1

How does a Stock Exchange

Functions
and
What are the Impacts
P.C.T.E.)

2
 WHAT IS Stock Exchange ?
Stock Exchange is that place where trading
of shares is done in terms of sale and
purchase.

3
 HISTORY
 18th Century - East India Company was the
dominant institution and by end of the century,
business in its loan securities gained full
momentum
 1830's - Business on corporate stocks and shares
in Bank and Cotton presses started in Bombay.
Trading list by the end of 1839 got broader
 1840's - Recognition from banks and merchants
to about half a dozen brokers
 1850's - Rapid development of commercial
enterprise saw brokerage business attracting
more people into the business
4
 1860's - The number of brokers increased to 60
 1860-61 - The American Civil War broke out
which caused a stoppage of cotton supply from
United States of America; marking the beginning
of the "Share Mania" in India
 1862-63 - The number of brokers increased to
about 200 to 250
 1865 - A disastrous slump began at the end of the
American Civil War (as an example, Bank of
Bombay Share which had touched Rs. 2850
could only be sold at Rs. 87)

5
 INTRODUCTION

There are 25 Stock Exchanges

in the India.
Bombay Stock Exchange (BSE)
is the largest, with over 6,000
stocks listed.
The BSE accounts for over two
thirds of the total trading
volume in the country.
Established in 1875, the
exchange is also the oldest in
Asia.
6
 Name of Indian Stock Exchanges

1. Ahmedabad Stock Exchange

2. Bangalore Stock Exchange
3. Bhubaneswar Stock Exchange
4. Bombay Stock Exchange
5. Calcutta Stock Exchange
6. Cochin Stock Exchange
7. Coimbatore Stock Exchange
8. Delhi Stock Exchange Association
9. Gawahati Stock Exchange
10. Hyderabad Stock Exchange
11. Inter-connected Stock Exchange of India
12. Jaipur Stock Exchange

7
 Cont…….
13. Ludhiana Stock Exchange
14. Madhya pradesh Stock Exchange
15. Madras Stock Exchange
16. Mangalore Stock Exchange
17. National Stock Exchange
18. Magadh Stock Exchange (Patna)
19. Over The Counter Stock Exchange of
India (OTCEI)
20. Pune Stock Exchange
21. Uttar Pradesh Stock Exchange
22. Vadodara Stock Exchange
23. Meerut Stock Exchange
24. United Stock Exchange (started in
June’09)
25. Saurashtra Stock Exchange
8
 Constituents list of BSE SENSEX
Bombay Stock Exchange has 30
companies sripted.
1. ACC
2. BHEL
3. BHARTI AIRTEL
4. DLF UNIVERSAL Ltd.
5. GRASIM INDUSTRIES
6. HDFC
7. HDFC BANK
8. HERO HONDA MOTORS Ltd.
9. HINDALCO INDUSTRIES Ltd.
10.HLL

9
 Cont…….
Cont…….
11. ICICI BANK
12. INFOSYS
13. ITC Ltd.
14. JAIPRAKASH ASSOCIATES
15. L&T
16. M&M Ltd.
17. MARUTI UDYOG
18. NTPC
19. ONGC
20. RELIANCE COMMUNICATION
10
 Cont…….

21. RELIANCE INDUSTRIES

22. RELIANCE INFRASTRUCTURE
23. SBI
24. STERLITE INDUSTRIES
25. SUN PHARMACEUTICAL
INDUSTRIES
26. TCS
27. TATA MOTERS
28. TATA STEEL
29. TATA POWER
30. WIPRO
11
 National Stock Exchange

The National Stock Exchange

(NSE) is India's first debt
market.
It was set up in 1993 to
encourage Stock Exchange
reform through system
modernization and
competition.
It opened for trading in mid-
1994.
12
 Cont…….
It was recently accorded
recognition as a Stock
Exchange by the Department of
Company Affairs.
Based on the recommendations,
NSE was promoted by leading
Financial Institutions at the
behest of the Government of
India and was incorporated in
November 1992 as a tax-paying
company unlike other Stock
Exchanges in the country
13
 ROLE PLAYER

• EXTERNAL:----
• 1.SHAREHOLDER
• 2.DEBENTURE HOLDER
 SHAREHOLDER
• Shareholders are divided into two parts
• 1.Preference shareholder: Preference shareholder
are those which have preferential right to the
payment of dividend during the life time of the
company,and a preferential right to the return of
the capital when the company is wound up.
CHARACTERISTICS OF PREF.SHAREHOLDER

• 1.The dividend on them is fixed by the articles of the

company.
• 2.They get their fixed rate of dividend before any
dividend is distributed among the other class of
shareholders.
• 3.At the time of winding up of the company, the
preference shareholder must be paid back their capital
before anything is paid to the ordinary shareholders.
 KINDS OF PREF.SHAREHOLDER

• 1.Comulative shareholder: These shares are

entitled to fixed dividends whether there are
profits or loss.If profits are not sufficient to pay
in a particular year then that will pay on next
year.
• 2.Non comulative pref.share: These shares cannot
claim arrears of dividends of any year (if not paid
due to insufficiency of pfofits ) out of rofits of
subsequent year.
 Cont…….
• 3.Participating pref. Shares: These shares
receives a fixed rate of dividend in priority to
ordinary shares and further,the right to participate
in balance of profits in an agreed proportion
together with ordinary shares.
• 4.Redeemable pref.shares: These are shares
which can be purchased back by the
company.The company researves its rights to call
back or purchased these shares at any time .
EQUITY SHARES

• All shares which are not preference shares are

equity shares.These shares do not have a fixed
rate of dividend,they are always irredeemable and
their holders have normal voting rights.
• They are also the owners of the company.
• They take dividend
 DEBENTURES
• A document under the company seal which
provides for the payment of a principal sum and
interest there on at regular intervals which is
usually secured by a fixed or floating charge on
the company’s property or undertaking which
acknowledges a loan to the company.
 INTERNAL PLAYERS
• The members of the stock exchange can be
divided into two parts:
• A.Broker: He is a commission agent who
transacts business in securities on behalf of non-
members.They may have number of sub-brokers
to canvass and secure business for them.
• B.Jobber: He is an independent dealer
securities.He purchase and sells securities in his
own name. He is not allowed to deal with non-
members directly.He works for profit.
 Tarawaniwala
• Non-members : The following categories of non
members are also permitted to enter trading hall
and transact business on the behalf of members.
• Authorized clerks: They are the assistant or
agents.They buy or sell on the behalf of
employers.They can not transact business on
their own account.
• Remisers: They are the sub-brokers. He is also
called the half commission men.
 SPECULATION :
• Definition : it involves the buying,holding,selling,short-
term selling of
stocks,bonds.commodities,currencies,collectibles or any
valuable financial instrument to profit from fluctuations
in its price as opposed to buying it for use or for income
via method like dividends or interest.
 Kinds of speculation
• Bull Market (Tejiwala): In case of that they purchase the
shares at current prices to sell at a higher price in the near
future and makes a profit if his expectations come true.he
is also called a long buyer.
• Bear Market (Mandiwala) : He sells security in the hope
that he will be able to buy them back at lesser price.It is
also called “short selling”.
 Cont………………
• Lame duck : When a bear has made contracts to sell
securities,find it difficult to meet his commitment due to
non-availability of security,,they always struggling..
• Stag : He is that type of speculator who applies for a large
number of a shares in a new issue with the intention of
selling them at a premium.He is bullish and very
cautious.
 BENEFITS OF Stock Exchange

FROM THE POINT OF VIEW OF COMMUNITY:

1. It assist the economic development by providing a
body of interested investors.
2. It uploads the position of superior enterprises and assist
them in raising further funds.
3. It encourages capital formation
4. Government can undertake projects of national
importance and social value raising funds through the
sale of its securities on the Stock Exchange.
5. It is the Stock Exchanges that central bank of a country
can control credit by undertaking open market
operations (purchase and sale of securities)
26
 Cont…….

FROM THE COMPANY POINT OF VIEW:

1. A company whose shares quoted on Stock Exchange
they enjoy better reputation and credit.
2. The market for the shares of such a company is
naturally widened.
3. The market price of securities is likely to be higher in
relation to its earnings,dividends and property
values.This raises the bargaining power of the company
in the event of a takeover,merger or amalgamation.

27
 Cont…….

FROM THE INVESTORS POINT OF VIEW:

1. Liquidity of the investment is increased
2. The securities dealt on a Stock Exchange are good
collateral security for loans.
3. The Stock Exchange safeguards interests of investors
through strict enforcement of rules and regulations.
4. The present net worth of investments can be easily known
by the daily quotations.
5. His risk is considerably less when he holds or purchases
listed securities.
28
Function of the stock exchange

1.Raising capital for businesses

2.Mobilizing saving for investment
3.Facilitating company growth
4.Redistribution of wealth
5.Corporate governance
6.Creating investment opportunity of small
investor
7. Barometer of the economy 29
 CAUSES OF PRICE
FLUCTUATION
1. DEMAND AND SUPPLY
2. BANK RATE
3. SPECULATIVE PRESSURE
4. ACTIONS OF UNDERWRITERS AND
OTHER FINANCIAL INSTITUTIONS
5. CHANGE IN COMPANY’S BOARD OF
DIRECTORS
6. FINANCIAL POSITION OF THE COMPANY

30
 Cont…….

7. TRADE CYCLE
8. POLITICAL FACTORS
9. SYMPATHETIC FLUCTUATIONS
10. OTHER FACTORS:
a. EXPECTED MONSOON
b. PERSONAL HEALTH OF HEAD OF GOVERNMENT
OR CHAIRMAN OF THE COMPANY
c. OIL PRICES IN THE INTERNATIONAL MARKET.

31
 Cont…….

d. CHANGES IN EXCHANGE RATE

e. BORDER TENSION
f. STOCK BROKERS SCAM LIKE HARSHAD
MEHTA AND KETHAN PAREKH
g. STRIKES AND LOCK-OUT OF THE COMPANY.
h. NEW BUDGET PROPOSALS
i. LIBERLIZATION AND PRIVATIZATION OF
THE COMPANY.

32
 Conclusion

THE STOCK EXCHANGE IS

CONSIDERED TO BE THE
BAROMETER OF ECONOMIC
ACTIVITY.

33
34