INDIAN STOCK EXCHANGE

UNIT 1
Stock exchange meaning and functions worlds stock
exchange Indian stock exchange origin and growth organization
structure mode of organization membership stock exchange
traders stock exchange trading jobbers Vs brokers stock exchange
dealing trading of securities.
UNIT 2
Stock exchange regulatory framework under the SEBI act, BACC
act, defines of India rule capital issues control act 1947, securities
contract act 1956, securities contract rules 1957 profit of Indian stock
exchanges BSE, NSE,..etc.. restructuring Indian stock exchanges
demutualsation.
UNIT 3
Listing meaning, characteristics, steps, legal provisions,
benefits, consequences of non-listing delisting desire trading
speculation speculation Vs gambling investors Vs speculator
inventor protection.
UNIT 4
The security contract (Regulation Act 1956) important provision
SEBI functions and working.
UNIT 5
Internet stock trading meaning and features current scenario
regulations internet stock trading IPOS on the internet EIPO ECommerce act and internet stock trading stock index features.

UNIT 1
MEANING AND DEFINITION OF STOCK EXCHANGE:
The term stock exchange refers to a market place for purchase
and sale of industrial and financial securities.
The word stock- a fraction of the capital of the company
The word exchange a place for purchase and selling
somethings.
DEFINITION:
According to Hastings, stock exchange or securities market
comprises all the place where buyers and sellers of stock and bonds or
their representatives undertakes transactions involving the sale of
securities.
According to section 2(3) of the securities contract regulation
(SCRA) act 1956, stock exchange has been defined as any body of
individuals whether incorporated or not, constituted for the purpose of
assisting, regulating or controlling the business of buying, selling or
dealing in securities
FUNCTIONS OF STOCK EXCHANGE (OR) SERVICES OR
FEATURES:
1. Evalution of securities
2. Safety of capital and fair dealings
3. Ready and continuous market for securities
4. Agency for capital formation
5. Facilities for speculation
6. Regulation of company management
7. Barometer of business progress
8. Proper channelization of capital
9. Providing safety to investors
10.
Liquidity
11.
Mobilization of savings
12.
Dissemination of market data(spread)
13.
Sound price setting

14.
15.
16.
17.
18.
19.
20.
21.
22.

Seasoning of securities
Distribution of new securities
Investors education
True market mechanisam
Perfect market conditions
Economic barometer
Company regulation
Fair price determination
Business information

HISTORY OF STOCK EXCHANGE:

1.
2.
3.
4.

Bombay stock exchange (BSE) 1875

18th century trading in securities
East India companys office in india
1930s corporate stocks and shares (rise in the volume of
business)
5. 1936 shares of banks were traded like,
(a). corporate bank
(b). chartered bank
(c). mercantile bank
(d). Oriential bank
(e). old bank of Bombay
6. 1839
(a). union bank
(b). Agra bank
(c). Bengal bonded warehouse
(d). docking company
(e). steam tug company
7. 1840 50 : Brokers and Merchants
8. 1850
: Joint stock enterprise
9. 1860
: 60 brokers
10.
1860 65 : Indian stock market widest pread
11.
1865
: The process of establishing the stock
exchange in Bombay
12.
Promchand Roy Chand : The first broker
13.
Mid 19th century : rabid development of commercial
activity.
(a). telegraph introduced
(b). communication expanded

WORLDS STOCK EXCHANGES:

i.

Continential Europe: The first stock exchange was established in humburg in

1538.
Amsterdam in 1611
Veinna stock exchange in 1771
(a). Haly

ii.

iii.

iv.

v.

vi.
vii.

1808 Milan stock exchange

1819 Caslo stock exchange
1850 Geneva
1864 Stock Holm stock exchange
London stock exchange: It is the oldest stock exchange in the world
The merchant ventures began dealing in stocks
and shares during 17th century
The council of associated stock exchange was
formed in 1890.
6 regional stock exchanges were setup in 1967.
NYSE ( Newyork Stock Exchange):it was created in 1817
trading is dealer to dealer basis.
AMEX ( American stock exchange): It was created in 1953
It is based on central market.
NASDAQ ( The National Association of Securities Dealers
Automated Quotation Systems): It is the largest market in the world
It was started in 1917
It is the third largest trading system
Investors from around the world
Dealing between major institutions
Canadian exchanges
It is the fourth largest public equity market in the world.
Japan : (Tokyo)
It was setup in 1878
Other stock exchange
Nagoya

viii.

ix.

Osaka
fukuoka
Hongkong: It was setup in 1914.
It is the least restrited market in the world.
Australia
Merbourne - 1865
Syntency
- 1871

ORIGIN AND GROWTH OF INDIAN STOCK EXCHANGE

18th century - dealings with the stock transactions East India
Company
1830 - trading of corporate shares
1850 - the establishment of companies act and the growth and
development of the stock exchanges across the country.
Before World War 1 : Indian stock market comprised three exchanges.
Indian manufactures were faced with a boom.
Bombay stock exchanges
The association was established in 1875
It was first stock exchange in india.
Native shares and stock brokers association
Ahmedabad stock exchange
It was established in 1894
It is the second stock exchange
Under the name of Ahmedabad shares and stock brokers
association
Calcutta stock exchange
It is the third stock exchange
It was established in 1908. Under the name of Calcutta stock
exchange association.

After the world war 2: A sharp boom and mush room growth of Indian industries.
During the second world war a sum new stock exchange was
established such as
(a). Hyderabad
(b). Bangalore
(c). indore etc..,

ORGANISATION STRUCTURE
1. Governing Board
Governing board is headed by a president
The governing board is over all management is the stock exchange
Governing board is known as board of governers or board of
directors of the managing committee
The nominees of the governing board consist of 13 members
The governing board is consist of
President
Vice president
Executive director
Elected director
Public representative

STP
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Mei r
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Functions of Governing Board:

Making and amending the rules
and regulations
Granding approvals
Warning, fining and suspending
members
Impose penalities
Appointment of authorized clerks
Regulation the stock exchange
trading

 Directing, supervising and controlling all metters.

2. Six members:

3.

They are elected members shell retired at each AGM.

1/3 of the elected members shell retired
1 member shall be eligible for re election
Three members
They are nominated by the government or board
The nominees are not subject to retirement by rotation
They can hold the office till the government desires
4. Three public representatives
They are nominated by the board
One executive director to be appointed by the stock
exchange
They are appointed for one year
They are eligible for re election
They are elected from various departments such as
Government department
Government financial institutions
Investment institutions
RBI
Educational institutions
Industrialists
Institute of CA
ICWA
Institute of company secretaries
5. President and vice president
They are elected from the members of the governing board
They are appointed for one year
They are eligible for re election
The president is chairman of the governing board
The governments guidelines and boards decisions of
implemented effectively.

MODE OF ORGANISATIONS

In India stock exchanges are free to establish themselves in

any form of organizations.
1. Voluntary association
Ex: BSE, Ahmadabad stock exchange, Indore stock exchange
2. Public limited companies
Ex: exchanges in Delhi, Bangalore, Mangalore, Kochin,
Kanpur, are organized as public limited companies.
3. Companies limited by guarantee
Ex: Exchanges in pune, Hyderabad

MEMBERSHIP IN THE STOCK EXCHANGE

Only individual can become member
Sufficient knowledge and experience relating to stock exchange
To follow the rules and regulation
Application for membership made to the governing board
Governing board as a right the accept or reject the application
He should be deposit Rs.20,000 in cash or in securities
He should purchased a card
The minimum age limit is 21 years
The government has prescribed some minimum experience for
admission
A minimum experience of two years as a authorized clerk
The new member can be recommended by the two existing
members of atleast 5 years standing

Classification of Member:1. Brokers

He is a commission agent. He acts on behalf of nonmember
He deals in all varieties of stocks and shares
Traders for a commission
He is a paid a commission on the purchase and sales
through him

 The investing public buys and sells and securities only

through a broker
2. Jobbers

Jobbers acts for himself

He is not to the agent of any non-member
Trades for a price difference
He buys and sells securities in his own name
He jobber is generally a specialist who deals in certain
types of securities only

Purchase and selling price = The difference between 2 prices profit

earned by the jobber
It is techniquely called as jobbers turn
STOCK EXCHANGE TRADERS
1. Remiser

2.

3.
4.
5.

6.

Remiser is one who acts as a agent of a stock

exchange. He is a sub broker. He is a called as a Helfcommission man, he is very popular in BSE. He gets his
remuneration in the form of commission for the business secured
by him. He obtain business for his members.
Authorized clerks
The employees of a member if stock exchange are called
authorized clerks. The member of the exchange are empowered
to appoint a fixed number of authorized to clerk to transact
business behalf of their employees on the floor of the stock
exchanges. They are paid a salary, plus a commission upto 50%
on the done by him.
Brokers
Jobbers
Dealers
Dealers are market makers. They are important
intermediaries in the stock exchange, dealers are buy and sell,
inventory of stocks.
Tarawaniwalas
The tarawaniwalas are to acts as dealers. In there are own
name, they are some times linked to the jobbers of the London
exchange such dealers specialized in one or two securities only.

They are also allowed to act as brokers. They are purchase

securities from claims at lower price and sell his securities higher
price.
7. Commission brokers
Generally he transact business on behalf of the members
non-members on a commission. He is similar to the broker of the
London exchange. The kinds of commission broker is very little in
number.
8. Budliwalas
The budliwalas are the financiers of operating on the
securities market.

STOCK EXCHANGE TRADING

The act of buying and selling of securities on a stock exchanges
true authorized tradings agents or brokers. Normally stock trading is
done through registered is known as stock exchange trading.

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Steps in Trading of Security (or) Steps in

Stock Trading
Methods of stock trading

r
t

1. Auction trading system

This is an order- driver or a customdriver trading system where customers buy

and sell orders are matched at a central
point. The newyork stock exchange is an
order driven action market.

i
i r

Advantages:
The investors a better price
Growth of the markets

2. Dealers trading system

3. Hybrid trading system
4. Margin trading system

STOCK EXCHANGE DEALING

1. Spot delivery contract
Where in a contract the payment and delivery of
securities take place on spot, on the same day or on the next day.
2. Ready delivery contract
Where in a contract the payment (settlement) and a
delivery take place with in a fixed time period not exceeding 7
days.
3. Forward delivery contract
Where the payment (settlement) and the delivery of
security take one place at security and every fort night through
clearing house only
DIFFERENCE BETWEEN JOBBERS AND BROKERS
S.N
O
1
Agent

Specializatio
n

Dealing with
Public

Price
Quotation

Margin

JOBBERS
Jobbers is an independent
dealer and dealing in his
own name and a willing
to buy and sell securities
Jobber is a specialist, he
deals certain type of
securities only
Jobbers deals only with
brokers and not with no
direct sale or purchase in
the market

Jobber quotation to the

broker
(a). one for buying
(b). one for selling
Sales quotation is higher
than the purchase
quotation
Jobbers profit margin is

BROKERS
Broker is an agent to
buy or sell securities
on behalf his client
Brokers is a generalist
he deals all varieties
of securities
Brokers deals with a
jobber on behalf of his
client. He is a
middleman between
the jobber and real
buyer and seller
Broker has to
negosiate terms and
conditions of sale or
purchase. He lives on
commission paid by
his client which is
fixed by the exchange.
Lower brokerage rate

fixed by competitions
among themselves as
dealers

is fixed by rules and

the higher rate by
competition

UNIT 2
STOCK EXCHANGE REGULATORY FRAMEWORK

Under
Under
Under
Under
Under
Under
Under

the
the
the
the
the
the
the

SEBI act 1988

BSCC act
(Bombay Security Contract
Defence of India rule 1943
capital issues control act 1947
securities contract regulation (SCRA) act 1956
securities contracts regulation rules 1957
companies act 1956

UNDER THE SEBI ACT

The securities and exchange board of India (SEBI). It was first
setup April 12, 1988.
SEBI Activities

Registration of brokers
Control over mutual funds
Issue of insider trading regulations
Surveillance
Authorized of merchant bankers
Clearing house
Issue of guidelines foe investor protection
Regulating port folio managers
Regulating the working of stock brokers, underwriters
To make rules about the manipulative activities

UNDER THE SCRA ACT (Securities Contract Act) 1956

Powers: Granting recognition of stock exchange
With drawal of recognition
Calling for periodical returns

Maintaining records and books

Power to call for annual reports
Power to make rules
Regulation of trading practices
Control of contract to listing
Power to suspend business of recognized stock exchange
Power to declare contract
Power to prohibit members in certain cases
Power to prohibit contract in certain cases
Power to provide license to dealers
Power to compel listing by public companies
Power to make
Listing
Trading practices
Trading hours
Settlement of contracts
UNIT 3

LISTING
MEANING
Every stock exchange maintainance a list containing a names of
selected companies who securities can be traded in that stock
exchange.
The list is called official trade list. Unlisted securities cannot be
dealed in the stock exchange
The company which wants is securities to be traded in a
recognized stock exchanges should applied to stock exchange gets
name included in the official trading.

DEFINITION

The inclusior of the name if company in the official trade list of

stock exchange is called listing.
Listing was optional but its now made compulsory for all public
limited companies.
CHARACTERITICS OF LISTING/FEATURES
1. Agreement
Agreement between stock exchanges and company
2. Purpose
To facilitate clear transperancy , to protective interest of the
investor
3. Restriction
Company securities traded in any no of stock exchange and
listed on the regional stock exchange
4. Investor protection
The SEBI act should framed the rules for the regulating the
listing of security. The brokers cannot make practices.
STEPS IN LISTING
1. Initial listing
This involves making a simple application by the payment of
initial listing fee prescribed by the respective stock exchange.
2. Final listing
This involves getting the approval of the recognized stock
exchange for the listing.
3. Registration and Recording
This involves registering and placing on record the
corporate securities openly. This is done for the purpose of
trading by the registered members of the stock exchange and
official announcement of the securities price.
4. Continued listing
This step involves making efforts by the corporate
enterprise for the purpose of continued to remain listed on the
stock exchange. Until it is delisted from the records of the stock
exchange.
LEGAL PROVISIONS
1. Section 21 of the SCRA Act (Security Contract Regulation Act)

 To prescribe necessary condition for listing of securities

2. Section 11(B) of SEBI Act (Security Exchange Board of India)
To formulate regulations governing working of the listing
mechanism
3. To frame rules
To frame rules for the regulations of listing of securities
4. Section 73 of the companies act 1956
It aims at protecting to interest of the investor.
CLASSIFICATION OF LISTED SECURITIES
1. Cleared securities
Securities in which formed trading can be done. It is also
known as securities forward list.
2. Non cleared securities
Securities are traded in spot transaction there are called
securities in cash list
ADVANTAGES OF LISTING

Easy marketability
Liquidity
Higher status
Tax advantages
Higher prices for securities
Safety to the funds
Protection to the investors
Evolution of the securities
Published in newspaper and periodicals
More public confidence
Safeguard general public interest
Quick transfer registration
If offers wide publicity
Easily buying and selling of securities
It assures finance

OBJECTIVES OF LISTING
1.
2.
3.
4.

Easy marketability
Liquidity to the securities
Transferability of shares
Protection of interest of investor

5. Higher status
6. Evolution of the securities
CONDITIONS FOR LISTING OF SECURITIES RULES
Particulars to be furnished..
1.
2.
3.
4.
5.
6.
7.
8.
9.

Copies of memorandum of association of company.

Copies of articles of association of company.
Copies of prospectus of a company
Copies of offer for sale and surcular
Copies of balance sheet for the last 5 years
Copies of auditor accounts for last 5 years
Certified copies of agreements
Certified copies of underwriters
Certified copies of every letter, report, contract and other
documents
10.
Statement of history of the company since its incorporation
11.
Particulars of shares and debentures
12.
Particulars of any commission, discount, brokerage
13.
A list of higher 10 holders each class of securities
14.
The list of the no of shares and debenture held by the
holders
15.
The list of address of each share holders
16.
Particulars of shares forfeited
17.
Certified copies of agreement with secretaries, selling
agent, directors, G.M
18.
Certified copies of court order and other document
19.
Particulars of all material contract, collaboration, agreement
etc.
20.
Particulars regarding its capital structure
21.
The company must offer atleast 60% of its issued capital for
public subscription
22.
Listing agreement with the necessary initial and annual
listing fee
23.
A statement of dividend or interest, if any
CONSEQUENCES OF NON-LISTING
Allotement or shares of application shall be void
Application money collected is to be refunded with in 8 days

 Liability to every director of a company to repay the amount with

interest
DELISTING
Delisting means removal of the securities of the listed companies
from the official list of the stock exchange.
TYPES OF DELISTING
1. Compulsory Delisting
Where a companies name is removed for trading from a
official list of the stock exchange at the instance of the stock
exchange, it is a case of compulsory delisting
Causes of compulsory delisting

Non-payment of listing fees

Non-compliance with listing requirements
Non-compliance with provisions of the listing agreement
Absence of trading
Unfair trading practices
Duplicate shares certificates
Promoters and directors not known
Reduction in the No of public holders
Non-redressal of investors compliants

2. Voluntary Delisting
Where a companies name is removed from the official list of
the stock exchange with the consequence of the company both
and the stock exchange incase of voluntary delisting
Causes of voluntary delisting

Heavy fees
Low holdings
Lossess
Absence of trading
Suspension (business)
Small capital
Regional imbalance

SPECULATORS
The speculators buy securities with a hope to sell them at a profit
in future. The do not retained their investments for a length period.
They are not genuine investors

They are not regular investor

Earning profit quickly
They are interested only in the fluctuations
Risk is high

Kinds of Speculators
1. BULL (TEJIWALA)
He is also known as Tejiwala
He is an optimistic speculator
His trend is called Bullish trend
2. BEAR (Mandiwala)
He is apersimistic speculator
The bear is said to be short selling
This situation is called bearish trend
3. STAG
He is a carefull speculator
He purchased only new companies shares
He expects to sell at a premium
He is also called premium hunter
He generally applies for a large no of shares
4. LAND DUCK
There are bear brokers & they will lose in the market
He is not able to sell the securities
He is unable to meet his immediately
SPECULATIVE TRANSACTIONS
The various type of transactions, which facilitate speculative
dealings can be classified into following:
I.

Option dealings
Kinds of Option dealings
Call option
Put option

II.
III.
IV.
V.
VI.
VII.
VIII.

Call and put option

Gale option
Margin trading
Arbitrage
Wash sales
Blank transfer
Carry over or Budla transactions
Cornering
Rigging the market

DIFFERENCE BETWEEN SPECULATION AND GAMBLING:

Speculation
It is consists of buying and selling securities in the hope of a
profit from anticipated of changes of value.
Gambling

It
It
It
It
It
It

is an illegal activity in involves taking high risk.

has no benefit of the economy.
is unplanned and non-scientific
is uncertainty
involves high returns and also for thrill and excitement
is based on change of events happening

S.N
O
1
Legality
2

Agreement

Social Welfore

Economic

SPECULATION
It is lawful activity &
it is enforceability
Speculators
agreement is not
void but enforceable
Speculation is
considered useful to
the procedure &
stock exchanges
Speculation, if

GAMBLING
It is an lawful activity
The gambers agreement
is void and it is not
enforceable
It is antisocial & illegal

Gambling has no use for

benefits

Risk

Rationality

Nature of
Activity
Types of
Analysis

Orientation and
Focus

10

Types of Return
Expected

INVESTORS

properly carried out,

commands certain
economic benefits
In speculation, risk
is existed & it
depends on price
changes of
securities
Speculation is based
on knowledge
foresight regarding
anticipated price
changes
Speculation is a
planned activity
Speculator attitude
makes a scientific
analysis and very
interested in market
action & price
movements
His attention of
taking business
dealings that carry
risk and make
profits in a
systemmetic
manner
A speculator, to
make a profit out if
anticipated change
in price
Eg: investment in
shares, securities

the community at large

In gambling risk is
antified and
unnecessary risks and
created.
It is based on blind
chance without any
rational basis

Gambling is an
unplanned one
Gambling is a nonscientific one

His attention on easy

and quick money

A gambling expectations
of high returns and
making thrill and
excitement
Eg: horse race,
lotteries, etc..,

MEANING OF INVESTOR
The investors buy the securities with a view to invest their
savings in profitable income earning securities & investor in interested
in safety of his investments.
They are also called genuine investors. They generally retained
the securities for a length of time.
RIGHTS OF INVESTORS

To
To
To
To

receive all benefits

obtain all services from the company
subscripe to additional issue of capital
obtain delivery of shares

FACTORS AFFECTING INVESTORS INTEREST

1. Insider trading
2. Short selling
3. Restricted trading
4. Dominance of few stock exchanges
5. Restricted trading hours and days
6. Grievances against listed companies
7. Grievances against member of stock exchanges
8. Price rigging
9. Excessive speculation
10.
Lack of transparency
DIFFERENCE BETWEEN INVESTORS AND SPECULATORS
S.N
O
1
Safety

Delivery

Type

INVESTORS
More concerned
with the safety of
funds
Investors makes an
immediate
settlement after the
completion of trade
They can be small
investors & others

SPECULATORS
More concerned with the
quick profits
He does not make any
immediate settlement of
the trades
They are different type of
speculators such as

Purpose

Types of
Analysis

Risk

Attitude

Stability

Types of
contract

10

Income

11

Period

12

Types of
Purchase

For the purpose of

realization cash and
getting an income
Evaluate the
securities through a
scientific analysis
To involve minimum
risk
An investor is
careful &
conservative
Stable income
Incase of
investment the type
contract is that of
creditors nature
Investors, income
depends on the
earnings of the
enterprise
In investment the
length of
commiteement is
long term &
holdings for the
longer period
In investment
securities are
purchased our
rightly

(a). bulls (b). bears (c).

stag
(d). land duck
For the purpose of making
profit from future price
movements
Evaluate the securities
through a market action &
price movements
To involve high risk
A speculator is careless

Profit is uncertain
It is of ownership nature in
speculators

His profit depends on the

change in the market

Tries to sell the securities

quickly his commitement
is for a short period

In speculation, it is often
on margin.

SAFEGUARDS FOR INVESTORS / INVESTOR PROTECTION

MEASURE

I.
II.

III.

IV.

V.
VI.

VII.

Investors services call

Selecting the brokers & sub brokers
He should deal with only registered brokers &
members
Formal agreement
Registration
agreement
Transacting business
Specifying exchange
Contract note
Brokerage
2.5% of the trade value
Ensuring settlement
Delivery
Demat account
Depository participant
delivery

SOLVING INVESTORS GRIEVANCES PROCESS / INVESTOR

GRIEVANCE REDRESSAL MECHANISAM
1) Awareness programmes
2) Investor protection fund
3) Arbitration process between members & investors
4) BSE training institute
5) BSE official website
6) Settlement by mutual agreement
7) Trade guarantee fund
8) Publication of corporate information & results
9) IGRC (Investors Grievance Redressal Committee
10)
To protect the interest of the investors
11)
To promote the development & regulation of the secondary
market

INSIDERS
Insiders are the persons. Who have connection with the company
in such a way to have access to price sensitive information
CATEGORIES OF INSIDER

1. Primary insider
Directors of company
Directors of stock exchange
Merchant bankers
Registers
Brokers
Top executives
Auditors
banks
2. Secondary insider
Dealers
Agents
Employees of the company
INSIDER INFORMATION

Financial report of the company

Declaration of dividends
Issue of bonus shares
Major plans and new projects
Amalgamation & merger
Any information regarding the earnings of the company
Changes in policies and plan
Information regarding the changes
Operation of the company

UNIT 4
SEBI
The SEBI was setup an administrative body in April 1988.
It was given statutory status on 30-1-92.
The basic purpose of establishing SEBI is to protect the interest
on investors in securities & to promote develop & regulate the
securities market.
ROLE AND FUNCTIONS OF SEBI / WORKING OF SEBI
1) Regulating the business in stock exchanges

2) Registering & regulating the working of the stock broker

Sub brokers
Share transfer agent
Underwriters
Bankers to an issue
Merchants bankers
Registers to an issue
3) Registering & regulating the work of the depositories
Participants
Foreign investors
Credit rating agencies
4) Registering & regulating the work of collection investment
schemes
5) Promoting & regulating self regulatory organization
6) Promoting investors education & training of inter mediaries
7) Prohibiting unfair trade practices
8) Prohibiting insider trading
9) Determine fees & other charges
10)
Conducting research
11)
To conduct enquiries and audits of the stock exchanges
12)
Issuing guidelines for foreign investors for portfolio
investments
13)
Exercising powers under the SCRA & Capital issues control
act

UNIT 5
INTERNET STOCK TRADING
MEANING
Method of trading in securities where by information about
a)
b)
c)
d)

Securities
Brokers
Dealers
Prices etc.,

are communicated through official websites of concerned stock

exchange. So has to facilitate buying and selling of securities. Is
known as internet stock trading.

FEATURES
1)
2)
3)
4)
5)
6)
7)

Method of trading in securities

It is an on-line trading
Order routing system (ORS)
Safety and integrity
Reliability and confidentiality
A system based control on the trading
It is possible for the investor to the investor to buying and selling
securities
8) To provide informations about securities, brokers, prices etc.,
9) Official websites of concerned stock exchange
10)
Trades are executed by registered stock brokers
CURRENT SCENERIO / RECENT DEVELOPMENTS
Exchange use the internet as part of their market infrastructure.
1. A variety of information to the public.
2. Own websites
3. To provide market information
4. Around the world
5. Information on individual security prices
6. Information on trading volume
7. Information on contract terms
8. Information on trading mechanism
9. Information on rules of exchange
10.
To provide links between brokers and dealers and investors
11.
To provide information on the listed companies
12.
Exchanges using the internet for communicating with the
member
13.
It is possible for an order transmission
14.
It helps to trade executions
15.
Clearance and settlement
16.
The websites contain a list of exchange members.
REGULATION INTERNET STOCK TRADING

A. Section 56(1) of the companies act 1956

It provides that companies prospectus to a public issue
B. Section 56(3) of the companies act 1956
It states that from of application for securities
C. Section 64 of the companies act 1956
Its provides that allotements & offering to the public for
subscription
D. Section 69(3) of the companies act 1956
The amount payable on application on each share shall not
be loss than 5 percent of the nominal value of the share.
E. Section 73(3) of the companies act 1956
The application money kept in a separate bank account
F. Section 72(5) of the companies act 1956
The revocation of a application till the expiry of 5 days after
the time of opening of subscription list
G. Rule 19(2)(6) of the SC(R)
It provide that atleast 25 percent of each class of securities
be offered to the public for subscription
IPO INITIAL PUBLIC OFFERING

It can sell to the public

The securities are offered to the public
They can be sold to the highest bidder
They can be sold at fixed price
It is brought out by underwriters
To draft the prospectus

Procedure for IPO

To obtain the approval of the board of directors of company.
The company can appoints lead managers to the issue such as,
a)
b)
c)
d)
e)
f)

Merchant bankers
Underwriters
Registers
Transfer agents
Co-Managers
Advisor

The lead manager co-ordinates the public issue process.

Appointment of intermediaries
To determine the public offer price
To consider companies management
To consider market price of the securities
Company operating result
History of the company & industry
Prevailing market & economic conditions

IPOS ON THE INTERNET

To protect the internet of the investors

To promote the development of securities market
To regulate the securities market
To issue guidelines
To protect the rights of investors
The filling of offer documents with SEBI
Protecting of share issue

E IPO
The publishing of the contents of a prospectus through the
internet.

The information contained in a website

It includes notice, circular & advertisement
Inviting deposit from the public
Inviting offers from the public
Subscription or purchase of shares and debentures
Electronically linked transparent facility is used
The application can be made for IPO:
1. An application from prospectus
2. Minimum amount has to be paid
3. Money to be kept in separate account
4. Investors application to be protected
5. Collection of money

E COMMERCE ACT AND INTERNET STOCK TRADING

The Electronic Commerce Act was passed in the year 1998. It
provides and the purposes of the act are,

Legal infrastructure
Electronic contracting
Security of electronic transactions
Integrity of electronic transactions
Use of digital signature
Other issues

E COMMERCE RELATING TO INTERNET STOCK TRADING

According to section 3 to 21:
1) According to sec 3 Relating to electronic communication
2) According to sec 4(a) part 1 Relating to electronic records
and signature
Sec 4(b) Relating to electronic contract
3) According to sec (5) Relating to generating receiving under
processing record
4) According to sec (6) It provides that legal recognition of
electronic records & signature
5) According to sec (7) It deals with networks with in electronic
contracting
6) According to sec (8) Regarding to enforceability of electronic
signature
7) According to sec (9) Regarding rules of law requirement &
electronic records
8) According to sec (10) It provides that electronic records &
signature shall be admitted as evidence
9) According to sec (11) It relating to documents records &
informations
10) According to sec (12) & (13) It deals with secure electronic
records Secure Electronic Signature
11) According to sec (14) to variefy the electronic record &
signature through security procedure
12) According to sec (15) It deals with formation & validity of
electronic contracts
13) According to sec (16) It provides that validity &
enforceability of electronic records
14) According to sec (17) It provides a framework for electronic
records

15) According to sec (18) Acknowledgement of the receipt of

electronic records
16) According to sec (19) It deals with the time & place of the
dispatch & receipt of an electronic records
17) According to sec (20) It deals with the dispute
18) According to sec (21) Use of electronic records & electronic
signature by governmental entities
STOCK INDEX FEATURES
Stock Index
A stock index is a composition of selected securities traded on an
exchange
For example:
sensex is a composition of 30 blue chip securities activity being
traded on BSE
Stock Index Futures
It is introduced by the L.C.Gupta committee
It is admitted by BSE on 9th June 2000
It was admitted by NSE on 12th June 2000
The index was based on the sensex of BSE and Nifty of NSE
FEATURES OF STOCK NDEX FUTURES (SIF)
1.
2.
3.
4.

It is one of the type of a future contract

It is based on a value line index
A value line index was introduced by the KCBT
S &P 500 index future
It is introduced by the Chicago Mercantile Exchange (CME).
At present, an S & P 500 index in the most activity traded
future contract in the world.
5. Specifications
a) Contract size
b) Trading cycle
c) Price range
d) Expiry day
e) Settlement price
f) Mode of settlement

g) Date & month of delivery

6. Multiple or market lot size
The SIF can be bought or sold only in a specified lot size
7. Margin requirement
There are three types of margin a future market. SIF market
are required to keep good faith deposits which are adjusted
on a daily basis account for the gains or losses
a) Initial margin
b) Maintenance margin
c) Margin call
8. Life time contract
9. Settlement
The contract is settled in cash on the settlement date
10.
Trading in SIF
a) The orders will punched in the system
b) Confirmation
c) Market large size
d) Separate bid & quotations
e) Order confirmation
11.
Pricing SIF
F = Se (r-y)t
Where,
F = Future price
S = Spot value of index
E = Exponetial constant with value 2.718
Y = Carry return
T = Time
R = Cost of carry (or) interest cost