Secondary Market

A market for outstanding securities

Facilitates liquidity, marketability, and
valuation of securities
Helps in price discovery

Stock Market Scenario

The Bombay stock exchange (BSE)
The National Stock Exchange (NSE)
Regional stock exchanges
Inter-connected Stock Exchange
MCX stock exchange
United Stock exchange

Regulation of Stock
Exchanges
Regulated by the central government
under the Securities Contracts (Regulation)
Act 1956- provides for the recognition of stock
exchanges, supervision and control of recognised
stock exchanges, listing of securities etc.
SEBI to protect investors interest in securities
and promote and regulate the securities market

Broker
Brokers are the members of stock exchange
They enter trades either on their own account or on behalf of

clients
They get registered with SEBI after paying a registration fee
Bring buyers and sellers together
Three classes of brokers- proprietary, partnership and corporate
Brokerage varies from broker to broker
Maximum brokerage that can be levied is 2.5 per cent of the
contract price

Demutualisation of Stock
Exchanges
A process by which a member owned organisation
become a shareholder owned company
Separation of ownership rights and trading rights
Become a profit making and tax paying company
Safeguards the interest of investors
Greater transparency in the functioning of stock
exchange

Listing of Securities
A company can seek listing on more than one
stock exchange
A company can seek listing if at least 10 %
shares are offered to public
Basic norms for listing are uniform
Companies to pay listing fees annually
Compulsory disclosures quarterly and half yearly
Central Listing Authority (CLA) to ensure
compliance of listing requirements

Dematerialisation of
securities
An electronic book entry form of holding and

transferring securities.
Two depositoriesNSDL- National Securities Depository Limited
CDSL- Central Depository Service Limited

Trading

Online screen based electronic trading system

Two types of systems- Order driven system and Quote driven
system
Two types of orders- Limit orders and market orders
Margin system- brokers are levied various margins
Intra-day trading
Circuit breakers
halt /suspension in trading to contain volatility in prices
dont halt trading but no order is permitted if it falls out
of the
specified price range
Index -wide circuit breakers
Brokers provide Direct Market Access (DMA) to institutional
investors
Trading and settlement- rolling settlement

Stock Market Index

A leading economic indicator.

Serves as barometer of the equity market
A good market index incorporates a set of scrips which have
high market capitalisation and high liquidity.
Calculated as the percentage of the aggregate market value of
the set of scrips incorporated in the index to the average market
value of the same scrips during the base period.

Methodologies for Calculating the

Index
Market capitalization weighted index
Full market capitalisation methodS&P CNX Nifty in India and S&P 500 Index in
USA

Free-float market capitalisation methodBSE SENSEX, FTSE indices

Global Stock Market Indices

Dow Jones Industrial Average
Nasdaq Composite Index- all stocks listed
Nasdaq 100 Index- largest computer, software &
telecom stocks
S & P 500 index- 500 biggest mkt cap companies
FTSE 100- largest market value companies
MSCI world index- 23 developed country market
indices

Major Indices in India

BSE Sensex
Comprises 30 shares
Base year is 1978-79 and base value
is 100
S & P CNX Nifty
Comprises 50 shares
Base year is 1995 and base value is
1000