Technology in Indian Stock Exchange

TECHNOLOGY IN INDIAN STOCK EXCHANGE MB0103

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____________________________________________________________________ M. Mamatha ____________________________________________________________________ Abstract:

India is having well-established securities market with long history of organized trading. The growth in the stock exchange of the country is spectacular and can be attributed to substantially increase in the number of instruments being offered, array of listed companies in the market and also watertight credit policy of banks. As a result of this booming scenario, today large chunk of Indian corporate sector is heavily relying upon capital markets for raising funds for their needs. Consequently, a large population of the investors, small and big, has been created in India. Keywords: Stock Exchange, Organized Trading, Investors, Online Trading, Bidders, Technology

Change, fraudulent deals.

Conclusion:

Introduction of online technology in the operations of stock exchanges during recent years has vastly transformed its overall trading activities and brought in much sought after transparency. Adoption of advanced technology in various stock exchanges today has dramatically removed the constraints of geographical or cultural barriers. It is in a position to bring the countrywide market at the investor’s doorsteps. Due to intense competitions around, regional stock exchanges have now bigger role to play in the capital market. Technology up gradation largely benefited the investors to put in their hard earned money wisely and avoid fraudulent deals.

A student of MBA(4th Semester), HiTech College of Engineering and Technology, Hyderabad .

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M . MAMATHA Introduction Indian Economic Scenario The economic development of any country depends upon the existence of a well-organized financial system. “Financial system” is a border term, which brings financial institutions, which support the financial system. At the time of independence in India at 1947 there was no strong financial institutional mechanism in the country. The industrial sector also had no access to the savings of the community. The capital market was very primitive and shy. The private as well as the unorganized public sector played a key role in the provision of “liquidity” on the whole chaotic conditions prevailed in the system at that time. Unorganized sector: In these markets, there are a number of money lenders indigenous bankers, traders etc., who lend money to public. There are also private finance companies, chit funds etc, whose activities are not controlled by RBI.RBI has taken steps to bring the unorganized sector under the organized fold. They have not been successful. The regulations concerning their financial dealings are still inadequate and their financial instruments have not been standardized

In the organized markets, there are standardized rules and regulations governing their

financial dealings. There is also a high degree of institutionalization. These markets are subject to strict supervision and control by RBI or other regulatory bodies. The organized markets are classified into two. They are

(i) Capital market (ii) Money market Capital market: The capital market is a market for financial assets, which have a long or indefinite maturity. It deals with long-term securities, which have a maturity period of above 1 year. Capital market may be further divided into three viz.,

1. Industrial securities market. 2. Government securities market and 3. Long term loans market

Industrial securities Market: As the name implies, it is a market for industrial securities, viz.

1. Equity shares 2. Preference shares 3. Debentures

This industrial securities market is sub divided into two. They are:

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1. Primary or New issue market 2. Secondary market or Stock exchange.

Primary Market: Primary market is a market for new issues or new financial claims. It deals with public for the first time. Here borrows exchange new financial securities for long term funds. . Secondary market: Secondary market is a market for secondary sales of securities. In other words, securities, which have already passed through the new issue market, are traders in this market. Generally, such securities are quoted in the stock exchange and it provides a continuous and regular market for buying and selling of securities. This market consists of all stock exchanges in India are regulated under the securities contracts (Regulations) act 1956. The Bombay Stock Exchange is the principal stock exchange in India, which sets the tone of the other stock market. Secondary Stock Market Structure Regular Stock Exchange (21A)

Over the counter Exchange of India Exchanges (1)

National stock Exchanges (1)

For big companies with paid up capital above Rs.5 crores as the case may be trading and physical operations includes principal exchange like Bombay, Calcutta, Delhi etc., and regional exchanges like Cochin, Indoor etc., The B.S.C., H.S.C., and D.S.C., are on electronic trading and other exchanges are also getting into the electronic firm.

Computerized trading for smaller companies with paid up capital of Rs.30 Lakhs to Rs. 25 crores No. trading ring started operations in October 1992. The upper limit of Rs.25 crores was removed in 1997.

Recognized in April 1993 and started operations late only in Govt. securities and money market instruments. Equity trading started in November 1994. Computerized trading with country wide trading network.

WHAT IS A STOCK EXCHANGE

The stock exchange is an organized market for purchase and sale of listed industrial and financial securities. The securities traded on stock exchanges included shares and debentures of public limited companies, govt. securities etc. according to securities contract [regulations] act-1956, “stock exchanges is an associations, organization or body of assisting, regulating and controlling business in selling and securities.”

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INVESTORS REASONS TO INVEST IN STOCK MARKET They have control over their accounts; can make their own decisions for their actions they are

independents. They have reasons to particulars in the market and learn about it. It interesting, cheap, easy, fast, and convenient. A lot of information is online so they can keep up to date with what is happening in the trading

world.

It is in the interest of the small investors because rates will be available immediately across the country execution will be immediate.

It will give investors a great choice and batter realization. The immediate impact will be competition and benefits will be accruing to the investors. It will lead to brokerage, commissions going down and brokers striving to increase business

float. Investors will now go to place, which have better trading conditions and also members to

offer them better facilities. They have access to numerous tools to invest, and their portfolio

ADVANTAGES OF STOCK MARKET TRADING On-line trading has made it possible for any one to have easy and efficient excess to more

reports and charge than it was previously possible if one want to any broker’s office. Thus, we have to excess to lot more information on-line to self teach ourselves.

On-line trading has left room for smaller organization to compete with multinational organizational organizations since size is no longer a legit issue. Being online does not identify the size of any particular organization, therefore this additional power to the underdogs.

DISADVANTAGES OF ON-LINE TRADING Changes are that one has no idea who one is dealing with on the other end. So it is advisable to gather all the possible information about the party one is dealing with. In

short, do the homework and prepared. Online trading has left individuals open to too much on the other end, so it is advisable to

gather all the possible information about the party one is dealing with. In short, do the homework and prepaid.

Online trading has left individuals open to much information. This is harmful since it leaves brokerages wide open to sensitive data

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DEFINITION FOR STOCK MARKET: Stock market is also known as biggest auction place in the world where people buy Or sell pieces of paper called stock . On one side, you have the owners of corporations. Who are looking for a convenient way to raise money so that they can hire more employees, build more factories or offices, and upgrade their equipment? The way they raise money is by issuing shares of stock in their corporation. On the other side, you have people like you and me who buy shares of stock in these corporations. The place where we all meet, the buyers and sellers, is the stock market. Actually, the word stock originally did come from the word livestock. Instead of trading cows and sheep, however, we trade pieces of paper that represent ownership—shares— in a corporation. You may also hear people refer to stocks as equities or securities. Most people just call them stocks, which means supply. (After all, the entire stock market is based on the economic theory of supply and demand.) HISTORY OF THE STOCK MARKET IN INDIA: The origin of stock market in India goes back to the end of 18th century when long term negotiable securities where first issued however, for all practical purposes, the real beginning occurred in the middle of 19th century after the enactment of the companies act in 1850 which introduced the future of limited liability and generated investor interest in corporate securities. An important early event in development of stock market in India was the formation of the “Native share and stock brokers” association at Mumbai in 1875,Precursor of the present day Bombay stock exchange this was followed by the formation of associations /exchanges in ahmedabad (1894 )Calcutta (1908) . About INDIAN STOCK EXCHANGES: In India 23 STOC EXCHENGES are undertaking stock market activities from above these are the important stock exchanges in India I.e. explained bellow. The Bombay Stock Exchange Limited: popularly called The Bombay Stock Exchange or BSE) is the oldest stock exchange in Asia. It is located at Dalal Street, Mumbai, India.

The Bombay Stock Exchange was established in 1875. There are around 4,800 Indian companies listed with the stock exchange, and has a significant trading volume. As of July 2007, the equity market capitalization of the companies listed on the BSE was US $ 1.005 trillion . The BSE SENSEX (SENSitive indEX), also called the "BSE 30", is a widely used market index in India and Asia.

National Stock Exchange of India Limited (NSE): is a Mumbai-based stock exchange. It is the largest stock exchange in India and the third largest in the world in terms of volume of transactions. NSE is mutually-owned by a set of leading financial institutions, banks, insurance companies and other financial intermediaries in India but its ownership and management operate as separate entities. As of 2006, the NSE VSAT terminals, 2799 in total, cover more than 1500 cities across India. In July 2007, the NSE had a total market capitalization of 42, 74,509 crore INR making it the second-largest stock market in South Asia in terms of market-capitalization

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FUNCTIONS OF STOCK MARKET: The stock market is a pivotal institution In the financial systems. A well ordered stock market performs several economic functions.

Measure of Safety and fair dealing. Act of Magic. Flow of capital to the most profitable channels. Inducement to companies to raise there standard of performance. Guidance on cost of capital.

MEASURE OF SAFETY AND FAIR DEALING The stock exchanges operate under a regulatory frame work which are approved by center of government and meant to ensure that a reasonably measure of safety is provided to investors and transactions take place in competitive conditions which are fair to all concerned . ACT OF MAGIC.

Most of the investors are interested in short -term to medium term investments .The

requirements of companies are ,however ,long term in nature –they require equity capital on more or less permanent basis and debenture capital for 3 to 15 years .Thanks to negotiability and transferability of securities through stock market it is possible for companies to obtain there long term requirements from investors with short term and medium term horizons . While one investor is substituted by another when security is transacted, the company is assured of availability of funds. FLOW OF CAPITAL TO THE MOST PROFITABLE CHANNELS:

Companies which have more profitable investment opportunities are normally

Able to raise substantial funds through the stock market where as companies which Do not have such opportunities are not able to do so as a result, the stock market Facilities the direct flow of capital to the most profitable channels. GUIDANCE ON COST OF CAPITAL:

The market values of the securities of company are required for computing its cost of

capital .Such values can be obtained from stock market quotations hence the stock market offers guidance on cost of capital.

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JOINING A STOCK EXCHANGE:. For example, the companies that are listed on the NYSE are some of the best-known and

biggest corporations in the United States—blue-chip corporations like Wal-Mart, Procter & Gamble, Johnson & Johnson, and Coca-Cola. The NASDAQ, on the other hand, contains many technology corporations like Cisco Systems, Intel, and Sun Microsystems. In addition, stocks that are traded “over the counter” (OTC) are located on the NASDAQ. By the way, there are over 5000 stocks traded on the three U.S. stock exchanges and another 5000 smaller companies traded over the counter. DIFFERENT TYPE OF INVESTORS WHO INVOLVE IN STOCK EXCHANGE ACTIVITY:

Individual Investors Short Term Traders Professional Traders

IMPORTANCE OF STOCK There are a number of reasons why you should buy stocks. According to researchers,

stocks have beaten every other type of investment over any 10-year period during the last 75 years. They are a good buy even after a market crash or an extended bear Market. According to research conducted by Jeremy Siegel, best-selling author of Stocks for the Long Run (McGraw-Hill, 2002), over the long term stocks gained an annualized 8 percent after inflation after the market has fallen by over 40 percent or more. (Inflation is the expansion of the money supply. As a result, the price of goods and services go up, which lowers or erodes the amount you can buy with your money.) In the short term, stocks are riskier than fixed-income assets, but in the long run, says Siegel, stocks outperform every other investment. According to many experts, stocks have returned an average of 11 percent annually for the last 75 years, handily beating inflation as well as bonds, money market accounts, and savings accounts. In addition, it’s cheaper to buy stocks over the long term, especially if you buy and hold. OPERATIONS INVOLVED IN STOCK MARKET: TRADING AND SETTLEMENT:

TRADING: Open outcry System Screen Based System

SETTLEMENT SHIFT to ROLLING SETTLEMENT

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BUYING AND SELLING OF SHARES:- PROCEDURE FOR BUYING SHARES The steps involved in buying shares are described below:- Locating A Broker:

Typically, shares are brought through a stock broker, who is a licensed member of

recognized stock exchange. So when you want to buy shares, you should locate a broker. Ask your friends, who have experience, to recommend some names and meet the suggested brokers personally and make a first –hand assessment. Basically, satisfy yourself that the broker you select can render prompt and efficient service and protect your interest. For doing business with the broker you have to submit a client registration form as well as a member-constituent form(or a sub-broker client agreement form),the latter contains the terms and conditions relating to order/trade confirmation ,brokerage charge by the trading member/registered sub-broker, and delivery of securities and funds. Placement Of Order

After locating a suitable broker, place your order to buy. Your order should clearly specify the name of the company and the type of securities (equity shares, preference shares, or debentures).note that all the transactions through a stock exchange are now settled through the depository before you place an order.

Execution of order

On receiving your order, the broker will feed the same on his terminal, once the order is executed, the broker will inform you and send a ‘contract note’. Representing the documentary evidence of the transaction, the ‘contract note ‘contains relevant details of the transactions. Preserve it for tax and other purposes. PROCEDURE FOR SELLING Once you have located a broker, the steps involved in selling shares are as follows Placement of order When you have place a ‘sales order’ with your broker. you may place a’ limit order’ wherein you specify the minimum price acceptable to you; or you may place a ‘market order’, which means that you instruct your broker to sell the best available market price. Before placing the order, make sure that the shares are to sell are to your credit in your depository account.

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Execution of order On receiving your’ sale order’, your broker will feed the same in the terminal. once the order is executed the broker will inform you and send you a ‘contract note’, the documentary transaction .you will have to issue a depository participant cheque for the shares that you have sold in favor of the broker. This cheque transfers the shares from your depository account, just the way bank cheque transfers money from the payer’s account to the payee’s account, .You will receive the payment in about a week’s time. Internet trading February2000 witnessed the introduction of stock trading on the internet in India. Currently, icici web trade, sharekhan, kotakstreet, geogit securities, investmart, and others offer internet trading To do internet trading, you have to register yourself as a client with the internet broker, apart from having a computer, a modem, and a telephone connection .you also have to keep a minimum deposit in the bank account with the internet broker which the broker directly debit or credit. INTRODUCTION OF STOCK INVEST: To save investors from the loss of interest on the subscription money located with the company. [SEBI] has introduced the stock invest scheme, as an additional facility to the investors.

A. Ban of Badla B. Screen-based trading C. Electronic transfer D. Risk management E. Rolling settlement F. Corporate governance code G. Change in management structure H. Registration and regulation of intermediaries I. Reprisal of investor guidance J. Regulation of mutual funds K. Regulation Of Foreign Portfolio Investment

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CLASSIFYING STOCKS :

1) INCOME, 2) VALUE, AND 3) GROWTH INCOME STOCKS 4) DIVIDENDS

FUN THINGS YOU CAN DO (WITH STOCKS) DIVERSIFICATION: How diversification works when 100 percent invested in the stock market

ASSET ALLOCATION : THE STOCK SPLIT SELLING SHORT

STEPS TO MAKE MONEY SLOWLY

A. Investment Strategies B. BUY AND HOLD C. BUY ON THE DIP D. BOTTOM FISHING E. VALUE INVESTING F. GROWTH INVESTING: G. MOMENTUM INVESTING H. FUNDAMENTAL ANALYSIS I. Technical Analysis

Conclusion:

Before you attempt to buy your first stock be aware that you are entering a battle field populated by sharks that want your money. if you are going to interest in the market you must first they with knowledge (a very effective shark represent) if you are not willing to do your own homework (independently do research on companies and stocks) and must depend on stock brokers or a stronger on television to tell you what stock buy or sell you are destined to lose money you have no on want to blame but yourself when you do.

If you lose money hasn’t want help you, nor will anyone on wall street remember that making money in the stock market serious business .it si as serious as requiring children or working at a full time job. In the end, you must take responsibility for your own investments you are completely on your hands. In the past, many investors and traders made money in the market but had no clue as to how were doing it.

M. MAMATHA (MBA 4TH Sem ) HiTech College of Engineering

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Technology in Indian Stock Exchange