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Bombay Stock Exchange

Bombay Stock Exchange

Introduction
BSE Limited is the oldest stock exchange in Asia What is now popularly
known as the BSE was established as "The Native Share & Stock Brokers'
Association" in 1875.
Over the past 135 years, BSE has facilitated the growth of the Indian
corporate sector by providing it with an efficient capital raising platform.
Today, BSE is the world's number 1 exchange in the world in terms of the
number of listed companies (over 4900). It is the world's 5th most active in
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Bombay Stock Exchange

terms of number of transactions handled through its electronic trading system.


And it is in the top ten of global exchanges in terms of the market
capitalization of its listed companies (as of December 31, 2009). The
companies listed on BSE command a total market capitalization of USD
Trillion 1.28 as of Feb, 2010.
BSE is the first exchange in India and the second in the world to obtain an
ISO 9001:2000 certification. It is also the first Exchange in the country and
second in the world to receive Information Security Management System
Standard BS 7799-2-2002 certification for its BSE On-Line trading System
(BOLT). Presently, we are ISO 27001:2005 certified, which is a ISO version
of BS 7799 for Information Security.
The BSE Index, SENSEX, is India's first and most popular Stock Market
benchmark index. Exchange traded funds (ETF) on SENSEX, are listed on
BSE and in Hong Kong. Futures and options on the index are also traded at
BSE.

BSE continues to innovate:


Became the first national exchange to launch its website in Gujarati
and Hindi and now Marathi

Purchased of Marketplace Technologies in 2009 to enhance the


in-house technology development capabilities of the BSE and allow
faster time-to-market for new products

Launched a reporting platform for corporate bonds christened


the ICDM or Indian Corporate Debt Market

Bombay Stock Exchange

Acquired a 15% stake in United Stock Exchange (USE) to drive


the development and growth of the currency and interest rate
derivatives markets

Launched 'BSE StAR MF' Mutual fund trading platform, which


enables exchange members to use its existing infrastructure for
transaction in MF schemes.

BSE now offers AMFI Certification for Mutual Fund Advisors


through BSE Training Institute (BTI)

Co-location facilities for Algorithmic trading

BSE also successfully launched the BSE IPO index and PSU
website

BSE revamped its website with wide range of new features like
'Live streaming quotes for SENSEX companies', 'Advanced Stock
Reach', 'SENSEX View', 'Market Galaxy', and 'Members'

Launched 'BSE SENSEX MOBILE STREAMER'

With its tradition of serving the community, BSE has been undertaking
Corporate Social Responsibility (CSR) initiatives with a focus on Education,
Health and Environment. BSE has been awarded by the World Council of
Corporate Governance the Golden Peacock Global CSR Award for its
initiatives in Corporate Social Responsibility (CSR).

Other Awards:

Bombay Stock Exchange

The Annual Reports and Accounts of BSE for the year ended March
31, 2006 and March 31, 2007 have been awarded the ICAI awards for
excellence in financial reporting.
The Human Resource Management at BSE has won the Asia - Pacific
HRM awards for its efforts in employer branding through talent
management at work, health management at work and excellence in
HR through technology
Drawing from its rich past and its equally robust performance in the recent
times, BSE will continue to remain an icon in the Indian capital market.

Vision

"Emerge as the premier Indian stock exchange by establishing global

benchmarks"

Bombay Stock Exchange

Bombay Stock Exchange

The Stock Exchange, Mumbai is now BSE Limited a new name, and an entirely new
perspective... a perspective born out of corporatisation and demutualisation. As a corporate
entity, our new logo reflects our new mission... smoother, seamless, and efficient,
whichever way you look at it.
BSE is Asia's oldest stock exchange...carrying the depth of knowledge of capital markets
acquired since its inception in 1875. Located in Mumbai, the financial capital of India,
BSE has been the backbone of the country's capital markets

Heritage

The first ever stock exchange in Asia (established in 1875) and the first in the country to
be granted permanent recognition under the Securities Contract Regulation Act, 1956, BSE
Limited has had an interesting rise to prominence over the past 133 years
While BSE Limited is now synonymous with Dalal Street, it was not always so. The first
venues of the earliest stock broker meetings in the 1850s were in rather natural environs under banyan trees - in front of the Town Hall, where Horniman Circle is now situated. A
decade later, the brokers moved their venue to another set of foliage, this time under

banyan trees at the junction of Meadows Street and what is now called Mahatma Gandhi
Road. As the number of brokers increased, they had to shift from place to place, but they
always overflowed to the streets. At last, in 1874, the brokers found a permanent place,
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Bombay Stock Exchange

Management Team
(As of July 2011)
Sl.
No.

Name

Designation

PJ.
Towers
Floor

Mr. MADHU KANNAN

Managing Director &


Chief Executive Officer

15th

Mr. ASHISH KUMAR


CHAUHAN

Dy. Chief Executive Officer

15th

Mr. KERSI TAVADIA

Chief Information Officer

13th

3
4
5
6
7
8
9

14th

Mr. NEHAL VORA

Chief Regulatory Officer

Dr. SAYEE SRINIVASAN

Head - Product Strategy

28th

Head - Corporate Strategy

28th

Chief Business Officer and


Head of Markets

15th

Chief Financial Officer

25th

CEO - SME Exchange

24th

Mr. JAMES E. SHAPIRO


Mr. RAHUL PARULEKAR
Mr. V.K.R AGRAWAL
Mr. LAKSHMAN

Bombay Stock Exchange

GUGULOTHU
10

Mr. BALASUBRAMANIAM
V.

Head - Business Operations

25th

Income statement of Bombay Stock Exchange for the quarte


ended 30.06.2011

(Rs. in Lakhs)
For The Quarter
Ended 30.06.11
(Unaudited)

For The Year


Ended 31.03.11
(Audited)

INCOME
Operating Income
Other Income
Total Income

13,867.08
686.02
14,553.10

49,766.27
4,038.48
53,804.75

EXPENDITURE
Employee Costs
Computer Technology Related Expenses
Administration and Other Expenses
Depreciation

1,968.34
1,178.50
1,565.14
801.95

7,002.81
5,825.93
6,180.72
3,779.16

Particulars

Bombay Stock Exchange

Total Expenditure
Profit Before Interest, Exceptional Item &
Tax
Interest
Profit before tax
Tax Expenses
Net Profit For The Period
Less: Minority Interest
Add: Share of Profit of Associate (Net)
Profit after tax and share of associate
Paid up Equity Capital (Face Value Per
Share Re. 1 Each)
Reserves (Excluding Revaluation
Reserve)
Basic EPS after Extraordinary Item
(*Not Annualised)
Diluted EPS after Extraordinary Item
(*Not Annualised)

5,513.94

22,788.62

9,039.16

31,016.13

37.24
9,001.92
2,585.53
6,416.39
732.87
5,683.52

75.70
30,940.43
7,766.79
23,173.64
1,967.53
358.38
21,564.49

1,034.08

1,034.08

211,446.73

4.67*

19.05

4.67*

19.05

Notes:
1. The above unaudited financial results for the quarter and period ended June 30,
2011 have been reviewed by the Audit Committee and approved by the Board of
Directors on 24th August, 2011.
2. The Statutory Auditors have carried out a Limited Review of the financial
results.
3. As per the definition of 'business segment' and 'geographical segment',
contained in Accounting Standard-17 "Segment Reporting", the Management is of
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Bombay Stock Exchange

the opinion that the Exchange's operations comprise of two segments viz.
a) Stock Exchange Activity
b) Depository Services

(Rs. in Lakhs)
For the Quater Ended
June 30, 2011

Particulars
I Segment Revenue
(a) Stock Exchange Activity
(b) Depository Activity
Total
Less: Inter Segment Revenue
Total Income

10,684.73
3,237.20
13,921.93
13,921.93

II Segment Results
(a) Stock Exchange Activity
(b) Depository Activity
Total
Add : Unallocated Corporate Income
Less : Unallocated Corporate Expenses
Profit before tax
Tax Expenses
Profit after tax

7,078.99
2,452.52
9,531.51
631.17
1,160.75
9,001.93
2,585.53
6,416.40

III

As at
June 30,2011
189,933.97

Capital Employed

(a) Stock Exchange Activity


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Bombay Stock Exchange

(b) Depository Activity


(c) Unallocated
Total

27,719.63
481.53
218,135.13

4. The Company appropriates income earned (net of taxes) on earmarked funds to


the respective fund balances under Reserves & Surplus. Earnings per share for the
respective periods is computed after adjusting for appropriations in respect of the
earmarked funds.
5. The Company in the current quarter has distributed dividend of Rs. 4/- per
share aggregating Rs. 4,916.11 Lakhs (including Dividend Distribution Tax) as
declared in its Annual General Meeting dated 29th June, 2011.
6. Pursuant to the BSE (Corporatisation & Demutualisation) Scheme, 2005, (the
Scheme) the Company intends to reorganize its operations through a Court
approved Scheme of Arrangement by transferring its Clearing & Settlement
business and related assets and liabilities to Indian Clearing Corporation Limited
effective April 01, 2011.
This proposed reorganization would be subject to receipt of necessary
approvals/registrations from statutory authorities and the approval of the Scheme by
the Court.
7. The group commenced presentation of consolidated financial results from half
year ended September 30, 2010, hence comparative figures for the previous period
are not presented.
For and
on behalf
of Board
of
Directors
of
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Bombay Stock Exchange

Mumbai,
August 24, 2011

BSE
s
LIMITED
Madhu
Kannan
MD &
CEO

Scams

Harshad Shantilal Mehta -- the magician during the rise in the Bombay Stock
Exchange in 1992 -- was also the architect of India's biggest, largest and the
most devastating stock markets scam. TIMES NOW scoops out the Rs 5,000
crore securities scam that created craters in the banks treasury and left
thousands of investors gasping.
Harshad Mehta was an Indian stockbroker and is alleged to have engineered
the rise in the BSE stock exchange in the year 1992. Exploiting several
loopholes in the banking system, Harshad and his associates siphoned off
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Bombay Stock Exchange

funds from inter-bank transactions and bought shares heavily at a premium


across many segments, triggering a rise in the Sensex. When the scheme was
exposed, the banks started demanding the money back, causing the collapse.
He was later charged with 72 criminal offenses and more than 600 civil action
suits were filed against him. He died in 2002 with many litigations still
pending against him.
Harshad Shantilal Mehta was born on 29 July in a Gujarati Jain family of
modest means. His early childhood was spent in Mumbai (Kandivali) where
his father was a small-time businessman. Later, the family moved to Raipur in
Chattisgarh after doctors advised his father to move to a drier place on
account of his indifferent health. He studied in Holy Cross Higher Secondary
School, Byron Bazar, Raipur, but Raipur could not hold back Mehta for long
and he was back in the city after completing his schooling.
Mehta gradually rose to become a stock broker on the Bombay Stock
Exchange and had an expensive lifestyle. He lived in a 15,000 square feet
(1,400 m2) apartment, which had a swimming pool as well as a golf patch. By
1990 Harshad Mehta had risen to prominence in the stock market. He had
been buying shares heavily. The shares which attracted attention were those of
Associated Cement Company (ACC). The price of ACC was bid up to Rs
10,000. For those who asked, Mehta had the replacement cost theory as an
explanation. The theory basically argues that old companies should be valued
on the basis of the amount of money which would be required to create
another such company.
Through the second half of 1991 Mehta had earned the sobriquet of the ?Big
Bull?, who was said to have started the bull run.
On April 23, 1992, journalist Sucheta Dalal in a column in The Times of
India, exposed the dubious ways of Harshad Mehta. The broker was dipping
illegally into the banking system to finance his buying.
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Bombay Stock Exchange

The authors explain: ?The crucial mechanism through which the scam was
effected was the ready forward (RF) deal. The RF is in essence a secured
short-term (typically 15-day) loan from one bank to another. Crudely put, the
bank lends against government securities just as a pawnbroker lends against
jeweller. The borrowing bank actually sells the securities to the lending bank
and buys them back at the end of the period of the loan, typically at a slightly
higher price.
It was this ready forward deal that Harshad Mehta and his cronies used with
great success to channel money from the banking system.
A typical ready forward deal involved two banks brought together by a broker
in lieu of a commission. The broker handles neither the cash nor the securities,
though that wasnt the case in the lead-up to the scam.
?In this settlement process, deliveries of securities and payments were made
through the broker. That is, the seller handed over the securities to the broker,
who passed them to the buyer, while the buyer gave the cheque to the broker,
who then made the payment to the seller.In this settlement process, the buyer
and the seller might not even know whom they had traded with, either being
known only to the broker.
This the brokers could manage primarily because by now they had become
market makers and had started trading on their account. To keep up a
semblance of legality, they pretended to be undertaking the transactions on
behalf of a bank.
Another instrument used in a big way was the bank receipt (BR). In a ready
forward deal, securities were not moved back and forth in actuality. Instead,
the borrower, i.e. the seller of securities, gave the buyer of the securities a BR.
As the authors write, a BR Confirms the sale of securities . It acts as a receipt
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Bombay Stock Exchange

for the money received by the selling bank. Hence the name bank receipt. It
promises to deliver the securities to the buyer. It also states that in the mean
time, the seller holds the securities in trust of the buyer.
Having figured this out, Mehta needed banks, which issue fake BRs, or BRs
not backed by any government securities. Two small and little known banks the Bank of Karad (BOK) and the Metropolitan Co-operative Bank (MCB) came in handy for this purpose. These banks were willing to issue BRs as and
when required, for a fee,? the authors point out.
Once these fake BRs were issued, they were passed on to other banks and the
banks in turn gave money to Mehta, obviously assuming that they were
lending against government securities when this was not really the case. This
money was used to drive up the prices of stocks in the stock market. When
time came to return the money, the shares were sold for a profit and the BR
was retired. The money due to the bank was returned.
The game went on as long as the stock prices kept going up, and no one had a
clue about Mehta?s modus operandi. Once the scam was exposed though, a lot
of banks were left holding BRs which did not have any value - the banking
system had been swindled of a whopping Rs 4,000 crore. When the scam was
finally revealed, the Chairman of the Vijaya Bank committed suicide by
jumping from the office roof because he knew that if people come to know
about his involvement in issuing cheques to Harshad Mehta, people would
accuse him.
Mehta made a brief comeback as a stock market guru, giving tips on his own
website as well as a weekly newspaper column. This time around, he was in
cahoots with owners of a few companies and recommended only those shares.
This game, too, did not last long.Interestingly, by the time he died, Mehta had
been convicted in only one of the many cases filed against him.

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Bombay Stock Exchange

BSE categories
Bombay Stock Exchange or the BSE is the largest stock exchange in India in
terms of highest number of companies listed with the stock exchange. If you
consider the market capitalization of the companies listed with BSE even then
the stock exchange is the largest in the country. There are thousands of
companies listed at the stock exchange and they are divided into different
categories depending on various factors including market capitalization,
parameters set by the Securities and Exchange Board of India or the SEBI,
number of years of listing at the exchange, equity capital of the company,
liquidity of the company and so many other factors.
Market capitalization of the company is a determining factor for dividing the
stocks in different groups. Market capitalization of a company is calculated by
multiplying the number of outstanding stocks of the company at the market
with the current price of the stock at the market. Along with that the bonds at
the debt market of the company are also taken into consideration. Depending
on the market capitalization stocks are divided mainly into three categories
the large cap stocks, mid cap stocks and the small cap stocks. Generally the
biggest companies with a market capital of more than $10 billion are
considered to be large cap stocks. The range for determining the mid cap
stocks is between $ 2 billion to $ 10 billion. Companies that have a market
capitalization of the less than $ 2 billion are grouped under the small cap
stocks.
Securities and Exchange Board of India is the governing body for all the stock
exchanges in India and they frame the rules and regulations for the stock
exchanges. Starting right from the listing of the companies, issuing of
securities, trading of stocks at the stock market, everything is controlled by the
Securities and Exchange Board of India or SEBI. Based on the guideline and
parameters of trading by the SEBI authorities, the stocks listed at the BSE are

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Bombay Stock Exchange

divided. That means there are different trading guidelines and rules for each of
the categories of stocks listed at the Bombay Stock Exchange.
Other factors like the number of years of listing of the company are
considered for determining the authenticity of the company and the business
potential of the company. The equity capital of the company and the asset of
the companies are also considered for examining the financial potential of the
company. When a company applies for listing at the Bombay Stock Exchange
they have to fulfill all the set conditions and then the BSE authority carries out
a due diligence to examine the company. After that depending on the
parameters of the categorization the company is listed at the appropriate
group. Often times listed stocks are rearranged by the BSE. That is the group
or the category of the stocks is changed on the basis of the parameters that are
set for determining the category of the stock. Here we are presenting the
existing groups or categories in which the BSE stocks are divided.
Primarily there are five groups in which the listed stocks are divided and
they are A, B, T, Z, and F.
A
The A group comprises stocks that have fairly good growth rate. These
companies offer dividend to the investors and have good capital appreciation
over the time. The stocks that are listed with A category have the facility to
carry forward to the next settlement cycle. This is an advantage from the
margin and derivative trading point of view.
B
The category B is basically a subset of all the listed stocks and the stocks
listed in this category have greater market capitalization that the rest of the
stocks. The trading of the stocks that are listed in the T category needs to be
settled on the very trading day and the deals can not be carried forward. This
is done by BSE to restrict any unwanted movement in these scripts.
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Z
The stocks in the Z group are marked for not complying with the rules and
regulations of the stock exchange and these stocks are often suspended from
trading.
F
The F group is reserved for the stocks listed at the debt market.

Need for Bombay Stock Exchange

BSE is one of the factors Indian Economy depends upon. BSE has played
a major role in the development of the country. Through BSE, Foreign
Investors have invested in India. Due to inward flow of foreign currency
the, the Indian economy have started showing the upward trend
towards the development of the country.
BSE provides employment for many people. Trading in BSE is also a
business for a few, their family income depends on it, that is the reason
why when scandals occur in the stock market it not only affects the
companies listed but also affects many families. In the few extreme
cases, it is observed that the bread winner of a family tends to suicide
due to the losses occurred.
In most of major industrial cities all over the world, where the
businesses were evolving and required investment capital to grow and
thrive, stock exchanges acted as the interface between Suppliers and
Consumers of capital. One of the key advantages of the stock
exchanges is that they are efficient medium for raising resources and
channeling savings from the general public by the way of issue of Equity
Debt Capital by joint stock companies which are listed on stock
exchanges.
Not to forget that the taxes and other statutory charges paid by BSE are
substantial and make a sizeable contribution to the Government
exchequer (Financial resources; funds). For example, transactions on
the stock exchanges are subject to stamp duties, which is paid to the
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Bombay Stock Exchange

State Government. The annual revenue from this source ranges from Rs
75 100 crores
With the opening up of the financial markets to Foreign Investors a
number of foreign institutional investors and brokers have established a
sizeable presence in Mumbai.
With no doubt we can clearly state without BSE, the Indian Economy
would have been a complete different story. Various companies wouldnt
have been a strong and successful as they are today and the brokers
and traders would have been elsewhere.
BSE is an asset to our country and its existence plays a vital role in
many peoples life who depends on it. Indeed, BSE has made a major
contribution to the industrial and economic development of India.

Function of Bombay Stock Exchange

The Stock Market is a pivotal institution in the financial system. A


well-ordered stock market performs several economic functions:
It ensures the measure of safety and fair dealing
It performs an act of magic by translating short-term
investments into long-term funds for companies.
It directs the flow of capital in the most profitable
channels.
It induces companies to raise their standard of
performance.
It offers guidance to management about the cost of captal

Measure of Safety and Fair Dealing:


The Bombay stock exchanges operate under a regulatory framework which
seeks to protect the interest of investors. The rules, regulations,
and bye-laws of a stock exchange, which are approved by the
central government, are meant to ensure that a reasonable
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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 investments. The
requirements of companies are, however, long-term in nature they
require equity capital on a more or less permanent basis and
debenture capital for 3 to15 years. Thanks to the negotiability and
transferability of securities, through the Bombay stock exchange, it is possible
for companies to obtain their long-term requirements from
investors with short-term horizons. While one investor is
substituted by another when a security is transacted, the company
is assured of availability of funds.

Flow of Capital in the Most Profitable Channels:


Companies which have more profitable investment opportunities are
normally able to raise substantial funds through the stock market, whereas
companies which do not have such opportunities are
normally not able to do so. As a result, the Bombay stock exchange facilitates
the direction of the flow of capital in the most profitable channels.

Inducement to Companies to Raise their Standard of


Performance:
When the equity capital of a company is listed on a stock
exchange, the performance of the company is reflected in the
market price of the equity stock, which is readily available for public
consumption. Put differently, the companys performance is more
visible in the eyes of public. Such a public exposure normally
induces companies to raise their standard of performance.

Guidance of Cost of Capital:

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Bombay Stock Exchange

The market value of the securities of company are required for


computing its cost of capital. Such values can be obtained from
stock market quotations. Hence the Bombay stock exchange offers guidance
on cost of capital.

LISTING OF THE COMPANIES ON STOCK


EXCHANGE
Public Limited Company.
Public Listed Company
Public Non-listed Company
Listed Company means a public ltd Co which is:
1. Listed on any one or more recognized stock exchanges in India.
2. Securities (shares: debentures) of such company are traded on
such stock exchanges.
Unlisted company therefore means a company whose securities
are not listed on any of recognized stock exchanges in India.
Why Companies get Listed with Stock Exchange?
Companies get listed with Stock Exchange for following reasons:
1.
2.
3.
4.
5.
6.
7.

Securities are freely transferable.


Easy liquidity of securities.
Easy availability of prices of securities.
Reputation, Image, Goodwill.
Public awareness.
More transparency.
Helps in obtaining loans from Banks/Institutions.
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Bombay Stock Exchange

8. Helps in marketing its Products.


In order to list securities of a company & get its shares traded on
any recognized stock exchanges, the Public Ltd Company may
either come out with a public issue (i.e. to offer further securities
to public) or make an offer for sale of existing securities to
public. This can be done by issuing of Prospectus & Complying
with all The Provinces of Company Act 1956.
Each stock exchange has its own criteria for listing securities
which should also be met.
E.g.: If company intends to get listed its securities in Bombay
Stock Exchange, Mumbai post issue capital (paid up capital after
proposed public issue) of such companies should be Rs. 10
Crores atleast.
The Company enters into a listing agreement with concerned
stock exchange & on receipt of permission from concerned Stock
Exchange, company is listed and securities are thereafter traded
on such stock exchange.

Dematerialisation
Dematerialisation is the process of converting the physical form of shares into
electronic form. Prior to dematerialisation the Indian stock markets have faced
several problems like delay in the transfer of certificates, forgery of
certificates etc. Dematerialisation helps to overcome these problems as well as
reduces the transaction time as compared to the physical segment. The article
discusses the procedures, advantages and problems of dematerialisation.
The Indian Stock markets have seen a major change with the introduction of
depository system and scrip less trading mechanism. There were various
problems like inordinate delays in the transfer of share certificates, delay in
receipt of securities and inadequate infrastructure in banking and postal
segments to handle a large volume of application and storage of share
certificates .To overcome these problems physical dealing in securities should
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be eliminated . The Indian stock market introduced the system of


dematerialisation recognizing the need for scrip less trading.
According to the Depositories Act, 1996, an investor has the option to hold
shares either in physical or electronic form .The process of converting the
physical form of shares into electronic form is called dematerialisation or in
short demats. The converted electronic data is stored with the depository from
where they can be traded. It is similar to a bank where an investor opens an
account with any of the depository participants. Depository participant is a
representative of the depository .The DP maintains the investors securities
account balances and intimates him about the status of holdings.

Procedure for converting the physical shares into electronic form.


To convert the shares into electronic form the investor should open an account
with any of the depository participants. For opening an account the investor
has to fill up the account opening form. An account number (client ID) will be
allotted after signing the agreement which defines the rights and duties of the
DP and the investor wishing to open the account. The client ID along with the
DP ID gives a unique identification in the depository system. Any number of
depository accounts can be opened.
After opening an account with the DP the investor should surrender the
physical certificates held in his name to a depository participant. These
certificates will be sent to the respective companies where they will be
cancelled after dematerialization and will credit the investors account with the
DP. The securities on dematerialisation will appear as balances in the
depository account. These balances can be transferred like the shares held in
physical form. Dematerialised shares are in the fungible form and do not have
any distinctive or certificate numbers .The securities in the demat can again be
converted into physical form which is called as rematerialisation.

Safety to the investor


* Securities Exchange Board of India (SEBI) has laid down certain rules and
regulations for getting registered as a depository participant. With the
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Bombay Stock Exchange

recommendation of the Depository and SEBI's own independent evaluation a


DP will be registered under SEBI.
* The investors account will be credited/debited by the DP only on the basis
of valid instruction from the client.
* The system driven mandatory reconciliation is done between the DP and
NSDL.
* Periodic inspections of both DP and R&T agent are conducted by NSDL
* The data interchange between NSDL and its business partners is protected
by standard protection measures such as encryption.
* No direct communication links exist between two business partners and all
communications are routed through NSDL.
* A statement of account is received periodically by the investors. NSDL
sends statement of account to a random sample of investors a s a counter
check.
* The investor has the right to approach NSDL if the grievances of the
investors are not resolved by the concerned DP.

Advantages of dematerialisation
* There is no risk due to loss on account of fire, theft or mutilation.
* There is no chance of bad delivery at the time of selling shares as there is no
signature mismatch.
* Transaction costs are usually lower than that in the physical segment.
* The bonus /rights shares allotted to the investor will be immediately credited
into his account.
* Share transactions like sale or purchase and transfer/transmission etc. can be
24

Bombay Stock Exchange

effected in a much simpler and faster way.

Problems of Dematerialisation.
Prior to dematerialization there was almost a gap of three months between
application date and listing of shares .Dematerialisation has reduced this gap
to a great extent. But quick money brings with itself a host of problems.
Current regulations prohibit multiple bids or applications by a single
person.But the investors open multiple demat accounts and make multiple
applications to subscribe to IPO's in the hope of getting allotment.
The recent IPO allotment scam proves that even a highly automated system is
not the solution to prevent malpractices, if there is laxity. The scam of Yes
bank and IDFC reveal that the investor banker has failed to weed out multiple
applications either direct or benami. Not only the investor banker the DP and
the depository failed to detect the large number of demat accounts opened
with the same address but different names. Lack of coordination between
banks, DP's, brokers depositories, registrars and investment bankers and
clarity of their roles has given rise to such problems.

Remedial measures
* To prevent the sprouting of fictitious demat accounts at DP's the allotment
of shares should be checked thoroughly.
* The concerned DP should strictly enforce the Know your client (KYC)
norms rather than relying on bank documents and verification of brokers.
* DP's should be asked to give monthly figure of accounts opened for the
public.
* Coordination and Clear definition of roles is important to weed out
manipulations.
Though dematerialisation has several benefits the recent scam has the
potential to adversely affect the confidence of retail investors in the capital

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market .To reap the benefits of dematerialisation SEBI, as a regulator has to


place a system that is alert and vigilant against unjust gains.

TRADING & SETTLEMENT


Demat Account is a compulsory Account for traders who want to
trade in stock market. This account is mainly used for buying and
selling of shares.
Trading
Each Stock Exchange has listed and permitted securities that are
traded on it. There are two ways of organizing the trading activity.

1. Open Outcry System


Under the open outcry system traders shout and resort to signals
on the trading floor of the exchange which consists of several
notional trading posts for different securities. A member (or his
representative) wishing to buy or sell a certain security, reaches the
trading post where the security is traded. Here, he comes in contact
with others interested in transacting in that security. Buyers make
their bid and sellers make their offers and bargains are closed at
mutually agreed-upon prices. In stock where jobbing is done, the
jobber plays an important role. He stands ready to buy or sell on
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his account. He quotes his bid (buying) and ask (selling) prices. He
provides some stability and continuity to the market.

2. Screen Based System


In the screen-based system the trading ring is replaced by the
computer screen and distant participants can trade with each other
through the computer network. A large screen based trading
system (a) enhances the informational efficiency of the market as
more participants trade at a faster speed; (b) permits the market
participants to get a full view of the market, which increases their
confidence in the market; and (c) establishes transparent audit
trails.

Settlement:
The settlement of transactions is done on a settlement period basis.
Earlier, the settlement period on the Indian Stock Exchanges was 7
days, but now it is T+1 settlement. T+1 includes the day of trade
and an additional day. During a settlement period, buying and
selling transactions in a particular security can be squared up.
Square off is a same day settlement cycle. At the end of settlement
period, transactions are settled on net basis. Since the settlement
period used to be 7 days and the settlement is for the net position,
most of the transactions are squared within the settlement period.
Clearly these transactions are motivated by a desire to profit from
price variations within the settlement period.
Traditionally, trades have been settled by physical delivery. This
means that the securities have to physically move from the seller to
the sellers broker, from the sellers broker to the buyers broker
(through the clearing house of the exchange or directly), and from
the buyers broker to the buyer. Further the buyer has to lodge the
securities with the transfer agents of the company and the process
of the transfer may take one to three months. This leads to high
paperwork cost and creates bad paper risks.
To mitigate the cost and the risks associated with the physical
delivery, settlement in the developed securities market is mainly
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through electronic delivery facilitated by depositories. A depository


is an institution which immobilizes physical certificates (of
securities) and effect transfers of ownership by electronic book
entry. A beginning in the direction of electronic delivery has been
made in India with the establishment of the National Securities
Depository Limited (NSDL), Indias first depository, in 1996. As
NSDL expands its operations and as new depositories come into
being, settlement will progressively be done more by electronic
delivery and less by physical delivery.

INVESTMENT
Investment means the use of money for the purpose of making
more money, to gain income or increase capital, or both.
Short Term Investment
Long Term Investment

1. Short Term Investment:


It is more risky
A successful short term trading mindset instead requires iron
discipline, intense focus and steely devotion.
Short term trading can be divided in 3 sections
Day Trading
Swing Trading
Position Trading
Day Trading
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Day traders buy and sell stocks throughout the day in the hope that
the price of the stocks will fluctuate in value during the day,
allowing them to earn quick profits. A day trader will hold a stock
anywhere from a few seconds to few hours, but will always sell all
of those stocks close of the day. The day trader will therefore not
own any position at the close of the each day, and there is
overnight risk. The objective of day trading is to quickly get in and
out of any particular stock for profits anywhere from few cents to
several points per share on an intra-day basis. Day trading can be
further sub-divided into number of styles, including.
Scalpers: This style of day trading involves the rapid and repeated
buying and selling of a large volume of stocks within seconds or
minutes. The objective is to earn a small per share profit on each
transaction while minimizing the risk.
Scalpers: This style of day trading involves the rapid and repeated
buying and selling of a large volume of stocks within seconds or
minutes. The objective is to earn a small per share profit on each
transaction while minimizing the risk.
Momentum Traders: This style of day trading involves identifying and
trading stocks that are in a moving pattern during the day, in an
attempt to buy stocks at bottoms and sell at tops.

Swing Trading
The principal difference between day trading and swing trading is that
swing traders will normally have a slightly longer time horizon than day
traders for holding a position in a stock. As is the case with day traders,
swing traders also attempt to predict the short term fluctuation in a
stocks price. However swing traders are willing to hold the stocks for
more than one day, if necessary, to give to stock price some time to
move or to capture additional momentum in the stocks price. Swing
traders will generally hold on to their stock positions anywhere from a
few hours to several days.
Swing trading has the capability of providing higher returns than day
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trading. However, unlike day traders who liquidate their positions at the
end of each day, swing traders assume overnight risk. There are some
significant risks in carrying positions overnight. For example news
events and earnings warnings announced after the closing bell can
result in large, unexpected and possibly adverse changes to a stock's
price

Position Trading
Position trading is similar to swing trading, but with a longer time
horizon. Position traders hold stocks for a time period anywhere from
one day to several weeks or months. These traders seek to identify
stocks where the technical trends suggest a possible large movement in
price is likely to occur, but which may not be fully played out for several
weeks or months.

2.Long Term Investment:


A successful long term trading mindset requires, above all, patience and
perseverance. These are more difficult attributes to develop in the
average trader. Too often the average short-term trader succumbs to
the markets lure and develops a frantic, get-it-now mindset believing
every price blip represents a trading opportunity. As this attitude is
fanned by the media and brokerage industry, more and more long term
traders have become aggressive swing traders and swing traders
become rabid day traders - more often than not with disastrous
consequences.
Long term trading results in less trades with fewer mistakes and lower
commission and slippage costs because overtrading is one of the biggest
sources of losses facing both new and established traders. Why is this
so? Obviously, more trades mean more commissions and more slippage.
Few short-term traders realize, however, that their total commission
and slippage costs in any year often exceed their total losses for the
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year. In other words, many losing short-term traders would have


actually made money on an annual basis had they not incurred the
exorbitant commission and slippage costs of trading throughout the
year. Fewer trades mean fewer mistakes.
Long term trading unlike short term requires dramatically reduced time
for analysis and trading. If you are trading using weekly data, only one
to two hours each weekend are required to implement a sophisticated
long term trading system for 21 or more commodities. This includes the
time to completely download your quotes and update your data files,
verify which are the correct months to trade for each commodity, figure
out if you have any positions to rollover, generate your trading signals,
and write down orders to your broker. On the contrary a typical
successful day trader literally becomes a slave to their quote machines
during market hours.
Factors Affecting Bombay Stock Exchange
There are various factors that affects BSE:
1)Scams like the following one:THE KETAN PAREKH SCAM
Ketan Parekh was a graduate from HR College and CA by profession.
Ketan Parekhs scam was often referred to as the one-man army or
Pentafour Bull. The 176-point Sensex crash on March 1, 2001 came as a
major shock for the Government of India, the stock markets and the
investors alike
This sudden crash in the stock markets prompted the Securities
Exchange Board of India (SEBI) to launch immediate investigations into
the volatility of stock markets.
The scam shook the investor's confidence in the overall functioning of
the stock markets. By the end of March 2001, at least eight people were
reported to have committed suicide and hundreds of investors were
driven to the brink of bankruptcy.
The first arrest in the scam was of the noted bull, Ketan Parekh (KP), on
March 30, 2001, by the Central Bureau of Investigation (CBI). Soon,
reports abounded as to how KP had single handedly caused one of the
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biggest scams in the history of Indian financial markets. He was charged


with defrauding Bank of India (BoI) of about $30 million among other
charges.
KP's arrest was followed by yet another panic run on the bourses and
the Sensex fell by 147 points. By this time, the scam had become the
'talk of the nation,' with intensive media coverage and unprecedented
public outcry.
Bank of India along with Punjab National Bank and SBI were at the
receiving end. Madhavapura Bank and Classic Cooperative Bank are the
others affected. Ketan Parekh owes around Rs1.3bn to the Bank of India
KPs scam was one of the major scam in India after Harshad Mehta
which lost the confidence of investors in investing in share market. KPs
scam is also regarded as one man army scam.
(b) FOREIGN INSTITUTIONAL INVESTORS (FII)
Foreign investment refers to investments made by residents of a
country in another countrys financial assets and production
processes. After the opening up of the borders for capital
movement, foreign investments in India have grown enormously. It
affects the productivity factor of the beneficiary or the receiver
country and has the potential to create a ripple effect on the
balance of payments of that country. In developing countries like
India, foreign capital helps in increasing the productivity of labor
and to build up foreign exchange reserves to meet the current
account deficit. It provides a channel through which these countries
can have access to foreign capital.
Foreign investment can be of two forms: Foreign direct investment
(FDI) and Foreign portfolio investment (FPI).FDI involves direct
production activity and has a medium to long term investment
plans. In contrast the FPI has a short term investment horizon.
They mostly investment in the financial markets which consist of
Foreign Institutional Investors (FIIs). They invest in domestic
financial markets like money market, stock market, foreign
exchange market etc.
According to Michael Frenkel and Lukas Menkhoff, FIIs are
beneficial for an economy under specific institutional conditions. It
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is defining characteristic of an emerging market that these


conditions are often not met.
Foreign institutional investors investments are volatile in nature,
and they mostly invest in the emerging markets. They usually keep
in mind the potential of a particular market to grow.
FII has lead a significant improvement in India relating to the flow
of foreign capital during the period of post economic reforms. The
inflow of FII investments has helped the stock market to raise at a
greater height according to financial analysts. Sensex touched a
new height. It crossed 10000-mark in January 2006, which was
8073 on November 2, 2005, and 9323 in December 2005
FII participation in the Indian stock market triggers its upward
movement, but, at the same time, increased liquidity through FII
investment inflow increases volatility too.
FIIs IMPACT ON THE INDIAN ECONOMY.
The Ashok Lahiri Committee Report on encouraging FII Flows (Ministry
of Finance, the Government of India) mentions some reasons for the
need of FII flows. FII flows supplement and augment domestic savings
and domestic investment without increasing the foreign debt of our
country. Capital inflows to the equity market increase stock prices lower
the cost of equity capital and encourage investment by Indian firms.
The Indian stock markets are both shallow and narrow and the
movement of stocks depends on limited number of stocks. As FIIs
purchases and sells these stocks there is a high degree of volatility in
the stock markets. If any set of development encourages outflow of
capital that will increase the vulnerability of the situation. The high
degree of volatility can be attributed to the following reasons
The increase in investment by FIIs increases stock indices in
turn increases the stock prices and encourages further
investments. In this event when any correction takes place the
stock prices declines and there will be full out by the FIIs in
large number as earning per share declines.
The FIIs manipulate the situation of boom in such a manner
that they wait till the index raises up to a certain height and
exit at an appropriate time. This tendency increases the
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volatility further.
So even though the portfolio investment by FIIs increases the flow of
money in the economic system, it may create problems of inflation
TRANSFORMATION OF THE STOCK
EXCHANGE, MUMBAI TO BSE LTD.
The change in the name of Asia's oldest stock exchange, from the Stock
Exchange, Mumbai to the Bombay Stock Exchange Ltd., (BSE Ltd.) is of
more than cosmetic significance. Along with the change in name comes
a new perspective, one brought about by a comprehensive change in its
ownership and management. Until now, the BSE like most other
exchanges in India was owned and managed by brokers, who also had
the sole right to trade in the exchanges. Conflicts of interest were bound
to arise in such situations. Until the advent of the National Stock
Exchange in 1994, the BSE was India's pre-eminent exchange,
accounting for an overwhelmingly large proportion of the share market
transactions of the country. Companies wherever located were advised
to seek a listing of their shares on the BSE so that they could have
access to its large reservoir of capital and investor base. Legally
speaking, it was enough if they listed their shares on any one of the
regional stock exchanges, closest to their registered office. This last
rule, like so many others connected with the securities market, had to
be discarded in the wake of the sweeping changes in the financial
markets since the 1990s. Perceptions of both investors and regulators
changed dramatically forcing the stock exchanges to overhaul
themselves.
A series of securities scams through the 1990s in which brokers were
invariably held accountable, the inability of the broker-dominated
exchanges to check malfeasance, and a vastly expanding role for the
capital market in the national economy necessitated a thorough review
of the age-old stock market structure. In the new demutualised and
corporatised exchanges that came about as part of a major capital
market reform a time-bound program for 10 other exchanges has since
been announced the right to trade is segregated from the right to
own and manage the exchange. The transition is not going to be easy as
it involves the imparting of a much greater degree of professionalism.
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Stock market professionals from outside the broking community are


reportedly in short supply. By far the biggest unknown factor relates to
the future ownership of the exchange. Brokers will cede control and
investors including retail ones will hold a substantial portion of the
exchange's equity. Apart from this being totally new to India, it does
raise the possibility of other conflicts of interest including the one
connected with the listing of its own shares.

CONCLUSION
With the increasing Globalization, the Stock Exchanges have
tremendously affected the financial conditions of India.
The stock markets of the future will have a redefined pupose and
reinvented architecture due to the advent and widespread use of
technology. Information and stock price quotations are available
almost instantaneously, and, more importantly, investors can act on
this data by executing a trade from anywhere at anytime. This new
market will bring benefits to investors, the listed companies, and
the economies of the company. Trading will become cheaper, faster
and settlement will be simpler wit reduced risk. Raising capital for
companies will become easier, thereby contributing directly to the
Economic Growth.
Already, BSE has shown its proactive response by increasingly
using leading edge to technologies to effectively compete in the
global environment. In the not too distant future, once full capital
account convertibility is permitted in India, one could well witness
an expansion of trading volumes and its resultant economic benefits
to the thriving and ever young metropolis of Mumbai.
Inspite of all these positive predictions, the future of Stock
Exchanges is likely to be uncertain and even their survival is a
major question mark.
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