NSE

1995-1997

Korean

Russian

Hong

Kong

New

York

NSE

1998-2000

Korean

Russian

Hong

Kong

New

York

NSE

2001-2003

Korean

1.000

-0.663

-0.868

-0.878

-0.277

1.000

0.367

0.603

0.628

1.000

0.837

0.873

0.386

1.000

0.629

0.282

0.548

1.000

0.933

0.421

1.000

0.657

0.810

1.000

0.355

1.000

0.631

1.000

1.000

The period 1995-97, characterized by the South East Asian currency

crisis and other economic events, did not have integration of different

markets at high levels. This is especially true in case of India. Our country was

in its inception stage as a globalized economy and hence distinctly protected

from foreign exposure. The capital market was slowly evolving at that

point of time, putting systems in place. That is to say, India had only limited

foreign exposure which somewhat insulated the country’s economy from

foreign economic upheavals. This is clearly reflected in the following table of

182

correlations which clearly shows that, in that period, very little correlation

was existent among the exchanges. This signifies that the impact of other

exchanges was negligible on the Indian capital markets. The almost non-

existent effect of the South Asian Currency crisis, which affected Korea,

on the Indian market validates our observation. The correlation shows

negative for Korean exchange. During the period 1998-2000, Indian economy

faced a recession as well as a period of heightened business activity. Mainly,

the capital market started to consolidate across the globe. This is

reflected by increasing impact of various exchanges on the NSE. The point to

note is that it is mainly the Asian markets that have started impacting the

NSE. The Korean market started to cast its effect along with the Hong Kong

market. This maybe because a lot of MNCs made their Asian base in those two

countries and they also operated in India, hence the impact.

The period 2001-03 faced another major economic dampener in the form

of the 9/11 attacks in USA. This left the world economy in a state of shock.

As could be expected, the economies across the globe faced recessionary

situation. However, this time also, except for the Hong Kong bourses, none

else had any significant impact on the Indian counterpart. 2004-06 is termed

as the period when the various world markets started to converge. In the

global scenario also, we find that the economies facing downturn were

making a comeback – Japan and USA. Our expectation to find high level of

impact of other markets on Indian market gets validated as shown by the

significant correlation figures in the table. However, one thing to notice is

the lessened impact of the Hong Kong market on the Indian market which,

going by the past trend, comes as a surprise. This may be due to easing of

restrictions which previously insulated the economy from foreign exposures.

The increased cross border flow of capital also contributed to this

phenomenon.

Exponential Trend

In contrast to a linear trend, an exponential trend is appropriate when

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the time series changes by a constant percentage (as opposed to a

constant amount) each period. One important characteristic of

exponential trend is that, if a time series exhibits an exponential trend, a

plot of its logarithm should be appropriately linear. This equation can be

interpreted that the coefficient b is approximately the percentage change per

period.

Whenever there is a time series that is increasing at an increasing rate

or decreasing at a decreasing rate, an exponential trend model proves apt.

In this context, the method has been used to understand the trend

existing in the movement of the exchanges and whether the trends have

commonality. In other words, an attempt has been made to find whether

two or more exchanges follow the same pattern in their movements of price

and, if so, to what extent they are related.

184

185

186

187

In the above figures, it can be seen that NSE seemed to follow the exponential

trend quite reasonably before the technology boom had hit the Indian stock

market in the year 2003. After that NSE has much larger rise which could not

be captured in the exponential trend. Russian stock exchange has also been

explained by the exponential trend method quite reasonably before year

2003. Exponential trend has been able to capture the trend quite well the

changes in NYSE. R-square value is around 0.6135. This shows that the model

is able to explain the 60% of the variations of the index. For, both the stock

exchanges of Korea and Honk Kong have shown very high volatility over

this period and have not risen consistently enough. Thus exponential

trend line is not able to explain the price behavior of these

exchanges satisfactorily. The R-square values are very low 0.07 and 0.13

for Korean and Hang Sang respectively.

Risk and Return

This section tries to compare the various exchanges on the basis of

returns and the corresponding risks associated with it, returns being,

perhaps, the single most important factor affecting the performance of any

index. While risk can be termed as the major factor underlying all

activity, it becomes imperative to compare the exchanges based on this

parameter. Table 2 exhibits the historical risk-return figures of the

exchanges. From the return perspective, NYSE seems to be most stable among

all of these stock exchanges. There are only two years when NYSE has given

the negative returns, i.e. in the years 2001 and 2002. Russian stock

exchange is the most volatile of all these and has given returns from 108% to

-194%. NSE seems to have followed or moved in tandem with the NYSE more

after year 2000. Hang Seng exchange follows long cycles. If returns turn

negative, they remain negative for two or three years. Similarly if return

turns positive, then they remain so again for two or more years.

187

Year /

variables

NSE Hong

Kong

New

York

Korean RSE

risk return risk return Risk return risk Return risk return

1995 60.1 -26% 323.5 20% 240.4 27% 40 -14% 10.1 -19%

1996 100.4 -1% 418.7 30% 193 17% 71.4 -31% 47 83%

1997 82.4 14% 905.1 -20% 411 27% 108.3 -55% 93.5 62%

1998 115.4 -20% 637.9 -20% 328.4 15% 88.2 38% 114 -194%

1999 184.0 51% 784.0 54% 220 9% 156.8 56% 24.7 108%

2000 157.2 -23% 521.8 -18% 218.2 3% 143.8 -74% 24.5 -22%

2001 129.2 -17% 659.8 -21% 374.9 -8% 48.1 29% 23.9 69%

2002 67.7 4% 336.5 -17% 560 -22% 80.0 -14% 32.4 29%

2003 254.2 54% 654.9 36% 480.3 22% 84.2 24% 81.3 45%

2004 159.0 8% 371.2 9% 229.5 12% 53.1 9% 55.6 -14%

2005 263.5 29% 278.3 7% 230.7 8% 136.3 43% 155.0 62%

2006 252.3 10% 335.0 15% 182.2 5% 60.3 -3% 128.9 31%

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Russian stock exchange has shown the least variation and hence

appears to be least risky. But actually there is very less trading in

the Russian stock market during the period of 1999 to 2003 due to

stagnation and political instability and uncertainties about economy.

Risk Return Comparison

Korean stock market is also very stable form the standard deviation

angle. But this market has also not much appreciated over these

years and it remains more or less range- bound. Hang Seng has

shown the highest volatility as it is a much traded stock

exchange. Also, the events like East Asian crisis have also affected

the volatility of this exchange. But, nevertheless, the volatility has

reduced in the recent years than it has in the period 1997-1999.

Yet, it is more volatile than the other stock exchanges that we

have compared. NYSE is a mature and most stable market of all

these. The volatility has remained more or less constant over the

years. The volatility of the NSE has risen steadily over these

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189

years as the trading and market capitalization of the companies

has increased. Now the volatility of NSE is almost at par with the

other exchanges.

Conclusions

The study brings forth some distinct conclusions many of which validate

popular beliefs. The objective of the whole research was to try and compare

the various stock exchanges based on certain parameters in order to

understand the impact of integration of the financial world on the various

entities within it especially in the context of globalization and increased

interest in the capital markets fuelled by surging growth.

The various research papers that have been studied traced the gradual

‘coming of age’ of the Indian stock market over the past decade without

actually arriving at any conclusive evidence on the comparative position of

our stock exchange with that of other global ones. The studies mainly looked

at various aspects of efficiency in the stock market on a standalone basis and

tried to draw conclusion regarding the state of our maturity. However, we

have tried to use the comparison method to benchmark the performance of

our stock market with that of a selection of global stock exchanges on the

basis of their diversity with respect to geo-socio- politico-economy.

With regard to the initial hypothesis of this study, it is clearly found that

the stock markets do impact each other, more so in the recent times, i.e.

post-2000. This has been due to the fact that ‘cross holdings’ are

increasingly becoming common wherein the geographical barrier is dissolving

with respect to investing. In India also, deliberations are on to ‘cross list’

Indian shares in Asian exchanges to start off. This will increase the degree

of integration manifold. Moreover, the automation of the exchanges has

played a vital role in making the financial markets integrated. In this

context, the pioneer is the Swiss exchange, followed by Brussels as an early

adapter. The spate of ‘ADR’s and ‘GDR’s, along with the increased

opening up of various economies, increasing foreign trade and the rise

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190

of the ‘MNC’s have contributed immensely to the integration process. It

leaves us with the conclusion that the strategy of globally diversifying

investments is slowly losing its profitability. Especially after 2000, the

markets are fast converging. It has now become a global market

operating 24 hours, with opening of markets in different time zones at

various points of time appearing to be seamless. Thus, in hindsight, it would

not be an exaggeration to say that the impact of the South East Asian

currency crisis, if happened today, would have much more drastic effect on

India, as the country is more in sync with the global markets. Actually, it

can be said that, in the current scenario, any apprehension about stocks

in one country can escalate into a panic selling. However, a caveat

needs to be put here with respect of the attractiveness of the global

diversification strategy. In a way, though the attractiveness of the

strategy is gradually diminishing, it can still be profitably used for investing

in countries whose stock exchanges do not yet have high correlation

amongst each other. Moreover, although the stocks listed in the stock

exchanges of the sample in this study do impact each other and move in

tandem, the magnitude of that movement as a result of reacting to global

cues varies and, to that limited extent of variation, the global

diversification strategy can prove useful. In short, the ‘transaction

cost’ for investment is coming down as is ‘informational cost’. Qualitatively,

the comparison showed that Indian stock exchange has the governance

system and an efficient mechanism in place to be a world class

institute, specially the requirements of Clause 49 promulgated by SEBI

and the advanced trading and settlement mechanism of NSE,

respectively. However, unfortunately our implementation of the same

remains a problem area with almost 15-20% of the listed companies

yet to align their operations as required under the law.

Moreover, there are also issues regarding the extent to which the

sophisticated systems of the stock exchanges (NSE, BSE) are utilized in

terms of the volume and frequency of transactions and the range of

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instruments traded. The commodity segment, derivatives and such other

segments are yet to see activities like the equity segment of the

market. The reasons that can be attributed to this is the fact that it has

been only 5 years (derivatives started in 2000) that the various segments,

apart from equity and debt, have started operating and hence it is

reasonably nascent compared to its global counterparts. It would,

therefore, not be unjustified to say that the system is still evolving and it

would take some time not only to attain efficiency of operation, but also to

generate increased interest and awareness about the various other segments

of the market. Then only can we expect the operations to match its global

counterparts in terms of volumes, frequency and variety of instruments

traded.

One more reason that can be attributed for the lag between a global

benchmark like NYSE and BSE or NSE can be the fact that, in our country,

listing of foreign companies are still not allowed on the lines of ADRs or

GDRs. This can be due to lack of depth and breadth of the market. Again,

as this study points out, the listing criteria differ in terms of size as well

as their disclosure norms. This implies that the depth of the market

judged by the total capitalization is less for the Indian markets

compared to its counterparts. Moreover, the disclosure norms affect the

governance aspect as also the information availability.

Innovative financial instruments like CAT Bonds, or dealing in Junk

Bonds as a cheap source of finance or sophisticated derivative instruments

are yet to catch up in our country. This is partly because of the regulations

that are gradually being eased out and also due to the risk appetite of the

investors in this country. The opening up of the economy and its

subsequent impact on the financial sector has only started barely in the

last six years and, hence, the ‘teething problems’ of initial skepticism,

lack of awareness and interest exist, besides cautious approach towards

bringing about changes with keenly monitored impact of those changes.

If we go to the specifics, then we find that the Clause 49, our counterpart

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of the famed Sarbannes-Oxley Act of USA, has brought us to the global

standards. But, because of the early stages (only a year), the implementation

is causing a hindrance in attaining the requisite level with regard to

governance. Again the risk management system in our country is very

elaborate and the mechanism in place is very efficient as also effective. It

actually matches the level of a well established benchmark like NYSE.

However, the only difference is in terms of risk appetite of the investors which

causes the level and operation of ‘circuit breakers’ to vary.

However, Indian stock market is very much at the same pedestal and, in

fact, better than most of its Asian counterparts especially the emerging

economies. Indian system enjoys creditability even when compared with a

stock exchange like Nikkei (Japan).

If we look at the efficiency of trading captured by the ‘trading and

settlement’ mechanism, then we have found that the Indian mechanism is

faster than the NYSE and at par with the best in the world. In fact, it is one of

the fastest.

One problem area that came out as a possible barrier in the path of Indian

stock exchanges attaining global level is the fact that India has a very low rank

in terms of market capitalization (ranked 14th). All other stock exchanges

that we used in our study rank above Indian stock exchange. This is in

spite of the fact that Indian stock exchanges have the highest number of

companies listed (around 9000) and BSE accounting for almost 75%.

Therefore, volume-wise, Indian market is still pretty small.

One more aspect that we have tried to look at in this study is the extent

of influence the various stock markets cast on each other, specifically the

impact of other stock exchanges on their Indian counterpart. In order to

understand, we divided our study period in parts based on certain events that

had economic implications. Here, we found the results validating popular

belief that the markets in general and Indian market in particular became

more integrated with other global exchanges from 2002-03. This can very well

be seen since the South Asian crisis of the mid-late nineties barely affected

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us, particularly because we were insulated due to government policies

and were just making the transition. However, in the later time periods,

the influence of other stock markets increased on BSE or NSE but at a

very low - almost insignificant - level. At the time of crucial 9/11, NYSE had

started to exert its influence on us but at lower levels and, though the

economic downturn impacted, it did not last long. The increased trend of

Indian companies going for ADR and GDR issues has also contributed as a

channel for information transfer between the exchanges where the

particular company is listed. This has not only facilitated the integration

process, but also increased the sensitivity of the home country’s stock

exchange to the movements of various other exchanges especially

where the home company is listed.

To sum up:

Finally, we can sum up with the following observations:

• The m a r k e t s have indeed started to integrate and Indian market is

no exception especially after 2002-03.

• The regulatory authorities must remove any ambiguity that may be

existing when compared to the regulations of other exchanges

before they can actually make the grade.

• Lastly, although it has to be accepted that the market is evolving but

the Indian system has already attained the minimum level of

robustness and efficiency to be counted among the best in the world

and stand equipped to attain higher sophistication as well as

heightened activities. As for the existence of any signals or patterns

among the stock exchanges, it can safely be said that the markets

do react to global cues and any happening in the global scenario be

it macroeconomic or country specific (foreign trade channel) affect

the various markets.

In short, the Indian exchanges are ready to make the transition should the

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government decides to further relax the regulations and open up. The

financial sector as a whole, with the stock markets as its indicator, has

indeed come a long way and are ready for the next level with regards to

efficient trading and variety in the instruments traded.

Thus this study validates the popular belief that the markets in general

and Indian market in particular is more integrated with other global

exchanges from 2002-03 onwards. This can very well be seen since the

South Asian crisis of the mid- late nineties barely affected us particularly

because we were insulated due to government policies and was just making

the transition. However, in the later time periods, the influence of other

stock markets increased on our BSE or NSE, but at a very low almost

insignificant level. At the time of 9/11 incident, NYSE had started to exert

its influence on us but at lower levels and hence the economic downturn

did not impact for long. The increased trend of Indian companies going for

ADR and GDR issues has also contributed as a channel for information

transfer between the exchanges where the particular company is listed. This

has not only facilitated the integration process but also increased the

sensitivity of the home country’s stock exchange to the movements of

various other exchanges especially where the home company is listed. As

for the existence of any signals or patterns among the stock exchanges, it

can safely be said that the markets do react to global cues and any

happening in the global scenario be it macroeconomic or country specific

(foreign trade channel) affect the various markets.

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CHAPTER-9

Working process of sharekhan ltd.

Sharekhan Ltd. work in two different departments

a. Selling department

b. Advisory department

1. Selling department:

In the Sharekhan Ltd. Selling department do the work of sell of

Demat A/c. The work of sell divided among the different hierarchy.

That hierarchy is following.

1) Trainees

2) Super trainees

3) Sales executives/dealer

4) Senior sales executives

5) Assistant sales manager/HNI Sales Asst.Manager/Relationship Manager/Equity

advisor.

6) Territory manger

7) Area sales manager

8) regional sales manager(Branch manager)

Working process of sales department:

In Sharekhan Ltd., there is a ‘lead management system’. ‘Lead management system’ is a

company personal working website where he keep the record of those people who are

interested in Demat A/c. then he send those lead to the regional sales manager from

where he send these lead send to the different area sales manager according to area.

Area sales manager classify these leads and sends to the territory manager, where

territory manager classify these leads and sends to Assistant sales manager and senior

sales executive.

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Now the trainee, super trainee, and sales executive call to the people and fix the

appointment and convert the appointment into the successful closure.

2. Advisory Department: The Advisory department work as advisor for those people

who have A/c with the company. These people give the advise to the client and also act

on the behalf of the client. There is three kind of advisor in the Sharekhan Ltd.

a) Dealer: those clients have investment in the Demat A/c less than Rs.25000. they can

avail only the Dealer services.

b) Relationship Manager: Those client have a investment more than Rs. 25000 and Less

than Rs.100000, they got the relationship manager.

c) Equity advisor: those People have investment more than Rs. 100000. They got the

Equity advisor. These people are highly Qualified and well trained.

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CHAPTER-10

Nothing is complete in this world. Everything have two phases one is bad and one is

good . so we will discuss some limitation of capital market both in India and Global

capital market. And the limitation are following:-

LIMITATIONS:-

A. The first and big limitation what I find out during the project that there is

no international body to control the international stock market.

B. Almost all the Stock market depend on some big Stock market like- Dow

Jones, NASDAQ, NYSE Hang Seng London stock exchange etc. if they

fall other also fall and if they rise other also rise.

C. In the summer training I came to know there is lot of hidden expense

which is not disclosed by the company and also its not seems possible to

disclosed all these charges. Like D.P. Charges in delivery market.

D. There is complex structure of global capital market due to the complex

structure investor afraid to invest in the foreign capital market.

E. There is lots of paper work when you entered in capital market there are

lots terms and condition. This is the probably one of the reason they are

afraid to come in the capital market.

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SUGGESTIONS and RECOMMENDATIONS

There are some suggestions for the global capital market as well as Indian capital market.

These suggestions are following:-

I. There should one international authority, who can control the all the countries

stock exchanges.

II. There should be some assistance for the stock market that they will not face the

situation of excessive inflation and deflation.

III. In India almost 90% people are not aware about the share market or you can say

that they have not proper knowledge about the share market. So there is need to

aware about share market.

IV. For the client welfare SEBI should issue the guideline to the company to disclose

the hidden expanses to the client.

V. A knowledge need to be spread concerning the risk and return of the capital

market

VI. SEBI should conduct seminars regarding the use of capital market to educate

investors.

VII. It is important for a consultancy to create awareness about its financial service

effectively

VIII. The customers are expecting frequent and timely correspondence from the

consultancy regarding their funds and the monthly market overview. Therefore,

the organization needs to give more weight age on this concern

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LEARNINGS AND FINDINGS

This summer training vastly useful for me. I learn a lot in these two months ,

I can say what I learn here in ten months almost equal to I learn in the

summer training like stress management, handling the pressure, complete

the task before the deadlines etc.

And from my learning some of the key points are following:-

Learning in Sharekhan:

Stock broking companies technology in the field of stock broking is immense. The

terminal through which the brokers buy and sell run with the help of IT. Shares are

software that completely depends on the internet.

For Sharekhan, Buying and this terminal has been designed by the software company

“Spider”. Selling through internet is fast. As soon as the prices of the shares goes up or

comes down then they can be sold or purchased instantly within seconds. Customer

Relationship is very necessary for the company to retain the customers.

In Sharekhan, I have learned how to maintain good relations with the customers by

giving them the proper service and solving their queries regarding the share, I have

learned how to maintain good relation with the employees market and the co- trainees.

Learned in Sharekhan Ltd. I have learned a lot relating to the finance. Learned the

meaning of the words that are mostly used in the share market.

Learned various aspects about various products of the Sharekhan Limited.

Learned about various products used in the share regarding Share Market.

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Learned how to use online market especially Demat accounts and Currency Derivative

Segment and trading terminal.

Learned how to approach the customers how to take appointments. Learned how to

interact with people.

Learned the various policies of the convince them and guide them in trading Learned the

importance of the learned to manage time properly. Got the Excel sheet. I maintained all

my daily records in the Excel sheet. Had a practical experience of working in a practical

knowledge of the market in a reputed organization named “Sharekhan”?

Findings of the project

There are many findings of my project, some of the findings are given below:-

I find in my project that there is huge scope in stock market for the investor

There is scope of organized a international stock exchange and where all the

countries stock exchange will do the training.

In my summer training I find out people who did not know about anything about

the capital market. And very little knowledge about the stock market.

People have wrong concept about the stock market.

During the project report I find out that almost all the countries stock market

depend on some ruling stock exchange

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RECOMMENDATION

After the detail analysis of the project I want to recommend some points to the Indian

capital market as well as Global capital market. These points are following:-

There will be international authority to control all the stock exchange of overall

world.

In India some steps will be taken by the SEBI to educate the people about the

stock market.

There will be uniform system of trading who will match all the standard criteria of

stock exchange.

All the stock exchange should concentrate on the user friendly system of stock

market.

There are lots of hidden charges, and I think stock exchange work on that the

customer will know about that charge.

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BIBLIOGRAPHY

http://www.tax4india.com/finance-and-economy-india/capital-market.html 1/07/11

http://www.investopedia.com/articles/financial-theory/10/introduction-to-the-

dow.asp#ixzz1RUoKsMf3 1/07/2011

http://www.vc-china.com/qita/jinrong_en.htm 1/07/2011

http://en.wikipedia.org/wiki/Tokyo_Stock_Exchange 1/07/2011

http://en.wikipedia.org/wiki/Nikkei_225 2/07/2011

http://en.wikipedia.org/wiki/Straits_Times_Index 2/07/2011

http://www.unitedasia.com/index.php?

option=com_content&view=article&id=4:newsflash-3&catid=1:latest-news 2/07/2011

http://www.higbank.com/index.php?

option=com_content&view=article&id=93&Itemid=89&lang=en 3/07/2011

http://en.wikipedia.org/wiki/London_Stock_Exchange 3/07/2011

http://en.wikipedia.org/wiki/CAC_40 3/07/2011

http://en.wikipedia.org/wiki/DAX 5/07/2011

http://www.nasdaqtrader.com/Trader.aspx?id=Global_market_Data 5/07/2011

http://www.unitedasia.com/index.php?

option=com_content&view=article&id=19&Itemid=27 6/07/2011

http://www.hsi.com.hk/HSI-Net/HSI-Net 8/07/2011

http://www.hsi.com.hk/HSI-Net/HSI-Net 8/07/2011

http://www.pccpv.com.cn/english/index.asp 10/07/2011

http://www.yeahindia.com/c-india1.htm 11/07/2011

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http://bseindia.com/about/tradnset.asp#Timing 12/07/2011

http://www.twse.com.tw/en/about/company/service.php 12/07/2011

http://www.sse.com.cn/sseportal/en/c04/p1101/c1504_p1101.shtml 14/07/2011

http://www.rts.ru/s602 17/07/2011

http://www.stocks-for-beginners.com/frankfurt-stock-exchange.html 15/07/2011

http://library.thinkquest.org/11372/data/c4-sebi.htm 16/07/2011

http://www.indolink.com/consulate/iebo/capmkt12.htm 16/07/2011

http://www.cma.org.sa/En/AboutCMA/CMA_Department/Pages/

Market_Supervision.aspx 16/07/2011

http://www.twse.com.tw/en/about/company/service.php 17/07/2011

http://www.sse.com.cn/sseportal/en/c04/p1101/c1504_p1101.shtml 17/07/2011

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ANNEXURE

Press release related to the Sharekhan Limited

Diversify fund portfolio, avoid betting on sectors': Sharekhan

Madhu T, TNN, Jul 2, 2010, 05.26 AM IST

MUMBAI: Defensive sectors like pharma and FMCG are on investors' radar. Many have

noticed that these sectors have been topping the return chart in the mutual fund industry

for some time. No wonder, they are contemplating investing in these sectoral schemes.

However, investment advisors have a word of caution for them: don't start chasing short-

term winners and instead always try to diversify your portfolio so that you would gain

from upside in any sector. It is no wonder that investors have started noticing these

sectors lately. But the trouble is that winners come into notice only after they have won

already, there is no guaranty that these sectors are likely to offer similar returns in the

coming months," says Amit Trivedi, a financial trainer. "The problem with investors is

that they tend to chase winners in the last six months. Again, they would shift out and

invest in another sector which would have started performing well for a few weeks. In

this chase, they will lose out on a good opportunity to earn more returns," he adds.

Experts say it is almost impossible for anyone to get in and get out of winning sectors all

the time. "Investors should remember that different sectors would perform better at

different points in time. For example, everyone was talking about gold sometime back.

Then small and midcap stocks came and now it is pharma and FMCG. It won't be

possible for an average investor to get in and out of sectors as and when they perform,"

says a mutual fund manager, who doesn't want to be quoted. "Look at the returns offered

by either gold or small and midcap funds now. If anyone has gone overboard on these

schemes, they would be regretting it now," he adds. Rakesh Goyal, senior vice-president,

Bonanza Portfolio, believes that this is not the best to time to be defensive.

Subscribe to Technofab Engg IPO for listing gains: Sharekhan

1 Jul 2010, 0008 hrs IST, AGENCIES

MUMBAI: Sharekhan has advised investors with risk appetite to apply for Technofab

Engineering’s initial public offering for listing gains. The company entered the capital

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market Tuesday with public issue of 29.90 lakh shares in the price band of Rs 230-240

per share. The 100 per cent book building issue will close Friday. Technofab Engineering

has been able to increase the average order size over the years. It had reported good

financial performance in the past. However, the PBDIT margin has risen very sharply

since FY08. In the first half of FY10, PBDIT margin is higher than the industry and so it

would be a challenge for the company to sustain these levels. Investors with risk appetite

may apply for listing gains,” the report said. The company is engaged in the business of

providing Engineering Procurement and Construction (EPC) services, executing a wide

range of Balance-of-Plant (BoP) and electromechanical projects on a complete turnkey

basis. It plans to use the proceeds to meet long-term working capital requirements,

finance the procurement of construction equipment, finance setting up of maintenance

and storage facility for construction equipment and for setting up of training centre for

employees.

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